<PAGE>
'33 Act File No. 33-61488
'40 Act File No. 811-7536
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
------
Post-Effective Amendment No. 2 [X]
------
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [X]
AMENDMENT No. 12
------
(Check appropriate box or boxes)
PAINEWEBBER LIFE VARIABLE ANNUITY ACCOUNT
-----------------------------------------
(Exact Name of Registrant)
PaineWebber Life Insurance Company
----------------------------------
(Name of Depositor)
1200 Harbor Boulevard
Weehawken, New Jersey 07087
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (201) 902-3301
--------------
Dennis J. Hess
PaineWebber Incorporated
1200 Harbor Boulevard, 4th Floor
Weehawken, New Jersey 07087
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
- ----- immediately upon filing pursuant to paragraph (b) of Rule 485
X
- ----- on May 1, 1995 pursuant to paragraph (b) of Rule 485
- ----- 60 days after filing pursuant to paragraph (a)(i) of Rule 485
- ----- on (date) pursuant to paragraph (a)(i) of Rule 485
- ----- 75 days after filing pursuant to paragraph (a)(ii) of Rule 485
- ----- on (date) purusant to paragraph (a)(ii) of Rule 485
If appropriate, check the following:
- ----- This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Company has elected pursuant to Rule 24f-2 under the Investment Company Act
of 1940 to register an indefinite number of securities. The most recent Rule
24f-2 Notice was filed on January 24, 1995.
<PAGE>
PAINEWEBBER LIFE VARIABLE ANNUITY ACCOUNT
Cross Reference Sheet
Item Number in Form N-4 Caption
- ----------------------- -------
Part A - Prospectus
-------------------
1. Cover Page..................................... Cover Page
2. Definitions.................................... Definitions
3. Synopsis....................................... Summary
4. Condensed Financial
Information.................................... Not Applicable
5. General Description of Registrant,............. The Insurance Company;
Depositor and Portfolio Companies The Separate Account; The
Fund; Additional
Information about
PaineWebber Life
6. Deductions..................................... Contract Charges and
Deductions
7. General Description of Variable................ The Contract; Variable
Annuity Contracts Account Accumulation
Provisions; Death
Benefit; Exercise of
Rights under the
Contract; Variable and
Fixed Annuity
Provisions; General
Annuity Options;
Additional Variable
Annuity Provisions;
Miscellaneous Provisions
8. Annuity Period................................. Variable and Fixed
Annuity Provisions;
General Annuity Options;
Additional Variable
Annuity Provisions
9. Death Benefit.................................. Death Benefit
10. Purchases and Contract Value................... The Contract; Variable
Account; Accumulation
Provisions; How to
Purchase a Contract
11. Redemptions.................................... Withdrawals
12. Taxes.......................................... Federal Income Tax Status
13. Legal Proceedings.............................. Legal Proceedings
14. Table of Contents of the Statement............. Table of Contents
Additional Information (Statement of Additional
Information)
i
<PAGE>
Part B - Statement of Additional Information
--------------------------------------------
Certain information required in Part B of the Registration Statement has been
included within the Prospectus forming part of this Registration Statement; the
following cross-references suffixed with ("P") are made by reference to the
captions in the Prospectus:
Item Number in Form N-4 Caption
- ----------------------- -------
15. Cover Page..................................... Cover Page
16. Table of Contents.............................. Table of Contents
17. General Information and History................ PaineWebber Life
Insurance Company, The
Separate Account, The
Fund
18. Services....................................... Purchase Payments,
Reports To
Contractowners,
Administrative Services
19. Purchase of Securities Being Offered........... Purchase Payments
20. Underwriters................................... Purchase Payments
21. Calculation of Performance Data................ Fund Performance
22. Annuity Payments............................... Annuity Payments
23. Financial Statements........................... Financial Statements.
Part C
------
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
ii
<PAGE>
MILESTONES
ISSUED BY
PAINEWEBBER LIFE INSURANCE COMPANY
ADMINISTRATIVE OFFICE: EXECUTIVE OFFICE:
601 6TH AVENUE 1200 HARBOR BOULEVARD
DES MOINES, IOWA 50309 WEEHAWKEN, NEW JERSEY 07087
IN CONNECTION WITH
PAINEWEBBER LIFE VARIABLE ANNUITY ACCOUNT
INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACT
(WITHOUT EARLY WITHDRAWAL CHARGE)
The Individual Deferred Variable Annuity Contract (the "Contract") described in
this prospectus is designed to provide retirement programs for individual
purchasers on a variable payment basis. The Contract may also be used to
provide annuity benefits to individual participants in connection with
retirement plans which qualify for special tax treatment under the Internal
Revenue Code ("Code"). Purchase Payments under the Contract are allocated to
the PaineWebber Life Variable Annuity Account (the "Separate Account"), a
segregated investment account of PaineWebber Life Insurance Company
("PaineWebber Life"). The Separate Account will invest in shares of PaineWebber
Series Trust, an open-end, management investment company registered under the
Investment Company Act of 1940 ("1940 Act"). The PaineWebber Series Trust
currently has ten Portfolios, each having its own investment objective and
policies.
PaineWebber Life has filed a registration statement (the "Registration
Statement") with the Securities and Exchange Commission ("Commission") under
the Securities Act of 1933, as amended, relating to the Contract offered by
this prospectus. This prospectus has been filed as a part of the Registration
Statement and does not contain all of the information set forth in the
Registration Statement and exhibits thereto, and reference is hereby made to
such Registration Statement and exhibits for further information relating to
PaineWebber Life, the Separate Account, and the Contract. The Registration
Statement and the exhibits thereto may be inspected and copied; and copies can
be obtained at the public reference facilities of the Commission at Room 1024,
450 Fifth Street, N.W., Washington, D.C., 20549 at prescribed rates.
This prospectus and the prospectus for PaineWebber Series Trust set forth
information that a prospective investor should know before investing. A
Statement of Additional Information about the Separate Account dated May 1,
1995, has been filed with the Securities and Exchange Commission and is
incorporated herein by reference and is available without charge upon written
request to PaineWebber Life. The table of contents of the Statement of
Additional Information is contained at page 26 of this prospectus.
-------------------------------------
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS OF
PAINEWEBBER SERIES TRUST. BOTH PROSPECTUSES SHOULD BE READ CAREFULLY AND
RETAINED FOR FUTURE REFERENCE.
-------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
-------------------------------------
Prospectus dated May 1, 1995
PWD 1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
TOPIC PAGE
<S> <C>
DEFINITIONS................................................................ 3
SUMMARY.................................................................... 4
FEE TABLE AND EXAMPLE...................................................... 6
FINANCIAL INFORMATION...................................................... 8
CONDENSED FINANCIAL INFORMATION............................................ 8
SEPARATE ACCOUNT PERFORMANCE............................................... 9
THE INSURANCE COMPANY...................................................... 9
THE SEPARATE ACCOUNT....................................................... 9
CONTRACT CHARGES AND DEDUCTIONS............................................ 10
Withdrawal Transaction Charge............................................ 10
Transfer Charges......................................................... 10
Contract Maintenance Charge.............................................. 11
Premium and Other Taxes.................................................. 11
Mortality Risk Charge.................................................... 11
Enhanced Death Benefit Charge............................................ 11
Expense Risk Charge...................................................... 11
Distribution Expense Charge.............................................. 12
THE FUND................................................................... 12
Money Market Portfolio................................................... 13
Government Portfolio..................................................... 13
Fixed Income Portfolio................................................... 13
Global Income Portfolio.................................................. 13
Balanced Portfolio....................................................... 13
Asset Allocation Portfolio............................................... 13
Dividend Growth Portfolio................................................ 14
Growth Portfolio......................................................... 14
Aggressive Growth Portfolio.............................................. 14
Global Growth Portfolio.................................................. 14
THE CONTRACT............................................................... 14
Purchase Payments........................................................ 14
Dollar Cost Averaging.................................................... 15
Asset Allocation Program................................................. 15
Systematic Purchase Program.............................................. 16
VARIABLE ACCOUNT ACCUMULATION PROVISIONS................................... 16
Accumulation Units....................................................... 16
Value of an Accumulation Unit............................................ 16
Net Investment Factor.................................................... 16
DEATH BENEFIT.............................................................. 17
Before the Annuity Date.................................................. 17
After the Annuity Date................................................... 18
EXERCISE OF RIGHTS UNDER THE CONTRACT...................................... 18
Beneficiary.............................................................. 18
</TABLE>
<TABLE>
<CAPTION>
TOPIC PAGE
<S> <C>
Annuitant................................................................ 18
Ownership................................................................ 18
Collateral Assignment.................................................... 18
Transfers................................................................ 19
Withdrawals.............................................................. 19
Systematic Withdrawal Program............................................ 20
Substitution and Change.................................................. 21
ANNUITY PROVISIONS......................................................... 21
Minimum Annuity Payments................................................. 21
Annuity Date............................................................. 21
Proof of Age, Sex and Survival........................................... 21
Misstatement of Age or Sex............................................... 21
Change of Annuity Date or Annuity Option................................. 21
GENERAL ANNUITY OPTIONS.................................................... 21
Option 1-Payments for a Guaranteed Fixed Period.......................... 22
Option 2-Life Annuity.................................................... 22
Option 3-Life Annuity With Payments Guaranteed for 10 or 20 Years........ 22
Option 4-Joint and Survivor Annuity...................................... 22
ADDITIONAL VARIABLE ANNUITY PROVISIONS..................................... 22
First Variable Annuity Payment........................................... 22
Assumed Investment Rate.................................................. 22
Number of Annuity Units.................................................. 22
Value of Each Annuity Unit............................................... 22
Subsequent Variable Annuity Payments..................................... 23
MISCELLANEOUS PROVISIONS................................................... 23
Notices, Changes and Elections........................................... 23
Amendment of Contract.................................................... 23
Right to Examine......................................................... 23
Retirement Plan Conditions............................................... 23
Reports to Contract Owners............................................... 23
FEDERAL INCOME TAX STATUS.................................................. 24
HOW TO PURCHASE A CONTRACT................................................. 24
VOTING RIGHTS.............................................................. 25
TABLE OF CONTENTS (STATEMENT OF ADDITIONAL INFORMATION).................... 26
</TABLE>
PWD 2
<PAGE>
DEFINITIONS
Accumulation Unit: A measuring unit used to determine the value of a Contract
Owner's interest in a Division of the Separate Account prior to the Annuity
Date.
Allocation Options: Each of the Divisions of the Separate Account.
Annuitant: The person on whose life Annuity payments under a Contract may be
based.
Annuity: A series of income payments made to a Contract Owner for a defined
period of time.
Annuity Date: The date on which the initial Annuity payment is determined or a
settlement option is effective. It must be the first day of a month.
Annuity Unit: A measuring unit used to compute the Variable Annuity payments
from a Division of the Separate Account.
Contract: The variable annuity contract described in this prospectus issued by
PaineWebber Life.
Contract Value: The sum of a Contract Owner's values in the Divisions.
Division: The Separate Account currently consists of ten Divisions. Each
Division is invested in a specific Portfolio of PaineWebber Series Trust.
Fixed Annuity: A series of periodic guaranteed level payments. Such payments
are not based upon the investment experience of the Separate Account.
Fund: PaineWebber Series Trust.
Net Contract Value: The Contract Value less all applicable contract maintenance
charges and premium taxes due.
Net Purchase Payment: The Purchase Payment less any applicable premium taxes
that may be deducted.
PaineWebber Life: PaineWebber Life Insurance Company.
Purchase Payments: The money paid by or on behalf of a Contract Owner under a
Contract.
Qualified Plan: An employee or individual retirement plan or annuity qualified
for favorable tax treatment under the Internal Revenue Code.
Separate Account: PaineWebber Life Variable Annuity Account, a segregated
investment account established by PaineWebber Life to receive and invest
amounts allocated to provide variable accumulations and/or variable annuity
benefits under the Contract.
Valuation Day: Each day the New York Stock Exchange is open for trading and
valuations have not been suspended by the Securities and Exchange Commission.
Valuation Period: The interval from one Valuation Day to the following
Valuation Day.
Variable Annuity: A series of periodic payments which vary in amount according
to the investment experience of one or more Division(s) of the Separate
Account.
PWD 3
<PAGE>
SUMMARY
This prospectus contains information about the Contract, which provides fixed
benefits, variable benefits or a combination of both. It describes the uses and
objectives of the Contract, the costs of Contracts, and the rights and
privileges of Contract Owners. It also contains information about PaineWebber
Life, the Separate Account and its Divisions, and the Portfolios of the Fund in
which the Divisions invest. We urge you to read it carefully and retain it for
future reference.
The Contract has appropriate provisions relating to variable accumulation
values and variable and fixed annuity payments. On and after the Annuity Date,
annuity payments will be made to a designated payee, generally for the life of
an Annuitant. (Normally, the Contract Owner is both the payee and the
Annuitant.) PaineWebber Life assumes mortality and expense risks under the
Contract, for which it receives certain specified compensation.
Except to the extent limited by a retirement plan pursuant to which a Contract
is issued, the Contract Owner is entitled to exercise all rights of ownership
under the Contract. Net Purchase Payments for a Contract may be allocated to
one or more Divisions of the Separate Account. The Separate Account invests in
shares of the Fund.
The most significant difference between a Variable Annuity and a Fixed Annuity
is that under a Variable Annuity, all investment risk after the Annuity Date is
assumed by the Contract Owner or other payee; the amounts of the annuity
payments vary with the investment performance of the Divisions of the Separate
Account selected by the Contract Owner. Under a Fixed Annuity, in contrast, the
investment risk after the Annuity Date is assumed by PaineWebber Life and the
amounts of the annuity payments do not vary. Similarly, except to the extent
provided in the Enhanced Death Benefit, the Contract Owner bears all the
investment risk for Net Purchase Payments allocated to the Separate Account
prior to the Annuity Date.
Except as explained below, Net Contract Value may be withdrawn at any time
prior to the Annuity Date. Unless restricted by the Internal Revenue Code
("Code") or the particular retirement plan pursuant to which the Contract is
issued, the Net Contract Value may be withdrawn free of any withdrawal charge.
For purposes of determining federal income tax liability, withdrawals are
deemed to be on a last-in, first-out basis, which means taxable income is
withdrawn first. In addition, the Code imposes a 10% tax penalty to the income
portion of any premature distribution (e.g., withdrawal) from annuity contracts
generally. The penalty is not imposed on amounts received: (1) after the
taxpayer (payee) reaches age 59 1/2; (2) after the death of the Contract Owner;
(3) if the taxpayer is totally disabled; (4) in a series of substantially equal
periodic payments made for the life of the taxpayer or for the joint lives of
the taxpayer and his or her beneficiary; or (5) under an immediate annuity. The
tax consequences of distributions from Qualified Plans may differ from those
described above, and may vary with the type of Plan as well.
Withdrawals from Tax-Sheltered Annuities described in section 403(b) of the
Code ("TSAs") of amounts attributable to contributions made pursuant to a
salary reduction agreement are limited (as required by the Code) to
circumstances only when the employee attains age 59 1/2, separates from
service, dies, becomes disabled (within the meaning of section 72(m)(7) of the
Code), or in the case of hardship. Withdrawals for hardship are restricted to
the portion of the Contract Value which represents contributions made by or on
behalf of the employee, which does not include any investment results. These
limitations on withdrawals from TSAs apply only to: (1) salary reduction
contributions made after December 31, 1988; (2) income attributable to such
contributions; and (3) income attributable to amounts held as of December 31,
1988. The limitations on withdrawals do not affect certain rollovers or
exchanges between Plans.
PWD 4
<PAGE>
Contract Owners should consult their own tax counsel or other tax adviser
regarding any withdrawals or distributions.
The Contract Purchaser may return the Contract to PaineWebber Life within 10
days (or longer period if required by state law) after it is received by
delivering or mailing it to the PaineWebber Life Administrative Office at 601
6th Avenue, Des Moines, Iowa 50309. If the Contract is returned to PaineWebber
Life, it will be terminated and, unless otherwise required by state law,
PaineWebber Life will pay the Contract Owner an amount equal to his or her
Contract Value. The Contract Value may be more or less than the Purchase
Payments made. Since state laws differ as to the consequences of returning a
Contract, a purchaser should refer to the Contract which he or she receives for
information about his or her circumstances.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION
WITH THE OFFER DESCRIBED HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY JURISDICTION TO ANY PERSON TO
WHOM SUCH OFFER WOULD BE UNLAWFUL.
PWD 5
<PAGE>
FEE TABLE AND EXAMPLE
VARIABLE ANNUITY
<TABLE>
<CAPTION>
PERCENTAGE
CHARGE
------------------
<S> <C>
Contract Owner Transaction Expenses
Contingent Deferred Sales Load or Early Withdrawal Charge
(as a percentage of Purchase Payments)(1).................. 0%
Transfer Fee(2)............................................ $10
Charge for Excess Withdrawals(2)........................... $25 or 2% (lesser)
Annual Contract Maintenance Charge......................... $30
</TABLE>
<TABLE>
<CAPTION>
MONEY FIXED GLOBAL ASSET DIVIDEND AGGRESSIVE GLOBAL
MARKET GOVERNMENT INCOME INCOME BALANCED ALLOCATION GROWTH GROWTH GROWTH GROWTH
DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION
-------- ---------- -------- -------- -------- ---------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Separate Account
Annual Expenses (as a
percentage of average
account value)
Mortality and Expense
Risk Fees............. 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25%
Enhanced Death Bene-
fit Fee(3)............ .12% .12% .12% .12% .12% .12% .12% .12% .12% .12%
Distribution Expense
Charge(1)............. 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40%
Total Separate
Account
Annual Ex-
penses(1)(3)....... 1.77% 1.77% 1.77% 1.77% 1.77% 1.77% 1.77% 1.77% 1.77% 1.77%
Estimated Portfolio
Company Annual Expenses
(as a percentage of
portfolio company
average net assets)
Management Fees....... 0.50% 0.50% 0.50% 0.75% 0.75% 0.75% 0.70% 0.75% 0.80% 0.75%
Other Expenses........ 0.38% 0.39% 1.06% 0.42% 0.81% 0.28% 0.65% 0.25% 0.79% 0.73%
Total Portfolio
Company Annual
Expenses............ 0.88% 0.89% 1.56% 1.17% 1.56% 1.03% 1.35% 1.00% 1.59% 1.48%
</TABLE>
- ----
(1) PaineWebber Life also offers another form of this contract ("other
contract form") which is identical in most material respects to the form
described in this prospectus. The two forms differ, however, in that the
other contract form (1) does have a Contingent Deferred Sales Load but has
a lower Distribution Expense Charge (i.e., 0.15%); and (2) has a higher
Enhanced Death Benefit charge (i.e., 0.20%). The total Separate Account
Annual Expenses for the other contract form equals 1.60%.
(2) The Contract provides that each transfer in excess of 12 in a policy year
is subject to a charge of $10. PaineWebber Life has waived this fee until
further notice. A withdrawal transaction charge equaling the lesser of $25
or 2% of the amount withdrawn will be imposed on each withdrawal in excess
of two per policy year, except for withdrawals under a systematic
withdrawal program. An administrative fee of $1.50 per payment may be
charged for processing withdrawals under a systematic withdrawal program.
PaineWebber Life has waived this fee until further notice.
(3) The Enhanced Death Benefit is applicable (i.e., after annuity
commencement) to Contract Owners. The Enhanced Death Benefit is not
available after annuity payments begin. Thus, where the Enhanced Death
Benefit is not available, the Total Separate Account Annual Expenses would
be 1.65%.
PWD 6
<PAGE>
EXAMPLE
<TABLE>
<CAPTION>
MONEY FIXED GLOBAL ASSET DIVIDEND AGGRESSIVE GLOBAL
MARKET GOVERNMENT INCOME INCOME BALANCED ALLOCATION GROWTH GROWTH GROWTH GROWTH
DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION
-------- ---------- -------- -------- -------- ---------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Whether or not
you surrender
your Contract at
the end of the
applicable time
period:
You would pay
the following 1 Year $ 27 $ 27 $ 34 $ 30 $ 34 $ 29 $ 32 $ 28 $ 34 $ 33
expenses on a
$1,000
investment,
assuming 5% 3 Years $ 84 $ 84 $104 $ 92 $104 $ 88 $ 97 $ 87 $104 $101
annual return
on assets:
5 Years $142 $143 $175 $157 $175 $150 $165 $148 $177 $172
10 Years $302 $303 $366 $330 $366 $317 $347 $314 $368 $359
</TABLE>
- ----
(1) The purpose of the above tables are to assist the Contract Owner in
understanding the various costs and expenses that a Contract Owner will
bear directly or indirectly. Premium taxes, which are not shown in the
table or Example and which currently range from 0 to 3.5%, may be deducted
when incurred; however, PaineWebber Life may advance them when incurred
and deduct them subsequently. Note that the expense amounts shown above in
the hypothetical example are aggregate amounts for the total number of
years indicated. For additional information about expenses of the
Contract, see "Contract Charges and Deductions." THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN.
PWD 7
<PAGE>
FINANCIAL INFORMATION
Financial statements of the Separate Account and PaineWebber Life are contained
in the Statement of Additional Information bearing the same date as this
prospectus. As is more fully discussed under the heading "The Insurance
Company", PaineWebber Life was acquired by PaineWebber Holdings, Inc. on
December 31, 1992 and, therefore, the historical operating information of the
insurance company prior to December 31, 1992 is believed not to be relevant to
PaineWebber Life's current operations. A copy of the Statement of Additional
Information may be obtained without charge by sending a written request to the
administrative offices of PaineWebber Life at 601 6th Avenue, Des Moines, Iowa
50309.
CONDENSED FINANCIAL INFORMATION
The following table sets forth condensed financial information on
accumulation units respecting Contracts issued under this prospectus through
the Separate Account, which is derived from the financial statements of the
Separate Account through December 31, 1994. This information should be read in
conjunction with the financial statements, related notes and other financial
information in the Statement of Additional Information.
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT UNITS AT END
YEAR ENDED 12/31 STATE OF YEAR (1) END OF YEAR OF YEAR
---------------- ----------------- ------------- ------------
<S> <C> <C> <C>
Money Market Division
1993.............................. $10.00 $10.01 19,307
1994.............................. $10.01 $10.17 56,433
Government Division
1993.............................. 10.00 9.96 10,160
1994.............................. 9.96 9.27 56,044
Fixed Income Division
1993.............................. 10.00 9.60 14,554
1994.............................. 9.60 8.81 100,691
Global Income Division
1993.............................. 10.00 10.16 40,197
1994.............................. 10.16 9.44 117,924
Balanced Division
1993.............................. 10.00 9.87 40,536
1994.............................. 9.87 9.38 202,593
Asset Allocation Division
1993.............................. 10.00 10.35 12,505
1994.............................. 10.35 9.20 65,539
Dividend Growth Division
1993.............................. 10.00 10.34 6,382
1994.............................. 10.34 9.53 50,211
Growth Division
1993.............................. 10.00 9.96 23,103
1994.............................. 9.96 8.64 55,628
Aggressive Growth Division
1993.............................. 10.00 9.93 42,569
1994.............................. 9.93 9.48 141,235
Global Growth Division
1993.............................. 10.00 10.77 66,658
1994.............................. 10.77 9.31 171,114
</TABLE>
- --------
(1) Registration became effective September 1, 1993.
PWD 8
<PAGE>
SEPARATE ACCOUNT PERFORMANCE
From time to time the Separate Account may advertise the individual Divisions'
"yields," "effective yields" or "average total returns". "Yield" and "effective
yield" will be used for the Money Market Division and "average total return"
and "yield" will be used for all other Divisions. Both yield and total return
performance figures are based on historical earnings and are not intended to
indicate future performance. The "yield" of a Division refers to the income
generated by an investment in the Division over a stated period expressed as a
percentage of the investment. In the case of the Money Market Division, this
percentage (based upon a stated period of seven days' duration) is then
"annualized" by assuming the same percentage will be generated for each seven
day period during a year. The "effective yield" is calculated similarly but,
when annualized, the income earned by the investment in the Division is assumed
to be reinvested at the same rate in each successive seven day period during a
year. The "effective yield" will be slightly higher than the "yield" because of
the compounding effect of the assumed reinvestment of income. In the case of
Divisions other than the Money Market Division, "yield" is computed on the
basis of a one month stated period. Yield in those cases is annualized by
assuming monthly reinvestments at the same percentage over a six month period
and then doubling the six month percentage rate so obtained. The "average total
return" is computed by calculating the average annual compounded rate of return
over the stated period that would equate the initial amounts invested to the
ending redeemable Contract Value of the stated period.
Recurring charges or deductions from Contract Owner accounts are reflected in
the calculations of the performance figures. Non-recurring charges are not
reflected in the calculations of performance figures; if such charges were
incurred by the Contract Owner, the effect would be to lower the "yield,"
"effective yield," or "average total return."
THE INSURANCE COMPANY
PaineWebber Life is a stock life insurance company organized under the laws of
the State of California in 1956 as Pacific Fidelity Life Insurance Company. The
executive and administrative offices of PaineWebber Life are at 1200 Harbor
Boulevard, Weehawken, New Jersey 07087 and 601 6th Avenue, Des Moines, Iowa
50309, respectively. Pacific Fidelity Life Insurance Company ("PFLIC") was
acquired by PaineWebber Life Holdings Inc. ("PWL Holdings") in a transaction
effected December 31, 1992 when PWL Holdings acquired all the outstanding
voting securities of PFLIC from AUSA Life Insurance Company and changed the
company's name to PaineWebber Life Insurance Company. Prior to the acquisition
by PWL Holdings, all of the insurance in force of PFLIC was assumptively
reinsured by affiliated life insurance companies. Thus, as of the acquisition
on December 31, 1992, the total assets (and net worth) of PFLIC were
$6,390,000. PaineWebber Life is admitted to conduct life insurance business in
the District of Columbia and all states except Connecticut and New York. It
intends to market the Contract in all of the jurisdictions in which it is
admitted to conduct life insurance business. PaineWebber Life is a wholly-owned
subsidiary of PaineWebber Life Holdings Inc., which in turn is a wholly-owned
subsidiary of Paine Webber Group Inc.
THE SEPARATE ACCOUNT
The Separate Account was established by PaineWebber Life (formerly Pacific
Fidelity Life Insurance Company) on December 31, 1992, pursuant to the
provisions of the California insurance laws, as a segregated investment account
of PaineWebber Life. The Separate Account currently has ten Divisions: the
Money Market Division, the Government Division, the Fixed Income Division, the
Global Income Division, the Balanced Division, the Asset Allocation Division,
the Dividend Growth
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Division, the Growth Division, the Aggressive Growth Division, and the Global
Growth Division, each of which is invested in shares of a designated Portfolio
of the Fund. The Separate Account and each Division therein is administered as
part of the general business of PaineWebber Life; but the income, gains and
losses, whether or not realized, from assets allocated to each Division are
credited to or charged against that Division in accordance with the terms of
the Contract, without regard to other income, gains or losses of any other
Division or arising out of any other business PaineWebber Life may conduct. The
assets within each Division are not chargeable with liabilities arising out of
the business conducted by any other Division, nor will the Separate Account as
a whole be chargeable with liabilities arising out of any other business
PaineWebber Life may conduct.
All obligations arising under the Contract, however, including the guarantee to
make Annuity payments, are general obligations of PaineWebber Life; and all of
PaineWebber Life's assets are available to meet its expenses and obligations
under the Contract. While PaineWebber Life is obligated to make Variable
Annuity payments under the Contract, the amount of such payments is not
guaranteed. The Contract Value allocated to the Divisions and the amount of
Variable Annuity payments will vary with the investment experience of the
Division(s) to which the Contract Owner's Contract Value is allocated. Such
amounts will be subject to certain charges and deductions. See "Contract
Charges and Deductions." PaineWebber Life has caused the Separate Account to be
registered with the Securities and Exchange Commission as a unit investment
trust under the 1940 Act. Such registration does not involve supervision of the
management of the Separate Account or PaineWebber Life by the Securities and
Exchange Commission.
CONTRACT CHARGES AND DEDUCTIONS
WITHDRAWAL TRANSACTION CHARGE--No initial sales charge is deducted from
Purchase Payments nor is there any early withdrawal charge (contingent deferred
sales charge) imposed. Thus, a Contract Owner may, subject to the restrictions
of the particular retirement plan, withdraw his or her Net Contract Value at
any time without being subject to a redemption charge. There is, however, a
Distribution Expense risk charge imposed to recover PaineWebber Life's expenses
relating to the sale of the Contract, including commissions, preparation of
sales literature and other sales activities. PaineWebber Life deducts a
distribution expense charge daily from each Division, at an annual rate of
0.40% of the total net assets of each Division. See "Distribution Expense
Charge." The amount of any sales charge imposed in the form of a distribution
expense charge will not exceed 9% of all Net Purchase Payments.
A withdrawal transaction charge of the lesser of $25 or 2% of the amount
withdrawn will be imposed on each withdrawal in excess of two per Contract
year, unless the withdrawal is made under a systematic withdrawal program. See
"Withdrawals."
PaineWebber Life also offers another form of this Contract that does impose a
Withdrawal Charge. That contract form, however, levies a Distribution Expense
Charge of 0.15% of the total net assets on an annual basis whereas the Contract
form as described in this prospectus assesses a 0.40% asset charge.
TRANSFER CHARGES--Prior to the Annuity Date, the Contract Owner has the right
to transfer part or all of his or her Contract Value from one Allocation Option
to one or more of the remaining Allocation Options subject to the rules and
procedures relating to transfers. After the Annuity Date, the Contract Owner
may also transfer Annuity Unit values among the Divisions of the Separate
Account. The Contract provides that each transfer in excess of 12 in a Contract
year is subject to a charge of $10. PaineWebber Life has waived this fee until
further notice. PaineWebber Life does not expect to generate any profit from
this charge.
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Prior to the Annuity Date, any transfer charge will be deducted from the
Allocation Option(s) to which amounts are transferred in the ratio of the
Contract Value received by each to the total Contract Value transferred. After
the Annuity Date, any charge will be deducted from the next Annuity payment.
No transfer charge will be assessed on automatic transfers effected through an
approved automatic allocation service.
CONTRACT MAINTENANCE CHARGE--During the accumulation period, PaineWebber Life
will deduct a Contract Maintenance Charge of $30 from the Contract Value of
each Contract in force on the first Valuation Day on or after each Contract
anniversary. The charge will also be deducted upon full withdrawal of the
Contract Value, or commencement of Annuity payments, without proration, if such
withdrawal is made or Annuity payments commence prior to the first Valuation
Day on or after each contract anniversary. If the Contract Owner participates
in more than one Allocation Option, a share of the $30 charge will be made
against each in the ratio of Contact Value in each to the total Contract Value.
The Contract Maintenance Charge is waived if total premiums received in the
first Contract Year equal or exceed $100,000. PaineWebber Life does not
anticipate realizing a gain from this charge. Even though administrative
expenses may increase, the amount of the charge will not change.
PREMIUM AND OTHER TAXES--PaineWebber Life will deduct from the Contract Value
the amount of any premium and other similar policyholder taxes levied by any
state or governmental entity with respect to that particular Contract. Such
taxes, which currently range from 0 to 3.5%, may be deducted when incurred;
however, PaineWebber Life may advance them when incurred and deduct them
subsequently. If the Contract Owner participates in more than one Allocation
Option, any premium or other taxes will be charged against each Allocation
Option in the ratio of the Contract Owner's value in each to the total Contract
Value.
MORTALITY RISK CHARGE--Annuity payments will not be affected by the mortality
experience (death rate) of persons receiving Annuity payments or of the general
population. For assuming this mortality risk and the risk inherent in the death
benefit, PaineWebber Life deducts during the entire life of the Contract a
mortality risk charge daily from each Division at an annual rate of 0.85% of
the total net assets of each Division. If the mortality risk charge is
insufficient to cover the actual costs of the mortality risk, PaineWebber Life
will bear the loss; however, if the amount proves more than sufficient, the
excess will be a gain which PaineWebber Life may use at its discretion to pay
distribution and other expenses. The rate imposed for the mortality risk charge
may not be changed.
ENHANCED DEATH BENEFIT CHARGE--Where permitted by state law, PaineWebber Life
will also provide an Enhanced Death Benefit that guarantees, should the
Contract Owner die during the accumulation phase of the Contract, a specified
minimum death benefit. For assuming the mortality and investment risk of the
Enhanced Death Benefit, PaineWebber Life deducts a daily risk charge from each
Division at an annual rate of 0.12% of the total net assets of each Division.
The rate may not be changed by PaineWebber Life.
No charge will be deducted from assets attributable to (a) Purchase payments in
those states where PaineWebber Life is not allowed to offer an Enhanced Death
Benefit or (b) Contracts under which annuity payments have begun.
EXPENSE RISK CHARGE--PaineWebber Life guarantees that the $30 contract
maintenance charge will not increase, regardless of actual expenses incurred by
PaineWebber Life. For assuming this expense risk, PaineWebber Life deducts
during the entire life of the Contract an expense risk charge daily from each
Division at an annual rate of 0.40% of the total net assets of each Division.
If the expense risk charge is insufficient to cover the actual cost of the
expense risk, PaineWebber Life will
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bear the loss; however, if the charge is more than sufficient, the excess will
be a gain which PaineWebber Life may use at its discretion to pay distribution
and other expenses. The rate imposed for the expense risk charge may not be
changed.
DISTRIBUTION EXPENSE CHARGE--For assuming the expense of distributing this
Contract, PaineWebber Life deducts a distribution expense charge daily from
each Division at an annual rate of 0.40% of the total net assets of each
Division for this Contract. If the distribution expense charge is insufficient
to cover the actual cost of distribution, PaineWebber Life will bear the loss;
however, if the charge is more than sufficient, the excess will be a gain which
PaineWebber Life may use at its discretion. The rate of the distribution
expense charge may not be changed. The staff of the Securities and Exchange
Commission considers this type of charge to constitute a sales charge. The
amount of any sales charge imposed when added to any previous sales charge,
will not exceed 9% of all Purchase Payments.
THE FUND
The Fund is organized as a Massachusetts business trust and is registered as an
open-end management investment company under the 1940 Act. The Fund currently
consists of ten Portfolios: the Money Market Portfolio, the Growth Portfolio,
the Dividend Growth Portfolio, the Global Growth Portfolio, the Aggressive
Growth Portfolio, the Fixed Income Portfolio, the Global Income Portfolio, the
Government Portfolio, the Balanced Portfolio, and the Asset Allocation
Portfolio, each having its own investment objective and policies. The Fund will
offer its shares to insurance company separate accounts only. The Fund has the
right to add new portfolios at any time.
The Global Income Portfolio is managed as a non-diversified investment company;
the other Portfolios are all managed as diversified investment companies. The
Trustees of the Fund may establish additional Portfolios at any time. Portfolio
assets are segregated and a shareholder's interest is limited to the
Portfolio(s) in which the shareholder invests. Each Portfolio has, and is
subject to, certain investment objectives and restrictions which may not be
changed without a majority vote of shareholders in that Portfolio.
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") acts as the
investment adviser and administrator for each Portfolio and the Fund, and as
such provides a continuous investment program for the Portfolios and
supervision of all matters relating to the operations of the Fund. In the case
of certain Portfolios, as is discussed below, Mitchell Hutchins has engaged
other investment managers to act as subadvisers for those Portfolios. Mitchell
Hutchins is a Delaware corporation and a wholly-owned subsidiary of PaineWebber
Incorporated, which is in turn a wholly-owned subsidiary of Paine Webber Group
Inc., a publicly held financial services holding company. As compensation for
its services, Mitchell Hutchins receives a fee from the Fund accrued daily and
paid monthly, based on the average daily net assets of each Portfolio.
Mitchell Hutchins has engaged the following investment management firms to
serve as subadvisers for the Portfolios indicated: (1) Nicholas-Applegate
Capital Management ("NACM") for the Aggressive Growth Portfolio; (2) Provident
Investment Counsel, Inc. ("PIC") for the Balanced Portfolio; (3) Wolf, Webb,
Burk & Campbell, Inc. ("WWBC") for the Fixed Income Portfolio; and (4) GE
Investment Management Incorporated ("GEIM") for the Global Growth Portfolio.
Pursuant to subadvisory agreements entered into between Mitchell Hutchins and
those firms, each of the subadvisers is responsible for providing all of the
day-to-day investment advisory services for the respective Portfolio for which
it acts as subadviser. As compensation for such services, Mitchell Hutchins
pays each of them a subadvisory fee. Such fee is paid out of Mitchell Hutchins'
advisory fee for the relevant Portfolios, and not directly by the Portfolios.
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GEIM serves as subadviser for the Global Growth Portfolio pursuant to an
interim subadvisory agreement ("Interim Agreement") between Mitchell Hutchins
and GEIM that was approved by the Fund's board of trustees. The Interim
Agreement will continue in effect for the shorter of 120 days from March 23,
1995 (the date of the Interim Agreement) or the date that a new subadvisory
contract is approved by the Fund's shareholders. The Fund's board of trustees
expects to call a special meeting of the shareholders of the Fund prior to the
termination of the Interim Agreement. If the subadvisory contract is not
approved, Mitchell Hutchins will continue to make and implement all investment
decisions and supervise all aspects of the Portfolio. In the event the
subadvisory contract is not approved this prospectus will be supplemented
accordingly.
A summary of the investment objective of, and the investment advisory fees
charged to, each Portfolio of the Fund available for purchase is described
below. MORE DETAILED INFORMATION IS CONTAINED IN THE CURRENT PROSPECTUS OF THE
FUND WHICH ACCOMPANIES THIS PROSPECTUS.
The MONEY MARKET PORTFOLIO seeks to provide maximum current income consistent
with liquidity and conservation of capital. To achieve its objective, the
Portfolio invests primarily in high grade money market instruments, generally
with remaining maturities of 397 days or less, and repurchase agreements
secured by such instruments. As compensation for its services, the Money Market
Portfolio pays the investment adviser a fee at the annual rate of .50% of
average daily net assets.
The GOVERNMENT PORTFOLIO primarily seeks to provide high current income
consistent with the preservation of capital and secondarily seeks capital
appreciation. To achieve these objectives, this Portfolio invests primarily in
high quality debt securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities. As compensation for its services, the Government
Portfolio pays the investment adviser a fee at the annual rate of .50% of
average daily net assets.
The FIXED INCOME PORTFOLIO primarily seeks current income consistent with the
preservation of capital and secondarily seeks capital appreciation. This
Portfolio invest primarily in debt securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities and high quality corporate debt
securities and mortgage-backed securities of private issuers.
WWBC serves as subadviser to this Portfolio. As compensation for its services,
the Fixed Income Portfolio pays the investment adviser a fee at the annual rate
of .50% of average daily net assets; the investment adviser pays WWBC a
subadvisory fee at the annual rate of .30% of average daily net assets.
The GLOBAL INCOME PORTFOLIO primarily seeks high current income and secondarily
seeks capital appreciation. To achieve its objective, this Portfolio invests
principally in high quality debt securities of foreign and U.S. issuers. As
compensation for its services, the Global Income Portfolio pays the investment
adviser a fee at the annual rate of .75% of average daily net assets.
The BALANCED PORTFOLIO seeks total return while preserving capital. This
Portfolio invests in equity securities but also invests no less than 25% of its
assets in fixed income securities. PIC serves as subadviser to this Portfolio.
As compensation for its services, the Balanced Portfolio pays the investment
adviser a fee at the annual rate of .75% of average daily net assets; the
investment adviser pays PIC a subadvisory fee at the annual rate of .45% of
average daily net assets.
The ASSET ALLOCATION PORTFOLIO seeks to provide a high total return with low
volatility. To achieve its objective, the Portfolio allocates investments among
equity securities, long- and medium-term debt securities and money market
instruments. As compensation for its services, the Asset Allocation Portfolio
pays the investment adviser a fee at the annual rate of .75% of average daily
net assets.
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The DIVIDEND GROWTH PORTFOLIO seeks current income and capital growth. This
Portfolio invests primarily in dividend-paying common stocks with the potential
for increasing dividends. As compensation for its services, the Dividend Growth
Portfolio pays the investment adviser a fee at the annual rate of .70% of
average daily net assets.
The GROWTH PORTFOLIO seeks to provide long-term capital appreciation. To
achieve its objective, this Portfolio invests primarily in common stocks of
companies which, in the judgment of Mitchell Hutchins, have substantial
potential for capital growth. As compensation for its services, the Growth
Portfolio pays the investment adviser a fee at the annual rate of .75% of
average daily net assets.
The AGGRESSIVE GROWTH PORTFOLIO seeks to maximize long-term capital
appreciation. This Portfolio invests primarily in the common stocks of U.S.
companies. NACM serves as subadviser to this Portfolio. As compensation for its
services, the Aggressive Growth Portfolio pays the investment adviser a fee at
the annual rate of .80% of average daily net assets; the investment adviser
pays NACM a subadvisory fee at the annual rate of .50% of average daily net
assets.
The GLOBAL GROWTH PORTFOLIO seeks to provide long-term capital appreciation. To
achieve its objective, this Portfolio invests primarily in common stocks of
companies based in the U.S., Europe, Japan and the Pacific Basin. As
compensation for its services, the Global Growth Portfolio pays the investment
adviser a fee at the annual rate of .75% of average daily net assets. Under the
Interim Agreement, GEIM serves as subadviser to this Portfolio. As compensation
for its services, the investment adviser pays GEIM a subadvisory fee at the
annual rate of .29% of average daily net assets.
THE CONTRACT
PURCHASE PAYMENTS--The minimum initial Purchase Payment for a Contract not
issued pursuant to a Qualified Plan is $5,000. The minimum initial Purchase
Payment for a Contract issued pursuant to a Qualified Plan or other plan
qualified for special tax treatment is $1,000. The minimum amount of a
subsequent Purchase Payment is $500 ($100 for Contracts issued under Qualified
Plans). A program for automatic transfer of Purchase Payments is also
available. PaineWebber Life reserves the right to reduce the amount of the
minimum Purchase Payment for certain Qualified Plans, for certain automatic
purchase plans, and for Contracts issued to officers, directors, agents, or
full-time employees of PaineWebber Life, the investment adviser or subadviser
of the Fund, the distributor and agents of the distributor, or the third party
administrator. At the time a Purchase Payment is made, Contract Owners should
instruct PaineWebber Life how it is to be allocated among the Allocation
Options. If no allocation is indicated or allocations are not properly
completed, the Contract application is not in good order, and will be processed
as described in the paragraph immediately below. Subsequent Purchase Payments
may be made at any time without prior notice. Subsequent Purchase Payments with
no allocation specified, or improperly completed allocations, will be allocated
based on the last allocation made for either a Purchase Payment or a transfer,
or as previously specified in a request to change allocations for future
purchase payments. Requests to change such allocations may be made in writing
or, unless the Contract Owner has requested in writing to the contrary, by
telephone or facsimile instruction, under safeguards and conditions described
in "Transfers", Page 17. The Contract will not be in default if no subsequent
Purchase Payments are made. PaineWebber Life reserves the right to reject any
application or Purchase Payment. In addition, PaineWebber Life will not accept
a Purchase Payment which would cause total Purchase Payments to exceed
$1,500,000 without prior approval by an appropriate officer of PaineWebber
Life.
That part of an initial Purchase Payment to be allocated to a Division will be
applied to purchase Accumulation Units at a price which is next computed no
later than two business days after a properly completed application is received
by PaineWebber Life. In the event that an application fails
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to recite all of the necessary information, PaineWebber Life will promptly
request that the Contract Owner furnish further instructions and will hold the
entire initial Purchase Payment in a suspense account, without interest, for a
period of five business days pending receipt of such information. If the
necessary information is not received within five business days, PaineWebber
Life will return the entire Purchase Payment to the prospective Contract Owner,
unless the prospective Contract Owner, after being informed of the reasons for
the delay, specifically consents to PaineWebber Life retaining the initial
Purchase Payment until the application is made complete.
DOLLAR COST AVERAGING--Contract Owners who wish their Purchase Payment(s) to be
applied to purchase Accumulation Units of one or more Divisions over a period
of time will be able to do so through a dollar cost averaging ("DCA") program.
Under a DCA program, a Contract Owner may authorize the automatic transfer of
Contract Values from either the Money Market Division, the Government Division,
or the Fixed Income Division of a fixed dollar amount (until the outgoing
Division is either exhausted or reaches a minimum level set by the Contract
Owner) into one or more of the remaining Divisions of his or her choice.
Transfers will be allocated according to the most recent allocations on record
with PaineWebber Life. Any request to transfer into the outgoing Division will
instead be made proportionately to other Divisions receiving the transfer.
Under the DCA program, the minimum amount that may be transferred is $100.
Accumulation Units acquired by a DCA program will be purchased at their unit
values determined on the dates of the transfers. The intervals between transfer
purchases may be, at the option of the Contract Owner, either monthly,
quarterly, semi-annually or annually. Transfers will occur on the same day of
the month as the Contract issue date. If the resulting day is not a Valuation
Day, then the transfer will be made on the next Valuation Day.
The theory of dollar cost averaging is that greater numbers of units are
purchased at times when the unit prices are relatively low then are purchased
when the prices are higher. This has the effect of reducing the aggregate
average cost per unit to less than the average of the unit prices on the same
purchase dates. However, participation in a DCA program does not assure the
Contract Owner of a greater profit, or any profit, for his or her purchases
under the program; nor will it prevent or necessarily alleviate losses in a
declining market.
Application to participate in a DCA program must be in writing on the form
supplied by PaineWebber Life for such purpose. Participation in the program
will be effective within one month after PaineWebber Life has received and
processed the application.
ASSET ALLOCATION PROGRAM--Contract Owners who wish to have their Contract
Values automatically invested in accordance with a pre-selected asset
investment program may elect to enroll in the Milestones Asset Allocation
Program ("MAAP"). MAAP allows Contract Owners to have their assets reallocated
monthly by PaineWebber Life between the Growth Portfolio, the Fixed Portfolio
and the Money Market Portfolio. MAAP provides three customized programs from
which a Contract Owner may select the one that best meets his or her individual
investment goals. There are three allocation programs available: aggressive,
moderate and conservative.
MAAP is based on the PaineWebber Asset Allocation Model that was designed by
Edward Kerschner, Chairman of PaineWebber's Investment Policy Committee and
Chief Investment Officer for PaineWebber. PaineWebber Life will monitor whether
MAAP presents a risk to orderly portfolio management. If PaineWebber Life
determines that such a risk is presented, it will consult with the adviser to
the Portfolios involved.
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The Model for each program is reviewed to see whether changes in economic and
market conditions dictate a change in the program's asset mix. Such changes, if
any, will be made monthly and will be subject to certain minimum and maximum
parameters. PWL is provided a copy of the Asset Allocation Model on a monthly
basis. The parameters of the three programs are as follows:
<TABLE>
<CAPTION>
PORTFOLIOS AGGRESSIVE MODERATE CONSERVATIVE
---------- ---------- -------- ------------
<S> <C> <C> <C>
Growth................................... 60%-90% 40%-70% 20%-50%
Fixed.................................... 10%-40% 10%-50% 40%-70%
Money Market............................. 0%-30% 5%-40% 10%-40%
</TABLE>
Once the Contract Owner selects the program with which he or she is
comfortable, MAAP then automatically adjusts the invested Contract Values each
month to comply with the asset percentage mix called for by the selected
program.
Participation in MAAP requires the specific request of a Contract Owner before
it can be initiated and may be terminated at any time. Contract Owners are not
assessed a charge for this service.
SYSTEMATIC PURCHASE PROGRAM--A Contract Owner may also arrange to have a
specific dollar amount automatically withdrawn from his or her bank account or
PaineWebber RMA at periodic intervals (monthly or quarterly) and transferred to
PaineWebber Life as Purchase Payments. The bank must be a member of the
Automated Clearing House. The payments must be at least $100 each. Payments
will be allocated among the Allocation Options in accordance with the most
recent allocation on record. The Contract Owner may terminate his or her
participation in this program at any time.
VARIABLE ACCOUNT ACCUMULATION PROVISIONS
ACCUMULATION UNITS--The number of Accumulation Units purchased for a Contract
Owner with respect to his or her initial Purchase Payment is determined by
dividing the amount credited to each Division by the Accumulation Unit value
for that Division next computed following acceptance of the application
(generally the next business day after receipt of the Purchase Payment by
PaineWebber Life). The number of Accumulation Units purchased with respect to
subsequent Purchase Payments is determined by dividing the amount credited to
each Division by the applicable Accumulation Unit value for the Valuation
Period next determined following receipt of the Purchase Payment by PaineWebber
Life.
Any transactions involving the purchase, withdrawal or transfer of amounts
received after 3:00 p.m. central time will be effected on the following
business day. The Accumulation Unit value of each Division varies in accordance
with the investment experience of that Division.
VALUE OF AN ACCUMULATION UNIT--The value of an Accumulation Unit of each
Division was set at $10 when the Division was established. The value may
increase or decrease from one Valuation Period to the next. The value of an
Accumulation Unit is determined by multiplying the value of an Accumulation
Unit for the last Valuation Period by the net investment factor for that
Division for the current Valuation Period. The Contract Owners bear the
investment risk that the aggregate value of the amounts allocated to the
Divisions of the Separate Account may at any time be less than, equal to, or
more than the amounts initially invested in those Divisions.
NET INVESTMENT FACTOR--This is an index used to measure the investment
performance of a Division of the Separate Account from one Valuation Period to
the next. For any Division, the net investment factor for a Valuation Period is
found by dividing (A) by (B) and subtracting (C) where: (A) is the net asset
value per share of the Portfolio held in the Division, as of the end of the
Valuation Period, plus the per-share amount of any dividend, capital gain or
other distributions made by the Portfolio in the
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Valuation Period; (B) is the net asset value per share of the Portfolio held in
the Division as of the end of the immediately preceding Valuation Period; and
(C) is a factor representing the sum of the daily risk and expense charges
attributable to the particular Contract. During the Annuity Period, the factor
will not reflect a deduction at an annual basis of 0.12% for this benefit. See
"Contract Charges and Deductions." The net investment factor may be adjusted to
make provision for any income taxes required to be paid by the Separate
Account.
DEATH BENEFIT
BEFORE THE ANNUITY DATE--If the Owner dies prior to the Annuity Date,
PaineWebber Life will pay a Death Benefit to the beneficiary. The Death Benefit
may be paid in a lump sum distribution or in the form of an annuity, as
described below. If there are Joint Spousal Owners, two Death Benefit Options
are available: the Single Life Death Benefit Option and the Joint Life Death
Benefit Option. Under the Single Life Death Benefit Option, the Enhanced Death
Benefit is paid upon the death of the designated Owner. Under the Joint Life
Death Benefit Option, the Death Benefit is paid upon the death of the last
Owner.
The Enhanced Death Benefit equals the greatest of (A), (B), or (C) as follows:
(A) The Contract Value; or
(B) The greatest of the Contract Values on the first Valuation Day of each
5 year period less any partial withdrawals, transfer charges, and
withdrawal transaction charges, since the beginning of the 5 year
period. The first 5 year period begins on the 5th Contract Anniversary;
or
(C) The sum of all amounts invested in the eligible Separate Account
Divisions, accumulated at interest, less any partial withdrawals,
transfer charges, and withdrawal transaction charges accumulated at
interest.
For Single Life Death Benefit Options, the interest is at an effective
annual rate of 4% for Divisions other than the Money Market Division
and at a rate equal to the Net Investment Factor for each Valuation
Period for the Money Market Division.
If this Contract has Joint Spousal Owners and a Joint Life Death
Benefit Option has been selected, the interest accumulates at an
effective annual rate of 6% for Divisions other than the Money Market
Division and at a rate equal to the Net Investment Factor for each
Valuation Period for the Money Market Division.
Interest accrual terminates on the Owner's 75th birthday. If Joint
Spousal Owners exist and the Joint Life Death Benefit Option has been
selected, then interest accrual ends on the youngest Owner's 75th
birthday.
The maximum death benefit under this paragraph (C) is the sum of all
Net Purchase Payments, each accumulated at the interest rate for
Divisions other than the Money Market Division to a maximum of two
times each Net Purchase Payment, less any partial withdrawals, transfer
charges, and withdrawal transaction charges, each accumulated at the
interest rate for Divisions other than the Money Market Division to two
times each withdrawal or deducted charge.
The Death Benefit is determined as of the Valuation Day on which PaineWebber
Life receives due proof of the Owner's death and an election of the method of
payment from the Beneficiary at its Administrative Office at 601 Sixth Avenue,
Des Moines, Iowa 50309.
If the Owner is not a natural person, the Annuitant will be treated as the
Owner for the purposes of determining if a Death Benefit is payable.
If the Contract Owner (or Annuitant if the Contract Owner is not a natural
person) dies before the Annuity Date, the entire Contract Value must be
distributed within five years. An exception to this
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requirement exists for any portion of the Contract Owner's interest payable to
(or for the benefit of) a designated beneficiary provided (a) such portion will
be distributed as an Annuity for the life or a period not exceeding the life
expectancy of the designated beneficiary and (b) such Annuity payments begin
not later than one year after the Annuitant's or Contract Owner's death. These
rules vary somewhat in the case of Qualified Plans. For example, in certain
cases, if the designated beneficiary is the Annuitant's surviving spouse, the
Annuity payments must commence no later than December 31 of the calendar year
in which the Annuitant would have become age 70 1/2.
Where permitted by law and any retirement plan involved, if the designated
beneficiary is the surviving spouse he or she will be treated as the new
Contract Owner and Annuitant unless he or she elects otherwise. If Joint
Spousal Owners exist and the Joint Life Death Benefit Option was chosen, the
surviving spouse will be treated as the new Contract Owner upon the death of
the first spouse.
AFTER THE ANNUITY DATE--If the Annuitant (or a Contract Owner who is not the
Annuitant) dies on or after the Annuity Date, the remaining portion (if any) of
his or her interest in the Contract will be distributed to the beneficiary at
least as rapidly as under the Annuity option being used at the date of the
Owner's death. A beneficiary receiving payments under a Variable Annuity option
after the death of an Annuitant may elect at any time to receive the present
value of the remaining number (if any) of guaranteed payments in a single
payment, calculated using the assumed investment rate. If no designated
beneficiary survives the Annuitant, the present value of any remaining
guaranteed payments on the date of death of the Annuitant, calculated using the
assumed investment rate, may be paid in one sum to the Contract Owner or his or
her estate unless other provisions have been made and approved by PaineWebber
Life. This value is calculated as of the date of payment following receipt of
due proof of death by PaineWebber Life. If the Owner dies on or after the
annuity date, the remaining portion (if any) of his or her interest in the
Contract will be distributed to the beneficiary at least as rapidly as under
the Annuity Option in use as of the Owner's death. If no designated beneficiary
survives the Owner, any remaining interest will be paid to the Owner's estate.
EXERCISE OF RIGHTS UNDER THE CONTRACT
BENEFICIARY--The beneficiary is named in the application. Unless the
beneficiary has been irrevocably designated, the beneficiary may be changed if
a written request of the Contract Owner is received by PaineWebber Life. The
estate or heirs of any beneficiary who dies before the Annuitant have no rights
under the Contract. If no beneficiary survives the Annuitant, payment will be
made to the Contract Owner or his or her estate.
ANNUITANT--The Annuitant is the person designated in the Application, upon
whose life annuity payments under the Contract will depend. Normally, the
Annuitant is also the Contract Owner.
OWNERSHIP--The Contract Owner is the person entitled to exercise all rights
under the Contract. Ownership of the Contract may be transferred to a new
Contract Owner with PaineWebber Life's approval. Such a transfer of ownership
does not affect a beneficiary designation. The Contract Owner should consult a
competent tax adviser prior to making any such designations or transfers.
COLLATERAL ASSIGNMENT--Unless the Contract is issued in connection with a
Qualified Plan or a non-Qualified Plan subject to Title 1 of the Employee
Retirement Income Security Act of 1974 ("ERISA"), a Contract Owner may assign
the Contract as security for an obligation. No assignment of any interest under
the Contract is binding upon PaineWebber Life until a written assignment is
filed with PaineWebber Life, and PaineWebber Life assumes no obligation with
respect to the effect or validity of any such assignment. In the event that the
Contract is issued pursuant to a Qualified Plan or a plan covered by Title 1 of
ERISA, it may not be assigned, pledged or transferred except as allowed
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<PAGE>
by law. The Contract Owner should consult a competent tax adviser prior to
assigning his or her Contract.
TRANSFERS--Prior to and after the Annuity Date, the value of any Units
(Accumulation or Annuity Units, respectively) may be transferred among the
Divisions. Transfers may be effected by writing to PaineWebber Life. The
Contract Owner may also avail himself or herself of telephone or facsimile
transfer privileges, unless he or she has made an election in writing not to
have such services made available. PaineWebber Life will employ reasonable
procedures to confirm that instructions communicated by telephone or facsimile
are genuine (including tape recording of telephone communications and requiring
that proper identification--the Contract Owner's tax I.D. number/Social
Security number and Contract number--be provided). If PaineWebber Life fails to
employ reasonable procedures to confirm that transfer instructions communicated
by telephone or facsimile are genuine, it may be liable for any losses due to
unauthorized or fraudulent transfer instructions. PaineWebber Life reserves the
right to modify or discontinue the telephone/facsimile services at any time.
Transfers among the Divisions will be effected at the unit value next computed
after the transfer request is received by PaineWebber Life. Transfer
instructions must identify the Divisions affected and the amount to be
transferred. If the request is not received in proper form, the Contract Owner
will be contacted. If the amount in any Allocation Option is not enough to
cover the requested transfer, the transfer will be executed up to the amount
available. Under certain circumstances, transfers may be subject to a transfer
charge. See "Transfer Charges."
WITHDRAWALS--A Contract Owner may effect a withdrawal by submitting a request
to PaineWebber Life. The request must be submitted in writing and must be
signed by the Contract Owner(s). The signature should be exactly the same form
as the name reflected on the Contract Owner's account. The request should
include the Contract Owner's Contract number, and should identify the
Division(s) affected and the amounts to be withdrawn from each. If the request
is not received in proper form, the Contract Owner will be contacted. The
request must be accompanied by the Contract where a complete withdrawal is
requested. To comply with Code requirements, requests for withdrawals from TSAs
and Individual Retirement Plans ("IRPs") must be in an acceptable form which
indicates the reason for withdrawal. (See tax information later in this
section.)
The Contract Owner may make a partial or complete withdrawal (redemption) of
the Net Contract Value at any time before Annuity payments begin and the death
of the Owner. Upon request for a complete withdrawal, the Contract Owner will
receive his or her Net Contract Value as of the Valuation Day a written request
for such withdrawal is received by PaineWebber Life. Partial withdrawals are
subject to a $500 minimum (unless made pursuant to a systematic withdrawal
program, below). No partial withdrawal may be effected if it would cause the
remaining Contract Value to be less than the greater of $1,000 or the amount of
any unassessed premium taxes. In the event a partial withdrawal is requested
that would cause the Contract Value to fall below the minimum, such a request
will be treated as a request for a full withdrawal.
Unless otherwise directed by the Contract Owner, a request for partial
withdrawal will be treated as a request for a withdrawal from each Allocation
Option in proportion to the respective Contract Values allocated thereto.
Under certain circumstances, the withdrawal may be subject to a withdrawal
transaction charge equal to the lesser of $25 or 2% of the amount withdrawn.
See "Withdrawal Transaction Charges" and "Contract Maintenance Charge."
A withdrawal may result in adverse federal income tax consequences and is
restricted in regard to TSA Plan contracts. See "Federal Income Tax Status."
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The Code requires the Contract to impose restrictions on withdrawals of
Contract Value from TSAs. Section 403(b)(11) of the Code requires that for such
annuity contracts to receive tax-deferred treatment, they must provide that:
Withdrawals attributable to Purchase Payments made (after December 31, 1988
and any gain thereon) pursuant to a salary reduction agreement may be paid
ONLY:
(1) when the employee attains age 59 1/2, separates from service, dies, or
becomes disabled (within the meaning of section 72(m)(7)); or
(2) in the case of hardship. In hardship cases, only the withdrawal of
Purchase Payments is permitted; withdrawal of any income attributable
to these Purchase Payments is prohibited.
Payment of withdrawals from the Divisions will normally be made within seven
days of receipt by PaineWebber Life of a proper request. PaineWebber Life
reserves the right, however, to defer any withdrawal payment or transfer of
values if (a) the New York Stock Exchange is closed (other than customary
weekend and holiday closings); (b) an emergency exists making disposal of the
Divisions' securities or the valuation of net assets of the Divisions not
reasonably practicable; (c) the Securities and Exchange Commission has by order
permitted suspension of redemptions for the protection of security holders; or
(d) at any other time when payment may be suspended under applicable law.
The Commission by rules and regulations determines the conditions under which
trading of securities shall be deemed to be restricted and the conditions under
which an emergency shall be deemed to exist.
SYSTEMATIC WITHDRAWAL PROGRAM--A systematic withdrawal program allows Contract
Owners to initiate a procedure for automatically withdrawing a portion of their
investment at monthly, quarterly, semi-annual or annual intervals, subject to
certain limitations. The Contract Owner can specify that the withdrawal either
be mailed to an address he or she specifies or electronically deposited into an
account of his or her choice. The Contract Owner selects the day of the month
that the electronic deposit of funds is to be made to that account. Currently,
the Contract Owner may choose either the 15th of the month or the last day of
the month. If the specified day is not a business day, the deposit will occur
on the prior business day. Withdrawals that are mailed may take additional time
to be received.
Unless a specific allocation request is made, withdrawals under the systematic
withdrawal program will be allocated to all Divisions in proportion to the
value in each Division. Under such a program, the minimum payout amount is $100
per withdrawal.
Payments will be level within a Contract year. A Contract Owner electing to
participate in a systematic withdrawal program must specify (within the
foregoing limits) a fixed dollar amount to be received each period.
Applications for participating in a systematic withdrawal program must be in
writing on the form supplied by PaineWebber Life; participation under the
program will commence after PaineWebber Life has received and processed the
application. The Contract Owner may terminate his or her participation in the
systematic withdrawal program at any time. The termination will take effect
after PaineWebber Life has received and processed the request.
Withdrawals made under a systematic withdrawal program will not be subject to
the normal withdrawal transaction charge applied to withdrawals in excess of
two per year. PaineWebber Life may deduct an administrative fee of $1.50 for
each withdrawal pursuant to this program. PaineWebber Life, however, has waived
this fee until further notice. Like other withdrawals, withdrawals under a
systematic withdrawal program may have adverse tax consequences, including a 10
percent tax penalty on premature withdrawals. See "Federal Income Tax Status".
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SUBSTITUTION AND CHANGE--Although there is no present intent to do so,
PaineWebber Life reserves the right to offer Contract Owners, at some future
date and in accordance with the requirements of the 1940 Act, the option to
direct that their Purchase Payments be allocated to an investment company other
than the Fund or to newly created Portfolios of the Fund. If shares of the Fund
or a Portfolio are not available for purchase by the Separate Account, or if in
the judgment of PaineWebber Life, further investment in such shares is no
longer appropriate in view of the purposes of the Separate Account, then (i)
shares of another registered open-end management investment company ("mutual
fund") or another Portfolio may be substituted for Fund or Portfolio shares
held in the Separate Account and/or (ii) payments received after a date
specified by PaineWebber Life may be applied to the purchase of shares of
another mutual fund or another Portfolio in lieu of Fund or Portfolio shares.
Approval of the Securities and Exchange Commission must be obtained if shares
of another mutual fund or if shares of another Portfolio of the Fund are to be
substituted for Portfolio shares held in the Separate Account. It is intended
that any substitution would be of shares of Portfolios with investment
objectives similar to those of the Portfolios of the Fund.
ANNUITY PROVISIONS
MINIMUM ANNUITY PAYMENTS--Annuity payments generally will be made monthly, but
if any payment would be less than $100 PaineWebber Life may change the
frequency so payments are at least $100 each. If the amount to be applied at
the Annuity Date is less than $5,000, PaineWebber Life may elect to pay such
amounts in a lump sum where permitted by state regulation.
ANNUITY DATE--The Contract Owner selects the Annuity Date in the application.
It must be on the first day of a month, and it may not be later than the first
day of the next month after the Annuitant's 85th birthday. If no Annuity Date
is elected, the Annuity Date will be the first day of the month after the
Annuitant attains age 85. Provisions of the Code may require that Contracts
issued pursuant to qualified retirement plans have an earlier Annuity Date.
PROOF OF AGE, SEX AND SURVIVAL--PaineWebber Life may require proof of age, sex
or survival of any person upon whose life continuation of Annuity payments
depends.
MISSTATEMENT OF AGE OR SEX--If the age or sex of the Annuitant has been
misstated, any Annuity payable shall be that which the amount applied would
have purchased at the correct age and sex. Overpayments made by PaineWebber
Life because of such misstatement, with interest at 6% per annum, will be
charged against benefits payable subsequent to adjustment. The dollar amount of
any underpayment made by PaineWebber Life as a result of a misstatement will be
paid in full with the next payment due under the Contract, with interest at 6%
per annum.
CHANGE OF ANNUITY DATE OR ANNUITY OPTION--The Contract Owner may change the
Annuity Date and/or the Annuity option by written notice received by
PaineWebber Life at least 30 days prior to the Annuity Date previously selected
and at least 30 days prior to the Annuity Date being requested.
GENERAL ANNUITY OPTIONS
Subject to the provisions of the Code and of the retirement plan under which a
Contract is purchased, the Contract Owner may elect any one of the Annuity
options listed below. Other Annuity options may be selected by mutual agreement
between the Contract Owner and PaineWebber Life. If no Annuity option election
has been made by the Annuity Date, Variable Annuity payments will automatically
be made under Option 3, an Annuity payable for the life of the Annuitant with
ten years' payments certain. Contract Values in the Separate Account will be
applied to a Variable Annuity unless the Owner elects otherwise in writing at
least 30 days before the Annuity Date.
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Changes in the optional form of Annuity payment may be made at any time up to
30 days prior to the date on which Annuity payments are to begin. All options
are available as fixed or variable annuities. The Annuity payments described
below are determined on the basis of (i) the mortality table specified in the
Contract, (ii) the age and, where permitted, the sex of the Annuitant, (iii)
the type of Annuity payment option(s) selected, and (iv) the assumed investment
rate.
OPTION 1--PAYMENTS FOR A GUARANTEED FIXED PERIOD: An Annuity payable for a
specified period of time. The period must be at least five years. If this
option is taken as a Variable Annuity, the Contract Owner may at any time
choose to receive the present value of the remaining payments in a lump sum
computed at the assumed investment rate. Because a Variable Annuity under this
option is not based on a life contingency, the Contract Owner will receive no
benefit from the deduction of the mortality risk charge from the Separate
Account.
OPTION 2--LIFE ANNUITY: Payments will be made for the life of the Annuitant.
Payments will cease with the last payment due prior to the Annuitant's death.
OPTION 3--LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 OR 20 YEARS: An Annuity
payable during the lifetime of the Annuitant (no matter how long he or she
might live) with a guaranteed minimum number of payments. If the Annuitant dies
before the guaranteed number of payments have been made, the remaining payments
for the guaranteed period chosen (10 or 20 years) will continue to the
designated beneficiary.
OPTION 4--JOINT AND SURVIVOR ANNUITY: An Annuity will be paid during the
lifetimes of the Annuitant and the Annuitant's spouse. The amount of such
payments will not change by reason of the first death. Payments will end with
the last payment due prior to the second death.
ADDITIONAL VARIABLE ANNUITY PROVISIONS
FIRST VARIABLE ANNUITY PAYMENT--The dollar amount of the first monthly Annuity
payment will be determined by applying the amount to be annuitized to the
Annuity table applicable to the Annuity option chosen. If more than one
Division has been selected, the value of the interest in each Division is
applied separately to the Annuity table to determine the amount of the first
Annuity payment attributable to that Division. The Annuity tables are in the
Contract and are based on the 1983 Table "a" for Individual Annuity Valuation
with interest at 4% for the life of the Contract.
ASSUMED INVESTMENT RATE--A 4% assumed investment rate is built into the Annuity
tables in the Contract. A higher assumption would mean a higher first Annuity
payment but more slowly rising (or more rapidly falling) subsequent payments. A
lower assumption would have the opposite effect. If the actual net investment
rate is 4% annually, Annuity payments will be level.
NUMBER OF ANNUITY UNITS--The number of Annuity Units for each applicable
Division is the amount of the first monthly Variable Annuity payment
attributable to that Division divided by the value of an Annuity Unit for that
Division as of the first Valuation Day on or after the Annuity Date. The number
of Annuity Units used in computing Annuity payments attributable to a Division
will remain constant during the Annuity period unless a transfer is made.
VALUE OF EACH ANNUITY UNIT--The value of an Annuity Unit of each Division was
set at $10 when the Division was established. The value may increase or
decrease from one Valuation Period to the next. For any Valuation Period, the
value of an Annuity Unit of a particular Division is the value of that Annuity
Unit during the last Valuation Period, multiplied by the net investment factor
for that Division for the current Valuation Period. The result is then
multiplied by a factor that offsets the effect of the assumed investment rate.
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SUBSEQUENT VARIABLE ANNUITY PAYMENTS--Subsequent monthly Variable Annuity
payments will vary in amount according to the investment performance of the
applicable Division(s). The part of each subsequent Variable Annuity payment
attributable to a Division is the number of Annuity Units for that Division as
determined in the first Annuity payment (adjusted for transfers, if any)
multiplied by the value of an Annuity Unit for that Division for the Valuation
Period immediately preceding the Valuation Period in which payment is made. The
amount of each subsequent Annuity payment will not be affected by variations in
mortality experience.
MISCELLANEOUS PROVISIONS
NOTICES, CHANGES AND ELECTIONS--All notices, changes and elections under the
Contract must be in writing, signed by the proper party and received by the
Administrative Office of PaineWebber Life to be effective, except that account
transfers and changes in allocation for future Purchase Payments may be made by
telephone or facsimile unless the Contract Owner has elected in writing not to
have such services made available. Instructions given by telephone and
facsimile are provided under safeguards and conditions described in
"Transfers," Page 19. All such notices and elections should include the
Allocation Options involved, the Contract Owner's Contract number, and any
other information necessary to process the request. If acceptable to
PaineWebber Life, notices or elections relating to beneficiaries and ownership
will take effect as of the date signed unless PaineWebber Life has already
acted in reliance on the prior status. PaineWebber Life is not responsible for
the validity of such notices and elections.
AMENDMENT OF CONTRACT--A condition or provision of the Contract may be waived
or modified only in writing signed by the President, Vice President or
Secretary of PaineWebber Life.
The Contract may be amended at any time as required to make it conform with any
law or regulation issued by any government agency to which the Contract is
subject.
RIGHT TO EXAMINE--Within the number of days of the receipt of a Contract as
prescribed by state law, the Contract may be returned to PaineWebber Life for
cancellation. Unless state law requires otherwise, PaineWebber Life will refund
the Contract Value computed at the end of the Valuation Period in which the
Contract is received. The Contract Owner bears the investment risk during the
ten day period. In those states, however, where PaineWebber Life is required to
return the entire Purchase Payment, to minimize investment risk, PaineWebber
Life will invest all initial Purchase Payments in the Money Market Division
until the end of the "Free Look" period at which time it will be allocated
pursuant to the Owner's allocation. In such cases, the amount returned upon
cancellation prior to the end of the "Free Look" period is the greater of the
Purchase Payment or the Contract Value.
RETIREMENT PLAN CONDITIONS--A Contract acquired in connection with a retirement
plan will be subject to the conditions of the retirement plan. Such plans may
impose restrictions or special taxation consequences in the event of
withdrawal, death, disability, separation from employment, premature
distributions or excess contributions. The Contract Owner should understand the
features of any retirement plan in which he or she participates and, if
necessary, seek an explanation thereof from a qualified tax adviser.
REPORTS TO CONTRACT OWNERS--At least once a year, a report which will set forth
information regarding the Contract Value will be sent to the Contract Owner.
The Contract Owner will also be furnished notices, proxies and solicitation
materials which relate to the Fund.
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<PAGE>
FEDERAL INCOME TAX STATUS
The operations of the Separate Account form part of the operations of
PaineWebber Life but the Code provides that no federal income tax will be
payable by PaineWebber Life on the investment income and capital gains of the
Separate Account. If the Contract is used with a Qualified Plan, the employer
or Contract Owner may be permitted to deduct the Purchase Payments made. Until
a distribution is made, no federal income tax is payable by the Contract Owner
on the investment earnings of a Contract. Distributions from certain types of
Qualified Plans to a participant who is age 50 before January 1, 1986, may be
eligible for capital gains treatment on a portion of the distribution and five
year or ten year forward averaging. The Annuitant will be allowed to recover
tax-free any portion of each Annuity payment representing Purchase Payments for
which no deductions were allowed. If, however, a surrender is made before age
59 1/2, with certain exceptions, it will be subject to a 10% penalty tax on the
taxable amount withdrawn. Distributions from Qualified Plans may be eligible
for a tax-free rollover to another Qualified Plan.
Variable annuity contracts will be entitled to favorable tax treatment under
the Code so long as the investments of the separate accounts funding them are
"adequately diversified" under section 817(h) of the Code. If the investments
of a separate account are determined to be not adequately diversified, Contract
Owners in the separate account would be treated as the owners of the underlying
assets and would be taxed currently on earnings and gains. It is intended that
the investments of the Separate Account will be adequately diversified under
section 817(h) of the Code.
PaineWebber Life is required to withhold federal income tax on Annuity
payments, lump sum distributions, and partial surrenders. For certain
distributions ("Eligible Rollover Distributions") made after December 31, 1992,
payors are required to withhold 20 percent of the amount of the distribution.
An Eligible Rollover Distribution means the taxable portion of any distribution
(other than those in prescribed forms of annuity payments and required
distributions) from certain types of Qualified Plans. This withholding tax
cannot be waived, but it can be avoided by rolling the distribution over to
another eligible Qualified Plan or IRA at the election of the Contract Owner,
in a direct transfer. The plan administrator will notify Contract Owners who
are to receive Eligible Rollover Distributions of a more detailed explanation
of their distribution options and of how to elect a direct transfer of the
distribution to another eligible plan or IRA.
Except for Eligible Rollover Distributions, recipients of other distributions
are allowed to make an election not to have federal income tax withheld. After
an election is made with respect to Annuity payments, an Annuitant may revoke
the election at any time, and thereafter commence withholding. PaineWebber Life
will notify the payee at least annually of his or her right to revoke the
election. Payees are required by law to provide PaineWebber Life (as payor)
with their correct taxpayer identification number ("TIN"). If the payee is an
individual, the TIN is the same as his or her Social Security number.
HOW TO PURCHASE A CONTRACT
A Contract may be purchased by completing the application form and forwarding
it, along with the Purchase Payment, to the person from whom you received the
prospectus. Contracts may be sold only by broker-dealers who are licensed
insurance agents of PaineWebber Life, either individually or through an
insurance agency. Sales commissions are paid by PaineWebber Life on the sale of
Contracts. The commissions paid range from 1% to 6%.
PaineWebber Incorporated ("PWI"), located at 1285 Avenue of the Americas, New
York, New York 10019 serves as distributor of the Contracts pursuant to a
principal underwriting (distribution) agreement. PWI is registered as a broker-
dealer under the Securities Exchange Act of 1934, as
PWD 24
<PAGE>
amended, and is a member of the National Association of Securities Dealers,
Inc. PWI has entered into a Principal Underwriter Agreement with PaineWebber
Life to accomplish the retail distribution of Contracts.
VOTING RIGHTS
Unless otherwise restricted by the retirement plan pursuant to which a Contract
is issued, each Contract Owner invested in Divisions of the Separate Account
will have the right to instruct PaineWebber Life with respect to voting the
shares of the Fund which are the assets underlying his or her interest in the
Separate Account at all shareholders meetings. A quorum of Fund shareholders
shall be the lesser of (1) 67% or more of the voting securities present in
person or by proxy at a shareholder meeting, if the holders of more than 50% of
the outstanding voting securities are present or represented by proxy, or (2)
more than 50% of the outstanding voting securities.
The number of Fund shares which may be voted pursuant to the instructions of a
Contract Owner is based on the number of units owned as of the record date of
the meeting. Shares for which no instructions are received will be voted in the
same proportion as the shares for which instructions have been received.
Contract Owners will periodically receive various materials which relate to
voting Fund shares such as proxy materials and voting instruction forms.
Contract Owners will also receive periodic reports relating to the Fund
Portfolio in which they have an interest.
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<PAGE>
TABLE OF CONTENTS
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
TOPIC PAGE
<S> <C>
PaineWebber Life Insurance Company......................................... 3
The Separate Account....................................................... 3
The Fund................................................................... 3
The Contract............................................................... 5
Purchase Payments........................................................ 5
Accumulation Provisions.................................................. 6
Annuity Payments......................................................... 6
Distribution of Contracts................................................ 8
Additional Federal Income Tax Information.................................. 8
The Company and the Separate Account....................................... 8
Non-Qualified Plans...................................................... 9
Qualified Plans.......................................................... 9
Withholding.............................................................. 10
Diversification Requirements............................................. 11
Other Information.......................................................... 11
Reports to Contract Owners............................................... 11
Administrative Services.................................................. 11
Safekeeping of Assets.................................................... 11
Independent Auditors..................................................... 11
Registration Statement................................................... 11
Separate Account Performance............................................... 12
Financial Statements....................................................... 14
</TABLE>
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<PAGE>
SOME QUESTIONS AND ANSWERS ABOUT THE CONTRACT
1.For whom is the Contract designed?
The Contract is designed for anyone seeking to accumulate retirement income
through managed investments. The Contract can be used for either private
(non-qualified) plans or tax-qualified retirement plans. The Contract Owner
may designate himself, herself or another person to be the Annuitant.
2.How do you purchase a Contract?
A Contract may be purchased through persons who are licensed to sell
insurance products and securities on agreement with PaineWebber Life and
PaineWebber Incorporated, the underwriter for the Contract. A prospective
purchaser must deliver a completed application, such other completed forms
as required and the initial Purchase Payment to the licensed salesperson,
who then forwards such payment and forms to PaineWebber Life for acceptance.
See "How to Purchase a Contract."
3.What type of annuity is the Contract?
The Contract provides an accumulation period with variable Allocation
Options and offers a choice of either fixed or variable annuity payments
after the Annuity Date. The Contract Value invested in a variable option
during either the accumulation period or annuity payment period varies to
reflect the investment performance of the Division(s) to which that
Contract's Values are allocated. Thus, the investment risk is borne by the
Contract Owner.
When the variable annuity payment is chosen, only the first monthly payment
under the Contract is guaranteed in amount with subsequent payments varying
with the investment performance of the Division(s) to which Contract Values
are allocated.
When the fixed annuity payment is chosen, the amount of each payment is
determined on the Annuity Date and does not vary.
4.What expenses are charged under the Contract?
No initial sales charge is deducted from Purchase Payments nor will any
early withdrawal charge be deducted upon partial or complete withdrawal.
Under this Contract, PaineWebber Life deducts a distribution expense charge
daily from each Division, at an annual rate of 0.40% of the total net assets
of each Division, which is included in the 1.77% charge discussed below. The
amount of any sales charge imposed (which includes the distribution expense
charge) will not exceed 9% of all Purchase Payments. See "Distribution
Expense Charge."
Charges totaling 1.77%, on a yearly basis, of each Division's total net
assets are deducted from each Division. These charges consist of the
distribution expense charge discussed above (0.40%) plus an additional 1.25%
to reimburse PaineWebber Life for undertaking the mortality risk and expense
risk in connection with the Contract and, in those cases in which the
Enhanced Death Benefit is applicable, .12% which represents a premium for
the Enhanced Death Benefit. See "Contract Charges and Deductions."
During the accumulation period, each Contract is assessed an annual contract
maintenance charge of $30. This charge, which is guaranteed never to
increase, is designed to reimburse PaineWebber Life for the cost of
administering the Contract. See "Contract Maintenance Charge."
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<PAGE>
Transfers among the Allocation Options and withdrawals are permitted without
limit in number. The Contract provides that each transfer in excess of 12 in
a Contract year is subject to a charge of $10. PaineWebber Life has waived
this transfer charge until further notice. See "Transfer Charges."
There is a withdrawal transaction charge equal to the lesser of $25 or 2% of
the amount withdrawn for each withdrawal in excess of two in any Contract
year. This charge is not applied to withdrawals made in connection with a
systematic withdrawal program. See "Systematic Withdrawal Program".
The Fund is also subject to certain charges. Mitchell Hutchins serves as
investment adviser to the Fund in return for a fee which is accrued daily
and paid monthly and is based on an annual percentage of the net assets of
each Portfolio of the Fund. See "The Fund."
Any premium taxes with respect to a Contract will be paid when due.
PaineWebber Life may advance the amount of such taxes and deduct them
subsequently. See "Premium and Other Taxes".
5.May the Contract Owner withdraw all or a portion of the Contract Value?
All or a portion of the Net Contract Value may be withdrawn at any time
during the accumulation period, with the following limits: (a) the minimum
permissible amount of partial withdrawal is $500, and (b) no partial
withdrawal may be made if it would result in a remaining Contract Value of
less than the greater of: (i) $1,000, or (ii) the amount of any unassessed
premium taxes. Withdrawals from Tax-sheltered Annuities described in section
403(b) of the Code are subject to special restrictions imposed by the Code.
Subject to these limitations, the Contract Owner may make as many partial
withdrawals as he or she wishes. There is, however, a withdrawal transaction
charge equal to the lesser of $25 or 2% of the amount withdrawn for each
withdrawal in excess of two in any policy year. See "Withdrawals."
No withdrawal is permitted following the commencement of annuity payments
with the exception of Option 1 when taken as a variable annuity payment
which allows for a lump sum payment of the present value of the remaining
payments. See "General Annuity Options."
It should also be noted that a penalty tax may be imposed by the Code upon
premature withdrawal of amounts accumulated under the Contract. For federal
income tax consequences of partial or complete withdrawals, see "Exercise of
Rights under the Contract", "Withdrawals", and "Federal Income Tax Status."
6.How are the amounts of the variable annuity payments determined?
The Contract Value available on the Annuity Date is used to provide annuity
payments. The Contract Value may be reduced by premium taxes. The Contract
Owner's values in the Divisions will be converted to Annuity Units. The
Annuitant will receive annuity payments based on the Contract Value
available, the annuity tables guaranteed by the Contract and the Annuity
option selected. See "General Annuity Options." There can be no assurance
that the Contract Value during the accumulation period or the aggregate
amount of annuity payments after the Annuity Date will equal or exceed the
aggregate Purchase Payments.
7.What if the Owner dies during the accumulation period?
If the Owner dies prior to the Annuity Date, PaineWebber Life will pay the
designated beneficiaries a minimum (enhanced) death benefit equal to the
greatest of (a), (b), or (c) as follows:
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(a) The Contract Value; or
(b) The greatest of the Contract Values on the first Valuation Day of
each 5 year period less any partial withdrawals, transfer charges, and
withdrawal transaction charges, since the beginning of the 5 year
period. The first 5 year period begins on the 5th Contract Anniversary;
(c) The sum of all amounts invested in the Separate Account Divisions,
accumulated at interest, less any partial withdrawals, transfer charges,
and withdrawal transaction charges accumulated at interest.
For Single Life Death Benefit Options, the interest is at an effective
annual rate of 4% for Divisions other than the Money Market Division and
at a rate equal to the Net Investment Factor for each Valuation Period
for the Money Market Division.
If this Contract has Joint Spousal Owners and a Joint Life Death Benefit
Option has been selected, the interest accumulates at an effective
annual rate of 6% for Divisions other than the Money Market Division and
at a rate equal to the Net Investment Factor for each Valuation Period
for the Money Market Division.
Interest accrual terminates on the Owner's 75th birthday. If Joint
Spousal Owners exist and the Joint Life Death Benefit Option has been
selected, then interest accrual ends on the youngest Owner's 75th
birthday.
The maximum death benefit under this paragraph (c) is the sum of all Net
Purchase Payments, each accumulated at the interest rate for Divisions
other than the Money Market Division to a maximum of two times each Net
Purchase Payment, less any partial withdrawals, transfer charges, and
withdrawal transaction charges, each accumulated at the interest rate
for Divisions other than the Money Market Division to two times each
withdrawal or deducted charge.
The Death Benefit is determined as of the Valuation Day on which PaineWebber
Life receives due proof of the Owner's death and an election of the method
of payment from the Beneficiary at its Administrative Office at 601 Sixth
Avenue, Des Moines, Iowa 50309.
If the Owner is not a natural person, the Annuitant will be treated as the
Owner for the purposes of determining if a Death Benefit is payable.
8.What are the mortality risks assumed under the Contract by PaineWebber Life?
Under the Contract, PaineWebber Life guarantees that during the accumulation
period the death benefit will be the amounts as determined in response to
question 7 above. PaineWebber Life further guarantees that annuity payments
will not be affected by a change in the death rate assumed in establishing
its obligation to provide annuity payments under the Contract. This means
that the Annuitant under a life option will continue to receive annuity
payments no matter how long he or she lives.
9.What is the nature of the security described in the prospectus?
Because the value of an Accumulation Unit of each Division of the Separate
Account during the accumulation period is based upon the changing net asset
value of the shares of the underlying Fund Portfolio, the Contract Owner
bears the investment risks and rewards. Therefore, the Contract is
considered a security under federal law and interests therein are required
to be registered under the Securities Act of 1933. In addition, the Separate
Account is registered with the Securities and Exchange Commission under the
Investment Company Act of 1940 as a unit investment trust.
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10.Does a Contract purchaser have the right to examine and reject the Contract?
Unless state law requires otherwise, if after receiving the Contract the
purchaser is not satisfied with it and returns it within ten days after
receipt, PaineWebber Life will refund to the Contract Owner his or her
Contract Value.
11.May additional payments be made under a Contract after it is established?
Yes, additional payments of at least $100 for Contracts issued under
Qualified Plans and $500 under other Contracts may be made at any time prior
to the Annuity Date. PaineWebber Life may waive these minimum payments for
certain plans including automatic payment plans.
12.Can transfers be made among the Separate Account Divisions?
Transfers among Separate Account Divisions can be made at any time. See
"Transfer Charges."
13.How can Contract inquiries be made?
For further information concerning the Contract, write the administrative
offices of PaineWebber Life Insurance Company at 601 6th Avenue, Des Moines,
Iowa 50309.
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<PAGE>
Please send me, at no charge, the
Statement of Additional Information,
dated May 1, 1995 for the Individual
Deferred Variable Annuity Contract
(without early withdrawal charge)
issued by PaineWebber Life Variable
Annuity Account.
(PLEASE PRINT OR TYPE AND FILL IN ALL INFORMATION.)
-------------------------------------
Name
-------------------------------------
Address
-------------------------------------
City/State/Zip
PWD
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-----------------
-----------------
-----------------
PAINEWEBBER LIFE INSURANCE COMPANY
ANNUITY ADMINISTRATION
601 6TH AVENUE
DES MOINES, IOWA 50309
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1995
PaineWebber Life Variable Annuity Account
(without Early Withdrawal Charge)
---------------------------
MILESTONES
----------
An Individual Deferred Variable Annuity Contract
---------------------------
PaineWebber Life Insurance Company
---------------------
---------------------
This Statement of Additional Information is not a prospectus. It should be read
only in conjunction with the PaineWebber Life Variable Annuity Account
prospectus dated May 1, 1995, a copy of which may be obtained without charge by
writing to PaineWebber Life Insurance Company Administrative Office at 601 6th
Avenue, Des Moines, Iowa 50309.
<PAGE>
TABLE OF CONTENTS
Topic Page
PAINEWEBBER LIFE INSURANCE COMPANY............................... 3
THE SEPARATE ACCOUNT............................................. 3
THE FUND......................................................... 3
THE CONTRACT..................................................... 5
PURCHASE PAYMENTS........................................... 5
ACCUMULATION PROVISIONS..................................... 6
ANNUITY PAYMENTS............................................ 6
DISTRIBUTION OF CONTRACTS................................... 8
ADDITIONAL FEDERAL INCOME TAX INFORMATION........................ 8
THE COMPANY AND THE SEPARATE ACCOUNT........................ 8
NON-QUALIFIED PLANS......................................... 9
QUALIFIED PLANS............................................. 9
WITHHOLDING................................................. 10
DIVERSIFICATION REQUIREMENTS................................ 11
OTHER INFORMATION................................................ 11
REPORTS TO CONTRACT OWNERS.................................. 11
ADMINISTRATIVE SERVICES..................................... 11
SAFEKEEPING OF ASSETS....................................... 11
INDEPENDENT AUDITORS........................................ 11
REGISTRATION STATEMENT...................................... 11
SEPARATE ACCOUNT PERFORMANCE..................................... 12
FINANCIAL STATEMENTS............................................. 14
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PAINEWEBBER LIFE INSURANCE COMPANY
PaineWebber Life Insurance Company ("Company") is a stock life insurance company
organized under the laws of the State of California as Pacific Fidelity Life
Insurance Company. The Company was acquired by PaineWebber Life Holdings, Inc.
on December 31, 1992. The administrative offices of the Company are at 601 6th
Avenue, Des Moines, Iowa 50309. The executive offices are located at 1200
Harbor Boulevard, Weehawken, New Jersey 07087.
The Company is engaged in the issuance and sale of life insurance and annuity
contracts on a non-participating basis. It is presently licensed to do business
in the District of Columbia and all states, except New York and Connecticut.
The Company intends to market the individual variable annuity contracts
described in this Statement of Additional Information in all jurisdictions in
which it is admitted to conduct life insurance business.
The employees of the Company are covered under a life insurance company blanket
bond covering the Company and its affiliates in the aggregate amount of $100
million.
THE SEPARATE ACCOUNT
PaineWebber Life Variable Annuity Account ("Separate Account") was established
by the Company in December 1992, pursuant to the provisions of California law,
as a segregated investment account of the Company. The Separate Account
currently has ten Divisions, each of which invests in shares of a designated
Portfolio of PaineWebber Series Trust ("Fund"). The Separate Account and each
Division therein is administered as a part of the general business of the
Company; but the income, gains and losses of each Division are credited to or
charged against the assets held for that Division in accordance with the terms
of the Contract, without regard to other income, gains or losses of any other
Divisions or arising out of any other business the Company may conduct. The
assets within each Division are not chargeable with liabilities arising out of
the business conducted by any other Divisions, nor will the Separate Account as
a whole be chargeable with liabilities arising out of any other business the
Company may conduct.
The Separate Account is registered with the Securities and Exchange Commission
as a unit investment trust under the Investment Company Act of 1940 ("1940
Act"). Such registration does not involve supervision of the management of the
Separate Account or the Company by the Securities and Exchange Commission.
THE FUND
The Fund is organized as a Massachusetts business trust and is registered as an
open-end management investment company under the 1940 Act. The Fund, which was
organized in 1986, currently consists of ten Portfolios: the Money Market
Portfolio, the Growth Portfolio, the Dividend Growth Portfolio, the Global
Growth Portfolio, the Aggressive Growth Portfolio, the Fixed Income Portfolio,
the Global Income Portfolio, the Government Portfolio, the Balanced Portfolio,
and the Asset Allocation Portfolio. The Trustees of the Fund may establish
additional Portfolios at any time. Portfolio assets are segregated and a
Contract Owner's interest is limited to the Portfolio(s) in which the Contract
Owner's Purchase Payments are invested.
Each Portfolio has, and is subject to, certain investment objectives and
restrictions which may not be changed without a majority vote of shareholders in
that Portfolio.
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The Fund will offer its shares to insurance company separate accounts only.
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") acts as the
investment adviser and administrator for each of the current Portfolios and the
Fund, and as such provides a continuous investment program for the Portfolios
and supervision of all matters relating to the operations of the Fund. Mitchell
Hutchins is a Delaware corporation and a wholly-owned subsidiary of PaineWebber
Incorporated, which is in turn a wholly-owned subsidiary of PaineWebber Group
Inc., a publicly held financial services holding company. As compensation for
its services, Mitchell Hutchins receives a fee from the Fund, accrued daily and
paid monthly, based on the average daily net assets of each Portfolio. Certain
Portfolios have subadvisers to Mitchell Hutchins who provide day-to-day
management services for those Portfolios.
A summary of the investment objective of, and the investment advisory fees
charged, each Portfolio of the Fund available for purchase is described below.
MORE DETAILED INFORMATION IS CONTAINED IN THE CURRENT PROSPECTUS OF THE FUND
WHICH ACCOMPANIES THE SEPARATE ACCOUNT PROSPECTUS.
The Money Market Portfolio seeks to provide maximum current income consistent
with liquidity and conservation of capital. To achieve its objective, this
Portfolio invests primarily in high grade money market instruments, generally
with remaining maturities of one year or less, and repurchase agreements secured
by such instruments. As compensation for its services, the Money Market
Portfolio pays the investment adviser a fee at the annual rate of .50% of
average daily net assets.
The Growth Portfolio seeks to provide long-term capital appreciation. To
achieve its objective, this Portfolio invests primarily in common stocks of
companies which, in the judgment of Mitchell Hutchins, have substantial
potential for capital growth. As compensation for its services, the Growth
Portfolio pays the investment adviser a fee at the annual rate of .75% of
average daily net assets.
The Dividend Growth Portfolio seeks current income and capital growth. This
Portfolio invests primarily in dividend-paying common stocks with the potential
for increasing dividends. As compensation for its services, the Dividend Growth
Portfolio pays the investment adviser a fee at the annual rate of .70% of
average daily net assets.
The Global Growth Portfolio seeks to provide long-term capital appreciation. To
achieve its objective, this Portfolio invests primarily in common stocks of
companies based in the U.S., Europe, Japan and the Pacific Basin. As
compensation for its services, the Global Growth Portfolio pays the investment
adviser a fee at the annual rate of .75% of average daily net assets.
The Aggressive Growth Portfolio seeks to maximize long-term capital
appreciation. This Portfolio invests primarily in the common stocks of U.S.
companies. As compensation for its services, the Aggressive Growth Portfolio
pays the investment adviser a fee at the annual rate of .80% of average daily
net assets.
The Fixed Income Portfolio primarily seeks high current income consistent with
the preservation of capital and secondarily seeks capital appreciation. This
Portfolio invest primarily in debt securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities and high quality corporate debt
securities and mortgage-backed securities of private issuers. As compensation
for its services, the Fixed Income Portfolio pays the investment adviser a fee
at the annual rate of .50% of average daily net assets.
The Global Income Portfolio primarily seeks high current income and secondarily
seeks capital appreciation. To achieve its objectives, this Portfolio invests
principally in high quality debt securities of foreign and U.S. issuers. As
compensation for its services, the Global Income Portfolio pays the investment
adviser a fee at the annual rate of .75% of average daily net assets.
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The Government Portfolio primarily seeks to provide high current income
consistent with the preservation of capital and secondarily seeks capital
appreciation. To achieve these objectives, this Portfolio invests primarily in
high quality debt securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities. As compensation for its services, the Government
Portfolio pays the investment adviser a fee at the annual rate of .50% of the
average daily net assets.
The Balanced Portfolio seeks total return while preserving capital. This
Portfolio invests in equity securities but also invests no less than 25% of its
assets in fixed income senior securities. As compensation for its services, the
Balanced Portfolio pays the investment adviser a fee at the annual rate of .75%
of average daily net assets.
The Asset Allocation Portfolio seeks to provide a high total return with low
volatility. To achieve its objectives, this Portfolio allocates investments
among equity securities, long- and medium-term debt securities and money market
instruments. As compensation for its services, the Asset Allocation Portfolio
pays the investment adviser a fee at the annual rate of .75% of the average
daily net assets.
THE CONTRACT
The variable Allocation Options are funded by investments in the various
Divisions of the Separate Account. All obligations arising under a Contract,
including the guarantee to make Annuity payments, are general obligations of the
Company, and all of the Company's assets are available to meet its expenses and
obligations under the Contract. While the Company is obligated to make the
Variable Annuity payments under the Contract, the amount of such payments is not
guaranteed. The Contract Value in the Divisions of the Separate Account and the
amount of Variable Annuity payments will vary with the investment experience of
the Division(s) in which the Contract Owner's account is invested.
No initial sales charge is deducted from Purchase Payments. The Company deducts
a daily distribution expense charge from each Division at an annual rate of .40%
of the total net assets of each Division. The amount of any sales charge imposed
(which, in this instance, is the distribution expense charge), when added to any
previous sales charge, will not exceed 9% of all Net Purchase Payments. A
withdrawal transaction charge of the lesser of $25 or 2% of the amount withdrawn
will be imposed on all withdrawals in excess of two per Contract year. For more
information regarding the withdrawal transaction charge, see "Contract Charges
and Deductions" in the prospectus.
PURCHASE PAYMENTS
The minimum Purchase Payment for a Contract which is not a part of a plan
qualified for special tax treatment under the Internal Revenue Code ("Qualified
Plan") is $5,000 for the initial payment and $500 for subsequent payments. For
Qualified Plan Contracts, the minimum Purchase Payment is $1,000 and the minimum
additional payment is $100. The Company reserves the right to waive the minimum
Purchase Payment amounts on certain Qualified Plans, certain automatic purchase
plans, and for Contracts issued to officers, directors, agents, or full-time
employees of the Company, the investment adviser or subadviser to the Fund, the
distributor or third party administrators. Total cumulative purchase payments
will not be permitted to exceed $1,500,000 unless approved in advance by an
appropriate officer of the Company before they are accepted.
In the event that an application fails to recite all of the information
necessary to record the account properly, the Company will promptly request that
the Contract Owner furnish further instructions and will hold the initial
Purchase Payment in a suspense account, without interest, for a period not
exceeding 5 business days after receipt of the application by the Company. If
the necessary information is not received within 5 business days, the Company
will return the initial Purchase
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<PAGE>
Payment to the prospective Contract Owner, unless the prospective Contract
Owner, after being informed of the reasons for the delay, specifically consents
to the Company retaining the initial Purchase Payment until the application is
made complete.
Purchase Payments will be allocated to the Divisions of the Separate Account as
directed by the Contract Owner. If no allocation is indicated or allocations are
not properly completed, the application is considered not to be complete. If the
Contract Owner forwards a subsequent Purchase Payment and does not specifically
indicate into which Allocation Option(s) the Purchase Payment is to be invested,
the Company will credit the Purchase Payment based upon the last existing
allocation made by the Contract Owner. Subsequent Purchase Payments may be made
at any time without prior notice. The Contract will not be in default if no
subsequent Purchase Payments are made. The Company reserves the right to reject
any applications or Purchase Payments.
ACCUMULATION PROVISIONS
Accumulation Units - The number of a Division's Accumulation Units purchased by
a Contract Owner with respect to his or her initial Purchase Payment is
determined by dividing the amount credited to the Division by the Accumulation
Unit value for that Division next computed following acceptance of the
application (generally the next business day after receipt of the Purchase
Payment by the Company). The number of Accumulation Units purchased with
respect to subsequent Purchase Payments is determined by dividing the amount
credited to the Division by the applicable Accumulation Unit value for the
Valuation Period next determined following receipt of the Purchase Payment by
the Company. The Accumulation Unit value of each Division varies in accordance
with the investment experience of that Division.
Value of an Accumulation Unit - The value of an Accumulation Unit of each
Division was set at $10 when the Division was established. The value may
increase or decrease from one Valuation Period to the next. The value of an
Accumulation Unit is determined by multiplying the value of an Accumulation Unit
for the last Valuation Period by the net investment factor for that Division for
the current Valuation Period. The Contract Owner bears the investment risk that
the Contract Value may at any time be less than, equal to, or more than the
amounts invested in the Separate Account.
ANNUITY PAYMENTS
Annuity Payments - The Contract Owner's value in the Allocation Options may be
applied to provide either a Variable Annuity or a Fixed Annuity as selected by
the Contract Owner. The dollar amount of Variable Annuity payments will reflect
the investment experience of the Separate Account Division(s) in which the
Contract Owner is invested but will not be affected by adverse mortality
experience which may exceed the mortality risk charge provided for under the
Contract.
1. First Annuity Payment: The amount used to establish the first monthly
payment consists of the Contract Owner's values in the Allocation Options
as of the first Valuation Day on or after the Annuity Date adjusted for
charges and deductions. The Contract contains tables showing monthly
payment factors and annuity premium rates per $1,000 of the amount applied.
At the time the first monthly Variable Annuity payment is determined, a
number of Annuity Units for each Division is established for the Owner by
dividing the monthly payment derived from the tables by the Annuity Unit
value for the Division as of the date the first Annuity payment is due.
The number of Annuity Units forming the basis of an Annuity payment will
not change during the Annuity period unless Annuity Units are transferred
to or from another Division. The value of the Annuity Units, however, will
change based upon investment results.
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2. Subsequent Variable Annuity Payments: The amount of monthly payments after
the first for any Division will be determined by multiplying the number of
Annuity Units for that Division determined for the first payment (adjusted
for transfers, if any) by the Annuity Unit value for that Division for the
Valuation Period immediately preceding the Valuation Period in which the
subsequent payment is made. It will be the Company's practice to mail
Variable Annuity payments no later than 7 days after the last day of the
Valuation Period upon which they are based or the monthly anniversary
thereof.
Assumed Investment Rate - The tables set forth in the Contract are based upon
the 1983 Table "a" for Individual Annuity Valuation, with an assumed investment
rate of 4%. Variable Annuity payments will vary from payments based on the
assumed investment rate depending on whether the investment experience of the
Division(s) in which the Contract Owner is invested is better or worse than the
assumed investment rate. Over a period of time, if the Division(s) achieved a
net investment result equal to the assumed investment rate, the Annuity Units
would not change in value, and the amount of the Annuity payments would be
level. However, if the Division(s) achieved a net investment result greater than
the assumed investment rate, the Annuity Units would increase in value and the
amount of the Annuity payments would increase. Similarly, if the Division(s)
achieved a net investment result smaller than the assumed investment rate, the
Annuity Units would decrease in value and the amount of the Annuity payments
would decrease.
Election of Annuity Date and Form of Annuity - The Annuity Date and the form of
Annuity payment are elected by the Contract Owner. Unless a different Annuity
Date is elected, Annuity payments will begin on the first day of the month
following the Annuitant's 85th birthday. Contracts issued under Qualified Plans
may require an earlier Annuity Date. To the extent not prohibited by any
Qualified Plan requirements, an optional Annuity Date may be elected; such date
may be the first day of any month prior to the normal Annuity Date. The election
must be made at least 30 days before the optional Annuity Date elected.
Annuity Options - Subject to the provisions of the Internal Revenue Code
("Code") and the retirement plan under which a Contract is purchased, the
Contract Owner may elect any one of the Annuity Options listed below. If the
Owner does not elect otherwise, Annuity payments will be made on a variable
basis under Option 3, a life Annuity with 10 years' payments certain. Changes in
the optional form of Annuity payment may be made at any time up to 30 days prior
to the date on which Annuity payments are to begin. All Options are available as
fixed or variable payment annuities. The Annuity payments described below are
determined on the basis of (i) the mortality table specified in the Contract,
(ii) the age and, where permitted, the sex of the Annuitant, (iii) the type of
Annuity payment option(s) selected, and (iv) the assumed investment rate.
Option 1-Payments for a Guaranteed Fixed Period: An Annuity payable for a
specified period of time. The period must be at least 5 years. If this
option is taken as a Variable Annuity, the Contract Owner may at any time
choose to receive the present value of the remaining payments in a lump sum
computed at the assumed investment rate.
Option 2-Life Annuity: Payments will be made for the life of the Annuitant.
Payments will cease with the last payment due prior to the Annuitant's
death.
Option 3-Life Annuity with Payments Guaranteed for 10 or 20 Years: An
Annuity payable during the lifetime of the individual (no matter how long
he or she might live) with a guaranteed minimum number of payments. If the
Annuitant dies before the guaranteed number of payments have been made, the
remaining payments for the guaranteed period chosen (10 or 20 years) will
continue to the Owner.
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Option 4-Joint and Survivor Annuity: An Annuity will be paid during the
lifetimes of the Annuitant and the Annuitant's spouse. The amount of such
payments will not change by reason of the first death. Payments will end
with the last payment due prior to the second death.
Frequency of Payment - Payments under all options will be made on a monthly
basis, unless a different arrangement has been requested by the Contract Owner
and agreed to by the Company. If at any time any payments to be made to any
Annuitant are less than $100 each, the Company shall have the right to decrease
the frequency of payments to such interval as will result in a payment of at
least $100.
Annuity Unit Values - The value of an Annuity Unit of each Division was set at
$10 when the Division was established. The value may increase or decrease from
one Valuation Period to the next. For any Valuation Period, the value of an
Annuity Unit of a particular Division is the value of that Annuity Unit during
the last Valuation Period, multiplied by the net investment factor for that
Division for the current Valuation Period. The result is then multiplied by a
factor that offsets the effect of the assumed investment rate.
DISTRIBUTION OF CONTRACTS
Contracts are offered on a continuous basis through licensed insurance agents of
the Company (who are also either broker-dealers or persons associated with
broker-dealers), either individually or through an insurance agency. Sales
commissions will be paid by the Company. The commissions paid by the Company
will range from 1% to 6%.
PaineWebber Inc. ("PWI"), located at 1285 Avenue of the Americas, New York, New
York 10019, serves as the principal underwriter of the Contracts pursuant to an
underwriting (distribution) agreement ("Underwriting Agreement"). PWI is
registered as a broker-dealer under the Securities Exchange Act of 1934, and is
a member of the National Association of Securities Dealers, Inc. ("NASD"). PWL
may accomplish the retail distribution of Contracts itself or enter into Dealer
Agreements with other registered broker-dealers to do so. The Contracts will be
offered for sale by PWI and its correspondent firms.
The Underwriting Agreement may be terminated by the Company on behalf of the
Separate Account at any time on 60 days' written notice without payment of any
penalty. The Underwriting Agreement may be terminated at any time by PWI
without payment of any penalty on 60 days' written notice to the Separate
Account and the Company. The Underwriting Agreement automatically terminates in
the event of its assignment. PWI has received no underwriting compensation from
PaineWebber Life since the Contracts were not yet available for sale on the date
of this Statement of Additional Information.
ADDITIONAL FEDERAL INCOME TAX INFORMATION
THE COMPANY AND THE SEPARATE ACCOUNT
The Company is taxed as a life insurance company under Subchapter L of the Code.
The operations of the Separate Account form, and are taxed as, a part of the
total operations of the Company. The Contracts are formulated to meet the
definition of a "variable contract" under section 817(d) of the Code. The Code
provides that if the Separate Account meets certain diversification
requirements, set forth in Treasury Regulations under section 817(h) of the
Code, the income from the assets of the Separate Account used to fund the
annuities will not be subject to current federal income tax. See
"Diversification Requirements". There is no short-term or long-term capital gain
or loss recognized with respect to the assets of the Separate Account.
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NON-QUALIFIED PLANS
Accumulation Period - The Contract may be issued to individuals in connection
with personal retirement plans which do not qualify for the tax benefits which
are available to Qualified Plans. A non-Qualified Plan may be established by an
individual seeking to accumulate funds for retirement or by an employer for one
or more employees. With certain exceptions, a Contract held by a non-natural
person will not be treated as an Annuity contract. The tax consequences of
participation in a non-Qualified Plan will vary from plan to plan. Income
credited to a non-Qualified Contract is not includable in the gross income of
the Contract Owner. Amounts received before the Annuity Date are includable as
ordinary income to the extent Contract Value exceeds the Contract Owner's
Purchase Payments.
Withdrawals - A partial or complete withdrawal of a non-Qualified Contract
before commencement of Annuity payments will be treated first as a withdrawal of
income earned on investments to the extent of such income, then as a tax-free
return of capital. Moreover, amounts received upon assignment or pledge of the
Contract will be treated as amounts withdrawn under the Contract and therefore
subject to income taxes. Taxable amounts included in a withdrawal before the
Contract Owner attains age 59 1/2 will be subject to an additional income tax of
10% of the income withdrawn. This penalty would not apply where the withdrawal
is made on account of the Contract Owner's death or disability or where
substantially equal Annuity payments are received over the life of the Contract
Owner or the lives of the Contract Owner and a designated beneficiary. After
the Annuity Date, the Owner is allowed to recover tax-free any portion of each
Annuity payment which represents Purchase Payments.
QUALIFIED PLANS
Tax Advantages - Certain tax advantages are available under a Qualified Plan (a
retirement plan which satisfies the requirements of sections 401(a), 403(b),
408(b) or 457 of the Code). The tax advantages available under a Qualified Plan
include: the deductibility of employer or Contract Owner contributions; the
inclusion of contributions and their earnings in the participant's gross income
only when received or made available to the participant and, within certain
limits, the exclusion from the decedent's gross estate and from the
beneficiary's gross income of distributions to the beneficiary of a deceased
employee. A general information outline with respect to each type is provided
below. If the contract is to be used to fund a Qualified Plan, however,
competent tax advice should be sought.
1. Plans for Corporations and Self-Employed Individuals: Under section 401(a)
of the Code, contributions may be made on behalf of employees up to the
limits provided by section 415 and the payments will be deductible as
provided by section 404. Plan participants are also permitted to make non-
deductible voluntary contributions subject to certain non-discrimination
rules.
A plan established by an organization which primarily benefits "key
employees" (known as a "top-heavy" plan) will be subject to special rules
on: vesting, minimum contributions and benefits for non-key employees,
compensation which may be taken into account to determine contributions or
benefits for key employees, the aggregate limit on contributions and
benefits, and rollovers.
The tax treatment of plans established by self-employed individuals (known
as "Keogh" or "H.R. 10" plans) is essentially the same as corporate plans.
Some special restrictions apply to self-employed individuals who are
"owner-employees."
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2. Tax-Sheltered Annuities: Contributions made by public school systems,
churches and certain tax-exempt organizations made to purchase contracts on
behalf of their employees are excludible from the employees' gross income,
within certain limits, if the requirements of section 403(b) of the Code
are met.
3. Deferred Compensation Plans for State and Local Government Employees:
Section 457 of the Code provides special tax treatment for certain deferred
compensation plans for employees of state and local governments, their
political subdivisions, agencies, instrumentalities and affiliates, and
certain tax-exempt rural electric cooperatives. Such plans permit the
employees to specify the form of investment for their deferred
compensation, which can include investment in the Contract. However, the
investments will be owned by, and subject to, the claims of the general
creditors of the employer.
4. Individual Retirement Annuities: Section 408(b) of the Code permits
individuals to establish an Individual Retirement Annuity ("IRA"). No more
than $2,000 or 100% of compensation may be contributed to an IRA. Under
section 219 of the Code the entire amount is deductible if the individual
is not a participant in an employer's Qualified Plan. If the individual
participates in an employer's Qualified Plan, all, a portion, or none of
the contribution may be deductible, depending on adjusted gross income. An
IRA is subject to penalty and excise taxes on excess contributions and
insufficient distributions, as well as early distributions (see below).
Distributions - A participant who has attained age 50 before January 1, 1986,
may elect favorable tax treatment for a lump-sum distribution from a section
401(a) plan. This may include capital gains treatment on the pre-1974 portion
and 5-year or 10-year forward averaging. A distribution before age 59 1/2 from
a Qualified Plan (except a Section 457 plan) will be subject to a 10% additional
income tax on the amount of the distribution. The penalty does not apply to a
distribution: of an Annuity for life or life expectancy; on early retirement
under the plan at age 55; used to pay medical expenses; and after death.
Distributions from Tax-Sheltered Annuities are subject to special restrictions
imposed by section 403(b)(11) of the Code. See "Withdrawals" in the prospectus.
A participant who receives a lump sum distribution from a Qualified Plan (except
a section 457 plan) can make a "tax-free rollover" of the distribution into
another employer's Qualified Plan, in certain circumstances, or into an IRA and
continue to defer taxation of the amount rolled over. Except for the recovery
of nondeductible contributions, the entire amount of the Annuity payments will
be included in the participant's gross income. The participant is entitled to
recover tax-free any portion of each Annuity payment representing non-deductible
contributions. Distributions not made directly to the other Qualified Plan will
be subject to a mandatory 20% withholding.
WITHHOLDING
With certain exceptions, withholding on Annuity payments and other distributions
(such as lump sum distributions or partial withdrawals) is required. However,
recipients of Annuity payments or other distributions are allowed to make an
election not to have federal income tax withheld. After such election is made
with respect to Annuity payments, a payee may revoke the election at any time,
and thereafter, commence withholding. In such a case, the Company will notify
the payee at least annually of his or her right to change such election.
The withholding rate followed by the Company will be applied only against the
taxable portion of Annuity payments or other distributions. This rate will be
determined based upon the nature of the distribution(s). Federal income tax
will be withheld from Annuity payments pursuant to the recipient's withholding
certificate. If no withholding certificate is filed with the Company, federal
income tax will be withheld from Annuity payments on the basis that the payee is
married with three withholding exemptions. If the balance to the credit of a
participant in a Qualified Plan is distributed
-10-
<PAGE>
within one taxable year to the recipient, the amount of withholding will
approximate the federal income tax on a lump sum distribution. If a qualified
total distribution is made from a Qualified Plan, there is a mandatory
withholding unless the amount is rolled over to another qualified plan on a
Trustee to Trustee basis.
DIVERSIFICATION REQUIREMENTS
Non-Qualified variable contracts funded through segregated asset accounts, such
as the Separate Account, will not be treated as annuities under the Code unless
they are "adequately diversified." Whether the Separate Account is adequately
diversified is presently determined from the temporary regulations issued by the
Treasury Department in September 1986. It is intended that the Fund and the
Separate Account will be operated in such a manner as to satisfy the
requirements of the temporary regulations, and any final regulations which
follow, so that the Contracts qualify as annuities under the Code.
OTHER INFORMATION
REPORTS TO CONTRACT OWNERS
The Company will maintain all records which relate to the Contract. At least
once a year, a report which will set forth information regarding the Contract
Value will be sent to the Contract Owners. The Contract Owner will also be
furnished notices, proxies and solicitation materials which relate to the Fund.
ADMINISTRATIVE SERVICES
PaineWebber Life has entered into a contract with American Republic Insurance
Company under which the latter has agreed to perform certain of the
administrative services relating to the Contract. The address of the
administrative office is 601 6th Avenue, Des Moines, Iowa 50309. Such
administrative services include: issuing Contracts, maintaining Contract Owner
records (accounting, valuation and reporting services) and issuing reports.
SAFEKEEPING OF ASSETS
The Company maintains custody of the assets of the Separate Account. The Fund
shares owned by the Separate Account will be held in "book" form. That is,
actual certificates will not be issued by the Fund, rather, the record of
shares issued to the Separate Account will be recorded on the books of the Fund
by the Fund's transfer agent. The Company also maintains the records of
portfolio transactions of the Separate Account.
INDEPENDENT AUDITORS
Ernst & Young, LLP serves as independent auditors for the Separate Account and
the Company and performs audit and accounting services for the Separate Account
and the Company.
REGISTRATION STATEMENT
A registration statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, with respect to the Contract. The
Prospectus and this Statement of Additional Information do not contain all
information set forth in the registration statement, its amendments
-11-
<PAGE>
and exhibits, reference to which is made for further information concerning the
Separate Account, the Company and the Contract. Statements contained in this
Statement of Additional Information and the related Prospectus as to the content
of the Contract and other legal instruments are summaries. For a complete
statement of the terms thereof, reference is made to such instruments as filed.
SEPARATE ACCOUNT PERFORMANCE
From time to time the Separate Account may advertise the individual Division
"yields," "effective yields," or "average total return." These figures will be
based on historical earnings and are not intended to indicate future
performance.
(a) YIELD - The yield quotation is based on a seven-day period. If the seven-
day period falls on a non-valuation day, a calculation will be made as if
the seventh day were a valuation day for this purpose only. The yield is
computed by determining the net change, exclusive of capital changes, in
the value of a hypothetical pre-existing account having a balance of one
accumulation unit of the Division at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from contract owner
accounts, and dividing the difference by the value of the Division at the
beginning of the base period to obtain the base period return, and then
multiplying the base period return by 365/7 with the resulting yield figure
carried to at least the nearest hundredth of one percent. Recurring
charges are prorated among the Divisions by multiplying the flat fee by a
fraction, the numerator of which is the average number of contract owner
accounts that have money allocated to the Division and the denominator of
which is the sum of the average number of contract owner accounts that have
money allocated to each of the Divisions. A Division's prorated flat fee
is divided by the average number of accumulation units per contract owner
in that Division in order to equate the flat fee to a one-unit basis.
(b) EFFECTIVE YIELD - The effective yield quotation is based on a seven-day
period. If the seven-day period falls on a non-valuation day, a
calculation will be made as if the seventh day were a valuation day for
this purpose only. The effective yield is computed by determining the net
change, exclusive of capital changes, in the value of a hypothetical pre-
existing account having a balance of one accumulation unit of the Division
at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from contract owner accounts, and dividing the
difference by the value of the Division at the beginning of the base period
to obtain the base period return, and then compounding the base period
return by adding 1, raising the sum to a power equal to 365 divided by 7,
and subtracting 1 from the result.
(c) TOTAL RETURN - The total return quotation is based on annual periods or
from inception to the end of the Division's first fiscal year. In general,
the total return is computed by finding the average annual compounded rates
of return over the 1-, 5-, and 10-year periods or from the effective date
if the Division has been in effect less than the stated periods, that would
equate the initial amount invested to the ending redeemable value.
Recurring charges are prorated among the Divisions by multiplying the flat
fee by a fraction, the numerator of which is the average number of contract
owner accounts that have money allocated to the Division and the
denominator of which is the sum of the average number of Contract Owner
accounts that have money allocated to each of the Divisions. A Division's
prorated flat fee is divided by the average account value per $1,000 per
contract owner in that Division in order to equate the flat fee to a $1,000
account size basis.
(d) TOTAL RETURN NOT INCLUDING EARLY WITHDRAWAL CHARGES - The total return does
not include a early withdrawal charge since none are assessed under this
Contract. The quotation is based on the periods from inception to the end
of its first fiscal year and each full
-12-
<PAGE>
year thereafter. In general, the total return is computed by finding the
average annual compounded rates of return over the 1-, 5- and 10-year
periods or from the effective date if the account has been in effect less
than the stated periods, that would equate the initial amount invested to
an ending value.
Recurring charges are prorated among the Divisions by multiplying the flat fee
by a fraction, the numerator of which is the average number of contract owner
accounts that have money allocated to the Division and the denominator of which
is the sum of the average number of contract owner accounts that have money
allocated to each of the Divisions. A Division's prorated flat fee is divided by
the average account value per $1,000 per contract owner in that Division in
order to equate the flat fee to a $1,000 account size basis.
Performance information for a Division may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S&P
500"), Dow Jones Industrial Average ("DJIA"), Donoghue Money Market
Institutional Averages, or other indices measuring performance of a pertinent
group of securities so that investors may compare a Division's results with
those of a group of securities widely regarded by investors as representative of
the securities markets in general; (ii) other variable annuity separate accounts
or other investment products tracked by Lipper Analytical Services, a widely
used independent research firm which ranks mutual funds and other investment
companies by overall performance, investment objectives, and assets, or tracked
by other ratings services, companies, publications, or persons such as Variable
Annuity Research and Data Service ("VARDS") and Morningstar who rank separate
accounts or other investment products on overall performance or other criteria;
and (iii) the Consumer Price Index (measure for inflation) to assess the real
rate of return from an investment in the Contract. Unmanaged indices may assume
the reinvestment of dividends but generally do not reflect deductions for
administrative and management costs and expenses.
From time to time the Separate Account may seek to illustrate performance of
MAAP. Because MAAP is a new program without an operating history, such
illustration may take the form of a comparative investment in the S&P 500, 10
year Government Bonds and 13-week Treasury bills indices simultaneously in the
proportions recommended by the PaineWebber Asset Allocator Programs since 1973,
the date of its inception.
Any such illustration will disclose that MAAP does not involve investments in a
specific index but rather in the three Milestones portfolios and that the
performance of the indices does not necessarily correspond to the three
Milestones portfolios. In addition, it will be noted that certain fees, charges
and transaction costs are assessed with the Milestones annuity contract, which
are not reflected in the illustration.
PERFORMANCE
Money Market Division Yield and Effective Yield for the seven-day period ended
March 31, 1995 were: 3.70% and 3.77%, respectively.
The average total return for all the Divisions, except the Money Market, of the
Separate Account from inception to date periods ended March 31, 1995 are as
follows.
-13-
<PAGE>
Average Annual Total Return
Period Ended March 31, 1995
(No Surrender Charge)
<TABLE>
<CAPTION>
Since
Division Inception Date(1) 1 Year 5 Years Inception(1)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Government 11/29/93
Without Surrender Charge 1.29% 6.00% 5.25%
- -------------------------------------------------------------------------------
Fixed Income 11/5/93
Without Surrender Charge 0.18% N/A -6.37%
- -------------------------------------------------------------------------------
Global Income 11/3/93
Without Surrender Charge 1.37% 6.12% 5.94%
- -------------------------------------------------------------------------------
Balanced 11/1/93
Without Surrender Charge 4.21% N/A -0.97%
- -------------------------------------------------------------------------------
Asset Allocation 11/17/93
Without Surrender Charge -0.19% 5.73% 5.93%
- -------------------------------------------------------------------------------
Dividend Growth 11/5/93
Without Surrender Charge 3.95% N/A -1.08%
- -------------------------------------------------------------------------------
Growth 11/1/93
Without Surrender Charge 0.48% 7.63% 9.59%
- -------------------------------------------------------------------------------
Aggressive Growth 11/1/93
Without Surrender Charge 3.52% N/A 0.02%
- -------------------------------------------------------------------------------
Global Growth 11/1/93
Without Surrender
Charge -12.28% 1.62% 3.39%
- -----------------------------------------------------------------------------
</TABLE>
(1) The various Divisions of the Separate Account first became operational
beginning in September 1993. Except for the Fixed Income, Balanced and
Aggressive Growth Portfolios, the PaineWebber Series Trust which funds the
contracts became operational on earlier dates. Thus, the performance shown for
periods prior to the inception date of a particular Division is the performance
of the various Portfolios of PaineWebber Series Trust for those periods less the
charges at the contract level.
FINANCIAL STATEMENTS
The financial statements of PaineWebber Life Insurance Company contained herein
should be considered only for the purposes of informing investors as to its
ability to carry out contractual obligations as a sponsor under the Contracts as
described elsewhere herein and in the Prospectus. The financial statements of
the Separate Account are also included in this Statement of Additional
Information.
-14-
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP APPEARS HERE]
Report of Independent Auditors
The Board of Directors
PaineWebber Life Insurance Company
We have audited the accompanying statement of net assets of PaineWebber Life
Variable Annuity Account (comprising, respectively, the Money Market,
Government, Fixed Income, Global Income, Balanced, Asset Allocation, Dividend
Growth, Growth, Aggressive Growth and Global Growth Divisions) as of December
31, 1994, the related statements of operations and changes in net assets for the
year then ended, and the related statement of changes in net assets for the
period from September 1, 1993 (inception date) to December 31, 1993. These
financial statements are the responsibility of the Account's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of December 31, 1994, by
correspondence with the transfer agent. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
divisions constituting the PaineWebber Life Variable Annuity Account at December
31, 1994, and the results of their operations and the changes in their net
assets for the periods indicated in the first paragraph, in conformity with
generally accepted accounting principles.
/s/ERNST & YOUNG LLP
January 27, 1995
1
<PAGE>
PaineWebber Life Variable Annuity Account
Statement of Net Assets
December 31, 1994
<TABLE>
<CAPTION>
Money Fixed
Market Government Income
Combined Division Division Division
--------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Investments at net asset value:
PaineWebber Series Trust Money Market
Portfolio, 7,980,840 shares at $1.00
per share (cost - $7,980,840) $ 7,980,840 $7,980,840 $ $
PaineWebber Series Trust Government
Portfolio, 346,064 shares at $10.34
per share (cost - $4,015,364) 3,578,298 - 3,578,298 -
PaineWebber Series Trust Fixed Income
Portfolio, 876,487 shares at $8.71 per
share (cost - $8,079,191) 7,634,194 - - 7,634,194
PaineWebber Series Trust Global Income
Portfolio, 1,461,546 shares at $10.88
per share (cost - $17,059,993) 15,901,619 - - -
PaineWebber Series Trust Balanced
Portfolio, 1,272,399 shares at $9.47
per share (cost - $12,435,628) 12,049,608 - - -
PaineWebber Series Trust Asset
Allocation Portfolio, 607,126 shares
at $9.54 per share (cost - $7,031,761) 5,791,984 - - -
PaineWebber Series Trust Dividend
Growth Portfolio, 360,785 shares at
$9.16 per share (cost - $3,458,344) 3,304,791 - - -
PaineWebber Series Trust Growth
Portfolio, 900,638 shares at $14.56
per share (cost - $15,348,642) 13,113,289 - - -
PaineWebber Series Trust Aggressive
Growth Portfolio, 1,408,926 shares at
$9.65 per share (cost - $13,961,681) 13,596,122 - - -
PaineWebber Series Trust Global Growth
Portfolio, 1,595,025 shares at $12.44
per share (cost - $22,841,749) 19,842,112 - - -
--------------------------------------------------
Total investments (cost - $112,213,193) 102,792,857 7,980,840 3,578,298 7,634,194
Dividends receivable 3,882,700 32,086 329,549 220,084
Receivable from (payable to)
PaineWebber Life Insurance Company 36,063 1,790 163 (616)
--------------------------------------------------
Total net assets $106,711,620 $8,014,716 $3,908,010 $7,853,662
==================================================
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Global Asset Dividend Aggressive Global
Income Balanced Allocation Growth Growth Growth Growth
Division Division Division Division Division Division Division
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Investments at net asset value:
PaineWebber Series Trust Money Market
Portfolio, 7,980,840 shares at $1.00
per share (cost - $7,980,840) $ - $ - $ - $ - $ - $ - $ -
PaineWebber Series Trust Government
Portfolio, 346,064 shares at $10.34
per share (cost - $4,015,364) - - - - - - -
PaineWebber Series Trust Fixed Income
Portfolio, 876,487 shares at $8.71 per
share (cost - $8,079,191) - - - - - - -
PaineWebber Series Trust Global Income
Portfolio, 1,461,546 shares at $10.88
per share (cost - $17,059,993) 15,901,619 - - - - - -
PaineWebber Series Trust Balanced
Portfolio, 1,272,399 shares at $9.47
per share (cost - $12,435,628) - 12,049,608 - - - - -
PaineWebber Series Trust Asset
Allocation Portfolio, 607,126 shares
at $9.54 per share (cost - $7,031,761) - - 5,791,984 - - - -
PaineWebber Series Trust Dividend
Growth Portfolio, 360,785 shares at
$9.16 per share (cost - $3,458,344) - - - 3,304,791 - - -
PaineWebber Series Trust Growth
Portfolio, 900,638 shares at $14.56
per share (cost - $15,348,642) - - - - 13,113,289 - -
PaineWebber Series Trust Aggressive
Growth Portfolio, 1,408,926 shares at
$9.65 per share (cost - $13,961,681) - - - - - 13,596,122 -
PaineWebber Series Trust Global Growth
Portfolio, 1,595,025 shares at $12.44
per share (cost - $22,841,749) - - - - - - 19,842,112
------------------------------------------------------------------------------------------
Total investments (cost - $112,213,193) 15,901,619 12,049,608 5,791,984 3,304,791 13,113,289 13,596,122 19,842,112
Dividends receivable 272,044 105,106 744,213 35,577 987,855 7,556 1,148,630
Receivable from (payable to)
PaineWebber Life Insurance Company 3,690 4,889 1,179 433 598 8,828 15,109
------------------------------------------------------------------------------------------
Total net assets $16,177,353 $12,159,603 $6,537,376 $3,340,801 $14,101,742 $13,612,506 $21,005,851
==========================================================================================
</TABLE>
3
<PAGE>
PaineWebber Life Variable Annuity Account
Statement of Net Assets (continued)
<TABLE>
<CAPTION>
Net assets represented by:
Currently payable annuity contracts
<S> <C> <C> <C>
Global Income Division $ 4,737
Asset Allocation Division 2,286
Growth Division 4,534
Global Growth Division 14,192
------------
25,749
Contracts in accumulation period
<CAPTION>
Units Value
-------------------
Contracts sold subject to early
withdrawal charges <C> <C> <C>
Money Market Division 729,488 $10.20 7,440,622
Government Division 365,568 9.27 3,388,745
Fixed Income Division 788,821 8.83 6,966,201
Global Income Division 1,567,185 9.61 15,058,825
Balanced Division 1,091,748 9.40 10,259,341
Asset Allocation Division 646,381 9.18 5,931,965
Dividend Growth Division 308,172 9.29 2,862,278
Growth Division 1,561,429 8.72 13,616,611
Aggressive Growth Division 1,292,366 9.50 12,273,838
Global Growth Division 1,903,060 10.19 19,398,829
------------
97,197,255
Contracts sold not subject to early
withdrawal charges
Money Market Division 56,433 10.17 574,094
Government Division 56,044 9.27 519,265
Fixed Income Division 100,691 8.81 887,461
Global Income Division 117,924 9.44 1,113,791
Balanced Division 202,593 9.38 1,900,262
Asset Allocation Division 65,539 9.20 603,125
Dividend Growth Division 50,211 9.53 478,523
Growth Division 55,628 8.64 480,597
Aggressive Growth Division 141,235 9.48 1,338,668
Global Growth Division 171,114 9.31 1,592,830
------------
9,488,616
------------
$106,711,620
============
</TABLE>
See accompanying notes.
4
<PAGE>
PaineWebber Life Variable Annuity Account
Statement of Operations
Year ended December 31, 1994
<TABLE>
<CAPTION>
Money Govern-
Market ment
Combined Division Division
------------------------------------
<S> <C> <C> <C>
Investment income (loss)
Income:
Dividends $ 1,350,006 $179,414 $ 295,308
Capital gains distributions 2,875,787 - 34,241
Expenses (Note 2):
Administrative charges (67,630) (25,901) (1,293)
Mortality, distribution and expense
risk and enhanced death benefit fees (1,226,405) (76,719) (42,179)
------------------------------------
Net investment income (loss) 2,931,758 76,794 286,077
Realized and unrealized gain (loss) on
investments (Note 4)
Net realized loss on investments (355,956) - (24,543)
Net unrealized depreciation of (9,008,878) - (416,230)
investments
------------------------------------
Net increase (decrease) in net assets
resulting from operations $(6,433,076) $ 76,794 $(154,696)
====================================
</TABLE>
See accompanying notes.
5
<PAGE>
<TABLE>
<CAPTION>
Fixed Global Asset Dividend
Income Income Balanced Allocation Growth Growth
Division Division Division Division Division Division
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income (loss)
Income:
Dividends $ 225,030 $ 297,880 $ 111,181 $ 178,804 $ 35,577 $ 7,327
Capital gains distributions - - - 575,720 - 1,117,196
Expenses (Note 2):
Administrative charges (2,971) (4,206) (4,258) (3,813) (595) (7,795)
Mortality, distribution and expense
risk and enhanced death benefit fees (78,855) (222,720) (133,726) (73,110) (35,987) (158,988)
--------------------------------------------------------------------------------
Net investment income (loss) 143,204 70,954 (26,803) 677,601 (1,005) 957,740
Realized and unrealized gain (loss) on
investments (Note 4)
Net realized loss on investments (26,731) (146,507) (12,254) (22,616) (4,897) (45,093)
Net unrealized depreciation of
investments (443,886) (870,107) (381,258) (1,163,839) (145,968) (2,207,272)
-------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $(327,413) $(945,660) $(420,315) $ (508,854) $(151,870) $(1,294,625)
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
Aggressive Global
Growth Growth
Division Division
--------------------------
<S> <C> <C>
Investment income (loss)
Income:
Dividends $ 13,040 $ 6,445
Capital gains distributions - 1,148,630
Expenses (Note 2):
Administrative charges (6,719) (10,079)
Mortality, distribution and expense
risk and enhanced death benefit fees (152,090) (252,031)
-------------------------
Net investment income (loss) (145,769) 892,965
Realized and unrealized gain (loss) on
investments (Note 4)
Net realized loss on investments (19,887) (53,428)
Net unrealized depreciation of
investments (369,861) (3,010,457)
--------------------------
Net increase (decrease) in net assets
resulting from operations $(535,517) $(2,170,920)
==========================
</TABLE>
6
<PAGE>
PaineWebber Life Variable Annuity Account
Statements of Changes in Net Assets
Period from September 1, 1993 to December 31,
1993 and the Year ended December 31, 1994
<TABLE>
<CAPTION>
Money Govern-
Market ment
Combined Division Division
--------------------------------------------
<S> <C> <C> <C>
Net assets at September 1, 1993 $ - $ - $ -
Increase (decrease) in net assets
Operations:
Net investment income 628,944 514 19,889
Net realized gain on investments 353 - -
Net unrealized appreciation
(depreciation) of investments (411,458) - (20,836)
-----------------------------------------
Net increase (decrease) in net assets
resulting from operations 217,839 514 (947)
Changes from principal transactions:
Purchase payments 19,308,321 1,374,252 352,092
Contract distributions and terminations (54,750) (900) -
Transfer payments from (to) other
divisions - (158,101) (26,596)
-----------------------------------------
Increase in net assets derived from
principal transactions 19,253,571 1,215,251 325,496
-----------------------------------------
Total increase and net assets at
December 31, 1993 19,471,410 1,215,765 324,549
Increase (decrease) in net assets
Operations:
Net investment income (loss) 2,931,758 76,794 286,077
Net realized loss on investments (355,956) - (24,543)
Net unrealized depreciation of
investments (9,008,878) - (416,230)
-----------------------------------------
Net increase (decrease) in net assets
resulting from operations (6,433,076) 76,794 (154,696)
Changes from principal transactions:
Purchase payments 98,757,595 16,778,326 3,384,732
Contract distributions and terminations (5,110,803) (1,438,329) (168,128)
Transfer payments (to) from other
divisions - (8,617,840) 521,553
Annuity payments (2,543) - -
Actuarial adjustment in reserves for
currently payable annuity contracts 29,037 - -
-----------------------------------------
Increase in net assets derived from
principal transactions 93,673,286 6,722,157 3,738,157
-----------------------------------------
Total increase 87,240,210 6,798,951 3,583,461
-----------------------------------------
Net assets at end of period $106,711,620 $ 8,014,716 $3,908,010
=========================================
</TABLE>
See accompanying notes.
7
<PAGE>
<TABLE>
<CAPTION>
Fixed Global Asset
Income Income Balanced Allocation
Division Division Division Division
---------------------------------------------------------
<S> <C> <C> <C> <C>
Net assets at September 1, 1993 $ - $ - $ - $ -
Increase (decrease) in net assets
Operations:
Net investment income 1,234 309,863 1,022 84,409
Net realized gain on investments - - - 332
Net unrealized appreciation
(depreciation) of investments (1,111) (288,267) (4,762) (75,938)
---------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 123 21,596 (3,740) 8,803
Changes from principal transactions:
Purchase payments 1,428,115 3,581,783 2,183,207 834,974
Contract distributions and terminations (2,781) (7,168) (2,750) (21,290)
Transfer payments from (to) other
divisions 57,090 29,635 87,762 (23,480)
---------------------------------------------------------
Increase in net assets derived from
principal transactions 1,482,424 3,604,250 2,268,219 790,204
---------------------------------------------------------
Total increase and net assets at
December 31, 1993 1,482,547 3,625,846 2,264,479 799,007
Increase (decrease) in net assets
Operations:
Net investment income (loss) 143,204 70,954 (26,803) 677,601
Net realized loss on investments (26,731) (146,507) (12,254) (22,616)
Net unrealized depreciation of
investments (443,886) (870,107) (381,258) (1,163,839)
-------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (327,413) (945,660) (420,315) (508,854)
Changes from principal transactions:
Purchase payments 6,411,815 14,370,056 9,126,818 5,837,235
Contract distributions and terminations (357,801) (745,020) (532,742) (294,074)
Transfer payments (to) from other
divisions 644,514 (132,456) 1,721,363 701,539
Annuity payments - (460) - (224)
Actuarial adjustment in reserves for
currently payable annuity contracts - 5,047 - 2,747
---------------------------------------------------------
Increase in net assets derived from
principal transactions 6,698,528 13,497,167 10,315,439 6,247,223
--------------------------------------------------------
Total increase 6,371,115 12,551,507 9,895,124 5,738,369
---------------------------------------------------------
Net assets at end of period $7,853,662 $16,177,353 $12,159,603 $ 6,537,376
==========================================================
</TABLE>
<TABLE>
<CAPTION>
Dividend Growth Aggressive Global
Division Growth Growth Growth
Division Division Division
---------------------------------------------------------
<S> <C> <C> <C> <C>
Net assets at September 1, 1993 $ - $ - $ - $ -
Increase (decrease) in net assets
Operations:
Net investment income 10,153 57,075 1,310 143,475
Net realized gain on investments - 21 - -
Net unrealized appreciation
(depreciation) of investments (7,585) (28,081) 4,302 10,820
----------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 2,568 29,015 5,612 154,295
Changes from principal transactions:
Purchase payments 680,858 1,786,472 2,952,654 4,133,914
Contract distributions and terminations - (3,611) (12,573) (3,677)
Transfer payments from (to) other
divisions - - (129,287) 162,977
-----------------------------------------------------
Increase in net assets derived from
principal transactions 680,858 1,782,861 2,810,794 4,293,214
-----------------------------------------------------
Total increase and net assets at
December 31, 1993 683,426 1,811,876 2,816,406 4,447,509
Increase (decrease) in net assets
Operations:
Net investment income (loss) (1,005) 957,740 (145,769) 892,965
Net realized loss on investments (4,897) (45,093) (19,887) (53,428)
Net unrealized depreciation of
investments (145,968) (2,207,272) (369,861) (3,010,457)
----------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (151,870) (1,294,625) (535,517) (2,170,920
Changes from principal transactions:
Purchase payments 2,692,033 12,316,174 10,684,571 17,155,835
Contract distributions and terminations (85,135) (519,241) (469,774) (500,559)
Transfer payments (to) from other
divisions 202,347 1,782,719 1,116,820 2,059,441
Annuity payments - (452) - (1,407)
Actuarial adjustment in reserves for
currently payable annuity contracts - 5,291 - 15,952
------------------------------------------------------
Increase in net assets derived from
principal transactions 2,809,245 13,584,491 11,331,617 18,729,262
------------------------------------------------------
Total increase 2,657,375 12,289,866 10,796,100 16,558,342
------------------------------------------------------
Net assets at end of period $3,340,801 $14,101,742 $13,612,506 $21,005,851
======================================================
</TABLE>
See accompanying notes.
8
<PAGE>
PaineWebber Life Variable Annuity Account
Notes to Financial Statements
December 31, 1994
1. Investment and Accounting Policies
PaineWebber Life Variable Annuity Account was organized by PaineWebber Life
Insurance Company (the Company) in accordance with the provisions of California
Insurance laws and is a part of the total operations of the Company. The assets
and liabilities of the PaineWebber Life Variable Annuity Account are clearly
identified and distinguished from the other assets and liabilities of the
Company. The PaineWebber Life Variable Annuity Account invests solely in
specified portfolios of PaineWebber Series Trust, an open-end management
investment company under the Investment Company Act of 1940, as directed by
eligible contract owners. All series of shares are diversified except Global
Income Portfolio. Investments are stated at the closing net asset values per
share on December 31, 1994.
The average cost method is used to determine realized gains and losses.
Dividends are taken into income on an accrual basis as of the ex-dividend date.
Currently payable annuity contract reserves are computed according to the
Individual Annuity Valuation 1983 Table using an assumed interest rate of 4.0%.
If the amount paid to the contractholder is less than originally estimated,
charges paid for mortality and expense risks are reimbursed to the Company. If
additional amounts are required, the Company reimburses the PaineWebber Life
Variable Annuity Account.
2. Expenses
The Company is compensated for mortality, distribution and expense risks and
enhanced death benefits by a charge equivalent to an annual rate of 1.60% of the
asset value of each contract sold subject to early withdrawal charges and 1.77%
of the asset value of each contract sold not subject to early withdrawal
charges. These charges amounted to $1,226,405 in 1994.
An annual contract administration charge of $30 is deducted on the first
valuation date on or after each contract anniversary prior to the annuity date.
A transfer charge of $10 will be imposed on each transfer between divisions
(portfolios) of the account in excess of twelve in any one contract year.
However, the Company has waived this charge until further notice. A withdrawal
transaction charge of the lesser of $25 or 2% of the amount withdrawn will be
imposed on each withdrawal in excess of two per contract year. Total
administrative charges amounted to $67,630 in 1994.
Contracts sold subject to early withdrawal charges are assessed a charge equal
to 5% of the amount withdrawn for purchase payments made within a five year
period following the date the payment was received.
9
<PAGE>
PaineWebber Life Variable Annuity Account
Notes to Financial Statements (continued)
3. Federal Income Taxes
Operations of the PaineWebber Life Variable Annuity Account forms a part of the
operations of the Company which is taxed as a life insurance company under the
Internal Revenue Code. Under current law, no federal income taxes are payable
with respect to the operations of PaineWebber Life Variable Annuity Account.
4. Purchases and Sales of Investment Securities
The aggregate cost of purchases and proceeds from sales of investments were as
follows:
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1994 December 31, 1993
-------------------------------------------------
Purchases Sales Purchases Sales
-------------------------------------------------
<S> <C> <C> <C> <C>
Portfolio:
Money Market $ 15,899,666 $ 9,133,295 $ 1,214,469 $ -
Government 4,371,432 656,851 325,348 22
Fixed Income 7,338,995 714,448 1,481,375 -
Global Income 15,823,091 2,218,561 3,601,991 22
Balanced 10,680,140 498,837 2,266,579 -
Asset Allocation 6,638,099 373,793 821,148 31,409
Dividend Growth 3,010,575 227,758 680,490 65
Growth 14,746,301 1,134,296 1,785,159 3,450
Aggressive Growth 12,046,789 873,741 2,808,601 80
Global Growth 19,479,978 875,645 4,290,865 22
-------------------------------------------------
$110,035,066 $16,707,225 $19,276,025 $35,070
=================================================
</TABLE>
10
<PAGE>
PaineWebber Life Variable Annuity Account
Notes to Financial Statements (continued)
5. Summary of Changes from Unit Transactions
Transactions in units were as follows:
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1994 December 31, 1993
--------------------------------------------
Purchased Redeemed Purchased Redeemed
--------------------------------------------
<S> <C> <C> <C> <C>
Contracts sold subject to early
withdrawal charge
Division:
Money Market 1,972,868 1,345,459 102,878 799
Government 401,999 58,883 23,736 1,284
Fixed Income 837,699 188,712 142,899 3,065
Global Income 1,578,700 323,231 312,413 697
Balanced 988,190 85,212 192,203 3,433
Asset Allocation 629,776 48,389 68,428 3,434
Dividend Growth 273,190 26,410 61,392 -
Growth 1,650,367 246,582 158,002 358
Aggressive Growth 1,159,849 108,333 268,295 27,445
Global Growth 1,740,093 153,753 318,268 1,548
--------------------------------------------
11,232,731 2,584,964 1,648,514 42,063
============================================
Contracts sold not subject to early
withdrawal charge
Division:
Money Market 209,584 172,458 34,396 15,089
Government 56,564 10,680 11,538 1,378
Fixed Income 136,677 50,540 14,828 274
Global Income 101,415 23,688 40,206 9
Balanced 186,832 24,775 40,536 -
Asset Allocation 57,878 4,844 13,527 1,022
Dividend Growth 50,832 7,003 6,382 -
Growth 61,681 29,156 23,112 9
Aggressive Growth 126,078 27,412 43,364 795
Global Growth 133,084 28,628 66,667 9
--------------------------------------------
1,120,625 379,184 294,556 18,585
============================================
</TABLE>
11
<PAGE>
PaineWebber Life Variable Annuity Account
Notes to Financial Statements (continued)
6. Net Assets
Net assets at December 31, 1994 consisted of the following:
<TABLE>
<CAPTION>
Money Fixed
Market Government Income
Combined Division Division Division
-------------------------------------------------------
<S> <C> <C> <C> <C>
Unit transactions $112,740,237 $ 7,980,727 $ 4,053,807 $8,160,663
Accumulated net investment income 3,391,719 33,989 291,269 137,996
Net unrealized depreciation of
investments (9,420,336) - (437,066) (444,997)
-------------------------------------------------------
$106,711,620 $ 8,014,716 $ 3,908,010 $7,853,662
=======================================================
<CAPTION>
Global Asset Dividend
Income Balanced Allocation Growth
Division Division Division Division
-------------------------------------------------------
<S> <C> <C> <C> <C>
Unit transactions $ 16,976,200 $12,570,325 $ 7,048,729 $3,485,436
Accumulated net investment income
(loss) 359,527 (24,702) 728,424 8,918
Net unrealized depreciation of
investments (1,158,374) (386,020) (1,239,777) (153,553)
-------------------------------------------------------
$ 16,177,353 $12,159,603 $ 6,537,376 $3,340,801
=======================================================
<CAPTION>
Aggressive Global
Growth Growth Growth
Division Division Division
------------------------------------------
<S> <C> <C> <C>
Unit transactions $ 15,356,091 $14,116,281 $22,991,978
Accumulated net investment income
(loss) 981,004 (138,216) 1,013,510
Net unrealized depreciation of
investments (2,235,353) (365,559) (2,999,637)
------------------------------------------
$ 14,101,742 $13,612,506 $21,005,851
==========================================
</TABLE>
12
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP APPEARS HERE]
Report of Independent Auditors
The Board of Directors
PaineWebber Life Insurance Company
We have audited the accompanying balance sheets of PaineWebber Life Insurance
Company as of December 31, 1994 and 1993, and the related statements of
operations, changes in stockholder's equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PaineWebber Life Insurance
Company at December 31, 1994 and 1993, and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
As discussed in Note 3 to the financial statements, in 1994 the Company changed
its method of accounting for certain investments in debt and equity securities.
/s/ ERNST & YOUNG LLP
March 10, 1995
1
<PAGE>
PaineWebber Life Insurance Company
Balance Sheets
<TABLE>
<CAPTION>
December 31
1994 1993
-----------------------------------
<S> <C> <C>
Assets
Investments:
Fixed maturities:
Held to maturity, at amortized cost $ 2,609,146 $ 1,859,238
Available for sale, at market 90,900 -
Short-term investments 19,082,582 8,697,162
-----------------------------------
Total investments 21,782,628 10,556,400
Cash and cash equivalents 2,000,327 2,647,481
Accrued investment income 165,146 61,948
Assets on deposit with ceding company
(Note 6) 153,408,245 -
Deferred policy acquisition costs 15,103,072 450,598
Goodwill, less accumulated amortization
(1994 - $240,000; 1993 - $120,000) 960,000 1,080,000
Other assets 553,201 202,147
Separate account assets 106,676,646 19,471,409
-----------------------------------
Total assets $300,649,265 $34,469,983
===================================
Liabilities and stockholder's equity
Liabilities:
Policy and contract claims $ 121,210 $ -
Contract deposit payable 1,294,365 1,931,767
Funds held for reinsurers on
reinsurance assumed (Note 6) 161,863,182 -
Expense allowance payable on
reinsurance assumed (Note 6) 2,439,526 -
Accounts payable and other liabilities 204,726 217,513
Separate account liabilities 106,676,646 19,471,409
-----------------------------------
Total liabilities 272,599,655 21,620,689
Commitments and contingencies (Note 8)
Stockholder's equity:
Common Stock, $100 par value - 25,000
shares authorized, issued and outstanding 2,500,000 2,500,000
Additional paid-in capital 26,757,295 11,757,295
Unrealized depreciation of fixed
maturities (2,750) -
Retained earnings (deficit) (1,204,935) (1,408,001)
-----------------------------------
Total stockholder's equity 28,049,610 12,849,294
-----------------------------------
Total liabilities and stockholder's
equity $300,649,265 $34,469,983
===================================
</TABLE>
See accompanying notes.
2
<PAGE>
PaineWebber Life Insurance Company
Statements of Operations
<TABLE>
<CAPTION>
Year ended December 31
1994 1993
---------------------------
<S> <C> <C>
Revenues:
Annuity product charges $1,169,708 $ 4,017
Investment income, net of related expenses 889,061 185,290
Realized loss on investments (873) -
---------------------------
2,057,896 189,307
Expenses:
Commissions 11,596,074 461,472
General expenses 4,496,350 1,324,129
Insurance taxes 294,878 142,205
Policy acquisition costs deferred (15,067,961) (452,671)
Amortization of deferred policy acquisition costs 415,489 2,073
Amortization of goodwill 120,000 120,000
---------------------------
1,854,830 1,597,308
---------------------------
Net income (loss) $ 203,066 $(1,408,001)
===========================
</TABLE>
See accompanying notes.
3
<PAGE>
PaineWebber Life Insurance Company
Statements of Changes in Stockholder's Equity
<TABLE>
<CAPTION>
Unrealized
Additional Appreciation Retained
Common Paid-In (Depreciation) Earnings
Stock Capital of Fixed (Deficit) Total
Maturities
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1993 $2,500,000 $ 3,889,936 $ - $ - $ 6,389,936
Net loss - - - (1,408,001) (1,408,001)
Capital contribution - 7,867,359 - - 7,867,359
-------------------------------------------------------------------------
Balance at December 31, 1993 2,500,000 11,757,295 - (1,408,001) 12,849,294
Cumulative effect of change in accounting principle
regarding fixed maturity securities - - 9,320 - 9,320
Net income - - - 203,066 203,066
Unrealized depreciation of fixed maturities - - (12,070) - (12,070)
Capital contribution - 15,000,000 - - 15,000,000
-------------------------------------------------------------------------
Balance at December 31, 1994 $2,500,000 $26,757,295 $ (2,750) $(1,204,935) $28,049,610
=========================================================================
</TABLE>
See accompanying notes.
4
<PAGE>
PaineWebber Life Insurance Company
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1994 1993
----------------------------
<S> <C> <C>
Operating activities
Net income (loss) $ 203,066 $ (1,408,001)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Amortization of goodwill 120,000 120,000
Net amortization of fixed maturities 40,528 51,057
Deferral of policy acquisition costs (1,464,764) (452,671)
Amortization of deferred acquisition costs 415,489 2,073
Expense allowance payable on reinsurance
assumed (608,794) -
Payments to ceding companies on reinsurance
assumed (2,315,377) -
Realized loss on investments 873 -
Change in operating assets and liabilities
net of reinsurance assumed:
Increase in accrued investment income (103,198) (2,362)
Increase in other assets (14,409) (202,147)
Increase (decrease) in other liabilities (650,189) 2,149,280
----------------------------
Net cash provided by (used in) operating
activities (4,376,775) 257,229
Investing activities
Proceeds from investments sold, matured or
repaid:
Fixed maturities - held to maturity 195,000 1,425,000
Fixed maturity - available for sale 20,000 -
Equity securities 62,753,284 10,293,401
----------------------------
62,968,284 11,718,401
Cost of investments acquired:
Fixed maturities - held to maturity (1,099,959) (204,945)
Equity securities (62,753,284) (10,293,401)
Short-term investments (10,385,420) (8,697,162)
----------------------------
(74,238,663) (19,195,508)
----------------------------
Net cash used in investing activities (11,270,379) (7,477,107)
Financing activities
Cash contribution by parent 15,000,000 7,867,359
----------------------------
Net cash provided by financing activities 15,000,000 7,867,359
----------------------------
Increase (decrease) in cash and cash
equivalents (647,154) 647,481
Cash and cash equivalents at beginning of year 2,647,481 2,000,000
----------------------------
Cash and cash equivalents at end of year $ 2,000,327 $ 2,647,481
============================
</TABLE>
See accompanying notes.
5
<PAGE>
PaineWebber Life Insurance Company
Notes to Financial Statements
December 31, 1994
1. Organization and Summary of Significant Accounting Policies
Organization
PaineWebber Life Insurance Company (the Company) is a wholly-owned subsidiary of
PaineWebber Group, Inc. (collectively, PaineWebber). The Company operates in
the annuity area of the life insurance business.
Investments
Effective January 1, 1994, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities". Pursuant to SFAS No. 115, fixed maturity securities that the
Company has the positive intent and ability to hold to maturity are designated
as "held to maturity". Held to maturity securities are reported at cost
adjusted for amortization of premiums and discounts. Changes in the market
value of these securities, except for declines that are other than temporary,
are not reflected in the Company's financial statements. Fixed maturity
securities which may be sold are designated as "available for sale". Available
for sale securities are reported at market value and unrealized gains and losses
on these securities are included directly in stockholders' equity. Securities
that are determined to have a decline in value that is other than temporary are
written down to estimated fair value which becomes the security's new cost basis
by a charge to realized losses in the Company's statement of income. Prior to
the adoption of SFAS No. 115, all of the Company's fixed maturities were
classified as held-to-maturity.
Premiums and discounts are amortized utilizing the scientific interest method
which results in a constant yield over the securities' expected life. Realized
gains and losses are determined on the basis of specific identification of
investments.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all demand
deposits and interest-bearing accounts not related to the investment function to
be cash equivalents.
Intangible Assets
Intangible assets include the value of various insurance licenses acquired in
conjunction with the purchase of the Company. These assets are being amortized
on a straight-line basis over 10 years.
6
<PAGE>
PaineWebber Life Insurance Company
Notes to Financial Statements (continued)
1. Organization and Summary of Significant Accounting Policies (continued)
Deferred Policy Acquisition Costs
Commissions and other costs of acquiring new business which vary with and are
primarily related to the production of new business have been deferred. The
deferred costs are being amortized in relation to the present value of expected
gross profits. This amortization is adjusted periodically to reflect
differences in accrual and assumed gross profits.
Deferred Income Taxes
The deferred tax assets or liabilities are computed based on the difference
between the financial statement and income tax basis of assets and liabilities
using the enacted marginal tax rate. Deferred income tax expense or credits are
based on the changes in the asset or liability from period to period.
Dividend Restrictions
Prior approval of insurance regulatory authorities is required for payment of
dividends to the Company's parent which exceed an annual limitation. During
1995, the Company will be able to pay dividends to its parent of approximately
$1,898,000 without prior approval of statutory authorities.
Separate Account
Separate account assets and liabilities represent funds held for the exclusive
benefit of variable annuity contractholders. Fees are received for
administrative expenses and for assuming mortality, distribution and expense
risks. Operations of the separate account are not included in these financial
statements.
2. Fair Values of Financial Instruments
Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosures About
Fair Value of Financial Instruments", requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used including the discount rate and
estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparisons to independent markets and, in
many cases, could not be realized in immediate settlement of the instrument.
SFAS 107 excludes certain financial instruments and all nonfinancial instruments
from its disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
7
<PAGE>
PaineWebber Life Insurance Company
Notes to Financial Statements (continued)
2. Fair Values of Financial Instruments (continued)
The following methods and assumptions were used by the Company in estimating the
"fair value" disclosures for "financial instruments":
Cash, cash equivalents and short-term investments: The carrying amounts
reported in the balance sheet for these financial instruments approximate
their fair values.
Fixed maturities: The fair values for fixed maturities are based on quoted
market prices, where available. For fixed maturities not actively traded,
fair values are estimated using values obtained from independent pricing
services.
Separate account liabilities: Fair values for the Company's liabilities
under investment-type insurance contracts are based on cash surrender value
of the underlying contracts.
The following sets forth a comparison of the carrying values and fair values
of the Company's financial instruments subject to provisions of SFAS
No. 107:
<TABLE>
<CAPTION>
December 31
1994 1993
-------------------------- -------------------------
Carrying Market Carrying Market
Value Value Value Value
-------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 2,003,327 $ 2,003,327 $ 2,647,481 $ 2,647,481
Short-term investments 19,082,582 19,082,582 8,697,162 8,697,162
Fixed maturities:
Held to maturity 2,609,146 2,530,400 1,859,238 1,899,750
Available for sale 90,900 90,900 - -
-------------------------------------------------------
2,700,046 2,621,300 1,859,238 1,899,750
Liabilities:
Separate account liabilities 106,676,646 102,485,045 19,471,409 18,906,398
</TABLE>
3. Basis of Presentation
The financial statements differ from related statutory financial statements
principally as follows: (a) premium income on universal life and investment
products is recognized as received rather than policy charges for the cost of
issuance, policy administration charges, amortization of policy initiation fees
and surrender charges assessed; (b) acquisition costs such as commissions and
other costs related to acquiring new business are charged to current operations
as incurred rather than being deferred and amortized over the life of the
policy; (c) policy reserves on investment products use discounted methodologies
8
<PAGE>
PaineWebber Life Insurance Company
Notes to Financial Statements (continued)
3. Basis of Presentation (continued)
utilizing statutory interest rates rather than full account value; (d) a portion
of fixed maturity investments is designated as "available for sale" and valued
at fair value with unrealized appreciation/depreciation credited/charged
directly to stockholder's equity rather than value at amortized cost; (e)
deferred federal income taxes are not provided for temporary differences between
the financial statements and the tax returns; (f) certain assets designated as
"non-admitted assets" have been excluded from the balance sheet by a charge to
surplus rather than being reported as assets; (g) the asset valuation reserve,
which is in the nature of a contingency reserve for possible losses on
investments, is recorded as a liability through a charge to surplus rather than
through reduction in the carrying value of the related investments, and
recognition of realized losses in the statement of operations; (h) net realized
capital gains (losses) attributable to changes in the level of market interest
rates are deferred and amortized over the remaining life of the bonds and
mortgage loans disposed of rather than being recognized in the statement of
operations in the year of disposition; (i) assets and liabilities retain their
historical value rather than being restated to fair values, with provision for
goodwill and other intangible assets, when a change in ownership occurs; and (j)
reinsurance reserve credits are recorded as a reduction to aggregate policy
reserves rather than being recorded as reinsurance recoverable assets.
Net loss for the Company as determined in accordance with statutory accounting
practices was $5,155,000 in 1994 and $1,702,000 in 1993. Total statutory
surplus was $18,978,000 at December 31, 1994 and $9,242,000 at December 31,
1993.
4. Investments Operations
At December 31, 1994 and 1993, the amortized cost, gross unrealized gains and
losses, and estimated market value of debt securities are as follows:
Held for Investment
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1994
Bonds:
United States Government
and agencies $ 2,382,302 $ - $(76,902) $ 2,305,400
State, municipal and other
government 226,844 - (1,844) 225,000
--------------------------------------------------
2,609,146 - (78,746) 2,530,400
Short-term investments:
United States Government
and agencies 19,082,582 - - 19,082,582
--------------------------------------------------
$21,691,728 $ - $(78,746) $21,612,982
==================================================
</TABLE>
9
<PAGE>
PaineWebber Life Insurance Company
Notes to Financial Statements (continued)
4. Investments Operations (continued)
Held for Investment (continued)
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-----------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1993
Bonds:
United States Government
and agencies $ 1,517,211 $ 32,171 $(1,182) $ 1,548,200
State, municipal and other
government 342,027 9,523 - 351,550
-----------------------------------------------
1,859,238 41,694 (1,182) 1,899,750
Short-term investments:
United States Government
and agencies 8,697,162 - - 8,697,162
-----------------------------------------------
$10,556,400 $ 41,694 $(1,182) $10,596,912
===============================================
</TABLE>
Available for Sale
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-----------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1994
Bonds:
State, municipal and other
government $93,650 $ - $(2,750) $90,900
===============================================
</TABLE>
The amortized cost and estimated market value of debt securities by contractual
maturity at December 31, 1994 are shown below. Expected maturities may differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Held for Investment Available for Sale
--------------------------------------------------
Amortized Market Amortized Market
Cost Value Cost Value
--------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $19,134,431 $19,133,082 $ - $ -
Due after one year through
five years 2,081,802 2,014,900 - -
Due after five years
through ten years 475,495 465,000 93,650 90,900
Due after ten years - - - -
--------------------------------------------------
$21,691,728 $21,612,982 $ 93,650 $90,900
==================================================
</TABLE>
10
<PAGE>
PaineWebber Life Insurance Company
Notes to Financial Statements (continued)
4. Investments Operations (continued)
Effective January 1, 1994, the Company adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". The cumulative effect of
this change in accounting method was to increase stockholder's equity by $9,320
at January 1, 1994. The change in unrealized gain or loss included in
stockholder's equity from January 1, 1994 to December 31, 1994 amounted to
$12,070 of depreciation.
Major categories of net investment income are as follows:
<TABLE>
<CAPTION>
1994 1993
--------------------
<S> <C> <C>
Fixed maturities:
Held for investment $ 131,107 $136,137
Available for sale 8,230 -
Equity securities 167,107 93,285
Short-term investments 680,210 28,998
Other 16,148 9,216
--------------------
1,002,802 267,636
Less investment expenses 113,741 82,346
--------------------
$ 889,061 $185,290
====================
</TABLE>
At December 31, 1994, investments with an aggregate carrying value of $7,165,291
(1993 - $2,976,602) were on deposit with regulatory authorities or were
restrictively held in bank custodial accounts for the benefit of such regulatory
authorities as required by statute.
5. Federal Income Taxes
For federal income tax purposes, the Company files a separate federal income tax
return. At December 31, 1994, the Company has net operating loss carryforwards
for income tax purposes of approximately $9,700,000 which expire through 2010.
The difference between this operating loss and the loss recorded for financial
reporting purposes is due primarily to deferred policy acquisition costs,
separate account liabilities and reinsurance agreements. A valuation allowance
has been recognized to offset the net deferred tax asset.
11
<PAGE>
PaineWebber Life Insurance Company
Notes to Financial Statements (continued)
5. Federal Income Taxes (continued)
The tax effect of temporary differences giving rise to the Company's deferred
income taxes is as follows:
<TABLE>
<CAPTION>
December 31
1994 1993
-----------------------
<S> <C> <C>
Deferred tax liabilities:
Deferred policy acquisition costs $4,782,755 $ 82,594
Fixed maturity discounts 26,442 43,510
Other 103,540 6,586
-----------------------
4,912,737 132,690
Deferred tax assets:
Separate account liabilities - 197,754
Net operating loss carryover 3,384,647 349,671
Reinsurance 1,938,748 -
Other 457,787 -
-----------------------
5,781,182 547,425
Valuation allowance (868,445) (414,735)
-----------------------
Net deferred tax $ - $ -
=======================
</TABLE>
6. Reinsurance
During 1994, the Company entered into reinsurance agreements with various
insurance companies to assume a specified percentage of their variable annuity
contracts. Under these agreements, the Company receives from the ceding company
and holds as a liability the account balance of the reinsured contracts. The
Company in return pays to the ceding companies an expense allowance for
commissions and other expenses associated with the reinsured contracts. In
addition, the Company pays or receives an amount equal to the change in the
statutory reserve held by the ceding companies on the reinsured contracts,
adjusted for investment earnings credits. For the year ended December 31, 1994,
the Company recorded annuity product charges of $682,484 related to contracts
assumed under these agreements.
During 1993, the Company entered into a reinsurance agreement with American
Republic Insurance Company (American Republic) (see Note 7) to cede a specified
percentage of the risks associated with the variable annuity contracts. Under
this agreement, the Company pays American Republic the reinsurance percentage of
charges and deductions collected on the reinsured policies. American Republic
in return pays the Company an expense allowance for certain developmental, new
business and maintenance costs on the reinsured contracts. The Company has also
entered into a separate reinsurance agreement to reinsure the enhanced death
benefit provision of the contracts. During 1994 and 1993, the Company incurred
reinsurance premiums of $839,346 and $513 and had benefit recoveries of $25,043
and $0, respectively, in connection with these agreements.
12
<PAGE>
PaineWebber Life Insurance Company
Notes to Financial Statements (continued)
7. Service Agreements With Related Parties
The Company has a third-party and corporate administrative agreements with
American Republic to provide services for new business processing and account
maintenance of the variable annuity contracts. The Company paid American
Republic $724,000 and $570,000 for these services in 1994 and 1993,
respectively.
Commissions relating to the sale of variable annuity contacts are paid to an
affiliated company of PaineWebber.
8. Commitments and Contingencies
The Company is subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance companies
for the benefit of policyholders and claimants in the event of insolvency of
other insurance companies. Potential obligations, if any, are not presently
determinable by the Company; accordingly, no accrual has been made on these
financial statements.
13
<PAGE>
PART C
------
OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits
- ------------------------------------------
(a) Financial Statements
- --- --------------------
The following financial statements are included in Part B of the
Registration Statement:
Financial Statements of PaineWebber Life Insurance Company
Financial Statements of PaineWebber Life Variable Annuity Account
Part A - Condensed Financial Information
Part B - Statement of Assets and Liabilities, Statement of Operations,
Statement of Changes in Net Assets, Statement of Investments
The following financial statements are included in Part C of the
Registration Statement:
None.
(b) Exhibits
- --- --------
( 1) Resolution Establishing Separate Account........... *
( 2) Custody Agreements................................. Not Applicable
( 3) Form of Distribution Contract...................... **
( 4) Variable Annuity Contract.......................... **
( 5) Application for Contract........................... **
( 6) Depositor - Corporate Documents
(a) Certificate of Incorporation................... *
(b) By-Laws........................................ **
(c) Certificate of Authority....................... **
( 7) Form of Reinsurance Contracts...................... **
( 8)(a) Form of Fund Participation Agreement............... **
(b) Forms of Corporate Administration Agreement........ *
and "Third Party Administrator" Agreement.......... *
( 9) Opinion of Counsel................................. **
Consent of Counsel................................. **
(10) Consent of Independent Auditors.................... Herewith
(11) Financial Statements Omitted from Item 23.......... Not Applicable
(12) Initial Capitalization Agreement................... Not Applicable
(13) Performance Computations........................... *
(14) Diagram and Listing of All Persons directly
or indirectly controlled by or under common
control with PaineWebber Life Insurance
Company, the Depositor of Registrant............... **
(15) Financial Data Schedule............................ Herewith
* Previously filed with registration statement 33-58808 on February 26 , 1993
** Previously filed with Pre-Effective Amendment No. 1 on June 25, 1993
- A -
<PAGE>
Item 25. Directors and Officers of the Depositor
- -------------------------------------------------
The directors and principal officers of PaineWebber Life Insurance Company
are listed below. Their principal business address is 1200 Harbor
Boulevard, Weehawken, New Jersey 07087
Name Title
---- -----
Dennis J. Hess Director, Chairman of the Board
and President
Robert J. Bethoney Director and Executive Vice President
Allan P. Golotko Vice President
Joseph J. Grano, Jr. Director
Paul B. Guenther Director
Gerianne J. Silva VicePresident and Assistant Secretary
Pierce R. Smith Treasurer
Richard J. Tucker Director, Senior Vice President,
Secretary
Item 26. Persons Controlled by or under Common Control with Depositor or
- -------------------------------------------------------------------------
Registrant
- ----------
The Registrant is a separate account of PaineWebber Life Insurance Company
(Depositor). For a complete listing and diagram of all persons directly or
indirectly controlled by or under common control with the Depositor, see
Exhibit 14 filed with Pre-Effective Amendment No. 1 to the Registration
Statement.
Item 27. Number of Contract Owners
- -----------------------------------
269 as of March 31, 1995.
Item 28. Indemnification
- -------------------------
Paine Webber Group, Inc., the ultimate parent of PaineWebber Life Insurance
Company ("Depositor") and PaineWebber Incorporated ("PWI"), (the depositor
and principal underwriter for the registrant, respectively) maintains
directors and officers liability and corporate reimbursement insurance for
itself and all subsidiaries. This insurance provides for coverage against
loss arising from claims made against directors and officers in their
capacity as such. The general scope of coverage is any breach of duty,
neglect, error, misstatement, misleading statement or omission. In
addition, the Distribution Contract (Exhibit 3 hereto) between Depositor
and PWI generally provides that each such party indemnifies the other party
against any and all losses, claims, liabilities, expenses and damages
insofar as such matters arise or are based on material misstatements or
omissions in this registration statement (or allegations thereof) made in
reliance upon information furnished in writing to the indemnitee by the
indemnitor.
Item 29. Principal Underwriter
- -------------------------------
PaineWebber Incorporated ("PWI") serves as principal underwriter for the
Registrant. In addition to the registrant, PWI serves as principal
underwriter for the following investment companies:
PaineWebber Cashfund, Inc., PaineWebber Managed Municipal Trust,
PaineWebber RMA Money Fund, Inc. and PaineWebber RMA Tax-Free Fund, Inc.
- B -
<PAGE>
The following are the directors and officers of PWI. Their principal
business address is 1285 Avenue of the Americas, New York, New York 10019.
Officers
--------
Donald B. Marron Chairman and Chief Executive Officer
Margo N. Alexander Executive Vice President
Terry L. Atkinson Managing Director
Geraldine L. Banyai Assistant Secretary
Brian Barefoot Executive Vice President
Robert H. Benmosche Executive Vice President, Manager,
Southern Division
Timothy E. Cronin Executive Vice President, Fixed Income
Director
Regina A. Dolan Senior Vice President & Chief Financial
Officer
Lee Fensterstock Executive Vice President & Director of
Capital Markets
Joseph J. Grano, Jr. President, Retail Sales and Marketing
Dorothy F. Haughey Secretary
Theodore A. Levine Executive Vice President
James P. MacGilvray Managing Director, Transaction Services
Division
Robert S. McKinney Executive Vice President & Director,
MIS Division
Robert W. Pangia Executive Vice President
Ronald M. Schwartz Executive Vice President & Chief
Administrative Officer
Robert H. Silver Executive Vice President, Director,
Retail Products & Marketing
Directors
---------
Margo N. Alexander Terry L. Atkinson Brian Barefoot
Robert H. Benmosche Steven P. Baum Timothy E. Cronin
Regina A. Dolan Lee Fensterstock Joseph J. Grano, Jr.
Paul B. Guenther Edward M. Kerschner Jerome A. Lichtstein
James P. MacGilvray Michael D. Madden Donald B. Marron
Robert S. McKinney Frank P.L. Minard Robert W. Pangia
Ronald M. Schwartz Robert H. Silver Mark B. Sutton
- C -
<PAGE>
Item 30. Location of Accounts and Records
- ------------------------------------------
The administrative office of PaineWebber Life Insurance Company, the
Depositor for the Registrant, is located at 601 6th Avenue, Des Moines,
Iowa 50309. PWI, the principal underwriter of the Contracts, is located at
1285 Avenue of the Americas, New York, New York 10019. Each maintains
those accounts and records required to be maintained by each pursuant to
Section 31(a) of the Investment Company Act and the rules promulgated
thereunder.
Item 31. Management Services
- -----------------------------
Not Applicable.
Item 32. Undertakings
- ----------------------
Registrant undertakes (1) to file post-effective amendments to this
Registration Statement as frequently as is necessary to ensure that the
audited financial statements in the Registration Statement are never more
than 16 months old for so long as payments under the variable annuity
contracts may be accepted; (2) to include either (A) as part of any
application to purchase a Contract offered by the prospectus forming part
of this Registration Statement, a space that an applicant can check to
request a Statement of Additional Information, or (B) a post card or
similar written communication affixed to or included in the prospectus that
the applicant can receive to send for a Statement of Additional
Information; and (3) to deliver any Statement of Additional Information and
any financial statements required to be made available under this Form N-4
promptly upon written or oral request.
Representations.
- ----------------
The Company hereby represents that it is relying upon a No Action Letter
issued to the American Council of Life Insurance dated November 28, 1988
(Commission ref. IP-6-88) and that the following provisions have been complied
with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including the
prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection
with the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase the
contract specifically to bring the redemption restrictions imposed by
Section 403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b)
annuity contract, prior to or at the time of such purchase, a signed
statement acknowledging the participant's understanding of (1) the
restrictions on redemption imposed by Section 403(b)(11), and (2) other
investment alternatives available under the employer's Section 403(b)
arrangement to which the participant may elect to transfer his or her
contract value.
-D -
<PAGE>
SIGNATURES
----------
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets the requirements of Securities Act
Rule 485(b) for the effectiveness of the Registration Statement and has duly
caused this amended Registration Statement to be signed on its behalf, in the
City of Weehawken, and the State of New Jersey on this 18th day of April, 1995.
PaineWebber Life Variable Annuity Account
-----------------------------------------
(Registrant)
By: PaineWebber Life Insurance Company
----------------------------------
(Depositor)
By: /s/Dennis J. Hess*
----------------------------------
Dennis J. Hess
President
As required by the Securities Act of 1933, this amended Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated:
Signature Title Date
--------- ----- ----
/s/Dennis J. Hess* Chairman of the Board April 18, 1995
- ------------------------ of Directors and President
Dennis J. Hess (Principal Executive Officer)
/s/Pierce R. Smith* Principal Financial and April 18, 1995
- ------------------------ Principal Accounting Officer
Pierce R. Smith
/s/Robert J. Bethoney* Director and Executive Vice April 18, 1995
- ------------------------ President
Robert J. Bethoney
/s/Richard J. Tucker Director, Senior Vice April 18, 1995
- ------------------------ President and Secretary
Richard J. Tucker
/s/Joseph J. Grano, Jr.* Director April 18, 1995
- ------------------------
Joseph J. Grano, Jr.
/s/Paul B. Guenther* Director April 18, 1995
- ------------------------
Paul B. Guenther
*Signed by Richard J. Tucker pursuant to power of attorney
/s/Richard J. Tucker
--------------------
<PAGE>
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Independent Auditors"
and to the use of our reports dated January 27, 1995, with respect to Paine
Webber Life Variable Annuity Account and March 10, 1995, with respect to Paine
Webber Life Insurance Company in Post Effective Amendment No. 2 to the
Registration Statement (Form N-4 No. 33-61488) and related Prospectus of Paine
Webber Life Variable Annuity Account dated May 1, 1995.
ERNST & YOUNG LLP
Des Moines, Iowa
April 24, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1993 DEC-31-1994
<PERIOD-START> JAN-01-1993 JAN-01-1994
<PERIOD-END> DEC-31-1993 DEC-31-1994
<DEBT-HELD-FOR-SALE> 0 0
<DEBT-CARRYING-VALUE> 0 0
<DEBT-MARKET-VALUE> 0 0
<EQUITIES> 0 0
<MORTGAGE> 0 0
<REAL-ESTATE> 0 0
<TOTAL-INVEST> 0 0
<CASH> 0 0
<RECOVER-REINSURE> 0 0
<DEFERRED-ACQUISITION> 0 0
<TOTAL-ASSETS> 19,471 106,711
<POLICY-LOSSES> 0 0
<UNEARNED-PREMIUMS> 0 0
<POLICY-OTHER> 0 0
<POLICY-HOLDER-FUNDS> 0 0
<NOTES-PAYABLE> 0 0
<COMMON> 0 0
0 0
0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 0 0
0 0
<INVESTMENT-INCOME> 628 2,931
<INVESTMENT-GAINS> 0 0
<OTHER-INCOME> 0 0
<BENEFITS> 0 0
<UNDERWRITING-AMORTIZATION> 0 0
<UNDERWRITING-OTHER> 0 0
<INCOME-PRETAX> 217 (6,433)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 0 0
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<RESERVE-OPEN> 0 0
<PROVISION-CURRENT> 0 0
<PROVISION-PRIOR> 0 0
<PAYMENTS-CURRENT> 0 0
<PAYMENTS-PRIOR> 0 0
<RESERVE-CLOSE> 0 0
<CUMULATIVE-DEFICIENCY> 0 0
</TABLE>
