<PAGE>
1933 ACT FILE No. 33-61488
1940 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. 3 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 13 [X]
(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
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 FEBRUARY 23, 1996.
<PAGE>
PAINEWEBBER LIFE VARIABLE ANNUITY ACCOUNT
Cross Reference Sheet
ITEM NUMBER IN FORM N-4 AND CAPTION
- -----------------------------------
<TABLE>
<CAPTION>
Part A - Prospectus
- -------------------
<S> <C>
1. Cover Page.......................................... Cover Page
2. Definitions......................................... Definitions
3. Synopsis............................................ Summary
4. Condensed Financial INFORMATION.................... Condensed Financial Information
5. General Description of Registrant, Depositor and The Insurance Company; The Separate Account;
Portfolio Companies ................................... The Fund
6. Deductions.......................................... Contract Charges and Deductions
7. General Description of Variable Annuity Contracts... The Contract; Variable Account Accumulation
Provisions; Death Benefit; Exercise of Rights under
the Contract; 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......................................... EXERCISE OF RIGHTS UNDER THE CONTRACT
-Withdrawals
12. Taxes............................................... Federal Income Tax Status
13. Legal Proceedings................................... Legal Proceedings
14. Table of Contents of the Statement of Table of Contents (Statement OF Additional
Additional Information............................ Information)
</TABLE>
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:
<TABLE>
<CAPTION>
ITEM NUMBER IN FORM N-4 AND CAPTION
- ----------------------------------
<S> <C>
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.............................. THE CONTRACT - Purchase Payments (P),
MISCELLANEOUS PROVISIONS - Reports To
Contractowners (P), THE CONTRACT - DISTRIBUTION
OF CONTRACTS, OTHER INFORMATION - Administrative
Services
19. Purchase of Securities Being Offered.. THE CONTRACT - Purchase Payments (P)
20. Underwriters.......................... THE CONTRACT - Purchase Payments (P)
21. Calculation of Performance Data....... Separate Account Performance
22. Annuity Payments...................... THE CONTRACT - Annuity Payments
23. Financial Statements.................. Financial Statements
</TABLE>
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.
<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 the following nine available Portfolios, each having its own
investment objective and policies: Money Market, Strategic Fixed Income, High
Grade Fixed Income, Global Income, Balanced, Growth and Income, Growth,
Aggressive Growth, and Global Growth.
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 the same
day as this prospectus 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, 1996
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....................................................... 10
CONTRACT CHARGES AND DEDUCTIONS............................................ 10
Withdrawal Transaction Charge............................................ 10
Transfer Charges......................................................... 11
Contract Maintenance Charge.............................................. 11
Premium and Other Taxes.................................................. 11
Mortality Risk Charge.................................................... 11
Enhanced Death Benefit Charge............................................ 11
Expense Risk Charge...................................................... 12
Distribution Expense Charge.............................................. 12
THE FUND................................................................... 12
Money Market Portfolio................................................... 13
Strategic Fixed Income Portfolio......................................... 13
High Grade Fixed Income Portfolio........................................ 13
Global Income Portfolio.................................................. 13
Balanced Portfolio (formerly Asset Allocation Portfolio)................. 13
Growth and Income 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
</TABLE>
<TABLE>
<CAPTION>
TOPIC PAGE
<S> <C>
EXERCISE OF RIGHTS UNDER THE CONTRACT...................................... 18
Beneficiary.............................................................. 18
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
Frequency of Payment..................................................... 21
GENERAL ANNUITY OPTIONS.................................................... 22
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.................................................. 23
Value of Each Annuity Unit............................................... 23
Subsequent Variable Annuity Payments..................................... 23
MISCELLANEOUS PROVISIONS................................................... 23
Notices, Changes and Elections........................................... 23
Amendment of Contract.................................................... 23
Right to Examine......................................................... 23
State Variations......................................................... 24
Retirement Plan Conditions............................................... 24
Reports to Contract Owners............................................... 24
FEDERAL INCOME TAX STATUS.................................................. 24
HOW TO PURCHASE A CONTRACT................................................. 25
VOTING RIGHTS.............................................................. 25
LEGAL PROCEEDINGS.......................................................... 25
TABLE OF CONTENTS (STATEMENT OF ADDITIONAL INFORMATION).................... 26
APPENDIX A................................................................. 27
</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 nine available 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 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.
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. 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.
As explained below, Net Contract Value may be withdrawn free of any withdrawal
charge at any time prior to the Annuity Date, unless restricted by the
particular retirement plan pursuant to which the Contract is issued. The
Federal tax laws, however, impose penalties upon, and under certain Qualified
Plans may prohibit, certain premature distributions from the Contracts before
or after the date on which the annuity payments are to begin. See "Exercise of
Rights Under the Contract--Withdrawals."
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
PWD 4
<PAGE>
(3) income attributable to amounts held as of December 31, 1988. The
limitations on withdrawals do not affect certain rollovers or exchanges between
Plans.
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>
BALANCED
HIGH DIVISION
STRATEGIC GRADE (FORMERLY GROWTH
MONEY FIXED FIXED GLOBAL ASSET AND AGGRESSIVE GLOBAL
MARKET INCOME INCOME INCOME ALLOCATION INCOME GROWTH GROWTH GROWTH
DIVISION DIVISION DIVISION DIVISION DIVISION)(4) DIVISION DIVISION DIVISION DIVISION
-------- --------- -------- -------- ------------ -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Separate Account Annual
Expenses
(as a percentage of av-
erage 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%
Enhanced Death Benefit
Fee(3)................. 0.12% 0.12% 0.12% 0.12% 0.12% 0.12% 0.12% 0.12% 0.12%
Distribution Expense
Charge(1).............. 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40%
Total Separate
Account Annual
Expenses(1)(3)....... 1.77% 1.77% 1.77% 1.77% 1.77% 1.77% 1.77% 1.77% 1.77%
Portfolio Company
Annual Expenses For
the Year Ended
December 31, 1995 (as
a percentage of
portfolio company
average net assets)
Management Fees........ 0.50% 0.50% 0.50% 0.75% 0.75% 0.70% 0.75% 0.80% 0.75%
Other Expenses......... 0.29% 0.49% 0.51% 0.44% 0.34% 0.67% 0.27% 0.49% 1.21%
Total Portfolio
Company Annual
Expenses............. 0.79% 0.99% 1.01% 1.19% 1.09% 1.37% 1.02% 1.29% 1.96%
</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) imposes an early withdrawal charge 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%.
(4) PaineWebber Life, on behalf of the Separate Account, obtained an Order
from the Securities and Exchange Commission on December 28, 1995
permitting the substitution of the shares of the former Asset Allocation
Portfolio for shares of the former Balanced Portfolio held by the former
Balanced Division of the Separate Account. On January 26, 1996, the
substitution of shares of the former Asset Allocation Portfolio for shares
of the former Balanced Portfolio was effected pursuant to the above-
described S.E.C. Order. At that time, the names of both the Asset
Allocation Portfolio and Division were changed to "Balanced Portfolio" and
"Balanced Division," respectively, to reflect the new Balanced Portfolio's
investment policies.
PWD 6
<PAGE>
EXAMPLE
<TABLE>
<CAPTION>
BALANCED
HIGH DIVISION
STRATEGIC GRADE (FORMERLY GROWTH
MONEY FIXED FIXED GLOBAL ASSET AND AGGRESSIVE GLOBAL
MARKET INCOME INCOME INCOME ALLOCATION INCOME GROWTH GROWTH GROWTH
DIVISION DIVISION DIVISION DIVISION DIVISION) DIVISION DIVISION DIVISION DIVISION
-------- --------- -------- -------- ---------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Whether or not you 1 Year $ 27 $ 29 $ 29 $ 31 $ 30 $ 33 $ 29 $ 32 $ 38
surrender your Contract
at the end of the 3 Years $ 82 $ 88 $ 89 $ 94 $ 91 $100 $ 89 $ 97 $117
applicable time period,
you would pay the
following expenses on a
$1,000 investment,
assuming 5% annual
return on assets:
5 Years $141 $150 $151 $160 $155 $169 $152 $165 $197
10 Years $298 $318 $320 $336 $327 $353 $320 $346 $405
</TABLE>
- ----
The purpose of the above tables is 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. 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 audited financial statements of
the Separate Account through December 31, 1995. 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 START 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
1995............................ 10.17 10.53 52,325
Strategic Fixed Income Division
1993............................ 10.00 9.96 10,160
1994............................ 9.96 9.27 56,044
1995............................ 9.27 10.79 57,187
High Grade Fixed Income Division
1993............................ 10.00 9.60 14,554
1994............................ 9.60 8.81 100,691
1995............................ 8.81 10.00 82,637
Global Income Division
1993............................ 10.00 10.16 40,197
1994............................ 10.16 9.44 117,924
1995............................ 9.44 10.54 105,563
Former Balanced Division (No
longer available)
1993............................ 10.00 9.87 40,536
1994............................ 9.87 9.38 202,593
1995............................ 9.38 11.35 108,366
Balanced Division (formerly Asset
Allocation Division)
1993............................ 10.00 10.35 12,505
1994............................ 10.35 9.20 65,539
1995............................ 9.20 11.15 59,063
Growth and Income Division
1993............................ 10.00 10.34 6,382
1994............................ 10.34 9.53 50,211
1995............................ 9.53 12.22 56,171
Growth Division
1993............................ 10.00 9.96 23,103
1994............................ 9.96 8.64 55,628
1995............................ 8.64 11.25 55,259
Aggressive Growth Division
1993............................ 10.00 9.93 42,569
1994............................ 9.93 9.48 141,235
1995............................ 9.48 11.27 131,581
Global Growth Division
1993............................ 10.00 10.77 66,658
1994............................ 10.77 9.31 171,114
1995............................ 9.31 8.83 110,112
</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. See "Separate Account
Performance in the Statement of Additional Information."
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." See "Separate Account Performance
in the Statement of Additional Information."
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. 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.
PaineWebber Life has entered into a contract with American Republic Insurance
Company of Des Moines, Iowa under which the latter has agreed to perform
certain of the administrative services relating to the Contract. Such
administrative services include: issuing Contracts, maintaining Contract Owner
records (accounting, valuation and reporting services) and issuing reports. The
address of the administrative office is 601 6th Avenue, Des Moines, Iowa 50309.
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<PAGE>
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 nine available
Divisions: the Money Market Division, the Strategic Fixed Income Division, the
High Grade Fixed Income Division, the Global Income Division, the Balanced
Division (formerly, the Asset Allocation Division), the Growth and Income
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. California
insurance law provides that the assets of the Separate Account are not
chargeable with liabilities arising out of any other business PaineWebber Life
may conduct.
Obligations arising under the Contract are obligations of PaineWebber Life.
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 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 8.5% of all Net
Purchase Payments.
There is also a withdrawal transaction charge of the lesser of $25 or 2% of the
amount withdrawn 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 ("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) imposes an early withdrawal charge, but has a lower distribution expense
charge (i.e., 0.15%), and (2) has a higher Enhanced Death Benefit charge (i.e.,
0.20%).
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<PAGE>
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 under a variable
annuity option, 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.
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.
PaineWebber Life has the right to waive any transfer charge 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 such 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--PaineWebber Life provides 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 such Division. The rate may not be changed by
PaineWebber Life. No charge will be deducted from assets attributable to
Contracts under which annuity payments have begun.
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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 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 such
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 8.5% 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 nine available Portfolios: the Money Market Portfolio, the
Strategic Fixed Income Portfolio, the High Grade Fixed Income Portfolio, the
Global Income Portfolio, the Balanced Portfolio (formerly, the Asset Allocation
Portfolio), the Growth and Income Portfolio, the Growth Portfolio, the
Aggressive Growth Portfolio and the Global Growth Portfolio, each having its
own investment objective and policies. The Fund will offer its shares to
insurance company separate accounts only. The Trustees of the Fund may
establish additional 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.
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) Pacific Investment
Management Company ("PIMCO") for the Strategic Fixed Income Division; (2)
Nicholas-Applegate Capital Management ("NACM") for the Aggressive Growth
Portfolio; and (3) GE Investment Management Incorporated ("GEIM") for the
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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.
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 maximum current income consistent with
liquidity and conservation of capital. To achieve its objective, the Portfolio
invests in high grade money market instruments 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 STRATEGIC FIXED INCOME PORTFOLIO seeks total return consisting of capital
appreciation and income. To achieve this objective, this Portfolio invests
primarily in fixed income securities of varying maturities with a dollar-
weighted average portfolio duration between three and eight years. As
compensation for its services, the Strategic Fixed Income Portfolio pays the
investment adviser a fee at the annual rate of .50% of average daily net
assets; the investment adviser pays PIMCO a subadvisory fee at the annual rate
of .25% of average daily net assets.
The HIGH GRADE FIXED INCOME PORTFOLIO primarily seeks current income consistent
with the preservation of capital and secondarily seeks capital appreciation.
This Portfolio invests 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 and asset-backed securities of private
issuers. As compensation for its services, the High Grade 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 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 (formerly, the Asset Allocation Portfolio) seeks a high
total return with low volatility. To achieve its objective, the Portfolio
allocates investments among equity securities, investment grade debt securities
and money market instruments. 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.
On December 28, 1995, PaineWebber Life, on behalf of the Separate Account,
obtained regulatory approval in the form of an order of the Securities and
Exchange Commission permitting it to substitute the shares of the Asset
Allocation Portfolio for the shares of the Balanced Portfolio that were held by
the Balanced Division of the Separate Account. Contract Owners were notified
and given the opportunity to transfer Contract Values they have in the Balanced
Division to any of the other Portfolios of the Trust at no charge. On January
26, 1996, Contract Owners from whom no instructions were received had their
Contract Values which were invested in the Balanced Portfolio transferred to
the Portfolio formerly known as the Asset Allocation Portfolio.
Also on January 26, 1996, the name of the Asset Allocation Portfolio was
changed to the "Balanced Portfolio" to reflect more accurately the Asset
Allocation Portfolio's new investment policies and the Division name was
changed from "Asset Allocation Division" to "Balanced Division".
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The GROWTH AND INCOME PORTFOLIO seeks current income and capital growth. This
Portfolio invests primarily in dividend-paying equity securities believed by
Mitchell Hutchins to have potential for rapid earnings growth. As compensation
for its services, the Growth and Income 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 equity securities of
companies that, 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 an
investment Subadvisory agreement with Mitchell Hutchins, 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. See "Systematic Purchase Program." 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 or
its affiliates, 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." 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 under a Contract
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. See "Variable Account Accumulation Provisions." In the
event that an application fails to recite all of the necessary
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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 the DCA program, a Contract Owner may authorize the automatic transfer of
Contract Values from either the Money Market Division, the High Grade Fixed
Income Division, or the Strategic 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 the 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 than 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 the 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 the 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 Strategic Fixed
Income 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 Incorporated's Investment Policy
Committee and Managing Director for PaineWebber Incorporated. 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. PaineWebber Life 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%
Strategic Fixed Income................... 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 Resource Management Account 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 arbitrarily 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
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the per-share amount of any dividend, capital gain or other distributions made
by the Portfolio in the 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 an Enhanced Death Benefit to the beneficiary. The
Enhanced 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 Enhanced
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.
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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 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
PWD 18
<PAGE>
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 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 the 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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<PAGE>
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.
See "Additional Federal Income Tax Information" in the Statement of Additional
Information.
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 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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<PAGE>
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 will be obtained if
necessary 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.
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.
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 PaineWebber Life. If at any time any payments to be made to
any Annuitant are less than $100 each, PaineWebber Life has the right to
decrease the frequency of payments to an interval that will result in a payment
of at least $100.
Annuity payments will be made on the first Valuation Day of each month starting
with the month of the Annuity Date. Prior to the Annuity Date, the Contract
owner may choose a less frequent payment interval.
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<PAGE>
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. 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.
Thus, depending on the date of the Annuitant's death, it is possible that as
few as one payment may be made under this option.
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. Thus, depending on the dates of
death of the Annuitant and his or her spouse, it is possible that as few as one
payment may be made under this option.
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 would be level.
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<PAGE>
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
arbitrarily 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.
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 subject to the safeguards and conditions described in
"Transfers." 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 (typically ten), 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 this "free look" 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 Contract 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.
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<PAGE>
STATE VARIATIONS--Certain contract features, including the "free look" period,
are subject to state variation. The Contract Owner should read his or her
Contract carefully to determine whether any variations apply in the state in
which the Contract is issued.
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.
FEDERAL INCOME TAX STATUS
The following discussion is intended as a general description of the Federal
income tax aspects of the Contracts. It is not intended as tax advice. For more
complete information, see "Additional Federal Income Tax Information" in the
Statement of Additional Information and consult a qualified tax adviser.
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.
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<PAGE>
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 to dealers range up to a maximum of 2% of
Purchase Payments made, and the selling compensation paid in turn to an agent
may be up to the amount paid to dealers. Selling agents may also receive
service fees and/or additional compensation based on persistency or other
Contract related features up to a maximum of 1.00% of the value of the Contract
per year beginning in the second Contract year, as well as non-cash
compensation.
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 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.
LEGAL PROCEEDINGS
There are no material legal proceedings to which PaineWebber Life, the Separate
Account or any of their property is subject.
The principal underwriter, PWI, is not engaged in any litigation of any
material nature to which the Separate Account is a party or to which any of its
property is subject.
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<PAGE>
TABLE OF CONTENTS
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
TOPIC PAGE
<S> <C>
PaineWebber Life Insurance Company......................................... B-1
The Separate Account....................................................... B-1
The Fund................................................................... B-1
The Contract............................................................... B-2
Accumulation Provisions.................................................. B-2
Annuity Payments......................................................... B-2
Distribution Contracts................................................... B-3
Additional Federal Income Tax Information.................................. B-4
The Company and the Separate Account..................................... B-4
Non-Qualified Plans...................................................... B-4
Qualified Plans.......................................................... B-5
Withholding.............................................................. B-6
Diversification Requirements............................................. B-7
Other Information.......................................................... B-7
Administrative Services.................................................. B-7
Safekeeping of Assets.................................................... B-7
Independent Auditors..................................................... B-7
Registration Statement................................................... B-7
Separate Account Performance............................................... B-8
Performance................................................................ B-10
Financial Statements....................................................... B-11
</TABLE>
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<PAGE>
APPENDIX A
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) corresponding to the
Allocation Options to which that Contract's Values are allocated. Thus, the
investment risk is borne by the Contract Owner.
When a variable annuity payment option 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 a fixed annuity payment option 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.
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".
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 such 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 8.5% 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 .12% which represents a premium
for the Enhanced Death Benefit. See "Contract Charges and Deductions."
PWD 27
<PAGE>
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."
Transfers among the Allocation Options and withdrawals are currently
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."
The Fund is also subject to certain charges and operating expenses. 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" and the
accompanying prospectus for 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.
PWD 28
<PAGE>
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:
(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
PWD 29
<PAGE>
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.
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 currently be made at any time
free of charge. See "Transfer Charges."
13.How can Contract inquiries be made?
For further information concerning the Contract, write the Administrative
Office for PaineWebber Life at 601 6th Avenue, Des Moines, Iowa 50309 or
call at 1-800-986-0088. American Republic Insurance Company, which is
located at that address, serves as the third party administrator for the
Contracts pursuant to a contract with PaineWebber Life.
PWD 30
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1996
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, 1996, a copy of which may be obtained without charge by
writing to PaineWebber Life Insurance Company's Administrative Office at 601 6th
Avenue, Des Moines, Iowa 50309.
<PAGE>
TABLE OF CONTENTS
PAINEWEBBER LIFE INSURANCE COMPANY......... B-1
THE SEPARATE ACCOUNT....................... B-1
THE FUND................................... B-1
THE CONTRACT............................... B-2
Accumulation Provisions............... B-2
Annuity Payments...................... B-2
Distribution of Contracts............. B-3
ADDITIONAL FEDERAL INCOME TAX INFORMATION.. B-4
The Company and the Separate Account.. B-4
Non-Qualified Plans................... B-4
Qualified Plans....................... B-5
Withholding........................... B-6
Diversification Requirements.......... B-7
OTHER INFORMATION.......................... B-7
Administrative Services............... B-7
Safekeeping of Assets................. B-7
Independent Auditors.................. B-7
Registration Statement................ B-7
SEPARATE ACCOUNT PERFORMANCE............... B-8
PERFORMANCE................................ B-10
FINANCIAL STATEMENTS....................... B-11
<PAGE>
PAINEWEBBER LIFE INSURANCE COMPANY
PaineWebber Life Insurance Company (the "Company") is a stock life insurance
company organized under the laws of the State of California as Pacific Fidelity
Life Insurance Company ("PFLIC"). 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.
The Administrative Office of the Company is located at 601 6th Avenue, Des
Moines, Iowa 50309. The executive offices are located at 1200 Harbor Boulevard,
Weehawken, New Jersey 07087. 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 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 (the "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 nine available Divisions, each of which invests in shares
of a designated Portfolio (a "Portfolio") of the PaineWebber Series Trust (the
"Fund"). 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 was organized in 1986 as a Massachusetts business trust and is
registered as an open-end management investment company under the 1940 Act.
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.
THE CONTRACT
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 arbitrarily 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.
B-2
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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.
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.
PaineWebber Incorporated ("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").
The Company and PWI are both indirect wholly-owned subsidiaries of Paine Webber
Group, Inc. The Company 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"). The Company 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.
B-3
<PAGE>
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 received underwriting compensation from the
Company of $473,803 in 1993, $3,494,777 in 1994, and $700,176 in 1995.
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.
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
B-4
<PAGE>
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."
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.
B-5
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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 nondeductible
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
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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 within one taxable year to the
recipient, the amount of withholding will approximate the federal income tax on
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
ADMINISTRATIVE SERVICES
The Company 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. Such administrative services include:
issuing Contracts, maintaining Contract Owner records (accounting, valuation and
reporting services) and issuing reports. The address of the administrative
office is 601 6th Avenue, Des Moines, Iowa 50309.
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.
B-7
<PAGE>
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 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
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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 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
B-9
<PAGE>
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
December 31, 1995 were 3.14% and 3.17%, respectively.
The average total return for all the Divisions, except the Money Market, of the
Separate Account for the one-, and where applicable, five-year periods ending on
December 31, 1995, and from inception are as follows:
AVERAGE ANNUAL TOTAL RETURN
PERIOD ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Inception Since
Division Date (1) 1 Year 5 Years Inception (1)
- ------------------------------------- ------------------- ---------------- ----------------- ----------------------
<S> <C> <C> <C> <C>
Strategic Fixed Income 11/15/93 16.45% 7.09% 6.43%
High Grade Fixed Income 11/5/93 13.40% N/A -0.03%
Global Income 9/15/93 11.58% 5.05% 6.32%
Balanced 10/29/93 21.18% 8.06 7.13%
(formerly Asset Allocation)
Growth and Income 9/15/93 28.22% N/A 3.61%
Growth 10/29/93 30.16% 13.97% 11.23%
Aggressive Growth 11/1/93 18.90% N/A 5.65%
Global Growth 9/15/93 -5.18% 1.07% 3.47%
(1) The various Divisions of the Separate Account first became operational
beginning in September 1993. Except for the High Grade Fixed Income 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.
</TABLE>
B-10
<PAGE>
FINANCIAL STATEMENTS
The financial statements of the 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.
B-11
<PAGE>
PaineWebber Life Variable Annuity Account
Financial Statements
Year ended December 31, 1995
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors....... 1
Audited Financial Statements
Statement of Net Assets.............. 2
Statement of Operations.............. 5
Statements of Changes in Net Assets.. 7
Notes to Financial Statements........ 9
</TABLE>
<PAGE>
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, Strategic
Fixed Income (formerly Government), High Grade Fixed Income (formerly Fixed
Income), Global Income, Balanced, Asset Allocation, Growth and Income (formerly
Dividend Growth), Growth, Aggressive Growth and Global Growth Divisions] as of
December 31, 1995, the related statements of operations for the year then ended.
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, 1995, 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, 1995, and the results of their operations for the year then ended
and the changes in their net assets for each of the two years in the period then
ended in conformity with generally accepted accounting principles.
Des Moines, Iowa
January 26, 1996
1
<PAGE>
PaineWebber Life Variable Annuity Account
Statement of Net Assets
December 31, 1995
<TABLE>
<CAPTION>
HIGH
STRATEGIC GRADE
MONEY FIXED FIXED
MARKET INCOME INCOME
COMBINED DIVISION DIVISION DIVISION
---------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments at net asset value:
PaineWebber Series Trust Money
Market Portfolio, 6,765,008
shares at $1.00 per share (cost
- $6,765,008) $ 6,765,008 $6,765,008 $ - $ -
PaineWebber Series Trust
Strategic Fixed Income
Portfolio, 482,127 shares at
$10.61 per share (cost -
$5,490,099) 5,115,364 - 5,115,364 -
PaineWebber Series Trust High
Grade Fixed Income Portfolio,
968,697 shares at $9.49 per
share (cost - $8,887,007) 9,192,931 - - 9,192,931
PaineWebber Series Trust Global
Income Portfolio, 1,184,321
shares at $11.20 per share (cost
- $13,792,634) 13,264,397 - - -
PaineWebber Series Trust
Balanced Portfolio, 1,258,312
shares at $11.54 per share (cost
- $12,333,411) 14,520,924 - - -
PaineWebber Series Trust Asset
Allocation Portfolio, 732,710
shares at $10.70 per share (cost
- $8,228,991) 7,839,999 - - -
PaineWebber Series Trust Growth
and Income Portfolio, 594,940
shares at $11.83 per share (cost
- $5,994,416) 7,038,147 - - -
PaineWebber Series Trust Growth
Portfolio, 1,065,126 shares at
$17.57 per share (cost -
$17,790,176) 18,714,257 - - -
PaineWebber Series Trust
Aggressive Growth Portfolio,
1,557,738 shares at $11.34 per
share (cost - $15,789,587) 17,664,753 - - -
PaineWebber Series Trust Global
Growth Portfolio, 1,285,628
shares at $12.00 per share (cost
- $18,018,202) 15,427,537 - - -
------------------------------------------------
Total investments (cost -
$113,089,531) 115,543,317 6,765,008 5,115,364 9,192,931
Dividends receivable 5,870,430 - 792,657 544,294
------------------------------------------------
Total net assets $121,413,747 $6,765,008 $5,908,021 $9,737,225
===================================================
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
GROWTH
GLOBAL ASSET AND AGGRESSIVE GLOBAL
INCOME BALANCED ALLOCATION INCOME GROWTH GROWTH GROWTH
DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ - $ - $ - $ - $ - $ - $ -
- - - - - - -
- - - - - - -
13,264,397 - - - - - -
- 14,520,924 - - - - -
- - 7,839,999 - - - -
- - - 7,038,147 - - -
- - - - 18,714,257 - -
- - - - - 17,664,753 -
- - - - - - 15,427,537
13,264,397 14,520,924 7,839,999 7,038,147 18,714,257 17,664,753 15,427,537
- ------------------------------------------------------------------------------------------
1,243,609 152,285 780,378 74,847 1,749,787 532,573 -
- ------------------------------------------------------------------------------------------
$14,508,006 $14,673,209 $8,620,377 $7,112,994 $20,464,044 $18,197,326 $15,427,537
==========================================================================================
</TABLE>
3
<PAGE>
PaineWebber Life Variable Annuity Account
Statement of Net Assets (continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Net assets represented by:
CURRENTLY PAYABLE ANNUITY CONTRACTS
High Grade Fixed Income Division $ 2,555
Global Income Division 4,646
Asset Allocation Division 18,625
Growth Division 8,089
Aggressive Growth Division 2,730
Global Growth Division 14,135
-----------
50,780
CONTRACTS IN ACCUMULATION PERIOD
UNITS VALUE
-------------------
CONTRACTS SOLD SUBJECT TO
EARLY WITHDRAWAL CHARGES
Money Market Division 587,670 $10.57 6,214,111
Strategic Fixed Income
Division 489,277 10.81 5,290,958
High Grade Fixed Income
Division 887,832 10.03 8,908,537
Global Income Division 1,246,441 10.74 13,390,539
Balanced Division 1,180,313 11.39 13,443,347
Asset Allocation Division 712,931 11.14 7,943,017
Growth and Income Division 538,579 11.93 6,426,435
Growth Division 1,743,700 11.37 19,834,304
Aggressive Growth Division 1,476,876 11.32 16,711,223
Global Growth Division 1,490,621 9.69 14,440,926
------------
112,603,397
CONTRACTS SOLD NOT SUBJECT TO
EARLY WITHDRAWAL CHARGES
Money Market Division 52,325 10.53 550,897
Strategic Fixed Income Division 57,187 10.79 617,063
High Grade Fixed Income
Division 82,637 10.00 826,133
Global Income Division 105,563 10.54 1,112,821
Balanced Division 108,366 11.35 1,229,862
Asset Allocation Division 59,063 11.15 658,735
Growth and Income Division 56,171 12.22 686,559
Growth Division 55,259 11.25 621,651
Aggressive Growth Division 131,581 11.27 1,483,373
Global Growth Division 110,112 8.83 972,476
------------
8,759,570
------------
$121,413,747
============
</TABLE>
See accompanying notes.
- ----------------------
4
<PAGE>
PaineWebber Life Variable Annuity Account
Statement of Operations
Year ended December 31, 1995
<TABLE>
<CAPTION>
STRATEGIC
MONEY FIXED
MARKET INCOME
COMBINED DIVISION DIVISION
---------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS)
Income:
Dividends $ 3,342,327 $ 412,580 $424,293
Capital gains distributions 3,132,602 - 368,364
Expenses (Note 2):
Administrative charges (443,946) (87,467) (11,918)
Mortality, distribution and expense
risk and enhanced death benefit fees (1,891,781) (127,563) (81,776)
---------------------------------------
Net investment income (loss) 4,139,202 197,550 698,963
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 4)
Net realized gain (loss) on investments (531,887) - (3,768)
Change in net unrealized
appreciation/depreciation of invesments 11,874,122 - 62,331
---------------------------------------
Net increase (decrease) in net assets
resulting from operations $15,481,437 $ 197,550 $757,526
=======================================
</TABLE>
See accompanying notes.
- ----------------------
5
<PAGE>
<TABLE>
<CAPTION>
HIGH GRADE GROWTH
FIXED GLOBAL ASSET AND AGGRESSIVE GLOBAL
INCOME INCOME BALANCED ALLOCATION INCOME GROWTH GROWTH GROWTH
DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 544,294 $1,376,489 $ 152,285 $ 254,997 $ 59,818 $ 80,198 $ 37,373 $ -
- - - 525,381 15,029 1,728,628 495,200 -
(31,100) (59,793) (56,392) (24,747) (9,261) (46,257) (59,557) (57,454)
(158,006) (248,284) (238,697) (125,317) (80,988) (279,320) (264,970) (286,860)
- ---------------------------------------------------------------------------------------------------------
355,188 1,068,412 (142,804) 630,314 (15,402) 1,483,249 208,046 (344,314)
103,463 (42,242) 408,418 (21,813) 28,880 15,779 216,219 (1,236,823)
750,921 630,137 2,573,533 850,785 1,197,284 3,159,434 2,240,725 408,972
- ---------------------------------------------------------------------------------------------------------
$1,209,572 $1,656,307 $2,839,147 $1,459,286 $1,210,762 $4,658,462 $2,664,990 $(1,172,165)
=========================================================================================================
</TABLE>
6
<PAGE>
PaineWebber Life Variable Annuity Account
Statements of Changes in Net Assets
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
STRATEGIC
MONEY FIXED
MARKET INCOME
COMBINED DIVISION DIVISION
------------------------------------------
<S> <C> <C> <C>
NET ASSETS AT JANUARY 1, 1994 $ 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 gain on investments (355,956) - (24,543)
Change in net unrealized
appreciation/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 December 31, 1994 106,711,620 8,014,716 3,908,010
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss) 4,139,202 197,550 698,936
Net realized gain (loss) on investments (531,887) - (3,768)
Change in net unrealized
appreciation/depreciation of investments 11,874,122 - 62,331
------------------------------------------
Net increase (decrease) in net assets
resulting from operations 15,481,437 197,550 757,526
Changes from principal transactions:
Purchase payments 13,301,086 2,522,386 649,084
Contract distributions and terminations (14,097,675) (2,104,081) (371,150)
Transfer payments (to) from other divisions - (1,865,563) 964,551
Annuity payments (5,444) - -
Actuarial adjustment in reserves
for currently payable annuity contracts 22,723 - -
Increase (decrease) in net assets derived
from principal transactions (779,310) (1,447,258) 1,242,485
------------------------------------------
Total increase (decrease) 14,702,127 (1,249,708) 2,000,011
------------------------------------------
Net assets at December 31, 1995 $121,413,747 $ 6,765,008 $5,908,021
==========================================
</TABLE>
See accompanying notes.
- ----------------------
7
<PAGE>
<TABLE>
<CAPTION>
HIGH
GRADE GROWTH
FIXED GLOBAL ASSET AND AGGRESSIVE GLOBAL
INCOME INCOME BALANCED ALLOCATION INCOME GROWTH GROWTH GROWTH
DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$1,482,547 $ 3,625,846 $ 2,264,479 $ 799,007 $ 683,426 $ 1,811,876 $ 2,816,406 $ 4,447,509
143,204 70,954 (26,803) 677,601 (1,005) 957,740 (145,769) 892,965
(26,731) (146,507) (12,254) (22,616) (4,897) (45,093) (19,887) (53,428)
(443,886) (870,107) (381,258) (1,163,839) (145,968) (2,207,272) (369,861) (3,010,457)
- --------------------------------------------------------------------------------------------------------------
(327,413) (945,660) (420,315) (508,854) (151,870) (1,294,625) (535,517) (2,170,920)
6,411,815 14,370,056 9,126,818 5,837,235 2,692,033 12,316,174 10,684,571 17,155,835
(357,801) (745,020) (532,742) (294,074) (85,135) (519,241) (469,774) (500,559)
644,514 (132,456) 1,721,363 701,539 202,347 1,782,719 1,116,820 2,059,441
- (460) - (224) - (452) - (1,407)
- 5,047 - 2,747 - 5,291 - 15,952
- --------------------------------------------------------------------------------------------------------------
6,698,528 13,497,167 10,315,439 6,247,223 2,809,245 13,584,491 11,331,617 18,729,262
- --------------------------------------------------------------------------------------------------------------
6,371,115 12,551,507 9,895,124 5,738,369 2,657,375 12,289,866 10,796,100 16,558,342
- --------------------------------------------------------------------------------------------------------------
7,853,662 16,177,353 12,159,603 6,537,376 3,340,801 14,101,742 13,612,506 21,005,851
355,188 1,068,412 (142,804) 630,314 (15,402) 1,483,249 208,046 (344,314)
103,463 (42,242) 408,418 (21,813) 28,880 15,779 216,219 (1,236,823)
750,921 630,137 2,573,533 850,785 1,197,284 3,159,434 2,240,725 408,972
- --------------------------------------------------------------------------------------------------------------
1,209,572 1,656,307 2,839,147 1,459,286 1,210,762 4,658,462 2,664,990 (1,172,165)
1,607,281 497,334 1,116,091 725,890 590,270 1,664,683 2,698,282 1,229,785
(969,745) (1,628,396) (2,470,203) (948,803) (319,988) (1,191,548) (2,006,154) (2,087,607)
34,437 (2,194,012) 1,028,571 834,371 2,291,149 1,229,274 1,225,739 (3,548,517)
(225) (613) - (1,673) - (860) (225) (1,848)
2,243 33 - 13,930 - 2,291 2,188 2,038
- -------------------------------------------------------------------------------------------------------------
673,991 (3,325,654) (325,541) 623,715 23,561,431 1,703,840 1,919,830 (4,406,149)
- -------------------------------------------------------------------------------------------------------------
1,883,563 (1,669,347) 2,513,606 2,083,001 3,772,193 6,362,302 4,584,820 (5,578,314)
- -------------------------------------------------------------------------------------------------------------
$9,737,225 $14,508,006 $14,673,209 $ 8,620,377 $ 7,112,994 $20,464,044 $18,197,326 $15,427,537
=============================================================================================================
</TABLE>
8
<PAGE>
PaineWebber Life Variable Annuity Account
Notes to Financial Statements
December 31, 1995
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 Company is a wholly-owned subsidiary of PaineWebber Life Holdings, Inc.,
which is a wholly-owned subsidiary of PaineWebber Group, Inc. (the "Parent").
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 (the "Fund"), an open-end
management investment company under the Investment Company Act of 1940, as
directed by eligible contract owners. The Fund receives investment advisory and
administrative services from Mitchell Hutchins Asset Management Inc. ("MHAM") an
indirectly wholly-owned subsidiary of the Parent, and is charged fees pursuant
to an advisory and administration contract between the Fund and MHAM which has
been approved by the Fund's board of trustees. All series of shares are
diversified except Global Income Portfolio. Investments are stated at the
closing net asset values per share on December 31, 1995.
Effective August 14, 1995, the name of the Dividend Growth Division changed to
Growth and Income Division. Effective September 21, 1995, the name of the
Government Division changed to Strategic Fixed Income Division and the name of
the Fixed Income Division changed to the High Grade Fixed Income Division. On
January 26, 1996, shares of the Asset Allocation Division were substituted for
all shares of the Balanced Division. The Asset Allocation Division was renamed
the Balanced Division.
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 $1,891,781 in 1995.
9
<PAGE>
PaineWebber Life Variable Annuity Account
Notes to Financial Statements (continued)
2. EXPENSES (CONTINUED)
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 $443,946 in 1995.
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.
3. FEDERAL INCOME TAXES
Operations of the PaineWebber Life Variable Annuity Account are 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, 1995 DECEMBER 31, 1994
-----------------------------------------------------
PURCHASES SALES PURCHASES SALES
-----------------------------------------------------
<S> <C> <C> <C> <C>
Portfolio:
Money Market $ 6,675,432 $ 7,891,264 $ 15,899,666 $ 9,133,295
Strategic Fixed
Income 2,268,034 789,531 4,371,4 656,851
High Grade Fixed
Income 3,412,259 2,707,906 7,338,995 714,448
Global Income 1,211,442 4,436,559 15,823,091 2,218,561
Balanced 3,479,596 3,990,231 10,680,140 498,837
Asset Allocation 2,904,458 1,685,415 6,638,099 373,793
Growth and Income 2,928,584 421,392 3,010,575 227,758
Growth 4,866,523 2,440,768 14,746,301 1,134,296
Aggressive Groth 3,853,999 2,242,312 12,046,789 873,741
Global Growth 2,651,404 6,238,128 19,479,978 875,645
-----------------------------------------------------
$34,251,731 $32,843,506 $110,035,066 $16,707,225
=====================================================
</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, 1995 DCEMBER 31,1994
---------------------------------------------
PURCHASED REDEEMED PURCHASED REDEEMED
---------------------------------------------
<S> <C> <C> <C> <C>
CONTRACTS SOLD SUBJECT
TO EARLY WITHDRAWAL CHARGE
Division:
Money Market 1,565,658 1,707,476 1,972,868 1,345,459
Strategic Fixed Income 207,825 84,116 401,999 58,883
High Grade Fixed Income 1,779,381 1,680,370 837,699 188,712
Global Income 116,992 437,736 1,578,700 323,231
Balanced 432,409 343,844 988,190 85,212
Asset Allocation 203,097 136,547 629,776 48,389
Growth and Income 273,290 42,883 273,190 26,410
Growth 2,168,891 1,986,620 1,650,367 246,582
Aggressive Growth 480,581 296,071 1,159,849 108,333
Global Growth 275,311 687,750 1,740,093 153,753
---------------------------------------------
7,503,435 7,403,413 11,232,731 2,584,964
=============================================
CONTRACTS SOLD NOT
SUBJECT TO EARLY WITHDRAWAL CHARGE
Division:
Money Market 71,758 75,866 209,584 172,458
Strategic Fixed Income 11,406 10,263 56,564 10,680
High Grade Fixed Income 89,059 107,113 136,677 50,540
Global Income 23,009 35,370 101,415 23,688
Balanced 9,582 103,809 186,832 24,775
Asset Allocation 34,239 40,715 57,878 4,844
Growth and Income 20,082 14,122 50,832 7,003
Growth 101,674 102,043 61,681 29,156
Aggressive Growth 42,876 52,530 126,078 27,412
Global Growth 11,822 72,824 133,084 28,628
---------------------------------------------
415,507 614,655 1,120,625 379,184
=============================================
</TABLE>
11
<PAGE>
PaineWebber Life Variable Annuity Account
Notes to Financial Statements (continued)
6. NET ASSETS
Net assets at December 31, 1995 consisted of the following:
<TABLE>
<CAPTION>
HIGH
STRATEGIC GRADE
MONEY FIXED FIXED
MARKET INCOME INCOME
COMBINED DIVISION DIVISION DIVISION
--------------------------------------------------------
<S> <C> <C> <C> <C>
Unit transactions $112,509,315 $ 6,676,252 $ 5,364,655 $8,990,209
Accumulated net
investment income 6,450,646 88,756 918,101 441,092
Net unrealized appreciation
(depreciation) of investments 2,453,786 - (374,735) 305,924
--------------------------------------------------------
$121,413,747 $ 6,765,008 $ 5,908,021 $9,737,225
========================================================
GROWTH
GLOBAL ASSET AND
INCOME BALANCED ALLOCATION INCOME
DIVISION DIVISION DIVISION DIVISION
--------------------------------------------------------
Unit transactions $ 13,942,761 $12,625,137 $ 7,794,613 $6,075,146
Accumulated net investment
income (loss) 1,093,482 (139,441) 1,214,756 (5,883)
Net unrealized appreciation
(depreciation) of investments (528,237) 2,187,513 (388,992) 1,043,731
--------------------------------------------------------
$ 14,508,006 $14,673,209 $ 8,620,377 $7,112,994
========================================================
AGGRESSIVE GLOBAL
GROWTH GROWTH GROWTH
DIVISION DIVISION DIVISION
------------------------------------------
Unit transactions $ 17,245,879 $16,266,783 $17,527,880
Accumulated net invest-
ment income (loss) 2,294,084 55,377 490,322
Net unrealized appreciation
(depreciation) of investments 924,081 1,875,166 (2,590,665)
------------------------------------------
$ 20,464,044 $18,197,326 $15,427,537
==========================================
</TABLE>
<PAGE>
PaineWebber Life Insurance Company
Financial Statements
Years ended December 31, 1995, 1994 and 1993
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors................. 1
Audited Financial Statements
Balance Sheets................................. 2
Statements of Operations....................... 3
Statements of Changes in Stockholder's Equity.. 4
Statements of Cash Flows....................... 5
Notes to Financial Statements.................. 6
</TABLE>
<PAGE>
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, 1995 and 1994, and the related statements of
operations, changes in stockholder's equity, and cash flows for each of the
three years in the period ended December 31, 1995. 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, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1995, 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 fixed maturity securities.
Des Moines, Iowa
March 22, 1996
1
<PAGE>
PaineWebber Life Insurance Company
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
--------------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Held to maturity, at amortized cost $ 2,701,980 $ 2,609,146
Available for sale, at market 84,800 90,900
Short-term investments 16,259,163 19,082,582
--------------------------
Total investments 19,045,943 21,782,628
Cash and cash equivalents 6,771 2,000,327
Accrued investment income 70,746 165,146
Assets on deposit with ceding company 275,750,030 153,408,245
Deferred policy acquisition costs 24,605,021 15,103,072
Goodwill, less accumulated
amortization (1995 - $360,000;
1994 - $240,000) 840,000 960,000
Other assets 471,996 553,201
Separate account assets 121,413,747 106,676,646
--------------------------
Total assets $442,204,254 $300,649,265
==========================
LIABILITIES AND STOCKHOLDEROS
EQUITY
Liabilities:
Policy and contract claims $ 384,312 $ 121,210
Contract deposit payable - 1,294,365
Funds held for reinsurers on
reinsurance assumed 289,293,467 161,863,182
Expense allowance payable on
reinsurance assumed 1,248,544 2,439,526
Accounts payable and other
liabilities 464,247 204,726
Separate account liabilities 121,413,747 106,676,646
--------------------------
Total liabilities 412,804,317 272,599,655
Commitments and contingencies
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 26,757,295
Unrealized appreciation
(depreciation) of fixed maturities 1,934 (2,750)
Retained earnings (deficit) 140,708 (1,204,935)
--------------------------
Total stockholder's equity 29,399,937 28,049,610
--------------------------
Total liabilities and
stockholder's equity $442,204,254 $300,649,265
==========================
</TABLE>
See accompanying notes.
- ----------------------
2
<PAGE>
PaineWebber Life Insurance Company
Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
-----------------------------------------
<S> <C> <C> <C>
Revenues:
Annuity product charges $ 4,442,424 $ 1,169,708 $ 4,017
Investment income, net of
related expenses 1,061,015 889,061 185,290
Realized loss on investments (10,531) (873) -
-----------------------------------------
5,492,908 2,057,896 189,307
Expenses:
Commissions 10,093,301 11,596,074 461,472
General expenses 3,146,492 4,496,350 1,324,129
Insurance taxes 289,421 294,878 142,205
Policy acquisition costs
deferred (10,169,946) (15,067,961) (452,671)
Amortization of deferred
policy acquisition costs 667,997 415,489 2,073
Amortization of goodwill 120,000 120,000 120,000
-----------------------------------------
4,147,265 1,854,830 1,597,308
-----------------------------------------
Net income (loss) $ 1,345,643 $ 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
APPRECIATION
ADDITIONAL (DEPRECIATION) RETAINED
COMMON PAID-IN OF FIXED EARNINGS
STOCK CAPITAL MATURITIES (DEFICIT) TOTAL
----------------------------------------------------------------------
<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
Net income - - - 1,345,643 1,345,643
Unrealized appreciation of
fixed maturities - - 4,684 - 4,684
----------------------------------------------------------------------
Balance at
December 31, 1995 $2,500,000 $26,757,295 $ 1,934 $ 140,708 $29,399,937
=====================================================================
</TABLE>
See accompanying notes.
- ----------------------
4
<PAGE>
PaineWebber Life Insurance Company
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 1,345,643 $ 203,066 $ (1,408,001)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Amortization of goodwill 120,000 120,000 120,000
Net amortization of fixed maturities 44,869 40,528 51,057
Deferral of policy acquisition costs (10,169,946) (15,067,961) (452,671)
Amortization of deferred acquisition costs 667,997 415,489 2,073
Change in expense allowance
payable and net funds
held on reinsurance assumed 7,647,978 12,872,865 -
Payments to ceding companies on
reinsurance assumed (3,569,517) (2,315,377) -
Payments received from ceding companies
on reinsurance assumed 156,032 - -
Realized loss on investments 10,531 873 -
Change in operating assets and
liabilities net of reinsurance assumed:
Decrease (increase) in accrued investment income 94,400 (103,198) (2,362)
Increase in other assets (255,770) (14,081) (202,147)
Increase in policy and contract claims 263,102 121,210 -
Increase (decrease) in other liabilities (1,034,844) (650,189) 2,149,280
------------------------------------------
Net cash provided by (used in)
operating activities 4,679,525) (4,376,775) 257,229
INVESTING ACTIVITIES
Proceeds from
investments sold, matured or repaid:
Fixed maturities - held to maturity 515,000 195,000 1,425,000
Fixed maturity - available for sale 10,000 20,000 -
Equity securities - 62,753,284 10,293,401
Short-term investments 2,823,419 - -
------------------------------------------
3,348,419 62,968,284 11,718,401
Cost of investments acquired:
Fixed maturities - held to maturity (662,450) (1,099,959) (204,945)
Equity securities - (62,753,284) (10,293,401)
Short-term investments - (10,385,420) (8,697,162)
------------------------------------------
(662,450) (74,238,663) (19,195,508)
------------------------------------------
Net cash provided by (used in)
investing activities 2,685,969 (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 (1,993,556) (647,154) 647,481
Cash and cash equivalents at
beginning of year 2,000,327 2,647,481 2,000,000
------------------------------------------
Cash and cash equivalents at end of year $ 6,771 $ 2,000,327 $ 2,647,481
==========================================
</TABLE>
See accompanying notes.
- ----------------------
5
<PAGE>
PaineWebber Life Insurance Company
Notes to Financial Statements
December 31, 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
PaineWebber Life Insurance Company (the Company) is a wholly-owned subsidiary of
PaineWebber Life Holdings, Inc., which is a wholly-owned subsidiary of
PaineWebber Group, Inc. (the Parent). The Company offers separate account
variable annuity products. These products are marketed through PaineWebber
licensed brokers.
USE OF ESTIMATES
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Such estimates and assumptions
could change in the future as more information becomes known, which could impact
the amounts reported and disclosed herein.
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 stockholder's 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 operations.
Premiums and discounts are amortized utilizing the scientific interest method
which results in a constant yield over the securitiesO 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.
6
<PAGE>
PaineWebber Life Insurance Company
Notes to Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL
Goodwill includes 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.
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
1996, the Company will be able to pay dividends to its parent of approximately
$1,640,000 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.
RECLASSIFICATION
Certain amounts in the 1994 and 1993 financial statements have been reclassified
to conform to the 1995 financial statement presentation.
7
<PAGE>
PaineWebber Life Insurance Company
Notes to Financial Statements (continued)
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.
The following methods and assumptions were used by the Company in estimating the
"fair value" disclosures for "financial instruments":
Cash, cash equivalents, short-term investments and separate account assets: 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
1995 1994
--------------------------------------------------------
CARRYING MARKET CARRYING MARKET
VALUE VALUE VALUE VALUE
--------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 6,771 $ 6,771 $ 2,003,327 $ 2,003,327
Short-term investments 16,259,163 16,259,163 19,082,582 19,082,582
Fixed maturities:
Held to maturity 2,701,980 2,729,500 2,609,146 2,530,400
Available for sale 84,800 84,800 90,900 90,900
--------------------------------------------------------
2,786,780 2,814,300 2,700,046 2,621,300
Separate account assets 121,413,747 121,413,747 106,676,646 106,676,646
Liabilities:
Separate account liabilities 121,413,747 117,619,756 106,676,646 102,485,045
</TABLE>
8
<PAGE>
PaineWebber Life Insurance Company
Notes to Financial Statements (continued)
3. BASIS OF PRESENTATION
The financial statements prepared on a statutory basis differ from these
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 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 valued 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 reported in accordance with statutory accounting
practices was $2,698,000 in 1995, $5,155,000 in 1994 and $1,702,000 in 1993.
Total statutory surplus, as reported, was $16,396,000 at December 31, 1995 and
$18,978,000 at December 31, 1994.
9
<PAGE>
PaineWebber Life Insurance Company
Notes to Financial Statements (continued)
4. INVESTMENTS OPERATIONS
At December 31, 1995 and 1994, the amortized cost, gross unrealized gains and
losses, and estimated market value of debt securities are as follows:
<TABLE>
<CAPTION>
HELD FOR INVESTMENT
<S> <C> <C> <C> <C>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------------------------------------------------------
DECEMBER 31, 1995
Bonds:
United States Government and agencies $ 2,701,980 $27,520 $ - $ 2,729,500
State, municipal and other government - - - -
---------------------------------------------------------
2,701,980 27,520 - 2,729,500
Short-term investments:
United States Government and agencies 16,259,163 - - 16,259,163
---------------------------------------------------------
$18,961,143 $27,520 $ - $18,988,663
=========================================================
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------------------------------------------------------
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
=========================================================
AVAILABLE FOR SALE
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------------------------------------------------------
DECEMBER 31, 1995
Bonds:
State, municipal and other government $ 82,866 $ 1,934 $ - $ 84,800
=========================================================
DECEMBER 31, 1994
Bonds:
State, municipal and other government $ 93,650 $ - $ (2,750) $ 90,900
=========================================================
</TABLE>
10
<PAGE>
PaineWebber Life Insurance Company
Notes to Financial Statements (continued)
4. INVESTMENTS OPERATIONS (CONTINUED)
The amortized cost and estimated market value of debt securities by contractual
maturity at December 31, 1995 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 $18,431,865 $18,438,663 $ - $ -
Due after one year through five years 469,493 482,200 - -
Due after five years through ten years - - 82,866 84,800
Due after ten years 59,785 67,800 - -
------------------------------------------------
$18,961,143 $18,988,663 $ 82,866 $ 84,800
================================================
</TABLE>
Major categories of net investment income are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-----------------------------------
<S> <C> <C> <C>
Fixed maturities:
Held for investment $ 146,009 $ 131,107 $136,137
Available for sale 4,500 8,230 -
Equity securities - 167,107 93,285
Short-term investments 997,738 680,210 28,998
Other 15,828 16,148 9,216
-----------------------------------
1,164,075 1,002,802 267,636
Less investment expenses 103,060 113,741 82,346
-----------------------------------
$ 1,061,015 $ 889,061 $185,290
===================================
</TABLE>
At December 31, 1995, investments with an aggregate carrying value of $7,634,637
(1994 - $7,165,291) 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, 1995, the Company has net operating loss carryforwards
for income tax purposes of approximately $12,500,000 which expire through 2011.
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
1995 1994
-----------------------
<S> <C> <C>
Deferred tax liabilities:
Deferred policy
acquisition costs $8,082,755 $4,782,755
Fixed maturity discounts 12,491 26,442
Other 35,819 103,540
-----------------------
8,131,065 4,912,737
Deferred tax assets:
Net operating loss carryover 4,400,683 3,384,647
Reinsurance 3,882,753 1,938,748
Other 397,201 457,787
8,680,637 5,781,182
Valuation allowance (549,572) (868,445)
-----------------------
Net deferred tax $ - $ -
=======================
</TABLE>
6. REINSURANCE
During 1994 and 1995, 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 years ended December 31, 1995
and 1994, the Company recorded annuity product charges of $3,679,995 and
$682,484, respectively, 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 1995, 1994 and 1993, the Company
incurred reinsurance premiums of $1,741,939, $839,346 and $513 and had benefit
recoveries of $198,824, $47,924 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 $695,000, $724,000 and $570,000 for these services in 1995, 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
BALANCE SHEETS
STATEMENTS OF OPERATIONS
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
STATEMENTS OF CASH FLOWS
NOTES TO FINANCIAL STATEMENTS
Financial Statements of PaineWebber Life Variable Annuity Account
STATEMENT OF NET ASSETS
STATEMENT OF OPERATIONS
STATEMENTS OF CHANGES IN NET ASSETS
NOTES TO FINANCIAL STATEMENTS
(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..................... **
(a) 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........................................ *
C-1
<PAGE>
(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.......................... NOT APPLICABLE
* Previously filed with registration statement 33-61488 on April 22, 1993.
** Previously filed with Pre-Effective Amendment No. 1 on June 25, 1993.
Item 25. Directors and Officers of the Depositor
- ---------------------------------------------------
The directors and principal officers of PaineWebber Life Insurance Company
(THE "DEPOSITOR") 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
Gerianne J. Silva Vice President and Assistant Secretary
Pierce R. Smith Treasurer
Richard J. Tucker Director, Senior Vice President, and Secretary
Item 26. Persons Controlled by or under Common Control with Depositor or
- -------------------------------------------------------------------------
Registrant
- ----------
The Registrant is a separate account of THE 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 TO Pre-Effective Amendment
No. 1 to the Registration Statement FILED ON JUNE 25, 1993.
Item 27. Number of Contract Owners
- -----------------------------------
236 as of March 31, 1996.
Item 28. Indemnification
- -------------------------
Paine Webber Group, Inc., the ultimate parent of THE Depositor and
PaineWebber Incorporated ("PWI"), (the depositor and principal underwriter for
the REGISTRANT,
C-2
<PAGE>
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.
INSOFAR AS INDEMNIFICATION FOR LIABILITY ARISING UNDER THE SECURITIES ACT
OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS AND CONTROLLING PERSONS, OR
OTHERWISE, THE REGISTRANT HAS BEEN ADVISED THAT IN THE OPINION OF THE COMMISSION
SUCH INDEMNIFICATION MAY BE AGAINST PUBLIC POLICY AS EXPRESSED IN THAT ACT AND
MAY BE, THEREFORE, UNENFORCEABLE. IN THE EVENT THAT A CLAIM FOR INDEMNIFICATION
AGAINST SUCH LIABILITIES (OTHER THAN THE PAYMENT BY THE REGISTRANT OF EXPENSES
INCURRED OR PAID BY A DIRECTOR, OFFICER OR CONTROLLING PERSON OF THE REGISTRANT
IN THE SUCCESSFUL DEFENSE OF ANY ACTION, SUIT OR PROCEEDING) IS ASSERTED BY SUCH
DIRECTOR, OFFICER OR CONTROLLING PERSON IN CONNECTION WITH THE SECURITIES BEING
REGISTERED, THE REGISTRANT WILL, UNLESS IN THE OPINION OF ITS COUNSEL THE MATTER
HAS BEEN SETTLED BY CONTROLLING PRECEDENT, SUBMIT TO A COURT OF APPROPRIATE
JURISDICTION THE QUESTION WHETHER SUCH INDEMNIFICATION BY IT IS AGAINST PUBLIC
POLICY AS EXPRESSED IN THE SECURITIES ACT OF 1933 AND WILL BE GOVERNED BY THE
FINAL ADJUDICATION OF SUCH ISSUE.
Item 29. Principal Underwriter
- -------------------------------
PWI serves as principal underwriter for the Registrant. In addition to
the registrant, PWI serves as principal underwriter for the following investment
companies:
Liquid Institutional Reserves
PaineWebber Cashfund, Inc.
PaineWebber Managed Municipal Trust
PaineWebber Municipal Money Market Series
PaineWebber RMA Money Fund, Inc.
PaineWebber RMA Tax-Free Fund, Inc.
The following are the directors and officers of PWI. Their principal
business address is 1285 Avenue of the Americas, New York, New York 10019.
C-3
<PAGE>
Officers
- --------
Name Title
---- -----
Donald B. Marron Chairman & Chief Executive Officer
Margo N. Alexander Executive Vice President
Terry L. Atkinson Managing Director & DIRECTOR, MUNICIPAL SECURITIES
GROUP
Geraldine L. Banyai Assistant Secretary
Brian Barefoot Executive Vice President & DIRECTOR, INVESTMENT
BANKING
STEVEN P. BAUM EXECUTIVE VICE PRESIDENT & DIRECTOR, GLOBAL FIXED
INCOME
Timothy E. Cronin Executive Vice President & GLOBAL RISK STRATEGIST
ANTHONY M. DIIORIO EXECUTIVE VICE PRESIDENT & CONTROLLER
Regina A. Dolan EXECUTIVE Vice President & Chief Financial Officer
Joseph J. Grano, Jr. President
Dorothy F. Haughey Secretary
Theodore A. Levine Executive Vice President
JEROME A. LICHTSTEIN EXECUTIVE VICE PRESIDENT & DIRECTOR, RETAIL BRANCHES
James P. MacGilvray Executive Vice President & Director, GLOBAL EQUITIES
& TRANSACTION SERVICES
Ronald M. Schwartz Executive Vice President & Chief Administrative Officer
Robert H. Silver Executive Vice President & Director, OPERATIONS &
SYSTEMS
PIERCE R. SMITH EXECUTIVE VICE PRESIDENT & TREASURER
MARK B. SUTTON EXECUTIVE VICE PRESIDENT & DIRECTOR, PRIVATE CLIENTS
GROUP
C-4
<PAGE>
Directors
- ---------
Margo N. Alexander Edward M. Kerschner
Terry L. Atkinson Jerome A. Lichtstein
Brian Barefoot James P. MacGilvray
Steven P. Baum Donald B. Marron
Timothy E. Cronin Ronald M. Schwartz
Regina A. Dolan Robert H. Silver
Joseph J. Grano, Jr. Mark B. Sutton
Item 30. Location of Accounts and Records
- ------------------------------------------
The ADMINISTRATIVE OFFICE OF THE DEPOSITOR, 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 IT pursuant
to Section 31(a) of the Investment Company Act OF 1940 and the rules promulgated
thereunder.
Item 31. Management Services
- -----------------------------
Not Applicable.
Item 32. Undertakings
- ----------------------
THE 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 REGISTRATION
STATEMENT promptly upon written or oral request.
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<PAGE>
Representations.
- ----------------
The REGISTRANT hereby represents that it is relying upon a No-Action
Letter issued to the American Council of Life Insurance (PUB. AVAIL. November
28, 1988) 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.
C-6
<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 30TH day of April,
1996.
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:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/Dennis J. Hess* Chairman of the Board of Directors April 30, 1996
- ----------------------- and President (Principal Executive
Officer)
Dennis J. Hess
/s/Pierce R. Smith* Principal Financial and Principal April 30, 1996
- ----------------------- Accounting Officer
Pierce R. Smith
/s/Robert J. Bethoney* Director and Executive Vice April 30, 1996
- ------------------------ President
Robert J. Bethoney
/s/Richard J. Tucker* Director, Senior Vice President April 30, 1996
- ------------------------ and Secretary
Richard J. Tucker
*Signed by Richard J. Tucker pursuant to power of attorney
/s/Richard J. Tucker
- ------------------------
</TABLE>
<PAGE>
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Condensed Financial
Information" and "Independent Auditors" and to the use of our reports dated
January 26, 1996, with respect to PaineWebber Life Variable Annuity Account and
March 22, 1996, with respect to PaineWebber Life Insurance Company in Post
Effective Amendment No. 3 to the Registration Statement (Form N-4 No. 33-61488)
and related Prospectus of PaineWebber Life Variable Annuity Account dated May 1,
1996.
Des Moines, Iowa
April 25, 1996
