[SPECTRASELECT LOGO]
UNITED LIFE & ANNUITY
INSURANCE COMPANY
MAY 1, 1998 PROSPECTUS
THE SPECTRASELECT FIXED AND VARIABLE ANNUITY CONTRACT
ISSUED BY
UNITED LIFE & ANNUITY SEPARATE ACCOUNT ONE
AND
UNITED LIFE & ANNUITY INSURANCE COMPANY
MAY 1, 1998
This prospectus describes the SpectraSelect Fixed and Variable Annuity
Contract offered by United Life & Annuity Insurance Company (ULA, us or we).
The annuity has 35 investment options -- the Portfolios listed below, a one
year Fixed Account option of ULA and the Interest Adjustment Account.
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AIM VARIABLE INSURANCE FUNDS, INC. MORGAN STANLEY UNIVERSAL FUNDS, INC.
AIM V.I. Capital Appreciation Fund Emerging Markets Debt Portfolio
AIM V.I. Diversified Income Fund Equity Growth Portfolio
AIM V.I. Growth Fund Global Equity Portfolio
AIM V.I. Growth and Income Fund High-Yield Portfolio
AIM V.I. International Equity Fund Value Portfolio
THE ALGER AMERICAN FUND NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
Alger American Growth Portfolio AMT Guardian Portfolio
DREYFUS STOCK INDEX FUND AMT Limited Maturity Bond Portfolio
DREYFUS VARIABLE INVESTMENT FUND AMT Mid-Cap Growth Portfolio
Growth and Income Portfolio AMT Partners Portfolio
FEDERATED INSURANCE SERIES SCUDDER VARIABLE LIFE INVESTMENT FUND
Federated American Leaders Fund II Money Market Portfolio
Federated High Income Bond Fund II International Portfolio, Class A
Federated Prime Money Fund II VAN ECK WORLDWIDE INSURANCE TRUST
Federated Utility Fund II Worldwide Hard Assets Fund
Federated Fund for U.S. Government WARBURG PINCUS TRUST
Securities II Fixed Income Portfolio
MFS(R) VARIABLE INSURANCE TRUST(SM) International Equity Portfolio
MFS Emerging Growth Series Post-Venture Capital Portfolio
MFS Growth With Income Series
MFS Research Series
MFS Total Return Series
MFS Utilities Series
</TABLE>
Please read this prospectus before investing and keep it for future
reference. It contains important information about the SpectraSelect Fixed and
Variable Annuity Contract.
To learn more about the annuity offered by this prospectus, you can obtain
a copy of the Statement of Additional Information (SAI) dated May 1, 1998. The
SAI has been filed with the Securities and Exchange Commission (SEC) and is
incorporated by reference into this prospectus. The Table of Contents of the SAI
is found on the last page of this prospectus. For a free copy of the SAI, call
us at (800) 825-7568 or write us at: P.O. Box 260100, 8545 United Plaza
Boulevard, Baton Rouge, LA 70826-0100. The SEC maintains a Web site
(http://www.sec.gov) that contains the SAI, material incorporated by reference,
and other information regarding registrants that file electronically with the
SEC.
Inquiries. If you have any questions about your Contract or need more
information, please contact us at: III United Plaza, 8545 United Plaza Blvd.;
Baton Rouge, Louisiana 70809-2264; (800) 825-7568. On or around May 18, 1998,
variable annuities will be processed at the Variable Annuity Service Center. All
correspondence should be directed to: United Life & Annuity Insurance Company,
Variable Annuity Service Center; 851 SW Sixth Avenue, Suite 700; Portland,
Oregon 97204-1346.
INVESTMENT IN A VARIABLE ANNUITY CONTRACT IS SUBJECT TO RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL. THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION AND ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
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PAGE
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GLOSSARY OF TERMS........................................... 1
SUMMARY..................................................... 2
FEE TABLE................................................... 5
THE SPECTRASELECT FIXED AND VARIABLE ANNUITY CONTRACT....... 11
Owner..................................................... 11
Joint Owner............................................... 11
Annuitant................................................. 11
Beneficiary............................................... 11
Assignment................................................ 11
ANNUITY PAYMENTS (THE INCOME PHASE)......................... 12
Annuity Options........................................... 12
HOW TO PURCHASE A CONTRACT.................................. 12
Purchase Payments......................................... 12
Allocation of Purchase Payments........................... 13
Right to Examine Contract................................. 13
Accumulation Units........................................ 13
INVESTMENT OPTIONS.......................................... 14
Voting Rights............................................. 16
Substitution.............................................. 16
Transfers................................................. 16
Dollar Cost Averaging Program............................. 17
Rebalancing Program....................................... 17
Asset Allocation Programs................................. 17
PERFORMANCE................................................. 17
EXPENSES.................................................... 18
Insurance Charges......................................... 18
Mortality and Expense Risk Charge....................... 18
Administrative Charge................................... 18
Contingent Deferred Sales Charge.......................... 18
Reduction or Elimination of the Contingent Deferred Sales
Charge.................................................. 19
Transfer Fee.............................................. 19
Premium Taxes............................................. 19
Income Taxes.............................................. 19
Portfolio Expenses........................................ 19
TAXES....................................................... 19
Annuity Contracts in General.............................. 19
Qualified and Non-Qualified Contracts..................... 20
Withdrawals -- Non-Qualified Contracts.................... 20
Withdrawals -- Qualified Contracts........................ 20
Withdrawals -- Tax-Sheltered Annuities.................... 20
Diversification........................................... 20
WITHDRAWALS................................................. 21
Systematic Withdrawal Program............................. 21
Suspension of Payments or Transfers....................... 21
DEATH BENEFIT............................................... 22
Upon Your Death........................................... 22
Death Benefit............................................. 22
Death of Annuitant........................................ 23
OTHER INFORMATION........................................... 23
ULA....................................................... 23
Year 2000................................................. 23
The Separate Account...................................... 23
Distribution.............................................. 23
Financial Statements...................................... 23
APPENDIX A.................................................. 24
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL
INFORMATION............................................... 25
</TABLE>
GLOSSARY OF TERMS
We have tried to make this prospectus as understandable for you as
possible. We have capitalized some of the technical terms used in this
prospectus. To help you understand these terms, we have defined them below.
ACCOUNTS: The Portfolios, the Fixed Account and each Guarantee Period of
the Interest Adjustment Account.
ACCUMULATION PHASE: Until you decide to begin receiving Annuity Payments,
your annuity is in the Accumulation Phase.
ACCUMULATION UNIT: The unit of measurement we use to keep track of the
value of your Contract during the Accumulation Phase.
ANNUITANT: The natural person on whose life we base Annuity Payments.
ANNUITY OPTIONS: You can choose among income plans for your Annuity
Payments. These are referred to as Annuity Options.
ANNUITY PAYMENTS: You can receive regular income payments from your
Contract. These are referred to as Annuity Payments.
BENEFICIARY: The person or entity you name to receive any death benefits.
CONTRACT: An individual contract and the certificate issued to participants
under a group contract.
FIXED ACCOUNT: An investment option within our general account.
GUARANTEE PERIODS: The periods for which interest rates are credited in the
Interest Adjustment Account or the Fixed Account.
INCOME DATE: You can choose the month and year in which Annuity Payments
will begin. This is referred to as the Income Date.
INCOME PHASE: The period during which we make Annuity Payments to you or
someone you name to receive them.
INTEREST ADJUSTMENT ACCOUNT: An investment option within our general
account where we guarantee the rate of interest for a specified period (a
Guarantee Period).
JOINT OWNER: The Contract can be owned by you and your spouse (the Joint
Owner).
OWNER: The person or entity entitled to ownership rights under a Contract.
NON-QUALIFIED: If you do not purchase the Contract under a qualified plan,
your Contract is referred to as a Non-Qualified Contract.
PORTFOLIO: The variable investment options available under the Contract.
Each Portfolio has its own investment objective.
PURCHASE PAYMENT: The money you give us to buy the Contract.
QUALIFIED: If you purchase the Contract under a qualified plan, it is
referred to as a Qualified Contract (examples: individual retirement annuities,
tax-sheltered annuities, H.R. 10 plans, and pension and profit-sharing plans).
TAX DEFERRAL: Tax deferral means that you are not taxed on any earnings or
appreciation on the assets in your Contract until you take money out of your
Contract.
SUMMARY
The following information is a summary of some of the more important
features of your annuity Contract. More detailed information is contained in the
corresponding sections of this prospectus.
The SpectraSelect Fixed and Variable Annuity Contract. This prospectus
describes individual and group fixed and variable deferred annuity contracts and
certificates (together referred to as the "Contracts"). The Contract offered by
ULA is a contract between you, the owner, and United Life & Annuity Insurance
Company, an insurance company. The Contract provides a means for investing on a
Tax-Deferred basis in the Portfolios, the Fixed Account and the Interest
Adjustment Account. The SpectraSelect Fixed and Variable Annuity Contract is
designed for people seeking long-term Tax Deferred accumulation of assets,
generally for retirement or other long-term purposes. The Tax Deferred feature
is most attractive to people in high federal and state tax brackets. You should
not buy this Contract if you are looking for a short-term investment or if you
cannot accept the risk of getting back less money than you put in.
You may invest in the Fixed Account, the Interest Adjustment Account or the
following Portfolios:
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund
AIM V.I. Diversified Income Fund
AIM V.I. Growth Fund
AIM V.I. Growth and Income Fund
AIM V.I. International Equity Fund
THE ALGER AMERICAN FUND
Alger American Growth Portfolio
DREYFUS STOCK INDEX FUND
DREYFUS VARIABLE INVESTMENT FUND
Growth and Income Portfolio
FEDERATED INSURANCE SERIES
Federated American Leaders Fund II
Federated High Income Bond Fund II
Federated Prime Money Fund II
Federated Utility Fund II
Federated Fund for U.S. Government Securities II
MFS(R) VARIABLE INSURANCE TRUST(SM)
MFS Emerging Growth Series
MFS Growth With Income Series
MFS Research Series
MFS Total Return Series
MFS Utilities Series
MORGAN STANLEY UNIVERSAL FUNDS, INC.
Emerging Markets Debt Portfolio
Equity Growth Portfolio
Global Equity Portfolio
High-Yield Portfolio
Value Portfolio
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
AMT Guardian Portfolio
AMT Limited Maturity Bond Portfolio
AMT Mid-Cap Growth Portfolio
AMT Partners Portfolio
SCUDDER VARIABLE LIFE INVESTMENT FUND
Money Market Portfolio
International Portfolio, Class A
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Hard Assets Fund
WARBURG PINCUS TRUST
Fixed Income Portfolio
International Equity Portfolio
Post-Venture Capital Portfolio
The Portfolios are fully described in the attached Portfolio prospectuses.
You can make or lose money in the Portfolios, depending upon market conditions.
The Fixed Account offers an interest rate that is guaranteed by us. You can
also invest in the Interest Adjustment Account, which is an option within our
general account where we guarantee a specific rate of interest for certain
Guarantee Periods. There are currently three Guarantee Periods available -- 3, 5
and 7 years. If you withdraw or transfer money from the Interest Adjustment
Account prior to the end of the selected Guarantee Period, it may be subject to
an interest adjustment.
CURRENTLY, THERE ARE THIRTY-FIVE INVESTMENT OPTIONS (WHICH INCLUDE EACH
PORTFOLIO, THE FIXED ACCOUNT AND EACH GUARANTEE PERIOD OF THE INTEREST
ADJUSTMENT ACCOUNT). YOU MAY SELECT TO PUT YOUR MONEY IN UP TO TEN (10) OF THESE
OPTIONS AT ANY TIME.
Like all deferred annuity contracts, your Contract has two phases: the
Accumulation Phase and the Income Phase. During the Accumulation Phase, your
earnings accumulate on a Tax-Deferred basis and are based on the investment
performance of the Portfolio(s) you selected and/or the interest rate earned on
the money you have in the Fixed Account and the Interest Adjustment Account.
During the Accumulation Phase, the earnings are taxed as income only when you
make a withdrawal. The Income Phase occurs when you begin receiving regular
payments from your Contract. The amount of the payments you may receive during
the Income Phase depends in part upon the amount of money you are able to
accumulate in your Contract during the Accumulation Phase.
Annuity Payments (The Income Phase). You can receive monthly Annuity
Payments from your Contract by selecting an Annuity Option. During the Income
Phase, payments will come from the Fixed Account.
How To Purchase A Contract. You can buy a Non-Qualified Contract with a
minimum payment of $5,000 and a Qualified Contract with $2,000, except for
certain Qualified plans. You can add $500 (or $100 if you use the automatic
premium check option) or more any time you like during the Accumulation Phase.
Your registered representative can help you fill out the proper forms.
Expenses. The Contract has insurance features and investment features, and
there are costs related to each.
If you select Death Benefit Option 1 (Enhanced Death Benefit Rider), the
annual insurance charges total 1.60% of the average daily value of your Contract
allocated to the Portfolios. If you select Death Benefit Option 2 (Standard
Death Benefit), the annual insurance charges total 1.40% of the average daily
vale of your Contract allocated to the Portfolios. There are also annual
Portfolio charges which range from .28% to 1.40% of the average daily value of
the Portfolio, depending upon the Portfolio(s) you invest in.
You can transfer between Accounts up to 12 times a year without charge.
After 12 transfers, the charge is $25 or 2% of the amount transferred, whichever
is less.
If you make a withdrawal from the Contract, ULA may assess a contingent
deferred sales charge (withdrawal charge). The amount of the charge depends upon
how long ULA has had your Purchase Payment. The charge is:
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NUMBER OF COMPLETE YEARS SINCE
RECEIPT OF PURCHASE PAYMENT CHARGE
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0...................................................... 7.0%
1...................................................... 6.0%
2...................................................... 5.0%
3...................................................... 4.0%
4...................................................... 3.0%
5...................................................... 2.0%
6...................................................... 1.0%
7 years or more........................................ 0.0%
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Free Withdrawal Amount -- You can make a partial withdrawal without
incurring a contingent deferred sales charge of the "free withdrawal amount."
The free withdrawal amount is equal to the greater of: (a) earnings, or (b) 10%
of remaining Purchase Payments at the beginning of the current year. If your
withdrawal is not on a Contract anniversary, the free withdrawal amount is equal
to the free withdrawal amount at the beginning of the Contract year less amounts
withdrawn without the contingent deferred sales charge during the current
Contract year. If you make a complete withdrawal, the free withdrawal amount is
not available.
In addition, in certain states, you can make a total or partial withdrawal
and ULA will not deduct the contingent deferred sales charge if you are confined
to a skilled nursing home facility for 90 consecutive days after the first
Contract year.
ULA may assess a state premium tax charge which ranges from 0% - 4.0%
(depending upon the state).
Taxes. Your earnings are not taxed until you take them out. In most cases,
if you take money out, earnings come out first and are taxed as income. If you
are younger than 59 1/2 when you take money out, you may be charged a 10%
federal tax penalty on the taxable amounts withdrawn. Payments during the Income
Phase are considered partly a return of your original investment. That part of
each payment is not taxable as income. If the Contract is tax-qualified, the
entire payment may be taxable. There are limits to the amount you can withdraw
from a Qualified plan known as a 403(b) plan (or tax-sheltered annuity).
Withdrawals. You may make a withdrawal at any time during the Accumulation
Phase. Any partial withdrawal must be for at least $500 (unless it is made under
the Systematic Withdrawal Program). You may request a withdrawal or elect the
Systematic Withdrawal Program. Of course, you may also have to pay income tax
and a tax penalty on any money you take out.
Death Benefit. If you die during the Accumulation Phase, the person you
have selected as your Beneficiary will receive a death benefit. The death
benefit that the Beneficiary will receive will be the death benefit option
elected at the time of purchase, or with respect to Contracts issued prior to
May 1, 1998, the death benefit option you select on your next Contract
anniversary after May 1, 1998.
Other Information
Free Look/Right to Examine. If you cancel the Contract within 10 days after
receiving it (or whatever period is required in your state), we will send your
money back without assessing a contingent deferred sales charge. You will
receive whatever your Contract is worth on the day we receive your request. This
may be more or less than your original payment. (Some states require that we
return your Purchase Payment.)
No Probate. In most cases, when you die, your Beneficiary will receive the
death benefit without going through probate.
Additional Features. The Contract offers additional features which you
might be interested in. These include:
Dollar Cost Averaging Program -- You can arrange to have a regular amount
of money automatically transferred from the Scudder Money Market Portfolio or
the one year Fixed Account to one or more selected Portfolios monthly, quarterly
or semi-annually, theoretically giving you a lower average cost per unit over
time than a single one time purchase. However, there are no guarantees that this
will take place.
Rebalancing Program -- ULA will automatically readjust your money among the
Portfolios to maintain your specified allocation mix. This can be done
quarterly, semi-annually or annually if the value of your Contract is at least
$5,000.
Systematic Withdrawal Program -- You can elect to receive periodic payments
from your Contract. Of course, you may have to pay taxes and a tax penalty on
the money you receive.
FEE TABLE (See Note 1 below)
OWNER TRANSACTION EXPENSES
Contingent Deferred Sales Charge (see Note 2 below)
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NUMBER OF COMPLETE
YEARS SINCE RECEIPT
OF PURCHASE PAYMENT CHARGE
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<S> <C>
0...................................................... 7.0%
1...................................................... 6.0%
2...................................................... 5.0%
3...................................................... 4.0%
4...................................................... 3.0%
5...................................................... 2.0%
6...................................................... 1.0%
7 years or more........................................ 0.0%
Transfer Fee (see Note 3 below) No charge for first 12 transfers in a
Contract year; thereafter the fee is
the lesser of $25 or 2% of the amount
transferred.
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SEPARATE ACCOUNT ANNUAL EXPENSES FOR CONTRACTS WITH DEATH BENEFIT OPTION 1
(ENHANCED DEATH BENEFIT RIDER) (as a percentage of average daily net asset
value)
Mortality and Expense Risk Charge........................... 1.45%
Administrative Charge....................................... .15%
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Total Separate Account Annual Expenses...................... 1.60%
SEPARATE ACCOUNT ANNUAL EXPENSES FOR CONTRACTS WITH DEATH BENEFIT OPTION 2
(STANDARD DEATH BENEFIT)(as a percentage of average daily net asset value)
Mortality and Expense Risk Charge........................... 1.25%
Administrative Charge....................................... .15%
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Total Separate Account Annual Expenses...................... 1.40%
NOTES TO FEE TABLE
Note 1. The purpose of the Fee Table is to show you the various expenses
you will incur directly or indirectly with the Contract. The Fee Table reflects
expenses of the Separate Account as well as the Portfolios.
Note 2. Under certain circumstances, you can make a withdrawal without
incurring the contingent deferred sales charge.
Note 3. ULA will not charge you the transfer fee even if there are more
than 12 transfers in a year if the transfer is part of the Dollar Cost Averaging
or Rebalancing Programs.
ANNUAL EXPENSES OF THE PORTFOLIOS
(as a percentage of the average daily net assets of a Portfolio)
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TOTAL ANNUAL
OTHER EXPENSES EXPENSES
MANAGEMENT (AFTER EXPENSE (AFTER EXPENSE
FEES REIMBURSEMENT) REIMBURSEMENT)
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AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund............... .63% .05% .68%
AIM V.I. Diversified Income Fund................. .60% .20% .80%
AIM V.I. Growth Fund............................. .65% .08% .73%
AIM V.I. Growth and Income Fund.................. .63% .06% .69%
AIM V.I. International Equity Fund............... .75% .18% .93%
THE ALGER AMERICAN FUND
Alger American Growth Portfolio.................. .75% .04% .79%
DREYFUS STOCK INDEX FUND........................... .25% .03% .28%
DREYFUS VARIABLE INVESTMENT FUND
Growth and Income Portfolio...................... .75% .05% .80%
FEDERATED INSURANCE SERIES
Federated American Leaders Fund II(a)............ .66% .19% .85%
Federated High Income Bond Fund II(b)............ .51% .29% .80%
Federated Prime Money Fund II(c)................. .30% .50% .80%
Federated Utility Fund II(d) .................... .48% .37% .85%
Federated Fund for U.S. Government
Securities II(e).............................. .15% .65% .80%
MFS(R) Variable Insurance Trust(SM)
MFS Emerging Growth Series....................... .75% .12% .87%
MFS Growth With Income Series(f)................. .75% .25% 1.00%
MFS Research Series.............................. .75% .13% .88%
MFS Total Return Series(f)....................... .75% .25% 1.00%
MFS Utilities Series (f)......................... .75% .25% 1.00%
MORGAN STANLEY UNIVERSAL FUNDS, INC.
Emerging Markets Debt Portfolio (g).............. .09% 1.21% 1.30%
Equity Growth Portfolio (g)...................... .00% .85% .85%
Global Equity Portfolio (g)...................... .00% 1.15% 1.15%
High-Yield Portfolio (g)......................... .00% .80% .80%
Value Portfolio (g).............................. .00% .85% .85%
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
AMT Guardian Portfolio........................... .60% .40% 1.00%
AMT Limited Maturity Bond Portfolio.............. .65% .12% .77%
AMT Mid-Cap Growth Portfolio..................... .60% .40% 1.00%
AMT Partners Portfolio........................... .80% .06% .86%
SCUDDER VARIABLE LIFE INVESTMENT FUND
Money Market Portfolio........................... .37% .09% .46%
International Portfolio, Class A(h).............. .83% .17% 1.00%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Hard Assets Fund(i).................... 1.00% .17% 1.17%
WARBURG PINCUS TRUST
Fixed Income Portfolio (j)....................... .32% .67% .99%
International Equity Portfolio (j)............... 1.00% .36% 1.36%
Post-Venture Capital Portfolio (j)............... 1.07% .33% 1.40%
</TABLE>
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(a) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at anytime at its sole discretion. The maximum management fee is
.75%. The total operating expenses were .94% absent the voluntary waiver of
the management fee and the voluntary reimbursement of certain other
operating expenses.
(b) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
.60%. The total operating expenses were .89% absent the voluntary waiver
of the management fee and the voluntary reimbursement of certain other
operating expenses.
(c) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
.50%. The total operating expenses were 1.00% absent the voluntary waiver
of the management fee and the voluntary reimbursement of certain other
operating expenses.
(d) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
.75%. The total operating expenses were 1.12% absent the voluntary waiver
of the management fee and the voluntary reimbursement of certain other
operating expenses.
(e) The management fee has been reduced to reflect the voluntary waiver of the
management fee. The adviser can terminate this voluntary waiver at any time
at its sole discretion. The maximum management fee is .60%. The total
operating expenses were 1.25% absent the voluntary waiver of the management
fee and the voluntary reimbursement of certain other operating expenses.
(f) The adviser has agreed to bear expenses for the Series, subject to
reimbursement by the Series, so that the Series' "Other Expenses" do not
exceed .25% of the average daily net assets of the Series during the
current fiscal year. Otherwise, "Other Expenses" and "Total Annual
Expenses" would be: .35% and 1.10% respectively for the MFS Growth With
Income Series; .27% and 1.02% respectively for the MFS Total Return Series;
and .45% and 1.20% respectively for the MFS Utilities Series. Each Series
has an expense offset arrangement which reduces the Series' custodian fee
based upon the amount of cash maintained by the Series with its custodian
and dividend disbursing agent, and may enter into other such arrangements
and directed brokerage arrangements (which would also have the effect of
reducing the Series' expenses). Any such fee reductions are not reflected
under "Other Expenses."
(g) The management fee has been reduced to reflect the voluntary waiver of a
portion or all of the management fee and the reimbursement by the
portfolio's adviser to the extent "Total Annual Expenses" exceed the
percentages set forth above. The adviser may terminate this voluntary
waiver at any time at its sole discretion. Absent such reductions,
"Management Fees", "Other Expenses" and "Total Annual Expenses",
respectively, would be as follows: Emerging Markets Debt Portfolio - 0.80%,
1.26%, 2.06%; Equity Growth Portfolio - 0.55%, 1.50%, 2.05%; Global Equity
Portfolio - 0.80%, 1.63%, 2.43%; High-Yield - 0.50%, 1.18%, 1.68%; and
Value - 0.55%, 1.32%, 1.87%.
(h) For any calendar month during which the average daily net assets of the
International Portfolio exceed $500,000,000, the fee payable for that
month, with respect to the excess over $500,000,000, is calculated at an
annual rate of .725%. As a result, the adviser received compensation at an
annual rate of .83% for the fiscal year ended December 31, 1997.
(i) Other expenses are net of soft dollar credits. Without such credits, Other
Expenses would have been 0.18% and Total Annual Expenses would have been
1.18%.
(j) Management Fees, Other Expenses and Total Annual Expenses for the Fixed
Income, International Equity, and Post-Venture Capital Portfolios are based
on actual expenses for the fiscal year ended December 31, 1997, net of any
fee waivers and/or expense reimbursements. Without such waivers and/or
reimbursements, Management Fees would be .50%, 1.00% and 1.25%, Other
Expenses would be 12.54%, .40% and .71%, and Total Annual Expenses would be
13.04%, 1.40% and 1.96%, respectively. The Portfolios' adviser has
undertaken to limit each Portfolio's Total Annual Expenses to the limits
shown in the table above through December 31, 1999.
EXAMPLES - There are two sets of examples below. One set is for Contracts with
Death Benefit Option 1 (Enhanced Death Benefit Rider), the other set is for
Contracts with Death Benefit Option 2 (Standard Death Benefit).
DEATH BENEFIT OPTION 1 (Enhanced Death Benefit Rider)
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on your money if: (a) you surrender your Contract at the end of
each time period and (b) if your Contract is not surrendered or annuitized:
<TABLE>
<CAPTION>
TIME PERIODS
----------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
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<S> <C> <C> <C> <C>
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund............... a) $ 93 a) $124
b) $ 23 b) $ 74
AIM V.I. Diversified Income Fund................. a) $ 95 a) $128
b) $ 25 b) $ 78
AIM V.I. Growth Fund............................. a) $ 94 a) $125
b) $ 24 b) $ 75
AIM V.I. Growth and Income Fund.................. a) $ 93 a) $124
b) $ 23 b) $ 74
AIM V.I. International Equity Fund............... a) $ 96 a) $132
b) $ 26 b) $ 82
THE ALGER AMERICAN FUND
Alger American Growth Portfolio.................. a) $ 94 a) $127 a) $165 a) $308
b) $ 24 b) $ 77 b) $135 b) $308
DREYFUS STOCK INDEX FUND........................... a) $ 89 a) $111 a) $136 a) $242
b) $ 19 b) $ 61 b) $106 b) $242
DREYFUS VARIABLE INVESTMENT FUND
Growth and Income Portfolio...................... a) $ 95 a) $128 a) $166 a) $309
b) $ 25 b) $ 78 b) $136 b) $309
FEDERATED INSURANCE SERIES
Federated American Leaders Fund II............... a) $ 95 a) $129
b) $ 25 b) $ 79
Federated High Income Bond Fund II............... a) $ 95 a) $128 a) $166 a) $309
b) $ 25 b) $ 78 b) $136 b) $309
Federated Prime Money Fund II.................... a) $ 95 a) $128
b) $ 25 b) $ 78
Federated Utility Fund II........................ a) $ 95 a) $129 a) $169 a) $316
b) $ 25 b) $ 79 b) $139 b) $316
Federated Fund for U.S. Government Securities
II............................................ a) $ 95 a) $128 a) $166 a) $309
b) $ 25 b) $ 78 b) $136 b) $309
MFS(R) VARIABLE INSURANCE TRUST(SM)
MFS Emerging Growth Series....................... a) $ 95 a) $130 a) $170 a) $318
b) $ 25 b) $ 80 b) $140 b) $318
MFS Growth With Income Series..................... a) $ 97 a) $134
b) $ 27 b) $ 84
MFS Research Series............................... a) $ 95 a) $130
b) $ 25 b) $ 80
MFS Total Return Series........................... a) $ 97 a) $134 a) $177 a) $335
b) $ 27 b) $ 84 b) $147 b) $335
MFS Utilities Series.............................. a) $ 97 a) $134
b) $ 27 b) $ 84
MORGAN STANLEY UNIVERSAL FUNDS, INC.
Emerging Markets Debt Portfolio................... a) $100 a) $144
b) $ 30 b) $ 94
Equity Growth Portfolio........................... a) $ 95 a) $129
b) $ 25 b) $ 79
Global Equity Portfolio........................... a) $ 98 a) $139
b) $ 28 b) $ 89
High-Yield Portfolio.............................. a) $ 95 a) $128
b) $ 25 b) $ 78
Value Portfolio................................... a) $ 95 a) $129
b) $ 25 b) $ 79
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
ATM Guardian Portfolio............................ a) $ 97 a) $134
b) $ 27 b) $ 84
AMT Limited Maturity Bond Portfolio............... a) $ 94 a) $127
b) $ 24 b) $ 77
AMT Mid-Cap Growth Portfolio...................... a) $ 97 a) $134
b) $ 27 b) $ 84
AMT Partners Portfolio............................ a) $ 95 a) $129
b) $ 25 b) $ 79
SCUDDER VARIABLE LIFE INVESTMENT FUND
Money Market Portfolio............................ a) $ 91 a) $117 a) $147 a) $266
b) $ 21 b) $ 67 b) $117 b) $266
International Portfolio, Class A.................. a) $ 97 a) $134 a) $177 a) $335
b) $ 27 b) $ 84 b) $147 b) $335
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Hard Assets Fund........................ a) $ 98 a) $140 a) $187 a) $357
b) $ 28 b) $ 90 b) $157 b) $357
WARBURG PINCUS TRUST
Fixed Income Portfolio............................ a) $ 97 a) $134
b) $ 27 b) $ 84
International Equity Portfolio.................... a) $100 a) $146
b) $ 30 b) $ 96
Post-Venture Capital Portfolio.................... a) $101 a) $147
b) $ 31 b) $ 97
</TABLE>
DEATH BENEFIT OPTION 2 (Standard Death Benefit)
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on your money if: (a) you surrender your Contract at the end of
each time period and (b) if your Contract is not surrendered or annuitized:
<TABLE>
<CAPTION>
TIME PERIODS
----------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund............... a) $ 91 a) $117
b) $ 21 b) $ 67
AIM V.I. Diversified Income Fund................. a) $ 93 a) $121
b) $ 23 b) $ 71
AIM V.I. Growth Fund............................. a) $ 92 a) $119
b) $ 22 b) $ 69
AIM V.I. Growth and Income Fund.................. a) $ 91 a) $118
b) $ 21 b) $ 68
AIM V.I. International Equity Fund............... a) $ 94 a) $125
b) $ 24 b) $ 75
THE ALGER AMERICAN FUND
Alger American Growth Portfolio.................. a) $ 92 a) $121 a) $154 a) $282
b) $ 22 b) $ 71 b) $124 b) $282
DREYFUS STOCK INDEX FUND........................... a) $ 87 a) $104 a) $125 a) $217
b) $ 17 b) $ 54 b) $ 95 b) $217
DREYFUS VARIABLE INVESTMENT FUND
Growth and Income Portfolio....................... a) $ 93 a) $121 a) $155 a) $284
b) $ 23 b) $ 71 b) $125 b) $284
FEDERATED INSURANCE SERIES
Federated American Leaders Fund II................ a) $ 93 a) $123
b) $ 23 b) $ 73
Federated High Income Bond Fund II................ a) $ 93 a) $121 a) $155 a) $284
b) $ 23 b) $ 71 b) $125 b) $284
Federated Prime Money Fund II..................... a) $ 93 a) $121
b) $ 23 b) $ 71
Federated Utility Fund II......................... a) $ 93 a) $123 a) $157 a) $290
b) $ 23 b) $ 73 b) $127 b) $290
Federated Fund for U.S. Government Securities
II............................................. a) $ 93 a) $121 a) $155 a) $284
b) $ 23 b) $ 71 b) $125 b) $284
MFS(R) VARIABLE INSURANCE TRUST(SM)
MFS Emerging Growth Series........................ a) $ 93 a) $123 a) $159 a) $293
b) $ 23 b) $ 73 b) $129 b) $293
MFS Growth With Income Series..................... a) $ 95 a) $128
b) $ 25 b) $ 78
MFS Research Series............................... a) $ 93 a) $124
b) $ 23 b) $ 74
MFS Total Return Series........................... a) $ 95 a) $128 a) $166 a) $309
b) $ 25 b) $ 78 b) $136 b) $309
MFS Utilities Series.............................. a) $ 95 a) $128
b) $ 25 b) $ 78
MORGAN STANLEY UNIVERSAL FUNDS, INC.
Emerging Markets Debt Portfolio................... a) $ 98 a) $137
b) $ 28 b) $ 87
Equity Growth Portfolio........................... a) $ 93 a) $123
b) $ 23 b) $ 73
Global Equity Portfolio........................... a) $ 96 a) $132
b) $ 26 b) $ 82
High-Yield Portfolio.............................. a) $ 93 a) $121
b) $ 23 b) $ 71
Value Portfolio................................... a) $ 93 a) $123
b) $ 23 b) $ 73
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
AMT Guardian Portfolio............................ a) $ 95 a) $128
b) $ 25 b) $ 78
AMT Limited Maturity Bond Portfolio............... a) $ 92 a) $120
b) $ 22 b) $ 70
AMT Mid-Cap Growth Portfolio...................... a) $ 95 a) $128
b) $ 25 b) $ 78
AMT Partners Portfolio............................ a) $ 93 a) $123
b) $ 23 b) $ 73
SCUDDER VARIABLE LIFE INVESTMENT FUND
Money Market Portfolio............................ a) $ 89 a) $110 a) $135 a) $240
b) $ 19 b) $ 60 b) $105 b) $240
International Portfolio, Class A.................. a) $ 95 a) $128 a) $166 a) $309
b) $ 25 b) $ 78 b) $136 b) $309
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Hard Assets Fund........................ a) $ 96 a) $133 a) $176 a) $331
b) $ 26 b) $ 83 b) $146 b) $331
WARBURG PINCUS TRUST
Fixed Income Portfolio............................ a) $ 94 a) $127
b) $ 24 b) $ 77
International Equity Portfolio.................... a) $ 98 a) $139
b) $ 28 b) $ 89
Post-Venture Capital Portfolio.................... a) $ 99 a) $140
b) $ 29 b) $ 90
</TABLE>
THE ANNUAL EXPENSES OF THE PORTFOLIOS AND THE EXAMPLES ARE BASED ON DATA
PROVIDED BY THE RESPECTIVE FUND GROUPS. WE HAVE NOT INDEPENDENTLY VERIFIED SUCH
DATA.
The assumed average contract size is $25,000. Premium taxes are not
reflected. They may apply.
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE SPECTRASELECT FIXED AND VARIABLE ANNUITY CONTRACT
This prospectus describes individual and group fixed and variable deferred
annuity contracts and certificates (together referred to as the "Contracts")
offered by ULA.
An annuity is a contract between you, the owner, and an insurance company
(in this case ULA), where the insurance company promises to pay you (or someone
else you choose) an income, in the form of Annuity Payments, beginning on a
designated date that is at least three years in the future. Until you decide to
begin receiving Annuity Payments, your annuity is in the Accumulation Phase.
Once you begin receiving Annuity Payments, your Contract switches to the Income
Phase.
The Contract benefits from Tax Deferral. Tax Deferral means that you are
not taxed on earnings or appreciation on the assets in your Contract until you
take money out of your Contract.
The Contract is called a variable annuity because you can choose among the
available Portfolios and, depending upon market conditions, you can make or lose
money in any of these Portfolios. If you select the variable annuity portion of
the Contract, the amount of money you are able to accumulate in your Contract
during the Accumulation Phase depends in part upon the investment performance of
the Portfolio(s) you select. The Annuity Payments you will receive during the
Income Phase will come from the Fixed Account.
The Contract contains a Fixed Account. The Fixed Account offers an interest
rate that is guaranteed by ULA. There is a one year Guarantee Period available
for the Fixed Account. ULA guarantees that the interest credited to the Fixed
Account will not be less than 3% per year. If you select the Fixed Account, your
money will be placed with our other general assets. If you select the Fixed
Account, the amount of money you are able to accumulate in your Contract during
the Accumulation Phase depends in part upon the total interest credited to your
Contract.
The Contract also has an Interest Adjustment Account with three Guarantee
Periods currently available: 3 years, 5 years and 7 years. Each allocation to a
Guarantee Period locks in a fixed annual interest rate declared by ULA.
Withdrawals, transfers or annuitization of amounts from a Guarantee Period prior
to the end of that Guarantee Period may be subject to an interest adjustment.
We may make changes to your Contract in order to comply with applicable
law.
Owner. The SpectraSelect Fixed and Variable Annuity is a group deferred
annuity contract. A group contract is issued to a contractholder, for the
benefit of the participants in the group. You are a participant in the group and
will receive a certificate evidencing your ownership. You, as the Owner of a
certificate, are entitled to all the rights and privileges of ownership. In some
states an individual fixed and variable deferred annuity contract is issued
instead, which is identical to the group contract described in this prospectus
except that it is issued directly to the Owner. As used in this prospectus, the
term Contract refers to your certificate or individual contract. The Owner is as
designated at the time the Contract is issued, unless changed. You may change
Owners at any time prior to the Income Date. This may be a taxable event. You
should consult with your tax adviser before doing this.
Joint Owner. The Contract can be owned by Joint Owners. Any Joint Owner
must be the spouse of the other Owner. Upon the death of either Joint Owner, the
surviving spouse will be the primary Beneficiary. Any other Beneficiary
designation will be treated as a contingent Beneficiary unless otherwise
indicated. Unless otherwise specified, if there are Joint Owners, both
signatures will be required for all transactions except telephone transfers.
Annuitant. The Annuitant is the person whose life we look to when we make
Annuity Payments. You choose the Annuitant at the time the Contract is issued.
You may change the Annuitant at any time before the Income Date unless the
Contract is owned by a non-individual (for example, a corporation). Any change
of Annuitant is subject to our underwriting rules then in effect. On or after
the Income Date, the Annuitant will include any Joint Annuitant.
Beneficiary. The Beneficiary is the person(s) or entity you name to receive
any death benefit. The Beneficiary is named at the time the Contract is issued
unless changed at a later date. Unless an irrevocable Beneficiary has been
named, you can change the Beneficiary or contingent Beneficiary.
Assignment. You can assign the Contract at any time during your lifetime.
ULA will not be bound by the assignment until it receives the written notice of
the assignment. ULA will not be liable for any payment or other action we take
in accordance with the Contract before we receive notice of the assignment. Any
assignment made after the death benefit has become payable can only be done with
our consent. AN ASSIGNMENT MAY BE A TAXABLE EVENT.
If the Contract is issued pursuant to a Qualified plan, there may be
limitations on your ability to assign the Contract.
ANNUITY PAYMENTS (THE INCOME PHASE)
You can receive regular monthly income payments under your Contract. You
can choose the month and year in which those payments begin. We call that date
the Income Date. Your Income Date must be at least three years after you buy the
Contract. The Income Date may not be later than when the Annuitant reaches age
85 or 10 years after the Contract is issued for Annuitants older than 75. You
can also choose among income plans. We call those Annuity Options.
We ask you to choose your Income Date when you purchase the Contract. You
can change it at any time before the Income Date with thirty (30) days notice to
us. You (or someone you designate) will receive the Annuity Payments.
If you do not choose an Annuity Option prior to the Income Date, we will
assume that you selected Option B which provides a life annuity with 120 monthly
payments guaranteed. Prior to the Income Date, you can change the Annuity
Option. Any change must be requested at least thirty (30) days prior to the
Income Date.
Annuity Payments are paid in monthly installments. Annuity Payments will be
made on a fixed basis only (which means they will come from the Fixed Account
and will not be based on the investment performance of the Portfolios). If the
value of your Contract to be applied to an Annuity Option is less than $2,000,
we reserve the right to pay you a lump sum amount instead of Annuity Payments.
Also, if the Annuity Payments would be or become less than $200, we reserve the
right to reduce the frequency of payments so that they will be at least $200.
ANNUITY OPTIONS
You can choose one of the following Annuity Options or any other Annuity
Option you want and that ULA agrees to provide. After Annuity Payments begin,
you cannot change the Annuity Option.
Option A. Life Annuity. Under this option, we will make monthly Annuity
Payments so long as the Annuitant is alive. After the Annuitant dies, we stop
making Annuity Payments.
Option B. Life Annuity With 60, 120, 180 or 240 Monthly Payments
Guaranteed. Under this option, we will make monthly Annuity Payments so long as
the Annuitant is alive. However, if, when the Annuitant dies, we have made
Annuity Payments for less than the selected guaranteed period, we will continue
to make Annuity Payments to you for the rest of the guaranteed period. If you do
not want to receive Annuity Payments, you can ask us for a single lump sum.
Option C. Joint And Survivor Annuity. Under this option, we will make
monthly Annuity Payments during the joint lifetime of the Annuitant and the
joint Annuitant. When the Annuitant dies, if the joint Annuitant is still alive,
we will continue to make Annuity Payments, so long as the joint Annuitant
continues to live. The monthly Annuity Payments will end when the last surviving
Annuitant dies.
HOW TO PURCHASE A CONTRACT
PURCHASE PAYMENTS
A Purchase Payment is the money you give us to buy the Contract. The
minimum payment ULA will accept is $5,000 when the Contract is bought as a
Non-Qualified Contract. If the Contract is bought as a Qualified Contract, the
minimum payment we will accept is $2,000. This requirement may be waived if you
buy this Contract as part of an IRA (Individual Retirement Annuity) or 403(b)
plan. We may also waive the minimum Purchase Payment requirements if you select
the automatic premium check option. The maximum amount we will accept without
our prior approval is $500,000. You can make additional Purchase Payments of
$500 (or as low as $100 if you have selected the automatic premium check option)
or more to either type of Contract. We reserve the right to reject any Purchase
Payment or application. At the time you buy the Contract, you and the Annuitant
cannot be older than 85 years old for a Non-Qualified Contract and 75 years old
for a Qualified Contract.
ALLOCATION OF PURCHASE PAYMENTS
When you purchase a Contract, we will allocate your Purchase Payment to the
Fixed Account, one or more Guarantee Periods of the Interest Adjustment Account
and/or one or more of the Portfolios you have selected. We ask that you allocate
your money in whole percentages with a minimum allocation of 5% of each Purchase
Payment or transfer or $500 (whichever is greater). You can instruct us how to
allocate additional Purchase Payments you make. If you do not instruct us, we
will allocate them in the same way as your previous instructions to us. Under
certain circumstances, we will allocate your initial Purchase Payment to a money
market portfolio until the end of the right to examine contract period (see
below). CURRENTLY, YOU CAN SELECT UP TO TEN OF THE THIRTY-FIVE INVESTMENT
OPTIONS (WHICH INCLUDE EACH PORTFOLIO, THE FIXED ACCOUNT AND EACH GUARANTEE
PERIOD OF THE INTEREST ADJUSTMENT ACCOUNT).
Once we receive your Purchase Payment, the necessary information and
federal funds (federal funds means monies credited to a bank's account with its
regional federal reserve bank), we will issue your Contract and allocate your
first Purchase Payment within 2 business days. If you do not give us all of the
information we need, we will contact you to get it. If for some reason we are
unable to complete this process within 5 business days, we will either send back
your money or get your permission to keep it until we get all of the necessary
information. If you make additional Purchase Payments, we will credit these
amounts to your Contract within one business day. Our business day closes when
the New York Stock Exchange closes, which is usually at 4:00 p.m. Eastern time.
RIGHT TO EXAMINE CONTRACT
If you change your mind about owning the Contract, you can cancel it within
10 days after receiving it (or the period required in your state). When you
cancel the Contract within this time period, ULA will not assess a contingent
deferred sales charge. You will receive back whatever your Contract is worth on
the day we receive your request. In certain states or if you have purchased the
Contract as an IRA, we may be required to give you back your Purchase Payment if
you decide to cancel your Contract within 10 days after receiving it (or
whatever period is required in your state). If that is the case, we will
allocate your Purchase Payment(s) received during the right to examine period to
a money market portfolio (except for any portion of your Purchase Payment(s)
which you selected to be allocated to the Fixed Account and/or the Interest
Adjustment Account) for 15 days. (In some states, the period may be longer.) At
the end of the period, we will re-allocate your Purchase Payment as you
selected.
ACCUMULATION UNITS
The value of the portion of your Contract allocated to the Portfolios will
go up or down depending upon the investment performance of the Portfolio(s) you
choose. The value of your Contract will also depend on the expenses of the
Contract. In order to keep track of the value of your Contract, we use a
measurement called an Accumulation Unit (which is like a share of a mutual
fund).
Every business day we determine the value of an Accumulation Unit by
multiplying the Accumulation Unit value for the previous period by a factor for
the current period. The factor is determined by:
1. dividing the value of a Portfolio share at the end of the current period
by the value of a Portfolio share for the previous period; and
2. subtracting from that amount any insurance charges.
The value of an Accumulation Unit may go up or down from day to day.
When you make a Purchase Payment, we credit your Contract with Accumulation
Units. The number of Accumulation Units credited is determined by dividing the
amount of the Purchase Payment allocated to a Portfolio by the value of the
Accumulation Unit for that Portfolio.
We calculate the value of an Accumulation Unit for each Portfolio after the
New York Stock Exchange closes each day and then credit your Contract
accordingly.
EXAMPLE:
On Tuesday we receive an additional Purchase Payment of $4,000 from you.
You have told us you want this to go to the Alger American Growth Portfolio.
When the New York Stock Exchange closes on that Tuesday, we determine that the
value of an Accumulation Unit for investment in the Alger American Growth
Portfolio is $11.25. We then divide $4,000 by $11.25 and credit your Contract on
Tuesday night with 355.56 Accumulation Units for the Alger American Growth
Portfolio.
INVESTMENT OPTIONS
When you buy the Contract you have the opportunity to allocate your money
to: (1) the Fixed Account; (2) the Interest Adjustment Account; and (3) the
Portfolios set forth below. Additional Portfolios may be available in the
future.
YOU SHOULD READ THE PROSPECTUSES FOR THE PORTFOLIOS CAREFULLY BEFORE
INVESTING. THE PROSPECTUSES FOR THE PORTFOLIOS ACCOMPANY THIS PROSPECTUS.
AIM VARIABLE INSURANCE FUNDS, INC.
A I M Advisors, Inc. serves as the Fund's investment adviser. The Fund is
comprised of thirteen funds, the following five of which are available under the
Contract:
AIM V.I. Capital Appreciation Fund
AIM V.I. Diversified Income Fund
AIM V.I. Growth Fund
AIM V.I. Growth and Income Fund
AIM V.I. International Equity Fund
THE ALGER AMERICAN FUND
Fred Alger Management, Inc. is the investment manager. The Trust is
comprised of six Portfolios, the following one of which is available under the
Contract:
Alger American Growth Portfolio
DREYFUS STOCK INDEX FUND
The Dreyfus Corporation serves as the Fund's manager and Mellon Equity
Associates serves as the Fund's index fund manager.
DREYFUS VARIABLE INVESTMENT FUND
The Dreyfus Corporation serves as the investment adviser. The Fund is
comprised of thirteen Portfolios, the following one of which is available under
the Contract:
Growth and Income Portfolio
FEDERATED INSURANCE SERIES
Federated Advisers is the investment adviser to each Fund. The Trust has
eight separate Funds, the following five of which are available under the
Contract:
Federated American Leaders Fund II (a capital growth portfolio)
Federated High Income Bond Fund II
Federated Prime Money Fund II
Federated Utility Fund II
Federated Fund for U.S. Government Securities II
MFS(R) VARIABLE INSURANCE TRUST(SM)
Massachusetts Financial Services Company is the investment adviser to each
Series. The Trust is comprised of twelve Series, the following five of which are
available under the Contract:
MFS Emerging Growth Series
MFS Growth With Income Series
MFS Research Series
MFS Total Return Series
MFS Utilities Series
MORGAN STANLEY UNIVERSAL FUNDS, INC.
Morgan Stanley Asset Management Inc. serves as the investment adviser for
the Emerging Markets Debt, Equity Growth, and Global Equity Portfolios. Miller,
Anderson & Sherrerd, LLP serves as the investment adviser for the High-Yield and
Value Portfolios. The Fund is comprised of eighteen portfolios, the following
five of which are available under the Contract:
Emerging Markets Debt Portfolio
Equity Growth Portfolio
Global Equity Portfolio
High-Yield Portfolio
Value Portfolio (an equity value portfolio)
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
Neuberger & Berman Management Incorporated, with the assistance of
Neuberger & Berman, LLC as a sub-adviser, selects investments for AMT Guardian
Investments, AMT Limited Maturity Bond Investments, AMT Mid-Cap Growth
Investments, and AMT Partners Investment, all four of which are available under
the Contract:
AMT Guardian Portfolio (a capital appreciation and secondarily, current
income portfolio)
AMT Limited Maturity Bond Portfolio
AMT Mid-Cap Growth Portfolio
AMT Partners Portfolio (a capital growth portfolio)
SCUDDER VARIABLE LIFE INVESTMENT FUND
Scudder, Stevens & Clark, Inc. is the investment adviser to the Fund. The
Trust is comprised of seven portfolios, the following two of which are available
under the Contract:
Money Market Portfolio
International Portfolio, Class A
VAN ECK WORLDWIDE INSURANCE TRUST
Van Eck Associates Corporation is the investment adviser to the Fund. The
Trust is comprised of five funds, the following one of which is available under
the Contract:
Worldwide Hard Assets Fund
WARBURG PINCUS TRUST
Warburg Pincus Asset Management, Inc. serves as the investment adviser to
the Trust. The Trust is comprised of seven portfolios, the following three of
which are available under the Contract:
Fixed Income Portfolio
International Equity Portfolio
Post-Venture Capital Portfolio (a long-term capital growth portfolio)
Shares of the Portfolios are issued and redeemed in connection with
investments in and payments under certain variable annuity contracts and (with
respect to certain of the Portfolios) variable life insurance policies of
various life insurance companies which may or may not be affiliated. The
Portfolios do not believe that offering their shares in this manner will be
disadvantageous to you. Nevertheless, the Board of Trustees or the Board of
Directors, as applicable, intend to monitor events in order to identify any
material irreconcilable conflicts which may possibly arise and to determine what
action, if any, should be taken. If such a conflict were to occur, one or more
insurance company separate accounts might withdraw its investments in a
Portfolio. An irreconcilable conflict might result in the withdrawal of a
substantial amount of a Portfolio's assets which could adversely affect such
Portfolio's net asset value per share.
VOTING RIGHTS
ULA is the legal owner of the Portfolio shares. However, ULA believes that
when a Portfolio solicits proxies in conjunction with a shareholder vote, it is
required to obtain from you and other Contract owners instructions as to how to
vote those shares. When we receive those instructions, we will vote all of the
shares we own in proportion to those instructions. This will also include any
shares that ULA owns on its own behalf. Should ULA determine that it is no
longer required to comply with the above, we will vote the shares in our own
right.
SUBSTITUTION
ULA may be required to substitute one of the Portfolios you have selected
with another Portfolio. We would not do this without the prior approval of the
Securities and Exchange Commission. We will give you notice of our intention to
do this.
TRANSFERS
During the Accumulation Phase, you can transfer money among the Portfolios,
the Fixed Account and the Interest Adjustment Account, after the right to
examine contract period is over. During the Accumulation Phase, ULA currently
allows you to make as many transfers as you want to each year. However, this
product is not designed for professional market timing organizations or other
individuals using programmed and frequent transfers. Such activity may be
disruptive to a Portfolio. We reserve the right to stop or prohibit these types
of transfers if we determine that they could harm a Portfolio.
If you make more than 12 transfers in a year, there is a transfer fee
deducted. The fee is the lesser of $25 per transfer or 2% of the amount
transferred. The following applies to any transfer:
1. The minimum amount which you can transfer is $250 from an Account or
your entire value in the Account. This requirement is waived if the transfer is
in connection with the Dollar Cost Averaging Program (which is described below).
2. You cannot make transfers during the right to examine contract period.
3. The minimum amount which must remain in an Account after a transfer is
$500, or $0 if the entire amount in the Account is transferred.
4. The maximum amount which can be transferred from the Fixed Account to
the Portfolios is 25% of the value of your Contract in the Fixed Account in any
one Contract year. This requirement is waived if the transfer is made pursuant
to the Dollar Cost Averaging or Rebalancing Programs.
5. The maximum amount which can be transferred from each Guarantee Period
in the Interest Adjustment Account to the Portfolios, the Fixed Account or
another Guarantee Period of the Interest Adjustment Account is 25% of the value
of your Contract in the Interest Adjustment Account as of the beginning of the
current Contract year. If there was no Contract value in the Interest Adjustment
Account at the beginning of the year, then the transfer is limited to 25% of the
Purchase Payment allocated to the Interest Adjustment Account.
6. We reserve the right, at any time, to terminate, suspend or modify the
transfer privileges described above.
7. You cannot make transfers during the Income Phase.
You can make transfers by telephone during the Accumulation Phase. We may
allow you to authorize someone else to make transfers by telephone on your
behalf. If you own the Contract with a Joint Owner, unless ULA is instructed
otherwise, ULA will accept telephone instructions from either one of you. ULA
will use reasonable procedures to confirm that instructions given us by
telephone are genuine. If we do not use such procedures, we may be liable for
any losses due to unauthorized or fraudulent instructions. We may tape record
all telephone instructions. The telephone privilege may be discontinued at any
time.
DOLLAR COST AVERAGING PROGRAM
The Dollar Cost Averaging Program allows you to systematically transfer a
set amount of money on a monthly, quarterly or semi-annual basis from a money
market portfolio or the Fixed Account to one or more Portfolios. Transfers to
the Fixed Account or Interest Adjustment Account are not permitted under Dollar
Cost Averaging. By allocating amounts on a regularly scheduled basis, as opposed
to allocating the total amount at one particular time, you may be less
susceptible to the impact of market fluctuations. You may only participate in
this program during the Accumulation Phase. The minimum amount which may be
transferred is $50 (per Portfolio). We will notify you for instructions if at
any time the value of the money market portfolio or the Fixed Account is not
sufficient to make the requested transfer.
All Dollar Cost Averaging transfers will be made at any time prior to the
25th of a calendar month. If you choose this Program, you must participate in it
for at least one year.
If you participate in the Dollar Cost Averaging Program, the transfers made
under the Program are not taken into account in determining any transfer fee.
You may not participate in the Dollar Cost Averaging Program and the Rebalancing
Program at the same time.
We reserve the right to terminate, suspend or modify the Dollar Cost
Averaging Program.
REBALANCING PROGRAM
Once your money has been invested, the performance of the Portfolios and
the earnings from the Fixed Account and Guarantee Periods of the Interest
Adjustment Account may cause your allocation to shift. The Rebalancing Program
is designed to help you maintain your specified allocation mix among the
different Portfolios. You can direct us to readjust your money quarterly,
semi-annually or annually to return to your particular percentage allocations.
The value of your Contract must be at least $5,000 to have transfers made under
this Program. You may not rebalance your money in the Fixed Account or the
Interest Adjustment Account. If you participate in the Rebalancing Program, the
transfers made under the Program are not taken into account in determining any
transfer fee. You may not participate in the Rebalancing Program and the Dollar
Cost Averaging Program at the same time.
ASSET ALLOCATION PROGRAMS
ULA understands the importance of having available on a continuous basis
advice from a financial adviser regarding your investments in the Contract
(asset allocation program). Certain investment advisers have made arrangements
with us to make their services available to you. ULA has not made any
independent investigation of these advisers and is not endorsing such programs.
You may be required to enter into an advisory agreement with your investment
adviser. You are responsible for the compensation of the adviser you choose.
Under certain asset allocation programs, if you are under age 59 1/2, you
will be billed for the services of the investment adviser. If you are 59 1/2 or
older, ULA will, pursuant to an agreement with you, make a partial withdrawal
from the value of your Contract to pay for the services of the investment
adviser. If the Contract is Non-Qualified, the withdrawal will be treated like
any other distribution and will be includible in gross income for federal tax
purposes and, under certain circumstances, may be subject to a tax penalty.
PERFORMANCE
ULA may periodically advertise performance of the various Portfolios. ULA
will calculate performance by determining the percentage change in the value of
an Accumulation Unit by dividing the increase (decrease) for that unit by the
value of the Accumulation Unit at the beginning of the period. This performance
number reflects the deduction of the insurance charges and the expenses of the
Portfolio. It does not reflect the deduction of any applicable contingent
deferred sales charge. The deduction of any applicable contingent deferred sales
charge would reduce the percentage increase or make greater any percentage
decrease. Any advertisement will also include average annual total return
figures which reflect the deduction of the insurance charges, contingent
deferred sales charges and the expenses of the Portfolios.
The Portfolios have been in existence for some time and have investment
performance history. However, the Contracts are relatively new. In order to
demonstrate how the actual investment experience of the Portfolios may affect
your Accumulation Unit values, ULA prepares performance information. The
performance is based on the performance of the Portfolios, modified to reflect
the charges and expenses of your Contract as if it had been in existence for the
time periods shown. ULA will also provide standardized total return performance
figures for the Accumulation Unit values for the applicable time periods, where
available. The information is based upon the historical experience of the
Portfolios and does not necessarily represent what your investment would earn in
those Portfolios.
From time to time, we may advertise the money market portfolio's yield and
effective yield. ULA may also in the future advertise yield information for one
or more of the other Portfolios. If it does, it will provide you with
information regarding how yield is calculated. More detailed information
regarding how performance is calculated is found in the SAI.
Any performance advertised will be based on historical data and does not
guarantee future results of the Portfolios.
EXPENSES
There are charges and other expenses associated with the Contract that will
reduce your investment return. These charges and expenses are:
INSURANCE CHARGES
We deduct insurance charges each day. We do this as part of the calculation
of the value of the Accumulation Units. The insurance charges are: 1) the
mortality and expense risk charge and 2) the administrative charge.
Mortality and Expense Risk Charge.
Death Benefit Option 1 (Enhanced Death Benefit Rider). The Mortality and
Expense Risk Charge for Contracts with the Enhanced Death Benefit Rider is
equal, on an annual basis, to 1.45% of the average daily value of the Contract
invested in a Portfolio, after the deduction of expenses.
Death Benefit Option 2 (Standard Death Benefit). The Mortality and Expense
Risk charge for Contracts with the Standard Death Benefit is equal, on an annual
basis, to 1.25% of the average daily value of the Contract invested in a
Portfolio, after the deduction of expenses.
This charge compensates us for all the insurance benefits provided by your
Contract (for example, the guarantee of annuity rates, the death benefits,
certain expenses related to the Contract, and for assuming the risk (expense
risk) that the current charges will be insufficient in the future to cover the
cost of administering the Contract).
Administrative Charge. This charge is equal, on an annual basis, to .15% of
the average daily value of the Contract invested in a Portfolio, after the
deduction of expenses. This charge is for all the expenses associated with the
administration of the Contract. Some of these expenses include: preparation of
the Contract, confirmations, annual reports and statements, maintenance of
Contract records, personnel costs, legal and accounting fees, filing fees, and
computer and systems costs.
CONTINGENT DEFERRED SALES CHARGE
Withdrawals may be subject to a contingent deferred sales charge. During
the Accumulation Phase, you can make withdrawals from your Contract (see the
"Withdrawals" section). ULA keeps track of each Purchase Payment you make. The
amount of the contingent deferred sales charge depends upon how long ULA has had
your payment. The charge is calculated at the time of each withdrawal and will
be deducted from the value remaining in your Contract. The charge is:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Number of complete years from
receipt of Purchase Payment: 0 1 2 3 4 5 6 7 years or more
Contingent Deferred Sales Charge: 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%
</TABLE>
However, after ULA has had a Purchase Payment for 7 years, there is no
charge when you withdraw that Purchase Payment. For purposes of the contingent
deferred sales charge, ULA treats withdrawals as coming from the oldest Purchase
Payments first. ULA does not assess the contingent deferred sales charge on any
payments paid out as Annuity Payments or as death benefits.
NOTE: For tax purposes, withdrawals are considered to have come from the
last money you put into the Contract. Thus, for tax purposes, earnings are
considered to come out first.
Free Withdrawal Amount -- You can make a partial withdrawal without
incurring a contingent deferred sales charge of the "free withdrawal amount."
The free withdrawal amount is equal to the greater of: (a) earnings, or (b) 10%
of remaining Purchase Payments at the beginning of the current year. If your
withdrawal is not on a Contract anniversary, the free withdrawal amount is equal
to the free withdrawal amount at the beginning of the Contract year less amounts
withdrawn without the contingent deferred sales charge during the current
Contract year. If you make a complete withdrawal, the free withdrawal amount is
not available. Any amounts withdrawn as the free withdrawal amount will not be
subject to an Interest Adjustment.
In addition, in certain states, you can make a total or partial withdrawal
and ULA will not deduct the contingent deferred sales charge if you are confined
to a skilled nursing home facility for 90 consecutive days after the first
Contract year.
REDUCTION OR ELIMINATION OF THE CONTINGENT DEFERRED SALES CHARGE
ULA may reduce or eliminate the amount of the contingent deferred sales
charge when the Contract is sold under circumstances which reduce its sales
expenses. Some examples are: if there is a large group of individuals that will
be purchasing the Contract or a prospective purchaser already had a relationship
with ULA. ULA will not deduct a contingent deferred sales charge under a
Contract issued to an officer, director or employee of ULA or any of its
affiliates. Any circumstances resulting in the reduction or elimination of the
contingent deferred sales charge requires our prior approval.
TRANSFER FEE
You can make 12 free transfers every year. We measure a year from the day
we issue your Contract. If you make more than 12 transfers a year, we will
deduct a transfer fee of $25 or 2% of the amount that is transferred, whichever
is less, for each additional transfer.
If the transfer is part of the Dollar Cost Averaging or Rebalancing
Programs, it will not count in determining the transfer fee.
PREMIUM TAXES
Some states and other governmental entities (e.g., municipalities) charge
premium taxes or similar taxes. ULA is responsible for the payment of these
taxes and will make a deduction from the value of your Contract for them. Some
of these taxes are due when the Contract is issued, others are due when Annuity
Payments begin. It is ULA's current practice to pay any premium taxes when they
become payable to the states. Premium taxes generally range from 0% to 4.0%,
depending on the state.
INCOME TAXES
ULA will deduct from the Contract any income taxes which it may incur
because of the Contract. Currently, ULA is not making any such deductions.
PORTFOLIO EXPENSES
There are deductions from and expenses paid out of the assets of the
various Portfolios which are described in the prospectuses for the Portfolios.
TAXES
NOTE: ULA HAS PREPARED THE FOLLOWING INFORMATION ON TAXES AS A GENERAL
DISCUSSION OF THE SUBJECT. IT IS NOT INTENDED AS TAX ADVICE. YOU SHOULD CONSULT
YOUR OWN TAX ADVISER ABOUT YOUR OWN CIRCUMSTANCES. ULA HAS INCLUDED ADDITIONAL
INFORMATION REGARDING TAXES IN THE STATEMENT OF ADDITIONAL INFORMATION.
ANNUITY CONTRACTS IN GENERAL
Annuity contracts are a means of setting aside money for future needs --
usually retirement. Congress recognized how important saving for retirement was
and provided special rules in the Internal Revenue Code (Code) for annuities.
Basically, these rules provide that you will not be taxed on the earnings
on the money held in your annuity Contract until you take the money out. This is
referred to as Tax Deferral. There are different rules regarding how you will be
taxed depending upon how you take the money out and the type of Contract --
Qualified or Non-Qualified (see following sections).
You, as the Owner, will not be taxed on increases in the value of your
Contract until a distribution occurs -- either as a withdrawal or as Annuity
Payments. When you make a withdrawal you are taxed on the amount of the
withdrawal that is earnings. For Annuity Payments, different rules apply. A
portion of each Annuity Payment you receive will be treated as a partial return
of your Purchase Payments and will not be taxed. The remaining portion of the
Annuity Payment will be treated as ordinary income. How the Annuity Payment is
divided between taxable and non-taxable portions depends upon the period over
which the Annuity Payments are expected to be made. Annuity Payments received
after you have received all of your Purchase Payments are fully includible in
income.
When a Non-Qualified Contract is owned by a non-natural person (e.g., a
corporation or certain other entities other than tax-qualified trusts), the
Contract will generally not be treated as an annuity for tax purposes. This
means that the Contract may not receive the benefits of Tax Deferral. Income may
be taxed as ordinary income every year.
QUALIFIED AND NON-QUALIFIED CONTRACTS
If you purchase the Contract under a Qualified plan, your Contract is
referred to as a Qualified Contract. Examples of Qualified plans are: Individual
Retirement Annuities (IRAs), Tax-Sheltered Annuities (sometimes referred to as
403(b) Contracts), H.R. 10 Plans (sometimes referred to as Keogh Plans), pension
and profit-sharing plans, which include 401(k) plans and Section 457 Deferred
Compensation Plans.
If you do not purchase the Contract under a Qualified plan, your Contract
is referred to as a Non-Qualified Contract.
WITHDRAWALS -- NON-QUALIFIED CONTRACTS
If you make a withdrawal from your Contract, the Code treats such a
withdrawal as first coming from earnings and then from your Purchase Payments.
In most cases, such withdrawn earnings are includible in income.
The Code also provides that any amount received under an annuity contract
which is included in income may be subject to a tax penalty. The amount of the
penalty is equal to 10% of the amount that is includible in income. Some
withdrawals will be exempt from the penalty. They include any amounts: (1) paid
on or after the taxpayer reaches age 59 1/2; (2) paid after you die; (3) paid if
the taxpayer becomes totally disabled (as that term is defined in the Code); (4)
paid in a series of substantially equal payments made annually (or more
frequently) for the life or life expectancy of the taxpayer; (5) paid under an
immediate annuity; or (6) which come from purchase payments made prior to August
14, 1982.
WITHDRAWALS -- QUALIFIED CONTRACTS
The above information describing the taxation of Non-Qualified Contracts
does not apply to Qualified Contracts. There are special rules that govern
Qualified Contracts. A more complete discussion of withdrawals from Qualified
Contracts is contained in the Statement of Additional Information.
WITHDRAWALS -- TAX-SHELTERED ANNUITIES
The Code limits the withdrawal of purchase payments made by owners from
certain Tax-Sheltered Annuities. Withdrawals can only be made when an owner: (1)
reaches age 59 1/2; (2) leaves his/her job; (3) dies; (4) becomes disabled (as
that term is defined in the Code); or (5) in the case of hardship. However, in
the case of hardship, the owner can only withdraw the purchase payments and not
any earnings.
DIVERSIFICATION
The Code provides that the underlying investments for a variable annuity
must satisfy certain diversification requirements in order to be treated as an
annuity contract. ULA believes that the Portfolios are being managed so as to
comply with the requirements.
Neither the Code nor the Internal Revenue Service Regulations issued to
date provide guidance as to the circumstances under which you, because of the
degree of control you exercise over the underlying investments, and not ULA
would be considered the owner of the shares of the Portfolios. If this occurs,
it will result in the loss of the favorable tax treatment for the Contract. It
is unknown to what extent under federal tax law Contract Owners are permitted to
select Portfolios, to make transfers among the Portfolios or the number and type
of Portfolios Owners may select from. If any guidance is provided which is
considered a new position, then the guidance would generally be applied
prospectively. However, if such guidance is considered not to be a new position,
it may be applied retroactively. This would mean that you, as the Owner of the
Contract, could be treated as the owner of the Portfolios.
Due to the uncertainty in this area, ULA reserves the right to modify the
Contract in an attempt to maintain favorable tax treatment.
WITHDRAWALS
You can have access to the money in your Contract: (1) by making a
withdrawal (either a partial or a total withdrawal); (2) by receiving Annuity
Payments; or (3) when a death benefit is paid to your Beneficiary. Withdrawals
can only be made during the Accumulation Phase.
When you make a complete withdrawal you will receive the value of the
Contract on the day you made the withdrawal less any applicable contingent
deferred sales charge and less any premium tax. (See "Expenses" for a discussion
of the charges.) A partial withdrawal is taken first from the value of the
Contract for which the free withdrawal provision applies and then from the value
for which there is no waiver.
Any partial withdrawal must be for at least $500 (unless it is made under
the Systematic Withdrawal Program, see below). Unless you tell us otherwise,
partial withdrawals will be made pro-rata from the Portfolios. ULA requires that
after you make a partial withdrawal the value of your Contract must be at least
$2,000 and the value of any Account must be at least $500. A partial withdrawal
from the Fixed Account or the Interest Adjustment Account is made first from the
one year Fixed Account Guarantee Period and then next from the Guarantee Period
of the shortest remaining duration and then from the Guarantee Period with the
earliest effective date where the Guarantee Periods are of the same duration. A
withdrawal from the Interest Adjustment Account may be subject to an adjustment.
INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO ANY
WITHDRAWAL YOU MAKE.
There are limits to the amount you can withdraw from a Qualified plan
referred to as a 403(b) plan. For a more complete explanation see -- Taxes and
the discussion in the SAI.
SYSTEMATIC WITHDRAWAL PROGRAM
If the value of your Contract is at least $12,000, ULA offers a Program
which provides automatic periodic payments to you each year. Systematic
withdrawals can be made at any time, including during the first year. You can
instruct us how much you want to withdraw under the Program as long as each
payment is at least $100. You may terminate systematic withdrawals by giving us
thirty (30) days prior written notice. We do not currently charge for systematic
withdrawals but reserve the right to charge for them in the future. The
contingent deferred sales charge may apply to systematic withdrawals (see
"Expenses"). Systematic withdrawals are available for Qualified and
Non-Qualified Contracts.
INCOME TAXES AND TAX PENALTIES MAY APPLY TO SYSTEMATIC WITHDRAWALS.
SUSPENSION OF PAYMENTS OR TRANSFERS
ULA may be required to suspend or postpone payments for withdrawals or
transfers for any period when:
1. the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists as a result of which disposal of the Portfolio
shares is not reasonably practicable or ULA cannot reasonably value the
Portfolio shares;
4. during any other period when the Securities and Exchange Commission, by
order, so permits for the protection of owners.
ULA has reserved the right to defer payment for a withdrawal or transfer
from the Fixed Account or the Interest Adjustment Account for the period
permitted by law but not for more than six months.
DEATH BENEFIT
Upon Your Death
If you die during the Accumulation Phase, ULA will pay a death benefit to
your Beneficiary (see below). No death benefit is paid during the Income Phase.
If you have a Joint Owner, and the Joint Owner dies, the surviving Owner will be
considered the primary Beneficiary. Any other Beneficiary designation on record
at the time of death will be treated as a contingent Beneficiary. Joint Owners
must be spouses.
Death Benefit
You can select Death Benefit Option 1 (Enhanced Death Benefit Rider) or
Death Benefit Option 2 (Standard Death Benefit). If you bought your Contract
before May 1, 1998, your Contract has Death Benefit Option 1 (Enhanced Death
Benefit Rider). On your next Contract anniversary after May 1, 1998, you can
make a one time only election to choose Death Benefit Option 2 (Standard Death
Benefit).
Death Benefit Option 1 - Enhanced Death Benefit Rider
If you select Death Benefit Option 1, the death benefit will be the value
of your Contract in the Fixed Account and the Interest Adjustment Account plus
the greatest of:
(a) the value of your Contract invested in the Portfolios as of the date
ULA receives proof of death and an election for the method of payment; or
(b) the Purchase Payments you have made which are invested in the
Portfolios, less any money taken out and transfers from the Portfolios (and
related contingent deferred sales charges and transfer fees), increased by 4%
per year up to the first Contract anniversary after your 75th birthday; or
(c) the highest reset value up to the date of death. The reset value is the
value of your Contract invested in the Portfolios on each Contract anniversary
prior to your 80th birthday, plus Purchase Payments you have made after such
Contract anniversary and invested in the Portfolios, less any money taken out
and transfers from the Portfolios after such anniversary and any related
contingent deferred sales charges and transfer fees.
Death Benefit Option 2 - Standard Death Benefit
If you select Death Benefit Option 2, the Death Benefit will be the greater
of:
(a) the Purchase Payments you have made, less any money you have taken out
and related contingent deferred sales charges; or
(b) the value of your Contract on the date we receive both proof of death
and an election for the payment method.
A Beneficiary may request that the death benefit be paid in one of the
following ways: (1) lump sum payment of the death benefit; (2) payment of the
entire death benefit within 5 years of the date of death; or (3) payment of the
death benefit under an Annuity Option. The death benefit payable under an
Annuity Option must be paid over the Beneficiary's lifetime or for a period not
extending beyond the Beneficiary's life expectancy. Payment must begin within
one year of the date of death. Any portion of the death benefit not applied
under (3) above within one year of the date of the Owner's death must be
distributed within five years of the date of death.
If the Beneficiary is the spouse of the Owner, he/she can choose to
continue the Contract in his/her own name at the then current value, elect a
lump sum payment of the death benefit or apply the death benefit to an Annuity
Option. Payment to the Beneficiary, other than in a lump sum, may only be
elected during the sixty-day period beginning with the date we receive proof of
death. If a lump sum payment is elected and all the necessary requirements are
met, the payment will be made within seven days.
If you (or any Joint Owner) die during the Income Phase and you are not the
Annuitant, any payments which are remaining under the Annuity Option selected
will continue at least as rapidly as they were being paid at your death. If you
die during the Income Phase, the Beneficiary becomes the Owner.
Death of Annuitant
If the Annuitant, who is not an Owner or Joint Owner, dies during the
Accumulation Phase, you can name a new Annuitant. If a new Annuitant is not
named within 30 days of the death of the Annuitant, you will become the
Annuitant. However, if the Owner is a non-natural person (e.g., a corporation),
then the death of the Annuitant will be treated as the death of the Owner, and a
new Annuitant may not be named.
If the Annuitant dies after Annuity Payments have begun, the remaining
amounts payable, if any, will be as provided for in the Annuity Option selected.
The remaining amounts payable will be paid to the Owner at least as rapidly as
they were being paid at the Annuitant's death.
OTHER INFORMATION
ULA
United Life & Annuity Insurance Company (ULA), 8545 United Plaza Boulevard,
Baton Rouge, Louisiana 70809-2264, is a stock life insurance company domiciled
in Louisiana and organized in 1955. ULA is authorized to conduct business in 47
states, the District of Columbia and Puerto Rico. On July 24, 1996, Pacific Life
and Accident Insurance Company (PLAIC) acquired one hundred percent ownership of
ULA. PLAIC is a wholly-owned subsidiary of PennCorp Financial Group, Inc.
(PennCorp). PennCorp is a publicly-traded insurance holding company, the
principal subsidiaries of which are insurance companies.
Year 2000
In October 1997, the Company developed a plan to convert its computer
systems to be Year 2000 compliant. The plan provides for the conversion efforts
to be completed by the end of 1998. The Year 2000 issue is the result of
computer programs being written using two digits rather than four to define the
applicable year. The total cost of the plan is estimated to be $.9 million and
is being funded through operating cash flows. The Company is expensing all costs
associated with these systems changes as the costs are incurred. As of December
31, 1997, no external expenses have been incurred.
THE SEPARATE ACCOUNT
ULA established a separate account, United Life & Annuity Separate Account
One (Separate Account), to hold the assets that underlie the Contracts. Prior to
May 1, 1997, the Separate Account was known as United Companies Separate Account
One. Our Board of Directors adopted a resolution to establish the Separate
Account under Louisiana insurance law on November 2, 1994. ULA has registered
the Separate Account with the Securities and Exchange Commission as a unit
investment trust under the Investment Company Act of 1940. The Separate Account
is divided into sub-accounts. Each sub-account invests in a portfolio.
The assets of the Separate Account are held in ULA's name on behalf of the
Separate Account and legally belong to ULA. However, those assets that underlie
the Contracts, are not chargeable with liabilities arising out of any other
business we may conduct. All the income, gains and losses (realized or
unrealized) resulting from these assets are credited to or charged against the
Contracts and not against any other Contracts we may issue.
DISTRIBUTION
United Variable Services, Inc. (UVS), 8545 United Plaza Boulevard, Baton
Rouge, Louisiana 70809-2264, acts as the distributor of the Contracts. UVS is a
wholly-owned subsidiary of ULA. Commissions will be paid to broker-dealers who
sell the Contracts.
FINANCIAL STATEMENTS
The financial statements of ULA and the Separate Account have been included
in the Statement of Additional Information.
APPENDIX - CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
The following schedule includes Accumulation Unit values for the periods
indicated. This data has been taken from the Separate Account's financial
statements. This information should be read in conjunction with the Separate
Account's financial statements and related notes thereto which appear in the
Statement of Additional Information. The unit values below reflect asset-based
charges for Contracts with Death Benefit Option 1. Death Benefit Option 2 was
not available until May 1, 1998.
<TABLE>
<CAPTION>
PERIOD FROM
COMMENCEMENT OF
DATE OF OPERATIONS OR
COMMENCEMENT YEAR ENDED FOR YEAR ENDED
OF OPERATIONS 12-31-97 12-31-96
------------- --------------- ---------------
<S> <C> <C> <C>
ALGER AMERICAN GROWTH SUB-ACCOUNT
Unit value at beginning of period......................... 1/19/96 $11.21 $ 10.05
Unit value at end of period............................... $13.88 $ 11.21
Number of units outstanding at end of period.............. 58,256 42,143
DREYFUS STOCK INDEX SUB-ACCOUNT
Unit value at beginning of period......................... 3/4/96 $12.25 $ 10.15
Unit value at end of period............................... $16.02 $ 12.25
Number of units outstanding at end of period.............. 45,285 20,958
DREYFUS GROWTH AND INCOME SUB-ACCOUNT
Unit value at beginning of period......................... 1/19/96 $12.45 $ 10.48
Unit value at end of period............................... $14.23 $ 12.45
Number of units outstanding at end of period.............. 30,751 11,261
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II SUB-ACCOUNT
Unit value at beginning of period......................... 3/15/96 $10.39 $ 10.14
Unit value at end of period............................... $11.11 $ 10.39
Number of units outstanding at end of period.............. 27,911 3,447
FEDERATED HIGH INCOME BOND FUND II SUB-ACCOUNT
Unit value at beginning of period......................... 1/19/96 $11.43 $ 10.16
Unit value at end of period............................... $12.81 $ 11.43
Number of units outstanding at end of period.............. 37,974 30,495
FEDERATED UTILITY FUND II SUB-ACCOUNT
Unit value at beginning of period......................... 1/19/96 $11.31 $ 10.30
Unit value at end of period............................... $14.10 $ 11.31
Number of units outstanding at end of period.............. 20,103 8,368
MFS EMERGING GROWTH SUB-ACCOUNT
Unit value at beginning of period......................... 1/19/96 $11.74 $ 10.19
Unit value at end of period............................... $14.08 $ 11.74
Number of units outstanding at end of period.............. 69,658 43,337
MFS TOTAL RETURN SUB-ACCOUNT
Unit value at beginning of period......................... 9/12/96 $11.53 $ 10.25
Unit value at end of period............................... $13.77 $ 11.53
Number of units outstanding at end of period.............. 52,392 24,528
SCUDDER INTERNATIONAL, CLASS A SUB-ACCOUNT
Unit value at beginning of period......................... 1/19/96 $11.42 $ 10.11
Unit value at end of period............................... $12.26 $ 11.42
Number of units outstanding at end of period.............. 27,011 18,553
SCUDDER MONEY MARKET SUB-ACCOUNT
Unit value at beginning of period......................... 1/12/96 $10.38 $ 10.04
Unit value at end of period............................... $10.75 $ 10.38
Number of units outstanding at end of period.............. 44,108 17,583
VAN ECK WORLDWIDE HARD ASSETS SUB-ACCOUNT
Unit value at beginning of period......................... 1/29/97 $11.78 N/A
Unit value at end of period............................... $11.40
Number of units outstanding at end of period.............. 1,652
</TABLE>
The AIM V.I. Capital Appreciation, AIM V.I. Diversified Income, AIM V.I. Growth,
AIM V.I. Growth and Income, AIM V.I. International Equity, Federated American
Leaders Fund II, Federated Prime Money Fund II, MFS Growth With Income, MFS
Research, MFS Utilities, Morgan Stanley Emerging Markets Debt, Morgan Stanley
Equity Growth, Morgan Stanley Global Equity, Morgan Stanley High-Yield, Morgan
Stanley Value, AMT Guardian, AMT Limited Maturity Bond, AMT Mid-Cap Growth, AMT
Partners, Warburg Pincus Fixed Income, Warburg Pincus International Equity,
Warburg Pincus Post-Venture Capital Sub-Accounts had not commenced operations as
of December 31, 1997. Therefore, no accumulation unit values are presented above
for them.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
Company.....................................................
Independent Auditors........................................
Legal Opinions..............................................
Distributor.................................................
Reduction or Elimination of the Contingent Deferred Sales
Charge.................................................... 4
Yield Calculation For Money Market Portfolio................ 4
Calculation of Performance Information...................... 5
Federal Tax Status.......................................... 7
Annuity Provisions.......................................... 14
Financial Statements........................................ 14
Please send me, at no charge, the Statement of Additional Information dated May
1, 1998 for the SpectraSelect Fixed and Variable Annuity Contract issued by
United Life & Annuity Insurance Company.
(Please print or type and fill in all information)
----------------------------------------------------------------------
Name
----------------------------------------------------------------------
Address
----------------------------------------------------------------------
City State Zip Code
ULV-AD-4009SD (5/98)
<TABLE>
<S> <C>
- -------------------------------------- -------------------
- -------------------------------------- Put stamp here
- -------------------------------------- The Post Office will
not deliver mail
without postage.
-------------------
</TABLE>
United Life & Annuity Insurance Company
Variable Annuity Service Center
851 SW Sixth Avenue, Suite 700
Portland, OR 97204-1346
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING, OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
ISSUED BY:
UNITED LIFE & ANNUITY
INSURANCE COMPANY
A MEMBER OF THE PENNCORP FINANCIAL GROUP OF COMPANIES
PO BOX 260100, BATON ROUGE, LA 70826-0100
8545 UNITED PLAZA BLVD, BATON ROUGE, LA 70809-2264
DISTRIBUTED BY UNITED VARIABLE SERVICES, INC., MEMBER NASD
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL AND GROUP FIXED AND VARIABLE DEFERRED
ANNUITY CONTRACTS
ISSUED BY
UNITED LIFE & ANNUITY SEPARATE ACCOUNT ONE
AND
UNITED LIFE & ANNUITY INSURANCE COMPANY
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD
BE READ IN CONJUNCTION WITH THE PROSPECTUS DATED MAY 1, 1998, FOR THE INDIVIDUAL
AND GROUP FIXED AND VARIABLE DEFERRED ANNUITY CONTRACTS WHICH ARE REFERRED TO
HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR
OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS CALL OR WRITE THE
COMPANY AT: UNITED LIFE & ANNUITY INSURANCE COMPANY, P.O. BOX 260100, BATON
ROUGE, LOUISIANA 70826-0100, (800) 825-7568.
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED MAY 1, 1998.
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Company..................................................... 3
Independent Auditors........................................ 3
Legal Opinions.............................................. 4
Distributor................................................. 4
Reduction or Elimination of the Contingent Deferred Sales
Charge.................................................... 4
Yield Calculation For Money Market Portfolio................ 4
Calculation of Performance Information...................... 5
Federal Tax Status.......................................... 9
Annuity Provisions.......................................... 17
Financial Statements........................................ 17
</TABLE>
COMPANY
United Life & Annuity Insurance Company ("ULA" or the "Company") is a stock
life insurance company domiciled in Louisiana and organized in 1955. ULA is
licensed to do business in 47 states, the District of Columbia and Puerto Rico.
On or about May 1, 1997, ULA changed its name from United Companies Life
Insurance Company to its present name.
On July 24, 1996, Pacific Life and Accident Insurance Company ("PLAIC")
acquired one hundred percent ownership of the Company from United Companies
Financial Corporation ("UCFC"), including its wholly-owned subsidiary United
Variable Services, Inc., a registered broker-dealer which acts as the principal
underwriter of the Contracts issued by the Company (the "Acquisition").
Under the terms of the Acquisition, the sales price was comprised of cash,
estimated, as of January 30, 1996, to be $109 million, and real estate and other
assets owned by the Company to be distributed to UCFC prior to the acquisition.
The real estate to be distributed included portions of the United Plaza office
park, including UCFC's home office. In addition, UCFC purchased a convertible
promissory note from an affiliate of the purchaser for $15 million in cash. The
purchaser also agreed that the Company would continue to be an investor in first
lien home equity loans originated by UCFC's lending operations and that the
purchaser would use commercially reasonable efforts to maintain the Company's
home office operations in its present location in Baton Rouge, Louisiana
following the closing for at least two years.
PLAIC is a Texas domestic life insurance company, formed on May 31, 1985.
PLAIC is a wholly-owned life insurance subsidiary of PennCorp Financial Group,
Inc. ("PennCorp") and acts as the holding company for the stock of Pennsylvania
Life Insurance Company and Professional Insurance Corporation.
PennCorp is a publicly-traded insurance holding company the principal
subsidiaries of which are insurance companies with operations throughout the
United States and Canada, the executive offices of which are located in Baton
Rouge, Louisiana, Raleigh, North Carolina, Waco, Texas and Toronto, Canada.
INDEPENDENT AUDITORS
The consolidated financial statements and financial statement schedules of
United Life & Annuity Insurance Company and subsidiary as of December 31, 1997
and 1996 and for the year ended December 31, 1997 and for the periods from July
24, 1996 to December 31, 1996 and January 1, 1996 to July 23, 1996 and the
financial statements of United Life & Annuity Separate Account One as of
December 31, 1997 and for the year then ended have been audited by KPMG Peat
Marwick LLP, independent auditors, as stated in their reports appearing herein.
The financial statements of United Life & Annuity Insurance Company and
subsidiary for the year ended December 31, 1995 included in this Statement of
Additional Information have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein.
LEGAL OPINIONS
Blazzard, Grodd & Hasenauer, P.C., Westport, Connecticut has provided
advice on certain matters relating to the federal securities and income tax laws
in connection with the Contracts.
DISTRIBUTOR
United Variable Services, Inc., a wholly-owned subsidiary of the Company,
acts as the distributor. The offering is on a continuous basis.
REDUCTION OR ELIMINATION OF THE CONTINGENT DEFERRED SALES CHARGE
The amount of the Contingent Deferred Sales Charge on the Contracts may be
reduced or eliminated when sales of the Contracts are made to individuals or to
a group of individuals in a manner that results in savings of sales expenses.
The entitlement to a reduction of the Contingent Deferred Sales Charge will be
determined by the Company after examination of the following factors: 1) the
size of the group; 2) the total amount of purchase payments expected to be
received from the group; 3) the nature of the group for which the Contracts are
purchased, and the persistency expected in that group; 4) the purpose for which
the Contracts are purchased and whether that purpose makes it likely that
expenses will be reduced; and 5) any other circumstances which the Company
believes to be relevant to determining whether reduced sales or administrative
expenses may be expected. None of the reductions in charges for sales is
contractually guaranteed.
The Contingent Deferred Sales Charge will be eliminated when the Contracts
are issued to an officer, director or employee of the Company or any of its
affiliates. In no event will any reduction or elimination of the Contingent
Deferred Sales Charge be permitted where the reduction or elimination will be
unfairly discriminatory to any person.
YIELD CALCULATION FOR MONEY MARKET PORTFOLIO
The Money Market Portfolio will calculate its current yield based upon the
seven days ended on the date of calculation. For the seven calendar days ended
December 31, 1997, the annualized yield of the Money Market Portfolio was 3.69%.
The current yield of the Money Market Portfolio is computed by determining
the net change (exclusive of capital changes) in the value of a hypothetical
pre-existing Owner account having a balance of one Accumulation Unit of the
Portfolio at the beginning of the period, subtracting the Mortality and Expense
Risk Charge and the Administrative Charge, dividing the difference by the value
of the account at the beginning of the same period to obtain the base period
return and multiplying the result by (365/7).
The Money Market Portfolio computes its effective compound yield according
to the method prescribed by the Securities and Exchange Commission. The
effective yield reflects the reinvestment of net income earned daily on Money
Market Portfolio assets. For the seven calendar days ended December 31, 1997,
the effective yield of the Money Market Portfolio was 3.76%.
As of December 31, 1997, the yield calculations reflect only the charges of
Contracts with Death Benefit Option 1 (Enhanced Death Benefit Rider). The
Company will also present yield calculations which reflect Contracts with Death
Benefit Option 2 (Standard Death Benefit).
Net investment income for yield quotation purposes will not include either
realized capital gains and losses or unrealized appreciation and depreciation,
whether reinvested or not.
The yields quoted should not be considered a representation of the yield of
the Money Market Portfolio in the future since the yield is not fixed. Actual
yields will depend not only on the type, quality and maturities of the
investments held by the Money Market Portfolio and changes in the interest rates
on such investments, but also on changes in the Money Market Portfolio's
expenses during the period.
Yield information may be useful in reviewing the performance of the Money
Market Portfolio and for providing a basis for comparison with other investment
alternatives. However, the Money Market Portfolio's yield fluctuates, unlike
bank deposits or other investments which typically pay a fixed yield for a
stated period of time.
CALCULATION OF PERFORMANCE INFORMATION
From time to time, the Company may advertise performance data as described
in the Prospectus. Any such advertisement will include total return figures for
the time periods indicated in the advertisement. There will be different
presentations of total return figures. One set will reflect the deduction of a
1.45% Mortality and Expense Risk Charge, a .15% Administrative Charge and the
expenses for the underlying Portfolio being advertised. Another set will reflect
the deduction of a 1.25% Mortality and Expense Risk Charge, a .15%
Administrative Charge and the expenses of the underlying Portfolio. Any such
advertisement will also include average annual total return for the time periods
indicated in the advertisement and will reflect the deduction of the Mortality
and Expense Risk Charge, the Administrative Charge, the Contingent Deferred
Sales Charge and the expenses for the underlying Portfolio being advertised.
The hypothetical value of a Contract purchased for the time periods
described in the advertisement will be determined by using the actual
Accumulation Unit values for an initial $1,000 purchase payment to arrive at the
ending hypothetical value. The average annual total return is then determined by
computing the fixed interest rate that a $1,000 purchase payment would have to
earn annually, compounded annually, to grow to the hypothetical value at the end
of the time periods described. The formula used in these calculations is:
n
P (1 + T) = ERV
<TABLE>
<S> <C> <C> <C>
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the time periods used
(or fractional portion thereof) of a hypothetical $1,000
payment made at the beginning of the time periods used.
</TABLE>
In addition to total return data, the Company may include yield information
in its advertisements. For each Portfolio (other than the Money Market
Portfolio) for which the Company will advertise yield, it will show a yield
quotation based on a 30 day (or one month) period ended on the date of the most
recent balance sheet of the Separate Account included in the registration
statement, computed by dividing the net investment income per Accumulation Unit
earned during the period by the maximum offering price per Unit on the last day
of the period, according to the following formula:
Yield = 2 [(a - b + 1) 6 -1]
-----
cd
Where:
a = Net investment income earned during the period by the
Portfolio attributable to shares owned by the Sub-Account.
b = Expenses accrued for the period (net of reimbursements).
c = The average daily number of Accumulation Units outstanding
during the period.
d = The maximum offering price per Accumulation Unit on the last
day of the period.
The Company may also advertise performance data which will be computed on a
different basis.
PERFORMANCE INFORMATION
The Sub-Accounts of the Separate Account are relatively new and therefore
have little or no meaningful investment performance history. However, the
corresponding Portfolios have been in existence for some time and consequently
have investment performance history. In order to demonstrate how the actual
investment experience of the Portfolios affects Accumulation Unit values, the
following performance information was developed. The information is based upon
the historical experience of the Portfolios and is for the periods shown. There
is also standardized performance shown based on the historical performance of
the Portfolios for the periods commencing from the date on which a Sub-Account
first invested in the Portfolio (Chart 3 below).
Actual performance will vary and the results shown are not necessarily
representative of future results. Performance for periods ending after those
shown may vary substantially from the examples shown below. Chart 1 below shows
the performance of the Accumulation Units calculated for a specified period
of time assuming an initial Purchase Payment of $1,000 allocated to each
Portfolio and a deduction of all charges and deductions (see "Expenses" in the
Prospectus for more information). Chart 2 below is identical to Chart 1 except
that it does not reflect the deduction of the Contingent Deferred Sales Charge
("CDSC"). Charts 1 and 2 reflect a mortality and expense risk charge for
Contracts with Death Benefit Option 1. Performance is not shown for Contracts
with Death Benefit Option 2. The performance figures in the charts also reflect
the actual fees and expenses paid by the Portfolio. The percentage increases
are determined by subtracting the initial Purchase Payment from the ending value
and dividing the remainder by the beginning value.
For the Periods Ended 12/31/97:
CHART 1
(reflects the deduction of all fees and expenses for Contracts
with Death Benefit Option 1)
<TABLE>
<CAPTION>
SINCE PORTFOLIO
PORTFOLIO INCEPTION
1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION DATE
------ ------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Alger American Growth..................... 17.75% 20.37% 14.42% -- 15.92% 1/9/89
Dreyfus Growth and Income................. 8.37% 28.02% -- -- 20.71% 5/2/94
Dreyfus Stock Index....................... 24.85% 26.67% 10.87% -- 6.57% 9/29/89
Federated High Income Bond Fund II........ 6.03% 10.21% -- -- 4.21% 3/1/94
Federated Fund for U.S. Government
Securities II........................... 0.88% 2.52% -- -- 1.64% 3/28/94
Federated Utility Fund II................. 18.63% 15.88% -- -- 9.55% 2/10/94
MFS Emerging Growth....................... 13.97% -- -- -- 19.37% 7/24/95
MFS Total Return.......................... 13.38% -- -- -- 17.71% 1/3/95
Scudder International..................... 1.34% 8.67% 10.66% 8.91% 7.08% 5/1/87
Van Eck Worldwide Hard Assets............. (8.24)% 6.01% 12.41% -- 4.57% 9/1/89
</TABLE>
CHART 2
(reflects the deduction of all fees and expenses, except the
CDSC, for Contracts with Death Benefit Option 1)
<TABLE>
<CAPTION>
SINCE PORTFOLIO
PORTFOLIO INCEPTION
1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION DATE
------ ------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Alger American Growth...................... 23.75% 21.29% 14.66% -- 15.92% 1/9/89
Dreyfus Growth and Income.................. 14.37% 28.83% -- -- 21.73% 5/2/94
Dreyfus Stock Index........................ 30.85% 27.50% 11.13% -- 8.57% 9/29/89
Federated High Income Bond Fund II......... 12.03% 11.30% -- -- 5.13% 3/1/94
Federated Fund for U.S. Government
Securities II............................ 6.86% 3.78% -- -- 2.84% 3/28/94
Federated Utility Fund II.................. 24.63% 16.96% -- -- 10.33% 2/10/94
MFS Emerging Growth........................ 19.97% -- -- -- 20.94% 7/24/95
MFS Total Return........................... 19.38% -- -- -- 18.90% 1/3/95
Scudder International...................... 7.34% 9.79% 10.93% 8.91% 7.08% 5/1/87
Van Eck Worldwide Hard Assets.............. (3.24)% 7.19% 12.66% -- 4.57% 9/1/89
</TABLE>
CHART 3
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDING 12/31/97 FOR CONTRACTS WITH DEATH
BENEFIT OPTION 1:
<TABLE>
<CAPTION>
SEPARATE
SINCE ACCOUNT
SEPARATE INCEPTION
ACCOUNT DATE IN
1 YEAR 5 YEARS INCEPTION PORTFOLIO
------ ------- --------- ---------
<S> <C> <C> <C> <C>
Alger American Growth...................... 17.75% -- 16.56% 1/19/96
Dreyfus Growth and Income.................. 8.37% -- 14.97% 1/19/96
Dreyfus Stock Index........................ 24.85% -- 21.72% 3/4/96
Federated High Income Bond Fund II......... 6.03% -- 9.09% 1/19/96
Federated Fund for U.S. Government
Securities II............................ 0.86% -- 2.80% 3/15/96
Federated Utility Fund II.................. 18.63% -- 14.23% 1/19/96
MFS Emerging Growth........................ 13.97% -- 17.39% 1/19/96
MFS Total Return........................... 13.38% -- 18.10% 9/12/96
Scudder International...................... 1.34% -- 6.92% 1/19/96
Van Eck Worldwide Hard Assets.............. (8.24)% -- (10.58)% 1/29/97
</TABLE>
You should note that the investment results of each Portfolio will
fluctuate over time, and any presentation of the Portfolio's total return or
yield for any period should not be considered as a representation of what an
investment may earn or what your total return or yield may be in any future
period.
FEDERAL TAX STATUS
NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON THE COMPANY'S UNDERSTANDING
OF CURRENT FEDERAL INCOME TAX LAW APPLICABLE TO ANNUITIES IN GENERAL. THE
COMPANY CANNOT PREDICT THE PROBABILITY THAT ANY CHANGES IN SUCH LAWS WILL BE
MADE. PURCHASERS ARE CAUTIONED TO SEEK COMPETENT TAX ADVICE REGARDING THE
POSSIBILITY OF SUCH CHANGES. THE COMPANY DOES NOT GUARANTEE THE TAX STATUS OF
THE CONTRACTS. PURCHASERS BEAR THE COMPLETE RISK THAT THE CONTRACTS MAY NOT BE
TREATED AS "ANNUITY CONTRACTS" UNDER FEDERAL INCOME TAX LAWS. IT SHOULD BE
FURTHER UNDERSTOOD THAT THE FOLLOWING DISCUSSION IS NOT EXHAUSTIVE AND THAT
SPECIAL RULES NOT DESCRIBED HEREIN MAY BE APPLICABLE IN CERTAIN SITUATIONS.
MOREOVER, NO ATTEMPT HAS BEEN MADE TO CONSIDER ANY APPLICABLE STATE OR OTHER TAX
LAWS.
GENERAL
Section 72 of the Code governs taxation of annuities in general. An Owner
is not taxed on increases in the value of a Contract until distribution occurs,
either in the form of a lump sum payment or as annuity payments under the
Annuity Option elected. For a lump sum payment received as a total surrender
(total redemption) or death benefit, the recipient is taxed on the portion of
the payment that exceeds the cost basis of the Contract. For Non-Qualified
Contracts, this cost basis is generally the purchase payments, while for
Qualified Contracts there may be no cost basis. The taxable portion of the lump
sum payment is taxed at ordinary income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion
amount is includible in taxable income. The exclusion amount for payments based
on a fixed annuity option is determined by multiplying the payment by the ratio
that the cost basis of the Contract (adjusted for any period certain or refund
feature) bears to the expected return under the Contract. Payments received
after the investment in the Contract has been recovered (i.e. when the total of
the excludible amounts equals the investment in the Contract) are fully taxable.
The taxable portion is taxed at ordinary income rates. For certain types of
Qualified Plans there may be no cost basis in the Contract within the meaning of
Section 72 of the Code. Owners, Annuitants and Beneficiaries under the Contracts
should seek competent financial advice about the tax consequences of any
distributions.
The Company is taxed as a life insurance company under the Code. For
federal income tax purposes, the Separate Account is not a separate entity from
the Company, and its operations form a part of the Company.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not adequately
diversified in accordance with regulations prescribed by the United States
Treasury Department ("Treasury Department"). Disqualification of the Contract as
an annuity contract would result in imposition of federal income tax to the
Contract Owner with respect to earnings allocable to the Contract prior to the
receipt of payments under the Contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the Contracts meet the
diversification requirements if, as of the end of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than fifty-five percent (55%) of the total assets consist of cash, cash
items, U.S. government securities and securities of other regulated investment
companies.
On March 2, 1989, the Treasury Department issued regulations (Treas. Reg.
1.817-5) which established diversification requirements for the investment
portfolios underlying variable contracts such as the Contracts. The regulations
amplify the diversification requirements for variable contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the regulations, an investment portfolio will be deemed adequately
diversified if: (1) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (2) no more than 70% of the
value of the total assets of the portfolio is represented by any two
investments; (3) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (4) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments.
The Code provides that for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
The Company intends that all Portfolios underlying the Contracts will be
managed by the investment advisers for the Portfolios in such a manner as to
comply with these diversification requirements.
The Treasury Department has indicated that the diversification Regulations
do not provide guidance regarding the circumstances in which Owner control of
the investments of the Separate Account will cause the Owner to be treated as
the owner of the assets of the Separate Account, thereby resulting in the loss
of favorable tax treatment for the Contract. At this time it cannot be
determined whether additional guidance will be provided and what standards may
be contained in such guidance.
The amount of Owner control which may be exercised under the Contract is
different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the Owner's ability to transfer among
investment choices or the number and type of investment choices available, would
cause the Owner to be considered as the owner of the assets of the Separate
Account resulting in the imposition of federal income tax to the Owner with
respect to earnings allocable to the Contract prior to receipt of payments under
the Contract.
In the event any forthcoming guidance or ruling is considered to set forth
a new position, such guidance or ruling will generally be applied only
prospectively. However, if such ruling or guidance was not considered to set
forth a new position, it may be applied retroactively resulting in the Owner
being retroactively determined to be the owner of the assets of the Separate
Account.
Due to the uncertainty in this area, the Company reserves the right to
modify the Contract in an attempt to maintain favorable tax treatment.
MULTIPLE CONTRACTS
The Code provides that multiple non-qualified annuity contracts which are
issued within a calendar year period to the same contract owner by one company
or its affiliates are treated as one annuity contract for purposes of
determining the tax consequences of any distribution. Such treatment may result
in adverse tax consequences, including more rapid taxation of the distributed
amounts from such combination of contracts. Owners should consult a tax adviser
prior to purchasing more than one non-qualified annuity contract in any calendar
year period.
CONTRACTS OWNED BY OTHER THAN NATURAL PERSONS
Under Section 72(u) of the Code, the investment earnings on purchase
payments for the Contracts will be taxed currently to the Owner if the Owner is
a non-natural person, e.g., a corporation or certain other entities. Such
Contracts generally will not be treated as annuities for federal income tax
purposes. However, this treatment is not applied to Contracts held by a trust or
other entity as an agent for a natural person nor to Contracts held by qualified
plans. Purchasers should consult their own tax counsel or other tax adviser
before purchasing a Contract to be owned by a non-natural person.
TAX TREATMENT OF ASSIGNMENTS
An assignment or pledge of a Contract may be a taxable event. Owners should
therefore consult competent tax advisers should they wish to assign or pledge
their Contracts.
INCOME TAX WITHHOLDING
All distributions or the portion thereof which is includible in the gross
income of the Owner are subject to federal income tax withholding. Generally,
amounts are withheld from periodic payments at the same rate as wages and at the
rate of 10% from non-periodic payments. However, the Owner, in most cases, may
elect not to have taxes withheld or to have withholding done at a different
rate.
Effective January 1, 1993, certain distributions from retirement plans
qualified under Section 401 or Section 403(b) of the Code, which are not
directly rolled over to another eligible retirement plan or individual
retirement account or individual retirement annuity, are subject to a mandatory
20% withholding for federal income tax. The 20% withholding requirement
generally does not apply to: a) a series of substantially equal payments made at
least annually for the life or life expectancy of the participant or joint and
last survivor expectancy of the participant and a designated beneficiary, or for
a specified period of 10 years or more; b) distributions which are required
minimum distributions; or (c) the portion of the distributions not includible in
gross income (i.e. returns of after-tax contributions). Participants should
consult their own tax counsel or other tax adviser regarding withholding
requirements.
TAX TREATMENT OF WITHDRAWALS -- NON-QUALIFIED CONTRACTS
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the contract value exceeds the aggregate purchase
payments made, any amount withdrawn will be treated as coming first from the
earnings and then, only after the income portion is exhausted, as coming from
the principal. Withdrawn earnings are includible in gross income. It further
provides that a ten percent (10%) penalty will apply to the income portion of
any distribution. However, the penalty is not imposed on amounts received: (a)
after the taxpayer reaches age 59 1/2; (b) after the death of the Owner; (c) if
the taxpayer is totally disabled (for this purpose disability is as defined in
Section 72(m)(7) of the Code); (d) in a series of substantially equal periodic
payments made not less frequently than annually for the life (or life
expectancy) of the taxpayer or for the joint lives (or joint life expectancies)
of the taxpayer and his Beneficiary; (e) under an immediate annuity; or (f)
which are allocable to purchase payments made prior to August 14, 1982.
The above information does not apply to Qualified Contracts. However,
separate tax withdrawal penalties and restrictions may apply to such Qualified
Contracts. (See "Tax Treatment of Withdrawals -- Qualified Contracts.")
QUALIFIED PLANS
The Contracts offered by the Prospectus are designed to be suitable for use
under various types of Qualified Plans. Because of the minimum purchase payment
requirements, these Contracts may not be appropriate for some periodic payment
retirement plans. Taxation of participants in each Qualified Plan varies with
the type of plan and terms and conditions of each specific plan. Owners,
Annuitants and Beneficiaries are cautioned that benefits under a Qualified Plan
may be subject to the terms and conditions of the plan regardless of the terms
and conditions of the Contracts issued pursuant to the plan. Some retirement
plans are subject to distribution and other requirements that are not
incorporated into the Company's administrative procedures. Owners, participants
and Beneficiaries are responsible for determining that contributions,
distributions and other transactions with respect to the Contracts comply with
applicable law. Following are general descriptions of the types of Qualified
Plans with which the Contracts may be used. Such descriptions are not exhaustive
and are for general informational purposes only. The tax rules regarding
Qualified Plans are very complex and will have differing applications, depending
on individual facts and circumstances. Each purchaser should obtain competent
tax advice prior to purchasing a Contract issued under a Qualified Plan.
On July 6, 1983, the Supreme Court decided in Arizona Governing Committee
v. Norris that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The Contracts sold by the Company in connection with
Qualified Plans will utilize annuity tables which do not differentiate on the
basis of sex. Such annuity tables will also be available for use in connection
with certain non-qualified deferred compensation plans.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available and described in
this Statement of Additional Information. Generally, Contracts issued pursuant
to Qualified Plans are not transferable except upon surrender or annuitization.
Various penalty and excise taxes may apply to contributions or distributions
made in violation of applicable limitations. Furthermore, certain withdrawal
penalties and restrictions may apply to surrenders from Qualified Contracts.
(See "Tax Treatment of Withdrawals -- Qualified Contracts.")
a. H.R. 10 Plans
Section 401 of the Code permits self-employed individuals to establish
Qualified Plans for themselves and their employees, commonly referred to as
"H.R. 10" or "Keogh" plans. Contributions made to the Plan for the benefit of
the employees will not be included in the gross income of the employees until
distributed from the Plan. The tax consequences to participants may vary,
depending upon the particular Plan design. However, the Code places limitations
and restrictions on all Plans, including on such items as: amounts of allowable
contributions; form, manner and timing of distributions; transferability of
benefits; vesting and nonforfeitability of interests; nondiscrimination in
eligibility and participation; and the tax treatment of distributions,
withdrawals and surrenders. (See "Tax Treatment of Withdrawals -- Qualified
Contracts.")
Purchasers of Contracts for use with an H.R. 10 Plan should obtain competent tax
advice as to the tax treatment and suitability of such an investment.
b. Tax-Sheltered Annuities
Section 403(b) of the Code permits the purchase of "tax-sheltered
annuities" by public schools and certain charitable, educational and scientific
organizations described in Section 501(c)(3) of the Code. These qualifying
employers may make contributions to the Contracts for the benefit of their
employees. Such contributions are not includible in the gross income of the
employee until the employee receives distributions from the Contract. The amount
of contributions to the tax-sheltered annuity is limited to certain maximums
imposed by the Code. Furthermore, the Code sets forth additional restrictions
governing such items as transferability, distributions, nondiscrimination and
withdrawals. (See "Tax Treatment of Withdrawals -- Qualified Contracts" and
"Tax-Sheltered Annuities -- Withdrawal Limitations.") Employee loans are not
allowed under these Contracts. Any employee should obtain competent tax advice
as to the tax treatment and suitability of such an investment.
c. Individual Retirement Annuities
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Under applicable limitations, certain amounts may be contributed to an
IRA which may be deductible from the individual's gross income. These IRAs are
subject to limitations on eligibility, contributions, transferability and
distributions. (See "Tax Treatment of Withdrawals -- Qualified Contracts.")
Under certain conditions, distributions from other IRAs and other Qualified
Plans may be rolled over or transferred on a tax-deferred basis into an IRA.
Sales of Contracts for use with IRAs are subject to special requirements imposed
by the Code, including the requirement that certain informational disclosure be
given to persons desiring to establish an IRA. Purchasers of Contracts to be
qualified as Individual Retirement Annuities should obtain competent tax advice
as to the tax treatment and suitability of such an investment.
d. Corporate Pension and Profit-Sharing Plans
Sections 401(a) and 401(k) of the Code permit corporate employers to
establish various types of retirement plans for employees. These retirement
plans may permit the purchase of the Contracts to provide benefits under the
Plan. Contributions to the Plan for the benefit of employees will not be
includible in the gross income of the employee until distributed from the Plan.
The tax consequences to participants may vary, depending upon the particular
Plan design. However, the Code places limitations and restrictions on all Plans,
including on such items as: amount of allowable contributions; form, manner and
timing of distributions; transferability of benefits; vesting and
nonforfeitability of interests; nondiscrimination in eligibility and
participation; and the tax treatment of distributions, withdrawals and
surrenders. Participant loans are not allowed under the Contracts purchased in
connection with these Plans. (See "Tax Treatment of Withdrawals -- Qualified
Contracts.") Purchasers of Contracts for use with Corporate Pension or
Profit-Sharing Plans should obtain competent tax advice as to the tax treatment
and suitability of such an investment.
TAX TREATMENT OF WITHDRAWALS -- QUALIFIED CONTRACTS
In the case of a withdrawal under a Qualified Contract, a ratable portion
of the amount received is taxable, generally based on the ratio of the
individual's cost basis to the individual's total accrued benefit under the
retirement plan. Special tax rules may be available for certain distributions
from a Qualified Contract. Section 72(t) of the Code imposes a 10% penalty tax
on the taxable portion of any distribution from qualified retirement plans,
including Contracts issued and qualified under Code Sections 401 (H.R. 10 and
Corporate Pension and Profit-Sharing Plans), 403(b) (Tax-Sheltered Annuities)
and 408(b) (Individual Retirement Annuities). To the extent amounts are not
includible in gross income because they have been properly rolled over to an IRA
or to another eligible Qualified Plan, no tax penalty will be imposed. The tax
penalty will not apply to the following distributions: (a) if distribution is
made on or after the date on which the Owner or Annuitant (as applicable)
reaches age 59 1/2; (b) distributions following the death or disability of the
Owner or Annuitant (as applicable) (for this purpose disability is as defined in
Section 72(m)(7) of the Code); (c) after separation from service, distributions
that are part of substantially equal periodic payments made not less frequently
than annually for the life (or life expectancy) of the Owner or Annuitant (as
applicable) or the joint lives (or joint life expectancies) of such Owner or
Annuitant (as applicable) and his designated beneficiary; (d) distributions to
an Owner or Annuitant (as applicable) who has separated from service after he
has attained age 55; (e) distributions made to the Owner or Annuitant (as
applicable) to the extent such distributions do not exceed the amount allowable
as a deduction under Code Section 213 to the Owner or Annuitant (as applicable)
for amounts paid during the taxable year for medical care; (f) distributions
made to an alternate payee pursuant to a qualified domestic relations order; (g)
distributions from an Individual Retirement Annuity for the purchase of medical
insurance (as described in Section 213(d)(1)(D) of the Code) for the Owner or
Annuitant (as applicable) and his or her spouse and dependents if the Owner or
Annuitant (as applicable) has received unemployment compensation for at least 12
weeks (this exception will no longer apply after the Owner or Annuitant (as
applicable) has been re-employed for at least 60 days); (h) distributions from
an Individual Retirement Annuity made to the Owner or Annuitant (as applicable)
to the extent such distributions do not exceed the qualified higher education
expenses (as defined in Section 72(t)(7) of the Code) of the Owner or Annuitant
(as applicable) for the taxable year; and (i) distributions from an Individual
Retirement Annuity made to the Owner or Annuitant (as applicable) which are
qualified first-time home buyer distributions (as defined in Section 72(t)(8) of
the Code). The exceptions stated in items (d) and (f) above do not apply in the
case of an Individual Retirement Annuity. The exception stated in item (c)
applies to an Individual Retirement Annuity without the requirement that there
be a separation from service.
Generally, distributions from a Qualified Plan must commence no later than
April 1 of the calendar year following the later of: (a) the year in which the
employee attains age 70 1/2, or (b) the calendar year in which the employee
retires. The date set forth in (b) does not apply to an Individual Retirement
Annuity. Required distributions must be over a period not exceeding the life
expectancy of the individual or the joint lives or life expectancies of the
individual and his or her designated beneficiary. If the required minimum
distributions are not made, a 50% penalty tax is imposed as to the amount not
distributed.
TAX-SHELTERED ANNUITIES -- WITHDRAWAL LIMITATIONS
The Code limits the withdrawal of amounts attributable to contributions
made pursuant to a salary reduction agreement (as defined in Section 403(b)(11)
of the Code) to circumstances only when the Owner: (1) attains age 59 1/2; (2)
separates from service; (3) dies; (4) becomes disabled (within the meaning of
Section 72(m)(7) of the Code); or (5) in the case of hardship. However,
withdrawals for hardship are restricted to the portion of the Owner's Contract
value which represents contributions by the Owner and does not include any
investment results. The limitations on withdrawals became effective on January
1, 1989 and apply only to salary reduction contributions made after December 31,
1988, and to income attributable to such contributions and to income
attributable to amounts held as of December 31, 1988. The limitations on
withdrawals do not affect rollovers and transfers between certain Qualified
Plans. Owners should consult their own tax counsel or other tax adviser
regarding any distributions.
SECTION 457 -- DEFERRED COMPENSATION PLANS
Under Section 457 of the Code, governmental and certain other tax-exempt
employers may establish deferred compensation plans for the benefit of their
employees which may invest in annuity contracts. The Code, as in the case of
qualified plans, establishes limitations and restrictions on eligibility,
contributions and distributions. Under these Plans, contributions made for the
benefit of the employees will not be includible in the employees' gross income
until distributed from the Plan. Under a Section 457 Plan, the plan assets
remain solely the property of the employer, subject only to the claims of the
employer's general creditors, until such time as made available to the
participant or beneficiary. However, for Plans established after August 20,
1996, it is required that plan assets must be held in trust for the benefit of
plan participants and are not subject to the claims of the general creditors of
the employer. Furthermore, this requirement must be met for all Plans no later
than January 1, 1999. IN CERTAIN STATES, THE CONTRACTS MAY NOT BE AVAILABLE FOR
USE IN CONNECTION WITH SECTION 457 PLANS.
ANNUITY PROVISIONS
Currently, the Company makes available payment plans on a fixed basis only.
(See the Prospectus for a description of the Annuity Options.)
FINANCIAL STATEMENTS
The financial statements of the Company included herein should be
considered only as bearing upon the ability of the Company to meet its
obligations under the Contracts.
UNITED LIFE & ANNUITY
SEPARATE ACCOUNT ONE
Financial Statements
December 31, 1997 and 1996
Independent Auditors' Report
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors of United
Life & Annuity Insurance Company and
Contractowners of United Life & Annuity Separate Account One:
We have audited the accompanying statements of assets and liabilities of the
sub-accounts of United Life & Annuity Separate Account One as of December 31,
1997 and the related statements of operations for the year then ended, and the
statement of changes in net assets for each of the two years in the period then
ended. These financial statements are the responsibility of the Separate
Account's management. Our responsibility is to express an opinion of these
financial statements based on our audit.
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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets and liabilities of the sub-accounts of United
Life & Annuity Separate Account One as of December 31, 1997, 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.
/s/ KPMG Peat Marwick LLP
- -------------------------
KPMG Peat Marwick LLP
February 20, 1998
<PAGE>
<TABLE>
<CAPTION>
UNITED LIFE & ANNUITY SEPARATE ACCOUNT ONE
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
Alger Dreyfus Federated
------------ -------------------------- ----------------------------------------
Growth and High Income U.S. Govt
Growth Stock Index Income Bond Bond Utility
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Assets
- ----------------------------------------------
Investments in mutual funds at market value:
The Alger American Fund (Alger):
Alger American Growth Portfolio -
170,845.250 shares (cost $6,350,698). . $ 7,305,343
The Dreyfus Variable Investment Fund
(Dreyfus):
Stock Index Portfolio - 309,125.817
shares (cost $7,068,236) $ 7,959,989
Growth and Income Fund -
227,931.673 shares (cost $4,761,408) $ 4,736,420
Federated Investors (Federated):
High Income Bond Fund II -
338,261.159 shares (cost $3,490,803) $ 3,703,960
Fund for U.S. Government Securities II -
163,004.460 shares (cost $1,662,233) $ 1,718,067
Utility Fund II - 120,012.698 shares
(cost $1,437,054) $ 1,714,981
------------ ------------ ------------ ------------ ------------ ------------
Total assets . . . . . . . . . . . . $ 7,305,343 $ 7,959,989 $ 4,736,420 $ 3,703,960 $ 1,718,067 $ 1,714,981
============ ============ ============ ============ ============ ============
Liabilities. . . . . . . . . . . . . . . . . . - - - - - -
------------ ------------ ------------ ------------ ------------ ------------
Net Assets . . . . . . . . . . . . . . . . . . $ 7,305,343 $ 7,959,989 $ 4,736,420 $ 3,703,960 $ 1,718,067 $ 1,714,981
============ ============ ============ ============ ============ ============
Units Outstanding. . . . . . . . . . . . . . . 527,092.145 497,428.734 333,083.620 289,680.547 154,876.520 121,807.250
============ ============ ============ ============ ============ ============
Average Unit Value . . . . . . . . . . . . . . 13.86 16.00 14.22 12.79 11.09 14.08
============ ============ ============ ============ ============ ============
SpectraDirect Unit Value . . . . . . . . . . . 13.86 16.00 14.22 12.79 11.09 14.07
============ ============ ============ ============ ============ ============
SpectraSelect Unit Value . . . . . . . . . . . 13.88 16.02 14.23 12.81 11.11 14.10
============ ============ ============ ============ ============ ============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UNITED LIFE & ANNUITY SEPARATE ACCOUNT ONE
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
(CONTINED)
MFS Scudder Van Eck Total
-------------------------- -------------------------- ------------
Emerging Total Money Intl. Worldwide All
Growth Return Market Equity Hard Assets Funds
------------ ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Assets
- -----------------------------------------------
Investments in mutual funds at market value:
MFS Variable Insurance Trust (MFS):
Emerging Growth Series -
558,276.153 shares (cost $7,984,416) . . $ 9,010,577
Total Return Series -420,893.986 shares
(cost $6,301,811) $ 6,999,467
Scudder Variable Life Investment Fund
(Scudder):
Money Market Portfolio - 4,954,866 shares $ 4,954,865
(cost $4,954,866)
International Portfolio - 248,565.297 $ 3,507,256
shares (cost $3,437,617)
Van Eck Worldwide Insurance Trust (Van Eck):
Van Eck Worldwide Hard Assets -
18,457.295 shares (cost $302,566) $ 290,156
------------ ------------ ------------ ------------ ------------
Total assets. . . . . . . . . . . . . $ 9,010,577 $ 6,999,467 $ 4,954,865 $ 3,507,256 $ 290,156 $51,901,081
============ ============ ============ ============ ============ ===========
Liabilities . . . . . . . . . . . . . . . . . . - - - - - -
------------ ------------ ------------ ------------ ------------ -----------
Net Assets. . . . . . . . . . . . . . . . . . . $ 9,010,577 $ 6,999,467 $ 4,954,865 $ 3,507,256 $ 290,156 $51,901,081
============ ============ ============ ============ ============ ===========
Units Outstanding . . . . . . . . . . . . . . . 640,543.755 509,068.630 461,537.438 286,406.329 25,487.017
============ ============ ============ ============ ============
Average Unit Value. . . . . . . . . . . . . . . 14.07 13.75 10.74 12.25 11.38
============ ============ ============ ============ ============
SpectraDirect Unit Value. . . . . . . . . . . . 14.06 13.75 10.73 12.24 11.38
============ ============ ============ ============ ============
SpectraSelect Unit Value. . . . . . . . . . . . 14.08 13.77 10.75 12.26 11.40
============ ============ ============ ============ ============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UNITED LIFE & ANNUITY SEPARATE ACCOUNT ONE
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
Alger Dreyfus Federated
--------- -------------------------- ----------------------------------
Growth and High Income U.S. Govt
Growth Stock Index Income Bond Bond Utility
--------- ------------ ------------ ------------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Income:
Dividends. . . . . . . . . . . . . . $ 15,061 $ 106,373 $ 342,482 $ 163,894 $ 24,581 $ 28,307
Expenses:
Mortality and expense risks charges
and administrative fees. . . . . . 85,535 78,761 50,259 47,698 14,880 18,776
--------- ------------ ------------ ------------ ---------- --------
NET INVESTMENT INCOME (LOSS). . . . . . . (70,474) 27,612 292,223 116,196 9,701 9,531
--------- ------------ ------------ ------------ ---------- --------
REALIZED GAIN (LOSS) ON
INVESTMENTS:
Proceeds from sales . . . . . . . . . . 805,133 653,404 478,760 874,161 191,369 261,642
Cost of securities. . . . . . . . . . . 660,333 504,482 473,178 832,974 184,107 226,364
--------- ------------ ------------ ------------ ---------- --------
Net Gain (Loss). . . . . . . . . . . 144,800 148,922 5,582 41,187 7,262 35,278
Capital Gain Distributions Received . . 27,276 177,665 8,347 1,722 - 6,635
--------- ------------ ------------ ------------ ---------- --------
NET REALIZED GAIN (LOSS). . . . . . . . . 172,076 326,587 13,929 42,909 7,262 41,913
--------- ------------ ------------ ------------ ---------- --------
UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Beginning period . . . . . . . . . . 116,495 137,860 (105,264) 56,010 1,446 32,711
--------- ------------ ------------ ------------ ---------- --------
End of period. . . . . . . . . . . . 954,645 891,753 (24,988) 213,157 55,834 277,927
--------- ------------ ------------ ------------ ---------- --------
NET UNREALIZED GAIN (LOSS). . . . . . . . 838,150 753,893 80,276 157,147 54,388 245,216
--------- ------------ ------------ ------------ ---------- --------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS . . . . . . . . . . . . . $939,752 $ 1,108,092 $ 386,428 $ 316,252 $ 71,351 $296,660
========= ============ ============ ============ ========== ========
MFS Scudder Van Eck Total
---------------------- ---------------------- ------------- -----------
Emerging Total Money Intl. Worldwide All
Growth Return Market Equity Hard Assets Funds
----------- --------- ----------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Income:
Dividends. . . . . . . . . . . . . . $ - $ - $ 203,041 $ 38,676 $ 4,037 $ 926,452
Expenses:
Mortality and expense risks charges
and administrative fees. . . . . . 101,145 67,407 65,198 42,269 3,316 575,244
----------- --------- ----------- --------- ------------- -----------
NET INVESTMENT INCOME (LOSS). . . . . . . (101,145) (67,407) 137,843 (3,593) 721 351,208
----------- --------- ----------- --------- ------------- -----------
REALIZED GAIN (LOSS) ON
INVESTMENTS:
Proceeds from sales . . . . . . . . . . 978,925 563,587 16,576,570 684,667 54,805 22,123,023
Cost of securities. . . . . . . . . . . 854,530 472,036 16,576,570 605,295 51,213 21,441,082
----------- --------- ----------- --------- ------------- -----------
Net Gain (Loss). . . . . . . . . . . 124,395 91,551 - 79,372 3,592 681,941
Capital Gain Distributions Received . . - - - - - 221,645
----------- --------- ----------- --------- ------------- -----------
NET REALIZED GAIN (LOSS). . . . . . . . . 124,395 91,551 - 79,372 3,592 903,586
----------- --------- ----------- --------- ------------- -----------
UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Beginning period . . . . . . . . . . 2,679 62,772 - 62,827 3,208 370,744
----------- --------- ----------- --------- ------------- -----------
End of period. . . . . . . . . . . . 1,026,161 697,656 - 69,639 (12,410) 4,149,374
----------- --------- ----------- --------- ------------- -----------
NET UNREALIZED GAIN (LOSS). . . . . . . . 1,023,482 634,884 - 6,812 (15,618) 3,778,630
----------- --------- ----------- --------- ------------- -----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS . . . . . . . . . . . . . $1,046,732 $659,028 $ 137,843 $ 82,591 $ (11,305) $ 5,033,424
=========== ========= =========== ========= ============= ===========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UNITED LIFE & ANNUITY SEPARATE ACCOUNT ONE
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
Alger Dreyfus
------------------------ --------------------------------------------------
Growth and
Growth Stock Index Income
------------------------ ------------------------ ------------------------
1997 1996 1997 1996 1997 1996
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
Operations
Net investment income (loss). . . . . $ (70,474) $ (21,046) $ 27,612 $ 19,796 $ 292,223 $ 145,799
Net realized gain (loss). . . . . . . 172,076 26,128 326,587 37,364 13,929 22,966
Net unrealized gain (loss) on
investments . . . . . . . . . . . . 838,150 116,028 753,893 138,221 80,276 (105,264)
----------- ----------- ----------- ----------- ----------- -----------
Net increase in net assets resulting
from operations . . . . . . . . . . . 939,752 121,110 1,108,092 195,381 386,428 63,501
----------- ----------- ----------- ----------- ----------- -----------
CONTRACT TRANSACTIONS:
Transfer of annuity fund deposits . . 633,101 319,655 766,485 211,527 518,285 194,843
Net transfers between sub-accounts. . 3,020,107 2,554,609 4,098,748 1,832,191 2,521,967 1,347,401
Death benefits. . . . . . . . . . . . (9,359) (8,772) (15,141) - (42,170) (9,276)
Surrenders. . . . . . . . . . . . . . (250,808) (79,607) (225,015) (53,317) (148,497) (96,062)
----------- ----------- ----------- ----------- ----------- -----------
Net increase in net assets resulting
from contract transactions. . . . . . 3,393,041 2,785,885 4,625,077 1,990,401 2,849,585 1,436,906
----------- ----------- ----------- ----------- ----------- -----------
TOTAL INCREASE IN NET ASSETS. . . . . . . 4,332,793 2,906,995 5,733,169 2,185,782 3,236,013 1,500,407
NET ASSETS:
Beginning period. . . . . . . . . . . 2,972,550 65,555 2,226,820 41,038 1,500,407 -
----------- ----------- ----------- ----------- ----------- -----------
End of period . . . . . . . . . . . . $7,305,343 $2,972,550 $7,959,989 $2,226,820 $4,736,420 $1,500,407
=========== =========== =========== =========== =========== ===========
Federated
------------------------------------------------------------------------
High Income U.S. Govt
Bond Bond Utility
------------------------ ---------------------- ----------------------
1997 1996 1997 1996 1997 1996
----------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
Operations
Net investment income (loss). . . . . $ 116,196 $ 66,525 $ 9,701 $ 4,368 $ 9,531 $ 5,479
Net realized gain (loss). . . . . . . 42,909 12,854 7,262 (295) 41,913 650
Net unrealized gain (loss) on
investments . . . . . . . . . . . . 157,147 56,007 54,388 1,446 245,216 32,711
----------- ----------- ----------- --------- ----------- ---------
Net increase in net assets resulting
from operations . . . . . . . . . . . 316,252 135,386 71,351 5,519 296,660 38,840
----------- ----------- ----------- --------- ----------- ---------
CONTRACT TRANSACTIONS:
Transfer of annuity fund deposits . . 190,348 167,478 304,693 47,816 216,933 91,429
Net transfers between sub-accounts. . 1,094,026 1,987,073 1,107,179 234,280 711,466 398,265
Death benefits. . . . . . . . . . . . - (24,893) - - (4,755) (8,112)
Surrenders. . . . . . . . . . . . . . (111,293) (55,048) (33,436) (19,335) (18,500) (7,245)
----------- ----------- ----------- --------- ----------- ---------
Net increase in net assets resulting
from contract transactions. . . . . . 1,173,081 2,074,610 1,378,436 262,761 905,144 474,337
----------- ----------- ----------- --------- ----------- ---------
TOTAL INCREASE IN NET ASSETS. . . . . . . 1,489,333 2,209,996 1,449,787 268,280 1,201,804 513,177
NET ASSETS:
Beginning period. . . . . . . . . . . 2,214,627 4,631 268,280 - 513,177 -
----------- ----------- ----------- --------- ----------- ---------
End of period . . . . . . . . . . . . $3,703,960 $2,214,627 $1,718,067 $268,280 $1,714,981 $513,177
=========== =========== =========== ========= =========== =========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UNITED LIFE & ANNUITY SEPARATE ACCOUNT ONE
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(CONTINUED)
MFS Scudder
-------------------------------------------------- ----------------------------
Emerging Growth Total Return Money Market
------------------------ ------------------------ ----------------------------
1997 1996 1997 1996 1997 1996
----------- ----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
Operations
Net investment income (loss). . . . $ (101,145) $ 2,632 $ (67,407) $ 18,579 $ 137,843 $ 66,483
Net realized gain (loss). . . . . . 124,395 25,761 91,551 24,794 - -
Net unrealized gain (loss) on
investments. . . . . . . . . . . . 1,023,482 2,687 634,884 63,485 - -
----------- ----------- ----------- ----------- ------------- -------------
Net increase (decrease) in net
assets resulting from operations . . . 1,046,732 31,080 659,028 106,858 137,843 66,483
----------- ----------- ----------- ----------- ------------- -------------
CONTRACT TRANSACTIONS:
Transfer of annuity fund deposits . . 841,749 272,751 820,813 138,317 27,008,328 17,365,947
Net transfers between sub-accounts. . 4,544,948 2,608,016 4,038,530 1,484,454 (24,402,932) (15,021,067)
Death benefits. . . . . . . . . . . . (31,649) (9,390) (11,022) - - (15,651)
Surrenders. . . . . . . . . . . . . . (240,566) (54,115) (195,836) (65,716) (157,922) (100,495)
----------- ----------- ----------- ----------- ------------- -------------
Net increase in net assets resulting
from contract transactions. . . . . . 5,114,482 2,817,262 4,652,485 1,557,055 2,447,474 2,228,734
----------- ----------- ----------- ----------- ------------- -------------
TOTAL INCREASE IN NET ASSETS . . . . . . . 6,161,214 2,848,342 5,311,513 1,663,913 2,585,317 2,295,217
NET ASSETS:
Beginning period. . . . . . . . . . . 2,849,363 1,021 1,687,954 24,041 2,369,549 74,332
----------- ----------- ----------- ----------- ------------- -------------
End of period . . . . . . . . . . . . $9,010,577 $2,849,363 $6,999,467 $1,687,954 $ 4,954,866 $ 2,369,549
=========== =========== =========== =========== ============= =============
Scudder Van Eck Total
------------------------ -------------------
International Worldwide All
Equity Hard Assets Funds
------------------------ ------------------- --------------------------
1997 1996 1997 1996 1997 1996
----------- ----------- --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
Operations
Net investment income (loss). . . . $ (3,593) $ (6,147) $ 721 $ (370) $ 351,208 $ 302,098
Net realized gain (loss). . . . . . 79,372 6,818 3,592 200 903,586 157,240
Net unrealized gain (loss) on
investments. . . . . . . . . . . . 6,812 62,827 (15,618) 3,208 3,778,630 371,356
----------- ----------- --------- -------- ------------ ------------
Net increase (decrease) in net
assets resulting from operations . . . 82,591 63,498 (11,305) 3,038 5,033,424 830,694
----------- ----------- --------- -------- ------------ ------------
CONTRACT TRANSACTIONS:
Transfer of annuity fund deposits . . 309,848 156,616 31,683 22,158 31,642,266 18,988,537
Net transfers between sub-accounts. . 1,847,991 1,172,920 191,362 59,084 (1,226,608) (1,342,774)
Death benefits. . . . . . . . . . . . (21,789) (8,422) - - (135,885) (84,516)
Surrenders. . . . . . . . . . . . . . (77,246) (18,814) (5,428) (435) (1,464,547) (550,189)
----------- ----------- --------- -------- ------------ ------------
Net increase in net assets resulting
from contract transactions. . . . . . 2,058,804 1,302,300 217,617 80,807 28,815,226 17,011,058
----------- ----------- --------- -------- ------------ ------------
TOTAL INCREASE IN NET ASSETS . . . . . . . 2,141,395 1,365,798 206,312 83,845 33,848,650 17,841,752
NET ASSETS:
Beginning period. . . . . . . . . . . 1,365,861 63 83,845 - 18,052,433 210,681
----------- ----------- --------- -------- ------------ ------------
End of period . . . . . . . . . . . . $3,507,256 $1,365,861 $290,157 $83,845 $51,901,083 $18,052,433
=========== =========== ========= ======== ============ ============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
UNITED LIFE & ANNUITY SEPARATE ACCOUNT ONE
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS. United Life & Annuity Separate Account One
(the "Separate Account") is a separate investment account of United Life &
Annuity Insurance Company ("ULA"). The Separate account is registered with the
Securities and Exchange Commission under the Investment Company Act of 1940 as a
unit investment trust. ULA administers its SpectraSelect and SpectraDirect
products through the Separate Account. SpectraSelect is a seven-year product;
whereas, SpectraDirect is a ten-year product. ULA is a stock life insurance
company domiciled in Louisiana and organized in 1955. ULA is currently
authorized to conduct business in 47 states, the District of Columbia and Puerto
Rico. ULA is a wholly-owned subsidiary of Pacific Life and Accident Insurance
Company, a wholly-owned subsidiary of PennCorp Financial Group, Inc., an
insurance holding company.
As of December 31, 1997 and 1996, the Separate Account consisted of eleven
sub-accounts. Each of the eleven sub-accounts invests only in a single
corresponding portfolio of either The Alger American Fund (Fred Alger
Management, Advisor), the Dreyfus Variable Investment Fund and the Dreyfus Stock
Index Fund (The Dreyfus Corporation, Advisor), Federated Insurance Series
(Federated Advisors, Advisor), MFS Variable Insurance Trust (MFS, Advisor),
Scudder Variable Life Investment Fund (Scudder, Stevens & Clark, Inc., Advisor)
or the Van Eck Worldwide Insurance Trust (Van Eck Associates Corporation,
Advisor).
2. INVESTMENTS. Investments of the Separate Account are valued daily at
market value using net asset values provided by the respective sub-account
advisors. Transactions are accounted for on the trade date and dividend income
is recognized on the ex-dividend date. Realized gains and losses are determined
on a first-in first-out basis. Generally, investment income and realized
capital gains are reinvested.
3. CONTRACT CHARGES. A mortality and expense risk charge is deducted from
the Separate Account, on a daily basis equal, on an annual basis, to 1.52% for
SpectraDirect and to 1.45% for SpectraSelect, of the average daily net asset
value of each sub-account of the Separate Account. This charge compensates ULA
for assuming the mortality and expense risks under the contracts and
certificates. In addition, an administrative charge is deducted from the
Separate Account for both SpectraDirect and SpectraSelect contracts which is
equal, on an annual basis, to .15% of the average daily net asset value of each
sub-account of the Separate Account. This charge compensates ULA for costs
associated with the administration of the contracts, certificates and the
Separate Account. Under certain circumstances, a transfer fee may be assessed
when an owner or certificate holder transfers contract values or certificate
holder's account values between sub-accounts or to or from ULA's fixed accounts.
A contingent deferred sales charge is assessed against full or partial
surrenders in accordance with contract terms. There is no contingent deferred
sales charge if all premiums were received at least ten years for SpectraDirect
and seven years for SpectraSelect prior to the date of the full or partial
surrenders. An annual contract or certificate maintenance fee of $30 is charged
on SpectraDirect contracts based upon a minimum contract value. Some states and
other jurisdictions assess premium taxes at the time purchase payments are made;
others assess premium taxes at the time annuity payments begin. Premium taxes
are deducted when they are due.
4. INCOME TAXES. The operations of the Separate Account are included in the
federal income tax return of ULA, which is taxed as a Life Insurance Company
under the provisions of the Internal Revenue Code. ULA does not expect to incur
any federal income tax liability on earnings, or realized capital gains
attributable to the Separate Account, therefore, no charges for federal income
taxes are currently deducted from the Separate Account. If ULA incurs income
taxes attributable to the Separate Account, or determines that such taxes will
be incurred, it may make a charge for such taxes against the Separate Account.
<PAGE>
UNITED LIFE & ANNUITY SEPARATE ACCOUNT ONE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. CHANGES IN THE UNITS OUTSTANDING.
<TABLE>
<CAPTION>
Alger Dreyfus Federated
------------------ -------------------------------------- ------------------
U.S. Government
Growth Stock Index Growth and Income High Income Bond
------------------ ------------------ ------------------ ------------------
1997 1996 1997 1996 1997 1996 1997 1996
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Units outstanding beginning of the period 265,242 6,521 181,969 4,041 120,598 - 193,943 456
Units purchased . . . . . . . . . . . . . 49,810 29,243 52,851 18,333 38,724 15,903 15,721 15,536
Units transferred between sub-accounts. . 232,123 237,682 279,089 164,152 187,968 113,297 89,252 185,228
Units surrendered . . . . . . . . . . . . (20,083) (8,204) (16,480) (4,557) (14,206) (8,602) (9,235) (7,277)
-------- -------- -------- -------- -------- -------- -------- --------
Units outstanding end of the period . . . 527,092 265,242 497,429 181,969 333,084 120,598 289,681 193,943
======== ======== ======== ======== ======== ======== ======== ========
Federated
------------------------------------
U.S. Government
Bond Utility
----------------- -----------------
1997 1996 1997 1996
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Units outstanding beginning of the period 25,831 - 45,403 -
Units purchased . . . . . . . . . . . . . 28,420 4,670 18,348 8,713
Units transferred between sub-accounts. . 103,695 23,085 59,915 38,142
Units surrendered . . . . . . . . . . . . (3,069) (1,924) (1,859) (1,452)
-------- ------- -------- -------
Units outstanding end of the period . . . 154,877 25,831 121,807 45,403
======== ======= ======== =======
</TABLE>
<PAGE>
UNITED LIFE & ANNUITY SEPARATE ACCOUNT ONE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. CHANGES IN THE UNITS OUTSTANDING. (CONTINUED)
<PAGE>
<TABLE>
<CAPTION>
MFS Scudder
-------------------------------------- --------------------------------------------
International
Emerging Growth Total Return Money Market Equity
------------------ ------------------ ------------------------ ------------------
1997 1996 1997 1996 1997 1996 1997 1996
-------- -------- -------- -------- ----------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Units outstanding beginning of the period 242,852 100 146,453 2,346 228,486 7,407 119,631 6
Units purchased . . . . . . . . . . . . . 66,048 23,409 63,721 12,487 2,555,841 1,703,017 25,371 14,346
nits transferred between sub-accounts . . 352,324 224,700 315,014 137,503 (2,307,894) (1,471,540) 149,475 107,758
Units surrendered . . . . . . . . . . . . (20,680) (5,357) (16,119) (5,883) (14,896) (10,398) (8,071) (2,479)
-------- -------- -------- -------- ----------- ----------- -------- --------
Units outstanding end of the period . . . 640,544 242,852 509,069 146,453 461,537 228,486 286,406 119,631
======== ======== ======== ======== =========== =========== ======== ========
Van Eck
---------------
Worldwide
Hard Assets
1997 1996
---------------
<S> <C> <C>
Units outstanding beginning of the period 7,122 -
Units purchased . . . . . . . . . . . . . 2,678 1,937
nits transferred between sub-accounts . . 16,142 5,223
Units surrendered . . . . . . . . . . . . (455) (38)
------- ------
Units outstanding end of the period . . . 25,487 7,122
======= ======
</TABLE>
<PAGE>
UNITED LIFE & ANNUITY SEPARATE ACCOUNT ONE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. UNIT VALUES:
A summary of unit values and units outstanding for variable annuity
contracts and the expense ratios, including expenses of the underlying funds
for each of the two years in the period ended December 31, 1997 follows.
<TABLE>
<CAPTION>
Annualized
Ratio of
Expenses
Average Net Assets to Average
Units Unit Value (000's) Net Assets
------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Alger American Growth Portfolio
- ------------------------------------------------
December 31
1997 . . . . . . . . . . . . . . . . . . . 527,092 $ 13.86 $ 7,305,343 1.66%
1996 . . . . . . . . . . . . . . . . . . . 265,242 11.21 2,972,550 1.43%
Dreyfus Stock Index Portfolio
- ------------------------------------------------
December 31
1997 . . . . . . . . . . . . . . . . . . . 497,429 16.00 7,959,989 1.55%
1996 . . . . . . . . . . . . . . . . . . . 181,969 12.24 2,226,820 1.43%
Dreyfus Growth and Income Fund
- ------------------------------------------------
December 31
1997 . . . . . . . . . . . . . . . . . . . 333,084 14.22 4,736,420 1.61%
1996 . . . . . . . . . . . . . . . . . . . 120,598 12.44 1,500,407 1.44%
Federated High Income Bond Fund II
- ------------------------------------------------
December 31
1997 . . . . . . . . . . . . . . . . . . . 289,681 12.79 3,703,960 1.61%
1996 . . . . . . . . . . . . . . . . . . . 193,943 11.42 2,214,627 1.37%
Federated Fund for U.S. Government Securities II
- ------------------------------------------------
December 31
1997 . . . . . . . . . . . . . . . . . . . 154,877 11.09 1,718,067 1.50%
1996 . . . . . . . . . . . . . . . . . . . 25,831 10.39 268,280 1.24%
Federated Utility Fund II
- ------------------------------------------------
December 31
1997 . . . . . . . . . . . . . . . . . . . 121,807 14.08 1,714,981 1.69%
1996 . . . . . . . . . . . . . . . . . . . 45,403 11.30 513,177 1.29%
MFS Emerging Growth Series
- ------------------------------------------------
December 31
1997 . . . . . . . . . . . . . . . . . . . 640,544 14.07 9,010,577 1.71%
1996 . . . . . . . . . . . . . . . . . . . 242,852 11.73 2,849,363 1.32%
MFS Total Return Series
- ------------------------------------------------
December 31
1997 . . . . . . . . . . . . . . . . . . . 509,069 13.75 6,999,467 1.55%
1996 . . . . . . . . . . . . . . . . . . . 146,453 11.53 1,687,954 1.52%
Scudder Money Market Portfolio
- ------------------------------------------------
December 31
1997 . . . . . . . . . . . . . . . . . . . 461,537 10.74 4,954,866 1.78%
1996 . . . . . . . . . . . . . . . . . . . 228,486 10.37 2,369,549 2.75%
Scudder International Portfolio
- ------------------------------------------------
December 31
1997 . . . . . . . . . . . . . . . . . . . 286,406 12.25 3,507,256 1.73%
1996 . . . . . . . . . . . . . . . . . . . 119,631 11.42 1,365,861 1.05%
<PAGE>
Van Eck Worldwide Hard Assets Fund
- ------------------------------------------------
December 31
1997 . . . . . . . . . . . . . . . . . . . 25,487 11.38 290,157 1.77%
1996 . . . . . . . . . . . . . . . . . . . 7,122 11.77 83,845 .92%
</TABLE>
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Directors and Stockholder
United Life & Annuity Insurance Company:
We have audited the accompanying consolidated balance sheets of United Life &
Annuity Insurance Company and subsidiary (the Company) as of December 31, 1997
and 1996, and the related consolidated statements of income, cash flows, and
stockholder's equity for the year ended December 31, 1997 and for the periods
from July 24, 1996 to December 31, 1996 (Successor period) and January 1, 1996
to July 23, 1996 (Predecessor period). Our audit also included the related
financial statement shcedules III, IV and V. These consolidated financial
statements and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 aforementioned consolidated financial statements present
fairly, in all material respects, the financial position of United Life &
Annuity Insurance Company and subsidiary as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for the year ended December
31, 1997 and the periods from July 24, 1996 to December 31, 1996 (Successor
period) and January 1, 1996 to July 23, 1996 (Predecessor period), in conformity
with generally accepted accounting principles. Also in our opinion, the related
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
February 20, 1998
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
United Life & Annuity Insurance Company:
We have audited the accompanying consolidated financial statements of income,
stockholder's equity, and cash flows of United Life & Annuity Insurance Company
(formerly United Companies Life Insurance Company) for the year ended December
31, 1995. Our audit also included the related financial statement schedules III,
IV, and V. These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements and financial statement schedules based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of United Life & Annuity Insurance Company and
subsidiary's operations and their cash flows for the year ended December 31,
1995 in conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Baton Rouge, Louisiana
February 29, 1996
<PAGE>
<TABLE>
<CAPTION>
UNITED LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
Purchase basis of accounting
----------------------------
December 31,
(Restated)
1997 1996
---- ----
(dollars in thousands)
<S> <C> <C>
Assets
Investments:
Fixed maturity securities:
Held for investment at amortized cost (fair value $- in 1997
and $50,902 in 1996) . . . . . . . . . . . . . . . . . . . . . . . . $ - $ 48,473
Available for sale at fair value (amortized cost $1,069,459 in 1997
and $1,127,850 in 1996) . . . . . . . . . . . . . . . . . . . . . . 1,106,961 1,144,165
Mortgage loans on real estate, less allowances of $3,923
in 1997 and $4,211 in 1996 . . . . . . . . . . . . . . . . . . . . . 227,755 243,715
Investment real estate. . . . . . . . . . . . . . . . . . . . . . . . 932 -
Policy loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,585 21,536
Investments in limited partnerships . . . . . . . . . . . . . . . . . 16,026 5,704
Short-term investments. . . . . . . . . . . . . . . . . . . . . . . . 22,804 467
Other invested assets . . . . . . . . . . . . . . . . . . . . . . . . 150 1,491
---------- ----------
Total investments . . . . . . . . . . . . . . . . . . . . . . . . 1,397,213 1,465,551
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 14,487
Accrued investment income. . . . . . . . . . . . . . . . . . . . . . . 17,482 17,251
Accounts and notes receivable. . . . . . . . . . . . . . . . . . . . . 1,057 6,973
Due from reinsurers. . . . . . . . . . . . . . . . . . . . . . . . . . 33,379 34,923
Present value of insurance in force. . . . . . . . . . . . . . . . . . 27,769 54,931
Deferred policy acquisition costs. . . . . . . . . . . . . . . . . . . 13,671 4,187
Costs in excess of net assets acquired . . . . . . . . . . . . . . . . 25,459 27,973
Deferred income tax benefit. . . . . . . . . . . . . . . . . . . . . . 3,529 8,882
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 612 213
Assets held in separate accounts . . . . . . . . . . . . . . . . . . . 51,901 18,052
---------- ----------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . $1,572,072 $1,653,423
========== ==========
Liabilities and Stockholder's equity
Liabilities:
Policy reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,312,876 $1,443,964
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 18,770 14,373
Liabilities related to separate accounts. . . . . . . . . . . . . . . 51,901 18,052
---------- ----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . 1,383,547 1,476,389
---------- ----------
Stockholder's equity:
Common stock, $2 par value;
Authorized - 4,200,528 shares;
Issued - 4,200,528 shares. . . . . . . . . . . . . . . . . . . . . . 8,401 8,401
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . 158,913 158,913
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 11,533 5,703
Net unrealized gains on securities. . . . . . . . . . . . . . . . . . 9,678 4,017
---------- ----------
Total stockholder's equity. . . . . . . . . . . . . . . . . . . . 188,525 177,034
---------- ----------
Committments and contingencies (note 11)
Total liabilities and stockholder's equity. . . . . . . . . . . . $1,572,072 $1,653,423
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
UNITED LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Purchase basis Historical basis
of accounting of accounting
-------------- ----------------
Period
from Period
Year Jul 24 from Year
Ended to Dec 31, Jan 1 to Ended
Dec 31, (Restated) Jul 23, Dec 31,
1997 1996 1996 1995
---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C>
REVENUES:
Premiums. . . . . . . . . . . . . . . . . $ 5,731 $ 3,483 $ 3,732 $ 8,508
Interest sensitive policy product
charges . . . . . . . . . . . . . . . . 2,821 1,048 1,421 1,949
Net investment income . . . . . . . . . . 110,735 49,733 66,421 125,591
Realized investment gains (losses). . . . 5,932 (157) (1,592) (3,670)
Other . . . . . . . . . . . . . . . . . . 1,204 1,215 52 172
-------- -------- -------- ---------
Total revenues . . . . . . . 126,423 55,322 70,034 $132,550
-------- -------- -------- ---------
EXPENSES:
Claims incurred . . . . . . . . . . . . . 6,980 3,332 5,215 9,083
Interest on annuity policies. . . . . . . 67,354 32,022 42,434 81,035
Change in liability for future policy
benefits and other policy benefits. . . 169 504 752 847
Amortization of present value of
insurance in force and deferred
policy acquisition costs. . . . . . . . 15,588 5,068 9,699 13,159
Amortization of costs in excess of
net assets acquired . . . . . . . . . . 1,434 583 -
Underwriting and other administrative
expenses. . . . . . . . . . . . . . . . 9,740 4,733 9,753 16,326
-------- -------- -------- ---------
Total benefits and expenses. 101,265 46,242 67,853 120,450
-------- -------- -------- ---------
Income before income taxes. . . . . . . . . 25,158 9,080 2,181 12,100
-------- -------- -------- ---------
PROVISION (BENEFIT) FOR INCOME TAXES:
Current . . . . . . . . . . . . . . . . . 7,477 2,427 1,139 5,259
Deferred. . . . . . . . . . . . . . . . . 1,724 950 (370) (1,194)
-------- -------- -------- ---------
Total income tax expense . . 9,201 3,377 769 4,065
-------- -------- -------- ---------
Net income. . . . . . . . . . . . . . . . $ 15,957 $ 5,703 $ 1,412 $ 8,035
======== ======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
UNITED LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Purchase basis Historical basis
of accounting of accounting
-------------- ----------------
Period
from Period
Year Jul 24 from Year
Ended to Dec 31, Jan 1 Ended
Dec 31, (Restated) to Jul 23, December 31,
1997 1996 1996 1995
--------- --------- --------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Cash flows from operations activities:
Net income $ 15,957 $ 5,703 $ 1,412 $ 8,035
Adjustments to reconcile net income to net cash
provided by operation activities:
Capitalization of deferred policy acquisition costs (10,465) (5,172) (4,797) (11,947)
Amortization of intangibles, depreciation and accretion, net 15,311 4,601 10,502 13,159
Increase in policy reserves, liabilities and accruals
and other policyholder funds 63,215 27,592 45,059 71,048
Other, net (73) 2,323 (6,986) 8,116
---------- ---------- ---------- ------------
Net cash provided by operating activities 83,945 35,047 45,190 88,411
---------- ---------- ---------- ------------
Cash flows from investing activities:
Purchases of securities available for sale (493,929) (94,025) (158) (136,503)
Maturities of securities held for investment - 7,679 2,918 1,940
Acquisitions and originations of mortgage loans (44,375) (112,473) (749,953) (1,208,195)
Maturities of securities available for sale 107,177 2,000 2,650 51,000
Sales of securities available for sale 500,058 18,233 34,065 25,185
Sales of mortgage loans 7,602 151,921 733,271 1,111,636
Principal payments on mortgage loans 52,591 21,657 44,264 71,294
(Increase) decrease in short-term investments, net
(including changes in amounts due to broker) (22,337) 50,063 (27,726) 31,860
(Increase) decrease in limited partnerships (10,322) 337 1,769 -
Other, net 928 40 (2,201) (180)
---------- ---------- ---------- ------------
Net cash provided by (used in) investing activities 97,393 45,432 38,899 (51,963)
---------- ---------- ---------- ------------
Cash flows from financing activities:
Receipts from interest sensitive products credited
to policyholders' account balances 86,194 48,770 51,464 146,487
Return of policyholders' account balances
on interest sensitive products (277,033) (104,528) (155,464) (233,953)
Increase (decrease) in repurchase agreements - (52,839) 11,982 40,857
Dividends (10,127) - (10,000) -
Contributed capital - 57,259 - -
Other, net - 247 - 20
---------- ---------- ---------- ------------
Net cash used by financing activities (200,966) (51,091) (102,018) (46,589)
---------- ---------- ---------- ------------
Increase (decrease) in cash (19,628) 29,388 (17,929) (10,141)
Cash at beginning of period 14,487 (14,901) 3,028 13,169
---------- ---------- ---------- ------------
Cash (overdraft) at end of period $ (5,141) $ 14,487 $ (14,901) $ 3,028
========== ========== ========== ============
Supplemental disclosures:
Income taxes paid $ 7,079 $ - $ 2,797 $ 4,655
Interest paid $ 171 $ 439 $ 2,392 $ 3,362
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
UNITED LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
Unrealized
Additional Gains Total
Common Paid-In Retained (Losses) on Stockholder's
Stock Capital Earnings Securities Equity
------- -------- ---------- ------------ ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
HISTORICAL BASIS OF ACCOUNTING:
Balance, December 31, 1994. . . . . . $ 8,401 $ 28,980 $ 111,632 $ (46,834) $102,179
Net income. . . . . . . . . . . . . . - - 8,035 - 8,035
Changes in net unrealized losses on -
securities, net . . . . . . . . . . - - - 76,311 76,311
------- -------- ---------- ------------ ---------
Balance, December 31, 1995. . . . . . 8,401 28,980 119,667 29,477 186,525
Net income. . . . . . . . . . . . . . - - 1,412 - 1,412
Changes in net unrealized losses on -
securities, net . . . . . . . . . . - - - (31,665) (31,665)
Dividend. . . . . . . . . . . . . . . - - (58,334) - (58,334)
------- -------- ---------- ------------ ---------
Balance, July 23, 1996. . . . . . . . $ 8,401 $ 28,980 $ 62,745 $ (2,188) $ 97,938
======= ======== ========== ============ =========
PURCHASE BASIS OF ACCOUNTING:
Balance, July 24, 1996. . . . . . . . $ 8,401 $101,655 $ - $ - $110,056
Net income (restated) . . . . . . . . - - 5,703 - 5,703
Capital contribution. . . . . . . . . - 57,258 - - 57,258
Changes in net unrealized gains on
securities, net . . . . . . . . . . - - - 4,017 4,017
------- -------- ---------- ------------ ---------
Balance, December 31, 1996 (restated) 8,401 158,913 5,703 4,017 177,034
Net income. . . . . . . . . . . . . . - - 15,957 - 15,957
Changes in net unrealized gains
on securities, net. . . . . . . . . - - - 5,661 5,661
Dividend. . . . . . . . . . . . . . . - - (10,127) - (10,127)
------- -------- ---------- ------------ ---------
Balance, December 31, 1997 . . . . . . $ 8,401 $158,913 $ 11,533 $ 9,678 $188,525
======= ======== ========== ============ =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
UNITED LIFE & ANNUITY INSURANCE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(1) BASIS OF PRESENTATION
United Life & Annuity Insurance Company (the "Company" or "ULA") is a
wholly-owned subsidiary of Pacific Life and Accident Insurance Company
("PLAIC"), a wholly-owned subsidiary of PennCorp Financial Group, Inc.
("PennCorp"). (See note 2 to Notes to Consolidated Financial Statements.)
PennCorp is an insurance holding company which offers, through its wholly-owned
subsidiaries, a broad range of life insurance, annuity and accident and sickness
products.
The Company, a life insurance company domiciled in Louisiana and organized
in 1955, is currently authorized to conduct business in 47 states, the District
of Columbia and Puerto Rico. The primary products of the Company are tax
deferred annuity contracts marketed to individuals principally through financial
institutions and independent agents.
The consolidated financial statements include the Company and its
wholly-owned subsidiary, United Variable Services, Inc. All significant
intercompany balances and transactions have been eliminated in the consolidated
financial statements.
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principals ("GAAP") on a historical cost basis of
accounting through the date of acquisition and on a purchase GAAP push-down
basis of accounting ("purchase GAAP") from the date of acquisition to the end of
the period. The comparability of the financial condition and the operating
results for the post-acquisition period and the pre-acquisition periods are
affected by the fair value accounting basis determination of assets and
liabilities under purchase accounting.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities as well
as revenues and expenses. Accounts that the Company deems to be acutely
sensitive to changes in estimates include deferred policy acquisition costs,
policy liabilities and accruals, present value of insurance in force and
deferred taxes. In addition, the Company must determine the requirements for
disclosure of contingent assets and liabilities as of the date of the financial
statements based upon estimates. As additional information becomes available,
or actual amounts are determinable, the recorded estimates may be revised and
reflected in operating results. Although some variability is inherent in these
estimates, management believes the amounts provided are adequate. In all
instances, actual results could differ from estimates.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investments
Fixed maturities classified as held for investment are recorded at cost,
adjusted for amortization of premium or discount, as the Company has the intent
and ability to hold them to maturity. Fixed maturities and equity securities
classified as available for sale are recorded at fair value, as they may be sold
in response to changes in interest rates, prepayment risk, liquidity needs, the
need or desire to increase income, capital or other economic factors. Changes
in unrealized gains and losses related to securities available for sale are
recorded as a separate component of shareholders' equity, net of income taxes.
Securities classified as trading securities are reported at fair value with
realized gains and losses and changes in unrealized gains and losses included in
the determination of net income as a component of other income. The
classification of securities as held for investment, available for sale or
trading is generally determined at the date of purchase. Mortgage-backed fixed
maturity securities held for investment of available for sale are amortized
using the interest method including anticipated prepayments at the date of
purchase. Significant changes in estimated cash flows from original assumptions
are reflected at cost, adjusted for amortization of premium or discount and
provision for loan loss, if necessary. Mortgage loans are carried at amortized
cost, net of allowance for losses. Investment in real estate, which is
comprised of properties acquired through foreclosures, are carried at the lower
of fair value less estimated cost to sell ("fair value") or the outstanding loan
amount plus accrued interest ("cost"). Investments in limited partnerships are
carried on an equity basis. Policy loans, short-term investments, and other
investments are recorded at cost, which approximates fair value.
As a result of the Company's decision to exit the private placement bond
sector, the Company transferred all of its remaining assets in the fixed
maturities held for investment portfolio aggregating $20.8 million to its fixed
maturities available for sale portfolio as of April 1, 1997. In accordance with
Statement of Financial Accounting Standards No. 115, the Company marked all
assets subject to the transfer to fair value resulting in a net increase in
shareholders' equity, net of applicable income taxes, of $1.9 million.
Realized investment gains and losses and declines in value which are other
than temporary, determined on the basis of specific identification, are included
in net income.
Accounts and Notes Receivable
Accounts and notes receivable consist primarily of agents' balances and
premiums receivable from agents and policyholders. Agents' balances are
partially secured by commissions due to agents in the future and premiums
receivable are secured by policy liabilities. An allowance for doubtful accounts
is established, based upon specific identification and general provision, for
amounts which the Company estimates will not ultimately be collected.
Present Value of Insurance in Force
The present value of insurance in force represents the anticipated gross
profits to be realized from future revenues on insurance in force at the date
such insurance was purchased, discounted to provide an appropriate rate of
return and amortized, with interest based upon the policy liability or contract
rate, over the years that such profits are anticipated to be received in
proportion to the estimated gross profits. Accumulated amortization was $20.2
million and $5.0 million as of December 31, 1997 and 1996, respectively.
Deferred Policy Acquisition Costs
Commissions and other costs related to the production of new and renewal
business have been deferred. The deferred costs related to traditional life
insurance are amortized over the premium payment period using assumptions
consistent with those used in computing policy benefit reserves. Deferred costs
related to annuities and interest sensitive products are amortized over the
estimated life of the policy in relation to the present value of estimated gross
profits on the contract. The Company periodically reviews the appropriateness
of assumptions used in calculating the estimated gross profits on annuity
contracts. Any change required in these assumptions may result in an adjustment
to deferred policy acquisition costs which would affect income.
Costs in Excess of Net Assets Acquired
Costs in excess of the fair value of net assets acquired are amortized on a
straight-line basis over 20 years. Accumulated amortization was $2.0 million at
December 31, 1997 and $.6 million at December 31, 1996.
The Company continuously monitors the value of costs in excess of net
assets acquired based upon estimates of future earnings. Any amounts deemed to
be impaired are charged, in the period in which such impairment was determined,
as an expense against earnings. For the periods presented there was no charge
to earnings for the impairment of costs in excess of net assets acquired.
Other Assets
Property is stated at cost less accumulated depreciation and is included in
"Other assets." Depreciation is computed on the straight-line and accelerated
methods over the estimated useful lives of the assets.
Policy Liabilities
Policy benefit reserves for traditional life insurance policies utilize
statutory commissioners reserve valuation method and net level premium method as
reasonable approximations of GAAP reserves for all non-interest sensitive
products. Average investment yields assumed in the traditional life policy
benefit reserves ranged from 3% to 6%.
Reserves for annuity policies and interest sensitive life policies
represent the policy account balance, or accumulated fund value, before
applicable surrender charges. Benefit claims incurred in excess of related
policy account balances and interest credited during the period to policy
account balances are charged to expense.
Reserves for separate account policies are carried at account value.
Income Taxes
<PAGE>
The Company accounts for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes." Under the asset and liability method of SFAS
109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to (i) temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases, and (ii) operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which the temporary
differences are expected to be recovered or settled. Under SFAS No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. Prior to
the date of the sale, The Company filed a consolidated federal income tax return
with its former parent and other former affiliated companies. The former parent
allocated to the Company its proportionate share of the consolidated tax
liability under a tax allocation agreement whereby each affiliate's federal
income tax provision is computed on a separate return basis. Subsequent to the
purchase, the Company files a consolidated return with PLAIC whereby the
Company's proportionate share of the consolidated tax liability is allocated
based upon separate return calculations.
Insurance Revenue Recognition
Income on short duration single premium contracts, primarily credit
insurance products, is recognized over the contract period. Premiums on other
insurance contracts principally traditional life insurance and limited payment
life insurance policies, are recognized as revenue when due.
Revenues for interest sensitive annuity contracts represent charges
assessed against the policyholders' account balance, primarily for the
surrenders.
Reinsurance
The Company generally reinsures with other insurance companies the portion
of any one risk which exceeds $100,000. On certain types of policies this limit
is $25,000. The Company is contingently liable for insurance ceded to
reinsurers. Premiums ceded under reinsurance agreements were $1.2 million, $1.3
million and $1.7 million in 1997, 1996 and 1995, respectively. Amounts due from
reinsurers related to policy reserves ceded under reinsurance agreements totaled
$32.3 million and $34.5 million at December 31, 1997 and 1996, respectively.
The Company has a receivable at December 31, 1997 of approximately $31.5
million from one reinsurer; however, the funds supporting the receivable are
escrowed in a separate trust account for the benefit of the Company by the
reinsurer. The following table reflects the effect of reinsurance agreements on
premiums and the amounts earned for the periods indicated.
<TABLE>
<CAPTION>
Historical
basis of
Purchase basis of accounting accounting
------------------------- ---------------------------
Period from
Year Ended Jul 24 to Jan 1 to Year Ended
Dec 31, Dec 31, Jul 23, Dec 31,
1997 1996 1996 1995
------------ ----------- ------------- ------------
<S> <C> <C> <C> <C>
(dollars in thousands)
Direct premiums. . . . . . . $ 5,023 $ 2,704 $ 3,148 $ 7,659
Reinsurance assumed. . . . . 1,927 1,214 1,461 2,589
Reinsurance ceded. . . . . . (1,219) (435) (877) (1,740)
------------ ----------- ------------- ------------
Net insurance premiums. $ 5,731 $ 3,483 $ 3,732 $ 8,508
============ =========== ============= ============
</TABLE>
Participating Policies
Direct participating business, primarily related to the Company's pre-need
funeral policies, represented 10.4%, 9% and 8.2% of the life insurance in force
as of December 31, 1997, 1996 and 1995, respectively. The amount of dividends
paid on participating policies is based on published dividend scales and totaled
$1.1 million, $1.4 million and $1.2 million for the years ended December 31,
1997, 1996 and 1995, respectively.
Restatement
The December 31, 1996 financial statements have been restated to reflect
the reclassification of $7.7 million loan loss reserves which were offset
against costs in excess of net assets acquired, net of applicable deferred
income taxes. At acquisition, the Company established a reserve reflecting an
estimate of possible losses associated with its home equity mortgage loans
originated by United Companies Financial Corporation ("UC Financial"). Since
that date, UC Financial provided a guaranty of those loans against default in a
revision to the stock purchase agreement between PennCorp and UC Financial.
Investment income was reduced $.8 million and amortization of costs in excess of
net assets acquired was reduced by $.4 million in 1996, as a result of the
restatement. All amounts presented reflect the impact of such restatement.
Accounting Pronouncements Not Yet Adopted
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 is effective for annual and interim periods beginning
after December 15, 1997. This statement establishes standards for reporting and
displaying comprehensive income and its components and requires all items to be
recognized under accounting standards as comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. Examples of items to be included in the Company's
presentation of comprehensive income, in addition to net income applicable to
common stock, are unrealized foreign currency translation gains or losses as
well as unrealized gains and losses on securities available for sale. The
Company will adopt the provisions of SFAS No. 130 in 1998.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," was also issued in June 1997 by the FASB. This Statement requires
that companies disclose segment data on the basis that is used internally by
management for evaluating segment performance and allocating resources to
segments. This Statement requires that a company report a measure of segment
profit or loss, certain specific revenue and expense items, and segment assets.
It also requires various reconciliations of total segment information to amounts
in the consolidated financial statements. The Company's current definition of
its business segments will not materially change from the current presentation.
SFAS No. 131 is effective for fiscal years beginning after December 15, 1997.
In December 1997, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 97-3. SOP 97-3 provides (1) guidance for
determining when an entity should recognize a liability for guaranty-fund and
other insurance-related assessments, (2) guidance on how to measure the
liability, (3) guidance on when an asset may be recognized for a portion or all
of the assessment liability or paid assessment that can be recovered through
premium tax offsets or policy surcharges, and (4) requirements for disclosure of
certain information. This SOP is effective for financial statements for fiscal
years beginning after December 15, 1998. Early adoption is encouraged.
Previously issued annual financial statements are not restated. The Company
will report the effect of initially adopting this SOP in a manner similar to the
reporting of a cumulative effect of a change in accounting principle. The
Company is currently evaluating the financial impact, which is expected to be
immaterial, as well as the changes to its related disclosures.
In February 1998, the FASB adopted SFAS No. 132 "Employers Disclosures
about Pensions and Other Postretirement Benefits." SFAS No. 132 is effective
for fiscal years beginning after December 31, 1997. Earlier application is
encouraged. Restatement of disclosures for earlier periods provided for
comparative purposes is required. SFAS No. 132 standardizes employers'
disclosures about pension and other postretirement benefits, requires additional
information on changes in the benefit obligations and fair values of plan assets
to facilitate financial analysis, and eliminates certain irrelevant disclosures.
The Company is currently evaluating the necessary changes to its related
disclosures.
Reclassifications
Certain amounts from prior periods have been reclassified to conform with
the current year presentation. Such reclassifications had no effect on net
income.
(3) SALE OF THE COMPANY
On July 24, 1996, PLAIC consummated the acquisition of the Company from UC
Financial. Pursuant to an Amended and Restated Stock Purchase Agreement (the
"Agreement") dated as of July 24, 1996, PLAIC acquired 100% of the outstanding
capital stock of the Company for $110.1 million in cash including expenses
incurred $9.7 million as part of the acquisition. Immediately following the
acquisition of the Company, PLAIC contributed $57.3 million in cash to the
Company, which represented the market value of certain real estate and other
assets distributed to UC Financial immediately prior to the consummation of the
acquisition.
The Company's acquisition has been accounted for using the purchase method
of accounting. The total purchase price of the acquisition was allocated to the
tangible and intangible assets and liabilities acquired based upon their
respective fair values as of the date of acquisition. Based upon such
respective fair values, the value of the net assets acquired was $82.6 million,
as restated, resulting in costs in excess of net assets acquired at the date of
acquisition of $27.5 million, as restated.
<PAGE>
(4) INVESTMENTS
Fixed Maturity Securities
The Company's portfolio of fixed maturity securities consisted of the
following:
<TABLE>
<CAPTION>
December 31, 1997
-------------------------------------------------
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(dollars in thousands)
Available for Sale:
U.S. Government . $ 8,883 $ 118 $ - $ 9,001
Municipal . . . . 3,371 155 - 3,526
Foreign . . . . . 5,541 165 - 5,706
Corporate . . . . 432,512 16,051 378 448,185
Mortgage-backed . 619,152 21,421 30 640,543
---------- ----------- ----------- -----------
Total. . . . $1,069,459 $ 37,910 $ 408 $ 1,106,961
========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
-------------------------------------------------
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(dollars in thousands)
Available for Sale:
U.S. Government . $ 9,029 $ 93 $ - $ 9,122
Municipal . . . . 5,434 1 48 5,387
Foreign . . . . . 10,920 185 - 11,105
Corporate . . . . 414,551 5,944 1,064 419,431
Mortgage-backed . 687,916 11,210 6 699,120
---------- ----------- ----------- -----------
Total. . . . $1,127,850 $ 17,433 $ 1,118 $ 1,144,165
========== =========== =========== ===========
Held for Investment:
Corporate . . . . $ 13,927 $ 124 $ 2 $ 14,049
Mortgage-backed . 34,546 2,307 - 36,853
---------- ----------- ----------- -----------
Total. . . . $ 48,473 $ 2,431 $ 2 $ 50,902
========== =========== =========== ===========
</TABLE>
The cost and estimated fair value of fixed maturity securities by
contractual maturity at December 31, 1997 are shown below.
<TABLE>
<CAPTION>
Available for Sale
-----------------------
Amortized Estimated
Cost Fair Value
---------- -----------
<S> <C> <C>
(dollars in thousands)
1 year or less . . . . . . . . $ 8,479 $ 8,496
Over 1 year through 5 years. . 168,541 172,889
Over 5 years through 10 years. 226,432 235,303
After 10 years . . . . . . . . 46,855 49,730
Mortgage-backed securities . . 619,152 640,543
---------- -----------
Total . . . . . . . . . . $1,069,459 $ 1,106,961
========== ===========
</TABLE>
Expected maturities may differ from contractual maturities because certain
issuers may have the right to call or prepay obligations with or without call or
prepayment penalties.
In 1990, the Company securitized pools of commercial real estate loans
owned in two transactions and in connection therewith sold pass-through
certificates ("Series 90-1" and "Series 90-2") for which an election under the
real estate mortgage investment conduit provisions ("REMIC") of the Internal
Revenue Code of 1986, as amended were made. The Company retained as an
investment subordinated junior certificates in both issues, as well as a senior
certificate interest in Series 90-2. During the third quarter of 1996, the
Company became the only remaining investor in its Series 90-2 REMIC. In the
first quarter of 1997, the Company closed the REMIC and reacquired the
underlying mortgages.
Fixed maturity securities available for sale at December 31, 1997 and held
for investment at December 31, 1996 included REMIC investments of approximately
$9.6 million and $34 million, respectively. The two primary purposes of closing
the REMIC were the elimination of the administration and servicing fees and the
resulting improvement to the Company's Statutory Risk Based Capital.
A summary of the Company's investment at December 31, 1997 and 1996, in the
REMIC's are as follows:
<TABLE>
<CAPTION>
Remaining
Date of Principal Carrying Interest Maturity
Issue Balance Value Rate Date
------------ ---------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
(dollars in thousands)
December 31, 1997:
United Companies Life REMIC
Series 90-1, Class B-1. . Mar 29, 1990 $ 10,351 $ 9,606 10.05% Sep 25, 2009
========== =========
December 31, 1996:
United Companies Life REMIC
Series 90-1, Class B-1. . Mar 29, 1990 $ 10,574 $ 7,263 10.05% Sep 25, 2009
Series 90-2, Class A-3. . Dec 18, 1990 14,688 14,965 9.88% May 25, 2000
Series 90-2, Class B-1. . Dec 18, 1990 14,339 11,750 9.88% Jan 25, 2009
---------- ---------
$ 39,601 $ 33,978
========== =========
<FN>
At December 31, 1997, securities with a cost of $14.2 million were on deposit with
insurance regulatory authorities.
</TABLE>
Equity Securities
The unrealized capital gains and losses on common stocks included as "Other
invested assets" at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------------------
Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(dollars in thousands)
Trading. . . . . . . . $ 765 $ 169 $ 34 $ 900
Available for sale . . 78 - 72 6
----- ----------- ----------- -----------
Total . . . . . . $ 843 $ 169 $ 106 $ 906
===== =========== =========== ===========
</TABLE>
The Company did not own equity securities at December 31, 1997.
Mortgage Loans on Real Estate
The following schedule summarizes the composition of mortgage loans on real
estate:
<TABLE>
<CAPTION>
December 31,
-------------------
1997 1996
-------- ---------
<S> <C> <C>
(dollars in thousands)
Residential $ 34,372 $ 61,911
Unearned loan charges (232) (266)
-------- ---------
Residential, net . . . . . 34,140 61,645
-------- ---------
Commercial 197,538 186,281
Allowance for loan losses (3,923) (4,211)
-------- ---------
Commercial, net. . . . . . 193,615 182,070
-------- ---------
Total $227,755 $243,715
======== =========
</TABLE>
Included in the loans owned at December 31, 1997 and 1996 were loans with
delinquencies in excess of 180 days of $.1 million and $1.4 million,
respectively.
The Company provides an estimate for future credit losses in an allowance
for loan losses. A summary analysis of the changes in the Company's allowance
for loan losses on its commercial loans is as follows:
<TABLE>
<CAPTION>
Historical
basis of
Purchase basis of accounting accounting
------------------------------------ --------------------------------
Year Ended Period from Period from Year Ended
Dec 31, Jul 24 to Dec 31, Jan 1 to Jul 23, Dec 31,
1997 1996 1996 1995
--------------- ------------------- ------------------ ------------
(Restated)
<S> <C> <C> <C> <C>
(dollars in thousands)
Balance at beginning of year $ 4,211 $ 4,211 $ 2,117 $ 1,778
Losses charged to allowance. (276) - (771) (194)
Loan loss provision. . . . . (12) - 478 533
--------------- ------------------- ------------------ ------------
Balance at end of year . . . $ 3,923 $ 4,211 $ 1,824 $ 2,117
=============== =================== ================== ============
Specific reserves. . . . . . $ 418 $ 706 $ 824 $ 1,117
Unallocated reserves . . . . 3,505 3,505 1,000 1,000
--------------- ------------------- ------------------ ------------
Total reserves. . . . . $ 3,923 $ 4,211 $ 1,824 $ 2,117
=============== =================== ================== ============
</TABLE>
Investment Real Estate
Immediately prior to the closing of the sale of the Company, the Company
distributed all of its real estate to its former parent. The investment real
estate of $.9 million at December 31, 1997 was acquired through foreclosure
during 1997.
Investment In Limited Partnerships
Immediately prior to the closing of the sale of the Company, the Company
distributed a limited partnership investment to its former parent aggregating
$17.8 million. Following is an analysis of the Company's investment in limited
partnerships:
<PAGE>
<TABLE>
<CAPTION>
Historical
basis of
Purchase basis of accounting accounting
--------------------------- ---------------------------
Period from Period from
Year ended Jul 24 to Jan 1 to Year Ended
Dec 31, Dec 31, Jul 23, Dec 31,
1997 1996 1996 1995
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
(dollars in thousands)
Balance, beginning of period . . . . $ 5,704 $ 6,041 $ 25,594 $ 26,672
Contributions and capitalized costs. 13,473 43 620 9,869
Net partnership income . . . . . . . 1,765 948 1,061 6,279
Distributions. . . . . . . . . . . . (3,190) (1,328) (3,451) (17,226)
Distribution of partnerships . . . . (3,061) - (17,783) -
Realized gains . . . . . . . . . . . 1,335 - - -
------------ ------------- ------------- ------------
Balance, end of period. . . . . $ 16,026 $ 5,704 $ 6,041 $ 25,594
============ ============= ============= ============
</TABLE>
The limited partnerships were formed for the purpose of participating in
privately placed equity or mezzanine investments. These investments, acquired in
leveraged investment transactions, generally include private equity securities
and/or higher risk subordinated debt.
Investment Income
Investment income by type that exceeds five percent of total investment
income was as follows:
<TABLE>
<CAPTION>
Historical
basis of
Purchase basis of accounting accounting
------------- ------------ -------------------------
Period from Period from
Year ended Jul 24 to Jan 1 to Year Ended
Dec 31, Dec 31, Jul 23, Dec 31,
1997 1996 1996 1995
------------- ------------ ------------ -----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Fixed maturity securities . . $ 85,626 $ 37,140 $ 47,606 $ 85,852
Mortgage loans on real estate 24,614 11,192 20,331 35,056
Other investments . . . . . . 4,487 3,281 4,067 14,386
------------- ------------ ------------ -----------
Gross investment income. 114,727 51,613 72,004 135,294
Less: Investment expenses . . 3,992 1,880 5,583 9,703
------------- ------------ ------------ -----------
Net investment income. . $ 110,735 $ 49,733 $ 66,421 $ 125,591
============= ============ ============ ===========
</TABLE>
Realized, and Changes in Unrealized, Investment Gains (Losses)
Net realized, and changes in unrealized, investment gains (losses) were as
follows:
<TABLE>
<CAPTION>
Historical
basis of
Purchase basis of accounting accounting
--------------------------- ---------------------------
Period from Period from
Year ended Jul 24 to Jan 1 to Year Ended
Dec 31, Dec 31, Jul 23, Dec 31,
1997 1996 1996 1995
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
(dollars in thousands)
Fixed maturity securities:
Gross gains . . . . . . . . . . . . . . . . . . $ 5,923 $ - $ 42 $ 524
Gross losses. . . . . . . . . . . . . . . . . . (1,181) (157) (1,388) (1,807)
Loss provision. . . . . . . . . . . . . . . . . (83) - 477 (350)
------------ ------------- ------------- ------------
Net gains (losses) on fixed maturity
securities. . . . . . . . . . . . . . 4,659 (157) (869) (1,633)
------------ ------------- ------------- ------------
Mortgage loans on real estate:
Losses on sales . . . . . . . . . . . . . . . . - - (771) (194)
Loss provision. . . . . . . . . . . . . . . . . 12 - 293 (339)
------------ ------------- ------------- ------------
Net gains (losses) on mortgage loans on
real estate. . . . . . . . . . . . . . 12 - (478) (533)
------------ ------------- ------------- ------------
Investment real estate:
Losses on sales . . . . . . . . . . . . . . . . (1) - (1,098) (2,638)
Loss provision. . . . . . . . . . . . . . . . . - - 853 1,134
------------ ------------- ------------- ------------
Net losses on investment real estate . . . (1) - (245) (1,504)
------------ ------------- ------------- ------------
Limited partnerships:
Gains on sales $ 1,336 $ - $ - $ -
------------ ------------- ------------- ------------
Net Losses on limited partnerships $ 1,336 $ - $ - $ -
------------ ------------- ------------- ------------
Other invested assets:
Gains on sales $ 2 $ $ $
Losses on sales $ (76) $ - $ - $ -
------------ ------------- ------------- ------------
Net Losses on limited partnerships $ (74) $ - $ - $ -
------------ ------------- ------------- ------------
Realized investment gains (losses). . $ 5,932 $ (157) $ (1,592) $ (3,670)
============ ============= ============= ============
Changes in unrealized gains (losses):
Securities available for sale . . . . . . . . . 21,263 16,243 (48,716) 117,404
------------ ------------- ------------- ------------
Net change in unrealized gains (losses) .. $ 21,263 $ 16,243 $ (48,716) $ 117,404
============ ============= ============= ============
Trading portfolio:
Net gains (losses) from sales. . . . . . . . . $ 59 $ (20) $ 37 $ (12)
Net change in unrealized gains (losses). . . . (135) 135 (26) 184
------------ ------------- ------------- ------------
Total trading gains (losses) . . . . . . . $ (76) $ 115 $ 11 $ 172
============ ============= ============= ============
</TABLE>
Individually Significant Investments
The following investments, other than obligations of the U.S. Government
or agencies thereof, individually exceeded 10% of total stockholder's equity:
<TABLE>
<CAPTION>
December 31, 1997
-------------------
Amortized Fair
Investment Cost Value
- ------------------------------------------ ---------- -------
<S> <C> <C>
(Dollars in thousands)
Collateralized Mortgage Obligation Trust,
Series 64, Class Z . . . . . . . . . . . $ 20,640 $20,672
========== =======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
-------------------
Amortized Fair
Cost Value
---------- -------
<S> <C> <C>
(Dollars in thousands)
United Companies Life REMIC 1990-2. $ 26,715 $27,595
========== =======
</TABLE>
<PAGE>
(5) INCOME TAXES
The provision (benefit) for income taxes attributable to operations is as
follows:
<TABLE>
<CAPTION>
Historical
basis of
Purchase basis of accounting accounting
------------------------- ---------------------------
Period from Period from
Year ended Jul 24 to Jan 1 to Year Ended
Dec 31, Dec 31, Jul 23, Dec 31,
1997 1996 1996 1995
----------- ------------ ------------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Current. . . . . . . . $ 7,477 $ 2,427 $ 1,139 $ 5,259
Deferred . . . . . . . 1,724 950 (370) (1,194)
----------- ------------ ------------- ------------
Total. . . . $ 9,201 $ 3,377 $ 769 $ 4,065
=========== ============ ============= ============
</TABLE>
Reported income tax expense attributable to operations differs from the
amount computed by applying the statutory federal income tax rate of 35% to
income from operations before income taxes for the following reasons:
<TABLE>
<CAPTION>
Purchase
basis of
Purchase basis of accounting accounting
--------------------------- --------------------------
Period from Period from
Year ended Jul 24 to Jan 1 to Year Ended
Dec 31, Dec 31, Jul 23, Dec 31,
1997 1996 1996 1995
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
(dollars in thousands)
Federal income tax (benefit) at statutory rate . $ 8,805 $ 3,178 $ 763 $ 4,235
Differences resulting from:
Amortization of costs in excess
of net assets acquired. . . . . . . . . . 502 236 - -
Other . . . . . . . . . . . . . . . . . . (106) (37) 6 (170)
------------ ------------- ------------ ------------
Reported income tax provision benefit. . . . . . $ 9,201 $ 3,377 $ 769 $ 4,065
============ ============= ============ ============
</TABLE>
The significant components of the Company's net deferred income tax benefit
and liability are as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------- -----------------------
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
Assets Liabilities Assets Liabilities
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
(dollars in thousands)
Mortgage loans on real estate and other
investments. . . . . . . . . . . . . . . $ - $ 2,238 $ - $ 4,184
Deferred policy acquisition costs . . . . - 3,860 - 5,062
Present value of insurance in force . . . 6,328 - - 2,163
Unrealized gain on investment securities. - 13,127 - -
Policy reserves . . . . . . . . . . . . . 15,956 - 19,319 -
Other . . . . . . . . . . . . . . . . . . 470 - 972 -
--------- ------------ --------- ------------
$ 22,754 $ 19,225 $ 20,291 $ 11,409
========= ============ ========= ============
</TABLE>
In assessing the realization of deferred taxes, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will be realized. The ultimate realization of deferred tax assets is
dependent on the generation of future taxable income during the periods in which
those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment. Based upon those
considerations, management believes it is more likely than not that the Company
will realize the benefits of these deductible differences as of December 31,
1997.
The Company's "Policyholders' Surplus" became taxable income to its former
parent in conjunction with the sale of the Company in 1996 and was therefore,
extinguished.
The Company had a current income tax payable, which is included in "Other
liabilities," in the amount of $3.4 million at December 31, 1997, and $3
million at December 31, 1996.
(6) TRANSACTIONS WITH AFFILIATES
In conjunction with the sale of the Company, Knightsbridge Management LLC
("Knightsbridge"), an affiliate, accrued transaction fees of $2.5 million during
1996.
Immediately after the closing of the sale, the Company received $57.3
million in cash from PLAIC as replacement for assets distributed to its former
parent in conjunction with the sale of the Company. (See note 2 to Notes to
Consolidated Financial Statements.)
Knightsbridge provides management consulting services to the Company for an
annualized fee of $1 million. For the period from July 24, 1996 through
December 31, 1996, the accompanying financial statements include $.4 million for
such fees. The Company was allocated certain costs from UC Financial and its
affiliates under a cost sharing agreement totaling $2.1 million and $4.1 million
for the periods from January 1, 1996 to July 23, 1996 and the year ended
December 31, 1995, respectively.
Knightsbridge also provides investment management consulting services to
the Company for a fee based upon the average dollar amount of the related
investments. For the year ended December 31, 1997 and the period from July 24,
1996 to December 31, 1996, the Company incurred $2.3 million and $.6 million,
respectively, related to such services.
UC Mortgage Corporation ("UC Mortgage"), an affiliate, services commercial
loans for the Company for a fee of three-eights of one percent of the principal
balances. For the year ended December 31, 1997 and the period from July 24,
1996 to December 31, 1996, the Company paid UC Mortgage $.8 million and $.4
million, respectively, for mortgage servicing fees. In addition, the Company
provides employees to UC Mortgage and is reimbursed for salary and salary
related expenses for those employees. The total amount of reimbursed employee
expenses for the year ended December 31, 1997 and the period from July 24, 1996
to December 31, 1996 were $.6 million and $.3 million, respectively. As of
December 31, 1997, 1996 and 1995, UC Lending, Inc. ("UC Lending"), a former
affiliate, serviced loans owned by the Company having aggregate unpaid principal
balances of approximately $34.6 million, $62.6 million, and $338.4 million,
respectively. The Company paid servicing fees relative to these loans of
approximately $ - million, $ - million, $.5 million and $.9 million for the year
ended December 31, 1997 and the periods from July 24, 1996 to December 31, 1996,
January 1, 1996 to July 23, 1996 and the year ended December 31, 1995,
respectively.
The Company has an agreement with UC Lending to purchase qualifying
residential home equity mortgage loans originated or purchased and underwritten
by UC Lending. (See note 10 to Notes to Consolidated Financial Statements.)
These loans are usually held three to six months until resold to UC Lending for
sale by UC Lending in loan securitizations. Also, under an agreement UC Lending
is obligated to repurchase these home equity loans previously sold to the
Company at the time of foreclosure. At December 31, 1997 and 1996, $33.6
million and $61 million, respectively, of home equity loans originated by UC
Lending were owned by the Company. During the year ended December 31, 1997 and
the periods from July 24, 1996 to December 31, 1996, January 1, 1996 to July 23,
1996 and the year ended December 31, 1995, the Company purchased home equity
loans for approximately $ - million, $ 75.2 million, $656 million and $1,169
million, respectively, from UC Lending. Sales of these home equity loans to UC
Lending by the Company were $6.6 million, $51.4 million, $679.2 million and
$1,112 million for the year ended December 31, 1997, the periods from July 24,
1996 to December 31, 1996 and January 1, 1996 to July 23, 1996 and the year
ended December 31, 1995, respectively. No gain or loss was recorded by the
Company in these transactions.
Several executive officers of Marketing One, Inc. ("Marketing One"), an
affiliate based in Portland, Oregon, also serve as executive officers of the
Company. Marketing One personnel provide certain services to the Company, for
which Marketing One is reimbursed. The Company paid $.9 million and $ - million
to Marketing One for such services for the year ended December 31, 1997 and
1996, respectively.
The Company formerly leased home office space to UC Financial and other
former affiliates. Rent income attributable to these affiliates was
approximately $ - million for the year ended December 31, 1997 and for the
period from July 24, 1996 to December 31, 1996, $1 million for each of the
periods from January 1, 1996 to July 23, 1996 and the year ended December 31,
1995.
United Companies Realty & Development Co., Inc. ("UCRD"), a former
affiliate, managed the home office buildings leased by the Company to UC
Financial and other third party tenants under a real estate management contract
for the period from January 1, 1996 to July 23, 1996. The Company paid
approximately $.2 million to UCRD in management fees for the period January 1,
1996 to July 23, 1996 and $.4 million for the year ended December 31, 1995.
(7) Deferred Policy Acquisition Costs and Present Value of Insurance in Force
Deferred policy acquisition costs represent commissions, premium taxes and
certain other acquisition expenses, including underwriting and issue costs.
Information relating to these costs is as follows:
<TABLE>
<CAPTION>
Historical
basis of
Purchase basis of accounting accounting
--------------------------- ---------------------------
Period from Period from
Year Ended Jul 24 to Jan 1 to Year Ended
Dec 31, Dec 31, Jul 23, Dec 31,
1997 1996 1996 1995
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
(dollars in thousands)
Unamortized deferred policy acquisition
Costs at beginning of period. . . . . . $ 4,187 $ - $ 90,703 $ 91,915
Policy acquisition costs deferred:
Commissions . . . . . . . . . . . . . 8,326 4,298 4,531 11,283
Underwriting and issue costs. . . . . 2,139 874 266 664
Policy acquisition costs amortized . . . (316) (8) (9,699) (13,159)
Unrealized investment gain adjustment. . (665) (977) - -
------------ ------------- ------------- ------------
Unamortized deferred policy
Acquisition costs at end of period. $ 13,671 $ 4,187 $ 85,801 $ 90,703
============ ============= ============= ============
</TABLE>
The methods used by the Company to value the fixed benefit, life, and
accumulation products purchased are consistent with the valuation methods used
most commonly to value blocks of insurance business. It is also consistent with
the basic methodology generally used to value insurance assets. The method used
by the Company includes identifying the future cash flows from the acquired
business, the risks inherent in realizing those cash flows, the rate of return
the Company believes it must earn in order to accept the risks inherent in
realizing the cash flows, and determining the value of the insurance asset by
discounting the expected future cash flows by the discount rate the Company
requires.
The discount rate used to determine such values is the rate of return
required in order to invest in the business being acquired. In selecting the
rate of return, the Company considered the magnitude of the risks associated
with actuarial factors described in the following paragraph, cost of capital
available to the Company to fund the acquisition, compatibility with other
Company activities that may favorably affect future profits, and the complexity
of the acquired Company.
<PAGE>
Expected future cash flows used in determining such values are based on
actuarial determination of future premium collection, mortality, surrenders,
operating expenses and yields on assets held to back policy liabilities as well
as other factors. Variances from original projections, whether positive or
negative, are included in income as they occur. To the extent that these
variances indicate that future cash flows will differ from those included in the
original scheduled amortization of the value of the insurance in force, current
and future amortization may be adjusted. Recoverability of the value of
insurance in force is evaluated annually and appropriate adjustments are then
determined and reflected in the financial statements for the applicable period.
Expected gross amortization, based upon current assumptions and accretion of
interest at a policy or contract rates ranging from 5.36% to 5.43% for the next
five years of the present value of insurance in force is as follows:
Beginning Gross Accretion Net
Balance Amortization of Interest Amortization
------- ------------ ----------- ------------
(dollars in thousands)
----------------------
1998 $ 27,769 $ 5,879 $ 1,508 $ 4,371
-------- ------------ ----------- ------------
1999 23,398 5,293 1,261 4,032
-------- ------------ ----------- ------------
2000 19,367 4,351 1,038 3,313
-------- ------------ ----------- ------------
2001 16,054 3,588 861 2,727
-------- ------------ ----------- ------------
2002 13,327 3,033 714 2,319
-------- ------------ ----------- ------------
(8) RETIREMENT AND PROFIT SHARING PLANS
Eligible employees may elect to participate in PennCorp's defined
contribution 401(K) retirement plan. Contributions to the Plan are made pursuant
to salary deferral elections by participants in an amount equal to 1% to 15% of
their annual compensation. In addition, the Company makes matching contributions
in an amount equal to 50% of each participant's salary deferral to a maximum of
3% of annual compensation. The defined contribution plan also provides for a
discretionary employer profit sharing contribution, which is determined annually
by the Board of Directors for the succeeding plan year. Profit sharing
contributions are credited to participant's accounts on the basis of their
respective compensation in accordance with a formula that provides a higher
percentage contribution for compensation in excess of the federal Social
Security wage base. Salary deferral contribution accounts are at all times fully
vested, while matching contribution accounts vest ratably from one to two years
of service, and profit sharing contribution accounts vest ratably from one to
five years of service. All participant accounts are fully vested at death,
disability or attainment of age 65. Payment of vested benefits under the defined
contribution plan may be elected by a participant in a variety of forms of
payment. The Company's funding policy is to contribute annually an amount that
can be deducted for federal income tax purposes. Expenses related to this plan
for the year ended December 31, 1997 and the period from July 24, 1996 to
December 31, 1996, were $207,248 and $78,000, respectively, compared to costs
associated with employee benefit plans of the Company's former parent of
$184,600 for the period from January 1, 1996 to July 23, 1996 and $414,000 for
the year ended December 31, 1995.
(9) STATUTORY ACCOUNTING
Accounting records of the Company are also maintained in accordance with
practices prescribed or permitted by insurance regulatory authorities.
Prescribed statutory accounting principles include a variety of publications of
the National Association of Insurance Commissioners, as well as state laws,
regulations, and general administrative rules. Permitted statutory accounting
practices encompass all accounting practices not so prescribed. The Company's
capital and surplus pursuant to the statutory accounting basis as of December
31, 1997 and 1996, was $105.4 million and $103.1 million, respectively. On a
statutory accounting basis, net gain from operations for the years ended
December 31, 1997, 1996 and 1995 was $14.5 million, $10.1 million and $12.8
million, respectively. Net income on a statutory accounting basis, which
includes realized capital gains and losses, was $13.3 million, $6.8 million and
$10.0 million for the years ended December 31, 1997, 1996 and 1995,
respectively.
<PAGE>
Under the current statutory requirements in Louisiana, the Company has the
capacity to pay dividends of $14.5 million in 1998. The Company paid a cash
dividend of $10.1 million to PLAIC during 1997. During 1996, extraordinary
dividends, with a statutory value of $62.6 million, consisting of real estate,
an investment in a limited partnership and $10 million cash, were distributed to
the Company's former parent immediately prior to the closing of the sale of the
Company. Immediately after the closing, PLAIC contributed $57.3 million cash to
the Company as a replacement for the distributed assets. (See note 2 to Notes
to Consolidated Financial Statements.) As part of its July 1996 approval of
PLAIC's acquisition of the Company, the Louisiana Insurance Commissioner
approved a dividend plan for the Company pursuant to which the Company may pay a
specified amount of dividends for each of the five years following the
acquisition, beginning in 1997, amounting to the lesser of the pro forma
dividend amounts in such plan or the actual earnings of the Company, and
conditioned on the Company's maintaining a risk-based capital of at least 300%
of the Authorized Control Level. No dividends were paid in 1995.
The Company received written approval from the Louisiana Department of
Insurance to invest in first lien residential mortgage loans originated by UC
Lending on a short-term basis without recording the assignment of the mortgage
loans to the Company, which differs from prescribed statutory accounting
practices. Statutory accounting practices prescribed by the Louisiana Department
of Insurance require that investments in mortgage loans be secured by
unrestricted first liens on the underlying property. As of December 31, 1997,
statutory surplus was not affected as a result of this permitted practice.
(10) DISCLOSURES ABOUT FINANCIAL INSTRUMENTS
The carrying value and estimated fair value of the Company's financial
assets and liabilities were as follows:
<TABLE>
<CAPTION>
Purchase basis of accounting
--------------------------------------------------
December 31, 1997 December 31, 1996
------------------------ ------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
----------- ----------- ----------- -----------
(Restated)
<S> <C> <C> <C> <C>
(dollars in thousands)
Financial assets:
Investments:
Fixed maturity securities:
Available for sale. . . . . . . $ 1,106,961 $ 1,106,961 $ 1,144,165 $ 1,144,165
Held to maturity. . . . . . . . - - 48,473 50,902
Mortgage loans on real estate . . 227,755 234,927 243,715 243,715
Investment real estate. . . . . . 932 932 - -
Policy loans. . . . . . . . . . . 22,585 22,585 21,536 21,536
Investment in limited partnership 16,026 16,026 5,704 5,704
Short-term investments. . . . . . 22,804 22,804 467 467
Other invested assets . . . . . . 150 150 1,491 1,491
Cash. . . . . . . . . . . . . . . - - 14,487 14,487
Financial liabilities:
Annuity reserves. . . . . . . . . 1,203,549 1,153,765 1,330,100 1,271,346
</TABLE>
The above values do not reflect any premium or discount from offering for
sale at one time the Company's entire holdings of a particular financial
instrument. Fair value estimates are made at a specific point in time based on
relevant market information, if available. Because no market exists for certain
of the Company's financial instruments, fair value estimates for these assets
and liabilities were based on subjective estimates of market conditions and
perceived risks of the financial instruments. Fair value estimates were also
based on judgments regarding future loss and prepayment experience and were
influenced by the Company's historical information.
The following methods and assumptions were used to estimate the fair value
of the Company's financial instruments.
Fixed Maturity and Equity Securities
The estimated fair value for the Company's investment portfolio was
generally determined from quoted market prices for publicly traded securities.
Certain of the securities owned by the Company may trade infrequently or not at
all; therefore, fair value for these securities was determined by management by
evaluating the relationship between quoted market values and carrying value and
assigning a liquidity factor to this segment of the investment portfolio.
Mortgage Loans on Real Estate
The fair value of the Company's loan portfolio was determined by
segregating the portfolio by type of loan and further by its performing and
non-performing components. Performing loans were further segregated based on
the due date of their payments, an analysis of credit risk by category was
performed and a matrix of pricing by category was developed. The fair value of
delinquent loans was estimated by the Company's using estimated recoveries on
defaulted loans.
Investment Real Estate
The fair value of the Company's investment real estate was based upon
independent appraisals of the properties.
Policy Loans
Policy loans are generally settled at the loan amount plus accrued
interest; therefore, the carrying value of these assets is a reasonable estimate
of their fair values.
Other Invested Assets
The fair value of the Company's investment in other invested assets
approximates their carrying value.
Short-term Investments
The carrying amount of short-term investments approximates their fair
values because these assets generally mature in 90 days or less and do not
present any significant credit concerns.
Investment in Limited Partnerships
The fair value of the Company's investment in limited partnerships
approximated their carrying value.
Annuity Reserves
The Company's annuity contracts generally do not have a defined maturity
and are considered as deposits under SFAS No. 97. SFAS No. 107 states that the
fair value to be disclosed for deposit liabilities with no defined maturities is
the amount payable on demand at the reporting date. Accordingly, the Company
has estimated the fair value of its annuity reserves as the cash surrender value
of these contracts.
(11) COMMITMENTS AND CONTINGENCIES
The Company is obligated under operating leases, including office space,
computer equipment and automobiles. Rent expense was $.5 million, $.6 million
and $.7 million in 1997, 1996 and 1995, respectively.
Minimum annual commitments under noncancellable operating leases are as
follows (in thousands of dollars):
<TABLE>
<CAPTION>
<S> <C>
1998 . . . . . . . . . . . . . . . $ 81
1999 . . . . . . . . . . . . . . . 59
2000 . . . . . . . . . . . . . . . 60
2001 . . . . . . . . . . . . . . . 62
2002 and thereafter. . . . . . . . 55
----
Total minimum payments required $317
====
</TABLE>
In connection with the sale of the Company, the Company entered into an
agreement with UC Financial which will provide for the Company's purchase of up
to $300 million (revised to $150 million during 1997), at any one time
outstanding, of first mortgage residential loans originated by UC Financial.
The agreement provides that UC Financial will have the right for a limited time
to repurchase certain loans which are eligible for securitization by UC
Financial. The agreement also has a sublimit of $150 million (revised to $75
million during 1997) for loans that are not eligible for securitization by UC
Financial. No purchases were made in 1997 or 1996.
The Company is subject to various litigation arising during the ordinary
course of business. While the outcome of such litigation cannot be predicted
with certainty, management does not expect the resolution of these matters to
have a material adverse effect on the financial condition or results of
operations of the Company.
(12) QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data is as follows:
<TABLE>
<CAPTION>
Purchase basis of accounting
----------------------------------
Three Months Ended
----------------------------------
Dec 31 Sep 30 Jun 30 Mar 31
------- ------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C>
1997:
Total revenues. . . . . $31,743 $32,033 $30,431 $32,216
Income from operations
before income taxes. . 8,810 5,313 5,418 5,617
Net income. . . . . . . 5,619 3,441 3,392 3,505
</TABLE>
<TABLE>
<CAPTION>
Historical basis Purchase basis
of accounting of accounting
-------------------------------- ----------------
Three Period Period Three Three
Months from from Months Months
Ended Jul 24 to Jul 1 to Ended Ended
Dec 31 Sep 30 July 23 Jun 30 Mar 31
------- ----------- ---------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
1996:
Total revenues . . . . . . . . $31,502 $ 23,820 $ 6,579 $31,239 $32,216
Income (loss) from operations
before income taxes. . . . . 4,947 4,132 (2,996) 2,516 2,661
Net income (loss). . . . . . . 3,096 2,606 (1,940) 1,622 1,730
</TABLE>
(13) SUBSEQUENT EVENT
In February 1998, the Company announced that it is relocating its
operations from Baton Rouge, Louisiana. The operating functions will be assumed
by an affiliate company in Dallas, Texas.
<PAGE>
SCHEDULE III
<TABLE>
<CAPTION>
UNITED LIFE & ANNUITY INSURANCE COMPANY AND SUBSIDIARY
SUPPLEMENTARY INSURANCE INFORMATION
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN F COLUMN G COLUMN H
- -------------------------------- ------------ --------------- --------- ------------ ----------- -------------
Deferred
Policy Net Benefits,
Acquisition Future Policy Unearned Premium Investment Claims
Costs Benefits(1) Premiums Revenues(3) Income Losses, Etc.
------------ --------------- --------- ------------ ----------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
PURCHASE BASIS OF ACCOUNTING:
Year ended December 31, 1997 . . $ 13,671 $ 1,312,876 $ 132 $ 5,731 $ 110,735 $ 7,149
Period from July 24 through
December 31, 1996 . . . . . . $ 4,187 $ 1,443,964 $ 275 $ 3,483 $ 49,733 $ 3,836
HISTORICAL BASIS OF ACCOUNTING:
Period from January 1 through
July 23, 1996 . . . . . . . . $ 85,801 $ 1,465,012 $ 1,074 $ 3,732 $ 66,421 $ 5,967
Year ended December 31, 1995 . . $ 90,703 $ 1,531,572 $ 1,793 $ 8,508 $ 125,591 $ 9,930
COLUMN A COLUMN I & J
- -------------------------------- -----------------
Deferred Policy
Acquisition Cost
Amortization
and
Other Operating
Expenses
-----------------
(dollars in thousands)
<S> <C>
PURCHASE BASIS OF ACCOUNTING:
Year ended December 31, 1997 . . $ 10,056
Period from July 24 through
December 31, 1996 . . . . . . $ 4,741
HISTORICAL BASIS OF ACCOUNTING:
Period from January 1 through
July 23, 1996 . . . . . . . . $ 19,452
Year ended December 31, 1995 . . $ 29,485
<FN>
NOTES:
(1) Column C includes accumulated fund values on annuity and interest
sensitive products.
(2) Column E is omitted as amounts are not material and are included with
Column C.
(3) Column F excludes premiums on annuity and interest sensitive products
which are accounted for as deposits.
</TABLE>
<PAGE>
SCHEDULE IV
UNITED LIFE & ANNUITY INSURANCE COMPANY AND SUBSIDIARY
REINSURANCE
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- ---------------------------------------------------- ----------- ----------- ----------- ---------- -----------
Percentage
Ceded to Assumed of Amount
Direct Other From Other Net Assumed to
Amount Companies Companies Amount Net Amount
----------- ----------- ----------- ---------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Life insurance in force
at end of period. . . . . . . . . . . . . . . . $ 410,606 $ 116,672 $ 732,253 $1,026,187 71.4%
=========== =========== =========== ==========
Premiums
Life insurance. . . . . . . . . . . . . . . . . $ 4,624 $ 1,195 $ 1,927 $ 5,356 36.0
Accident and health insurance . . . . . . . . . 398 23 - 375 -
----------- ----------- ----------- ----------
Total premiums . . . . . . . . . . . . . . $ 5,022 $ 1,218 $ 1,927 $ 5,731 33.6
=========== =========== =========== ==========
Period from July 24, 1996 to December 31, 1996
Life insurance in force
Premiums
Life insurance. . . . . . . . . . . . . . . . . $ 2,496 $ 481 $ 1,214 $ 3,229 37.6
Accident and health insurance . . . . . . . . . 208 (46) - 254 -
----------- ----------- ----------- ----------
Total premiums . . . . . . . . . . . . . . $ 2,704 $ 435 $ 1,214 $ 3,483 34.9
=========== =========== =========== ==========
Period from January 1, 1996 to July 23, 1996
Life insurance in force
at end of period . . . . . . . . . . . . . . . $ 499,292 $ 141,816 $ 992,672 $1,350,148 73.5
=========== =========== =========== ==========
Premiums
Life insurance. . . . . . . . . . . . . . . . . $ 2,719 $ 341 $ 877 $ 3,255 26.9
Accident and health insurance . . . . . . . . . 429 (48) - 477 -
----------- ----------- ----------- ----------
Total premiums . . . . . . . . . . . . . . $ 3,148 $ 293 $ 877 $ 3,732 23.5
=========== =========== =========== ==========
Year ended December 31, 1995
Life insurance in force
at end of period . . . . . . . . . . . . . . . $ 554,131 $ 149,080 $ 992,979 $1,398,030 71.0
=========== =========== =========== ==========
Premiums
Life insurance. . . . . . . . . . . . . . . . . $ 6,016 $ 1,625 $ 2,588 $ 6,979 37.1
Accident and health insurance . . . . . . . . . 1,643 115 1 1,529 -
----------- ----------- ----------- ----------
Total premiums . . . . . . . . . . . . . . $ 7,659 $ 1,740 $ 2,589 $ 8,508 30.4
=========== =========== =========== ==========
</TABLE>
<PAGE>
SCHEDULE V
UNITED LIFE & ANNUITY INSURANCE COMPANY AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN C COLUMN D
ADDITIONS
COLUMN A COLUMN B DEDUCTIONS(2) COLUMN E(3)
----------- -------------- ------------
Charged
Balance at to Costs Charged Balance at
Beginning and to Other End
of Period Expenses Accounts(1) of Period
----------- ---------- ------------ ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Purchase basis of accounting:
- -----------------------------------
Year ended December 31, 1997
Allowance for loan losses . . . . $ 4,211 $ (12) $ - $ 276 $ 3,923
Allowance for real estate losses. -
Allowance for bond losses . . . . 189 - - 189 -
Unearned loan charges . . . . . . 2,072 - - 503 1,569
----------- ---------- ------------ -------------- ------------
Total . . . . . . . . . $ 6,472 $ (12) $ - $ 968 $ 5,492
=========== ========== ============ ============== ============
Period from July 24, 1996 to
December 31, 1996 (Restated)
Allowance for loan losses . . . . $ 4,211 $ - $ - $ - $ 4,211
Allowance for real estate losses. - - - - -
Allowance for bond losses . . . . 189 - - - 189
Unearned loan charges . . . . . . 2,021 - - (51) 2,072
----------- ---------- ------------ -------------- ------------
Total. . . . . . . . . . $ 6,421 $ - $ - $ (51) $ 6,472
=========== ========== ============ ============== ============
Historical basis of accounting:
- -----------------------------------
Period from January 1, 1996 to
July 23, 1996
Allowance for loan losses . . . . $ 2,117 $ 478 $ - $ 771 $ 1,824
Allowance for real estate losses. 3,987 (1,098) - 2,889 -
Allowance for bond losses . . . . 666 884 - 1,361 189
Unearned loan charges . . . . . . 301 - - 17 284
----------- ---------- ------------ -------------- ------------
Total. . . . . . . . . . $ 7,071 $ 264 $ - $ 5,038 $ 2,297
=========== ========== ============ ============== ============
Year ended December 31, 1995
Allowance for loan losses . . . . $ 1,778 $ 533 $ - $ 194 $ 2,117
Allowance for real estate losses. 5,120 1,505 - 2,638 3,987
Allowance for bond losses . . . . 317 2,013 - 1,664 666
Unearned loan charges . . . . . . 419 - - 118 301
----------- ---------- ------------ -------------- ------------
Total . . . . . . . . . . $ 7,634 $ 4,051 $ - $ 4,614 $ 7,071
=========== ========== ============ ============== ============
<FN>
NOTES:
(1) Represents the approximate amount of unearned loan charges on installment
loans originated during the period.
(2) Represents loans and bonds charged off and loan charges earned during the
period.
(3) All of the above are deducted in the balance sheet from the asset to which
they apply.
</TABLE>
<PAGE>
