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U N I T E D I N V E S T O R S
U N I V E R S A L L I F E
VARIABLE ACCOUNT
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
PROSPECTUS DATE AUGUST 15, 1997
United Investors Life Insurance Company
Administrative Office
2323 Bryan Street, Suite 1100
Dallas, Texas 75221
(800) 451-6923
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This prospectus describes a flexible premium variable life
insurance policy ("Policy") offered by United Investors Life
Insurance Company ("United Investors," "we," "us," or "our").
The Policy provides life insurance protection on the insured
(the "Insured") up to the Maturity Date. It also provides
flexibility to vary the amount and timing of premiums and to
change the amount of Death Benefits payable under the Policy.
This flexibility allows the purchaser of a Policy ("you,"
"your," or the "Owner,") to provide for changing insurance
needs under a single insurance policy.
You may allocate net premiums and Policy Value to the United
Investors Universal Life Variable Account (the "Variable
Account"), to United Investors' general account (the "Fixed
Account"), or to a combination of both within certain limits.
The Variable Account is divided into 11 investment divisions
(each, an "Investment Division"). Assets of each Investment
Division are invested in a corresponding investment portfolio
(each, a "Portfolio") of TMK/United Funds, Inc. ("TMK/United").
The Portfolios currently available include:
ASSET STRATEGY HIGH INCOME MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO
BALANCED PORTFOLIO INCOME PORTFOLIO SCIENCE AND
BOND PORTFOLIO INTERNATIONAL TECHNOLOGY PORTFOLIO
GROWTH PORTFOLIO PORTFOLIO SMALL CAP PORTFOLIO
LIMITED-TERM BOND
PORTFOLIO
The accompanying prospectus for TMK/United describes each of
the Portfolios, including the risks of investing in each
Portfolio, and provides other information about TMK/United. You
bear the entire investment risk for all amounts allocated or
transferred to the Investment Divisions because the Policy
Value will vary with the investment performance of the
Investment Divisions you select. United Investors guarantees
that amounts allocated to the Fixed Account will earn a
guaranteed minimum interest rate of at least 4% per year.
You can select from two Death Benefit Options available under
the Policy: Option A (greater of Face Amount or a multiple of
Policy Value); and Option B (greater of Face Amount plus Policy
Value, or a multiple of Policy Value).
THE POLICY PROVIDES FOR A CASH SURRENDER VALUE. BECAUSE THIS
VALUE IS BASED ON THE PERFORMANCE OF THE INVESTMENT DIVISIONS,
THERE IS NO GUARANTEED MINIMUM CASH SURRENDER VALUE FOR AMOUNTS
ALLOCATED TO THE VARIABLE ACCOUNT. The Net Cash Surrender Value
is the Cash Surrender Value reduced by any Loan Balance. If the
Net Cash Surrender Value is insufficient to cover the charges
due under the Policy, the Policy will terminate without value.
However, the Policy will not terminate during the Death Benefit
Guarantee Period, regardless of the sufficiency of the Net Cash
Surrender Value, as long as the minimum premiums for the Death
Benefit Guarantee have been paid. The Policy also provides for
transfers among Investment Divisions, Policy Loans and permits
Partial Surrenders (withdrawals) within limits.
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THIS PROSPECTUS SHOULD BE READ CAREFULLY AND RETAINED FOR
FUTURE REFERENCE. A PROSPECTUS FOR TMK/UNITED FUNDS, INC. MUST
ACCOMPANY THIS PROSPECTUS AND SHOULD BE READ IN CONJUNCTION
WITH THIS PROSPECTUS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE
<S> <C>
SUMMARY AND DIAGRAM OF THE POLICY.......................................... 3
DEFINITIONS................................................................ 7
UNITED INVESTORS........................................................... 8
THE VARIABLE ACCOUNT AND TMK/UNITED........................................ 8
FACTS ABOUT THE POLICY..................................................... 10
Applying for a Policy.................................................... 10
Free Look Right to Cancel Policy......................................... 10
Premiums................................................................. 10
Planned Premiums......................................................... 10
Premiums to Prevent Termination.......................................... 11
Death Benefit Guarantee.................................................. 11
Crediting Premiums to the Policy......................................... 11
Net Premium Allocations.................................................. 11
Fixed Account Option..................................................... 12
Transfers................................................................ 12
Dollar-Cost Averaging.................................................... 12
Surrender of the Policy.................................................. 13
Partial Surrenders....................................................... 13
Loan Benefits............................................................ 13
Requesting Payments...................................................... 14
Other Changes............................................................ 14
Reports to Owners........................................................ 15
Other Policy Provisions.................................................. 15
Assignment and Change of Owner........................................... 15
Supplemental Benefits.................................................... 15
CHARGES AND DEDUCTIONS..................................................... 16
POLICY VALUES.............................................................. 18
Policy Value............................................................. 18
Cash Surrender Value..................................................... 18
Net Cash Surrender Value................................................. 18
Variable Account Value................................................... 19
Fixed Account Value...................................................... 20
DEATH BENEFITS............................................................. 20
Amount of Death Benefit Payable.......................................... 20
Death Benefit Options.................................................... 20
Changing the Death Benefit Option........................................ 21
Changing the Face Amount................................................. 21
Effect of Partial Surrenders on the Death Benefit........................ 22
Changing the Beneficiary................................................. 22
HYPOTHETICAL ILLUSTRATIONS................................................. 23
TAX CONSIDERATIONS......................................................... 32
ADDITIONAL INFORMATION..................................................... 36
Directors and Officers of United Investors............................... 36
Sale of the Policies..................................................... 37
Voting of Portfolio Shares............................................... 37
Other Information........................................................ 37
Litigation............................................................... 37
Legal Matters............................................................ 38
Experts.................................................................. 38
Financial Statements..................................................... 38
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE.
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SUMMARY AND DIAGRAM OF THE POLICY
The following summary of prospectus information and diagram of the important
features of the Policy should be read in conjunction with the more detailed
information appearing elsewhere in this prospectus. Unless otherwise
indicated, the description of the Policy in this prospectus assumes that the
Policy is in force and there is no outstanding Loan Balance. Definitions of
certain terms used in this prospectus may be found by referring to the
"Definitions" section immediately following the diagram.
THE POLICY. The Policy is designed to provide life insurance coverage on a
named Insured up to the Maturity Date, cash values, surrender rights, loan
privileges, and other features associated with conventional life insurance.
You should consider the Policy in conjunction with other insurance you own. It
may not be advantageous to replace existing insurance with the Policy.
The Cash Surrender Value may be substantially lower than the premiums paid.
The Policy Value may decrease if the investment performance of the Investment
Divisions to which Policy Value is allocated is sufficiently adverse or not
sufficiently positive to cover the charges under the Policy. IF THE NET CASH
SURRENDER VALUE BECOMES INSUFFICIENT TO COVER CHARGES WHEN DUE AND THE DEATH
BENEFIT GUARANTEE IS NOT IN EFFECT, THE POLICY WILL TERMINATE WITHOUT VALUE
AFTER A GRACE PERIOD. SEE "PREMIUMS TO PREVENT TERMINATION."
TAX CONSIDERATIONS. United Investors intends for the Policy to satisfy the
definition of a life insurance contract under Section 7702 of the Internal
Revenue Code of 1986, as amended (the "Code"). Under certain circumstances, a
Policy could be treated as a "modified endowment contract." We will monitor
Policies and will attempt to notify you on a timely basis if your Policy is in
jeopardy of becoming a modified endowment contract. For further discussion of
the tax status of a Policy and the tax consequences of being treated as a life
insurance contract or a modified endowment contract, see "Tax Considerations."
FREE LOOK RIGHT TO CANCEL. For a limited time after the Policy is issued,
you have the right to cancel your Policy and receive a full refund of all
premiums paid. See "Free Look Right to Cancel Policy."
OWNER INQUIRIES. If you have any questions, you may write or call our
Administrative Office at 2323 Bryan Street--Suite 1100, P.O. Box 219065,
Dallas, TX 75221-9065, (800) 451-6923.
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DIAGRAM OF POLICY
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PREMIUMS
* You select a payment plan but are not required to pay premiums according to
the plan. You can vary the frequency and amount, within limits, and can skip
planned premiums. See "Planned Premiums." UNDER CERTAIN CIRCUMSTANCES, EXTRA
PREMIUMS MAY BE REQUIRED TO PREVENT TERMINATION. SEE "PREMIUMS TO PREVENT
TERMINATION."
* Minimum initial premium and planned premium depend on the Insured's age,
sex, risk class, Face Amount selected, and any supplemental benefit riders.
See "Premiums."
* Unplanned premiums may be made, within limits. See "Premiums."
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ALLOCATIONS OF NET PREMIUMS
* A 3.5% premium expense charge is deducted from each premium before
allocation resulting in a Net Premium.
* No sales load is deducted from premiums.
* You direct the allocation of Net Premiums among the Investment Divisions and
the Fixed Account. See "Net Premium Allocations" for rules and limits.
* Interest is credited on amounts allocated to the Fixed Account at a rate
determined by United Investors, but not less than an annual effective rate of
4%. See "Transfers" for rules and limits on Fixed Account allocations.
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PORTFOLIOS AVAILABLE THROUGH INVESTMENT DIVISIONS
* The Investment Divisions invest in corresponding Portfolios of TMK/United
Funds, Inc. See "TMK/United."
* THE POLICY VALUE IN THE INVESTMENT DIVISIONS IS NOT GUARANTEED AND MAY
DECREASE OR INCREASE. PRINCIPAL IS NOT GUARANTEED.
* The Portfolios currently available and their management fees and other
expenses (expressed as a percentage of net assets of each Portfolio) are as
follows. The figures are for 1996 (except for Science and Technology which are
estimates for 1997 because it commenced operations on April 4, 1997). Future
fees and expenses may be higher or lower.
TMK/UNITED ANNUAL EXPENSES
<TABLE>
<CAPTION>
ASSET
STRATEGY BALANCED BOND GROWTH HIGH INCOME
-------- -------- ---- ------ -----------
<S> <C> <C> <C> <C> <C>
Management Fees....................... .80% .60% .53% .70% .65%
Other Expenses........................ .13% .10% .06% .03% .06%
--- --- --- --- ---
Total Annual Expenses................. .93% .70% .59% .73% .71%
</TABLE>
<TABLE>
<CAPTION>
LIMITED-
TERM MONEY SCIENCE AND
INCOME INTERNATIONAL BOND MARKET TECHNOLOGY SMALL CAP
------ ------------- -------- ------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Management Fees......... .70% .80% .55% .50% .70% .85%
Other Expenses.......... .03% .20% .21% .11% .03% .06%
--- ---- --- --- --- ---
Total Annual Expenses... .73% 1.00% .76% .61% .73% .91%
</TABLE>
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DEDUCTIONS FROM ASSETS
* A monthly deduction is made for: (1) cost of insurance; (2) a monthly
administrative charge (currently $5.00; maximum is $7.50); (3) a Guaranteed
Death Benefit Charge of $0.01 per $1,000 of Face Amount as long as the Death
Benefit Guarantee remains in effect; and (4) any supplemental benefit charges.
See "Charges and Deductions--Monthly Deduction."
* A daily charge for mortality and expense risks at a current effective annual
rate of 0.90% during the first 10 years of the Policy (0.70% thereafter) is
deducted from assets in the Investment Divisions. The maximum mortality and
expense risk charge is 0.90% for all Policy Years. See "Charges Deducted From
the Investment Divisions." This charge is not deducted from Fixed Account
Value.
* Management fees and other expenses are deducted from the assets of each
Portfolio. See "Portfolios Available Through Investment Divisions."
* See "Allocations of Net Premiums" and "Cash Benefits" for other charges and
deductions.
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POLICY VALUE
* The Policy Value is the sum of the amounts in the Investment Divisions and
in the Fixed Account credited to your Policy. See "Policy Value," "Fixed
Account Value," and "Variable Account Value."
* Policy Value varies from day to day to reflect Investment Division
investment experience, interest credited on Fixed Account allocations, charges
deducted and other Policy transactions (such as Policy Loans, transfers and
Partial Surrenders.)
* Policy Value can be transferred ($100 minimum) among the Investment
Divisions and the Fixed Account up to 12 times in a Policy Year. See
"Transfers" for rules and limits. Policy Loans reduce the amount available for
allocations and transfers.
* Policy Value serves as the starting point for calculating certain values
under a Policy, such as the Cash Surrender Value and the Death Benefit (under
Option B).
* THERE IS NO MINIMUM GUARANTEED POLICY VALUE. IF THE NET CASH SURRENDER VALUE
ON A MONTHLY ANNIVERSARY IS INSUFFICIENT TO COVER THE MONTHLY DEDUCTION THEN
DUE AND THE DEATH BENEFIT GUARANTEE IS NOT IN EFFECT, THE POLICY WILL
TERMINATE UNLESS YOU MAKE A PREMIUM PAYMENT DURING THE 61-DAY GRACE PERIOD
THAT IS SUFFICIENT TO KEEP THE POLICY IN FORCE. SEE "PREMIUMS TO PREVENT
TERMINATION."
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5
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CASH BENEFITS
* Loans may be taken for amounts up to 90% of Cash Surrender Value. See
"Policy Loans" and "Tax Considerations."
* Partial Surrenders generally can be made at any time during the Insured's
life before the Policy is terminated provided there is sufficient remaining
Net Cash Surrender Value. A Partial Surrender charge equal to the lesser of
$25 or 2% of the Partial Surrender amount requested, plus a portion of the
surrender charge, will be charged for each Partial Surrender. See "Partial
Surrenders" for rules and limits.
* The Policy can be surrendered at any time for its Net Cash Surrender Value
(Policy Value minus any applicable surrender charge minus any Loan Balance).
See "Full Surrenders."
* A surrender charge will be deducted from the Policy Value upon a full
surrender of the Policy prior to the end of the 16th Policy Year or the end of
the 16th year after an increase in Face Amount. The surrender charge varies
based on the Insured's age on the Policy Date or Attained Age at the time of
an increase and is a stated amount per $1,000 of Face Amount. For each age,
the surrender charge is imposed on full surrenders during the first five
Policy Years (or first five years after an increase in Face Amount). For each
age, the surrender charge then decreases annually beginning in the sixth
Policy Year until it reaches zero at the end of the 16th Policy Year. See
"Surrender Charge."
* A variety of payment options are available.
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DEATH BENEFITS
* Death Benefits are available as lump sum or under a variety of payment
options.
* The minimum Face Amount available varies based on the age and risk class of
the Insured.
* Death Benefits are available in two Death Benefit Options: Option A (greater
of Face Amount or a multiple of Policy Value); or Option B (greater of Face
Amount plus the Policy Value, or a multiple of Policy Value). See "Death
Benefits."
* There is flexibility to change the Face Amount and to change the Death
Benefit Option. See "Changing the Face Amount" and "Changing the Death Benefit
Option" for rules and limits.
* The Death Benefit Guarantee keeps the Policy in force regardless of
sufficiency of Net Cash Surrender Value as long as cumulative premiums paid on
the Policy, less any Partial Surrenders and any Loan Balance, are at least
equal to (a) the Minimum Monthly Premium multiplied by (b) the number of
months the Policy has been in force. See "Death Benefit Guarantee."
* The Death Benefit generally should be excludable from the gross income of
the Beneficiary. See "Tax Considerations."
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6
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DEFINITIONS
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Administrative Office... 2323 Bryan Street--Suite 1100, P.O. Box 219065,
Dallas, TX 75221-9065, (800) 451-6923.
Attained Age............ The age of the Insured on his or her last birthday at
the beginning of each Policy Year.
Cash Surrender Value.... Policy Value less any applicable surrender charges.
Death Benefit........... The amount of insurance payable to the Beneficiary on
the death of the insured.
Death Benefit Guarantee
Period.................. The period in which the Death Benefit is guaranteed
to remain in effect as long as the sum of the
premiums paid minus any Partial Surrenders and any
Loan Balance equals or exceeds the Minimum Monthly
Premium multiplied by the number of months the Policy
is in force.
Death Benefit Option.... One of two options under the Policy that is used to
determine the amount of the Death Benefit.
Fixed Account........... A part of the general account of United Investors
Life Insurance Company. The general account consists
of all assets of United Investors Life Insurance
Company other than those in any separate account.
Fixed Account Value..... The Policy Value in the Fixed Account.
Loan Balance............ The sum of all outstanding loans including principal
and interest.
Maturity Date........... Policy Anniversary on or next following the Insured's
100th Birthday.
Minimum Monthly
Premium................. For any Policy Month during the Death Benefit
Guarantee Period, the minimum amount of premium
required to keep the Death Benefit Guarantee in
effect.
Monthly Anniversary..... The same day each month as the Policy Date. If the
Monthly Anniversary falls on a date other than a
Valuation Date, the next following Valuation Date
will be deemed the Monthly Anniversary.
Net Cash Surrender
Value................... Cash Surrender Value less any Loan Balance.
Net Premium............. The premium received less the premium expense charge.
Partial Surrender....... A request to withdraw a portion of the Net Cash
Surrender Value. A Partial Surrender will be subject
to a surrender charge.
Policy Anniversary...... The same day and month as the Policy Date each year
that the Policy remains in force. If the Policy
Anniversary falls on a date other than a Valuation
Date, the next following Valuation Date will be
deemed the Policy Anniversary.
Policy Date............. The date from which Policy Anniversaries and Policy
Years are determined. Your Policy Date is shown in
your Policy.
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Policy Loan............. A request to borrow a portion of the Net Cash
Surrender Value.
Policy Month............ The first Policy Month starts on the Policy Date.
Subsequent Policy Months start on the Monthly
Anniversary.
Policy Value............ The sum of the Variable Account Value and the Fixed
Account Value.
Valuation Date.......... Each day that the New York Stock Exchange is open for
trading.
Valuation Period........ The period of time beginning at the close of the New
York Stock Exchange on one Valuation Date and ending
at the close of the New York Stock Exchange on the
next Valuation Date.
Variable Account Value.. The sum of the values of the Investment Divisions
under the Policy.
We, Us, or United
Investors............... United Investors Life Insurance Company.
You and Your............ The Owner of the Policy.
UNITED INVESTORS
UNITED INVESTORS LIFE INSURANCE COMPANY. United Investors is a Missouri
Stock life insurance company that was incorporated on August 17, 1981 as the
successor to a company of the same name established in Missouri on September
27, 1961. United Investors is indirectly owned by Torchmark Corporation.
United Investors is principally engaged in offering life insurance and annuity
contracts and is authorized to do business in the District of Columbia and all
states except New York. United Investors also serves as the depositor to
United Investors Life Variable Account, an investment company supporting other
variable life insurance policies issued by United Investors. United Investors'
address is 2001 Third Avenue South, Birmingham, Alabama 35233. See "Directors
and Officers of United Investors" for information on the directors and
officers of United Investors.
THE VARIABLE ACCOUNT AND TMK/UNITED
THE VARIABLE ACCOUNT. United Investors established United Investors
Universal Life Variable Account (the "Variable Account") as a separate
investment account under Missouri law on April 18, 1997. United Investors owns
the assets in the Variable Account and is obligated to pay benefits under the
Policies. The Variable Account is used to support the Policies as well as for
other purposes permitted by law. The Variable Account is registered with the
Securities and Exchange Commission ("SEC") as a unit investment trust under
the Investment Company Act of 1940, as amended (the "1940 Act") and qualifies
as a "separate account" within the meaning of the federal securities laws.
Such registration does not involve any supervision by the SEC of the
management of the Variable Account or United Investors.
The Variable Account is divided into Investment Divisions, each of which
currently invests in shares of a specific Portfolio of TMK/United Funds, Inc.
See "TMK/United." These Investment Divisions buy and redeem Portfolio shares
at net asset value. Any dividends and distributions from security transactions
of a Portfolio are reinvested at net asset value in shares of the same
Portfolio. Income, gains and losses, realized or unrealized, of an Investment
Division are credited to or charged against that Investment Division without
regard to any other income, gains or losses of United Investors. Assets equal
to the reserves and other contract liabilities with respect to each Investment
Division are not chargeable with liabilities arising out of any other business
or account of United Investors. If the assets exceed the required reserves and
other liabilities, United Investors may transfer the excess to its general
account.
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The Variable Account may include other Investment Divisions that are not
available under the Policy and are not otherwise discussed in this prospectus.
United Investors may substitute another Investment Division or insurance
company separate account under the Policy if, in United Investors' judgment,
investment in an Investment Division should no longer be possible or becomes
inappropriate to the purposes of the Policies, or if investment in another
Investment Division or insurance company separate account is in the best
interest of Owners. No substitution may take place without notice to Owners
and prior approval of the SEC and insurance regulatory authorities, to the
extent required by the 1940 Act and applicable law.
United Investors may make changes to the Variable Account to the extent
permitted by applicable law and regulations. These changes may include: (1)
operating the Variable Account as a management company under the 1940 Act, or
in any other form permitted by law, if we deem it to be in the best interest
of Owners; (2) deregistering the Variable Account under the 1940 Act if such
registration is no longer required; or (3) combining the Variable Account with
other separate investment accounts.
TMK/UNITED. The Variable Account has eleven Investment Divisions, each
investing in a specific Portfolio of TMK/United. TMK/United is a series-type
fund registered with the SEC as a diversified open-end management investment
company under the 1940 Act. Waddell & Reed Investment Management Company
("Waddell & Reed"), an affiliate of United Investors, is the manager of
TMK/United and provides investment advisory services to TMK/United. Waddell &
Reed maintains a large staff of experienced investment personnel and provides
investment advice to and supervises investments of a number of mutual funds.
Each Portfolio pays Waddell & Reed a management fee for managing that
Portfolio's investments. See "Summary and Diagram of the Policy" and the
accompanying prospectus for TMK/United. The investment objective(s) of each of
the Portfolios in which Investment Divisions invest are summarized below.
There is no assurance that these objectives will be met. Further information
about the Portfolios is contained in the accompanying prospectus for
TMK/United, which you should read in conjunction with this prospectus.
ASSET STRATEGY PORTFOLIO seeks high total return with reduced risk over
the long term. It diversifies among stocks, bonds, and short-term
instruments, both in the United States and abroad.
BALANCED PORTFOLIO primarily seeks current income with a secondary goal
of long-term appreciation of capital by investing in a variety of
securities, including debt securities, common stocks and preferred stocks.
BOND PORTFOLIO seeks to provide current income with an emphasis on
preservation of capital. It invests primarily in debt securities of varying
yields, quality and maturities.
GROWTH PORTFOLIO primarily seeks capital growth. As a secondary goal it
seeks current income. It invests primarily in common stocks or securities
convertible into common stocks.
HIGH INCOME PORTFOLIO primarily seeks high current income. As a secondary
goal it seeks capital growth when consistent with the primary goal. It
invests primarily in high-yield, high-risk fixed-income securities,
commonly known as "junk bonds," but may have up to 20% of its assets in
common stocks.
INCOME PORTFOLIO seeks to maintain current income, subject to market
conditions. It invests primarily in common stocks or securities convertible
into common stocks.
INTERNATIONAL PORTFOLIO primarily seeks long-term appreciation of capital
with a secondary goal of current income by investing primarily in
securities issued by companies or governments of any nation.
LIMITED-TERM BOND PORTFOLIO seeks a high level of current income
consistent with preservation of capital by investing primarily in debt
securities of investment grade, including debt
9
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securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. The Portfolio seeks to maintain a dollar-weighted
average maturity of its portfolio of two to five years.
MONEY MARKET PORTFOLIO seeks to maximize current income consistent with
stability of principal. It may invest in money market securities such as
bank obligations and instruments secured by bank obligations, commercial
paper and corporate debt obligations and obligations of the U.S. and
Canadian Governments or their respective agencies and instrumentalities.
SCIENCE AND TECHNOLOGY PORTFOLIO seeks long-term capital growth through
investments primarily in science and technology securities.
SMALL CAP PORTFOLIO seeks capital growth through a diversified holding of
securities, primarily in the common stocks of, or securities convertible
into the common stocks of, relatively new or unseasoned companies,
companies which are in their early stages of development or smaller
companies positioned in new and emerging industries where the opportunity
for rapid growth is above average.
FACTS ABOUT THE POLICY
APPLYING FOR A POLICY. To purchase a Policy, you must complete an
application and submit it to United Investors' Administrative Office at the
address listed on the front of this prospectus. You also must pay an initial
premium which varies by age, sex and risk class. See "Premiums," below. Your
initial premium can be submitted with your application, subject to our
underwriting rules, or at a later date. Coverage becomes effective as of the
Policy Date. If an individual dies before the Policy Date, United Investors'
sole liability will be to return the premiums paid plus any interest earned on
it unless a Temporary Insurance Agreement is in effect.
Generally, United Investors will issue a Policy covering an Insured up to
age 75 if evidence of insurability satisfies our underwriting rules. Evidence
of insurability may include, among other things, a medical examination of the
Insured. United Investors may, in its sole discretion, issue a Policy covering
an Insured over age 75. We reserve the right not to accept an application for
any lawful reason.
FREE LOOK RIGHT TO CANCEL POLICY. During your "free look" period, you may
cancel your Policy and receive a refund of all premiums paid. The free look
period expires the later of: (a) 20 days after you receive your Policy; or (b)
45 days after you sign the application for the Policy. Some states may require
a longer period. If you decide to cancel the Policy, you must return it by
mail or other delivery to United Investors or to the agent who sold it to you
prior to the end of the free look period.
PREMIUMS. The premium amounts sufficient to fund a Policy depend on a number
of factors, such as the age, sex and risk class of the proposed Insured, the
desired Face Amount, and any supplemental benefits. The initial premium must
be at least equal to the Minimum Monthly Premium. After the initial premium is
paid, additional premiums may be paid in any amount (of at least $25) and at
any time. We may increase the minimum amount of additional premiums upon 90
days advance written notice to you. However, total premiums paid in a Policy
Year may not exceed guideline premium limitations for life insurance set forth
in the Code. We reserve the right to reject any premium that would result in
the Policy being disqualified as life insurance under the Code and will refund
any rejected premium. In addition, we will monitor Policies and will attempt
to notify the Owner on a timely basis if his or her Policy is in jeopardy of
becoming a modified endowment contract under the Code. See "Tax
Considerations."
PLANNED PREMIUMS. When you apply for a Policy, you select a quarterly, semi-
annual or annual premium payment plan. You may also arrange for premiums to be
paid monthly via automatic deduction from your checking account. You are not
required to pay premiums in accordance with this premium plan; rather, you can
pay more or less than planned (subject to the $25 minimum), or skip a planned
premium entirely. You can change the amount of planned premiums and payment
10
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arrangements, or switch payment frequencies, whenever you want by providing
satisfactory written instructions to the Administrative Office. Such changes
will be effective upon our receipt of the instructions. Depending on the
Policy Value at the time of any increase in the Face Amount and the amount of
the increase requested, a change in the amount of planned premiums may be
advisable. See "Changing the Face Amount."
PREMIUMS TO PREVENT TERMINATION. IF YOU DO NOT PAY PLANNED PREMIUMS OR IF
THE INVESTMENT PERFORMANCE OF THE POLICY IS NOT SUFFICIENT, YOUR POLICY MAY
TERMINATE WITHOUT VALUE; HOWEVER IT WILL NOT NECESSARILY TERMINATE. A Policy
terminates depending on whether: (a) its Net Cash Surrender Value is
sufficient to cover the Monthly Deduction when due; and (b) the Death Benefit
Guarantee is in effect. If the Death Benefit Guarantee is not in effect on a
Monthly Anniversary and either: (a) the Net Cash Surrender Value is less than
the Monthly Deduction; or (b) the Loan Balance exceeds the Cash Surrender
Value less surrender charges, the Policy will terminate without value unless
additional premiums are paid. See "Monthly Deduction," and "Death Benefit
Guarantee."
You will have a 61-day grace period to pay a premium sufficient to cover the
Monthly Deductions. United Investors will send notice of the amount required
to be paid during the grace period to your last known address and to any
assignee of record. The grace period will begin when the notice is sent and
your Policy will remain in effect during the grace period. See "Amount of
Death Benefit Payable" and "Effect of Policy Loan." The grace period premium
required to be paid will be sufficient to keep the Policy in force for three
months regardless of investment performance. The payment required will not
exceed: (a) the amount by which the Loan Balance exceeds the Cash Surrender
Value; plus (b) any accrued and unpaid Monthly Deductions as of the date of
the notice; plus (c) an amount sufficient to cover the next two Monthly
Deductions. If the grace period premium has not been paid before the grace
period ends, your Policy will terminate. It will have no value and no benefits
will be payable. See "Other Policy Provisions" for a discussion of your
reinstatement rights. If the Insured should die during the grace period before
the grace period premium is paid, the Death Benefit will still be payable to
the Beneficiary, although the amount paid will reflect a reduction for the
Monthly Deduction(s) due on or before the date of the Insured's death and any
Loan Balance.
DEATH BENEFIT GUARANTEE. During the Death Benefit Guarantee Period (see
"Definitions"), your Death Benefit is guaranteed to remain in effect as long
as cumulative premiums paid, less any Partial Surrenders and any Loan Balance,
are at least equal to (a) the Minimum Monthly Premium, multiplied by (b) the
number of months the Policy has been in force. If this requirement is met, the
Policy will remain in force, regardless of the sufficiency of Net Cash
Surrender Value to cover Monthly Deductions. If the Minimum Monthly Premium
has changed since the Policy Date, the total premium amount required will be
based on the different Minimum Monthly Premiums required and the number of
months for which each applied. If the Death Benefit Guarantee ends due to
insufficient premium payments, it may not be restored by payment of additional
premiums.
CREDITING PREMIUMS TO THE POLICY. Between the date your initial premium is
received and the Policy Date, we will credit interest on the initial premium
as if it had been invested in the Investment Division investing in the Money
Market Portfolio. On the Policy Date, the initial Net Premium, plus any
accrued interest on that amount will be credited to the Policy. Any additional
premium received (see "Net Premium Allocations," below) will be credited to
the Policy on the date we receive it, or the next Valuation Date thereafter.
NET PREMIUM ALLOCATIONS. When you apply for a Policy, you specify the
percentage (from 0% to 100%) of Net Premium to be allocated to each Investment
Division and the Fixed Account. You can change the allocation percentages at
any time by sending satisfactory written instructions to our Administrative
Office. The change will apply to all premiums received after we receive your
instructions, unless you instruct otherwise. Net Premium allocations must be
in percentages totaling
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100%, and each allocation percentage must be a whole number. See "TMK/United"
for a description of the Portfolios in which the Investment Divisions invest.
FIXED ACCOUNT OPTION. The Fixed Account is part of United Investors' general
account assets. It is not a separate account. Amounts allocated to the Fixed
Account are credited with interest at rates determined IN OUR SOLE DISCRETION,
but in no event will interest credited on these amounts be less than an
effective annual rate of 4%. The current interest rate is the guaranteed
minimum interest rate plus any excess interest rate. The current interest rate
is determined periodically. The current interest rate will be guaranteed for
at least a one year period. You assume the risk that interest credited may not
exceed the guaranteed minimum rate of 4% per year. United Investors's general
account assets are used to support our insurance and annuity obligations other
than those funded by separate accounts. Subject to applicable law, United
Investors has sole discretion over the investment of the assets of the Fixed
Account. There are significant limits on your right to transfer Policy Value
from the Fixed Account. See "Transfers," below.
BECAUSE OF EXEMPTIVE AND EXCLUSIONARY PROVISIONS, INTERESTS IN THE FIXED
ACCOUNT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR HAS THE
FIXED ACCOUNT BEEN REGISTERED AS AN INVESTMENT COMPANY UNDER THE 1940 ACT.
ACCORDINGLY, NEITHER THE FIXED ACCOUNT NOR ANY INTERESTS THEREIN ARE SUBJECT
TO THE PROVISIONS OF THESE ACTS AND, AS A RESULT, THE STAFF OF THE SECURITIES
AND EXCHANGE COMMISSION HAS NOT REVIEWED THE DISCLOSURE IN THIS PROSPECTUS
RELATING TO THE FIXED ACCOUNT.
TRANSFERS. At any time after the end of the free-look period, you may
transfer all or part of the Variable Account Value to one or more of the
variable Investment Divisions or to the Fixed Account up to 12 times in a
Policy Year. There is no charge for making transfers. You may transfer all or
part of the Fixed Account Value to a variable Investment Division or
Investment Divisions only once each Policy Year and the maximum amount you can
transfer out of the Fixed Account is the greater of: (1) 25% of the prior
Policy Anniversary's unloaned Fixed Account Value; or (2) the amount of the
prior Policy Year's transfer. If a transfer is made from the Fixed Account to
a variable Investment Division, no transfer from that variable Investment
Division to the Fixed Account may be made for six months after the transfer
date. The minimum amount that may be transferred out of a variable Investment
Division or the Fixed Account is $100, or, if less, the Policy Value held in
the Investment Division or in the Fixed Account. The amount remaining must be
at least $100, or we will transfer the total value.
Transfer requests may be made by satisfactory written or telephone request
(if we have your written authorization for telephone requests on file). A
transfer will take effect on the date we receive the request at the
Administrative Office if it is received by 4:00 p.m. Eastern time; otherwise
it will take effect on the following business day. United Investors may,
however, defer transfers under the same conditions that we may delay paying
proceeds. See "Requesting Payments." United Investors reserves the right to
modify, restrict, suspend or eliminate the transfer privileges, including
telephone transfer privileges, at any time, for any reason.
DOLLAR-COST AVERAGING. Prior to the Maturity Date, the dollar-cost averaging
program permits you to systematically transfer on a monthly basis a set dollar
amount from the Money Market Investment Division to the other Investment
Divisions. The minimum automatic transfer amount from the Money Market
Investment Division is $100. If the transfer is to be made to more than one
Investment Division, a minimum of $25 must be transferred to each Investment
Division selected. The dollar-cost averaging method of investment is designed
to reduce the risk of making purchases only when the price of units is high,
but you should carefully consider your financial ability to continue the
program over a long enough period of time to purchase units when their value
is low as well as when it is high. Dollar-cost averaging does not assure a
profit or protect against a loss.
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You may elect to participate in the dollar-cost averaging program at any
time by sending us a written request. Once elected, dollar-cost averaging
remains in effect from the date we receive your request until the value of the
Money Market Investment Division is depleted, or until you cancel the program
by written request or by telephone. There is no additional charge for dollar-
cost averaging. A transfer under this program is not considered a transfer for
purposes of calculating the number of transfers. We reserve the right to
discontinue offering the dollar-cost averaging program at any time and for any
reason. A second method of dollar-cost averaging is to directly allocate
monthly premiums to the Investment Divisions you desire.
SURRENDER OF THE POLICY. You may surrender your Policy at any time for its
Net Cash Surrender Value. See "Requesting Payments." The Net Cash Surrender
Value is the Policy Value minus any surrender charge and minus any Loan
Balance. A surrender charge may apply. See "Surrender Charge." Your Policy
will terminate and cease to be in force if it is surrendered. It cannot later
be reinstated. Surrendering the Policy may have tax consequences. See "Tax
Considerations."
PARTIAL SURRENDERS. You may make Partial Surrenders under your Policy at any
time during the Insured's life and before the Policy has terminated. See
"Requesting Payments." Requests for Partial Surrenders must be made in
writing. The minimum Partial Surrender amount is $100. A Partial Surrender may
not exceed the Net Cash Surrender Value minus $300. A Partial Surrender charge
equal to the lesser of $25 or 2% of the Partial Surrender amount plus a
portion of the surrender charge equal to: (1) the percentage of the Net Cash
Surrender Value requested; multiplied by (2) the surrender charge then in
effect. This charge will be deducted from your Policy Value along with the
Partial Surrender amount requested. When you request a Partial Surrender, you
can direct how the amount will be deducted from your Policy Value. If you
provide no directions, the Partial Surrender will be deducted from your Policy
Value in the Investment Divisions and Fixed Account on a pro-rata basis. If
Death Benefit Option A is in effect, a Partial Surrender may reduce the Face
Amount. See "Effect of Partial Surrenders on the Death Benefit." Partial
Surrenders may have tax consequences.
LOAN BENEFITS. You may borrow up to 90% of your Cash Surrender Value at any
time by submitting a written request to us. Outstanding loans, including
accrued interest, reduce the amount available for new loans. A loan must be
for at least $200. Your Policy may terminate if the Loan Balance is greater
than the Cash Surrender Value. See "Premiums to Prevent Termination." Policy
Loans may have Federal income tax consequences. See "Tax Considerations."
When a loan is made, an amount equal to the loan and any loan interest is
transferred from the Variable Account Value to the Fixed Account. We will
allocate the amount transferred in the proportion that the value of each
Investment Division bears to the Variable Account Value unless you specify an
Investment Division(s) from which the loan is to be made. Your loan will be
divided into two parts: the Preferred Loan Amount; and the Non-Preferred Loan
Amount. The Preferred Loan Amount is equal to the amount of the Loan Balance
that does not exceed the Policy Value minus the total premiums paid, excluding
any premiums paid during a grace period. The Non-Preferred Loan Amount is
equal to any portion of the Loan Balance that exceeds the Preferred Loan
Amount.
INTEREST. We will charge interest daily on any outstanding loan at an
effective annual rate of 6.0%. Interest is due and payable at the end of each
Policy Year while a loan is outstanding. Interest paid on a Policy Loan
generally is not tax deductible. If, on any Policy Anniversary, interest
accrued since the last Policy Anniversary has not been paid, the amount of the
interest is added to the loan and becomes part of the outstanding Loan
Balance. Interest will be taken from the Investment Divisions in the
proportion that the value of each Investment Division bears to the Variable
Account Value. On each Monthly Anniversary, the loaned amount will be credited
with interest at a minimum guaranteed annual effective rate of 4.0%. We may
also credit additional interest (currently up to an effective annual rate 2%)
on the Preferred Loan Amount.
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LOAN REPAYMENT. You may repay all or part of your Loan Balance at any time
while the Insured is living and the Policy is in force. Loan repayments must
be at least $200 each (or the outstanding Loan Balance if less). Upon
repayment of the Loan Balance, the portion of the repayment allocated to an
Investment Division will be transferred from the Fixed Account and increase
the value in the Investment Division. The repayment will be allocated among
the Investment Divisions and the Fixed Account based on the instructions for
Net Premium allocations then in effect unless you instruct us otherwise. Any
payment received when a loan is outstanding will be treated as a premium
unless you instruct otherwise.
EFFECT OF POLICY LOAN. A Policy Loan, whether or not repaid, will affect
Policy Values over time because the investment results of the Investment
Divisions may be less than or greater than the net interest rate credited on
the amount transferred to the Fixed Account securing the loan. By comparison
to a Policy under which no loan was made, the Policy Value will be lower if
the net interest rate credited to the amount in the Fixed Account securing a
loan is less than the investment return of the Investment Divisions and
greater if the Fixed Account net interest rate is higher than the investment
return of the Investment Divisions. If the Death Benefit becomes payable while
a Policy Loan is outstanding, the Loan Balance will be deducted in calculating
the Death Benefit. If the Loan Balance exceeds the Cash Surrender Value on any
Monthly Anniversary and the Death Benefit Guarantee is not in effect, the
Policy will terminate. We will send you, and any assignee of record, notice of
the termination. You will have a 61-day grace period to submit a sufficient
payment to avoid termination.
REQUESTING PAYMENTS. Written requests for payment (except where telephone
requests are authorized by us) must be sent to our Administrative Office or
given to an authorized United Investors agent for forwarding to our office. We
will ordinarily pay any Death Benefit, loan amount, Net Cash Surrender Value
or Partial Surrender amounts within seven days after receipt at our
Administrative Office of all the documents required for such a payment. Other
than the Death Benefit, which is determined as of the date of the Insured's
death, the amount will be determined as of the date our Administrative Office
receives all required documents.
We may delay making a payment of any amount from the Investment Divisions or
processing a transfer request if: (1) the disposal or valuation of the
Variable Account's assets is not reasonably practicable because the New York
Stock Exchange is closed for other than a regular holiday or weekend, trading
is restricted by the SEC, or the SEC declares that an emergency exists; or (2)
the SEC by order permits postponement of payment to protect United Investors'
Policy Owners. We also may defer making payments attributable to a check that
has not cleared, and we may defer payment of proceeds from the Fixed Account
for up to six months from the date we receive the request. If we defer payment
for more than 30 days, we will pay interest on the amount deferred at an
annual rate of at least 4%. However, we will not defer payment of a withdrawal
or Policy Loan requested to pay a premium due on a United Investors policy.
The Policy offers a wide variety of optional ways of receiving proceeds
payable under the Policy other than in a lump sum. An authorized United
Investors agent can explain these options upon request. None of these options
vary with the investment performance of a Variable Account because they are
all forms of fixed-benefit annuities.
OTHER CHANGES. At any time we may make such changes in the Policy as are
necessary: to assure compliance at all times with the definition of life
insurance prescribed by the Code; to make the Policy, our operations, or the
operation of the Variable Account conform with any law or regulation issued by
any government agency to which they are subject; or to reflect a change in the
operation of the Variable Account, if allowed by the Policy. Only an officer
of United Investors has the right to change the Policy. No agent has the
authority to change the Policy or waive any of its terms. All endorsements,
amendments, or riders must be signed by an officer to be valid.
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REPORTS TO OWNERS. United Investors maintains records and accounts of all
transactions involving the Policy, the Variable Account, the Fixed Account and
Policy Loans. Each year, or more often if required by law, you will be sent a
report showing information about your Policy for the period covered by the
report. You will also be sent an annual and a semi-annual report for each
Portfolio underlying an Investment Division to which you have allocated Net
Premiums, as required by the 1940 Act. In addition you will receive a written
confirmation of each transaction when you pay premiums, make a Partial
Surrender, make transfers, or take out a Policy Loan.
OTHER POLICY PROVISIONS. The Policy contains provisions addressing the
following matters:
. DIVIDENDS. The Policy is non-participating. This means that no dividends
will be paid on the Policy. The Policy will not share in our profits or
surplus earnings.
. INCONTESTABILITY. The Policy limits our right to contest the Policy as
issued, as reinstated or as increased, except for material misstatements
contained in the application (including any application upon
reinstatement), after it has been in force during the Insured's lifetime
for a period of two years from the Policy Date, the reinstatement date
or effective date of the increase.
. SUICIDE EXCLUSION. The Policy limits the Death Benefit if the Insured
dies by suicide generally within two years after the Policy Date or
effective date of the increase. In this instance, our liability will be
limited to the total premiums paid less any Partial Surrenders and any
Loan Balance.
. REINSTATEMENT. The Policy may be reinstated at any time within five
years after the Policy has terminated at the end of the grace period. To
reinstate the Policy, the Owner must: (1) submit an application for
reinstatement; (2) provide evidence of insurability satisfactory to us;
(3) pay or agree to reinstatement of any Loan Balance; and (4) pay the
premium required to reinstate the Policy. The reinstatement date for the
Policy will be the Monthly Anniversary on or following the day we
approve the application for reinstatement. See the Policy for additional
information.
. MISSTATEMENT OF AGE OR SEX. The Death Benefit will be adjusted if the
Insured's age or sex has been misstated in the application. The benefits
paid will be those which the last monthly cost of insurance charge would
have provided at the correct age and sex.
. PAID-UP INSURANCE OPTION. If premium payments cease, insurance under the
Policy and any supplemental benefits provided by Rider will continue as
provided under the grace period provisions described under "Premiums to
Prevent Termination." The Policy will not continue beyond the Maturity
Date. Any supplemental benefits added by Rider will not continue beyond
the termination date described in the Rider.
ASSIGNMENT AND CHANGE OF OWNER. You may assign the Policy subject to its
terms. We will not be deemed to know of an assignment unless we receive a
written copy of it at our Administrative Office. We assume no responsibility
for the validity or effect of any assignment. In certain circumstances, an
assignment may be a taxable event. See "Tax Considerations" below. You may
change the Owner of the Policy by sending a written request to us while the
Insured is alive and the Policy is in force. The change will take effect the
date you sign the request, but the change will not affect any action we have
taken before we receive the request. A change of Owner may have tax
consequences. See "Tax Considerations." A change of Owner does not change the
Beneficiary designation. See "Changing the Beneficiary." Any such assignment
or change must be in a written form acceptable to us.
SUPPLEMENTAL BENEFITS. Your Policy may have supplemental benefits which are
attached to your Policy by Rider. A charge will be deducted monthly from your
Policy Value for certain supplemental benefits. Each supplemental benefit is
subject to its own requirements as to eligibility and
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cost. You may cancel supplemental benefits at any time. More details will be
included in your Policy if you choose any of these benefits. From time to
time, we may make available supplemental benefits other than those listed
below. Contact your agent or the Administrative Office for a complete list of
the supplemental benefits available.
. ACCELERATED DEATH BENEFIT RIDER. This benefit allows acceleration of up
to 75% of the Death Benefit (in a lump sum only) if the Insured is
diagnosed as having a terminal illness expected to cause death within 12
months (unless a shorter period is required by state law). There is no
charge for this Rider prior to the time the accelerated benefits are
paid.
. ACCIDENTAL DEATH BENEFIT RIDER. This benefit will be paid if the Insured
dies as a result of an accident before age 70.
. CHILDREN'S TERM INSURANCE RIDER. This benefit allows you to add Death
Benefit coverage for your children.
. ADDITIONAL INSURED TERM INSURANCE RIDER. This benefit allows you to
provide for Death Benefits upon the death of your spouse and/or business
associates.
. DISABILITY WAIVER OF MONTHLY DEDUCTION RIDER. The benefit provides for
waiver of Monthly Deductions after the Insured has been totally disabled
for six months if disability commences prior to age 60.
CHARGES AND DEDUCTIONS
United Investors deducts the charges described below. Certain of the charges
depend on a number of variables, and are illustrated in the hypothetical
illustrations depicted in this prospectus. The charges are for the services
and benefits provided, costs and expenses incurred and risks assumed by United
Investors under or in connection with the Policies. Services and benefits
provided by United Investors include:
(1) the death benefits, cash and loan benefits provided by the Policy;
(2) investment options, including Net Premium allocations, dollar-cost
averaging programs;
(3) administration of various elective options under the Policy; and
(4) the distribution of various reports to Owners.
Costs and expenses incurred by United Investors include:
(1) those associated with underwriting applications and changes in Face
Amount and Riders;
(2) various overhead and other expenses associated with providing the
services and benefits provided by the Policy;
(3) sales and marketing expenses; and
(4) other costs of doing business, such as federal, state and local
premium and other taxes and fees.
Risks assumed by United Investors include the risks that Insureds may live
for a shorter period of time than estimated resulting in the payment of
greater Death Benefits than expected, and that the costs of providing the
services and benefits under the Policies will exceed the charges deducted.
PREMIUM EXPENSE CHARGE. United Investors deducts a 3.5% charge from each
premium before allocating the resulting Net Premium to the Policy Value. This
charge is deducted for state premium taxes and federal income tax treatment of
deferred acquisition costs.
MORTALITY AND EXPENSE RISK CHARGE. United Investors currently deducts a
daily charge from assets in the Investment Divisions attributable to the
Policies at an effective annual rate of 0.90% of
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Variable Account assets during the first 10 Policy Years, and at an effective
annual rate of 0.70% thereafter. The maximum mortality and expense risk charge
is 0.90% of Variable Account assets for all Policy Years. The mortality and
expense risk charge does not apply to Fixed Account assets.
MONTHLY DEDUCTION. United Investors deducts the Monthly Deduction on the
Policy Date and on each Monthly Anniversary from Policy Value in the Variable
Account and the Fixed Account on a pro rata basis. The Monthly Deduction for
each Policy consists of:
(1) the cost of insurance charge discussed below;
(2) a current monthly administrative charge of $5.00 (which may increase to
a maximum charge of $7.50 per month);
(3) the Guaranteed Death Benefit Charge ($0.01 per $1,000 of Face Amount)
as long as the Death Benefit Guarantee remains in effect; and
(4) charges for any supplemental benefits added by Riders to the Policy
(see "Supplemental Benefits").
SURRENDER CHARGE. If the Policy is surrendered prior to the end of the 16th
Policy Year or the end of the 16th year following an increase in Face Amount,
United Investors will deduct a surrender charge based on the Face Amount at
issue, or increase, as applicable. The surrender charge will be deducted
before any surrender proceeds are paid. A pro rata portion of the Surrender
Charge will also be deducted for any Face Amount decreases. The surrender
charge varies based on the Insured's age on the Policy Date, or Attained Age
at the time of an increase, and is calculated as an amount per $1,000 of the
Face Amount. For each age the surrender charge remains level for the first
five Policy Years (or the first five years after a Face Amount increase) and
declines each year thereafter until it reaches zero at the end of the 16th
Policy Year (or at the end of the 16th year after an increase in Face Amount).
During the first five Policy Years (or first five years after a Face Amount
increase) the surrender charge per $1,000 of Face Amount is as follows for the
selected ages below:
<TABLE>
<CAPTION>
ISSUE AGE CHARGE PER $1,000 OF FACE AMOUNT
--------- --------------------------------
<S> <C>
25.......................................... $ 6.00
35.......................................... $ 7.00
45.......................................... $ 8.75
50.......................................... $10.00
55.......................................... $11.50
65.......................................... $16.75
75.......................................... $26.00
</TABLE>
For example, if a 50-year old purchases a Policy with a $100,000 Face Amount
and completely surrenders it within five years, the surrender charge would be
$1,000. See Appendix A for a complete list of applicable surrender charges.
Although the surrender charges increase with the Insured's issue age, the
surrender charge as a percentage of premiums could actually decrease as the
Insured's issue age increases. This occurs because the premiums required for a
specified Face Amount are higher for Insureds with older issue ages than for
Insureds with younger issue ages, so for the same premium an older Insured is
likely to have a lower Face Amount. Therefore the surrender charge for
Insureds with older issue ages could actually represent a lower portion of the
premiums than it does for Insureds with younger issue ages.
PARTIAL SURRENDER CHARGE. A Partial Surrender charge equal to the lesser of
$25 or 2% of the Partial Surrender amount, plus a portion of the surrender
charge will apply to each Partial Surrender. This charge will be deducted from
your Policy Value along with the Partial Surrender amount (see "Partial
Surrenders").
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OTHER CHARGES. For a description of the investment advisory fees and other
expenses incurred by the Portfolios, see the Diagram of Policy on page 4 and
the accompanying prospectus for TMK/United.
COST OF INSURANCE. The cost of insurance is the primary charge for the Death
Benefit provided by your Policy. The cost of insurance charge depends on a
number of variables that cause the charge to vary from Policy to Policy and
from Monthly Anniversary to Monthly Anniversary. The cost of insurance charge
is equal to (a) multiplied by the result of (b) minus (c) where:
(a) is the cost of insurance rate divided by 1,000;
(b) is the Death Benefit at the beginning of the Policy Month divided by
1.0032737; and
(c) is the Policy Value at the beginning of the Policy Month.
The Policy Value used in this calculation is the Policy Value before
deduction of the Monthly Cost of Insurance Charge and Cost of Insurance for
any Disability Waiver of Monthly Deductions Rider, but after deductions for
any other riders and charges.
The cost of insurance rate is the rate applied to the insurance under the
Policy to determine the monthly cost of insurance charge. The cost of
insurance rate is based on the Insured's Attained Age, sex and applicable risk
class. We currently place Insureds in the following risk classes (available
for male or female) when we issue the Policy, based on our underwriting:
Preferred, Standard Non-tobacco, Standard Tobacco, Substandard Non-tobacco,
and Substandard Tobacco. The original risk class applies to the initial Face
Amount. If an increase in Face Amount is approved, a different risk class may
apply to the increase, based on the Insured's circumstances at the time of the
increase. If you have selected Death Benefit Option A, and if there have been
any increases in the Face Amount, the Policy Value will be considered a part
of the initial Face Amount. If the Policy Value exceeds the initial Face
Amount, the excess will be considered part of the increases in Face Amount in
the order of the increases.
We guarantee that the cost of insurance rates used to calculate the monthly
cost of insurance charge will not exceed the maximum cost of insurance rates
set forth in the Policy. The maximum cost of insurance rates are based on the
1980 Commissioners Standard Ordinary Mortality Tables, Male or Female, Smoker
or Non-Smoker, Age Last Birthday, or a multiple thereof for substandard
classes. See "Hypothetical Illustrations" for examples showing the effects of
the cost of insurance charge.
POLICY VALUES
POLICY VALUE. The Policy Value serves as a starting point for calculating
certain values under a Policy. It is the sum of the Variable Account Value and
the Fixed Account Value credited to the Policy. The Policy Value is determined
first on the Policy Date and thereafter on each Valuation Date. On the
Maturity Date, the proceeds payable under a Policy are equal to the Policy
Value less any Loan Balance. The Policy Value will vary to reflect the
performance of the Investment Divisions to which amounts have been allocated,
interest credited on amounts allocated to the Fixed Account and Loan Balance,
charges, transfers, Partial Surrenders, and Policy Loans (including loan
repayments). It may be more or less than premiums paid.
CASH SURRENDER VALUE. The Cash Surrender Value is the Policy Value reduced
by any surrender charge.
NET CASH SURRENDER VALUE. The Net Cash Surrender Value is the Cash Surrender
Value reduced by any Loan Balance. You will receive only the Net Cash
Surrender Value if you surrender your Policy.
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VARIABLE ACCOUNT VALUE. The Variable Account Value is the sum of the values
of the Investment Divisions under the Policy. On the Policy Date, the value of
the Investment Divisions is equal to the initial Net Premium Payment allocated
to the Investment Divisions of the Variable Account plus any accrued interest
from the date of receipt of the payment to the Policy Date minus the portion
of the first month's Monthly Deduction allocated to the Investment Division.
On any Valuation Date thereafter, the value of each Investment Division is
equal to:
1.The value of the Investment Division on the preceding Valuation Date,
multiplied by the appropriate Net Investment Factor (described
below) since the previous Valuation Date; plus
2.The sum of all Net Premium Payments allocated to the Investment
Division since the previous Valuation Date; plus
3.The sum of all loan repayments allocated to the Investment Division
since the previous Valuation Date; plus
4.The amount of any transfers from other Investment Divisions or from
the Fixed Account to the Investment Division since the previous
Valuation Date; minus
5.The amount of any transfers to other Investment Divisions or to the
Fixed Account, including amounts transferred to secure a Policy
Loan, from the Investment Division since the previous Valuation
Date; minus
6.The portion of any Partial Surrenders (including surrender charges)
or charges for any Face Amount decreases allocated to the Investment
Division since the previous Valuation Date; minus
7.The portion of the Monthly Deduction allocated to the Investment
Division since the previous Valuation Date.
UNIT VALUES. When you allocate an amount to an Investment Division, either
by Net Premium allocation, transfer of Policy Value or repayment of a Policy
Loan, your Policy is credited with units in that Investment Division. The
number of units is determined by dividing the amount allocated, transferred or
repaid to the Investment Division by the Investment Division's unit value for
the Valuation Date when the allocation, transfer or repayment is effected. The
number of Investment Division units credited to a Policy will decrease when
the allocated portion of the Monthly Deduction is taken from the Investment
Division, a Policy Loan is taken from the Investment Division or an amount is
transferred from the Investment Division. The number of Investment Division
units may also decrease when a partial or full surrender occurs or if the Face
Amount is decreased. An Investment Division's unit value is an index United
Investors uses to measure the changes in investment results. The unit value
for each Investment Division varies to reflect the investment experience of
the underlying Portfolio, and may increase or decrease from one Valuation Date
to the next. The unit value for each Investment Division was arbitrarily set
at $1.00 when the Investment Division was established. For each Valuation
Period after the date of establishment, the unit value is determined by
multiplying the unit value for an Investment Division for the prior Valuation
Period by the net investment factor for the Investment Division for the
current valuation period.
NET INVESTMENT FACTOR. The net investment factor is an index used to measure
the investment performance of an Investment Division from one Valuation Period
to the next. The net investment factor for any Investment Division for any
Valuation Period is determined by dividing (a) by (b) and subtracting (c) from
the result, where:
(a) is the result of:
(1) the net asset value per share of the Portfolio shares held in
the Investment Division determined at the end of the current
Valuation Period; plus
19
<PAGE>
(2) the per share amount of any dividend or capital gain
distributions on the Portfolio shares held in the Investment
Division, if the "ex-dividend" date occurs during the current
Valuation Period; plus or minus
(3) a charge or credit for any taxes reserved for the current
Valuation Period which we determine to have resulted from the
investment operations of the Investment Division;
(b) is the result of:
(1) the net asset value per share of the Portfolio shares held in
the Investment Division, determined at the end of the last prior
Valuation Period; plus or minus
(2) the charge or credit for any taxes reserved for the last prior
Valuation Period; and
(c) is a deduction for the current mortality and expense risk charge.
FIXED ACCOUNT VALUE. On the Policy Date, the Fixed Account Value is equal to
the initial Net Premium allocated to the Fixed Account plus any accrued
interest from the date of receipt of the payment to the Policy Date minus the
portion of the first month's Monthly Deduction allocated to the Fixed Account.
On any Monthly Anniversary thereafter, the Fixed Account Value is equal to:
1. The Fixed Account Value on the preceding Monthly Anniversary; plus
2. The sum of all Net Premium Payments allocated to the Fixed Account
since the previous Monthly Anniversary; plus
3. The sum of all Policy Loan repayments allocated to the Fixed Account
since the previous Monthly Anniversary; plus
4. Total interest credited to the Fixed Account since the previous
Monthly Anniversary; plus
5. The amount of any transfers from the Variable Account to the Fixed
Account, including amounts transferred to secure Policy Loans, since
the previous Monthly Anniversary; minus
6. The amount of any transfers from the Fixed Account to the Variable
Account since the previous Monthly Anniversary; minus
7. The portion of any Partial Surrenders (including surrender charges)
or charges for any Face Amount decreases allocated to the Fixed
Account since the previous Monthly Anniversary; minus
8. The portion of the Monthly Deduction allocated to the Fixed Account
since the previous Monthly Anniversary.
DEATH BENEFITS
If the Insured dies while the Policy is in force and prior to the Maturity
Date, we will pay the Death Benefit upon receipt at our Administrative Office
of satisfactory proof of the Insured's death. See "Requesting Payment." The
Death Benefit will be paid to the Beneficiary.
AMOUNT OF DEATH BENEFIT PAYABLE. The amount of Death Benefit payable is the
amount of insurance determined under the Death Benefit Option in effect on the
date of the Insured's death, plus any supplemental benefits provided by
Riders, minus any Loan Balance on that date and, if the date of death occurred
during a grace period, minus the past due Monthly Deductions. Under certain
circumstances, the amount of the Death Benefit may be further adjusted. See
"Incontestability" and "Misstatement of Age or Sex."
DEATH BENEFIT OPTIONS. Under Option A, the Death Benefit is the greater of
(1) the Face Amount at the beginning of the Policy Month when the death
occurs, or (2) the Policy Value on the date of death multiplied by the
applicable factor from the table of Death Benefit Factors below. Under Option
20
<PAGE>
B, the Death Benefit is the greater of (1) the Face Amount at the beginning of
the Policy Month when the death occurs plus the Policy Value on the date of
death, or (2) the Policy Value on the date of death multiplied by the
applicable factor from the table of Death Benefit Factors below. The factor is
2.50 up to Attained Age 40 and declines thereafter as the Insured's Attained
Age increases. The Death Benefit Factors are based on current requirements
under the Internal Revenue Code. We reserve the right to change the table if
the Death Benefit Factors currently in effect become inconsistent with any
federal income tax laws and/or regulations.
<TABLE>
<CAPTION>
DEATH BENEFIT FACTORS
- ---------------------------------------------------------------------------------------
ATTAINED AGE FACTOR ATTAINED AGE FACTOR ATTAINED AGE FACTOR
- ------------ ------ ------------ ------ ------------ ------
<S> <C> <C> <C> <C> <C>
0-40 2.50 54 1.57 68 1.17
41 2.43 55 1.50 69 1.16
42 2.36 56 1.46 70 1.15
43 2.29 57 1.42 71 1.13
44 2.22 58 1.38 72 1.11
45 2.15 59 1.34 73 1.09
46 2.09 60 1.30 74 1.07
47 2.03 61 1.28 75-90 1.05
48 1.97 62 1.26 91 1.04
49 1.91 63 1.24 92 1.03
50 1.85 64 1.22 93 1.02
51 1.78 65 1.20 94 1.01
52 1.71 66 1.19 95+ 1.00
53 1.64 67 1.18
</TABLE>
Under Option A, the Death Benefit ordinarily will not change. Under Option
B, the Death Benefit will vary directly with the investment performance of the
Policy Value. To see how and when investment performance may begin to affect
the Death Benefit, please see the hypothetical illustrations.
CHANGING THE DEATH BENEFIT OPTION. You select the Death Benefit Option when
you apply for the Policy. After the Policy has been in force at least one
year, you may change the Death Benefit Option on your Policy subject to the
following rules:
(1) each change must be submitted by written request received by our
Administrative Office;
(2) once the Death Benefit Option has been changed, it cannot be changed
again for one year;
(3) if Death Benefit Option A is changed to Option B, the total Death
Benefit will remain the same, and the Face Amount will be decreased by
an amount equal to the Policy Value on the date of the change;
(4) if Death Benefit Option B is changed to Option A, the total Death
Benefit will remain the same, and the Face Amount will be increased by
an amount equal to the Policy Value on the date of the change. The risk
class for the last Face Amount portion to go into effect which is still
in force will apply to the Face Amount increase.
The effective date of the change will be the Monthly Anniversary on or
following the date when we approve the request for the change. We will send
you revised Policy Data pages reflecting the new Death Benefit Option and the
effective date of the change.
CHANGING THE FACE AMOUNT. You select the Face Amount when you apply for the
Policy. The minimum Face Amount for the Policy is $50,000. You may change the
Face Amount on any Monthly Anniversary after the Policy has been in force at
least one year, subject to the following requirements.
21
<PAGE>
Once the Face Amount has been changed, it cannot be changed again for the next
12 months. No change will be permitted that may result in your Policy being
disqualified as a life insurance contract under Section 7702 of the Code.
Changing the Face Amount of the Policy may have tax consequences. See "Tax
Considerations" below.
To increase the Face Amount, you must: submit an application for the
increase; submit proof satisfactory to us that the insured is an insurable
risk; and pay any additional premium that is required. The Face Amount cannot
be increased after the Insured reaches age 75. Each Face Amount increase must
be at least $25,000. A Face Amount increase will take effect on the Monthly
Anniversary on or following the day we approve the application for the
increase.
The risk class that applies for any Face Amount increase may be different
from the risk class that applies for the initial Face Amount. Upon an increase
in Face Amount, the minimum monthly premium will be increased, and additional
surrender charges equal to the Face Amount increase (in $1,000s) multiplied by
the surrender charge factors listed above under "Surrender Charge" will apply
through the end of the 16th year following the increase. If the Face Amount is
increased, the cost of insurance will also increase due to the increased Death
Benefit.
You may decrease the Face Amount by submitting a written request. The Face
Amount may not be decreased below the Policy's minimum Face Amount. The
Minimum Monthly Premium for your Policy will be reduced to reflect the
decrease. Any decrease will take effect on the later of: (1) the Monthly
Anniversary on or following the day we receive the request; or (2) the Monthly
Anniversary one year after the date of the last change in Face Amount. A Face
Amount decrease will be used to reduce any previous Face Amount increases then
in effect starting with the latest increase and continuing in the reverse
order in which the increases were made. If any portion of the decrease is left
after all Face Amount increases have been reduced, it will be used to reduce
the initial Face Amount.
We will deduct a charge from the Policy Value each time the Face Amount is
decreased. The amount of this charge is the lesser of: (1) the Reduction
Percentage multiplied by the surrender charge for each Face Amount portion
reduced; or (2) the Policy Value when the decrease is made. The Reduction
Percentage for each Face Amount portion reduced is the amount of the Face
Amount decrease divided by the Face Amount in effect before the decrease. The
charge will be deducted for each Face Amount portion reduced.
After the Face Amount is decreased, future surrender charges for each Face
Amount portion for which a charge is deducted will be reduced by the surrender
charges shown for that Face Amount portion, multiplied by the Reduction
Percentage.
EFFECT OF PARTIAL SURRENDERS ON THE DEATH BENEFIT. A Partial Surrender will
affect your Death Benefit in the following respects. If Death Benefit Option A
is in effect, the Face Amount will be reduced by the Partial Surrender amount.
If the Face Amount reflects increases in the initial Face Amount, any Partial
Surrender will reduce first the most recent increase, and then the next most
recent increase, if any, in reverse order, and finally the initial Face
Amount. If Death Benefit Option B is in effect, the total Death Benefit is
also reduced by the Partial Surrender amount, but the Face Amount is not
affected.
CHANGING THE BENEFICIARY. You designate the Beneficiary(ies) when you apply
for the Policy. You may change the designated Beneficiary by submitting a
satisfactory written request to us. The change will take effect on the date
the request was signed, but it will not apply to payments we make before we
accept the written request. If the Insured dies and there is no surviving
Beneficiary, the Insured's estate will be the Beneficiary.
22
<PAGE>
HYPOTHETICAL ILLUSTRATIONS
The following illustrations show how certain values under a sample Policy
change with assumed investment performance over an extended period of time. In
particular, they illustrate how Policy Values, Net Cash Surrender Values and
Death Benefits under a Policy covering an Insured of a given Attained Age on
the Policy Date, would vary over time if planned premiums were paid annually
and the return on the assets in the Investment Divisions were a uniform gross
annual rate of 0%, 6% or 12%, before deduction of any fees and charges,
including Portfolio fees and charges. The tables also show planned premiums
accumulated at 5% interest. The values under a Policy would be different from
those shown if the returns averaged 0%, 6% or 12% but fluctuated over and
under those averages throughout the years shown. The hypothetical investment
rates of return are illustrative only and should not be deemed a
representation of past or future investment rates of return. Actual rates of
return for a particular Policy may be more or less than the hypothetical
investment rates of return used in the illustrations.
The illustrations assume an average annual expense ratio of 0.76% of the
average daily net assets of the Portfolios available under the Policies, based
on the expense ratios of each of the Portfolios for the last fiscal year of
operations (other than Science and Technology which is based on an estimated
expense ratio). For information on Portfolio expenses, see the prospectus for
the Portfolios accompanying this prospectus. The current illustrations also
reflect the 0.90% mortality and expense risk charge to the Variable Account
during the first 10 Policy Years, and 0.70% thereafter. The guaranteed
illustrations reflect the 0.90% maximum mortality and expense risk charge and
the $7.50 maximum monthly administrative charge for all Policy Years. After
deduction of estimated Portfolio expenses and the current mortality and
expense risk charge, the illustrated gross annual investment rates of return
of 0%, 6% and 12% would correspond to approximate net annual rates of return
for the Investment Divisions of -1.66%, 4.34% and 10.34%, respectively in
Policy Years 1 through 10 and -1.46%, 4.54%, and 10.54%, respectively
thereafter.
The illustrations also reflect the deduction of the 3.5% premium expense
charge and the Monthly Deduction for the hypothetical Insured. Our current
charges and the higher guaranteed charges we have the contractual right to
charge are reflected in separate illustrations on each of the following pages.
All the illustrations reflect the fact that no charges for Federal or state
income taxes are currently made against the Variable Account and assume no
Loan Balance or charges for supplemental benefits.
Upon request, we will furnish a comparable illustration based upon the
proposed Insured's individual circumstances. Such illustrations may assume
different hypothetical rates of return than those illustrated in the following
tables.
23
<PAGE>
MALE ISSUE AGE 35, STANDARD NON-TOBACCO
$1,000 ANNUAL PREMIUM
$100,000 FACE AMOUNT, OPTION A
CURRENT CHARGES
<TABLE>
<CAPTION>
PREMIUMS DEATH BENEFITS POLICY VALUES SURRENDER VALUES
YR+INT ----------------------- --------------------- ---------------------
@ 5% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ----------- ------- ------- ------- ------ ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,050 100,000 100,000 100,000 708 758 808 8 58 108
2 2,153 100,000 100,000 100,000 1,397 1,541 1,690 697 841 990
3 3,310 100,000 100,000 100,000 2,064 2,346 2,653 1,364 1,646 1,953
4 4,526 100,000 100,000 100,000 2,709 3,176 3,703 2,009 2,476 3,003
5 5,802 100,000 100,000 100,000 3,333 4,030 4,850 2,633 3,330 4,150
6 7,142 100,000 100,000 100,000 3,931 4,906 6,100 3,295 4,270 5,464
7 8,549 100,000 100,000 100,000 4,509 5,810 7,469 3,936 5,237 6,896
8 10,027 100,000 100,000 100,000 5,068 6,744 8,972 4,559 6,235 8,463
9 11,578 100,000 100,000 100,000 5,615 7,717 10,628 5,169 7,271 10,182
10 13,207 100,000 100,000 100,000 6,149 8,729 12,454 5,767 8,347 12,072
11 14,917 100,000 100,000 100,000 6,678 9,794 14,489 6,359 9,476 14,171
12 16,713 100,000 100,000 100,000 7,186 10,897 16,730 6,931 10,643 16,475
13 18,599 100,000 100,000 100,000 7,673 12,039 19,199 7,482 11,848 19,008
14 20,579 100,000 100,000 100,000 8,143 13,224 21,924 8,016 13,096 21,796
15 22,657 100,000 100,000 100,000 8,602 14,461 24,939 8,538 14,397 24,875
16 24,840 100,000 100,000 100,000 9,040 15,743 28,267 9,040 15,743 28,267
17 27,132 100,000 100,000 100,000 9,441 17,057 31,930 9,441 17,057 31,930
18 29,539 100,000 100,000 100,000 9,807 18,406 35,968 9,807 18,406 35,968
19 32,066 100,000 100,000 100,000 10,129 19,785 40,419 10,129 19,785 40,419
20 34,719 100,000 100,000 100,000 10,408 21,196 45,331 10,408 21,196 45,331
21 37,505 100,000 100,000 100,000 10,637 22,637 50,756 10,637 22,637 50,756
22 40,430 100,000 100,000 100,000 10,814 24,105 56,755 10,814 24,105 56,755
23 43,502 100,000 100,000 100,000 10,925 25,595 63,393 10,925 25,595 63,393
24 46,727 100,000 100,000 100,000 10,973 27,108 70,752 10,973 27,108 70,752
25 50,113 100,000 100,000 105,734 10,939 28,635 78,906 10,939 28,635 78,906
26 53,669 100,000 100,000 114,271 10,825 30,178 87,901 10,825 30,178 87,901
27 57,403 100,000 100,000 125,179 10,610 31,725 97,796 10,610 31,725 97,796
28 61,323 100,000 100,000 136,943 10,297 33,282 108,685 10,297 33,282 108,685
29 65,439 100,000 100,000 149,625 9,863 34,837 120,665 9,863 34,837 120,665
30 69,761 100,000 100,000 163,295 9,295 36,385 133,848 9,295 36,385 133,848
</TABLE>
The hypothetical investment rates of return shown above are illustrative
only and should not be deemed a representation of past or future investment
rates of return. Actual rate of return may be more or less than those shown
and will depend on a number of factors, including the investment allocations
made by an Owner and the investment experience of the Portfolios. The Death
Benefit, Policy Value and Surrender Value for a Policy would be different from
those shown if the actual gross annual rates of return averaged 0%, 6% or 12%
over a period of years, but also fluctuated above or below those averages for
individual Policy Years. They would also be different if any Policy Loans or
Partial Surrenders were made. No representations can be made by United
Investors Life Insurance Company or the Variable Account or the Portfolios
that these hypothetical rates of return can be achieved for any one year or
sustained over a period of time.
24
<PAGE>
MALE ISSUE AGE 50, STANDARD NON-TOBACCO
$2,500 ANNUAL PREMIUM
$100,000 FACE AMOUNT, OPTION A
CURRENT CHARGES
<TABLE>
<CAPTION>
DEATH BENEFITS POLICY VALUES SURRENDER VALUES
PREMIUMS ----------------------- ---------------------- ----------------------
YR+INT @ 5% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------------- ------- ------- ------- ------ ------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,625 100,000 100,000 100,000 1,844 1,971 2,098 844 971 1,098
2 5,381 100,000 100,000 100,000 3,622 3,990 4,374 2,622 2,990 3,374
3 8,275 100,000 100,000 100,000 5,360 6,087 6,876 4,360 5,087 5,876
4 11,314 100,000 100,000 100,000 7,045 8,252 9,615 6,045 7,252 8,615
5 14,505 100,000 100,000 100,000 8,658 10,468 12,596 7,658 9,468 11,596
6 17,855 100,000 100,000 100,000 10,216 12,756 15,865 9,307 11,847 14,956
7 21,373 100,000 100,000 100,000 11,704 15,103 19,439 10,886 14,285 18,621
8 25,066 100,000 100,000 100,000 13,111 17,502 23,345 12,383 16,775 22,617
9 28,945 100,000 100,000 100,000 14,437 19,959 27,623 13,801 19,323 26,987
10 33,017 100,000 100,000 100,000 15,676 22,471 32,315 15,131 21,926 31,769
11 37,293 100,000 100,000 100,000 16,840 25,073 37,530 16,386 24,618 37,075
12 41,782 100,000 100,000 100,000 17,913 27,741 43,289 17,549 27,377 42,925
13 46,497 100,000 100,000 100,000 18,939 30,526 49,699 18,666 30,253 49,426
14 51,446 100,000 100,000 100,000 19,945 33,457 56,860 19,763 33,275 56,678
15 56,644 100,000 100,000 100,000 20,917 36,533 64,858 20,826 36,442 64,767
16 62,101 100,000 100,000 100,000 21,695 39,639 73,741 21,695 39,639 73,741
17 67,831 100,000 100,000 100,000 22,333 42,828 83,675 22,333 42,828 83,675
18 73,848 100,000 100,000 111,738 22,834 46,119 94,693 22,834 46,119 94,693
19 80,165 100,000 100,000 124,962 23,186 49,521 106,805 23,186 49,521 106,805
20 86,798 100,000 100,000 139,332 23,354 53,034 120,114 23,354 53,034 120,114
21 93,763 100,000 100,000 154,953 23,340 56,685 134,742 23,340 56,685 134,742
22 101,076 100,000 100,000 170,466 23,089 60,475 150,855 23,089 60,475 150,855
23 108,755 100,000 100,000 187,178 22,601 64,440 168,629 22,601 64,440 168,629
24 116,818 100,000 100,000 205,202 21,846 68,611 188,259 21,846 68,611 188,259
25 125,284 100,000 100,000 224,660 20,749 73,009 209,963 20,749 73,009 209,963
26 134,173 100,000 100,000 245,711 19,290 77,693 234,010 19,290 77,693 234,010
27 143,506 100,000 100,000 273,470 17,365 82,712 260,447 17,365 82,712 260,447
28 153,307 100,000 100,000 303,977 14,935 88,152 289,502 14,935 88,152 289,502
29 163,597 100,000 100,000 337,475 11,850 94,108 321,405 11,850 94,108 321,405
30 174,402 100,000 105,490 374,247 8,048 100,467 356,425 8,048 100,467 356,425
</TABLE>
The hypothetical investment rates of return shown above are illustrative
only and should not be deemed a representation of past or future investment
rates of return. Actual rate of return may be more or less than those shown
and will depend on a number of factors, including the investment allocations
made by an Owner and the investment experience of the Portfolios. The Death
Benefit, Policy Value and Surrender Value for a Policy would be different from
those shown if the actual gross annual rates of return averaged 0%, 6% or 12%
over a period of years, but also fluctuated above or below those averages for
individual Policy Years. They would also be different if any Policy Loans or
Partial Surrenders were made. No representations can be made by United
Investors Life Insurance Company or the Variable Account or the Portfolios
that these hypothetical rates of return can be achieved for any one year or
sustained over a period of time.
25
<PAGE>
MALE ISSUE AGE 35, STANDARD NON-TOBACCO
$1,000 ANNUAL PREMIUM
$100,000 FACE AMOUNT, OPTION A
GUARANTEED CHARGES
<TABLE>
<CAPTION>
DEATH BENEFITS POLICY VALUES SURRENDER VALUES
PREMIUMS ----------------------- -------------------- --------------------
YR+INT @ 5% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------------ ------- ------- ------- ----- ------ ------- ----- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,050 100,000 100,000 100,000 678 727 776 0 27 76
2 2,153 100,000 100,000 100,000 1,338 1,478 1,623 638 778 923
3 3,310 100,000 100,000 100,000 1,976 2,250 2,547 1,276 1,550 1,847
4 4,526 100,000 100,000 100,000 2,592 3,044 3,554 1,892 2,344 2,854
5 5,802 100,000 100,000 100,000 3,187 3,860 4,652 2,487 3,160 3,952
6 7,142 100,000 100,000 100,000 3,756 4,697 5,849 3,120 4,060 5,213
7 8,549 100,000 100,000 100,000 4,300 5,554 7,154 3,727 4,981 6,581
8 10,027 100,000 100,000 100,000 4,819 6,432 8,578 4,310 5,923 8,069
9 11,578 100,000 100,000 100,000 5,311 7,330 10,132 4,865 6,885 9,686
10 13,207 100,000 100,000 100,000 5,775 8,249 11,828 5,393 7,867 11,447
11 14,917 100,000 100,000 100,000 6,208 9,185 13,681 5,890 8,867 13,363
12 16,713 100,000 100,000 100,000 6,610 10,140 15,705 6,356 9,885 15,451
13 18,599 100,000 100,000 100,000 6,979 11,111 17,919 6,788 10,920 17,728
14 20,579 100,000 100,000 100,000 7,314 12,099 20,342 7,186 11,972 20,215
15 22,657 100,000 100,000 100,000 7,611 13,102 22,994 7,547 13,038 22,931
16 24,840 100,000 100,000 100,000 7,867 14,117 25,900 7,867 14,117 25,900
17 27,132 100,000 100,000 100,000 8,078 15,139 29,084 8,078 15,139 29,084
18 29,539 100,000 100,000 100,000 8,237 16,165 32,575 8,237 16,165 32,575
19 32,066 100,000 100,000 100,000 8,338 17,189 36,403 8,338 17,189 36,403
20 34,719 100,000 100,000 100,000 8,375 18,206 40,609 8,375 18,206 40,609
21 37,505 100,000 100,000 100,000 8,342 19,210 45,233 8,342 19,210 45,233
22 40,430 100,000 100,000 100,000 8,232 20,198 50,327 8,232 20,198 50,327
23 43,502 100,000 100,000 100,000 8,042 21,164 55,950 8,042 21,164 55,950
24 46,727 100,000 100,000 100,000 7,762 22,102 62,168 7,762 22,102 62,168
25 50,113 100,000 100,000 100,000 7,381 23,003 69,059 7,381 23,003 69,059
26 53,669 100,000 100,000 100,000 6,887 23,855 76,712 6,887 23,855 76,712
27 57,403 100,000 100,000 109,021 6,265 24,649 85,173 6,265 24,649 85,173
28 61,323 100,000 100,000 119,007 5,493 25,365 94,450 5,493 25,365 94,450
29 65,439 100,000 100,000 129,732 4,550 25,985 104,623 4,550 25,985 104,623
30 69,761 100,000 100,000 141,250 3,410 26,491 115,778 3,410 26,491 115,778
</TABLE>
The hypothetical investment rates of return shown above are illustrative
only and should not be deemed a representation of past or future investment
rates of return. Actual rate of return may be more or less than those shown
and will depend on a number of factors, including the investment allocations
made by an Owner and the investment experience of the Portfolios. The Death
Benefit, Policy Value and Surrender Value for a Policy would be different from
those shown if the actual gross annual rates of return averaged 0%, 6% or 12%
over a period of years, but also fluctuated above or below those averages for
individual Policy Years. They would also be different if any Policy Loans or
Partial Surrenders were made. No representations can be made by United
Investors Life Insurance Company or the Variable Account or the Portfolios
that these hypothetical rates of return can be achieved for any one year or
sustained over a period of time.
26
<PAGE>
MALE ISSUE AGE 50, STANDARD NON-TOBACCO
$2,500 ANNUAL PREMIUM
$100,000 FACE AMOUNT, OPTION A
GUARANTEED CHARGES
<TABLE>
<CAPTION>
DEATH BENEFITS POLICY VALUES SURRENDER VALUES
PREMIUMS ----------------------- --------------------- ---------------------
YR+INT @ 5% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------------- ------- ------- ------- ------ ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,625 100,000 100,000 100,000 1,774 1,899 2,023 774 899 1,023
2 5,381 100,000 100,000 100,000 3,483 3,843 4,218 2,483 2,843 3,218
3 8,275 100,000 100,000 100,000 5,123 5,830 6,597 4,123 4,830 5,597
4 11,314 100,000 100,000 100,000 6,687 7,856 9,177 5,687 6,856 8,177
5 14,505 100,000 100,000 100,000 8,174 9,920 11,975 7,174 8,920 10,975
6 17,855 100,000 100,000 100,000 9,578 12,019 15,014 8,669 11,110 14,105
7 21,373 100,000 100,000 100,000 10,896 14,152 18,318 10,077 13,333 17,500
8 25,066 100,000 100,000 100,000 12,126 16,320 21,919 11,398 15,592 21,192
9 28,945 100,000 100,000 100,000 13,262 18,520 25,850 12,626 17,884 25,213
10 33,017 100,000 100,000 100,000 14,298 20,750 30,147 13,752 20,204 29,601
11 37,293 100,000 100,000 100,000 15,223 23,004 34,854 14,769 22,549 34,399
12 41,782 100,000 100,000 100,000 16,031 25,280 40,022 15,667 24,916 39,658
13 46,497 100,000 100,000 100,000 16,704 27,569 45,708 16,431 27,296 45,435
14 51,446 100,000 100,000 100,000 17,228 29,863 51,983 17,046 29,681 51,802
15 56,644 100,000 100,000 100,000 17,588 32,159 58,935 17,497 32,068 58,844
16 62,101 100,000 100,000 100,000 17,780 34,463 66,682 17,780 34,463 66,682
17 67,831 100,000 100,000 100,000 17,776 36,763 75,345 17,776 36,763 75,345
18 73,848 100,000 100,000 100,400 17,562 39,059 85,085 17,562 39,059 85,085
19 80,165 100,000 100,000 112,166 17,114 41,348 95,868 17,114 41,348 95,868
20 86,798 100,000 100,000 124,901 16,399 43,626 107,673 16,399 43,626 107,673
21 93,763 100,000 100,000 138,682 15,375 45,881 120,593 15,375 45,881 120,593
22 101,076 100,000 100,000 152,307 13,981 48,102 134,785 13,981 48,102 134,785
23 108,755 100,000 100,000 166,936 12,142 50,270 150,393 12,142 50,270 150,393
24 116,818 100,000 100,000 182,667 9,767 52,369 167,584 9,767 52,369 167,584
25 125,284 100,000 100,000 199,623 6,759 54,390 186,563 6,759 54,390 186,563
26 134,173 100,000 100,000 217,953 3,012 56,330 207,574 3,012 56,330 207,574
27 143,506 *** 100,000 242,113 *** 58,187 230,584 *** 58,187 230,584
28 153,307 *** 100,000 268,556 *** 59,964 255,768 *** 59,964 255,768
29 163,597 *** 100,000 297,480 *** 61,662 283,315 *** 61,662 283,315
30 174,402 *** 100,000 329,094 *** 63,272 313,423 *** 63,272 313,423
</TABLE>
The hypothetical investment rates of return shown above are illustrative
only and should not be deemed a representation of past or future investment
rates of return. Actual rate of return may be more or less than those shown
and will depend on a number of factors, including the investment allocations
made by an Owner and the investment experience of the Portfolios. The Death
Benefit, Policy Value and Surrender Value for a Policy would be different from
those shown if the actual gross annual rates of return averaged 0%, 6% or 12%
over a period of years, but also fluctuated above or below those averages for
individual Policy Years. They would also be different if any Policy Loans or
Partial Surrenders were made. No representations can be made by United
Investors Life Insurance Company or the Variable Account or the Portfolios
that these hypothetical rates of return can be achieved for any one year or
sustained over a period of time. As indicated by the asterisks, at certain
rates of return additional premium payments will be required to prevent Policy
termination.
27
<PAGE>
MALE ISSUE AGE 35, STANDARD NON-TOBACCO
$1,000 ANNUAL PREMIUM
$100,000 FACE AMOUNT, OPTION B
CURRENT CHARGES
<TABLE>
<CAPTION>
PREMIUMS DEATH BENEFITS POLICY VALUES SURRENDER VALUES
YR+INT ----------------------- --------------------- ---------------------
@ 5% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ----------- ------- ------- ------- ------ ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,050 100,707 100,756 100,806 707 756 806 7 56 106
2 2,153 101,393 101,536 101,685 1,393 1,536 1,685 693 836 985
3 3,310 102,056 102,337 102,641 2,056 2,337 2,641 1,356 1,637 1,941
4 4,526 102,695 103,159 103,682 2,695 3,159 3,682 1,995 2,459 2,982
5 5,802 103,312 104,003 104,817 3,312 4,003 4,817 2,612 3,303 4,117
6 7,142 103,900 104,866 106,048 3,900 4,866 6,048 3,264 4,230 5,412
7 8,549 104,467 105,753 107,393 4,467 5,753 7,393 3,894 5,180 6,821
8 10,027 105,013 106,667 108,864 5,013 6,667 8,864 4,504 6,158 8,355
9 11,578 105,545 107,615 110,481 5,545 7,615 10,481 5,100 7,170 10,035
10 13,207 106,064 108,599 112,257 6,064 8,599 12,257 5,682 8,217 11,875
11 14,917 106,574 109,630 114,230 6,574 9,630 14,230 6,256 9,312 13,912
12 16,713 107,061 110,692 116,393 7,061 10,692 16,393 6,807 10,438 16,139
13 18,599 107,526 111,786 118,766 7,526 11,786 18,766 7,335 11,595 18,575
14 20,579 107,970 112,915 121,372 7,970 12,915 21,372 7,843 12,788 21,245
15 22,657 108,402 114,089 124,245 8,402 14,089 24,245 8,338 14,025 24,182
16 24,840 108,811 115,299 127,401 8,811 15,299 27,401 8,811 15,299 27,401
17 27,132 109,178 116,525 130,849 9,178 16,525 30,849 9,178 16,525 30,849
18 29,539 109,504 117,771 134,620 9,504 17,771 34,620 9,504 17,771 34,620
19 32,066 109,782 119,028 138,739 9,782 19,028 38,739 9,782 19,028 38,739
20 34,719 110,011 120,294 143,240 10,011 20,294 43,240 10,011 20,294 43,240
21 37,505 110,184 121,564 148,158 10,184 21,564 48,158 10,184 21,564 48,158
22 40,430 110,297 122,832 153,529 10,297 22,832 53,529 10,297 22,832 53,529
23 43,502 110,338 124,083 159,386 10,338 24,083 59,386 10,338 24,083 59,386
24 46,727 110,306 125,317 165,779 10,306 25,317 65,779 10,306 25,317 65,779
25 50,113 110,184 126,513 172,746 10,184 26,513 72,746 10,184 26,513 72,746
26 53,669 109,972 127,669 180,344 9,972 27,669 80,344 9,972 27,669 80,344
27 57,403 109,651 128,759 188,616 9,651 28,759 88,616 9,651 28,759 88,616
28 61,323 109,223 129,784 197,637 9,223 29,784 97,637 9,223 29,784 97,637
29 65,439 108,666 130,717 207,457 8,666 30,717 107,457 8,666 30,717 107,457
30 69,761 107,968 131,536 218,146 7,968 31,536 118,146 7,968 31,536 118,146
</TABLE>
The hypothetical investment rates of return shown above are illustrative
only and should not be deemed a representation of past or future investment
rates of return. Actual rate of return may be more or less than those shown
and will depend on a number of factors, including the investment allocations
made by an Owner and the investment experience of the Portfolios. The Death
Benefit, Policy Value and Surrender Value for a Policy would be different from
those shown if the actual gross annual rates of return averaged 0%, 6% or 12%
over a period of years, but also fluctuated above or below those averages for
individual Policy Years. They would also be different if any Policy Loans or
Partial Surrenders were made. No representations can be made by United
Investors Life Insurance Company or the Variable Account or the Portfolios
that these hypothetical rates of return can be achieved for any one year or
sustained over a period of time.
28
<PAGE>
MALE ISSUE AGE 50, STANDARD NON-TOBACCO
$2,500 ANNUAL PREMIUM
$100,000 FACE AMOUNT, OPTION B
CURRENT CHARGES
<TABLE>
<CAPTION>
DEATH BENEFITS POLICY VALUES SURRENDER VALUES
PREMIUMS ----------------------- --------------------- ---------------------
YR+INT @ 5% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------------- ------- ------- ------- ------ ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,625 101,834 101,960 102,086 1,834 1,960 2,086 834 960 1,086
2 5,381 103,591 103,956 104,337 3,591 3,956 4,337 2,591 2,956 3,337
3 8,275 105,299 106,018 106,797 5,299 6,018 6,797 4,299 5,018 5,797
4 11,314 106,943 108,130 109,470 6,943 8,130 9,470 5,943 7,130 8,470
5 14,505 108,500 110,272 112,354 8,500 10,272 12,354 7,500 9,272 11,354
6 17,855 109,989 112,462 115,488 9,989 12,462 15,488 9,080 11,553 14,579
7 21,373 111,391 114,681 118,876 11,391 14,681 18,876 10,573 13,863 18,058
8 25,066 112,691 116,915 122,528 12,691 16,915 22,528 11,964 16,188 21,801
9 28,945 113,890 119,163 126,469 13,890 19,163 26,469 13,254 18,526 25,833
10 33,017 114,977 121,412 130,716 14,977 21,412 30,716 14,432 20,866 30,171
11 37,293 115,957 123,678 135,338 15,957 23,678 35,338 15,502 23,224 34,884
12 41,782 116,814 125,936 140,330 16,814 25,936 40,330 16,450 25,572 39,966
13 46,497 117,605 128,240 145,786 17,605 28,240 45,786 17,333 27,967 45,513
14 51,446 118,362 130,624 151,789 18,362 30,624 51,789 18,180 30,442 51,607
15 56,644 119,066 133,072 158,375 19,066 33,072 58,375 18,975 32,982 58,285
16 62,101 119,509 135,372 165,384 19,509 35,372 65,384 19,509 35,372 65,384
17 67,831 119,762 137,586 172,931 19,762 37,586 72,931 19,762 37,586 72,931
18 73,848 119,831 139,713 181,076 19,831 39,713 81,076 19,831 39,713 81,076
19 80,165 119,700 141,731 189,860 19,700 41,731 89,860 19,700 41,731 89,860
20 86,798 119,324 143,585 199,303 19,324 43,585 99,303 19,324 43,585 99,303
21 93,763 118,714 145,275 209,477 18,714 45,275 109,477 18,714 45,275 109,477
22 101,076 117,802 146,721 220,387 17,802 46,721 120,387 17,802 46,721 120,387
23 108,755 116,600 147,919 232,114 16,600 47,919 132,114 16,600 47,919 132,114
24 116,818 115,082 148,826 244,714 15,082 48,826 144,714 15,082 48,826 144,714
25 125,284 113,172 149,346 258,191 13,172 49,346 158,191 13,172 49,346 158,191
26 134,173 110,874 149,461 272,637 10,874 49,461 172,637 10,874 49,461 172,637
27 143,506 108,093 149,048 288,045 8,093 49,048 188,045 8,093 49,048 188,045
28 153,307 104,836 148,084 304,515 4,836 48,084 204,515 4,836 48,084 204,515
29 163,597 100,991 146,420 322,033 991 46,420 222,033 991 46,420 222,033
30 174,402 *** 144,035 340,718 *** 44,035 240,718 *** 44,035 240,718
</TABLE>
The hypothetical investment rates of return shown above are illustrative
only and should not be deemed a representation of past or future investment
rates of return. Actual rate of return may be more or less than those shown
and will depend on a number of factors, including the investment allocations
made by an Owner and the investment experience of the Portfolios. The Death
Benefit, Policy Value and Surrender Value for a Policy would be different from
those shown if the actual gross annual rates of return averaged 0%, 6% or 12%
over a period of years, but also fluctuated above or below those averages for
individual Policy Years. They would also be different if any Policy Loans or
Partial Surrenders were made. No representations can be made by United
Investors Life Insurance Company or the Variable Account or the Portfolios
that these hypothetical rates of return can be achieved for any one year or
sustained over a period of time. As indicated by the asterisks, at certain
rates of return additional premium payments will be required to prevent Policy
termination.
29
<PAGE>
MALE ISSUE AGE 35, STANDARD NON-TOBACCO
$1,000 ANNUAL PREMIUM
$100,000 FACE AMOUNT, OPTION B
GUARANTEED CHARGES
<TABLE>
<CAPTION>
PREMIUMS DEATH BENEFITS POLICY VALUES SURRENDER VALUES
YR+INT ----------------------- ------------------- -------------------
@ 5% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ----------- ------- ------- ------- ----- ------ ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,050 100,677 100,726 100,774 677 726 774 0 26 74
2 2,153 101,334 101,473 101,618 1,334 1,473 1,618 634 773 918
3 3,310 101,968 102,240 102,536 1,968 2,240 2,536 1,268 1,540 1,836
4 4,526 102,579 103,027 103,534 2,579 3,027 3,534 1,879 2,327 2,834
5 5,802 103,166 103,834 104,620 3,166 3,834 4,620 2,466 3,134 3,920
6 7,142 103,726 104,658 105,799 3,726 4,658 5,799 3,090 4,021 5,163
7 8,549 104,259 105,499 107,080 4,259 5,499 7,080 3,687 4,926 6,507
8 10,027 104,765 106,356 108,472 4,765 6,356 8,472 4,256 5,847 7,963
9 11,578 105,241 107,229 109,985 5,241 7,229 9,985 4,796 6,784 9,539
10 13,207 105,687 108,116 111,628 5,687 8,116 11,628 5,305 7,734 11,246
11 14,917 106,100 109,014 113,412 6,100 9,014 13,412 5,782 8,696 13,094
12 16,713 106,478 109,923 115,349 6,478 9,923 15,349 6,224 9,668 15,095
13 18,599 106,820 110,839 117,453 6,820 10,839 17,453 6,629 10,648 17,263
14 20,579 107,124 111,761 119,738 7,124 11,761 19,738 6,997 11,634 19,611
15 22,657 107,387 112,686 122,219 7,387 12,686 22,219 7,323 12,623 22,155
16 24,840 107,605 113,609 124,911 7,605 13,609 24,911 7,605 13,609 24,911
17 27,132 107,773 114,523 127,828 7,773 14,523 27,828 7,773 14,523 27,828
18 29,539 107,884 115,421 130,988 7,884 15,421 30,988 7,884 15,421 30,988
19 32,066 107,932 116,294 134,405 7,932 16,294 34,405 7,932 16,294 34,405
20 34,719 107,910 117,133 138,100 7,910 17,133 38,100 7,910 17,133 38,100
21 37,505 107,812 117,929 142,091 7,812 17,929 42,091 7,812 17,929 42,091
22 40,430 107,631 118,673 146,402 7,631 18,673 46,402 7,631 18,673 46,402
23 43,502 107,365 119,358 151,060 7,365 19,358 51,060 7,365 19,358 51,060
24 46,727 107,005 119,969 156,090 7,005 19,969 56,090 7,005 19,969 56,090
25 50,113 106,539 120,493 161,517 6,539 20,493 61,517 6,539 20,493 61,517
26 53,669 105,957 120,910 167,368 5,957 20,910 67,368 5,957 20,910 67,368
27 57,403 105,246 121,203 173,670 5,246 21,203 73,670 5,246 21,203 73,670
28 61,323 104,387 121,343 180,449 4,387 21,343 80,449 4,387 21,343 80,449
29 65,439 103,361 121,302 187,729 3,361 21,302 87,729 3,361 21,302 87,729
30 69,761 102,150 121,051 195,540 2,150 21,051 95,540 2,150 21,051 95,540
</TABLE>
The hypothetical investment rates of return shown above are illustrative
only and should not be deemed a representation of past or future investment
rates of return. Actual rate of return may be more or less than those shown
and will depend on a number of factors, including the investment allocations
made by an Owner and the investment experience of the Portfolios. The Death
Benefit, Policy Value and Surrender Value for a Policy would be different from
those shown if the actual gross annual rates of return averaged 0%, 6% or 12%
over a period of years, but also fluctuated above or below those averages for
individual Policy Years. They would also be different if any Policy Loans or
Partial Surrenders were made. No representations can be made by United
Investors Life Insurance Company or the Variable Account or the Portfolios
that these hypothetical rates of return can be achieved for any one year or
sustained over a period of time.
30
<PAGE>
MALE ISSUE AGE 50, STANDARD NON-TOBACCO
$2,500 ANNUAL PREMIUM
$100,000 FACE AMOUNT, OPTION B
GUARANTEED CHARGES
<TABLE>
<CAPTION>
DEATH BENEFITS POLICY VALUES SURRENDER VALUES
PREMIUMS ----------------------- --------------------- ---------------------
YR+INT @ 5% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------------- ------- ------- ------- ------ ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,625 101,763 101,887 102,011 1,763 1,887 2,011 763 887 1,011
2 5,381 103,451 103,807 104,179 3,451 3,807 4,179 2,451 2,807 3,179
3 8,275 105,057 105,754 106,511 5,057 5,754 6,511 4,057 4,754 5,511
4 11,314 106,575 107,722 109,017 6,575 7,722 9,017 5,575 6,722 8,017
5 14,505 107,999 109,702 111,707 7,999 9,702 11,707 6,999 8,702 10,707
6 17,855 109,323 111,689 114,590 9,323 11,689 14,590 8,414 10,780 13,681
7 21,373 110,542 113,675 117,680 10,542 13,675 17,680 9,724 12,856 16,861
8 25,066 111,651 115,654 120,991 11,651 15,654 20,991 10,924 14,927 20,264
9 28,945 112,644 117,616 124,537 12,644 17,616 24,537 12,007 16,980 23,900
10 33,017 113,508 119,548 128,327 13,508 19,548 28,327 12,963 19,002 27,782
11 37,293 114,235 121,435 132,374 14,235 21,435 32,374 13,780 20,980 31,919
12 41,782 114,811 123,259 136,688 14,811 23,259 36,688 14,447 22,896 36,324
13 46,497 115,217 124,998 141,274 15,217 24,998 41,274 14,945 24,725 41,001
14 51,446 115,436 126,624 146,136 15,436 26,624 46,136 15,255 26,442 45,955
15 56,644 115,450 128,111 151,283 15,450 28,111 51,283 15,359 28,020 51,192
16 62,101 115,254 129,446 156,733 15,254 29,446 56,733 15,254 29,446 56,733
17 67,831 114,821 130,591 162,487 14,821 30,591 62,487 14,821 30,591 62,487
18 73,848 114,136 131,518 168,554 14,136 31,518 68,554 14,136 31,518 68,554
19 80,165 113,182 132,195 174,945 13,182 32,195 74,945 13,182 32,195 74,945
20 86,798 111,931 132,578 181,656 11,931 32,578 81,656 11,931 32,578 81,656
21 93,763 110,345 132,610 188,678 10,345 32,610 88,678 10,345 32,610 88,678
22 101,076 108,378 132,224 195,985 8,378 32,224 95,985 8,378 32,224 95,985
23 108,755 105,972 131,334 203,538 5,972 31,334 103,538 5,972 31,334 103,538
24 116,818 103,068 129,850 211,294 3,068 29,850 111,294 3,068 29,850 111,294
25 125,284 *** 127,690 219,211 *** 27,690 119,211 *** 27,690 119,211
26 134,173 *** 124,777 227,260 *** 24,777 127,260 *** 24,777 127,260
27 143,506 *** 121,036 235,409 *** 21,036 135,409 *** 21,036 135,409
28 153,307 *** 116,396 243,631 *** 16,396 143,631 *** 16,396 143,631
29 163,597 *** 110,774 251,889 *** 10,774 151,889 *** 10,774 151,889
30 174,402 *** 104,059 260,116 *** 4,059 160,116 *** 4,059 160,116
</TABLE>
The hypothetical investment rates of return shown above are illustrative
only and should not be deemed a representation of past or future investment
rates of return. Actual rate of return may be more or less than those shown
and will depend on a number of factors, including the investment allocations
made by an Owner and the investment experience of the Portfolios. The Death
Benefit, Policy Value and Surrender Value for a Policy would be different from
those shown if the actual gross annual rates of return averaged 0%, 6% or 12%
over a period of years, but also fluctuated above or below those averages for
individual Policy Years. They would also be different if any Policy Loans or
Partial Surrenders were made. No representations can be made by United
Investors Life Insurance Company or the Variable Account or the Portfolios
that these hypothetical rates of return can be achieved for any one year or
sustained over a period of time. As indicated by the asterisks, at certain
rates of return additional premium payments will be required to prevent Policy
termination.
31
<PAGE>
TAX CONSIDERATIONS
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE
Introduction. The following summary provides a general description of the
federal income tax considerations relating to the Policy. This summary is
based upon United Investors' understanding of the present federal income tax
laws as they are currently interpreted by the Internal Revenue Service
("IRS"). Because of the complexity of such laws and the fact that tax results
will vary according to the factual status of the specific policy involved, tax
advice from a qualified tax advisor may be needed by a person contemplating
the purchase of a Policy or the exercise of elections under the Policy. It
should therefore be understood that these comments concerning federal income
tax consequences are not an exhaustive discussion of all tax questions that
might arise under the Policy. Further, these comments do not take into account
any federal estate tax and gift, state, or local tax considerations which may
be involved in the purchase of a Policy or the exercise of elections under the
Policy. For complete information on such federal and state tax considerations,
a qualified tax advisor should be consulted. United Investors does not make
any guarantee regarding the tax status of any policy and the following summary
is not intended as tax advice.
TAX STATUS OF THE POLICY
Section 7702 of the Code sets forth a definition of a life insurance
contract for federal tax purposes. In addition, the Technical and
Miscellaneous Revenue Act of 1988 ("TAMRA") established certain new
requirements with respect to the mortality (i.e., cost of insurance) and other
expense charges that are to be used in determining compliance with Section
7702. The Secretary of the Treasury has issued proposed regulations that would
specify what will be considered reasonable mortality charges for Policies
subject to TAMRA. However, these proposed regulations do not address other
expense charges. If a Policy were determined not to be a life insurance
contract for purposes of Section 7702, such Policy would not provide most of
the tax advantages normally provided by a life insurance policy. (See "Tax
Treatment of Policy Benefits.")
With respect to a Policy that is issued on the basis of a standard risk
class or a risk class involving a lower mortality risk (i.e., a preferred
basis), while there is some uncertainty due to the lack of guidance on other
expense charges, United Investors nonetheless believes that such a Policy
should meet the Section 7702 definition of a life insurance contract. However,
with respect to a Policy that is issued on a substandard basis (i.e., a risk
class involving higher than standard mortality risk), it remains unclear
whether or not such a Policy would satisfy Section 7702, particularly if the
Owner pays the full amount of premiums permitted under the Policy.
If it is subsequently determined that a Policy does not satisfy Section
7702, United Investors will take all steps possible in order to attempt to
cause such a Policy to comply with Section 7702, including possibly refunding
any premiums paid that exceed the limitations allowable under Section 7702
(together with interest or other earnings on any such premiums refunded as
required by law). For these reasons, United Investors reserves the right to
modify the Policy as necessary to qualify it as a life insurance contract
under Section 7702.
Section 817(h) of the Code authorizes the Treasury to set standards by
regulation or otherwise for the investments of the Variable Account to be
"adequately diversified" in order for the Policy to be treated as a life
insurance contract for federal tax purposes. The Variable Account, through the
Fund, intends to comply with the diversification requirements prescribed by
the Treasury in Treas. Reg. Section 1.817-5, which affect how the Fund's
assets may be invested. Although the Fund's investment adviser and United
Investors are both indirectly owned by Torchmark Corporation, United Investors
does not control the Fund or its investments. United Investors, however,
believes that the Fund will be operated in compliance with the requirements
prescribed by the Treasury.
32
<PAGE>
In certain circumstances, owners of variable contracts may be considered the
owners, for federal income tax purposes, of the assets of the separate account
used to support their contracts. In those circumstances, income and gains from
the separate account assets would be includible in the variable contract
owner's gross income. The IRS has stated in published rulings that a variable
contract owner will be considered the owner of separate account assets if the
contract owner possesses incidents of ownership in those assets, such as the
ability to exercise investment control over the assets. The Treasury
Department also announced, in connection with the issuance of regulations
concerning diversifications, that those regulations "do not provide guidance
concerning the circumstances in which investor control of the investments of a
segregated asset account may cause the investor (i.e., the Owner), rather than
the insurance company, to be treated as the owner of the assets in the
account." This announcement also stated that guidance would be issued by way
of regulations or rulings on the "extent to which policyowners may direct
their investments to particular subaccounts without being treated as owners of
the underlying assets."
The ownership rights under the Policy are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that policy owners were not owners of separate account assets.
For example, the Owner has additional flexibility in allocating premium
payments and Policy values. These differences could result in an Owner being
treated as the owner of a pro rata portion of the assets of the Variable
Account. In addition, United Investors does not know what standards will be
set forth, if any, in the regulations or rulings which the Treasury Department
has stated it expects to issue. United Investors therefore reserves the right
to modify the Policy as necessary to attempt to prevent an Owner from being
considered the owner of a pro rata share of the assets of the Variable
Account.
The following discussion assumes that the Policy will qualify as a life
insurance contract for federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
1. In general. United Investors believes that the proceeds and cash value
increases of a Policy should be treated in a manner consistent with a fixed-
benefit life insurance policy for federal income tax purposes. Thus, the death
benefit under the Policy should be excludable from the gross income of the
Beneficiary under Section 101 (a)(1) of the Code.
The exchange of the Policy, a change of the Policy's Minimum Death Benefit,
a Policy loan, an additional premium payment, a Policy lapse with an
outstanding loan, a change of Owners, or a surrender may have tax consequences
depending on the circumstances. In addition, federal estate and state and
local estate, inheritance, and other tax consequences of ownership or receipt
of Policy proceeds depend upon the circumstances of each Owner or Beneficiary.
A competent tax adviser should be consulted for further information.
Generally, the Owner will not be deemed to be in constructive receipt of the
cash value, including increments thereof, under the Policy until there is a
distribution. The tax consequences of distributions from, and loans taken
from, or secured by, a Policy depend on whether the Policy is classified as a
"modified endowment contract" under Section 7702A. Whether a Policy is or is
not a Modified Endowment Contract, upon a complete surrender or lapse of a
Policy or when benefits are paid at the Maturity Date, if the amount receives
plus the amount of any indebtedness exceeds the total investment in the
Policy, the excess will generally be treated as ordinary income subject to
tax.
2. Modified endowment contracts. A Policy may be treated as a modified
endowment contract depending upon the amount of premiums paid in relation to
the death benefit provided under such
33
<PAGE>
Policy. The premium limitation rules for determining whether such a Policy is
a modified endowment contract are extremely complex. In general, however, a
Policy will be a modified endowment contract if the accumulated premiums paid
at any time during the first seven Policy Years exceed the sum of the net
level premiums which would have been paid on or before such time if the Policy
provided for paid-up future benefits after the payment of seven level annual
premiums. In addition, if a Policy is "materially changed," it may cause such
Policy to be treated as a modified endowment contract. The material change
rules for determining whether a Policy is a modified endowment contract are
also extremely complex. In general, however, the determination whether a
Policy will be a modified endowment contract after a material change depends
upon the relationship of the death benefit at the time of change to the Cash
Value at the time of such change and the additional premiums paid in the seven
Policy Years starting with the date on which the material change occurs.
The manner in which the premium limitation and material change rules should
be applied to certain features of the Policy and its riders is unclear.
Nonetheless, under our current procedures, the Owner will be notified at the
time a Policy is issued whether, according to our calculations, the Policy is
or is not classified as a modified endowment contract based on the premium
then received. The Owner will also be notified of the amount of the maximum
annual premium which, according to our calculations, can be paid without
causing a Policy to be classified as a modified endowment contract.
Due to the Policy's flexibility, classification of a Policy as a modified
endowment contract will depend upon the circumstances of each Policy.
Accordingly, a prospective Owner should contact a qualified tax adviser before
purchasing a Policy to determine the circumstances under which the Policy
would be a modified endowment contract. In addition, an Owner should contact a
competent tax adviser before making any change to, including an exchange of or
reduction in benefits of, a Policy to determine whether such change would
cause the Policy (or the new policy in the case of an exchange) to be treated
as a modified endowment contract.
If a Policy becomes a modified endowment contract, distributions such as
Partial Surrenders and Policy Loans that occur during the Policy Year it
becomes a modified endowment contract and any subsequent Policy Year will be
taxed as distributions from a modified endowment contract. In addition,
distributions from a Policy within two years before it becomes a modified
endowment contract will be taxed in this manner. This means that a
distribution made from a Policy that is not a modified endowment contract
could later become taxable as a distribution from a modified endowment
contract.
Whether a Policy is or is not a Modified Endowment Contract, upon a complete
surrender or lapse of a Policy or when benefits are paid at the Maturity Date,
if the amount received plus the amount of any indebtedness exceeds the total
investment in the Policy, the excess will generally be treated as ordinary
income subject to tax.
3. Distributions from Policies Classified as Modified Endowment
Contracts. Policies classified as modified endowment contracts will be subject
to the following tax rules: First, all distributions, including distributions
upon surrender and benefits paid at maturity, from such a Policy are treated
as ordinary income subject to tax up to the amount equal to the excess (if
any) of the cash value immediately before the distribution over the investment
in the Policy (described below) at such time. Second, loans taken from, or
secured by, such a Policy (including unpaid loan interest that is added to the
principal of a loan) are treated as distributions from such a Policy and taxed
accordingly. Third, a 10 percent additional tax is imposed on the portion of
any distribution from, or loan taken from or secured by, such a Policy that is
included in income except where the distribution or loan is made on or after
the Owner attains age 59 1/2, is attributable to the Owner's becoming
disabled, or is part of a series of substantially equal periodic payments for
the life (or life expectancy) of the Owner or the joint lives (or joint life
expectancies) of the Owner and the Owner's Beneficiary.
34
<PAGE>
4. Distributions from Policies not Classified as Modified Endowment
Contracts. Distributions (such as Partial Surrenders or Policy Loans) from a
Policy that is not classified as a modified endowment contract are generally
treated as first recovering the investment in the Policy (described below) and
then, only after the return of all such investment in the Policy, as
distributing taxable income. An exception to this general rule occurs in the
case of a decrease in the Policy's death benefit or any other change that
reduces benefits under the Policy in the first 15 years after the Policy is
issued and that results in a cash distribution to the Owner in order for the
Policy to continue complying with the Section 7702 definitional limits. Such a
cash distribution will be taxed in whole or in part as ordinary income (to the
extent of any gain in the Policy) under rules prescribed in Section 7702.
Loans from, or secured by, a Policy that is not a modified endowment contract
may be treated as indebtedness of the Owner, not as a distribution. Finally,
neither distributions (including distributions upon surrender or lapse) nor
loans from, or secured by, a Policy that is not a modified endowment contract
are subject to the 10% additional income tax.
5. Policy Loan Interest. Interest paid on a Policy Loan generally is not tax
deductible. The Owner should consult a competent tax adviser if the
deductibility of interest paid on a policy loan is an important issue.
6. Investment in the Policy. Investment in the Policy means (i) the
aggregate amount of any premiums or other consideration paid for a Policy,
minus (ii) the aggregate amount received under the Policy which is excluded
from the gross income of the Owner (except that the amount of any loan from,
or secured by, a Policy that is a modified endowment contract, to the extent
such amount is excluded from gross income, will be disregarded), plus (iii)
the amount of any loan from, or secured by, a Policy that is a modified
endowment contract to the extent that such amount is included in the gross
income of the Owner.
7. Multiple Policies. All modified endowment contracts that are issued by
United Investors (or its affiliates) to the same Owner during any calendar
year are treated as one modified endowment contract for purposes of
determining the amount includable in gross income under Section 72(e) of the
Code.
8. Other Tax Consequences. The Policy may be used in various arrangements,
including nonqualified deferred compensation or salary continuance plans,
split dollar insurance plans, executive bonus plans, retiree medical benefit
plans and others. The tax consequences of such plans may vary depending on the
particular facts and circumstances of each individual arrangement. Therefore,
if you are contemplating the use of a Policy in any arrangement the value of
which depends in part on its tax consequences, you should be sure to consult a
qualified tax advisor regarding the tax attributes of the particular
arrangement.
TAXATION OF UNITED INVESTORS
United Investors incurs state and local premium taxes, and federal income
taxes resulting from the treatment of deferred acquisition costs. The amount
of the charge for such taxes is discussed above under "Charges and
Deductions." At the present time, the United Investors makes no charge to the
Variable Account for any other federal, state or local taxes that it incurs
which may be attributable to such Account or to the Policies. United
Investors, however, reserves the right in the future to make a charge for any
such tax or other economic burden resulting from the application of the tax
laws that it determines to be properly attributable to the Variable Account or
to the Policies.
EMPLOYMENT-RELATED BENEFIT PLANS
On July 6, 1983, the Supreme Court held in Arizona Governing Committee v.
Norris that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII
35
<PAGE>
of the Civil Rights Act of 1964, vary between men and women on the basis of
sex. The Policies described in this Prospectus contain guaranteed purchase
rates for certain payment options that generally distinguish between men and
women. Accordingly, employers and employee organizations should consider, in
consultation with their legal counsel, the impact of Norris, and Title VII
generally, on any employment-related insurance or benefit program for which a
Policy may be purchased.
ADDITIONAL INFORMATION
DIRECTORS AND OFFICERS OF UNITED INVESTORS. United Investors is managed by a
board of directors. The following table sets forth the name and principal
occupations during the past five years of each of United Investors's directors
and senior officers. Unless otherwise noted, the address for each person is
United Investors Life Insurance Company, 2001 Third Avenue South, Birmingham,
Alabama 35233.
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
NAME AND POSITION WITH PRINCIPAL OCCUPATION
UNITED INVESTORS DURING THE PAST FIVE YEARS
- --------------------------------------------------------------------------------
<S> <C>
W. Thomas Aycock Vice President and Chief Actuary of United
Vice President and Chief Investors since November 1992. Senior Vice
Actuary, Director President and Actuary of Associated Doctors Health
& Life Insurance Co., December 1990-November 1992.
- --------------------------------------------------------------------------------
Charles T. Clayton, Jr. Vice President--Agency Division since January 1987.
Vice President
- --------------------------------------------------------------------------------
Michael J. Klyce Vice President of Torchmark Corporation since
Vice President and January 1984.
Treasurer
- --------------------------------------------------------------------------------
John H. Livingston Counsel of United Investors since May 1996.
Director, Secretary and Secretary of United Investors since December 1994.
Counsel Associate Counsel of United Investors, July 1990-
April 1996. Associate Counsel of Liberty National Life
Insurance Company since October 1986.
- --------------------------------------------------------------------------------
James L. Mayton, Jr. Vice President & Controller of Liberty National Life
Vice President and Insurance Company since January 1985.
Controller
- --------------------------------------------------------------------------------
Carol A. McCoy Assistant Secretary of Torchmark Corporation since
Director April 1987. Associate Counsel of Torchmark
Corporation since January 1985.
- --------------------------------------------------------------------------------
Anthony L. McWhorter President of Liberty National Life Insurance Company
Director since December 1994. Executive Vice President
and Chief Actuary of Liberty National, November 1993-
December 1994. Senior Vice President & Chief
Actuary of Liberty National, September 1991-
November 1993.
- --------------------------------------------------------------------------------
Ronald K. Richey Chairman of Torchmark Corporation since August
Chairman of the Board 1986 and Chief Executive Officer since December
and Chief Executive 1984. Chairman of United Investors Management
Officer Company since October 1986.
- --------------------------------------------------------------------------------
James L. Sedgwick President of United Investors since September 1991.
President and Director General Counsel, Vice President and Secretary
of United Investors, July 1979-September 1991.
</TABLE>
36
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------
<CAPTION>
NAME AND POSITION WITH PRINCIPAL OCCUPATION
UNITED INVESTORS DURING THE PAST FIVE YEARS
- -----------------------------------------------------------------------------
<S> <C>
Ross W. Stagner Vice President of United Investors since January
Vice President and 1992. Assistant Vice President of United Investors,
Director March 1988-January 1992.
- -----------------------------------------------------------------------------
William L. Surber Vice President of United Investors since April 1992.
Vice President and Assistant Vice President of United Investors, January
Director 1982-April 1992.
- -----------------------------------------------------------------------------
Keith A. Tucker Vice Chairman of Torchmark Corporation since May
Director 1991.
- -----------------------------------------------------------------------------
</TABLE>
SALE OF THE POLICIES. Waddell & Reed, Inc., an affiliate of United
Investors, acts as the principal underwriter of the Policies. Waddell & Reed,
Inc. also acts as principal underwriter for United Investors Life Variable
Account, a separate account also established by United Investors, and may act
as principal underwriter for other separate accounts established by affiliates
of United Investors. Waddell & Reed, Inc. is the principal underwriter of the
funds in the United Group of Mutual Funds and Waddell & Reed Funds, Inc.
Waddell & Reed, Inc. is a corporation organized under the laws of the state of
Delaware in 1981, is registered as a broker-dealer under the Securities
Exchange Act of 1934, and is a member of the National Association of
Securities Dealers, Inc. (the "NASD"). The Policies may not be available in
all states. Waddell & Reed, Inc. may enter into written sales agreements with
various broker-dealers to aid in the sale of the Policies. A commission plus
bonus compensation may be paid to broker-dealers or agents in connection with
sales of the Policies.
VOTING OF PORTFOLIO SHARES. United Investors is the legal owner of shares
held by the Investment Divisions and as such has the right to vote on all
matters submitted to shareholders of the Portfolios. However, as required by
law, United Investors will vote shares held in the Investment Divisions at
meetings of the shareholders of the Portfolios in accordance with instructions
received from Owners with Policy Value in the Investment Divisions. TMK/United
does not hold regular annual shareholder meetings. To obtain voting
instructions from Owners, before a meeting of shareholders of the Portfolios,
United Investors will send Owners voting instruction material, a voting
instruction form and any other related material. Shares held by an Investment
Division for which no timely instructions are received will be voted by United
Investors in the same proportion as those shares for which voting instructions
are received. Should the applicable federal securities laws, regulations or
interpretations thereof change so as to permit United Investors to vote shares
of the Portfolios in its own right, United Investors may elect to do so.
United Investors may, if required by state insurance officials, disregard
Owner voting instructions if such instructions would require shares to be
voted so as to cause a change in sub-classification or investment objectives
of one or more of the Portfolios, or to approve or disapprove an investment
advisory agreement. In addition, United Investors may under certain
circumstances disregard voting instructions that would require changes in the
investment policy or investment adviser of one or more of the Portfolios,
provided that United Investors reasonably disapproves of such changes in
accordance with applicable federal regulations. If United Investors ever
disregards voting instructions, Owners will be advised of that action and of
the reasons for such action in the next report to Owners.
OTHER INFORMATION. A registration statement under the Securities Act of 1933
has been filed with the SEC relating to the offering described in this
prospectus. This prospectus does not include all the information set forth in
the registration statement. The omitted information may be obtained at the
SEC's principal office in Washington, D.C. by paying the SEC's prescribed
fees.
LITIGATION. No legal or administrative proceeding is pending that would have
a material effect upon the Variable Account.
37
<PAGE>
LEGAL MATTERS. All matters of Missouri law pertaining to the Policy,
including the validity of the Policy and United Investors' right to issue the
Policy under Missouri insurance law and any other applicable state insurance
or securities laws, have been passed upon by James L. Sedgwick, Esq.,
President of United Investors. Legal advice regarding certain matters relating
to federal securities laws applicable to the issuance of the Policy described
in this prospectus has been provided by Sutherland, Asbill & Brennan LLP of
Washington, D.C.
EXPERTS. The balance sheets of United Investors Life Insurance Company as of
December 31, 1996 and 1995, and the related statements of operations,
shareholder's equity, and cash flows for each of the years in the three-year
period ended December 31, 1996 have been included herein in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing. Actuarial matters included in this prospectus have
been examined by W. Thomas Aycock, Vice President and Chief Actuary of United
Investors, whose opinion is filed as an exhibit to the registration statement.
FINANCIAL STATEMENTS. The financial statements of United Investors appear on
the following pages. No financial statements are presented for the Variable
Account because it has yet to commence operations. The financial statements of
United Investors should be distinguished from financial statements of the
Variable Account (once the Variable Account's financial statements are
presented) and should be considered only as bearing upon United Investors's
ability to meet its obligations under the Policies.
38
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
United Investors Life Insurance Company
Birmingham, Alabama
We have audited the accompanying balance sheets of United Investors Life
Insurance Company as of December 31, 1996 and 1995 and the related statements
of operations, shareholder's equity and cash flow for each of the years in the
three-year period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of United Investors Life
Insurance Company at December 31, 1996 and 1995 and the results of its
operations and its cash flow for each of the years in the three-year period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Birmingham, Alabama
January 31, 1997
F-1
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities--available for sale, at fair value
(cost: 1996--$621,177; 1995--$612,375)................. $ 624,880 637,844
Policy loans............................................ 14,332 12,299
Other long-term invested assets......................... 21,411 19,848
Short-term investments.................................. 1,834 4,223
---------- ----------
Total investments..................................... 662,457 674,214
Cash..................................................... 2,404 6,042
Accrued investment income (includes amounts from
affiliates:
1996--$473; 1995--$473)................................. 10,781 9,963
Receivables (includes amounts from affiliates:
1996--$35,423; 1995--$35,322)........................... 38,058 37,858
Deferred acquisition costs............................... 169,986 144,716
Value of insurance purchased............................. 16,160 18,679
Goodwill................................................. 7,055 7,340
Property and equipment................................... 156 125
Other assets............................................. 1,534 2,242
Separate account assets.................................. 1,420,025 1,085,844
---------- ----------
Total assets.......................................... $2,328,616 $1,987,023
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Future policy benefits.................................. $ 531,297 $ 517,177
Unearned and advance premiums........................... 2,804 2,521
Other policy liabilities................................ 8,135 6,264
---------- ----------
Total policy liabilities............................... 542,236 525,962
Accrued income taxes.................................... 43,063 50,313
Other liabilities....................................... 2,265 2,132
Due to affiliates....................................... 8,965 9,644
Separate account liabilities............................ 1,420,025 1,085,844
---------- ----------
Total liabilities..................................... 2,016,554 1,673,895
Shareholder's equity:
Common stock, par value $6 per share-authorized,
issued and outstanding:
500,000 shares......................................... 3,000 3,000
Additional paid-in capital.............................. 137,950 137,950
Unrealized investment gains, net of applicable taxes.... 4,460 12,292
Retained earnings....................................... 166,652 159,886
---------- ----------
Total shareholder's equity............................ 312,062 313,128
---------- ----------
Total liabilities and shareholder's equity............ $2,328,616 $1,987,023
========== ==========
</TABLE>
See accompanying Notes to Financial Statements.
F-2
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Premium income.................................... $ 65,114 $ 61,792 $ 57,753
Policy charges and fees........................... 29,403 23,109 18,259
Net investment income (includes amounts from af-
filiates: 1996-- $2,847; 1995--$3,058; 1994--
$628)............................................ 51,128 49,356 46,258
Realized investment gains (losses)................ 925 1,441 (2,047)
Other income...................................... 0 4 2
-------- -------- --------
Total revenue................................... 146,570 135,702 120,225
Benefits and expenses:
Policy benefits:
Individual life.................................. 47,355 42,943 39,578
Annuity.......................................... 15,807 16,540 15,326
-------- -------- --------
Total policy benefits........................... 63,162 59,483 54,904
Amortization of deferred acquisition costs........ 19,850 16,602 15,790
Commissions and premium taxes (includes amounts to
affiliates: 1996--$4,723; 1995--$4,000; 1994--
$4,008).......................................... 5,248 4,691 4,205
Other operating expense (includes amounts to af-
filiates: 1996--$2,181; 1995--$1,862; 1994--
$1,774).......................................... 3,966 3,679 3,954
-------- -------- --------
Total benefits and expenses..................... 92,226 84,455 78,853
-------- -------- --------
Net operating income before income taxes........... 54,344 51,247 41,372
Income taxes....................................... 19,078 18,037 14,337
-------- -------- --------
Net income...................................... $ 35,266 $ 33,210 $ 27,035
======== ======== ========
</TABLE>
See accompanying Notes to Financial Statements.
F-3
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
ADDITIONAL INVESTMENT TOTAL
COMMON PAID-IN GAINS RETAINED SHAREHOLDER'S
STOCK CAPITAL (LOSSES) EARNINGS EQUITY
------ ---------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1994
Balance at January 1,
1994................... $3,000 $137,915 $11,885 $117,141 $269,941
Net income.............. 27,035 27,035
Dividends............... (10,000) (10,000)
Net change in unrealized
investment gains (loss-
es).................... (24,263) (24,263)
------ -------- ------- -------- --------
Balance at December 31,
1994................... 3,000 137,915 (12,378) 134,176 262,713
YEAR ENDED DECEMBER 31,
1995
Net income.............. 33,210 33,210
Dividends............... (7,500) (7,500)
Exercise of stock op-
tions.................. 35 35
Net change in unrealized
investment gains (loss-
es).................... 24,670 24,670
------ -------- ------- -------- --------
Balance at December 31,
1995................... 3,000 137,950 12,292 159,886 313,128
YEAR ENDED DECEMBER 31,
1996
Net income.............. 35,266 35,266
Dividends............... (28,500) (28,500)
Net change in unrealized
investment gains (loss-
es).................... (7,832) (7,832)
------ -------- ------- -------- --------
Balance at December 31,
1996................... $3,000 $137,950 $ 4,460 $166,652 $312,062
====== ======== ======= ======== ========
</TABLE>
See accompanying Notes to Financial Statements.
F-4
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOW
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995 1994
-------- --------- ---------
<S> <C> <C> <C>
Net income.................................... $ 35,266 $ 33,210 $ 27,035
Adjustments to reconcile net income to cash
provided from operations:
Increase in future policy benefits........... 20,692 22,011 19,302
Increase (decrease) in other policy benefits. 2,154 (614) (753)
Deferral of policy acquisition costs......... (33,744) (28,870) (28,116)
Amortization of deferred acquisition costs... 19,850 16,602 15,790
Change in accrued income taxes............... (3,033) 2,644 (1,557)
Depreciation................................. 44 52 71
Realized (gains) losses on sale of invest-
ments and properties........................ (925) (1,441) 2,047
Other accruals and adjustments............... (997) (3,525) (1,558)
-------- --------- ---------
Cash provided from operations................. 39,307 40,069 32,261
Cash used for investment activities:
Investments sold or matured:
Fixed maturities available for sale--sold... 15,246 149,076 64,713
Fixed maturities available for sale--
matured, called and repaid................. 44,523 50,659 107,977
Equity securities........................... 0 3,341 0
Other long-term investments................. 482 9,316 1,830
-------- --------- ---------
Total investments sold or matured.......... 60,251 212,392 174,520
Acquisition of investments:
Fixed maturities--available for sale........ (68,214) (244,162) (180,473)
Equity securities........................... 0 0 (102)
Net increase in policy loans................ (2,033) (2,121) (1,524)
Other long-term investments................. (1,183) (1,587) (2,461)
-------- --------- ---------
Total acquisition of investments........... (71,430) (247,870) (184,560)
Net (increase) decrease in short-term invest-
ments....................................... 2,389 (1,901) 12,669
Funds loaned to affiliates................... (3,500) (21,000) (54,000)
Funds repaid from affiliates................. 3,500 21,000 27,000
Disposition of properties.................... 34 6 15
Additions to properties...................... (117) (33) (23)
-------- --------- ---------
Cash used for investment activities........... (8,873) (37,406) (24,379)
Cash used for financing activities:
Cash dividends paid to shareholder........... (27,500) (7,500) (10,000)
Net receipts from deposit product operations. (6,572) 3,343 (450)
-------- --------- ---------
Cash used for financing activities............ (34,072) (4,157) (10,450)
Decrease in cash.............................. (3,638) (1,494) (2,568)
Cash at beginning of year..................... 6,042 7,536 10,104
-------- --------- ---------
Cash at end of year........................... $ 2,404 $ 6,042 $ 7,536
======== ========= =========
</TABLE>
See accompanying Notes to Financial Statements.
F-5
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization: United Investors Life Insurance Company (the "Company") is a
wholly-owned subsidiary of United Investors Management Company ("United
Management"), which is a wholly-owned subsidiary of Torchmark Corporation
("Torchmark"), the ultimate parent.
DESCRIPTION OF BUSINESS
The Company is a life insurer licensed in 49 states. The Company offers a
full range of life, annuity and variable products through its agents and is
subject to competition from other insurers throughout the United States. The
Company is subject to regulation by the insurance department of states in
which it is licensed, and undergoes periodic examinations by those
departments.
The following is a description of certain risks facing life insurers and how
the Company mitigates those risks:
Legal/Regulatory Risk is the risk that, changes in the legal or
regulatory environment in which an insurer operates, will create additional
expenses not anticipated by the insurer in pricing its products. That is,
regulatory initiatives designed to reduce insurer profits or otherwise
affecting the industry in which the insurer operates, new legal theories or
insurance company insolvencies through guaranty fund assessments, may
create costs in the future for the insurer beyond those recorded in the
financial statements. The Company attempts to mitigate this risk by
offering a wide range of products and by operating in 49 states, thus
reducing its exposure to any single product or non-Federal jurisdiction,
and also by employing underwriting practices which identify and minimize
the adverse impact of this risk.
Credit Risk is the risk that issuers of securities owned by the Company
will default or that other parties, including reinsurers that have
obligations to the Company, will not pay or perform. The Company attempts
to minimize the risk by adhering to a conservative investment strategy and
by maintaining sound reinsurance and credit and collection policies.
Interest Rate Risk is the risk that interest rates will change and cause
a decrease in the value of an insurer's investments. This change in rates
may cause certain interest-sensitive products to become uncompetitive or
may cause disintermediation. The Company attempts to match the maturity
schedule of its assets with the expected payouts of its liabilities. To the
extent that liabilities come due more quickly than assets mature, an
insurer would have to sell assets prior to maturity and recognize a gain or
loss.
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the financial statements and revenues and expenses for the reporting
period. Actual results could differ significantly from those estimates.
The estimates susceptible to significant change are those used in
determining the liability for policy reserves, losses and claims. Although
some variability is inherent in these estimates, management believes the
amounts provided are adequate.
Basis of Presentation: The accompanying financial statements include the
accounts of United Investors Life Insurance Company ("United Investors") which
is a wholly-owned subsidiary of United Investors Management Company ("United
Management"). The financial statements have been prepared on the basis of
generally accepted accounting principles ("GAAP"). The preparation of
F-6
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Investments: United Investors classifies all of its fixed maturity
investments, which includes bonds and redeemable preferred stocks, as
available for sale. Investments classified as available for sale are carried
at fair value with unrealized gains and losses, net of deferred taxes,
reflected directly in shareholder's equity. Investments in equity securities,
which include common and nonredeemable preferred stocks, are reported at fair
value with unrealized gains and losses, net of deferred taxes, reflected
directly in shareholder's equity. Policy loans are carried at unpaid principal
balances. Short-term investments include investments in certificates of
deposit and other interest-bearing time deposits with original maturities
within three months. Other long-term investments consist of investments in
mutual funds which are carried at fair value. Other long-term investments also
include passive energy limited-partnership investments which are valued at
partnership equity. If an investment becomes permanently impaired, such
impairment is treated as a realized loss and the investment is adjusted to net
realizable value.
Gains and losses realized on the disposition of investments are recognized
as revenues and are determined on a specific identification basis.
Realized investment gains and losses and investment income attributable to
separate accounts are credited to the separate accounts and have no effect on
United Investor's net income. Investment income attributable to policyholders
is included in United Investor's net investment income. Net investment income
for the years ended December 31, 1996, 1995 and 1994 included approximately
$37,600, $38,000, and $35,700, respectively, which was allocable to
policyholder reserves or accounts. Realized investment gains and losses are
not allocable to policyholders.
Determination of Fair Values of Financial Instruments: Fair value for cash,
short-term investments, receivables and payables approximates carrying value.
Fair values for investment securities are based on quoted market prices, where
available. Otherwise, fair values are based on quoted market prices of
comparable instruments. Fair value of future benefits for universal life and
current interest products and annuity products are based on the fund value.
Cash: Cash consists of balances on hand and on deposit in banks and
financial institutions.
Recognition of Revenue and Related Expenses: Premiums for insurance
contracts which are not defined as universal life-type according to the
Financial Accounting Standards Board's Statement of Accounting Standards
(SFAS) 97 are recognized as revenue over the premium-paying period of the
policy. Premiums for limited-payment life insurance contracts as defined by
SFAS 97 are recognized over the contract period. Premiums for universal life-
type and annuity contracts are added to the policy account value, and revenues
from such products are recognized as charges to the policy account value for
mortality, administration, and surrenders (retrospective deposit method). The
related benefits and expenses are matched with revenues by means of the
provision for future policy benefits and the amortization of deferred
acquisition costs in a manner which recognizes profits as they are earned over
the same period.
F-7
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Future Policy Benefits: The liability for future policy benefits for
universal life-type products according to SFAS 97 is represented by policy
account value. Annuity Contracts are accounted for as deposit contracts. The
liability for future policy benefits for other products is provided on the net
level premium method based on estimated investment yields, mortality,
persistency and other assumptions which were appropriate at the time the
policies were issued. Assumptions used are based on United Investor's
experience as adjusted to provide for possible adverse deviation. These
estimates are periodically reviewed and compared with actual experience. If it
is determined that future expected experience differs significantly from that
assumed, the estimates are revised.
Deferred acquisition costs: The costs of acquiring new insurance business
are deferred. Such costs consist of sales commissions, underwriting expenses,
and certain other selling expenses. The costs of acquiring new business
through the purchase of other companies and blocks of insurance business are
also deferred.
Deferred acquisition costs, including the value of insurance purchased, for
policies other than universal life-type policies according to SFAS 97, are
amortized with interest over an estimate of the premium-paying period of the
policies in a manner which charges each year's operations in proportion to the
receipt of premium income. For universal life-type policies, acquisition costs
are amortized with interest in proportion to estimated gross profits. The
assumptions used as to interest, withdrawals and mortality are consistent with
those used in computing the liability for future policy benefits and expenses.
If it is determined that future experience differs significantly from that
previously assumed, the estimates are revised. Deferred acquisition costs are
adjusted to reflect the amounts associated with unrealized investment gains
and losses pertaining to universal life-type products.
Income Taxes: Income taxes are accounted for under the asset and liability
method in accordance with SFAS 109. Under the asset and liability method,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement book
values and tax bases of assets and liabilities. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. 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.
Interest Expense: Interest expense includes interest on borrowed funds not
used in the production of investment income. Interest expense relating to the
production of investment income is deducted from investment income.
Property and Equipment: Property and equipment is reported at cost less
allowances for depreciation. Depreciation is provided on the straight-line
method over the estimated useful lives of these assets which range from three
to ten years.
Goodwill: Goodwill represents the excess cost over the fair value of the net
assets acquired when United Investors was purchased by Torchmark Corporation
(Torchmark) in 1981 and is being amortized on a straight-line basis over forty
years.
Reclassifications: Certain amounts in the financial statements presented
have been reclassified from amounts previously reported. These
reclassifications have no effect on previously reported shareholder's equity
or net income during the periods involved.
F-8
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 2--STATUTORY ACCOUNTING
United Investors is required to file statutory financial statements with
state insurance regulatory authorities. Accounting principles used to prepare
these statutory financial statements differ from GAAP. Net income and
shareholder's equity on a statutory basis for United Investors were as
follows:
<TABLE>
<CAPTION>
NET INCOME SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, AT DECEMBER 31,
------------------------- ---------------------
1996 1995 1994 1996 1995
-------- -------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Life insurance............... $ 26,640 $ 29,636 $ 7,752 $ 154,222 $ 156,673
</TABLE>
The excess of shareholder's equity on a GAAP basis over that determined on a
statutory basis is not available for distribution to the shareholder without
regulatory approval.
A reconciliation of United Investors' statutory net income to GAAP net
income is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995 1994
------- -------- --------
<S> <C> <C> <C>
Statutory net income............................ $26,640 $ 29,636 $ 7,752
Deferral of acquisition costs................... 33,744 28,870 28,116
Amortization of acquisition costs............... (19,850) (16,602) (15,790)
Differences in policy liabilities............... (4,361) (6,774) 13,515
Deferred income taxes........................... (773) (1,389) (4,271)
Other........................................... (134) (531) (2,287)
------- -------- --------
GAAP net income................................. $35,266 $ 33,210 $ 27,035
======= ======== ========
</TABLE>
A reconciliation of United Investors' statutory shareholder's equity to GAAP
shareholder's equity is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
Statutory shareholder's equity.................... $154,222 $ 156,673
Differences in policy liabilities................. 20,834 21,993
Deferred acquisition costs and value of insurance
purchased........................................ 186,146 163,396
Differences in income tax liability............... (44,679) (47,982)
Asset valuation reserve........................... 10,762 9,388
Nonadmitted assets................................ 1,856 1,778
Fair value adjustment on fixed maturities avail-
able for sale.................................... 3,703 25,469
Goodwill.......................................... 7,055 7,340
Due and deferred premiums......................... (29,324) (26,261)
Other............................................. 1,487 1,334
----------- -----------
GAAP shareholder's equity......................... $ 312,062 $ 313,128
=========== ===========
</TABLE>
The NAIC has adopted a model act that requires a risk based capital formula
to be applied to all life and health insurers. The risk based capital formula
is a threshold formula rather than a target capital formula. It is designed
only to identify companies that require regulatory attention and is not to be
used to rate or rank companies that are adequately capitalized. United
Investors is adequately capitalized under the risk based capital formula.
F-9
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 3--INVESTMENT OPERATIONS
Investment income is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995 1994
------- ------- --------
<S> <C> <C> <C>
Fixed maturities.................................. $46,366 $43,482 $ 43,532
Equity securities................................. 0 76 0
Policy loans...................................... 1,001 851 730
Other long-term investments....................... 1,211 1,681 1,314
Short-term investments............................ 287 717 493
Interest and dividends from affiliates............ 2,847 3,058 628
------- ------- --------
51,712 49,865 46,697
Less investment expense........................... (584) (509) (439)
------- ------- --------
Net investment income............................. $51,128 $49,356 $ 46,258
======= ======= ========
Analysis of gains (losses) from investments:
Realized investment gains (losses)
Fixed maturities................................ $ 925 $ 319 $ (2,189)
Equity securities............................... 0 1,276 0
Mutual funds.................................... 0 (154) 142
------- ------- --------
Net realized gains (losses)...................... $ 925 $ 1,441 $ (2,047)
======= ======= ========
Analysis of change in unrealized investment gains
(losses):
Net change in unrealized investment gains (losses)
on equity securities before tax.................. $ 0 $ (438) $ 437
Net change in unrealized investment gains on fixed
maturities available for sale before tax......... (21,767) 58,321 (58,904)
Other............................................. 861 3,602 (1,557)
Adjustment to deferred acquisition costs.......... 8,857 (23,532) 22,697
Applicable tax.................................... 4,217 (13,283) 13,064
------- ------- --------
Net change in unrealized gains (losses) on equity
and fixed maturity securities available for sale. $(7,832) $24,670 $(24,263)
======= ======= ========
</TABLE>
F-10
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 3--INVESTMENT OPERATIONS (CONTINUED)
A summary of fixed maturities available for sale by amortized cost and
estimated market value at December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
GROSS GROSS AMOUNT PER
AMORTIZED UNREALIZED UNREALIZED MARKET THE BALANCE
1996: COST GAINS LOSSES VALUE SHEET
- ----- --------- ---------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
Fixed maturities avail-
able for sale:
Bonds:
U.S. Government direct
obligations and agen-
cies................... $ 21,832 $ 79 $ (270) $ 21,641 $ 21,641
GNMA's.................. 150,505 6,297 (812) 155,990 155,990
Mortgage-backed
securities, GNMA
collateral............. 34,904 785 (6) 35,683 35,683
Other mortgage-backed
securities............. 4,060 -0- -0- 4,060 4,060
States, municipalities
and political
subdivisions........... 45,544 383 (894) 45,033 45,033
Foreign governments..... 3,272 158 0 3,430 3,430
Public utilities........ 22,543 483 (345) 22,681 22,681
Industrial and miscella-
neous.................. 338,517 3,737 (5,892) 336,362 336,362
-------- ------ ------- -------- --------
Total fixed maturities.. 621,177 11,922 (8,219) 624,880 624,880
======== ====== ======= ======== ========
<CAPTION>
1995:
- -----
<S> <C> <C> <C> <C> <C>
Fixed maturities avail-
able for sale:
Bonds:
U.S. Government direct
obligations and agen-
cies................... $ 21,790 $ 613 $ -0- $ 22,403 $ 22,403
GNMA's.................. 179,808 8,653 (87) 188,374 188,374
Mortgage-backed
securities, GNMA
collateral............. 42,505 2,195 -0- 44,700 44,700
Other mortgage-backed
securities............. -0- -0- -0- -0- -0-
States, municipalities
and political
subdivisions........... 37,305 946 (375) 37,876 37,876
Foreign governments..... 1,401 92 -0- 1,493 1,493
Public utilities........ 22,390 1,105 (18) 23,477 23,477
Industrial and miscella-
neous.................. 307,176 12,872 (527) 319,521 319,521
-------- ------ ------- -------- --------
Total fixed maturities.. 612,375 26,476 (1,007) 637,844 637,844
======== ====== ======= ======== ========
</TABLE>
F-11
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 3--INVESTMENT OPERATIONS (CONTINUED)
A schedule of fixed maturities by contractual maturity at December 31, 1996
is shown below on an amortized cost basis and on a market value basis. Actual
maturities could differ from contractual maturities due to call or prepayment
provisions.
<TABLE>
<CAPTION>
AMORTIZED MARKET
COST VALUE
--------- --------
<S> <C> <C>
Fixed maturities available for sale;
Due in one year or less................................. $ 10,361 $ 10,555
Due after one year through five years................... 87,414 89,132
Due after five years through ten years.................. 230,582 227,944
Due after ten years..................................... 103,351 101,516
-------- --------
431,708 429,147
Mortgage- and asset-backed securities.................... 189,469 195,733
-------- --------
$621,177 $624,880
======== ========
</TABLE>
Proceeds from sales of fixed maturities available for sale were $15,246 in
1996, $149,076 in 1995, and $64,713 in 1994. Gross gains realized on these
sales were $749 in 1996, $3,157 in 1995, and $1,058 in 1994. Gross losses on
these sales were $0 in 1996, $2,126 in 1995, and $3,468 in 1994.
F-12
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 4--DEFERRED ACQUISITION COSTS
An analysis of deferred acquisition costs and the value of insurance
purchased is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- --------------------- ---------------------
DEFERRED VALUE OF DEFERRED VALUE OF DEFERRED VALUE OF
ACQUISITION INSURANCE ACQUISITION INSURANCE ACQUISITION INSURANCE
COSTS PURCHASED COSTS PURCHASED COSTS PURCHASED
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of
year................... $144,716 $18,679 $153,677 $20,983 $116,406 $ 23,231
Additions:
Deferred during peri-
od:
Commissions.......... 28,492 0 24,258 0 23,533 0
Other expenses....... 5,252 0 4,611 0 4,583 0
-------- ------- -------- ------- -------- --------
Total deferred...... 33,744 0 28,869 0 28,116 0
Adjustment attributable
to unrealized
investment loss (1)... 8,857 0 0 0 22,697 0
-------- ------- -------- ------- -------- --------
Total additions..... 42,601 0 28,869 0 50,813 0
Deductions:
Amortized during peri-
od................... (16,894) (2,519) (14,062) (2,304) (12,109) (2,248)
Adjustment
attributable to
unrealized investment
gains (1)............ 0 0 (23,532) 0 0 0
Adjustment
attributable to
realized investment
gains (1)............ (437) 0 (236) 0 (1,433) 0
-------- ------- -------- ------- -------- --------
Total deductions.... (17,331) (2,519) (37,830) (2,304) (13,542) (2,248)
-------- ------- -------- ------- -------- --------
Balance at end of year.. 169,986 16,160 $144,716 $18,679 $153,677 $ 20,983
======== ======= ======== ======= ======== ========
</TABLE>
- --------
(1) Represents amounts pertaining to investments relating to universal life-
type products.
The amount of interest accrued on the unamortized balance of value of
insurance purchased was approximately $1,100, $1,300, and $1,500 for the years
ended December 31, 1996, 1995 and 1994, respectively. The average interest
accrual rates used were 6.44%, 6.59% and 6.74%, respectively. The estimated
amount of the unamortized value of business purchased balance at December 31,
1996 to be amortized during each of the next five years is: 1997, $1,777;
1998, $1,582; 1999, $1,408; 2000, $1,253; 2001, $1,115.
In the event of lapses or early withdrawals in excess of those assumed,
deferred acquisition costs and the value of insurance purchased may not be
recoverable.
NOTE 5--PROPERTY AND EQUIPMENT
A summary of property and equipment used in the business is as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31, AT DECEMBER 31,
1996 1995
------------------- -------------------
ACCUMULATED ACCUMULATED
COST DEPRECIATION COST DEPRECIATION
------ ------------ ------ ------------
<S> <C> <C> <C> <C>
Data processing equipment............... $ 192 $ 147 $ 155 $ 137
Transportation equipment................ 132 37 142 73
Furniture and office equipment ......... 919 903 919 881
------ ------ ------ ------
Total................................. $1,243 $1,087 $1,216 $1,091
====== ====== ====== ======
</TABLE>
Depreciation expense on property and equipment used in the business was $44,
$52 and $71 in each of the years 1996, 1995, and 1994, respectively.
F-13
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 6--FUTURE POLICY BENEFIT RESERVES
A summary of the assumptions used in determining the liability for future
policy benefits at December 31, 1996 is as follows:
INDIVIDUAL LIFE INSURANCE
Interest Assumptions:
<TABLE>
<CAPTION>
PERCENT OF
YEARS OF ISSUE INTEREST RATES LIABILITY
-------------- --------------------- ----------
<S> <C> <C>
1962-1996 3% level to 6% level 8%
1986-1992 7.00% graded to 6.00% 20%
1962-1985 8.50% graded to 6.00% 5%
1981-1985 8.50% graded to 7.00% 6%
1984-1996 Interest sensitive 61%
----
100%
====
</TABLE>
Mortality assumptions:
The mortality tables used are various statutory mortality tables and
modifications of:
1965-70 Select and Ultimate Table
1975-80 Select and Ultimate Table
Withdrawal assumptions:
Withdrawal assumptions are based on United Investors' experience.
NOTE 7--INCOME TAXES
United Investors is included in the life-nonlife consolidated federal income
tax return filed by Torchmark. Under the tax allocation agreement with
Torchmark, a company with taxable income pays tax equal to the amount it would
pay if it filed a separate tax return. A company with a loss is paid a tax
benefit currently to the extent that affiliated companies with taxable income
utilize that loss.
Total income taxes were allocated as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Net operating income before income taxes........ $19,078 $18,037 $14,337
Shareholder's equity:
Unrealized gains (losses)...................... (4,217) 13,283 (13,064)
Tax basis compensation expense in excess of
amounts recognized for financial reporting
purposes from the exercise of stock options... 0 (35) 0
Other.......................................... (152) 1 (1)
------- ------- -------
$14,709 $31,286 $ 1,272
======= ======= =======
</TABLE>
F-14
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 7--INCOME TAXES (CONTINUED)
Income tax expense before the adjustments to shareholder's equity is
summarized below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Current income tax expense............................. $18,305 $16,648 $10,066
Deferred income tax expense............................ 773 1,389 4,271
------- ------- -------
$19,078 $18,037 $14,337
======= ======= =======
</TABLE>
In 1996, 1995, and 1994, deferred income tax expense was incurred because of
the difference between net operating income before income taxes as reported on
the statements of operations and taxable income as reported on United
Investor's income tax returns. As explained in Note 1, this difference caused
the financial statement book values of some assets and liabilities to be
different from their respective tax bases.
The effective income tax rate differed from the expected 35% rate in 1996,
1995 and 1994 as shown below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 % 1995 % 1994 %
------- --- ------- --- ------- ---
<S> <C> <C> <C> <C> <C> <C>
Expected income taxes.................. $19,020 35% $17,936 35% $14,480 35%
Increase (reduction) in income taxes
resulting from:
Tax-exempt investment income.......... (38) 0 (102) 0 (243) 0
Purchase accounting differences....... 99 0 99 0 99 0
Other................................. (3) 0 104 0 1 0
------- --- ------- --- ------- ---
Income taxes........................... $19,078 35% $18,037 35% $14,337 35%
======= === ======= === ======= ===
</TABLE>
F-15
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 7--INCOME TAXES (CONTINUED)
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Future policy benefits and unearned and advance
premiums.......................................... $ 5,936 $ 9,622
Present value of future surrender charges.......... 9,636 4,083
Other liabilities, principally due to the current
nondeductibilty for tax purposes of certain
accrued expenses.................................. 147 188
----------- -----------
Total gross deferred tax assets.................... 15,719 13,893
----------- -----------
Net deferred tax assets............................ 15,719 13,893
----------- -----------
Deferred tax liabilities:
Deferred acquisition costs......................... 53,625 50,806
Unrealized investment gains........................ 2,402 6,619
Other.............................................. 766 1,138
----------- -----------
Total gross deferred tax liabilities............... 56,793 58,563
----------- -----------
Net deferred tax liability......................... 41,074 44,670
=========== ===========
</TABLE>
In United Investor's opinion, all deferred tax assets will be recoverable.
United Investors has not recognized a deferred tax liability of
approximately $2,200 that arose prior to 1984 on temporary differences related
to its policyholders' surplus account. A current tax expense will be
recognized in the future if and when this tax becomes payable.
NOTE 8--POSTRETIREMENT BENEFITS
Pension Plans: The full-time employees of United Investors are covered under
a defined benefit pension plan and a defined contribution savings plan. These
plans cover primarily employees of other Torchmark and United Management
affiliates. The total costs of these retirement plans charged to operations
were as follows:
<TABLE>
<CAPTION>
DEFINED DEFINED
YEAR ENDED CONTRIBUTION BENEFIT
DECEMBER 31, PLANS PLAN
------------ ------------ -------
<S> <C> <C>
1996.................................................. $41 $115
1995.................................................. 39 75
1994.................................................. 38 66
</TABLE>
Net periodic pension cost for the defined benefit plan which covers United
Investors' employees has been calculated on the projected unit credit
actuarial cost method in accordance with SFAS 87,
F-16
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 8--POSTRETIREMENT BENEFITS (CONTINUED)
which was adopted effective January 1, 1986. Contributions are made to the
plan equal to pension expense subject to minimums required by regulation and
maximums allowed for tax purposes. United Investors records the difference
between the SFAS 87 expense and the actual cash contribution to the plan to a
liability account. The liability recorded was $55 at December 31, 1996, and
$55 at December 31, 1995. The plan is organized as a trust fund whose assets
consist primarily of investments in long-term fixed maturities and equity
securities. Such assets are valued at market.
United Investors accrues expense for the defined contribution plans based on
a percentage of the employees' contributions. The plans are funded by the
employee contributions and a company contribution.
Postretirement Benefit Plans Other Than Pensions: United Investors provides
certain health care benefits ("postretirement benefits") for its retired
employees. Substantially all employees may become eligible for these benefits
if they reach retirement age while working for the Company. Coverage under
this plan of health benefits ceases when the covered retiree and/or covered
spouse are eligible for Medicare benefits.
Postretirement benefit cost for the years ending December 31, 1996, 1995 and
1994 was $5, $3 and $16, respectively; this expense includes the expected cost
of post- retirement benefits for newly eligible or vested employees, the
interest cost, and gains and losses arising from differences between actuarial
assumptions and actual experience.
The unfunded postretirement benefit obligation for retirees and other fully
eligible or vested plan participants was $122 and $133 as of December 31, 1996
and 1995, respectively. The discount rate used in determining the accumulated
postretirement benefit obligation was 7.50% and the health care cost trend
rate was 10%, graded to 4.5% over 10 years.
NOTE 9--RELATED PARTY TRANSACTIONS
The primary distributor of United Investors' Insurance products is Waddell &
Reed, Inc. ("W&R"), a United Management affiliate. W&R receives a commission
for marketing these products which was approximately $30,200, $25,700, and
$25,300 for the years ended December 31, 1996, 1995, and 1994, respectively.
United Investors was charged for space, equipment, and services provided by
an affiliate amounting to $1,797 in 1996, $1,706 in 1995 and $1,618 in 1994.
Torchmark performed certain administrative services for United Investors for
which it charged $384 in 1996, $156 in 1995 and $156 in 1994.
F-17
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 9--RELATED PARTY TRANSACTIONS (CONTINUED)
In January 1994, United Investors loaned United Management $15,000 at an
interest rate of 3.75%. This loan was paid in full in February 1994. Interest
income related to this loan totaling $41 at December 31, 1994 is included in
the accompanying financial statements. In June and July 1994, United Investors
loaned Torchmark $2,000 and $17,000, respectively. The notes bear interest at
5.3% and 5.05% respectively and were paid in full in July 1994. In November
1994, United Investors loaned Torchmark $35,000 at an interest rate of 8.11%.
Interest income related to the Torchmark loans totaling $2,838 and $3,058 at
December 31, 1996 and 1995, respectively, is included in the accompanying
financial statements. In January 1996, United Investors loaned Liberty
National $3,500 at an interest rate of 5.75%. This loan was paid in full in
February 1996. Interest income related to this loan totaling $9 at December
31, 1996 is included in the accompanying financial statements.
United Investors serves as sponsor to two separate accounts and depositor to
the underlying investment fund in connection with its variable product
business. During 1997 United Investors will serve as a sponsor and depositor
of a third separate account in connection with its variable Product business.
At December 31, 1996 and 1995 United Investors had investments of $14,000 and
$12,500, in the separate accounts which were included in other long-term
invested assets and carried at market.
Other long-term invested assets also includes investments, carried at
market, in the United Group of Mutual Funds and certain other funds for which
W&R is the sole advisor. These investments approximated $5,159 and $4,896 at
December 31, 1996 and 1995. Investment income derived from these investments
is included in net investment income.
NOTE 10--COMMITMENTS AND CONTINGENCIES
Reinsurance: United Investors reinsures that portion of insurance risk which
is in excess of its retention limit. The maximum net retention limit for
ordinary life insurance is $525 per life. Life insurance ceded represented 2%
of total life insurance in force at December 31, 1996 and 3% of premium income
for 1996. United Investors would be liable for the reinsured risks ceded to
other companies to the extent that such reinsuring companies are unable to
meet their obligation.
United Investors did not assume insurance risks of other companies for the
year ended December 31, 1996.
Restrictions on the transfer of funds: Regulatory restrictions exist on the
transfer of funds from insurance companies. These restrictions generally limit
the payment of dividends to the statutory net gain from operations of the
prior year in the absence of special approval. Additionally, insurance
companies are not permitted to distribute the excess of shareholder's equity
as determined on a generally accepted accounting basis over that determined on
a statutory basis. Restricted net assets at December 31, 1996 in compliance
with all regulations were $160,840.
Litigation: United Investors is engaged in routine litigation arising from
the normal course of business. In management's opinion, this litigation will
not materially affect United Investors' financial position or results of
operations.
Concentrations of credit risk: United Investors maintains a highly
diversified investment portfolio with limited concentration in any given
region, industry, or economic characteristic. The investment portfolio
consists of securities of the U.S. government or U.S. government-backed
securities (32%); securities of state and municipal governments (7%);
investment-grade corporate bonds (48%); United
F-18
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 10--COMMITMENTS AND CONTINGENCIES (CONTINUED)
Funds (3%); and policy loans (2%) which are secured by the underlying
insurance policy value. The balance of the portfolio is invested in short-term
investments, non investment grade corporate bonds, and various limited
partnerships. Investments in municipal governments and corporations are made
throughout the U.S. with no concentration in any given state. Corporate debt
investments are made in a wide range of industries. At December 31, 1996, 1%
or more of the portfolio was invested in the following industries: financial
services (22%); chemicals (6%); transportation (4%); foods and kindred
products (5%); regulated utilities (3%); manufacturing (3%); media and
communications (3%); electronics (2%); paper and allied products (2%); and
services (1%). At the end of 1996, 7% of the carrying value of securities was
rated below investment grade. Par value of these investments was $47,300,
amortized cost was $48,112, and market value was $49,034. While these
investments could be subject to additional credit risk, such risk should
generally be reflected in market value.
Collateral requirements: United Investors requires collateral for
investments in instruments where collateral is available and typically
required because of the nature of the investment. Since the majority of United
Investor's investments are in government, government-secured, or corporate
securities, the requirement for collateral is rare.
NOTE 11--SUPPLEMENTAL DISCLOSURES FOR CASH FLOW STATEMENT
There were no noncash investing or financing activities for the years 1996,
1995, and 1994.
The following table summarizes certain amounts paid during the period:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Taxes paid....................................... $22,111 $15,393 $14,187
</TABLE>
F-19
<PAGE>
APPENDIX A
SURRENDER CHARGES PER $1,000 OF FACE AMOUNT
<TABLE>
<CAPTION>
ISSUE YEAR
AGE 1-6 YEAR 7 YEAR 8 YEAR 9 YEAR 10 YEAR 11 YEAR 12 YEAR 13 YEAR 14 YEAR 15 YEAR 16 YEAR 17+
- ----- ------ ------ ------ ------ ------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0-25 $ 6.00 5.45 4.91 4.36 3.82 3.27 2.73 2.18 1.64 1.09 0.55 0.00
26-30 $ 6.50 5.91 5.32 4.73 4.14 3.55 2.95 2.36 1.77 1.18 0.59 0.00
31-35 $ 7.00 6.36 5.73 5.09 4.45 3.82 3.18 2.55 1.91 1.27 0.64 0.00
36-40 $ 7.75 7.05 6.34 5.64 4.93 4.23 3.52 2.82 2.11 1.41 0.70 0.00
41-45 $ 8.75 7.95 7.16 6.36 5.57 4.77 3.98 3.18 2.39 1.59 0.80 0.00
46-50 $10.00 9.09 8.18 7.27 6.36 5.45 4.55 3.64 2.73 1.82 0.91 0.00
51-55 $11.50 10.45 9.41 8.36 7.32 6.27 5.23 4.18 3.14 2.09 1.05 0.00
56-60 $13.75 12.50 11.25 10.00 8.75 7.50 6.25 5.00 3.75 2.50 1.25 0.00
61-65 $16.75 15.23 13.70 12.18 10.66 9.14 7.61 6.09 4.57 3.05 1.52 0.00
66-70 $20.75 18.86 16.98 15.09 13.20 11.32 9.43 7.55 5.66 3.77 1.89 0.00
71-75 $26.00 23.64 21.27 18.91 16.55 14.18 11.82 9.45 7.09 4.73 2.36 0.00
</TABLE>
NOTE: These rates are interpolated during each year. The charge shown is for
the beginning of each year. For example, for a 35-year old at issue, during
year 6 the charge declines from $7.00 per $1,000 of Face Amount at the
beginning of the year to $6.36 per $1,000 of Face Amount at the end of the
year.
A-1
