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U N I T E D I N V E S T O R S
A D V A N T A G E P L U S
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
PROSPECTUS
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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 Target/United Funds, Inc.
("Target/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
GROWTH PORTFOLIO PORTFOLIO PORTFOLIO
LIMITED-TERM BOND SMALL CAP PORTFOLIO
PORTFOLIO
The accompanying prospectus for Target/United describes each of
the Portfolios, including the risks of investing in each
Portfolio, and provides other information about Target/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 TARGET/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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THE DATE OF THIS PROSPECTUS IS MAY 1, 1998 REVISED AND
REPRINTED AS OF AUGUST 31, 1998.
U-1165, ED. 8-98
ISSUED BY: United Investors Life Insurance Company
2001 Third Avenue South
Birmingham, Alabama 35233
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UNITED INVESTORS LIFE INSURANCE COMPANY
SUPPLEMENT TO THE ADVANTAGE PLUS PROSPECTUS
The following information supplements and supersedes any contrary information
in the Prospectus:
For policies issued in the state of California, the High Income Portfolio
and the Asset Strategy Portfolio are not available.
To accompany the Prospectus dated May 1, 1998.
This Supplement is dated May 1, 1998.
U-1148, Ed. 5/98
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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..................................................... 19
Net Cash Surrender Value................................................. 19
Variable Account Value................................................... 19
Fixed Account Value...................................................... 20
DEATH BENEFITS............................................................. 20
Amount of Death Benefit Payable.......................................... 20
Death Benefit Options.................................................... 21
Changing the Death Benefit Option........................................ 21
Changing the Face Amount................................................. 22
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
Preparing For Year 2000.................................................. 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 (the Policy Value less any applicable surrender
charges) 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, EVEN IF ALL PLANNED PREMIUMS ARE PAID IN FULL AND ON SCHEDULE.
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."
Withdrawals and loans could be taxable and subject to a penalty tax.
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.
3
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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 Target/United
Funds, Inc.
* 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 for the year ended December 31, 1997 are as follows. Future fees and
expenses may be higher or lower.
TARGET/UNITED ANNUAL EXPENSES (1)
(expressed as a percentage of net assets of each Portfolio) (2)
<TABLE>
<CAPTION>
12B-1 TOTAL
MANAGEMENT FEES OTHER PORTFOLIO
FEES (3) EXPENSES EXPENSES
PORTFOLIO ---------- ----- -------- ---------
<S> <C> <C> <C> <C>
Asset Strategy.............................. 0.80% 0.25% 0.13% 1.18%
Balanced.................................... 0.60% 0.25% 0.07% 0.92%
Bond........................................ 0.53% 0.25% 0.05% 0.83%
Growth...................................... 0.70% 0.25% 0.02% 0.97%
High Income................................. 0.65% 0.25% 0.05% 0.95%
Income...................................... 0.70% 0.25% 0.02% 0.97%
International............................... 0.80% 0.25% 0.18% 1.23%
Limited-Term Bond........................... 0.55% 0.25% 0.18% 0.98%
Money Market................................ 0.50% 0.25% 0.08% 0.83%
Science & Technology........................ 0.69% 0.25% 0.25% 1.19%
Small Cap................................... 0.85% 0.25% 0.05% 1.15%
</TABLE>
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(1) The Target/United Annual Expenses shown above are assessed at the
underlying mutual fund level and are not direct charges against Variable
Account assets or reductions from Policy Value. These expenses are taken
into consideration in computing each underlying Portfolio's net asset
value which is the share price used to calculate the unit values of the
Investment Divisions of the Variable Account. These expenses are more
fully explained in the prospectus for Target/United. The information
relating to these expenses was provided by Waddell & Reed, Inc. and was
not independently verified by United Investors.
(2) The percentages are based on expenses incurred for the year ended December
31, 1997 except for the Science and Technology Portfolio, which is a new
portfolio, where the figures are estimates for the year ending December
31, 1998.
(3) Effective August 31, 1998, Target/United Funds, Inc. has adopted a Service
Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act
of 1940. Under the Plan, each Portfolio may pay monthly a service fee to
Waddell & Reed, Inc., the principal underwriter of Target/United and the
Policy, in an amount not to exceed 0.25% of the Portfolio's average annual
net assets. The fee is paid to reimburse Waddell & Reed, Inc. to finance
the provision of personal services to Policyowners and maintenance of
Policyowner accounts.
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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 (REGARDLESS OF WHETHER PLANNED PREMIUMS ARE PAID) 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
* The Cash Surrender Value is the Policy Value less any applicable surrender
charge.
* 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."
* Loans and surrenders may be taxable and subject to a penalty tax. See "Tax
Considerations."
* 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 can keep the Policy in force (but only during
the Death Benefit Guarantee Period) 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. The Death Benefit Guarantee Period generally ends at age 65 under
Option A and at age 62 under Option B. See the definition of Death Benefit
Guarantee Period and "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. For Death Benefit Option A, the period
is the later of age 65 or five years. For Death
Benefit Option B, the period is the later of age 62
or three years. However, for policies sold in
Massachusetts the Death Benefit Guarantee Period is
limited to five years.
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.
7
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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 TARGET/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 Target/United Funds,
Inc. See "Target/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.
8
<PAGE>
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.
TARGET/UNITED. The Variable Account has eleven Investment Divisions, each
investing in a specific Portfolio of Target/United. Target/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 Target/United and provides investment advisory services to Target/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 Target/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
Target/United, which you should read in conjunction with this prospectus.
ASSET STRATEGY PORTFOLIO seeks high total return 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. High-yield fixed-income securities may have an increased
risk of default and greater market price volatility than higher rated
securities due to various circumstances. See "Debt Securities" in the
Target/United Funds, Inc. prospectus for a further description of the risk
factors.
INCOME PORTFOLIO primarily seeks to maintain current income, subject to
market conditions, with a secondary goal of capital growth. It invests
primarily in common stocks or securities convertible into common stocks
that have a record of paying regular dividends on common stock or have the
potential for capital growth or that may be expected to resist market
decline.
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.
9
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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 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.
Investments in the Money Market Portfolio are neither insured nor
guaranteed by the U.S. Government and there is no assurance that the
portfolio will be able to maintain a net asset value of $1.00 per share.
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
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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 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
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<PAGE>
instructions, unless you instruct otherwise. Net Premium allocations must be
in percentages totaling 100%, and each allocation percentage must be a whole
number. See "Target/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 on up to 5 family members (spouse and/or
children).
. 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, and continuing
as long as total disability continues.
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. United Investors intends
to make a profit from these charges. 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. Profit from this
charge may be used for any purpose, including distribution expenses.
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.
REDUCTION IN CHARGES FOR CERTAIN GROUPS. United Investors may waive or
reduce the Current Administrative Charge, the Guaranteed Death Benefit Charge,
the Premium Expense Charge, and the Surrender Charges on Policies that have
been sold to: (a) employees or sales representatives of United Investors or
its affiliates; or (b) individuals or groups of individuals where the sale of
the Policy results in savings of administrative or commission expenses.
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.
18
<PAGE>
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.
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 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 Premiums 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
19
<PAGE>
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
(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 Premiums 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
20
<PAGE>
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
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 Death Benefit Option may have tax
consequences. See "Tax Considerations."
21
<PAGE>
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. 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 0.77% 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 and the Service Fee ("12b-1 Fee"), at an annual rate of 0.25%,
under the Service Plan beginning August 31, 1998. 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 -1.92%, 4.08%, and
10.08%, respectively in Policy Years 1 through 10 and -1.72%, 4.28%, and
10.28%, 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>
DEATH BENEFITS POLICY VALUES SURRENDER VALUES
-------------------------- ----------------------- -----------------------
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS
POLICY + INTEREST AT ANNUAL RATE OF RETURN OF:
YEAR 5% PER YEAR 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 $ 706 $ 756 $ 806 $ 6 $ 56 $ 106
2 2,153 100,000 100,000 100,000 1,391 1,535 1,686 691 835 986
3 3,310 100,000 100,000 100,000 2,052 2,336 2,644 1,352 1,636 1,944
4 4,526 100,000 100,000 100,000 2,690 3,158 3,687 1,990 2,458 2,987
5 5,802 100,000 100,000 100,000 3,304 4,003 4,825 2,604 3,303 4,125
6 7,142 100,000 100,000 100,000 3,891 4,867 6,064 3,255 4,231 5,428
7 8,549 100,000 100,000 100,000 4,457 5,757 7,418 3,684 5,184 6,845
8 10,027 100,000 100,000 100,000 5,003 6,674 8,901 4,494 6,165 8,392
9 11,578 100,000 100,000 100,000 5,535 7,627 10,534 5,090 7,182 10,089
10 13,207 100,000 100,000 100,000 6,053 8,617 12,332 5,671 8,235 11,950
11 14,917 100,000 100,000 100,000 6,564 9,656 14,329 6,246 9,338 14,011
12 16,713 100,000 100,000 100,000 7,054 10,729 16,525 6,799 10,474 16,270
13 18,599 100,000 100,000 100,000 7,521 11,836 18,940 7,330 11,645 18,749
14 20,579 100,000 100,000 100,000 7,970 12,982 21,601 7,843 12,655 21,474
15 22,657 100,000 100,000 100,000 8,408 14,176 24,539 8,344 14,112 24,475
16 24,840 100,000 100,000 100,000 8,824 15,411 27,778 8,824 15,411 27,776
17 27,132 100,000 100,000 100,000 9,201 16,672 31,335 9,201 16,672 31,335
18 29,539 100,000 100,000 100,000 9,542 17,963 35,249 9,542 17,963 35,249
19 32,066 100,000 100,000 100,000 9,840 19,278 39,554 9,840 19,278 39,554
20 34,719 100,000 100,000 100,000 10,092 20,617 44,296 10,092 20,617 44,296
21 37,505 100,000 100,000 100,000 10,296 21,980 49,523 10,296 21,980 49,523
22 40,430 100,000 100,000 100,000 10,445 23,364 55,292 10,445 23,364 55,292
23 43,502 100,000 100,000 100,000 10,530 24,760 61,662 10,530 24,760 61,662
24 46,727 100,000 100,000 100,000 10,550 26,171 68,710 10,550 26,171 68,710
25 50,113 100,000 100,000 102,530 10,489 27,586 76,515 10,489 27,586 76,515
26 53,669 100,000 100,000 110,666 10,347 29,008 85,128 10,347 29,008 85,128
27 57,403 100,000 100,000 121,073 10,105 30,422 94,588 10,105 30,422 94,588
28 61,323 100,000 100,000 132,277 9,765 31,834 104,982 9,765 31,834 104,982
29 65,439 100,000 100,000 144,336 9,304 33,231 116,400 9,304 33,231 116,400
30 69,761 100,000 100,000 157,312 8,710 34,605 128,944 8,710 34,605 128,944
</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
-------------------------- ------------------------ -----------------------
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS
POLICY + INTEREST AT ANNUAL RATE OF RETURN OF:
YEAR 5% PER YEAR 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 $ 1,838 $ 1,966 $ 2,094 $ 838 $ 966 $ 1,094
2 5,381 100,000 100,000 100,000 3,605 3,976 4,363 2,605 2,976 3,363
3 8,275 100,000 100,000 100,000 5,328 6,060 6,854 4,328 5,060 5,854
4 11,314 100,000 100,000 100,000 6,994 8,206 9,575 5,994 7,206 8,575
5 14,505 100,000 100,000 100,000 8,583 10,397 12,533 7,583 9,397 11,533
6 17,855 100,000 100,000 100,000 10,113 12,654 15,771 9,204 11,745 14,862
7 21,373 100,000 100,000 100,000 11,569 14,964 19,305 10,751 14,146 18,487
8 25,066 100,000 100,000 100,000 12,940 17,319 23,161 12,213 16,592 22,434
9 28,945 100,000 100,000 100,000 14,227 19,724 27,377 13,591 19,088 26,741
10 33,017 100,000 100,000 100,000 15,424 22,176 31,992 14,879 21,631 31,447
11 37,293 100,000 100,000 100,000 16,542 24,706 37,107 16,087 24,251 36,652
12 41,782 100,000 100,000 100,000 17,565 27,293 42,743 17,201 26,929 42,379
13 46,497 100,000 100,000 100,000 18,539 29,985 49,005 18,266 29,712 48,732
14 51,446 100,000 100,000 100,000 19,491 32,812 55,989 19,309 32,630 55,807
15 56,644 100,000 100,000 100,000 20,405 35,771 63,775 20,314 35,680 63,684
16 62,101 100,000 100,000 100,000 21,121 38,742 72,403 21,121 38,742 72,403
17 67,831 100,000 100,000 100,000 21,695 41,781 82,031 21,695 41,781 82,031
18 73,848 100,000 100,000 109,428 22,130 44,904 92,735 22,130 44,904 92,735
19 80,165 100,000 100,000 122,248 22,412 48,117 104,465 22,412 48,117 104,485
20 86,798 100,000 100,000 136,156 22,507 51,417 117,376 22,507 51,417 117,376
21 93,763 100,000 100,000 151,252 22,418 54,828 131,523 22,418 54,828 131,523
22 101,076 100,000 100,000 165,205 22,089 58,345 147,084 22,089 58,345 147,084
23 108,755 100,000 100,000 182,289 21,519 62,002 164,224 21,519 62,002 164,224
24 116,818 100,000 100,000 199,608 20,679 65,822 183,127 20,679 65,822 183,127
25 125,284 100,000 100,000 218,278 19,492 69,819 203,999 19,492 69,819 203,999
26 134,173 100,000 100,000 238,448 17,940 74,042 227,093 17,940 74,042 227,093
27 143,506 100,000 100,000 265,069 15,916 78,526 252,447 15,916 78,526 252,447
28 153,307 100,000 100,000 294,288 13,382 83,343 280,274 13,382 83,343 280,274
29 163,597 100,000 100,000 326,330 10,188 88,566 310,790 10,188 88,566 310,790
30 174,402 100,000 100,000 361,458 6,268 94,310 344,245 6,268 94,310 344,245
</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
-------------------------- ---------------------- ----------------------
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS
POLICY + INTEREST AT ANNUAL RATE OF RETURN OF:
YEAR 5% PER YEAR 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 $ 676 $ 725 $ 775 $ 0 $ 25 $ 75
2 2,153 100,000 100,000 100,000 1,332 1,472 1,619 632 772 919
3 3,310 100,000 100,000 100,000 1,964 2,239 2,539 1,264 1,539 1,839
4 4,526 100,000 100,000 100,000 2,573 3,027 3,539 1,873 2,327 2,839
5 5,802 100,000 100,000 100,000 3,159 3,834 4,629 2,459 3,134 3,929
6 7,142 100,000 100,000 100,000 3,718 4,659 5,814 3,082 4,023 5,178
7 8,549 100,000 100,000 100,000 4,251 5,503 7,105 3,678 4,930 6,532
8 10,027 100,000 100,000 100,000 4,756 6,365 8,511 4,247 5,856 8,002
9 11,578 100,000 100,000 100,000 5,234 7,245 10,042 4,789 6,800 9,597
10 13,207 100,000 100,000 100,000 5,683 8,142 11,712 5,301 7,760 11,330
11 14,917 100,000 100,000 100,000 6,101 9,054 13,532 5,783 8,736 13,214
12 16,713 100,000 100,000 100,000 6,486 9,981 15,517 6,231 9,726 15,262
13 18,599 100,000 100,000 100,000 6,837 10,923 17,684 6,646 10,732 17,493
14 20,579 100,000 100,000 100,000 7,153 11,876 20,051 7,026 11,749 19,924
15 22,657 100,000 100,000 100,000 7,431 12,841 22,638 7,367 12,777 22,574
16 24,840 100,000 100,000 100,000 7,667 13,814 25,467 7,667 13,814 25,467
17 27,132 100,000 100,000 100,000 7,858 14,791 28,562 7,858 14,791 28,562
18 29,539 100,000 100,000 100,000 7,997 15,766 31,947 7,997 15,766 31,947
19 32,066 100,000 100,000 100,000 8,077 16,735 35,654 8,077 16,735 35,654
20 34,719 100,000 100,000 100,000 8,094 17,691 39,716 8,094 17,691 39,716
21 37,505 100,000 100,000 100,000 8,040 18,630 44,175 8,040 18,630 44,175
22 40,430 100,000 100,000 100,000 7,911 19,545 49,076 7,911 19,545 49,076
23 43,502 100,000 100,000 100,000 7,701 20,434 54,476 7,701 20,434 54,476
24 46,727 100,000 100,000 100,000 7,402 21,287 60,434 7,402 21,287 60,434
25 50,113 100,000 100,000 100,000 7,003 22,096 67,024 7,003 22,096 67,024
26 53,669 100,000 100,000 100,000 6,491 22,850 74,327 6,491 22,850 74,327
27 57,403 100,000 100,000 105,502 5,853 23,535 82,423 5,853 23,535 82,423
28 61,323 100,000 100,000 115,041 5,068 24,134 91,302 5,068 24,134 91,302
29 65,439 100,000 100,000 125,271 4,113 24,627 101,025 4,113 24,627 101,025
30 69,761 100,000 100,000 136,242 2,964 24,993 111,673 2,964 24,993 111,673
</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
-------------------------- ------------------------ ------------------------
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS
POLICY + INTEREST AT ANNUAL RATE OF RETURN OF:
YEAR 5% PER YEAR 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 $ 1,769 $ 1,894 $ 2,020 $ 769 $ 894 $ 1,020
2 5,381 100,000 100,000 100,000 3,468 3,830 4,208 2,468 2,830 3,208
3 8,275 100,000 100,000 100,000 5,093 5,804 6,576 4,093 4,804 5,576
4 11,314 100,000 100,000 100,000 6,639 7,812 9,140 5,639 6,812 8,140
5 14,505 100,000 100,000 100,000 8,103 9,853 11,916 7,103 8,853 10,916
6 17,855 100,000 100,000 100,000 9,481 11,923 14,926 8,572 11,014 14,017
7 21,373 100,000 100,000 100,000 10,769 14,021 18,193 9,951 13,203 17,375
8 25,066 100,000 100,000 100,000 11,966 16,148 21,747 11,239 15,421 21,020
9 28,945 100,000 100,000 100,000 13,067 18,301 25,620 12,431 17,665 24,984
10 33,017 100,000 100,000 100,000 14,064 20,475 29,846 13,519 19,930 29,301
11 37,293 100,000 100,000 100,000 14,949 22,666 34,466 14,494 22,211 34,011
12 41,782 100,000 100,000 100,000 15,713 24,870 39,529 15,349 24,506 39,165
13 46,497 100,000 100,000 100,000 16,341 27,078 45,089 16,068 26,805 44,816
14 51,446 100,000 100,000 100,000 16,818 29,281 51,212 16,636 29,099 51,030
15 56,644 100,000 100,000 100,000 17,129 31,474 57,981 17,038 31,383 57,890
16 62,101 100,000 100,000 100,000 17,270 33,662 65,507 17,270 33,662 65,507
17 67,831 100,000 100,000 100,000 17,216 35,833 73,907 17,216 35,833 73,907
18 73,848 100,000 100,000 100,000 16,951 37,984 83,330 16,951 37,984 83,330
19 80,165 100,000 100,000 109,765 16,451 40,110 93,816 16,451 40,110 93,816
20 86,798 100,000 100,000 122,126 15,686 42,205 105,281 15,686 42,205 105,281
21 93,763 100,000 100,000 135,486 14,611 44,254 117,814 14,611 44,254 117,814
22 101,076 100,000 100,000 148,667 13,169 46,240 131,564 13,169 46,240 131,564
23 108,755 100,000 100,000 162,802 11,284 48,141 146,668 11,284 48,141 146,668
24 116,818 100,000 100,000 177,983 8,867 49,934 163,287 8,867 49,934 163,287
25 125,284 100,000 100,000 194,327 5,824 51,601 181,614 5,824 51,601 181,614
26 134,173 100,000 100,000 211,976 2,050 53,128 201,882 2,050 53,128 201,882
27 143,506 *** 100,000 235,258 *** 54,503 224,056 *** 54,503 224,056
28 153,307 *** 100,000 260,717 *** 55,710 248,302 *** 55,710 248,302
29 163,597 *** 100,000 288,538 *** 56,729 274,798 *** 56,729 274,798
30 174,402 *** 100,000 318,921 *** 57,524 303,734 *** 57,524 303,734
</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>
DEATH BENEFITS POLICY VALUES SURRENDER VALUES
-------------------------- ----------------------- -----------------------
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS
POLICY + INTEREST AT ANNUAL RATE OF RETURN OF:
YEAR 5% PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ------------- -------- -------- -------- ------ ------- -------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,050 $100,705 $100,755 $100,805 $ 705 $ 755 $ 805 $ 5 $ 55 $ 105
2 2,153 101,387 101,531 101,681 1,387 1,531 1,681 687 831 981
3 3,310 102,044 102,326 102,633 2,044 2,326 2,633 1,344 1,626 1,933
4 4,526 102,676 103,141 103,667 2,676 3,141 3,667 1,976 2,441 2,967
5 5,802 103,283 103,976 104,793 3,283 3,976 4,793 2,583 3,276 4,093
6 7,142 103,861 104,827 106,013 3,861 4,827 6,013 3,225 4,191 5,377
7 8,549 104,416 105,701 107,343 4,416 5,701 7,343 3,843 5,128 6,770
8 10,027 104,949 106,598 108,795 4,949 6,598 6,795 4,440 6,089 8,286
9 11,578 105,467 107,527 110,389 5,467 7,527 10,389 5,022 7,082 9,944
10 13,207 105,970 108,489 112,138 5,970 8,489 12,138 5,588 8,107 11,756
11 14,917 106,463 109,495 114,075 6,463 9,495 14,075 6,145 9,177 13,757
12 16,713 106,932 110,528 116,194 6,932 10,528 16,194 6,677 10,273 15,939
13 18,599 107,378 111,589 118,515 7,378 11,589 18,515 7,187 11,398 18,324
14 20,579 107,803 112,682 121,060 7,803 12,682 21,060 7,676 12,555 20,933
15 22,657 108,214 113,815 123,861 8,214 13,815 23,861 8,150 13,751 23,797
16 24,840 108,602 114,979 126,932 8,602 14,979 26,932 8,602 14,979 26,932
17 27,132 108,947 116,156 130,279 8,947 16,156 30,279 8,947 16,156 30,279
18 29,539 109,251 117,347 133,934 9,251 17,347 33,934 9,251 17,347 33,934
19 32,066 109,506 118,545 137,919 9,506 18,545 37,919 9,506 18,545 37,919
20 34,719 109,711 119,746 142,264 9,711 19,746 42,264 9,711 19,746 42,264
21 37,505 109,861 120,946 147,001 9,861 20,946 47,001 9,861 20,946 47,001
22 40,430 109,951 122,137 152,165 9,951 22,137 52,165 9,951 22,137 52,165
23 43,502 109,968 123,307 157,783 9,968 23,307 57,783 9,968 23,307 57,783
24 46,727 109,914 124,452 163,904 9,914 24,452 63,904 9,914 24,452 63,904
25 50,113 109,770 125,553 170,557 9,770 25,553 70,557 9,770 25,553 70,557
26 53,669 109,537 126,608 177,798 9,537 26,608 77,798 9,537 26,608 77,798
27 57,403 109,195 127,591 185,663 9,195 27,591 85,663 9,195 27,591 85,663
28 61,323 108,760 128,513 194,232 8,760 28,513 94,232 8,780 28,513 94,232
29 65,439 108,198 129,336 203,540 8,196 29,336 103,540 8,198 29,336 103,540
30 69,761 107,496 130,041 213,646 7,496 30,041 113,646 7,496 30,041 113,646
</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
-------------------------- ------------------------ ------------------------
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS
POLICY + INTEREST AT ANNUAL RATE OF RETURN OF:
YEAR 5% PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ------------- -------- -------- -------- ------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,625 $101,828 $101,955 $102,083 $ 1,828 $ 1,955 $ 2,083 $ 828 $ 955 $ 1,083
2 5,381 103,575 103,943 104,326 3,575 3,943 4,326 2,575 2,943 3,326
3 8,275 105,268 105,990 106,775 5,268 5,990 6,775 4,268 4,990 5,775
4 11,314 106,893 108,085 109,431 6,893 8,085 9,431 5,893 7,085 8,431
5 14,505 108,427 110,203 112,293 8,427 10,203 12,293 7,427 9,203 11,293
6 17,855 109,889 112,363 115,397 9,889 12,363 15,397 8,980 11,454 14,488
7 21,373 111,261 114,548 118,748 11,261 14,548 18,748 10,443 13,730 17,930
8 25,066 112,528 116,741 122,353 12,528 16,741 22,353 11,801 16,014 21,626
9 28,945 113,691 118,941 126,238 13,691 18,941 26,238 13,055 18,305 25,602
10 33,017 114,740 121,136 130,416 14,740 21,136 30,416 14,195 20,591 29,871
11 37,293 115,679 123,339 134,949 15,679 23,339 34,949 15,224 22,884 34,494
12 41,782 116,494 125,526 139,833 16,494 25,526 39,833 16,130 25,162 39,469
13 46,497 117,253 127,763 145,175 17,253 27,763 45,175 16,980 27,490 44,902
14 51,446 117,976 130,072 151,042 17,976 30,072 51,042 17,794 29,890 50,860
15 56,644 118,646 132,438 157,469 18,646 32,438 57,469 18,555 32,347 57,378
16 62,101 119,041 134,633 164,277 19,041 34,633 64,277 19,041 34,633 64,277
17 67,831 119,247 136,735 171,593 19,247 36,735 71,593 19,247 36,735 71,593
18 73,848 119,269 138,741 179,468 19,269 38,741 79,468 19,269 38,741 79,468
19 80,165 119,092 140,627 187,942 19,092 40,627 87,942 19,092 40,627 87,942
20 86,798 118,673 142,341 197,028 18,673 42,341 97,028 18,673 42,341 97,028
21 93,763 118,021 143,881 206,794 18,021 43,881 106,794 18,021 43,881 106,794
22 101,076 117,070 145,168 217,236 17,070 45,168 117,236 17,070 45,168 117,236
23 108,755 115,833 146,197 228,431 15,833 46,197 128,431 15,833 46,197 128,431
24 116,818 114,284 146,927 240,425 14,284 46,927 140,425 14,284 46,927 140,425
25 125,284 112,348 147,262 253,215 12,348 47,262 153,215 12,348 47,262 153,215
26 134,173 110,031 147,183 266,883 10,031 47,183 116,883 10,031 47,183 166,883
27 143,506 107,238 146,570 281,412 7,238 46,570 181,412 7,238 46,570 181,412
28 153,307 103,976 145,398 296,891 3,976 45,398 196,891 3,976 45,398 196,891
29 163,597 100,136 143,522 313,295 136 43,522 213,295 136 43,522 213,295
30 174,402 *** 140,921 330,726 *** 40,921 230,726 *** 40,921 230,726
</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>
DEATH BENEFITS POLICY VALUES SURRENDER VALUES
-------------------------- ---------------------- ----------------------
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS
POLICY + INTEREST AT ANNUAL RATE OF RETURN OF:
YEAR 5% PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ------------- -------- -------- -------- ------ ------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,050 $100,675 $100,724 $100,723 $ 675 $ 724 $ 773 $ 0 $ 24 $ 73
2 2,153 101,328 101,468 101,614 1,328 1,468 1,614 628 768 914
3 3,310 101,956 102,230 102,528 1,956 2,230 2,528 1,256 1,530 1,828
4 4,526 102,560 103,010 103,520 2,560 3,010 3,520 1,860 2,310 2,820
5 5,802 103,138 103,808 104,597 3,138 3,808 4,597 2,438 3,108 3,897
6 7,142 103,688 104,621 105,765 3,688 4,621 5,765 3,052 3,985 5,129
7 8,549 104,210 105,448 107,032 4,210 5,448 7,032 3,637 4,875 6,459
8 10,027 104,703 106,290 108,406 4,703 6,290 8,406 4,194 5,781 7,897
9 11,578 105,166 107,145 109,897 5,166 7,145 9,897 4,721 6,700 9,452
10 13,207 105,598 108,012 111,514 5,598 8,012 11,514 5,216 7,630 11,132
11 14,917 105,995 108,887 113,267 5,995 8,887 13,267 5,677 8,569 12,949
12 16,713 106,357 109,769 115,167 6,357 9,769 15,167 6,102 9,514 14,912
13 18,599 106,682 110,657 117,226 6,682 10,657 17,226 6,491 10,466 17,035
14 20,579 106,969 111,547 119,459 6,969 11,547 19,459 6,842 11,420 19,332
15 22,657 107,214 112,436 121,879 7,214 12,436 21,879 7,150 12,372 21,815
16 24,840 107,414 113,320 124,499 7,414 13,320 24,499 7,414 13,320 24,499
17 27,132 107,563 114,192 127,334 7,563 14,192 27,334 7,563 14,192 27,334
18 29,539 107,657 115,045 130,398 7,657 15,045 30,398 7,657 15,045 30,398
19 32,066 107,686 115,868 133,706 7,686 15,868 33,706 7,686 15,868 33,706
20 34,719 107,647 116,655 137,274 7,647 16,655 37,274 7,647 16,655 37,274
21 37,505 107,532 117,394 141,120 7,532 17,394 41,120 7,532 17,394 41,120
22 40,430 107,336 118,078 145,266 7,336 18,078 45,266 7,336 18,078 45,266
23 43,502 107,055 118,698 149,735 7,055 18,698 49,735 7,055 18,698 49,735
24 46,727 106,681 119,242 154,550 6,681 19,242 54,550 6,681 19,242 54,550
25 50,113 106,203 119,693 159,733 6,203 19,693 59,733 6,203 19,693 59,733
26 53,669 105,611 120,036 165,307 5,611 20,036 65,307 5,611 20,036 65,307
27 57,403 105,892 120,250 171,297 4,692 20,250 71,297 4,892 20,250 71,297
28 61,323 104,039 120,320 177,734 4,039 20,320 77,734 4,039 20,320 77,734
29 65,439 103,023 120,208 184,629 3,023 20,208 84,629 3,023 20,208 84,629
30 69,761 101,826 119,884 192,006 1,826 19,884 92,006 1,826 19,884 92,006
</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
-------------------------- ------------------------ ------------------------
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS
POLICY + INTEREST AT ANNUAL RATE OF RETURN OF:
YEAR 5% PER YEAR 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ------------- -------- -------- -------- ------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,625 $101,758 $101,883 $102,008 $ 1,758 $ 1,883 $ 2,008 $ 758 $ 883 $ 1,008
2 5,381 103,436 103,795 104,169 3,436 3,795 4,169 2,436 2,795 3,169
3 8,275 105,028 105,729 106,491 5,028 5,729 5,491 4,028 4,729 5,491
4 11,314 106,528 107,679 108,981 6,528 7,679 8,981 5,528 6,679 7,981
5 14,505 107,931 109,638 111,650 7,931 9,638 11,650 6,931 8,638 10,650
6 17,855 109,230 111,597 114,506 9,230 11,597 14,506 8,321 10,688 13,597
7 21,373 110,421 113,551 117,562 10,421 13,551 17,562 9,603 12,733 16,744
8 25,066 111,501 115,493 120,831 11,501 15,493 20,831 10,774 14,766 20,104
9 28,945 112,461 117,412 124,325 12,461 17,412 24,325 11,825 16,776 23,689
10 33,017 113,293 119,296 128,053 13,293 19,296 28,053 12,748 18,751 27,508
11 37,293 113,984 121,129 132,026 13,984 21,129 32,026 13,529 20,674 31,571
12 41,782 114,525 122,894 136,253 14,525 22,894 36,253 14,161 22,530 35,889
13 46,497 114,907 124,579 140,748 14,097 24,579 40,748 14,634 24,306 40,475
14 51,446 115,103 126,147 145,507 15,103 26,147 45,507 14,921 25,965 45,325
15 56,644 115,094 127,573 150,531 15,094 27,573 50,531 15,003 27,482 50,440
16 62,101 114,865 128,829 155,829 14,865 28,829 55,829 14,865 28,829 55,829
17 67,831 114,402 129,890 161,406 14,402 29,890 61,406 14,402 29,890 61,406
18 73,848 113,691 130,730 167,274 13,691 30,730 67,274 13,691 30,730 67,274
19 80,165 112,714 131,315 173,437 12,714 31,315 73,437 12,714 31,315 73,437
20 86,798 111,446 131,604 179,892 11,446 31,604 79,892 11,446 31,604 79,892
21 93,763 109,849 131,541 186,624 9,849 31,541 86,624 9,849 31,541 86,624
22 101,076 107,879 131,059 193,606 7,879 31,059 93,606 7,879 31,059 93,606
23 108,755 105,478 130,074 200,796 5,478 30,074 100,796 5,478 30,074 100,796
24 116,818 102,591 128,500 208,148 2,591 28,500 108,148 2,591 28,500 108,148
25 125,284 *** 126,255 215,618 *** 26,255 115,618 *** 26,255 115,618
26 134,173 *** 123,265 223,172 *** 23,265 123,172 *** 23,265 123,172
27 143,506 *** 119,460 230,778 *** 19,460 130,778 *** 19,460 130,778
28 153,307 *** 114,770 238,403 *** 14,770 138,403 *** 14,770 138,403
29 163,597 *** 109,117 246,007 *** 9,117 146,007 *** 9,117 146,007
30 174,402 *** 102,394 253,522 *** 2,394 153,522 *** 2,394 153,522
</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 Policy. The premium limitation rules for
determining whether such a Policy is a modified endowment
33
<PAGE>
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.
4. Distributions from Policies not Classified as Modified Endowment
Contracts. Distributions (such as Partial Surrenders) from a Policy that is
not classified as a modified endowment contract are
34
<PAGE>
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.
In recent years, Congress has adopted new rules relating to life insurance
owned by business. Any business considering buying a Policy or changing an
existing policy, should consult a tax advisor.
9. Possible Changes in Taxation. In recent years, proposals have been made
that would adversely change the Federal taxation of the Policies described in
this prospectus. For example, certain proposals would (1) tax transfers
between investment divisions and tax exchanges between variable annuity
contracts, and (2) reduce the "investment in the contract," thereby increasing
the amount of income for purposes of computing gain.
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.
35
<PAGE>
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 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.
Actuary, Director
- -------------------------------------------------------------------------------
Tony G. Brill* Senior Vice President of United Investors and
Senior Vice President and Torchmark Corporation since January, 1997.
Director Managing Partner of KPMG Peat Marwick LLP,
Birmingham, Alabama Office, 1984--January,
1997.
- -------------------------------------------------------------------------------
C.B. Hudson* Chairman of United Investors and Torchmark
Chairman of the Board and Corporation since March, 1998. Chairman of
Chief Executive Officer Insurance Operations of Torchmark Corporation,
January, 1993--March, 1998. Chairman of
Liberty National Life Insurance Company,
United American Insurance Company, and Globe
Life Insurance Company since, 1991.
- -------------------------------------------------------------------------------
Larry M. Hutchison* Vice President and General Counsel of
Director Torchmark since February, 1997. Vice President
and General Counsel of United American
Insurance Company since 1992.
- -------------------------------------------------------------------------------
Michael J. Klyce Vice President of Torchmark Corporation since
Vice President and Treasurer January, 1984.
- -------------------------------------------------------------------------------
John H. Livingston Secretary and Counsel of United Investors
Director, Secretary and Counsel since May, 1995. Secretary and Associate
Counsel of United Investors, December 1994--
May, 1995. Associate Counsel of United
Investors, July, 1990--December, 1994.
- -------------------------------------------------------------------------------
James L. Mayton, Jr. Vice President & Controller of Liberty
Vice President and Controller National Life Insurance Company since January,
1985.
- -------------------------------------------------------------------------------
Carol A. McCoy Secretary of Torchmark Corporation since
Director February, 1994. Associate Counsel of Torchmark
Corporation since January, 1985.
- -------------------------------------------------------------------------------
Anthony L. McWhorter President of Liberty National Life Insurance
Director Company 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.
- -------------------------------------------------------------------------------
</TABLE>
* Principal business address: Torchmark Corporation, 3700 South Stonebridge,
McKinney, Texas 75050
36
<PAGE>
<TABLE>
- --------------------------------------------------------------------------
<CAPTION>
NAME AND POSITION WITH PRINCIPAL OCCUPATION
UNITED INVESTORS DURING THE PAST FIVE YEARS
- --------------------------------------------------------------------------
<S> <C>
James L. Sedgwick President of United Investors since September
President and Director 1991. General Counsel, Vice President and
Secretary of United Investors, July 1979--
September, 1991.
- --------------------------------------------------------------------------
Ross W. Stagner Vice President of United Investors since
Vice President and Director January, 1992.
- --------------------------------------------------------------------------
William L. Surber Vice President of United Investors since
Vice President and Director April, 1992.
- --------------------------------------------------------------------------
</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.
PREPARING FOR YEAR 2000. Existing computer programs of many businesses were
developed with a two-digit identification without consideration of the
upcoming change in century or millenium in the year 2000. Without addressing
this issue, many computer programs could fail or produce erroneous results,
creating considerable uncertainty and potentially adversely affecting the
operations or business.
United Investors has been in the process of modifying its computer system
and applications for the year 2000. It is expected that the project will be
substantially completed during 1998 and that final testing will be conducted
in 1999. United Investors is utilizing primarily internal staff for this
conversion but is also using outside consultants where necessary. The cost of
this project, which is immaterial to United Investors is expensed as incurred.
As a part of its activities, United Investors is engaged electronically with
third-party financial institutions and other various organizations which may
have computer systems which are not year 2000 compliant. To the degree
possible, United Investors is verifying that these third party business
systems are currently compliant or are in the process of becoming compliant.
To the extent these systems are not compliant there is no assurance that the
potential interruptions or cost to United Investors may not be significant.
EXPERTS. The balance sheets of United Investors Life Insurance Company as of
December 31, 1997 and 1996, 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, 1997 and the balance sheet of United Investors
Universal Life Variable Account as of December 31, 1997 and the related
statement of operations and changes in net assets for the period then ended
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 which are
included in this prospectus should be considered only as bearing on the
ability of United Investors to meet its obligations under the Policies. They
should not be considered as bearing on the investment performance of the
assets held in the Variable Account.
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, 1997 and 1996 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, 1997. 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, 1997 and 1996 and the results of its
operations and its cash flow for each of the years in the three-year period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Birmingham, Alabama
February 2, 1998 except
for Note 1 which is as of
March 3, 1998
F-1
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities--available for sale, at fair value
(cost: 1997--$612,600; 1996--$621,177)................. $ 635,643 $ 624,880
Policy loans............................................ 15,817 14,332
Other long-term invested assets......................... 22,488 21,411
Short-term investments.................................. 13,423 1,834
---------- ----------
Total investments..................................... 687,371 662,457
Cash..................................................... 5,288 2,404
Accrued investment income (includes amounts from
affiliates:
1997--$473; 1996--$473)................................. 11,270 10,781
Receivables ............................................. 2,826 2,635
Due from affiliates (includes funds withheld on reinsur-
ance: 1997--$190,235; 1996--$0)......................... 225,235 35,423
Deferred acquisition costs............................... 176,897 169,986
Value of insurance purchased............................. 33,754 16,160
Goodwill................................................. 6,771 7,055
Property and equipment................................... 141 156
Other assets............................................. 1,149 1,534
Separate account assets.................................. 1,876,439 1,420,025
---------- ----------
Total assets.......................................... $3,027,141 $2,328,616
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Future policy benefits.................................. $ 736,975 $ 531,297
Unearned and advance premiums........................... 2,975 2,804
Other policy liabilities................................ 8,713 8,135
---------- ----------
Total policy liabilities............................... 748,663 542,236
Accrued income taxes.................................... 58,270 43,063
Other liabilities....................................... 2,825 2,265
Due to affiliates....................................... 9,374 8,965
Separate account liabilities............................ 1,876,439 1,420,025
---------- ----------
Total liabilities..................................... 2,695,571 2,016,554
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.............................. 138,469 137,950
Unrealized investment gains, net of applicable taxes.... 14,700 4,460
Retained earnings....................................... 175,401 166,652
---------- ----------
Total shareholder's equity............................ 331,570 312,062
---------- ----------
Total liabilities and shareholder's equity............ $3,027,141 $2,328,616
========== ==========
</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,
---------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Premium income.................................... $ 68,723 $ 65,114 $ 61,792
Policy charges and fees........................... 36,582 29,403 23,109
Net investment income (includes amounts from af-
filiates: 1997--$2,863; 1996--$2,847; 1995--
$3,058; ......................................... 51,514 51,128 49,356
Realized investment gains (losses)................ (5,365) 925 1,441
Other income (includes amounts from affiliates:
1997--$11,876; 1996--$0; 1995--$0) .............. 11,876 0 4
-------- -------- --------
Total revenue................................... 163,330 146,570 135,702
Benefits and expenses:
Policy benefits:
Individual life.................................. 57,954 47,355 42,943
Annuity.......................................... 15,165 15,807 16,540
-------- -------- --------
Total policy benefits........................... 73,119 63,162 59,483
Amortization of deferred acquisition costs........ 24,898 19,850 16,602
Commissions and premium taxes (includes amounts to
affiliates: 1997--$4,928; 1996--$4,723; 1995--
$4,000; ......................................... 6,251 5,248 4,691
Other operating expense (includes amounts to af-
filiates: 1997--$3,217; 1996--$2,181; 1995--
$1,862;.......................................... 5,470 3,966 3,679
-------- -------- --------
Total benefits and expenses..................... 109,738 92,226 84,455
-------- -------- --------
Net operating income before income taxes........... 53,592 54,344 51,247
Income taxes....................................... 18,843 19,078 18,037
-------- -------- --------
Net income...................................... $ 34,749 $ 35,266 $ 33,210
======== ======== ========
</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,
1995
Balance at January 1,
1995................... $3,000 $137,915 $(12,378) $134,176 $262,713
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
YEAR ENDED DECEMBER 31,
1997
Net Income.............. 34,749 34,749
Dividends............... (26,000) (26,000)
Exercise of stock op-
tions.................. 519 519
Net Change in unrealized
investment gains (loss-
es).................... 10,240 10,240
------ -------- -------- -------- --------
Balance at December 31,
1997................... $3,000 $138,469 $ 14,700 $175,401 $331,570
====== ======== ======== ======== ========
</TABLE>
See accompanying Notes to Financial Statements.
F-4
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
--------- -------- ---------
<S> <C> <C> <C>
Net income.................................... $ 34,749 $ 35,266 $ 33,210
Adjustments to reconcile net income to cash
provided from operations:
Increase in future policy benefits........... 17,878 20,692 22,011
Increase (decrease) in other policy benefits. 749 2,154 (614)
Deferral of policy acquisition costs......... (33,485) (33,744) (28,870)
Value of business acquired................... (10,000) 0 0
Amortization of deferred acquisition costs... 24,898 19,850 16,602
Change in accrued income taxes............... 10,212 (3,033) 2,644
Depreciation................................. 42 44 52
Realized (gains) losses on sale of
investments and properties.................. 5,365 (925) (1,441)
Other accruals and adjustments............... 1,817 (997) (3,525)
--------- -------- ---------
Cash provided from operations................. 52,225 39,307 40,069
Cash used for investment activities:
Investments sold or matured:
Fixed maturities available for sale--sold... 113,035 15,246 149,076
Fixed maturities available for sale--
matured, called and repaid................. 66,469 44,523 50,659
Equity securities........................... 0 0 3,341
Other long-term investments................. 2,199 482 9,316
--------- -------- ---------
Total investments sold or matured.......... 181,703 60,251 212,392
Acquisition of investments:
Fixed maturities--available for sale........ (176,905) (68,214) (244,162)
Net increase in policy loans................ (1,485) (2,033) (2,121)
Other long-term investments................. (1,517) (1,183) (1,587)
--------- -------- ---------
Total acquisition of investments........... (179,907) (71,430) (247,870)
Net (increase) decrease in short-term invest-
ments....................................... (11,589) 2,389 (1,901)
Funds loaned to affiliates................... (24,080) (3,500) (21,000)
Funds repaid from affiliates................. 24,080 3,500 21,000
Disposition of properties.................... 0 34 6
Additions to properties...................... (27) (117) (33)
--------- -------- ---------
Cash used for investment activities........... (9,820) (8,873) (37,406)
Cash used for financing activities:
Cash dividends paid to shareholder........... (27,000) (27,500) (7,500)
Net receipts from deposit product operations. (12,521) (6,572) 3,343
--------- -------- ---------
Cash used for financing activities............ (39,521) (34,072) (4,157)
Increase (decrease) in cash................... 2,884 (3,638) (1,494)
Cash at beginning of year..................... 2,404 6,042 7,536
--------- -------- ---------
Cash at end of year........................... $ 5,288 $ 2,404 $ 6,042
========= ======== =========
</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. On March 3, 1998, United Management
distributed the Company to Torchmark and Liberty National Life Insurance
Company, a wholly owned subsidiary of Torchmark.
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.
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.
Existing computer programs of many businesses were developed with a two-
digit identification without consideration of the upcoming change in century
or millennium in the year 2000. Without addressing this issue, many computer
programs could fail or produce erroneous results, creating considerable
uncertainty and potentially adversely affecting the operations or business.
UILIC has been in the process of modifying its computer system and
applications for the year 2000. It is expected that the project will be
substantially completed during 1998 and that final testing will be conducted
in 1999. UILIC is utilizing primarily internal staff for this conversion but
is also using outside consultants where necessary. The cost of this project,
which is immaterial to UILIC is expensed as incurred.
As a part of its activities, UILIC is engaged electronically with third-
party financial institutions and other various organizations which may have
computer systems which are not year 2000 compliant. To the degree possible,
UILIC is verifying that these third party business systems are currently
compliant or are in the process of becoming compliant. To the extent these
systems are not compliant there is no assurance that the potential
interruptions or cost to UILIC may not be significant.
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").
F-6
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. 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, 1997, 1996 and 1995 included approximately
$37,800, $37,600, and $38,000, 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.
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.
F-7
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
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 limited-payment contracts, acquisition costs
are amortized over the contract period. 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.
Reclassification: Certain amounts in the financial statements presented have
been reclassified from amounts previously reported in order to be comparable
between years. These reclassifications have no effect on previously reported
shareholders' 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)
Reporting Comprehensive Income (FASB Statement No. 130) is effective for
fiscal years beginning after December 15, 1997. Reclassification of prior
periods for comparative financial statements is required.
This document establishes standards for presentation of comprehensive
income, a concept of income which, in addition to net income, includes all
changes in the equity of a company other than contributions from or
distributions to shareholders. Comprehensive income is to be categorized into
certain components, each of which is to be displayed prominently in United
Investors basic financial statements.
The most significant aspect of this Statement on United Investors is the
separate disclosure of the change in unrealized gain or loss on its fixed
investments as a component of comprehensive income, rather than as a direct
adjustment of shareholders' equity.
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,
----------------------- ---------------------
1997 1996 1995 1997 1996
------- ------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Life insurance................. $34,537 $26,640 $29,636 $156,676 $ 154,222
</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,
--------------------------
1997 1996 1995
------- ------- --------
<S> <C> <C> <C>
Statutory net income............................. $34,537 $26,640 $ 29,636
Deferral of acquisition costs.................... 33,485 33,744 28,870
Amortization of acquisition costs................ (24,898) (19,850) (16,602)
Differences in policy liabilities................ (2,113) (4,361) (6,774)
Deferred income taxes............................ (6,053) (773) (1,389)
Other............................................ (209) (134) (531)
------- ------- --------
GAAP net income.................................. $34,749 $35,266 $ 33,210
======= ======= ========
</TABLE>
A reconciliation of United Investors' statutory shareholder's equity to GAAP
shareholder's equity is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Statutory shareholder's equity.................... $156,676 $154,222
Differences in policy liabilities................. 9,540 20,834
Deferred acquisition costs and value of insurance
purchased........................................ 210,651 186,146
Deferred income taxes ............................ (52,639) (41,074)
Asset valuation reserve........................... 9,513 10,762
Nonadmitted assets................................ 1,850 1,856
Fair value adjustment on fixed maturities
available for sale............................... 23,043 3,703
Goodwill.......................................... 6,771 7,055
Due and deferred premiums......................... (30,334) (29,324)
Other............................................. (3,501) (2,118)
----------- -----------
GAAP shareholder's equity......................... $331,570 $ 312,062
=========== ===========
</TABLE>
F-9
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
The NAIC requires that a risk based capital formula 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.
NOTE 3--INVESTMENT OPERATIONS
Investment income is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Fixed maturities................................... $46,000 $46,366 $43,482
Equity securities.................................. 0 0 76
Policy loans....................................... 1,107 1,001 851
Other long-term investments........................ 1,614 1,211 1,681
Short-term investments............................. 436 287 717
Interest and dividends from affiliates............. 2,863 2,847 3,058
------- ------- -------
52,020 51,712 49,865
Less investment expense............................ (506) (584) (509)
------- ------- -------
Net investment income.............................. $51,514 $51,128 $49,356
======= ======= =======
Analysis of gains (losses) from investments:
Realized investment gains (losses)
Fixed maturities................................. $(5,235) $ 925 $ 319
Equity securities................................ 0 0 1,276
Mutual funds..................................... (130) 0 (154)
------- ------- -------
Net realized gains (losses)....................... $(5,365) $ 925 $ 1,441
======= ======= =======
Analysis of change in unrealized investment gains
(losses):
Net change in unrealized investment gains (losses)
on equity securities before tax................... $ 0 $ 0 $ (438)
Net change in unrealized investment gains on fixed
maturities available for sale before tax.......... 19,340 (21,767) 58,321
Other.............................................. 1,799 861 3,602
Adjustment to deferred acquisition costs........... (5,387) 8,857 (23,532)
Applicable tax..................................... (5,512) 4,217 (13,283)
------- ------- -------
Net change in unrealized gains (losses) on equity
and fixed maturity securities available for sale.. $10,240 $(7,832) $24,670
======= ======= =======
</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
1997: COST GAINS LOSSES VALUE SHEET
- ----- --------- ---------- ---------- ------- -----------
<S> <C> <C> <C> <C> <C>
Fixed maturities available
for sale:
Bonds:
U.S. Government direct
obligations and agen-
cies.................... $22,035 $ 857 $ 0 $22,892 $22,892
GNMA's................... 124,549 5,992 (146) 130,395 130,395
Mortgage-backed
securities, GNMA
collateral.............. 23,125 591 (3) 23,713 23,713
Other mortgage-backed se-
curities................ 20,980 916 0 21,896 21,896
States, municipalities
and political
subdivisions............ 28,603 517 0 29,120 29,120
Foreign governments...... 3,298 135 0 3,433 3,433
Public utilities......... 37,189 1,504 (39) 38,654 38,654
Industrial and miscella-
neous................... 352,821 12,986 (267) 365,540 365,540
------- ------ ------ ------- -------
Total fixed maturities... 612,600 23,498 (455) 635,643 635,643
======= ====== ====== ======= =======
<CAPTION>
1996:
- -----
<S> <C> <C> <C> <C> <C>
Fixed maturities available
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 se-
curities................ 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
======= ====== ====== ======= =======
</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, 1997
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................................. $ 4,751 $ 4,824
Due after one year through five years................... 99,621 102,200
Due after five years through ten years.................. 202,692 209,387
Due after ten years..................................... 131,058 137,232
-------- --------
438,122 453,643
Mortgage- and asset-backed securities.................... 174,478 182,000
-------- --------
$612,600 $635,643
======== ========
</TABLE>
Proceeds from sales of fixed maturities available for sale were $113,035 in
1997, $15,246 in 1996, and $149,076 in 1995. Gross gains realized on these
sales were $112 in 1997, $749 in 1996, and $3,157 in 1995. Gross losses on
these sales were $5,716 in 1997, $0 in 1996, and $2,126 in 1995.
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>
1997 1996 1995
--------------------- --------------------- ---------------------
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................... $169,986 $16,160 $144,716 $18,679 $153,677 $20,983
Additions:
Deferred during
period:
Commissions........... 27,664 0 28,492 0 24,258 0
Other expenses........ 5,821 0 5,252 0 4,611 0
-------- ------- -------- ------- -------- -------
Total deferred....... 33,485 0 33,744 0 28,869 0
Value of insurance
purchased............ 0 21,305 0 0 0 0
Adjustment attributable
to unrealized
investment loss (1)... 0 0 8,857 0 0 0
-------- ------- -------- ------- -------- -------
Total additions...... 33,485 21,305 42,601 0 28,869 0
Deductions:
Amortized during
period............... (21,019) (3,711) (16,894) (2,519) (14,062) (2,304)
Adjustment
attributable to
unrealized investment
gains (1)............ (5,387) 0 0 0 (23,532) 0
Adjustment
attributable to
realized
investment gains (1). (168) 0 (437) 0 (236) 0
-------- ------- -------- ------- -------- -------
Total deductions..... (26,574) (3,711) (17,331) (2,519) (37,830) (2,304)
-------- ------- -------- ------- -------- -------
Balance at end of year.. $176,897 $33,754 $169,986 $16,160 $144,716 $18,679
======== ======= ======== ======= ======== =======
</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 $938, $1,100, and $1,300 for the years
ended December 31, 1997, 1996 and 1995, respectively. The average interest
accrual rates used were 6.29%, 6.44% and 6.59%, respectively. The estimated
amount of the unamortized value of business purchased balance at December 31,
1997 to be amortized during each of the next five years is: 1998, $1,640;
1999, $1,443; 2000, $1,270; 2001, $1,118; 2002, $984.
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,
1997 1996
------------------- -------------------
ACCUMULATED ACCUMULATED
COST DEPRECIATION COST DEPRECIATION
------ ------------ ------ ------------
<S> <C> <C> <C> <C>
Data processing equipment............... $ 216 $ 161 $ 192 $ 147
Transportation equipment................ 132 55 132 37
Furniture and office equipment ......... 922 913 919 903
------ ------ ------ ------
Total................................. $1,270 $1,129 $1,243 $1,087
====== ====== ====== ======
</TABLE>
Depreciation expense on property and equipment used in the business was $42,
$44 and $52 in each of the years 1997, 1996, and 1995, 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, 1997 is as follows:
INDIVIDUAL LIFE INSURANCE
Interest Assumptions:
<TABLE>
<CAPTION>
PERCENT OF
YEARS OF ISSUE INTEREST RATES LIABILITY
-------------- --------------------- ----------
<S> <C> <C>
1962-1997 3% level to 6% level 10%
1986-1992 7.00% graded to 6.00% 21%
1962-1985 8.50% graded to 6.00% 5%
1981-1985 8.50% graded to 7.00% 4%
1984-1997 Interest sensitive 60%
----
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,
-------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Net operating income before income taxes......... $18,843 $19,078 $18,037
Shareholder's equity:
Unrealized gains (losses)....................... 5,512 (4,217) 13,283
Tax basis compensation expense in excess of
amounts recognized for financial reporting
purposes from the exercise of stock options.... (519) 0 (35)
Other........................................... 1 (152) 1
------- ------- -------
$23,837 $14,709 $31,286
======= ======= =======
</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,
-----------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Current income tax expense............................. $12,790 $18,305 $16,648
Deferred income tax expense............................ 6,053 773 1,389
------- ------- -------
$18,843 $19,078 $18,037
======= ======= =======
</TABLE>
In 1997, 1996, and 1995, 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 1997,
1996 and 1995 as shown below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 % 1996 % 1995 %
------- --- ------- --- ------- ---
<S> <C> <C> <C> <C> <C> <C>
Expected income taxes.................. $18,757 35% $19,020 35% $17,936 35%
Increase (reduction) in income taxes
resulting from:
Tax-exempt investment income.......... (18) 0 (38) 0 (102) 0
Purchase accounting differences....... 99 0 99 0 99 0
Other................................. 5 0 (3) 0 104 0
------- --- ------- --- ------- ---
Income taxes........................... $18,843 35% $19,078 35% $18,037 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,
-----------------------
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Future policy benefits and unearned and advance
premiums.......................................... $ 4,777 $ 5,936
Present value of future policy surrender charges... 13,925 9,636
Other liabilities, principally due to the current
nondeductibilty for tax purposes of certain
accrued expenses.................................. 203 147
----------- -----------
Total gross deferred tax assets.................... 18,905 15,719
----------- -----------
Net deferred tax assets............................ 18,905 15,719
----------- -----------
Deferred tax liabilities:
Deferred acquisition costs......................... 62,863 53,625
Unrealized investment gains........................ 7,914 2,402
Other.............................................. 767 766
----------- -----------
Total gross deferred tax liabilities............... 71,544 56,793
----------- -----------
Net deferred tax liability......................... 52,639 41,074
=========== ===========
</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 exempt 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>
1997.................................................. $44 $118
1996.................................................. 41 115
1995.................................................. 39 75
</TABLE>
Net periodic pension cost for the defined benefit plan which covers United
Investors' full-time exempt employees has been calculated on the projected
unit credit actuarial cost method in accordance with SFAS 87,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
F-16
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 8--POSTRETIREMENT BENEFITS (CONTINUED)
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, 1997, and $55 at December 31,
1996. United Investors is one of several sponsors of the defined benefit plan.
The total unfunded plan liability recorded at December 31, 1997 was $459. 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, 1997, 1996 and
1995 was $1, $5 and $3, 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 $109 and $122 as of December 31, 1997
and 1996, respectively. The discount rate used in determining the accumulated
postretirement benefit obligation was 7.50% and the health care cost trend
rate was 9%, 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 $29,600, $30,200, and
$25,700 for the years ended December 31, 1997, 1996, and 1995, respectively.
United Investors was charged for space, equipment, and services provided by
an affiliate amounting to $1,852 in 1997, $1,797 in 1996 and $1,706 in 1995.
Torchmark performed certain administrative services for United Investors for
which it charged $468 in 1997, $384 in 1996 and $156 in 1995.
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 $2,838 at December 31, 1997 and 1996, 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. In
1997, United Investors loaned Torchmark, Liberty National and United American
$8,060, $10,520 and $5,500 respectively at an interest rate of 5.5% all of
which were repaid prior to December 31, 1997. Interest income related to these
loans totaling $1, $2, and $22 respectively are included in the accompanying
financial statements.
F-17
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 9--RELATED PARTY TRANSACTIONS (CONTINUED)
Effective January 1, 1997 United Investors assumed a block of annuity
products totaling $200,321 from United American Insurance Company (United
American), an affiliated company, on a 100% funds withheld coinsurance basis.
In connection with this transaction United Investors paid a ceding fee to
United American totaling $21,305, $10,000 of which was paid in cash, and
recorded a due from affiliates totaling $189, 016. As of December 31, 1997,
the funds withheld balance totaled $190, 235 and is included in due from
affiliates. Interest income on funds withheld at December 31, 1997 totaled
$11,876 and is included in other income. The reserve for annuity balances
assumed in connection with this transaction totaled $210,276 as of December
31, 1997.
United Investors serves as sponsor to four separate accounts and depositor
to two separate accounts of the underlying investment fund in connection with
its variable product business. At December 31, 1997 and 1996 United Investors
had investments of $16,542 and $14,000, 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 $5,946 and $5,159 at
December 31, 1997 and 1996. 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 $500 per life. Life insurance ceded represented 2%
of total life insurance in force at December 31, 1997 and 4% of premium income
for 1997. 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. Except as disclosed in Note 9, United Investors does
not assume insurance risks of other companies.
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 GAAP basis over that determined on a statutory basis.
Restricted net assets at December 31, 1997 in compliance with all regulations
were $177,894.
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 (26%); securities of state and municipal governments (4%)
investment-grade corporate bonds (53%), non government guaranteed mortgaged
backed securities (3%), United Funds (3%); and policy loans (3%) which are
secured by the underlying insurance policy value. The balance of the portfolio
is invested in short-term investments (2%), and non investment grade
securities (6%).
F-18
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 10--COMMITMENTS AND CONTINGENCIES (CONTINUED)
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, 1997, 1% or more of the
portfolio was invested in the following industries: financial services (21%);
public utilities (6%); chemicals and allied products (5%); transportation
(5%); manufacturing (4%); consumer goods (4%); media and communications (3%);
services (3%); machinery and equipment (2%); petroleum (2%); paper and allied
products (1%); and assets-backed securities (1%). At the end of 1997, 6% of
the carrying value of securities was rated below investment grade. Par value
of these investments was $42,275, amortized cost was $43,075, and market value
was $44,076. 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
The following table summarizes United Investors' noncash transactions, which
are not reflected on the statement of cash flow as required by GAAP:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Due from affiliates.............................. 189,016 0 0
Value of business acquired....................... 11,305 0 0
Future policy benefits........................... 200,321 0 0
The following table summarizes certain amounts paid during the period:
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Taxes paid....................................... $8,631 $22,111 $15,393
</TABLE>
F-19
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
United Investors Life Insurance Company
And the Contract Owners of the
United Investors Universal Life Variable Account
Birmingham, Alabama
We have audited the accompanying balance sheet of United Investors Universal
Life Variable Account as of December 31, 1997 and the related statement of
operations and changes in net assets for the period ended December 31, 1997.
These financial statements are the responsibility of the United Investors Life
Insurance Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of United Investors Universal
Life Variable Account at December 31, 1997 and the results of its operations
and changes in its net assets for the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Birmingham, Alabama
April 9, 1998
F-20
<PAGE>
UNITED INVESTORS UNIVERSAL LIFE VARIABLE ACCOUNT
BALANCE SHEET
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
MONEY HIGH SMALL LIMITED ASSET
MARKET BOND INCOME GROWTH INCOME INTERNATIONAL CAP BALANCED TERM BOND STRATEGY
--------- --------- --------- --------- --------- ------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Investments in
Mutual Funds
(Note B)........ $ 384 $ 1,925 $ 4,535 $ 33,442 $ 56,261 $ 16,648 $ 24,184 $ 4,966 $ 0 $ 590
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total assets.... 384 1,925 4,535 33,442 56,261 16,648 24,184 4,966 0 590
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Liabilities:
Mortality and
expense risk
charge payable
to Sponsor
(Note D)........ 0 0 1 3 5 2 4 1 0 0
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total liabili-
ties........... 0 0 1 3 5 2 4 1 0 0
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Net assets (Note
C)............. $ 384 $ 1,925 $ 4,534 $ 33,439 $ 56,256 $ 16,646 $ 24,180 $ 4,965 $ 0 $ 590
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Equity:
Equity of
contract
owners......... $ 384 $ 1,925 $ 4,534 $ 33,439 $ 56,256 $ 16,646 $ 24,180 $ 4,965 $ 0 $ 590
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total equity.... $ 384 $ 1,925 $ 4,534 $ 33,439 $ 56,256 $ 16,646 $ 24,180 $ 4,965 $ 0 $ 590
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Accumulation
units outstand-
ing............ 382 1,900 4,466 32,238 54,638 15,796 23,404 4,842 0 576
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Net asset value
per unit....... $1.005593 $1.012926 $1.015105 $1.037254 $1.029610 $1.053795 $1.033180 $1.025294 $0.000000 $1.024810
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
<CAPTION>
SCIENCE AND
TECHNOLOGY TOTAL
----------- --------
<S> <C> <C>
Assets:
Investments in
Mutual Funds
(Note B)........ $ 11,916 $154,851
----------- --------
Total assets.... 11,916 154,851
----------- --------
Liabilities:
Mortality and
expense risk
charge payable
to Sponsor
(Note D)........ 1 17
----------- --------
Total liabili-
ties........... 1 17
----------- --------
Net assets (Note
C)............. $ 11,915 $154,834
=========== ========
Equity:
Equity of
contract
owners......... $ 11,915 $154,834
----------- --------
Total equity.... $ 11,915 $154,834
=========== ========
Accumulation
units outstand-
ing............ 11,677 149,919
=========== ========
Net asset value
per unit....... $1.020345
===========
</TABLE>
See Notes to Financial Statements.
F-21
<PAGE>
UNITED INVESTORS UNIVERSAL LIFE VARIABLE ACCOUNT
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MONEY HIGH SMALL LIMITED ASSET
MARKET BOND INCOME GROWTH INCOME INTERNATIONAL CAP BALANCED TERM BOND STRATEGY
------ ------- ------- -------- -------- ------------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend income
(Note B, D)....... $ 0 $ 111 $ 363 $ 1,670 $ 2,354 $ 530 $ 4,089 $ 203 $ 0 $ 23
Expenses paid to
Sponsor (Note D):
Mortality and ex-
pense risk
charge........... 0 0 1 3 5 2 4 1 0 0
Contract maintenance charges:
Administrative
expense......... 1 6 12 125 178 39 73 27 0 4
Guaranteed death
benefit......... 0 1 5 37 51 16 26 7 0 1
Costs of insur-
ance............ 15 75 176 998 1,331 374 537 201 0 14
Waiver monthly
deduction....... 0 1 1 10 14 3 4 7 0 1
Accidental death
rider........... 0 0 0 0 3 0 0 2 0 0
Child term rider. 0 0 2 11 21 1 3 9 0 0
Additional insur-
ance rider...... 0 0 0 15 17 7 7 6 0 0
----- ------- ------- -------- -------- -------- -------- ------- --- -----
Total........... 16 83 197 1,199 1,620 442 654 260 0 20
Net investment in-
come (loss)....... (16) 28 166 471 734 88 3,435 (57) 0 3
Realized investment
gains (losses)
distributed to ac-
counts............ 0 0 0 0 0 0 0 0 0 0
Unrealized invest-
ment gains (loss-
es)............... 0 (109) (347) (1,327) (1,721) (473) (3,458) (167) 0 (23)
----- ------- ------- -------- -------- -------- -------- ------- --- -----
Net gain (loss) on
investments....... 0 (109) (347) (1,327) (1,721) (473) (3,458) (167) 0 (23)
----- ------- ------- -------- -------- -------- -------- ------- --- -----
Net decrease in net
assets from
operations........ (16) (81) (181) (856) (987) (385) (23) (224) 0 (20)
Premium deposits &
net transfers*.... 400 2,006 4,715 34,295 57,243 17,031 24,203 5,189 0 610
Investment by spon-
sor (Note E)...... 0 0 0 0 0 0 0 0 0 0
Transfer to sponsor
for benefits and
terminations...... 0 0 0 0 0 0 0 0 0
----- ------- ------- -------- -------- -------- -------- ------- --- -----
Total increase..... 384 1,925 4,534 33,439 56,256 16,646 24,180 4,965 0 590
Net assets at be-
ginning of peri-
od................ 0 0 0 0 0 0 0 0 0 0
----- ------- ------- -------- -------- -------- -------- ------- --- -----
Net assets at end
of period (Note
C)................ $ 384 $ 1,925 $ 4,534 $ 33,439 $ 56,256 $ 16,646 $ 24,180 $ 4,965 $ 0 $ 590
===== ======= ======= ======== ======== ======== ======== ======= === =====
<CAPTION>
SCIENCE AND
TECHNOLOGY TOTAL
----------- ----------
<S> <C> <C>
Dividend income
(Note B, D)....... $ 44 $ 9,387
Expenses paid to
Sponsor (Note D):
Mortality and ex-
pense risk
charge........... 1 17
Contract maintenance charges:
Administrative
expense......... 45 510
Guaranteed death
benefit......... 15 159
Costs of insur-
ance............ 337 4,058
Waiver monthly
deduction....... 6 47
Accidental death
rider........... 0 5
Child term rider. 4 51
Additional insur-
ance rider...... 7 59
----------- ----------
Total........... 415 4,906
Net investment in-
come (loss)....... (371) 4,481
Realized investment
gains (losses)
distributed to ac-
counts............ 0 0
Unrealized invest-
ment gains (loss-
es)............... 162 (7,463)
----------- ----------
Net gain (loss) on
investments....... 162 (7,463)
----------- ----------
Net decrease in net
assets from
operations........ (209) (2,982)
Premium deposits &
net transfers*.... 12,124 157,816
Investment by spon-
sor (Note E)...... 0 0
Transfer to sponsor
for benefits and
terminations...... 0 0
----------- ----------
Total increase..... 11,915 154,834
Net assets at be-
ginning of peri-
od................ 0 0
----------- ----------
Net assets at end
of period (Note
C)................ $ 11,915 $ 154,834
=========== ==========
</TABLE>
*Includes transfer activity from (to) other portfolios.
See Notes to Financial Statements.
F-22
<PAGE>
UNITED INVESTORS UNIVERSAL LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization--The United Investors Universal Life Variable Account ("the
Universal Life Variable Account") was established on August 15, 1997 as a
segregated account of United Investors Life Insurance Company ("the Sponsor")
and has been registered as a unit investment trust under the Investment
Company Act of 1940. The Universal Life Variable Account invests in shares of
TMK/United Funds, Inc. ("the Fund"), a mutual fund with eleven separate
investment portfolios including a money market portfolio, a bond portfolio, a
high income portfolio, a growth portfolio, an income portfolio, an
international portfolio, a small cap portfolio, a balanced portfolio, a
limited term bond portfolio, an asset strategy portfolio and a science and
technology portfolio (established during 1997). The assets of each portfolio
of the Fund are held separate from the assets of the other portfolios. Thus,
each portfolio operates as a separate investment portfolio, and the investment
performance of one portfolio has no effect on any other portfolio.
Basis of Presentation--The financial statements of the Universal Life
Variable Account have been prepared on an accrual basis in accordance with
generally accepted accounting principles.
Federal Taxes --Currently no charge is made to the Universal Life Variable
Account for federal income taxes because no federal income tax is imposed on
the Sponsor for the Universal Life Variable Account investment income under
current tax law.
NOTE B--INVESTMENTS
Stocks and convertible bonds of the Fund are valued at the latest sale price
on the last business day of the fiscal period as reported by the principal
securities exchange on which the issue is traded or, if no sale is reported
for a stock, the average of the latest bid and asked prices. Bonds, other than
convertible bonds, are valued using a matrix pricing system provided by a
major dealer in bonds. Convertible bonds are valued using this pricing system
only on days when there is no sale reported. Stocks which are traded over the
counter are priced using NASDAQ (National Association of Securities Dealers
Automated Quotations) which provides information on bid and asked prices
quoted by major dealers in such stocks. Short term debt securities are valued
at amortized cost which approximates market.
Security transactions are accounted for by the Fund on the trade date (date
the order to buy or sell is executed). Securities gains and losses are
calculated on the specific identification method. Dividend income is recorded
on the ex-dividend date. Interest income is recorded on the accrual basis.
Investments in shares of the separate investment portfolios are stated at
market value which is the net asset value per share as determined by the
respective portfolios (see Note C-Net Assets). Dividends received by the
portfolios are reinvested daily in additional shares of the portfolios and are
recorded as dividend income on the record date.
F-23
<PAGE>
UNITED INVESTORS UNIVERSAL LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following is a summary of reinvested dividends by portfolio:
<TABLE>
<CAPTION>
1997
----
INVESTMENT PORTFOLIO SHARES REINVESTED DIVIDEND INCOME
-------------------- ----------------- ---------------
<S> <C> <C>
Money Market.................................. 0 $ 0
Bond.......................................... 21 111
High Income................................... 77 363
Growth........................................ 221 1,670
Income........................................ 197 2,354
International................................. 83 530
Small Cap..................................... 491 4,089
Balanced...................................... 30 203
Limited Term Bond............................. 0 0
Asset Strategy................................ 4 23
Science and Technology........................ 8 44
</TABLE>
F-24
<PAGE>
UNITED INVESTORS UNIVERSAL LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE C--NET ASSETS
The following table illustrates by component parts the net asset value for
each portfolio.
<TABLE>
<CAPTION>
MONEY HIGH SMALL LIMITED ASSET SCIENCE AND
1997 MARKET BOND INCOME GROWTH INCOME INTERNATIONAL CAP BALANCED TERM BOND STRATEGY TECHNOLOGY
- ---- ------ ------ ------ ------- ------- ------------- ------- -------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cost to:
Contract Owners... $400 $2,006 $4,715 $34,295 $57,243 $17,031 $24,203 $5,189 $ 0 $610 $12,124
Adjustment for
market appreciation
and reinvested
dividends.......... 0 2 16 343 633 57 631 36 0 0 206
Deductions:
Mortality and
expense risk
charge............ 0 0 (1) (3) (5) (2) (4) (1) 0 0 (1)
Contract
maintenance
charges:
Administrative
expense........... (1) (6) (12) (125) (178) (39) (73) (27) 0 (4) (45)
Guaranteed death
benefit........... 0 (1) (5) (37) (51) (16) (26) (7) 0 (1) (15)
Cost of insurance. (15) (75) (176) (998) (1,331) (374) (537) (201) 0 (14) (337)
Waiver monthly
deduction......... 0 (1) (1) (10) (14) (3) (4) (7) 0 (1) (6)
Accidental death
rider............. 0 0 0 0 (3) 0 0 (2) 0 0 0
Child term rider.. 0 0 (2) (11) (21) (1) (3) (9) 0 0 (4)
Additional
insurance rider... 0 0 0 (15) (17) (7) (7) (6) 0 0 (7)
Benefits &
terminations...... 0 0 0 0 0 0 0 0 0 0 0
---- ------ ------ ------- ------- ------- ------- ------ --- ---- -------
Net assets......... $384 $1,925 $4,534 $33,439 $56,256 $16,646 $24,180 $4,965 $ 0 $590 $11,915
==== ====== ====== ======= ======= ======= ======= ====== === ==== =======
</TABLE>
F-25
<PAGE>
UNITED INVESTORS UNIVERSAL LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE D--CHARGES AND DEDUCTIONS
Fund Management and Fees
Waddell & Reed Investment Management Company ("the Manager"), is the manager
of the Fund and provides investment advisory services to the Fund. Each
portfolio will pay the manager a fee for managing its investments consisting
of two elements: (i) a specific fee computed on each portfolio's net asset
value at the close of business each day at the following annual Rates; Money
Market Portfolio none; Bond Portfolio .03% of net assets; High Income
Portfolio .15% of net assets; Growth Portfolio .20% of net assets; Income
Portfolio .20% of net assets; International Portfolio .30% of net assets;
Small Cap Portfolio .35% of net assets; Balanced Portfolio .10% of net assets;
Limited Term Bond Portfolio .05% of net assets; Asset Strategy Portfolio .30%
of net assets; Science and Technology .20% of net assets, and (ii) a pro rata
participation based on the relative net asset size of each portfolio in a
"Group" fee computed each day on the combined net asset values of all of the
portfolios at the following annual rates: Group Net Asset Level from $0 to
$750 million--Annual Group Fee Rate--.51%; from $750 to $1,500 million--.49%;
from $1,500 to $2,250 million--.47%; over $2,250 million--.45%. Fees for these
services are deducted from dividend income. The amount of these fees have
been:
<TABLE>
<CAPTION>
1997
----
<S> <C>
Money Market............................................................ $ 1
Bond.................................................................... 0
High Income............................................................. 1
Growth.................................................................. 10
Income.................................................................. 17
International........................................................... 5
Small Cap............................................................... 8
Balanced................................................................ 1
Limited Term Bond....................................................... 0
Asset Strategy.......................................................... 0
Science and Technology.................................................. 3
</TABLE>
Mortality and Expense Risk Charges
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 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.
Profit from this charge may be used for any purpose, including distribution
expenses.
Premium Deposit Charges
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.
F-26
<PAGE>
UNITED INVESTORS UNIVERSAL LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
Surrender Charges
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>
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 the Policy Value along
with the Partial Surrender amount.
Cost of Insurance
A mortality charge will be deducted monthly to compensate the Sponsor for
the cost of insurance for the preceding policy year. The mortality charge is
based on a policy's net amount at risk and on the attained age, sex and risk
class of the insured, and is determined by the Sponsor based upon its
expectation as to future mortality experience.
F-27
<PAGE>
UNITED INVESTORS UNIVERSAL LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE E--SELECTED UNIT DATA
Selected data for a weighted average unit of the Life Variable Separate
Account outstanding throughout 1997 follows.
<TABLE>
<CAPTION>
MONEY HIGH SMALL LIMITED ASSET SCIENCE AND
MARKET BOND INCOME GROWTH INCOME INTERNATIONAL CAP BALANCED TERM BOND STRATEGY TECHNOLOGY
------ ------ ------ ------ ------ ------------- ------ -------- --------- -------- ----------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend income. $0.00 $ 0.06 $ 0.08 $ 0.05 $ 0.04 $ 0.03 $ 0.17 $ 0.04 $0.00 $ 0.04 $0.00
Expenses........ 0.04 0.04 0.04 0.04 0.03 0.03 0.03 0.05 0.00 0.03 0.04
----- ------ ------ ------ ------ ------ ------ ------ ----- ------ -----
Investment
income (loss)-
net............ (0.04) 0.02 0.04 0.01 0.01 0.00 0.14 (0.01) 0.00 0.01 (0.04)
Net realized and
unrealized
investments
gains (losses). 0.00 (0.06) (0.08) (0.04) (0.03) (0.03) (0.15) (0.03) 0.00 (0.04) 0.01
Premium deposits
& net
transfers...... 1.05 1.06 1.06 1.06 1.05 1.08 0.91 1.07 0.00 1.06 1.04
Transfer to
sponsor for
benefits and
terminations... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
----- ------ ------ ------ ------ ------ ------ ------ ----- ------ -----
Total increase
in net value... 1.01 1.02 1.02 1.03 1.03 1.05 0.90 1.03 0.00 1.03 1.01
Net asset value,
beginning of
the period..... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
----- ------ ------ ------ ------ ------ ------ ------ ----- ------ -----
Net asset value,
end of the
period......... $1.01 $ 1.02 $ 1.02 $ 1.03 $ 1.03 $ 1.05 $ 0.90 $ 1.03 $0.00 $ 1.03 $1.01
===== ====== ====== ====== ====== ====== ====== ====== ===== ====== =====
</TABLE>
F-28
<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 $ 4.35 $ 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 2.38 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 5.84 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 1.06 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 11.62 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.
