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File Nos. 333-26505 and 811-08209
As Filed with the Securities and Exchange Commission on April 26, 2000
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 4
to
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
UNITED INVESTORS UNIVERSAL LIFE VARIABLE ACCOUNT
(Exact Name of Trust)
UNITED INVESTORS LIFE INSURANCE COMPANY
(Name of Depositor)
2001 Third Avenue South
Birmingham, Alabama 35233
(Complete address of depositor's principal executive offices)
Name and address of Agent for service: Copy to:
John H. Livingston, Esquire Frederick R. Bellamy, Esq.
United Investors Life Insurance Company Sutherland Asbill & Brennan LLP
2001 Third Avenue South 1275 Pennsylvania Avenue, N.W.
Birmingham, Alabama 35233 Washington, DC 20004-2415
________________________________
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)of Rule 485
[X] on April 28, 2000 pursuant to paragraph (b)of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on _______________ pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following box:
[ ] this Post-Effective Amendment designates a new effective date for a
previously filed Post-Effective Amendment.
Title of securities being registered: Variable Life Insurance Policies
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Prospectus
May 1, 2000
Please read this prospectus carefully before investing, and keep it for
future reference. It contains important information about the Advantage Plus
variable life insurance policy, which is issued by:
United Investors Life Insurance Co.
2001 Third Avenue South
Birmingham, Alabama 35233
The SEC maintains an Internet website (http://www.sec.gov) that contains
material incorporated by reference into this prospectus and other information.
Variable life insurance policies involve certain risks, and you may lose
some or all of your investment.
. We do not guarantee how any of the investment divisions will perform.
. The policy is not a deposit or obligation of any bank, and no bank endorses
or guarantees the policy.
. Neither the U.S. Government nor any Federal agency insures your investment in
the policy.
ADVANTAGE PLUSSM
VARIABLE LIFE INSURANCE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
issued by
United Investors Life Insurance Company
through
United Investors Universal Life Variable Account
The policy offers 12 funding choices--one fixed account (paying a guaranteed
minimum fixed rate of interest) and eleven variable investment divisions which
invest in the following mutual fund portfolios of Target/United Funds, Inc.:
. Asset Strategy Portfolio
. Balanced Portfolio
. Bond Portfolio
. Growth Portfolio
. High Income Portfolio
. Income Portfolio
. International Portfolio
. Limited-Term Bond Portfolio
. Money Market Portfolio
. Science and Technology Portfolio
. Small Cap Portfolio
There is no guaranteed cash surrender value for amounts allocated to the
variable investment divisions. If the net cash surrender value (the cash
surrender value reduced by any loan balance) is insufficient to cover the
charges due under the policy, the policy may terminate without value.
Neither the SEC nor any state securities commission has approved or disapproved
these securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
U-1165, Ed.5-00
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Table of Contents
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<TABLE>
<S> <C>
Summary..................................................................... 1
The Policy................................................................ 1
Payment of Premiums....................................................... 1
Funding Choices........................................................... 1
Charges and Deductions.................................................... 2
Taxes..................................................................... 3
Cash Benefits............................................................. 3
Death Benefit............................................................. 3
Termination............................................................... 3
Other Information......................................................... 4
Inquiries................................................................. 4
United Investors Universal Life Variable Account............................ 6
Target/United Funds, Inc.................................................. 6
Fixed Account............................................................... 8
The Policy.................................................................. 8
Applying for a Policy..................................................... 8
"Free Look" Right to Cancel the Policy.................................... 9
Premiums.................................................................. 9
Transfers................................................................. 10
Dollar-Cost Averaging..................................................... 11
Surrender of the Policy................................................... 11
Partial Surrenders........................................................ 11
Loan Benefits............................................................. 12
Requesting Payments....................................................... 13
Policy Changes............................................................ 13
Reports to Owners......................................................... 14
Other Policy Provisions................................................... 14
Assignment and Change of Owner............................................ 15
Supplemental Benefits..................................................... 15
Charges and Deductions...................................................... 15
Premium Expense Charge.................................................... 16
Mortality and Expense Risk Charge......................................... 16
Monthly Deduction......................................................... 16
Surrender Charge.......................................................... 16
Partial Surrender Charge.................................................. 17
Other Charges............................................................. 17
Cost of Insurance......................................................... 17
Reduction in Charges for Certain Groups................................... 18
Policy Values............................................................... 18
Policy Value.............................................................. 18
Variable Account Value.................................................... 19
Fixed Account Value....................................................... 20
Death Benefits.............................................................. 21
Amount of Death Benefit Payable........................................... 21
Death Benefit Options..................................................... 21
</TABLE>
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<TABLE>
<S> <C>
Changing the Death Benefit Option......................................... 22
Changing the Face Amount.................................................. 22
Effect of Partial Surrenders on the Death Benefit......................... 23
Beneficiary............................................................... 24
Tax Considerations.......................................................... 24
Introduction.............................................................. 24
Tax Status of the Policy.................................................. 24
Tax Treatment of Policy Benefits.......................................... 25
Taxation of United Investors.............................................. 27
Employment-Related Benefit Plans.......................................... 27
Other Information........................................................... 27
United Investors Life Insurance Company................................... 27
Sale of the Policies...................................................... 27
Changing the Variable Account............................................. 28
Voting of Portfolio Shares................................................ 28
Addition, Deletion, or Substitution of Investments........................ 28
Other Information......................................................... 29
Litigation................................................................ 29
Legal Matters............................................................. 29
Experts................................................................... 30
Financial Statements...................................................... 30
Appendix A: Surrender Charges Per $1,000 of Face Amount..................... 31
Appendix B: Hypothetical Illustrations and Performance Information.......... 32
Appendix C: Directors and Officers of United Investors...................... 39
Appendix D: Glossary........................................................ 41
Appendix E: Financial Statements............................................ F-1
</TABLE>
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This prospectus generally describes only the variable portion of the policy,
except where the fixed account is specifically mentioned.
Buying this policy might not be a good way of replacing your existing insurance
or adding more insurance if you already own a flexible premium variable life
insurance policy.
Certain terms and phrases used in this prospectus are explained in Appendix D.
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Summary
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This is a summary of some of the more important points that you should know
and consider before purchasing the Advantage Plus variable life insurance
policy.
The Policy
The Advantage Plus variable life insurance policy is an individual flexible
premium variable life insurance policy issued by United Investors Life
Insurance Company. Among other things, the policy:
(a) provides insurance protection on the life of the insured until the policy's
maturity date.
(b) allows you to vary the amount and timing of the premiums you pay and to
change the amount of the death benefit payable under the policy.
(c) provides the opportunity for cash value build-up on a tax-deferred basis,
depending on investment performance of the underlying mutual fund
portfolios. However, there is no guaranteed policy value and you bear the
risk of poor investment performance.
(d) permits you to borrow against the policy value, to make partial surrenders,
or to surrender the policy completely. Loans and partial surrenders will
affect the policy value and may affect the death benefit and termination of
the policy.
In addition to providing life insurance, the policy provides a means of
investing for your retirement or other long-term purposes. Tax deferral allows
the entire amount you have invested (net of charges) to remain in the policy
where it can continue to produce an investment return. Therefore, your money
could grow faster than in a comparable taxable investment where current income
taxes would be due each year.
You may divide your Advantage Plus policy value among the fixed account and
eleven variable investment divisions which invest in portfolios of
Target/United Funds, Inc. We guarantee the principal and a minimum interest
rate you will receive from the fixed account. However, the value of what you
allocate to the eleven variable investment divisions is not guaranteed.
Instead, your investment in the variable investment divisions will go up or
down with the performance of the particular Target/United Funds portfolios you
select (and the deduction of charges). You will lose money on policy value
allocated to the variable investment divisions if performance is not
sufficiently positive to cover the charges under the policy.
Payment of Premiums
Although you select a premium payment plan, you are not required to follow
it. (The minimum initial premium and planned premium depend on age, sex, and
risk class of the insured, on the face amount of the policy, and on any
supplemental benefit riders to the policy.) Within limits, you can vary the
frequency and amount of premium payments and can skip planned premiums.
However, extra premiums may be required to prevent policy termination under
certain circumstances.
Funding Choices
We deduct a premium expense charge from each premium payment, and then we
allocate the net premium among the variable investment divisions and the fixed
account according to your written instructions.
You may allocate each net premium (and your existing policy value) among
variable investment divisions which invest in the following eleven portfolios
of Target/United Funds, Inc.:
.Asset Strategy Portfolio
.Balanced Portfolio
.Bond Portfolio
.Growth Portfolio
.High Income Portfolio
.Income Portfolio
.International Portfolio
.Limited-Term Bond Portfolio
.Money Market Portfolio
.Science and Technology Portfolio
.Small Cap Portfolio
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For policies issued in California, the investment divisions which invest in
the Asset Strategy Portfolio and the High Income Portfolio are not available.
You may also allocate each premium (and your existing policy value) to the
fixed account. We guarantee your fixed account allocation will earn at least 4%
interest per year.
Charges and Deductions
We deduct a 3.5% premium expense charge from each premium payment. No sales
load is deducted from premiums.
We also make certain periodic deductions from your policy value. Each month,
we deduct the following from your policy value:
(a) the cost of insurance charge;
(b) the monthly administrative charge (currently $5.00, and guaranteed not to
exceed $7.50);
(c) a guaranteed death benefit charge ($0.01 per $1,000 of face amount) so long
as the death benefit guarantee is in effect; and
(d) any supplemental benefit charges.
Each day, we deduct a charge from the assets in the variable investment
divisions for certain mortality and expense risks we bear under the policy.
Currently, this charge is at an effective annual rate of 0.90% of those assets
during the first ten policy years and 0.70% thereafter. We guarantee not to
increase this mortality and expense risk charge above 0.90% in any policy year.
In addition, investment management fees, 12b-1 fees, and other expenses are
deducted from each portfolio of Target/United Funds, Inc. See the table below
for a summary of these portfolio expenses.
Target/United Funds, Inc. Annual Expenses(/1/)
(% of average daily net assets)
<TABLE>
<CAPTION>
Management 12b-1 Other Total Portfolio
Portfolio Fee(/2/) Fees(/3/) Expenses(/4/) Expenses
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<S> <C> <C> <C> <C>
Asset Strategy 0.70% 0.24% 0.14% 1.08%
Balanced 0.70% 0.24% 0.06% 1.00%
Bond 0.53% 0.24% 0.06% 0.83%
Growth 0.70% 0.24% 0.02% 0.96%
High Income 0.63% 0.24% 0.05% 0.92%
Income 0.70% 0.24% 0.02% 0.96%
International 0.85% 0.24% 0.15% 1.24%
Limited-Term Bond 0.50% 0.24% 0.15% 0.89%
Money Market 0.40% 0.24% 0.08% 0.72%
Science and Technology 0.85% 0.24% 0.06% 1.15%
Small Cap 0.85% 0.24% 0.04% 1.13%
</TABLE>
(/1/) These expenses are deducted directly from the assets of the Target/United
Funds, Inc. portfolios and therefore reduce their net asset value. Waddell &
Reed Investment Management Company, the investment adviser of Target/United
Funds, Inc., supplied the above information, and we have not independently
verified it. See the Target/United Funds, Inc. prospectus for more complete
information.
(/2/) Management Fees have been restated to reflect the change in management
fees effective June 30, 1999.
(/3/) Each portfolio pays a service fee to Waddell & Reed, Inc., the principal
underwriter of Target/United Funds, Inc. and the policy, of no more than 0.25%
of the portfolio's average annual net assets. The fee compensates Waddell &
Reed, Inc. for arranging to provide personal services to policy owners and to
maintain their policies. Waddell & Reed, Inc. represents that this is a Service
Plan as permitted by Rule 12b-1 under the Investment Company Act of 1940.
(/4/) Other Expenses are those incurred for the year ended December 31, 1999.
Actual expenses of Target/United Funds, Inc. may be greater or less than
those shown.
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We deduct a surrender charge from the policy value upon a full surrender of
the policy before the 16th policy anniversary (or the 16th anniversary of any
increase in the policy's face amount). The surrender charge rate, which is a
stated amount per $1,000 of face amount, varies with the insured's age on the
policy's effective date (or at the time of increase in the policy's face
amount). The surrender charge is constant until the fifth policy anniversary
(or the fifth anniversary of any increase in the policy's face amount), and
then decreases annually to zero at the 16th policy anniversary (or the 16th
anniversary of any increase in the policy's face amount).
We deduct a partial surrender charge upon a partial surrender of the policy.
The partial surrender charge is a portion of the then-applicable surrender
charge, plus the lesser of $25 or 2% of the partial surrender amount.
Taxes
We intend for the policy to satisfy the definition of life insurance under
the Internal Revenue Code. (See "Tax Status of the Policy.") Therefore, the
death benefit generally should be excludable from the gross income of its
recipient. Similarly, you should not be deemed to be in constructive receipt of
the policy value, and therefore should not be taxed on increases in the policy
value until you take out a loan, surrender the policy, or we pay the maturity
benefit. Under certain circumstances, a policy could be treated as a modified
endowment contract. Modified endowment contracts receive less favorable tax
treatment than other life insurance policies. See "Tax Considerations" for a
discussion of when distributions, such as surrenders and loans, from policy
value could be subject to Federal income tax and penalty tax.
Cash Benefits
Your policy value is the sum of the amounts allocated to the variable
investment divisions (variable account value) and the amount allocated to the
fixed account (fixed account value). The cash surrender value (the policy value
less any applicable surrender charges) may be substantially less than the
premiums paid.
Policy Loans. You may take loans in aggregate amounts of up to 90% of the
policy's cash surrender value. Policy loans reduce the amount available for
allocations and transfers and may have tax consequences.
Full Surrender. You may surrender the policy at any time for its net cash
surrender value. The net cash surrender value is the cash surrender value less
any loan balance. Surrendering the policy may have tax consequences.
Partial Surrender. You generally may make a partial surrender of the policy
at any time during the insured's life, provided that the policy has sufficient
net cash surrender value remaining. Partial surrenders may have tax
consequences.
Death Benefit
You must select one of two death benefit options under the policy:
(a) the greater of the policy's face amount or a multiple of its policy value;
or
(b) the greater of (i) the policy's face amount plus its policy value or (ii) a
multiple of its policy value.
Subject to certain limits, you may change the policy's face amount and death
benefit.
The policy's death benefit guarantee feature will keep the policy in force
during the death benefit guarantee period even if there is insufficient cash
surrender value to pay the cost of insurance and other periodic charges. The
death benefit guarantee remains effective so long as cumulative premiums paid
on the policy, less any partial surrenders and outstanding loan balance, equals
or exceeds (i) the minimum monthly premium multiplied by (ii) the number of
months the policy has been in force. If the death benefit guarantee ends due to
insufficient premium payments, it may not be restored by payment of additional
premiums.
The death benefit guarantee period generally ends at the insured's age 65
under death benefit option (a) or age 62 under death benefit option (b). This
period may vary in some states.
Termination
There is no minimum guaranteed policy value. The policy value may decrease
if the investment
3
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performance of the variable investment divisions (to which policy value is
allocated) is not sufficiently positive to cover the charges deducted under the
policy.
If the net cash surrender value (based on the policy value) becomes
insufficient to cover the monthly deduction 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 have been paid in full and on
schedule. Additional premium payments will be necessary during the grace period
to keep the policy in force if this occurs.
Other Information
Free Look: For a limited time after the policy's effective date, you may
cancel the policy and receive a full refund of all premiums paid.
Supplemental Benefits. Your policy may have one or more supplemental
benefits which are attached to the policy by rider. Each is subject to its own
requirements as to eligibility and additional cost. Among the benefits
currently available under the policy are:
(a) accelerated death benefit rider;
(b) accidental death benefit rider;
(c) children's term insurance rider;
(d) additional insured term insurance rider; and
(e) disability waiver of monthly deductions rider.
Other supplemental benefits may also be available.
Transfers: Within certain limits, you may transfer all or part of your
policy value among the variable investment divisions and the fixed account up
to 12 times in a policy year.
Dollar-Cost Averaging: Before the maturity date, you may have automatic
monthly transfers of a predetermined dollar amount made from the money market
investment division to other variable investment divisions. Certain minimums
and other restrictions apply.
Illustrations: Sample projections of hypothetical death benefits and policy
values are in Appendix B to this prospectus. These projections may help you:
(a) understand (i) the long-term effects of different levels of investment
performance and (ii) the charges and deductions under the policy; and
(b) compare the policy to other life insurance policies.
The projections also show the value of the annual premiums accumulated with
interest and demonstrate that the policy value may be low (compared to the
premiums plus accumulated interest) if the policy is surrendered in the early
policy years. Therefore, the policy should not be purchased as a short-term
investment.
Age: A number of policy provisions depend on the insured's age. This usually
means the insured's attained age, which is the actual age on the last policy
anniversary. During part of each policy year, attained age is one year less
than actual age. This may be better for you since it could mean, for example,
lower cost of insurance charges and a higher death benefit.
Financial Information: Our financial statements, and financial statements
for the variable investment divisions, are in Appendix E to this prospectus.
Inquiries
If you have questions about your policy or need to make changes, contact
your financial representative who sold you the policy, or contact us at:
United Investors Life Insurance Company
Administrative Office
P. O. Box 10287
Birmingham, Alabama 35202-0287
Telephone:
Policy Numbers T000025000 & Over: (800) 340-3787
Policy Numbers T000024999 & Under: (800) 451-6923
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The policy is not available in all states. This prospectus does not offer
the policies in any jurisdiction where they cannot be lawfully sold. You should
rely only on the information contained in this prospectus or that we have
referred you to. We have not authorized anyone to provide you with information
that is different.
NOTE: Because this is a summary, it does not contain all the information
that may be important to you. You should read this entire prospectus and the
Target/United Funds, Inc. prospectus carefully before investing.
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United Investors Universal Life Variable Account
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The variable investment divisions are "sub-accounts" or divisions of the
United Investors Universal Life Variable Account (the "Variable Account"). We
established the Variable Account as a segregated asset account on April 18,
1997. The Variable Account will receive and invest the premiums allocated to
the variable investment divisions. Our Variable Account is currently divided
into eleven investment divisions. Each division invests exclusively in shares
of a single portfolio of Target/United Funds, Inc. Income, gains and losses
arising from the assets of each investment division are credited to or charged
against that division without regard to income, gains or losses from any other
investment division of the Variable Account or arising out of any other
business we may conduct.
The assets in the Variable Account are our property. However, the assets
allocated to the variable investment divisions under the policy are not
chargeable with liabilities arising out of any other business that we may
conduct. The Variable Account is registered with the SEC as a unit investment
trust under the Investment Company Act of 1940 (the "1940 Act"). It meets the
definition of a "separate account" under the Federal securities law. However,
the SEC does not supervise the management or investment practices or policies
of the Variable Account or us.
Target/United Funds, Inc.
The Variable Account invests in shares of Target/United Funds, Inc., a
mutual fund with the following investment portfolios:
1. Asset Strategy Portfolio;
2. Balanced Portfolio;
3. Bond Portfolio;
4. Growth Portfolio;
5. High Income Portfolio;
6. Income Portfolio;
7. International Portfolio;
8. Limited-Term Bond Portfolio;
9. Money Market Portfolio;
10. Science and Technology Portfolio; and
11. Small Cap Portfolio.
The assets of each portfolio of Target/United Funds, Inc. are separate from the
assets of the other portfolios. Thus, each portfolio operates separately, and
the income, gains, or losses of one portfolio have no effect on the investment
performance of any other portfolio.
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The investment objectives and policies of each portfolio are summarized
below. There is no assurance that any of the portfolios will achieve their
stated objectives. More detailed information, including a description of risks,
is in the Target/United Funds, Inc. prospectus, which accompanies this
prospectus.
<TABLE>
<CAPTION>
Portfolio Investment Objective and Certain Policies
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<C> <S>
Asset Strategy The Asset Strategy Portfolio seeks high total return over the
long-term. It seeks to achieve its goal by allocating its
assets among stocks, bonds of any quality and short-term
instruments.
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Balanced The Balanced Portfolio seeks as a primary goal, current
income, with a secondary goal of long-term appreciation of
capital. It invests primarily in a mix of stocks, fixed-income
securities and cash, depending on market conditions.
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Bond The Bond Portfolio seeks a reasonable return with emphasis on
preservation of capital. It seeks to achieve its goal by
investing primarily in domestic debt securities, usually of
investment grade.
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Growth The Growth Portfolio seeks capital growth, with a secondary
goal of current income. It seeks to achieve its goal by
investing primarily in common stocks of U.S. and foreign
companies with market capitalization of at least $1 billion
representing faster growing sectors of the economy, such as
the technology, health care and consumer-oriented sectors.
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High Income The High Income Portfolio seeks as a primary goal a high level
of current income with a secondary goal of capital growth. It
seeks to achieve its goals by investing primarily in high-
yield, high-risk, fixed-income securities of U.S. and foreign
issuers, the risks of which are consistent with the
Portfolio's goals.
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Income The Income Portfolio seeks maintenance of current income,
subject to market conditions, with a secondary goal of capital
growth. It seeks to achieve its goals by investing primarily
in common stocks of large U.S. and foreign companies that have
a record of paying regular dividends or have the potential for
capital appreciation.
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International The International Portfolio seeks as a primary goal, long-term
appreciation of capital, with a secondary goal of current
income. It seeks to achieve its goals by investing primarily
in common stocks of foreign companies that may have the
potential for long-term growth.
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Limited-Term The Limited-Term Bond Portfolio seeks a high level of current
Bond income consistent with preservation of capital. It seeks to
achieve its goal by investing primarily in investment-grade
debt securities of U.S. issuers, including U.S. Government
securities.
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Money Market The Money Market Portfolio seeks current income consistent
with stability of principal. It seeks to achieve its goal by
investing in U.S. dollar-denominated, high quality money
market obligations and instruments.
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Science and The Science and Technology Portfolio seeks long-term capital
Technology growth. It seeks to achieve its goals by concentrating its
investments primarily in the common stock of science and
technology securities of U.S. and foreign companies whose
products, processes or services are expected to be
significantly benefited by the use or application of
scientific or technological discoveries or developments.
</TABLE>
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<TABLE>
<CAPTION>
Portfolio Investment Objective and Certain Policies
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<C> <S>
Small Cap The Small Cap Portfolio seeks capital growth. It seeks to achieve
its goal by investing primarily in common stocks of relatively new
or unseasoned companies in their early stages of development, or
smaller companies positioned in new or in emerging industries where
the opportunity for rapid growth is above average.
</TABLE>
Target/United Funds, Inc. is designed to provide an investment vehicle for
variable annuity and variable life insurance contracts issued by various
insurance companies. For more information about the risks associated with the
use of the same funding vehicle for both variable annuity and variable life
insurance contracts of various insurance companies, see the Target/United
Funds, Inc. prospectus.
Fixed Account
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The funding choice guaranteeing your principal and a minimum fixed rate of
interest is called the "fixed account." It is not registered under the
Securities Act of 1933, and it is not registered as an investment company under
the Investment Company Act of 1940. Accordingly, neither the fixed account nor
any interests therein are subject to the provisions or restrictions of these
Federal securities laws, and the disclosure regarding the fixed account has not
been reviewed by the staff of the SEC.
The fixed account is part of our 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. We may credit interest at a rate in excess of 4% per year,
but any excess interest credited will be determined in our sole discretion. The
policy owner assumes the risk that interest credited to the fixed account may
not exceed 4% per year. The fixed account may not be available in all states.
Our general account assets are used to support our insurance and annuity
obligations other than those funded by separate accounts. Subject to applicable
law, we have sole discretion over the investment of the assets of the fixed
account.
As the policy owner, you determine the allocation of policy value to the
fixed account. There are significant limits on your right to transfer policy
value into and out of the fixed account. (See "Transfers.")
The Policy
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Applying for a Policy
To purchase a policy, you must complete an application, submit it to our
administrative office (at the address listed in the "Inquiries" section of this
prospectus), and pay an initial premium which varies by age, sex and risk
class. (See "Premiums" below). The initial premium must be paid prior to the
policy's effective date. (We will only accept a premium that complies with our
underwriting rules.) Coverage becomes effective as of the policy's effective
date. If the proposed insured dies before the policy's effective date, our sole
obligation will be to return the premium paid plus any interest earned on it
(unless a temporary insurance agreement is in effect).
Generally, we will issue a policy covering an insured up to attained age 75
(on the policy's effective date) if evidence of insurability satisfies our
underwriting rules. Evidence of insurability may include, among other
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things, a medical examination of the insured. We may, in our 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 the Policy
During the "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 or a different refund amount. In
order to cancel the policy, you must return it by mail or other delivery before
the end of the "free look" period to our administrative office or to the agent
who sold it to you.
Premiums
The premium amounts sufficient to fund a policy depend on a number of
factors, such as:
(a) the age, sex and risk class of the proposed insured;
(b) the face amount of the policy; and
(c) any supplemental benefits under the policy.
The initial premium must be at least equal to the minimum monthly premium.
After the initial premium is paid, additional premiums may be paid at any time.
We currently require that any additional premiums be at least $25, or the
minimum monthly premium, if less. We will give you 90 days' advance written
notice if we change this minimum.
Total premiums paid in a policy year may not exceed guideline premium
limitations for life insurance set forth in the Internal Revenue 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. (See "Tax Considerations.")
Planned Premiums. When you apply for a policy, you select a quarterly, semi-
annual or annual premium payment plan. You may also arrange for premiums to be
paid monthly via automatic deduction from your checking account or other
payment methods approved by us. You are not required to pay premiums in
accordance with this premium plan; rather, you can pay more or less than
planned premiums (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 our administrative office. Such changes
will be effective upon our receipt of the instructions. If you increase the
policy's face amount, then a change in the amount of planned premiums may be
advisable, depending on the policy value at that time and the amount of the
increase requested. (See "Changing the Face Amount.")
Premiums to Prevent Termination. If you do not pay planned premiums or if
the investment performance of the policy's variable investment divisions is not
sufficient, your policy may terminate without value. Policy termination depends
on (i) whether the net cash surrender value is sufficient to cover the monthly
deduction when due and (ii) whether 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,
the policy will terminate without value unless additional premiums are paid.
(See "Monthly Deduction" and "Death Benefit Guarantee.")
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You will have a 61-day grace period to pay a premium sufficient to cover the
monthly deduction. We 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 end of the 61-day
grace period, 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 any monthly deductions due on or before the date of the insured's death and
for any loan balance.
Death Benefit Guarantee. During the death benefit guarantee period, the
death benefit is guaranteed to remain in effect so long as cumulative premiums
paid, less any partial surrenders and any loan balance, are at least equal to
(i) the minimum monthly premium, multiplied by (ii) 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's effective date, the total premium amount required will be based on
each minimum monthly premium amount 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.
For death benefit option A, the death benefit guarantee period lasts five
years or until the insured's attained age 65, whichever is later. For death
benefit option B, the period is the later of three years or until the insured's
attained age 62. However, for policies sold in Massachusetts the death benefit
guarantee period is five years for both option A and option B.
Crediting Premiums to the Policy. Between the date your initial premium is
received and the policy's effective date, we will credit interest on the
initial premium as if it had been invested in the variable investment division
investing in the money market portfolio. On the policy's effective date, the
initial net premium, plus any accrued interest on that amount, will be credited
to the policy. Any additional premium received will be credited to the policy
on the date we receive it, or the next business day thereafter.
Net Premium Allocations. When you apply for a policy, you specify the
percentage (from 0% to 100%) of net premium payments to be allocated to each
variable investment division and to the fixed account. You can change the
allocation percentages at any time by sending satisfactory written instructions
to our administrative office. The change will apply to all premiums received
after we receive your instructions, unless you instruct otherwise. Net premium
payment allocations must be in percentages totaling 100%, and each allocation
percentage must be a whole number.
Transfers
At any time after the end of the "free look" period, you may transfer all or
part of your variable account value to one or more of the other 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 your
fixed account value to one or more variable investment divisions only once each
policy year, and the maximum amount you can transfer out of the fixed account
is the greater of:
(a) 25% of the prior policy anniversary's unloaned fixed account value; or
(b) the amount of the prior policy year's transfer.
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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 in the variable 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 our
administrative office if it is received by 4:00 p.m. Eastern time; otherwise it
will take effect on the following business day. We may, however, defer
transfers under the same conditions that we may delay paying proceeds. (See
"Requesting Payments.") We reserve the right to modify, restrict, suspend or
eliminate the transfer privileges, including telephone transfer privileges, at
any time, for any reason.
We have the authority to honor any telephone transfer request believed to be
authentic. We employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. For example, you may be required to use
a personal identification number to initiate a telephone transfer. We will not
be liable for the consequences of a fraudulent telephone transfer request we
believe to be authentic. As a result, you bear the risk of loss arising from
such a fraudulent request if you give us authorization for telephone transfers.
Dollar-Cost Averaging
The dollar-cost averaging program permits you to systematically transfer a
set dollar amount from the money market investment division to the other
variable investment divisions on a monthly basis prior to the policy's maturity
date. The minimum automatic transfer amount is $100. If the transfer is to be
made to more than one variable investment division, a minimum of $25 must be
transferred to each variable 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.
You may elect to participate in the dollar-cost averaging program at any
time by sending a written request to our administrative office. Once elected,
dollar-cost averaging remains in effect from the date we receive your request
until the value of the money market investment division under your policy is
depleted, or until you cancel your participation in the program by written
request or by telephone. There is no additional charge for dollar-cost
averaging. A transfer under this program is not counted as a transfer for
purposes of the 12-transfer limit discussed above. 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 for you to allocate monthly
premiums directly to the variable 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 when it is surrendered. It cannot later be reinstated if it has been
surrendered for its net cash surrender value. 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. The amount remaining after a partial
surrender must be at least $300. A partial surrender charge will be deducted
from your policy value along with the partial surrender amount requested.
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The partial surrender charge is:
(a) the lesser of $25 or 2% of the partial surrender amount; plus
(b) a portion of the surrender charge equal to (i) the percentage of the
net cash surrender value requested, multiplied by (ii) the surrender
charge then in effect.
When you request a partial surrender, you should tell us what funding
choices the policy value should be deducted from. If you provide no directions,
the partial surrender amount and partial surrender charge will be deducted from
your policy value in the variable investment divisions and the fixed account on
a pro rata basis. If death benefit option A is in effect, a partial surrender
may reduce the face amount of your policy. (See "Effect of Partial Surrenders
on the Death Benefit.") Partial surrenders may have tax consequences. (See "Tax
Considerations.")
Loan Benefits
You may borrow up to 90% of your cash surrender value at any time by
submitting a written request to our administrative office. (This percentage may
vary in some states.) The cash surrender value is the policy value less any
applicable surrender charges. Outstanding loans, including accrued interest,
reduce the amount available for new loans. The minimum loan amount is $200.
Your policy may terminate if the loan balance becomes greater than the cash
surrender value. (See "Premiums to Prevent Termination.") Policy loans may have
income tax consequences. (See "Tax Considerations.")
When a loan is made, an amount equal to the requested loan and any loan
interest is transferred from the variable account value to the fixed account.
The amount to be transferred will be deducted from each variable investment
division in the same proportion that the value of each variable investment
division bears to your variable account value unless you specify one or more
variable investment divisions from which the loan is to be made.
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 deducted from the variable investment divisions in the same
proportion that the value of each variable investment division bears to your
variable account value. On each monthly anniversary, the loaned amount will be
credited with interest at a minimum guaranteed effective annual rate of 4.0%.
We may also credit additional interest (currently up to an effective annual
rate of 2%) on the preferred loan amount. 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.
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 a variable
investment division will be transferred from the fixed account to increase the
value in that variable investment division. The repayment will be allocated
among the variable investment divisions and the fixed account based on the
instructions for net premium allocations then in effect unless you give us
other instructions. Any payment received when a loan is outstanding will be
treated as a premium unless you tell us it is a loan repayment.
Effect of Policy Loan. A policy loan will affect your policy in several ways
over time, whether or not it is repaid, because the investment results of the
variable 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.
First, by
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comparison to a policy under which no loan has been made, your policy value
will be less if this fixed account net interest rate is less than the
investment return of the applicable variable investment divisions and greater
if the fixed account net interest rate is higher than the investment return of
the applicable variable investment divisions.
Second, if the death benefit becomes payable while a policy loan is
outstanding, the loan balance will be deducted in calculating the death
benefit proceeds.
Third, your policy will terminate if the loan balance exceeds the cash
surrender value on any monthly anniversary and the death benefit guarantee is
not in effect. We will send you, and any assignee of record, notice of the
termination. You will have a 61-day grace period to pay a sufficient
additional premium to avoid termination. If your policy terminates, there may
be tax consequences.
The tax treatment of the preferred loan amount is unclear, so consult your
tax advisor before taking a loan.
Requesting Payments
Written requests for payment must be sent to our administrative office or
given to an authorized United Investors agent for forwarding to this office.
We will ordinarily pay any death benefit, loan amount, net cash surrender
value or partial surrender amounts within seven days after we receive at our
administrative office 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 of any payment will be determined as of the date our
administrative office receives all required documents.
Telephone requests may be allowed by us in certain circumstances.
We may delay making a payment of any amount from the variable investment
divisions or processing a transfer request if:
(a) the disposal or valuation of the Variable Account's assets is not
reasonably practicable because
(i) the New York Stock Exchange is closed for other than a regular
holiday or weekend,
(ii) trading is restricted by the SEC, or
(iii) the SEC declares that an emergency exists; or
(b) the SEC by order permits postponement of payment to protect our policy
owners.
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 effective 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. We also may
defer making payments attributable to a premium check that has not cleared
your bank.
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 to you. None of these options varies
with the investment performance of a variable investment division because they
are all forms of fixed-benefit annuities.
Policy Changes
We may make changes in the policy at any time if we believe the changes are
necessary:
(a) to assure compliance at all times with the definition of life insurance
prescribed by the Internal Revenue Code;
(b) 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
(c) to reflect a change in the operation of the Variable Account, if
allowed by the policy.
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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 one of our officers to be
valid.
Reports to Owners
At least once a year, 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 a variable
investment division to which you have allocated net premiums or transferred
policy value, 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. After the policy has been in force during the insured's
lifetime for a period of two years from the policy's effective date, the policy
limits our right to contest the policy as issued, except for material
misstatements contained in any application. This also applies to reinstatements
and increases in the face amount, for two years after 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's effective 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 policy owner must:
(a) submit an application for reinstatement;
(b) provide evidence of insurability satisfactory to us;
(c) pay or agree to reinstatement of any loan balance; and
(d) 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
form 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 its maturity date. Any
supplemental benefits added by a rider will not continue beyond the termination
date described in the rider.
Entire Contract. The entire contract is made up of the policy, any riders,
and the written application. All statements made in the application, in the
absence of fraud, are considered representations and not warranties. We can use
only the statements made in the written application to defend a claim or void
the policy.
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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 policy owner 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 policy owner may have tax consequences. (See "Tax Considerations.")
A change of policy owner does not change the beneficiary designation. (See
"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 the 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 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 our administrative office
for a complete list of the supplemental benefits available.
Accelerated Death Benefit Rider. This benefit allows accelerated payment of
up to 75% of the death benefit (in a lump sum only) while the insured is still
alive, 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 five 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. The disability must commence after the policy's effective date and
prior to age 60. The waiver continues as long as total disability continues.
Charges and Deductions
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We deduct the charges described below from your policy. 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 us under or in connection with the policy. We intend to make a profit from
these charges.
Services and benefits we provide include:
(a) the death benefits, cash and loan benefits provided by the policy;
(b) funding choices, including net premium allocations, dollar-cost
averaging programs;
(c) administration of various elective options under the policy; and
(d) the distribution of various reports to policy owners.
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Costs and expenses we incur include:
(a) those associated with underwriting applications and changes in face
amount and riders;
(b) various overhead and other expenses associated with providing the
services and benefits provided by the policy;
(c) sales and marketing expenses; and
(d) other costs of doing business, such as Federal, state and local premium
and other taxes and fees.
Risks we assume include the risks that:
(a) insureds may live for a shorter period of time than estimated,
resulting in the payment of greater death benefits than expected; and
(b) the costs of providing the services and benefits under the policy will
exceed the charges deducted.
Premium Expense Charge
We deduct 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
We deduct a daily charge from assets in the variable investment divisions
for certain mortality and expense risks we bear. This charge is currently at an
effective annual rate of 0.90% of Variable Account assets during the first ten
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. Our profit, if any, from this charge may be used for any
purpose, including distribution expenses.
Monthly Deduction
We deduct a monthly deduction from your policy value on the policy's
effective date and on each monthly anniversary. This charge is deducted from
the Variable Account and the fixed account on a pro rata basis. The monthly
deduction for each policy consists of:
(a) the cost of insurance charge discussed below;
(b) a monthly administrative charge (currently this is $5.00 per month; it
may increase to a maximum charge of $7.50 per month);
(c) the guaranteed death benefit charge ($0.01 per $1,000 of the policy's
face amount) as long as the death benefit guarantee remains in effect;
and
(d) charges for any supplemental benefits added by riders to the policy.
(See "Supplemental Benefits.")
Surrender Charge
If you surrender the policy before the end of the 16th policy year, we will
deduct a surrender charge based on its face amount at issue. We also deduct the
surrender charge if you surrender the policy before the end of the 16th year
following an increase in its face amount (based on the amount of the increase).
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.
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The surrender charge varies based on the insured's age on the policy's
effective date or at the time of an increase in face amount, and is calculated
as an amount per $1,000 of face amount. 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 a face amount
increase).
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
selected ages of the insured:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Insured's Age at Issue: 25 35 45 50 55 65 75
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Charge per $1,000 $6.00 $7.00 $8.75 $10.00 $11.50 $16.75 $26.00
of Face Amount:
</TABLE>
For example, if a 50-year old purchases a policy insuring his or her own
life with a $100,000 face amount and completely surrenders it within five
years, the surrender charge would be $1,000 ($10.00 per $1,000 of face amount,
applied to $100,000 of face amount). (See Appendix A for a complete list of
applicable surrender charges.)
Although the surrender charge (as a percentage of face amount) increases
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 an
insured with an older issue age than for an insured with a younger issue age.
This means that for the same premium an older insured's policy is likely to
have a lower face amount. Therefore the surrender charge for an insured with an
older issue age could actually represent a lower portion of the premiums than
it does for an insured with younger issue age.
Partial Surrender Charge
A partial surrender charge equal to (a) the lesser of $25 or 2% of the
partial surrender amount, plus (b) a portion of the surrender charge, will
apply to each partial surrender. The portion of the surrender charge is (i) the
percentage of the net cash surrender value requested, multiplied by (ii) the
surrender charge then in effect. This charge will be deducted from your policy
value along with the partial surrender amount. (See "Partial Surrenders.")
Other Charges
For a description of the investment advisory fees and other expenses
incurred by the Portfolios, see the "Summary" of this prospectus and the
accompanying prospectus for Target/United Funds, Inc.
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 monthly deductions for
any other riders and charges.
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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 as
well as the duration of the policy. 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 policy's 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 when the charge is calculated. 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
We may waive or reduce the administrative charge, the guaranteed death
benefit charge, the premium expense charge, and the surrender charges on
policies that have been sold to:
(a) our employees and sales representatives, or those of our affiliates or
distributors of the policy; or
(b) individuals or groups of individuals where the sale of the policy
results in savings of administrative or commission expenses.
Policy Values
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Policy Value
The policy value serves as a starting point for calculating values under a
policy. The policy value 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's effective date and thereafter on each business day. 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:
(a) the performance of the variable investment divisions to which amounts
have been allocated;
(b) interest credited on amounts allocated to the fixed account and loan
balance;
(c) charges;
(d) transfers;
(e) partial surrenders; and
(f) policy loans (including loan repayments).
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The policy value may be more or less than premiums paid.
The cash surrender value is the policy value reduced by any surrender
charge.
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 variable
investment divisions under the policy. On the policy's effective date, the
value of each variable investment division is equal to:
(a) the initial net premium allocated to that variable investment division;
plus
(b) any accrued interest from the date of receipt of the premium to the
policy's effective date; minus
(c) the portion of the first month's monthly deduction allocated to that
variable investment division.
On any business day thereafter, the value of each variable investment division
is equal to:
(a) the value of the variable investment division on the preceding business
day, multiplied by the appropriate net investment factor (described
below) for the current business day; plus
(b) the sum of all net premiums allocated to the variable investment
division since the previous business day; plus
(c) the sum of all loan repayments allocated to the variable investment
division since the previous business day; plus
(d) the amount of any transfers from other variable investment divisions or
the fixed account to the variable investment division since the
previous business day; minus
(e) the amount of any transfers to other variable investment divisions or
to the fixed account, including amounts transferred to secure a policy
loan, from the variable investment division since the previous business
day; minus
(f) the portion of any partial surrenders (including surrender charges) or
charges for any face amount decreases allocated to the variable
investment division since the previous business day; minus
(g) the portion of the monthly deduction allocated to the variable
investment division since the previous business day.
Unit Values. When you allocate an amount to a variable 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 variable investment
division. The number of units is determined by dividing (i) the amount
allocated, transferred or repaid to the variable investment division by (ii)
the variable investment division's unit value for the business day when the
allocation, transfer or repayment is effected. The number of units credited to
a policy will decrease when:
(a) the allocated portion of the monthly deduction is taken from the
variable investment division;
(b) a policy loan is taken from the variable investment division;
(c) an amount is transferred from the variable investment division; or
(d) a partial surrender is taken from the variable investment division.
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The number of the variable investment division's units may also decrease if the
policy's face amount is decreased because a portion of the surrender charge
might be deducted.
A variable investment division's unit value is an index we use to measure
investment performance. Each variable investment division's unit value varies
to reflect the investment experience of its underlying portfolio, and may
increase or decrease from one business day to the next. Each variable
investment division's unit value was arbitrarily set at $1.00 when the variable
investment division was established. The unit value is determined on each
business day by multiplying the unit value for the variable investment division
on the prior business day by the variable investment division's net investment
factor for the current business day.
Net Investment Factor. The net investment factor is an index used to measure
the investment performance of a variable investment division from one business
day to the next. The net investment factor for any variable investment division
for any business day is determined by dividing (a) by (b) and subtracting (c)
from the result, where:
(a) is:
(1) the net asset value per share of the portfolio shares held in the
variable investment division determined at the end of the current
business day; plus
(2) the per share amount of any dividend or capital gain distributions
on the portfolio shares held in the variable investment division, if
the "ex-dividend" date occurs during the current business day; plus
or minus
(3) a charge or credit for any taxes reserved for the current business
day which we determine to have resulted from the investment
operations of the variable investment division;
(b) is:
(1) the net asset value per share of the portfolio shares held in the
variable investment division, determined at the end of the last
prior business day; plus or minus
(2) the charge or credit for any taxes reserved for the last prior
business day; and
(c) is a deduction for the current mortality and expense risk charge.
Fixed Account Value
On the policy's effective date, the fixed account value is equal to:
(a) the initial net premium allocated to the fixed account; plus
(b) any accrued interest from the date of receipt of the premium to the
policy's effective date; minus
(c) 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:
(a) the fixed account value on the preceding monthly anniversary; plus
(b) the sum of all net premiums allocated to the fixed account since the
previous monthly anniversary; plus
(c) the sum of all policy loan repayments allocated to the fixed account
since the previous monthly anniversary; plus
(d) total interest credited to the fixed account since the previous monthly
anniversary; plus
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(e) the amount of any transfers from the variable investment divisions to
the fixed account, including amounts transferred to secure policy
loans, since the previous monthly anniversary; minus
(f) the amount of any transfers from the fixed account to the variable
investment divisions since the previous monthly anniversary; minus
(g) 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
(h) the portion of the monthly deduction allocated to the fixed account
since the previous monthly anniversary.
Death Benefits
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If the insured dies while the policy is in force and prior to the policy's
maturity date, we will pay the death benefit when we receive satisfactory proof
at our administrative office of the insured's death. (See "Requesting
Payments.") The death benefit will be paid to the beneficiary.
Amount of Death Benefit Payable
The amount of death benefit payable is:
(a) the amount of insurance determined under the death benefit option in
effect on the date of the insured's death; plus
(b) any supplemental benefits provided by riders; minus
(c) any loan balance on that date; minus
(d) any past due monthly deductions (if death occurred during a grace
period).
Under certain circumstances, the amount of the death benefit may be further
adjusted. (See "Incontestability" and "Misstatement of Age or Sex.")
Death Benefit Options
The amount of insurance depends on the death benefit option in effect on the
date of death.
Death Benefit Option A. The death benefit (amount of insurance) under option
A 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 A, the death benefit ordinarily will not change.
Death Benefit Option B. The death benefit under option B 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.
Under option B, the death benefit will vary directly with your policy value.
(To see how and when investment performance of the policy may begin to affect
the death benefit, please see the hypothetical illustrations.)
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Death Benefit Factors. The death benefit factor is a multiple that ranges
between two-and-one-half times and one times the policy value. It is 2.50 up to
the insured's attained age 40 and declines thereafter as the insured's age
increases, as specified in the following table.
<TABLE>
<CAPTION>
Attained Attained Attained Attained
Age Factor Age Factor Age Factor Age Factor
-------- ------ -------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
41 2.43 51 1.78 61 1.28 71 1.13
42 2.36 52 1.71 62 1.26 72 1.11
43 2.29 53 1.64 63 1.24 73 1.09
44 2.22 54 1.57 64 1.22 74 1.07
45 2.15 55 1.50 65 1.20 75-90 1.05
46 2.09 56 1.46 66 1.19 91 1.04
47 2.03 57 1.42 67 1.18 92 1.03
48 1.97 58 1.38 68 1.17 93 1.02
49 1.91 59 1.34 69 1.16 94 1.01
50 1.85 60 1.30 70 1.15 95+ 1.00
</TABLE>
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.
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:
(a) each change must be submitted by written request received by our
administrative office;
(b) once you change the death benefit option, you cannot change it again
for one year;
(c) if you change the death benefit option from A to B, the total death
benefit will remain the same, and the policy's face amount will be
decreased by an amount equal to the policy value on the date of the
change;
(d) if you change the death benefit option from B to 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, so you should consult a tax advisor before making a change. (See
"Tax Considerations.")
Changing the Face Amount
You select the policy's face amount when you apply for the policy. After the
policy has been in force at least one year, you may change the face amount on
any monthly anniversary subject to the following requirements. The minimum face
amount after the first policy year is $50,000. Once you change the face amount,
you cannot change it again for one year. No change will be permitted that may
disqualify your policy as a life insurance contract under the Internal Revenue
Code. Changing the face amount of the policy may have tax consequences, so you
should consult a tax advisor before making a change. (See "Tax Considerations"
below.)
Increasing the Face Amount. To increase the policy's face amount, you must:
(a) submit an application for the increase;
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(b) submit proof satisfactory to us that the insured is an insurable risk;
and
(c) pay any additional premium that is required.
The face amount cannot be increased after the insured's attained 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 policy's initial face amount or any
other face amount increase. 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 for 16 years following
the increase. If the face amount is increased, the cost of insurance will also
increase due to the increased death benefit.
Decreasing the Face Amount. You may decrease the policy's 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:
(a) the monthly anniversary on or following the day we receive the request;
or
(b) 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 policy's initial face amount.
We will deduct a charge from the policy value each time the policy's face
amount is decreased. The amount of this charge is the lesser of:
(a) the reduction percentage multiplied by the surrender charge for each
face amount portion reduced; or
(b) 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 policy's death benefit in the following
respects:
(a) If death benefit option A is in effect, the policy's face amount will
be reduced by the partial surrender amount. If the face amount reflects
increases in the policy's 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 policy's
initial face amount.
(b) If death benefit option B is in effect, the total death benefit is also
reduced by the partial surrender amount, but the policy's face amount
is not affected.
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Beneficiary
You designate the beneficiary (or beneficiaries) when you apply for the
policy. You may change the designated beneficiary (or beneficiaries) 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 no beneficiary is living at the
insured's death, we will pay the death benefit proceeds to you, if living, or
to your estate.
Tax Considerations
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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 our
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 certain elections under the policy. 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 certain elections under the policy. For complete information on
such Federal and state tax considerations, a qualified tax advisor should be
consulted. We do 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
In order to qualify as a life insurance contract for Federal income tax
purposes and to receive the tax treatment normally accorded life insurance
contracts under Federal tax law, a policy must satisfy certain requirements
which are set forth in the Internal Revenue Code. Guidance as to how these
requirements are to be applied is limited. Nevertheless, we believe that the
policies should satisfy the applicable requirements. There is less guidance,
however, with respect to policies issued on a substandard basis and it is not
clear whether such policies will in all cases satisfy the applicable
requirements. If it is subsequently determined that a policy does not satisfy
the applicable requirements, we may take appropriate steps to bring the policy
into compliance with such requirements and we reserve the right to restrict
policy transactions in order to do so.
In certain circumstances, owners of variable life insurance contracts have
been considered for Federal income tax purposes to be the owners of the assets
of the variable account supporting their contracts due to their ability to
exercise investment control over those assets. Where this is the case, the
contract owners have been currently taxed on income and gains attributable to
variable account assets. There is little guidance in this area, and some
features of the policies, such as the flexibility of a policy owner to allocate
premium payments and policy values, have not been explicitly addressed in
published rulings. While we believe that the policies do not give policy owners
investment control over Variable Account assets, we reserve the right to modify
the policies as necessary to prevent a policy owner from being treated as the
owner of the Variable Account assets supporting the policy.
In addition, the Code requires that the investments of the Variable Account
be "adequately diversified" in order for the policies to be treated as life
insurance contracts for Federal income tax purposes. It is intended that the
Variable Account, through Target/United Funds, Inc. will satisfy these
diversification requirements.
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The following discussion assumes that the policy will qualify as a life
insurance contract for Federal income tax purposes.
Tax Treatment of Policy Benefits
In General. We believe that the death benefit under a policy should be
excludable from the gross income of the beneficiary. Federal, state and local
transfer, and other tax consequences of ownership or receipt of policy proceeds
depend on the circumstances of each policy owner or beneficiary. A tax advisor
should be consulted on these consequences.
Generally, the policy owner will not be deemed to be in constructive receipt
of the policy value until there is a distribution. When distributions from a
policy occur, or when loans are taken out from or secured by a policy, the tax
consequences depend on whether the policy is classified as a "Modified
Endowment Contract."
Modified Endowment Contracts. Under the Internal Revenue Code, certain life
insurance contracts are classified as "modified endowment contracts," with less
favorable tax treatment than other life insurance contracts. Due to the
flexibility of the policies as to premiums and benefits, the individual
circumstances of each policy will determine whether it is classified as a
modified endowment contract. The rules are too complex to be summarized here,
but generally depend on the amount of premiums paid during the first seven
policy years. Certain changes in a policy after it is issued could also cause
it to be classified as a modified endowment contract. Under our current
procedures, the policy 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. A current or
prospective policy owner should consult with a competent advisor to determine
whether a policy transaction will cause the policy to be classified as a
modified endowment contract.
Distributions Other than Death Benefits from Policies Classified as Modified
Endowment Contracts. Policies classified as modified endowment contracts will
be subject to the following tax rules:
(1) 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 policy value immediately before the distribution over the
"investment in the policy" (described below) at such time.
(2) 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.
(3) 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:
(a) is made on or after the policy owner reaches actual age 59 1/2,
(b) is attributable to the policy owner's becoming disabled, or
(c) is part of a series of substantially equal periodic payments for
the life (or life expectancy) of the policy owner or the joint
lives (or joint life expectancies) of the policy owner and the
policy owner's beneficiary.
If a policy becomes a modified endowment contract, distributions that occur
during the contract 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.
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Distributions Other than Death Benefits from Policies that Are Not Modified
Endowment Contracts. Distributions other than death benefits from a policy that
is not classified as a modified endowment contract are generally treated first
as a recovery of the policy owner's investment in the policy and only after the
recovery of all investment in the policy as taxable income. However, certain
distributions which must be made in order to enable the policy to continue to
qualify as a life insurance contract for Federal income tax purposes if policy
benefits are reduced during the first 15 policy years may be treated in whole
or in part as ordinary income subject to tax.
Loans from or secured by a policy that is not a modified endowment contract
are generally not treated as distributions. However, the tax consequences
associated with preferred loans are less clear and a tax advisor should be
consulted about such loans.
Finally, neither distributions from nor loans from or secured by a policy
that is not a modified endowment contract are subject to the 10 percent
additional income tax.
Policy Loan. Interest paid on a policy loan generally is not tax-deductible.
The policy owner should consult a competent tax advisor if the deductibility of
interest paid on a policy loan is an important issue.
If a policy loan is outstanding when a policy is surrendered or lapses, the
amount of the outstanding indebtedness will be added to the amount distributed
and will be taxed accordingly.
Investment in the Policy. Your investment in the policy is generally your
aggregate premiums. When a distribution is taken from the policy, your
investment in the policy is reduced by the amount of the distribution that is
tax-free.
Multiple Policies. All modified endowment contracts that are issued by us
(or our affiliates) to the same policy owner during any calendar year are
treated as one modified endowment contract for purposes of determining the
amount includable in gross income.
Accelerated Death Benefit Rider. We believe that payments received under the
accelerated death benefit rider should be fully excludable from the gross
income of the beneficiary if the beneficiary is the insured under the policy.
(See "Accelerated Death Benefit Rider" for more information regarding the
rider.) However, you should consult a qualified tax advisor about the
consequences of adding this rider to a policy or requesting payment under this
rider.
Other Policy Owner Tax Matters. The tax consequences of continuing the
policy beyond the insured's 100th year are unclear. You should consult a tax
advisor if you intend to keep the policy in force beyond the insured's 100th
year.
Businesses can use the policies in various arrangements, including
nonqualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, tax exempt and nonexempt welfare
benefit plans, retiree medical benefit plans and others. The tax consequences
of such plans may vary depending on the particular facts and circumstances. If
you are purchasing the policy for any arrangement the value of which depends in
part on its tax consequences, you should consult a qualified tax advisor. In
recent years, moreover, Congress has adopted new rules relating to life
insurance owned by businesses. Any business contemplating the purchase of a new
policy or a change in an existing policy should consult a tax advisor.
The transfer of the policy or designation of a beneficiary may have Federal,
state, and/or local transfer and inheritance tax consequences, including the
imposition of gift, estate, and generation-skipping transfer taxes. For
example, the transfer of the policy to, or the designation as a beneficiary of,
or the payment of proceeds to, a person who is assigned to a generation which
is two or more generations below the generation assignment of the owner may
have generation skipping transfer tax consequences under Federal tax law. The
individual situation of each owner or beneficiary will determine the extent, if
any, to which Federal, state, and local
26
<PAGE>
transfer and inheritance taxes may be imposed and how ownership or receipt of
policy proceeds will be treated for purposes of Federal, state and local
estate, inheritance, generation skipping and other taxes.
Possible Tax Law Changes. Although the likelihood of legislative changes is
uncertain, there is always the possibility that the tax treatment of the policy
could change by legislation or otherwise. Consult a tax advisor with respect to
legal developments and their effect on the policy.
Taxation of United Investors
We incur state and local premium taxes, and Federal income taxes resulting
from the treatment of deferred acquisition costs. The amount of the charge we
deduct for such taxes is discussed above under "Charges and Deductions." At the
present time, we make no charge to the Variable Account for any other Federal,
state or local taxes that it incurs which may be attributable to the Variable
Account or to the policies. Nevertheless, we reserve 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 we determine to be properly attributable to
the Variable Account or to the policies.
Employment-Related Benefit Plans
On July 6, 1983, the Supreme Court held in Arizona Governing Committee v.
Norris that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII 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.
Other Information
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United Investors Life Insurance Company
We were incorporated in the State of Missouri on August 17, 1981, as the
successor to a company of the same name established in Missouri on September
27, 1961. We are a stock life insurance company, indirectly owned by Torchmark
Corporation. Our principal business is selling life insurance and annuity
contracts. We are admitted to do business in the District of Columbia and all
states except New York.
Published Ratings. We may publish (in advertisements, sales literature, and
reports to policy owners) the ratings and other information assigned to us by
one or more independent insurance industry analysts or rating organizations
such as A. M. Best Company, Standard & Poor's Corporation, and Weiss Research,
Inc. These ratings reflect the organization's current opinion of an insurance
company's financial strength and operating performance in comparison to the
norms for the insurance industry; they do not reflect the strength,
performance, risk, or safety (or lack thereof) of the variable investment
divisions. The claims-paying ability rating as measured by Standard & Poor's is
an opinion of an operating insurance company's financial capacity to meet its
obligations under its outstanding insurance and annuity policies.
Sale of the Policies
Waddell & Reed, Inc. of 6300 Lamar, Overland Park, Kansas, is the principal
underwriter of the policies. 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
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commission plus bonus compensation may be paid to broker-dealers or agents in
connection with sales of the policies.
Changing the Variable Account
We have the right to make changes to, and to modify how we operate, the
Variable Account. Specifically, we have the right to:
(a) add investment divisions to, or remove investment divisions from, the
Variable Account;
(b) combine the Variable Account with other separate accounts;
(c) replace the shares of a portfolio by substituting shares of another
portfolio of Target/United Funds, Inc. or another investment company
(1) if shares of the portfolio are no longer available for investment,
or
(2) if, in our judgment, continued investment in the portfolio is
inappropriate in view of the purposes of the Variable Account;
(d) end the registration of the Variable Account under the 1940 Act;
(e) disregard instructions from policy owners (only if required by state
insurance regulatory authorities or otherwise pursuant to insurance law
or regulation) regarding a change in the investment objectives of a
portfolio or the approval or disapproval of an investment advisory
agreement; and
(f) operate the Variable Account or one or more of its investment divisions
in any other form allowed by law, including a form that permits direct
investments in individual securities (rather than solely investments in
a mutual fund shares).
Voting of Portfolio Shares
We are the legal owner of portfolio shares held in the investment divisions
of the Variable Account and therefore have the right to vote on all matters
submitted to shareholders of the portfolios. However, to the extent required by
law, we will vote shares held in the variable investment divisions at meetings
of the shareholders of the portfolios in accordance with instructions received
from policy owners. Target/United Funds, Inc. does not hold regular annual
shareholder meetings. To obtain voting instructions from policy owners before a
meeting of shareholders of a particular portfolio, we may send voting
instruction material, a voting instruction form and any other related material
to policy owners with policy value in the variable investment division
corresponding to that portfolio. We will vote shares held in a variable
investment division for which no timely instructions are received in the same
proportion as those shares for which voting instructions are received. If the
applicable Federal securities laws, regulations or interpretations thereof
change to permit us to vote shares of the portfolios in our own right, then we
may elect to do so. We may, if required by state insurance officials, disregard
policy owners' voting instructions if such instructions would require us to
vote the shares 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, we may under certain circumstances
disregard voting instructions that would require changes in the investment
policy or investment adviser of a portfolio, provided that we reasonably
disapprove of such changes in accordance with applicable Federal regulations.
If we ever disregard voting instructions, policy owners will be advised of that
action and of our reasons for doing so in our next report to policy owners.
Addition, Deletion, or Substitution of Investments
We reserve the right, subject to compliance with applicable law, to make
additions to, deletions from, or substitutions for the shares of Target/United
Funds, Inc. that are held by the Variable Account (or any of its
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investment divisions) or that the Variable Account (or any of its investment
divisions) may purchase. We reserve the right to eliminate the shares of any of
the portfolios of Target/United Funds, Inc. and to substitute shares of another
portfolio of Target/United Funds, Inc. or any other investment vehicle or of
another open-end, registered investment company if:
(a) laws or regulations are changed;
(b) the shares of Target/United Funds, Inc. or one of its portfolios are no
longer available for investment, or;
(c) in our judgment, further investment in any portfolio becomes
inappropriate in view of the purposes of the investment division.
We will not substitute any shares attributable to your interest in an
investment division of the Variable Account without notice and prior approval
of the U.S. Securities and Exchange Commission and the insurance regulator of
the state where the policy was delivered, if required. Nevertheless, the
representations in this prospectus will not prevent the Variable Account from
purchasing other securities for other series or classes of policies, or from
permitting a conversion between series or classes of policies on the basis of
requests made by policy owners.
We also reserve the right to establish additional investment divisions of
the Variable Account, each of which would invest in a new portfolio of
Target/United Funds, Inc., or in shares of another investment company or
suitable investment, with a specified investment objective. We may establish
new variable investment divisions when, in our sole discretion, marketing needs
or investment conditions warrant. We may make available any new variable
investment divisions to existing policy owners, and will do so on a basis that
we will determine. We may also eliminate one or more variable investment
divisions if, in our sole discretion, marketing, tax, or investment conditions
warrant.
In the event of any such substitution or change, we may, by appropriate
endorsement, make such changes in this and other policies as may be necessary
or appropriate to reflect such substitution or change. If we deem it to be in
the best interests of persons having voting rights under the policies, the
Variable Account may be:
(a) operated as a management company under the Investment Company Act of
1940;
(b) deregistered under that Act in the event such registration is no longer
required; or
(c) combined with other United Investors separate accounts.
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. That 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.
Legal Matters
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.
29
<PAGE>
Experts
The balance sheet of United Investors Life Insurance Company as of December
31, 1999 and the related statement of operations, comprehensive income,
shareholders' equity and cash flow for the year ended December 31, 1999 and the
balance sheet of United Investors Universal Life Variable Account as of
December 31, 1999 and the related statement of operations and changes in net
assets for the year ended December 31, 1999 included in this prospectus have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports appearing herein and elsewhere in the registration statement, and are
included in reliance upon the reports of such firm given upon their authority
as experts in accounting and auditing.
The balance sheet of United Investors Life Insurance Company as of December
31, 1998, and the related statements of operations, comprehensive income,
shareholders' equity, and cash flows for each of the years in the two-year
period ended December 31, 1998, and the statement of operations and changes in
net assets of United Investors Universal Life Variable Account for each of the
years in the two-year period ended December 31, 1998, have been included herein
in reliance upon the report of KPMG LLP (formerly 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
Our financial statements which are included in Appendix E to this prospectus
should be considered only as bearing on our ability to meet our obligations
under the policies. They should not be considered as bearing on the investment
performance of the assets held in the Variable Account.
30
<PAGE>
Appendix A:
Surrender Charges Per $1,000 of Face Amount
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Issue Year Year Year Year Year Year Year Year Year Year Year Year
Age 1-6 7 8 9 10 11 12 13 14 15 16 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 1.05 0.00
- ---------------------------------------------------------------------------------
56-
60 13.75 12.50 11.25 10.00 8.75 7.50 6.25 5.00 3.75 2.50 1.25 0.00
- ---------------------------------------------------------------------------------
61-
65 16.75 15.23 13.70 12.18 10.66 9.14 7.61 6.09 4.57 3.05 1.52 0.00
- ---------------------------------------------------------------------------------
66-
70 20.75 18.86 16.98 15.09 13.20 11.32 9.43 7.55 5.66 3.77 1.89 0.00
- ---------------------------------------------------------------------------------
71-
75 26.00 23.64 21.27 18.91 16.55 14.18 11.62 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.
31
<PAGE>
Appendix B:
Hypothetical Illustrations and Performance Information
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 age on the
policy's effective date, would vary over time if planned premiums were paid
annually and the return on the assets in the variable investment divisions were
a uniform gross annual rate of 0%, 6% or 12%, before deduction of any fees and
charges, including portfolio expenses. 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 0.75% 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 0.24%, under
the service plan beginning August 31, 1998. For information on portfolio
expenses, see the Target/United Funds, Inc. prospectus accompanying this
prospectus.
The current illustrations also reflect the 0.90% mortality and expense risk
charge to the Variable Account during the first ten policy years, and 0.70%
thereafter. The guaranteed illustrations reflect the 0.90% maximum mortality
and expense risk 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 variable
investment divisions of -1.89%, 4.11% and 10.11%, respectively, in policy years
1 through 10 and -1.69%, 4.31% and 10.31%, 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
deduct from your policy value 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.
32
<PAGE>
MALE ISSUE AGE 45, PREFERRED NON-TOBACCO
$2,500 ANNUAL PREMIUM
$150,000 FACE AMOUNT, OPTION A
CURRENT CHARGES
<TABLE>
<CAPTION>
NET CASH
DEATH BENEFITS POLICY VALUES SURRENDER VALUES
-------------------------- ------------------------- -------------------------
Assuming Hypothetical Gross Annual Rate of Return of:
End of PREMIUMS
Policy + Interest at
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 $150,000 $150,000 $150,000 $ 1,953 $ 2,084 $ 2,216 $ 641 $ 772 $ 904
2 5,381 150,000 150,000 150,000 3,790 4,174 4,573 2,478 2,861 3,261
3 8,275 150,000 150,000 150,000 5,546 6,301 7,121 4,233 4,989 5,809
4 11,314 150,000 150,000 150,000 7,252 8,501 9,913 5,939 7,189 8,600
5 14,505 150,000 150,000 150,000 8,915 10,782 12,980 7,602 9,470 11,667
6 17,855 150,000 150,000 150,000 10,542 13,156 16,359 9,350 11,963 15,167
7 21,373 150,000 150,000 150,000 12,120 15,611 20,069 11,046 14,537 18,995
8 25,066 150,000 150,000 150,000 13,648 18,150 24,142 12,694 17,196 23,188
9 28,945 150,000 150,000 150,000 15,144 20,796 28,638 14,309 19,960 27,802
10 33,017 150,000 150,000 150,000 16,602 23,545 33,592 15,886 22,829 32,876
15 56,644 150,000 150,000 150,000 23,356 39,204 67,610 23,236 39,084 67,490
20 86,798 150,000 150,000 150,486 27,655 57,105 123,350 27,655 57,105 123,350
25 125,284 150,000 150,000 249,256 28,571 77,689 214,876 28,571 77,689 214,876
30 174,402 150,000 150,000 388,073 23,920 101,856 362,685 23,920 101,856 362,685
</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 rates of return may be more or less than those shown
and will depend on a number of factors, including the allocations made by a
policy owner to one or more variable investment divisions and the investment
experience of the portfolios underlying those variable investment divisions.
The death benefit, policy value and net cash 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 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
us, 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.
33
<PAGE>
MALE ISSUE AGE 45, PREFERRED NON-TOBACCO
$2,500 ANNUAL PREMIUM
$150,000 FACE AMOUNT, OPTION A
GUARANTEED CHARGES
<TABLE>
<CAPTION>
NET CASH
DEATH BENEFITS POLICY VALUES SURRENDER VALUES
-------------------------- ------------------------ ------------------------
Assuming Hypothetical Gross Annual Rate of Return of:
End of PREMIUMS
Policy + Interest at
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 $150,000 $150,000 $150,000 $ 1,756 $ 1,881 $ 2,006 $ 443 $ 568 $ 694
2 5,381 150,000 150,000 150,000 3,444 3,804 4,180 2,131 2,491 2,867
3 8,275 150,000 150,000 150,000 5,063 5,769 6,537 3,751 4,457 5,224
4 11,314 150,000 150,000 150,000 6,612 7,776 9,093 5,299 6,463 7,781
5 14,505 150,000 150,000 150,000 8,087 9,822 11,868 6,774 8,510 10,555
6 17,855 150,000 150,000 150,000 9,484 11,905 14,879 8,292 10,712 13,686
7 21,373 150,000 150,000 150,000 10,797 14,019 18,145 9,723 12,945 17,071
8 25,066 150,000 150,000 150,000 12,019 16,158 21,688 11,065 15,204 20,734
9 28,945 150,000 150,000 150,000 13,142 18,315 25,532 12,306 17,479 24,696
10 33,017 150,000 150,000 150,000 14,157 20,484 29,704 13,442 19,768 28,989
15 56,644 150,000 150,000 150,000 17,376 31,301 56,852 17,256 31,181 56,732
20 86,798 150,000 150,000 150,000 16,277 41,122 100,045 16,277 41,122 100,045
25 125,284 150,000 150,000 200,029 7,746 47,652 172,439 7,746 47,652 172,439
30 174,402 * 150,000 308,163 * 45,707 288,002 * 45,707 288,002
</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 rates of return may be more or less than those shown
and will depend on a number of factors, including the allocations made by a
policy owner to one or more variable investment divisions and the investment
experience of the portfolios underlying those variable investment divisions.
The death benefit, policy value and net cash 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 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
us, 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.
* In this situation, the policy would lapse without value.
34
<PAGE>
Performance Information
The following hypothetical illustrations demonstrate how the actual
investment experience of each variable investment division could have affected
the cash surrender value, policy value and death benefit of a policy. These
hypothetical illustrations are based on the actual historical return of each
portfolio as if a policy had been issued on the date indicated. Each
portfolio's annual total return is based on the total return calculated for
each fiscal year. These annual total return figures reflect the portfolio's
management fees and other operating expenses but do not reflect the policy
level or variable account asset based charges and deductions, which if
reflected, would result in lower total return figures than those shown.
The illustrations are based on the payment of a $2,500 annual premium, paid
at the beginning of each year, for a hypothetical policy with a $150,000 face
amount, death benefit option A; issued to a preferred, nonsmoker male, age 45.
In each case, it is assumed that all premiums are allocated to the variable
investment division illustrated for the period shown. The benefits are
calculated for a specific date. The amount and timing of premium payments and
the use of other policy features, such as policy loans, would affect individual
policy benefits.
The amounts shown for the cash surrender values, policy values and death
benefits take into account the charges against premiums, current and guaranteed
cost of insurance and monthly deductions, the daily charge against the variable
account for mortality and expense risks, and each portfolio's charges and
expenses. (See "Charges and Deductions".) The amounts shown assume there are no
partial surrenders, no policy loans, and no riders.
HYPOTHETICAL ILLUSTRATIONS
Preferred Non-Tobacco Male, Age 45 Death Benefit Option A
Stated Death Benefit $150,000 Annual Premium $2,500
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Asset Strategy Portfolio
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year- Annual ------------------- ------------------ --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/96 6.05% $150,000 $150,000 $ 2,107 $ 1,903 $ 795 $ 590
12/31/97 14.01% 150,000 150,000 4,581 4,185 3,268 2,872
12/31/98 9.95% 150,000 150,000 7,059 6,476 5,746 5,163
12/31/99 22.96% 150,000 150,000 10,943 10,045 9,630 8,733
Balanced Portfolio
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------ --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/95 24.19% $150,000 $150,000 $ 2,506 $ 2,283 $ 1,193 $ 970
12/31/96 11.19% 150,000 150,000 4,902 4,493 3,589 3,181
12/31/97 18.49% 150,000 150,000 8,011 7,374 6,699 6,061
12/31/98 8.67% 150,000 150,000 10,658 9,798 9,346 8,486
12/31/99 10.14% 150,000 150,000 13,692 12,545 12,380 11,232
</TABLE>
* These annual total return figures reflect the portfolio's management fees
and other operating expenses but do not reflect the policy level or variable
account asset-based charges and deductions which, if reflected, would result
in lower total return figures than those shown.
35
<PAGE>
HYPOTHETICAL ILLUSTRATIONS
Preferred Non-Tobacco Male, Age 45 Death Benefit Option A
Stated Death Benefit $150,000 Annual Premium $2,500
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Bond Portfolio
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------ --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/90 7.03% $150,000 $150,000 $ 2,129 $ 1,923 $ 816 $ 610
12/31/91 16.19% 150,000 150,000 4,699 4,295 3,386 2,983
12/31/92 7.67% 150,000 150,000 7,032 6,452 5,719 5,139
12/31/93 12.37% 150,000 150,000 9,939 9,115 8,626 7,802
12/31/94 -5.90% 150,000 150,000 10,968 10,008 9,655 8,695
12/31/95 20.56% 150,000 150,000 15,388 13,969 14,195 12,776
12/31/96 3.43% 150,000 150,000 17,666 15,927 16,592 14,853
12/31/97 9.77% 150,000 150,000 21,241 19,009 20,287 18,055
12/31/98 7.35% 150,000 150,000 24,574 21,794 23,738 20,959
12/31/99 -1.44% 150,000 150,000 25,772 22,603 25,056 21,888
Growth Portfolio
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------ --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/90 -5.34% $150,000 $150,000 $ 1,858 $ 1,666 $ 546 $ 353
12/31/91 36.10% 150,000 150,000 5,187 4,745 3,875 3,432
12/31/92 20.84% 150,000 150,000 8,520 7,831 7,208 6,519
12/31/93 14.02% 150,000 150,000 11,779 10,822 10,467 9,510
12/31/94 2.39% 150,000 150,000 13,842 12,672 12,530 11,360
12/31/95 38.57% 150,000 150,000 21,722 19,825 20,529 18,632
12/31/96 12.40% 150,000 150,000 26,328 23,926 25,254 22,852
12/31/97 21.45% 150,000 150,000 34,038 30,804 33,084 29,850
12/31/98 27.31% 150,000 150,000 45,485 40,993 44,650 40,158
12/31/99 34.35% 150,000 150,000 63,363 56,916 62,647 56,201
High Income Portfolio
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------ --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/90 -7.44% $150,000 $150,000 $ 1,812 $ 1,622 $ 500 $ 309
12/31/91 34.19% 150,000 150,000 5,049 4,615 3,736 3,302
12/31/92 15.70% 150,000 150,000 7,984 7,331 6,671 6,018
12/31/93 17.90% 150,000 150,000 11,564 10,618 10,251 9,306
12/31/94 -2.55% 150,000 150,000 12,946 11,839 11,634 10,527
12/31/95 18.19% 150,000 150,000 17,406 15,843 16,213 14,650
12/31/96 12.46% 150,000 150,000 21,509 19,472 20,435 18,398
12/31/97 14.04% 150,000 150,000 26,451 23,809 25,497 22,855
12/31/98 1.95% 150,000 150,000 28,598 25,545 27,762 24,710
12/31/99 4.22% 150,000 150,000 31,459 27,850 30,743 27,135
</TABLE>
* These annual total return figures reflect the portfolio's management fees
and other operating expenses but do not reflect the policy level or variable
account asset-based charges and deductions which, if reflected, would result
in lower total return figures than those shown.
36
<PAGE>
HYPOTHETICAL ILLUSTRATIONS
Preferred Non-Tobacco Male, Age 45 Death Benefit Option A
Stated Death Benefit $150,000 Annual Premium $2,500
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Income Portfolio
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------ --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/92 13.78% $150,000 $150,000 $ 2,277 $ 2,064 $ 964 $ 752
12/31/93 17.30% 150,000 150,000 4,919 4,505 3,607 3,192
12/31/94 -1.14% 150,000 150,000 6,647 6,098 5,334 4,786
12/31/95 31.56% 150,000 150,000 11,195 10,284 9,882 8,972
12/31/96 19.75% 150,000 150,000 15,562 14,264 14,250 12,951
12/31/97 26.16% 150,000 150,000 21,898 20,001 20,705 18,808
12/31/98 21.14% 150,000 150,000 28,628 26,050 27,554 24,976
12/31/99 12.52% 150,000 150,000 34,070 30,871 33,116 29,917
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
International Portfolio
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------ --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/95 7.28% $150,000 $150,000 $ 2,134 $ 1,928 $ 822 $ 616
12/31/96 15.11% 150,000 150,000 4,659 4,258 3,346 2,945
12/31/97 16.70% 150,000 150,000 7,603 6,983 6,290 5,670
12/31/98 33.89% 150,000 150,000 12,675 11,656 11,363 10,344
12/31/99 65.58% 150,000 150,000 24,131 22,197 22,819 20,884
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Limited Term Bond Portfolio
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------ ---------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/95 14.29% $150,000 $150,000 $ 2,288 $2,075 $ 976 $ 762
12/31/96 3.79% 150,000 150,000 4,332 3,956 3,019 2,644
12/31/97 6.85% 150,000 150,000 6,586 6,039 5,273 4,726
12/31/98 6.66% 150,000 150,000 8,942 8,191 7,630 6,879
12/31/99 1.74% 150,000 150,000 10,881 9,923 9,568 8,610
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Money Market Portfolio
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------ --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/90 7.82% $150,000 $150,000 $ 2,146 $ 1,939 $ 834 $ 627
12/31/91 5.49% 150,000 150,000 4,258 3,884 2,946 2,572
12/31/92 3.29% 150,000 150,000 6,280 5,751 4,968 4,439
12/31/93 2.63% 150,000 150,000 8,279 7,572 6,966 6,259
12/31/94 3.72% 150,000 150,000 10,416 9,485 9,103 8,172
12/31/95 5.56% 150,000 150,000 12,842 11,615 11,649 10,422
12/31/96 5.01% 150,000 150,000 15,283 13,715 14,209 12,641
12/31/97 5.13% 150,000 150,000 17,828 15,859 16,874 14,905
12/31/98 5.04% 150,000 150,000 20,465 18,007 19,630 17,171
12/31/99 4.62% 150,000 150,000 23,111 20,083 22,396 19,367
</TABLE>
* These annual total return figures reflect the portfolio's management fees
and other operating expenses but do not reflect the policy level or variable
account asset-based charges and deductions which, if reflected, would result
in lower total return figures than those shown.
37
<PAGE>
HYPOTHETICAL ILLUSTRATIONS
Preferred Non-Tobacco Male, Age 45 Death Benefit Option A
Stated Death Benefit $150,000 Annual Premium $2,500
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Science and Technology Portfolio
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------ --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/98 46.05% $150,000 $150,000 $ 2,988 $ 2,744 $ 1,676 $ 1,431
12/31/99 174.66% 150,000 150,000 13,910 12,967 12,597 11,655
Small Cap Portfolio
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------ --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/95 32.32% $150,000 $150,000 $ 2,685 $ 2,454 $ 1,373 $ 1,141
12/31/96 8.50% 150,000 150,000 4,970 4,561 3,657 3,248
12/31/97 31.53% 150,000 150,000 9,020 8,319 7,707 7,007
12/31/98 10.87% 150,000 150,000 11,995 11,050 10,682 9,738
12/31/99 52.23% 150,000 150,000 21,114 19,439 19,802 18,127
</TABLE>
* These annual total return figures reflect the portfolio's management fees
and other operating expenses but do not reflect the policy level or variable
account asset-based charges and deductions which, if reflected, would result
in lower total return figures than those shown.
38
<PAGE>
Appendix C:
Directors and Officers of United Investors
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
We are managed by a board of directors. The following table sets forth the
name and principal occupations during the past five years of each of our
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 Investors since November
Director, Vice President 1992.
and Chief Actuary
- -----------------------------------------------------------------------------------------------
Tony G. Brill* Executive Vice President and Chief Administrative Officer of
Director and Executive Torchmark Corporation since September 1999. Executive Vice
Vice President-- President--Administration of United Investors since September 1998.
Administration Senior Vice President of United Investors, March 1998-September
1998. Senior Vice President of Torchmark Corporation, January 1997-
September 1999. Managing Partner of KPMG LLP, Birmingham, Alabama
Office, 1984-December 1996.
- -----------------------------------------------------------------------------------------------
Terry W. Davis Vice President--Administration of United Investors since January
Director and 1999 and Liberty National Life Insurance Company since December
Vice President-- 1996. Second Vice President--Administration of Liberty National
Administration Life Insurance Company since March 1988.
- -----------------------------------------------------------------------------------------------
C.B. Hudson* Chairman of the Board of Directors and Chief Executive Officer of
Director Torchmark Corporation since March 1998 and United Investors, March
1998-September 1999. Director of Liberty National Life Insurance
Company, United American Insurance Company, and Globe Life And
Accident Insurance Company since September 1999. Chairman of
Insurance Operations of Torchmark Corporation, January 1993-March
1998. Chairman of Liberty National Life Insurance Company, United
American Insurance Company, and Globe Life And Accident Insurance
Company, 1991-September 1999.
- -----------------------------------------------------------------------------------------------
Larry M. Hutchison* Executive Vice President and General Counsel of Torchmark
Director Corporation since September 1999. Vice President and General
Counsel of Torchmark, February 1997-September 1999. Vice President,
Secretary and General Counsel of United American Insurance Company
since 1992.
- -----------------------------------------------------------------------------------------------
Michael J. Klyce Vice President of Torchmark Corporation since January 1984.
Vice President and
Treasurer
- -----------------------------------------------------------------------------------------------
John H. Livingston Secretary and Counsel of United Investors since May 1995. Secretary
Director, Secretary and Associate Counsel of United Investors, December 1994-May 1995.
and Counsel Associate Counsel of United Investors, July 1990-December 1994.
Associate Counsel of Liberty National Life Insurance Company since
October, 1986.
- -----------------------------------------------------------------------------------------------
James L. Mayton, Jr. Vice President & Controller of Liberty National Life Insurance
Vice President and Company since January 1985.
Controller
- -----------------------------------------------------------------------------------------------
Mark S. McAndrew* Executive Vice President of Torchmark Corporation and Chairman of
Senior Vice President-- the Board and Chief Executive Officer of United American Insurance
Marketing Company and Globe Life And Accident Insurance Company since
September 1999. Senior Vice President--Marketing of United
Investors since March 1998. Director of Torchmark Corporation since
April 1998. President of United American Insurance Company and
Globe Life And Accident Insurance Company since 1991.
</TABLE>
*Principal business address: Torchmark Corporation, 3700 South Stonebridge,
McKinney, Texas 75070.
39
<PAGE>
<TABLE>
<CAPTION>
Name and Position with Principal Occupation
United Investors During the Past Five Years
- -----------------------------------------------------------------------------------------------
<S> <C>
Carol A. McCoy Secretary of Torchmark Corporation since February 1994. Associate
Director and Counsel of Torchmark Corporation since January 1985.
Assistant Secretary
- -----------------------------------------------------------------------------------------------
Anthony L. McWhorter Chairman of the Board of Directors and Chief Executive Officer of
Chairman of the Board of United Investors and Liberty National Life Insurance Company, and
Directors, President and Executive Vice President of Torchmark Corporation since September
Chief Executive Officer 1999. President of United Investors since September 1998. President
of Liberty National Life Insurance Company since December 1994.
Executive Vice President and Chief Actuary of Liberty National,
November 1993-December 1994. Senior Vice President and Chief
Actuary of Liberty National, September 1991-November 1993.
- -----------------------------------------------------------------------------------------------
Ross W. Stagner Vice President of United Investors since January 1992.
Director and
Vice President
</TABLE>
40
<PAGE>
Appendix D:
Glossary
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Attained Age The age of the insured on his or her last birthday at the beginning
of each policy year.
- -----------------------------------------------------------------------------------------------
Business Day Each day that the New York Stock Exchange and our administrative
office are open. Currently, the Friday after Thanksgiving and in
most years, December 24 (Christmas Eve day) and December 31 (New
Year's Eve day) are not Business Days.
- -----------------------------------------------------------------------------------------------
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 Option One of two options under the policy that is used to determine the
amount of the death benefit.
- -----------------------------------------------------------------------------------------------
Fixed Account A part of our general account. The general account consists of all
of our assets 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's effective date. If the
monthly anniversary falls on a date other than a business day, the
next following business day 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's effective date each year
that the policy remains in force. If the policy anniversary falls
on a date other than a business day, the next following business
day will be deemed the policy anniversary.
- -----------------------------------------------------------------------------------------------
Policy's Effective Date The date from which policy anniversaries and policy years are
determined. Your policy's effective date is shown in your policy.
- -----------------------------------------------------------------------------------------------
Policy Loan A request to borrow a portion of the net cash surrender value.
- -----------------------------------------------------------------------------------------------
Policy Month The first policy month starts on the policy's effective date.
Subsequent policy months start on each monthly anniversary.
- -----------------------------------------------------------------------------------------------
Policy Value The sum of the variable account value and the fixed account value.
- -----------------------------------------------------------------------------------------------
Variable Account Value The sum of the values of the variable investment divisions under
your policy.
- -----------------------------------------------------------------------------------------------
We, Us, or United United Investors Life Insurance Company.
Investors
- -----------------------------------------------------------------------------------------------
You and Your The policy owner.
</TABLE>
41
<PAGE>
Appendix E:
Financial Statements
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
United Investors Life Insurance Company
Birmingham, Alabama
We have audited the accompanying balance sheet of United Investors Life
Insurance Company as of December 31, 1999, and the related statements of
operations, comprehensive income, shareholders' equity, and cash flow for the
year then ended. These financial statements are the responsibility of
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, such 1999 financial statements present fairly, in all material
respects, the financial position of United Investors Life Insurance Company as
of December 31, 1999, and the results of its operations and its cash flow for
the year then ended in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
January 28, 2000
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
United Investors Life Insurance Company
Birmingham, Alabama
We have audited the accompanying balance sheet of United Investors Life
Insurance as of December 31, 1998 and the related statements of operations,
comprehensive income, shareholders' equity, and cash flows for each of the
years in the two-year period ended December 31, 1998. These financial
statements are the responsibility of United Investors Life Insurance 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 as of December 31, 1998, and the results of its operations
and cash flows for each of the years in the two-year period ended December 31,
1998, in conformity with generally accepted accounting principles.
KPMG LLP
Birmingham, Alabama
January 29, 1999
F-2
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
BALANCE SHEETS
(Dollar amounts in thousands except per share data)
<TABLE>
<CAPTION>
At December 31,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities-available for sale, at fair value
(cost: 1999--$613,003; 1998--$612,586)................ $ 587,346 $ 643,151
Preferred stock of affiliate (cost: 1999--$188,212:
1998--$188,212)....................................... 188,212 188,212
Equity securities at fair value (cost: 1999--$3,400;
1998--$0)............................................. 2,635 0
Policy loans........................................... 19,665 18,009
Short term investments................................. 11,796 12,680
---------- ----------
Total investments................................... 809,654 862,052
Cash.................................................... 5,842 11,426
Accrued investment income (includes amounts from
affiliates: 1999--$675; 1998--$582).................... 11,550 11,747
Receivables............................................. 3,033 3,113
Due from affiliate (includes funds withheld on
reinsurance: 1999--$275,374; 1998--$229,194)........... 329,365 278,458
Deferred acquisition costs.............................. 227,170 183,033
Value of insurance purchased............................ 26,101 30,600
Goodwill................................................ 28,519 29,465
Property and equipment.................................. 221 96
Other assets............................................ 3,076 1,786
Separate account assets................................. 3,413,675 2,425,262
---------- ----------
Total assets........................................ $4,858,206 $3,837,038
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Future policy benefits (includes reserves assumed from
affiliates: 1999--$287,376; 1998--$241,357)........... $ 824,785 $ 776,461
Unearned and advance premiums.......................... 2,804 2,822
Other policy benefits.................................. 6,790 6,973
---------- ----------
Total policy liabilities............................ 834,379 786,256
Accrued income taxes................................... 50,112 55,498
Other liabilities...................................... 10,247 2,174
Due to affiliates...................................... 602 8,268
Separate account liabilities........................... 3,413,675 2,425,262
---------- ----------
Total liabilities................................... 4,309,015 3,277,458
Shareholders' equity:
Common stock, par value $6 per share authorized, issued
and outstanding: 500,000 shares....................... 3,000 3,000
Additional paid in capital............................. 350,714 350,388
Accumulated other comprehensive income (loss).......... (12,258) 15,654
Retained earnings...................................... 207,735 190,538
---------- ----------
Total shareholders' equity.......................... 549,191 559,580
---------- ----------
Total liabilities and shareholders' equity.......... $4,858,206 $3,837,038
========== ==========
</TABLE>
See accompanying Notes to Financial Statements.
F-3
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Premium income................................... $ 73,718 $ 69,987 $ 68,723
Policy charges and fees.......................... 56,652 45,113 36,582
Net investment income (includes amounts from af-
filiates 1999--$16,532;
1998--$13,082; 1997--$2,863).................... 63,388 61,373 51,514
Realized investment gains (losses)............... (5,023) 9,401 (5,365)
Other income (includes amounts from affiliates:
1999--$17,058;
1998--$13,665; 1997--$11,876)................... 17,058 13,665 11,876
-------- -------- --------
Total revenue.................................. 205,793 199,539 163,330
Benefits and expenses:
Policy benefits:
Individual life................................. 51,595 63,689 57,954
Annuity......................................... 26,686 13,633 15,165
-------- -------- --------
Total policy benefits.......................... 78,281 77,322 73,119
Amortization of deferred acquisition costs....... 33,284 27,874 24,898
Commissions and premium taxes (includes amounts
to affiliates:
1999--$3,679; 1998--$1,013; 1997--$4,928)....... 5,897 5,580 6,251
Other operating expenses (includes amounts to af-
filiates: 1999--$3,176;
1998--$3,252; 1997--$3,217)..................... 7,022 6,579 5,470
-------- -------- --------
Total benefits and expenses.................... 124,484 117,355 109,738
Net operating income before income taxes.......... 81,309 82,184 53,592
Income taxes...................................... 23,112 25,567 18,843
-------- -------- --------
Net income..................................... $ 58,197 $ 56,617 $ 34,749
======== ======== ========
</TABLE>
See accompanying Notes to Financial Statements.
F-4
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF COMPREHENSIVE INCOME
(Dollar amounts in thousands)
<TABLE>
<S> <C> <C> <C>
<CAPTION>
Year Ended December 31,
-------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net income.......................................... $58,197 $56,617 $34,749
Other comprehensive income:
Unrealized investment gains (losses):
Unrealized investment gains (losses) on
securities:
Unrealized holding gains (losses) arising during
period......................................... (61,690) 7,021 13,362
Reclassification adjustment for (gains) losses
on securities included in net income ........... 5,023 (1) 5,235
Reclassification adjustment for amortization of
(discount) and premium.......................... 446 502 744
------- ------- -------
(56,221) 7,522 19,341
Unrealized gains (losses) on other investments... (763) (6,330) 1,798
Unrealized gains (losses) on deferred acquisition
costs.......................................... 14,042 276 (5,387)
------- ------- -------
Total unrealized gains (losses) ................. (42,942) 1,468 15,752
Applicable tax................................... 15,030 (514) (5,512)
------- ------- -------
Other comprehensive income (loss)................... (27,912) 954 10,240
Comprehensive income............................. $30,285 $57,571 $44,989
======= ======= =======
</TABLE>
See accompanying Notes to Financial Statements.
F-5
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common Paid-in Comprehensive Retained Shareholders'
Stock Capital Income (Loss) Earnings Equity
------ ---------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C>
Year Ended at December
31, 1997
Balance at January 1,
1997................... $3,000 $137,950 $ 4,460 $166,652 $312,062
Comprehensive income.... 10,240 34,749 44,989
Dividends............... (26,000) (26,000)
Exercise of stock op-
tions.................. 519 519
------ -------- -------- -------- --------
Balance at December 31,
1997.................. 3,000 138,469 14,700 175,401 331,570
Year Ended at December
31, 1998
Comprehensive income.... 954 56,617 57,571
Dividends............... (33,500) (33,500)
Impact from reorganiza-
tion of Waddell &
Reed................... 211,851 (7,980) 203,871
Exercise of stock op-
tions.................. 68 68
------ -------- -------- -------- --------
Balance at December 31,
1998.................. $3,000 $350,388 $ 15,654 $190,538 $559,580
Year Ended at December
31, 1999
Comprehensive income.... (27,912) 58,197 30,285
Dividends............... (41,000) (41,000)
Exercise of stock op-
tions.................. 326 326
------ -------- -------- -------- --------
Balance at December 31,
1999.................. $3,000 $350,714 $(12,258) $207,735 $549,191
====== ======== ======== ======== ========
</TABLE>
See accompanying Notes to Financial Statements.
F-6
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net income.................................... $ 58,197 $ 56,617 $ 34,749
Adjustment to reconcile net income to cash
provided from operations:
Increase in future policy benefits.......... 14,953 13,871 17,878
Increase (decrease) in other policy liabili-
ties....................................... (202) (1,892) 749
Deferral of policy acquisition costs........ (58,880) (42,857) (33,485)
Value of business acquired.................. 0 0 (10,000)
Amortization of deferred acquisition costs.. 33,284 27,874 24,898
Change in accrued income taxes.............. 9,644 1,079 10,212
Depreciation................................ 41 39 42
Realized (gains) losses on sale of invest-
ments and properties....................... 5,023 (9,401) 5,365
Other accruals and adjustments.............. 4,553 (3,240) 1,817
-------- -------- --------
Cash provided from operations................. 66,613 42,090 52,225
-------- -------- --------
Cash used for investment activities:
Investments sold or matured:
Fixed maturities available for sale-sold..... 152,270 46,039 113,035
Fixed maturities available for sale-matured,
called and repaid........................... 50,760 76,583 66,469
Other long-term investments.................. 0 25,596 2,199
-------- -------- --------
Total investments sold or matured.......... 203,030 148,218 181,703
Acquisition of investments:
Fixed maturities available for sale.......... (208,912) (123,111) (176,905)
Equity securities............................ (3,400) 0 0
Net increase in policy loans................. (1,656) (2,192) (1,485)
Other long-term investments.................. 0 (36) (1,517)
-------- -------- --------
Total acquisition of investments........... (213,968) (125,339) (179,907)
Net (increase) decrease in short-term
investments.................................. 876 747 (11,589)
Funds loaned to affiliates.................... (126,120) (13,026) (24,080)
Funds repaid from affiliates.................. 117,800 2,400 24,080
Funds borrowed from affiliates................ 81,400 14,800 0
Funds repaid to affiliates ................... (81,400) (14,800) 0
Disposition of properties and equipment....... 0 5 0
Additions of properties and equipment......... (166) (37) (27)
-------- -------- --------
Cash provided from (used for) investment
activities................................... (18,548) 12,968 (9,820)
-------- -------- --------
Cash used for financing activities:
Cash dividends paid to shareholders......... (41,000) (33,500) (27,000)
Net receipts from deposit product opera-
tions...................................... (12,649) (15,420) (12,521)
-------- -------- --------
Cash used for financing activities............ (53,649) (48,920) (39,521)
Increase (decrease) in cash................... (5,584) 6,138 2,884
Cash at beginning of year..................... 11,426 5,288 2,404
-------- -------- --------
Cash at end of year........................... $ 5,842 $ 11,426 $ 5,288
======== ======== ========
</TABLE>
See accompanying Notes to Financial Statements.
F-7
<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 ("UILIC" or "United
Investors") was a wholly owned subsidiary of Waddell & Reed Financial, Inc.
("WDR") (formerly known as United Investors Management Company), a subsidiary
of Torchmark Corporation. On March 3, 1998, to facilitate the initial public
offering ("IPO") by Torchmark Corporation ("TMK") of 36% of the common stock of
WDR, several transactions were completed to reorganize the assets held by WDR.
The following transactions directly affected UILIC:
(i) WDR contributed 188,212 shares of TMK 6 1/2% Cumulative Preferred Stock,
Series A to UILIC.
(ii) WDR dividended the common stock of its subsidiary UILIC pro rata to
Liberty National Life Insurance Company ("LNL"), an 81.18% owner, and
TMK, an 18.82% owner. LNL is a wholly owned subsidiary of TMK.
(iii) Upon reorganization, UILIC recorded additional goodwill in the amount of
$23,639. This goodwill represented UILIC's portion of United Investors
Management Company's goodwill which was allocated between Waddell & Reed
and UILIC upon dividend of UILIC to TMK and LNL.
(iv) TMK transferred to UILIC a deferred commission credit of $7,980, net of
applicable tax of $4,297. This credit is being amortized over
approximately 10 years.
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 deferred acquisition costs the liability for policy reserves,
losses and claims. Although some variability is inherent in these estimates,
management believes the amounts provided are adequate.
Basis of Presentation: The accompanying financial statements include the
accounts of United Investors, an indirectly wholly-owned subsidiary of TMK, is
owned by Liberty National Life Insurance Company (81.18%) and Torchmark
Corporation (18.82%). The financial statements have been prepared on the basis
of generally accepted accounting principles ("GAAP").
Investments: United Investors classifies all of its fixed maturity
investments, which include 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 as a
component of accumulated other comprehensive income (loss) in shareholders'
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 as a component of
accumulated other comprehenive income (loss) in shareholders' 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.
F-8
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 1--Summary of Significant Accounting Policies (continued)
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 Investors' net income. Investment income attributable to policyholders
is included in United Investors' net investment income. Net investment income
for the years ended December 31, 1999, 1998 and 1997 included approximately
$35,900, $37,000, and $37,800, 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 Investors'
experience as adjusted to provide for possible adverse deviation. These
estimates are periodically reviewed and compared with actual experience. If it
is determined that future expected experience differs significantly from that
assumed, the estimates are revised.
Deferred Acquisition Costs and Value of Insurance Purchased: 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 and 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
F-9
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 1--Summary of Significant Accounting Policies (continued)
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. In 1998 United Investors recorded additional goodwill of $23,639 upon
the reorganization of the company as outlined in Note 1--"Organization." This
additional goodwill is being amortized on a straight-line basis over thirty-
five 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.
Comprehensive Income: United Investors adopted SFAS 130, "Reporting
Comprehensive Income," effective January 1, 1998. This standard defines
comprehensive income as the change in equity of a business enterprise during a
period from transactions from all nonowner sources. It requires the company to
display comprehensive income for the period, consisting of net income and other
comprehensive income. In compliance with SFAS 130, Statements of Comprehensive
Income is included as an integral part of the financial statements.
Earnings on Derivatives: Accounting for Derivative Instruments and Hedging
Activities (FASB Statement No. 133), as amended by FASB Statement No. 137, is
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000, with earlier application of all of the provisions of this statement
encouraged. Early adoption of selective provisions is prohibited. Prior periods
may not be restated for comparability. This statement establishes standards for
the accounting and reporting of derivative instruments. It requires that all
derivatives be recognized as assets or liabilities on the balance sheet and be
measured at fair value. Changes in the values of derivatives for the reporting
period are reflected as adjustments to earnings through realized gains and
losses. If certain conditions are met, a derivative may be designated as a
hedge against exposure to market risks of other instruments or commitments,
cash flow risks, or foreign currency risks. If a derivative is classified as a
hedge, the adjustment to earnings is offset by a corresponding change in the
value of the item hedged. Hedging relationships may be designated anew upon
adoption of this statement. Management believes that Statement 133 will have an
immaterial impact on UILIC's financial statements.
F-10
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 2--Statutory Accounting
United Investors is required to file statutory financial statements with
state insurance regulatory authorities. Accounting principles used to prepare
these statutory financial statements differ from GAAP. Net income and
shareholders' equity on a statutory basis for United Investors were as follows:
<TABLE>
<CAPTION>
Net Income Shareholders' Equity
Year Ended December 31, At December 31,
---------------------------------------- ---------------------------------
1999 1998 1997 1999 1998
-------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C>
$49,235 $47,294 $34,537 $171,458 $169,757
</TABLE>
The excess of shareholders' equity on a GAAP basis over that determined on a
statutory basis is not available for distribution to shareholders without
regulatory approval.
A reconciliation of United Investors' statutory net income to GAAP net
income is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Statutory net income........................... $ 49,235 $ 47,294 $ 34,537
Deferral of acquisition costs.................. 58,880 42,857 33,485
Amortization of acquisition costs.............. (33,284) (27,874) (24,898)
Differences in policy liabilities.............. (3,887) 1,417 (2,113)
Deferred income taxes.......................... (6,996) (6,422) (6,053)
Other.......................................... (5,751) (655) (209)
-------- -------- --------
GAAP net income................................ $ 58,197 $ 56,617 $ 34,749
======== ======== ========
</TABLE>
A reconciliation of United Investors' statutory shareholders' equity to GAAP
shareholders' equity is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Statutory shareholders' equity................... $ 171,458 $ 169,757
Differences in policy liabilities................ 5,987 9,208
Deferred acquisition cost and value of insurance
purchased....................................... 253,271 213,633
Deferred income taxes............................ (51,541) (59,575)
Asset valuation reserve.......................... 5,806 4,781
Nonadmitted assets............................... 5,168 3,348
Fair value adjustment on fixed maturities
available for sale.............................. (25,656) 30,565
Fair value adjustment on preferred stock of
affiliate....................................... 188,212 188,212
Goodwill......................................... 28,519 29,465
Due and deferred premiums........................ (30,471) (30,317)
Other............................................ (1,562) 503
----------- -----------
GAAP shareholders' equity........................ $ 549,191 $559,580
=========== ===========
</TABLE>
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.
F-11
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 3--Investment Operations
Investment income is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Fixed maturities.................................. $ 45,728 $45,889 $46,000
Policy loans...................................... 1,327 1,186 1,107
Other long-term investments....................... 135 84 1,614
Short-term investments............................ 468 743 436
Other income...................................... 0 954 0
Interest and dividends from affiliates............ 16,532 13,082 2,863
-------- ------- -------
64,190 61,938 52,020
Less investment expense........................... (802) (565) (506)
-------- ------- -------
Net investment income............................. $ 63,388 $61,373 $51,514
======== ======= =======
Analysis of gains (losses) from investments:
Realized investments gains (losses)
Fixed maturities................................ $ (5,023) $ 1 $(5,235)
Mutual funds.................................... 0 9,400 (130)
-------- ------- -------
$ (5,023) $ 9,401 $(5,365)
======== ======= =======
Analysis of change in unrealized gains (losses):
Net change in unrealized investments gains
(losses) on fixed maturities available for sale
before tax....................................... (56,221) 7,522 19,341
Net change in unrealized gains (losses) on equity
securities....................................... (765) 0 0
Net change in unrealized investments gains
(losses) on short-term investments before tax.... 2 (2) 0
Other (includes loss of $5,946 related to sale of
mutual fund shares in 1998)...................... 0 (6,328) 1,798
Adjustment for deferred acquisition cost.......... 14,042 276 (5,387)
Applicable tax.................................... 15,030 (514) (5,512)
-------- ------- -------
Net change in unrealized gains (losses) on short-
term investments and fixed maturities available
for sale......................................... $(27,912) $ 954 $10,240
======== ======= =======
</TABLE>
F-12
<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 cost or amortized cost,
gross unrealized gains and losses and fair value at December 31, 1999 and 1998
is as follows:
<TABLE>
<CAPTION>
Cost or Gross Gross Amount per
Amortized Unrealized Unrealized Fair the Balance
1999: Cost Gains Losses Value Sheet
- ----- --------- ---------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
Fixed maturities avail-
able for sale:
Bonds:
U.S. Government direct
obligations and
agencies............... $ 7,240 $ 30 $ (174) $ 7,096 $ 7,096
GNMA's.................. 64,952 1,675 (536) 66,091 66,091
MBS, GNMA Collateral.... 3,177 7 0 3,184 3,184
Other mortgage-backed
securities............. 23,658 0 (457) 23,201 23,201
States, municipalities
and political
subdivisions........... 18,416 0 (267) 18,149 18,149
Foreign governments..... 3,012 66 0 3,078 3,078
Public utilities........ 54,010 102 (2,150) 51,962 51,962
Industrial and
miscellaneous.......... 438,538 439 (24,392) 414,585 414,585
-------- ------- -------- -------- --------
Total fixed maturities.. $613,003 $ 2,319 $(27,976) $587,346 $587,346
======== ======= ======== ======== ========
Equity Securities:
Common Stock............ $ 3,400 $ -- $ (765) $ 2,635 $ 2,635
======== ======= ======== ======== ========
<CAPTION>
1998:
- -----
<S> <C> <C> <C> <C> <C>
Fixed maturities avail-
able for sale:
Bonds:
U.S. Government direct
obligations and
agencies............... $ 21,441 $ 1,959 $ 0 $ 23,400 $ 23,400
GNMA's.................. 89,674 4,022 (18) 93,678 93,678
Mortgage-backed
securities, GNMA
collateral............. 7,488 71 (1) 7,558 7,558
Other mortgage-backed
securities............. 20,961 1,368 0 22,329 22,329
States, municipalities
and political
subdivisions........... 28,610 1,236 0 29,846 29,846
Public utilities........ 31,454 2,287 0 33,741 33,741
Industrial and
miscellaneous.......... 412,958 21,971 (2,330) 432,599 432,599
-------- ------- -------- -------- --------
Total fixed maturities.. $612,586 $32,914 $ (2,349) $643,151 $643,151
======== ======= ======== ======== ========
</TABLE>
F-13
<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, 1999
is shown below on an amortized cost basis and on a fair value basis. Actual
maturities could differ from contractual maturities due to call or prepayment
provisions.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
--------- --------
<S> <C> <C>
Fixed maturities available for sale:
Due in one year or less................................. $ 11,335 $ 11,423
Due from one to five years.............................. 57,297 57,250
Due from five to ten years.............................. 234,712 225,812
Due after ten years..................................... 199,693 185,507
-------- --------
503,037 479,992
Mortgage- and asset-backed securities.................... 109,966 107,354
-------- --------
$613,003 $587,346
======== ========
</TABLE>
Proceeds from sales of fixed maturities available for sale were $157,270 in
1999, $46,039 in 1998, and $113,035 in 1997. Gross gains realized on these
sales were $337 in 1999, $928 in 1998, and $112 in 1997. Gross losses on these
sales were $5,653 in 1999, $927 in 1998, and $5,716 in 1997.
Note 4--Deferred Acquisition Cost and Value of Insurance Purchased
An analysis of deferred acquisition costs and the value of insurance
purchased is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- --------------------- ---------------------
Deferred Value of Deferred Value of Deferred Value of
Acquisition Insurance Acquisition Insurance Acquisition Insurance
Cost Purchased Cost Purchased Cost Purchased
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of
year................... $183,033 $30,600 $176,897 $33,754 $169,986 $16,160
Additions:
Deferred during peri-
od:
Commissions........... 49,812 0 36,328 0 27,664 0
Other expenses........ 9,068 0 6,529 0 5,821 0
-------- ------- -------- ------- -------- -------
Total deferred....... 58,880 0 42,857 0 33,485 0
Value of insurance
purchased............ 0 0 0 0 0 21,305
Adjustment attributable
to unrealized invest-
ment losses (1)....... 14,042 0 276 0 0 0
-------- ------- -------- ------- -------- -------
Total additions...... 72,922 0 43,133 0 33,485 21,305
Deductions:
Amortized during peri-
od................... (28,785) (4,499) (24,720) (3,154) (21,019) (3,711)
Adjustment
attributable to
unrealized investment
gains (1)............ 0 0 0 0 (5,387) 0
Adjustment attribut-
able to realized
investment gains
(1).................. 0 0 0 0 (168) 0
Adjustment to deferred
commissions due to
reorganization....... 0 0 (12,277) 0 0 0
-------- ------- -------- ------- -------- -------
Total deductions..... (28,785) (4,499) (36,997) (3,154) (26,574) (3,711)
-------- ------- -------- ------- -------- -------
Balance at end of year.. $227,170 $26,101 $183,033 $30,600 $176,897 $33,754
======== ======= ======== ======= ======== =======
</TABLE>
- --------
(1) Represents amounts pertaining to investments relating to universal life-
type products.
F-14
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
The amount of interest accrued on the unamortized balance of value of
insurance purchased was approximately $578, $755, and $938 for the years ended
December 31, 1999, 1998 and 1997, respectively. The average interest accrual
rates used were 6.00%, 6.15% and 6.29%, respectively. The estimated amount of
the unamortized value of business purchased balance at December 31, 1999 to be
amortized during each of the next five years is: 2000, $3,159; 2001, $2,636;
2002, $2,244; 2003, $1,950; and 2004, $1,729.
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,
1999 1998
------------------- -------------------
Accumulated Accumulated
Cost Depreciation Cost Depreciation
------ ------------ ------ ------------
<S> <C> <C> <C> <C>
Data processing equipment.............. $ 366 $ 209 $ 227 $ 178
Transportation equipment............... 72 42 72 36
Furniture and office equipment ........ 955 921 928 917
------ ------ ------ ------
Total................................ $1,393 $1,172 $1,227 $1,131
====== ====== ====== ======
</TABLE>
Depreciation expense on property and equipment used in the business was $41,
$39 and $42 in each of the years 1999, 1998, and 1997, respectively.
Note 6--Future Policy Benefit Reserves
A summary of the assumptions used in determining the liability for future
policy benefits at December 31, 1999 is as follows:
Individual Life Insurance
Interest Assumptions:
<TABLE>
<CAPTION>
Percent of
Years of Issue Interest Rates Liability
-------------- -------------------------- ----------
<S> <C> <C>
1962-1999 3.00% level to 6.00% level 15%
1986-1992 7.00% graded to 6.00% 23%
1962-1985 8.50% graded to 6.00% 3%
1981-1985 8.50% graded to 7.00% 3%
1984-1999 Interest Sensitive 56%
----
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.
F-15
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
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,
--------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Operating income............................... $ 23,112 $25,567 $18,843
Shareholders' equity:
Unrealized gains (losses)..................... (15,030) 514 5,512
Tax basis compensation expense in excess of
amounts recognized for financial reporting
purposes from the exercise of stock options.. (326) (68) (519)
Tax benefit received on deferred commission
credit due to reorganization................. 0 (4,297) 0
Other......................................... 132 300 1
-------- ------- -------
$ 7,888 $22,016 $23,837
======== ======= =======
</TABLE>
Income tax expense before the adjustments to shareholders' equity is
summarized below:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Current income tax expense......................... $16,116 $19,145 $12,790
Deferred income tax expense........................ 6,996 6,422 6,053
------- ------- -------
$23,112 $25,567 $18,843
======= ======= =======
</TABLE>
In 1999, 1998, and 1997, 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 1999,
1998 and 1997 as shown below:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1999 % 1998 % 1997 %
------- --- ------- --- ------- ---
<S> <C> <C> <C> <C> <C> <C>
Expected income taxes............... $28,458 35% $28,764 35% $18,757 35%
Increase (reduction) in income taxes
resulting from:
Tax-exempt investment income....... (5,682) (7) (3,532) (4) (18) 0
Purchase accounting differences.... 331 0 331 0 99 0
Other.............................. 5 0 4 0 5 0
------- --- ------- --- ------- ---
Income taxes........................ $23,112 28% $25,567 31% $18,843 35%
======= === ======= === ======= ===
</TABLE>
F-16
<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,
-----------------------
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Unrealized investment losses....................... $ 6,601 $ 0
Present value of future policy surrender charges... 28,534 20,153
Other liabilities, principally due to the current
nondeductibilty for tax purposes of certain
accrued expenses.................................. 183 132
----------- -----------
Total gross deferred tax assets.................... 35,318 20,285
Deferred tax liabilities:
Future policy benefits and unearned and advance
premiums.......................................... 8,599 2,022
Deferred acquisition costs......................... 73,791 61,881
Unrealized investment gains........................ 0 8,428
Other.............................................. 4,469 7,529
----------- -----------
Total gross deferred tax liabilities............... 86,859 79,860
----------- -----------
Net deferred tax liability.......................... $ 51,541 $ 59,575
=========== ===========
</TABLE>
In United Investors' 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: United Investors has retirement benefit plans and savings
plans which cover substantially all employees. There is also a nonqualified
excess benefit plan which covers certain employees. The plans cover primarily
employees of United Investors, Liberty National and Torchmark. The total cost
of these retirement plans charged to UILIC's operations was as follows:
<TABLE>
<CAPTION>
Defined
Defined Benefit
Year Ended Contribution Pension
December 31, Plans Plans
------------ ------------ -------
<S> <C> <C>
1999.................................................. $71 $121
1998.................................................. 42 114
1997.................................................. 44 118
</TABLE>
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 United Investors contribution equal to the amount
of accrued expense.
F-17
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 8--Postretirement Benefits (continued)
Cost for the defined benefit pension plans has been calculated on the
projected unit credit actuarial cost method. Contributions are made to the
pension plans subject to minimums required by regulation and maximums allowed
for tax purposes. Accrued pension expense in excess of amounts contributed has
been recorded as a liability in UILIC's financial statements and was $177
thousand and $55 thousand at December 31, 1999 and 1998, respectively. The
total unfunded plan liability recorded at December 31, 1999 was $1,271. The
plans covering the majority of employees are organized as trust funds whose
assets consist primarily of investments in marketable long-term fixed
maturities and equity securities which are valued at market.
The excess benefit pension plan provides the benefits that an employee would
have otherwise received from a defined benefit pension plan in the absence of
the Internal Revenue Codes limitation on benefits payable under a qualified
plan. Although this plan is unfunded, pension cost is determined in a similar
manner as for the funded plans. UILIC's liability for the excess benefit plan
was $19 thousand and $19 thousand as of December 31, 1999 and 1998,
respectively.
Net periodic pension cost for the defined benefit plans by expense component
was as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Service cost--benefits earned during period..... $ 725 $ 679 $ 638
Interest cost on projected benefit obligation... 1,420 1,657 1,575
Return on assets................................ (3,035) (3,118) (2,335)
Net amortization and deferral................... 1,701 1,942 1,351
------- ------- -------
Total net periodic cost........................ 811 1,160 1,229
Periodic cost allocated to other participating
employers..................................... 689 1,046 1,111
------- ------- -------
UILIC's net periodic cost....................... $ 122 $ 114 $ 118
======= ======= =======
</TABLE>
F-18
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 8--Postretirement Benefits (continued)
United Investors adopted FASB Statement No. 132, Employers Disclosures about
Pensions and Other Postretirement Benefits, effective for year-end 1998 with
comparative periods restated. In accordance with this Standard, the following
table presents a reconciliation from the beginning to the end of the year of
the benefit obligation and plan assets. This table also presents a
reconciliation of the plans funded status with the.amounts recognized on United
Investors' and Liberty National's balance sheet.
<TABLE>
<CAPTION>
Pension
Benefits For
the year ended
December 31,
----------------
1999 1998
------- -------
<S> <C> <C>
Changes in benefit obligation:
Obligation at the beginning of year...................... $23,230 $21,841
Service cost............................................. 725 679
Interest cost............................................ 1,761 1,657
Actuarial gain (loss).................................... (412) 1,061
Benefits paid............................................ (2,020) (2,008)
------- -------
Obligation at the end of year............................ 23,284 23,230
Changes in plan assets:
Fair value at the beginning of year...................... 18,140 16,054
Return on assets......................................... 3,035 3,118
Contributions............................................ 550 976
Benefits paid............................................ (2,020) (2,008)
------- -------
Fair value at the end of year............................ 19,705 18,140
------- -------
Funded status at year end............................ (3,579) (5,090)
Unrecognized amounts at year end:
Unrecognized actuarial loss (gain)....................... (2,935) (775)
Unrecognized prior service cost.......................... 951 1,044
Unrecognized transition obligation....................... 0 0
------- -------
Net amount recognized at year end...................... $(5,563) $(4,821)
======= =======
Amounts recognized consist of:
Prepaid benefit cost..................................... $(1,271) $ (459)
Accrued benefit liability................................ (4,651) (4,707)
Intangible asset......................................... 359 345
------- -------
Net amount recognized at year end....................... (5,563) (4,821)
Net amount recognized allocated to other participating
employers.............................................. (5,367) (4,747)
------- -------
UILIC's net amount recognized at year end................ $ (196) $ (74)
======= =======
</TABLE>
The weighted average assumed discount rates used in determining the
actuarial benefit obligations were 7.5% in 1999 and 7.0% in 1998. The rate of
assumed compensation increase was 4.5% in 1999 and 4.0% in 1998 while the
expected long-term rate of return on plan assets was 9.25% in 1999 and 9.25% in
1998.
Postretirement Benefit Plans Other Than Pensions: United Investors provides
postretirement life insurance benefits for most retired employees, and also
provides additional postretirement life insurance benefits for certain key
employees. The majority of the life insurance benefits are accrued over the
working lives of active employees.
F-19
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 8--Postretirement Benefits (continued)
For retired employees over age sixty-five, United Investors does not provide
postretirement benefits other than pensions. United Investors does provide a
portion of the cost for health insurance benefits for employees who retired
before February 1, 1993 and before age sixty-five, covering them until they
reach age sixty-five. Eligibility for this benefit was generally achieved at
age fifty-five with at least fifteen years of service. This subsidy is minimal
to retired employees who did not retire before February 1,1993. This plan is
unfunded.
The components of net periodic postretirement benefit cost other than
pensions is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Service cost ................................... $ 89 $ 112 $ 86
Interest on accumulated postretirement. benefit
obligation..................................... 277 377 357
Return on assets................................ 0 0 0
Net amortization and deferral................... (402) (251) (374)
------- ------- -------
Total net periodic postretirement cost......... (36) 238 69
Periodic cost allocated to other participating
employers..................................... (35) 233 68
------- ------- -------
UILIC's net periodic postretirement cost........ $ (1) $ 5 $ 1
======= ======= =======
</TABLE>
The following table presents a reconciliation of the benefit obligation and
plan assets from the beginning to the end of the year, also reconciling the
funded status to the accrued benefit liability.
<TABLE>
<CAPTION>
Benefits Other than Pension
For the year ended
December 31,
----------------------------
1999 1998
------------- -------------
<S> <C> <C>
Changes in benefit obligation:
Obligation at the beginning of year.......... $ 5,262 $ 4,775
Service cost................................. 89 112
Interest cost................................ 277 377
Actuarial gain (loss)........................ (1,255) 559
Benefits paid................................ (490) (561)
------------- -------------
Obligation at the end of year................ 3,883 5,262
Changes in plan assets:
Fair value at the beginning of year.......... 0 0
Return on assets............................. 0 0
Contributions................................ 490 561
Benefits paid................................ (490) (561)
------------- -------------
Fair value at the end of year................ 0 0
------------- -------------
Funded status at year end.................. (3,883) (5,262)
Unrecognized amounts at year end:
Unrecognized actuarial loss (gain)........... (1,612) (553)
Unrecognized prior service cost.............. (151) (357)
------------- -------------
Net amount recognized at year end as accrued
benefit liability.......................... (5,646) (6,172)
Net amount recognized allocated to other
participating employers.................... (5,555) (6,070)
------------- -------------
UILIC's net amount recognized at year end as
accrued benefit liability................... $ (91) $ (102)
============= =============
</TABLE>
F-20
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 8--Postretirement Benefits (continued)
For measurement purposes, an 8.0% annual rate of increase in per capita cost
of covered healthcare benefits was assumed for 1999. These rates grade to
ranges of 8.0% to 4.5% by the year 2004. The health care cost trend rate
assumption has a significant effect on the amounts reported, as illustrated in
the following table which presents the effect of a one-percentage-point
increase and decrease on the service and interest cost components and the
benefit obligation:
Effect on:
<TABLE>
<CAPTION>
Change in Trend
Rate
-----------------
1% 1%
Increase Decrease
-------- --------
<S> <C> <C>
Service and interest cost components....................... $ 27 $ (24)
Benefit obligation......................................... 241 (225)
</TABLE>
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.50% in 1999 and 7.00% in 1998.
Note 9--Related Party Transactions
United Investors was charged for space, equipment and services provided by
an affiliate amounting to $1,835 in 1999, $1,840 in 1998, and $1,852 in 1997.
Torchmark performed certain administrative services for United Investors for
which it was charged $408 in 1999, $612 in 1998, and $468 in 1997.
In 1997, United Investors loaned Torchmark, Liberty National and United
American Insurance Company (United American), an affiliate, $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 $25 is
included in the accompanying financial statements. United Investors in 1998
loaned Liberty National and United American $1,400 and $1,000 respectively at
an interest rate of 5.5% all of which were repaid as of December 31, 1998.
Interest income related to these loans totaling $4 is included in the
accompanying financial statements. During 1999, United Investors borrowed in a
series of notes $57,000, $2,200, $20,700 and $800 from Globe Life and Accident
Insurance Company (Globe), an affiliate, Liberty National, Torchmark and United
American, respectively. All these notes had a 5.5% interest rate and were
repaid prior to December 31, 1999 and the interest expense related to these
notes of $204 is included in the accompanying financial statements. United
Investors during 1999 loaned in a series of notes $6,100 and $111,800 to
Liberty National and Torchmark, respectively. These notes had a 5.5% interest
rate and were repaid prior to December 31, 1999. In addition, Torchmark repaid
in 1999 a $35,000 note originated in 1994 having an interest rate of 8.110% and
borrowed an additional $35,000 at an interest rate of 7.05%. During 1999,
United Investors received income of $4,300 from these notes which are included
in the accompanying financial statements.
Effective January 1, 1997 United Investors assumed a block of annuity
products totaling $200,321 from United American on 100% funds withheld basis.
In connection with this transaction, United Investors paid a ceding fee
totaling $21,305, $10,000 of which was paid in cash, and recorded a due from
affiliates totaling $189,016 at the end of 1997. The funds withheld totaled
$275,355 and $229,194 at December, 1999 and 1998, respectively. Interest income
totaled $17,058, $13,665 and $11,876 in 1999, 1998 and 1997, respectively, and
is included in other income. The reserve for annuity balances assumed in
connection with this business totaled $287,376 and $241,357 as of December 31,
1999 and 1998, respectively. United Investors reimbursed United American for
administrative expenses in the amount of $933, $800, and $897 in 1999, 1998 and
1997, respectively.
F-21
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
United Investors serves as sponsor to four separate accounts. During 1997,
United Investors was also a investor in two of the separate accounts. These
investments were sold during 1998 for $18.4 million and United Investors is no
longer a depositor to any of its separate accounts.
On March 3, 1998, Waddell & Reed Financial, Inc. contributed 188,212 shares
of TMK 6 1/2% Cumulative Preferred Stock, Series A to UILIC due to the
reorganization discussed in Note 1--Summary of Significant Accounting Policies.
Dividend income, on these shares, in the amount of $12,234 in 1999 and $10,093
in 1998 is included in the accompanying financial statements.
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, 1999 and 3% of premium income
for 1999. 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 shareholders' equity as determined on
a GAAP basis over that determined on a statutory basis. Restricted net assets
at December 31, 1999 in compliance with all regulations were $380,733.
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.
Concentration of Credit Risk: United Investors maintains a highly
diversified investment portfolio with limited concentration in any given
region, industry, or economic characteristic. The portfolio consists of
securities of the U.S. government or U.S. government-backed securities (10%);
nongovernment-guaranteed mortgage-backed securities (3%); securities of state
and municipal governments (2%); investment-grade corporate bonds (49%);
preferred stock in affiliates (23%); noninvestment-grade securities (9%); and
policy loans (2%), which are secured by the underlying insurance policy values.
The balance of the portfolio is invested in short-term investments and
equities.
Investments in municipal governments and corporations are made throughout
the U.S. with no concentration in any given state. Corporate debt and equity
investments are made in a wide range of industries. At December 31, 1999, 1% or
more of the portfolio was invested in the following industries; Electric, gas,
and sanitary services (7%); depository institutions (5%); chemicals and allied
products (4%); nondepository credit institutions (4%); food and kindred
products (3%); industrial and commercial machinery, and computer equipment
(3%); printing, publishing, and allied lines (3%); transportation equipment
(3%); metal fabricators (3%); general merchandise stores (2%); communications
(2%); insurance carriers (2%); railroad transportation (2%); petroleum refining
and related industries (2%); motor freight transportation and warehousing (2%);
and investment holding companies (2%). At year-end 1999, 9% of the carrying
value of fixed maturities was rated below investment grade (BB or lower as
rated by Standard & Poor's or the equivalent NAIC designation). Par value of
these investments was $76.0 million, amortized cost was $75.7 million, and
market value was $71.6 million. While these investments could be subject to
additional credit risk, such risk should generally be reflected in market
value.
F-22
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 10--Commitments and Contingencies (continued)
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
Investors' 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,
--------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Due from affiliates........................... $274,744 $229,194 $189,016
Value of business purchased................... 0 0 11,305
Future policy benefits........................ 287,376 241,357 200,321
Impact from reorganization of
Waddell & Reed .............................. 0 203,871 0
The following table summarizes certain amounts paid during the period:
<CAPTION>
Year Ended December 31,
--------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Taxes paid.................................... $ 13,142 $26,054 $8,631
</TABLE>
Note 12--Business Segments
United Investors' segments are based on the insurance product lines it
markets and administers, life insurance and annuities. These major product
lines are set out as segments because of the common characteristics of products
within these categories, comparability of margins, and the similarity in
regulatory environment and management techniques. There is also an investment
segment which manages the investment portfolio, debt, and cash flow for the
insurance segments and the corporate function.
Life insurance products include traditional and interest-sensitive whole
life insurance as well as term life insurance. Annuities include both fixed-
benefit and variable contracts. Variable contracts allow policyholders to
choose from a variety of mutual funds in which to direct their deposits.
United Investors markets its insurance products through a number of
distribution channels, each of which sells the products of one or more of
United Investors' insurance segments. The tables below present segment premium
revenue by each of United Investors' marketing groups.
<TABLE>
<CAPTION>
For the Year 1999
------------------------------------------
Life Annuity Total
------------- ------------ -------------
% of % of % of
Distribution Channel Amount Total Amount Total Amount Total
- -------------------- ------- ----- ------ ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Independent Producers............... $ 6,526 8.9% $ -- $ 6,526 8.9%
Waddell & Reed...................... 60,996 83.2% 60,996 82.7%
Liberty National.................... 5,399 7.4% 5,399 7.3%
United American..................... 48 0.1% 473 100.0% 521 0.7%
Globe Direct Response............... 276 0.4% 276 0.4%
------- ----- ----- ----- ------- -----
$73,245 100.0% $ 473 100.0% $73,718 100.0%
======= ===== ===== ===== ======= =====
</TABLE>
F-23
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 12--Business Segments (continued)
<TABLE>
<CAPTION>
For the Year 1998
------------------------------------------
Life Annuity Total
------------- ------------ -------------
% of % of % of
Distribution Channel Amount Total Amount Total Amount Total
- -------------------- ------- ----- ------ ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Independent Producers............... $ 8,004 11.5% $-- $ 8,004 11.4%
Waddell & Reed...................... 61,511 88.4% 61,511 87.9%
United American .................... 415 100.0% 415 0.6%
Globe Direct Response............... 57 0.1% 57 0.1%
------- ----- ---- ----- ------- -----
$69,572 100.0% $415 100.0% $69,987 100.0%
======= ===== ==== ===== ======= =====
<CAPTION>
For the Year 1997
------------------------------------------
Life Annuity Total
------------- ------------ -------------
% of % of % of
Distribution Channel Amount Total Amount Total Amount Total
- -------------------- ------- ----- ------ ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Independent Producers............... $ 7,264 10.6% $-- $ 7,264 10.6%
Waddell & Reed...................... 61,149 89.4% 61,149 89.0%
United American .................... 310 100.0% 310 0.4%
------- ----- ---- ----- ------- -----
$68,413 100.0% $310 100.0% $68,723 100.0%
======= ===== ==== ===== ======= =====
</TABLE>
Because of the nature of the insurance industry, United Investors has no
individual or group which would be considered a major customer. Substantially
all of United Investors' business is conducted in the United States, primarily
in the Southeastern and Southwestern regions.
The measure of profitability for insurance segments is underwriting income
before other income and administrative expenses, in accordance with the manner
the segments are managed. It essentially represents gross profit margin on
insurance products before insurance administrative expenses and consists of
premium, less net policy obligations, acquisition expenses, and commissions. It
differs from GAAP pretax operating income before other income and
administrative expense for two primary reasons. First, there is a reduction to
policy obligations for interest credited by contract to policyholders because
this interest is earned and credited by the investment segment. Second,
interest is also added to acquisition expense which represents the implied
interest cost of deferred acquisition costs, which is funded by and is
attributed to the investment segment.
F-24
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 12--Business Segments (continued)
The measure of profitability for the investment segment is excess investment
income, which represents the income earned on the investment portfolio in
excess of net policy requirements. The investment segment is measured on a tax-
equivalent basis, equating the return on tax-exempt investments to the pretax
return on taxable investments. Other than the above-mentioned interest
allocations, there are no other intersegment revenues or expenses. All other
unallocated revenues and expenses on a pretax basis, including insurance
administrative expense, are included in the "Other" segment category. The table
below sets forth a reconciliation of United Investors' revenues and operations
by segment to its major income statement line items.
<TABLE>
<CAPTION>
For the Year 1999
------------------------------------------------------------
Life Annuity Investment Other Adjustments Total
-------- -------- ---------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Premium................ $ 73,245 $ 473 $ -- $ -- $ -- $ 73,718
Policy charges and
fees.................. 16,251 40,401 56,652
Net investment income.. 63,388 63,388
Other income........... 17,058 17,058
-------- -------- -------- ------- ----- --------
Total Revenues........ 89,496 57,932 63,388 210,816
Benefits and Expenses
Policy benefits........ 51,595 26,686 78,281
Required reserve
interest.............. (19,262) (16,625) 35,887 0
Amortization of
acquisition costs..... 18,377 14,907 33,284
Commissions and premium
taxes................. 5,207 690 5,897
Required interest on
acquisition costs..... 8,179 5,646 (13,825) 0
-------- -------- -------- ------- ----- --------
Total Benefits and
Expenses............. 64,096 31,304 22,062 117,462
-------- -------- -------- ------- ----- --------
Underwriting income
before other income
and administrative
expense............... 25,400 26,628 41,326 93,354
Administrative
expense............... 6,076 6,076
Goodwill amortization.. 946 946
Deferred acquisition
cost adjustment....... 0
-------- -------- -------- ------- ----- --------
Pretax operating
income................ $ 25,400 $ 26,628 $ 41,326 $(7,022) $ -- 86,332
======== ======== ======== ======= =====
Realized investment losses and deferred acquisition cost adjustment..... (5,023)
--------
Pretax income.......................................................... $ 81,309
========
</TABLE>
F-25
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 12--Business Segments (continued)
<TABLE>
<CAPTION>
For the Year 1998
------------------------------------------------------------
Life Annuity Investment Other Adjustments Total
-------- -------- ---------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Premium................ $ 69,572 $ 415 $ -- $ -- $ -- $ 69,987
Policy charges and
fees.................. 12,048 33,065 45,113
Net investment income.. 61,373 61,373
Other income........... 13,665 13,665
-------- -------- -------- ------- ----- --------
Total Revenues........ 81,620 47,145 61,373 190,138
Benefits and Expenses
Policy benefits........ 51,430 25,892 77,322
Required reserve
interest.............. (18,832) (18,162) 36,994 0
Amortization of
acquisition costs..... 16,306 11,568 27,874
Commissions and premium
taxes................. 5,182 398 5,580
Required interest on
acquisition costs..... 7,958 4,814 (12,772) 0
-------- -------- -------- ------- ----- --------
Total Benefits and
Expenses............. 62,044 24,510 24,222 110,776
-------- -------- -------- ------- ----- --------
Underwriting income
before other income
and administrative
expense............... 19,576 22,635 37,151 79,362
Administrative
expense............... 5,633 5,633
Goodwill amortization.. 946 946
Deferred acquisition
cost adjustment.......
-------- -------- -------- ------- ----- --------
Pretax operating
income................ $ 19,576 $ 22,635 $ 37,151 $(6,579) $ -- 72,783
======== ======== ======== ======= =====
Realized investment gains and deferred acquisition cost adjustment...... 9,401
--------
Pretax income.......................................................... $ 82,184
========
</TABLE>
F-26
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 12--Business Segments (continued)
<TABLE>
<CAPTION>
For the Year 1997
----------------------------------------------------------
Life Annuity Investment Other Adjustments Total
------- ------- ---------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Premium................ $68,413 $ 310 $ -- $ -- $ -- $ 68,723
Policy charges and
fees.................. 9,573 27,009 36,582
Net investment income.. 51,514 51,514
Other income........... 11,876 11,876
------- ------- ------- ------- ----- --------
Total Revenues........ 77,986 39,195 51,514 168,695
Benefits and Expenses
Policy benefits........ 47,930 25,189 73,119
Required reserve
interest.............. (18,067) (19,735) 37,802 0
Amortization of
acquisition costs..... 14,671 10,227 24,898
Commissions and premium
taxes................. 5,647 604 6,251
Required interest on
acquisition costs..... 8,044 4,287 (12,331) 0
------- ------- ------- ------- ----- --------
Total Benefits and
Expenses............. 58,225 20,572 25,471 104,268
------- ------- ------- ------- ----- --------
Underwriting income
before other income
and administrative
expense............... 19,761 18,623 26,043 64,427
Administrative
expense............... 5,186 5,186
Goodwill amortization.. 284 284
Deferred acquisition
cost adjustment....... 168 168
------- ------- ------- ------- ----- --------
Pretax operating
income................ $19,761 $18,623 $26,043 $(5,470) $(168) 58,789
======= ======= ======= ======= =====
Realized investment losses and deferred acquisition cost adjustment... (5,197)
--------
Pretax income........................................................ $ 53,592
========
</TABLE>
F-27
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 12--Business Segments (continued)
Assets for each segment are reported based on a specific identification
basis. The insurance segments' assets contain deferred acquisition costs, value
of insurance purchased, and separate account assets. The investment segment
includes the investment portfolio, cash, and accrued investment income.
Goodwill is assigned to corporate operations. All other assets, representing
less than 2% of total assets, are included in the other category. The table
below reconciles segment assets to total assets as reported in the financial
statements.
<TABLE>
<CAPTION>
At December 31, 1999
--------------------------------------------------------------
Life Annuity Investment Other Adjustments Total
-------- ---------- ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash and invested
assets................. $ -- $ -- $815,496 $ -- $ -- $ 815,496
Accrued investment
income................. 11,550 11,550
Deferred acquisition
costs.................. 122,037 105,133 227,170
Goodwill................ 28,519 28,519
Separate account
assets................. 3,413,675 3,413,675
Other Assets............ 361,796 361,796
-------- ---------- -------- -------- ----- ----------
Total Assets............ $122,037 $3,518,808 $827,046 $390,315 $ -- $4,858,206
======== ========== ======== ======== ===== ==========
<CAPTION>
At December 31, 1998
--------------------------------------------------------------
Life Annuity Investment Other Adjustments Total
-------- ---------- ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash and invested
assets................. $ -- $ -- $873,478 $ -- $ -- $ 873,478
Accrued investment
income................. 11,747 11,747
Deferred acquisition
costs.................. 113,057 100,576 213,633
Goodwill................ 29,465 29,465
Separate account
assets................. 2,425,262 2,425,262
Other Assets............ 283,453 283,453
-------- ---------- -------- -------- ----- ----------
Total Assets............ $113,057 $2,525,838 $885,225 $312,918 $ -- $3,837,038
======== ========== ======== ======== ===== ==========
</TABLE>
F-28
<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 each of the sub-accounts
("portfolios" for the purpose of this report) that include the Money Market,
Bond, High Income, Growth, Income, International, Small Cap, Balanced, Limited
Term Bond, Asset Strategy and Science and Technology portfolios that comprise
United Investors Universal Life Variable Account as of December 31, 1999, and
the related statements of operations and changes in net assets for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of investments owned at December 31, 1999. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such 1999 financial statements present fairly, in all material
respects, the financial position of each of the respective portfolios of United
Investors Universal Life Variable Account as of December 31, 1999, and the
results of their operations and changes in net assets for the year then ended
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
April 20, 2000
F-29
<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 statement of operations and changes in net
assets for each of the years in the two-year period ended December 31, 1998 of
United Investors Universal Life Variable Account. These financial statements
are the responsibility of United Investors Life Insurance 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 results of its operations and changes in its net
assets for each of the years in the two-year period ended December 31, 1998 of
United Investors Universal Life Variable Account in conformity with generally
accepted accounting principles.
KPMG LLP
Birmingham, Alabama
April 9, 1999
F-30
<PAGE>
UNITED INVESTORS UNIVERSAL LIFE VARIABLE ACCOUNT
BALANCE SHEET
As of December 31, 1999
<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)........ $ 447,238 $ 783,690 $1,098,090 $12,815,273 $11,290,111 $5,556,166 $6,436,970 $1,644,294 $ 43,951 $ 341,143
--------- --------- ---------- ----------- ----------- ---------- ---------- ---------- --------- ---------
Total assets.... 447,238 783,690 1,098,090 12,815,273 11,290,111 5,556,166 6,436,970 1,644,294 43,951 341,143
--------- --------- ---------- ----------- ----------- ---------- ---------- ---------- --------- ---------
Liabilities:
Mortality and
expense risk
charge payable
to Sponsor
(Note D)........ 5,371 6,329 8,613 77,565 80,349 27,768 32,524 11,945 279 2,243
--------- --------- ---------- ----------- ----------- ---------- ---------- ---------- --------- ---------
Total liabili-
ties........... 5,371 6,329 8,613 77,565 80,349 27,768 32,524 11,945 279 2,243
--------- --------- ---------- ----------- ----------- ---------- ---------- ---------- --------- ---------
Net assets (Note
C)............. $ 441,867 $ 777,361 $1,089,477 $12,737,708 $11,209,762 $5,528,398 $6,404,446 $1,632,349 $ 43,672 $ 338,900
========= ========= ========== =========== =========== ========== ========== ========== ========= =========
Equity:
Equity of
contract
owners......... $ 441,867 $ 777,361 $1,089,477 $12,737,708 $11,209,762 $5,528,398 $6,404,446 $1,632,349 $ 43,672 $ 338,900
--------- --------- ---------- ----------- ----------- ---------- ---------- ---------- --------- ---------
Total equity.... $ 441,867 $ 777,361 $1,089,477 $12,737,708 $11,209,762 $5,528,398 $6,404,446 $1,632,349 $ 43,672 $ 338,900
========= ========= ========== =========== =========== ========== ========== ========== ========= =========
Accumulation
units
outstanding.... 407,057 738,564 1,028,175 7,298,742 8,126,459 2,403,373 3,732,228 1,353,082 60,644 247,917
========= ========= ========== =========== =========== ========== ========== ========== ========= =========
Net asset value
per unit....... $1.085516 $1.052530 $ 1.059622 $ 1.745192 $ 1.379415 $ 2.300266 $ 1.715985 $ 1.206393 $1.074501 $1.366990
========= ========= ========== =========== =========== ========== ========== ========== ========= =========
Cost of invested
assets......... $ 447,238 $ 844,501 $1,192,993 $11,493,161 $11,330,763 $4,033,935 $4,864,310 $1,627,541 $ 46,196 $ 309,159
<CAPTION> ========= ========= ========== =========== =========== ========== ========== ========== ========= =========
Science and
Technology Total
----------- -----------
<S> <C> <C>
Assets:
Investments in
Mutual Funds
(Note B)........ $11,966,755 $52,423,681
----------- -----------
Total assets.... 11,966,755 52,423,681
----------- -----------
Liabilities:
Mortality and
expense risk
charge payable
to Sponsor
(Note D)........ 44,122 297,108
----------- -----------
Total liabili-
ties........... 44,122 297,108
----------- -----------
Net assets (Note
C)............. $11,922,633 $52,126,573
=========== ===========
Equity:
Equity of
contract
owners......... $11,922,633 $52,126,573
----------- -----------
Total equity.... $11,922,633 $52,126,573
=========== ===========
Accumulation
units
outstanding.... 2,955,709 28,331,950
=========== ===========
Net asset value
per unit....... $ 4.033764
===========
Cost of invested
assets......... $ 5,363,365 $41,553,162
=========== ===========
</TABLE>
See Notes to Financial Statements.
F-31
<PAGE>
UNITED INVESTORS UNIVERSAL LIFE VARIABLE ACCOUNT
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Money High Limited
Market Bond Income Growth Income International Small Cap Balanced Term Bond
-------- -------- ---------- ----------- ----------- ------------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend income
(Note B, D)....... $ 22,627 $ 46,341 $ 102,959 $ 1,649,929 $ 743,478 $ 428,790 $ 220,412 $ 108,470 $ 2,312
Expenses paid to
Sponsor:
Mortality and ex-
pense risk
charge........... 4,481 5,373 7,126 66,317 67,081 24,178 27,903 9,817 258
Contract maintenance charges:
Administrative
expense......... 2,222 5,361 9,563 125,145 122,318 37,835 53,946 16,406 484
Costs of insur-
ance............ 62,690 66,286 98,312 965,765 1,014,841 295,418 381,607 161,255 4,589
Other policy
rider charges... 1,757 2,999 5,247 62,517 63,477 18,649 27,208 9,550 278
-------- -------- ---------- ----------- ----------- ---------- ---------- ---------- -------
Total........... 71,150 80,019 120,268 1,219,744 1,267,717 376,080 490,664 197,028 5,609
Net investment in-
come.............. (48,523) (33,678) (17,309) 430,185 (524,239) 52,710 (270,252) (88,558) (3,297)
Realized investment
gains (losses)
distributed to ac-
counts............ 0 (413) (2,281) 20,068 8,742 2,505 302 2,716 (30)
Unrealized invest-
ment gains (loss-
es)............... 0 (51,962) (60,498) 1,017,369 307,894 1,544,843 1,733,279 16,321 (1,712)
-------- -------- ---------- ----------- ----------- ---------- ---------- ---------- -------
Net gain (loss) on
investments....... 0 (52,375) (62,779) 1,037,437 316,636 1,547,348 1,733,581 19,037 (1,742)
-------- -------- ---------- ----------- ----------- ---------- ---------- ---------- -------
Net increase
(decrease) in net
assets from
operations........ (48,523) (86,053) (80,088) 1,467,622 (207,603) 1,600,058 1,463,329 (69,521) (5,039)
Premium deposits &
net transfers*.... 244,387 565,047 732,021 7,776,604 7,394,112 2,536,891 3,421,022 1,054,639 36,757
Transfer to Sponsor
for benefits and
terminations...... 0 (283) (1,531) (205,749) (197,985) (73,953) (60,664) (3,935) (295)
-------- -------- ---------- ----------- ----------- ---------- ---------- ---------- -------
Total increase..... 195,864 478,711 650,402 9,038,477 6,988,524 4,062,996 4,823,687 961,183 31,423
Net assets at be-
ginning of peri-
od................ $246,003 $298,650 $ 439,075 $ 3,699,231 $ 4,221,238 $1,465,402 $1,580,759 $ 651,166 $12,249
-------- -------- ---------- ----------- ----------- ---------- ---------- ---------- -------
Net assets at end
of period (Note
C)................ $441,867 $777,361 $1,089,477 $12,737,708 $11,209,762 $5,528,398 $6,404,446 $1,632,349 $43,672
======== ======== ========== =========== =========== ========== ========== ========== =======
<CAPTION>
Asset Science and
Strategy Technology Total
--------- ------------ ------------
<S> <C> <C> <C>
Dividend income
(Note B, D)....... $ 18,606 $ 167,261 $ 3,511,185
Expenses paid to
Sponsor:
Mortality and ex-
pense risk
charge........... 1,923 40,339 254,796
Contract maintenance charges:
Administrative
expense......... 3,592 79,741 456,633
Costs of insur-
ance............ 28,056 555,869 3,634,688
Other policy
rider charges... 2,169 39,274 233,125
--------- ------------ ------------
Total........... 35,740 715,223 4,579,242
Net investment in-
come.............. (17,134) (547,962) (1,068,057)
Realized investment
gains (losses)
distributed to ac-
counts............ 474 7,488 39,571
Unrealized invest-
ment gains (loss-
es)............... 36,610 6,347,329 10,889,473
--------- ------------ ------------
Net gain (loss) on
investments....... 37,084 6,354,819 10,929,044
--------- ------------ ------------
Net increase
(decrease) in net
assets from
operations........ 19,950 5,806,855 10,094,112
Premium deposits &
net transfers*.... 204,400 4,618,379 28,584,158
Transfer to Sponsor
for benefits and
terminations...... (3,326) (84,681) (632,302)
--------- ------------ ------------
Total increase..... 221,024 10,340,553 37,812,844
Net assets at be-
ginning of peri-
od................ $117,876 $ 1,582,080 14,313,729
--------- ------------ ------------
Net assets at end
of period (Note
C)................ $338,900 $11,922,633 $52,126,573
========= ============ ============
</TABLE>
*Includes transfer activity from (to) other portfolios.
See Notes to Financial Statements.
F-32
<PAGE>
UNITED INVESTORS UNIVERSAL LIFE VARIABLE ACCOUNT
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Money High Limited Asset
Market Bond Income Growth Income International Small Cap Balanced Term Bond Strategy
-------- -------- -------- ---------- ---------- ------------- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend income
(Note B, D)....... $ 4,762 $ 16,465 $ 38,018 $ 129,060 $ 627,897 $ 124,877 $ 228,030 $ 21,860 $ 676 $ 6,774
Expenses paid to
Sponsor:
Mortality and ex-
pense risk
charge........... 891 956 1,486 11,244 13,262 3,588 4,618 2,128 21 320
Contract maintenance charges:
Administrative
expense......... 388 1,361 3,063 32,119 36,294 8,967 13,611 4,869 99 887
Costs of insur-
ance............ 15,730 17,170 33,037 248,252 285,213 67,766 95,972 46,354 808 7,398
Other policy
rider charges... 365 955 1,894 17,887 20,382 5,065 7,783 3,191 50 746
-------- -------- -------- ---------- ---------- ---------- ---------- -------- ------- --------
Total........... 17,374 20,442 39,480 309,502 355,151 85,386 121,984 56,542 978 9,351
Net investment in-
come.............. (12,612) (3,977) (1,462) (180,442) 272,746 39,491 106,046 (34,682) (302) (2,577)
Realized investment
gains (losses)
distributed to ac-
counts............ 0 657 (1,520) (3,822) 1,775 1,854 183 429 6 9
Unrealized invest-
ment gains (loss-
es)............... 0 (8,740) (34,058) 306,070 (346,825) (22,139) (157,161) 598 (533) (4,603)
-------- -------- -------- ---------- ---------- ---------- ---------- -------- ------- --------
Net gain (loss) on
investments....... 0 (8,083) (35,578) 302,248 (345,050) (20,285) (156,978) 1,027 (527) (4,594)
-------- -------- -------- ---------- ---------- ---------- ---------- -------- ------- --------
Net increase
(decrease) in net
assets from
operations........ (12,612) (12,060) (37,040) 121,806 (72,304) 19,206 (50,932) (33,655) (829) (7,171)
Premium deposits &
net transfers*.... 258,231 314,973 480,696 3,570,770 4,262,621 1,437,753 1,610,853 692,119 13,078 124,457
Transfer to Sponsor
for benefits and
terminations...... 0 (6,188) (9,115) (26,784) (25,335) (8,203) (3,342) (12,263) 0 0
-------- -------- -------- ---------- ---------- ---------- ---------- -------- ------- --------
Total increase..... 245,619 296,725 434,541 3,665,792 4,164,982 1,448,756 1,556,579 646,201 12,249 117,286
Net assets at be-
ginning of peri-
od................ 384 1,925 4,534 33,439 56,256 16,646 24,180 4,965 0 590
-------- -------- -------- ---------- ---------- ---------- ---------- -------- ------- --------
Net assets at end
of period (Note
C)................ $246,003 $298,650 $439,075 $3,699,231 $4,221,238 $1,465,402 $1,580,759 $651,166 $12,249 $117,876
======== ======== ======== ========== ========== ========== ========== ======== ======= ========
<CAPTION>
Science and
Technology Total
------------ ------------
<S> <C> <C>
Dividend income
(Note B, D)....... $ 29,214 $ 1,227,633
Expenses paid to
Sponsor:
Mortality and ex-
pense risk
charge........... 3,781 42,295
Contract maintenance charges:
Administrative
expense......... 11,730 113,388
Costs of insur-
ance............ 84,695 902,395
Other policy
rider charges... 6,923 65,241
------------ ------------
Total........... 107,129 1,123,319
Net investment in-
come.............. (77,915) 104,314
Realized investment
gains (losses)
distributed to ac-
counts............ 777 348
Unrealized invest-
ment gains (loss-
es)............... 255,898 (11,493)
------------ ------------
Net gain (loss) on
investments....... 256,675 (11,145)
------------ ------------
Net increase
(decrease) in net
assets from
operations........ 178,760 93,169
Premium deposits &
net transfers*.... 1,396,768 14,162,319
Transfer to Sponsor
for benefits and
terminations...... (5,363) (96,593)
------------ ------------
Total increase..... 1,570,165 14,158,895
Net assets at be-
ginning of peri-
od................ 11,915 154,834
------------ ------------
Net assets at end
of period (Note
C)................ $1,582,080 $14,313,729
============ ============
</TABLE>
- -----
*Includes transfer activity from (to) other portfolios.
See Notes to Financial Statements.
F-33
<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 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>
Dividend income
(Note B, D)....... $ 0 $ 111 $ 363 $ 1,670 $ 2,354 $ 530 $ 4,089 $ 203 $ 0 $ 23 $ 44
Expenses paid to
Sponsor:
Mortality and ex-
pense 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
Costs of insur-
ance............ 15 75 176 998 1,331 374 537 201 0 14 337
Other policy
rider charges... 0 2 8 73 106 27 40 31 0 2 32
----- ------- ------- -------- -------- -------- -------- ------- --- ----- --------
Total........... 16 83 197 1,199 1,620 442 654 260 0 20 415
Net investment in-
come.............. (16) 28 166 471 734 88 3,435 (57) 0 3 (371)
Unrealized invest-
ment gains (loss-
es)............... 0 (109) (347) (1,327) (1,721) (473) (3,458) (167) 0 (23) 162
----- ------- ------- -------- -------- -------- -------- ------- --- ----- --------
Net gain (loss) on
investments....... 0 (109) (347) (1,327) (1,721) (473) (3,458) (167) 0 (23) 162
----- ------- ------- -------- -------- -------- -------- ------- --- ----- --------
Net increase
(decrease) in net
assets from
operations........ (16) (81) (181) (856) (987) (385) (23) (224) 0 (20) (209)
Premium deposits
and net trans-
fers*............. 400 2,006 4,715 34,295 57,243 17,031 24,203 5,189 0 610 12,124
----- ------- ------- -------- -------- -------- -------- ------- --- ----- --------
Total increase..... 384 1,925 4,534 33,439 56,256 16,646 24,180 4,965 0 590 11,915
Net assets at be-
ginning of peri-
od................ 0 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 $ 11,915
===== ======= ======= ======== ======== ======== ======== ======= === ===== ========
<CAPTION>
Total
----------
<S> <C>
Dividend income
(Note B, D)....... $ 9,387
Expenses paid to
Sponsor:
Mortality and ex-
pense risk
charge........... 17
Contract maintenance charges:
Administrative
expense......... 510
Costs of insur-
ance............ 4,058
Other policy
rider charges... 321
----------
Total........... 4,906
Net investment in-
come.............. 4,481
Unrealized invest-
ment gains (loss-
es)............... (7,463)
----------
Net gain (loss) on
investments....... (7,463)
----------
Net increase
(decrease) in net
assets from
operations........ (2,982)
Premium deposits
and net trans-
fers*............. 157,816
----------
Total increase..... 154,834
Net assets at be-
ginning of peri-
od................ 0
----------
Net assets at end
of period (Note
C)................ $ 154,834
==========
</TABLE>
*Includes transfer activity from (to) other portfolios.
See Notes to Financial Statements.
F-34
<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
Target/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-35
<PAGE>
UNITED INVESTORS UNIVERSAL LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following is a summary of reinvested dividends by portfolio:
<TABLE>
<CAPTION>
1999
----
Investment Portfolio Shares Reinvested Dividend Income
-------------------- ----------------- ---------------
<S> <C> <C>
Money Market................................. 22,627 $ 22,627
Bond......................................... 9,177 46,341
High Income.................................. 24,696 102,959
Growth....................................... 151,716 1,649,929
Income....................................... 57,363 743,478
International................................ 35,926 428,790
Small Cap.................................... 18,980 220,412
Balanced..................................... 14,835 108,470
Limited Term Bond............................ 459 2,312
Asset Strategy............................... 2,971 18,606
Science and Technology....................... 7,464 167,261
<CAPTION>
1998
----
Investment Portfolio Shares Reinvested Dividend Income
-------------------- ----------------- ---------------
<S> <C> <C>
Money Market................................. 4,762 $ 4,762
Bond......................................... 3,024 16,465
High Income.................................. 8,612 38,018
Growth....................................... 13,879 129,060
Income....................................... 50,903 627,897
International................................ 15,974 124,877
Small Cap.................................... 28,858 228,030
Balanced..................................... 3,075 21,860
Limited Term Bond............................ 129 676
Asset Strategy............................... 1,258 6,774
Science and Technology....................... 3,530 29,214
<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-36
<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 Limited
1999 Market Bond Income Growth Income International Small Cap Balanced Term Bond
- ---- -------- -------- ---------- ----------- ----------- ------------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cost to:
Contract
owners.......... $503,018 $882,026 $1,217,432 $11,381,669 $11,713,976 $3,991,675 $5,056,078 $1,751,947 $49,835
Adjustment for
market
appreciation
(depreciation)... 27,389 2,350 42,636 3,119,017 1,343,594 2,084,687 2,025,676 150,430 719
Deductions:
Mortality and
expense risk
charge.......... (5,373) (6,329) (8,613) (77,564) (80,348) (27,768) (32,525) (11,946) (279)
Contract
maintenance
charges:
Administrative
expense......... (2,610) (6,728) (12,658) (157,389) (158,790) (46,841) (67,630) (21,302) (583)
Costs of
insurance....... (78,420) (83,531) (131,525) (1,215,015) (1,301,385) (363,558) (478,116) (207,810) (5,397)
Other policy
rider charges... (2,137) (3,956) (7,149) (80,447) (83,965) (23,741) (35,031) (12,772) (328)
Benefits and
terminations.... 0 (6,471) (10,646) (232,563) (223,320) (82,156) (64,006) (16,198) (295)
-------- -------- ---------- ----------- ----------- ---------- ---------- ---------- -------
Net assets....... $441,867 $777,361 $1,089,477 $12,737,708 $11,209,762 $5,528,398 $6,404,446 $1,632,349 $43,672
======== ======== ========== =========== =========== ========== ========== ========== =======
<CAPTION>
Asset Science and
1999 Strategy Technology
- ---- --------- ------------
<S> <C> <C>
Cost to:
Contract
owners.......... $329,467 $ 6,027,271
Adjustment for
market
appreciation
(depreciation)... 57,870 6,808,173
Deductions:
Mortality and
expense risk
charge.......... (2,243) (44,121)
Contract
maintenance
charges:
Administrative
expense......... (4,483) (91,516)
Costs of
insurance....... (35,468) (640,901)
Other policy
rider charges... (2,917) (46,229)
Benefits and
terminations.... (3,326) (90,044)
--------- ------------
Net assets....... $338,900 $11,922,633
========= ============
<CAPTION>
Money High Limited
1998 Market Bond Income Growth Income International Small Cap Balanced Term Bond
- ---- -------- -------- ---------- ----------- ----------- ------------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cost to:
Contract
owners.......... $258,631 $316,979 $ 485,411 $ 3,605,065 $ 4,319,864 $1,454,784 $1,635,056 $ 697,308 $13,078
Adjustment for
market
appreciation
(depreciation)... 4,762 8,384 2,456 431,651 283,480 104,649 71,683 22,923 149
Deductions:
Mortality and
expense risk
charge.......... (892) (956) (1,487) (11,247) (13,267) (3,590) (4,622) (2,129) (21)
Contract
maintenance
charges:
Administrative
expense......... (388) (1,367) (3,075) (32,244) (36,472) (9,006) (13,684) (4,896) (99)
Costs of
insurance....... (15,730) (17,245) (33,213) (249,250) (286,544) (68,140) (96,509) (46,555) (808)
Other policy
rider charges... (365) (957) (1,902) (17,960) (20,488) (5,092) (7,823) (3,222) (50)
Benefits and
terminations.... 0 (6,188) (9,115) (26,784) (25,335) (8,203) (3,342) (12,263) 0
-------- -------- ---------- ----------- ----------- ---------- ---------- ---------- -------
Net assets....... $246,003 $298,650 $ 439,075 $ 3,699,231 $ 4,221,238 $1,465,402 $1,580,759 $ 651,166 $12,249
======== ======== ========== =========== =========== ========== ========== ========== =======
<CAPTION>
Asset Science and
1998 Strategy Technology
- ---- --------- ------------
<S> <C> <C>
Cost to:
Contract
owners.......... $125,067 $ 1,408,892
Adjustment for
market
appreciation
(depreciation)... 2,180 286,095
Deductions:
Mortality and
expense risk
charge.......... (324) (3,782)
Contract
maintenance
charges:
Administrative
expense......... (888) (11,775)
Costs of
insurance....... (7,399) (85,032)
Other policy
rider charges... (748) (6,955)
Benefits and
terminations.... 0 (5,363)
--------- ------------
Net assets....... $117,876 $ 1,582,080
========= ============
</TABLE>
F-37
<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. The Fund
pays the manager a fee for investment management services. The fee is computed
daily based on the net asset value at the close of business. The fee is payable
by each Portfolio at the following annual rates:
<TABLE>
<CAPTION>
Annual
Fund Net Asset Breakpoints Rate
---- --------------------- ------
<S> <C> <C>
Asset Strategy
Portfolio.............. Up to $1 Billion .700%
Over $1 Billion up to $2 Billion .650%
Over $2 Billion up to $3 Billion .600%
Over $3 Billion .550%
Balanced Portfolio...... Up to $1 Billion .700%
Over $1 Billion up to $2 Billion .650%
Over $2 Billion up to $3 Billion .600%
Over $3 Billion .550%
Bond Portfolio.......... Up to $500 Million .525%
Over $500 Million up to $1 Billion .500%
Over $1 Billion up to $1.5 Billion .450%
Over $1.5 Billion .400%
Growth Portfolio........ Up to $1 Billion .700%
Over $1 Billion up to $2 Billion .650%
Over $2 Billion up to $3 Billion .600%
Over $3 Billion .550%
High Income Portfolio... Up to $500 Million .625%
Over $500 Million up to $1 Billion .600%
Over $1 Billion up to $1.5 Billion .550%
Over $1.5 Billion .500%
Income Portfolio........ Up to $1 Billion .700%
Over $1 Billion up to $2 Billion .650%
Over $2 Billion up to $3 Billion .600%
Over $3 Billion .550%
International
Portfolio.............. Up to $1 Billion .850%
Over $1 Billion up to $2 Billion .830%
Over $2 Billion up to $3 Billion .800%
Over $3 Billion .760%
Limited-Term Bond
Portfolio.............. Up to $500 Million .500%
Over $500 Million up to $1 Billion .450%
Over $1 Billion up to $1.5 Billion .400%
Over $1.5 Billion .350%
Money Market Portfolio.. All Net Assets .400%
Science and Technology
Portfolio.............. Up to $1 Billion .850%
Over $1 Billion up to $2 Billion .830%
Over $2 Billion up to $3 Billion .800%
Over $3 Billion .760%
Small Cap Portfolio..... Up to $1 Billion .850%
Over $1 Billion up to $2 Billion .830%
Over $2 Billion up to $3 Billion .800%
Over $3 Billion .760%
</TABLE>
F-38
<PAGE>
UNITED INVESTORS UNIVERSAL LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS--(Continued)
Prior to June 30, 1999, the fee consisted of two elements: (i) a "Specific"
fee computed on net asset value as of the close of business each day at the
following annual rates: Asset Strategy Portfolio-- .30% of net assets; Balanced
Portfolio-- .10% of net assets; Bond Portfolio-- .03% of net assets; Growth
Portfolio-- .20% of net assets; High Income Portfolio-- .15% of net assets;
Income Portfolio-- .20% of net assets; International Portfolio-- .30% of net
assets; Limited-Term Bond Portfolio-- .05% of net assets; Money Market
Portfolio-- none; Science and Technology Portfolio-- .20% of net assets; Small
Cap Portfolio-- .35% of net assets and (ii) a base fee computed each day on the
combined net asset values of all of the Portfolios and allocated among the
Portfolios based on their relative net asset size at the annual rates of .51%
of the first $750 million of combined net assets, .49% on that amount between
$750 million and $1.5 billion, .47% between $1.5 billion and $2.25 billion, and
.45% of that amount over $2.25 billion. The Fund accrues and pays this fee
daily.
Fees for these services are deducted from dividend income. The amount of
these fees have been:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- ----
<S> <C> <C> <C>
Money Market........................................... $ 1,492 $ 566 $ 1
Bond................................................... 2,857 768 0
High Income............................................ 4,846 1,436 1
Growth................................................. 53,776 12,434 10
Income................................................. 53,025 14,683 17
International.......................................... 24,066 6,061 5
Small Cap.............................................. 28,510 6,736 8
Balanced............................................... 7,288 1,928 1
Limited Term Bond...................................... 156 32 0
Asset Strategy......................................... 1,613 451 0
Science and Technology................................. 34,846 4,477 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-39
<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-40
<PAGE>
PART II
-------
UNDERTAKING TO FILE REPORTS
---------------------------
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file
with the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
--------------------
In-so-far as indemnification for liability arising under the Securities Act
of 1933 may be permitted to Directors, officers and controlling persons of the
Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a Director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such Director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
REPRESENTATION PURSUANT TO SECTION 26(e)(2)(A)
----------------------------------------------
United Investors Life Insurance Company hereby represents that the fees and
charges deducted under the Policy, in the aggregate, are reasonable in relation
to the services rendered, the expenses expected to be incurred, and the risks
assumed by United Investors Life Insurance Company.
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The prospectus consisting of 85 pages.
Undertaking to file reports.
Rule 484 undertaking.
Representation pursuant to Section 26(e)(2)(A).
The signatures.
Written consents of the following persons: John H. Livingston, Esq; W.
Thomas Aycock; Deloitte & Touche LLP; KPMG LLP; and Sutherland Asbill &
Brennan LLP.
The following exhibits, corresponding to those required by paragraph A of
the instructions as to exhibits in Form N-8B-2:
1. A.
(1) Resolution of the Board of Directors of United Investors Life
Insurance Company establishing United Investors Universal Life
Variable Account.\1\
(2) Not Applicable
(3) (a) Principal Underwriting Agreement\5\
(b) First Amendment of Principal Underwriting Agreement\4\
(c) Second Amendment of Principal Underwriting Agreement\4\
(d) Form of Third Amendment of Principal Underwriting
Agreement\4\
(4) Not applicable
(5) (a) Specimen Flexible Premium Variable Life Insurance Policy\1\
(b) Accelerated Death Benefit Rider \1\
(c) Disability Waiver of Monthly Deduction Rider \1\
(d) Additional Insured Term Insurance Rider \1\
(e) Children's Term Insurance Rider \1\
(f) Accidental Death Benefit Rider \1\
(6) (a) Articles of Incorporation of United Investors Life Insurance
Company. \2\
(b) By-laws of United Investors Life Insurance Company.\2\
(7) Not applicable
(8) (a) Form of Participation Agreement\4\
(b) First Amendment of Participation Agreement\4\
(c) Second Amendment of Participation Agreement\4\
(d) Form of Third Amendment of Participation Agreement\4\
(9) Not applicable
(10) Application form\3\
(11) Description of issuance, transfer and redemption procedures.\3\
-2-
<PAGE>
2. Opinion and consent of John H. Livingston, Esquire, as to the legality
of the securities being registered.\6\
3. Not applicable
4. Not applicable
5. Not applicable
6. Opinion and consent of W. Thomas Aycock as to actuarial matters
pertaining to the securities being registered.\6\
7. (a) Consents of Independent Accountants.\6\
(b) Consent of Sutherland Asbill & Brennan LLP.\6\
- ------------------------------
\1\ Incorporated herein by reference to the initial Registration Statement on
Form S-6, File No. 333-26505, filed on May 5, 1997.
\2\ Incorporated herein by reference to the Exhibit filed electronically with
Post-Effective Amendment No. 12 to Form S-6 Registration Statement, File
No. 33-11465, filed on April 29, 1998 (previously filed on January 22,
1987, as an Exhibit to the Form S-6 Registration, File No. 33-11465).
\3\ Incorporated herein by reference to Pre-Effective Amendment No. 1 to
Form S-6 Registration Statement, File No. 333-26505, filed on August 8,
1997.
\4\ Incorporated herein by reference to the Exhibit filed with Post-Effective
Amendment No. 1 to the Form N-4 Registration Statement, File No. 333-89797,
filed April 26, 2000.
\5\ Incorporated herein by reference to the Exhibit filed electronically with
Post-Effective Amendment No. 14 to the Form N-4 Registration Statement,
File No. 33-12000, filed on April 29, 1998.
\6\ Filed herewith.
-3-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, United Investors Universal Life Variable Account, certifies that it
meets all of the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized, and its seal to be hereunto affixed and attested, all
in Birmingham, Alabama on the 17th day of April, 2000.
United Investors Universal Life Variable Account
(Registrant)
(Seal) United Investors Life Insurance Company
(Depositor)
Attest: /s/ John H. Livingston By: /s/ Anthony L. McWhorter
-------------------------- -------------------------------
John H. Livingston Anthony L. McWhorter
Secretary and Counsel President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following Directors and Officers of
United Investors Life Insurance Company in the capacities and on the Dates
indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
- -------------------------------- Director ---------
C. B. Hudson
/s/ Anthony L. McWhorter 4-17-00
- -------------------------------- Chairman of the Board of ---------
Anthony L. McWhorter Directors, President and
Chief Executive Officer
/s/ W. Thomas Aycock 4-17-00
- -------------------------------- Director, Vice President and ---------
W. Thomas Aycock Chief Actuary
/s/ Tony G. Brill 4-17-00
- -------------------------------- Director and Executive Vice ---------
Tony G. Brill President - Administration
- -------------------------------- Senior Vice President - Marketing ---------
Mark S. McAndrew
- -------------------------------- Director ---------
Larry M. Hutchison
/s/ Michael J. Klyce 4-17-00
- -------------------------------- Vice President and Treasurer ---------
Michael J. Klyce
/s/ James L. Mayton, Jr. 4-17-00
- -------------------------------- Vice President and Controller ---------
James L. Mayton, Jr.
/s/ John H. Livingston 4-17-00
- -------------------------------- Director, Secretary and Counsel ---------
John H. Livingston
-4-
<PAGE>
SIGNATURE TITLE DATE
- --------- ----
/s/ Carol A. McCoy 4-17-00
- -------------------------------- Director and Assistant Secretary ---------
Carol A. McCoy
/s/ Ross W. Stagner 4-17-00
- -------------------------------- Director and Vice President ---------
Ross W. Stagner
/s/ Terry W. Davis 4-17-00
- -------------------------------- Director and Vice President - ---------
Terry W. Davis Administration
-5-
<PAGE>
Exhibit Index
99.2 Opinion and consent of John H. Livingston, Esquire as to the legality
of the Securities being registered.
99.6 Opinion and consent of W. Thomas Aycock as to actuarial matters
pertaining to the securities being registered.
99.7.(a) Consents of Independent Accountants.
99.7.(b) Consent of Sutherland Asbill & Brennan LLP.
<PAGE>
Exhibit 99.2
April 14, 2000
The Board of Directors
United Investors Life Insurance Company
2001 Third Avenue South
Birmingham, Alabama 35233
Gentlemen:
With reference to the Registration Statement for the United Investors
Universal Life Variable Account filed on form S-6 (File No. 333-26505) with the
Securities and Exchange Commission covering flexible premium variable life
insurance policies, I have examined such documents and such law as I considered
necessary and appropriate, and on the basis of such examination, it is my
opinion that:
1. United Investors Life Insurance Company is duly organized and validly
existing under the laws of the State of Missouri and has been duly
authorized to issue individual flexible premium variable life policies
by the Division of Insurance of the State of Missouri.
2. The United Investors Universal Life Variable Account is a duly
authorized and existing separate account established pursuant to the
provisions of Section 376.309, of the Revised Statutes of Missouri.
3. The flexible premium variable life policies, when issued as contemplated
by said Form S-6 Registration Statement, will constitute legal, validly
issued and binding obligations of United Investors Life Insurance
Company.
I hereby consent to the filing of this opinion as an Exhibit to said S-6
Registration Statement.
Very truly yours,
/s/ John H. Livingston, Esquire
--------------------------------
John H. Livingston, Esquire
Secretary and Counsel
JHL:dk
<PAGE>
Exhibit 99.6
April 14, 2000
United Investors Life Insurance Company
2001 Third Avenue South
Birmingham, AL 35233
Gentlemen:
In my capacity as Vice President and Chief Actuary of United Investors Life
Insurance Company, I have provided advice concerning the illustration of death
benefits and policy values set forth in the prospectus contained in the
Registration Statement for the United Investors Universal Life Variable Account
filed on Form S-6 (File No. 333-26505) with the Securities and Exchange
Commission under the Securities Act of 1933 (the "Registration Statement")
regarding the offer and sale of flexible premium variable life insurance
policies (the "Policies").
It is my professional opinion that the illustration of death benefits and
policy values included in the prospectus, based on the assumptions stated in the
illustrations, are consistent with the provisions of the Policy. The rate
structure of the Policy has not been designed so as to make the relationship
between premiums and benefits, as shown in the illustrations, appear more
favorable to a purchaser of a Policy for male age 45 preferred non-tobacco than
to prospective purchasers of Policies at other ages or underwriting classes.
I hereby consent to the use of this opinion as an exhibit to the
Registration Statement.
Sincerely,
/s/ W. Thomas Aycock
----------------------------------
W. Thomas Aycock
Vice President and Chief Actuary
WTA:dk
<PAGE>
Exhibit 99.7(A)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 4 to Registration
Statement No. 333-26505 of United Investors Universal Life Variable Account of
United Investors Life Insurance Company on Form S-6 of our report dated January
28, 2000 relating to the financial statements of United Investors Life Insurance
Company, and our report dated April 20, 2000 relating to the financial
statements of United Investors Universal Life Variable Account appearing in the
Prospectus, which is part of such Registration Statement, and to the reference
to us under the heading "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Dallas, Texas
April 21, 2000
<PAGE>
Exhibit 99.7(A)
ACCOUNTANTS' CONSENT
The Board of Directors of
United Investors Life Insurance Company
and the Contract Owners of the United
Investors Universal Life Variable Account
We consent to the use of our report dated January 29, 1999, relating to the
balance sheet of United Investors Life Insurance Company as of December 31,
1998, and the related statements of operations, comprehensive income,
shareholders' equity, and the cash flows for each of the years in the two-year
period ended December 31, 1998, and also to the use of our report dated April 9,
1999, relating to the statements of operations and changes in net assets for
each of the years in the two-year period ended December 31, 1998 of United
Investors Universal Life Variable Account as contained in Post-Effective
Amendment No. 4 to Form S-6 for United Investors Universal Life Variable
Account. We also consent to the reference to our firm under the heading
"Experts" in the Prospectus.
/s/ KPMG LLP
Birmingham, Alabama
April 21, 2000
<PAGE>
Exhibit 99.7(B)
April 14, 2000
United Investors Life Insurance Company
2001 Third Avenue South
Birmingham, Alabama 35233
Re: United Investors Universal Life Variable Account Form S-6 File No. 333-26505
Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the Prospectus filed as part of Post-Effective Amendment No. 4 to
the Registration Statement on Form S-6 filed by United Investors Life Insurance
Company for certain variable life policies (File No. 333-26505). In giving this
consent, we do not admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933.
Very truly yours,
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ Frederick R. Bellamy
--------------------------------
Frederick R. Bellamy
FRB:dk
