<PAGE>
As filed with the Securities and Exchange Commission on January 26, 2000
Registration No. 333-89875
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Pre-Effective Amendment No.1 To
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
TITANIUM 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 complete address
of agent for service) Copy to:
John H. Livingston, Esq. 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, D.C. 20004-2415
Approximate date of proposed public offering:
As soon as practicable after the effective date of this Registration Statement
Securities Being Offered: Flexible Premium Variable Life Insurance Policies
The Registrant hereby amends this Registration Statement on such dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment that specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE
INSURANCE POLICY
issued by
United Investors Life Insurance Company
through
Titanium Universal Life Variable Account
Prospectus
February 15, 2000
Please read this prospectus carefully before investing, and keep it for
future reference. It contains important information about the Titanium Investor
variable life insurance policy.
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 subaccounts 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.
There is no guaranteed cash surrender value for amounts allocated to the
variable subaccounts. 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.
United Investors Life Insurance Co.
2001 Third Avenue South
Birmingham, Alabama 35233
TITANIUM INVESTOR(SM)
VARIABLE UNIVERSAL LIFE INSURANCE
The policy offers 33 funding choices--one fixed account (paying a
guaranteed minimum fixed rate of interest) and 32 variable subaccounts which
invest in the following mutual fund portfolios:
AIM Variable Insurance Funds, Inc.
. AIM V.I. Capital Appreciation Fund
. AIM V.I. Growth Fund
. AIM V.I. Growth and Income Fund
. AIM V.I. International Equity Fund
. AIM V.I. Value Fund
The Alger American Fund
. Alger American Growth Portfolio
. Alger American Income & Growth Portfolio
. Alger American Leveraged AllCap Portfolio
. Alger American MidCap Growth Portfolio
. Alger American Small Capitalization Portfolio
BT Insurance Funds Trust
. EAFE(R) Equity Index Fund
. Small Cap Index Fund
Dreyfus Funds
. Dreyfus VIF-Capital Appreciation Portfolio
. Dreyfus VIF-Money Market Portfolio
. Dreyfus VIF-Quality Bond Portfolio
. The Dreyfus Socially Responsible Growth Fund, Inc.
Evergreen Funds
. Evergreen VA Equity Index Fund
. Evergreen VA Foundation Fund
. Evergreen VA Global Leaders Fund
. Evergreen VA Small Cap Value Fund
INVESCO Variable Investment Funds, Inc.
. INVESCO VIF- Equity Income Fund
. INVESCO VIF- Technology Fund
. INVESCO VIF- Utilities Fund
MFS(R) Variable Insurance Trust(SM)
. MFS(R) Emerging Growth Series
. MFS(R) Growth with Income Series
. MFS(R) Research Series
. MFS(R) Total Return Series
Strong Variable Insurance Funds, Inc.
. Strong Discovery Fund II
. Strong Mid Cap Growth Fund II
. Strong Opportunity Fund II
Templeton Variable Products Series Fund
. Templeton Asset Allocation Fund
. Templeton International Fund
i
<PAGE>
Table of Contents
================================================================================
<TABLE>
<S> <C>
Summary................................................................... 1
The Policy.............................................................. 1
Payment of Premiums..................................................... 1
Funding Choices......................................................... 1
Charges and Deductions.................................................. 2
Taxes................................................................... 5
Cash Benefits........................................................... 5
Death Benefit........................................................... 5
Termination............................................................. 6
Other Information....................................................... 6
Inquiries............................................................... 6
Titanium Universal Life Variable Account.................................. 7
The Portfolios.......................................................... 7
Fixed Account............................................................. 11
The Policy................................................................ 11
Applying for a Policy................................................... 11
Conditional Receipt..................................................... 12
"Free Look" Right to Cancel the Policy.................................. 12
Premiums................................................................ 12
Transfers............................................................... 14
Dollar-Cost Averaging................................................... 15
Automatic Asset Rebalancing............................................. 15
Surrender of the Policy................................................. 16
Withdrawals............................................................. 16
Loan Benefits........................................................... 16
Requesting Payments..................................................... 17
Policy Changes.......................................................... 18
Reports to Owners....................................................... 18
Other Policy Provisions................................................. 18
Assignment and Change of Owner.......................................... 19
Death Benefits............................................................ 19
Amount of Death Benefit Payable......................................... 19
Death Benefit Options................................................... 20
Adjustable Term Insurance Rider and Target Face Amount.................. 21
Changing the Death Benefit Option....................................... 22
Changing the Face Amount................................................ 22
Effect of Withdrawals on the Death Benefit.............................. 23
Beneficiary............................................................. 23
Supplemental Benefits................................................... 23
Charges and Deductions.................................................... 24
Premium Expense Charges................................................. 25
Mortality and Expense Risk Charge....................................... 26
Monthly Deduction....................................................... 26
Surrender Charge........................................................ 26
Transaction Charges..................................................... 27
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Other Charges.......................................................... 28
Cost of Insurance...................................................... 28
Reduction in Charges for Certain Groups................................ 29
Policy Values............................................................ 29
Policy Value........................................................... 29
Variable Account Value................................................. 29
Fixed Account Value.................................................... 31
Tax Considerations....................................................... 32
Introduction........................................................... 32
Tax Status of the Policy............................................... 32
Tax Treatment of Policy Benefits....................................... 32
Taxation of United Investors........................................... 35
Employment-Related Benefit Plans....................................... 35
Other Information........................................................ 35
United Investors Life Insurance Company................................ 35
Sale of the Policies................................................... 35
Changing the Variable Account.......................................... 36
Voting of Portfolio Shares............................................. 36
Addition, Deletion, or Substitution of Investments..................... 37
Other Information...................................................... 37
Litigation............................................................. 37
Legal Matters.......................................................... 38
Experts................................................................ 38
Financial Statements................................................... 38
Appendix A: Hypothetical Illustrations................................... 39
Appendix B: Directors and Officers of United Investors................... 48
Appendix C: Glossary..................................................... 49
Appendix D: Financial Statements......................................... F-1
</TABLE>
- --------------------------------------------------------------------------------
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 C
(the Glossary).
iii
<PAGE>
Summary
================================================================================
This is a summary of some of the more important points that you should know
and consider before purchasing the Titanium Investor variable life insurance
policy.
The Policy
The Titanium Investor 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 withdrawals, or to surrender the policy completely.
Loans and withdrawals will affect the policy value and may affect the death
benefit and termination of the policy. Loans, withdrawals and surrenders
may be taxable and subject to a 10% tax penalty before age 59-1/2.
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 Titanium Investor policy value among the fixed account
and 32 variable subaccounts which invest in specified portfolios of underlying
mutual funds. 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
variable subaccounts is not guaranteed. Instead, your investment in the variable
subaccounts will go up or down with the performance of the particular mutual
fund portfolios you select (and the deduction of charges). You will lose money
on policy value allocated to the variable subaccounts 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 premium expense charges from each premium payment, and then we
allocate the net premium among the variable subaccounts and the fixed account
according to your written instructions.
You may allocate each premium (and your existing policy value) among
variable subaccounts which invest in the following 32 mutual fund portfolios:
AIM Variable Insurance Funds, Inc.
. AIM V.I. Capital Appreciation Fund
. AIM V.I. Growth Fund
. AIM V.I. Growth and Income Fund
. AIM V.I. International Equity Fund
. AIM V.I. Value Fund
The Alger American Fund
. Alger American Growth Portfolio
. Alger American Income & Growth Portfolio
. Alger American Leveraged AllCap Portfolio
. Alger American MidCap Growth Portfolio
. Alger American Small Capitalization
BT Insurance Funds Trust
. EAFE(R) Equity Index Fund
. Small Cap Index Fund
Dreyfus Funds
. Dreyfus VIF-Capital Appreciation Portfolio
1
<PAGE>
. Dreyfus VIF-Money Market Portfolio
. Dreyfus VIF-Quality Bond Portfolio
. The Dreyfus Socially Responsible Growth Fund, Inc.
Evergreen Funds
. Evergreen VA Equity Index Fund
. Evergreen VA Foundation Fund
. Evergreen VA Global Leaders Fund
. Evergreen VA Small Cap Value Fund
INVESCO Variable Investment Funds, Inc.
. INVESCO VIF- Equity Income Fund
. INVESCO VIF- Technology Fund
. INVESCO VIF- Utilities Fund
MFS(R) Variable Insurance Trust(SM)
. MFS(R) Emerging Growth Series
. MFS(R) Growth with Income Series
. MFS(R) Research Series
. MFS(R) Total Return Series
Strong Variable Insurance Funds, Inc.
. Strong Discovery Fund II
. Strong Mid Cap Growth Fund II
. Strong Opportunity Fund II
Templeton Variable Products Series Fund
. Templeton Asset Allocation Fund - Class 2
. Templeton International Fund - Class 2
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
3.5% interest per year.
Charges and Deductions
We deduct a 2.5% premium expense charge from each premium payment for state
and local taxes and a 1.5% premium expense charge for the estimated cost of the
federal income tax treatment of deferred acquisition costs. In addition, we
deduct a 4% sales charge from each premium payment, until premiums paid equal 10
target premiums (or the premiums paid allocated to an increase in the policy's
base face amount equal 10 target premiums for the increase). The target premium
is specified in your policy's data page, and discussed in the "Premium Expense
Charge" section of this prospectus. A new target premium is calculated if you
increase the policy's base face amount.
We also make certain periodic deductions from your policy value. Each
month, we deduct a "monthly deduction" from your policy value, which is the sum
of the following:
(a) the cost of insurance charge;
(b) the initial policy charge ($20 per month for the first 12 months);
(c) the monthly administrative charge (currently $6.00, and guaranteed not to
exceed $10.00); and
(d) any supplemental benefit or rider charges.
Each day, we deduct a charge from the assets in the variable subaccounts
for certain mortality and expense risks we bear under the policy. This charge is
at an effective annual rate of 0.75% of those assets during the first ten policy
years, .50% during the second ten policy years, and 0.25% thereafter. We
guarantee not to increase this mortality and expense risk charge above these
annual rates.
We deduct a surrender charge from the policy value upon a full surrender
before the 14th policy anniversary (or the 14th anniversary of any increase in
the policy's base face amount). The surrender charge consists of two charges:
the administrative surrender charge and the sales surrender charge.
The administrative surrender charge is $4 per $1,000 of base face amount
for the first 9 policy years (or for the 9 years following an increase in the
policy's base face amount), and then decreases annually to zero at the 14/th/
policy anniversary.
The sales surrender charge for the first 2 policy years (or for the 2 years
following an increase in the policy's base face amount) is:
. 26% of premium paid up to one target premium, plus
. 6% of premium paid above one target up to two target premiums, plus
. 5% of premium paid above two target premiums.
The sales surrender charge for policy years 3 through 9 (or for years 3
through 9 following an increase in the policy's base face amount) is:
. 46% of premium paid up to one target premium, plus
. 44% of premium paid above one target up to two target premiums.
The sales surrender charge then decreases annually to zero at the 14/th/
policy anniversary.
2
<PAGE>
In addition, investment management fees, operating expenses, and in some
cases 12b-1 fees are deducted from each portfolio of the underlying mutual
funds. See the table below for a summary of these portfolio expenses for the
last year.
Portfolio Annual Expenses/1/
(% of net assets of the portfolio)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Management 12b - 1 Other/2 3/ Total/2/ Portfolio
Fee/2/ Fees Expenses Expenses
(after any (after any (after waiver or
Portfolio waiver) reimbursement) reimbursement)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM Variable Insurance Funds, Inc.
. AIM V.I. Capital Appreciation Fund 0.62% None 0.05% 0.67%
. AIM V.I. Growth Fund 0.64% None 0.08% 0.72%
. AIM V.I. Growth and Income Fund 0.61% None 0.04% 0.65%
. AIM V.I. International Equity Fund 0.75% None 0.16% 0.91%
. AIM V.I. Value Fund 0.61% None 0.05% 0.66%
- -----------------------------------------------------------------------------------------------------------------
The Alger American Fund
. Alger American Growth Portfolio 0.75% None 0.04% 0.79%
. Alger American Income & Growth Portfolio 0.625% None 0.075% 0.70%
. Alger American Leveraged AllCap Portfolio 0.85% None 0.11% 0.96%
. Alger American MidCap Growth Portfolio 0.80% None 0.04% 0.84%
. Alger American Small Capitalization Portfolio 0.85% None 0.04% 0.89%
- -----------------------------------------------------------------------------------------------------------------
BT Insurance Funds Trust
. EAFE(R) Equity Index Fund 0.45% None 0.15% 0.65%
. Small Cap Index Fund 0.35% None 0.10% 0.45%
- -----------------------------------------------------------------------------------------------------------------
Dreyfus Funds
. Dreyfus VIF - Capital Appreciation Portfolio 0.75% None 0.06% 0.81%
. Dreyfus VIF - Money Market Portfolio 0.50% None 0.06% 0.56%
. Dreyfus VIF - Quality Bond Portfolio 0.65% None 0.08% 0.73%
. The Dreyfus Socially Responsible Growth Fund 0.75% None 0.05% 0.80%
- -----------------------------------------------------------------------------------------------------------------
Evergreen Funds
. Evergreen VA Equity Index Fund 0.00% None 0.30% 0.30%
. Evergreen VA Foundation Fund 0.83% None 0.17% 1.00%
. Evergreen VA Global Leaders Fund 0.39% None 0.61% 1.00%
. Evergreen VA Small Cap Value Fund 0.00% None 1.00% 1.00%
- -----------------------------------------------------------------------------------------------------------------
INVESCO Variable Investment Funds, Inc.
. INVESCO VIF - Equity Income Fund 0.75% None 0.18% 0.93%
. INVESCO VIF - Technology Fund 0.75% None 0.65% 1.40%
. INVESCO VIF - Utilities Fund 0.60% None 0.48% 1.08%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Management 12b - 1 Other/2 3/ Total/2/ Portfolio
Fee/2/ Fees Expenses Expenses
(after any (after any (after waiver or
Portfolio waiver) reimbursement) reimbursement)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS(R) Variable Insurance Trust(SM)
. MFS(R) Emerging Growth Series 0.75% None 0.10% 0.85%
. MFS(R) Growth with Income Series 0.75% None 0.13% 0.88%
. MFS(R) Research Series 0.75% None 0.11% 0.86%
. MFS(R) Total Return Series 0.75% None 0.16% 0.91%
- -----------------------------------------------------------------------------------------------------------------
Strong Variable Insurance Funds, Inc.
. Strong Discovery Fund II 1.00% None 0.18% 1.18%
. Strong Mid Cap Growth Fund II 1.00% None 0.20% 1.20%
. Strong Opportunity Fund II 1.00% None 0.16% 1.16%
- -----------------------------------------------------------------------------------------------------------------
Templeton Variable Products Series Fund/3/
. Templeton Asset Allocation Fund - Class 2 0.60% 0.25% 0.18% 1.03%
. Templeton International Fund - Class 2 0.69% 0.25% 0.17% 1.11%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
/1/These expenses are deducted directly from the assets of the underlying mutual
fund portfolios and therefore reduce their net asset value. The investment
adviser of each underlying mutual fund supplied the above information, and we
have not independently verified it. The expenses shown are those incurred for
the year ended December 31, 1998 except that the Evergreen VA Equity Index Fund
commenced operations on September 30, 1999, so the figures for this portfolio
are estimates for its first year of operations. Current or future expenses may
be greater or less than those shown. See the underlying mutual funds' prospectus
for more complete information.
/2/With respect to certain Portfolios, the Portfolio's investment adviser is
waiving part or all of its Management Fee and reimbursing part or all of the
Other Expenses. Absent the waivers or reimbursements, the 1998 expenses of these
Portfolios would have been as indicated below:
<TABLE>
<CAPTION>
Total Portfolio
Other/3/ Annual
Management 12b - 1 Expenses Expenses
Portfolio Fee (before any Fees (before any (before waiver or
Waiver) reimbursement) reimbursement)
<S> <C> <C> <C> <C>
Evergreen VA Equity Index Fund 0.40% None 0.46% 0.86%
Evergreen VA Global Leaders Fund 0.95% None 0.61% 1.56%
Evergreen VA Small Cap Value Fund 0.95% None 2.52% 3.47%
INVESCO VIF - Equity Income Fund 0.75% None 0.42% 1.17%
INVESCO VIF - Technology Fund 0.75% None 5.85% 6.60%
INVESCO VIF - Utilities Fund 0.60% None 1.24% 1.84%
Strong Mid Cap Growth Fund II 1.00% None 0.55% 1.55%
</TABLE>
/3/Class 2 of the Templeton Variable Products Series Fund has a distribution
plan or "Rule 12-b-1 plan" that is described in the Fund's prospectus.
4
<PAGE>
We also deduct a portion of the surrender charge if you reduce the base
face amount of the policy, or if a withdrawal causes the base face amount to be
reduced. See the "Surrender Charge" section of this prospectus.
There is also a $25 transaction charge for transactions in excess of the
following limits:
. each withdrawal after the 1/st/ in a policy year (the charge is limited to
2% of the withdrawal);
. each transfer between subaccounts and/or the fixed account after the 12/th/
in a policy year;
. each requested policy illustration after the 1/st/ in a policy year.
Taxes
We intend for the policy to satisfy the definition of life insurance under
the Internal Revenue Code. 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 or
withdrawal, surrender the policy, or we pay the maturity benefit. Under certain
circumstances, a policy could be treated as a modified endowment contract. See
"Tax Considerations" for a discussion of when distributions, such as
withdrawals, 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
subaccounts (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 charge) 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.
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.
Withdrawal. You generally may make a withdrawal from the net cash surrender
value at any time during the insured's life, provided that the policy has
sufficient net cash surrender value remaining.
Death Benefit
You must select one of two death benefit options under the policy:
(a) Option A: the greater of the policy's base face amount or a multiple of
its policy value; or
(b) Option B: the greater of (i) the policy's base face amount plus its policy
value or (ii) a multiple of its policy value.
The total death benefit equals the base death benefit above, plus any amounts
provided by the adjustable term insurance rider and any other riders payable on
the death of the insured.
Subject to certain limits, you may change the policy's face amount and
death benefit.
The policy's no-lapse guarantee feature will keep the policy in force
during the first three policy years even if there is insufficient cash surrender
value to pay the cost of insurance and other periodic charges. The no-lapse
guarantee remains effective during the first three policy years so long as
cumulative premiums paid on the policy, less gross withdrawals and any
outstanding loan balance, equals or exceeds the cumulative no-lapse monthly
premiums for the number of months the policy has been in force.
An optional death benefit guarantee rider is available, which allows you to
choose one of two guarantee periods at the time of application:
. to the later of the insured's age 65 or 10 years, or
. for the lifetime of the insured, or to the maturity date.
Each guarantee period requires the payment of higher premiums, and the guarantee
does not apply to any rider benefits. As long as the guarantee is in force, we
will deduct a monthly charge for the rider from your policy value. This optional
benefit rider is not available in all states.
5
<PAGE>
Termination
There is no minimum guaranteed policy value. The policy value may decrease
if the investment performance of the variable subaccounts (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 no-lapse guarantee
or an optional 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. In addition to the optional
death benefit guarantee rider previously described, other benefits currently
available under the policy are:
. accelerated death benefit rider;
. accidental death benefit rider;
. additional insured term insurance rider;
. adjustable term insurance rider;
. change of person insured rider;
. children's term insurance rider;
. disability waiver of monthly deductions rider;
. disability waiver of specified premium rider; and
. option to purchase additional insurance rider.
Other supplemental benefits may also be available, and all benefits may not
be available in all states.
Transfers: Within certain limits, you may transfer all or part of your
policy value among the variable subaccounts and the fixed account.
Dollar-Cost Averaging: You may have automatic transfers of a predetermined
amount made from the fixed account or the money market variable subaccount to
other variable subaccounts. Certain minimums and other restrictions apply.
Automatic Asset Rebalancing: You may have automatic transfers occur at
selected intervals that will reallocate your policy value according to your
premium allocation percentage for new premiums. Certain minimums and other
restrictions apply.
Illustrations: Sample projections of hypothetical death benefits and
policy values are in Appendix A 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 cash surrender 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.
Financial Information: Our financial statements are in Appendix D 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
2001 Third Avenue South (35233)
P.O. Box 10287
Birmingham, Alabama 35202-0287
Telephone: (800)340-3787
6
<PAGE>
- --------------------------------------------------------------------------------
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
underlying mutual funds' prospectuses carefully before investing.
Titanium Universal Life Variable Account
================================================================================
The variable subaccounts are divisions of the Titanium Universal Life
Variable Account (the "Variable Account"). We established the Variable Account
as a segregated asset account on September 15, 1999. The Variable Account will
receive and invest the premiums allocated to the variable subaccounts. Our
Variable Account is currently divided into 32 subaccounts. Each subaccount
invests exclusively in shares of a single mutual fund portfolio. Income, gains
and losses arising from the assets of each subaccount are credited to or charged
against that subaccount without regard to income, gains or losses from any other
subaccount 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 subaccounts 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.
The Portfolios
Each subaccount of the Variable Account invests exclusively in shares of a
particular mutual fund portfolio. The assets of each portfolio 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.
The investment objectives and policies of each mutual fund 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 prospectuses of the portfolios which accompany this prospectus.
The following 32 mutual fund portfolios are currently offered to policy
owners through the subaccounts of the Variable Account:
Investment Objective and Certain Policies
- --------------------------------------------------------------------------------
Portfolio Investment Objective and Certain Policies
- --------------------------------------------------------------------------------
AIM V.I. Capital Seeks growth of capital through investment in common
Appreciation Fund stocks, with emphasis on small and medium sized growth
companies. Focus is on companies believed to be likely to
benefit from new or innovative products, services or
processes as well as those that have experienced above-
average, long-term growth in earnings.
- --------------------------------------------------------------------------------
AIM V.I. Seeks growth of capital primarily by investing in
Growth Fund seasoned and better capitalized companies considered to
have strong earnings momentum.
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Investment Objective and Certain Policies
- --------------------------------------------------------------------------------
AIM V.I. Growth and Seeks growth of capital with a secondary objective of
Income Fund current income. Focus is on securities of established
companies that have long-term, above-average growth
earnings and dividends, and growth companies that have
potential for above-average growth in earnings and
dividends.
- --------------------------------------------------------------------------------
AIM V.I Seeks long-term growth of capital by investing in a
International diversified portfolio of international equity securities
Equity Fund whose issuers are considered to have strong earnings
momentum. The Fund primarily invests in companies outside
of the United States, emphasizing investment in companies
in the developed countries of Western Europe and the
Pacific Basin.
- --------------------------------------------------------------------------------
AIM V.I. Seeks long-term growth of capital by investing primarily
Value Fund in equity securities judged by the fund's investment
advisor to be undervalued relative to the investment
advisor's appraisal of the current or projected earnings
of the companies issuing the securities, or relative to
current market values of assets owned by the companies
issuing the securities or relative to the equity market
generally. Income is a secondary objective.
- --------------------------------------------------------------------------------
Alger American Seeks long-term capital appreciation. It focuses on
Growth Portfolio growing companies that generally have broad product lines,
markets, financial resources and depth of management.
Under normal circumstances, the portfolio invests
primarily in the equity securities of large companies. The
portfolio considers a large company to have a market
capitalization of $1 billion or greater.
- --------------------------------------------------------------------------------
Alger American Primarily seeks to provide a high level of dividend
Income and income; its secondary goal is to provide capital
Growth Portfolio appreciation. The portfolio invests in dividend paying
equity securities, such as common or preferred stocks,
preferably those which the Manager believes also offer
opportunities for capital appreciation.
- --------------------------------------------------------------------------------
Alger American Seeks long-term capital appreciation. Under normal
Leveraged AllCap portfolio invests in the equity securities of companies
Portfolio of any size which demonstrate promising growth potential.
The portfolio can leverage, that is, borrow money, up to
one-third of its total assets to buy additional
securities. By borrowing money, the portfolio has the
potential to increase its returns if the increase in the
value of the securities purchased exceeds the cost of
borrowing, including interest paid on the money borrowed.
- --------------------------------------------------------------------------------
Alger American Seeks long-term capital appreciation. It focuses on
MidCap Growth mid-size companies with promising growth potential. Under
Portfolio normal circumstances, the portfolio invests primarily in
the equity securities of companies having a market
capitalization within the range of companies in the S&P(R)
MidCap 400 Index.
- --------------------------------------------------------------------------------
Alger American Seeks long-term capital appreciation. It focuses on
Small small, fast-growing companies that offer innovative
Capitalization products, services or technologies to a rapidly expanding
Portfolio marketplace. Under normal circumstances, the portfolio
invests primarily in the equity securities of small
capitalization companies. A small capitalization company
is one that has a market capitalization within the range
of the Russell 2000(R) Growth Index or the S&P(R) SmallCap
600 Index.
- --------------------------------------------------------------------------------
BT Insurance Seeks to match as closely as possible, and before
Funds Trust expenses, the risk and return characteristics of the
EAFE(R) Equity Morgan Stanley Capital International (MSCI) EAFE Index,
Index Fund which emphasizes stocks of companies in major markets in
Europe, Australia and the Far East. The Fund may also use
stock index futures and options.
- --------------------------------------------------------------------------------
BT Insurance Seeks to match as closely as possible, and before
Funds Trust Small expenses, the risk and return characteristics of the
Cap Index Fund Russell 2000 Small Stock Index which emphasizes stocks of
small United States companies. The Fund may also use
stock index futures and options.
- --------------------------------------------------------------------------------
Dreyfus VIF-Capital Seeks long-term capital growth consistent with the
Appreciation preservation of capital; current income is a secondary
Portfolio focusing on 'blue chip' companies with total market values
of more than $5 billion at the time of purchase.
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Investment Objective and Certain Policies
- --------------------------------------------------------------------------------
Dreyfus VIF-Money Seeks as high a level of current income as is consistent
Market Portfolio with the preservation of capital and the maintenance of
liquidity. The portfolio invests in a diversified
portfolio of high-quality, short-term debt securities.
- --------------------------------------------------------------------------------
Dreyfus VIF-Quality Seeks to maximize current income as is consistent with
Bond Portfolio the preservation of capital and the maintenance of
liquidity. The portfolio invests at least 80% of net
assets in fixed-income securities, including mortgage-
related securities, collateralized mortgage obligations
and asset-backed securities, that, when purchased, are
rated A or better, and in securities issued or guaranteed
by the U.S. government or its agencies or
instrumentalities.
- --------------------------------------------------------------------------------
Dreyfus Socially Seeks to provide capital growth, with current income as
Responsible a secondary goal. To pursue these goals, the fund
Growth Fund, Inc. invests primarily in the common stock of companies that,
in the opinion of the fund's management, meet traditional
investment standards and conduct their business in a
manner that contributes to the enhancement of the quality
of life in America.
- --------------------------------------------------------------------------------
Evergreen VA Seeks investment results that achieve price and yield
Equity Index Fund performance similar to the Standard and Poor's 500
Composite Stock Price Index (S&P 500 Index). The fund's
investment advisor uses a passive management approach and
purchases all or a representative sample of the stocks
comprising the S&P 500 Index which is an un-managed index
of 500 common stocks chosen to reflect the industries of
the U.S. economy and is often considered a proxy for the
stock market in general.
- --------------------------------------------------------------------------------
Evergreen VA Seeks, in order of priority, reasonable income,
Foundation Fund conservation of capital and capital appreciation. The fund
invests principally in a combination of common stocks,
securities convertible into or exchangeable for common
stocks and fixed income securities.
- --------------------------------------------------------------------------------
Evergreen VA Seeks to provide investors with long-term capital growth.
Global Leaders The fund normally invests at least 65% of its assets in
Fund a diversified portfolio of U.S. and non-U.S. equity
securities of companies located in the world's major
industrialized countries.
- --------------------------------------------------------------------------------
Evergreen VA Seeks current income and capital growth in the value of
Small Cap Value its shares. The fund invests primarily in common stocks
Fund and convertible preferred stocks of small companies (less
than $1 billion in market capitalization). The fund seeks
to limit the investment risk of small company investing by
seeking stocks that produce regular income and trade below
what the manager considers their intrinsic value. The fund
looks specifically for various growth triggers that will
bring the stock's price into line with its actual or
potential value, such as new products, new management,
changes in regulation and/or restructuring potential.
- --------------------------------------------------------------------------------
INVESCO VIF- Primary goal is high current income. Capital growth is a
Equity Income secondary objective in the selection of portfolio
Fund securities. The fund normally invests at least 65% of its
assets in dividend-paying common and preferred stocks.
Although it focuses on the stocks of larger companies with
a strong record of paying dividends, the Fund's assets may
be invested in equity securities that do not pay regular
dividends.
- --------------------------------------------------------------------------------
INVESCO VIF- Seeks capital appreciation and invests in strong growth
Technology Fund companies engaged in various technology-related
industries. Although the funds can invest in debt
securities, it primarily invests in equity securities that
are believed will rise in price faster than other
investments, as well as other investments whose value is
based upon the values of equity securities. The fund tends
to be more volatile than other mutual funds, and the value
of its portfolio investments tend to go up and down more
rapidly. As a result, the value of a fund share may rise
or fall rapidly.
- --------------------------------------------------------------------------------
INVESCO VIF- Seeks capital growth and income through investments in
Utilities Fund companies that produce, generate, transmit or distribute
natural gas or electricity, and in companies that provide
telecommunication services including local, long distance
and wireless. Stock selections are based on the merits of
the individual companies, but weighting within the various
industry segments are monitored to prevent extreme tilts
in the fund. The fund tends to be more volatile than other
mutual funds, and the value of its portfolio investments
tend to go up and down more rapidly. As a result, the
value of a fund share may rise or fall rapidly.
- --------------------------------------------------------------------------------
MFS(R) Emerging Seeks to provide long-term growth of capital. The series
Growth Series normally invests at least 65% of its total assets in
common stocks and related securities, such as preferred
stocks, convertible securities and depositary receipts for
those securities, of emerging growth companies.
- --------------------------------------------------------------------------------
9
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Investment Objective and Certain Policies
- --------------------------------------------------------------------------------
MFS(R) Growth Seeks to provide reasonable current income and long-term
With Income growth of capital and income. The series normally
Series invests at least 65% of its total assets in common
stocks and related securities, such as preferred stocks,
convertible securities and depositary receipts for those
securities. The series generally focuses on companies with
larger market capitalizations that are believed to have
sustainable growth prospects and attractive valuations
based on current and expected earnings or cash flow.
- --------------------------------------------------------------------------------
MFS(R) Research Seeks to provide long-term growth of capital and future
Series income. The series normally invests at least 80% of its
total assets in common stocks and related securities, such
as preferred stocks, convertible securities and depositary
receipts. The series focuses on companies believed to have
favorable prospects long-term growth, attractive
valuations based on current and expected earnings or cash
flow, dominant or growing market share, and superior
management.
- --------------------------------------------------------------------------------
MFS(R) Total Seeks primarily to provide above-average income
Return Series (compared to a portfolio invested entirely in equity
securities) consistent with the prudent employment of
capital, and secondarily to provide opportunity for growth
of capital and income. The series is a "balanced fund" and
invests in a combination of equity and fixed income
securities.
- --------------------------------------------------------------------------------
Strong Discovery Seeks capital growth. The fund invests in a diversified
Fund II portfolio of common stocks from small, medium, and large-
capitalization companies. The fund has an active trading
approach.
- --------------------------------------------------------------------------------
Strong Mid Cap Seeks capital growth. The fund invests at least 65% of
Growth Fund II its assets in stocks of medium-capitalization companies
that the fund's managers believe have favorable prospects
for accelerating growth of earnings but are selling at
reasonable valuations based on earnings, cash flow, or
asset value. The fund has an active trading approach.
- --------------------------------------------------------------------------------
Strong Seeks capital growth. The fund invests primarily in
Opportunity Fund stocks of medium-capitalization companies that the fund's
II manager believes are underpriced, yet have attractive
growth prospects based on a company's "private market
value," the price an investor would be willing to pay for
the entire company given its management, financial health,
and growth potential.
- --------------------------------------------------------------------------------
Templeton Asset Seeks a high level of total return. Invests in stocks of
Allocation Fund* companies of any nation, bonds of companies and
governments of any nation, and in money market
instruments. The mix of investments will be adjusted to
capitalize on total return potential produced by changing
economic conditions throughout the world, including
emerging markets. Foreign investing involves special
risks.
- --------------------------------------------------------------------------------
Templeton Seeks long-term capital growth. Invests primarily in
International stocks of companies located outside the United States,
Fund* including emerging markets. Foreign investing involves
special risks.
- --------------------------------------------------------------------------------
Each mutual fund portfolio 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 prospectuses of the
portfolios which accompany this prospectus.
These mutual fund portfolios are not available for purchase directly by the
general public, and are not the same as other mutual fund portfolios with very
similar or nearly identical names that are sold directly to the public. However,
the investment objectives and policies of certain portfolios available under the
policy are very similar to the investment objectives and policies of other
portfolios that are or may be managed by the same investment adviser or manager.
Nevertheless, the investment performance and results of the portfolios available
under the policy may be lower, or higher, than the investment results of such
other (publicly available) portfolios. There can be no assurance, and no
representation is made, that the investment results of any of the portfolios
available under
________________________________
* On February 8, 2000 a shareholders meeting will be held to approve a
proposal to merge the funds of Templeton Variable Products Series Fund into
the similar corresponding funds of Franklin Templeton Variable Insurance
Products Trust (Reorganization). If approved, the Reorganization will be
completed by May 1, 2000.
10
<PAGE>
the policy will be comparable to the investment results of any other mutual fund
portfolio, even if the other portfolio has the same investment adviser or
manager and the same investment objectives and policies, and a very similar
name.
We may receive payments or revenues from some or all of the mutual fund
portfolios or their investment advisers. The amount we receive may depend on how
much of our policy value is invested in the applicable portfolios.
Fixed Account
================================================================================
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
3.5%. 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 3.5% per year. We may credit interest at a rate in excess of 3.5% 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 3.5% 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
================================================================================
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 conditional receipt 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 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.
11
<PAGE>
Conditional Receipt
You may be given a 'conditional receipt' when you apply for a policy, if
you pay an initial premium (or a 'conditional deposit') equal to at least one
no-lapse monthly premium. However, even if you are given a conditional receipt,
no life insurance will take effect earlier than the policy delivery date unless
all of the conditions of the conditional receipt are met. These conditions are
specified in the conditional receipt. If these conditions are not met, then we
have no liability except to return the initial premium.
The maximum amount of insurance available under a conditional receipt is
$500,000. Until we approve the application and issue the policy (on its
effective date), your premium is not invested (in either the variable or the
fixed account) and you have no policy value.
The terms of the conditional receipt may depend on requirements of your
state, and it may have a different name.
"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;
(c) any supplemental benefits under the policy; and
(d) the investment performance of the portfolios you choose.
The initial premium must be at least equal to the no-lapse 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 $25.00 (or the no-
lapse 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, quarterly, semi-annually or annually 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 minimum noted above), or
skip a planned premium entirely. You can change the amount of planned
12
<PAGE>
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 subaccounts 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 no-lapse guarantee or an optional death
benefit guarantee is in effect.
If the no-lapse guarantee or an optional death benefit guarantee is not in
effect on a monthly processing date 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 "No-Lapse Guarantee.") This can occur even if you
--------------------------
have paid all planned premiums in full and on time.
- --------------------------------------------------
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 payment required (called the "grace
period premium") 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.
No-Lapse Guarantee. During the first three policy years, the policy will
continue in force so long as total premiums paid, less gross withdrawals and any
loan balance, are at least equal to the cumulative amount of no-lapse monthly
premiums for the number of policy 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 no-
lapse monthly premium changes after the policy's effective date, the total
premium amount required will be based on each no-lapse monthly premium amount
and the number of months for which each applies.
The Cash Surrender Value at the third policy anniversary may be zero or
less. If so, then payment of additional premiums will be required to prevent the
policy from lapsing.
Optional Death Benefit Guarantee. An optional death benefit guarantee rider
is also available, that will extend the period during which the base face amount
will remain in effect even if your net cash surrender value is insufficient to
pay monthly deductions. The guarantee does not apply to any rider benefits,
including the adjustable term insurance rider, and these additional benefits may
lapse even though the base face amount remains in force. One of two guarantee
periods may be chosen when you apply for the policy:
13
<PAGE>
(a) to the later of the insured's age 65 or 10 policy years, or
(b) for the lifetime of the insured, or to the maturity date.
Each guarantee requires the payment of premiums each month higher than the
no-lapse monthly premium. We include the higher required premium in your policy
for whichever guarantee period you choose, and will send revised policy pages if
the required premium changes due to a change in your benefits. At the end of the
first three years, and each monthly processing date thereafter, the guarantee
will not stay in effect unless total premiums paid, less gross withdrawals and
any loan balance, equals or exceeds the cumulative amount of required monthly
premiums for the number of policy months the policy has been in force. If the
death benefit guarantee rider terminates due to insufficient premium payments,
it may not be restored or reinstated by payment of additional premiums.
As long the death benefit guarantee rider is in force, we will deduct an
additional monthly charge for the guarantee from your policy value. This charge
is currently $0.005 per $1,000 of base face amount each month, and is guaranteed
not to exceed $0.01 per $1,000 of base face amount each month. This optional
benefit can only be added when we issue your policy, and is not available in all
states.
Crediting Premiums to the Policy. On the policy's effective date, the
initial net premium 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 subaccount and to the fixed account. You can change the allocation
percentages at any time by sending satisfactory written or telephone
instructions (if we have your written authorization for telephone requests on
file) 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
subaccounts or to the fixed account. There is a $25 charge for each transfer
after twelve in a policy year. You may transfer amounts from the fixed account
to one or more variable subaccounts only once each policy year. We also reserve
the right to limit the maximum amount you can transfer out of the fixed account
to 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.
The minimum amount that may be transferred out of a variable subaccount or
the fixed account is $100 or, if less, the policy value in the variable
subaccount 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.
14
<PAGE>
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 an
amount from the fixed account or the money market variable subaccount to the
other variable subaccounts on a periodic basis prior to the policy's maturity
date. The amount transferred may be (1) a specified dollar amount from each
account, or (2) a percentage of the value in each account, or (3) an amount
determined from a beginning date to an ending date you select, by reducing the
value in each account to zero over the specified period. Dollar-cost averaging
may occur on the same day of the month either monthly, quarterly, semi-annually,
or annually. (If that day of the month does not fall on a business day, then
transfers will be made on the next following business day.) Transfers will be
made at the unit values determined on the date of each transfer.
The minimum automatic transfer of a specified dollar amount is $100. If the
transfer is to be made to more than one variable subaccount, a minimum of $25
must be transferred to each variable subaccount 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 fixed account or money market variable subaccount you are
transferring from 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 free transfers discussed above. We reserve the
right to modify or discontinue offering the dollar-cost averaging program at any
time and for any reason. Another method of dollar-cost averaging is for you to
allocate monthly premiums directly to the variable subaccounts you desire.
Automatic Asset Rebalancing
Automatic asset rebalancing allows you to set up transfers to occur at
selected intervals that will reallocate your policy value according to your
current premium allocation percentages. After the transfers, the ratio of the
value in each investment option to the value for all the investment options
included in automatic rebalancing will equal the percentages chosen by you for
each investment option. You may change your allocation percentages for
automatic rebalancing at any time. Automatic rebalancing may occur on the same
day of the month either quarterly, semi-annually, or annually. If you select
the fixed account or the money market variable subaccount in the dollar-cost
averaging program, you may not include that option in your automatic asset
rebalancing program.
Automatic asset rebalancing provides you with a method for maintaining a
consistent approach to investing your policy value over time, and simplifies
asset allocation among those investments that you and your advisor have
determined represent the appropriate mix at any particular time. You should
consider, however, that transfers will be made from investments which have
outperformed other investment options since the last reallocation of your policy
value to less successful investment options. Automatic rebalancing does not
assure a higher or lower investment return over short or long term horizons.
You may elect to participate in the automatic rebalancing program at any
time by sending a written request to our administrative office. Once elected,
automatic rebalancing remains in effect from the date we receive your request
until you cancel your participation in the program by written request or by
telephone. There is no additional
15
<PAGE>
charge for automatic rebalancing. A transfer under this program is not counted
as a transfer for purposes of the 12 free transfers discussed above. We reserve
the right to modify or discontinue offering automatic rebalancing at any time
and for any reason.
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.")
Withdrawals
You may make withdrawals under your policy at any time during the insured's
life and before the policy has terminated. (See "Requesting Payments.") Requests
for withdrawals must be made in writing. The minimum withdrawal amount is $500.
The amount remaining after a withdrawal must be at least $500.
For each withdrawal after the first in a policy year, there is a
transaction charge equal to the lesser of $25 or 2% of the withdrawal amount. If
death benefit option A is in effect, a withdrawal may reduce the base face
amount of your policy. (See "Effect of Withdrawals on the Death Benefit.") A
portion of the surrender charge will be deducted based on the amount of the
decrease in base face amount caused by the withdrawal. (See "Surrender Charge.")
The amount of the withdrawal plus any applicable surrender charge and
transaction charge is called the gross withdrawal.
When you request a withdrawal, you should tell us what funding choices the
policy value should be deducted from. If you provide no directions, the gross
withdrawal will be deducted from your policy value in the variable subaccounts
and the fixed account on a pro rata basis. Withdrawals 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 charge. Outstanding loans, including accrued interest,
reduce the amount available for new loans. The minimum loan amount is $100. 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 must remain in the fixed account or be transferred from variable
subaccounts to the fixed account. The amount to be transferred will be deducted
from each variable subaccount in the same proportion that the value of each
variable subaccount bears to your variable account value unless you specify one
or more variable subaccounts from which the loan is to be made.
Interest. We will charge interest daily on any outstanding loan at an
effective annual rate of 4.75%. 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 subaccounts in the same proportion that the
value of each variable subaccount bears to your variable account value. On each
monthly processing date, 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 0.75%) on any preferred loan amount. Preferred loans are available each
policy year following the tenth policy anniversary. The amount
16
<PAGE>
available as a preferred loan is 10% of the net policy value, which is the
policy value minus any existing loan balance. The policy value will be
determined at the time of the loan. If you do not borrow the maximum preferred
loan amount in a policy year, the unused amount is not available to increase the
preferred loan amount in any subsequent policy year.
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 $100 each (or the outstanding loan balance, if less). Upon repayment of
the loan balance, the portion of the repayment allocated to a variable
subaccount will be transferred from the fixed account to increase the value in
that variable subaccount. The repayment will be allocated among the variable
subaccounts 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 subaccounts 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 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 subaccounts and greater if the
fixed account net interest rate is higher than the investment return of the
applicable variable subaccounts.
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 processing date and the no-lapse guarantee or an
optional 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.
Loans under modified endowment contracts are treated as distributions for
tax purposes. Loans under policies that are not modified endowment contracts are
generally not treated as distributions (see the "Tax Considerations" section of
this prospectus) except that 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, withdrawal amounts or the
net cash surrender value 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 subaccounts
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
17
<PAGE>
(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 3.5%. 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 subaccount 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.
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
subaccount in which you have 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 withdrawal, 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 withdrawals and any loan balance.
18
<PAGE>
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) agree to the reduction of the policy value by any loan balance; and
(d) pay the premium required to reinstate the policy.
The reinstatement date for the policy will be the monthly processing date on or
following the day we approve the application for reinstatement. (See the policy
form for additional information.) The policy cannot be reinstated if you have
surrendered it for the net cash surrender value.
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.
Automatic Continuation of Benefits. 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.
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".) 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.
Death Benefits
================================================================================
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 base death benefit determined under the death benefit option in
effect on the date of the insured's death; plus
(b) any supplemental benefits provided by riders, including the adjustable
term insurance rider; minus
19
<PAGE>
(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 base death benefit depends on the base face amount, the policy value on
the date of death, and the death benefit option in effect on the date of death.
The base face amount is the amount of insurance chosen by you for the policy at
issue, or as subsequently increased or decreased by you.
Death Benefit Option A. The base death benefit under option A is the greater
of:
(1) the base 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
death benefit factor from the table of death benefit factors below.
Under option A, the base death benefit ordinarily will not change.
Death Benefit Option B. The base death benefit under option B is the
greater of:
(1) the base 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
death benefit factor from the table of death benefit factors below.
Under option B, the base 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.)
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 of Death Benefit Factors
<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>
20
<PAGE>
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.
Adjustable Term Insurance Rider and Target Face Amount
An adjustable term insurance rider is available to add death benefit coverage
on the primary insured, above the base face amount, up to a "target" face amount
(initially chosen by you, within certain limits). The target face amount is the
sum of the base face amount and the initial adjustable term insurance rider
amount. The amount of the rider at each monthly processing date will be
determined so that the sum of the rider amount and the base death benefit is
equal to:
(1) the target face amount, if the death benefit option is A; or
(2) the target face amount plus the policy value, if the death benefit option
is B.
The rider amount will decrease when the base death benefit begins increasing
to maintain the required multiple of the policy value as described above. The
adjustable term insurance rider amount may also increase again if the base death
benefit decreases as the policy ages.
If the base death benefit becomes greater than or equal to the target face
amount, the amount of the adjustable term insurance rider will become zero. If
the rider amount reduces to zero, the rider will not terminate, but will remain
attached to the policy in the event that the base death benefit declines below
the target face amount again at a later date. The maximum adjustable term
insurance rider amount that we will issue is limited to nine times the base face
amount.
The relationship of the death benefit to the target face amount also depends
on the death benefit option (in each case, the death benefit will still be
reduced by any loan balance or unpaid monthly deductions):
. Option A: The death benefit is the greater of (1) the base death benefit, or
(2) the target face amount.
. Option B: The death benefit is the greater of (1) the base death benefit, or
(2) the target face amount plus the policy value.
It may be to your economic advantage to use the adjustable term insurance
rider as a part of your insurance coverage. Since target premiums, percentage of
premium sales loads, and surrender charges are only associated with the base
face amount, use of the adjustable term insurance rider can lower the charges
associated with the policy. Use of the adjustable term insurance rider may
reduce sales compensation. However, there is an extra charge for this rider
(i.e., it increases the cost of insurance charge described below) and the
----
optional death benefit guarantee will not apply to any insurance amount provided
by the adjustable term insurance rider.
Calculation of Death Benefit Example. Assume your base face amount is
$150,000, the initial adjustable term insurance rider amount is $100,000, death
benefit option A is in effect, and there are no loans or unpaid monthly
deductions. The target face amount is therefore $250,000, and assuming the
policy value changes as shown below, the following amounts will result:
Death Benefit Policy Base Death Adjustable Term Death
Age Factor Value Benefit Insurance Rider Amount Benefit
--- ------------- ------ ---------- ----------------------- --------
55 1.50 $ 95,000 $150,000 $100,000 $250,000
56 1.46 105,000 153,300 96,700 250,000
57 1.42 107,000 151,940 98,060 250,000
21
<PAGE>
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 base 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 base 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 base face amount increase.
The effective date of the change will be the monthly processing date 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. We do not impose a surrender charge for any
decrease in the base face amount occurring as a result of the change, and there
is no change to the target premium. Changing the death benefit option may have
tax consequences. (See "Tax Considerations.")
Changing the Face Amount
You select the policy's base face amount and adjustable term insurance rider
amount, if any, when you apply for the policy. After the policy has been in
force at least one year, you may change the base face amount or the adjustable
term insurance rider amount on any monthly processing date subject to the
following requirements. Any change in amount must be at least $10,000, and the
minimum base face amount after the first policy year is $50,000. Once you change
the base face amount or the adjustable term insurance rider amount, you cannot
change either amount 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. (See
"Tax Considerations" below.)
Increasing the Face Amount. To increase the policy's base face amount or
adjustable term insurance rider amount, you must:
(a) submit an application for the increase;
(b) submit proof satisfactory to us that the insured is an insurable risk;
and
(c) pay any additional premium that is required.
No increases can be made after the insured reaches attained age 75. An
increase will take effect on the monthly processing date on or following the day
we approve the application for the increase.
The risk class that applies for any increase may be different from the risk
class that applies for the policy's initial base face amount or any other
increase. An increase in the base face amount or the adjustable term insurance
rider amount will result in an increase in the no-lapse monthly premium. An
increase in the base face amount will also increase the target premium and
result in additional administrative and sales surrender charges. (See "Impact of
Changes in Base Face Amount on Surrender Charge".) If the face amount is
increased, the cost of insurance will also increase due to the increased death
benefit.
22
<PAGE>
Decreasing the Face Amount. You may decrease the policy's base face amount or
adjustable term insurance rider amount by submitting a written request. The base
face amount may not be decreased below the policy's minimum base face amount.
The no-lapse monthly premium for your policy will be reduced to reflect the
decrease. Any decrease will take effect on the later of:
(a) the monthly processing date on or following the day we receive the
request; or
(b) the monthly processing date one year after the date of the last change in
face amount.
A face amount decrease will be used to reduce the face amount in the following
order:
(a) the amount of any adjustable term insurance rider will be reduced until
it is equal to zero;
(b) any previous base face amount increases then in effect will be reduced,
starting with the latest increase and continuing in the reverse order in
which the increases were made;
(c) the policy's initial base face amount will be reduced.
We will deduct a charge from the policy value each time the policy's base face
amount is decreased. (See "Impact of Changes in Base Face Amount on Surrender
Charge".)
Effect of Withdrawals on the Death Benefit
A withdrawal will affect your policy's death benefit in the following
respects:
(a) If death benefit option A is in effect, the policy's base face amount
will be reduced by the gross withdrawal amount. If the base face amount
reflects increases in the policy's initial base face amount, any
withdrawal 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 base face amount.
(b) If death benefit option B is in effect, the total death benefit is also
reduced by the gross withdrawal amount, but the policy's base face amount
is not affected.
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.
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 most
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. Some of the supplemental benefits listed below may not be
available in all states, and 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
in your state.
Terms and conditions for each supplemental benefit are specified in the
applicable rider; the following are only brief descriptions.
23
<PAGE>
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.
Additional Insured Term Insurance Rider. This benefit allows you to provide
for death benefits on up to five family members (spouse and/or children).
Adjustable Term Insurance Rider. This rider is available to add death benefit
coverage on the primary insured to your policy. The initial amount of coverage
is chosen by you within certain limits, and will reduce to keep the target face
amount level if the base death benefit increases due to Internal Revenue Code
requirements. (See "Death Benefits".)
Change of Person Insured Rider. This benefit allows you to change the person
insured under the policy. Satisfactory evidence of insurability must be provided
for the proposed new insured. Future charges under the policy will change, but
the policy value will remain the same as of the date of the change. Changing the
person insured under the policy may have tax consequences. There is no
additional charge for this rider.
Children's Term Insurance Rider. This benefit allows you to add death benefit
coverage for your children.
Death Benefit Guarantee Rider. This rider provides that your base face amount
will remain in force regardless of the sufficiency of the net cash surrender
value for the guarantee period you selected at the time of application, provided
certain conditions are met. Both available guarantee periods require the payment
of higher premiums, and the guarantee does not apply to any rider benefits. As
long as the guarantee is in force, we will deduct a monthly charge from your
policy value. This charge is currently $0.005 per $1,000 of base face amount,
and is guaranteed never to exceed $0.01 per $1,000 of base face amount. (See
"Optional Death Benefit Guarantee".)
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. If you
add this rider to your policy, you may not add the disability waiver of
specified premium rider.
Disability Waiver of Specified Premium Rider. This benefit provides that we
credit a specified premium amount monthly to your policy after the insured has
been totally disabled for six months. At the time of application, you select the
amount of premium to be credited, subject to our limits. The disability must
commence after the policy's effective date and prior to age 60. The waiver
continues as long as total disability continues. If you add this rider to your
policy, you may not add the disability waiver of monthly deduction rider.
Option to Purchase Additional Insurance Rider. This rider will allow you
increase your base face amount without providing evidence of insurability.
Increases are limited in amount and timing.
Charges and Deductions
================================================================================
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:
24
<PAGE>
(a) the death benefits, cash and loan benefits provided by the policy;
(b) funding choices, including net premium allocations, dollar-cost averaging
programs, and automatic asset rebalancing programs;
(c) administration of various elective options under the policy (including
riders); and
(d) the distribution of various reports to policy owners.
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 (and riders);
(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 (and
riders) will exceed the charges deducted.
Premium Expense Charges
We deduct premium expense charges from each premium before allocating the
resulting net premium to the policy value. These charges consist of three types:
(a) 2.5% of each premium is deducted for state premium taxes;
(b) 1.5% of each premium is deducted for our estimate of the cost of the
Federal income tax treatment of deferred acquisition costs;
(c) 4% of each premium is deducted as a sales load, until premiums paid equal
10 times the target premium for the policy.
The "target premium" is not the planned premium that you intend to pay. The
target premium is used only to calculate the sales load part of the premium
expense charge, and to calculate the sales surrender charge (discussed below). A
target premium is determined for the initial base face amount, and an additional
target premium is determined for each increase in the base face amount, based on
the insured's age, sex, and risk class. The target premium is not based on the
amount you plan to pay. The target premium may be more or less than the no-lapse
monthly premium depending on any additional benefits that have been added to the
policy. Your specific target premium will be specified on the policy data page
of your policy.
An addition to the target premium will be made when the base face amount is
increased, and a new sales load will be deducted in determining the net premium.
The new sales load will equal 4% of the premiums paid after the effective date
of the increase which are allocated to the increase, until the premiums
allocated to the increase equal 10 times the increase in the target premium.
Premiums paid after the effective date of the increase will be allocated in
proportion to the target premium for each portion of the base face amount.
25
<PAGE>
Mortality and Expense Risk Charge
We deduct a daily charge from assets in the variable subaccounts for certain
mortality and expense risks we bear. This charge is at an effective annual rate
of 0.75% of the Variable Account assets during the first ten policy years, 0.50%
during the second ten years, and 0.25% thereafter. We guarantee not to increase
the mortality and expense risk charge above these annual rates. 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 processing date. 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) an issue expense charge of $20.00 per month payable during the first
policy year only;
(c) a monthly policy charge (currently this is $6.00 per month; it may
increase to a maximum charge of $10.00 per month); 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 beginning of the 15th policy year, we
will deduct a surrender charge based on its base face amount at issue. We also
deduct the surrender charge if you surrender the policy before the beginning of
the 15th year following an increase in its base face amount (based on the amount
of the increase). The surrender charge will be deducted before any surrender
proceeds are paid. A portion of the surrender charge will also be deducted for
any base face amount decreases you request, or if the base face amount decreases
due to a withdrawal from your policy value. (See "Impact of Changes in Base
Face Amount on Surrender Charge.")
The surrender charge consists of two types of charges, an administrative
surrender charge and a sales surrender charge. The administrative surrender
charge is $4.00 per $1,000 of base face amount for the first nine policy years
(or the first nine years after a base face amount increase) and declines each
year thereafter until it reaches zero:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
Policy Year: 1-9 10 11 12 13 14 15 & up
- -------------------------------------------------------------------------------------------
Charge per $1,000 of Base Face Amount: $4.00 $3.33 $2.67 $2.00 $1.33 $0.67 $0.00
- -------------------------------------------------------------------------------------------
</TABLE>
The sales surrender charge is a percentage of actual premiums paid up to a
maximum based on target premiums. The percentages of premium are:
Policy Years 1 - 2: 26% of premium paid up to one target premium, plus
6% of premium paid above one target up to two target
premiums, plus
5% of premium paid above two target premiums.
Policy Years 3 - 9: 46% of premium paid up to one target premium, plus
44% of premium paid above one target up to two target
premiums.
The sales surrender charge at the end of the 9/th/ policy year will be reduced
to zero at the beginning of the 15/th/ policy year by reducing the charge each
year by one-sixth of the amount of the charge in effect at the end of the 9/th/
policy year.
26
<PAGE>
Impact of Changes in Base Face Amount on Surrender Charge. If you request a
decrease to the base face amount while surrender charges are in effect, or take
a withdrawal that decreases the base face amount, we will deduct a portion of
the surrender charge. Decreases in the base face amount as a result of a death
benefit option change do not cause a surrender charge deduction. Similarly,
increases in the base face amount as a result of death benefit option changes do
not result in an increase in the maximum surrender charge. All other increases
in the base face amount will increase the maximum surrender charge.
For decreases that cause a portion of the surrender charge to be deducted, the
calculation of the charge varies for each type of surrender charge. The
administrative surrender charge deduction will be in proportion to the amount of
the base face amount decrease, and the future administrative surrender charge
will be reduced by the amount of the deduction.
The amount of the sales surrender charge deduction will depend of the
relationship of the premiums paid to the target premium for each portion of the
base face amount. When the decrease is made, the target premium for each portion
of the base face amount will be reduced in proportion to the amount of the base
face amount decrease. If the new target premium for each portion of the base
face amount is greater than or equal to the premiums paid which have been
allocated to that portion, there will be no deduction, although the future
maximum sales surrender charge will be lower than before the decrease occurred.
If the new target premium for each portion of the base face amount is less than
the premiums paid which have been allocated to that portion, the deduction will
be the difference between the sales surrender charge before the decrease and the
sales surrender charge after the decrease. The sales surrender charge after the
decrease will be recalculated as if the new target premium for each portion of
the base face amount had always been in effect for that portion.
Calculation of Surrender Charge Example. Assume the base face amount on your
policy is $100,000 and the insured is age 50 when the policy was issued. The
target premium for the policy is $2,000. Assuming that you pay a $2,500 premium
at the beginning of each policy year, the resulting surrender charge for each
policy year is:
Administrative Sales Total
Policy Year Surrender Charge Surrender Charge Surrender Charge
----------- ---------------- ---------------- ----------------
1 $400 $ 550 $ 950
2 400 690 1,090
3 400 1,800 2,200
4 400 1,800 2,200
5 400 1,800 2,200
6 400 1,800 2,200
7 400 1,800 2,200
8 400 1,800 2,200
9 400 1,800 2,200
10 333 1,500 1,833
11 267 1,200 1,467
12 200 900 1,100
13 133 600 733
14 67 300 367
15 0 0 0
Transaction Charges
Certain policyholder transactions that exceed a maximum number in a policy
year may incur a charge.
Withdrawals. A deduction from the policy value equal to the lesser of $25 or
2% of the withdrawal amount will occur for each withdrawal after the first in a
policy year.
27
<PAGE>
Transfers between Subaccounts and/or the Fixed Account. A deduction of $25 for
each transfer after the 12/th/ in a policy year will be made. Transfers under
the dollar cost averaging and the automatic asset rebalancing program are not
counted against the limit of 12 free transfers.
Policy Illustrations. The first illustration of policy values you request each
policy year will be free. For subsequent illustration requests each policy year,
a $25 deduction will be made from your policy value.
Other Charges
In most cases, there is an additional charge for each rider that you elect.
For information about the investment advisory fees and other expenses incurred
by the Portfolios, see the "Summary" of this prospectus and the accompanying
prospectuses for the underlying mutual funds.
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 processing date
to monthly processing date. 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; 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 (for both the base face amount and the
adjustable term insurance rider) and the cost of insurance for any disability
waiver of monthly deductions rider, but after monthly deductions for any other
riders and charges. If there is any adjustable term rider amount or if there
have been any increases in the base face amount separate charges will be
calculated for each portion of the death benefit.
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 size of the base face amount and 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 base face amount, the policy value will be considered a part of the
initial base face amount when the charge is calculated. If the policy value
exceeds the initial base face amount, the excess will be considered part of the
increases in base 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, or for
28
<PAGE>
substandard classes, a multiple of the tables and/or a flat addition to the
tables. (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 charges, the premium expense
charges, the transaction charges 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
================================================================================
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 subaccounts to which amounts have been
allocated;
(b) interest credited on amounts allocated to the fixed account and loan
balance;
(c) charges;
(d) transfers;
(e) withdrawals; and
(f) policy loans (including loan repayments).
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
subaccounts under the policy. On the policy's effective date, the value of each
variable subaccount is equal to:
(a) the initial net premium allocated to that variable subaccount; minus
(b) the portion of the first month's monthly deduction allocated to that
variable subaccount.
On any business day thereafter, the value of each variable subaccount is equal
to:
29
<PAGE>
(a) the value of the variable subaccount 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 subaccount since
the previous business day; plus
(c) the sum of all loan repayments allocated to the variable subaccount since
the previous business day; plus
(d) the amount of any transfers from other variable subaccounts or the fixed
account to the variable subaccount since the previous business day; minus
(e) the amount of any transfers to other variable subaccounts or to the fixed
account, including amounts transferred to secure a policy loan, from the
variable subaccount since the previous business day; minus
(f) the portion of any gross withdrawals, policyholder transaction charges,
or charges for any face amount decreases allocated to the variable
subaccount since the previous business day; minus
(g) the portion of the monthly deduction allocated to the variable subaccount
since the previous business day.
Unit Values. When you allocate an amount to a variable subaccount, either by
net premium allocation, transfer of policy value or repayment of a policy loan,
your policy is credited with units in that variable subaccount. The number of
units is determined by dividing (i) the amount allocated, transferred or repaid
to the variable subaccount by (ii) the variable subaccount'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 or other charges is taken
from the variable subaccount;
(b) a policy loan is taken from the variable subaccount;
(c) an amount is transferred from the variable subaccount; or
(d) a withdrawal is taken from the variable subaccount.
The number of the variable subaccount's units may also decrease if the policy's
face amount is decreased.
A variable subaccount's unit value is an index we use to measure investment
performance. Each variable subaccount'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 subaccount's unit value was
arbitrarily set at $10.00 when the variable subaccount was established. The unit
value is determined on each business day by multiplying the unit value for the
variable subaccount on the prior business day by the variable subaccount'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 subaccount from one business day to the
next. The net investment factor for any variable subaccount 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 subaccount 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 subaccount, if the
"ex-dividend" date occurs during the current business day; plus or
minus
30
<PAGE>
(3) a per share 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 subaccount;
(b) is:
(1) the net asset value per share of the portfolio shares held in the
variable subaccount, 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 for the
number of days since the last prior business day.
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; minus
(b) the portion of the first month's monthly deduction allocated to the
fixed account.
On any monthly processing date thereafter, the fixed account value is equal
to:
(a) the fixed account value on the preceding monthly processing date; plus
(b) the sum of all net premiums allocated to the fixed account since the
previous monthly processing date; plus
(c) the sum of all policy loan repayments allocated to the fixed account
since the previous monthly processing date; plus
(d) total interest credited to the fixed account since the previous monthly
processing date; plus
(e) the amount of any transfers from the variable subaccounts to the fixed
account, including amounts transferred to secure policy loans, since the
previous monthly processing date; minus
(f) the amount of any transfers from the fixed account to the variable
subaccounts since the previous monthly processing date; minus
(g) the portion of any gross withdrawals, policyholder transaction charges,
or charges for any face amount decreases allocated to the fixed account
since the previous monthly processing date; minus
(h) the portion of the monthly deduction allocated to the fixed account
since the previous monthly processing date.
31
<PAGE>
Tax Considerations
================================================================================
The following discussion is general and is not intended as tax advice.
Introduction
The following summary provides a general description of the Federal income tax
considerations relating to the policy. This summary is based upon 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 the underlying mutual funds will satisfy these
diversification requirements.
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.
32
<PAGE>
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. A policy may be treated as a modified endowment
contract depending upon the amount of premiums paid in relation to the death
benefit provided under such policy. The premium limitation rules for determining
whether such a policy is a modified endowment contract are extremely complex. In
general, however, a policy will be a modified endowment contract if the
accumulated premiums paid at any time during the first seven policy years exceed
the sum of the net level premiums which would have been paid on or before such
time if the policy provided for paid-up future benefits after the payment of
seven level annual premiums.
In addition, if a policy is "materially changed," it may cause such policy to
be treated as a modified endowment contract. The material change rules for
determining whether a policy is a modified endowment contract are also extremely
complex. In general, however, the determination whether a policy will be a
modified endowment contract after a material change depends upon the
relationship of the death benefit at the time of change to the policy or cash
value at the time of such change and the additional premiums paid in the seven
policy years starting with the date on which the material change occurs.
The manner in which the premium limitation and material change rules should be
applied to certain features of the policy and its riders is unclear.
Nonetheless, under our current procedures, the 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.
Due to the policy's flexibility, classification of a policy as a modified
endowment contract will depend upon the circumstances of each policy.
Accordingly, a prospective policy owner should contact a qualified tax advisor
before purchasing a policy to determine the circumstances under which the policy
would be a modified endowment contract. In addition, a policy owner should
contact a competent tax advisor before making any change to, including an
exchange of or reduction in benefits of, a policy to determine whether such
change would cause the policy (or the new policy in the case of an exchange) to
be treated as a modified endowment contract.
If a policy becomes a modified endowment contract, distributions such as
withdrawals and policy loans that occur during the policy year it becomes a
modified endowment contract and any subsequent policy year will be taxed as
distributions from a modified endowment contract. In addition, distributions
from a policy within two years before it becomes a modified endowment contract
will be taxed in this manner. This means that a distribution made from a policy
that is not a modified endowment contract could later become taxable as a
distribution from a modified endowment contract.
Whether a policy is or is not a modified endowment contract, upon a complete
surrender or a lapse or termination of a policy or when benefits are paid at its
maturity date, if the amount received plus the amount of any indebtedness
exceeds the total investment in the policy, the excess will generally be treated
as ordinary income subject to tax.
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.
33
<PAGE>
(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.
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 policy loans that are outstanding after the first 15 policy
years 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. 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.
Investment in the Policy. "Investment in the policy" means:
(a) the aggregate amount of any premiums or other consideration paid for a
policy; minus
(b) the aggregate amount received under the policy which is excluded from the
gross income of the policy owner (except that the amount of any loan
from, or secured by, a policy that is a modified endowment contract, to
the extent such amount is excluded from gross income, will be
disregarded); plus
(c) the amount of any loan from, or secured by, a policy that is a modified
endowment contract to the extent that such amount is included in the
gross income of the policy owner.
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
34
<PAGE>
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.
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
legislative 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
================================================================================
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 subaccounts. 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
United Securities Alliance, Inc., 8 Inverness Drive, Suite 100, Denver,
Colorado, is a principal underwriter of the policies. United Securities
Alliance, Inc. is a corporation organized under the laws of the state of Nevada
in 1994. First Union Securities, Inc., 301 South College Street, Charlotte,
North Carolina, is also a principal underwriter. It is a Delaware corporation
organized in 1999. Both underwriters are registered as broker-dealers
35
<PAGE>
under the Securities Exchange Act of 1934, and are members of the National
Association of Securities Dealers, Inc. The Policies may not be available in all
states. The underwriters may enter into written sales agreements with various
broker-dealers to aid in the sale of the policies. A commission plus bonus
compensation may be paid to broker-dealers or agents in connection with sales of
the policies.
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 subaccounts to, or remove subaccounts 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 subaccounts 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 subaccounts 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 subaccounts at meetings of the
shareholders of the portfolios in accordance with instructions received from
policy owners. The mutual funds generally do 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 subaccount corresponding to that portfolio. We will
vote shares held in a variable subaccount 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.
36
<PAGE>
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 the underlying
mutual funds that are held by the Variable Account (or any of its subaccounts)
or that the Variable Account (or any of its subaccounts) may purchase. We
reserve the right to eliminate the shares of any of the portfolios of the
underlying mutual funds and to substitute shares of another portfolio of the
underlying mutual funds or any other investment vehicle or of another open-end,
registered investment company if:
(a) laws or regulations are changed;
(b) the shares of the underlying mutual funds 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 Subaccount.
We will not substitute any shares attributable to your interest in a subaccount
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 subaccounts of the Variable
Account, each of which would invest in a new portfolio of the mutual funds, or
in shares of another investment company or suitable investment, with a specified
investment objective. We may establish new variable subaccounts when, in our
sole discretion, marketing needs or investment conditions warrant. We may make
available any new variable subaccounts to existing policy owners, and will do so
on a basis that we will determine. We may also eliminate one or more variable
subaccounts 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.
37
<PAGE>
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.
Experts
The balance sheets of United Investors Life Insurance Company as of December
31, 1998 and 1997, and the related statements of operations, comprehensive
income, shareholders' equity, and cash flows for each of the years in the
three-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
The financial statements of United Investors, which are included in Appendix D
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. No
financial statements are presented for the Variable Account because it has yet
to commence operations.
38
<PAGE>
Appendix A:
Hypothetical Illustrations
================================================================================
The following illustrations show how certain values under a sample policy
change with assumed investment performance over an extended period of time. In
particular, they illustrate how policy values, net cash surrender values and
death benefits under a policy, covering an insured of a given 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 subaccounts 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 0.87% of the 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. For
information on portfolio expenses, see the mutual funds prospectuses
accompanying this prospectus.
The illustrations also reflect the 0.75% mortality and expense risk charge to
the Variable Account during the first ten policy years, 0.50% during the second
ten years, and 0.25% thereafter. After deduction of average portfolio expenses
and the mortality and expense risk charge, the illustrated gross annual
investment rates of return would correspond to the following approximate net
annual rates of return for the variable subaccounts:
Hypothetical gross rate of return: 0% 6% 12%
----- ---- -----
Net return, policy years 1 - 10: -1.62% 4.38% 10.38%
Net return, policy years 11 - 20: -1.37% 4.63% 10.63%
Net return, policy years 21 & up: -1.12% 4.88% 10.88%
The current illustrations reflect the $6.00 monthly policy charge for all
policy years, while the guaranteed illustrations reflect the $10.00 maximum
monthly policy charge for all policy years. The illustrations also reflect the
deduction of premium expense charges 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.
39
<PAGE>
MALE ISSUE AGE 35, STANDARD NON-TOBACCO
$1,000 ANNUAL PREMIUM
$100,000 FACE AMOUNT, OPTION A
CURRENT CHARGES
<TABLE>
<CAPTION>
NET CASH
DEATH BENEFITS POLICY VALUES SURRENDER VALUES
------------------------------ ---------------------------- -----------------------------
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 1,050 100,000 100,000 100,000 429 469 509 0 0 0
2 2,153 100,000 100,000 100,000 1,083 1,197 1,317 407 521 641
3 3,310 100,000 100,000 100,000 1,716 1,948 2,199 596 828 1,079
4 4,528 100,000 100,000 100,000 2,329 2,721 3,163 1,209 1,601 2,043
5 5,802 100,000 100,000 100,000 2,919 3,515 4,214 1,799 2,395 3,094
6 7,142 100,000 100,000 100,000 3,487 4,332 5,362 2,367 3,212 4,242
7 8,549 100,000 100,000 100,000 4,030 5,168 6,614 2,910 4,048 5,494
8 10,027 100,000 100,000 100,000 4,548 6,027 7,981 3,428 4,907 6,861
9 11,578 100,000 100,000 100,000 5,079 6,947 9,519 3,959 5,826 8,399
10 13,207 100,000 100,000 100,000 5,585 7,891 11,204 4,652 6,958 10,271
11 14,917 100,000 100,000 100,000 6,075 8,877 13,074 5,328 8,130 12,327
12 16,713 100,000 100,000 100,000 6,548 9,900 15,138 5,988 9,340 14,578
13 18,599 100,000 100,000 100,000 7,047 11,005 17,460 6,674 10,632 17,087
14 20,579 100,000 100,000 100,000 7,509 12,133 20,006 7,322 11,946 19,819
15 22,657 100,000 100,000 100,000 7,831 13,283 22,800 7,931 13,283 22,800
16 24,840 100,000 100,000 100,000 8,307 14,450 25,867 8,307 14,450 25,867
17 27,132 100,000 100,000 100,000 8,635 15,634 29,236 8,635 15,634 29,236
18 29,539 100,000 100,000 100,000 8,908 16,830 32,941 8,908 16,830 32,941
19 32,066 100,000 100,000 100,000 9,124 18,036 37,019 9,124 18,036 37,019
20 34,719 100,000 100,000 100,000 8,278 19,252 41,521 9,278 19,252 41,521
21 37,505 100,000 100,000 100,000 8,567 20,682 46,708 9,567 20,682 46,708
22 40,430 100,000 100,000 100,000 9,804 22,145 52,460 9,804 22,145 52,460
23 43,502 100,000 100,000 100,000 9,983 23,638 58,846 9,983 23,638 58,846
24 46,727 100,000 100,000 100,000 10,099 25,111 65,947 10,099 25,161 65,947
25 50,113 100,000 100,000 100,000 10,143 28,709 73,852 10,143 26,709 73,852
26 53,669 100,000 100,000 107,441 10,107 28,279 82,647 10,107 28,279 82,647
27 57,403 100,000 100,000 118,230 9,979 29,866 92,367 9,979 29,866 92,367
28 61,323 100,000 100,000 129,912 9,750 31,466 103,105 9,750 31,466 103,105
29 85,439 100,000 100,000 142,561 9,412 33,079 114,968 9,412 33,078 114,968
30 69,761 100,000 100,000 156,255 8,953 34,702 128,078 8,953 34,702 128,078
</TABLE>
The hypothetical investment rates of return shown above are illustrative only
and should not be deemed a representation of past or future investment rates of
return. Actual rate of return may be more or less than those shown and will
depend on a number of factors, including the allocations made by a policy owner
to one or more variable subaccounts and the investment experience of the
portfolios underlying those variable subaccounts. 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 withdrawals
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.
40
<PAGE>
MALE ISSUE AGE 50, STANDARD NON-TOBACCO
$2,500 ANNUAL PREMIUM
$100,000 FACE AMOUNT, OPTION A
CURRENT CHARGES
<TABLE>
<CAPTION>
NET CASH
DEATH BENEFITS POLICY VALUES SURRENDER VALUES
----------------------------- ------------------------- --------------------------
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 2,625 100,000 100,000 100,000 1,486 1,599 1,712 560 673 786
2 5,381 100,000 100,000 100,000 3,152 3,479 3,821 2,088 2,416 2,757
3 8,275 100,000 100,000 100,000 4,752 5,404 6,111 2,660 3,312 4,019
4 11,314 100,000 100,000 100,000 6,284 7,371 8,600 4,192 5,279 6,508
5 14,505 100,000 100,000 100,000 7,741 9,378 11,303 5,649 7,286 9,211
6 17,855 100,000 100,000 100,000 9,121 11,422 14,243 7,029 9,330 12,150
7 21,373 100,000 100,000 100,000 10,455 13,539 17,479 8,363 11,446 15,387
8 25,066 100,000 100,000 100,000 11,826 15,816 21,133 9,734 13,724 19,041
9 28,945 100,000 100,000 100,000 13,237 18,267 25,257 11,145 16,175 23,165
10 33,017 100,000 100,000 100,000 14,639 20,851 29,852 12,896 19,108 28,109
11 37,293 100,000 100,000 100,000 16,168 23,716 35,123 14,773 22,321 33,728
12 41,782 100,000 100,000 100,000 17,600 26,656 40,927 16,554 25,610 38,881
13 46,497 100,000 100,000 100,000 18,944 29,682 47,340 18,247 28,985 46,643
14 51,446 100,000 100,000 100,000 20,202 32,808 54,447 19,853 32,459 54,098
15 56,644 100,000 100,000 100,000 21,376 36,043 62,343 21,376 36,043 62,343
16 62,101 100,000 100,000 100,000 22,424 39,365 71,120 22,424 39,365 71,120
17 67,831 100,000 100,000 100,000 23,332 42,775 80,907 23,332 42,775 80,907
18 73,848 100,000 100,000 108,335 24,081 46,275 91,809 24,081 46,275 91,809
19 80,165 100,000 100,000 121,462 24,652 49,871 103,813 24,652 49,871 103,813
20 86,798 100,000 100,000 135,770 25,027 53,581 117,044 25,027 53,581 117,044
21 93,763 100,000 100,000 151,639 25,193 57,511 131,860 25,193 57,511 131,860
22 101,076 100,000 100,000 167,523 25,165 61,630 148,250 25,165 61,630 148,250
23 108,755 100,000 100,000 184,702 24,925 65,968 166,399 24,925 65,968 166,399
24 116,818 100,000 100,000 203,302 24,445 70,560 186,515 24,445 70,560 186,515
25 125,284 100,000 100,000 223,464 23,694 75,449 208,845 23,694 75,449 208,845
26 134,173 100,000 100,000 245,352 22,632 80,688 233,669 22,632 80,688 233,669
27 143,506 100,000 100,000 274,136 21,210 86,346 261,082 21,210 88,346 261,082
28 153,307 100,000 100,000 305,907 19,365 92,509 291,340 19,365 92,509 291,340
29 163,597 100,000 104,150 340,959 17,027 99,190 324,723 17,027 99,190 324,723
30 174,402 100,000 111,457 379,610 14,107 106,150 361,533 14,107 106,150 361,533
</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 subaccounts and the investment experience of the
portfolios underlying those variable subaccounts. 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 withdrawals 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.
41
<PAGE>
MALE ISSUE AGE 35, STANDARD NON-TOBACCO
$1,000 ANNUAL PREMIUM
$100,000 FACE AMOUNT, OPTION A
GUARANTEED CHARGES
<TABLE>
<CAPTION>
NET CASH
DEATH BENEFITS POLICY VALUES SURRENDER VALUES
----------------------------- ---------------------------- -----------------------------
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 1,050 100,000 100,000 100,000 382 420 458 0 0 0
2 2,153 100,000 100,000 100,000 988 1,097 1,210 312 421 534
3 3,310 100,000 100,000 100,000 1,575 1,793 2,030 455 673 910
4 4,526 100,000 100,000 100,000 2,142 2,510 2,925 1,022 1,390 1,805
5 5,802 100,000 100,000 100,000 2,687 3,245 3,900 1,567 2,125 2,780
6 7,142 100,000 100,000 100,000 3,210 4,000 4,963 2,090 2,880 3,843
7 8,549 100,000 100,000 100,000 3,709 4,771 6,122 2,589 3,651 5,002
8 10,027 100,000 100,000 100,000 4,183 5,562 7,386 3,063 4,441 6,266
9 11,578 100,000 100,000 100,000 4,671 6,410 8,810 3,551 5,290 7,690
10 13,207 100,000 100,000 100,000 5,133 7,278 10,365 4,200 6,345 9,432
11 14,917 100,000 100,000 100,000 5,580 8,184 12,092 4,833 7,437 11,345
12 16,713 100,000 100,000 100,000 5,996 9,110 13,984 5,436 8,550 13,424
13 18,599 100,000 100,000 100,000 6,382 10,054 16,058 6,009 9,681 15,685
14 20,579 100,000 100,000 100,000 6,735 11,019 18,335 6,548 10,832 18,148
15 22,657 100,000 100,000 100,000 7,052 12,000 20,834 7,052 12,000 20,834
16 24,840 100,000 100,000 100,000 7,332 12,998 23,581 7,332 12,998 23,581
17 27,132 100,000 100,000 100,000 7,570 14,008 26,601 7,570 14,008 26,601
18 29,539 100,000 100,000 100,000 7,758 15,026 29,920 7,758 15,026 29,920
19 32,066 100,000 100,000 100,000 7,893 16,048 33,573 7,893 16,048 33,573
20 34,719 100,000 100,000 100,000 7,966 17,068 37,595 7,966 17,068 37,595
21 37,505 100,000 100,000 100,000 7,993 18,124 42,126 7,993 18,124 42,126
22 40,430 100,000 100,000 100,000 7,945 19,173 47,141 7,945 19,173 47,141
23 43,502 100,000 100,000 100,000 7,818 20,212 52,705 7,818 20,212 52,705
24 46,727 100,000 100,000 100,000 7,606 21,235 58,888 7,606 21,235 58,888
25 50,113 100,000 100,000 100,000 7,296 22,234 65,775 7,296 22,234 65,775
26 53,669 100,000 100,000 100,000 6,877 23,201 73,461 6,877 23,201 73,461
27 57,403 100,000 100,000 105,019 6,335 24,125 82,046 6,335 24,125 82,046
28 61,323 100,000 100,000 115,340 5,651 24,991 91,540 5,651 24,991 91,540
29 65,439 100,000 100,000 126,496 4,802 25,782 102,013 4,802 25,782 102,013
30 69,761 100,000 100,000 138,554 3,764 26,479 113,589 3,764 26,479 113,569
</TABLE>
The hypothetical investment rates of return shown above are illustrative only
and should not be deemed a representation of past or future investment rates of
return. Actual rate of return may be more or less than those shown and will
depend on a number of factors, including the allocations made by a policy owner
to one or more variable subaccounts and the investment experience of the
portfolios underlying those variable subaccounts. 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 withdrawals
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.
42
<PAGE>
MALE ISSUE AGE 50, STANDARD NON-TOBACCO
$2,500 ANNUAL PREMIUM
$100,000 FACE AMOUNT, OPTION A
GUARANTEED CHARGES
<TABLE>
<CAPTION>
NET CASH
DEATH BENEFITS POLICY VALUES SURRENDER VALUES
------------------------ ----------------------------- ----------------------------
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 2,625 100,000 100,000 100,000 1,427 1,538 1,650 501 612 724
2 5,381 100,000 100,000 100,000 3,034 3,354 3,689 1,971 2,291 2,625
3 8,275 100,000 100,000 100,000 4,576 5,211 5,900 2,484 3,119 3,808
4 11,314 100,000 100,000 100,000 6,047 7,105 8,300 3,955 5,013 6,208
5 14,505 100,000 100,000 100,000 7,444 9,033 10,904 5,352 6,941 8,812
6 17,855 100,000 100,000 100,000 8,762 10,993 13,731 6,670 8,901 11,639
7 21,373 100,000 100,000 100,000 9,995 12,982 16,803 7,903 10,890 14,711
8 25,066 100,000 100,000 100,000 11,191 15,051 20,204 9,099 12,959 18,112
9 28,945 100,000 100,000 100,000 12,349 17,207 23,975 10,257 15,115 21,883
10 33,017 100,000 100,000 100,000 13,410 19,393 28,099 11,667 17,650 26,356
11 37,293 100,000 100,000 100,000 14,403 21,659 32,693 13,008 20,264 31,298
12 41,782 100,000 100,000 100,000 15,286 23,957 37,752 14,240 22,911 36,706
13 46,497 100,000 100,000 100,000 16,044 26,282 43,334 15,347 25,585 42,637
14 51,446 100,000 100,000 100,000 16,662 28,625 49,510 16,313 28,276 49,161
15 56,644 100,000 100,000 100,000 17,123 30,982 56,366 17,123 30,982 56,366
16 62,101 100,000 100,000 100,000 17,411 33,347 64,008 17,411 33,347 64,008
17 67,831 100,000 100,000 100,000 17,513 35,721 72,568 17,513 35,721 72,568
18 73,848 100,000 100,000 100,000 17,410 38,102 82,206 17,410 38,102 82,206
19 80,165 100,000 100,000 108,823 17,085 40,493 93,011 17,085 40,493 93,011
20 86,798 100,000 100,000 121,673 16,511 42,892 104,890 16,511 42,892 104,890
21 93,763 100,000 100,000 135,942 15,692 45,405 118,210 15,692 45,405 118,210
22 101,076 100,000 100,000 150,210 14,532 47,928 132,930 14,532 47,928 132,930
23 108,755 100,000 100,000 165,625 12,960 50,449 149,212 12,960 50,449 149,212
24 116,818 100,000 100,000 182,300 10,889 52,960 167,248 10,889 52,960 167,248
25 125,284 100,000 100,000 200,375 8,221 55,455 187,266 8,221 55,455 187,266
26 134,173 100,000 100,000 220,017 4,854 57,943 209,540 4,854 57,943 209,540
27 143,506 100,000 100,000 245,790 669 60,437 234,085 669 60,437 234,085
28 153,307 100,000 100,000 274,174 (4,477) 62,957 261,118 0 62,957 261,118
29 163,597 100,000 100,000 305,419 (10,755) 65,533 290,875 0 65,533 290,875
30 174,402 100,000 100,000 339,788 (18,401) 68,197 323,608 0 68,197 323,608
</TABLE>
The hypothetical investment rates of return shown above are illustrative only
and should not be deemed a representation of past or future investment rates of
return. Actual rate of return may be more or less than those shown and will
depend on a number of factors, including the allocations made by a policy owner
to one or more variable subaccounts and the investment experience of the
portfolios underlying those variable subaccounts. 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 withdrawals
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.
43
<PAGE>
MALE ISSUE AGE 35, STANDARD NON-TOBACCO
$1,000 ANNUAL PREMIUM
$100,000 FACE AMOUNT, OPTION B
CURRENT CHARGES
<TABLE>
<CAPTION>
NET CASH
DEATH BENEFITS POLICY VALUES SURRENDER VALUES
-------------------------- --------------------------- ------------------------------
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 1,050 100,428 100,468 100,508 428 468 508 0 0 0
2 2,153 101,080 101,194 101,313 1,080 1,194 1,313 404 518 637
3 3,310 101,710 101,940 102,191 1,710 1,940 2,191 590 820 1,070
4 4,526 102,317 102,707 103,146 2,317 2,707 3,146 1,197 1,587 2,026
5 5,802 102,901 103,493 104,187 2,901 3,493 4,187 1,781 2,373 3,066
6 7,142 103,461 104,298 105,319 3,461 4,298 5,319 2,341 3,178 4,199
7 8,549 103,994 105,121 106,550 3,994 5,121 6,550 2,874 4,001 5,430
8 10,027 104,501 105,960 107,889 4,501 5,960 7,889 3,381 4,840 6,769
9 11,578 105,017 106,857 109,390 5,017 6,857 9,390 3,897 5,737 8,270
10 13,207 105,506 107,773 111,027 5,506 7,773 11,027 4,573 6,840 10,094
11 14,917 105,976 108,723 112,834 5,976 8,723 12,834 5,229 7,976 12,087
12 16,713 106,428 109,704 114,819 6,428 9,704 14,819 5,868 9,144 14,259
13 18,599 106,906 110,765 117,052 6,906 10,765 17,052 6,533 10,392 16,679
14 20,579 107,344 111,840 119,485 7,344 11,840 19,485 7,156 11,653 19,298
15 22,657 107,736 112,924 122,135 7,736 12,924 22,135 7,736 12,924 22,135
16 24,840 108,078 114,011 125,018 8,078 14,011 25,018 8,078 14,011 25,018
17 27,132 108,366 115,098 128,157 8,366 15,098 28,157 8,366 15,098 28,157
18 29,539 108,594 116,178 131,568 8,594 16,178 31,568 8,594 16,178 31,568
19 32,066 108,757 117,243 135,277 8,757 17,243 35,277 8,757 17,243 35,277
20 34,719 108,851 118,291 139,314 8,851 18,291 39,314 8,851 18,291 39,314
21 37,505 109,092 119,562 144,007 9,092 19,562 44,007 9,092 19,562 44,007
22 40,430 109,274 120,836 149,151 9,274 20,836 49,151 9,274 20,836 49,151
23 43,502 109,390 122,107 154,787 9,390 22,107 54,787 9,390 22,107 54,787
24 46,727 109,436 123,369 160,962 9,436 23,369 60,962 9,436 23,369 60,962
25 50,113 109,402 124,610 167,725 9,402 24,610 67,725 9,402 24,610 67,725
26 53,669 109,279 125,819 175,129 9,279 25,819 75,129 9,279 25,819 75,129
27 57,403 109,055 126,981 183,228 9,055 26,981 83,228 9,055 26,981 83,228
28 61,323 108,721 128,084 192,090 8,721 28,084 92,090 8,721 28,084 92,090
29 65,439 108,270 129,116 201,786 8,270 29,116 101,786 8,270 29,116 101,786
30 69,761 107,691 130,062 212,397 7,691 30,062 112,397 7,691 30,062 112,397
</TABLE>
The hypothetical investment rates of return shown above are illustrative only
and should not be deemed a representation of past or future investment rates of
return. Actual rate of return may be more or less than those shown and will
depend on a number of factors, including the allocations made by a policy owner
to one or more variable subaccounts and the investment experience of the
portfolios underlying those variable subaccounts. 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 withdrawals were made. No
representation 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.
44
<PAGE>
MALE ISSUE AGE 50, STANDARD NON-TOBACCO
$2,500 ANNUAL PREMIUM
$100,000 FACE AMOUNT, OPTION B
CURRENT CHARGES
<TABLE>
<CAPTION>
NET CASH
DEATH BENEFITS POLICY VALUES SURRENDER VALUES
----------------------------- ------------------------------ ---------------------------
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 2,625 101,477 101,589 101,702 1,477 1,589 1,702 551 663 776
2 5,381 103,125 103,449 103,788 3,125 3,449 3,788 2,061 2,386 2,724
3 8,275 104,697 105,340 106,038 4,697 5,340 6,038 2,605 3,248 3,946
4 11,314 106,188 107,256 108,462 6,188 7,256 8,462 4,095 5,164 6,370
5 14,505 107,590 109,189 111,070 7,590 9,189 11,070 5,498 7,097 8,978
6 17,855 108,899 111,135 113,873 8,899 11,135 13,873 6,807 9,043 11,781
7 21,373 110,149 113,126 116,927 10,149 13,126 16,927 8,057 11,034 14,835
8 25,066 111,427 115,255 120,351 11,427 15,255 20,351 9,335 13,163 18,259
9 28,945 112,734 117,532 124,188 12,734 17,532 24,188 10,642 15,440 22,096
10 33,017 114,024 119,912 128,429 14,024 19,912 28,429 12,281 18,169 26,686
11 37,293 115,448 122,570 133,306 15,448 22,570 33,306 14,053 21,175 31,911
12 41,782 116,748 125,243 138,592 16,748 25,243 38,592 15,702 24,197 37,546
13 46,497 117,931 127,937 144,332 17,931 27,937 44,332 17,234 27,240 43,635
14 51,446 118,999 130,653 150,578 18,999 30,653 50,578 18,650 30,304 50,229
15 56,644 119,950 133,390 157,379 19,950 33,390 57,379 19,950 33,390 57,379
16 62,101 120,731 136,091 164,735 20,731 36,091 64,735 20,731 36,091 64,735
17 67,831 121,317 138,728 172,678 21,317 38,728 72,678 21,317 38,728 72,678
18 73,848 121,686 141,270 181,242 21,686 41,270 81,242 21,686 41,270 81,242
19 80,165 121,810 143,682 190,460 21,810 43,682 90,460 21,810 43,682 90,460
20 86,798 121,660 145,930 200,384 21,660 45,930 100,384 21,660 45,930 100,384
21 93,763 121,199 148,012 211,208 21,199 48,012 111,208 21,199 48,012 111,208
22 101,076 120,479 149,923 222,928 20,479 49,923 122,928 20,479 49,923 122,928
23 108,755 119,482 151,633 235,619 19,482 51,633 135,619 19,482 51,633 135,619
24 116,818 118,184 153,105 249,360 18,184 53,105 149,360 18,184 53,105 149,360
25 125,284 116,557 154,293 264,229 16,557 54,293 164,229 16,557 54,293 164,229
26 134,173 114,569 155,148 280,313 14,569 55,148 180,313 14,569 55,148 180,313
27 143,506 112,185 155,611 297,699 12,185 55,611 197,699 12,185 55,611 197,699
28 153,307 109,359 155,615 316,481 9,359 55,615 216,481 9,359 55,615 216,481
29 163,597 106,056 155,093 336,763 6,056 55,093 236,763 6,056 55,093 236,763
30 174,402 102,228 153,965 358,653 2,228 53,965 258,653 2,228 53,965 258,653
</TABLE>
The hypothetical investment rates of return shown above are illustrative only
and should not be deemed a representation of past or future investment rates of
return. Actual rate of return may be more or less than those shown and will
depend on a number of factors, including the allocations made by a policy owner
to one or more variable subaccounts and the investment experience of the
portfolios underlying those variable subaccounts. 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 withdrawals
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.
45
<PAGE>
MALE ISSUE AGE 35, STANDARD NON-TOBACCO
$1,000 ANNUAL PREMIUM
$100,000 FACE AMOUNT, OPTION B
GUARANTEED CHARGES
<TABLE>
<CAPTION>
NET CASH
DEATH BENEFITS POLICY VALUES SURRENDER VALUES
------------------------------- ---------------------------------- -------------------------------
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 1,050 100,381 100,419 100,457 381 419 457 0 0 0
2 2,153 100,985 101,093 101,207 985 1,093 1,207 309 417 531
3 3,310 101,569 101,786 102,022 1,569 1,786 2,022 449 666 902
4 4,526 102,131 102,497 102,910 2,131 2,497 2,910 1,011 1,377 1,789
5 5,802 102,670 103,224 103,874 2,670 3,224 3,874 1,550 2,104 2,754
6 7,142 103,186 103,969 104,923 3,186 3,969 4,923 2,066 2,848 3,803
7 8,549 103,676 104,727 106,062 3,676 4,727 6,062 2,555 3,607 4,942
8 10,027 104,139 105,500 107,300 4,139 5,500 7,300 3,019 4,380 6,180
9 11,578 104,614 106,327 108,689 4,614 6,327 8,689 3,494 5,206 7,569
10 13,207 105,060 107,168 110,199 5,060 7,168 10,199 4,127 6,235 9,266
11 14,917 105,488 108,041 111,867 5,488 8,041 11,867 4,741 7,294 11,120
12 16,713 105,884 108,926 113,684 5,884 8,926 13,684 5,324 8,366 13,124
13 18,599 106,245 109,822 115,663 6,245 9,822 15,663 5,872 9,449 15,290
14 20,579 106,571 110,728 117,820 6,571 10,728 17,820 6,384 10,541 17,633
15 22,657 106,857 111,640 120,169 6,857 11,640 20,169 6,857 11,640 20,169
16 24,840 107,102 112,556 122,728 7,102 12,556 22,728 7,102 12,556 22,728
17 27,132 107,300 113,469 125,513 7,300 13,469 25,513 7,300 13,469 25,513
18 29,539 107,445 114,372 128,539 7,445 14,372 28,539 7,445 14,372 28,539
19 32,066 107,530 115,258 131,826 7,530 15,258 31,826 7,530 15,258 31,826
20 34,719 107,549 116,117 135,393 7,549 16,117 35,393 7,549 16,117 35,393
21 37,505 107,514 116,982 139,351 7,514 16,982 39,351 7,514 16,982 39,351
22 40,430 107,399 117,805 143,653 7,399 17,805 43,653 7,399 17,805 43,653
23 43,502 107,199 118,579 148,332 7,199 18,579 48,332 7,199 18,579 48,332
24 46,727 106,907 119,295 153,420 6,907 19,295 53,420 6,907 19,295 53,420
25 50,113 106,514 119,937 158,950 6,514 19,937 58,950 6,514 19,937 58,950
26 53,669 106,007 120,489 164,956 6,007 20,489 64,956 6,007 20,489 64,956
27 57,403 105,376 120,933 171,476 5,376 20,933 71,476 5,376 20,933 71,476
28 61,323 104,602 121,244 178,547 4,602 21,244 78,547 4,602 21,244 78,547
29 65,439 103,666 121,395 186,206 3,666 21,395 86,206 3,666 21,395 86,206
30 69,761 102,548 121,354 194,492 2,548 21,354 94,492 2,548 21,354 94,492
</TABLE>
The hypothetical investment rates of return shown above are illustrative only
and should not be deemed a representation of past or future investment rates of
return. Actual rate of return may be more or less than those shown and will
depend on a number of factors, including the allocations made by a policy owner
to one or more variable subaccounts and the investment experience of the
portfolios underlying those variable subaccounts. 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 o%, 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 withdrawals
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.
46
<PAGE>
MALE ISSUE AGE 50, STANDARD NON-TOBACCO
$2,500 ANNUAL PREMIUM
$100,000 FACE AMOUNT, OPTION B
GUARANTEED CHARGES
<TABLE>
<CAPTION>
NET CASH
DEATH BENEFITS POLICY VALUES SURRENDER VALUES
-------------------------- ---------------------------- --------------------------
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 2,625 101,418 101,529 101,639 1,418 1,529 1,639 492 603 713
2 5,381 103,007 103,324 103,656 3,007 3,324 3,656 1,944 2,261 2,592
3 8,275 104,520 105,147 105,827 4,520 5,147 5,827 2,428 3,054 3,735
4 11,314 105,951 106,990 108,163 5,951 6,990 8,163 3,859 4,898 6,071
5 14,505 107,294 108,846 110,672 7,294 8,846 10,672 5,202 6,754 8,580
6 17,855 108,541 110,708 113,364 8,541 10,708 13,364 6,449 8,616 11,272
7 21,373 109,688 112,568 116,249 9,688 12,568 16,249 7,596 10,476 14,157
8 25,066 110,777 114,471 119,394 10,777 14,471 19,394 8,685 12,379 17,302
9 28,945 111,807 116,415 122,825 11,807 16,415 22,825 9,715 14,323 20,733
10 33,017 112,715 118,336 126,500 12,715 18,336 26,500 10,972 16,593 24,757
11 37,293 113,527 120,270 130,502 13,527 20,270 30,502 12,132 18,875 29,107
12 41,782 114,197 122,159 134,790 14,197 22,159 34,790 13,151 21,113 33,744
13 46,497 114,709 123,981 139,375 14,709 23,981 39,375 14,012 23,284 38,678
14 51,446 115,044 125,712 144,267 15,044 25,712 44,267 14,695 25,363 43,918
15 56,644 115,181 127,324 149,473 15,181 27,324 49,473 15,181 27,324 49,473
16 62,101 115,103 128,791 155,006 15,103 28,791 55,006 15,103 28,791 55,006
17 67,831 114,797 130,087 160,881 14,797 30,087 60,881 14,797 30,087 60,881
18 73,848 114,244 131,186 167,116 14,244 31,186 67,116 14,244 31,186 67,116
19 80,165 113,431 132,058 173,727 13,431 32,058 73,727 13,431 32,058 73,727
20 86,798 112,334 132,667 180,728 12,334 32,667 80,728 12,334 32,667 80,728
21 93,763 110,952 133,044 188,322 10,952 33,044 88,322 10,952 33,044 88,322
22 101,076 109,207 133,048 196,339 9,207 33,048 96,339 9,207 33,048 96,339
23 108,755 107,043 132,600 204,762 7,043 32,600 104,762 7,043 32,600 104,762
24 116,818 104,397 131,607 213,563 4,397 31,607 113,563 4,397 31,607 113,563
25 125,284 101,210 129,976 222,713 1,210 29,976 122,713 1,210 29,976 122,713
26 134,173 100,000 127,630 232,203 (2,558) 27,630 132,203 0 27,630 132,203
27 143,506 100,000 124,487 242,023 (6,943) 24,487 142,023 0 24,487 142,023
28 153,307 100,000 120,471 252,169 (11,977) 20,471 152,169 0 20,471 152,169
29 163,597 100,000 115,506 262,642 (17,684) 15,506 162,642 0 15,506 162,642
30 174,402 100,000 109,494 273,426 (24,106) 9,494 173,426 0 9,494 173,426
</TABLE>
The hypothetical investment rates of return shown above are illustrative only
and should not be deemed a representation of past or future investment rates of
return. Actual rate of return may be more or less than those shown and will
depend on a number of factors, including the allocations made by a policy owner
to one or more variable subaccounts and the investment experience of the
portfolios underlying those variable subaccounts. 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 withdrawals
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.
47
<PAGE>
Appendix B:
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 Principal Occupation
with United Investors During the Past Five Years
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
W. Thomas Aycock Vice President and Chief Actuary of United Investors since November 1992.
Director, Vice President and
Chief Actuary
- -------------------------------------------------------------------------------------------------------------------------------
Tony G. Brill* Executive Vice President and Chief Administrative Officer of Torchmark Corporation since
Director and Executive September 1999. Executive Vice President-Administration of United Investors since September
Vice President- 1998. Senior Vice President of United Investors, March 1998-September 1998. Senior Vice
Administration President of Torchmark Corporation, January 1997-September 1999. Managing Partner of KPMG Peat
Marwick LLP, Birmingham, Alabama Office, 1984-December 1996.
- -------------------------------------------------------------------------------------------------------------------------------
Terry W. Davis Vice President-Administration of United Investors since January 1999 and Liberty National Life
Director and Vice Insurance Company since December 1996. Second Vice President-Administration of Liberty
President-Administration National Life Insurance Company since March 1988.
- -------------------------------------------------------------------------------------------------------------------------------
C.B. Hudson* Chairman of the Board of Directors and Chief Executive Officer of Torchmark Corporation since
Director 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 Corporation since September 1999.
Director 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 and Associate Counsel of
Director, Secretary United Investors, December 1994-May 1995. Associate Counsel of United Investors, July 1990-
and Counsel 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 Company since January 1985.
Vice President and Controller
- -------------------------------------------------------------------------------------------------------------------------------
Mark S. McAndrew* Executive Vice President of Torchmark Corporation and Chairman of the Board and Chief
Senior Vice Executive Officer of United American Insurance Company and Globe Life And Accident Insurance
President-Marketing 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.
- -------------------------------------------------------------------------------------------------------------------------------
Carol A. McCoy Secretary of Torchmark Corporation since February 1994. Associate Counsel of Torchmark
Director and Assistant Corporation since January 1985.
Secretary
- -------------------------------------------------------------------------------------------------------------------------------
Anthony L. McWhorter Chairman of the Board of Directors and Chief Executive Officer of United Investors and Liberty
Chairman of the National Life Insurance Company, and Executive Vice President of Torchmark Corporation since
Board of Directors, September 1999. President of United Investors since September 1998. President of Liberty
President and Chief National Life Insurance Company since December 1994. Executive Vice President and Chief
Executive Officer 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>
* Principal business address: Torchmark Corporation, 3700 South Stonebridge,
McKinney, Texas 75070.
48
<PAGE>
Appendix C:
Glossary
================================================================================
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
Administrative Office P. O. Box 10287, Birmingham, Alabama 35202-0287, (800) 340-3787.
- ----------------------------------------------------------------------------------------------------------------------
Attained Age The age of the insured on his or her birthday nearest the policy effective date,
increased by the number of policy years elapsed since the policy date.
- ----------------------------------------------------------------------------------------------------------------------
Base Face Amount The amount of insurance chosen by you for the policy at issue, or as subsequently
increased or decreased by you. This amount does not include any benefit provided by
riders, and is prior to any death benefit changes required by the Internal Revenue Code
to continue to qualify as life insurance.
- ----------------------------------------------------------------------------------------------------------------------
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 charge.
- ----------------------------------------------------------------------------------------------------------------------
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.
- ----------------------------------------------------------------------------------------------------------------------
Gross Withdrawal A withdrawal plus any applicable transaction charge and any surrender charge.
- ----------------------------------------------------------------------------------------------------------------------
Loan Balance The sum of all outstanding loans including principal and interest.
- ----------------------------------------------------------------------------------------------------------------------
Maturity Date Policy anniversary nearest the insured's 100th birthday.
- ----------------------------------------------------------------------------------------------------------------------
Monthly Processing Date The same day each month as the policy's effective date. If the monthly processing date
falls on a date other than a business day, the next following business day will be
deemed the monthly processing date.
- ----------------------------------------------------------------------------------------------------------------------
Net Cash Surrender Cash surrender value less any loan balance.
Value
- ----------------------------------------------------------------------------------------------------------------------
Net Premium The premium received less the premium expense charge.
- ----------------------------------------------------------------------------------------------------------------------
No-lapse Monthly The minimum amount of premium required to keep the policy in force during the first
Premium three policy years regardless of the sufficiency of the cash surrender value to pay
monthly deductions.
- ----------------------------------------------------------------------------------------------------------------------
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 processing date.
- ----------------------------------------------------------------------------------------------------------------------
Policy Value The sum of the variable account value and the fixed account value.
- ----------------------------------------------------------------------------------------------------------------------
Target Face Amount The sum of the base face amount and the initial adjustable term insurance rider amount.
The amount of the rider will vary as necessary to keep the sum of the rider amount and
the base death benefit equal to the target face amount, when the base death benefit
varies due to Internal Revenue Code requirements.
- ----------------------------------------------------------------------------------------------------------------------
Target Premium The premium amount we use to calculate the maximum sales load charge and the sales
surrender charge. A target premium is determined for the initial base face amount at
issue, and an additional target premium is determined for each increase in base face
amount
- ----------------------------------------------------------------------------------------------------------------------
Variable Account The sum of the values of the variable subaccounts under your policy.
Value
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
49
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
We, Us, or United United Investors Life Insurance Company.
Investors
- ----------------------------------------------------------------------------------------------------------------------
Withdrawal A request to withdraw a portion of the net cash surrender value. A withdrawal may be
subject to a transaction charge and a surrender charge.
- ----------------------------------------------------------------------------------------------------------------------
You and Your The policy owner.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
50
<PAGE>
Appendix D:
Financial Statements
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
The Board of Directors
United Investors Life Insurance Company
Birmingham, Alabama
We have audited the accompanying balance sheets of United Investors Life
Insurance Company as of December 31, 1998 and 1997 and the related statements
of operations, comprehensive income, shareholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of United Investors Life
Insurance Company at December 31, 1998 and 1997 and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Birmingham, Alabama
January 29, 1999
F-1
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
BALANCE SHEETS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
At December 31,
---------------------
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities-available for sale, at fair value
(cost: 1998--$612,586; 1997--$612,600)................. $ 643,151 $ 635,643
Preferred stock of affiliate (cost: 1998--$188,212:
1997--$0).............................................. 188,212 0
Policy Loans............................................ 18,009 15,817
Other long term investments............................. 0 22,488
Short term investments.................................. 12,680 13,423
---------- ----------
Total investments.................................... 862,052 687,371
Cash..................................................... 11,426 5,288
Accrued investment income (includes amounts from
affiliates: 1998--$582; 1997--$473)..................... 11,747 11,270
Receivables.............................................. 3,113 2,826
Due from affiliate (includes funds withheld on
reinsurance: 1998--$229,194; 1997--$190,235)............ 278,458 225,235
Deferred acquisition cost................................ 183,033 176,897
Value of business purchased.............................. 30,600 33,754
Goodwill................................................. 29,465 6,771
Property and equipment................................... 96 141
Other assets............................................. 1,786 1,149
Separate account assets.................................. 2,425,262 1,876,439
---------- ----------
Total assets......................................... $3,837,038 $3,027,141
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Future policy benefits (includes reserves assumed from
affiliates: 1998--$241,357; 1997--$210,276)............ $ 776,461 $ 736,975
Unearned and advance premiums........................... 2,822 2,975
Other policy benefits................................... 6,973 8,713
---------- ----------
Total policy liabilities............................. 786,256 748,663
Accrued income taxes.................................... 55,498 58,270
Other liabilities....................................... 2,174 2,825
Due to affiliates....................................... 8,268 9,374
Separate account liabilities............................ 2,425,262 1,876,439
---------- ----------
Total liabilities.................................... 3,277,458 2,695,571
Shareholders' equity:
Common stock, par value $6 per share authorized, issued
and outstanding: 500,000 shares........................ 3,000 3,000
Additional paid in capital.............................. 350,388 138,469
Unrealized investment gains, net of applicable taxes.... 15,654 14,700
Retained earnings....................................... 190,538 175,401
---------- ----------
Total shareholder's equity........................... 559,580 331,570
---------- ----------
Total liabilities and shareholder's equity........... $3,837,038 $3,027,141
========== ==========
</TABLE>
See accompanying Notes to Financial Statements.
F-2
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Premium income.................................... $ 69,987 $ 68,723 $ 65,114
Policy charges and fees........................... 45,113 36,582 29,403
Net investment income (includes amounts from af-
filiates 1998--$13,082;
1997--$2,863; 1996--$2,847)...................... 61,373 51,514 51,128
Realized investment gains (losses)................ 9,401 (5,365) 925
Other income from affiliates...................... 13,665 11,876 0
-------- -------- --------
Total revenue................................... 199,539 163,330 146,570
Benefits and expenses:
Policy benefits:
Individual life.................................. 63,689 57,954 47,355
Annuity.......................................... 13,633 15,165 15,807
-------- -------- --------
Total policy benefits........................... 77,322 73,119 63,162
Amortization of deferred acquisition costs........ 27,874 24,898 19,850
Commissions and premium taxes (includes amounts to
affiliates:
1998--$1,013; 1997--$4,928; 1996--$4,723)........ 5,580 6,251 5,248
Other operating expenses (includes amounts to af-
filiates: 1998--$3,252;
1997--$3,217; 1996--$2,181)...................... 6,579 5,470 3,966
-------- -------- --------
Total benefits and expenses..................... 117,355 109,738 92,226
Net operating income before income taxes........... 82,184 53,592 54,344
Income taxes....................................... 25,567 18,843 19,078
-------- -------- --------
Net income...................................... $ 56,617 $ 34,749 $ 35,266
======== ======== ========
</TABLE>
See accompanying Notes to Financial Statements.
F-3
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF COMPREHENSIVE INCOME
(Dollar amounts in thousands)
<TABLE>
<S> <C> <C> <C>
<CAPTION>
Year Ended December 31,
--------------------------
1998 1997 1996
------- ------- --------
<S> <C> <C> <C>
Net income......................................... $56,617 $34,749 $ 35,266
Other comprehensive income (loss):
Unrealized investment gains (losses):
Unrealized investment gains (losses) on
securities:
Unrealized holding gains arising during period.. 7,021 13,362 (21,413)
Less: reclassification adjustment for (gains)
losses
on securities included in net income .......... (1) 5,235 (924)
Less: reclassification adjustment for
amortization of
(discount) and premium......................... 502 744 570
------- ------- --------
7,522 19,341 (21,767)
Unrealized gains (losses) on other investments.. (6,330) 1,798 861
Unrealized gains (losses) on deferred
acquisition costs............................. 276 (5,387) 8,857
------- ------- --------
Total unrealized gains (losses) ................ 1,468 15,752 (12,049)
Applicable tax.................................. (514) (5,512) 4,217
------- ------- --------
Other comprehensive income (loss).................. 954 10,240 (7,832)
Comprehensive income............................ $57,571 $44,989 $ 27,434
======= ======= ========
</TABLE>
See accompanying Notes to Financial Statements.
F-4
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Additional Unrealized Total
Common Paid-in Gains Retained Shareholders'
Stock Capital (Losses) Earnings Equity
------ ---------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Year Ended at December
31, 1996
Balance at January 1,
1996.................... $3,000 $137,950 $12,292 $159,886 $313,128
Comprehensive income..... (7,832) 35,266 27,434
Dividends................ (28,500) (28,500)
------ -------- ------- -------- --------
Balance at December 31,
1996................... 3,000 137,950 4,460 166,652 312,062
Year Ended at December
31, 1997
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
====== ======== ======= ======== ========
</TABLE>
See accompanying Notes to Financial Statements.
F-5
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net income.................................... $ 56,617 $ 34,749 $ 35,266
Adjustment to reconcile net income to cash
provided from operations:
Increase in future policy benefits.......... 13,871 17,878 20,692
Increase (decrease) in other policy liabili-
ties....................................... (1,892) 749 2,154
Deferral of policy acquisition costs........ (42,857) (33,485) (33,744)
Value of business acquired.................. 0 (10,000) 0
Amortization of deferred acquisition costs.. 27,874 24,898 19,850
Change in accrued income taxes.............. 1,079 10,212 (3,033)
Depreciation................................ 39 42 44
Realized (gains) losses on sale of invest-
ments and properties....................... (9,401) 5,365 (925)
Other accruals and adjustments.............. (3,240) 1,817 (997)
-------- -------- --------
Cash provided from operations................. 42,090 52,225 39,307
-------- -------- --------
Cash used for investment activities:
Investments sold or matured:
Fixed maturities available for sale-sold..... 46,039 113,035 15,246
Fixed maturities available for sale-matured,
called and repaid........................... 76,583 66,469 44,523
Other long-term investments.................. 25,596 2,199 482
-------- -------- --------
Total investments sold or matured.......... 148,218 181,703 60,251
Acquisition of investments:
Fixed maturities available for sale.......... (123,111) (176,905) (68,214)
Net increase in policy loans................. (2,192) (1,485) (2,033)
Other long-term investments.................. (36) (1,517) (1,183)
-------- -------- --------
Total acquisition of investments........... (125,339) (179,907) (71,430)
Net (increase) decrease in short-term
investments.................................. 747 (11,589) 2,389
Funds loaned to affiliates.................... (13,026) (24,080) (3,500)
Funds repaid from affiliates.................. 2,400 24,080 3,500
Funds borrowed from affiliates................ 14,800 0 0
Funds repaid to affiliates.................... (14,800) 0 0
Disposition of properties..................... 5 0 34
Additions of properties....................... (37) (27) (117)
-------- -------- --------
Cash provided from (used for) investment
activities................................... 12,968 (9,820) (8,873)
-------- -------- --------
Cash used for financing activities:
Cash dividends paid to shareholders......... (33,500) (27,000) (27,500)
Net receipts from deposit product opera-
tions...................................... (15,420) (12,521) (6,572)
-------- -------- --------
Cash used for financing activities............ (48,920) (39,521) (34,072)
Increase (decrease) in cash................... 6,138 2,884 (3,638)
Cash at beginning of year..................... 5,288 2,404 6,042
-------- -------- --------
Cash at end of year........................... $ 11,426 $ 5,288 $ 2,404
======== ======== ========
</TABLE>
See accompanying Notes to Financial Statements.
F-6
<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") 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 the liability for policy reserves, losses and claims. Although some
variability is inherent in these estimates, management believes the amounts
provided are adequate.
Basis of Presentation: The accompanying financial statements include the
accounts of United Investors Life Insurance Company ("United Investors") 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 includes bonds and redeemable preferred stocks, as available
for sale. Investments classified as available for sale are carried at fair
value with unrealized gains and losses, net of deferred taxes, reflected
directly in shareholder's equity. Investments in equity securities, which
include common and nonredeemable preferred stocks, are reported at fair value
with unrealized gains and losses, net of deferred taxes, reflected directly in
shareholder's equity. Policy loans are carried at unpaid principal balances.
Short-term investments include investments in certificates of deposit and other
interest-bearing time deposits with original maturities within three months.
Other long-term investments consist of investments in mutual funds which are
carried at fair value. If an investment becomes permanently impaired, such
impairment is treated as a realized loss and the investment is adjusted to net
realizable value.
F-7
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 1--Summary of Significant Accounting Policies (continued)
Gains and losses realized on the disposition of investments are recognized
as revenues and are determined on a specific identification basis.
Realized investment gains and losses and investment income attributable to
separate accounts are credited to the separate accounts and have no effect on
United Investor's net income. Investment income attributable to policyholders
is included in United Investor's net investment income. Net investment income
for the years ended December 31, 1998, 1997 and 1996 included approximately
$37,000, $37,800, and $37,600, respectively, which was allocable to
policyholder reserves or accounts. Realized investment gains and losses are not
allocable to policyholders.
Determination of Fair Values of Financial Instruments: Fair value for cash,
short-term investments, receivables and payables approximates carrying value.
Fair values for investment securities are based on quoted market prices, where
available. Otherwise, fair values are based on quoted market prices of
comparable instruments. Fair value of future benefits for universal life and
current interest products and annuity products are based on the fund value.
Cash: Cash consists of balances on hand and on deposit in banks and
financial institutions.
Recognition of Revenue and Related Expenses: Premiums for insurance
contracts which are not defined as universal life-type according to the
Financial Accounting Standards Board's Statement of Accounting Standards (SFAS)
97 are recognized as revenue over the premium-paying period of the policy.
Premiums for limited-payment life insurance contracts as defined by SFAS 97 are
recognized over the contract period. Premiums for universal life-type and
annuity contracts are added to the policy account value, and revenues from such
products are recognized as charges to the policy account value for mortality,
administration, and surrenders (retrospective deposit method). The related
benefits and expenses are matched with revenues by means of the provision for
future policy benefits and the amortization of deferred acquisition costs in a
manner which recognizes profits as they are earned over the same period.
Future Policy Benefits: The liability for future policy benefits for
universal life-type products according to SFAS 97 is represented by policy
account value. Annuity Contracts are accounted for as deposit contracts. The
liability for future policy benefits for other products is provided on the net
level premium method based on estimated investment yields, mortality,
persistency and other assumptions which were appropriate at the time the
policies were issued. Assumptions used are based on United Investor's
experience as adjusted to provide for possible adverse deviation. These
estimates are periodically reviewed and compared with actual experience. If it
is determined that future expected experience differs significantly from that
assumed, the estimates are revised.
Deferred acquisition costs: The costs of acquiring new insurance business
are deferred. Such costs consist of sales commissions, underwriting expenses,
and certain other selling expenses. The costs of acquiring new business through
the purchase of other companies and blocks of insurance business are also
deferred.
Deferred acquisition costs, including the value of insurance purchased, for
policies other than universal life-type policies according to SFAS 97, are
amortized with interest over an estimate of the premium-paying period of the
policies in a manner which charges each year's operations in proportion to the
receipt of premium income. For limited-payment contracts, acquisition costs are
amortized over the contract period. For universal life-type policies,
acquisition costs are amortized with interest in proportion to estimated gross
profits. The assumptions used as to interest, withdrawals and mortality are
consistent with those used in computing the liability for future policy
benefits and expenses. If it is determined that future experience differs
significantly
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)
from that previously assumed, the estimates are revised. Deferred acquisition
costs are adjusted to reflect the amounts associated with unrealized investment
gains and losses pertaining to universal life-type products.
Income Taxes: Income taxes are accounted for under the asset and liability
method in accordance with SFAS 109. Under the asset and liability method,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement book
values and tax bases of assets and liabilities. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Interest Expense: Interest expense includes interest on borrowed funds not
used in the production of investment income. Interest expense relating to the
production of investment income is deducted from investment income.
Property and Equipment: Property and equipment is reported at cost less
allowances for depreciation. Depreciation is provided on the straight-line
method over the estimated useful lives of these assets which range from three
to ten years.
Goodwill: Goodwill represents the excess cost over the fair value of the net
assets acquired when United Investors was purchased by Torchmark Corporation
(Torchmark) in 1981 and is being amortized on a straight-line basis over forty
years. In 1998 United Investors recorded an 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, which is the period United Investors Management Company had
remaining out of the original forty year estimated benefit period.
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, a Statement of Comprehensive
Income is included as an integral part of the financial statements.
Year 2000 Compliance: The new millennium poses a significant concern to all
businesses which use computer systems or electronic data in their operations.
The concern arises because these organizations have computer systems and
programs that cannot always identify a proper date. For many years, programs
were written using a two digit code to represent a year. At the beginning of
the year 2000, more digits are needed to accurately determine the date in these
programs. Without addressing this issue, many computer programs could fail or
produce erroneous results. Additionally, companies which are electronically
engaged with other businesses or which rely on other businesses for services
are exposed to risk of failure by the electronic devices and computer systems
of those other entities to the extent they are not Year 2000 compliant. The
potential of failure of these systems creates considerable uncertainty and
could potentially adversely affect the ongoing operations and stability of a
business.
United Investors relies on computer systems which are supported and
maintained by Torchmark, its ultimate parent, and its various affiliates.
Torchmark is exposed to these risks should its computer systems fail
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)
due to date-related problems. Torchmark is also reliant on a number of third
party businesses and governmental agencies with which it either interacts
electronically or depends upon for services in the conduct of its business.
These institutions include but are not limited to banks, financial
institutions, telecommunication companies, utilities, mail delivery
organizations, and a variety of governmental agencies. Should Torchmark's
computer systems or the systems of its third-party business partners not be
compliant the Company and Torchmark may be exposed to considerable risks,
including business interruption, loss of revenue, increased expense, loss of
policyholders, and litigation.
To reduce its business risk to an acceptable level, Torchmark has
established a project plan to insure that the company's business-critical
computer systems will be Year 2000 compliant. This plan also addresses third-
party compliance issues. Under the direction of executive management,
objectives and timetables have been set forth to achieve compliance in each
geographic location where Torchmark operates. Progress toward achieving those
objectives is constantly monitored. Torchmark currently expects the entire
project, including all Year 2000 testing activities, to be completed during
1999.
As of December 31, 1998, Torchmark remains on schedule to meet all of its
Year 2000 compliance requirements. All known required software changes have
been completed, and the related testing is in process with plans for completion
in 1999. With regard to third party concerns, Torchmark has in process the
following procedures:
1) Torchmark is confirming, with its software vendors, the Year 2000
readiness of its purchased software packages because Torchmark has purchased
software packages on all of its computer platforms;
2) Torchmark is verifying the Year 2000 compliance status of its financial
business partners computer and data communications systems to insure readiness,
including data interface testing with third parties; and
3) All of Torchmark's electronic operational systems (telephones, security,
utility, environmental) are being evaluated for Year 2000 compliance.
As an example of Torchmark's interface testing with selected third parties,
Torchmark is utilizing electronic data from selected third parties in
processing Medicare Supplement benefit data using Year 2000 test data.
Torchmark is also arranging similar testing with a selected number of banks.
While Torchmark is making every effort to verify the compliance of third
parties, no assurances as to the compliance of their computer systems can be
given.
Torchmark has used primarily its own employees to complete its Year 2000
project. Other than completion of software testing, all significant Year 2000
project milestones for internal computer systems have been completed.
Confirmation of third party compliance and electronic data interface testing
with third parties is continuing with completion expected during 1999.
Torchmark has spent $5 million on its Year 2000 project activities to date,
including internal programming costs, outside contractors, and replacement
costs. These costs have been expensed as incurred. Total project cost is
expected to be approximately $6 million.
Year 2000 contingency plans are being developed for critical risk areas.
Management throughout the organization has established and documented a
contingency plan for Torchmark's most critical systems and interfaces with
business partners within each individual's responsibility. Such contingency
plans include possible manual operation efforts, staff adjustments, outside
services, and alternative procedures. These contingency plans will be
maintained well into 2000.
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,
---------------------------------------- ---------------------------------
1998 1997 1996 1998 1997
-------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C>
$47,294 $34,537 $26,640 $169,757 $156,676
</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,
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Statutory net income........................... $ 47,294 $ 34,537 $ 26,640
Deferral of acquisition costs.................. 42,857 33,485 33,744
Amortization of acquisition costs.............. (27,874) (24,898) (19,850)
Differences in policy liabilities.............. 1,417 (2,113) (4,361)
Deferred income taxes.......................... (6,422) (6,053) (773)
Other.......................................... (655) (209) (134)
-------- -------- --------
GAAP net income................................ $ 56,617 $ 34,749 $ 35,266
======== ======== ========
</TABLE>
A reconciliation of United Investors' statutory shareholders' equity to GAAP
shareholders' equity is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
Statutory shareholders' equity................... $ 169,757 $ 156,676
Differences in policy liabilities................ 9,208 9,540
Deferred acquisition cost and value of insurance
purchased....................................... 213,633 210,651
Deferred income taxes............................ (59,575) (52,639)
Asset valuation reserve.......................... 4,781 9,513
Nonadmitted assets............................... 3,348 1,850
Fair value adjustment on fixed maturities
available for sale.............................. 30,565 23,043
Fair value adjustment on preferred stock of
affiliate....................................... 188,212 0
Goodwill......................................... 29,465 6,771
Due and deferred premiums........................ (30,317) (30,334)
Other............................................ 503 (3,501)
----------- -----------
GAAP shareholders' equity........................ $559,580 $331,570
=========== ===========
</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,
--------------------------
1998 1997 1996
------- ------- --------
<S> <C> <C> <C>
Fixed maturities.................................. $45,889 $46,000 $ 46,366
Policy loans...................................... 1,186 1,107 1,001
Other long-term investments....................... 84 1,614 1,211
Short-term investments............................ 743 436 287
Other income...................................... 954 0 0
Interest and dividends from affiliates............ 13,082 2,863 2,847
------- ------- --------
61,938 52,020 51,712
Less investment expense........................... (565) (506) (584)
------- ------- --------
Net investment income............................. $61,373 $51,514 $ 51,128
======= ======= ========
Analysis of gains (losses) from investments:
Realized investments gains (losses)
Fixed maturities................................ $ 1 $(5,235) $ 925
Mutual funds.................................... 9,400 (130) 0
------- ------- --------
$ 9,401 $(5,365) $ 925
======= ======= ========
Analysis of change in unrealized gains (losses):
Net change in unrealized investments gains
(losses) on fixed maturities available for sale
before tax....................................... 7,522 19,340 (21,767)
Net change in unrealized investments gains
(losses) on short-term investments before tax.... (2) 0 0
Other (includes $(5,946) related to sale of mutual
fund shares in 1998)............................. (6,328) 1,799 861
Adjustment for deferred acquisition cost.......... 276 (5,387) 8,857
Applicable tax.................................... (514) (5,512) 4,217
------- ------- --------
Net change in unrealized gains (losses) on short-
term investments and fixed maturities securities
available for sale............................... $ 954 $10,240 $ (7,832)
======= ======= ========
</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 amortized cost and
estimated fair value at December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Gross Gross Amount per
Amortized Unrealized Unrealized Fair the Balance
1998: 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............... $ 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
======== ======= ======= ======== ========
<CAPTION>
1997:
- -----
<S> <C> <C> <C> <C> <C>
Fixed maturities avail-
able for sale:
Bonds:
U.S. Government direct
obligations and
agencies............... $ 22,035 $ 857 $ 0 $ 22,892 $ 22,892
GNMA's.................. 124,549 5,992 (146) 130,395 130,395
Mortgage-backed
securities, GNMA
collateral............. 23,125 591 (3) 23,713 23,713
Other mortgage-backed
securities............. 20,980 916 0 21,896 21,896
States, municipalities
and political
subdivisions........... 28,603 517 0 29,120 29,120
Foreign governments..... 3,298 135 0 3,433 3,433
Public utilities........ 37,189 1,504 (39) 38,654 38,654
Industrial and
miscellaneous.......... 352,821 12,986 (267) 365,540 365,540
-------- ------- ------- -------- --------
Total fixed maturities.. $612,600 $23,498 $ (455) $635,643 $635,643
======== ======= ======= ======== ========
</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, 1998
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................................. $ 13,218 $ 13,359
Due after one year through five years................... 115,995 120,078
Due after five years through ten years.................. 202,843 213,213
Due after ten years..................................... 153,602 164,940
-------- --------
485,658 511,590
Mortgage- and asset-backed securities.................... 126,928 131,561
-------- --------
$612,586 $643,151
======== ========
</TABLE>
Proceeds from sales of fixed maturities available for sale were $46,039 in
1998, $113,035 in 1997, and $15,246 in 1996. Gross gains realized on these
sales were $928 in 1998, $112 in 1997, and $749 in 1996. Gross losses on these
sales were $927 in 1998, $5,716 in 1997, and $0 in 1996.
Note 4--Deferred Acquisition Costs
An analysis of deferred acquisition costs and the value of insurance
purchased is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------- --------------------- ---------------------
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................... $176,897 $33,754 $169,986 $16,160 $144,716 $18,679
Additions:
Deferred during peri-
od:
Commissions........... 36,328 0 27,664 0 28,492 0
Other expenses........ 6,529 0 5,821 0 5,252 0
-------- ------- -------- ------- -------- -------
Total deferred....... 42,857 0 33,485 0 33,744 0
Value of insurance
purchased............ 0 0 0 21,305 0 0
Adjustment attributable
to unrealized invest-
ment loss (1)......... 276 0 0 0 8,857 0
-------- ------- -------- ------- -------- -------
Total additions...... 43,133 0 33,485 21,305 42,601 0
Deductions:
Amortized during peri-
od................... (24,720) (3,154) (21,019) (3,711) (16,894) (2,519)
Adjustment
attributable to
unrealized investment
gains (1)............ 0 0 (5,387) 0 0 0
Adjustment attribut-
able to realized
investment gains
(1).................. 0 0 (168) 0 (437) 0
Adjustment to deferred
commissions due to
reorganization....... (12,277) 0 0 0 0 0
-------- ------- -------- ------- -------- -------
Total deductions..... (36,997) (3,154) (26,574) (3,711) (17,331) (2,519)
-------- ------- -------- ------- -------- -------
Balance at end of year.. $183,033 $30,600 $176,897 $33,754 $169,986 $16,160
======== ======= ======== ======= ======== =======
</TABLE>
F-14
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
- --------
(1) Represents amounts pertaining to investments relating to universal life-
type products.
The amount of interest accrued on the unamortized balance of value of
insurance purchased was approximately $755, $938, and $1,100 for the years
ended December 31, 1998, 1997 and 1996, respectively. The average interest
accrual rates used were 6.15%, 6.29% and 6.44%, respectively. The estimated
amount of the unamortized value of business purchased balance at December 31,
1998 to be amortized during each of the next five years is: 1999, $2,452;
2000, $2,137; 2001, $1,876; 2002, $1,659; 2003, $1,479.
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,
1998 1997
------------------- -------------------
Accumulated Accumulated
Cost Depreciation Cost Depreciation
------ ------------ ------ ------------
<S> <C> <C> <C> <C>
Data processing equipment.............. $ 227 $ 178 $ 216 $ 161
Transportation equipment............... 72 36 132 55
Furniture and office equipment ........ 928 917 922 913
------ ------ ------ ------
Total................................ $1,227 $1,131 $1,270 $1,129
====== ====== ====== ======
</TABLE>
Depreciation expense on property and equipment used in the business was $39,
$42 and $44 in each of the years 1998, 1997, and 1996, respectively.
Note 6--Future Policy Benefit Reserves
A summary of the assumptions used in determining the liability for future
policy benefits at December 31, 1998 is as follows:
Individual Life Insurance
Interest Assumptions:
<TABLE>
<CAPTION>
Percent of
Years of Issue Interest Rates Liability
-------------- -------------------------- ----------
<S> <C> <C>
1962-1998 3.00% level to 6.00% level 12%
1986-1992 7.00% graded to 6.00% 22%
1962-1985 8.50% graded to 6.00% 4%
1981-1985 8.50% graded to 7.00% 4%
1984-1998 Interest Sensitive 58%
----
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,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Net operating income before income taxes......... $25,567 $18,843 $19,078
Shareholders' equity:
Unrealized gains (losses)....................... 514 5,512 (4,217)
Tax basis compensation expense in excess of
amounts recognized for financial reporting
purposes from the exercise of stock options.... (68) (519) 0
Tax benefit received on deferred commission
credit due to reorganization................... (4,297) 0 0
Other........................................... 300 1 (152)
------- ------- -------
$22,016 $23,837 $14,709
======= ======= =======
</TABLE>
Income tax expense before the adjustments to shareholder's equity is
summarized below:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Current income tax expense......................... $19,145 $12,790 $18,305
Deferred income tax expense........................ 6,422 6,053 773
------- ------- -------
$25,567 $18,843 $19,078
======= ======= =======
</TABLE>
In 1998, 1997, and 1996, 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 1998,
1997 and 1996 as shown below:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1998 % 1997 % 1996 %
------- --- ------- --- ------- ---
<S> <C> <C> <C> <C> <C> <C>
Expected income taxes............... $28,764 35% $18,757 35% $19,020 35%
Increase (reduction) in income taxes
resulting from:
Tax-exempt investment income....... (3,532) (4) (18) 0 (38) 0
Purchase accounting differences.... 331 0 99 0 99 0
Other.............................. 4 0 5 0 (3) 0
------- --- ------- --- ------- ---
Income taxes........................ $25,567 31% $18,843 35% $19,078 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,
-----------------------
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Future policy benefits and unearned and advance
premiums.......................................... $ 0 $ 4,777
Present value of future policy surrender charges... 20,153 13,925
Other liabilities, principally due to the current
nondeductibilty for tax purposes of certain
accrued expenses.................................. 132 203
----------- -----------
Total gross deferred tax assets.................... 20,285 18,905
Deferred tax liability:
Future policy benefits and unearned and advance
premiums.......................................... 2,022 0
Deferred acquisition costs......................... 61,881 62,863
Unrealized investment gains........................ 8,428 7,914
Other.............................................. 7,529 767
----------- -----------
Total gross deferred tax liabilities............... 79,860 71,544
----------- -----------
Net deferred tax liability......................... $ 59,575 $ 52,639
=========== ===========
</TABLE>
In United Investor's opinion, all deferred tax assets will be recoverable.
United Investors has not recognized a deferred tax liability of
approximately $2,200 that arose prior to 1984 on temporary differences related
to its policyholders' surplus account. A current tax expense will be recognized
in the future if and when this tax becomes payable.
Note 8--Postretirement Benefits
Pension Plans: 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>
1998.................................................. $42 $114
1997.................................................. 44 118
1996.................................................. 41 115
</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 $55
thousand and $55 thousand at December 31, 1998 and 1997, respectively. The
total unfunded plan liability recorded at December 31, 1998 was $459. 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, 1998 and 1997,
respectively.
Net periodic pension cost for the defined benefit plans by expense component
was as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Service cost--benefits earned during period..... $ 679 $ 638 $ 638
Interest cost on projected benefit obligation... 1,657 1,575 1,478
Actual return on assets......................... (3,118) (2,335) (1,940)
Net amortization and deferral................... 1,942 1,351 1,032
------- ------- -------
Total net periodic cost........................ 1,160 1,229 1,208
Periodic cost allocated to other participating
employers..................................... 1,046 1,111 1,093
------- ------- -------
UILIC's net periodic cost....................... $ 114 $ 118 $ 115
======= ======= =======
</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's and Liberty National's balance sheet.
<TABLE>
<CAPTION>
Pension
Benefits For
the year ended
December 31,
----------------
1998 1997
------- -------
<S> <C> <C>
Changes in benefit obligation:
Obligation at the beginning of year...................... $21,841 $19,706
Service cost............................................. 679 638
Interest cost............................................ 1,657 1,575
Actuarial gain (loss).................................... 1,061 775
Benefits paid............................................ (2,008) (853)
------- -------
Obligation at the end of year............................ 23,230 21,841
Changes in plan assets:
Fair value at the beginning of year...................... 16,054 13,811
Return on assets......................................... 3,118 2,335
Contributions............................................ 976 761
Benefits paid............................................ (2,008) (853)
------- -------
Fair value at the end of year............................ 18,140 16,054
------- -------
Funded status at year end............................ (5,090) (5,787)
Unrecognized amounts at year end:
Unrecognized actuarial loss (gain)....................... (775) 12
Unrecognized prior service cost.......................... 1,044 1,137
Unrecognized transition obligation....................... 0 0
------- -------
Net amount recognized at year end...................... $(4,821) $(4,638)
======= =======
Amounts recognized consist of:
Prepaid benefit cost..................................... $ (459) $ (459)
Accrued benefit liability................................ (4,707) (5,415)
Intangible asset......................................... 345 1,236
------- -------
Net amount recognized at year end....................... (4,821) (4,638)
Net amount recognized allocated to other participating
employers.............................................. (4,747) (4,564)
------- -------
UILIC's net amount recognized at year end................ $ (74) $ (74)
======= =======
</TABLE>
The weighted average assumed discount rates used in determining the
actuarial benefit obligations was 7.0% in 1998 and 7.5% in 1997. The rate of
assumed compensation increase was 4.0% in 1998 and 4.5% in 1997 while the
expected long-term rate of return on plan assets was 9.25% in 1998 and 9.25% in
1997.
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,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Service cost ................................... $ 112 $ 86 $ 76
Interest on accumulated postretirement. benefit
obligation..................................... 377 357 403
Actual return on assets......................... 0 0 0
Net amortization and deferral................... (251) (374) (242)
------- ------- -------
Total net periodic postretirement cost......... 238 69 237
Periodic cost allocated to other participating
employers..................................... 233 68 232
------- ------- -------
UILIC's net periodic postretirement cost........ $ 5 $ 1 $ 5
======= ======= =======
</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,
----------------------------
1998 1997
------------- -------------
<S> <C> <C>
Changes in benefit obligation:
Obligation at the beginning of year.......... $ 4,775 $ 5,010
Service cost................................. 112 86
Interest cost................................ 377 357
Actuarial gain (loss)........................ 559 0
Benefits paid................................ (561) (678)
------------- -------------
Obligation at the end of year................ 5,262 4,775
Changes in plan assets:
Fair value at the beginning of year.......... 0 0
Return on assets............................. 0 0
Contributions................................ 561 678
Benefits paid................................ (561) (678)
------------- -------------
Fair value at the end of year................ 0 0
------------- -------------
Funded status at year end.................. (5,262) ( 4,775)
Unrecognized amounts at year end:
Unrecognized actuarial loss (gain)........... (553) (1,157)
Unrecognized prior service cost.............. (357) (563)
------------- -------------
Net amount recognized at year end as accrued
benefit liability.......................... (6,172) (6,495)
Net amount recognized allocated to other
participating employers.................... (6,070) (6,386)
------------- -------------
UILIC's net amount recognized at year end as
accrued benefit liability................... $ (102) $ (109)
============= =============
</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, a 7.0% to 8.0% annual rate of increase in per
capita cost of covered healthcare benefits was assumed for 1998. These rates
grade to ranges of 4.5% to 5.5% by the year 2007. 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....................... $ 35 $ (31)
Benefit obligation......................................... 326 (300)
</TABLE>
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.00% in 1998 and 7.50% in 1997.
Note 9--Related Party Transactions
United Investors was charged for space, equipment and services provided by
an affiliate amounting to $1,840 in 1998, $1,852 in 1997 and $1,797 in 1996.
Torchmark performed certain administrative services for United Investors for
which it was charged $612 in 1998, $468 in 1997 and $384 in 1996.
In November 1994, United Investors loaned Torchmark $35,000 at an interest
rate of 8.110%, and in October 1998, United Investors loaned Torchmark an
additional $10,626 at an interest rate of 7.875%. Interest income related to
the Torchmark loans totaling $2,989, $2,838 and $2,838 for 1998, 1997 and 1996,
respectively, is included in the accompanying financial statements. In January
1996, United Investors loaned Liberty National $3,500 at an interest rate of
5.75%. This loan was paid in full in February 1996. Interest income related to
this loan totaling $9 at December 31, 1996 is included in the accompanying
financial statements. In 1997, United Investors loaned Torchmark, Liberty
National and United American $8,060, $10,520 and $5,500 respectively at an
interest rate of 5.5% all of which were repaid prior to December 31, 1997.
Interest income related to these loans totaling $1, $2 and $22 respectively is
included in the accompanying financial statements. In 1998, United Investors
loaned Liberty National and United American $1,400 and $1,000 respectively at
an interest rate of 5.5% all of which were repaid prior to December 31, 1998.
Interest income related to these loans totaling $2 and $2 respectively is
included in the accompanying financial statements. During 1998, TMK loaned
United Investors $14,800 in a series of six separate loans at an interest rate
of 5.5% all of which were repaid prior to December 31, 1998. Interest expenses
related to these loans totaling $34 is included in the accompanying financial
statements.
Effective January 1, 1997 United Investors assumed a block of annuity
products totaling $200,321 from United American Insurance Company (United
American), an affiliated company, on 100% funds withheld coinsurance 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 $229,194 and
$190,235 at December, 1998 and 1997, respectively. Interest income totaled
$13,665 and $11,876 in 1998 and 1997, respectively, and is included in other
income. The reserve for annuity balances assumed in connection with this
business totaled $241,357 and $210,276 as of December 31, 1998 and 1997,
respectively. United Investors reimbursed United American for administrative
expenses in the amount of $800 in 1998 and $897 in 1997.
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 the
reorganization discussed in Note 1--Summary of Significant Accounting Policies.
Dividend income, on these shares, in the amount of $10,093 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, 1998 and 3% of premium income
for 1998. United Investors would be liable for the reinsured risks ceded to
other companies to the extent that such reinsuring companies are unable to meet
their obligation. Except as disclosed in Note 9, United Investors does not
assume insurance risks of other companies.
Restrictions on the transfer of funds: Regulatory restrictions exist on the
transfer of funds from insurance companies. These restrictions generally limit
the payment of dividends to the statutory net gain from operations of the prior
year in the absence of special approval. Additionally, insurance companies are
not permitted to distribute the excess of shareholder's equity as determined on
a GAAP basis over that determined on a statutory basis. Restricted net assets
at December 31, 1998 in compliance with all regulations were $392,823.
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 investment consists of
investment grade corporate bonds (55.7%), securities of the U.S. government or
U.S. government-backed securities (18.2%), non investment grade securities
(12.3%), municipal governments (4.4%), non government guaranteed mortgage
backed securities (3.3%), and policy loans (2.6%) which are secured by the
underlying policy value. The balance of the portfolio is invested in short-term
investments (3.5%).
Investments in municipal governments and corporations are made throughout
the U.S. with no concentration in any given state. Corporate debt investments
are made in a wide range of industries. At December 31, 1998, 1% or more of the
portfolio was invested in the following industries: financial services (19.8%);
chemicals and allied products (6.2%); manufacturing (5.8%); consumer goods
(5.5%); public utilities (4.9%); media and communications (4.6%);
transportation (4.2%); services (4.1%); retailing (3.9%); machinery and
equipment (3.3%); petroleum (2.7%); asset-backed securities (1.2%); paper and
allied products (1.1%). At the end of 1998, 12.3% of the carrying value of
fixed securities was rated below investment grade. Par value of these
investments was $84.249, amortized cost was $83.731, and market value was
$84.588. While these investments could be subject to additional credit risk,
such risk should generally be reflected in market value.
Collateral requirements: United Investors requires collateral for
investments in instruments where collateral is available and typically required
because of the nature of the investment. Since the majority of United
Investor's investments are in government, government-secured, or corporate
securities, the requirement for collateral is rare.
F-22
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
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,
-------------------------
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Due from affiliates........................... $229,194 $189,016 $ 0
Value of business purchased................... 0 11,305 0
Future policy benefits........................ 241,357 200,321 0
Impact from reorganization of
Waddell & Reed .............................. 203,871 0 0
The following table summarizes certain amounts paid during the period:
<CAPTION>
Year Ended December 31,
-------------------------
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Taxes paid.................................... $26,054 $8,631 $22,111
</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's insurance segments. The tables below present segment premium
revenue by each of United Investors's marketing groups.
<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%
======= ===== ==== ===== ======= =====
</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 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%
======= ===== ==== ===== ======= =====
<CAPTION>
For the Year 1996
------------------------------------------
Life Annuity Total
------------- ------------ -------------
% of % of % of
Distribution Channel Amount Total Amount Total Amount Total
- -------------------- ------- ----- ------ ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Independent Producers............... $ 6,795 10.4% $ $ 6,795 10.4%
Waddell & Reed...................... 58,319 89.6% 58,319 89.6%
------- ----- ---- ----- ------- -----
$65,114 100.0% $ 0.0% $65,114 100.0%
======= ===== ==== ===== ======= =====
</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's 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's revenues and operations
by segment to its major income statement line items.
<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 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) $ 0 72,783
======== ======== ======== ======= ===
Realized investment gains/losses and deferred acquisition cost
adjustment............................................................. 9,401
-------
Pretax income.......................................................... $82,184
=======
</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 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 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 gains/losses and deferred acquisition cost
adjustment........................................................... (5,197)
--------
Pretax income........................................................ $ 53,592
========
</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 1996
------------------------------------------------------------
Life Annuity Investment Other Adjustments Total
-------- -------- ---------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Premium................ $ 65,114 $ $ $ $ $ 65,114
Policy Charges and
fees.................. 8,722 20,681 29,403
Net Investment income.. 51,128 51,128
Other income........... 0
-------- -------- -------- ------- ----- --------
Total Revenues........ 73,836 20,681 51,128 145,645
Benefits and Expenses
Policy Benefits........ 47,355 15,807 63,162
Required reserve inter-
est................... (17,021) (20,599) 37,620 0
Amortization of acqui-
sition costs.......... 12,817 7,033 19,850
Commissions and premium
taxes................. 4,995 253 5,248
Required interest on
acquisition costs..... 8,045 3,712 (11,757) 0
-------- -------- -------- ------- ----- --------
Total Expenses........ 56,191 6,206 25,863 88,260
-------- -------- -------- ------- ----- --------
Underwriting income be-
fore other income and
administrative ex-
pense................. 17,645 14,475 25,265 57,385
Administrative Ex-
pense................. 3,682 3,682
Goodwill amortization.. 284 284
Deferred acquisition
cost adjustment....... 437 437
-------- -------- -------- ------- ----- --------
Pretax operating in-
come.................. $ 17,645 $ 14,475 $ 25,265 $(3,966) $(437) 52,982
======== ======== ======== ======= =====
Realized investment gains/losses and deferred acquisition cost
adjustment............................................................. 1,362
--------
Pretax income.......................................................... $ 54,344
========
</TABLE>
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, 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 $ 0 $3,837,038
======== ========== ======== ======== === ==========
</TABLE>
F-27
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 12--Business Segments (continued)
<TABLE>
<CAPTION>
At December 31, 1997
--------------------------------------------------------------
Life Annuity Investment Other Adjustments Total
-------- ---------- ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash and invested
assets................. $ $ $692,659 $ $ $ 692,659
Accrued investment
income................. 11,270 11,270
Deferred acquisition
costs.................. 117,410 93,241 210,651
Goodwill................ 6,771 6,771
Separate account
assets................. 1,876,439 1,876,439
Other Assets............ 229,351 229,351
-------- ---------- -------- -------- ----- ----------
Total Assets............ $117,410 $1,969,680 $703,929 $236,122 $ 0 $3,027,141
======== ========== ======== ======== ===== ==========
<CAPTION>
At December 31, 1996
--------------------------------------------------------------
Life Annuity Investment Other Adjustments Total
-------- ---------- ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash and invested
assets................. $ $ $664,861 $ $ $ 664,861
Accrued investment
income................. 10,781 10,781
Deferred acquisition
costs.................. 120,083 66,063 186,146
Goodwill................ 7,055 7,055
Separate account
assets................. 1,420,025 1,420,025
Other Assets............ 39,748 39,748
-------- ---------- -------- -------- ----- ----------
Total Assets............ $120,083 $1,486,088 $675,642 $ 46,803 $ 0 $2,328,616
======== ========== ======== ======== ===== ==========
</TABLE>
F-28
<PAGE>
United Investors Life Insurance Company
Balance Sheet (Unaudited)
as of September 30, 1999
(Amounts in thousands, except share and per share amounts)
ASSETS
Investments:
Fixed maturities $ 773,347
Equity securities 3,060
Policy loans 18,913
Other long term investments 0
Short term investments 10,160
---------------
Total investments 805,480
Cash 2,152
Accrued investment income 11,086
Receivables 2,590
Receivables from affiliates 362,529
Deferred acquisition cost 224,347
Value of business purchased 8,927
Goodwill 28,755
Property and equipment 214
Other assets 3,242
Separate accounts 2,704,602
---------------
$4,153,924
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Future policy benefits $ 812,104
Unearned and advance premiums 2,821
Other policy benefits 6,897
---------------
Total policy liabilities 821,822
Accrued income taxes 51,504
Other liabilities 5,967
Due to affiliates 30,762
Separate account liabilities 2,704,602
---------------
Total liabilities 3,614,657
Shareholders' equity:
Common stock, par value per $6 per share
authorized, issued and outstanding:
500,000 shares 3,000
Additional paid in capital 350,388
Unrealized investment gains, net of applicable taxes (6,696)
Retained earnings 192,575
---------------
Total shareholders' equity 539,267
---------------
Total liabilities and shareholders' equity $4,153,924
===============
<PAGE>
United Investors Life Insurance Company
Statement of Cash Flows (Unaudited)
for the nine-month period ended September 30, 1999
(Amounts in thousands)
Cash flow from operating activities
Net Income $ 43,037
Adjustments to reconcile net income to net cash
(used in) operating activities:
Net interest credited and product charges on
universal life and investment products (560)
Increase in liability for future benefits (78)
Amortization of deferred acquisition costs 24,513
Policy acquisition costs (42,971)
Change in tax liability 7,607
Change in other liabilities 3,792
Change in receivables (3,913)
Amortization of goodwill 709
Amortization of investments 329
Adjustment for realized gains 2,806
Change in payable/receivable from affiliates (4,019)
---------
Net cash (used in) operating activities 31,252
---------
Cash flows from investing activities:
Proceeds from investments:
Fixed investments 168,251
Other invested assets 0
---------
Total investments sold or matured 168,251
Cost of investments acquired:
Fixed investments (158,045)
Equity securities (3,400)
Other invested assets 0
Net change in policy loans (904)
---------
Total acquisition of investments (162,349)
Net (increase) decrease in short-term investments 2,513
Funds loaned to affiliates (62,024)
Funds repaid from affiliates 54,200
Funds borrowed from affiliates 3,000
Funds repaid to affiliates (3,000)
Additions to property (118)
---------
Cash provided from (used for) investment activities 473
Cash used for financing activities: ---------
Cash dividends paid to shareholders (41,000)
---------
(41,000)
Increase (decrease) in cash (9,275)
Cash at the beginning of the year 11,427
---------
Cash at end of year $ 2,152
=========
<PAGE>
United Investors Life Insurance Company
Statement of Equity (Unaudited)
for the nine-month period ended September 30, 1999
(Amounts in thousands)
<TABLE>
<CAPTION>
Net
Unrealized
Additional Appreciation Total
Common Paid-in (Depreciation) Retained Shareholders'
Stock Capital on Securities Earnings Equity
------ ---------- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1999........................... $3,000 $350,388 $15,654 $190,538 $559,580
Net income........................................... 43,037 43,037
Other comprehensive income, net of tax:
Change in unrealized appreciation (depreciation)... (22,350) (22,350)
--------
Total comprehensive income........................... 20,687
Dividends............................................ (41,000) (41,000)
------ -------- ------- -------- --------
Balance on September 30, 1999........................ $3,000 $350,388 ($6,696) $192,575 $539,267
====== ======== ======= ======== ========
</TABLE>
<PAGE>
United Investors Life Insurance Company
Statement of Income (Unaudited)
for the nine-month period ended September 30, 1999
(Amounts in thousands)
<TABLE>
<S> <C>
Revenues:
Premiums $ 54,976
Policy charges and fees 40,162
Net investment income 47,557
Net realized investment gains (2,806)
Other income 12,891
--------
Total revenue 152,780
Benefits and expenses:
Policy benefits
Individual Life 38,097
Annuity 19,675
--------
Total policy benefits 57,772
Amortization of deferred acquisition costs 25,222
Commissions and premium taxes 4,467
Other operating expenses 4,431
--------
Total benefits and expenses 91,892
--------
Net operating income before taxes 60,888
Income tax expense 17,851
--------
Net income $ 43,037
========
</TABLE>
<PAGE>
Part II
<PAGE>
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
Insofar as indemnification for liability arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
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.
Article XII of United Investors' By-Laws provides as follows:
Each Director or officer, or former Director or officer, of this
Corporation, and his legal representatives, shall be indemnified
by the Corporation against liabilities, expenses, counsel fees
and costs, reasonably incurred by him or his estate in connection
with, or arising out of, any action, suit, proceeding or claim in
which he is made a party by reason of his being, or having been,
such Director or officer; and any person who, at the request of
this Corporation, serves as Director or officer of another
corporation in which this Corporation owns corporate stock, and
his legal representatives, shall in like manner be indemnified by
this Corporation; provided that, in either case shall the
Corporation indemnify such Director or officer with respect to
any matters as to which he shall be finally adjudged in any such
action, suit or proceeding to have been liable for misconduct in
the performance of his duties as such Director or officer. The
indemnification herein provided for shall apply also in respect
of any amount paid in compromise of any such action, suit,
proceeding or claim asserted against such Director or officer
(including expenses, counsel fees, and costs reasonably incurred
in connection therewith), provided that the Board of Directors
shall have first approved such proposed compromise settlement and
determined that the officer or Director involved is not guilty of
misconduct, but in taking such action any Director involved shall
not be qualified to vote thereof, and if for this reason a quorum
of the Board cannot be obtained to vote on such matters, it shall
be determined by a committee of three (3) persons appointed by
the shareholders at a duly called
<PAGE>
special meeting or at a regular meeting. In determining whether
or not a Director or officer is guilty of misconduct in relation
to any such matter, the Board of Directors or committee appointed
by the shareholders, as the case shall be, may rely conclusively
upon an opinion of independent legal counsel selected by such
Board or committee. The rights to indemnification herein provided
shall not be exclusive of any other rights to which such Director
or officer may be lawfully entitled.
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.
2
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The prospectus consisting of ___ 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
W. Thomas Aycock
KPMG LLP
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 Titanium Universal Life Variable
Account*
(2) Not Applicable
(3) (a) First Union Securities, Inc. draft Agreements:
(i) Distribution Agreement;**
(ii) Selling Group Agreement;**
(iii) Commission Schedule.**
(b) United Securities Alliance, Inc. draft Agreements:
(i) Distribution Agreement;**
(ii) Selling Group Agreement;**
(iii) Commission Schedule.**
(4) Not applicable
(5) Specimen Flexible Premium Variable Life Insurance Policy, Form
TL99** (including Riders)
(6) (a) Articles of Incorporation of United Investors Life Insurance
Company \1\
(b) By-laws of United Investors Life Insurance Company/1/
(7) Not applicable
(8) Forms of Participation Agreements with:
(a) AIM Variable Insurance Funds, Inc./2/
(b) The Alger American Fund**
(c) BT Insurance Funds Trust**
(d) Dreyfus Variable Investment Fund**
(e) Evergreen Variable Annuity Trust**
(f) INVESCO Variable Investment Funds, Inc.**
(g) MFS Variable Insurance Trust/3/
3
<PAGE>
(h) Strong Variable Insurance Funds, Inc.**
(i) Templeton Variable Products Series Fund**
(9) Not applicable
(10) Application form**
(11) Description of issuance, transfer and redemption procedures**
B. Not applicable
C. Not applicable
2. Opinion and consent of John H. Livingston, Esquire as to the legality
of the securities being registered**
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**
7. (a) Consent of independent accountants**
(b) Consent of Sutherland Asbill & Brennan LLP**
______________
* Incorporated by reference to the exhibit filed with the initial filing of
this Form S-6 registration statement, File No. 333-89875, on October 28,
1999.
** Filed herewith.
/1/ Incorporated herein by reference to the Exhibit filed electronically with
Post-Effective Amendment No. 12 to the registration statement on Form S-6
(File No. 33-11465), filed on behalf of United Investors Life Variable
Account on April 29, 1998 (previously filed on January 22, 1987 as an
Exhibit to the Form S-6 registration statement, File No. 33-11465).
/2/ Incorporated herein by reference to the Exhibit filed with Post-Effective
Amendment No. 1 to the Registration Statement on Form N-4 (File No. 333-
12507) filed on behalf of the RetireMAP Variable Account on June 29, 1998.
/3/ Incorporated herein by reference to the Exhibit filed with Pre-Effective
Amendment No. 2 to the Registration Statement on Form N-4 (File No. 333-
12507) filed on behalf of the RetireMAP Variable Account on July 2, 1997.
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Titanium Universal Life Variable Account, has duly caused this amendment to the
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 the
City of Birmingham and the State of Alabama, on the 21st day of January, 2000.
TITANIUM UNIVERSAL LIFE VARIABLE ACCOUNT
(SEAL) (Registrant)
By: 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 and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, United
Investors Life Insurance Company 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 the City of Birmingham and the
State of Alabama, on the 21st day of January, 2000.
(SEAL) UNITED INVESTORS LIFE INSURANCE COMPANY
Attest: /s/ John H. Livingston By: /s/ Anthony L. McWhorter
------------------------- ------------------------
John H. Livingston Anthony L. McWhorter
Secretary and Counsel President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities indicated on the date(s) set forth below.
<PAGE>
Signature Title Date
- --------- ----- ----
_________________________ Director
C.B. Hudson
/s/ Anthony L. McWhorter Chairman of the Board of Directors,
- -------------------------
Anthony L. McWhorter President and Chief Executive
Officer January 21, 2000
/s/ W. Thomas Aycock Director, Vice President and
- -------------------------
W. Thomas Aycock Chief Actuary January 21, 2000
Director and Executive Vice
- ------------------------
Tony G. Brill President--Marketing
________________________ Senior Vice President--Marketing
Mark S. McAndrew
________________________ Director
Larry M. Hutchison
/s/ Michael J. Klyce Vice President and Treasurer January 21, 2000
- -------------------------
Michael J. Klyce
/s/ John H. Livingston Director, Secretary and Counsel January 21, 2000
- --------------------------
John H. Livingston
/s/ James L. Mayton, Jr. Vice President and Controller January 21, 2000
- --------------------------
James L. Mayton, Jr.
/s/ Carol A. McCoy Director and Assistant Secretary January 21, 2000
- --------------------------
Carol A. McCoy
/s/ Ross W. Stagner Director and Vice President January 21, 2000
- --------------------------
Ross W. Stagner
/s/ Terry W. Davis Director and Vice President-- January 21, 2000
- --------------------------
Terry W. Davis Administration
<PAGE>
EXHIBIT INDEX
Exhibit No. Name of Exhibit
- ----------- ---------------
1.A.(3)(a) First Union Securities, Inc. draft Agreements:
(i) Distribution Agreement;**
(ii) Selling Group Agreement;**
(iii) Commission Schedule.**
1.A.(3)(b) United Securities Alliance, Inc. draft Agreements:
(i) Distribution Agreement;**
(ii) Selling Group Agreement;**
(iii) Commission Schedule.**
1.A.(5) Specimen Flexible Premium Variable Life Insurance Policy, Form
TL99 (including Riders)
1.A.(8) Forms of Participation Agreements
1.A.(10) Application form
1.A.(11) Description of issuance, transfer and redemption procedures
2. Opinion and consent of John H. Livingston, Esquire as to the
legality of the securities being registered
6. Opinion and consent of W. Thomas Aycock as to actuarial matters
pertaining to the securities being registered
7.(a) Consent of independent accountants
7.(b) Consent of Sutherland Asbill & Brennan LLP
<PAGE>
EXHIBIT 1.A.(3)(a)
First Union Securities, Inc. draft Agreements:
(i) Distribution Agreement
(ii) Selling Group Agreement
(ii) Commission Schedule
<PAGE>
DISTRIBUTION AGREEMENT
With
First Union Securities, Inc.
Table of Contents
<TABLE>
<CAPTION>
Section Page No.
<S> <C>
Additional Definitions.................................................................................... 3
Distribution Activities Authority......................................................................... 4
Distribution Activities Appointment....................................................................... 5
Distribution Activities Duties............................................................................ 6
Limitations on Authority.................................................................................. 6
Sales Agreements.......................................................................................... 7
Forms, Applications, and Licensing........................................................................ 8
Marketing Materials....................................................................................... 10
The Distributor's Compensation............................................................................ 10
Representations and Warranties............................................................................ 11
Indemnification........................................................................................... 13
Records................................................................................................... 18
Investigations and Proceedings............................................................................ 18
Term and Termination...................................................................................... 18
Rights Upon Termination................................................................................... 20
Independent Contractor.................................................................................... 22
Notices................................................................................................... 22
Arbitration............................................................................................... 22
Confidentiality........................................................................................... 23
Severability.............................................................................................. 24
Choice of Law............................................................................................. 24
No Waiver................................................................................................. 24
Agreement Non-Assignable.................................................................................. 25
Exhibits and Schedules.................................................................................... 25
Headings.................................................................................................. 25
Schedules and Attachments ................................................................................ 25
Entire Agreement.......................................................................................... 25
</TABLE>
<PAGE>
DISTRIBUTION AGREEMENT
----------------------
AGREEMENT made as of the day of 1999, by and Between United
Investors Life, Inc (the "Insurance Company") and First Union Securities, Inc.,
a Delaware corporation (the "Distributor"), on its own behalf and on behalf of
the individuals and entities listed on Schedule 1 to this Agreement (the
"Distributor Agency Affiliates"), as that Schedule may be amended from time to
time in accordance with this Agreement.
RECITALS:
WHEREAS, the Insurance Company issues certain variable annuity
contracts and variable life insurance policies; and
WHEREAS, certain of the variable annuity contracts and variable life
insurance policies issued by the Insurance Company (the "Private Placements")
may be offered and sold in reliance upon exemptions from the registration
requirements of the Securities Act of 1933 (the "1933 Act") and the Investment
Company Act of 1940 (the "1940 Act"), while certain other variable annuity
contracts and variable life insurance policies issued by the Insurance Company
are being offered and sold pursuant to Registration Statements (the "Registered
Products") and their related Prospectuses filed with and declared effective by
the Securities and Exchange Commission (the "Commission") under the provisions
of the 1933 Act and the 1940 Act (collectively, the "Private Placements" and the
"Registered Products" are referred to as the "Variable Products") (Variable
Products are identified in Schedule 2 to this Agreement, as amended from time to
time); and
WHEREAS, the Distributor is registered as a broker-dealer with the
Commission under the Securities Exchange Act of 1934, as amended (the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (the "NASD") that engages in the distribution of
insurance products; and
WHEREAS, the Insurance Company desires to retain the Distributor to
distribute the Variable Products through registered broker-dealers ("Broker-
Dealers") and their registered representatives ("Representatives"); and
WHEREAS, the Distributor desires to be retained by the Insurance
Company to distribute the Variable Products on the terms and conditions
hereinafter set forth.
2
<PAGE>
NOW, THEREFORE, in consideration of mutual promises contained herein,
the parties hereto agree as follows:
1. Additional Definitions
----------------------
(a) Affiliate -- With respect to a person, any other person controlling,
controlled by, or under common control with, such person.
(b) Applications -- The forms used by the prospective purchaser to apply
for a variable life insurance policy or a variable annuity contract.
(c) Contracts -- The variable annuity contracts and certificates set forth
in Schedule 2 to this Agreement, as amended from time to time.
(d) Policies -- The variable life insurance policies set forth in Schedule
2 to this Agreement as in effect at the time this Agreement is executed,
and such other variable life insurance products that may be added to
Schedule 2 from time to time.
(e) Premium -- A payment made under a Policy by an applicant or purchaser
to purchase Variable Products.
(f) Private Placement Guidelines -- The guidelines set forth in Schedule 3
to this Agreement, as that Schedule may be amended from time to time.
(g) Private Placement Memorandum -- The document through which the
Insurance Company offers private placements. For purposes of Section 11 of
this Agreement, the term "any Private Placement Memorandum" means any
document which is or at any time was a Private Placement Memorandum within
the meaning of this Section 1(g).
(h) Private Placements -- Contracts and Policies being offered and sold in
reliance upon exemptions from the registration requirements of the 1933
Act and the 1940 Act for non-public offerings.
(i) Prospectus -- The prospectus if any, included within a Registration
Statement or, if more recent, the prospectus filed pursuant to Rule 497
under the 1933 Act. For purposes of Section 11 of this Agreement, the term
"any Prospectus" means any document which is or at any time was a
Prospectus within the meaning of this Section 1(i).
3
<PAGE>
(j) Purchase Payment -- A payment made under a Contract by an applicant or
purchaser to purchase benefits under the Contract.
(k) Registration Statement -- At any time that this Agreement is in effect,
each currently effective registration statement, or currently effective
post-effective amendment thereto, relating to the Contracts or Policies,
including financial statements included in, and all exhibits to, that
registration statement or post-effective amendment. For purposes of Section
11 of this Agreement, the term "Registration Statement" means any document
which is or at any time was a Registration Statement within the meaning of
this Section 1(k).
(1) Regulations -- The rules and regulations promulgated by the Commission
under the 1933 Act, the 1934 Act and the 1940 Act as in effect at the time
this Agreement is executed or thereafter promulgated.
(m) Variable Accounts -- Separate accounts established pursuant to Missouri
state insurance law supporting the Variable Products specified in Schedule
2 as in effect at the time this Agreement is executed, or as it may be
amended from time to time.
2. Distribution Activities -- Authority
------------------------------------
(a) The Insurance Company authorizes the Distributor, and the Distributor
accepts the authority, to act as a distributor of the Variable Products,
subject to any applicable requirements of the 1933 Act and the 1940 Act.
The Insurance Company hereby authorizes the Distributor to select
persons that will be authorized to engage in solicitation activities with
respect to the Variable Products, including the recruitment and appointment
of Broker-Dealers and Representatives which in turn may be authorized to
engage in solicitation activities involving the solicitation of
Applications, Premiums and Purchase Payments directly from prospective
purchasers.
(b) The Distributor shall enter into separate written "Sales Agreements"
with Broker-Dealers for distribution of the Variable Products. These Sales
Agreements will be in a form mutually agreeable to the parties to this
Agreement.
(c) Nothing in this Agreement precludes additional mutually agreeable
distribution and compensation arrangements among the parties to this
Agreement, including ones that may have compensation arrangements that
reward the Insurance Company for identifying and recruiting new Broker-
Dealers to sell the Variable Products, for
4
<PAGE>
identifying potential purchasers of the Variable Products, or for providing
superior support under this Agreement.
3. Distribution Activities -- Appointment
--------------------------------------
(a) Where required by applicable state insurance law, the Insurance Company
hereby appoints the Distributor as its agent under that state insurance law
to represent the Insurance Company in the distribution activities
contemplated by this Agreement. The Insurance Company hereby authorizes the
Distributor under applicable securities laws to engage in the activities
contemplated by this Agreement relating to the distribution of the Variable
Products.
(b) In states where the Distributor is not licensed as an insurance agent
and applicable state insurance law requires that the Distributor be so
licensed, the Insurance Company hereby appoints each Distributor Agency
Affiliate listed on Schedule 1 to this Agreement (as that Schedule may be
amended from time to time by the Distributor when required by applicable
state insurance law to reflect changes in the licensing status of the
Distributor or the Distributor Agency Affiliates) as its agent under
applicable state insurance laws to represent the Insurance Company in the
distribution activities contemplated by this Agreement.
5
<PAGE>
4. Distribution Activities -- Duties
---------------------------------
(a) The Distributor shall use its best efforts to market the Variable
Products actively through Broker-Dealers and Representatives in accordance
with the terms and conditions of this Agreement, subject to applicable
material market and regulatory conditions.
(b) The Distributor shall assist and provide information to Broker-Dealers
and Representatives in connection with servicing the Variable Products sold
or marketed by those Broker-Dealers Representatives.
(c) Under no circumstances shall the Insurance Company or the Distributor
be responsible under this Agreement for any failure by Broker-Dealers or
Representatives to comply with applicable law.
(d) Under no circumstances shall the Distributor be responsible under this
Agreement for any failure by the Insurance Company to comply with
applicable law.
(e) Under no circumstances shall the Insurance Company be responsible under
this Agreement for any failure by the Distributor to comply with applicable
law.
5. Limitations on Authority
------------------------
(a) The Distributor shall not have the authority, and shall not grant
authority to Broker-Dealers or Representatives, on behalf of the Insurance
Company:
(1) to make, alter or discharge any Variable Product or other
contract entered into pursuant to a Variable Product;
(2) to waive any Variable Product forfeiture provision;
(3) to extend the time of paying any Purchase Payments, or Premiums
due under the Variable Products; and
(4) to receive any monies, Purchase Payments or Premiums (except for
the sole purpose of forwarding monies, Purchase Payments or Premiums
to the Insurance Company).
(b) The Distributor shall not expend, nor contract for the expenditure of,
funds of the Insurance Company.
(c) The Distributor shall not possess or exercise any authority on behalf
of the Insurance Company other than that expressly conferred on the
Distributor by this Agreement.
6
<PAGE>
6. Sales Agreements
----------------
(a) The Distributor shall not enter into any Sales Agreement with a Broker-
Dealer relating to the distribution of any Variable Product, unless that
Sales Agreement (i) is substantially identical to the form of Sales
Agreement mutually agreed to by the parties to this Agreement or (ii) is
approved by the Insurance Company, provided that the approval of the
Insurance Company shall be deemed to have been given if no written
objection to the Sales Agreement has been delivered by the Insurance
Company to the Distributor within five (5) business days after being
provided by facsimile or express courier with a copy of the proposed Sales
Agreement.
(b) The Distributor shall provide to the Insurance Company a copy of each
Sales Agreement entered into by the Distributor and a Broker-Dealer within
five (5) business days following execution thereof.
(c) The Insurance Company agrees to appoint Representatives of the Selling
Broker-Dealers as life insurance agents of the Insurance Company to the
extent that such Representatives satisfy the licensing and qualification
requirements of applicable state insurance laws, as well as the Insurance
Company's own standards applicable to life insurance agents of the
Insurance Company. The Insurance Company reserves the right, which right
shall not be exercised unreasonably, to refuse to appoint any
Representative as its life insurance agent. The Life Company reserves the
right to terminate immediately the appointment of any Representative as its
life insurance agent if such Representative fails to maintain his or her
registration, license or qualifications under federal and state securities
laws, as well as applicable state insurance laws, is subject to
disciplinary action by any governmental authority or self-regulatory
organization or fails, in the reasonable view of the Insurance Company, to
satisfy appropriate industry standards. The Insurance Company shall
promptly notify the Distributor and the Selling Broker-Dealer of its intent
to terminate a Representative and the reasons for such termination.
7
<PAGE>
(d) When appointing a Representative or an insurance agency of a Selling
Broker-Dealer as its life insurance agent, the Insurance Company agrees
only to enter into agent or agency agreements (an "Agent Agreement") that
(i) are substantially identical to the form of Agent Agreement mutually
agreed to by the parties to this Agreement or (ii) is otherwise approved by
the Distributor, provided that the approval of the Distributor shall be
deemed to have been given if no written objection to the Agent Agreement
has been delivered by the Distributor to the Insurance Company within five
(5) business days after being provided with a copy of the proposed Agent
Agreement. After entering into an Agent Agreement, the Insurance Company
shall not amend or supplement the Agent Agreement without the Distributor's
prior written consent, which consent shall not be unreasonably withheld.
The Insurance Company agrees to notify the Distributor and the Selling
Broker-Dealer promptly of its intent to terminate an Agent Agreement and
the reasons for such termination.
7. Forms, Applications, and Licensing
----------------------------------
(a) The Insurance Company, or its agent, shall forward to the Distributor,
Applications, Policies, Contracts, subscription agreements, certificates,
other administrative forms, and any amendments or supplements to the
foregoing, necessary to carry out the Distributor's distribution authority
and responsibilities with respect to the Variable Products.
(b) The Insurance Company shall obtain all requisite regulatory approvals
of such materials furnished to the Distributor and shall comply with all
applicable laws, rules, regulations and orders of any governmental
authority relating to the issuance or sale of the Variable Products.
8
<PAGE>
(c) All premiums and Purchase Payments paid by check or money order that
are collected by the Distributor, any agent or affiliate shall be remitted
promptly, and in any event not later than two business days, in full,
together with Applications, forms, and any other required documentation, to
the Insurance Company. Checks or money orders in payment of Premiums and
Purchase Payments shall be drawn to the order of "United Investors Life".
If any Premium or Purchase Payment is held at any time by the Distributor,
broker-dealers, registered representatives, agents, or any affiliates, the
Distributor, the broker-dealers, the registered representatives, the agents
or the affiliates shall hold that Premium or Purchase Payment in a
fiduciary capacity. All Premiums and Purchase Payments whether by check,
money order or wire, shall be the property of the Insurance Company.
(d) The Distributor acknowledges that the Insurance Company shall have the
unconditional right to reject, in whole or in part, any application. The
Insurance Company shall return any monies received by it or from an
applicant or purchaser whose Application has been rejected. The Insurance
Company shall notify the Distributor in writing one business day prior to
taking any action to return any such Monies, which notice shall identify,
if applicable, the agent who submitted the rejected Application.
(e) If a purchaser exercises its "free look right" under a Variable
Product, any refund of premiums or Purchase Payments due as provided in
that Variable Product, shall be made by the Insurance Company to the
purchaser. The Insurance Company shall notify the Distributor in writing
one business day prior to taking any action to refund any such Premiums or
Purchase Payments, which notice shall identify, if applicable the broker-
dealer, the registered representative or the agent through which the
Variable Product had been purchased.
(f) The Distributor agrees to maintain all registrations, licenses, and
qualifications under federal and state securities laws that are applicable
to its activities and those of its registered representatives in connection
with the performance of this Agreement. The Distributor also agrees to
maintain all registrations, licenses, and qualifications under state
insurance laws that are applicable to the activities of the Distributor,
the Insurance Agency Affiliates and their agents in performing this
Agreement.
(g) The Distributor agrees to notify the Insurance Company within [three
(3) business days] of obtaining actual knowledge of any changes in the
registrations, licenses, or qualifications of the Distributor, the
Insurance Agency Affiliates, or the agents or representatives of the
Distributor or Insurance Agency Affiliates that would adversely affect its
performance of this Agreement.
(h) The Insurance Company agrees to obtain and maintain all registrations,
licenses, qualifications and approvals under federal securities laws and
state blue sky and insurance laws in connection with qualifying the
Variable Products for sale.
9
<PAGE>
(i) The Insurance Company agrees to notify the Distributor within [three
(3) business days] of obtaining actual knowledge of any changes in the
registrations, licenses, qualifications, or approvals of the Variable
Products that would adversely affect the offering of the Variable
Contracts.
8. Marketing Materials
-------------------
The Insurance Company shall design, develop, produce, and make the
determination whether to file and, if necessary, file for and obtain all
necessary regulatory approvals for, all advertising, sales literature, and
other promotional materials required in connection with the distribution,
sale and marketing of the Variable Products. The Insurance Company shall
work closely with the Distributor to ensure that the marketing materials
achieve their desired purpose.
9. The Distributor's Compensation
------------------------------
(a) In consideration for the services rendered by the Distributor pursuant
to this Agreement, the Insurance Company shall pay the Distributor the
compensation set forth in Schedule 4 to this Agreement. Schedule 4 and/ or
Schedule 2 may be modified at any time, and from time to time, by adding or
deleting contracts and changing the compensation payable for those
contracts, provided, that, any such modifications are mutually agreed upon
by both the Insurance Company and the Distributor, in writing, and signed
by both parties. Modifications to the Variable Products listed in Schedule
2 and the compensation described in Schedule 4 may be requested by the
Insurance Company in the event that pricing objectives are not achieved due
to adverse experience, and the Distributor's consent shall not be
unreasonably withheld. Any such modification shall apply only to contracts
applied for after the effective date of each such modification.
10
<PAGE>
(b) With respect to Variable Products in connection with which the
Insurance Company has advanced sales commissions paid to the Distributor,
to a Broker-Dealer, or to a Representative, in the event a Contract or
Policy on a Variable Product terminates within twelve (12) months of the
date of issue, the Insurance Company reserves the right to recover: (1) one
hundred percent (100%) of the compensation paid to Distributor respecting
the sale of the Variable Product if that Variable Product terminates for
reasons other than death during the first twelve (12) months following
issue; (2) seventy five percent (75%) of the compensation paid to the
Distributor if a Variable Product terminates for reasons other than death
during the second twelve (12) months following issue; (3) fifty percent
(50%) of the compensation paid to the Distributor if a Variable Product
terminates for reasons other than death during the third twelve (12) months
following issue; (4) twenty five percent (25%) of the compensation paid to
the Distributor if a Variable Product terminates for reasons other than
death during the fourth twelve (12) months following issue; and (5) nothing
from the Distributor (i.e., no charge back) if the Variable Product
terminates thereafter. However, notwithstanding any other provision of this
Agreement, if termination of a Variable Product at any time is due to the
willful or negligent wrongful actions or representations of the
Distributor, Broker-Dealer or Representative, the Insurance Company
reserves the right to recover one hundred percent (100%) of the
compensation paid to Distributor respecting the sale of the Variable
Product.
With respect to any other terminations, the Insurance Company has no
right to recover any portion of the compensation paid to the Distributor.
In no event shall the Insurance Company have the right to recover any
portion of any compensation received by the Distributor as a basis point
charge against investment values under the contracts. The Insurance Company
shall have the right to set off any amounts owed by the Distributor under
this Section 9(b) against any amounts owed by the Insurance Company to the
Distributor.
10. Representations and Warranties
------------------------------
(a) By the Distributor
The Distributor represents and warrants to, and covenants with, the
Insurance Company as follows:
(1) The Distributor has taken all action necessary including without
limitation, those necessary under its articles of incorporation, by-
laws and applicable state corporate law, to authorize the execution,
delivery and performance of this Agreement and all transactions
contemplated hereunder.
(2) Prior to the sale of any Variable Product hereunder, the
Distributor will be, and shall thereafter remain during the term of
this Agreement, registered as a broker-dealer under the 1934 Act, a
member in good standing of the NASD, and duly registered under
applicable state securities laws.
11
<PAGE>
(3) Prior to the sale of any Variable Product hereunder, the
Distributor will be, and shall thereafter remain during the term of
this Agreement, in compliance with the eligibility requirements for
certain affiliated persons and underwriters found in Section 9(a) of
the 1940 Act.
(4) Prior to the sale of any Variable Product hereunder, the
Distributor and each Distributor Agency Affiliate and Representative
will have all necessary licenses and regulatory approvals to perform
the services required by this Agreement and the Distributor will
notify the Insurance Company within three business days of obtaining
actual knowledge of any change in the status of such licenses or
regulatory approvals.
(5) During the term of this Agreement and for any reason, the
Distributor and the Distributor Agency Affiliates agree that they will
not take any action designed or calculated to result in the transfer
or exchange of the policies.
(b) By the Insurance Company
The Insurance Company represents and warrants to, and covenants with, the
Distributor as follows:
(1) All necessary regulatory approvals and licenses from any state or
federal governmental body having jurisdiction over the Insurance
Company or the Variable Products have been obtained, and the Insurance
Company will notify the Distributor within one business day of
obtaining actual knowledge of any change in the status of any
approvals or licenses related to the marketing, sale or distribution
of the Variable Products.
(2) The Insurance Company has taken all action necessary including,
without limitation, those necessary under its articles of
incorporation, bylaws and applicable state corporate law, to authorize
the execution, delivery and performance of this Agreement and all
transactions contemplated hereunder.
(3) The Insurance Company is and shall remain during the term of this
Agreement in compliance with the eligibility requirements for certain
affiliated persons and underwriters found in Section 9(a) of the 1940
Act.
12
<PAGE>
11. Indemnification
- -------------------
(a) By the Distributor
(1) The Distributor agrees to indemnify and hold harmless the Insurance
Company and each director, officer, employee or agent of the Insurance
Company, and each person, if any, who controls the Insurance Company within
the meaning of the federal securities laws (collectively, the "Indemnified
Parties" for purposes of this Section 11 (a)) against any and all losses,
claims, damages, liabilities (including amounts paid in settlement with the
written consent of the Insurance Company) or litigation (including legal
and other expenses) to which the Indemnified Parties may become subject
under any statute, regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the offer or sale of the Variable
Products or the operation of the Variable Accounts and:
(i) arise out of, or are based upon, violation(s) by the Distributor
of federal or state securities law(s) or regulation(s), applicable
banking law(s) or regulation(s), insurance law(s) or regulation(s) or
any rule or requirement of the NASD; or
(ii) arise out of, or are based upon, any tortious conduct (including
oral or written misrepresentation), or any unlawful sales practices
concerning the Variable Products by the Distributor; or
(iii) arise out of, or are based upon, any untrue statement or
alleged untrue statement of a material fact or omission or alleged
omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, in light of
the circumstances in which they were made, contained in any
advertising, sales literature, or other promotional material
designed, developed, and produced by the Distributor and used by it
in the distribution of the Variable Products; provided that the
Distributor shall not be liable in any such case to the extent that
such losses, claims, damages, liabilities or expenses arises out of,
or are based upon, an untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon information
furnished in writing to the Distributor by the Insurance Company
specifically for use in the preparation of any such promotional
material; or
13
<PAGE>
(iv) arise out of, or are based upon, claims by the Representatives or
agents or representatives of the Distributor for commissions or other
compensation or remuneration of any type; or
(v) arise as a result of any failure on the part of the Distributor to
submit Premiums, Purchase Payments, or Applications to the Insurance
Company, or to submit the correct amount of a Premium or Purchase
Payment, on a timely basis and in accordance with this Agreement,
subject to applicable law; or
(vi) arise as a result of any failure on the part of the Distributor
to deliver the Variable Products to purchasers thereof on a timely
basis; provided that the Distributor shall not be liable in any such
case to the extent that such losses, claims, damages, liabilities or
expenses arise as a result of any failure on the part of the Insurance
Company to perform its obligations under this Agreement on a timely
basis; or
(vii) arise as a result of a material breach by the Distributor of any
provisions of this Agreement; or
(viii) arise as a result of actions of a Broker-Dealer or its
Representatives;
as limited by and in accordance with the provisions of Sections 11(a)(2)
and 11 (a)(3) hereof.
(2) The Distributor shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation ("Losses" for purposes of this Section 11 (a)(2)) incurred or
assessed against an Indemnified Party that may arise from any Indemnified
Party's willful misfeasance or bad faith. The Distributor's liability for
Losses in the event of its breach of this Agreement shall be limited to
that portion of Losses
14
<PAGE>
caused by its breach, and the Distributor shall not be liable for that
portion of Losses caused by breach of this Agreement by an Indemnified
Party or from any act or omission by an Indemnified Party.
(3) The Distributor shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless that Indemnified Party shall have notified the Distributor in
writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been
served upon that Indemnified Party (or after the Indemnified Party shall
have received notice of such service on any designated agent).
Notwithstanding the foregoing, the failure of any Indemnified Party to give
notice as provided herein shall not relieve the Distributor of its
obligations hereunder except to the extent that the Distributor has been
prejudiced by such failure to give notice. In addition, any failure by the
Indemnified Party to notify the Distributor of any such claim shall not
relieve the Distributor from any liability which it may have to the
Indemnified Party against whom the action is brought otherwise than on
account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Distributor shall be entitled
to participate, at its own expense, in the defense of the action. The
Distributor also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action; provided, however,
that if the Indemnified Party shall have reasonably concluded that there
may be defenses available to it which are different from or additional to
those available to the Distributor, the Distributor shall not have the
right to assume said defense, but shall pay the costs and expenses thereof
(except that in no event shall the Distributor be liable for the fees and
expenses of more than one counsel for Indemnified Parties in connection
with any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances).
After notice from the Distributor to the Indemnified Party of the
Distributor's election to assume the defense thereof, and in the absence of
such a reasonable conclusion that there may be different or additional
defenses available to the Indemnified Party, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and
the Distributor will not be liable to that party under this Agreement for
any legal or other expenses subsequently incurred by the party
independently in connection with the defense thereof other than reasonable
costs of investigation.
(4) The Indemnified Parties will notify the Distributor within a reasonable
time, not to exceed fifteen (15) business days, of the receipt of service
of process in any litigation or proceedings against them in connection with
the offer or sale of the Variable Products or the operation of the Variable
Accounts.
15
<PAGE>
(b) By the Insurance Company
(1) The Insurance Company agrees to indemnify and hold harmless the
Distributor and each director, officer, employee or agent of the
Distributor, and each person, if any, who controls the Distributor within
the meaning of the federal securities laws (collectively, the "Indemnified
Parties" for purposes of this Section 11(b)) against any and all losses,
claims, damages, liabilities (including amounts paid in settlement with the
written consent of the Insurance Company) or litigation (including legal
and other expenses) to which the Indemnified Parties may become subject
under any statute, regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the offer or sale of the Variable
Products or the operation of the Variable Accounts and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact or omission or alleged omission
to state a material fact required to be stated therein or necessary
to make the statements therein not misleading, in light of the
circumstances in which they were made, contained in any: (A)
Registration Statement or Prospectus; (B) blue-sky application or
other document executed by the Insurance Company specifically for the
purpose of exempting the Private Placements from, or qualifying any
or all of the Registered Products for sale under, the securities laws
of any jurisdiction; or (C) information furnished in writing to the
Distributor specifically for the purpose of being included in any
advertising, sales literature, or other promotional material to be
used in connection with the distribution of the Variable Products;
provided that the Insurance Company shall not be liable in any such
case to the extent that such losses, claims, damages, liabilities or
expenses arise out of, or are based upon, an untrue statement or
alleged untrue statement or omission or alleged omission made in
reliance upon information furnished in writing to the Insurance
Company by the Distributor specifically for use in the preparation of
any such document, application, or promotional material; or
(ii) result because of the provisions of any Variable Product or
because of any material breach by the Insurance Company of any
provision of this Agreement or of any Variable Product or which
result from any wrongful activities of the Insurance Company's
officers, directors, employees or agents or their
16
<PAGE>
wrongful failure to take any action in connection with the sale,
processing or administration of the Variable Products including,
without limitation, obtaining auditors' reports, computing accurate
separate account and/or underlying fund performance data, preparation
and timely filing and delivery, as required, of annual and semiannual
reports and reports on Form NSAR and the timely payment of all state
and federal registration fees; as limited by and in accordance with
the provisions of Sections 11 (b)(1) and 11 (b)(2) hereof.
(2) The Insurance Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation ("Losses" for purposes of this Section 11 (b)(2)) incurred or
assessed against an Indemnified Party that may arise from any Indemnified
Party's willful misfeasance or bad faith. The Insurance Company's liability
for Losses in the event of its breach of this Agreement shall be limited to
that portion of Losses caused by its breach, and that party shall not be
liable for that portion of Losses caused by breach of this Agreement by an
Indemnified Party or from any act or omission by an Indemnified Party.
(3) The Insurance Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless the Indemnified Party shall have notified the Insurance Company in
writing within a reasonable time after receiving the summons or other first
legal process giving information of the nature of the claim against the
Indemnified Party (a "Claim"). Notwithstanding the foregoing, the failure
of any Indemnified Party to give notice as provided herein shall not
relieve the Insurance Company of its obligations hereunder except to the
extent that the Insurance Company has been prejudiced by the failure of the
Indemnified Party to give notice. In addition, any failure by the
Indemnified Party to notify the Insurance Company of any Claim shall not
relieve the Insurance Company from any liability which it may have to the
Indemnified Party against whom the action is brought otherwise than on
account of this indemnification provision. In case any Claim is brought
against the Indemnified Parties, the Insurance Company shall be entitled to
participate, at its own expense, in the defense of the Claim. The Insurance
Company also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the Claim. After notice from the
Insurance Company to the Indemnified Party of the Insurance Company's
election to assume a defense to a Claim, the Indemnified Party shall bear
the fees and expenses of any additional counsel retained by it, and the
Insurance Company will not be liable to the Indemnified Party under this
Agreement for any legal or other expenses subsequently incurred by the
Indemnified Party independently in connection with the defense of a Claim
other than the reasonable costs of investigation.
17
<PAGE>
12. Records
-------
The parties to this Agreement shall maintain such accounts, books and
records and other documents as are required to be maintained under
applicable laws and regulations and shall preserve such accounts, books and
records, and other documents for the periods prescribed by such laws and
regulations. Each party shall have the right to inspect and audit the
accounts, books and records and other documents of the other party that
pertain to the Variable Products during normal business hours upon
reasonable written notice to the other party. Any party requesting such an
audit shall bear the expense of the audit, including the reasonable costs
(other than overhead costs or costs for time spent on audit-related matters
by officers, directors, or employees of the other party) borne by the other
party in connection with the audit.
13. Investigations and Proceedings
------------------------------
The parties to this Agreement shall notify each other promptly of any
insurance or securities regulatory investigation, administrative or
judicial proceeding, or material complaint arising in connection with the
offer or the sale of the Variable Products. The parties shall cooperate
fully in the resolution of any insurance or securities investigation,
administrative or judicial proceeding, or material complaint.
14. Term and Termination
--------------------
(a) Term -- This Agreement shall be effective from the date hereof through
December 31, 2002, which term shall automatically be extended for a period
of 3 years unless this Agreement is sooner terminated in accordance with
the termination provisions in Section 14(b) of this Agreement.
(b) Termination -- No party hereto may terminate this Agreement except as
expressly provided in this Section 14(b).
(1) Any party hereto may terminate this Agreement effective the date
that the term of this Agreement would otherwise automatically be
renewed upon written notice delivered to the other party not less than
30 nor more than 60 days prior to such effective date, which notice
shall specify that it is being given pursuant to this Section
14(b)(1).
18
<PAGE>
(2) A party (the "Terminating Party") may terminate this Agreement
for cause if:
(i) another party (the "Breaching Party") materially breaches
this Agreement,
(ii) the Terminating Party has delivered to the Breaching Party a
notice specifying the nature of the breach and that this notice
is being given pursuant to this Section 14(b)(2), and
(iii) the Breaching Party has not cured the breach within 30
days after the delivery of the notice.
(3) A Terminating Party may terminate this Agreement immediately for
cause in the event of:
(i) the voluntary institution by the Distributor of bankruptcy
proceedings or the voluntary institution by the Insurance Company
of insolvency or rehabilitation proceedings under any state
insurance laws or regulations (each an "Insolvent Party") or
(ii) a formal order or written finding by a court of competent
jurisdiction that the Insolvent Party is bankrupt or insolvent,
there is a degradation of the Insolvent Party's reputation that
would materially impair the ability of the Insolvent Party to
carry out its obligations under this Agreement or
(iii) the Securities and Exchange Commission ("SEC") institutes
a formal cease and desist order or proceeding prohibiting the
offer of the sale of the Variable Products or the operation of
the Separate Account, or a governmental or regulatory authority
of a state or other jurisdiction institutes a formal order or
proceeding prohibiting the offer or the sale of the Variable
Products or the operation of the Separate Account; provided that,
this Agreement will be terminated only with respect to the
particular state or jurisdiction issuing such order or proceeding
or
(iv) the SEC, the NASD, or any other government authority or
self-regulatory organization revokes or suspends the registration
or license of the Distributor, or the Distributor's ability to do
business is so materially impaired, in the reasonable view of the
Insurance Company,
19
<PAGE>
that it could not perform its obligations under this Agreement or
(v) a state insurance commissioner suspends or revokes the
Insurance Company's ability to do business or the Insurance
Company's ability to do business is so materially impaired, in
the reasonable view of the Distributor, that it could not perform
its obligations under this Agreement.
(c) Solicitation after Termination -- Upon termination of this Agreement
for any reason, the Distributor and the Distributor Agency affiliates agree
that they will not take any action designed or calculated to result in the
transfer or exchange of the policies.
(d) Survival -- The provisions of Sections 10, 11, 15, 18 and 19
(Representations and Warranties, Indemnification, Rights Upon Termination,
Arbitration, and Confidentiality, respectively) shall survive the
termination of this Agreement.
15. Rights Upon Termination
-----------------------
(a) In no event will any further compensation be paid to the Distributor
should the Insurance Company terminate this Agreement for cause pursuant to
Section 14(b)(2) or Section 14(b)(3).
(b) As of the date of termination, the Insurance Company shall have the
right to set off against any monies it owes the Distributor any amounts
owed by the Distributor to the Insurance Company. In the event that the
amounts owed by the Distributor exceed the amounts owed by the Insurance
Company, the difference shall become immediately due and payable by the
Distributor.
(c) In the event that either party does not pay within 45 days after
resolution of net amount payable, then the net amount owed will accrue
interest, compounded daily, at the fluctuating prime interest rate charged
by The Chase Manhattan Bank, N.A., plus two percent (2%).
(d) The Insurance Company agrees to pay the termination fees identified in
Schedule 5 in the event (i) the Insurance Company terminates this Agreement
for any reason other than those set forth in Sections 14(b)(2) or 14(b)(3)
of this Agreement, or (ii) the Distributor terminates this Agreement for
the reasons set forth in Sections 14(b)(2) or 14(b)(3) of this Agreement.
In no event shall the Insurance Company be liable for the
20
<PAGE>
termination fees identified in Schedule 5 to this Agreement if the
Distributor voluntarily terminates this Agreement under Section 14(b)(1) of
this Agreement. The parties agree that such termination fees only apply to
the Variable Product policies that have not lapsed, due to 1035 exchanges
or other means, whether such lapse occurred before or after the termination
date.
(e) If the Insurance Company terminates this Agreement pursuant to Section
14(b)(1), the Insurance Company shall continue to:
(1) pay the Distributor the compensation set forth in Schedule 4 to
this Agreement; and
(2) offer all of the Variable Products then identified on Schedule 2
to this Agreement for a period of [one (1) year] from the date of
termination of this Agreement, during which period of time (i) the
Insurance Company shall employ at least the same level of efforts in
offering and supporting the Variable Products as it did before the
termination of this Agreement and (ii) the terms of this Agreement
shall remain in full force and effect as though the Agreement had not
been terminated. The parties further agree that such compensation
shall only be based on the Variable Product policies that have not
lapsed, due to 1035 exchanges or other means, whether such lapse
occurred before or after the termination date.
(f) If the Distributor terminates this Agreement pursuant to Section
14(b)(1), the Insurance Company shall continue to pay the Distributor the
compensation set forth in Schedule 4 to this Agreement. The parties further
agree that such compensation shall only be based on the Variable Product
policies that have not lapsed, due to 1035 exchanges or other means,
whether such lapse occurred before or after the termination date.
21
<PAGE>
16. Independent Contractor
----------------------
The Distributor shall act as an independent contractor in the performance
of its duties and obligations under this Agreement and nothing herein contained
shall constitute the Distributor, Broker-Dealers, Representatives or employees
or officers of the Distributor or Broker-Dealers as employees of the Insurance
Company in connection with the distribution of the Variable Products.
17. Notices
-------
Any notice required or permitted under this Agreement shall be delivered
personally or sent by facsimile or by registered or certified mail, return
receipt requested, with all postage prepaid:
(a) To the Distributor:
First Union Securities, Inc.
Attention:
(b) To the Insurance Company:
United Investors Life, Inc
Attention:
Fax:
A party may change its address or fax number for the delivery of notices by
delivering a written notice to the other party at its last specified address.
All notices shall be effective upon delivery; provided that any notice sent by
facsimile shall be deemed ineffective unless a copy of the notice is also
delivered personally or sent by express courier or mail for delivery on the same
or next business day.
18. Arbitration
-----------
Any dispute between the Distributor and the Insurance Company arising under
or relating to this Agreement shall be settled by compulsory arbitration before
a single arbitrator experienced in the insurance industry in accordance with the
Commercial Arbitration Rules then in force of the American Arbitration
Association. The arbitration shall take place in Charlotte, North Carolina
22
<PAGE>
unless some other location is mutually agreed upon by the parties in dispute.
Each party shall bear its own costs and expenses in any such arbitration, except
that the Distributor and the Insurance Company shall bear the expenses of the
arbitrators' services equally.
19. Confidentiality
---------------
(a) Generally. Each party will hold the other party's Confidential
Information (as defined below) in confidence and will safeguard it as
provided herein. The party receiving Confidential Information will not,
directly or indirectly, report, publish, distribute, disclose, or otherwise
disseminate the Confidential Information, or any portion thereof, to any
third party including its affiliates, and will not use the Confidential
Information, or any portion thereof, for the benefit of itself or any third
party including its affiliates or for any purpose, except only as necessary
to perform its duties and exercise its rights hereunder, or as expressly
authorized in writing by the party who owns such Confidential Information.
Disclosure of Confidential Information internally by a recipient will be
limited to those of its and its affiliates' officers, directors, employees,
and agents on a "need to know" basis who must have access to the
Confidential Information to enable such party to perform its duties and
exercise its rights hereunder. In order to safeguard the Confidential
Information, each party shall (i)-inform each recipient of the Confidential
Information of the confidential nature thereof and of the requirements of
this Agreement, (ii) direct such recipients to comply with the terms of
this Agreement, and (iii) exercise any other precautions necessary to
prevent any improper use or disclosure of Confidential Information.
(b) Definition. "Confidential Information" shall mean: (i) information
regarding a party's or such party's affiliates', financial condition,
information systems, business operations, plans and strategies, products or
services, customers and prospective customers, and marketing and
distribution plans, methods and techniques; (ii) information that is marked
"confidential", "proprietary" or in like words, or that is summarized in
writing as being confidential Prior to or promptly after disclosure to the
other party; (iii) any and all related research; and (iv) any and all
designs, ideas, concepts, and technology embodied therein. Confidential
Information of the Distributor or its affiliates that is to be kept
confidential by the Insurance Company shall also include: (v) any
information regarding the pricing strategies of each Broker-Dealer; (vi)
specific marketing and training materials of each Broker-Dealer; (vii) any
information of the Distributor or its affiliates in any form whatsoever
that is covered by a patent issued by the United States Patent and
Trademark Office;
23
<PAGE>
Information is not considered confidential or proprietary if such
information: (1) is or becomes generally available to the public other than
as a result of disclosure by the recipient; (2) was available to or already
known by the recipient on a non-confidential basis prior to its receipt
from the party claiming confidentiality; (3) is developed by the recipient
independently of any information or data acquired from the party claiming
confidentiality; or (4) is, or is required to be, disclosed pursuant to a
court order or the requirement of any federal or state regulatory,
judicial, or government authority.
(c) Remedies. Each party acknowledges and agrees that monetary damages
would not be a sufficient or adequate remedy for a breach or anticipated
breach of this Section and that, in addition to any other legal or
equitable remedies which may be available, each party shall be entitled to
specific performance and injunctive relief for any breach or anticipated
breach of this Section.
(d) Survival. The provisions of this Section shall survive the expiration
or other termination of this Agreement.
20. Severability
------------
If any provision of this Agreement is held to be unenforceable or invalid,
that provision shall be severed from this Agreement and the remainder of this
Agreement shall remain in full force and effect.
21. Choice of Law
-------------
This Agreement and any disputes, actions or other proceedings arising under
or relating to it shall be governed by law of the State of North Carolina
without regard to its principles of conflicts of law.
22. No Waiver
---------
No failure or delay on the part of any party hereto in exercising any power
or right under this Agreement shall operate as a waiver thereof, nor shall any
single or partial exercise of such power or right preclude any other or further
exercise thereof or the exercise of any other power or right. No waiver by any
party of any provision of this Agreement, nor of any breach or default, shall be
effective unless in writing and signed by the party against whom such waiver is
to be enforced.
24
<PAGE>
23. Agreement Non-Assignable
------------------------
Any assignment of this Agreement in whole or in part by a party without the
prior written consent of the other parties thereto shall be void and shall vest
no rights in the assignee.
24. Exhibits and Schedules
----------------------
The Exhibits and Schedules to this Agreement are a part of this Agreement
as if set forth in full herein.
25. Headings
--------
The headings herein are for the purpose of convenience only and have no
legal force, meaning or effect.
26. Schedules and Attachments
-------------------------
With the exception of Schedules 4 and 5, all other schedules attached to
this agreement may be revised by the Insurance Company subject to review by the
Distributor.
27. Entire Agreement
----------------
This Agreement constitutes the entire agreement of the parties with respect
to the subject matter hereof and supersedes all prior and contemporaneous
agreements (other than on matters related to confidentiality), understandings,
negotiations and discussions, whether oral or written, of the parties and there
are no warranties, representations and/or agreements between the parties in
conjunction with the subject matter hereof except as set forth in this
Agreement. This Agreement, including any Schedule or Exhibit hereto, may be
amended or modified only by written instrument, executed by duly authorized
officers of the parties.
IN WITNESS WHEREOF, the parties to this Agreement have caused it to be
executed as of the date first above written.
First Union Securities, Inc. United Investors Life, Inc
By: By:
Name: Name:
Title: Title:
25
<PAGE>
SCHEDULE 1
DISTRIBUTOR AGENCY AFFILIATES
First Union Securities
Correspondent Bank Broker-Dealers
Other Broker-Dealers
26
<PAGE>
SCHEDULE 2
VARIABLE PRODUCTS
Product Policy/Certificate Description
Number
Titanium Investor VUL
Titanium Investor VA
27
<PAGE>
SCHEDULE 3
PRIVATE PLACEMENT GUIDELINES
The Insurance Company relies on exemptions under the 1933 Act and the 1940
Act in the issuance of certain of its variable annuity contracts and variable
life insurance policies. Reliance on these exemptions generally depends upon the
number and identity of the purchasers, the number of securities offered, the
size of the offering, the manner of the offering, and whether the securities are
being purchased only for investment purposes (and not for the purpose of
distributing or reselling them).
Section 3(c)(7)
Section 3(c)(7) exempts from the registration requirements of the 1940 Act
certain companies owned exclusively by an unlimited number of "qualified
purchasers", as defined in amended Section 2(a)(51) of the 1940 Act. Section
2(a)(51) establishes asset tests for four categories of "qualified purchasers":
(1) a natural person who owns at least $5 million in investments; (2) a family
investment vehicle that owns at least $5 million in investments; (3) a trust
whose trustees and settlers are qualified persons, provided that the trust was
not formed for the purpose of investing in the Section 3(c)(7) company; and (4)
any other person who owns and invests on a discretionary basis, for itself or
other qualified purchasers, at least $25 million in "investments."
In order to preserve its right to rely on Section 3(c)(7) of the 1940 Act,
the Insurance Company requires, and the Distributor shall require, through any
Sales Agreements entered into pursuant to Section 2(a) or 2(b) of this Agreement
that each Broker-Dealer require, each prospective purchaser to represent and
warrant (in response to a questionnaire) that it owns sufficient "investment
securities" (as defined in Rule 2(a)(51-1) under the 1940 Act) to meet the
financial requirements and otherwise meet the requirements of the appropriate
definition of "qualified purchaser" in Section 2(a)(51) of the 1940 Act.
In addition, if the Private Placement will be used by a corporation to
assist it in funding its obligation to employees under a non-funded deferred
compensation plan, the Insurance Company therefore, will impose certain
additional conditions on the purchase and will request additional information
from the purchaser in order to insure compliance with Section 3(c)(7). These
additional requirements also are designed to insure that the employer is and
remains the sole beneficial owner of the Private Placement for purposes of the
1940 Act.
28
<PAGE>
Section 3(c)(1)
Certain of the Variable Accounts for the Private Placements are not
registered under the 1940 Act in reliance on Section 3(c)(1) of the 1940 Act.
Section 3(c)(1) exempts from the registration requirements of the 1940 Act
certain companies who is an issuer whose outstanding securities (other than
short-term paper) are beneficially owned by not more than one hundred persons
and which is not making and does not presently propose to make a public offering
of its securities.
In order to preserve its right to rely on Section 3(c)(1) of the 1940 Act,
the Insurance Company requires, and the Distributor shall require, through any
Sales Agreements entered into pursuant to Section 2(b) of this Agreement that
each Broker-Dealer require, Representatives to comply with the requirements of a
non-public offering and monitor the number of prospective purchasers to whom
offers of sales have been made.
Regulation D - Rule 501
With respect to the Private Placements, each prospective purchaser must
also be qualified as an "accredited investor" or otherwise be a "suitable
investor," prior to offering the Private Placements to that prospective
purchaser. An "accredited investor" is: (a) a natural person, (i) whose
individual net worth, or joint net worth with the person's spouse, at the time
of purchase exceeds $1,000,000; or (ii) who has had individual income in excess
of $200,000 in each of the two (2) most recent years or joint income with that
person's spouse in excess of $300,000 in each of those years and who reasonably
expects an income in excess of such amounts in the current year; (b) a bank or
savings and loan association, whether acting in an individual or fiduciary
capacity; (c) a registered broker or dealer; (d) an insurance company; (e) a
registered investment company; (f) a Small Business Investment Company; (g) any
plan established by a state or municipal agency or government for the benefit of
its employees, with total assets in excess of $5,000,000; (h) certain employee
benefit plans (within the meaning of ERISA) with total assets in excess of
$5,000,000; (i) a private business development company; (j) a charitable
organization, corporation, business trust, any trust whose purchase is directed
by a person with knowledge and experience in financial and business matters, or
partnerships, not formed to acquire the securities offered, with total assets in
excess of $5,000,000; or (k) an entity in which all of the equity owners are
accredited investors.
Because resales of securities acquired in a private offering generally are
prohibited (with the exception of offerings pursuant to Rule 144A of the 1933
Act, which expressly permits resales to certain institutional investors),
Representatives must ensure that each prospective purchaser understands the
long-term nature of the Private Placement investment, does not intend to resell
the investment and is financially able to retain the securities purchased.
29
<PAGE>
SCHEDULE 4
COMPENSATION SCHEDULE
Variable Universal Life - Titanium Investor VUL
Target Premium %
Year 1:
Up to Target Premium 135.0%
(maximum payout)
Excess Premium 4.0%
Years 2-10:
Up to Target Premium 4.0%
Excess Premium 4.0%
Years 11+: 0.00%
[Replacements: (Six month window before
or after issue of a new policy) - New
first year commission will only be paid
on any increase in premium over that on
which first year commissions was paid on
the old policy.]
Plus;
50% of the Revenue Sharing paid by
Investment Managers in excess of 15
basis points annually. Revenue Sharing
means the fees received by the Insurance
Company from the Investment Managers
under the respective participation
agreements as reimbursement for
administrative services performed by the
Insurance Company. This amount will be
calculated after each calendar year
based on the aggregate amounts received
from all Investment Managers using the
average assets in the separate accounts
underlying the product.
Plus;
50% of the target premium acquisition
expense priced into the product on all
target premium written in excess of $10
million in any calendar year. In
addition, an extra 25% of the target
premium acquisition expense priced into
the product will be paid on all target
premium written in excess of $15
million in any calendar year. (The
target premium acquisition expense
30
<PAGE>
priced into the Titanium Investor
Variable Universal Life Product is 14%.)
For any Variable Product, the Insurance
Company may elect from time to time to
make advances of compensation to
Distributor. Any such advance shall be
deemed a loan, payable upon demand, and
secured by a first lien (security
interest) upon compensation payable by
Insurance Company to Distributor,
without the necessity of execution of
any further document, and Insurance
Company shall be entitled to set off any
amounts owed to it by Distributor
against any amounts owed to the
Distributor by the Insurance Company.
Please note that the above compensation
structure only applies to all business
written through the Distributor.
Variable Annuity - Titanium Investor VA
10.50% of Purchase Payments Ages 0-70,
8.50% Ages 71-80, 6.50% Ages 81+, plus,
beginning in the 2nd contract year, 20
bps trail based on assets in the
separate account underlying the product;
plus
50% of the Revenue Sharing paid by
Investment Managers in excess of 15
basis points annually. Revenue Sharing
means the fees received by Insurance
Company from the Investment Managers
under the respective participation
agreements as reimbursement for
administrative services performed by the
Insurance Company. This amount will be
calculated after each calendar year
based on the aggregate amounts received
from all Investment Managers using the
average assets in the separate accounts
underlying the product.
31
<PAGE>
SELLING GROUP AGREEMENT
-----------------------
THIS AGREEMENT ("Agreement") is made as of ___________, 1999 by and between
First Union Securities Inc., a Delaware corporation ("FUS"), and the undersigned
broker-dealer ("Broker-Dealer").
RECITALS:
A. FUS, pursuant to the provisions of a distribution agreement (the
"Distribution Agreement") between FUS and United Investors Life ("Insurance
Company"), acts as a distributor of the variable annuity contracts and/or, as
the case may be, variable life insurance policies of Insurance Company which are
anticipated to be registered under the Securities Act of 1933, as amended (the
"1933 Act"), identified on the Schedule of Products attached hereto as Exhibit
-------
"A" and may in the future act as distributor of other valuable annuity contracts
- --
and/or, as the case may be, variable annuity policies of Insurance Company
registered under the 1933 Act which would be identified on a supplement to such
Schedule of Products pursuant to Section ___, below (such contracts and policies
are hereinafter collectively referred to as the "Products").
B. FUS desires that Broker-Dealer distribute the Products in those
jurisdictions in which Broker-Dealer, FUS, Insurance Company and the Products
are appropriately licensed, qualified or approved, as the case may be, and
Broker-Dealer desires to sell the Products, through its agents in such
jurisdictions, on the terms and conditions set forth hereinafter.
C. Insurance Company, pursuant to an Agreement (the "General Agent
Agreement"), has authorized Broker-Dealer or affiliates of the Broker-Dealer to
act as a general agent ("General Agent") and to engage in the distribution
activities contemplated by this Agreement and the General Agent Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual covenants hereinafter set forth, the parties agree as follows:
1. Authority to Sell Products.
--------------------------
1.1 General. FUS, subject to the terms and conditions contained
-------
herein, hereby authorizes Broker-Dealer as an independent contractor, on a non-
exclusive basis, to offer and sell the Products. Broker-Dealer hereby agrees to
use its best efforts to sell the Products.
1.2 Compensation; Expenses. Except as otherwise provided herein,
----------------------
Broker-Dealer shall be entitled to commissions and allowances with respect to
sales of the Products made by Broker-Dealer, the Registered Representatives and
the Downstream Broker-Dealers (as defined in Section _____, below) in accordance
with the Schedule of Commissions and Allowances attached to this Agreement as
Exhibit "B", as such Schedule may be amended from time to time. The commissions
- ----------
and allowance shall be payable by the Insurance Company or as otherwise
permitted by law or regulations. Broker-Dealer shall be responsible for the
payment of all expenses incurred by Broker-Dealer in connection with this
Agreement and the performance of its obligations, and the exercise of its rights
hereunder.
2. Representations and Warranties.
------------------------------
Broker-Dealer represents and warrants to, and covenants with, FUS
that:
<PAGE>
(a) Broker-Dealer (i) is a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD"), (ii) is duly
registered as a broker-dealer with the Securities and Exchange Commission
("SEC") under the Securities Exchange Act of 1934, as amended (the "1934 Act"),
and registered in each state or other jurisdiction in which Broker-Dealer is
required to be registered in order to sell the Products; (iii) is licensed to
sell the Products under the insurance laws of each state or other jurisdiction
in which Broker-Dealer is required to be registered in order to sell the
Products and (iv) otherwise maintains in effect all governmental and other
registrations, licenses and permits necessary for it to carry out its
obligations, and the transactions contemplated hereunder (the "Required
Registrations");
(b) Broker-Dealer conducts its operations is in compliance in all
material respects, with all applicable federal and state securities laws and
regulations, the requirements of the NASD and any applicable securities
exchanges of which it is a member and all codes of conduct and codes of ethics
applicable to its activities (collectively, the "Regulations").
(c) Broker-Dealer is a corporation duly organized and in good
standing under the law of its jurisdiction of organization and is qualified to
do business as a corporation in those states or jurisdictions where it is, or
will be doing business pursuant to this Agreement; and
(d) this Agreement and the transactions contemplated hereby (i)
have been duly approved by all required corporate action on the part of Broker-
Dealer and (ii) not conflict with any law, regulation, court order or agreement
to which Broker-Dealer is subject or Broker-Dealer's properties are bound.
3. Covenants of Broker-Dealer.
--------------------------
3.1 Sale of Products. Broker-Dealer agrees that (a) offers and
----------------
sales of the Products will be made only through the use of a then current
prospectus which is a part of a registration statement which is then effective
under the 1933 Act (each a "Prospectus"), (b) a Prospectus relating to the
Product in question will be delivered prior to, or concurrently with any sales
presentation or other offer of such Product, (c) no oral or written statements
will be made by or on behalf of Broker-Dealer to a prospective purchaser of a
Product other than statements identical to, or based solely on information set
forth in the Prospectus (d) in connection with offers and sales of the Products,
Broker-Dealer will at all times comply with the Regulations and offer and sell
the Products only in those jurisdictions, and in the manner in which the
Products may be lawfully sold.
3.2 Representations and Warranties True, etc. At all times during
----------------------------------------
the term hereof the representations and warranties of Broker-Dealer contained
in Section 2, above, shall be true.
3.3 Registered Representatives. Broker-Dealer may recommend persons
--------------------------
associated with it who are duly licensed and qualified under applicable law and
regulation to act in the offer or sale of the Products (the "Registered
Representatives") for appointment as insurance agents of Insurance Company,
provided that such person: (a) has not been subject to any civil,
administrative or criminal actions or sanctions by, or entered into any
settlement agreements with
<PAGE>
any governmental or quasi-governmental regulatory authority or sell regulatory
organization, (b) has not been precluded or restricted for any period of time by
any entity from selling any securities, insurance products or other products of
such entity; (c) otherwise is qualified to offer and sell the Products; (d)
agrees in writing (i) to comply with all of the obligations of Broker-Dealer and
the Registered Representatives hereunder, (ii) not to make any recommendation to
an applicant or prospective purchaser to purchase a Product without having
reasonable grounds to believe that the purchase of the Product is suitable for
the prospective purchaser, (iii) to report promptly in writing to Insurance
Company and FUS all customer or regulatory complaints or inquiries with respect
to such Registered Representative, whether written or oral, and to assist
Insurance Company and FUS in resolving any complaint to the satisfaction of all
parties involved and (e) possesses all Required Registrations and agrees to
maintain in force during the term hereof all Required Registrations; and (f) has
been appointed as an insurance agent of Insurance Company. Broker-Dealer is
authorized, except as hereinafter specifically provided, to cause the Registered
Representatives to offer and sell the Products in the states and jurisdictions
in which the Products, Broker-Dealer and such Registered Representatives are
registered, licensed or otherwise appropriately qualified. Broker-Dealer shall
be solely responsible for the supervision of the Registered Representatives and
shall enforce written supervisory procedures to assure strict compliance with
NASD rules and applicable rules and regulations under the 1934 Act, and other
applicable federal and state statutes and regulations. Broker-Dealer agrees to
provide to the Registered Representatives instructions sufficient to provide
them with information needed to offer and sell the Products in compliance with
this Agreement and the Regulations. Broker-Dealer shall direct the sales
activities of the Registered Representatives and shall be solely responsible for
the conduct of the Registered Representatives in the offer and sale of the
Products.
3.4 No Authority to Modify, Etc. Broker-Dealer acknowledges and
---------------------------
agrees that neither Broker-Dealer nor any of the Registered Representatives
shall have the authority, on behalf of FUS or Insurance Company or otherwise, to
(a) modify any of the terms of the Products, including, but not limited to, any
forfeiture provisions thereof, or (b) extend the time of payment of any premiums
with respect to a Product. Broker-Dealer acknowledges that neither Broker-
Dealer nor any Registered Representative may receive any premiums or other funds
from applicants for, or purchasers of the Products (except for the sole purpose
of forwarding such funds to Insurance Company). If Broker-Dealer or a
Registered Representative inadvertently receives any funds from applicants for,
or purchasers of the Products they shall hold such funds in a fiduciary capacity
on behalf of the Insurance Company and promptly submit them to Insurance
Company.
3.5 Rejection of Product Applications. Broker-Dealer acknowledges
---------------------------------
and agrees that (a) Insurance Company, in its sole discretion, may reject any
application for a Product submitted to it by Broker-Dealer or any of the
Registered Representatives; (b) nothing herein contained shall constitute
Broker-Dealer or any of its Registered Representatives as employees of FUS or
Insurance Company; and (c) the Schedule of Products may be amended by FUS at its
sole discretion from time to time to add
<PAGE>
other Products distributed by FUS pursuant to the Distribution Agreement or
other distribution agreements with Insurance Company, or to delete Products
therefrom.
3.6 Access to Information. Broker-Dealer shall give FUS full access
---------------------
upon reasonable advance notice during Broker-Dealer's normal business hours to
all information in the possession or control of Broker-Dealer or any Registered
Representative relating to, arising out of or in connection with the offer and
sale of Products pursuant to this Agreement, and shall be required to provide to
FUS copies of any documents relating thereto within ten (10) days after a
written request therefor by FUS. Broker-Dealer shall be entitled to
reimbursement of the expenses it incurs in connection with providing documents
to FUS as required by the preceding sentence.
3.7 Basis for Recommendations. Broker-Dealer shall be solely
-------------------------
responsible for the approval of suitability determinations for the purchase of
any Product or the selection of any investment option thereunder, in compliance
with the Regulations and shall appropriately supervise the Registered
Representatives in determining client suitability. Broker-Dealer, through the
Registered Representatives or otherwise, shall not make any recommendations to a
prospective purchaser to purchase a Product without having reasonable grounds to
believe that the purchase of that Product is suitable for such prospective
purchaser. Among other things, a determination of suitability shall be based on
information supplied to a Registered Representative after a reasonable inquiry
concerning the prospective purchaser's insurance and investment objectives,
financial situation and needs.
3.8 No Misrepresentations; Disclosure. Broker-Dealer, through the
---------------------------------
Registered Representatives or otherwise, shall not (a) make any
misrepresentation of a material fact with respect to the Products or omit to
state a material fact necessary to make statements made with respect to a
Product in light of the circumstances in which they were made, not misleading or
(b) otherwise engage in any deceptive or misleading practice or activity in
connection with the offer and the sale of the Products. Broker-Dealer, through
the Registered Representatives or otherwise, shall not: (a) give any oral
information or make any representations or statements in connection with the
offer or sale of a Product that is not the same as, or based solely on the then
current version provided by FUS or Insurance Company of the registration
statement, Prospectus or statement of additional information, as the case may
be, relating to the such Product, or (b) provide prospective purchasers of the
Products or otherwise utilize in connection with the offer of sale of the
Products any advertising materials, sales literature, signage or other
promotional material written, electronic, graphic or audio visual materials
other than materials supplied by, or approved in writing in advance by FUS or
Insurance Company (the "Disclosure Material"). Broker-Dealer shall not modify
in any way any Disclosure Material which as been approved for use by Broker-
Dealer by FUS or Insurance Company. Broker-Dealer shall, and shall cause the
Registered Representatives to immediately cease using any Disclosure Materials
previously approved by FUS or Insurance Company upon receipt of an oral or
written instruction to do so by FUS or Insurance Company. FUS agrees to follow-
up in writing within three business days any such oral instruction from FUS to
discontinue such use. Broker-Dealer
<PAGE>
will maintain complete records indicating the manner and extent of distribution
of any such Disclosure Materials, will make such records available to Insurance
Company, FUS and state insurance departments, the NASD the SEC and other
regulatory agencies, which have regulatory authority over Insurance Company or
FUS.
3.9 Exchange of Products. Broker-Dealer or the Registered
--------------------
Representatives may solicit exchanges of other insurance contracts for Products
only when Broker-Dealer can demonstrate that the exchange would be beneficial to
the prospective purchaser or class of purchasers, as the case may be, and
provided that the exchange offer is approved in advance by an NASD-licensed
principal of Broker-Dealer. Broker-Dealer shall maintain records of the basis
for any determination that an exchange would be beneficial to a prospective
purchaser, including the name of such principal approving the exchange offer.
3.10 Other Broker-Dealers. Broker-Dealer may recruit other broker-
--------------------
dealers that are registered on the 1934 Act to offer and sell the Products
provided that: (a) such broker-dealer enters into an agreement in the form of
this Agreement which agreement is delivered to FUS for its review, and (b) FUS
has the right, in its sole discretion, to accept or reject such broker-dealer as
authorized to sell the Products. Any such other broker-dealer which is approved
by FUS to sell the Products is referred to herein as a "Downstream Broker-
Dealer." Broker-Dealer shall be entitled to receive commissions from a
Downstream Broker-Dealer based on the sales of the Products made by such
Downstream Broker-Dealer upon such arrangements as may be agreed to by Broker-
Dealer and such Downstream Broker-Dealer (the "Downstream Agreement");
provided, however, that such arrangements are subject to review and approval by
FUS in its sole discretion. Broker-Dealer acknowledges that Broker-Dealer shall
not be entitled to any commissions or other compensation from FUS or the
Insurance Company in connection with the recruiting, or any activities of a
Downstream Broker-Dealer and shall only be entitled to receive payments in
connection with the activities of a Downstream Broker-Dealer from such
Downstream Broker-Dealer pursuant to any arrangements that may be agreed to
between Broker-Dealer and such Downstream Broker-Dealer. Broker-Dealer shall
take all reasonable actions to insure that each Downstream Broker-Dealer
complies with the terms of its Downstream Agreement and all laws, rules and
regulations applicable to the Downstream Broker-Dealer in connection with such
Downstream Broker-Dealer's offers and sales of the Products. Any breach by a
Downstream Broker-Dealer of its Downstream Agreement shall be deemed for all
purposes, including, but not limited to, indemnification provided in Section 9,
below, to be a breach by Broker-Dealer of this Agreement.
3.11 Complaints and Investigation. Broker-Dealer shall report in
----------------------------
writing within three (3) business days after the occurrence thereof in writing
to Insurance Company and FUS all customer complaints or inquiries relating to
the offer, sale or ownership of the Products or made by or on behalf of any
prospective purchaser or owner of a Product, whether written or oral, and shall
assist Insurance Company and FUS in resolving those complaints to the
satisfaction of such prospective purchaser, owner, FUS and Insurance Company.
Broker-Dealer shall cooperate
<PAGE>
fully with FUS in connection with any governmental or other investigation or
proceeding relating to any complaint related to the Products by any prospective
purchaser or owner of the Products.
3.12 Notice of Claims. If any action or proceeding shall be brought
----------------
against Broker-Dealer or any of its Registered Representatives or affiliates
relating to the Products Broker-Dealer shall give prompt written notice to FUS.
3.13 Fidelity Bond. Broker-Dealer represents that all directors,
-------------
officers and employees of Broker-Dealer (including the Registered
Representative) who have access to funds of the Insurance Company are, and will
continue to be covered by a blanket fidelity bond including coverage for
larceny, embezzlement and other defalcation, issued by a reputable bonding
company in an amount at least equivalent to the minimal coverage required under
the NASD Rules of Fair Practice, and endorsed to extend coverage to life
insurance and annuity transactions. Broker-Dealer acknowledges that the
Insurance Company may require evidence that such coverage is in force and
Broker-Dealer shall promptly give notice to the Insurance Company of any notice
of cancellation or change of coverage. Broker-Dealer hereby assigns any
proceeds received from the fidelity bond company to the Insurance Company to the
extent of the Insurance Company's loss due to activities covered by such bond.
If the payment to the Insurance Company under the fidelity bond is insufficient
to cover the Insurance Company's loss, Broker-Dealer will promptly pay the
Insurance Company amount equal to the balance of such loss on demand. Broker-
Dealer indemnifies and holds harmless the Insurance Company from any deficiency
and from the cost of collection thereof.
4. Representations and Warranties of FUS.
-------------------------------------
(a) FUS is (i) a member in good standing of the NASD, (ii) duly
registered as a broker-dealer with the SEC under the 1934 Act, and registered in
each state or other jurisdiction in which FUS is required to be registered in
order to sell the Products and otherwise maintains in effect all Required
Registrations;
(b) FUS conducts its operations is in compliance in all material
respects, with all applicable federal and state securities laws and regulations
and the requirements of the NASD and any applicable securities exchanges of
which it is a member;
(c) FUS is a corporation duly organized and in good standing
under the law of its jurisdiction of organization and is qualified to do
business as a corporation in those states or jurisdictions where it is, or will
be doing business pursuant to this Agreement; and
(d) this Agreement and the transactions contemplated hereby (i)
have been duly approved by all required corporate action on the part of FUS and
(ii) not conflict with any law, regulation, court order or agreement to which
FUS is subject or FUS's properties are bound.
5. Covenants of FUS. FUS covenants with Broker-Dealer that:
----------------
<PAGE>
5.1 Products. The Products, when they are made available to Broker-
--------
Dealer for offer and Sale, will be duly registered under applicable federal and
state securities laws.
5.2 Insurance Compliance. The Products, when they are made
--------------------
available to Broker-Dealer for offer and sale, will be in compliance with
applicable state insurance laws.
5.3 Disclosure. With respect to the Product it purports to
----------
describe, each Prospectus, provided to Broker-Dealer by FUS or Insurance Company
(a) will be true, accurate and complete in all material respects;
(b) will not contain any false or misleading statements of
material fact or omit any material facts necessary to make statements contained
therein not misleading in light of the circumstances under which they are made;
and
(c) will fully and adequately disclose all material terms,
conditions, limitations and restrictions with respect to the Products.
5.4 Representations and Warranties True, Etc. At all times during
----------------------------------------
the term hereof, the representations and warranties of FUS contained in Section
4, above, shall be true. FUS agrees to abide by the Code of Conduct.
5.5 Documents. FUS shall provide Broker-Dealer with quantities of
---------
Prospectuses reasonably sufficient for Broker-Dealer to effectively market the
Products.
6. Term and Termination of Agreement
---------------------------------
6.1 Term. Unless sooner terminated pursuant to this Section 6, this
----
Agreement shall terminate on the earlier to occur of the date of termination of
the Distribution Agreement and the __________ anniversary of the date hereof.
6.2 Termination. This Agreement shall be subject to immediate
-----------
termination at any time by Broker-Dealer, or by FUS, with or without cause upon
the giving of written notice to such effect to the other party.
6.3 Effect of Termination.
---------------------
(a) Except as provided in Sections 6.3(b), in the event this
Agreement is terminated, (i) Broker-Dealer and the Registered Representatives
shall immediately cease to have the right to offer or sell any of the Products;
(ii) Broker-Dealer shall return forthwith, upon the request of FUS or Insurance
Company, all written materials related to the Products delivered to Broker-
Dealer or the Registered Representatives by or on behalf of FUS or Insurance
Company on or before the date of such termination; (ii) all compensation
required to be paid to Broker-Dealer shall be paid in accordance with Schedule
____ hereto; (iii) all amounts due from Broker-Dealer to FUS or Insurance
Company shall be immediately due and payable to FUS or the Insurance Company, as
the case may be, notwithstanding any other terms of such payments that may have
been in effect during the term of this Agreement; (iv) Broker-Dealer shall carry
out all residual obligations, if any, which arose while this Agreement was in
effect and
(b) In the event that this Agreement is terminated by FUS after a
breach by Broker-Dealer of any of its representations and warranties or
<PAGE>
covenants hereunder, then FUS may offset against any amounts owed to Broker-
Dealer hereunder an amount equal to the (i) damages, losses and expenses
(including reasonable attorneys' fees) incurred by FUS as a result of such
breach and (ii) amount that may be owed by Broker-Dealer to FUS under Section 9,
below.
7. Confidentiality
---------------
7.1 Generally. Each party will hold the other party's Confidential
---------
Information (as defined below) in confidence and will safeguard such
Confidential Information as provided herein. The party receiving Confidential
Information (a "Recipient") will not, directly or indirectly, report, publish,
distribute, disclose, or otherwise disseminate the Confidential Information, or
any portion thereof, to any individual or entity for any purpose, except as
necessary to perform such Party's duties hereunder, or as expressly authorized
in writing by the party providing the Confidential Information (the "Provider").
Disclosure of Confidential Information internally by the recipient thereof will
be limited to those of its officers, directors, employees and agents who are
required to have access to the Confidential Information to enable the party to
perform its duties hereunder. In order to safeguard Confidential Information,
the Recipient shall (a) inform each party to whom it discloses Confidential
Information of the confidential nature thereof and of the requirements of this
Agreement, (b) direct such recipients to comply with the terms of this
Agreement, and (c) exercise any other precautions reasonably necessary to
prevent any improper disclosure of such Confidential Information.
7.2 Definition. For purposes of the Agreement, "Confidential
----------
Information" shall mean information: (a) regarding the Provider's or any
affiliate of the Provider's financial condition, information systems, business
operations, plans and strategies, products or services, customers or prospective
customers, and marketing and distribution plans, methods and techniques; (b)
that is marked confidential," "proprietary" or in like words, or that is
indicated in writing as being confidential prior to or promptly after disclosure
to the Recipient; and (c) any and all research and designs, ideas, concepts, and
technology embodied in the items described in clauses 9.2(a) or (b). Information
shall not be deemed to be Confidential Information hereunder if that information
(a) is or becomes generally available to the public other than as a result of
disclosure by the Recipient; (b) was available to, or already known by the
Recipient on a non-confidential basis prior to its receipt from the Provider;
(c) is developed by the Recipient independently of any information or data
acquired from the Provider; or (d) is disclosed pursuant to a court order or the
requirement of any federal or state regulatory, judicial, or government
authority.
7.3 Remedies. Each party acknowledges and agrees that monetary
--------
damages would riot be a sufficient or adequate remedy for a breach or
anticipated breach of this Section 7 and that, in addition to any other legal or
equitable remedies which may be available, each party shall be entitled to
specific performance and injunctive relief, without the posting of a bond, for
any breach or anticipated breach of this Section.
7.4 Survival. The provisions of this Section 7 shall survive the
--------
expiration or other termination of this Agreement.
<PAGE>
8. Modification of Agreement
-------------------------
This Agreement may not be modified in any way unless by written
agreement signed by both of the parties, except for any amendment of the
Schedule of Products pursuant to the terms of Section ____________ hereof or of
the Schedule of Commissions and Allowances pursuant to the terms of Section 4
hereof, which shall be deemed to be modified upon the giving by FUS to Broker-
Dealer of revised versions thereof.
9. Indemnification
---------------
9.1 General. Broker-Dealer will indemnify FUS, each affiliate (as
-------
defined in Rule 405 under the 1933 Act) of FUS and each shareholder, officer,
director, employee, agent and attorney of FUS and such affiliate (each an
"Indemnified Party") against, and hold each Indemnified Party harmless from and
in respect of, all losses, damages, costs, (expenses including reasonable
attorneys' fees) judgments, fines, penalties, settlements resulting from claims,
demands, actions, cases, proceedings, suits or investigations conducted by, or
pending before any governmental agency or authority or any arbitration
proceeding based on, arising from, related to or otherwise attributable to (a)
any breach of the representations and warranties of Broker-Dealer set forth in
this Agreement or (b) any nonfulfillment of any covenant or agreement on the
part of Broker-Dealer under this Agreement.
9.2 Conditions of Indemnification.
-----------------------------
(a) All claims for indemnification under this Agreement shall be
asserted and resolved as provided in this Section 9.2. An Indemnified Party
claiming indemnification under this Agreement shall promptly (i) notify the
Broker-Dealer (in this Section 9, the "Indemnifying Party") of any third-party
------------------
claim or claims asserted against the Indemnified Party (a "Third Party Claim")
-----------------
that could give rise to a right of indemnification under this Agreement and (ii)
transmit to the Indemnifying Party a written notice ("Claim Notice") describing
in reasonable detail the nature of the Third Party Claim, a copy of all papers
served with respect to that claim (if any), and the basis for the Indemnified
Party's request for indemnification under this Agreement. The failure to
promptly deliver a Claim Notice shall not relieve the Indemnifying Party of its
obligations to the Indemnified Party with respect to the related Third Party
Claim except to the extent that the resulting delay is materially prejudicial to
the defense of that claim. Within fifteen (15) days after receipt of any Claim
Notice (the "Election Period"), the Indemnifying Party shall notify the
Indemnified Party (i) whether the Indemnifying Party disputes its potential
liability to the Indemnified Party under this Section 9 with respect to that
Third Party Claim and (ii) if the Indemnifying Party does not dispute its
potential liability to the Indemnified Party with respect to that Third Party
Claim, whether the Indemnifying Party desires, at the sole cost and expense of
the Indemnifying Party, to defend the Indemnified Party against that Third Party
Claim.
(b) If the Indemnifying Party does not dispute its potential
liability to the Indemnified Party and notifies the Indemnified Party within the
Election Period that the Indemnifying Party elects to assume the defense of the
<PAGE>
Third Party Claim, then the Indemnifying Party shall have the right to defend,
at its sole cost and expense, that Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this Section 9, and the Indemnified Party
will furnish the Indemnifying Party with all information in its possession with
respect to that Third Party Claim and otherwise cooperate with the Indemnifying
Party in the defense of that Third Party Claim; provided, however, that the
Indemnifying Party shall not enter into any settlement with respect to any Third
Party Claim that purports to limit the activities of, or otherwise restrict in
any way, any Indemnified Party or any Affiliate of any Indemnified Party without
the prior consent of that Indemnified Party (which consent may be withheld in
the sole discretion of that Indemnified Party). The Indemnified Party may
participate in, but not control, any defense or settlement of any Third Party
Claim controlled by the Indemnifying Party pursuant to this Section 9 and will
bear its own costs and expenses with respect to that participation; provided,
however, that if the named parties to any such action (including any impleaded
parties) include both the Indemnifying Party and the Indemnified Party, and the
Indemnified Party has been advised by counsel that there may be one or more
legal defenses available to it which are different from or additional to those
available to the Indemnifying Party, then the Indemnified Party may employ
separate counsel at the expense of the Indemnifying Party, and, on its written
notification of that employment, the Indemnifying Party shall not have the right
to assume or continue the defense of such action on behalf of the Indemnified
Party.
(c) If the Indemnifying Party (i) within the Election Period (A)
disputes its potential liability to the Indemnified Party under this Section 9,
(B) elects not to defend the Indemnified Party as described, above, or (C) fails
to notify the Indemnified Party that the Indemnifying Party elects to defend the
Indemnified Party as provided above, or (ii) elects to defend the Indemnified
Party as provided, above, but fails diligently and promptly to prosecute or
settle the Third Party Claim, then the Indemnified Party shall have the right to
defend, at the sole cost and expense of the Indemnifying Party (if the
Indemnified Party is entitled to indemnification hereunder), the Third Party
Claim by all appropriate proceedings, which proceedings shall be promptly and
vigorously prosecuted by the Indemnified Party to a final conclusion or settled.
The Indemnified Party shall have full control of such defense and proceedings.
Notwithstanding the foregoing, if the Indemnifying Party has delivered a written
notice to the Indemnified Party to the effect that the Indemnifying Party
disputes its potential liability to the Indemnified Party under this Section 9
and if that dispute is resolved in favor of the Indemnifying Party, the
Indemnifying Party shall not be required to bear the costs and expenses of the
Indemnified Party's defense pursuant to this Section 9, or of the Indemnifying
Party's participation therein at the Indemnified Party's request, and the
Indemnified Party shall reimburse the Indemnifying Party in full for all
reasonable costs and expenses of such participation. The Indemnifying Party may
participate in, but not control, any defense or settlement controlled by the
<PAGE>
Indemnified Party pursuant to this Section 9, and the Indemnifying Party shall
bear its own costs and expenses with respect to that participation.
(d) In the event any Indemnified Party should have a claim
against any Indemnifying Party hereunder that does not involve a Third Party
Claim, the Indemnified Party shall transmit to the Indemnifying Party a written
notice (the "Indemnity Notice") describing in reasonable detail the nature of
the claim, an estimate of the amount of Damages attributable to that claim to
the extent feasible (which estimate shall not be conclusive of the final amount
of that claim) and the basis of the Indemnified Party's request for
indemnification under this Agreement. If the Indemnifying Party does not notify
the Indemnified Party within fifteen (15) days from its receipt of the Indemnity
Notice that the Indemnifying Party disputes the claim specified by the
Indemnified Party in the Indemnity Notice, that claim shall be deemed a
liability of the Indemnifying Party hereunder. If the Indemnifying Party has
timely disputed that claim, as provided above, that dispute shall be resolved by
proceedings in an appropriate court of competent jurisdiction if the parties do
not reach a settlement of that dispute within thirty (30) days after notice of
that dispute is given (the "Indemnity Notice Period").
-----------------------
(e) Payments of all amounts owing by an Indemnifying Party
pursuant to this Section 9 relating to a Third Party Claim shall be made within
thirty (30) days after the latest of (i) the settlement of that Third Party
Claim, (ii) the expiration of the period for appeal of a final adjudication of
that Third Party Claim and (iii) the expiration of the period for appeal of a
final adjudication of the Indemnifying Party's liability to the Indemnified
Party under this Agreement in respect of that Third Party Claim. Payments of all
amounts owing by an Indemnifying Party with respect to claims other this third
party claims shall be made within thirty (30) days after the later of the
expiration of (i) the Indemnity Notice Period and (ii) the expiration of the
period for appeal of a final adjudication of the Indemnifying Party's liability
to the Indemnified Party under this Agreement.
9.3 Survival. The provisions of this Section shall survive the
--------
expiration or other termination of this Agreement.
10. Remedies Cumulative; Non-Waiver. The rights and remedies of the
-------------------------------
parties contained in this Agreement are cumulative and are in addition to any
and all rights and remedies at law or in equity, which the parties hereto are
entitled to under applicable law. Failure of either party to insist upon strict
compliance with any of the conditions of this Agreement shall not be construed
as a waiver of any of the conditions, but the same shall remain in full force
and effect. No waiver of any of the provisions of this Agreement shall be
deemed, or shall constitute a waiver of any other provisions, whether or not
similar, nor shall any waiver constitute a continuing waiver.
11. Mitigation of Losses. In the event of any dispute between an owner of
--------------------
a Product (a "Disputing Owner") and FUS, Insurance Company, Broker-Dealer, a
Registered Representative or any other party with respect to such Product, FUS
shall have the right, with prior written notice and consultation with Broker-
Dealer, to take such action as FUS may deem necessary to promptly effect a
mitigation of damages or limitation of losses, and without waiving or electing
to relinquish any
<PAGE>
rights or remedies FUS may have against Broker-Dealer. FUS shall have the right
to settle any dispute with respect to a Product between a Disputing Owner and
FUS or Broker-Dealer without the prior consent of Broker-Dealer and without
waiving or electing to relinquish any rights or remedies FUS may have against
Broker-Dealer.
12. Governing Law, etc.. This Agreement shall be governed by and
-------------------
construed in accordance with the laws of _______ without regard to choice of law
provisions and the venue for all actions or proceedings brought by _______
arising out of or relating to this Agreement shall be in the state or federal
courts, as the case may be, located in _______ County, _______ (collectively,
the "Courts"). Broker-Dealer hereby irrevocably waives any objection which
Broker-Dealer now or hereafter may have to the laying of venue of any action or
proceeding arising out of or relating to this Agreement brought in any of the
Courts and any objection on the ground that any such action or proceeding in any
of the Courts has been brought in an inconvenient forum. Nothing in this
Section ___ shall affect the right of FUS to bring any action or proceeding
against Broker-Dealer in the courts of other jurisdictions. In the event of any
litigation between the parties hereto with respect to this Agreement, the
prevailing party therein shall be entitled to receive from the other party all
of such prevailing party's expenses in connection with such litigation,
including, but not limited, to reasonable attorneys' fees.
13. Notices. Any notices or demands given in connection herewith shall be
-------
in writing and deemed given when (i) personally delivered, (ii) sent by
facsimile transmission to a number provided in writing by the addressee and a
confirmation of the transmission is received by the sender or (iii) three (3)
days after being deposited for delivery with a recognized overnight courier,
such as FedEx, and addressed or sent, as the case may be, to the address or
facsimile number set forth below or to such other address or facsimile number as
such party may in writing designate:
(a) To FUS:
FUS Securities
(b) To Broker-Dealer:
14. Arbitration
-----------
14.1 Any disagreement, dispute, claim or controversy arising out of
or relating to this Agreement, performance hereunder or the breach hereof, or
otherwise arising between Broker-Dealer and FUS, shall be subject to mandatory
arbitration under the auspices, rules and bylaws of the NASD, to the full extent
applicable and as may be amended from time to time.
14.2 Where the NASD Code of Arbitration Procedure is not applicable,
any dispute between Broker-Dealer and FUS arising under or relating to this
Agreement shall be settled by compulsory arbitration before one arbitrator in
accordance with the Commercial Arbitration Rules then in force of the American
Arbitration Association. The arbitration shall take place in, unless the
parties agree on another location. The arbitrator shall have no authority to
issue any decision or award for punitive damages or for treble or any other type
of multiple
<PAGE>
damages, consequential damages, or any compensatory damages based on a claim of
lost profits or similar claim. Each party shall bear its own costs and expenses
incurred by it in any such arbitration, except that the parties shall bear the
expenses of the arbitrator's services equally. The provisions of this Section
shall survive the expiration or other termination of this Agreement.
15. Entire Agreement; Certain Terms. This Agreement, together with the
-------------------------------
exhibits and schedules hereto, constitutes and contains the entire agreement of
the parties with respect to the matters addressed herein and supersedes any and
all prior negotiations, correspondence, understandings and agreements between
the parties respecting the subject matter hereof. No waiver of any rights under
this Agreement, nor any modification or amendment of this Agreement shall be
effective or enforceable unless in writing and signed by the party to be charged
therewith. When used in this Agreement, the terms "hereof," "herein" and
"hereunder" refer to this Agreement in its entirety, including any exhibits or
schedules attached to this Agreement and not to any particular provisions of
this Agreement, unless otherwise indicated.
16. Headings
--------
The headings in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
17. Counterparts
------------
This Agreement may be executed in two counterparts, each of which
together shall be deemed an original, but both of which together shall
constitute one and the same instrument.
18. Severability. It is the intention of the parties hereto that any
------------
provision of this Agreement found to be invalid or unenforceable be reformed
rather than eliminated. If any of the provisions of this Agreement, or any part
thereof, is hereinafter construed to be invalid or unenforceable, the same shall
not affect the remainder of such provision or the other provisions of this
Agreement, which shall be given full effect, without regard to the invalid
portions. In the event that the courts of any one or more jurisdictions shall
hold such provisions wholly or partially unenforceable by reason of the scope
thereof or otherwise, it is the intention of the parties hereto that such
determination not bar or in any way affect the parties' rights provided for
herein in the courts of any other jurisdictions as to breaches or threatened
breaches of such provisions in such other jurisdictions, the above provisions as
they relate to each jurisdiction being, for this purpose, severable into diverse
and independent covenants.
19. Assignment Except as specifically set forth herein, Broker-Dealer may
----------
not assign any of its rights or obligations hereunder without the prior written
approval of FUS.
20. No Third Party Beneficiaries. This Agreement is exclusively for, and
----------------------------
shall inure to the benefit of the parties hereto, their successors and assigns,
and shall not be deemed to create any rights for the benefit of third parties.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first indicated above.
FUS
By:
Name:
Title:
BROKER-DEALER
By:
Name:
Title:
<PAGE>
SCHEDULE OF COMMISSIONS AND ALLOWANCES
to
First Union Securities
SELLING GROUP AGREEMENT
-----------------------
Effective _________, ___, 2000
I. PURPOSE
This Schedule of Commissions and Allowances ("Schedule") is adopted
pursuant to Section 1.2 of the Selling Group Agreement (the "Agreement")
and governs the determination and payment by FUS of commissions and
allowances ("Compensation") to the Broker-Dealer in connection with premium
payments received under the products specified herein.
II. COVERED PRODUCTS
The only products covered by this Schedule ("Covered Products") are the
following private placement variable universal life insurance policies:
Covered Product Policy Form
VUL
VA
III. COMPENSATION
The Compensation to the Broker-Dealer under this Selling Group Agreement
shall as outlined below:
Variable Annuity
Variable Universal Life
Target Premium %
Year 1:
Up to Target Premium 6.0% (maximum payout)
Excess Premium 6.0%
<PAGE>
Years 2-4:
Up to Target Premium 6.0%
Excess Premium 6.0%
Years 5-10:
Up to Target Premium 3.0%
Excess Premium 3.0%
Years 11+: 1.50%
The foregoing amounts shall be payable by FUS within five (5) business days
after FUS receives such amounts from the Insurance Company.
To the extent any Covered Product is issued as a replacement for any
insurance policy issued by the Insurance Company within six (6) months
prior to the issuance of such Covered Product (the "Replaced Product"), no
first year commission will be payable with respect to that Covered Product
except to the extent, if any, that the first year premiums with respect to
such Covered Product are greater than the first year premium on the
Replaced Product. To the extent a Covered Product is issued as a
replacement for any previously-issued Covered Product within six (6) months
after issuance of such previously-issued Covered Product, no first year
commission will be payable to Broker-Dealer with respect to such later -
issued Covered Product, except to the extent if any, that the first year
premiums for such later - issued Covered Product are greater than the first
year premiums of the previously-issued Covered Product.
IV. CHARGEBACK OF COMPENSATION
A. Termination of, or withdrawal of premium received in connection with, a
Covered Product will result in a charge-back of Compensation, the amount of
which shall be determined in accordance with the following table:
Time Elapsed Since Payment Attributable Compensation
To Amount Withdrawn Was Made Charge-back
First 12 months 100%
Second 12 months 75%
Third 12 months 50%
Fourth 12 months 25%
Thereafter 0%
<PAGE>
B. Compensation charge-backs will be due within 60 days of notification by
FUS. Compensation will be charged back by credit against Compensation to be
paid in the future and/or by requiring cash repayment to be made by the
Broker-Dealer.
C. Compensation will be charged back on a "first-in, first-out" basis
according to the date premium payments were received.
V. MODIFICATIONS AND TERMINATION
A. No Compensation shall be paid on Covered Products that are changed from
their original version, either under a policy provision or otherwise, or on
Covered Products that are issued using cash values of Insurance Company
policies, either under a policy provision or otherwise.
B. Except as otherwise provided in the Agreement Termination of the
Agreement for any reason, shall not impair the right of the Broker-Dealer
to receive Compensation accrued and payable on account of premium received
under Covered Products issued on applications procured by the Broker-
Dealer, or by Registered Representatives operating under supervision of the
Broker-Dealer, prior to the termination of the Selling Group Agreement.
VI. APPLICABILITY
This Schedule supersedes and replaces any and all previous Schedules of
Commissions and Allowances.
By signing this Schedule, the Broker-Dealer and FUS agree to comply with its
terms.
BROKER-DEALER
Name of Broker-Dealer:
-----------------------------------------------
By: Date:
------------------------------------------------------ ------------
Title:
---------------------------------------------------------------------
<PAGE>
SCHEDULE OF PRODUCTS
to
First Union Securities
SELLING GROUP AGREEMENT
-----------------------
- --------------------------------------------------------------------------------
Product Description Policy/Certificate
Form
- --------------------------------------------------------------------------------
Titanium Variable Universal Life
Investor VUL
- --------------------------------------------------------------------------------
Titanium Variable Annuity
Investor VA
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 1.A.(3)(b)
United Securities Alliance, Inc. draft Agreements:
(i) Distribution Agreement
(ii) Selling Group Agreement
(iii) Commission Schedule
<PAGE>
DISTRIBUTION AGREEMENT
With
United Securities Alliance
Table of Contents
<TABLE>
<CAPTION>
Section Page No.
<S> <C>
Additional Definitions.................................................................................... 3
Distribution Activities Authority......................................................................... 4
Distribution Activities Appointment....................................................................... 5
Distribution Activities Duties............................................................................ 6
Limitations on Authority.................................................................................. 6
Sales Agreements.......................................................................................... 7
Forms, Applications, and Licensing........................................................................ 8
Marketing Materials....................................................................................... 10
The Distributor's Compensation............................................................................ 10
Representations and Warranties............................................................................ 11
Indemnification........................................................................................... 13
Records................................................................................................... 18
Investigations and Proceedings............................................................................ 18
Term and Termination...................................................................................... 18
Rights Upon Termination................................................................................... 20
Independent Contractor.................................................................................... 22
Notices................................................................................................... 22
Arbitration............................................................................................... 22
Confidentiality........................................................................................... 23
Severability.............................................................................................. 24
Choice of Law............................................................................................. 24
No Waiver................................................................................................. 24
Agreement Non-Assignable.................................................................................. 25
Exhibits and Schedules.................................................................................... 25
Headings.................................................................................................. 25
Schedules and Attachments ................................................................................ 25
Entire Agreement.......................................................................................... 25
</TABLE>
<PAGE>
DISTRIBUTION AGREEMENT
----------------------
AGREEMENT made as of the day of 1999, by and Between United
Investors life Insurance Company (the "Insurance Company") and United Securities
Alliance, Inc., a Colorado corporation (the "Distributor"), on its own behalf
and on behalf of the individuals and entities listed on Schedule 1 to this
Agreement (the "Distributor Agency Affiliates"), as that Schedule may be amended
from time to time in accordance with this Agreement.
RECITALS:
WHEREAS, the Insurance Company issues certain variable annuity
contracts and variable life insurance policies; and
WHEREAS, certain of the variable annuity contracts and variable life
insurance policies issued by the Insurance Company (the "Private Placements")
may be offered and sold in reliance upon exemptions from the registration
requirements of the Securities Act of 1933 (the "1933 Act") and the Investment
Company Act of 1940 (the "1940 Act"), while certain other variable annuity
contracts and variable life insurance policies issued by the Insurance Company
are being offered and sold pursuant to Registration Statements (the "Registered
Products") and their related Prospectuses filed with and declared effective by
the Securities and Exchange Commission (the "Commission") under the provisions
of the 1933 Act and the 1940 Act (collectively, the "Private Placements" and the
"Registered Products" are referred to as the "Variable Products") (Variable
Products are identified in Schedule 2 to this Agreement, as amended from time to
time); and
WHEREAS, the Distributor is registered as a broker-dealer with the
Commission under the Securities Exchange Act of 1934, as amended (the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (the "NASD") that engages in the distribution of
insurance products; and
WHEREAS, the Insurance Company desires to retain the Distributor to
distribute the Variable Products through registered broker-dealers ("Broker-
Dealers") and their registered representatives ("Representatives"); and
WHEREAS, the Distributor desires to be retained by the Insurance
Company to distribute the Variable Products on the terms and conditions
hereinafter set forth.
2
<PAGE>
NOW, THEREFORE, in consideration of mutual promises contained herein,
the parties hereto agree as follows:
1. Additional Definitions
----------------------
(a) Affiliate -- With respect to a person, any other person controlling,
controlled by, or under common control with, such person.
(b) Applications -- The forms used by the prospective purchaser to apply
for a variable life insurance policy or a variable annuity contract.
(c) Contracts -- The variable annuity contracts and certificates set forth
in Schedule 2 to this Agreement, as amended from time to time.
(d) Policies -- The variable life insurance policies set forth in Schedule
2 to this Agreement as in effect at the time this Agreement is executed,
and such other variable life insurance products that may be added to
Schedule 2 from time to time.
(e) Premium -- A payment made under a Policy by an applicant or purchaser
to purchase Variable Products.
(f) Private Placement Guidelines -- The guidelines set forth in Schedule 3
to this Agreement, as that Schedule may be amended from time to time.
(g) Private Placement Memorandum -- The document through which the
Insurance Company offers private placements. For purposes of Section 11 of
this Agreement, the term "any Private Placement Memorandum" means any
document which is or at any time was a Private Placement Memorandum within
the meaning of this Section 1(g).
(h) Private Placements -- Contracts and Policies being offered and sold in
reliance upon exemptions from the registration requirements of the 1933
Act and the 1940 Act for non-public offerings.
(i) Prospectus -- The prospectus if any, included within a Registration
Statement or, if more recent, the prospectus filed pursuant to Rule 497
under the 1933 Act. For purposes of Section 11 of this Agreement, the term
"any Prospectus" means any document which is or at any time was a
Prospectus within the meaning of this Section 1(i).
3
<PAGE>
(j) Purchase Payment -- A payment made under a Contract by an applicant or
purchaser to purchase benefits under the Contract.
(k) Registration Statement -- At any time that this Agreement is in effect,
each currently effective registration statement, or currently effective
post-effective amendment thereto, relating to the Contracts or Policies,
including financial statements included in, and all exhibits to, that
registration statement or post-effective amendment. For purposes of Section
11 of this Agreement, the term "Registration Statement" means any document
which is or at any time was a Registration Statement within the meaning of
this Section 1(k).
(1) Regulations -- The rules and regulations promulgated by the Commission
under the 1933 Act, the 1934 Act and the 1940 Act as in effect at the time
this Agreement is executed or thereafter promulgated.
(m) Variable Accounts -- Separate accounts established pursuant to Missouri
state insurance law supporting the Variable Products specified in Schedule
2 as in effect at the time this Agreement is executed, or as it may be
amended from time to time.
2. Distribution Activities -- Authority
------------------------------------
(a) The Insurance Company authorizes the Distributor, and the Distributor
accepts the authority, to act as a distributor of the Variable Products,
subject to any applicable requirements of the 1933 Act and the 1940 Act.
The Insurance Company hereby authorizes the Distributor to select
persons that will be authorized to engage in solicitation activities with
respect to the Variable Products, including the recruitment and appointment
of Broker-Dealers and Representatives which in turn may be authorized to
engage in solicitation activities involving the solicitation of
Applications, Premiums and Purchase Payments directly from prospective
purchasers.
(b) The Distributor shall enter into separate written "Sales Agreements"
with Broker-Dealers for distribution of the Variable Products. These Sales
Agreements will be in a form mutually agreeable to the parties to this
Agreement.
(c) Nothing in this Agreement precludes additional mutually agreeable
distribution and compensation arrangements among the parties to this
Agreement, including ones that may have compensation arrangements that
reward the Insurance Company for identifying and recruiting new Broker-
Dealers to sell the Variable Products, for
4
<PAGE>
identifying potential purchasers of the Variable Products, or for providing
superior support under this Agreement.
3. Distribution Activities -- Appointment
--------------------------------------
(a) Where required by applicable state insurance law, the Insurance Company
hereby appoints the Distributor as its agent under that state insurance law
to represent the Insurance Company in the distribution activities
contemplated by this Agreement. The Insurance Company hereby authorizes the
Distributor under applicable securities laws to engage in the activities
contemplated by this Agreement relating to the distribution of the Variable
Products.
(b) In states where the Distributor is not licensed as an insurance agent
and applicable state insurance law requires that the Distributor be so
licensed, the Insurance Company hereby appoints each Distributor Agency
Affiliate listed on Schedule 1 to this Agreement (as that Schedule may be
amended from time to time by the Distributor when required by applicable
state insurance law to reflect changes in the licensing status of the
Distributor or the Distributor Agency Affiliates) as its agent under
applicable state insurance laws to represent the Insurance Company in the
distribution activities contemplated by this Agreement.
5
<PAGE>
4. Distribution Activities -- Duties
---------------------------------
(a) The Distributor shall use its best efforts to market the Variable
Products actively through Broker-Dealers and Representatives in accordance
with the terms and conditions of this Agreement, subject to applicable
material market and regulatory conditions.
(b) The Distributor shall assist and provide information to Broker-Dealers
and Representatives in connection with servicing the Variable Products sold
or marketed by those Broker-Dealers Representatives.
(c) Under no circumstances shall the Insurance Company or the Distributor
be responsible under this Agreement for any failure by Broker-Dealers or
Representatives to comply with applicable law.
(d) Under no circumstances shall the Distributor be responsible under this
Agreement for any failure by the Insurance Company to comply with
applicable law.
(e) Under no circumstances shall the Insurance Company be responsible
under this Agreement for any failure by the Distributor to comply with
applicable law.
5. Limitations on Authority
------------------------
(a) The Distributor shall not have the authority, and shall not grant
authority to Broker-Dealers or Representatives, on behalf of the Insurance
Company:
(1) to make, alter or discharge any Variable Product or other contract
entered into pursuant to a Variable Product;
(2) to waive any Variable Product forfeiture provision;
(3) to extend the time of paying any Purchase Payments, or Premiums
due under the Variable Products; and
(4) to receive any monies, Purchase Payments or Premiums (except for
the sole purpose of forwarding monies, Purchase Payments or Premiums
to the Insurance Company).
(b) The Distributor shall not expend, nor contract for the expenditure of,
funds of the Insurance Company.
(c) The Distributor shall not possess or exercise any authority on behalf
of the Insurance Company other than that expressly conferred on the
Distributor by this Agreement.
6
<PAGE>
6. Sales Agreements
----------------
(a) The Distributor shall not enter into any Sales Agreement with a Broker-
Dealer relating to the distribution of any Variable Product, unless that
Sales Agreement (i) is substantially identical to the form of Sales
Agreement mutually agreed to by the parties to this Agreement or (ii) is
approved by the Insurance Company, provided that the approval of the
Insurance Company shall be deemed to have been given if no written
objection to the Sales Agreement has been delivered by the Insurance
Company to the Distributor within five (5) business days after being
provided by facsimile or express courier with a copy of the proposed Sales
Agreement.
(b) The Distributor shall provide to the Insurance Company a copy of each
Sales Agreement entered into by the Distributor and a Broker-Dealer within
five (5) business days following execution thereof.
(c) The Insurance Company agrees to appoint Representatives of the Selling
Broker-Dealers as life insurance agents of the Insurance Company to the
extent that such Representatives satisfy the licensing and qualification
requirements of applicable state insurance laws, as well as the Insurance
Company's own standards applicable to life insurance agents of the
Insurance Company. The Insurance Company reserves the right, which right
shall not be exercised unreasonably, to refuse to appoint any
Representative as its life insurance agent. The Life Company reserves the
right to terminate immediately the appointment of any Representative as its
life insurance agent if such Representative fails to maintain his or her
registration, license or qualifications under federal and state securities
laws, as well as applicable state insurance laws, is subject to
disciplinary action by any governmental authority or self-regulatory
organization or fails, in the reasonable view of the Insurance Company, to
satisfy appropriate industry standards. The Insurance Company shall
promptly notify the Distributor and the Selling Broker-Dealer of its intent
to terminate a Representative and the reasons for such termination.
7
<PAGE>
(d) When appointing a Representative or an insurance agency of a Selling
Broker-Dealer as its life insurance agent, the Insurance Company agrees
only to enter into agent or agency agreements (an "Agent Agreement") that
(i) are substantially identical to the form of Agent Agreement mutually
agreed to by the parties to this Agreement or (ii) is otherwise approved by
the Distributor, provided that the approval of the Distributor shall be
deemed to have been given if no written objection to the Agent Agreement
has been delivered by the Distributor to the Insurance Company within five
(5) business days after being provided with a copy of the proposed Agent
Agreement. After entering into an Agent Agreement, the Insurance Company
shall not amend or supplement the Agent Agreement without the Distributor's
prior written consent, which consent shall not be unreasonably withheld.
The Insurance Company agrees to notify the Distributor and the Selling
Broker-Dealer promptly of its intent to terminate an Agent Agreement and
the reasons for such termination.
7. Forms, Applications, and Licensing
----------------------------------
(a) The Insurance Company, or its agent, shall forward to the Distributor,
Applications, Policies, Contracts, subscription agreements, certificates,
other administrative forms, and any amendments or supplements to the
foregoing, necessary to carry out the Distributor's distribution authority
and responsibilities with respect to the Variable Products.
(b) The Insurance Company shall obtain all requisite regulatory approvals
of such materials furnished to the Distributor and shall comply with all
applicable laws, rules, regulations and orders of any governmental
authority relating to the issuance or sale of the Variable Products.
8
<PAGE>
(c) All premiums and Purchase Payments paid by check or money order that
are collected by the Distributor, any agent or affiliate shall be remitted
promptly, and in any event not later than two business days, in full,
together with Applications, forms, and any other required documentation, to
the Insurance Company. Checks or money orders in payment of Premiums and
Purchase Payments shall be drawn to the order of "United Investors Life".
If any Premium or Purchase Payment is held at any time by the Distributor,
broker-dealers, registered representatives, agents, or any affiliates, the
Distributor, the broker-dealers, the registered representatives, the agents
or the affiliates shall hold that Premium or Purchase Payment in a
fiduciary capacity. All Premiums and Purchase Payments whether by check,
money order or wire, shall be the property of the Insurance Company.
(d) The Distributor acknowledges that the Insurance Company shall have the
unconditional right to reject, in whole or in part, any application. The
Insurance Company shall return any monies received by it or from an
applicant or purchaser whose Application has been rejected. The Insurance
Company shall notify the Distributor in writing one business day prior to
taking any action to return any such Monies, which notice shall identify,
if applicable, the agent who submitted the rejected Application.
(e) If a purchaser exercises its "free look right" under a Variable
Product, any refund of premiums or Purchase Payments due as provided in
that Variable Product, shall be made by the Insurance Company to the
purchaser. The Insurance Company shall notify the Distributor in writing
one business day prior to taking any action to refund any such Premiums or
Purchase Payments, which notice shall identify, if applicable the broker-
dealer, the registered representative or the agent through which the
Variable Product had been purchased.
(f) The Distributor agrees to maintain all registrations, licenses, and
qualifications under federal and state securities laws that are applicable
to its activities and those of its registered representatives in connection
with the performance of this Agreement. The Distributor also agrees to
maintain all registrations, licenses, and qualifications under state
insurance laws that are applicable to the activities of the Distributor,
the Insurance Agency Affiliates and their agents in performing this
Agreement.
(g) The Distributor agrees to notify the Insurance Company within [three
(3) business days] of obtaining actual knowledge of any changes in the
registrations, licenses, or qualifications of the Distributor, the
Insurance Agency Affiliates, or the agents or representatives of the
Distributor or Insurance Agency Affiliates that would adversely affect its
performance of this Agreement.
(h) The Insurance Company agrees to obtain and maintain all registrations,
licenses, qualifications and approvals under federal securities laws and
state blue sky and insurance laws in connection with qualifying the
Variable Products for sale.
(i) The Insurance Company agrees to notify the Distributor within [three
(3) business days] of obtaining actual knowledge of any changes in the
registrations,
9
<PAGE>
licenses, qualifications, or approvals of the Variable Products that would
adversely affect the offering of the Variable Contracts.
8. Marketing Materials
-------------------
The Insurance Company shall design, develop, produce, and make the
determination whether to file and, if necessary, file for and obtain all
necessary regulatory approvals for, all advertising, sales literature, and
other promotional materials required in connection with the distribution,
sale and marketing of the Variable Products. The Insurance Company shall
work closely with the Distributor to ensure that the marketing materials
achieve their desired purpose.
9. The Distributor's Compensation
------------------------------
(a) In consideration for the services rendered by the Distributor pursuant
to this Agreement, the Insurance Company shall pay the Distributor the
compensation set forth in Schedule 4 to this Agreement. Schedule 4 and/ or
Schedule 2 may be modified at any time, and from time to time, by adding or
deleting contracts and changing the compensation payable for those
contracts, provided, that, any such modifications are mutually agreed upon
by both the Insurance Company and the Distributor, in writing, and signed
by both parties. Modifications to the Variable Products listed in Schedule
2 and the compensation described in Schedule 4 may be requested by the
Insurance Company in the event that pricing objectives are not achieved due
to adverse experience, and the Distributor's consent shall not be
unreasonably withheld. Any such modification shall apply only to contracts
applied for after the effective date of each such modification.
10
<PAGE>
(b) With respect to Variable Products in connection with which the
Insurance Company has advanced sales commissions paid to the Distributor,
to a Broker-Dealer, or to a Representative, in the event a Contract or
Policy on a Variable Product terminates within twelve (12) months of the
date of issue, the Insurance Company reserves the right to recover: (1) one
hundred percent (100%) of the compensation paid to Distributor respecting
the sale of the Variable Product if that Variable Product terminates for
reasons other than death during the first twelve (12) months following
issue; (2) fifty percent (50%) of the compensation paid to the Distributor
if a Variable Annuity Product terminates due to death during the first
twelve (12) months following issue; and (3) nothing from the Distributor
(i.e., no charge back) if the Variable Product terminates thereafter.
However, notwithstanding any other provision of this Agreement, if
termination of a Variable Product at any time is due to the willful or
negligent wrongful actions or representations of the Distributor, Broker-
Dealer or Representative, the Insurance Company reserves the right to
recover one hundred percent (100%) of the compensation paid to Distributor
respecting the sale of the Variable Product.
With respect to any other terminations, the Insurance Company has no
right to recover any portion of the compensation paid to the Distributor.
In no event shall the Insurance Company have the right to recover any
portion of any compensation received by the Distributor as a basis point
charge against investment values under the contracts. The Insurance Company
shall have the right to set off any amounts owed by the Distributor under
this Section 9(b) against any amounts owed by the Insurance Company to the
Distributor.
10. Representations and Warranties
------------------------------
(a) By the Distributor
The Distributor represents and warrants to, and covenants with, the
Insurance Company as follows:
(1) The Distributor has taken all action necessary including without
limitation, those necessary under its articles of incorporation, by-
laws and applicable state corporate law, to authorize the execution,
delivery and performance of this Agreement and all transactions
contemplated hereunder.
(2) Prior to the sale of any Variable Product hereunder, the
Distributor will be, and shall thereafter remain during the term of
this Agreement, registered as a broker-dealer under the 1934 Act, a
member in good standing of the NASD, and duly registered under
applicable state securities laws.
11
<PAGE>
(3) Prior to the sale of any Variable Product hereunder, the
Distributor will be, and shall thereafter remain during the
term of this Agreement, in compliance with the eligibility
requirements for certain affiliated persons and underwriters
found in Section 9(a) of the 1940 Act.
(4) Prior to the sale of any Variable Product hereunder, the
Distributor and each Distributor Agency Affiliate and
Representative will have all necessary licenses and
regulatory approvals to perform the services required by
this Agreement and the Distributor will notify the Insurance
Company within three business days of obtaining actual
knowledge of any change in the status of such licenses or
regulatory approvals.
(5) During the term of this Agreement and for any reason,
the Distributor and the Distributor Agency Affiliates agree
that they will not take any action designed or calculated to
result in the transfer or exchange of the policies.
(b) By the Insurance Company
The Insurance Company represents and warrants to, and covenants
with, the Distributor as follows:
(1) All necessary regulatory approvals and licenses from any
state or federal governmental body having jurisdiction over
the Insurance Company or the Variable Products have been
obtained, and the Insurance Company will notify the
Distributor within one business day of obtaining actual
knowledge of any change in the status of any approvals or
licenses related to the marketing, sale or distribution of
the Variable Products.
(2) The Insurance Company has taken all action necessary
including, without limitation, those necessary under its
articles of incorporation, bylaws and applicable state
corporate law, to authorize the execution, delivery and
performance of this Agreement and all transactions
contemplated hereunder.
(3) The Insurance Company is and shall remain during the
term of this Agreement in compliance with the eligibility
requirements for certain affiliated persons and underwriters
found in Section 9(a) of the 1940 Act.
12
<PAGE>
11. Indemnification
-------------------
(a) By the Distributor
(1) The Distributor agrees to indemnify and hold harmless the
Insurance Company and each director, officer, employee or agent
of the Insurance Company, and each person, if any, who controls
the Insurance Company within the meaning of the federal
securities laws (collectively, the "Indemnified Parties" for
purposes of this Section 11 (a)) against any and all losses,
claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Insurance Company) or
litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the offer or sale of the
Variable Products or the operation of the Variable Accounts and:
(i) arise out of, or are based upon, violation(s) by the
Distributor of federal or state securities law(s) or
regulation(s), applicable banking law(s) or regulation(s),
insurance law(s) or regulation(s) or any rule or requirement
of the NASD; or
(ii) arise out of, or are based upon, any tortious conduct
(including oral or written misrepresentation), or any
unlawful sales practices concerning the Variable Products by
the Distributor; or
(iii) arise out of, or are based upon, any untrue statement
or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein
not misleading, in light of the circumstances in which they
were made, contained in any advertising, sales literature,
or other promotional material designed, developed, and
produced by the Distributor and used by it in the
distribution of the Variable Products; provided that the
Distributor shall not be liable in any such case to the
extent that such losses, claims, damages, liabilities or
expenses arises out of, or are based upon, an untrue
statement or alleged untrue statement or omission or alleged
omission made in reliance upon information furnished in
writing to the Distributor by the Insurance Company
specifically for use in the preparation of any such
promotional material; or
13
<PAGE>
(iv) arise out of, or are based upon, claims by the
Representatives or agents or representatives of the
Distributor for commissions or other compensation or
remuneration of any type; or
(v) arise as a result of any failure on the part of the
Distributor to submit Premiums, Purchase Payments, or
Applications to the Insurance Company, or to submit the
correct amount of a Premium or Purchase Payment, on a timely
basis and in accordance with this Agreement, subject to
applicable law; or
(vi) arise as a result of any failure on the part of the
Distributor to deliver the Variable Products to purchasers
thereof on a timely basis; provided that the Distributor
shall not be liable in any such case to the extent that such
losses, claims, damages, liabilities or expenses arise as a
result of any failure on the part of the Insurance Company
to perform its obligations under this Agreement on a timely
basis; or
(vii) arise as a result of a material breach by the
Distributor of any provisions of this Agreement; or
(viii) arise as a result of actions of a Broker-Dealer or
its Representatives;
as limited by and in accordance with the provisions of Sections
11(a)(2) and 11 (a)(3) hereof.
(2) The Distributor shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation ("Losses" for purposes of this Section 11 (a)(2)) incurred
or assessed against an Indemnified Party that may arise from any
Indemnified Party's willful misfeasance or bad faith. The
Distributor's liability for Losses in the event of its breach of this
Agreement shall be limited to that portion of Losses
14
<PAGE>
caused by its breach, and the Distributor shall not be liable for that
portion of Losses caused by breach of this Agreement by an Indemnified
Party or from any act or omission by an Indemnified Party.
(3) The Distributor shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless that Indemnified Party shall have notified the Distributor in
writing within a reasonable time after the summons or other first
legal process giving information of the nature of the claim shall have
been served upon that Indemnified Party (or after the Indemnified
Party shall have received notice of such service on any designated
agent). Notwithstanding the foregoing, the failure of any Indemnified
Party to give notice as provided herein shall not relieve the
Distributor of its obligations hereunder except to the extent that the
Distributor has been prejudiced by such failure to give notice. In
addition, any failure by the Indemnified Party to notify the
Distributor of any such claim shall not relieve the Distributor from
any liability which it may have to the Indemnified Party against whom
the action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against
the Indemnified Parties, the Distributor shall be entitled to
participate, at its own expense, in the defense of the action. The
Distributor also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action; provided,
however, that if the Indemnified Party shall have reasonably concluded
that there may be defenses available to it which are different from or
additional to those available to the Distributor, the Distributor
shall not have the right to assume said defense, but shall pay the
costs and expenses thereof (except that in no event shall the
Distributor be liable for the fees and expenses of more than one
counsel for Indemnified Parties in connection with any one action or
separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances). After
notice from the Distributor to the Indemnified Party of the
Distributor's election to assume the defense thereof, and in the
absence of such a reasonable conclusion that there may be different or
additional defenses available to the Indemnified Party, the
Indemnified Party shall bear the fees and expenses of any additional
counsel retained by it, and the Distributor will not be liable to that
party under this Agreement for any legal or other expenses
subsequently incurred by the party independently in connection with
the defense thereof other than reasonable costs of investigation.
(4) The Indemnified Parties will notify the Distributor within a
reasonable time, not to exceed fifteen (15) business days, of the
receipt of service of process in any litigation or proceedings against
them in connection with the offer or sale of the Variable Products or
the operation of the Variable Accounts.
15
<PAGE>
(b) By the Insurance Company
(1) The Insurance Company agrees to indemnify and hold harmless
the Distributor and each director, officer, employee or agent of
the Distributor, and each person, if any, who controls the
Distributor within the meaning of the federal securities laws
(collectively, the "Indemnified Parties" for purposes of this
Section 11(b)) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the
written consent of the Insurance Company) or litigation
(including legal and other expenses) to which the Indemnified
Parties may become subject under any statute, regulation, at
common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or
settlements are related to the offer or sale of the Variable
Products or the operation of the Variable Accounts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact or omission or
alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein
not misleading, in light of the circumstances in which they
were made, contained in any: (A) Registration Statement or
Prospectus; (B) blue-sky application or other document
executed by the Insurance Company specifically for the
purpose of exempting the Private Placements from, or
qualifying any or all of the Registered Products for sale
under, the securities laws of any jurisdiction; or (C)
information furnished in writing to the Distributor
specifically for the purpose of being included in any
advertising, sales literature, or other promotional material
to be used in connection with the distribution of the
Variable Products; provided that the Insurance Company shall
not be liable in any such case to the extent that such
losses, claims, damages, liabilities or expenses arise out
of, or are based upon, an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance
upon information furnished in writing to the Insurance
Company by the Distributor specifically for use in the
preparation of any such document, application, or
promotional material; or
(ii) result because of the provisions of any Variable
Product or because of any material breach by the Insurance
Company of any provision of this Agreement or of any
Variable Product or which result from any wrongful
activities of the Insurance Company's officers, directors,
employees or agents or their wrongful failure to take any
action in connection with the sale,
16
<PAGE>
processing or administration of the Variable Products
including, without limitation, obtaining auditors' reports,
computing accurate separate account and/or underlying fund
performance data, preparation and timely filing and
delivery, as required, of annual and semiannual reports and
reports on Form NSAR and the timely payment of all state and
federal registration fees; as limited by and in accordance
with the provisions of Sections 11 (b)(1) and 11 (b)(2)
hereof.
(2) The Insurance Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation ("Losses" for purposes of this Section 11
(b)(2)) incurred or assessed against an Indemnified Party that may
arise from any Indemnified Party's willful misfeasance or bad faith.
The Insurance Company's liability for Losses in the event of its
breach of this Agreement shall be limited to that portion of Losses
caused by its breach, and that party shall not be liable for that
portion of Losses caused by breach of this Agreement by an Indemnified
Party or from any act or omission by an Indemnified Party.
(3) The Insurance Company shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless the Indemnified Party shall have notified the
Insurance Company in writing within a reasonable time after receiving
the summons or other first legal process giving information of the
nature of the claim against the Indemnified Party (a "Claim").
Notwithstanding the foregoing, the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Insurance Company
of its obligations hereunder except to the extent that the Insurance
Company has been prejudiced by the failure of the Indemnified Party to
give notice. In addition, any failure by the Indemnified Party to
notify the Insurance Company of any Claim shall not relieve the
Insurance Company from any liability which it may have to the
Indemnified Party against whom the action is brought otherwise than on
account of this indemnification provision. In case any Claim is
brought against the Indemnified Parties, the Insurance Company shall
be entitled to participate, at its own expense, in the defense of the
Claim. The Insurance Company also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the
Claim. After notice from the Insurance Company to the Indemnified
Party of the Insurance Company's election to assume a defense to a
Claim, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Insurance Company will not
be liable to the Indemnified Party under this Agreement for any legal
or other expenses subsequently incurred by the Indemnified Party
independently in connection with the defense of a Claim other than the
reasonable costs of investigation.
17
<PAGE>
12. Records
-------
The parties to this Agreement shall maintain such accounts,
books and records and other documents as are required to be
maintained under applicable laws and regulations and shall
preserve such accounts, books and records, and other documents
for the periods prescribed by such laws and regulations. Each
party shall have the right to inspect and audit the accounts,
books and records and other documents of the other party that
pertain to the Variable Products during normal business hours
upon reasonable written notice to the other party. Any party
requesting such an audit shall bear the expense of the audit,
including the reasonable costs (other than overhead costs or
costs for time spent on audit-related matters by officers,
directors, or employees of the other party) borne by the other
party in connection with the audit.
13. Investigations and Proceedings
------------------------------
The parties to this Agreement shall notify each other
promptly of any insurance or securities regulatory investigation,
administrative or judicial proceeding, or material complaint
arising in connection with the offer or the sale of the Variable
Products. The parties shall cooperate fully in the resolution of
any insurance or securities investigation, administrative or
judicial proceeding, or material complaint.
14. Term and Termination
--------------------
(a) Term -- This Agreement shall be effective from the date
hereof through December 31, 2004, which term shall automatically
be extended for a period of 5 years unless this Agreement is
sooner terminated in accordance with the termination provisions
in Section 14(b) of this Agreement.
(b) Termination -- No party hereto may terminate this Agreement
except as expressly provided in this Section 14(b).
(1) Any party hereto may terminate this Agreement effective
the date that the term of this Agreement would otherwise
automatically be renewed upon written notice delivered to
the other party not less than 30 nor more than 60 days prior
to such effective date, which notice shall specify that it
is being given pursuant to this Section 14(b)(1).
(2) A party (the "Terminating Party") may terminate this
Agreement for cause if:
18
<PAGE>
(i) another party (the "Breaching Party") materially
breaches this Agreement,
(ii) the Terminating Party has delivered to the
Breaching Party a notice specifying the nature of the
breach and that this notice is being given pursuant to
this Section 14(b)(2), and
(iii) the Breaching Party has not cured the breach
within 30 days after the delivery of the notice.
(3) A Terminating Party may terminate this Agreement
immediately for cause in the event of:
(i) the voluntary institution by the Distributor of
bankruptcy proceedings or the voluntary institution by
the Insurance Company of insolvency or rehabilitation
proceedings under any state insurance laws or
regulations (each an "Insolvent Party") or
(ii) a formal order or written finding by a court of
competent jurisdiction that the Insolvent Party is
bankrupt or insolvent, there is a degradation of the
Insolvent Party's reputation that would materially
impair the ability of the Insolvent Party to carry out
its obligations under this Agreement or
(iii) the Securities and Exchange Commission ("SEC")
institutes a formal cease and desist order or
proceeding prohibiting the offer of the sale of the
Variable Products or the operation of the Separate
Account, or a governmental or regulatory authority of a
state or other jurisdiction institutes a formal order
or proceeding prohibiting the offer or the sale of the
Variable Products or the operation of the Separate
Account; provided that, this Agreement will be
terminated only with respect to the particular state or
jurisdiction issuing such order or proceeding or
(iv) the SEC, the NASD, or any other government
authority or self-regulatory organization revokes or
suspends the registration or license of the
Distributor, or the Distributor's ability to do
business is so materially impaired, in the reasonable
view of the Insurance Company, that it could not
perform its obligations under this Agreement or
19
<PAGE>
(v) a state insurance commissioner suspends or
revokes the Insurance Company's ability to do business
or the Insurance Company's ability to do business is so
materially impaired, in the reasonable view of the
Distributor, that it could not perform its obligations
under this Agreement.
(c) Solicitation after Termination -- Upon termination of this
Agreement for any reason, the Distributor and the Distributor
Agency affiliates agree that they will not take any action
designed or calculated to result in the transfer or exchange of
the policies.
(d) Survival -- The provisions of Sections 10, 11, 15, 18 and 19
(Representations and Warranties, Indemnification, Rights Upon
Termination, Arbitration, and Confidentiality, respectively)
shall survive the termination of this Agreement.
15. Rights Upon Termination
-----------------------
(a) In no event will any further compensation be paid to the
Distributor should the Insurance Company terminate this Agreement
for cause pursuant to Section 14(b)(2) or Section 14(b)(3).
(b) As of the date of termination, the Insurance Company shall
have the right to set off against any monies it owes the
Distributor any amounts owed by the Distributor to the Insurance
Company. In the event that the amounts owed by the Distributor
exceed the amounts owed by the Insurance Company, the difference
shall become immediately due and payable by the Distributor.
(c) In the event that either party does not pay within 45 days
after resolution of net amount payable, then the net amount owed
will accrue interest, compounded daily, at the fluctuating prime
interest rate charged by The Chase Manhattan Bank, N.A., plus two
percent (2%).
(d) The Insurance Company agrees to pay the termination fees
identified in Schedule 5 in the event (i) the Insurance Company
terminates this Agreement for any reason other than those set
forth in Sections 14(b)(2) or 14(b)(3) of this Agreement, or (ii)
the Distributor terminates this Agreement for the reasons set
forth in Sections 14(b)(2) or 14(b)(3) of this Agreement. In no
event shall the Insurance Company be liable for the termination
fees identified in Schedule 5 to this Agreement if the
Distributor voluntarily terminates this Agreement under Section
14(b)(1) of this Agreement. The parties agree that such
termination fees only apply to the Variable Product policies that
have not lapsed, due to 1035
20
<PAGE>
exchanges or other means, whether such lapse occurred before or
after the termination date.
(e) If the Insurance Company terminates this Agreement pursuant
to Section 14(b)(1), the Insurance Company shall continue to:
(1) pay the Distributor the compensation set forth in
Schedule 4 to this Agreement; and
(2) offer all of the Variable Products then identified on
Schedule 2 to this Agreement for a period of [one (1) year]
from the date of termination of this Agreement, during which
period of time (i) the Insurance Company shall employ at
least the same level of efforts in offering and supporting
the Variable Products as it did before the termination of
this Agreement and (ii) the terms of this Agreement shall
remain in full force and effect as though the Agreement had
not been terminated. The parties further agree that such
compensation shall only be based on the Variable Product
policies that have not lapsed, due to 1035 exchanges or
other means, whether such lapse occurred before or after the
termination date.
(f) If the Distributor terminates this Agreement pursuant to Section
14(b)(1), the Insurance Company shall continue to pay the Distributor
the compensation set forth in Schedule 4 to this Agreement. The
parties further agree that such compensation shall only be based on
the Variable Product policies that have not lapsed, due to 1035
exchanges or other means, whether such lapse occurred before or after
the termination date.
21
<PAGE>
16. Independent Contractor
----------------------
The Distributor shall act as an independent contractor in the performance
of its duties and obligations under this Agreement and nothing herein contained
shall constitute the Distributor, Broker-Dealers, Representatives or employees
or officers of the Distributor or Broker-Dealers as employees of the Insurance
Company in connection with the distribution of the Variable Products.
17. Notices
-------
Any notice required or permitted under this Agreement shall be delivered
personally or sent by facsimile or by registered or certified mail, return
receipt requested, with all postage prepaid:
(a) To the Distributor:
United Securities Alliance, Inc.
8 Inverness Drive
Englewood, CO 80112
Attention: Dominic Lloyd
Fax: (303) 792-0985
(b) To the Insurance Company:
United Investors Life Insurance
2001 Third Avenue South
Birmingham, AL 35233
Attention:
Fax:
A party may change its address or fax number for the delivery of notices by
delivering a written notice to the other party at its last specified address.
All notices shall be effective upon delivery; provided that any notice sent by
facsimile shall be deemed ineffective unless a copy of the notice is also
delivered personally or sent by express courier or mail for delivery on the same
or next business day.
18. Arbitration
-----------
Any dispute between the Distributor and the Insurance Company arising under
or relating to this Agreement shall be settled by compulsory arbitration before
a single arbitrator experienced in the insurance industry in accordance with the
Commercial Arbitration Rules then in force of the American Arbitration
Association. The arbitration shall take place in Birmingham, Alabama,
<PAGE>
unless some other location is mutually agreed upon by the parties in dispute.
Each party shall bear its own costs and expenses in any such arbitration, except
that the Distributor and the Insurance Company shall bear the expenses of the
arbitrators' services equally.
19. Confidentiality
---------------
(a) Generally. Each party will hold the other party's Confidential
Information (as defined below) in confidence and will safeguard it as
provided herein. The party receiving Confidential Information will not,
directly or indirectly, report, publish, distribute, disclose, or otherwise
disseminate the Confidential Information, or any portion thereof, to any
third party including its affiliates, and will not use the Confidential
Information, or any portion thereof, for the benefit of itself or any third
party including its affiliates or for any purpose, except only as necessary
to perform its duties and exercise its rights hereunder, or as expressly
authorized in writing by the party who owns such Confidential Information.
Disclosure of Confidential Information internally by a recipient will be
limited to those of its and its affiliates' officers, directors, employees,
and agents on a "need to know" basis who must have access to the
Confidential Information to enable such party to perform its duties and
exercise its rights hereunder. In order to safeguard the Confidential
Information, each party shall (i)-inform each recipient of the Confidential
Information of the confidential nature thereof and of the requirements of
this Agreement, (ii) direct such recipients to comply with the terms of
this Agreement, and (iii) exercise any other precautions necessary to
prevent any improper use or disclosure of Confidential Information.
(b) Definition. "Confidential Information" shall mean: (i) information
regarding a party's or such party's affiliates', financial condition,
information systems, business operations, plans and strategies, products or
services, customers and prospective customers, and marketing and
distribution plans, methods and techniques; (ii) information that is marked
"confidential", "proprietary" or in like words, or that is summarized in
writing as being confidential Prior to or promptly after disclosure to the
other party; (iii) any and all related research; and (iv) any and all
designs, ideas, concepts, and technology embodied therein. Confidential
Information of the Distributor or its affiliates that is to be kept
confidential by the Insurance Company shall also include: (v) any
information regarding the pricing strategies of each Broker-Dealer; (vi)
specific marketing and training materials of each Broker-Dealer; (vii) any
information of the Distributor or its affiliates in any form whatsoever
that is covered by a patent issued by the United States Patent and
Trademark Office;
23
<PAGE>
Information is not considered confidential or proprietary if such
information: (1) is or becomes generally available to the public other than
as a result of disclosure by the recipient; (2) was available to or already
known by the recipient on a non-confidential basis prior to its receipt
from the party claiming confidentiality; (3) is developed by the recipient
independently of any information or data acquired from the party claiming
confidentiality; or (4) is, or is required to be, disclosed pursuant to a
court order or the requirement of any federal or state regulatory,
judicial, or government authority.
(c) Remedies. Each party acknowledges and agrees that monetary damages
would not be a sufficient or adequate remedy for a breach or anticipated
breach of this Section and that, in addition to any other legal or
equitable remedies which may be available, each party shall be entitled to
specific performance and injunctive relief for any breach or anticipated
breach of this Section.
(d) Survival. The provisions of this Section shall survive the expiration
or other termination of this Agreement.
20. Severability
------------
If any provision of this Agreement is held to be unenforceable or invalid,
that provision shall be severed from this Agreement and the remainder of this
Agreement shall remain in full force and effect.
21. Choice of Law
-------------
This Agreement and any disputes, actions or other proceedings arising under
or relating to it shall be governed by law of the State of Alabama without
regard to its principles of conflicts of law.
22. No Waiver
---------
No failure or delay on the part of any party hereto in exercising any power
or right under this Agreement shall operate as a waiver thereof, nor shall any
single or partial exercise of such power or right preclude any other or further
exercise thereof or the exercise of any other power or right. No waiver by any
party of any provision of this Agreement, nor of any breach or default, shall be
effective unless in writing and signed by the party against whom such waiver is
to be enforced.
24
<PAGE>
23. Agreement Non-Assignable
------------------------
Any assignment of this Agreement in whole or in part by a party without the
prior written consent of the other parties thereto shall be void and shall vest
no rights in the assignee.
24. Exhibits and Schedules
----------------------
The Exhibits and Schedules to this Agreement are a part of this Agreement
as if set forth in full herein.
25. Headings
--------
The headings herein are for the purpose of convenience only and have no
legal force, meaning or effect.
26. Schedules and Attachments
-------------------------
With the exception of Schedules 4 and 5, all other schedules attached to
this agreement may be revised by the Insurance Company subject to review by
the Distributor.
27. Entire Agreement
----------------
This Agreement constitutes the entire agreement of the parties with respect
to the subject matter hereof and supersedes all prior and contemporaneous
agreements (other than on matters related to confidentiality), understandings,
negotiations and discussions, whether oral or written, of the parties and there
are no warranties, representations and/or agreements between the parties in
conjunction with the subject matter hereof except as set forth in this
Agreement. This Agreement, including any Schedule or Exhibit hereto, may be
amended or modified only by written instrument, executed by duly authorized
officers of the parties.
IN WITNESS WHEREOF, the parties to this Agreement have caused it to be
executed as of the date first above written.
United Securities Alliance, Inc. United Investors Life
By: By:
Name: Name:
Title: Title:
25
<PAGE>
SCHEDULE 1
DISTRIBUTOR AGENCY AFFILIATES
United Securities Alliance, 8 Inverness Drive,
Englewood, CO 80112
26
<PAGE>
SCHEDULE 2
VARIABLE PRODUCTS
Product Policy/Certificate Description
Number
Titanium Investor Variable Universal Life Product
Titanium Investor Variable Annuity Product
27
<PAGE>
SCHEDULE 3
PRIVATE PLACEMENT GUIDELINES
The Insurance Company relies on exemptions under the 1933 Act and the 1940
Act in the issuance of certain of its variable annuity contracts and variable
life insurance policies. Reliance on these exemptions generally depends upon the
number and identity of the purchasers, the number of securities offered, the
size of the offering, the manner of the offering, and whether the securities are
being purchased only for investment purposes (and not for the purpose of
distributing or reselling them).
Section 3(c)(7)
Section 3(c)(7) exempts from the registration requirements of the 1940 Act
certain companies owned exclusively by an unlimited number of "qualified
purchasers", as defined in amended Section 2(a)(51) of the 1940 Act. Section
2(a)(51) establishes asset tests for four categories of "qualified purchasers":
(1) a natural person who owns at least $5 million in investments; (2) a family
investment vehicle that owns at least $5 million in investments; (3) a trust
whose trustees and settlers are qualified persons, provided that the trust was
not formed for the purpose of investing in the Section 3(c)(7) company; and (4)
any other person who owns and invests on a discretionary basis, for itself or
other qualified purchasers, at least $25 million in "investments."
In order to preserve its right to rely on Section 3(c)(7) of the 1940 Act,
the Insurance Company requires, and the Distributor shall require, through any
Sales Agreements entered into pursuant to Section 2(a) or 2(b) of this Agreement
that each Broker-Dealer require, each prospective purchaser to represent and
warrant (in response to a questionnaire) that it owns sufficient "investment
securities" (as defined in Rule 2(a)(51-1) under the 1940 Act) to meet the
financial requirements and otherwise meet the requirements of the appropriate
definition of "qualified purchaser" in Section 2(a)(51) of the 1940 Act.
In addition, if the Private Placement will be used by a corporation to
assist it in funding its obligation to employees under a non-funded deferred
compensation plan, the Insurance Company therefore, will impose certain
additional conditions on the purchase and will request additional information
from the purchaser in order to insure compliance with Section 3(c)(7). These
additional requirements also are designed to insure that the employer is and
remains the sole beneficial owner of the Private Placement for purposes of the
1940 Act.
28
<PAGE>
Section 3(c)(1)
Certain of the Variable Accounts for the Private Placements are not
registered under the 1940 Act in reliance on Section 3(c)(1) of the 1940 Act.
Section 3(c)(1) exempts from the registration requirements of the 1940 Act
certain companies who is an issuer whose outstanding securities (other than
short-term paper) are beneficially owned by not more than one hundred persons
and which is not making and does not presently propose to make a public offering
of its securities.
In order to preserve its right to rely on Section 3(c)(1) of the 1940 Act,
the Insurance Company requires, and the Distributor shall require, through any
Sales Agreements entered into pursuant to Section 2(b) of this Agreement that
each Broker-Dealer require, Representatives to comply with the requirements of a
non-public offering and monitor the number of prospective purchasers to whom
offers of sales have been made.
Regulation D - Rule 501
With respect to the Private Placements, each prospective purchaser must
also be qualified as an "accredited investor" or otherwise be a "suitable
investor," prior to offering the Private Placements to that prospective
purchaser. An "accredited investor" is: (a) a natural person, (i) whose
individual net worth, or joint net worth with the person's spouse, at the time
of purchase exceeds $1,000,000; or (ii) who has had individual income in excess
of $200,000 in each of the two (2) most recent years or joint income with that
person's spouse in excess of $300,000 in each of those years and who reasonably
expects an income in excess of such amounts in the current year; (b) a bank or
savings and loan association, whether acting in an individual or fiduciary
capacity; (c) a registered broker or dealer; (d) an insurance company; (e) a
registered investment company; (f) a Small Business Investment Company; (g) any
plan established by a state or municipal agency or government for the benefit of
its employees, with total assets in excess of $5,000,000; (h) certain employee
benefit plans (within the meaning of ERISA) with total assets in excess of
$5,000,000; (i) a private business development company; (j) a charitable
organization, corporation, business trust, any trust whose purchase is directed
by a person with knowledge and experience in financial and business matters, or
partnerships, not formed to acquire the securities offered, with total assets in
excess of $5,000,000; or (k) an entity in which all of the equity owners are
accredited investors.
Because resales of securities acquired in a private offering generally are
prohibited (with the exception of offerings pursuant to Rule 144A of the 1933
Act, which expressly permits resales to certain institutional investors),
Representatives must ensure that each prospective purchaser understands the
long-term nature of the Private Placement investment, does not intend to resell
the investment and is financially able to retain the securities purchased.
29
<PAGE>
SCHEDULE 4
COMPENSATION SCHEDULE
Variable Annuity - Titanium Investor VA
10.50% of Purchase Payments Ages 0-70,
8.50% Ages 71-80, 7.50% Ages 81+, plus,
beginning in the 2/nd/ contract year, 20
bps trail based on assets in the
separate account underlying the product;
plus
50% of the Revenue Sharing paid by
Investment Managers in excess of 15
basis points annually. Revenue Sharing
means the fees received by Insurance
Company from the Investment Managers
under the respective participation
agreements as reimbursement for
administrative services performed by the
Insurance Company. This amount will be
calculated after each calendar year
based on the aggregate amounts received
from all Investment Managers using the
average assets in the separate accounts
underlying the product.
Variable Universal Life - Titanium
Investor VUL
Target Premium %
Year 1:
Up to Target Premium 135.0%
(maximum payout)
Excess Premium 4.0%
Years 2-10:
Up to Target Premium 4.0%
Excess Premium 4.0%
Years 11+: 0.00%
[Replacements: (Six month window before
or after issue of a new policy) - New
first year commission will only be paid
on any increase in premium over that on
which first year commissions was paid on
the old policy.]
Plus;
50% of the Revenue Sharing paid by
Investment Managers in excess of 15
basis points annually. Revenue Sharing
means the fees received by the Insurance
Company from the Investment
<PAGE>
Managers under the respective participation
agreements as reimbursement for
administrative services performed by the
Insurance Company. This amount will be
calculated after each calendar year based on
the aggregate amounts received from all
Investment Managers using the average assets
in the separate accounts underlying the product.
Plus;
50% of the target premium acquisition expense
priced into the product on all target premium
written in excess of $10 million in any calendar
year. In addition, an extra 25% of the target
premium acquisition expense priced into the
product will be paid on all target premium written
in excess of $15 million in any calendar year.
(The target premium acquisition expense priced into
the Titanium Investor Variable Universal Life
Product is 14%.)
For any Variable Product, the Insurance Company may
elect from time to time to make advances of
compensation to Distributor. Any such advance shall
be deemed a loan, payable upon demand, and secured
by a first lien (security interest) upon
compensation payable by Insurance Company to
Distributor, without the necessity of execution of
any further document, and Insurance Company shall
be entitled to set off any amounts owed to it by
Distributor against any amounts owed to the
Distributor by the Insurance Company.
30
<PAGE>
SELLING GROUP AGREEMENT
-----------------------
THIS AGREEMENT ("Agreement") is made as of ___________, 1999 by and between
United Securities Alliance, Inc., a Colorado corporation (***), and the
undersigned broker-dealer ("Broker-Dealer").
RECITALS:
A. USA, pursuant to the provisions of a distribution agreement (the
"Distribution Agreement") between USA and United Investors Life ("Insurance
Company"), acts as a distributor of the variable annuity contracts and/or, as
the case may be, variable life insurance policies of Insurance Company which are
anticipated to be registered under the Securities Act of 1933, as amended (the
"1933 Act"), identified on the Schedule of Products attached hereto as Exhibit
-------
"A" and may in the future act as distributor of other valuable annuity contracts
- ---
and/or, as the case may be, variable annuity policies of Insurance Company
registered under the 1933 Act which would be identified on a supplement to such
Schedule of Products pursuant to Section ___, below (such contracts and policies
are hereinafter collectively referred to as the "Products").
B. USA desires that Broker-Dealer distribute the Products in those
jurisdictions in which Broker-Dealer, USA, Insurance Company and the Products
are appropriately licensed, qualified or approved, as the case may be, and
Broker-Dealer desires to sell the Products, through its agents in such
jurisdictions, on the terms and conditions set forth hereinafter.
<PAGE>
C. Insurance Company, pursuant to an Agreement (the "General Agent
Agreement"), has authorized Broker-Dealer or affiliates of the Broker-Dealer to
act as a general agent ("General Agent") and to engage in the distribution
activities contemplated by this Agreement and the General Agent Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual covenants hereinafter set forth, the parties agree as follows:
1. Authority to Sell Products.
--------------------------
1.1 General. USA, subject to the terms and conditions contained
-------
herein, hereby authorizes Broker-Dealer as an independent contractor, on a non-
exclusive basis, to offer and sell the Products. Broker-Dealer hereby agrees to
use its best efforts to sell the Products.
1.2 Compensation; Expenses. Except as otherwise provided herein,
----------------------
Broker-Dealer shall be entitled to commissions and allowances with respect to
sales of the Products made by Broker-Dealer, the Registered Representatives and
the Downstream Broker-Dealers (as defined in Section _____, below) in accordance
with the Schedule of Commissions and Allowances attached to this Agreement as
Exhibit "B", as such Schedule may be amended from time to time. The commissions
- -----------
and allowance shall be payable by the Insurance Company or as otherwise
permitted by law or regulations. Broker-Dealer shall be responsible for the
payment of all expenses incurred by Broker-Dealer in connection with this
Agreement and the performance of its obligations, and the exercise of its rights
hereunder.
2. Representations and Warranties.
------------------------------
<PAGE>
Broker-Dealer represents and warrants to, and covenants with, USA that:
(a) Broker-Dealer (i) is a member in good standing of the National
Association of Securities Dealers, Inc. (the "NASD"), (ii) is duly registered as
a broker-dealer with the Securities and Exchange Commission ("SEC") under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and registered in
each state or other jurisdiction in which Broker-Dealer is required to be
registered in order to sell the Products; (iii) is licensed to sell the Products
under the insurance laws of each state or other jurisdiction in which Broker-
Dealer is required to be registered in order to sell the Products and (iv)
otherwise maintains in effect all governmental and other registrations, licenses
and permits necessary for it to carry out its obligations, and the transactions
contemplated hereunder (the "Required Registrations");
(b) Broker-Dealer conducts its operations is in compliance in all
material respects, with all applicable federal and state securities laws and
regulations, the requirements of the NASD and any applicable securities
exchanges of which it is a member and all codes of conduct and codes of ethics
applicable to its activities (collectively, the "Regulations").
(c) Broker-Dealer is a corporation duly organized and in good
standing under the law of its jurisdiction of organization and is qualified to
do business as a corporation in those states or jurisdictions where it is, or
will be doing business pursuant to this Agreement; and
(d) this Agreement and the transactions contemplated hereby (i) have
been duly approved by all required corporate action on the part of Broker-Dealer
and (ii) not
<PAGE>
conflict with any law, regulation, court order or agreement to which Broker-
Dealer is subject or Broker-Dealer's properties are bound.
3. Covenants of Broker-Dealer.
--------------------------
3.1 Sale of Products. Broker-Dealer agrees that (a) offers and sales
----------------
of the Products will be made only through the use of a then current prospectus
which is a part of a registration statement which is then effective under the
1933 Act (each a "Prospectus"), (b) a Prospectus relating to the Product in
question will be delivered prior to, or concurrently with any sales
presentation or other offer of such Product, (c) no oral or written statements
will be made by or on behalf of Broker-Dealer to a prospective purchaser of a
Product other than statements identical to, or based solely on information set
forth in the Prospectus (d) in connection with offers and sales of the Products,
Broker-Dealer will at all times comply with the Regulations and offer and sell
the Products only in those jurisdictions, and in the manner in which the
Products may be lawfully sold.
3.2 Representations and Warranties True, etc. At all times during
----------------------------------------
the term hereof the representations and warranties of Broker-Dealer contained
in Section 2, above, shall be true.
3.3 Registered Representatives. Broker-Dealer may recommend persons
--------------------------
associated with it who are duly licensed and qualified under applicable law and
regulation to act in the offer or sale of the Products (the "Registered
Representatives") for appointment as insurance agents of Insurance Company,
provided that such person: (a) has not been subject to
<PAGE>
any civil, administrative or criminal actions or sanctions by, or entered into
any settlement agreements with any governmental or quasi-governmental regulatory
authority or sell regulatory organization, (b) has not been precluded or
restricted for any period of time by any entity from selling any securities,
insurance products or other products of such entity; (c) otherwise is qualified
to offer and sell the Products; (d) agrees in writing (i) to comply with all of
the obligations of Broker-Dealer and the Registered Representatives hereunder,
(ii) not to make any recommendation to an applicant or prospective purchaser to
purchase a Product without having reasonable grounds to believe that the
purchase of the Product is suitable for the prospective purchaser, (iii) to
report promptly in writing to Insurance Company and USA all customer or
regulatory complaints or inquiries with respect to such Registered
Representative, whether written or oral, and to assist Insurance Company and USA
in resolving any complaint to the satisfaction of all parties involved and (e)
possesses all Required Registrations and agrees to maintain in force during the
term hereof all Required Registrations; and (f) has been appointed as an
insurance agent of Insurance Company. Broker-Dealer is authorized, except as
hereinafter specifically provided, to cause the Registered Representatives to
offer and sell the Products in the states and jurisdictions in which the
Products, Broker-Dealer and such Registered Representatives are registered,
licensed or otherwise appropriately qualified. Broker-Dealer shall be solely
responsible for the supervision of the Registered Representatives and shall
enforce written supervisory procedures to assure strict compliance with NASD
rules and applicable rules and regulations under the 1934 Act, and other
applicable federal and state statutes and
<PAGE>
regulations. Broker-Dealer agrees to provide to the Registered Representatives
instructions sufficient to provide them with information needed to offer and
sell the Products in compliance with this Agreement and the Regulations. Broker-
Dealer shall direct the sales activities of the Registered Representatives and
shall be solely responsible for the conduct of the Registered Representatives in
the offer and sale of the Products.
3.4 No Authority to Modify, Etc. Broker-Dealer acknowledges and
---------------------------
agrees that neither Broker-Dealer nor any of the Registered Representatives
shall have the authority, on behalf of USA or Insurance Company or otherwise, to
(a) modify any of the terms of the Products, including, but not limited to, any
forfeiture provisions thereof, or (b) extend the time of payment of any premiums
with respect to a Product. Broker-Dealer acknowledges that neither Broker-
Dealer nor any Registered Representative may receive any premiums or other funds
from applicants for, or purchasers of the Products (except for the sole purpose
of forwarding such funds to Insurance Company). If Broker-Dealer or a
Registered Representative inadvertently receives any funds from applicants for,
or purchasers of the Products they shall hold such funds in a fiduciary capacity
on behalf of the Insurance Company and promptly submit them to Insurance
Company.
3.5 Rejection of Product Applications. Broker-Dealer acknowledges
---------------------------------
and agrees that (a) Insurance Company, in its sole discretion, may reject any
application for a Product submitted to it by Broker-Dealer or any of the
Registered Representatives; (b) nothing herein contained shall constitute
Broker-Dealer or any of its Registered Representatives as employees of
<PAGE>
USA or Insurance Company; and (c) the Schedule of Products may be amended by USA
at its sole discretion from time to time to add other Products distributed by
USA pursuant to the Distribution Agreement or other distribution agreements with
Insurance Company, or to delete Products therefrom.
3.6 Access to Information. Broker-Dealer shall give USA full access
---------------------
upon reasonable advance notice during Broker-Dealer's normal business hours to
all information in the possession or control of Broker-Dealer or any Registered
Representative relating to, arising out of or in connection with the offer and
sale of Products pursuant to this Agreement, and shall be required to provide to
USA copies of any documents relating thereto within ten (10) days after a
written request therefor by USA. Broker-Dealer shall be entitled to
reimbursement of the expenses it incurs in connection with providing documents
to USA as required by the preceding sentence.
3.7 Basis for Recommendations. Broker-Dealer shall be solely
-------------------------
responsible for the approval of suitability determinations for the purchase of
any Product or the selection of any investment option thereunder, in compliance
with the Regulations and shall appropriately supervise the Registered
Representatives in determining client suitability. Broker-Dealer, through the
Registered Representatives or otherwise, shall not make any recommendations to a
prospective purchaser to purchase a Product without having reasonable grounds to
believe that the purchase of that Product is suitable for such prospective
purchaser. Among other things, a determination of suitability shall be based on
information supplied to a Registered Representative
<PAGE>
after a reasonable inquiry concerning the prospective purchaser's insurance and
investment objectives, financial situation and needs.
3.8 No Misrepresentations; Disclosure. Broker-Dealer, through the
---------------------------------
Registered Representatives or otherwise, shall not (a) make any
misrepresentation of a material fact with respect to the Products or omit to
state a material fact necessary to make statements made with respect to a
Product in light of the circumstances in which they were made, not misleading or
(b) otherwise engage in any deceptive or misleading practice or activity in
connection with the offer and the sale of the Products. Broker-Dealer, through
the Registered Representatives or otherwise, shall not: (a) give any oral
information or make any representations or statements in connection with the
offer or sale of a Product that is not the same as, or based solely on the then
current version provided by USA or Insurance Company of the registration
statement, Prospectus or statement of additional information, as the case may
be, relating to the such Product, or (b) provide prospective purchasers of the
Products or otherwise utilize in connection with the offer of sale of the
Products any advertising materials, sales literature, signage or other
promotional material written, electronic, graphic or audio visual materials
other than materials supplied by, or approved in writing in advance by USA or
Insurance Company (the "Disclosure Material"). Broker-Dealer shall not modify
in any way any Disclosure Material which as been approved for use by Broker-
Dealer by USA or Insurance Company. Broker-Dealer shall, and shall cause the
Registered Representatives to immediately cease using any Disclosure Materials
previously approved by USA or Insurance Company upon receipt of an oral or
written instruction to do so
<PAGE>
by USA or Insurance Company. USA agrees to follow-up in writing within three
business days any such oral instruction from USA to discontinue such use.
Broker-Dealer will maintain complete records indicating the manner and extent of
distribution of any such Disclosure Materials, will make such records available
to Insurance Company, USA and state insurance departments, the NASD the SEC and
other regulatory agencies, which have regulatory authority over Insurance
Company or USA.
3.9 Exchange of Products. Broker-Dealer or the Registered
--------------------
Representatives may solicit exchanges of other insurance contracts for Products
only when Broker-Dealer can demonstrate that the exchange would be beneficial to
the prospective purchaser or class of purchasers, as the case may be, and
provided that the exchange offer is approved in advance by an NASD-licensed
principal of Broker-Dealer. Broker-Dealer shall maintain records of the basis
for any determination that an exchange would be beneficial to a prospective
purchaser, including the name of such principal approving the exchange offer.
3.10 Other Broker-Dealers. Broker-Dealer may recruit other broker-
--------------------
dealers that are registered on the 1934 Act to offer and sell the Products
provided that: (a) such broker-dealer enters into an agreement in the form of
this Agreement which agreement is delivered to USA for its review, and (b) USA
has the right, in its sole discretion, to accept or reject such broker-dealer as
authorized to sell the Products. Any such other broker-dealer which is approved
by USA to sell the Products is referred to herein as a "Downstream Broker-
Dealer." Broker-Dealer shall be entitled to receive commissions from a
Downstream Broker-Dealer based on the sales of the
<PAGE>
Products made by such Downstream Broker-Dealer upon such arrangements as may be
agreed to by Broker-Dealer and such Downstream Broker-Dealer (the "Downstream
Agreement"); provided, however, that such arrangements are subject to review and
approval by USA in its sole discretion. Broker-Dealer acknowledges that Broker-
Dealer shall not be entitled to any commissions or other compensation from USA
or the Insurance Company in connection with the recruiting, or any activities of
a Downstream Broker-Dealer and shall only be entitled to receive payments in
connection with the activities of a Downstream Broker-Dealer from such
Downstream Broker-Dealer pursuant to any arrangements that may be agreed to
between Broker-Dealer and such Downstream Broker-Dealer. Broker-Dealer shall
take all reasonable actions to insure that each Downstream Broker-Dealer
complies with the terms of its Downstream Agreement and all laws, rules and
regulations applicable to the Downstream Broker-Dealer in connection with such
Downstream Broker-Dealer's offers and sales of the Products. Any breach by a
Downstream Broker-Dealer of its Downstream Agreement shall be deemed for all
purposes, including, but not limited to, indemnification provided in Section 9,
below, to be a breach by Broker-Dealer of this Agreement.
3.11 Complaints and Investigation. Broker-Dealer shall report in
----------------------------
writing within three (3) business days after the occurrence thereof in writing
to Insurance Company and USA all customer complaints or inquiries relating to
the offer, sale or ownership of the Products or made by or on behalf of any
prospective purchaser or owner of a Product, whether written or oral, and shall
assist Insurance Company and USA in resolving those complaints to the
satisfaction of such
<PAGE>
prospective purchaser, owner, USA and Insurance Company. Broker-Dealer shall
cooperate fully with USA in connection with any governmental or other
investigation or proceeding relating to any complaint related to the Products by
any prospective purchaser or owner of the Products.
3.12 Notice of Claims. If any action or proceeding shall be brought
----------------
against Broker-Dealer or any of its Registered Representatives or affiliates
relating to the Products Broker-Dealer shall give prompt written notice to USA.
3.13 Fidelity Bond. Broker-Dealer represents that all directors,
-------------
officers and employees of Broker-Dealer (including the Registered
Representative) who have access to funds of the Insurance Company are, and will
continue to be covered by a blanket fidelity bond including coverage for
larceny, embezzlement and other defalcation, issued by a reputable bonding
company in an amount at least equivalent to the minimal coverage required under
the NASD Rules of Fair Practice, and endorsed to extend coverage to life
insurance and annuity transactions. Broker-Dealer acknowledges that the
Insurance Company may require evidence that such coverage is in force and
Broker-Dealer shall promptly give notice to the Insurance Company of any notice
of cancellation or change of coverage. Broker-Dealer hereby assigns any
proceeds received from the fidelity bond company to the Insurance Company to the
extent of the Insurance Company's loss due to activities covered by such bond.
If the payment to the Insurance Company under the fidelity bond is insufficient
to cover the Insurance Company's loss, Broker-Dealer will promptly pay the
Insurance Company amount equal to the balance of
<PAGE>
such loss on demand. Broker-Dealer indemnifies and holds harmless the Insurance
Company from any deficiency and from the cost of collection thereof.
4. Representations and Warranties of USA.
-------------------------------------
(a) USA is (i) a member in good standing of the NASD, (ii) duly
registered as a broker-dealer with the SEC under the 1934 Act, and registered in
each state or other jurisdiction in which USA is required to be registered in
order to sell the Products and otherwise maintains in effect all Required
Registrations;
(b) USA conducts its operations is in compliance in all material
respects, with all applicable federal and state securities laws and regulations
and the requirements of the NASD and any applicable securities exchanges of
which it is a member;
(c) USA is a corporation duly organized and in good standing under
the law of its jurisdiction of organization and is qualified to do business as a
corporation in those states or jurisdictions where it is, or will be doing
business pursuant to this Agreement; and
(d) this Agreement and the transactions contemplated hereby (i) have
been duly approved by all required corporate action on the part of USA and (ii)
not conflict with any law, regulation, court order or agreement to which USA is
subject or USA's properties are bound.
5. Covenants of USA. USA covenants with Broker-Dealer that:
----------------
<PAGE>
5.1 Products. The Products, when they are made available to
--------
Broker-Dealer for offer and Sale, will be duly registered under applicable
federal and state securities laws.
5.2 Insurance Compliance. The Products, when they are made available
--------------------
to Broker-Dealer for offer and sale, will be in compliance with applicable state
insurance laws.
5.3 Disclosure. With respect to the Product it purports to describe,
----------
each Prospectus, provided to Broker-Dealer by USA or Insurance Company
(a) will be true, accurate and complete in all material
respects;
(b) will not contain any false or misleading statements of
material fact or omit any material facts necessary to make statements contained
therein not misleading in light of the circumstances under which they are made;
and
(c) will fully and adequately disclose all material terms,
conditions, limitations and restrictions with respect to the Products.
5.4 Representations and Warranties True, Etc. At all times during
----------------------------------------
the term hereof, the representations and warranties of USA contained in Section
4, above, shall be true. USA agrees to abide by the Code of Conduct.
<PAGE>
5.5 Documents. USA shall provide Broker-Dealer with quantities of
---------
Prospectuses reasonably sufficient for Broker-Dealer to effectively market the
Products.
6. Term and Termination of Agreement
---------------------------------
6.1 Term. Unless sooner terminated pursuant to this Section 6, this
----
Agreement shall terminate on the earlier to occur of the date of termination of
the Distribution Agreement and the __________ anniversary of the date hereof.
6.2 Termination. This Agreement shall be subject to immediate
-----------
termination at any time by Broker-Dealer, or by USA, with or without cause upon
the giving of written notice to such effect to the other party.
6.3 Effect of Termination.
---------------------
(a) Except as provided in Sections 6.3(b), in the event this
Agreement is terminated, (i) Broker-Dealer and the Registered Representatives
shall immediately cease to have the right to offer or sell any of the Products;
(ii) Broker-Dealer shall return forthwith, upon the request of USA or Insurance
Company, all written materials related to the Products delivered to Broker-
Dealer or the Registered Representatives by or on behalf of USA or Insurance
Company on or before the date of such termination; (ii) all compensation
required to be paid to Broker-Dealer shall be paid in accordance with Schedule
____ hereto; (iii) all amounts due from Broker-Dealer to USA or Insurance
Company shall be immediately due and payable to USA or the Insurance Company, as
the case may be, notwithstanding any other terms of such payments
<PAGE>
that may have been in effect during the term of this Agreement; (iv) Broker-
Dealer shall carry out all residual obligations, if any, which arose while this
Agreement was in effect and
(b) In the event that this Agreement is terminated by USA after a
breach by Broker-Dealer of any of its representations and warranties or
covenants hereunder, then USA may offset against any amounts owed to Broker-
Dealer hereunder an amount equal to the (i) damages, losses and expenses
(including reasonable attorneys' fees) incurred by USA as a result of such
breach and (ii) amount that may be owed by Broker-Dealer to USA under Section 9,
below.
7. Confidentiality
---------------
7.1 Generally. Each party will hold the other party's Confidential
---------
Information (as defined below) in confidence and will safeguard such
Confidential Information as provided herein. The party receiving Confidential
Information (a "Recipient") will not, directly or indirectly, report, publish,
distribute, disclose, or otherwise disseminate the Confidential Information, or
any portion thereof, to any individual or entity for any purpose, except as
necessary to perform such Party's duties hereunder, or as expressly authorized
in writing by the party providing the Confidential Information (the "Provider").
Disclosure of Confidential Information internally by the recipient thereof will
be limited to those of its officers, directors, employees and agents who are
required to have access to the Confidential Information to enable the party to
perform its duties hereunder. In order to safeguard Confidential Information,
the Recipient shall (a) inform each party to whom it discloses Confidential
<PAGE>
Information of the confidential nature thereof and of the requirements of this
Agreement, (b) direct such recipients to comply with the terms of this
Agreement, and (c) exercise any other precautions reasonably necessary to
prevent any improper disclosure of such Confidential Information.
7.2 Definition. For purposes of the Agreement, "Confidential
----------
Information" shall mean information: (a) regarding the Provider's or any
affiliate of the Provider's financial condition, information systems, business
operations, plans and strategies, products or services, customers or prospective
customers, and marketing and distribution plans, methods and techniques; (b)
that is marked confidential, "proprietary" or in like words, or that is
indicated in writing as being confidential prior to or promptly after disclosure
to the Recipient; and (c) any and all research and designs, ideas, concepts, and
technology embodied in the items described in clauses 9.2(a) or (b). Information
shall not be deemed to be Confidential Information hereunder if that information
(a) is or becomes generally available to the public other than as a result of
disclosure by the Recipient; (b) was available to, or already known by the
Recipient on a non-confidential basis prior to its receipt from the Provider;
(c) is developed by the Recipient independently of any information or data
acquired from the Provider; or (d) is disclosed pursuant to a court order or the
requirement of any federal or state regulatory, judicial, or government
authority.
7.3 Remedies. Each party acknowledges and agrees that monetary
--------
damages would riot be a sufficient or adequate remedy for a breach or
anticipated breach of this Section 7
<PAGE>
and that, in addition to any other legal or equitable remedies which may be
available, each party shall be entitled to specific performance and injunctive
relief, without the posting of a bond, for any breach or anticipated breach of
this Section.
7.4 Survival. The provisions of this Section 7 shall survive the
--------
expiration or other termination of this Agreement.
8. Modification of Agreement
-------------------------
This Agreement may not be modified in any way unless by written
agreement signed by both of the parties, except for any amendment of the
Schedule of Products pursuant to the terms of Section ____________ hereof or of
the Schedule of Commissions and Allowances pursuant to the terms of Section 4
hereof, which shall be deemed to be modified upon the giving by USA to Broker-
Dealer of revised versions thereof.
9. Indemnification
---------------
9.1 General. Broker-Dealer will indemnify USA, each affiliate (as
-------
defined in Rule 405 under the 1933 Act) of USA and each shareholder, officer,
director, employee, agent and attorney of USA and such affiliate (each an
"Indemnified Party") against, and hold each Indemnified Party harmless from and
in respect of, all losses, damages, costs, (expenses including reasonable
attorneys' fees) judgments, fines, penalties, settlements resulting from claims,
demands, actions, cases, proceedings, suits or investigations conducted by, or
pending before any governmental agency or authority or any arbitration
proceeding based on, arising from, related to or otherwise attributable to (a)
any breach of the representations and warranties
<PAGE>
of Broker-Dealer set forth in this Agreement or (b) any nonfulfillment of any
covenant or agreement on the part of Broker-Dealer under this Agreement.
9.2 Conditions of Indemnification.
-----------------------------
(a) All claims for indemnification under this Agreement shall be
asserted and resolved as provided in this Section 9.2. An Indemnified Party
claiming indemnification under this Agreement shall promptly (i) notify the
Broker-Dealer (in this Section 9, the "Indemnifying Party") of any third-party
------------------
claim or claims asserted against the Indemnified Party (a "Third Party Claim")
-----------------
that could give rise to a right of indemnification under this Agreement and (ii)
transmit to the Indemnifying Party a written notice ("Claim Notice") describing
in reasonable detail the nature of the Third Party Claim, a copy of all papers
served with respect to that claim (if any), and the basis for the Indemnified
Party's request for indemnification under this Agreement. The failure to
promptly deliver a Claim Notice shall not relieve the Indemnifying Party of its
obligations to the Indemnified Party with respect to the related Third Party
Claim except to the extent that the resulting delay is materially prejudicial to
the defense of that claim. Within fifteen (15) days after receipt of any Claim
Notice (the "Election Period"), the Indemnifying Party shall notify the
Indemnified Party (i) whether the Indemnifying Party disputes its potential
liability to the Indemnified Party under this Section 9 with respect to that
Third Party Claim and (ii) if the Indemnifying Party does not dispute its
potential liability to the Indemnified Party with respect to that Third Party
Claim, whether the
<PAGE>
Indemnifying Party desires, at the sole cost and expense of the Indemnifying
Party, to defend the Indemnified Party against that Third Party Claim.
(b) If the Indemnifying Party does not dispute its potential
liability to the Indemnified Party and notifies the Indemnified Party within the
Election Period that the Indemnifying Party elects to assume the defense of the
Third Party Claim, then the Indemnifying Party shall have the right to defend,
at its sole cost and expense, that Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this Section 9, and the Indemnified Party
will furnish the Indemnifying Party with all information in its possession with
respect to that Third Party Claim and otherwise cooperate with the Indemnifying
Party in the defense of that Third Party Claim; provided, however, that the
Indemnifying Party shall not enter into any settlement with respect to any Third
Party Claim that purports to limit the activities of, or otherwise restrict in
any way, any Indemnified Party or any Affiliate of any Indemnified Party without
the prior consent of that Indemnified Party (which consent may be withheld in
the sole discretion of that Indemnified Party). The Indemnified Party may
participate in, but not control, any defense or settlement of any Third Party
Claim controlled by the Indemnifying Party pursuant to this Section 9 and will
bear its own costs and expenses with respect to that participation; provided,
however, that if the named parties to any such action (including any impleaded
parties) include both the Indemnifying Party and the Indemnified Party, and the
Indemnified Party has been advised by counsel that there may be one or more
legal
<PAGE>
defenses available to it which are different from or additional to those
available to the Indemnifying Party, then the Indemnified Party may employ
separate counsel at the expense of the Indemnifying Party, and, on its written
notification of that employment, the Indemnifying Party shall not have the right
to assume or continue the defense of such action on behalf of the Indemnified
Party.
(c) If the Indemnifying Party (i) within the Election Period (A)
disputes its potential liability to the Indemnified Party under this Section 9,
(B) elects not to defend the Indemnified Party as described, above, or (C) fails
to notify the Indemnified Party that the Indemnifying Party elects to defend the
Indemnified Party as provided above, or (ii) elects to defend the Indemnified
Party as provided, above, but fails diligently and promptly to prosecute or
settle the Third Party Claim, then the Indemnified Party shall have the right to
defend, at the sole cost and expense of the Indemnifying Party (if the
Indemnified Party is entitled to indemnification hereunder), the Third Party
Claim by all appropriate proceedings, which proceedings shall be promptly and
vigorously prosecuted by the Indemnified Party to a final conclusion or settled.
The Indemnified Party shall have full control of such defense and proceedings.
Notwithstanding the foregoing, if the Indemnifying Party has delivered a written
notice to the Indemnified Party to the effect that the Indemnifying Party
disputes its potential liability to the Indemnified Party under this Section 9
and if that dispute is resolved in favor of the Indemnifying Party, the
Indemnifying Party shall not be required to bear the costs and expenses of the
Indemnified Party's defense pursuant to this Section 9, or of the Indemnifying
<PAGE>
Party's participation therein at the Indemnified Party's request, and the
Indemnified Party shall reimburse the Indemnifying Party in full for all
reasonable costs and expenses of such participation. The Indemnifying Party may
participate in, but not control, any defense or settlement controlled by the
Indemnified Party pursuant to this Section 9, and the Indemnifying Party shall
bear its own costs and expenses with respect to that participation.
(d) In the event any Indemnified Party should have a claim against
any Indemnifying Party hereunder that does not involve a Third Party Claim, the
Indemnified Party shall transmit to the Indemnifying Party a written notice (the
"Indemnity Notice") describing in reasonable detail the nature of the claim, an
estimate of the amount of Damages attributable to that claim to the extent
feasible (which estimate shall not be conclusive of the final amount of that
claim) and the basis of the Indemnified Party's request for indemnification
under this Agreement. If the Indemnifying Party does not notify the Indemnified
Party within fifteen (15) days from its receipt of the Indemnity Notice that the
Indemnifying Party disputes the claim specified by the Indemnified Party in the
Indemnity Notice, that claim shall be deemed a liability of the Indemnifying
Party hereunder. If the Indemnifying Party has timely disputed that claim, as
provided above, that dispute shall be resolved by proceedings in an appropriate
court of competent jurisdiction if the parties do not reach a settlement of that
dispute within thirty (30) days after notice of that dispute is given (the
"Indemnity Notice Period").
- ------------------------
(e) Payments of all amounts owing by an Indemnifying Party pursuant
to this Section 9 relating to a Third Party Claim shall be made within thirty
(30) days after the
<PAGE>
latest of (i) the settlement of that Third Party Claim, (ii) the expiration of
the period for appeal of a final adjudication of that Third Party Claim and
(iii) the expiration of the period for appeal of a final adjudication of the
Indemnifying Party's liability to the Indemnified Party under this Agreement in
respect of that Third Party Claim. Payments of all amounts owing by an
Indemnifying Party with respect to claims other this third party claims shall be
made within thirty (30) days after the later of the expiration of (i) the
Indemnity Notice Period and (ii) the expiration of the period for appeal of a
final adjudication of the Indemnifying Party's liability to the Indemnified
Party under this Agreement.
9.3 Survival. The provisions of this Section shall survive the
--------
expiration or other termination of this Agreement.
10. Remedies Cumulative; Non-Waiver. The rights and remedies of the
-------------------------------
parties contained in this Agreement are cumulative and are in addition to any
and all rights and remedies at law or in equity, which the parties hereto are
entitled to under applicable law. Failure of either party to insist upon strict
compliance with any of the conditions of this Agreement shall not be construed
as a waiver of any of the conditions, but the same shall remain in full force
and effect. No waiver of any of the provisions of this Agreement shall be
deemed, or shall constitute a waiver of any other provisions, whether or not
similar, nor shall any waiver constitute a continuing waiver.
11. Mitigation of Losses. In the event of any dispute between an owner of
--------------------
a Product (a "Disputing Owner") and USA, Insurance Company, Broker-Dealer, a
Registered
<PAGE>
Representative or any other party with respect to such Product, USA shall have
the right, with prior written notice and consultation with Broker-Dealer, to
take such action as USA may deem necessary to promptly effect a mitigation of
damages or limitation of losses, and without waiving or electing to relinquish
any rights or remedies USA may have against Broker-Dealer. USA shall have the
right to settle any dispute with respect to a Product between a Disputing Owner
and USA or Broker-Dealer without the prior consent of Broker-Dealer and without
waiving or electing to relinquish any rights or remedies USA may have against
Broker-Dealer.
12. Governing Law, etc.. This Agreement shall be governed by and
-------------------
construed in accordance with the laws of _______ without regard to choice of law
provisions and the venue for all actions or proceedings brought by _______
arising out of or relating to this Agreement shall be in the state or federal
courts, as the case may be, located in _______ County, _______ (collectively,
the "Courts"). Broker-Dealer hereby irrevocably waives any objection which
Broker-Dealer now or hereafter may have to the laying of venue of any action or
proceeding arising out of or relating to this Agreement brought in any of the
Courts and any objection on the ground that any such action or proceeding in any
of the Courts has been brought in an inconvenient forum. Nothing in this
Section ___ shall affect the right of USA to bring any action or proceeding
against Broker-Dealer in the courts of other jurisdictions. In the event of any
litigation between the parties hereto with respect to this Agreement, the
prevailing party therein shall be entitled to receive from the other party all
of such prevailing party's expenses in connection with such litigation,
including, but not limited, to reasonable attorneys' fees.
<PAGE>
13. Notices. Any notices or demands given in connection herewith shall be
-------
in writing and deemed given when (i) personally delivered, (ii) sent by
facsimile transmission to a number provided in writing by the addressee and a
confirmation of the transmission is received by the sender or (iii) three (3)
days after being deposited for delivery with a recognized overnight courier,
such as FedEx, and addressed or sent, as the case may be, to the address or
facsimile number set forth below or to such other address or facsimile number as
such party may in writing designate:
(a) To USA:
USA Securities
(b) To Broker-Dealer:
14. Arbitration
-----------
14.1 Any disagreement, dispute, claim or controversy arising out of
or relating to this Agreement, performance hereunder or the breach hereof, or
otherwise arising between Broker-Dealer and USA, shall be subject to mandatory
arbitration under the auspices, rules and bylaws of the NASD, to the full extent
applicable and as may be amended from time to time.
14.2 Where the NASD Code of Arbitration Procedure is not applicable,
any dispute between Broker-Dealer and USA arising under or relating to this
Agreement shall be settled by compulsory arbitration before one arbitrator in
accordance with the Commercial Arbitration Rules then in force of the American
Arbitration Association. The arbitration shall take place in, unless the parties
agree on another location. The arbitrator shall have no authority
<PAGE>
to issue any decision or award for punitive damages or for treble or any other
type of multiple damages, consequential damages, or any compensatory damages
based on a claim of lost profits or similar claim. Each party shall bear its own
costs and expenses incurred by it in any such arbitration, except that the
parties shall bear the expenses of the arbitrator's services equally. The
provisions of this Section shall survive the expiration or other termination of
this Agreement.
<PAGE>
15. Entire Agreement; Certain Terms. This Agreement, together with the
-------------------------------
exhibits and schedules hereto, constitutes and contains the entire agreement of
the parties with respect to the matters addressed herein and supersedes any and
all prior negotiations, correspondence, understandings and agreements between
the parties respecting the subject matter hereof. No waiver of any rights under
this Agreement, nor any modification or amendment of this Agreement shall be
effective or enforceable unless in writing and signed by the party to be charged
therewith. When used in this Agreement, the terms "hereof," "herein" and
"hereunder" refer to this Agreement in its entirety, including any exhibits or
schedules attached to this Agreement and not to any particular provisions of
this Agreement, unless otherwise indicated.
16. Headings
--------
The headings in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
17. Counterparts
------------
This Agreement may be executed in two counterparts, each of which
together shall be deemed an original, but both of which together shall
constitute one and the same instrument.
18. Severability. It is the intention of the parties hereto that any
------------
provision of this Agreement found to be invalid or unenforceable be reformed
rather than eliminated. If any of the
<PAGE>
provisions of this Agreement, or any part thereof, is hereinafter construed to
be invalid or unenforceable, the same shall not affect the remainder of such
provision or the other provisions of this Agreement, which shall be given full
effect, without regard to the invalid portions. In the event that the courts of
any one or more jurisdictions shall hold such provisions wholly or partially
unenforceable by reason of the scope thereof or otherwise, it is the intention
of the parties hereto that such determination not bar or in any way affect the
parties' rights provided for herein in the courts of any other jurisdictions as
to breaches or threatened breaches of such provisions in such other
jurisdictions, the above provisions as they relate to each jurisdiction being,
for this purpose, severable into diverse and independent covenants.
19. Assignment Except as specifically set forth herein, Broker-Dealer may
----------
not assign any of its rights or obligations hereunder without the prior written
approval of USA.
20. No Third Party Beneficiaries. This Agreement is exclusively for, and
----------------------------
shall inure to the benefit of the parties hereto, their successors and assigns,
and shall not be deemed to create any rights for the benefit of third parties.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first indicated above.
USA
By:_____________________________
Name:
Title:
BROKER-DEALER
By:_____________________________
Name:
Title:
28
<PAGE>
SCHEDULE OF PRODUCTS
to
United Securities Alliance
SELLING GROUP AGREEMENT
-----------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Policy/Certificate
Product Description Form
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Titanium Variable Universal Life
Investor VUL
- -------------------------------------------------------------------------------------------
Titanium Variable Annuity
Investor VA
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE OF COMMISSIONS AND ALLOWANCES
to
United Securities Alliance
SELLING GROUP AGREEMENT
-----------------------
Effective _________, ___, 2000
I. PURPOSE
This Schedule of Commissions and Allowances ("Schedule") is adopted
pursuant to Section 1.2 of the Selling Group Agreement (the "Agreement")
and governs the determination and payment by USA of commissions and
allowances ("Compensation") to the Broker-Dealer in connection with premium
payments received under the products specified herein.
II. COVERED PRODUCTS
The only products covered by this Schedule ("Covered Products") are the
following private placement variable universal life insurance policies:
Covered Product Policy Form
VUL
VA
III. COMPENSATION
The Compensation to the Broker-Dealer under this Selling Group Agreement
shall as outlined below:
Variable Annuity
Variable Universal Life
Target Premium %
Year 1:
Up to Target Premium 6.0% (maximum payout)
Excess Premium 6.0%
<PAGE>
Years 2-4:
Up to Target Premium 6.0%
Excess Premium 6.0%
Years 5-10:
Up to Target Premium 3.0%
Excess Premium 3.0%
Years 11+: 1.50%
The foregoing amounts shall be payable by USA within five (5) business days
after USA receives such amounts from the Insurance Company.
To the extent any Covered Product is issued as a replacement for any
insurance policy issued by the Insurance Company within six (6) months
prior to the issuance of such Covered Product (the "Replaced Product"), no
first year commission will be payable with respect to that Covered Product
except to the extent, if any, that the first year premiums with respect to
such Covered Product are greater than the first year premium on the
Replaced Product. To the extent a Covered Product is issued as a
replacement for any previously-issued Covered Product within six (6) months
after issuance of such previously-issued Covered Product, no first year
commission will be payable to Broker-Dealer with respect to such later -
issued Covered Product, except to the extent if any, that the first year
premiums for such later - issued Covered Product are greater than the first
year premiums of the previously-issued Covered Product.
IV. CHARGEBACK OF COMPENSATION
A. Termination of, or withdrawal of premium received in connection with, a
Covered Product will result in a charge-back of Compensation, the amount of
which shall be determined in accordance with the following table:
Time Elapsed Since Payment Attributable Compensation
To Amount Withdrawn Was Made Charge-back
First 12 months 100%
Second 12 months 75%
Third 12 months 50%
Fourth12 months 25%
Thereafter 0%
<PAGE>
B. Compensation charge-backs will be due within 60 days of notification by
USA. Compensation will be charged back by credit against Compensation to be
paid in the future and/or by requiring cash repayment to be made by the
Broker-Dealer.
C. Compensation will be charged back on a "first-in, first-out" basis
according to the date premium payments were received.
V. MODIFICATIONS AND TERMINATION
A. No Compensation shall be paid on Covered Products that are changed from
their original version, either under a policy provision or otherwise, or on
Covered Products that are issued using cash values of Insurance Company
policies, either under a policy provision or otherwise.
B. Except as otherwise provided in the Agreement Termination of the
Agreement for any reason, shall not impair the right of the Broker-Dealer
to receive Compensation accrued and payable on account of premium received
under Covered Products issued on applications procured by the Broker-
Dealer, or by Registered Representatives operating under supervision of the
Broker-Dealer, prior to the termination of the Selling Group Agreement.
VI. APPLICABILITY
This Schedule supersedes and replaces any and all previous Schedules of
Commissions and Allowances.
By signing this Schedule, the Broker-Dealer and USA agree to comply with its
terms.
BROKER-DEALER
Name of Broker-Dealer: _________________________________________________
By: _________________________________________________________ Date: ________
Title: _____________________________________________________________________
<PAGE>
EXHIBIT 1.A.5
Specimen Flexible Premium Variable Life Insurance Poicy, Form TL99
(including Riders)
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
A Missouri Stock Company
________________________________________________________________________________
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
Adjustable Death Benefit
Death Benefit payable at Insured's death prior to the Maturity Date.
Premium payments are flexible, subject to the limits described herein.
Policy Value, less Loan Balance, payable on the Maturity Date.
This Policy is Nonparticipating. Dividends are not payable.
________________________________________________________________________________
WE WILL PAY the proceeds of this Policy to:
1. you if the Insured is living on the Maturity Date; or
2. the Beneficiary when we receive due proof satisfactory to us that the
Insured died while this Policy was in force; and
WE WILL PROVIDE the other rights and benefits of this Policy.
Payment of any benefits and all other rights are subject to the terms of this
Policy. This Policy is issued in consideration of the application and payment
of the Initial Premium.
"FREE LOOK" PERIOD - You may cancel this Policy by returning it by the later of:
(a) the 20th day after you receive it; or (b) the 45th day after the application
is signed. You may return it to us or to the agent who sold it to you. When we
receive the Policy, we will cancel it and refund any premiums that were paid.
It will then be void from the beginning.
DEATH BENEFIT - THE AMOUNT AND THE DURATION OF THE DEATH BENEFIT MAY VARY AS
DESCRIBED IN SECTIONS 6 AND 7 OF THE POLICY. ADDITIONAL PREMIUM PAYMENTS MAY BE
REQUIRED TO KEEP THIS POLICY IN FORCE.
POLICY VALUE - The Policy Value of this Policy prior to maturity is equal to the
Variable Account Value plus the Fixed Account Value. THE VARIABLE ACCOUNT VALUE
OF THIS POLICY MAY INCREASE OR DECREASE DAILY DEPENDING ON THE INVESTMENT
EXPERIENCE OF THE SUBACCOUNTS SELECTED AS DESCRIBED IN SECTIONS 12 AND 13 OF THE
POLICY. THE VARIABLE ACCOUNT VALUE IS NOT GUARANTEED AS TO FIXED DOLLAR AMOUNTS.
Signed for United Investors Life Insurance Company at Birmingham, Alabama.
<TABLE>
<CAPTION>
Secretary President
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
THIS POLICY IS A LEGAL CONTRACT
BETWEEN YOU AND UNITED INVESTORS LIFE INSURANCE COMPANY
READ YOUR POLICY CAREFULLY
INSURED: JOHN DOE POLICY NUMBER: U000001
POLICY DATE: JAN 01, 2000 ISSUE AGE AND SEX: 35 MALE
MATURITY DATE: JAN 01, 2065 INITIAL BASE FACE
AMOUNT: 100,000
</TABLE>
<PAGE>
GUIDE TO POLICY PROVISIONS
- -----------------------------------------------------------------
PROVISIONS SECTION
Additional Premiums.................................... 7
Age and Sex............................................ 2
Amount of Insurance.................................... 2
Amount of Proceeds..................................... 5
Assignment............................................. 3
Automatic Continuation of Benefits..................... 19
Beneficiary............................................ 3
Cash Surrender Value................................... 15
Change of Beneficiary.................................. 3
Charges and Deductions................................. 8
Death Benefit.......................................... 6
Definitions............................................ 1
Delay or Suspension of Payments........................ 18
Errors in Age or Sex................................... 4
Fixed Account.......................................... 10
Fixed Account Value.................................... 11
Incontestability....................................... 4
Initial Premium........................................ 2
Loans.................................................. 17
Payment of Proceeds.................................... 21
Policy Date............................................ 2
Policy Exchange Option................................. 20
Policy Value........................................... 9
Premium Provisions..................................... 7
Subaccounts............................................ 13
Suicide................................................ 4
Transfers.............................................. 14
Variable Account Value................................. 12
Withdrawals............................................ 16
<PAGE>
1. DEFINITIONS
_______________________________________________________________________________
Adjustable Term Insurance Rider - This Rider is available to add death benefit
coverage to your Policy. The initial amount of this Rider, if any, is shown
under Policy Data. The amount of the Rider will vary as necessary to keep the
sum of the Rider amount and the Base Death Benefit equal to the Target Face
Amount, when the Base Death Benefit varies due to Internal Revenue Code
requirements.
Age - The Insured's age on the birthday nearest the Policy Date, increased by
the number of Policy Years elapsed since the Policy Date.
Base Death Benefit - The Base Face Amount shown in the Policy Data, adjusted for
the Death Benefit Option chosen, Internal Revenue Code requirements and any
subsequent increases or decreases we approve.
Beneficiary - The person to whom the Death Benefit is paid.
Cash Surrender Value - The Policy Value less any Surrender Charges.
Death Benefit - The amount to be paid to the Beneficiary upon death of the
Insured. The Death Benefit equals the Base Death Benefit plus any additional
life insurance proceeds provided by the Adjustable Term Insurance Rider and any
other Riders payable upon the death of the Insured.
Fixed Account - Part of the General Account of United Investors Life Insurance
Company to which you may allocate all or a portion of your Premiums or Policy
Values, and which provides guarantees of principal and interest.
General Account - The General Account consists of all assets of United Investors
Life Insurance Company other than those in any separate account.
Gross Withdrawal - A Withdrawal plus any applicable Withdrawal Transaction
Charge and any applicable Surrender Charge.
In Force - The Insured's life remains insured under the terms of this Policy.
Insured - The person whose life is insured by this Policy.
Loan Balance - All existing loans on this Policy plus Policy loan interest which
has been either accrued or been added to the Policy loan.
Maturity Date - The date on which proceeds, as defined herein, are payable if
the Insured is living. The Maturity Date is shown under Policy Data. This date
is the Policy Anniversary nearest the Insured's 100th birthday.
Monthly Processing Date - The same day in each month as the Policy Date. If the
Monthly Processing Date falls on a date other than a Valuation Date, the Monthly
Processing Date will occur on the next Valuation Date.
Net Premium - The Premium received less the sales and tax charges shown in the
Policy Data.
Net Amount at Risk - The excess of the Death Benefit over the Policy Value on
the Monthly Processing Date before the cost of insurance is deducted.
Net Cash Surrender Value - The Cash Surrender Value minus any Loan Balance.
No-Lapse Guarantee - Our guarantee to keep the Policy in force during the first
three Policy Years, regardless of the sufficiency of the Net Cash Surrender
Value, as long as the total Premiums paid, less Gross Withdrawals and any Loan
Balance, is at least equal to the cumulative amount of No-Lapse Monthly Premiums
for the number of Policy Months the Policy has been in force.
<PAGE>
No-Lapse Monthly Premium - The minimum Premium shown under Policy Data, which is
required to maintain the No-Lapse Guarantee. It is calculated at issue based on
the Age, Sex and Risk Class of the Insured, the initial Base Face Amount, and
any additional benefits provided by Riders. The No-Lapse Monthly Premium will
change if the Base Face Amount or Rider benefits change.
Policy Anniversary - The same day and month as the Policy Date each year the
Policy remains in force. If the Policy Anniversary falls on a date other than a
Valuation Date, the Policy Anniversary will occur on the next Valuation Date.
Policy Date - The date from which Policy Anniversaries and Policy Years are
determined. Your Policy Date is shown under Policy Data.
Policy Month - The first Policy Month starts on the Policy Date. Subsequent
Policy Months start on the Monthly Processing Date.
Policy Value -The Policy Value is equal to the Fixed Account Value plus the
Variable Account Value.
Portfolio - A division of an underlying mutual fund in which assets of a
corresponding Subaccount are invested.
Subaccounts - The Subaccounts named under Policy Data. Each is a subdivision of
the Variable Account, the assets of which are invested in a corresponding
Portfolio.
Target Premium - The Premium amount we use to calculate the sales load charge
and the Sales Surrender Charge. A Target Premium is determined for the initial
Base Face Amount on the Policy Date, and an additional Target Premium is
determined for each increase in Base Face Amount based on the Insured's Age, Sex
and Risk Class. The Target Premium is not based on the amount you plan to pay.
It may be more or less than the No-Lapse Monthly Premium depending on any
additional benefits that have been added to the Policy.
Target Face Amount - The sum of the Base Face Amount and the initial amount of
the Adjustable Term Insurance Rider, which are shown under Policy Data. The
Target Face Amount will change when we approve a request for any change to the
Base Face Amount or the Adjustable Term Insurance Rider Amount.
Valuation Date - Each day that the New York Stock Exchange is open for trading,
except for local or regional holidays declared by United Investors Life
Insurance Company.
Valuation Period - The interval of time between a Valuation Date and the next
Valuation Date. It is measured from the closing of the New York Stock Exchange.
Variable Account - A separate account maintained by us. The Variable Account
available as of the Policy Date is shown in the Policy Data.
We, our, us, United Investors and the Company - United Investors Life Insurance
Company.
Written Request - A request in writing in a form satisfactory to us signed by
you and received at our Customer Service Center.
You, your - The Owner of this Policy. The Owner may be someone other than the
Insured. The Owner is shown in the application unless the Owner has been
changed as provided in this Policy.
<PAGE>
2. POLICY DATA
________________________________________________________________________________
POLICY NUMBER: V000010001 POLICY DATE: JAN 01, 2000
INSURED: JOHN DOE ISSUE AGE AND SEX: 35 MALE
OWNER: JOHN DOE RISK CLASS: STD. NONTOBACCO
MATURITY DATE: JAN 01, 2065 RISK FACTOR: 1.00
Due to the variable nature of this Flexible Premium Variable Life Policy, it is
possible that this Policy will terminate before the Maturity Date (See
Termination and Grace Period in Section 7).
________________________________________________________________________________
INITIAL PREMIUM: $ 100.00
NO-LAPSE MONTHLY PREMIUM: $ 50.00
TARGET PREMIUM: $ 1,200.00
PLANNED PERIODIC PREMIUM: $ 100.00 MODE: MONTHLY BANK DRAFT
________________________________________________________________________________
INITIAL BASE FACE AMOUNT: $ 100,000
INITIAL ADJUSTABLE TERM
INSURANCE RIDER AMOUNT: $ 50,000
TARGET FACE AMOUNT: $ 150,000
MINIMUM BASE FACE AMOUNT: $ 50,000
MINIMUM FACE AMOUNT CHANGE: $ 10,000
DEATH BENEFIT OPTION: A (LEVEL FACE AMOUNT)
________________________________________________________________________________
POLICY LOANS
MAXIMUM LOAN AMOUNT: 90% OF CASH SURRENDER VALUE
LOAN INTEREST RATE CHARGED: 4.75%
MINIMUM INTEREST RATE CREDITED
ON LOANED AMOUNTS: 4.00%
CURRENT ADDITIONAL INTEREST RATE
CREDITED ON PREFERRED LOAN AMOUNTS: 0.75%
<PAGE>
2. POLICY DATA (CONTINUED)
________________________________________________________________________________
VARIABLE ACCOUNT: TITANIUM UNIVERSAL LIFE VARIABLE ACCOUNT
________________________________________________________________________________
SUBACCOUNTS
EACH MUTUAL FUND PORTFOLIO REPRESENTS A SEPARATE SUBACCOUNT OF THE VARIABLE
ACCOUNT. ASSETS OF EACH SUBACCOUNT ARE INVESTED IN A CORRESPONDING MUTUAL FUND
PORTFOLIO.
INITIAL
PREMIUM
PORTFOLIO ALLOCATION
AIM V.I. Capital Appreciation Fund 0%
AIM V.I. Growth Fund 10%
AIM V.I. Growth and Income Fund 0%
AIM V.I. International Equity Fund 0%
AIM V.I. Value Fund 0%
Alger American Growth Portfolio 0%
Alger American Income & Growth Portfolio 0%
Alger American Leveraged AllCap Portfolio 0%
Alger American MidCap Growth Portfolio 0%
Alger American Small Capitalization Portfolio 10%
BT Insurance Funds Trust EAFE(R) Equity Index Fund 10%
BT Insurance Funds Trust Small Cap Index Fund 0%
Dreyfus VIF - Capital Appreciation Portfolio 10%
Dreyfus VIF - Money Market Portfolio 0%
Dreyfus VIF - Quality Bond Portfolio 0%
The Dreyfus Socially Responsible Growth Fund, Inc. 0%
Evergreen VA Equity Index Fund 10%
Evergreen VA Foundation Fund 0%
Evergreen VA Global Leaders Fund 0%
Evergreen VA Small Cap Value Fund 0%
INVESCO VIF - Equity Income Fund 0%
INVESCO VIF - Technology Fund 10%
INVESCO VIF - Utilities Fund 0%
MFS(R) Emerging Growth Series 0%
MFS(R) Growth with Income Series 10%
MFS(R) Research Series 0%
MFS(R) Total Return Series 0%
Strong Discovery Fund II 10%
Strong Mid Cap Growth Fund II 0%
Strong Opportunity Fund II 0%
Templeton Asset Allocation Fund 0%
Templeton International Fund 10%
FIXED ACCOUNT 10%
FIXED ACCOUNT GUARANTEED INTEREST RATE: 3.50% for all Policy Years
<PAGE>
2. POLICY DATA (CONTINUED)
EXPENSE CHARGES
PERCENTAGE OF PREMIUM EXPENSE CHARGES
PREMIUM TAX 2.5% of each Premium
FEDERAL TAX ON DEFERRED ACQUISITION COSTS 1.5% of each Premium
GUARANTEED MAXIMUM SALES LOAD 4.0% of each Premium, until
Premiums paid equal 10 Target
Premiums
MONTHLY ADMINISTRATIVE EXPENSE CHARGES
MAXIMUM:
ISSUE EXPENSE CHARGE (1ST POLICY YEAR ONLY) $20 per month for 1st 12 months
MONTHLY POLICY CHARGE (ALL POLICY YEARS) $10 per month in every month
CURRENT:
ISSUE EXPENSE CHARGE (1ST POLICY YEAR ONLY) $20 per month for 1st 12 months
MONTHLY POLICY CHARGE(ALL POLICY YEARS) $ 6 per month in every month
CHARGE TO VARIABLE ACCOUNTS
MORTALITY AND EXPENSE RISK CHARGE (charged daily on the net assets of each
subaccount)
POLICY YEARS 1-10 .002055% daily (equivalent to .75% per year)
POLICY YEARS 11-20 .001370% daily (equivalent to .50% per year)
POLICY YEARS 21 & LATER .000685% daily (equivalent to .25% per year)
GUARANTEED MAXIMUM POLICYHOLDER TRANSACTION CHARGES
WITHDRAWALS Lesser of $25 or 2% of
Withdrawal Amount for each withdrawal
after 1st in a Policy Year
TRANSFERS BETWEEN SUBACCOUNTS
AND/OR FIXED ACCOUNT $25 each after 12th in a Policy Year
POLICY ILLUSTRATIONS $25 each after 1st in a Policy Year
<PAGE>
2. POLICY DATA (CONTINUED)
EXPENSE CHARGES (CONTINUED)
GUARANTEED MAXIMUM SURRENDER CHARGES
ADMINISTRATIVE SURRENDER CHARGE PER $1,000 OF BASE FACE AMOUNT
POLICY YEAR AMOUNT OF CHARGE
1-9 $4.00
10 $3.33
11 $2.67
12 $2.00
13 $1.33
14 $0.67
15 and later $0.00
PERCENTAGE OF PREMIUM SALES SURRENDER CHARGES
POLICY YEAR AMOUNT OF CHARGE
1-2 26% of Premium Paid up to one Target Premium, plus
6% of Premium Paid above one Target up to two Target
Premiums, plus
5% of Premium Paid above two Target Premiums
3-9 46% of Premium Paid up to one Target Premium, plus
44% of Premium Paid above one Target up to two Target
Premiums
The Sales Surrender Charge at the end of Policy Year 9 (SC9) will be
reduced to 0 by applying the following percentages in Policy Years 10 to
15:
10 SC9 x 83 1/3%
11 SC9 x 66 2/3%
12 SC9 x 50%
13 SC9 x 33 1/3%
14 SC9 x 16 2/3%
15and later 0
Increases in the Base Face Amount will increase the Maximum Administrative and
Sales Surrender Charges during the fourteen years following the effective date
of the increase. We will produce additional data pages showing the Target
Premium for the increase. Premiums paid after the effective date of the
increase will be allocated in proportion to the Target Premium for each
portion of the Base Face Amount.
<PAGE>
2. POLICY DATA (CONTINUED)
GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATES PER $1,000
MALE FEMALE
ATTAINED PREFERRED & MALE PREFERRED & FEMALE
AGE NON-TOBACCO TOBACCO NON-TOBACCO TOBACCO
0 0.34900 0.24115
1 0.08921 0.07253
2 0.08254 0.06753
3 0.08170 0.06586
4 0.07920 0.06419
5 0.07503 0.06336
6 0.07169 0.06085
7 0.06669 0.06002
8 0.06336 0.05835
9 0.06169 0.05752
10 0.06085 0.05668
11 0.06419 0.05752
12 0.07086 0.06002
13 0.08254 0.06252
14 0.09588 0.06669
15 0.10756 0.13760 0.07003 0.07837
16 0.11924 0.15597 0.07336 0.08254
17 0.12842 0.17099 0.07670 0.08671
18 0.13343 0.18018 0.07920 0.09088
19 0.13844 0.18853 0.08170 0.09422
20 0.14011 0.19270 0.08421 0.09672
21 0.13927 0.19437 0.08504 0.09839
22 0.13677 0.19187 0.08671 0.10089
23 0.13427 0.18853 0.08754 0.10256
24 0.13093 0.18435 0.09004 0.10589
25 0.12675 0.17851 0.09088 0.10756
26 0.12342 0.17350 0.09338 0.11174
27 0.12175 0.17183 0.09505 0.11507
28 0.12008 0.17016 0.09755 0.11841
29 0.12008 0.17183 0.10006 0.12342
30 0.12008 0.17517 0.10339 0.12926
31 0.12258 0.18101 0.10589 0.13427
32 0.12509 0.18686 0.10923 0.14011
33 0.12926 0.19604 0.11257 0.14595
34 0.13427 0.20690 0.11841 0.15513
35 0.14094 0.21943 0.12258 0.16181
36 0.14762 0.23447 0.13009 0.17433
37 0.15680 0.25369 0.13927 0.19020
38 0.16682 0.27542 0.14929 0.20774
39 0.17851 0.30050 0.16098 0.22779
40 0.19103 0.32893 0.17350 0.25034
41 0.20607 0.36239 0.18853 0.27792
42 0.22110 0.39670 0.20356 0.30384
43 0.23865 0.43604 0.21860 0.33060
44 0.25619 0.47708 0.23363 0.35737
45 0.27709 0.52401 0.24951 0.38498
46 0.29966 0.57096 0.26622 0.41344
47 0.32391 0.62212 0.28461 0.44358
48 0.34984 0.67584 0.30468 0.47457
49 0.37912 0.73631 0.32558 0.50808
WE GUARANTEE THAT THE COST OF INSURANCE RATES WE CHARGE WILL NOT EXCEED THE
ABOVE RATES, EXCEPT THAT FOR A RATED RISK CLASS, THE RATES WILL NOT EXCEED THE
RISK FACTOR TIMES THE ABOVE RATES AND/OR A FLAT ADDITION TO THE ABOVE RATES.
THE MONTHLY COST OF INSURANCE CHARGE AND COST OF INSURANCE RATES ARE DESCRIBED
IN SECTION 8 OF THE POLICY.
<PAGE>
2. POLICY DATA (CONTINUED)
GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATES PER $1,000 (CONTINUED)
MALE FEMALE
ATTAINED PREFERRED & MALE PREFERRED & FEMALE
AGE NON-TOBACCO TOBACCO NON-TOBACCO TOBACCO
50 0.41009 0.80018 0.34984 0.54664
51 0.44693 0.87419 0.37578 0.58521
52 0.48965 0.95668 0.40507 0.62884
53 0.53742 1.05105 0.43939 0.68004
54 0.59276 1.15734 0.47457 0.73211
55 0.65401 1.27051 0.51227 0.78673
56 0.72203 1.39312 0.55083 0.84138
57 0.79429 1.52015 0.58941 0.89354
58 0.87251 1.65583 0.62632 0.94237
59 0.96090 1.79682 0.66577 0.99290
60 1.05949 1.95335 0.71195 1.04853
61 1.16916 2.12977 0.76656 1.12021
62 1.29417 2.32876 0.83550 1.20715
63 1.43714 2.55476 0.92216 1.32461
64 1.59899 2.80452 1.02492 1.45577
65 1.77812 3.07567 1.13624 1.60323
66 1.97123 3.35886 1.25614 1.74923
67 2.18097 3.65683 1.37789 1.90143
68 2.40660 3.96448 1.50066 2.03939
69 2.65338 4.29327 1.63207 2.19463
70 2.93268 4.65747 1.78407 2.35955
71 3.24997 5.06279 1.96612 2.57362
72 3.61779 5.52571 2.19207 2.83977
73 4.04199 6.04980 2.46823 3.16536
74 4.52073 6.62444 2.79421 3.54671
75 5.03724 7.26414 3.16450 3.97231
76 5.59039 7.92842 3.57271 4.43318
77 6.17549 8.60587 4.01324 4.91927
78 6.78686 9.28569 4.48657 5.42834
79 7.44038 9.98835 5.00641 5.97677
80 8.16249 10.74534 5.59571 6.58859
81 8.97320 11.57692 6.27546 7.28491
82 9.89813 12.50906 7.06752 8.08683
83 10.95204 13.55162 7.98847 9.00541
84 12.11846 14.66820 9.02014 10.09637
85 13.37460 15.82369 10.16441 11.19977
86 14.69860 16.98122 11.40375 12.46983
87 16.08129 18.12337 12.74961 13.71056
88 17.49682 19.38671 14.19103 15.13413
89 18.96601 20.65144 15.75519 16.50860
90 20.51212 21.93652 17.44624 18.11827
91 22.16549 23.26852 19.30510 19.86655
92 23.98724 24.70635 21.39679 21.81429
93 26.06643 26.58833 23.84043 24.07436
94 28.78427 29.07200 26.92636 26.92636
95 32.81758 32.81758 31.31011 31.31011
96 39.64294 39.64294 38.50479 38.50479
97 53.06605 53.06605 52.27571 52.27571
98 83.33333 83.33333 83.33333 83.33333
99 83.33333 83.33333 83.33333 83.33333
WE GUARANTEE THAT THE COST OF INSURANCE RATES WE CHARGE WILL NOT EXCEED THE
ABOVE RATES, EXCEPT THAT FOR A RATED RISK CLASS, THE RATES WILL NOT EXCEED THE
RISK FACTOR TIMES THE ABOVE RATES AND/OR A FLAT ADDITION TO THE ABOVE RATES.
THE MONTHLY COST OF INSURANCE CHARGE AND COST OF INSURANCE RATES ARE DESCRIBED
IN SECTION 8 OF THE POLICY.
<PAGE>
3. OWNER AND BENEFICIARY
_______________________________________________________________________________
OWNER - The Owner as of the Policy Date is shown in the Policy Data. The Owner
may receive all benefits and exercise all rights granted by this Policy during
the Insured's lifetime. If there is more than one Owner at a given time, all
must exercise the rights of ownership by joint action.
BENEFICIARY - The Beneficiary of this Policy is as stated in the application,
unless subsequently changed by the Owner. Unless otherwise provided, the
interest of any Beneficiary who dies before the Insured will be paid in equal
shares to any surviving Beneficiaries. If no Beneficiary is living at the death
of the Insured, the proceeds will be paid to you, if you are living, or to your
estate.
CHANGE IN POLICY OWNER AND BENEFICIARY - Unless you provide otherwise in writing
to us, you may change the Owner or Beneficiary during the lifetime of the
Insured. Changes must be made by Written Request filed with us. The change
will take effect on the date the request was signed, but it will not apply to
payments made by us before we accept the request in writing. A change of
ownership may result in adverse tax consequences. You should consult you tax
advisor prior to making any change.
ASSIGNMENT - You may assign this Policy. However, no assignment will bind us
until it is filed in writing at our Administrative Office in a form acceptable
to us. When it is filed, your rights and the rights of any Beneficiary will be
subject to it. We will not be responsible for the validity of any assignment.
Assignment of this Policy may result in adverse tax consequences. You should
consult your tax advisor prior to making any assignment.
4. GENERAL PROVISIONS
_______________________________________________________________________________
THE CONTRACT - This Policy, including the application, and any Riders,
Amendments or Endorsements attached hereto, is the entire contract between you
and us. Any change must be made in writing by one of our officers.
All statements in the application are representations and not warranties. No
statement of the applicant shall be used to void this Policy or to defend
against a claim unless contained in the application.
PAYMENT OF BENEFITS - All benefits are payable at our Administrative Office. We
may require you to submit this Policy before we approve changes or pay benefits.
ERRORS IN AGE OR SEX - If the Insured's age or sex is misstated on the
application, the benefits under this Policy will be those which the last Monthly
Cost of Insurance Charge would have provided at the correct age and sex.
SUICIDE EXCLUSION - If the Insured dies by suicide, while sane or insane, within
two years from the Policy Date, our liability will be limited to the total
Premiums paid less any Gross Withdrawals and any Loan Balance. If the Insured
dies by suicide, while sane or insane, within two years from the effective date
of any Face Amount increase, the proceeds under this Policy shall be reduced by
the excess, if any, of the Net Amount At Risk on the date of death over the
corresponding amount in effect just prior to the date of increase, and increased
by the total Monthly Cost of Insurance Charges deducted for this excess.
INCONTESTABILITY - This Policy will be incontestable after it has been in force
during the lifetime of the Insured for two years from the Policy Date.
A new two year contestability period shall apply to each increase in insurance
amount that requires evidence of good health beginning on the effective date of
each increase, and will apply only to statements made in the application for the
increase.
<PAGE>
If this Policy is reinstated, a new two year contestability period (apart from
any remaining contestability period) shall apply from the date of the
application for reinstatement and will apply only to statements made in the
application for reinstatement.
4. GENERAL PROVISIONS (CONTINUED)
_______________________________________________________________________________
ANNUAL REPORT - We will send you a report within 30 days following your Policy
Anniversary which shows the following information: the current Policy Value; any
payments since the last report; all charges since the last report; any
Withdrawals since the last report; any Loan Balance on this Policy; the current
Cash Surrender Value; the current Net Cash Surrender Value; and the current
Death Benefit.
STATE LAWS - This Policy is governed by the law of the state in which it is
delivered. The values and benefits of this Policy are at least equal to those
required by such state.
OPTIONAL EXTENSION OF MATURITY DATE - If the Insured survives to Age 100 and you
make a Written Request to continue this Policy, we will extend the Maturity Date
if in doing so this Policy still qualifies as life insurance according to the
Internal Revenue Service and your state. In order to continue this Policy
beyond the Maturity Date, the Death Benefit at any time will be the Policy Value
less any Loan Balance. No further Monthly Deductions will be made, and no
further Premium payments will be accepted.
5. AMOUNT OF PROCEEDS
_______________________________________________________________________________
The proceeds payable by this Policy are:
. Upon the death of the Insured prior to the Maturity Date, the Death Benefit
less any Loan Balance and any overdue Monthly Deductions.
. On the Maturity Date, unless the Maturity Date has been extended, the Policy
Value less any Loan Balance.
. On surrender of the Policy prior to the Maturity Date, the Net Cash Surrender
Value.
The proceeds may be taken in a lump sum or applied under one of the Payment
Options listed in the Payment of Proceeds Provision.
6. DEATH BENEFIT
_______________________________________________________________________________
AMOUNT OF DEATH BENEFIT - The Death Benefit equals the Base Death Benefit plus
the Adjustable Term Rider Amount and the amounts of any other Riders payable
upon the death of the Insured. The amount of the Base Death Benefit depends on
the Base Face Amount, the Policy Value on the date of the Insured's death, and
the Death Benefit Option in effect at that time. The Initial Base Face Amount
and the Death Benefit Option are shown in the Policy Data. The Base Face Amount
may be increased or decreased after issue as described under Change in Face
Amount.
Option A - The amount of the Base Death Benefit under Option A is the greater
of:
a. the Base Face Amount at the beginning of the Policy Month when the death
occurs; or
b. the Policy Value on the date of death multiplied by the applicable factor
from the Table of Death Benefit Factors below.
Option B - The amount of the Base Death Benefit under Option B is the greater
of:
<PAGE>
a. the Base Face Amount at the beginning of the Policy Month when the death
occurs plus the Policy Value on the date of death; or
b. the Policy Value on the date of death multiplied by the applicable factor
from the Table of Death Benefit Factors below.
6. DEATH BENEFIT (CONTINUED)
_______________________________________________________________________________
Table of Death Benefit Factors
Age Factor Age Factor Age Factor
0-40 2.50 54 1.57 68 1.17
41 2.43 55 1.50 69 1.16
42 2.36 56 1.46 70 1.15
43 2.29 57 1.42 71 1.13
44 2.22 58 1.38 72 1.11
45 2.15 59 1.34 73 1.09
46 2.09 60 1.30 74 1.07
47 2.03 61 1.28 75-90 1.05
48 1.97 62 1.26 91 1.04
49 1.91 63 1.24 92 1.03
50 1.85 64 1.22 93 1.02
51 1.78 65 1.20 94 1.01
52 1.71 66 1.19 95-100 1.00
53 1.64 67 1.18
CHANGE IN DEATH BENEFIT OPTION - The Owner may change the Death Benefit Option
after this Policy has been in force for at least one year, subject to the
following requirements:
1. the Owner must request the change in writing;
2. once the Death Benefit Option has been changed, it cannot be changed again
for one year;
3. if Death Benefit Option A is changed to Option B, the total Death Benefit
will remain the same, and the Base Face Amount will be decreased by an amount
equal to the Policy Value on the date of the change;
4. if Death Benefit Option B is changed to Option A, the total Death Benefit
will remain the same, and the Base 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 that is still in force will apply
to the Base Face Amount increase.
Any change in Death Benefit Option will take effect on the Monthly Processing
Date on or following the date we approve the request for the change. We will
provide you with revised Policy Data pages reflecting the change. We do not
impose a Surrender Charge for any decrease in your Base Face Amount due to a
change in Death Benefit Option, and there is no change to the Target Premium.
6. DEATH BENEFIT (CONTINUED)
_______________________________________________________________________________
CHANGE IN FACE AMOUNT - You may change the Base Face Amount or the Adjustable
Term Insurance Rider Amount of this Policy on any Monthly Processing Date after
the Policy has been in force at least one year, subject to the following
requirements. Once either amount has been changed, no other Face Amount changes
may be made for the next twelve months.
Face Amount Increase - You may increase the Base Face Amount or the Adjustable
Term Insurance Rider Amount by making a Written Request for an increase. If you
do not tell us otherwise, we will treat the request as an increase to the Base
Face Amount. To increase either amount you must:
1. submit an application for the increase;
<PAGE>
_______________________________________________________________________________
2. submit proof satisfactory to us that the Insured is an insurable risk;
3. pay any Additional Premium which is required.
No increases can be made after the Insured exceeds Age 75. Each increase must
be at least as large as the Minimum Face Amount Change shown in the Policy Data.
An increase will take effect on the Monthly Processing Date on or following the
day we approve the application for the increase. The Risk Class that applies
for any increase may be different from the original Risk Class.
A Target Premium will be established for an increase in Base Face Amount, and
the portion of Premiums paid thereafter allocated to the increase will be
subject to a new percentage of premium sales load charge.
We will furnish a supplement to the Policy Data that shows:
1. the Risk Class and the amount of the increase;
2. the new No-Lapse Monthly Premium, if applicable; and
3. the new Surrender Charges and the new Target Premium for any increase in the
Base Face Amount.
Face Amount Decrease - The Owner must make a Written Request for any decrease in
the Base Face Amount or Adjustable Term Insurance Rider Amount. The decrease
will take effect on the later of:
1. the Monthly Processing Date on or following the day we receive the Owner's
request for the decrease; or
2. the Monthly Processing Date one year after the last change in Face Amount
was made.
A requested decrease will be used to reduce the Face Amount in the following
order:
1. the amount of any Adjustable Term Insurance Rider will be reduced until it
is equal to zero;
2. any previous Base Face Amount increases which are in effect will be reduced,
starting with the latest increase and continuing in the reverse order in
which the increases were made;
3. the Initial Base Face Amount will be reduced.
Each decrease must be at least as large as the Minimum Face Amount Change shown
in the Policy Data. We will not permit a decrease that would reduce the Base
Face Amount below the Minimum Base Face Amount shown in the Policy Data.
The No-Lapse Monthly Premium will be reduced to reflect the decrease. The new
No-Lapse Monthly Premium will be shown on a supplement to the Policy Data.
We may deduct a Surrender Charge from the Policy Value when the Base Face Amount
is decreased. The amount of the charge is described in Section 8, Charges and
Deductions.
<PAGE>
7. PREMIUM PROVISIONS
_______________________________________________________________________________
PREMIUMS - Premiums are payable in advance at our Administrative Office or to an
authorized agent. The Policy will not take effect until the following both
occur while the Insured is alive and prior to any change in health as shown in
the application: (a) the Policy has been delivered, and (b) the first Premium
has been paid.
ALLOCATION OF PREMIUMS - You may choose to allocate Premiums to the Subaccounts
of the Variable Account, the Fixed Account, or a combination thereof. You may
choose any whole percentage from 0% to 100%. You may change the allocation of
future Premiums at any time by sending Written Notice.
INITIAL PREMIUM - The Initial Premium is shown in the Policy Data. On the
Policy Date the initial Net Premium will be allocated among the Subaccounts and
the Fixed Account according to the premium allocation percentages you specified
in your application.
PLANNED PERIODIC PREMIUMS - Planned Periodic Premiums may be paid annually,
semi-annually, quarterly or monthly by bank draft. The Planned Periodic Premium
and the payment interval in effect on the Policy Date are shown in the Policy
Data. The Owner may change the amount and frequency of Premiums. We have the
right to limit the amount of any increase. Each Premium after the Initial
Premium must be at least $25.00. We may increase this minimum limit 90 days
after we send the Owner written notice of such increase.
ADDITIONAL PREMIUMS - Additional unscheduled Premium payments can be made at any
time while this Policy is in force. We reserve the right to refund or limit the
number and amount of any Premiums paid so this Policy will continue to be
treated as a life insurance policy for federal income tax purposes. If we limit
premiums, future premium payments may still be required at a later date. No
Planned Periodic Premiums or Additional Premiums will be accepted after the
original Maturity Date.
On the date we receive an Additional Premium or a Planned Periodic Premium, or
the next Valuation Date thereafter, the Net Premium will be allocated according
to the allocation percentage you specified in your application; or, if
subsequently changed, according to your instructions currently in effect.
MINIMUM PAYMENTS TO AVOID POLICY TERMINATION - You may make Additional Premium
payments to maintain the Policy in force to avoid Policy termination, as
described in the Grace Period Provision. Such payments may not exceed the limit
established by law to qualify your Policy as a contract of life insurance for
federal income tax purposes.
TERMINATION - This Policy will terminate on the earliest of the following dates:
1. the date you surrender the Policy;
2. the date the Policy terminates because any Loan Balance exceeds the Cash
Surrender Value;
3. the date of the Insured's death;
4. the Maturity Date, unless the Maturity Date has been extended; or
5. the end of the Grace Period.
Payment of the amount required, as described in the Grace Period Provision, will
keep the Policy in force with respect to items 2 and 5 above.
7. PREMIUM PROVISIONS (CONTINUED)
_______________________________________________________________________________
NO-LAPSE GUARANTEE - The Policy will continue in force each month as long as the
Net Cash Surrender Value on the Monthly Processing Date at the beginning of that
month is large enough to cover the Monthly Deductions made for that month. If
the Net Cash Surrender Value at the beginning of a Policy Month during the first
three Policy Years is less than the Monthly Deduction for that month, this
Policy will still continue in force if (a) is greater than or equal to (b)
<PAGE>
where:
a. is the total Premiums paid, less Gross Withdrawals and any Loan Balance;
and
b. is the cumulative amount of No-Lapse Monthly Premiums for the number of
Policy Months the Policy has been in force.
The Cash Surrender Value at the third Policy Anniversary may be less than zero.
If so, an Additional Premium payment will be required to continue the policy in
force.
If the No-Lapse Monthly Premium has changed since the Policy Date, the total
Premium amount required will be based on the various No-Lapse Monthly Premiums
required and the number of months for which each applied.
GRACE PERIOD - If: (1) the Loan Balance exceeds the Cash Surrender Value; or (2)
the Net Cash Surrender Value is less than the Monthly Deduction on a Monthly
Processing Date, a Grace Period of 61 days will be allowed for the payment of
Additional Premium so the Monthly Deduction can be made. During the first three
Policy Years, this Policy will not enter the Grace Period even though the Net
Cash Surrender Value is insufficient if the Premiums paid meet the requirement
described in the No-Lapse Guarantee provision.
At least 30 days before this Policy ends without value, we will mail to your
last known address a notice of the amount of Premium needed. We will send a
copy of the notice to the last known address of any assignee of record. The
Additional Premium will be due on the Monthly Processing Date on which the Net
Cash Surrender Value was first insufficient.
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 notice; plus (c) an amount sufficient to cover the
next two Monthly Deductions.
If such payment is not made by the end of the Grace Period, the Policy will
terminate without value. If the Insured dies during the Grace Period, any Loan
Balance or overdue Monthly Deductions will be deducted from the Death Benefit to
determine the proceeds payable.
REINSTATEMENT - This Policy may be reinstated (coverage restored) any time
within five years after it has terminated at the end of a Grace Period, provided
that, to reinstate this Policy, the Owner must:
1. submit an application for reinstatement;
2. provide evidence of insurability satisfactory to us;
3. agree to the reduction of the Policy Value by any Loan Balance; and
4. pay the Premium required to reinstate the Policy, as described below.
The Premium required to reinstate the Policy equals the total of the following
amounts:
1. the amounts that would have been required for this Policy to continue in
force without entering a Grace Period, and for each month during the
Grace Period at the end of which the Policy terminated; and
2. the amount that will be required for this Policy to continue in force without
entering a Grace Period for next two months after the Reinstatement Date.
The Reinstatement Date will be the Monthly Processing Date on or following the
day we approve the application for reinstatement. The reinstated Policy will be
based on your Risk Class as of the Reinstatement Date, and may be different from
the Risk Class assigned to any portion of the Policy before termination. The
Policy Value on the
<PAGE>
Reinstatement Date will be equal to the Policy Value on the Monthly Processing
Date when the Grace Period ended plus the Premium paid to reinstate the Policy
minus any outstanding Loan Balance. The Policy will have no Loan Balance on the
Reinstatement Date. The Surrender Charge on the Reinstatement Date will be
counted from the original Policy Date.
<PAGE>
This Policy may not be reinstated after: (1) it has been surrendered for its Net
Cash Surrender Value; or (2) the Insured's death; or (3) the Maturity Date.
8. CHARGES AND DEDUCTIONS
_______________________________________________________________________________
PERCENTAGE OF PREMIUM EXPENSE CHARGES - The Premium Expense Charges for taxes
and sales loads are deducted from each Premium payment as it is received to
determine the Net Premium. The Premium Expense Charge percentages are shown in
the Policy Data.
MONTHLY DEDUCTION - At the beginning of each Policy Month we make a deduction
from the Policy Value. The Monthly Deduction will be deducted from the
Subaccounts of the Variable Account and the Fixed Account in the same proportion
that their values bear to the total Policy Value, excluding amounts transferred
to the Fixed Account to secure Policy loans. The Monthly Deduction is equal to:
a. the Monthly Cost of Insurance Charge described below; plus
b. the Monthly Administrative Charges described in the Policy Data; plus
c. the cost of any additional benefits added by Riders to the Policy.
MONTHLY COST OF INSURANCE CHARGE - The Monthly Cost of Insurance for a Policy
Month is calculated as (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; 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 (for both the Base Face Amount and the
Adjustable Term Insurance Rider) and the cost of any Disability Waiver of
Monthly Deductions Rider, but after deductions for any other Riders and charges.
If there is any Adjustable Term Insurance Rider Amount or if there have been any
increases in the Base Face Amount, separate charges will be calculated for each
portion of the Death Benefit. The Policy Value will be deducted from the
Initial Base Face Amount in determining the charges. If the Policy Value
exceeds the Initial Base Face Amount, the excess will be considered part of the
increases in Base Face Amount in the order of the increases.
COST OF INSURANCE RATE - The Cost of Insurance Rate is the rate applied to the
insurance under this Policy to determine the Monthly Cost of Insurance Charge.
It is based on the Age, Sex and Risk Class of the Insured, the size of the Base
Face Amount, and the duration since issue or effective date of an increase. The
Risk Class on the Policy Date will apply for the Base Face Amount and any
Adjustable Term Insurance Rider Amount at issue. For any subsequent Face Amount
increase, the Cost of Insurance Rate will be based on the Risk Class applicable
to that increase.
Our current scale of Cost of Insurance Rates is subject to change based on our
expectations as to future mortality, expenses, lapses and taxes. Any change
will be on a uniform basis for all Policies issued to Insureds of the same Age,
Sex, Policy duration, Face Amount band and Risk Class. No change will occur as
a result of change in the health, occupation, or avocations of the Insured. The
rates will not exceed the Maximum Cost of Insurance Rates shown in the Policy
Data, which are the 1980 Commissioners Standard Ordinary Mortality Tables, Male
or Female, Smoker or Non-Smoker. The guaranteed rates for substandard Risk
Classes are based on multiples of or additions to the tables.
<PAGE>
MORTALITY AND EXPENSE RISK CHARGE DEDUCTION - This is a deduction from each of
the Subaccounts of the Variable Account, computed on a daily basis starting on
the Policy Date. This charge compensates us for the mortality and expense risks
assumed by us under this Policy. The daily deduction rates are shown in the
Policy Data. The Mortality and Expense Risk Charge is not deducted from the
Fixed Account.
PORTFOLIO EXPENSES - There are fees and charges deducted from the Portfolios in
determining the net asset values per Portfolio share. The prospectus provided
prior to issuance of this Policy provides detail on these expenses.
POLICYHOLDER TRANSACTION CHARGES - Certain policyholder transactions that exceed
a maximum number in a Policy Year may incur a charge. These charges will not
exceed the maximums shown under Policy Data.
8. CHARGES AND DEDUCTIONS (CONTINUED)
_______________________________________________________________________________
SURRENDER CHARGES - We assess a Surrender Charge against your Policy Value upon
surrender, reduction in Base Face Amount or lapse of your Policy during the
Surrender Charge Period. The Surrender Charge Period is the first fourteen
Policy Years after issue, or the first fourteen years following an increase in
the Base Face Amount. The Surrender Charge consists of two charges: an
Administrative Surrender Charge and a Sales Surrender Charge.
If you request a decrease to the Base Face Amount during the Surrender Charge
Period, or take a Withdrawal which decreases the Base Face Amount, we will
deduct a portion of the Surrender Charge from your Policy Value. The amount of
the Surrender Charge that will be deducted from your Policy Value is described
below for each type of charge.
Decreases in the Base Face Amount as a result of a change to your Death Benefit
Option do not cause a Surrender Charge deduction from your Policy Value and
future Surrender Charges will not be reduced. Increases in the Base Face Amount
as a result of changes in Death Benefit Option do not result in an increase in
the Maximum Surrender Charges. All other increases in Base Face Amount will
increase the Maximum Surrender Charges.
Administrative Surrender Charge - The Administrative Surrender Charge is shown
under Policy Data. During the Surrender Charge Period, if you request a
decrease to the Base Face Amount or take a Withdrawal which causes the Base Face
Amount to decrease, your Administrative Surrender Charge will decrease in the
same proportion that the Base Face Amount decreases. The amount of the
Surrender Charge that will be deducted from your Policy Value as a result of the
decrease will equal the Surrender Charge in effect before the reduction minus
the Surrender Charge in effect after the reduction.
Sales Surrender Charge - The Sales Surrender Charge is a percentage of actual
Premiums paid up to a maximum based on Target Premiums. The Sales Surrender
Charge percentages and the Target Premium for your Policy are shown under Policy
Data. Upon a decrease in the Base Face Amount other than due to a Death Benefit
Option change, the Target Premium for each portion of the Base Face Amount will
be reduced in the same proportion that the Base Face Amount is reduced.
If the new Target Premium for each Base Face Amount portion is greater than or
equal to the Premiums which are allocated to that portion, the Maximum Sales
Surrender Charge you may pay in the future will be reduced, but a Sales
Surrender Charge will not be deducted from your Policy Value. If the new Target
Premium for each Base Face Amount portion is less than the Premiums which are
allocated to that portion, the Maximum Sales Surrender Charge you may pay in the
future will be reduced and a Sales Surrender Charge will be deducted from your
Policy Value. The new Sales Surrender Charge will be recalculated as if the new
Target Premium was always in effect for that portion of the Base Face Amount. A
deduction equal to the difference between the Sales Surrender Charge as
calculated before and after the decrease will be taken from your Policy Value.
<PAGE>
9. POLICY VALUE
_______________________________________________________________________________
BASIS USED FOR POLICY VALUES - The methods and factors used to calculate your
Policy Values and reserves are based on certain mortality tables and interest
rates required by state law. We use the 1980 Commissioners Standard Ordinary
Mortality Tables, Male or Female, Smoker or Non-Smoker. All values are equal
to or greater than those required by law. Where required, we have filed a
statement with the insurance officials of the state where this Policy was
delivered. The statement outlines the methods used to determine the Policy
Values.
<PAGE>
10. FIXED ACCOUNT
_______________________________________________________________________________
INTEREST RATES - The Guaranteed Interest Rate is shown in the Policy Data. This
interest rate is the minimum effective annual rate at which interest will be
credited to amounts allocated to the Fixed Account of your Policy.
The Company may credit interest to the Fixed Account of your Policy at a rate
greater than the Guaranteed Interest Rate. Any interest credited to the Fixed
Account of your Policy in excess of the Guaranteed Interest Rate will be
determined at the sole discretion of the Company. The rate of interest credited
may be different for unloaned values, Preferred Loan Values, and Non-Preferred
Loan Values. (See the Policy Loans Provision.) We will credit interest on
amounts in the Fixed Account as follows:
a. on amounts that remain in the Fixed Account for the entire Policy Month, from
the beginning to the end of the month;
b. on amounts allocated to the Fixed Account during the Policy Month that are
Net Premiums or loan repayments, from the date we receive them to the end of
the Policy Month;
c. on amounts transferred to the Fixed Account during the Policy Month, from the
date of the transfer to the end of the Policy Month; and
d. on amounts deducted, transferred, or surrendered from the Fixed Account
during the Policy Month, from the beginning of the Policy Month to the date
of the deduction or surrender.
11. FIXED ACCOUNT VALUE
_______________________________________________________________________________
On the Policy Date, the value of the Fixed Account is equal to the initial Net
Premium allocated to the Fixed Account minus the portion of the first month's
Monthly Deduction allocated to the Fixed Account.
On any Monthly Processing Date thereafter the Fixed Account is equal to:
a. the Fixed Account Value on the preceding Monthly Processing Date; plus
b. the sum of all Net Premiums allocated to the Fixed Account since the previous
Monthly Processing Date; plus
c. the sum of all loan repayments allocated to the Fixed Account since the
previous Monthly Processing Date; plus
d. total interest credited to the Fixed Account since the previous Monthly
Processing Date; plus
e. the amount of any transfers from the Variable Account to the Fixed Account,
including amounts transferred to secure a loan, since the previous Monthly
Processing Date; minus
f. the amount of any transfers from the Fixed Account to the Variable Account
since the previous Monthly Processing Date; minus
g. the portion of any Gross Withdrawals, Policyholder Transaction Charges, or
Surrender Charges for any Face Amount decreases allocated to the Fixed
Account since the previous Monthly Processing Date; minus
h. the portion of the Monthly Deduction allocated to the Fixed Account since the
previous Monthly Processing Date.
<PAGE>
12. VARIABLE ACCOUNT VALUE
_______________________________________________________________________________
The Variable Account Value is the sum of the values of the Subaccounts under
this Policy. On the Policy Date, the value of each Subaccount is equal to the
initial Net Premium allocated to the Subaccount minus the portion of the first
month's Monthly Deduction allocated to the Subaccount.
On any Valuation Date thereafter, the value of each Subaccount is equal to:
a. the value of the Subaccount on the preceding Valuation Date, multiplied by
the appropriate Net Investment Factor (described in the Subaccounts
Provision) since the previous Valuation Date; plus
b. the sum of all Net Premiums allocated to the Subaccount since the previous
Valuation Date; plus
c. the sum of all loan repayments allocated to the Subaccount since the previous
Valuation Date; plus
d. the amount of any transfers from other Subaccounts or from the Fixed Account
to the Subaccount since the previous Valuation Date; minus
e. the amount of any transfers to other Subaccounts or to the Fixed Account,
including amounts transferred to secure a loan, from the Subaccount since the
previous Valuation Date; minus
f. the portion of any Gross Withdrawals, Policyholder Transaction Charges, or
Surrender Charges for any Face Amount decreases allocated to the Subaccount
since the previous Valuation Date; minus
g. the portion of the Monthly Deduction allocated to the Subaccount since the
previous Valuation Date.
13. SUBACCOUNTS
_______________________________________________________________________________
THE SUBACCOUNTS - Each of the Subaccounts is part of a variable account of ours.
Those available as of the Policy Date are named under Policy Data. We have
allocated a part of our assets for this and certain other Policies to the
Subaccounts. Such assets remain our property. They cannot be charged, however,
with liabilities from any other business in which we may take part.
ALLOCATIONS TO, AND INVESTMENTS OF THE SUBACCOUNTS - Premiums (excluding Grace
Period Premiums) and transfers will be allocated as you specify. All other
additions to or deductions from the Subaccounts will be allocated as specified
under Charges and Deductions in Section 8 and Policy Loans in Section 17. Each
Subaccount will buy or liquidate shares or units of the Portfolio shown for that
Subaccount under the Policy Data or as later added or changed.
DETERMINING INVESTMENT RESULTS - The Policy Value will change due to the
investment results of the Subaccounts. We use an index to measure these changes
in investment results. The index is called a unit value. Each Subaccount has
its own unit value.
For each Subaccount the unit value was initially set at $10.00. Thereafter, the
unit value for a given Valuation Period is equal to the unit value for the prior
Valuation Period multiplied by the Net Investment Factor for the given Valuation
Period.
For any Subaccount, the number of units credited or deducted during a Valuation
Period is determined by dividing the dollar amount directed to or from the
Subaccount by the unit value for the Valuation Period. At the end of any
Valuation Period, the value of a Subaccount is equal to the number of units
multiplied by the unit value.
<PAGE>
13. SUBACCOUNTS (CONTINUED)
_______________________________________________________________________________
NET INVESTMENT FACTOR/HOW IT IS DETERMINED - The Net Investment Factor is an
index applied to measure the investment performance of a Subaccount from one
Valuation Period to the next. The Net Investment Factor may be greater or less
than one; therefore, the value of a unit may increase or decrease.
The Net Investment Factor of a Subaccount for any Valuation Period is determined
by dividing (1) by (2) and subtracting (3) from the result, where:
1. is the result of:
a. the net asset value per share of the Portfolio shares held in the
Subaccount, determined at the end of the current Valuation Period; plus
b. the per share amount of any dividend or capital gain distributions on the
Portfolio shares held in the Subaccount, if the "ex-dividend" date occurs
during the current Valuation Period; plus or minus
c. a per share charge or credit for any taxes reserved for the current
Valuation Period which we determine to have resulted from the investment
operations of the Subaccount;
2. is the result of:
a. the net asset value per share of the Portfolio shares held in the
Subaccount, determined at the end of the last prior Valuation Period;
plus or minus
b. the charge or credit for any taxes reserved for the last prior Valuation
Period; and
3. is a deduction for the current Mortality and Expense Risk Charge shown in
the Policy Data for the number of days in the Valuation Period.
CHANGES IN THE SUBACCOUNTS - Changes in the Subaccounts may occur if laws or
regulations changed, we added Subaccounts, the mutual fund became unavailable
or, in our judgment, the mutual fund was no longer suitable for investment. If
any of these situations occurred, we would have the right to add or substitute
Subaccounts other than those shown under Policy Data. We would first seek
approval of the Securities and Exchange Commission and, where required, the
insurance regulator of the state where this Policy is delivered.
OTHER CHANGES - To the extent permitted by applicable laws and regulations
(including any order of the SEC), we may make changes as follows:
1. The Variable Account may be operated as a management company under the
Investment Company Act of 1940, or in any other form permitted by law, if we
deem it to be in the best interest of the Policy Owners
2. The Variable Account may be deregistered under the Investment Company Act of
1940 in the event registration is no longer required.
3. The Variable Account may be combined with other separate investment accounts.
4. The provisions of this and other Policies may be modified to comply with any
other applicable federal or state laws; or to take advantage of any benefits
allowed by changes in applicable laws.
In the event of such changes, we may make appropriate endorsement on this and
other Policies having an interest in the Variable Account and take other actions
as may be necessary to effect such a change.
<PAGE>
14. TRANSFERS
_______________________________________________________________________________
TRANSFERS - By Written Request or other request acceptable to us, you may
transfer all or a part of the values held in a Subaccount to one or more
Subaccounts or to the Fixed Account up to twelve times in a Policy Year free of
charge. After twelve transfers in a Policy Year, we will deduct the charge shown
in the Policy Data from the Subaccounts and the Fixed Account in the same
proportion that their values bear to the total Policy Value.
Any transfers for Dollar Cost Averaging or Automatic Asset Rebalancing are not
counted against the twelve free transfers. Dollar Cost Averaging is a transfer
option that allows you to automatically transfer an amount periodically from
selected Subaccounts or the Fixed Account to other Subaccounts. Automatic Asset
Rebalancing allows you to set up transfers to occur at selected intervals that
will match your Policy Value allocation between Subaccounts to your allocation
percentage for new Premiums. Both programs are subject to Company guidelines
and restrictions detailed in the prospectus you received prior to the issuance
of this Policy.
You may make transfers from the Fixed Account to one or more of the Subaccounts
of the Variable Account only once per Policy Year. We reserve the right to limit
the amount transferred from the Fixed Account to a Subaccount to 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. These restrictions will not
apply to transfers for Dollar Cost Averaging or Automatic Rebalancing.
Each transfer must be for a minimum of $100. The value remaining in the
Subaccount or the Fixed Account after a transfer must not be less than $100. If
the value remaining would be less than $100, we will treat the transfer request
as a request for a transfer of the total value.
We may further suspend or modify this transfer privilege at any time with the
necessary approval of the Securities and Exchange Commission.
15. CASH SURRENDER VALUE
_______________________________________________________________________________
CASH SURRENDER VALUE - The Cash Surrender Value of this Policy equals the Policy
Value minus the Surrender Charges described in Section 8, Charges and
Deductions.
When this Policy terminates, the Policy Value may be less than the Surrender
Charge. If so, the Owner will not have to pay the difference to us. If this
Policy is reinstated, the Surrender Charge will also be reinstated as described
in the Reinstatement Provision.
NET CASH SURRENDER VALUE - The Net Cash Surrender Value of this Policy is equal
to the Cash Surrender Value less any Loan Balance on this Policy. You may
surrender this Policy for its Net Cash Surrender Value at any time upon Written
Notice. Upon surrender this Policy will terminate.
16. WITHDRAWALS
_______________________________________________________________________________
You may make a Withdrawal from the Net Cash Surrender Value at any time during
the Insured's lifetime and before the Policy has terminated. The Minimum
Withdrawal Amount is $500. The Withdrawal Amount may not exceed the Net Cash
Surrender Value minus $500.
We will deduct a Surrender Charge when a Withdrawal is made as described in
Section 8, Charges and Deductions. In addition, there is a Transaction Charge
for each Withdrawal after the first in each Policy Year as shown in the Policy
Data. The amount of the Withdrawal plus any applicable Surrender Charge and
Transaction Charge is called the Gross Withdrawal.
The Gross Withdrawal will be made from the Subaccounts of the Variable Account
and from the unloaned value in
<PAGE>
the Fixed Account in the same proportion that their values bear to the total
unloaned Policy Value, unless you instruct us otherwise.
The Base Face Amount will be reduced if Death Benefit Option A is in effect when
a Withdrawal is made. Such a reduction will be equal to the amount of the Gross
Withdrawal. Any Base Face Amount reduction will be used first to reduce any
Base 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 of the
reduction is left after all Base Face Amount increases have been reduced to
zero, it will be used to reduce the Initial Base Face Amount.
We will not permit a Withdrawal that would reduce the Base Face Amount below the
Minimum Base Face Amount shown in the Policy Data. We may limit the number of
Withdrawals in a Policy Year; but this limit will not be less than one.
17. POLICY LOANS
_______________________________________________________________________________
HOW LOANS MAY BE MADE - You may obtain a Policy loan from us by submitting a
Written Request or other request acceptable to us. This Policy is the only
security required for the loan.
The amount of your loan and any loan interest must remain in the Fixed Account.
If there is insufficient value in the Fixed Account to equal the Loan Balance,
an amount will be transferred from the Subaccounts of the Variable Account to
the Fixed Account. We will allocate the amount transferred in the proportion
that the value of each Subaccount bears to the Variable Account Value unless you
specify one or more Subaccounts from which the loan is to be made.
Each Policy Year after the tenth Policy Anniversary, a Preferred Loan Amount is
available equal to 10% of the net Policy Value, which is the Policy Value minus
any existing Loan Balance. The Policy Value will be determined at the time of
the loan. If the Preferred Loan Amount borrowed during any Policy Year is less
than the maximum allowed, the balance may not be carried over to increase the
eligible Preferred Loan Amount of any subsequent Policy Year.
The Minimum Interest Rate Credited on Loaned Amounts is shown in the Policy
Data. This rate is the minimum effective annual rate at which interest will be
credited to loaned amounts. We may also credit additional interest on the
Preferred Loan Amount. The Additional Interest Rate we are currently crediting
on Preferred Loan Amounts is shown in the Policy Data. We will send you a new
Policy Data Page whenever this Additional Interest Rate changes.
LOAN INTEREST CHARGED - The Loan Interest Rate Charged is shown in the Policy
Data. We calculate the Policy Value as of the date of the loan.
Interest is charged daily, and payable at the end of the Policy Year. If
interest is not paid when it is due, it will be added to your Loan Balance and
charged interest at the Loan Interest Rate Charged shown in the Policy Data.
17. POLICY LOANS (continued)
_______________________________________________________________________________
AMOUNT OF LOAN AVAILABLE - You may borrow up to the Maximum Loan Amount shown in
the Policy Data. Outstanding loans, including accrued interest, reduce the
amount available for new loans. The minimum amount you may borrow is $100.
LIMIT ON POLICY LOANS - This Policy will terminate without value, as described
in the Grace Period Provision, if the total Loan Balance is greater than the
Cash Surrender Value.
REPAYMENT - All or part of a loan may be repaid at any time while the Insured is
alive and this Policy is in force. Repayment must be in amount of at least $100
or the outstanding Loan Balance if less. Repayments will be allocated to the
Fixed Account and the Subaccounts of the Variable Account based on the Premium
allocation instructions then in effect, unless you specify otherwise.
<PAGE>
18. DELAY OR SUSPENSION OF PAYMENTS
_______________________________________________________________________________
We will normally pay any Withdrawal, Policy Loan amount, or the Net Cash
Surrender Value within 7 days after we receive your Written Request in our
Administrative Office. The Company may defer payment of any amounts from the
Fixed Account, except for a loan used to pay a Premium to us, for up to six
months from the date of receipt of your Written Request to surrender. If the
Company defers payment for more than 30 days, the Company will pay interest on
the amount deferred. Interest will be paid at a rate not less than the
Guaranteed Interest Rate shown in the Policy Data. We may also defer payment of
any amounts derived from Premiums paid by check until such time as the check has
cleared.
We have the right, to suspend or delay the payment of any amounts from any
Subaccount of the Variable Account for any period:
1. When the New York Stock Exchange is closed.
2. When trading on the New York Stock Exchange is restricted.
3. When an emergency exists, and as a result:
a. disposal of securities held in the Subaccounts is not reasonably
practicable; or
b. it is not reasonably practicable to fairly determine the value of the
Subaccounts; or
4. During any other period when the Securities and Exchange Commission by order,
so permits for the protection of security holders.
Rules and regulations of the Securities and Exchange Commission will govern as
to whether the conditions set forth in the above items 2 and 3 exist.
19. AUTOMATIC CONTINUATION OF BENEFITS
_______________________________________________________________________________
If Premium payments cease, insurance under this Policy and any benefits provided
by a Rider attached to this Policy will continue as provided in the Grace Period
Provision in Section 7. This Policy will not continue beyond the Maturity Date,
unless the Maturity Date has been extended. Any Riders attached to this Policy
will not continue beyond the termination date described in the Rider.
20. POLICY EXCHANGE OPTION
_______________________________________________________________________________
For two years after the Policy is issued, you can exchange it for one that
provides benefits that do not vary with the investment return of the Subaccounts
of the Variable Account. Since the Policy itself offers a fixed return option,
all you need to do is transfer all of the Policy Value in the Subaccounts of the
Variable Account to the Fixed Account. Any restrictions on transfers to the
Fixed Account will be waived. We will automatically credit all future Premium
payments to the Fixed Account. There will be no effect on the Policy's Death
Benefit, Face Amount, Net Amount at Risk, Risk Class, or Issue Age. Only the
method of funding the Policy Value will be affected.
<PAGE>
21. PAYMENT OF PROCEEDS
_______________________________________________________________________________
PAYMENT - Any amount payable at the death of the Insured will be paid in one
sum, unless you provide otherwise. All or part of this sum may be applied under
any Payment Option, subject to the following conditions:
1. No option may be selected unless the proceeds are payable to a natural person
in that person's own right.
2. Payment may not be less than $25.00 each or less than $120.00 in a year.
3. If you have not elected an option when a Beneficiary becomes entitled to
proceeds, the Beneficiary may elect the option.
4. The election must be filed with us in writing.
5. We may require exchange of this Policy for a contract covering the election.
CLAIMS OF CREDITORS - So far as permitted by law, the proceeds will not be
subject to any claims of the Beneficiary's creditors.
PAYMENT OPTIONS -
Option 1 - Fixed Amount - Payment of a fixed amount, but not less than 7% of the
proceeds each year, until the proceeds are fully paid.
Option 2 - Fixed Period - Payment for a fixed period, not exceeding 30 years.
The payment amount for each $1,000 of Proceeds applied under Option 2 will be
based on our Payment Rates in effect on the settlement date. These rates are
guaranteed not to be less than the Guaranteed Minimum Monthly Payment For Each
$1,000 Proceeds Applied Under Option 2 shown in the tables on page 19.
Option 3 - Life Income - Payment for a fixed period and life thereafter. No
payment will become due after death, except payment for any remaining fixed
period. The payment amount for each $1,000 of Proceeds applied under Option 3
will be based on our Payment Rates in effect on the settlement date. These rates
are guaranteed not to be less than the Guaranteed Minimum Monthly Life Income
Payment For Each $1,000 Proceeds Applied Under Option 3 shown in the tables on
page 19. These payments are based on the Annuity 2000 Mortality Table with
interest at 3%.
Option 4 - Proceeds Left at Interest - Payment of interest on proceeds left with
us for any period agreed upon. The interest may be paid at selected intervals
or allowed to accumulate.
Other Payment Options - The proceeds may be paid in any other manner to which we
agree in writing.
More Favorable Payment Options - When proceeds become payable, we may be
offering payment contracts with higher guaranteed minimum payments. If so,
these more favorable contracts will be available subject to any conditions in
effect at that time.
INTEREST RATE - The interest rate on funds held under all options will be at
least 3% compounded annually.
WITHDRAWAL AND CHANGES - Except as to Option 3, if the payee selected the
option, this payee with our consent may modify the terms of the option or select
another option at any time.
DEATH OF PAYEE - If the payee dies, the value of any remaining guaranteed
payments will be paid to the payee's estate, unless otherwise provided in the
election of the option. The value will be based on the guaranteed interest rate
for the Payment Option Selected.
<PAGE>
GUARANTEED MINIMUM MONTHLY PAYMENT
FOR EACH $1,000 PROCEEDS APPLIED UNDER OPTION 2
<TABLE>
<CAPTION>
Years Payment Years Payment Years Payment Years Payment Years Payment Years Payment
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 84.47 6 15.14 11 8.86 16 6.53 21 5.32 26 4.59
2 42.86 7 13.16 12 8.24 17 6.23 22 5.15 27 4.47
3 28.99 8 11.68 13 7.71 18 5.96 23 4.99 28 4.37
4 22.06 9 10.53 14 7.26 19 5.73 24 4.84 29 4.27
5 17.91 10 9.61 15 6.87 20 5.51 25 4.71 30 4.18
- ------------------------------------------------------------------------------------------------
</TABLE>
To obtain the minimum payments for other intervals, multiply the monthly payment
by 11.839 for annual, by 5.963 for semi-annual or by 2.993 for quarterly
payments
GUARANTEED MINIMUM MONTHLY LIFE INCOME PAYMENT
FOR EACH $1,000 PROCEEDS APPLIED UNDER OPTION 3
<TABLE>
<CAPTION>
GUARANTEED PERIOD GUARANTEED PERIOD
----------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
MALE 10 15 20 FEMALE 10 15 20
AGE YEARS YEARS YEARS AGE YEARS YEARS YEARS
20 2.98 2.98 2.98 20 2.91 2.91 2.91
25 3.08 3.08 3.07 25 2.99 2.99 2.99
30 3.20 3.19 3.19 30 3.09 3.09 3.09
35 3.34 3.34 3.33 35 3.22 3.21 3.21
40 3.53 3.52 3.50 40 3.37 3.36 3.35
45 3.76 3.74 3.70 45 3.57 3.55 3.54
50 4.05 4.01 3.95 50 3.81 3.79 3.76
55 4.41 4.34 4.24 55 4.13 4.09 4.03
60 4.88 4.75 4.56 60 4.54 4.46 4.35
61 4.99 4.84 4.62 61 4.63 4.55 4.42
62 5.10 4.93 4.69 62 4.73 4.64 4.49
63 5.23 5.03 4.75 63 4.84 4.73 4.57
64 5.35 5.13 4.82 64 4.95 4.83 4.64
65 5.48 5.22 4.88 65 5.07 4.93 4.71
66 5.62 5.33 4.94 66 5.20 5.03 4.78
67 5.77 5.43 5.00 67 5.33 5.14 4.85
68 5.92 5.53 5.06 68 5.47 5.25 4.92
69 6.07 5.63 5.11 69 5.62 5.36 4.99
70 6.23 5.73 5.16 70 5.78 5.47 5.05
71 6.39 5.83 5.21 71 5.94 5.58 5.11
72 6.56 5.93 5.25 72 6.11 5.70 5.17
73 6.73 6.02 5.29 73 6.29 5.81 5.22
74 6.90 6.11 5.33 74 6.48 5.92 5.27
75 7.08 6.20 5.36 75 6.67 6.03 5.31
76 7.25 6.28 5.39 76 6.86 6.13 5.35
77 7.43 6.35 5.41 77 7.06 6.22 5.38
78 7.61 6.42 5.43 78 7.26 6.31 5.40
79 7.78 6.49 5.45 79 7.46 6.39 5.43
80 7.95 6.55 5.46 80 7.66 6.47 5.45
81 8.11 6.60 5.47 81 7.86 6.53 5.46
82 8.27 6.65 5.48 82 8.05 6.59 5.48
83 8.42 6.69 5.49 83 8.23 6.64 5.49
84 8.56 6.72 5.50 84 8.40 6.69 5.49
85 8.69 6.75 5.50 85 8.55 6.73 5.50
</TABLE>
Rates for other ages will be furnished upon request.
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
ADMINISTRATIVE OFFICE
2001 Third Avenue South (35233)
Post Office Box 10287
Birmingham, Alabama 35202-0287
800-340-3787
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
Adjustable Death Benefit
Death Benefit payable at Insured's death prior to the Maturity Date.
Premium Payments are flexible, subject to the limits described herein.
Policy Value, less Loan Balance, payable on the Maturity Date.
This Policy is Nonparticipating. Dividends are not payable.
<PAGE>
ACCELERATED DEATH BENEFIT RIDER
________________________________________________________________________________
NOTICE: This Rider provides for accelerated payment of the Policy proceeds. It
is not intended or designed to provide health, nursing home, or long-term care
insurance. IF ACCELERATED BENEFITS ARE ADVANCED UNDER THE TERMS OF THIS RIDER,
FUTURE DEATH BENEFITS, POLICY VALUES, CASH SURRENDER VALUES, AND LOAN VALUES OF
THE POLICY WILL BE REDUCED.
The acceleration-of-life-insurance benefits offered under this Rider are
intended to qualify for favorable tax treatment under the Internal Revenue Code
of 1986. If the acceleration-of-life-insurance benefits qualify for such
favorable tax treatment, the benefits will be excludable from your income and
not subject to federal taxation. Tax laws relating to acceleration-of-life-
insurance benefits are complex. You are advised to consult with a qualified tax
advisor about circumstances under which you could receive acceleration-of-life-
insurance benefits excludable from income under federal law.
Receipt of acceleration-of-life-insurance benefits may affect your, your spouse
or your family's eligibility for public assistance programs such as medical
assistance (Medicaid), Aid to Families with Dependent Children (AFDC),
supplementary social security income (SSI), and drug assistance programs. You
are advised to consult with a qualified tax advisor and with social service
agencies concerning how receipt of such a payment will affect your, your spouse
and your family's eligibility for public assistance.
This Rider is made a part of the Policy to which it is attached. This benefit
is subject to all the provisions of this Rider and the Policy. The effective
date of this Rider is the Policy Date of the Policy. This Rider has no loan or
Cash Surrender Value.
BENEFIT - We will advance the Accelerated Benefit, as defined below, if the
Insured has been diagnosed by a Physician as having a Terminal Illness, subject
to the provisions of this Rider. We will advance the Accelerated Benefit in a
lump sum. There is no charge for this Rider prior to the time Accelerated
Benefits are paid.
ACCELERATED BENEFIT - The Accelerated Benefit payable will be equal to the
amount requested by the Owner, subject to the minimum and maximum requirements
described below, less adjustments for:
a. the current Rider Administrative Expense Charge; and
b. expected future interest at a rate no greater than the maximum adjustable
policy loan interest rate based on Moody's Corporate Bond Yield Averages, or
any successor thereto.
The maximum adjustable policy loan interest rate is defined by state law, and we
will determine the new rate for the purposes of this Rider at the beginning of
each calendar year. The discount rate for determination of the Accelerated
Benefit will never exceed 10%.
Minimum Accelerated Benefit Amount - The Accelerated Benefit may not be less
than $5,000. The Base Face Amount remaining after payment of the Accelerated
Benefit must not be less than $10,000.
Maximum Accelerated Benefit Amount - The Accelerated Benefit may not exceed the
lesser of:
a. $250,000 minus the sum of all benefits previously paid under this Rider; or
b. 75% of the Policy Death Benefit at the time benefits were first paid under
this Rider, less any Loan Balance.
EFFECT OF RIDER BENEFITS ON POLICY VALUES AND BENEFITS - On the date the
Accelerated Benefit is advanced, a percentage reduction equal to the amount of
the Accelerated Benefit advanced divided by the total Death Benefit just before
the advance, will be made in the following Policy values and benefits:
1. the Death Benefit, Initial Base Face Amount, each Base Face Amount Increase,
and the Adjustable Term Insurance Rider Amount, if any;
<PAGE>
2. the Policy Value and Cash Surrender Value; and
3. the Loan Balance.
Any decreases in Face Amounts will first reduce the amount of any Adjustable
Term Insurance Rider until it is equal to zero. Then, any previous Base Face
Amount increases still in effect will be reduced in the reverse order in which
they were made. If any portion of the decrease is left after all other amounts
have been reduced, it will be used to reduce the Initial Base Face Amount.
The Cash Surrender Value will be increased by the amount of the Loan Balance
reduction before the Cash Surrender Value adjustment is made. The Accelerated
Benefit payable will be reduced by the Loan Balance reduction.
At the time of payment of an Accelerated Benefit, we will send you a statement
indicating the amount of benefits paid, the effect of the payment on each of the
values and benefits listed above, and the amount of benefit which remains
available for acceleration. We will also furnish new Policy Data pages that
reflect the reduced benefits. Future Premiums and Monthly Deductions will be
based on these reduced benefits. Any portion of the Death Benefit remaining
after an Accelerated Benefit is paid will be paid upon death of the Insured.
DEFINITIONS -
Rider Administrative Expense Charge - We will charge an administrative expense
charge at the time an Accelerated Benefit is paid. The amount of the Rider
Administrative Expense Charge will be based on our current practice in effect on
the date the Accelerated Benefit is paid, but will not exceed $150.
Physician - Physician means an individual who is licensed to practice medicine
and treat illness or injury in the state in which treatment is received and who
is acting within the scope of that license. Physician does not include: (a) the
Insured; (b) the Owner; (c) any person who lives with the Insured or the Owner;
or (d) a member of the Insured's or Owner's immediate family.
Terminal Illness - Terminal illness means an imminent death expected as a result
of a non-correctable medical condition that is diagnosed by a Physician:
a. on or after the Effective Date of this Rider and while this Rider is in
force; and
b. with reasonable medical certainty that the death of the Insured will occur
within 12 months from the date of the Physician's statement.
PROOF OF LOSS - Written Proof of the Insured's Terminal Illness must be received
by us within 91 days after the date of diagnosis. This proof must include a
properly completed Claim Form and a written Physician's statement signed by the
Physician, in a form acceptable to us. We may request additional medical
information from the Physician submitting the statement.
We reserve the right to have a Physician of our choosing examine the Insured, at
our expense, prior to advancing the Accelerated Benefit. If that Physician
provides a different Physician's statement, we reserve the right to rely on that
Physician's statement for claim purposes.
PAYMENT OF CLAIMS - All benefits described in this Rider will be available as
soon as we receive satisfactory Proof of Loss. All Rider benefits will be paid
to the Owner. If the Insured's death occurs prior to our receipt of
satisfactory Proof of Loss, the Accelerated Benefit will not be paid.
INCONTESTABILITY - This Rider will be incontestable, after it has been in force
during the lifetime of the Insured for two years from its effective date.
TERMINATION - This Rider will terminate on the earlier of:
1. the date that the Policy is surrendered, terminated, exchanged, or matures;
or
<PAGE>
2. the Monthly Processing Date coinciding with or next following the date we
receive your Written Request to terminate this Rider.
UNITED INVESTORS LIFE INSURANCE COMPANY
<PAGE>
ACCIDENTAL DEATH BENEFIT RIDER
________________________________________________________________________________
This Rider is made a part of the Policy to which it is attached. This benefit
is subject to all the provisions of this Rider and the Policy. The effective
date of this Rider is the Policy Date of the Policy unless otherwise shown in
the Policy Data. This Rider has no loan or Cash Surrender Value.
BENEFIT - We agree to pay, subject to the terms and conditions of this Rider,
the Accidental Death Benefit shown in the Policy Data upon receipt of due proof
that the death of the Insured:
1. resulted, directly and independently of all other causes, from accidental
bodily injuries sustained after the effective date of this Rider;
2. occurred within 90 days after such injury; and
3. occurred while this Rider was in force and before the Policy Anniversary
nearest the Insured's 70th birthday.
RISKS NOT COVERED - This provision does not apply to deaths resulting directly
or indirectly from:
1. suicide or any self-inflicted injury;
2. bodily or mental infirmity or disease of any kind;
3. committing or attempting to commit an assault or felony;
4. war, declared or undeclared, or insurrection, or any event incident to
either;
5. military or naval service in time of war; or
6. operating, riding in, or descending from any kind of aircraft if the
Insured:
. is a pilot, officer, or member of the crew;
. is being flown for the purpose of descent from such aircraft while in
flight; or
. is giving or receiving any kind of training or instruction.
COST OF INSURANCE - While this Rider is in force, the Monthly Deduction
described in Section 8 of the Policy will include the Cost of Insurance for the
benefits provided by this Rider. The Monthly Cost of Insurance for this Rider
is shown in the Policy Data.
INCONTESTABILITY - This Rider will be incontestable, after it has been in force
during the lifetime of the Insured for two years from its effective date.
TERMINATION - This Rider will terminate on the earliest of:
1. the Policy Anniversary nearest the Insured's 70th birthday;
2. the date that the Policy is surrendered, terminated, exchanged, or matures;
or
3. the Monthly Processing Date coinciding with or next following the date we
receive your Written Request to terminate this Rider.
UNITED INVESTORS LIFE INSURANCE COMPANY
<PAGE>
ADDITIONAL INSURED TERM INSURANCE RIDER
________________________________________________________________________________
This Rider is made a part of the Policy to which it is attached. This benefit
is subject to all the provisions of this Rider and the Policy. The effective
date of this Rider is the Policy Date of the Policy, unless otherwise shown in
the Policy Data. This Rider has no loan or Cash Surrender Value.
BENEFIT - The amount of insurance provided by this Rider for each Additional
Insured is shown in the Policy Data. We will pay the insurance provided by this
Rider upon receipt of due proof that the death of an Additional Insured occurred
while this Rider was in force.
ATTAINED AGE - Attained Age means the age of an Additional Insured on the
birthday nearest the Policy Date, increased by the number of Policy Years
elapsed since the Policy Date.
COST OF INSURANCE - While this Rider is in force, the Monthly Deduction
described in Section 8 of the Policy will include the Cost of Insurance for the
benefits provided by this Rider. The Monthly Cost of Insurance for this Rider
will be calculated as (a) multiplied by (b) where:
a. is the Cost of Insurance Rate for each Additional Insured divided by 1,000;
and
b. is the amount of insurance shown for each Additional Insured in the Policy
Data.
COST OF INSURANCE RATE - The Cost of Insurance Rate for each Additional Insured
is based on the Attained Age, Sex, and Risk Class of that Additional Insured,
the amount of insurance for that Additional Insured, and the duration since
issue of the Policy. The Risk Class for each Additional Insured on the effective
date of this Rider will apply for the amount of insurance provided by this Rider
at issue for that Additional Insured. For any subsequent increase in an
Additional Insured's amount of insurance, the Cost of Insurance Rate will be
based on the Risk Class applicable to that increase.
Our current scale of Cost of Insurance Rates is subject to change based on our
expectations as to future mortality, expenses, lapses, and taxes. Any change
will be on a uniform basis for insureds of the same Age, Sex, and Risk Class.
No change will occur as a result of change in the health, occupation, or
avocations of the Insured. The rates will not exceed the Maximum Cost of
Insurance Rates shown in the Policy Data, which are the 1980 Commissioners
Standard Ordinary Mortality Table, Male or Female, Smoker or Non-Smoker. The
guaranteed rates for substandard Risk Classes are based on multiples of or
additions to the tables.
DECREASE IN AMOUNT OF INSURANCE - You may decrease an Additional Insured's
amount of insurance by Written Request. The amount of insurance may not be
decreased to less than $50,000. The decrease will take effect on the Monthly
Processing Date on or following our receipt of your Written Request.
INCREASE IN AMOUNT OF INSURANCE - You may increase an Additional Insured's
amount of insurance. The amount of insurance on each Additional Insured cannot
be increased after that Additional Insured reaches age 75. Each increase must
be at least $10,000.
To increase the amount of insurance you must:
1. submit an application for the increase; and
2. submit proof satisfactory to us that the Additional Insured is an insurable
risk.
The increase will take effect on the Monthly Processing Date on or following the
day we approve your application for the increase. The Risk Class that applies
for any increase may be different than the Risk Class that applies for the
initial amount of insurance. We will furnish a supplement to the Policy Data
that shows the Risk Class and the amount of the increase.
<PAGE>
BENEFICIARY - The Beneficiary for insurance under this Rider is as stated in the
application for this Rider, unless changed later by the Owner.
ERRORS IN AGE OR SEX - If an Additional Insured's age or sex is misstated, the
benefits under this Rider for that Additional Insured will be the amount which
would have been provided by the last Cost of Insurance charge at the correct age
and sex.
SUICIDE EXCLUSION - If an Additional Insured commits suicide, while sane or
insane, within two years from the effective date of this Rider, our liability
will be limited to the total Cost of Insurance charges deducted for that
Additional Insured. If an Additional Insured dies by suicide, while sane or
insane, within two years from the effective date of any increase in that
Additional Insured's amount of insurance, our liability with respect to that
increase will be limited to the total Cost of Insurance charges deducted for
that increase.
INCONTESTABILITY - An Additional Insured's coverage provided under this Rider
will be incontestable after it has been in force during the lifetime of such
Additional Insured for two years from its effective date. Any increase in the
amount of insurance for an Additional Insured will be incontestable after the
increase has been in force during the lifetime of such Additional Insured for
two years from the effective date of the increase.
CONVERSION - You may convert the term insurance provided by this Rider on each
Additional Insured to a new Policy without evidence of insurability, provided
that:
1. this Rider is in force;
2. the Policy Anniversary nearest the Additional Insured's 75th birthday has
not passed; and
3. we receive a written application for the conversion.
The new Policy will be issued:
1. on a level premium whole life plan;
2. for an amount of insurance equal to or less than the amount of insurance on
the Additional Insured provided by this Rider on the date of conversion;
3. at a Premium according to our rates then in use at the Attained Age of the
Additional Insured; and
4. in the same Risk Class as the coverage on the Additional Insured, or if
there has been an increase in coverage, in the same Risk Class as the most
recent increase. Riders may be included in the new Policy only with our
consent.
TERMINATION - This Rider will terminate on the earliest of:
1. the Monthly Processing Date on which there is no longer any Additional
Insured covered under this Rider;
2. the date that the Policy is surrendered, terminated, exchanged, or matures;
3. 31 days after the death of the person Insured under the Policy; or
4. the Monthly Processing Date coinciding with or next following the date we
receive your Written Request to terminate this Rider.
TERMINATION OF AN ADDITIONAL INSURED'S COVERAGE - The term insurance provided by
this Rider on each Additional Insured will terminate on the earliest of:
1. the Policy Anniversary nearest the Additional Insured's 100th birthday;
2. the date that the Additional Insured's coverage is converted; or
<PAGE>
3. the Monthly Processing Date coinciding with or next following the date we
receive your Written Request to terminate the Additional Insured's coverage.
UNITED INVESTORS LIFE INSURANCE COMPANY
<PAGE>
ADJUSTABLE TERM INSURANCE RIDER
________________________________________________________________________________
This Rider is made a part of the Policy to which it is attached. This benefit
is subject to all the provisions of this Rider and the Policy. The effective
date of this Rider is the Policy Date of the Policy unless otherwise shown in
the Policy Data. This Rider has no loan or Cash Surrender Value.
BENEFIT - This Rider provides additional term insurance coverage on the life of
the person Insured under the Policy. We will pay the insurance provided by this
Rider upon receipt of due proof that the death of the Insured occurred while
this Rider was in force.
AMOUNT OF INSURANCE - The initial Adjustable Term Insurance Rider Amount is
shown in the Policy Data. The sum of the Base Face Amount and the face amount
of this Rider is the Target Face Amount, which is also shown in the Policy Data.
The amount of insurance provided by this Rider depends on the Death Benefit
Option in effect at each Monthly Processing Date or the date of the Insured's
death.
Option A - The amount of insurance provided by this Rider will be determined so
that (a) is equal to (b) where:
a. is the Base Death Benefit plus the amount of insurance provided by this
Rider; and
b. is the Target Face Amount.
Option B - The amount of insurance provided by this Rider will be determined so
that (a) is equal to (b) where:
a. is the Base Death Benefit plus the amount of insurance provided by this
Rider; and
b. is the Target Face Amount plus the Policy Value.
The Rider amount will decrease when the Base Death Benefit begins increasing due
to the Internal Revenue Code requirement to maintain a certain multiple of the
Policy Value, as described in the Death Benefit provision of the Policy. The
amount of insurance provided by this Rider will increase again if the Base Death
Benefit decreases at a later date.
If the Base Death Benefit becomes greater than or equal to the Target Face
Amount, the Rider amount will reduce to zero. If the Rider amount is equal to
zero, the Rider does not terminate, but remains in force in the event that the
Base Death Benefit declines below the Target Face Amount again at a later date.
COST OF INSURANCE - While this Rider is in force, the Monthly Deduction
described in Section 8 of the Policy will include the Cost of Insurance for the
benefits provided by this Rider. The Monthly Cost of Insurance for this Rider
will be calculated as (a) multiplied by (b) where:
a. is the Cost of Insurance Rate divided by 1,000; and
b. is the amount of insurance determined on the Monthly Processing Date as
described above.
The Cost of Insurance Rate for the Insured is determined as described in the
Cost of Insurance Rate provision of the Policy.
CHANGE IN AMOUNT OF INSURANCE - You may increase or decrease the amount of this
Rider on any Monthly Processing Date after the first Policy Year as described in
the Change in Face Amount provision of the Policy.
ERRORS IN AGE OR SEX - If the Insured's age or sex is misstated on the
application for this Rider, the benefits under this Rider will be the amount
which would have been provided by the last Cost of Insurance charge at the
correct age and sex.
SUICIDE EXCLUSION - If the Insured dies by suicide, while sane or insane, within
two years from the effective date of this Rider, our liability will be limited
to the total Cost of Insurance charges deducted for this Rider. If the Insured
dies by suicide, while sane or insane, within two years from the effective date
of any increase in the amount of this Rider, our liability with respect to that
increase will be limited to the total Cost of Insurance charges deducted for
that increase.
<PAGE>
INCONTESTABILITY - The coverage provided under this Rider will be incontestable
after it has been in force during the lifetime of the Insured for two years from
its effective date. Any increase in the amount of this Rider will be
incontestable after the increase has been in force during the lifetime of the
Insured for two years from the effective date of the increase.
TERMINATION - This Rider will terminate on the earliest of:
1. the Policy Anniversary nearest the Insured's 100th birthday;
2. the date that the Policy is surrendered, terminated, exchanged, or matures;
or
3. the Monthly Processing Date coinciding with or next following the date we
receive your Written Request to terminate this Rider.
UNITED INVESTORS LIFE INSURANCE COMPANY
<PAGE>
CHANGE OF PERSON INSURED RIDER
________________________________________________________________________________
This Rider is made a part of the Policy to which it is attached. This benefit
is subject to all the provisions of this Rider and the Policy. The effective
date of this Rider is the Policy Date of the Policy unless otherwise shown in
the Policy Data. This Rider has no loan or Cash Surrender Value.
BENEFIT - This Rider permits the replacement of the person Insured under the
Policy with a different person. The Policy will be continued on the life of the
new Insured subject to the conditions described in this Rider. Before the
change occurs, you must:
1. submit an application for the change signed by you and the proposed new
Insured;
2. provide evidence of the new Insured's insurability satisfactory to us;
3. provide evidence of an insurable interest in the new Insured; and
4. return the Policy to us for the appropriate changes.
If the Policy is subject to any assignment, you must also provide evidence of
the release of the assignment, or written approval of the change by the
assignee, plus any other documentation we may need. The approval of the new
Insured will be subject to all of our normal underwriting rules and guidelines,
including any age limits on the sale of new Policies.
EFFECTIVE DATE OF CHANGE - The Date of Change will be the Monthly Processing
Date on or following the date we approve the change. Coverage on the prior
Insured will end on the day before the Date of Change. Coverage on the new
Insured will begin on the Date of Change.
TAXATION - Under current federal tax law, the exercise of this benefit is taxed
as if the Policy were surrendered in full for cash. You may realize taxable
income in such event.
EFFECT ON POLICY BENEFITS AND PROVISIONS -
Policy Date - The Policy Date will not change unless the new Insured was born
after the Policy's current Policy Date. In that event, the new Policy Date will
be the first Policy Anniversary after the birthdate of the new Insured.
Base Face Amount - The Base Face Amount of the Policy will remain the same
unless increased or decreased as provided in the Change in Face Amount provision
of the Policy. The Base Face Amount may have to be increased in order for the
Policy to continue to qualify as life insurance for federal income tax purposes
after the Date of Change.
Monthly Cost of Insurance Charges - Beginning with the Date of Change, the
Monthly Cost of Insurance Charge for the Policy will be determined using a Cost
of Insurance Rate based on the new Insured's Age, Sex and Risk Class. The
Guaranteed Maximum Cost of Insurance Rates will also be based on the new
Insured's Age, Sex and Risk Class. All other factors used in determining the
Cost of Insurance Rate will remain the same as before the Date of Change, such
as the duration since issue of the Policy. No cost of insurance deduction is
made for this Rider before or after the Date of Change.
Policy Values and Policy Loans - The Policy Value and the Loan Balance as of the
Date of Change will remain the same as before the change. Changes in the Policy
Value beginning with the Date of Change will be based on the deductions for the
new Insured.
Owner, Beneficiary, and Assignments - The Owner and Beneficiary of the Policy
will remain the same unless changed as provided in the Policy. The Policy will
remain subject to any existing assignments unless they are released prior to the
change as described above.
<PAGE>
Riders - Any Riders attached to the Policy will terminate with the coverage for
the prior Insured on the day before the Date of Change. Any Riders added on or
after the Date of Change will be subject to our underwriting rules and
guidelines as applied to the new Insured. The cost of insurance for any Rider
benefit will be based on the person insured under the Rider benefit after the
Date of Change.
Incontestability - The Policy will be incontestable after it has been in force
during the lifetime of the new Insured for two years from the Date of Change,
with respect to any representations made in the application for the change of
Insured.
Suicide Exclusion - The period of years of the Suicide Exclusion provision
stated in the Policy will apply to the Policy from the Date of Change. On and
after the Date of Change, the words "Policy Date" in the first paragraph of the
Suicide Exclusion Provision of the Policy should be replaced with the words
"Date of Change."
TERMINATION - This Rider will terminate on the earliest of:
1. the date the Policy is surrendered, terminated, exchanged, or matures; or
2. the date that the benefit provided by this Rider to change to a different
Insured is exercised; or
3. the Monthly Processing Date coinciding with or next following the date we
receive your Written Request to terminate this Rider.
UNITED INVESTORS LIFE INSURANCE COMPANY
<PAGE>
CHILDREN'S TERM INSURANCE RIDER
________________________________________________________________________________
This Rider is made a part of the Policy to which it is attached. This benefit
is subject to all the provisions of this Rider and the Policy. The effective
date of this Rider is the Policy Date of the Policy, unless otherwise shown in
the Policy Data. This Rider has no loan or Cash Surrender Value.
BENEFIT - We agree to pay the insurance provided by this Rider upon receipt of
due proof that the death of an Insured Child occurred while this Rider was in
force. The amount of insurance provided by this Rider is shown in the Policy
Data.
DEFINITION OF INSURED CHILDREN - An Insured Child, referred to in this Rider as
"Child," is a person who:
1. has attained age 14 days; and
2. is a natural child, adopted child or step child of the Insured; or
3. was acquired by the Insured after the date of the application; and
4. had not attained age 22 on the date of the application for this benefit.
COST OF INSURANCE - While this Rider is in force, the Monthly Deduction
described in Section 8 of the Policy will include the Cost of Insurance for the
benefits provided by this Rider. The Monthly Cost of Insurance for this Rider
is shown in the Policy Data.
EXPIRY OF INSURANCE ON EACH CHILD - The expiry date of the insurance on the life
of each Child is the earliest of:
1. the Policy Anniversary nearest the 25th birthday of such Child;
2. the Policy Anniversary nearest the Insured's 65th birthday; or
3. 90 days after the death of the person Insured under the Policy.
OPTION FOR CONVERSION UPON EXPIRY - When the insurance on the life of each Child
expires, it may be converted without evidence of insurability to a new Policy.
The Owner must make a proper written application for conversion. The first
Premium for the new Policy must be paid within 31 days of the expiry date of the
insurance being converted. The new Policy will be issued:
1. on any level premium whole life plan we are issuing at that time;
2. for an amount of insurance not greater than 5 times the amount of insurance
provided by this Rider;
3. at a Premium according to our rates then in use for the Child's age at that
time;
4. with additional benefits included only with our consent.
If a Child eligible for a new Policy dies within the period permitted for
conversion, but before the date of issue of the new Policy, the amount of
insurance in effect under this Rider will be paid as if death occurred while
insurance under this Rider on the life of such Child was in force.
DEATH OF THE INSURED - If the death of the Insured occurs prior to the Policy
Anniversary nearest the Insured's 65th birthday, the insurance on the life of
each Child may be converted without evidence of insurability to a new Policy.
The Owner must make a proper written application for conversion and pay the
first Premium within 90 days following the date of the Insured's death.
<PAGE>
BENEFICIARY - The Beneficiary for insurance on each Child insured under this
Rider is the Owner, if living, otherwise the estate of such Child. You may
change the Beneficiary at any time.
OWNERSHIP - During the lifetime of the Insured, you will be the Owner of the
insurance provided by this Rider. After the death of the Insured, you will be
the Owner, if living; otherwise each Insured Child will be the Owner of
insurance on such Child's life.
SUICIDE EXCLUSION - If the Insured commits suicide, while sane or insane, within
2 years from the effective date of this Rider, our liability will be limited to
the total Cost of Insurance charges deducted for this Rider while the Rider was
in force.
ERRORS IN AGE - If the age of the Insured has been misstated, the expiry date of
this Rider or the dates of expiry of insurance provided by this Rider will be
those dates according to the correct age.
TERMINATION - This Rider will terminate on the earliest of:
1. the Policy Anniversary nearest the Insured's 65th birthday;
2. the date that the Policy is surrendered, terminated, exchanged, or matures;
or
3. the Monthly Processing Date coinciding with or next following the date we
receive your Written Request to terminate this Rider.
It is the Owner's responsibility to notify us that their youngest Child has
reached age 25 and to request termination of this Rider.
UNITED INVESTORS LIFE INSURANCE COMPANY
<PAGE>
DEATH BENEFIT GUARANTEE RIDER
________________________________________________________________________________
This Rider is made a part of the Policy to which it is attached. This benefit
is subject to all the provisions of this Rider and the Policy. The effective
date of this Rider is the Policy Date of the Policy. This Rider has no loan or
Cash Surrender Value.
BENEFIT - This Rider provides that the Base Face Amount of the Policy will
remain in effect during the Death Benefit Guarantee Period shown in the Policy
Data, even if the Net Cash Surrender Value is insufficient to pay Monthly
Deductions, as long as this Rider remains in force. During the first three
Policy Years, this Rider will remain in force as long as the Policy remains in
force as described in the No-Lapse Guarantee and Grace Period provisions of the
Policy. After the first three Policy Years, this Rider will remain in force at
each Monthly Processing Date only if (a) is greater than or equal to (b) where:
a. is the total Premiums paid, less Gross Withdrawals and any Loan Balance; and
b. is the cumulative amount of Death Benefit Guarantee Required Premiums for the
number of Policy Months the Policy has been in force.
The Death Benefit Guarantee Required Premium is shown in the Policy Data for the
Death Benefit Guarantee Period you selected when you applied for the Policy. If
the Death Benefit Guarantee Required Premium changes after the Policy Date due
to changes in benefits, the total Premium amount required to keep this Rider in
force will be based on the various Death Benefit Guarantee Required Premiums in
effect and the number of months for which each applied.
The Death Benefit Guarantee does not apply to any benefits provided by other
Riders, and those Riders may lapse even though the Base Face Amount remains in
force. If this Rider terminates due to insufficient Premium payments, it may
not be restored or reinstated by the payment of Additional Premiums.
COST OF INSURANCE - While this Rider is in force, the Monthly Deduction
described in Section 8 of the Policy will include the Death Benefit Guarantee
Charge for the Rider shown in the Policy Data. The Death Benefit Guarantee
Charge will never exceed the Maximum Death Benefit Guarantee Charge shown in the
Policy Data.
TERMINATION - This Rider will terminate on the earliest of:
1. the end of the Death Benefit Guarantee Period shown in the Policy Data; or
2. the end of a Grace Period of 61 days following the Monthly Processing Date on
which the total Premiums paid fail to meet the Premium requirements described
above; or
3. the date that the Policy is surrendered, terminated, exchanged, or matures;
or
4. the Monthly Processing Date coinciding with or next following the date we
receive your Written Request to terminate this Rider.
UNITED INVESTORS LIFE INSURANCE COMPANY
<PAGE>
DISABILITY WAIVER OF MONTHLY DEDUCTION RIDER
________________________________________________________________________________
This Rider is made a part of the Policy to which it is attached. This benefit
is subject to all the provisions of this Rider and the Policy. The effective
date of this Rider is the Policy Date of the Policy unless otherwise shown in
the Policy Data. This Rider has no loan or Cash Surrender Value.
BENEFIT - This Rider provides for the waiver of the Monthly Deduction described
in Section 8 of the Policy. The Monthly Deduction will be waived while the
Insured is Totally Disabled provided that:
1. we receive due proof of the Total Disability of the Insured, as that term is
defined in this Rider;
2. the Total Disability has existed continuously for at least six months;
3. this Rider and the Policy are in force at the time Total Disability begins;
and
4. the Policy Anniversary nearest the Insured's 60th birthday has not passed at
the time Total Disability begins.
However, we will not waive Monthly Deductions for a period of more than one year
prior to receiving written notice of the claim at our Administrative Office,
unless notice could not reasonably have been given sooner. If this Rider was not
requested at the time of a Face Amount Increase, or if the Insured did not
qualify for this Rider at the time of the Face Amount Increase, Monthly
Deductions attributable to that increase will not be waived.
If the Total Disability of the Insured begins during the Grace Period, a Premium
sufficient to cover the Monthly Deductions, as described in the Grace Period
Provision in Section 7 of the Policy, must be paid to us before any Monthly
Deductions will be waived.
DEFINITION OF TOTAL DISABILITY - Total Disability means that the Insured, as a
result of bodily injury or disease, is unable to work at any occupation for
which the Insured is qualified by education, training or experience, with due
regard to his vocation and earnings prior to disability. Total Disability also
means the complete and irrevocable loss of sight in both eyes, loss of the use
of both hands or both feet, or one hand and one foot.
RISKS NOT COVERED - No Premium will be waived if disability results from:
1. an intentionally self-inflicted injury; or
2. an act attributable to war, whether declared or undeclared, while the Insured
is in the military service of any country.
PROOF - Before any Monthly Deduction is waived, we must receive Written Proof of
Total Disability at our Administrative Office. Proof of continuance of
disability, including medical examination by physicians we designate, must be
furnished at reasonable intervals upon request. After 2 years of Total
Disability, proof will not be required more often than once a year. If the
required proof is not given or if the Insured recovers, no further Monthly
Deductions will be waived.
COST OF INSURANCE - While this Rider is in force, the Monthly Deduction
described in Section 8 of the Policy will include the Cost of Insurance for the
benefits provided by this Rider. The Monthly Cost of Insurance for this Rider
will be calculated as (a) multiplied by (b) where:
a. is the Cost of Insurance Rate for this Rider; and
b. is the Monthly Deduction for the Policy and all Riders other than this Rider.
COST OF INSURANCE RATE - The Cost of Insurance Rates for this Rider are shown in
the Policy Data. The Cost of Insurance Rates for each Policy Year will be based
on the Insured's Age at the beginning of the Policy Year.
<PAGE>
EFFECT ON POLICY PROVISIONS - If Monthly Deductions are being waived as provided
in this Rider, we will not allow changes in the Policy Face Amount or in the
Death Benefit Option.
INCONTESTABILITY - This Rider will be incontestable, after it has been in force
during the lifetime of the Insured for two years from its effective date.
TERMINATION - This Rider will terminate on the earliest of:
1. the Policy Anniversary nearest the Insured's 60th birthday, provided that
such termination will not affect any benefit which became payable because of
Total Disability which began prior to that Policy Anniversary;
2. the date the Policy is surrendered, terminated, exchanged, or matures; or
3. the Monthly Processing Date coinciding with or next following the date we
receive your Written Request to terminate this Rider.
UNITED INVESTORS LIFE INSURANCE COMPANY
<PAGE>
DISABILITY WAIVER OF SPECIFIED PREMIUM RIDER
________________________________________________________________________________
This Rider is made a part of the Policy to which it is attached. This benefit
is subject to all the provisions of this Rider and the Policy. The effective
date of this Rider is the Policy Date of the Policy unless otherwise shown in
the Policy Data. This Rider has no loan or Cash Surrender Value.
BENEFIT - This Rider provides for the monthly addition of a Specified Premium
Amount to the Policy Value while the Insured is Totally Disabled. You select the
Specified Premium Amount at the time this Rider is added to the Policy, and may
not increase the amount without providing evidence of insurability satisfactory
to us. The Specified Premium will be credited to the Policy Value each month
while the Insured is Totally Disabled provided that:
1. we receive due proof of the Total Disability of the Insured, as that term is
defined in this Rider;
2. the Total Disability has existed continuously for at least six months;
3. this Rider and the Policy are in force at the time Total Disability begins;
and
4. the Policy Anniversary nearest the Insured's 60th birthday has not passed at
the time Total Disability begins.
However, we will not credit the Specified Premium for more than 12 months prior
to receiving Written Notice of the claim at our Administrative Office, unless
notice could not reasonably have been given sooner.
If the Total Disability of the Insured begins during the Grace Period, a Premium
sufficient to cover the Monthly Deductions, as described in the Grace Period
Provision in Section 7 of the Policy, must be paid to us before any Specified
Premium Amounts will be credited.
DEFINITION OF TOTAL DISABILITY - Total Disability means that the Insured, as a
result of bodily injury or disease, is unable to work at any occupation for
which the Insured is qualified by education, training or experience, with due
regard to his vocation and earnings prior to disability. Total Disability also
means the complete and irrevocable loss of sight in both eyes, loss of the use
of both hands or both feet, or one hand and one foot.
RISKS NOT COVERED - No Premium will be waived if disability results from:
1. an intentionally self-inflicted injury; or
2. an act attributable to war, whether declared or undeclared, while the Insured
is in the military service of any country.
PROOF - Before any Specified Premium is credited, we must receive Written Proof
of Total Disability at our Administrative Office. Proof of continuance of
disability, including medical examination by physicians we designate, must be
furnished at reasonable intervals upon request. After 2 years of Total
Disability, proof will not be required more often than once a year. If the
required proof is not given or if the Insured recovers, no further Specified
Premiums will be credited.
COST OF INSURANCE - While this Rider is in force, the Monthly Deduction
described in Section 8 of the Policy will include the Cost of Insurance for the
benefits provided by this Rider. The Monthly Cost of Insurance for this Rider
will be calculated as (a) multiplied by (b) where:
a. is the Cost of Insurance Rate for this Rider; and
b. is the Specified Premium Amount.
COST OF INSURANCE RATE - The Cost of Insurance Rates for this Rider are shown in
the Policy Data. The Cost of Insurance Rates for each Policy Year will be based
on the Insured's Age at the beginning of the Policy Year.
<PAGE>
EFFECT ON POLICY PROVISIONS - If Specified Premiums are being waived as provided
in this Rider, we will not allow changes to the Specified Premium Amount, or any
changes to the Face Amount which would cause the Policy to lose qualification as
life insurance under the Internal Revenue Code.
INCONTESTABILITY - This Rider will be incontestable, after it has been in force
during the lifetime of the Insured for two years from its effective date.
TERMINATION - This Rider will terminate on the earliest of:
1. the Policy Anniversary nearest the Insured's 60th birthday, provided that
such termination will not affect any benefit which became payable because of
Total Disability which began prior to that Policy Anniversary;
2. the date the Policy is surrendered, terminated, exchanged, or matures; or
3. the Monthly Processing Date coinciding with or next following the date we
receive your Written Request to terminate this Rider.
UNITED INVESTORS LIFE INSURANCE COMPANY
<PAGE>
OPTION TO PURCHASE ADDITIONAL INSURANCE RIDER
________________________________________________________________________________
This Rider is made a part of the Policy to which it is attached. This benefit
is subject to all the provisions of this Rider and the Policy. The effective
date of this Rider is the Policy Date of the Policy unless otherwise shown in
the Policy Data. This Rider has no loan or Cash Surrender Value.
BENEFIT - Subject to the conditions of this Rider, you may increase the Base
Face Amount of the Policy at specified Option Dates. The increase will be made
as described in the Face Amount Increase provision of the Policy, but without
requiring evidence of insurability. An increase in Base Face Amount equal to
the amount of this Rider shown in the Policy Data will become effective on the
Option Date if:
1. you make a Written Request for the increase during the 90 day period prior to
the Option Date;
2. the Policy and this Rider are in force and not in the Grace Period on the
Option Date; and
3. the Insured is alive on the Option Date.
The Risk Class that applies to the increase will be the same Risk Class as the
original Base Face Amount. Disability Waiver of Monthly Deductions will be
available for the increase if, on the Option Date, the Policy has a Disability
Waiver of Monthly Deductions Rider attached and in force, and the Insured is not
totally disabled as defined in the Rider.
OPTION DATES - Regular Option Dates are the Policy Anniversaries nearest the
Insured's 22/nd/, 25/th/, 28/th/, 31/st/, 34/th/, 37/th/, and 40/th/
birthdays. Your right to increase the Base Face Amount on any Option Date will
expire if it is not exercised before that date. You may exercise the option to
increase the Base Face Amount on certain additional Option Dates in the
following circumstances:
1. on the Policy Anniversary nearest the Insured's 43/rd/ birthday if at least
50 percent of the options available to that date have been exercised;
2. on the Policy Anniversary nearest the Insured's 46/th/ birthday if the option
was exercised at age 43;
3. on the Policy Anniversary nearest the Insured's 49/th/ birthday if the option
was exercised at age 46; and
4. during the 90 day period following the marriage of the Insured, the live
birth of a child born to the Insured, or the legal adoption of a child by the
Insured, provided that the qualifying event occurs prior to the Policy
Anniversary nearest the Insured's 45/th/ birthday.
An increase you request following marriage, birth or adoption will become
effective on the first Monthly Processing Date on or after you make the Written
Request. In the event of an adoption, a final decree of the court granting the
adoption must be submitted as evidence when you make the request.
COST OF INSURANCE - While this Rider is in force, the Monthly Deduction
described in Section 8 of the Policy will include the Cost of Insurance for the
benefits provided by this Rider. The Monthly Cost of Insurance for this Rider
is shown in the Policy Data, and will be payable until the Policy Anniversary
nearest the Insured's 40/th/ birthday. It is based on the amount of this Rider
shown in the Policy Data, which you selected when you applied for this Rider.
Monthly Cost of Insurance Charges after the exercise of an option will reflect
the additional cost of the increase in the Base Face Amount.
TERMINATION - This Rider will terminate on the earliest of:
1. the last eligible Option Date; or
<PAGE>
2. the date that the Policy is surrendered, terminated, exchanged, or matures;
or
3. the Monthly Processing Date coinciding with or next following the date we
receive your Written Request to terminate this Rider.
UNITED INVESTORS LIFE INSURANCE COMPANY
<PAGE>
EXHIBIT 1.A.(8)
Forms of Participation Agreements
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT is made this _____ day of ______________ , 1999, by and
among The Alger American Fund (the "Trust"), an open-end management investment
company organized as a Massachusetts business trust, United Investors Life, a
life insurance company organized as a corporation under the laws of the State of
_______________, (the "Company"), on its own behalf and on behalf of each
segregated asset account of the Company set forth in Schedule A, as may be
amended from time to time (the "Accounts"), and Fred Alger & Company,
Incorporated, a Delaware corporation, the Trust's distributor (the
"Distributor").
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "Commission") as an open-end management investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"), and has an
effective registration statement relating to the offer and sale of the various
series of its shares under the Securities Act of 1933, as amended (the "1933
Act");
WHEREAS, the Trust and the Distributor desire that Trust shares be used as
an investment vehicle for separate accounts established for variable life
insurance policies and variable annuity contracts to be offered by life
insurance companies which have entered into fund participation agreements with
the Trust (the "Participating Insurance Companies");
WHEREAS, shares of beneficial interest in the Trust are divided into the
following series which are available for purchase by the Company for the
Accounts: Alger American Small Capitalization Portfolio, Alger American Growth
Portfolio, Alger American Income and Growth Portfolio, Alger American Balanced
Portfolio, Alger American MidCap Growth Portfolio, and Alger American Leveraged
AllCap Portfolio;
WHEREAS, the Trust has received an order from the Commission, dated
February 17, 1989 (File No. 812-7076), granting Participating Insurance
Companies and their separate accounts exemptions from the provisions of Sections
9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and Rules 6e-2(b)(15) and 6e-
3(T)(b)(15) thereunder, to the extent necessary to permit shares of the
Portfolios of the Trust to be sold to and held by variable annuity and variable
life insurance separate accounts of both affiliated and unaffiliated life
insurance companies (the "Shared Funding Exemptive Order");
WHEREAS, the Company has registered or will register under the 1933 Act
certain variable life insurance policies and variable annuity contracts to be
issued by the Company under which the Portfolios are to be made available as
investment vehicles (the "Contracts");
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act unless an exemption from registration under
the 1940 Act is available and the Trust has been so advised;
1
<PAGE>
WHEREAS, the Company desires to use shares of the Portfolios indicated on
Schedule A as investment vehicles for the Accounts;
NOW THEREFORE, in consideration of their mutual promises, the parties agree
as follows:
ARTICLE I.
Purchase and Redemption of Trust Portfolio Shares
-------------------------------------------------
1.1. For purposes of this Article I, the Company shall be the Trust's agent for
the receipt from each account of purchase orders and requests for
redemption pursuant to the Contracts relating to each Portfolio, provided
that the Company notifies the Trust of such purchase orders and requests
for redemption by 9:30 a.m. Eastern time on the next following Business
Day, as defined in Section 1.3.
1.2. The Trust shall make shares of the Portfolios available to the Accounts at
the net asset value next computed after receipt of a purchase order by the
Trust (or its agent), as established in accordance with the provisions of
the then current prospectus of the Trust describing Portfolio purchase
procedures. The Company will transmit orders from time to time to the
Trust for the purchase and redemption of shares of the Portfolios. The
Trustees of the Trust (the "Trustees") may refuse to sell shares of any
Portfolio to any person, or suspend or terminate the offering of shares of
any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or if, in the sole discretion of the
Trustees acting in good faith and in light of their fiduciary duties under
federal and any applicable state laws, such action is deemed in the best
interests of the shareholders of such Portfolio.
1.3. The Company shall pay for the purchase of shares of a Portfolio on behalf
of an Account with federal funds to be transmitted by wire to the Trust,
with the reasonable expectation of receipt by the Trust by 2:00 p.m.
Eastern time on the next Business Day after the Trust (or its agent)
receives the purchase order. Upon receipt by the Trust of the federal
funds so wired, such funds shall cease to be the responsibility of the
Company and shall become the responsibility of the Trust for this purpose.
"Business Day" shall mean any day on which the New York Stock Exchange is
open for trading and on which the Trust calculates its net asset value
pursuant to the rules of the Commission.
1.4. The Trust will redeem for cash any full or fractional shares of any
Portfolio, when requested by the Company on behalf of an Account, at the
net asset value next computed after receipt by the Trust (or its agent) of
the request for redemption, as established in accordance with the
provisions of the then current prospectus of the Trust describing
Portfolio redemption procedures. The Trust shall make payment for such
shares in the manner established from time to time by the Trust. Proceeds
of redemption with respect to a Portfolio will normally be paid to the
Company for an Account in federal funds transmitted by wire to the Company
2
<PAGE>
by order of the Trust with the reasonable expectation of receipt by the
Company by 2:00 p.m. Eastern time on the next Business Day after the
receipt by the Trust (or its agent) of the request for redemption. Such
payment may be delayed if, for example, the Portfolio's cash position so
requires or if extraordinary market conditions exist, but in no event
shall payment be delayed for a greater period than is permitted by the
1940 Act. The Trust reserves the right to suspend the right of redemption,
consistent with Section 22(e) of the 1940 Act and any rules thereunder.
1.5. Payments for the purchase of shares of the Trust's Portfolios by the
Company under Section 1.3 and payments for the redemption of shares of the
Trust's Portfolios under Section 1.4 on any Business Day may be netted
against one another for the purpose of determining the amount of any wire
transfer.
1.6. Issuance and transfer of the Trust's Portfolio shares will be by book
entry only. Stock certificates will not be issued to the Company or the
Accounts. Portfolio Shares purchased from the Trust will be recorded in
the appropriate title for each Account or the appropriate subaccount of
each Account.
1.7. The Trust shall furnish, on or before the ex-dividend date, notice to the
Company of any income dividends or capital gain distributions payable on
the shares of any Portfolio of the Trust. The Company hereby elects to
receive all such income dividends and capital gain distributions as are
payable on a Portfolio's shares in additional shares of that Portfolio.
The Trust shall notify the Company of the number of shares so issued as
payment of such dividends and distributions.
1.8. The Trust shall calculate the net asset value of each Portfolio on each
Business Day, as defined in Section 1.3. The Trust shall make the net
asset value per share for each Portfolio available to the Company or its
designated agent on a daily basis as soon as reasonably practical after
the net asset value per share is calculated and shall use its best efforts
to make such net asset value per share available to the Company by 6:30
p.m. Eastern time each Business Day.
1.9. The Trust agrees that its Portfolio shares will be sold only to
Participating Insurance Companies and their segregated asset accounts, to
the Fund Sponsor or its affiliates and to such other entities as may be
permitted by Section 817(h) of the Code, the regulations hereunder, or
judicial or administrative interpretations thereof. No shares of any
Portfolio will be sold directly to the general public. The Company agrees
that it will use Trust shares only for the purposes of funding the
Contracts through the Accounts listed in Schedule A, as amended from time
to time.
1.10. The Trust agrees that all Participating Insurance Companies shall have the
obligations and responsibilities regarding pass-through voting and
conflicts of interest corresponding materially to those contained in
Section 2.9 and Article IV of this Agreement.
3
<PAGE>
ARTICLE II.
Obligations of the Parties
--------------------------
2.1. The Trust shall prepare and be responsible for filing with the Commission
and any state regulators requiring such filing all shareholder reports,
notices, proxy materials (or similar materials such as voting instruction
solicitation materials), prospectuses and statements of additional
information of the Trust. The Trust shall bear the costs of registration
and qualification of shares of the Portfolios, preparation and filing of
the documents listed in this Section 2.1 and all taxes to which an issuer
is subject on the issuance and transfer of its shares.
2.2. The Company shall distribute such prospectuses, proxy statements and
periodic reports of the Trust to the Contract owners as required to be
distributed to such Contract owners under applicable federal or state law.
2.3. The Trust shall provide such documentation (including a final copy of the
Trust's prospectus as set in type or in camera-ready copy) and other
assistance as is reasonably necessary in order for the Company to print
together in one document the current prospectus for the Contracts issued
by the Company and the current prospectus for the Trust. The Trust shall
bear the expense of printing copies of its current prospectus that will be
distributed to existing Contract owners, and the Company shall bear the
expense of printing copies of the Trust's prospectus that are used in
connection with offering the Contracts issued by the Company.
2.4. The Trust and the Distributor shall provide (1) at the Trust's expense,
one copy of the Trust's current Statement of Additional Information
("SAI") to the Company and to any Contract owner who requests such SAI,
(2) at the Company's expense, such additional copies of the Trust's
current SAI as the Company shall reasonably request and that the Company
shall require in accordance with applicable law in connection with
offering the Contracts issued by the Company.
2.5. The Trust, at its expense, shall provide the Company with copies of its
proxy material, periodic reports to shareholders and other communications
to shareholders in such quantity as the Company shall reasonably require
for purposes of distributing to Contract owners. The Trust, at the
Company's expense, shall provide the Company with copies of its periodic
reports to shareholders and other communications to shareholders in such
quantity as the Company shall reasonably request for use in connection
with offering the Contracts issued by the Company. If requested by the
Company in lieu thereof, the Trust shall provide such documentation
(including a final copy of the Trust's proxy materials, periodic reports
to shareholders and other communications to shareholders, as set in type
or in camera-ready copy) and other assistance as reasonably necessary in
order for the Company to print such shareholder communications for
distribution to Contract owners.
4
<PAGE>
2.6. The Company agrees and acknowledges that the Distributor is the sole owner
of the name and mark "Alger" and that all use of any designation comprised
in whole or part of such name or mark under this Agreement shall inure to
the benefit of the Distributor. Except as provided in Section 2.5, the
Company shall not use any such name or mark on its own behalf or on behalf
of the Accounts or Contracts in any registration statement, advertisement,
sales literature or other materials relating to the Accounts or Contracts
without the prior written consent of the Distributor. Upon termination of
this Agreement for any reason, the Company shall cease all use of any such
name or mark as soon as reasonably practicable.
2.7. The Company shall furnish, or cause to be furnished, to the Trust or its
designee a copy of each Contract prospectus and/or statement of additional
information describing the Contracts, each report to Contract owners,
proxy statement, application for exemption or request for no-action letter
in which the Trust or the Distributor is named contemporaneously with the
filing of such document with the Commission. The Company shall furnish, or
shall cause to be furnished, to the Trust or its designee each piece of
sales literature or other promotional material in which the Trust or the
Distributor is named, at least five Business Days prior to its use. No
such material shall be used if the Trust or its designee reasonably
objects to such use within three Business Days after receipt of such
material.
2.8. The Company shall not give any information or make any representations or
statements on behalf of the Trust or concerning the Trust or the
Distributor in connection with the sale of the Contracts other than
information or representations contained in and accurately derived from
the registration statement or prospectus for the Trust shares (as such
registration statement and prospectus may be amended or supplemented from
time to time), annual and semi-annual reports of the Trust, Trust-
sponsored proxy statements, or in sales literature or other promotional
material approved by the Trust or its designee, except as required by
legal process or regulatory authorities or with the prior written
permission of the Trust, the Distributor or their respective designees.
The Trust and the Distributor agree to respond to any request for approval
on a prompt and timely basis. The Company shall adopt and implement
procedures reasonably designed to ensure that "broker only" materials
including information therein about the Trust or the Distributor are not
distributed to existing or prospective Contract owners.
2.9. The Trust shall use its best efforts to provide the Company, on a timely
basis, with such information about the Trust, the Portfolios and the
Distributor, in such form as the Company may reasonably require, as the
Company shall reasonably request in connection with the preparation of
registration statements, prospectuses and annual and semi-annual reports
pertaining to the Contracts.
2.10. The Trust and the Distributor shall not give, and agree that no affiliate
of either of them shall give, any information or make any representations
or statements on behalf of the Company or concerning the Company, the
Accounts or the Contracts other than information or representations
contained in and accurately derived from the registration statement or
5
<PAGE>
prospectus for the Contracts (as such registration statement and
prospectus may be amended or supplemented from time to time), or in
materials approved by the Company for distribution including sales
literature or other promotional materials, except as required by legal
process or regulatory authorities or with the prior written permission of
the Company. The Company agrees to respond to any request for approval on
a prompt and timely basis.
2.11. So long as, and to the extent that, the Commission interprets the 1940 Act
to require pass-through voting privileges for Contract owners, the Company
will provide pass-through voting privileges to Contract owners whose cash
values are invested, through the registered Accounts, in shares of one or
more Portfolios of the Trust. The Trust shall require all Participating
Insurance Companies to calculate voting privileges in the same manner and
the Company shall be responsible for assuring that the Accounts calculate
voting privileges in the manner established by the Trust. With respect to
each registered Account, the Company will vote shares of each Portfolio of
the Trust held by a registered Account and for which no timely voting
instructions from Contract owners are received in the same proportion as
those shares for which voting instructions are received. The Company and
its agents will in no way recommend or oppose or interfere with the
solicitation of proxies for Portfolio shares held to fund the Contacts
without the prior written consent of the Trust, which consent may be
withheld in the Trust's sole discretion. The Company reserves the right,
to the extent permitted by law, to vote shares held in any Account in its
sole discretion.
2.12. The Company and the Trust will each provide to the other information about
the results of any regulatory examination relating to the Contracts or the
Trust, including relevant portions of any "deficiency letter" and any
response thereto.
2.13. No compensation shall be paid by the Trust to the Company, or by the
Company to the Trust, under this Agreement (except for specified expense
reimbursements). However, nothing herein shall prevent the parties hereto
from otherwise agreeing to perform, and arranging for appropriate
compensation for, other services relating to the Trust, the Accounts or
both.
ARTICLE III.
Representations and Warranties
------------------------------
3.1. The Company represents and warrants that it is an insurance company duly
organized and in good standing under the laws of the State of
_______________ and that it has legally and validly established each
Account as a segregated asset account under such law as of the date set
forth in Schedule A, and that United Securities Alliance, the principal
underwriter for the Contracts, is registered as a broker-dealer under the
Securities Exchange Act of 1934 and is a member in good standing of the
National Association of Securities Dealers, Inc.
3.2. The Company represents and warrants that it has registered or, prior to
any issuance or sale of the Contracts, will register each Account as a
unit investment trust in accordance with the
6
<PAGE>
provisions of the 1940 Act and cause each Account to remain so registered
to serve as a segregated asset account for the Contracts, unless an
exemption from registration is available.
3.3. The Company represents and warrants that the Contracts will be registered
under the 1933 Act unless an exemption from registration is available
prior to any issuance or sale of the Contracts; the Contracts will be
issued and sold in compliance in all material respects with all applicable
federal and state laws; and the sale of the Contracts shall comply in all
material respects with state insurance law suitability requirements.
3.4. The Trust represents and warrants that it is duly organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it
does and will comply in all material respects with the 1940 Act and the
rules and regulations thereunder.
3.5. The Trust and the Distributor represent and warrant that the Portfolio
shares offered and sold pursuant to this Agreement will be registered
under the 1933 Act and sold in accordance with all applicable federal and
state laws, and the Trust shall be registered under the 1940 Act prior to
and at the time of any issuance or sale of such shares. The Trust shall
amend its registration statement under the 1933 Act and the 1940 Act from
time to time as required in order to effect the continuous offering of its
shares. The Trust shall register and qualify its shares for sale in
accordance with the laws of the various states only if and to the extent
deemed advisable by the Trust.
3.6. The Trust represents and warrants that the investments of each Portfolio
will comply with the diversification requirements for variable annuity,
endowment or life insurance contracts set forth in Section 817(h) of the
Internal Revenue Code of 1986, as amended (the "Code"), and the rules and
regulations thereunder, including without limitation Treasury Regulation
1.817-5, and will notify the Company immediately upon having a reasonable
basis for believing any Portfolio has ceased to comply or might not so
comply and will immediately take all reasonable steps to adequately
diversify the Portfolio to achieve compliance within the grace period
afforded by Regulation 1.817-5.
3.7. The Trust represents and warrants that it is currently qualified as a
"regulated investment company" under Subchapter M of the Code, that it
will make every effort to maintain such qualification and will notify the
Company immediately upon having a reasonable basis for believing it has
ceased to so qualify or might not so qualify in the future.
3.8. The Trust represents and warrants that it, its directors, officers,
employees and others dealing with the money or securities, or both, of a
Portfolio shall at all times be covered by a blanket fidelity bond or
similar coverage for the benefit of the Trust in an amount not less than
the minimum coverage required by Rule 17g-1 or other applicable
regulations under the 1940 Act. Such bond shall include coverage for
larceny and embezzlement and be issued by a reputable bonding company.
7
<PAGE>
3.9. The Distributor represents that it is duly organized and validly existing
under the laws of the State of Delaware and that it is registered, and
will remain registered, during the term of this Agreement, as a broker-
dealer under the Securities Exchange Act of 1934 and is a member in good
standing of the National Association of Securities Dealers, Inc.
ARTICLE IV.
Potential Conflicts
-------------------
4.1. The parties acknowledge that a Portfolio's shares may be made available
for investment to other Participating Insurance Companies. In such event,
the Trustees will monitor the Trust for the existence of any material
irreconcilable conflict between the interests of the contract owners of
all Participating Insurance Companies. A material irreconcilable conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or
state insurance, tax or securities laws or regulations, or a public
ruling, private letter ruling, no-action or interpretative letter, or any
similar action by insurance, tax, or securities regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding; (d)
the manner in which the investments of any Portfolio are being managed;
(e) a difference in voting instructions given by variable annuity contract
and variable life insurance contract owners; or (f) a decision by an
insurer to disregard the voting instructions of contract owners. The Trust
shall promptly inform the Company of any determination by the Trustees
that a material irreconcilable conflict exists and of the implications
thereof.
4.2. The Company agrees to report promptly any potential or existing conflicts
of which it is aware to the Trustees. The Company will assist the Trustees
in carrying out their responsibilities under the Shared Funding Exemptive
Order by providing the Trustees with all information reasonably necessary
for and requested by the Trustees to consider any issues raised including,
but not limited to, information as to a decision by the Company to
disregard Contract owner voting instructions. All communications from the
Company to the Trustees may be made in care of the Trust.
4.3. If it is determined by a majority of the Trustees, or a majority of the
disinterested Trustees, that a material irreconcilable conflict exists
that affects the interests of contract owners, the Company shall, in
cooperation with other Participating Insurance Companies whose contract
owners are also affected, at its own expense and to the extent reasonably
practicable (as determined by the Trustees) take whatever steps are
necessary to remedy or eliminate the material irreconcilable conflict,
which steps could include: (a) withdrawing the assets allocable to some or
all of the Accounts from the Trust or any Portfolio and reinvesting such
assets in a different investment medium, including (but not limited to)
another Portfolio of the Trust, or submitting the question of whether or
not such segregation should be implemented to a vote of all affected
Contract owners and, as appropriate, segregating the assets of any
appropriate group (i.e., annuity contract owners, life insurance contract
owners,
8
<PAGE>
or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the
affected Contract owners the option of making such a change; and (b)
establishing a new registered management investment company or managed
separate account.
4.4. If a material irreconcilable conflict arises because of a decision by the
Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the
Company may be required, at the Trust's election, to withdraw the affected
Account's investment in the Trust and terminate this Agreement with respect
to such Account; provided, however that such withdrawal and termination
shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested
Trustees. Any such withdrawal and termination must take place within six
(6) months after the Trust gives written notice that this provision is
being implemented. Until the end of such six (6) month period, the Trust
shall continue to accept and implement orders by the Company for the
purchase and redemption of shares of the Trust.
4.5. If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Trust and terminate this Agreement
with respect to such Account within six (6) months after the Trustees
inform the Company in writing that the Trust has determined that such
decision has created a material irreconcilable conflict; provided, however,
that such withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as determined by
a majority of the disinterested Trustees. Until the end of such six (6)
month period, the Trust shall continue to accept and implement orders by
the Company for the purchase and redemption of shares of the Trust.
4.6. For purposes of Section 4.3 through 4.6 of this Agreement, a majority of
the disinterested Trustees shall determine whether any proposed action
adequately remedies any material irreconcilable conflict, but in no event
will the Trust be required to establish a new funding medium for any
Contract. The Company shall not be required to establish a new funding
medium for the Contracts if an offer to do so has been declined by vote of
a majority of Contract owners materially adversely affected by the material
irreconcilable conflict. In the event that the Trustees determine that any
proposed action does not adequately remedy any material irreconcilable
conflict, then the Company will withdraw the Account's investment in the
Trust and terminate this Agreement within six (6) months after the Trustees
inform the Company in writing of the foregoing determination; provided,
however, that such withdrawal and termination shall be limited to the
extent required by any such material irreconcilable conflict as determined
by a majority of the disinterested Trustees.
4.7. The Company shall at least annually submit to the Trustees such reports,
materials or data as the Trustees may reasonably request so that the
Trustees may fully carry out the duties
9
<PAGE>
imposed upon them by the Shared Funding Exemptive Order, and said reports,
materials and data shall be submitted more frequently if reasonably deemed
appropriate by the Trustees.
4.8. If and to the extent that Rule 6e-3(T) is amended, or Rule 6e-3 is
adopted, to provide exemptive relief from any provision of the 1940 Act or
the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive
Order, then the Trust and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with Rule
6e-3(T), as amended, or Rule 6e-3, as adopted, to the extent such rules are
applicable.
ARTICLE V.
Indemnification
---------------
5.1. Indemnification By the Company. The Company agrees to indemnify and hold
------------------------------
harmless the Distributor, the Trust and each of its Trustees, officers,
employees and agents and each person, if any, who controls the Trust within
the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 5.1) against any and all losses,
claims, damages, liabilities (including amounts paid in settlement with the
written consent of the Company, which consent shall not be unreasonably
withheld) or expenses (including the reasonable costs of investigating or
defending any alleged loss, claim, damage, liability or expense and
reasonable legal counsel fees incurred in connection therewith)
(collectively, "Losses"), to which the Indemnified Parties may become
subject under any statute or regulation, or at common law or otherwise,
insofar as such Losses are related to the sale or acquisition of the
Contracts or Trust shares and:
(a) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in a registration statement
or prospectus for the Contracts or in the Contracts themselves or in
sales literature generated or approved by the Company on behalf of the
Contracts or Accounts (or any amendment or supplement to any of the
foregoing) (collectively, "Company Documents" for the purposes of this
Article V), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, provided that this indemnity shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and was accurately
derived from written information furnished to the Company by or on
behalf of the Trust for use in Company Documents or otherwise for use
in connection with the sale of the Contracts or Trust shares; or
(b) arise out of or result from statements or representations (other than
statements or representations contained in and accurately derived from
Trust Documents as defined
10
<PAGE>
in Section 5.2(a)) or wrongful conduct of the Company or persons under
its control, with respect to the sale or acquisition of the Contracts
or Trust shares; or
(c) arise out of or result from any untrue statement or alleged untrue
statement of a material fact contained in Trust Documents as defined
in Section 5.2(a) or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading if such statement or omission was
made in reliance upon and accurately derived from written information
furnished to the Trust by or on behalf of the Company; or
(d) arise out of or result from any failure by the Company to provide the
services or furnish the materials required under the terms of this
Agreement; or
(e) arise out of or result from any material breach of any representation
and/or warranty made by the Company in this Agreement or arise out of
or result from any other material breach of this Agreement by the
Company; or
(f) arise out of or result from the provision by the Company to the Trust
of insufficient or incorrect information regarding the purchase or
sale of shares of any Portfolio, or the failure of the Company to
provide such information on a timely basis.
5.2. Indemnification by the Distributor. The Distributor agrees to indemnify
----------------------------------
and hold harmless the Company and each of its directors, officers,
employees, and agents and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for the purposes of this Section 5.2) against any and
all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Distributor, which consent shall
not be unreasonably withheld) or expenses (including the reasonable costs
of investigating or defending any alleged loss, claim, damage, liability or
expense and reasonable legal counsel fees incurred in connection therewith)
(collectively, "Losses"), to which the Indemnified Parties may become
subject under any statute or regulation, or at common law or otherwise,
insofar as such Losses are related to the sale or acquisition of the
Contracts or Trust shares and:
(a) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the registration
statement or prospectus for the Trust (or any amendment or supplement
thereto) (collectively, "Trust Documents" for the purposes of this
Article V), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, provided that this indemnity shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and was accurately
derived from written information furnished to the Distributor or the
Trust by or on behalf of
11
<PAGE>
the Company for use in Trust Documents or otherwise for use in
connection with the sale of the Contracts or Trust shares; or
(b) arise out of or result from statements or representations (other than
statements or representations contained in and accurately derived form
Company Documents) or wrongful conduct of the Distributor or persons
under its control, with respect to the sale or acquisition of the
Contracts or Portfolio shares; or
(c) arise out of or result from any untrue statement or alleged untrue
statement of a material fact contained in Company Documents or the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading if such statement or omission was made in reliance upon and
accurately derived from written information furnished to the Company
by or on behalf of the Trust; or
(d) arise out of or result from any failure by the Distributor or the
Trust to provide the services or furnish the materials required under
the terms of this Agreement; or
(e) arise out of or result from any material breach of any representation
and/or warranty made by the Distributor or the Trust in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Distributor or the Trust.
5.3. None of the Company, the Trust or the Distributor shall be liable under
the indemnification provisions of Sections 5.1 or 5.2, as applicable, with
respect to any Losses incurred or assessed against an Indemnified Party
that arise from such Indemnified Party's willful misfeasance, bad faith or
negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations or
duties under this Agreement.
5.4. None of the Company, the Trust or the Distributor shall be liable under
the indemnification provisions of Sections 5.1 or 5.2, as applicable, with
respect to any claim made against an Indemnified party unless such
Indemnified Party shall have notified the other party in writing within a
reasonable time after the summons, or other first written notification,
giving information of the nature of the claim shall have been served upon
or otherwise received by such Indemnified Party (or after such Indemnified
Party shall have received notice of service upon or other notification to
any designated agent), but failure to notify the party against whom
indemnification is sought of any such claim shall not relieve that party
from any liability which it may have to the Indemnified Party in the
absence of Sections 5.1 and 5.2.
5.5. In case any such action is brought against an Indemnified Party, the
indemnifying party shall be entitled to participate, at its own expense, in
the defense of such action. The indemnifying party also shall be entitled
to assume the defense thereof, with counsel reasonably satisfactory to the
party named in the action. After notice from the indemnifying party to the
12
<PAGE>
Indemnified Party of an election to assume such defense, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained
by it, and the indemnifying party will not be liable to the Indemnified
Party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
ARTICLE VI.
Termination
-----------
6.1. This Agreement shall terminate:
(a) at the option of any party upon 60 days advance written notice to the
other parties, unless a shorter time is agreed to by the parties;
(b) at the option of the Trust or the Distributor if the Contracts issued
by the Company cease to qualify as annuity contracts or life insurance
contracts, as applicable, under the Code or if the Contracts are not
registered, issued or sold in accordance with applicable state and/or
federal law; or
(c) at the option of any party upon a determination by a majority of the
Trustees of the Trust, or a majority of its disinterested Trustees,
that a material irreconcilable conflict exists; or
(d) at the option of the Company upon institution of formal proceedings
against the Trust or the Distributor by the NASD, the SEC, or any
state securities or insurance department or any other regulatory body
regarding the Trust's or the Distributor's duties under this Agreement
or related to the sale of Trust shares or the operation of the Trust;
or
(e) at the option of the Company if the Trust or a Portfolio fails to meet
the diversification requirements specified in Section 3.6 hereof; or
(f) at the option of the Company if shares of the Series are not
reasonably available to meet the requirements of the Variable
Contracts issued by the Company, as determined by the Company, and
upon prompt notice by the Company to the other parties; or
(g) at the option of the Company in the event any of the shares of the
Portfolio are not registered, issued or sold in accordance with
applicable state and/or federal law, or such law precludes the use of
such shares as the underlying investment media of the Variable
Contracts issued or to be issued by the Company; or
13
<PAGE>
(h) at the option of the Company, if the Portfolio fails to qualify as a
Regulated Investment Company under Subchapter M of the Code; or
(i) at the option of the Distributor if it shall determine in its sole
judgment exercised in good faith, that the Company and/or its
affiliated companies has suffered a material adverse change in its
business, operations, financial condition or prospects since the date
of this Agreement or is the subject of material adverse publicity.
6.2. Notwithstanding any termination of this Agreement, the Trust shall, at the
option of the Company, continue to make available additional shares of any
Portfolio and redeem shares of any Portfolio pursuant to the terms and
conditions of this Agreement for all Contracts in effect on the effective
date of termination of this Agreement.
6.3. The provisions of Article V shall survive the termination of this
Agreement, and the provisions of Article IV and Section 2.9 shall survive
the termination of this Agreement as long as shares of the Trust are held
on behalf of Contract owners in accordance with Section 6.2.
ARTICLE VII.
Notices
-------
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Trust or its Distributor:
Fred Alger Management, Inc.
30 Montgomery Street
Jersey City, NJ 07302
Attn: Gregory S. Duch
If to the Company:
14
<PAGE>
ARTICLE VIII.
Miscellaneous
-------------
8.1. The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
8.2. This Agreement may be executed in two or more counterparts, each of which
taken together shall constitute one and the same instrument.
8.3. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
8.4. This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of New York. It shall
also be subject to the provisions of the federal securities laws and the
rules and regulations thereunder and to any orders of the Commission
granting exemptive relief therefrom and the conditions of such orders.
Copies of any such orders shall be promptly forwarded by the Trust to the
Company.
8.5. All liabilities of the Trust arising, directly or indirectly, under this
Agreement, of any and every nature whatsoever, shall be satisfied solely
out of the assets of the Trust and no Trustee, officer, agent or holder of
shares of beneficial interest of the Trust shall be personally liable for
any such liabilities.
8.6. Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the Commission, the
National Association of Securities Dealers, Inc. and state insurance
regulators) and shall permit such authorities reasonable access to its
books and records in connection with any investigation or inquiry relating
to this Agreement or the transactions contemplated hereby.
8.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to
under state and federal laws.
8.8. This Agreement shall not be exclusive in any respect.
8.9. Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written approval of the other
party.
8.10. No provisions of this Agreement may be amended or modified in any manner
except by a written agreement properly authorized and executed by both
parties.
15
<PAGE>
8.11. Each party hereto shall, except as required by law or otherwise permitted
by this Agreement, treat as confidential the names and addresses of the
owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto, and shall not disclose
such confidential information without the written consent of the affected
party unless such information has become publicly available.
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Participation Agreement as of the date and year first above
written.
Fred Alger & Company, Incorporated
By:________________________________
Name:
Title:
The Alger American Fund
By:________________________________
Name:
Title:
United Investors Life
By:________________________________
Name:
Title:
16
<PAGE>
SCHEDULE A
-----------
The Alger American Fund:
Alger American Growth Portfolio
Alger American Leveraged AllCap Portfolio
Alger American Income and Growth Portfolio
Alger American Small Capitalization Portfolio
Alger American Balanced Portfolio
Alger American MidCap Growth Portfolio
The Accounts:
17
<PAGE>
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT made as of the day of , by and among BT
Insurance Funds Trust ("TRUST"), a Massachusetts business trust, Bankers Trust
Company ("ADVISER"), a New York banking corporation, and UNITED INVESTORS LIFE
INSURANCE COMPANY ("LIFE COMPANY"), a life insurance company organized under the
laws of the State of .
WHEREAS, TRUST is registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940, as amended (the "'40 Act"), as
an open-end, diversified management investment company; and
WHEREAS, TRUST is comprised of several series funds (each a "Portfolio"), with
those Portfolios currently available being listed on Appendix A hereto; and
WHEREAS, TRUST was organized to act as the funding vehicle for certain
variable life insurance and/or variable annuity contracts ("Variable Contracts")
offered by life insurance companies through separate accounts ("Separate
Accounts") of such life insurance companies ("Participating Insurance
Companies"); and
WHEREAS, TRUST may also offer its shares to certain qualified pension and
retirement plans ("Qualified Plans"); and
WHEREAS, TRUST has received an order from the SEC, granting Participating
Insurance Companies and their separate accounts exemptions from the provisions
of Sections 9(a), 13(a), 15(a) and 15(b) of the '40 Act, and Rules 6e-2(b)(15)
and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the
Portfolios of the TRUST to be sold to and held by Variable Contract Separate
Accounts of both affiliated and unaffiliated Participating Insurance
Companies and Qualified Plans ("Exemptive Order"); and
WHEREAS, LIFE COMPANY has established or will establish one or more Separate
Accounts to offer Variable Contracts and is desirous of having TRUST as one of
the underlying funding vehicles for such Variable Contracts; and
WHEREAS, ADVISER is a "bank" as defined in the Investment Advisers Act of
1940, as amended (the "Advisers Act") and as such is excluded from the
definition of "Investment Adviser" and is not required to register as an
investment adviser pursuant to the Advisers Act; and
WHEREAS, ADVISER serves as the TRUST's investment adviser; and
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
LIFE COMPANY intends to purchase shares of TRUST to fund the aforementioned
Variable
Page 1 of 19
<PAGE>
Contracts and TRUST is authorized to sell such shares to LIFE COMPANY at such
shares' net asset value;
NOW, THEREFORE, in consideration of their mutual promises, LIFE COMPANY,
TRUST, and ADVISER agree as follows:
Article 1. SALE OF TRUST SHARES
--------------------
1.1 TRUST agrees to make available to the Separate Accounts of LIFE COMPANY
shares of the selected Portfolios as listed on Appendix B for investment of
purchase payments of Variable Contracts allocated to the designated Separate
Accounts as provided in TRUST's Registration Statement.
1.2 TRUST agrees to sell to LIFE COMPANY those shares of the selected
Portfolios of TRUST which LIFE COMPANY orders, executing such orders on a daily
basis at the net asset value next computed after receipt by TRUST or its
designee of the order for the shares of TRUST. For purposes of this Section 1.2,
LIFE COMPANY shall be the designee of TRUST for receipt of such orders from the
designated Separate Account and receipt by such designee shall constitute
receipt by TRUST; provided that LIFE COMPANY receives the order by 4:00 p.m. New
York time and TRUST receives notice from LIFE COMPANY by telephone or facsimile
(or by such other means as TRUST and LIFE COMPANY may agree in writing) of such
order by 8:00 a.m. New York time on the next Business Day. "Business Day" shall
mean any day on which the New York Stock Exchange is open for trading and on
which TRUST calculates its net asset value pursuant to the rules of the SEC.
1.3 TRUST agrees to redeem on LIFE COMPANY's request, any full or fractional
shares of TRUST held by LIFE COMPANY, executing such requests on a daily basis
at the net asset value next computed after receipt by TRUST or its designee of
the request for redemption, in accordance with the provisions of this Agreement
and TRUST's Registration Statement. (In the event of a conflict between the
provisions of this Agreement and the Trust's Registration Statement, the
provisions of the Registration Statement shall govern.) For purposes of this
Section 1.3, LIFE COMPANY shall be the designee of TRUST for receipt of requests
for redemption from the designated Separate Account and receipt by such designee
shall constitute receipt by TRUST; provided that LIFE COMPANY receives the
request for redemption by 4:00 p.m. New York time and TRUST receives notice from
LIFE COMPANY by telephone or facsimile (or by such other means as TRUST and LIFE
COMPANY may agree in writing) of such request for redemption by 9:00 a.m. New
York time on the next Business Day.
1.4 TRUST shall furnish, on or before each ex-dividend date, notice to LIFE
COMPANY of any income dividends or capital gain distributions payable on the
shares of any Portfolio of TRUST. LIFE COMPANY hereby elects to receive all such
income dividends and capital gain distributions as are payable on a Portfolio's
shares in additional shares of the Portfolio. TRUST shall notify LIFE COMPANY or
its designee of the number of shares so issued as payment of such dividends and
distributions.
Page 2 of 19
<PAGE>
1.5 TRUST shall make the net asset value per share for the selected
Portfolio(s) available to LIFE COMPANY on a daily basis as soon as reasonably
practicable after the net asset value per share is calculated but shall use its
best efforts to make such net asset value available by 6:30 p.m. New York time.
If TRUST provides LIFE COMPANY with materially incorrect share net asset value
information through no fault of LIFE COMPANY, LIFE COMPANY on behalf of the
Separate Accounts, shall be entitled to an adjustment to the number of shares
purchased or redeemed to reflect the correct share net asset value. Any material
error in the calculation of net asset value per share, dividend or capital gain
information shall be reported promptly upon discovery to LIFE COMPANY.
1.6 At the end of each Business Day, LIFE COMPANY shall use the information
described in Section 1.5 to calculate Separate Account unit values for the day.
Using these unit values, LIFE COMPANY shall process each such Business Day's
Separate Account transactions based on requests and premiums received by it by
the close of trading on the floor of the New York Stock Exchange (currently 4:00
p.m. New York time) to determine the net dollar amount of TRUST shares which
shall be purchased or redeemed at that day's closing net asset value per share.
The net purchase or redemption orders so determined shall be transmitted to
TRUST by LIFE COMPANY by 8:00 a.m. New York Time on the Business Day next
following LIFE COMPANY's receipt of such requests and premiums in accordance
with the terms of Sections 1.2 and 1.3 hereof.
1.7 If LIFE COMPANY's order requests the purchase of TRUST shares, LIFE
COMPANY shall pay for such purchase by wiring federal funds to TRUST or its
designated custodial account on the day the order is transmitted by LIFE
COMPANY. If LIFE COMPANY's order requests a net redemption resulting in a
payment of redemption proceeds to LIFE COMPANY, TRUST shall use its best efforts
to wire the redemption proceeds to LIFE COMPANY by the next Business Day, unless
doing so would require TRUST to dispose of Portfolio securities or otherwise
incur additional costs. In any event, proceeds shall be wired to LIFE COMPANY
within the time period permitted by the '40 Act or the rules, orders or
regulations thereunder, and TRUST shall notify the person designated in writing
by LIFE COMPANY as the recipient for such notice of such delay by 3:00 p.m. New
York Time on the same Business Day that LIFE COMPANY transmits the redemption
order to TRUST. If LIFE COMPANY's order requests the application of redemption
proceeds from the redemption of shares to the purchase of shares of another Fund
advised by ADVISER, TRUST shall so apply such proceeds on the same Business Day
that LIFE COMPANY transmits such order to TRUST.
1.8 TRUST agrees that all shares of the Portfolios of TRUST will be sold only
to Participating Insurance Companies which have agreed to participate in TRUST
to fund their Separate Accounts and/or to Qualified Plans, all in accordance
with the requirements of Section 817(h)(4) of the Internal Revenue Code of 1986,
as amended ("Code") and Treasury Regulation 1.817-5. Shares of the TRUST's
Portfolios will not be sold directly to the general public.
1.9 TRUST may refuse to sell shares of any Portfolio to any person, or
suspend or terminate the offering of the shares of or liquidate any Portfolio of
TRUST if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Board of
Page 3 of 19
<PAGE>
Trustees of the TRUST (the "Board"), acting in good faith and in light of its
duties under federal and any applicable state laws, deemed necessary, desirable
or appropriate and in the best interests of the shareholders of such Portfolios.
1.10 Issuance and transfer of Portfolio shares will be by book entry only.
Stock certificates will not be issued to LIFE COMPANY or the Separate Accounts.
Shares ordered from Portfolio will be recorded in appropriate book entry titles
for the Separate Accounts.
Article II. REPRESENTATIONS AND WARRANTIES
------------------------------
2.1 LIFE COMPANY represents and warrants that it is an insurance company duly
organized and in good standing under the laws of and that it has legally
and validly established each Separate Account as a segregated asset account
under such laws, and that , the principal underwriter for the Variable
Contracts, is registered as a broker-dealer under the Securities Exchange Act of
1934 (the "34 Act").
2.2 LIFE COMPANY represents and warrants that it has registered or, prior to
any issuance or sale of the Variable Contracts, will register each Separate
Account as a unit investment trust ("UIT") in accordance with the provisions of
the '40 Act and cause each Separate Account to remain so registered to serve as
a segregated asset account for the Variable Contracts, unless an exemption from
registration is available.
2.3 LIFE COMPANY represents and warrants that the Variable Contracts will be
registered under the Securities Act of 1933 (the "33 Act") unless an
exemption from registration is available prior to any issuance or sale of the
Variable Contracts, and that the Variable Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws
(including all applicable blue sky laws) and further that the sale of the
Variable Contracts shall comply in all material respects with applicable state
insurance law suitability requirements.
2.4 LIFE COMPANY represents and warrants that the Variable Contracts are
currently and at the time of issuance will be treated as life insurance,
endowment or annuity contracts under applicable provisions of the Code, that it
will maintain such treatment and that it will notify TRUST immediately upon
having a reasonable basis for believing that the Variable Contracts have ceased
to be so treated or that they might not be so treated in the future.
2.5 TRUST represents and warrants that the Fund shares offered and sold
pursuant to this Agreement will be registered under the '33 Act and sold in
accordance with all applicable federal laws, and TRUST shall be registered under
the '40 Act prior to and at the time of any issuance or sale of such shares.
TRUST, subject to Section 1.9 above, shall amend its registration statement
under the '33 Act and the '40 Act from time to time as required in order to
effect the continuous offering of its shares. TRUST shall register and qualify
its shares for sale in accordance with the laws of the various states only if
and to the extent deemed advisable by TRUST.
2.6 TRUST represents and warrants that each Portfolio will comply with the
diversification requirements set forth in Section 817(h) of the Code, and the
rules and regulations thereunder,
Page 4 of 19
<PAGE>
including without limitation Treasury Regulation 1.817-5, and will notify LIFE
COMPANY immediately upon having a reasonable basis for believing any Portfolio
has ceased to comply and will immediately take all reasonable steps to
adequately diversify the Portfolio to achieve compliance.
2.7 TRUST represents and warrants that each Portfolio invested in by the
Separate Account will be treated as a "regulated investment company" under
Subchapter M of the Code, and will notify LIFE COMPANY immediately upon having a
reasonable basis for believing it has ceased to so qualify or might not so
qualify in the future.
2.8 ADVISER represents and warrants that it shall perform its obligations
hereunder in compliance in all material respects with any applicable state and
federal laws.
Article III. PROSPECTUS AND PROXY STATEMENTS
-------------------------------
3.1 TRUST shall prepare and be responsible for filing with the SEC and any
state regulators requiring such filing all shareholder reports, notices, proxy
materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of TRUST.
TRUST shall bear the costs of registration and qualification of shares of the
Portfolios, preparation and filing of the documents listed in this Section 3.1
and all taxes and filing fees to which an issuer is subject on the issuance and
transfer of its shares.
3.2 TRUST or its designee shall provide LIFE COMPANY, free of charge, with as
many copies of the current prospectus (or prospectuses), statements of
additional information, annual and semi-annual reports and proxy statements for
the shares of the Portfolios as LIFE COMPANY may reasonably request for
distribution to existing Variable Contract owners whose Variable Contracts are
funded by such shares. TRUST or its designee shall provide LIFE COMPANY, at LIFE
COMPANY's expense, with as many copies of the current prospectus (or
prospectuses) for the shares as LIFE COMPANY may reasonably request for
distribution to prospective purchasers of Variable Contracts. If requested by
LIFE COMPANY, TRUST or its designee shall provide such documentation (including
a "camera ready" copy of the current prospectus (or prospectuses) as set in type
or, at the request of LIFE COMPANY, as a diskette in the form sent to the
financial printer) and other assistance as is reasonably necessary in order for
the parties hereto once a year (or more frequently if the prospectus (or
prospectuses) for the shares is supplemented or amended) to have the prospectus
for the Variable Contracts and the prospectus (or prospectuses) for the TRUST
shares printed together in one document. The expenses of such printing will be
apportioned between LIFE COMPANY and TRUST in proportion to the number of pages
of the Variable Contract and TRUST prospectus, taking account of other relevant
factors affecting the expense of printing, such as covers, columns, graphs and
charts; TRUST shall bear the cost of printing the TRUST prospectus portion of
such document for distribution only to owners of existing Variable Contracts
funded by the TRUST shares and LIFE COMPANY shall bear the expense of printing
the portion of such documents relating to the Separate Account; provided,
however, LIFE COMPANY shall bear all printing expenses of such combined
documents where used for distribution to prospective purchasers or to owners of
existing Variable Contracts not funded by the shares. In the event that LIFE
Page 5 of 19
<PAGE>
COMPANY requests that TRUST or its designee provide TRUST's prospectus in a
"camera ready" or diskette format, TRUST shall be responsible for providing the
prospectus (or prospectuses) in the format in which it is accustomed to
formatting prospectuses and shall bear the expense of providing the prospectus
(or prospectuses) in such format (e.g. typesetting expenses), and LIFE COMPANY
shall bear the expense of adjusting or changing the format to conform with any
of its prospectuses.
3.3 TRUST will provide LIFE COMPANY with at least one complete copy of all
prospectuses, statements of additional information, annual and semi-annual
reports, proxy statements, exemptive applications and all amendments or
supplements to any of the above that relate to the Portfolios promptly after the
filing of each such document with the SEC or other regulatory authority. LIFE
COMPANY will provide TRUST with at least one complete copy of all prospectuses,
statements of additional information, annual and semi-annual reports, proxy
statements, exemptive applications and all amendments or supplements to any of
the above that relate to a Separate Account promptly after the filing of each
such document with the SEC or other regulatory authority.
Article IV. SALES MATERIALS
---------------
4.1 LIFE COMPANY will furnish, or will cause to be furnished, to TRUST and
ADVISER, each piece of sales literature or other promotional material in which
TRUST or ADVISER is named, at least fifteen (15) Business Days prior to its
intended use. No such material will be used if TRUST or ADVISER objects to its
use in writing within ten (10) Business Days after receipt of such material.
4.2 TRUST and ADVISER will furnish, or will cause to be furnished, to LIFE
COMPANY, each piece of sales literature or other promotional material in which
LIFE COMPANY or its Separate Accounts are named, at least fifteen (15) Business
Days prior to its intended use. No such material will be used if LIFE COMPANY
objects to its use in writing within ten (10) Business Days after receipt of
such material.
4.3 TRUST and its affiliates and agents shall not give any information or
make any representations on behalf of LIFE COMPANY or concerning LIFE COMPANY,
the Separate Accounts, or the Variable Contracts issued by LIFE COMPANY, other
than the information or representations contained in a registration statement or
prospectus for such Variable Contracts, as such registration statement and
prospectus may be amended or supplemented from time to time, or in reports of
the Separate Accounts or reports prepared for distribution to owners of such
Variable Contracts, or in sales literature or other promotional material
approved by LIFE COMPANY or its designee, except with the written permission of
LIFE COMPANY.
4.4 LIFE COMPANY and its affiliates and agents shall not give any information
or make any representations on behalf of TRUST or concerning TRUST other than
the information or representations contained in a registration statement or
prospectus for TRUST, as such registration statement and prospectus may be
amended or supplemented from time to time, or in
Page 6 of 19
<PAGE>
sales literature or other promotional material approved by TRUST or its
designee, except with the written permission of TRUST.
4.5 For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without limitation,
advertisements (such as material published, or designed for use, in a newspaper,
magazine or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures or other public media),
sales literature (such as any written communication distributed or made
generally available to customers or the public, including brochures, circulars,
research reports, market letters, form letters, seminar texts, or reprints or
excerpts of any other advertisement, sales literature, or published article),
educational or training materials or other communications distributed or made
generally available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports and
proxy materials, and any other material constituting sales literature or
advertising under National Association of Securities Dealers, Inc. ("NASD")
rules, the '40 Act, the '33 Act or rules thereunder.
Article V. POTENTIAL CONFLICTS
-------------------
5.1 The parties acknowledge that TRUST has received an order from the SEC
granting relief from various provisions of the '40 Act and the rules thereunder
to the extent necessary to permit TRUST shares to be sold to and held by
Variable Contract separate accounts of both affiliated and unaffiliated
Participating Insurance Companies and Qualified Plans. The Exemptive Order
requires TRUST and each Participating Insurance Company to comply with
conditions and undertakings substantially as provided in this Section 5. The
TRUST will not enter into a -participation agreement with any other
Participating Insurance Company unless it imposes the same conditions and
undertakings as are imposed on LIFE COMPANY hereby.
5.2 The Board will monitor TRUST for the existence of any material
irreconcilable conflict between the interests of Variable Contract owners of all
separate accounts and with participants of Qualified Plans investing in TRUST.
An irreconcilable material conflict may arise for a variety of reasons, which
may include: (a) an action by any state insurance regulatory authority; (b) a
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling or any similar action by
insurance, tax or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of TRUST are being managed; (e) a difference in voting instructions
given by Variable Contract owners; (f) a decision by a Participating Insurance
Company to disregard the voting instructions of Variable Contract owners and (g)
if applicable, a decision by a Qualified Plan to disregard the voting
instructions of plan participants.
5.3 LIFE COMPANY will report any potential or existing conflicts of which it
becomes aware to the Board. LIFE COMPANY will be responsible for assisting the
Board in carrying out its duties in this regard by providing the Board with all
information reasonably necessary for the Board to consider any issues raised.
The responsibility includes, but is not limited to, an obligation by the LIFE
COMPANY to inform the Board whenever it has determined to disregard
Page 7 of 19
<PAGE>
Variable Contract owner voting instructions. These responsibilities of LIFE
COMPANY will be carried out with a view only to the interests of the Variable
Contract owners.
5.4 If a majority of the Board or majority of its disinterested Trustees,
determines that a material irreconcilable conflict exists affecting LIFE
COMPANY, LIFE COMPANY, at its expense and to the extent reasonably practicable
(as determined by a majority of the Board's disinterested Trustees), will take
any steps necessary to remedy or eliminate the irreconcilable material conflict,
including; (a) withdrawing the assets allocable to some or all of the Separate
Accounts from TRUST or any Portfolio thereof and reinvesting those assets in a
different investment medium, which may include another Portfolio of TRUST, or
another investment company; (b) submitting the question as to whether such
segregation should be implemented to a vote of all affected Variable Contract
owners and as appropriate, segregating the assets of any appropriate group
(i.e., variable annuity or variable life insurance Contract owners of one or
more Participating Insurance Companies) that votes in favor of such segregation,
or offering to the affected Variable Contract owners the option of making such a
change; and (c) establishing a new registered management investment company (or
series thereof) or managed separate account. If a material irreconcilable
conflict arises because of LIFE COMPANY's decision to disregard Variable
Contract owner voting instructions, and that decision represents a minority
position or would preclude a majority vote, LIFE COMPANY may be required, at the
election of TRUST, to withdraw the Separate Account's investment in TRUST, and
no charge or penalty will be imposed as a result of such withdrawal. The
responsibility to take such remedial action shall be carried out with a view
only to the interests of the Variable Contract owners.
For the purposes of this Section 5.4, a majority of the disinterested members
of the Board shall determine whether or not any proposed action adequately
remedies any irreconcilable material conflict, but in no event will TRUST or
ADVISER (or any other investment adviser of TRUST) be required to establish a
new funding medium for any Variable Contract. Further, LIFE COMPANY shall not be
required by this Section 5.4 to establish a new funding medium for any Variable
Contracts if any offer to do so has been declined by a vote of a majority of
Variable Contract owners materially and adversely affected by the irreconcilable
material conflict.
5.5 The Board's determination of the existence of an irreconcilable material
conflict and its implications shall be made known promptly and in writing to
LIFE COMPANY.
5.6 No less than annually, LIFE COMPANY shall submit to the Board such
reports, materials or data as the Board may reasonably request so that the Board
may fully carry out its obligations. Such reports, materials, and data shall be
submitted more frequently if deemed appropriate by the Board.
Article VI. VOTING
------
6.1 LIFE COMPANY will provide pass-through voting privileges to all Variable
Contract owners so long as the SEC continues to interpret the '40 Act as
requiring pass-through voting privileges for Variable Contract owners.
Accordingly, LIFE COMPANY, where applicable, will
Page 8 of 19
<PAGE>
vote shares of the Portfolio held in its Separate Accounts in a manner
consistent with voting instructions timely received from its Variable Contract
owners. LIFE COMPANY will be responsible for assuring that each of its Separate
Accounts that participates in TRUST calculates voting privileges in a manner
consistent with other Participating Insurance Companies. LIFE COMPANY will vote
shares for which it has not received timely voting instructions, as well as
shares it owns, in the same proportion as its votes those shares for which it
has received voting instructions.
6.2 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or if Rule
6e-3 is adopted, to provide exemptive relief from any provision of the '40 Act
or the rules thereunder with respect to mixed and shared funding on terms and
conditions materially different from any exemptions granted in the Exemptive
Order, then TRUST, and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rule 6e-2 and Rule
6e3(T), as amended, and Rule 6e-3, as adopted, to the extent such Rules are
applicable.
Article VII. INDEMNIFICATION
---------------
7.1 Indemnification by LIFE COMPANY. LIFE COMPANY agrees to indemnify and
-------------------------------
hold harmless TRUST, ADVISER and each of their Trustees, directors, principals,
officers, employees and agents and each person, if any, who controls TRUST or
ADVISER within the meaning of Section 15 of the '33 Act (collectively, the
"Indemnified Parties") against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of LIFE COMPANY,
which consent shall not be unreasonably withheld) or litigation or threatened
litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of TRUST's shares or the Variable Contracts and:
(a) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the Registration Statement or
prospectus for the Variable Contracts or contained in the Variable Contracts
(or any amendment or supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon and in conformity
with information furnished in writing to LIFE COMPANY by or on behalf of TRUST
for use in the registration statement or prospectus for the Variable Contracts
or in the Variable Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the Variable
Contracts or TRUST shares; or
(b) arise out of or result from (i) statements or representations (other
than statements or representations contained in the registration statement,
prospectus or sales literature of TRUST not supplied by LIFE COMPANY, or
persons under its control) or (ii) wrongful
Page 9 of 19
<PAGE>
conduct of LIFE COMPANY or persons under its control, with respect to the sale
or distribution of the Variable Contracts or TRUST shares; or
(c) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, or sales
literature of TRUST or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading if
such statement or omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished in writing to TRUST
by or on behalf of LIFE COMPANY; or
(d) arise as a result of any failure by LIFE COMPANY to provide
substantially the services and furnish the materials under the terms of this
Agreement; or
(e) arise out of or result from any material breach of any representation
and/or warranty made by LIFE COMPANY in this Agreement or arise out of or
result from any other material breach of this Agreement by LIFE COMPANY.
7.2 LIFE COMPANY shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party to the extent that such losses, claims,
damages, liabilities or litigation are attributable to such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations or duties under this Agreement.
7.3 LIFE COMPANY shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified LIFE COMPANY in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify LIFE COMPANY of any
such claim shall not relieve LIFE COMPANY from any liability which it may have
to the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, LIFE COMPANY shall be entitled to participate at
its own expense in the defense of such action. LIFE COMPANY also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from LIFE COMPANY to such party of LIFE
COMPANY's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and LIFE
COMPANY will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
7.4 Indemnification by TRUST. TRUST agrees to indemnify and hold harmless LIFE
--------------------------
COMPANY and each of its directors, officers, employees, and agents and each
person, if any, who controls LIFE COMPANY within the meaning of Section 15 of
the '33 Act (collectively,
Page 10 of 19
<PAGE>
the "Indemnified Parties") against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
TRUST which consent shall not be unreasonably withheld) or litigation or
threatened litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute, or regulation, at
common law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to the sale
or acquisition of TRUST's shares or the Variable Contracts and:
(a) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement or
prospectus or sales literature of TRUST (or any amendment or supplement to any
of the foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided
that this agreement to indemnify shall not apply as to any Indemnified Party
if such statement or omission or such alleged statement or omission was made
in reliance upon and in conformity with information furnished in writing to
ADVISER or TRUST by or on behalf of LIFE COMPANY for use in the registration
statement or prospectus for TRUST or in sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the Variable
Contracts or TRUST shares; or
(b) arise out of or result from (i) statements or representations (other
than statements or representations contained in the registration statement,
prospectus or sales literature for the Variable Contracts not supplied by
ADVISER or TRUST or persons under its control) or (ii) gross negligence or
wrongful conduct or willful misfeasance of TRUST or persons under its control,
with respect to the sale or distribution of the Variable Contracts or TRUST
shares; or
(c) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, or sales
literature covering the Variable Contracts, or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, if such statement or omission or such
alleged statement or omission was made in reliance upon and in conformity with
information furnished in writing to LIFE COMPANY for inclusion therein by or
on behalf of TRUST; or
(d) arise as a result of (i) a failure by TRUST to provide substantially
the services and furnish the materials under the terms of this Agreement; or
(ii) a failure by a Portfolio(s) invested in by the Separate Account to comply
with the diversification requirements of Section 817(h) of the Code; or (iii) a
failure by a Portfolio(s) invested in by the Separate Account to qualify as a
"regulated investment company" under Subchapter M of the Code; or
Page 11 of 19
<PAGE>
(e) arise out of or result from any material breach of any representation
and/or warranty made by TRUST in this Agreement or arise out of or result from
any other material breach of this Agreement by TRUST.
7.5 TRUST shall not be liable under this indemnification provision with
respect to any losses, claims, damages, liabilities or litigation incurred or
assessed against an Indemnified Party to the extent that such losses, claims,
damages, liabilities or litigation are attributable to such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement.
7.6 TRUST shall not be liable under this indemnification provision with
respect to any claim made against an Indemnified Party unless such Indemnified
Party shall have notified TRUST in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify TRUST of any such claim shall not relieve TRUST
from any liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification provision.
In case any such action is brought against the Indemnified Parties, TRUST shall
be entitled to participate at its own expense in the defense thereof. TRUST also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from TRUST to such party of TRUST's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and TRUST will not
be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
Article VIII. TERM; TERMINATION
-----------------
8.1 This Agreement shall be effective as of the date hereof and shall
continue in force until terminated in accordance with the provisions herein.
8.2 This Agreement shall terminate in accordance with the following
provisions:
(a) At the option of LIFE COMPANY or TRUST at any time from the date
hereof upon 180 days' notice, unless a shorter time is agreed to by the
parties;
(b) At the option of LIFE COMPANY, if TRUST shares are not reasonably
available to meet the requirements of the Variable Contracts as determined by
LIFE COMPANY. Prompt notice of election to terminate shall be furnished by
LIFE COMPANY, said termination to be effective ten days after receipt of
notice unless TRUST makes available a sufficient number of shares to
reasonably meet the requirements of the Variable Contracts within said ten-day
period;
Page 12 of 19
<PAGE>
(c) At the option of LIFE COMPANY, upon the institution of formal
proceedings against TRUST by the SEC, the NASD, or any other regulatory body,
the expected or anticipated ruling, judgment or outcome of which would, in
LIFE COMPANY's reasonable judgment, materially impair TRUST's ability to meet
and perform TRUST's obligations and duties hereunder. Prompt notice of
election to terminate shall be furnished by LIFE COMPANY with said termination
to be effective upon receipt of notice;
(d) At the option of TRUST, upon the institution of formal proceedings
against LIFE COMPANY and/or its broker-dealer affiliates by the SEC, the NASD,
or any other regulatory body, the expected or anticipated ruling, judgment or
outcome of which would, in TRUST's reasonable judgment, materially impair LIFE
COMPANY's ability to meet and perform its obligations and duties hereunder.
Prompt notice of election to terminate shall be furnished by TRUST with said
termination to be effective upon receipt of notice;
(e) In the event TRUST's shares are not registered, issued or sold in
accordance with applicable state or federal law, or such law precludes the use
of such shares as the underlying investment medium of Variable Contracts
issued or to be issued by LIFE COMPANY. Termination shall be effective upon
such occurrence without notice;
(f) At the option of TRUST if the Variable Contracts cease to qualify as
annuity contracts or life insurance contracts, as applicable, under the Code,
or if TRUST reasonably believes that the Variable Contracts may fail to so
qualify. Termination shall be effective upon receipt of notice by LIFE
COMPANY;
(g) At the option of LIFE COMPANY, upon TRUST's breach of any material
provision of this Agreement, which breach has not been cured to the
satisfaction of LIFE COMPANY within ten days after written notice of such
breach is delivered to TRUST;
(h) At the option of TRUST, upon LIFE COMPANY's breach of any material
provision of this Agreement, which breach has not been cured to the
satisfaction of TRUST within ten days after written notice of such breach is
delivered to LIFE COMPANY;
(i) At the option of TRUST, if the Variable Contracts are not registered,
issued or sold in accordance with applicable federal and/or state law.
Termination shall be effective immediately upon such occurrence without
notice;
In the event this Agreement is assigned without the prior written consent of
LIFE COMPANY, TRUST, and ADVISER, termination shall be effective immediately
upon such occurrence without notice.
Page 13 of 19
<PAGE>
8.3 Notwithstanding any termination of this Agreement pursuant to Section 8.2
hereof, TRUST at its option may elect to continue to make available additional
TRUST shares, as provided below, for so long as TRUST desires pursuant to the
terms and conditions of this Agreement, for all Variable Contracts in effect on
the effective date of termination of this Agreement (hereinafter referred to as
"Existing Contracts"). Specifically, without limitation, if TRUST so elects to
make additional TRUST shares available, the owners of the Existing Contracts or
LIFE COMPANY, whichever shall have legal authority to do so, shall be permitted
to reallocate investments in TRUST, redeem investments in TRUST and/or invest in
TRUST upon the payment of additional premiums under the Existing Contracts. In
the event of a termination of this Agreement pursuant to Section 8.2 hereof,
TRUST and ADVISER, as promptly as is practicable under the circumstances, shall
notify LIFE COMPANY whether TRUST elects to continue to make TRUST shares
available after such termination. If TRUST shares continue to be made available
after such termination, the provisions of this Agreement shall remain in effect
and thereafter either TRUST or LIFE COMPANY may terminate the Agreement, as so
continued pursuant to this Section 8.3, upon sixty (60) days' prior written
notice to the other party.
8.4 Except as necessary to implement Variable Contract owner initiated
transactions, or as required by state insurance laws or regulations, LIFE
COMPANY shall not redeem the shares attributable to the Variable Contracts (as
opposed to the shares attributable to LIFE COMPANY's assets held in the Separate
Accounts), and LIFE COMPANY shall not prevent Variable Contract owners from
allocating payments to a Portfolio that was otherwise available under the
Variable Contracts until thirty (30) days after the LIFE COMPANY shall have
notified TRUST of its intention to do so.
Article IX. NOTICES
-------
Any notice hereunder shall be given by registered or certified mail return
receipt requested to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify in
writing to the other party.
If to TRUST:
BT Insurance Funds Trust
c/o First Data Investor Services Group, Inc.
101 Federal Street
Boston, MA 02110
Attn: Elizabeth Russell, Legal Dep't
and
c/o BT Alex. Brown
One South Street, Mail Stop 1- 18-6
Baltimore, MD 21202
Attn: Mutual Fund Services
Page 14 of 19
<PAGE>
If to ADVISER:
Bankers Trust Company
130 Liberty Street, Mail Stop 2355
New York, NY 10006
Attn.: Mutual Fund Marketing
If to LIFE COMPANY:
United Investors Life Insurance Company
--------------------------------
--------------------------------
--------------------------------
Notice shall be deemed given on the date of receipt by the addressee as
evidenced by the return receipt.
Article X. MISCELLANEOUS
-------------
10.1 The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect.
10.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
10.3 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
10.4 This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of New York. It shall also be
subject to the provisions of the federal securities laws and the rules and
regulations thereunder and to any orders of the SEC granting exemptive relief
therefrom and the conditions of such orders.
10.5 It is understood and expressly stipulated that neither the shareholders
of shares of any Portfolio nor the Trustees or officers of TRUST or any
Portfolio shall be personally liable hereunder. No Portfolio shall be liable for
the liabilities of any other Portfolio. All persons dealing with TRUST or a
Portfolio must look solely to the property of TRUST or that Portfolio,
Page 15 of 19
<PAGE>
respectively, for enforcement of any claims against TRUST or that Portfolio. it
is also understood that each of the Portfolios shall be deemed to be entering
into a separate Agreement with LIFE COMPANY so that it is as if each of the
Portfolios had signed a separate Agreement with LIFE COMPANY and that a single
document is being signed simply to facilitate the execution and administration
of the Agreement.
10.6 Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the NASD and
state insurance regulators) and shall permit such authorities reasonable access
to its books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby.
10.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
10.8 If the Agreement terminates, the parties agree that Article 7 and
Sections 10.5, 10.6 and 10.7 shall remain in effect after termination.
10.9 No provision of this Agreement may be amended or modified in any manner
except by a written agreement properly authorized and executed by TRUST, ADVISER
and the LIFE COMPANY.
10.10 No failure or delay by a party in exercising any right or remedy under
this Agreement will operate as a waiver thereof and no single or partial
exercise of rights shall preclude a further or subsequent exercise. The rights
and remedies provided in this Agreement are cumulative and not exclusive of any
rights or remedies provided by law.
IN WITNESS WHEREOF, the parties have caused their duly authorized officers to
execute this Fund Participation Agreement as of the date and year first above
written.
BT INSURANCE FUNDS TRUST
By:
---------------------------------
Name:
Title:
BANKERS TRUST COMPANY
By:
---------------------------------
Name:
Title:
UNITED INVESTORS LIFE INSURANCE COMPANY
Page 16 of 19
<PAGE>
By:
---------------------------------
Name:
Title:
Page 17 of 19
<PAGE>
Appendix A
To Participation Agreement by and among BT Insurance Funds Trust, Bankers Trust
Company and United Investors Life Insurance Company.
List of portfolios:
- -------------------
BT Insurance Funds Trust - Small Cap Index Fund
BT Insurance Funds Trust - EAFE Equity Index Fund
Page 18 of 19
<PAGE>
Appendix B
To Participation Agreement by and among BT Insurance Funds Trust, Bankers Trust
Company and United Investors Life Insurance Company.
List of variable separate accounts:
- -----------------------------------
[Titanium Investor Variable Universal Life]
Page 19 of 19
<PAGE>
FUND PARTICIPATION AGREEMENT
----------------------------
This Agreement is entered into as of the ______ day of _________, 1999,
INSURANCE COMPANY, a life insurance company organized under the laws of the
State of New York (Insurance Company"), and each of DREYFUS VARIABLE INVESTMENT
FUND; THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.; DREYFUS LIFE AND
ANNUITY INDEX FUND, INC. (d/b/a DREYFUS STOCK INDEX FUND); AND DREYFUS
INVESTMENT PORTFOLIOS (each a "Fund").
ARTICLE I
DEFINITIONS
1.1 "Act" shall mean the Investment Company Act of 1940, as amended.
1.2 "Board" shall mean the Board of Directors or Trustees, as the case may be,
of a Fund, which has the responsibility for management and control of the
Fund.
1.3 "Business Day" shall mean any day for which a Fund calculates net asset
value per share as described in the Fund's Prospectus.
1.4 "Commission" shall mean the Securities and Exchange Commission.
1.5 "Contract" shall mean a variable annuity or life insurance contract that
uses any Participating Fund (as defined below) as an underlying investment
medium. Individuals who participate under a group Contract are
"Participants."
1.6 "Contractholder" shall mean any entity that is a party to a Contract with
a Participating Company (as defined below).
1.7 "Disinterested Board Members" shall mean those members of the Board of a
Fund that are not deemed to be "interested persons" of the Fund, as
defined by the Act.
1.8 "Dreyfus" shall mean The Dreyfus Corporation and its affiliates, including
Dreyfus Service Corporation.
1.9 "Participating Companies" shall mean any insurance company (including
Insurance Company) that offers variable annuity and/or variable life
insurance contracts to the public and that has entered into an agreement
with one or more of the Funds.
1.10 "Participating Fund" shall mean each Fund, including, as applicable,
any series thereof, specified in Exhibit A, as such Exhibit may be amended
from time to time by agreement of the parties hereto, the shares of which
are available to serve as the underlying investment medium for the
aforesaid Contracts.
<PAGE>
1.11 "Prospectus" shall mean the current prospectus and statement of
additional information of a Fund, as most recently filed with the
Commission.
1.12 "Separate Account" shall mean _______________, a separate account
established by Insurance Company in accordance with the laws of the State
of ______________.
1.13 "Software Program" shall mean the software program used by a Fund for
providing Fund and account balance information including net asset value
per share. Such Program may include the Lion System. In situations where
the Lion System or any other Software Program used by a Fund is not
available, such information may be provided by telephone. The Lion System
shall be provided to Insurance Company at no charge.
1.14 "Insurance Company's General Account(s)" shall mean the general
account(s) of Insurance Company and its affiliates that invest in a Fund.
ARTICLE II
REPRESENTATIONS
2.1 Insurance Company represents and warrants that (a) it is an insurance
company duly organized and in good standing under applicable law; (b) it
has legally and validly established the Separate Account pursuant to the
insurance laws of the State of New York and the regulation thereunder the
purpose of offering to the public certain individual and group variable
annuity and life insurance contracts; (c) it has registered the Separate
Account as a unit investment trust under the Act to serve as the
segregated investment account for the Contracts; and (d) the Separate
Account is eligible to invest in shares of each Participating Fund without
such investment disqualifying any Participating Fund as an investment
medium for insurance company separate accounts supporting variable annuity
contracts or variable life insurance contracts.
2.2 Insurance Company represents and warrants that (a) the Contracts will be
described in a registration statement filed under the Securities Act of
1933, as amended ("1933 Act"); (b) the Contracts will be issued and sold
in compliance in all material respects with all applicable federal and
state laws; and (c) the sale of the Contracts shall comply in all material
respects with state insurance law requirements. Insurance Company agrees
to notify each Participating Fund promptly of any investment restrictions
imposed by state insurance law and applicable to the Participating Fund.
2.3 Insurance Company represents and warrants that the income, gains and
losses, whether or not realized, from assets allocated to the Separate
Account are, in accordance with the applicable Contracts, to be credited
to or charged against such Separate Account without regard to other
income, gains or losses from assets
2
<PAGE>
allocated to any other accounts of Insurance Company. Insurance Company
represents and warrants that the assets of the Separate Account are and
will be kept separate from Insurance Company's General Account and any
other separate accounts Insurance Company may have, and will not be
charged with liabilities from any business that Insurance Company may
conduct or the liabilities of any companies affiliated with Insurance
Company.
2.4 Each Participating Fund represents that it is registered with the
Commission under the Act as an open-end, management investment company and
possesses, and shall maintain, all legal and regulatory licenses,
approvals, consents and/or exemptions required for the Participating Fund
to operate and offer its shares as an underlying investment medium for
Participating Companies.
2.5 Each Participating Fund represents that it is currently qualified as a
regulated investment company under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"), and that it will make every effort
to maintain such qualification (under Subchapter M or any successor or
similar provision) and that it will notify Insurance Company immediately
upon having a reasonable basis for believing that it has ceased to so
qualify or that it might not so qualify in the future.
2.6 Insurance Company represents and agrees that the Contracts are currently,
and at the time of issuance will be, treated as life insurance policies or
annuity contracts, whichever is appropriate, under applicable provisions
of the Code, and that it will make every effort to maintain such treatment
and that it will notify each Participating Fund and Dreyfus immediately
upon having a reasonable basis for believing that the Contracts have
ceased to be so treated or that they might not be so treated in the
future. Insurance Company agrees that any prospectus offering a Contract
that is a "modified endowment contract," as that term is defined in
Section 7702A of the Code, will identify such Contract as a modified
endowment contract (or policy).
2.7 Each Participating Fund agrees that its assets shall be managed and
invested in a manner that complies with the requirements of Section 817(h)
of the Code.
2.8 Insurance Company agrees that each Participating Fund shall be permitted
(subject to the other terms of this Agreement) to make its shares
available to other Participating Companies and Contractholders.
2.9 Each Participating Fund represents and warrants that any of its directors,
trustees, officers, employees, investment advisers, and other
individuals/entities who deal with the money and/or securities of the
Participating Fund are and shall continue to be at all times covered by a
blanket fidelity bond or similar coverage for the benefit of the
Participating Fund in an amount not less than that required by Rule 17g-1
under the Act. The aforesaid Bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
3
<PAGE>
2.10 Insurance Company represents and warrants that all of its employees and
agents who deal with the money and/or securities of each Participating
Fund are and shall continue to be at all times covered by a blanket
fidelity bond or similar coverage in an amount not less than the coverage
required to be maintained by the Participating Fund. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by
a reputable bonding company.
2.11 Insurance Company agrees that Dreyfus shall be deemed a third party
beneficiary under this Agreement and may enforce any and all rights
conferred by virtue of this Agreement.
ARTICLE III
FUND SHARES
3.1 The Contracts funded through the Separate Account will provide for the
investment of certain amounts in shares of each Participating Fund.
3.2 Each Participating Fund agrees to make its shares available for purchase
at the then applicable net asset value per share by Insurance Company and
the Separate Account on each Business Day pursuant to rules of the
Commission. Notwithstanding the foregoing, each Participating Fund may
refuse to sell its shares to any person, or suspend or terminate the
offering of its shares, if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of its
Board, acting in good faith and in light of its fiduciary duties under
federal and any applicable state laws, necessary and in the best interests
of the Participating Fund's shareholders.
3.3 Each Participating Fund agrees that shares of the Participating Fund will
be sold only to (a) Participating Companies and their separate accounts or
(b) "qualified pension or retirement plans" as determined under Section
817(h)(4) of the Code. Except as otherwise set forth in this Section 3.3,
no shares of any Participating Fund will be sold to the general public.
3.4 Each Participating Fund shall use its best efforts to provide closing net
asset value, dividend and capital gain information on a per-share basis to
Insurance Company by 6:00 p.m. Eastern time on each Business Day. Any
material errors in the calculation of net asset value, dividend and
capital gain information shall be reported immediately upon discovery to
Insurance Company. Non-material errors will be corrected in the next
Business Day's net asset value per share.
3.5 At the end of each Business Day, Insurance Company will use the
information described in Sections 3.2 and 3.4 to calculate the unit values
of the Separate Account for the day. Using this unit value, Insurance
Company will process the day's Separate Account transactions received by
it by the close of trading on the floor of the New York Stock Exchange
(currently 4:00 p.m. Eastern time) to
4
<PAGE>
determine the net dollar amount of each Participating Fund's shares that
will be purchased or redeemed at that day's closing net asset value per
share. The net purchase or redemption orders will be transmitted to each
Participating Fund by Insurance Company by 11:00 a.m. Eastern time on the
Business Day next following Insurance Company's receipt of that
information. Subject to Sections 3.6 and 3.8, all purchase and redemption
orders for Insurance Company's General Accounts shall be effected at the
net asset value per share of each Participating Fund next calculated after
receipt of the order by the Participating Fund or its Transfer Agent.
3.6 Each Participating Fund appoints Insurance Company as its agent for the
limited purpose of accepting orders for the purchase and redemption of
Participating Fund shares for the Separate Account. Each Participating
Fund will execute orders at the applicable net asset value per share
determined as of the close of trading on the day of receipt of such orders
by Insurance Company acting as agent ("effective trade date"), provided
that the Participating Fund receives notice of such orders by 11:00 a.m.
Eastern time on the next following Business Day and, if such orders
request the purchase of Participating Fund shares, the conditions
specified in Section 3.8, as applicable, are satisfied. A redemption or
purchase request that does not satisfy the conditions specified above and
in Section 3.8, as applicable, will be effected at the net asset value per
share computed on the Business Day immediately preceding the next
following Business Day upon which such conditions have been satisfied in
accordance with the requirements of this Section and Section 3.8.
Insurance Company represents and warrants that all orders submitted by the
Insurance Company for execution on the effective trade date shall
represent purchase or redemption orders received from Contractholders
prior to the close of trading on the New York Stock Exchange on the
effective trade date.
3.7 Insurance Company will make its best efforts to notify each applicable
Participating Fund in advance of any unusually large purchase or
redemption orders.
3.8 If Insurance Company's order requests the purchase of a Participating
Fund's shares, Insurance Company will pay for such purchases by wiring
Federal Funds to the Participating Fund or its designated custodial
account on the day the order is transmitted. Insurance Company shall make
all reasonable efforts to transmit to the applicable Participating Fund
payment in Federal Funds by 12:00 noon Eastern time on the Business Day
the Participating Fund receives the notice of the order pursuant to
Section 3.5. Each applicable Participating Fund will execute such orders
at the applicable net asset value per share determined as of the close of
trading on the effective trade date if the Participating Fund receives
payment in Federal Funds by 12:00 midnight Eastern time on the Business
Day the Participating Fund receives the notice of the order pursuant to
Section 3.5. If payment in Federal Funds for any purchase is not received
or is received by a Participating Fund after 12:00 noon Eastern time on
such Business Day, Insurance
5
<PAGE>
Company shall promptly, upon each applicable Participating Fund's request,
reimburse the respective Participating Fund for any charges, costs, fees,
interest or other expenses incurred by the Participating Fund in
connection with any advances to, or borrowings or overdrafts by, the
Participating Fund, or any similar expenses incurred by the Participating
Fund, as a result of portfolio transactions effected by the Participating
Fund based upon such purchase request. If Insurance Company's order
requests the redemption of any Participating Fund's shares valued at or
greater than $1 million dollars, the Participating Fund will wire such
amount to Insurance Company within seven days of the order.
3.9 Each Participating Fund has the obligation to ensure that its shares are
registered with applicable federal agencies at all times.
3.10 Each Participating Fund will confirm each purchase or redemption order
made by Insurance Company. Transfer of Participating Fund shares will be
by book entry only. No share certificates will be issued to Insurance
Company. Insurance Company will record shares ordered from a Participating
Fund in an appropriate title for the corresponding account.
3.11 Each Participating Fund shall credit Insurance Company with the
appropriate number of shares.
3.12 On each ex-dividend date of a Participating Fund or, if not a Business
Day, on the first Business Day thereafter, each Participating Fund shall
communicate to Insurance Company the amount of dividend and capital gain,
if any, per share. All dividends and capital gains shall be automatically
reinvested in additional shares of the applicable Participating Fund at
the net asset value per share on the ex-dividend date. Each Participating
Fund shall, on the day after the ex-dividend date or, if not a Business
Day, on the first Business Day thereafter, notify Insurance Company of the
number of shares so issued.
ARTICLE IV
STATEMENTS AND REPORTS
4.1 Each Participating Fund shall provide monthly statements of account as of
the end of each month for all of Insurance Company's accounts by the
fifteenth (15th) Business Day of the following month.
4.2 Each Participating Fund shall distribute to Insurance Company copies of
the Participating Fund's Prospectuses, proxy materials, notices, periodic
reports and other printed materials (which the Participating Fund
customarily provides to its shareholders) in quantities as Insurance
Company may reasonably request for distribution to each Contractholder and
Participant. Insurance Company may elect to print the Participating Fund's
prospectus and/or its statement of additional information in combination
with other fund companies' prospectuses and
6
<PAGE>
statements of additional information, which are also offered in Insurance
Companies insurance product at their own cost. At Insurance Company's
request, the Participating Fund will provide, in lieu of printed
documents, camera-ready copy or diskette of prospectuses, annual and semi-
annual reports for printing by the Insurance Company.
4.3 Each Participating Fund will provide to Insurance Company at least one
complete copy of all registration statements, Prospectuses, reports, proxy
statements, sales literature and other promotional materials, applications
for exemptions, requests for no-action letters, and all amendments to any
of the above, that relate to the Participating Fund or its shares,
contemporaneously with the filing of such document with the Commission or
other regulatory authorities.
4.4 Insurance Company will provide to each Participating Fund at least one
copy of all registration statements, Prospectuses, reports, proxy
statements, sales literature and other promotional materials, applications
for exemptions, requests for no-action letters, and all amendments to any
of the above, that relate to the Contracts or the Separate Account,
contemporaneously with the filing of such document with the Commission.
4.5 Insurance Company will provide Participating Funds on a semi-annual basis,
or more frequently as reasonably requested by the Participating Funds,
with a current tabulation of the number of existing Variable Contract
owners of Insurance Company whose Variable Contract values are invested in
the Participating Funds. This tabulation will be sent to Participating
Funds in the form of a letter signed by a duly authorized officer of the
Insurance Company attesting to the accuracy of the information contained
in the letter.
ARTICLE V
EXPENSES
5.1 The charge to each Participating Fund for all expenses and costs of the
Participating Fund, including but not limited to management fees,
administrative expenses and legal and regulatory costs, will be included
in the determination of the Participating Fund's daily net asset value per
share.
5.2 Except as provided in Article IV and V, in particular in the next
sentence, Insurance Company shall not be required to pay directly any
expenses of any Participating Fund or expenses relating to the
distribution of its shares. Insurance Company shall pay the following
expenses or costs:
a. Such amount of the production expenses of any Participating Fund
materials, including the cost of printing a Participating Fund's
Prospectus, or marketing materials for prospective Insurance Company
7
<PAGE>
Contractholders and Participants as Dreyfus and Insurance Company
shall agree from time to time.
b. Distribution expenses of any Participating Fund materials or
marketing materials for prospective Insurance Company Contractholders
and Participants.
c. Distribution expenses of any Participating Fund materials or
marketing materials for Insurance Company Contractholders and
Participants.
Except as provided herein, all other expenses of each Participating Fund
shall not be borne by Insurance Company.
ARTICLE VI
EXEMPTIVE RELIEF
6.1 Insurance Company has reviewed a copy of (i) the amended order dated
December 31, 1997 of the Securities and Exchange Commission under Section
6(c) of the Act with respect to Dreyfus Variable Investment Fund and
Dreyfus Life and Annuity Index Fund, Inc.; and (ii) the order dated
February 5, 1998 of the Securities and Exchange Commission under Section
6(c) of the Act with respect to The Dreyfus Socially Responsible Growth
Fund, Inc. and Dreyfus Investment Portfolios, and, in particular, has
reviewed the conditions to the relief set forth in each related Notice. As
set forth therein, if Dreyfus Variable Investment Fund, Dreyfus Life and
Annuity Index Fund, Inc., The Dreyfus Socially Responsible Growth Fund,
Inc. or Dreyfus Investment Portfolios is a Participating Fund, Insurance
Company agrees, as applicable, to report any potential or existing
conflicts promptly to the respective Board of Dreyfus Variable Investment
Fund, Dreyfus Life and Annuity Index Fund, Inc., The Dreyfus Socially
Responsible Growth Fund, Inc. and/or Dreyfus Investment Portfolios, and,
in particular, whenever contract voting instructions are disregarded, and
recognizes that it will be responsible for assisting each applicable Board
in carrying out its responsibilities under such application. Insurance
Company agrees to carry out such responsibilities with a view to the
interests of existing Contractholders.
6.2 If a majority of the Board, or a majority of Disinterested Board Members,
determines that a material irreconcilable conflict exists with regard to
Contractholder investments in a Participating Fund, the Board shall give
prompt notice to all Participating Companies and any other Participating
Fund. If the Board determines that Insurance Company is responsible for
causing or creating said conflict, Insurance Company shall at its sole
cost and expense, and to the extent reasonably practicable (as determined
by a majority of the Disinterested Board Members), take such action as is
necessary to remedy or eliminate the
8
<PAGE>
irreconcilable material conflict. Such necessary action may include, but
shall not be limited to:
a. Withdrawing the assets allocable to the Separate Account
from the Participating Fund and reinvesting such assets in another
Participating Fund (if applicable) or a different investment medium,
or submitting the question of whether such segregation should be
implemented to a vote of all affected Contractholders; and/or
b. Establishing a new registered management investment
company.
6.3 If a material irreconcilable conflict arises as a result of a decision by
Insurance Company to disregard Contractholder voting instructions and said
decision represents a minority position or would preclude a majority vote
by all Contractholders having an interest in a Participating Fund,
Insurance Company may be required, at the Board's election, to withdraw
the investments of the Separate Account in that Participating Fund.
6.4 For the purpose of this Article, a majority of the Disinterested Board
Members shall determine whether or not any proposed action adequately
remedies any irreconcilable material conflict, but in no event will any
Participating Fund be required to bear the expense of establishing a new
funding medium for any Contract. Insurance Company shall not be required
by this Article to establish a new funding medium for any Contract if an
offer to do so has been declined by vote of a majority of the
Contractholders materially adversely affected by the irreconcilable
material conflict.
6.5 No action by Insurance Company taken or omitted, and no action by the
Separate Account or any Participating Fund taken or omitted as a result of
any act or failure to act by Insurance Company pursuant to this Article
VI, shall relieve Insurance Company of its obligations under, or otherwise
affect the operation of, Article V.
ARTICLE VII
VOTING OF PARTICIPATING FUND SHARES
7.1 Each Participating Fund shall provide Insurance Company with copies, at no
cost to Insurance Company, of the Participating Fund's proxy material,
reports to shareholders and other communications to shareholders in such
quantity as Insurance Company shall reasonably require for distributing to
Contractholders or Participants.
Insurance Company shall:
(a) solicit voting instructions from Contractholders or
Participants on a timely basis and in accordance with applicable law;
9
<PAGE>
(b) vote the Participating Fund shares in accordance with
instructions received from Contractholders or Participants; and
(c) vote the Participating Fund shares for which no
instructions have been received in the same proportion as
Participating Fund shares for which instructions have been received.
Insurance Company agrees at all times to vote its General Account
shares in the same proportion as the Participating Fund shares for which
instructions have been received from Contractholders or Participants.
Insurance Company further agrees to be responsible for assuring that
voting the Participating Fund shares for the Separate Account is conducted
in a manner consistent with other Participating Companies.
7.2 Insurance Company agrees that it shall not, without the prior written
consent of each applicable Participating Fund and Dreyfus, solicit, induce
or encourage Contractholders to (a) change or supplement the Participating
Fund's current investment adviser or (b) change, modify, substitute, add
to or delete from the current investment media for the Contracts.
ARTICLE VIII
MARKETING AND REPRESENTATIONS
8.1 Each Participating Fund or its underwriter shall periodically furnish
Insurance Company with the following documents, in quantities as Insurance
Company may reasonably request:
a. Current Prospectus and any supplements thereto; and
b. Other marketing materials.
Expenses for the production of such documents shall be borne by
Insurance Company in accordance with Section 5.2 of this Agreement.
8.2 Insurance Company shall designate certain persons or entities that shall
have the requisite licenses to solicit applications for the sale of
Contracts. No representation is made as to the number or amount of
Contracts that are to be sold by Insurance Company. Insurance Company
shall make reasonable efforts to market the Contracts and shall comply
with all applicable federal and state laws in connection therewith.
8.3 Insurance Company shall furnish, or shall cause to be furnished, to each
applicable Participating Fund or its designee, each piece of sales
literature or other promotional material in which the Participating Fund,
its investment adviser or the administrator is named, at least fifteen
Business Days prior to its use. No
10
<PAGE>
such material shall be used unless the Participating Fund or its designee
approves such material. Such approval (if given) must be in writing and
shall be presumed not given if not received within ten Business Days after
receipt of such material. Each applicable Participating Fund or its
designee, as the case may be, shall use all reasonable efforts to respond
within ten days of receipt.
8.4 Insurance Company shall not give any information or make any
representations or statements on behalf of a Participating Fund or
concerning a Participating Fund in connection with the sale of the
Contracts other than the information or representations contained in the
registration statement or Prospectus of, as may be amended or supplemented
from time to time, or in reports or proxy statements for, the applicable
Participating Fund, or in sales literature or other promotional material
approved by the applicable Participating Fund.
8.5 Each Participating Fund shall furnish, or shall cause to be furnished, to
Insurance Company, each piece of the Participating Fund's sales literature
or other promotional material in which Insurance Company or the Separate
Account is named, at least fifteen Business Days prior to its use. No such
material shall be used unless Insurance Company approves such material.
Such approval (if given) must be in writing and shall be presumed not
given if not received within ten Business Days after receipt of such
material. Insurance Company shall use all reasonable efforts to respond
within ten days of receipt.
8.6 Each Participating Fund shall not, in connection with the sale of
Participating Fund shares, give any information or make any
representations on behalf of Insurance Company or concerning Insurance
Company, the Separate Account, or the Contracts other than the information
or representations contained in a registration statement or prospectus for
the Contracts, as may be amended or supplemented from time to time, or in
published reports for the Separate Account that are in the public domain
or approved by Insurance Company for distribution to Contractholders or
Participants, or in sales literature or other promotional material
approved by Insurance Company.
8.7 For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without
limitation, advertisements (such as material published, or designed for
use, in a newspaper, magazine or other periodical, radio, television,
telephone or tape recording, videotape display, signs or billboards,
motion pictures or other public media), sales literature (such as any
written communication distributed or made generally available to customers
or the public, including brochures, circulars, research reports, market
letters, form letters, seminar texts, or reprints or excerpts of any other
advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports
and proxy materials, and any other
11
<PAGE>
material constituting sales literature or advertising under National
Association of Securities Dealers, Inc. rules, the Act or the 1933 Act.
ARTICLE IX
INDEMNIFICATION
9.1 Insurance Company agrees to indemnify and hold harmless each Participating
Fund, Dreyfus, each respective Participating Fund's investment adviser and
sub-investment adviser (if applicable), each respective Participating
Fund's distributor, and their respective affiliates, and each of their
directors, trustees, officers, employees, agents and each person, if any,
who controls or is associated with any of the foregoing entities or
persons within the meaning of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of Section 9.1), against any and all losses, claims,
damages or liabilities joint or several (including any investigative,
legal and other expenses reasonably incurred in connection with, and any
amounts paid in settlement of, any action, suit or proceeding or any claim
asserted) for which the Indemnified Parties may become subject, under the
1933 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect to thereof) (i) arise out of or are
based upon any untrue statement or alleged untrue statement of any
material fact contained in information furnished by Insurance Company for
use in the registration statement or Prospectus or sales literature or
advertisements of the respective Participating Fund or with respect to the
Separate Account or Contracts, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading; (ii) arise out of or as a result of conduct, statements or
representations (other than statements or representations contained in the
Prospectus and sales literature or advertisements of the respective
Participating Fund) of Insurance Company or its agents, with respect to
the sale and distribution of Contracts for which the respective
Participating Fund's shares are an underlying investment; (iii) arise out
of the wrongful conduct of Insurance Company or persons under its control
with respect to the sale or distribution of the Contracts or the
respective Participating Fund's shares; (iv) arise out of Insurance
Company's incorrect calculation and/or untimely reporting of net purchase
or redemption orders; or (v) arise out of any breach by Insurance Company
of a material term of this Agreement or as a result of any failure by
Insurance Company to provide the services and furnish the materials or to
make any payments provided for in this Agreement. Insurance Company will
reimburse any Indemnified Party in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
however, that with respect to clauses (i) and (ii) above Insurance Company
will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any untrue
statement or omission or alleged omission made in such registration
statement, prospectus, sales literature, or advertisement in conformity
with written information furnished to Insurance Company by the respective
Participating Fund specifically for use therein. This
12
<PAGE>
indemnity agreement will be in addition to any liability which Insurance
Company may otherwise have.
9.2 Each Participating Fund severally agrees to indemnify and hold harmless
Insurance Company and each of its directors, officers, employees, agents
and each person, if any, who controls Insurance Company within the meaning
of the 1933 Act against any losses, claims, damages or liabilities to
which Insurance Company or any such director, officer, employee, agent or
controlling person may become subject, under the 1933 Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) (1) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the
registration statement or Prospectus or sales literature or advertisements
of the respective Participating Fund; (2) arise out of or are based upon
the omission to state in the registration statement or Prospectus or sales
literature or advertisements of the respective Participating Fund any
material fact required to be stated therein or necessary to make the
statements therein not misleading; or (3) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained in the registration statement or Prospectus or sales literature
or advertisements with respect to the Separate Account or the Contracts
and such statements were based on information provided to Insurance
Company by the respective Participating Fund; and the respective
Participating Fund will reimburse any legal or other expenses reasonably
incurred by Insurance Company or any such director, officer, employee,
agent or controlling person in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that
the respective Participating Fund will not be liable in any such case to
the extent that any such loss, claim, damage or liability arises out of or
is based upon an untrue statement or omission or alleged omission made in
such registration statement, Prospectus, sales literature or
advertisements in conformity with written information furnished to the
respective Participating Fund by Insurance Company specifically for use
therein. This indemnity agreement will be in addition to any liability
which the respective Participating Fund may otherwise have.
9.3 Each Participating Fund severally shall indemnify and hold Insurance
Company harmless against any and all liability, loss, damages, costs or
expenses which Insurance Company may incur, suffer or be required to pay
due to the respective Participating Fund's (1) incorrect calculation of
the daily net asset value, dividend rate or capital gain distribution
rate; (2) incorrect reporting of the daily net asset value, dividend rate
or capital gain distribution rate; and (3) untimely reporting of the net
asset value, dividend rate or capital gain distribution rate; provided
that the respective Participating Fund shall have no obligation to
indemnify and hold harmless Insurance Company if the incorrect calculation
or incorrect or untimely reporting was the result of incorrect information
furnished by Insurance Company or information furnished untimely by
Insurance Company or otherwise as a result of or relating to a breach of
this Agreement by Insurance Company.
13
<PAGE>
9.4 Promptly after receipt by an indemnified party under this Article of
notice of the commencement of any action, such indemnified party will, if
a claim in respect thereof is to be made against the indemnifying party
under this Article, notify the indemnifying party of the commencement
thereof. The omission to so notify the indemnifying party will not relieve
the indemnifying party from any liability under this Article IX, except to
the extent that the omission results in a failure of actual notice to the
indemnifying party and such indemnifying party is damaged solely as a
result of the failure to give such notice. In case any such action is
brought against any indemnified party, and it notified the indemnifying
party of the commencement thereof, the indemnifying party will be entitled
to participate therein and, to the extent that it may wish, assume the
defense thereof, with counsel satisfactory to such indemnified party, and
to the extent that the indemnifying party has given notice to such effect
to the indemnified party and is performing its obligations under this
Article, the indemnifying party shall not be liable for any legal or other
expenses subsequently incurred by such indemnified party in connection
with the defense thereof, other than reasonable costs of investigation.
Notwithstanding the foregoing, in any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying party and the indemnified party shall have
mutually agreed to the retention of such counsel or (ii) the named parties
to any such proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. The indemnifying party shall
not be liable for any settlement of any proceeding effected without its
written consent.
A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article IX. The
provisions of this Article IX shall survive termination of this Agreement.
9.5 Insurance Company shall indemnify and hold each respective Participating
Fund, Dreyfus and sub-investment adviser of the Participating Fund
harmless against any tax liability incurred by the Participating Fund
under Section 851 of the Code arising from purchases or redemptions by
Insurance Company's General Accounts or the account of its affiliates.
ARTICLE X
COMMENCEMENT AND TERMINATION
10.1 This Agreement shall be effective as of the date hereof and shall continue
in force until terminated in accordance with the provisions herein.
10.2 This Agreement shall terminate without penalty:
14
<PAGE>
a. As to any Participating Fund, at the option of Insurance Company or
the Participating Fund at any time from the date hereof upon 180 days'
notice, unless a shorter time is agreed to by the respective Participating
Fund and Insurance Company;
b. As to any Participating Fund, at the option of Insurance Company, if
shares of that Participating Fund are not reasonably available to meet the
requirements of the Contracts as determined by Insurance Company. Prompt
notice of election to terminate shall be furnished by Insurance Company,
said termination to be effective ten days after receipt of notice unless
the Participating Fund makes available a sufficient number of shares to
meet the requirements of the Contracts within said ten-day period;
c. As to a Participating Fund, at the option of Insurance Company, upon
the institution of formal proceedings against that Participating Fund by
the Commission, National Association of Securities Dealers or any other
regulatory body, the expected or anticipated ruling, judgment or outcome
of which would, in Insurance Company's reasonable judgment, materially
impair that Participating Fund's ability to meet and perform the
Participating Fund's obligations and duties hereunder. Prompt notice of
election to terminate shall be furnished by Insurance Company with said
termination to be effective upon receipt of notice;
d. As to a Participating Fund, at the option of each Participating Fund,
upon the institution of formal proceedings against Insurance Company by
the Commission, National Association of Securities Dealers or any other
regulatory body, the expected or anticipated ruling, judgment or outcome
of which would, in the Participating Fund's reasonable judgment,
materially impair Insurance Company's ability to meet and perform
Insurance Company's obligations and duties hereunder. Prompt notice of
election to terminate shall be furnished by such Participating Fund with
said termination to be effective upon receipt of notice;
e. As to a Participating Fund, at the option of that Participating Fund,
if the Participating Fund shall determine, in its sole judgment
reasonably exercised in good faith, that Insurance Company has suffered a
material adverse change in its business or financial condition or is the
subject of material adverse publicity and such material adverse change or
material adverse publicity is likely to have a material adverse impact
upon the business and operation of that Participating Fund or Dreyfus,
such Participating Fund shall notify Insurance Company in writing of such
determination and its intent to terminate this Agreement, and after
considering the actions taken by Insurance Company and any other changes
in circumstances since the giving of such notice, such determination of
the Participating Fund shall continue to apply on the
15
<PAGE>
sixtieth (60th) day following the giving of such notice, which sixtieth
day shall be the effective date of termination;
f. As to a Participating Fund, at the option of Insurance Company, if
Insurance Company shall determine, in its sole judgment reasonably
exercised in good faith that the Participating Fund has suffered a
material adverse change in its business or financial condition or is the
subject of material adverse publicity and such material adverse change or
material adverse publicity is likely to have a material adverse impact
upon the business and operations of Insurance Company or its Separate
Account, the Insurance Company shall notify the Participating Fund in
writing of such determination and its intent to terminate this Agreement,
and after considering the actions taken by the Participating Fund and any
other changes in circumstances since the giving of such notice, such
determination of Insurance Company shall continue to apply to the sixtieth
(60/th/) day following the giving of such notice, which sixtieth day shall
be the effective date of termination;
g. Upon termination of the Investment Advisory Agreement between that
Participating Fund and Dreyfus or its successors unless Insurance Company
specifically approves the selection of a new Participating Fund investment
adviser. Such Participating Fund shall promptly furnish notice of such
termination to Insurance Company;
h. As to a Participating Fund, in the event that Participating Fund's
shares are not registered, issued or sold in accordance with applicable
federal law, or such law precludes the use of such shares as the
underlying investment medium of Contracts issued or to be issued by
Insurance Company. Termination shall be effective immediately as to that
Participating Fund only upon such occurrence without notice;
i. At the option of a Participating Fund upon a determination by its
Board in good faith that it is no longer advisable and in the best
interests of shareholders of that Participating Fund to continue to
operate pursuant to this Agreement. Termination pursuant to this
Subsection (h) shall be effective upon notice by such Participating Fund
to Insurance Company of such termination;
j. At the option of a Participating Fund if the Contracts cease to
qualify as annuity contracts or life insurance policies, as applicable,
under the Code, or if such Participating Fund reasonably believes that the
Contracts may fail to so qualify;
k. At the option of any party to this Agreement, upon another party's
breach of any material provision of this Agreement;
16
<PAGE>
l. At the option of a Participating Fund, if the Contracts are not
registered, issued or sold in accordance with applicable federal
and/or state law; or
m. Upon assignment of this Agreement, unless made with the written
consent of every other non-assigning party.
Any such termination pursuant to Section 10.2a, 10.2d, 10.2e, 10.2f or
10.2k herein shall not affect the operation of Article V of this
Agreement. Any termination of this Agreement shall not affect the
operation of Article IX of this Agreement.
10.3 Notwithstanding any termination of this Agreement pursuant to Section 10.2
hereof, each Participating Fund and Dreyfus may, at the option of the
Participating Fund, continue to make available additional shares of that
Participating Fund for as long as the Participating Fund desires pursuant
to the terms and conditions of this Agreement as provided below, for all
Contracts in effect on the effective date of termination of this Agreement
(hereinafter referred to as "Existing Contracts"). Specifically, without
limitation, if that Participating Fund and Dreyfus so elect to make
additional Participating Fund shares available, the owners of the Existing
Contracts or Insurance Company, whichever shall have legal authority to do
so, shall be permitted to reallocate investments in that Participating
Fund, redeem investments in that Participating Fund and/or invest in that
Participating Fund upon the making of additional purchase payments under
the Existing Contracts. In the event of a termination of this Agreement
pursuant to Section 10.2 hereof, such Participating Fund and Dreyfus, as
promptly as is practicable under the circumstances, shall notify Insurance
Company whether Dreyfus and that Participating Fund will continue to make
that Participating Fund's shares available after such termination. If such
Participating Fund shares continue to be made available after such
termination, the provisions of this Agreement shall remain in effect and
thereafter either of that Participating Fund or Insurance Company may
terminate the Agreement as to that Participating Fund, as so continued
pursuant to this Section 10.3, upon prior written notice to the other
party, such notice to be for a period that is reasonable under the
circumstances but, if given by the Participating Fund, need not be for
more than six months.
10.4 Termination of this Agreement as to any one Participating Fund shall not
be deemed a termination as to any other Participating Fund unless
Insurance Company or such other Participating Fund, as the case may be,
terminates this Agreement as to such other Participating Fund in
accordance with this Article X.
ARTICLE XI
AMENDMENTS
11.1 Any other changes in the terms of this Agreement, except for the addition
or deletion of any Participating Fund as specified in Exhibit A, shall be
made by
17
<PAGE>
agreement in writing between Insurance Company and each respective
Participating Fund.
ARTICLE XII
NOTICE
12.1 Each notice required by this Agreement shall be given by certified
mail, return receipt requested, to the appropriate parties at the
following addresses:
Insurance Company:
Participating Funds: [Name of Fund]
c/o Premier Mutual Fund Services, Inc.
200 Park Avenue
New York, New York 10166
Attn: Vice President and Assistant Secretary
with copies to: [Name of Fund]
c/o The Dreyfus Corporation
200 Park Avenue
New York, New York 10166
Attn: General Counsel
Stroock & Stroock & Lavan
180 Maiden Lane
New York, New York 10038-4982
Attn: Lewis G. Cole, Esq.
Stuart H. Coleman, Esq.
Notice shall be deemed to be given on the date of receipt by the addresses
as evidenced by the return receipt.
ARTICLE XIII
MISCELLANEOUS
13.1 This Agreement has been executed on behalf of each Fund by the undersigned
officer of the Fund in his capacity as an officer of the Fund. The
obligations of this Agreement shall only be binding upon the assets and
property of the Fund and shall not be binding upon any director, trustee,
officer or shareholder of the Fund individually. It is agreed that the
obligations of the Funds are several and not joint, that no Fund shall be
liable for any amount owing by another Fund and that the Funds have
executed one instrument for convenience only.
18
<PAGE>
ARTICLE XIV
LAW
14.1 This Agreement shall be construed in accordance with the internal laws of
the State of New York, without giving effect to principles of conflict of
laws.
ARTICLE XV
FOREIGN TAX CREDITS
15.1 Each Participating Fund agrees to consult in advance with Insurance
Company concerning any decision to elect or not to pass through the
benefit of any foreign tax credits to the Participating Fund's
shareholders pursuant to Section 853 of the Code.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be duly
executed and attested as of the date first above written.
INSURANCE COMPANY
By:
Its:
Attest:_____________________
DREYFUS LIFE AND ANNUITY INDEX FUND, INC. (d/b/a
DREYFUS STOCK INDEX FUND)
By:
Its:
Attest:_____________________
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
By:
Its:
Attest:_____________________
19
<PAGE>
DREYFUS VARIABLE INVESTMENT FUND
By:
Its:
Attest:_____________________
DREYFUS INVESTMENT PORTFOLIOS
By:
Its:
Attest:_____________________
20
<PAGE>
EXHIBIT A
LIST OF PARTICIPATING FUNDS
21
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
PARTICIPATION AGREEMENT
THIS AGREEMENT is made this ____ day of __________, 2000 between EVERGREEN
VARIABLE ANNUITY TRUST, an open-end management investment company organized as a
Delaware business trust (the "Trust"), and United Investors Life Insurance
Company, a life insurance company organized under the laws of the State of
Missouri (the "Company"), on its own behalf and on behalf of each segregated
asset account of the Company set forth on Schedule A, as may be amended from
time to time (the "Accounts").
W I T N E S S E T H:
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and the offer and sale of its shares are registered under the Securities Act of
1933, as amended (the "1933 Act"); and
WHEREAS, the Trust desires to act as an investment vehicle for separate
accounts established for variable life insurance policies and variable annuity
contracts to be offered by insurance companies that have entered into
participation agreements with the Trust (the "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares, each series representing an interest in a particular managed
portfolio of securities and other assets (the "Portfolios"); and
WHEREAS, the Trust has obtained an order from the Securities and Exchange
Commission ("Commission") granting Participating Insurance Companies and their
separate account(s) exemptions from the provisions of Section(s) 9(a), 13(a),
15(a) and 15(b) of the 1940 Act and Rules 6e-2(b)(15) and 6e-3(T)(b)(15)
thereunder, to the extent necessary to permit shares of the Trust to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and nonaffiliated life insurance companies and certain qualified
pension and retirement plans (the "Shared Trust Exemptive Order"); and
WHEREAS, the Company has registered or will register under the 1933 Act
certain variable life insurance policies and/or variable annuity contracts
identified by the form number(s) listed on Schedule A, as may be amended from
time to time (the "Contracts"); and
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company on the date shown for that Account on Schedule A, to set aside and
invest assets attributable to the Contracts; and
<PAGE>
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares of the Portfolios at net
asset value on behalf of each Account to fund the Contracts;
NOW, THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
ARTICLE I
Sale of Trust Shares
1.1. The Trust shall make shares of its Portfolios available to the
Accounts at the net asset value next computed after receipt of such purchase
order by the Trust (or its agent), as established in accordance with the
provisions of the then current prospectus of the Trust. Shares of a particular
Portfolio of the Trust shall be ordered in such quantities and at such times as
determined by the Company to be necessary to meet the requirements of the
Contracts. The trustees of the Trust (the "Trustees") may refuse to sell shares
of any Portfolio to any person or suspend or terminate the offering of shares of
any Portfolio if such action is required by law or by regulatory authorities
having jurisdiction or is, in the sole discretion of the Trustees acting in good
faith and in light of their fiduciary duties under federal and any applicable
state laws, necessary and in the best interest of the shareholders of such
Portfolio.
1.2. The Trust will redeem any full or fractional shares of any Portfolio
when requested by the Company on behalf of an Account at the net asset value
next computed after receipt by the Trust (or its agent) of the request for
redemption, as established in accordance with the provisions of the then current
prospectus of the Trust. The Trust shall make payment for such shares in the
manner established from time to time by the Trust, but in no event shall payment
be delayed for a greater period than is permitted by the 1940 Act.
1.3. For the purposes of Sections 1.1. and 1.2., the Trust hereby appoints
the Company as its agent for the limited purpose of receiving and accepting
purchase and redemption orders resulting from investment in and payments under
the Contracts. Receipt by the Company shall constitute receipt by the Trust
provided that: (a) such orders are received by the Company in good order prior
to the close of the regular trading session of the New York Stock Exchange, and
(b) the Trust receives notice of such orders by 9:30 a.m., New York time, on the
next following Business Day. "Business Day" shall mean any day on which the New
York Stock Exchange is open for trading and on which the Trust calculates its
net asset value.
1.4. Purchase orders that are transmitted to the Trust in accordance with
Section 1.3. shall be paid for on the same Business Day that the Trust receives
notice of the order. Payments shall be made in federal funds transmitted by
wire.
1.5. The Trust shall furnish prompt notice to the Company of any income
dividends or
2
<PAGE>
capital gain distributions payable on shares of any Portfolio. The Company
hereby elects to receive all such income dividends and capital gain
distributions as are payable on a Portfolio's shares in additional shares of
that Portfolio. The Trust shall notify the Company of the number of shares so
issued as payment of such dividends and distributions.
1.6. The Trust shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated and shall use its best efforts to
make such net asset value per share available by 7:00 p.m., New York time.
1.7. The Trust agrees that its shares will be sold only to Participating
Insurance Companies and their separate accounts and to certain qualified pension
and retirement plans to the extent permitted by the Shared Trust Exemptive
Order. No shares of any Portfolio will be sold directly to the general public.
The Company agrees that the Trust shares will be used only for the purposes of
funding the Contracts and Accounts listed in Schedule A, as amended from time to
time.
1.8. The Trust agrees that all Participating Insurance Companies shall
have the obligations and responsibilities regarding pass-through voting and
conflicts of interest corresponding to those contained in Section 2.12. and
Article IV of this Agreement.
ARTICLE II
Obligations of the Parties
2.1. The Trust shall bear the costs of registering and qualifying the
Trust's shares, and of preparing and filing the Trust's prospectus, registration
statement, Trust sponsored proxy materials (or similar materials such as voting
instruction solicitation materials), reports to shareholders, and all statements
and notices required by federal or state law. The Trust shall pay all taxes on
the issuance and/or transfer of the Trust's shares.
2.2. The Trust shall bear the printing costs (or duplicating costs with
respect to the statement of additional information) associated with distributing
the Trust's current prospectus, statement of additional information, annual
report, semi-annual report, Trust sponsored proxy material or other shareholder
communications, including any amendments or supplements to any of the foregoing,
to the extent required to be provided by the Trust to its then-current
shareholders. The Trust shall not bear any costs of preparing, printing,
recording, taping or disseminating sales literature or other promotional
materials or the costs of printing and mailing prospective Contract owners
copies of the Trust's prospectus, statement of additional information, periodic
reports or other printed materials.
2.3. The Trust shall provide the Company (at the Company's expense) with
as many
3
<PAGE>
copies of the Trust's current prospectus as the Company may reasonably request
for distribution to prospective purchasers of Contracts. If requested by the
Company in lieu thereof, the Trust shall provide such documentation (including a
final copy of the current prospectus as set in type at the Trust's expense) and
other assistance as is reasonably necessary in order for the Company once each
year (or more frequently if the prospectus for the Trust is amended) to have the
prospectus for the Contracts and the Trust's prospectus printed together in one
document (at the Company's expense).
2.4. The Company will bear the costs of registering and qualifying the
Accounts for sale, printing (or duplicating costs with respect to the statement
of additional information) and mailing costs associated with the delivery of the
Accounts' current prospectuses and statements of additional information, private
placement memoranda, annual and semi-annual reports, Contracts, Contract
applications, sales literature or other promotional material, Account sponsored
proxy materials and voting solicitation instructions.
2.4. The Company will bear the responsibility and correlative expense for
administrative and support services for Contract owners. The Trust recognizes
the Company as the sole shareholder of shares of the Trust issued under this
Agreement.
2.5. The Company agrees and acknowledges that one of the Trust's advisers,
Evergreen Asset Management Corp. ("Evergreen Asset"), is the sole owner of the
name and mark "Evergreen" and that all use of any designation comprised in whole
or in part of Evergreen (an "Evergreen Mark") under this Agreement shall inure
to the benefit of Evergreen Asset. Except as provided in Section 2.6., the
Company shall not use any Evergreen Mark on its own behalf or on behalf of the
Accounts or Contracts in any registration statement, advertisement, sales
literature or other materials relating to the Accounts or Contracts without the
prior written consent of Evergreen Asset. Upon termination of this Agreement
for any reason, the Company shall cease all use of any Evergreen Mark(s) as soon
as reasonably practicable.
2.6. The Company shall furnish, or cause to be furnished, to the Trust or
its designee, a copy of each Contract prospectus or statement of additional
information in which the Trust or its investment advisers are named prior to the
filing of such document with the Commission. The Company shall also furnish, or
shall cause to be furnished, to the Trust or its designee, each piece of sales
literature or other promotional material including private placement memoranda,
in which the Trust or its investment advisers are named, at least fifteen
Business Days prior to its use. No such material shall be used if the Trust or
its designee reasonably objects to such use within fifteen Business Days after
receipt of such material.
2.7. The Company will provide to the Trust at least one complete copy of
each report, solicitation for voting instructions, application for exemption,
request for no-action relief, and any amendment to any of the above (or any
amendment to the registration statement, prospectus, statement of additional
information, piece of sales literature or other promotional material) that
relates to the Contracts or the Account, contemporaneously with the filing of
the document with the Commission, the NASD, or other regulatory authorities.
4
<PAGE>
2.8. For purposes of this Article II, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements,
newspapers, magazines, or other periodicals, radio, television, telephone or
tape recording, videotape display, signs or billboards, motion pictures, or
other public media, sales literature (i.e., any written communication
distributed or made generally available to customers or the public, including
brochures, circulars, research reports, market letters, form letters,
shareholder newsletters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
statements of additional information, shareholder reports and proxy materials.
2.9. The Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust or
its investment advisers in connection with the sale of the Contracts other than
information or representations contained in and accurately derived from the
registration statement or prospectus for the Trust shares (as such registration
statement and prospectus may be amended or supplemented from time to time),
annual and semi-annual reports of the Trust, Trust-sponsored proxy statements,
or in sales literature or other promotional material approved by the Trust or
its designee, except as required by legal process or regulatory authorities or
with the written permission of the Trust or its designee.
2.10. The Trust shall furnish or cause to be furnished, to the Company or
its designee, a copy of each Trust prospectus or statement of additional
information in which the Company or the Accounts are named prior to the filing
of such document with the Commission. The Trust shall furnish, or shall cause
to be furnished, to the Company or its designee, each piece of sales literature
or other promotional material in which the Company or the Accounts are named, at
least fifteen Business Days prior to its use. No such material shall be used if
the Company or its designee reasonably objects to such use within fifteen
Business Days after receipt of such material.
2.11. The Trust shall not give any information or make any representations
or statements on behalf of the Company or concerning the Company, the Accounts
or the Contracts other than information or representations contained in and
accurately derived from the registration statement, prospectus or private
placement memorandum for the Contracts (as such registration statement,
prospectus or private placement memorandum may be amended or supplemented from
time to time), or in materials approved by the Company for distribution
including sales literature or other promotional materials, except as required by
legal process or regulatory authorities or with the written permission of the
Company.
2.12. At the request of either party to this Agreement, the other party
will make available to the requesting party's independent auditors and/or
representatives of the appropriate regulatory agencies, all records, data and
access to operating procedures that may be reasonably requested.
5
<PAGE>
2.13. So long as, and to the extent that the Commission interprets the 1940
Act to require pass-through voting privileges for variable contract owners, the
Company will provide pass-through voting privileges to owners of policies whose
cash values are invested, through the Accounts, in shares of the Trust and shall
distribute all proxy material furnished by the Trust. The Trust shall require
all Participating Insurance Companies to calculate voting privileges in the same
manner and the Company shall be responsible for assuring that the Accounts
calculated voting privileges in the manner established by the Trust. With
respect to each Account, the Company will vote shares of the Trust held by the
Account and for which no timely voting instructions from policy owners are
received as well as shares it owns that are held by that Account, in the same
proportion as those shares for which voting instructions are received. The
Company and its agents will in no way recommend or oppose or interfere with the
solicitation of proxies for Trust shares held by Contract owners without the
prior written consent of the Trust, which consent may be withheld in the Trust's
sole discretion.
ARTICLE III
Representations and Warranties
3.1. The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of the State of Missouri and
that it has legally and validly established each Account as a segregated asset
account under such law on the dates set forth in Schedule A.
3.2. The Company represents and warrants that it has registered or, prior
to any issuance or sale of the Contracts, will register each Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts.
3.3. The Company represents and warrants that the Contracts are, or will
be, registered under the 1933 Act to the extent required by the 1933 Act prior
to any issuance or sale of the Contracts, the Contracts will be issued and sold
in compliance in all material respects with all applicable federal and state
law, and the sale of the Contracts will comply in all material respects with
state insurance suitability requirements.
3.4. The Trust represents and warrants that it is duly organized and
validly existing under the laws of the State of Delaware.
3.5. The Trust represents and warrants that the Trust shares offered and
sold pursuant to this Agreement will be registered under the 1933 Act and that
the Trust is registered under the 1940 Act prior to any issuance or sale of such
shares. The Trust shall amend its registration statement under the 1933 Act and
the 1940 Act from time to time as required in order to effect the continuous
offering of its shares. The Trust shall register and qualify its shares for
sale in accordance with the laws of the various states only if and to the extent
deemed advisable by the
6
<PAGE>
Trust.
3.6. The Trust represents and warrants that the investments of each
Portfolio will comply with the diversification requirements set forth in Section
817(h) of the Internal Revenue Code of 1986, as amended (the "Code"), and the
rules and regulations thereunder. In the event of a breach of this Section 3.6
by the Trust, it will take all reasonable steps to: (1) immediately notify the
Company of such breach, and (2) adequately diversify the Trust so as to achieve
compliance within the grace period afforded by Section 1.817-5(b) of the rules
and regulations under the Code.
3.7. The Company represents that the Contracts are currently treated as
annuity or life insurance contracts under applicable provisions of the Code and
warrants and agrees that it will make every effort to maintain such treatment
and that it will notify the Trust immediately upon having a reasonable basis for
believing that the Contracts have ceased to be so treated or that they might not
be so treated in the future.
ARTICLE IV
Potential Conflicts
4.1. The parties acknowledge that the Trust's shares may be made available
for investment to other Participating Insurance Companies. In such event, the
Trustees will monitor the Trust for the existence of any material irreconcilable
conflict between the interests of the contract owners of all Participating
Insurance Companies. A material irreconcilable conflict may arise for a variety
of reasons, including: (a) an action by any state insurance regulatory or other
authority; (b) a change in applicable federal or state insurance, tax, or
securities laws or regulations, or a public ruling, private letter ruling, no-
action or interpretative letter, or any similar action by insurance, tax, or
securities regulatory authorities; (c) an administrative or judicial decision in
any relevant proceeding; (d) the manner in which the investments of any
Portfolio are being managed; (e) a difference in voting instructions given by
variable annuity contract and variable life insurance contract owners; or (f) a
decision by an insurer to disregard the voting instructions of contract owners.
The Trustees shall promptly inform the Company if they determine that a material
irreconcilable conflict exists and the implications thereof. The Trustees shall
have sole authority to determine whether a material irreconcilable conflict
exists and their determination shall be binding upon the Company.
4.2. The Company agrees to promptly report any potential or existing
conflicts of which it is aware to the Trustees. The Company will assist the
Trustees in carrying out their responsibilities under the Shared Trust Exemptive
Order and this Article IV by providing the Trustees with all information
reasonably necessary for them to consider any issues raised including, but not
limited to, information as to a decision by the Company to disregard Contract
owner voting instructions.
7
<PAGE>
4.3. If it is determined by a majority of the Trustees, or a majority of
the disinterested Trustees, that a material irreconcilable conflict exists that
affects the interests of Contract owners, the Company shall, in cooperation with
other Participating Insurance Companies whose contract owners are also affected,
at its expense and to the extent reasonably practicable (as determined by the
Trustees) take whatever steps are necessary to remedy or eliminate the material
irreconcilable conflict, which steps could include: (a) withdrawing the assets
allocable to some or all of the Accounts from the Trust or any Portfolio and
reinvesting such assets in a different investment medium, including (but not
limited to) another Portfolio of the Trust, or submitting the question of
whether or not such segregation should be implemented to a vote of all affected
Contract owners and, as appropriate, segregating the assets of any appropriate
group (i.e., annuity contract owners, life insurance contract owners, or
variable contract owners of one or more Participating Insurance Companies) that
votes in favor of such segregation, or offering to the affected Contract owners
the option of making such a change; and (b) establishing a new registered
management investment company or managed separate account and obtaining any
necessary approvals or orders of the Commission in connection therewith.
4.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Trust's election, to withdraw the affected Account's
investment in the Trust and terminate this Agreement with respect to such
Account; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested Trustees. Any such withdrawal
and termination must take place within six (6) months after the Trust gives
written notice that this provision is being implemented. Until the end of such
six (6) month period, the Trust shall continue to accept and implement orders by
the Company for the purchase and redemption of shares of the Trust.
4.5. If any material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Trust and terminate this Agreement with
respect to such Account within six (6) months after the Trust gives written
notice that it has determined that such decision has created a material
irreconcilable conflict; provided, however, that such withdrawal and termination
shall be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested Trustees. Until the
end of such six (6) month period, the Trust shall continue to accept and
implement orders by the Company for the purchase and redemption of shares of the
Trust.
4.6. For purposes of Sections 4.3. through 4.5. of this Agreement, a
majority of the disinterested Trustees shall determine whether any proposed
action adequately remedies any material irreconcilable conflict. The Company
shall not be required by Section 4.3 to establish a new funding medium for the
Contracts if any offer to do so has been declined by vote of a majority of
Contract owners materially adversely affected by the material irreconcilable
conflict. In the event that the Trustees determine that any proposed action
does not adequately remedy
8
<PAGE>
any material irreconcilable conflict, then the Company will withdraw the
Account's investment in the Trust and terminate this Agreement within six (6)
months after the Trust gives written notice of the foregoing determination;
provided, however, that such withdrawal and termination shall be limited to the
extent required by any such material irreconcilable conflict, as determined by a
majority of the disinterested Trustees.
4.7. The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonably request so that the
Trustees may fully carry out the duties imposed upon them by the Shared Trust
Exemptive Order and this Article IV. Said reports, materials and data shall be
submitted more frequently if deemed appropriate by the Trustees.
4.8. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed and/or shared
funding (as defined in the Shared Trust Exemptive Order) on terms and conditions
materially different from those contained in the Shared Trust Exemptive Order,
then the Trust and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable.
ARTICLE V
Indemnification
5.1. The Company agrees to indemnify and hold harmless the Trust and each
of its Trustees, officers, employees and agents, and each person, if any, who
controls the Trust within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 5.1.)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Company) or expenses (including
the reasonable costs of investigating or defending any alleged loss, claim,
damage, liability or expense and reasonable legal counsel fees incurred in
connection therewith) (collectively, "Losses"), to which the Indemnified Parties
may become subject under any statute or regulation, or at common law or
otherwise, insofar as such Losses are related to the sale, acquisition, or
redemption of the Trust's shares or the Contracts and:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in a registration statement,
prospectus or private placement memorandum for the Contracts or in the Contracts
themselves or in sales literature generated or approved by the Company relating
to the Contracts or Accounts (or any amendment or supplement to any of the
foregoing) (collectively, "Company Documents"), or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, provided that this indemnity shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement or omission was
made in reliance upon and was accurately derived from
9
<PAGE>
written information furnished to the Company by or on behalf of the Trust for
use in Company Documents or otherwise for use in connection with the sale of the
Contracts or Trust shares; or
(b) arise out of or result from statements or representations (other
than statements or representations contained in and accurately derived from
Trust Documents as defined in Section 5.2.(a)) or wrongful conduct of the
Company or persons under its control, with respect to the sale, distribution or
acquisition of the Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or alleged untrue
statement of a material fact contained in Trust Documents as defined in Section
5.2.(a) or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading if such statement or omission was made in reliance upon and
accurately derived from written information furnished to the Trust by or on
behalf of the Company; or
(d) arise out of or result from any failure by the Company to provide
the services or furnish the materials required under the terms of this
Agreement; or
(e) arise out of or result from any material breach of any
representation, warranty or agreement made by the Company in this Agreement or
arise out of or result from any other material breach of this Agreement by the
Company; or
(f) arise out of or result from negligence or wrongful conduct in the
Company's administration of the Accounts or the Contracts.
5.2. The Trust agrees to indemnify and hold harmless the Company and each
of its directors, officers, employees and agents and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 5.2.)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Trust) or expenses (including the
reasonable costs of investigating or defending any alleged loss, claim, damage,
liability or expense and reasonable legal counsel fees incurred in connection
therewith) (collectively, "Losses"), to which the Indemnified Parties may become
subject under any statute or regulation, or at common law or otherwise, insofar
as such Losses are related to the sale, acquisition, or redemption of the
Trust's shares or the Contracts and:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement or
prospectus for the Trust (or any amendment or supplement thereto),
(collectively, "Trust Documents"), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
provided, that this indemnity shall not apply as to any Indemnified Party if
such statement or omission or such alleged statement or omission was made in
reliance upon and was accurately derived from written information furnished to
the Trust by or on behalf of the Company for use in Trust
10
<PAGE>
Documents or otherwise for use in connection with the sale of the Contracts or
Trust shares; or
(b) arise out of or result from statements or representations (other
than statements or representations contained in and accurately derived from
Company Documents) or wrongful conduct of the Trust or persons under its
control, with respect to the sale, distribution or acquisition of the Contracts
or Trust shares; or
(c) arise out of or result from any untrue statement or alleged untrue
statement of a material fact contained in Company Documents or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading if such statement or
omission was made in reliance upon and accurately derived form written
information furnished to the Company by or on behalf of the Trust; or
(d) arise out of or result from any failure by the Trust to provide
the services or furnish the materials required under the terms of this
Agreement; or
(e) arise out of or result from any material breach of any
representation, warranty or agreement made by the Trust in this Agreement or
arise out of or result from any other material breach of this Agreement by the
Trust.
5.3. Neither the Company nor the Trust shall be liable under the
indemnification provisions of Section 5.1. or 5.2., as applicable, with respect
to any Losses incurred or assessed against an indemnified party that arise from
such indemnified party's willful misfeasance, bad faith or gross negligence in
the performance of such indemnified party's duties or by reason of such
indemnified party's reckless disregard of obligations or duties under this
Agreement.
5.4. Neither the Company nor the Trust shall be liable under the
indemnification provisions of Section 5.1. or 5.2., as applicable, with respect
to any claim made against an indemnified party unless such indemnified party
shall have notified the other party in writing within a reasonable time after
the summons, or other first written notification, giving information of the
nature of the claim which shall have been served upon or otherwise received by
such indemnified party (or after such indemnified party shall have received
notice of service upon or other notification to any designated agent), but
failure to notify the party against whom indemnification is sought of any such
claim shall not relieve that party from any liability which it may have to the
indemnified party in the absence of Sections 5.1. and 5.2. except to the extent
that the indemnifying party has been prejudiced by such failure to give notice.
5.5. In case any such action is brought against the indemnified parties,
the indemnifying party shall be entitled to participate, at its own expense, in
the defense of such action. The indemnifying party also shall be entitled to
assume the defense thereof, with counsel reasonably satisfactory to the party
named in the action. After notice from the indemnifying party to the
indemnified party of an election to assume such defense, the indemnified party
shall bear the fees and expenses of any additional counsel retained by it, and
the indemnifying party will not be liable to the indemnified party under this
Agreement for any legal or other expenses subsequently
11
<PAGE>
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
ARTICLE VI
Termination
6.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason by six (6) months advance
written notice delivered to the other party; or
(b) termination by the Company by written notice to the Trust with respect
to any Portfolio based upon the Company's determination that shares of such
Portfolio are not reasonably available to meet the requirements of the Contracts
or not consistent with the Company's obligations to Contract owners; provided,
however, that such a termination shall apply only to the Portfolio not
reasonably available and the Trust shall have ninety (90) days from the initial
notification by the Company of the deficiency to correct such deficiency. If not
cured within ninety (90) days, prompt written notice of the election to
terminate for such cause shall again be furnished by the Company to the Trust;
or
(c) termination by the Company by written notice to the Trust with respect
to any Portfolio in the event such Portfolio's shares are not registered, issued
or sold in accordance with applicable state and/or federal law or such law
precludes the use of such shares as the underlying investment media of the
Contracts issued or to be issued by the Company; or
(d) termination by the Company by written notice to the Trust with respect
to any Portfolio in the event that the Trust ceases to qualify as a Regulated
Investment Company under Subchapter M of the Code or any independent or
resulting failure under Section 817
of the Code, or under any successor or similar provision of either, or if the
Company reasonably believes that the Trust may fail to so qualify; or
(e) termination by the Trust by written notice to the Company if the Trust
shall determine, in its sole judgment exercised in good faith, that the Company
and/or its affiliated companies has suffered a material adverse change in its
business, operations, financial condition or prospects since the date of this
Agreement or is the subject of material adverse publicity and that material
adverse change or material adverse publicity will have a material adverse impact
upon the business and operations of the Company or the Trust; but no such
termination shall be effective under this subsection (e) until the Company has
been afforded a reasonable opportunity to respond to a statement by the Trust
concerning the reason for notice of termination hereunder; or
(f) termination by the Company by written notice to the Trust if the
Company shall determine, in its sole judgment exercised in good faith, that
either the Trust or an investment
12
<PAGE>
adviser to the Trust has suffered a material adverse change in its business,
operations, financial condition or prospects since the date of this Agreement or
is the subject of material adverse publicity and that material adverse change or
material adverse publicity will have a material adverse impact upon the business
and operations of the Trust; but no such termination shall be effective under
this subsection (f) until the Trust has been afforded a reasonable opportunity
to respond to a statement by the Company concerning the reason for notice of
termination hereunder; or
(g) termination by the Trust in the event that formal administrative
proceedings are instituted against the Company by the NASD, the Commission, an
insurance commissioner or any other regulatory body regarding the Company's
duties under this Agreement or related to the sale of the Contracts, the
operation of any Account, or the purchase of the Trust's shares; provided,
however, that the Trust determines in its sole judgement exercised in good
faith, that any such administrative proceedings will have a material adverse
effect upon the ability of the Company to perform its obligations under this
Agreement; or
(h) termination by the Company in the event that formal administrative
proceedings are instituted against the Trust by the NASD, the Commission, any
state securities or insurance department or any other regulatory body regarding
the Trust's duties under this Agreement, provided, however, that the Company
determines in its sole judgement exercised in good faith, that any such
administrative proceedings will have a material adverse effect upon the ability
of the Trust to perform its obligations under this Agreement.
6.2. Notwithstanding any termination of this Agreement, the Trust shall,
at the option of the Company, continue to make available additional shares of
the Trust (or any Portfolio) pursuant to the terms and conditions of this
Agreement for all Contracts in effect on the effective date of termination of
this Agreement, provided that the Company continues to pay the costs set forth
in Article II.
6.3. The provisions of Article V shall survive the termination of this
Agreement, and the provisions of Article IV and Section 2.12. shall survive the
termination of this Agreement as long as shares of the Trust are held on behalf
of Contract owners in accordance with Section 6.2.
ARTICLE VII
Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Trust:
- ----------------
Evergreen Funds
13
<PAGE>
200 Berkeley Street
Boston, Massachusetts 02116-9000
Attention: Legal Department
If to the Company:
- ------------------
United Investors Life Insurance Company
2001 Third Avenue South
Birmingham, AL 35233
Attention: John H. Livingston
ARTICLE VIII
Miscellaneous
8.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
8.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
8.3. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
8.4. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
8.5. The parties to this Agreement acknowledge and agree that all
liabilities of the Trust arising directly or indirectly under this Agreement, of
any and every nature whatsoever, shall be satisfied solely out of the assets of
the Trust and that no Trustee, officer, agent or holder of shares of beneficial
interest of the Trust shall be personally liable for any such liabilities.
8.6. Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the Commission, the NASD
and state insurance regulators) and shall permit such authorities reasonable
access to its books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions
14
<PAGE>
contemplated hereby.
8.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
8.8. The parties to this Agreement acknowledge and agree that this
Agreement shall not be exclusive in any respect.
8.9. This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns, provided that no party may
assign this Agreement without the prior written consent of the other party.
8.10. No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties.
IN WITNESS WHEREOF, the parties have each caused this Agreement to be
executed in its name and on its behalf by its duly authorized representative as
of the date and year first above written.
UNITED INVESTORS LIFE EVERGREEN VARIABLE ANNUITY TRUST
INSURANCE COMPANY
By: __________________________ By:___________________________
Name: Name:
Title: Title:
15
<PAGE>
SCHEDULE A
Separate Accounts, Contracts and Associated Portfolios
------------------------------------------------------
Name of Separate Accounts and Date
Established by Board of Directors
- ---------------------------------
Contracts Funded by Separate Account and Form Number
- ----------------------------------------------------
Designated Portfolios
- ---------------------
16
<PAGE>
Exhibit(8)(A)(viii) Form of Participation Agreement for INVESCO Variable
Investments Funds, Inc.
PARTICIPATION AGREEMENT
-----------------------
Among
INVESCO VARIABLE INVESTMENT FUNDS, INC.
---------------------------------------
INVESCO FUNDS GROUP, INC.
-------------------------
INVESCO DISTRIBUTORS, INC.
--------------------------
and
UNITED INVESTORS LIFE INSURANCE COMPANY
---------------------------------------
THIS AGREEMENT, made and entered into this _____ day of _______________,
1998 by and among United Investors Life Insurance Company, (hereinafter the
"Insurance Company"), a _____________________ corporation, on its own behalf and
on behalf of each segregated asset account of the Insurance Company set forth on
Schedule A hereto as may be amended from time to time (each such account
hereinafter referred to as the "Account"), INVESCO VARIABLE INVESTMENT FUNDS,
INC., a Maryland corporation (the "Company") INVESCO DISTRIBUTORS, INC
("Distributors"), a Delaware corporation, and INVESCO FUNDS GROUP, INC.
("INVESCO"), a Delaware corporation.
WHEREAS, the Company engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable annuity and life insurance contracts
to be offered by insurance companies which have entered into participation
agreements substantially identical to this Agreement ("Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Company is divided into several
series of shares, each designated a "Fund" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Company has obtained an order from the Securities and Exchange
Commission (the "Commission"), dated December 29, 1993 (File No. 812-8590),
granting Participating Insurance Companies and their separate accounts
exemptions from the provisions of sections 9(a), 13(a), 15(a), and 15(b) of the
Investment Company Act of 1940, as amended, (the "1940 Act") and Rules 6e-
2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares
of the Company to be sold to and held by variable annuity and variable life
insurance separate accounts of life insurance companies that may or may not be
affiliated with one another (the "Mixed and Shared Funding Exemptive Order");
and
WHEREAS, the Company is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933
1
<PAGE>
Act"); and
WHEREAS, INVESCO is duly registered as an investment adviser under the
Investment Advisers Act of 1940 and any applicable state securities law and as a
broker dealer under the Securities Exchange Act of 1934, as amended, (the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (the "NASD"); and
WHEREAS, the Insurance Company has registered under the 1933 Act, or will
register under the 1933 Act, certain variable [annuity / life insurance]
contracts identified by the form number(s) listed on Schedule B to this
Agreement, as amended from time to time hereafter by mutual written agreement of
all the parties hereto (the "Contracts"); and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the board of directors of the
Insurance Company on the date shown for that Account on Schedule A hereto, to
set aside and invest assets attributable to the Contracts; and
WHEREAS, the Insurance Company has registered or will register each Account
as a unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Insurance Company intends to purchase shares in the Funds on
behalf of the Accounts to fund the Contracts and INVESCO is authorized to sell
such shares to unit investment trusts such as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Insurance
Company, the Company and INVESCO agree as follows:
ARTICLE I. Sale of Company Shares
----------------------
1.1 INVESCO agrees to sell to the Insurance Company those shares of the
Company which each Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Company or its designee of
the order for the shares of the Company. For purposes of this Section 1.1, the
Insurance Company shall be the designee of the Company for receipt of such
orders from the Accounts and receipt by such designee shall constitute receipt
by the Company; provided that the Company receives notice of such order by 8:00
a.m., Mountain Time, on the next following Business Day. "Business Day" shall
mean any day on which the New York Stock Exchange is open for trading and on
which the Company calculates its net asset value pursuant to the rules of the
Commission.
1.2 The Company agrees to make its shares available for purchase at the
applicable net asset value per share by the Insurance Company and its Accounts
on those days on which the Company calculates its Funds' net asset values
pursuant to rules of the Commission and the Company shall use reasonable efforts
to calculate its Funds' net asset values on each day on which the New York Stock
Exchange is open for trading. Notwithstanding the foregoing, the board of
directors of the Company (hereinafter the "Board") may refuse to sell shares of
any Fund to any person, or suspend or terminate the offering of shares of any
2
<PAGE>
Fund if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Board acting in good faith and
in light of their fiduciary duties under federal and any applicable state laws,
necessary in the best interests of the shareholders of that Fund.
1.3. The Company and INVESCO agree that shares of the Company will be sold
only to Participating Insurance Companies and their separate accounts, all in
accordance with Section 817(h)(4) of the Internal Revenue Code of 1986, as
amended (the"Code"), and Treasury Regulation Section 1.817-5. No shares of any
Fund will be sold to the general public.
1.4. The Company and INVESCO will not sell Company shares to any insurance
company or separate account unless an agreement containing provisions
substantially the same as Sections 2.1, 3.4, 3.5 and Article VII of this
Agreement is in effect to govern such sales.
1.5. The Company agrees to redeem, on the Insurance Company's request, any
full or fractional shares of the Company held by the Insurance Company,
executing such requests on a daily basis at the net asset value next computed
after receipt by the Company or its designee of the request for redemption. For
purposes of this Section 1.5, the Insurance Company shall be the designee of the
Company for receipt of requests for redemption from each Account and receipt by
that designee shall constitute receipt by the Company; provided that the Company
receives notice of the request for redemption by 8:00 a.m., Mountain Time, on
the next following Business Day.
1.6. The Insurance Company shall pay for Company shares by 9:00 a.m.,
Mountain Time, on the next Business Day after an order to purchase Company
shares is made in accordance with the provisions of Section 1.1 hereof. Payment
shall be in federal funds transmitted by wire. For the purpose of Sections 2.10
and 2.11, upon receipt by the Company of the federal funds so wired, such funds
shall cease to be the responsibility of the Insurance Company and shall become
the responsibility of the Company. Payment of aggregate redemption proceeds
(aggregate redemptions of a Fund's shares by an Account) of less than $1 million
for a given Business Day will be made by wiring federal funds to the Insurance
Company on the next Business Day after receipt of the redemption request.
Payment of aggregate redemption proceeds of $1 million or more will be by wiring
federal funds within seven days after receipt of the redemption request.
Notwithstanding the foregoing, in the event that one or more Funds has
insufficient cash on hand to pay aggregate redemptions on the next Business Day,
and if such Fund has determined to settle redemption transactions for all of its
shareholders on a delayed basis (more than one Business Day, but in no event
more than seven calendar days, after the date on which the redemption order is
received, unless otherwise permitted by an order of the Commission under Section
22(e) of the 1940 Act), the Company shall be permitted to delay sending
redemption proceeds to the Insurance Company by the same number of days that the
Company is delaying sending redemption proceeds to the other shareholders of the
Fund.
1.7. Issuance and transfer of the Company's shares will be by book entry
only. Stock certificates will not be issued to the Insurance Company or any
Account. Shares ordered from the Company will be recorded in an appropriate
title for each Account or the appropriate subaccount of each Account.
3
<PAGE>
1.8. The Company shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Insurance Company of any income,
dividends or capital gain distributions payable on the Funds' shares. The
Insurance Company hereby elects to receive all income dividends and capital gain
distributions payable on a Fund's shares in additional shares of that Fund. The
Insurance Company reserves the right to revoke this election and to receive all
such income dividends and capital gain distributions in cash. The Company shall
notify the Insurance Company of the number of shares issued as payment of
dividends and distributions.
1.9. The Company shall make the net asset value per share for each Fund
available to the Insurance Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make those per-share net asset values available by 5:00 p.m.,
Mountain Time. If the Company provides materially incorrect share net asset
value information, the Company shall make an adjustment to the number of shares
purchased or redeemed for the Accounts to reflect the correct net asset value
per share. Any material error in the calculation or reporting of net asset
value per share, dividend or capital gains information shall be reported
promptly upon discovery to the Insurance Company.
ARTICLE II. Representations and Warranties
------------------------------
2.1. The Insurance Company represents and warrants that the Contracts are,
or will be, registered under the 1933 Act, unless exempt therefrom; that the
Contracts will be issued and sold in compliance in all material respects with
all applicable federal and state laws and that the sale of the Contracts shall
comply in all material respects with applicable state insurance suitability
requirements. The Insurance Company further represents and warrants that it is
an insurance company duly organized and in good standing under applicable law
and that it has legally and validly established the Account prior to any
issuance or sale thereof as a segregated asset account under Missouri Insurance
Law and has registered, or prior to any issuance or sale of the Contracts will,
to the extent required by law or regulation, register, the Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts.
2.2. The Company represents and warrants that Company shares sold pursuant
to this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sale in compliance with the laws of the State of Maryland and all
applicable federal securities laws and that the Company is and shall remain
registered under the 1940 Act. The Company shall amend the registration
statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The
Company shall register and qualify the shares for sale in accordance with the
laws of the various states only if and to the extent deemed advisable by the
Company or INVESCO.
2.3. The Company represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain that
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Insurance Company immediately upon having a reasonable
basis for believing that it has ceased to so qualify or that it might not so
qualify in the future.
4
<PAGE>
2.4. The Insurance Company represents and warrants that the Contracts are
currently treated as annuity or life insurance contracts, under applicable
provisions of the Code and that it will make every effort to maintain such
treatment and that it will notify the Company and INVESCO immediately upon
having a reasonable basis for believing that the Contracts have ceased to be so
treated or that they might not be so treated in the future.
2.5. The Company currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future. To the extent that it decides
to finance distribution expenses pursuant to Rule 12b-1, the Company undertakes
to have a board of directors, a majority of whom are not interested persons of
the Company, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.6. The Company makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states.
2.7. Distributors represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the Commission.
Distributors further represents that it will sell and distribute the Company
shares in accordance with all applicable state and federal securities laws,
including without limitation the 1933 Act, the 1934 Act, and the 1940 Act.
2.8. The Company represents that it is lawfully organized and validly
existing under the laws of the State of Maryland and that it does and will
comply in all material respects with the 1940 Act.
2.9. INVESCO represents and warrants that it is and shall remain duly
registered in all material respects under all applicable federal and state
securities laws and that it shall perform its obligations for the Company in
compliance in all material respects with the laws of the State of Colorado and
any applicable state and federal securities laws.
2.10. The Company and INVESCO represent and warrant that all of their
officers, employees, investment advisers, investment sub-advisers, and other
individuals or entities dealing with the money and/or securities of the Company
are, and shall continue to be at all times, covered by a blanket fidelity bond
or similar coverage for the benefit of the Company in an amount not less than
the minimum coverage required currently by Section 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. That fidelity bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Insurance Company represents and warrants that all of its
officers, employees, investment advisers, and other individuals or entities
dealing with the money and/or securities of the Company are and shall continue
to be at all times covered by a blanket fidelity bond or similar coverage for
the benefit of the Company, in an amount not less than the minimum coverage
required currently for entities subject to the requirements of Rule 17g-1 of the
1940 Act or related provisions or may be promulgated from time to time. The
aforesaid Bond shall include coverage for larceny and embezzlement and shall be
issued by a reputable
5
<PAGE>
bonding company. The Insurance Company further represents and warrants that the
employees of Insurance Company, or such other persons designated by Insurance
Company, listed on Schedule C have been authorized by all necessary action of
Insurance Company to give directions, instructions and certifications to the
Company and INVESCO on behalf of Insurance Company. The Company and INVESCO are
authorized to act and rely upon any directions, instructions and certifications
received from such persons unless and until they have been notified in writing
by the Insurance Company of a change in such persons, and the Company and
INVESCO shall incur no liability in doing so.
2.12. The Insurance Company represents and warrants that it will not
purchase Company shares with Account assets derived from tax-qualified
retirement plans except indirectly, through Contracts purchased in connection
with such plans.
ARTICLE III. Prospectuses and Proxy Statements; Voting
-----------------------------------------
3.1. INVESCO shall provide the Insurance Company (at the Insurance
Company's expense) with as many copies of the Company's current prospectus as
the Insurance Company may reasonably request. If requested by the Insurance
Company in lieu thereof, the Company shall provide such documentation (including
a final copy of the new prospectus as set in type, or on diskette, at the
Company's expense) and other assistance as is reasonably necessary in order for
the Insurance Company once each year (or more frequently if the prospectus for
the Company is amended) to have the prospectuses for the Contracts, other funds
invested in by the Account, and the Company's prospectus printed together in one
document. The expenses of such printing to be apportioned between (a) the
Insurance Company and (b) the Company or its designee in proportion to the
number of pages of the Contract and the Company prospectuses, taking account of
other relevant factors affecting the expense of printing such as covers,
columns, graphs and charts; the Company or its designee to bear the cost of
printing the Company's prospctus portion of such document for distribution to
owners of existing contracts funded by the Company's shares and the Insurance
Company to bear the expenses of printing the portion of such document relating
to the Accounts; provided however, that the Insurance Company shall bear all
printing expenses of such combined documents where used for distribution to
prospective purchasers or to owners of existing contracts not funded by Company
shares.
3.2. The Company's prospectus shall state that the Statement of Additional
Information for the Company (the "SAI") is available from INVESCO (or in the
Company's discretion, the Prospectus shall state that the SAI is available from
the Company), and INVESCO (or the Company), at its expense, shall print and
provide the SAI free of charge to the Insurance Company and to any owner of a
Contract or prospective owner who requests the SAI.
3.3. The Company, at its expense, shall provide the Insurance Company with
copies of its proxy material, reports to stockholders and other communications
to stockholders in such quantity as the Insurance Company shall reasonably
require for distributing to Contract owners.
3.4. If and to the extent required by law, the Insurance Company shall:
6
<PAGE>
(i) solicit voting instructions from Contract owners;
(ii) vote the Company shares in accordance with instructions received
from Contract owners; and
(iii) vote Company shares for which no instructions have been
received in the same proportion as Company shares of such
portfolio for which instructions have been received:
so long as and to the extent that the Commission continues to interpret the 1940
Act to require pass-through voting privileges for variable contract owners. The
Insurance Company reserves the right to vote Company shares held in any
segregated asset account in its own right, to the extent permitted by law.
Participating Insurance Companies shall be responsible for assuring that each of
their separate accounts participating in the Company calculates voting
privileges in a manner consistent with the standards set forth on Schedule D
attached hereto and incorporated herein by this reference, which standards will
also be provided to the other Participating Insurance Companies. The Insurance
Company shall fulfill its obligations under, and abide by the terms and
conditions of, the Mixed and Shared Funding Exemptive Order.
3.5. The Company will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Company will either provide for
annual meetings (except insofar as the Commission may interpret Section 16 of
the 1940 Act not to require such meetings) or, as the Company currently intends,
comply with Section 16(c) of the 1940 Act (although the Company is not one of
the trusts described in Section 16(c) of that Act) as well as with Sections
16(a) and, if and when applicable, 16(b). Further, the Company will act in
accordance with the Commission's interpretation of the requirements of Section
16(a) with respect to periodic elections of directors and with whatever rules
the Commission may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
------------------------------
4.1. The Insurance Company shall furnish, or shall cause to be furnished,
to the Company or its designee, each piece of sales literature or other
promotional material in which the Company, a sub-adviser of one of the Funds, or
INVESCO is named, at least fifteen calendar days prior to its use. No such
material shall be used if the Company or its designee objects to such use within
ten calendar days after receipt of such material.
4.2. The Insurance Company shall not give any information or make any
representations or statements on behalf of the Company or concerning the Company
in connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Company's shares, as such registration statement and prospectus may be amended
or supplemented from time to time, or in reports or proxy statements for the
Company, or in sales literature or other promotional material approved by the
Company or its designee or by INVESCO, except with the permission of the Company
or INVESCO.
4.3. The Company, INVESCO, or its designee shall furnish, or shall cause to
be furnished, to the
7
<PAGE>
Insurance Company or its designee, each piece of sales literature or other
promotional material in which the Insurance Company and/or its separate
account(s), is named at least fifteen calendar days prior to its use. No such
material shall be used if the Insurance Company or its designee object to such
use within ten calendar days after receipt of that material.
4.4. The Company and INVESCO shall not give any information or make any
representations on behalf of the Insurance Company or concerning the Insurance
Company, the Account, or the Contracts other than the information or
representations contained in a registration statement or prospectus for the
Contracts, as that registration statement and prospectus may be amended or
supplemented from time to time, or in published reports for the Account which
are in the public domain or approved by the Insurance Company for distribution
to Contract owners, or in sales literature or other promotional material
approved by the Insurance Company or its designee, except with the permission of
the Insurance Company.
4.5. The Company will provide to the Insurance Company at least one
complete copy of each registration statement, prospectus, statement of
additional information, report, proxy statement, piece of sales literature or
other promotional material, application for exemption, request for no-action
letter, and any amendment to any of the above, that relate to the Company or its
shares, contemporaneously with the filing of the document with the Commission,
the NASD, or other regulatory authorities.
4.6. The Insurance Company will provide to the Company at least one
complete copy of each registration statement, prospectus, statement of
additional information, report, solicitation for voting instructions, piece of
sales literature and other promotional material, which relates to the Company,
INVESCO, or Distributors, application for exemption, request for no action
letter, and any amendment to any of the above, that relates to the Contracts or
the Account, contemporaneously with the filing of the document with the
Commission, the NASD, or other regulatory authorities.
4.7. For purposes of this Agreement, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements,
newspaper, magazine, or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures, or other
public media, sales literature (i.e., any written communication distributed or
made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications distributed
or made generally available to some or all agents or employees, and registration
statements, prospectuses, statements of additional information, shareholder
reports, and proxy materials.
4.8. At the request of any party to this Agreement, each other party will
make available to the other party's independent auditors and/or representative
of the appropriate regulatory agencies, all records, data and access to
operating procedures that may be reasonably requested. Company agrees that
Insurance Company shall have the right to inspect, audit and copy all records
pertaining to the performance of services under this Agreement pursuant to the
requirements of the California Insurance Department. However, Company and
INVESCO shall own and control all of their respective records pertaining to
their performance of the services under this Agreement.
8
<PAGE>
ARTICLE V. Fees and Expenses
-----------------
5.1. INVESCO shall pay a fee to the Insurance Company for services provided
by Insurance Company under this agreement, at the rate designated in Schedule E
attached hereto. No such payments shall be made directly by the Company.
5.2. All expenses incident to performance by the Company under this
Agreement shall be paid by the Company. The Company shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Company or
INVESCO, in accordance with applicable state laws prior to their sale. The
Company shall bear the expenses for the cost of registration and qualification
of the Company's shares, preparation and filing of the Company's prospectus and
registration statement, proxy materials and reports, setting the prospectus in
type, setting in type and printing the proxy materials and reports to
shareholders (including the costs of printing a prospectus that constitutes an
annual report), the preparation of all statements and notices required by any
federal or state law, and all taxes on the issuance or transfer of the Company's
shares.
5.3. The Insurance Company shall bear the expenses of printing and
distributing to Contract owners the Contract prospectuses and of distributing to
Contract owners the Company's prospectus, proxy materials and reports.
ARTICLE VI. Diversification
---------------
6.1. The Company will, at the end of each calendar quarter, comply with
Section 817(h) of the Code and Treasury Regulation 1.817-5 relating to the
diversification requirements for variable annuity, endowment, modified endowment
or life insurance contracts and any amendments or other modifications to that
Section or Regulation. The Company will notify the Insurance Company
immediately upon having a reasonable basis for believing that a Fund has ceased
to so comply or that a Fund might not so comply in the future. In the event of
a breach of this Section 6.1, the Company will take all reasonable steps to
adequately diversify so as to achieve compliance within the grace period
afforded by Section 1.817-5 of the regulations under the Code.
9
<PAGE>
ARTICLE VII. Potential Conflicts
-------------------
7.1. The Board will monitor the Company for the existence of any material
irreconcilable conflict between the interests of the variable contract owners of
all separate accounts investing in the Company. An irreconcilable material
conflict may arise for a variety of reasons, including: (a) an action by any
state insurance regulatory authority; (b) a change in applicable federal or
state insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretive letter, or any similar action
by insurance, tax, or securities regulatory authorities; (c) an administrative
or judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Fund are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by a Participating Insurance Company to
disregard the voting instructions of variable contract owners. The Board shall
promptly inform the Insurance Company if it determines that an irreconcilable
material conflict exists and the implications thereof. The Board shall have
sole authority to determine whether an irreconcilable material conflict exists
and such determination shall be binding upon the Insurance Company.
7.2 The Insurance Company will report promptly any potential or existing
conflicts of which it is aware to the Board. The Insurance Company will assist
the Board in carrying out its responsibilities under the Mixed and Shared
Funding Exemptive Order, by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This includes, but is
not limited to, an obligation by the Insurance Company to inform the Board
whenever Contract owner voting instructions are to be disregarded. Such
responsibilities shall be carried out by Insurance Company with a view only to
the interests of the Contract owners.
7.3. If it is determined by a majority of the Board, or a majority of its
directors who are not interested persons of the Company, INVESCO, or any sub-
adviser to any of the Funds (the "Independent Directors"), that a material
irreconcilable conflict exists, the Insurance Company and/or other Participating
Insurance Companies shall, at their expense and to the extent reasonably
practicable (as determined by a majority of the Independent Directors), take
whatever steps are necessary to remedy or eliminate the irreconcilable material
conflict, up to and including: (1), withdrawing the assets allocable to some or
all of the separate accounts from the Company or any Fund and reinvesting those
assets in a different investment medium, including (but not limited to) another
Fund of the Company, or submitting the question whether such segregation should
be implemented to a vote of all affected variable contract owners and, as
appropriate, segregating the assets of any appropriate group (e.g., annuity
contract owners, life insurance contract owners, or variable contract owners of
one or more Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected variable contract owners the option of
making such a change; and (2), establishing a new registered management
investment company or managed separate account and obtaining approval thereof by
the Commission.
7.4. If a material irreconcilable conflict arises because of a decision by
the Insurance Company to disregard Contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Insurance Company may be required, at the Company's election, to withdraw the
affected Account's investment in the Company and terminate this Agreement with
respect to that Account;
10
<PAGE>
provided, however that such withdrawal and termination shall be limited to the
extent required by the foregoing material irreconcilable conflict as determined
by a majority of the Independent Directors. Any such withdrawal and termination
must take place within six (6) months after the Company gives written notice
that this provision is being implemented, and until the end of that six month
period INVESCO and the Company shall continue to accept and implement orders by
the Insurance Company for the purchase (and redemption) of shares of the
Company.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Insurance Company
conflicts with the majority of other state regulators, then the Insurance
Company will withdraw the affected Account's investment in the Company and
terminate this Agreement with respect to that Account within six months after
the Board informs the Insurance Company in writing that it has determined that
the state insurance regulator's decision has created an irreconcilable material
conflict; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the Independent Directors. Until the end of the
foregoing six month period, INVESCO and the Company shall continue to accept and
implement orders by the Insurance Company for the purchase (and redemption) of
shares of the Company.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a majority
of the Independent Directors shall determine whether any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
the Company be required to establish a new funding medium for the Contracts.
The Insurance Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Insurance Company will withdraw the Account's investment in
the Company and terminate this Agreement within six (6) months after the Board
informs the Insurance Company in writing of the foregoing determination,
provided, however, that the withdrawal and termination shall be limited to the
extent required by the material irreconcilable conflict, as determined by a
majority of the Independent Directors.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Mixed and Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Mixed and Shared Funding
Exemptive Order, then (a) the Company and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the
extent those rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3,
7.4, and 7.5 of this Agreement shall continue in effect only to the extent that
terms and conditions substantially identical to those Sections are contained in
the Rule(s) as so amended or adopted.
11
<PAGE>
ARTICLE VIII. Indemnification
---------------
8.1. Indemnification By The Insurance Company
----------------------------------------
8.1(a). The Insurance Company agrees to indemnify and hold harmless the
Company and each director of the Board and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Insurance Company) or litigation
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Company's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the registration statement or prospectus for the Contracts
or contained in the Contracts or sales literature for the
Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission
or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and
in conformity with information furnished in writing to the
Insurance Company by or on behalf of the Company for use in
the registration statement or prospectus for the Contracts
or in the Contracts or sales literature (or any amendment
or supplement) or otherwise for use in connection with the
sale of the Contracts or shares of the Company;
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the registration statement, prospectus or
sales literature of the Company not supplied by the
Insurance Company, or persons under its control) or
wrongful conduct of the Insurance Company or persons under
its control, with respect to the sale or distribution of
the Contracts or Company shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature of the Company
or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or
omission was made in reliance upon information furnished in
writing to the Company by or on behalf of the Insurance
Company: or
12
<PAGE>
(iv) arise as a result of any failure by the Insurance Company to
provide the services and furnish the materials under the
terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Insurance Company
in this Agreement or arise out of or result from any other
material breach of this Agreement by the Insurance Company,
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The Insurance Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party that
may arise from that Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of that Indemnified Party's duties or by reason of
that Indemnified Party's reckless disregard of obligations or duties under this
Agreement or to the Company, whichever is applicable.
8.1(c). The Insurance Company shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless that Indemnified Party shall have notified the Insurance Company in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon that
Indemnified Party (or after the Indemnified Party shall have received notice of
such service on any designated agent). Notwithstanding the foregoing, the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Insurance Company of its obligations hereunder except to the extent
that the Insurance Company has been prejudiced by such failure to give notice.
In addition, any failure by the Indemnified Party to notify the Insurance
Company of any such claim shall not relieve the Insurance Company from any
liability which it may have to the Indemnified Party against whom the action is
brought otherwise than on account of this indemnification provision. In case any
such action is brought against the Indemnified Parties, the Insurance Company
shall be entitled to participate, at its own expense, in the defense of the
action. The Insurance Company also shall be entitled to assume the defense
thereof, with counsel satisfactory to the party named in the action; provided,
--------
however, that if the Indemnified Party shall have reasonably concluded that
- -------
there may be defenses available to it which are different from or additional to
those available to the Insurance Company, the Insurance Company shall not have
the right to assume said defense, but shall pay the costs and expenses thereof
(except that in no event shall the Insurance Company be liable for the fees and
expenses of more than one counsel for Indemnified Parties in connection with any
one action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances). After notice
from the Insurance Company to the Indemnified Party of the Insurance Company's
election to assume the defense thereof, and in the absence of such a reasonable
conclusion that there may be different or additional defenses available to the
Indemnified Party, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Insurance Company will not be liable
to that party under this Agreement for any legal or other expenses subsequently
incurred by the party independently in connection with the defense thereof other
than reasonable costs of investigation.
13
<PAGE>
8.1(d). The Indemnified Parties will promptly notify the Insurance
Company of the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Company's shares or the Contracts or
the operation of the Company.
8.2. Indemnification by INVESCO
8.2(a). INVESCO agrees to indemnify and hold harmless the Insurance
Company and each of its directors and officers and each person, if any, who
controls the Insurance Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of INVESCO) or litigation (including
legal and other expenses) to which the Indemnified Parties may become subject
under any statute, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Company's shares or the Contracts
and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the registration statement or prospectus or sales
literature of the Company (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that
this agreement to indemnify shall not apply as to any
Indemnified Party if the statement or omission or alleged
statement or omission was made in reliance upon and in
conformity with information furnished in writing to INVESCO
or the Company by or on behalf of the Insurance Company for
use in the registration statement or prospectus for the
Company or in sales literature (or any amendment or
supplement) or otherwise for use in connection with the
sale of the Contracts or Company shares: or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the registration statement, prospectus or
sales literature for the Contracts not supplied by INVESCO
or persons under its control) or wrongful conduct of the
Company, INVESCO or persons under their control, with
respect to the sale or distribution of the Contracts or
shares of the Company; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature covering the
Contracts, or any amendment thereof or supplement thereto,
or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statement or statements therein not misleading, if
such statement or omission was made
14
<PAGE>
in reliance upon information furnished in writing to
the Insurance Company by or on behalf of the Company;
or
(iv) arise as a result of any failure by the Company to
provide the services and furnish the materials under
the terms of this Agreement (including a failure,
whether unintentional or in good faith or otherwise, to
comply with the diversification requirements specified
in Article VI of this Agreement); or
(v) arise out of or result from any material breach of
any representation and/or warranty made by the Company,
Distributors, or INVESCO in this Agreement or arise out
of or result from any other material breach of this
Agreement by the Company, distributors, or INVESCO,
including a failure to comply with Section 2.3 and
Article VI of this Agreement; as limited by and in
accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b) INVESCO shall not be liable under this indemnification provision with
respect to any losses, claims, damages, liabilities or litigation incurred or
assessed against an Indemnified Party that may arise from the Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of the Indemnified Party's duties or by reason of the Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to the
Insurance Company or the Account, whichever is applicable.
8.2(c) INVESCO shall not be liable under this indemnification provision with
respect to any claim made against an Indemnified Party unless the Indemnified
Party shall have notified INVESCO in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon the Indemnified Party (or after the
Indemnified Party shall have received notice of such service on any designated
agent). Notwithstanding the foregoing, the failure of any Indemnified Party to
give notice as provided herein shall not relieve INVESCO of its obligations
hereunder except to the extent that INVESCO has been prejudiced by such failure
to give notice. In addition, any failure by the Indemnified Party to notify
INVESCO of any such claim shall not relieve INVESCO from any liability which it
may have to the Indemnified Party against whom such action is brought otherwise
than on account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, INVESCO will be entitled to
participate, at its own expense, in the defense thereof. INVESCO also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action; provided, however, that if the Indemnified Party shall have
-------- -------
reasonably concluded that there may be defenses available to it which are
different from or additional to those available to INVESCO, INVESCO shall not
have the right to assume said defense, but shall pay the costs and expenses
thereof (except that in no event shall INVESCO be liable for the fees and
expenses of more than one counsel for Indemnified Parties in connection with any
one action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances). After notice
from INVESCO to the Indemnified Party of INVESCO's election to assume the
defense thereof, and in the absence of such a reasonable conclusion that there
may be different or additional defenses available to the Indemnified Party, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and INVESCO will not be liable to that party under this
Agreement for any legal or other expenses subsequently incurred by that party
independently in connection with the defense
15
<PAGE>
thereof other than reasonable costs of investigation.
8.2(d) The Insurance Company agrees to notify INVESCO promptly of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
8.3 Indemnification By the Company
------------------------------
8.3(a). The Company agrees to indemnify and hold harmless the Insurance
Company, and each of its directors and officers and each person, if any, who
controls the Insurance Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.3)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Company) or litigation (including
legal and other expenses) to which the Indemnified Parties may become subject
under any statute, at common law or otherwise, insofar as those losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
result from the gross negligence, bad faith, willful misconduct, or reckless
disregard of duty of the Board or any member thereof, are related to the
operations of the Company and:
(i) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement
(including a failure to comply with the diversification requirements
specified in Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Company;
as limited by, and in accordance with the provisions of, Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Company shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party that may arise from the Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of the Indemnified Party's duties or by reason of the Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to the
Insurance Company, the Company, INVESCO or the Account, whichever is applicable.
8.3(c). The Company shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless the
Indemnified Party shall have notified the Company in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon the Indemnified Party (or after
the Indemnified Party shall have received notice of such service on any
designated agent). Notwithstanding the foregoing, the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Company of its obligations hereunder except to the extent that the Company has
been prejudiced by such failure to give notice. In addition, any
16
<PAGE>
failure by the Indemnified Party to notify the Company of any such claim shall
not relieve the Company from any liability which it may have to the Indemnified
Party against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Company will be entitled to participate, at its own
expense, in the defense thereof. The Company also shall be entitled to assume
the defense thereof, with counsel satisfactory to the party named in the action;
provided, however, that if the Indemnified Party shall have reasonably concluded
- -------- -------
that there may be defenses available to it which are different from or
additional to those available to the Company, the Company shall not have the
right to assume said defense, but shall pay the costs and expenses thereof
(except that in no event shall the Company be liable for the fees and expenses
of more than one counsel for Indemnified Parties in connection with any one
action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances). After notice from
the Company to the Indemnified Party of the Company's election to assume the
defense thereof, and in the absence of such a reasonable conclusion that there
may be different or additional defenses available to the Indemnified Party, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Company will not be liable to that party under this
Agreement for any legal or other expenses subsequently incurred by that party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.3(d). The Insurance Company and INVESCO agree promptly to notify the
Company of the commencement of any litigation or proceedings against it or any
of its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, the operation of the Account, or the sale or
acquisition of shares of the Company.
ARTICLE IX. Applicable Law
--------------
9.1. This Agreement shall be construed and provisions hereof interpreted
under and in accordance with the laws of the State of Colorado.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934, and 1940 acts, and the rules and regulations and rulings thereunder,
including any exemptions from those statutes, rules and regulations the
Commission may grant (including, but not limited to, the Mixed and Shared
Funding Exemptive Order) and the terms hereof shall be interpreted and construed
in accordance therewith.
ARTICLE X. Termination
-----------
10.1. This Agreement shall terminate:
(a) at the option of any party upon six (6) months advance written
notice to the other parties; or
(b) at the option of the Insurance Company to the extent that
shares of Funds are not reasonably available to meet the
requirements of the Contracts as determined by the Insurance
Company, provided however, that such a termination shall apply only
to the Fund(s) not reasonably available. Prompt written notice of
the election to terminate for such
17
<PAGE>
cause shall be furnished by the Insurance Company; or
(c) at the option of the Company in the event that formal administrative
proceedings are instituted against the Insurance Company by the NASD, the
Commission, an insurance commissioner or any other regulatory body
regarding the Insurance Company's duties under this Agreement or related to
the sale of the Contracts, the operation of any Account, or the purchase of
the Company's shares, provided, however, that the Company determines in its
sole judgment exercised in good faith, that any such administrative
proceedings will have a material adverse effect upon the ability of the
Insurance Company to perform its obligations under this Agreement; or
(d) at the option of the Insurance Company in the event that formal
administrative proceedings are instituted against the Company, distributos,
or INVESCO by the NASD, the Commission, or any state securities or
insurance department or any other regulatory body, provided, however, that
the Insurance Company determines in its sole judgment exercised in good
faith, that any such administrative proceedings will have a material
adverse effect upon the ability of the Company or INVESCO to perform its
obligations under this Agreement; or
(e) with respect to any Account, upon requisite vote of the Contract
owners having an interest in that Account (or any subaccount) to substitute
the shares of another investment company for the corresponding Fund shares
in accordance with the terms of the Contracts for which those Fund shares
had been selected to serve as the underlying investment media. The
Insurance Company will give at least 30 days' prior written notice to the
Company of the date of any proposed vote to replace the Company's shares;
or
(f) at the option of the Insurance Company, in the event any of the
Company's shares are not registered, issued or sold in accordance with
applicable state and/or federal law or exemptions therefrom, or such law
precludes the use of those shares as the underlying investment media of the
Contracts issued or to be issued by the Insurance Company; or
(g) at the option of the Insurance Company, if the Company ceases to
qualify as a regulated investment company under Subchapter M of the Code or
under any successor or similar provision, or if the Insurance Company
reasonably believes that the Company may fail to so qualify; or
(h) at the option of the Insurance Company, if the Company fails to meet
the diversification requirements specified in Article VI hereof; or
(i) at the option of either the Company or INVESCO, if (1) the Company or
INVESCO, respectively, shall determine, in their sole judgment reasonably
exercised in good faith, that the Insurance Company has suffered a material
adverse change in its business or financial condition or is the subject of
material adverse publicity and that material adverse change or material
adverse publicity will have a material adverse impact upon the business and
18
<PAGE>
operations of either the Company or INVESCO, (2) the Company or
INVESCO shall notify the Insurance Company in writing of that
determination and its intent to terminate this Agreement, and (3)
after considering the actions taken by the Insurance Company and any
other changes in circumstances since the giving of such a notice, the
determination of the Company or INVESCO shall continue to apply on the
sixtieth (60th) day following the giving of that notice, which
sixtieth day shall be the effective date of termination; or
(j) at the option of the Insurance Company, if (1) the Insurance
Company shall determine, in its sole judgment reasonably exercised in
good faith, that either the Company, Distirbutors, or INVESCO has
suffered a material adverse change in its business or financial
condition or is the subject of material adverse publicity and that
material adverse change or material adverse publicity will have a
material adverse impact upon the business and operations of the
Insurance Company, (2) the Insurance Company shall notify the Company,
Distributos, and INVESCO in writing of the determination and its
intent to terminate the Agreement, and (3) after considering the
actions taken by the Company, Distributos, and/or INVESCO and any
other changes in circumstances since the giving of such a notice, the
determination shall continue to apply on the sixtieth (60th) day
following the giving of the notice, which sixtieth day shall be the
effective date of termination; or
(k) Upon notice of material breach of the Agreement by a party.
10.2. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 10.1(a) may be exercised for any
reason or for no reason.
10.3 Notice Requirement. No termination of this Agreement shall be
------------------
effective unless and until the party terminating this Agreement gives prior
written notice to all other parties to this Agreement of its intent to
terminate, which notice shall set forth the basis for the termination.
Furthermore,
(a) in the event that any termination is based upon the provisions of
Article VII, or the provisions of Section 10.1(a), 10.1(i), 10.1(j),
or 10.1(k) of this Agreement, the prior written notice shall be given
in advance of the effective date of termination as required by those
provisions; and
(b) in the event that any termination is based upon the provisions of
Section 10.1(c) or 10.1(d) of this Agreement, the prior written notice
shall be given at least ninety (90) days before the effective date of
termination.
10.4. Effect of Termination. Notwithstanding any termination of this
---------------------
Agreement, the Company and INVESCO shall at the option of the Insurance Company,
continue to make available additional shares of the Company pursuant to the
terms and conditions of this Agreement, for all Contracts in effect on the
effective date of termination of this Agreement ("Existing Contracts").
Specifically, without limitation, the owners of the Existing Contracts shall be
permitted to reallocate investments in the Company, redeem investments in the
Company and/or invest in the Company upon the making of additional purchase
payments under the Existing
19
<PAGE>
Contracts. The parties agree that this Section 10.4 shall not apply to any
terminations under Article VII and the effect of Article VII terminations shall
be governed by Article VII of this Agreement.
10.5. The Insurance Company shall not redeem Company shares attributable
to the Contracts (as opposed to Company shares attributable to the Insurance
Company's assets held in the Account) except (i) as necessary to implement
Contract-owner-initiated transactions, (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(a "Legally Required Redemption"), or, (iii) pursuant to a substitute funding
order issued by the United States Securities and Exchange Commission ("SEC"), in
which case Insurance Company will provide Company with notice of its intent to
file an application for a substitute funding order contemporaneously with the
filing of such application with the SEC.Upon request, the Insurance Company will
promptly furnish to the Company and INVESCO the opinion of counsel for the
Insurance Company (which counsel shall be reasonably satisfactory to the Company
and INVESCO) to the effect that any redemption pursuant to clause (ii) above is
a Legally Required Redemption.
ARTICLE XI. Notices.
-------
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of that other party set forth below or at
such other address as the other party may from time to time specify in writing.
If to the Company:
P.O. Box 173706
Denver, Colorado 80217-3706
Attention: General Counsel
If to the Insurance Company:
United Investors Life Insurance Company
2001 Third Avenue Sourth
Birmingham Alabama 35233
Attn: James L. Sedgewick, President
Attention:
If to INVESCO:
P.O. Box 173706
Denver, Colorado 80217-3706
Attention: General Counsel
ARTICLE XII. Miscellaneous
-------------
12.1. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall
20
<PAGE>
not disclose, disseminate or utilize such names and addresses and other
confidential information without the express written consent of the affected
party unless and until that information may come into the public domain.
12.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.4. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.5. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Commission, the NASD and state insurance regulators) and shall permit those
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
12.6. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.7. No party may assign this Agreement without the prior written consent
of the others.
12.8 Article VIII and Sections 12.1 and 12.5 shall survive termination of
this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
Insurance Company:
UNITED INVESTORS LIFE INSURANCE COMPANY
By its authorized officer,
By:
Title:
Date:
21
<PAGE>
Company:
INVESCO VARIABLE INVESTMENT FUNDS, INC.
By its authorized officer,
By:
Title:
Date:
INVESCO:
INVESCO FUNDS GROUP, INC.
By its authorized officer,
By:
Title:
Date:
DISTRIBUTORS:
INVESCO Distributors, INC.
By its authorized officer,
By:
Title:
Date:
22
<PAGE>
Schedule A
----------
Accounts
--------
Name of Account Date of Resolution of Insurance Company's Board which
Established the Account
RetireMap Variable Account
23
<PAGE>
Schedule B
----------
Contracts
---------
1. Contract Form V96
---
24
<PAGE>
Schedule C
----------
Persons Authorized to Give Instructions to the Company and INVESCO
------------------------------------------------------------------
NAME ADDRESS AND PHONE NUMBER
(1)____________________________________ _______________________________________
Print or Type Name
____________________________________ Phone:_________________________________
Signature
(2)____________________________________ _______________________________________
Print or Type Name
____________________________________ Phone:_________________________________
Signature
(3)____________________________________ _______________________________________
Print or Type Name
____________________________________ Phone:_________________________________
Signature
(4)____________________________________ _______________________________________
Print or Type Name
____________________________________ Phone:_________________________________
Signature
25
<PAGE>
Schedule D
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Company by INVESCO, the Company and the
Insurance Company. The defined terms herein shall have the meanings assigned in
the Participation Agreement except that the term "Insurance Company" shall also
include the department or third party assigned by the Insurance Company to
perform the steps delineated below.
1. The number of proxy proposals is given to the Insurance Company by INVESCO
as early as possible before the date set by the Company for the shareholder
meeting to facilitate the establishment of tabulation procedures. At this
time INVESCO will inform the Insurance Company of the Record, Mailing and
Meeting dates. This will be done verbally approximately two months before
meeting.
2. Promptly after the Record Date, the Insurance Company will perform a "tape
run", or other activity, which will generate the names, addresses and
number of units which are attributed to each contractowner/policyholder
(the "Customer") as of the Record Date. Allowance should be made for
account adjustments made after this date that could affect the status of
the Customers' accounts of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Insurance Company will use its best
efforts to call in the number of Customers to INVESCO, as soon as
possible, but no later than one week after the Record Date.
3. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Insurance Company by the Company. The Insurance Company,
at its expense, shall produce and personalize the Voting Instruction cards.
The Legal Department of INVESCO ("INVESCO Legal") must approve the Card
before it is printed. Allow approximately 2-4 business days for printing
information on the Cards. Information commonly found on the Cards
includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of
votes (already on Cards as printed by the Company).
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
4. During this time, INVESCO Legal will develop, produce, and the Company will
pay for the Notice of Proxy and the Proxy Statement (one document).
Printed and folded notices and statements will be sent to Insurance Company
for insertion into envelopes (envelopes and return envelopes are
26
<PAGE>
provided and paid for by the Insurance Company). Contents of envelope sent
to customers by Insurance Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. Return envelope (postage pre-paid by Insurance Company) addressed
to the Insurance Company or its tabulation agent
d. "Urge buckslip" - optional, but recommended. (This is a small,
single sheet of paper that requests Customers to vote as quickly
as possible and that their vote is important. One copy will be
supplied by the Company.)
e. Cover letter - optional, supplied by Insurance Company and
reviewed and approved in advance by INVESCO Legal.
5. The above contents should be received by the Insurance Company
approximately 3-5 business days before mail date. Individual in charge at
Insurance Company reviews and approves the contents of the mailing package
to ensure correctness and completeness. Copy of this approval sent to
INVESCO Legal.
6. Package mailed by the Insurance Company.
* The Company must allow at least a 15-day solicitation
----
time to the Insurance Company as the shareowner. (A 5-week period is
recommended.) Solicitation time is calculated as calendar days from
(but not including) the meeting, counting backwards.
---
7. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal
procedure.
8. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to the Customer with an explanatory letter, a
new Card and return envelope. The mutilated or illegible Card is
disregarded and considered to be not received for purposes of vote
--- --------
tabulation. Such mutilated or illegible Cards are "hand verified," i.e.,
examined as to why they did not complete the system. Any questions on
those Cards are usually remedied individually.
9. There are various control procedures used to ensure proper tabulation of
votes and accuracy of the tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
10. The actual tabulation of votes is done in units which are then converted to
shares. (It is very
27
<PAGE>
important that the Company receives the tabulations stated in terms of a
percentage and the number of shares.) INVESCO Legal must review and approve
------
tabulation format.
11. Final tabulation in shares is verbally given by the Insurance Company to
INVESCO Legal on the morning of the meeting not later than 10:00 a.m.
Denver time. INVESCO Legal may request an earlier deadline if required to
calculate the vote in time for the meeting.
12. A Certificate of Mailing and Authorization to Vote Shares will be required
from the Insurance Company as well as an original copy of the final vote.
INVESCO Legal will provided a standard form for each Certification.
13. The Insurance Company will be required to box and archive the Cards
received from the Customers. In the event that any vote is challenged or
if otherwise necessary for legal, regulatory, or accounting purposes,
INVESCO Legal will be permitted reasonable access to such Cards.
14. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
28
<PAGE>
Schedule E
Revenue Sharing
Annual rate of 0.25% of the average of aggregate net asset value of outstanding
shares of the Companies held by contract holders and purchased through Insurance
Company pursuant to this Agreement. The average of aggregate net assets will be
measured on each business day during each calendar quarter, the applicable
portion of which is payable within 10 business days following end of each
calendar quarter, provided that no payments shall be made in an amount less
than $25.00.
29
<PAGE>
AMENDMENT TO PARTICIPATION AGREEMENT
This Amendment to Participation Agreement, made and entered into this _____
day of ___________, 1999 by and among United Investors Life Insurance Company
("Insurance Company"), on its own behalf and on behalf of each segregated asset
account of the Insurance Company set forth on Schedule A hereto, INVESCO
Distributors, Inc. ("Distributors"), INVESCO Funds Group, Inc., ("INVESCO"), and
INVESCO Variable Investment Funds, Inc. ("Company").
WHEREAS the Insurance Company, Distributors, INVESCO, and the Company have
entered into a Participation Agreement, dated July 8, 1998 ("Participation
Agreement"), and
WHEREAS Insurance Company, Distributors, INVESCO, and the Company desire
that each segregated asset account of the Insurance Company set forth in
Schedule A hereto be enabled to invest in portfolios of the Company, and
WHEREAS Insurance Company, Distributors, INVESCO, and the Company desire to
have the portfolios of the Company offered in additional insurance contracts
underwritten and distributed by Insurance Company as set forth in Schedule B
hereto, and
NOW, THEREFORE Insurance Company, INVESCO, and the Company agree as
follows:
1. Schedule A of the Participation Agreement, which designates the
Insurance Company Accounts which invest in portfolios of the Company, and
Schedule B of the Participation Agreement, which designates the contracts
offered by Insurance Company, are superseded and replaced by Schedules A and B
attached hereto.
2. All of the other provisions contained in the participation
agreement shall remain in full force and effect.
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to
Participation Agreement to be executed in its name and on behalf of its duly
authorized representatives.
United Investors Life Insurance Company
By: _________________________________
Title: _________________________________
Date: _________________________________
INVESCO Funds Group, Inc./INVESCO Distributors, Inc.
By: _________________________________
Ronald L. Grooms
Senior Vice President and Treasurer
Date: _________________________________
INVESCO Variable Investment Funds, Inc.
By: _________________________________
Ronald L. Grooms
Treasurer and Chief Financial and Accounting Officer
Date: _________________________________
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT, is made as of _____________, 1998, by and among United
Investors Life Insurance Company ("Company"), on its own behalf and on behalf of
____________________________________ Separate Account ___, a segregated asset
account of the Company ("Account"), Strong Variable Insurance Funds, Inc.
("Strong Variable") on behalf of the Portfolios of Strong Variable listed on the
attached Exhibit A as such Exhibit may be amended from time to time (the
"Designated Portfolios"), Strong Opportunity Fund II, Inc. ("Opportunity Fund
II"), Strong Capital Management, Inc. (the "Adviser"), the investment adviser
and transfer agent for the Opportunity Fund II and Strong Variable, and Strong
Investments, Inc. ("Distributors"), the distributor for Strong Variable and the
Opportunity Fund II (each, a "Party" and collectively, the "Parties").
PRELIMINARY STATEMENTS
A. Beneficial interests in Strong Variable are divided into several series
of shares, each representing the interest in a particular managed portfolio of
securities and other assets (each, a "Portfolio").
B. To the extent permitted by applicable insurance laws and regulations,
the Company intends to purchase shares of Opportunity Fund II and the Designated
Portfolios ("Fund" or "Funds" shall be deemed to refer to each Designated
Portfolio and to the Opportunity Fund II to the extent the context requires), on
behalf of the Account to fund the variable annuity contracts that use the Funds
as an underlying investment medium (the "Contracts").
C. The Company, Adviser and Distributors desire to facilitate the purchase
and redemption of shares of the Funds by the Company for the Account through one
or more accounts, which number shall be as mutually agreed upon by the parties,
in each Fund (each an "Omnibus Account"), to be maintained of record by the
Company, subject to the terms and conditions of this Agreement.
D. The Company desires to provide administrative services and functions
(the "Services") for purchasers of Contracts ("Owners") who are beneficial
owners of shares of the Funds on the terms and conditions set forth in this
Agreement.
AGREEMENTS
The parties to this Agreement agree as follows:
1. Performance of Services. Company agrees to perform the administrative
-----------------------
functions and services specified in Exhibit B attached to this Agreement with
respect to the shares of the Funds
<PAGE>
beneficially owned by the Owners and included in the Account. Nothing in this
Agreement shall limit Company's right to engage one or more of its wholly owned
subsidiaries (each, a "Designee") to provide all or any portion of the Services,
but no such engagement shall relieve Company of its duties, responsibilities or
liabilities under this Agreement.
2. The Omnibus Accounts.
--------------------
2.1 Each Omnibus Account will be opened based upon the information
contained in Exhibit C to this Agreement. In connection with each Omnibus
Account, Company represents and warrants that it is authorized to act on behalf
of each Owner effecting transactions in the Omnibus Account and that the
information specified on Exhibit C to this Agreement is correct.
2.2 Each Fund shall designate each Omnibus Account with an account number.
These account numbers will be the means of identification when the Parties are
transacting in the Omnibus Accounts. The assets in the Accounts are segregated
from the Company's own assets. The Adviser agrees to cause the Omnibus Accounts
to be kept open on each Fund's books, as applicable, regardless of a lack of
activity or small position size except to the extent the Company takes specific
action to close an Omnibus Account or to the extent a Fund's prospectus reserves
the right to close accounts which are inactive or of a small position size. In
the latter two cases, the Adviser will give prior notice to the Company before
closing an Omnibus Account.
2.3 The Company agrees to provide Adviser such information as Adviser or
Distributors may reasonably request concerning Owners as may be necessary or
advisable to enable Adviser and Distributors to comply with applicable laws,
including state "Blue Sky" laws relating to the sales of shares of the Funds to
the Accounts.
3. Fund Shares Transactions.
------------------------
3.1 In General. Shares of the Funds shall be sold on behalf of the Funds
----------
by Distributors and purchased by Company for the Account and, indirectly for the
appropriate subaccount thereof at the net asset value next computed after
receipt by Distributors of each order of the Company or its Designee, in
accordance with the provisions of this Agreement, the then current prospectuses
of the Funds, and the Contracts. Company may purchase shares of the Funds for
its own account subject to (a) receipt of prior written approval by
Distributors; and (b) such purchases being in accordance with the then current
prospectuses of the Fund and the Contracts. The Board of Directors of each Fund
("Directors") may refuse to sell shares of the applicable Fund to any person, or
suspend or terminate the offering of shares of the Fund if such action is
required by law or by regulatory authorities having jurisdiction. Company
agrees to purchase and redeem the shares of the Funds in accordance with the
provisions of this Agreement, of the Contracts and of the then current
prospectuses for the Contracts and Funds. Except as necessary to implement
transactions initiated by Owners, or as otherwise permitted by
2
<PAGE>
state or federal laws or regulations, Company shall not redeem shares of Funds
attributable to the Contracts.
3.2 Purchase and Redemption Orders. On each day that a Fund is open for
------------------------------
business (a "Business Day"), the Company or its Designee shall aggregate and
calculate the net purchase or redemption order it receives for the Account from
the Owners for shares of the Fund that it received prior to the close of trading
on the New York Stock Exchange (the "NYSE") (i.e. 3:00 p.m., Central time,
unless the NYSE closes at an earlier time in which case such earlier time shall
apply) and communicate to Distributors, by telephone or facsimile (or by such
other means as the Parties to this Agreement may agree to in writing), the net
aggregate purchase or redemption order (if any) for the Omnibus Account for such
Business Day (such Business Day is sometimes referred to herein as the "Trade
Date"). The Company or its Designee will communicate such orders to
Distributors prior to 9:00 a.m., Central time, on the next Business Day
following the Trade Date. All trades communicated to Distributors by the
foregoing deadline shall be treated by Distributors as if they were received by
Distributors prior to the close of trading on the Trade Date.
3.3 Settlement of Transactions.
--------------------------
(a) Purchases. Company or its Designee will wire, or arrange for
---------
the wire of, the purchase price of each purchase order to the custodian for the
Fund in accordance with written instructions provided by Distributors to the
Company so that either (i) such funds are received by the custodian for the Fund
prior to 10:30 a.m., Central time, on the next Business Day following the Trade
Date, or (ii) Distributors is provided with a Federal Funds wire system
reference number prior to such 10:30 a.m. deadline evidencing the entry of the
wire transfer of the purchase price to the applicable custodian into the Federal
Funds wire system prior to such time. Company agrees that if it fails to provide
funds to the Fund's custodian by the close of business on the next Business Day
following the Trade Date, then, at the option of Distributors, (A) the
transaction may be canceled, or (B) the transaction may be processed at the
next-determined net asset value for the applicable Fund after purchase order
funds are received. In such event, the Company shall indemnify and hold harmless
Distributors, Adviser and the Funds from any liabilities, costs and damages
either may suffer as a result of such failure.
(b) Redemptions. The Adviser will use its best efforts to cause to
-----------
be transmitted to such custodial account as Company shall direct in writing, the
proceeds of all redemption orders placed by Company or its Designee by 9:00
a.m., Central time, on the Business Day immediately following the Trade Date, by
wire transfer on that Business Day. Should Adviser need to extend the
settlement on a trade, it will contact Company to discuss the extension. For
purposes of determining the length of settlement, Adviser agrees to treat the
Account no less favorably than other shareholders of the Funds. Each wire
transfer of redemption proceeds shall indicate, on the Federal Funds wire
system, the amount thereof attributable to each Fund; provided, however, that if
-------- -------
the number of entries would be too great to be transmitted through the Federal
Funds wire system, the Adviser shall, on the day the wire is
3
<PAGE>
sent, fax such entries to Company or if possible, send via direct or indirect
systems access until otherwise directed by the Company in writing.
3.4 Book Entry Only. Issuance and transfer of shares of a Fund will be by
---------------
book entry only. Stock certificates will not be issued to the Company or the
Account. Shares of the Funds ordered from Distributors will be recorded in the
appropriate book entry title for the Account.
3.5 Distribution Information. The Adviser or Distributors shall provide
------------------------
the Company with all distribution announcement information as soon as it is
announced by the Funds. The distribution information shall set forth, as
applicable, ex-dates, record date, payable date, distribution rate per share,
record date share balances, cash and reinvested payment amounts and all other
information reasonably requested by the Company. Where possible, the Adviser or
Distributors shall provide the Company with direct or indirect systems access to
the Adviser's systems for obtaining such distribution information.
3.6 Reinvestment. All dividends and capital gains distributions will be
------------
automatically reinvested on the payable date in additional shares of the
applicable Fund at net asset value in accordance with each Fund's then current
prospectus.
3.7 Pricing Information. Distributors shall use its best efforts to
-------------------
furnish to the Company prior to 6:00 p.m., Central time, on each Business Day
each Fund's closing net asset value for that day, and for those Funds for which
such information is calculated, the daily accrual for interest rate factor (mil
rate). Such information shall be communicated via fax, or indirect or direct
systems access acceptable to the Company.
3.8 Price Errors.
------------
(a) Notification. If an adjustment is required in accordance with a
------------
Fund's then current policies on reimbursement ("Fund Reimbursement Policies")
to correct any error in the computation of the net asset value of Fund shares
("Price Error"), Adviser or Distributors shall notify Company as soon as
practicable after discovering the Price Error. Notice may be made via facsimile
or via direct or indirect systems access and shall state the incorrect price,
the correct price and, to the extent communicated to the Fund's shareholders,
the reason for the price change.
(b) Underpayments. If a Price Error causes an Account to receive
-------------
less than the amount to which it otherwise would have been entitled, Adviser
shall make all necessary adjustments (subject to the Fund Reimbursement
Policies) so that the Account receives the amount to which it would have been
entitled.
(c) Overpayments. If a Price Error causes an Account to receive
------------
the amount to which it otherwise would have been entitled, Company, when
requested by Adviser (in accordance with the Fund Reimbursement Policies), will
use its best efforts to collect such excess amounts from the applicable Owners.
4
<PAGE>
(d) Fund Reimbursement Policies. Adviser agrees to treat Company's
---------------------------
customers no less favorably than Adviser treats its retail shareholders in
applying the provisions of paragraphs 3.8(b) and 3.8(c).
(e) Expenses. Adviser shall reimburse Company for all reasonable and
--------
necessary out-of-pocket expenses incurred by Company for payroll overtime,
stationery and postage in adjusting Owner accounts affected by a Price Error
described in paragraphs 3.8(b) and 3.8(c). Company shall use its best efforts
to mitigate all expenses which may be reimbursable under this section 3.8(e) and
agrees that payroll overtime shall not include any time spent programming
computers or otherwise customizing Company's recordkeeping system. Upon
requesting reimbursement, Company shall present an itemized bill to Adviser
detailing the costs for which it seeks reimbursement.
3.9 Agency. Distributors hereby appoints the Company or its Designee as
------
its agents for the limited purpose of accepting purchase and redemption
instructions from the Owners for the purchase and redemption of shares of the
Funds by the Company on behalf of Account.
3.10 Quarterly Reports. Adviser agrees to provide Company a statement of
-----------------
Fund assets as soon as practicable and in any event within 30 days after the end
of each fiscal quarter, and a statement certifying the compliance by the Funds
during that fiscal quarter with the diversification requirements and
qualification as a regulated investment company. In the event of a breach of
Section 6.4(a), Adviser will take all reasonable steps (a) to notify Company of
such breach and (b) to adequately diversify the Fund so as to achieve compliance
within the grace period afforded by Treasury Regulation 1.817-5.
4. Proxy Solicitations and Voting. The Company shall, at its expense,
------------------------------
distribute or arrange for the distribution of all proxy materials furnished by
the Funds to the Account and shall: (a) solicit voting instructions from Owners;
(b) vote the Fund shares in accordance with instructions received from Owners;
and (c) vote the Fund shares for which no instructions have been received, as
well as shares attributable to it, in the same proportion as Fund shares for
which instructions have been received from Owners, so long as and to the extent
that the Securities and Exchange Commission (the "SEC") continues to interpret
the Investment Company Act of 1940, as amended (the "1940 Act"), to require
pass-through voting privileges for various contract owners. The Company and its
Designees will not recommend action in connection with, or oppose or interfere
with, the solicitation of proxies for the Fund shares held for Owners.
5. Customer Communications.
-----------------------
5.1 Prospectuses. The Adviser or Distributors, at its expense, will
------------
provide the Company with as many copies of the current prospectus for the Funds
as the Company may reasonably request for distribution, at the Company's
expense, to existing or prospective Owners.
5
<PAGE>
5.2 Shareholder Materials. The Adviser and Distributors shall, as
---------------------
applicable, provide in bulk to the Company or its authorized representative, at
a single address and at no expense to the Company, the following shareholder
communications materials prepared for circulation to Owners in quantities
requested by the Company which are sufficient to allow mailing thereof by the
Company and, to the extent required by applicable law, to all Owners: proxy or
information statements, annual reports, semi-annual reports, and all initial and
updated prospectuses, supplements and amendments thereof. None of the Funds,
the Adviser or Distributors shall be responsible for the cost of distributing
such materials to Owners.
6. Representations and Warranties.
------------------------------
6.1 The Company represents and warrants that:
(a) It is an insurance company duly organized and in good standing
under the laws of the State of _________________ and that it has legally and
validly established the Account prior to any issuance or sale thereof as a
segregated asset account and that the Company has and will maintain the capacity
to issue all Contracts that may be sold; and that it is and will remain duly
registered, licensed, qualified and in good standing to sell the Contracts in
all the jurisdictions in which such Contracts are to be offered or sold;
(b) It and each of its Designees is and will remain duly registered
and licensed in all material respects under all applicable federal and state
securities and insurance laws and shall perform its obligations under this
Agreement in compliance in all material respects with any applicable state and
federal laws;
(c) The Contracts are and will be registered under the Securities Act
of 1933, as amended (the "1933 Act"), and are and will be registered and
qualified for sale in the states where so required; and the Account is and will
be registered as a unit investment trust in accordance with the 1940 Act and
shall be a segregated investment account for the Contracts;
(d) The Contracts are currently treated as annuity contracts, under
applicable provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), and the Company will maintain such treatment and will notify Adviser,
Distributors and Funds promptly upon having a reasonable basis for believing
that the Contracts have ceased to be so treated or that they might not be so
treated in the future;
(e) It and each of its Designees is registered as a transfer agent
pursuant to Section 17A of the Securities Exchange Act of 1934, as amended (the
"1934 Act"), or is not required to be registered as such;
(f) The arrangements provided for in this Agreement will be disclosed
to the Owners; and
6
<PAGE>
(g) It is registered as a broker-dealer under the 1934 Act and any
applicable state securities laws, including as a result of entering into and
performing the Services set forth in this Agreement, or is not required to be
registered as such.
6.2 The Funds each represent and warrant that Fund shares sold pursuant to
this Agreement are and will be registered under the 1933 Act and the Fund is and
will be registered as a registered investment company under the Investment
Company Act of 1940, in each case, except to the extent the Company is so
notified in writing;
6.3 Distributors represents and warrants that:
(a) It is and will be a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD")and is and will be registered as
a broker-dealer with the SEC; and
(b) It will sell and distribute Fund shares in accordance with all
applicable state and federal laws and regulations.
6.4 Adviser represents and warrants that:
(a) It will cause each Fund to invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as variable
annuity contracts under the Code and the regulations issued thereunder, and that
each Fund will comply with Section 817(h) of the Code as amended from time to
time and with all applicable regulations promulgated thereunder; and
(b) It is and will remain duly registered and licensed in all
material respects under all applicable federal and state securities and
insurance laws and shall perform its obligations under this Agreement in
compliance in all material respects with any applicable state and federal laws.
6.5 Each of the Parties to this Agreement represents and warrants to the
others that:
(a) It has full power and authority under applicable law, and has
taken all action necessary, to enter into and perform this Agreement and the
person executing this Agreement on its behalf is duly authorized and empowered
to execute and deliver this Agreement;
(b) This Agreement constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms and it shall
comply in all material respects with all laws, rules and regulations applicable
to it by virtue of entering into this Agreement;
7
<PAGE>
(c) No consent or authorization of, filing with, or other act by or
in respect of any governmental authority, is required in connection with the
execution, delivery, performance, validity or enforceability of this Agreement;
(d) The execution, performance and delivery of this Agreement will
not result in it violating any applicable law or breaching or otherwise
impairing any of its contractual obligations;
(e) Each Party to this Agreement is entitled to rely on any written
records or instructions provided to it by another Party; and
(f) Its directors, officers, employees, and investment advisers, and
other individuals/entities dealing with the money or securities of a Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
amount required by the applicable rules of the NASD and the federal securities
laws, which bond shall include coverage for larceny and embezzlement and shall
be issued by a reputable bonding company.
7. Sales Material and Information
------------------------------
7.1 NASD Filings. The Company shall promptly inform Distributors as to
------------
the status of all sales literature filings pertaining to the Funds and shall
promptly notify Distributors of all approvals or disapprovals of sales
literature filings with the NASD. For purposes of this Section 7, the phrase
"sales literature or other promotional material" shall be construed in
accordance with all applicable securities laws and regulations.
7.2 Company Representations. Neither the Company nor any of its Designees
-----------------------
shall make any material representations concerning the Adviser, the
Distributors, or a Fund other than the information or representations contained
in: (a) a registration statement of the Fund or prospectus of a Fund, as amended
or supplemented from time to time; (b) published reports or statements of the
Funds which are in the public domain or are approved by Distributors or the
Funds; or (c) sales literature or other promotional material of the Funds.
7.3 Adviser, Distributors and Fund Representations. None of Adviser,
----------------------------------------------
Distributors or any Fund shall make any material representations concerning the
Company or its Designees other than the information or representations contained
in: (a) a registration statement or prospectus for the Contracts, as amended or
supplemented from time to time; (b) published reports or statements of the
Contracts or the Account which are in the public domain or are approved by the
Company; or (c) sales literature or other promotional material of the Company.
7.4 Trademarks, etc. Except to the extent required by applicable law, no
---------------
Party shall use any other Party's names, logos, trademarks or service marks,
whether registered or unregistered, without the prior consent of such Party.
8
<PAGE>
7.5 Information From Distributors and Adviser. Upon request, Distributors
-----------------------------------------
or Adviser will provide to Company at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, solicitations for voting instructions, applications
for exemptions, requests for no action letters, and all amendments to any of the
above, that relate to the Funds, in final form as filed with the SEC, NASD and
other regulatory authorities.
7.6 Information From Company. Company will provide to Distributors at
------------------------
least one complete copy of all registration statements, prospectuses, Statements
of Additional Information, reports, solicitations for voting instructions, sales
literature and other promotional materials, applications for exemptions,
requests for no action letters and all amendments to any of the above, that
relate to a Fund and the Contracts, in final form as filed with the SEC, NASD
and other regulatory authorities.
7.7 Review of Marketing Materials. If so requested by Company, the
-----------------------------
Adviser or Distributors will use its best efforts to review sales literature and
other marketing materials prepared by Company which relate to the Funds, the
Adviser or Distributors for factual accuracy as to such entities, provided that
the Adviser or Distributors is provided at least five (5) Business Days to
review such materials. Neither the Adviser nor Distributors will review such
materials for compliance with applicable laws. Company shall provide the
Adviser with copies of all sales literature and other marketing materials which
refer to the Funds, the Adviser or Distributors within five (5) Business Days
after their first use, regardless of whether the Adviser or Distributors has
previously reviewed such materials. If so requested by the Adviser or
Distributors, Company shall cease to use any sales literature or marketing
materials which refer to the Funds, the Adviser or Distributors that the Adviser
or Distributors determines to be inaccurate, misleading or otherwise
unacceptable.
8. Fees and Expenses.
-----------------
8.1 Fund Registration Expenses. Fund or Distributors shall bear the cost
--------------------------
of registration and qualification of Fund shares; preparation and filing of Fund
prospectuses and registration statements, proxy materials and reports;
preparation of all other statements and notices relating to the Fund or
Distributors required by any federal or state law; payment of all applicable
fees, including, without limitation, any fees due under Rule 24f-2 of the 1940
Act, relating to a Fund; and all taxes on the issuance or transfer of Fund
shares on the Fund's records.
8.2 Contract Registration Expenses. The Company shall bear the expenses
------------------------------
for the costs of preparation and filing of the Company's prospectus and
registration statement with respect to the Contracts; preparation of all other
statements and notices relating to the Account or the Contracts required by any
federal or state law; expenses for the solicitation and sale of the Contracts
including all costs of printing and distributing all copies of advertisements,
prospectuses, Statements of Additional Information, proxy materials, and reports
to Owners or
9
<PAGE>
potential purchasers of the Contracts as required by applicable state and
federal law; payment of all applicable fees relating to the Contracts; all costs
of drafting, filing and obtaining approvals of the Contracts in the various
states under applicable insurance laws; filing of annual reports on form N-SAR,
and all other costs associated with ongoing compliance with all such laws and
its obligations under this Agreement.
9. Indemnification.
---------------
9.1 Indemnification By Company.
--------------------------
(a) Company agrees to indemnify and hold harmless the Funds, Adviser
and Distributors and each of their directors, officers, employees and agents,
and each person, if any, who controls any of them within the meaning of Section
15 of the 1933 Act (each, an "Indemnified Party" and collectively, the
"Indemnified Parties" for purposes of this Section 9.1) from and against any and
all losses, claims, damages, liabilities (including amounts paid in settlement
with the written consent of Company), and expenses including reasonable legal
fees and expenses, (collectively, hereinafter "Losses"), to which the
Indemnified Parties may become subject under any statute, regulation, at common
law or otherwise insofar as such Losses:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the registration
statement, prospectus or sales literature for the Contracts or contained in the
Contracts (or any amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this paragraph 9.1(a) shall not apply as
--------
to any Indemnified Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with written information
furnished to Company by or on behalf of a Fund, Distributors or Adviser for use
in the registration statement or prospectus for the Contracts or in the
Contracts (or any amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(ii) arise out of, or as a result of, statements or
representations or wrongful conduct of Company, its Designees or its agents,
with respect to the sale or distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement, prospectus,
or sales literature covering a Fund or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein, or necessary to make the statements therein not
misleading, if such a statement or omission was made in reliance upon written
information furnished to a Fund, Adviser or Distributors by or on behalf of
Company; or
10
<PAGE>
(iv) arise out of, or as a result of, any failure by Company, its
Designees or persons under the Company's or Designees' control to provide the
Services and furnish the materials contemplated under the terms of this
Agreement; or
(v) arise out of, or result from, any material breach of any
representation or warranty made by Company, its Designees or persons under the
Company's or Designees' control in this Agreement or arise out of or result from
any other material breach of this Agreement by Company. its Designees or persons
under the Company's or Designees' control; as limited by and in accordance with
the provisions of Sections 9.1(b) and 9.1(c) hereof; or
(vi) arise out of, or as a result of, adherence by Adviser or
Distributors to instructions that it reasonably believes were originated by
authorized agents of Company.
This indemnification provision is in addition to any liability which
the Company or its Designees may otherwise have.
(b) Company shall not be liable under this indemnification provision
with respect to any Losses to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations or duties
under this Agreement.
(c) Company shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified Company in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify Company of any such claim shall not
relieve Company from any liability which it may have to the Indemnified Party
otherwise than on account of this indemnification provision. In case any such
action is brought against any Indemnified Party, and it notified the
indemnifying Party of the commencement thereof, the indemnifying Party will be
entitled to participate therein and, to the extent that it may wish, assume the
defense thereof, with counsel satisfactory to such Indemnified Party. After
notice from the indemnifying Party of its intention to assume the defense of an
action, the Indemnified Party shall bear the expenses of any additional counsel
obtained by it, and the indemnifying Party shall not be liable to such
Indemnified Party under this Section for any legal or other expenses
subsequently incurred by such Indemnified Party in connection with the defense
thereof other than reasonable costs of investigation. The Indemnified Party may
not settle any action without the written consent of the indemnifying Party. The
indemnifying Party may not settle any action without the written consent of the
Indemnified Party unless such settlement completely and finally releases the
Indemnified Party from any and all liability. In either event, consent shall not
be unreasonably withheld.
11
<PAGE>
(d) The Indemnified Parties will promptly notify Company of the
commencement of any litigation or proceedings against the Indemnified Parties in
connection with the issuance or sale of Fund shares or the Contracts or the
operation of a Fund.
9.2 Indemnification by Adviser and Distributors.
-------------------------------------------
(a) Adviser and Distributors agrees to indemnify and hold harmless
Company and each of its directors, officers, employees and agents and each
person, if any, who controls Company within the meaning of Section 15 of the
1933 Act (each, an "Indemnified Party" and collectively, the "Indemnified
Parties" for purposes of this Section 9.2) from and against any and all Losses
to which the Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such Losses:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement or
prospectus or sales literature of a Fund (or any amendment or supplement to any
of the foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
--------
Section 9.2(a) shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance upon and in
conformity with written information furnished to a Fund, Adviser or Distributors
by or on behalf of Company for use in the registration statement or prospectus
for a Fund or in sales literature (or any amendment or supplement) or otherwise
for use in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of, or as a result of, statements or representations
or wrongful conduct of Adviser or Distributors or persons under its control,
with respect to the sale or distribution of Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement, prospectus, or sales
literature covering the Contracts, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein, or necessary to make the statements therein not
misleading, if such statement or omission was made in reliance upon written
information furnished to Company by or on behalf of Adviser or Distributors; or
(iv) arise out of, or as a result of, any failure by Adviser or
Distributors or persons under its control to provide the services and furnish
the materials contemplated under the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation or warranty made by Adviser or Distributors or persons under its
control in this Agreement or arise out of or result from any other material
breach of this Agreement by Adviser or Distributors
12
<PAGE>
or persons under its control; as limited by and in accordance with the
provisions of Sections 9.2(b) and 9.2(c) hereof.
This indemnification provision is in addition to any liability which
Adviser and Distributors may otherwise have.
(b) Adviser and Distributors shall not be liable under this
indemnification provision with respect to any Losses to which an Indemnified
Party would otherwise be subject by reason of such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement.
(c) Adviser and Distributors shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified Adviser and Distributors
in writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been served
upon such Indemnified Party (or after such Indemnified Party shall have received
notice of such service on any designated agent), but failure to notify Adviser
and Distributors of any such claim shall not relieve Adviser and Distributors
from any liability which it may have to the Indemnified Party otherwise than on
account of this indemnification provision. In case any such action is brought
against any Indemnified Party, and it notified the indemnifying Party of the
commencement thereof, the indemnifying Party will be entitled to participate
therein and, to the extent that it may wish, assume the defense thereof, with
counsel satisfactory to such Indemnified Party. After notice from the
indemnifying Party of its intention to assume the defense of an action, the
Indemnified Party shall bear the expenses of any additional counsel obtained by
it, and the indemnifying Party shall not be liable to such Indemnified Party
under this Section for any legal or other expenses subsequently incurred by such
Indemnified Party in connection with the defense thereof other than reasonable
costs of investigation. The Indemnified Party may not settle any action without
the written consent of the indemnifying Party. The indemnifying Party may not
settle any action without the written consent of the Indemnified Party unless
such settlement completely and finally releases the Indemnified Party from any
and all liability. In either event, consent shall not be unreasonably withheld.
(d) The Indemnified Parties will promptly notify Adviser and
Distributors of the commencement of any litigation or proceedings against the
Indemnified Parties in connection with the issuance or sale of the Contracts or
the operation of the Account.
10. Potential Conflicts.
-------------------
10.1 Monitoring by Directors for Conflicts of Interest. The Directors of
-------------------------------------------------
each Fund will monitor the Fund for any potential or existing material
irreconcilable conflict of interest between the interests of the contract owners
of all separate accounts investing in the Fund, including such conflict of
interest with any other separate account of any other insurance company
investing in
13
<PAGE>
the Fund. An irreconcilable material conflict may arise for a variety of
reasons, including: (a) an action by any state insurance regulatory authority;
(b) a change in applicable federal or state insurance, tax, or securities laws
or regulations, or a public ruling, private letter ruling, no-action or
interpretive letter, or any similar action by insurance, tax or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of the Fund are
being managed; (e) a difference in voting instructions given by variable annuity
contract owners and variable life insurance contract owners or by contract
owners of different life insurance companies utilizing the Fund; or (f) a
decision by Company to disregard the voting instructions of Owners. The
Directors shall promptly inform the Company, in writing, if they determine that
an irreconcilable material conflict exists and the implications thereof.
10.2 Monitoring by the Company for Conflicts of Interest. The Company
---------------------------------------------------
will promptly notify the Directors, in writing, of any potential or existing
material irreconcilable conflicts of interest, as described in Section 10.1
above, of which it is aware. The Company will assist the Directors in carrying
out their responsibilities under any applicable provisions of the federal
securities laws and any exemptive orders granted by the SEC ("Exemptive Order"),
by providing the Directors, in a timely manner, with all information reasonably
necessary for the Directors to consider any issues raised. This includes, but
is not limited to, an obligation by the Company to inform the Directors whenever
Owner voting instructions are disregarded.
10.3 Remedies. If it is determined by a majority of the Directors, or a
--------
majority of disinterested Directors, that a material irreconcilable conflict
exists, as described in Section 10.1 above, the Company shall, at its own
expense take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, up to and including, but not limited to: (a)
withdrawing the assets allocable to some or all of the separate accounts from
the applicable Fund and reinvesting such assets in a different investment
medium, including (but not limited to) another fund managed by the Adviser, or
submitting the question whether such segregation should be implemented to a vote
of all affected Owners and, as appropriate, segregating the assets of any
particular group that votes in favor of such segregation, or offering to the
affected owners the option of making such a change; and (b) establishing a new
registered management investment company or managed separate account.
10.4 Causes of Conflicts of Interest.
-------------------------------
(a) State Insurance Regulators. If a material irreconcilable
--------------------------
conflict arises because a particular state insurance regulator's decision
applicable to the Company conflicts with the majority of other state regulators,
then the Company will withdraw the affected Account's investment in the
applicable Fund and terminate this Agreement with respect to such Account within
the period of time permitted by such decision, but in no event later than six
months after the Directors inform the Company in writing that it has determined
that such decision has created an irreconcilable material conflict; provided,
--------
however, that such withdrawal and termination shall be limited to the extent
- -------
required by the foregoing material irreconcilable conflict as
14
<PAGE>
determined by a majority of the disinterested Directors. Until the end of the
foregoing period, the Distributors and Funds shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund to the extent such actions do not violate applicable law.
(b) Disregard of Owner Voting. If a material irreconcilable conflict
-------------------------
arises because of Company's decision to disregard Owner voting instructions and
that decision represents a minority position or would preclude a majority vote,
Company may be required, at the applicable Fund's election, to withdraw the
Account's investment in said Fund. No charge or penalty will be imposed against
the Account as a result of such withdrawal.
10.5 Limitations on Consequences. For purposes of Sections 10.3 through
---------------------------
10.5 of this Agreement, a majority of the disinterested Directors shall
determine whether any proposed action adequately remedies any irreconcilable
material conflict. In no event will a Fund, the Adviser or the Distributors be
required to establish a new funding medium for any of the Contracts. The
Company shall not be required by Section 10.3 to establish a new funding medium
for the Contracts if an offer to do so has been declined by vote of a majority
of Owners affected by the irreconcilable material conflict. In the event that
the Directors determine that any proposed action does not adequately remedy any
irreconcilable material conflict, then the Company will withdraw the Account's
investment in the applicable Fund and terminate this Agreement as quickly as may
be required to comply with applicable law, but in no event later than six (6)
months after the Directors inform the Company in writing of the foregoing
determination, provided, however, that such withdrawal and termination shall be
-------- -------
limited to the extent required by any such material irreconcilable conflict.
10.6 Changes in Laws. If and to the extent that Rule 6e-2 and Rule 6e-
---------------
3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any
provision of the Act or the rules promulgated thereunder with respect to mixed
or shared funding (as defined in the Funds' Exemptive Order) on terms and
conditions materially different from those contained in the Funds' Exemptive
Order, then (a) the Funds and/or the Adviser, as appropriate, shall take such
steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and
Rule 6e-3, as adopted, to the extent such rules are applicable; and (b) Sections
10.1, 10.2, 10.3 and 10.4 of this Agreement shall continue in effect only to the
extent that terms and conditions substantially identical to such Sections are
contained in such Rule(s) as so amended or adopted.
11. Maintenance of Records.
----------------------
(a) Recordkeeping and other administrative services to Owners shall
be the responsibility of the Company and shall not be the responsibility of the
Funds, Adviser or Distributors. None of the Funds, the Adviser or Distributors
shall maintain separate accounts or records for Owners. Company shall maintain
and preserve all records as required by law to be maintained and preserved in
connection with providing the Services and in making shares of the Funds
available to the Account.
15
<PAGE>
(b) Upon the request of the Adviser or Distributors, the Company
shall provide copies of all the historical records relating to transactions
between the Funds and the Account, written communications regarding the Funds to
or from the Account and other materials, in each case (1) as are maintained by
the Company in the ordinary course of its business and in compliance with
applicable law, and (2) as may reasonably be requested to enable the Adviser and
Distributors, or its representatives, including without limitation its auditors
or legal counsel, to (A) monitor and review the Services, (B) comply with any
request of a governmental body or self-regulatory organization or the Owners,
(C) verify compliance by the Company with the terms of this Agreement, (D) make
required regulatory reports, (E) verify to Advisor's reasonable satisfaction
that all purchase and redemption orders aggregated for each Trade Date were
received by Company prior to the close of trading on the NYSE on such Trade
Date, or (F) perform general customer supervision. The Company agrees that it
will permit the Adviser and Distributors or such representatives of either to
have reasonable access to its personnel and records in order to facilitate the
monitoring of the quality of the Services.
(c) Upon the request of the Company, the Adviser and Distributors
shall provide copies of all the historical records relating to transactions
between the Funds and the Account, written communications regarding the Funds to
or from the Account and other materials, in each case (1) as are maintained by
the Adviser and Distributors, as the case may be, in the ordinary course of its
business and in compliance with applicable law, and (2) as may reasonably be
requested to enable the Company, or its representatives, including without
limitation its auditors or legal counsel, to (A) comply with any request of a
governmental body or self-regulatory organization or the Owners, (B) verify
compliance by the Adviser and Distributors with the terms of this Agreement, (C)
make required regulatory reports, or (D) perform general customer supervision.
(d) The Parties agree to cooperate in good faith in providing records
to one another pursuant to this Section 11.
12. Term and Termination.
--------------------
12.1 Term and Termination Without Cause. The initial term of this
----------------------------------
Agreement shall be for a period of one year from the date hereof. Unless
terminated as to any Fund upon not less than thirty (30) days prior written
notice to the other Parties, this Agreement shall thereafter automatically renew
for the remaining Funds from year to year, subject to termination at the next
applicable renewal date upon not less than 30 days prior written notice. Any
Party may terminate this Agreement as to any Fund following the initial term
upon six (6) months advance written notice to the other Parties.
12.2 Termination by Fund, Distributors or Adviser for Cause. Adviser,
------------------------------------------------------
Fund or Distributors may terminate this Agreement by written notice to the
Company, if any of them shall determine, in its sole judgment exercised in good
faith, that (a) the Company has suffered a
16
<PAGE>
material adverse change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject of material adverse
publicity; or (b) any of the Contracts are not registered, issued or sold in
accordance with applicable state and federal law or such law precludes the use
of Fund shares as the underlying investment media of the Contracts issued or to
be issued by the Company.
12.3 Termination by Company for Cause. Company may terminate this
--------------------------------
Agreement by written notice to the Adviser, Funds and Distributors in the event
that (a) any of the Fund shares are not registered, issued or sold in accordance
with applicable state or federal law or such law precludes the use of such
shares as the underlying investment media of the Contracts issued or to be
issued by the Company; (b) the Funds cease to qualify as Regulated Investment
Companies under Subchapter M of the Code or under any successor or similar
provision, or if the Company reasonably believes that the Funds may fail to so
qualify; or (c) a Fund fails to meet the diversification requirements specified
in Section 6.4(a).
12.4 Termination by any Party. This Agreement may be terminated as to any
------------------------
Fund by any Party at any time (a) by giving 30 days' written notice to the other
Parties in the event of a material breach of this Agreement by the other Party
or Parties that is not cured during such 30-day period, and (b) (i) upon
institution of formal proceedings relating to the legality of the terms and
conditions of this Agreement against the Account, Company, any Designee, the
Funds, Adviser or Distributors by the NASD, the SEC or any other regulatory body
provided that the terminating Party has a reasonable belief that the institution
of formal proceedings is not without foundation and will have a material adverse
impact on the terminating Party, (ii) by the non-assigning Party upon the
assignment of this Agreement in contravention of the terms hereof, or (iii) as
is required by law, order or instruction by a court of competent jurisdiction or
a regulatory body or self-regulatory organization with jurisdiction over the
terminating Party.
12.5 Limit on Termination. Notwithstanding the termination of this
--------------------
Agreement with respect to any or all Funds, for so long as any Contracts remain
outstanding and invested in a Fund each Party to this Agreement shall continue
to perform such of its duties under this Agreement as are necessary to ensure
the continued tax deferred status thereof and the payment of benefits
thereunder, except to the extent proscribed by law, the SEC or other regulatory
body. Notwithstanding the foregoing, nothing in this Section 12.5 obligates a
Fund to continue in existence. In the event that any Fund elects to terminate
its operations, the Company shall, as soon as practicable, obtain an exemptive
order or order of substitution from the SEC to remove all Owners from the
applicable Fund.
13. Notices.
-------
All notices under this Agreement shall be given in writing (and shall be
deemed to have been duly given upon receipt) by delivery in person, by
facsimile, by registered or certified mail or by overnight delivery (postage
prepaid, return receipt requested) to the respective Parties as follows:
17
<PAGE>
If to Strong Variable:
Strong Variable Insurance Funds, Inc.
100 Heritage Reserve
Milwaukee, WI 53051
Attention: General Counsel
Facsimile No.: 414/359-3948
If to Opportunity Fund II:
Strong Opportunity Fund II, Inc.
100 Heritage Reserve
Milwaukee, WI 53051
Attention: General Counsel
Facsimile No.: 414/359-3948
If to Adviser:
Strong Capital Management, Inc.
100 Heritage Reserve
Milwaukee, WI 53051
Attention: General Counsel
Facsimile No.: 414/359-3948
If to Distributors:
Strong Investments, Inc.
100 Heritage Reserve
Milwaukee, WI 53051
Attention: General Counsel
Facsimile No.: 414/359-3948
If to Company:
United Investors Life Insurance Company
2001 Third Avenue South
Birmingham, AL 35202-0207
Attention: Ms. Cathy Pilcher
Facsimile No.: (281) 997-1928
14. Miscellaneous.
-------------
18
<PAGE>
14.1. Captions. The captions in this Agreement are included for
--------
convenience of reference only and in no way affect the construction or effect of
any provisions hereof.
14.2. Enforceability. If any portion of this Agreement shall be held or
--------------
made invalid by a court decision, statute, rule or otherwise, the remainder of
the Agreement shall not be affected thereby.
14.3. Counterparts. This Agreement may be executed simultaneously in two
------------
or more counterparts, each of which taken together shall constitute one and the
same instrument.
14.4. Remedies not Exclusive. The rights, remedies and obligations
----------------------
contained in this Agreement are cumulative and are in addition to any and all
rights, remedies and obligations, at law or in equity, which the Parties to this
Agreement are entitled to under state and federal laws.
14.5. Confidentiality. Subject to the requirements of legal process and
---------------
regulatory authority, the Funds and Distributors shall treat as confidential the
names and addresses of the owners of the Contracts and all information
reasonably identified as confidential in writing by the Company to this
Agreement and, except as permitted by this Agreement, shall not disclose,
disseminate or utilize such names and addresses and other confidential
information without the express written consent of the Company until such time
as it may come into the public domain.
14.6. Governing Law. This Agreement shall be governed by and interpreted
-------------
in accordance with the internal laws of the State of Wisconsin applicable to
agreements fully executed and to be performed therein; exclusive of conflicts of
laws.
14.7. Survivability. Sections 6, 7.2, 7.3, 7.4, 9, 11 and 12.5 hereof
-------------
shall survive termination of this Agreement. In addition, all provisions of
this Agreement shall survive termination of this Agreement in the event that any
Contracts are invested in a Fund at the time the termination becomes effective
and shall survive for so long as such Contracts remain so invested.
14.8. Amendment and Waiver. No modification of any provision of this
--------------------
Agreement will be binding unless in writing and executed by the Party to be
bound thereby. No waiver of any provision of this Agreement will be binding
unless in writing and executed by the Party granting such waiver.
Notwithstanding anything in this Agreement to the contrary, the Adviser may
unilaterally amend Exhibit A to this Agreement to add additional series of
Strong Variable Funds ("New Funds") as Funds by sending to the Company a written
notice of the New Funds. Any valid waiver of a provision set forth herein shall
not constitute a waiver of any other provision of this Agreement. In addition,
any such waiver shall constitute a present waiver of such provision and shall
not constitute a permanent future waiver of such provision.
14.9. Assignment. This Agreement shall be binding upon and shall inure to
----------
the benefit of the Parties and their respective successors and assigns;
provided, however, that neither this
- -------- -------
19
<PAGE>
Agreement nor any rights, privileges, duties or obligations of the Parties may
be assigned by any Party without the written consent of the other Parties or as
expressly contemplated by this Agreement.
14.10. Entire Agreement. This Agreement contains the full and complete
----------------
understanding between the Parties with respect to the transactions covered and
contemplated under this Agreement, and supersedes all prior agreements and
understandings between the Parties relating to the subject matter hereof,
whether oral or written, express or implied.
14.11. Relationship of Parties; No Joint Venture, Etc. Except for the
-----------------------------------------------
limited purpose provided in Section 3.8, it is understood and agreed that the
Company and each of its Designees shall be acting as an independent contractor
and not as an employee or agent of the Adviser, Distributors or the Funds, and
none of the Parties shall hold itself out as an agent of any other Party with
the authority to bind such Party. Neither the execution nor performance of this
Agreement shall be deemed to create a partnership or joint venture by and among
any of the Company, any Designees, Funds, Adviser, or Distributors.
14.12. Expenses. All expenses incident to the performance by each Party
--------
of its respective duties under this Agreement shall be paid by that Party.
14.13. Time of Essence. Time shall be of the essence in this Agreement.
---------------
14.14. Non-Exclusivity. Each of the Parties acknowledges and agrees that
---------------
this Agreement and the arrangements described herein are intended to be non-
exclusive and that each of the Parties is free to enter into similar agreements
and arrangements with other entities.
14.15. Operations of Funds. In no way shall the provisions of this
-------------------
Agreement limit the authority of the Funds, the Adviser or Distributors to take
such action as it may deem appropriate or advisable in connection with all
matters relating to the operation of such Fund and the sale of its shares. In
no way shall the provisions of this Agreement limit the authority of the Company
to take such action as it may deem appropriate or advisable in connection with
all matters relating to the provision of Services or the shares of funds other
than the Funds offered to the Account.
UNITED INVESTORS LIFE INSURANCE CO.
________________________________________
By:
Name:
Title:
STRONG CAPITAL MANAGEMENT, INC.
________________________________________
20
<PAGE>
Stephen J. Shenkenberg, Vice President
STRONG INVESTMENTS, INC.
________________________________________
Stephen J. Shenkenberg, Vice President
STRONG VARIABLE INSURANCE FUNDS, INC. on behalf
of the Designated Portfolios
________________________________________
Stephen J. Shenkenberg, Vice President
STRONG OPPORTUNITY FUND II, INC.
________________________________________
Stephen J. Shenkenberg, Vice President
EXHIBIT A
The following is a list of Designated Portfolios under this Agreement:
Strong Discovery Fund II
Strong Mid-Cap Growth Fund II
21
<PAGE>
EXHIBIT B
The Services
Company or its Designees shall perform the following services. Such
services shall be the responsibility of the Company and shall not be the
responsibility of the Funds, Adviser or Distributors.
1. Maintain separate records for each Account, which records shall
reflect Fund shares ("Shares") purchased and redeemed, including the date and
price for all transactions, Share balances, and the name and address of each
Owner, including zip codes and tax identification numbers.
2. Credit contributions to individual Owner accounts and invest such
contributions in shares of the Funds to the extent so designated by the Owner.
3. Disburse or credit to the Owners, and maintain records of, all
proceeds of redemptions of Fund shares and all other distributions not
reinvested in shares.
4. Prepare and transmit to the Owners, periodic account statements
showing, among other things, the total number of Fund shares owned as of the
statement closing date, purchases and redemptions of shares during the period
covered by the statement, the net asset value of the Funds as of a recent date,
and the dividends and other distributions paid during the statement period
(whether paid in cash or reinvested in shares).
5. Transmit to the Owners, as required by applicable law, prospectuses,
proxy materials, shareholder reports, and other information provided by the
Adviser, Distributors or Funds and required to be sent to shareholders under the
Federal securities laws.
6. Transmit to Distributors purchase orders and redemption requests
placed by the Account and arrange for the transmission of funds to and from the
Funds.
7. Transmit to Distributors such periodic reports as Distributors shall
reasonably conclude is necessary to enable the Funds to comply with applicable
Federal securities and state Blue Sky requirements.
8. Transmit to each Account confirmations of purchase orders and
redemption requests placed by each Account.
9. Maintain all account balance information for the Account and daily and
monthly purchase summaries expressed in shares and dollar amounts.
10. Prepare, transmit and file any Federal, state and local government
reports and returns as required by law with respect to each account maintained
on behalf of the Account.
22
<PAGE>
11. Respond to Owners' inquiries regarding, among other things, share
prices, account balances, dividend options, dividend amounts, and dividend
payment dates.
23
<PAGE>
Schedule C--Account Information
(for Accounts to have Dividends and Capital Gains Reinvested automatically)
1. Entity in whose name each Account will be opened:__________________________
Mailing address: __________________________
__________________________
__________________________
2. Employer ID number (For internal usage only): __________________________
3. Authorized contact persons: The following persons are authorized on behalf
of the Recordkeeper to effect transactions in each Account:
Name:____________________________ Phone:____________________________
Name:____________________________ Phone:____________________________
Name:____________________________ Phone:____________________________
Name:____________________________ Phone:____________________________
4. Will the Accounts have telephone exchange? ____ Yes ____ No
(This option lets Company redeem shares by telephone and apply the proceeds
for purchase in another identically registered Account.)
5. Will the Accounts have telephone redemption? ____ Yes ____ No
(This option lets Company sell shares by telephone. The proceeds will be
wired to the bank account specified below.)
6. All dividends and capital gains will be reinvested automatically.
7. Instructions for all outgoing wire transfers: __________________________
__________________________
__________________________
__________________________
24
<PAGE>
8. If this Account Information Form contains changed information, the
undersigned authorized officer has executed this amended Account Information
Form as of the date set forth below and acknowledges the agreements and
representations set forth in the Services Agreement between the Recordkeeper,
Strong Capital Management, Inc. and Strong Funds Strong Distributors, Inc.
9. Company certifies under penalty of perjury that:
(i) The number shown on this form is the correct Employer ID number (or
that Company is waiting to be issued an Employer ID number), and
(ii) Company is not subject to backup withholding because (a) Company is
exempt from backup withholding, or (b) Company has not been notified by the
Internal Revenue Service ("IRS") that it is subject to backup withholding as a
result of failure to report all interest or dividends, or (c) the IRS has
notified the Company that it is no longer subject to backup withholding.
(Cross out (ii) if Company has been notified by the IRS that it is subject to
backup withholding because of underreporting interest or dividends on its tax
return.)
The IRS does not require Company's consent to any provision of this
document other than the certifications required to avoid backup withholding.
______________________________________ ___________________________
(Signature of Authorized Officer) (Date)
(Company shall inform Adviser and Distributors of any changes to information
provided in this Account Information Form pursuant to Section 23 of the
Agreement.)
Please Note: Distributors employs reasonable procedures to confirm that
instructions communicated by telephone are genuine and may not be liable for
losses due to unauthorized or fraudulent instructions. Please see the
prospectus for the applicable Fund for more information on the telephone
exchange and redemption privileges.
25
<PAGE>
Schedule C--Account Information
(for Accounts to have Dividends and Capital Gains Paid Out)
1. Entity in whose name each Account will be opened:_____________________
Mailing address: _____________________
_____________________
_____________________
2. Employer ID number (For internal usage only): _____________________
3. Authorized contact persons: The following persons are authorized on behalf
of the Recordkeeper to effect transactions in each Account:
Name:____________________________ Phone:____________________________
Name:____________________________ Phone:____________________________
Name:____________________________ Phone:____________________________
Name:____________________________ Phone:____________________________
4. Will the Accounts have telephone exchange? ____ Yes ____ No
(This option lets Servicer redeem shares by telephone and apply the proceeds
for purchase in another identically registered Account.)
5. Will the Accounts have telephone redemption? ____ Yes ____ No
(This option lets Servicer sell shares by telephone. The proceeds will be
wired to the bank account specified below.)
6. All dividends and capital gains will NOT be reinvested automatically.
---
7. Instructions for all outgoing wire transfers: ________________________
________________________
________________________
________________________
26
<PAGE>
8. If this Account Information Form contains changed information, the
undersigned authorized officer has executed this amended Account Information
Form as of the date set forth below and acknowledges the agreements and
representations set forth in the Services Agreement between the Recordkeeper,
Strong Capital Management, Inc. and Strong Funds Strong Distributors, Inc.
9. Servicer certifies under penalty of perjury that:
(i) The number shown on this form is the correct Employer ID number (or
that Servicer is waiting to be issued an Employer ID number), and
(ii) Servicer is not subject to backup withholding because (a) Servicer is
exempt from backup withholding, or (b) Servicer has not been notified by the
Internal Revenue Service ("IRS") that it is subject to backup withholding as a
result of failure to report all interest or dividends, or (c) the IRS has
notified the Servicer that it is no longer subject to backup withholding.
(Cross out (ii) if Servicer has been notified by the IRS that it is subject to
backup withholding because of underreporting interest or dividends on its tax
return.)
The IRS does not require Servicer's consent to any provision of this
document other than the certifications required to avoid backup withholding.
______________________________________ ______________________
(Signature of Authorized Officer) (Date)
(Servicer shall inform Company and Distributors of any changes to information
provided in this Account Information Form pursuant to Section 23 of this
Agreement.)
Please Note: Distributors employs reasonable procedures to confirm that
instructions communicated by telephone are genuine and may not be liable for
losses due to unauthorized or fraudulent instructions. Please see the
prospectus for the applicable Fund for more information on the telephone
exchange and redemption privileges.
27
<PAGE>
Schedule D
Billing and Count Information
1. Contact person to receive administrative fees:
Name: ________________________
Title: ________________________
Company Name: ________________________
Address: ________________________
City, State, Zip: ________________________
Phone Number: ________________________
Fax Number: ________________________
E-mail address: ________________________
2. Contact person that will furnish participant/shareholder counts:
Name: ________________________
Title: ________________________
Company Name: ________________________
Address: ________________________
City, State, Zip: ________________________
Phone Number: ________________________
Fax Number: ________________________
E-mail address: ________________________
28
<PAGE>
Re: Fee Letter Relating to the [Company] Participation Agreement.
Dear ________________:
Pursuant to the Participation Agreement by and among Strong Capital
Management, Inc. ("Strong"), ____________________ (the "Company"), Strong
Variable Insurance Funds, Inc., Strong Opportunity Fund II, Inc. and Strong
Investments, Inc. ("Distributors") dated _________ __, 1998 (the "Participation
Agreement"), the Company will provide certain administrative services on behalf
of the registered investment companies or series thereof specified in Exhibit A
(each a "Fund" and collectively the "Funds").
In recognition of the reduction in administrative expenses that derives
from the performance of said administrative services, Strong agrees to pay the
Company the fee specified below for each Fund specified in Exhibit A to this
Agreement.
(a) For average aggregate amounts (as calculated in paragraph (b),
below) invested through variable insurance products issued by the Company
with the Funds, the monthly fee shall equal the percentage (calculated in
paragraph (b), below) of the applicable annual fee for each Fund specified
in Exhibit A.
(b) For purposes of computing the fee contemplated in paragraph (a)
above, Strong shall calculate and pay to the Company an amount with respect
to each Fund equal to the product of: (a) the product of (i) the number of
calendar days in the applicable month divided by the number of calendar
days in that year (365 or 366 as applicable) and (ii) the applicable
percentage specified in Exhibit A, to this Agreement, multiplied by (b) the
average daily market value of the investments held in such Fund pursuant to
the Participation Agreement computed by totaling the aggregate investment
(share net asset value multiplied by the total number of shares held) on
each day during the calendar month and dividing by the total number of days
during such month.
(c) Strong shall calculate the amount of the payment to be made
pursuant to this Letter Agreement at the end of each calendar month and
will make such payment to the Company within 30 days after receiving the
report referenced in paragraph (e), below. Fees will be paid, at Strong's
election, by wire transfer or by check. All payments under this Agreement
shall be considered final unless disputed by the Company in writing within
60 days of receipt.
(d) The parties agree that the fees contemplated herein are solely
for shareholder servicing and other administrative services provided by the
Company and do not constitute payment in any manner for investment
advisory, distribution, trustee, or custodial services.
(e) The Company agrees to provide Strong by the 15th day of each
month with a report which indicates the number of Owners that hold through
a Contract interests in each Account as of the last day of the prior month.
(f) If requested in writing by Strong, and at Strong's expense, the
Company shall provide to Strong, by February 14th of each year, a "Special
Report" from a nationally recognized accounting firm reasonably acceptable
to Strong which substantiates for each month of the prior calendar year:
(a) the number of Owners that hold, through an Account, interests in
29
<PAGE>
each Account maintained by the Company on the last day of each month which
held shares for which the fee provided for in this Letter Agreement was
received by the Company, (b) that any fees billed to Strong for such month
were accurately determined in accordance with this Letter Agreement, and
(c) such other information in connection with this Agreement and the
Participation Agreement as may be reasonably requested by Strong.
(g) The parties to the Participation Agreement agree that Strong may
unilaterally amend Schedule A to the Participation Agreement to add
additional investment companies or series thereof ("New Funds") as Funds
subject to the provisions of this Letter Agreement by sending to the
Company a written notice of the New Funds and indicating therein the fees
to be paid to the Company with respect to the administrative services
provided pursuant to the Participation Agreement in connection with such
New Funds.
(h) The obligation to pay the fees specified in this Letter Agreement
shall survive the termination of the Participation Agreement for a period
of one year from the date of termination, provided that Company continues
to provide Services to the Owners with respect to those assets invested in
the Funds and provided that the Participation Agreement has not been
terminated because of an event described in Sections 12.2, 12.3 or 12.4 of
the Participation Agreement. Company agrees that in the event of
termination it will provide the Adviser with any reports and certificates
as requested by the Adviser to determine that the continued payment of fees
has been calculated in accordance with this Letter Agreement.
(i) Capitalized terms not otherwise defined herein shall have the
meaning assigned to them in the Participation Agreement.
If you are in agreement with the foregoing, please sign and date below
where indicated and return one copy of this signed letter agreement to me.
Very truly yours,
Stephen J. Shenkenberg
Strong Capital Management, Inc.
Accepted and agreed to as of _________, 1998.
[COMPANY]
_____________________________
By:
Name:
Title:
30
<PAGE>
EXHIBIT A to Fee Letter
The Funds subject to this Agreement and applicable annual fees are as follows:
Fund Annual Fee
---- ----------
Strong Opportunity Fund II, Inc. 0.25%
Strong Variable Insurance Funds, Inc.
Strong Discovery Fund II 0.25%
Strong Mid-Cap Growth Fund II 0.25%
31
<PAGE>
PARTICIPATION AGREEMENT
AMONG TEMPLETON VARIABLE PRODUCTS SERIES FUND,
FRANKLIN TEMPLETON DISTRIBUTORS, INC. and
[ ] INSURANCE COMPANY
THIS AGREEMENT made as of [ ], 1999, among Templeton Variable Products
Series Fund (the "Trust"), an open-end management investment company organized
as a business trust under Massachusetts law, Franklin Templeton Distributors,
Inc., a California corporation, the Trust's principal underwriter
("Underwriter"), and [ ] Insurance Company, a life insurance company organized
as a corporation under [ ] law (the "Company"), on its own behalf and on behalf
of each segregated asset account of the Company set forth in Schedule A, as may
be amended from time to time (the "Accounts").
W I T N E S S E T H:
--------------------
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "SEC") as an open-end management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"), and has an
effective registration statement relating to the offer and sale of the various
series of its shares under the Securities Act of 1933, as amended (the "1933
Act");
WHEREAS, the Trust and the Underwriter desire that Trust shares be used as
an investment vehicle for separate accounts established for variable life
insurance policies and variable annuity contracts to be offered by life
insurance companies which have entered into fund participation agreements with
the Trust (the "Participating Insurance Companies");
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares, each series representing an interest in a particular managed
portfolio of securities and other assets, and certain of those series, named in
Schedule A, (the "Portfolios") are to be made available for purchase by the
Company for the Accounts; and
WHEREAS, the Trust has received an order from the SEC, dated November 16,
1993 (File No. 812-8546), granting Participating Insurance Companies and their
separate accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a)
and 15(b) of the 1940 Act, and Rules 6e-2 (b) (15) and 6e-3 (T) (b) (15)
thereunder, to the extent necessary to permit shares of the Trust to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance companies and certain qualified
pension and retirement plans (the "Shared Funding Exemptive Order");
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act unless an exemption from registration under
the 1940 Act is available and the Trust has been so advised; and has registered
or will register certain variable annuity contracts and variable life insurance
policies, listed on Schedule A attached hereto, under which the portfolios are
to be made available as investment vehicles (the
1
<PAGE>
"Contracts") under the 1933 Act unless such interests under the Contracts in the
Accounts are exempt from registration under the 1933 Act and the Trust has been
so advised;
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such account on Schedule A hereto, to set aside
and invest assets attributable to one or more Contracts; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and is a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD"); and
WHEREAS, each investment adviser listed on Schedule A (each, an "Adviser")
is duly registered as an investment adviser under the Investment Advisers Act of
1940, as amended ("Advisers Act") and any applicable state securities laws;
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid Contracts and the Underwriter
is authorized to sell such shares to separate accounts such as each Account at
net asset value;
NOW THEREFORE, in consideration of their mutual promises, the parties agree
as follows:
ARTICLE I.
Purchase and Redemption of Trust Portfolio Shares
-------------------------------------------------
1.1 For purposes of this Article I, the Company shall be the Trust's agent
for receipt of purchase orders and requests for redemption relating to each
Portfolio from each Account, provided that the Company notifies the Trust of
such purchase orders and requests for redemption by 9:00 a.m. Eastern time on
the next following Business Day, as defined in Section 1.3.
1.2 The Trust agrees to make shares of the Portfolios available to the
Accounts for purchase at the net asset value per share next computed after
receipt of a purchase order by the Trust (or its agent), as established in
accordance with the provisions of the then current prospectus of the Trust
describing Portfolio purchase procedures on those days on which the Trust
calculates its net asset value pursuant to rules of the SEC, and the Trust shall
use its best efforts to calculate such net asset value on each day on which the
New York Stock Exchange ("NYSE") is open for trading. The Company will transmit
orders from time to time to the Trust for the purchase of shares of the
Portfolios. The Trustees of the Trust (the "Trustees") may refuse to sell shares
of any Portfolio to any person, or suspend or terminate the offering of shares
of any Portfolio if such action is required by law or by regulatory
2
<PAGE>
authorities having jurisdiction or if, in the sole discretion of the Trustees
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, such action is deemed in the best interests of the
shareholders of such Portfolio. Without limiting the foregoing, the Trustees
have determined that there is a significant risk that the Trust and its
shareholders may be adversely affected by investors whose purchase and
redemption activity follows a market timing pattern, and have authorized the
Trust, the Underwriter and the Trust's transfer agent to adopt procedures and
take other action (including without limitation rejecting specific purchase
orders) as they deem necessary to reduce, discourage or eliminate market timing
activity. The Company agrees to cooperate with the Trust to assist the Trust in
implementing the Trust's restrictions on Market Timers.
1.3 The Company shall submit payment for the purchase of shares of a
Portfolio on behalf of an Account no later than the close of business on the
next Business Day after the Trust receives the purchase order. Payment shall be
made in federal funds transmitted by wire to the Trust or its designated
custodian. Upon receipt by the Trust of the federal funds so wired, such funds
shall cease to be the responsibility of the Company and shall become the
responsibility of the Trust for this purpose. "Business Day" shall mean any day
on which the NYSE is open for trading and on which the Trust calculates its net
asset value pursuant to the rules of the SEC.
1.4 The Trust will redeem for cash any full or fractional shares of any
Portfolio, when requested by the Company on behalf of an Account, at the net
asset value next computed after receipt by the Trust (or its agent) of the
request for redemption, as established in accordance with the provisions of the
then current prospectus of the Trust describing Portfolio redemption procedures.
The Trust shall make payment for such shares in the manner established from time
to time by the Trust. Redemption with respect to a Portfolio will normally be
paid to the Company for an Account in federal funds transmitted by wire to the
Company before the close of business on the next Business Day after the receipt
of the request for redemption. Such payment may be delayed if, for example, the
Portfolio's cash position so requires or if extraordinary market conditions
exist, but in no event shall payment be delayed for a greater period than is
permitted by the 1940 Act.
1.5 Payments for the purchase of shares of the Trust's Portfolios by the
Company under Section 1.3 and payments for the redemption of shares of the
Trust's Portfolios under Section 1.4 may be netted against one another on any
Business Day for the purpose of determining the amount of any wire transfer on
that Business Day.
1.6 Issuance and transfer of the Trust's Portfolio shares will be by book
entry only. Stock certificates will not be issued to the Company or the Account.
Portfolio Shares purchased from the Trust will be recorded in the appropriate
title for each Account or the appropriate subaccount of each Account.
1.7 The Trust shall furnish, on or before the ex-dividend date, notice to
the Company of any income dividends or capital gain distributions payable on the
shares of any Portfolio of the Trust. The Company hereby elects to receive all
such income dividends and capital gain
3
<PAGE>
distributions as are payable on a Portfolio's shares in additional shares of the
Portfolio. The Trust shall notify the Company of the number of shares so issued
as payment of such dividends and distributions.
1.8 The Trust shall calculate the net asset value of each Portfolio on
each Business Day, as defined in Section 1.3. The Trust shall make the net asset
value per share for each Portfolio available to the Company or its designated
agent on a daily basis as soon as reasonably practical after the net asset value
per share is calculated (normally by 6:30 p.m. Eastern time) and shall use
reasonable efforts to make such net asset value per share available by 7:00 p.m.
Eastern time each Business Day.
1.9 The Trust agrees that its Portfolio shares will be sold only to
Participating Insurance Companies and their separate accounts and to certain
qualified pension and retirement plans to the extent permitted by the Shared
Funding Exemptive Order. No shares of any Portfolio will be sold directly to the
general public. The Company agrees that it will use Trust shares only for the
purposes of funding the Contracts through the Accounts listed in Schedule A, as
amended from time to time.
1.10 The Company agrees that all net amounts available under the Contracts
shall be invested in the Trust, in such other Funds advised by an Adviser or its
affiliates as may be mutually agreed to in writing by the parties hereto, or in
the Company's general account, provided that such amounts may also be invested
in an investment company other than the Trust if: (a) such other investment
company, or series thereof, has investment objectives or policies that are
substantially different from the investment objectives and policies of the
Portfolios; or (b) the Company gives the Trust and the Underwriter 45 days
written notice of its intention to make such other investment company available
as a funding vehicle for the Contracts; or (c) such other investment company is
available as a funding vehicle for the Contracts at the date of this Agreement
and the Company so informs the Trust and the Underwriter prior to their signing
this Agreement (a list of such investment companies appearing on Schedule A to
this Agreement); or (d) the Trust or Underwriter consents to the use of such
other investment company.
1.11 The Trust agrees that all Participating Insurance Companies shall have
the obligations and responsibilities regarding pass-through voting and conflicts
of interest corresponding to those contained in Section 2.10 and Article IV of
this Agreement.
ARTICLE II.
Obligations of the Parties; Fees and Expenses
---------------------------------------------
2.1 The Trust shall prepare and be responsible for filing with the SEC and
any state regulators requiring such filing all shareholder reports, notices,
proxy materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of the Trust.
The Trust shall bear the costs of registration and
4
<PAGE>
qualification of its shares of the Portfolios, preparation and filing of the
documents listed in this Section 2.1 and all taxes to which an issuer is subject
on the issuance and transfer of its shares.
2.2 At the option of the Company, the Trust or the Underwriter shall
either (a) provide the Company with as many copies of portions of the Trust's
current prospectus, annual report, semi-annual report and other shareholder
communications, including any amendments or supplements to any of the foregoing,
pertaining specifically to the Portfolios as the Company shall reasonably
request; or (b) provide the Company with a camera ready copy of such documents
in a form suitable for printing and from which information relating to series of
the Trust other than the Portfolios has been deleted to the extent practicable.
The Trust or the Underwriter shall provide the Company with a copy of its
current statement of additional information, including any amendments or
supplements, in a form suitable for duplication by the Company. Expenses of
furnishing such documents for marketing purposes shall be borne by the Company
and expenses of furnishing such documents for current contract owners invested
in the Trust shall be borne by the Trust or the Underwriter.
2.3 The Trust (at its expense) shall provide the Company with copies of
any Trust-sponsored proxy materials in such quantity as the Company shall
reasonably require for distribution to Contract owners. The Company shall bear
the costs of distributing proxy materials (or similar materials such as voting
solicitation instructions), prospectuses and statements of additional
information to Contract owners. The Company assumes sole responsibility for
ensuring that such materials are delivered to Contract owners in accordance with
applicable federal and state securities laws.
2.4 If and to the extent required by law, the Company shall: (i) solicit
voting instructions from Contract owners; (ii) vote the Trust shares in
accordance with the instructions received from Contract owners; and (iii) vote
Trust shares for which no instructions have been received in the same proportion
as Trust shares of such Portfolio for which instructions have been received; so
long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners. The Company
reserves the right to vote Trust shares held in any segregated asset account in
its own right, to the extent permitted by law.
2.5 Except as provided in section 2.6, the Company shall not use any
designation comprised in whole or part of the names or marks "Franklin" or
"Templeton" or any other Trademark relating to the Trust or Underwriter without
prior written consent, and upon termination of this Agreement for any reason,
the Company shall cease all use of any such name or mark as soon as reasonably
practicable.
2.6 The Company shall furnish, or cause to be furnished to the Trust or
its designee, at least one complete copy of each registration statement,
prospectus, statement of additional information, retirement plan disclosure
information or other disclosure documents or similar information, as applicable
(collectively "disclosure documents"), as well as any report, solicitation for
voting instructions, sales literature and other promotional materials, and all
5
<PAGE>
amendments to any of the above that relate to the Contracts or the Accounts
prior to its first use. The Company shall furnish, or shall cause to be
furnished, to the Trust or its designee each piece of sales literature or other
promotional material in which the Trust or an Adviser is named, at least 15
Business Days prior to its use. No such material shall be used if the Trust or
its designee reasonably objects to such use within five Business Days after
receipt of such material. For purposes of this paragraph, "sales literature or
other promotional material" includes, but is not limited to, portions of the
following that use any Trademark related to the Trust or Underwriter or refer to
the Trust or affiliates of the Trust: advertisements (such as material published
or designed for use in a newspaper, magazine or other periodical, radio,
television, telephone or tape recording, videotape display, signs or billboards,
motion pictures or electronic communication or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts or
any other advertisement, sales literature or published article or electronic
communication), educational or training materials or other communications
distributed or made generally available to some or all agents or employees, and
disclosure documents, shareholder reports and proxy materials.
2.7 The Company and its agents shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust,
the Underwriter or an Adviser in connection with the sale of the Contracts other
than information or representations contained in and accurately derived from the
registration statement or prospectus for the Trust shares (as such registration
statement and prospectus may be amended or supplemented from time to time),
annual and semi-annual reports of the Trust, Trust-sponsored proxy statements,
or in sales literature or other promotional material approved by the Trust or
its designee, except as required by legal process or regulatory authorities or
with the written permission of the Trust or its designee.
2.8 The Trust shall use reasonable efforts to provide the Company, on a
timely basis, with such information about the Trust, the Portfolios and each
Adviser, in such form as the Company may reasonably require, as the Company
shall reasonably request in connection with the preparation of disclosure
documents and annual and semi-annual reports pertaining to the Contracts.
2.9 The Trust shall not give any information or make any representations
or statements on behalf of the Company or concerning the Company, the Accounts
or the Contracts other than information or representations contained in and
accurately derived from disclosure documents for the Contracts (as such
disclosure documents may be amended or supplemented from time to time), or in
materials approved by the Company for distribution including sales literature or
other promotional materials, except as required by legal process or regulatory
authorities or with the written permission of the Company.
2.10 So long as, and to the extent that, the SEC interprets the 1940 Act to
require pass-through voting privileges for Contract owners, the Company will
provide pass-through voting privileges to Contract owners whose Contract values
are invested, through the registered
6
<PAGE>
Accounts, in shares of one or more Portfolios of the Trust. The Trust shall
require all Participating Insurance Companies to calculate voting privileges in
the same manner and the Company shall be responsible for assuring that the
Accounts calculate voting privileges in the manner established by the Trust.
With respect to each registered Account, the Company will vote shares of each
Portfolio of the Trust held by a registered Account and for which no timely
voting instructions from Contract owners are received in the same proportion as
those shares held by that registered Account for which voting instructions are
received. The Company and its agents will in no way recommend or oppose or
interfere with the solicitation of proxies for Portfolio shares held to fund the
Contracts without the prior written consent of the Trust, which consent may be
withheld in the Trust's sole discretion.
2.11 The Trust and Underwriter shall pay no fee or other compensation to
the Company under this Agreement except as provided on Schedule A, if attached.
Nevertheless, the Underwriter or an affiliate may make payments (other than
pursuant to a Rule 12b-1 Plan) to the Company or its affiliates or to the
Contracts' underwriter in amounts agreed to by the Underwriter or an affiliate
in writing and such payments may be made out of fees otherwise payable to the
Underwriter or its affiliates, profits of the Underwriter or its affiliates, or
other resources available to the Underwriter or its affiliates.
ARTICLE III.
Representations and Warranties
------------------------------
3.1 The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of its state of incorporation
and that it has legally and validly established each Account as a segregated
asset account under such law as of the date set forth in Schedule A.
3.2 The Company represents and warrants that, with respect to each
Account, (1) the Company has registered or, prior to any issuance or sale of the
Contracts, will register the Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as a segregated asset account for
the Contracts, or (2) if the Account is exempt from registration as an
investment company under Section 3(c) of the 1940 Act, the Company will make
every effort to maintain such exemption and will notify the Trust and the
Adviser immediately upon having a reasonable basis for believing that such
exemption no longer applies or might not apply in the future.
3.3 The Company represents and warrants that, with respect to each
Contract, (1) the Contract will be registered under the 1933 Act, or (2) if the
Contract is exempt from registration under Section 3(a)(2) of the 1933 Act or
under Section 4(2) and Regulation D of the 1933 Act, the Company will make every
effort to maintain such exemption and will notify the Trust and the Adviser
immediately upon having a reasonable basis for believing that such exemption no
longer applies or might not apply in the future. The Company further represents
and warrants that the Contracts will be sold by broker-dealers, or their
registered representatives, who are registered with the SEC under the 1934 Act
and who are members in
7
<PAGE>
good standing of the NASD; the Contracts will be issued and sold in compliance
in all material respects with all applicable federal and state laws; and the
sale of the Contracts shall comply in all material respects with state insurance
suitability requirements.
For any unregistered Accounts which are exempt from registration under the
`40 Act in reliance upon Sections 3(c)(1) or 3(c)(7) thereof, the Company
represents and warrants that:
(a) each Account and sub-account thereof has a principal underwriter which
is registered as a broker-dealer under the Securities Exchange Act of
1934, as amended;
(b) Trust shares are and will continue to be the only investment
securities held by the corresponding Account sub-accounts; and
(c) with regard to each Portfolio, the Company, on behalf of the
corresponding sub-account, will:
(1) seek instructions from all Contract owners with regard to the
voting of all proxies with respect to Trust shares and vote such
proxies only in accordance with such instructions or vote such
shares held by it in the same proportion as the vote of all other
holders of such shares; and
(2) refrain from substituting shares of another security for such
shares unless the SEC has approved such substitution in the
manner provided in Section 26 of the `40 Act.
3.4 The Trust represents and warrants that it is duly organized and
validly existing under the laws of the State of Massachusetts and that it does
and will comply in all material respects with the 1940 Act and the rules and
regulations thereunder.
3.5 The Trust represents and warrants that the Portfolio shares offered
and sold pursuant to this Agreement will be registered under the 1933 Act and
the Trust shall be registered under the 1940 Act prior to and at the time of any
issuance or sale of such shares. The Trust shall amend its registration
statement under the 1933 Act and the 1940 Act from time to time as required in
order to effect the continuous offering of its shares. The Trust shall register
and qualify its shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Trust or the
Underwriter.
3.6 The Trust represents and warrants that the investments of each
Portfolio will comply with the diversification requirements for variable
annuity, endowment or life insurance contracts set forth in Section 817(h) of
the Internal Revenue Code of 1986, as amended ("Code"), and the rules and
regulations thereunder, including without limitation Treasury Regulation
1.817-5, and will notify the Company immediately upon having a reasonable basis
8
<PAGE>
for believing any Portfolio has ceased to comply or might not so comply and will
in that event immediately take all reasonable steps to adequately diversify the
Portfolio to achieve compliance within the grace period afforded by Regulation
1.817-5.
3.7 The Trust represents and warrants that it is currently qualified as a
"regulated investment company" under Subchapter M of the Code, that it will make
every effort to maintain such qualification and will notify the Company
immediately upon having a reasonable basis for believing it has ceased to so
qualify or might not so qualify in the future.
3.8 The Trust represents and warrants that should it ever desire to make
any payments to finance distribution expenses pursuant to Rule 12b-1 under the
1940 Act, the Trustees, including a majority who are not "interested persons" of
the Trust under the 1940 Act ("disinterested Trustees"), will formulate and
approve any plan under Rule 12b-1 to finance distribution expenses.
3.9 The Trust represents and warrants that it, its directors, officers,
employees and others dealing with the money or securities, or both, of a
Portfolio shall at all times be covered by a blanket fidelity bond or similar
coverage for the benefit of the Trust in an amount not less that the minimum
coverage required by Rule 17g-1 or other regulations under the 1940 Act. Such
bond shall include coverage for larceny and embezzlement and be issued by a
reputable bonding company.
3.10 The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals or entities
dealing with the money and/or securities of the Trust are and shall be at all
times covered by a blanket fidelity bond or similar coverage for the benefit of
the Trust, in an amount not less than $5 million. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company. The Company agrees to make all reasonable efforts to see that
this bond or another bond containing these provisions is always in effect, and
agrees to notify the Trust and the Underwriter in the event that such coverage
no longer applies.
3.11 The Underwriter represents that each Adviser is duly organized and
validly existing under applicable corporate law and that it is registered and
will during the term of this Agreement remain registered as an investment
adviser under the Advisers Act.
3.12 The Trust currently intends for one or more classes of shares (each, a
"Class") to make payments to finance its distribution expenses, including
service fees, pursuant to a Plan adopted under Rule 12b-1 under the 1940 Act
("Rule 12b-1"), although it may determine to discontinue such practice in the
future. To the extent that any Class of the Trust finances its distribution
expenses pursuant to a Plan adopted under Rule 12b-1, the Trust undertakes to
comply with any then current SEC and SEC staff interpretations concerning Rule
12b-1 or any successor provisions.
ARTICLE IV.
9
<PAGE>
Potential Conflicts
-------------------
4.1 The parties acknowledge that a Portfolio's shares may be made
available for investment to other Participating Insurance Companies. In such
event, the Trustees will monitor the Trust for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
Participating Insurance Companies. An irreconcilable material conflict may arise
for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
owners. The Trust shall promptly inform the Company of any determination by the
Trustees that an irreconcilable material conflict exists and of the implications
thereof.
4.2 The Company agrees to promptly report any potential or existing
conflicts of which it is aware to the Trustees. The Company will assist the
Trustees in carrying out their responsibilities under the Shared Funding
Exemptive Order by providing the Trustees with all information reasonably
necessary for the Trustees to consider any issues raised including, but not
limited to, information as to a decision by the Company to disregard Contract
owner voting instructions. All communications from the Company to the Trustees
may be made in care of the Trust.
4.3 If it is determined by a majority of the Trustees, or a majority of
the disinterested Trustees, that a material irreconcilable conflict exists that
affects the interests of Contract owners, the Company shall, in cooperation with
other Participating Insurance Companies whose contract owners are also affected,
at its own expense and to the extent reasonably practicable (as determined by
the Trustees) take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, which steps could include: (a) withdrawing the
assets allocable to some or all of the Accounts from the Trust or any Portfolio
and reinvesting such assets in a different investment medium, including (but not
limited to) another Portfolio of the Trust, or submitting the question of
whether or not such withdrawal should be implemented to a vote of all affected
Contract owners and, as appropriate, withdrawing the assets of any appropriate
group (i.e. , annuity contract owners, life insurance policy owners, or variable
contract owners of one or more Participating Insurance Companies) that votes in
favor of such withdrawal, or offering to the affected Contract owners the option
of making such a change; and (b) establishing a new registered management
investment company or managed separate account.
4.4 If a material irreconcilable conflict arises because of a decision by
the Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Trust's election, to withdraw the affected Account's
investment in the Trust and terminate this Agreement with
10
<PAGE>
respect to such Account; provided, however, that such withdrawal and termination
shall be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested Trustees. Any such
withdrawal and termination must take place within six (6) months after the Trust
gives written notice that this provision is being implemented. Until the end of
such six (6) month period, the Trust shall continue to accept and implement
orders by the Company for the purchase and redemption of shares of the Trust.
4.5 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with a
majority of other state regulators, then the Company will withdraw the affected
Account's investment in the Trust and terminate this Agreement with respect to
such Account within six (6) months after the Trustees inform the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested Trustees. Until the
end of such six (6) month period, the Trust shall continue to accept and
implement orders by the Company for the purchase and redemption of shares of the
Trust.
4.6 For purposes of Sections 4.3 through 4.6 of this Agreement, a majority
of the disinterested Trustees shall determine whether any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
the Trust be required to establish a new funding medium for the Contracts. In
the event that the Trustees determine that any proposed action does not
adequately remedy any irreconcilable material conflict, then the Company will
withdraw the Account's investment in the Trust and terminate this Agreement
within six (6) months after the Trustees inform the Company in writing of the
foregoing determination; provided, however, that such withdrawal and termination
shall be limited to the extent required by any such material irreconcilable
conflict as determined by a majority of the disinterested Trustees.
4.7 The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonably request so that the
Trustees may fully carry out the duties imposed upon them by the Shared Funding
Exemptive Order, and said reports, materials and data shall be submitted more
frequently if reasonably deemed appropriate by the Trustees.
4.8 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then the Trust and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable.
11
<PAGE>
ARTICLE V.
Indemnification
---------------
5.1 Indemnification By the Company
------------------------------
(a) The Company agrees to indemnify and hold harmless the
Underwriter, the Trust and each of its Trustees, officers, employees
and agents and each person, if any, who controls the Trust within the
meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" and individually the "Indemnified Party" for purposes of this
Article V) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Company, which consent shall not be unreasonably withheld) or expenses
(including the reasonable costs of investigating or defending any
alleged loss, claim, damage, liability or expense and reasonable legal
counsel fees incurred in connection therewith) (collectively,
"Losses"), to which the Indemnified Parties may become subject under
any statute or regulation, or at common law or otherwise, insofar as
such Losses are related to the sale or acquisition of Trust Shares or
the Contracts and
(i) arise out of or are based upon any untrue statements
or alleged untrue statements of any material fact contained in a
disclosure document for the Contracts or in the Contracts
themselves or in sales literature generated or approved by the
Company on behalf of the Contracts or Accounts (or any amendment
or supplement to any of the foregoing) (collectively, "Company
Documents" for the purposes of this Article V), or arise out of
or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided
that this indemnity shall not apply as to any Indemnified Party
if such statement or omission or such alleged statement or
omission was made in reliance upon and was accurately derived
from written information furnished to the Company by or on behalf
of the Trust for use in Company Documents or otherwise for use in
connection with the sale of the Contracts or Trust shares; or
(ii) arise out of or result from statements or
representations (other than statements or representations
contained in and accurately derived from Trust Documents as
defined in Section 5.2 (a)(i)) or wrongful conduct of the Company
or persons under its control, with respect to the sale or
acquisition of the Contracts or Trust shares; or
(iii) arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained in Trust
Documents as defined in Section 5.2(a)(i) or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make
12
<PAGE>
the statements therein not misleading if such statement or
omission was made in reliance upon and accurately derived from
written information furnished to the Trust by or on behalf of the
Company; or
(iv) arise out of or result from any failure by the Company
to provide the services or furnish the materials required under
the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company.
(b) The Company shall not be liable under this indemnification
provision with respect to any Losses to which an Indemnified Party
would otherwise be subject by reason of such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this
Agreement or to the Trust or Underwriter, whichever is applicable.
The Company shall also not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified the Company in
writing within a reasonable time after the summons or other first
legal process giving information of the nature of the claim shall have
been served upon such Indemnified Party (or after such Indemnified
Party shall have received notice of such service on any designated
agent), but failure to notify the Company of any such claim shall not
relieve the Company from any liability which it may have to the
Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action
is brought against the Indemnified Parties, the Company shall be
entitled to participate, at its own expense, in the defense of such
action. Unless the Indeminfied Party releases the Company from any
further obligations under this Section 5.1, the Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Company to such
party of the Company's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional
counsel retained by it, and the Company will not be liable to such
party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation.
(c) The Indemnified Parties will promptly notify the Company of
the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Trust shares or the
Contracts or the operation of the Trust.
13
<PAGE>
5.2 Indemnification By The Underwriter
----------------------------------
(a) The Underwriter agrees to indemnify and hold harmless the
Company, the underwriter of the Contracts and each of its directors and
officers and each person, if any, who controls the Company within the
meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" and individually an "Indemnified Party" for purposes of this
Section 5.2) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Underwriter, which consent shall not be unreasonably withheld) or expenses
(including the reasonable costs of investigating or defending any alleged
loss, claim, damage, liability or expense and reasonable legal counsel fees
incurred in connection therewith) (collectively, "Losses") to which the
Indemnified Parties may become subject under any statute, at common law or
otherwise, insofar as such Losses are related to the sale or acquisition of
the Trust's Shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
Registration Statement, prospectus or sales literature of the Trust
(or any amendment or supplement to any of the foregoing)
(collectively, the "Trust Documents") or arise out of or are based
upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission of such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Underwriter
or Trust by or on behalf of the Company for use in the Registration
Statement or prospectus for the Trust or in sales literature (or any
amendment or supplement) or otherwise for use in connection with the
sale of the Contracts or Trust shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in
the disclosure documents or sales literature for the Contracts not
supplied by the Underwriter or persons under its control) or wrongful
conduct of the Trust, Adviser or Underwriter or persons under their
control, with respect to the sale or distribution of the Contracts or
Trust shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a disclosure document or
sales literature covering the Contracts, or any amendment thereof or
supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statement or statements therein not misleading, if such
statement or omission was made in reliance upon information furnished
to the Company by or on behalf of the Trust; or
14
<PAGE>
(iv) arise as a result of any failure by the Trust to provide
the services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in good faith
or otherwise, to comply with the qualification representation
specified in Section 3.7 of this Agreement and the diversification
requirements specified in Section 3.6 of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this
Agreement or arise out of or result from any other material breach of
this Agreement by the Underwriter; as limited by and in accordance
with the provisions of Sections 5.2(b) and 5.2(c) hereof.
(b) The Underwriter shall not be liable under this indemnification
provision with respect to any Losses to which an Indemnified Party would
otherwise be subject by reason of such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to
each Company or the Account, whichever is applicable.
(c) The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been
served upon such Indemnified Party (or after such Indemnified Party shall
have received notice of such service on any designated agent), but failure
to notify the Underwriter of any such claim shall not relieve the
Underwriter from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Underwriter will be entitled to participate, at
its own expense, in the defense thereof. Unless the Indemified Party
releases the Underwriter from any further obligations under this Section
5.2, the Underwriter also shall be entitled to assume the defense thereof,
with counsel satisfactory to the party named in the action. After notice
from the Underwriter to such party of the Underwriter's election to assume
the defense thereof, the Indemnified Party shall bear the expenses of any
additional counsel retained by it, and the Underwriter will not be liable
to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
(d) The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of the
Contracts or the operation of each Account.
5.3 Indemnification By The Trust
----------------------------
15
<PAGE>
(a) The Trust agrees to indemnify and hold harmless the Company, and
each of its directors and officers and each person, if any, who controls
the Company within the meaning of Section 15 of the 1933 Act (collectively,
the "Indemnified Parties" for purposes of this Section 5.3) against any and
all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Trust, which consent shall not
be unreasonably withheld) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any
statute, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or
settlements result from the gross negligence, bad faith or willful
misconduct of the Board or any member thereof, are related to the
operations of the Trust, and arise out of or result from any material
breach of any representation and/or warranty made by the Trust in this
Agreement or arise out of or result from any other material breach of this
Agreement by the Trust; as limited by and in accordance with the provisions
of Section 5.3(b) and 5.3(c) hereof. It is understood and expressly
stipulated that neither the holders of shares of the Trust nor any Trustee,
officer, agent or employee of the Trust shall be personally liable
hereunder, nor shall any resort be had to other private property for the
satisfaction of any claim or obligation hereunder, but the Trust only shall
be liable.
(b) The Trust shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against any Indemnified Party as such may
arise from such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or
by reason of such Indemnified Party's reckless disregard of obligations and
duties under this Agreement or to the Company, the Trust, the Underwriter
or each Account, whichever is applicable.
(c) The Trust shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified the Trust in writing
within a reasonable time after the summons or other first legal process
giving information of the nature of the claims shall have been served upon
such Indemnified Party (or after such Indemnified Party shall have received
notice of such service on any designated agent), but failure to notify the
Trust of any such claim shall not relieve the Trust from any liability
which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In
case any such action is brought against the Indemnified Parties, the Trust
will be entitled to participate, at its own expense, in the defense
thereof. Unless the Indemnified Party releases the Trust from any further
obligations under this Section 5.3, the Trust also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in
the action. After notice from the Trust to such party of the Trust's
election to assume the defense thereof, the Indemnified Party shall bear
the fees and expenses of any additional counsel retained by it, and the
Trust will not be liable to such party under this Agreement for any legal
or other expenses
16
<PAGE>
subsequently incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
(d) The Company and the Underwriter agree promptly to notify the
Trust of the commencement of any litigation or proceedings against it or
any of its respective officers or directors in connection with this
Agreement, the issuance or sale of the Contracts, with respect to the
operation of either the Account, or the sale or acquisition of share of the
Trust.
ARTICLE VI.
Termination
-----------
6.1 This Agreement may be terminated by any party in its entirety or with
respect to one, some or all Portfolios for any reason by sixty (60) days advance
written notice delivered to the other parties, and shall terminate immediately
in the event of its assignment, as that term is used in the 1940 Act.
6.2 This Agreement may be terminated immediately by either the Trust or
the Underwriter upon written notice to the Company if:
(a) the Company notifies the Trust or the Underwriter that the
exemption from registration under Section 3(c) of the 1940 Act no longer
applies, or might not apply in the future, to the unregistered Accounts, or
that the exemption from registration under Section 4(2) or Regulation D
promulgated under the 1933 Act no longer applies or might not apply in the
future, to interests under the unregistered Contracts; or
(b) either one or both of the Trust or the Underwriter respectively,
shall determine, in their sole judgment exercised in good faith, that the
Company has suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this Agreement or is the
subject of material adverse publicity; or
(c) the Company gives the Trust and the Underwriter the written
notice specified in Section 1.10 hereof and at the same time such notice
was given there was no notice of termination outstanding under any other
provision of this Agreement; provided, however, that any termination under
this Section 6.2(c) shall be effective forty-five (45) days after the
notice specified in Section 1.10 was given; or
6.3 If this Agreement is terminated for any reason, except under Article
IV (Potential Conflicts) above, the Trust shall, at the option of the Company,
continue to make available additional shares of any Portfolio and redeem shares
of any Portfolio pursuant to all of the terms and conditions of this Agreement
for all Contracts in effect
17
<PAGE>
on the effective date of termination of this Agreement. If this Agreement is
terminated pursuant to Article IV, the provisions of Article IV shall govern.
6.4 The provisions of Articles II (Representations and Warranties) and V
(Indemnification) shall survive the termination of this Agreement. All other
applicable provisions of this Agreement shall survive the termination of this
Agreement, as long as shares of the Trust are held on behalf of Contract owners
in accordance with Section 6.3, except that the Trust and the Underwriter shall
have no further obligation to sell Trust shares with respect to Contracts issued
after termination.
6.5 The Company shall not redeem Trust shares attributable to the
Contracts (as opposed to Trust shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract owner initiated or
approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Trust and the Underwriter the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Trust and the Underwriter) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, the Company
shall not prevent Contract owners from allocating payments to a Portfolio that
was otherwise available under the Contracts without first giving the Trust or
the Underwriter 90 days notice of its intention to do so.
ARTICLE VII.
Notices.
--------
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Trust:
Templeton Variable Products Series Fund
500 E. Broward Boulevard
Fort Lauderdale, FL 33394-3091
Attention: Barbara J. Green, Trust Secretary
With a copy to:
Franklin Resources, Inc.
777 Mariners Island Boulevard
San Mateo, CA 94404
18
<PAGE>
Attention: Karen L. Skidmore, Associate General Counsel
If to the Underwriter:
Franklin Templeton Distributors, Inc.
777 Mariners Island Boulevard
San Mateo, CA 94404
Attention: Deborah R. Gatzek, Senior Vice President and
Assistant Secretary
If to the Company:
[_] Insurance Company
Attention: [_]
ARTICLE VIII.
Miscellaneous
-------------
8.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
8.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
8.3 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
8.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Florida. It
shall also be subject to the provisions of the federal securities laws and the
rules and regulations thereunder and to any orders of the SEC on behalf of the
Trust granting exemptive relief therefrom and the conditions of such orders.
Copies of any such orders shall be promptly forwarded by the Trust to the
Company.
8.5 The parties to this Agreement acknowledge and agree that all
liabilities of the Trust arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the Trust and that no Trustee, officer, agent or holder of shares of
beneficial interest of the Trust shall be personally liable for any such
liabilities.
8.6 Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the NASD, and
state insurance regulators) and shall permit such authorities reasonable access
to its books and records in connection with
19
<PAGE>
any investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
8.7 Each party hereto shall treat as confidential the names and addresses
of the Contract owners and all information reasonably identified as confidential
in writing by any other party hereto, and, except as permitted by this Agreement
or as required by legal process or regulatory authorities, shall not disclose,
disseminate, or utilize such names and addresses and other confidential
information until such time as they may come into the public domain, without the
express written consent of the affected party. Without limiting the foregoing,
no party hereto shall disclose any information that such party has been advised
is proprietary, except such information that such party is required to disclose
by any appropriate governmental authority (including, without limitation, the
SEC, the NASD, and state securities and insurance regulators).
8.8 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
8.9 The parties to this Agreement acknowledge and agree that this
Agreement shall not be exclusive in any respect, except as provided in Section
1.10.
8.10 Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written approval of the other party.
8.11 No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Participation Agreement as of the date and year first
above written.
The Company:
[_] Insurance Company
---------------------
By its authorized officer
By:____________________________________
Name:
Title:
The Trust:
Templeton Variable Products Series Fund
---------------------------------------
By its authorized officer
By:____________________________________
Name: Karen L. Skidmore
Title: Assistant Vice President, Assistant Secretary
20
<PAGE>
The Underwriter:
Franklin Templeton Distributors, Inc.
-------------------------------------
By its authorized officer
By:____________________________________
Name: Deborah R. Gatzek
Title: Senior Vice President, Assistant Secretary
21
<PAGE>
SCHEDULE A
Contracts Issued by [_] Insurance Company
-----------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Contract 1 Contract 2 Contract 3
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Contract/Product
Name
- --------------------------------------------------------------------------------------------------------
Registered (Y/N)
- --------------------------------------------------------------------------------------------------------
SEC Registration
Number - 1933 Act
- --------------------------------------------------------------------------------------------------------
Representative
Form Numbers
- --------------------------------------------------------------------------------------------------------
Separate Account
Name/Date
Established
- --------------------------------------------------------------------------------------------------------
SEC Registration
Number - 1940 Act
- --------------------------------------------------------------------------------------------------------
Templeton Variable TVP - Templeton
Products Series Fund International Fund - Class
2 - Templeton Investment
Counsel, Inc.
("TVP") - Portfolios TVP - Templeton Asset
and Classes - Adviser Allocation Fund - Class 2
- Templeton Investment
Counsel, Inc.
- --------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
SCHEDULE B
Other Portfolios Available under the Contracts
----------------------------------------------
23
<PAGE>
SCHEDULE C
RULE 12B-1 PLANS
Compensation Schedule
---------------------
Each Portfolio named below shall pay the following amounts pursuant to the terms
and conditions referenced below under its Class 2 Rule 12b-1 Distribution Plan,
stated as a percentage per year of Class 2's average daily net assets
represented by shares of Class 2.
Portfolio Name Maximum Annual Payment Rate
- ------------------------------------------------------------------------
Templeton International Fund 0.25%
Templeton Asset Allocation Fund 0.25%
Agreement Provisions
--------------------
If the Company, on behalf of any Account, purchases Trust Portfolio shares
("Eligible Shares") which are subject to a Rule 12b-1 Plan adopted under the
1940 Act (the "Plan"), the Company may participate in the Plan.
To the extent the Company or its affiliates, agents or designees
(collectively "you") you provide administrative and other services which assist
in the promotion and distribution of Eligible Shares or Variable Contracts
offering Eligible Shares, the Underwriter, the Trust or their affiliates
(collectively, "we") may pay you a Rule 12b-1 fee. "Administrative and other
services" may include, but are not limited to, furnishing personal services to
owners of Contracts which may invest in Eligible Shares ("Contract Owners"),
answering routine inquiries regarding a Portfolio, coordinating responses to
Contract Owner inquiries regarding the Portfolios, maintaining such accounts or
providing such other enhanced services as a Trust Portfolio or Contract may
require, maintaining customer accounts and records, or providing other services
eligible for service fees as defined under NASD rules. Your acceptance of such
compensation is your acknowledgment that eligible services have been rendered.
All Rule 12b-1 fees, shall be based on the value of Eligible Shares owned by the
Company on behalf of its Accounts, and shall be calculated on the basis and at
the rates set forth in the Compensation Schedule stated above. The aggregate
annual fees paid pursuant to each Plan shall not exceed the amounts stated as
the "annual maximums" in the Portfolio's prospectus, unless an increase is
approved by shareholders as provided in the Plan. These maximums shall be a
specified percent of the value of a Portfolio's net assets attributable to
Eligible Shares owned by the Company on behalf of its Accounts (determined in
the same manner as the Portfolio uses to compute its net assets as set forth in
its effective Prospectus).
24
<PAGE>
You shall furnish us with such information as shall reasonably be requested
by the Trust's Boards of Trustees ("Trustees") with respect to the Rule 12b-1
fees paid to you pursuant to the Plans. We shall furnish to the Trustees, for
their review on a quarterly basis, a written report of the amounts expended
under the Plans and the purposes for which such expenditures were made.
The Plans and provisions of any agreement relating to such Plans must be
approved annually by a vote of the Trustees, including the Trustees who are not
interested persons of the Trust and who have no financial interest in the Plans
or any related agreement ("Disinterested Trustees"). Each Plan may be terminated
at any time by the vote of a majority of the Disinterested Trustees, or by a
vote of a majority of the outstanding shares as provided in the Plan, on sixty
(60) days' written notice, without payment of any penalty. The Plans may also be
terminated by any act that terminates the Underwriting Agreement between the
Underwriter and the Trust, and/or the management or administration agreement
between Franklin Advisers, Inc. or Templeton Investment Counsel, Inc. or their
affiliates and the Trust. Continuation of the Plans is also conditioned on
Disinterested Trustees being ultimately responsible for selecting and nominating
any new Disinterested Trustees. Under Rule 12b-1, the Trustees have a duty to
request and evaluate, and persons who are party to any agreement related to a
Plan have a duty to furnish, such information as may reasonably be necessary to
an informed determination of whether the Plan or any agreement should be
implemented or continued. Under Rule 12b-1, the Trust is permitted to implement
or continue Plans or the provisions of any agreement relating to such Plans from
year-to-year only if, based on certain legal considerations, the Trustees are
able to conclude that the Plans will benefit each affected Trust Portfolio and
class. Absent such yearly determination, the Plans must be terminated as set
forth above. In the event of the termination of the Plans for any reason, the
provisions of this Schedule A relating to the Plans will also terminate.
Any obligation assumed by the Trust pursuant to this Agreement shall be limited
in all cases to the assets of the Trust and no person shall seek satisfaction
thereof from shareholders of the Trust. You agree to waive payment of any
amounts payable to you by Underwriter under a Plan until such time as the
Underwriter has received such fee from the Fund.
The provisions of the Plans shall control over the provisions of the
Participation Agreement, including this Schedule A, in the event of any
inconsistency.
You agree to provide complete disclosure as required by all applicable statutes,
rules and regulations of all rule 12b-1 fees received from us in the prospectus
of the contracts.
25
<PAGE>
EXHIBIT 1.A.(10)
Application form
<PAGE>
UNITED INVESTORS LIFE
INSURANCE COMPANY
Administrative Office
P. O. Box 10287
Birmingham, AL 25202-0287
1-800-340-3787
Titanium Investor
Variable Universal Life
Application
Complete the following forms in all cases:
All Parts of Application
Agent's Report
Complete the following when Needed:
HIV Consent Form, if required by state
Replacement Form
1035 Exchange Form
Pre-Authorized Bank Draft Agreement
For Additional Insured, complete Additional Insured Information. If more than
one Additional insured, complete separate Application for each.
Directions
Y Give the Fair Credit / MIB Notice to the Applicant prior to completion of
the Application
Y Complete and sign the Agent's Report
Y Print Application using black ink
Y Get all required signatures
Y Have the Applicant initial any changes
Y Don't accept or send money on Applications totaling $1,000,000 or more, or
for any health condition specified in the Conditional Receipt
Y Don't use pencil or white-out
Y Complete and attach a signed copy of the Illustration
UI-205, Ed. 11-99
United Investors Life Insurance Company
Federal Fair Credit Reporting Act Notice
We may request a consumer report which contains information about your
character, reputation, and mode of living, except as may be related directly or
indirectly to your sexual orientation. The information is obtained through
interviews with your friends, neighbors, and associates. It is part of our
underwriting procedure. We will furnish information about the nature of the
report if you write to us and ask.
This notification must be given to the Proposed Insured before the application
<PAGE>
is completed.
UI-205, Ed. 11-99
<PAGE>
Medical Information Bureau Notice
Information about your insurability will be treated as confidential. United
Investors Life Insurance Company, or its reinsurers may, however, make a brief
report of this to the Medical Information Bureau, a non-profit membership
organization of life insurance companies, which operates an information exchange
on behalf of its members. If you apply to another Bureau member company for life
or health insurance coverage, or a claim for benefits is submitted to such a
company, the Bureau, upon request, will supply such company with the information
in its file.
Upon receipt of a request from you, the Bureau will arrange disclosure of any
information it may have in your file. If you question the accuracy of
information in the Bureau's file, you may contact the Bureau and seek a
correction in accordance with the procedures set forth in the Federal Fair
Credit Reporting Act. The address of the Bureau's information office is Post
Office Box 105, Essex Station, Boston, Massachusetts 02112, telephone number
(617) 426-3660.
United Investors Life Insurance Company, or its reinsurers, may also release
information in its file to other life insurance companies to whom you may apply
for life or health insurance, or to whom a claim for benefits may be submitted.
This notification must be given to the Proposed Insured before the Application
is completed.
UI-205, Ed. 11-99
Pre-Authorized Bank Draft Agreement
As a convenience to me, I hereby request and authorize United Investors Life
Insurance Company, Birmingham, Alabama to initiate premium payments from my
checking account either by electronic funds transfer or by pre-authorized bank
draft order provided there are sufficient collected funds in said account to pay
the same upon presentation. I agree that your rights in respect to each such
transfer or draft shall be the same as if it were a check drawn on you and
signed personally by me. This authority is to remain in effect until revoked by
me in writing; and until you actually receive such notice, I agree that you
shall be fully protected in honoring any such transfer or draft.
I further agree that if any such transfer or draft is dishonored, whether with
or without cause and whether intentionally or inadvertently, you shall be under
no liability whatsoever, even though such dishonor results in the forfeiture of
insurance.
Name of Policyholder(s) Policy Number(s) Bank Draft Premium
Depositor(s)
Financial Institution
Name of Depositor(s) listed on the account (Please print)
Name of Financial Institution
(Please Print or Type)
Signature of Depositor (as checks are signed)
Date
<PAGE>
Financial Institution Address
Signature of Joint Depositor (as checks are signed)
Date
City
State
Zip Code
Account Number to be debited
Please attach a sample "void" check
(Deposit slip cannot be used)
If monthly bank draft is selected, subsequent drafts will occur on the monthly
processing date (the same day in each month as the Policy Date) unless otherwise
specified below. You may select a Requested Draft date other than the monthly
processing date. If selected, the bank draft will be made on the Requested draft
Date which next follows the Policy Date. (For example: If the Policy date is 11-
1-99 and the Requested draft date is the 5th, the first bank draft will occur on
11-5-99.)
Requested Draft Date (1st thru 28th only)
UI-205, Ed. 11-99
Application for Titanium Investor
Variable Universal Life Insurance
A. Proposed Insured(s)
1. Name of Proposed Insured (First-Middle-Last)
2. Birthdate: (Mo/Day/Yr) 3. Birthplace(State)
4. Sex: F M 5. Marital Status
6. Social Security # 7. Driver's License #/State
8. Residence Address
City State Zip Years There
9. Other Residence addresses during past 2 years (Street, City, St, Zip)
10. Occupation/Duties
11. Employer's Name & Address
1a. Name of Additional Insured (First-Middle-Last)
2a. Birthdate: (Mo/Day/Yr) 3a. Birthplace(State)
<PAGE>
4a. Sex: F M 5a. Marital Status
6a. Social Security # 7a. Driver's License #/State
8a. Residence Address
City State Zip Years There
9a. Other Residence addresses during past 2 years (Street, City, St, Zip)
<PAGE>
10a. Occupation/Duties
11a. Employer's Name & Address
B. Beneficiaries: Use Full Name, Relationship and SS#
Proposed Insured:
Primary Beneficiary:
--------------------------
Relationship:
--------------------------
SS#/TaxID#:
-------------------------
Contingent Beneficiary:
-----------------------
Relationship: SS#/TaxID#:
-------------------- ----------------------
Additional Insured:
Primary Beneficiary:
--------------------------
Relationship: SS#/TaxID#:
------------ ------------------------
Contingent Beneficiary:
-----------------------
Relationship: SS#/TaxID#
------------ ------------------------
C. Owner - Complete if Owner is someone other than the Insured
Name of Owner if other than Insured:
---------------------------------------
Relationship to Insured: Social Security#/Tax
-----------------
ID#:
------------------
Birthdate: (Mo/Day/Yr)
---------
Address: City:
------------------------------ --------------------
State: Zip:
------ -----------
Name of Contingent Owner:
---------------------------------------
Relationship to Insured: Social Security#/Tax
-----------------
ID#:
------------------
Birthdate: (Mo/Day/Yr)
---------
Address: City:
------------------------------ --------------------
State: Zip:
------ -----------
D. Plan Information and Additional Benefits
1. Base Face Amount:$
------------
Death Benefit Option: [_] A (Level Death Benefit) or [_] B (Face
Amount plus Policy Value)
2. Additional Benefits:
[_] Accidental Death Benefit Rider $
-----------------
[_] Additional Insured Term Rider $ (Complete
-----------------
Additional Insured Section
for each Additional Insured.)
[_] Adjustable Term Insurance Rider $ (Maximum
----------------
9 x Base Face
Amount/Minimum $50,000)
[_] Change of Person Insured Rider (if selected, provides future option
to change primary Insured in business
situations.)
[_] Children's Insurance Rider (CIR) Units (Maximum 10 Units).
------
(The following question must be answered if CIR is
requested.)
Has any child proposed for the Children's Insurance Rider
had or been treated for a disorder or disease of the heart
<PAGE>
or brain, or diabetes, cancer or AIDS? [_] Yes [_] No
(If "Yes," CIR is not available.)
[_] Death Benefit Guarantee Rider:
[_] Later of 10 Years or Age 65 or [_] Lifetime
[_] Option to Purchase Additional Insurance Rider
[_] Disability Waiver of Monthly Deductions Rider or
[_] Disability Waiver of Specified Premium Rider:
$
----------------
[_] Other: (Specify Plan/Amount)
------------------------------------
Page 1
UI-205, Ed. 11-99
E. Premium Payments and Notices
1. Amount Paid with this Application:$
-----------------
2. Planned Periodic Premium: (Write "NONE," if no future
--------------------- billing is desired.)
3. Premium Payment Method and Frequency
(Check one box only)
Method Annual Semi-Annual Quarterly Monthly
------ ------ ----------- --------- -------
Direct Bill [_] [_] [_] N/A
Bank Draft [_] [_] [_] [_]
4. Send all Premium Notices and Reports to: [_] Insured's Residence
[_] Owner's Address [_] Other Address:
------------------------------
5. Premium Payment Allocation:(Whole percentages only. The total
allocated to the Fixed Account and/or the Variable Subaccounts must
equal 100%):
VARIABLE ACCOUNT SUBACCOUNTS:
AIM Variable Insurance Funds, Inc.
AIM V.I. Capital Appreciation Fund %
-------
AIM V.I. Growth Fund %
-------
AIM V.I. Growth and Income Fund %
-------
AIM V.I. International Equity Fund %
-------
AIM V.I. Value Fund %
-------
The Alger American Fund %
-------
Alger American Growth Portfolio %
-------
Alger American Income & Growth Portfolio %
-------
Alger American Leveraged AllCap Portfolio %
-------
Alger American MidCap Growth Portfolio %
-------
Alger American Small Capitalization Portfolio %
-------
<PAGE>
BT Insurance Funds Trust %
-------
BT Insurance Funds Trust EAFE(R) Equity Index Fund %
-------
BT Insurance Funds Trust Small Cap Index Fund %
-------
Dreyfus Funds %
-------
Dreyfus VIF - Capital Appreciation Portfolio %
-------
Dreyfus VIF - Money Market Portfolio %
-------
Dreyfus VIF - Quality Bond Portfolio %
-------
The Dreyfus Socially Responsible Growth Fund, Inc. %
-------
Evergreen Funds %
-------
Evergreen VA Equity Index Fund %
-------
Evergreen VA Foundation Fund %
-------
Evergreen VA Global Leaders Fund %
-------
Evergreen VA Small Cap Value Fund %
-------
INVESCO Variable Investment Funds, Inc. %
-------
INVESCO VIF - Equity Income Fund %
-------
INVESCO VIF - Technology Fund %
-------
INVESCO VIF - Utilities Fund %
-------
MFS(R) Variable Insurance Trust %
-------
MFS(R) Emerging Growth Series %
-------
MFS(R) Growth with Income Series %
-------
MFS(R) Research Series %
-------
MFS(R) Total Return Series %
-------
Strong Variable Insurance Funds, Inc. %
-------
Strong Discovery Fund II %
-------
Strong Mid Cap Growth Fund II %
-------
Strong Opportunity Fund II %
-------
Templeton Variable Products Series Fund %
-------
Templeton Asset Allocation Fund %
-------
Templeton International Fund
-------
FIXED ACCOUNT
-------
TOTAL 100%
-------
6. Suitability:
<TABLE>
<S> <C> <C> <C>
a. Did you receive a copy of the prospectus for
the variable life policy and the Subaccounts selected? Yes No (Owners
Initials)
b. Do you understand that the Policy Value and the amount and duration of
the Death Benefit may increase or decrease based on the Subaccounts
selected and that this policy may terminate without value depending on the
investment performance of such Subaccounts? Yes No (Owners
Initials)
</TABLE>
<PAGE>
c. Do you believe that the insurance selected is
suitable for your financial objectives? Yes No (Owner's Initials)
Page 2
UI-205, Ed. 11-99
F. Special Programs
1. [_] Dollar Cost Averaging: Automatic transfer of a pre-selected amount from
the Fixed Account or the Money Market Subaccount to any of the other
Subaccounts.
Select Transfer Frequency: [_]Monthly [_]Quarterly [_]Semi-Annual [_]Annual
Enter day of the month transfers are to be made: (1st - 28th). If the day
------
selected does not fall on a Valuation Date, transfers will be made on the next
following Valuation Date. Transfers will be made at the unit values determined
on the date of each transfer.
Select Transfer Method: (select one)
[_] Dollar Amount: (Minimum Total Transfer Amount $100)
[_] Fixed Account $ + [_] Money Market Subaccount $ = Total
----- ------
Transfer Amount $
------
[_] Percentage Transfer: % (Whole percentages only) Note: If both
---------
accounts are selected, the percentage you specify will be transferred from each
account.
[_] Fixed Account and/or [_] Money Market Subaccount
[_] Reduce Account to Zero over Specified Period:
Beginning Date: Ending Date:
----------- ------------
[_] Fixed Account and/or [_] Money Market Subaccount
<PAGE>
Transfer Amounts To: (If Dollar Amount is selected above, please enter dollar
amounts below with a $25 minimum for each Subaccount selected. If Percentage
Transfer or Reduce Account to Zero over Specified Period is selected, please
enter percentage amounts below. Percentage amounts must be entered in whole
percentages only and must total 100%.)
AIM V.I. Capital Appreciation Fund
AIM V.I. Growth Fund
AIM V.I. Growth and Income Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
Alger American Growth Portfolio
Alger American Income & Growth Portfolio
Alger American Leveraged AllCap Portfolio
Alger American MidCap Growth Portfolio
Alger American Small Capitalization Portfolio
BT Insurance Funds Trust EAFE(R) Equity Index Fund
BT Insurance Funds Trust Small Cap Index Fund
Dreyfus VIF - Capital Appreciation Portfolio
Dreyfus VIF - Money Market Portfolio
Dreyfus VIF - Quality Bond Portfolio
The Dreyfus Socially Responsible Growth Fund, Inc.
Evergreen VA Equity Index Fund
Evergreen VA Foundation Fund
Evergreen VA Global Leaders Fund
Evergreen VA Small Cap Value Fund
INVESCO VIF - Equity Income Fund
INVESCO VIF - Technology Fund
INVESCO VIF - Utilities Fund
MFS(R) Emerging Growth Series
MFS(R) Growth with Income Series
MFS(R) Research Series
MFS(R) Total Return Series
Strong Discovery Fund II
Strong Mid Cap Growth Fund II
Strong Opportunity Fund II
Templeton Asset Allocation Fund
Templeton International Fund
<PAGE>
2. [_] Automatic Asset Rebalancing - Automatic rebalancing of the investment
options in your policy according to your current premium allocation
instructions. If you have selected the Fixed Account and/or Money Market
Subaccount for Dollar Cost Averaging above, you may not include that investment
option in your Automatic Asset Rebalancing program.
Select Rebalancing Frequency: [_] Quarterly [_] Semi-Annual [_] Annual
Select Day of Month for Rebalancing: (1st - 28th)
----------
3. [_] Telephone Authorization: (If selected,Owner must initial agreement
below).
I agree to hold United Investors Life harmless from all claims when
action is taken pursuant to a telephone request for transfers,
reallocations or changes in premium allocations based on the
Owner's correct name and policy number. (Owner's initials)
--------
Page 3
UI-205, Ed. 11/99
G. Other Insurance/Replacement
1. Life Insurance and/or annuities in force on the lives of all persons
proposed for insurance (If none, insert 'NONE.')
Check one Insured/Additional Ins./Company and Policy No./Life Amount/
ADB Amount/Year
Issued
1. $
2. $
3. $
4. $
2. Is policy applied for intended to replace or change existing insurance
or annuities in force? (If 'Yes,' identify by circling number
preceding Company Name.).......................... [_] Yes [_] No
If 'Yes,' is this a 1035 Exchange?................ [_] Yes [_] No
3. Do you have any other application for
life insurance pending?........................... [_] Yes [_] No
Insured Additional
Insured
H. Underwriting Information
1. Has any person proposed for insurance:
(a) Used tobacco in any form in the past year?
(If 'Yes,' describe type and amount.) [_] Yes [_] No
(b) Ever used tobacco? (If 'yes,' give date of
last use, frequency and amount used.) [_] Yes [_] No
<PAGE>
(c) Flown as a pilot, student pilot, or
crew member? (If 'Yes,' complete Aviation
Questionnaire) [_] Yes [_] No
(d) Participated in Auto Racing, Motorcycle
Racing, Parachuting, Ballooning, Hang
Gliding, Skin or Scuba Diving?
(If 'Yes,' provide complete details on
Avocation Questionnaire) [_] Yes [_] No
(e) Had driver's license suspended or revoked
in the past 5 years, or had more than 2
moving violations in the past 3 years? [_] Yes [_] No
(If 'Yes,' explain.)
(f) Been convicted of or awaiting trial for
a felony? (If 'Yes,' give details
including parole/probation status.) [_] Yes [_] No
(g) Been arrested, treated, or counseled for
excessive use of alcohol or for drugs?
(If 'Yes,' give details.) [_] Yes [_] No
(h) Had any new insurance or reinstatement
refused, postponed, limited, withdrawn,
cancelled, or offered or quoted on a
substandard or rated basis? (If
'Yes,' explain.) [_] Yes [_] No
2. Does any person proposed for insurance:
(a) Participate in a physical fitness program?
(If 'Yes,' describe.) [_] Yes [_] No
(b) Drink alcoholic beverages? (If 'Yes,'
report frequency, amount, type, and
circumstances.) [_] Yes [_] No
(c) Intend to travel or reside outside the
United States or Canada within the next
year? (If 'Yes,' give details.) [_] Yes [_] No
3. IMPORTANT - Details of 'Yes' answers to Sections G & H.
Check One
---------
Item No. Insured Additional Ins. Details
- -------- ------- --------------- -------
Page 4
UI-205, Ed. 11-99
I. Medical Questionnaire
<PAGE>
1. Insured Height ft. in. Weight lbs.
------- ------ --------
1a. Additional Insured Height ft. in. Weight lbs.
------- -------- --------
Name and Address of Personal Physician
-----------------------------------
Name and Address of Personal Physician
-----------------------------------
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
__________________________________________________________Date and reason
last consulted___________________________________________________________
Date and reason last consulted___________________________________________
_________________________________________________________________________
_________________________________________________________________________
2. In the past 10 years, have you had or been treated for:
Insured Additional Ins.
------- ---------------
a. disorder of eyes, ears, nose or
throat? [_] Yes [_] No [_] Yes [_] No
b. dizziness, fainting, convulsions,
head injury, headaches, paralysis
or stroke, tremor, muscle weakness,
depression, other mental or nervous
disorder? [_] Yes [_] No [_] Yes [_] No
c. shortness of breath, persistent
hoarseness or cough, blood spitting,
bronchitis, asthma, pleurisy,
emphysema, tuberculosis or chronic
respiratory disorder? [_] Yes [_] No [_] Yes [_] No
d. chest pain, palpitations, high blood
pressure, rheumatic fever, heart
murmur, varicose veins, phlebitis,
or other heart or blood vessel
disorder? [_] Yes [_] No [_] Yes [_] No
e. hepatitis, cirrhosis, ulcer,
intestinal bleeding, colitis,
diverticulitis, appendicitis or
other disorder of the esophagus,
stomach, intestines, rectum, liver,
gall bladder, pancreas or spleen? [_] Yes [_] No [_] Yes [_] No
f. sugar, albumin, blood or pus in
urine, sexually transmitted or
venereal disease, stone, or other
disorder of the kidney, bladder,
prostate or reproductive organs? [_] Yes [_] No [_] Yes [_] No
g. diabetes, thyroid or other
endocrine disorders? [_] Yes [_] No [_] Yes [_] No
h. arthritis, neuritis, neuralgia,
rheumatism, gout, or disorder of
the muscles or bones, including
<PAGE>
the spine, back and joints? [_] Yes [_] No [_] Yes [_] No
i. disorder of the skin, breast, or
lymph glands, cancer, tumor or
cyst? [_] Yes [_] No [_] Yes [_] No
j. allergies, anemia, bleeding
tendency or other disorder of the
blood? [_] Yes [_] No [_] Yes [_] No
k. persistent fever, night sweats,
chills and/or diarrhea? [_] Yes [_] No [_] Yes [_] No
<PAGE>
l. or been diagnosed with AIDS by a
member of the medical profession,
or had a positive test for the HIV
or HTLV-III (AIDS) virus? [_] Yes [_] No [_] Yes [_] No
3. Other than listed above, have you within
the past 5 years:
a. had or been treated for any mental or
physical disorder, illness or injury;
had or been advised to have any checkup,
consultation, hospitalization,
treatment or surgery including an EKG,
X-ray or other diagnostic test? [_] Yes [_] No [_] Yes [_] No
b. received disability benefits or workers
compensation? [_] Yes [_] No [_] Yes [_] No
4. Are you now under observation or taking
treatment or medication? [_] Yes [_] No [_] Yes [_] No
5. Have you had any change in weight in the
past year? (If yes, give amount and reason)
[_] Yes [_] No [_] Yes [_] No
6. In the past ten years have you used narcotics,
barbiturates, tranquilizers, hallucinogens,
heroin, morphine, cocaine, amphetamines,
LSD, marijuana or any other habit-forming
drugs or prescription drugs, except as
prescribed by a physician? [_] Yes [_] No [_] Yes [_] No
7. Have you had a father, mother, brother or
sister diagnosed before age 60 as having:
diabetes, cancer, high blood pressure, heart
or kidney disease, alcoholism, mental illness
or suicide? [_] Yes [_] No [_] Yes [_] No
8. IMPORTANT - Details of 'Yes' answers to
questions 2 thru 7.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Item Check one Name and Address of Each Physician, Dates and Nature and Severity
No. Ins./Additional Practitioner and Health Facility Durations of Condition,
Frequency of Attacks
Specific Diagnosis
And Treatment
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
UI-205, Ed. 11-99 Page 5
J. Additional Details and Remarks
K. Amendments and Corrections (For Home Office Use Only)
(Not to be used where prohibited by statute or Insurance Department
ruling.)
<PAGE>
Agreement
I have read this completed application, and represent that the statements and
answers given herein are true, complete, and correctly recorded to the best of
my knowledge and belief. I agree that: (1) the entire contract will consist of
this Application and the policy issued in response to it; (2) no agent of the
company can make or modify contracts, waive any rights of the Company, or waive
any information requested by the Company; and (3) except as provided in the
Conditional Receipt, if issued, no insurance will take effect unless: (a) the
policy is delivered to the Owner; (b) the first modal Premium is paid; and (c)
between the date of this Application and the date of policy delivery, there has
been no change in the health or insurability of any person proposed for
insurance; (4) the acceptance of any policy issued on this Application shall
constitute acceptance and ratification of any changes made by the Company under
"Amendments and Corrections". In those states where required, any change in age,
amount, classification, plan of insurance or benefits shall be subject to
written ratification by the Applicant.
Authorization
I hereby authorize any licensed physician, medical practitioner; hospital,
clinic or other medical or medically related facility, insurance company;
reinsurer, the Medical Information Bureau or other organization, institution or
person, that has any records or knowledge of me or my health, to give to United
Investors Life Insurance Company, or its reinsurers, any such information. This
authorization is valid for twenty-six months from the date this form is signed.
A photographic copy of this authorization shall be as valid as the original. I
know that I may request to receive a copy of this authorization. I have received
the notification about the Federal Fair Credit Reporting Act and the Medical
Information Bureau.
<TABLE>
Signed at on
------------------------------------ --------------------------------------
City State Month/Day/Year
<S> <C> <C>
X
- --------------------------- ----------------- -------------------------------------
Agent's Name (Please Print) Agent# Reg/Div # Signature of Proposed Insured
X X
---------------------------------------------- -------------------------------------
Signature of Agent Signature of Additional Insured
X
-------------------------------------
Signature of Owner, if other
than Proposed Insured
</TABLE>
UI-205, Ed. 11-99 Page 6
<PAGE>
Agent's Report
1. How well do you know the Proposed Insured?
Know well Do not know well
Relative (state relationship)
------------------------
How long known?
--------------------------------
2. Did you personally see Proposed Insured? Yes No
(If No, explain in Remarks)
3. Who first suggested the purchase of this insurance?
Agent Owner/Applicant
Proposed Insured Other
------------------
4. To the best of your knowledge, does the policy applied for involve the
replacement of existing insurance or annuities? Yes No
(If Yes, follow all applicable state requirements)
5. Purpose(s) which best describe the use of this Insurance:
Personal Business
Income Replacement Buy/Sell
Home Mortgage Key Person
Estate Conservation Stock Redemption
Debt Repayment Creditor
Other Other
------------------ --------------------
6. Financial Information of Proposed Insured
a. Annual Income $
----------------
b. Est. Net Worth $
----------------
c. Ever filed bankruptcy?: Yes No
Date Discharged (If "yes", explain in Remarks.)
7. Owner's Confidential Financial Information:
a. Age:
-----------------
b. Gross Family Income: $
-----------------------
c. Taxable Income: $
---------------------
d. Number of Dependents:
--------------------
e. Occupation:
--------------------------------
f. Employers' Name:
------------------------
g. Employer Address:
-------------------------
h. Savings and Liquid Assets: $
--------------------
i. Other Assets (excluding home, furnishings, car): $
------------------
j. Net Worth (Assets minus liabilities): $
--------------------
k. Are you associated with any NASD Member? Yes No
l. Investment Objectives (mark all that apply):
Retirement Savings Reserves
Children's College Income
Other Needs/Goods (specify in Special Remarks)
m. Special Remarks/Considerations (Specify in Remarks).
- ----------------------------------------------------------------------------
8. If this is business insurance:
a. Are other principals being insured also? Yes No
<PAGE>
(If No, explain reason; If Yes, give names, amounts, companies in
Remarks)
b. Business net worth $
----------------------
c. Business net income Year Amount $
--------------- -------------
d. Percent of business owned by Proposed Insured %
----------
9. If Proposed Insured is a Juvenile:
a. Did you see the child? Yes No
b. Does he/she live with parents? Yes No
c. Are all brothers and sisters insured
for like amounts? (If No, explain in Remarks) Yes No
d. How much insurance is in force on the life of the
person responsible for the child's support? $
----------------
10. Is the Proposed Insured a United States Citizen? Yes No
If `No,' give Visa #
-----------------
Type of Visa
------------------
11. Telephone Numbers Insured Additional Insured
Home:
Business:
Best Time a.m. Bus. a.m. Bus.
to Call: p.m. Home p.m. Home
---------
12. Is medical examination being completed Yes No
If Yes, appointment date
---------------------
Name of Para-Medical Service?
-------------------
13. Remarks:
I represent that: (1) I have personally seen the Proposed Insured(s); (2) I have
truly and accurately recorded on this application the information as supplied by
the Owner and the Proposed Insured(s); (3) to the best of my knowledge and
belief there is nothing adversely affecting the insurability of the Proposed
Insured(s) other than as indicated in this Application; (4) the written
disclosure statement was given on or before the date the Application was signed
in states where applicable; and (5) if I become aware of a change in the health
or habits of the Proposed Insured(s), occurring after the date of the
Application but before I deliver the policy, I promise to inform the Company of
the change and agree to withhold delivery of the policy until instructed by the
Company.
X
-------------------------------------------------------------------------------
Signature of Agent Date Phone No.
UI-205, Ed. 11-99 Page 7
Conditional Receipt
CONDITIONAL RECEIPT FOR UNITED INVESTORS LIFE INSURANCE COMPANY (THE "COMPANY")
$500,000 MAXIMUM
IT IS HEREBY AGREED THAT UNLESS EACH AND EVERY CONDITION SPECIFIED IN THIS
RECEIPT IS FULFILLED EXACTLY, NO INSURANCE WILL BECOME EFFECTIVE PRIOR TO POLICY
DELIVERY. NEITHER THE AGENT WHOSE SIGNATURE APPEARS BELOW, NOR ANY OTHER AGENT
OF THE COMPANY IS AUTHORIZED TO ALTER OR WAIVE ANY SUCH CONDITIONS.
IT IS ALSO AGREED THAT NO CONDITIONAL DEPOSIT IS BEING MADE WITH RESPECT TO ANY
PERSON PROPOSED FOR COVERAGE WHO HAS, WITHIN THE PAST 12 MONTHS, HAD OR
<PAGE>
BEEN TREATED FOR HEART DISEASE, STROKE OR CANCER.
All Checks for Conditional Deposit must be made payable to United Investors Life
Insurance Company. Do not make any check payable to the Agent nor leave the
payee blank. This receipt must be completed when a Conditional Deposit equal to
one no-lapse monthly premium is accepted with the Application.
TERMS AND CONDITIONS
- --------------------
NO LIFE INSURANCE WILL TAKE EFFECT EARLIER THAN THE POLICY DELIVERY DATE UNLESS
EACH CONDITION BELOW IS MET:
1) On the latest of this Application date, the last medical examination
required by the Company on any Proposed Insured, or a later date specified
in the Application: All Proposed Insureds each must be insurable and
eligible, under our rules and standards, for the exact plan, amount of
insurance, and premium rate requested in the Application;
2) Any medical examination, test, x-rays and/or electrocardiograms required by
the Company (at Company expense) must be completed within 60 days from the
Application date; and
3) The Conditional Deposit shown below must equal at least one no-lapse monthly
Premium for the coverage as applied for.
IF EACH CONDITION IS MET, part or all of the Life Insurance applied for in this
Application on any one life will take effect on the latest date specified in
Item (1) above. If the amount of all Life Insurance applied for on the same life
(under this and any other Conditional Receipts or similar agreements issued by
this Company):
- Is $500,000 or less, the amount of Life Insurance applied for on
that life will take effect;
- Is over $500,000, a lesser amount which is a pro rata share of the
$500,000 maximum will take effect. This share will be based on the
total Life Insurance applied for on that life in all Applications
for which the Receipts are given. The remainder of any Life
Insurance applied for will not take effect unless and until the
policy is delivered to the Owner.
IF ANY OF THE ABOVE CONDITIONS ARE NOT MET, the Company has no liability except
to return the Conditional Deposit upon surrender of this Receipt.
I have received a copy of and have read this Conditional Receipt. I understand
and agree to all of its terms.
$
--------------------------------
Conditional Deposit
- ------------------------------
Received From
- ---------------------------------------
Signature of Owner, if other than Proposed Insured
- ------------------------------
Date of Conditional Receipt
<PAGE>
- ------------------------------
Signature of Proposed Insured
- ------------------------------
Signature of Agent
Page 8
UI-205, Ed. 11-99
<PAGE>
EXHIBIT 1.A.(11)
Description of issuance, transfer and redemption procedures
<PAGE>
Exhibit 1.A(11)
UNITED INVESTORS LIFE INSURANCE COMPANY
DESCRIPTION OF ISSUANCE, TRANSFER
AND REDEMPTION PROCEDURES FOR
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICIES
Pursuant to Rule 6e-3(T)(b)(12)(iii)
This document sets forth the administrative procedures that will be followed
by United Investors Life Insurance Company ("United Investors" or the
"Company") in connection with the issuance of a Flexible Premium Variable Life
Insurance Policy, (the "Policy"), the transfer of assets held thereunder, and
the redemption by Owners of their interests in such Policy.
I. PROCEDURES RELATING TO ISSUANCE AND PURCHASE OF POLICIES
1. Premium Payments and Underwriting
Premiums for the Policies will not be the same for all owners of Policies
("Owners"). An Initial Premium, together with a completed application
satisfactory to the Company, must be received by the Company before a
Policy will be issued. The Company requires that the Initial Premium for a
Policy be at least equal to the No-Lapse Monthly Premium for the Policy.
(The No-Lapse Monthly Premium is the minimum amount of premium required to
keep the No-Lapse Guarantee in effect during the first three Policy years,
based on the requested Initial Base Face Amount, the issue age, sex and
risk class of the Insured and any additional benefits provided by Riders.)
Following the Initial Premium, additional premiums in the amount of $25.00
may be paid at any time, subject to the limitations below. An Owner may
establish a schedule of planned periodic premiums which will be billed by the
Company at regular intervals or may set up monthly, quarterly, semi-annual or
annual bank drafts for premium payments. Failure to pay planned periodic
premiums, however, will not itself cause the Policy to lapse.
An Owner may make unscheduled premium payments at any time in any amount,
or skip planned periodic premium payments, subject to the following
limitations. Every premium payment must be at least $25, or the No-Lapse
Monthly Premium, if less. In no event may the total of all premiums paid in
any Policy
Page 1
<PAGE>
year exceed the current maximum premium limitations for that year established by
Federal tax laws or by the Company.
If at any time a premium is paid which would result in total premiums
exceeding the current maximum premium limitation, the Company will only accept
that portion of the premium which will make total premiums equal the maximum.
Any part of the premium in excess of that amount will be returned or applied as
otherwise agreed and no further premiums will be accepted until allowed by the
current maximum premium limitations prescribed by Federal tax law.
A Policy will remain in force as long as the Net Cash Surrender Value is
sufficient to cover the Monthly Deduction or as long as the No-Lapse Guarantee
is in effect. The No-Lapse Guarantee will remain in effect as long as the sum of
the premiums paid minus any gross withdrawals and any Loan Balance equals or
exceeds the Cumulative No-Lapse Monthly Premiums multiplied by the number of
months the Policy is in force. The amount of a premium, if any, that must be
paid to keep the Policy in force depends upon the Policy Value of the Policy,
which in turn depends on such factors as the investment experience and the cost
of insurance charge. The cost of insurance rate utilized in computing the cost
of insurance charge will not be the same for each Insured. The chief reason is
that the principle of pooling and distribution of mortality risks is based on
the assumption that each Insured incurs an insurance rate commensurate with his
or her mortality risk which is actuarially determined based on such factors as
attained age, sex and risk class. Accordingly, while not all Insureds will be
subject to the same cost of insurance rate, there will be a single "rate" for
all Insureds in a given actuarial category.
Current cost of insurance rates are subject to change based on our
expectations as to future mortality experience, expenses, lapses and taxes. For
standard risk classes, the cost of insurance
Page 2
<PAGE>
rates are guaranteed not to exceed the rates set forth in the 1980 Commissioners
Standard Ordinary Mortality Tables, Male or Female, Smoker or Nonsmoker, Age
Nearest Birthday.
The Policies will be offered and sold pursuant to established mortality
structure and underwriting standards and in accordance with state insurance
laws. State insurance laws may prohibit unfair discrimination among Insureds but
recognize that premiums may be based upon factors such as age, sex, health and
occupation.
2. Application and Initial Premium Processing
Upon receipt of a completed application, the Company will follow certain
insurance underwriting (e.g., evaluation of risks) procedures designed to
determine whether the Proposed Insured is insurable. This process may involve
such verification procedures as medical examinations and may require that
further information be provided by the Proposed Insured before a determination
can be made. A Policy will not be issued until the underwriting procedure has
been completed. The Minimum Base Face Amount at issue for all Risk Classes is
$50,000.
Insurance coverage under a Policy (except for coverage provided in a
Conditional Receipt) will begin when the Policy is delivered and the initial
premium has been received prior to the Insured's death or prior to any change in
health as shown in the application. The Policy Date is the date the Company
issues the Policy. Policy Anniversaries, Policy Years and Policy Months are
measured from the Policy Date.
On the Policy Date, the initial Net Premium (initial Premium less sales load
and premium tax charges) will be allocated in accordance with the allocation
percentages specified in the application. A target Premium is also determined on
the Policy Date for the initial Base Face Amount. The target premium is the
amount we use to calculate the sales load charge and the sales surrender charge.
It is not based on the planned premium and may be more or less than the No-Lapse
Monthly premium depending on additional benefits to the policy. An additional
target premium is determined for each increase in Base Face Amount based on the
Insured's age, sex, and risk class.
Page 3
<PAGE>
3. Reinstatement Procedures
The Policy may be reinstated within five years after lapse during the
Insured's lifetime and before the Maturity Date unless the Policy has been
surrendered. A Policy will be reinstated upon receipt by the Company of a
written application for reinstatement, evidence of insurability satisfactory to
the Company, agreement to the reduction of the Policy Value by any Loan Balance,
and payment of sufficient premium equal to the total following amounts:
1. the amounts that would have been required for the Policy to continue in
force without entering a Grace Period, and for each month during the Grace
Period at the end of which the Policy terminated; and
2. the amount that will be required for the Policy to continue in force
without entering a Grace Period for two months after the
Reinstatement Date.
The Policy Value on the date of reinstatement will be equal to the Policy
Value on the Monthly Processing Date when the Grace Period ended, plus the
Premium paid to reinstate the Policy minus any outstanding Loan Balance. The
effective date of reinstatement will be the Monthly Processing Date on or
following the date the Company approves the application for reinstatement.
The surrender charge on the date of reinstatement will be counted from the
Original Policy Date.
II. REDEMPTION PROCEDURES: SURRENDERS, WITHDRAWALS AND RELATED TRANSACTIONS
Set forth below is a summary of the principal Policy provisions and
administrative procedures which might be deemed to constitute, either directly
or indirectly, a "redemption" transaction. The summary shows that because of the
insurance nature of the Policies, the procedures involved necessarily differ in
certain significant respects from the redemption procedures for mutual funds and
contractual plans.
Page 4
<PAGE>
A. Surrenders and Withdrawals
At any time during the lifetime of the Insured and while a Policy is in
effect, the Owner may surrender the Policy or make a withdrawal under the
Policy by sending a written request to the Company. The amount available for
surrender is the Cash Surrender Value, less any Loan Balance, at the end of the
valuation period during which the surrender request is received by the Company,
subject to the limits described below. Amounts payable from the Variable Account
upon surrender or a withdrawal will ordinarily be paid within seven days
of receipt of the written request, although payments may be postponed under
certain circumstances.
If the Policy is being surrendered, the Policy must be returned to the
Company along with a written request to surrender the Policy. If the Policy is
surrendered prior to the end of the 14th Policy Year or the end of the 14th year
following an increase in Base Face Amount, a surrender charge will be made. The
surrender charge varies based on the Base Face Amount at issue (or the amount of
any increase). This surrender charge consists of two types of charges, an
administrative surrender charge and a sales surrender charge. The administrative
surrender charge is a specified dollar amount per $1,000 of Base Face Amount for
the first nine Policy years (or the first nine years after a Base Face Amount
increase). The sales surrender charge is a percentage of actual premiums paid up
to a maximum based on target premiums. A table of surrender charges is included
in the Policy.
The minimum withdrawal amount is $500. The maximum withdrawal amount is the
Net Cash Surrender Value less $500. The Company will make a transaction charge
for each withdrawal after the first in a Policy Year. The transaction charge
will be equal to the lesser of $25 or 2% of the withdrawal amount. A portion of
the surrender charge will be deducted based on the decrease in Base Face Amount
caused by the withdrawal. The amount of the withdrawal plus any applicable
surrender charge and transaction charge is called the gross withdrawal.
The Owner may choose to allocate the amount surrendered (including any
surrender charges) among specific Subaccounts of the Variable Account and the
Fixed Account.
Page 5
<PAGE>
If no allocation is specified, then the gross withdrawal amount (including any
surrender charge and transaction charges) will be allocated among Subaccounts
of the Variable Account and the Fixed Account in the same proportion that
their values bears to the total unloaned Policy Value.
The Death Benefit will be affected when a withdrawal is made. If Death
Benefit Option A is in effect, then a withdrawal will decrease the Base Face
Amount by an amount equal to the gross withdrawal amount. If Death Benefit
Option B is in effect, the total Death Benefit is also reduced by the gross
withdrawal amount, but the Base Face Amount will not change.
The Base Face Amount remaining in force after a withdrawal may not be less
than $50,000. Any request for a withdrawal that would reduce the Base Face
Amount below this amount will not be implemented. If the Base Face Amount has
been increased, any withdrawal will reduce the Base Face Amount starting with
the most recent increase and continuing in the reverse order in which increases
were made. If any reduction is left after all Base Face Amount increases have
been reduced, it will be used to reduce the Initial Base Face Amount. The
Company may limit the number of times withdrawals may be made but this limit
will not be less than one.
B. Change in Face Amount
The Owner may increase or decrease the Base Face Amount or Adjustable Term
Insurance Rider of a Policy (without changing the Death Benefit Option) once
each Policy Year after the first Policy Anniversary. A written request is
required for a change in the Base Face Amount or Adjustable Term Insurance
Rider. Any change is subject to the following
Page 6
<PAGE>
conditions:
1. Any decrease will become effective on the later of (1) the Monthly
Processing Date on or next following receipt of the written request; or (2) the
Monthly Processing Date one year after the last change in Face Amount was made.
2. The Base Face Amount may not be decreased below $50,000.
3. Any change in Amount must be at least $10,000.
Face Amount decreases will be used to reduce the Face Amount in the following
order (1) the amount of any Adjustable Term Insurance Rider will be reduced to
zero, and (2) any previous Base Face Amount increases which are in effect will
be reduced, starting with the most recent increase and continuing in the reverse
order in which increases were made. If any decrease is remaining, it will be
used to reduce the Initial Base Face Amount.
For an increase in the Face Amount or Adjustable Term Insurance Rider, the
Company requires that satisfactory evidence of insurability be submitted and
that any additional premium for the increase is paid. If approved, the increase
will become effective as of the Monthly Processing Date following the day the
application for increase is approved by the Company. In addition, the Insured
must have an attained age of not greater than 75 on the effective date of the
increase. The increase may not be less than $10,000.
C. Change in Death Benefit Option
After the first Policy Anniversary, the Owner may request in writing to change
the Death Benefit Option. If the request is to change from Option A to Option B,
the total Death Benefit will remain the same, and the Base Face Amount will be
decreased by the amount of the Policy Value. If the request is to change from
Option B to Option A, the total Death Benefit will remain the same and the Base
Face Amount will be increased by the amount of the Policy Value. The effective
date of a change will be the Monthly Processing Date on or following the date
the Company approves the request for the change. Once the Death Benefit Option
has been changed, it cannot be changed again for one year.
D. Benefit Claims
While the Policy remains in force, the Company will usually pay a Death
Benefit to the
Page 7
<PAGE>
named beneficiary in accordance with the designated Death Benefit Option within
seven days after receipt of due proof of death of the Insured. Payment of Death
Benefits may be postponed under certain circumstances, such as the New York
Stock Exchange being closed for reasons other than customary weekend and holiday
closings.
The amount of the Death Benefit equals the Base Death Benefit plus the
Adjustable Term Rider Amount and the amounts of any other Riders payable upon
the death of the Insured. The proceeds will be reduced by any outstanding Loan
Balance and any past due monthly deductions. The amount of the Base Death
Benefit depends on the Base Face Amount, the Policy Value on the date of the
Insured's death, and the Death Benefit Option in effect at that time. Under
Option A, the Death Benefit is the greater of the Base Face Amount at the
beginning of the policy month when death occurs, or the Policy Value on the date
of death multiplied by the applicable factor from the table of Death Benefit
Factors in the Policy. Under Death Benefit Option B, the Death Benefit is equal
to the Base Face Amount at the beginning of the policy month when death occurs,
plus the Policy Value on the date of death or, if greater, the applicable factor
(as per Option A) multiplied by the Policy Value on the date of death.
If the Insured is living on the Maturity Date (the Policy Anniversary on or
next following the Insured's 100th birthday), the Company will pay in a lump sum
the Policy Value of the Policy less any Loan Balance.
Death Benefit proceeds may be paid in single sum or under one of the Payment
Options described in the Policy. The election may be made by the Owner during
the Insured's lifetime. If the election has not been made when the Beneficiary
becomes entitled to the proceeds, the Beneficiary may elect a Payment Option.
Page 8
<PAGE>
5. Policy Loans
The Owner may, by written request to the Company, borrow an amount up to
the Maximum Loan Value of the Policy, with the Policy serving as sole security
for such loan. The Maximum Loan Value is 90% of the Policy Value less surrender
charges. The minimum amount that may be borrowed is $100. Any amount due to an
Owner under a loan ordinarily will be paid within seven days after the Company
receives the loan request, although payments may be postponed under certain
circumstances.
When a loan is made, the amount of the loan plus any loan interest will be
transferred to the Fixed Account as security for the loan. Unless the Owner
requests a different allocation, amounts will be transferred from the
Subaccounts of the Variable Account to the Fixed Account in the same proportion
that the value of each Subaccount bears to the Variable Account Value. Loaned
amounts transferred to the Fixed Account will accrue interest daily at a minimum
effective annual rate of at least 4%. The Company may also credit additional
interest on any preferred loan amount. Preferred loans are available each policy
year folllowing the tenth policy anniversary. The amount available as a
preferred loan is 10% of the net Policy Value, which is the Policy Value minus
any existing Loan Balance.
A Policy Loan may be repaid in whole or in part at any time prior to the
death of the Insured and as long as a Policy is in effect. Repayment must be
made in an amount of at least $100 or the outstanding Loan Balance if less. When
a loan repayment is made, payments will be allocated according to the premium
allocation instructions then in effect, unless the Owner specifies otherwise.
III. TRANSFERS
The Variable Account currently has 32 Subaccounts. Under the Company's
current rules, the Owner may transfer values among the Subaccounts or to the
Fixed
Page 9
<PAGE>
Account up to 12 times per Policy Year. Transfers from the Fixed Account to the
Subaccounts of the Variable Account are allowed once per Policy Year. We reserve
the right to limit transfers from the Fixed Account to a variable Subaccount, to
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.
Transfers may be made in a satisfactory written request or by telephone (if
written authorization is on file). Transfers must be in amounts of at least $100
or, if smaller, the Policy Value held in the Subaccount or the Fixed Account.
The Company will effectuate transfers and determine all values in connection
with transfers as of the end of the valuation period during which the transfer
request is received.
The Company currently intends to continue to permit transfers for the
foreseeable future. The Company may suspend or modify the transfer privilege at
any time with the necessary approval of the SEC, including the minimum amount
transferable, the ability to transfer amounts to the Fixed Account, and the
frequency of such transfers.
The Owner may direct the Company to automatically transfer amounts on a
monthly, quarterly, semi-annual or annual basis from the Money Market Subaccount
or the Fixed Account to any Subaccount of the Variable Account. This service is
intended to allow the Owner to utilize Dollar Cost Averaging (DCA), a long-term
investment program which provides for regular, level investments over time. The
Company makes no guarantees that DCA will result in a profit or protect against
loss in a declining market. The minimum transfer amount is $100 (or $25 for each
Subaccount selected).
Automatic Asset Rebalancing allows the Owner to set up transfers at selected
intervals that rebalance their policy value allocation between investment
options to their pre-selected asset allocation percentages. Rebalancing may
occur on a quarterly, semi-annual or annual basis. The Fixed Account and the
Money Market Subaccount may not be elected for rebalancing if either investment
option is included in Dollar Cost Averaging.
Page 10
<PAGE>
IV. REFUNDS
A. Right to Examine Policy Period
The Owner may cancel a Policy within 20 days after receiving it, or within
45 days after the application was signed, whichever is latest. If a Policy is
canceled within this time period, a refund will be paid. The refund will
equal all premiums paid under the Policy, or the amount required by state law
if different.
B. Suicide
In the event the Insured commits suicide, whether sane or insane, within two
years of the Policy Date, the amount payable will be limited to the return of
premiums paid, less any Loan Balance and any gross withdrawals. In the event of
suicide within two years of the effective date of any increase in Face Amount,
the Death Benefit for that increase will be limited to the excess, if any, of
the Net Amount At Risk on the date of death over the corresponding amount in
effect just prior to the increase, and increased by the total monthly cost of
insurance charges deducted for this excess.
C. Incontestability Clause
The Policy is incontestable after it has been in force for two years from
the Policy Date during the lifetime of the Insured. An increase in the Face
Amount or addition of a rider after the Policy Date is incontestable after such
increase or addition has been in force for two years from its effective date
during the lifetime of the Insured. If the Policy is reinstated, a new two year
contestable period (apart from any remaining contestable period) will apply
during the lifetime of the Insured for two years after the effective date of the
reinstatement and will apply only to statements made in the application for
reinstatement.
Page 11
<PAGE>
D. Misstatement of Age or Sex
If the age or sex of the Insured has been misstated in the
application, the amount of the Death Benefit will be that which the most
recent cost of insurance charge would have purchased for the correct age or
sex.
Page 12
<PAGE>
January 10, 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 Titanium Universal Life
Variable Account filed on form S-6 (File No. 333-89875) 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 Titanium 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
John H. Livingston
Secretary and Counsel
JHL:dk
<PAGE>
January 10, 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 Titanium Universal Life Variable Account filed on
Form S-6 (File No. 333-89875) 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 of 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 35 standard non-tobacco or
male age 50 standard 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 7(a)
Accountants' Consent
The Board of Directors of
United Investors Life Insurance Company
We consent to the use of our report dated January 29, 1999, relating to the
balance sheets of United Investors Life Insurance Company as of December 31,
1998 and 1997, and the related statements of operations, comprehensive income,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1998, as contained in Pre-Effective Amendment No. 1 to
Form S-6 for Titanium 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
January 21, 2000
<PAGE>
January 18, 2000
United Investors Life
Insurance Company
2001 Third Avenue South
Birmingham, AL 35233
RE: Titanium Universal Life Variable Account
Form S-6 File No. 333-89875
------------------------------------------------
Gentlemen:
We hereby consent to the reference to our name under the caption
"Legal Matters" in the Prospectus filed as part of Pre-Effective Amendment
No. 1 to the Registration Statement on Form S-6 filed by United Investors
Life Insurance Company for certain variable life policies (File No. 333-
89875). 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
