<PAGE>
As filed with the Securities and Exchange Commission on April 27, 2000
Registration No. 333- 89875
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Post-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, DC 20004-2415
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[x] on April 28, 2000 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on _______________ pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following box:
[ ] this Post-Effective Amendment designates a new effective date for a
previously filed Post-Effective Amendment.
Title of securities being registered: Variable Life Insurance Policies
<PAGE>
Prospectus
May 1, 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 INVESTORSM
VARIABLE UNIVERSAL LIFE INSURANCE
FLEXIBLE PREMIUM VARIABLE LIFE
INSURANCE POLICY
issued by
United Investors Life Insurance Company
through
Titanium Universal Life Variable Account
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
.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
Deutsche Asset Management VIT Funds
.EAFE(R) Equity Index Fund
.Small Cap Index Fund
Dreyfus Funds
.Dreyfus VIF-Appreciation Portfolio
.Dreyfus VIF-Money Market Portfolio
.Dreyfus VIF-Quality Bond Portfolio
.The Dreyfus Socially Responsible Growth Fund, Inc.
Evergreen Variable Trust
.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 TrustSM
.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
Franklin Templeton Variable Insurance Products Trust
.Templeton Asset Strategy Fund-Class 2
.Templeton International Securities Fund-Class 2
VARIABLE LIFE INSURANCE POLICIES:
ARE NOT FDIC INSURED ARE NOT BANK GUARANTEED MAY LOSE VALUE
UI-215, Ed. 5-00
<PAGE>
Table of Contents
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<TABLE>
<S> <C>
Summary..................................................................... 1
The Policy................................................................ 1
Payment of Premiums....................................................... 1
Funding Choices........................................................... 1
Charges and Deductions.................................................... 2
Taxes..................................................................... 4
Cash Benefits............................................................. 4
Death Benefit............................................................. 5
Termination............................................................... 5
Other Information......................................................... 6
Inquiries................................................................. 6
Titanium Universal Life Variable Account.................................... 7
The Portfolios............................................................ 7
Fixed Account............................................................... 12
The Policy.................................................................. 12
Applying for a Policy..................................................... 12
Conditional Receipt....................................................... 12
"Free Look" Right to Cancel the Policy.................................... 13
Premiums.................................................................. 13
Transfers................................................................. 15
Dollar-Cost Averaging..................................................... 15
Automatic Asset Rebalancing............................................... 16
Surrender of the Policy................................................... 17
Withdrawals............................................................... 17
Loan Benefits............................................................. 17
Requesting Payments....................................................... 18
Policy Changes............................................................ 19
Reports to Owners......................................................... 19
Other Policy Provisions................................................... 19
Assignment and Change of Owner............................................ 20
Death Benefits.............................................................. 20
Amount of Death Benefit Payable........................................... 20
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...................................................... 25
Premium Expense Charges................................................... 25
Mortality and Expense Risk Charge......................................... 26
Monthly Deduction......................................................... 26
Surrender Charge.......................................................... 26
Transaction Charges....................................................... 28
</TABLE>
ii
<PAGE>
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........................................................... 31
Introduction.............................................................. 31
Tax Status of the Policy.................................................. 32
Tax Treatment of Policy Benefits.......................................... 32
Taxation of United Investors.............................................. 34
Employment-Related Benefit Plans.......................................... 35
Other Information............................................................ 35
United Investors Life Insurance Company................................... 35
Sale of the Policies...................................................... 35
Changing the Variable Account............................................. 35
Voting of Portfolio Shares................................................ 36
Addition, Deletion, or Substitution of Investments........................ 36
Other Information......................................................... 37
Litigation................................................................ 37
Legal Matters............................................................. 37
Experts................................................................... 37
Financial Statements...................................................... 37
Appendix A: Hypothetical Illustrations and Performance Information........... 38
Appendix B: Directors and Officers of United Investors....................... 50
Appendix C: Glossary......................................................... 52
Appendix D: Financial Statements............................................ F-1
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This prospectus generally describes only the variable portion of the policy,
except where the fixed account is specifically mentioned.
Buying this policy might not be a good way of replacing your existing insurance
or adding more insurance if you already own a flexible premium variable life
insurance policy.
Certain terms and phrases used in this prospectus are explained in Appendix C
(the Glossary).
iii
<PAGE>
Summary
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This is a summary of some of the more important points that you should know
and consider before purchasing the Titanium Investor variable life insurance
policy.
The Policy
The Titanium Investor flexible premium variable life insurance policy issued
by United Investors Life Insurance Company consists of either:
. an individual policy that we issue to you; or
. a group contract that we issue to the contract holder and an individual
certificate that we issue to you.
This prospectus describes your individual policy or certificate (both are
referred to as the policy in this prospectus). 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
generally 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
. 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
1
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. Alger American MidCap Growth Portfolio
. Alger American Small Capitalization
Deutsche Asset Management VIT Funds
. EAFE(R) Equity Index Fund
. Small Cap Index Fund
Dreyfus Funds
. Dreyfus VIF-Appreciation Portfolio
. Dreyfus VIF-Money Market Portfolio
. Dreyfus VIF-Quality Bond Portfolio
. The Dreyfus Socially Responsible Growth Fund, Inc.
Evergreen Variable Trust
. 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 TrustSM
. 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
Franklin Templeton Variable Insurance Products Trust
. Templeton Asset Strategy Fund--Class 2
. Templeton International Securities 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 total
of these charges is 8% of each premium until the sales charge limit is reached,
and 4% thereafter. 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 14th
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.
2
<PAGE>
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 14th
policy anniversary.
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>
Total(/2/) Portfolio
Other(/2/) Expenses Expenses
Management Fee(/2/) 12b-1 (after any (after waiver or
Portfolio (after any waiver) Fees reimbursement) reimbursement)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM Variable Insurance
Funds
. AIM V.I. Capital
Appreciation Fund 0.62% None 0.11% 0.73%
. AIM V.I. Growth Fund 0.63% None 0.10% 0.73%
. AIM V.I. Growth and
Income Fund 0.61% None 0.16% 0.77%
. AIM V.I. International
Equity Fund 0.75% None 0.22% 0.97%
. AIM V.I. Value Fund 0.61% None 0.15% 0.76%
- -----------------------------------------------------------------------------------------------
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 0.08% 0.93%
. Alger American MidCap
Growth Portfolio 0.80% None 0.05% 0.85%
. Alger American Small
Capitalization
Portfolio 0.85% None 0.05% 0.90%
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Deutsche Asset
Management VIT Funds
. EAFE(R) Equity Index
Fund 0.26% None 0.39% 0.65%
. Small Cap Index Fund 0.13% None 0.32% 0.45%
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Dreyfus Funds
. Dreyfus VIF--
Appreciation Portfolio 0.75% None 0.03% 0.78%
. Dreyfus VIF--Money
Market Portfolio 0.50% None 0.08% 0.58%
. Dreyfus VIF--Quality
Bond Portfolio 0.65% None 0.09% 0.74%
. The Dreyfus Socially
Responsible Growth
Fund 0.75% None 0.04% 0.79%
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Evergreen Variable Trust
. Evergreen VA Equity
Index Fund(/3/) 0.00% None 0.31% 0.31%
. Evergreen VA
Foundation Fund 0.83% None 0.12% 0.95%
. Evergreen VA Global
Leaders Fund 0.76% None 0.25% 1.01%
. Evergreen VA Small Cap
Value Fund 0.59% None 0.42% 1.01%
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INVESCO Variable
Investment Funds, Inc.
. INVESCO VIF--Equity
Income Fund(/4/) 0.75% None 0.42% 1.17%
. INVESCO VIF--
Technology Fund 0.75% None 0.56% 1.31%
. INVESCO VIF--Utilities
Fund(/4/) 0.60% None 0.61% 1.21%
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MFS(R) Variable Insur-
ance TrustSM
. MFS(R) Emerging Growth
Series 0.75% None 0.09% 0.84%
. MFS(R) Growth with In-
come 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 0.15% 0.90%
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Strong Variable Insur-
ance Funds, Inc.
. Strong Discovery Fund
II 1.00% None 0.14% 1.14%
. Strong Mid Cap Growth
Fund II 1.00% None 0.15% 1.15%
. Strong Opportunity
Fund II 1.00% None 0.14% 1.14%
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Franklin Templeton Vari-
able Insurance Products
Trust(/5/)
. Templeton Asset Strat-
egy Fund--Class 2(/6/) 0.60% 0.25% 0.18% 1.03%
. Templeton Interna-
tional Securities
Fund--Class 2(/6/) 0.69% 0.25% 0.19% 1.13%
</TABLE>
3
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(/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, 1999. 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 1999 expenses of
these Portfolios would have been as indicated below:
<TABLE>
<CAPTION>
Total Portfolio
Other Expenses Annual Expenses
Management Fee 12b-1 (before any (before waiver or
Portfolio (before any waiver) Fees reimbursement) reimbursement)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deutsche VIT EAFE(R) Eq-
uity Index Fund 0.44% None 0.69% 1.13%
Deutsche VIT Small Cap
Index Fund 0.35% None 0.83% 1.18%
Evergreen VA Equity In-
dex Fund 0.40% None 0.42% 0.82%
Evergreen VA Global
Leaders Fund 0.95% None 0.25% 1.20%
Evergreen VA Small Cap
Value Fund 0.95% None 0.42% 1.37%
INVESCO VIF--Equity In-
come Fund 0.75% None 0.44% 1.19%
INVESCO VIF--Technology
Fund 0.75% None 0.78% 1.53%
INVESCO VIF--Utilities
Fund 0.60% None 1.08% 1.68%
Strong Mid Cap Growth
Fund II 1.00% None 0.17% 1.17%
</TABLE>
(/3/) The Evergreen VA Equity Index Fund inception date is September 30, 1999.
The expenses for this fund are estimates for its first year of operations.
(/4/) The INVESCO VIF-Equity Income Fund and INVESCO VIF-Utilities Fund expense
information presented in the table has been restated to reflect a change in the
administrative service fee.
(/5/) Class 2 of the Franklin Templeton Variable Insurance Products Trust has a
distribution plan or "Rule 12-b-1 plan" that is described in the Fund's
prospectus.
(/6/) On February 8, 2000, shareholders approved a merger and reorganization
that combined the fund with a similar fund of the Franklin Templeton Variable
Insurance Products Trust ("VIP"). The VIP shareholders approved new management
fees, which apply to the combined fund effective May 1, 2000. The table shows
total expenses based on the new fees and the assets of the fund as of December
31, 1999 and not the assets of the combined fund. However, if the table
reflected both the new fees and the combined assets, the fund's expenses after
May 1, 2000 would be estimated as: Templeton Asset Strategy Fund Management Fee
0.60%, 12b-1 Fee 0.25%, Other Expenses 0.14%, and Total Expenses 0.99%;
Templeton International Securities Fund Management Fee 0.65%, 12b-1 Fee 0.25%,
Other Expenses 0.20%, and Total Expenses 1.10%.
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 1st in a policy year (the charge is limited to 2%
of the withdrawal);
. each transfer between subaccounts and/or the fixed account after the 12th in
a policy year;
. each requested policy illustration after the 1st in a policy year.
Taxes
We intend for the policy to satisfy the definition of life insurance under
the Internal Revenue Code. (See "Tax Status of the Policy.") Therefore, the
death benefit generally should be excludable from the gross income of its
recipient. Similarly, you should not be deemed to be in constructive receipt of
the policy value, and therefore should not be taxed on increases in the policy
value until you take out a loan 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
4
<PAGE>
loans, from policy value could be subject to Federal income tax and penalty
tax. Modified endowment contracts receive less favorable tax treatment than
other life insurance policies.
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. Policy loans may have tax consequences. (See "Tax
Considerations.")
Full Surrender. You may surrender the policy at any time for its net cash
surrender value. The net cash surrender value is the cash surrender value less
any loan balance. Surrendering the policy may have tax consequences. (See "Tax
Considerations.")
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. Withdrawals may have tax
consequences. (See "Tax Considerations.")
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.
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, then 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.
5
<PAGE>
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
- --------------------------------------------------------------------------------
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.
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Titanium Universal Life Variable Account
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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.
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The following 32 mutual fund portfolios are currently offered to policy
owners through the subaccounts of the Variable Account:
<TABLE>
<CAPTION>
Portfolio Investment Objective and Certain Policies
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<S> <C>
AIM V.I. Capital Seeks growth of capital through investment in common stocks, with
Appreciation Fund 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 and have
excellent prospects for future growth.
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AIM V.I. Seeks growth of capital primarily by investing in seasoned and
Growth Fund better capitalized companies considered to have strong earnings
momentum.
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AIM V.I. Growth and Seeks growth of capital with a secondary objective of current
Income Fund income. Focus is on securities of established companies that have
long-term, above-average growth in earnings and dividends, and
growth companies that have potential for above-average growth in
earnings and dividends.
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AIM V.I. Seeks long-term growth of capital by investing in a diversified
International portfolio of international equity securities whose issuers are
Equity Fund considered to have strong earnings momentum. The Fund primarily
invests in equity securities of foreign companies, emphasizing
investment in companies in the developed countries of Western
Europe and the Pacific Basin.
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AIM V.I. Seeks long-term growth of capital by investing primarily in equity
Value Fund 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.
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Alger American Seeks long-term capital appreciation. It focuses on growing
Growth Portfolio 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.
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Alger American Primarily seeks to provide a high level of dividend income; its
Income and secondary goal is to provide capital appreciation. The portfolio
Growth 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.
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Alger American Seeks long-term capital appreciation. Under normal portfolio
Leveraged AllCap invests in the equity securities of companies of any size which
Portfolio 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.
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Alger American Seeks long-term capital appreciation. It focuses on mid-size
MidCap Growth companies with promising growth potential. Under normal
Portfolio 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.
</TABLE>
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<TABLE>
<CAPTION>
Portfolio Investment Objective and Certain Policies
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<S> <C>
Alger American Seeks long-term capital appreciation. It focuses on small, fast-
Small growing companies that offer innovative products, services or
Capitalization technologies to a rapidly expanding marketplace. Under normal
Portfolio 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.
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Deutsche VIT Seeks to match as closely as possible, and before expenses, the
EAFE(R) Equity risk and return characteristics of the Morgan Stanley Capital
Index Fund International (MSCI) EAFE Index, 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.
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Deutsche VIT Seeks to match as closely as possible, and before expenses, the
Small Cap Index risk and return characteristics of the Russell 2000 Small Stock
Fund Index which emphasizes stocks of small United States companies. The
Fund may also use stock index futures and options.
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Dreyfus VIF- Seeks long-term capital growth consistent with the preservation of
Appreciation capital; current income is a secondary goal focusing on "blue chip'
Portfolio companies with total market values of more than $5 billion at the
time of purchase.
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Dreyfus VIF-Money Seeks as high a level of current income as is consistent with the
Market Portfolio preservation of capital and the maintenance of liquidity. The
portfolio invests in a diversified portfolio of high-quality,
short-term debt securities.
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Dreyfus VIF-Quality Seeks to maximize current income as is consistent with the
Bond Portfolio 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.
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Dreyfus Socially Seeks to provide capital growth, with current income as a secondary
Responsible goal. To pursue these goals, the fund invests primarily in the
Growth Fund, Inc. 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.
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Evergreen VA Seeks investment results that achieve price and yield performance
Equity Index Fund 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.
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Evergreen VA Seeks, in order of priority, reasonable income, conservation of
Foundation Fund 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. Common
stocks are selected based on a combination of financial strength
and estimated growth potential. Fixed income securities are
selected based on investment advisor's projections of interest
rates, varying amounts and maturities in order to achieve capital
protection and, when possible, capital appreciation. Under normal
circumstances, the Fund anticipates that at least 25% of its net
assets will consist of fixed income securities.
</TABLE>
9
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<TABLE>
<CAPTION>
Portfolio Investment Objective and Certain Policies
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<S> <C>
Evergreen VA Seeks to provide investors with long-term capital growth. The Fund
Global Leaders normally invests at least 65% of its assets in a diversified
Fund portfolio of U.S. and non-U.S. equity securities of companies
located in the world's major industrialized countries. The Fund
will make investments in no less than three countries, which may
include the U.S., but may invest more than 25% of its total assets
in one country. The Fund invests only in the best 100 companies
which are selected by the investment advisor based on qualitative
and quantitative criteria such as high return on equity, consistent
earnings growth and established market presence.
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Evergreen VA Seeks current income and capital growth in the value of its shares.
Small Cap Value The fund invests primarily in common stocks and convertible
Fund 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, or
catalysts, 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.
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INVESCO VIF- Primary goal is high current income. Capital growth is a secondary
Equity Income objective in the selection of portfolio securities. The fund
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.
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INVESCO VIF- Seeks capital appreciation and invests in strong growth companies
Technology Fund 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.
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INVESCO VIF- Seeks capital growth and income through investments in companies
Utilities Fund 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.
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MFS(R) Emerging Seeks to provide long-term growth of capital. The series normally
Growth 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, of
emerging growth companies.
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MFS(R) Growth Seeks to provide reasonable current income and long-term growth of
With Income capital and income. The series normally invests at least 65% of its
Series 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.
</TABLE>
10
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<TABLE>
<CAPTION>
Portfolio Investment Objective and Certain Policies
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<S> <C>
MFS(R) Research Seeks to provide long-term growth of capital and future income. The
Series 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.
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MFS(R) Total Seeks primarily to provide above-average income (compared to a
Return Series 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.
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Strong Discovery Seeks capital growth. The fund invests in a diversified portfolio
Fund II of common stocks from small, medium, and large-capitalization
companies. The fund has an active trading approach.
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Strong Mid Cap Seeks capital growth. The fund invests at least 65% of its assets
Growth Fund II 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.
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Strong Opportunity Seeks capital growth. The fund invests primarily in stocks of
Fund II medium-capitalization companies that the fund's 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.
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Templeton Asset Seeks a high level of total return. Invests in equity securities of
Strategy Fund* companies of any nation, debt securities 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. (Previously Templeton Asset
Allocation Fund)
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Templeton Seeks long-term capital growth. Invests primarily in equity
International securities of companies located outside the United States,
Securities Fund* including emerging markets. (Previously Templeton International
Fund)
</TABLE>
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 the policy will be comparable to the investment results of any
other mutual fund
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* On February 8, 2000 shareholders approved a proposal to merge the funds of
Templeton Variable Products Series Fund into the similar corresponding funds
of Franklin Templeton Variable Insurance Products Trust, effective on or
about May 1, 2000.
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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 be different
for different portfolios and may depend on how much of our policy value is
invested in the applicable portfolios.
Fixed Account
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The funding choice guaranteeing your principal and a minimum fixed rate of
interest is called the "fixed account." It is not registered under the
Securities Act of 1933, and it is not registered as an investment company under
the Investment Company Act of 1940. Accordingly, neither the fixed account nor
any interests therein are subject to the provisions or restrictions of these
Federal securities laws, and the disclosure regarding the fixed account has not
been reviewed by the staff of the SEC.
The fixed account is part of our general account assets. It is not a
separate account. Amounts allocated to the fixed account are credited with
interest at rates determined in our sole discretion, but in no event will
interest credited on these amounts be less than an effective annual rate of
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
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Applying for a Policy
To purchase a policy, you must complete an application, submit it to our
administrative office (at the address listed in the "Inquiries" section of this
prospectus), and pay an initial premium which varies by age, sex and risk
class. (See "Premiums" below.) The initial premium must be paid prior to the
policy's effective date. (We will only accept a premium that complies with our
underwriting rules.) Coverage becomes effective as of the policy's effective
date. If the proposed insured dies before the policy's effective date, our sole
obligation will be to return the premium paid plus any interest earned on it
(unless a 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.
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
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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 to our
administrative office or to the agent who sold it to you before the end of the
"free look" period.
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 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.
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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,
then the policy will enter a grace period and 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:
(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.
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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. We can increase
this charge, but it 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 net 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.
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.
The policy is not designed for professional market timing organizations or
other persons who use programmed, large, or frequent transfers in an attempt to
"time" the market. The use of such transfers may be disruptive to an underlying
portfolio and have a negative impact on other policy owners. Therefore, we
reserve the right to reject any premium payment or transfer request from any
person, if, in our judgment, an underlying portfolio would be unable to invest
effectively in accordance with its policies or would otherwise be potentially
adversely affected, or if an underlying portfolio would reject our purchase
order.
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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 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.
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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 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.
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Loan Repayment. You may repay all or part of your loan balance at any time
while the insured is living and the policy is in force. Loan repayments must be
at least $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
(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.
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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.
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.
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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." 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
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- --------------------------------------------------------------------------------
If the insured dies while the policy is in force and prior to the policy's
maturity date, we will pay the death benefit when we receive satisfactory proof
at our administrative office of the insured's death. (See "Requesting
Payments.") The death benefit will be paid to the beneficiary.
Amount of Death Benefit Payable
The amount of death benefit payable is:
(a) the 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
(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.
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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>
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.
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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:
<TABLE>
<CAPTION>
Death Benefit Policy Base Death Adjustable Term Death
Age Factor Value Benefit Insurance Rider Amount Benefit
--- ------------- ------ ---------- ---------------------- -------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
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. You should consult a tax advisor before changing the death
benefit option.
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
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your policy as a life insurance contract under the Internal Revenue Code.
Changing the face amount of the policy may have tax consequences. You should
consult a tax advisor before changing the face amount.
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.
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
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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.
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.
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Charges and Deductions
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- --------------------------------------------------------------------------------
We deduct the charges described below from your premiums or your policy
value. Certain of the charges depend on a number of variables, and are
illustrated in the hypothetical illustrations in Appendix A to this prospectus.
The charges are for the services and benefits provided, costs and expenses
incurred and risks assumed by us under or in connection with the policy. We
intend to make a profit from these charges.
Services and benefits we provide include:
(a) the death benefits, cash and loan benefits provided by the policy;
(b) funding choices, including net premium allocations, dollar-cost
averaging programs, 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 die sooner 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 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.
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<PAGE>
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.
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. We
expect a profit from this charge. 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 $4.00 $3.33 $2.67 $2.00 $1.33 $0.67 $0.00
of Base Face Amount:
</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:
<TABLE>
<C> <S>
Policy Years 1-2: 26% of premium paid up to one target premium, plus 6% of
premium paid above one target premium 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 premium up to two target
premiums.
</TABLE>
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<PAGE>
The sales surrender charge at the end of the 9th policy year will be reduced
to zero at the beginning of the 15th policy year by reducing the charge each
year by one-sixth of the amount of the charge in effect at the end of the 9th
policy year.
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 $1,880. Assuming that you pay a $2,500 premium
at the beginning of each policy year, the resulting surrender charge for each
policy year is:
<TABLE>
<CAPTION>
Administrative Sales Total
Policy Surrender Surrender Surrender
Year Charge Charge Charge
------ -------------- --------- ---------
<S> <C> <C> <C>
1 $400 $ 526 $ 926
2 400 664 1,064
3 400 1,692 2,092
4 400 1,692 2,092
5 400 1,692 2,092
6 400 1,692 2,092
7 400 1,692 2,092
8 400 1,692 2,092
9 400 1,692 2,092
10 333 1,410 1,743
11 267 1,128 1,395
12 200 846 1,046
13 133 564 697
14 67 282 349
15 0 0 0
</TABLE>
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<PAGE>
Transaction Charges
We may charge you for exceeding a certain number of policy transactions in a
policy year.
Withdrawals. For each withdrawal after the first in a policy year, we will
deduct the lesser of $25 or 2% of the withdrawal amount from your policy value.
Transfers between Subaccounts and/or the Fixed Account. We will deduct $25
for each transfer after the 12th in a policy year. 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, we will deduct $25 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 Charge
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 amount by which the death benefit exceeds the policy value is called the
net amount at risk.
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 net amount at risk 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.
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<PAGE>
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 substandard classes, a multiple of the tables and/or a
flat addition to the tables. (See "Hypothetical Illustrations" in Appendix A
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 investment 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.
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<PAGE>
On any business day thereafter, the value of each variable subaccount is equal
to:
(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 because a portion of the surrender charge might be
deducted.
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
(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;
30
<PAGE>
(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.
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
31
<PAGE>
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.
Generally, the policy owner will not be deemed to be in constructive receipt
of the policy value until there is a distribution. When distributions from a
policy occur, or when loans are taken out from or secured by a policy, the tax
consequences depend on whether the policy is classified as a "Modified
Endowment Contract."
Modified Endowment Contracts. Under the Internal Revenue Code, certain life
insurance contracts are classified as "modified endowment contracts," with less
favorable tax treatment than other life insurance contracts. Due to the
flexibility of the policies as to premiums and benefits, the individual
circumstances of each policy will determine whether it is classified as a
modified endowment contract. The rules are too complex to be summarized here,
but generally depend on the amount of premiums paid during the first seven
policy years. Certain changes in a policy after it is issued could also cause
it to be classified as a modified endowment contract. Under our current
procedures, the policy owner will be notified at the time a policy is issued
whether, according to our calculations, the policy is or is not classified as a
modified endowment contract based on the premium then received. A current or
prospective policy owner should consult with a competent advisor to determine
whether a policy transaction will cause the policy to be classified as a
modified endowment contract.
32
<PAGE>
Distributions Other than Death Benefits from Policies Classified as Modified
Endowment Contracts. Policies classified as modified endowment contracts will
be subject to the following tax rules:
(1) First, all distributions, including distributions upon surrender and
benefits paid at maturity, from such a policy are treated as ordinary
income subject to tax up to the amount equal to the excess (if any) of
the policy value immediately before the distribution over the
"investment in the policy" (described below) at such time.
(2) Second, loans taken from, or secured by, such a policy (including
unpaid loan interest that is added to the principal of a loan) are
treated as distributions from such a policy and taxed accordingly.
(3) Third, a 10 percent additional tax is imposed on the portion of any
distribution from, or loan taken from or secured by, such a policy that
is included in income except where the distribution or loan:
(a) is made on or after the policy owner reaches actual age 59 1/2
(b) is attributable to the policy owner's becoming disabled, or
(c) is part of a series of substantially equal periodic payments for
the life (or life expectancy) of the policy owner or the joint
lives (or joint life expectancies) of the policy owner and the
policy owner's beneficiary.
If a policy becomes a modified endowment contract, distributions that occur
during the contract year will be taxed as distributions from a modified
endowment contract. In addition, distributions from a policy within two years
before it becomes a modified endowment contract will be taxed in this manner.
This means that a distribution made from a policy that is not a modified
endowment contract could later become taxable as a distribution from a modified
endowment contract.
Distributions Other than Death Benefits from Policies that Are Not Modified
Endowment Contracts. Distributions other than death benefits from a policy that
is not classified as a modified endowment contract are generally treated first
as a recovery of the policy owner's investment in the policy and only after the
recovery of all investment in the policy as taxable income. However, certain
distributions which must be made in order to enable the policy to continue to
qualify as a life insurance contract for Federal income tax purposes if policy
benefits are reduced during the first 15 policy years may be treated in whole
or in part as ordinary income subject to tax.
Loans from or secured by a policy that is not a modified endowment contract
are generally not treated as distributions. However, the tax consequences
associated with preferred loans are less clear and a tax advisor should be
consulted about such loans.
Finally, neither distributions from nor loans from or secured by a policy
that is not a modified endowment contract are subject to the 10 percent
additional income tax.
Investment in the Policy. Your investment in the policy is generally your
aggregate premiums. When a distribution is taken from the policy, your
investment in the policy is reduced by the amount of the distribution that is
tax-free.
Loans. Interest paid on a policy loan generally is not tax-deductible. If a
policy loan is outstanding when a policy is surrendered or lapses, the amount
of the outstanding indebtedness will be added to the amount distributed and
will be taxed accordingly. The policy owner should consult a competent tax
advisor if the deductibility of interest paid on a policy loan is an important
issue.
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<PAGE>
Multiple Policies. All modified endowment contracts that are issued by us
(or our affiliates) to the same policy owner during any calendar year are
treated as one modified endowment contract for purposes of determining the
amount includable in gross income.
Accelerated Death Benefit Rider. We believe that payments received under the
accelerated death benefit rider should be fully excludable from the gross
income of the beneficiary if the beneficiary is the insured under the policy.
(See "Accelerated Death Benefit Rider" for more information regarding the
rider.) However, you should consult a qualified tax advisor about the
consequences of adding this rider to a policy or requesting payment under this
rider.
Other Policy Owner Tax Matters. The tax consequences of continuing the
policy beyond the insured's 100th year are unclear. You should consult a tax
advisor if you intend to keep the policy in force beyond the insured's 100th
year.
Businesses can use the policies in various arrangements, including
nonqualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, tax exempt and nonexempt welfare
benefit plans, retiree medical benefit plans and others. The tax consequences
of such plans may vary depending on the particular facts and circumstances. If
you are purchasing the policy for any arrangement the value of which depends in
part on its tax consequences, you should consult a qualified tax advisor. In
recent years, moreover, Congress has adopted new rules relating to life
insurance owned by businesses. Any business contemplating the purchase of a new
policy or a change in an existing policy should consult a tax advisor.
The transfer of the policy or designation of a beneficiary may have Federal,
state, and/or local transfer and inheritance tax consequences, including the
imposition of gift, estate, and generation-skipping transfer taxes. For
example, the transfer of the policy to, or the designation as a beneficiary of,
or the payment of proceeds to, a person who is assigned to a generation which
is two or more generations below the generation assignment of the owner may
have generation skipping transfer tax consequences under Federal tax law. The
individual situation of each owner or beneficiary will determine the extent, if
any, to which Federal, state, and local transfer and inheritance taxes may be
imposed and how ownership or receipt of policy proceeds will be treated for
purposes of Federal, state, and local estate, inheritance, generation skipping
and other taxes.
Possible Tax Law Changes. Although the likelihood of legislative changes is
uncertain, there is always the possibility that the tax treatment of the policy
could change by legislation or otherwise. Consult a tax advisor with respect to
legal developments and their effect on the policy.
Taxation of United Investors
We incur state and local premium taxes, and Federal income taxes resulting
from the treatment of deferred acquisition costs. The amount of the charge we
deduct for such taxes is discussed above under "Charges and Deductions." At the
present time, we make no charge to the Variable Account for any other Federal,
state or local taxes that it incurs which may be attributable to the Variable
Account or to the policies. Nevertheless, we reserve the right in the future to
make a charge for any such tax or other economic burden resulting from the
application of the tax laws that we determine to be properly attributable to
the Variable Account or to the policies.
Employment-Related Benefit Plans
On July 6, 1983, the Supreme Court held in Arizona Governing Committee v.
Norris that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women on the basis of sex. The policies described in this
prospectus contain guaranteed purchase rates for certain payment options that
generally distinguish between
34
<PAGE>
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 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;
35
<PAGE>
(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.
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.
36
<PAGE>
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.
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 sheet of United Investors Life Insurance Company as of December
31, 1999, and the related statement of operations, comprehensive income,
shareholders' equity, and cash flow for the year ended December 31, 1999
included in this prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein and elsewhere
in the registration statement, and are included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
The balance sheet of United Investors Life Insurance Company as of December
31, 1998, and the related statements of operations, comprehensive income,
shareholders' equity, and cash flows for each of the years in the two-year
period ended December 31, 1998 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 had not commenced operations as of December 31, 1999.
37
<PAGE>
Appendix A:
Hypothetical Illustrations and Performance Information
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The following illustrations show how certain values under a sample policy
change with assumed investment performance over an extended period of time. In
particular, they illustrate how policy values, net cash surrender values and
death benefits under a policy, covering an insured of a given age on the
policy's effective date, would vary over time if planned premiums were paid
annually and the return on the assets in the variable 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 0.89% 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 some of the portfolios, the investment adviser has waived some
or all of its fee and/or reimbursed the portfolio for some of its expenses.
Without these fee waivers or expense reimbursements, the average annual expense
ratio would be higher, and therefore the values shown in the illustrations
would be lower. We do not know, and do not represent or guarantee, that these
fee waiver or expense reimbursements will continue. 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:
<TABLE>
<CAPTION>
Hypothetical gross rate of return: 0% 6% 12%
---------------------------------- ----- ---- -----
<S> <C> <C> <C>
Net return, policy years 1-10:............................ -1.64% 4.36% 10.36%
Net return, policy years 11-20:........................... -1.39% 4.61% 10.61%
Net return, policy years 21 & up:......................... -1.14% 4.86% 10.86%
</TABLE>
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.
38
<PAGE>
MALE ISSUE AGE 45, PREFERRED NON-TOBACCO
$4,500 ANNUAL PREMIUM
$250,000 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 $ 4,725 $250,000 $250,000 $250,000 $ 2,952 $ 3,164 $ 3,377 $ 982 $ 1,194 $ 1,407
2 9,686 250,000 250,000 250,000 6,038 6,656 7,301 3,818 4,436 5,081
3 14,896 250,000 250,000 250,000 9,020 10,247 11,579 4,870 6,097 7,429
4 20,365 250,000 250,000 250,000 11,965 14,009 16,318 7,815 9,859 12,168
5 26,109 250,000 250,000 250,000 14,873 17,951 21,568 10,723 13,801 17,418
6 32,139 250,000 250,000 250,000 17,744 22,080 27,385 13,594 17,930 23,235
7 38,471 250,000 250,000 250,000 20,578 26,405 33,829 16,428 22,255 29,679
8 45,120 250,000 250,000 250,000 23,417 30,979 41,013 19,267 26,829 36,863
9 52,101 250,000 250,000 250,000 26,358 35,917 49,126 22,208 31,767 44,976
10 59,431 250,000 250,000 250,000 29,262 41,091 58,115 25,804 37,633 54,658
15 101,959 250,000 250,000 250,000 43,599 71,633 121,226 43,599 71,633 121,226
20 156,237 250,000 250,000 275,568 53,767 107,487 225,875 53,767 107,487 225,875
25 225,511 250,000 250,000 467,397 59,272 152,259 402,928 59,272 152,259 402,928
30 313,924 250,000 250,000 744,858 56,794 209,489 696,129 56,794 209,489 696,129
</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.
39
<PAGE>
MALE ISSUE AGE 45, PREFERRED NON-TOBACCO
$4,500 ANNUAL PREMIUM
$250,000 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 $ 4,725 $250,000 $250,000 $250,000 $ 2,903 $ 3,114 $ 3,325 $ 933 $ 1,144 $ 1,355
2 9,686 250,000 250,000 250,000 5,941 6,553 7,191 3,721 4,333 4,971
3 14,896 250,000 250,000 250,000 8,870 10,083 11,399 4,720 5,933 7,249
4 20,365 250,000 250,000 250,000 11,689 13,706 15,985 7,539 9,556 11,835
5 26,109 250,000 250,000 250,000 14,392 17,419 20,981 10,242 13,269 16,831
6 32,139 250,000 250,000 250,000 16,977 21,225 26,432 12,827 17,075 22,282
7 38,471 250,000 250,000 250,000 19,431 25,115 32,375 15,281 20,965 28,225
8 45,120 250,000 250,000 250,000 21,781 29,121 38,899 17,631 24,971 34,749
9 52,101 250,000 250,000 250,000 24,117 33,347 46,171 19,967 29,197 42,021
10 59,431 250,000 250,000 250,000 26,283 37,640 54,110 22,825 34,183 50,652
15 101,959 250,000 250,000 250,000 34,574 60,638 107,908 34,574 60,638 107,908
20 156,237 250,000 250,000 250,000 36,259 84,764 197,360 36,259 84,764 197,360
25 225,511 250,000 250,000 407,454 26,890 109,564 351,253 26,890 109,564 351,253
30 313,924 * 250,000 645,384 * 132,084 603,162 * 132,084 603,162
</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.
* In this situation, the policy would lapse without value.
40
<PAGE>
Performance Information
The following hypothetical illustrations demonstrate how the actual
investment experience of each subaccount of the Variable Account could have
affected the cash surrender value, policy value and death benefit of a policy.
These hypothetical illustrations are based on the actual historical return of
each portfolio as if a policy had been issued on the date indicated. Each
portfolio's annual total return is based on the total return calculated for
each fiscal year. These annual total return figures reflect the portfolio's
management fees and other operating expenses but do not reflect the policy
level or variable account asset based charges and deductions, which if
reflected, would result in lower total return figures than those shown.
The illustrations are based on the payment of a $4,500 annual premium, paid
at the beginning of each year, for a hypothetical policy with a $250,000 face
amount, death benefit option A, issued to a preferred, nonsmoker male, age 45.
In each case, it is assumed that all premiums are allocated to the subaccount
illustrated for the period shown. The benefits are calculated for a specific
date. The amount and timing of premium payments and the use of other policy
features, such as policy loans, would affect individual policy benefits.
The amounts shown for the cash surrender values, policy values and death
benefits take into account the charges against premiums, current and guaranteed
cost of insurance and monthly deductions, the daily charge against the Variable
Account for mortality and expense risks, and each portfolio's charges and
expenses. (See "Charges and Deductions.") The amounts shown assume there are no
withdrawals, no policy loans, and no riders.
HYPOTHETICAL ILLUSTRATIONS
Preferred Non-tobacco Male, Age 45 Death Benefit Option A
Stated Death Benefit $250,000 Annual Premium $4,500
AIM V.I. Capital Appreciation Fund
<TABLE>
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------ --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/94 2.50% $250,000 $250,000 $ 3,072 $ 3,022 $ 1,102 $ 1,052
12/31/95 35.69% 250,000 250,000 8,620 8,494 6,400 6,274
12/31/96 17.58% 250,000 250,000 13,834 13,627 9,684 9,477
12/31/97 13.51% 250,000 250,000 19,236 18,867 15,086 14,717
12/31/98 19.30% 250,000 250,000 26,679 26,015 22,529 21,865
12/31/99 44.61% 250,000 250,000 43,236 41,938 39,086 37,788
AIM V.I. Growth Fund
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------ --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/94 -2.48% $250,000 $250,000 $ 2,896 $ 2,847 $ 926 $ 877
12/31/95 34.77% 250,000 250,000 8,321 8,198 6,101 5,978
12/31/96 18.09% 250,000 250,000 13,544 13,340 9,394 9,190
12/31/97 26.87% 250,000 250,000 21,209 20,806 17,059 16,656
12/31/98 34.12% 250,000 250,000 32,720 31,945 28,570 27,795
12/31/99 35.24% 250,000 250,000 48,541 47,174 44,391 43,024
</TABLE>
* These annual total return figures reflect the portfolio's management fees
and other operating expenses but do not reflect the policy level or variable
account asset-based charges and deductions which, if reflected, would result
in lower total return figures than those shown.
41
<PAGE>
HYPOTHETICAL ILLUSTRATIONS
Preferred Non-Tobacco Male, Age 45 Death Benefit Option A
Stated Death Benefit $250,000 Annual Premium $4,500
AIM V.I. Growth and Income Fund
<TABLE>
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------- --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- -------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/95 33.86% $250,000 $250,000 $ 4,189 $ 4,131 $ 2,219 $ 2,161
12/31/96 19.95% 250,000 250,000 8,894 8,771 6,674 6,551
12/31/97 25.72% 250,000 250,000 15,177 14,961 11,027 10,811
12/31/98 27.68% 250,000 250,000 23,429 23,010 19,279 18,860
12/31/99 34.25% 250,000 250,000 35,728 34,931 31,578 30,781
AIM V.I. International Equity Fund
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------- --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- -------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/94 -1.61% $250,000 $250,000 $ 2,927 $ 2,878 $ 957 $ 908
12/31/95 17.24% 250,000 250,000 7,206 7,095 4,986 4,875
12/31/96 20.05% 250,000 250,000 12,443 12,250 8,293 8,100
12/31/97 6.94% 250,000 250,000 16,604 16,267 12,454 12,117
12/31/98 15.49% 250,000 250,000 22,774 22,163 18,624 18,013
12/31/99 55.04% 250,000 250,000 40,362 39,058 36,212 34,908
AIM V.I. Value Fund
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------- --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- -------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/94 4.04% $250,000 $250,000 $ 3,126 $ 3,076 $ 1,156 $ 1,106
12/31/95 36.25% 250,000 250,000 8,732 8,605 6,512 6,385
12/31/96 15.02% 250,000 250,000 13,648 13,444 9,498 9,294
12/31/97 23.69% 250,000 250,000 20,789 20,396 16,639 16,246
12/31/98 32.41% 250,000 250,000 31,739 30,984 27,589 26,834
12/31/99 29.90% 250,000 250,000 45,320 44,027 41,170 39,877
Alger American Growth Portfolio
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------- --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- -------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/90 4.14% $250,000 $250,000 $ 3,130 $ 3,080 $ 1,160 $ 1,110
12/31/91 40.39% 250,000 250,000 9,019 8,889 6,799 6,669
12/31/92 12.38% 250,000 250,000 13,643 13,439 9,493 9,289
12/31/93 22.47% 250,000 250,000 20,572 20,182 16,422 16,032
12/31/94 1.45% 250,000 250,000 23,938 23,339 19,788 19,189
12/31/95 36.37% 250,000 250,000 36,996 35,848 32,846 31,698
12/31/96 13.35% 250,000 250,000 45,390 43,706 41,240 39,556
12/31/97 25.75% 250,000 250,000 61,028 58,409 56,878 54,259
12/31/98 48.07% 250,000 250,000 95,353 90,853 91,203 86,703
12/31/99 33.74% 250,000 250,000 131,851 125,243 128,393 121,786
</TABLE>
* These annual total return figures reflect the portfolio's management fees
and other operating expenses but do not reflect the policy level or variable
account asset-based charges and deductions which, if reflected, would result
in lower total return figures than those shown.
42
<PAGE>
HYPOTHETICAL ILLUSTRATIONS
Preferred Non-tobacco Male, Age 45 Death Benefit Option A
Stated Death Benefit $250,000 Annual Premium $4,500
Alger American Income & Growth Portfolio
<TABLE>
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------- --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- -------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/90 0.28% $250,000 $250,000 $ 2,993 $ 2,944 $ 1,023 $ 974
12/31/91 23.51% 250,000 250,000 7,701 7,585 5,481 5,365
12/31/92 8.64% 250,000 250,000 11,742 11,560 7,592 7,410
12/31/93 10.34% 250,000 250,000 16,380 16,046 12,230 11,896
12/31/94 -8.28% 250,000 250,000 17,752 17,249 13,602 13,099
12/31/95 35.13% 250,000 250,000 28,309 27,290 24,159 23,140
12/31/96 19.68% 250,000 250,000 37,598 35,970 33,448 31,820
12/31/97 36.29% 250,000 250,000 55,615 52,854 51,465 48,704
12/31/98 32.39% 250,000 250,000 77,994 73,728 73,844 69,578
12/31/99 42.45% 250,000 250,000 115,829 109,071 112,372 105,613
Alger American Leveraged AllCap Portfolio
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------- --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- -------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/96 12.04% $250,000 $250,000 $ 3,410 $ 3,358 $ 1,440 $ 1,388
12/31/97 19.68% 250,000 250,000 7,943 7,827 5,723 5,607
12/31/98 57.83% 250,000 250,000 17,716 17,461 13,566 13,311
12/31/99 78.06% 250,000 250,000 37,466 36,842 33,316 32,692
Alger American MidCap Growth Portfolio
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------- --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
------ ------------- -------- ---------- -------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/94 -1.54% $250,000 $250,000 $ 2,929 $ 2,880 $ 959 $ 910
12/31/95 44.45% 250,000 250,000 9,006 8,875 6,786 6,655
12/31/96 11.90% 250,000 250,000 13,568 13,364 9,418 9,214
12/31/97 15.01% 250,000 250,000 19,194 18,824 15,044 14,674
12/31/98 30.30% 250,000 250,000 29,147 28,431 24,997 24,281
12/31/99 31.85% 250,000 250,000 42,602 41,340 38,452 37,190
</TABLE>
* These annual total return figures reflect the portfolio's management fees
and other operating expenses but do not reflect the policy level or variable
account asset-based charges and deductions which, if reflected, would result
in lower total return figures than those shown.
43
<PAGE>
HYPOTHETICAL ILLUSTRATIONS
Preferred Non-tobacco Male, Age 45 Death Benefit Option A
Stated Death Benefit $250,000 Annual Premium $4,500
Alger American Small Capitalization Portfolio
<TABLE>
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------ --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/90 8.71% $250,000 $250,000 $ 3,292 $ 3,240 $ 1,322 $ 1,270
12/31/91 57.54% 250,000 250,000 10,445 10,300 8,225 8,080
12/31/92 3.55% 250,000 250,000 13,996 13,792 9,846 9,642
12/31/93 13.28% 250,000 250,000 19,380 19,014 15,230 14,864
12/31/94 -4.38% 250,000 250,000 21,390 20,841 17,240 16,691
12/31/95 44.31% 250,000 250,000 35,522 34,385 31,372 30,235
12/31/96 4.18% 250,000 250,000 40,122 38,569 35,972 34,419
12/31/97 11.39% 250,000 250,000 48,108 45,892 43,958 41,742
12/31/98 15.53% 250,000 250,000 59,289 56,132 55,139 51,982
12/31/99 43.42% 250,000 250,000 89,836 84,542 86,378 81,084
Deutsche VIT EAFE(R) Equity Index Fund
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------ --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/98 21.60% $250,000 $250,000 $ 3,750 $ 3,696 $ 1,780 $ 1,726
12/31/99 27.60% 250,000 250,000 8,938 8,812 6,718 6,592
Deutsche VIT Small Cap Index Fund
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------ --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/98 -2.18% $250,000 $250,000 $ 2,906 $ 2,858 $ 936 $ 888
12/31/99 20.16% 250,000 250,000 7,374 7,261 5,154 5,041
Dreyfus VIF--Appreciation Portfolio
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------ --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/94 3.04% $250,000 $250,000 $ 3,091 $ 3,041 $ 1,121 $ 1,071
12/31/95 33.52% 250,000 250,000 8,499 8,374 6,279 6,154
12/31/96 25.56% 250,000 250,000 14,662 14,444 10,512 10,294
12/31/97 28.05% 250,000 250,000 22,840 22,418 18,690 18,268
12/31/98 30.22% 250,000 250,000 33,868 33,088 29,718 28,938
12/31/99 11.46% 250,000 250,000 41,143 39,988 36,993 35,838
</TABLE>
* These annual total return figures reflect the portfolio's management fees
and other operating expenses but do not reflect the policy level or variable
account asset-based charges and deductions which, if reflected, would result
in lower total return figures than those shown.
44
<PAGE>
HYPOTHETICAL ILLUSTRATIONS
Preferred Non-tobacco Male, Age 45 Death Benefit Option A
Stated Death Benefit $250,000 Annual Premium $4,500
Dreyfus VIF--Money Market Portfolio
<TABLE>
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------ --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/91 5.99% $250,000 $250,000 $ 3,195 $ 3,145 $ 1,225 $ 1,175
12/31/92 4.15% 250,000 250,000 6,623 6,520 4,403 4,300
12/31/93 3.29% 250,000 250,000 10,026 9,865 5,876 5,715
12/31/94 4.37% 250,000 250,000 13,676 13,378 9,526 9,228
12/31/95 5.66% 250,000 250,000 17,697 17,169 13,547 13,019
12/31/96 5.10% 250,000 250,000 21,812 20,960 17,662 16,810
12/31/97 5.19% 250,000 250,000 26,145 24,856 21,995 20,706
12/31/98 5.12% 250,000 250,000 30,710 28,853 26,560 24,703
12/31/99 4.78% 250,000 250,000 35,521 32,958 31,371 28,808
Dreyfus VIF--Quality Bond Portfolio
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------ --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/91 14.12% $250,000 $250,000 $ 3,484 $ 3,431 $ 1,514 $ 1,461
12/31/92 12.08% 250,000 250,000 7,489 7,377 5,269 5,157
12/31/93 15.33% 250,000 250,000 12,256 12,069 8,106 7,919
12/31/94 -4.59% 250,000 250,000 14,572 14,271 10,422 10,121
12/31/95 20.42% 250,000 250,000 21,333 20,742 17,183 16,592
12/31/96 3.13% 250,000 250,000 25,128 24,229 20,978 20,079
12/31/97 9.42% 250,000 250,000 30,841 29,462 26,691 25,312
12/31/98 5.49% 250,000 250,000 35,758 33,810 31,608 29,660
12/31/99 0.18% 250,000 250,000 38,968 36,426 34,818 32,276
The Dreyfus Socially Responsible Growth Fund, Inc.
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------ --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/94 1.49% $250,000 $250,000 $ 3,036 $ 2,987 $ 1,066 $ 1,017
12/31/95 34.56% 250,000 250,000 8,496 8,371 6,276 6,151
12/31/96 21.23% 250,000 250,000 14,131 13,920 9,981 9,770
12/31/97 28.43% 250,000 250,000 22,230 21,815 18,080 17,665
12/31/98 29.38% 250,000 250,000 32,857 32,090 28,707 27,940
12/31/99 30.08% 250,000 250,000 46,836 45,528 42,686 41,378
Evergreen VA Equity Index Fund
</TABLE>
Has not been active for one full year.
* These annual total return figures reflect the portfolio's management fees
and other operating expenses but do not reflect the policy level or variable
account asset-based charges and deductions which, if reflected, would result
in lower total return figures than those shown.
45
<PAGE>
HYPOTHETICAL ILLUSTRATIONS
Preferred Non-tobacco Male, Age 45 Death Benefit Option A
Stated Death Benefit $250,000 Annual Premium $4,500
Evergreen VA Foundation Fund
<TABLE>
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------ --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/97 27.80% $250,000 $250,000 $ 3,972 $ 3,916 $ 2,002 $ 1,946
12/31/98 10.63% 250,000 250,000 7,923 7,809 5,703 5,589
12/31/99 10.64% 250,000 250,000 12,214 12,030 8,064 7,880
Evergreen VA Global Leaders Fund
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------ --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/98 18.92% $250,000 $250,000 $ 3,655 $ 3,601 $ 1,685 $ 1,631
12/31/99 24.72% 250,000 250,000 8,605 8,482 6,385 6,262
Evergreen VA Small Cap Value Fund
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------ --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/99 12.07% $250,000 $250,000 $ 3,411 $ 3,359 $ 1,441 $ 1,389
INVESCO VIF--Equity Income Fund
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------ --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/95 29.25% $250,000 $250,000 $ 4,024 $ 3,967 $ 2,054 $ 1,997
12/31/96 22.28% 250,000 250,000 8,876 8,752 6,656 6,532
12/31/97 28.17% 250,000 250,000 15,462 15,241 11,312 11,091
12/31/98 15.30% 250,000 250,000 21,422 21,032 17,272 16,882
12/31/99 14.84% 250,000 250,000 28,159 27,495 24,009 23,345
INVESCO VIF--Technology Fund
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------ --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/98 25.69% $250,000 $250,000 $ 3,897 $ 3,841 $ 1,927 $ 1,871
12/31/99 158.93% 250,000 250,000 19,138 18,908 16,918 16,688
</TABLE>
* These annual total return figures reflect the portfolio's management fees
and other operating expenses but do not reflect the policy level or variable
account asset-based charges and deductions which, if reflected, would result
in lower total return figures than those shown.
46
<PAGE>
HYPOTHETICAL ILLUSTRATIONS
Preferred Non-tobacco Male, Age 45 Death Benefit Option A
Stated Death Benefit $250,000 Annual Premium $4,500
INVESCO VIF--Utilities Fund
<TABLE>
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------ --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/95 9.08% $250,000 $250,000 $ 3,305 $ 3,253 $ 1,335 $ 1,283
12/31/96 12.76% 250,000 250,000 7,336 7,225 5,116 5,005
12/31/97 23.41% 250,000 250,000 12,968 12,771 8,818 8,621
12/31/98 25.48% 250,000 250,000 20,248 19,858 16,098 15,708
12/31/99 19.13% 250,000 250,000 27,843 27,156 23,693 23,006
MFS(R) Emerging Growth Series
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------ --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/96 17.02% $250,000 $250,000 $ 3,587 $ 3,534 $ 1,617 $ 1,564
12/31/97 21.90% 250,000 250,000 8,316 8,196 6,096 5,976
12/31/98 34.16% 250,000 250,000 15,463 15,238 11,313 11,088
12/31/99 76.71% 250,000 250,000 33,197 32,629 29,047 28,479
MFS(R) Growth with Income Series
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------ --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/96 24.46% $250,000 $250,000 $ 3,853 $ 3,797 $ 1,883 $ 1,827
12/31/97 29.78% 250,000 250,000 9,232 9,103 7,012 6,883
12/31/98 22.32% 250,000 250,000 15,162 14,945 11,012 10,795
12/31/99 6.69% 250,000 250,000 19,456 19,094 15,306 14,944
MFS(R) Research Series
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------ --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/96 22.33% $250,000 $250,000 $ 3,777 $ 3,722 $ 1,807 $ 1,752
12/31/97 20.26% 250,000 250,000 8,424 8,304 6,204 6,084
12/31/98 23.39% 250,000 250,000 14,306 14,096 10,156 9,946
12/31/99 24.05% 250,000 250,000 21,666 21,265 17,516 17,115
MFS(R) Total Return Series
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------ --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/96 14.37% $250,000 $250,000 $ 3,493 $ 3,440 $ 1,523 $ 1,470
12/31/97 21.30% 250,000 250,000 8,158 8,039 5,938 5,819
12/31/98 12.33% 250,000 250,000 12,673 12,482 8,523 8,332
12/31/99 3.08% 250,000 250,000 16,219 15,894 12,069 11,744
</TABLE>
* These annual total return figures reflect the portfolio's management fees
and other operating expenses but do not reflect the policy level or variable
account asset-based charges and deductions which, if reflected, would result
in lower total return figures than those shown.
47
<PAGE>
HYPOTHETICAL ILLUSTRATIONS
Preferred Non-tobacco Male, Age 45 Death Benefit Option A
Stated Death Benefit $250,000 Annual Premium $4,500
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Strong Discovery Fund II
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------ --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/93 22.03% $250,000 $250,000 $ 3,766 $ 3,711 $ 1,796 $ 1,741
12/31/94 -5.39% 250,000 250,000 6,509 6,409 4,289 4,189
12/31/95 35.26% 250,000 250,000 13,154 12,956 9,004 8,806
12/31/96 0.81% 250,000 250,000 16,333 16,006 12,183 11,856
12/31/97 11.39% 250,000 250,000 21,641 21,059 17,491 16,909
12/31/98 7.26% 250,000 250,000 26,490 25,572 22,340 21,422
12/31/99 -16.61% 250,000 250,000 24,472 23,363 20,322 19,213
Strong Mid Cap Growth Fund II
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------ --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/97 29.75% $250,000 $250,000 $ 4,042 $ 3,985 $ 2,072 $ 2,015
12/31/98 28.68% 250,000 250,000 9,392 9,262 7,172 7,042
12/31/99 31.48% 250,000 250,000 16,554 16,321 12,404 12,171
Strong Opportunity Fund II
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------ --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/93 25.17% $250,000 $250,000 $ 3,878 $ 3,822 $ 1,908 $ 1,852
12/31/94 3.60% 250,000 250,000 7,290 7,182 5,070 4,962
12/31/95 25.82% 250,000 250,000 13,176 12,979 9,026 8,829
12/31/96 18.15% 250,000 250,000 19,273 18,902 15,123 14,752
12/31/97 25.45% 250,000 250,000 28,135 27,442 23,985 23,292
12/31/98 13.54% 250,000 250,000 35,434 34,351 31,284 30,201
12/31/99 14.40% 250,000 250,000 44,036 42,410 39,886 38,260
Templeton Asset Strategy Fund--Class 2
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------ --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/90 -7.98% $250,000 $250,000 $ 2,702 $ 2,655 $ 732 $ 685
12/31/91 27.69% 250,000 250,000 7,609 7,493 5,389 5,273
12/31/92 8.08% 250,000 250,000 11,579 11,397 7,429 7,247
12/31/93 26.12% 250,000 250,000 18,607 18,234 14,457 14,084
12/31/94 -2.96% 250,000 250,000 20,969 20,407 16,819 16,257
12/31/95 22.48% 250,000 250,000 29,526 28,521 25,376 24,371
12/31/96 18.93% 250,000 250,000 38,802 37,201 34,652 33,051
12/31/97 15.37% 250,000 250,000 48,337 45,993 44,187 41,843
12/31/98 6.10% 250,000 250,000 54,620 51,560 50,470 47,410
12/31/99 22.54% 250,000 250,000 70,903 66,419 67,445 62,962
</TABLE>
* These annual total return figures reflect the portfolio's management fees
and other operating expenses but do not reflect the policy level or variable
account asset-based charges and deductions which, if reflected, would result
in lower total return figures than those shown.
48
<PAGE>
HYPOTHETICAL ILLUSTRATIONS
Preferred Non-tobacco Male, Age 45 Death Benefit Option A
Stated Death Benefit $250,000 Annual Premium $4,500
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Templeton International Securities Fund--Class 2
<CAPTION>
Death Benefit Policy Value Net Cash Surrender Value
Year Annual ------------------- ------------------ --------------------------
Ended Total Return* Current Guaranteed Current Guaranteed Current Guaranteed
----- ------------- -------- ---------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/93 47.28% $250,000 $250,000 $ 4,671 $ 4,610 $ 2,701 $ 2,640
12/31/94 -2.22% 250,000 250,000 7,625 7,517 5,405 5,297
12/31/95 15.78% 250,000 250,000 12,464 12,280 8,314 8,130
12/31/96 24.04% 250,000 250,000 19,384 19,014 15,234 14,864
12/31/97 13.73% 250,000 250,000 25,569 24,932 21,419 20,782
12/31/98 9.08% 250,000 250,000 31,223 30,235 27,073 26,085
12/31/99 23.23% 250,000 250,000 42,319 40,691 38,169 36,541
</TABLE>
* These annual total return figures reflect the portfolio's management fees
and other operating expenses but do not reflect the policy level or variable
account asset-based charges and deductions which, if reflected, would result
in lower total return figures than those shown.
49
<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 with Principal Occupation
United Investors During the Past Five Years
- -----------------------------------------------------------------------------------------------
<S> <C>
W. Thomas Aycock Vice President and Chief Actuary of United Investors since November
Director, Vice President 1992.
and Chief Actuary
- -----------------------------------------------------------------------------------------------
Tony G. Brill* Executive Vice President and Chief Administrative Officer of
Director and Executive Torchmark Corporation since September 1999. Executive Vice
Vice President-- President--Administration of United Investors since September 1998.
Administration Senior Vice President of United Investors, March 1998-September
1998. Senior Vice President of Torchmark Corporation, January 1997-
September 1999. Managing Partner of KPMG LLP, Birmingham, Alabama
Office, 1984-December 1996.
- -----------------------------------------------------------------------------------------------
Terry W. Davis Vice President--Administration of United Investors since January
Director and 1999 and Liberty National Life Insurance Company since December
Vice President-- 1996. Second Vice President--Administration of Liberty National
Administration Life Insurance Company since March 1988.
- -----------------------------------------------------------------------------------------------
C.B. Hudson* Chairman of the Board of Directors and Chief Executive Officer of
Director Torchmark Corporation since March 1998 and United Investors, March
1998-September 1999. Director of Liberty National Life Insurance
Company, United American Insurance Company, and Globe Life And
Accident Insurance Company since September 1999. Chairman of
Insurance Operations of Torchmark Corporation, January 1993-March
1998. Chairman of Liberty National Life Insurance Company, United
American Insurance Company, and Globe Life And Accident Insurance
Company, 1991-September 1999.
- -----------------------------------------------------------------------------------------------
Larry M. Hutchison* Executive Vice President and General Counsel of Torchmark
Director Corporation since September 1999. Vice President and General
Counsel of Torchmark, February 1997-September 1999. Vice President,
Secretary and General Counsel of United American Insurance Company
since 1992.
- -----------------------------------------------------------------------------------------------
Michael J. Klyce Vice President of Torchmark Corporation since January 1984.
Vice President and
Treasurer
- -----------------------------------------------------------------------------------------------
John H. Livingston Secretary and Counsel of United Investors since May 1995. Secretary
Director, Secretary and Associate Counsel of United Investors, December 1994-May 1995.
and Counsel Associate Counsel of United Investors, July 1990-December 1994.
Associate Counsel of Liberty National Life Insurance Company since
October, 1986.
- -----------------------------------------------------------------------------------------------
James L. Mayton, Jr. Vice President & Controller of Liberty National Life Insurance
Vice President and Company since January 1985.
Controller
- -----------------------------------------------------------------------------------------------
Mark S. McAndrew* Executive Vice President of Torchmark Corporation and Chairman of
Senior Vice President-- the Board and Chief Executive Officer of United American Insurance
Marketing Company and Globe Life And Accident Insurance Company since
September 1999. Senior Vice President--Marketing of United
Investors since March 1998. Director of Torchmark Corporation since
April 1998. President of United American Insurance Company and
Globe Life And Accident Insurance Company since 1991.
</TABLE>
*Principal business address: Torchmark Corporation, 3700 South Stonebridge,
McKinney, Texas 75070.
50
<PAGE>
<TABLE>
<CAPTION>
Name and Position with Principal Occupation
United Investors During the Past Five Years
- -----------------------------------------------------------------------------------------------
<S> <C>
Carol A. McCoy Secretary of Torchmark Corporation since February 1994. Associate
Director and Counsel of Torchmark Corporation since January 1985.
Assistant Secretary
- -----------------------------------------------------------------------------------------------
Anthony L. McWhorter Chairman of the Board of Directors and Chief Executive Officer of
Chairman of the Board of United Investors and Liberty National Life Insurance Company, and
Directors, President and Executive Vice President of Torchmark Corporation since September
Chief Executive Officer 1999. President of United Investors since September 1998. President
of Liberty National Life Insurance Company since December 1994.
Executive Vice President and Chief Actuary of Liberty National,
November 1993-December 1994. Senior Vice President and Chief
Actuary of Liberty National, September 1991-November 1993.
- -----------------------------------------------------------------------------------------------
Ross W. Stagner Vice President of United Investors since January 1992.
Director and
Vice President
</TABLE>
51
<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 effective 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 Value Cash surrender value less any loan balance.
- ----------------------------------------------------------------------------------------------
Net Premium The premium received less the premium expense charges.
- ----------------------------------------------------------------------------------------------
No-lapse Monthly Premium The minimum amount of premium required to keep the policy in force
during the first three policy years regardless of the sufficiency
of the cash surrender value to pay monthly deductions.
- ----------------------------------------------------------------------------------------------
Owner Depending on the state of issue, owner means either:
.the individual or entity that owns a certificate under a group
contract; or
.the individual or entity that owns an individual policy.
- ----------------------------------------------------------------------------------------------
Policy Depending on the state of issue, policy means either:
.the individual certificate under a group contract; or
.the individual policy.
- ----------------------------------------------------------------------------------------------
</TABLE>
52
<PAGE>
Appendix C:
Glossary
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
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 Value The sum of the values of the variable subaccounts under your
policy.
- ---------------------------------------------------------------------------------------------
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>
53
<PAGE>
Appendix D:
Financial Statements
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
United Investors Life Insurance Company
Birmingham, Alabama
We have audited the accompanying balance sheet of United Investors Life
Insurance Company as of December 31, 1999, and the related statements of
operations, comprehensive income, shareholders' equity, and cash flow for the
year then ended. These financial statements are the responsibility of
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such 1999 financial statements present fairly, in all material
respects, the financial position of United Investors Life Insurance Company as
of December 31, 1999, and the results of its operations and its cash flow for
the year then ended in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
January 28, 2000
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
United Investors Life Insurance Company
Birmingham, Alabama
We have audited the accompanying balance sheet of United Investors Life
Insurance as of December 31, 1998 and the related statements of operations,
comprehensive income, shareholders' equity, and cash flows for each of the
years in the two-year period ended December 31, 1998. These financial
statements are the responsibility of United Investors Life Insurance Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of United Investors Life
Insurance Company as of December 31, 1998, and the results of its operations
and cash flows for each of the years in the two-year period ended December 31,
1998, in conformity with generally accepted accounting principles.
KPMG LLP
Birmingham, Alabama
January 29, 1999
F-2
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
BALANCE SHEETS
(Dollar amounts in thousands except per share data)
<TABLE>
<CAPTION>
At December 31,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities-available for sale, at fair value
(cost: 1999--$613,003; 1998--$612,586)................ $ 587,346 $ 643,151
Preferred stock of affiliate (cost: 1999--$188,212:
1998--$188,212)....................................... 188,212 188,212
Equity securities at fair value (cost: 1999--$3,400;
1998--$0)............................................. 2,635 0
Policy loans........................................... 19,665 18,009
Short term investments................................. 11,796 12,680
---------- ----------
Total investments................................... 809,654 862,052
Cash.................................................... 5,842 11,426
Accrued investment income (includes amounts from
affiliates: 1999--$675; 1998--$582).................... 11,550 11,747
Receivables............................................. 3,033 3,113
Due from affiliate (includes funds withheld on
reinsurance: 1999--$275,374; 1998--$229,194)........... 329,365 278,458
Deferred acquisition costs.............................. 227,170 183,033
Value of insurance purchased............................ 26,101 30,600
Goodwill................................................ 28,519 29,465
Property and equipment.................................. 221 96
Other assets............................................ 3,076 1,786
Separate account assets................................. 3,413,675 2,425,262
---------- ----------
Total assets........................................ $4,858,206 $3,837,038
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Future policy benefits (includes reserves assumed from
affiliates: 1999--$287,376; 1998--$241,357)........... $ 824,785 $ 776,461
Unearned and advance premiums.......................... 2,804 2,822
Other policy benefits.................................. 6,790 6,973
---------- ----------
Total policy liabilities............................ 834,379 786,256
Accrued income taxes................................... 50,112 55,498
Other liabilities...................................... 10,247 2,174
Due to affiliates...................................... 602 8,268
Separate account liabilities........................... 3,413,675 2,425,262
---------- ----------
Total liabilities................................... 4,309,015 3,277,458
Shareholders' equity:
Common stock, par value $6 per share authorized, issued
and outstanding: 500,000 shares....................... 3,000 3,000
Additional paid in capital............................. 350,714 350,388
Accumulated other comprehensive income (loss).......... (12,258) 15,654
Retained earnings...................................... 207,735 190,538
---------- ----------
Total shareholders' equity.......................... 549,191 559,580
---------- ----------
Total liabilities and shareholders' equity.......... $4,858,206 $3,837,038
========== ==========
</TABLE>
See accompanying Notes to Financial Statements.
F-3
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Premium income................................... $ 73,718 $ 69,987 $ 68,723
Policy charges and fees.......................... 56,652 45,113 36,582
Net investment income (includes amounts from af-
filiates 1999--$16,532;
1998--$13,082; 1997--$2,863).................... 63,388 61,373 51,514
Realized investment gains (losses)............... (5,023) 9,401 (5,365)
Other income (includes amounts from affiliates:
1999--$17,058;
1998--$13,665; 1997--$11,876)................... 17,058 13,665 11,876
-------- -------- --------
Total revenue.................................. 205,793 199,539 163,330
Benefits and expenses:
Policy benefits:
Individual life................................. 51,595 63,689 57,954
Annuity......................................... 26,686 13,633 15,165
-------- -------- --------
Total policy benefits.......................... 78,281 77,322 73,119
Amortization of deferred acquisition costs....... 33,284 27,874 24,898
Commissions and premium taxes (includes amounts
to affiliates:
1999--$3,679; 1998--$1,013; 1997--$4,928)....... 5,897 5,580 6,251
Other operating expenses (includes amounts to af-
filiates: 1999--$3,176;
1998--$3,252; 1997--$3,217)..................... 7,022 6,579 5,470
-------- -------- --------
Total benefits and expenses.................... 124,484 117,355 109,738
Net operating income before income taxes.......... 81,309 82,184 53,592
Income taxes...................................... 23,112 25,567 18,843
-------- -------- --------
Net income..................................... $ 58,197 $ 56,617 $ 34,749
======== ======== ========
</TABLE>
See accompanying Notes to Financial Statements.
F-4
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF COMPREHENSIVE INCOME
(Dollar amounts in thousands)
<TABLE>
<S> <C> <C> <C>
<CAPTION>
Year Ended December 31,
-------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net income.......................................... $58,197 $56,617 $34,749
Other comprehensive income:
Unrealized investment gains (losses):
Unrealized investment gains (losses) on
securities:
Unrealized holding gains (losses) arising during
period......................................... (61,690) 7,021 13,362
Reclassification adjustment for (gains) losses
on securities included in net income ........... 5,023 (1) 5,235
Reclassification adjustment for amortization of
(discount) and premium.......................... 446 502 744
------- ------- -------
(56,221) 7,522 19,341
Unrealized gains (losses) on other investments... (763) (6,330) 1,798
Unrealized gains (losses) on deferred acquisition
costs.......................................... 14,042 276 (5,387)
------- ------- -------
Total unrealized gains (losses) ................. (42,942) 1,468 15,752
Applicable tax................................... 15,030 (514) (5,512)
------- ------- -------
Other comprehensive income (loss)................... (27,912) 954 10,240
Comprehensive income............................. $30,285 $57,571 $44,989
======= ======= =======
</TABLE>
See accompanying Notes to Financial Statements.
F-5
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common Paid-in Comprehensive Retained Shareholders'
Stock Capital Income (Loss) Earnings Equity
------ ---------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C>
Year Ended at December
31, 1997
Balance at January 1,
1997................... $3,000 $137,950 $ 4,460 $166,652 $312,062
Comprehensive income.... 10,240 34,749 44,989
Dividends............... (26,000) (26,000)
Exercise of stock op-
tions.................. 519 519
------ -------- -------- -------- --------
Balance at December 31,
1997.................. 3,000 138,469 14,700 175,401 331,570
Year Ended at December
31, 1998
Comprehensive income.... 954 56,617 57,571
Dividends............... (33,500) (33,500)
Impact from reorganiza-
tion of Waddell &
Reed................... 211,851 (7,980) 203,871
Exercise of stock op-
tions.................. 68 68
------ -------- -------- -------- --------
Balance at December 31,
1998.................. $3,000 $350,388 $ 15,654 $190,538 $559,580
Year Ended at December
31, 1999
Comprehensive income.... (27,912) 58,197 30,285
Dividends............... (41,000) (41,000)
Exercise of stock op-
tions.................. 326 326
------ -------- -------- -------- --------
Balance at December 31,
1999.................. $3,000 $350,714 $(12,258) $207,735 $549,191
====== ======== ======== ======== ========
</TABLE>
See accompanying Notes to Financial Statements.
F-6
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net income.................................... $ 58,197 $ 56,617 $ 34,749
Adjustment to reconcile net income to cash
provided from operations:
Increase in future policy benefits.......... 14,953 13,871 17,878
Increase (decrease) in other policy liabili-
ties....................................... (202) (1,892) 749
Deferral of policy acquisition costs........ (58,880) (42,857) (33,485)
Value of business acquired.................. 0 0 (10,000)
Amortization of deferred acquisition costs.. 33,284 27,874 24,898
Change in accrued income taxes.............. 9,644 1,079 10,212
Depreciation................................ 41 39 42
Realized (gains) losses on sale of invest-
ments and properties....................... 5,023 (9,401) 5,365
Other accruals and adjustments.............. 4,553 (3,240) 1,817
-------- -------- --------
Cash provided from operations................. 66,613 42,090 52,225
-------- -------- --------
Cash used for investment activities:
Investments sold or matured:
Fixed maturities available for sale-sold..... 152,270 46,039 113,035
Fixed maturities available for sale-matured,
called and repaid........................... 50,760 76,583 66,469
Other long-term investments.................. 0 25,596 2,199
-------- -------- --------
Total investments sold or matured.......... 203,030 148,218 181,703
Acquisition of investments:
Fixed maturities available for sale.......... (208,912) (123,111) (176,905)
Equity securities............................ (3,400) 0 0
Net increase in policy loans................. (1,656) (2,192) (1,485)
Other long-term investments.................. 0 (36) (1,517)
-------- -------- --------
Total acquisition of investments........... (213,968) (125,339) (179,907)
Net (increase) decrease in short-term
investments.................................. 876 747 (11,589)
Funds loaned to affiliates.................... (126,120) (13,026) (24,080)
Funds repaid from affiliates.................. 117,800 2,400 24,080
Funds borrowed from affiliates................ 81,400 14,800 0
Funds repaid to affiliates ................... (81,400) (14,800) 0
Disposition of properties and equipment....... 0 5 0
Additions of properties and equipment......... (166) (37) (27)
-------- -------- --------
Cash provided from (used for) investment
activities................................... (18,548) 12,968 (9,820)
-------- -------- --------
Cash used for financing activities:
Cash dividends paid to shareholders......... (41,000) (33,500) (27,000)
Net receipts from deposit product opera-
tions...................................... (12,649) (15,420) (12,521)
-------- -------- --------
Cash used for financing activities............ (53,649) (48,920) (39,521)
Increase (decrease) in cash................... (5,584) 6,138 2,884
Cash at beginning of year..................... 11,426 5,288 2,404
-------- -------- --------
Cash at end of year........................... $ 5,842 $ 11,426 $ 5,288
======== ======== ========
</TABLE>
See accompanying Notes to Financial Statements.
F-7
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(Dollar amounts in thousands)
Note 1--Summary of Significant Accounting Policies
Organization: United Investors Life Insurance Company ("UILIC" or "United
Investors") was a wholly owned subsidiary of Waddell & Reed Financial, Inc.
("WDR") (formerly known as United Investors Management Company), a subsidiary
of Torchmark Corporation. On March 3, 1998, to facilitate the initial public
offering ("IPO") by Torchmark Corporation ("TMK") of 36% of the common stock of
WDR, several transactions were completed to reorganize the assets held by WDR.
The following transactions directly affected UILIC:
(i) WDR contributed 188,212 shares of TMK 6 1/2% Cumulative Preferred Stock,
Series A to UILIC.
(ii) WDR dividended the common stock of its subsidiary UILIC pro rata to
Liberty National Life Insurance Company ("LNL"), an 81.18% owner, and
TMK, an 18.82% owner. LNL is a wholly owned subsidiary of TMK.
(iii) Upon reorganization, UILIC recorded additional goodwill in the amount of
$23,639. This goodwill represented UILIC's portion of United Investors
Management Company's goodwill which was allocated between Waddell & Reed
and UILIC upon dividend of UILIC to TMK and LNL.
(iv) TMK transferred to UILIC a deferred commission credit of $7,980, net of
applicable tax of $4,297. This credit is being amortized over
approximately 10 years.
Description of Business: The Company is a life insurer licensed in 49
states. The Company offers a full range of life, annuity and variable products
through its agents and is subject to competition from other insurers throughout
the United States. The Company is subject to regulation by the insurance
department of states in which it is licensed, and undergoes periodic
examinations by those departments.
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the financial statements and revenues and expenses for the reporting period.
Actual results could differ significantly from those estimates.
The estimates susceptible to significant change are those used in
determining deferred acquisition costs the liability for policy reserves,
losses and claims. Although some variability is inherent in these estimates,
management believes the amounts provided are adequate.
Basis of Presentation: The accompanying financial statements include the
accounts of United Investors, an indirectly wholly-owned subsidiary of TMK, is
owned by Liberty National Life Insurance Company (81.18%) and Torchmark
Corporation (18.82%). The financial statements have been prepared on the basis
of generally accepted accounting principles ("GAAP").
Investments: United Investors classifies all of its fixed maturity
investments, which include bonds and redeemable preferred stocks, as available
for sale. Investments classified as available for sale are carried at fair
value with unrealized gains and losses, net of deferred taxes, reflected as a
component of accumulated other comprehensive income (loss) in shareholders'
equity. Investments in equity securities, which include common and
nonredeemable preferred stocks, are reported at fair value with unrealized
gains and losses, net of deferred taxes, reflected as a component of
accumulated other comprehenive income (loss) in shareholders' equity. Policy
loans are carried at unpaid principal balances. Short-term investments include
investments in certificates of deposit and other interest-bearing time deposits
with original maturities within three months. Other long-term investments
consist of investments in mutual funds which are carried at fair value. If an
investment becomes permanently impaired, such impairment is treated as a
realized loss and the investment is adjusted to net realizable value.
F-8
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 1--Summary of Significant Accounting Policies (continued)
Gains and losses realized on the disposition of investments are recognized
as revenues and are determined on a specific identification basis.
Realized investment gains and losses and investment income attributable to
separate accounts are credited to the separate accounts and have no effect on
United Investors' net income. Investment income attributable to policyholders
is included in United Investors' net investment income. Net investment income
for the years ended December 31, 1999, 1998 and 1997 included approximately
$35,900, $37,000, and $37,800, respectively, which was allocable to
policyholder reserves or accounts. Realized investment gains and losses are not
allocable to policyholders.
Determination of Fair Values of Financial Instruments: Fair value for cash,
short-term investments, receivables and payables approximates carrying value.
Fair values for investment securities are based on quoted market prices, where
available. Otherwise, fair values are based on quoted market prices of
comparable instruments. Fair value of future benefits for universal life and
current interest products and annuity products are based on the fund value.
Cash: Cash consists of balances on hand and on deposit in banks and
financial institutions.
Recognition of Revenue and Related Expenses: Premiums for insurance
contracts which are not defined as universal life-type according to the
Financial Accounting Standards Board's Statement of Accounting Standards (SFAS)
97 are recognized as revenue over the premium-paying period of the policy.
Premiums for limited-payment life insurance contracts as defined by SFAS 97 are
recognized over the contract period. Premiums for universal life-type and
annuity contracts are added to the policy account value, and revenues from such
products are recognized as charges to the policy account value for mortality,
administration, and surrenders (retrospective deposit method). The related
benefits and expenses are matched with revenues by means of the provision for
future policy benefits and the amortization of deferred acquisition costs in a
manner which recognizes profits as they are earned over the same period.
Future Policy Benefits: The liability for future policy benefits for
universal life-type products according to SFAS 97 is represented by policy
account value. Annuity contracts are accounted for as deposit contracts. The
liability for future policy benefits for other products is provided on the net
level premium method based on estimated investment yields, mortality,
persistency and other assumptions which were appropriate at the time the
policies were issued. Assumptions used are based on United Investors'
experience as adjusted to provide for possible adverse deviation. These
estimates are periodically reviewed and compared with actual experience. If it
is determined that future expected experience differs significantly from that
assumed, the estimates are revised.
Deferred Acquisition Costs and Value of Insurance Purchased: The costs of
acquiring new insurance business are deferred. Such costs consist of sales
commissions, underwriting expenses, and certain other selling expenses. The
costs of acquiring new business through the purchase of other companies and
blocks of insurance business are also deferred.
Deferred acquisition costs and the value of insurance purchased, for
policies other than universal life-type policies, according to SFAS 97, are
amortized with interest over an estimate of the premium-paying period of the
policies in a manner which charges each year's operations in proportion to the
receipt of premium income. For limited-payment contracts, acquisition costs are
amortized over the contract period. For universal life-type policies,
acquisition costs are amortized with interest in proportion to estimated gross
profits. The assumptions used as to interest, withdrawals and mortality are
consistent with those used in computing the liability for future policy
benefits and expenses. If it is determined that future experience differs
significantly from that
F-9
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 1--Summary of Significant Accounting Policies (continued)
previously assumed, the estimates are revised. Deferred acquisition costs are
adjusted to reflect the amounts associated with unrealized investment gains and
losses pertaining to universal life-type products.
Income Taxes: Income taxes are accounted for under the asset and liability
method in accordance with SFAS 109. Under the asset and liability method,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement book
values and tax bases of assets and liabilities. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Interest Expense: Interest expense includes interest on borrowed funds not
used in the production of investment income. Interest expense relating to the
production of investment income is deducted from investment income.
Property and Equipment: Property and equipment is reported at cost less
allowances for depreciation. Depreciation is provided on the straight-line
method over the estimated useful lives of these assets which range from three
to ten years.
Goodwill: Goodwill represents the excess cost over the fair value of the net
assets acquired when United Investors was purchased by Torchmark Corporation
(Torchmark) in 1981 and is being amortized on a straight-line basis over forty
years. In 1998 United Investors recorded additional goodwill of $23,639 upon
the reorganization of the company as outlined in Note 1--"Organization." This
additional goodwill is being amortized on a straight-line basis over thirty-
five years.
Reclassification: Certain amounts in the financial statements presented have
been reclassified from amounts previously reported in order to be comparable
between years. These reclassifications have no effect on previously reported
shareholders' equity or net income during the periods involved.
Comprehensive Income: United Investors adopted SFAS 130, "Reporting
Comprehensive Income," effective January 1, 1998. This standard defines
comprehensive income as the change in equity of a business enterprise during a
period from transactions from all nonowner sources. It requires the company to
display comprehensive income for the period, consisting of net income and other
comprehensive income. In compliance with SFAS 130, Statements of Comprehensive
Income is included as an integral part of the financial statements.
Earnings on Derivatives: Accounting for Derivative Instruments and Hedging
Activities (FASB Statement No. 133), as amended by FASB Statement No. 137, is
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000, with earlier application of all of the provisions of this statement
encouraged. Early adoption of selective provisions is prohibited. Prior periods
may not be restated for comparability. This statement establishes standards for
the accounting and reporting of derivative instruments. It requires that all
derivatives be recognized as assets or liabilities on the balance sheet and be
measured at fair value. Changes in the values of derivatives for the reporting
period are reflected as adjustments to earnings through realized gains and
losses. If certain conditions are met, a derivative may be designated as a
hedge against exposure to market risks of other instruments or commitments,
cash flow risks, or foreign currency risks. If a derivative is classified as a
hedge, the adjustment to earnings is offset by a corresponding change in the
value of the item hedged. Hedging relationships may be designated anew upon
adoption of this statement. Management believes that Statement 133 will have an
immaterial impact on UILIC's financial statements.
F-10
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 2--Statutory Accounting
United Investors is required to file statutory financial statements with
state insurance regulatory authorities. Accounting principles used to prepare
these statutory financial statements differ from GAAP. Net income and
shareholders' equity on a statutory basis for United Investors were as follows:
<TABLE>
<CAPTION>
Net Income Shareholders' Equity
Year Ended December 31, At December 31,
---------------------------------------- ---------------------------------
1999 1998 1997 1999 1998
-------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C>
$49,235 $47,294 $34,537 $171,458 $169,757
</TABLE>
The excess of shareholders' equity on a GAAP basis over that determined on a
statutory basis is not available for distribution to shareholders without
regulatory approval.
A reconciliation of United Investors' statutory net income to GAAP net
income is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Statutory net income........................... $ 49,235 $ 47,294 $ 34,537
Deferral of acquisition costs.................. 58,880 42,857 33,485
Amortization of acquisition costs.............. (33,284) (27,874) (24,898)
Differences in policy liabilities.............. (3,887) 1,417 (2,113)
Deferred income taxes.......................... (6,996) (6,422) (6,053)
Other.......................................... (5,751) (655) (209)
-------- -------- --------
GAAP net income................................ $ 58,197 $ 56,617 $ 34,749
======== ======== ========
</TABLE>
A reconciliation of United Investors' statutory shareholders' equity to GAAP
shareholders' equity is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Statutory shareholders' equity................... $ 171,458 $ 169,757
Differences in policy liabilities................ 5,987 9,208
Deferred acquisition cost and value of insurance
purchased....................................... 253,271 213,633
Deferred income taxes............................ (51,541) (59,575)
Asset valuation reserve.......................... 5,806 4,781
Nonadmitted assets............................... 5,168 3,348
Fair value adjustment on fixed maturities
available for sale.............................. (25,656) 30,565
Fair value adjustment on preferred stock of
affiliate....................................... 188,212 188,212
Goodwill......................................... 28,519 29,465
Due and deferred premiums........................ (30,471) (30,317)
Other............................................ (1,562) 503
----------- -----------
GAAP shareholders' equity........................ $ 549,191 $559,580
=========== ===========
</TABLE>
The NAIC requires that a risk based capital formula be applied to all life
and health insurers. The risk based capital formula is a threshold formula
rather than a target capital formula. It is designed only to identify companies
that require regulatory attention and is not to be used to rate or rank
companies that are adequately capitalized. United Investors is adequately
capitalized under the risk based capital formula.
F-11
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 3--Investment Operations
Investment income is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Fixed maturities.................................. $ 45,728 $45,889 $46,000
Policy loans...................................... 1,327 1,186 1,107
Other long-term investments....................... 135 84 1,614
Short-term investments............................ 468 743 436
Other income...................................... 0 954 0
Interest and dividends from affiliates............ 16,532 13,082 2,863
-------- ------- -------
64,190 61,938 52,020
Less investment expense........................... (802) (565) (506)
-------- ------- -------
Net investment income............................. $ 63,388 $61,373 $51,514
======== ======= =======
Analysis of gains (losses) from investments:
Realized investments gains (losses)
Fixed maturities................................ $ (5,023) $ 1 $(5,235)
Mutual funds.................................... 0 9,400 (130)
-------- ------- -------
$ (5,023) $ 9,401 $(5,365)
======== ======= =======
Analysis of change in unrealized gains (losses):
Net change in unrealized investments gains
(losses) on fixed maturities available for sale
before tax....................................... (56,221) 7,522 19,341
Net change in unrealized gains (losses) on equity
securities....................................... (765) 0 0
Net change in unrealized investments gains
(losses) on short-term investments before tax.... 2 (2) 0
Other (includes loss of $5,946 related to sale of
mutual fund shares in 1998)...................... 0 (6,328) 1,798
Adjustment for deferred acquisition cost.......... 14,042 276 (5,387)
Applicable tax.................................... 15,030 (514) (5,512)
-------- ------- -------
Net change in unrealized gains (losses) on short-
term investments and fixed maturities available
for sale......................................... $(27,912) $ 954 $10,240
======== ======= =======
</TABLE>
F-12
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 3--Investment Operations (continued)
A summary of fixed maturities available for sale by cost or amortized cost,
gross unrealized gains and losses and fair value at December 31, 1999 and 1998
is as follows:
<TABLE>
<CAPTION>
Cost or Gross Gross Amount per
Amortized Unrealized Unrealized Fair the Balance
1999: Cost Gains Losses Value Sheet
- ----- --------- ---------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
Fixed maturities avail-
able for sale:
Bonds:
U.S. Government direct
obligations and
agencies............... $ 7,240 $ 30 $ (174) $ 7,096 $ 7,096
GNMA's.................. 64,952 1,675 (536) 66,091 66,091
MBS, GNMA Collateral.... 3,177 7 0 3,184 3,184
Other mortgage-backed
securities............. 23,658 0 (457) 23,201 23,201
States, municipalities
and political
subdivisions........... 18,416 0 (267) 18,149 18,149
Foreign governments..... 3,012 66 0 3,078 3,078
Public utilities........ 54,010 102 (2,150) 51,962 51,962
Industrial and
miscellaneous.......... 438,538 439 (24,392) 414,585 414,585
-------- ------- -------- -------- --------
Total fixed maturities.. $613,003 $ 2,319 $(27,976) $587,346 $587,346
======== ======= ======== ======== ========
Equity Securities:
Common Stock............ $ 3,400 $ -- $ (765) $ 2,635 $ 2,635
======== ======= ======== ======== ========
<CAPTION>
1998:
- -----
<S> <C> <C> <C> <C> <C>
Fixed maturities avail-
able for sale:
Bonds:
U.S. Government direct
obligations and
agencies............... $ 21,441 $ 1,959 $ 0 $ 23,400 $ 23,400
GNMA's.................. 89,674 4,022 (18) 93,678 93,678
Mortgage-backed
securities, GNMA
collateral............. 7,488 71 (1) 7,558 7,558
Other mortgage-backed
securities............. 20,961 1,368 0 22,329 22,329
States, municipalities
and political
subdivisions........... 28,610 1,236 0 29,846 29,846
Public utilities........ 31,454 2,287 0 33,741 33,741
Industrial and
miscellaneous.......... 412,958 21,971 (2,330) 432,599 432,599
-------- ------- -------- -------- --------
Total fixed maturities.. $612,586 $32,914 $ (2,349) $643,151 $643,151
======== ======= ======== ======== ========
</TABLE>
F-13
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 3--Investment Operations (continued)
A schedule of fixed maturities by contractual maturity at December 31, 1999
is shown below on an amortized cost basis and on a fair value basis. Actual
maturities could differ from contractual maturities due to call or prepayment
provisions.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
--------- --------
<S> <C> <C>
Fixed maturities available for sale:
Due in one year or less................................. $ 11,335 $ 11,423
Due from one to five years.............................. 57,297 57,250
Due from five to ten years.............................. 234,712 225,812
Due after ten years..................................... 199,693 185,507
-------- --------
503,037 479,992
Mortgage- and asset-backed securities.................... 109,966 107,354
-------- --------
$613,003 $587,346
======== ========
</TABLE>
Proceeds from sales of fixed maturities available for sale were $157,270 in
1999, $46,039 in 1998, and $113,035 in 1997. Gross gains realized on these
sales were $337 in 1999, $928 in 1998, and $112 in 1997. Gross losses on these
sales were $5,653 in 1999, $927 in 1998, and $5,716 in 1997.
Note 4--Deferred Acquisition Cost and Value of Insurance Purchased
An analysis of deferred acquisition costs and the value of insurance
purchased is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- --------------------- ---------------------
Deferred Value of Deferred Value of Deferred Value of
Acquisition Insurance Acquisition Insurance Acquisition Insurance
Cost Purchased Cost Purchased Cost Purchased
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of
year................... $183,033 $30,600 $176,897 $33,754 $169,986 $16,160
Additions:
Deferred during peri-
od:
Commissions........... 49,812 0 36,328 0 27,664 0
Other expenses........ 9,068 0 6,529 0 5,821 0
-------- ------- -------- ------- -------- -------
Total deferred....... 58,880 0 42,857 0 33,485 0
Value of insurance
purchased............ 0 0 0 0 0 21,305
Adjustment attributable
to unrealized invest-
ment losses (1)....... 14,042 0 276 0 0 0
-------- ------- -------- ------- -------- -------
Total additions...... 72,922 0 43,133 0 33,485 21,305
Deductions:
Amortized during peri-
od................... (28,785) (4,499) (24,720) (3,154) (21,019) (3,711)
Adjustment
attributable to
unrealized investment
gains (1)............ 0 0 0 0 (5,387) 0
Adjustment attribut-
able to realized
investment gains
(1).................. 0 0 0 0 (168) 0
Adjustment to deferred
commissions due to
reorganization....... 0 0 (12,277) 0 0 0
-------- ------- -------- ------- -------- -------
Total deductions..... (28,785) (4,499) (36,997) (3,154) (26,574) (3,711)
-------- ------- -------- ------- -------- -------
Balance at end of year.. $227,170 $26,101 $183,033 $30,600 $176,897 $33,754
======== ======= ======== ======= ======== =======
</TABLE>
- --------
(1) Represents amounts pertaining to investments relating to universal life-
type products.
F-14
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
The amount of interest accrued on the unamortized balance of value of
insurance purchased was approximately $578, $755, and $938 for the years ended
December 31, 1999, 1998 and 1997, respectively. The average interest accrual
rates used were 6.00%, 6.15% and 6.29%, respectively. The estimated amount of
the unamortized value of business purchased balance at December 31, 1999 to be
amortized during each of the next five years is: 2000, $3,159; 2001, $2,636;
2002, $2,244; 2003, $1,950; and 2004, $1,729.
In the event of lapses or early withdrawals in excess of those assumed,
deferred acquisition costs and the value of insurance purchased may not be
recoverable.
Note 5--Property and Equipment
A summary of property and equipment used in the business is as follows:
<TABLE>
<CAPTION>
At December 31, At December 31,
1999 1998
------------------- -------------------
Accumulated Accumulated
Cost Depreciation Cost Depreciation
------ ------------ ------ ------------
<S> <C> <C> <C> <C>
Data processing equipment.............. $ 366 $ 209 $ 227 $ 178
Transportation equipment............... 72 42 72 36
Furniture and office equipment ........ 955 921 928 917
------ ------ ------ ------
Total................................ $1,393 $1,172 $1,227 $1,131
====== ====== ====== ======
</TABLE>
Depreciation expense on property and equipment used in the business was $41,
$39 and $42 in each of the years 1999, 1998, and 1997, respectively.
Note 6--Future Policy Benefit Reserves
A summary of the assumptions used in determining the liability for future
policy benefits at December 31, 1999 is as follows:
Individual Life Insurance
Interest Assumptions:
<TABLE>
<CAPTION>
Percent of
Years of Issue Interest Rates Liability
-------------- -------------------------- ----------
<S> <C> <C>
1962-1999 3.00% level to 6.00% level 15%
1986-1992 7.00% graded to 6.00% 23%
1962-1985 8.50% graded to 6.00% 3%
1981-1985 8.50% graded to 7.00% 3%
1984-1999 Interest Sensitive 56%
----
100%
====
</TABLE>
Mortality assumptions:
The mortality tables used are various statutory mortality tables and
modifications of:
1965-70 Select and Ultimate Table
1975-80 Select and Ultimate Table
Withdrawal assumptions:
Withdrawal assumptions are based on United Investors' experience.
F-15
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 7--Income Taxes
United Investors is included in the life-nonlife consolidated federal income
tax return filed by Torchmark. Under the tax allocation agreement with
Torchmark, a company with taxable income pays tax equal to the amount it would
pay if it filed a separate tax return. A company with a loss is paid a tax
benefit currently to the extent that affiliated companies with taxable income
utilize that loss.
Total income taxes were allocated as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Operating income............................... $ 23,112 $25,567 $18,843
Shareholders' equity:
Unrealized gains (losses)..................... (15,030) 514 5,512
Tax basis compensation expense in excess of
amounts recognized for financial reporting
purposes from the exercise of stock options.. (326) (68) (519)
Tax benefit received on deferred commission
credit due to reorganization................. 0 (4,297) 0
Other......................................... 132 300 1
-------- ------- -------
$ 7,888 $22,016 $23,837
======== ======= =======
</TABLE>
Income tax expense before the adjustments to shareholders' equity is
summarized below:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Current income tax expense......................... $16,116 $19,145 $12,790
Deferred income tax expense........................ 6,996 6,422 6,053
------- ------- -------
$23,112 $25,567 $18,843
======= ======= =======
</TABLE>
In 1999, 1998, and 1997, deferred income tax expense was incurred because of
the difference between net operating income before income taxes as reported on
the statements of operations and taxable income as reported on United
Investor's income tax returns. As explained in Note 1, this difference caused
the financial statement book values of some assets and liabilities to be
different from their respective tax bases.
The effective income tax rate differed from the expected 35% rate in 1999,
1998 and 1997 as shown below:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1999 % 1998 % 1997 %
------- --- ------- --- ------- ---
<S> <C> <C> <C> <C> <C> <C>
Expected income taxes............... $28,458 35% $28,764 35% $18,757 35%
Increase (reduction) in income taxes
resulting from:
Tax-exempt investment income....... (5,682) (7) (3,532) (4) (18) 0
Purchase accounting differences.... 331 0 331 0 99 0
Other.............................. 5 0 4 0 5 0
------- --- ------- --- ------- ---
Income taxes........................ $23,112 28% $25,567 31% $18,843 35%
======= === ======= === ======= ===
</TABLE>
F-16
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 7--Income Taxes (continued)
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Unrealized investment losses....................... $ 6,601 $ 0
Present value of future policy surrender charges... 28,534 20,153
Other liabilities, principally due to the current
nondeductibilty for tax purposes of certain
accrued expenses.................................. 183 132
----------- -----------
Total gross deferred tax assets.................... 35,318 20,285
Deferred tax liabilities:
Future policy benefits and unearned and advance
premiums.......................................... 8,599 2,022
Deferred acquisition costs......................... 73,791 61,881
Unrealized investment gains........................ 0 8,428
Other.............................................. 4,469 7,529
----------- -----------
Total gross deferred tax liabilities............... 86,859 79,860
----------- -----------
Net deferred tax liability.......................... $ 51,541 $ 59,575
=========== ===========
</TABLE>
In United Investors' opinion, all deferred tax assets will be recoverable.
United Investors has not recognized a deferred tax liability of
approximately $2,200 that arose prior to 1984 on temporary differences related
to its policyholders' surplus account. A current tax expense will be recognized
in the future if and when this tax becomes payable.
Note 8--Postretirement Benefits
Pension Plans: United Investors has retirement benefit plans and savings
plans which cover substantially all employees. There is also a nonqualified
excess benefit plan which covers certain employees. The plans cover primarily
employees of United Investors, Liberty National and Torchmark. The total cost
of these retirement plans charged to UILIC's operations was as follows:
<TABLE>
<CAPTION>
Defined
Defined Benefit
Year Ended Contribution Pension
December 31, Plans Plans
------------ ------------ -------
<S> <C> <C>
1999.................................................. $71 $121
1998.................................................. 42 114
1997.................................................. 44 118
</TABLE>
United Investors accrues expense for the defined contribution plans based on
a percentage of the employees contributions. The plans are funded by the
employee contributions and a United Investors contribution equal to the amount
of accrued expense.
F-17
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 8--Postretirement Benefits (continued)
Cost for the defined benefit pension plans has been calculated on the
projected unit credit actuarial cost method. Contributions are made to the
pension plans subject to minimums required by regulation and maximums allowed
for tax purposes. Accrued pension expense in excess of amounts contributed has
been recorded as a liability in UILIC's financial statements and was $177
thousand and $55 thousand at December 31, 1999 and 1998, respectively. The
total unfunded plan liability recorded at December 31, 1999 was $1,271. The
plans covering the majority of employees are organized as trust funds whose
assets consist primarily of investments in marketable long-term fixed
maturities and equity securities which are valued at market.
The excess benefit pension plan provides the benefits that an employee would
have otherwise received from a defined benefit pension plan in the absence of
the Internal Revenue Codes limitation on benefits payable under a qualified
plan. Although this plan is unfunded, pension cost is determined in a similar
manner as for the funded plans. UILIC's liability for the excess benefit plan
was $19 thousand and $19 thousand as of December 31, 1999 and 1998,
respectively.
Net periodic pension cost for the defined benefit plans by expense component
was as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Service cost--benefits earned during period..... $ 725 $ 679 $ 638
Interest cost on projected benefit obligation... 1,420 1,657 1,575
Return on assets................................ (3,035) (3,118) (2,335)
Net amortization and deferral................... 1,701 1,942 1,351
------- ------- -------
Total net periodic cost........................ 811 1,160 1,229
Periodic cost allocated to other participating
employers..................................... 689 1,046 1,111
------- ------- -------
UILIC's net periodic cost....................... $ 122 $ 114 $ 118
======= ======= =======
</TABLE>
F-18
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 8--Postretirement Benefits (continued)
United Investors adopted FASB Statement No. 132, Employers Disclosures about
Pensions and Other Postretirement Benefits, effective for year-end 1998 with
comparative periods restated. In accordance with this Standard, the following
table presents a reconciliation from the beginning to the end of the year of
the benefit obligation and plan assets. This table also presents a
reconciliation of the plans funded status with the.amounts recognized on United
Investors' and Liberty National's balance sheet.
<TABLE>
<CAPTION>
Pension
Benefits For
the year ended
December 31,
----------------
1999 1998
------- -------
<S> <C> <C>
Changes in benefit obligation:
Obligation at the beginning of year...................... $23,230 $21,841
Service cost............................................. 725 679
Interest cost............................................ 1,761 1,657
Actuarial gain (loss).................................... (412) 1,061
Benefits paid............................................ (2,020) (2,008)
------- -------
Obligation at the end of year............................ 23,284 23,230
Changes in plan assets:
Fair value at the beginning of year...................... 18,140 16,054
Return on assets......................................... 3,035 3,118
Contributions............................................ 550 976
Benefits paid............................................ (2,020) (2,008)
------- -------
Fair value at the end of year............................ 19,705 18,140
------- -------
Funded status at year end............................ (3,579) (5,090)
Unrecognized amounts at year end:
Unrecognized actuarial loss (gain)....................... (2,935) (775)
Unrecognized prior service cost.......................... 951 1,044
Unrecognized transition obligation....................... 0 0
------- -------
Net amount recognized at year end...................... $(5,563) $(4,821)
======= =======
Amounts recognized consist of:
Prepaid benefit cost..................................... $(1,271) $ (459)
Accrued benefit liability................................ (4,651) (4,707)
Intangible asset......................................... 359 345
------- -------
Net amount recognized at year end....................... (5,563) (4,821)
Net amount recognized allocated to other participating
employers.............................................. (5,367) (4,747)
------- -------
UILIC's net amount recognized at year end................ $ (196) $ (74)
======= =======
</TABLE>
The weighted average assumed discount rates used in determining the
actuarial benefit obligations were 7.5% in 1999 and 7.0% in 1998. The rate of
assumed compensation increase was 4.5% in 1999 and 4.0% in 1998 while the
expected long-term rate of return on plan assets was 9.25% in 1999 and 9.25% in
1998.
Postretirement Benefit Plans Other Than Pensions: United Investors provides
postretirement life insurance benefits for most retired employees, and also
provides additional postretirement life insurance benefits for certain key
employees. The majority of the life insurance benefits are accrued over the
working lives of active employees.
F-19
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 8--Postretirement Benefits (continued)
For retired employees over age sixty-five, United Investors does not provide
postretirement benefits other than pensions. United Investors does provide a
portion of the cost for health insurance benefits for employees who retired
before February 1, 1993 and before age sixty-five, covering them until they
reach age sixty-five. Eligibility for this benefit was generally achieved at
age fifty-five with at least fifteen years of service. This subsidy is minimal
to retired employees who did not retire before February 1,1993. This plan is
unfunded.
The components of net periodic postretirement benefit cost other than
pensions is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Service cost ................................... $ 89 $ 112 $ 86
Interest on accumulated postretirement. benefit
obligation..................................... 277 377 357
Return on assets................................ 0 0 0
Net amortization and deferral................... (402) (251) (374)
------- ------- -------
Total net periodic postretirement cost......... (36) 238 69
Periodic cost allocated to other participating
employers..................................... (35) 233 68
------- ------- -------
UILIC's net periodic postretirement cost........ $ (1) $ 5 $ 1
======= ======= =======
</TABLE>
The following table presents a reconciliation of the benefit obligation and
plan assets from the beginning to the end of the year, also reconciling the
funded status to the accrued benefit liability.
<TABLE>
<CAPTION>
Benefits Other than Pension
For the year ended
December 31,
----------------------------
1999 1998
------------- -------------
<S> <C> <C>
Changes in benefit obligation:
Obligation at the beginning of year.......... $ 5,262 $ 4,775
Service cost................................. 89 112
Interest cost................................ 277 377
Actuarial gain (loss)........................ (1,255) 559
Benefits paid................................ (490) (561)
------------- -------------
Obligation at the end of year................ 3,883 5,262
Changes in plan assets:
Fair value at the beginning of year.......... 0 0
Return on assets............................. 0 0
Contributions................................ 490 561
Benefits paid................................ (490) (561)
------------- -------------
Fair value at the end of year................ 0 0
------------- -------------
Funded status at year end.................. (3,883) (5,262)
Unrecognized amounts at year end:
Unrecognized actuarial loss (gain)........... (1,612) (553)
Unrecognized prior service cost.............. (151) (357)
------------- -------------
Net amount recognized at year end as accrued
benefit liability.......................... (5,646) (6,172)
Net amount recognized allocated to other
participating employers.................... (5,555) (6,070)
------------- -------------
UILIC's net amount recognized at year end as
accrued benefit liability................... $ (91) $ (102)
============= =============
</TABLE>
F-20
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 8--Postretirement Benefits (continued)
For measurement purposes, an 8.0% annual rate of increase in per capita cost
of covered healthcare benefits was assumed for 1999. These rates grade to
ranges of 8.0% to 4.5% by the year 2004. The health care cost trend rate
assumption has a significant effect on the amounts reported, as illustrated in
the following table which presents the effect of a one-percentage-point
increase and decrease on the service and interest cost components and the
benefit obligation:
Effect on:
<TABLE>
<CAPTION>
Change in Trend
Rate
-----------------
1% 1%
Increase Decrease
-------- --------
<S> <C> <C>
Service and interest cost components....................... $ 27 $ (24)
Benefit obligation......................................... 241 (225)
</TABLE>
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.50% in 1999 and 7.00% in 1998.
Note 9--Related Party Transactions
United Investors was charged for space, equipment and services provided by
an affiliate amounting to $1,835 in 1999, $1,840 in 1998, and $1,852 in 1997.
Torchmark performed certain administrative services for United Investors for
which it was charged $408 in 1999, $612 in 1998, and $468 in 1997.
In 1997, United Investors loaned Torchmark, Liberty National and United
American Insurance Company (United American), an affiliate, $8,060, $10,520 and
$5,500 respectively, at an interest rate of 5.5% all of which were repaid prior
to December 31, 1997. Interest income related to these loans totaling $25 is
included in the accompanying financial statements. United Investors in 1998
loaned Liberty National and United American $1,400 and $1,000 respectively at
an interest rate of 5.5% all of which were repaid as of December 31, 1998.
Interest income related to these loans totaling $4 is included in the
accompanying financial statements. During 1999, United Investors borrowed in a
series of notes $57,000, $2,200, $20,700 and $800 from Globe Life and Accident
Insurance Company (Globe), an affiliate, Liberty National, Torchmark and United
American, respectively. All these notes had a 5.5% interest rate and were
repaid prior to December 31, 1999 and the interest expense related to these
notes of $204 is included in the accompanying financial statements. United
Investors during 1999 loaned in a series of notes $6,100 and $111,800 to
Liberty National and Torchmark, respectively. These notes had a 5.5% interest
rate and were repaid prior to December 31, 1999. In addition, Torchmark repaid
in 1999 a $35,000 note originated in 1994 having an interest rate of 8.110% and
borrowed an additional $35,000 at an interest rate of 7.05%. During 1999,
United Investors received income of $4,300 from these notes which are included
in the accompanying financial statements.
Effective January 1, 1997 United Investors assumed a block of annuity
products totaling $200,321 from United American on 100% funds withheld basis.
In connection with this transaction, United Investors paid a ceding fee
totaling $21,305, $10,000 of which was paid in cash, and recorded a due from
affiliates totaling $189,016 at the end of 1997. The funds withheld totaled
$275,355 and $229,194 at December, 1999 and 1998, respectively. Interest income
totaled $17,058, $13,665 and $11,876 in 1999, 1998 and 1997, respectively, and
is included in other income. The reserve for annuity balances assumed in
connection with this business totaled $287,376 and $241,357 as of December 31,
1999 and 1998, respectively. United Investors reimbursed United American for
administrative expenses in the amount of $933, $800, and $897 in 1999, 1998 and
1997, respectively.
F-21
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
United Investors serves as sponsor to four separate accounts. During 1997,
United Investors was also a investor in two of the separate accounts. These
investments were sold during 1998 for $18.4 million and United Investors is no
longer a depositor to any of its separate accounts.
On March 3, 1998, Waddell & Reed Financial, Inc. contributed 188,212 shares
of TMK 6 1/2% Cumulative Preferred Stock, Series A to UILIC due to the
reorganization discussed in Note 1--Summary of Significant Accounting Policies.
Dividend income, on these shares, in the amount of $12,234 in 1999 and $10,093
in 1998 is included in the accompanying financial statements.
Note 10--Commitments and Contingencies
Reinsurance: United Investors reinsures that portion of insurance risk which
is in excess of its retention limit. The maximum net retention limit for
ordinary life insurance is $500 per life. Life insurance ceded represented 2%
of total life insurance in force at December 31, 1999 and 3% of premium income
for 1999. United Investors would be liable for the reinsured risks ceded to
other companies to the extent that such reinsuring companies are unable to meet
their obligation. Except as disclosed in Note 9, United Investors does not
assume insurance risks of other companies.
Restrictions on the Transfer of Funds: Regulatory restrictions exist on the
transfer of funds from insurance companies. These restrictions generally limit
the payment of dividends to the statutory net gain from operations of the prior
year in the absence of special approval. Additionally, insurance companies are
not permitted to distribute the excess of shareholders' equity as determined on
a GAAP basis over that determined on a statutory basis. Restricted net assets
at December 31, 1999 in compliance with all regulations were $380,733.
Litigation: United Investors is engaged in routine litigation arising from
the normal course of business. In management's opinion, this litigation will
not materially affect United Investors' financial position or results of
operations.
Concentration of Credit Risk: United Investors maintains a highly
diversified investment portfolio with limited concentration in any given
region, industry, or economic characteristic. The portfolio consists of
securities of the U.S. government or U.S. government-backed securities (10%);
nongovernment-guaranteed mortgage-backed securities (3%); securities of state
and municipal governments (2%); investment-grade corporate bonds (49%);
preferred stock in affiliates (23%); noninvestment-grade securities (9%); and
policy loans (2%), which are secured by the underlying insurance policy values.
The balance of the portfolio is invested in short-term investments and
equities.
Investments in municipal governments and corporations are made throughout
the U.S. with no concentration in any given state. Corporate debt and equity
investments are made in a wide range of industries. At December 31, 1999, 1% or
more of the portfolio was invested in the following industries; Electric, gas,
and sanitary services (7%); depository institutions (5%); chemicals and allied
products (4%); nondepository credit institutions (4%); food and kindred
products (3%); industrial and commercial machinery, and computer equipment
(3%); printing, publishing, and allied lines (3%); transportation equipment
(3%); metal fabricators (3%); general merchandise stores (2%); communications
(2%); insurance carriers (2%); railroad transportation (2%); petroleum refining
and related industries (2%); motor freight transportation and warehousing (2%);
and investment holding companies (2%). At year-end 1999, 9% of the carrying
value of fixed maturities was rated below investment grade (BB or lower as
rated by Standard & Poor's or the equivalent NAIC designation). Par value of
these investments was $76.0 million, amortized cost was $75.7 million, and
market value was $71.6 million. While these investments could be subject to
additional credit risk, such risk should generally be reflected in market
value.
F-22
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 10--Commitments and Contingencies (continued)
Collateral Requirements: United Investors requires collateral for
investments in instruments where collateral is available and typically required
because of the nature of the investment. Since the majority of United
Investors' investments are in government, government-secured, or corporate
securities, the requirement for collateral is rare.
Note 11--Supplemental Disclosures for Cash Flow Statement
The following table summarizes United Investors' noncash transactions, which
are not reflected on the statement of cash flow as required by GAAP:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Due from affiliates........................... $274,744 $229,194 $189,016
Value of business purchased................... 0 0 11,305
Future policy benefits........................ 287,376 241,357 200,321
Impact from reorganization of
Waddell & Reed .............................. 0 203,871 0
The following table summarizes certain amounts paid during the period:
<CAPTION>
Year Ended December 31,
--------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Taxes paid.................................... $ 13,142 $26,054 $8,631
</TABLE>
Note 12--Business Segments
United Investors' segments are based on the insurance product lines it
markets and administers, life insurance and annuities. These major product
lines are set out as segments because of the common characteristics of products
within these categories, comparability of margins, and the similarity in
regulatory environment and management techniques. There is also an investment
segment which manages the investment portfolio, debt, and cash flow for the
insurance segments and the corporate function.
Life insurance products include traditional and interest-sensitive whole
life insurance as well as term life insurance. Annuities include both fixed-
benefit and variable contracts. Variable contracts allow policyholders to
choose from a variety of mutual funds in which to direct their deposits.
United Investors markets its insurance products through a number of
distribution channels, each of which sells the products of one or more of
United Investors' insurance segments. The tables below present segment premium
revenue by each of United Investors' marketing groups.
<TABLE>
<CAPTION>
For the Year 1999
------------------------------------------
Life Annuity Total
------------- ------------ -------------
% of % of % of
Distribution Channel Amount Total Amount Total Amount Total
- -------------------- ------- ----- ------ ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Independent Producers............... $ 6,526 8.9% $ -- $ 6,526 8.9%
Waddell & Reed...................... 60,996 83.2% 60,996 82.7%
Liberty National.................... 5,399 7.4% 5,399 7.3%
United American..................... 48 0.1% 473 100.0% 521 0.7%
Globe Direct Response............... 276 0.4% 276 0.4%
------- ----- ----- ----- ------- -----
$73,245 100.0% $ 473 100.0% $73,718 100.0%
======= ===== ===== ===== ======= =====
</TABLE>
F-23
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 12--Business Segments (continued)
<TABLE>
<CAPTION>
For the Year 1998
------------------------------------------
Life Annuity Total
------------- ------------ -------------
% of % of % of
Distribution Channel Amount Total Amount Total Amount Total
- -------------------- ------- ----- ------ ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Independent Producers............... $ 8,004 11.5% $-- $ 8,004 11.4%
Waddell & Reed...................... 61,511 88.4% 61,511 87.9%
United American .................... 415 100.0% 415 0.6%
Globe Direct Response............... 57 0.1% 57 0.1%
------- ----- ---- ----- ------- -----
$69,572 100.0% $415 100.0% $69,987 100.0%
======= ===== ==== ===== ======= =====
<CAPTION>
For the Year 1997
------------------------------------------
Life Annuity Total
------------- ------------ -------------
% of % of % of
Distribution Channel Amount Total Amount Total Amount Total
- -------------------- ------- ----- ------ ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Independent Producers............... $ 7,264 10.6% $-- $ 7,264 10.6%
Waddell & Reed...................... 61,149 89.4% 61,149 89.0%
United American .................... 310 100.0% 310 0.4%
------- ----- ---- ----- ------- -----
$68,413 100.0% $310 100.0% $68,723 100.0%
======= ===== ==== ===== ======= =====
</TABLE>
Because of the nature of the insurance industry, United Investors has no
individual or group which would be considered a major customer. Substantially
all of United Investors' business is conducted in the United States, primarily
in the Southeastern and Southwestern regions.
The measure of profitability for insurance segments is underwriting income
before other income and administrative expenses, in accordance with the manner
the segments are managed. It essentially represents gross profit margin on
insurance products before insurance administrative expenses and consists of
premium, less net policy obligations, acquisition expenses, and commissions. It
differs from GAAP pretax operating income before other income and
administrative expense for two primary reasons. First, there is a reduction to
policy obligations for interest credited by contract to policyholders because
this interest is earned and credited by the investment segment. Second,
interest is also added to acquisition expense which represents the implied
interest cost of deferred acquisition costs, which is funded by and is
attributed to the investment segment.
F-24
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 12--Business Segments (continued)
The measure of profitability for the investment segment is excess investment
income, which represents the income earned on the investment portfolio in
excess of net policy requirements. The investment segment is measured on a tax-
equivalent basis, equating the return on tax-exempt investments to the pretax
return on taxable investments. Other than the above-mentioned interest
allocations, there are no other intersegment revenues or expenses. All other
unallocated revenues and expenses on a pretax basis, including insurance
administrative expense, are included in the "Other" segment category. The table
below sets forth a reconciliation of United Investors' revenues and operations
by segment to its major income statement line items.
<TABLE>
<CAPTION>
For the Year 1999
------------------------------------------------------------
Life Annuity Investment Other Adjustments Total
-------- -------- ---------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Premium................ $ 73,245 $ 473 $ -- $ -- $ -- $ 73,718
Policy charges and
fees.................. 16,251 40,401 56,652
Net investment income.. 63,388 63,388
Other income........... 17,058 17,058
-------- -------- -------- ------- ----- --------
Total Revenues........ 89,496 57,932 63,388 210,816
Benefits and Expenses
Policy benefits........ 51,595 26,686 78,281
Required reserve
interest.............. (19,262) (16,625) 35,887 0
Amortization of
acquisition costs..... 18,377 14,907 33,284
Commissions and premium
taxes................. 5,207 690 5,897
Required interest on
acquisition costs..... 8,179 5,646 (13,825) 0
-------- -------- -------- ------- ----- --------
Total Benefits and
Expenses............. 64,096 31,304 22,062 117,462
-------- -------- -------- ------- ----- --------
Underwriting income
before other income
and administrative
expense............... 25,400 26,628 41,326 93,354
Administrative
expense............... 6,076 6,076
Goodwill amortization.. 946 946
Deferred acquisition
cost adjustment....... 0
-------- -------- -------- ------- ----- --------
Pretax operating
income................ $ 25,400 $ 26,628 $ 41,326 $(7,022) $ -- 86,332
======== ======== ======== ======= =====
Realized investment losses and deferred acquisition cost adjustment..... (5,023)
--------
Pretax income.......................................................... $ 81,309
========
</TABLE>
F-25
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 12--Business Segments (continued)
<TABLE>
<CAPTION>
For the Year 1998
------------------------------------------------------------
Life Annuity Investment Other Adjustments Total
-------- -------- ---------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Premium................ $ 69,572 $ 415 $ -- $ -- $ -- $ 69,987
Policy charges and
fees.................. 12,048 33,065 45,113
Net investment income.. 61,373 61,373
Other income........... 13,665 13,665
-------- -------- -------- ------- ----- --------
Total Revenues........ 81,620 47,145 61,373 190,138
Benefits and Expenses
Policy benefits........ 51,430 25,892 77,322
Required reserve
interest.............. (18,832) (18,162) 36,994 0
Amortization of
acquisition costs..... 16,306 11,568 27,874
Commissions and premium
taxes................. 5,182 398 5,580
Required interest on
acquisition costs..... 7,958 4,814 (12,772) 0
-------- -------- -------- ------- ----- --------
Total Benefits and
Expenses............. 62,044 24,510 24,222 110,776
-------- -------- -------- ------- ----- --------
Underwriting income
before other income
and administrative
expense............... 19,576 22,635 37,151 79,362
Administrative
expense............... 5,633 5,633
Goodwill amortization.. 946 946
Deferred acquisition
cost adjustment.......
-------- -------- -------- ------- ----- --------
Pretax operating
income................ $ 19,576 $ 22,635 $ 37,151 $(6,579) $ -- 72,783
======== ======== ======== ======= =====
Realized investment gains and deferred acquisition cost adjustment...... 9,401
--------
Pretax income.......................................................... $ 82,184
========
</TABLE>
F-26
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 12--Business Segments (continued)
<TABLE>
<CAPTION>
For the Year 1997
----------------------------------------------------------
Life Annuity Investment Other Adjustments Total
------- ------- ---------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Premium................ $68,413 $ 310 $ -- $ -- $ -- $ 68,723
Policy charges and
fees.................. 9,573 27,009 36,582
Net investment income.. 51,514 51,514
Other income........... 11,876 11,876
------- ------- ------- ------- ----- --------
Total Revenues........ 77,986 39,195 51,514 168,695
Benefits and Expenses
Policy benefits........ 47,930 25,189 73,119
Required reserve
interest.............. (18,067) (19,735) 37,802 0
Amortization of
acquisition costs..... 14,671 10,227 24,898
Commissions and premium
taxes................. 5,647 604 6,251
Required interest on
acquisition costs..... 8,044 4,287 (12,331) 0
------- ------- ------- ------- ----- --------
Total Benefits and
Expenses............. 58,225 20,572 25,471 104,268
------- ------- ------- ------- ----- --------
Underwriting income
before other income
and administrative
expense............... 19,761 18,623 26,043 64,427
Administrative
expense............... 5,186 5,186
Goodwill amortization.. 284 284
Deferred acquisition
cost adjustment....... 168 168
------- ------- ------- ------- ----- --------
Pretax operating
income................ $19,761 $18,623 $26,043 $(5,470) $(168) 58,789
======= ======= ======= ======= =====
Realized investment losses and deferred acquisition cost adjustment... (5,197)
--------
Pretax income........................................................ $ 53,592
========
</TABLE>
F-27
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 12--Business Segments (continued)
Assets for each segment are reported based on a specific identification
basis. The insurance segments' assets contain deferred acquisition costs, value
of insurance purchased, and separate account assets. The investment segment
includes the investment portfolio, cash, and accrued investment income.
Goodwill is assigned to corporate operations. All other assets, representing
less than 2% of total assets, are included in the other category. The table
below reconciles segment assets to total assets as reported in the financial
statements.
<TABLE>
<CAPTION>
At December 31, 1999
--------------------------------------------------------------
Life Annuity Investment Other Adjustments Total
-------- ---------- ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash and invested
assets................. $ -- $ -- $815,496 $ -- $ -- $ 815,496
Accrued investment
income................. 11,550 11,550
Deferred acquisition
costs.................. 122,037 105,133 227,170
Goodwill................ 28,519 28,519
Separate account
assets................. 3,413,675 3,413,675
Other Assets............ 361,796 361,796
-------- ---------- -------- -------- ----- ----------
Total Assets............ $122,037 $3,518,808 $827,046 $390,315 $ -- $4,858,206
======== ========== ======== ======== ===== ==========
<CAPTION>
At December 31, 1998
--------------------------------------------------------------
Life Annuity Investment Other Adjustments Total
-------- ---------- ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash and invested
assets................. $ -- $ -- $873,478 $ -- $ -- $ 873,478
Accrued investment
income................. 11,747 11,747
Deferred acquisition
costs.................. 113,057 100,576 213,633
Goodwill................ 29,465 29,465
Separate account
assets................. 2,425,262 2,425,262
Other Assets............ 283,453 283,453
-------- ---------- -------- -------- ----- ----------
Total Assets............ $113,057 $2,525,838 $885,225 $312,918 $ -- $3,837,038
======== ========== ======== ======== ===== ==========
</TABLE>
F-28
<PAGE>
PART II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
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
<PAGE>
committee of three (3) persons appointed by the shareholders at a duly
called 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 84 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
Deloitte & Touche LLP
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. Agreements:
(i) Distribution Agreement;**
(ii) Selling Group Agreement**
(b) United Securities Alliance, Inc. Agreements:
(i) Distribution Agreement;**
(ii) Selling Group Agreement**
(4) Not applicable
(5) Specimen Flexible Premium Variable Life Insurance Policy, Form
TL99 (including Riders)\1\
(6) (a) Articles of Incorporation of United Investors Life Insurance
Company \2\
(b) By-laws of United Investors Life Insurance Company\2\
(7) Not applicable
(8) Forms of Participation Agreements with:
(a) AIM Variable Insurance Funds, Inc.\5\
(b) The Alger American Fund\1\
(c) Deutsche Asset Management VIT Funds (formerly BT
Insurance Funds Trust)\1\
(d) Dreyfus Variable Investment Fund\1\
(e) Evergreen Variable Annuity Trust\1\
(f) INVESCO Variable Investment Funds, Inc.\1\
(1) Amendment to Participation Agreement for INVESCO
Variable Investment Funds, Inc.\4\
3
<PAGE>
(g) MFS Variable Insurance Trust\3\
(1) Amendment to Participation Agreement for MFS
Variable Insurance Trust\4\
(h) Strong Variable Insurance Funds, Inc.\1\
(i) Franklin Templeton Variable Insurance Products Trust
(formerly Templeton Variable Products Series Fund)\1\
(9) Not applicable
(10) Application form\1\
(11) Description of issuance, transfer and redemption procedures\1\
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) Consents of independent accountants**
(b) Consents 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 with Pre-Effective
-- Amendment No. 1 to this Registration Statement on Form S-6 (File No.
333-89875) filed on January 26, 2000.
/2// 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).
/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// Incorporated herein by reference to the Exhibit filed with Post-
-- Effective Amendment No. 4 to the Registration Statement on Form N-4 (File
No. 333-12507) filed on behalf of the RetireMAP Variable Account on April
27, 2000.
/5// 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.
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Titanium Universal Life Variable Account certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933, and has duly caused this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, and its seal to be hereunto affixed and attested, all in the City of
Birmingham and the State of Alabama, on the 17th day of April, 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, 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 4-17-00
- ---------------------------- Chairman of the Board -----------
Anthony L. McWhorter of Directors,
President and Chief
Executive Officer
/s/ W. Thomas Aycock 4-17-00
- ---------------------------- Director, Vice President -----------
W. Thomas Aycock and Chief Actuary
/s/ Tony G. Brill 4-17-00
- ---------------------------- Director and Executive -----------
Tony G. Brill Vice President--Marketing
- ---------------------------- Senior Vice President-- -----------
Mark S. McAndrew Marketing
- ---------------------------- Director -----------
Larry M. Hutchison
/s/ Michael J. Klyce 4-17-00
- ---------------------------- Vice President and -----------
Michael J. Klyce Treasurer
/s/ John H. Livingston 4-17-00
- ---------------------------- Director, Secretary and -----------
John H. Livingston Counsel
/s/ James L. Mayton, Jr. 4-17-00
- ---------------------------- Vice President and -----------
James L. Mayton, Jr. Controller
/s/ Carol A. McCoy 4-17-00
- ---------------------------- Director and Assistant -----------
Carol A. McCoy Secretary
/s/ Ross W. Stagner 4-17-00
- ---------------------------- Director and Vice President -----------
Ross W. Stagner
/s/ Terry W. Davis 4-17-00
- ---------------------------- Director and Vice President-- -----------
Terry W. Davis Administration
<PAGE>
EXHIBIT INDEX
Exhibit No. Name of Exhibit
- ----------- ---------------
99.1.A.(3)(a) First Union Securities, Inc. Agreements:
(i) Distribution Agreement;
(ii) Selling Group Agreement
99.1.A.(3)(b) United Securities Alliance, Inc. Agreements:
(i) Distribution Agreement;
(ii) Selling Group Agreement
99.2 Opinion and consent of John H. Livingston, Esquire as to the
legality of the securities being registered
99.6 Opinion and consent of W. Thomas Aycock as to actuarial
matters pertaining to the securities being registered
99.7(a) Consents of independent accountants
99.7(b) Consent of Sutherland Asbill & Brennan LLP
<PAGE>
EXHIBIT 99.1.A.3.A
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>
1
<PAGE>
DISTRIBUTION AGREEMENT
----------------------
AGREEMENT made as of the day of 2000, by and between United
Investors Life Insurance Co. (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 a Policy.
(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
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(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.
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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.
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<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.
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<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.
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<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.
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<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.
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<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.
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<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.
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<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
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<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.
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<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
16
<PAGE>
Company's officers, directors, employees or agents or their 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.
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<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).
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<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
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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
(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
20
<PAGE>
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 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.
NCO630
One First Union Center
301 South College Street
Charlotte, NC 28228-0630
Attention: David Hebner
Phone: (704) 383-0521
Fax: (704) 374-3105
(b) To the Insurance Company:
United Investors Life Insurance Company
2001 Third Avenue South
Birmingham, AL 35233
Attention: Anthony L. McWhorter
Phone: (205) 325-2758
Fax: (205) 325-2520
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 a
22
<PAGE>
location 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 according to principles of conflicts of
laws.
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:/s/ Daniel J. Ludeman By:/s/ Anthony L. McWhorter
--------------------- ------------------------
Name: Daniel J. Ludeman Name: Anthony L. McWhorter
Title: President & CEO Title: Chairman of the Board,
President & CEO
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 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.
<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.
<PAGE>
SCHEDULE 4
COMPENSATION SCHEDULE
Variable Universal Life - Titanium Investor VUL
Variable Annuity - Titanium Investor VA
<PAGE>
SCHEDULE 5
TERMINATION FEE APPLICABLE TO
PUBLIC AND PRIVATE HNW PRODUCTS
The "Termination Fee" shall be equal to the net present value of the
compensation that would otherwise have become owing to the Distributor under
Schedule 4 of this Agreement (the "Expected Compensation") during the twenty-
year period (the "Termination Fee Period") commencing on the date this Agreement
is terminated by the Distributor pursuant to Section 14(b)(2) or 14(b)(3) (the
"Termination Date"), based on the following assumptions:
(i) that this Agreement would have remained in effect throughout the
Termination Fee Period as it was in effect as of the Termination Date,
without amendment, supplement or other modification;
(ii) subject to clauses (iii) through (v) of this paragraph 1, that the
facts and circumstances as of the Termination Date (upon which the net
present value of Expected Compensation shall be determined) would have
remained unchanged throughout the Termination Period;
(iii) that a gross crediting rate of eight percent (8%) per annum would
have been in effect with respect to each Variable Product throughout the
Termination Period;
(iv) the mortality and lapse tables used for expected deaths, surrenders
and lapses will be those assumed in the pricing of the corresponding
variable product (including any applicable sub-standard ratings) throughout
the Termination Fee Period; and
(v) that the discount rate to be applied to determine the net present
value of the Expected Compensation is 12%.
2. The Insurance Company shall pay to the Distributor the Termination Fee
as follows: (i) the Insurance Company shall pay to the Distributor fifty
percent (50%) of the Termination Fee within thirty (30) days of the Termination
Date, and (ii) the Insurance Company shall pay to the Distributor the balance
of the Termination Fee in six consecutive equal monthly installments,
commencing on the last business day of the first full calendar month following
the date the Insurance Company pays the portion of the Termination Fee required
pursuant to clause (1) of this paragraph 2, and on the last business day of
each calendar month thereafter (each such payment date pursuant to this clause
(ii), a "Termination Fee Installment Payment Date"). The period from and
<PAGE>
including the Termination Date to the last Termination Fee Installment Payment
Date is hereinafter referred to as the "Termination Fee Payment Period." The
Termination Fee from time to time outstanding shall bear interest from, but not
including, the Termination Date at a rate equal to the Prime Rate plus two
percent (2%). For purposes of this Agreement, "Prime Rate" means (i) the daily
prime rate of interest as published from time to time in The Wall Street Journal
as being the base rate on corporate loans or, if the Prime Rate may not be
ascertained in this manner, (ii) the rate of interest per annum publicly
announced from time to time by The Chase Manhattan Bank, N.A., or its successor,
as its prime rate in effect at its principal office in New York City. Interest
shall be compounded monthly on the last business day of each calendar month
(after giving effect to any payment of interest made on such date) and based on
a 360-day year. The interest rate shall be adjusted on the last business day of
each calendar month to equal the Prime Rate as of such date plus two percent
(2%).
All accrued interest shall be payable on the last business day of each
calendar month, beginning on the initial Termination Fee Installment Payment
Date. Notwithstanding anything to the contrary contained in this Agreement, the
Insurance Company shall have the right to pay all or any portion of the
Termination Fee and/or any accrued interest from time to time outstanding, at
any time and from time to time, without penalty or premium. Immediately
following any such payment, the Insurance Company shall pay the Termination Fee
outstanding (after giving effect to such payment) in equal installments on each
of the remaining Termination Fee Installment Payment Dates.
<PAGE>
EXHIBIT 99.1.A.3.B
Table of Contents
Section Page No.
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
1
<PAGE>
DISTRIBUTION AGREEMENT
----------------------
AGREEMENT made as of the day of 2000, 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 a Policy.
(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).
(l) 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
(5) 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. Sales Agreements
----------------
6
<PAGE>
(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.
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<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, licenses,
9
<PAGE>
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 prior to the Insurance Company's
having received sufficient premiums to recover any outstanding sales
commissions, the Insurance Company reserves the right to recover: (1) one
hundred percent (100%) of the outstanding advanced sales commission paid to
Distributor, Broker-Dealer or Representative respecting the sale of the
Variable Product; (2) fifty percent (50%) of the compensation paid if a
Variable Annuity Product terminates due to death during the first twelve
(12) months following issue; and (3) nothing (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, processing or
16
<PAGE>
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:
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<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)
20
<PAGE>
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.
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<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: David Reeves
Fax: (303) 792-0985
(b) To the Insurance Company:
United Investors Life Insurance Company
2001 Third Avenue South
Birmingham, AL 35233
Attention: Anthony L. McWhorter
Fax: (205) 325-2520
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,
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
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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
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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.
25
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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: /s/ Edward H. Wise By: /s/ Anthony L. McWhorter
--------------------------- --------------------------
Name: Edward H. Wise Name: Anthony L. McWhorter
Title: President Title: Chairman of the Board,
President & CEO
26
<PAGE>
SCHEDULE 1
DISTRIBUTOR AGENCY AFFILIATES
United Securities Alliance, 8 Inverness Drive,
Englewood, CO 80112
27
<PAGE>
SCHEDULE 2
VARIABLE PRODUCTS
Product Policy/Certificate Description
Number
Titanium Investor Variable Universal Life Product
Titanium Investor Variable Annuity Product
28
<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.
29
<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.
30
<PAGE>
SCHEDULE 4
COMPENSATION SCHEDULE
Variable Annuity - Titanium Investor VA
Variable Universal Life - Titanium Investor VUL
31
<PAGE>
SCHEDULE 5
TERMINATION FEE APPLICABLE TO
PUBLIC AND PRIVATE HNW PRODUCTS
The "Termination Fee" shall be equal to the net present value of the
compensation that would otherwise have become owing to the Distributor under
Schedule 4 of this Agreement (the "Expected Compensation") during the twenty-
year period (the "Termination Fee Period") commencing on the date this Agreement
is terminated by the Distributor pursuant to Section 14(b)(2) or 14(b)(3) (the
"Termination Date"), based on the following assumptions:
(i) that this Agreement would have remained in effect throughout the
Termination Fee Period as it was in effect as of the Termination Date,
without amendment, supplement or other modification;
(ii) subject to clauses (iii) through (v) of this paragraph 1, that the
facts and circumstances as of the Termination Date (upon which the net
present value of Expected Compensation shall be determined) would have
remained unchanged throughout the Termination Period;
(iii) that a gross crediting rate of eight percent (8%) per annum would
have been in effect with respect to each Variable Product throughout the
Termination Period;
(iv) the mortality and lapse tables used for expected deaths, surrenders
and lapses will be those assumed in the pricing of the corresponding
variable product (including any applicable sub-standard ratings) throughout
the Termination Fee Period; and
(v) that the discount rate to be applied to determine the net present value
of the Expected Compensation is 12%.
2. The Insurance Company shall pay to the Distributor the Termination Fee
as follows: (i) the Insurance Company shall pay to the Distributor fifty percent
(50%) of the Termination Fee within thirty (30) days of the Termination Date,
and (ii) the Insurance Company shall pay to the Distributor the balance of the
Termination Fee in six consecutive equal monthly installments, commencing on the
last business day of the first full calendar month following the date the
Insurance Company pays the portion of the Termination Fee required pursuant to
clause (1) of this paragraph 2, and on the last business day of each calendar
month thereafter (each such payment date pursuant to this clause (ii), a
"Termination Fee Installment Payment Date"). The period from and
32
<PAGE>
including the Termination Date to the last Termination Fee Installment Payment
Date is hereinafter referred to as the "Termination Fee Payment Period." The
Termination Fee from time to time outstanding shall bear interest from, but not
including, the Termination Date at a rate equal to the Prime Rate plus two
percent (2%). For purposes of this Agreement, "Prime Rate" means (i) the daily
prime rate of interest as published from time to time in The Wall Street Journal
as being the base rate on corporate loans or, if the Prime Rate may not be
ascertained in this manner, (ii) the rate of interest per annum publicly
announced from time to time by The Chase Manhattan Bank, N.A., or its successor,
as its prime rate in effect at its principal office in New York City. Interest
shall be compounded monthly on the last business day of each calendar month
(after giving effect to any payment of interest made on such date) and based on
a 360-day year. The interest rate shall be adjusted on the last business day of
each calendar month to equal the Prime Rate as of such date plus two percent
(2%).
All accrued interest shall be payable on the last business day of each
calendar month, beginning on the initial Termination Fee Installment Payment
Date. Notwithstanding anything to the contrary contained in this Agreement, the
Insurance Company shall have the right to pay all or any portion of the
Termination Fee and/or any accrued interest from time to time outstanding, at
any time and from time to time, without penalty or premium. Immediately
following any such payment, the Insurance Company shall pay the Termination Fee
outstanding (after giving effect to such payment) in equal installments on each
of the remaining Termination Fee Installment Payment Dates.
33
<PAGE>
EXHIBIT 99.2
Opinion and consent of John H. Livingston, Esquire
as to the legality of the securities being registered
April 14, 2000
The Board of Directors
United Investors Life Insurance Company
2001 Third Avenue South
Birmingham, Alabama 35233
Gentlemen:
With reference to the Registration Statement for the 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, Esquire
Secretary and Counsel
JHL:dk
<PAGE>
EXHIBIT 99.6
April 14, 2000
United Investors Life Insurance Company
2001 Third Avenue South
Birmingham, AL 35233
Gentlemen:
In my capacity as Vice President and Chief Actuary of United Investors Life
Insurance Company, I have provided advice concerning the illustration of death
benefits and policy values set forth in the prospectus contained in the
Registration Statement for the 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 the prospectus, based on the assumptions stated in the
illustrations, are consistent with the provisions of the Policy. The rate
structure of the Policy has not been designed so as to make the relationship
between premiums and benefits, as shown in the illustrations, appear more
favorable to a purchaser of a Policy for male age 45 preferred non-tobacco than
to prospective purchasers of Policies at other ages or underwriting classes.
I hereby consent to the use of this opinion as an exhibit to the
Registration Statement.
Sincerely,
/s/ W. Thomas Aycock
--------------------------------
W. Thomas Aycock
Vice President and Chief Actuary
WTA:dk
<PAGE>
EXHIBIT 99.7.A
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 1 to Registration
Statement No. 333-89875 of Titanium Universal Life Variable Account of United
Investors Life Insurance Company on Form S-6 of our report dated January 28,
2000 relating to the financial statements of United Investors Life Insurance
Company, appearing in the Prospectus, which is part of such Registration
Statement, and to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP
Dallas, Texas
April 21, 2000
<PAGE>
EXHIBIT 99.7.A
Accountants' Consent
The Board of Directors of
United Investors Life Insurance Company
We consent to the use of our report dated January 29, 1999, relating to the
balance sheet of United Investors Life Insurance Company as of December 31,
1998, and the related statements of operations, comprehensive income,
shareholders' equity, and the cash flows for each of the years in the two-year
period ended December 31, 1998, as contained in Post-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
------------
KPMG LLP
Birmingham, Alabama
April 21, 2000
<PAGE>
EXHIBIT 99.7.B
April 14, 2000
United Investors Life Insurance Company
2001 Third Avenue South
Birmingham, Alabama 35233
RE: 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 Post-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
FRB:dk
