<PAGE>
File Nos. 333-43022 and 811-10035
As filed with the Securities and Exchange Commission on October 13, 2000
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_]
Pre-Effective Amendment No. 1 [x]
---
Post-Effective Amendment No. ___ [_]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 2 [x]
---
___________________________________
Titanium Annuity Variable Account
(Exact Name of Registrant)
United Investors Life Insurance Company
(Name of Depositor)
2001 Third Avenue South
Birmingham, Alabama 35233
(Address of Depositor's Principal Executive Office)
Depositor's Telephone Number, including Area Code: (205) 325-4300
John H. Livingston, Esq.
United Investors Life Insurance Company
2001 Third Avenue South
Birmingham, Alabama 35233
(Name and Address of Agent for Service)
Copy to:
Frederick R. Bellamy, Esq.
Sutherland Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2415
____________________________________________
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Title of Securities Being Registered: Variable Annuity Policies (Form TVA)
<PAGE>
Titanium Investor
VARIABLE ANNUITY
Prospectus
November 1, 2000
Variable annuity 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.
Please read this prospectus carefully before investing, and keep it for future
reference. It contains important information about the Titanium Investor
Variable Annuity policy.
To learn more about the policy, you may want to look at the Statement of
Additional Information dated November 1, 2000 (known as the "SAI"). For a free
copy of the SAI, contact us at:
United Investors Life Insurance Co.
Variable Products Division
P.O. Box 12101
Birmingham, Alabama 35202-2101
Telephone: 1-800-999-0317
United Investors has filed the SAI with the U.S. Securities and Exchange
Commission (the "SEC") and has incorporated it by reference into this
prospectus. The SAI's table of contents appears on page 38 of this
prospectus.
The SEC maintains an Internet website (http://www.sec.gov) that contains the
SAI, material incorporated by reference, and other information.
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.
DEFERRED VARIABLE ANNUITY POLICY
issued by
United Investors Life Insurance Company
through
Titanium Annuity 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
Small Cap Index
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 Trust(SM)
MFS(R) Emerging Growth Series
MFS(R) Growth with Income Series
MFS(R) Research Series
MFS(R) Total Return Series
Strong Variable Insurance Funds, Inc.
Strong Discovery Fund II
Strong Mid Cap Growth Fund II
Strong Opportunity Fund II
Franklin Templeton Variable Insurance Products Trust
Templeton Asset Strategy Fund - Class 2
Templeton International Securities Fund - Class 2
VARIABLE ANNUITY POLICIES:
--------------------------------------------------------------------------------
ARE NOT FDIC INSURED ARE NOT BANK GUARANTEED MAY LOSE VALUE
--------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Glossary................................................................. 1
Summary.................................................................. 2
The Policy.............................................................. 2
Annuity Payments........................................................ 2
Purchasing the Policy................................................... 3
Funding Choices......................................................... 3
Charges and Deductions.................................................. 3
Taxes................................................................... 10
Surrender and Partial Withdrawals....................................... 10
Death Benefit........................................................... 10
Other Information....................................................... 11
Inquiries............................................................... 11
Titanium Annuity Variable Account........................................ 12
The Portfolios.......................................................... 12
Fund Management......................................................... 16
Fixed Account............................................................ 17
The Policy............................................................... 17
Issuance of a Policy.................................................... 17
Purchase Payments....................................................... 17
Allocation of Purchase Payments......................................... 18
Policy Value............................................................ 18
Variable Account Value................................................. 18
Fixed Account Value.................................................... 19
Surrender and Withdrawals............................................... 19
Withdrawals............................................................ 19
Automatic Partial Withdrawals.......................................... 20
Surrender.............................................................. 20
Restrictions Under the Texas ORP and Section 403(b) Plan............... 20
Restrictions Under Other Qualified Policies............................ 21
Transfers............................................................... 21
Dollar Cost Averaging................................................... 22
Automatic Asset Rebalancing............................................. 22
Interest Sweep.......................................................... 23
Death Benefit........................................................... 23
Required Distributions.................................................. 24
"Free Look" Period...................................................... 25
Charges and Deductions................................................... 25
Withdrawal Charge....................................................... 25
Waiver of Withdrawal Charges Rider...................................... 26
Annual Policy Maintenance Charge........................................ 27
Administration Fee...................................................... 27
Mortality and Expense Risk Charge....................................... 28
Transaction Charge...................................................... 28
Transfer Fee............................................................ 28
Premium Taxes........................................................... 28
Federal Taxes........................................................... 28
Fund Expenses........................................................... 28
Reduction in Charges for Certain Groups................................. 28
Annuity Payments......................................................... 29
Election of Annuity Payment Option...................................... 29
Annuity Benefit Date.................................................... 29
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Annuity Payment Options................................................. 29
Distribution of the Policies............................................. 31
Federal Tax Matters...................................................... 31
Historical Performance Data.............................................. 35
Voting Rights............................................................ 35
United Investors Life Insurance Company.................................. 36
Published Ratings........................................................ 36
Legal Proceedings........................................................ 36
Financial Statements..................................................... 36
Statement of Additional Information...................................... 36
</TABLE>
The policy is not available in all states. This prospectus is not an offer to
sell securities 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.
ii
<PAGE>
Glossary
=========
<TABLE>
<S> <C>
Annuitant The annuitant is the individual whose life expectancy
determines the size of annuity payments and whose actual
lifetime may determine the duration of annuity payments.
Annuity Benefit The date (or dates) on which annuity payments are to start.
Date
Beneficiary The beneficiary is the individual or individuals to whom
the death benefit is paid if the owner (and any joint
owner) dies before the annuity benefit date.
Business Day A business day is Monday through Friday, except for any
customary U.S. business holiday when the New York Stock
Exchange is not open for trading, or for any customary
local or regional holiday when United Investors' Home
Office is closed. (The policy form uses the term "Valuation
Date" to refer to business days.)
Joint Annuitant The joint annuitant, if any, is a second individual whose
joint life expectancy with the annuitant determines the
size of annuity payments and whose actual lifetime with the
annuitant may determine the duration of annuity
payments.
Net Purchase The purchase payment less any deduction for premium taxes.
Payment
Owner's Designated The owner's designated beneficiary (a joint owner, if any,
Beneficiary or the beneficiary named in the policy) is the individual
who becomes owner of the policy upon the death of an owner.
Policy Year A policy year is a year that starts on the policy's
effective date or on a policy anniversary.
Surrender Value The policy value less any withdrawal charges, the annual
policy maintenance charge, and applicable deductions for
premium taxes.
We, us, our We are United Investors Life Insurance Company.
You, your You are the policy owner.
</TABLE>
1
<PAGE>
Summary
=======
This is a summary of some of the more important points that you should know
and consider before purchasing the Titanium Investor Variable Annuity policy.
The Policy
The Titanium Investor Variable Annuity policy lets you invest on a tax-
deferred basis for your retirement or other long-term purposes. Tax deferral
allows the entire amount you have invested 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 annuity policy value among the fixed
account and thirty-two variable subaccounts. Each subaccount invests exclusively
in shares of a single mutual fund portfolio. 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 thirty-two 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 portfolio you select.
You may lose money on investments in the variable subaccounts.
Like most annuity policies, different rules apply to the Titanium Investor
annuity policy before and after the annuity benefit date you select for your
policy. Before the annuity benefit date, you may invest more money in your
policy. After the annuity benefit date, you will receive one or more annuity
payments. The amount of money you accumulate in your policy before the annuity
benefit date has a major effect on the size of the payments you receive after
the annuity benefit date.
This policy is designed for people seeking long-term tax-deferred
accumulation of assets, generally for retirement or other long-term purposes;
and for persons who have maximized their use of other retirement savings
methods, such as 401(k) plans. The tax-deferred feature is most attractive to
people in high federal and state tax brackets. You should not buy this policy if
you are looking for a short-term investment or if you cannot take the risk of
losing money that you put in.
There are various additional fees and charges associated with variable
annuities. You should consider whether the features and benefits unique to
variable annuities, such as the opportunity for lifetime income payments, a
guaranteed death benefit and the guaranteed level of certain charges are
appropriate for your needs. Variable annuities provide tax-deferral when
purchased outside of qualified plans. However, the tax deferral features of
variable annuities are unnecessary when purchased to fund a qualified plan,
since the plan would already provide tax deferral in most cases.
Annuity Payments
On the annuity benefit date, you may apply your policy value to receive
fixed annuity payments, variable annuity payments or a combination. We guarantee
that fixed annuity payments will remain constant throughout the payment period.
However, the amount of each variable annuity payment will go up or down with the
performance of the particular subaccounts you select.
You may choose among the following ways of receiving your annuity payments:
1. Payments for the lifetime of an individual you select (the annuitant).
2. Payments for the lifetime of the survivor of two individuals you
select (the annuitant and joint annuitant).
2
<PAGE>
3. Payments for the lifetime of an individual (the annuitant), but
guaranteed to continue for various periods of between 5 years and 30
years.
Other annuity payment options are available with our written consent.
Purchasing the Policy
You can purchase a "qualified" policy (one that qualifies for favorable
Federal income tax treatment), or you can purchase a policy on a non-qualified
tax basis. For a non-qualified policy, the minimum initial investment is $2,000.
For a qualified policy, the initial investment must be at least $1,200. As an
exception, we will accept installments of at least $100 per month through a bank
draft authorization or a pre-approved group payment method for both qualified or
non-qualified policies. You can make more investments of at least $100 each
before the annuity benefit date (or your age 90 if earlier).
Funding Choices
You may allocate each new investment (and your existing policy value) among
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
. Small Cap Index
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 Trust(SM)
. MFS(R) Emerging Growth Series
. MFS(R) Growth with Income Series
. MFS(R) Research Series
. MFS(R) Total Return Series
Strong Variable Insurance Funds, Inc.
. Strong Discovery Fund II
. Strong Mid Cap Growth Fund II
. Strong Opportunity Fund II
Franklin Templeton Variable Insurance Products Trust
. Templeton Asset Strategy Fund - Class 2
. Templeton International Securities Fund - Class 2
In most states, you may also allocate purchase payments and your policy value to
the fixed account. We guarantee your fixed account allocation will earn at least
3% interest per year.
Charges and Deductions
We do not deduct any charges from your purchase payments when received,
except for any premium taxes charged in your location.
3
<PAGE>
We make two types of deductions from your policy value for certain
administrative expenses. First, we deduct a flat charge of $35 a year from each
policy. We will waive this charge if your policy value on the policy anniversary
is at least $75,000. Second, we deduct a daily charge at an effective annual
rate of 0.15% of the assets of each variable subaccount.
If you surrender your policy or make a cash withdrawal, we may deduct a
withdrawal charge. This withdrawal charge is 9% of purchase payments withdrawn
that are less than two years old. It decreases in additional years since we
received the purchase payment deemed to be withdrawn. There is no withdrawal
charge on purchase payments ten or more years old at the time they are
withdrawn.
We also do not deduct a withdrawal charge on the free withdrawal amount. In
the first policy year, the free withdrawal amount is equal to the larger of:
(a) 10% of all purchase payments received; or
(b) 100% of earnings. Earnings are the amount by which your policy value
exceeds the total purchase payments you have made.
After the first policy year, the free withdrawal amount is equal to the
larger of:
(a) 10% of the policy value at the time of the withdrawal; or
(b) 100% of earnings.
For each withdrawal in excess of 12 in any one policy year, we deduct a
transaction charge of the lesser of $20 or 2% of the amount withdrawn.
You may make up to 12 transfers between subaccounts and/or the fixed
account each year without charge. For each transfer in excess of 12 in one
policy year, we charge a fee of $25.
We also deduct a daily charge from the variable subaccounts to compensate
us for certain mortality and expense risks. This charge is at an effective
annual rate of 1.25% of assets.
In addition, investment management fees, 12b-1 fees, and other expenses are
deducted from each applicable portfolio.
See the tables below and on the following page for a summary of these
charges and deductions. (We may also deduct premium tax charges.)
Policy Owner Transaction Expenses:
---------------------------------
Maximum Transaction Charge (for each withdrawal
-----------------------------------------------
in excess of 12 per policy year)................................. $20.00
-------------------------------
Transfer Fee (for each transfer in excess
-----------------------------------------
of 12 per policy year)........................................... $25.00
----------------------
Withdrawal Charge (% of purchase payment being withdrawn):
---------------------------------------------------------
Years Since Purchase
Payment *1 1 2 3 4 5 6 7 8 9 10+
---------------------------------------------------------------------------
Charge
9% 9% 8.5% 8.5% 8.5% 8% 7% 6% 4% 2% 0%
* Less than
4
<PAGE>
Annual Policy Maintenance Charge............................. $35.00
--------------------------------
Variable Account Annual Expenses
--------------------------------
Administration Charge...................................... 0.15%
Mortality and Expense Risk Charge.......................... 1.25%
-----
Total Variable Account Annual Expenses....................... 1.40%
5
<PAGE>
Portfolio (Annual Expenses)/1/
(% of average net assets of portfolio)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
Management Other/2/ Total/2/ Portfolio
Fee/2/ Expenses Expenses
Portfolio (after any 12b-1 (after any (after waiver or
waiver) Fees reimbursement) reimbursement)
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM Variable Insurance Fund
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%
------------------------------------------------------------------------------------------------------------------------------
Deutsche Asset Management VIT Funds
EAFE(R) Equity Index 0.26% None 0.39% 0.65%
Small Cap Index 0.13% None 0.32% 0.45%
------------------------------------------------------------------------------------------------------------------------------
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, Inc. 0.75% None 0.04% 0.79%
------------------------------------------------------------------------------------------------------------------------------
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%
------------------------------------------------------------------------------------------------------------------------------
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%
------------------------------------------------------------------------------------------------------------------------------
MFS(R) Variable Insurance Trust(SM)
MFS(R) Emerging Growth Series 0.75% None 0.09% 0.84%
MFS(R) Growth with Income Series 0.75% None 0.13% 0.88%
MFS(R) Research Series 0.75% None 0.11% 0.86%
MFS(R) Total Return Series 0.75% None 0.15% 0.90%
------------------------------------------------------------------------------------------------------------------------------
Strong Variable Insurance 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%
------------------------------------------------------------------------------------------------------------------------------
Franklin Templeton Variable Insurance Products
Trust 0.60% 0.25%/5/ 0.18% 1.03%
Templeton Asset Strategy Fund - Class 2/6/ 0.69% 0.25%/5/ 0.19% 1.13%
Templeton International Securities Fund - Class 2/6/
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
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 of all of its Management Fee and reimbursing part of 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
Portfolio Management Fee 12b-1 (before any (before waiver or
(before any waiver) Fees reimbursement) reimbursement)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deutsche VIT EAFE(R) Equity Index 0.44% None 0.69% 1.13%
-----------------------------------------------------------------------------------------------------------------------------
Deutsche VIT Small Cap Index 0.35% None 0.83% 1.18%
-----------------------------------------------------------------------------------------------------------------------------
Evergreen VA Equity Index 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 Income 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 Fund has a distribution plan or "Rule 12b-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%.
7
<PAGE>
Examples. The following tables give examples of expenses you might pay, on a
$1,000 investment, assuming a 5% annual return on assets.
If you surrender your policy at the end of the applicable time period, you
would pay the following expenses:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Portfolio 1 Year 3 Years
--------- ------ -------
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
AIM Variable Insurance Funds
-------------------------------------------------------------------------------------------------------------------
AIM V.I. Capital Appreciation Fund $111 $151
-------------------------------------------------------------------------------------------------------------------
AIM V.I. Growth Fund $111 $151
-------------------------------------------------------------------------------------------------------------------
AIM V.I. Growth and Income Fund $112 $152
-------------------------------------------------------------------------------------------------------------------
AIM V.I. International Equity Fund $114 $158
-------------------------------------------------------------------------------------------------------------------
AIM V.I. Value Fund $112 $152
-------------------------------------------------------------------------------------------------------------------
The Alger American Fund
-------------------------------------------------------------------------------------------------------------------
Alger American Growth Portfolio $112 $153
-------------------------------------------------------------------------------------------------------------------
Alger American Income & Growth Portfolio $111 $150
-------------------------------------------------------------------------------------------------------------------
Alger American Leveraged AllCap Portfolio $113 $157
-------------------------------------------------------------------------------------------------------------------
Alger American MidCap Growth Portfolio $113 $154
-------------------------------------------------------------------------------------------------------------------
Alger American Small Capitalization Portfolio $113 $156
-------------------------------------------------------------------------------------------------------------------
Deutsche Asset Management VIT Funds
-------------------------------------------------------------------------------------------------------------------
EAFE(R) Equity Index $111 $148
-------------------------------------------------------------------------------------------------------------------
Small Cap Index $109 $142
-------------------------------------------------------------------------------------------------------------------
Dreyfus Funds
-------------------------------------------------------------------------------------------------------------------
Dreyfus VIF-Appreciation Portfolio $112 $152
-------------------------------------------------------------------------------------------------------------------
Dreyfus VIF-Money Market Portfolio $110 $146
-------------------------------------------------------------------------------------------------------------------
Dreyfus VIF-Quality Bond Portfolio $111 $151
-------------------------------------------------------------------------------------------------------------------
The Dreyfus Socially Responsible Growth Fund, Inc. $112 $153
-------------------------------------------------------------------------------------------------------------------
Evergreen Variable Trust
-------------------------------------------------------------------------------------------------------------------
Evergreen VA Equity Index Fund $107 $138
-------------------------------------------------------------------------------------------------------------------
Evergreen VA Foundation Fund $114 $157
-------------------------------------------------------------------------------------------------------------------
Evergreen VA Global Leaders Fund $114 $159
-------------------------------------------------------------------------------------------------------------------
Evergreen VA Small Cap Value Fund $114 $159
-------------------------------------------------------------------------------------------------------------------
INVESCO Variable Investment Funds, Inc.
-------------------------------------------------------------------------------------------------------------------
INVESCO VIF-Equity Income Fund $116 $164
-------------------------------------------------------------------------------------------------------------------
INVESCO VIF-Technology Fund $117 $168
-------------------------------------------------------------------------------------------------------------------
INVESCO VIF-Utilities Fund $116 $165
-------------------------------------------------------------------------------------------------------------------
MFS(R) Variable Insurance Trust(SM)
-------------------------------------------------------------------------------------------------------------------
MFS(R) Emerging Growth Series $112 $154
-------------------------------------------------------------------------------------------------------------------
MFS(R) Growth with Income Series $113 $155
-------------------------------------------------------------------------------------------------------------------
MFS(R) Research Series $113 $155
-------------------------------------------------------------------------------------------------------------------
MFS(R) Total Return Series $113 $156
-------------------------------------------------------------------------------------------------------------------
Strong Variable Insurance Funds, Inc.
-------------------------------------------------------------------------------------------------------------------
Strong Discovery Fund II $115 $163
-------------------------------------------------------------------------------------------------------------------
Strong MidCap Growth Fund II $116 $163
-------------------------------------------------------------------------------------------------------------------
Strong Opportunity Fund II $115 $163
-------------------------------------------------------------------------------------------------------------------
Franklin Templeton Variable Insurance Products Trust
-------------------------------------------------------------------------------------------------------------------
Templeton Asset Strategy Fund - Class 2 $114 $160
-------------------------------------------------------------------------------------------------------------------
Templeton International Securities - Class 2 $115 $163
-------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
If you do not surrender or you annuitize your policy at the end of the
applicable time period, you would pay the following expenses:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Portfolio 1 Year 3 Years
--------- ------ -------
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
AIM Variable Insurance Funds
-------------------------------------------------------------------------------------------------------------------
AIM V.I. Capital Appreciation Fund $21 $66
-------------------------------------------------------------------------------------------------------------------
AIM V.I. Growth Fund $21 $66
-------------------------------------------------------------------------------------------------------------------
AIM V.I. Growth and Income Fund $22 $67
-------------------------------------------------------------------------------------------------------------------
AIM V.I. International Equity Fund $24 $73
-------------------------------------------------------------------------------------------------------------------
AIM V.I. Value Fund $22 $67
-------------------------------------------------------------------------------------------------------------------
The Alger American Fund
-------------------------------------------------------------------------------------------------------------------
Alger American Growth Portfolio $22 $68
-------------------------------------------------------------------------------------------------------------------
Alger American Income & Growth Portfolio $21 $65
-------------------------------------------------------------------------------------------------------------------
Alger American Leveraged AllCap Portfolio $23 $72
-------------------------------------------------------------------------------------------------------------------
Alger American MidCap Growth Portfolio $23 $69
-------------------------------------------------------------------------------------------------------------------
Alger American Small Capitalization Portfolio $23 $71
-------------------------------------------------------------------------------------------------------------------
Deutsche Asset Management VIT Funds
-------------------------------------------------------------------------------------------------------------------
EAFE(R) Equity Index $21 $63
-------------------------------------------------------------------------------------------------------------------
Small Cap Index $19 $57
-------------------------------------------------------------------------------------------------------------------
Dreyfus Funds
-------------------------------------------------------------------------------------------------------------------
Dreyfus VIF-Appreciation Portfolio $22 $67
-------------------------------------------------------------------------------------------------------------------
Dreyfus VIF-Money Market Portfolio $20 $61
-------------------------------------------------------------------------------------------------------------------
Dreyfus VIF-Quality Bond Portfolio $21 $66
-------------------------------------------------------------------------------------------------------------------
The Dreyfus Socially Responsible Growth Fund, Inc. $22 $68
-------------------------------------------------------------------------------------------------------------------
Evergreen Variable Trust
-------------------------------------------------------------------------------------------------------------------
Evergreen VA Equity Index Fund $17 $53
-------------------------------------------------------------------------------------------------------------------
Evergreen VA Foundation Fund $24 $72
-------------------------------------------------------------------------------------------------------------------
Evergreen VA Global Leaders Fund $24 $74
-------------------------------------------------------------------------------------------------------------------
Evergreen VA Small Cap Value Fund $24 $74
-------------------------------------------------------------------------------------------------------------------
INVESCO Variable Investment Funds, Inc.
-------------------------------------------------------------------------------------------------------------------
INVESCO VIF-Equity Income Fund $26 $79
-------------------------------------------------------------------------------------------------------------------
INVESCO VIF-Technology Fund $27 $83
-------------------------------------------------------------------------------------------------------------------
INVESCO VIF-Utilities Fund $26 $80
-------------------------------------------------------------------------------------------------------------------
MFS(R) Variable Insurance Trust(SM)
-------------------------------------------------------------------------------------------------------------------
MFS(R) Emerging Growth Series $22 $69
-------------------------------------------------------------------------------------------------------------------
MFS(R) Growth with Income Series $23 $70
-------------------------------------------------------------------------------------------------------------------
MFS(R) Research Series $23 $70
-------------------------------------------------------------------------------------------------------------------
MFS(R) Total Return Series $23 $71
-------------------------------------------------------------------------------------------------------------------
Strong Variable Insurance Funds, Inc.
-------------------------------------------------------------------------------------------------------------------
Strong Discovery Fund II $25 $78
-------------------------------------------------------------------------------------------------------------------
Strong MidCap Growth Fund II $26 $78
-------------------------------------------------------------------------------------------------------------------
Strong Opportunity Fund II $25 $78
-------------------------------------------------------------------------------------------------------------------
Franklin Templeton Variable Insurance Products Trust
-------------------------------------------------------------------------------------------------------------------
Templeton Asset Strategy Fund $24 $75
-------------------------------------------------------------------------------------------------------------------
Templeton International Securities Fund $25 $78
-------------------------------------------------------------------------------------------------------------------
</TABLE>
The purpose of these tables is to assist you in understanding the various
costs and expenses that you will bear, directly and indirectly. These tables
reflect the expenses of the variable account and the underlying mutual fund
portfolios. These examples reflect the $35 annual policy maintenance charge as
a deduction of $1.00 annually, based on an anticipated average initial purchase
payment of $35,000. These examples do not reflect any premium tax charges.
These examples assume that any fee waivers or reimbursements for the portfolios
will continue for the periods shown.
9
<PAGE>
These examples are not intended to represent past or future expenses. Actual
expenses may be greater or less than those shown. The assumed 5% return is
purely hypothetical. Actual returns (investment performance) will vary, and may
be more or less than 5%.
Taxes
You are generally required to pay taxes on amounts earned in a non-qualified
policy only when they are withdrawn. When you take distributions or withdrawals
from your policy, taxable earnings (if any) are considered to be paid out first,
followed by your investment in the policy.
You are generally required to pay taxes on all amounts withdrawn from a
qualified policy because in most cases purchase payments were made with before-
tax dollars. You are not required to pay taxes on distributions of purchase
payments made with after-tax dollars.
Distributions from the policy are taxed as ordinary income. You may owe a 10%
Federal tax penalty for distributions or withdrawals taken before age 59 1/2.
Surrender and Withdrawals
You may surrender the policy before the annuity benefit date for the surrender
value, which is the policy value less any withdrawal charge, the annual contract
maintenance charge, and any premium tax charge.
You may make a withdrawal of cash from your surrender value. The withdrawal
must be at least $250, and the policy value remaining after the withdrawal must
be at least $2,000. If the policy value remaining is less than $2,000, we will
treat the request for withdrawal as a request for complete surrender of the
policy.
Surrenders and withdrawals may be taxable, and if taken before age 59 1/2 then
a 10% tax penalty may apply.
You cannot surrender the policy or make a withdrawal after the annuity benefit
date.
Death Benefit
The policy provides a death benefit if any policy owner dies before the
annuity benefit date. We will pay the death benefit in a lump sum or as a series
of annuity payments.
The death benefit is the greatest of:
(a) the total purchase payments you have invested in the policy (reduced for
any withdrawals you have made and withdrawal charges); or
(b) your policy value at the time the death benefit is paid; or
(c) the highest of your policy value on the fifth anniversary date, and every
fifth anniversary thereafter prior to the policy owner's or any joint
owner's 80/th/ birthday (or the annuitant's 80/th/ birthday if the policy
owner is not a natural person), plus any purchase payments made since
then, reduced for any withdrawals you have made, and withdrawal charges
you have incurred since then.
10
<PAGE>
Other Information
Free Look: You may cancel the policy by returning it within 10 days after you
receive it. When we receive the returned policy, we will cancel it and generally
refund your policy value plus any contract fees and other charges paid. In some
states we will refund the full amount of your purchase payments instead. (The
"free look" period may be longer in some states.)
Automatic Partial Withdrawals: You may arrange for automatic partial
withdrawals of the same dollar amount to be made every month, three months, six
months, or twelve months. Automatic partial withdrawals cannot exceed the free
withdrawal amount in any one policy year. Automatic partial withdrawals are not
subject to the $250 minimum amount, or to the transaction charge for more than
12 withdrawals in any one policy year. These withdrawals may be taxable, and you
may also incur a 10% Federal tax penalty before age 59 1/2.
Waiver of Withdrawal Charges Rider: If your policy includes the waiver of
withdrawal charges rider, we will waive withdrawal charges under certain
conditions if you (1) become confined in a qualified nursing home, qualified
hospital, or qualified hospice care program; (2) become totally disabled; or (3)
are diagnosed with a terminal illness.
Transfers: Before the annuity benefit date, you may transfer all or part of
your policy value among the 33 funding choices. However, you may transfer out of
the fixed account only once a policy year (except dollar cost averaging,
automatic asset rebalancing or interest sweep transfers). Other restrictions may
apply, especially to fixed account transfers.
After the annuity benefit date, the annuitant may reallocate the annuity
interest among the variable subaccounts or from the variable subaccounts to the
fixed account once each policy year. However, after the annuity benefit date,
transfers from the fixed account to the variable subaccounts are not permitted.
Dollar Cost Averaging: Before the annuity benefit date, you may have automatic
transfers of a pre-determined amount made from the fixed account or the money
market variable subaccount to any of the other variable subaccounts. Certain
minimums and other restrictions apply.
Automatic Asset Rebalancing: Before the annuity benefit date, this option
allows you to have automatic transfers occur at selected intervals to rebalance
your policy value according to your current premium allocation instructions.
Certain minimums and other restrictions apply.
Interest Sweep: This option allows you to transfer interest earned on the
fixed account to any combination of the thirty-two variable subaccounts. Certain
minimums and other restrictions apply.
Financial Information: Our financial statements are in the Statement of
Additional Information. There are no financial statements for the Variable
Account because as of the date of this prospectus the Variable Account has not
commenced operations.
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
Variable Products Division
P.O. Box 12101
Birmingham, Alabama 35202-2101
Telephone: 1-800-999-0317
11
<PAGE>
NOTE: Because this is a summary, it does not contain all the information that
may be important to you. You should carefully read this entire prospectus and
the prospectus of the portfolios which accompany this prospectus before
investing. For qualified policies, the requirements of a particular retirement
plan, an endorsement to the policy, or limitations or penalties imposed by the
Internal Revenue Code may impose limits or restrictions on purchase payments,
surrenders, distributions or benefits, or on other provisions of the policy.
This prospectus does not describe these limitations or restrictions. (See
"Federal Tax Matters.")
Titanium Annuity Variable Account
The variable subaccounts are divisions of the Titanium Annuity 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, whether or not realized, arising from the assets of each subaccount
are credited to or charged against that subaccount without regard to income,
gains or losses from any other subaccount of the Variable Account or arising out
of any other business we may conduct.
The assets in the Variable Account are our property. However, the assets
allocated to the variable subaccounts under the policy are not chargeable with
liabilities arising out of any other business that we may conduct.
The Variable Account is registered with the SEC as a unit investment trust
under the Investment Company Act of 1940 (the "1940 Act"). It meets the
definition of a "separate account" under the Federal securities law. However,
the SEC does not supervise the management or investment practices or policies of
the Variable Account or us.
The Portfolios
Each subaccount of the Variable Account invests exclusively in shares of a
particular mutual fund portfolio. The assets of each portfolio are separate from
the assets of the other portfolios. Thus, each portfolio operates separately,
and the income, gains, or losses of one portfolio have no effect on the
investment performance of any other portfolio.
The investment objectives and policies of each mutual fund portfolio are
summarized below. There is no assurance that any of the portfolios will achieve
their stated objectives. More detailed information, including a description of
risks, is in the prospectuses of the portfolios which accompany this prospectus.
The following 32 mutual fund portfolios are currently offered to policy owners
through the subaccounts of the Variable Account:
--------------------------------------------------------------------------------
Portfolio Investment Objective and Certain Policies
--------------------------------------------------------------------------------
AIM V.I. Capital Seeks growth of capital through investment in common
Appreciation Fund stocks. 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.
--------------------------------------------------------------------------------
AIM V.I. Growth Seeks growth of capital primarily by investing in
Fund seasoned and better capitalized companies considered to
have strong earnings momentum.
--------------------------------------------------------------------------------
AIM V.I. Growth and Seeks growth of capital with a secondary objective of
Income Fund current income. Focus is on securities of established
companies that have long-term above-average growth in
earnings and dividends, and growth companies that have
potential for above-average growth in earnings and
dividends.
--------------------------------------------------------------------------------
12
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--------------------------------------------------------------------------------
AIM V.I. Seeks long-term growth of capital by investing in a
International diversified portfolio of international equity
Equity Fund securities whose issuers are 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.
--------------------------------------------------------------------------------
AIM V.I. Seeks long-term growth of capital by investing
Value Fund primarily in equity securities judged by the fund's
investment advisor to be undervalued relative to the
investment advisor's appraisal of the current or
projected earnings of the companies issuing the
securities, or relative to current market values of
assets owned by the companies issuing the securities or
relative to the equity market generally. Income is a
secondary objective.
--------------------------------------------------------------------------------
Alger American Seeks long-term capital appreciation. It focuses on
Growth Portfolio growing companies that generally have broad product
lines, markets, financial resources and depth of
management. Under normal circumstances, the portfolio
invests primarily in the equity securities of large
companies. The portfolio considers a large company to
have a market capitalization of $1 billion or greater.
--------------------------------------------------------------------------------
Alger American Primarily seeks to provide a high level of dividend
Income and Growth income; its secondary goal is to provide capital
Portfolio appreciation. The portfolio invests in dividend paying
equity securities, such as common or preferred stocks,
preferably those which the Manager believes also offer
opportunities for capital appreciation.
--------------------------------------------------------------------------------
Alger American Seeks long-term capital appreciation. Under normal
Leveraged AllCap circumstances, the portfolio invests in the equity
Portfolio securities of companies of any size which demonstrate
promising growth potential. The portfolio can leverage,
that is, borrow money, up to one-third of its total
assets to buy additional securities. By borrowing
money, the portfolio has the potential to increase its
returns if the increase in the value of the securities
purchased exceeds the cost of borrowing, including
interest paid on the money borrowed.
--------------------------------------------------------------------------------
Alger American Seeks long-term capital appreciation. It focuses on
MidCap Growth mid-size companies with promising growth potential.
Portfolio Under normal circumstances, the portfolio invests
primarily in the equity securities of companies having
a market capitalization within the range of companies
in the S&P(R) MidCap 400 Index.
--------------------------------------------------------------------------------
Alger American Seeks long-term capital appreciation. It focuses on
Small Capitalization small, fast-growing companies that offer innovative
Portfolio products, services or technologies to a rapidly
expanding marketplace. Under normal circumstances, the
portfolio invests primarily in the equity securities of
small capitalization companies. A small capitalization
company is one that has a market capitalization within
the range of the Russell 2000(R) Growth Index or the
S&P(R) SmallCap 600 Index.
--------------------------------------------------------------------------------
Deutsche VIT EAFE(R) Seeks to match as closely as possible, before expenses,
Equity Index the risk and return characteristics of the Morgan
Stanley Capital International (MSCI) EAFE(R) Index,
which emphasizes stocks of companies in major markets
in Europe, Australia and the Far East. The Fund may
also use stock index futures, options and forward
currency exchange contracts. The EAFE(R) Index is the
exclusive property of Morgan Stanley Capital
International, a service of Morgan Stanley, and is
licensed for use by the Fund's investment advisor.
--------------------------------------------------------------------------------
Deutsche VIT Small Seeks to match as closely as possible, before expenses,
Cap Index the risk and return characteristics of the Russell
2000(R) Small Stock Index which emphasizes stocks of
small United States companies. The Fund may also use
stock index futures and options. Russell 2000(R)is a
trademark of the Frank Russell Company and has been
licensed for use by the Fund's investment advisor.
--------------------------------------------------------------------------------
Dreyfus Seeks long-term capital growth consistent with the
VIF-Appreciation preservation of capital; current income is a secondary
Portfolio goal. The portfolio invests in common stocks focusing
on 'blue chip' companies with total market values of
more than $5 billion at the time of purchase.
--------------------------------------------------------------------------------
Dreyfus VIF-Money Seeks as high a level of current income as is
Market Portfolio consistent with the preservation of capital and the
maintenance of liquidity. As a money market, the
portfolio is subject to maturity, quality and
diversification requirements designed to help maintain
a stable share price of $1.00. The portfolio invests in
a diversified portfolio of high-quality, short-term
debt securities.
--------------------------------------------------------------------------------
13
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<TABLE>
<S> <C>
----------------------------------------------------------------------------------------------------------------
Dreyfus VIF-Quality Seeks to maximize current income as is consistent with the preservation of capital and
Bond Portfolio the maintenance of liquidity. The portfolio invests at least 80% of net assets in
fixed-income securities, including mortgage-related securities, collateralized
mortgage obligations and asset-backed securities, that, when purchased, are rated A or
better, and in securities issued or guaranteed by the U.S. government or its agencies
or instrumentalities.
----------------------------------------------------------------------------------------------------------------
Dreyfus Socially Seeks to provide capital growth, with current income as a secondary goal. To pursue
Responsible Growth these goals, the fund invests primarily in the common stock of companies that, in the
Fund, Inc. opinion of the fund's management, meet traditional investment standards and conduct
their business in a manner that contributes to the enhancement of the quality of life
in America.
----------------------------------------------------------------------------------------------------------------
Evergreen VA Equity Seeks investment results that achieve price and yield performance similar to the
Index Fund Standard and Poor's 500 Composite Stock Price Index (S&P 500 Index). The fund's
investment advisor uses a passive management approach and purchases all or a
representative sample of the stocks comprising the S&P 500 Index which is an
un-managed index of 500 common stocks chosen to reflect the industries of the U.S.
economy and is often considered a proxy for the stock market in general.
----------------------------------------------------------------------------------------------------------------
Evergreen VA Seeks, in order of priority, reasonable income, conservation of capital and capital
Foundation Fund 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.
----------------------------------------------------------------------------------------------------------------
Evergreen VA Global Seeks to provide investors with long-term capital growth. The fund normally invests at
Leaders Fund least 65% of its assets in a diversified 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 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.
----------------------------------------------------------------------------------------------------------------
Evergreen VA Small Seeks current income and capital growth in the value of its shares. The fund invests
Cap Value Fund primarily in common stocks and convertible preferred stocks of small companies (less
than $1 billion in market capitalization). The fund seeks to limit the investment risk
of small company investing by seeking stocks that produce regular income and trade
below what the manager considers their intrinsic value. The fund looks specifically
for various growth triggers, 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.
----------------------------------------------------------------------------------------------------------------
INVESCO VIF- Primary goal is capital appreciation. Current income is a secondary objective. The
Equity Income Fund fund invests primarily in dividend-paying common and preferred stocks. Although it
focuses on the stocks of larger companies with a strong record of paying dividends,
the Fund's assets may be invested in equity securities that do not pay regular
dividends.
----------------------------------------------------------------------------------------------------------------
INVESCO VIF- Seeks capital appreciation and invests in strong growth companies engaged in various
Technology Fund technology-related industries. These include, but are not limited to, applied
technology, biotechnology, communications, computers, electronics, internet, IT
services and consulting, oceanography, office and factory automation, networking,
robotics and video. 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.
----------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
----------------------------------------------------------------------------------------------------------------
INVESCO VIF- Seeks capital appreciation and income through investments in companies that produce,
Utilities Fund generate, transmit or distribute natural gas or electricity, and in companies that
provide telecommunication services including local, long distance and wireless, and
excluding broadcasting. In general, the Fund emphasizes strongly managed companies
that INVESCO believes will generate above-average growth rates for the next three to
five years.
----------------------------------------------------------------------------------------------------------------
MFS(R) Emerging Seeks to provide long-term growth of capital. The series normally invests at least 65%
Growth Series 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.
----------------------------------------------------------------------------------------------------------------
MFS(R) Growth With Seeks to provide reasonable current income and long-term growth of capital and income.
Income Series The series normally invests at least 65% of its total assets in common stocks and
related securities, such as preferred stocks, convertible securities and depositary
receipts for those securities. The series generally focuses on companies with larger
market capitalizations that are believed to have sustainable growth prospects and
attractive valuations based on current and expected earnings or cash flow.
----------------------------------------------------------------------------------------------------------------
MFS(R) Research Seeks to provide long-term growth of capital and future income. The series normally
Series invests at least 80% of its total assets in common stocks and related securities, such
as preferred stocks, convertible securities and depositary receipts. The series
focuses on companies believed to have favorable prospects long-term growth, attractive
valuations based on current and expected earnings or cash flow, dominant or growing
market share, and superior management.
----------------------------------------------------------------------------------------------------------------
MFS(R) Total Return Seeks primarily to provide above-average income (compared to a portfolio invested
Series entirely in equity securities) consistent with the prudent employment of capital, and
secondarily to provide opportunity for growth of capital and income. The series is a
"balanced fund" and invests in a combination of equity and fixed income securities.
----------------------------------------------------------------------------------------------------------------
Strong Discovery Fund Seeks capital growth. The fund invests in a diversified portfolio of common stocks
II from small, medium, and large-capitalization companies. The fund has an active trading
approach.
----------------------------------------------------------------------------------------------------------------
Strong Mid Cap Growth Seeks capital growth. The fund invests at least 65% of its assets in stocks of
Fund II medium-capitalization companies that the fund's managers believe have favorable
prospects for accelerating growth of earnings but are selling at reasonable valuations
based on earnings, cash flow, or asset value. The fund has an active trading approach.
----------------------------------------------------------------------------------------------------------------
Strong Opportunity Seeks capital growth. The fund invests primarily in stocks of medium-capitalization
Fund II 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.
----------------------------------------------------------------------------------------------------------------
Templeton Asset Seeks a high level of total return. Invests in equity securities of companies of any
Strategy Fund 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.
----------------------------------------------------------------------------------------------------------------
Templeton Seeks long-term capital growth. Invests primarily in equity securities of companies
International located outside the United States, including those in emerging markets.
Securities Fund
----------------------------------------------------------------------------------------------------------------
</TABLE>
We may add new portfolios, delete any of the current portfolios, or
substitute new portfolios for the current ones. See the Statement of Additional
Information.
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.
15
<PAGE>
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 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.
Fund Management
AIM Variable Insurance Funds. A I M Advisors, Inc. ("AIM") has acted as an
investment advisor since its organization in 1976. Today, AIM, together with its
subsidiaries, advises or manages over 120 investment portfolios encompassing a
broad range of investment objectives.
Alger American Fund. Since 1964, Fred Alger Management, Inc. has provided
superior investment management services and has remained constant to a
philosophy of investing in America's rapidly growing companies. The firm
specializes in growth equity management, emphasizing intensive research and
individual security selection.
Deutsche Asset Management. Under the supervision of the Board of Trustees,
Bankers Trust Company acts as the Fund's investment advisor. Bankers Trust is an
indirect wholly-owned subsidiary of Deutsche Bank A.G. As investment advisor,
Bankers Trust makes the Fund's investment decisions.
Dreyfus Variable Investment Fund. The Dreyfus Corporation is the investment
advisor of Dreyfus Variable Investment Fund and provides investment advisory
services to its portfolios. Fayez Sarofim & Co. is the sub-investment advisor of
the Appreciation Portfolio, for which it provides investment advisory assistance
and day-to-day management.
Evergreen Variable Annuity Funds. Evergreen Asset Management Corp. and its
affiliates are the advisors to the Evergreen Funds. Since 1932, Evergreen Funds
has offered investment products and services, which seek to flourish in all
seasons, under all market conditions, in order to help investors manage wealth
and manage risk. With over $85 billion under management and over 3.3 million
accounts, Evergreen is committed to providing our shareholders with the highest
quality products and services.
INVESCO Variable Investment Funds, Inc. INVESCO Funds Group, Inc. is the
investment advisor of the INVESCO Variable Investment Funds, Inc. and provides
investment advisory services to its portfolios.
MFS(R) Variable Insurance Trust(SM). MFS is the investment advisor of MFS
Variable Insurance Trust and provides investment advisory services to its
portfolios.
Strong Variable Insurance Funds, Inc. Strong Capital Management, Inc. is
the investment advisor of the Strong Variable Insurance Funds, Inc. and provides
investment advisory services to its portfolios.
Franklin Templeton Investments. Templeton Investment Counsel, Inc. is the
investment advisor of Templeton International Securities Fund and Templeton
Asset Strategy Fund.
16
<PAGE>
Fixed Account
-------------
The funding choice guaranteeing your principal and a minimum fixed rate of
interest is called the "fixed account." It is not registered under the
Securities Act of 1933, and it is not registered as an investment company under
the Investment Company Act of 1940. Accordingly, neither the fixed account nor
any interests therein are subject to the provisions or restrictions of these
Federal securities laws, and the disclosure regarding the fixed account has not
been reviewed by the staff of the SEC.
The fixed account is a part of our general account, which includes all of
our assets other than those in any separate account. We guarantee that we will
credit interest at a rate of not less than 3% per year to investment amounts
allocated to the fixed account. We may credit interest at a rate in excess of 3%
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% per year. The fixed account may not be available
in all states.
As the policy owner, you determine the allocation of policy value to the
fixed account. Before the annuity benefit date, you may transfer all or part of
the values held in the fixed account to one or more of the variable subaccounts
once per policy year. This restriction will not apply to automatic transfers
from the fixed account in the dollar cost averaging, interest sweep, or
automatic asset rebalancing options. After the annuity benefit date, transfers
out of the fixed account are not allowed. After the annuity benefit date, values
in the variable subaccounts may be transferred to the fixed account only once
per policy year. (See "Transfers.")
The Policy
----------
The policy is a deferred variable annuity. Your rights and benefits as
owner of the policy are described below and in the policy. However, we reserve
the right to modify the policy to comply with any law or regulation, or to give
you the benefit of any law or regulation, where permitted by state law.
Issuance of a Policy
If you wish to purchase a policy, you must complete an application and send
it to our home office. We will generally accept your application if it conforms
to our requirements, but we reserve the right to reject any application or
purchase payment. If the application can be accepted in the form received, the
initial net purchase payment will be applied within two business days after the
latter of receipt of the application or receipt of the initial purchase payment.
If the initial net purchase payment cannot be applied within five business days
after receipt because the application is incomplete, we will contact you with an
explanation for the delay. Your initial purchase payment will be returned at
that time unless you consent to our retaining and applying it as soon as the
remaining application requirements are met. (The net purchase payment is your
purchase payment less any charge for premium taxes).
Both you (the policy owner) and the annuitant (if different) must be 90
years old or less when you purchase a policy.
The policy will only become effective when we accept your application.
Purchase Payments
The initial purchase payment for non-qualified policies must be at least
$2,000. For qualified policies, the initial purchase payment must be at least
$1,200. As an exception, if purchase payments will be made by means of a bank
draft authorization or a group payment method approved in advance by us, we will
accept installments of $100 per month for the first year. Additional purchase
payments may be in amounts of $100 or more.
17
<PAGE>
If you make no purchase payments during a 24-month period and your previous
purchase payments total less than $2,000, we have the right to cancel your
policy by paying you the policy value in a lump sum, after a 30-day notice,
unless during that time you make an additional purchase payment.
No additional purchase payments may be made after the annuity benefit date,
or on or after the policy anniversary following the owner's or any joint owner's
90th birthday (or the annuitant's 90th birthday if the owner is not a natural
person).
Allocation of Purchase Payments
You determine in the application how the initial net purchase payment will
be allocated among the variable subaccounts and the fixed account. You may use
any whole percentage to allocate your purchase payments, from 0% to 100%.
On your policy's effective date, the initial net purchase payment will be
allocated among the variable subaccounts and the fixed account according to your
allocation instructions.
If we receive an additional purchase payment, we will allocate the net
purchase payment among the funding choices according to your instructions. These
will be the allocations you specify in the application, or new instructions you
provide.
Your policy value will vary with the investment performance of the variable
subaccounts you select. You bear the entire risk for amounts allocated to the
variable subaccounts. You should periodically review your allocations of policy
value in light of all relevant factors, including market conditions and your
overall financial planning requirements.
Policy Value
Your policy value prior to the annuity benefit date is equal to:
(a) your variable account value; plus
(b) your fixed account value.
Variable Account Value. Your variable account value is not guaranteed. It
equals the sum of the values of the variable subaccounts under the policy. The
value of each variable subaccount is calculated on each business day. Business
days generally are Monday through Friday, except holidays when the New York
Stock Exchange or United Investors' Home Office is closed.
On your policy's effective date, your variable account value is equal to
the portion of the initial net purchase payment allocated to the variable
subaccounts. On any business day thereafter, the value of each variable
subaccount under your policy equals:
(a) the value of the subaccount on the preceding business day multiplied
by the appropriate net investment factor (described in the Statement
of Additional Information) for the current business day; plus
(b) the amount of any net purchase payments allocated to the subaccount
during the current business day; plus
(c) the amount of any transfers from other subaccounts or from the fixed
account to the subaccount during the current business day; minus
(d) the amount of any withdrawals (including any withdrawal charge or
transaction charge) from the subaccount during the current business
day; minus
18
<PAGE>
(e) the amount of any transfers (including any transfer charge) to other
subaccounts or to the Fixed Account from the subaccount during the current
business day; minus
(f) the portion of the annual contract maintenance charge allocated to the
subaccount during current business day; minus
(g) the portion of any deduction for premium taxes allocated to the subaccount
during the current business day.
Deductions (f) and (g) will be made from each subaccount in the same
proportion that the value of the subaccount bears to your entire policy value.
Purchase payments, transfers, and withdrawals are processed at the values next
calculated after receipt of the request in good order.
Fixed Account Value. At the end of any business day, your fixed account value
is equal to:
(a) the fixed account value at the end of the previous business day; plus
(b) the sum of all net purchase payments allocated to the fixed account during
the current business day; plus
(c) any amounts transferred into the fixed account during the current business
day; plus
(d) total interest credited during the current business day; less
(e) any amounts transferred out of the fixed account (including any transfer
charge) during the current business day; less
(f) the portion of any withdrawals, withdrawal charges, and transaction
charges allocated to the fixed account during the current business day;
less
(g) the portion of the annual contract maintenance charge and premium taxes
allocated to the fixed account during the current business day.
The annual contract maintenance charge will only be deducted from the fixed
account to the extent that interest has been credited in excess of the
guaranteed interest rate of 3% during the preceding policy year.
Surrender and Withdrawals
Withdrawals. You may make a withdrawal from your surrender value prior to the
annuity benefit date. You must send a written request to our home office in a
form acceptable to us. A withdrawal must be for at least $250 (except for
automatic partial withdrawals), and your remaining policy value must be at least
$2,000 after a withdrawal. If your policy value would be less than $2,000, we
will treat the request for a withdrawal as a request for complete surrender of
your policy. We will ordinarily pay a withdrawal within seven days of receipt of
your written request (unless the check for your purchase payment has not yet
cleared your bank). We may defer payment of any amounts from the fixed account
for up to six months. If we defer payment for more than 30 days, we will pay
interest on the amount deferred at a rate not less than 3% per year.
The surrender value is the policy value less any withdrawal charge, annual
contract maintenance charge, and premium tax deduction.
You can specify that the withdrawal should be made from a particular funding
choice (or choices). If you do not specify this, then the withdrawal will be
made from the funding choices in the same proportions that their values bear to
your total policy value.
You may request up to 12 withdrawals per policy year without a transaction
charge. If you request more than these 12 withdrawals, there will be a $20
transaction charge (or 2% of the amount withdrawn, if less) for each
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<PAGE>
additional withdrawal during that policy year (except for automatic partial
withdrawals). Also, withdrawal charges of up to 9% may apply to withdrawal
amounts in a policy year that exceed the free withdrawal amount. (See
"Withdrawal Charge" and "Transaction Charge.") Any transaction charge or
withdrawal charge will be deducted from your remaining policy value, or from the
amount paid if your remaining policy value is insufficient. No withdrawals may
be made after the annuity benefit date.
Withdrawals may be subject to a 10% Federal tax penalty and to income tax.
(See "Federal Tax Matters.")
Automatic Partial Withdrawals. You may also establish automatic partial
withdrawals by submitting a one-time written request. These automatic partial
withdrawals of a fixed dollar amount may be requested on a monthly, quarterly,
semi-annual or annual basis. The maximum amount of automatic partial withdrawals
in any one policy year is the free withdrawal amount. Automatic partial
withdrawals are only available before the annuity benefit date. They are not
subject to the $250 minimum, and the $20 transaction charge does not apply.
Withdrawals will continue until your policy value is exhausted, unless you stop
them earlier by submitting a written request.
Automatic partial withdrawals are subject to all the other policy provisions
and terms. If an additional withdrawal is made from a policy participating in
automatic partial withdrawals, the automatic partial withdrawals will terminate
automatically and may be resumed only on or after the next policy anniversary.
Automatic partial withdrawals may be subject to a 10% Federal tax penalty and
to income tax. (See "Federal Tax Matters.")
Surrender. You may surrender your policy for its surrender value, by sending a
written request to our home office. (The withdrawal charge, described below, is
only applicable if a surrender occurs in the first ten years following receipt
of a purchase payment.) A surrender will ordinarily be paid within seven days of
receipt of your written request (unless the check for a purchase payment has not
yet cleared your bank). Your policy will terminate as of the date we receive
your written request for surrender. Surrenders are generally taxable
transactions, and may be subject to a 10% Federal tax penalty. (See "Federal Tax
Matters.") No surrender may be made after the annuity benefit date.
Restrictions Under the Texas ORP and Section 403(b) Plans. The Texas
Educational Code does not permit participants in the Texas Optional Retirement
Program ("ORP") to withdraw or surrender their interest in a variable annuity
contract issued under the ORP except upon:
(a) termination of employment in the Texas public institutions of higher
education;
(b) retirement; or
(c) death.
Accordingly, a participant in the ORP (or the participant's estate if the
participant has died) will be required to obtain a certificate of termination
from the employer or a certificate of death before the account can be redeemed.
Similar restrictions apply to variable annuity contracts used as funding
vehicles for Section 403(b) retirement plans. Section 403(b) of the Internal
Revenue Code provides for tax-deferred retirement savings plans for employees of
certain non-profit and educational organizations. As required by Section 403(b),
any policy used for a Section 403(b) plan will prohibit distributions of:
(a) elective contributions made in years beginning after December 31, 1988;
(b) earnings on those contributions; and
(c) earnings on amounts attributable to elective contributions held as of the
end of the last year beginning before January 1, 1989.
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<PAGE>
However, distributions of such amounts will be allowed upon:
(a) death of the employee;
(b) reaching age 59 1/2;
(c) separation from service;
(d) disability; or
(e) financial hardship (except that income attributable to elective
contributions may not be distributed in the case of hardship).
Restrictions Under Other Qualified Policies. Other restrictions on surrenders
or with respect to the election, commencement, or distributions of benefits may
apply under qualified policies or under the terms of the plans for which
qualified policies are issued.
Transfers
Transfers of Policy Value. You may transfer all or part of your variable
account value out of a variable subaccount (to one or more of the other variable
subaccounts or to the fixed account) at any time before the annuity benefit
date.
Each transfer must be for at least $100, and the value remaining in the
subaccount or fixed account after the transfer must be at least $100 (if it
would be less, we will transfer the entire amount out of that subaccount or
fixed account).
You may make 12 transfers in a policy year free of charge. For each transfer
in excess of 12 in a single policy year we deduct a $25 transfer fee from your
policy value. Transferring from one variable subaccount into two or more other
variable subaccounts counts as one transfer request. However, transferring from
two variable subaccounts into one variable subaccount counts as two transfer
requests. Transfers from the fixed account are counted in the same manner. If a
transfer is made out of the fixed account, we reserve the right to prohibit
transfers into the fixed account for six months from the transfer date.
You may transfer all or a part of your fixed account value to one or more of
the variable subaccounts once per policy year before the annuity benefit date.
In addition, each policy year we reserve the right to limit any amount
transferred from the fixed account to a variable subaccount to the greater of:
(a) 25% of the prior policy anniversary's fixed account value; or
(b) the amount of the prior policy year's transfer.
These restrictions on transfers out of the fixed account do not apply to
transfers for dollar cost averaging, automatic asset rebalancing, or automatic
interest sweeps. (See "Dollar Cost Averaging," "Automatic Asset Rebalancing,"
and "Interest Sweep.") In addition, transfers under these programs do not count
against the twelve free transfers per year.
We will make each transfer at the end of the first business day during which
or after which we receive a valid, complete transfer request.
Transfers of Annuity Units. After the annuity benefit date, the annuitant may
transfer annuity units among the variable subaccounts or from the variable
subaccounts to the fixed account, once per policy year. These transfers
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<PAGE>
will be made as of the date the next annuity payment is made. Transfers from the
fixed account to the variable subaccounts are not allowed after the annuity
benefit date.
Transfer Procedures. Transfers may be made by a written request to our home
office or by calling us if a written authorization for telephone transfers is on
file. 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.
We may suspend or modify these transfer privileges at any time.
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 any of
the other variable subaccounts on a periodic basis prior to the annuity benefit
date. The amount transferred may be (1) a specified dollar amount from each
account, (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 into more than one variable subaccount, a minimum of $25
must be transferred into 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 home 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 per year. We reserve the right to
modify or discontinue offering the dollar cost averaging program at any time and
for any reason.
Automatic Asset Rebalancing
Before the annuity benefit date, this option allows you to set up transfers to
occur at selected intervals that will match your policy value allocation between
investment options to your pre-selected 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 dollar cost averaging or interest sweep
program, you may not participate in the 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
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<PAGE>
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 home 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 per
year. We reserve the right to modify or discontinue offering automatic
rebalancing at any time and for any reason.
Interest Sweep
Before the annuity benefit date, you may request that interest earned on
amounts allocated to the fixed account be transferred to any combination of
variable subaccounts. You specify the subaccounts, the frequency of the
transfers (either monthly, quarterly, semi-annually or annually), and the day of
each month to make the transfers (1st - 28th). We will make all interest sweep
transfers on the day you specify or on the next business day (if the day you
have specified is not a business day).
You may elect to participate in the interest sweep program at any time by
sending a written request to our home office. Once elected, interest sweep
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 interest sweep. A transfer under this program is not
counted as a transfer for purposes of the 12 free transfers per year discussed
in "Transfers" above, nor is it included in determining the limitation on
amounts transferred from the fixed account.
Death Benefit
The policy pays a death benefit to the beneficiary named in the policy if the
owner (or any joint owner) dies before the annuity benefit date while the policy
is in force. The death benefit is the greatest of:
(a) the policy value;
(b) the total purchase payments made, reduced for any amounts withdrawn and
any withdrawal charges; or
(c) the highest of the policy values on the fifth anniversary, and every fifth
anniversary thereafter prior to the policy anniversary following the
owner's or any joint owner's 80th birthday (or the annuitant's 80th
birthday if the policy owner is not a natural person), plus any purchase
payments made since then, reduced for any withdrawals you have made, and
withdrawal charges you have incurred since then.
Adjustment for amounts withdrawn and withdrawal charges will reduce the death
benefit under (b) and (c) above in the same proportion that they reduced the
policy value on the date of the withdrawal. The death benefit under (c) above
will not increase on or after the policy anniversary following the owner's, or
any joint owner's, 80th birthday, (or the annuitant's 80th birthday if the owner
is not a natural person).
Upon receiving due proof of death, we will pay the death benefit proceeds to
the beneficiary in a lump sum or under one of the annuity payment options. (See
"Annuity Payments.") However, we will not compute the amount of the death
benefit until the date it is paid, and we cannot pay the death benefit until we
receive both due proof of death and instructions on how to pay it (that is, as a
lump sum or applied under one of the annuity payment options).
If an annuitant dies before the annuity benefit date and if that annuitant is
also the owner or a joint owner of the policy (or any owner is not a natural
person), then the death shall be treated as the death of an owner. (See
"Required Distributions" below.) For non-qualified policies, if (i) an annuitant
dies before the annuity benefit date, (ii) that annuitant was not an owner, and
(iii) all owners are natural persons, then the owner may name a new annuitant
(subject to our age limitations) and the death benefit will not be payable. If
the owner does not name a new annuitant, the owner will automatically become the
annuitant and the death benefit will not be payable.
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<PAGE>
If the annuitant or the owner dies after the annuity benefit date, the amount
payable, if any, will be as provided in the annuity payment option then in
effect, and it will be paid to the Payment Option Beneficiary.
If an owner dies before the annuity benefit date, the entire death benefit
proceeds must be distributed within five years after the date of death. If the
beneficiary chooses to receive any of these proceeds as an annuity,
distributions must commence within one year after the date of death and must be
distributed over the beneficiary's lifetime or over a period not extending
beyond the beneficiary's life expectancy.
If the beneficiary is the deceased owner's spouse, then the spouse may elect
to continue the policy in force (and be treated as the original policy owner)
instead of receiving the death benefit proceeds. If the beneficiary elects to
continue the policy in this manner, then although the beneficiary does not have
a right to receive the death benefit proceeds, we will increase the policy value
so that it equals the amount of the death benefit (if greater).
As far as permitted by law, the proceeds under the policy will not be subject
to any claim of the beneficiary's creditors.
Required Distributions
In order to be treated as an annuity contract for Federal income tax purposes,
the Internal Revenue Code requires any non-qualified policy to provide that:
--------------------
(a) if any owner dies before the annuity benefit date, then the entire
interest in the policy will be distributed within five years after the
date of that owner's death; and
(b) if any owner dies on or after the annuity benefit date but before the time
the entire interest in the policy has been distributed, then the remaining
portion of such interest will be distributed at least as rapidly as under
the method of distribution being used as of the date of that owner's
death.
These requirements will be considered satisfied as to any portion of the owner's
interest that is payable as annuity payments, beginning within one year of that
owner's death, that will be made over the life of the owner's designated
beneficiary or over a period not extending beyond his life expectancy.
If any owner dies before the annuity benefit date, then ownership of the
policy passes to the owner's designated beneficiary, who then has the right to
the death benefit. If the policy has joint owners and one owner dies, then the
surviving joint owner is the designated beneficiary. If there is no joint owner
and the owner dies, then the owner's designated beneficiary is the beneficiary
named in the policy.
If the owner's designated beneficiary is the surviving spouse of the owner,
then the policy may be continued with the surviving spouse as the new owner and
no distributions will be required.
If an annuitant is an owner or joint owner and that annuitant dies before the
annuity benefit date, and if the owner's designated beneficiary does not elect
to receive the death benefit in a lump sum at that time, then we will increase
the policy value so that it equals the death benefit amount, if that is higher
than the policy value. This would occur if the owner's designated beneficiary:
(a) elects to delay receipt of the proceeds for up to five years;
(b) is the deceased owner's spouse and elects to continue the policy; or
(c) elects to receive the proceeds as annuity payments, as described above.
Any such increase in the policy value would be paid by us. We will allocate it
to the variable subaccounts and the fixed account in proportion to the pre-
existing policy value, unless instructed otherwise.
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The non-qualified policies contain provisions which are intended to comply
with the requirements of the Internal Revenue Code. However, no regulations
interpreting these requirements have been issued. We intend to review such
provisions and modify them if necessary to assure that they comply with the
applicable requirements when clarified by regulation or otherwise.
Other rules may apply to qualified policies.
"Free Look" Period
If for any reason you are not satisfied with the policy, you may return it to
us within 10 days after you receive it. If you cancel the policy within this 10-
day "free look" period, we will refund the policy value plus any policy fees and
other charges paid, and the policy will be void from its effective date. (In
some states, we will instead refund the full amount of purchase payment
received.) To cancel the policy, you must mail or deliver it either to our home
office or to the registered agent who sold it within 10 days after you receive
it. (See "Allocation of Purchase Payments.") The "free look" period may be
longer than 10 days where required by state law.
Charges and Deductions
----------------------
We do not deduct any charges from a purchase payment (except for a charge for
any premium taxes). However, certain other charges are deducted to compensate us
for providing the insurance benefits set forth in the policy, for administering
and distributing the policy, for any applicable taxes, and for assuming certain
risks in connection with the policy. These charges are described below.
Withdrawal Charge
We may deduct a withdrawal charge if you:
(a) make withdrawals under the policy; or
(b) surrender the policy.
The withdrawal charge is a percent of the purchase payments deemed to be
included in the withdrawal or the total purchase payments (in the case of a
surrender), as specified in the following table of withdrawal charge rates:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Number of Full Years
Since receipt of Purchase *1 1 2 3 4 5 6 7 8 9 10+
Payment:
--------------------------------------------------------------------------------------------
Withdrawal Charge
(% of Purchase Payment): 9% 9% 8.5% 8.5% 8.5% 8% 7% 6% 4% 2% 0%
</TABLE>
* Less Than
There is a "free withdrawal amount" that can be withdrawn each policy year
------
without a withdrawal charge. In the first policy year, the free withdrawal
amount is equal to the larger of:
(a) 10% of all purchase payments received; or
(b) 100% of earnings. Earnings are the amount by which your policy value
exceeds the total purchase payments you have made.
After the first policy year, the free withdrawal amount is equal to the larger
of:
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(a) 10% of the policy value at the time of the withdrawal; or
(b) 100% of earnings.
Amounts withdrawn in excess of the free withdrawal amount may be subject to
the withdrawal charge.
The withdrawal charge is determined by multiplying each purchase payment
deemed included in the withdrawal by the applicable withdrawal charge rate
specified in the table above.
For purposes of calculating the withdrawal charge:
(a) the oldest purchase payments will be treated as the first withdrawn, newer
purchase payments next, and appreciation last;
(b) amounts withdrawn up to the free withdrawal amount will not be considered
a withdrawal of purchase payments; and
(c) if the surrender value is withdrawn, the withdrawal charge will apply to
all purchase payments not previously assessed with a withdrawal charge.
As shown above, the withdrawal charge percentage varies, depending on the
"age" of the purchase payments included in the withdrawal--that is, the number
of full years since the purchase payment was paid. A withdrawal charge of 9%
applies to purchase payments withdrawn that are less than two years old.
Thereafter the withdrawal charge rate decreases over time. Amounts representing
purchase payments that are at least 10 years old may be withdrawn without
charge.
We will deduct the withdrawal charge from the remaining policy value, or from
the amount paid if there is not enough value remaining. Amounts deducted from
the remaining policy value to cover withdrawals are also subject to the
withdrawal charge. The withdrawal charge partially compensates us for sales
expenses, including agent sales commissions, the cost of printing prospectuses
and sales literature, advertising, and other marketing and sales promotional
activities.
The amounts we receive from the withdrawal charge may not be sufficient to
cover distribution expenses. We expect to recover any deficiency from our
general assets (which include amounts derived from the mortality and expense
risk charge, as described below).
Waiver of Withdrawal Charges Rider
We waive the withdrawal charges described above if the owner becomes confined
to a nursing home or hospital, or enrolled in a hospice care program; or is
diagnosed as terminally ill or totally disabled, provided that certain
conditions for each provision are met. These conditions, including definitions
of various terms, are specified in the rider; the following is merely a brief
summary, and the terms of the rider are controlling.
Confinement Provision: The conditions for waiver of withdrawal charges for
confinement include:
(a) the policy was in force at least one year at the time the confinement
began;
(b) the owner was age 75 or younger on the policy date;
(c) the owner has been continuously confined to a "Nursing Home," "Hospital,"
or "Hospice Care Program" for at least 60 days;
(d) such confinement was recommended by a "Physician" due to an injury,
sickness or disease; and
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<PAGE>
(e) written notice and satisfactory "proof of confinement" are received no
later than 90 days after confinement ends.
Terminal Illness Provision. The conditions for waiver of withdrawal charges for
terminal illness include:
(a) the diagnosis of "terminal illness" was made by a "Physician" on or after
the effective date of this policy and rider;
(b) written notice and satisfactory "proof of terminal illness" are received
within 90 days of the date of diagnosis; and
(c) there is reasonable medical certainty that the death of the owner from a
non-correctable medical condition will occur within 12 months from the
date of the Physician's statement. This period may be longer where
required by law.
Total Disability Provision. The conditions for waiver of withdrawal charges for
total disability include:
(a) written notice and "proof of total disability" are received before any
withdrawal;
(b) the total disability has existed continuously for at least six months;
(c) the policy and rider are in force at the time total disability began;
and
(d) the policy anniversary coinciding with or next following the owner's 60th
birthday has not passed at the time total disability began.
We will waive only the withdrawal charges which are applicable to purchase
payments received before the first confinement began, or before the date of
diagnosis of terminal illness or total disability. Waiver of withdrawal charges
is subject to all of the conditions and provisions of the policy and rider. (See
your policy.) There is no charge for this rider. Also, the rider may not be
available in all states.
Annual Policy Maintenance Charge
We deduct an annual policy maintenance charge of $35 from each policy, for
administering the policy. This deduction is made from the variable subaccounts
and from the fixed account in the same proportion that their values bear to the
policy value. This charge will only be deducted from the fixed account to the
extent interest has been credited to the fixed account in excess of the
guaranteed interest rate during the preceding policy year. Expenses include
costs of maintaining records, processing death benefit claims, surrenders,
transfers and policy changes, providing reports to policy owners, and overhead
costs. We guarantee not to increase this charge during the life of the policy.
Before the annuity benefit date, this charge is deducted on each policy
anniversary and upon a full surrender of your policy. We will waive this charge
on any policy anniversary on which the policy value equals or exceeds $75,000,
and in other circumstances we may waive this charge in whole or in part at our
sole discretion. This charge is not deducted from any annuity payments after the
annuity benefit date.
Administration Fee
We also deduct a daily charge from the subaccounts of the variable account, at
an annual rate of 0.15% of the daily net assets of each variable subaccount, for
administering the variable account and the policy. These expenses include costs
of maintaining records, processing death benefit claims, surrenders, transfers
and policy changes, providing reports to policy owners, and overhead costs. We
guarantee not to increase this charge during the life of the policy. This charge
applies both before and after the annuity benefit date.
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<PAGE>
Mortality and Expense Risk Charge
We deduct a daily charge from the variable subaccounts at an effective annual
rate of 1.25% of their daily net assets. This charge compensates us for assuming
certain mortality and expense risks. No mortality and expense risk charge is
deducted from the fixed account. We may realize a profit from this charge.
However, the level of this charge is guaranteed for the life of the policy and
may not be increased. We deduct this charge both before and after the annuity
benefit date.
The mortality risk we bear arises in part from our obligation to make monthly
annuity payments regardless of how long all annuitants or any individual may
live. These payments are guaranteed in accordance with the annuity tables and
other provisions contained in the policy. This assures you that neither the
longevity of the annuitant, nor an unanticipated improvement in general life
expectancy, will have any adverse effect on the annuity payments the annuitant
will receive under the policy. Our obligation therefore relieves the annuitant
from the risk that he or she will outlive the funds accumulated for retirement.
The mortality risk also arises in part because of the risk that the death
benefit may be greater than the policy value. We also assume the risk that other
expense charges may be insufficient to cover the actual expenses we incur.
Transaction Charge
You may make up to 12 withdrawals per policy year without a transaction
charge. After the 12th withdrawal in a policy year, a transaction charge will
apply to each additional withdrawal. The transaction charge is $20 or 2% of the
amount withdrawn, whichever is less, and will not be increased. We will deduct
this charge from the remaining policy value, or from the amount paid if there is
not enough value remaining. The transaction charge does not apply to automatic
partial withdrawals.
Transfer Fee
You may transfer your policy value among the subaccounts and/or the fixed
account up to 12 times each policy year without charge. We will deduct a $25
transfer fee for each transfer in excess of 12 in a single policy year. We will
not increase this fee.
Premium Taxes
We will deduct a charge for any premium taxes we incur. Depending on state and
local law, premium taxes can be incurred (and we can deduct the related charge)
when you make a purchase payment, when policy value is withdrawn or surrendered,
or when annuity payments start. (The state premium tax rates currently range
from 0% to 3.50%. Some local governments charge additional premium taxes.)
Federal Taxes
Currently no charge is made for our Federal income taxes that may be
attributable to the Variable Account. We may, however, make such a charge in the
future. Charges for other taxes, if any, attributable to the Variable Account
may also be made. (See "Federal Tax Matters.")
Fund Expenses
The value of the assets of the variable subaccounts will reflect the
investment management fee and other expenses incurred by the corresponding
portfolios of the Fund (See "Summary--Charges and Deductions.")
Reduction in Charges for Certain Groups
We may reduce or eliminate the withdrawal or other charges on policies that
have been sold to:
(a) our employees and sales representatives, or those of our affiliates or
distributors of the policy;
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<PAGE>
(b) our customers or distributors of the policies who are transferring
existing policy values to a policy;
(c) individuals or groups when sales of the policy result in savings of sales
or administrative expenses; or
(d) individuals or groups where purchase payments are paid through an approved
group payment method and where the size and type of the group results in
savings of administrative expenses.
We will not reduce or eliminate the withdrawal or other charges where such
reduction or elimination will unfairly discriminate against any person.
Annuity Payments
----------------
Election of Annuity Payment Option
As the policy owner, you have the sole right to elect an annuity payment
option in the application. You can also change that election, during the
lifetime of the annuitant and before the annuity benefit date, by written
request any time at least 30 days before the annuity benefit date. We may
require the exchange of the policy for a contract covering the option selected.
Annuity Benefit Date
The first annuity payment will be made as of the annuity benefit date. You
select the annuity benefit date in the application for the policy. You may
change the annuity benefit date by giving us written notice at least 30 days
before the new annuity benefit date.
An annuity benefit date must be the first day of any calendar month. It must
also be at least 30 days after the policy's effective date.
Annuity Payment Options
On the annuity benefit date, the policy value (less any premium taxes) may be
applied to annuity payments. They can be fixed annuity payments, variable
annuity payments, or a combination of both.
Fixed annuity payments provide guaranteed annuity payments which remain fixed
in amount throughout the payment period. Variable annuity payments vary with the
investment experience of the variable subaccounts. The dollar amount of variable
annuity payments after the first is not fixed.
Annuity payment options currently include:
<TABLE>
------------------------------------------------------------------------------------------------------------
<S> <C>
Life Annuity with No This option provides annuity payments during the lifetime of the
Guaranteed Period annuitant. No payment will be made after the death of the annuitant. Only
one payment will be made under this method if the annuitant dies before the
second payment is due; only two payments will be made if the annuitant
dies before the third payment is due; and so forth.
------------------------------------------------------------------------------------------------------------
Joint Life Annuity This option provides annuity payments during the lifetime of the
Continuing to annuitant and a joint annuitant. Payments will continue to the survivor for
The Survivor the survivor's remaining lifetime. You may also elect for payments to the
survivor to reduce to two-thirds or one-half of the amount payable at the
time of the first death. This election must be made at the annuity benefit
date, and will result in a higher initial annuity payment. Only one payment
or very few payments will be made under this method if the annuitant and
joint annuitant both die before or shortly after payments begin.
------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
<S> <C>
Life Annuity with This option provides annuity payments during the lifetime of the
Monthly Payments annuitant. Various guaranteed periods of 60 months to 360 months are
Guaranteed available. If the annuitant dies prior to the end of this guaranteed period,
annuity payments will be made to the payment option beneficiary until the
end of the guaranteed period.
----------------------------------------------------------------------------------------------------------
</TABLE>
Other annuity payment options are currently available with our written consent.
If you have not selected an annuity payment option on the annuity benefit
date, we will make monthly annuity payments during the lifetime of the annuitant
with 120 monthly payments guaranteed. Unless you instruct us otherwise before
the annuity benefit date, we will use your variable account value to make
variable annuity payments (in accordance with the allocation of your account
value among the subaccounts) and we will use your fixed account value to make
fixed annuity payments.
The amount of each annuity payment under the options described above will
depend on the sex and age of the annuitant (or annuitants) at the time the first
payment is due. The annuity payments may be more or less than the total purchase
payments, and more or less than the policy value, because:
(a) variable annuity payments vary with the investment experience of the
underlying portfolios of the Fund and you therefore bear the investment
risk under variable annuity payments; and
(b) annuitants may die before the actuarially predicted date of death.
Therefore, the dollar amount of annuity payments cannot be predicted. The method
of computing the annuity payments is described in more detail in the Statement
of Additional Information.
The duration of the annuity payment guarantee will affect the dollar amount of
each payment. For example, each payment will be less when payments are
guaranteed for 20 years than when payments are guaranteed for 10 years.
Whether variable annuity payments decrease, increase, or remain level depends
on whether the net investment performance is worse than the "assumed investment
rate," better than that rate, or equal to that rate. The assumed investment rate
in most states is 4.0% per year (it is 3.5% where state law requires it). The
dollar amount of the variable annuity payments will decrease if the actual net
investment experience of the variable subaccount(s) you select is less than the
assumed investment rate. The dollar amount of the variable annuity payments will
increase if the actual net investment experience exceeds the assumed investment
rate. The dollar amount of the variable annuity payments will stay the same if
the actual net investment experience equals the assumed investment rate.
Fixed annuity payment amounts will be based on our fixed annuity payment rates
in effect on the annuity benefit date. These rates are guaranteed to be equal to
or greater than payments based on the Annuity 2000 Mortality Table with interest
at 3.0%.
If the net amount to be applied to an annuity payment option is less than
$3,000, we have the right to pay such amount in one sum. Also, if any payment
would be less than $50, we have the right to reduce the frequency of payment to
an interval that will result in payments of at least $50.
After the annuity benefit date, the policy value may not be withdrawn, nor may
the policy be surrendered. The annuitant will be entitled to exercise any voting
rights and to reallocate the value of his or her interest in the variable
subaccounts. (See "Voting Rights" and "Transfers.")
The policies offered by this prospectus contain life annuity tables that
provide for different benefit payments to men and women of the same age,
although they provide for unisex tables where requested and required by law.
Nevertheless, in accordance with the U.S. Supreme Court's decision in Arizona
Governing Committee v. Norris, in certain employment-related situations, annuity
tables that do not vary on the basis of sex must be used. Accordingly,
30
<PAGE>
if the policy will be used in connection with an employment-related retirement
or benefit plan, you should give consideration, in consultation with your legal
counsel, to the impact of Norris on any such plan before making any
contributions under these policies.
Distribution of the Policies
----------------------------
United Securities Alliance, Inc., 8 Inverness Drive, Suite 100, Denver,
Colorado, is the principal underwriter of the policies. United Securities
Alliance, Inc. is a corporation organized under the laws of the state of Nevada
in 1994. The underwriter is registered as a broker-dealer under the Securities
Exchange Act of 1934, and is a member of the National Association of Securities
Dealers, Inc. The policies may not be available in all states. The underwriter
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. The
underwriter is not affiliated with United Investors Life.
Federal Tax Matters
-------------------
The following discussion is general and is not intended as tax advice.
We do not intend to address the tax consequences resulting from all situations
in which a person may be entitled to or may receive a distribution under a
policy. Any person concerned about these tax implications should consult a
competent tax advisor before initiating any transaction. This discussion is
based upon our understanding of the present Federal income tax laws as they are
currently interpreted by the Internal Revenue Service. We have not assessed the
likelihood of the continuation of the present Federal income tax laws or of
their current interpretation by the Internal Revenue Service. Moreover, we have
not attempted to consider any applicable state or other tax laws.
The policy may be purchased on a non-tax-qualified basis ("non-qualified
policy") or as a qualified policy. Qualified policies are designed for use with
------------------
retirement plans entitled to special income tax treatment under the Internal
Revenue Code of 1986, as amended (the "Code").
Possible Changes in Taxation. Although the likelihood of legislative change
is uncertain, there is always the possibility that the tax treatment of the
policy could change by legislation or other means (such as U.S. Treasury
Department regulations, Internal Revenue Service revenue rulings, and judicial
decisions). It is possible that any change could be retroactive (that is,
effective prior to the date of the change). You should consult a tax advisor
regarding such developments and their effect on the policy.
Taxation of Annuities in General. The following discussion assumes that the
policy will qualify as an annuity contract for Federal income tax purposes. The
Statement of Additional Information and "Required Distributions" (at page 24 of
this prospectus) describe the requirements necessary to qualify.
Section 72 of the Code governs taxation of annuities in general.
An annuity owner who is a natural person generally is not taxed on increases
in the value of a policy until distribution occurs. Distribution could be either
in the form of a lump sum received by withdrawing all or part of the cash value
(i.e., surrender or partial withdrawal) or in the form of annuity payments under
the annuity payment option elected. For this purpose, the assignment, pledge, or
agreement to assign or pledge any portion of the policy value generally will be
treated as a distribution. The taxable portion of a distribution (in the form of
a lump sum payment or annuity payments) is taxed as ordinary income.
An owner of any deferred annuity contract who is not a natural person
generally must include in income any increase in the excess of the policy value
over the owner's "investment in the contract" during the taxable year. However,
there are some exceptions to this rule, and you may wish to discuss these with
your tax advisor.
31
<PAGE>
The following discussion applies to policies owned by natural persons.
Withdrawals. In the case of a withdrawal under a qualified policy, a ratable
----------------
portion of the amount received is taxable, generally based on the ratio of the
"investment in the contract" to the total policy value. The "investment in the
contract" generally equals the portion, if any, of purchase payments paid with
after-tax dollars (that is, purchase payments that were not excluded from the
individual's gross income). For qualified policies, the "investment in the
contract" can be zero. Special rules may apply to a withdrawal from a qualified
policy.
Generally, in the case of a withdrawal under a non-qualified policy before the
--------------------
annuity benefit date, amounts received are first treated as taxable income to
the extent that the policy value immediately before the withdrawal exceeds the
"investment in the contract" at that time. Any additional amount withdrawn is
not taxable.
In the case of a full surrender under a non-qualified policy, the amount
received generally will be taxable to the extent it exceeds the "investment in
the contract."
Annuity Payments. Although the tax consequences may vary depending on the
annuity payment option elected under the policy, generally only the portion of
the annuity payment that represents the amount by which the policy value exceeds
the "investment in the contract" will be taxed.
. For variable annuity payments, in general the taxable portion of each
-------------------------
annuity payment (prior to recovery of the "investment in the contract") is
determined by a formula which establishes a specific non-taxable dollar
amount of each annuity payment. This dollar amount is determined by
dividing the "investment in the contract" by the total number of expected
annuity payments.
. For fixed annuity payments, in general there is no tax on the portion of
----------------------
each annuity payment which reflects the ratio that the "investment in the
contract" bears to the total expected value of annuity payments for the
term of the payments; however, the remainder of each annuity payment is
taxable.
In all cases, after the "investment in the contract" is recovered, the full
amount of any additional annuity payments is taxable.
Penalty Tax. In the case of a distribution from a non-qualified policy,
there may be imposed a Federal penalty tax equal to 10% of the amount treated as
taxable income. In general, however, there is no penalty tax on distributions:
(a) made on or after the taxpayer attains age 59 1/2;
(b) made as a result of an owner's death or attributable to the taxpayer's
disability; or
(c) received in substantially equal periodic payments as a life annuity.
Other exceptions may be applicable under certain circumstances and special rules
may be applicable in connection with the exceptions enumerated above. Also,
additional exceptions apply to distributions from a qualified policy. You
should consult a tax adviser with regard to exceptions from the penalty tax.
Aggregation of Contracts. All non-qualified deferred annuities entered into
after October 21, 1988 that we (or our affiliates) issued to the same owner
during any calendar year are treated as one annuity contract for purposes of
determining the amount includable in gross income under Section 72(e) of the
Code. In addition, there may be other situations in which the U.S. Treasury
Department may (under its authority to issue regulations or otherwise) conclude
that it would be appropriate to aggregate two or more annuity contracts
purchased by the same owner. Accordingly, you should consult a competent tax
advisor before purchasing more than one annuity contract.
32
<PAGE>
Transfers and Assignments. A transfer or assignment of ownership of a
policy, the selection of certain annuity benefit dates, or designation of an
annuitant or payee or other beneficiary who is not also the owner, may result in
certain tax consequences to the policy owner that are not discussed herein. If
you are contemplating any such transfer, assignment or designation, you should
contact a competent tax advisor with respect to the potential tax effects of
such transaction.
Death Benefits. Amounts may be distributed from a policy because of the
death of a policy owner or an annuitant. Generally, such amounts are includable
in the income of the recipient as follows:
(a) if distributed in a lump sum, they are taxed in the same manner as a full
surrender of the policy, as described above; or
(b) if distributed under an annuity payment option, they are taxed in the same
manner as annuity payments, as described above.
Withholding. Annuity distributions are generally subject to withholding for
the recipient's federal income tax liability. Recipients can generally elect,
however, not to have tax withheld from distributions. "Eligible rollover
distributions" from Section 401(a), 403(a) or 403(b) plans are subject to a
mandatory federal income tax withholding of 20%. An eligible rollover
distribution is the taxable portion of any distribution to an employee from such
a plan, except certain distributions such as distributions required by the Code
or distributions in a specified annuity form. The 20% withholding does not
apply, however, if the employee chooses a "direct rollover" from the plan to
another tax-qualified plan or IRA.
Qualified Policies. The tax rules applicable to a qualified policy vary
according to the type of plan and the terms and conditions of the plan. The
following events may cause adverse tax consequences:
(a) contributions in excess of specified limits;
(b) distributions prior to age 59 1/2 (subject to certain exceptions);
(c) distributions that do not conform to specified commencement and minimum
distribution rules; and
(d) other circumstances specified in the Code.
We make no attempt to provide more than general information about the use of
the policy with the various types of retirement plans. The terms and conditions
of the retirement plans may limit the rights otherwise available to you under a
qualified policy. You are responsible for determining that contributions,
distributions and other transactions with respect to the qualified policy comply
with applicable law. If you are purchasing an annuity contract for use with any
qualified retirement plan, you should consult your legal counsel and tax advisor
regarding the suitability of the annuity contract.
Required Distributions. For qualified plans under Sections 401(a), 403(a),
403(b), and 457, the Code requires that distributions generally must begin by
the later of April 1 of the calendar year following the calendar year in which
the policy owner (or plan participant): (a) reaches age 70 1/2; or (b) retires.
Distributions must be made in a specified form and manner. If the participant is
a "5 percent owner" (as defined in the Code), distributions generally must begin
no later than April 1 of the calendar year following the calendar year in which
the policy owner (or plan participant) reaches age 70 1/2. For Individual
Retirement Annuities (IRAs) described in Section 408 of the Code, distributions
generally must begin no later than April 1 of the calendar year following the
calendar year in which the policy owner (or plan participant) reaches age 70
1/2.
Corporate Pension and Profit-Sharing Plans. Section 401(a) of the Code
permits employers to establish various types of retirement plans for employees,
and permits self-employed individuals to establish retirement plans for
themselves and their employees. Adverse tax or other legal consequences to the
plan, to the participant or to both may result if this policy is purchased by a
Section 401(a) plan and later assigned or transferred to any
33
<PAGE>
individual. The policy includes a death benefit that in some cases may exceed
the greater of purchase payments or policy value. The death benefit could be
characterized as an incidental benefit, the amount of which is limited in any
pension or profit-sharing plan. Because the death benefit may exceed this
limitation, employers using the policy in connection with such plans should
consult their tax advisor.
Section 403(b) Plans. Under Code Section 403(b), public school systems and
certain tax-exempt organizations may purchase annuity contracts for their
employees. Generally, payments to Section 403(b) annuity contracts will be
excluded from the gross income of the employee, subject to certain limitations.
However, these payments may be subject to FICA (Social Security) taxes. The
policy includes a death benefit that in some cases may exceed the greater of
purchase payments or policy value. The death benefit could be characterized as
an incidental benefit, the amount of which is limited in any tax-sheltered
annuity under Section 403(b). Because the death benefit may exceed this
limitation, employers using the policy in connection with such plans should
consult their tax advisor. Under Section 403(b) annuity contracts, the following
amounts may only be distributed upon death of the employee, attainment of age
59 1/2, separation from service, disability, or financial hardship:
(a) elective contributions made in years beginning after December 31, 1988;
(b) earnings on those contributions; and
(c) earnings in such years on amounts held as of the last year beginning
before January 1, 1989.
In addition, income attributable to elective contributions may not be
distributed in the case of hardship.
Individual Retirement Annuities. Section 408 of the Code limits the amount
which may be contributed to an IRA each year to the lesser of $2,000 or the
amount of compensation includible in the policy owner's gross income for the
year. These contributions may be deductible in whole or in part depending on the
individual's income. The limit on the amount contributed to an IRA does not
apply to distributions from certain other types of qualified plans that are
"rolled over" on a tax-deferred basis into an IRA. Amounts in the IRA (other
than non-deductible contributions) are taxed when distributed from the IRA.
Distributions prior to age 59 1/2 (unless certain exceptions apply) are subject
to a 10% penalty tax. The Internal Revenue Service has not addressed in a ruling
of general applicability whether a death benefit provision such as the provision
in the policy meets IRA qualification requirements.
Roth IRAs. Section 408A of the Code permits certain eligible individuals to
contribute to a Roth IRA. Contributions to a Roth IRA, which are subject to
certain limitations, are not deductible and must be made in cash or as a
rollover or transfer from another Roth IRA or other IRA. A rollover from or
conversion of an IRA to a Roth IRA may be subject to tax, and other special
rules may apply. You should consult a tax advisor before combining any converted
amounts with any other Roth IRA contributions, including any other conversion
amounts from other tax years. Distributions from a Roth IRA generally are not
taxed, except that-once aggregate distributions exceed contributions to the Roth
IRA-income tax and a 10% penalty tax may apply to distributions made:
(a) before age 59 1/2 (subject to certain exceptions); or
(b) during the five taxable years starting with the year in which the first
contribution is made to any Roth IRA.
No distribution from a Roth IRA is required at any time before the policy
owner's death.
Deferred Compensation Plans. Section 457 of the Code provides for certain
deferred compensation plans available with respect to service for state
governments, local governments, political subdivisions, agencies,
instrumentalities and certain affiliates of such entities, and tax-exempt
organizations. These plans are subject to various restrictions on contributions
and distributions. Under non-governmental plans, all amounts are subject to the
claims of general creditors of the employer, and depending on the terms of the
particular plan, the employer may be entitled to draw on deferred amounts for
purposes unrelated to its Section 457 plan obligations.
34
<PAGE>
All Policies. As noted above, the foregoing comments about the Federal tax
consequences under the policy are not exhaustive, and special rules apply to
other tax situations not discussed in this prospectus. Further, the Federal tax
consequences discussed herein reflect our understanding of current law, and the
law may change. Federal estate tax and state and local estate, inheritance and
other tax consequences of ownership or receipt of distributions under a policy
depend on the individual circumstances of each policy owner or recipient of a
distribution. A competent tax advisor should be consulted for further
information.
Historical Performance Data
---------------------------
We may advertise yields and total returns for the subaccounts of the Variable
Account. In addition, we may advertise the effective yield of the money market
subaccount. These figures are historical and are not intended to indicate future
performance.
The yield of the money market subaccount is the annualized income generated by
an amount invested in that option over a specified seven-day period. We assume
that the income generated for that seven-day period is generated each seven-day
period over a 52-week period. We show the result as a percentage of the amount
invested. We calculate the effective yield similarly but assume that the income
earned is reinvested every seven days. The compounding effect of this assumed
reinvestment causes the effective yield to be slightly higher than the yield.
We calculate the total return of subaccounts for portfolios other than the
money market portfolio for various periods of time, including: (a) one year;
(b) five years; (c) ten years; and (d) the period starting when the subaccount
commenced operations.
The average annual total return is the annual compounded rate of return at
which an initial investment of $1,000 would have grown to reach to the
redeemable value of that investment at the end of each of the various
measurement periods. We may also disclose cumulative total returns and returns
for various time periods.
We may disclose performance figures that reflect the withdrawal charge, and
also figures that assume the policy is not surrendered and therefore do not
reflect any withdrawal charge.
The Statement of Additional Information has more information about performance
data calculations.
Voting Rights
-------------
To the extent required by law, we will vote shares of the portfolios held by
the Variable Account according to instructions received from persons having
voting interests in those variable subaccounts. If, however, the 1940 Act or any
regulation thereunder should be amended or if the present interpretation thereof
should change, or if we determine that we are allowed to vote the portfolio
shares in our own right, we may elect to do so. The Funds do not hold regular
annual shareholder meetings.
The number of votes that you may direct to us to cast will be calculated
separately for each variable subaccount. We will determine that number by
applying your percentage interest, if any, in a particular variable subaccount
to the total number of votes attributable to that variable subaccount. Before
the annuity benefit date, you hold a voting interest in each variable subaccount
to which policy value is allocated. After the annuity benefit date, the person
receiving variable annuity payments has the voting interest. After the annuity
benefit date, the votes attributable to a policy decrease as the value of the
variable subaccounts under your policy decrease with each variable annuity
payment. In determining the number of votes, fractional shares will be
recognized.
The number of votes for a portfolio which are available will be determined as
of the record date established by each fund. Voting instructions will be
solicited by written communication prior to a shareholder meeting in accordance
with procedures established by the Fund.
35
<PAGE>
Portfolio shares attributable to the policies for which no timely instructions
are received will be voted in proportion to the voting instructions which are
received with respect to all Titanium Investor Variable Annuity policies
participating in the variable subaccount. Voting instructions to abstain on any
item to be voted upon will be applied on a pro rata basis to reduce the votes
eligible to be cast.
Each person having a voting interest in a variable subaccount will receive
proxy material, reports and other materials relating to the appropriate
portfolio of each Fund.
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, a publicly traded life insurance and diversified financial services
company. 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. The obligations under the policy are our obligations.
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.
Legal Proceedings
-----------------
There are no legal proceedings to which the Variable Account is a party to or
to which the assets of the Variable Account are subject. We are not involved in
any litigation that is of material importance in relation to its total assets or
that relates to the Variable Account.
Financial Statements
--------------------
Our financial statements (as well as the Auditors' Reports thereon) are in the
Statement of Additional Information.
Statement of Additional Information
-----------------------------------
A Statement of Additional Information is available which contains more details
concerning the subjects discussed in this prospectus. The following is the table
of contents for the Statement of Additional Information:
36
<PAGE>
Statement of Additional Information
Table of Contents
<TABLE>
<S> <C>
The Policy................................................................. 1
Definitions............................................................... 1
Accumulation Units........................................................ 3
Annuity Units............................................................. 3
Net Investment Factor..................................................... 3
Determination of Annuity Payments......................................... 4
Fixed Annuity Payments................................................... 4
Variable Annuity Payments................................................ 4
The Contract.............................................................. 4
Misstatement of Age or Sex................................................ 4
Annual Report............................................................. 5
Non-Participation......................................................... 5
Delay or Suspension of Payments........................................... 5
Ownership................................................................. 5
Beneficiary............................................................... 5
Change of Ownership or Beneficiaries...................................... 5
Assignment................................................................ 6
Incontestability.......................................................... 6
Evidence of Survival...................................................... 6
Performance Data Calculations.............................................. 7
Money Market Subaccount Yield Calculation................................. 7
Average Annual Total Return Calculations.................................. 7
Federal Tax Matters........................................................ 11
Taxation of United Investors.............................................. 11
Tax Status of the Policies................................................ 11
Required Distributions.................................................... 11
Withholding............................................................... 12
Addition, Deletion or Substitution of Investments.......................... 12
Distribution of the Policy................................................. 13
Safekeeping of Variable Account Assets..................................... 13
State Regulation........................................................... 13
Records and Reports........................................................ 13
Legal Matters.............................................................. 13
Experts.................................................................... 13
Other Information.......................................................... 14
Financial Statements....................................................... 14
</TABLE>
37
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This Prospectus sets forth information about the Titanium Investor Variable
Annuity Policy that a prospective investor should know before investing. The
Statement of Additional Information contains more detailed information about the
Policy and the Variable Account. This Statement of Additional Information is
available upon request at no charge. To obtain such information, return this
request form to the address shown below:
-------------------------------(graphic scissors)-------------------------------
TO: United Investors Life Insurance Company
Variable Products Division
P.O. Box 12101
Birmingham, AL 35202-2101
Please send me a Statement of Additional Information for the Titanium Investor
Variable Annuity (TVA).
Name _________________________________________
Address _________________________________________
_________________________________________
_________________________________________
Telephone ( )_________________________
38
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United Investors Titanium Annuity Variable Account
Statement of Additional Information
-----------------------------------
for the
Titanium Investor
VARIABLE ANNUITY
Offered by
United Investors Life Insurance Company
This Statement of Additional Information expands upon subjects discussed in the
current Prospectus for the Titanium Investor Variable Annuity Policy (the
"Policy") offered by United Investors Life Insurance Company. You may obtain a
copy of the Prospectus dated November 1, 2000, by writing to United Investors
Life Insurance Company, Variable Products Division, P.O. Box 12101, Birmingham,
Alabama 35202-2101. Terms used in the current Prospectus for the Policy are
incorporated in this Statement.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE POLICY.
Dated November 1, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Corresponding Page
Page in Prospectus
---- -------------
<S> <C> <C>
The Policy......................................... 1
Definitions...................................... 1
Accumulation Units............................... 3
Annuity Units.................................... 3
Net Investment Factor............................ 3
Determination of Annuity Payments................ 4
Fixed Annuity Payments........................ 4
Variable Annuity Payments..................... 4
The Contract..................................... 4
Misstatement of Age or Sex....................... 4
Annual Report.................................... 4
Non-Participation................................ 5
Delay or Suspension of Payments.................. 5
Ownership........................................ 5
Beneficiary...................................... 5
Change of Ownership or Beneficiaries............. 5
Assignment....................................... 6
Incontestability................................. 6
Evidence of Survival............................. 6
Performance Data Calculations...................... 7
Money Market Subaccount Yield Calculation........ 7
Average Annual Total Return Calculations......... 7
Federal Tax Matters................................ 11 31
Taxation of United Investors..................... 11
Tax Status of the Policies....................... 11
Required Distributions........................... 11
Withholding...................................... 12
Addition, Deletion or Substitution of Investments.. 12
Distribution of the Policy......................... 12 31
Safekeeping of Variable Account Assets............. 13
State Regulation................................... 13
Records and Reports................................ 13
Legal Matters...................................... 13 37
Experts............................................ 13
Other Information.................................. 14
Financial Statements............................... 14 37
</TABLE>
i
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THE POLICY
----------
As a supplement to the description in the Prospectus, the following
provides additional information about the Policy.
Definitions
-----------
The following words and phrases are defined and used in your policy, and
many of them are also used in the Prospectus and in this Statement of Additional
Information.
ACCUMULATION UNIT - An accounting unit used to calculate the Policy Value.
AGE - The issue Age shown under Policy Data as determined by us from the date of
birth stated in the application. Attained ages are determined from the Policy
Date. No Policy will be issued if either the Owner or Annuitant is over Age 90.
We use age last birthday.
ANNUITANT - The person on whose life Annuity Payments depend. If the Policy
Owner names more than one person as an "Annuitant," the second person named
shall be referred to as "Co-Annuitant." The "Annuitant" and Co-Annuitant" will
be referred to collectively as the "Annuitant."
ANNUITY BENEFIT DATE - The date on which Annuity Payments are to start. The
Annuity Benefit Date is shown under Policy Data unless changed.
ANNUITY UNIT - An accounting unit used to calculate the value of Variable
Annuity Payments.
FIXED ACCOUNT - Part of the General Account of United Investors Life Insurance
Company to which You may allocate all or a portion of your Purchase Payments or
Policy Values.
FIXED ANNUITY - An Annuity with payments which are guaranteed to remain fixed in
amount throughout the payment period.
GENERAL ACCOUNT - The General Account consists of all assets of United Investors
Life Insurance Company other than those in any separate account.
NET PURCHASE PAYMENT - The Purchase Payment less any deduction for premium
taxes.
POLICY ANNIVERSARY - The same day and month as the Policy Date each year the
Policy remains in force.
POLICY DATE - The date from which Policy Anniversaries and Policy Years are
determined. Your Policy date is shown under Policy Data.
POLICY VALUE - The Policy Value is equal to the Variable Account Value plus the
Fixed Account Value.
POLICY YEAR - A year that starts on the Policy Date or on a subsequent Policy
Anniversary.
PURCHASE PAYMENT - An amount paid by the Owner to us as consideration for the
benefits provided by this Policy.
SUBACCOUNT - The Subaccounts named under the Policy Data. Each is a part of a
Variable Account of ours.
SURRENDER VALUE - The Policy Value less any withdrawal charges, the Annual
Contract Maintenance Charge, and applicable deductions for premium taxes.
VALUATION DATE - Each day the New York Stock Exchange and United Investors" Home
Office are open. United Investors" Home Office is closed on the following
regional and local holidays: the Friday after Thanksgiving, Christmas Eve and
New Year's Eve.
VALUATION PERIOD - The interval of time between a Valuation Date and the next
Valuation Date. It is measured from the closing of the New York Stock Exchange.
VARIABLE ACCOUNT - The Titanium Annuity Variable Account, a separate account
maintained by us.
VARIABLE ANNUITY - An Annuity with payments which vary in amount with the
investment experience of the Subaccounts of the Variable Account.
1
<PAGE>
WE, OUR, US - United Investors Life Insurance Company.
YOU, YOUR - The Owner or Joint Owner of this Policy. The Owner may be someone
other than the Annuitant. The Owner is shown in the application unless the
Owner has been changed as provided in this Policy.
2
<PAGE>
Accumulation Units
------------------
An Accumulation Unit is an accounting unit used prior to the Annuity
Benefit Date to calculate the Variable Account Value. The portion of a Net
Purchase Payment that you allocate to a Subaccount of the Variable Account is
credited as Accumulation Units in that Subaccount. Similarly, the value that
you transfer to a Subaccount of the Variable Account is credited as Accumulation
Units in that Subaccount. The number of Accumulation Units to credit is
determined by dividing (1) the dollar amount allocated to the Subaccount by (2)
the Subaccount's appropriate Accumulation Unit Value for the Valuation Period in
which we received the Purchase Payment or transfer request (in the case of the
initial Purchase Payment, we will credit Accumulation Units for that Purchase
Payment based on the Accumulation Unit value for the Policy Date).
The value of an Accumulation Unit for each Subaccount was initially
arbitrarily set at $10. The value for any later Valuation Period is found by
multiplying the Accumulation Unit Value for a Subaccount for the last prior
Valuation Period by such Subaccount's Net Investment Factor (described below)
for the following Valuation Period. Like the Policy Value, the value of an
Accumulation Unit may increase or decrease from one Valuation Period to the
next.
Annuity Units
-------------
An Annuity Unit is an accounting unit used after the Annuity Benefit Date
to calculate the value of Variable Annuity Payments. The value of an Annuity
Unit in each Subaccount was initially set at $10. The value for any later
Valuation Period is determined by (a) multiplying the Annuity Unit Value for a
Subaccount for the last prior Valuation Period for such Subaccount's Net
Investment Factor for the following Valuation Period, and then (b) adjusting the
result to compensate for the interest rate assumed in the annuity tables used to
determine the amount of the first Variable Annuity Payment. The value of an
Annuity Unit for each Subaccount changes to reflect the investment performance
of the Portfolio underlying that Subaccount.
Net Investment Factor
---------------------
The Net Investment Factor is an index applied to measure the investment
performance of a Subaccount of the Variable Account from one Valuation Period to
the next. The Net Investment Factor may be greater or less than one, so the
value of a Subaccount may increase or decrease.
The Net Investment Factor of a Subaccount for any Valuation Period is
determined by dividing (1) by (2) and subtracting (3) from the result, where:
(1) is the result of:
(a) the net asset value per Portfolio share held in the Subaccount,
determined at the end of the current Valuation Period; plus
(b) the per share amount of any dividend or capital gain
distributions on the Portfolio shares held in the Subaccount, if
the "ex-dividend" date occurs during the current Valuation
Period; plus or minus
(c) a charge or credit for any taxes reserved for the current
Valuation Period which we determine to have resulted from the
investment operations of the Subaccount;
(2) is the result of:
(a) the net asset value per Portfolio share of the Portfolio shares
held in the Subaccount, determined at the end of the previous
Valuation Period; plus or minus
(b) the charge or credit for any taxes reserved for the previous
Valuation Period; and
3
<PAGE>
(3) is a deduction for the 1.25% Mortality and Expense Risk Charge (daily
rate of .003425%) and the 0.15% Administration Fee (daily rate of
.000411%).
Determination of Annuity Payments
---------------------------------
At the Annuity Benefit Date, the Policy Value, less any applicable premium
taxes, may be applied to make Fixed Annuity Payments, Variable Annuity Payments,
or a combination thereof.
Fixed Annuity Payments. Fixed Annuity Payments provide guaranteed annuity
----------------------
payments which remain fixed in amount throughout the payment period. Fixed
Annuity Payments do not vary with the investment experience of the Subaccounts.
The payment amount will be based on our Fixed Annuity Payment rates in effect on
the settlement date. These rates are guaranteed to be equal to or greater than
payments based on the Annuity 2000 Mortality Table with interest at 3.0%. Where
requested and required by law unisex tables will be used.
Variable Annuity Payments. The dollar amount of the first Variable Annuity
-------------------------
Payment is determined by multiplying the net value applied by purchase rates
based on the Annuity 2000 Mortality Table with interest at 4.0% in most states.
Where requested and required by law unisex tables will be used.
The portion of the first Variable Annuity Payment attributed to each
Subaccount is divided by the Annuity Unit Value for the Subaccount (as of the
same date that the amount of the first Variable Annuity Payment is determined)
to determine the number of Annuity Units upon which later Variable Annuity
Payments will be made. This number of Annuity Units will not change unless
subsequently changed by reallocation (transfer). The dollar amount of each
monthly Variable Annuity Payment after the first Annuity Payment will equal the
sum of the number of Annuity Units credited to each Subaccount multiplied by the
Annuity Unit Value for each respective Subaccount for the Valuation Period.
After the Annuity Benefit Date, the Annuitant may transfer Annuity Units
among the Subaccounts, no more than once each Policy Year, by sending a written
request to United Investors. A transfer will be made as of the next Annuity
Payment Date, by converting Annuity Units for the value transferred from a
Subaccount into Annuity Units in the Subaccount to which the value is
transferred. Transfers may cause the number of Annuity Units to change, but
will not change the dollar amount of the Variable Annuity Payment as of the date
of transfer.
United Investors guarantees that the dollar amount of monthly Variable
Annuity Payments after the first payment will not be affected by variations in
expenses or mortality experience.
The 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. Only the statements made in
the written application can be used by us to defend a claim or void the Policy.
Changes to the Policy are not valid unless we make them in writing. They
must be signed by one of our officers. No agent has authority to change the
Policy or to waive any of its provisions.
Misstatement of Age or Sex
--------------------------
If the Annuitant's age or sex is misstated, we will adjust each benefit and
any amount to be paid to reflect the correct age and sex. The amount of any
underpayment in benefits will be paid in one sum with interest at a rate of 6%
per annum. The amount of any overpayment in benefits, with interest at a rate
of 6% per annum, will be charged against future Annuity Payments.
4
<PAGE>
Annual Report
-------------
At least once each Policy Year prior to the Annuity Benefit Date we will
send you a report on your Policy. It will show the current Policy Value, the
current Fixed Account Value, the current value of the Subaccounts of the
Variable Account, the Purchase Payments paid, all charges and partial
withdrawals since the last report, the current Surrender Value and the current
Death Benefit. We will also include in the report any other information
required by state law or regulation. Further, we will send you the reports
required by the Investment Company Act of 1940. You may request additional
reports during the year but we may charge a fee for any additional reports.
Non-Participation
-----------------
The Policy is non-participating. This means that no dividends will be paid
on your Policy. It will not share in our profits or surplus earnings.
Delay or Suspension of Payments
-------------------------------
We will normally pay a surrender or any withdrawal within seven days after
we receive your written request at our Home Office. However, payment of any
amount from the Subaccounts of the Variable Account may be delayed or suspended
whenever:
a) the New York Stock Exchange is closed other than customary weekend and
holiday closing, or trading on the New York Exchange is restricted as
determined by the U.S. Securities and Exchange Commission;
b) the U.S. Securities and Exchange Commission by order permits
postponement for the protection of Policyowners; or
c) an emergency exists, as determined by the Commission, as a result of
which disposal of the securities held in the Subaccount is not
reasonably practicable or it is not reasonably practicable to
determine the value of the Variable Account's net assets.
Payment of any amounts from the Fixed Account may be deferred for up to six
months from the date of the request to surrender. If payment is deferred for
more than 30 days, we will pay interest on the amount deferred at a rate not
less than the Guaranteed Minimum Interest Rate. Payments under the Policy of
any amounts derived from Purchase Payments paid by check may be delayed until
such time as the check has cleared your bank.
Ownership
---------
The Policy belongs to you, the Policyowner. Unless you provide otherwise,
you may receive all benefits and exercise all rights of the Policy prior to the
Annuity Benefit Date. These rights and the rights of any Beneficiary are
subject to the rights of any assignee. If there is more than one Owner at a
given time, all must exercise the rights of ownership by joint action.
Beneficiary
-----------
The Beneficiary means the person, persons or entity entitled to Death
Benefit proceeds under this Policy upon death of the Owner (or Annuitant if the
Owner is not a natural person) before the Annuity Benefit Date. If the Policy
has joint Owners and one Owner dies, the surviving Joint Owner will be deemed
the Beneficiary. The rights of any Beneficiary who dies before the Owner (or
Annuitant if the Owner is not a natural person) will pass to the surviving
Beneficiary or Beneficiaries unless you provide otherwise. If no Beneficiary is
living at the Owner's death if the Owner is a natural person, we will pay the
Death Benefit, if any, to the Joint Owner, if living; otherwise, it will be paid
to the deceased's estate. (If the owner is not a natural person and no
Beneficiary is living at the Annuitant's death, we will pay the Death Benefit,
if any, to the Annuitant's estate.)
Change of Ownership or Beneficiaries
------------------------------------
Unless you provide otherwise in writing to us, you may change the Owner or
the Beneficiary or the Payment Option Beneficiary during your lifetime. Any
changes must be made by written request filed with us. The
5
<PAGE>
change takes effect on the date the request was signed, but it will not apply to
payments made by us before we accept your written request. We may require you to
submit the Policy to us before making a change. A change of ownership may be a
taxable event. You should consult your tax advisor prior to making any change.
Assignment
----------
You may assign the Policy, but we will not be responsible for the validity
of any assignment and no assignment will bind us until it is filed in writing at
our Home Office. When it is filed, your rights and the rights of any
Beneficiary will be subject to it. An assignment of the Policy may be a taxable
event. Your ability to assign a Qualified Policy may be restricted. You should
consult your tax advisor prior to making any assignment.
Incontestability
----------------
United Investors will not contest the Policy.
Evidence of Survival
--------------------
Where any payments under the Policy depend on the annuitant or payee being
alive, we may require proof of survival prior to making the payments.
6
<PAGE>
PERFORMANCE DATA CALCULATIONS
-----------------------------
We may advertise the yield and effective yield of the Money Market
Subaccount. In addition, we may advertise the total returns for other
Subaccounts of the Variable Account. All performance data calculations for the
Variable Account will be in accordance with uniformly imposed SEC
regulations.
Money Market Subaccount Yield Calculation
-----------------------------------------
In accordance with regulations adopted by the SEC, if we disclose the
current annualized yield of the Money Market Subaccount for a seven-day period,
it is required to be in a manner which does not take into consideration (1) any
realized or unrealized gains or losses of the Money Market Portfolio or on its
portfolio securities, or (2) any income other than investment income. The
current annualized yield is computed by determining the net change (exclusive of
realized gains and losses on the sale of securities and unrealized appreciation
and depreciation) in the value of a hypothetical account having a balance of one
unit of the Money Market Subaccount at the beginning of the seven-day period,
dividing the net change in account value by the value of the account at the
beginning of the period to determine the base period return, and annualizing
this quotient on a 365-day basis. The net change in account value reflects the
deduction for the Mortality and Expense Risk Charge and the Administration Fee
as well as reflecting income and expenses accrued during the period. Because of
these deductions, the yield for the Money Market Subaccount will be lower than
the yield for the Money Market Portfolio of the Fund.
The SEC also permits us to disclose the effective yield of the Money Market
Subaccount for the same seven-day period, determined on a compounded basis. The
effective yield is calculated by compounding the annualized base period return
by adding one to the base period return, raising the sum to a power equal to 365
divided by 7, and subtracting one from the result according to the following
formula:
Effective Yield = [(Base period return +1)/\365/7]-1
The actual yield of the Money Market Subaccount is affected by: (l) changes
in interest rates on money market securities; (2) the average portfolio maturity
of the Money Market Portfolio; (3) the types and quality of securities held by
the Money Market Portfolio; and (4) its operating expenses. The yield on
amounts held in the Money Market Subaccount normally will fluctuate on a daily
basis. Therefore, the disclosed yields for any given past period is not an
indication or representation of future yields or rates of return.
Average Annual Total Return Calculations
----------------------------------------
For each Subaccount of the Variable Account other than the Money Market
Subaccount an average annual total return may be calculated for a given period.
It is computed by finding the average annual compounded rate of return over one,
five and ten year periods (or, where a Subaccount has been in existence for a
period less than one, five or ten years, for such lesser period) that would
equate the initial amount invested to the ending redeemable value, according to
the following formula:
P(1 + T)/\n = ERV
Where
P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years in the period
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one, five or ten year periods (or fractional portion
thereof) at the end of such period.
All recurring fees that are charged to all Policy Owner accounts are
recognized in the ending redeemable value. The average annual total return
calculation will also reflect the effect of Withdrawal Charges that may be
applicable due to surrender of the Policy at the end of a particular period.
7
<PAGE>
Adjusted Historical Portfolio Performance Data
We may also disclose "historical" performance data for a portfolio, for
periods before the applicable Subaccount of the Variable Account commenced
operations. Such performance information will be calculated based on the
performance of the portfolio and the assumption that the Subaccount was in
existence for the same periods as those indicated for the portfolio, with a
level of policy charges currently in effect.
This type of adjusted historical performance data may be disclosed on both
an average annual total return and a cumulative total return basis. Moreover,
it may be disclosed assuming that the policy is not surrendered (i.e., with no
deduction for the withdrawal charge) and assuming that the policy is surrendered
at the end of the applicable period (i.e., reflecting a deduction for any
applicable withdrawal charge).
Other Performance Data
We may from time to time also disclose average annual total returns in a
non-standard format in conjunction with the standard format described above.
The non-standard format will be identical to the standard format except that the
withdrawal charge will be assumed to be 0%.
We may from time to time also disclose cumulative total returns in
conjunction with the standard format described above. The cumulative returns
will be calculated using the following formula assuming that the withdrawal
charge will be 0%.
CTR = {ERV/P} - 1
Where:
CTR = the cumulative total return net of policy charges for the period.
ERV = ending redeemable value of a hypothetical $1,000 payment at the
beginning of the one, five, or ten-year period at the end of the
one, five, or ten-year period (or fractional portion of the period).
P = a hypothetical initial payment of $1,000.
All non-standard performance data will be advertised only if the standard
performance data is also disclosed.
Historical Performance Data
General Limitations
The figures below represent past performance and are not indicative of
future performance. The figures may reflect the waiver of advisory fees and
reimbursement of other expenses which may not continue in the future.
Portfolio information, including historical daily net asset values and
capital gains and dividends distributions regarding each portfolio, has been
provided by that portfolio. The Subaccount adjusted historical performance data
is derived from the data provided by the portfolios. We have no reason to doubt
the accuracy of the figures provided by the portfolios. We have not verified
these figures.
Adjusted Historical Performance Data
The charts below show adjusted historical performance data for the
Subaccounts for the periods prior to the inception of the Subaccount, based on
the performance of the corresponding portfolios since their inception date, with
a level of charges equal to those currently assessed under the policy. These
figures are not an indication of future performance.
8
<PAGE>
Adjusted (Hypothetical) Historic Performance Data
(for Periods before the Variable Subaccounts commenced operations)
STANDARD AVERAGE ANNUAL TOTAL RETURN
(With Withdrawal Charge)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
Subaccount 1 Year to 5 Years to 10 Years to Inception to Portfolio
---------- 12/31/99 12/31/99 12/31/99 12/31/99 Inception Date
-------- -------- -------- -------- --------------
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AIM Variable Insurance Funds
---------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Capital Appreciation Fund 33.56% 23.08% NA 20.17% 05/05/93
---------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Growth Fund 24.30% 27.17% NA 20.77% 05/05/93
---------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Growth and Income Fund 23.30% 25.69% NA 22.13% 05/02/94
---------------------------------------------------------------------------------------------------------------------------------
AIM V.I. International Equity Fund 43.85% 19.38% NA 16.64% 05/05/93
---------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Value Fund 19.04% 24.74% NA 20.91% 05/05/93
---------------------------------------------------------------------------------------------------------------------------------
The Alger American Fund
---------------------------------------------------------------------------------------------------------------------------------
Alger American Growth Portfolio 22.83% 28.47% 21.11% 21.26% 01/09/89
---------------------------------------------------------------------------------------------------------------------------------
Alger American Income & Growth Portfolio 31.43% 30.51% 17.19% 15.99% 11/15/88
---------------------------------------------------------------------------------------------------------------------------------
Alger American Leveraged AllCap Portfolio 66.60% NA NA 43.95% 01/25/95
---------------------------------------------------------------------------------------------------------------------------------
Alger American MidCap Growth Portfolio 20.95% 23.64% NA 22.58% 05/03/93
---------------------------------------------------------------------------------------------------------------------------------
Alger American Small Capitalization Portfolio 32.38% 20.10% 16.49% 19.10% 09/21/88
---------------------------------------------------------------------------------------------------------------------------------
Deutsche Asset Management VIT Funds
---------------------------------------------------------------------------------------------------------------------------------
EAFE(R) Equity Index 16.63% NA NA 12.89% 08/22/97
---------------------------------------------------------------------------------------------------------------------------------
Small Cap Index 8.92% NA NA 4.20% 08/25/97
---------------------------------------------------------------------------------------------------------------------------------
Dreyfus Funds
---------------------------------------------------------------------------------------------------------------------------------
Dreyfus VIF-Appreciation Portfolio 0.82% 23.01% NA 17.89% 04/05/93
---------------------------------------------------------------------------------------------------------------------------------
Dreyfus VIF-Money Market Portfolio NA NA NA NA 08/31/90
---------------------------------------------------------------------------------------------------------------------------------
Dreyfus VIF-Quality Bond Portfolio -10.31% 4.61% NA 6.50% 08/31/90
---------------------------------------------------------------------------------------------------------------------------------
The Dreyfus Socially Responsible Growth Fund, 19.21% 26.18% NA 21.90% 10/07/93
Inc.
---------------------------------------------------------------------------------------------------------------------------------
Evergreen Variable Trust
---------------------------------------------------------------------------------------------------------------------------------
Evergreen VA Equity Index Fund NA NA NA 25.95% 09/29/99
---------------------------------------------------------------------------------------------------------------------------------
Evergreen VA Foundation Fund 0.01% NA NA 13.39% 03/01/96
---------------------------------------------------------------------------------------------------------------------------------
Evergreen VA Global Leaders Fund 13.91% NA NA 14.43% 03/06/97
---------------------------------------------------------------------------------------------------------------------------------
Evergreen VA Small Cap Value Fund 1.42% NA NA -1.70% 05/01/98
---------------------------------------------------------------------------------------------------------------------------------
INVESCO Variable Investment Funds, Inc.
---------------------------------------------------------------------------------------------------------------------------------
INVESCO VIF-Equity Income Fund 4.16% 19.27% NA 17.88% 08/10/94
---------------------------------------------------------------------------------------------------------------------------------
INVESCO VIF-Technology Fund 146.49% NA NA 61.76% 05/21/97
---------------------------------------------------------------------------------------------------------------------------------
INVESCO VIF-Utilities Fund 8.40% NA NA 15.16% 01/03/95
--------------------------------------------------------------------------------------------------------------------------------
MFS(R) Variable Insurance Trust(SM)
---------------------------------------------------------------------------------------------------------------------------------
MFS(R) Emerging Growth Series 65.26% NA NA 33.75% 07/24/95
---------------------------------------------------------------------------------------------------------------------------------
MFS(R) Growth with Income Series -3.88% NA NA 18.18% 10/09/95
---------------------------------------------------------------------------------------------------------------------------------
MFS(R) Research Series 13.25% NA NA 20.05% 07/26/95
---------------------------------------------------------------------------------------------------------------------------------
MFS(R) Total Return Series -7.45% NA NA 12.68% 01/03/95
---------------------------------------------------------------------------------------------------------------------------------
Strong Variable Insurance Funds, Inc.
---------------------------------------------------------------------------------------------------------------------------------
Strong Discovery Fund II -5.47% 8.58% NA 8.45% 05/08/92
---------------------------------------------------------------------------------------------------------------------------------
Strong MidCap Growth Fund II 78.26% NA NA 43.45% 12/31/96
---------------------------------------------------------------------------------------------------------------------------------
Strong Opportunity Fund II 23.97% 20.83% NA 19.01% 05/08/92
---------------------------------------------------------------------------------------------------------------------------------
Franklin Templeton Variable Insurance Products
Trust
---------------------------------------------------------------------------------------------------------------------------------
Templeton Asset Strategy Fund 11.76% 14.29% 11.35% 11.21% 08/24/88
---------------------------------------------------------------------------------------------------------------------------------
Templeton International Securities Fund 12.45% 14.40% NA 13.22% 05/01/92
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
Adjusted (Hypothetical) Historic Performance Data
(for Periods before the Variable Subaccounts commenced operations)
NON-STANDARD AVERAGE ANNUAL TOTAL RETURN
(Assumes no Surrender, and no Withdrawal Charge)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Subaccount 1 Year to 5 Years to 10 Years to Inception to Portfolio Inception
---------- 12/31/99 12/31/99 12/31/99 12/31/99 Date
-------- -------- -------- -------- ----
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AIM Variable Insurance Funds
-----------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Capital Appreciation Fund 42.56% 23.77% NA 20.54% 05/05/93
-----------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Growth Fund 33.30% 27.77% NA 21.13% 05/05/93
-----------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Growth and Income Fund 32.30% 26.33% NA 22.67% 05/02/94
-----------------------------------------------------------------------------------------------------------------------------------
AIM V.I. International Equity Fund 52.85% 20.15% NA 17.08% 05/05/93
-----------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Value Fund 28.04% 25.39% NA 21.27% 05/05/93
-----------------------------------------------------------------------------------------------------------------------------------
The Alger American Fund
-----------------------------------------------------------------------------------------------------------------------------------
Alger American Growth Portfolio 31.83% 29.06% 21.11% 21.26% 01/09/89
-----------------------------------------------------------------------------------------------------------------------------------
Alger American Income & Growth Portfolio 40.43% 31.06% 17.19% 15.99% 11/15/88
-----------------------------------------------------------------------------------------------------------------------------------
Alger American Leveraged AllCap Portfolio 75.60% NA NA 44.36% 01/25/95
-----------------------------------------------------------------------------------------------------------------------------------
Alger American MidCap Growth Portfolio 29.95% 24.31% NA 22.91% 05/03/93
-----------------------------------------------------------------------------------------------------------------------------------
Alger American Small Capitalization Portfolio 41.38% 20.86% 16.49% 19.10% 09/21/88
-----------------------------------------------------------------------------------------------------------------------------------
Deutsche Asset Management VIT Funds
-----------------------------------------------------------------------------------------------------------------------------------
EAFE(R) Equity Index 25.63% NA NA 15.89% 08/22/97
-----------------------------------------------------------------------------------------------------------------------------------
Small Cap Index 17.92% NA NA 7.55% 08/25/97
-----------------------------------------------------------------------------------------------------------------------------------
Dreyfus Funds
-----------------------------------------------------------------------------------------------------------------------------------
Dreyfus VIF-Appreciation Portfolio 9.82% 23.70% NA 18.29% 04/05/93
-----------------------------------------------------------------------------------------------------------------------------------
Dreyfus VIF-Money Market Portfolio NA NA NA NA 08/31/90
-----------------------------------------------------------------------------------------------------------------------------------
Dreyfus VIF-Quality Bond Portfolio -1.31% 5.92% NA 6.50% 08/31/90
-----------------------------------------------------------------------------------------------------------------------------------
The Dreyfus Socially Responsible Growth Fund, 28.21% 26.81% NA 22.29% 10/07/93
Inc.
-----------------------------------------------------------------------------------------------------------------------------------
Evergreen Variable Trust
-----------------------------------------------------------------------------------------------------------------------------------
Evergreen VA Equity Index Fund NA NA NA 73.39% 09/29/99
-----------------------------------------------------------------------------------------------------------------------------------
Evergreen VA Foundation Fund 9.01% NA NA 14.92% 03/01/96
-----------------------------------------------------------------------------------------------------------------------------------
Evergreen VA Global Leaders Fund 22.91% NA NA 16.75% 03/06/97
-----------------------------------------------------------------------------------------------------------------------------------
Evergreen VA Small Cap Value Fund 10.42% NA NA 3.66% 05/01/98
-----------------------------------------------------------------------------------------------------------------------------------
INVESCO Variable Investment Funds, Inc.
-----------------------------------------------------------------------------------------------------------------------------------
INVESCO VIF-Equity Income Fund 13.16% 20.05% NA 18.59% 08/10/94
-----------------------------------------------------------------------------------------------------------------------------------
INVESCO VIF-Technology Fund 155.49% NA NA 63.25% 05/21/97
-----------------------------------------------------------------------------------------------------------------------------------
INVESCO VIF-Utilities Fund 17.40% NA NA 16.11% 01/03/95
-----------------------------------------------------------------------------------------------------------------------------------
MFS(R) Variable Insurance Trust(SM)
-----------------------------------------------------------------------------------------------------------------------------------
MFS(R) Emerging Growth Series 74.26% NA NA 34.45% 07/24/95
-----------------------------------------------------------------------------------------------------------------------------------
MFS(R) Growth with Income Series 5.12% NA NA 19.33% 10/09/95
-----------------------------------------------------------------------------------------------------------------------------------
MFS(R) Research Series 22.25% NA NA 21.06% 07/26/95
-----------------------------------------------------------------------------------------------------------------------------------
MFS(R) Total Return Series 1.55% NA NA 13.72% 01/03/95
-----------------------------------------------------------------------------------------------------------------------------------
Strong Variable Insurance Funds, Inc.
-----------------------------------------------------------------------------------------------------------------------------------
Strong Discovery Fund II 3.53% 9.71% NA 8.90% 05/08/92
-----------------------------------------------------------------------------------------------------------------------------------
Strong MidCap Growth Fund II 87.26% NA NA 44.81% 12/31/96
-----------------------------------------------------------------------------------------------------------------------------------
Strong Opportunity Fund II 32.97% 21.57% NA 19.25% 05/08/92
-----------------------------------------------------------------------------------------------------------------------------------
Franklin Templeton Variable Insurance Products
Trust
-----------------------------------------------------------------------------------------------------------------------------------
Templeton Asset Strategy Fund 20.76% 15.21% 11.35% 11.21% 08/24/88
-----------------------------------------------------------------------------------------------------------------------------------
Templeton International Securities Fund 21.45% 15.32% NA 13.55% 05/01/92
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The performance information provided above reflects only the performance of
a hypothetical $1,000 payment which is allocated to the stated Subaccount during
the time period on which the calculations are based. Performance information
provided for any given past period is not an indication or representation of
future yields or rates of return.
10
<PAGE>
FEDERAL TAX MATTERS
-------------------
Taxation of United Investors
----------------------------
United Investors is taxed as a life insurance company under Part 1 of
Subchapter L of the Internal Revenue Code of 1986 (the "Code"). Since the
Variable Account is not an entity separate from United Investors and its
operations form a part of United Investors, it will not be taxed separately as a
"regulated investment company" under Subchapter M of the Code. Investment
income and realized net capital gains on the assets of the Variable Account are
reinvested and taken into account in determining the Policy Value. As a result,
such investment income and realized net capital gains are automatically retained
as part of the reserves under the Policy. Under existing Federal income tax
law, United Investors believes that Variable Account investment income and
realized net capital gains should not be taxed to the extent that such income
and gains are retained as part of the reserves under the Policy.
Tax Status of the Policies
--------------------------
Section 817(h) of the Code provides that the investments of the Variable
Account must be "adequately diversified" in accordance with Treasury regulations
in order for the Policies to qualify as annuity contracts under Section 72 of
the Code. The Variable Account, through each Portfolio of the Funds, intends to
comply with the diversification requirements prescribed by the Treasury in
Treas. Reg. Section 1.817-5, which affect how the Portfolios' assets may be
invested. United Investors does not control any of the Funds or their
Portfolios'investments. However, it has entered into an agreement regarding
participation in each Fund, which requires each participating Portfolio of the
Funds to be operated in compliance with the diversification requirements
prescribed by the Treasury.
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for Federal income tax purposes, of the assets of the
separate account used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includible in the
variable contract owner's gross income. The IRS has stated in published rulings
that a variable contract owner will be considered the owner of separate account
assets if the contract owner possesses incidents of ownership in those assets,
such as the ability to exercise investment control over the assets. The
Treasury Department also announced, in connection with the issuance of
regulations concerning diversification, that those regulations "do not provide
guidance concerning the circumstances in which investor control of the
investments of a segregated asset account may cause the investor (i.e., the
Policyowner), rather than the insurance company, to be treated as the owner of
the assets in the account." This announcement also stated that guidance would
be issued by way of regulations or rulings on the "extent to which policyholders
may direct their investments to particular subaccounts without being treated as
owners of the underlying assets."
The ownership rights under the Policy are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that policy owners were not owners of separate account assets. For
example, the Policyowner has additional flexibility in allocating purchase
payments and Policy Values. These differences could result in a Policyowner
being treated as the owner of a pro rata portion of the assets of the Variable
Account. In addition, United Investors does not know what standards will be set
forth, if any, in the regulations or rulings which the Treasury Department has
stated it expects to issue. United Investors therefore reserves the right to
modify the Policy as necessary to attempt to prevent a Policyowner from being
considered the owner of a pro rata share of the assets of the Variable Account.
Required Distributions
----------------------
In order to be treated as an annuity contract for Federal income tax
purposes, Section 72(s) of the Code requires any nonqualified Policy to provide
that (a) if any Owner dies on or after the annuity benefit date but prior to the
time the entire interest in the Policy has been distributed, the remaining
portion of such interest will be distributed at least as rapidly as under the
method of distribution being used as of the date of that Owner's death;
11
<PAGE>
and (b) if any Owner dies prior to the annuity benefit date, the entire interest
in the Policy will be distributed within five years after the date of that
Owner's death.
These requirements will be considered satisfied as to any portion of the
Owner's interest that is payable as annuity payments which will begin within one
year of that Owner's death and which will be made over the life of the Owner's
designated Beneficiary or over a period not extending beyond his life
expectancy.
If the Owner's designated Beneficiary is the surviving spouse of the Owner,
the Policy may be continued with the surviving spouse as the new Owner and no
distributions will be required.
Withholding
-----------
Distributions from the Policy generally are subject to withholding for the
Owner's Federal income tax liability. The withholding rate varies according to
the type of distribution and the Owner's tax status. The Owner will be provided
the opportunity to elect not to have tax withheld from distributions.
"Eligible rollover distributions" from section 401(a) plans, section 403(a)
annuities, and section 403(b) tax-sheltered annuities are subject to a mandatory
Federal income tax withholding of 20%. An eligible rollover distribution is the
taxable portion of any distribution from such a plan, except certain
distributions such as distribution required by the Code or distributions in a
specified annuity form. The 20% withholding does not apply, however, if the
Owner chooses a "direct rollover" from the plan to another tax-qualified plan or
IRA.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
-------------------------------------------------
United Investors reserves the right, subject to compliance with applicable
law, to make additions to, deletions from, or substitutions for, the shares that
are held by the Variable Account (or any Subaccount) or that the Variable
Account (or any Subaccount) may purchase. United Investors reserves the right
to eliminate the shares of any of the Portfolios and to substitute shares of
another Portfolio of the Funds or any other investment vehicle or of another
open-end, registered investment company if laws or regulations are changed, if
the shares of any or a Portfolio are no longer available for investment, or if
in our judgment further investment in any Portfolio should become inappropriate
in view of the purposes of the Subaccount. United Investors will not substitute
any shares attributable to a Policyowner's 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, where required. Nothing contained herein shall 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 Policyowners.
United Investors also reserves the right to establish additional
Subaccounts of the Variable Account, each of which would invest in a new
Portfolio, or in shares of another investment company or suitable investment,
with a specified investment objective. New Subaccounts may be established when,
in the sole discretion of United Investors, marketing needs or investment
conditions warrant, and any new Subaccount will be made available to existing
Policyowners on a basis to be determined by United Investors. United Investors
may also eliminate one or more Subaccounts if, in its sole discretion,
marketing, tax, or investment conditions warrant.
In the event of any such substitution or change, United Investors may, by
appropriate endorsement, make such changes in the Policies as may be necessary
or appropriate to reflect such substitution or change. If deemed by United
Investors to be in the best interests of persons having voting rights under the
Policies, the Variable Account may be operated as a management company under the
Investment Company Act of 1940, it may be deregistered under that Act in the
event such registration is no longer required, or it may be combined with other
United Investors separate accounts.
12
<PAGE>
DISTRIBUTION OF THE POLICY
--------------------------
United Securities Alliance, Inc., 8 Inverness Drive, Suite 100, Denver,
Colorado, is the principal underwriter of the policies. United Securities
Alliance, Inc. is a corporation organized under the laws of the state of Nevada
in 1994. The underwriter is registered as a broker-dealer under the Securities
Exchange Act of 1934, and is a member of the National Association of Securities
Dealers, Inc. The Policies may not be available in all states. The underwriter
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.
No commissions have been paid by United Investors for the sale of the
Policy as of 12/31/99, because as of that date sales had not commenced. Policies
may be offered to the public through brokers licensed under the Federal
securities laws and state insurance laws that have entered into agreements with
the underwriter. The offering of the Policies is continuous, and we do not
anticipate discontinuing the offering of the Policies. However, we reserve the
right to discontinue the offering of the Policies.
SAFEKEEPING OF VARIABLE ACCOUNT ASSETS
--------------------------------------
United Investors holds the assets of the Variable Account. The assets are
kept physically segregated and held separate and apart from United Investors'
general account. United Investors maintains records of all purchases and
redemptions of Fund shares by each of the Subaccounts.
STATE REGULATION
----------------
United Investors is subject to regulation by the Missouri Department of
Insurance. An annual statement is filed with the Missouri Department of
Insurance on or before March 1 of each year covering the operations and
reporting on the financial condition of United Investors as of December 31 of
the preceding year. Periodically, the Missouri Department of Insurance or other
authorities examine the liabilities and reserves of United Investors and the
Variable Account, and a full examination of United Investors' operations is
conducted periodically by the National Association of Insurance Commissioners.
In addition, United Investors is subject to the insurance laws and
regulations of other states within which it is licensed or may become licensed
to operate. Generally, the insurance department of any other state applies the
laws of the state of domicile in determining permissible investments. A Policy
is governed by the law of the state in which it is delivered. The values and
benefits of each Policy are at least equal to those required by such state.
RECORDS AND REPORTS
-------------------
All records and accounts relating to the Variable Account will be
maintained by United Investors. As presently required by the Investment Company
Act of 1940 and regulations promulgated thereunder, reports containing such
information as may be required under that Act or by any other applicable law or
regulation will be sent to Owners at their last known address of record.
LEGAL MATTERS
-------------
Legal advice regarding certain matters relating to Federal securities laws
applicable to the issuance of the Policy 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.
13
<PAGE>
The balance sheet of United Investors Life Insurance Company as of December
31, 1998, and the related statements of operations, comprehensive income,
shareholder's 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.
OTHER INFORMATION
-----------------
A Registration Statement has been filed with the U.S. Securities and
Exchange Commission under the Securities Act of 1933, as amended, with respect
to the Policies discussed in this Statement of Additional Information. Not all
of the information set forth in the Registration Statement, amendments and
exhibits thereto has been included in the prospectus or this Statement of
Additional Information. Statements contained in the prospectus or this
Statement of Additional Information concerning the content of the Policies and
other legal instruments are intended to be summaries. For a complete statement
of the terms of these documents, reference should be made to the documents
themselves or to the instruments filed with the U.S. Securities and Exchange
Commission.
FINANCIAL STATEMENTS
--------------------
The financial statements of United Investors, which are included in this
Statement of Additional Information, should be considered only as bearing on the
ability of United Investors to meet its obligations under the Policies. They
should not be considered as bearing on the investment performance of the assets
held in the Variable Account.
There are no financial statements for the Variable Account because as of
December 31, 1999, it had not commenced operations and had no assets or
liabilities.
14
<PAGE>
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 C: OTHER INFORMATION
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements
--------------------
All required financial statements are included in Part B of this
Registration Statement.
(b) Exhibits
--------
(1) Resolution of the Board of Directors of United Investors Life
Insurance Company ("United Investors") authorizing establishment of the
Titanium Annuity Variable Account. \3\
(2) Custody Agreements: Not Applicable.
(3) (a) Principal Underwriting Agreements. \1\
(1) United Securities Alliance, Inc. Agreements \1\
(a) Distribution Agreement \1\
(b) Selling Group Agreement \1\
(b) Form of Broker-Dealer Sales Agreements. *
(c) Commission Schedules. (see Exhibit (3)(b))
(4) (a) Annuity Policy, Form TVA. \3\
(5) Application. *
(6) (a) Certificate of Incorporation of United Investors. \2\
(b) By-Laws of United Investors. \2\
(7) Reinsurance Contracts: Not Applicable.
(8) (a) Participation Agreements. \1\
(1) AIM Variable Insurance Funds, Inc. *
(2) The Alger American Fund. *
(3) Deutsche Asset Management VIT Funds (formerly BT Insurance
Funds Trust). *
(4) Dreyfus Variable Investment Fund. *
(5) Evergreen Variable Annuity Trust. *
(6) INVESCO Variable Investment Funds, Inc.\4\
(a) Amendment to Participation Agreement for INVESCO
Variable Investment Funds, Inc. \5\
(7) MFS Variable Insurance Trust. \6\
(a) Amendment to Participation Agreement for MFS Variable
Insurance Trust. \5\
(8) Strong Variable Insurance Funds, Inc. *
(9) Franklin Templeton Variable Insurance Products Trust
(Formerly Templeton Variable Products Series Fund). *
(b) Form of Administration Agreement: Not Applicable.
(9) Opinion of Counsel. *
(10) (a) Consent of Sutherland Asbill & Brennan LLP. *
(b) Consents of Independent Accountants. *
C-1
<PAGE>
(11) Financial statements omitted from Item 23: Not Applicable.
(12) Agreements/understandings for providing initial capital: Not
Applicable.
(13) Performance Data Calculations. *
___________________________
* Filed herewith.
\1\ Incorporated herein by reference to the Exhibit filed electronically with
Post-Effective Amendment No. 1 to Form S-6 Registration Statement, File No. 333-
89875, filed on April 27, 2000.
\2\ Incorporated herein by reference to the Exhibit filed electronically with
Post-Effective Amendment No. 12 to Form S-6 Registration Statement, File No. 33-
11465, filed on April 29, 1998 (previously filed on January 22, 1987 as an
Exhibit to the Form S-6 Registration Statement, File No. 33-11465).
\3\ Incorporated herein by reference to the Exhibit filed with the Initial
Registration Statement on Form N-4 (File No. 333-43022) filed on behalf of the
Titanium Annuity Variable Account on August 4, 2000.
\4\ Incorporated herein by reference to the Exhibit filed with Pre-Effective
Amendment no. 1 to the Registration Statement on Form S-6 (File No. 333-89875)
filed on January 26, 2000.
\5\ 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.
\6\ Incorporated herein by reference to the Exhibit filed with Pre-Effective
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.
C-2
<PAGE>
Item 25. Directors and Officers of the Depositor
---------------------------------------
Name and Principal Position and Offices
Business Address* with Depositor
----------------- --------------
C. B. Hudson** Director
Anthony L. McWhorter Chairman of the Board of Directors, President and Chief
Executive Officer
W. Thomas Aycock Director, Vice President and Chief Actuary
Tony G. Brill** Director and Executive Vice President - Administration
Mark S. McAndrew** Senior Vice President - Marketing
Larry M. Hutchison** Director
Michael J. Klyce Vice President and Treasurer
Donna Hudson Vice President, Premium Accounting and Policy Service
204 N. Robinson
Oklahoma City, OK 73102
John H. Livingston Director, Secretary and Counsel
James L. Mayton, Jr. Vice President and Controller
Carol A. McCoy Director and Assistant Secretary
Ross W. Stagner Director and Vice President - Marketing
Terry W. Davis Director and Vice President - Administration
* Unless otherwise noted, the principal business address of each person
listed is United Investors Life Insurance Company, P.O. Box 10207, Birmingham,
Alabama 35202-0207.
** Principal business address: Torchmark Corporation, 3700 South Stonebridge,
McKinney, Texas 75050.
C-3
<PAGE>
Item 26. Persons Controlled by or Under Common Control with the Depositor or
-------------------------------------------------------------------
Registrant
----------
The Depositor, United Investors Life Insurance Company, Inc. ("United
Investors"), is indirectly owned by Torchmark Corporation. The following table
shows the persons controlled by or under common control with United Investors,
their Parent Company, and the State or Jurisdiction of Incorporation. All
companies are 100% owned by their Parent Company, unless otherwise indicated,
which is indirectly owned by Torchmark Corporation. The Registrant is a
segregated asset account of United Investors.
<TABLE>
<CAPTION>
Parent State/Jurisdiction
Company Co. Code of Incorporation
------------------------------------------ -------- ----------------
<S> <C> <C>
AILIC Receivables Corporation E Delaware
American Income Life Insurance Co. A Indiana
American Income Marketing Services, Inc. E Texas
American Life and Accident Insurance Co. A Texas
Brown-Service Funeral Homes Co., Inc. B Alabama
(Services burial insurance policies)
First United American Life Insurance Co. D New York
Globe Insurance Agency, Inc. (AL) C Alabama
Globe Insurance Agency, Inc. (AR) A Arkansas
Globe Life And Accident Insurance Co. C Delaware
Globe Marketing Services Inc. A Oklahoma
Liberty National Auto Club, Inc. B Alabama
Liberty National GroupCare, Inc. B Alabama
Liberty National Life Insurance Co. C Alabama
National Income Life Insurance Co. E New York
TMK Re, Ltd. C Bermuda
Torch Royalty Company B Delaware
</TABLE>
C-4
<PAGE>
<TABLE>
<S> <C> <C>
Torchmark Corporation (holding company) Delaware
United American Insurance Co. C Delaware
United Investors Life Insurance Co. B* Missouri
Waddell & Reed Asset Management Co. C Missouri
</TABLE>
* Parent company owns 81%; remaining 19% owned by Torchmark Corporation.
Parent Company Codes
--------------------
A Globe Life And Accident Insurance Co.
B Liberty National Life Insurance Co.
C Torchmark Corporation
D United American Insurance Co.
E American Income Life Insurance Company
Item 27. Number of Policy Owners
-----------------------
There were no policy owners as of June 30, 2000.
Item 28. Indemnification
---------------
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
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<PAGE>
vote thereof, and if for this reason a quorum of the Board cannot be
obtained to vote on such matters, it shall be determined by a committee of
three (3) persons appointed by the shareholders at a duly called 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."
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to Directors, officers and controlling 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.
Item 29. Principal Underwriter
---------------------
(a) United Securities Alliance, Inc., is the principal underwriter of the
Policies as defined in the Investment Company Act of 1940. It is not the
principal underwriter for any other investment companies.
(b) The following table provides certain information with respect to each
Director, officer and partner of United Securities Alliance, Inc.
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address* With Underwriter
----------------- ----------------
<S> <C>
Melodie A. Maxwell-Jones President, Chief Executive Officer, Treasurer,
and Director
Judith E. Steinmann Vice President, Chief Compliance Officer,
Director and Secretary
Mary L. Mattison Financial Principal Operations
Ronald K. Bloomingkemper Director
Curtis Cobb Director
</TABLE>
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<PAGE>
David G. Gin Director
Ronald J. Petrinovich Director
_____________________
* The principal business address for the officers and Directors listed is 8
Inverness Drive, Suite 100, Denver, Colorado 80112.
(c) Commissions Received by Principal Underwriter during Year Ended 12/31/99
------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Underwriting
Name of Principal Discounts and Compensation
Underwriter Commissions on Redemption
----------- ----------- -------------
<S> <C> <C>
United Securities Alliance, Inc. Not Applicable -0-
</TABLE>
Brokerage
Commissions Compensation
----------- ------------
Not Applicable -0-
Item 30. Location of Accounts and Records
--------------------------------
All accounts and records required to be maintained by Section 31(a) of the
1940 Act and the rules under it are maintained by United Investors at its
administrative office.
Item 31. Management Services
-------------------
All management contracts are discussed in Part A or Part B.
Item 32. Undertakings
------------
(a) Registrant undertakes that it will file a Post-Effective Amendment
to this Registration Statement as frequently as necessary to ensure that the
audited financial statements in the Registration Statement are never more than
16 months old for so long as payments under the variable annuity contracts may
be accepted.
(b) Registrant undertakes that it will include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
post card or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
(c) Registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form promptly upon written or oral
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<PAGE>
request to United Investors at the address or phone number listed in the
Prospectus.
(d) United Investors Life Insurance Company represents that the fees and
charges deducted under the annuity 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.
STATEMENT PURSUANT TO RULE 6c-7
-------------------------------
United Investors and the Variable Account rely on 17 C.F.R. Sections
270.6c-7 and represent that the provisions of that Rule have been or will be
complied with. Accordingly, United Investors and the Variable Account are
exempt from the provisions of Sections 22(e), 27(c)(1) and 27(d) of the
Investment Company Act of 1940 with respect to any variable annuity contract
participating in such account to the extent necessary to permit compliance with
the Texas Optional Retirement Program.
SECTION 403(b) REPRESENTATIONS
------------------------------
United Investors represents that it is relying on a no-action letter dated
November 28, 1988, to the American Council of Life Insurance (Ref. No. IP-6-88)
regarding Sections 22(e), 27(c)(1), and 27(d) of the Investment Company Act of
1940, in connection with redeemability restrictions on Section 403(b) policies,
and that paragraphs numbered (1) through (4) of that letter will be complied
with.
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<PAGE>
SIGNATURES
----------
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has caused this Registration Statement to be signed on its
behalf in the City of Birmingham and the State of Alabama on the 6th day of
October, 2000.
TITANIUM ANNUITY VARIABLE ACCOUNT
(REGISTRANT)
UNITED INVESTORS LIFE INSURANCE COMPANY
(DEPOSITOR)
By: /s/ Anthony L. McWhorter
-------------------------
Anthony L. McWhorter
President
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
--------- ----- ----
Director
--------------------------
C. B. Hudson
/s/ Anthony L. McWhorter Chairman of the Board of 10-06-00
-------------------------- Directors, President and
Anthony L. McWhorter Chief Executive Officer
/s/ W. Thomas Aycock Director, Vice President and 10-06-00
-------------------------- Chief Actuary
W. Thomas Aycock
/s/ Tony G. Brill Director and Executive Vice 10-06-00
-------------------------- President - Administration
Tony G. Brill
Director
--------------------------
Larry M. Hutchison
/s/ Michael J. Klyce Vice President and Treasurer 10-06-00
--------------------------
Michael J. Klyce
/s/ James L. Mayton, Jr. Vice President and Controller 10-06-00
--------------------------
James L. Mayton, Jr.
/s/ John H. Livingston Director, Secretary and Counsel 10-06-00
--------------------------
John H. Livingston
Director and Assistant Secretary
--------------------------
Carol A. McCoy
/s/ Ross W. Stagner Director and Vice President 10-06-00
--------------------------
Ross W. Stagner
/s/ Terry W. Davis Director and Vice President - 10-06-00
-------------------------- Administration
Terry W. Davis
<PAGE>
EXHIBIT INDEX
Exhibit No. Name of Exhibit
----------- ---------------
99.(3)(b) Form of Broker-Dealer Sales Agreements
99.(5) Application
99.(8)(a)(1) AIM Variable Insurance Funds, Inc.
99.(8)(a)(2) The Alger American Fund
99.(8)(a)(3) Deutsche Asset Management VIT Funds (formerly BT Insurance
Funds Trust)
99.(8)(a)(4) Dreyfus Variable Investment Fund
99.(8)(a)(5) Evergreen Variable Annuity Trust
99.(8)(a)(8) Strong Variable Insurance Funds, Inc.
99.(8)(a)(9) Franklin Templeton Variable Insurance Products Trust
(Formerly Templeton Variable Insurance Products Series Fund)
99.(9) Opinion of Counsel
99.(10)(a) Consent of Sutherland Asbill & Brennan LLP
99.(10)(b) Consents of Independent Accountants
99.(13) Performance Data Calculations
