<PAGE>
Registration No. 33-11465
As Filed with the Securities and Exchange Commission on April 26, 1996
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 10
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
UNITED INVESTORS LIFE VARIABLE ACCOUNT
(Exact Name of Trust)
UNITED INVESTORS LIFE INSURANCE COMPANY
(Name of Depositor)
2001 Third Avenue South
Birmingham, Alabama 35233
(Address of Principal Executive Office)
_____________________
James L. Sedgwick, Esquire
United Investors Life Insurance Company
2001 Third Avenue South
Birmingham, Alabama 35233
(Name and Address of Agent for Service of Process)
Copy to:
Frederick R. Bellamy, Esquire
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
________________________________
DECLARATION PURSUANT TO RULE 24f-2
Flexible Premium Variable Life Insurance Policy -- An indefinite amount of
securities has been registered pursuant to Rule 24f-2 under the Investment
Company Act of 1940. The Rule 24f-2 Notice for the year ended December 31,
1995 was filed on February 7, 1996.
____________________
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[x] on May 1, 1996 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a) (i)
[ ] on _________ pursuant to paragraph (a) (i)
[ ] 75 days after filing pursuant to paragraph (a) (ii)
[ ] on _________ pursuant to paragraph (a) (ii) of Rule 485
If appropropriate, check the following box:
[ ] this Post-Effective Amendment designates a new effective date for
a previously filed Post-Effective Amendment.
<PAGE>
CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
Item No. Of
Form N-8B-2 Caption In Prospectus
1. Cover Page
2. Cover Page
3. Not Applicable
4. Distribution of Policies
5. United Investors Life Insurance Company; United
Investors Life Variable Account
6. United Investors Life Variable Account
7. Not Applicable
8. Not Applicable
9. Legal Proceedings
10. Summary; United Investors Life Variable Account;
TMK/United Funds, Inc.; Charges and Deductions;
Policy Rights and Benefits; Voting Rights;
General Provisions
11. Summary; TMK/United Funds, Inc.
12. Summary; TMK/United Funds, Inc.
13. Summary; Charges and Deductions; TMK/United Funds,
Inc.
14. Summary; Premiums
15. Summary; Premiums
16. Premiums; TMK/United Funds, Inc.
17. Summary; Charges and Deductions; Policy Rights and
Benefits; TMK/United Funds, Inc.
18. TMK/United Funds, Inc.; Premiums
19. General Provisions, Voting Rights
20. Not Applicable
21. Policy Rights and Benefits; General Provisions
22. Not Applicable
23. Additional Information
24. General Provisions
25. United Investors Life Insurance Company
26. Not Applicable
27. United Investors Life Insurance Company
28. Executive Officers and Directors
29. United Investors Life Insurance Company
30. Not Applicable
31. Not Applicable
32. Not Applicable
33. Not Applicable
34. Not Applicable
35. Distribution of the Policies
36. Not Applicable
37. Not Applicable
38. Summary; Distribution of the Policies
39. Summary; Distribution of the Policies
40. Not Applicable
41. United Investors Life Insurance Company;
Distribution of the Policies
42. Not Applicable
43. Not Applicable
44. Premiums
45. Not Applicable
<PAGE>
Item No. Of
Form N-8B-2 Caption In Prospectus
46. Policy Rights and Benefits
47. TMK/United Funds, Inc.
48. Not Applicable
49. Not Applicable
50. United Investors Life Variable Account
51. Cover Page; Summary; Charges and Deductions;
Policy Rights and Benefits; Premiums
52. TMK/United Funds, Inc.
53. Federal Tax Matters
54. Not Applicable
55. Not Applicable
56. Not Applicable
57. Not Applicable
58. Not Applicable
59. Financial Statements
<PAGE>
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U N I T E D I N V E S T O R
S
A D V A N T A G E I SM
FLEXIBLE PREMIUM VARIABLE
LIFE INSURANCE POLICY
PROSPECTUS
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This Prospectus describes the Flexible Premium Variable
Life Insurance Policy ("Policy") issued by United
Investors Life Insurance Company ("United Investors").
While the Policy can be purchased with a single premium,
it provides some flexibility to pay additional premiums
if the Policyowner so desires. The Policy provides for
life insurance coverage on the named Insured up to age
95, for the accumulation of Policy Value, for loan
privileges while the Insured is living, and for other
features that usually are associated with conventional
life insurance policies. Generally, all policy loans,
surrenders, and maturity benefits are treated first as
distributions of taxable income and then as a return of
the basis or investment in the Policy. In addition, prior
to age 59 1/2, such distributions generally are subject
to a 10% penalty tax. However, unlike conventional
insurance, the Death Benefit may and the Policy Value
will vary based on the performance of the investments
made in one or more of the Investment Divisions of United
Investors Life Variable Account (the "Variable Account").
The amount of the Death Benefit will never be less than
the Minimum Death Benefit specified in the Policy while
the Policy is still in force. Additional premium payments
may be required to keep the Policy in force. No minimum
amount of Policy Value is guaranteed, so the Policyowner
bears the entire investment risk under this Policy.
It may not be advantageous to purchase a Policy as a
replacement for another type of life insurance or as a
means to obtain additional insurance protection if the
purchaser already owns a flexible premium variable life
insurance policy.
Because of the premium level contemplated under the
Policies, all Policies entered into after June 20, 1988,
will be treated as modified endowment contracts. (See
Federal Tax Matters.)
This Prospectus Must be Accompanied or Preceded by a
Current Prospectus For TMK/United Funds, Inc.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR
FUTURE REFERENCE.
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The Date of This Prospectus is May 1, 1996.
Issued By
United Investors Life Insurance Company
(a Missouri Stock Company)
2001 Third Avenue South
Birmingham, Alabama 35233
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U-1003 (5-96)
<PAGE>
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TABLE OF CONTENTS
<TABLE>
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<C> <S> <C>
Definitions Definitions............................... i
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Summary Summary................................... 1
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United Investors Life United Investors Life Insurance Company... 3
Insurance Company and United Investors Life Variable Account.... 4
United Investors Life Variable TMK/United Funds, Inc. ................... 4
Account
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Policy Rights and Benefits Death Benefit............................. 6
Changes in the Minimum Death Benefit...... 6
Policy Value.............................. 7
Policy Loans.............................. 8
Surrenders................................ 9
Transfers................................. 9
Dollar Cost Averaging..................... 10
Free Look Period.......................... 10
Right to Exchange for Fixed Life
Insurance................................. 10
Voting Rights............................. 10
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Premium Payment and Issuance of a Policy...................... 11
Allocation Premiums.................................. 11
Allocation of Premiums.................... 12
Termination, Grace Period, and
Reinstatement............................. 12
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Charges and Deductions Mortality and Expense Risk Charge......... 13
Annual Deduction.......................... 13
Additional Premium Charge................. 14
Federal Taxes............................. 14
Surrender Charge.......................... 14
Fund Expenses............................. 15
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Payment Options Payment Options........................... 15
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General Provisions General Provisions........................ 16
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Distribution of the Policies Distribution of the Policies.............. 17
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Federal Tax Matters Federal Tax Matters....................... 18
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Additional Information Additional Information.................... 21
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Financial Statements Financial Statements...................... 25
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Appendix A Appendix A................................ A-1
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Appendix B Appendix B................................ B-1
</TABLE>
The Policy is not available in all States.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESMAN, OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON.
THE PRIMARY PURPOSE OF THIS POLICY IS TO PROVIDE INSURANCE PROTECTION. NO
CLAIM IS MADE THAT THE POLICY IS IN ANY WAY SIMILAR OR COMPARABLE TO AN
INVESTMENT IN A MUTUAL FUND.
<PAGE>
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DEFINITIONS
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Accumulation Unit....... means an accounting unit used to calculate the Policy
Value.
Attained Age............ means the age of the Insured on his/her birthday
nearest a Policy Anniversary date (or the Policy
Date).
Beneficiary............. means the person or persons to whom this Policy's
Death Benefit is paid when the Insured dies.
Death Benefit........... means the amount payable under your Policy when the
Insured dies.
Fund.................... means the mutual fund available for investment by the
Variable Account on the Policy Date or as later
changed by us. The Fund available as of the date of
this prospectus is TMK/United Funds, Inc.
Grace Period Premium.... means that portion of the payment described in the
grace period provision of the Policy which represents
accrued and unpaid annual deductions.
In Force................ means the Insured's life remains insured under the
terms of the Policy.
Insured................. means the person whose life is insured by the Policy.
Issue Age............... means the age of the Insured on his/her birthday
nearest the Policy Date.
Loan Balance............ means all existing loans on a Policy plus any added
or accrued loan interest.
Maturity Date........... means the date on which the Proceeds are payable if
the Insured is living.
Minimum Death Benefit... means the least amount of Death Benefit payable while
the Policy remains in force. It is determined by the
Insured's age, sex and the amount of initial and
subsequent premiums paid.
Net Investment Factor... means the index applied to measure the investment
performance of an Investment Division from one
Valuation Period to the next.
Net premium............. means the premium paid less any deduction for sales
expenses and premium taxes.
Payee................... means the Beneficiary, or any other person, estate or
legal entity to whom benefits are to be paid.
Policy Anniversary...... means the same day and month as the Policy Date each
year that the Policy remains in force.
Policy Date............. means the date the Policy becomes effective, and the
date from which Policy Anniversaries and Policy Years
are determined.
Policyowner or Owner.... means the person named as the owner in the
application, unless he or she has assigned ownership
to someone else.
Policy Value............ means the Variable Account Value plus any Loan
Balance.
Policy Year............. means a year that starts on the Policy Date or on a
Policy Anniversary.
i
<PAGE>
Proceeds................ means the amount payable under a Policy (a) upon the
death of the Insured, (b) on the Maturity Date, or
(c) upon the surrender of the Policy.
Surrender Value......... means the Policy Proceeds if the Policy is
surrendered in full prior to the Maturity Date. It is
the Policy Value, less any Loan Balance and any
applicable surrender charges.
Terminate............... means that the Policy is no longer in force. All
insurance coverage under a Policy is stopped.
Valuation Date.......... means a normal business day, Monday through Friday.
However, we will not value the Policy's Death
Benefits or Policy Value on any customary U.S.
business holiday that the New York Stock Exchange is
not open for trading. Those holidays currently are
New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
Valuation Period........ means the interval of time commencing at the close of
business of the New York Stock Exchange on each
Valuation Date and ending at the close of business of
the New York Stock Exchange on the next Valuation
Date.
Variable Account Value.. means the sum of all values of the Investment
Divisions of the Variable Account under the Policy.
We...................... means United Investors Life Insurance Company. "Us"
and "our" also refer to United Investors.
Written Request......... means a request in writing signed by the Policyowner.
You..................... means the Owner of this Policy. "Your" and "yours"
also refer to the Owner.
ii
<PAGE>
SUMMARY
The following summary of Prospectus information should be read in
conjunction with the detailed information appearing elsewhere in this
Prospectus. Unless otherwise indicated the description of the Policy contained
in this Prospectus assumes that the Policy is in force and that there is no
outstanding Loan Balance.
THE POLICY. The Flexible Premium Variable Life Insurance Policy described in
this Prospectus is a life insurance contract that provides for life insurance
coverage on the named Insured up to age 95, cash values, surrender rights,
policy loan privileges, and other features associated with conventional life
insurance. The Policy is a "variable" policy because, unlike the fixed
benefits of a conventional life insurance policy, the Death Benefit may, and
the Policy Value will, increase or decrease depending upon the investment
experience of the Investment Divisions of the Variable Account to which the
Policyowner allocates the premium. However, so long as the Policy is in force,
the Death Benefit will be at least equal to the Minimum Death Benefit
specified in the Policy.
The Policy is issued in consideration of the application and payment of the
initial premium. The minimum initial premium is $5,000. The Policy can be
purchased for a single premium. However, additional premiums may be paid at
the Policyowner's option after the first Policy Year (within certain limits),
and additional premiums may be required in order to keep the Policy in force.
No Policy will be issued to an individual over age 75. The Policyowner
determines the allocation of the premium and Policy Value among the Investment
Divisions of the Variable Account.
THE VARIABLE ACCOUNT. The Variable Account currently has ten Investment
Divisions. The Investment Divisions invest solely in shares of a corresponding
portfolio of TMK/United Funds, Inc. (the "Fund"), which currently has the
following ten separate investment portfolios: the Money Market Portfolio, the
Bond Portfolio, the High Income Portfolio, the Growth Portfolio, the Income
Portfolio, the International Portfolio, the Small Cap Portfolio, the Balanced
Portfolio, the Limited-Term Bond Portfolio and the Asset Strategy Portfolio
(collectively, the "Portfolios"). Each of these Portfolios have a different
investment objective. (See TMK/United Funds, Inc.) The Policyowner may
transfer the Policy Value from one Investment Division to one or more other
Investment Divisions up to twelve times per Policy Year at no cost. (See
Transfers.)
DEATH BENEFIT. So long as the Policy remains in force, the Death Benefit
payable will be the greater of the Minimum Death Benefit or the Policy Value
multiplied by the Death Benefit Factor. The Death Benefit proceeds will be
reduced by any outstanding Loan Balance. (See Death Benefit.)
Death Benefits under the Policy may be paid in a lump sum or under one of
the payment options set forth in the Policy. (See Payment Options.)
POLICY VALUE. On the Policy Date the Policy Value equals the amount of the
initial premium plus any accrued interest from the date of receipt of the
premium to the Policy Date. Thereafter, the Policy Value will increase or
decrease from day to day depending on the investment experience of the
selected Investment Divisions. There is no guaranteed minimum Policy Value.
You may surrender the Policy at any time for its Surrender Value, which is
equal to the Policy Value reduced by any Loan Balance and any applicable
surrender charges.
The Policy Value is equal to the Variable Account Value plus any Loan
Balance. The Variable Account Value is equal to the sum of the values of the
Investment Divisions under the Policy. The Policy's Variable Account Value
will reflect the investment performance of the selected Investment Divisions,
any Policy loan activity, the charges imposed in connection with the Policy,
and indirectly the expenses of the Fund. (See Policy Value.) Accordingly,
although the Policy offers the possibility that the Variable Account Value and
Policy Value will increase, there is no assurance that they will increase and
they may decrease.
1
<PAGE>
CHARGES AND DEDUCTIONS. United Investors does not impose any charge or
deduction against the initial premium prior to its allocation to the Variable
Account. Therefore the entire amount of the initial premium is invested in the
Variable Account for your benefit. However, there is a sales charge of a
maximum of 8.5% of the initial premium, which is deducted from the Policy
Value in ten equal annual installments, one on each of the first ten Policy
Anniversaries, of 0.85% of the initial premium. This charge does not apply
after the first ten Policy Years.
A sales charge in the form of a surrender charge of 8% of the initial
premium is assessed for surrenders that occur in the first Policy Year.
Thereafter the charge decreases by 1% per year, so there is no charge on
surrenders that occur after the eighth Policy Year. (See Surrender Charge.)
The combined total of this surrender charge and the 0.85% sales charge
deducted from Policy Value on each of the first ten Policy Anniversaries will
never exceed 8.5% of the initial premium.
For any additional premiums after the initial premium, excluding Grace
Period Premiums, a sales load of 6% of such premium, and a premium tax charge
of 2.5% of such premium, will be deducted prior to its allocation to the
Variable Account.
On each of the first ten Policy Anniversaries, there are annual deductions
of .10% of the initial premium for underwriting and issue expenses and .25% of
the initial premium for state and local premium taxes incurred in connection
with the Policy. These charges do not apply after the first ten Policy Years.
A daily charge, at an effective annual rate of .60% of the daily value of
the Investment Divisions, will be deducted from the Investment Divisions for
United Investors assumption of certain mortality and expense risks incurred in
connection with the Policy. (See Mortality and Expense Risk Charge.)
A mortality charge is deducted on each Policy Anniversary to cover the cost
of insurance. This charge is based on the Policy's net amount at risk (which
is equal to the difference between the Death Benefit and the Policy Value as
of the end of the prior Policy Year) and on the attained age, sex and risk
class of the Insured. Annual cost of insurance rates will be determined by
United Investors based upon its expectations as to future mortality
experience. The current cost of insurance rates are not guaranteed but will
not exceed the maximum cost of insurance rates specified in the Policy.
An additional deduction of $50 is made on each Policy Anniversary to
compensate United Investors for the cost of administering the Policy.
The value of the net assets of the Investment Divisions also will reflect
the investment management fee and other expenses incurred by the Fund because
the Variable Account purchases shares of the Fund.
POLICY LOANS. After the first Policy Year, the Policyowner may borrow up to
the loan value of the Policy from United Investors. It should be noted,
however, that a loan taken from, or secured by, a Policy may have Federal
income tax consequences. (See Federal Tax Matters.) The loan value is 90% of
the Policy Value, less any applicable surrender charges, interest to the next
Policy Anniversary and any existing Loan Balance. The minimum loan amount is
$200. Loan interest at 6% per year is accrued daily and is payable at the end
of the Policy Year. If loan interest is not paid when due, it is added to the
loan and is charged interest. Any outstanding Loan Balance will be deducted
from Proceeds payable on the Maturity Date, at the Insured's death, or upon
surrender. All or part of a loan may be repaid at any time while the Insured
is alive and the Policy is in force.
A portion of the Policy Value sufficient to secure the loan will be
transferred from the Variable Account to United Investors' general account.
This amount is credited with interest at an effective annual rate of 4%
(currently, 6% is credited on loaned amounts that do not exceed the Policy
Value less total premiums paid) and does not share in the investment
experience of the Variable Account. Therefore, a loan will have a permanent
impact on the Policy Value even if it is repaid. (See Policy Loans.)
2
<PAGE>
"FREE LOOK" PERIOD. You may cancel a Policy by returning it within 10 days
after you receive the Policy. When we receive the Policy we will cancel it and
refund the premium that was paid, or the amount required by your state if
greater.
During the Free Look period, your initial premium will be allocated to the
Money Market Investment Division. After the expiration of this period, the
Policy Value will be allocated to the Investment Divisions you have chosen, as
indicated in your application. (See Free Look Period.)
TAX CONSEQUENCES OF THE POLICY. With respect to a Policy entered into before
October 21, 1988, or entered into after October 20, 1988, that is issued on
the basis of either a standard or preferred rate class, United Investors
believes that such a Policy should meet the definition of a life insurance
contract for Federal income tax purposes. As for a Policy entered into after
October 20, 1988, that is issued on a substandard basis, it is not clear
whether or not such a Policy would qualify as a life insurance contract for
Federal tax purposes. Assuming that a Policy qualifies as a life insurance
contract for Federal income tax purposes, United Investors believes that the
Death Benefits paid under the Policy generally should be fully excludable from
the gross income of the beneficiary for Federal income tax purposes.
Similarly, the Owner should not be deemed in constructive receipt of cash
values under a Policy until there is a distribution from the Policy. A change
of Policyowners may have tax consequences depending on the particular
circumstances. Generally, all policy loans, surrenders, and maturity benefits
are treated first as distributions of taxable income and then as a return of
the basis or investment in the Policy. In addition, prior to age 59 1/2 such
distributions generally are subject to a 10% penalty tax. (Different rules may
apply to Policies entered into before June 21, 1988.) (See Federal Tax
Matters.)
ILLUSTRATIONS. Sample projections of hypothetical Death Benefits and Policy
Values are included starting at page A-1 of this Prospectus. These projections
of hypothetical values may be helpful in under-standing the long-term effects
of different levels of investment performance, the charges and deductions, and
generally in comparing this Policy to other life insurance policies. These
projections also show the value of the initial premium accumulated with
interest and indicate that if the Policy is surrendered in the early Policy
Years, the Policy Value payable may be low compared to the premium accumulated
at interest. This reflects the cost of insurance protection and other charges
prior to surrender, and demonstrates that the Policy should not be purchased
as a short-term investment.
CORRESPONDENCE. All correspondence regarding the Policy should be addressed
or directed to the sales agent who sold the Policy or to United Investors at
the following address:
United Investors Life Insurance Company
Variable Products Division
P. O. Box 156
Birmingham, Alabama 35201-0156
Phone: (205) 325-4300
All inquiries should include the Policy number and the Insured's name and
Owner's name, if different.
UNITED INVESTORS LIFE INSURANCE COMPANY AND
UNITED INVESTORS LIFE VARIABLE ACCOUNT
UNITED INVESTORS LIFE INSURANCE COMPANY
United Investors Life Insurance Company is a stock life insurance company
that was 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. United Investors is a wholly-owned subsidiary of United Investors
Management Company (formerly TMK/United, Inc.), which in turn is indirectly
owned
3
<PAGE>
by Torchmark Corporation. United Investors is principally engaged in offering
life insurance and annuity contracts and is admitted to do business in the
District of Columbia and all states except New York.
UNITED INVESTORS LIFE VARIABLE ACCOUNT
United Investors Life Variable Account (the "Variable Account") is currently
divided into ten Investment Divisions. Each Investment Division invests
exclusively in shares of a single portfolio of the Fund. Income and both
realized and unrealized gains or losses from the assets of each Investment
Division are credited to or charged against that Investment Division without
regard to income, gains or losses from any other Investment Division of the
Variable Account or arising out of any other business United Investors may
conduct.
Although the assets in the Variable Account are the property of United
Investors, the assets in the Variable Account attributable to the Policies are
not chargeable with liabilities arising out of any other business which United
Investors may conduct. The Variable Account was established by United
Investors as a segregated asset account on January 5, 1987. The Variable
Account will receive and invest the premiums allocated to it under the
Policies.
The Variable Account has been registered as a unit investment trust under
the Investment Company Act of 1940 and meets the definition of a separate
account under the Federal securities law. Registration with the Securities and
Exchange Commission does not involve supervision of the management or
investment practices or policies of the Variable Account or United Investors
by the Commission.
TMK/UNITED FUNDS, INC.
The Variable Account invests in shares of TMK/United Funds, Inc. (the
"Fund"), a mutual fund of the series type with ten separate investment
portfolios. The Fund currently has a Money Market Portfolio, a Bond Portfolio,
a High Income Portfolio, a Growth Portfolio, an Income Portfolio, an
International Portfolio, a Small Cap Portfolio, a Balanced Portfolio, a
Limited-Term Bond Portfolio, and an Asset Strategy Portfolio. The assets of
each Portfolio of the Fund are held separate from the assets of the other
Portfolios. Thus, each Portfolio operates as a separate investment Portfolio,
and the income or losses of one Portfolio have no effect on the investment
performance of any other Portfolio.
The investment objectives and policies of each Portfolio are summarized
below. There is no assurance that any of the Portfolios will achieve their
stated objectives. More detailed information, including a description of
risks, is in the Fund's prospectus, which accompanies this Prospectus and
which should be read carefully in conjunction with this Prospectus and
retained.
The Fund is designed to provide investment vehicles for variable annuity or
variable life insurance contracts of 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 Fund's prospectus.
The Fund currently offers the following ten Portfolios:
The Money Market Portfolio seeks to maximize current income consistent with
stability of principal. It may invest in money market securities such as bank
obligations and instruments secured by bank obligations, commercial paper and
corporate debt obligations and obligations of the U.S. and Canadian
Governments or their respective agencies and instrumentalities. Investments in
the Money Market Portfolio are neither insured nor guaranteed by the U.S.
Government and there is no assurance that the portfolio will be able to
maintain a stable per share net asset value.
The Bond Portfolio seeks to provide current income with an emphasis on
preservation of capital. It will invest primarily in debt securities of
varying yields, quality and maturities.
4
<PAGE>
The High Income Portfolio primarily seeks high current income. As a
secondary goal it will seek capital growth when consistent with the primary
goal. It will invest primarily in high-yield, high risk fixed- income
securities, commonly known as "junk bonds", but may have up to 20% of its
assets in common stocks. High-yield fixed-income securities may have an
increased risk of default and greater market price volatility than higher
rated securities due to various circumstances. See "Risk Factors of High Yield
Investing" in the TMK/United Funds, Inc. prospectus for a further description
of the risk factors.
The Growth Portfolio primarily seeks capital growth. As a secondary goal it
will seek current income. It will invest primarily in common stocks or
securities convertible into common stocks.
The Income Portfolio seeks to maintain current income, subject to market
conditions. It will invest primarily in common stocks or securities
convertible into common stocks.
The International Portfolio primarily seeks long-term appreciation of
capital with a secondary goal of current income by investing primarily in
securities issued by companies or governments of any nation.
The Small Cap Portfolio seeks capital growth through a diversified holding
of securities, primarily in the common stocks of, or securities convertible
into the common stocks of, relatively new or unseasoned companies, companies
which are in their early stages of development or smaller companies positioned
in new and emerging industries where the opportunity for rapid growth is above
average.
The Balanced Portfolio primarily seeks current income with a secondary goal
of long-term appreciation of capital by investing in a variety of securities,
including debt securities, common stocks and preferred stocks.
The Limited-Term Bond Portfolio seeks a high level of current income
consistent with preservation of capital by investing primarily in debt
securities of investment grade, including debt securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities. The Portfolio
will seek to maintain a dollar weighted average maturity of its portfolio of
two to five years.
The Asset Strategy Portfolio seeks high total return with reduced risk over
the long term. It diversifies among stocks, bonds, and short-term instruments,
both in the United States and abroad.
FUND MANAGEMENT AND FEES
Waddell & Reed Investment Management Company (the "Manager") is the manager
of the Fund and provides investment advisory services to the Fund. The Manager
is a wholly-owned subsidiary of Waddell & Reed, Inc. which is a direct
subsidiary of Waddell & Reed Financial Services, Inc. and an indirect
subsidiary of United Investors Management Company and Torchmark Corporation.
The Manager provides investment advice to and supervises investments of a
number of mutual funds. The Manager maintains a large staff of experienced
investment personnel and a full complement of related support facilities. Each
Portfolio pays the Manager a fee for managing its investments consisting of
two elements: (i) a specific fee computed on each Portfolio's net asset value
at the close of business each day at the following annual rates: Money Market
Portfolio--None; Bond Portfolio--.03 of 1% of net assets; High Income
Portfolio--.15 of 1% of net assets; Growth Portfolio--.20 of 1% of net assets;
Income Portfolio--.20 of 1% of net assets; International Portfolio--.30 of 1%
of net assets; Small Cap Portfolio--.35 of 1% of net assets; Balanced
Portfolio--.10 of 1% of net assets; Limited-Term Bond Portfolio--.05 of 1% of
net assets; and Asset Strategy Portfolio--.30 of 1% of net assets; and (ii) a
pro rata participation based on the relative net asset size of each Portfolio
in a "Group" fee computed each day on the combined net asset values of all of
the Portfolios at the following annual rates: Group Net Asset Level from $0 to
$750 million--Annual Group Fee Rate .51 of 1%; from $750 to $1,500 million--
.49 of 1%; from $1,500 to $2,250 million--.47 of 1%; over $2,250 million--.45
of 1%.
5
<PAGE>
POLICY RIGHTS AND BENEFITS
DEATH BENEFIT
The Policy pays a Death Benefit to the named Beneficiary if the Insured dies
while the Policy is in force. The Death Benefit will never be less than the
Minimum Death Benefit of the Policy as long as the Policy remains in force
(the proceeds will, of course, be reduced by any outstanding Policy loans).
You will be able to select from a range of initial Minimum Death Benefits. The
Minimum Death Benefit, at your option, can be the amount determined by
treating the premium paid as equal to 100% of Guideline Single Premiums (as
defined for federal tax purposes); or the Minimum Death Benefit can be an
amount not in excess of 133% of that amount. (See Termination, Grace Period,
and Reinstatement.) The Death Benefit is the greater of (a) the Minimum Death
Benefit or (b) the Policy Value on the date of death multiplied by the Death
Benefit Factor for the Insured's age shown in the Table in Appendix B. The
Policy Value will begin to vary on the Policy Date to reflect the investment
performance of the amounts allocated to the Investment Divisions of the
Variable Account. There is no guarantee that the Policy Value will increase
(it may decrease) nor is there any guarantee that the Death Benefit will
increase above the Minimum Death Benefit.
The Minimum Death Benefit is shown in the Policy. Payment of additional
premiums may require an increase in the Minimum Death Benefit to continue the
Policy as a contract of life insurance for tax purposes. A new Policy Data
page will be sent to a Policyowner whenever the Minimum Death Benefit changes
due to the payment of additional premiums.
United Investors will compute the amount of the Death Benefit as of the end
of the Valuation Period during which the Insured dies, and will pay the Death
Benefit Proceeds upon proof of the Insured's death. The Proceeds may be paid
in a lump sum or under one of the payment options set forth in the Policy.
(See Payment Options.) The Death Benefit Proceeds are the Death Benefit
reduced by any outstanding Loan Balance.
Sample Death Benefits. The following table shows sample initial Minimum
Death Benefits for initial premiums of $10,000 and $25,000 at female age 35
and male age 55.
INITIAL MINIMUM DEATH BENEFIT
<TABLE>
<CAPTION>
Initial Premium: $10,000 $25,000
Least Greatest Least Greatest
Age Amount Amount Amount Amount
--- ------ -------- ------ --------
<S> <C> <C> <C> <C>
35 female.......................... $62,365 $82,945 $164,860 $219,264
55 male............................ $24,039 $31,972 $ 62,499 $ 83,124
</TABLE>
A higher Death Benefit provides more insurance and, of course, costs more.
Thus, a higher Death Benefit will result in a higher mortality charge. (See
Cost of Insurance.)
CHANGES IN THE MINIMUM DEATH BENEFIT
Once each Policy Year, beginning in the second Policy Year, a Policyowner
may request an increase or a decrease in the Minimum Death Benefit. The
Minimum Death Benefit may not be decreased if it would cause a Policy to fail
to qualify as a contract of life insurance for federal tax purposes.
At the request of the Policyowner, or to keep premiums from exceeding the
limit qualifying the Policy as a life insurance contract for federal tax
purposes, we will allow a Policyowner to increase the Minimum Death Benefit,
provided:
(1) the increased amount plus any other existing insurance does not, in our
opinion, exceed an appropriate maximum amount on the Insured's life;
6
<PAGE>
(2) satisfactory evidence of insurability for the Insured's risk class is
furnished to us; and
(3) the request is accompanied by a minimum additional premium of $5,000.
We will notify the Policyowner as to the acceptable amount of any increase
in the Minimum Death Benefit and refund any excess premium. The accepted
premium must equal or exceed a minimum additional premium.
POLICY VALUE
On the Maturity Date, the Proceeds payable under a Policy are equal to the
Policy Value less any Loan Balance. The Policy may be surrendered at any time
for the Surrender Value, which is equal to the Policy Value less any Loan
Balance and less any applicable surrender charge. (See Surrender Charge.) The
Policy Value equals the Variable Account Value plus the value of any amount
transferred to the general account to cover the Loan Balance. The Policy Value
will begin to vary immediately to reflect the investment performance of the
Investment Divisions to which the Policy Value is allocated, any loan
activity, and the charges assessed in connection with the Policy. There is no
guaranteed minimum Policy Value.
Determination of the Variable Account Value
The Policy's Variable Account Value is equal to the sum of the values of the
Investment Divisions of the Variable Account (so the Variable Account Value
equals the Policy Value less any Loan Balance). The value of each Investment
Division is calculated first on the Policy Date and thereafter on each
Valuation Date (a normal business day). On the Policy Date, the value of the
Investment Divisions is equal to the amount of the initial premium plus any
accrued interest from the date of the receipt of the initial premium to the
Policy Date. On any Valuation Date thereafter, the value of each Investment
Division equals what it was on the previous Valuation Date, multiplied by the
appropriate Net Investment Factor for the current Valuation Period, increased
and/or decreased by the amounts specified below. The value of an Investment
Division is increased by:
(1) the amount of any net premium payments allocated to the Investment
Division during the current Valuation Period;
(2) the amount of any transfers from other Investment Divisions to the
Investment Division during the current Valuation Period; and
(3) the amount of any loan repayments allocated to the Investment Division
during the current Valuation Period.
The value of an Investment Division is decreased by:
(1) the amount of any transfers to other Investment Divisions from the
Investment Division during the current Valuation Period;
(2) the portion of any annual deduction allocated to the Investment
Division; and
(3) the amount of any loan or loan interest transferred from the Investment
Division during the current Valuation Period.
Determining Investment Results
The Policy Value will change due to the investment results of the Investment
Divisions. An index is used to measure these investment results. The index is
called a unit value. Each Investment Division has its own unit value.
For each Investment Division, the unit value was initially set at $1.00.
Thereafter, the unit value for a given Valuation Period is equal to the unit
value for the prior Valuation Period multiplied by the Net Investment Factor
for the given Valuation Period.
7
<PAGE>
The Net Investment Factor is an index applied to measure the investment
performance of an Investment Division from one Valuation Period to the next.
The Net Investment Factor may be greater or less than one, so the value of an
Investment Division may increase or decrease.
The Net Investment Factor of an Investment Division for any Valuation Period
is determined by dividing (1) by (2) and subtracting (3) from the result,
where:
1) is the result of:
a) the net asset value per share of the Portfolio shares held in the
Investment Division 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 Investment Division, 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 Investment Division;
2) is the result of:
a) the net asset value per share of the Portfolio shares held in the
Investment Division, 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) is a deduction for certain mortality and expense risks that we assume.
At the end of any Valuation Period, the value of an Investment Division is
equal to the number of units multiplied by the unit value.
POLICY LOANS
A loan taken from, or secured by, a Policy, may have Federal income tax
consequences. (See Federal Tax Matters.)
After the first Policy Year you may borrow from United Investors against
this Policy up to the loan value. The loan value is 90% of the Policy Value,
less surrender charges and interest to the next Policy Anniversary, and you
may borrow in one or more loans any amount up to the difference between the
loan value and any existing Loan Balance. The effective annual interest rate
charged on all loans will be 6%. Interest to pay for the loan until the next
Policy Anniversary will be included in determining the maximum loan value. The
Loan Balance equals the total of all Policy loans and accrued interest on
Policy loans. The loan value of the Policy is the sole security for the loan.
The minimum loan amount is $200, and you may request up to four loans per
Policy Year without a charge. If more than four loans are requested, there
will be a $25 transaction charge for each additional loan.
We will transfer an amount equal to the Policy loan from the Investment
Divisions to the general account as security for the Loan Balance. We will
allocate the amount transferred in the proportion that the value of each
Investment Division bears to the Variable Account Value unless you specify the
Investment Divisions from which the loan is to be made. The amounts
transferred to the general account equal to the Loan Balance will be credited
with interest earnings at an effective annual rate of 4.0%. Currently, an
additional 2.0% (or a total of 6.0%) is credited on loaned amounts that do not
exceed the Policy Value less the total premiums paid, excluding Grace Period
Premiums. This additional amount may change in the future. The Variable
Account Value is reduced by the amount transferred to the general account to
secure the Loan Balance, including loan interest charges that become part of
the loan because they are not paid when due.
Loan interest is charged daily on any amounts loaned and is due on each
Policy Anniversary (or when the loan is paid back). If loan interest is not
paid when due, it will be added to the principal of the loan and interest
shall be charged thereon. Interest will be taken from the Investment Divisions
in the proportion that the value of each Investment Division bears to the
Variable Account Value.
8
<PAGE>
If the Loan Balance exceeds the Policy Value, less surrender charges, the
Policy will terminate without value unless additional premium payments
sufficient to keep the Policy in force are made by the end of the grace
period. (See Termination, Grace Period, and Reinstatement.)
A Policy loan will permanently affect the Policy Value, even if the loan is
repaid. The effect could be favorable or unfavorable depending on whether the
investment return of the Investment Divisions selected by you is less than or
greater than the net interest rate credited to the amount transferred to the
general account securing the loan (currently 0% or -2%). In comparison to a
Policy under which no loan was made, the Policy Value will be lower if the net
interest rate credited to the amount in the general account securing a loan is
less than the investment return of the Investment Divisions and greater if the
general account net interest rate is higher than the investment return of the
Investment Divisions.
Repayment of the Loan Balance
You may repay all or part of the loan at any time while the Insured is alive
and the Policy is in force. Repayments must be in amounts of at least $200 or
the outstanding Loan Balance if less.
Upon repayment of the Loan Balance, the portion of the repayment allocated
to an Investment Division will be transferred from the general account and
increase the value in the Investment Division. The repayment will be allocated
among the Investment Divisions in the proportion that the value in each
Investment Division bears to the Variable Account Value unless you instruct us
otherwise. The repayment of the Loan Balance will be allocated when the
repayment is received.
Postponement of a Loan
A loan will usually be made within seven days after we receive your Written
Request. However, loans may be deferred under certain circumstances. (See
Delay or Suspension of Payments.)
SURRENDERS
You may surrender the Policy for its Surrender Value by sending a Written
Request to United Investors at its home office. Only full surrenders are
allowed; partial surrenders are not permitted. Surrenders will ordinarily be
paid within seven days of receipt of the Written Request. (See Delay or
Suspension of Payments.)
If a Policy is surrendered, United Investors will pay the Surrender Value,
which is the Policy Value less (1) any Loan Balance; and (2) the surrender
charge, if any (the surrender charge, described below, is only applicable if a
surrender occurs in the first eight Policy Years.). Coverage under the Policy
will terminate as of the date of receipt of a Written Request for surrender.
Surrenders may be taxable transactions. (See Federal Tax Matters.)
TRANSFERS
You may transfer all or part of the value of an Investment Division to one
or more of the other Investment Divisions. The total amount transferred each
time must be at least $1,000 or, if less, the entire value of the Investment
Division from which the transfer is being made. Transfers may be made by a
Written Request or by calling United Investors if a written authorization for
telephone transfers is on file. United Investors has 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.
A personal identification number is required in order to initiate a transfer.
United Investors will not be liable for the consequences of a fraudulent
telephone transfer request we believe to be authentic when we have followed
those procedures. And as a result, you bear the risk of loss arising from such
a fraudulent request if you authorize telephone transfers.
Only twelve transfers may be made during each Policy Year. Each such
transfer will be made, without the imposition of any fee or charge, as of the
end of the Valuation Period during which United Investors receives a valid,
complete transfer request. United Investors may suspend or modify this
transfer privilege at any time.
9
<PAGE>
Transferring the value of one Investment Division into two or more
Investment Divisions counts as one transfer request. However, transferring the
values of two Investment Divisions into one Investment Division counts as two
transfer requests.
DOLLAR COST AVERAGING
Prior to the Maturity Date you may authorize automatic transfers of a fixed
dollar amount from the Money Market Investment Division to up to four of the
other Investment Divisions. Automatic transfers will be made on a monthly
basis on the day of the month selected in your application. If the day of the
month selected does not fall on a Valuation Date, transfers will be made on
the next following Valuation Date. Transfers will be made at the unit values
determined on the date of each transfer.
The minimum automatic transfer amount from the Money Market Investment
Division is $100. If the transfer is to be made to more than one Investment
Division, a minimum of $25 must be transferred to each Investment Division
selected.
Participation in the automatic transfer program does not guarantee a greater
profit nor does it protect against loss in declining markets. Automatic
transfers will not be counted as a transfer for purposes of the twelve
transfer limit specified in Transfers above.
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 the Policy. If you cancel the Policy
within this 10 day "Free Look" period, we will refund the premium that was
paid (or the amount required by your state, if greater) and the Policy will be
void from the Policy Date. To cancel the Policy, you must mail or deliver it
to either United Investors' Home Office or the registered agent who sold it
within 10 days after you received it.
RIGHT TO EXCHANGE FOR FIXED LIFE INSURANCE
Once during the first two policy years, you have the right to exchange this
policy for a single premium life insurance policy that provides for benefits
that do not vary with the investment return of the Investment Divisions. We
will not require evidence of insurability. We will require that:
(1) this policy is in force;
(2) you file a Written Request; and
(3) you repay any existing Loan Balance.
The new Policy will have the same initial Death Benefit, Policy Date and
issue age as the original Policy. The premium for the new Policy will be based
on our rates in effect on its Policy Date for the same class of risk as under
the original Policy. Upon request, we will inform you of the single premium
for the new Policy, and any extra sum required or allowance to be made for a
premium or cash value adjustment that takes appropriate account of the premium
and values under both the original Policy and the new Policy. If required, a
detailed statement of the method of computing such an adjustment has been
filed with the insurance regulator of the states where the Policies are
delivered.
VOTING RIGHTS
To the extent required by law, United Investors will vote the Fund's shares
held in the Variable Account at regular and special shareholder meetings of
the Fund in accordance with instructions received from persons having a voting
interest in the corresponding Investment Divisions of the Variable Account. If
however, the 1940 Act or any regulation thereunder should be amended or if the
present interpretation thereof should change, and as a result United Investors
determines that it is allowed to vote the Fund's shares in its own right,
United Investors may elect to do so. The Fund does not hold regular annual
shareholder meetings.
The number of votes which a Policyowner has the right to instruct will be
calculated separately for each Investment Division. The number of votes which
each Policyowner has the right to instruct will be determined by applying the
Policyowner's percentage interest in the Investment Division to the total
10
<PAGE>
number of votes attributable to the Investment Division. Fractional votes will
be counted. The number of votes of a Portfolio which the Policyowner has the
right to instruct will be determined as of a date established by United
Investors, but not more than 90 days before the meeting of the Fund. Voting
instructions will be solicited by written communication prior to such meeting.
Each person having a voting interest in an Investment Division will receive
proxy material, reports and other materials relating to the appropriate
Portfolio.
United Investors will vote Fund shares attributable to the Policies as to
which no timely instructions are received and any Fund shares held by United
Investors as to which Policyowners have no beneficial interest, in proportion
to the voting instructions which are received with respect to all Policies
participating in that Portfolio. 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.
Disregard of Voting Instructions
United Investors may, when required by state insurance regulatory
authorities, disregard voting instructions if the instructions require that
the shares be voted so as to cause a change in the sub-classification or
investment objective or policies of the Fund or one or more of its Portfolios
or to approve or disapprove an investment advisory contract for a Portfolio.
In addition, United Investors itself may disregard voting instructions in
favor of changes initiated by a Policyowner in the investment policy or the
investment advisor of a Portfolio of the Fund if United Investors reasonably
disapproves of such changes. A change would be disapproved only if the
proposed change is contrary to state law or prohibited by state regulatory
authorities or United Investors determined that the change would have an
adverse effect on its general account in that the proposed investment policy
for a Portfolio may result in overly speculative or unsound investments. In
the event United Investors does disregard voting instructions, a summary of
that action and the reasons for such action will be included in the next
annual report to Policyowners.
PREMIUM PAYMENT AND ALLOCATION
ISSUANCE OF A POLICY
Individuals wishing to purchase a Policy must complete an application and
send it with the initial premium to United Investors' Home Office. United
Investors' Underwriting Department will review the application, and any
medical information or other data which it requires, to determine if the
individual is insurable under its underwriting rules. No Policy will be issued
to individuals over the age of 75. Coverage will only become effective on the
Policy Date. Should an individual die before the Policy Date, United
Investors' sole liability will be to return the premium paid plus any interest
earned on it.
PREMIUMS
The minimum Initial Premium that can be paid is $5,000. The amount of the
Minimum Death Benefit depends on the amount of the premium and on the
Insured's attained age and sex.
Although the Policy can operate as a single premium policy, after the first
Policy Year there is some flexibility to pay additional premiums at the
Policyowner's discretion. One additional premium per Policy Year may be paid
(not counting Grace Period Premiums). If the premium does not cause the
Minimum Death Benefit to increase, the minimum payment is $500. If the premium
does cause the Minimum Death Benefit to increase (so that the policy will
continue to qualify as a life insurance contract under the Internal Revenue
Code), then the minimum payment is $5,000 and is subject to the "Changes in
the Minimum Death Benefit" conditions. In addition, one or more additional
premiums may be required to prevent the Policy from terminating without value
if the Loan Balance exceeds the Policy Value, less surrender charges (or if
the Surrender Value is insufficient to cover the annual deduction). If either
of these conditions exist, then during the grace period you may pay an
additional premium sufficient to keep the Policy in force. If you do not, the
Policy will terminate without value. (See Termination, Grace Period, and
Reinstatement.)
11
<PAGE>
ALLOCATION OF PREMIUMS
The Policyowner determines in the application how the initial premium will
be allocated among the Investment Divisions of the Variable Account. You may
allocate any whole percentage of the premium, from 0% to 100%.
Between the date that the initial premium was received and the Policy Date,
the initial premium is held in our general account and is credited with
interest as if it had been invested in the Money Market Investment Division.
Beginning on the Policy Date and ending on the seventeenth day after the
Policy Date or the first Valuation Date thereafter, the initial premium, plus
any accrued interest, will be allocated to the Money Market Investment
Division. Upon the expiration of this period, the Policy Value will be
transferred to the Investment Divisions of the Variable Account in accordance
with the allocation instructions you specify in the application. The seventeen
day period is intended to cover the 10-day Free Look Period (See Free Look
Period), plus 7 days for processing and policy delivery.
Additional premiums not requiring our approval will be allocated in
accordance with your instructions on the date of receipt. If approval is
required, the additional premium will be held in the general account and is
credited with interest as if it had been invested in the Money Market
Investment Division until the date of approval, at which time it will be
applied in accordance with your instructions. If no instructions are given,
then it will be invested in the proportions that the value of each Investment
Division bears to the Variable Account Value.
The Policy Value will vary with the investment performance of the Investment
Divisions you select and you bear the entire investment risk for the amounts
allocated to the Variable Account. This will affect not only the Policy Value,
but it may also affect the Death Benefit. You should periodically review your
allocations of Policy Value in light of all relevant factors, including market
conditions and your overall financial planning requirements.
TERMINATION, GRACE PERIOD, AND REINSTATEMENT
A Policy will terminate on the earliest of (a) the date the Policy is
surrendered, (b) the end of the grace period, (c) the date of the death of the
Insured, or (d) the Maturity Date.
If the Loan Balance on a Policy exceeds the Policy Value less surrender
charges, or if the Surrender Value is insufficient to cover the annual
deduction, a grace period of 61 days from the date notice is mailed shall be
allowed for the Policyowner to pay an additional premium sufficient to keep
the Policy in force. The additional premium required will not exceed the
amount by which the Loan Balance exceeds the Policy Value less surrender
charges, plus any accrued and unpaid annual deduction as of the date of the
notice. The payment will be sufficient to keep the Policy in force until the
next Policy Anniversary regardless of investment performance. If such
additional premium is not paid prior to the expiration of the grace period,
the Policy will terminate without value. If the Insured dies during the grace
period, any Loan Balance or overdue annual deduction will be deducted from the
Death Benefit to determine the Proceeds payable.
If the grace period has ended, the Policy may be reinstated if the
Policyowner:
1) submits a Written Request at any time within 3 years after the end of
the grace period and prior to the Maturity Date;
2) provides us with satisfactory evidence of insurability;
3) pays an additional premium sufficient to cover all previous annual
deductions that were due and unpaid; and
4) repays or reinstates any Loan Balance on the Policy which existed at the
end of the grace period.
12
<PAGE>
If we approve the reinstatement, then (1) the effective date of
reinstatement will be the date of your Written Request or the date the
required additional premium is paid, if later; (2) the Death Benefit will be
the same as it was when the grace period ended; and (3) we will resume making
charges and deductions as of the date of reinstatement.
CHARGES AND DEDUCTIONS
United Investors does not impose any charge or deduction against the initial
premium prior to its allocation to the Variable Account, although for any
additional premiums, excluding Grace Period Premiums, a sales load of 6.0% of
such premium, and a premium tax charge of 2.5% of such premium, will be
deducted prior to its allocation to the Variable Account. Thereafter,
deductions are made from the values in the Investment Divisions to pay for
various expenses and risks that we incur. The charges for sales expenses and
administrative expenses may be reduced or waived on Policies sold to employees
of United Investors or its affiliates, or to customers of United Investors who
are transferring existing policy values into a Policy.
MORTALITY AND EXPENSE RISK CHARGE
United Investors deducts a daily charge from the Investment Divisions at an
effective annual rate of .60% of the average daily net assets of each
Investment Division to compensate us for assuming certain mortality and
expense risks under the Policy. United Investors may realize a profit from
this charge. The level of this charge is guaranteed for the life of the Policy
and may not be increased. The mortality risk is the risk that the cost of
insurance charges specified in the Policy will be insufficient to meet actual
claims. United Investors also assumes the risk that other expense charges may
be insufficient to cover the actual expenses incurred in connection with the
Policy.
ANNUAL DEDUCTION
On each Policy Anniversary, a deduction will be made from the values of the
Investment Divisions to compensate United Investors for certain costs and
expenses.
Deductions on Each of the First Ten Policy Anniversaries
On each of the first ten Policy Anniversaries, there is an annual deduction
of 1.20% of the initial premium. This charge is composed of a .85% charge for
sales expenses, a .10% charge for underwriting and issue expenses, and a .25%
charge for premium taxes. Each of these charges is discussed below.
(1) Sales Expenses--The .85% charge compensates United Investors for
certain sales and other distribution expenses incurred at the time the
Policies are issued, including agent sales commissions, the cost of
printing prospectuses and sales literature, advertising, and other
marketing and sales promotional activities.
(2) Underwriting and Issue Expenses--The .10% charge compensates United
Investors for initial underwriting costs and for certain expenses
incurred in issuing the Policy, including the cost of processing
applications, conducting medical examinations, determining
insurability, and establishing records.
(3) State and Local Premium Taxes--The .25% charge compensates United
Investors for the average premium tax expense incurred when issuing the
Policy. (State premium tax rates incurred by United Investors currently
range from 1.75% to 3.50%. In some states localities charge additional
premium taxes.)
Cost of Insurance
A mortality charge will be deducted on each Policy Anniversary to compensate
United Investors for the cost of insurance for the preceding Policy Year. This
charge is designed to compensate United
13
<PAGE>
Investors for the anticipated cost of paying Death Benefits to the
Beneficiaries of Insureds who die while the Policy is in force. On the Policy
Date, the Death Benefit is substantially higher than the initial premium
payment. As the Insured grows older, and if investment results have been
sufficiently favorable, the difference between the Policy Value and the Death
Benefit will become smaller. But prior to the Maturity Date of the Policy the
Death Benefit will always be higher than the Policy Value. To enable United
Investors to pay this additional amount, the mortality charge must be
assessed.
The mortality charge is based on the Policy's net amount at risk (which is
the difference between the Death Benefit and the Policy Value as of the end of
the Policy Year) and on the attained age, sex and risk class of the Insured.
Annual cost of insurance rates will be determined by United Investors based
upon its expectation as to future mortality experience. The rates are
guaranteed not to exceed the maximum cost of insurance rates specified in the
Policy, which are contained in the 1980 Commissioners' Standard Ordinary
Mortality Table, or a multiple thereof for substandard classes, Age Nearest
Birthday.
Administrative Expenses
United Investors deducts a charge of $50 on each Policy Anniversary to
compensate it for expenses incurred in administering the Policy. These
expenses include costs of maintaining records, processing Death Benefit
claims, surrenders, transfers, Policy loans and Policy changes, providing
reports to Policy-owners, and overhead costs. There is not necessarily a
relationship between the amount of the charge imposed on a particular Policy
and the amount of administrative expenses that may be attributable to that
Policy. This charge is "cost-based" and United Investors does not expect a
profit from this charge.
ADDITIONAL PREMIUM CHARGE
As noted above, there is no deduction from the initial premium. For
additional premiums, however, there are deductions of 6% of each such premium
for sales expenses, and 2.5% of each premium for premium taxes. The charge for
sales expenses may be reduced or waived on Policies sold to employees of
United Investors or its affiliates, or to customers of United Investors who
are transferring existing policy values into a Policy.
FEDERAL TAXES
Currently no charge is made to the Variable Account for federal income taxes
(or the burden thereof) that may be attributable to the Variable Account.
United Investors 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.)
SURRENDER CHARGE
If you surrender the Policy during the first eight Policy Years, then a
surrender charge is made against the amount of the initial premium as
specified in the following Table of surrender charges:
<TABLE>
<CAPTION>
POLICY YEAR: 1ST 2ND 3RD 4TH 5TH 6TH 7TH 8TH 9 OR MORE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Surrender Charge %.................... 8% 7% 6% 5% 4% 3% 2% 1% none
</TABLE>
There is no surrender charge after the first eight Policy Years. Because the
surrender charge is based on the amount of the initial premium, the dollar
amount of the charge will decrease each Policy Year by a fixed amount
regardless of the investment experience of the Variable Account.
The surrender charge will be deducted from the proceeds payable upon
surrender to partially compensate United Investors for sales expenses incurred
in connection with the Policy. These expenses include agent sales commissions,
the cost of printing prospectuses and sales literature, advertising, and other
marketing and sales promotional activities.
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<PAGE>
United Investors may reduce or waive the surrender charge on Policies that
have been sold to employees of United Investors or its affiliates, or to
customers of United Investors who are transferring existing policy values into
a Policy.
The amounts derived by United Investors from the surrender charge, along
with the deduction on the first ten Policy Anniversaries for sales expenses,
and the sales load deducted from additional premiums may not be sufficient to
cover distribution expenses. United Investors expects to recover any
deficiency from United Investors' general assets (which include amounts
derived from the mortality and expense risk charge and mortality gains).
United Investors believes that this distribution financing arrangement will
benefit the Variable Account and Policyowners.
FUND EXPENSES
The value of the assets of the Variable Account will reflect the investment
management fee (See Fund Management and Fees) and other expenses incurred by
the Fund.
PAYMENT OPTIONS
Death Benefit Proceeds will be paid in one sum unless the Policyowner has
elected to apply all or part of this sum under a payment option. No option can
be elected if the payments under the option would be less than $25 each or
less that $120 in a year. Amounts payable under the payment options do not
vary with the investment performance of the Variable Account.
ELECTION OF PAYMENT OPTION
The Policyowner has the sole right to elect or change a payment option
during the lifetime of the Insured, either in the application or by Written
Request. If there is no option in effect when the Insured dies, the
Beneficiary may elect an option. The Payee may name a contingent payee to
receive any final payment in case the Payee dies; otherwise, the value of any
remaining guaranteed payments will be paid to the Payee's estate. We may
require the exchange of this Policy for a contract covering the option
selected. As far as permitted by law, the Proceeds under this Policy will not
be subject to any claims of the Beneficiary's creditors.
AVAILABLE OPTIONS
The options currently available are:
Option 1: Fixed Amount--This option provides an income payable monthly of a
fixed amount, until the Proceeds are fully paid. Under this
option at least 7% of the Proceeds must be paid each year.
Option 2: Fixed Period--This option provides an income payable monthly for
a fixed period, not exceeding 30 years.
Option 3: Life Income--This option provides an income payable during the
lifetime of the Payee. The payments are guaranteed for a fixed
period of 10, 15 or 20 years. Under this option, no payment will
become due after the death of the Payee, except payments for any
remaining fixed period.
Option 4: Proceeds Left at Interest--This option provides for the payment
of interest on any amount of Proceeds left with us, for any
period agreed upon. The interest may be paid at selected
intervals or allowed to accumulate.
Once a payment option is in effect, there will no longer be Policy Value in
the Variable Account. Any amount left with United Investors for payment under
a payment option will be transferred to the general account. The interest rate
on all amounts held under all options will be at least 2.5%, compounded
annually. United Investors may make other payment options available in the
future and other payment options can be arranged with our written consent.
15
<PAGE>
Except as to Option 3, if the Payee selected the option, that Payee with our
consent may modify the terms of the option or select another option at any
time.
PAYMENT OPTION TABLES
The Payment Option Tables in the Policy show the guaranteed minimum amount
of the monthly payments. Under Option 3 the amount of each payment will depend
on the sex and age of the Payee at the time the first payment is due.
United Investors may, at the time of election of a Payment Option, offer
more favorable rates in lieu of the guaranteed rates specified in the Payment
Option Tables.
GENERAL PROVISIONS
THE CONTRACT
The entire contract is made up of the Policy 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 avoid the Policy.
We reserve the right to make any modification to conform the Policy to, or
give you the benefit of, any Federal or State statute or any rule or
regulation of the United States Treasury Department or any state.
Changes to the Policy are not valid unless we made them in writing. They
must be signed by one of our Executive Officers. No agent has authority to
change the Policy or to waive any of its provisions.
INCONTESTABILITY
The Policy will be incontestable after it has been in force during the
lifetime of the Insured for two years from the Policy Date. A new two year
contestability period shall apply to each increase in insurance requiring
evidence of good health beginning on the effective date of each increase and
will apply only to statements made in the application for the increase. If the
Policy is reinstated, a new two year contestability period (apart from any
remaining contestability period) shall apply from the date of the application
for reinstatement and will apply only to statements made in the application
for reinstatement.
SUICIDE
If the Insured commits suicide, while sane or insane, within two years from
the Policy Date, our liability will be limited to the total premiums paid less
any Loan Balance. If the Insured dies by suicide, while sane or insane, within
two years from the effective date of any increase in insurance requiring
evidence of good health, the Proceeds under this Policy shall be reduced by
the excess, if any, of the net amount at risk (Death Benefit less Policy
Value) on the date of death over the corresponding amount in effect just prior
to the date of increase, and increased by the total annual cost of insurance
charges deducted for this excess.
MISSTATEMENT OF AGE OR SEX
If the Insured's age or sex is misstated, we will adjust each benefit and
any amount to be paid to reflect the correct age and sex.
ANNUAL REPORT
At least once each Policy Year we will send you a report on your Policy. It
will show the current Death Benefit, the current Policy Value, the current
Surrender Value, any payments since the last report, all charges since the
last report, and any Loan Balance. We will also include in the report any
16
<PAGE>
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 the Surrender Value or the proceeds of any loan within
7 days after we receive your Written Request in our Home Office. However,
payment of any amount may be delayed or suspended whenever:
a) the New York Stock Exchange is closed other than customary weekend and
holiday closings, or trading on the New York Stock Exchange is
restricted as determined by the Securities and Exchange Commission;
b) the 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 Investment Divisions is not
reasonably practicable or it is not reasonably practicable to determine
the value of the Variable Account's net assets.
Payments under the Policy of any amounts derived from premiums paid by check
may be delayed until such time as the check has cleared your bank.
OWNERSHIP
The original Owner of a Policy is as stated in the application. Unless you
provide otherwise, you may receive all benefits and exercise all rights of the
Policy while the Insured is living. If there is more than one Owner at a given
time, all must exercise the rights of ownership by joint action.
BENEFICIARY
The Beneficiary is named in the application. More than one Beneficiary may
be named. The rights of any Beneficiary who dies before the Insured will pass
to the surviving Beneficiary or Beneficiaries unless you provide otherwise. If
no Beneficiary is living at the Insured's death, we will pay the Death Benefit
Proceeds to the Policyowner, if living; otherwise it will be paid to the
Policyowner's estate.
CHANGE OF OWNERSHIP OR BENEFICIARY
Unless you provide otherwise in writing to us, you may change the Owner or
the Beneficiary during the lifetime of the Insured. Any changes must be made
by Written Request filed with us. The change takes effect on the date the
request was signed, but it will not apply to payments made by us before we
accept your request in writing. We may require you to submit the Policy to us
before making a change. A change of owner may be a taxable event. Prior to
making such a change a qualified tax advisor should be consulted.
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 may be a taxable event. Prior
to making an assignment a qualified tax advisor should be consulted.
DISTRIBUTION OF THE POLICIES
The Policies will be sold by individuals who, in addition to being licensed
as life insurance agents for United Investors, are also registered
representatives of Waddell & Reed, Inc., the principal underwriter of the
Policies, or of broker-dealers who have entered into written sales agreements
with
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<PAGE>
Waddell & Reed, Inc. Waddell & Reed, Inc. is registered with the Securities
and Exchange Commission under the Securities Exchange Act of 1934 as a broker-
dealer and as a member of the National Association of Securities Dealers.
Waddell & Reed, Inc. is an affiliate of United Investors.
A commission of up to 5% of premium plus bonus compensation may be paid to
broker-dealers or agents in connection with sales of the Policies.
FEDERAL TAX MATTERS
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE
INTRODUCTION
The following summary provides a general description of the Federal income
tax considerations relating to the Policy. This summary is based upon United
Investors' understanding of the present Federal income tax laws as they are
currently interpreted by the Internal Revenue Service ("IRS"). Because of the
complexity of such laws and the fact that tax results will vary according to
the factual status of the specific policy involved, tax advice may be needed
by a person contemplating the purchase of a Policy or the exercise of
elections under the Policy. It should therefore be understood that these
comments concerning Federal income tax consequences are not an exhaustive
discussion of all tax questions that might arise under the Policy. Further,
these comments do not take into account any federal estate tax and gift,
state, or local tax considerations which may be involved in the purchase of a
Policy or the exercise of elections under the Policy. For complete information
on such Federal and state tax considerations, a qualified tax advisor should
be consulted. United Investors does not make any guarantee regarding the tax
status of any policy and the following summary is not intended as tax advice.
TAX STATUS OF THE POLICY
Section 7702 of the Code sets forth a definition of a life insurance
contract for Federal tax purposes. In addition, for Policies entered into
after October 20, 1988, the Technical and Miscellaneous Revenue Act of 1988
("TAMRA") established certain new requirements with respect to the mortality
(i.e., cost of insurance) and other expense charges that are to be used in
determining compliance with section 7702. The Secretary of the Treasury has
issued proposed regulations that would specify what will be considered
reasonable mortality charges for Policies subject to TAMRA. However, these
proposed regulations do not address other expense charges. If a Policy were
determined not to be a life insurance contract for purposes of section 7702,
such Policy would not provide most of the tax advantages normally provided by
a life insurance policy.
With respect to a Policy entered into before October 21, 1988, although
there are no regulations specifically interpreting the manner in which the
tests under section 7702 are to be applied to such a Policy, United Investors
believes that such a Policy should meet the definition of a life insurance
contract for Federal tax purposes. However, an exchange of a Policy or payment
of an additional premium for a Policy entered into before October 21, 1988, or
possibly other changes, may cause such a Policy (or in the case of an
exchange, the new policy received in such exchange) to be treated as entered
into after October 20, 1988, and, in such circumstances, the Policy (or the
new policy in the case of an exchange) would be subject to the mortality and
other expense charge requirements prescribed by TAMRA. Accordingly, the Owner
of a Policy entered into before October 21, 1988, should contact a competent
tax adviser before exchanging, or making any other change, to such Policy to
determine whether the exchange or change would cause the Policy (or the new
policy in the case of an exchange) to be treated as entered into after October
20, 1988.
With respect to a Policy entered into after October 20, 1988, that is issued
on the basis of a standard rate class or a rate class involving a lower
mortality risk (i.e., a preferred basis), while there is some uncertainty due
to the lack of guidance on other expense charges, United Investors nonetheless
believes that such a Policy should meet the section 7702 definition of a life
insurance
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<PAGE>
contract. However, with respect to a Policy entered into after October 20,
1988, that is issued on a substandard basis (i.e., a rate class involving
higher than standard mortality risk), it remains unclear whether or not such a
Policy would satisfy section 7702, particularly if the Owner pays the full
amount of premiums permitted under the Policy.
If it is subsequently determined that a Policy does not satisfy section
7702, United Investors will take all steps possible in order to attempt to
cause such a Policy to comply with section 7702, including possibly refunding
any premiums paid that exceed the limitations allowable under section 7702
(together with interest or other earnings on any such premiums refunded as
required by law). For these reasons, United Investors reserves the right to
modify the Policy as necessary to qualify it as a life insurance contract
under section 7702.
Section 817(h) of the Code authorizes the Treasury to set standards by
regulation or otherwise for the investments of the Variable Account to be
"adequately diversified" in order for the Policy to be treated as a life
insurance contract for Federal tax purposes. The Variable Account, through the
Fund, intends to comply with the diversification requirements prescribed by
the Treasury in Treas. Reg. Section 1.817-5, which affect how the Fund's
assets may be invested. Although the Fund's investment adviser and United
Investors are both indirectly owned by Torchmark Corporation, United Investors
does not control the Fund or its investments. United Investors, however,
believes that the Fund will be operated in compliance with the requirements
prescribed by the Treasury.
In certain circumstances, owners of variable contracts may be considered the
owners, for federal income tax purposes, of the assets of the separate account
used to support their contracts. In those circumstances, income and gains from
the separate account assets would be includible in the variable contract
owner's gross income. The IRS has stated in published rulings that a variable
contract owner will be considered the owner of separate account assets if the
contract owner possesses incidents of ownership in those assets, such as the
ability to exercise investment control over the assets. The Treasury
Department also announced, in connection with the issuance of regulations
concerning diversifications, that those regulations "do not provide guidance
concerning the circumstances in which investor control of the investments of a
segregated asset account may cause the investor (i.e., the Owner), rather than
the insurance company, to be treated as the owner of the assets in the
account." This announcement also stated that guidance would be issued by way
of regulations or rulings on the "extent to which policyowners may direct
their investments to particular subaccounts without being treated as owners of
the underlying assets."
The ownership rights under the Policy are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that policy owners were not owners of separate account assets. For
example, the Owner has additional flexibility in allocating premium payments
and Policy values. These differences could result in an Owner being treated as
the owner of a pro rata portion of the assets of the Variable Account. In
addition, United Investors does not know what standards will be set forth, if
any, in the regulations or rulings which the Treasury Department has stated it
expects to issue. United Investors therefore reserves the right to modify the
Policy as necessary to attempt to prevent an Owner from being considered the
owner of a pro rata share of the assets of the Variable Account.
The following discussion assumes that the Policy will qualify as a life
insurance contract for Federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
1. In general. United Investors believes that the proceeds and cash value
increases of a Policy should be treated in a manner consistent with a fixed-
benefit life insurance policy for Federal income tax purposes. Thus, the death
benefit under the Policy should be excludable from the gross income of the
Beneficiary under section 101 (a)(1) of the Code.
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The exchange of the Policy, a change of the Policy's Minimum Death Benefit,
a Policy loan, an additional premium payment, a Policy lapse with an
outstanding loan, a change of Owners, or a surrender may have tax consequences
depending on the circumstances. In addition, Federal estate and state and
local estate, inheritance, and other tax consequences of ownership or receipt
of Policy proceeds depend upon the circumstances of each Owner or Beneficiary.
A competent tax adviser should be consulted for further information.
Generally, the Owner will not be deemed to be in constructive receipt of the
cash value, including increments thereof, under the Policy until there is a
distribution. The tax consequences of distributions from, and loans taken
from, or secured by, a Policy depend on whether the Policy is classified as a
"modified endowment contract" under section 7702A.
2. Modified endowment contracts. Because of the premium level contemplated
under the Policies, all Policies entered into after June 20, 1988, will be
treated as modified endowment contracts. Moreover, a Policy entered into
before June 21, 1988, that is "materially changed" after June 20, 1988, may in
certain circumstances be treated as a modified endowment contract. With
respect to a Policy entered into before June 21, 1988, a change in such
Policy's Minimum Death Benefit, the payment of an additional premium, or the
exchange of such a Policy, among other things, may cause a material change to
such Policy, which could result in the treatment of the Policy (or the new
Policy in the case of an exchange) as a modified endowment contract. The
material change rules for determining when a Policy entered into before June
21, 1988, will be treated as a modified endowment contract are extremely
complex and, therefore, an Owner should contact a competent tax adviser before
paying any additional premium or effecting any other change in, including an
exchange of, a Policy entered into before June 21, 1988. In addition, a life
insurance contract received in exchange for a Policy classified as a modified
endowment contract will be treated as a modified endowment contract.
3. Distributions from Policies Classified as Modified Endowment Contracts.
Policies classified as modified endowment contracts will be subject to the
following tax rules: First, all distributions, including distributions upon
surrender and benefits paid at maturity, from such a Policy are treated as
ordinary income subject to tax up to the amount equal to the excess (if any)
of the cash value immediately before the distribution over the investment in
the Policy (described below) at such time. Second, loans taken from, or
secured by, such a Policy (including unpaid loan interest that is added to the
principal of a loan) are treated as distributions from such a Policy and taxed
accordingly. Third, a 10 percent additional tax is imposed on the portion of
any distribution from, or loan taken from or secured by, such a Policy that is
included in income except where the distribution or loan is made on or after
the Owner attains age 59 1/2, is attributable to the Owner's becoming
disabled, or is part of a series of substantially equal periodic payments for
the life (or life expectancy) of the Owner or the joint lives (or joint life
expectancies) of the Owner and the Owner's Beneficiary.
4. Distributions from Policies not Classified as Modified Endowment
Contracts. Distributions from a Policy entered into before June 21, 1988, and
which is not materially changed (see discussion above) after June 20, 1988,
or, if materially changed, is not classified as a modified endowment contract
after such material change, are generally treated as first recovering the
investment in the Policy (described below) and then, only after the return of
all such investment in the Policy, as distributing taxable income. An
exception to this general rule occurs in the case of a decrease in the
Policy's death benefit or any other change that reduces benefits under the
Policy in the first 15 years after the Policy is issued and that results in a
cash distribution to the Owner in order for the Policy to continue complying
with the section 7702 definitional limits. Such a cash distribution will be
taxed in whole or in part as ordinary income (to the extent of any gain in the
Policy) under rules prescribed in section 7702.
Loans from, or secured by, a Policy that is not a modified endowment
contract may be treated as indebtedness of the Owner, not as a distribution.
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Finally, neither distributions (including distributions upon surrender or
lapse) nor loans from, or secured by, a Policy that is not a modified
endowment contract are subject to the 10% additional income tax.
5. Policy loan interest. Generally, interest paid on any loan under an
insurance policy which is owned by an individual is not deductible. The Owner
should consult a competent tax adviser if the deductibility of interest paid
on a policy loan is an important issue.
6. Investment in the Policy. Investment in the Policy means (i) the
aggregate amount of any premiums or other consideration paid for a Policy,
minus (ii) the aggregate amount received under the Policy which is excluded
from the gross income of the Owner (except that the amount of any loan from,
or secured by, a Policy that is a modified endowment contract, to the extent
such amount is excluded from gross income, will be disregarded), plus (iii)
the amount of any loan from, or secured by, a Policy that is a modified
endowment contract to the extent that such amount is included in the gross
income of the Owner.
7. Multiple Policies. All modified endowment contracts that are issued by
United Investors (or its affiliates) to the same Owner during any calendar
year are treated as one modified endowment contract for purposes of
determining the amount includable in gross income under section 72(e) of the
Code.
8. Other Tax Consequences. The Policy may be used in various arrangements,
including nonqualified deferred compensation or salary continuance plans,
split dollar insurance plans, executive bonus plans, retiree medical benefit
plans and others. The tax consequences of such plans may vary depending on the
particular facts and circumstances of each individual arrangement. Therefore,
if you are contemplating the use of a Policy in any arrangement the value of
which depends in part on its tax consequences, you should be sure to consult a
qualified tax advisor regarding the tax attributes of the particular
arrangement.
TAXATION OF UNITED INVESTORS
United Investors incurs state and local premium taxes. The amount of the
charge for such taxes is discussed above under "Charges and Deductions--Annual
Deduction." At the present time, the Company makes no charge to the Variable
Account for any Federal, state or local taxes (other than state premium taxes)
that it incurs which may be attributable to such Account or to the Policies.
The Company, however, reserves the right in the future to make a charge for
any such tax or other economic burden resulting from the application of the
tax laws that it determines to be properly attributable to the Variable
Account or to the Policies.
EMPLOYMENT-RELATED BENEFIT PLANS
On July 6, 1983, the Supreme Court held in Arizona Governing Committee v.
Norris that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women on the basis of sex. The Policies described in this
Prospectus contain guaranteed purchase rates for certain payment options that
generally distinguish between men and women. Accordingly, employers and
employee organizations should consider, in consultation with their legal
counsel, the impact of Norris, and Title VII generally, on any employment-
related insurance or benefit program for which a Policy may be purchased.
ADDITIONAL INFORMATION
SAFEKEEPING OF THE ACCOUNT'S ASSETS
United Investors holds the assets of the Variable Account. The assets are
kept physically segregated and held separate and apart from the general
account. United Investors maintains records of all purchases and redemptions
of Fund shares by each of the Investment Divisions.
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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 of
the Fund that are held by the Variable Account (or any Investment Division) or
that the Variable Account (or any Investment Division) may purchase. United
Investors reserves the right to eliminate the shares of any of the Portfolios
of the Fund and to substitute shares of another Portfolio of the Fund or any
other investment vehicle or of another open-end, registered investment company
if laws or regulations are changed, if the shares of the Fund 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 Investment Division. United Investors will not substitute any
shares attributable to a Policyowner's interest in an Investment Division of
the Variable Account without notice and prior approval of the 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 Investment
Divisions of the Variable Account, each of which would invest in a new
Portfolio of the Fund, or in shares of another investment company or suitable
investment, with a specified investment objective. New Investment Divisions
may be established when, in the sole discretion of United Investors, marketing
needs or investment conditions warrant, and any new Investment Divisions will
be made available to existing Policyowners on a basis to be determined by
United Investors. United Investors may also eliminate one or more Investment
Divisions 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 this and other 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.
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 1st 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 certifies their adequacy, 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.
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SENIOR OFFICERS AND DIRECTORS OF UNITED INVESTORS LIFE INSURANCE COMPANY
<TABLE>
<CAPTION>
NAME AND POSITION PRINCIPAL OCCUPATION
WITH UNITED INVESTORS* LAST FIVE YEARS
<S> <C>
W. Thomas Aycock Vice President and Chief Actuary of United Investors
Vice President and since November, 1992. Senior Vice President and
Chief Actuary, Actuary of Associated Doctors Health & Life Insurance
Director Co., December, 1990--November, 1992. Senior Consulting
Actuary of Ernst & Young, August, 1989--December,
1990. Associate Actuary of Provident Life & Accident
Insurance Co., March, 1984--August, 1989.
William C. Barclift, III Executive Vice President, Secretary and General Counsel
Director of Liberty National Life Insurance Company since
January, 1985.
Charles T. Clayton, Jr. Vice President--Agency Division since January, 1987.
Vice President Vice President--Brokerage and General Agency
Operations of Liberty National Life Insurance Company,
July, 1986--January, 1987.
William R. Dean Executive Vice President of Liberty National Life
Director Insurance Company since March, 1985. Senior Vice
President of Liberty National, January, 1985--March,
1985.
Michael J. Klyce Vice President of Torchmark Corporation since January,
Vice President & Trea- 1984.
surer
John H. Livingston Secretary of United Investors since December, 1994.
Secretary and Associate Counsel of United Investors since July,
Associate Counsel 1990. Associate Counsel of Liberty National Life
Insurance Company since October, 1986.
James L. Mayton, Jr.
Vice President & Con- Vice President & Controller of Liberty National Life
troller Insurance Company since January, 1985.
Carol A. McCoy Assistant Secretary of Torchmark Corporation since
Director April, 1987. Associate Counsel of Torchmark
Corporation since January, 1985.
Anthony L . McWhorter President of Liberty National Life Insurance Company
Director since December, 1994. Executive Vice President and
Chief Actuary of Liberty National, November, 1993--
December, 1994. Senior Vice President & Chief Actuary
of Liberty National, September, 1991--November, 1993.
Vice President and Chief Actuary of Liberty National,
May, 1987--September, 1991.
R. K. Richey Chairman of Torchmark Corporation since August, 1986
Chairman of the Board and Chief Executive Officer since December, 1984.
and Chief Executive Of- Chairman of United Investors Management Company since
ficer October, 1986. (President, Torchmark, April, 1982--
August, 1986. President of United Investors Management
Company, July, 1985--August, 1986.)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION PRINCIPAL OCCUPATION
WITH UNITED INVESTORS* LAST FIVE YEARS
<S> <C>
James L. Sedgwick President of United Investors since September, 1991.
President General Counsel and Secretary of United Investors,
January, 1985--September, 1991.
Ross W. Stagner Vice President of United Investors since January, 1992.
Vice President and Di- Assistant Vice President of United Investors, March,
rector 1988--January 1992.
William L. Surber Vice President of United Investors since April, 1992.
Vice President Assistant Vice President of United Investors, January,
1982--April, 1992.
Keith A. Tucker Vice Chairman of Torchmark Corporation since May, 1991.
Director Director of Torchmark Corporation, October, 1989--May,
1991.
</TABLE>
*The principal business address of each person listed, is United Investors
Life Insurance Company, P. O. Box 10207, Birmingham, Alabama 35202-0207.
LEGAL MATTERS
Legal advice regarding certain matters relating to federal securities laws
applicable to the issuance of the flexible premium variable life insurance
policy described in this Prospectus has been provided by Sutherland, Asbill &
Brennan of Washington, D. C. All matters of Missouri law pertaining to the
Policy, including the validity of the Policy and United Investors' right to
issue the Policy under Missouri Insurance Law and any other applicable state
insurance or securities laws, have been passed upon by James L. Sedgwick,
Esq., President of United Investors.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account is a party or
to which the assets of the Variable Account are subject. United Investors is
not involved in any litigation that is of material importance in relation to
its total assets or that relates to the Variable Account.
EXPERTS
The balance sheets of United Investors Life Insurance Company as of December
31, 1995 and 1994, and the related statements of operations, shareholder's
equity, and cash flow for each of the years in the three-year period ended
December 31, 1995 and the balance sheet of United Investors Life Variable
Account as of December 31, 1995 and the related statements of operations and
changes in net assets for each of the years in the three-year period ended
December 31, 1995 have been included herein in reliance upon the report of
KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing. The report of KPMG Peat Marwick LLP on the financial statements
of United Investors Life Insurance Company refers to changes in accounting
principles in 1993 to adopt the provisions of Statement of Financial
Accounting Standards Board's (FASB's) Statement of Financial Accounting
Standards (Statement) No. 106, "Employer's Accounting for Postretirement
Benefit Plans Other than Pensions", FASB Statement No. 109 "Accounting for
Income Taxes" and FASB Statement No. 115 "Accounting for Certain Investments
in Debt and Equity Securities."
Actuarial matters included in this Prospectus have been examined by W.
Thomas Aycock, Vice President and Chief Actuary of United Investors, as stated
in the opinion filed as an exhibit to the Registration Statement.
24
<PAGE>
FINANCIAL STATEMENTS
The financial statements of United Investors which are included in this
prospectus should be considered only as bearing on the ability of United
Investors to meet its obligations under the Policies. They should not be
considered as bearing on the investment performance of the assets held in the
Variable Account.
25
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
United Investors Life Insurance Company
Birmingham, Alabama
We have audited the accompanying balance sheets of United Investors Life
Insurance Company as of December 31, 1995 and 1994 and the related statements
of operations, shareholder's equity and cash flow for each of the years in the
three-year period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of United Investors Life
Insurance Company at December 31, 1995 and 1994 and the results of its
operations and its cash flow for each of the years in the three-year period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
As discussed in Notes 1, 7 and 8 to the financial statements, the Company
adopted the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards (Statement) No. 115, Accounting for Certain
Investments in Debt and Equity Securities, Statement No. 109, Accounting for
Income Taxes, and Statement No. 106, Employers' Accounting for Postretirement
Benefits Other than Pensions, in 1993.
KPMG PEAT MARWICK LLP
Birmingham, Alabama
January 31, 1996
F-1
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities--available for sale, at fair value
(cost: 1995--$612,375; 1994--$568,045)................ 637,844 535,194
Equity securities, at fair value (cost: 1994--$2,065).. 0 2,502
Policy loans........................................... 12,299 10,178
Other long-term invested assets........................ 19,848 24,129
Short-term investments................................. 4,223 2,322
---------- ----------
Total investments.................................... 674,214 574,325
Cash.................................................... 6,042 7,536
Accrued investment income (includes amounts from
affiliates:
1995--$473; 1994--$465)................................ 9,963 8,821
Receivables (includes amounts from affiliates:
1995--$35,322; 1994--$35,191).......................... 37,858 37,496
Deferred acquisition costs.............................. 144,716 153,677
Value of insurance purchased............................ 18,679 20,983
Goodwill................................................ 7,340 7,624
Property and equipment.................................. 125 153
Other assets............................................ 2,242 1,606
Separate account assets................................. 1,085,844 715,203
---------- ----------
Total assets......................................... $1,987,023 $1,527,424
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Future policy benefits................................. $ 517,177 $ 491,824
Unearned and advance premiums.......................... 2,521 2,369
Other policy liabilities............................... 6,264 7,030
---------- ----------
Total policy liabilities.............................. 525,962 501,223
Accrued income taxes................................... 50,313 34,420
Other liabilities...................................... 2,132 3,622
Due to affiliates...................................... 9,644 10,243
Separate account liabilities........................... 1,085,844 715,203
---------- ----------
Total liabilities.................................... 1,673,895 1,264,711
Shareholder's equity:
Common stock, par value $6 per share-authorized,
issued and outstanding:
500,000 shares........................................ 3,000 3,000
Additional paid-in capital............................. 137,950 137,915
Unrealized investment gains (losses), net of applicable
taxes................................................. 12,292 (12,378)
Retained earnings...................................... 159,886 134,176
---------- ----------
Total shareholder's equity........................... 313,128 262,713
---------- ----------
Total liabilities and shareholder's equity........... $1,987,023 $1,527,424
========== ==========
</TABLE>
See accompanying Notes to Financial Statements.
F-2
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1994 1993
------- -------- --------
<S> <C> <C> <C>
Revenue:
Premium income..................................... $61,792 $ 57,753 $ 53,764
Policy charges and fees............................ 23,109 18,259 13,945
Net investment income (includes amounts from affil-
iates: 1995-- $3,058; 1994--$628; 1993--$270)..... 49,356 46,258 46,457
Realized investment gains (losses)................. 1,441 (2,047) 3,473
Other income....................................... 4 2 0
------- -------- --------
Total revenue.................................... 135,702 120,225 117,639
Benefits and expenses:
Policy benefits:
Individual life................................... 42,943 39,578 37,337
Annuity........................................... 16,540 15,326 16,935
------- -------- --------
Total policy benefits............................ 59,483 54,904 54,272
Amortization of deferred acquisition costs......... 16,602 15,790 13,566
Commissions and premium taxes (includes amounts to
affiliates: 1995--$4,000; 1994--$4,008; 1993--
$4,339)........................................... 4,691 4,205 4,396
Other operating expense (includes amounts to affil-
iates: 1995--$1,862; 1994--$1,774; 1993--$1,735).. 3,679 3,954 3,409
------- -------- --------
Total benefits and expenses...................... 84,455 78,853 75,643
------- -------- --------
Net operating income before income taxes............ 51,247 41,372 41,996
Income taxes........................................ 18,037 14,337 15,130
------- -------- --------
Net income before cumulative effect of changes in
accounting principles........................... $33,210 $ 27,035 $ 26,866
Cumulative effect of changes in accounting princi-
ples............................................... 0 0 3,038
------- -------- --------
Net income....................................... $33,210 $ 27,035 $ 29,904
======= ======== ========
</TABLE>
See accompanying Notes to Financial Statements.
F-3
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
ADDITIONAL INVESTMENT TOTAL
COMMON PAID-IN GAINS RETAINED SHAREHOLDER'S
STOCK CAPITAL (LOSSES) EARNINGS EQUITY
------ ---------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1993
Balance at January
1,1993................. $3,000 $137,753 $ 330 $102,061 $243,144
Net income.............. 29,904 29,904
Dividends............... (14,824) (14,824)
Exercise of stock op-
tions.................. 162 162
Net change in unrealized
investment gains (loss-
es).................... 11,555 11,555
------ -------- -------- -------- --------
Balance at December 31,
1993................... 3,000 137,915 11,885 117,141 269,941
YEAR ENDED DECEMBER 31,
1994
Net income.............. 27,035 27,035
Dividends............... (10,000) (10,000)
Net change in unrealized
investment gains (loss-
es).................... (24,263) (24,263)
------ -------- -------- -------- --------
Balance at December 31,
1994................... 3,000 137,915 (12,378) 134,176 262,713
YEAR ENDED DECEMBER 31,
1995
Net income.............. 33,210 33,210
Dividends............... (7,500) (7,500)
Exercise of stock op-
tions.................. 35 35
Net change in unrealized
investment gains (loss-
es).................... 24,670 24,670
------ -------- -------- -------- --------
Balance at December 31,
1995................... $3,000 $137,950 $12,292 $159,886 $313,128
====== ======== ======== ======== ========
</TABLE>
See accompanying Notes to Financial Statements.
F-4
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOW
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1994 1993
-------- --------- ---------
<S> <C> <C> <C>
Net income.................................... $ 33,210 $ 27,035 $ 29,904
Adjustments to reconcile net income to cash
provided from operations:
Increase in future policy benefits........... 22,011 19,302 22,127
Increase (decrease) in other policy benefits. (614) (753) 927
Deferral of policy acquisition costs......... (28,870) (28,116) (28,029)
Amortization of deferred acquisition costs... 16,602 15,790 13,566
Change in accrued income taxes............... 2,644 (1,557) 4,634
Depreciation................................. 52 71 83
Realized (gains) losses on sale of invest-
ments and properties........................ (1,441) 2,047 (3,473)
Other accruals and adjustments............... (3,525) (1,558) 4,536
-------- --------- ---------
Cash provided from operations................. 40,069 32,261 44,275
Cash used for investment activities:
Investments sold or matured:
Fixed maturities available for sale--sold... 149,076 64,713 42,125
Fixed maturities available for sale--
matured, called and repaid................. 50,659 107,977 40,299
Fixed maturities held to maturity--sold..... 0 0 4,936
Fixed maturities held to maturity--matured,
called and repaid.......................... 0 0 120,718
Equity securities........................... 3,341 0 0
Other long-term investments................. 9,316 1,830 4,005
-------- --------- ---------
Total investments sold or matured.......... 212,392 174,520 212,083
Acquisition of investments:
Fixed maturities--available for sale........ (244,162) (180,473) (5,075)
Fixed maturities--held to maturity.......... 0 0 (229,687)
Equity securities........................... 0 (102) 0
Net increase in policy loans................ (2,121) (1,524) (1,135)
Other long-term investments................. (1,587) (2,461) (3,804)
-------- --------- ---------
Total acquisition of investments........... (247,870) (184,560) (239,701)
Net (increase) decrease in short-term invest-
ments....................................... (1,901) 12,669 (14,311)
Funds loaned to affiliates................... (21,000) (54,000) (18,000)
Funds repaid from affiliates................. 21,000 27,000 10,001
Disposition of properties.................... 6 15 0
Additions to properties...................... (33) (23) (2)
-------- --------- ---------
Cash used for investment activities........... (37,406) (24,379) (49,930)
Cash provided from (used for) financing activ-
ities:
Cash dividends paid to shareholder........... (7,500) (10,000) (2)
Net receipts from deposit product operations. 3,343 (450) 8,785
-------- --------- ---------
Cash provided from (used for) financing activ-
ities........................................ (4,157) (10,450) 8,783
Increase (decrease) in cash................... (1,494) (2,568) 3,128
Cash at beginning of year..................... 7,536 10,104 6,976
-------- --------- ---------
Cash at end of year........................... $ 6,042 $ 7,536 $ 10,104
======== ========= =========
</TABLE>
See accompanying Notes to Financial Statements.
F-5
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The accompanying financial statements include the
accounts of United Investors Life Insurance Company ("United Investors") which
is a wholly-owned subsidiary of United Investors Management Company ("United
Management"). The financial statements have been prepared on the basis of
generally accepted accounting principles ("GAAP"). The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Investments: United Investors classifies all of its fixed maturity
investments, which includes bonds and redeemable preferred stocks, as
available for sale. Investments classified as available for sale are carried
at fair value with unrealized gains and losses, net of deferred taxes,
reflected directly in shareholder's equity. Investments in equity securities,
which include common and nonredeemable preferred stocks, are reported at fair
value with unrealized gains and losses, net of deferred taxes, reflected
directly in shareholder's equity. Policy loans are carried at unpaid principal
balances. Short-term investments include investments in certificates of
deposit and other interest-bearing time deposits with original maturities
within three months. Other long-term investments consist of investments in
mutual funds which are carried at fair value. Other long-term investments also
include passive energy limited-partnership investments which are valued at
partnership equity. If an investment becomes permanently impaired, such
impairment is treated as a realized loss and the investment is adjusted to net
realizable value.
Gains and losses realized on the disposition of investments are recognized
as revenues and are determined on a specific identification basis.
Realized investment gains and losses and investment income attributable to
separate accounts are credited to the separate accounts and have no effect on
United Investor's net income. Investment income attributable to policyholders
is included in United Investor's net investment income. Net investment income
for the years ended December 31, 1995, 1994 and 1993 included approximately
$38,000, $35,700, and $36,700, 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.
F-6
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Future Policy Benefits: The liability for future policy benefits for
universal life-type products according to SFAS 97 is represented by policy
account value. The liability for future policy benefits for other products is
provided on the net level premium method based on estimated investment yields,
mortality, persistency and other assumptions which were appropriate at the
time the policies were issued. Assumptions used are based on United Investor's
experience as adjusted to provide for possible adverse deviation. These
estimates are periodically reviewed and compared with actual experience. If it
is determined that future expected experience differs significantly from that
assumed, the estimates are revised.
Deferred acquisition costs: The costs of acquiring new insurance business
are deferred. Such costs consist of sales commissions, underwriting expenses,
and certain other selling expenses. The costs of acquiring new business
through the purchase of other companies and blocks of insurance business are
also deferred.
Deferred acquisition costs, including the value of insurance purchased, for
policies other than universal life-type policies according to SFAS 97, are
amortized with interest over an estimate of the premium-paying period of the
policies in a manner which charges each year's operations in proportion to the
receipt of premium income. For universal life-type policies, acquisition costs
are amortized with interest in proportion to estimated gross profits. The
assumptions used as to interest, withdrawals and mortality are consistent with
those used in computing the liability for future policy benefits and expenses.
If it is determined that future experience differs significantly from that
previously assumed, the estimates are revised. Deferred acquisition costs are
adjusted to reflect the amounts associated with unrealized investment gains
and losses pertaining to universal life-type products.
Income Taxes: Income taxes are accounted for under the asset and liability
method in accordance with SFAS 109. Under the asset and liability method,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement book
values and tax bases of assets and liabilities. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Effective January 1, 1993, United Investors adopted SFAS 109 and has
reported the cumulative effect of that change in the method of accounting for
income taxes in the 1993 statement of operations.
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.
Reclassifications: Certain amounts in the financial statements presented
have been reclassified from amounts previously reported. These
reclassifications have no effect on previously reported shareholder's equity
or net income during the periods involved.
F-7
<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
shareholder's equity on a statutory basis for United Investors were as
follows:
<TABLE>
<CAPTION>
NET INCOME SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, AT DECEMBER 31,
------------------------- ---------------------
1995 1994 1993 1995 1994
-------- ------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Life insurance............... $ 29,636 $ 7,752 $ 10,277 $ 156,673 $ 135,885
</TABLE>
The excess of shareholder's equity on a GAAP basis over that determined on a
statutory basis is not available for distribution to the shareholder without
regulatory approval.
A reconciliation of United Investors' statutory net income to GAAP net
income is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Statutory net income........................... $ 29,636 $ 7,752 $ 10,277
Deferral of acquisition costs.................. 28,870 28,116 28,029
Amortization of acquisition costs.............. (16,602) (15,790) (13,566)
Differences in policy liabilities.............. (6,774) 13,515 6,553
Deferred income taxes.......................... (1,389) (4,272) (6,753)
Adjustment for change in accounting standard... 0 0 3,152
Other.......................................... (531) (2,286) 2,212
-------- -------- --------
GAAP net income................................ $ 33,210 $ 27,035 $ 29,904
======== ======== ========
</TABLE>
A reconciliation of United Investors' statutory shareholder's equity to GAAP
shareholder's equity is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1994
----------- -----------
<S> <C> <C>
Statutory shareholder's equity.................... $ 156,673 $135,885
Differences in policy liabilities................. 33,659 26,770
Deferred acquisition costs and value of insurance
purchased........................................ 163,396 174,660
Differences in income tax liability............... (47,982) (33,108)
Asset valuation reserve........................... 9,388 5,083
Nonadmitted assets................................ 1,778 1,569
Fair value adjustment on fixed maturities avail-
able for sale.................................... 25,469 (32,851)
Other............................................. (29,253) (15,295)
----------- -----------
GAAP shareholder's equity......................... $ 313,128 $262,713
=========== ===========
</TABLE>
F-8
<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,
--------------------------
1995 1994 1993
------- -------- -------
<S> <C> <C> <C>
Fixed maturities.................................. $43,482 $ 43,532 $44,215
Equity securities................................. 76 0 0
Policy loans...................................... 851 730 658
Other long-term investments....................... 1,681 1,314 1,328
Short-term investments............................ 717 493 424
Interest and dividends from affiliates............ 3,058 628 270
------- -------- -------
49,865 46,697 46,895
Less investment expense........................... (509) (439) (438)
------- -------- -------
Net investment income............................. $49,356 $ 46,258 $46,457
======= ======== =======
Analysis of gains (losses) from investments:
Realized investment gains (losses)
Fixed maturities................................ $ 319 $ (2,189) $ 3,262
Equity securities............................... 1,276 0 0
Mutual funds.................................... (154) 142 211
------- -------- -------
$ 1,441 $ (2,047) $ 3,473
======= ======== =======
Net change in unrealized investment gains (losses)
on equity securities before tax.................. $ (438) $ 437 $ 0
Net change in unrealized investment gains on fixed
maturities available for sale before tax......... 58,321 (58,904) 26,053
Other............................................. 3,602 (1,557) 1,122
Adjustment to deferred acquisition costs.......... (23,532) 22,697 (9,391)
Applicable tax.................................... (13,283) 13,064 (6,229)
------- -------- -------
Net change in unrealized gains (losses) on equity
and fixed maturity securities available for sale. $24,670 $(24,263) $11,555
======= ======== =======
</TABLE>
F-9
<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 and equity securities by
amortized cost and estimated market value at December 31, 1995 and 1994 is as
follows:
<TABLE>
<CAPTION>
GROSS GROSS AMOUNT PER
AMORTIZED UNREALIZED UNREALIZED MARKET THE BALANCE
1995: COST GAINS LOSSES VALUE SHEET
- ----- --------- ---------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
Fixed maturities avail-
able for sale:
Bonds:
U.S. Government direct
obligations and agen-
cies................... $ 21,790 $ 613 $ 0 $ 22,403 $ 22,403
GNMA's.................. 179,808 8,653 (87) 188,374 188,374
Mortgage-backed securi-
ties, GNMA collateral.. 42,505 2,195 0 44,700 44,700
States, municipalities
and political
subdivisions........... 37,305 946 (375) 37,876 37,876
Foreign governments..... 1,401 92 0 1,493 1,493
Public utilities........ 22,390 1,105 (18) 23,477 23,477
Industrial and miscella-
neous.................. 307,176 12,873 (527) 319,521 319,521
-------- ------- -------- -------- --------
Total fixed maturities.. 612,375 26,477 (1,007) 637,844 637,844
Equity securities:
Total equity securities.. -0- -0- -0- -0- -0-
-------- ------- -------- -------- --------
Total fixed maturities
and equity
securities............. $612,375 $26,477 $(1,007) $637,844 $637,844
======== ======= ======== ======== ========
<CAPTION>
1994:
- -----
<S> <C> <C> <C> <C> <C>
Fixed maturities available
for sale:
Bonds:
U.S. Government direct
obligations and agen-
cies................... $ 18,515 $ 37 $ (1,004) $ 17,548 $ 17,548
GNMA's.................. 271,726 2,526 (12,973) 261,279 261,279
Mortgage-backed securi-
ties, GNMA collateral.. 38,661 149 (1,261) 37,549 37,549
States, municipalities
and political subdivi-
sions.................. 39,316 808 (3,674) 36,450 36,450
Foreign governments..... 6,138 0 (243) 5,895 5,895
Public utilities........ 33,240 48 (2,905) 30,383 30,383
Industrial and miscella-
neous.................. 160,449 179 (14,538) 146,090 146,090
-------- ------- -------- -------- --------
Total fixed maturities. 568,045 3,747 (36,598) 535,194 535,194
Equity securities:
Common stocks:
Banks and insurance com-
panies................. 1,963 437 0 2,400 2,400
Industrial and all oth-
ers.................... 102 0 0 102 102
-------- ------- -------- -------- --------
Total equity securities.. 2,065 437 0 2,502 2,502
-------- ------- -------- -------- --------
Total fixed maturities
and equity securities.. $570,110 $ 4,184 $(36,598) $537,696 $537,696
======== ======= ======== ======== ========
</TABLE>
F-10
<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, 1995
is shown below on an amortized cost basis and on a market value basis. Actual
maturities could differ from contractual maturities due to call or prepayment
provisions.
<TABLE>
<CAPTION>
AMORTIZED MARKET
COST VALUE
--------- --------
<S> <C> <C>
Fixed maturities available for sale;
Due in one year or less................................. $ 1,153 $ 1,171
Due after one year through five years................... 82,040 84,999
Due after five years through ten years.................. 188,516 193,556
Due after ten years..................................... 118,353 125,044
-------- --------
390,062 404,770
Mortgage- and asset-backed securities.................... 222,313 233,074
Redeemable preferred stock............................... 0 0
-------- --------
$612,375 $637,844
======== ========
</TABLE>
Proceeds from sales of fixed maturities available for sale were $149,076 in
1995, $64,713 in 1994, and $42,126 in 1993. Gross gains realized on these
sales were $3,157 in 1995, $1,058 in 1994, and $999 in 1993. Gross losses on
these sales were $2,126 in 1995, $3,468 in 1994, and $28 in 1993. Proceeds
from sales of fixed investments held to maturity were $57,392 in 1993
(including $52,458 which was the noncash value received in an affiliated
exchange of securities). Gross gains realized on these sales were $2,039 in
1993. There were no gross losses on these sales in 1993. The 1993 sales of
fixed investments held to maturity were made for various reasons including
changes in regulatory requirements, credit deterioration, and sales within 90
days of maturity.
F-11
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 4--DEFERRED ACQUISITION COSTS
An analysis of deferred acquisition costs and the value of insurance
purchased is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------------------- --------------------- ---------------------
DEFERRED VALUE OF DEFERRED VALUE OF DEFERRED VALUE OF
ACQUISITION INSURANCE ACQUISITION INSURANCE ACQUISITION INSURANCE
COSTS PURCHASED COSTS PURCHASED COSTS PURCHASED
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of
year................... $153,677 $20,983 $116,406 $ 23,231 $109,171 $25,394
Additions:
Deferred during peri-
od:
Commissions.......... 24,258 0 23,533 0 23,736 0
Other expenses....... 4,611 0 4,583 0 4,293 0
-------- ------- -------- -------- -------- -------
Total deferred...... 28,869 0 28,116 0 28,029 0
Adjustment attributable
to unrealized
investment loss (1)... 0 0 22,697 0 0 0
-------- ------- -------- -------- -------- -------
Total additions..... 28,869 0 50,813 0 28,029 0
Deductions:
Amortized during peri-
od................... (14,062) (2,304) (12,109) (2,248) (11,403) (2,163)
Adjustment
attributable to
unrealized investment
gains (1)............ (23,532) 0 0 0 (9,391) 0
Adjustment
attributable to
realized investment
gains (1)............ (236) 0 (1,433) 0 0 0
-------- ------- -------- -------- -------- -------
Total deductions.... (37,830) (2,304) (13,542) (2,248) (20,794) (2,163)
-------- ------- -------- -------- -------- -------
Balance at end of year.. $144,716 $18,679 $153,677 $ 20,983 $116,406 $23,231
======== ======= ======== ======== ======== =======
</TABLE>
- --------
(1) Represents amounts pertaining to investments relating to universal life-
type products.
The amount of interest accrued on the unamortized balance of value of
insurance purchased was approximately $1,300, $1,500, and $1,700 for the years
ended December 31, 1995, 1994 and 1993, respectively. The average interest
accrual rates used were 6.59%, 6.74% and 6.88%, respectively. The estimated
amount of the unamortized value of business purchased balance at December 31,
1995 to be amortized during each of the next five years is: 1996, $2,054;
1997, $1,829; 1998, $1,628; 1999, $1,448; 2000, $1,289.
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,
1995 1994
------------------- -------------------
ACCUMULATED ACCUMULATED
COST DEPRECIATION COST DEPRECIATION
------ ------------ ------ ------------
<S> <C> <C> <C> <C>
Data processing equipment............... $ 155 $ 137 $ 142 $ 132
Transportation equipment................ 142 73 142 72
Furniture and office equipment ......... 919 881 918 845
------ ------ ------ ------
Total................................. $1,216 $1,091 $1,202 $1,049
====== ====== ====== ======
</TABLE>
Depreciation expense on property and equipment used in the business was $52,
$71 and $83 in each of the years 1995, 1994, and 1993, respectively.
F-12
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 6--FUTURE POLICY BENEFIT RESERVES
A summary of the assumptions used in determining the liability for future
policy benefits at December 31, 1995 is as follows:
INDIVIDUAL LIFE INSURANCE
Interest Assumptions:
<TABLE>
<CAPTION>
PERCENT OF
YEARS OF ISSUE INTEREST RATES LIABILITY
-------------- --------------------- ----------
<S> <C> <C>
1962-1995 3% level to 6% level 6%
1986-1992 7.00% graded to 6.00% 18%
1962-1985 8.50% graded to 6.00% 6%
1981-1985 8.50% graded to 7.00% 7%
1984-1995 Interest sensitive 63%
----
100%
====
</TABLE>
Mortality assumptions:
The mortality tables used are various statutory mortality tables and
modifications of:
1965-70 Select and Ultimate Table
1975-80 Select and Ultimate Table
Withdrawal assumptions:
Withdrawal assumptions are based on United Investors' experience.
NOTE 7--INCOME TAXES
United Investors is included in the life-nonlife consolidated federal income
tax return filed by Torchmark. Under the tax allocation agreement with
Torchmark, a company with taxable income pays tax equal to the amount it would
pay if it filed a separate tax return. A company with a loss is paid a tax
benefit currently to the extent that affiliated companies with taxable income
utilize that loss.
As discussed in Note 1, United Investors adopted SFAS 109 on January 1,
1993. The cumulative effect of this change in accounting for income taxes is a
$3,200 addition to net income for the year ended December 31, 1993. This
amount is included in the cumulative effect of changes in accounting
principles line on the statement of operations.
Total income taxes were allocated as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Net operating income before income taxes........ $18,037 $14,337 $15,130
Change in accounting standards for post-retire-
ment benefits other than pensions.............. 0 0 (61)
Shareholder's equity:
Unrealized gains (losses)...................... 13,284 (13,065) 6,229
Tax basis compensation expense in excess of
amounts recognized for financial reporting
purposes from the exercise of stock options... (35) 0 (162)
------- ------- -------
$31,286 $ 1,272 $21,136
======= ======= =======
</TABLE>
F-13
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 7--INCOME TAXES (CONTINUED)
Income tax expense before the cumulative effect of the change in accounting
principles and adjustments to shareholder's equity is summarized below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Current income tax expense............................ $16,648 $10,066 $ 8,229
Increase in January 1, 1993 deferred income tax
liability due to the increase in corporate income tax
rate to 35%.......................................... 0 0 801
Deferred income tax expense........................... 1,389 4,271 6,100
------- ------- -------
$18,037 $14,337 $15,130
======= ======= =======
</TABLE>
The effective income tax rate differed from the expected 35% rate in 1995,
1994 and 1993 as shown below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 % 1994 % 1993 %
------- --- ------- --- ------- ---
<S> <C> <C> <C> <C> <C> <C>
Expected income taxes.................. $17,936 35% $14,480 35% $14,699 35%
Increase (reduction) in income taxes
resulting from:
Tax-exempt investment income.......... (102) 0 (243) 0 (485) (1)
Purchase accounting differences....... 99 0 99 0 99 0
Effect of tax rate change on deferred
liability............................ 0 0 0 0 801 2
Other................................. 104 0 1 0 16 0
------- --- ------- --- ------- ---
Income taxes........................... $18,037 35% $14,337 35% $15,130 36%
======= === ======= === ======= ===
</TABLE>
The significant components of deferred income tax expense before the
cumulative effect of the change in accounting principles and adjustments to
shareholder's equity are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Deferred income tax expense (exclusive of the effect
of the component listed below)..................... $1,389 $ 4,271 $ 6,100
Adjustments to deferred tax assets and liabilities
for the increase in the corporate income tax rate
from 34% to 35%.................................... 0 801
------- ------- -------
$1,389 $ 4,271 $ 6,901
======= ======= =======
</TABLE>
F-14
<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,
-----------------------
1995 1994
-----------------------
<S> <C> <C>
Deferred tax assets:
Future policy benefits and unearned and advance
premiums.......................................... $ 9,626 $ 11,493
Other liabilities, principally due to the current
nondeductibilty for
tax purposes of certain accrued expenses.......... 160 180
Unrealized investment losses....................... 0 6,665
Other.............................................. 0 1,062
---------- ------------
Total gross deferred tax assets.................... 9,786 19,400
Less valuation allowance........................... 0 0
---------- ------------
Net deferred tax assets............................ 9,786 19,400
---------- ------------
Deferred tax liabilities:
Energy investments, principally due to accelerated
depletion deductions for tax purposes............. 565 402
Deferred acquisition costs......................... 50,795 52,684
Unrealized investment gains........................ 6,619 0
Other.............................................. 166 0
---------- ------------
Total gross deferred tax liabilities............... 58,145 53,086
---------- ------------
Net deferred tax liability......................... 48,359 33,686
========== ============
</TABLE>
In United Investor's opinion, all deferred tax assets will be recoverable.
United Investors has not recognized a deferred tax liability of
approximately $2,200 that arose prior to 1984 on temporary differences related
to its policyholders' surplus account. A current tax expense will be
recognized in the future if and when this tax becomes payable.
NOTE 8--POSTRETIREMENT BENEFITS
Pension Plans: The full-time employees of United Investors are covered under
a defined benefit pension plan and a defined contribution savings plan. These
plans cover primarily employees of other Torchmark and United Management
affiliates. The total costs of these retirement plans charged to operations
were as follows:
<TABLE>
<CAPTION>
DEFINED DEFINED
YEAR ENDED CONTRIBUTION BENEFIT
DECEMBER 31, PLANS PLAN
------------ ------------ -------
<S> <C> <C>
1995.................................................. $39 $75
1994.................................................. 38 66
1993.................................................. 24 61
</TABLE>
Net periodic pension cost for the defined benefit plan which covers United
Investors' employees has been calculated on the projected unit credit
actuarial cost method in accordance with SFAS 87,
F-15
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 8--POSTRETIREMENT BENEFITS (CONTINUED)
which was adopted effective January 1, 1986. Contributions are made to the
plan equal to pension expense subject to minimums required by regulation and
maximums allowed for tax purposes. United Investors records the difference
between the SFAS 87 expense and the actual cash contribution to the plan to a
liability account. The liability recorded was $55 December 31, 1995, and $121
December 31, 1994. The plan is organized as a trust fund whose assets consist
primarily of investments in long-term fixed maturities and equity securities.
Such assets are valued at market.
United Investors accrues expense for the defined contribution plans based on
a percentage of the employees' contributions. The plans are funded by the
employee contributions and a company contribution.
Postretirement Benefit Plans Other Than Pensions: United Investors provides
certain health care benefits ("postretirement benefits") for its retired
employees. Substantially all employees may become eligible for these benefits
if they reach retirement age while working for the Company. Coverage under
this plan of health benefits ceases when the covered retiree and/or covered
spouse are eligible for Medicare benefits.
United Investors adopted SFAS 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," effective January 1, 1993. SFAS 106 requires
that the expected cost of providing future benefits to employees be accrued
during the employees' service period until each employee reaches full
eligibility. United Investors elected to recognize the effect of the adoption
of this standard immediately as a change in accounting principle as permitted
by SFAS 106. The cumulative effect of this change in accounting principle
resulted in a $174 after-tax charge to net income. It was reported as part of
the cumulative effect of changes in accounting principles. In accordance with
the provisions of SFAS 106, prior years' financial statements have not been
restated to apply the provisions of SFAS 106.
Postretirement benefit cost for the years ending December 31, 1995 and 1994
was $3 and $16, respectively; this expense includes the expected cost of post-
retirement benefits for newly eligible or vested employees, the interest cost,
and gains and losses arising from differences between actuarial assumptions
and actual experience.
The unfunded postretirement benefit obligation for retirees and other fully
eligible or vested plan participants was $133 and $149 as of December 31, 1995
and 1994, respectively. The discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% and the health care cost trend
rate was 13%, graded to 4.5% over 10 years.
NOTE 9--RELATED PARTY TRANSACTIONS
The primary distributor of United Investors' Insurance products is Waddell &
Reed, Inc. ("W&R"), a United Management affiliate. W&R receives a commission
for marketing these products which was approximately $25,700, $25,300, and
$25,600 for the years ended December 31, 1995, 1994, and 1993, respectively.
United Investors was charged for space, equipment, and services provided by
an affiliate amounting to $1,706 in 1995, $1,618 in 1994 and $1,543 in 1993.
Torchmark performed certain administrative services for United Investors for
which it charged $156 in 1995, $156 in 1994 and $192 in 1993.
In March 1993, the $15,000 loan from United Investors to United Management
was paid in full by the receipt of approximately $14,900 in United States
Treasury Securities and the balance in cash. Interest income related to this
loan totaling $263 at December 1993, is included in the accompanying
F-16
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 9--RELATED PARTY TRANSACTIONS (CONTINUED)
financial statements. In January 1994, United Investors loaned United
Management $15,000 at an interest rate of 3.75%. This loan was paid in full in
February 1994. Interest income related to this loan totaling $41 at December
31, 1994 is included in the accompanying financial statements. In June and
July 1994, United Investors loaned Torchmark $2,000 and $17,000, respectively.
The notes bear interest at 5.3% and 5.05% respectively and were paid in full
in July 1994. In November 1994, United Investors loaned Torchmark $35,000 at
an interest rate of 8.11%. Interest income related to the Torchmark loans
totaling $3,058 and $880 at December 31, 1995 and 1994, respectively, is
included in the accompanying financial statements.
During 1993, cash dividends of $14,824 were declared. There was an exchange
of a dividend in kind to United Management for the sale of United States
Treasury Securities in the amount of $14,426 with $396 in accrued interest and
$2 was paid.
United Investors serves as sponsor to two separate accounts and depositor to
the underlying investment fund in connection with its variable product
business. At December 31, 1995 and 1994 United Investors had investment of
$12,500 and $10,000, in the separate accounts and $0 and $39, respectively, in
the underlying fund which investments were included in other long-term
invested assets and carried at market.
Other long-term invested assets also includes investments, carried at
market, in the United Group of Mutual Funds and certain other funds for which
W&R is the sole advisor. These investments approximated $4,971 and $11,700 at
December 31, 1995 and 1994. Investment income derived from these investments
is included in net investment income.
In April 1993, the $1,859 in Torchmark Corporation Preferred Stock which
includes accrued interest was sold back to Torchmark exchange for $1,859 in 8%
GNMA securities plus $33 in cash.
In 1993, United Investors exchanged $52,500 of municipal bonds for $52,300
in GNMA's and $200 in cash from United American Life Insurance Company.
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 $525 per life. Life insurance ceded represented 3%
of total life insurance in force at December 31, 1995 and 3% of premium income
for 1995. 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.
United Investors did not assume insurance risks of other companies for the
year ended December 31, 1995.
Restrictions on the transfer of funds: Regulatory restrictions exist on the
transfer of funds from insurance companies. These restrictions generally limit
the payment of dividends to the statutory net gain from operations of the
prior year in the absence of special approval. Additionally, insurance
companies are not permitted to distribute the excess of shareholder's equity
as determined on a generally accepted accounting basis over that determined on
a statutory basis. Restricted net assets at December 31, 1995 in compliance
with all regulations were $159,454.
Litigation: United Investors is engaged in routine litigation arising from
the normal course of business. In management's opinion, this litigation will
not materially affect United Investors' financial position or results of
operations.
Concentrations of credit risk: United Investors maintains a highly
diversified investment portfolio with limited concentration in any given
region, industry, or economic characteristic. The investment portfolio
consists of securities of the U.S. government or U.S. government-backed
securities (38%); securities of state and municipal governments (6%);
investment-grade corporate bonds (45%); United
F-17
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 10--COMMITMENTS AND CONTINGENCIES (CONTINUED)
Funds (3%); and policy loans (2%) which are secured by the underlying
insurance policy value. The balance of the portfolio is invested in short-term
investments, non investment grade corporate bonds, and oil and gas
partnerships. Investments in municipal governments and corporations are made
throughout the U.S. with no concentration in any given state. Corporate debt
investments are made in a wide range of industries. At December 31, 1995, 1%
or more of the portfolio was invested in the following industries: financial
services (21%); chemicals (7%); transportation (4%); foods (4%); regulated
utilities (3%); manufacturing (3%); media and communications (3%); electronics
(2%); and retailing (1%). At the end of 1995, 6% of the carrying value of
securities was rated below investment grade. Par value of these investments
was $41,200, amortized cost was $42,300, and market value was $43,000. While
these investments could be subject to additional credit risk, such risk should
generally be reflected in market value.
Collateral requirements: United Investors requires collateral for
investments in instruments where collateral is available and typically
required because of the nature of the investment. Since the majority of United
Investor's investments are in government, government-secured, or corporate
securities, the requirement for collateral is rare.
NOTE 11--SUPPLEMENTAL DISCLOSURES FOR CASH FLOW STATEMENT
There were no noncash investing or financing activities for the years 1995
and 1994. During 1993, United Investors chose to classify all of its fixed
maturity investments as available for sale. This decision resulted in a
noncash transfer of $451,300 from fixed maturities held to maturity to fixed
maturities available for sale. In addition, United Investors had various
noncash investing and financing transactions with affiliates during 1993. The
following is a summary of those transactions, which are not reflected on the
Statement of Cash Flow as required by GAAP.
<TABLE>
<S> <C>
Investments sold to affiliates:
Fixed maturities transferred....................................... $ 54,315
Accrued interest transferred....................................... 664
Fixed maturities received.......................................... (54,485)
Accrued interest received.......................................... (245)
--------
Net cash received................................................ $ 249
========
Funds repaid by affiliates:
Note receivable canceled........................................... $ 15,000
Fixed maturities received.......................................... (14,707)
Accrued interest received.......................................... (292)
--------
Net cash received................................................ $ 1
========
Dividends paid to affiliates:
Fixed maturities transferred....................................... $ 14,426
Accrued interest transferred....................................... 396
Dividends declared................................................. (14,824)
--------
Net cash paid.................................................... $ 2
========
</TABLE>
For additional discussion of the above transactions, see Note 9--Related
Party Transactions.
The following table summarizes certain amounts paid during the period:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
<S> <C> <C> <C>
Taxes paid........................................ $15,393 $14,187 $6,912
</TABLE>
F-18
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
United Investors Life Insurance Company
And the Contract Owners of the
United Investors Life Variable Account
Birmingham, Alabama
We have audited the accompanying balance sheet of United Investors Life
Variable Account as of December 31, 1995 and the related statements of
operations and changes in net assets for each of the years in the three year
period ended December 31, 1995. These financial statements are the
responsibility of the United Investors Life Insurance Company's management.
Our responsibility is to express an opinion on these financial statements
based on our 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
Variable Account at December 31, 1995 and the results of its operations and
changes in its net assets for each of the years in the three year period ended
December 31, 1995 in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Birmingham, Alabama
March 22, 1996
F-19
<PAGE>
UNITED INVESTORS LIFE VARIABLE ACCOUNT
BALANCE SHEET
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
LIMITED
MONEY HIGH TERM ASSET
MARKET BOND INCOME GROWTH INCOME INTERNATIONAL SMALL CAP BALANCED BOND STRATEGY
---------- ---------- ---------- ----------- ---------- ------------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Investments in
Mutual Funds
(Note B)........ $1,330,157 $3,987,994 $3,953,754 $16,581,857 $8,834,721 $1,924,424 $1,864,584 $ 859,170 $ 591,185 $ 62,476
---------- ---------- ---------- ----------- ---------- ---------- ---------- --------- --------- ---------
Total assets.... $1,330,157 $3,987,994 $3,953,754 $16,581,857 $8,834,721 $1,924,424 $1,864,584 $ 859,170 $ 591,185 $ 62,476
---------- ---------- ---------- ----------- ---------- ---------- ---------- --------- --------- ---------
Liabilities:
Mortality and
expense risk
charge payable
to Sponsor (Note
D).............. 195 781 776 3,231 1,736 376 359 167 116 12
---------- ---------- ---------- ----------- ---------- ---------- ---------- --------- --------- ---------
Total liabili-
ties........... 195 781 776 3,231 1,736 376 359 167 116 12
---------- ---------- ---------- ----------- ---------- ---------- ---------- --------- --------- ---------
Net assets (Note
C)............. $1,329,962 $3,987,213 $3,952,978 $16,578,626 $8,832,985 $1,924,048 $1,864,225 $ 859,003 $ 591,069 $ 62,464
========== ========== ========== =========== ========== ========== ========== ========= ========= =========
Equity:
Equity of Spon-
sor............ $ 0 $1,006,702 $1,023,195 $ 1,675,000 $1,820,018 $ 69,231 $ 102,996 $ 79,648 $ 567,467 $ 0
Equity of con-
tract owners... 1,329,962 2,980,511 2,929,783 14,903,626 7,012,967 1,854,817 1,761,229 779,355 23,602 62,464
---------- ---------- ---------- ----------- ---------- ---------- ---------- --------- --------- ---------
Total equity.... $1,329,962 $3,987,213 $3,952,978 $16,578,626 $8,832,985 $1,924,048 $1,864,225 $ 859,003 $ 591,069 $ 62,464
========== ========== ========== =========== ========== ========== ========== ========= ========= =========
Accumulation
units outstand-
ing............ 883,146 1,980,336 1,931,687 4,948,854 4,853,236 1,806,449 1,176,503 701,025 520,796 61,773
========== ========== ========== =========== ========== ========== ========== ========= ========= =========
Net asset value
per unit....... $ 1.505937 $ 2.013402 $ 2.046386 $ 3.349993 $ 1.820020 $ 1.065100 $ 1.584547 $1.225353 $1.134935 $1.011184
<CAPTION> ========== ========== ========== =========== ========== ========== ========== ========= ========= =========
TOTAL
-----------
<S> <C>
Assets:
Investments in
Mutual Funds
(Note B)........ $39,990,322
-----------
Total assets.... $39,990,322
-----------
Liabilities:
Mortality and
expense risk
charge payable
to Sponsor (Note
D).............. 7,749
-----------
Total liabili-
ties........... 7,749
-----------
Net assets (Note
C)............. $39,982,573
===========
Equity:
Equity of Spon-
sor............ $ 6,344,257
Equity of con-
tract owners... 33,638,316
-----------
Total equity.... $39,982,573
===========
Accumulation
units outstand-
ing............ 18,863,805
===========
Net asset value
per unit.......
</TABLE>
See Notes to Financial Statements.
F-20
<PAGE>
UNITED INVESTORS LIFE VARIABLE ACCOUNT
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
MONEY HIGH
MARKET BOND INCOME GROWTH INCOME INTERNATIONAL
---------- ---------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dividend income
(Note B).......... $ 56,929 $248,458 $338,410 $2,732,341 227,863 27,746
Expenses paid to
Sponsor
(Note D):
Mortality and ex-
pense risk
charge........... 6,342 21,939 22,070 82,847 44,350 9,837
Contract maintenance charges:
Sales expense.... 3,370 13,553 13,197 51,332 31,549 6,812
Underwriting and
issue expense... 507 1,882 1,810 7,018 3,947 840
Premium taxes.... 1,265 4,705 4,523 17,544 9,869 2,098
Cost of insur-
ance............ 7,215 31,044 25,032 84,952 53,749 10,465
Administrative
expense......... 2,486 4,032 4,914 21,268 10,184 1,758
---------- ---------- ---------- ----------- ---------- ----------
Total........... 21,185 77,155 71,546 264,961 153,648 31,810
Net investment in-
come.............. 35,744 171,303 266,864 2,467,380 74,215 (4,064)
Realized investment
gains
distributed to ac-
counts............ 0 9,293 7,245 112,968 62,220 3,463
Unrealized invest-
ment gains
(losses).......... 0 421,180 263,621 1,651,730 1,631,957 77,537
---------- ---------- ---------- ----------- ---------- ----------
Net gain on invest-
ments............. 0 430,473 270,866 1,764,698 1,694,177 81,000
---------- ---------- ---------- ----------- ---------- ----------
Net increase in net
assets from
operations........ 35,744 601,776 537,730 4,232,078 1,768,392 76,936
Premium deposits
and net
transfers*........ (730,542) 259,777 200,825 1,472,895 1,704,095 908,880
Transfer to Sponsor
for benefits and
terminations...... (11,950) (52,784) (82,452) (158,498) (45,984) (2,785)
---------- ---------- ---------- ----------- ---------- ----------
Total increase..... (706,748) 808,769 656,103 5,546,475 3,426,503 983,031
Net assets at be-
ginning of period. $2,036,710 $3,178,444 $3,296,875 $11,032,151 5,406,482 941,017
---------- ---------- ---------- ----------- ---------- ----------
Net assets at end
of period
(Note C).......... $1,329,962 $3,987,213 $3,952,978 $16,578,626 $8,832,985 $1,924,048
========== ========== ========== =========== ========== ==========
LIMITED
TERM ASSET
SMALL CAP BALANCED BOND STRATEGY TOTAL
---------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
Dividend income
(Note B)...................... 55,374 32,244 32,472 948 $3,752,785
Expenses paid to Sponsor
(Note D):
Mortality and expense risk
charge....................... 8,160 4,092 3,367 93 203,097
Contract maintenance charges:
Sales expense................ 5,394 3,419 182 85 128,893
Underwriting and
issue expense............... 669 409 21 10 17,113
Premium taxes.... 1,673 1,024 53 25 42,779
Cost of insurance............ 9,020 6,425 319 103 228,324
Administrative expense....... 1,250 666 48 31 46,637
---------- -------- -------- ------- -----------
Total....................... 26,166 16,035 3,990 347 666,843
Net investment in come......... 29,208 16,209 28,482 601 3,085,942
Realized investment gains
distributed to accounts....... 14,474 2,146 348 60 212,217
Unrealized investment gains
(losses)...................... 295,990 112,105 41,691 (1,267) 4,494,544
---------- -------- -------- ------- -----------
Net gain on investments........ 310,464 114,251 42,039 (1,207) 4,706,761
---------- -------- -------- ------- -----------
Net increase in net assets from
operations.................... 339,672 130,460 70,521 (606) 7,792,703
Premium deposits and net
transfers*.................... 962,209 269,063 5,039 63,070 5,115,311
Transfer to Sponsor
for benefits and
terminations.................. (1,939) (1,434) (3,137) 0 (360,963)
---------- -------- -------- ------- -----------
Total increase................. 1,299,942 398,089 72,423 62,464 12,547,051
Net assets at be-
ginning of period............. 564,283 460,914 518,646 0 27,435,522
---------- -------- -------- ------- -----------
Net assets at end of period
(Note C)...................... $1,864,225 $859,003 $591,069 $62,464 $39,982,573
========== ======== ======== ======= ===========
</TABLE>
*Includes transfer activity from (to) other portfolios.
See Notes to Financial Statements.
F-21
<PAGE>
UNITED INVESTORS LIFE VARIABLE ACCOUNT
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
MONEY HIGH
MARKET BOND INCOME GROWTH INCOME INTERNATIONAL
---------- ---------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dividend income
(Note B).......... $ 44,471 $ 212,444 $ 300,737 $ 775,465 $ 55,585 $ 3,887
Expenses paid to
Sponsor
(Note D):
Mortality and ex-
pense risk
charge........... 7,393 17,074 19,525 61,268 24,882 1,621
Contract maintenance charges:
Sales expense.... 3,697 8,693 11,080 35,756 10,974 64
Underwriting and
issue expense... 556 1,295 1,530 5,105 1,465 7
Premium taxes.... 1,390 3,238 3,828 12,766 3,663 19
Cost of insur-
ance............ 9,759 20,013 20,188 60,863 20,058 78
Administrative
expense......... 2,611 3,202 4,183 15,485 4,090 46
---------- ---------- ---------- ----------- ---------- --------
Total........... 25,406 53,515 60,334 191,243 65,132 1,835
Net investment in-
come.............. 19,065 158,929 240,403 584,222 (9,547) 2,052
Realized investment
gains (losses)
distributed to ac-
counts............ 200,947 (322) (2,779) 82,332 34,324 467
Unrealized invest-
ment gains
(losses).......... 0 (384,034) (381,322) (630,085) (169,753) (27,193)
---------- ---------- ---------- ----------- ---------- --------
Net gain on invest-
ments............. 200,947 (384,356) (384,101) (547,753) (135,429) (26,726)
---------- ---------- ---------- ----------- ---------- --------
Net increase in net
assets from
operations........ 220,012 (225,427) (143,698) 36,469 (144,976) (24,674)
Premium deposits
and net
transfers*........ 1,045,101 648,848 422,155 1,961,711 2,580,834 900,691
Investment by Spon-
sor (Note E)...... (700,947) 0 0 0 0 65,000
Transfer to Sponsor
for benefits and
terminations...... (54,264) (40,786) (77,359) (299,932) (35,884) 0
---------- ---------- ---------- ----------- ---------- --------
Total increase..... 509,902 382,635 201,098 1,698,248 2,399,974 941,017
Net assets at be-
ginning of period. 1,526,808 2,795,809 3,095,777 9,333,903 3,006,508 0
---------- ---------- ---------- ----------- ---------- --------
Net assets at end
of period
(Note C).......... $2,036,710 $3,178,444 $3,296,875 $11,032,151 $5,406,482 $941,017
========== ========== ========== =========== ========== ========
LIMITED
TERM
SMALL CAP BALANCED BOND TOTAL
--------- -------- -------- -----------
<S> <C> <C> <C> <C>
Dividend income (Note B).......... $ 5,079 $ 4,255 $ 15,738 $ 1,417,661
Expenses paid to Sponsor
(Note D):
Mortality and expense risk
charge.......................... 972 772 2,002 135,509
Contract maintenance charges:
Sales expense................... 24 16 0 70,304
Underwriting and issue expense.. 3 2 0 9,963
Premium taxes................... 7 4 0 24,915
Cost of insurance............... 24 15 0 130,998
Administrative expense.......... 19 9 0 29,645
-------- -------- -------- -----------
Total.......................... 1,049 818 2,002 401,334
Net investment income............. 4,030 3,437 13,736 1,016,327
Realized investment gains (losses)
distributed to ac counts......... 3,773 (1) 9 318,750
Unrealized investment gains
(losses)......................... 43,941 (10,518) (14,388) (1,573,352)
-------- -------- -------- -----------
Net gain on investments........... 47,714 (10,519) (14,379) (1,254,602)
-------- -------- -------- -----------
Net increase in net assets from
operations....................... 51,744 (7,082) (643) (238,275)
Premium deposits and net
transfers*....................... 447,539 402,996 19,289 8,429,164
Investment by Sponsor (Note E).... 65,000 65,000 500,000 (5,947)
Transfer to Sponsor for benefits
and terminations................. 0 0 0 (508,225)
-------- -------- -------- -----------
Total increase.................... 564,283 460,914 518,646 7,676,717
Net assets at beginning of period. 0 0 0 19,758,805
-------- -------- -------- -----------
Net assets at end of period
(Note C)........................ $564,283 $460,914 $518,646 $27,435,522
======== ======== ======== ===========
</TABLE>
*Includes transfer activity from (to) other portfolios.
See Notes to Financial Statements.
F-22
<PAGE>
UNITED INVESTORS LIFE VARIABLE ACCOUNT
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
MONEY HIGH
MARKET BOND INCOME GROWTH INCOME TOTAL
------ ---- ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Dividend income
(Note B)............... $ 36,733 $ 236,531 $ 239,677 $1,086,726 $ 27,974 $ 1,627,641
Expenses paid to
Sponsor (Note D):
Mortality and expense
risk charge.......... 8,464 15,432 16,597 50,351 14,783 105,627
Contract maintenance
charges:
Sales expense......... 3,411 7,478 8,564 29,246 5,788 54,487
Underwriting and
issue expense........ 528 1,131 1,221 4,302 735 7,917
Premium taxes......... 1,321 2,826 3,054 10,757 1,839 19,797
Cost of insurance. 7,255 16,022 14,452 45,572 9,248 92,549
Administrative
expense.............. 2,642 2,792 3,691 13,164 1,585 23,874
---------- ---------- ---------- ---------- ---------- -----------
Total................... 23,621 45,681 47,579 153,392 33,978 304,251
Net investment
income................. 13,112 190,850 192,098 933,334 (6,004) 1,323,390
Realized investment
gains distributed to
accounts............... 0 10,928 746 64,184 16,652 92,510
Unrealized investment
gains (losses)......... 0 39,599 209,056 (51,065) 353,603 551,193
---------- ---------- ---------- ---------- ---------- -----------
Net gain on
investments............ 0 50,527 209,802 13,119 370,255 643,703
---------- ---------- ---------- ---------- ---------- -----------
Net increase in net
assets from
operations............. 13,112 241,377 401,900 946,453 364,251 1,967,093
Premium deposits and net
transfers*............. 164,497 262,678 289,673 891,622 600,044 2,208,514
Transfer to Sponsor for
benefits and
terminations........... (10,845) (786) (17,800) (82,501) (5,610) (117,542)
---------- ---------- ---------- ---------- ---------- -----------
Total increase.......... 166,764 503,269 673,773 1,755,574 958,685 4,058,065
Net assets at
beginning of
period................. 1,360,044 2,292,540 2,422,004 7,578,329 2,047,823 15,700,740
---------- ---------- ---------- ---------- ---------- -----------
Net assets at end of pe-
riod (Note C).......... $1,526,808 $2,795,809 $3,095,777 $9,333,903 $3,006,508 $19,758,805
========== ========== ========== ========== ========== ===========
</TABLE>
*Includes transfer activity from (to) other portfolios.
See Notes to Financial Statements.
F-23
<PAGE>
UNITED INVESTORS LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization--The United Investors Life Variable Account ("the Life Variable
Account") was established on January 5, 1987 as a segregated account of United
Investors Life Insurance Company ("the Sponsor") and has been registered as a
unit investment trust under the Investment Company Act of 1940. The Life
Variable Account invests in shares of TMK/United Funds, Inc. ("the Fund"), a
mutual fund with ten separate investment portfolios including a money market
portfolio, a bond portfolio, a high income portfolio, a growth portfolio, an
income portfolio, an international portfolio, a small cap portfolio, a
balanced portfolio, a limited term bond portfolio, and an asset strategy
portfolio. The assets of each portfolio of the Fund are held separate from the
assets of the other portfolios. Thus, each portfolio operates as a separate
investment portfolio, and the investment performance of one portfolio has no
effect on any other portfolio.
Basis of Presentation--The financial statements of the Life Variable Account
have been prepared on an accrual basis in accordance with generally accepted
accounting principles.
Federal Taxes --Currently no charge is made to the Life Variable Account for
federal income taxes because no federal income tax is imposed on the Sponsor
for the Life Variable Account investment income under current tax law.
NOTE B--INVESTMENTS
Stocks and convertible bonds of the Fund are valued at the latest sale price
on the last business day of the fiscal period as reported by the principal
securities exchange on which the issue is traded or, if no sale is reported
for a stock, the average of the latest bid and asked prices. Bonds, other than
convertible bonds, are valued using a matrix pricing system provided by a
major dealer in bonds. Convertible bonds are valued using this pricing system
only on days when there is no sale reported. Stocks which are traded over the
counter are priced using NASDAQ (National Association of Securities Dealers
Automated Quotations) which provides information on bid and asked prices
quoted by major dealers in such stocks. Short term debt securities are valued
at amortized cost which approximates market.
Security transactions are accounted for by the Fund on the trade date (date
the order to buy or sell is executed). Securities gains and losses are
calculated on the specific identification method. Dividend income is recorded
on the ex dividend date. Interest income is recorded on the accrual basis.
Investments in shares of the separate investment portfolios are stated at
market value which is the net asset value per share as determined by the
respective portfolios (see Note C Net Assets). Dividends received by the
portfolios are reinvested daily in additional shares of the portfolios and are
recorded as dividend income on the record date.
F-24
<PAGE>
UNITED INVESTORS LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following is a summary of reinvested dividends by portfolio:
<TABLE>
<CAPTION>
1995
----
INVESTMENT PORTFOLIO SHARES REINVESTED DIVIDEND INCOME
-------------------- ----------------- ---------------
<S> <C> <C>
Money Market.................................. 56,929 $ 56,929
Bond.......................................... 46,377 248,458
High Income................................... 76,167 338,410
Growth........................................ 400,278 2,732,341
Income........................................ 26,265 227,863
International................................. 5,256 27,746
Small Cap..................................... 7,198 55,374
Balanced...................................... 5,465 32,244
Limited Term Bond............................. 6,185 32,472
Asset Strategy................................ 189 948
<CAPTION>
1994
----
INVESTMENT PORTFOLIO SHARES REINVESTED DIVIDEND INCOME
-------------------- ----------------- ---------------
<S> <C> <C>
Money Market.................................. 44,471 $ 44,471
Bond.......................................... 43,659 212,444
High Income................................... 70,967 300,737
Growth........................................ 131,466 775,465
Income........................................ 8,212 55,585
International................................. 779 3,887
Small Cap..................................... 848 5,079
Balanced...................................... 862 4,255
Limited Term Bond............................. 3,238 15,738
<CAPTION>
1993
----
INVESTMENT PORTFOLIO SHARES REINVESTED DIVIDEND INCOME
-------------------- ----------------- ---------------
<S> <C> <C>
Money Market.................................. 36,733 $ 36,733
Bond.......................................... 43,083 236,531
High Income................................... 53,190 239,677
Growth........................................ 175,386 1,086,726
Income........................................ 4,044 27,974
</TABLE>
F-25
<PAGE>
UNITED INVESTORS LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE C--NET ASSETS
The following table illustrates by component parts the net asset value for
each portfolio.
<TABLE>
<CAPTION>
LIMITED
MONEY HIGH TERM
1995 MARKET BOND INCOME GROWTH INCOME INTERNATIONAL SMALL CAP BALANCED BOND
- ---- ---------- ---------- ---------- ----------- ---------- ------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cost to:
Contract Owners. $1,738,796 $2,596,188 $2,577,806 $ 8,888,979 $5,680,906 $1,809,570 $1,409,748 $672,059 $ 24,327
Sponsor......... 0 500,000 500,000 500,000 1,000,000 65,000 65,000 65,000 500,000
Adjustment for
market
appreciation and
reinvested
dividends........ 637,308 1,643,073 1,822,489 9,642,686 2,543,035 85,908 418,631 140,231 75,871
Deductions:
Mortality and
expense risk
charge.......... (70,535) (107,795) (119,955) (341,235) (96,747) (11,458) (9,132) (4,864) (5,369)
Contract
maintenance
charges:
Sales expense... (30,896) (55,717) (67,012) (212,946) (50,222) (6,876) (5,418) (3,435) (182)
Underwriting &
issue expense... (4,882) (8,438) (10,247) (31,629) (6,420) (847) (672) (411) (21)
Premium taxes... (12,203) (21,095) (25,619) (79,078) (16,052) (2,117) (1,680) (1,028) (53)
Cost of
insurance....... (67,210) (127,235) (136,462) (380,939) (86,786) (10,543) (9,044) (6,440) (319)
Administrative
expense......... (12,613) (18,727) (26,188) (87,924) (16,033) (1,796) (1,253) (667) (48)
Loan interest... (6,004) (1,832) (1,884) (5,697) (717) (8) (16) (8) 0
Benefits &
terminations.... (841,799) (411,209) (559,950) (1,313,591) (118,009) (2,785) (1,939) (1,434) (3,137)
---------- ---------- ---------- ----------- ---------- ---------- ---------- -------- --------
Net assets....... $1,329,962 $3,987,213 $3,952,978 $16,578,626 $8,832,985 $1,924,048 $1,864,225 $859,003 $591,069
========== ========== ========== =========== ========== ========== ========== ======== ========
1994
- ----
Cost to:
Contract Owners. $2,469,337 $2,336,411 $2,376,981 $ 7,416,084 $3,976,811 $ 900,691 $ 447,539 $402,996 $ 19,289
Sponsor......... 0 500,000 500,000 500,000 1,000,000 65,000 65,000 65,000 500,000
Adjustment for
market
appreciation
(depreciation)
and reinvested
dividends........ 580,380 964,142 1,213,213 5,145,647 620,995 (22,839) 52,793 (6,264) 1,359
Deductions:
Mortality and
expense risk
charge.......... (64,193) (85,856) (97,885) (258,388) (52,397) (1,621) (972) (772) (2,002)
Contract
maintenance
charges:
Sales expense... (27,526) (42,164) (53,815) (161,614) (18,673) (64) (24) (16) 0
Underwriting &
issue expense... (4,375) (6,556) (8,437) (24,611) (2,473) (7) (3) (2) 0
Premium taxes... (10,938) (16,390) (21,096) (61,534) (6,183) (19) (7) (4) 0
Cost of
insurance....... (59,995) (96,191) (111,430) (295,987) (33,037) (78) (24) (15) 0
Administrative
expense......... (11,402) (14,997) (21,720) (68,011) (6,196) (46) (19) (9) 0
Loan interest... (4,729) (1,530) (1,438) (4,342) (340) 0 0 0 0
Benefits &
terminations.... (829,849) (358,425) (477,498) (1,155,093) (72,025) 0 0 0 0
---------- ---------- ---------- ----------- ---------- ---------- ---------- -------- --------
Net assets....... $2,036,710 $3,178,444 $3,296,875 $11,032,151 $5,406,482 $ 941,017 $ 564,283 $460,914 $518,646
========== ========== ========== =========== ========== ========== ========== ======== ========
<CAPTION>
ASSET
1995 STRATEGY
- ---- ---------
<S> <C>
Cost to:
Contract Owners. $63,070
Sponsor......... 0
Adjustment for
market
appreciation and
reinvested
dividends........ (259)
Deductions:
Mortality and
expense risk
charge.......... (93)
Contract
maintenance
charges:
Sales expense... (85)
Underwriting &
issue expense... (10)
Premium taxes... (25)
Cost of
insurance....... (103)
Administrative
expense......... (31)
Loan interest... 0
Benefits &
terminations.... 0
---------
Net assets....... $62,464
=========
1994
- ----
Cost to:
Contract Owners. $0
Sponsor......... 0
Adjustment for
market
appreciation
(depreciation)
and reinvested
dividends........ 0
Deductions:
Mortality and
expense risk
charge.......... 0
Contract
maintenance
charges:
Sales expense... 0
Underwriting &
issue expense... 0
Premium taxes... 0
Cost of
insurance....... 0
Administrative
expense......... 0
Loan interest... 0
Benefits &
terminations.... 0
---------
Net assets....... 0
=========
</TABLE>
F-26
<PAGE>
UNITED INVESTORS LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE D--CHARGES AND DEDUCTIONS
Fund Management and Fees
Waddell & Reed Investment Management Company ("the Manager"), is the manager
of the Fund and provides investment advisory services to the Fund. Each
portfolio will pay the manager a fee for managing its investments consisting
of two elements: (i) a specific fee computed on each portfolio's net asset
value at the close of business each day at the following annual rates: Money
Market Portfolio None; Bond Portfolio .03 of 1% of net assets; High Income
Portfolio .15 of 1% of net assets; Growth Portfolio .20 of 1% of net assets;
Income Portfolio .20 of 1% of net assets; International Portfolio .30 of 1% of
net assets; Small Cap Portfolio .35 of 1% of net assets; Balanced Portfolio
.10 of 1% of net assets; Limited Term Bond Portfolio .05 of 1% of net assets;
Asset Strategy Portfolio .30 of 1% of net assets; and (ii) a pro rata
participation based on the relative net asset size of each portfolio in a
"Group" fee computed each day on the combined net asset values of all of the
portfolios at the following annual rates: Group Net Asset Level from $0 to
$750 million--Annual Group Fee Rate--.51 of 1%; from $750 to $1,500 million--
.49 of 1%; from $1,500 to $2,250 million--.47 of 1%; over $2,250 million--.45
of 1%.
Prior to July 1995, fees for these services were deducted from dividend
income at the following annual rates: Money Market Portfolio .51 of 1% of net
assets; Bond Portfolio .54 of 1% of net assets; High Income Portfolio .66 of
1% of net assets; Growth Portfolio .71 of 1% of net assets; Income Portfolio
.71 of 1% of net assets; International Portfolio .81 of 1% of net assets;
Small Cap Portfolio .86 of 1% of net assets; Balanced Portfolio .61 of 1% of
net assets; and Limited Term Bond Portfolio .56 of 1% of net assets. These
fees are a result of the combination of two elements: (i) a specific fee
computed on each portfolio's net asset value at the close of each business day
at the following annual rates: Money Market Portfolio None; Bond Portfolio .03
of 1% of net assets; High Income Portfolio .15 of 1% of net assets; Growth
Portfolio .20 of 1% of net assets; Income Portfolio .20 of 1% of net assets;
International Portfolio .30 of 1% of net assets; Small Cap Portfolio .35 of 1%
of net assets; Balanced Portfolio .10 of 1% of net assets; and Limited Term
Bond Portfolio .05 of 1% of net assets; and (ii) a base fee computed each day
on the combined net asset values of all of the portfolios and allocated among
the portfolios based on their relative net asset size at the annual rate of
.51 of 1%. The amount of these fees have been:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Money Market...................................... $ 7,332 $ 6,468 $ 7,263
Bond.............................................. 19,427 15,545 13,816
High Income....................................... 24,027 21,528 18,154
Growth............................................ 96,300 72,621 58,989
Income............................................ 51,250 29,750 17,340
International..................................... 12,098 2,243 0
Small Cap......................................... 10,260 1,365 0
Balanced.......................................... 3,956 799 0
Limited Term Bond................................. 3,195 1,843 0
Asset Strategy.................................... 158 0 0
</TABLE>
Mortality and Expense Risk Charges
A daily charge is deducted at an effective annual rate of .60% of the
average daily net assets of each investment portfolio to compensate the
Sponsor for certain mortality and expense risks assumed. The mortality and
expense risk charge covers the possibility that the cost of insurance charges
will be insufficient to meet actual claims and that other expense charges may
be insufficient to cover actual expenses incurred in connection with policy
obligations.
F-27
<PAGE>
UNITED INVESTORS LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Premium Deposit Charges
The Sponsor does not impose an immediate charge against the initial premium
deposit prior to its allocation to the Life Variable Account. For additional
premium deposits there are deductions of 6% of the premium deposit for sales
expenses and 2.5% for premium taxes.
Contract Maintenance Charges
On each policy anniversary a deduction is made from the policy account value
to compensate the Sponsor for certain costs and expenses:
(a) Expenses relating to sales, underwriting and issue, and premium taxes
On each of the first ten policy anniversaries, there is an annual deduction
of 1.20% of the initial premium deposit which is composed of the following:
(1) Sales Expenses--An .85% charge for sales expenses compensates the
Sponsor for certain sales and other distribution expenses incurred at the time
the policies are issued, including agent sales commissions, the cost of
printing prospectuses and sales literature, advertising, and other marketing
and sales promotional activities.
(2) Underwriting and Issue Expenses--A .10% charge compensates the Sponsor
for initial underwriting costs and for certain expenses incurred in issuing
policies, including the cost of processing applications, conducting medical
examinations, determining insurability, and establishing records.
(3) State and Local Premium Taxes--A .25% charge compensates the Sponsor for
the average premium tax expense incurred when issuing policies.
(b) Cost of Insurance
A mortality charge will be deducted on each policy anniversary to compensate
the Sponsor for the cost of insurance for the preceding policy year. The
mortality charge is based on a policy's net amount at risk and on the attained
age, sex and risk class of the insured, and is determined by the Sponsor based
upon its expectation as to future mortality experience.
(c) Administrative Expenses
The Sponsor deducts a charge of $50 on each policy anniversary to compensate
it for administrative expenses. This charge is "cost based" and the Sponsor
does not expect a profit from the charge.
Surrender Charges
For policy surrenders occurring during the first eight policy years, a
surrender charge is made against the initial premium deposit based on a graded
table.
<TABLE>
<CAPTION>
9 OR
POLICY YEAR 1ST 2ND 3RD 4TH 5TH 6TH 7TH 8TH MORE
- ----------- --- --- --- --- --- --- --- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Surrender Charge %......................... 8% 7% 6% 5% 4% 3% 2% 1% None
</TABLE>
NOTE E--EQUITY OF SPONSOR
The equity of the Sponsor may be withdrawn at the discretion of the Sponsor
without penalty.
F-28
<PAGE>
APPENDIX A
ILLUSTRATIONS OF DEATH BENEFITS AND POLICY VALUES
The following tables illustrate how the Policy Values and Death Benefits of
a Policy may change with the investment experience of the Fund. The tables
show how the Policy Values and Death Benefits of a Policy issued to an Insured
of a given age who pays the given premium at issue would vary over time if the
investment return on the assets held in each Portfolio of the Fund were a
uniform, gross, after-tax annual rate of 0%, 4%, 8% or 12%. The table on page
A-2 illustrates a Policy issued to a female age 35 for $10,000 initial
premium, standard risk class with the minimum initial Death Benefit. The
tables on pages A-3 and A-4 illustrate a Policy issued to a male age 55 for
$50,000 initial premium, preferred risk class with the minimum initial Death
Benefit. The Policy Values and Death Benefits would be different from those
shown if the gross annual investment rates of return averaged 0%, 4%, 8% and
12% over a period of years, but fluctuated above and below those averages for
individual Policy Years.
The second column of the tables shows the value of the premium paid
accumulated at 5% interest. The following columns show the Death Benefits and
the Policy Values for uniform hypothetical rates of return shown in these
tables. The table on page A-3 is based on the current cost of insurance and
administrative charges. This reflects the basis on which United Investors
currently sells its Policies. The maximum cost of insurance rates allowable
under the Policy are contained in the 1980 Commissioners' Standard Ordinary
Mortality Tables. The Death Benefits and Policy Values shown in the tables on
pages A-2 and A-4 are based on the assumption that the maximum allowable cost
of insurance rates as described above ("guaranteed cost") and maximum
allowable expense deductions are made throughout the life of the Policy.
The values shown assume that a Policyowner maintains Policy Values in equal
proportion among the Money Market, Bond, High Income, Growth, Income,
International, Small Cap, Balanced, Limited-Term Bond and Asset Strategy
portfolios of the Fund, and they take into account an average of the daily
investment management fee currently paid by those ten portfolios in 1995
(which is equivalent to the annual rate of .68% of the aggregate average daily
net assets of those portfolios), an average of the actual annual expenses
incurred by those ten portfolios in 1995 (which is an annual rate of .10%),
the daily charge by United Investors to each Investment Division for assuming
mortality and expense risks (which is equivalent to an annual rate of .60%),
the annual deduction on each of the first ten Policy Anniversaries for state
and local premium taxes, underwriting and issue expenses, and sales expenses
(which is equivalent to an annual rate of 1.20% of the initial premium), the
annual deduction for cost of insurance and the $50 annual deduction for
administrative expenses.
Taking into account the mortality and expense risk charge of .60% and the
charge for investment management fees from the Fund, the illustrated gross
annual investment rates of return of 0%, 4%, 8% and 12%, correspond to
approximate net annual rates of -1.38%, 2.62%, 6.62%, and 10.62% respectively.
The hypothetical values shown in the tables do not reflect charges for any
federal income tax burden attributable to the Variable Account, since United
Investors is not currently making such charges. However, such charges may be
made in the future and, in that event, the gross annual investment rate of
return would have to exceed 0%, 4%, 8% or 12% by an amount sufficient to cover
the tax charges in order to produce the Death Benefits and Policy Values
illustrated. (See Federal Tax Matters.)
The tables illustrate the values that would result based upon the
hypothetical investment rates of return if only a single premium is paid as
indicated, and if no Policy loans have been made.
Illustrated values would be different if the proposed Insured were another
age.
Upon request, United Investors will provide a comparable illustration based
upon the Proposed Insured's age and the initial Death Benefit requested.
A-1
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE ISSUE AGE 35 STANDARD RISK CLASS
$10,000 INITIAL PREMIUM PAYMENT
MAXIMUM COST OF INSURANCE AND ADMINISTRATIVE CHARGES(1)
<TABLE>
<CAPTION>
ASSUMING HYPOTHETICAL GROSS
END OF PYMTS ANNUAL RATE OF RETURN OF:
POLICY PLUS --------------------------------
YEAR INT.@ 5% 0% 4% 8% 12%
- ------ -------- -- -- -- ---
DEATH BENEFITS(2)
<S> <C> <C> <C> <C> <C>
1..................................... $10,500 $62,365 $62,365 $62,365 $ 62,365
2..................................... 11,025 62,365 62,365 62,365 62,365
3..................................... 11,576 62,365 62,365 62,365 62,365
4..................................... 12,155 62,365 62,365 62,365 62,365
5..................................... 12,763 62,365 62,365 62,365 62,365
10.................................... 16,289 62,365 62,365 62,365 62,365
20.................................... 26,533 62,365 62,365 62,365 93,891
30.................................... 43,219 (3) 62,365 62,365 192,807
A 65.................................. 43,219 (3) 62,365 62,365 192,807
<CAPTION>
POLICY VALUES(2)
<S> <C> <C> <C> <C> <C>
1..................................... $ 9,862 $10,262 $10,662 $ 11,062
2..................................... 9,473 10,268 11,096 11,955
3..................................... 9,083 10,269 11,553 12,939
4..................................... 8,690 10,262 12,034 14,021
5..................................... 8,295 10,248 12,540 15,213
10.................................... 6,223 9,999 15,467 23,248
20.................................... 2,362 9,475 25,674 59,803
30.................................... (3) 6,182 44,358 158,039
A 65.................................. (3) 6,182 44,358 158,039
<CAPTION>
SURRENDER VALUES(2)
<S> <C> <C> <C> <C> <C>
1..................................... $ 9,062 $ 9,462 $ 9,862 $ 10,262
2..................................... 8,773 9,568 10,396 11,255
3..................................... 8,483 9,669 10,953 12,339
4..................................... 8,190 9,762 11,534 13,521
5..................................... 7,895 9,848 12,140 14,813
10.................................... 6,223 9,999 15,467 23,248
20.................................... 2,362 9,475 25,674 59,803
30.................................... (3) 6,182 44,358 158,039
A 65.................................. (3) 6,182 44,358 158,039
</TABLE>
(1) Current and maximum charges are the same for female standard risks.
(2) Assumes no Policy loans have been made.
(3) In the absence of an additional premium payment, the Policy would lapse.
It is emphasized that the hypothetical investment rates of return shown
above and elsewhere in this Prospectus are illustrative only and should not be
deemed a representation of past or future investment rates of return. Actual
rates of return may be more or less than those shown and will depend on a
number of factors, including the investment allocations made by a Policyowner
and different rates of return of the Fund Portfolios. The Death Benefit and
Surrender Value for a Policy would be different from those shown if actual
rates of return averaged 0%, 4%, 8%, and 12% over a period of years, but also
fluctuated above or below those averages for individual Policy Years. No
representations can be made that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
A-2
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 55 PREFERRED RISK CLASS
$50,000 INITIAL PREMIUM PAYMENT
CURRENT COST OF INSURANCE AND ADMINISTRATIVE CHARGES
<TABLE>
<CAPTION>
ASSUMING HYPOTHETICAL GROSS
END OF PYMTS ANNUAL RATE OF RETURN OF:
POLICY PLUS -----------------------------------
YEAR INT.@ 5% 0% 4% 8% 12%
- ------ -------- -- -- -- ---
DEATH BENEFITS(1)
<S> <C> <C> <C> <C> <C>
1.................................. $ 52,500 $126,599 $126,599 $126,599 $126,599
2.................................. 55,125 126,599 126,599 126,599 126,599
3.................................. 57,881 126,599 126,599 126,599 126,599
4.................................. 60,775 126,599 126,599 126,599 126,599
5.................................. 63,814 126,599 126,599 126,599 126,599
10................................. 81,445 126,599 126,599 126,599 147,235
20................................. 132,665 126,599 126,599 152,059 340,340
30................................. 216,097 (2) 126,599 274,802 890,416
A 65............................... 81,445 126,599 126,599 126,599 147,235
<CAPTION>
POLICY VALUES(1)
<S> <C> <C> <C> <C> <C>
1.................................. $ 49,310 $ 51,310 $ 53,310 $ 55,310
2.................................. 47,510 51,502 55,655 59,970
3.................................. 45,677 51,654 58,126 65,112
4.................................. 43,807 51,764 60,734 70,799
5.................................. 41,896 51,828 63,490 77,095
10................................. 31,406 51,181 79,889 120,684
20................................. 4,570 46,167 142,111 318,075
30................................. (2) 182 261,716 848,015
A 65............................... 31,406 51,181 79,889 120,684
<CAPTION>
SURRENDER VALUES(1)
<S> <C> <C> <C> <C> <C>
1.................................. $ 45,310 $ 47,310 $ 49,310 $ 51,310
2.................................. 44,010 48,002 52,155 56,470
3.................................. 42,677 48,654 55,126 62,112
4.................................. 41,307 49,264 58,234 68,299
5.................................. 39,896 49,828 61,490 75,095
10................................. 31,406 51,181 79,889 120,684
20................................. 4,570 46,167 142,111 318,075
30................................. (2) 182 261,716 848,015
A 65............................... 31,406 51,181 79,889 120,684
</TABLE>
(1) Assumes no Policy loans have been made.
(2) In the absence of an additional premium payment, the Policy would lapse.
It is emphasized that the hypothetical investment rates of return shown
above and elsewhere in this Prospectus are illustrative only and should not be
deemed a representation of past or future investment rates of return. Actual
rates of return may be more or less than those shown and will depend on a
number of factors, including the investment allocations made by a Policyowner
and different rates of return of the Fund Portfolios. The Death Benefit and
Surrender Value for a Policy would be different from those shown if actual
rates of return averaged 0%, 4%, 8%, and 12% over a period of years, but also
fluctuated above or below those averages for individual Policy Years. No
representations can be made that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
A-3
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 55 PREFERRED RISK CLASS
$50,000 INITIAL PREMIUM PAYMENT
MAXIMUM COST OF INSURANCE AND ADMINISTRATIVE CHARGES
<TABLE>
<CAPTION>
ASSUMING HYPOTHETICAL GROSS
END OF PYMTS ANNUAL RATE OF RETURN OF:
POLICY PLUS -----------------------------------
YEAR INT.@ 5% 0% 4% 8% 12%
- ------ -------- -- -- -- ---
DEATH BENEFITS(1)
<S> <C> <C> <C> <C> <C>
1.................................. $ 52,500 $126,599 $126,599 $126,599 $126,599
2.................................. 55,125 126,599 126,599 126,599 126,599
3.................................. 57,881 126,599 126,599 126,599 126,599
4.................................. 60,775 126,599 126,599 126,599 126,599
5.................................. 63,814 126,599 126,599 126,599 126,599
10................................. 81,445 126,599 126,599 126,599 141,641
20................................. 132,665 (2) 126,599 133,383 320,283
30................................. 216,097 (2) (2) 236,542 822,542
A 65............................... 81,445 126,599 126,599 126,599 141,641
<CAPTION>
POLICY VALUES(1)
<S> <C> <C> <C> <C> <C>
1.................................. $ 49,310 $ 51,310 $ 53,310 $ 55,310
2.................................. 47,190 51,178 55,328 59,639
3.................................. 45,001 50,965 57,427 64,405
4.................................. 42,734 50,664 59,614 69,667
5.................................. 40,379 50,265 61,897 75,490
10................................. 26,714 46,275 74,973 116,099
20................................. (2) 22,313 124,657 299,330
30................................. (2) (2) 225,278 783,373
A 65............................... 26,714 46,275 74,973 116,099
<CAPTION>
SURRENDER VALUES(1)
<S> <C> <C> <C> <C> <C>
1.................................. $ 45,310 $ 47,310 $ 49,310 $ 51,310
2.................................. 43,690 47,678 51,828 56,139
3.................................. 42,001 47,965 54,427 61,405
4.................................. 40,234 48,164 57,114 67,167
5.................................. 38,379 48,265 59,897 73,490
10................................. 26,714 46,275 74,973 116,099
20................................. (2) 22,313 124,657 299,330
30................................. (2) (2) 225,278 783,373
A 65............................... 26,714 46,275 74,973 116,099
</TABLE>
(1) Assumes no Policy loans have been made.
(2) In the absence of an additional premium payment, the Policy would lapse.
It is emphasized that the hypothetical investment rates of return shown
above and elsewhere in this Prospectus are illustrative only and should not be
deemed a representation of past or future investment rates of return. Actual
rates of return may be more or less than those shown and will depend on a
number of factors, including the investment allocations made by a Policyowner
and different rates of return of the Fund Portfolios. The Death Benefit and
Surrender Value for a Policy would be different from those shown if actual
rates of return averaged 0%, 4%, 8%, and 12% over a period of years, but also
fluctuated above or below those averages for individual Policy Years. No
representations can be made that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
A-4
<PAGE>
APPENDIX B
DEATH BENEFIT FACTORS
As noted in the Prospectus, after the Policy Date the Death Benefit is equal
to the greater of the Minimum Death Benefit or the Policy Value times the
applicable Death Benefit Factor. The Death Benefit Factors are listed below.
<TABLE>
<CAPTION>
Attained Attained
Age Factor Age Factor
-------- ------ -------- ------
<S> <C> <C> <C>
0-40 2.50 68 1.17
41 2.43 69 1.16
42 2.36 70 1.15
43 2.29 71 1.13
44 2.22 72 1.11
45 2.15 73 1.09
46 2.09 74 1.07
47 2.03 75 1.05
48 1.97 76 1.05
49 1.91 77 1.05
50 1.85 78 1.05
51 1.78 79 1.05
52 1.71 80 1.05
53 1.64 81 1.05
54 1.57 82 1.05
55 1.50 83 1.05
56 1.46 84 1.05
57 1.42 85 1.05
58 1.38 86 1.05
59 1.34 87 1.05
60 1.30 88 1.05
61 1.28 89 1.05
62 1.26 90 1.05
63 1.24 91 1.04
64 1.22 92 1.03
65 1.20 93 1.02
66 1.19 94 1.01
67 1.18 95 1.00
</TABLE>
B-1
<PAGE>
PART II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file
with the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore, or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
In-so-far as indemnification for liability arising under the Securities
Act of 1933 may be permitted to Directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
Director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act will be governed by the final adjudication of
such issue.
REPRESENTATIONS PURSUANT TO RULE 6e-3(T)
This filing is made pursuant to Rule 6c-3 and 6e-3(T) under the
Investment Company Act of 1940.
Registrant elects to be governed by Rule 6e-3(T) (b) (13) (i) (B) under
the Investment Company Act of 1940 with respect to the Policies described in the
Prospectus.
<PAGE>
Registrant makes the following representations:
(1) Section 6e-3(T) (b) (13) (iii) (F) has been relied
upon.
(2) The level of the mortality and expense risk charge is
within the range of industry practice for comparable
flexible variable life insurance policies.
(3) The proceeds from explicit sales loads are expected
to cover the anticipated costs of distributing the
Policies.
The methodology used to support the representation made in paragraph (2)
above is based on an analysis of other policies registered under the Securities
Act of 1933, including the level of other expense charges, uncertainties in
terms of expense and mortality factors, and policy guarantees. Registrant
undertakes to keep and make available to the Commission on request the documents
used to support the representation in paragraph (2) above.
<PAGE>
CONTENTS OF POST-EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT
This Post-Effective Amendment No. 10 to the Registration Statement
comprises the following Papers and Documents:
The Facing Sheet.
The Prospectus consisting of 64 pages.
The Undertaking to File Reports.
The Undertaking Pursuant to Rule 484.
Representations Pursuant to Rule 6e-3(T).
The Signatures.
Written consents of the following persons:
(a) James L. Sedgwick, Esq.
(b) Messrs. Sutherland, Asbill & Brennan.
(c) W. Thomas Aycock (included in Exhibit 6).
(d) KPMG Peat Marwick LPP.
The following Exhibits:
1. The following Exhibits correspond to those required by paragraph
A of the instructions as to Exhibits in Form N-8B-2:
(1) Resolution of the Board of Directors of United Investors
establishing the Variable Account.\1\
(2) Not Applicable.
(3) (a) Principal Underwriting Agreement.\3\
(b) Not applicable.
(c) Commission Schedule.\4\
(4) Not Applicable.
(5) Policy Form.\1\
(a) Policy Endorsement, VL94.\4\
(6) (a) Certificate of Incorporation of United Investors.\1\
(b) By-Laws of United Investors.\1\
- ----------------
\1\ Previously filed as an Exhibit to Registration Statement No. 33-11465.
\2\ Previously filed as an Exhibit to Pre-Effective Amendment No. 1 to
Registration Statement No. 33-11465.
\3\ Previously filed as an Exhibit to Post-Effective Amendment No. 5 to
Registration Statement No. 33-11465.
\4\ Previously filed as an Exhibit to Post-Effective Amendment No. 8 to
Registration Statement No. 33-11465.
<PAGE>
(7) Not Applicable.
(8) Participation Agreement for TMK/United Funds, Inc.\3\
(9) Not Applicable.
(10) Application Form.\2\
(11) Memorandum describing United Investors' issuance, transfer,
and redemption procedures for the Policy.\2\
2. See Exhibit 1(5).
3. Opinion of James L. Sedgwick, Esq.\2\
4. No financial statements are omitted from Prospectus pursuant to
Instruction 1(b) or (c) of Part I.
5. Not Applicable.
6. Opinion and Consent of W. Thomas Aycock, Vice President and Chief
Actuary of United Investors.
7. Consent of Sutherland, Asbill & Brennan.
8. Consent of KPMG Peat Marwick LPP.
9. Consent of James L. Sedgwick, Esq., President of United
Investors.
27. Financial Data Schedule.
- ------------
\1\ Previously filed as an Exhibit to Registration Statement No. 33-11465.
\2\ Previously filed as an Exhibit to Pre-Effective Amendment No. 1 to
Registration Statement No. 33-11465.
\3\ Previously filed as an Exhibit to Post-Effective Amendment No. 5 to
Registration Statement No. 33-11465.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, United
Investors Life Insurance Company certifies that it meets all of the requirements
for effectiveness of this Post-Effective Amendment No. 10 pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment No. 10 to the Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, and its seal to be hereunto affixed and
attested, all in Birmingham, Alabama, on the 26th day of April, 1996.
(Seal) United Investors Life Insurance Company
Attest: /s/ John H. Livingston By: /s/ James L. Sedgwick
--------------------------- ------------------------------
John H. Livingston James L. Sedgwick
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 10 to the Registration Statement has been signed below
by the following Directors and Officers of United Investors Life Insurance
Company in the capacities and on the Dates indicated.
Signature Title Date
/s/ Ronald K. Richey Director, Chairman of
- --------------------------- the Board and Chief --------------------
Ronald K. Richey Executive Officer
/s/ James L. Sedgwick Director and President
- --------------------------- --------------------
James L. Sedgwick
/s/ W. Thomas Aycock Vice President and
- --------------------------- Chief Actuary, and --------------------
W. Thomas Aycock Director
/s/ William C. Barclift, III Director and Assistant
- --------------------------- Secretary --------------------
William C. Barclift, III
/s/ William R. Dean Director
- --------------------------- --------------------
William R. Dean
/s/ Michael J. Klyce Vice President and
- -------------------------- Treasurer --------------------
Michael J. Klyce
<PAGE>
Signature Title Date
/s/ James L. Mayton, Jr. Vice President and
- --------------------------- Controller --------------------
James L. Mayton, Jr.
/s/ Anthony L. McWhorter Director
- --------------------------- --------------------
Anthony L. McWhorter
/s/ Carol A. McCoy Director and Assistant
- --------------------------- Secretary -------------------
Carol A. McCoy
/s/ Ross W. Stagner Vice President
- --------------------------- and Director -------------------
Ross W. Stagner
/s/ Keith A. Tucker Director and Vice
- --------------------------- Chairman -------------------
Keith A. Tucker
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, United Investors Life Variable Account, certifies that it meets all
of the requirements for effectiveness of this Post-Effective Amendment No. 10
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Post-Effective Amendment No. 10 to the Registration Statement to be signed
on its behalf by the undersigned thereunto duly authorized, and its seal to be
hereunto affixed and attested, all in Birmingham, Alabama on the 26th day of
April, 1996.
United Investors Life Variable Account
(Registrant)
United Investors Life Insurance Company
(Depositor)
Attest: /s/ John H. Livingston By: /s/ James L. Sedgwick
-------------------------- --------------------------------
John H. Livingston James L. Sedgwick
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
6 Opinion and Consent of W. Thomas Aycock
7 Consent of Sutherland, Asbill & Brennan
8 Consent of KPMG Peat Marwick LPP
9 Consent of James L. Sedgwick, Esq.
27 Financial Data Schedule
<PAGE>
April 26, 1996
United Investors Life Insurance Company
2001 Third Avenue South
Birmingham, AL 35233
Gentlemen:
In my capacity as Vice President and Chief Actuary of
United Investors Life Insurance Company, I have provided advice
concerning the illustration of death benefits and policy values
set forth in Appendix A to the prospectus contained in the
Registration Statement for the United Investors Life Variable
Account filed on Form S-6 (File No. 33-11465) with the Securities
and Exchange Commission under the Securities Act of 1933 (the
"Registration Statement") regarding the offer and sale of variable
life insurance policies (the "Policies").
It is my professional opinion that the illustration of
death benefits and policy values included in Appendix A of the
prospectus, based on the assumptions stated in the illustrations,
are consistent with the provisions of the Policy. The rate
structure of the Policy has not been designed so as to make the
relationship between premiums and benefits, as shown in the
illustrations, appear more favorable to a purchaser of a Policy
for female age 35 or male age 55 than to prospective purchasers of
Policies at other ages or underwriting classes.
I hereby consent to the use of this opinion as an
exhibit to the Registration Statement.
Sincerely,
/s/ W. Thomas Aycock
------------------------------------
W. Thomas Aycock
Vice President and Chief Actuary
WTA:dk
<PAGE>
March 22, 1996
United Investors Life Insurance Co.
2001 Third Avenue South
Birmingham, AL 35233
RE: United Investors Life Variable Account File No. 33-11465
Gentlemen:
We hereby consent to the reference to our name under the
caption "Legal Matters" in the Prospectus filed as part of
Post-Effective Amendment No. 10 to the Form S-6 Registration
Statement for the United Investors Life Variable Account. In giving
this consent, we do not admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act of
1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN
By: /s/ Frederick R. Bellamy
--------------------------------
Frederick R. Bellamy
<PAGE>
The Board of Directors of
United Investors Life Insurance Company
and the Contract Owners of the United
Investors Life Variable Account
We consent to the use of our report dated January 31, 1996, relating
to the balance sheets of United Investors Life Insurance Company as
of December 31, 1995 and 1994 and the related statements of
operations, shareholder's equity, and cash flow for each of the
years in the three-year period ended December 31, 1995, and also to
the use of our report dated March 22, 1996, relating to the balance
sheet of United Investors Life Variable Account as of December 31,
1995, and the related statements of operations and changes in net
assets for each of the years in the three-year period ended
December 31, 1995, as contained in Post-Effective Amendment No. 10 to
Form S-6 for United Investors Life Variable Account. We also consent
to the reference to our firm under the heading "Experts" in the
Prospectus. Our report on the financial statements of United Investors
Life Insurance Company refers to changes in accounting principals in 1993
to adopt the provisions of Financial Accounting Standards Board's (FASB)
Statement of Financial Accounting Standards (Statement) No. 106
Employers' Accounting for Postretirement Benefits Other Than Pensions,
FASB Statement No. 109 Accounting for Income Taxes, and FASB Statement
No. 115 Accounting for Certain Investments in Debt and Equity Securities.
KPMG PEAT MARWICK LPP
Birmingham, Alabama
April 26, 1996
<PAGE>
April 26, 1996
United Investors Life Insurance Company
2001 Third Avenue South
Birmingham, AL 35233
Gentlemen:
I hereby consent to the continued use of my opinion dated
May 18, 1987 as an Exhibit to the Form S-6 Registration Statement for
United Investors Life Variable Account (No. 33-11465) and my name
under the caption "Legal Matters" in the Prospectus contained in the
Registration Statement.
Very truly yours,
/s/ James L. Sedgwick, Esq.
-----------------------------------
James L. Sedgwick, Esq.
President
JLS:ab
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 28,656,449
<INVESTMENTS-AT-VALUE> 39,990,322
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 39,990,322
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,749
<TOTAL-LIABILITIES> 7,749
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
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</TABLE>
