<PAGE>
File Nos. 33-11465 and 811-4987
As Filed with the Securities and Exchange Commission on April 28, 1999
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 14
--
to
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
UNITED INVESTORS 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)
_____________________
John H. Livingston, 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 LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2415
________________________________
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[x] on April 30, 1999 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on ______________ pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following box:
[ ] this Post-Effective Amendment designates a new effective date for a
previously filed Post-Effective Amendment.
Title of securities being registered: Variable Life Insurance Policies
<PAGE>
Prospectus
May 1, 1999
Please read this prospectus carefully before investing, and keep it for
future reference. It contains important information about the Advantage ISM
variable life insurance policy, which is issued by:
United Investors Life Insurance Co.
2001 Third Avenue South
Birmingham, Alabama 35233
Telephone: (205) 325-4300
The SEC maintains an Internet website (http://www.sec.gov) that contains
material incorporated by reference into this prospectus and other information.
Variable life insurance policies involve certain risks, and you may lose
some or all of your investment.
. We do not guarantee how any of the investment divisions will perform.
. The policy is not a deposit or obligation of any bank, and no bank endorses
or guarantees the policy.
. Neither the U.S. Government nor any Federal agency insures your investment in
the policy.
ADVANTAGE ISM
VARIABLE LIFE INSURANCE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
issued by
United Investors Life Insurance Company
through
United Investors Life Variable Account
The policy offers a choice of 11 investment divisions of United Investors
Life Variable Account. Each variable investment division invests in one of the
following portfolios of Target/United Funds, Inc.:
. Asset Strategy Portfolio
. Balanced Portfolio
. Bond Portfolio
. Growth Portfolio
. High Income Portfolio
. Income Portfolio
. International Portfolio
. Limited-Term Bond Portfolio
. Money Market Portfolio
. Science and Technology Portfolio
. Small Cap Portfolio
The prospectus for Target/United Funds, Inc. is attached; it describes these
portfolios.
There is no guaranteed or minimum policy value; the policy value will fluctuate
with investment performance of the variable investment divisions. If the loan
balance exceeds the policy value less surrender charges, or if the surrender
value becomes insufficient to cover the annual deduction of charges under the
policy, the policy may terminate without value.
Generally, the policy will be a modified endowment contract for Federal income
tax purposes. Therefore, 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 your reaching
actual age 59 1/2, these distributions generally would be subject to a 10%
penalty tax.
Neither the SEC nor any state securities commission has approved or disapproved
these securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
U-1003, Ed.5-99
<PAGE>
Table of Contents
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<TABLE>
<S> <C>
Summary..................................................................... 1
The Policy................................................................ 1
Payment of Premiums....................................................... 1
Funding Choices........................................................... 1
Charges and Deductions.................................................... 1
Taxes..................................................................... 3
Cash Benefits............................................................. 3
Death Benefit............................................................. 3
Termination............................................................... 3
Other Information......................................................... 3
Inquiries................................................................. 4
United Investors Life Variable Account...................................... 5
Target/United Funds, Inc.................................................. 5
Fund Management and Fees.................................................. 7
The Policy.................................................................. 8
Applying for a Policy..................................................... 8
"Free Look" Right to Cancel the Policy.................................... 8
Premiums.................................................................. 8
Transfers................................................................. 9
Dollar-Cost Averaging..................................................... 10
Surrender of the Policy................................................... 10
Policy Loans.............................................................. 10
Requesting Payments....................................................... 12
Reports to Owners......................................................... 12
Other Policy Provisions................................................... 12
Assignment and Change of Owner............................................ 14
Charges and Deductions...................................................... 14
Deductions from Premiums.................................................. 14
Annual Deduction.......................................................... 14
Mortality and Expense Risk Charge......................................... 15
Federal Taxes............................................................. 16
Surrender Charge.......................................................... 16
Fund Expenses............................................................. 16
Reduction in Charges for Certain Groups................................... 16
Policy Values............................................................... 16
Policy Value.............................................................. 16
Variable Account Value.................................................... 17
Death Benefits.............................................................. 18
Amount of Death Benefit Payable........................................... 18
Changing the Minimum Death Benefit........................................ 19
Beneficiary............................................................... 20
Tax Considerations.......................................................... 20
Introduction.............................................................. 20
Tax Status of the Policy.................................................. 20
Tax Treatment of Policy Benefits.......................................... 21
Taxation of United Investors.............................................. 22
Employment-Related Benefit Plans.......................................... 23
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Other Information........................................................... 23
United Investors Life Insurance Company................................... 23
Sale of the Policies...................................................... 24
Changing the Variable Account............................................. 24
Voting of Portfolio Shares................................................ 25
Addition, Deletion, or Substitution of Investments........................ 25
Other Information......................................................... 26
Litigation................................................................ 26
Legal Matters............................................................. 26
Experts................................................................... 26
Financial Statements...................................................... 26
Appendix A: Death Benefit Factors........................................... 27
Appendix B: Hypothetical Illustrations...................................... 28
Appendix C: Directors and Officers of United Investors...................... 33
Appendix D: Glossary........................................................ 35
Appendix E: Financial Statements............................................ F-1
</TABLE>
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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.
Buying this policy might not be a good way of replacing your existing insurance
or adding more insurance if you already own a flexible premium variable life
insurance policy.
iii
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Summary
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This is a summary of some of the more important points that you should know
and consider before purchasing the Advantage I variable life insurance policy.
Certain terms and phrases used in this prospectus are explained in Appendix D.
The Policy
The Advantage I variable life insurance policy is an individual flexible
premium variable life insurance policy issued by United Investors Life
Insurance Company. Among other things, the policy:
(a) provides insurance protection on the life of the insured until the policy's
maturity date.
(b) allows you to change the minimum death benefit payable under the policy.
(c) provides the opportunity for cash value build-up on a tax-deferred basis,
depending on investment performance of the underlying mutual fund
portfolios. However, there is no guaranteed policy value and you bear the
risk of poor investment performance.
(d) permits you to surrender the policy completely or to borrow against the
policy value. Loans will affect the policy value and may affect the death
benefit and termination of the policy. Generally, surrenders and loans will
both be treated as taxable distributions.
In addition to providing life insurance, the policy provides a means of
investing for your retirement or other long-term purposes. Tax deferral allows
the entire amount you have invested (net of charges) to remain in the policy
where it can continue to produce an investment return. Therefore, your money
could grow faster than in a comparable taxable investment where current income
taxes would be due each year.
Payment of Premiums
You can purchase the policy with a single premium payment of at least
$5,000. However, extra premiums may be required to prevent policy termination
under certain circumstances. Within limits, you can pay additional premiums
after the first policy year.
Funding Choices
You may divide your Advantage I policy value among the eleven portfolios of
Target/United Funds, Inc. There is no guaranteed or minimum policy value.
Instead, your policy value will go up or down with the performance of the
particular Target/United Funds, Inc. portfolios you select (and the deduction
of charges). You will lose money if the investment performance of the
portfolios you select is not sufficiently positive to cover the charges under
the policy.
The eleven portfolios of Target/United Funds, Inc. currently are:
. Asset Strategy Portfolio
. Balanced Portfolio
. Bond Portfolio
. Growth Portfolio
. High Income Portfolio
. Income Portfolio
. International Portfolio
. Limited-Term Bond Portfolio
. Money Market Portfolio
. Science and Technology Portfolio
. Small Cap Portfolio
Charges and Deductions
We do not deduct any charges from your initial premium--we credit the entire
amount to your policy value. However, there are charges totaling 12% of your
initial premium, deducted in ten annual installments. Specifically, on each of
the first ten policy anniversaries, we deduct 1.20% of the initial premium
payment. This charge consists of:
(a) 0.85% for sales expenses;
(b) 0.10% for underwriting and issue expenses; and
(c) 0.25% for premium taxes.
1
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We deduct a 6% sales load and a 2.5% premium tax charge from any additional
premium payments after the initial premium payment (except for grace period
premiums).
On every policy anniversary (including the first ten), we deduct:
(a) a mortality charge for the cost of insurance (determined by the insured's
attained age, sex, and risk classification); and
(b) a $50 charge for certain administrative expenses.
Each day, we deduct a charge from the assets in the variable investment
divisions for certain mortality and expense risks we bear under the policy.
This charge is at an effective annual rate of 0.60% of those assets. We
guarantee not to increase this mortality and expense risk charge.
In addition, investment management fees, 12b-1 fees, and other expenses are
deducted from each portfolio of Target/United Funds, Inc. See the table below
for a summary of these portfolio expenses.
Target/United Funds, Inc. Annual Expenses(/1/)
(% of average daily net assets)
<TABLE>
<CAPTION>
Total
Management 12b-1 Other Portfolio
Portfolio Fee Fees(/2/) Expenses(/3/) Expenses
----------------------------------------------------------
<S> <C> <C> <C> <C>
Asset Strategy 0.79% 0.25% 0.19% 1.23%
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Balanced 0.59% 0.25% 0.06% 0.90%
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Bond 0.52% 0.25% 0.06% 0.83%
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Growth 0.69% 0.25% 0.02% 0.96%
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High Income 0.64% 0.25% 0.05% 0.94%
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Income 0.69% 0.25% 0.03% 0.97%
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International 0.79% 0.25% 0.15% 1.19%
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Limited-Term
Bond 0.54% 0.25% 0.17% 0.96%
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Money Market 0.49% 0.25% 0.09% 0.83%
----------------------------------------------------------
Science and
Technology 0.69% 0.25% 0.12% 1.06%
----------------------------------------------------------
Small Cap 0.84% 0.25% 0.04% 1.13%
</TABLE>
(/1/) These expenses are deducted directly from the assets of the Target/United
Funds, Inc. portfolios and therefore reduce their net asset value. Waddell &
Reed, Inc., the investment adviser of Target/United Funds, Inc., supplied the
above information, and we have not independently verified it. See the
Target/United Funds, Inc. prospectus for more complete information.
(/2/) Each portfolio pays a service fee to Waddell & Reed, Inc. (the principal
underwriter of Target/United Funds, Inc.) of no more than 0.25% of the
portfolio's average annual net assets. The fee reimburses Waddell & Reed, Inc.
for arranging to provide personal services to policy owners and to maintain the
policies. Waddell & Reed, Inc. represents that this is a Service Plan as
permitted by Rule 12b-1 under the Investment Company Act of 1940. Waddell &
Reed, Inc. is also the principal underwriter of the policies.
(/3/) Other Expenses are those incurred for the year ended December 31, 1998.
Actual expenses of Target/United Funds, Inc. may be greater or less than
those shown.
2
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If you surrender the policy during the first eight policy years, we deduct a
surrender charge from the policy value. The surrender charge rate is 8% of the
initial premium for a surrender occurring in the first policy year. The
surrender charge rate decreases by 1% per year.
Taxes
We intend for the policy to satisfy the definition of a life insurance
contract under the Internal Revenue Code. The death benefit paid under a life
insurance contract generally should be excludable from the gross income of the
recipient. Similarly, you should not be deemed to be in constructive receipt of
the policy value, and therefore should not be taxed on increases in the policy
value until you take out a loan, surrender the policy, or we pay the maturity
benefit.
The policies generally will be modified endowment contracts. See "Tax
Considerations" for a discussion of when distributions could be subject to
Federal income tax or penalty tax.
Cash Benefits
Your policy value is the sum of the amounts allocated to the variable
investment divisions (variable account value) plus any loan balance. The policy
value may be substantially less than the premiums paid.
Policy Loans. After the first policy year, you may take loans in aggregate
amounts of up to 90% of the policy value, less surrender charges and loan
interest to the next policy anniversary. Policy loans reduce the amount
available for allocations and transfers.
Surrender. You may surrender the policy at any time for its surrender value.
The surrender value is the policy value less any loan balance and any
applicable surrender charges. Only full surrenders are allowed; partial
surrenders are not permitted.
Death Benefit
So long as the policy remains in force, the death benefit payable will be
the greater of:
(a) the policy's minimum death benefit; or
(b) a multiple of the policy value (up to 2 1/2 times the policy value).
The death benefit therefore may, like the policy value, increase or decrease
to reflect the performance of the variable investment divisions (to which your
policy value is allocated). Subject to certain limits, you may change the
policy's minimum death benefit.
Any outstanding loan balance reduces the death benefit proceeds.
Termination
There is no minimum guaranteed policy value. The policy value may decrease
if the investment performance of the variable investment divisions (to which
policy value is allocated) is not sufficient to cover the charges deducted
under the policy.
If a policy's loan balance exceeds its policy value less surrender charges,
or if its surrender value becomes insufficient to cover the annual deduction
when due, then the policy will terminate without value after a grace period.
Other Information
Free Look: For ten days after you receive the policy, you may cancel the
policy and receive a full refund of the premium that was paid (or the amount
required by your state, if greater). During this period, the entire policy
value is held in the money market investment division.
Transfers: Within certain limits, you may transfer all or part of your
policy value among the variable investment divisions up to 12 times in a policy
year.
Dollar-Cost Averaging: Before the maturity date, you may have automatic
monthly transfers of a predetermined dollar amount made from the money market
investment division to other variable investment divisions. Certain minimums
and other restrictions apply.
Illustrations: Sample projections of hypothetical death benefits and policy
values are in
3
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Appendix B to this prospectus. These projections may help you:
(a) understand (i) the long-term effects of different levels of investment
performance and (ii) the charges and deductions under the policy; and
(b) compare the policy to other life insurance policies.
The projections also show the value of the initial premium accumulated with
interest and demonstrate that the policy value may be low (compared to the
premium plus accumulated interest) if the policy is surrendered in the early
policy years. Therefore, the policy should not be purchased as a short-term
investment.
Financial Information: Our financial statements, and financial statements
for the variable investment divisions, are in Appendix E to this prospectus.
Inquiries
If you have questions about your policy or need to make changes, contact
your financial representative who sold you the policy, or contact us at:
United Investors Life Insurance Company
Variable Products Division
P. O. Box 156
Birmingham, Alabama 35201-0156
Telephone: (205) 325-4300
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The policy is not available in all states. This prospectus does not offer
the policies in any jurisdiction where they cannot be lawfully sold. You should
rely only on the information contained in this prospectus or that we have
referred you to. We have not authorized anyone to provide you with information
that is different.
NOTE: Because this is a summary, it does not contain all the information
that may be important to you. You should read this entire prospectus and the
Target/United Funds, Inc. prospectus carefully before investing.
4
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United Investors Life Variable Account
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The variable investment divisions are "sub-accounts" or divisions of the
United Investors Life Variable Account (the "Variable Account"). We established
the Variable Account as a segregated asset account on January 5, 1987. The
Variable Account will receive and invest the premiums allocated to the variable
investment divisions. Our Variable Account is currently divided into eleven
investment divisions. Each division invests exclusively in shares of a single
portfolio of Target/United Funds, Inc. Income, gains and losses arising from
the assets of each investment division are credited to or charged against that
division without regard to income, gains or losses from any other investment
division of the Variable Account or arising out of any other business we may
conduct.
The assets in the Variable Account are our property. However, the assets
allocated to the variable investment divisions under the policy are not
chargeable with liabilities arising out of any other business that we may
conduct. The Variable Account is registered with the SEC as a unit investment
trust under the Investment Company Act of 1940 (the "1940 Act"). It meets the
definition of a "separate account" under the Federal securities law. However,
the SEC does not supervise the management or investment practices or policies
of the Variable Account or us.
Target/United Funds, Inc.
The Variable Account invests in shares of Target/United Funds, Inc., a
mutual fund with the following investment portfolios:
1. Asset Strategy Portfolio;
2. Balanced Portfolio;
3. Bond Portfolio;
4. Growth Portfolio;
5. High Income Portfolio;
6. Income Portfolio;
7. International Portfolio;
8. Limited-Term Bond Portfolio;
9. Money Market Portfolio;
10. Science and Technology Portfolio; and
11. Small Cap Portfolio.
The assets of each portfolio of Target/United Funds, Inc. are separate from the
assets of the other portfolios. Thus, each portfolio operates separately, and
the income, gains, or losses of one portfolio have no effect on the investment
performance of any other portfolio.
5
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The investment objectives and policies of each portfolio are summarized
below. There is no assurance that any of the portfolios will achieve their
stated objectives. More detailed information, including a description of risks,
is in the Target/United Funds, Inc. prospectus, which accompanies this
prospectus.
<TABLE>
<CAPTION>
Portfolio Investment Objective and Certain Policies
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<S> <C>
Asset Strategy The Asset Strategy Portfolio seeks high total return over the long-
term. It seeks to achieve its goal by allocating its assets among
stocks, bonds, and short-term instruments, both in the United
States and abroad.
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Balanced The Balanced Portfolio seeks as a primary goal, current income,
with a secondary goal of long-term appreciation of capital. It
invests primarily in a mix of stocks, fixed-income securities and
cash, depending on market conditions.
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Bond The Bond Portfolio seeks a reasonable return with more emphasis on
preservation of capital. It seeks to achieve its goal by investing
primarily in domestic debt securities, usually of investment grade.
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Growth The Growth Portfolio seeks capital growth, with a secondary goal of
current income. It seeks to achieve its goal by investing primarily
in common stocks, or securities convertible into common stocks, of
U.S. and foreign companies.
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High Income The High Income Portfolio seeks as a primary goal, high current
income with a secondary goal of capital growth. It seeks to achieve
its goals by investing primarily in high-yield, high-risk, fixed-
income securities of U.S. and foreign issuers, the risks of which
are consistent with the Portfolio's goals.
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Income The Income Portfolio seeks maintenance of current income, subject
to market conditions, with a secondary goal of capital growth. It
seeks to achieve its goals by investing primarily in common stocks
of large U.S. and foreign companies that have a record of paying
regular dividends on common stock or have the potential for capital
appreciation, or are expected to resist market decline.
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International The International Portfolio seeks as a primary goal, long-term
appreciation of capital, with a secondary goal of current income.
It seeks to achieve its goals by investing primarily in common
stocks, or securities convertible into or exchangeable for common
stocks, of foreign companies that may have the potential for long-
term growth.
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Limited-Term Bond The Limited-Term Bond Portfolio seeks a high level of current
income consistent with preservation of capital. It seeks to achieve
its goal by investing primarily in investment-grade debt securities
of U.S. issuers, including U.S. Government securities.
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Money Market The Money Market Portfolio seeks current income consistent with
stability of principal. It seeks to achieve its goal by investing
in U.S. dollar-denominated high quality money market obligations
and instruments.
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Science and Technology The Science and Technology Portfolio seeks long-term capital
growth. It seeks to achieve its goal by concentrating its
investments primarily in the common stock of science and technology
securities of U.S. and foreign companies.
</TABLE>
6
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<TABLE>
<CAPTION>
Portfolio Investment Objective and Certain Policies
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<S> <C>
Small Cap The Small Cap Portfolio seeks capital growth. It seeks to achieve
its goal by investing primarily in common stocks, or securities
convertible into the common stocks, of companies that are
relatively new or unseasoned, companies in their early stages of
development, or smaller companies positioned in new or in emerging
industries where the opportunity for rapid growth is above average.
</TABLE>
Target/United Funds, Inc. is designed to provide an investment vehicle for
variable annuity and variable life insurance contracts issued by various
insurance companies. For more information about the risks associated with the
use of the same funding vehicle for both variable annuity and variable life
insurance contracts of various insurance companies, see the Target/United
Funds, Inc. prospectus.
Fund Management and Fees
Waddell & Reed Investment Management Company, the manager of Target/United
Funds, Inc., provides investment advisory services to its portfolios. The
manager is a wholly-owned subsidiary of Waddell & Reed, Inc., which is a
wholly-owned subsidiary of Waddell & Reed Financial Services, Inc., a holding
company. Waddell & Reed Financial Services, Inc. is a wholly-owned subsidiary
of Waddell & Reed Financial, Inc., a publicly held company. 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 Target/United Funds
portfolio pays the manager a fee for managing its investments. The fee consists
of two elements:
(i) a specific fee computed each day on the portfolio's net asset value at
the following annual rates; and
<TABLE>
<CAPTION>
Portfolio Specific Fee (%)
--------- ----------------
<S> <C>
Asset Strategy............................................. 0.30%
Balanced................................................... 0.10%
Bond....................................................... 0.03%
Growth..................................................... 0.20%
High Income................................................ 0.15%
Income..................................................... 0.20%
International.............................................. 0.30%
Limited-Term Bond.......................................... 0.05%
Money Market............................................... 0.00%
Science and Technology..................................... 0.20%
Small Cap.................................................. 0.35%
</TABLE>
(ii) the portfolio's proportionate share of a base fee computed each day on
the combined net asset values of all the portfolios at the following
annual rates:
<TABLE>
<CAPTION>
Group Net Asset
Level ($ millions) Base Fee (%)
------------------ ------------
<S> <C>
<$750........................................................... 0.51%
$750-$1,500..................................................... 0.49%
$1,500-$2,250................................................... 0.47%
>$2,250......................................................... 0.45%
</TABLE>
The base fee is computed on the combined net asset value of all eleven
portfolios of Target/United Funds, Inc. For 1998, the base fee rate was 0.49%.
A proposal is outstanding to change the investment management fees for each
portfolio. See the Target/United Funds, Inc. prospectus for complete details.
7
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The Policy
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Applying for a Policy
To purchase a policy, you must complete an application, submit it to our
home office (at the address listed on page 4 of this prospectus), and pay an
initial premium of at least $5,000. (See "Premiums" below). The initial premium
must be paid prior to the policy's effective date. (We will only accept a
premium that complies with our underwriting rules.) Coverage becomes effective
as of the policy's effective date. If the proposed insured dies before the
policy's effective date, our sole obligation will be to return the premium paid
plus any interest earned on it.
Generally, we will issue a policy covering an insured up to age 75 (on his
or her birthday nearest the policy's effective date) if evidence of
insurability satisfies our underwriting rules. Evidence of insurability may
include, among other things, a medical examination of the insured. We reserve
the right not to accept an application for any lawful reason.
"Free Look" Right to Cancel the Policy
During the "free look" period, you may cancel your policy and receive a
refund of the premium that was paid (or the amount required by your state, if
greater). The "free look" period expires 10 days after you receive your policy.
In order to cancel the policy, you must return it by mail or other delivery
before the end of the "free look" period to our home office or to the agent who
sold it to you.
Premiums
The minimum initial premium required to purchase a policy is $5,000. The
minimum death benefit payable under the policy depends on the amount of the
initial premium paid (plus any additional premiums paid, as discussed below)
and the issue age, sex, and risk class of the proposed insured.
Although you can purchase the policy with a single premium, you may pay
additional premiums (within certain limits) after the first policy year. Only
one additional premium (not counting grace period premiums, discussed below)
may be paid in any policy year. Each additional premium that does not require
an increase in the minimum death benefit must be at least $500. Each additional
premium that does require an increase in the minimum death benefit must be at
least $5,000 and is subject to certain conditions. (See "Changing the Minimum
Death Benefit.")
Aside from any additional premium you may pay voluntarily, additional
premiums may be required to keep the policy in force. (See "Grace Period and
Termination.") Total premiums paid in a policy year may not exceed guideline
premium limitations for life insurance set forth in the Internal Revenue Code.
We reserve the right to reject any premium that would result in the policy
being disqualified as life insurance under the Code and will refund any
rejected premium. (See "Tax Considerations.")
Allocation of Premiums. In the application for the policy, you specify (in
whole percentages, from 0% to 100%) how you want the initial premium allocated
among the investment divisions of the Variable Account.
Between the date that we receive the initial premium and the policy's
effective 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 of the Variable Account. From the policy's effective date
to the seventeenth day after the policy's effective date or the first business
day thereafter, the initial premium plus any accrued interest will be allocated
to the money market investment division. At the end of this period, your policy
value will be transferred to other investment divisions of the Variable Account
in accordance with the allocation instructions in your application. The
seventeen-day period includes the 10-day "Free Look" period, plus 7 days for
processing and policy delivery.
8
<PAGE>
Additional premiums not requiring our approval will be allocated in
accordance with your instructions on the date of receipt. If our approval is
required, the additional premium will be held in our general account and
credited with interest as if it had been invested in the money market
investment division until the date of approval. Then we will invest the
additional premium (and interest credited) in accordance with your written
instructions. If no instructions are given, then the additional premium will be
invested in the same proportions that the value of each variable investment
division bears to your existing variable account value.
Your policy value will vary with the investment performance of the variable
investment divisions you select, and you bear the entire investment risk for
the amounts allocated to the Variable Account. In addition to affecting the
policy value, investment performance may also affect the death benefit payable
under the policy. You should periodically review your allocation of policy
value in light of all relevant factors, including market conditions and your
overall financial planning requirements.
Grace Period and Termination. 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 death of the insured; or
(d) the policy's maturity date.
If the loan balance exceeds the policy value less surrender charges, or if
the surrender value is insufficient to cover the annual deduction, then the
policy will terminate without value unless, during a grace period of 61 days--
from the date notice is mailed to you--you pay a grace period premium
sufficient to keep the policy in force. The grace period premium 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. Payment of the grace period premium will be sufficient to keep
the policy in force until the next policy anniversary, regardless of investment
performance. If the grace period premium is not paid before the expiration of
the grace period, the policy will terminate without value. If the insured dies
during the grace period, then any loan balance or overdue annual deduction will
be deducted from the death benefit to determine the proceeds payable.
Transfers
You may transfer all or part of your policy value from one variable
investment division to one or more of the other variable investment divisions
up to 12 times in a policy year. There is no charge for making transfers. The
minimum amount that may be transferred out of a variable investment division is
$1,000 or, if less, your variable account value in that variable investment
division. Transfers are not allowed during the "free look" period.
Transferring the value of one variable investment division into two or more
variable investment divisions counts as one transfer request. However,
transferring the values of two variable investment divisions into one variable
investment division counts as two transfer requests.
Transfer requests may be made by satisfactory written or telephone request
(if we have your written authorization for telephone requests on file). We have
the authority to honor any telephone transfer request believed to be authentic.
We employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. For example, you may be required to use a personal
identification number to initiate a telephone transfer. We will not be liable
for the consequences of a fraudulent telephone transfer request we believe to
be authentic when we have followed those procedures. As a result, you bear the
risk of loss arising from such a fraudulent request if you give us
authorization for telephone transfers.
9
<PAGE>
A transfer will take effect on the date we receive the request if it is
received by 4:00 p.m. Eastern time; otherwise it will take effect on the
following business day. We may, however, defer transfers under the same
conditions that we may delay paying proceeds. (See "Requesting Payments.") We
reserve the right to modify, restrict, suspend or eliminate the transfer
privileges, including telephone transfer privileges, at any time, for any
reason.
Dollar-Cost Averaging
The dollar-cost averaging program permits you to systematically transfer a
set dollar amount from the money market investment division to up to four of
the other variable investment divisions on a monthly basis prior to the
policy's maturity date. Automatic transfers will be made on the day of the
month selected in your application if a business day, or on the first business
day thereafter. The minimum automatic transfer amount is $100. If the transfer
is to be made to more than one variable investment division, a minimum of $25
must be transferred to each variable investment division selected. The dollar-
cost averaging method of investment is designed to reduce the risk of making
purchases only when the price of units is high, but you should carefully
consider your financial ability to continue the program over a long enough
period of time to purchase units when their value is low as well as when it is
high. Dollar-cost averaging does not assure a profit or protect against a loss.
You may elect to participate in the dollar-cost averaging program at any
time by sending us a written request. Once elected, dollar-cost averaging
remains in effect from the date we receive your request until the value of the
money market investment division under your policy is depleted, or until you
cancel your participation in the program by written request or by telephone.
There is no additional charge for dollar-cost averaging. A transfer under this
program is not counted as a transfer for purposes of the 12-transfer limit
discussed above. We reserve the right to discontinue offering the dollar-cost
averaging program at any time and for any reason.
Surrender of the Policy
You may surrender your policy for its surrender value by sending a written
request to our home office. Only full surrenders are allowed; partial
surrenders are not permitted. Surrenders will ordinarily be paid within seven
days after we receive your written request. (See "Delay or Suspension of
Payments.")
Upon surrender of your policy, we will pay you the surrender value. The
surrender value is:
(a) the policy value; minus
(b) any loan balance; minus
(c) the surrender charge, if any (during the first eight policy years).
Coverage under the policy will terminate as of the date we receive your
written request for surrender. Surrenders may be taxable transactions. (See
"Tax Considerations.")
Policy Loans
A loan taken from, or secured by, a policy may have Federal income tax
consequences. (See "Tax Considerations.")
After the first policy year, you may borrow against your policy in an amount
up to the loan value. The loan value is 90% of the policy value, less surrender
charges and interest to the next policy anniversary. You may borrow in one or
more separate loans any amount up to the difference between the loan value and
any existing loan balance. We charge an effective annual interest rate of 6% on
all loans. We include interest until the next policy anniversary in determining
the maximum loan value. The loan balance equals the total of all
10
<PAGE>
outstanding policy loans and accrued interest on these loans. The loan value of
the policy is the sole security for the loan. The minimum loan amount is $200.
If you request more than four loans in any one policy year, we deduct a $25
transaction charge for each additional loan.
We will transfer an amount equal to each policy loan from the variable
investment divisions to our general account as security for the loan balance.
We will allocate the amount to be transferred in the same proportion that the
value of each variable investment division bears to your variable account
value, unless you specify the variable investment divisions from which the loan
is to be made. We will credit the amounts transferred to our general account
(equal to the loan balance) with interest earnings at an effective annual rate
of 4.0%. Currently, an additional 2.0% (for 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. We may change this additional interest
rate in the future. Your variable account value is reduced by the amount
transferred to our 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 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. In
this case, the unpaid interest will be taken from the variable investment
divisions in the same proportion that the value of each variable investment
division bears to your variable account value.
If the loan balance exceeds the policy value less surrender charges, the
policy will terminate without value unless premium payments sufficient to keep
the policy in force are made by the end of the grace period. (See "Grace Period
and Termination.")
Effect of Policy Loan. A policy loan will affect your policy in several
ways.
First, 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 variable 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 is outstanding, 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 variable
investment divisions and greater if the general account net interest rate is
higher than the investment return of the variable investment divisions.
Second, if the death benefit becomes payable while a policy loan is
outstanding, the loan balance will be deducted in calculating the death benefit
proceeds.
Third, your policy will terminate if the loan balance exceeds the policy
value less surrender charges. The policy may terminate unless you pay a
sufficient additional premium to avoid termination during a 61-day grace
period.
Repayment of the Loan Balance. You may repay all or part of the loan balance
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.
Amounts we receive while a loan is outstanding will be considered a loan
repayment unless you instruct otherwise.
Upon repayment of the loan balance, the portion of the repayment allocated
to each variable investment division will be transferred from our general
account and increase your variable account value in that variable investment
division. The repayment will be allocated among the variable investment
divisions in the same proportion that the value of each variable investment
division bears to the variable account value, unless you instruct us otherwise.
We will allocate the repayment of the loan balance to the variable investment
divisions when the repayment is received.
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<PAGE>
Postponement of a Loan. We will usually pay loan proceeds within seven days
after we receive your written request. However, loans may be deferred under
certain circumstances. (See "Delay or Suspension of Payments.")
Requesting Payments
Written requests for payment must be sent to our home office. We will
ordinarily pay any death benefit, loan amount, or surrender value within seven
days after we receive all the documents required for such a payment. Other than
the death benefit, which is determined as of the date of the insured's death,
the amount of any payment will be determined as of the date our home office
receives all required documents.
Telephone requests may be allowed by us in certain circumstances.
Delay or Suspension of Payments. We may delay making a payment of any amount
from the variable investment divisions or processing a transfer request if:
(a) the disposal or valuation of the Variable Account's assets is not
reasonably practicable because
(i) the New York Stock Exchange is closed for other than a regular
holiday or weekend,
(ii) trading is restricted by the SEC, or
(iii) the SEC declares that an emergency exists; or
(b) the SEC by order permits postponement of payment to protect our policy
owners.
We also may defer making payments attributable to a premium check that has
not cleared your bank.
The policy offers a wide variety of optional ways of receiving proceeds
payable under the policy other than in a lump sum. An authorized United
Investors agent can explain these options to you. None of these options varies
with the investment performance of a variable investment division because they
are all forms of fixed-benefit annuities.
Reports to Owners
At least once a year, you will be sent a report showing information about
your policy for the period covered by the report. You will also receive an
annual and a semi-annual report for each portfolio underlying a variable
investment division to which you have allocated net premiums or transferred
policy value, as required by the 1940 Act. In addition you will receive a
written confirmation of each transaction when you pay premiums, make transfers,
or take out a policy loan.
Other Policy Provisions
The policy contains provisions addressing the following matters:
Dividends. The policy is non-participating. This means that no dividends
will be paid on the policy. The policy will not share in our profits or surplus
earnings.
Incontestability. After the policy has been in force during the insured's
lifetime for a period of two years from the policy's effective date, the policy
limits our right to contest the policy as issued, except for material
misstatements contained in any application. This also applies to reinstatements
and increases in the insurance amount, once two years have elapsed since the
reinstatement date or effective date of the increase.
Suicide Exclusion. The policy limits the death benefit if the insured dies
by suicide (while sane or insane) within two years after the policy's effective
date. In this instance, our liability will be limited to the total premiums
paid less any loan balance.
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<PAGE>
If the insured dies by suicide (while sane or insane) within two years after
the effective date of any increase in insurance requiring evidence of good
health, the proceeds payable under the policy shall be:
(a) reduced by the excess, if any, of the net amount at risk (death benefit
minus policy value) on the date of the death over the net amount at
risk immediately before the effect date of increase; and
(b) increased by the cost of insurance changes deducted from policy value
for this excess.
Reinstatement. If the grace period has expired, you may reinstate the policy
by:
(a) submitting a written request at any time within three years after the
end of the grace period and before the policy's maturity date;
(b) providing us with satisfactory evidence of insurability;
(c) paying an additional premium sufficient to cover all previous annual
deductions that were due and unpaid; and
(d) repaying or reinstating any loan balance which existed on the policy at
the end of the grace period.
If we approve the reinstatement, then:
(a) the effective date of reinstatement will be the date of your written
request or the date the required additional premium is paid, if later;
(b) the death benefit will be reset to its level at the end of the grace
period; and
(c) we will resume making charges and deductions from policy value as of
the date of reinstatement.
(See the policy form for additional information.)
Misstatement of Age or Sex. The death benefit and any other amount paid will
be adjusted if the insured's age or sex has been misstated. The benefits paid
will reflect the correct age and sex.
Right to Exchange for Fixed Life Insurance. Once during the first two policy
years, you have the right to exchange the policy for a single premium life
insurance policy that provides for benefits that do not vary with the
investment return of the variable investment divisions. We will not require
evidence of insurability. We will require that:
(a) this original policy be in force;
(b) you file a written request; and
(c) you repay any existing loan balance.
The new policy will have the same initial death benefit, effective date and
issue age as the original policy. The premium for the new policy will be based
on our rates in effect on its effective 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.
Entire 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. We can use only the
statements made in the written application to defend a claim or void the
policy.
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<PAGE>
Other Changes. We may make changes in the policy at any time if we believe
the changes are:
(a) necessary to assure compliance at all times with the definition of life
insurance in the Internal Revenue Code;
(b) necessary to make the policy, our operations, or the operation of the
Variable Account conform with any law or regulation issued by any
government agency to which they are subject;
(c) necessary to reflect a change in the operation of the Variable Account,
if allowed by the policy; or
(d) necessary or appropriate to conform the policy to, or give you the
benefit of, any Federal or state statute, rule, or regulation.
Only an executive officer of United Investors has the right to change the
policy. No agent has the authority to change the policy or waive any of its
terms. All endorsements, amendments, or riders must be signed by one of our
executive officers to be valid.
Assignment and Change of Owner
You may assign the policy subject to its terms. We will not be responsible
for the validity or effect of any assignment, and no assignment will be binding
upon us until we receive a written copy of it at our home office. Because an
assignment may be a taxable event, you should consult a qualified tax advisor
before making an assignment. (See "Tax Considerations" below.)
Unless you inform us otherwise in writing, you may change the policy owner
while the insured is alive and the policy is in force. The change will take
effect the date you sign the request, but the change will not affect any
payments we make or other action we have taken before we receive the request.
Because a change of policy owner may have tax consequences, you should consult
a qualified tax advisor before changing the owner. (See "Tax Considerations.")
A change of policy owner does not change the beneficiary designation. (See
"Beneficiary.")
Any such assignment or change of owner must be in a written form acceptable
to us. (We may require you to send us your policy before making the change.)
Charges and Deductions
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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Deductions from Premiums
We do not impose any charge or deduction against the initial premium prior
to its allocation to the Variable Account. However, we do deduct a sales load
of 6.0%, and a premium tax charge of 2.5%, of any additional premiums
(excluding grace period premiums) prior to their allocation to the Variable
Account.
Annual Deduction
On each policy anniversary, we deduct several charges to compensate us for
certain costs and expenses. We make the deductions pro rata from each of the
variable investment divisions to which your variable account value is
allocated. This is called the "annual deduction."
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Deductions on Each of the First Ten Policy Anniversaries. On each of your
first ten policy anniversaries, we deduct a charge equal to 1.20% of the
initial premium. This charge consists of 0.85% for sales expenses, 0.10% for
underwriting and issue expenses, and 0.25% for premium taxes. Each of these
charges is discussed below.
<TABLE>
<C> <S>
Sales Expenses The 0.85% charge is 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.
- -------------------------------------------------------------------------------
Underwriting and Issue Expenses The 0.10% charge compensates us 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.
- -------------------------------------------------------------------------------
State and Local Premium Taxes The 0.25% charge compensates us for the
average premium tax expense incurred when
issuing the policy. We currently incur state
premium taxes ranging from 1.75% to 3.50%. In
some states, localities charge additional
premium taxes.
</TABLE>
Cost of Insurance. On each policy anniversary (including the first ten), we
deduct a mortality charge to compensate us for the cost of insurance for the
preceding policy year. Specifically, this charge is designed to compensate us
for the anticipated cost of paying death benefits to the beneficiaries of
insureds who die while the policy is in force. On the policy's effective 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, then the difference between the policy value and the death benefit
will become smaller. Until the policy's maturity date, the death benefit will
always be higher than the policy value. To enable us to pay this amount at
risk, we deduct the mortality charge.
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. We
will determine annual cost of insurance rates based upon our expected 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, Age Nearest Birthday, or a
multiple thereof for substandard classes.
Administrative Expenses. On each policy anniversary (including the first
ten), we deduct a $50 charge to compensate us for expenses we incur 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.
Mortality and Expense Risk Charge
We deduct a daily charge from the Variable Account at an effective annual
rate of 0.60% of the average daily net assets of each variable investment
division to compensate us for assuming certain mortality and expense risks
under the policy. We may realize a profit from this charge and may use the
profit for any purpose, including distribution expenses. We may not increase
the level of this charge, which is guaranteed for the life of the policy. The
mortality risk is the risk that the cost of insurance charges specified in the
policy will be insufficient to meet actual claims. The expense risk is the risk
that the other expense charges may be insufficient to cover the actual expenses
we incur in connection with the policy.
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<PAGE>
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. We
may, however, make such a charge in the future. We may also make charges for
other taxes, if any, attributable to the Variable Account. (See "Tax
Considerations.")
Surrender Charge
If you surrender the policy during the first eight policy years, then we
will deduct a surrender charge as a percentage of the initial premium, as
specified in the following table of surrender charges:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Policy Year: 1st 2nd 3rd 4th 5th 6th 7th 8th 9th or greater
- ---------------------------------------------------------------------
Surrender Charge %: 8% 7% 6% 5% 4% 3% 2% 1% none
</TABLE>
No surrender charge applies 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.
We will deduct the surrender charge from the proceeds payable upon surrender
to partially compensate us 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.
The amounts we derive 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 the policy's
distribution expenses. We may recover any deficiency from our general assets
(which include amounts derived from the mortality and expense risk charge and
mortality gains).
Fund Expenses
The value of the assets of the Variable Account will reflect the investment
advisory fee, 12b-1 fee, and other expenses incurred by the portfolios. For
more information, see the "Summary" of this prospectus and the accompanying
prospectus for Target/United Funds, Inc.
Reduction in Charges for Certain Groups
We may waive or reduce the charges for sales expenses (including the
surrender charge) and administrative expenses, on policies that have been sold
to:
(a) our employees and sales representatives, or those of our affiliates or
distributors of the policy; or
(b) individuals or groups of individuals where the sale of the policy
results in savings of administrative or commission expenses.
Policy Values
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Policy Value
On the policy's 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
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<PAGE>
value equals the variable account value plus the loan balance. The policy value
will begin to vary immediately to reflect:
(a) the investment performance of the variable investment divisions to
which the policy value is allocated;
(b) any loan activity; and
(c) the charges assessed in connection with the policy.
There is no guaranteed minimum policy value.
Variable Account Value
Your policy's variable account value is equal to the sum of the values
attributed to your policy in the investment divisions of the Variable Account.
The variable account value equals the policy value less any loan balance. The
value of each variable investment division is calculated first on the policy's
effective date and thereafter on each normal business day. On the policy's
effective date, the value attributed to your policy in the variable 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's
effective date. On any business day thereafter, the value attributed to your
policy in each variable investment division equals what it was on the previous
business day, multiplied by the appropriate net investment factor for the
current business day increased and/or decreased by the amounts specified below.
The value of a variable investment division increases by:
(a) the amount of any net premium payments allocated to the variable
investment division during the current business day;
(b) the amount of any transfers from other variable investment divisions
during the current business day; and
(c) the amount of any loan repayments allocated to the variable investment
division during the current business day.
The value of a variable investment division decreases by:
(a) the amount of any transfers to other variable investment divisions
during the current business day;
(b) the portion of any annual deduction allocated to the variable
investment division during the current business day; and
(c) the amount of any loan or loan interest transferred from the variable
investment division during the current business day.
Unit Values. When you allocate an amount to a variable investment division,
either by net premium allocation, transfer of policy value or repayment of a
policy loan, your policy is credited with units in that variable investment
division. The number of units is determined by dividing (i) the amount
allocated, transferred or repaid to the variable investment division by (ii)
the variable investment division's unit value for the business day when the
allocation, transfer or repayment is effected. The number of units credited to
a policy will decrease when:
(a) the allocated portion of the annual deduction is taken from the
variable investment division;
(b) a policy loan is taken from the variable investment division; or
(c) an amount is transferred from the variable investment division.
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<PAGE>
A variable investment division's unit value is an index we use to measure
investment performance. Each variable investment division's unit value varies
to reflect the investment experience of its underlying portfolio, and may
increase or decrease from one business day to the next. Each variable
investment division's unit value was arbitrarily set at $1.00 when the variable
investment division was established. The unit value is determined on each
business day by multiplying the unit value for the variable investment division
on the prior business day by the variable investment division's net investment
factor for the current business day.
Net Investment Factor. The net investment factor is an index applied to
measure the investment performance of a variable investment division from one
business day to the next. The net investment factor may be greater or less than
one, so the value of a variable investment division may increase or decrease.
The net investment factor for any variable investment division for any
business day is determined by dividing (a) by (b) and subtracting (c) from the
result, where:
(a) is:
(1) the net asset value per share of the portfolio shares held in the
variable investment division determined at the end of the current
business day; plus
(2) the per share amount of any dividend or capital gain distributions
on the portfolio shares held in the variable investment division,
if the "ex-dividend" date occurs during the current business day;
plus or minus
(3) a charge or credit for any taxes reserved for the current business
day which we determine to have resulted from the investment
operations of the variable investment division;
(b) is:
(1) the net asset value per share of the portfolio shares held in the
variable investment division, determined at the end of the last
prior business day; plus or minus
(2) the charge or credit for any taxes reserved for the last prior
business day; and
(c) is a deduction for the current mortality and expense risk charge.
Death Benefits
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If the insured dies while the policy is in force and prior to the policy's
maturity date, we will pay the death benefit when we receive satisfactory proof
at our home office of the insured's death. (See "Requesting Payments.") The
death benefit will be paid to the beneficiary named in the policy.
Amount of Death Benefit Payable
The amount of death benefit payable will never be less than the policy's
minimum death benefit (reduced by any outstanding policy loans) so long as the
policy remains in force. You may select from a range of initial minimum death
benefits. The minimum death benefit can be an amount determined by treating the
premium paid as equal to 100% of Guideline Single Premiums (as defined for
Federal income tax purposes). At your option, the minimum death benefit can
also be an amount not greater than 133% of that amount. (See "Grace Period and
Termination.")
The death benefit payable under the policy is the greater of:
(a) the minimum death benefit; or
(b) the policy value on the date of death multiplied by the applicable
death benefit factor for the insured's attained age shown in Appendix A
to this prospectus.
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<PAGE>
The policy value will begin to vary on the policy's effective date to
reflect the investment performance of the amounts allocated under your policy
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 payable will increase above the minimum death benefit.
The minimum death benefit is shown in your 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 Federal income tax purposes. We will
send a new Policy Data page to you whenever the minimum death benefit changes
due to the payment of additional premiums under your policy.
We will compute the amount of the death benefit as of the end of the
business day during which the insured dies or, if not a business day, the first
business day thereafter. We will pay the death benefit proceeds upon receiving
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 payable, 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.")
Changing the Minimum Death Benefit
You may request an increase or a decrease in the minimum death benefit once
each policy year after the first policy year. 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 income tax purposes.
At your request (as policy owner), or to keep premiums from exceeding the
limit qualifying the policy as a contract of life insurance for Federal income
tax purposes, we will increase the minimum death benefit of your policy,
provided:
(a) the increased amount plus any other existing insurance does not, in our
opinion, exceed an appropriate maximum amount of coverage on the
insured's life;
(b) satisfactory evidence of insurability for the insured's risk class is
furnished to us; and
(c) the request is accompanied by a minimum additional premium of $5,000.
We will notify you 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.
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<PAGE>
Beneficiary
You designate the beneficiary (or beneficiaries) when you apply for the
policy. You may change the designated beneficiary (or beneficiaries) by
submitting a satisfactory written request to us. The change will take effect on
the date the request was signed, but it will not apply to payments we make
before we accept the written request. If no beneficiary is living at the
insured's death, we will pay the death benefit proceeds to you, if living, or
to your estate.
Tax Considerations
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The following discussion is general and is not intended as tax advice.
Introduction
The following summary provides a general description of the Federal income
tax considerations relating to the policy. This summary is based upon our
understanding of the present Federal income tax laws as they are currently
interpreted by the Internal Revenue Service ("IRS"). Because of the complexity
of such laws and the fact that tax results will vary according to the factual
status of the specific policy involved, tax advice from a qualified tax advisor
may be needed by a person contemplating the purchase of a policy or the
exercise of certain elections under the policy. These comments concerning
Federal income tax consequences are not an exhaustive discussion of all tax
questions that might arise under the policy. Further, these comments do not
take into account any Federal estate tax and gift, state, or local tax
considerations which may be involved in the purchase of a policy or the
exercise of certain elections under the policy. For complete information on
such Federal and state tax considerations, a qualified tax advisor should be
consulted. We do not make any guarantee regarding the tax status of any policy,
and the following summary is not intended as tax advice.
Tax Status of the Policy
In order to qualify as a life insurance contract for Federal income tax
purposes and to receive the tax treatment normally accorded life insurance
contracts under Federal tax law, a policy must satisfy certain requirements
which are set forth in the Internal Revenue Code. Guidance as to how these
requirements are to be applied is limited. Nevertheless, we believe that the
policies should satisfy the applicable requirements. If it is subsequently
determined that a policy does not satisfy the applicable requirements, we may
take appropriate steps to bring the policy into compliance with such
requirements and we reserve the right to restrict policy transactions in order
to do so.
In certain circumstances, owners of variable life insurance contracts have
been considered for Federal income tax purposes to be the owners of the assets
of the variable account supporting their contracts due to their ability to
exercise investment control over those assets. Where this is the case, the
contract owners have been currently taxed on income and gains attributable to
variable account assets. There is little guidance in this area, and some
features of the policies, such as the flexibility of a policy owner to allocate
premium payments and policy values, have not been explicitly addressed in
published rulings. While we believe that the policies do not give policy owners
investment control over Variable Account assets, we reserve the right to modify
the policies as necessary to prevent a policy owner from being treated as the
owner of the Variable Account assets supporting the policy.
In addition, the Code requires that the investments of the Variable Account
be "adequately diversified" in order for the policies to be treated as life
insurance contracts for Federal income tax purposes. It is intended that the
Variable Account, through Target/United Funds, Inc. will satisfy these
diversification requirements.
20
<PAGE>
The following discussion assumes that the policy will qualify as a life
insurance contract for Federal income tax purposes.
Tax Treatment of Policy Benefits
In General. We believe that the death benefit under a policy should be
excludable from the gross income of the beneficiary. Federal, state and local
transfer, and other tax consequences of ownership or receipt of policy proceeds
depend on the circumstances of each policy owner or beneficiary. A tax advisor
should be consulted on these consequences.
Generally, the policy owner will not be deemed to be in constructive receipt
of the policy value until there is a distribution. When distributions from a
policy occur, or when loans are taken out from or secured by a policy, the tax
consequences depend on whether the policy is classified as a "Modified
Endowment Contract."
Modified Endowment Contracts. Because of the premium level contemplated
under the policy, policies entered into after June 20, 1988 will in most
circumstances 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 a 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. Therefore, a policy owner should consult a competent tax advisor
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.
Distributions Other than Death Benefits from Policies Classified as Modified
Endowment Contracts. Policies classified as modified endowment contracts will
be subject to the following tax rules:
(1) First, all distributions, including distributions upon surrender and
benefits paid at maturity, from such a policy are treated as ordinary
income subject to tax up to the amount equal to the excess (if any) of
the policy value immediately before the distribution over the
"investment in the policy" (described below) at such time.
(2) Second, loans taken from, or secured by, such a policy (including
unpaid loan interest that is added to the principal of a loan) are
treated as distributions from such a policy and taxed accordingly.
(3) Third, a 10 percent additional tax is imposed on the portion of any
distribution from, or loan taken from or secured by, such a policy that
is included in income except where the distribution or loan:
(a) is made on or after the policy owner reaches actual age 59 1/2,
(b) is attributable to the policy owner's becoming disabled, or
(c) is part of a series of substantially equal periodic payments for
the life (or life expectancy) of the policy owner or the joint
lives (or joint life expectancies) of the policy owner and the
policy owner's beneficiary.
Distributions Other than Death Benefits from Policies that Are Not Modified
Endowment Contracts. Distributions other than death benefits from a policy that
is not classified as a modified endowment contract are generally treated first
as a recovery of the policy owner's investment in the policy and only after
21
<PAGE>
the recovery of all investment in the policy as taxable income. However,
certain distributions which must be made in order to enable the policy to
continue to qualify as a life insurance contract for Federal income tax
purposes if policy benefits are reduced during the first 15 policy years may be
treated in whole or in part as ordinary income subject to tax.
Loans from or secured by a policy that is not a modified endowment contract
are generally not treated as distributions. However, the tax consequences
associated with policy loans that are outstanding after the first 15 policy
years are less clear and a tax advisor should be consulted about such loans.
Finally, neither distributions from nor loans from or secured by a policy
that is not a modified endowment contract are subject to the 10 percent
additional income tax.
Policy Loan Interest. Interest paid on a policy loan generally is not tax-
deductible. The policy owner should consult a competent tax advisor if the
deductibility of interest paid on a policy loan is an important issue.
Investment in the Policy. "Investment in the policy" means:
(a) the aggregate amount of any premiums or other consideration paid for a
policy; minus
(b) the aggregate amount received under the policy which is excluded from
the gross income of the policy owner (except that the amount of any
loan from, or secured by, a policy that is a modified endowment
contract, to the extent such amount is excluded from gross income, will
be disregarded); plus
(c) the amount of any loan from, or secured by, a policy that is a modified
endowment contract to the extent that such amount is included in the
gross income of the policy owner.
Multiple Policies. All modified endowment contracts that are issued by us
(or our affiliates) to the same policy owner during any calendar year are
treated as one modified endowment contract for purposes of determining the
amount includable in gross income.
Other Policy Owner Tax Matters. The tax consequences of continuing the
policy beyond the insured's 100th year are unclear. You should consult a tax
advisor if you intend to keep the policy in force beyond the insured's 100th
year.
Businesses can use the policies in various arrangements, including
nonqualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, tax exempt and nonexempt welfare
benefit plans, retiree medical benefit plans and others. The tax consequences
of such plans may vary depending on the particular facts and circumstances. If
you are purchasing the policy for any arrangement the value of which depends in
part on its tax consequences, you should consult a qualified tax advisor. In
recent years, moreover, Congress has adopted new rules relating to life
insurance owned by businesses. Any business contemplating the purchase of a new
policy or a change in an existing policy should consult a tax advisor.
Possible Tax Law Changes. Although the likelihood of legislative changes is
uncertain, there is always the possibility that the tax treatment of the policy
could change by legislation or otherwise. Consult a tax advisor with respect to
legislative developments and their effect on the policy.
Taxation of United Investors
We incur state and local premium taxes. The amount of the charge we deduct
for such taxes is discussed above under "Charges and Deductions." At the
present time, we make no charge to the Variable Account for any Federal, state
or local taxes (other than state and local premium taxes) that it incurs which
may be
22
<PAGE>
attributable to the Variable Account or to the policies. Nevertheless, we
reserve the right in the future to make a charge for any such tax or other
economic burden resulting from the application of the tax laws that we
determine to be properly attributable to the Variable Account or to the
policies.
Employment-Related Benefit Plans
On July 6, 1983, the Supreme Court held in Arizona Governing Committee v.
Norris that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women on the basis of sex. The policies described in this
prospectus contain guaranteed purchase rates for certain payment options that
generally distinguish between men and women. Accordingly, employers and
employee organizations should consider, in consultation with their legal
counsel, the impact of Norris, and Title VII generally, on any employment-
related insurance or benefit program for which a policy may be purchased.
Other Information
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United Investors Life Insurance Company
We were incorporated in the State of Missouri on August 17, 1981, as the
successor to a company of the same name established in Missouri on September
27, 1961. We are a stock life insurance company, indirectly owned by Torchmark
Corporation. Our principal business is selling life insurance and annuity
contracts. We are admitted to do business in the District of Columbia and all
states except New York.
Preparing for Year 2000. The new millennium poses a significant concern to
all businesses which use computer systems or electronic data in their
operations. This concern arises because these organizations have existing
computer systems and programs that cannot always identify a proper date. For
many years, programs were written using a two digit code to represent a year.
At the beginning of the year 2000, more digits are needed to accurately
determine the date in these programs. Without addressing this issue, many
computer programs could fail or produce erroneous results. Additionally,
companies which communicate electronically with other businesses or which rely
on other businesses for services are exposed to risk of failure by the
electronic devices and computer systems of those other entities to the extent
they are not Year 2000 compliant. The potential failure of these systems
creates considerable uncertainty and could potentially adversely affect the
ongoing operations and stability of a business.
We are exposed to these risks should our computer systems fail due to date-
related problems. We also rely on a number of third party businesses and
governmental agencies that we either communicate electronically with or depend
on for services in conducting our business. These institutions include but are
not limited to banks, financial institutions, telecommunication companies,
utilities, mail delivery organizations, and a variety of governmental agencies.
If our computer systems or the systems of our third-party business partners are
not compliant, we may be exposed to considerable risks, including business
interruption, loss of revenue, increased expense, loss of policyholders, and
litigation.
To reduce our business risk to an acceptable level, we have established a
project plan to insure that our business-critical computer systems will be Year
2000 compliant. This plan also addresses third-party compliance issues. Under
the direction of executive management, objectives and timetables have been set
forth to achieve compliance. Progress toward achieving those objectives is
constantly monitored. We expect the entire project, including all Year 2000
testing activities, to be completed during 1999.
We remain on schedule to meet all of our Year 2000 compliance requirements.
All known required software changes were completed in 1998, and the related
testing is in process with plans for completion in 1999. With regard to third
party concerns, we are:
1. confirming with our software vendors the Year 2000 readiness of
purchased software packages;
23
<PAGE>
2. verifying the Year 2000 compliance status of our financial business
partners' computer and data communications systems to insure readiness,
including data interface testing with third parties; and
3. evaluating all of our electronic operational systems (telephones,
security, utility, environmental) for Year 2000 compliance.
While we are making every effort to verify the compliance of third parties, no
assurances as to the compliance of their computer systems can be given.
We have primarily used our internal staff to complete our Year 2000 project.
Other than completion of software testing, all significant Year 2000 project
milestones for internal computer systems have been completed. Confirmation of
third party compliance and electronic data interface testing with third parties
is continuing with completion expected during 1999. We have spent $130,000 on
our Year 2000 project activities to date, including internal programming costs,
outside contractors, and replacement costs. These costs have been expensed as
incurred. Total project cost is expected to be approximately $150,000.
Year 2000 contingency plans are being developed for critical risk areas.
Management is establishing and documenting contingency plans for most critical
systems and interfaces with business partners within each individual's
responsibility. Such contingency plans include possible manual operation
efforts, staff adjustments, outside services, and alternative procedures. These
contingency plans will be maintained well into 2000.
Published Ratings. We may publish (in advertisements, sales literature, and
reports to policy owners) the ratings and other information assigned to us by
one or more independent insurance industry analysts or rating organizations
such as A. M. Best Company, Standard & Poor's Corporation, and Weiss Research,
Inc. These ratings reflect the organization's current opinion of an insurance
company's financial strength and operating performance in comparison to the
norms for the insurance industry; they do not reflect the strength,
performance, risk, or safety (or lack thereof) of the variable investment
divisions. The claims-paying ability rating as measured by Standard & Poor's is
an opinion of an operating insurance company's financial capacity to meet its
obligations under its outstanding insurance and annuity policies.
Sale of the Policies
Waddell & Reed, Inc. of 6300 Lamar, Overland Park, Kansas, is the principal
underwriter of the policies. Waddell & Reed, Inc. is a corporation organized
under the laws of the state of Delaware in 1981, is registered as a broker-
dealer under the Securities Exchange Act of 1934, and is a member of the
National Association of Securities Dealers, Inc. (the "NASD"). The Policies may
not be available in all states. Waddell & Reed, Inc. may enter into written
sales agreements with various broker-dealers to aid in the sale of the
policies. A commission plus bonus compensation may be paid to broker-dealers or
agents in connection with sales of the policies.
Changing the Variable Account
We have the right to make changes to, and to modify how we operate, the
Variable Account. Specifically, we have the right to:
(a) add investment divisions to, or remove investment divisions from, the
Variable Account;
(b) combine the Variable Account with other separate accounts;
(c) replace the shares of a portfolio by substituting shares of another
portfolio of Target/United Funds, Inc. or another investment company
(1) if shares of the portfolio are no longer available for investment,
or
(2) if, in our judgment, continued investment in the portfolio is
inappropriate in view of the purposes of the Variable Account;
24
<PAGE>
(d) end the registration of the Variable Account under the 1940 Act;
(e) disregard instructions from policy owners (only if required by state
insurance regulatory authorities or otherwise pursuant to insurance law
or regulation) regarding a change in the investment objectives of a
portfolio or the approval or disapproval of an investment advisory
agreement; and
(f) operate the Variable Account or one or more of its investment divisions
in any other form allowed by law, including a form that permits direct
investments in individual securities (rather than solely investments in
a mutual fund shares).
Voting of Portfolio Shares
We are the legal owner of portfolio shares held in the investment divisions
of the Variable Account and therefore have the right to vote on all matters
submitted to shareholders of the portfolios. However, to the extent required by
law, we will vote shares held in the variable investment divisions at meetings
of the shareholders of the portfolios in accordance with instructions received
from policy owners. Target/United Funds, Inc. does not hold regular annual
shareholder meetings. To obtain voting instructions from policy owners before a
meeting of shareholders of a particular portfolio, we may send voting
instruction material, a voting instruction form and any other related material
to policy owners with policy value in the variable investment division
corresponding to that portfolio. We will vote shares held in a variable
investment division for which no timely instructions are received in the same
proportion as those shares for which voting instructions are received. If the
applicable Federal securities laws, regulations or interpretations thereof
change to permit us to vote shares of the portfolios in our own right, then we
may elect to do so. We may, if required by state insurance officials, disregard
policy owners' voting instructions if such instructions would require us to
vote the shares so as to cause a change in sub-classification or investment
objectives of one or more of the portfolios, or to approve or disapprove an
investment advisory agreement. In addition, we may under certain circumstances
disregard voting instructions that would require changes in the investment
policy or investment adviser of a portfolio, provided that we reasonably
disapprove of such changes in accordance with applicable Federal regulations.
If we ever disregard voting instructions, policy owners will be advised of that
action and of our reasons for doing so in our next report to policy owners.
Addition, Deletion, or Substitution of Investments
We reserve the right, subject to compliance with applicable law, to make
additions to, deletions from, or substitutions for the shares of Target/United
Funds, Inc. that are held by the Variable Account (or any of its investment
divisions) or that the Variable Account (or any of its investment divisions)
may purchase. We reserve the right to eliminate the shares of any of the
portfolios of Target/United Funds, Inc. and to substitute shares of another
portfolio of Target/United Funds, Inc. or any other investment vehicle or of
another open-end, registered investment company if:
(a) laws or regulations are changed;
(b) the shares of Target/United Funds, Inc. or one of its portfolios are no
longer available for investment, or;
(c) in our judgment, further investment in any portfolio becomes
inappropriate in view of the purposes of the Investment Division.
We will not substitute any shares attributable to your interest in an
investment division of the Variable Account without notice and prior approval
of the U.S. Securities and Exchange Commission and the insurance regulator of
the state where the policy was delivered, if required. Nevertheless, the
representations in this prospectus will not prevent the Variable Account from
purchasing other securities for other series or classes of policies, or from
permitting a conversion between series or classes of policies on the basis of
requests made by policy owners.
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<PAGE>
We also reserve the right to establish additional investment divisions of
the Variable Account, each of which would invest in a new portfolio of
Target/United Funds, Inc., or in shares of another investment company or
suitable investment, with a specified investment objective. We may establish
new variable investment divisions when, in our sole discretion, marketing needs
or investment conditions warrant. We may make available any new variable
investment divisions to existing policy owners, and will do so on a basis that
we will determine. We may also eliminate one or more variable investment
divisions if, in our sole discretion, marketing, tax, or investment conditions
warrant.
In the event of any such substitution or change, we may, by appropriate
endorsement, make such changes in this and other policies as may be necessary
or appropriate to reflect such substitution or change. If we deem it to be in
the best interests of persons having voting rights under the policies, the
Variable Account may be:
(a) operated as a management company under the Investment Company Act of
1940;
(b) deregistered under that Act in the event such registration is no longer
required; or
(c) combined with other United Investors separate accounts.
Other Information
A registration statement under the Securities Act of 1933 has been filed
with the SEC relating to the offering described in this prospectus. This
prospectus does not include all the information set forth in the registration
statement. That information may be obtained at the SEC's principal office in
Washington, D.C. by paying the SEC's prescribed fees.
Litigation
No legal or administrative proceeding is pending that would have a material
effect upon the Variable Account.
Legal Matters
Legal advice regarding certain matters relating to Federal securities laws
applicable to the issuance of the policy described in this prospectus has been
provided by Sutherland Asbill & Brennan LLP of Washington, D.C.
Experts
The balance sheets of United Investors Life Insurance Company as of December
31, 1998 and 1997, and the related statements of operations, comprehensive
income, shareholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1998 and the balance sheet of United
Investors Life Variable Account as of December 31, 1998 and the related
statement of operations and changes in net assets for each of the years in the
three-year period ended December 31, 1998 have been included herein in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
Actuarial matters included in this prospectus have been examined by W.
Thomas Aycock, Vice President and Chief Actuary of United Investors, whose
opinion is filed as an exhibit to the registration statement.
Financial Statements
Our financial statements which are included in Appendix E to this prospectus
should be considered only as bearing on our ability to meet our obligations
under the policies. They should not be considered as bearing on the investment
performance of the assets held in the Variable Account.
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<PAGE>
Appendix A:
Death Benefit Factors
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The death benefit factor is a multiple that ranges between two and one-half
times and one times the policy value. It is 2.50 up to the insured's age 40 and
declines thereafter as the insured's age increases, as specified in the
following table.
<TABLE>
<CAPTION>
Attained Attained Attained
Age Factor Age Factor Age Factor
--------------------------------------------
<S> <C> <C> <C> <C> <C>
0-40 2.50 54 1.57 68 1.17
--------------------------------------------
41 2.43 55 1.50 69 1.16
--------------------------------------------
42 2.36 56 1.46 70 1.15
--------------------------------------------
43 2.29 57 1.42 71 1.13
--------------------------------------------
44 2.22 58 1.38 72 1.11
--------------------------------------------
45 2.15 59 1.34 73 1.09
--------------------------------------------
46 2.09 60 1.30 74 1.07
--------------------------------------------
47 2.03 61 1.28 75-90 1.05
--------------------------------------------
48 1.97 62 1.26 91 1.04
--------------------------------------------
49 1.91 63 1.24 92 1.03
--------------------------------------------
50 1.85 64 1.22 93 1.02
--------------------------------------------
51 1.78 65 1.20 94 1.01
--------------------------------------------
52 1.71 66 1.19 95 + 1.00
--------------------------------------------
53 1.64 67 1.18
</TABLE>
The death benefit factors are based on current requirements under the
Internal Revenue Code. We reserve the right to change the table if the death
benefit factors currently in effect become inconsistent with any Federal income
tax laws and/or regulations.
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<PAGE>
Appendix B:
Hypothetical Illustrations
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The following tables illustrate how the policy values and death benefits of
a Policy may change with the investment experience of the portfolios of
Target/United Funds, Inc. 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 Target/United Funds, Inc. were a uniform, gross,
annual rate of 0%, 4%, 8% or 12%. The table on page 30 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 31 and 32 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 31 is based on the current cost of insurance and
administrative charges. This reflects the basis on which we currently sell the
policy. 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 30 and 32 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 policy owner maintains policy values in equal
proportion among the Asset Strategy, Balanced, Bond, Growth, High Income,
Income, International, Limited-Term Bond, Money Market, Science and Technology,
and Small Cap portfolios of Target/United Funds, Inc. These values take into
account:
(a) a daily average of the investment management fee and other annual
expenses incurred by those eleven portfolios in 1998 (which is
equivalent to the annual rate of 0.75% of the aggregate average daily
net assets of those portfolios);
(b) the daily charge we deduct from each variable investment division for
assuming mortality and expense risks (which is equivalent to an annual
rate of 0.60%);
(c) the annual deduction on each of the first ten policy anniversaries for
(1) state and local premium taxes,
(2) underwriting and issue expenses, and
(3) sales expenses,
which are together an annual rate of 1.20% of the initial premium;
(d) the annual deduction for cost of insurance; and
(e) the $50 annual deduction for administrative expenses.
The values shown also take into account the service fee (at an annual rate of
0.25%) under the Service Plan adopted August 31, 1998 by Target/United Funds,
Inc. pursuant to Rule 12b-1 under the Investment Company Act of 1940.
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<PAGE>
Taking into account the mortality and expense risk charge of 0.60% and the
charges deducted by Target/United Funds, Inc. for investment management fees,
expenses and "12b-1" service fees, the illustrated gross annual investment
rates of return of 0%, 4%, 8% and 12%, correspond to approximate net annual
rates of - 1.60%, 2.40%, 6.40% and 10.40%, respectively.
The hypothetical values shown in the tables do not reflect charges for any
Federal income tax burden attributable to the Variable Account, since we are
not currently deducting any such charges from the Variable Account. However, we
may deduct such charges 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 "Tax Considerations.")
The tables illustrate the values that would result based upon the
hypothetical investment rates of return if only a single premium is paid and if
no policy loans have been made.
Illustrated values would be different if the proposed insured were another
age or risk class.
Upon request, we will provide a comparable illustration based upon the
individual circumstances of a particular proposed insured and the initial death
benefit requested under a policy.
29
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
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FEMALE ISSUE AGE 35 STANDARD RISK CLASS
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$10,000 SINGLE PREMIUM PAYMENT $62,365 MINIMUM DEATH BENEFIT
- --------------------------------------------------------------------------------
MAXIMUM COST OF INSURANCE AND ADMINISTRATIVE CHARGES(/1/)
<TABLE>
<CAPTION>
Assuming Hypothetical Gross
Premium Annual Rate of Return of:
End of Payments plus --------------------------------
Policy Year Interest at 5% 0% 4% 8% 12%
per Year
Death Benefits(/2/)
- --------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1............. $62,365 $62,365 $62,365 $ 62,365
2............. 62,365 62,365 62,365 62,365
3............. 62,365 62,365 62,365 62,365
4............. 62,365 62,365 62,365 62,365
5............. 62,365 62,365 62,365 62,365
10............ 62,365 62,365 62,365 62,365
20............ 62,365 62,365 62,365 89,927
30............ (/3/) 62,365 62,365 180,974
Age 65........ (/3/) 62,365 62,365 180,974
- --------------------------------------------------------------
<CAPTION>
Policy Values(/2/)
- --------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1............. $10,500 $ 9,840 $10,240 $10,640 $ 11,040
2............. 11,025 9,430 10,224 11,049 11,907
3............. 11,576 9,020 10,201 11,479 12,860
4............. 12,155 8,609 10,171 11,931 13,906
5............. 12,763 8,196 10,132 12,404 15,055
10............ 16,289 6,054 9,752 15,112 22,747
20............ 26,533 2,124 8,907 24,416 57,279
30............ 43,219 (/3/) 5,193 40,815 148,340
Age 65........ 43,219 (/3/) 5,193 40,815 148,340
- --------------------------------------------------------------
<CAPTION>
Surrender Values(/2/)
- --------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1............. $ 9,040 $ 9,440 $ 9,840 $ 10,240
2............. 8,730 9,524 10,349 11,207
3............. 8,420 9,601 10,879 12,260
4............. 8,109 9,671 11,431 13,406
5............. 7,796 9,732 12,004 14,655
10............ 6,054 9,752 15,112 22,747
20............ 2,124 8,907 24,416 57,279
30............ (/3/) 5,193 40,815 148,340
Age 65........ (/3/) 5,193 40,815 148,340
</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 have
terminated.
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 particular allocations made by a policy owner to the variable investment
divisions and different rates of return of the Target/United Funds, Inc.
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 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.
30
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
- --------------------------------------------------------------------------------
MALE ISSUE AGE 55 PREFERRED RISK CLASS
- --------------------------------------------------------------------------------
$50,000 SINGLE PREMIUM PAYMENT $126,599 MINIMUM DEATH BENEFIT
- --------------------------------------------------------------------------------
CURRENT COST OF INSURANCE AND ADMINISTRATIVE CHARGES
<TABLE>
<CAPTION>
Assuming Hypothetical Gross Annual
Premium Rate of Return of:
End of Payments plus -----------------------------------
Policy Year Interest at 5% 0% 4% 8% 12%
per Year
Death Benefits(/1/)
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1............ $126,599 $126,599 $126,599 $126,599
2............ 126,599 126,599 126,599 126,599
3............ 126,599 126,599 126,599 126,599
4............ 126,599 126,599 126,599 126,599
5............ 126,599 126,599 126,599 126,599
10............ 126,599 126,599 126,599 144,064
20............ 126,599 126,599 144,651 326,384
30............ (/2/) (/2/) 256,027 837,027
Age 65........ 126,599 126,599 126,599 144,064
- -----------------------------------------------------------------
<CAPTION>
Policy Values(/1/)
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1............ $ 52,500 $ 49,200 $ 51,200 $ 53,200 $ 55,200
2............ 55,125 47,295 51,278 55,423 59,728
3............ 57,881 45,362 51,313 57,757 64,714
4............ 60,775 43,398 51,301 60,213 70,215
5............ 63,814 41,396 51,238 62,800 76,293
10............ 81,445 30,525 49,887 78,027 118,085
20............ 132,665 3,217 42,800 135,187 305,032
30............ 216,097 (/2/) (/2/) 243,835 797,169
Age 65........ 81,445 30,525 49,887 78,027 118,085
- -----------------------------------------------------------------
<CAPTION>
Surrender Values(/1/)
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1............ $ 45,200 $ 47,200 $ 49,200 $ 51,200
2............ 43,795 47,778 51,923 56,228
3............ 42,362 48,313 54,757 61,714
4............ 40,898 48,801 57,713 67,715
5............ 39,396 49,238 60,800 74,293
10............ 30,525 49,887 78,027 118,085
20............ 3,217 42,800 135,187 305,032
30............ (/2/) (/2/) 243,835 792,169
Age 65........ 30,525 49,887 78,027 118,085
</TABLE>
(/1/) Assumes no policy loans have been made.
(/2/) In the absence of an additional premium payment, the policy would have
terminated.
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 particular allocations made by a policy owner to the variable investment
divisions and different rates of return of the Target/United Funds, Inc.
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 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.
31
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
- --------------------------------------------------------------------------------
MALE ISSUE AGE 55 PREFERRED RISK CLASS
- --------------------------------------------------------------------------------
$50,000 SINGLE PREMIUM PAYMENT
$126,599 MINIMUM DEATH BENEFIT
- --------------------------------------------------------------------------------
MAXIMUM COST OF INSURANCE AND ADMINISTRATIVE CHARGES
<TABLE>
<CAPTION>
Assuming Hypothetical Gross Annual
Premium Rate of Return of:
End of Payments plus -----------------------------------
Policy Year Interest at 5% 0% 4% 8% 12%
per Year
Death Benefits(/1/)
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1............. $126,599 $126,599 $126,599 $126,599
2............. 126,599 126,599 126,599 126,599
3............. 126,599 126,599 126,599 126,599
4............. 126,599 126,599 126,599 126,599
5............. 126,599 126,599 126,599 126,599
10............ 126,599 126,599 126,599 138,467
20............ (/2/) 126,599 126,599 306,869
30............ (/2/) (/2/) 216,403 772,515
Age 65........ 126,599 126,599 126,599 138,467
- -----------------------------------------------------------------
<CAPTION>
Policy Values(/1/)
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1............. $ 52,500 $ 49,200 $ 51,200 $ 53,200 $ 55,200
2............. 55,125 46,976 50,955 55,096 59,398
3............. 57,881 44,687 50,624 57,058 64,007
4............. 60,775 42,325 50,202 59,094 69,084
5............. 63,814 39,882 49,678 61,208 74,688
10............ 81,445 25,849 44,989 73,104 113,498
20............ 132,665 (/2/) 18,902 116,563 286,794
30............ 216,097 (/2/) (/2/) 206,098 735,729
Age 65........ 81,445 25,849 44,989 73,104 113,498
- -----------------------------------------------------------------
<CAPTION>
Surrender Values(/1/)
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1............. $ 45,200 $ 47,200 $ 49,200 $ 51,200
2............. 43,476 47,455 51,596 55,898
3............. 41,687 47,624 54,058 61,007
4............. 39,825 47,702 56,594 66,584
5............. 37,882 47,678 59,208 72,688
10............ 25,849 44,989 73,104 113,498
20............ (/2/) 18,902 116,563 286,794
30............ (/2/) (/2/) 206,098 735,729
Age 65........ 25,849 44,989 73,104 113,498
</TABLE>
(/1/) Assumes no policy loans have been made.
(/2/) In the absence of an additional premium payment, the policy would have
terminated.
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 particular allocations made by a policy owner to the variable investment
divisions and different rates of return of the Target/United Funds, Inc.
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 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.
32
<PAGE>
Appendix C:
Directors and Officers of United Investors
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
We are managed by a board of directors. The following table sets forth the
name and principal occupations during the past five years of each of our
directors and senior officers. Unless otherwise noted, the address for each
person is United Investors Life Insurance Company, 2001 Third Avenue South,
Birmingham, Alabama 35233.
<TABLE>
<CAPTION>
Name and Position with Principal Occupation
United Investors During the Past Five Years
- ----------------------------------------------------------------------------------------
<S> <C>
W. Thomas Aycock Vice President and Chief Actuary of United Investors since
Director, Vice President November 1992.
and Chief Actuary
- ----------------------------------------------------------------------------------------
Tony G. Brill* Executive Vice President-Administration of United Investors
Director and Executive since September 1998. Senior Vice President of United
Vice President- Investors, March 1998-September 1998. Senior Vice President
Administration of Torchmark Corporation since January 1997. Managing
Partner of KPMG Peat Marwick LLP, Birmingham, Alabama
Office, 1984-January 1997.
- ----------------------------------------------------------------------------------------
Terry W. Davis Vice President-Administration of Liberty National Life
Director and Vice Insurance Company and United Investors since December 1996.
President-- Second Vice President-Administration of Liberty National
Administration Life Insurance Company since March 1988.
- ----------------------------------------------------------------------------------------
C.B. Hudson* Chairman of United Investors and Torchmark Corporation since
Chairman of the Board of March 1998. Chairman of Insurance Operations of Torchmark
Directors and Chief Corporation, January 1993-March 1998. Chairman of Liberty
Executive Officer National Life Insurance Company, United American Insurance
Company, and Globe Life Insurance Company since 1991.
- ----------------------------------------------------------------------------------------
Larry M. Hutchison* Vice President and General Counsel of Torchmark since
Director February 1997. Vice President and General Counsel of United
American Insurance Company since 1992.
- ----------------------------------------------------------------------------------------
Michael J. Klyce Vice President of Torchmark Corporation since January 1984.
Vice President and
Treasurer
- ----------------------------------------------------------------------------------------
John H. Livingston Secretary and Counsel of United Investors since May 1995.
Director, Secretary and Secretary and Associate Counsel of United Investors,
Counsel December 1994-May 1995. Associate Counsel of United
Investors, July 1990-December 1994.
- ----------------------------------------------------------------------------------------
James L. Mayton, Jr. Vice President & Controller of Liberty National Life
Vice President and Insurance Company since January 1985.
Controller
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Name and Position with Principal Occupation
United Investors During the Past Five Years
- ----------------------------------------------------------------------------------------
<S> <C>
Mark S. McAndrew* Senior Vice President-Marketing of United Investors since
Senior Vice President- March 1998. Director of Torchmark Corporation since April
Marketing 1998. President of United American Insurance Company and
Globe Life and Accident Insurance Company since 1991.
- ----------------------------------------------------------------------------------------
Carol A. McCoy Secretary of Torchmark Corporation since February 1994.
Director and Assistant Associate Counsel of Torchmark Corporation since January
Secretary 1985.
- ----------------------------------------------------------------------------------------
Anthony L. McWhorter President of United Investors since September 1998.
Director and President President of Liberty National Life Insurance Company since
December 1994. Executive Vice President and Chief Actuary of
Liberty National, November 1993- December 1994. Senior Vice
President & Chief Actuary of Liberty National, September
1991-November 1993.
- ----------------------------------------------------------------------------------------
Ross W. Stagner Vice President of United Investors since January 1992.
Director and Vice
President
</TABLE>
* Principal business address: Torchmark Corporation, 3700 South Stonebridge,
McKinney, Texas 75070.
34
<PAGE>
Appendix D:
Glossary
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Attained Age The age of the insured on his or her birthday nearest the beginning
of each policy year.
- ----------------------------------------------------------------------------------------------
Beneficiary The person or persons to whom the policy's death benefit is payable
when the insured dies, as named in the application unless
subsequently changed.
- ----------------------------------------------------------------------------------------------
Business Day Monday through Friday, excluding customary U.S. business holidays
on which the New York Stock Exchange is not open for trading. Those
holidays currently are: New Year's Day; Martin Luther King, Jr.
Day; Presidents' Day; Good Friday; Memorial Day; Independence Day;
Labor Day; Thanksgiving Day; and Christmas Day.
- ----------------------------------------------------------------------------------------------
Cash Surrender Value Policy value less any applicable surrender charges.
- ----------------------------------------------------------------------------------------------
Death Benefit The amount of insurance payable under the policy when the insured
dies.
- ----------------------------------------------------------------------------------------------
Grace Period Premium That portion of the payment described in the grace period provision
of the policy which represents accrued and unpaid annual
deductions.
- ----------------------------------------------------------------------------------------------
Insured The person whose life is insured by the policy.
- ----------------------------------------------------------------------------------------------
Issue Age The age of the insured on his or her birthday nearest the policy's
effective date.
- ----------------------------------------------------------------------------------------------
Loan Balance The sum of all outstanding loans on the policy, plus any accrued
loan interest.
- ----------------------------------------------------------------------------------------------
Maturity Date The date when the proceeds of the policy are payable if the insured
is still living.
- ----------------------------------------------------------------------------------------------
Minimum Death Benefit The least amount of death benefit payable while the policy remains
in force. It is determined by the insured's age at death, sex, risk
class, and the amount of initial and any additional premiums paid.
- ----------------------------------------------------------------------------------------------
Net Investment Factor The index used to measure the investment performance of a variable
investment division from one business day to the next.
- ----------------------------------------------------------------------------------------------
Net Premium The premium paid less any deduction for sales expenses or premium
taxes.
- ----------------------------------------------------------------------------------------------
Payee The beneficiary, or any other person, estate or legal entity to
whom benefits are to be paid under the policy.
- ----------------------------------------------------------------------------------------------
Policy Anniversary The same day and month as the policy's effective date each year
that the policy remains in force. If the policy anniversary falls
on a date other than a business day, the next following business
day will be deemed the policy anniversary.
- ----------------------------------------------------------------------------------------------
Policy's Effective Date The date from which policy anniversaries and policy years are
determined. Your policy's effective date is shown in your policy.
- ----------------------------------------------------------------------------------------------
Policy Value The sum of the variable account value and any loan balance.
- ----------------------------------------------------------------------------------------------
Policy Year A year that begins on the policy's effective date or on a policy
anniversary.
- ----------------------------------------------------------------------------------------------
Proceeds The amount payable under a policy (i) when the insured dies, (ii)
on the policy's maturity date, or (iii) when the policy is
surrendered.
- ----------------------------------------------------------------------------------------------
Surrender Value Proceeds of the policy if it is surrendered prior to the maturity
date. It is the policy value, less any loan balance and any
applicable surrender charge.
</TABLE>
35
<PAGE>
<TABLE>
<S> <C>
Terminate Discontinuation of all the policy's insurance coverage because the
policy is no longer in force.
- --------------------------------------------------------------------------------------------
Variable Account United Investors Life Variable Account, a separate account of
United Investors Life Insurance Company.
- --------------------------------------------------------------------------------------------
Variable Account Value The sum of the values of the variable investment divisions under a
policy.
- --------------------------------------------------------------------------------------------
Variable Investment One of the eleven investment divisions of the Variable Account.
Division
- --------------------------------------------------------------------------------------------
We, Us, Our, or United United Investors Life Insurance Company.
Investors
- --------------------------------------------------------------------------------------------
Written Request A request signed in writing by the policy owner.
- --------------------------------------------------------------------------------------------
You or Your The policy owner.
</TABLE>
36
<PAGE>
Appendix E:
Financial Statements
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
The Board of Directors
United Investors Life Insurance Company
Birmingham, Alabama
We have audited the accompanying balance sheets of United Investors Life
Insurance Company as of December 31, 1998 and 1997 and the related statements
of operations, comprehensive income, shareholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of United Investors Life
Insurance Company at December 31, 1998 and 1997 and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Birmingham, Alabama
January 29, 1999
F-1
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
BALANCE SHEETS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
At December 31,
---------------------
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities-available for sale, at fair value
(cost: 1998--$612,586; 1997--$612,600)................. $ 643,151 $ 635,643
Preferred stock of affiliate (cost: 1998--$188,212:
1997--$0).............................................. 188,212 0
Policy Loans............................................ 18,009 15,817
Other long term investments............................. 0 22,488
Short term investments.................................. 12,680 13,423
---------- ----------
Total investments.................................... 862,052 687,371
Cash..................................................... 11,426 5,288
Accrued investment income (includes amounts from
affiliates: 1998--$582; 1997--$473)..................... 11,747 11,270
Receivables.............................................. 3,113 2,826
Due from affiliate (includes funds withheld on
reinsurance: 1998--$229,194; 1997--$190,235)............ 278,458 225,235
Deferred acquisition cost................................ 183,033 176,897
Value of business purchased.............................. 30,600 33,754
Goodwill................................................. 29,465 6,771
Property and equipment................................... 96 141
Other assets............................................. 1,786 1,149
Separate account assets.................................. 2,425,262 1,876,439
---------- ----------
Total assets......................................... $3,837,038 $3,027,141
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Future policy benefits (includes reserves assumed from
affiliates: 1998--$241,357; 1997--$210,276)............ $ 776,461 $ 736,975
Unearned and advance premiums........................... 2,822 2,975
Other policy benefits................................... 6,973 8,713
---------- ----------
Total policy liabilities............................. 786,256 748,663
Accrued income taxes.................................... 55,498 58,270
Other liabilities....................................... 2,174 2,825
Due to affiliates....................................... 8,268 9,374
Separate account liabilities............................ 2,425,262 1,876,439
---------- ----------
Total liabilities.................................... 3,277,458 2,695,571
Shareholders' equity:
Common stock, par value $6 per share authorized, issued
and outstanding: 500,000 shares........................ 3,000 3,000
Additional paid in capital.............................. 350,388 138,469
Unrealized investment gains, net of applicable taxes.... 15,654 14,700
Retained earnings....................................... 190,538 175,401
---------- ----------
Total shareholder's equity........................... 559,580 331,570
---------- ----------
Total liabilities and shareholder's equity........... $3,837,038 $3,027,141
========== ==========
</TABLE>
See accompanying Notes to Financial Statements.
F-2
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Premium income.................................... $ 69,987 $ 68,723 $ 65,114
Policy charges and fees........................... 45,113 36,582 29,403
Net investment income (includes amounts from af-
filiates 1998--$13,082;
1997--$2,863; 1996--$2,847)...................... 61,373 51,514 51,128
Realized investment gains (losses)................ 9,401 (5,365) 925
Other income from affiliates...................... 13,665 11,876 0
-------- -------- --------
Total revenue................................... 199,539 163,330 146,570
Benefits and expenses:
Policy benefits:
Individual life.................................. 63,689 57,954 47,355
Annuity.......................................... 13,633 15,165 15,807
-------- -------- --------
Total policy benefits........................... 77,322 73,119 63,162
Amortization of deferred acquisition costs........ 27,874 24,898 19,850
Commissions and premium taxes (includes amounts to
affiliates:
1998--$1,013; 1997--$4,928; 1996--$4,723)........ 5,580 6,251 5,248
Other operating expenses (includes amounts to af-
filiates: 1998--$3,252;
1997--$3,217; 1996--$2,181)...................... 6,579 5,470 3,966
-------- -------- --------
Total benefits and expenses..................... 117,355 109,738 92,226
Net operating income before income taxes........... 82,184 53,592 54,344
Income taxes....................................... 25,567 18,843 19,078
-------- -------- --------
Net income...................................... $ 56,617 $ 34,749 $ 35,266
======== ======== ========
</TABLE>
See accompanying Notes to Financial Statements.
F-3
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF COMPREHENSIVE INCOME
(Dollar amounts in thousands)
<TABLE>
<S> <C> <C> <C>
<CAPTION>
Year Ended December 31,
--------------------------
1998 1997 1996
------- ------- --------
<S> <C> <C> <C>
Net income......................................... $56,617 $34,749 $ 35,266
Other comprehensive income (loss):
Unrealized investment gains (losses):
Unrealized investment gains (losses) on
securities:
Unrealized holding gains arising during period.. 7,021 13,362 (21,413)
Less: reclassification adjustment for (gains)
losses
on securities included in net income .......... (1) 5,235 (924)
Less: reclassification adjustment for
amortization of
(discount) and premium......................... 502 744 570
------- ------- --------
7,522 19,341 (21,767)
Unrealized gains (losses) on other investments.. (6,330) 1,798 861
Unrealized gains (losses) on deferred
acquisition costs............................. 276 (5,387) 8,857
------- ------- --------
Total unrealized gains (losses) ................ 1,468 15,752 (12,049)
Applicable tax.................................. (514) (5,512) 4,217
------- ------- --------
Other comprehensive income (loss).................. 954 10,240 (7,832)
Comprehensive income............................ $57,571 $44,989 $ 27,434
======= ======= ========
</TABLE>
See accompanying Notes to Financial Statements.
F-4
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Additional Unrealized Total
Common Paid-in Gains Retained Shareholders'
Stock Capital (Losses) Earnings Equity
------ ---------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Year Ended at December
31, 1996
Balance at January 1,
1996.................... $3,000 $137,950 $12,292 $159,886 $313,128
Comprehensive income..... (7,832) 35,266 27,434
Dividends................ (28,500) (28,500)
------ -------- ------- -------- --------
Balance at December 31,
1996................... 3,000 137,950 4,460 166,652 312,062
Year Ended at December
31, 1997
Comprehensive income..... 10,240 34,749 44,989
Dividends................ (26,000) (26,000)
Exercise of stock op-
tions................... 519 519
------ -------- ------- -------- --------
Balance at December 31,
1997................... 3,000 138,469 14,700 175,401 331,570
Year Ended at December
31, 1998
Comprehensive income..... 954 56,617 57,571
Dividends................ (33,500) (33,500)
Impact from reorganiza-
tion of Waddell & Reed.. -- 211,851 (7,980) 203,871
Exercise of stock op-
tions................... 68 68
------ -------- ------- -------- --------
Balance at December 31,
1998................... $3,000 $350,388 $15,654 $190,538 $559,580
====== ======== ======= ======== ========
</TABLE>
See accompanying Notes to Financial Statements.
F-5
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net income.................................... $ 56,617 $ 34,749 $ 35,266
Adjustment to reconcile net income to cash
provided from operations:
Increase in future policy benefits.......... 13,871 17,878 20,692
Increase (decrease) in other policy liabili-
ties....................................... (1,892) 749 2,154
Deferral of policy acquisition costs........ (42,857) (33,485) (33,744)
Value of business acquired.................. 0 (10,000) 0
Amortization of deferred acquisition costs.. 27,874 24,898 19,850
Change in accrued income taxes.............. 1,079 10,212 (3,033)
Depreciation................................ 39 42 44
Realized (gains) losses on sale of invest-
ments and properties....................... (9,401) 5,365 (925)
Other accruals and adjustments.............. (3,240) 1,817 (997)
-------- -------- --------
Cash provided from operations................. 42,090 52,225 39,307
-------- -------- --------
Cash used for investment activities:
Investments sold or matured:
Fixed maturities available for sale-sold..... 46,039 113,035 15,246
Fixed maturities available for sale-matured,
called and repaid........................... 76,583 66,469 44,523
Other long-term investments.................. 25,596 2,199 482
-------- -------- --------
Total investments sold or matured.......... 148,218 181,703 60,251
Acquisition of investments:
Fixed maturities available for sale.......... (123,111) (176,905) (68,214)
Net increase in policy loans................. (2,192) (1,485) (2,033)
Other long-term investments.................. (36) (1,517) (1,183)
-------- -------- --------
Total acquisition of investments........... (125,339) (179,907) (71,430)
Net (increase) decrease in short-term
investments.................................. 747 (11,589) 2,389
Funds loaned to affiliates.................... (13,026) (24,080) (3,500)
Funds repaid from affiliates.................. 2,400 24,080 3,500
Funds borrowed from affiliates................ 14,800 0 0
Funds repaid to affiliates.................... (14,800) 0 0
Disposition of properties..................... 5 0 34
Additions of properties....................... (37) (27) (117)
-------- -------- --------
Cash provided from (used for) investment
activities................................... 12,968 (9,820) (8,873)
-------- -------- --------
Cash used for financing activities:
Cash dividends paid to shareholders......... (33,500) (27,000) (27,500)
Net receipts from deposit product opera-
tions...................................... (15,420) (12,521) (6,572)
-------- -------- --------
Cash used for financing activities............ (48,920) (39,521) (34,072)
Increase (decrease) in cash................... 6,138 2,884 (3,638)
Cash at beginning of year..................... 5,288 2,404 6,042
-------- -------- --------
Cash at end of year........................... $ 11,426 $ 5,288 $ 2,404
======== ======== ========
</TABLE>
See accompanying Notes to Financial Statements.
F-6
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(Dollar amounts in thousands)
Note 1--Summary of Significant Accounting Policies
Organization: United Investors Life Insurance Company ("UILIC") was a wholly
owned subsidiary of Waddell & Reed Financial, Inc. ("WDR") (formerly known as
United Investors Management Company), a subsidiary of Torchmark Corporation. On
March 3, 1998, to facilitate the initial public offering ("IPO") by Torchmark
Corporation ("TMK") of 36% of the common stock of WDR, several transactions
were completed to reorganize the assets held by WDR. The following transactions
directly affected UILIC:
(i) WDR contributed 188,212 shares of TMK 6 1/2% Cumulative Preferred Stock,
Series A to UILIC.
(ii) WDR dividended the common stock of its subsidiary UILIC pro rata to
Liberty National Life Insurance Company ("LNL"), an 81.18% owner, and
TMK, an 18.82% owner. LNL is a wholly owned subsidiary of TMK.
(iii) Upon reorganization, UILIC recorded additional goodwill in the amount of
$23,639. This goodwill represented UILIC's portion of United Investors
Management Company's goodwill which was allocated between Waddell & Reed
and UILIC upon dividend of UILIC to TMK and LNL.
(iv) TMK transferred to UILIC a deferred commission credit of $7,980, net of
applicable tax of $4,297. This credit is being amortized over
approximately 10 years.
Description of Business: The Company is a life insurer licensed in 49
states. The Company offers a full range of life, annuity and variable products
through its agents and is subject to competition from other insurers throughout
the United States. The Company is subject to regulation by the insurance
department of states in which it is licensed, and undergoes periodic
examinations by those departments.
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the financial statements and revenues and expenses for the reporting period.
Actual results could differ significantly from those estimates.
The estimates susceptible to significant change are those used in
determining the liability for policy reserves, losses and claims. Although some
variability is inherent in these estimates, management believes the amounts
provided are adequate.
Basis of Presentation: The accompanying financial statements include the
accounts of United Investors Life Insurance Company ("United Investors") an
indirectly wholly-owned subsidiary of TMK, is owned by Liberty National Life
Insurance Company (81.18%) and Torchmark Corporation (18.82%). The financial
statements have been prepared on the basis of generally accepted accounting
principles ("GAAP").
Investments: United Investors classifies all of its fixed maturity
investments, which includes bonds and redeemable preferred stocks, as available
for sale. Investments classified as available for sale are carried at fair
value with unrealized gains and losses, net of deferred taxes, reflected
directly in shareholder's equity. Investments in equity securities, which
include common and nonredeemable preferred stocks, are reported at fair value
with unrealized gains and losses, net of deferred taxes, reflected directly in
shareholder's equity. Policy loans are carried at unpaid principal balances.
Short-term investments include investments in certificates of deposit and other
interest-bearing time deposits with original maturities within three months.
Other long-term investments consist of investments in mutual funds which are
carried at fair value. If an investment becomes permanently impaired, such
impairment is treated as a realized loss and the investment is adjusted to net
realizable value.
F-7
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 1--Summary of Significant Accounting Policies (continued)
Gains and losses realized on the disposition of investments are recognized
as revenues and are determined on a specific identification basis.
Realized investment gains and losses and investment income attributable to
separate accounts are credited to the separate accounts and have no effect on
United Investor's net income. Investment income attributable to policyholders
is included in United Investor's net investment income. Net investment income
for the years ended December 31, 1998, 1997 and 1996 included approximately
$37,000, $37,800, and $37,600, respectively, which was allocable to
policyholder reserves or accounts. Realized investment gains and losses are not
allocable to policyholders.
Determination of Fair Values of Financial Instruments: Fair value for cash,
short-term investments, receivables and payables approximates carrying value.
Fair values for investment securities are based on quoted market prices, where
available. Otherwise, fair values are based on quoted market prices of
comparable instruments. Fair value of future benefits for universal life and
current interest products and annuity products are based on the fund value.
Cash: Cash consists of balances on hand and on deposit in banks and
financial institutions.
Recognition of Revenue and Related Expenses: Premiums for insurance
contracts which are not defined as universal life-type according to the
Financial Accounting Standards Board's Statement of Accounting Standards (SFAS)
97 are recognized as revenue over the premium-paying period of the policy.
Premiums for limited-payment life insurance contracts as defined by SFAS 97 are
recognized over the contract period. Premiums for universal life-type and
annuity contracts are added to the policy account value, and revenues from such
products are recognized as charges to the policy account value for mortality,
administration, and surrenders (retrospective deposit method). The related
benefits and expenses are matched with revenues by means of the provision for
future policy benefits and the amortization of deferred acquisition costs in a
manner which recognizes profits as they are earned over the same period.
Future Policy Benefits: The liability for future policy benefits for
universal life-type products according to SFAS 97 is represented by policy
account value. Annuity Contracts are accounted for as deposit contracts. The
liability for future policy benefits for other products is provided on the net
level premium method based on estimated investment yields, mortality,
persistency and other assumptions which were appropriate at the time the
policies were issued. Assumptions used are based on United Investor's
experience as adjusted to provide for possible adverse deviation. These
estimates are periodically reviewed and compared with actual experience. If it
is determined that future expected experience differs significantly from that
assumed, the estimates are revised.
Deferred acquisition costs: The costs of acquiring new insurance business
are deferred. Such costs consist of sales commissions, underwriting expenses,
and certain other selling expenses. The costs of acquiring new business through
the purchase of other companies and blocks of insurance business are also
deferred.
Deferred acquisition costs, including the value of insurance purchased, for
policies other than universal life-type policies according to SFAS 97, are
amortized with interest over an estimate of the premium-paying period of the
policies in a manner which charges each year's operations in proportion to the
receipt of premium income. For limited-payment contracts, acquisition costs are
amortized over the contract period. For universal life-type policies,
acquisition costs are amortized with interest in proportion to estimated gross
profits. The assumptions used as to interest, withdrawals and mortality are
consistent with those used in computing the liability for future policy
benefits and expenses. If it is determined that future experience differs
significantly
F-8
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 1--Summary of Significant Accounting Policies (continued)
from that previously assumed, the estimates are revised. Deferred acquisition
costs are adjusted to reflect the amounts associated with unrealized investment
gains and losses pertaining to universal life-type products.
Income Taxes: Income taxes are accounted for under the asset and liability
method in accordance with SFAS 109. Under the asset and liability method,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement book
values and tax bases of assets and liabilities. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Interest Expense: Interest expense includes interest on borrowed funds not
used in the production of investment income. Interest expense relating to the
production of investment income is deducted from investment income.
Property and Equipment: Property and equipment is reported at cost less
allowances for depreciation. Depreciation is provided on the straight-line
method over the estimated useful lives of these assets which range from three
to ten years.
Goodwill: Goodwill represents the excess cost over the fair value of the net
assets acquired when United Investors was purchased by Torchmark Corporation
(Torchmark) in 1981 and is being amortized on a straight-line basis over forty
years. In 1998 United Investors recorded an additional goodwill of $23,639 upon
the reorganization of the company as outlined in Note 1--"Organization." This
additional goodwill is being amortized on a straight-line basis over thirty-
five years, which is the period United Investors Management Company had
remaining out of the original forty year estimated benefit period.
Reclassification: Certain amounts in the financial statements presented have
been reclassified from amounts previously reported in order to be comparable
between years. These reclassifications have no effect on previously reported
shareholders' equity or net income during the periods involved.
Comprehensive Income: United Investors adopted SFAS 130, "Reporting
Comprehensive Income," effective January 1, 1998. This standard defines
comprehensive income as the change in equity of a business enterprise during a
period from transactions from all nonowner sources. It requires the company to
display comprehensive income for the period, consisting of net income and other
comprehensive income. In compliance with SFAS 130, a Statement of Comprehensive
Income is included as an integral part of the financial statements.
Year 2000 Compliance: The new millennium poses a significant concern to all
businesses which use computer systems or electronic data in their operations.
The concern arises because these organizations have computer systems and
programs that cannot always identify a proper date. For many years, programs
were written using a two digit code to represent a year. At the beginning of
the year 2000, more digits are needed to accurately determine the date in these
programs. Without addressing this issue, many computer programs could fail or
produce erroneous results. Additionally, companies which are electronically
engaged with other businesses or which rely on other businesses for services
are exposed to risk of failure by the electronic devices and computer systems
of those other entities to the extent they are not Year 2000 compliant. The
potential of failure of these systems creates considerable uncertainty and
could potentially adversely affect the ongoing operations and stability of a
business.
United Investors relies on computer systems which are supported and
maintained by Torchmark, its ultimate parent, and its various affiliates.
Torchmark is exposed to these risks should its computer systems fail
F-9
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 1--Summary of Significant Accounting Policies (continued)
due to date-related problems. Torchmark is also reliant on a number of third
party businesses and governmental agencies with which it either interacts
electronically or depends upon for services in the conduct of its business.
These institutions include but are not limited to banks, financial
institutions, telecommunication companies, utilities, mail delivery
organizations, and a variety of governmental agencies. Should Torchmark's
computer systems or the systems of its third-party business partners not be
compliant the Company and Torchmark may be exposed to considerable risks,
including business interruption, loss of revenue, increased expense, loss of
policyholders, and litigation.
To reduce its business risk to an acceptable level, Torchmark has
established a project plan to insure that the company's business-critical
computer systems will be Year 2000 compliant. This plan also addresses third-
party compliance issues. Under the direction of executive management,
objectives and timetables have been set forth to achieve compliance in each
geographic location where Torchmark operates. Progress toward achieving those
objectives is constantly monitored. Torchmark currently expects the entire
project, including all Year 2000 testing activities, to be completed during
1999.
As of December 31, 1998, Torchmark remains on schedule to meet all of its
Year 2000 compliance requirements. All known required software changes have
been completed, and the related testing is in process with plans for completion
in 1999. With regard to third party concerns, Torchmark has in process the
following procedures:
1) Torchmark is confirming, with its software vendors, the Year 2000
readiness of its purchased software packages because Torchmark has purchased
software packages on all of its computer platforms;
2) Torchmark is verifying the Year 2000 compliance status of its financial
business partners computer and data communications systems to insure readiness,
including data interface testing with third parties; and
3) All of Torchmark's electronic operational systems (telephones, security,
utility, environmental) are being evaluated for Year 2000 compliance.
As an example of Torchmark's interface testing with selected third parties,
Torchmark is utilizing electronic data from selected third parties in
processing Medicare Supplement benefit data using Year 2000 test data.
Torchmark is also arranging similar testing with a selected number of banks.
While Torchmark is making every effort to verify the compliance of third
parties, no assurances as to the compliance of their computer systems can be
given.
Torchmark has used primarily its own employees to complete its Year 2000
project. Other than completion of software testing, all significant Year 2000
project milestones for internal computer systems have been completed.
Confirmation of third party compliance and electronic data interface testing
with third parties is continuing with completion expected during 1999.
Torchmark has spent $5 million on its Year 2000 project activities to date,
including internal programming costs, outside contractors, and replacement
costs. These costs have been expensed as incurred. Total project cost is
expected to be approximately $6 million.
Year 2000 contingency plans are being developed for critical risk areas.
Management throughout the organization has established and documented a
contingency plan for Torchmark's most critical systems and interfaces with
business partners within each individual's responsibility. Such contingency
plans include possible manual operation efforts, staff adjustments, outside
services, and alternative procedures. These contingency plans will be
maintained well into 2000.
F-10
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 2--Statutory Accounting
United Investors is required to file statutory financial statements with
state insurance regulatory authorities. Accounting principles used to prepare
these statutory financial statements differ from GAAP. Net income and
shareholders' equity on a statutory basis for United Investors were as follows:
<TABLE>
<CAPTION>
Net Income Shareholders' Equity
Year Ended December 31, At December 31,
---------------------------------------- ---------------------------------
1998 1997 1996 1998 1997
-------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C>
$47,294 $34,537 $26,640 $169,757 $156,676
</TABLE>
The excess of shareholders' equity on a GAAP basis over that determined on a
statutory basis is not available for distribution to shareholders without
regulatory approval.
A reconciliation of United Investors' statutory net income to GAAP net
income is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Statutory net income........................... $ 47,294 $ 34,537 $ 26,640
Deferral of acquisition costs.................. 42,857 33,485 33,744
Amortization of acquisition costs.............. (27,874) (24,898) (19,850)
Differences in policy liabilities.............. 1,417 (2,113) (4,361)
Deferred income taxes.......................... (6,422) (6,053) (773)
Other.......................................... (655) (209) (134)
-------- -------- --------
GAAP net income................................ $ 56,617 $ 34,749 $ 35,266
======== ======== ========
</TABLE>
A reconciliation of United Investors' statutory shareholders' equity to GAAP
shareholders' equity is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
Statutory shareholders' equity................... $ 169,757 $ 156,676
Differences in policy liabilities................ 9,208 9,540
Deferred acquisition cost and value of insurance
purchased....................................... 213,633 210,651
Deferred income taxes............................ (59,575) (52,639)
Asset valuation reserve.......................... 4,781 9,513
Nonadmitted assets............................... 3,348 1,850
Fair value adjustment on fixed maturities
available for sale.............................. 30,565 23,043
Fair value adjustment on preferred stock of
affiliate....................................... 188,212 0
Goodwill......................................... 29,465 6,771
Due and deferred premiums........................ (30,317) (30,334)
Other............................................ 503 (3,501)
----------- -----------
GAAP shareholders' equity........................ $559,580 $331,570
=========== ===========
</TABLE>
The NAIC requires that a risk based capital formula be applied to all life
and health insurers. The risk based capital formula is a threshold formula
rather than a target capital formula. It is designed only to identify companies
that require regulatory attention and is not to be used to rate or rank
companies that are adequately capitalized. United Investors is adequately
capitalized under the risk based capital formula.
F-11
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 3--Investment Operations
Investment income is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1998 1997 1996
------- ------- --------
<S> <C> <C> <C>
Fixed maturities.................................. $45,889 $46,000 $ 46,366
Policy loans...................................... 1,186 1,107 1,001
Other long-term investments....................... 84 1,614 1,211
Short-term investments............................ 743 436 287
Other income...................................... 954 0 0
Interest and dividends from affiliates............ 13,082 2,863 2,847
------- ------- --------
61,938 52,020 51,712
Less investment expense........................... (565) (506) (584)
------- ------- --------
Net investment income............................. $61,373 $51,514 $ 51,128
======= ======= ========
Analysis of gains (losses) from investments:
Realized investments gains (losses)
Fixed maturities................................ $ 1 $(5,235) $ 925
Mutual funds.................................... 9,400 (130) 0
------- ------- --------
$ 9,401 $(5,365) $ 925
======= ======= ========
Analysis of change in unrealized gains (losses):
Net change in unrealized investments gains
(losses) on fixed maturities available for sale
before tax....................................... 7,522 19,340 (21,767)
Net change in unrealized investments gains
(losses) on short-term investments before tax.... (2) 0 0
Other (includes $(5,946) related to sale of mutual
fund shares in 1998)............................. (6,328) 1,799 861
Adjustment for deferred acquisition cost.......... 276 (5,387) 8,857
Applicable tax.................................... (514) (5,512) 4,217
------- ------- --------
Net change in unrealized gains (losses) on short-
term investments and fixed maturities securities
available for sale............................... $ 954 $10,240 $ (7,832)
======= ======= ========
</TABLE>
F-12
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 3--Investment Operations (continued)
A summary of fixed maturities available for sale by amortized cost and
estimated fair value at December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Gross Gross Amount per
Amortized Unrealized Unrealized Fair the Balance
1998: Cost Gains Losses Value Sheet
- ----- --------- ---------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
Fixed maturities avail-
able for sale:
Bonds:
U.S. Government direct
obligations and
agencies............... $ 21,441 $ 1,959 $ 0 $ 23,400 $ 23,400
GNMA's.................. 89,674 4,022 (18) 93,678 93,678
Mortgage-backed
securities, GNMA
collateral............. 7,488 71 (1) 7,558 7,558
Other mortgage-backed
securities............. 20,961 1,368 0 22,329 22,329
States, municipalities
and political
subdivisions........... 28,610 1,236 0 29,846 29,846
Public utilities........ 31,454 2,287 0 33,741 33,741
Industrial and
miscellaneous.......... 412,958 21,971 (2,330) 432,599 432,599
-------- ------- ------- -------- --------
Total fixed maturities.. $612,586 $32,914 $(2,349) $643,151 $643,151
======== ======= ======= ======== ========
<CAPTION>
1997:
- -----
<S> <C> <C> <C> <C> <C>
Fixed maturities avail-
able for sale:
Bonds:
U.S. Government direct
obligations and
agencies............... $ 22,035 $ 857 $ 0 $ 22,892 $ 22,892
GNMA's.................. 124,549 5,992 (146) 130,395 130,395
Mortgage-backed
securities, GNMA
collateral............. 23,125 591 (3) 23,713 23,713
Other mortgage-backed
securities............. 20,980 916 0 21,896 21,896
States, municipalities
and political
subdivisions........... 28,603 517 0 29,120 29,120
Foreign governments..... 3,298 135 0 3,433 3,433
Public utilities........ 37,189 1,504 (39) 38,654 38,654
Industrial and
miscellaneous.......... 352,821 12,986 (267) 365,540 365,540
-------- ------- ------- -------- --------
Total fixed maturities.. $612,600 $23,498 $ (455) $635,643 $635,643
======== ======= ======= ======== ========
</TABLE>
F-13
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 3--Investment Operations (continued)
A schedule of fixed maturities by contractual maturity at December 31, 1998
is shown below on an amortized cost basis and on a fair value basis. Actual
maturities could differ from contractual maturities due to call or prepayment
provisions.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
--------- --------
<S> <C> <C>
Fixed maturities available for sale;
Due in one year or less................................. $ 13,218 $ 13,359
Due after one year through five years................... 115,995 120,078
Due after five years through ten years.................. 202,843 213,213
Due after ten years..................................... 153,602 164,940
-------- --------
485,658 511,590
Mortgage- and asset-backed securities.................... 126,928 131,561
-------- --------
$612,586 $643,151
======== ========
</TABLE>
Proceeds from sales of fixed maturities available for sale were $46,039 in
1998, $113,035 in 1997, and $15,246 in 1996. Gross gains realized on these
sales were $928 in 1998, $112 in 1997, and $749 in 1996. Gross losses on these
sales were $927 in 1998, $5,716 in 1997, and $0 in 1996.
Note 4--Deferred Acquisition Costs
An analysis of deferred acquisition costs and the value of insurance
purchased is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------- --------------------- ---------------------
Deferred Value of Deferred Value of Deferred Value of
Acquisition Insurance Acquisition Insurance Acquisition Insurance
Cost Purchased Cost Purchased Cost Purchased
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of
year................... $176,897 $33,754 $169,986 $16,160 $144,716 $18,679
Additions:
Deferred during peri-
od:
Commissions........... 36,328 0 27,664 0 28,492 0
Other expenses........ 6,529 0 5,821 0 5,252 0
-------- ------- -------- ------- -------- -------
Total deferred....... 42,857 0 33,485 0 33,744 0
Value of insurance
purchased............ 0 0 0 21,305 0 0
Adjustment attributable
to unrealized invest-
ment loss (1)......... 276 0 0 0 8,857 0
-------- ------- -------- ------- -------- -------
Total additions...... 43,133 0 33,485 21,305 42,601 0
Deductions:
Amortized during peri-
od................... (24,720) (3,154) (21,019) (3,711) (16,894) (2,519)
Adjustment
attributable to
unrealized investment
gains (1)............ 0 0 (5,387) 0 0 0
Adjustment attribut-
able to realized
investment gains
(1).................. 0 0 (168) 0 (437) 0
Adjustment to deferred
commissions due to
reorganization....... (12,277) 0 0 0 0 0
-------- ------- -------- ------- -------- -------
Total deductions..... (36,997) (3,154) (26,574) (3,711) (17,331) (2,519)
-------- ------- -------- ------- -------- -------
Balance at end of year.. $183,033 $30,600 $176,897 $33,754 $169,986 $16,160
======== ======= ======== ======= ======== =======
</TABLE>
F-14
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
- --------
(1) Represents amounts pertaining to investments relating to universal life-
type products.
The amount of interest accrued on the unamortized balance of value of
insurance purchased was approximately $755, $938, and $1,100 for the years
ended December 31, 1998, 1997 and 1996, respectively. The average interest
accrual rates used were 6.15%, 6.29% and 6.44%, respectively. The estimated
amount of the unamortized value of business purchased balance at December 31,
1998 to be amortized during each of the next five years is: 1999, $2,452;
2000, $2,137; 2001, $1,876; 2002, $1,659; 2003, $1,479.
In the event of lapses or early withdrawals in excess of those assumed,
deferred acquisition costs and the value of insurance purchased may not be
recoverable.
Note 5--Property and Equipment
A summary of property and equipment used in the business is as follows:
<TABLE>
<CAPTION>
At December 31, At December 31,
1998 1997
------------------- -------------------
Accumulated Accumulated
Cost Depreciation Cost Depreciation
------ ------------ ------ ------------
<S> <C> <C> <C> <C>
Data processing equipment.............. $ 227 $ 178 $ 216 $ 161
Transportation equipment............... 72 36 132 55
Furniture and office equipment ........ 928 917 922 913
------ ------ ------ ------
Total................................ $1,227 $1,131 $1,270 $1,129
====== ====== ====== ======
</TABLE>
Depreciation expense on property and equipment used in the business was $39,
$42 and $44 in each of the years 1998, 1997, and 1996, respectively.
Note 6--Future Policy Benefit Reserves
A summary of the assumptions used in determining the liability for future
policy benefits at December 31, 1998 is as follows:
Individual Life Insurance
Interest Assumptions:
<TABLE>
<CAPTION>
Percent of
Years of Issue Interest Rates Liability
-------------- -------------------------- ----------
<S> <C> <C>
1962-1998 3.00% level to 6.00% level 12%
1986-1992 7.00% graded to 6.00% 22%
1962-1985 8.50% graded to 6.00% 4%
1981-1985 8.50% graded to 7.00% 4%
1984-1998 Interest Sensitive 58%
----
100%
====
</TABLE>
Mortality assumptions:
The mortality tables used are various statutory mortality tables and
modifications of:
1965-70 Select and Ultimate Table
1975-80 Select and Ultimate Table
Withdrawal assumptions:
Withdrawal assumptions are based on United Investors' experience.
F-15
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 7--Income Taxes
United Investors is included in the life-nonlife consolidated federal income
tax return filed by Torchmark. Under the tax allocation agreement with
Torchmark, a company with taxable income pays tax equal to the amount it would
pay if it filed a separate tax return. A company with a loss is paid a tax
benefit currently to the extent that affiliated companies with taxable income
utilize that loss.
Total income taxes were allocated as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Net operating income before income taxes......... $25,567 $18,843 $19,078
Shareholders' equity:
Unrealized gains (losses)....................... 514 5,512 (4,217)
Tax basis compensation expense in excess of
amounts recognized for financial reporting
purposes from the exercise of stock options.... (68) (519) 0
Tax benefit received on deferred commission
credit due to reorganization................... (4,297) 0 0
Other........................................... 300 1 (152)
------- ------- -------
$22,016 $23,837 $14,709
======= ======= =======
</TABLE>
Income tax expense before the adjustments to shareholder's equity is
summarized below:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Current income tax expense......................... $19,145 $12,790 $18,305
Deferred income tax expense........................ 6,422 6,053 773
------- ------- -------
$25,567 $18,843 $19,078
======= ======= =======
</TABLE>
In 1998, 1997, and 1996, deferred income tax expense was incurred because of
the difference between net operating income before income taxes as reported on
the statements of operations and taxable income as reported on United
Investor's income tax returns. As explained in Note 1, this difference caused
the financial statement book values of some assets and liabilities to be
different from their respective tax bases.
The effective income tax rate differed from the expected 35% rate in 1998,
1997 and 1996 as shown below:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1998 % 1997 % 1996 %
------- --- ------- --- ------- ---
<S> <C> <C> <C> <C> <C> <C>
Expected income taxes............... $28,764 35% $18,757 35% $19,020 35%
Increase (reduction) in income taxes
resulting from:
Tax-exempt investment income....... (3,532) (4) (18) 0 (38) 0
Purchase accounting differences.... 331 0 99 0 99 0
Other.............................. 4 0 5 0 (3) 0
------- --- ------- --- ------- ---
Income taxes........................ $25,567 31% $18,843 35% $19,078 35%
======= === ======= === ======= ===
</TABLE>
F-16
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 7--Income Taxes (continued)
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Future policy benefits and unearned and advance
premiums.......................................... $ 0 $ 4,777
Present value of future policy surrender charges... 20,153 13,925
Other liabilities, principally due to the current
nondeductibilty for tax purposes of certain
accrued expenses.................................. 132 203
----------- -----------
Total gross deferred tax assets.................... 20,285 18,905
Deferred tax liability:
Future policy benefits and unearned and advance
premiums.......................................... 2,022 0
Deferred acquisition costs......................... 61,881 62,863
Unrealized investment gains........................ 8,428 7,914
Other.............................................. 7,529 767
----------- -----------
Total gross deferred tax liabilities............... 79,860 71,544
----------- -----------
Net deferred tax liability......................... $ 59,575 $ 52,639
=========== ===========
</TABLE>
In United Investor's opinion, all deferred tax assets will be recoverable.
United Investors has not recognized a deferred tax liability of
approximately $2,200 that arose prior to 1984 on temporary differences related
to its policyholders' surplus account. A current tax expense will be recognized
in the future if and when this tax becomes payable.
Note 8--Postretirement Benefits
Pension Plans: United Investors has retirement benefit plans and savings
plans which cover substantially all employees. There is also a nonqualified
excess benefit plan which covers certain employees. The plans cover primarily
employees of United Investors, Liberty National and Torchmark. The total cost
of these retirement plans charged to UILIC's operations was as follows:
<TABLE>
<CAPTION>
Defined
Defined Benefit
Year Ended Contribution Pension
December 31, Plans Plans
------------ ------------ -------
<S> <C> <C>
1998.................................................. $42 $114
1997.................................................. 44 118
1996.................................................. 41 115
</TABLE>
United Investors accrues expense for the defined contribution plans based on
a percentage of the employees contributions. The plans are funded by the
employee contributions and a United Investors contribution equal to the amount
of accrued expense.
F-17
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 8--Postretirement Benefits (continued)
Cost for the defined benefit pension plans has been calculated on the
projected unit credit actuarial cost method. Contributions are made to the
pension plans subject to minimums required by regulation and maximums allowed
for tax purposes. Accrued pension expense in excess of amounts contributed has
been recorded as a liability in UILIC's financial statements and was $55
thousand and $55 thousand at December 31, 1998 and 1997, respectively. The
total unfunded plan liability recorded at December 31, 1998 was $459. The plans
covering the majority of employees are organized as trust funds whose assets
consist primarily of investments in marketable long-term fixed maturities and
equity securities which are valued at market.
The excess benefit pension plan provides the benefits that an employee would
have otherwise received from a defined benefit pension plan in the absence of
the Internal Revenue Codes limitation on benefits payable under a qualified
plan. Although this plan is unfunded, pension cost is determined in a similar
manner as for the funded plans. UILIC's liability for the excess benefit plan
was $19 thousand and $19 thousand as of December 31, 1998 and 1997,
respectively.
Net periodic pension cost for the defined benefit plans by expense component
was as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Service cost--benefits earned during period..... $ 679 $ 638 $ 638
Interest cost on projected benefit obligation... 1,657 1,575 1,478
Actual return on assets......................... (3,118) (2,335) (1,940)
Net amortization and deferral................... 1,942 1,351 1,032
------- ------- -------
Total net periodic cost........................ 1,160 1,229 1,208
Periodic cost allocated to other participating
employers..................................... 1,046 1,111 1,093
------- ------- -------
UILIC's net periodic cost....................... $ 114 $ 118 $ 115
======= ======= =======
</TABLE>
F-18
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 8--Postretirement Benefits (continued)
United Investors adopted FASB Statement No. 132, Employers Disclosures about
Pensions and Other Postretirement Benefits, effective for year-end 1998 with
comparative periods restated. In accordance with this Standard, the following
table presents a reconciliation from the beginning to the end of the year of
the benefit obligation and plan assets. This table also presents a
reconciliation of the plans funded status with the.amounts recognized on United
Investors's and Liberty National's balance sheet.
<TABLE>
<CAPTION>
Pension
Benefits For
the year ended
December 31,
----------------
1998 1997
------- -------
<S> <C> <C>
Changes in benefit obligation:
Obligation at the beginning of year...................... $21,841 $19,706
Service cost............................................. 679 638
Interest cost............................................ 1,657 1,575
Actuarial gain (loss).................................... 1,061 775
Benefits paid............................................ (2,008) (853)
------- -------
Obligation at the end of year............................ 23,230 21,841
Changes in plan assets:
Fair value at the beginning of year...................... 16,054 13,811
Return on assets......................................... 3,118 2,335
Contributions............................................ 976 761
Benefits paid............................................ (2,008) (853)
------- -------
Fair value at the end of year............................ 18,140 16,054
------- -------
Funded status at year end............................ (5,090) (5,787)
Unrecognized amounts at year end:
Unrecognized actuarial loss (gain)....................... (775) 12
Unrecognized prior service cost.......................... 1,044 1,137
Unrecognized transition obligation....................... 0 0
------- -------
Net amount recognized at year end...................... $(4,821) $(4,638)
======= =======
Amounts recognized consist of:
Prepaid benefit cost..................................... $ (459) $ (459)
Accrued benefit liability................................ (4,707) (5,415)
Intangible asset......................................... 345 1,236
------- -------
Net amount recognized at year end....................... (4,821) (4,638)
Net amount recognized allocated to other participating
employers.............................................. (4,747) (4,564)
------- -------
UILIC's net amount recognized at year end................ $ (74) $ (74)
======= =======
</TABLE>
The weighted average assumed discount rates used in determining the
actuarial benefit obligations was 7.0% in 1998 and 7.5% in 1997. The rate of
assumed compensation increase was 4.0% in 1998 and 4.5% in 1997 while the
expected long-term rate of return on plan assets was 9.25% in 1998 and 9.25% in
1997.
Postretirement Benefit Plans Other Than Pensions: United Investors provides
postretirement life insurance benefits for most retired employees, and also
provides additional postretirement life insurance benefits for certain key
employees. The majority of the life insurance benefits are accrued over the
working lives of active employees.
F-19
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 8--Postretirement Benefits (continued)
For retired employees over age sixty-five, United Investors does not provide
postretirement benefits other than pensions. United Investors does provide a
portion of the cost for health insurance benefits for employees who retired
before February 1, 1993 and before age sixty-five, covering them until they
reach age sixty-five. Eligibility for this benefit was generally achieved at
age fifty-five with at least fifteen years of service. This subsidy is minimal
to retired employees who did not retire before February 1,1993. This plan is
unfunded.
The components of net periodic postretirement benefit cost other than
pensions is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Service cost ................................... $ 112 $ 86 $ 76
Interest on accumulated postretirement. benefit
obligation..................................... 377 357 403
Actual return on assets......................... 0 0 0
Net amortization and deferral................... (251) (374) (242)
------- ------- -------
Total net periodic postretirement cost......... 238 69 237
Periodic cost allocated to other participating
employers..................................... 233 68 232
------- ------- -------
UILIC's net periodic postretirement cost........ $ 5 $ 1 $ 5
======= ======= =======
</TABLE>
The following table presents a reconciliation of the benefit obligation and
plan assets from the beginning to the end of the year, also reconciling the
funded status to the accrued benefit liability.
<TABLE>
<CAPTION>
Benefits Other than Pension
For the year ended
December 31,
----------------------------
1998 1997
------------- -------------
<S> <C> <C>
Changes in benefit obligation:
Obligation at the beginning of year.......... $ 4,775 $ 5,010
Service cost................................. 112 86
Interest cost................................ 377 357
Actuarial gain (loss)........................ 559 0
Benefits paid................................ (561) (678)
------------- -------------
Obligation at the end of year................ 5,262 4,775
Changes in plan assets:
Fair value at the beginning of year.......... 0 0
Return on assets............................. 0 0
Contributions................................ 561 678
Benefits paid................................ (561) (678)
------------- -------------
Fair value at the end of year................ 0 0
------------- -------------
Funded status at year end.................. (5,262) ( 4,775)
Unrecognized amounts at year end:
Unrecognized actuarial loss (gain)........... (553) (1,157)
Unrecognized prior service cost.............. (357) (563)
------------- -------------
Net amount recognized at year end as accrued
benefit liability.......................... (6,172) (6,495)
Net amount recognized allocated to other
participating employers.................... (6,070) (6,386)
------------- -------------
UILIC's net amount recognized at year end as
accrued benefit liability................... $ (102) $ (109)
============= =============
</TABLE>
F-20
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 8--Postretirement Benefits (continued)
For measurement purposes, a 7.0% to 8.0% annual rate of increase in per
capita cost of covered healthcare benefits was assumed for 1998. These rates
grade to ranges of 4.5% to 5.5% by the year 2007. The health care cost trend
rate assumption has a significant effect on the amounts reported, as
illustrated in the following table which presents the effect of a one-
percentage-point increase and decrease on the service and interest cost
components and the benefit obligation:
Effect on:
<TABLE>
<CAPTION>
Change in Trend
Rate
-----------------
1% 1%
Increase Decrease
-------- --------
<S> <C> <C>
Service and interest cost components....................... $ 35 $ (31)
Benefit obligation......................................... 326 (300)
</TABLE>
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.00% in 1998 and 7.50% in 1997.
Note 9--Related Party Transactions
United Investors was charged for space, equipment and services provided by
an affiliate amounting to $1,840 in 1998, $1,852 in 1997 and $1,797 in 1996.
Torchmark performed certain administrative services for United Investors for
which it was charged $612 in 1998, $468 in 1997 and $384 in 1996.
In November 1994, United Investors loaned Torchmark $35,000 at an interest
rate of 8.110%, and in October 1998, United Investors loaned Torchmark an
additional $10,626 at an interest rate of 7.875%. Interest income related to
the Torchmark loans totaling $2,989, $2,838 and $2,838 for 1998, 1997 and 1996,
respectively, is included in the accompanying financial statements. In January
1996, United Investors loaned Liberty National $3,500 at an interest rate of
5.75%. This loan was paid in full in February 1996. Interest income related to
this loan totaling $9 at December 31, 1996 is included in the accompanying
financial statements. In 1997, United Investors loaned Torchmark, Liberty
National and United American $8,060, $10,520 and $5,500 respectively at an
interest rate of 5.5% all of which were repaid prior to December 31, 1997.
Interest income related to these loans totaling $1, $2 and $22 respectively is
included in the accompanying financial statements. In 1998, United Investors
loaned Liberty National and United American $1,400 and $1,000 respectively at
an interest rate of 5.5% all of which were repaid prior to December 31, 1998.
Interest income related to these loans totaling $2 and $2 respectively is
included in the accompanying financial statements. During 1998, TMK loaned
United Investors $14,800 in a series of six separate loans at an interest rate
of 5.5% all of which were repaid prior to December 31, 1998. Interest expenses
related to these loans totaling $34 is included in the accompanying financial
statements.
Effective January 1, 1997 United Investors assumed a block of annuity
products totaling $200,321 from United American Insurance Company (United
American), an affiliated company, on 100% funds withheld coinsurance basis. In
connection with this transaction, United Investors paid a ceding fee totaling
$21,305, $10,000 of which was paid in cash, and recorded a due from affiliates
totaling $189,016 at the end of 1997. The funds withheld totaled $229,194 and
$190,235 at December, 1998 and 1997, respectively. Interest income totaled
$13,665 and $11,876 in 1998 and 1997, respectively, and is included in other
income. The reserve for annuity balances assumed in connection with this
business totaled $241,357 and $210,276 as of December 31, 1998 and 1997,
respectively. United Investors reimbursed United American for administrative
expenses in the amount of $800 in 1998 and $897 in 1997.
F-21
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
United Investors serves as sponsor to four separate accounts. During 1997,
United Investors was also a investor in two of the separate accounts. These
investments were sold during 1998 for $18.4 million and United Investors is no
longer a depositor to any of its separate accounts.
On March 3, 1998, Waddell & Reed Financial, Inc. contributed 188,212 shares
of TMK 6 1/2% Cumulative Preferred Stock, Series A to UILIC due the
reorganization discussed in Note 1--Summary of Significant Accounting Policies.
Dividend income, on these shares, in the amount of $10,093 is included in the
accompanying financial statements.
Note 10--Commitments and Contingencies
Reinsurance: United Investors reinsures that portion of insurance risk which
is in excess of its retention limit. The maximum net retention limit for
ordinary life insurance is $500 per life. Life insurance ceded represented 2%
of total life insurance in force at December 31, 1998 and 3% of premium income
for 1998. United Investors would be liable for the reinsured risks ceded to
other companies to the extent that such reinsuring companies are unable to meet
their obligation. Except as disclosed in Note 9, United Investors does not
assume insurance risks of other companies.
Restrictions on the transfer of funds: Regulatory restrictions exist on the
transfer of funds from insurance companies. These restrictions generally limit
the payment of dividends to the statutory net gain from operations of the prior
year in the absence of special approval. Additionally, insurance companies are
not permitted to distribute the excess of shareholder's equity as determined on
a GAAP basis over that determined on a statutory basis. Restricted net assets
at December 31, 1998 in compliance with all regulations were $392,823.
Litigation: United Investors is engaged in routine litigation arising from
the normal course of business. In management's opinion, this litigation will
not materially affect United Investors' financial position or results of
operations.
Concentration of credit risk: United Investors maintains a highly
diversified investment portfolio with limited concentration in any given
region, industry, or economic characteristic. The investment consists of
investment grade corporate bonds (55.7%), securities of the U.S. government or
U.S. government-backed securities (18.2%), non investment grade securities
(12.3%), municipal governments (4.4%), non government guaranteed mortgage
backed securities (3.3%), and policy loans (2.6%) which are secured by the
underlying policy value. The balance of the portfolio is invested in short-term
investments (3.5%).
Investments in municipal governments and corporations are made throughout
the U.S. with no concentration in any given state. Corporate debt investments
are made in a wide range of industries. At December 31, 1998, 1% or more of the
portfolio was invested in the following industries: financial services (19.8%);
chemicals and allied products (6.2%); manufacturing (5.8%); consumer goods
(5.5%); public utilities (4.9%); media and communications (4.6%);
transportation (4.2%); services (4.1%); retailing (3.9%); machinery and
equipment (3.3%); petroleum (2.7%); asset-backed securities (1.2%); paper and
allied products (1.1%). At the end of 1998, 12.3% of the carrying value of
fixed securities was rated below investment grade. Par value of these
investments was $84.249, amortized cost was $83.731, and market value was
$84.588. While these investments could be subject to additional credit risk,
such risk should generally be reflected in market value.
Collateral requirements: United Investors requires collateral for
investments in instruments where collateral is available and typically required
because of the nature of the investment. Since the majority of United
Investor's investments are in government, government-secured, or corporate
securities, the requirement for collateral is rare.
F-22
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 11--Supplemental Disclosures for Cash Flow Statement
The following table summarizes United Investors' noncash transactions, which
are not reflected on the statement of cash flow as required by GAAP:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Due from affiliates........................... $229,194 $189,016 $ 0
Value of business purchased................... 0 11,305 0
Future policy benefits........................ 241,357 200,321 0
Impact from reorganization of
Waddell & Reed .............................. 203,871 0 0
The following table summarizes certain amounts paid during the period:
<CAPTION>
Year Ended December 31,
-------------------------
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Taxes paid.................................... $26,054 $8,631 $22,111
</TABLE>
Note 12--Business Segments
United Investors' segments are based on the insurance product lines it
markets and administers, life insurance and annuities. These major product
lines are set out as segments because of the common characteristics of products
within these categories, comparability of margins, and the similarity in
regulatory environment and management techniques. There is also an investment
segment which manages the investment portfolio, debt, and cash flow for the
insurance segments and the corporate function.
Life insurance products include traditional and interest-sensitive whole
life insurance as well as term life insurance. Annuities include both fixed-
benefit and variable contracts. Variable contracts allow policyholders to
choose from a variety of mutual funds in which to direct their deposits.
United Investors markets its insurance products through a number of
distribution channels, each of which sells the products of one or more of
United Investors's insurance segments. The tables below present segment premium
revenue by each of United Investors's marketing groups.
<TABLE>
<CAPTION>
For the Year 1998
------------------------------------------
Life Annuity Total
------------- ------------ -------------
% of % of % of
Distribution Channel Amount Total Amount Total Amount Total
- -------------------- ------- ----- ------ ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Independent Producers............... $ 8,004 11.5% $ $ 8,004 11.4%
Waddell & Reed...................... 61,511 88.4% 61,511 87.9%
United American .................... 415 100.0% 415 0.6%
Globe Direct Response............... 57 0.1% 57 0.1%
------- ----- ---- ----- ------- -----
$69,572 100.0% $415 100.0% $69,987 100.0%
======= ===== ==== ===== ======= =====
</TABLE>
F-23
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 12--Business Segments (continued)
<TABLE>
<CAPTION>
For the Year 1997
------------------------------------------
Life Annuity Total
------------- ------------ -------------
% of % of % of
Distribution Channel Amount Total Amount Total Amount Total
- -------------------- ------- ----- ------ ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Independent Producers............... $ 7,264 10.6% $ $ 7,264 10.6%
Waddell & Reed...................... 61,149 89.4% 61,149 89.0%
United American .................... 310 100.0% 310 0.4%
------- ----- ---- ----- ------- -----
$68,413 100.0% $310 100.0% $68,723 100.0%
======= ===== ==== ===== ======= =====
<CAPTION>
For the Year 1996
------------------------------------------
Life Annuity Total
------------- ------------ -------------
% of % of % of
Distribution Channel Amount Total Amount Total Amount Total
- -------------------- ------- ----- ------ ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Independent Producers............... $ 6,795 10.4% $ $ 6,795 10.4%
Waddell & Reed...................... 58,319 89.6% 58,319 89.6%
------- ----- ---- ----- ------- -----
$65,114 100.0% $ 0.0% $65,114 100.0%
======= ===== ==== ===== ======= =====
</TABLE>
Because of the nature of the insurance industry, United Investors has no
individual or group which would be considered a major customer. Substantially
all of United Investors's business is conducted in the United States, primarily
in the Southeastern and Southwestern regions.
The measure of profitability for insurance segments is underwriting income
before other income and administrative expenses, in accordance with the manner
the segments are managed. It essentially represents gross profit margin on
insurance products before insurance administrative expenses and consists of
premium, less net policy obligations, acquisition expenses, and commissions. It
differs from GAAP pretax operating income before other income and
administrative expense for two primary reasons. First, there is a reduction to
policy obligations for interest credited by contract to policyholders because
this interest is earned and credited by the investment segment. Second,
interest is also added to acquisition expense which represents the implied
interest cost of deferred acquisition costs, which is funded by and is
attributed to the investment segment.
F-24
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 12--Business Segments (continued)
The measure of profitability for the investment segment is excess investment
income, which represents the income earned on the investment portfolio in
excess of net policy requirements. The investment segment is measured on a tax-
equivalent basis, equating the return on tax-exempt investments to the pretax
return on taxable investments. Other than the above-mentioned interest
allocations, there are no other intersegment revenues or expenses. All other
unallocated revenues and expenses on a pretax basis, including insurance
administrative expense, are included in the "Other" segment category. The table
below sets forth a reconciliation of United Investors's revenues and operations
by segment to its major income statement line items.
<TABLE>
<CAPTION>
For the Year 1998
-----------------------------------------------------------
Life Annuity Investment Other Adjustments Total
-------- -------- ---------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Premium................ $ 69,572 $ 415 $ $ $ $69,987
Policy Charges and
fees.................. 12,048 33,065 45,113
Net Investment income.. 61,373 61,373
Other income........... 13,665 13,665
-------- -------- -------- ------- --- -------
Total Revenues........ 81,620 47,145 61,373 190,138
Benefits and Expenses
Policy Benefits........ 51,430 25,892 77,322
Required reserve
interest.............. (18,832) (18,162) 36,994 0
Amortization of
acquisition costs..... 16,306 11,568 27,874
Commissions and premium
taxes................. 5,182 398 5,580
Required interest on
acquisition costs..... 7,958 4,814 (12,772) 0
-------- -------- -------- ------- --- -------
Total Expenses........ 62,044 24,510 24,222 110,776
-------- -------- -------- ------- --- -------
Underwriting income
before other income
and administrative
expense............... 19,576 22,635 37,151 79,362
Administrative
Expense............... 5,633 5,633
Goodwill amortization.. 946 946
Deferred acquisition
cost adjustment.......
-------- -------- -------- ------- --- -------
Pretax operating
income................ $ 19,576 $ 22,635 $ 37,151 $(6,579) $ 0 72,783
======== ======== ======== ======= ===
Realized investment gains/losses and deferred acquisition cost
adjustment............................................................. 9,401
-------
Pretax income.......................................................... $82,184
=======
</TABLE>
F-25
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 12--Business Segments (continued)
<TABLE>
<CAPTION>
For the Year 1997
----------------------------------------------------------
Life Annuity Investment Other Adjustments Total
------- ------- ---------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Premium................ $68,413 $ 310 $ $ $ $ 68,723
Policy Charges and
fees.................. 9,573 27,009 36,582
Net Investment income.. 51,514 51,514
Other income........... 11,876 11,876
------- ------- ------- ------- ----- --------
Total Revenues........ 77,986 39,195 51,514 168,695
Benefits and Expenses
Policy Benefits........ 47,930 25,189 73,119
Required reserve
interest.............. (18,067) (19,735) 37,802 0
Amortization of
acquisition costs..... 14,671 10,227 24,898
Commissions and premium
taxes................. 5,647 604 6,251
Required interest on
acquisition costs..... 8,044 4,287 (12,331) 0
------- ------- ------- ------- ----- --------
Total Expenses........ 58,225 20,572 25,471 104,268
------- ------- ------- ------- ----- --------
Underwriting income
before other income
and administrative
expense............... 19,761 18,623 26,043 64,427
Administrative
Expense............... 5,186 5,186
Goodwill amortization.. 284 284
Deferred acquisition
cost adjustment....... 168 168
------- ------- ------- ------- ----- --------
Pretax operating
income................ $19,761 $18,623 $26,043 $(5,470) $(168) 58,789
======= ======= ======= ======= =====
Realized investment gains/losses and deferred acquisition cost
adjustment........................................................... (5,197)
--------
Pretax income........................................................ $ 53,592
========
</TABLE>
F-26
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 12--Business Segments (continued)
<TABLE>
<CAPTION>
For the Year 1996
------------------------------------------------------------
Life Annuity Investment Other Adjustments Total
-------- -------- ---------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Premium................ $ 65,114 $ $ $ $ $ 65,114
Policy Charges and
fees.................. 8,722 20,681 29,403
Net Investment income.. 51,128 51,128
Other income........... 0
-------- -------- -------- ------- ----- --------
Total Revenues........ 73,836 20,681 51,128 145,645
Benefits and Expenses
Policy Benefits........ 47,355 15,807 63,162
Required reserve inter-
est................... (17,021) (20,599) 37,620 0
Amortization of acqui-
sition costs.......... 12,817 7,033 19,850
Commissions and premium
taxes................. 4,995 253 5,248
Required interest on
acquisition costs..... 8,045 3,712 (11,757) 0
-------- -------- -------- ------- ----- --------
Total Expenses........ 56,191 6,206 25,863 88,260
-------- -------- -------- ------- ----- --------
Underwriting income be-
fore other income and
administrative ex-
pense................. 17,645 14,475 25,265 57,385
Administrative Ex-
pense................. 3,682 3,682
Goodwill amortization.. 284 284
Deferred acquisition
cost adjustment....... 437 437
-------- -------- -------- ------- ----- --------
Pretax operating in-
come.................. $ 17,645 $ 14,475 $ 25,265 $(3,966) $(437) 52,982
======== ======== ======== ======= =====
Realized investment gains/losses and deferred acquisition cost
adjustment............................................................. 1,362
--------
Pretax income.......................................................... $ 54,344
========
</TABLE>
Assets for each segment are reported based on a specific identification
basis. The insurance segments' assets contain deferred acquisition costs, value
of insurance purchased, and separate account assets. The investment segment
includes the investment portfolio, cash, and accrued investment income.
Goodwill is assigned to corporate operations. All other assets, representing
less than 2% of total assets, are included in the other category. The table
below reconciles segment assets to total assets as reported in the financial
statements.
<TABLE>
<CAPTION>
At December 31, 1998
--------------------------------------------------------------
Life Annuity Investment Other Adjustments Total
-------- ---------- ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash and invested
assets................. $ $ $873,478 $ $ $ 873,478
Accrued investment
income................. 11,747 11,747
Deferred acquisition
costs.................. 113,057 100,576 213,633
Goodwill................ 29,465 29,465
Separate account
assets................. 2,425,262 2,425,262
Other Assets............ 283,453 283,453
-------- ---------- -------- -------- --- ----------
Total Assets............ $113,057 $2,525,838 $885,225 $312,918 $ 0 $3,837,038
======== ========== ======== ======== === ==========
</TABLE>
F-27
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 12--Business Segments (continued)
<TABLE>
<CAPTION>
At December 31, 1997
--------------------------------------------------------------
Life Annuity Investment Other Adjustments Total
-------- ---------- ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash and invested
assets................. $ $ $692,659 $ $ $ 692,659
Accrued investment
income................. 11,270 11,270
Deferred acquisition
costs.................. 117,410 93,241 210,651
Goodwill................ 6,771 6,771
Separate account
assets................. 1,876,439 1,876,439
Other Assets............ 229,351 229,351
-------- ---------- -------- -------- ----- ----------
Total Assets............ $117,410 $1,969,680 $703,929 $236,122 $ 0 $3,027,141
======== ========== ======== ======== ===== ==========
<CAPTION>
At December 31, 1996
--------------------------------------------------------------
Life Annuity Investment Other Adjustments Total
-------- ---------- ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash and invested
assets................. $ $ $664,861 $ $ $ 664,861
Accrued investment
income................. 10,781 10,781
Deferred acquisition
costs.................. 120,083 66,063 186,146
Goodwill................ 7,055 7,055
Separate account
assets................. 1,420,025 1,420,025
Other Assets............ 39,748 39,748
-------- ---------- -------- -------- ----- ----------
Total Assets............ $120,083 $1,486,088 $675,642 $ 46,803 $ 0 $2,328,616
======== ========== ======== ======== ===== ==========
</TABLE>
F-28
<PAGE>
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, 1998 and the related statements of
operations and changes in net assets for each of the years in the three-year
period ended December 31, 1998. 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, 1998 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, 1998 in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Birmingham, Alabama
April 9, 1999
F-29
<PAGE>
UNITED INVESTORS LIFE VARIABLE ACCOUNT
BALANCE SHEET
At December 31, 1998
<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)........ $1,216,146 $3,659,483 $3,441,806 $26,165,603 $18,303,456 $5,854,292 $5,506,093 $2,200,360 $ 89,322 $ 618,540
---------- ---------- ---------- ----------- ----------- ---------- ---------- ---------- --------- ---------
Total assets.... 1,216,146 3,659,483 3,441,806 26,165,603 18,303,456 5,854,292 5,506,093 2,200,360 89,322 618,540
---------- ---------- ---------- ----------- ----------- ---------- ---------- ---------- --------- ---------
Liabilities:
Mortality and
expense risk
charge payable
to Sponsor
(Note D)........ 298 799 786 5,897 4,128 1,326 1,214 500 20 140
---------- ---------- ---------- ----------- ----------- ---------- ---------- ---------- --------- ---------
Total
liabilities.... 298 799 786 5,897 4,128 1,326 1,214 500 20 140
---------- ---------- ---------- ----------- ----------- ---------- ---------- ---------- --------- ---------
Net assets
(Note C)....... $1,215,848 $3,658,684 $3,441,020 $26,159,706 $18,299,328 $5,852,966 $5,504,879 $2,199,860 $ 89,302 $ 618,400
========== ========== ========== =========== =========== ========== ========== ========== ========= =========
Equity:
Equity of
Sponsor
(Note E)....... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Equity of
contract
owners......... 1,215,848 3,658,684 3,441,020 26,159,706 18,299,328 5,852,966 5,504,879 2,199,860 89,302 618,400
---------- ---------- ---------- ----------- ----------- ---------- ---------- ---------- --------- ---------
Total equity.... $1,215,848 $3,658,684 $3,441,020 $26,159,706 $18,299,328 $5,852,966 $5,504,879 $2,199,860 $ 89,302 $ 618,400
========== ========== ========== =========== =========== ========== ========== ========== ========= =========
Accumulation
units
outstanding.... 708,859 1,518,405 1,309,833 4,573,574 5,592,560 3,110,272 2,235,379 1,276,650 67,752 468,460
========== ========== ========== =========== =========== ========== ========== ========== ========= =========
Net asset value
per unit....... $ 1.715219 $ 2.409558 $ 2.627067 $ 5.719752 $ 3.272084 $ 1.881818 $ 2.462616 $ 1.723150 $1.318072 $1.320070
========== ========== ========== =========== =========== ========== ========== ========== ========= =========
<CAPTION>
Science and
Technology Total
----------- -----------
<S> <C> <C>
Assets:
Investments in
Mutual Funds
(Note B)........ $ 369,414 $67,424,515
----------- -----------
Total assets.... 369,414 67,424,515
----------- -----------
Liabilities:
Mortality and
expense risk
charge payable
to Sponsor
(Note D)........ 81 15,189
----------- -----------
Total
liabilities.... 81 15,189
----------- -----------
Net assets
(Note C)....... $ 369,333 $67,409,326
=========== ===========
Equity:
Equity of
Sponsor
(Note E)....... $ 0 $ 0
Equity of
contract
owners......... 369,333 67,409,326
----------- -----------
Total equity.... $ 369,333 $67,409,326
=========== ===========
Accumulation
units
outstanding.... 219,801 21,081,545
=========== ===========
Net asset value
per unit....... $1.680310
===========
</TABLE>
See Notes to Financial Statements.
F-30
<PAGE>
UNITED INVESTORS LIFE VARIABLE ACCOUNT
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Limited
Money High Term
Market Bond Income Growth Income International Small Cap Balanced Bond
---------- ---------- ---------- ----------- ----------- ------------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend income
(Note B, D)....... $ 54,927 $ 201,947 $ 298,055 $ 912,935 $ 2,722,467 $ 500,220 $795,929 $73,995 $ 4,919
Expenses paid to
Sponsor:
Mortality and ex-
pense risk
charge........... 6,667 20,728 24,404 145,410 108,579 32,767 31,375 12,654 2,230
Contract maintenance charges:
Sales expense.... 4,449 12,668 13,567 75,436 79,273 27,414 26,191 11,461 395
Underwriting and
issue expense... 544 1,722 1,788 9,828 9,825 3,357 3,250 1,361 46
Premium taxes.... 1,358 4,305 4,469 24,568 24,564 8,394 8,127 3,404 116
Cost of insur-
ance............ 10,971 27,139 21,631 128,199 112,516 37,844 38,001 17,609 559
Administrative
expense......... 1,439 3,883 5,280 29,976 25,133 7,148 7,877 3,049 90
---------- ---------- ---------- ----------- ----------- ---------- ---------- ---------- --------
Total........... 25,428 70,445 71,139 413,417 359,890 116,924 114,821 49,538 3,436
Net investment in-
come.............. 29,499 131,502 226,916 499,518 2,362,577 383,296 681,108 24,457 1,483
Realized investment
gains (losses)
distributed to ac-
counts............ 0 59,768 139,541 1,059,015 1,565,818 139,807 56,115 39,345 34,704
Unrealized invest-
ment gains (loss-
es)............... 0 (12,153) (308,985) 4,018,911 (757,268) 861,218 (324,365) 64,253 (16,524)
---------- ---------- ---------- ----------- ----------- ---------- ---------- ---------- --------
Net gain (loss) on
investments....... 0 47,615 (169,444) 5,077,926 808,550 1,001,025 (268,250) 103,598 18,180
---------- ---------- ---------- ----------- ----------- ---------- ---------- ---------- --------
Net increase
(decrease) in net
assets from
operations........ 29,499 179,117 57,472 5,577,444 3,171,127 1,384,321 412,858 128,055 19,663
Premium deposits &
net
transfers*........ 12,905 564,869 235,394 702,757 1,397,028 316,203 446,884 284,594 8,948
Equity of sponsor
withdrawn (Note E)
.................. 0 (597,699) (1,350,825) (2,554,766) (3,099,796) (122,844) (161,051) (110,303) (637,753)
Transfer to sponsor
for benefits and
terminations...... (5,412) (145,723) (248,607) (1,015,756) (474,598) (122,263) (45,681) (37,254) 0
---------- ---------- ---------- ----------- ----------- ---------- ---------- ---------- --------
Total increase (de-
crease)........... 36,992 564 (1,306,566) 2,709,679 993,761 1,455,417 653,010 265,092 (609,142)
Net assets at
beginning of
period............ $1,178,856 $3,658,120 $4,747,586 $23,450,027 17,305,567 4,397,549 4,851,869 1,934,768 698,444
---------- ---------- ---------- ----------- ----------- ---------- ---------- ---------- --------
Net assets at end
of period
(Note C).......... $1,215,848 $3,658,684 $3,441,020 $26,159,706 $18,299,328 $5,852,966 $5,504,879 $2,199,860 $89,302
========== ========== ========== =========== =========== ========== ========== ========== ========
<CAPTION>
Asset Science and
Strategy Technology Total
-------- ----------- ------------
<S> <C> <C> <C>
Dividend income
(Note B, D)....... $ 35,417 $ 6,829 $ 5,607,640
Expenses paid to
Sponsor:
Mortality and ex-
pense risk
charge........... 3,470 3,160 391,444
Contract maintenance charges:
Sales expense.... 3,601 973 255,428
Underwriting and
issue expense... 427 123 32,271
Premium taxes.... 1,064 309 80,678
Cost of insur-
ance............ 5,622 1,504 401,595
Administrative
expense......... 411 365 84,651
-------- ----------- ------------
Total........... 14,595 6,434 1,246,067
Net investment in-
come.............. 20,822 395 4,361,573
Realized investment
gains (losses)
distributed to ac-
counts............ 837 171,998 3,266,948
Unrealized invest-
ment gains (loss-
es)............... 17,668 31,556 3,574,311
-------- ----------- ------------
Net gain (loss) on
investments....... 18,505 203,554 6,841,259
-------- ----------- ------------
Net increase
(decrease) in net
assets from
operations........ 39,327 203,949 11,202,832
Premium deposits &
net
transfers*........ 36,203 148,826 4,154,611
Equity of sponsor
withdrawn (Note E)
.................. 0 (689,643) (9,324,680)
Transfer to sponsor
for benefits and
terminations...... 0 (1,172) (2,096,466)
-------- ----------- ------------
Total increase (de-
crease)........... 75,530 (338,040) 3,936,297
Net assets at
beginning of
period............ 542,870 707,373 63,473,029
-------- ----------- ------------
Net assets at end
of period
(Note C).......... $618,400 $369,333 $67,409,326
======== =========== ============
</TABLE>
- -----
*Includes transfer activity from (to) other portfolios.
See Notes to Financial Statements.
F-31
<PAGE>
UNITED INVESTORS LIFE VARIABLE ACCOUNT
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Limited
Money High Term
Market Bond Income Growth Income International Small Cap Balanced Bond
---------- ---------- ---------- ----------- ----------- ------------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend income
(Note B, D)....... $ 65,646 $ 219,536 $ 439,614 $ 1,952,411 $ 1,121,249 $ 389,188 $1,023,553 $151,208 $ 41,702
Expenses paid to
Sponsor (Note D):
Mortality and ex-
pense risk
charge........... 7,862 21,800 27,223 133,690 94,055 23,451 24,261 10,070 4,023
Contract maintenance charges:
Sales expense.... 5,217 13,724 15,099 78,456 68,489 21,057 22,126 8,883 346
Underwriting and
issue expense... 714 1,911 2,087 10,312 8,463 2,575 2,748 1,060 41
Premium taxes.... 1,788 4,778 5,218 25,780 21,157 6,439 6,869 2,647 102
Cost of insur-
ance............ 10,189 29,251 23,853 120,492 101,444 29,451 33,011 14,030 469
Administrative
expense......... 1,301 3,868 5,256 28,471 20,875 5,352 6,543 2,467 77
---------- ---------- ---------- ----------- ----------- ---------- ---------- ---------- --------
Total........... 27,071 75,332 78,736 397,201 314,483 88,325 95,558 39,157 5,058
Net investment in-
come.............. 38,575 144,204 360,878 1,555,210 806,766 300,863 927,995 112,051 36,644
Realized investment
gains
distributed to ac-
counts............ 0 20,434 36,774 336,615 317,410 48,195 56,090 12,067 580
Unrealized invest-
ment gains........ 0 83,897 122,364 1,918,342 2,038,193 143,422 48,676 117,939 2,333
---------- ---------- ---------- ----------- ----------- ---------- ---------- ---------- --------
Net gain on invest-
ments............. 0 104,331 159,138 2,254,957 2,355,603 191,617 104,766 130,006 2,913
---------- ---------- ---------- ----------- ----------- ---------- ---------- ---------- --------
Net increase in net
assets from opera-
tions............. 38,575 248,535 520,016 3,810,167 3,162,369 492,480 1,032,761 242,057 39,557
Premium deposits &
net
transfers*........ (401,330) 66,799 125,520 1,044,490 1,738,685 872,193 663,286 314,837 5,231
Investment by
sponsor
(Note E).......... 0 (500,000) 0 0 0 0 0 0 0
Transfer to sponsor
for benefits and
terminations...... (143,495) (174,862) (225,612) (1,196,531) (387,660) (141,228) (110,491) (18,660) (4,242)
---------- ---------- ---------- ----------- ----------- ---------- ---------- ---------- --------
Total increase (de-
crease)... (506,250) (359,528) 419,924 3,658,126 4,513,394 1,223,445 1,585,556 538,234 40,546
Net assets at
beginning of
period............ 1,685,106 4,017,648 4,327,662 19,791,901 12,792,173 3,174,104 3,266,313 1,396,534 657,898
---------- ---------- ---------- ----------- ----------- ---------- ---------- ---------- --------
Net assets at end
of period
(Note C).......... $1,178,856 $3,658,120 $4,747,586 $23,450,027 $17,305,567 $4,397,549 $4,851,869 $1,934,768 $698,444
========== ========== ========== =========== =========== ========== ========== ========== ========
<CAPTION>
Asset Science and
Strategy Technology Total
-------- ----------- ------------
<S> <C> <C> <C>
Dividend income
(Note B, D)....... $ 60,922 $ 4,763 $ 5,469,792
Expenses paid to
Sponsor (Note D):
Mortality and ex-
pense risk
charge........... 3,016 2,811 352,262
Contract maintenance charges:
Sales expense.... 3,622 170 237,189
Underwriting and
issue expense... 428 20 30,359
Premium taxes.... 1,071 50 75,899
Cost of insur-
ance............ 7,246 151 369,587
Administrative
expense......... 413 27 74,650
-------- ----------- ------------
Total........... 15,796 3,229 1,139,946
Net investment in-
come.............. 45,126 1,534 4,329,846
Realized investment
gains
distributed to ac-
counts............ 1,582 3,802 833,549
Unrealized invest-
ment gains........ 4,673 78,192 4,558,031
-------- ----------- ------------
Net gain on invest-
ments............. 6,255 81,994 5,391,580
-------- ----------- ------------
Net increase in net
assets from opera-
tions............. 51,381 83,528 9,721,426
Premium deposits &
net
transfers*........ 15,824 123,845 4,569,380
Investment by
sponsor
(Note E).......... 0 500,000 0
Transfer to sponsor
for benefits and
terminations...... 0 0 (2,402,781)
-------- ----------- ------------
Total increase (de-
crease)... 67,205 707,373 11,888,025
Net assets at
beginning of
period............ 475,665 0 51,585,004
-------- ----------- ------------
Net assets at end
of period
(Note C).......... $542,870 $707,373 $63,473,029
======== =========== ============
</TABLE>
- -----
*Includes transfer activity from (to) other portfolios.
See Notes to Financial Statements.
F-32
<PAGE>
UNITED INVESTORS LIFE VARIABLE ACCOUNT
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Limited
Money High Term
Market Bond Income Growth Income International Small Cap Balanced Bond
---------- ---------- ---------- ----------- ----------- ------------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend income
(Note B, D)....... $ 67,625 $ 247,098 $ 365,207 $ 2,260,473 $ 310,270 $ 40,388 $ 128,874 $ 77,301 $ 34,473
Expenses paid to
Sponsor (Note D):
Mortality and
expense risk
charge........... 8,421 23,470 23,955 107,839 65,099 15,967 16,559 6,612 3,816
Contract
maintenance
charges:
Sales expense.... 3,990 14,800 14,613 70,974 49,893 14,277 13,709 5,350 321
Underwriting and
issue expense.... 565 2,060 2,011 9,416 6,226 1,730 1,669 636 38
Premium taxes.... 1,412 5,149 5,028 23,540 15,563 4,324 4,173 1,591 95
Cost of
insurance........ 8,112 31,858 24,490 111,721 80,172 21,218 20,414 9,254 386
Administrative
expense.......... 1,155 4,040 5,117 24,962 14,975 3,518 3,620 1,370 48
---------- ---------- ---------- ----------- ----------- ---------- ---------- ---------- --------
Total........... 23,655 81,377 75,214 348,452 231,928 61,034 60,144 24,813 4,704
Net investment in-
come (loss)...... 43,970 165,721 289,993 1,912,021 78,342 (20,646) 68,730 52,488 29,769
Realized
investment gains
distributed to
accounts.......... 0 10,428 12,266 154,511 149,372 18,162 43,253 5,640 238
Unrealized
investment gains
(losses).......... 0 (127,873) 94,807 (280,931) 1,493,351 319,036 (14,604) 38,817 (10,782)
---------- ---------- ---------- ----------- ----------- ---------- ---------- ---------- --------
Net gain (loss) on
investments....... 0 (117,445) 107,073 (126,420) 1,642,723 337,198 28,649 44,457 (10,544)
---------- ---------- ---------- ----------- ----------- ---------- ---------- ---------- --------
Net increase in
net assets from
operations........ 43,970 48,276 397,066 1,785,601 1,721,065 316,552 97,379 96,945 19,225
Premium deposits
and net
transfers*........ 345,070 83,031 237,801 1,807,736 2,428,537 974,379 1,328,646 450,153 47,604
Transfer to
Sponsor for
benefits and
terminations...... (33,896) (100,872) (260,183) (380,062) (190,414) (40,875) (23,937) (9,567) 0
---------- ---------- ---------- ----------- ----------- ---------- ---------- ---------- --------
Total increase ... 355,144 30,435 374,684 3,213,275 3,959,188 1,250,056 1,402,088 537,531 66,829
Net assets at
beginning of
period............ 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
---------- ---------- ---------- ----------- ----------- ---------- ---------- ---------- --------
Net assets at end
of period
(Note C).......... $1,685,106 $4,017,648 $4,327,662 $19,791,901 $12,792,173 $3,174,104 $3,266,313 $1,396,534 $657,898
========== ========== ========== =========== =========== ========== ========== ========== ========
<CAPTION>
Asset
Strategy Total
-------- ------------
<S> <C> <C>
Dividend income
(Note B, D)....... $ 16,233 $ 3,547,942
Expenses paid to
Sponsor (Note D):
Mortality and
expense risk
charge........... 2,278 274,016
Contract
maintenance
charges:
Sales expense.... 513 188,440
Underwriting and
issue expense.... 60 24,411
Premium taxes.... 151 61,026
Cost of
insurance........ 957 308,582
Administrative
expense.......... 145 58,950
-------- ------------
Total........... 4,104 915,425
Net investment in-
come (loss)...... 12,129 2,632,517
Realized
investment gains
distributed to
accounts.......... 50 393,920
Unrealized
investment gains
(losses).......... 7,307 1,519,128
-------- ------------
Net gain (loss) on
investments....... 7,357 1,913,048
-------- ------------
Net increase in
net assets from
operations........ 19,486 4,545,565
Premium deposits
and net
transfers*........ 393,715 8,096,672
Transfer to
Sponsor for
benefits and
terminations...... 0 (1,039,806)
-------- ------------
Total increase ... 413,201 11,602,431
Net assets at
beginning of
period............ 62,464 39,982,573
-------- ------------
Net assets at end
of period
(Note C).......... $475,665 $51,585,004
======== ============
</TABLE>
- -----
*Includes transfer activity from (to) other portfolios.
See Notes to Financial Statements.
F-33
<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 Target/United Funds, Inc. ("the Fund"), a
mutual fund with eleven separate investment portfolios including a money market
portfolio, a bond portfolio, a high income portfolio, a growth portfolio, an
income portfolio, an international portfolio, a small cap portfolio, a balanced
portfolio, a limited term bond portfolio, an asset strategy portfolio and a
science and technology portfolio (established during 1997). The assets of each
portfolio of the Fund are held separate from the assets of the other
portfolios. Thus, each portfolio operates as a separate investment portfolio,
and the investment performance of one portfolio has no effect on any other
portfolio.
Basis of Presentation--The financial statements of the 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-34
<PAGE>
UNITED INVESTORS LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following is a summary of reinvested dividends by portfolio:
<TABLE>
<CAPTION>
1998
----
Investment Portfolio Shares Reinvested Dividend Income
-------------------- ----------------- ---------------
<S> <C> <C>
Money Market................................. 54,926 $ 54,927
Bond......................................... 37,088 201,947
High Income.................................. 67,520 298,055
Growth....................................... 98,177 912,935
Income....................................... 220,709 2,722,467
International................................ 63,986 500,220
Small Cap.................................... 100,726 795,929
Balanced..................................... 10,410 73,995
Limited Term Bond............................ 941 4,919
Asset Strategy............................... 6,575 35,417
Science and Technology....................... 825 6,829
<CAPTION>
1997
----
Investment Portfolio Shares Reinvested Dividend Income
-------------------- ----------------- ---------------
<S> <C> <C>
Money Market................................. 65,646 $ 65,646
Bond......................................... 40,893 219,536
High Income.................................. 92,742 439,614
Growth....................................... 257,986 1,952,411
Income....................................... 93,738 1,121,249
International................................ 60,961 389,188
Small Cap.................................... 122,852 1,023,553
Balanced..................................... 22,340 151,208
Limited Term Bond............................ 8,038 41,702
Asset Strategy............................... 11,723 60,922
Science and Technology....................... 825 4,763
<CAPTION>
1996
----
Investment Portfolio Shares Reinvested Dividend Income
-------------------- ----------------- ---------------
<S> <C> <C>
Money Market................................. 67,625 $ 67,625
Bond......................................... 47,515 247,098
High Income.................................. 79,827 365,207
Growth....................................... 332,584 2,260,473
Income....................................... 30,607 310,270
International................................ 6,733 40,388
Small Cap.................................... 16,074 128,874
Balanced..................................... 12,474 77,301
Limited Term Bond............................ 6,676 34,473
Asset Strategy............................... 3,162 16,233
</TABLE>
F-35
<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
1998 Market Bond Income Growth Income International Small Cap Balanced Bond
- ---- ---------- ---------- ---------- ----------- ----------- ------------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cost to:
Contract
Owners.......... $1,695,441 $2,810,887 $3,176,521 $12,443,962 $11,245,155 $3,972,345 $3,848,564 $1,721,643 $ 86,110
Sponsor......... 0 500,000 500,000 500,000 1,000,000 65,000 65,000 65,000 500,000
Adjustment for
market
appreciation
(depreciation) .. 825,506 2,346,155 3,022,132 21,974,968 11,503,898 2,545,544 2,232,152 720,796 167,514
Deductions:
Mortality &
expense risk
charge.......... (93,485) (173,793) (195,537) (728,174) (364,480) (83,643) (81,327) (34,200) (15,438)
Contract
maintenance
charges:
Sales expense... (44,552) (96,909) (110,291) (437,812) (247,877) (69,624) (67,444) (29,129) (1,244)
Underwriting and
issue expense... (6,705) (14,131) (16,133) (61,185) (30,934) (8,509) (8,339) (3,468) (146)
Premium taxes... (16,761) (35,327) (40,334) (152,966) (77,336) (21,274) (20,849) (8,670) (366)
Cost of
insurance....... (96,482) (215,483) (206,436) (741,351) (380,918) (99,056) (100,470) (47,333) (1,733)
Administrative
expense......... (16,508) (30,518) (41,841) (171,333) (76,986) (17,814) (19,293) (7,553) (263)
Benefits &
terminations.... (1,030,606) (834,498) (1,296,236) (3,911,637) (1,171,398) (307,159) (182,064) (66,923) (7,379)
Equity of
sponsor
withdrawn (Note
E).............. 0 (597,699) (1,350,825) (2,554,766) (3,099,796) (122,844) (161,051) (110,303) (637,753)
---------- ---------- ---------- ----------- ----------- ---------- ---------- ---------- --------
Net assets....... $1,215,848 $3,658,684 $3,441,020 $26,159,706 $18,299,328 $5,852,966 $5,504,879 $2,199,860 $ 89,302
========== ========== ========== =========== =========== ========== ========== ========== ========
<CAPTION>
1997
- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cost to:
Contract own-
ers............. $1,682,536 $2,746,018 $2,941,127 $11,741,205 $ 9,848,127 $3,656,142 $3,401,680 $1,437,049 $ 77,162
Sponsor......... 0 0 500,000 500,000 1,000,000 65,000 65,000 65,000 500,000
Adjustment for
market
appreciation and
reinvested
dividends........ 770,579 2,096,593 2,893,521 15,984,107 7,972,881 1,044,299 1,704,473 543,203 144,415
Deductions:
Morality & ex-
pense risk
charge.......... (86,818) (153,065) (171,133) (582,764) (255,901) (50,876) (49,952) (21,546) (13,208)
Contract mainte-
nance charges:
Sales expense... (40,103) (84,241) (96,724) (362,376) (168,604) (42,210) (41,253) (17,668) (849)
Underwriting and
issue expense... (6,161) (12,409) (14,345) (51,357) (21,109) (5,152) (5,089) (2,107) (100)
Premium taxes... (15,403) (31,022) (35,865) (128,398) (52,772) (12,880) (12,722) (5,266) (250)
Cost of insur-
ance............ (85,511) (188,344) (184,805) (613,152) (268,402) (61,212) (62,469) (29,724) (1,174)
Administrative
expense......... (15,069) (26,635) (36,561) (141,357) (51,853) (10,666) (11,416) (4,504) (173)
Loan interest... (8,915) (2,310) (2,937) (9,063) (2,053) (195) (122) (10) 0
Benefits & ter-
minations....... (1,016,279) (686,465) (1,044,692) (2,886,818) (694,747) (184,701) (136,261) (29,659) (7,379)
---------- ---------- ---------- ----------- ----------- ---------- ---------- ---------- --------
Net assets....... $1,178,856 $3,658,120 $4,747,586 $23,450,027 $17,305,567 $4,397,549 $4,851,869 $1,934,768 $698,444
========== ========== ========== =========== =========== ========== ========== ========== ========
<CAPTION>
Asset Science and
1998 Strategy Technology
- ---- --------- -----------
<S> <C> <C>
Cost to:
Contract
Owners.......... $508,812 272,671
Sponsor......... 0 500,000
Adjustment for
market
appreciation
(depreciation) .. 144,430 297,140
Deductions:
Mortality &
expense risk
charge.......... (8,857) (5,971)
Contract
maintenance
charges:
Sales expense... (7,821) (1,143)
Underwriting and
issue expense... (925) (143)
Premium taxes... (2,311) (359)
Cost of
insurance....... (13,928) (1,655)
Administrative
expense......... (1,000) (392)
Benefits &
terminations.... 0 (1,172)
Equity of
sponsor
withdrawn (Note
E).............. 0 (689,643)
--------- -----------
Net assets....... $618,400 369,333
========= ===========
<CAPTION>
1997
- ----
<S> <C> <C>
Cost to:
Contract own-
ers............. $472,609 $123,845
Sponsor......... 0 500,000
Adjustment for
market
appreciation and
reinvested
dividends........ 90,508 86,757
Deductions:
Morality & ex-
pense risk
charge.......... (5,387) (2,811)
Contract mainte-
nance charges:
Sales expense... (4,220) (170)
Underwriting and
issue expense... (498) (20)
Premium taxes... (1,247) (50)
Cost of insur-
ance............ (8,306) (151)
Administrative
expense......... (589) (27)
Loan interest... 0 0
Benefits & ter-
minations....... 0 0
--------- -----------
Net assets....... $542,870 $707,373
========= ===========
</TABLE>
F-36
<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 net assets; High Income Portfolio .15% of
net assets; Growth Portfolio .20% of net assets; Income Portfolio .20% of net
assets; International Portfolio .30% of net assets; Small Cap Portfolio .35% of
net assets; Balanced Portfolio .10% of net assets; Limited Term Bond Portfolio
.05% of net assets; Asset Strategy Portfolio .30% of net assets; Science and
Technology .20% 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%; from $750 to $1,500 million--.49%; from $1,500 to $2,250 million--.47%;
over $2,250 million--.45%. Fees for these services are deducted from dividend
income. The amount of these fees has been:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- --------
<S> <C> <C> <C>
Money Market....................................... 5,496 6,838 $ 7,393
Bond............................................... 18,746 19,669 20,785
High Income........................................ 26,683 28,908 26,544
Growth............................................. 166,154 155,740 126,418
Income............................................. 123,346 108,327 75,558
International...................................... 42,257 31,148 20,151
Small Cap.......................................... 43,961 33,685 23,128
Balanced........................................... 12,194 9,823 6,658
Limited Term Bond.................................. 2,060 3,732 3,444
Asset Strategy..................................... 4,425 4,006 2,492
Science and Technology............................. 3,039 1,931 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.
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
F-37
<PAGE>
UNITED INVESTORS LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS--(Continued)
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>
Surrender charges are included in transfers to Sponsor for benefits and
terminations.
Note E--Equity of Sponsor
The equity of the Sponsor may be withdrawn at the discretion of the Sponsor
without penalty.
F-38
<PAGE>
UNITED INVESTORS LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note F--Selected unit data
Selected data for a weighted average unit of the Life Variable Separate
Account outstanding throughout each period follows.
<TABLE>
<CAPTION>
Limited
Money High Small Term Asset Science and
Market Bond Income Growth Income International Cap Balanced Bond Strategy Technology*
------ ------ ------ ------ ------ ------------- ------ -------- ------- -------- -----------
1998
- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend income.. $ 0.08 $ 0.14 $ 0.19 $ 0.19 $ 0.45 $ 0.16 $ 0.36 $ 0.06 $ 0.02 $ 0.08 $0.02
Expenses......... 0.04 0.05 0.05 0.08 0.06 0.04 0.05 0.04 0.01 0.03 0.02
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Investment income
(loss)--net...... 0.04 0.09 0.14 0.11 0.39 0.12 0.31 0.02 0.01 0.05 0.00
Net realized and
unrealized in-
vestment gains--
(losses)... 0.00 0.03 (0.11) 1.04 0.13 0.32 (0.12) 0.08 0.06 0.04 0.51
Premium deposits
and net
transfers....... 0.02 0.38 0.15 0.14 0.23 0.10 0.20 0.22 0.03 0.08 0.37
Transfer to spon-
sor for benefits
and termina-
tions............ (0.01) (0.10) (0.16) (0.21) (0.08) (0.04) (0.02) (0.03) 0.00 0.00 0.00
Equity of sponsor
withdrawn
(Note E)......... 0.00 (0.40) (0.87) (0.52) (0.52) (0.04) (0.07) (0.09) (2.17) 0.00 (1.74)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Increase (de-
crease) in net
asset value...... 0.05 (0.00) (0.85) 0.56 0.15 0.46 0.30 0.20 (2.07) 0.17 (0.86)
Net asset value,
beginning of the
period........... 1.22 2.15 2.57 4.56 3.09 1.79 2.84 2.11 1.25 1.52 0.36
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of the peri-
od............... $ 1.27 $ 2.15 $ 1.72 $ 5.12 $ 3.24 $ 2.25 $ 3.14 $ 2.31 $(0.82) $ 1.69 $(0.50)
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
1997
- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend income.. $ 0.08 $ 0.13 $ 0.24 $ 0.37 $ 0.18 $ 0.13 $ 0.49 $ 0.13 $ 0.07 $ 0.14 $0.01
Expenses......... 0.03 0.04 0.04 0.08 0.05 0.03 0.05 0.03 0.01 0.04 0.01
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Investment in-
come--net........ 0.05 0.09 0.20 0.29 0.13 0.10 0.44 0.10 0.06 0.10 0.00
Net realized and
unrealized in-
vestment gains... 0.00 0.06 0.09 0.43 0.38 0.07 0.05 0.11 0.01 0.01 0.14
Premium deposits
and net
transfers....... (0.49) 0.04 0.07 0.20 0.28 0.30 0.32 0.28 0.01 0.04 0.22
Transfer to spon-
sor for benefits
and termina-
tions............ (0.17) (0.10) (0.12) (0.23) (0.06) (0.05) (0.05) (0.02) (0.01) 0.00 0.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Increase (de-
crease) in net
asset value...... (0.61) 0.09 0.24 0.69 0.73 0.42 0.76 0.47 0.07 0.15 0.36
Net asset value,
beginning of the
period........... 1.83 2.06 2.33 3.87 2.36 1.37 2.08 1.64 1.18 1.37 0.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of the peri-
od............... $ 1.22 $ 2.15 $ 2.57 $ 4.56 $ 3.09 $ 1.79 $ 2.84 $ 2.11 $ 1.25 $ 1.52 $0.36
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
1996
- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend income.. $ 0.07 $ 0.13 $ 0.20 $ 0.44 $ 0.06 $ 0.02 $ 0.08 $ 0.09 $ 0.06 $ 0.05
Expenses......... 0.03 0.04 0.04 0.07 0.04 0.03 0.04 0.03 0.01 0.01
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Investment income
(loss)--net...... 0.04 0.09 0.16 0.37 0.02 (0.01) 0.04 0.06 0.05 0.04
Net realized and
unrealized in-
vestment
gains (losses)... (0.29) (0.05) 0.13 (0.25) (0.06) (0.29) (0.80) (0.35) (0.08) (1.99)
Premium deposits
and
net transfers.... 0.38 0.04 0.13 0.35 0.45 0.42 0.85 0.53 0.09 1.13
Transfer to
Sponsor for
benefits and
terminations..... (0.04) (0.05) (0.14) (0.07) (0.04) (0.02) (0.02) (0.01) 0 0
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Increase (de-
crease) in
net asset value.. 0.9 0.03 0.28 0.40 0.37 0.10 0.07 0.23 0.06 (0.82)
Net asset value,
beginning of the
period........... 1.74 2.03 2.05 3.47 1.99 1.27 2.01 1.41 1.12 2.19
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of the peri-
od............... $ 1.83 $ 2.06 $ 2.33 $ 3.87 $ 2.36 $ 1.37 $ 2.08 $ 1.64 $ 1.18 $ 1.37
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
- -----
* Established in 1997
F-39
<PAGE>
PART II
-------
UNDERTAKING TO FILE REPORTS
---------------------------
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore, or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
--------------------
In-so-far as indemnification for liability arising under the Securities Act
of 1933 may be permitted to Directors, officers and controlling persons of the
Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a Director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such Director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
REPRESENTATIONS PURSUANT TO SECTION 26(e)(2)(A)
-----------------------------------------------
United Investors Life Insurance Company hereby represents that the fees and
charges deducted under the variable life policy form, in the aggregate, are
reasonable in relation to the services rendered, the expenses expected to be
incurred, and the risks assumed by United Investors.
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following Papers and Documents:
The Facing Sheet.
The Prospectus consisting of 78 pages.
The Undertaking to File Reports.
The Undertaking Pursuant to Rule 484.
Representation Pursuant to Section 26(e)(2)(A) of the Investment Company
Act.
The Signatures.
Written consents of the following persons:
(a) John H. Livingston, Esquire (included in Exhibit 3).
(b) Sutherland Asbill & Brennan LLP.
(c) W. Thomas Aycock (included in Exhibit 6).
(d) KPMG Peat Marwick LLP.
The following Exhibits correspond to those required by paragraph A of the
instructions as to Exhibits in Form N-8B-2:
1. A.
(1) Resolution of the Board of Directors of United Investors
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\
(7) Not Applicable.
(8) Participation Agreement for Target/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 and consent of John H. Livingston, Esquire, Secretary and
Counsel.\5\
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.\5\
<PAGE>
7. Consent of Sutherland Asbill & Brennan LLP.\5\
8. Consent of KPMG Peat Marwick LLP.\5\
___________________
\1\ Incorporated herein by reference to the Exhibit filed electronically with
Post-Effective Amendment No. 12 to Form S-6 Registration Statement, File
33-11465, filed on April 30, 1998(previously filed on January 22, 1987
as an Exhibit to the Form S-6 Registration Statement, File No. 33-11465).
\2\ Incorporated herein by reference to the Exhibit filed electronically with
Post-Effective Amendment No. 12 to Form S-6 Registration Statement, File
33-11465, filed on April 30, 1998 (previously filed as an Exhibit to
Pre-Effective Amendment No. 1 to the Form S-6 Registration Statement,
File No. 33-11465).
\3\ Incorporated herein by reference to the Exhibit filed electronically with
Post-Effective Amendment No. 12 to Form S-6 Registration Statement, File
33-11465, filed on April 30, 1998 (previously filed as an Exhibit to
Post-Effective Amendment No. 5 to the Form S-6 Registration Statement,
File No. 33-11465).
\4\ Incorporated herein by reference to the Exhibit filed electronically with
Post-Effective Amendment No. 12 to Form S-6 Registration Statement, File
33-11465, filed on April 30, 1998 (previously filed as an Exhibit to
Post-Effective Amendment. No. 8 to the Form S-6 Registration Statement,
File No. 33-11465).
\5\ Filed herewith.
<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 Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, and its seal to be hereunto affixed and attested, all in the city of
Birmingham, and State of Alabama, on the 28th day of April, 1999.
United Investors Life Variable Account
(Registrant)
(Seal) United Investors Life Insurance Company
(Depositor)
Attest: /s/ John H. Livingston By: /s/ Anthony L. McWhorter
---------------------- ------------------------
John H. Livingston Anthony L. McWhorter
Secretary and Counsel President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following Directors and
Officers of United Investors Life Insurance Company in the capacities and on the
Dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
Chairman of the Board of Directors
- -------------------------- and Chief Executive Officer -----------------
C. B. Hudson
/s/ Anthony L. McWhorter Director and President 4-27-99
- -------------------------- -----------------
Anthony L. McWhorter
/s/ W. Thomas Aycock Director, Vice President and 4-27-99
- -------------------------- Chief Actuary -----------------
W. Thomas Aycock
/s/ Tony G. Brill Director and Executive Vice 4-28-99
- -------------------------- President - Administration -----------------
Tony G. Brill
Senior Vice President - Marketing
- -------------------------- -----------------
Mark S. McAndrew
/s/ Larry M. Hutchison Director 4-28-99
- -------------------------- -----------------
Larry M. Hutchison
/s/ Michael J. Klyce Vice President and Treasurer 4-27-99
- -------------------------- -----------------
Michael J. Klyce
/s/ James L. Mayton Vice President and Controller 4-27-99
- -------------------------- -----------------
James L. Mayton, Jr.
/s/ John H. Livingston Director, Secretary and Counsel 4-27-99
- -------------------------- -----------------
John H. Livingston
/s/ Carol A. McCoy Director and Assistant Secretary 4-27-99
- -------------------------- -----------------
Carol A. McCoy
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Ross W. Stagner Director and Vice President 4-27-99
- ------------------------- -----------------
Ross W. Stagner
/s/ Terry W. Davis Director and Vice President - 4-27-99
- ------------------------- Administration -----------------
Terry W. Davis
</TABLE>
<PAGE>
Exhibit Index
3. Opinion and consent of John H. Livingston, Esquire, Secretary and
Counsel.
6. Opinion and consent of W. Thomas Aycock, Vice President and Chief
Actuary of United Investors.
7. Consent of Sutherland Asbill & Brennan LLP.
8. Consent of KPMG Peat Marwick LLP.
<PAGE>
Exhibit 3. Opinion and Consent of John H. Livingston, Esquire
[United Investors Life Letterhead appears here]
April 28, 1999
United Investors Life Insurance Company
2001 Third Avenue South
Birmingham, Alabama 35233
Gentlemen:
With reference to the Registration Statement on form S-6 as amended, filed
by United Investors Life Insurance Company and United Investors Life Variable
Account with the Securities and Exchange Commission covering flexible premium
variable life insurance policies, I have examined such documents and such law as
I considered necessary and appropriate, and on the basis of such examination, it
is my opinion that:
1. United Investors Life Insurance Company is duly organized and validly
existing under the laws of the State of Missouri and has been duly
authorized to issue individual flexible premium variable life policies by
the Division of Insurance of the State of Missouri.
2. United Investors Life Variable Account is a duly authorized and existing
separate account established pursuant to the provisions of Section 376.309,
of the Revised Statutes of Missouri.
3. The flexible premium variable life policies, when issued as contemplated
by said Form S-6 Registration Statement, will constitute legal, validly
issued and binding obligations of United Investors Life Insurance Company.
I hereby consent to the filing of this opinion as an Exhibit to said S-6
Registration Statement.
Very truly yours,
/s/ John H. Livingston
-------------------------------
John H. Livingston, Esquire
Secretary and Counsel
JHL:dk
<PAGE>
Exhibit 6.
April 28, 1999
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 B 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 B 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>
Exhibit 7.
April 28, 1999
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. 14 to
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 LLP
By: /s/ Frederick R. Bellamy
----------------------------
Frederick R. Bellamy
FRB:dk
<PAGE>
Exhibit 8.
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 29, 1999, relating to the
balance sheets of United Investors Life Insurance Company as of December 31,
1998 and 1997 and the related statements of operations, comprehensive income,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1998, and also to the use of our report dated April 9,
1999, relating to the balance sheet of United Investors Life Variable Account as
of December 31, 1998, and the related statements of operations and changes in
net assets for each of the years in the three-year period ended December 31,
1998, as contained in Post-Effective Amendment No. 14 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.
/s/ KPMG PEAT MARWICK LLP
Birmingham, Alabama
April 28, 1999
