<PAGE>
File Nos. 333-89797 and 811-09655
As filed with the Securities and Exchange Commission on January 26, 2000
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_]
Pre-Effective Amendment No. 1 [x]
Post-Effective Amendment No. __ [_]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940[_]
Amendment No. 1 [x]
___________________________________
United Investors Advantage Gold Variable Account
(Exact Name of Registrant)
United Investors Life Insurance Company
(Name of Depositor)
2001 Third Avenue South
Birmingham, Alabama 35233
(Address of Depositor's Principal Executive Office)
Depositor's Telephone Number, including Area Code: (205) 325-4300
John H. Livingston, Esquire
United Investors Life Insurance Company
2001 Third Avenue South
Birmingham, Alabama 35233
(Name and Address of Agent for Service)
Copy to:
Frederick R. Bellamy, Esquire
Sutherland Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2415
____________________________________________
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Title of Securities Being Registered: Variable Annuity Policies
<PAGE>
Prospectus
February 15, 2000
ADVANTAGE GOLD(SM)
VARIABLE ANNUITY
DEFERRED VARIABLE ANNUITY POLICY
issued by
United Investors Life Insurance Company
through
United Investors Advantage Gold Variable Account
The policy has 12 funding choices--one fixed account (paying a guaranteed
minimum fixed rate of interest) and eleven variable investment divisions which
invest in the following mutual fund 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
Variable annuity 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.
Please read this prospectus carefully before investing, and keep it for future
reference. It contains important information about the Advantage Gold(SM)
variable annuity policy.
To learn more about the policy, you may want to look at the Statement of
Additional Information dated February 15, 2000 (known as the "SAI"). For a
free copy of the SAI, contact us at:
United Investors Life Insurance Co.
Variable Products Division
P.O. Box 10287
Birmingham, Alabama 35202-0287
Telephone: (800) 340-3787
United Investors has filed the SAI with the U.S. Securities and Exchange
Commission (the "SEC") and has incorporated it by reference into this
prospectus. The SAI's table of contents appears on page ___ of this prospectus.
The SEC maintains an Internet website (http://www.sec.gov) that contains
the SAI, material incorporated by reference, and other information.
Neither the SEC nor any state securities commission has approved or disapproved
these securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Glossary........................................................................ iii
Summary......................................................................... 1
The Policy............................................................... 1
Annuity Payments......................................................... 1
Purchasing the Policy.................................................... 2
Funding Choices.......................................................... 2
Charges and Deductions................................................... 2
Taxes.................................................................... 5
Surrender and Partial Withdrawals........................................ 5
Death Benefit............................................................ 5
Other Information........................................................ 5
Inquiries................................................................ 6
United Investors Advantage Gold Variable Account................................ 6
Target/United Funds, Inc................................................. 7
Fund Management.......................................................... 8
Fixed Account................................................................... 8
The Policy...................................................................... 9
Issuance of a Policy..................................................... 9
Purchase Payments........................................................ 9
Allocation of Purchase Payments.......................................... 9
Policy Value............................................................. 10
Variable Account Value........................................... 10
Fixed Account Value.............................................. 10
Surrender and Withdrawals................................................ 11
Withdrawals...................................................... 11
Automatic Partial Withdrawals.................................... 11
Surrender........................................................ 12
Restrictions Under the Texas ORP and Section 403(b) Plan......... 12
Restrictions Under Other Qualified Policies...................... 12
Transfers................................................................ 13
Dollar Cost Averaging.................................................... 13
Automatic Asset Rebalancing.............................................. 14
Interest Sweep........................................................... 14
Death Benefit............................................................ 14
Required Distributions................................................... 15
"Free Look" Period....................................................... 16
Charges and Deductions.......................................................... 16
Withdrawal Charge........................................................ 16
Waiver of Withdrawal Charges Rider....................................... 18
Annual Contract Maintenance Charge....................................... 18
Administration Fee....................................................... 19
Transaction Charge....................................................... 19
Premium Taxes............................................................ 19
Federal Taxes............................................................ 19
Fund Expenses............................................................ 20
Reduction in Charges for Certain Groups.................................. 20
</TABLE>
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<TABLE>
<S> <C>
Annuity Payments......................................................... 20
Election of Annuity Payment Method............................... 20
Annuity Benefit Date............................................. 20
Annuity Payment Methods.......................................... 20
Distribution of the Policies............................................. 22
Federal Tax Matters...................................................... 22
Historical Performance Data.............................................. 26
Voting Rights............................................................ 26
United Investors Life Insurance Company.................................. 26
Published Ratings............................................... 27
Legal Proceedings........................................................ 27
Financial Statements............................................ 27
Statement of Additional Information...................................... 27
</TABLE>
The policy is not available in all states. This prospectus does not offer to
sell securities in any jurisdiction where they cannot be lawfully sold. You
should rely only on the information contained in this prospectus or that we have
referred you to. We have not authorized anyone to provide you with information
that is different.
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Glossary
========
Annuitant The annuitant is the individual whose life expectancy
determines the size of annuity payments and whose actual
lifetime may determine the duration of annuity payments.
Annuity Benefit The date (or dates) on which annuity payments are to start.
Date
Beneficiary The beneficiary is the individual or individuals to whom
the death benefit is paid if the owner (and any joint
owner) dies before the annuity benefit date.
Business Day Each day that the New York Stock Exchange and our
administrative office are open. Currently, the Friday after
Thanksgiving and, in most years, December 24 (Christmas Eve
day) and December 31 (New Year's Eve day) are not Business
Days.
Joint Annuitant The joint annuitant, if any, is a second individual whose
joint life expectancy with the annuitant determines the
size of annuity payments and whose actual lifetime with the
annuitant may determine the duration of annuity payments.
Net Purchase The Purchase Payment less any deduction for premium taxes.
Payment
Owner's Designated The owner's designated beneficiary (a joint owner, if any,
Beneficiary or the beneficiary named in the policy) is the individual
who becomes owner of the policy upon the death of an owner.
Policy Year A policy year is a year that starts on the policy's
effective date or on a policy anniversary.
Surrender Value The Policy Value less any withdrawal charges, the Annual
Contract Maintenance Charge, and applicable deductions for
premium taxes.
We, us, our We are United Investors Life Insurance Company.
You, your You are the policy owner.
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Summary
=======
This is a summary of some of the more important points that you should know
and consider before purchasing the Advantage Gold variable annuity policy.
The Policy
The Advantage Gold variable annuity policy lets you invest on a tax-
deferred basis for your retirement or other long-term purposes. Tax deferral
allows the entire amount you have invested to remain in the policy where it can
continue to produce an investment return. Therefore, your money could grow
faster than in a comparable taxable investment where current income taxes would
be due each year.
You may divide your Advantage Gold policy value among the fixed account and
eleven variable investment divisions which invest in portfolios of Target/United
Funds, Inc. We guarantee the principal and a minimum interest rate you will
receive from the fixed account. However, the value of what you allocate to the
eleven variable investment divisions is not guaranteed. Instead, your investment
in the variable investment divisions will go up or down with the performance of
the particular Target/United Funds portfolios you select. You may lose money on
investments in the variable investment divisions.
Like most annuity policies, different rules apply to the Advantage Gold
policy before and after the annuity benefit date you select for your policy.
Before the annuity benefit date, you may invest more money in your policy. After
the annuity benefit date, you will receive one or more annuity payments. The
amount of money you accumulate in your policy before the annuity benefit date
has a major effect on the size of the payments you receive after the annuity
benefit date.
This policy is designed for people seeking long-term tax-deferred
accumulation of assets, generally for retirement or other long-term purposes;
and for persons who have maximized their use of other retirement savings
methods, such as 401(k) plans. The tax-deferred feature is most attractive to
people in high federal and state tax brackets. You should not buy this policy if
you are looking for a short-term investment or if you cannot take the risk of
losing money that you put in.
There are various additional fees and charges associated with variable
annuities. You should consider whether the features and benefits unique to
variable annuities, such as the opportunity for lifetime income payments, a
guaranteed death benefit and the guaranteed level of certain charges are
appropriate for your needs. Variable annuities provide tax-deferral when
purchased outside of qualified plans. However, the tax deferral features of
variable annuities are unnecessary when purchased to fund a qualified plan,
since the plan would already provide tax deferral in most cases.
Annuity Payments
On the annuity benefit date, you may apply your policy value to receive
fixed annuity payments, variable annuity payments or a combination. We guarantee
that fixed annuity payments will remain constant throughout the payment period.
However, the amount of each variable annuity payment will go up or down with the
performance of the particular investment divisions you select.
You may choose among the following ways of receiving your annuity payments:
1. Payments for the lifetime of an individual you select (the annuitant).
2. Payments for the lifetime of the survivor of two individuals you select
(the annuitant and joint annuitant).
3. Payments for the lifetime of an individual (the annuitant), but guaranteed
to continue for various periods of between 5 years and 30 years.
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Other annuity payment methods are available with our written consent.
Purchasing the Policy
You can purchase a "qualified" policy (one that qualifies for favorable
Federal income tax treatment), or you can purchase a policy on a non-qualified
tax basis. For a non-qualified policy, the minimum initial investment is $2,000.
For a qualified policy, the initial investment must be at least $1,200. As an
exception, we will accept installments of at least $100 per month through a bank
draft authorization or a pre-approved group payment method for both qualified or
non-qualified policies. You can make more investments of at least $100 each
before the annuity benefit date (or your age 90 if earlier).
Funding Choices
You may allocate each new investment (and your existing policy value) among
variable investment divisions which invest in the following eleven 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
In most states, you may also allocate purchase payments and your policy
value to the fixed account. We guarantee your fixed account allocation will earn
at least 3% interest per year.
Charges and Deductions
We do not deduct any charges from your purchase payments when received,
except for any premium taxes charged in your location.
We make two types of deductions from your policy value for certain
administrative expenses. First, we deduct a flat charge of $25 a year from each
policy. We will waive this charge if your policy value on the policy anniversary
is at least $25,000. Second, we deduct a daily charge at an effective annual
rate of 0.15% of the assets of each variable investment division.
If you surrender your policy or make a cash withdrawal, we may deduct a
withdrawal charge. This withdrawal charge is 7% of purchase payments withdrawn
that are less than one year old. It decreases by 1% for each additional year
since we received the purchase payment deemed to be withdrawn. There is no
withdrawal charge on purchase payments seven or more years old at the time they
are withdrawn.
We also do not deduct a withdrawal charge on the free withdrawal amount. Each
year, the free withdrawal amount is the greatest of:
(a) 12% of the total purchase payments you have invested in the policy; or
(b) 100% of earnings. Earnings are the amount by which your policy value
exceeds the total purchase payments you have made.
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For each withdrawal in excess of 12 in any one policy year, we deduct a
transaction charge of no more than $20.
We also deduct a daily charge from the variable investment divisions to
compensate us for certain mortality and expense risks. This charge is at an
effective annual rate of 1.25% of assets. In addition, investment management
fees, 12b-1 fees, and other expenses are deducted from each portfolio of
Target/United Funds, Inc.
See the tables below and on the following page for a summary of these
charges and deductions. (We may also deduct premium tax charges.)
Policy Owner Transaction Expenses:
- ---------------------------------
<TABLE>
<S> <C>
Maximum Transaction Charge (for each withdrawal
in excess of 12 per policy year)...................................... $20.00
</TABLE>
Withdrawal Charge (% of purchase payment being withdrawn):
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Years Since Purchase
Payment Less than 1 1 2 3 4 5 6 7+
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charge
7% 6% 5% 4% 3% 2% 1% 0
</TABLE>
<TABLE>
<S> <C>
Annual Contract Maintenance Charge......................................................... $25.00
- ----------------------------------
Variable Account Annual Expenses
- --------------------------------
Administration Charge...................................................................... 0.15%
Mortality and Expense Risk Charge.......................................................... 1.25%
------
Total Variable Account Annual Expenses..................................................... 1.40%
</TABLE>
Target/United Funds, Inc. Annual Expenses/(1)/
(% of average daily net assets)
<TABLE>
<CAPTION>
12b-1 Other Total Portfolio
Portfolio Management Fee Fees/(2)/ Expenses/(3)/ Expenses
<S> <C> <C> <C> <C>
Asset Strategy................. 0.79% 0.25% 0.19% 1.23%
Balanced....................... 0.59% 0.25% 0.06% 0.90%
Bond........................... 0.52% 0.25% 0.06% 0.83%
Growth......................... 0.69% 0.25% 0.02% 0.96%
High Income.................... 0.64% 0.25% 0.05% 0.94%
Income......................... 0.69% 0.25% 0.03% 0.97%
International.................. 0.79% 0.25% 0.15% 1.19%
Limited-Term Bond.............. 0.54% 0.25% 0.17% 0.96%
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 Investment Management Company, 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.
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/(2)/ Each portfolio pays a service fee to Waddell & Reed, Inc., the principal
underwriter of Target/United Funds, Inc. and the policy, 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
their policies. This is a Service Plan as permitted by Rule 12b-1 under the
Investment Company Act of 1940.
/(3)/ Other Expenses are those incurred for the year ended December 31, 1998.
Examples. The following tables give examples of expenses you might pay, on
a $1,000 investment, assuming 5% annual return on assets.
If you surrender your policy at the end of the applicable time period, you
would pay the following expenses:
<TABLE>
<CAPTION>
Investment Division 1 year 3 years
- ------------------- ------ -------
<S> <C> <C>
Asset Strategy.......................... $86 $123
Balanced................................ $83 $113
Bond.................................... $82 $111
Growth.................................. $84 $115
High Income............................. $83 $114
Income.................................. $84 $115
International........................... $86 $122
Limited-Term Bond....................... $84 $115
Money Market............................ $82 $111
Science and Technology.................. $85 $118
Small Cap............................... $85 $120
</TABLE>
If you do not surrender or you annuitize your policy at the end of the
applicable time period, you would pay the following expenses:
<TABLE>
<CAPTION>
Investment Division 1 year 3 years
------------------- ------ -------
<S> <C> <C>
Asset Strategy.......................... $26 $83
Balanced................................ $23 $73
Bond.................................... $22 $71
Growth.................................. $24 $75
High Income............................. $23 $74
Income.................................. $24 $75
International........................... $26 $82
Limited-Term Bond....................... $24 $75
Money Market............................ $22 $71
Science and Technology.................. $25 $78
Small Cap............................... $25 $80
</TABLE>
The purpose of these tables is to assist you in understanding the various
costs and expenses that you will bear, directly and indirectly. These tables
reflect the expenses of the variable account and the underlying mutual fund
portfolios. These examples reflect the $25 annual contract maintenance charge as
a deduction of $1.25 annually, based on an anticipated average initial purchase
payment of $20,000. These examples do not reflect any premium tax charges.
These examples are not intended to represent past or future expenses.
Actual expenses may be greater or less than those shown. The assumed 5% return
is purely hypothetical. Actual returns (investment performance) will vary, and
may be more or less than 5%.
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Taxes
You are generally required to pay taxes on amounts earned in a non-
qualified policy only when they are withdrawn. When you take distributions or
withdrawals from your policy, taxable earnings are considered to be paid out
first, followed by your investment in the policy.
You are generally required to pay taxes on all amounts withdrawn from a
qualified policy because in most cases purchase payments were made with before-
tax dollars.
Distributions from the policy are taxed as ordinary income. You may owe a
10% Federal tax penalty for distributions or withdrawals taken before age
59 1/2.
Surrender and Withdrawals
You may surrender the policy before the annuity benefit date for the
surrender value, which is the policy value less any withdrawal charge, the
annual contract maintenance charge, and any premium tax charge.
You may make a withdrawal of cash from your policy value. The withdrawal
must be at least $250, and the policy value remaining after the withdrawal must
be at least $2,000.
You cannot surrender the policy or make a withdrawal after the annuity
benefit date.
Death Benefit
The policy provides a death benefit if any policy owner dies before the
annuity benefit date. We will pay the death benefit in a lump sum or as a series
of annuity payments.
The death benefit will always be at least the greatest of:
(a) the total purchase payments you have invested in the policy (less any
withdrawals you have made and withdrawal charges); or
(b) your policy value at the time the death benefit is paid; or
(c) the highest of your policy value on the fifth anniversary date, and every
fifth anniversary thereafter prior to the policy owner's or any joint
owner's 90/th/ birthday (or the annuitant's 90/th/ birthday if the policy
owner is not a natural person), plus any purchase payments made since then,
less any withdrawals you have made, and withdrawal charges you have
incurred since then.
Other Information
Free Look: You may cancel the policy by returning it within 10 days after
you receive it. When we receive the returned policy, we will cancel it and
generally refund your policy value plus any charges deducted. In some states we
will refund the full amount of your purchase payments instead. (The "free
look" period may be longer in some states.)
Automatic Partial Withdrawals: You may arrange for automatic partial
withdrawals of the same dollar amount to be made every month, three months, six
months, or twelve months. Automatic partial withdrawals cannot exceed the free
withdrawal amount in any one policy year. Automatic partial withdrawals are not
subject to the $250 minimum amount, or to the transaction charge for more than
12 withdrawals in any one policy year. These withdrawals may be taxable, and you
may also incur a 10% Federal tax penalty before age 59 1/2.
Waiver of Withdrawal Charges Rider: If your policy includes the waiver of
withdrawal charges rider, we will waive withdrawal charges under certain
conditions if you (1) become confined in a qualified nursing home,
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qualified hospital, or qualified hospice care program; (2) become totally
disabled; or (3) are diagnosed with a terminal illness.
Transfers: Before the annuity benefit date, you may transfer all or part of
your policy value among the 12 funding choices. However, you may transfer out of
the fixed account only once each policy year (except dollar cost averaging,
automatic asset rebalancing or interest sweep transfers). Other restrictions may
apply, especially to fixed account transfers.
After the annuity benefit date, you may reallocate your annuity interest
among the variable investment divisions or from the variable investment
divisions to the fixed account once each policy year. However, after the annuity
benefit date, transfers from the fixed account to the variable investment
divisions are not permitted.
Dollar Cost Averaging: Before the annuity benefit date, you may have
automatic transfers of a pre-determined amount made from the fixed account or
the money market variable investment division to any of the other variable
investment divisions. Certain minimums and other restrictions apply.
Automatic Asset Rebalancing: Before the annuity benefit date, this option
allows you to have automatic transfers occur at selected intervals to rebalance
your policy value according to your current premium allocation instructions.
Certain minimums and other restrictions apply.
Interest Sweep: This option allows you to transfer interest earned on the
fixed account to any combination of the the eleven variable investment
divisions. Certain minimums and other restrictions apply.
Financial Information: Our financial statements are in the Statement of
Additional Information. There are no financial statements for the Variable
Account because as of the date of this prospectus the Variable Account has not
commenced operations.
Inquiries
If you have questions about your policy or need to make changes, contact
your financial representative who sold you the policy, or contact us at:
United Investors Life Insurance Company
Variable Products Division
P. O. Box 10287
Birmingham, Alabama 35202-0287
Telephone: (800) 340-3787
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. For qualified
policies, the requirements of a particular retirement plan, an endorsement to
the policy, or limitations or penalties imposed by the Internal Revenue Code may
impose limits or restrictions on purchase payments, surrenders, distributions or
benefits, or on other provisions of the policy. This prospectus does not
describe these limitations or restrictions. (See "Federal Tax Matters.")
United Investors Advantage Gold Variable Account
================================================
The variable investment divisions are "sub-accounts" or divisions of the
United Investors Advantage Gold Variable Account (the "Variable Account"). We
established the Variable Account as a segregated asset account on September 15,
1999. The Variable Account will receive and invest the purchase payments
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,
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<PAGE>
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. 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 separate 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.
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.
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.
Portfolio Investment Objective and Certain Policies
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.
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.
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.
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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Portfolio Investment Objective and Certain Policies
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.
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.
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.
Limited-Term The Limited-Term Bond Portfolio seeks a high level of
Bond 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.
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.
Science and The Science and Technology Portfolio seeks long-term
Technology capital growth. It seeks to achieve its goals by
concentrating its investments primarily in the common stock
of science and technology securities of U.S. and foreign
companies.
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.
Fund Management
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 indirect subsidiary of Waddell & Reed Financial, Inc.,
a publicly held company.
Fixed Account
=============
The funding choice guaranteeing your principal and a minimum fixed rate of
interest is called the "fixed account." It is not registered under the
Securities Act of 1933, and it is not registered as an investment company under
the Investment Company Act of 1940. Accordingly, neither the fixed account nor
any interests therein are subject to the provisions or restrictions of these
Federal securities laws, and the disclosure regarding the fixed account has not
been reviewed by the staff of the SEC.
The fixed account is a part of our general account, which includes all of
our assets other than those in any separate account. We guarantee that we will
credit interest at a rate of not less than 3% per year to investment amounts
allocated to the fixed account. We may credit interest at a rate in excess of 3%
per year, but any excess interest credited will be determined in our sole
discretion. The policy owner assumes the risk that interest credited to the
fixed account may not exceed 3% per year. The fixed account may not be available
in all states.
As the policy owner, you determine the allocation of policy value to the
fixed account. Before the annuity benefit
8
<PAGE>
date, you may transfer all or part of the values held in the fixed account to
one or more of the variable investment divisions once per policy year. This
restriction will not apply to automatic transfers from the fixed account in the
Dollar Cost Averaging, Interest Sweep, or Automatic Asset Rebalancing options.
After the annuity benefit date, transfers out of the fixed account are not
allowed. After the annuity benefit date, values in the variable investment
divisions may be transferred to the fixed account only once per policy year.
(See "Transfers.")
The Policy
==========
The policy is a deferred variable annuity. Your rights and benefits as
owner of the policy are described below and in the policy. However, we reserve
the right to modify the policy to comply with any law or regulation, or to give
you the benefit of any law or regulation, where permitted by state law.
Issuance of a Policy
If you wish to purchase a policy, you must complete an application and send
it to our home office. We will generally accept your application if it conforms
to our requirements, but we reserve the right to reject any application or
purchase payment. If the application can be accepted in the form received, the
initial net purchase payment will be applied within two business days after the
latter of receipt of the application or receipt of the initial purchase payment.
If the initial net purchase payment cannot be applied within five business days
after receipt because the application is incomplete, we will contact you with an
explanation for the delay. Your initial purchase payment will be returned at
that time unless you consent to our retaining and applying it as soon as the
remaining application requirements are met.
Both you (the policy owner) and the annuitant (if different) must be 90
years old or less when you purchase a policy.
The policy will only become effective when we accept your application.
Purchase Payments
The initial purchase payment for non-qualified policies must be at least
$2,000. For qualified policies, the initial purchase payment must be at least
$1,200. As an exception, if purchase payments will be made by means of a bank
draft authorization or a group payment method approved in advance by us, we will
accept installments of $100 per month for the first year. Additional purchase
payments may be in amounts of $100 or more.
If you make no purchase payments during a 24-month period and your previous
purchase payments total less than $2,000, we have the right to cancel your
policy by paying you the policy value in a lump sum, after a 30-day notice,
unless during that time you make an additional purchase payment.
No additional purchase payments may be made after the annuity benefit date,
or on or after the policy anniversary following the owner's or any joint owner's
90/th/ birthday (or the annuitant's 90/th/ birthday if the owner is not a
natural person).
Allocation of Purchase Payments
You determine in the application how the initial net purchase payment will
be allocated among the variable investment divisions and the fixed account. You
may use any whole percentage to allocate your purchase payments, from 0% to
100%.
On your policy's effective date, the initial net purchase payment will be
allocated among the variable investment divisions and the fixed account
according to your allocation instructions.
If we receive an additional purchase payment, we will allocate the net
purchase payment among the funding
9
<PAGE>
choices according to your instructions. These will be the allocations you
specify in the application, or new instructions you provide.
Your policy value will vary with the investment performance of the variable
investment divisions you select. You bear the entire risk for amounts allocated
to the variable investment divisions. You should periodically review your
allocations of policy value in light of all relevant factors, including market
conditions and your overall financial planning requirements.
Policy Value
Your policy value prior to the annuity benefit date is equal to:
(a) your variable account value; plus
(b) your fixed account value.
Variable Account Value. Your variable account value is not guaranteed. It
equals the sum of the values of the variable investment divisions under the
policy. The value of each variable investment division is calculated on each
business day. Business days generally are Monday through Friday, except holidays
when the New York Stock Exchange or United Investors' Home Office is closed.
On your policy's effective date, your variable account value is equal to
the portion of the initial net purchase payment allocated to the variable
investment divisions On any business day thereafter, the value of each variable
investment division under your policy equals:
(a) the value of the investment division on the previous business day,
increased or decreased by its investment experience and daily charge;
plus
(b) the amount of any net purchase payments allocated to the investment
division since the previous business day; plus
(c) the amount of any transfers into the investment division since the
previous business day; minus
(d) the amount of any withdrawals (including any withdrawal charge or
transaction charge) from the investment division since the previous
business day; minus
(e) the amount of any transfers out of the investment division since the
previous business day; minus
(f) the portion of the annual contract maintenance charge allocated to the
investment division since the previous business day; minus
(g) the portion of any deduction for taxes allocated to the investment
division since the previous business day.
Deductions (f) and (g) will be made from each investment division in the
same proportion that the value of the investment division bears to your entire
policy value.
Fixed Account Value. At the end of any business day, your fixed account
value is equal to:
(a) the sum of all net purchase payments allocated to the fixed account;
plus
(b) any amounts transferred into the fixed account; plus
(c) total interest credited; less
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<PAGE>
(d) any amounts transferred out of the fixed account; less
(e) the portion of any withdrawals, withdrawal charges, and transaction
charges allocated to the fixed account; less
(f) the portion of the annual contract maintenance charge and taxes
allocated to the fixed account.
The annual contract maintenance charge will only be deducted from the fixed
account to the extent that interest has been credited in excess of the
guaranteed interest rate of 3% during the preceding policy year.
Surrender and Withdrawals
Withdrawals. You may make a withdrawal from your policy value prior to the
annuity benefit date. You must send a written request to our home office in a
form acceptable to us. A withdrawal must be for at least $250 (except for
automatic partial withdrawals), and your remaining policy value must be at least
$2,000 after a withdrawal. If your policy value would be less than $2,000, we
will treat the request for a withdrawal as a request for complete surrender of
your policy. We will ordinarily pay a withdrawal within seven days of receipt of
your written request (unless the check for your purchase payment has not yet
cleared your bank). We may defer payment of any amounts from the fixed account
for up to six months. If we defer payment for more than 30 days, we will pay
interest on the amount deferred at a rate not less than 3% per year.
You can specify that the withdrawal should be made from a particular
funding choice (or choices). If you do not specify this, then the withdrawal
will be made from the funding choices in the same proportions that their values
bear to your total policy value.
You may request up to 12 withdrawals per policy year without a transaction
charge. If you request more than these 12 withdrawals, there will be a $20
transaction charge (or 2% of the amount withdrawn, if less) for each additional
withdrawal during that policy year (except for automatic partial withdrawals).
Also, withdrawal charges of up to 7% may apply to withdrawal amounts in a policy
year that exceed the free withdrawal amount. (See "Withdrawal Charge" and
"Transaction Charge.") Any transaction charge or withdrawal charge will be
deducted from your remaining policy value, or from the amount paid if your
remaining policy value is insufficient. No withdrawals may be made after the
annuity benefit date.
Withdrawals may be subject to a 10% Federal tax penalty and to income tax.
(See "Federal Tax Matters.")
Automatic Partial Withdrawals. You may also establish automatic partial
withdrawals by submitting a one-time written request. These automatic partial
withdrawals of a fixed dollar amount may be requested on a monthly, quarterly,
semi-annual or annual basis. The maximum amount of automatic partial withdrawals
in any one policy year is the free withdrawal amount. Automatic partial
withdrawals are only available before the annuity benefit date. They are not
subject to the $250 minimum, and the $20 transaction charge does not apply.
Withdrawals will continue until your policy value is exhausted, unless you stop
them earlier by submitting a written request.
Automatic partial withdrawals are subject to all the other policy
provisions and terms. If an additional withdrawal is made from a policy
participating in automatic partial withdrawals, the automatic partial
withdrawals will terminate automatically and may be resumed only on or after the
next policy anniversary.
Automatic partial withdrawals may be subject to a 10% Federal tax penalty
and to income tax. (See "Federal Tax Matters.")
Surrender. You may surrender your policy for its policy value, less any
withdrawal charge, annual contract maintenance charge, and premium taxes, by
sending a written request to our home office. (The withdrawal charge, described
below, is only applicable if a surrender occurs in the first seven years
following receipt of a purchase payment.) A surrender will ordinarily be paid
within seven days of receipt of your written request (unless the check for a
purchase payment has not yet cleared your bank). Your policy will terminate as
of the date we receive your
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<PAGE>
written request for surrender. Surrenders are generally taxable transactions,
and may be subject to a 10% Federal tax penalty. (See "Federal Tax Matters.")
No surrender may be made after the annuity benefit date.
Restrictions Under the Texas ORP and Section 403(b) Plans. The Texas
Educational Code does not permit participants in the Texas Optional Retirement
Program ("ORP") to withdraw or surrender their interest in a variable annuity
contract issued under the ORP except upon:
(a) termination of employment in the Texas public institutions of higher
education;
(b) retirement; or
(c) death.
Accordingly, a participant in the ORP (or the participant's estate if the
participant has died) will be required to obtain a certificate of termination
from the employer or a certificate of death before the account can be redeemed.
Similar restrictions apply to variable annuity contracts used as funding
vehicles for Section 403(b) retirement plans. Section 403(b) of the Internal
Revenue Code provides for tax-deferred retirement savings plans for employees of
certain non-profit and educational organizations. As required by Section 403(b),
any policy used for a Section 403(b) plan will prohibit distributions of:
(a) elective contributions made in years beginning after December 31,
1988;
(b) earnings on those contributions; and
(c) earnings on amounts attributable to elective contributions held as
of the end of the last year beginning before January 1, 1989.
However, distributions of such amounts will be allowed upon:
(a) death of the employee;
(b) reaching age 59 1/2;
(c) separation from service;
(d) disability; or
(e) financial hardship (except that income attributable to elective
contributions may not be distributed in the case of hardship).
Restrictions Under Other Qualified Policies. Other restrictions on
surrenders or with respect to the election, commencement, or distributions of
benefits may apply under qualified policies or under the terms of the plans for
which qualified policies are issued.
Transfers
Transfers of Policy Value. You may transfer all or part of your variable
account value out of a variable investment division (to one or more of the other
variable investment divisions or to the fixed account) at any time before the
annuity benefit date, except as described below. You may transfer all or a part
of your fixed account value to one or more of the variable investment divisions
once per policy year before the annuity benefit date. This restriction does not
apply to automatic transfers of pre-selected amounts from the fixed account or
the money
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<PAGE>
market variable investment division to another variable investment division (See
"Dollar Cost Averaging," "Automatic Asset Rebalancing," and "Interest Sweep".)
You may make 12 transfers in a policy year. Transferring from one variable
investment division into two or more other variable investment divisions counts
as one transfer request. However, transferring from two variable investment
divisions into one variable investment division counts as two transfer requests.
Transfers from the fixed account are counted in the same manner. If a transfer
is made out of the fixed account, we reserve the right to prohibit transfers
into the fixed account for six months from the transfer date.
In addition, each policy year we reserve the right to limit any amount
transferred from the fixed account to a variable investment division to the
greater of:
(a) 25% of the prior policy anniversary's fixed account value; or
(b) the amount of the prior policy year's transfer.
Transfers of Annuity Units. After the annuity benefit date, the annuitant
may transfer annuity units among the variable investment divisions or from the
variable investment divisions to the fixed account, once per policy year.
Transfers from the fixed account to the variable investment divisions are not
allowed after the annuity benefit date.
Transfer Procedures. Transfers may be made by a written request to our home
office or by calling us if a written authorization for telephone transfers is on
file. We have the authority to honor any telephone transfer request believed to
be authentic. We employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. For example, you may be required to use a
personal identification number to initiate a telephone transfer. We will not be
liable for the consequences of a fraudulent telephone transfer request we
believe to be authentic. As a result, you bear the risk of loss arising from
such a fraudulent request if you give us authorization for telephone transfers.
We will make each transfer at the end of the first business day during
which or after which we receive a valid, complete transfer request. We may
suspend or modify this transfer privilege at any time.
Dollar Cost Averaging
The dollar-cost averaging program permits you to systematically transfer an
amount from the fixed account or the money market variable investment division
to any of the other variable investment divisions on a periodic basis prior to
the annuity benefit date. The amount transferred may be (1) a specified dollar
amount from each account, (2) a percentage of the value in each account, or (3)
an amount determined from a beginning date to an ending date you select, by
reducing the value in each account to zero over the specified period. Dollar
cost averaging may occur on the same day of the month either monthly, quarterly,
semi-annually or annually. (If that day of the month does not fall on a business
day, then transfers will be made on the next following business day.) Transfers
will be made at the unit values determined on the date of each transfer.
The minimum automatic transfer of a specified dollar amount is $100. If the
transfer is to be made into more than one variable investment division, a
minimum of $25 must be transferred into 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 a written request to our home office. Once elected, dollar cost
averaging remains in effect from the date we receive your request until the
value of the fixed account or money market variable investment division you are
transferring from is depleted, or
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<PAGE>
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
per year limit specified in "Transfers" above. We reserve the right to modify or
discontinue offering the dollar cost averaging program at any time and for any
reason.
Automatic Asset Rebalancing
Before the annuity benefit date, this option allows you to set up transfers to
occur at selected intervals that will reallocate your policy value according to
your current premium allocation percentages. After the transfers, the ratio of
the value in each investment option to the value for all the investment options
included in automatic rebalancing will equal the percentages chosen by you for
each investment option. You may change your allocation percentages for
automatic rebalancing at any time. Automatic rebalancing may occur on the same
day of the month, either quarterly, semi-annually or annually. If you select the
fixed account or the money market investment division in the dollar cost
averaging program, you may not include that option in your automatic asset
rebalancing program.
Automatic asset rebalancing provides you with a method for maintaining a
consistent approach to investing your policy value over time, and simplifies
asset allocation among those investments that you and your advisor have
determined represent the appropriate mix at any particular time. You should
consider, however, that transfers will be made from investments which have
outperformed other investment options since the last reallocation of your policy
value to less successful investment options. Automatic rebalancing does not
assure a higher or lower investment return over short or long term horizons.
You may elect to participate in the automatic rebalancing program at any time by
sending a written request to our home office. Once elected, automatic
rebalancing remains in effect from the date we receive your request until you
cancel your participation in the program by written request or by telephone.
There is no additional charge for automatic rebalancing. A transfer under this
program is not counted as a transfer for purposes of the 12-transfer per year
limit discussed above. We reserve the right to modify or discontinue offering
automatic rebalancing at any time and for any reason.
Interest Sweep
Before the annuity benefit date, you may request that interest earned on amounts
allocated to the fixed account be transferred to any combination of variable
investment divisions. You specify the investment divisions, the frequency of
the transfers (either monthly, quarterly, semi-annually or annually), and the
day of each month to make the transfers (1/st/ - 28/th/). We will make all
interest sweep transfers on the day you specify or on the next business day (if
the day you have specified is not a business day).
You may elect to participate in the interest sweep program at any time by
sending a written request to our home office. Once elected, interest sweep
remains in effect from the date we receive your request until you cancel your
participation in the program by written request or by telephone. There is no
additional charge for interest sweep. A transfer under this program is not
counted as a transfer for purposes of the 12-transfer limit discussed in
"Transfers" above, nor is it included in determining the limitation on amounts
transferred from the fixed account.
Death Benefit
The policy pays a death benefit to the beneficiary named in the policy if
the owner (or any joint owner) dies before the annuity benefit date while the
policy is in force (unless the annuitant is also an owner; see below). The death
benefit is the greatest of:
(a) the policy value;
(b) the total purchase payments made, less any amounts withdrawn and any
withdrawal charges; or
(c) the highest of the policy values on the fifth anniversary, and every
fifth anniversary thereafter prior to the
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<PAGE>
policy anniversary following the owner's or any joint owner's 90/th/
birthday (or the annuitant's 90/th/ birthday if the policy owner is
not a natural person), plus any purchase payments made since then,
less any withdrawals you have made, and withdrawal charges you have
incurred since then.
Adjustment for amounts withdrawn and withdrawal charges will reduce the
death benefit under (b) and (c) above in the same proportion that they reduced
the policy value on the date of the withdrawal. The death benefit under (c)
above will not increase on or after the policy anniversary following the
owner's, or any joint owner's, 90/th/ birthday, (or the annuitant's 90/th/
birthday if the owner is not a natural person).
Upon receiving due proof of death, we will pay the death benefit proceeds
to the beneficiary in a lump sum or under one of the annuity payment methods.
(See "Annuity Payments.") However, we will not compute the amount of the death
benefit until the date it is paid, and we cannot pay the death benefit until we
receive both due proof of death and instructions on how to pay it (that is, as a
lump sum or applied under one of the annuity payment methods).
If an annuitant dies before the annuity benefit date and if that annuitant
is also the owner or a joint owner of the policy (or any owner is not a natural
person), then special rules (governing distribution of death benefit proceeds in
the event of the death of an owner) shall apply. (See "Required Distributions"
below.) For non-qualified policies, if (i) an annuitant dies before the annuity
benefit date, (ii) that annuitant was not an owner, and (iii) all owners are
natural persons, then the owner may name a new annuitant (subject to our age
limitations) and the death benefit will not be payable. If the owner does not
name a new annuitant, the owner will automatically become the annuitant and the
death benefit will not be payable.
If the annuitant or the owner dies after the annuity benefit date, the
amount payable, if any, will be as provided in the annuity payment method then
in effect, and it will be paid to the Payment Option Beneficiary.
If an owner dies before the annuity benefit date, the entire death benefit
proceeds must be distributed within five years after the date of death. If the
beneficiary chooses to receive any of these proceeds as an annuity,
distributions must commence within one year after the date of death and must be
distributed over the beneficiary's lifetime or over a period not extending
beyond the beneficiary's life expectancy.
If the beneficiary is the deceased owner's spouse, then the spouse may
elect to continue the policy in force (and be treated as the original policy
owner) instead of receiving the death benefit proceeds. If the beneficiary
elects to continue the policy in this manner, then although the beneficiary does
not have a right to receive the death benefit proceeds, we will increase the
policy value so that it equals the amount of the death benefit (if greater).
As far as permitted by law, the proceeds under the policy will not be
subject to any claim of the beneficiary's creditors.
Required Distributions
In order to be treated as an annuity contract for Federal income tax
purposes, the Internal Revenue Code requires any non-qualified policy to provide
--------------------
that:
(a) if any owner dies before the annuity benefit date, then the entire
interest in the policy will be distributed within five years after the
date of that owner's death; and
(b) if any owner dies on or after the annuity benefit date but before the
time the entire interest in the policy has been distributed, then the
remaining portion of such interest will be distributed at least as
rapidly as under the method of distribution being used as of the date
of that owner's death.
These requirements will be considered satisfied as to any portion of the owner's
interest that is payable as annuity payments, beginning within one year of that
owner's death, that will be made over the life of the owner's designated
beneficiary or over a period not extending beyond his life expectancy.
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<PAGE>
If any owner dies before the annuity benefit date, then ownership of the
policy passes to the owner's designated beneficiary, who then has the right to
the death benefit. If the policy has joint owners and one owner dies, then the
surviving joint owner is the designated beneficiary. If there is no joint owner
and the owner dies, then the owner's designated beneficiary is the beneficiary
named in the policy.
If the owner's designated beneficiary is the surviving spouse of the owner,
then the policy may be continued with the surviving spouse as the new owner and
no distributions will be required.
If an annuitant is an owner or joint owner and that annuitant dies before
the annuity benefit date, and if the owner's designated beneficiary does not
elect to receive the death benefit in a lump sum at that time, then we will
increase the policy value so that it equals the death benefit amount, if that is
higher than the policy value. This would occur if the owner's designated
beneficiary:
(a) elects to delay receipt of the proceeds for up to five years;
(b) is the deceased owner's spouse and elects to continue the policy;
or
(c) elects to receive the proceeds as annuity payments, as described
above.
Any such increase in the policy value would be paid by us. We will allocate it
to the variable investment divisions and the fixed account in proportion to the
pre-existing policy value, unless instructed otherwise.
The non-qualified policies contain provisions which are intended to comply
with the requirements of the Internal Revenue Code. However, no regulations
interpreting these requirements have been issued. We intend to review such
provisions and modify them if necessary to assure that they comply with the
applicable requirements when clarified by regulation or otherwise.
Other rules may apply to qualified policies.
"Free Look" Period
If for any reason you are not satisfied with the policy, you may return it
to us within 10 days after you receive it. If you cancel the policy within this
10-day "free look" period, we will refund the policy value plus any contract
fees and other charges paid, and the policy will be void from its effective
date. (In some states, we will instead refund the full amount of purchase
payment received.) To cancel the policy, you must mail or deliver it either to
our home office or to the registered agent who sold it within 10 days after you
receive it. (See "Allocation of Purchase Payments.") The "free look" period
may be longer than 10 days where required by state law.
Charges and Deductions
======================
We do not deduct any charges from a purchase payment (except for a charge
for any premium taxes). However, certain other charges are deducted to
compensate us for providing the insurance benefits set forth in the policy, for
administering and distributing the policy, for any applicable taxes, and for
assuming certain risks in connection with the policy. These charges are
described below.
Withdrawal Charge
We may deduct a withdrawal charge if you:
(a) make withdrawals under the policy; or
(b) surrender the policy.
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The withdrawal charge is a percent of the purchase payments deemed to be
included in the withdrawal or the total purchase payments (in the case of a
surrender), as specified in the following table of withdrawal charge rates:
<TABLE>
<CAPTION>
Number of Full Years
Since receipt of Purchase 0 1 2 3 4 5 6 7+
Payment:
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Withdrawal Charge
(% of Purchase Payment): 7% 6% 5% 4% 3% 2% 1% None
</TABLE>
There is a "free withdrawal amount" that can be withdrawn each policy year
------
without a withdrawal charge. The free withdrawal amount in a policy year is the
greatest of (a) or (b) below, less any free withdrawals already made during that
policy year, where:
(a) is 12% of cumulative purchase payments; or
(b) is 100% of earnings. Earnings are the amount by which policy value
exceeds the cumulative purchase payments (at the time of
withdrawal).
Amounts withdrawn in excess of the free withdrawal amount may be subject to
the withdrawal charge.
The withdrawal charge is determined by multiplying each purchase payment
deemed included in the withdrawal by the applicable withdrawal charge rate
specified in the table above.
For purposes of calculating the withdrawal charge:
(a) the oldest purchase payments will be treated as the first withdrawn,
newer purchase payments next, and appreciation last;
(b) amounts withdrawn up to the free withdrawal amount will not be
considered a withdrawal of purchase payments; and
(c) if the surrender value is withdrawn, the withdrawal charge will
apply to all purchase payments not previously assessed with a
withdrawal charge.
As shown above, the withdrawal charge percentage varies, depending on the
"age" of the purchase payments included in the withdrawal--that is, the number
of full years since the purchase payment was paid. A withdrawal charge of 7%
applies to purchase payments withdrawn that are less than 1 year old. Thereafter
the withdrawal charge rate decreases by one percentage point each year. Amounts
representing purchase payments that are at least 7 years old may be withdrawn
without charge.
We will deduct the withdrawal charge from the remaining policy value, or
from the amount paid if there is not enough value remaining. The withdrawal
charge partially compensates us for sales expenses, including agent sales
commissions, the cost of printing prospectuses and sales literature,
advertising, and other marketing and sales promotional activities.
The amounts we receive from the withdrawal charge may not be sufficient to
cover distribution expenses. We expect to recover any deficiency from our
general assets (which include amounts derived from the mortality and expense
risk charge, as described below).
Waiver of Withdrawal Charges Rider
We waive the withdrawal charges described above if the owner becomes
confined to a nursing home or hospital, or enrolled in a hospice care program;
or is diagnosed as terminally ill or totally disabled, provided that certain
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conditions for each provision are met.
Confinement Provision: The conditions for waiver of withdrawal charges for
confinement include:
(a) the policy was in force at least one year at the time the
confinement began;
(b) the owner was age 75 or younger on the policy date;
(c) the owner has been continuously confined to a "Nursing Home,"
"Hospital," or "Hospice Care Program" for at least 60 days.
(d) such confinement was recommended by a "Physician" due to an injury,
sickness or disease; and
(e) written notice and satisfactory proof of confinement are received no
later than 90 days after confinement ends.
Terminal Illness Provision. The conditions for waiver of withdrawal charges for
terminal illness include:
(a) the diagnosis of terminal illness was made by a "Physician" on or
after the effective date of this policy and rider;
(b) written notice and satisfactory proof of the owner's terminal
illness are received within 90 days of the date of diagnosis; and
(c) there is reasonable medical certainty that the death of the owner
from a non-correctable medical condition will occur within 12 months
from the date of the Physician's statement.
Total Disability Provision. The conditions for waiver of withdrawal charges for
total disability include:
(a) written notice and proof of total disability are received before any
withdrawal;
(b) the total disability has existed continuously for at least six
months;
(c) the policy and rider are in force at the time total disability
began; and;
(d) the policy anniversary coinciding with or next following the owner's
60th birthday has not passed at the time total disability began.
We will waive only the withdrawal charges which are applicable to purchase
payments received before the first confinement began, or before the date of
diagnosis of terminal illness or total disability. Waiver of withdrawal charges
is subject to all of the conditions and provisions of the policy and rider.
(See your policy.) There is no charge for this rider. Also, the rider may not
be available in all states.
Annual Contract Maintenance Charge
We deduct an annual contract maintenance charge of $25 from each policy,
for administering the policy. This deduction is made from the variable
investment divisions and from the fixed account in the same proportion that
their values bear to the policy value. This charge will only be deducted from
the fixed account to the extent interest has been credited to the fixed account
in excess of the guaranteed interest rate during the preceding policy year.
Expenses include costs of maintaining records, processing death benefit claims,
surrenders, transfers and policy changes, providing reports to policy owners,
and overhead costs. We guarantee not to increase this charge during the life of
the policy. Before the annuity benefit date, this charge is deducted on each
policy anniversary and upon a full surrender of your policy. We waive this
charge on any policy anniversary on which the policy value equals or exceeds
$25,000. This charge is not deducted from any annuity payments after the annuity
benefit date.
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Administration Fee
We also deduct a daily charge from the investment divisions of the variable
account, at an annual rate of 0.15% of the daily net assets of each variable
investment division, for administering the variable account and the policy.
These expenses include costs of maintaining records, processing death benefit
claims, surrenders, transfers and policy changes, providing reports to policy
owners, and overhead costs. We guarantee not to increase this charge during the
life of the policy.
Mortality and Expense Risk Charge
We deduct a daily charge from the variable investment divisions at an
effective annual rate of 1.25% of their daily net assets. This charge
compensates us for assuming certain mortality and expense risks. No mortality
and expense risk charge is deducted from the fixed account. We may realize a
profit from this charge. However, the level of this charge is guaranteed for the
life of the policy and may not be increased. We will continue to deduct this
charge after the annuity benefit date.
The mortality risk we bear arises in part from our obligation to make
monthly annuity payments regardless of how long all annuitants or any individual
may live. These payments are guaranteed in accordance with the annuity tables
and other provisions contained in the policy. This assures you that neither the
longevity of the annuitant, nor an unanticipated improvement in general life
expectancy, will have any adverse effect on the annuity payments the annuitant
will receive under the policy. Our obligation therefore relieves the annuitant
from the risk that he or she will outlive the funds accumulated for retirement.
The mortality risk also arises in part because of the risk that the death
benefit may be greater than the policy value. We also assume the risk that other
expense charges may be insufficient to cover the actual expenses we incur.
Transaction Charge
You may make up to 12 withdrawals per policy year without a transaction
charge. After the 12th withdrawal in a policy year, a transaction charge will
apply to each additional withdrawal. The transaction charge is $20 or 2% of the
amount withdrawn, whichever is less. We will deduct this charge from the
remaining policy value, or from the amount paid if there is not enough value
remaining. The transaction charge does not apply to automatic partial
withdrawals.
Premium Taxes
We will deduct a charge for any premium taxes we incur. Depending on state
and local law, premium taxes can be incurred (and we can deduct the related
charge) when you make a purchase payment, when policy value is withdrawn or
surrendered, or when annuity payments start. (The state premium tax rates
currently range from 0% to 3.50%. Some local governments charge additional
premium taxes.)
Federal Taxes
Currently no charge is made for our Federal income taxes that may be
attributable to the Variable Account. We may, however, make such a charge in the
future. Charges for other taxes, if any, attributable to the Variable Account
may also be made. (See "Federal Tax Matters.")
Fund Expenses
The value of the assets of the variable investment divisions will reflect
the investment management fee and other expenses incurred by the corresponding
portfolios of Target/United Funds, Inc. (See "Summary--Charges and
Deductions.")
19
<PAGE>
Reduction in Charges for Certain Groups
We may reduce or eliminate the withdrawal or other charges on policies that
have been sold to:
(a) our employees and sales representatives, or those of our affiliates
or distributors of the policy;
(b) our customers or distributors of the policies who are transferring
existing policy values to a policy;
(c) individuals or groups when sales of the policy result in savings of
sales or administrative expenses; or
(d) individuals or groups where purchase payments are paid through an
approved group payment method and where the size and type of the
group results in savings of administrative expenses.
We will not reduce or eliminate the withdrawal or other charges
where such reduction or elimination will unfairly discriminate against any
person.
Annuity Payments
================
Election of Annuity Payment Method
As the policy owner, you have the sole right to elect an annuity payment
method in the application. You can also change that election, during the
lifetime of the annuitant and before the annuity benefit date, by written
request any time at least 30 days before the annuity benefit date. We may
require the exchange of the policy for a contract covering the method selected.
Annuity Benefit Date
The first annuity payment will be made as of the annuity benefit date. You
select the annuity benefit date in the application for the policy. You may
change the annuity benefit date by giving us written notice at least 30 days
before the new annuity benefit date.
An annuity benefit date must be the first day of any calendar month. It
must also be at least 30 days after the policy's effective date.
Annuity Payment Methods
On the annuity benefit date, the policy value (less any premium taxes) may
be applied to annuity payments. They can be fixed annuity payments, variable
annuity payments, or a combination of both.
Fixed annuity payments provide guaranteed annuity payments which remain
fixed in amount throughout the payment period. Variable annuity payments vary
with the investment experience of the variable investment divisions. The dollar
amount of variable annuity payments after the first is not fixed.
Annuity payment methods currently include:
Life Annuity with No This method provides annuity payments during the
Guaranteed Period lifetime of the annuitant. No payment will be made
after the death of the annuitant. Only one payment
will be made under this method if the annuitant
dies before the second payment is due; only two
payments will be made if the annuitant dies before
the third payment is due; and so forth.
Joint Life Annuity This method provides annuity payments during the
Continuing to lifetime of the annuitant and a joint annuitant.
The Survivor Payments will continue to the survivor for the
survivor's remaining lifetime. You may also elect
for payments to the survivor to reduce to two-
thirds or one-half of the amount payable at the
time of the first death. This election must be
made at the annuity benefit date, and will result
in a higher initial annuity payment. Only one
payment or very few payments will be
20
<PAGE>
made under this method if the annuitant and joint
annuitant both die before or shortly after
payments begin.
Life Annuity with This method provides annuity payments during the
Monthly Payments lifetime of the annuitant. Various guaranteed
Guaranteed periods of 60 months to 360 months are available.
If the annuitant dies prior to the end of this
guaranteed period, annuity payments will be made
to the payment option beneficiary until the end of
the guaranteed period.
Other annuity payment methods are currently available with our written consent.
If you have not selected an annuity payment method on the annuity benefit
date, we will make monthly annuity payments during the lifetime of the annuitant
with 120 monthly payments guaranteed. Unless you instruct us otherwise before
the annuity benefit date, we will use your variable account value to make
variable annuity payments (in accordance with the allocation of your account
value among the investment divisions) and we will use your fixed account value
to make fixed annuity payments.
The amount of each annuity payment under the methods described above will
depend on the sex and age of the annuitant (or annuitants) at the time the first
payment is due. The annuity payments may be more or less than the total purchase
payments, and more or less than the policy value, because:
(a) variable annuity payments vary with the investment experience of the
underlying portfolios of Target/United Funds, Inc. and you therefore
bear the investment risk under variable annuity payments; and
(b) annuitants may die before the actuarially predicted date of death.
Therefore, the dollar amount of annuity payments cannot be predicted. The method
of computing the annuity payments is described in more detail in the Statement
of Additional Information.
The duration of the annuity payment guarantee will affect the dollar amount
of each payment. For example, each payment will be less when payments are
guaranteed for 20 years than when payments are guaranteed for 10 years.
Whether variable annuity payments decrease, increase, or remain level
depends on whether the net investment performance is worse than the "assumed
investment rate," better than that rate, or equal to that rate. The assumed
investment rate is 4.0% per year. The dollar amount of the variable annuity
payments will decrease if the actual net investment experience of the variable
investment division(s) you select is less than the assumed investment rate. The
dollar amount of the variable annuity payments will increase if the actual net
investment experience exceeds the assumed investment rate. The dollar amount of
the variable annuity payments will stay the same if the actual net investment
experience equals the assumed investment rate.
Fixed annuity payment amounts will be based on our fixed annuity payment
rates in effect on the annuity benefit date. These rates are guaranteed to be
equal to or greater than payments based on the Annuity 2000 Mortality Table with
interest at 3.0%.
If the net amount to be applied to an annuity payment method is less than
$3,000, we have the right to pay such amount in one sum. Also, if any payment
would be less than $50, we have the right to reduce the frequency of payment to
an interval that will result in payments of at least $50.
After the annuity benefit date, the policy value may not be withdrawn, nor
may the policy be surrendered. The annuitant will be entitled to exercise any
voting rights and to reallocate the value of his or her interest in the variable
investment divisions. (See "Voting Rights" and "Transfers.")
The policies offered by this prospectus contain life annuity tables that
provide for different benefit payments to men and women of the same age,
although they provide for unisex tables where requested and required by law.
21
<PAGE>
Nevertheless, in accordance with the U.S. Supreme Court's decision in Arizona
Governing Committee v. Norris, in certain employment-related situations, annuity
tables that do not vary on the basis of sex must be used. Accordingly, if the
policy will be used in connection with an employment-related retirement or
benefit plan, you should give consideration, in consultation with your legal
counsel, to the impact of Norris on any such plan before making any
contributions under these policies.
Distribution of the Policies
============================
Waddell & Reed, Inc. of 6300 Lamar, Overland Park, Kansas, is the principal
underwriter of the policies. Waddell & Reed, Inc. may enter into written sales
agreements with various broker-dealers to aid in the distribution of the
policies. A commission of 7.75% of each payment will be paid to Waddell & Reed,
Inc. in connection with with sales of the policies. In addition, a percentage
of variable account values (currently 0.25% annually) will be paid to Waddell &
Reed, Inc. Commissions to agents and other broker-dealers may be paid by
Waddell & Reed, Inc. as varying percentages of purchase payments received and
percentages of policy values.
Federal Tax Matters
===================
The following discussion is general and is not intended as tax advice.
We do not intend to address the tax consequences resulting from all
situations in which a person may be entitled to or may receive a distribution
under a policy. Any person concerned about these tax implications should consult
a competent tax advisor before initiating any transaction. This discussion is
based upon our understanding of the present Federal income tax laws as they are
currently interpreted by the Internal Revenue Service. We have not assessed the
likelihood of the continuation of the present Federal income tax laws or of
their current interpretation by the Internal Revenue Service. Moreover, we have
not attempted to consider any applicable state or other tax laws.
The policy may be purchased on a non-tax-qualified basis ("non-qualified
policy") or as a qualified policy. Qualified policies are designed for use with
------------------
retirement plans entitled to special income tax treatment under the Internal
Revenue Code of 1986, as amended (the "Code").
Possible Changes in Taxation. Although the likelihood of legislative change
is uncertain, there is always the possibility that the tax treatment of the
policy could change by legislation or other means (such as U.S. Treasury
Department regulations, Internal Revenue Service revenue rulings, and judicial
decisions). It is possible that any change could be retroactive (that is,
effective prior to the date of the change). You should consult a tax advisor
regarding such developments and their effect on the policy.
Taxation of Annuities in General. The following discussion assumes that the
policy will qualify as an annuity contract for Federal income tax purposes. The
Statement of Additional Information and "Required Distributions" (at page 15
of this prospectus) describe the requirements necessary to qualify.
Section 72 of the Code governs taxation of annuities in general.
An annuity owner who is a natural person generally is not taxed on
increases in the value of a policy until distribution occurs. Distribution could
be either in the form of a lump sum received by withdrawing all or part of the
cash value (i.e., surrender or partial withdrawal) or in the form of annuity
payments under the annuity payment method elected. For this purpose, the
assignment, pledge, or agreement to assign or pledge any portion of the policy
value generally will be treated as a distribution. The taxable portion of a
distribution (in the form of a lump sum payment or annuity payments) is taxed as
ordinary income.
An owner of any deferred annuity contract who is not a natural person
generally must include in income any increase in the excess of the policy value
over the owner's "investment in the contract" during the taxable year.
However, there are some exceptions to this rule, and you may wish to discuss
these with your tax advisor.
22
<PAGE>
The following discussion applies to policies owned by natural persons.
Withdrawals. In the case of a withdrawal under a qualified policy, a
----------------
ratable portion of the amount received is taxable, generally based on the ratio
of the "investment in the contract" to the total policy value. The "investment
in the contract" generally equals the portion, if any, of purchase payments paid
with after-tax dollars (that is, purchase payments that were not excluded from
the individual's gross income). For qualified policies, the "investment in the
contract" can be zero. Special rules may apply to a withdrawal from a qualified
policy.
Generally, in the case of a withdrawal under a non-qualified policy before
--------------------
the annuity benefit date, amounts received are first treated as taxable income
to the extent that the policy value immediately before the withdrawal exceeds
the "investment in the contract" at that time. Any additional amount withdrawn
is not taxable.
In the case of a full surrender under a non-qualified policy, the amount
received generally will be taxable to the extent it exceeds the "investment in
the contract."
Annuity Payments. Although the tax consequences may vary depending on the
annuity payment method elected under the policy, generally only the portion of
the annuity payment that represents the amount by which the policy value exceeds
the "investment in the contract" will be taxed.
. For variable annuity payments, in general the taxable portion of each
-------------------------
annuity payment (prior to recovery of the "investment in the
contract") is determined by a formula which establishes a specific
non-taxable dollar amount of each annuity payment. This dollar amount
is determined by dividing the "investment in the contract" by the
total number of expected annuity payments.
. For fixed annuity payments, in general there is no tax on the portion
----------------------
of each annuity payment which reflects the ratio that the "investment
in the contract" bears to the total expected value of annuity payments
for the term of the payments; however, the remainder of each annuity
payment is taxable.
In all cases, after the "investment in the contract" is recovered, the full
amount of any additional annuity payments is taxable.
Penalty Tax. In the case of a distribution from a non-qualified policy,
there may be imposed a Federal penalty tax equal to 10% of the amount treated as
taxable income. In general, however, there is no penalty tax on distributions:
(a) made on or after the taxpayer attains age 59 1/2;
(b) made as a result of an owner's death or attributable to the taxpayer's
disability; or
(c) received in substantially equal periodic payments as a life annuity.
Other exceptions may be applicable under certain circumstances and special rules
may be applicable in connection with the exceptions enumerated above. Also,
additional exceptions apply to distributions from a qualified policy. You should
consult a tax adviser with regard to exceptions from the penalty tax.
Aggregation of Contracts. All non-qualified deferred annuities entered into
after October 21, 1988 that we (or our affiliates) issued to the same owner
during any calendar year are treated as one annuity contract for purposes of
determining the amount includable in gross income under Section 72(e) of the
Code. In addition, there may be other situations in which the U.S. Treasury
Department may (under its authority to issue regulations or otherwise) conclude
that it would be appropriate to aggregate two or more annuity contracts
purchased by the same owner. Accordingly, you should consult a competent tax
advisor before purchasing more than one annuity contract.
Transfers and Assignments. A transfer or assignment of ownership of a
policy, or designation of an annuitant
23
<PAGE>
or other beneficiary who is not also the owner, may result in certain tax
consequences to the policy owner that are not discussed herein. If you are
contemplating any such transfer, assignment or designation, you should contact a
competent tax advisor with respect to the potential tax effects of such
transaction.
Death Benefits. Amounts may be distributed from a policy because of the
death of a policy owner or an annuitant. Generally, such amounts are includable
in the income of the recipient as follows:
(a) if distributed in a lump sum, they are taxed in the same manner as a
full surrender of the policy, as described above; or
(b) if distributed under an annuity payment method, they are taxed in the
same manner as annuity payments, as described above.
Withholding. Annuity distributions are generally subject to withholding for
the recipient's federal income tax liability. Recipients can generally elect,
however, not to have tax withheld from distributions. "Eligible rollover
distributions" from Section 401(a), 403(a) or 403(b) plans are subject to a
mandatory federal income tax withholding of 20%. An eligible rollover
distribution is the taxable portion of any distribution to an employee from such
a plan, except certain distributions such as distributions required by the Code
or distributions in a specified annuity form. The 20% withholding does not
apply, however, if the employee chooses a "direct rollover" from the plan to
another tax-qualified plan or IRA.
Qualified Policies. The tax rules applicable to a qualified policy vary
according to the type of plan and the terms and conditions of the plan. The
following events may cause adverse tax consequences:
(a) contributions in excess of specified limits;
(b) distributions prior to age 59 1/2 (subject to certain exceptions);
(c) distributions that do not conform to specified commencement and
minimum distribution rules; and
(d) other circumstances specified in the Code.
We make no attempt to provide more than general information about the use
of the policy with the various types of retirement plans. The terms and
conditions of the retirement plans may limit the rights otherwise available to
you under a qualified policy. You are responsible for determining that
contributions, distributions and other transactions with respect to the
qualified policy comply with applicable law. If you are purchasing an annuity
contract for use with any qualified retirement plan, you should consult your
legal counsel and tax advisor regarding the suitability of the annuity contract.
Required Distributions. For qualified plans under Sections 401(a), 403(a),
403(b), and 457, the Code requires that distributions generally must begin by
the later of April 1 of the calendar year following the calendar year in which
the policy owner (or plan participant): (a) reaches age 70 1/2; or (b) retires.
Distributions must be made in a specified form and manner. If the participant is
a "5 percent owner" (as defined in the Code), distributions generally must
begin no later than April 1 of the calendar year following the calendar year in
which the policy owner (or plan participant) reaches age 70 1/2. For Individual
Retirement Annuities (IRAs) described in Section 408 of the Code, distributions
generally must begin no later than April 1 of the calendar year following the
calendar year in which the policy owner (or plan participant) reaches age
70 1/2.
Corporate Pension and Profit-Sharing Plans. Section 401(a) of the Code
permits employers to establish various types of retirement plans for employees,
and permits self-employed individuals to establish retirement plans for
themselves and their employees. Adverse tax or other legal consequences to the
plan, to the participant or to both may result if this policy is purchased by a
Section 401(a) plan and later assigned or transferred to any individual. The
policy includes a death benefit that in some cases may exceed the greater of
purchase payments or policy value. The death benefit could be characterized as
an incidental benefit, the amount of which is limited in any
24
<PAGE>
pension or profit-sharing plan. Because the death benefit may exceed this
limitation, employers using the policy in connection with such plans should
consult their tax advisor.
Section 403(b) Plans. Under Code Section 403(b), public school systems and
certain tax-exempt organizations may purchase annuity contracts for their
employees. Generally, payments to Section 403(b) annuity contracts will be
excluded from the gross income of the employee, subject to certain limitations.
However, these payments may be subject to FICA (Social Security) taxes. The
policy includes a death benefit that in some cases may exceed the greater of
purchase payments or policy value. The death benefit could be characterized as
an incidental benefit, the amount of which is limited in any tax-sheltered
annuity under Section 403(b). Because the death benefit may exceed this
limitation, employers using the policy in connection with such plans should
consult their tax advisor. Under Section 403(b) annuity contracts, the following
amounts may only be distributed upon death of the employee, attainment of age
59 1/2, separation from service, disability, or financial hardship:
(a) elective contributions made in years beginning after December 31,
1988;
(b) earnings on those contributions; and
(c) earnings in such years on amounts held as of the last year beginning
before January 1, 1989.
In addition, income attributable to elective contributions may not be
distributed in the case of hardship.
Individual Retirement Annuities. Section 408 of the Code limits the amount
which may be contributed to an IRA each year to the lesser of $2,000 or the
amount of compensation includible in the policy owner's gross income for the
year. These contributions may be deductible in whole or in part depending on the
individual's income. The limit on the amount contributed to an IRA does not
apply to distributions from certain other types of qualified plans that are
"rolled over" on a tax-deferred basis into an IRA. Amounts in the IRA (other
than non-deductible contributions) are taxed when distributed from the IRA.
Distributions prior to age 59 1/2 (unless certain exceptions apply) are subject
to a 10% penalty tax. The Internal Revenue Service has not addressed in a ruling
of general applicability whether a death benefit provision such as the provision
in the policy meets IRA qualification requirements.
Roth IRAs. Section 408A of the Code permits certain eligible individuals to
contribute to a Roth IRA. Contributions to a Roth IRA, which are subject to
certain limitations, are not deductible and must be made in cash or as a
rollover or transfer from another Roth IRA or other IRA. A rollover from or
conversion of an IRA to a Roth IRA may be subject to tax, and other special
rules may apply. You should consult a tax advisor before combining any converted
amounts with any other Roth IRA contributions, including any other conversion
amounts from other tax years. Distributions from a Roth IRA generally are not
taxed, except that-once aggregate distributions exceed contributions to the Roth
IRA-income tax and a 10% penalty tax may apply to distributions made:
(a) before age 59 1/2 (subject to certain exceptions); or
(b) during the five taxable years starting with the year in which the
first contribution is made to any Roth IRA.
No distribution from a Roth IRA is required at any time before the policy
owner's death.
Deferred Compensation Plans. Section 457 of the Code provides for certain
deferred compensation plans available with respect to service for state
governments, local governments, political subdivisions, agencies,
instrumentalities and certain affiliates of such entities, and tax-exempt
organizations. These plans are subject to various restrictions on contributions
and distributions. Under non-governmental plans, all amounts are subject to the
claims of general creditors of the employer, and depending on the terms of the
particular plan, the employer may be entitled to draw on deferred amounts for
purposes unrelated to its Section 457 plan obligations.
All Policies. As noted above, the foregoing comments about the Federal tax
consequences under the policy are not exhaustive, and special rules apply to
other tax situations not discussed in this prospectus. Further, the Federal
25
<PAGE>
tax consequences discussed herein reflect our understanding of current law, and
the law may change. Federal estate tax and state and local estate, inheritance
and other tax consequences of ownership or receipt of distributions under a
policy depend on the individual circumstances of each policy owner or recipient
of a distribution. A competent tax advisor should be consulted for further
information.
Historical Performance Data
===========================
We may advertise yields and total returns for the investment divisions of
the Variable Account. In addition, we may advertise the effective yield of the
money market investment division. These figures are historical and are not
intended to indicate future performance.
The yield of the money market investment division is the annualized income
generated by an amount invested in that option over a specified seven-day
period. We assume that the income generated for that seven-day period is
generated each seven-day period over a 52-week period. We show the result as a
percentage of the amount invested. We calculate the effective yield similarly
but assume that the income earned is reinvested every seven days. The
compounding effect of this assumed reinvestment causes the effective yield to be
slightly higher than the yield.
We calculate the total return of investment divisions for portfolios other
than the money market portfolio for various periods of time, including: (a) one
year; (b) five years; (c) ten years; and (d) the period starting when the
investment division commenced operations.
The average annual total return is the annual compounded rate of return at which
an initial investment of $1,000 would have grown to reach to the redeemable
value of that investment at the end of each of the various measurement periods.
We may also disclose cumulative total returns and returns for various time
periods.
We may disclose performance figures that reflect the withdrawal charge, and
also figures that assume the policy is not surrendered and therefore do not
reflect any withdrawal charge.
The Statement of Additional Information has more information about
performance data calculations.
Voting Rights
=============
To the extent required by law, we will vote shares of Target/United Funds,
Inc. held by the Variable Account according to instructions received from
persons having voting interests in those variable investment divisions. If,
however, the 1940 Act or any regulation thereunder should be amended or if the
present interpretation thereof should change, or if we determine that we are
allowed to vote the Target/United Funds, Inc. shares in our own right, we may
elect to do so. Target/United Funds, Inc. does not hold regular annual
shareholder meetings.
The number of votes that you may direct to us to cast will be calculated
separately for each variable investment division. We will determine that number
by applying your percentage interest, if any, in a particular variable
investment division to the total number of votes attributable to that variable
investment division. Before the annuity benefit date, you hold a voting interest
in each variable investment division to which policy value is allocated. After
the annuity benefit date, the person receiving variable annuity payments has the
voting interest. After the annuity benefit date, the votes attributable to a
policy decrease as the value of the variable investment divisions under your
policy decrease with each variable annuity payment. In determining the number of
votes, fractional shares will be recognized.
The number of votes for a portfolio which are available will be determined
as of the record date established by Target/United Funds, Inc. Voting
instructions will be solicited by written communication prior to such meeting in
accordance with procedures established by Target/United Funds, Inc.
Portfolio shares attributable to the policies for which no timely
instructions are received will be voted in proportion to the voting instructions
which are received with respect to all Advantage Gold policies participating in
26
<PAGE>
the variable investment division. Voting instructions to abstain on any item to
be voted upon will be applied on a pro rata basis to reduce the votes eligible
to be cast.
Each person having a voting interest in a variable investment division will
receive proxy material, reports and other materials relating to the appropriate
portfolio of Target/United Funds, Inc.
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. The obligations under the policy are our obligations.
Published Ratings
We may publish (in advertisements, sales literature, and reports to policy
owners) the ratings and other information assigned to us by one or more
independent insurance industry analysts or rating organizations such as A. M.
Best Company, Standard & Poor's Corporation, and Weiss Research, Inc. These
ratings reflect the organization's current opinion of an insurance company's
financial strength and operating performance in comparison to the norms for the
insurance industry; they do not reflect the strength, performance, risk, or
safety (or lack thereof) of the variable 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.
Legal Proceedings
=================
There are no legal proceedings to which the Variable Account is a party to
or to which the assets of the Variable Account are subject. We are not involved
in any litigation that is of material importance in relation to its total assets
or that relates to the Variable Account.
Financial Statements
=====================
Our financial statements (as well as the Auditors' Reports thereon) are in
the Statement of Additional Information.
Statement of Additional Information
===================================
A Statement of Additional Information is available which contains more
details concerning the subjects discussed in this prospectus. The following is
the table of contents for the Statement of Additional Information:
27
<PAGE>
Statement of Additional Information
Table of Contents
<TABLE>
<S> <C>
The Policy................................................................ 1
Definitions............................................................ 1
Accumulation Units..................................................... 3
Annuity Units.......................................................... 3
Net Investment Factor.................................................. 3
Determination of Annuity Payments...................................... 4
Fixed Annuity Payments.............................................. 4
Variable Annuity Payments........................................... 4
The Contract........................................................... 5
Misstatement of Age or Sex............................................. 5
Annual Report.......................................................... 5
Non-Participation...................................................... 5
Delay or Suspension of Payments........................................ 5
Ownership.............................................................. 6
Beneficiary............................................................ 6
Change of Owner or Beneficiary......................................... 6
Assignment............................................................. 6
Incontestability....................................................... 6
Evidence of Survival................................................... 6
Performance Data Calculations............................................. 7
Money Market Investment Division Yield Calculation..................... 7
Average Annual Total Return Calculations............................... 7
Federal Tax Matters....................................................... 11
Taxation of United Investors........................................... 11
Tax Status of the Policies............................................. 12
Required Distributions................................................. 13
Withholding............................................................ 13
Addition, Deletion or Substitution of Investments......................... 13
Distribution of the Policy................................................ 14
Safekeeping of Variable Account Assets.................................... 14
State Regulation.......................................................... 14
Records and Reports....................................................... 15
Legal Matters............................................................. 15
Experts................................................................... 15
Other Information......................................................... 15
Financial Statements...................................................... 16
</TABLE>
28
<PAGE>
United Investors Advantage Gold Variable Account
Statement of Additional Information
-----------------------------------
for the
Advantage Gold/sm/
VARIABLE ANNUITY
Offered by
United Investors Life Insurance Company
This Statement of Additional Information expands upon subjects discussed in the
current Prospectus for the Advantage Gold/sm/ Deferred Variable Annuity Policy
(the "Policy") offered by United Investors Life Insurance Company. You may
obtain a copy of the Prospectus dated February 15, 2000, by writing to United
Investors Life Insurance Company, Variable Products Division, P.O. Box 10287,
Birmingham, Alabama 35202-0287. Terms used in the current Prospectus for the
Policy are incorporated in this Statement.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE POLICY.
Dated: February 15, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Corresponding Page
Page in Prospectus
---- -------------
<S> <C> <C>
THE POLICY............................................................ 1 9
Definitions........................................................ 1
Accumulation Units................................................. 3
Annuity Units...................................................... 3
Net Investment Factor.............................................. 3
Determination of Annuity Payments.................................. 4
Fixed Annuity Payments............................................ 4
Variable Annuity Payments......................................... 4
The Contract....................................................... 5
Misstatement of Age or Sex......................................... 5
Annual Report...................................................... 5
Non-Participation.................................................. 5
Delay or Suspension of Payments.................................... 5
Ownership.......................................................... 6
Beneficiary........................................................ 6
Change of Ownership or Beneficiaries............................... 6
Assignment......................................................... 6
Incontestability................................................... 6
Evidence of Survival............................................... 6
PERFORMANCE DATA CALCULATIONS......................................... 7 25
Money Market Investment Division Yield Calculation................. 7
Average Annual Total Return Calculations........................... 7
FEDERAL TAX MATTERS................................................... 11 22
Taxation of United Investors....................................... 11
Tax Status of the Policies......................................... 12
Required Distributions............................................. 13
Withholding........................................................ 13
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS..................... 13
DISTRIBUTION OF THE POLICY............................................ 14 22
SAFEKEEPING OF VARIABLE ACCOUNT ASSETS................................ 14
STATE REGULATION...................................................... 14
RECORDS AND REPORTS................................................... 15
LEGAL MATTERS......................................................... 15 27
EXPERTS............................................................... 15
OTHER INFORMATION..................................................... 15
FINANCIAL STATEMENTS.................................................. 16 27
</TABLE>
-ii-
<PAGE>
THE POLICY
----------
As a supplement to the description in the Prospectus, the following
provides additional information about the Policy.
Definitions
- -----------
The following words and phrases are defined and used in your policy, and
many of them are also used in the Prospectus and in this Statement of Additional
Information.
Accumulation Unit - An accounting unit used to calculate the Policy Value.
Age - The issue Age shown under Policy Data as determined by us from the date of
birth stated in the application. Attained ages are determined from the Policy
Date. No Policy will be issued if either the Owner or Annuitant is over Age 90.
We use age last birthday.
Annuitant - The person on whose life Annuity Payments depend. If the Policy
Owner names more than one person as an "Annuitant," the second person named
shall be referred to as "Co-Annuitant." The "Annuitant" and Co-Annuitant" will
be referred to collectively as the "Annuitant."
Annuity Benefit Date - The date on which Annuity Payments are to start. The
Annuity Benefit Date is shown under Policy Data unless changed.
Annuity Unit - An accounting unit used to calculate the value of Variable
Annuity Payments.
Fixed Account - Part of the General Account of United Investors Life Insurance
Company to which You may allocate all or a portion of your Purchase Payments or
Policy Values.
Fixed Annuity - An Annuity with payments which are guaranteed to remain fixed in
amount throughout the payment period.
General Account - The General Account consists of all assets of United Investors
Life Insurance Company other than those in any separate account.
Investment Divisions - The Investment Divisions named under the Policy Data.
Each is a part of a Variable Account of ours.
Net Purchase Payment - The Purchase Payment less any deduction for premium
taxes.
Policy Anniversary - The same day and month as the Policy Date each year the
Policy remains in force.
Policy Date - The date from which Policy Anniversaries and Policy Years are
determined. Your Policy date is shown under Policy Data.
-1-
<PAGE>
Policy Value - The Policy Value is equal to the Variable Account Value plus the
Fixed Account Value.
Policy Year - A year that starts on the Policy Date or on a subsequent Policy
Anniversary.
Purchase Payment - An amount paid by the Owner to us as consideration for the
benefits provided by this Policy.
Surrender Value - The Policy Value less any withdrawal charges, the Annual
Contract Maintenance Charge, and applicable deductions for premium taxes.
Valuation Date - Each day the New York Stock Exchange and United Investors' Home
Office are open. Currently, the Friday after Thanksgiving and, in most years,
December 24 (Christmas Eve day) and December 31 (New Year's Eve day) are not
Valuation Dates.
Valuation Period - The interval of time between a Valuation Date and the next
Valuation Date. It is measured from the closing of the New York Stock Exchange.
Variable Account - A separate account maintained by us. The Variable Account
available as of the Policy Date is shown in the Policy Data.
Variable Annuity - An Annuity with payments which vary in amount with the
investment experience of the Investment Divisions of the Variable Account.
We, our, us - United Investors Life Insurance Company.
You, your - The Owner or Joint Owner of this Policy. The Owner may be someone
other than the Annuitant. The Owner is shown in the application unless the
Owner has been changed as provided in this Policy.
-2-
<PAGE>
Accumulation Units
- ------------------
An Accumulation Unit is an accounting unit used prior to the Annuity
Benefit Date to calculate the Variable Account Value. The portion of a Net
Purchase Payment that you allocate to an Investment Division of the Variable
Account is credited as Accumulation Units in that Investment Division.
Similarly, the value that you transfer to an Investment Division of the Variable
Account is credited as Accumulation Units in that Investment Division. The
number of Accumulation Units to credit is determined by dividing (1) the dollar
amount allocated to the Investment Division by (2) the Investment Division's
appropriate Accumulation Unit Value for the Valuation Period in which we
received the Purchase Payment or transfer request (in the case of the initial
Purchase Payment, we will credit Accumulation Units for that Purchase Payment
based on the Accumulation Unit value for the Policy Date).
The value of an Accumulation Unit for each Investment Division was
initially arbitrarily set at $10. The value for any later Valuation Period is
found by multiplying the Accumulation Unit Value for an Investment Division for
the last prior Valuation Period by such Investment Division's Net Investment
Factor (described below) for the following Valuation Period. Like the Policy
Value, the value of an Accumulation Unit may increase or decrease from one
Valuation Period to the next.
Annuity Units
- -------------
An Annuity Unit is an accounting unit used after the Annuity Benefit Date
to calculate the value of Variable Annuity Payments. The value of an Annuity
Unit in each Investment Division was initially set at $10. The value for any
later Valuation Period is determined by (a) multiplying the Annuity Unit Value
for an Investment Division for the last prior Valuation Period for such
Investment Division's Net Investment Factor for the following Valuation Period,
and then (b) adjusting the result to compensate for the interest rate assumed in
the annuity tables used to determine the amount of the first Variable Annuity
Payment. The value of an Annuity Unit for each Investment Division changes to
reflect the investment performance of the Portfolio underlying that Investment
Division.
Net Investment Factor
- ---------------------
The Net Investment Factor is an index applied to measure the investment
performance of an Investment Division of the Variable Account from one Valuation
Period to the next. The Net Investment Factor may be greater or less than one,
so the value of an Investment Division may increase or decrease.
The Net Investment Factor of an Investment Division for any Valuation
Period is determined by dividing (1) by (2) and subtracting (3) from the result,
where:
(1) is the result of:
(a) the net asset value per Portfolio share held in the Investment
Division, determined at the end of the current Valuation Period;
plus
(b) the per share amount of any dividend or capital gain
distributions on the Portfolio shares held in the Investment
Division, if the "ex-dividend" date occurs during the current
Valuation Period; plus or minus
-3-
<PAGE>
(c) a charge or credit for any taxes reserved for the current
Valuation Period which we determine to have resulted from the
investment operations of the Investment Division;
(2) is the result of:
(a) the net asset value per Portfolio share of the Portfolio shares
held in the Investment Division, determined at the end of the
previous Valuation Period; plus or minus
(b) the charge or credit for any taxes reserved for the previous
Valuation Period; and
(3) is a deduction for the 1.25% Mortality and Expense Risk Charge and the
0.15% Administration Fee.
Determination of Annuity Payments
- ---------------------------------
At the Annuity Benefit Date, the Policy Value, less any applicable premium
taxes, may be applied to make Fixed Annuity Payments, Variable Annuity Payments,
or a combination thereof.
Fixed Annuity Payments. Fixed Annuity Payments provide guaranteed annuity
-----------------------
payments which remain fixed in amount throughout the payment period. Fixed
Annuity Payments do not vary with the investment experience of the Investment
Divisions. The payment amount will be based on our Fixed Annuity Payment rates
in effect on the settlement date. These rates are guaranteed to be equal to or
greater than payments based on the Annuity 2000 Mortality Table with interest at
3.0%. Where requested and required by law unisex tables will be used.
Variable Annuity Payments. The dollar amount of the first Variable Annuity
- -------------------------
Payment is determined by multiplying the net value applied by purchase rates
based on the Annuity 2000 Mortality Table with interest at 4.0%. Where requested
and required by law unisex tables will be used.
The portion of the first Variable Annuity Payment attributed to each
Investment Division is divided by the Annuity Unit Value for the Investment
Division (as of the same date that the amount of the first Variable Annuity
Payment is determined) to determine the number of Annuity Units upon which later
Variable Annuity Payments will be made. This number of Annuity Units will not
change unless subsequently changed by reallocation (transfer).
The dollar amount of each monthly Variable Annuity Payment after the first
Annuity Payment will equal the sum of the number of Annuity Units credited to
each Investment Division multiplied by the Annuity Unit Value for each
respective Investment Division for the Valuation Period.
After the Annuity Benefit Date, the Annuitant may transfer Annuity Units
among the Investment Divisions, no more than once each Policy Year, by sending a
written request to United Investors. A transfer will be made as of the next
Annuity Payment Date, by converting Annuity Units for the value transferred from
an Investment Division into Annuity Units in the Investment Division to which
the value is transferred. Transfers may cause the number of Annuity Units to
change, but will not change the dollar amount of the Variable Annuity Payment as
of the date of transfer.
United Investors guarantees that the dollar amount of monthly Variable
Annuity Payments after the first payment will not be affected by variations in
expenses or mortality experience.
-4-
<PAGE>
The Contract
- ------------
The entire contract is made up of the Policy, any riders, and the written
application. All statements made in the application, in the absence of fraud,
are considered representations and not warranties. Only the statements made in
the written application can be used by us to defend a claim or void the Policy.
Changes to the Policy are not valid unless we make them in writing. They
must be signed by one of our executive officers. No agent has authority to
change the Policy or to waive any of its provisions.
Misstatement of Age or Sex
- --------------------------
If the Annuitant's age or sex is misstated, we will adjust each benefit and
any amount to be paid to reflect the correct age and sex.
Annual Report
- -------------
At least once each Policy Year prior to the Annuity Benefit Date we will
send you a report on your Policy. It will show the current Policy Value, the
current Fixed Account Value, the current value of the Investment Divisions of
the Variable Account, the Purchase Payments paid, all charges and partial
withdrawals since the last report, the current Surrender Value and the current
Death Benefit. We will also include in the report any other information
required by state law or regulation. Further, we will send you the reports
required by the Investment Company Act of 1940. You may request additional
reports during the year but we may charge a fee for any additional reports.
Non-Participation
- -----------------
The Policy is non-participating. This means that no dividends will be paid
on your Policy. It will not share in our profits or surplus earnings.
Delay or Suspension of Payments
- -------------------------------
We will normally pay a surrender or any withdrawal within seven days after
we receive your written request at our Home Office. However, payment of any
amount from the Investment Divisions of the Variable Account may be delayed or
suspended whenever:
a) the New York Stock Exchange is closed other than customary weekend and
holiday closing, or trading on the New York Exchange is restricted as
determined by the U.S. Securities and Exchange Commission;
b) the U.S. Securities and Exchange Commission by order permits
postponement for the protection of Policyowners; or
c) an emergency exists, as determined by the Commission, as a result of
which disposal of the securities held in the Investment Divisions is
not reasonably practicable or it is not reasonably practicable to
determine the value of the Variable Account's net assets.
Payment of any amounts from the Fixed Account may be deferred for up to six
months from the date of the request to surrender. If payment is deferred for
more than 30 days, we will pay interest on the amount deferred at a rate not
less the Guaranteed Minimum Interest Rate.
-5-
<PAGE>
Payments under the Policy of any amounts derived from Purchase Payments
paid by check may be delayed until such time as the check has cleared your bank.
Ownership
- ---------
The Policy belongs to you, the Policyowner. Unless you provide otherwise,
you may receive all benefits and exercise all rights of the Policy prior to the
Annuity Benefit Date. These rights and the rights of any Beneficiary are
subject to the rights of any assignee. If there is more than one Owner at a
given time, all must exercise the rights of ownership by joint action.
Beneficiary
- -----------
The Beneficiary means the person, persons or entity entitled to Death
Benefit proceeds under this Policy upon death of the Owner (or Annuitant if the
Owner is not a natural person) before the Annuity Benefit Date. If the Policy
has joint Owners and one Owner dies, the surviving Joint Owner will be deemed
the Beneficiary. The rights of any Beneficiary who dies before the Owner (or
Annuitant if the Owner is not a natural person) will pass to the surviving
Beneficiary or Beneficiaries unless you provide otherwise. If no Beneficiary is
living at the Owner's death if the Owner is a natural person, we will pay the
Death Benefit, if any, to the Joint Owner, if living; otherwise, it will be paid
to the deceased's estate. (If the owner is not a natural person and no
Beneficiary is living at the Annuitant's death, we will pay the Death Benefit,
if any, to the Annuitant's estate.)
Change of Ownership or Beneficiaries
- ------------------------------------
Unless you provide otherwise in writing to us, you may change the Owner or
the Beneficiary or the Payment Option Beneficiary during your lifetime. Any
changes must be made by written request filed with us. The change takes effect
on the date the request was signed, but it will not apply to payments made by us
before we accept your written request. We may require you to submit the Policy
to us before making a change. A change of ownership may be a taxable event.
You should consult your tax advisor prior to making any change.
Assignment
- ----------
You may assign the Policy, but we will not be responsible for the validity
of any assignment and no assignment will bind us until it is filed in writing at
our Home Office. When it is filed, your rights and the rights of any
Beneficiary will be subject to it. An assignment of the Policy may be a taxable
event. Your ability to assign a Qualified Policy may be restricted. You should
consult your tax advisor prior to making any assignment.
Incontestability
- ----------------
United Investors will not contest the Policy.
Evidence of Survival
- --------------------
Where any payments under the Policy depend on the annuitant or payee being
alive, we may require proof of survival prior to making the payments.
-6-
<PAGE>
PERFORMANCE DATA CALCULATIONS
-----------------------------
We may advertise the yield and effective yield of the Money Market
Investment Division. In addition, we may advertise the total returns for other
Investment Divisions of the Variable Account. All performance data calculations
for the Variable Account will be in accordance with uniformly imposed SEC
regulations.
Money Market Investment Division Yield Calculation
- --------------------------------------------------
In accordance with regulations adopted by the SEC, if we disclose the
current annualized yield of the Money Market Investment Division for a seven-day
period, it is required to be in a manner which does not take into consideration
(1) any realized or unrealized gains or losses of the Money Market Portfolio or
on its portfolio securities, or (2) any income other than investment income.
The current annualized yield is computed by determining the net change
(exclusive of realized gains and losses on the sale of securities and unrealized
appreciation and depreciation) in the value of a hypothetical account having a
balance of one unit of the Money Market Investment Division at the beginning of
the seven-day period, dividing the net change in account value by the value of
the account at the beginning of the period to determine the base period return,
and annualizing this quotient on a 365-day basis. The net change in account
value reflects the deduction for the Mortality and Expense Risk Charge and the
Administration Fee as well as reflecting income and expenses accrued during the
period. Because of these deductions, the yield for the Money Market Investment
Division will be lower than the yield for the Money Market Portfolio of the
Fund.
The SEC also permits us to disclose the effective yield of the Money Market
Investment Division for the same seven-day period, determined on a compounded
basis. The effective yield is calculated by compounding the annualized base
period return by adding one to the base period return, raising the sum to a
power equal to 365 divided by 7, and subtracting one from the result according
to the following formula:
Effective Yield = [(Base period return +1) 365/7]-1
The actual yield of the Money Market Investment Division is affected by:
(l) changes in interest rates on money market securities; (2) the average
portfolio maturity of the Money Market Portfolio; (3) the types and quality of
securities held by the Money Market Portfolio; and (4) its operating expenses.
The yield on amounts held in the Money Market Investment Division normally will
fluctuate on a daily basis. Therefore, the disclosed yields for any given past
period is not an indication or representation of future yields or rates of
return.
Average Annual Total Return Calculations
- ----------------------------------------
For each Investment Division of the Variable Account other than the Money
Market Investment Division an average annual total return may be calculated for
a given period. It is computed by finding the average annual compounded rate of
return over one, five and ten year periods (or, where an Investment Division has
been in existence for a period less than one, five or ten years, for such lesser
period) that would equate the initial amount invested to the ending redeemable
value, according to the following formula:
P(1 + T) n = ERV
Where
-7-
<PAGE>
P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years in the period
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one, five or ten year periods (or fractional portion
thereof) at the end of such period.
All recurring fees that are charged to all Policy Owner accounts are
recognized in the ending redeemable value. The average annual total return
calculation will also reflect the effect of Withdrawal Charges that may be
applicable due to surrender of the Policy at the end of a particular period.
Adjusted Historical Portfolio Performance Data
We may also disclose "historical" performance data for a portfolio, for
periods before the applicable Investment Division of the Variable Account
commenced operations. Such performance information will be calculated based on
the performance of the portfolio and the assumption that the Investment Division
was in existence for the same periods as those indicated for the portfolio, with
a level of policy charges currently in effect.
This type of adjusted historical performance data may be disclosed on both
an average annual total return and a cumulative total return basis. Moreover,
it may be disclosed assuming that the policy is not surrendered (i.e., with no
deduction for the withdrawal charge) and assuming that the policy is surrendered
at the end of the applicable period (i.e., reflecting a deduction for any
applicable withdrawal charge).
Other Performance Data
We may from time to time also disclose average annual total returns in a
non-standard format in conjunction with the standard format described above.
The non-standard format will be identical to the standard format except that the
withdrawal charge will be assumed to be 0%.
We may from time to time also disclose cumulative total returns in
conjunction with the standard format described above. The cumulative returns
will be calculated using the following formula assuming that the withdrawal
charge will be 0%.
CTR = {ERV/P} - 1
Where:
CTR = the cumulative total return net of policy charges for the period.
-8-
<PAGE>
ERV = ending redeemable value of a hypothetical $1,000 payment at the
beginning of the one, five, or ten-year period at the end of the
one, five, or ten-year period (or fractional portion of the period).
P = a hypothetical initial payment of $1,000.
All non-standard performance data will be advertised only if the standard
performance data is also disclosed.
Historical Performance Data
General Limitations
The figures below represent past performance and are not indicative of
future performance. The figures may reflect the waiver of advisory fees and
reimbursement of other expenses which may not continue in the future.
Portfolio information, including historical daily net asset values and
capital gains and dividends distributions regarding each portfolio, has been
provided by that portfolio. The Investment Division adjusted historical
performance data is derived from the data provided by the portfolios. We have
no reason to doubt the accuracy of the figures provided by the portfolios. We
have not verified these figures.
Adjusted Historical Performance Data
The charts below show adjusted historical performance data for the
Investment Divisions for the periods prior to the inception of the Investment
Division, based on the performance of the corresponding portfolios since their
inception date, with a level of charges equal to those currently assessed under
the policy. These figures are not an indication of future performance.
-9-
<PAGE>
Adjusted (Hypothetical) Historic Performance Data
(for Periods before the Variable Account Investment Divisions commenced
operations)
STANDARD AVERAGE ANNUAL TOTAL RETURN
(With Withdrawal Charge)
Portfolio
Investment 1 Year to 5 Years to 10 Years to Inception to Inception
Division 12/31/99 12/31/99 12/31/99 12/31/99 Date
- ---------------- --------- ---------- ----------- ------------ ---------
Asset Strategy 15.10% N/A N/A 9.40% 5/01/95
Balanced 2.44% 12.42% N/A 10.62% 5/03/94
Bond -9.13% 5.58% 5.56% 5.91% 7/13/87
Growth 26.06% 24.21% 17.47% 16.56% 7/13/87
High Income -3.57% 7.88% 8.32% 7.11% 7/13/87
Income 4.72% 19.96% N/A 15.46% 7/16/91
International 57.05% 24.09% N/A 20.84% 5/03/94
Limited-Term Bond -5.83% 4.65% N/A 3.96% 5/03/94
Science &
Technology 164.67% N/A N/A 72.06% 4/04/97
Small Cap 43.90% 24.03% N/A 24.87% 5/03/94
-10-
<PAGE>
Adjusted (Hypothetical) Historic Performance Data
(for Periods before the Variable Account Investment Divisions commenced
operations)
NON-STANDARD AVERAGE ANNUAL TOTAL RETURN
(Assumes no surrender, and no Withdrawal Charge)
<TABLE>
<CAPTION>
Portfolio
Investment 1 Year to 5 Years to 10 Years to Inception to Inception
Division 12/31/99 12/31/99 12/31/99 12/31/99 Date
- ------------------- -------- --------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Asset Strategy 21.10% N/A N/A 9.86% 05/01/95
Balanced 8.44% 12.67% N/A 10.84% 05/03/94
Bond -3.13% 5.90% 5.56% 5.91% 07/13/87
Growth 32.06% 24.37% 17.47% 16.56% 07/13/87
High Income 2.43% 8.17% 8.32% 7.11% 07/13/87
Income 10.72% 20.16% N/A 15.46% 07/16/91
International 63.05% 24.26% N/A 20.98% 05/03/94
Limited-Term Bond 0.17% 4.98% N/A 4.25% 05/03/94
Science and Technology 170.67% N/A N/A 72.77% 04/04/97
Small Cap 49.90% 24.20% N/A 25.00% 05/03/94
</TABLE>
The performance information provided above reflects only the performance of
a hypothetical $1,000 payment which is allocated to the stated Investment
Division during the time period on which the calculations are based.
Performance information provided for any given past period is not an indication
or representation of future yields or rates of return.
The figures shown above do not reflect the "12b-1" service fee for periods
prior to the August 31, 1998 effective date of the Service Plan. If the Service
Plan had been in effect during the periods shown, return would have been lower.
FEDERAL TAX MATTERS
-------------------
Taxation of United Investors
- ----------------------------
United Investors is taxed as a life insurance company under Part 1 of
Subchapter L of the Internal Revenue Code of 1986 (the "Code"). Since the
Variable Account is not an entity separate from United Investors and its
operations form a part of United Investors, it will not be taxed separately as a
"regulated investment company" under Subchapter M of the Code. Investment
income and realized net capital gains on the assets of the Variable
-11-
<PAGE>
Account are reinvested and taken into account in determining the Policy Value.
As a result, such investment income and realized net capital gains are
automatically retained as part of the reserves under the Policy. Under existing
Federal income tax law, United Investors believes that Variable Account
investment income and realized net capital gains should not be taxed to the
extent that such income and gains are retained as part of the reserves under the
Policy.
Tax Status of the Policies
- --------------------------
Section 817(h) of the Code provides that the investments of the Variable
Account must be "adequately diversified" in accordance with Treasury regulations
in order for the Policies to qualify as annuity contracts under Section 72 of
the Code. The Variable Account, through each Portfolio of the Funds, intends to
comply with the diversification requirements prescribed by the Treasury in
Treas. Reg. Section 1.817-5, which affect how the Portfolios' assets may be
invested. United Investors does not control any of the Funds or their
Portfolios' investments. However, it has entered into an agreement regarding
participation in each Fund, which requires each participating Portfolio of the
Funds to be operated in compliance with the diversification requirements
prescribed by the Treasury.
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for Federal income tax purposes, of the assets of the
separate account used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includible in the
variable contract owner's gross income. The IRS has stated in published rulings
that a variable contract owner will be considered the owner of separate account
assets if the contract owner possesses incidents of ownership in those assets,
such as the ability to exercise investment control over the assets. The
Treasury Department also announced, in connection with the issuance of
regulations concerning diversification, that those regulations "do not provide
guidance concerning the circumstances in which investor control of the
investments of a segregated asset account may cause the investor (i.e., the
Policyowner), rather than the insurance company, to be treated as the owner of
the assets in the account." This announcement also stated that guidance would be
issued by way of regulations or rulings on the "extent to which policyholders
may direct their investments to particular subaccounts without being treated as
owners of the underlying assets."
The ownership rights under the Policy are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that policy owners were not owners of separate account assets. For
example, the Policyowner has additional flexibility in allocating purchase
payments and Policy Values. These differences could result in a Policyowner
being treated as the owner of a pro rata portion of the assets of the Variable
Account. In addition, United Investors does not know what standards will be set
forth, if any, in the regulations or rulings which the Treasury Department has
stated it expects to issue. United Investors therefore reserves the right to
modify the Policy as necessary to attempt to prevent a Policyowner from being
considered the owner of a pro rata share of the assets of the Variable Account.
-12-
<PAGE>
Required Distributions
- ----------------------
In order to be treated as an annuity contract for Federal income tax
purposes, Section 72(s) of the Code requires any nonqualified Policy to provide
that (a) if any Owner dies on or after the annuity benefit date but prior to the
time the entire interest in the Policy has been distributed, the remaining
portion of such interest will be distributed at least as rapidly as under the
method of distribution being used as of the date of that Owner's death; and (b)
if any Owner dies prior to the annuity benefit date, the entire interest in the
Policy will be distributed within five years after the date of that Owner's
death.
These requirements will be considered satisfied as to any portion of the
Owner's interest that is payable as annuity payments which will begin within one
year of that Owner's death and which will be made over the life of the Owner's
designated Beneficiary or over a period not extending beyond his life
expectancy.
If the Owner's designated Beneficiary is the surviving spouse of the Owner,
the Policy may be continued with the surviving spouse as the new Owner and no
distributions will be required.
Withholding
- -----------
Distributions from the Policy generally are subject to withholding for the
Owner's Federal income tax liability. The withholding rate varies according to
the type of distribution and the Owner's tax status. The Owner will be provided
the opportunity to elect not to have tax withheld from distributions.
"Eligible rollover distributions" from section 401(a) plans, section 403(a)
annuities, and section 403(b) tax-sheltered annuities are subject to a mandatory
Federal income tax withholding of 20%. An eligible rollover distribution is the
taxable portion of any distribution from such a plan, except certain
distributions such as distribution required by the Code or distributions in a
specified annuity form. The 20% withholding does not apply, however, if the
Owner chooses a "direct rollover" from the plan to another tax-qualified plan or
IRA.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
-------------------------------------------------
United Investors reserves the right, subject to compliance with applicable
law, to make additions to, deletions from, or substitutions for, the shares that
are held by the Variable Account (or any Investment Division) or that the
Variable Account (or any Investment Division) may purchase. United Investors
reserves the right to eliminate the shares of any of the Portfolios and to
substitute shares of another Portfolio of the Funds or any other investment
vehicle or of another open-end, registered investment company if laws or
regulations are changed, if the shares of any or a Portfolio are no longer
available for investment, or if in our judgment further investment in any
Portfolio should become inappropriate in view of the purposes of the Investment
Division. United Investors will not substitute any shares attributable to a
Policyowner's interest in an Investment Division of the Variable Account without
notice and prior approval of the U.S. Securities and Exchange Commission and the
insurance regulator of the state where the Policy was delivered, where required.
Nothing contained herein shall prevent the Variable Account from purchasing
other securities for other series or classes of policies, or from permitting a
conversion between series or classes of policies on the basis of requests made
by Policyowners.
-13-
<PAGE>
United Investors also reserves the right to establish additional Investment
Divisions of the Variable Account, each of which would invest in a new
Portfolio, or in shares of another investment company or suitable investment,
with a specified investment objective. New Investment Divisions may be
established when, in the sole discretion of United Investors, marketing needs or
investment conditions warrant, and any new Investment Divisions will be made
available to existing Policyowners on a basis to be determined by United
Investors. United Investors may also eliminate one or more Investment Divisions
if, in its sole discretion, marketing, tax, or investment conditions warrant.
In the event of any such substitution or change, United Investors may, by
appropriate endorsement, make such changes in the Policies as may be necessary
or appropriate to reflect such substitution or change. If deemed by United
Investors to be in the best interests of persons having voting rights under the
Policies, the Variable Account may be operated as a management company under the
Investment Company Act of 1940, it may be deregistered under that Act in the
event such registration is no longer required, or it may be combined with other
United Investors separate accounts.
DISTRIBUTION OF THE POLICY
--------------------------
The Policies will be sold by individuals who, in addition to being licensed
as life insurance agents for United Investors, are also registered
representatives of Waddell & Reed, Inc. ("W&R"), the principal underwriter of
the Policies, or of broker-dealers who have entered into written sales
agreements with W&R. W&R is registered with the U.S. Securities and Exchange
Commission under the Securities Exchange Act of 1934 as a broker-dealer and is a
member of the National Association of Securities Dealers, Inc. (W&R is the
owner of Waddell & Reed Investment Management Company, the manager of
Target/United Funds Inc.) No commissions have been paid by United Investors for
the sale of the Policy because as of the date of this prospectus sales have not
commenced. Policies may be offered to the public through brokers licensed under
the Federal securities laws and state insurance laws that have entered into
agreements with W&R. The offering of the Policies is continuous, and W&R does
not anticipate discontinuing the offering of the Policies. However, United
Investors and W&R reserve the right to discontinue the offering of the Policies.
SAFEKEEPING OF VARIABLE ACCOUNT ASSETS
--------------------------------------
United Investors holds the assets of the Variable Account. The assets are
kept physically segregated and held separate and apart from United Investors'
general account. United Investors maintains records of all purchases and
redemptions of Fund shares by each of the Investment Divisions.
STATE REGULATION
----------------
United Investors is subject to regulation by the Missouri Department of
Insurance. An annual statement is filed with the Missouri Department of
Insurance on or before March 1 of each year covering the operations and
reporting on the financial condition of United Investors as of December 31 of
the preceding year. Periodically, the
-14-
<PAGE>
Missouri Department of Insurance or other authorities examine the liabilities
and reserves of United Investors and the Variable Account, and a full
examination of United Investors' operations is conducted periodically by the
National Association of Insurance Commissioners.
In addition, United Investors is subject to the insurance laws and
regulations of other states within which it is licensed or may become licensed
to operate. Generally, the insurance department of any other state applies the
laws of the state of domicile in determining permissible investments. A Policy
is governed by the law of the state in which it is delivered. The values and
benefits of each Policy are at least equal to those required by such state.
RECORDS AND REPORTS
-------------------
All records and accounts relating to the Variable Account will be
maintained by United Investors. As presently required by the Investment Company
Act of 1940 and regulations promulgated thereunder, reports containing such
information as may be required under that Act or by any other applicable law or
regulation will be sent to Owners at their last known address of record.
LEGAL MATTERS
-------------
Legal advice regarding certain matters relating to Federal securities laws
applicable to the issuance of the Policy has been provided by Sutherland Asbill
& Brennan LLP of Washington, D.C.
EXPERTS
-------
The balance sheets of United Investors Life Insurance Company as of
December 31, 1998 and 1997, and the related statements of operations,
comprehensive income, shareholders' equity, and cash flows for each of the years
in the three-year period ended December 31, 1998 have been included herein in
reliance upon the report of KPMG LLP (formerly KPMG Peat Marwick LLP),
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
OTHER INFORMATION
-----------------
A Registration Statement has been filed with the U.S. Securities and
Exchange Commission under the Securities Act of 1933, as amended, with respect
to the Policies discussed in this Statement of Additional Information. Not all
of the information set forth in the Registration Statement, amendments and
exhibits thereto has been included in the prospectus or this Statement of
Additional Information. Statements contained in the prospectus or this
Statement of Additional Information concerning the content of the Policies and
other legal instruments are intended to be summaries. For a complete statement
of the terms of these documents, reference should be made to the documents
themselves or to the instruments filed with the U.S. Securities and Exchange
Commission.
-15-
<PAGE>
FINANCIAL STATEMENTS
--------------------
The financial statements of United Investors, which are included in this
Statement of Additional Information, should be considered only as bearing on the
ability of United Investors to meet its obligations under the Policies. They
should not be considered as bearing on the investment performance of the assets
held in the Variable Account.
There are no financial statements for the Variable Account because as of
the date of this Statement of Additional Information, it had not commenced
operations and had no assets or liabilities.
-16-
<PAGE>
Financial Statements
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
The Board of Directors
United Investors Life Insurance Company
Birmingham, Alabama
We have audited the accompanying balance sheets of United Investors Life
Insurance Company as of December 31, 1998 and 1997 and the related statements
of operations, comprehensive income, shareholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of United Investors Life
Insurance Company at December 31, 1998 and 1997 and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Birmingham, Alabama
January 29, 1999
F-1
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
BALANCE SHEETS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
At December 31,
---------------------
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities-available for sale, at fair value
(cost: 1998--$612,586; 1997--$612,600)................. $ 643,151 $ 635,643
Preferred stock of affiliate (cost: 1998--$188,212:
1997--$0).............................................. 188,212 0
Policy Loans............................................ 18,009 15,817
Other long term investments............................. 0 22,488
Short term investments.................................. 12,680 13,423
---------- ----------
Total investments.................................... 862,052 687,371
Cash..................................................... 11,426 5,288
Accrued investment income (includes amounts from
affiliates: 1998--$582; 1997--$473)..................... 11,747 11,270
Receivables.............................................. 3,113 2,826
Due from affiliate (includes funds withheld on
reinsurance: 1998--$229,194; 1997--$190,235)............ 278,458 225,235
Deferred acquisition cost................................ 183,033 176,897
Value of business purchased.............................. 30,600 33,754
Goodwill................................................. 29,465 6,771
Property and equipment................................... 96 141
Other assets............................................. 1,786 1,149
Separate account assets.................................. 2,425,262 1,876,439
---------- ----------
Total assets......................................... $3,837,038 $3,027,141
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Future policy benefits (includes reserves assumed from
affiliates: 1998--$241,357; 1997--$210,276)............ $ 776,461 $ 736,975
Unearned and advance premiums........................... 2,822 2,975
Other policy benefits................................... 6,973 8,713
---------- ----------
Total policy liabilities............................. 786,256 748,663
Accrued income taxes.................................... 55,498 58,270
Other liabilities....................................... 2,174 2,825
Due to affiliates....................................... 8,268 9,374
Separate account liabilities............................ 2,425,262 1,876,439
---------- ----------
Total liabilities.................................... 3,277,458 2,695,571
Shareholders' equity:
Common stock, par value $6 per share authorized, issued
and outstanding: 500,000 shares........................ 3,000 3,000
Additional paid in capital.............................. 350,388 138,469
Unrealized investment gains, net of applicable taxes.... 15,654 14,700
Retained earnings....................................... 190,538 175,401
---------- ----------
Total shareholder's equity........................... 559,580 331,570
---------- ----------
Total liabilities and shareholder's equity........... $3,837,038 $3,027,141
========== ==========
</TABLE>
See accompanying Notes to Financial Statements.
F-2
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Premium income.................................... $ 69,987 $ 68,723 $ 65,114
Policy charges and fees........................... 45,113 36,582 29,403
Net investment income (includes amounts from af-
filiates 1998--$13,082;
1997--$2,863; 1996--$2,847)...................... 61,373 51,514 51,128
Realized investment gains (losses)................ 9,401 (5,365) 925
Other income from affiliates...................... 13,665 11,876 0
-------- -------- --------
Total revenue................................... 199,539 163,330 146,570
Benefits and expenses:
Policy benefits:
Individual life.................................. 63,689 57,954 47,355
Annuity.......................................... 13,633 15,165 15,807
-------- -------- --------
Total policy benefits........................... 77,322 73,119 63,162
Amortization of deferred acquisition costs........ 27,874 24,898 19,850
Commissions and premium taxes (includes amounts to
affiliates:
1998--$1,013; 1997--$4,928; 1996--$4,723)........ 5,580 6,251 5,248
Other operating expenses (includes amounts to af-
filiates: 1998--$3,252;
1997--$3,217; 1996--$2,181)...................... 6,579 5,470 3,966
-------- -------- --------
Total benefits and expenses..................... 117,355 109,738 92,226
Net operating income before income taxes........... 82,184 53,592 54,344
Income taxes....................................... 25,567 18,843 19,078
-------- -------- --------
Net income...................................... $ 56,617 $ 34,749 $ 35,266
======== ======== ========
</TABLE>
See accompanying Notes to Financial Statements.
F-3
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF COMPREHENSIVE INCOME
(Dollar amounts in thousands)
<TABLE>
<S> <C> <C> <C>
<CAPTION>
Year Ended December 31,
--------------------------
1998 1997 1996
------- ------- --------
<S> <C> <C> <C>
Net income......................................... $56,617 $34,749 $ 35,266
Other comprehensive income (loss):
Unrealized investment gains (losses):
Unrealized investment gains (losses) on
securities:
Unrealized holding gains arising during period.. 7,021 13,362 (21,413)
Less: reclassification adjustment for (gains)
losses
on securities included in net income .......... (1) 5,235 (924)
Less: reclassification adjustment for
amortization of
(discount) and premium......................... 502 744 570
------- ------- --------
7,522 19,341 (21,767)
Unrealized gains (losses) on other investments.. (6,330) 1,798 861
Unrealized gains (losses) on deferred
acquisition costs............................. 276 (5,387) 8,857
------- ------- --------
Total unrealized gains (losses) ................ 1,468 15,752 (12,049)
Applicable tax.................................. (514) (5,512) 4,217
------- ------- --------
Other comprehensive income (loss).................. 954 10,240 (7,832)
Comprehensive income............................ $57,571 $44,989 $ 27,434
======= ======= ========
</TABLE>
See accompanying Notes to Financial Statements.
F-4
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Additional Unrealized Total
Common Paid-in Gains Retained Shareholders'
Stock Capital (Losses) Earnings Equity
------ ---------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Year Ended at December
31, 1996
Balance at January 1,
1996.................... $3,000 $137,950 $12,292 $159,886 $313,128
Comprehensive income..... (7,832) 35,266 27,434
Dividends................ (28,500) (28,500)
------ -------- ------- -------- --------
Balance at December 31,
1996................... 3,000 137,950 4,460 166,652 312,062
Year Ended at December
31, 1997
Comprehensive income..... 10,240 34,749 44,989
Dividends................ (26,000) (26,000)
Exercise of stock op-
tions................... 519 519
------ -------- ------- -------- --------
Balance at December 31,
1997................... 3,000 138,469 14,700 175,401 331,570
Year Ended at December
31, 1998
Comprehensive income..... 954 56,617 57,571
Dividends................ (33,500) (33,500)
Impact from reorganiza-
tion of Waddell & Reed.. -- 211,851 (7,980) 203,871
Exercise of stock op-
tions................... 68 68
------ -------- ------- -------- --------
Balance at December 31,
1998................... $3,000 $350,388 $15,654 $190,538 $559,580
====== ======== ======= ======== ========
</TABLE>
See accompanying Notes to Financial Statements.
F-5
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net income.................................... $ 56,617 $ 34,749 $ 35,266
Adjustment to reconcile net income to cash
provided from operations:
Increase in future policy benefits.......... 13,871 17,878 20,692
Increase (decrease) in other policy liabili-
ties....................................... (1,892) 749 2,154
Deferral of policy acquisition costs........ (42,857) (33,485) (33,744)
Value of business acquired.................. 0 (10,000) 0
Amortization of deferred acquisition costs.. 27,874 24,898 19,850
Change in accrued income taxes.............. 1,079 10,212 (3,033)
Depreciation................................ 39 42 44
Realized (gains) losses on sale of invest-
ments and properties....................... (9,401) 5,365 (925)
Other accruals and adjustments.............. (3,240) 1,817 (997)
-------- -------- --------
Cash provided from operations................. 42,090 52,225 39,307
-------- -------- --------
Cash used for investment activities:
Investments sold or matured:
Fixed maturities available for sale-sold..... 46,039 113,035 15,246
Fixed maturities available for sale-matured,
called and repaid........................... 76,583 66,469 44,523
Other long-term investments.................. 25,596 2,199 482
-------- -------- --------
Total investments sold or matured.......... 148,218 181,703 60,251
Acquisition of investments:
Fixed maturities available for sale.......... (123,111) (176,905) (68,214)
Net increase in policy loans................. (2,192) (1,485) (2,033)
Other long-term investments.................. (36) (1,517) (1,183)
-------- -------- --------
Total acquisition of investments........... (125,339) (179,907) (71,430)
Net (increase) decrease in short-term
investments.................................. 747 (11,589) 2,389
Funds loaned to affiliates.................... (13,026) (24,080) (3,500)
Funds repaid from affiliates.................. 2,400 24,080 3,500
Funds borrowed from affiliates................ 14,800 0 0
Funds repaid to affiliates.................... (14,800) 0 0
Disposition of properties..................... 5 0 34
Additions of properties....................... (37) (27) (117)
-------- -------- --------
Cash provided from (used for) investment
activities................................... 12,968 (9,820) (8,873)
-------- -------- --------
Cash used for financing activities:
Cash dividends paid to shareholders......... (33,500) (27,000) (27,500)
Net receipts from deposit product opera-
tions...................................... (15,420) (12,521) (6,572)
-------- -------- --------
Cash used for financing activities............ (48,920) (39,521) (34,072)
Increase (decrease) in cash................... 6,138 2,884 (3,638)
Cash at beginning of year..................... 5,288 2,404 6,042
-------- -------- --------
Cash at end of year........................... $ 11,426 $ 5,288 $ 2,404
======== ======== ========
</TABLE>
See accompanying Notes to Financial Statements.
F-6
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(Dollar amounts in thousands)
Note 1--Summary of Significant Accounting Policies
Organization: United Investors Life Insurance Company ("UILIC") was a wholly
owned subsidiary of Waddell & Reed Financial, Inc. ("WDR") (formerly known as
United Investors Management Company), a subsidiary of Torchmark Corporation. On
March 3, 1998, to facilitate the initial public offering ("IPO") by Torchmark
Corporation ("TMK") of 36% of the common stock of WDR, several transactions
were completed to reorganize the assets held by WDR. The following transactions
directly affected UILIC:
(i) WDR contributed 188,212 shares of TMK 6 1/2% Cumulative Preferred Stock,
Series A to UILIC.
(ii) WDR dividended the common stock of its subsidiary UILIC pro rata to
Liberty National Life Insurance Company ("LNL"), an 81.18% owner, and
TMK, an 18.82% owner. LNL is a wholly owned subsidiary of TMK.
(iii) Upon reorganization, UILIC recorded additional goodwill in the amount of
$23,639. This goodwill represented UILIC's portion of United Investors
Management Company's goodwill which was allocated between Waddell & Reed
and UILIC upon dividend of UILIC to TMK and LNL.
(iv) TMK transferred to UILIC a deferred commission credit of $7,980, net of
applicable tax of $4,297. This credit is being amortized over
approximately 10 years.
Description of Business: The Company is a life insurer licensed in 49
states. The Company offers a full range of life, annuity and variable products
through its agents and is subject to competition from other insurers throughout
the United States. The Company is subject to regulation by the insurance
department of states in which it is licensed, and undergoes periodic
examinations by those departments.
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the financial statements and revenues and expenses for the reporting period.
Actual results could differ significantly from those estimates.
The estimates susceptible to significant change are those used in
determining the liability for policy reserves, losses and claims. Although some
variability is inherent in these estimates, management believes the amounts
provided are adequate.
Basis of Presentation: The accompanying financial statements include the
accounts of United Investors Life Insurance Company ("United Investors") an
indirectly wholly-owned subsidiary of TMK, is owned by Liberty National Life
Insurance Company (81.18%) and Torchmark Corporation (18.82%). The financial
statements have been prepared on the basis of generally accepted accounting
principles ("GAAP").
Investments: United Investors classifies all of its fixed maturity
investments, which includes bonds and redeemable preferred stocks, as available
for sale. Investments classified as available for sale are carried at fair
value with unrealized gains and losses, net of deferred taxes, reflected
directly in shareholder's equity. Investments in equity securities, which
include common and nonredeemable preferred stocks, are reported at fair value
with unrealized gains and losses, net of deferred taxes, reflected directly in
shareholder's equity. Policy loans are carried at unpaid principal balances.
Short-term investments include investments in certificates of deposit and other
interest-bearing time deposits with original maturities within three months.
Other long-term investments consist of investments in mutual funds which are
carried at fair value. If an investment becomes permanently impaired, such
impairment is treated as a realized loss and the investment is adjusted to net
realizable value.
F-7
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 1--Summary of Significant Accounting Policies (continued)
Gains and losses realized on the disposition of investments are recognized
as revenues and are determined on a specific identification basis.
Realized investment gains and losses and investment income attributable to
separate accounts are credited to the separate accounts and have no effect on
United Investor's net income. Investment income attributable to policyholders
is included in United Investor's net investment income. Net investment income
for the years ended December 31, 1998, 1997 and 1996 included approximately
$37,000, $37,800, and $37,600, respectively, which was allocable to
policyholder reserves or accounts. Realized investment gains and losses are not
allocable to policyholders.
Determination of Fair Values of Financial Instruments: Fair value for cash,
short-term investments, receivables and payables approximates carrying value.
Fair values for investment securities are based on quoted market prices, where
available. Otherwise, fair values are based on quoted market prices of
comparable instruments. Fair value of future benefits for universal life and
current interest products and annuity products are based on the fund value.
Cash: Cash consists of balances on hand and on deposit in banks and
financial institutions.
Recognition of Revenue and Related Expenses: Premiums for insurance
contracts which are not defined as universal life-type according to the
Financial Accounting Standards Board's Statement of Accounting Standards (SFAS)
97 are recognized as revenue over the premium-paying period of the policy.
Premiums for limited-payment life insurance contracts as defined by SFAS 97 are
recognized over the contract period. Premiums for universal life-type and
annuity contracts are added to the policy account value, and revenues from such
products are recognized as charges to the policy account value for mortality,
administration, and surrenders (retrospective deposit method). The related
benefits and expenses are matched with revenues by means of the provision for
future policy benefits and the amortization of deferred acquisition costs in a
manner which recognizes profits as they are earned over the same period.
Future Policy Benefits: The liability for future policy benefits for
universal life-type products according to SFAS 97 is represented by policy
account value. Annuity Contracts are accounted for as deposit contracts. The
liability for future policy benefits for other products is provided on the net
level premium method based on estimated investment yields, mortality,
persistency and other assumptions which were appropriate at the time the
policies were issued. Assumptions used are based on United Investor's
experience as adjusted to provide for possible adverse deviation. These
estimates are periodically reviewed and compared with actual experience. If it
is determined that future expected experience differs significantly from that
assumed, the estimates are revised.
Deferred acquisition costs: The costs of acquiring new insurance business
are deferred. Such costs consist of sales commissions, underwriting expenses,
and certain other selling expenses. The costs of acquiring new business through
the purchase of other companies and blocks of insurance business are also
deferred.
Deferred acquisition costs, including the value of insurance purchased, for
policies other than universal life-type policies according to SFAS 97, are
amortized with interest over an estimate of the premium-paying period of the
policies in a manner which charges each year's operations in proportion to the
receipt of premium income. For limited-payment contracts, acquisition costs are
amortized over the contract period. For universal life-type policies,
acquisition costs are amortized with interest in proportion to estimated gross
profits. The assumptions used as to interest, withdrawals and mortality are
consistent with those used in computing the liability for future policy
benefits and expenses. If it is determined that future experience differs
significantly
F-8
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 1--Summary of Significant Accounting Policies (continued)
from that previously assumed, the estimates are revised. Deferred acquisition
costs are adjusted to reflect the amounts associated with unrealized investment
gains and losses pertaining to universal life-type products.
Income Taxes: Income taxes are accounted for under the asset and liability
method in accordance with SFAS 109. Under the asset and liability method,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement book
values and tax bases of assets and liabilities. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Interest Expense: Interest expense includes interest on borrowed funds not
used in the production of investment income. Interest expense relating to the
production of investment income is deducted from investment income.
Property and Equipment: Property and equipment is reported at cost less
allowances for depreciation. Depreciation is provided on the straight-line
method over the estimated useful lives of these assets which range from three
to ten years.
Goodwill: Goodwill represents the excess cost over the fair value of the net
assets acquired when United Investors was purchased by Torchmark Corporation
(Torchmark) in 1981 and is being amortized on a straight-line basis over forty
years. In 1998 United Investors recorded an additional goodwill of $23,639 upon
the reorganization of the company as outlined in Note 1--"Organization." This
additional goodwill is being amortized on a straight-line basis over thirty-
five years, which is the period United Investors Management Company had
remaining out of the original forty year estimated benefit period.
Reclassification: Certain amounts in the financial statements presented have
been reclassified from amounts previously reported in order to be comparable
between years. These reclassifications have no effect on previously reported
shareholders' equity or net income during the periods involved.
Comprehensive Income: United Investors adopted SFAS 130, "Reporting
Comprehensive Income," effective January 1, 1998. This standard defines
comprehensive income as the change in equity of a business enterprise during a
period from transactions from all nonowner sources. It requires the company to
display comprehensive income for the period, consisting of net income and other
comprehensive income. In compliance with SFAS 130, a Statement of Comprehensive
Income is included as an integral part of the financial statements.
Year 2000 Compliance: The new millennium poses a significant concern to all
businesses which use computer systems or electronic data in their operations.
The concern arises because these organizations have computer systems and
programs that cannot always identify a proper date. For many years, programs
were written using a two digit code to represent a year. At the beginning of
the year 2000, more digits are needed to accurately determine the date in these
programs. Without addressing this issue, many computer programs could fail or
produce erroneous results. Additionally, companies which are electronically
engaged with other businesses or which rely on other businesses for services
are exposed to risk of failure by the electronic devices and computer systems
of those other entities to the extent they are not Year 2000 compliant. The
potential of failure of these systems creates considerable uncertainty and
could potentially adversely affect the ongoing operations and stability of a
business.
United Investors relies on computer systems which are supported and
maintained by Torchmark, its ultimate parent, and its various affiliates.
Torchmark is exposed to these risks should its computer systems fail
F-9
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 1--Summary of Significant Accounting Policies (continued)
due to date-related problems. Torchmark is also reliant on a number of third
party businesses and governmental agencies with which it either interacts
electronically or depends upon for services in the conduct of its business.
These institutions include but are not limited to banks, financial
institutions, telecommunication companies, utilities, mail delivery
organizations, and a variety of governmental agencies. Should Torchmark's
computer systems or the systems of its third-party business partners not be
compliant the Company and Torchmark may be exposed to considerable risks,
including business interruption, loss of revenue, increased expense, loss of
policyholders, and litigation.
To reduce its business risk to an acceptable level, Torchmark has
established a project plan to insure that the company's business-critical
computer systems will be Year 2000 compliant. This plan also addresses third-
party compliance issues. Under the direction of executive management,
objectives and timetables have been set forth to achieve compliance in each
geographic location where Torchmark operates. Progress toward achieving those
objectives is constantly monitored. Torchmark currently expects the entire
project, including all Year 2000 testing activities, to be completed during
1999.
As of December 31, 1998, Torchmark remains on schedule to meet all of its
Year 2000 compliance requirements. All known required software changes have
been completed, and the related testing is in process with plans for completion
in 1999. With regard to third party concerns, Torchmark has in process the
following procedures:
1) Torchmark is confirming, with its software vendors, the Year 2000
readiness of its purchased software packages because Torchmark has purchased
software packages on all of its computer platforms;
2) Torchmark is verifying the Year 2000 compliance status of its financial
business partners computer and data communications systems to insure readiness,
including data interface testing with third parties; and
3) All of Torchmark's electronic operational systems (telephones, security,
utility, environmental) are being evaluated for Year 2000 compliance.
As an example of Torchmark's interface testing with selected third parties,
Torchmark is utilizing electronic data from selected third parties in
processing Medicare Supplement benefit data using Year 2000 test data.
Torchmark is also arranging similar testing with a selected number of banks.
While Torchmark is making every effort to verify the compliance of third
parties, no assurances as to the compliance of their computer systems can be
given.
Torchmark has used primarily its own employees to complete its Year 2000
project. Other than completion of software testing, all significant Year 2000
project milestones for internal computer systems have been completed.
Confirmation of third party compliance and electronic data interface testing
with third parties is continuing with completion expected during 1999.
Torchmark has spent $5 million on its Year 2000 project activities to date,
including internal programming costs, outside contractors, and replacement
costs. These costs have been expensed as incurred. Total project cost is
expected to be approximately $6 million.
Year 2000 contingency plans are being developed for critical risk areas.
Management throughout the organization has established and documented a
contingency plan for Torchmark's most critical systems and interfaces with
business partners within each individual's responsibility. Such contingency
plans include possible manual operation efforts, staff adjustments, outside
services, and alternative procedures. These contingency plans will be
maintained well into 2000.
F-10
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 2--Statutory Accounting
United Investors is required to file statutory financial statements with
state insurance regulatory authorities. Accounting principles used to prepare
these statutory financial statements differ from GAAP. Net income and
shareholders' equity on a statutory basis for United Investors were as follows:
<TABLE>
<CAPTION>
Net Income Shareholders' Equity
Year Ended December 31, At December 31,
---------------------------------------- ---------------------------------
1998 1997 1996 1998 1997
-------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C>
$47,294 $34,537 $26,640 $169,757 $156,676
</TABLE>
The excess of shareholders' equity on a GAAP basis over that determined on a
statutory basis is not available for distribution to shareholders without
regulatory approval.
A reconciliation of United Investors' statutory net income to GAAP net
income is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Statutory net income........................... $ 47,294 $ 34,537 $ 26,640
Deferral of acquisition costs.................. 42,857 33,485 33,744
Amortization of acquisition costs.............. (27,874) (24,898) (19,850)
Differences in policy liabilities.............. 1,417 (2,113) (4,361)
Deferred income taxes.......................... (6,422) (6,053) (773)
Other.......................................... (655) (209) (134)
-------- -------- --------
GAAP net income................................ $ 56,617 $ 34,749 $ 35,266
======== ======== ========
</TABLE>
A reconciliation of United Investors' statutory shareholders' equity to GAAP
shareholders' equity is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
Statutory shareholders' equity................... $ 169,757 $ 156,676
Differences in policy liabilities................ 9,208 9,540
Deferred acquisition cost and value of insurance
purchased....................................... 213,633 210,651
Deferred income taxes............................ (59,575) (52,639)
Asset valuation reserve.......................... 4,781 9,513
Nonadmitted assets............................... 3,348 1,850
Fair value adjustment on fixed maturities
available for sale.............................. 30,565 23,043
Fair value adjustment on preferred stock of
affiliate....................................... 188,212 0
Goodwill......................................... 29,465 6,771
Due and deferred premiums........................ (30,317) (30,334)
Other............................................ 503 (3,501)
----------- -----------
GAAP shareholders' equity........................ $559,580 $331,570
=========== ===========
</TABLE>
The NAIC requires that a risk based capital formula be applied to all life
and health insurers. The risk based capital formula is a threshold formula
rather than a target capital formula. It is designed only to identify companies
that require regulatory attention and is not to be used to rate or rank
companies that are adequately capitalized. United Investors is adequately
capitalized under the risk based capital formula.
F-11
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 3--Investment Operations
Investment income is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1998 1997 1996
------- ------- --------
<S> <C> <C> <C>
Fixed maturities.................................. $45,889 $46,000 $ 46,366
Policy loans...................................... 1,186 1,107 1,001
Other long-term investments....................... 84 1,614 1,211
Short-term investments............................ 743 436 287
Other income...................................... 954 0 0
Interest and dividends from affiliates............ 13,082 2,863 2,847
------- ------- --------
61,938 52,020 51,712
Less investment expense........................... (565) (506) (584)
------- ------- --------
Net investment income............................. $61,373 $51,514 $ 51,128
======= ======= ========
Analysis of gains (losses) from investments:
Realized investments gains (losses)
Fixed maturities................................ $ 1 $(5,235) $ 925
Mutual funds.................................... 9,400 (130) 0
------- ------- --------
$ 9,401 $(5,365) $ 925
======= ======= ========
Analysis of change in unrealized gains (losses):
Net change in unrealized investments gains
(losses) on fixed maturities available for sale
before tax....................................... 7,522 19,340 (21,767)
Net change in unrealized investments gains
(losses) on short-term investments before tax.... (2) 0 0
Other (includes $(5,946) related to sale of mutual
fund shares in 1998)............................. (6,328) 1,799 861
Adjustment for deferred acquisition cost.......... 276 (5,387) 8,857
Applicable tax.................................... (514) (5,512) 4,217
------- ------- --------
Net change in unrealized gains (losses) on short-
term investments and fixed maturities securities
available for sale............................... $ 954 $10,240 $ (7,832)
======= ======= ========
</TABLE>
F-12
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 3--Investment Operations (continued)
A summary of fixed maturities available for sale by amortized cost and
estimated fair value at December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Gross Gross Amount per
Amortized Unrealized Unrealized Fair the Balance
1998: Cost Gains Losses Value Sheet
- ----- --------- ---------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
Fixed maturities avail-
able for sale:
Bonds:
U.S. Government direct
obligations and
agencies............... $ 21,441 $ 1,959 $ 0 $ 23,400 $ 23,400
GNMA's.................. 89,674 4,022 (18) 93,678 93,678
Mortgage-backed
securities, GNMA
collateral............. 7,488 71 (1) 7,558 7,558
Other mortgage-backed
securities............. 20,961 1,368 0 22,329 22,329
States, municipalities
and political
subdivisions........... 28,610 1,236 0 29,846 29,846
Public utilities........ 31,454 2,287 0 33,741 33,741
Industrial and
miscellaneous.......... 412,958 21,971 (2,330) 432,599 432,599
-------- ------- ------- -------- --------
Total fixed maturities.. $612,586 $32,914 $(2,349) $643,151 $643,151
======== ======= ======= ======== ========
<CAPTION>
1997:
- -----
<S> <C> <C> <C> <C> <C>
Fixed maturities avail-
able for sale:
Bonds:
U.S. Government direct
obligations and
agencies............... $ 22,035 $ 857 $ 0 $ 22,892 $ 22,892
GNMA's.................. 124,549 5,992 (146) 130,395 130,395
Mortgage-backed
securities, GNMA
collateral............. 23,125 591 (3) 23,713 23,713
Other mortgage-backed
securities............. 20,980 916 0 21,896 21,896
States, municipalities
and political
subdivisions........... 28,603 517 0 29,120 29,120
Foreign governments..... 3,298 135 0 3,433 3,433
Public utilities........ 37,189 1,504 (39) 38,654 38,654
Industrial and
miscellaneous.......... 352,821 12,986 (267) 365,540 365,540
-------- ------- ------- -------- --------
Total fixed maturities.. $612,600 $23,498 $ (455) $635,643 $635,643
======== ======= ======= ======== ========
</TABLE>
F-13
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 3--Investment Operations (continued)
A schedule of fixed maturities by contractual maturity at December 31, 1998
is shown below on an amortized cost basis and on a fair value basis. Actual
maturities could differ from contractual maturities due to call or prepayment
provisions.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
--------- --------
<S> <C> <C>
Fixed maturities available for sale;
Due in one year or less................................. $ 13,218 $ 13,359
Due after one year through five years................... 115,995 120,078
Due after five years through ten years.................. 202,843 213,213
Due after ten years..................................... 153,602 164,940
-------- --------
485,658 511,590
Mortgage- and asset-backed securities.................... 126,928 131,561
-------- --------
$612,586 $643,151
======== ========
</TABLE>
Proceeds from sales of fixed maturities available for sale were $46,039 in
1998, $113,035 in 1997, and $15,246 in 1996. Gross gains realized on these
sales were $928 in 1998, $112 in 1997, and $749 in 1996. Gross losses on these
sales were $927 in 1998, $5,716 in 1997, and $0 in 1996.
Note 4--Deferred Acquisition Costs
An analysis of deferred acquisition costs and the value of insurance
purchased is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------- --------------------- ---------------------
Deferred Value of Deferred Value of Deferred Value of
Acquisition Insurance Acquisition Insurance Acquisition Insurance
Cost Purchased Cost Purchased Cost Purchased
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of
year................... $176,897 $33,754 $169,986 $16,160 $144,716 $18,679
Additions:
Deferred during peri-
od:
Commissions........... 36,328 0 27,664 0 28,492 0
Other expenses........ 6,529 0 5,821 0 5,252 0
-------- ------- -------- ------- -------- -------
Total deferred....... 42,857 0 33,485 0 33,744 0
Value of insurance
purchased............ 0 0 0 21,305 0 0
Adjustment attributable
to unrealized invest-
ment loss (1)......... 276 0 0 0 8,857 0
-------- ------- -------- ------- -------- -------
Total additions...... 43,133 0 33,485 21,305 42,601 0
Deductions:
Amortized during peri-
od................... (24,720) (3,154) (21,019) (3,711) (16,894) (2,519)
Adjustment
attributable to
unrealized investment
gains (1)............ 0 0 (5,387) 0 0 0
Adjustment attribut-
able to realized
investment gains
(1).................. 0 0 (168) 0 (437) 0
Adjustment to deferred
commissions due to
reorganization....... (12,277) 0 0 0 0 0
-------- ------- -------- ------- -------- -------
Total deductions..... (36,997) (3,154) (26,574) (3,711) (17,331) (2,519)
-------- ------- -------- ------- -------- -------
Balance at end of year.. $183,033 $30,600 $176,897 $33,754 $169,986 $16,160
======== ======= ======== ======= ======== =======
</TABLE>
F-14
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
- --------
(1) Represents amounts pertaining to investments relating to universal life-
type products.
The amount of interest accrued on the unamortized balance of value of
insurance purchased was approximately $755, $938, and $1,100 for the years
ended December 31, 1998, 1997 and 1996, respectively. The average interest
accrual rates used were 6.15%, 6.29% and 6.44%, respectively. The estimated
amount of the unamortized value of business purchased balance at December 31,
1998 to be amortized during each of the next five years is: 1999, $2,452;
2000, $2,137; 2001, $1,876; 2002, $1,659; 2003, $1,479.
In the event of lapses or early withdrawals in excess of those assumed,
deferred acquisition costs and the value of insurance purchased may not be
recoverable.
Note 5--Property and Equipment
A summary of property and equipment used in the business is as follows:
<TABLE>
<CAPTION>
At December 31, At December 31,
1998 1997
------------------- -------------------
Accumulated Accumulated
Cost Depreciation Cost Depreciation
------ ------------ ------ ------------
<S> <C> <C> <C> <C>
Data processing equipment.............. $ 227 $ 178 $ 216 $ 161
Transportation equipment............... 72 36 132 55
Furniture and office equipment ........ 928 917 922 913
------ ------ ------ ------
Total................................ $1,227 $1,131 $1,270 $1,129
====== ====== ====== ======
</TABLE>
Depreciation expense on property and equipment used in the business was $39,
$42 and $44 in each of the years 1998, 1997, and 1996, respectively.
Note 6--Future Policy Benefit Reserves
A summary of the assumptions used in determining the liability for future
policy benefits at December 31, 1998 is as follows:
Individual Life Insurance
Interest Assumptions:
<TABLE>
<CAPTION>
Percent of
Years of Issue Interest Rates Liability
-------------- -------------------------- ----------
<S> <C> <C>
1962-1998 3.00% level to 6.00% level 12%
1986-1992 7.00% graded to 6.00% 22%
1962-1985 8.50% graded to 6.00% 4%
1981-1985 8.50% graded to 7.00% 4%
1984-1998 Interest Sensitive 58%
----
100%
====
</TABLE>
Mortality assumptions:
The mortality tables used are various statutory mortality tables and
modifications of:
1965-70 Select and Ultimate Table
1975-80 Select and Ultimate Table
Withdrawal assumptions:
Withdrawal assumptions are based on United Investors' experience.
F-15
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 7--Income Taxes
United Investors is included in the life-nonlife consolidated federal income
tax return filed by Torchmark. Under the tax allocation agreement with
Torchmark, a company with taxable income pays tax equal to the amount it would
pay if it filed a separate tax return. A company with a loss is paid a tax
benefit currently to the extent that affiliated companies with taxable income
utilize that loss.
Total income taxes were allocated as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Net operating income before income taxes......... $25,567 $18,843 $19,078
Shareholders' equity:
Unrealized gains (losses)....................... 514 5,512 (4,217)
Tax basis compensation expense in excess of
amounts recognized for financial reporting
purposes from the exercise of stock options.... (68) (519) 0
Tax benefit received on deferred commission
credit due to reorganization................... (4,297) 0 0
Other........................................... 300 1 (152)
------- ------- -------
$22,016 $23,837 $14,709
======= ======= =======
</TABLE>
Income tax expense before the adjustments to shareholder's equity is
summarized below:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Current income tax expense......................... $19,145 $12,790 $18,305
Deferred income tax expense........................ 6,422 6,053 773
------- ------- -------
$25,567 $18,843 $19,078
======= ======= =======
</TABLE>
In 1998, 1997, and 1996, deferred income tax expense was incurred because of
the difference between net operating income before income taxes as reported on
the statements of operations and taxable income as reported on United
Investor's income tax returns. As explained in Note 1, this difference caused
the financial statement book values of some assets and liabilities to be
different from their respective tax bases.
The effective income tax rate differed from the expected 35% rate in 1998,
1997 and 1996 as shown below:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1998 % 1997 % 1996 %
------- --- ------- --- ------- ---
<S> <C> <C> <C> <C> <C> <C>
Expected income taxes............... $28,764 35% $18,757 35% $19,020 35%
Increase (reduction) in income taxes
resulting from:
Tax-exempt investment income....... (3,532) (4) (18) 0 (38) 0
Purchase accounting differences.... 331 0 99 0 99 0
Other.............................. 4 0 5 0 (3) 0
------- --- ------- --- ------- ---
Income taxes........................ $25,567 31% $18,843 35% $19,078 35%
======= === ======= === ======= ===
</TABLE>
F-16
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 7--Income Taxes (continued)
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Future policy benefits and unearned and advance
premiums.......................................... $ 0 $ 4,777
Present value of future policy surrender charges... 20,153 13,925
Other liabilities, principally due to the current
nondeductibilty for tax purposes of certain
accrued expenses.................................. 132 203
----------- -----------
Total gross deferred tax assets.................... 20,285 18,905
Deferred tax liability:
Future policy benefits and unearned and advance
premiums.......................................... 2,022 0
Deferred acquisition costs......................... 61,881 62,863
Unrealized investment gains........................ 8,428 7,914
Other.............................................. 7,529 767
----------- -----------
Total gross deferred tax liabilities............... 79,860 71,544
----------- -----------
Net deferred tax liability......................... $ 59,575 $ 52,639
=========== ===========
</TABLE>
In United Investor's opinion, all deferred tax assets will be recoverable.
United Investors has not recognized a deferred tax liability of
approximately $2,200 that arose prior to 1984 on temporary differences related
to its policyholders' surplus account. A current tax expense will be recognized
in the future if and when this tax becomes payable.
Note 8--Postretirement Benefits
Pension Plans: United Investors has retirement benefit plans and savings
plans which cover substantially all employees. There is also a nonqualified
excess benefit plan which covers certain employees. The plans cover primarily
employees of United Investors, Liberty National and Torchmark. The total cost
of these retirement plans charged to UILIC's operations was as follows:
<TABLE>
<CAPTION>
Defined
Defined Benefit
Year Ended Contribution Pension
December 31, Plans Plans
------------ ------------ -------
<S> <C> <C>
1998.................................................. $42 $114
1997.................................................. 44 118
1996.................................................. 41 115
</TABLE>
United Investors accrues expense for the defined contribution plans based on
a percentage of the employees contributions. The plans are funded by the
employee contributions and a United Investors contribution equal to the amount
of accrued expense.
F-17
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 8--Postretirement Benefits (continued)
Cost for the defined benefit pension plans has been calculated on the
projected unit credit actuarial cost method. Contributions are made to the
pension plans subject to minimums required by regulation and maximums allowed
for tax purposes. Accrued pension expense in excess of amounts contributed has
been recorded as a liability in UILIC's financial statements and was $55
thousand and $55 thousand at December 31, 1998 and 1997, respectively. The
total unfunded plan liability recorded at December 31, 1998 was $459. The plans
covering the majority of employees are organized as trust funds whose assets
consist primarily of investments in marketable long-term fixed maturities and
equity securities which are valued at market.
The excess benefit pension plan provides the benefits that an employee would
have otherwise received from a defined benefit pension plan in the absence of
the Internal Revenue Codes limitation on benefits payable under a qualified
plan. Although this plan is unfunded, pension cost is determined in a similar
manner as for the funded plans. UILIC's liability for the excess benefit plan
was $19 thousand and $19 thousand as of December 31, 1998 and 1997,
respectively.
Net periodic pension cost for the defined benefit plans by expense component
was as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Service cost--benefits earned during period..... $ 679 $ 638 $ 638
Interest cost on projected benefit obligation... 1,657 1,575 1,478
Actual return on assets......................... (3,118) (2,335) (1,940)
Net amortization and deferral................... 1,942 1,351 1,032
------- ------- -------
Total net periodic cost........................ 1,160 1,229 1,208
Periodic cost allocated to other participating
employers..................................... 1,046 1,111 1,093
------- ------- -------
UILIC's net periodic cost....................... $ 114 $ 118 $ 115
======= ======= =======
</TABLE>
F-18
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 8--Postretirement Benefits (continued)
United Investors adopted FASB Statement No. 132, Employers Disclosures about
Pensions and Other Postretirement Benefits, effective for year-end 1998 with
comparative periods restated. In accordance with this Standard, the following
table presents a reconciliation from the beginning to the end of the year of
the benefit obligation and plan assets. This table also presents a
reconciliation of the plans funded status with the.amounts recognized on United
Investors's and Liberty National's balance sheet.
<TABLE>
<CAPTION>
Pension
Benefits For
the year ended
December 31,
----------------
1998 1997
------- -------
<S> <C> <C>
Changes in benefit obligation:
Obligation at the beginning of year...................... $21,841 $19,706
Service cost............................................. 679 638
Interest cost............................................ 1,657 1,575
Actuarial gain (loss).................................... 1,061 775
Benefits paid............................................ (2,008) (853)
------- -------
Obligation at the end of year............................ 23,230 21,841
Changes in plan assets:
Fair value at the beginning of year...................... 16,054 13,811
Return on assets......................................... 3,118 2,335
Contributions............................................ 976 761
Benefits paid............................................ (2,008) (853)
------- -------
Fair value at the end of year............................ 18,140 16,054
------- -------
Funded status at year end............................ (5,090) (5,787)
Unrecognized amounts at year end:
Unrecognized actuarial loss (gain)....................... (775) 12
Unrecognized prior service cost.......................... 1,044 1,137
Unrecognized transition obligation....................... 0 0
------- -------
Net amount recognized at year end...................... $(4,821) $(4,638)
======= =======
Amounts recognized consist of:
Prepaid benefit cost..................................... $ (459) $ (459)
Accrued benefit liability................................ (4,707) (5,415)
Intangible asset......................................... 345 1,236
------- -------
Net amount recognized at year end....................... (4,821) (4,638)
Net amount recognized allocated to other participating
employers.............................................. (4,747) (4,564)
------- -------
UILIC's net amount recognized at year end................ $ (74) $ (74)
======= =======
</TABLE>
The weighted average assumed discount rates used in determining the
actuarial benefit obligations was 7.0% in 1998 and 7.5% in 1997. The rate of
assumed compensation increase was 4.0% in 1998 and 4.5% in 1997 while the
expected long-term rate of return on plan assets was 9.25% in 1998 and 9.25% in
1997.
Postretirement Benefit Plans Other Than Pensions: United Investors provides
postretirement life insurance benefits for most retired employees, and also
provides additional postretirement life insurance benefits for certain key
employees. The majority of the life insurance benefits are accrued over the
working lives of active employees.
F-19
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 8--Postretirement Benefits (continued)
For retired employees over age sixty-five, United Investors does not provide
postretirement benefits other than pensions. United Investors does provide a
portion of the cost for health insurance benefits for employees who retired
before February 1, 1993 and before age sixty-five, covering them until they
reach age sixty-five. Eligibility for this benefit was generally achieved at
age fifty-five with at least fifteen years of service. This subsidy is minimal
to retired employees who did not retire before February 1,1993. This plan is
unfunded.
The components of net periodic postretirement benefit cost other than
pensions is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Service cost ................................... $ 112 $ 86 $ 76
Interest on accumulated postretirement. benefit
obligation..................................... 377 357 403
Actual return on assets......................... 0 0 0
Net amortization and deferral................... (251) (374) (242)
------- ------- -------
Total net periodic postretirement cost......... 238 69 237
Periodic cost allocated to other participating
employers..................................... 233 68 232
------- ------- -------
UILIC's net periodic postretirement cost........ $ 5 $ 1 $ 5
======= ======= =======
</TABLE>
The following table presents a reconciliation of the benefit obligation and
plan assets from the beginning to the end of the year, also reconciling the
funded status to the accrued benefit liability.
<TABLE>
<CAPTION>
Benefits Other than Pension
For the year ended
December 31,
----------------------------
1998 1997
------------- -------------
<S> <C> <C>
Changes in benefit obligation:
Obligation at the beginning of year.......... $ 4,775 $ 5,010
Service cost................................. 112 86
Interest cost................................ 377 357
Actuarial gain (loss)........................ 559 0
Benefits paid................................ (561) (678)
------------- -------------
Obligation at the end of year................ 5,262 4,775
Changes in plan assets:
Fair value at the beginning of year.......... 0 0
Return on assets............................. 0 0
Contributions................................ 561 678
Benefits paid................................ (561) (678)
------------- -------------
Fair value at the end of year................ 0 0
------------- -------------
Funded status at year end.................. (5,262) ( 4,775)
Unrecognized amounts at year end:
Unrecognized actuarial loss (gain)........... (553) (1,157)
Unrecognized prior service cost.............. (357) (563)
------------- -------------
Net amount recognized at year end as accrued
benefit liability.......................... (6,172) (6,495)
Net amount recognized allocated to other
participating employers.................... (6,070) (6,386)
------------- -------------
UILIC's net amount recognized at year end as
accrued benefit liability................... $ (102) $ (109)
============= =============
</TABLE>
F-20
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 8--Postretirement Benefits (continued)
For measurement purposes, a 7.0% to 8.0% annual rate of increase in per
capita cost of covered healthcare benefits was assumed for 1998. These rates
grade to ranges of 4.5% to 5.5% by the year 2007. The health care cost trend
rate assumption has a significant effect on the amounts reported, as
illustrated in the following table which presents the effect of a one-
percentage-point increase and decrease on the service and interest cost
components and the benefit obligation:
Effect on:
<TABLE>
<CAPTION>
Change in Trend
Rate
-----------------
1% 1%
Increase Decrease
-------- --------
<S> <C> <C>
Service and interest cost components....................... $ 35 $ (31)
Benefit obligation......................................... 326 (300)
</TABLE>
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.00% in 1998 and 7.50% in 1997.
Note 9--Related Party Transactions
United Investors was charged for space, equipment and services provided by
an affiliate amounting to $1,840 in 1998, $1,852 in 1997 and $1,797 in 1996.
Torchmark performed certain administrative services for United Investors for
which it was charged $612 in 1998, $468 in 1997 and $384 in 1996.
In November 1994, United Investors loaned Torchmark $35,000 at an interest
rate of 8.110%, and in October 1998, United Investors loaned Torchmark an
additional $10,626 at an interest rate of 7.875%. Interest income related to
the Torchmark loans totaling $2,989, $2,838 and $2,838 for 1998, 1997 and 1996,
respectively, is included in the accompanying financial statements. In January
1996, United Investors loaned Liberty National $3,500 at an interest rate of
5.75%. This loan was paid in full in February 1996. Interest income related to
this loan totaling $9 at December 31, 1996 is included in the accompanying
financial statements. In 1997, United Investors loaned Torchmark, Liberty
National and United American $8,060, $10,520 and $5,500 respectively at an
interest rate of 5.5% all of which were repaid prior to December 31, 1997.
Interest income related to these loans totaling $1, $2 and $22 respectively is
included in the accompanying financial statements. In 1998, United Investors
loaned Liberty National and United American $1,400 and $1,000 respectively at
an interest rate of 5.5% all of which were repaid prior to December 31, 1998.
Interest income related to these loans totaling $2 and $2 respectively is
included in the accompanying financial statements. During 1998, TMK loaned
United Investors $14,800 in a series of six separate loans at an interest rate
of 5.5% all of which were repaid prior to December 31, 1998. Interest expenses
related to these loans totaling $34 is included in the accompanying financial
statements.
Effective January 1, 1997 United Investors assumed a block of annuity
products totaling $200,321 from United American Insurance Company (United
American), an affiliated company, on 100% funds withheld coinsurance basis. In
connection with this transaction, United Investors paid a ceding fee totaling
$21,305, $10,000 of which was paid in cash, and recorded a due from affiliates
totaling $189,016 at the end of 1997. The funds withheld totaled $229,194 and
$190,235 at December, 1998 and 1997, respectively. Interest income totaled
$13,665 and $11,876 in 1998 and 1997, respectively, and is included in other
income. The reserve for annuity balances assumed in connection with this
business totaled $241,357 and $210,276 as of December 31, 1998 and 1997,
respectively. United Investors reimbursed United American for administrative
expenses in the amount of $800 in 1998 and $897 in 1997.
F-21
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
United Investors serves as sponsor to four separate accounts. During 1997,
United Investors was also a investor in two of the separate accounts. These
investments were sold during 1998 for $18.4 million and United Investors is no
longer a depositor to any of its separate accounts.
On March 3, 1998, Waddell & Reed Financial, Inc. contributed 188,212 shares
of TMK 6 1/2% Cumulative Preferred Stock, Series A to UILIC due the
reorganization discussed in Note 1--Summary of Significant Accounting Policies.
Dividend income, on these shares, in the amount of $10,093 is included in the
accompanying financial statements.
Note 10--Commitments and Contingencies
Reinsurance: United Investors reinsures that portion of insurance risk which
is in excess of its retention limit. The maximum net retention limit for
ordinary life insurance is $500 per life. Life insurance ceded represented 2%
of total life insurance in force at December 31, 1998 and 3% of premium income
for 1998. United Investors would be liable for the reinsured risks ceded to
other companies to the extent that such reinsuring companies are unable to meet
their obligation. Except as disclosed in Note 9, United Investors does not
assume insurance risks of other companies.
Restrictions on the transfer of funds: Regulatory restrictions exist on the
transfer of funds from insurance companies. These restrictions generally limit
the payment of dividends to the statutory net gain from operations of the prior
year in the absence of special approval. Additionally, insurance companies are
not permitted to distribute the excess of shareholder's equity as determined on
a GAAP basis over that determined on a statutory basis. Restricted net assets
at December 31, 1998 in compliance with all regulations were $392,823.
Litigation: United Investors is engaged in routine litigation arising from
the normal course of business. In management's opinion, this litigation will
not materially affect United Investors' financial position or results of
operations.
Concentration of credit risk: United Investors maintains a highly
diversified investment portfolio with limited concentration in any given
region, industry, or economic characteristic. The investment consists of
investment grade corporate bonds (55.7%), securities of the U.S. government or
U.S. government-backed securities (18.2%), non investment grade securities
(12.3%), municipal governments (4.4%), non government guaranteed mortgage
backed securities (3.3%), and policy loans (2.6%) which are secured by the
underlying policy value. The balance of the portfolio is invested in short-term
investments (3.5%).
Investments in municipal governments and corporations are made throughout
the U.S. with no concentration in any given state. Corporate debt investments
are made in a wide range of industries. At December 31, 1998, 1% or more of the
portfolio was invested in the following industries: financial services (19.8%);
chemicals and allied products (6.2%); manufacturing (5.8%); consumer goods
(5.5%); public utilities (4.9%); media and communications (4.6%);
transportation (4.2%); services (4.1%); retailing (3.9%); machinery and
equipment (3.3%); petroleum (2.7%); asset-backed securities (1.2%); paper and
allied products (1.1%). At the end of 1998, 12.3% of the carrying value of
fixed securities was rated below investment grade. Par value of these
investments was $84.249, amortized cost was $83.731, and market value was
$84.588. While these investments could be subject to additional credit risk,
such risk should generally be reflected in market value.
Collateral requirements: United Investors requires collateral for
investments in instruments where collateral is available and typically required
because of the nature of the investment. Since the majority of United
Investor's investments are in government, government-secured, or corporate
securities, the requirement for collateral is rare.
F-22
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 11--Supplemental Disclosures for Cash Flow Statement
The following table summarizes United Investors' noncash transactions, which
are not reflected on the statement of cash flow as required by GAAP:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Due from affiliates........................... $229,194 $189,016 $ 0
Value of business purchased................... 0 11,305 0
Future policy benefits........................ 241,357 200,321 0
Impact from reorganization of
Waddell & Reed .............................. 203,871 0 0
The following table summarizes certain amounts paid during the period:
<CAPTION>
Year Ended December 31,
-------------------------
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Taxes paid.................................... $26,054 $8,631 $22,111
</TABLE>
Note 12--Business Segments
United Investors' segments are based on the insurance product lines it
markets and administers, life insurance and annuities. These major product
lines are set out as segments because of the common characteristics of products
within these categories, comparability of margins, and the similarity in
regulatory environment and management techniques. There is also an investment
segment which manages the investment portfolio, debt, and cash flow for the
insurance segments and the corporate function.
Life insurance products include traditional and interest-sensitive whole
life insurance as well as term life insurance. Annuities include both fixed-
benefit and variable contracts. Variable contracts allow policyholders to
choose from a variety of mutual funds in which to direct their deposits.
United Investors markets its insurance products through a number of
distribution channels, each of which sells the products of one or more of
United Investors's insurance segments. The tables below present segment premium
revenue by each of United Investors's marketing groups.
<TABLE>
<CAPTION>
For the Year 1998
------------------------------------------
Life Annuity Total
------------- ------------ -------------
% of % of % of
Distribution Channel Amount Total Amount Total Amount Total
- -------------------- ------- ----- ------ ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Independent Producers............... $ 8,004 11.5% $ $ 8,004 11.4%
Waddell & Reed...................... 61,511 88.4% 61,511 87.9%
United American .................... 415 100.0% 415 0.6%
Globe Direct Response............... 57 0.1% 57 0.1%
------- ----- ---- ----- ------- -----
$69,572 100.0% $415 100.0% $69,987 100.0%
======= ===== ==== ===== ======= =====
</TABLE>
F-23
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 12--Business Segments (continued)
<TABLE>
<CAPTION>
For the Year 1997
------------------------------------------
Life Annuity Total
------------- ------------ -------------
% of % of % of
Distribution Channel Amount Total Amount Total Amount Total
- -------------------- ------- ----- ------ ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Independent Producers............... $ 7,264 10.6% $ $ 7,264 10.6%
Waddell & Reed...................... 61,149 89.4% 61,149 89.0%
United American .................... 310 100.0% 310 0.4%
------- ----- ---- ----- ------- -----
$68,413 100.0% $310 100.0% $68,723 100.0%
======= ===== ==== ===== ======= =====
<CAPTION>
For the Year 1996
------------------------------------------
Life Annuity Total
------------- ------------ -------------
% of % of % of
Distribution Channel Amount Total Amount Total Amount Total
- -------------------- ------- ----- ------ ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Independent Producers............... $ 6,795 10.4% $ $ 6,795 10.4%
Waddell & Reed...................... 58,319 89.6% 58,319 89.6%
------- ----- ---- ----- ------- -----
$65,114 100.0% $ 0.0% $65,114 100.0%
======= ===== ==== ===== ======= =====
</TABLE>
Because of the nature of the insurance industry, United Investors has no
individual or group which would be considered a major customer. Substantially
all of United Investors's business is conducted in the United States, primarily
in the Southeastern and Southwestern regions.
The measure of profitability for insurance segments is underwriting income
before other income and administrative expenses, in accordance with the manner
the segments are managed. It essentially represents gross profit margin on
insurance products before insurance administrative expenses and consists of
premium, less net policy obligations, acquisition expenses, and commissions. It
differs from GAAP pretax operating income before other income and
administrative expense for two primary reasons. First, there is a reduction to
policy obligations for interest credited by contract to policyholders because
this interest is earned and credited by the investment segment. Second,
interest is also added to acquisition expense which represents the implied
interest cost of deferred acquisition costs, which is funded by and is
attributed to the investment segment.
F-24
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 12--Business Segments (continued)
The measure of profitability for the investment segment is excess investment
income, which represents the income earned on the investment portfolio in
excess of net policy requirements. The investment segment is measured on a tax-
equivalent basis, equating the return on tax-exempt investments to the pretax
return on taxable investments. Other than the above-mentioned interest
allocations, there are no other intersegment revenues or expenses. All other
unallocated revenues and expenses on a pretax basis, including insurance
administrative expense, are included in the "Other" segment category. The table
below sets forth a reconciliation of United Investors's revenues and operations
by segment to its major income statement line items.
<TABLE>
<CAPTION>
For the Year 1998
-----------------------------------------------------------
Life Annuity Investment Other Adjustments Total
-------- -------- ---------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Premium................ $ 69,572 $ 415 $ $ $ $69,987
Policy Charges and
fees.................. 12,048 33,065 45,113
Net Investment income.. 61,373 61,373
Other income........... 13,665 13,665
-------- -------- -------- ------- --- -------
Total Revenues........ 81,620 47,145 61,373 190,138
Benefits and Expenses
Policy Benefits........ 51,430 25,892 77,322
Required reserve
interest.............. (18,832) (18,162) 36,994 0
Amortization of
acquisition costs..... 16,306 11,568 27,874
Commissions and premium
taxes................. 5,182 398 5,580
Required interest on
acquisition costs..... 7,958 4,814 (12,772) 0
-------- -------- -------- ------- --- -------
Total Expenses........ 62,044 24,510 24,222 110,776
-------- -------- -------- ------- --- -------
Underwriting income
before other income
and administrative
expense............... 19,576 22,635 37,151 79,362
Administrative
Expense............... 5,633 5,633
Goodwill amortization.. 946 946
Deferred acquisition
cost adjustment.......
-------- -------- -------- ------- --- -------
Pretax operating
income................ $ 19,576 $ 22,635 $ 37,151 $(6,579) $ 0 72,783
======== ======== ======== ======= ===
Realized investment gains/losses and deferred acquisition cost
adjustment............................................................. 9,401
-------
Pretax income.......................................................... $82,184
=======
</TABLE>
F-25
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 12--Business Segments (continued)
<TABLE>
<CAPTION>
For the Year 1997
----------------------------------------------------------
Life Annuity Investment Other Adjustments Total
------- ------- ---------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Premium................ $68,413 $ 310 $ $ $ $ 68,723
Policy Charges and
fees.................. 9,573 27,009 36,582
Net Investment income.. 51,514 51,514
Other income........... 11,876 11,876
------- ------- ------- ------- ----- --------
Total Revenues........ 77,986 39,195 51,514 168,695
Benefits and Expenses
Policy Benefits........ 47,930 25,189 73,119
Required reserve
interest.............. (18,067) (19,735) 37,802 0
Amortization of
acquisition costs..... 14,671 10,227 24,898
Commissions and premium
taxes................. 5,647 604 6,251
Required interest on
acquisition costs..... 8,044 4,287 (12,331) 0
------- ------- ------- ------- ----- --------
Total Expenses........ 58,225 20,572 25,471 104,268
------- ------- ------- ------- ----- --------
Underwriting income
before other income
and administrative
expense............... 19,761 18,623 26,043 64,427
Administrative
Expense............... 5,186 5,186
Goodwill amortization.. 284 284
Deferred acquisition
cost adjustment....... 168 168
------- ------- ------- ------- ----- --------
Pretax operating
income................ $19,761 $18,623 $26,043 $(5,470) $(168) 58,789
======= ======= ======= ======= =====
Realized investment gains/losses and deferred acquisition cost
adjustment........................................................... (5,197)
--------
Pretax income........................................................ $ 53,592
========
</TABLE>
F-26
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 12--Business Segments (continued)
<TABLE>
<CAPTION>
For the Year 1996
------------------------------------------------------------
Life Annuity Investment Other Adjustments Total
-------- -------- ---------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Premium................ $ 65,114 $ $ $ $ $ 65,114
Policy Charges and
fees.................. 8,722 20,681 29,403
Net Investment income.. 51,128 51,128
Other income........... 0
-------- -------- -------- ------- ----- --------
Total Revenues........ 73,836 20,681 51,128 145,645
Benefits and Expenses
Policy Benefits........ 47,355 15,807 63,162
Required reserve inter-
est................... (17,021) (20,599) 37,620 0
Amortization of acqui-
sition costs.......... 12,817 7,033 19,850
Commissions and premium
taxes................. 4,995 253 5,248
Required interest on
acquisition costs..... 8,045 3,712 (11,757) 0
-------- -------- -------- ------- ----- --------
Total Expenses........ 56,191 6,206 25,863 88,260
-------- -------- -------- ------- ----- --------
Underwriting income be-
fore other income and
administrative ex-
pense................. 17,645 14,475 25,265 57,385
Administrative Ex-
pense................. 3,682 3,682
Goodwill amortization.. 284 284
Deferred acquisition
cost adjustment....... 437 437
-------- -------- -------- ------- ----- --------
Pretax operating in-
come.................. $ 17,645 $ 14,475 $ 25,265 $(3,966) $(437) 52,982
======== ======== ======== ======= =====
Realized investment gains/losses and deferred acquisition cost
adjustment............................................................. 1,362
--------
Pretax income.......................................................... $ 54,344
========
</TABLE>
Assets for each segment are reported based on a specific identification
basis. The insurance segments' assets contain deferred acquisition costs, value
of insurance purchased, and separate account assets. The investment segment
includes the investment portfolio, cash, and accrued investment income.
Goodwill is assigned to corporate operations. All other assets, representing
less than 2% of total assets, are included in the other category. The table
below reconciles segment assets to total assets as reported in the financial
statements.
<TABLE>
<CAPTION>
At December 31, 1998
--------------------------------------------------------------
Life Annuity Investment Other Adjustments Total
-------- ---------- ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash and invested
assets................. $ $ $873,478 $ $ $ 873,478
Accrued investment
income................. 11,747 11,747
Deferred acquisition
costs.................. 113,057 100,576 213,633
Goodwill................ 29,465 29,465
Separate account
assets................. 2,425,262 2,425,262
Other Assets............ 283,453 283,453
-------- ---------- -------- -------- --- ----------
Total Assets............ $113,057 $2,525,838 $885,225 $312,918 $ 0 $3,837,038
======== ========== ======== ======== === ==========
</TABLE>
F-27
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 12--Business Segments (continued)
<TABLE>
<CAPTION>
At December 31, 1997
--------------------------------------------------------------
Life Annuity Investment Other Adjustments Total
-------- ---------- ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash and invested
assets................. $ $ $692,659 $ $ $ 692,659
Accrued investment
income................. 11,270 11,270
Deferred acquisition
costs.................. 117,410 93,241 210,651
Goodwill................ 6,771 6,771
Separate account
assets................. 1,876,439 1,876,439
Other Assets............ 229,351 229,351
-------- ---------- -------- -------- ----- ----------
Total Assets............ $117,410 $1,969,680 $703,929 $236,122 $ 0 $3,027,141
======== ========== ======== ======== ===== ==========
<CAPTION>
At December 31, 1996
--------------------------------------------------------------
Life Annuity Investment Other Adjustments Total
-------- ---------- ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash and invested
assets................. $ $ $664,861 $ $ $ 664,861
Accrued investment
income................. 10,781 10,781
Deferred acquisition
costs.................. 120,083 66,063 186,146
Goodwill................ 7,055 7,055
Separate account
assets................. 1,420,025 1,420,025
Other Assets............ 39,748 39,748
-------- ---------- -------- -------- ----- ----------
Total Assets............ $120,083 $1,486,088 $675,642 $ 46,803 $ 0 $2,328,616
======== ========== ======== ======== ===== ==========
</TABLE>
F-28
<PAGE>
United Investors Life Insurance Company
Balance Sheet (Unaudited)
as of September 30, 1999
(Amounts in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
ASSETS
Investments:
<S> <C>
Fixed maturities $ 773,347
Equity securities 3,060
Policy loans 18,913
Other long term investments 0
Short term investments 10,160
-----------
Total investments 805,480
Cash 2,152
Accrued investment income 11,086
Receivables 2,590
Receivables from affiliates 362,529
Deferred acquisition cost 224,347
Value of business purchased 8,927
Goodwill 28,755
Property and equipment 214
Other assets 3,242
Separate accounts 2,704,602
-----------
$ 4,153,924
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Future policy benefits $ 812,104
Unearned and advance premiums 2,821
Other policy benefits 6,897
-----------
Total policy liabilities 821,822
Accrued income taxes 51,504
Other liabilities 5,967
Due to affiliates 30,762
Separate account liabilities 2,704,602
-----------
Total liabilities 3,614,657
Shareholders' equity:
Common stock, par value per $6 per share
authorized, issued and outstanding:
500, 000 shares 3,000
Additional paid in capital 350,388
Unrealized investment gains, net of applicable taxes (6,696)
Retained earnings 192,575
-----------
Total shareholders' equity 539,267
-----------
Total liabilities and shareholders' equity $ 4,153,924
===========
</TABLE>
<PAGE>
United Investors Life Insurance Company
Statement of Income (Unaudited)
for the nine-month period ended September 30, 1999
(Amounts in thousands)
<TABLE>
<CAPTION>
<S> <C>
Revenues:
Premiums $ 54,976
Policy charges and fees 40,162
Net investment income 47,557
Net realized investment gains -2,806
Other income 12,891
Total revenue 152,780
Benefits and expenses:
Policy benefits
Individual Life 38,097
Annuity 19,675
Total policy benefits 57,772
Amortization of deferred acquisition costs 25,222
Commissions and premium taxes 4,467
Other operating expenses 4,431
Total benefits and expenses 91,892
Net operating income before taxes 60,888
Income tax expense 17,851
Net income $ 43,037
</TABLE>
<PAGE>
United Investors Life Insurance Company
Statement of Equity (Unaudited)
for the nine-month period ended September 30, 1999
(Amounts in thousands)
<TABLE>
<CAPTION>
Net
Unrealized
Additional Appreciation Total
Common Paid-in (Depreciation) Retained Shareholders'
Stock Capital on Securities Earnings Equity
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1999.................. $3,000 $350,388 $ 15,654 $190,538 $559,580
Net income.................................. 43,037 43,037
Other comprehensive income, net of tax:
Change in unrealized
appreciation (depreciation)......... -22,350 -22,350
Total comprehensive income.................. 20,687
Dividends................................... -41,000 -41,000
Balance on September 30, 1999............... $3,000 $350,388 ($6,696) $192,575 $539,267
</TABLE>
<PAGE>
United Investors Life Insurance Company
Statement of Cash Flows (Unaudited)
for the nine-month period ended September 30, 1999
(Amounts in thousands)
<TABLE>
<CAPTION>
<S> <C>
Cash flow from operating activities $ 43,037
Net Income
Adjustments to reconcile net income to net cash
(used in) operating activities:
Net interest credited and product charges on
universal life and investment products -560
Increase in liability for future benefits -78
Amortization of deferred acquisition costs 24,513
Policy acquisition costs -42,971
Change in tax liability 7,607
Change in other liabilities 3,792
Change in receivables -3,913
Amortization of goodwill 709
Amortization of investments 329
Adjustment for realized gains 2,806
Change in payable/receivable from affiliates -4,019
Net cash (used in) operating activities 31,252
Cash flows from investing activities:
Proceeds from investments:
Fixed investments 168,251
Other invested assets 0
Total investments sold or matured 168,251
Cost of investments acquired:
Fixed investments -158,045
Equity securities -3,400
Other invested assets 0
Net change in policy loans -904
Total acquisition of investments -162,349
Net (increase) decrease in short-term investments 2,513
Funds loaned to affiliates -62,024
Funds repaid from affiliates 54,200
Funds borrowed from affiliates 3,000
Funds repaid to affiliates -3,000
Additions to property -118
Cash provided from (used for) investment activities 473
Cash used for financing activities:
Cash dividends paid to shareholders -41,000
-41,000
Increase (decrease) in cash -9,275
Cash at the beginning of the year 11,427
Cash at end of year $ 2,152
</TABLE>
<PAGE>
PART C: OTHER INFORMATION
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements
--------------------
All required financial statements to be filed by amendment.
(b) Exhibits
--------
(1) Resolution of the Board of Directors of United Investors Life
Insurance Company ("United Investors") authorizing establishment of
the United Investors Advantage Gold Variable Account.\1\
(2) Custody Agreements: Not Applicable.
(3) (a) Principal Underwriting Agreement.*
(b) Broker-Dealer Sales Agreement.\2\
(c) Commission Schedule (included in Exhibit 3(a) hereto).*
(4) (a) Annuity Policy, Form VA99.*
(5) Application.*
(6) (a) Certificate of Incorporation of United Investors.\3\
(b) By-Laws of United Investors.\3\
(7) Reinsurance Contracts: Not Applicable.
(8) (a) Participation Agreement for Target/United Funds, Inc.\4\
(b) Form of Administration Agreement: Not Applicable
(9) Opinion of Counsel.*
(10) (a) Consent of Sutherland Asbill & Brennan LLP.*
(b) Consent of KPMG LLP.*
(11) Financial statements omitted from Item 23: Not Applicable.
(12) Agreements/understandings for providing initial capital: Not
Applicable.
(13) Performance Data Calculations.*
_____________________________
* Filed herewith.
\1\ Incorporated by reference to the exhibit filed with the initial filling of
this Form N-4 registration statement, File No. 333-89797, filed on October
27, 1999.
\2\ Incorporated herein by reference to the Exhibit filed in Post-Effective
Amendment No. 14 to the Form N-4 Registration Statement, File No. 33-12000,
filed on April 29, 1998.
\3\ Incorporated herein by reference to the Exhibit filed electronically with
Post-Effective Amendment No. 12 to Form S-6 Registration Statement, File
No. 33-11465, filed on April 29, 1998 (previously filed on January 22, 1987
as an Exhibit to the Form S-6 Registration Statement, File No. 33-11465).
\4\ Incorporated herein by reference to the Exhibit filed electronically with
Post-Effective Amendment No. 12 to Form S-6 Registration Statement, File
No. 33-11465, filed on April 29, 1998 (previously filed on April 15, 1992
as an Exhibit to Post-Effective Amendment No. 6 to Form N-4 Registration
Statement, File No. 33-12000).
C - 1
<PAGE>
Item 25. Directors and Officers of the Depositor
---------------------------------------
Name and Principal Position and Offices
Business Address* with Depositor
- ----------------- --------------
C. B. Hudson** Director
Anthony L. McWhorter Chairman of the Board of Directors, President and Chief
Executive Officer
W. Thomas Aycock Director, Vice President and Chief Actuary
Tony G. Brill** Director and Executive Vice President - Administration
Mark S. McAndrew** Senior Vice President - Marketing
Larry M. Hutchison** Director
Michael J. Klyce Vice President and Treasurer
John H. Livingston Director, Secretary and Counsel
James L. Mayton, Jr. Vice President and Controller
Carol A. McCoy Director and Assistant Secretary
Ross W. Stagner Director and Vice President
Terry W. Davis Director and Vice President - Administration
_________________________
* Unless otherwise noted, the principal business address of each person listed
is United Investors Life Insurance Company, P.O. Box 10207, Birmingham,
Alabama 35202-0207.
** Principal business address: Torchmark Corporation, 3700 South Stonebridge,
McKinney, Texas 75050.
Item 26. Persons Controlled by or Under Common Control with the Depositor or
-------------------------------------------------------------------
Registrant
----------
The Depositor, United Investors Life Insurance Company, Inc. ("United
Investors"), is indirectly owned by Torchmark Corporation. The following table
shows the persons controlled by or under common control with United Investors,
their Parent Company, and the State or Jurisdiction of Incorporation. All
companies are 100% owned by their Parent Company, unless otherwise indicated,
which is indirectly owned by Torchmark Corporation. The Registrant is a
segregated asset account of United Investors.
Parent State/Jurisdiction
Company Co. Code of Incorporation
- ------- -------- ------------------
American Income Life Insurance Co. A Indiana
American Life and Accident Insurance Co. A Texas
Brown-Service Funeral Homes Co., Inc. B Alabama
(Services burial insurance policies)
First United American Life Insurance Co. D New York
C - 2
<PAGE>
Globe Insurance Agency, Inc. A Arkansas
Globe Life And Accident Insurance Co. C Delaware
Globe Marketing Services Inc. A Oklahoma
Liberty National Auto Club, Inc. B Alabama
AILIC Receivables Corporation E Delaware
National Income Life Insurance Co. E New York
Liberty National GroupCare, Inc. B Alabama
Liberty National Life Insurance Co. C Alabama
Torch Royalty Company B Delaware
Torchmark Corporation (holding company) Delaware
United American Insurance Co. C Delaware
United Investors Life Insurance Co. B* Missouri
Waddell & Reed Asset Management Co. C Missouri
Globe Insurance Agency, Inc. C Alabama
_________________________
* Parent company owns 81%; remaining 19% owned by Torchmark Corporation.
Parent Company Codes
- -----------------------------------------
A Globe Life And Accident Insurance Co.
B Liberty National Life Insurance Co.
C Torchmark Corporation
D United American Insurance Co.
E American Income Life Insurance Company
Item 27. Number of Policy Owners
-----------------------
There are no current policy owners.
Item 28. Indemnification
---------------
Article XII of United Investors' By-Laws provides as follows:
"Each Director or officer, or former Director or officer, of this
Corporation, and his legal representatives, shall be indemnified by the
Corporation against liabilities, expenses, counsel fees and costs,
reasonably incurred by him or his estate in connection with, or arising out
of, any action, suit, proceeding or claim in which he is made a party by
reason of his being, or having been, such Director or officer; and any
person who, at the request of this Corporation, serves as Director or
officer of another corporation in which this Corporation owns corporate
stock, and his legal representatives, shall in like manner be indemnified
by this Corporation; provided that, in either case shall the Corporation
C - 3
<PAGE>
indemnify such Director or officer with respect to any matters as to which
he shall be finally adjudged in any such action, suit or proceeding to have
been liable for misconduct in the performance of his duties as such
Director or officer. The indemnification herein provided for shall apply
also in respect of any amount paid in compromise of any such action, suit,
proceeding or claim asserted against such Director or officer (including
expenses, counsel fees, and costs reasonably incurred in connection
therewith), provided that the Board of Directors shall have first approved
such proposed compromise settlement and determined that the officer or
Director involved is not guilty of misconduct, but in taking such action
any Director involved shall not be qualified to vote thereof, and if for
this reason a quorum of the Board cannot be obtained to vote on such
matters, it shall be determined by a committee of three (3) persons
appointed by the shareholders at a duly called special meeting or at a
regular meeting. In determining whether or not a Director or officer is
guilty of misconduct in relation to any such matter, the Board of Directors
or committee appointed by the shareholders, as the case shall be, may rely
conclusively upon an opinion of independent legal counsel selected by such
Board or committee. The rights to indemnification herein provided shall not
be exclusive of any other rights to which such Director or officer may be
lawfully entitled."
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to Directors, officers and controlling provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
Item 29. Principal Underwriters
----------------------
(a) Waddell & Reed, Inc. ("W&R") is the principal underwriter of the Policies
as defined in the Investment Company Act of 1940, and is also the principal
underwriter for certain flexible premium variable life insurance policies issued
through United Investors Life Variable Account, and United Investors Universal
Life Variable Account, and certain variable annuity policies issued through
United Investors Annuity Variable Account.
C - 4
<PAGE>
(b) The following table provides certain information with respect to each
Director, officer and partner of each principal underwriter.
Name and Principal Positions and Offices
Business Address* With Underwriter
- ------------------ ---------------------
Keith A. Tucker Chairman and Director
--------
Robert L. Hechler President, Chief Executive Officer, Principal
Financial Officer, Director and Treasurer
--------
Henry J. Herrmann Director
--------
Helge K. Lee Senior Vice President, Secretary and General Counsel
Robert J. Williams, Jr. Executive Vice President and National Sales Manager
Thomas W. Butch Executive Vice President
Michael D. Strohm Senior Vice President and Controller
John E. Sundeen, Jr. Executive Vice President
Michael G. Gerken Senior Vice President
David R. Burford Vice President and Assistant Secretary
William D. Howey, Jr. Vice President
Terry M. Parker Vice President
_________________________
* The principal business address for the officers and Directors listed is
6300 Lamar Avenue, Overland Park, Kansas 66202-4200.
(c) Commissions Received by Principal Underwriter during Year Ended 12/31/99
------------------------------------------------------------------------
Net Underwriting
Name of Principal Discounts and Compensation
Underwriter Commissions on Redemption
- ------------------- ---------------- -------------
Waddell & Reed, Inc. Not Applicable -0-
Brokerage
Commissions Compensation
----------- ------------
Not Applicable -0-
Item 30. Location of Accounts and Records
--------------------------------
All accounts and records required to be maintained by Section 31(a) of the
1940 Act and the rules under it are maintained by United Investors at its
administrative office.
C - 5
<PAGE>
Item 31. Management Services
-------------------
All management contracts are discussed in Part A or Part B.
Item 32. Undertakings
------------
(a) Registrant undertakes that it will file a Post-Effective Amendment to
this Registration Statement as frequently as necessary to ensure that the
audited financial statements in the Registration Statement are never more than
16 months old for so long as payments under the variable annuity contracts may
be accepted.
(b) Registrant undertakes that it will include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
post card or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
(c) Registrant undertakes to deliver any Statement of Additional Information
and any financial statements required to be made available under this Form
promptly upon written or oral request to United Investors at the address or
phone number listed in the Prospectus.
(d) United Investors Life Insurance Company represents that the fees and
charges deducted under the annuity policy are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the risks assumed
by United Investors.
STATEMENT PURSUANT TO RULE 6c-7
-------------------------------
United Investors and the Variable Account rely on 17 C.F.R. Sections 270.6c-7
and represent that the provisions of that Rule have been or will be complied
with. Accordingly, United Investors and the Variable Account are exempt from
the provisions of Sections 22(e), 27(c)(1) and 27(d) of the Investment Company
Act of 1940 with respect to any variable annuity contract participating in such
account to the extent necessary to permit compliance with the Texas Optional
Retirement Program.
SECTION 403(b) REPRESENTATIONS
------------------------------
United Investors represents that it is relying on a no-action letter dated
November 28, 1988, to the American Council of Life Insurance (Ref. No. IP-6-88)
regarding Sections 22(e), 27(c)(1), and 27(d) of the Investment Company Act of
1940, in connection with redeemability restrictions on Section 403(b) policies,
and that paragraphs numbered (1) through (4) of that letter will be complied
with.
C - 6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the registrant, United Investor Advantage Gold
Variable Account, has duly caused this amendment to the registration statement
to be signed on its behalf by the undersigned thereunto duly authorized, and its
seal to be hereunto affixed and attested, all in the City of Birmingham and the
State of Alabama, on the 21st day of January, 2000.
UNITED INVESTORS ADVANTAGE GOLD VARIABLE ACCOUNT
(SEAL) (Registrant)
By: UNITED INVESTORS LIFE INSURANCE COMPANY
(Depositor)
Attest: /s/ John H. Livingston By: /s/ Anthony L. McWhorter
------------------------- ---------------------------
John H. Livingston Anthony L. McWhorter
Secretary and Counsel President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, United
Investors Life Insurance Company has duly caused this registration statement to
be signed on its behalf by the undersigned thereunto duly authorized, and its
seal to be hereunto affixed and attested, all in the City of Birmingham and the
State of Alabama, on the 21st day of January, 2000.
(SEAL) UNITED INVESTORS LIFE INSURANCE COMPANY
Attest: /s/ John H. Livingston By: /s/ Anthony L. McWhorter
------------------------- ---------------------------
John H. Livingston Anthony L. McWhorter
Secretary and Counsel President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities indicated on the date(s) set forth below.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
_____________________________ Director ____________________
C. B. Hudson
/s/Anthony L. McWhorter Chairman of the Board of Directors, 1/21/00
- ----------------------------- ---------
Anthony L. McWhorter President and Chief Executive Officer
/s/ W. Thomas Aycock Director, Vice President and 1/21/00
- ----------------------------- ---------
W. Thomas Aycock Chief Actuary
Director and Executive Vice _________
_____________________________
Tony G. Brill President - Administration
____________________________ Senior Vice President - Marketing _________
Mark S. McAndrew
Director _________
____________________________
Larry M. Hutchison
/s/ Michael J. Klyce Vice President and Treasurer 1/21/00
- ---------------------------- -------
Michael J. Klyce
/s/ James L. Mayton, Jr. Vice President and Controller 1/21/00
- ---------------------------- -------
James L. Mayton, Jr.
/s/ John H. Livingston Director, Secretary and Counsel 1/21/00
- ---------------------------- -------
John H. Livingston
/s/ Carol A. McCoy Director and Assistant Secretary 1/21/00
- ---------------------------- -------
Carol A. McCoy
/s/ Ross W. Stagner Director and Vice President 1/21/00
- ---------------------------- -------
Ross W. Stagner
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Terry W. Davis Director and Vice President - 1/21/00
- ----------------------------
Terry W. Davis Administration
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit No. Name of Exhibit
- ----------- ---------------
(3)(a) Principal Underwriting Agreement
(4)(a) Annuity Policy, Form VA99
(5) Application
(9) Opinion of Counsel
(10)(a) Consent of Sutherland Asbill & Brennan LLP
(10)(b) Consent of KPMG LLP
(13) Performance Data Calculations
<PAGE>
Principal Underwriting Agreement
<PAGE>
AMENDED AND RESTATED PRINCIPAL UNDERWRITING AGREEMENT
-----------------------------------------------------
This AGREEMENT dated January ___, 2000 by and between United Investors Life
Insurance Company ("United Investors"), a Missouri corporation, on its own
behalf and on behalf of United Investors Life Variable Account, United Investors
Annuity Variable Account and United Investors Universal Life Variable Account
(together with all future variable accounts created by United Investors for
products to be sold by Waddell & Reed hereunder, collectively referred to herein
as the "Variable Accounts"), and Waddell & Reed, Inc. ("W&R"), a Delaware
corporation;
WITNESSETH:
WHEREAS, existing Variable Accounts are segregated asset accounts
established and maintained by United Investors pursuant to the laws of the State
of Missouri for certain flexible premium variable life insurance policies and
deferred variable annuity policies now or to be issued by United Investors (the
"Policies"), under which income, gains, and losses, whether or not realized,
from assets allocated to such account, will be, in accordance with the Policies,
credited to or charged against such account without regard to other income,
gains, or losses of United Investors; and
WHEREAS, United Investors has registered existing Variable Accounts as unit
investment trusts under the Investment Company Act of 1940 (the "Investment
Company Act"); and
WHEREAS, W&R has registered as a broker/dealer under the Securities
Exchange Act of 1934 (the "Exchange Act") and is a member firm of the National
Association of Securities Dealers, Inc. (The "NASD"); and
WHEREAS, United Investors has registered the existing Policies under the
Securities Act of 1933 (the "Securities Act"); and
WHEREAS, W&R has served as the distributor and principal underwriter of the
existing Policies continuously since May 1, 1990, pursuant to a Principal
Underwriting Agreement between W&R and United Investors; and
WHEREAS, W&R and United Investors desire to restate, modify and supplement
their understandings and agreements as more fully set forth herein;
NOW THEREFORE, United Investors and W&R hereby mutually agree as follows:
1. Underwriter.
------------
<PAGE>
(a) United Investors grants to W&R the right, during the term of this
Agreement, subject to the registration requirements of the Securities Act and
the Investment Company Act and the provisions of the Exchange Act, to be the
distributor and principal underwriter of the Policies. W&R agrees to use its
best efforts to distribute the Policies, and to undertake to provide sales
services relative to the Policies and otherwise to perform all duties and
functions necessary and proper for the distribution of the Policies.
(b) To the extent necessary to offer the Policies, W&R shall be duly
registered or otherwise qualified under the securities laws of any state or
other jurisdiction. Any sales representatives of W&R soliciting applications
for the Policies shall be duly and appropriately licensed, registered or
otherwise qualified for the sale of such Policies under the federal securities
laws, any applicable insurance laws and securities laws of each state or other
jurisdiction in which such Policies may lawfully be sold and in which United
Investors is licensed to sell Policies. Such direct sales representatives of W&R
shall be independent contractors. W&R shall be responsible for the training,
supervision, and control of its representatives for the purposes of the NASD
Rules of Fair Practice and federal and state securities law requirements
applicable in connection with the offering and sale of the Policies. In this
connection, W&R shall maintain written supervisory procedures in compliance with
NASD Rules of Fair Practice, Section 27, Paragraph 2177.
(c) W&R agrees to offer the Policies for sale in accordance with the
prospectus therefor filed with the Securities and Exchange Commission
("Commission") then in effect. W&R is not authorized to give any information or
to make any representations concerning the Policies other than those contained
in such current prospectus or in such sales literature as may be authorized by
United Investors.
(d) All purchase payments made or other monies payable under the Policies
shall be paid or remitted by or on behalf of Policyowners directly to United
Investors or its designated servicing agent and shall become the exclusive
property of United Investors. United Investors will retain all such payments
and monies except to the extent such payments and monies are allocated to the
Variable Accounts.
2. Sales Agreement.
----------------
(a) W&R is hereby authorized to enter into separate written agreements, on
such terms and conditions as W&R may determine to be not inconsistent with this
Agreement, with broker/dealers registered as such under the Exchange Act which
agree to participate in the distribution of the Policies and to use their best
efforts to solicit applications for the Policies.
(b) It is understood and agreed to by United Investors and W&R that United
Investors may from time to time propose that the Policies be distributed through
broker/dealers other than W&R. In such circumstances, W&R will agree to enter
into a
<PAGE>
sales agreement with another broker/dealer, subject to W&R's reasonable
satisfaction, through its customary review, with such other broker/dealer's
credentials and practices. W&R agrees that, if reasonably satisfied with the
credentials and practices of such other broker/dealer, a sales agreement will
not be withheld. If W&R withholds a sales agreement without substantiating its
reasons for doing so, United Investors may terminate this agreement by giving
W&R thirty (30) days written notice, notwithstanding any other provision of this
Agreement.
(c) All such sales agreements shall provide that each broker/dealer will
assume full responsibility for continued compliance by itself and its
representatives with applicable federal and state securities laws and state
insurance laws, and shall be in such form and contain such other provisions as
United Investors may from time to time require. Such broker/dealer shall assume
any legal responsibility of United Investors for the acts, commissions, or
defalcations of such representatives insofar as they relate to the sale of the
Policies. Such broker/dealers and their representatives soliciting applications
for the Policies shall be duly and appropriately licensed, registered, or
otherwise qualified for the sale of such Policies under the federal securities
laws, any applicable insurance and securities laws of each state or other
jurisdiction in which such Policies may be lawfully sold and in which United
Investors is licensed to sell the Policies. Each such organization shall be
both registered as a broker/dealer under the Exchange Act and a member of the
NASD, or if not so registered or not such a member, then the representatives of
such organization soliciting applications for Policies shall be registered
representatives of a registered broker/dealer and NASD member which is an
affiliate of such organization and which maintains full responsibility for the
training, supervision, and control of the representatives selling the Policies.
(d) Applications for the Policies solicited by such organizations through
their representatives shall be forwarded to United Investors. All payments for
Policies shall be made by check or money order payable to "United Investors Life
Insurance Company" and remitted promptly by such organizations to United
Investors as agent for W&R. United Investors may also accept wire transfers via
Federal Funds to an account designated by United Investors. All broker/dealers
who agree to participate in the distribution of the Policies shall act as
independent contractors and nothing herein contained shall constitute such
broker/dealers or their agents or employees as employees of United Investors or
W&R in connection with the sale of the Policies.
3. Compensation.
-------------
(a) For the sales services rendered by W&R and its sales representatives
and the continuing obligations spelled out herein, United Investors shall pay
W&R the commissions set forth in Schedule A to this Agreement, which Schedule
may be hereafter amended from time to time by mutual agreement of United
Investors and W&R.
(b) For Policies sold under sales agreements that W&R enters into with
other
<PAGE>
broker/dealers pursuant to paragraph 2, above, United Investors shall pay W&R
the commissions which are set forth in Schedule B to this Agreement, which
Schedule may be hereafter amended from time to time by mutual agreement of
United Investors and W&R.
4. Administrative Services.
------------------------
(a) United Investors agrees to maintain all required books of account and
related financial records on behalf of W&R. All such books of account and
records shall be maintained and preserved pursuant to Rules 17a-3 and 17a-4
under the Exchange Act (or the corresponding provisions of any future applicable
federal securities laws or regulations). In addition, United Investors will
maintain records of all sales commissions paid to sales representatives of W&R
in connection with the sale of the Policies. All such books and records shall
be maintained by United Investors on behalf of and as agent for W&R whose
property they are and shall remain for all purposes, and shall at all times be
subject to reasonable periodic, special, or other examination by the Commission
and all other regulatory bodies having jurisdiction. United Investors also
agrees to send to W&R's customers all required confirmations on customer
transactions.
(b) United Investors agrees to commit the reasonable resources necessary,
including, but not limited to, personnel, systems and technology, to develop
and/or acquire and implement the services necessary to support and service
clients who purchase products jointly offered by W&R and United Investors, and
to enhance and improve such services in order to remain fully competitive.
5. Product Development and Features.
---------------------------------
(a) United Investors agrees to make commercially reasonable efforts to
obtain regulatory approval of and to offer, as soon as reasonably practical
after January 1, 2000, a new deferred variable annuity product with product
features similar to the existing Advantage II Variable Annuity, but with the
specific product features set forth in Schedule C to this Agreement. United
Investors agrees to fully support and service this product with sufficient
resources, including personnel, systems and technology.
(b) United Investors will cooperate with W&R and commit the reasonable
resources necessary (i) to design, create, implement and introduce products and
product features that will be first-class and competitive, and (ii) to enhance
and improve such products and product features as the market for insurance
products and variable insurance products evolves.
6. Reports.
--------
W&R shall have the responsibility for maintaining the records of sales
representatives licensed, registered, and otherwise qualified to sell the
Policies and for
<PAGE>
furnishing periodic reports thereof to United Investors.
7. Regulation.
-----------
(a) This Agreement shall be subject to the provisions of the Investment
Company Act and the Exchange Act and the rules, regulations, and rulings
thereunder and of the NASD, from time to time in effect, including such
exemptions from the Investment Company Act as the Commission may grant, and the
terms hereof shall be interpreted and construed in accordance therewith.
Without limiting the generality of the foregoing, the term "assigned" shall not
include any transactions exempted from section 15(b)(2) of the Investment
Company Act.
(b) W&R shall submit to all regulatory and administrative bodies having
jurisdiction over the present and future operations of United Investors or
Variable Accounts any information, reports or other material which any such body
by reason of this Agreement may request or require pursuant to applicable laws
or regulations. Without limiting the generality of the foregoing, W&R shall
furnish the State of Missouri, Secretary of State and/or the Director of
Insurance with any information or reports which the Secretary of State and/or
the Director of Insurance may request in order to ascertain whether the variable
life operations of United Investors are being conducted in a manner consistent
with any other applicable law or regulations.
8. Suitability.
------------
United Investors and W&R each wish to ensure that the Policies distributed
by W&R will be issued to purchasers for whom the Policy will be suitable. W&R
shall take reasonable steps to ensure that the various sales representatives
appointed by it shall not make recommendations to an applicant to purchase a
Policy in the absence of reasonable grounds to believe that the purchase of the
Policy is suitable for such applicant. While not limited to the following, a
determination of suitability shall be based on information furnished to a sales
representative after reasonable inquiry of such applicant concerning the
applicant's insurance and investment objectives and financial situation and
needs. W&R will require that the applicant complete the Confidential Owner's
Information and Suitability sections of the application for the Policy.
9. Prospectuses and Promotional Material.
--------------------------------------
United Investors shall furnish W&R with copies of all prospectuses,
financial statements, and other documents and materials which W&R reasonably
requests for use in connection with the distribution of the Policies. United
Investors shall have responsibility for the preparation, filing, and printing of
all required prospectuses and/or registration statements in connection with the
Policies, and the payment of all related expenses. W&R and United Investors
shall cooperate fully in designing, drafting, and reviewing sales promotion
materials, and with respect to the preparation of individual
<PAGE>
sales proposals related to the sale of the Policies. W&R shall not use any such
materials not provided or approved by United Investors.
10. Investigation and Proceedings.
------------------------------
(a) W&R and United Investors agree to cooperate fully in any insurance
regulatory investigation or proceeding or judicial proceeding arising in
connection with the Policies distributed under this Agreement. W&R and United
Investors further agree to cooperate fully in any securities regulatory
inspection, inquiry, investigation or proceeding or any judicial proceeding with
respect to United Investors, W&R, their affiliates and their representatives to
the extent that such inspection, inquiry, investigation or proceeding is in
connection with Policies distributed under this Agreement. Without limiting the
foregoing:
(i) United Investors will promptly notify W&R of any customer
complaint or notice of any regulatory inspection, inquiry, investigation or
proceeding or judicial proceeding received by United Investors with respect
to W&R or any representative or which may affect United Investors' issuance
of any Policies marketed under this Agreement; and
(ii) W&R will promptly notify United Investors of any customer
complaint or notice of any regulatory inspection, inquiry, investigation or
judicial proceeding received by W&R or any representative with respect to
United Investors or its affiliates in connection with any Policies
distributed under this Agreement or any activity in connection with any
Policies.
(b) In the case of a customer complaint, W&R and United Investors will
cooperate in investigating such complaint and shall arrive at a mutually
satisfactory response.
11. Exclusivity.
------------
The services of W&R and United Investors under this Agreement are not
deemed to be exclusive and W&R and United Investors shall be free to render
similar services to others, including, without implied limitation, such other
separate investment accounts as are now or hereafter established by United
Investors, W&R, or any affiliate of W&R so long as the services of W&R and
United Investors hereunder are not impaired or interfered with thereby.
12. Benefit.
--------
This Agreement shall inure to the benefit of and be binding upon the
successors of the parties hereto.
13. Liability.
----------
<PAGE>
Neither party hereto shall be liable to the other for any action taken or
omitted by it, or any of its officers, agents or employees, in performing their
responsibilities under this Agreement in good faith and without gross
negligence, willful misfeasance or reckless disregard of such responsibilities.
14. Notices.
--------
All notices and other communications provided for hereunder shall be in
writing and shall be delivered by hand or mailed first class, postage prepaid,
addressed as follows:
(a) If to United Investors:
United Investors Life Insurance Company
2001 Third Avenue South
Birmingham, Alabama 35233
Attention: President
(b) If to W&R:
Waddell & Reed, Inc.
6300 Lamar Avenue
Overland Park, Kansas 66202
Attention: General Counsel
and to such other address as United Investors or W&R shall designate by written
notice to the other.
15. Amendment.
----------
This Agreement may be amended from time to time by the mutual agreement and
consent of the parties hereto.
16. Severability.
-------------
If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby.
17. Termination.
------------
This Agreement shall be effective upon its execution. It may be terminated
at any time by either party hereto on 60 days' written notice to the other party
hereto, without the payment of any penalty. Upon termination of this Agreement,
all
<PAGE>
authorizations, rights and obligations shall cease except (i) the obligation to
settle accounts hereunder, issued pursuant to applications received by United
Investors prior to the termination and (ii) the agreements contained in
paragraph 9 hereof.
18. Applicable Law.
---------------
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Missouri.
19. Counterparts.
-------------
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original and all of which shall be deemed an instrument.
20. Restatement.
------------
This Agreement amends, restates and supercedes the Principal Underwriting
Agreement between the parties dated May 1, 1990.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
(seal)
Attest: UNITED INVESTORS LIFE
INSURANCE COMPANY
____________________________ By:_______________________________
Title:______________________ Title:____________________________
<PAGE>
(seal)
Attest: WADDELL & REED, INC.
____________________________ By:_______________________________
Title:______________________ Title:____________________________
<PAGE>
SCHEDULE A
W&R COMMISSION SCHEDULE
For Applications Dated January 1, 1999 through December 31, 1999
First 2nd-10th 11th-20th
Product Policy Year Policy Years Policy Years
- ------- ----------- ------------ ------------
Advantage Plus
Advantage Plus Target Premium 75.0% 5.0% 2.0%
Advantage Plus Excess Premium 5.0% 5.0% 2.0%
(Target Premium is determined as described in the Target Annual Premium Chart in
Attachment A. If a policy owner elects to increase the face amount, the first
year commission rate will be paid on premiums received in the year after the
increase that are attributable to the increase, up to the Target Premium for the
increase.)
Product Commission Rates
- ------- ----------------
Advantage I Variable Life 7.39% of premiums received, payable semi-monthly
Advantage II Variable Annuity
Issue Ages 0-80 7.75% of premiums received, payable semi-monthly
Issue Ages 81-85 3.88% of premiums received payable semi-monthly
For Period Commencing January 1, 2000
-------------------------------------
Product Commission Rates
- ------- ----------------
Advantage Plus Same as above.
Advantage I Variable Life Same as above.
Variable Annuities:
(1) United Investors agrees to pay W&R a commission of 7.75% of premiums
received on variable annuities issued on or after January 1, 2000. These
commissions are payable semi-monthly. In addition, United Investors agrees
to pay W&R Incentive Compensation and a Mortality and Expense Sharing Fee
as follows:
(a) Monthly incentive compensation ("Incentive Compensation") is equal to
.20% x 1/12 x (A), where (A) is:
The Net Asset Value of the United Investors Annuity Variable Account
under
<PAGE>
that certain Variable Accounts Distribution Contract
between United Investors and Target/United Funds, Inc., dated
April 4, 1997, as amended, (the "Distribution Contract"), but
only for variable annuities issued by United Investors prior to
January 1, 2000.
(b) The monthly mortality and expense sharing fee ("Mortality and
Expense Sharing Fee") is equal to .25% x 1/12 x (B), where (B) is:
The Net Asset Value of the United Investors Annuity Variable
Account under the Distribution Contract, but only for variable
annuities issued by United Investors issued on or after January
1, 2000.
(c) Net Asset Value for any calendar month is the average of the net
asset value on the opening of business on the first day of that month
and the close of business on the last day of that month. The
Incentive Compensation and the Mortality and Expense Sharing Fee are
payable by the last day of the month following the month they are
earned.
(d) United Investors' obligation to pay the Incentive Compensation
terminates upon termination of this Agreement, effective in the month
in which notice of termination is given, but United Investors'
obligation to pay the Mortality and Expense Sharing Fee survives
termination of this Agreement, except as provided in section 2.4 of
the "Agreement" of even date herewith between United Investors, and
W & R and W & R Insurance Agency, Inc. (referred to collectively
therein as the "W & R Group").
<PAGE>
SCHEDULE B
THIRD PARTY BROKER/DEALER COMMISSION SCHEDULE
---------------------------------------------
[To be provided by UILIC]
<PAGE>
ATTACHMENT A
TARGET PREMIUM CHART
--------------------
[To be provided by UILIC]
<PAGE>
SCHEDULE C
REQUIRED PRODUCT FEATURES
OF NEW DEFERRED VARIABLE ANNUITY PRODUCT
----------------------------------------
Mortality and Expense 1.25%
Risk Charge
Administrative Charge .15%
Withdrawal Charge 7% of amounts withdrawn during the first year after
deposit, decreasing by 1% on each anniversary of the
deposit to 0% seven years after deposit. The
withdrawal charge is calculated on each deposit from
the date of that deposit, on a "first in-first out"
basis.
Annual Policy Fee $25.00 per policy, waived for account values
(greater than) $25,000.
<PAGE>
Annuity Policy, Form VA99
<PAGE>
A Missouri Stock Company
********************************************************************************
WE WILL PAY the Annuity Payments to the Annuitant starting on the Annuity
Benefit Date, as provided in this Policy; and
WE WILL PROVIDE the other rights and benefits of this Policy.
Payment of any benefits and all other rights are subject to the terms of this
Policy. This Policy is issued in consideration of the application and payment of
the Initial Purchase Payment.
"FREE LOOK" PERIOD - You may cancel this Policy by returning it by the 10th day
after you receive it. You may return it to us or to the agent who sold it to
you. When we receive the Policy, we will cancel it and refund the Policy Value
plus any contract fees and other charges paid.
POLICY VALUE - The Policy Value of this Policy is equal to the Variable Account
Value plus the Fixed Account Value. The Variable Account Value of this Policy
may increase or decrease daily depending on the investment experience of the
Investment Divisions selected. The Variable Account Value is not guaranteed as
to fixed dollar amounts.
Signed for United Investors Life Insurance Company at Birmingham, Alabama.
SECRETARY PRESIDENT
- --------------------------------------------------------------------------------
ANNUITANT: JOHN DOE ISSUE AGE: 35 MALE
POLICY DATE: NOV 01, 1999 POLICY NUMBER: 1234567
ANNUITY BENEFIT INITIAL PURCHASE
DATE: NOV 01, 2054 PAYMENT: $10,000.00
THIS POLICY IS A LEGAL CONTRACT
BETWEEN YOU AND UNITED INVESTORS LIFE INSURANCE COMPANY
READ YOUR POLICY CAREFULLY
********************************************************************************
DEFERRED VARIABLE ANNUITY POLICY
Annuity payments begin on the Annuity Benefit Date.
Death Benefit payable prior to the Annuity Benefit Date.
Purchase Payments are flexible, subject to the limits described herein.
This Policy is nonparticipating. Dividends are not payable.
<PAGE>
GUIDE TO POLICY PROVISIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROVISIONS SECTION
<S> <C>
Amount of Proceeds................................................... 3
Annuity Provisions................................................... 8
Assignment........................................................... 6
Beneficiary.......................................................... 6
Change of Owner and Beneficiaries.................................... 6
Charges and Deductions............................................... 14
Death Benefit........................................................ 5
Definitions.......................................................... 1
Delay in Payments.................................................... 16
Errors in Age or Sex................................................. 7
Fixed Account........................................................ 11
Fixed Account Value.................................................. 11
Initial Purchase Payment............................................. 2
Investment Divisions................................................. 13
Issue Age and Sex.................................................... 2
Policy Date.......................................................... 2
Purchase Payment Provisions.......................................... 4
Termination of Policy................................................ 10
Variable Account..................................................... 12
Variable Account Value............................................... 12
Withdrawals.......................................................... 9
</TABLE>
PAGE 1
<PAGE>
1. DEFINITIONS
- --------------------------------------------------------------------------------
Accumulation Unit - An accounting unit used to calculate the Policy Value.
Age - The Issue Age shown under Policy Data as determined by us from the date of
birth stated in the application. Attained ages are determined from the Policy
Date. No Policy will be issued if either the Owner or Annuitant is over Age 90.
We use age last birthday.
Annuitant - The person on whose life Annuity Payments depend. If the Policy
Owner names more than one person as an "Annuitant," the second person named
shall be referred to as "Co-Annuitant." The "Annuitant" and "Co-Annuitant" will
be referred to collectively as the "Annuitant."
Annuity Benefit Date - The date on which Annuity Payments are to start. The
Annuity Benefit Date is shown under Policy Data unless changed.
Annuity Unit - An accounting unit used to calculate the value of Variable
Annuity Payments.
Fixed Account - Part of the General Account of United Investors Life Insurance
Company to which you may allocate all or a portion of your Purchase Payments or
Policy Values.
Fixed Annuity - An Annuity with payments which are guaranteed to remain fixed in
amount throughout the payment period.
General Account - The General Account consists of all assets of United Investors
Life Insurance Company other than those in any separate account.
Investment Divisions - The Investment Divisions named under the Policy Data.
Each is part of a Variable Account of ours.
Net Purchase Payment - The Purchase Payment less any deduction for premium
taxes.
Policy Anniversary - The same day and month as the Policy Date each year the
Policy remains in force.
Policy Date - The date from which Policy Anniversaries and Policy Years are
determined. Your Policy Date is shown under Policy Data.
Policy Value - The Policy Value is equal to the Variable Account Value plus the
Fixed Account Value.
Policy Year - A year that starts on the Policy Date or on a subsequent Policy
Anniversary.
Purchase Payment - An amount paid by the Owner to us as consideration for the
benefits provided by this Policy.
Surrender Value - The Policy Value less any withdrawal charges, the Annual
Contract Maintenance Charge and applicable deductions for premium taxes.
Valuation Date - Each day the New York Stock Exchange is open for trading,
except for local or regional holidays declared by United Investors Life
Insurance Company.
Valuation Period - The interval of time between a Valuation Date and the next
Valuation Date. It is measured from the closing of the New York Stock Exchange.
Variable Account - A separate account maintained by us. The Variable Account
available as of the Policy Date is shown in the Policy Data.
<PAGE>
Variable Annuity - An Annuity with payments which vary in amount with the
investment experience of the Investment Divisions of the Variable Account.
We, our, us - United Investors Life Insurance Company.
You, your - The Owner or Joint Owner of this Policy. The Owner may be someone
other than the Annuitant. The Owner is shown in the application unless the Owner
has been changed as provided in this Policy.
PAGE 2
********************************************************************************
<PAGE>
2. POLICY DATA
- --------------------------------------------------------------------------------
ANNUITANT: JOHN DOE ISSUE AGE AND SEX: 35 MALE
POLICY DATE: NOV 01, 1999 POLICY NUMBER: 1234567
ANNUITY BENEFIT INITIAL PURCHASE
DATE: NOV 01, 2054 PAYMENT: $10,000.00
POLICY: DEFERRED VARIABLE ANNUITY
MINIMUM INITIAL PURCHASE PAYMENT:
NONQUALIFIED POLICIES: $2,000
QUALIFIED POLICIES: $1,200
AS AN EXCEPTION, FOR BOTH NONQUALIFIED AND QUALIFIED
POLICIES, WE WILL ACCEPT $100 PER MONTH (AT LEAST $1,200
THE FIRST YEAR) IF PURCHASE PAYMENTS ARE PAID BY MEANS
OF A BANK DRAFT OR GROUP PAYMENT METHOD APPROVED
IN ADVANCE BY US.
MINIMUM ADDITIONAL PURCHASE PAYMENTS: $100
MAXIMUM AGE FOR ADDITIONAL PURCHASE PAYMENTS: AGE 90
MAXIMUM TOTAL PURCHASE PAYMENTS: $500,000
MINIMUM PARTIAL WITHDRAWAL: $250
MINIMUM POLICY VALUE AFTER PARTIAL WITHDRAWAL: $2,000
- --------------------------------------------------------------------------------
PAGE 3
<PAGE>
- --------------------------------------------------------------------------------
2. POLICY DATA
- --------------------------------------------------------------------------------
VARIABLE ACCOUNT: UNITED INVESTORS ADVANTAGE GOLD VARIABLE ACCOUNT
- --------------------------------------------------------------------------------
INVESTMENT DIVISIONS
- --------------------------------------------------------------------------------
EACH MUTUAL FUND PORTFOLIO REPRESENTS A SEPARATE INVESTMENT DIVISION OF THE
VARIABLE ACCOUNT. ASSETS OF EACH INVESTMENT DIVISION ARE INVESTED IN A
CORRESPONDING MUTUAL FUND PORTFOLIO.
- --------------------------------------------------------------------------------
MUTUAL FUND: TARGET/ UNITED FUNDS, INC.
- --------------------------------------------------------------------------------
PORTFOLIOS: INITIAL PREMIUM ALLOCATION:
ASSET STRATEGY PORTFOLIO 0%
BALANCED PORTFOLIO 0%
BOND PORTFOLIO 10%
GROWTH PORTFOLIO 0%
HIGH INCOME PORTFOLIO 50%
INCOME PORTFOLIO 0%
INTERNATIONAL PORTFOLIO 0%
LIMITED-TERM BOND PORTFOLIO 30%
MONEY MARKET PORTFOLIO 0%
SCIENCE AND TECHNOLOGY PORTFOLIO 0%
SMALL CAP PORTFOLIO 0%
FIXED ACCOUNT: 10%
PAGE 3A
<PAGE>
- --------------------------------------------------------------------------------
2. POLICY DATA (CONTINUED)
- --------------------------------------------------------------------------------
CHARGES AND DEDUCTIONS:
ANNUAL CONTRACT MAINTENANCE CHARGE: $25 deducted per Policy Year.
ADMINISTRATION FEE: .000411% of the daily net assets
of each Investment Division deducted
daily (equivalent to .15% per
year).
MORTALITY AND EXPENSE RISK CHARGE: .003425% of the daily net assets of
each Investment Division deducted
daily (equivalent to 1.25% per year).
DEDUCTION FOR PREMIUM TAXES: Deducted as incurred.
TABLE OF WITHDRAWAL CHARGE RATES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF FULL YEARS
SINCE RECEIPT OF WITHDRAWAL
PURCHASE PAYMENT CHARGE RATE
<S> <C>
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7 or More 0%
</TABLE>
The withdrawal charge is determined by multiplying each Purchase Payment
included in the withdrawal by the Withdrawal Charge Rate for the number of full
years elapsed since the date of receipt of each Purchase Payment.
See the WITHDRAWALS Provision in Section 9.
PAGE 4
<PAGE>
- --------------------------------------------------------------------------------
2. POLICY DATA (CONTINUED)
- --------------------------------------------------------------------------------
FIXED ACCOUNT - TABLE OF GUARANTEED MINIMUM VALUES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GUARANTEED INTEREST RATE: 3.00%
END OF MINIMUM ACCOUNT SURRENDER
POLICY YEAR VALUE VALUE
----------- --------------- ---------
<S> <C> <C>
1 10,300 9,600
2 10,609 10,009
3 10,927 10,427
4 11,255 10,855
5 11,593 11,293
6 11,941 11,741
7 12,299 12,199
8 12,668 12,668
9 13,048 13,048
10 13,439 13,439
11 13,842 13,842
12 14,258 14,258
13 14,685 14,685
14 15,126 15,126
15 15,580 15,580
16 16,047 16,047
17 16,528 16,528
18 17,024 17,024
19 17,535 17,535
20 18,061 18,061
</TABLE>
VALUES SHOWN ABOVE ARE BASED ON THE ASSUMPTION THAT:
(1) $10,000 Purchase Payment is received and allocated 100% to the Fixed
Account. Purchase Payments shown are net of premium taxes due, if any;
and
(2) there are no additional Purchase Payments made; and
(3) there are no withdrawals.
If Purchase Payments are otherwise paid or allocated or if there are
withdrawals, the values will be adjusted in accordance with the provisions of
the Policy.
THE POLICY VALUE of this Policy is equal to the Variable Account Value plus the
Fixed Account Value. Variable Account Values are not guaranteed.
PAGE 4A
<PAGE>
3. AMOUNT OF PROCEEDS
- --------------------------------------------------------------------------------
The proceeds payable by this Policy are:
. Upon the death of the Owner (or the Annuitant if the Owner is not a natural
person) prior to the Annuity Benefit Date, the Death Benefit.
. On the Annuity Benefit Date, the Policy Value.
. On surrender of the Policy prior to the Annuity Benefit Date, the Surrender
Value.
. On or after the Annuity Benefit Date, any proceeds will be determined by
the Annuity Payment Option in effect.
4. PURCHASE PAYMENT PROVISIONS
- --------------------------------------------------------------------------------
ALLOCATION OF PURCHASE PAYMENTS - You may choose to allocate Purchase Payments
to the Investment Divisions of the Variable Account, the Fixed Account, or a
combination thereof. You may choose any whole
percentage from 0% to 100%.
INITIAL PURCHASE PAYMENT- On the Policy Date the initial Net Purchase Payment
will be allocated among the Investment Divisions of the Variable Account and the
Fixed Account according to the allocation percentages you specified in your
application.
ADDITIONAL PURCHASE PAYMENTS - You may make additional Purchase Payments prior
to the Annuity Benefit Date provided they equal or exceed the minimum amount
shown under Policy Data. However, in no event may additional Purchase Payments
be made on or after the Policy Anniversary following the Owner's or any Joint
Owner's 90th birthday (or the Annuitant's 90th birthday if the Owner is not a
natural person). On the date we receive an additional Purchase Payment, the
additional Net Purchase Payment will be allocated according to the allocation
percentages you specified in your application; or if subsequently changed,
according to your instructions currently in effect.
MAXIMUM TOTAL PURCHASE PAYMENTS - Total Purchase Payments may not exceed the
maximum shown under Policy Data, unless we agree.
PAGE 5
<PAGE>
5. DEATH BENEFIT
- --------------------------------------------------------------------------------
OWNER'S DEATH BEFORE THE ANNUITY BENEFIT DATE - If either the Owner or any Joint
Owner dies before the Annuity Benefit Date while the Policy is in force, a Death
Benefit will become payable to the Beneficiary. If there is more than one Owner,
such Owners being natural persons, the Death Benefit is payable
upon the first death of such Owners.
In the event of an Owner's death, the entire Death Benefit proceeds must be
distributed within five years after the date of death. If the Beneficiary
chooses to take any portion of his interest in the Policy as an Annuity,
distributions must commence within one year of the date of death and must be
distributed over his lifetime or over a period not extending beyond his life
expectancy.
If the Beneficiary is the Owner's spouse, then in lieu of receiving the Death
Benefit proceeds, the spouse may elect to continue the Policy in force and be
treated as the original Policy Owner. If the Beneficiary elects to continue the
Policy, the Beneficiary does not have a right to receive the Death Benefit
proceeds and we will increase the Policy Value so that it equals the Death
Benefit, if greater.
ANNUITANT'S DEATH BEFORE THE ANNUITY BENEFIT DATE - If the Annuitant dies before
the Annuity Benefit Date while the Policy is in force, and the Owner is also the
Annuitant or if the Owner is not a natural person, the death will be treated as
the death of an Owner and the Death Benefit will be payable to the Beneficiary
in accordance with the Owner's Death Before the Annuity Benefit Date Provision.
If the Annuitant dies before the Annuity Benefit Date while the Policy is in
force, and the Owner is a natural person other than the Annuitant, you may name
a new Annuitant, subject to our Age limitations, and the Death Benefit will not
be payable. If you do not name a new Annuitant, you will automatically become
the Annuitant and the Death Benefit will not be payable.
OWNER'S DEATH AFTER THE ANNUITY BENEFIT DATE - If either the Owner or any Joint
Owner dies after the Annuity Benefit Date and before the entire interest in the
Policy is distributed, the remaining portion of such interest will be
distributed at least as rapidly as under the method of distribution being
used on the date of death.
ANNUITANT'S DEATH AFTER THE ANNUITY BENEFIT DATE - If the Annuitant dies after
the Annuity Benefit Date, the amount payable, if any, will be as provided in the
Annuity Payment Option then in effect.
DEATH BENEFIT - The amount of the Death Benefit payable will be the greatest of:
1. the Policy Value; or
2. the total Purchase Payments made, adjusted for any amounts withdrawn and
any withdrawal charges on the amounts withdrawn; or
3. the highest of the Policy Values as of the 5th Policy Anniversary, and
every 5/th/ Policy Anniversary thereafter prior to the Policy Anniversary
following the Owner's or any Joint Owner's 90/th/ birthday (or the
Annuitant's 90/th/ birthday if the Owner is not a natural person). Purchase
Payments made after the Policy Anniversary having the highest Policy Value
will be added to the Death Benefit, and adjustments will be made for any
amounts withdrawn and any withdrawal charges on amounts withdrawn since
that Policy Anniversary.
The Death Benefit under (3) above will not increase on or after the Policy
Anniversary following the Owner's or any Joint Owner's 90/th/ birthday (or
the Annuitant's 90/th/ birthday if the Owner is not a natural person).
Adjustments for any withdrawal and withdrawal charges will reduce the Death
Benefit in the same proportion that the amount reduced the Policy Value on
the date of withdrawal.
We will compute the amount of the Death Benefit as of the date the Death
Benefit is paid or applied under one of the Annuity Payment Options.
PAYMENT OPTIONS - The Death Benefit may be paid in a lump sum, or under one of
the Annuity Payment Options.
PAGE 6
<PAGE>
6. OWNER AND BENEFICIARY
- --------------------------------------------------------------------------------
OWNER - The original Owner of this Policy is as shown in the application. Unless
you provide otherwise, you may exercise all rights granted by this Policy during
your lifetime. If there is more than one Owner at a given time, all must
exercise the rights of Ownership by joint action.
BENEFICIARY - The Beneficiary is the person, persons or entity entitled to Death
Benefit proceeds under this Policy upon the death of the Owner (or upon death of
the Annuitant if the Owner is not a natural person). If the Policy does not have
Joint Owners, the Beneficiary is as shown in the application, unless
subsequently changed. If the Policy has Joint Owners and one Owner dies, the
surviving Joint Owner will be deemed the Beneficiary. If no Beneficiary is
living at the death of the Owner (or the Annuitant if the Owner is not a natural
person) the proceeds will be paid to the deceased's estate.
After the Annuity Benefit Date, the Payment Option Beneficiary is the person,
persons or entity entitled to receive the amount payable upon death of the
Annuitant, if any, as provided in the Annuity Payment Option then in effect.
CHANGE IN POLICY OWNER AND BENEFICIARIES - Unless you provide otherwise in
writing to us, you may change the Owner, Beneficiary or Payment Option
Beneficiary during your lifetime. A change of ownership will be subject to our
Age limitations and may result in adverse tax consequences. Changes must be made
by written request filed with us. The change will take effect on the date the
request was signed, but it will not apply to payments made by us before we
accept the request in writing. You should consult your tax advisor prior to
making any change.
ASSIGNMENT - You may assign this Policy. However, no assignment will bind us
until it is filed in writing at our Home Office. When it is filed, your rights
and the rights of any Beneficiary will be subject to it. Assignment of this
policy may result in adverse tax consequences. You should consult your tax
advisor prior to making any assignment. We will not be responsible for the
validity of any assignment.
7. GENERAL PROVISIONS
- --------------------------------------------------------------------------------
THE CONTRACT - This Policy, including the application, is the entire contract
between you and us. Any change must be made in writing by one of our officers.
All statements in the application are representations and not warranties. No
statement shall be used to void this Policy or to defend against a claim unless
contained in the application.
PAYMENT OF BENEFITS - All benefits are payable at our Home Office. We may
require you to submit this Policy before we approve changes or pay benefits.
ERRORS IN AGE OR SEX - If the Annuitant's Age or sex is misstated, the benefits
under this Policy will be those the Purchase Payments paid would have purchased
at the correct Age and sex.
INCONTESTABILITY - This Policy will not be contested.
EVIDENCE OF SURVIVAL - Where any payments under this Policy depend on the
recipient being alive, we may require proof of survival prior to making the
payments.
STATE LAWS - This Policy is governed by the law of the state in which it is
delivered. The values and benefits of this Policy are at least equal to those
required by such state.
ANNUAL REPORT - At least once a year prior to the Annuity Benefit Date, we will
send you a report which shows the following information:
1. the current Policy Value (Variable Account Value plus Fixed Account Value);
2. all Purchase Payments since the last report;
3. all charges since the last report;
4. all withdrawals since the last report;
5. the current Surrender Value; and
6. the current Death Benefit.
PAGE 7
<PAGE>
8. ANNUITY PROVISIONS
- --------------------------------------------------------------------------------
ANNUITY BENEFIT DATE - The Annuity Benefit Date is shown under Policy Data,
unless changed. It may be the first day of any calendar month commencing 30 days
after the Policy Date.
CHANGE OF ANNUITY BENEFIT DATE - You may change the Annuity Benefit Date, if:
1. you tell us in writing; and 2. you tell us at least 30 days prior to the new
date.
ANNUITY PAYMENTS - On the Annuity Benefit Date the Policy Value, less any
premium taxes, may be applied to make Fixed Annuity Payments, Variable Annuity
Payments, or a combination thereof.
ANNUITY PAYMENT OPTIONS - You may choose one or more of the following forms of
Annuity Payment. We may send you a supplemental contract which provides the
Annuity Payments.
Option 1: Life Annuity With No Guaranteed Period - This provides Annuity
Payments during the lifetime of the Annuitant. No payment will be made after the
death of the Annuitant.
Option 2: Joint Life Annuity Continuing To The Survivor - This provides
Annuity Payments during the lifetime of the Annuitant and a Joint Annuitant.
Full payments will continue to the survivor during the survivor's remaining
lifetime. You may also elect for payments to the survivor to reduce to two-
thirds or one-half of the amount payable at the time of the first death. This
election must be made at the Annuity Benefit Date, and will result in a higher
initial Annuity Payment.
Option 3: Life Annuity With Monthly Payments Guaranteed - This provides Annuity
Payments during the lifetime of the Annuitant. Various guaranteed periods from
60 months to 360 months are available. If the Annuitant dies prior to the end of
this guaranteed period, payments will be made to the Payment Option Beneficiary
until the end of the guaranteed period.
Option 4: Any Form of Annuity Satisfactory to Both us and the Owner - Selection
of the Annuity Payment Option must be made by written request to us at least 30
days prior to the Annuity Benefit Date. If the Annuity Payment Option selected
is for a Fixed Period, of less than the remaining period of withdrawal charges,
we reserve the right to deduct withdrawal charges, if any, from the amount of
proceeds to be applied to the Annuity Payment Option.
If the net amount to be applied to an option is less than $3,000, we have the
right to pay such amount in one sum. Also, if any initial payment would be less
than $50, we have the right to change the frequency of payment to an interval
that will result in payments of at least $50.
FIXED ANNUITY PAYMENTS - Fixed Annuity Payments provide guaranteed Annuity
Payments which remain fixed in amount throughout the payment period. Fixed
Annuity Payments do not vary with the investment experience of the Investment
Divisions of the Variable Account. The amount for each $1,000 of proceeds
applied to make Fixed Annuity Payments will be based on our Fixed Annuity
Payment rates in effect on the Annuity Benefit Date for the Annuity Payment
Option chosen. For any Annuity Payment Option, these rates are guaranteed to be
greater than or equal to payment rates based on the Annuity 2000 Mortality Table
with interest at 3%. Guaranteed rates for certain Annuity Payment Options are
shown in the Annuity Tables. Where required by law, unisex tables will be used.
VARIABLE ANNUITY PAYMENTS - Variable Annuity Payments vary in amount depending
on the investment experience of the Investment Divisions selected. The amount
payable for the first Variable Annuity Payment for each $1,000 of proceeds
applied will be determined based on the Annuity 2000 Mortality Table with
interest at 4%, and the Annuity Payment Option chosen. The dollar amount of the
Variable Annuity Payments after the first is not fixed. It may change from
payment to payment. The dollar amount of such payments is determined as follows:
1. the dollar amount of the first Annuity Payment for each Investment Division
is divided by the value of the Annuity Unit for the Annuity Benefit Date. This
result establishes the number of Annuity Units for Annuity Payments after the
first. This number of Annuity Units remains fixed during the Annuity Payment
period unless subsequently changed by transfers.
2. the number of Annuity Units is multiplied by the value of the Annuity Unit
for the Annuity Payment date. This result establishes the dollar amount of the
payment for the Investment Division.
The total payment is the sum of the payments for all Investment Divisions. We
guarantee that the dollar amount of each payment after the first will not be
affected by variations in expenses or mortality experience.
PAGE 8
<PAGE>
ANNUITY TABLES
- -------------------------------------------------------------------------------
GUARANTEED JOINT AND FULL SURVIVOR MONTHLY ANNUITY PAYMENTS
PER $1,000 PROCEEDS APPLIED
- ------------------------------------------------------------------------------
MALE FEMALE AGE
AGE 50 55 60 65 70
50 3.53 3.65 3.76 3.86 3.93
55 3.61 3.77 3.94 4.08 4.21
60 3.68 3.88 4.10 4.32 4.51
65 3.73 3.97 4.25 4.55 4.84
70 3.76 4.04 4.36 4.74 5.16
- ------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------
GUARANTEED MONTHLY LIFE ANNUITY PAYMENTS PER $1,000 PROCEEDS APPLIED
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GUARANTEED PERIOD GUARANTEED PERIOD
----------------- -----------------
MALE 120 240 FEMALE 120 240
AGE NONE MONTHS MONTHS AGE NONE MONTHS MONTHS
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
40 3.54 3.53 3.50 40 3.38 3.37 3.35
41 3.58 3.57 3.53 41 3.41 3.41 3.39
42 3.63 3.62 3.57 42 3.45 3.44 3.42
43 3.67 3.66 3.62 43 3.49 3.48 3.46
44 3.72 3.71 3.66 44 3.53 3.52 3.50
45 3.78 3.76 3.70 45 3.57 3.57 3.54
46 3.83 3.81 3.75 46 3.62 3.61 3.58
47 3.89 3.87 3.80 47 3.67 3.66 3.62
48 3.95 3.92 3.85 48 3.72 3.71 3.66
49 4.01 3.98 3.90 49 3.77 3.76 3.71
50 4.08 4.05 3.95 50 3.83 3.81 3.76
51 4.15 4.11 4.00 51 3.89 3.87 3.81
52 4.22 4.18 4.06 52 3.95 3.93 3.86
53 4.30 4.25 4.12 53 4.01 3.99 3.92
54 4.38 4.33 4.18 54 4.08 4.06 3.97
55 4.46 4.41 4.24 55 4.15 4.13 4.03
56 4.55 4.49 4.30 56 4.23 4.20 4.09
57 4.65 4.58 4.36 57 4.31 4.28 4.15
58 4.75 4.68 4.43 58 4.40 4.36 4.22
59 4.86 4.78 4.49 59 4.49 4.45 4.28
60 4.98 4.88 4.56 60 4.59 4.54 4.35
61 5.10 4.99 4.62 61 4.69 4.63 4.42
62 5.23 5.10 4.69 62 4.80 4.73 4.49
63 5.37 5.23 4.75 63 4.92 4.84 4.57
64 5.52 5.35 4.82 64 5.04 4.95 4.64
65 5.69 5.48 4.88 65 5.18 5.07 4.71
66 5.86 5.62 4.94 66 5.32 5.20 4.78
67 6.04 5.77 5.00 67 5.47 5.33 4.85
68 6.24 5.92 5.06 68 5.64 5.47 4.92
69 6.45 6.07 5.11 69 5.82 5.62 4.99
70 6.67 6.23 5.16 70 6.01 5.78 5.05
71 6.90 6.39 5.21 71 6.21 5.94 5.11
72 7.16 6.56 5.25 72 6.44 6.11 5.17
73 7.43 6.73 5.29 73 6.68 6.29 5.22
74 7.71 6.90 5.33 74 6.94 6.48 5.27
75 8.02 7.08 5.36 75 7.22 6.67 5.31
76 8.35 7.25 5.39 76 7.52 6.86 5.35
77 8.70 7.43 5.41 77 7.85 7.06 5.38
78 9.08 7.61 5.43 78 8.21 7.26 5.40
79 9.48 7.78 5.45 79 8.60 7.46 5.43
80 9.91 7.95 5.46 80 9.02 7.66 5.45
81 10.37 8.11 5.47 81 9.47 7.86 5.46
82 10.86 8.27 5.48 82 9.96 8.05 5.48
83 11.38 8.42 5.49 83 10.50 8.23 5.49
84 11.94 8.56 5.50 84 11.07 8.40 5.49
85 12.54 8.69 5.50 85 11.69 8.55 5.50
86 13.17 8.81 5.51 86 12.36 8.70 5.50
87 13.85 8.92 5.51 87 13.08 8.83 5.51
88 14.56 9.02 5.51 88 13.84 8.95 5.51
89 15.32 9.12 5.51 89 14.65 9.05 5.51
90 16.12 9.20 5.51 90 15.50 9.15 5.51
</TABLE>
PAGE 9
<PAGE>
9. WITHDRAWALS
- -------------------------------------------------------------------------------
HOW WITHDRAWALS MAY BE MADE - Prior to the earlier of the Annuity Benefit Date
or the death of the Owner (or the Annuitant if the Owner is not a natural
person), you may make withdrawals from the Policy Value.
A withdrawal will be made from the Investment Divisions of the Variable Account
and from the Fixed Account in the same proportion that their values bear to the
total Policy Value, unless you instruct us otherwise.
WITHDRAWAL LIMITS - A withdrawal may not be less than $250.
The remaining Policy Value must not be less than $2,000 after a withdrawal. If
the remaining Policy Value would be less than this $2,000, we will treat the
request for withdrawal as a request for surrender of the Policy for the full
Surrender Value.
FREE WITHDRAWALS - Each Policy Year you may withdraw the Free Withdrawal Amount
without a withdrawal charge. The Free Withdrawal Amount is equal to the greatest
of:
1. 12% of the cumulative Purchase Payments; or
2. 100% of Earnings. Earnings are the amount by which Policy Value exceeds the
sum of the Purchase Payments you have made.
You may request up to 12 withdrawals per Policy Year without a transaction
charge. Any automatic partial withdrawals will not be charged a transaction
charge.
CHARGES IF YOU EXCEED FREE WITHDRAWAL LIMITS -
1. After the 12th withdrawal in a Policy Year, a transaction charge may apply
to each additional withdrawal. The transaction charge will be equal to the
lesser of $20 or 2% of the amount withdrawn.
2. After the Free Withdrawal Amount has been withdrawn in a Policy Year,
withdrawal charges may apply to additional withdrawals. The withdrawal charge is
determined by multiplying each Purchase Payment included in the withdrawal by
the withdrawal charge rate for the number of full years elapsed since the date
of receipt of each Purchase Payment. The withdrawal charge rates are as shown in
the Policy Data.
For purposes of calculating the withdrawal charge:
1. amounts withdrawn up to the Free Withdrawal Amount will not be considered a
withdrawal of Purchase Payments;
2. the oldest Purchase Payments will be treated as the first withdrawn and
newer Purchase Payments next; and
3. if the Surrender Value is withdrawn, the withdrawal charge will apply to all
Purchase Payments not previously assessed with a withdrawal charge.
Maximum Amount of Withdrawal Charges - After the sum of all withdrawal amounts
on which you have paid withdrawal charges equals the cumulative Purchase
Payments, further withdrawals will not be subject to withdrawal charges, unless
subsequent Purchase Payments are made.
10. TERMINATION OF POLICY
- -------------------------------------------------------------------------------
The Policy will terminate if:
1. the Surrender Value is withdrawn prior to the Annuity Benefit Date; or
2. the total benefits of this Policy have been paid and there is no remaining
Surrender Value.
If you make no Purchase Payments during a 24 month period and your previous
Purchase Payments total less than $2,000, then we have the right to pay you the
total Policy Value in a lump sum. We will, however, give you 30 days notice
before exercising this right. If the total Policy Value is paid out under this
provision, the Policy will terminate.
PAGE 10
<PAGE>
11. FIXED ACCOUNT
- --------------------------------------------------------------------------------
You may choose to allocate all or a portion of your Purchase Payments to the
Fixed Account.
INTEREST RATES - The Guaranteed Interest Rate is shown on page 4A of the Policy.
This interest rate is the minimum effective annual rate at which interest will
be credited to amounts allocated to the Fixed Account of your Policy. The
Company may credit interest to the Fixed Account of your Policy at a rate
greater than the Guaranteed Interest Rate. Any interest credited to the Fixed
Account of your Policy in excess of the Guaranteed Interest Rate will be
determined at the sole discretion of the Company.
FIXED ACCOUNT VALUE - At the end of any Valuation Period, the Fixed Account
Value is equal to:
a. the Fixed Account Value at the end of the previous Valuation Period; plus
b. the sum of all Net Purchase Payments allocated to the Fixed Account
during the current Valuation Period; plus
c. any amounts transferred from the Variable Account to the Fixed Account
during the current Valuation Period; plus
d. total interest credited to the Fixed Account during the current
Valuation Period; minus
e. any amounts transferred from the Fixed Account to the Variable Account
during the current Valuation Period; minus
f. the portion of any withdrawals, withdrawal charges, and transaction charges
allocated to the Fixed Account during the current Valuation Period; minus
g. the portion of any Annual Contract Maintenance Charge and premium taxes
allocated to the Fixed Account during the current Valuation Period.
The Annual Contract Maintenance Charge will only be deducted from the Fixed
Account Value to the extent interest has been credited to the Fixed Account in
excess of the Guaranteed Interest Rate during the preceding Policy Year.
12. VARIABLE ACCOUNT
- --------------------------------------------------------------------------------
VARIABLE ACCOUNT VALUE - The Variable Account Value is the sum of the values of
the Investment Divisions under this Policy. Those available as of the Policy
Date are shown under Policy Data.
On the Policy Date, the value of the Investment Divisions is equal to the
initial Net Purchase Payment allocated to the Investment Divisions of the
Variable Account.
On any Valuation Date thereafter, the value of each Investment Division is equal
to:
a. the value of the Investment Division on the preceding Valuation Date,
multiplied by the appropriate Net Investment Factor (described in Investment
Divisions Provision) for the current Valuation Period; plus
b. the amount of any Net Purchase Payments allocated to the Investment Division
during the current Valuation Period; plus
c. the amount of any transfers from other Investment Divisions or from the
Fixed Account to the Investment Division during the current Valuation Period;
minus
d. the amount of any withdrawals, withdrawal charges, and transaction
charges from the Investment Division during the current Valuation Period; minus
e. the amount of any transfers to other Investment Divisions or to the Fixed
Account from the Investment Division during the current Valuation Period; minus
f. the portion of any Annual Contract Maintenance Charge allocated to the
Investment Division during the current Valuation Period; minus
g. the portion of any deduction for premium taxes allocated to the Investment
Division during the current Valuation Period.
PAGE 11
<PAGE>
13. INVESTMENT DIVISIONS
- ------------------------------------------------------------------------------
THE INVESTMENT DIVISIONS - Each of the Investment Divisions is part of a
Variable Account of ours. The Variable Account and the Investment Divisions
available as of the Policy Date are named under Policy Data. From time to time,
we may allocate a part of our assets for this and certain other policies to the
Investment Divisions. Such assets remain our property. They cannot be charged,
however, with liabilities from any other business in which we may take part.
ALLOCATIONS TO, AND INVESTMENTS OF THE INVESTMENT DIVISIONS - Purchase payments,
transfers, and withdrawals will be allocated as you specify. All other additions
to or deductions from the Investment Divisions will be allocated as described in
the Policy Data and in the Charges and Deductions Provision. Each Investment
Division will buy or sell shares or units of the investment portfolio shown for
that Investment Division under Policy Data or as later added or changed.
DETERMINING INVESTMENT RESULTS - The Variable Account Value will change due to
the investment results of the Investment Divisions. We use an index to measure
these changes in investment results. The index is called a unit value. Each
Investment Division has its own Accumulation Unit Value and Annuity Unit Value.
ACCUMULATION UNIT VALUE - For each Investment Division the Accumulation Unit
Values were initially set at $10.00. Thereafter, the unit value for a given
Valuation Period is equal to the unit value for the prior Valuation Period
multiplied by the Net Investment Factor for the given Valuation Period.
At the end of any Valuation Period, the value of an Investment Division is equal
to the number of units multiplied by the unit value. Any time there is an
addition to or deduction from an Investment Division, units are purchased or
sold. The number of units so purchased or sold is equal to the dollar amount of
the transaction divided by the unit value for the transaction date.
ANNUITY UNIT VALUE - For each Investment Division the Annuity Unit Values were
initially set at $10.00. Thereafter, the unit value for a given Valuation Period
is equal to the unit value for the prior Valuation Period multiplied by (1)
times (2) where: (1) is the Net Investment Factor for the given Valuation
Period; and (2) is an interest factor which neutralizes the assumed investment
rate of 4.0% per year, which is built into the initial payment calculation. The
daily factor is .99989255.
NET INVESTMENT FACTOR/HOW IT IS DETERMINED - The Net Investment Factor is an
index applied to measure the investment performance of an Investment Division
from one Valuation Period to the next. The Net Investment Factor may be greater
or less than one; therefore, the value of a unit may increase or decrease.
The Net Investment Factor of an Investment Division for any Valuation Period is
determined by dividing (1) by (2) and subtracting (3) from the result, where:
(1) is the result of:
a. the net asset value per Portfolio share held in the Investment
Division, determined at the end of the current Valuation Period; plus
b. the per share amount of any dividend or capital gain distributions
on the Portfolio shares held in the Investment Division, if the "ex-dividend"
date occurs during the current Valuation Period; plus or minus
c. a charge or credit for any taxes reserved for the current
Valuation Period which we determine to have resulted from the investment
operations of the Investment Division;
(2) is the result of:
a. the net asset value per Portfolio share held in the Investment
Division, determined at the end of the last prior Valuation Period; plus or
minus
b. the charge or credit for any taxes reserved for the last prior
Valuation Period;
(3) is a deduction for the Mortality and Expense Risk Charge and the
Administration Fee shown in the Policy Data.
PAGE 12
<PAGE>
13. INVESTMENT DIVISIONS (CONTINUED)
- --------------------------------------------------------------------------------
CHANGES IN THE INVESTMENT DIVISIONS - This would happen if laws or regulations
changed, we added Investment Divisions, the mutual fund portfolio became
unavailable or, in our judgment, the mutual fund portfolio was no longer
suitable for the Investment Divisions. If any of these situations occurred, we
would have the right to add or substitute investments other than those shown
under Policy Data. We would first seek approval of the Securities and Exchange
Commission and, where required, the insurance regulator of the state where this
Policy is delivered.
OTHER CHANGES - To the extent permitted by applicable laws and regulations
(including any order of the SEC), we may make changes as follows:
1. The Variable Account may be operated as a management company under the
Investment Company Act of 1940, or in any other form permitted by law, if we
deem it to be in the best interest of the Policy Owners.
2. The Variable Account may be deregistered under the Investment Company Act
of 1940 in the event registration is no longer required.
3. The Variable Account may be combined with other separate investment
accounts.
4. The provisions of this and other policies may be modified to comply
with any other applicable federal or state laws; or to take advantage of any
benefits allowed by changes in applicable laws.
In the event of such changes, we may make appropriate endorsement on this and
other policies having an interest in the Variable Account and take other actions
as may be necessary to effect such a change.
14. CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
ANNUAL CONTRACT MAINTENANCE CHARGE - The Annual Contract Maintenance Charge is
shown in the Policy Data. This charge partially compensates us for expenses
incurred in administering the Policy. This charge will be deducted from the
Investment Divisions of the Variable Account and from the Fixed Account in the
same proportion that their values bear to the total Policy Value. The Annual
Contract Maintenance Charge will only be deducted from the Fixed Account Value
to the extent interest has been credited to the Fixed Account in excess of the
Guaranteed Interest Rate during the preceding Policy Year. We will deduct this
charge annually on each Policy Anniversary. This charge will also be deducted if
the Policy is surrendered. We will waive this charge on any Policy Anniversary
on which the Policy Value equals or exceeds $25,000. This charge will not be
deducted from any Annuity Payments after the Annuity Benefit Date.
ADMINISTRATION FEE - This is a deduction from each of the Investment Divisions
of the Variable Account, computed on a daily basis starting on the Policy Date.
This fee partially compensates us for expenses incurred in administering the
Policy. The daily deduction rate is shown in the Policy Data.
MORTALITY AND EXPENSE RISK CHARGE DEDUCTION - This is a deduction from each
of the Investment Divisions of the Variable Account, computed on a daily basis
starting on the Policy Date. This charge compensates us for the mortality and
expense risks assumed by us under this Policy. The daily deduction rate is shown
in the Policy Data.
DEDUCTION FOR PREMIUM TAXES - Any premium taxes levied by a state or other
government entity will be charged against the Purchase Payments or Policy Value
when they are incurred. Depending on state and local law, premium taxes can be
incurred when a Purchase Payment is accepted, when the Policy Value is withdrawn
or surrendered, or when Annuity Payments start. Premium taxes will be deducted
as incurred from the Investment Divisions of the Variable Account and the Fixed
Account in the same proportion that their values bear to the total Policy Value.
PAGE 13
<PAGE>
15. TRANSFERS
- --------------------------------------------------------------------------------
TRANSFERS OF THE POLICY VALUE - By written request or other request acceptable
to us, you may transfer all or a part of the values held in the variable
Investment Divisions to one or more of the other variable Investment Divisions
or to the Fixed Account up to twelve times in a Policy Year.
You may transfer all or a part of the values held in the Fixed Account to one or
more of the Investment Divisions of the Variable Account once per Policy Year.
This restriction will not apply to automatic transfers of a preselected dollar
amount from the Fixed Account to a variable Investment Division. However, if a
transfer is made from the Fixed Account to a variable Investment Division, we
reserve the right to prohibit transfers from the variable Investment Division to
the Fixed Account for six months from the transfer date.
We reserve the right to limit the amount transferred from the Fixed Account to a
variable Investment Division to the greater of: (a) 25% of the prior Policy
Anniversary's Fixed Account Value; or (b) the amount of the prior Policy Year's
transfer.
The value remaining in the variable Investment Division or the Fixed Account
after a transfer must not be less than $250. If the value remaining would be
less than $250, we will treat the transfer request as a request for a transfer
of the total value.
We may further suspend or modify this transfer privilege at any time with the
necessary approval of the Securities and Exchange Commission.
TRANSFERS OF ANNUITY UNITS - During the Annuity Payment period, the Annuitant
may transfer Annuity Units among the variable Investment Divisions and the Fixed
Account by written request to us, subject to the following limitations:
1. Transfers will be made as of the next Annuity Payment date.
2. Transfers may cause the number of Annuity Units to change, but will not
change the dollar amount of the Annuity Payment as of the transfer date.
3. Transfers of Annuity Units among the variable Investment Divisions, or
from the variable Investment Divisions to the Fixed Account, are allowed once
per Policy Year.
4. Transfers of Annuity Units from the Fixed Account to the variable
Investment Divisions are not allowed.
16. DELAY OR SUSPENSION OF PAYMENTS
- --------------------------------------------------------------------------------
We will normally pay the withdrawal amount or the Surrender Value within 7 days
after we receive your written request in our Home Office. The Company may defer
payment of any amounts from the Fixed Account for up to six months from the date
of the request to surrender. If the Company defers payment for more than 30
days, the Company will pay interest on the amount deferred. Interest will be
paid at a rate not less than the Guaranteed Interest Rate shown on page 4A.
We have the right to suspend or delay the date of any payment of any amounts
from any Investment Division of the Variable Account for any period:
1. When the New York Stock Exchange is closed.
2. When trading on the New York Stock Exchange is restricted.
3. When an emergency exists, and as a result:
a. disposal of securities held in the Investment Divisions is not
reasonably practicable; or
b. it is not reasonably practicable to fairly determine the value of
the Investment Divisions; or
4. During any other period when the Securities and Exchange Commission, by
order, so permits for the protection of security holders.
Rules and regulations of the Securities and Exchange Commission will govern as
to whether the conditions set forth in the above items 2 and 3 exist.
PAGE 14
<PAGE>
WAIVER OF WITHDRAWAL CHARGES RIDER
- --------------------------------------------------------------------------------
This Rider is made a part of the Policy to which it is attached. This Benefit is
available for both withdrawals and full Policy surrenders and is subject to all
the provisions of this Rider and this Policy.
BENEFIT - We agree to waive the withdrawal charges described in the Policy in
the event that an Owner (or the Annuitant if the Owner is not a natural person):
1. is confined to a Nursing Home or Hospital, or enrolled in a Hospice Care
Program, subject to the conditions in the Confinement Provision below;
2. is diagnosed by a Physician as having a Terminal Illness, subject to the
conditions in the Terminal Illness Provision below; or
3. is diagnosed with a Total Disability, subject to the conditions in the
Total Disability Provision below.
We will waive only the withdrawal charges which are applicable to Purchase
Payments received prior to the date the first Confinement or Total Disability
began, or the date of diagnosis of Terminal Illness.
DEFINITIONS -
Confinement means admitted as an inpatient to a Nursing Home or Hospital, or
enrolled in a Hospice Care Program as defined below.
Hospice Care Program means a coordinated program of medical and other health
services provided by a duly licensed hospice and in which such services are
provided by someone other than the Owner of the Policy, the Annuitant, or a
member of the Owner's or Annuitant's family.
Hospital means a facility which:
1. is licensed and operates pursuant to law;
2. operates primarily for the care and treatment of sick or injured persons
as inpatients for a charge;
3. provides 24 hour nursing service under the supervision of a Registered
Nurse;
4. is supervised by a staff of licensed Physicians; and
5. has medical, diagnostic and major surgical facilities or has access to
such facility.
Nursing Home means a duly licensed facility providing skilled nursing care under
the supervision of a duly licensed Physician.
Physician means an individual who is licensed to practice medicine and treat
illness or injury in the state in which treatment is received and who is acting
within the scope of that license. Physician does not include (a) the Annuitant;
(b) the Owner; (c) any person who lives with the Annuitant or the Owner; or (d)
a member of the Annuitant's or Owner's immediate family.
<PAGE>
Terminal Illness means an imminent death expected as a result of a
noncorrectable medical condition that is diagnosed by a Physician:
1. on or after the Policy Date and while this Policy and Rider are in force;
and
2. with reasonable medical certainty that the death of the Owner will occur
within 12 months from the date of the Physician's statement.
Total Disability means that the Owner, as a result of bodily injury or disease,
is unable to work at any occupation for which the Owner is qualified by
education, training or experience, with due regard to the Owner's vocation and
earnings prior to disability.
Total Disability also means the complete and irrevocable loss of sight in both
eyes, loss of the use of both hands or both feet, or one hand and one foot.
CONFINEMENT PROVISION - We agree to waive the withdrawal charges described in
the Policy in the event the Owner is confined to a Nursing Home or Hospital, or
enrolled in a Hospice Care Program, provided that:
1. this Policy was in force at least one year at the time the Confinement
began;
2. the Owner was Age 75 or younger on the Policy Date;
3. the Owner has been continuously confined for at least 60 days;
4. we receive written notice and satisfactory Proof of Confinement, as
described below;
5. the Hospital or Nursing Home in which the Owner is confined is as
described in Definitions above; and
6. such Confinement was recommended by a Physician due to an injury,
sickness, or disease.
Confinements Not Covered - This Rider does not cover the following Confinements:
1. Confinement in a community living center or a place that primarily
provides domiciliary, residency, or retirement care;
2. Confinement in a facility primarily used for the treatment of mental
disease or disorders, drug addiction, or alcoholism; or
3. Confinement due to intentionally self-inflicted injuries.
Proof of Confinement - Written notice and satisfactory Proof of the Owner's
Confinement in a Hospital or Nursing Home or enrollment in a Hospice Care
Program means a bill or statement from the facility or program showing the dates
of Confinement. This notice must be received by us within 90 days after
Confinement ends.
TERMINAL ILLNESS PROVISION - We agree to waive the withdrawal charges described
in the Policy in the event the Owner is diagnosed with a Terminal Illness,
provided that we receive due Proof of Terminal Illness as described below.
Proof of Terminal Illness - Written proof of the Owner's Terminal Illness must
be received by us within 90 days after the date of diagnosis. This Proof must
include a properly completed Claim Form and a written Physician's statement
signed by the Physician, in a form acceptable to us. We may request additional
medical information from the Physician submitting the statement.
TOTAL DISABILITY PROVISION - We agree to waive the withdrawal charges described
in the Policy
<PAGE>
while the Owner is Totally Disabled provided that:
1. we receive due Proof of Total Disability of the Owner, as described below;
2. the Total Disability has existed continuously for at least six months;
3. this Rider and the Policy are in force at the time Total Disability begins;
and
4. the Policy Anniversary coinciding with or next following the Owner's 60/th/
birthday has not passed at the time Total Disability begins.
Proof of Total Disability - Before any withdrawal, we must receive written Proof
of Total Disability at our Home Office. This Proof must include a written
Physician's statement signed by the Physician, in a form acceptable to us. We
may request additional medical information from the Physician submitting the
statement.
Total Disability Risks Not Covered - No withdrawal charge will be waived if
Total Disability results from an intentionally self-inflicted injury.
TERMINATION - This Rider will terminate on the earlier of the date the Policy is
surrendered, terminated, or exchanged, when all Policy Value has been withdrawn
or applied to make Annuity Payments.
UNITED INVESTORS LIFE INSURANCE COMPANY
Secretary President
<PAGE>
UNITED INVESTORS LIFE
Home Office
2001 Third Avenue South
P.O. Box 10287 Birmingham, AL 35202-0287
800-340-3787
DEFERRED VARIABLE ANNUITY POLICY
Annuity payments begin on the Annuity Benefit
Date. Death Benefit payable prior to the Annuity Benefit Date.
Purchase Payments are flexible, subject to the limits described
herein. This Policy is nonparticipating. Dividends are not payable.
<PAGE>
Application
<PAGE>
APPLICATION FOR VARIABLE ANNUITY POLICY United Investors Life Ins. Co.
(Please Print or Type) P.O. Box 10287
Birmingham, AL 35202-0287
<TABLE>
<S> <C> <C>
1. POLICY
OWNER: _____________________________________ _______________________________
Name (First) (Middle) (Last) Social Security No.
Maximum
____________________________ ____________________
Issue Age: DOB (Mo./Day/Yr.) Age (Last Birthday) Sex: ( ) M ( ) F
90 ____________________________________________ ____________________________
Street Address (Area Code) Telephone Number
____________________________________________
City State Zip
2. POLICY ________________________________________ ___________________________________
OWNER: Name (First) (Middle) (Last) Social Security No. or Taxpayer ID
Complete, if
other than ____________________________ ___________________
Annuitant in DOB (Mo./Day/Yr.) Age (Last Birthday) Sex: ( ) M ( ) F
Section1.
Maximum ____________________________________________ ____________________________
Issue Age: Street Address (Area Code) Telephone Number
90 ______________________________________________
City State Zip
3. JOINT
OWNER: ___________________________________________ _____________________________________
(If Any) Name (First) (Middle) (Last) Social Security No. or Taxpayer ID
Maximum
Issue Age: ____________________________ ___________________
90 DOB (Mo./Day/Yr.) Age (Last Birthday) Sex: ( ) M ( ) F
____________________________________________ ____________________________
Street Address (Area Code) Telephone Number
____________________________________________
City State Zip
____________________________________________
Relationship to Owner
4. BENEFICIARY:
Primary: _________________________________________ __________________________________
Name (First) (Middle) (Last) Social Security No. or Taxpayer ID
____________________________ _______________________________________________
DOB (Mo./Day/Yr.) Relationship to Owner
Contingent: ____________________________________________ __________________________________
Name (First) (Middle) (Last) Social Security No. or Taxpayer ID
____________________________ _______________________________________________
DOB (Mo./Day/Yr.) Relationship to Owner
5. TYPE OF PLAN:
( ) Non-Qualified:
( ) Initial Purchase Payment: $__________(Min. $2,000 or $100 Mo. Bank Draft)
( ) Monthly Bank Draft Purchase Payments: $__________ (Min. $100 Mo./Complete Form U-412-1)
( ) Qualified: (Check appropriate box below)
Tax Year for which Contribution is Being Made____________
( ) IRA ( ) IRA Rollover ( )IRA Transfer ( ) TSA ( ) TSA Transfer
( ) Simplified Employee Pension (Where UIL does not act as custodian.) ( ) Other: _________
( ) Initial Purchase Payment: $__________ (Minimum $1,200 or $100 Mo. Bank Draft or Group Billing)
</TABLE>
<PAGE>
( ) Monthly Bank Draft Purchase Payments: $__________ (Min. $100
Mo./Complete Form U-412-1)
( ) Monthly Group Billing Purchase Payments: $__________ (Min. $100
Mo./Complete Form U-423)
6. Amount Paid with Application: $____________________
7. Annuity Benefit Date: ______________________________ Age____________
(The first of the month after the Annuitant's Age 90, or 10 years from the
Policy Date, if later, will be used unless otherwise indicated here.)
Form U-1528, Ed. 10-99 Page 1
8. Form of Annuity Payments: _________________________________________________
(Life Annuity with 120 monthly payments guaranteed unless otherwise
indicated here.)
9. Replacement:
a. Is policy applied for intended to replace or change existing insurance or
annuities in force? ( ) Yes ( ) No
(If "Yes", give name of company(s) and policy number(s) below and enclose
any required replacement form:)
Company(s) Policy Number(s)
_____________________ _________________________________
_____________________ _________________________________
b. Is this a 1035 exchange? ( ) Yes ( ) No (If "Yes," attach Form U-622)
10. Purchase Payment Allocation: (Whole percentages only)
Asset Strategy __________% Income __________%
Balanced __________% International __________%
Bond __________% Limited-Term Bond __________%
Fixed Account __________% Money Market __________%
Growth __________% Science & Technology __________%
High Income __________% Small Cap __________%
Total 100%
11. ( ) Telephone Transfer Authorization: (If selected, Owner must initial
agreement below.)
I agree to hold United Investors Life harmless from all claims when action
is taken pursuant to a telephone transfer request based on the Owner's name
and Policy number. _____________ (Owner's Initials)
12. ( ) Dollar Cost Averaging: Automatic transfer of a pre-selected amount from
the Fixed Account and/or the Money Market Investment Division to any of the
other Investment Divisions.
Select Transfer Frequency: ( ) Monthly ( ) Quarterly ( ) Semi-Annual
( ) Annual
Enter day of the month transfers are to be made:----------(1st - 28/th/).
If the day selected does not fall on a Valuation Date, transfers will be
made on the next following Valuation Date. Transfers will be made at unit
values determined on the date of each transfer.
Select Transfer Method: (select one)
( ) Dollar Amount: (Total Amount Minimum $100)
( ) Fixed Account $_------- + ( ) Money Market $ -------- = Total
Amount $ -----------------
( ) Percentage Transfer:-------------% (Whole percentages only)
Note: If both accounts are selected, the percentage you specify
will be transferred from each account.
( ) Fixed Account and/or ( ) Money Market
( ) Reduce Account to Zero over Specified Period: Beginning Date: -------
Ending Date:--------
( ) Fixed Account and/or ( ) Money Market
Transfer Amounts To: (If Dollar Amount is selected above, please enter
dollar amounts below with a $25 minimum for each Investment Division
selected. If Percentage Transfer or Reduce Amount to Zero over Specified
period is selected, please enter percentage amounts below. (Percentage
amounts must be entered in whole percentages only and must total 100%.)
Asset Strategy ___________ Income _______
Balanced ___________ International _______
Bond ___________ Limited-Term Bond _______
<PAGE>
Growth _____________ Science & Technology ____________
High Income ____________ Small Cap _____________
13. ( ) Automatic Asset Rebalancing: Automatic rebalancing of the accounts in
your Policy according to your current Purchase Payment Allocation
instructions. If you have selected the Fixed Account and/or Money Market for
Dollar Cost Averaging above, you may not include that account in your
Automatic Asset Rebalancing program.
Select Rebalancing Frequency: ( ) Quarterly ( ) Semi-Annual ( ) Annual
Select Day of Rebalancing: ____________(1/st/- 28/th/)
Form U-1528, Ed. 10-99 Page 2
14. ( ) Interest Sweep: Automatic transfer of interest from the Fixed
Account to any of the other Investment Divisions.
Select Frequency of Transfer: ( ) Monthly ( ) Quarterly ( ) Semi-
Annual ( ) Annual
Transfer To: (Whole percentages only)
Asset Strategy __________% International __________%
Balanced __________% Limited-Term Bond __________%
Bond __________% Money Market __________%
Growth __________% Science & Technology __________%
High Income __________% Small Cap __________%
Income __________%
Total 100%
15. Suitability: Owner's Initials
Is the premium shown less than 20% of your net worth? ( ) Yes ( ) No ____
(If "No," attach Suitability Statement signed by Agent.) ( ) Yes ( ) No ____
I have received a current prospectus for the variable
annuity and any funds selected.
To the best of my knowledge and belief, my answers to the questions on this
Application are correct and true. I agree that this Application shall be a part
of any annuity contract issued to me. I also understand that the Company
reserves the right to reject any Application or Purchase Payment. If this
Application is declined, there shall be no liability on the part of the Company
and any Purchase Payments submitted shall be returned.
I UNDERSTAND THAT THE ANNUITY PAYMENTS AND POLICY VALUE WILL INCREASE OR
DECREASE DEPENDING ON THE INVESTMENT PERFORMANCE OF THE INVESTMENT DIVISIONS
SELECTED.
Signed At _______
______________________________________ Date _______________________
City State (Mo. / Day / Year)
<TABLE>
<S> <C>
_________________________________ _____________________________________________________
Signature of Owner Signature of Proposed Annuitant (If Other than Owner)
_________________________________
Signature of Joint Owner (If Any)
( ) Check Here to Receive a Statement of Additional Information
</TABLE>
Confidential Owner's Information:
1. Age: ________________
2. Occupation: ___________________________________________________
3. Name of Employer: _____________________________________________
4. Employer's Address: ___________________________________________
5. Gross Family Income: $_____________
6. Taxable Income: $_______________
7. Savings/Liquid Assets: $_______________________________________
8. Other Assets (excluding home furnishings, car): $ _____________
<PAGE>
9. Net Worth (Assets minus Liabilities): $______________________
10. Number of Dependents: ___________
11. Are you associated with any member of the National Association of Securities
Dealers (NASD)? ( ) Yes ( ) No
12. Investment Objectives (Mark all that apply): ( ) Retirement Savings
( ) Reserves ( ) Children's College ( ) Income ( ) Other Needs/Goals
(Specify in Special Remarks)
Special Remarks/Consideration:__________________________________________________
___________________________________________________________________________
Form U-1528, Ed. 10-99 Page 3
Agent's Report
Is the proposed Owner/Annuitant a member of your immediate family? ( )Yes ( ) No
Do you know or have reason to believe that replacement of any existing insurance
or annuities is/may be involved? ( )Yes ( ) No
______________________________ _________ ___________ _______ __________
Agent's Name (Please Print) Agent No. Reg/Div No. Date Phone No.
______________________________ _____________________________
Signature of Agent Signature of Division Manager
Form U-1528, Ed. 10-99 Page 4
________________________________________________________________________________
PURCHASE PAYMENT RECEIPT
THE COMPANY DOES NOT INCUR LIABILITY UNDER THIS APPLICATION, OTHER THAN THE
RETURN OF ANY PURCHASE PAYMENTS RECEIVED, UNTIL THE POLICY DATE. ALL CHECKS MUST
BE MADE PAYABLE TO THE COMPANY. DO NOT MAKE CHECK PAYABLE TO THE AGENT OR LEAVE
THE PAYEE BLANK.
______________________ $___________________ _______________________________
Date Amount Paid Agent's Signature
<PAGE>
Opinion of Counsel
<PAGE>
January 10, 2000
The Board of Directors
United Investors Life Insurance Company
2001 Third Avenue South
Birmingham, AL 35233
Gentlemen:
With reference to the Registration Statement for the United Investors
Advantage Gold Variable Account filed on form N-4 (File No. 333-89797) with the
Securities and Exchange Commission covering flexible premium deferred variable
annuity 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 deferred
variable annuity policies by the Division of Insurance of the State
of Missouri.
2. The United Investors Advantage Gold 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 deferred variable annuity policies, when issued
as contemplated by said Form N-4 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 N-4
Registration Statement.
Very truly yours,
/s/ John H. Livingston
John H. Livingston
Secretary and Counsel
<PAGE>
Consent of Sutherland Asbill & Brennan LLP
<PAGE>
January 18, 2000
United Investors Life
Insurance Company
2001 Third Avenue South
Birmingham, AL 35233
RE: United Investors Advantage Gold Variable Account
Form N-4 File No. 333-89797
------------------------------------------------
Gentlemen:
We hereby consent to the reference to our name under the caption
"Legal Matters" in the Statement of Additional Information filed as part of Pre-
Effective Amendment No. 1 to the Registration Statement on Form N-4 filed by
United Investors Life Insurance Company for certain variable annuity policies
(File No. 333-89797). 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
<PAGE>
Consent of KPMG LLP
<PAGE>
Exhibit 10(b)
Accountants' Consent
The Board of Directors of
United Investors Life Insurance Company
We consent to the use of our report dated January 29, 1999, relating to the
balance sheets of United Investors Life Insurance Company as of December 31,
1998 and 1997, and the related statements of operations, comprehensive income,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1998, as contained in Pre-Effective Amendment No. 1 to
Form N-4 for Advantage Gold Variable Account. We also consent to the reference
to our firm under the heading "Experts" in the Statement of Additional
Information.
/s/ KPMG LLP
Birmingham, Alabama
January 21, 2000
<PAGE>
Performance Data Calculations
<PAGE>
EXHIBIT 13
STANDARD AVERAGE ANNUAL TOTAL RETURN CALCULATION
BOND SUBACCOUNT
12.48 YEAR PERIOD (Life of Subaccount) ENDING 12/31/99
<TABLE>
<CAPTION>
A B C D
Value of One Value of One Annual
Accumulation Accumulation Maintenance Standard Average Non-Standard Average*
---------------- --------------------
at Beginning at End Charge Withdrawal
Period of Period of Period Factor Charge ERV(n) T ERV(n) T
------ -------------- ------------- --------- ---------- ------- - ----- -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
07/13/87 to 12/31/87 1.0000000 1.0254729 0.000234 1,025.24
12/31/87 to 12/31/88 1.0254729 1.0868656 0.000500 1,086.10
12/31/88 to 12/31/89 1.0868656 1.1931290 0.000500 1,191.75
12/31/89 to 12/31/90 1.1931290 1.2531851 0.000500 1,251.14
12/31/90 to 12/31/91 1.2531851 1.4251428 0.000500 1,422.19
12/31/91 to 12/31/92 1.4251428 1.5066828 0.000500 1,502.85
12/31/92 to 12/31/93 1.5066828 1.6637307 0.000500 1,658.75
12/31/93 to 12/31/94 1.6637307 1.5428510 0.000500 1,537.40
12/31/94 to 12/31/95 1.5428510 1.8309457 0.000500 1,823.71
12/31/95 to 12/31/96 1.8309457 1.8634118 0.000500 1,855.14
12/31/96 to 12/31/97 1.8634118 2.0124936 0.000500 2,002.63
12/31/97 to 12/31/98 2.0124936 2.1249469 0.000500 2,113.53
12/31/98 to 12/31/99 2.1249469 2.0595300 0.000500 0.00% 2,047.41 5.91% 2,047.41 5.91%
</TABLE>
This calculation uses the formula:
P ( 1 + T ) * n = ERV
Where:
P = A hypothetical initial payment of: $1,000
= ERV(0)
T = Average annual total return
= ((ERV(13)/P) * (1/12.48))-1
n = Number of years
ERV(n) = Ending redeemable value at the end of year n
= ERV(n-1) x ((b/a) - c) for n = 1 to 12
= ERV(12) x ((b/a) - c) - (d x P) for n = 13
Non-Standard Average Annual Total Return *
- ------------------------------------------
The non-standard average annual total return is calculated in the same manner as
the standard average annual total return except that the withdrawal charge
percentage will be assumed to be 0%.
<PAGE>
STANDARD AVERAGE ANNUAL TOTAL RETURN CALCULATION
BOND SUBACCOUNT
FIVE YEAR PERIOD ENDING 12/31/99
<TABLE>
<CAPTION>
A B C D
Value of One Value of One Annual
Accumulation Accumulation Maintenance Standard Average Non-Standard Average *
---------------- ----------------------
at Beginning at End Charge Withdrawal
Period of Period of Period Factor Charge ERV(n) T ERV(n) T
------ --------- --------- ------ ------ ------ - ------ -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/94 to 12/31/95 1.5428510 1.8309457 0.000500 1,186.23
12/31/95 to 12/31/96 1.8309457 1.8634118 0.000500 1,206.67
12/31/96 to 12/31/97 1.8634118 2.0124936 0.000500 1,302.61
12/31/97 to 12/31/98 2.0124936 2.1249469 0.000500 1,374.74
12/31/98 to 12/31/99 2.1249469 2.0595300 0.000500 2.00% 1,311.73 5.58% 1,331.73 5.90%
</TABLE>
This calculation uses the formula:
P ( 1 + T ) * n = ERV
Where:
P = A hypothetical initial payment of: $1,000
= ERV(0)
T = Average annual total return
= ((ERV(5)/P) * (1/5)) -1
n = Number of years
ERV(n) = Ending redeemable value at the end of year n
= ERV(n-1) x ((b/a) - c) for n = 1 to 4
= ERV(4) x ((b/a) - c) - (d x P) for n = 5
Non-Standard Average Annual Total Return *
- -----------------------------------------
The non-standard average annual total return is calculated in the same manner as
the standard average annual total return except that the withdrawal charge
percentage will be assumed to be 0%.
<PAGE>
STANDARD AVERAGE ANNUAL TOTAL RETURN CALCULATION
BOND SUBACCOUNT
ONE YEAR PERIOD ENDING 12/31/99
<TABLE>
<CAPTION>
A B C D
Value of One Value of One Annual
Accumulation Accumulation Maintenance Standard Average Non-Standard Average *
---------------- ----------------------
Unit on Unit on Charge Withdrawal
12/31/98 12/31/99 Factor Charge ERV T ERV T
-------- -------- ------ ------ --- - --- -
<S> <C> <C> <C> <C> <C> <C> <C>
2.1249469 2.0595300 0.000500 6.00% 908.71 -9.13% 968.71 -3.13%
This calculation uses the formula:
P ( 1 + T ) * n = ERV
Where:
P = A hypothetical initial payment of: $1,000
T = Average annual total return
= ((ERV/P) * (1/n)) -1
n = Number of years 1
ERV = Ending redeemable value of the hypothetical initial payment
= P x ((b/a) - c) - (d x P)
</TABLE>
Non-Standard Average Annual Total Return *
- ------------------------------------------
The non-standard average annual total return is calculated in the same manner as
the standard average annual total return except that the withdrawal charge
percentage will be assumed to be 0%.
<PAGE>
STANDARD AVERAGE ANNUAL TOTAL RETURN CALCULATION
BOND SUBACCOUNT
TEN YEAR PERIOD ENDING 12/31/99
<TABLE>
<CAPTION>
A B C D
Value of One Value of One Annual
Accumulation Accumulation Maintenance Standard Average Non-Standard Average*
---------------- ---------------------
at Beginning at End Charge Withdrawal
Period of Period of Period Factor Charge ERV(n) T ERV(n) T
------ --------- --------- ------ ------ ------ - ------ -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/89 to 12/31/90 1.1931290 1.2531851 0.000500 1,049.84
12/31/90 to 12/31/91 1.2531851 1.4251428 0.000500 1,193.36
12/31/91 to 12/31/92 1.4251428 1.5066828 0.000500 1,261.05
12/31/92 to 12/31/93 1.5066828 1.6637307 0.000500 1,391.86
12/31/93 to 12/31/94 1.6637307 1.5428510 0.000500 1,290.04
12/31/94 to 12/31/95 1.5428510 1.8309457 0.000500 1,530.28
12/31/95 to 12/31/96 1.8309457 1.8634118 0.000500 1,556.65
12/31/96 to 12/31/97 1.8634118 2.0124936 0.000500 1,680.41
12/31/97 to 12/31/98 2.0124936 2.1249469 0.000500 1,773.47
12/31/98 to 12/31/99 2.1249469 2.0595300 0.000500 0.00% 1,717.98 5.56% 1,717.98 5.56%
</TABLE>
This calculation uses the formula:
P ( 1 + T ) * n = ERV
Where:
P = A hypothetical initial payment of: $1,000
= ERV(0)
T = Average annual total return
= ((ERV(10)/P) * (1/10)) -1
n = Number of years
ERV(n) = Ending redeemable value at the end of year n
= ERV(n-1) x ((b/a)-c) for n = 1 to 9
= ERV(9) x ((b/a)-c)-(dxP) for n = 10
Non-Standard Average Annual Total Return *
- ------------------------------------------
The non-standard average annual total return is calculated in the same manner as
the standard average annual total return except that the withdrawal charge
percentage will be assumed to be 0%.
<PAGE>
STANDARD AVERAGE ANNUAL TOTAL RETURN CALCULATION
HIGH INCOME SUBACCOUNT
12.48 YEAR PERIOD (Life of Subaccount) ENDING 12/31/99
<TABLE>
<CAPTION>
A B C D
Value of One Value of One Annual
Accumulation Accumulation Maintenance Standard Average Non-Standard Average *
---------------- --------------------
at Beginning at End Charge Withdrawal
Period of Period of Period Factor Charge ERV(n) T ERV(n) T
------ ------------ ------------ -------- ---------- -------- - ----- -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
07/13/87 to 12/31/87 1.0000000 0.9886252 0.000234 988.39
12/31/87 to 12/31/88 0.9886252 1.1159159 0.000500 1,115.16
12/31/88 to 12/31/89 1.1159159 1.0608473 0.000500 1,059.57
12/31/89 to 12/31/90 1.0608473 0.9725976 0.000500 970.90
12/31/90 to 12/31/91 0.9725976 1.2696938 0.000500 1,266.99
12/31/91 to 12/31/92 1.2696938 1.4398353 0.000500 1,436.13
12/31/92 to 12/31/93 1.4398353 1.6622026 0.000500 1,657.21
12/31/93 to 12/31/94 1.6622026 1.5961998 0.000500 1,590.58
12/31/94 to 12/31/95 1.5961998 1.8570352 0.000500 1,849.70
12/31/95 to 12/31/96 1.8570352 2.0549613 0.000500 2,045.92
12/31/96 to 12/31/97 2.0549613 2.3055776 0.000500 2,294.41
12/31/97 to 12/31/98 2.3055776 2.3120522 0.000500 2,299.70
12/31/98 to 12/31/99 2.3120522 2.3693164 0.000500 0.00% 2,355.51 7.11% 2,355.51 7.11%
</TABLE>
This calculation uses the formula:
P ( 1 + T ) * n = ERV
Where:
P = A hypothetical initial payment of: $1,000
= ERV(0)
T = Average annual total return
= ((ERV(13)/P) * (1/12.48)) - 1
n = Number of years
ERV(n) = Ending redeemable value at the end of year n
= ERV(n-1) x ((b/a) - c) for n = 1 to 12
= ERV(12) x ((b/a) - c) - (d x P) for n = 13
Non-Standard Average Annual Total Return *
- ------------------------------------------
The non-standard average annual total return is calculated in the same manner as
the standard average annual total return except that the withdrawal charge
percentage will be assumed to be 0%.
<PAGE>
STANDARD AVERAGE ANNUAL TOTAL RETURN CALCULATION
HIGH INCOME SUBACCOUNT
FIVE YEAR PERIOD ENDING 12/31/99
<TABLE>
<CAPTION>
A B C D
Value of One Value of One Annual
Accumulation Accumulation Maintenance Standard Average Non-Standard Average *
---------------- ----------------------
at Beginning at End Charge Withdrawal
Period of Period of Period Factor Charge ERV(n) T ERV(n) T
------ ---------- ---------- ------ ------ ------ - ------ -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/94 to 12/31/95 1.5961998 1.8570352 0.000500 1,162.91
12/31/95 to 12/31/96 1.8570352 2.0549613 0.000500 1,286.27
12/31/96 to 12/31/97 2.0549613 2.3055776 0.000500 1,442.50
12/31/97 to 12/31/98 2.3055776 2.3120522 0.000500 1,445.83
12/31/98 to 12/31/99 2.3120522 2.3693164 0.000500 2.00% 1,460.92 7.88% 1,480.92 8.17%
</TABLE>
This calculation uses the formula:
P ( 1 + T ) * n = ERV
Where:
P = A hypothetical initial payment of: $1,000
= ERV(0)
T = Average annual total return
= ((ERV(5)/P) * (1/5)) - 1
n = Number of years
ERV(n) = Ending redeemable value at the end of year n
= ERV(n-1) x ((b/a) - c) for n = 1 to 4
= ERV(4) x ((b/a) - c) - (d x P) for n = 5
Non-Standard Average Annual Total Return *
- ------------------------------------------
The non-standard average annual total return is calculated in the same manner as
the standard average annual total return except that the withdrawal charge
percentage will be assumed to be 0%.
<PAGE>
STANDARD AVERAGE ANNUAL TOTAL RETURN CALCULATION
HIGH INCOME SUBACCOUNT
ONE YEAR PERIOD ENDING 12/31/99
<TABLE>
<CAPTION>
A B C D
Value of One Value of One Annual
Accumulation Accumulation Maintenance Standard Average Non-Standard Average *
---------------- ----------------------
Unit on Unit on Charge Withdrawal
12/31/98 12/31/99 Factor Charge ERV T ERV T
-------- -------- ----- ------ --- - --- -
<S> <C> <C> <C> <C> <C> <C> <C>
2.3120522 2.3693164 0.000500 6.00% 964.27 -3.57% 1,024.27 2.43%
This calculation uses the formula:
P ( 1 + T ) * n = ERV
Where:
P = A hypothetical initial payment of: $1,000
T = Average annual total return
= ((ERV/P) * (1/n)) - 1
n = Number of years 1
ERV = Ending redeemable value of the hypothetical initial payment
= P x ((b/a) - c) - (d x P)
</TABLE>
Non-Standard Average Annual Total Return *
- ------------------------------------------
The non-standard average annual total return is calculated in the same manner as
the standard average annual total return except that the withdrawal charge
percentage will be assumed to be 0%.
<PAGE>
STANDARD AVERAGE ANNUAL TOTAL RETURN CALCULATION
HIGH INCOME SUBACCOUNT
TEN YEAR PERIOD ENDING 12/31/99
<TABLE>
<CAPTION>
A B C D
Value of One Value of One Annual
Accumulation Accumulation Maintenance Standard Average Non-Standard Average *
---------------- ----------------------
at Beginning at End Charge Withdrawal
Period of Period of Period Factor Charge ERV(n) T ERV(n) T
------ --------- ---------- ----- ------ ------ - ------ -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/89 to 12/31/90 1.0608473 0.9725976 0.000500 916.31
12/31/90 to 12/31/91 0.9725976 1.2696938 0.000500 1,195.76
12/31/91 to 12/31/92 1.2696938 1.4398353 0.000500 1,355.39
12/31/92 to 12/31/93 1.4398353 1.6622026 0.000500 1,564.04
12/31/94 to 12/31/95 1.5961998 1.8570352 0.000500 1,745.71
12/31/95 to 12/31/96 1.8570352 2.0549613 0.000500 1,930.90
12/31/96 to 12/31/97 2.0549613 2.3055776 0.000500 2,165.42
12/31/97 to 12/31/98 2.3055776 2.3120522 0.000500 2,170.41
12/31/98 to 12/31/99 2.3120522 2.3693164 0.000500 0.00% 2,223.08 8.32% 2,223.08 8.32%
</TABLE>
This calculation uses the formula:
P ( 1 + T ) * n = ERV
Where:
P = A hypothetical initial payment of: $1,000
= ERV(0)
T = Average annual total return
= ((ERV(10)/P) * (1/10)) - 1
n = Number of years
ERV(n) = Ending redeemable value at the end of year n
= ERV(n-1) x ((b/a)-c) for n = 1 to 9
= ERV(9) x ((b/a)-c)-(dxP) for n = 10
Non-Standard Average Annual Total Return *
- ------------------------------------------
The non-standard average annual total return is calculated in the same manner as
the standard average annual total return except that the withdrawal charge
percentage will be assumed to be 0%.
<PAGE>
STANDARD AVERAGE ANNUAL TOTAL RETURN CALCULATION
GROWTH SUBACCOUNT
12.48 YEAR PERIOD (Life of Subaccount) ENDING 12/31/99
<TABLE>
<CAPTION>
A B C D
Value of One Value of One Annual
Accumulation Accumulation Maintenance Standard Average Non-Standard Average *
---------------- --------------------
at Beginning at End Charge Withdrawal
Period of Period of Period Factor Charge ERV(n) T ERV(n) T
------ -------- --------- ------ ------ ----- - ----- -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
07/13/87 to 12/31/87 1.0000000 0.9609019 0.000234 960.67
12/31/87 to 12/31/88 0.9609019 1.0757207 0.000500 1,074.98
12/31/88 to 12/31/89 1.0757207 1.3531842 0.000500 1,351.71
12/31/89 to 12/31/90 1.3531842 1.2622594 0.000500 1,260.21
12/31/90 to 12/31/91 1.2622594 1.6927206 0.000500 1,689.34
12/31/91 to 12/31/92 1.6927206 2.0148857 0.000500 2,010.02
12/31/92 to 12/31/93 2.0148857 2.2625848 0.000500 2,256.12
12/31/93 to 12/31/94 2.2625848 2.2810362 0.000500 2,273.39
12/31/94 to 12/31/95 2.2810362 3.1113614 0.000500 3,099.79
12/31/95 to 12/31/96 3.1113614 3.4413045 0.000500 3,426.96
12/31/96 to 12/31/97 3.4413045 4.1118865 0.000500 4,093.03
12/31/97 to 12/31/98 4.1118865 5.1491461 0.000500 5,123.49
12/31/98 to 12/31/99 5.1491461 6.8025313 0.000500 0.00% 6,766.07 16.56% 6,766.07 16.56%
</TABLE>
This calculation uses the formula:
P ( 1 + T ) * n = ERV
Where:
P = A hypothetical initial payment of: $1,000
= ERV(0)
T = Average annual total return
= ((ERV(13)/P) * (1/12.48)) - 1
n = Number of years
ERV(n) = Ending redeemable value at the end of year n
= ERV(n-1) x ((b/a) - c) for n = 1 to 12
= ERV(12) x ((b/a) - c) - (d x P) for n = 13
Non-Standard Average Annual Total Return *
- ----------------------------------------
The non-standard average annual total return is calculated in the same manner as
the standard average annual total return except that the withdrawal charge
percentage will be assumed to be 0%.
<PAGE>
STANDARD AVERAGE ANNUAL TOTAL RETURN CALCULATION
GROWTH SUBACCOUNT
ONE YEAR PERIOD ENDING 12/31/99
<TABLE>
<CAPTION>
A B C D
Value of One Value of One Annual
Accumulation Accumulation Maintenance Standard Average Non-Standard Average *
Unit on Unit on Charge Withdrawal ---------------- ----------------------
12/31/98 12/31/99 Factor Charge ERV T ERV T
-------- -------- ------ ------ --- - --- -
<S> <C> <C> <C> <C> <C> <C> <C>
5.1491461 6.8025313 0.000500 6.00% 1,260.60 26.06% 1,320.60 32.06%
This calculation uses the formula:
P ( 1 + T ) * n = ERV
Where:
P = A hypothetical initial payment of: $1,000
T = Average annual total return
= ((ERV/P) * (1/n)) -1
n = Number of years 1
ERV = Ending redeemable value of the hypothetical initial payment
= P x ((b/a) - c) - (d x P)
</TABLE>
Non-Standard Average Annual Total Return *
- ------------------------------------------
The non-standard average annual total return is calculated in the same manner as
the standard average annual total return except that the withdrawal charge
percentage will be assumed to be 0%.
<PAGE>
STANDARD AVERAGE ANNUAL TOTAL RETURN CALCULATION
GROWTH SUBACCOUNT
FIVE YEAR PERIOD ENDING 12/31/99
<TABLE>
<CAPTION>
A B C D
Value of One Value of One Annual
Accumulation Accumulation Maintenance Standard Average Non-Standard Average *
---------------- ----------------------
at Beginning at End Charge Withdrawal
Period of Period of Period Factor Charge ERV(n) T ERV(n) T
------ --------- --------- ------ ------ ------ - ------ -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/94 to 12/31/95 2.2810362 3.1113614 0.000500 1,363.51
12/31/95 to 12/31/96 3.1113614 3.4413045 0.000500 1,507.42
12/31/96 to 12/31/97 3.4413045 4.1118865 0.000500 1,800.41
12/31/97 to 12/31/98 4.1118865 5.1491461 0.000500 2,253.68
12/31/98 to 12/31/99 5.1491461 6.8025313 0.000500 2.00% 2,956.21 24.21% 2,976.21 24.37%
</TABLE>
This calculation uses the formula:
P ( 1 + T ) * n = ERV
Where:
P = A hypothetical initial payment of: $1,000
= ERV(0)
T = Average annual total return
= ((ERV(5)/P) * (1/5)) - 1
n = Number of years
ERV(n) = Ending redeemable value at the end of year n
= ERV(n-1) x ((b/a) - c) for n = 1 to 4
= ERV(4) x ((b/a) - c) - (d x P) for n = 5
Non-Standard Average Annual Total Return *
- ------------------------------------------
The non-standard average annual total return is calculated in the same manner as
the standard average annual total return except that the withdrawal charge
percentage will be assumed to be 0%.
<PAGE>
STANDARD AVERAGE ANNUAL TOTAL RETURN CALCULATION
GROWTH SUBACCOUNT
TEN YEAR PERIOD ENDING 12/31/99
<TABLE>
<CAPTION>
A B C D
Value of One Value of One Annual
Accumulation Accumulation Maintenance Standard Average Non-Standard Average *
---------------- ----------------------
at Beginning at End Charge Withdrawal
Period of Period of Period Factor Charge ERV(n) T ERV(n) T
------ --------- --------- ------ ------ ------ - ------ -
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/89 to 12/31/90 1.3531842 1.2622594 0.000500 932.31
12/31/90 to 12/31/91 1.2622594 1.6927206 0.000500 1,249.78
12/31/91 to 12/31/92 1.6927206 2.0148857 0.000500 1,487.02
12/31/92 to 12/31/93 2.0148857 2.2625848 0.000500 1,669.08
12/31/93 to 12/31/94 2.2625848 2.2810362 0.000500 1,681.86
12/31/94 to 12/31/95 2.2810362 3.1113614 0.000500 2,293.23
12/31/95 to 12/31/96 3.1113614 3.4413045 0.000500 2,535.27
12/31/96 to 12/31/97 3.4413045 4.1118865 0.000500 3,028.03
12/31/97 to 12/31/98 4.1118865 5.1491461 0.000500 3,790.37
12/31/98 to 12/31/99 5.1491461 6.8025313 0.000500 0.00% 5,005.56 17.47% 5,005.56 17.47%
</TABLE>
This calculation uses the formula:
P ( 1 + T ) * n = ERV
Where:
P = A hypothetical initial payment of: $1,000
= ERV(0)
T = Average annual total return
= ((ERV(10)/P) * (1/10)) - 1
n = Number of years
ERV(n) = Ending redeemable value at the end of year n
= ERV(n-1) x ((b/a)-c) for n = 1 to 9
= ERV(9) x ((b/a)-c)-(dxP) for n = 10
Non-Standard Average Annual Total Return *
- ------------------------------------------
The non-standard average annual total return is calculated in the same manner as
the standard average annual total return except that the withdrawal charge
percentage will be assumed to be 0%.
<PAGE>
STANDARD AVERAGE ANNUAL TOTAL RETURN CALCULATION
INCOME SUBACCOUNT
8.47 YEAR PERIOD (Life of Subaccount) ENDING 12/31/99
<TABLE>
<CAPTION>
A B C D
Value of One Value of One Annual
Accumulation Accumulation Maintenance Standard Average Non-Standard Average *
---------------- --------------------
at Beginning at End Charge Withdrawal
Period of Period of Period Factor Charge ERV(n) T ERV(n) T
------ --------- --------- ------ ------ ------ - ------ -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
07/16/91 to 12/31/91 1.0000000 1.0688784 0.000230 1,068.65
12/31/91 to 12/31/92 1.0688784 1.1984556 0.000500 1,197.66
12/31/92 to 12/31/93 1.1984556 1.3857352 0.000500 1,384.22
12/31/93 to 12/31/94 1.3857352 1.3501383 0.000500 1,347.97
12/31/94 to 12/31/95 1.3501383 1.7502203 0.000500 1,746.74
12/31/95 to 12/31/96 1.7502203 2.0643525 0.000500 2,059.37
12/31/96 to 12/31/97 2.0643525 2.5648022 0.000500 2,557.58
12/31/97 to 12/31/98 2.5648022 3.0591163 0.000500 3,049.22
12/31/98 to 12/31/99 3.0591163 3.3884394 0.000500 0.00% 3,375.96 15.46% 3,375.96 15.46%
This calculation uses the formula:
P ( 1 + T ) * n = ERV
Where:
P = A hypothetical initial payment of: $1,000
= ERV(0)
T = Average annual total return
= ((ERV(9)/P) * (1/8.47)) - 1
n = Number of years
ERV(n) = Ending redeemable value at the end of year n
= ERV(n-1) x ((bfor)- c) for n = 1 to 8
= ERV(8) x ((b/a)-c) - (dxP) for n = 9
</TABLE>
Non-Standard Average Annual Total Return *
- ------------------------------------------
The non-standard average annual total return is calculated in the same manner as
the standard average annual total return except that the withdrawal charge
percentage will be assumed to be 0%.
<PAGE>
STANDARD AVERAGE ANNUAL TOTAL RETURN CALCULATION
INCOME SUBACCOUNT
ONE YEAR PERIOD ENDING 12/31/99
<TABLE>
<CAPTION>
A B C D
Value of One Value of One Annual
Accumulation Accumulation Maintenance Standard Average Non-Standard Average *
---------------- ----------------------
Unit on Unit on Charge Withdrawal
12/31/98 12/31/99 Factor Charge ERV T ERV T
-------- -------- ------ ------ --- - --- -
<S> <C> <C> <C> <C> <C> <C> <C>
3.0591163 3.3884394 0.000500 6.00% 1,047.15 4.72% 1,107.15 10.72%
</TABLE>
This calculation uses the formula:
P ( 1 + T ) * n = ERV
Where:
P = A hypothetical initial payment of: $1,000
T = Average annual total return
= (( ERV/P) * (1/n)) - 1
n = Number of years 1
ERV = Ending redeemable value of the hypothetical initial payment
= P x ((b/a) - c) - (d x P)
Non-Standard Average Annual Total Return *
- ------------------------------------------
The non-standard average annual total return is calculated in the same manner as
the standard average annual total return except that the withdrawal charge
percentage will be assumed to be 0%.
<PAGE>
STANDARD AVERAGE ANNUAL TOTAL RETURN CALCULATION
INCOME SUBACCOUNT
FIVE YEAR PERIOD ENDING 12/31/99
<TABLE>
<CAPTION>
A B C D
Value of One Value of One Annual
Accumulation Accumulation Maintenance Standard Average Non-Standard Average *
---------------- ----------------------
at Beginning at End Charge Withdrawal
Period of Period of Period Factor Charge ERV(n) T ERV(n) T
------ --------- --------- ------ ------ ----- - ----- -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/94 to 12/31/95 1.3501383 1.7502203 0.000500 1,295.83
12/31/95 to 12/31/96 1.7502203 2.0643525 0.000500 1,527.76
12/31/96 to 12/31/97 2.0643525 2.5648022 0.000500 1,897.36
12/31/97 to 12/31/98 2.5648022 3.0591163 0.000500 2,262.09
12/31/98 to 12/31/99 3.0591163 3.3884394 0.000500 2.00% 2,484.48 19.96% 2,504.48 20.16%
</TABLE>
This calculation uses the formula:
P ( 1 + T ) * n = ERV
Where:
P = A hypothetical initial payment of: $1,000
= ERV(0)
T = Average annual total return
= ((ERV(5)/P) * (1/5)) - 1
n = Number of years
ERV(n) = Ending redeemable value at the end of year n
= ERV(n-1) x ((b/a)- c) for n = 1 to 4
= ERV(4) x ((b/a)- c) - (d x P) for n = 5
Non-Standard Average Annual Total Return *
- ------------------------------------------
The non-standard average annual total return is calculated in the same manner as
the standard average annual total return except that the withdrawal charge
percentage will be assumed to be 0%.
<PAGE>
STANDARD AVERAGE ANNUAL TOTAL RETURN CALCULATION
INTERNATIONAL SUBACCOUNT
5.67 YEAR PERIOD (Life of Subaccount) ENDING 12/31/99
<TABLE>
<CAPTION>
A B C D
Value of One Value of One Annual
Accumulation Accumulation Maintenance Standard Average Non-Standard Average *
at Beginning at End Charge Withdrawal
Period of Period of Period Factor Charge ERV(n) T ERV(n) T
------ --------- --------- ------ ------ ------ - ------ -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
05/03/94 to 12/31/94 1.0000000 0.9933133 0.000332 992.98
12/31/94 to 12/31/95 0.9933133 1.0506029 0.000500 1,049.76
12/31/95 to 12/31/96 1.0506029 1.1918490 0.000500 1,190.36
12/31/96 to 12/31/97 1.1918490 1.3706802 0.000500 1,368.38
12/31/97 to 12/31/98 1.3706802 1.8081209 0.000500 1,804.40
12/31/98 to 12/31/99 1.8081209 2.9490261 0.000500 2.00% 2,922.05 20.84% 2,942.05 20.98%
This calculation uses the formula:
P ( 1 + T ) * n = ERV
Where:
P = A hypothetical initial payment of: $1,000
= ERV(0)
T = Average annual total return
= ((ERV(6)/P) * (1/5.67)) - 1
n = Number of years
ERV(n)= Ending redeemable value at the end of year n
= ERV(n-1) x ((bf/a) - c ) for n = 1 to 5
= ERV(5) x ((b/a) - c) - (dxP) for n = 6
</TABLE>
Non-Standard Average Annual Total Return *
- ------------------------------------------
The non-standard average annual total return is calculated in the same manner as
the standard average annual total return except that the withdrawal charge
percentage will be assumed to be 0%.
<PAGE>
STANDARD AVERAGE ANNUAL TOTAL RETURN CALCULATION
INTERNATIONAL SUBACCOUNT
ONE YEAR PERIOD ENDING 12/31/99
<TABLE>
<CAPTION>
A B C D
Value of One Value of One Annual
Accumulation Accumulation Maintenance Standard Average Non-Standard Average *
---------------- ----------------------
Unit on Unit on Charge Withdrawal
12/31/98 12/31/99 Factor Charge ERV T ERV T
-------- -------- ------ ------ --- - --- -
<S> <C> <C> <C> <C> <C> <C> <C>
1.8081209 2.9490261 0.000500 6.00% 1,570.49 57.05% 1,630.49 63.05%
</TABLE>
This calculation uses the formula:
P ( 1 + T ) * n = ERV
Where:
P = A hypothetical initial payment of: $1,000
T = Average annual total return
= ((ERV/P) * (1/n)) - 1
n = Number of years 1
ERV = Ending redeemable value of the hypothetical initial payment
= P x ((b/a) - c) - (d x P)
Non-Standard Average Annual Total Return *
- ------------------------------------------
The non-standard average annual total return is calculated in the same manner as
the standard average annual total return except that the withdrawal charge
percentage will be assumed to be 0%.
<PAGE>
STANDARD AVERAGE ANNUAL TOTAL RETURN CALCULATION
INTERNATIONAL SUBACCOUNT
FIVE YEAR PERIOD ENDING 12/31/99
<TABLE>
<CAPTION>
A B C D
Value of One Value of One Annual
Accumulation Accumulation Maintenance Standard Average Non-Standard Average *
---------------- ----------------------
at Beginning at End Charge Withdrawal
Period of Period of Period Factor Charge ERV(n) T ERV(n) T
------ --------- --------- ------ ------ ------ - ------ -
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/94 to 12/31/95 0.9933133 1.0506029 0.000500 1,057.18
12/31/95 to 12/31/96 1.0506029 1.1918490 0.000500 1,198.78
12/31/96 to 12/31/97 1.1918490 1.3706802 0.000500 1,378.05
12/31/97 to 12/31/98 1.3706802 1.8081209 0.000500 1,817.15
12/31/98 to 12/31/99 1.8081209 2.9490261 0.000500 2.00% 2,942.84 24.09% 2,962.84 24.26%
</TABLE>
This calculation uses the formula:
P ( 1 + T ) * n = ERV
Where:
P = A hypothetical initial payment of: $1,000
= ERV(0)
T = Average annual total return
= ((ERV(5)/P) * (1/5)) - 1
n = Number of years
ERV(n) = Ending redeemable value at the end of year n
= ERV(n-1) x ((b/a)- c) for n = 1 to 4
= ERV(4) x ((b/a)- c) - (d x P) for n = 5
Non-Standard Average Annual Total Return *
- ------------------------------------------
The non-standard average annual total return is calculated in the same manner as
the standard average annual total return except that the withdrawal charge
percentage will be assumed to be 0%.
<PAGE>
STANDARD AVERAGE ANNUAL TOTAL RETURN CALCULATION
SMALL CAP SUBACCOUNT
5.67 YEAR PERIOD (Life of Subaccount) ENDING 12/31/99
<TABLE>
<CAPTION>
A B C D
Value of One Value of One Annual
Accumulation Accumulation Maintenance Standard Average Non-Standard Average *
---------------- ----------------------
at Beginning at End Charge Withdrawal
Period of Period of Period Factor Charge ERV(n) T ERV(n) T
------ --------- --------- ------ ---------- -------- - ------ -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
05/03/94 to 12/31/94 1.0000000 1.1979669 0.000332 1,197.64
12/31/94 to 12/31/95 1.1979669 1.5628209 0.000500 1,561.79
12/31/95 to 12/31/96 1.5628209 1.6711932 0.000500 1,669.31
12/31/96 to 12/31/97 1.6711932 2.1662281 0.000500 2,162.95
12/31/97 to 12/31/98 2.1662281 2.3661648 0.000500 2,361.50
12/31/98 to 12/31/99 2.3661648 3.5480057 0.000500 2.00% 3,519.84 24.87% 3,539.84 25.00%
</TABLE>
This calculation uses the formula:
P ( 1 + T ) * n = ERV
Where:
P = A hypothetical initial payment of: $1,000
= ERV(0)
T = Average annual total return
= ((ERV(6)/P) * (1/5.67)) - 1
n = Number of years
ERV(n) = Ending redeemable value at the end of year n
= ERV(n-1) x ((b/a)- c for n = 1 to 5
= ERV(5) x ((b/a)- c) - (d x P) for n = 6
Non-Standard Average Annual Total Return *
- ------------------------------------------
The non-standard average annual total return is calculated in the same manner as
the standard average annual total return except that the withdrawal charge
percentage will be assumed to be 0%.
<PAGE>
STANDARD AVERAGE ANNUAL TOTAL RETURN CALCULATION
SMALL CAP SUBACCOUNT
ONE YEAR PERIOD ENDING 12/31/99
<TABLE>
<CAPTION>
A B C D
Value of One Value of One Annual
Accumulation Accumulation Maintenance Standard Average Non-Standard Average *
---------------- ----------------------
Unit on Unit on Charge Withdrawal
12/31/98 12/31/99 Factor Charge ERV T ERV T
-------- -------- ------ ------ --- - --- -
<S> <C> <C> <C> <C> <C> <C> <C>
2.3661648 3.5480057 0.000500 6.00% 1,438.98 43.90 1,498.98 49.90%
</TABLE>
This calculation uses the formula:
P ( 1 + T ) * n = ERV
Where:
P = A hypothetical initial payment of: $1,000
T = Average annual total return
= ((ERV/P) * (1/n)) - 1
n = Number of years 1
ERV = Ending redeemable value of the hypothetical initial
payment
= P x ((b/a) - c) - (d x P)
Non-Standard Average Annual Total Return *
- ------------------------------------------
The non-standard average annual total return is calculated in the same manner as
the standard average annual total return except that the withdrawal charge
percentage will be assumed to be 0%.
<PAGE>
STANDARD AVERAGE ANNUAL TOTAL RETURN CALCULATION
SMALL CAP SUBACCOUNT
FIVE YEAR PERIOD ENDING 12/31/99
<TABLE>
<CAPTION>
A B C D
Value of One Value of One Annual
Accumulation Accumulation Maintenance Standard Average Non-Standard Average *
---------------- ----------------------
at Beginning at End Charge Withdrawal
Period of Period of Period Factor Charge ERV(n) T ERV(n) T
------ --------- ---------- ------ ------ ------ - ------ -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/94 to 12/31/95 1.1979669 1.5628209 0.000500 1,304.06
12/31/95 to 12/31/96 1.5628209 1.6711932 0.000500 1,393.84
12/31/96 to 12/31/97 1.6711932 2.1662281 0.000500 1,806.02
12/31/97 to 12/31/98 2.1662281 2.3661648 0.000500 1,971.81
12/31/98 to 12/31/99 2.3661648 3.5480057 0.000500 2.00% 2,935.69 24.03% 2,955.69 24.20%
</TABLE>
This calculation uses the formula:
P ( 1 + T ) * n = ERV
Where:
P = A hypothetical initial payment of: $1,000
= ERV(0)
T = Average annual total return
= ((ERV(5)/P) * (1/5)) - 1
n = Number of years
ERV(n) = Ending redeemable value at the end of year n
= ERV(n-1) x ((b/a)- c) for n = 1 to 4
= ERV(4) x ((b/a) - c) - (d x P) for n = 5
Non-Standard Average Annual Total Return *
- ------------------------------------------
The non-standard average annual total return is calculated in the same manner as
the standard average annual total return except that the withdrawal charge
percentage will be assumed to be 0%.
<PAGE>
STANDARD AVERAGE ANNUAL TOTAL RETURN CALCULATION
BALANCED SUBACCOUNT
5.67 YEAR PERIOD (Life of Subaccount) ENDING 12/31/99
<TABLE>
<CAPTION>
A B C D
Value of One Value of One Annual
Accumulation Accumulation Maintenance Standard Average Non-Standard Average *
---------------- ----------------------
at Beginning at End Charge Withdrawal
Period of Period of Period Factor Charge ERV(n) T ERV(n) T
------ --------- --------- ------ ------ ------ - ------ -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
05/03/94 to 12/31/94 1.0000000 0.9871601 0.000332 986.83
12/31/94 to 12/31/95 0.9871601 1.2086662 0.000500 1,207.77
12/31/95 to 12/31/96 1.2086662 1.3245094 0.000500 1,322.92
12/31/96 to 12/31/97 1.3245094 1.5465383 0.000500 1,544.02
12/31/97 to 12/31/98 1.5465383 1.6558195 0.000500 1,652.35
12/31/98 to 12/31/99 1.6558195 1.7963484 0.000500 2.00% 1,771.76 10.62% 1,791.76 10.84%
This calculation uses the formula:
P ( 1 + T ) * n = ERV
Where:
P = A hypothetical initial payment of: $1,000
= ERV(0)
T = Average annual total return
= ((ERV(6)/P) * (1/5.67)) - 1
n = Number of years
ERV(n) = Ending redeemable value at the end of year n
= ERV(n-1) x ((b/a) - c) for n = 1 to 5
= ERV(5) x ((b/a) - c) - (dxP) for n = 6
</TABLE>
Non-Standard Average Annual Total Return *
- ------------------------------------------
The non-standard average annual total return is calculated in the same manner as
the standard average annual total return except that the withdrawal charge
percentage will be assumed to be 0%.
<PAGE>
STANDARD AVERAGE ANNUAL TOTAL RETURN CALCULATION
BALANCED SUBACCOUNT
ONE YEAR PERIOD ENDING 12/31/99
<TABLE>
<CAPTION>
A B C D
Value of One Value of One Annual
Accumulation Accumulation Maintenance Standard Average Non-Standard Average *
---------------- ----------------------
Unit on Unit on Charge Withdrawal
12/31/98 12/31/99 Factor Charge ERV T ERV T
-------- -------- ------ ------ --- - --- -
<S> <C> <C> <C> <C> <C> <C> <C>
1.6558195 1.7963484 0.000500 6.00% 1,024.37 2.44% 1,084.37 6.44%
</TABLE>
This calculation uses the formula:
P ( 1 + T ) * n = ERV
Where:
P = A hypothetical initial payment of: $1,000
T = Average annual total return
= (( ERV/P) * (1/n)) - 1
n = Number of years 1
ERV = Ending redeemable value of the hypothetical initial payment
= P x ((b/a) - c) - (d x P)
Non-Standard Average Annual Total Return *
- ------------------------------------------
The non-standard average annual total return is calculated in the same manner as
the standard average annual total return except that the withdrawal charge
percentage will be assumed to be 0%.
<PAGE>
STANDARD AVERAGE ANNUAL TOTAL RETURN CALCULATION
BALANCED SUBACCOUNT
FIVE YEAR PERIOD ENDING 12/31/99
<TABLE>
<CAPTION>
A B C D
Value of One Value of One Annual
Accumulation Accumulation Maintenance Standard Average Non-Standard Average*
---------------- ---------------------
at Beginning at End Charge Withdrawal
Period of Period of Period Factor Charge ERV(n) T ERV(n) T
------ --------- --------- ------ ------ ------ - ------ -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/94 to 12/31/95 0.9871601 1.2086662 0.000500 1,223.89
12/31/95 to 12/31/96 1.2086662 1.3245094 0.000500 1,340.58
12/31/96 to 12/31/97 1.3245094 1.5465383 0.000500 1,564.63
12/31/97 to 12/31/98 1.5465383 1.6558195 0.000500 1,674.41
12/31/98 to 12/31/99 1.6558195 1.7963484 0.000500 2.00% 1,795.68 12.42% 1,815.68 12.67%
This calculation uses the formula:
P ( 1 + T ) * n = ERV
Where:
P = A hypothetical initial payment of: $1,000
= ERV(0)
T = Average annual total return
= ((ERV(5)/P) * (1/5)) - 1
n = Number of years
ERV(n) = Ending redeemable value at the end of year n
= ERV(n-1) x ((b/a) - c) for n = 1 to 4
= ERV(4) x ((b/a) - c) - (d x P) for n = 5
</TABLE>
Non-Standard Average Annual Total Return *
- ------------------------------------------
The non-standard average annual total return is calculated in the same manner as
the standard average annual total return except that the withdrawal charge
percentage will be assumed to be 0%.
<PAGE>
STANDARD AVERAGE ANNUAL TOTAL RETURN CALCULATION
LIMITED TERM BOND SUBACCOUNT
FIVE YEAR PERIOD ENDING 12/31/99
<TABLE>
<CAPTION>
A B C D
Value of One Value of One Annual
Accumulation Accumulation Maintenance Standard Average Non-Standard Average *
---------------- ----------------------
at Beginning at End Charge Withdrawal
Period of Period of Period Factor Charge ERV(n) T ERV(n) T
------ --------- --------- ------ ------ ------ - ------ -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/94 to 12/31/95 0.9932921 1.1191968 0.000500 1,126.25
12/31/95 to 12/31/96 1.1191968 1.1448498 0.000500 1,151.51
12/31/96 to 12/31/97 1.1448498 1.2054710 0.000500 1,211.90
12/31/97 to 12/31/98 1.2054710 1.2668279 0.000500 1,272.98
12/31/98 to 12/31/99 1.2668279 1.2696072 0.000500 2.00% 1,255.14 4.65% 1,275.14 4.98%
This calculation uses the formula:
P ( 1 + T ) * n = ERV
Where:
P = A hypothetical initial payment of: $1,000
= ERV(0)
T = Average annual total return
= ((ERV(5)/P) * (1/5)) - 1
n = Number of years
ERV(n) = Ending redeemable value at the end of year n
= ERV(n-1) x ((b/a) - c for n = 1 to 4
= ERV(4) x ((b/a) - c) - (d x P) for n = 5
</TABLE>
Non-Standard Average Annual Total Return *
- ------------------------------------------
The non-standard average annual total return is calculated in the same manner as
the standard average annual total return except that the withdrawal charge
percentage will be assumed to be 0%.
<PAGE>
STANDARD AVERAGE ANNUAL TOTAL RETURN CALCULATION
LIMITED TERM BOND SUBACCOUNT
5.67 YEAR PERIOD (Life of Subaccount) ENDING 12/31/99
<TABLE>
<CAPTION>
A B C D
Value of One Value of One Annual
Accumulation Accumulation Maintenance Standard Average Non-Standard Average *
---------------- ----------------------
at Beginning at End Charge Withdrawal
Period of Period of Period Factor Charge ERV(n) T ERV(n) T
------ --------- --------- ------ ------ ----- -- ----- --
<S> <C> <C> <C> <C> <C> <C> <C> <C>
05/03/94 to 12/31/94 1.0000000 0.9932921 0.000332 992.96
12/31/94 to 12/31/95 0.9932921 1.1191968 0.000500 1,118.33
12/31/95 to 12/31/96 1.1191968 1.1448498 0.000500 1,143.40
12/31/96 to 12/31/97 1.1448498 1.2054710 0.000500 1,203.37
12/31/97 to 12/31/98 1.2054710 1.2668279 0.000500 1,264.02
12/31/98 to 12/31/99 1.2668279 1.2696072 0.000500 2.00% 1,246.16 3.96% 1,266.16 4.25%
</TABLE>
This calculation uses the formula:
P ( 1 + T ) * n = ERV
Where:
P = A hypothetical initial payment of: $1,000
= ERV(0)
T = Average annual total return
= ((ERV(6)/P) * (1/5.67)) - 1
n = Number of years
ERV(n) = Ending redeemable value at the end of year n
= ERV(n-1) x ((b/a) - c) for n = 1 to 5
= ERV(5) x ((b/a) - c) - (d x P) for n = 6
Non-Standard Average Annual Total Return *
- ------------------------------------------
The non-standard average annual total return is calculated in the same manner as
the standard average annual total return except that the withdrawal charge
percentage will be assumed to be 0%.
<PAGE>
STANDARD AVERAGE ANNUAL TOTAL RETURN CALCULATION
LIMITED TERM BOND SUBACCOUNT
ONE YEAR PERIOD ENDING 12/31/99
<TABLE>
<CAPTION>
A B C D
Value of One Value of One Annual
Accumulation Accumulation Maintenance Standard Average Non-Standard Average *
---------------- ----------------------
Unit on Unit on Charge Withdrawal
12/31/98 12/31/99 Factor Charge ERV T ERV T
----------- ------------ ----------- ---------- --- - --- -
<S> <C> <C> <C> <C> <C> <C> <C>
1.2668279 1.2696072 0.000500 6.00% 941.69 -5.83% 1,001.69 0.17%
</TABLE>
This calculation uses the formula:
P ( 1 + T ) * n = ERV
Where:
P = A hypothetical initial payment of: $1,000
T = Average annual total return
= ((ERV/P) * (1/n)) - 1
n = Number of years 1
ERV = Ending redeemable value of the hypothetical initial payment
= P x ((b/a) - c) - (d x P)
Non-Standard Average Annual Total Return *
- ------------------------------------------
The non-standard average annual total return is calculated in the same manner as
the standard average annual total return except that the withdrawal charge
percentage will be assumed to be 0%.
<PAGE>
STANDARD AVERAGE ANNUAL TOTAL RETURN CALCULATION
ASSET STRATEGY SUBACCOUNT
4.67 YEAR PERIOD (Life of Subaccount) ENDING 12/31/99
<TABLE>
<CAPTION>
A B C D
Value of One Value of One Annual
Accumulation Accumulation Maintenance Standard Average Non-Standard Average *
---------------- ----------------------
at Beginning at End Charge Withdrawal
Period of Period of Period Factor Charge ERV(n) T ERV(n) T
------ --------- --------- ------ ------ ----- - ------ -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
05/01/95 to 12/31/95 1.0000000 1.0085204 0.000334 1,008.19
12/31/95 to 12/31/96 1.0085204 1.0542606 0.000500 1,053.41
12/31/96 to 12/31/97 1.0542606 1.1846951 0.000500 1,183.21
12/31/97 to 12/31/98 1.1846951 1.2836010 0.000500 1,281.40
12/31/98 to 12/31/99 1.2836010 1.5550575 0.000500 3.00% 1,521.75 9.40% 1,551.75 9.86%
</TABLE>
This calculation uses the formula:
P ( 1 + T ) * n = ERV
Where:
P = A hypothetical initial payment of: $1,000
= ERV(0)
T = Average annual total return
= ((ERV(5)/P) * (1/4.67)) - 1
n = Number of years
ERV(n) = Ending redeemable value at the end of year n
= ERV(n-1) x ((b/a) - c) for n = 1 to 4
= ERV(4) x ((b/a) - c) - (d x P) for n = 5
Non-Standard Average Annual Total Return *
- ------------------------------------------
The non-standard average annual total return is calculated in the same manner as
the standard average annual total return except that the withdrawal charge
percentage will be assumed to be 0%.
<PAGE>
STANDARD AVERAGE ANNUAL TOTAL RETURN CALCULATION
ASSET STRATEGY SUBACCOUNT
ONE YEAR PERIOD ENDING 12/31/99
<TABLE>
<CAPTION>
A B C D
Value of One Value of One Annual
Accumulation Accumulation Maintenance Standard Average Non-Standard Average *
---------------- ----------------------
Unit on Unit on Charge Withdrawal
12/31/98 12/31/99 Factor Charge ERV T ERV T
-------- -------- ------ ------ --- - --- -
<S> <C> <C> <C> <C> <C> <C> <C>
1.2836010 1.5550575 0.000500 6.00% 1,150.98 15.10% 1,210.98 21.10%
</TABLE>
This calculation uses the formula:
P ( 1 + T ) * n = ERV
Where:
P = A hypothetical initial payment of: $1,000
T = Average annual total return
= ((ERV/P) * (1/n)) - 1
n = Number of years 1
ERV = Ending redeemable value of the hypothetical initial payment
= P x ((b/a) - c) - (d x P)
Non-Standard Average Annual Total Return *
- ------------------------------------------
The non-standard average annual total return is calculated in the same manner as
the standard average annual total return except that the withdrawal charge
percentage will be assumed to be 0%.
<PAGE>
STANDARD AVERAGE ANNUAL TOTAL RETURN CALCULATION
SCIENCE & TECHNOLOGY SUBACCOUNT
2.74 YEAR PERIOD (Life of Subaccount) ENDING 12/31/99
<TABLE>
<CAPTION>
A B C D
Value of One Value of One Annual
Accumulation Accumulation Maintenance Standard Average Non-Standard Average *
---------------- --------------------
at Beginning at End Charge Withdrawal
Period of Period of Period Factor Charge ERV(n) T ERV(n) T
------ --------- --------- ------ ------ ------ - ------ -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
04/04/97 to 12/31/97 1.0000000 1.1502635 0.000371 1,149.89
12/31/97 to 12/31/98 1.1502635 1.6561772 0.000500 1,655.07
12/31/98 to 12/31/99 1.6561772 4.4835683 0.000500 5.00% 4,429.74 72.06% 4,479.74 72.77%
</TABLE>
This calculation uses the formula:
P ( 1 + T ) * n = ERV
Where:
P = A hypothetical initial payment of: $1,000
= ERV(0)
T = Average annual total return
= ((ERV(3)/P) * (1/2.74)) - 1
n = Number of years
ERV(n) = Ending redeemable value at the end of year n
= ERV(n-1) x (b/a) - c) for n = 1 to 2
= ERV(2) x (((b/a) - c) - (d x P) for n = 3
Non-Standard Average Annual Total Return *
- ------------------------------------------
The non-standard average annual total return is calculated in the same manner as
the standard average annual total return except that the withdrawal charge
percentage will be assumed to be 0%.
<PAGE>
STANDARD AVERAGE ANNUAL TOTAL RETURN CALCULATION
SCIENCE & TECHNOLOGY SUBACCOUNT
ONE YEAR PERIOD ENDING 12/31/99
<TABLE>
<CAPTION>
A B C D
Value of One Value of One Annual
Accumulation Accumulation Maintenance Standard Average Non-Standard Average *
---------------- ----------------------
Unit on Unit on Charge Withdrawal
12/31/98 12/31/99 Factor Charge ERV T ERV T
-------- -------- ------ ------ --- - --- -
<S> <C> <C> <C> <C> <C> <C> <C>
1.6561772 4.4835683 0.000500 6.00% 2,646.68 164.67% 2,706.68 170.67%
</TABLE>
This calculation uses the formula:
P ( 1 + T ) * n = ERV
Where:
P = A hypothetical initial payment of: $1,000
T = Average annual total return
= ((ERV/P) * (1/n)) - 1
n = Number of years 1
ERV = Ending redeemable value of the hypothetical initial payment
= P x ((b/a) - c) - (d x P)
Non-Standard Average Annual Total Return *
- ------------------------------------------
The non-standard average annual total return is calculated in the same manner as
the standard average annual total return except that the withdrawal charge
percentage will be assumed to be 0%.
