<PAGE>
File Nos. 333-89797 and 811-09655
As filed with the Securities and Exchange Commission on April 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. [ ]
Post-Effective Amendment No. 1 [x]
---
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 2 [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
___________________________________
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[x] on April 28, 2000 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(l) of Rule 485
[ ] on pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following box:
[ ] this Post-Effective Amendment designates a new effective date for a
previously filed Post-Effective Amendment.
Title of Securities Being Registered: Variable Annuity Policies
<PAGE>
Prospectus
May 1, 2000
ADVANTAGE GOLDSM
VARIABLE ANNUITY
DEFERRED VARIABLE ANNUITY POLICY
issued by
United Investors Life Insurance Company
through
United Investors Advantage Gold Variable Account
The Advantage Gold variable annuity 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 GoldSM
variable annuity policy.
To learn more about the policy, you may want to look at the Statement of
Additional Information dated May 1, 2000 (known as the "SAI"). For a free copy
of the SAI, contact us at:
United Investors Life Insurance Co.
Variable Products Division
P.O. Box 10287
Birmingham, Alabama 35202-0287
Telephone: (800) 999-0317
United Investors has filed the SAI with the U.S. Securities and Exchange
Commission (the "SEC") and has incorporated it by reference into this
prospectus. The SAI's table of contents appears on page 29 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.
U-1530, Ed. 5-00
<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............................ 7
Target/United Funds, Inc. ................................................ 7
Fund Management........................................................... 9
Fixed Account............................................................... 9
The Policy.................................................................. 9
Issuance of a Policy...................................................... 9
Purchase Payments......................................................... 10
Allocation of Purchase Payments........................................... 10
Policy Value.............................................................. 10
Variable Account Value.................................................. 10
Fixed Account Value..................................................... 11
Surrender and Withdrawals................................................. 11
Withdrawals............................................................. 11
Automatic Partial Withdrawals........................................... 12
Surrender............................................................... 12
Restrictions Under the Texas ORP and Section 403(b) Plan................ 12
Restrictions Under Other Qualified Policies............................. 13
Transfers................................................................. 13
Dollar Cost Averaging..................................................... 14
Automatic Asset Rebalancing............................................... 14
Interest Sweep............................................................ 15
Death Benefit............................................................. 15
Required Distributions.................................................... 16
"Free Look" Period........................................................ 17
Charges and Deductions...................................................... 17
Withdrawal Charge......................................................... 17
Waiver of Withdrawal Charges Rider........................................ 18
Annual Policy Maintenance Charge.......................................... 19
Administration Fee........................................................ 19
Mortality and Expense Risk Charge......................................... 19
Transaction Charge........................................................ 20
Premium Taxes............................................................. 20
Federal Taxes............................................................. 20
Fund Expenses............................................................. 20
Reduction in Charges for Certain Groups................................... 20
Annuity Payments............................................................ 21
Election of Annuity Payment Method........................................ 21
Annuity Benefit Date...................................................... 21
</TABLE>
i
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<TABLE>
<S> <C>
Annuity Payment Methods................................................... 21
Distribution of the Policies................................................ 23
Federal Tax Matters......................................................... 23
Historical Performance Data................................................. 27
Voting Rights............................................................... 27
United Investors Life Insurance Company..................................... 28
Published Ratings........................................................... 28
Legal Proceedings........................................................... 28
Financial Statements........................................................ 28
Statement of Additional Information......................................... 29
</TABLE>
The policy is not available in all states. This prospectus is not an offer to
sell securities in any jurisdiction where they cannot be lawfully sold. You
should rely only on the information contained in this prospectus or that we
have referred you to. We have not authorized anyone to provide you with
information that is different.
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Glossary
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<TABLE>
<C> <S>
Annual Policy Maintenance Charge A deduction of $25 made on each policy
anniversary for the administration of the
policy. This charge is deducted from the
variable investment divisions and the fixed
account in the same proportion that their
values bear to the policy value. The charge
is waived on any policy anniversary on which
the policy values equals or exceeds $25,000.
The annual policy maintenance charge is
referred to as an Annual Contract Maintenance
Charge in the policy form.
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 Date The date (or dates) on which annuity payments
are to start.
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 Payment The purchase payment less any deduction for
premium taxes.
Owner's Designated Beneficiary The owner's designated beneficiary (a joint
owner, if any, or the beneficiary named in
the policy) is the individual who becomes
owner of the policy upon the death of an
owner.
Payment Option Beneficiary The payment option beneficiary is the person,
persons or entity entitled to receive the
amount payable upon death of the annuitant.
Policy Year A policy year is a year that starts on the
policy's effective date or on a policy
anniversary.
Surrender Value The policy value less any withdrawal charges,
the annual policy maintenance charge, and
applicable deductions for premium taxes.
We, us, our We are United Investors Life Insurance
Company.
You, your You are the policy owner.
</TABLE>
iii
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Summary
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This is a summary of some of the more important points that you should know
and consider before purchasing the Advantage 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).
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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.
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 greater of:
(a) 12% of the total purchase payments you have invested in the policy; or
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(b) 100% of earnings. Earnings are the amount by which your policy value
exceeds the total purchase payments you have made.
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>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Years
Since
Purchase
Payment <1 1 2 3 4 5 6 7+
----------------------------------------------------------------------------------------
% Charge 7% 6% 5% 4% 3% 2% 1% 0
</TABLE>
<TABLE>
<S> <C>
Annual Policy Maintenance Charge...................................... $25.00
Variable Account Annual Expenses:
Administration Charge................................................. 0.15%
Mortality and Expense Risk Charge..................................... 1.25%
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Total Variable Account Annual Expenses................................ 1.40%
</TABLE>
Target/United Funds, Inc. Annual Expenses(/1/)
(% of average daily net assets)
<TABLE>
<CAPTION>
Management 12b-1 Other Total Portfolio
Portfolio Fee(/2/) Fees(/3/) Expenses(/4/) Expenses
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<S> <C> <C> <C> <C>
Asset Strategy 0.70% 0.24% 0.14% 1.08%
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Balanced 0.70% 0.24% 0.06% 1.00%
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Bond 0.53% 0.24% 0.06% 0.83%
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Growth 0.70% 0.24% 0.02% 0.96%
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High Income 0.63% 0.24% 0.05% 0.92%
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Income 0.70% 0.24% 0.02% 0.96%
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International 0.85% 0.24% 0.15% 1.24%
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Limited-Term Bond 0.50% 0.24% 0.15% 0.89%
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Money Market 0.40% 0.24% 0.08% 0.72%
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Science and Technology 0.85% 0.24% 0.06% 1.15%
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Small Cap 0.85% 0.24% 0.04% 1.13%
</TABLE>
3
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(/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.
(/2/) Management Fees have been restated to reflect the change in management
fees effective June 30, 1999.
(/3/) 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 compensates 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.
(/4/) Other Expenses are those incurred for the year ended December 31, 1999.
Examples. The following tables give examples of expenses you might pay, on a
$1,000 investment, assuming 5% annual return on assets.
(cross) 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 $85 $119
Balanced $84 $116
Bond $82 $111
Growth $84 $115
High Income $83 $114
Income $84 $115
International $86 $123
Limited-Term Bond $83 $113
Money Market $81 $108
Science and Technology $86 $121
Small Cap $85 $120
</TABLE>
(cross) 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 $25 $79
Balanced $24 $76
Bond $22 $71
Growth $24 $75
High Income $23 $74
Income $24 $75
International $26 $83
Limited-Term Bond $23 $73
Money Market $21 $68
Science and Technology $26 $81
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 policy 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.
4
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These examples do not represent past or future expenses. Actual expenses may
be greater or less than those shown. The assumed 5% return is purely
hypothetical. Actual returns (investment performance) will vary, and may be
more or less than 5%.
Taxes
You are generally required to pay taxes on amounts earned in a non-qualified
policy only when they are withdrawn. When you take distributions or withdrawals
from your policy, taxable earnings are considered to be paid out first,
followed by your investment in the policy.
You are generally required to pay taxes on all amounts withdrawn from a
qualified policy because in most cases purchase payments were made with before-
tax dollars. You are not required to pay taxes on distributions of purchase
payments made with after-tax dollars.
Distributions from the policy are taxed as ordinary income. You may owe a
10% Federal tax penalty for distributions or withdrawals taken before age 59
1/2.
Surrender and Withdrawals
You may surrender the policy before the annuity benefit date for the
surrender value, which is the policy value less any withdrawal charge, the
annual policy maintenance charge, and any premium tax charge.
You may withdraw 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. Withdrawals may be restricted or limited under certain qualified
policies.
You cannot surrender the policy or withdraw cash 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) your policy value at the time the death benefit is paid; or
(b) the total purchase payments you have invested in the policy (reduced
for any withdrawals you have made and withdrawal charges); 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 90th birthday (or the annuitant's 90th birthday if the
policy owner is not a natural person), plus any purchase payments made
since then, reduced for any withdrawals you have made, and withdrawal
charges you have incurred since then.
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
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cannot exceed the free withdrawal amount in any one policy year. Automatic
partial withdrawals are not subject to the $250 minimum amount, or to the
transaction charge for more than 12 withdrawals in any one policy year. These
withdrawals may be taxable, and you may also incur a 10% Federal tax penalty
before age 59 1/2.
Waiver of Withdrawal Charges Rider: If your policy includes the waiver of
withdrawal charges rider, we will waive withdrawal charges under certain
conditions if you (1) become confined in a qualified nursing home, qualified
hospital, or qualified hospice care program; (2) become totally disabled; or
(3) are diagnosed with a terminal illness.
Transfers: Before the annuity benefit date, you may transfer all or part of
your policy value among the 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 year ended December 31, 1999 the Variable Account had
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) 999-0317
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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.")
6
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United Investors Advantage Gold Variable Account
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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,
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.
7
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The investment objectives and policies of each portfolio are summarized
below. There is no assurance that any of the portfolios will achieve their
stated objectives. More detailed information, including a description of risks,
is in the Target/United Funds, Inc. prospectus, which accompanies this
prospectus.
<TABLE>
<CAPTION>
Portfolio Investment Objective and Certain Policies
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<C> <S>
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 of any quality and short-term
instruments.
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Balanced The Balanced Portfolio seeks as a primary goal, current
income, with a secondary goal of long-term appreciation of
capital. It invests primarily in a mix of stocks, fixed-income
securities and cash, depending on market conditions.
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Bond The Bond Portfolio seeks a reasonable return with emphasis on
preservation of capital. It seeks to achieve its goal by
investing primarily in domestic debt securities, usually of
investment grade.
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Growth The Growth Portfolio seeks capital growth, with a secondary
goal of current income. It seeks to achieve its goal by
investing primarily in common stocks of U.S. and foreign
companies with market capitalization of at least $1 billion
representing faster growing sectors of the economy, such as
the technology, health care and consumer-oriented sectors.
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High Income The High Income Portfolio seeks as a primary goal a high level
of current income with a secondary goal of capital growth. It
seeks to achieve its goals by investing primarily in high-
yield, high-risk, fixed-income securities of U.S. and foreign
issuers, the risks of which are consistent with the
Portfolio's goals.
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Income The Income Portfolio seeks maintenance of current income,
subject to market conditions, with a secondary goal of capital
growth. It seeks to achieve its goals by investing primarily
in common stocks of large U.S. and foreign companies that have
a record of paying regular dividends or have the potential for
capital appreciation.
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International The International Portfolio seeks as a primary goal, long-term
appreciation of capital, with a secondary goal of current
income. It seeks to achieve its goals by investing primarily
in common stocks of foreign companies that may have the
potential for long-term growth.
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Limited-Term The Limited-Term Bond Portfolio seeks a high level of current
Bond income consistent with preservation of capital. It seeks to
achieve its goal by investing primarily in investment-grade
debt securities of U.S. issuers, including U.S. Government
securities.
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Money Market The Money Market Portfolio seeks current income consistent
with stability of principal. It seeks to achieve its goal by
investing in U.S. dollar-denominated, high quality money
market obligations and instruments.
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Science and The Science and Technology Portfolio seeks long-term capital
Technology 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 whose
products, processes or services are expected to be
significantly benefited by the use or application of
scientific or technological discoveries or developments.
- -------------------------------------------------------------------------------
Small Cap The Small Cap Portfolio seeks capital growth. It seeks to
achieve its goal by investing primarily in common stocks of
relatively new or unseasoned companies in their early stages
of development, or smaller companies positioned in new or in
emerging industries where the opportunity for rapid growth is
above average.
</TABLE>
8
<PAGE>
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
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The funding choice guaranteeing your principal and a minimum fixed rate of
interest is called the "fixed account." It is not registered under the
Securities Act of 1933, and it is not registered as an investment company under
the Investment Company Act of 1940. Accordingly, neither the fixed account nor
any interests therein are subject to the provisions or restrictions of these
Federal securities laws, and the disclosure regarding the fixed account has not
been reviewed by the staff of the SEC.
The fixed account is a part of our general account, which includes all of
our assets other than those in any separate account. We guarantee that we will
credit interest at a rate of not less than 3% per year to investment amounts
allocated to the fixed account. We may credit interest at a rate in excess of
3% per year, but any excess interest credited will be determined in our sole
discretion. The policy owner assumes the risk that interest credited to the
fixed account may not exceed 3% per year. The fixed account may not be
available in all states.
As the policy owner, you determine the allocation of policy value to the
fixed account. Before the annuity benefit date, you may transfer all or part of
the values held in the fixed account to one or more of the variable 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
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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.
9
<PAGE>
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 90th birthday (or the annuitant's 90th birthday if the owner is not a
natural person).
Allocation of Purchase Payments
You determine in the application how the initial net purchase payment (the
purchase payment less any premium tax charge) 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 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
10
<PAGE>
(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 policy 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
(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 policy maintenance charge and taxes allocated
to the fixed account.
The annual policy 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 from the fixed account
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
11
<PAGE>
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 policy 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 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;
12
<PAGE>
(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 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
13
<PAGE>
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 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
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<PAGE>
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 (1st-28th). We will
make all interest sweep transfers on the day you specify or on the next
business day (if the day you have specified is not a business day).
You may elect to participate in the interest sweep program at any time by
sending a written request to our home office. Once elected, interest sweep
remains in effect from the date we receive your request until you cancel your
participation in the program by written request or by telephone. There is no
additional charge for interest sweep. A transfer under this program is not
counted as a transfer for purposes of the 12-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, reduced for any amounts withdrawn and
any withdrawal charges; or
(c) the highest of the policy values on the fifth anniversary, and every
fifth anniversary thereafter prior to the policy anniversary following
the owner's or any joint owner's 90th birthday (or the annuitant's 90th
birthday if the policy owner is not a natural person), plus any
purchase payments made since then, reduced for any withdrawals you have
made, and withdrawal charges you have incurred since then.
Adjustment for amounts withdrawn and withdrawal charges will reduce the
death benefit under (b) and (c) above in the same proportion that they reduced
the policy value on the date of the withdrawal. The death benefit under (c)
above will not increase on or after the policy anniversary following the
owner's, or any joint owner's, 90th birthday, (or the annuitant's 90th 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.
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<PAGE>
If the annuitant or the owner dies after the annuity benefit date, the
amount payable, if any, will be as provided in the annuity payment 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.
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.
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The non-qualified policies contain provisions which are intended to comply
with the requirements of the Internal Revenue Code. However, no regulations
interpreting these requirements have been issued. We intend to review such
provisions and modify them if necessary to assure that they comply with the
applicable requirements when clarified by regulation or otherwise.
Other rules may apply to qualified policies.
"Free Look" Period
If for any reason you are not satisfied with the policy, you may return it
to us within 10 days after you receive it. If you cancel the policy within this
10-day "free look" period, we will refund the policy value plus any 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
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We do not deduct any charges from a purchase payment (except for a charge
for any premium taxes). However, certain other charges are deducted to
compensate us for providing the insurance benefits set forth in the policy, for
administering and distributing the policy, for any applicable taxes, and for
assuming certain risks in connection with the policy. These charges are
described below.
Withdrawal Charge
We may deduct a withdrawal charge if you:
(a) make withdrawals under the policy; or
(b) surrender the policy.
The withdrawal charge is a percent of the purchase payments deemed to be
included in the withdrawal or the total purchase payments (in the case of a
surrender), as specified in the following table of withdrawal charge rates:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Number of Full Years
since receipt of Purchase Payment: 0 1 2 3 4 5 6 7+
- ----------------------------------------------------------------------
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
greater 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).
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<PAGE>
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 (earnings) 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
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.
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<PAGE>
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 Policy Maintenance Charge
We deduct an annual policy 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.
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.
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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.")
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.
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Annuity Payments
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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:
<TABLE>
<S> <C>
Life Annuity with No This method provides annuity payments during the lifetime of
Guaranteed Period 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.
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Joint Life Annuity This method provides annuity payments during the lifetime of
Continuing to the annuitant and a joint annuitant. Payments will continue to
the Survivor 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 made under this
method if the annuitant and joint annuitant both die before or
shortly after payments begin.
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Life Annuity with This method provides annuity payments during the lifetime of
Monthly Payments the annuitant. Various guaranteed periods of 60 months to 360
Guaranteed 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.
</TABLE>
Other annuity payment methods are currently available with our written consent.
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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.
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.
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Distribution of the Policies
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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 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
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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 16 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.
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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, a similar penalty tax and additional exceptions apply to distributions
from a qualified policy. You should consult a tax advisor 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, the selection of certain retirement dates, or designation of an
annuitant, payee or other beneficiary who is not also the owner, may
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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
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amount of which is limited in any pension or profit-sharing plan. Because the
death benefit may exceed this limitation, employers using the policy in
connection with such plans should consult their tax advisor.
Section 403(b) Plans. Under Code Section 403(b), public school systems and
certain tax-exempt organizations may purchase annuity contracts for their
employees. Generally, payments to Section 403(b) annuity contracts will be
excluded from the gross income of the employee, subject to certain
limitations. However, these payments may be subject to FICA (Social Security)
taxes. The policy includes a death benefit that in some cases may exceed the
greater of purchase payments or policy value. The death benefit could be
characterized as an incidental benefit, the amount of which is limited in any
tax-sheltered annuity under Section 403(b). Because the death benefit may
exceed this limitation, employers using the policy in connection with such
plans should consult their tax advisor. Under Section 403(b) annuity
contracts, the following amounts may only be distributed upon death of the
employee, attainment of age 59 1/2, separation from service, disability, or
financial hardship:
(a) elective contributions made in years beginning after December 31, 1988;
(b) earnings on those contributions; and
(c) earnings in such years on amounts held as of the last year beginning
before January 1, 1989.
In addition, income attributable to elective contributions may not be
distributed in the case of hardship.
Individual Retirement Annuities. Section 408 of the Code limits the amount
which may be contributed to an IRA each year to the lesser of $2,000 or the
amount of compensation includible in the policy owner's gross income for the
year. These contributions may be deductible in whole or in part depending on
the individual's income. The limit on the amount contributed to an IRA does
not apply to distributions from certain other types of qualified plans that
are "rolled over" on a tax-deferred basis into an IRA. Amounts in the IRA
(other than non-deductible contributions) are taxed when distributed from the
IRA. Distributions prior to age 59 1/2 (unless certain exceptions apply) are
subject to a 10% penalty tax. The Internal Revenue Service has not addressed
in a ruling of general applicability whether a death benefit provision such as
the provision in the policy meets IRA qualification requirements.
Roth IRAs. Section 408A of the Code permits certain eligible individuals to
contribute to a Roth IRA. Contributions to a Roth IRA, which are subject to
certain limitations, are not deductible and must be made in cash or as a
rollover or transfer from another Roth IRA or other IRA. A rollover from or
conversion of an IRA to a Roth IRA may be subject to tax, and other special
rules may apply. You should consult a tax advisor before combining any
converted amounts with any other Roth IRA contributions, including any other
conversion amounts from other tax years. Distributions from a Roth IRA
generally are not taxed, except that--once aggregate distributions exceed
contributions to the Roth IRA--income tax and a 10% penalty tax may apply to
distributions made:
(a) before age 59 1/2 (subject to certain exceptions); or
(b) during the five taxable years starting with the year in which the first
contribution is made to any Roth IRA.
No distribution from a Roth IRA is required at any time before the policy
owner's death.
Deferred Compensation Plans. Section 457 of the Code provides for certain
deferred compensation plans available with respect to service for state
governments, local governments, political subdivisions, agencies,
instrumentalities and certain affiliates of such entities, and tax-exempt
organizations. These plans are subject to various restrictions on
contributions and distributions. Under non-governmental plans, all amounts are
subject to the claims of general creditors of the employer, and depending on
the terms of the particular plan, the employer may be entitled to draw on
deferred amounts for purposes unrelated to its Section 457 plan obligations.
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All Policies. As noted above, the foregoing comments about the Federal tax
consequences under the policy are not exhaustive, and special rules apply to
other tax situations not discussed in this prospectus. Further, the Federal tax
consequences discussed herein reflect our understanding of current law, and the
law may change. Federal estate tax and state and local estate, inheritance and
other tax consequences of ownership or receipt of distributions under a policy
depend on the individual circumstances of each policy owner or recipient of a
distribution. A competent tax advisor should be consulted for further
information.
Historical Performance Data
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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
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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.
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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 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
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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
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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
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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
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Our financial statements (as well as the Auditors' Reports thereon) are in
the Statement of Additional Information.
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Statement of Additional Information
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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:
Table of Contents
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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>
29
<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 May 1, 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: May 1, 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 27
Money Market Investment Division Yield Calculation.... 7
Average Annual Total Return Calculations.............. 7
FEDERAL TAX MATTERS....................................11 23
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 23
SAFEKEEPING OF VARIABLE ACCOUNT ASSETS.................14
STATE REGULATION.......................................14
RECORDS AND REPORTS....................................15
LEGAL MATTERS..........................................15 28
EXPERTS................................................15
OTHER INFORMATION......................................15
</TABLE>
i
<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.
-1-
<PAGE>
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 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
-7-
<PAGE>
Where
P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years in the period
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the one, five or ten year periods (or
fractional portion thereof) at the end of such period.
All recurring fees that are charged to all Policy Owner accounts are
recognized in the ending redeemable value. The average annual total return
calculation will also reflect the effect of Withdrawal Charges that may be
applicable due to surrender of the Policy at the end of a particular period.
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
-8-
<PAGE>
Where:
CTR = the cumulative total return net of policy charges for the period.
ERV = ending redeemable value of a hypothetical $1,000 payment at the
beginning of the one, five, or ten-year period at the end of the
one, five, or ten-year period (or fractional portion of the period).
P = a hypothetical initial payment of $1,000.
All non-standard performance data will be advertised only if the standard
performance data is also disclosed.
Historical Performance Data
General Limitations
The figures below represent past performance and are not indicative of
future performance. The figures may reflect the waiver of advisory fees and
reimbursement of other expenses which may not continue in the future.
Portfolio information, including historical daily net asset values and
capital gains and dividends distributions regarding each portfolio, has been
provided by that portfolio. The 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)
<TABLE>
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 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 and
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
</TABLE>
-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>
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% 5/01/95
Balanced 8.44% 12.67% N/A 10.84% 5/03/94
Bond -3.13% 5.90% 5.56% 5.91% 7/13/87
Growth 32.06% 24.37% 17.47% 16.56% 7/13/87
High Income 2.43% 8.17% 8.32% 7.11% 7/13/87
Income 10.72% 20.16% N/A 15.46% 7/16/91
International 63.05% 24.26% N/A 20.98% 5/03/94
Limited-Term
Bond 0.17% 4.98% N/A 4.25% 5/03/94
Science and
Technology 170.67% N/A N/A 72.77% 4/04/97
Small Cap 49.90% 24.20% N/A 25.00% 5/03/94
</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
-11-
<PAGE>
and its operations form a part of United Investors, it will not be taxed
separately as a "regulated investment company" under Subchapter M of the Code.
Investment income and realized net capital gains on the assets of the Variable
Account are reinvested and taken into account in determining the Policy Value.
As a result, such investment income and realized net capital gains are
automatically retained as part of the reserves under the Policy. Under existing
Federal income tax law, United Investors believes that Variable Account
investment income and realized net capital gains should not be taxed to the
extent that such income and gains are retained as part of the reserves under the
Policy.
Tax Status of the Policies
- --------------------------
Section 817(h) of the Code provides that the investments of the Variable
Account must be "adequately diversified" in accordance with Treasury regulations
in order for the Policies to qualify as annuity contracts under Section 72 of
the Code. The Variable Account, through each Portfolio of the Funds, intends to
comply with the diversification requirements prescribed by the Treasury in
Treas. Reg. Section 1.817-5, which affect how the Portfolios' assets may be
invested. United Investors does not control any of the Funds or their
Portfolios' investments. However, it has entered into an agreement regarding
participation in each Fund, which requires each participating Portfolio of the
Funds to be operated in compliance with the diversification requirements
prescribed by the Treasury.
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for Federal income tax purposes, of the assets of the
separate account used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includible in the
variable contract owner's gross income. The IRS has stated in published rulings
that a variable contract owner will be considered the owner of separate account
assets if the contract owner possesses incidents of ownership in those assets,
such as the ability to exercise investment control over the assets. The
Treasury Department also announced, in connection with the issuance of
regulations concerning diversification, that those regulations "do not provide
guidance concerning the circumstances in which investor control of the
investments of a segregated asset account may cause the investor (i.e., the
Policyowner), rather than the insurance company, to be treated as the owner of
the assets in the account." This announcement also stated that guidance would be
issued by way of regulations or rulings on the "extent to which policyholders
may direct their investments to particular subaccounts without being treated as
owners of the underlying assets."
The ownership rights under the Policy are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that policy owners were not owners of separate account assets. For
example, the Policyowner has additional flexibility in allocating purchase
payments and Policy Values. These differences could result in a Policyowner
being treated as the owner of a pro rata portion of the assets of the Variable
Account. In addition, United Investors does not know what standards will be set
forth, if any, in the regulations or rulings which the Treasury Department has
stated it expects to issue. United Investors therefore
-12-
<PAGE>
reserves the right to modify the Policy as necessary to attempt to prevent a
Policyowner from being considered the owner of a pro rata share of the assets of
the Variable Account.
Required Distributions
- ----------------------
In order to be treated as an annuity contract for Federal income tax
purposes, Section 72(s) of the Code requires any nonqualified Policy to provide
that (a) if any Owner dies on or after the annuity benefit date but prior to the
time the entire interest in the Policy has been distributed, the remaining
portion of such interest will be distributed at least as rapidly as under the
method of distribution being used as of the date of that Owner's death; 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
-13-
<PAGE>
Variable Account from purchasing other securities for other series or classes of
policies, or from permitting a conversion between series or classes of policies
on the basis of requests made by Policyowners.
United Investors also reserves the right to establish additional Investment
Divisions of the Variable Account, each of which would invest in a new
Portfolio, 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 December 31, 1999 sales had not commenced.
Policies may be offered to the public through brokers licensed under the Federal
securities laws and state insurance laws that have entered into agreements with
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.
-14-
<PAGE>
STATE REGULATION
-----------------
United Investors is subject to regulation by the Missouri Department of
Insurance. An annual statement is filed with the Missouri Department of
Insurance on or before March 1 of each year covering the operations and
reporting on the financial condition of United Investors as of December 31 of
the preceding year. Periodically, the Missouri Department of Insurance or other
authorities examine the liabilities and reserves of United Investors and the
Variable Account, and a full examination of United Investors' operations is
conducted periodically by the National Association of Insurance Commissioners.
In addition, United Investors is subject to the insurance laws and
regulations of other states within which it is licensed or may become licensed
to operate. Generally, the insurance department of any other state applies the
laws of the state of domicile in determining permissible investments. A Policy
is governed by the law of the state in which it is delivered. The values and
benefits of each Policy are at least equal to those required by such state.
RECORDS AND REPORTS
-------------------
All records and accounts relating to the Variable Account will be
maintained by United Investors. As presently required by the Investment Company
Act of 1940 and regulations promulgated thereunder, reports containing such
information as may be required under that Act or by any other applicable law or
regulation will be sent to Owners at their last known address of record.
LEGAL MATTERS
-------------
Legal advice regarding certain matters relating to Federal securities laws
applicable to the issuance of the Policy has been provided by Sutherland Asbill
& Brennan LLP of Washington, D.C.
EXPERTS
-------
The balance sheet of United Investors Life Insurance Company as of December
31, 1999 and the related statement of operations, comprehensive income,
shareholders' equity and cash flow for the year ended December 31, 1999 included
in this statement of additional information have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report appearing herein,
and are included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The balance sheet of United Investors Life Insurance Company as of December
31, 1998, and the related statements of operations, comprehensive income,
shareholders' equity, and cash flows for each of the years in the two-year
period ended December 31, 1998 have been included herein in reliance upon the
report of KPMG LLP (formerly KPMG Peat Marwick LLP), independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
-15-
<PAGE>
OTHER INFORMATION
-----------------
A Registration Statement has been filed with the U.S. Securities and
Exchange Commission under the Securities Act of 1933, as amended, with respect
to the Policies discussed in this Statement of Additional Information. Not all
of the information set forth in the Registration Statement, amendments and
exhibits thereto has been included in the prospectus or this Statement of
Additional Information. Statements contained in the prospectus or this
Statement of Additional Information concerning the content of the Policies and
other legal instruments are intended to be summaries. For a complete statement
of the terms of these documents, reference should be made to the documents
themselves or to the instruments filed with the U.S. Securities and Exchange
Commission.
FINANCIAL STATEMENTS
--------------------
The financial statements of United Investors, which are included in this
Statement of Additional Information, should be considered only as bearing on the
ability of United Investors to meet its obligations under the Policies. They
should not be considered as bearing on the investment performance of the assets
held in the Variable Account.
There are no financial statements for the Variable Account because as of
December 31, 1999, it had not commenced operations and had no assets or
liabilities.
-16-
<PAGE>
Financial Statements
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
United Investors Life Insurance Company
Birmingham, Alabama
We have audited the accompanying balance sheet of United Investors Life
Insurance Company as of December 31, 1999, and the related statements of
operations, comprehensive income, shareholders' equity, and cash flow for the
year then ended. These financial statements are the responsibility of
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such 1999 financial statements present fairly, in all material
respects, the financial position of United Investors Life Insurance Company as
of December 31, 1999, and the results of its operations and its cash flow for
the year then ended in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
January 28, 2000
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
United Investors Life Insurance Company
Birmingham, Alabama
We have audited the accompanying balance sheet of United Investors Life
Insurance as of December 31, 1998 and the related statements of operations,
comprehensive income, shareholders' equity, and cash flows for each of the
years in the two-year period ended December 31, 1998. These financial
statements are the responsibility of United Investors Life Insurance Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of United Investors Life
Insurance Company as of December 31, 1998, and the results of its operations
and cash flows for each of the years in the two-year period ended December 31,
1998, in conformity with generally accepted accounting principles.
KPMG LLP
Birmingham, Alabama
January 29, 1999
F-2
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
BALANCE SHEETS
(Dollar amounts in thousands except per share data)
<TABLE>
<CAPTION>
At December 31,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities-available for sale, at fair value
(cost: 1999--$613,003; 1998--$612,586)................ $ 587,346 $ 643,151
Preferred stock of affiliate (cost: 1999--$188,212:
1998--$188,212)....................................... 188,212 188,212
Equity securities at fair value (cost: 1999--$3,400;
1998--$0)............................................. 2,635 0
Policy loans........................................... 19,665 18,009
Short term investments................................. 11,796 12,680
---------- ----------
Total investments................................... 809,654 862,052
Cash.................................................... 5,842 11,426
Accrued investment income (includes amounts from
affiliates: 1999--$675; 1998--$582).................... 11,550 11,747
Receivables............................................. 3,033 3,113
Due from affiliate (includes funds withheld on
reinsurance: 1999--$275,374; 1998--$229,194)........... 329,365 278,458
Deferred acquisition costs.............................. 227,170 183,033
Value of insurance purchased............................ 26,101 30,600
Goodwill................................................ 28,519 29,465
Property and equipment.................................. 221 96
Other assets............................................ 3,076 1,786
Separate account assets................................. 3,413,675 2,425,262
---------- ----------
Total assets........................................ $4,858,206 $3,837,038
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Future policy benefits (includes reserves assumed from
affiliates: 1999--$287,376; 1998--$241,357)........... $ 824,785 $ 776,461
Unearned and advance premiums.......................... 2,804 2,822
Other policy benefits.................................. 6,790 6,973
---------- ----------
Total policy liabilities............................ 834,379 786,256
Accrued income taxes................................... 50,112 55,498
Other liabilities...................................... 10,247 2,174
Due to affiliates...................................... 602 8,268
Separate account liabilities........................... 3,413,675 2,425,262
---------- ----------
Total liabilities................................... 4,309,015 3,277,458
Shareholders' equity:
Common stock, par value $6 per share authorized, issued
and outstanding: 500,000 shares....................... 3,000 3,000
Additional paid in capital............................. 350,714 350,388
Accumulated other comprehensive income (loss).......... (12,258) 15,654
Retained earnings...................................... 207,735 190,538
---------- ----------
Total shareholders' equity.......................... 549,191 559,580
---------- ----------
Total liabilities and shareholders' equity.......... $4,858,206 $3,837,038
========== ==========
</TABLE>
See accompanying Notes to Financial Statements.
F-3
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Premium income................................... $ 73,718 $ 69,987 $ 68,723
Policy charges and fees.......................... 56,652 45,113 36,582
Net investment income (includes amounts from af-
filiates 1999--$16,532;
1998--$13,082; 1997--$2,863).................... 63,388 61,373 51,514
Realized investment gains (losses)............... (5,023) 9,401 (5,365)
Other income (includes amounts from affiliates:
1999--$17,058;
1998--$13,665; 1997--$11,876)................... 17,058 13,665 11,876
-------- -------- --------
Total revenue.................................. 205,793 199,539 163,330
Benefits and expenses:
Policy benefits:
Individual life................................. 51,595 63,689 57,954
Annuity......................................... 26,686 13,633 15,165
-------- -------- --------
Total policy benefits.......................... 78,281 77,322 73,119
Amortization of deferred acquisition costs....... 33,284 27,874 24,898
Commissions and premium taxes (includes amounts
to affiliates:
1999--$3,679; 1998--$1,013; 1997--$4,928)....... 5,897 5,580 6,251
Other operating expenses (includes amounts to af-
filiates: 1999--$3,176;
1998--$3,252; 1997--$3,217)..................... 7,022 6,579 5,470
-------- -------- --------
Total benefits and expenses.................... 124,484 117,355 109,738
Net operating income before income taxes.......... 81,309 82,184 53,592
Income taxes...................................... 23,112 25,567 18,843
-------- -------- --------
Net income..................................... $ 58,197 $ 56,617 $ 34,749
======== ======== ========
</TABLE>
See accompanying Notes to Financial Statements.
F-4
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF COMPREHENSIVE INCOME
(Dollar amounts in thousands)
<TABLE>
<S> <C> <C> <C>
<CAPTION>
Year Ended December 31,
-------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net income.......................................... $58,197 $56,617 $34,749
Other comprehensive income:
Unrealized investment gains (losses):
Unrealized investment gains (losses) on
securities:
Unrealized holding gains (losses) arising during
period......................................... (61,690) 7,021 13,362
Reclassification adjustment for (gains) losses
on securities included in net income ........... 5,023 (1) 5,235
Reclassification adjustment for amortization of
(discount) and premium.......................... 446 502 744
------- ------- -------
(56,221) 7,522 19,341
Unrealized gains (losses) on other investments... (763) (6,330) 1,798
Unrealized gains (losses) on deferred acquisition
costs.......................................... 14,042 276 (5,387)
------- ------- -------
Total unrealized gains (losses) ................. (42,942) 1,468 15,752
Applicable tax................................... 15,030 (514) (5,512)
------- ------- -------
Other comprehensive income (loss)................... (27,912) 954 10,240
Comprehensive income............................. $30,285 $57,571 $44,989
======= ======= =======
</TABLE>
See accompanying Notes to Financial Statements.
F-5
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common Paid-in Comprehensive Retained Shareholders'
Stock Capital Income (Loss) Earnings Equity
------ ---------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C>
Year Ended at December
31, 1997
Balance at January 1,
1997................... $3,000 $137,950 $ 4,460 $166,652 $312,062
Comprehensive income.... 10,240 34,749 44,989
Dividends............... (26,000) (26,000)
Exercise of stock op-
tions.................. 519 519
------ -------- -------- -------- --------
Balance at December 31,
1997.................. 3,000 138,469 14,700 175,401 331,570
Year Ended at December
31, 1998
Comprehensive income.... 954 56,617 57,571
Dividends............... (33,500) (33,500)
Impact from reorganiza-
tion of Waddell &
Reed................... 211,851 (7,980) 203,871
Exercise of stock op-
tions.................. 68 68
------ -------- -------- -------- --------
Balance at December 31,
1998.................. $3,000 $350,388 $ 15,654 $190,538 $559,580
Year Ended at December
31, 1999
Comprehensive income.... (27,912) 58,197 30,285
Dividends............... (41,000) (41,000)
Exercise of stock op-
tions.................. 326 326
------ -------- -------- -------- --------
Balance at December 31,
1999.................. $3,000 $350,714 $(12,258) $207,735 $549,191
====== ======== ======== ======== ========
</TABLE>
See accompanying Notes to Financial Statements.
F-6
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net income.................................... $ 58,197 $ 56,617 $ 34,749
Adjustment to reconcile net income to cash
provided from operations:
Increase in future policy benefits.......... 14,953 13,871 17,878
Increase (decrease) in other policy liabili-
ties....................................... (202) (1,892) 749
Deferral of policy acquisition costs........ (58,880) (42,857) (33,485)
Value of business acquired.................. 0 0 (10,000)
Amortization of deferred acquisition costs.. 33,284 27,874 24,898
Change in accrued income taxes.............. 9,644 1,079 10,212
Depreciation................................ 41 39 42
Realized (gains) losses on sale of invest-
ments and properties....................... 5,023 (9,401) 5,365
Other accruals and adjustments.............. 4,553 (3,240) 1,817
-------- -------- --------
Cash provided from operations................. 66,613 42,090 52,225
-------- -------- --------
Cash used for investment activities:
Investments sold or matured:
Fixed maturities available for sale-sold..... 152,270 46,039 113,035
Fixed maturities available for sale-matured,
called and repaid........................... 50,760 76,583 66,469
Other long-term investments.................. 0 25,596 2,199
-------- -------- --------
Total investments sold or matured.......... 203,030 148,218 181,703
Acquisition of investments:
Fixed maturities available for sale.......... (208,912) (123,111) (176,905)
Equity securities............................ (3,400) 0 0
Net increase in policy loans................. (1,656) (2,192) (1,485)
Other long-term investments.................. 0 (36) (1,517)
-------- -------- --------
Total acquisition of investments........... (213,968) (125,339) (179,907)
Net (increase) decrease in short-term
investments.................................. 876 747 (11,589)
Funds loaned to affiliates.................... (126,120) (13,026) (24,080)
Funds repaid from affiliates.................. 117,800 2,400 24,080
Funds borrowed from affiliates................ 81,400 14,800 0
Funds repaid to affiliates ................... (81,400) (14,800) 0
Disposition of properties and equipment....... 0 5 0
Additions of properties and equipment......... (166) (37) (27)
-------- -------- --------
Cash provided from (used for) investment
activities................................... (18,548) 12,968 (9,820)
-------- -------- --------
Cash used for financing activities:
Cash dividends paid to shareholders......... (41,000) (33,500) (27,000)
Net receipts from deposit product opera-
tions...................................... (12,649) (15,420) (12,521)
-------- -------- --------
Cash used for financing activities............ (53,649) (48,920) (39,521)
Increase (decrease) in cash................... (5,584) 6,138 2,884
Cash at beginning of year..................... 11,426 5,288 2,404
-------- -------- --------
Cash at end of year........................... $ 5,842 $ 11,426 $ 5,288
======== ======== ========
</TABLE>
See accompanying Notes to Financial Statements.
F-7
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(Dollar amounts in thousands)
Note 1--Summary of Significant Accounting Policies
Organization: United Investors Life Insurance Company ("UILIC" or "United
Investors") was a wholly owned subsidiary of Waddell & Reed Financial, Inc.
("WDR") (formerly known as United Investors Management Company), a subsidiary
of Torchmark Corporation. On March 3, 1998, to facilitate the initial public
offering ("IPO") by Torchmark Corporation ("TMK") of 36% of the common stock of
WDR, several transactions were completed to reorganize the assets held by WDR.
The following transactions directly affected UILIC:
(i) WDR contributed 188,212 shares of TMK 6 1/2% Cumulative Preferred Stock,
Series A to UILIC.
(ii) WDR dividended the common stock of its subsidiary UILIC pro rata to
Liberty National Life Insurance Company ("LNL"), an 81.18% owner, and
TMK, an 18.82% owner. LNL is a wholly owned subsidiary of TMK.
(iii) Upon reorganization, UILIC recorded additional goodwill in the amount of
$23,639. This goodwill represented UILIC's portion of United Investors
Management Company's goodwill which was allocated between Waddell & Reed
and UILIC upon dividend of UILIC to TMK and LNL.
(iv) TMK transferred to UILIC a deferred commission credit of $7,980, net of
applicable tax of $4,297. This credit is being amortized over
approximately 10 years.
Description of Business: The Company is a life insurer licensed in 49
states. The Company offers a full range of life, annuity and variable products
through its agents and is subject to competition from other insurers throughout
the United States. The Company is subject to regulation by the insurance
department of states in which it is licensed, and undergoes periodic
examinations by those departments.
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the financial statements and revenues and expenses for the reporting period.
Actual results could differ significantly from those estimates.
The estimates susceptible to significant change are those used in
determining deferred acquisition costs the liability for policy reserves,
losses and claims. Although some variability is inherent in these estimates,
management believes the amounts provided are adequate.
Basis of Presentation: The accompanying financial statements include the
accounts of United Investors, an indirectly wholly-owned subsidiary of TMK, is
owned by Liberty National Life Insurance Company (81.18%) and Torchmark
Corporation (18.82%). The financial statements have been prepared on the basis
of generally accepted accounting principles ("GAAP").
Investments: United Investors classifies all of its fixed maturity
investments, which include bonds and redeemable preferred stocks, as available
for sale. Investments classified as available for sale are carried at fair
value with unrealized gains and losses, net of deferred taxes, reflected as a
component of accumulated other comprehensive income (loss) in shareholders'
equity. Investments in equity securities, which include common and
nonredeemable preferred stocks, are reported at fair value with unrealized
gains and losses, net of deferred taxes, reflected as a component of
accumulated other comprehenive income (loss) in shareholders' equity. Policy
loans are carried at unpaid principal balances. Short-term investments include
investments in certificates of deposit and other interest-bearing time deposits
with original maturities within three months. Other long-term investments
consist of investments in mutual funds which are carried at fair value. If an
investment becomes permanently impaired, such impairment is treated as a
realized loss and the investment is adjusted to net realizable value.
F-8
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 1--Summary of Significant Accounting Policies (continued)
Gains and losses realized on the disposition of investments are recognized
as revenues and are determined on a specific identification basis.
Realized investment gains and losses and investment income attributable to
separate accounts are credited to the separate accounts and have no effect on
United Investors' net income. Investment income attributable to policyholders
is included in United Investors' net investment income. Net investment income
for the years ended December 31, 1999, 1998 and 1997 included approximately
$35,900, $37,000, and $37,800, respectively, which was allocable to
policyholder reserves or accounts. Realized investment gains and losses are not
allocable to policyholders.
Determination of Fair Values of Financial Instruments: Fair value for cash,
short-term investments, receivables and payables approximates carrying value.
Fair values for investment securities are based on quoted market prices, where
available. Otherwise, fair values are based on quoted market prices of
comparable instruments. Fair value of future benefits for universal life and
current interest products and annuity products are based on the fund value.
Cash: Cash consists of balances on hand and on deposit in banks and
financial institutions.
Recognition of Revenue and Related Expenses: Premiums for insurance
contracts which are not defined as universal life-type according to the
Financial Accounting Standards Board's Statement of Accounting Standards (SFAS)
97 are recognized as revenue over the premium-paying period of the policy.
Premiums for limited-payment life insurance contracts as defined by SFAS 97 are
recognized over the contract period. Premiums for universal life-type and
annuity contracts are added to the policy account value, and revenues from such
products are recognized as charges to the policy account value for mortality,
administration, and surrenders (retrospective deposit method). The related
benefits and expenses are matched with revenues by means of the provision for
future policy benefits and the amortization of deferred acquisition costs in a
manner which recognizes profits as they are earned over the same period.
Future Policy Benefits: The liability for future policy benefits for
universal life-type products according to SFAS 97 is represented by policy
account value. Annuity contracts are accounted for as deposit contracts. The
liability for future policy benefits for other products is provided on the net
level premium method based on estimated investment yields, mortality,
persistency and other assumptions which were appropriate at the time the
policies were issued. Assumptions used are based on United Investors'
experience as adjusted to provide for possible adverse deviation. These
estimates are periodically reviewed and compared with actual experience. If it
is determined that future expected experience differs significantly from that
assumed, the estimates are revised.
Deferred Acquisition Costs and Value of Insurance Purchased: The costs of
acquiring new insurance business are deferred. Such costs consist of sales
commissions, underwriting expenses, and certain other selling expenses. The
costs of acquiring new business through the purchase of other companies and
blocks of insurance business are also deferred.
Deferred acquisition costs and the value of insurance purchased, for
policies other than universal life-type policies, according to SFAS 97, are
amortized with interest over an estimate of the premium-paying period of the
policies in a manner which charges each year's operations in proportion to the
receipt of premium income. For limited-payment contracts, acquisition costs are
amortized over the contract period. For universal life-type policies,
acquisition costs are amortized with interest in proportion to estimated gross
profits. The assumptions used as to interest, withdrawals and mortality are
consistent with those used in computing the liability for future policy
benefits and expenses. If it is determined that future experience differs
significantly from that
F-9
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 1--Summary of Significant Accounting Policies (continued)
previously assumed, the estimates are revised. Deferred acquisition costs are
adjusted to reflect the amounts associated with unrealized investment gains and
losses pertaining to universal life-type products.
Income Taxes: Income taxes are accounted for under the asset and liability
method in accordance with SFAS 109. Under the asset and liability method,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement book
values and tax bases of assets and liabilities. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Interest Expense: Interest expense includes interest on borrowed funds not
used in the production of investment income. Interest expense relating to the
production of investment income is deducted from investment income.
Property and Equipment: Property and equipment is reported at cost less
allowances for depreciation. Depreciation is provided on the straight-line
method over the estimated useful lives of these assets which range from three
to ten years.
Goodwill: Goodwill represents the excess cost over the fair value of the net
assets acquired when United Investors was purchased by Torchmark Corporation
(Torchmark) in 1981 and is being amortized on a straight-line basis over forty
years. In 1998 United Investors recorded additional goodwill of $23,639 upon
the reorganization of the company as outlined in Note 1--"Organization." This
additional goodwill is being amortized on a straight-line basis over thirty-
five years.
Reclassification: Certain amounts in the financial statements presented have
been reclassified from amounts previously reported in order to be comparable
between years. These reclassifications have no effect on previously reported
shareholders' equity or net income during the periods involved.
Comprehensive Income: United Investors adopted SFAS 130, "Reporting
Comprehensive Income," effective January 1, 1998. This standard defines
comprehensive income as the change in equity of a business enterprise during a
period from transactions from all nonowner sources. It requires the company to
display comprehensive income for the period, consisting of net income and other
comprehensive income. In compliance with SFAS 130, Statements of Comprehensive
Income is included as an integral part of the financial statements.
Earnings on Derivatives: Accounting for Derivative Instruments and Hedging
Activities (FASB Statement No. 133), as amended by FASB Statement No. 137, is
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000, with earlier application of all of the provisions of this statement
encouraged. Early adoption of selective provisions is prohibited. Prior periods
may not be restated for comparability. This statement establishes standards for
the accounting and reporting of derivative instruments. It requires that all
derivatives be recognized as assets or liabilities on the balance sheet and be
measured at fair value. Changes in the values of derivatives for the reporting
period are reflected as adjustments to earnings through realized gains and
losses. If certain conditions are met, a derivative may be designated as a
hedge against exposure to market risks of other instruments or commitments,
cash flow risks, or foreign currency risks. If a derivative is classified as a
hedge, the adjustment to earnings is offset by a corresponding change in the
value of the item hedged. Hedging relationships may be designated anew upon
adoption of this statement. Management believes that Statement 133 will have an
immaterial impact on UILIC's financial statements.
F-10
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 2--Statutory Accounting
United Investors is required to file statutory financial statements with
state insurance regulatory authorities. Accounting principles used to prepare
these statutory financial statements differ from GAAP. Net income and
shareholders' equity on a statutory basis for United Investors were as follows:
<TABLE>
<CAPTION>
Net Income Shareholders' Equity
Year Ended December 31, At December 31,
---------------------------------------- ---------------------------------
1999 1998 1997 1999 1998
-------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C>
$49,235 $47,294 $34,537 $171,458 $169,757
</TABLE>
The excess of shareholders' equity on a GAAP basis over that determined on a
statutory basis is not available for distribution to shareholders without
regulatory approval.
A reconciliation of United Investors' statutory net income to GAAP net
income is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Statutory net income........................... $ 49,235 $ 47,294 $ 34,537
Deferral of acquisition costs.................. 58,880 42,857 33,485
Amortization of acquisition costs.............. (33,284) (27,874) (24,898)
Differences in policy liabilities.............. (3,887) 1,417 (2,113)
Deferred income taxes.......................... (6,996) (6,422) (6,053)
Other.......................................... (5,751) (655) (209)
-------- -------- --------
GAAP net income................................ $ 58,197 $ 56,617 $ 34,749
======== ======== ========
</TABLE>
A reconciliation of United Investors' statutory shareholders' equity to GAAP
shareholders' equity is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Statutory shareholders' equity................... $ 171,458 $ 169,757
Differences in policy liabilities................ 5,987 9,208
Deferred acquisition cost and value of insurance
purchased....................................... 253,271 213,633
Deferred income taxes............................ (51,541) (59,575)
Asset valuation reserve.......................... 5,806 4,781
Nonadmitted assets............................... 5,168 3,348
Fair value adjustment on fixed maturities
available for sale.............................. (25,656) 30,565
Fair value adjustment on preferred stock of
affiliate....................................... 188,212 188,212
Goodwill......................................... 28,519 29,465
Due and deferred premiums........................ (30,471) (30,317)
Other............................................ (1,562) 503
----------- -----------
GAAP shareholders' equity........................ $ 549,191 $559,580
=========== ===========
</TABLE>
The NAIC requires that a risk based capital formula be applied to all life
and health insurers. The risk based capital formula is a threshold formula
rather than a target capital formula. It is designed only to identify companies
that require regulatory attention and is not to be used to rate or rank
companies that are adequately capitalized. United Investors is adequately
capitalized under the risk based capital formula.
F-11
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 3--Investment Operations
Investment income is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Fixed maturities.................................. $ 45,728 $45,889 $46,000
Policy loans...................................... 1,327 1,186 1,107
Other long-term investments....................... 135 84 1,614
Short-term investments............................ 468 743 436
Other income...................................... 0 954 0
Interest and dividends from affiliates............ 16,532 13,082 2,863
-------- ------- -------
64,190 61,938 52,020
Less investment expense........................... (802) (565) (506)
-------- ------- -------
Net investment income............................. $ 63,388 $61,373 $51,514
======== ======= =======
Analysis of gains (losses) from investments:
Realized investments gains (losses)
Fixed maturities................................ $ (5,023) $ 1 $(5,235)
Mutual funds.................................... 0 9,400 (130)
-------- ------- -------
$ (5,023) $ 9,401 $(5,365)
======== ======= =======
Analysis of change in unrealized gains (losses):
Net change in unrealized investments gains
(losses) on fixed maturities available for sale
before tax....................................... (56,221) 7,522 19,341
Net change in unrealized gains (losses) on equity
securities....................................... (765) 0 0
Net change in unrealized investments gains
(losses) on short-term investments before tax.... 2 (2) 0
Other (includes loss of $5,946 related to sale of
mutual fund shares in 1998)...................... 0 (6,328) 1,798
Adjustment for deferred acquisition cost.......... 14,042 276 (5,387)
Applicable tax.................................... 15,030 (514) (5,512)
-------- ------- -------
Net change in unrealized gains (losses) on short-
term investments and fixed maturities available
for sale......................................... $(27,912) $ 954 $10,240
======== ======= =======
</TABLE>
F-12
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 3--Investment Operations (continued)
A summary of fixed maturities available for sale by cost or amortized cost,
gross unrealized gains and losses and fair value at December 31, 1999 and 1998
is as follows:
<TABLE>
<CAPTION>
Cost or Gross Gross Amount per
Amortized Unrealized Unrealized Fair the Balance
1999: Cost Gains Losses Value Sheet
- ----- --------- ---------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
Fixed maturities avail-
able for sale:
Bonds:
U.S. Government direct
obligations and
agencies............... $ 7,240 $ 30 $ (174) $ 7,096 $ 7,096
GNMA's.................. 64,952 1,675 (536) 66,091 66,091
MBS, GNMA Collateral.... 3,177 7 0 3,184 3,184
Other mortgage-backed
securities............. 23,658 0 (457) 23,201 23,201
States, municipalities
and political
subdivisions........... 18,416 0 (267) 18,149 18,149
Foreign governments..... 3,012 66 0 3,078 3,078
Public utilities........ 54,010 102 (2,150) 51,962 51,962
Industrial and
miscellaneous.......... 438,538 439 (24,392) 414,585 414,585
-------- ------- -------- -------- --------
Total fixed maturities.. $613,003 $ 2,319 $(27,976) $587,346 $587,346
======== ======= ======== ======== ========
Equity Securities:
Common Stock............ $ 3,400 $ -- $ (765) $ 2,635 $ 2,635
======== ======= ======== ======== ========
<CAPTION>
1998:
- -----
<S> <C> <C> <C> <C> <C>
Fixed maturities avail-
able for sale:
Bonds:
U.S. Government direct
obligations and
agencies............... $ 21,441 $ 1,959 $ 0 $ 23,400 $ 23,400
GNMA's.................. 89,674 4,022 (18) 93,678 93,678
Mortgage-backed
securities, GNMA
collateral............. 7,488 71 (1) 7,558 7,558
Other mortgage-backed
securities............. 20,961 1,368 0 22,329 22,329
States, municipalities
and political
subdivisions........... 28,610 1,236 0 29,846 29,846
Public utilities........ 31,454 2,287 0 33,741 33,741
Industrial and
miscellaneous.......... 412,958 21,971 (2,330) 432,599 432,599
-------- ------- -------- -------- --------
Total fixed maturities.. $612,586 $32,914 $ (2,349) $643,151 $643,151
======== ======= ======== ======== ========
</TABLE>
F-13
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 3--Investment Operations (continued)
A schedule of fixed maturities by contractual maturity at December 31, 1999
is shown below on an amortized cost basis and on a fair value basis. Actual
maturities could differ from contractual maturities due to call or prepayment
provisions.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
--------- --------
<S> <C> <C>
Fixed maturities available for sale:
Due in one year or less................................. $ 11,335 $ 11,423
Due from one to five years.............................. 57,297 57,250
Due from five to ten years.............................. 234,712 225,812
Due after ten years..................................... 199,693 185,507
-------- --------
503,037 479,992
Mortgage- and asset-backed securities.................... 109,966 107,354
-------- --------
$613,003 $587,346
======== ========
</TABLE>
Proceeds from sales of fixed maturities available for sale were $157,270 in
1999, $46,039 in 1998, and $113,035 in 1997. Gross gains realized on these
sales were $337 in 1999, $928 in 1998, and $112 in 1997. Gross losses on these
sales were $5,653 in 1999, $927 in 1998, and $5,716 in 1997.
Note 4--Deferred Acquisition Cost and Value of Insurance Purchased
An analysis of deferred acquisition costs and the value of insurance
purchased is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- --------------------- ---------------------
Deferred Value of Deferred Value of Deferred Value of
Acquisition Insurance Acquisition Insurance Acquisition Insurance
Cost Purchased Cost Purchased Cost Purchased
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of
year................... $183,033 $30,600 $176,897 $33,754 $169,986 $16,160
Additions:
Deferred during peri-
od:
Commissions........... 49,812 0 36,328 0 27,664 0
Other expenses........ 9,068 0 6,529 0 5,821 0
-------- ------- -------- ------- -------- -------
Total deferred....... 58,880 0 42,857 0 33,485 0
Value of insurance
purchased............ 0 0 0 0 0 21,305
Adjustment attributable
to unrealized invest-
ment losses (1)....... 14,042 0 276 0 0 0
-------- ------- -------- ------- -------- -------
Total additions...... 72,922 0 43,133 0 33,485 21,305
Deductions:
Amortized during peri-
od................... (28,785) (4,499) (24,720) (3,154) (21,019) (3,711)
Adjustment
attributable to
unrealized investment
gains (1)............ 0 0 0 0 (5,387) 0
Adjustment attribut-
able to realized
investment gains
(1).................. 0 0 0 0 (168) 0
Adjustment to deferred
commissions due to
reorganization....... 0 0 (12,277) 0 0 0
-------- ------- -------- ------- -------- -------
Total deductions..... (28,785) (4,499) (36,997) (3,154) (26,574) (3,711)
-------- ------- -------- ------- -------- -------
Balance at end of year.. $227,170 $26,101 $183,033 $30,600 $176,897 $33,754
======== ======= ======== ======= ======== =======
</TABLE>
- --------
(1) Represents amounts pertaining to investments relating to universal life-
type products.
F-14
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
The amount of interest accrued on the unamortized balance of value of
insurance purchased was approximately $578, $755, and $938 for the years ended
December 31, 1999, 1998 and 1997, respectively. The average interest accrual
rates used were 6.00%, 6.15% and 6.29%, respectively. The estimated amount of
the unamortized value of business purchased balance at December 31, 1999 to be
amortized during each of the next five years is: 2000, $3,159; 2001, $2,636;
2002, $2,244; 2003, $1,950; and 2004, $1,729.
In the event of lapses or early withdrawals in excess of those assumed,
deferred acquisition costs and the value of insurance purchased may not be
recoverable.
Note 5--Property and Equipment
A summary of property and equipment used in the business is as follows:
<TABLE>
<CAPTION>
At December 31, At December 31,
1999 1998
------------------- -------------------
Accumulated Accumulated
Cost Depreciation Cost Depreciation
------ ------------ ------ ------------
<S> <C> <C> <C> <C>
Data processing equipment.............. $ 366 $ 209 $ 227 $ 178
Transportation equipment............... 72 42 72 36
Furniture and office equipment ........ 955 921 928 917
------ ------ ------ ------
Total................................ $1,393 $1,172 $1,227 $1,131
====== ====== ====== ======
</TABLE>
Depreciation expense on property and equipment used in the business was $41,
$39 and $42 in each of the years 1999, 1998, and 1997, respectively.
Note 6--Future Policy Benefit Reserves
A summary of the assumptions used in determining the liability for future
policy benefits at December 31, 1999 is as follows:
Individual Life Insurance
Interest Assumptions:
<TABLE>
<CAPTION>
Percent of
Years of Issue Interest Rates Liability
-------------- -------------------------- ----------
<S> <C> <C>
1962-1999 3.00% level to 6.00% level 15%
1986-1992 7.00% graded to 6.00% 23%
1962-1985 8.50% graded to 6.00% 3%
1981-1985 8.50% graded to 7.00% 3%
1984-1999 Interest Sensitive 56%
----
100%
====
</TABLE>
Mortality assumptions:
The mortality tables used are various statutory mortality tables and
modifications of:
1965-70 Select and Ultimate Table
1975-80 Select and Ultimate Table
Withdrawal assumptions:
Withdrawal assumptions are based on United Investors' experience.
F-15
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 7--Income Taxes
United Investors is included in the life-nonlife consolidated federal income
tax return filed by Torchmark. Under the tax allocation agreement with
Torchmark, a company with taxable income pays tax equal to the amount it would
pay if it filed a separate tax return. A company with a loss is paid a tax
benefit currently to the extent that affiliated companies with taxable income
utilize that loss.
Total income taxes were allocated as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Operating income............................... $ 23,112 $25,567 $18,843
Shareholders' equity:
Unrealized gains (losses)..................... (15,030) 514 5,512
Tax basis compensation expense in excess of
amounts recognized for financial reporting
purposes from the exercise of stock options.. (326) (68) (519)
Tax benefit received on deferred commission
credit due to reorganization................. 0 (4,297) 0
Other......................................... 132 300 1
-------- ------- -------
$ 7,888 $22,016 $23,837
======== ======= =======
</TABLE>
Income tax expense before the adjustments to shareholders' equity is
summarized below:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Current income tax expense......................... $16,116 $19,145 $12,790
Deferred income tax expense........................ 6,996 6,422 6,053
------- ------- -------
$23,112 $25,567 $18,843
======= ======= =======
</TABLE>
In 1999, 1998, and 1997, deferred income tax expense was incurred because of
the difference between net operating income before income taxes as reported on
the statements of operations and taxable income as reported on United
Investor's income tax returns. As explained in Note 1, this difference caused
the financial statement book values of some assets and liabilities to be
different from their respective tax bases.
The effective income tax rate differed from the expected 35% rate in 1999,
1998 and 1997 as shown below:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1999 % 1998 % 1997 %
------- --- ------- --- ------- ---
<S> <C> <C> <C> <C> <C> <C>
Expected income taxes............... $28,458 35% $28,764 35% $18,757 35%
Increase (reduction) in income taxes
resulting from:
Tax-exempt investment income....... (5,682) (7) (3,532) (4) (18) 0
Purchase accounting differences.... 331 0 331 0 99 0
Other.............................. 5 0 4 0 5 0
------- --- ------- --- ------- ---
Income taxes........................ $23,112 28% $25,567 31% $18,843 35%
======= === ======= === ======= ===
</TABLE>
F-16
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 7--Income Taxes (continued)
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Unrealized investment losses....................... $ 6,601 $ 0
Present value of future policy surrender charges... 28,534 20,153
Other liabilities, principally due to the current
nondeductibilty for tax purposes of certain
accrued expenses.................................. 183 132
----------- -----------
Total gross deferred tax assets.................... 35,318 20,285
Deferred tax liabilities:
Future policy benefits and unearned and advance
premiums.......................................... 8,599 2,022
Deferred acquisition costs......................... 73,791 61,881
Unrealized investment gains........................ 0 8,428
Other.............................................. 4,469 7,529
----------- -----------
Total gross deferred tax liabilities............... 86,859 79,860
----------- -----------
Net deferred tax liability.......................... $ 51,541 $ 59,575
=========== ===========
</TABLE>
In United Investors' opinion, all deferred tax assets will be recoverable.
United Investors has not recognized a deferred tax liability of
approximately $2,200 that arose prior to 1984 on temporary differences related
to its policyholders' surplus account. A current tax expense will be recognized
in the future if and when this tax becomes payable.
Note 8--Postretirement Benefits
Pension Plans: United Investors has retirement benefit plans and savings
plans which cover substantially all employees. There is also a nonqualified
excess benefit plan which covers certain employees. The plans cover primarily
employees of United Investors, Liberty National and Torchmark. The total cost
of these retirement plans charged to UILIC's operations was as follows:
<TABLE>
<CAPTION>
Defined
Defined Benefit
Year Ended Contribution Pension
December 31, Plans Plans
------------ ------------ -------
<S> <C> <C>
1999.................................................. $71 $121
1998.................................................. 42 114
1997.................................................. 44 118
</TABLE>
United Investors accrues expense for the defined contribution plans based on
a percentage of the employees contributions. The plans are funded by the
employee contributions and a United Investors contribution equal to the amount
of accrued expense.
F-17
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 8--Postretirement Benefits (continued)
Cost for the defined benefit pension plans has been calculated on the
projected unit credit actuarial cost method. Contributions are made to the
pension plans subject to minimums required by regulation and maximums allowed
for tax purposes. Accrued pension expense in excess of amounts contributed has
been recorded as a liability in UILIC's financial statements and was $177
thousand and $55 thousand at December 31, 1999 and 1998, respectively. The
total unfunded plan liability recorded at December 31, 1999 was $1,271. The
plans covering the majority of employees are organized as trust funds whose
assets consist primarily of investments in marketable long-term fixed
maturities and equity securities which are valued at market.
The excess benefit pension plan provides the benefits that an employee would
have otherwise received from a defined benefit pension plan in the absence of
the Internal Revenue Codes limitation on benefits payable under a qualified
plan. Although this plan is unfunded, pension cost is determined in a similar
manner as for the funded plans. UILIC's liability for the excess benefit plan
was $19 thousand and $19 thousand as of December 31, 1999 and 1998,
respectively.
Net periodic pension cost for the defined benefit plans by expense component
was as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Service cost--benefits earned during period..... $ 725 $ 679 $ 638
Interest cost on projected benefit obligation... 1,420 1,657 1,575
Return on assets................................ (3,035) (3,118) (2,335)
Net amortization and deferral................... 1,701 1,942 1,351
------- ------- -------
Total net periodic cost........................ 811 1,160 1,229
Periodic cost allocated to other participating
employers..................................... 689 1,046 1,111
------- ------- -------
UILIC's net periodic cost....................... $ 122 $ 114 $ 118
======= ======= =======
</TABLE>
F-18
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 8--Postretirement Benefits (continued)
United Investors adopted FASB Statement No. 132, Employers Disclosures about
Pensions and Other Postretirement Benefits, effective for year-end 1998 with
comparative periods restated. In accordance with this Standard, the following
table presents a reconciliation from the beginning to the end of the year of
the benefit obligation and plan assets. This table also presents a
reconciliation of the plans funded status with the.amounts recognized on United
Investors' and Liberty National's balance sheet.
<TABLE>
<CAPTION>
Pension
Benefits For
the year ended
December 31,
----------------
1999 1998
------- -------
<S> <C> <C>
Changes in benefit obligation:
Obligation at the beginning of year...................... $23,230 $21,841
Service cost............................................. 725 679
Interest cost............................................ 1,761 1,657
Actuarial gain (loss).................................... (412) 1,061
Benefits paid............................................ (2,020) (2,008)
------- -------
Obligation at the end of year............................ 23,284 23,230
Changes in plan assets:
Fair value at the beginning of year...................... 18,140 16,054
Return on assets......................................... 3,035 3,118
Contributions............................................ 550 976
Benefits paid............................................ (2,020) (2,008)
------- -------
Fair value at the end of year............................ 19,705 18,140
------- -------
Funded status at year end............................ (3,579) (5,090)
Unrecognized amounts at year end:
Unrecognized actuarial loss (gain)....................... (2,935) (775)
Unrecognized prior service cost.......................... 951 1,044
Unrecognized transition obligation....................... 0 0
------- -------
Net amount recognized at year end...................... $(5,563) $(4,821)
======= =======
Amounts recognized consist of:
Prepaid benefit cost..................................... $(1,271) $ (459)
Accrued benefit liability................................ (4,651) (4,707)
Intangible asset......................................... 359 345
------- -------
Net amount recognized at year end....................... (5,563) (4,821)
Net amount recognized allocated to other participating
employers.............................................. (5,367) (4,747)
------- -------
UILIC's net amount recognized at year end................ $ (196) $ (74)
======= =======
</TABLE>
The weighted average assumed discount rates used in determining the
actuarial benefit obligations were 7.5% in 1999 and 7.0% in 1998. The rate of
assumed compensation increase was 4.5% in 1999 and 4.0% in 1998 while the
expected long-term rate of return on plan assets was 9.25% in 1999 and 9.25% in
1998.
Postretirement Benefit Plans Other Than Pensions: United Investors provides
postretirement life insurance benefits for most retired employees, and also
provides additional postretirement life insurance benefits for certain key
employees. The majority of the life insurance benefits are accrued over the
working lives of active employees.
F-19
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 8--Postretirement Benefits (continued)
For retired employees over age sixty-five, United Investors does not provide
postretirement benefits other than pensions. United Investors does provide a
portion of the cost for health insurance benefits for employees who retired
before February 1, 1993 and before age sixty-five, covering them until they
reach age sixty-five. Eligibility for this benefit was generally achieved at
age fifty-five with at least fifteen years of service. This subsidy is minimal
to retired employees who did not retire before February 1,1993. This plan is
unfunded.
The components of net periodic postretirement benefit cost other than
pensions is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Service cost ................................... $ 89 $ 112 $ 86
Interest on accumulated postretirement. benefit
obligation..................................... 277 377 357
Return on assets................................ 0 0 0
Net amortization and deferral................... (402) (251) (374)
------- ------- -------
Total net periodic postretirement cost......... (36) 238 69
Periodic cost allocated to other participating
employers..................................... (35) 233 68
------- ------- -------
UILIC's net periodic postretirement cost........ $ (1) $ 5 $ 1
======= ======= =======
</TABLE>
The following table presents a reconciliation of the benefit obligation and
plan assets from the beginning to the end of the year, also reconciling the
funded status to the accrued benefit liability.
<TABLE>
<CAPTION>
Benefits Other than Pension
For the year ended
December 31,
----------------------------
1999 1998
------------- -------------
<S> <C> <C>
Changes in benefit obligation:
Obligation at the beginning of year.......... $ 5,262 $ 4,775
Service cost................................. 89 112
Interest cost................................ 277 377
Actuarial gain (loss)........................ (1,255) 559
Benefits paid................................ (490) (561)
------------- -------------
Obligation at the end of year................ 3,883 5,262
Changes in plan assets:
Fair value at the beginning of year.......... 0 0
Return on assets............................. 0 0
Contributions................................ 490 561
Benefits paid................................ (490) (561)
------------- -------------
Fair value at the end of year................ 0 0
------------- -------------
Funded status at year end.................. (3,883) (5,262)
Unrecognized amounts at year end:
Unrecognized actuarial loss (gain)........... (1,612) (553)
Unrecognized prior service cost.............. (151) (357)
------------- -------------
Net amount recognized at year end as accrued
benefit liability.......................... (5,646) (6,172)
Net amount recognized allocated to other
participating employers.................... (5,555) (6,070)
------------- -------------
UILIC's net amount recognized at year end as
accrued benefit liability................... $ (91) $ (102)
============= =============
</TABLE>
F-20
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 8--Postretirement Benefits (continued)
For measurement purposes, an 8.0% annual rate of increase in per capita cost
of covered healthcare benefits was assumed for 1999. These rates grade to
ranges of 8.0% to 4.5% by the year 2004. The health care cost trend rate
assumption has a significant effect on the amounts reported, as illustrated in
the following table which presents the effect of a one-percentage-point
increase and decrease on the service and interest cost components and the
benefit obligation:
Effect on:
<TABLE>
<CAPTION>
Change in Trend
Rate
-----------------
1% 1%
Increase Decrease
-------- --------
<S> <C> <C>
Service and interest cost components....................... $ 27 $ (24)
Benefit obligation......................................... 241 (225)
</TABLE>
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.50% in 1999 and 7.00% in 1998.
Note 9--Related Party Transactions
United Investors was charged for space, equipment and services provided by
an affiliate amounting to $1,835 in 1999, $1,840 in 1998, and $1,852 in 1997.
Torchmark performed certain administrative services for United Investors for
which it was charged $408 in 1999, $612 in 1998, and $468 in 1997.
In 1997, United Investors loaned Torchmark, Liberty National and United
American Insurance Company (United American), an affiliate, $8,060, $10,520 and
$5,500 respectively, at an interest rate of 5.5% all of which were repaid prior
to December 31, 1997. Interest income related to these loans totaling $25 is
included in the accompanying financial statements. United Investors in 1998
loaned Liberty National and United American $1,400 and $1,000 respectively at
an interest rate of 5.5% all of which were repaid as of December 31, 1998.
Interest income related to these loans totaling $4 is included in the
accompanying financial statements. During 1999, United Investors borrowed in a
series of notes $57,000, $2,200, $20,700 and $800 from Globe Life and Accident
Insurance Company (Globe), an affiliate, Liberty National, Torchmark and United
American, respectively. All these notes had a 5.5% interest rate and were
repaid prior to December 31, 1999 and the interest expense related to these
notes of $204 is included in the accompanying financial statements. United
Investors during 1999 loaned in a series of notes $6,100 and $111,800 to
Liberty National and Torchmark, respectively. These notes had a 5.5% interest
rate and were repaid prior to December 31, 1999. In addition, Torchmark repaid
in 1999 a $35,000 note originated in 1994 having an interest rate of 8.110% and
borrowed an additional $35,000 at an interest rate of 7.05%. During 1999,
United Investors received income of $4,300 from these notes which are included
in the accompanying financial statements.
Effective January 1, 1997 United Investors assumed a block of annuity
products totaling $200,321 from United American on 100% funds withheld basis.
In connection with this transaction, United Investors paid a ceding fee
totaling $21,305, $10,000 of which was paid in cash, and recorded a due from
affiliates totaling $189,016 at the end of 1997. The funds withheld totaled
$275,355 and $229,194 at December, 1999 and 1998, respectively. Interest income
totaled $17,058, $13,665 and $11,876 in 1999, 1998 and 1997, respectively, and
is included in other income. The reserve for annuity balances assumed in
connection with this business totaled $287,376 and $241,357 as of December 31,
1999 and 1998, respectively. United Investors reimbursed United American for
administrative expenses in the amount of $933, $800, and $897 in 1999, 1998 and
1997, respectively.
F-21
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
United Investors serves as sponsor to four separate accounts. During 1997,
United Investors was also a investor in two of the separate accounts. These
investments were sold during 1998 for $18.4 million and United Investors is no
longer a depositor to any of its separate accounts.
On March 3, 1998, Waddell & Reed Financial, Inc. contributed 188,212 shares
of TMK 6 1/2% Cumulative Preferred Stock, Series A to UILIC due to the
reorganization discussed in Note 1--Summary of Significant Accounting Policies.
Dividend income, on these shares, in the amount of $12,234 in 1999 and $10,093
in 1998 is included in the accompanying financial statements.
Note 10--Commitments and Contingencies
Reinsurance: United Investors reinsures that portion of insurance risk which
is in excess of its retention limit. The maximum net retention limit for
ordinary life insurance is $500 per life. Life insurance ceded represented 2%
of total life insurance in force at December 31, 1999 and 3% of premium income
for 1999. United Investors would be liable for the reinsured risks ceded to
other companies to the extent that such reinsuring companies are unable to meet
their obligation. Except as disclosed in Note 9, United Investors does not
assume insurance risks of other companies.
Restrictions on the Transfer of Funds: Regulatory restrictions exist on the
transfer of funds from insurance companies. These restrictions generally limit
the payment of dividends to the statutory net gain from operations of the prior
year in the absence of special approval. Additionally, insurance companies are
not permitted to distribute the excess of shareholders' equity as determined on
a GAAP basis over that determined on a statutory basis. Restricted net assets
at December 31, 1999 in compliance with all regulations were $380,733.
Litigation: United Investors is engaged in routine litigation arising from
the normal course of business. In management's opinion, this litigation will
not materially affect United Investors' financial position or results of
operations.
Concentration of Credit Risk: United Investors maintains a highly
diversified investment portfolio with limited concentration in any given
region, industry, or economic characteristic. The portfolio consists of
securities of the U.S. government or U.S. government-backed securities (10%);
nongovernment-guaranteed mortgage-backed securities (3%); securities of state
and municipal governments (2%); investment-grade corporate bonds (49%);
preferred stock in affiliates (23%); noninvestment-grade securities (9%); and
policy loans (2%), which are secured by the underlying insurance policy values.
The balance of the portfolio is invested in short-term investments and
equities.
Investments in municipal governments and corporations are made throughout
the U.S. with no concentration in any given state. Corporate debt and equity
investments are made in a wide range of industries. At December 31, 1999, 1% or
more of the portfolio was invested in the following industries; Electric, gas,
and sanitary services (7%); depository institutions (5%); chemicals and allied
products (4%); nondepository credit institutions (4%); food and kindred
products (3%); industrial and commercial machinery, and computer equipment
(3%); printing, publishing, and allied lines (3%); transportation equipment
(3%); metal fabricators (3%); general merchandise stores (2%); communications
(2%); insurance carriers (2%); railroad transportation (2%); petroleum refining
and related industries (2%); motor freight transportation and warehousing (2%);
and investment holding companies (2%). At year-end 1999, 9% of the carrying
value of fixed maturities was rated below investment grade (BB or lower as
rated by Standard & Poor's or the equivalent NAIC designation). Par value of
these investments was $76.0 million, amortized cost was $75.7 million, and
market value was $71.6 million. While these investments could be subject to
additional credit risk, such risk should generally be reflected in market
value.
F-22
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 10--Commitments and Contingencies (continued)
Collateral Requirements: United Investors requires collateral for
investments in instruments where collateral is available and typically required
because of the nature of the investment. Since the majority of United
Investors' investments are in government, government-secured, or corporate
securities, the requirement for collateral is rare.
Note 11--Supplemental Disclosures for Cash Flow Statement
The following table summarizes United Investors' noncash transactions, which
are not reflected on the statement of cash flow as required by GAAP:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Due from affiliates........................... $274,744 $229,194 $189,016
Value of business purchased................... 0 0 11,305
Future policy benefits........................ 287,376 241,357 200,321
Impact from reorganization of
Waddell & Reed .............................. 0 203,871 0
The following table summarizes certain amounts paid during the period:
<CAPTION>
Year Ended December 31,
--------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Taxes paid.................................... $ 13,142 $26,054 $8,631
</TABLE>
Note 12--Business Segments
United Investors' segments are based on the insurance product lines it
markets and administers, life insurance and annuities. These major product
lines are set out as segments because of the common characteristics of products
within these categories, comparability of margins, and the similarity in
regulatory environment and management techniques. There is also an investment
segment which manages the investment portfolio, debt, and cash flow for the
insurance segments and the corporate function.
Life insurance products include traditional and interest-sensitive whole
life insurance as well as term life insurance. Annuities include both fixed-
benefit and variable contracts. Variable contracts allow policyholders to
choose from a variety of mutual funds in which to direct their deposits.
United Investors markets its insurance products through a number of
distribution channels, each of which sells the products of one or more of
United Investors' insurance segments. The tables below present segment premium
revenue by each of United Investors' marketing groups.
<TABLE>
<CAPTION>
For the Year 1999
------------------------------------------
Life Annuity Total
------------- ------------ -------------
% of % of % of
Distribution Channel Amount Total Amount Total Amount Total
- -------------------- ------- ----- ------ ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Independent Producers............... $ 6,526 8.9% $ -- $ 6,526 8.9%
Waddell & Reed...................... 60,996 83.2% 60,996 82.7%
Liberty National.................... 5,399 7.4% 5,399 7.3%
United American..................... 48 0.1% 473 100.0% 521 0.7%
Globe Direct Response............... 276 0.4% 276 0.4%
------- ----- ----- ----- ------- -----
$73,245 100.0% $ 473 100.0% $73,718 100.0%
======= ===== ===== ===== ======= =====
</TABLE>
F-23
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 12--Business Segments (continued)
<TABLE>
<CAPTION>
For the Year 1998
------------------------------------------
Life Annuity Total
------------- ------------ -------------
% of % of % of
Distribution Channel Amount Total Amount Total Amount Total
- -------------------- ------- ----- ------ ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Independent Producers............... $ 8,004 11.5% $-- $ 8,004 11.4%
Waddell & Reed...................... 61,511 88.4% 61,511 87.9%
United American .................... 415 100.0% 415 0.6%
Globe Direct Response............... 57 0.1% 57 0.1%
------- ----- ---- ----- ------- -----
$69,572 100.0% $415 100.0% $69,987 100.0%
======= ===== ==== ===== ======= =====
<CAPTION>
For the Year 1997
------------------------------------------
Life Annuity Total
------------- ------------ -------------
% of % of % of
Distribution Channel Amount Total Amount Total Amount Total
- -------------------- ------- ----- ------ ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Independent Producers............... $ 7,264 10.6% $-- $ 7,264 10.6%
Waddell & Reed...................... 61,149 89.4% 61,149 89.0%
United American .................... 310 100.0% 310 0.4%
------- ----- ---- ----- ------- -----
$68,413 100.0% $310 100.0% $68,723 100.0%
======= ===== ==== ===== ======= =====
</TABLE>
Because of the nature of the insurance industry, United Investors has no
individual or group which would be considered a major customer. Substantially
all of United Investors' business is conducted in the United States, primarily
in the Southeastern and Southwestern regions.
The measure of profitability for insurance segments is underwriting income
before other income and administrative expenses, in accordance with the manner
the segments are managed. It essentially represents gross profit margin on
insurance products before insurance administrative expenses and consists of
premium, less net policy obligations, acquisition expenses, and commissions. It
differs from GAAP pretax operating income before other income and
administrative expense for two primary reasons. First, there is a reduction to
policy obligations for interest credited by contract to policyholders because
this interest is earned and credited by the investment segment. Second,
interest is also added to acquisition expense which represents the implied
interest cost of deferred acquisition costs, which is funded by and is
attributed to the investment segment.
F-24
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 12--Business Segments (continued)
The measure of profitability for the investment segment is excess investment
income, which represents the income earned on the investment portfolio in
excess of net policy requirements. The investment segment is measured on a tax-
equivalent basis, equating the return on tax-exempt investments to the pretax
return on taxable investments. Other than the above-mentioned interest
allocations, there are no other intersegment revenues or expenses. All other
unallocated revenues and expenses on a pretax basis, including insurance
administrative expense, are included in the "Other" segment category. The table
below sets forth a reconciliation of United Investors' revenues and operations
by segment to its major income statement line items.
<TABLE>
<CAPTION>
For the Year 1999
------------------------------------------------------------
Life Annuity Investment Other Adjustments Total
-------- -------- ---------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Premium................ $ 73,245 $ 473 $ -- $ -- $ -- $ 73,718
Policy charges and
fees.................. 16,251 40,401 56,652
Net investment income.. 63,388 63,388
Other income........... 17,058 17,058
-------- -------- -------- ------- ----- --------
Total Revenues........ 89,496 57,932 63,388 210,816
Benefits and Expenses
Policy benefits........ 51,595 26,686 78,281
Required reserve
interest.............. (19,262) (16,625) 35,887 0
Amortization of
acquisition costs..... 18,377 14,907 33,284
Commissions and premium
taxes................. 5,207 690 5,897
Required interest on
acquisition costs..... 8,179 5,646 (13,825) 0
-------- -------- -------- ------- ----- --------
Total Benefits and
Expenses............. 64,096 31,304 22,062 117,462
-------- -------- -------- ------- ----- --------
Underwriting income
before other income
and administrative
expense............... 25,400 26,628 41,326 93,354
Administrative
expense............... 6,076 6,076
Goodwill amortization.. 946 946
Deferred acquisition
cost adjustment....... 0
-------- -------- -------- ------- ----- --------
Pretax operating
income................ $ 25,400 $ 26,628 $ 41,326 $(7,022) $ -- 86,332
======== ======== ======== ======= =====
Realized investment losses and deferred acquisition cost adjustment..... (5,023)
--------
Pretax income.......................................................... $ 81,309
========
</TABLE>
F-25
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 12--Business Segments (continued)
<TABLE>
<CAPTION>
For the Year 1998
------------------------------------------------------------
Life Annuity Investment Other Adjustments Total
-------- -------- ---------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Premium................ $ 69,572 $ 415 $ -- $ -- $ -- $ 69,987
Policy charges and
fees.................. 12,048 33,065 45,113
Net investment income.. 61,373 61,373
Other income........... 13,665 13,665
-------- -------- -------- ------- ----- --------
Total Revenues........ 81,620 47,145 61,373 190,138
Benefits and Expenses
Policy benefits........ 51,430 25,892 77,322
Required reserve
interest.............. (18,832) (18,162) 36,994 0
Amortization of
acquisition costs..... 16,306 11,568 27,874
Commissions and premium
taxes................. 5,182 398 5,580
Required interest on
acquisition costs..... 7,958 4,814 (12,772) 0
-------- -------- -------- ------- ----- --------
Total Benefits and
Expenses............. 62,044 24,510 24,222 110,776
-------- -------- -------- ------- ----- --------
Underwriting income
before other income
and administrative
expense............... 19,576 22,635 37,151 79,362
Administrative
expense............... 5,633 5,633
Goodwill amortization.. 946 946
Deferred acquisition
cost adjustment.......
-------- -------- -------- ------- ----- --------
Pretax operating
income................ $ 19,576 $ 22,635 $ 37,151 $(6,579) $ -- 72,783
======== ======== ======== ======= =====
Realized investment gains and deferred acquisition cost adjustment...... 9,401
--------
Pretax income.......................................................... $ 82,184
========
</TABLE>
F-26
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 12--Business Segments (continued)
<TABLE>
<CAPTION>
For the Year 1997
----------------------------------------------------------
Life Annuity Investment Other Adjustments Total
------- ------- ---------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Premium................ $68,413 $ 310 $ -- $ -- $ -- $ 68,723
Policy charges and
fees.................. 9,573 27,009 36,582
Net investment income.. 51,514 51,514
Other income........... 11,876 11,876
------- ------- ------- ------- ----- --------
Total Revenues........ 77,986 39,195 51,514 168,695
Benefits and Expenses
Policy benefits........ 47,930 25,189 73,119
Required reserve
interest.............. (18,067) (19,735) 37,802 0
Amortization of
acquisition costs..... 14,671 10,227 24,898
Commissions and premium
taxes................. 5,647 604 6,251
Required interest on
acquisition costs..... 8,044 4,287 (12,331) 0
------- ------- ------- ------- ----- --------
Total Benefits and
Expenses............. 58,225 20,572 25,471 104,268
------- ------- ------- ------- ----- --------
Underwriting income
before other income
and administrative
expense............... 19,761 18,623 26,043 64,427
Administrative
expense............... 5,186 5,186
Goodwill amortization.. 284 284
Deferred acquisition
cost adjustment....... 168 168
------- ------- ------- ------- ----- --------
Pretax operating
income................ $19,761 $18,623 $26,043 $(5,470) $(168) 58,789
======= ======= ======= ======= =====
Realized investment losses and deferred acquisition cost adjustment... (5,197)
--------
Pretax income........................................................ $ 53,592
========
</TABLE>
F-27
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in thousands)
Note 12--Business Segments (continued)
Assets for each segment are reported based on a specific identification
basis. The insurance segments' assets contain deferred acquisition costs, value
of insurance purchased, and separate account assets. The investment segment
includes the investment portfolio, cash, and accrued investment income.
Goodwill is assigned to corporate operations. All other assets, representing
less than 2% of total assets, are included in the other category. The table
below reconciles segment assets to total assets as reported in the financial
statements.
<TABLE>
<CAPTION>
At December 31, 1999
--------------------------------------------------------------
Life Annuity Investment Other Adjustments Total
-------- ---------- ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash and invested
assets................. $ -- $ -- $815,496 $ -- $ -- $ 815,496
Accrued investment
income................. 11,550 11,550
Deferred acquisition
costs.................. 122,037 105,133 227,170
Goodwill................ 28,519 28,519
Separate account
assets................. 3,413,675 3,413,675
Other Assets............ 361,796 361,796
-------- ---------- -------- -------- ----- ----------
Total Assets............ $122,037 $3,518,808 $827,046 $390,315 $ -- $4,858,206
======== ========== ======== ======== ===== ==========
<CAPTION>
At December 31, 1998
--------------------------------------------------------------
Life Annuity Investment Other Adjustments Total
-------- ---------- ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash and invested
assets................. $ -- $ -- $873,478 $ -- $ -- $ 873,478
Accrued investment
income................. 11,747 11,747
Deferred acquisition
costs.................. 113,057 100,576 213,633
Goodwill................ 29,465 29,465
Separate account
assets................. 2,425,262 2,425,262
Other Assets............ 283,453 283,453
-------- ---------- -------- -------- ----- ----------
Total Assets............ $113,057 $2,525,838 $885,225 $312,918 $ -- $3,837,038
======== ========== ======== ======== ===== ==========
</TABLE>
F-28
<PAGE>
PART C: OTHER INFORMATION
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements
--------------------
All required financial statements are included in Part B of this
Registration Statement.
(b) Exhibits
--------
(1) Resolution of the Board of Directors of United Investors Life Insurance
Company ("United Investors") authorizing establishment of the United
Investors Advantage Gold Variable Account.\2\
(2) Custody Agreements: Not Applicable.
(3) (a)(1) Principal Underwriting Agreement.\3\
(2) First Amendment of Principal Underwriting Agreement.*
(3) Second Amendment of Principal Underwriting Agreement.*
(4) Form of Third Amendment of Principal Underwriting Agreement.*
(b) Broker-Dealer Sales Agreement.\3\
(c) Commission Schedule\3\
(4) (a) Annuity Policy, Form VA99.\1\
(5) Application.\1\
(6) (a) Certificate of Incorporation of United Investors.\4\
(b) By-Laws of United Investors.\4\
(7) Reinsurance Contracts: Not Applicable.
(8) (a)(1)Participation Agreement for Target/United Funds, Inc.*
(2)First Amendment of Participation Agreement.*
(3)Second Amendment of Participation Agreement.*
(4)Form of Third Amendment of Participation Agreement.*
(b) Form of Administration Agreement: Not Applicable
(9) Opinion of Counsel.*
(10) (a) Consent of Sutherland Asbill & Brennan LLP.*
(b) Consents of Independent Accountants.*
(11) Financial statements omitted from Item 23: Not Applicable.
(12) Agreements/understandings for providing initial capital: Not
Applicable.
(13) Performance Data Calculations.\1\
_________________________________
* Filed herewith.
\1\ Incorporated herein by reference to the Exhibit filed with Pre-Effective
Amendment No. 1 to Form N-4 Registration Statement, File No. 333-89797,
filed on January 26, 2000.
\2\ Incorporated herein by reference to the Exhibit filed with the initial
filing of this Form N-4 Registration Statement, File No. 333-89797, filed on
October 27, 1999.
\3\ 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.
\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 January 22, 1987 as
an Exhibit to the Form S-6 Registration Statement, File No. 33-11465).
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
- ------------------------------------------ -------- ------------------
AILIC Receivables Corporation E Delaware
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)
C-2
<PAGE>
First United American Life Insurance Co. D New York
Globe Insurance Agency, Inc. (AL) C Alabama
Globe Insurance Agency, Inc. (AR) A Arkansas
Globe Life And Accident Insurance Co. C Delaware
Globe Marketing Services Inc. A Oklahoma
Liberty National Auto Club, Inc. B Alabama
Liberty National GroupCare, Inc. B Alabama
Liberty National Life Insurance Co. C Alabama
National Income Life Insurance Co. E New York
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
_________________________
* Parent company owns 81%; remaining 19% owned by Torchmark Corporation.
Parent Company Codes
- -----------------------------------------
A Globe Life And Accident Insurance Co.
B Liberty National Life Insurance Co.
C Torchmark Corporation
D United American Insurance Co.
E American Income Life Insurance Company
Item 27. Number of Policy Owners
-----------------------
There were no policy owners as of December 31, 1999.
Item 28. Indemnification
---------------
Article XII of United Investors' By-Laws provides as follows:
"Each Director or officer, or former Director or officer, of this
Corporation, and his legal representatives, shall be indemnified by the
Corporation against liabilities, expenses, counsel fees and costs,
reasonably incurred by him or his estate in connection with, or arising out
of, any action, suit, proceeding or claim in which he is made a party by
reason of his being, or having been, such Director or officer; and any
person who, at the request of this Corporation, serves as Director or
officer of another corporation in which this Corporation owns corporate
stock, and his legal representatives, shall in like manner be indemnified by
this Corporation; provided that, in either case shall the Corporation
indemnify such Director or officer with respect to any matters as to which
he shall be finally adjudged in any such action, suit or proceeding to have
been liable for misconduct in the performance of his duties as such Director
or officer. The indemnification herein
C-3
<PAGE>
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
--------
Daniel C. Schulte 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
John E. Sundeen, Jr. Senior Vice President
Michael G. Gerken Senior Vice President
Mark P. Buyle Vice President and Assistant Secretary
David R. Burford Vice President
William D. Howey, Jr. Vice President
Terry M. Parker Vice President
D. Tyler Towery Controller
_________________________
* 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.
Item 31. Management Services
-------------------
All management contracts are discussed in Part A or Part B.
C-5
<PAGE>
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, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the
risks assumed by United Investors.
STATEMENT PURSUANT TO RULE 6c-7
-------------------------------
United Investors and the Variable Account rely on 17 C.F.R. Sections 270.6c-7
and represent that the provisions of that Rule have been or will be complied
with. Accordingly, United Investors and the Variable Account are exempt from
the provisions of Sections 22(e), 27(c)(1) and 27(d) of the Investment Company
Act of 1940 with respect to any variable annuity contract participating in such
account to the extent necessary to permit compliance with the Texas Optional
Retirement Program.
SECTION 403(b) REPRESENTATIONS
------------------------------
United Investors represents that it is relying on a no-action letter dated
November 28, 1988, to the American Council of Life Insurance (Ref. No. IP-6-88)
regarding Sections 22(e), 27(c)(1), and 27(d) of the Investment Company Act of
1940, in connection with redeemability restrictions on Section 403(b) policies,
and that paragraphs numbered (1) through (4) of that letter will be complied
with.
C-6
<PAGE>
SIGNATURES
----------
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets the requirements of Securities Act
Rule 485(b) for effectiveness of this Registration Statement and has caused this
Registration Statement to be signed on its behalf in the City of Birmingham and
the State of Alabama on the 17th day of April, 2000.
UNITED INVESTORS ADVANTAGE GOLD VARIABLE ACCOUNT
(REGISTRANT)
UNITED INVESTORS LIFE INSURANCE COMPANY
(DEPOSITOR)
By: /s/ Anthony L. McWhorter
------------------------------------
Anthony L. McWhorter
President
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
- --------- ----- ----
Director ______________
- ----------------------------
C. B. Hudson
/s/ Anthony L. McWhorter
- ---------------------------- Chairman of the Board of 4-17-00
Anthony L. McWhorter Directors, President and
Chief Executive Officer
/s/ W. Thomas Aycock
- ---------------------------- Director, Vice President and 4-17-00
W. Thomas Aycock Chief Actuary
/s/ Tony G. Brill
- ---------------------------- Director and Executive Vice 4-17-00
Tony G. Brill President - Administration
- ---------------------------- Senior Vice President - Marketing ______________
Mark S. McAndrew
- ---------------------------- Director ______________
Larry M. Hutchison
/s/ Michael J. Klyce
- ---------------------------- Vice President and Treasurer 4-17-00
Michael J. Klyce
/s/ James L. Mayton, Jr.
- ---------------------------- Vice President and Controller 4-17-00
James L. Mayton, Jr.
/s/ John H. Livingston
- ---------------------------- Director, Secretary and Counsel 4-17-00
John H. Livingston
/s/ Carol A. McCoy
- ---------------------------- Director and Assistant Secretary 4-17-00
Carol A. McCoy
/s/ Ross W. Stagner
- ---------------------------- Director and Vice President 4-17-00
Ross W. Stagner
/s/ Terry W. Davis
- ---------------------------- Director and Vice President - 4-17-00
Terry W. Davis Administration
<PAGE>
EXHIBIT INDEX
Exhibit No. Name of Exhibit
- ------------ ---------------
99.(3)(a)(2) First Amendment of Principal Underwriting Agreement
99.(3)(a)(3) Second Amendment of Principal Underwriting Agreement
99.(3)(a)(4) Form of Third Amendment of Principal Underwriting Agreement
99.(8)(a)(1) Participation Agreement for Target/United Funds, Inc.
99.(8)(a)(2) First Amendment of Participation Agreement
99.(8)(a)(3) Second Amendment of Participation Agreement
99.(8)(a)(4) Form of Third Amendment of Participation Agreement.
99.(9) Opinion of Counsel
99.(10)(a) Consent of Sutherland Asbill & Brennan LLP
99.(10)(b) Consents of Independent Accountants
<PAGE>
EXHIBIT 99.3.A.2
AGREEMENT AMENDING PRINCIPAL UNDERWRITING AGREEMENT
This Agreement, dated the 3rd day of March, 1998, by and between United
Investors Life Insurance Company ("UILIC") and Waddell & Reed, Inc. ("W&R");
WHEREAS, UILIC and W&R have executed a Principal Underwriting Agreement, dated
May 1, 1990 by and between UILIC and W&R (the "Underwriting Agreement") in the
form attached hereto as Exhibit A; and
---------
WHEREAS, UILIC and W&R desire to amend the Underwriting Agreement to provide for
termination thereof as of December 31, 1998, unless UILIC and W&R determine to
extend it for an additional period of time;
NOW, THEREFORE, UILIC and W&R agree as follows:
1. The Underwriting Agreement be, and it hereby is, amended to provide that it
terminates as of the close of business on December 31, 1998, unless extended to
a later date in writing by UILIC and W&R.
2. The provisions of the Underwriting Agreement will survive termination as
described therein.
3. All notices, instructions, reports and other documents contemplated by this
Agreement or the Underwriting Agreement will be deemed duly given when in
writing and either delivered to the addresses below or sent by first class mail,
facsimile or courier addressed as follows:
To: United Investors Life Insurance Company
2001 Third Avenue South
Birmingham, Alabama 35233
Attn: James L. Sedgwick
To: Waddell & Reed, Inc.
<PAGE>
6300 Lamar Avenue
Overland Park, Kansas 66202
Attn: General Counsel
4. This Agreement may be executed in counterparts, each of which shall be
deemed an original.
5. This Agreement will be governed by the laws of the State of Kansas.
IN WITNESS WHEREOF, W&R and UILIC have caused this Agreement to be executed and
delivered by their respective duly authorized officers as of the date first
written above.
UNITED INVESTORS LIFE INSURANCE COMPANY
By: /s/ Larry M. Hutchison
----------------------------
Name & Title: Larry M. Hutchison
-------------------
- --------------------------------
WADDELL & REED, INC.
By: /s/ Robert L. Hechler
-----------------------------
Name & Title: Robert L. Hechler
--------------------
President
- ---------------------------------
<PAGE>
EXHIBIT 99.3.A.3
SECOND AMENDMENT OF
PRINCIPAL UNDERWRITING AGREEMENT
This amendment ("Second Amendment") to the Principal Underwriting
Agreement, dated May 1, 1990 ("Principal Underwriting Agreement") by and between
United Investors Life Insurance Company ("United Investors"), on its own behalf
and on behalf of United Investors Life Variable Account ("Variable Account"),
and Waddell & Reed, Inc. ("W&R") (a copy of which is attached hereto as Exhibit
"A"), as amended by the Agreement Amending Principal Underwriting Agreement
("First Amendment"), dated March 3, 1998 (a copy of which is attached hereto as
Exhibit "B") is made effective as of the 31st day of December, 1998, except as
otherwise provided herein.
1. The parties hereunto agree as follows:
a. To rescind the provision for termination of the Principal
Underwriting Agreement contained in the First Amendment and extend the
Principal Underwriting Agreement for the term provided in Section 16
thereof.
b. The preamble of the Principal Underwriting Agreement shall be
amended by inserting, "United Investors Annuity Variable Account and
United Investors Universal Life Variable Account" after the phrase "United
Investors Life Variable Account" in line four.
c. The preamble of the Principal Underwriting Agreement shall be
further amended by inserting "collectively referred to herein as the"
before the phrase "Variable Account" in line four.
d. The first recital shall be amended by inserting, "deferred
variable annuity policies and flexible premium variable life insurance
policies" after the phrase "flexible premium variable life insurance
policies" in line four.
2. The amendment to the Principal Underwriting Agreement adding "United
Investors Annuity Variable Account" and, "deferred variable annuity policies"
shall be effective retroactively to May 1, 1990. The amendments to the Principal
Underwriting Agreement adding "United Investors Universal Life Variable Account"
and "and flexible premium variable life insurance policies" shall be effective
retroactively to April 18, 1997.
3. In all other respects, the Principal Underwriting Agreement is
unchanged, and the parties ratify and confirm the Principal Underwriting
Agreement, as amended by this Second Amendment.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Second Amendment by
their duly authorized representatives to become effective as provided herein.
UNITED INVESTORS LIFE INSURANCE
COMPANY
By: /s/ Anthony L. McWhorter
-------------------------------
Its: President
------------------------------
WADDELL & REED, INC.
By: /s/ Robert L. Hechler
-------------------------------
Its: President
-----------------------------
<PAGE>
EXHIBIT 99.3.A.4
THIRD AMENDMENT OF PRINCIPAL UNDERWRITING AGREEMENT
This Amendment ("Third Amendment") to the Principal Underwriting Agreement,
dated May 1, 1990, as amended ("Principal Underwriting Agreement") by and
between United Investors Insurance Company ("United Investors"), on its own
behalf and on behalf of United Investors Life Variable Account, United Investors
Annuity Variable Account, United Investors Universal Life Variable Account and
United Investors Advantage Gold Variable Account (collectively, "Variable
Account"), and Waddell & Reed, Inc. ("W&R") (a copy of which, with its
amendments, is attached hereunto as Exhibit "A"), is made effective as of this
___ day of March, 2000.
1. The parties hereunto agree as follows:
The preamble of the Principal Underwriting Agreement shall be amended by
inserting the words "United Investors Advantage Gold Variable Account"
after the words "United Investors Universal Life Variable Account".
2. In all other respects, the Principal Underwriting Agreement is unchanged,
and parties ratify and confirm the Principal Underwriting Agreement as
amended by this Third Amendment.
IN WITNESS WHEREOF, the parties have executed this Third Amendment by their
duly authorized representatives.
UNITED INVESTORS LIFE INSURANCE COMPANY
By:
--------------------------------------
Title:
-----------------------------------
WADDELL & REED, INC.
By:
--------------------------------------
Title:
-----------------------------------
<PAGE>
EXHIBIT 99.8.A.1
United Investors Life Insurance Company
2001 Third Avenue South
Birmingham, Alabama 35233
VARIABLE ACCOUNTS
Distribution Contract
TMK/United Funds, Inc. (hereinafter TMK) is a Maryland corporation registered
with the Securities and Exchange Commission under the Investment Company Act of
1940 (the Act) as a management class, open-end, diversified investment company.
It offers its shares exclusively to insurance companies as the investment
vehicles for variable life and variable annuity policies. TMK has authorized
eleven classes of shares each of which is a separate fund (Portfolio) being:
Money Market Portfolio, Bond Portfolio, High Income Portfolio, Growth Portfolio,
Income Portfolio, International Portfolio, Small Cap Portfolio, Balanced
Portfolio, Limited-Term Bond Portfolio, Asset Strategy Portfolio, and Science
and Technology Portfolio.
You have advised TMK that you are sponsoring two variable accounts, United
Investors Life Variable Account and United Investors Annuity Variable Account,
each of which is an investment company organized and registered with the
Securities an Exchange Commission as a unit investment trust under the Act
(hereinafter collectively, the Trust). You advised that you wish to arrange for
the acquisition of TMK's shares as the exclusive funding medium for each of the
Trusts. TMK agrees to make the shares of its eleven Portfolios available to you
for said purposes subject to the following terms and conditions:
1. TMK will sell its shares directly to you and on request redeem its
shares at the time and prices specified in its then current prospectus and
Statement of Additional Information (SAI) for the purposes of funding the
investment divisions of the two Trusts as is more particularly set forth in the
Trusts' then current prospectuses.
2. (a) Payment for shares in investable funds shall be due on issuance of
shares.
(b) TMK will make payment on redemption of its shares as stated in its
prospectus and SAI.
(c) Purchases and redemptions of shares of the same Portfolio on the
same day may be netted so as to result in a single purchase or single redemption
for the day.
<PAGE>
(d) Shares of one Portfolio may be exchanged for shares of another
Portfolio by redemption of shares of a particular Portfolio and the immediate
purchase of shares of the other Portfolio. On your request, TMK will effect such
exchanges by transfer of monies from one Portfolio to the other as appropriate.
(e) All dividends and capital gains distributions shall be reinvested
in additional shares.
3. TMK will furnish you with adequate number of copies of its Annual and
Semi-annual Reports to Shareholders and TMK's proxy material for shareholder
meetings as you may request for furnishing to the policyowners and will
reimburse you for your expenses in mailing the reports and proxy materials to
the policyowners including return postage with respect to the voting of proxy
cards. With TMK's prior consent, you may include additional items in the mailing
of TMK's Reports to Shareholders provided any extra costs are paid by you.
4. You shall vote the shares held by the policyholders as set forth in
the Trusts' prospectuses and any SAI's.
5. TMK will furnish you with a copy of its current prospectus and SAI and
all amendments thereto. You shall print and reproduce at your expense such
copies thereof as you may desire with respect to the distribution of interests
in the Trusts. You may use TMK's shareholder reports in the distribution
process. Copies of the reports will be furnished for such purpose as you request
at your expense.
6. The foregoing, notwithstanding, TMK shall not engage directly or
indirectly in financing any activity which is primarily intended to result in
the sale of its shares issued by it.
7. Indemnification
A. TMK agrees with you for your benefit and each person, if any, who
controls you within the meaning of Section 15 of the Securities Act of 1933 (the
"Securities Act") and each and all and any of them, to indemnify and hold you
harmless and any such controlling person from and against any and all losses,
claims, damages or liabilities, joint or several, to which your they or any of
them may become subject under the Securities Act, under any other statute, at
common law or otherwise, and to reimburse you and such controlling persons, if
any, for any legal or other expenses (including the cost of any investigation
and preparation) reasonably incurred by you, them or any of them in connection
with any litigation whether or not resulting in any liability, insofar as such
losses, claims, damages, liabilities or
<PAGE>
from any liability which it may have to TMK or such director or officer
otherwise than on account of the indemnity agreement contained in this
paragraph. In case any such litigation shall be brought against TMK or any such
officer or director and notice of the commencement thereof shall have been given
to you, you shall be entitled to participate in (and, to the extent that it
shall wish, to direct) the defense thereof at its own expense, but such defense
shall be conducted by counsel of good standing and satisfactory to TMK. The
indemnity agreement of TMK contained in this paragraph shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of TMK and shall survive any delivery of shares of TMK. You agree to
notify TMK promptly of the commencement of any litigation or proceeding against
you or any of your officers or directors or against any such controlling person
of which you may be advised, in connection with the issue and sale of TMK.
D. Notwithstanding any provision contained in this Agreement, no party
hereto and no person or persons in control of any party hereto shall be
protected against any liability to TMK or its security holders, including
beneficial owners or its security to which they would otherwise be subject by
reason of willful misfeasance, bad faith, or gross negligence in the performance
of their duties or by reason of their reckless disregard of their obligations
and duties under this Agreement.
8. TMK will make shares available and otherwise carry out the terms of
this Agreement until the Trusts are terminated; provided, however, it will have
no obligation to issuance of shares other than for purposes of exchange among
Portfolios and reinvestment of dividends and distribution, should the
registration of the Trust securities under the Securities Act of 1933 terminate.
TMK agrees to use its best efforts to keep an adequate number of shares at all
times authorized, but it will not be required to issue its shares if all TMK
shares be issued and outstanding. TMK will be relieved of responsibility
hereunder for issuing shares by reason of any governmental rule, regulation or
order or order of court of any competent jurisdiction or when for reasons beyond
its control, it is unable to issue such shares.
If the foregoing is in accordance with your understanding of our Agreement,
please execute your acceptance hereof on the duplicates hereto enclosed for that
purpose and return one copy to TMK/United Funds, Inc., whereupon this shall
become a binding Agreement between you and TMK/United Funds, Inc.
<PAGE>
TMK/United Funds, Inc.
By: /s/ Sharon K. Pappas
---------------------------
Vice President
Accepted this 4th Day of April, 1997.
United Investors Life Insurance Company
By: /s/ James L. Sedgwick
-------------------------------
President
<PAGE>
EXHIBIT 99.8.A.2
AGREEMENT AMENDING DISTRIBUTION CONTRACT
This Agreement, dated the 3rd day of March, 1998, by and between
TMK/UnitedFunds, Inc. (the "Fund") and United Investors Life Insurance Company
("UILIC");
WHEREAS, the Fund and UILIC have executed a Distribution Contract, accepted by
UILIC as of April 4, 1997 (the "Distribution Contract") in the form attached
hereto as Exhibit A; and
---------
WHEREAS, the Fund and UILIC desire to amend the Distribution Contract to provide
for termination thereof as of December 31, 1998, unless the Fund and UILIC
determine in writing signed by both the Fund and UILIC to extend it for an
additional period of time;
NOW, THEREFORE, the Fund and UILIC agree as follows:
1. The Distribution Contract be, and it hereby is, amended to provide that it
terminates as of the close of business on December 31, 1998, unless extended to
a later date in writing by the Fund and UILIC.
2. Section 1 of the Distribution Contract terminates on the termination date.
All other provisions of the Distribution Contract will survive termination only
for purposes of the shares sold or issued under the Distribution Agreement on or
prior to the termination date, except that Section 7 will survive termination of
the Distribution Contract for all purposes.
3. All notices, instructions, reports and other documents contemplated by this
Agreement or the Distribution Agreement will be deemed duly given when in
writing and either delivered to the addresses below or sent by first class mail,
facsimile or courier addressed as follows:
To: United Investors Life Insurance Company
2001 Third Avenue South
Birmingham, Alabama 35233
Attn: James L. Sedgwick
To: TMK/United Funds, Inc.
<PAGE>
6300 Lamar Avenue
Overland Park, Kansas 66202
Attn: General Counsel
4. This Agreement may be executed in counterparts, each of which shall be
deemed an original.
5. This Agreement will be governed by the laws of the State of Kansas.
IN WITNESS WHEREOF, the Fund and UILIC have caused this Agreement to be executed
and delivered by their respective duly authorized officers as of the date first
above written.
TMK/United Funds, Inc.
By: /s/ Keith A. Tucker
------------------------------
Name & Title: Keith A. Tucker, CEO
---------------------
United Investors Life Insurance Company
By: /s/ Larry M. Hutchison
------------------------------
Name & Title: Larry M. Hutchison
--------------------
<PAGE>
EXHIBIT 99.8.A.3
SECOND AMENDMENT OF
DISTRIBUTION CONTRACT
This amendment ("Second Amendment") to the Distribution Contract, dated
April 4, 1997 ("Distribution Contact"), by and between United Investors Life
Insurance Company ("UILIC") and Target/United Funds, Inc. f/k/a TMK/United
Funds, Inc. (the "Fund") (a copy of which is attached hereto as Exhibit "A"), as
amended by the Agreement Amending Distribution Contract ("First Amendment"),
dated March 3, 1998 (a copy of which is attached hereto as Exhibit "B") is made
effective as of the 31st day of December, 1998, except as otherwise provided
herein.
1. The parties hereby agree as follows:
a. To rescind the provision for termination of the Distribution
Contract contained in the First Amendment and extend the Distribution
Contract for the term provided in Section 8 thereof.
b. The second full paragraph of the Distribution Contract shall be
amended, retroactively to April 18, 1997, by deleting the word "two" in the
first sentence and replacing it with the word "three" and by inserting,
"United Investors Universal Life Variable Account" after the phrase "United
Investors Life Variable Account" in the first sentence.
c. Section 1 of the Distribution Contract shall be amended,
retroactively to April 18, 1997, by deleting the word "two" and replacing
it with the word "three" in the third line.
2. In all other respects, the Distribution Contract is unchanged, and the
parties ratify and confirm the Distribution Contract, as amended by this Second
Amendment.
IN WITNESS WHEREOF, the parties have executed this Second Amendment by
their duly authorized representatives to become effective as provided herein.
UNITED INVESTORS LIFE INSURANCE
COMPANY
By: /s/Anthony L. McWhorter
---------------------------------
Its: President
--------------------------------
TARGET/UNITED FUNDS, INC.
By: /s/ Robert L. Hechler
---------------------------------
Its: President
--------------------------------
<PAGE>
EXHIBIT 99.8.A.4
THIRD AMENDMENT OF DISTRIBUTION CONTRACT
This Amendment ("Third Amendment") to the Distribution Contract, dated
April 4, 1997 ("Distribution Contract"), by and between United Investors Life
Insurance Company ("UILIC") and Target/United Funds, Inc. f/k/a TMK/United
Funds, Inc. (the "Fund") (a copy of which is attached hereunto as Exhibit "A"),
as amended on March 3, 1998 and December, 1998, is made effective as of this
___ day of March, 2000.
1. The parties hereunto agree as follows:
(a) The second full paragraph of the Distribution Contract shall be
amended by deleting the word "three" in the first sentence and
replacing it with the word "four", and by inserting the words "United
Investors Advantage Gold Variable Account" after the words "United
Investors Universal Life Variable Account" in the first sentence
thereof.
(b) Section 1 of the Distribution Contract shall be amended by deleting
the word "three" and replacing it with the word "four" in the third
line.
2. In all other respects, the Distribution Contract is unchanged, and the
parties ratify and confirm the Distribution Contract as amended by this
Third Amendment.
IN WITNESS WHEREOF, the parties have executed this Third Amendment by their
duly authorized representatives.
UNITED INVESTORS LIFE INSURANCE COMPANY
By:
------------------------------------
Title:
---------------------------------
TARGET/UNITED FUNDS, INC.
By:
------------------------------------
Title:
---------------------------------
<PAGE>
EXHIBIT 99.9
April 14, 2000
The Board of Directors
United Investors Life Insurance Company
2001 Third Avenue South
Birmingham, Alabama 35233
Gentlemen:
With reference to the Registration Statement for 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. 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, Esq.
-------------------------
John H. Livingston, Esq.
Secretary and Counsel
JHL:dk
<PAGE>
EXHIBIT 99.10.A
April 14, 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 the Post-
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
FRB:dk
<PAGE>
EXHIBIT 99.10.B
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 1 to Registration
Statement No. 333-89797 of United Investors Advantage Gold Variable Account of
United Investors Life Insurance Company on Form N-4 of our report dated January
28, 2000 relating to the financial statements of United Investors Life Insurance
Company contained in the Statement of Additional Information, which is part of
such Registration Statement, and to the reference to us under the heading
"Experts" in such Statement of Additional Information.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Dallas, Texas
April 21, 2000
<PAGE>
ACCOUNTANTS' CONSENT
The Board of Directors of
United Investors Life Insurance Company
We consent to the use of our report dated January 29, 1999, relating to the
balance sheet of United Investors Life Insurance Company as of December 31,
1998, and the related statement of operations, comprehensive income,
shareholders' equity, and cash flows for each of the years in the two-year
period ended December 31, 1998, as contained in Post-Effective Amendment No. 1
to Form N-4 for United Investors 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
April 21, 2000
