United Investors Life Insurance Company
2001 Third Avenue South
P. O. Box 10207
Birmingham, Alabama 35202-0207
July 7, 1998
To our Variable Annuity Contractholders and Variable Life Policyowners:
As an owner of a variable annuity contract or a variable life insurance
policy (each of which is referred to here as a "Policy") issued by United
Investors Life Insurance Company ("United Investors"), you have the right to
instruct United Investors how to vote certain shares of the Portfolios of
TMK/United Funds, Inc. ("Portfolios") at the special meeting of shareholders to
be held on August 21, 1998, at 6300 Lamar Avenue, Overland Park, Kansas
("Meeting").
United Investors, as the legal owner of the Portfolios' shares, is entitled
to vote those shares at the Meeting. As an owner of record on June 22, 1998 of
a Policy having all or part of its value invested in shares of a Portfolio, you
have the right to instruct us as to how we should vote the Portfolio's shares
attributable to your Policy.
To assist you in giving us your instructions, we have enclosed the
following: (1) a Notice of Special Meeting of Shareholders; (2) a Proxy
Statement to Shareholders; and (3) an Instruction Card. Please read the Notice
of Special Meeting and Proxy Statement carefully before filling out the
Instruction Card with your voting instructions.
If you do not return the enclosed Instruction Card, United Investors will
vote the shares of the Portfolios attributable to your Policy in the same
proportion as the shares for which we have received instructions. If we receive
your executed Instruction Card and no instruction is indicated on it, we will
vote such shares "For" the Proposals.
You are cordially invited to attend the Meeting. You may, at that time,
alter instructions which you have previously given to us.
YOUR INSTRUCTIONS ARE IMPORTANT. You are urged to complete the enclosed
Instruction Card with your voting instructions and return it promptly in the
enclosed postage-paid envelope. (Please note: if you own more than one Policy,
you will receive a separate Instruction Card for each Policy). Please execute
and return each Instruction Card you receive.
Sincerely,
James L. Sedgwick
President
<PAGE>
TMK/UNITED FUNDS, INC.
WHEN PROPERLY SIGNED, THE VOTING INTEREST WILL BE DIRECTED IN THE MANNER
INDICATED BELOW. IF NO INDICATION IS GIVEN, VOTING WILL BE DIRECTED FOR THE
PROPOSAL STATED BELOW.
Please vote by filling in the appropriate boxes below, as shown. / /
1. To change the name of the Fund FOR AGAINST ABSTAIN
and to permit future changes / / / / / /
without shareholder approval
2. To ratify the selection of FOR AGAINST ABSTAIN
Deloitte & Touche LLP as the / / / / / /
Fund's independent auditors
for its current fiscal year
3. For Money Market Portfolio only:
To approve a change in the FOR AGAINST ABSTAIN
Portfolio's concentration / / / / / /
policy
4. To adopt the Service Plan FOR AGAINST ABSTAIN
pursuant to Rule 12b-1 / / / / / /
5. To change the quorum FOR AGAINST ABSTAIN
requirements / / / / / /
<PAGE>
PLEASE MARK, SIGN, DATE AND RETURN THE INSTRUCTION CARD PROMPTLY USING THE
ENCLOSED POSTAGE-FREE ENVELOPE. This proxy may be revoked at any time before it
is voted at the meeting.
[Name of Portfolio] THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD
OF DIRECTORS
The undersigned hereby appoints Keith A. Tucker and Sharon K. Pappas, or
either of them, attorneys and proxies with full power of substitution to
represent and direct the voting interest of the undersigned held as of the
record date at the Special Meeting of Shareholders on August 21, 1998, or at any
adjournment(s) thereof as designated on the reverse side. As to any other
matter, the attorneys are authorized to represent and direct the voting interest
in accordance with their best judgment. This proxy shall remain in effect for a
period of one year from its date. Receipt of the Proxy Statement is hereby
acknowledged.
Date: ____________________________, 1998
PLEASE SIGN IN BOX BELOW. Signature(s) should
conform to name(s) as printed hereon. Executors,
administrators, trustees and corporate officers
should indicate capacity or office.
___________________________________
/ /
/_________________________________/
Signature(s)
<PAGE>
IMPORTANT
PLEASE SIGN AND RETURN THE ENCLOSED PROXY CARD(S)
IN THE ENCLOSED ENVELOPE
TMK/UNITED FUNDS, INC.
6300 Lamar Avenue, Overland Park, Kansas 66202
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
July 7, 1998
To Shareholders:
Notice is hereby given that a Special Meeting of Shareholders of TMK/United
Funds, Inc. (the "Fund") will be held at 6300 Lamar Avenue, Overland Park,
Kansas, on August 21, 1998, at 10:00 a.m. ("Meeting") or at any adjournment
thereof, for the following purposes:
1. To change the name of the Fund and permit future changes without
shareholder approval;
2. To ratify the selection of Deloitte & Touche LLP as independent accountants
of the Fund for its current fiscal year;
3. For Money Market Portfolio only: To approve a change in the Portfolio's
concentration policy;
4. To adopt a Service Plan pursuant to Rule 12b-1 under the 1940 Act;
5. To change the requirements for a quorum for a shareholders meeting; and
6. To transact such other business as may properly come before the Meeting or
any adjournment(s) thereof.
The Board of Directors of the Fund has fixed the close of business on June
22, 1998 as the record date ("Record Date") for the determination of
Shareholders entitled to notice of and to vote at the Meeting. The number of
shares held by you according to the Fund's records on the record date determines
the number of shares you may vote at the Meeting.
If you attend the meeting, you may vote your shares in person. If you do
not expect to attend the meeting, please complete, date, sign and properly
return the enclosed proxy card(s) in the enclosed postage paid envelope. If you
do not sign and return your proxy card(s), United Investors may incur the
additional expense of subsequent mailings in order to have a sufficient number
of cards signed and returned.
Retain this Notice and Proxy Statement. This is a joint Notice and Proxy
Statement for each of the Portfolios of the Fund. The shares you own in a
particular Portfolio may only be voted with respect to that Portfolio. If you
own shares in more than one Portfolio, please vote with respect to each
Portfolio on the proxy card provided with respect to that Portfolio. Please
sign, date and return any and all proxy cards that are mailed to you.
By Order of the Board of Directors
KRISTEN RICHARDS,
Assistant Secretary
July 7, 1998
<PAGE>
TMK/UNITED FUNDS, INC.
6300 Lamar Avenue Overland Park, Kansas 66202
PROXY STATEMENT
INTRODUCTION
This document is a joint proxy statement with respect to TMK/United Funds,
Inc. (the "Fund") furnished in connection with the solicitation of proxies by
the Fund's Board of Directors to be used at the Fund's special meeting of
shareholders ("Meeting") or any adjournment(s) thereof. The Meeting will be
held on August 21, 1998, 10:00 a.m., local time, at 6300 Lamar Avenue, Overland
Park, Kansas, for the purposes set forth in the attached Notice of the Meeting.
This Proxy Statement is being first mailed to shareholders on or about July 9,
1998.
The Fund has eleven series of shares outstanding, each of which represents
a separate investment portfolio, as follows: Money Market Portfolio, Bond
Portfolio, High Income Portfolio, Growth Portfolio, Income Portfolio, Limited-
Term Bond Portfolio, Small Cap Portfolio, International Portfolio, Balanced
Portfolio, Asset Strategy Portfolio and Science and Technology Portfolio.
(These Portfolios are referred to in this Proxy Statement collectively as the
"Portfolios" and individually as a "Portfolio.") The Fund is an open-end,
management investment company managed by Waddell & Reed Investment Management
Company ("WRIMCO"), as described below.
A majority of the shares outstanding on the record date, June 22, 1998
("Record Date"), represented in person or by proxy, of the Fund must be present
for the transaction of business at the Fund's Meeting. In the event that a
quorum is not present or if a quorum is present at the Meeting but sufficient
votes to approve any one of the Proposals are not received, the persons named as
proxies (or their substitutes) may propose one or more adjournments of the
Meeting to permit the further solicitation of proxies. Any adjournment will
require the affirmative vote of a majority of those shares represented at the
Meeting in person or by proxy. The persons named as proxies will vote those
proxies that they are entitled to vote FOR such Proposal in favor of an
adjournment and will vote those proxies required to be voted AGAINST such
Proposal against such adjournment. A shareholder vote may be taken on one or
more of the Proposals described in this Proxy Statement prior to any such
adjournment if sufficient votes have been received and it is otherwise
appropriate.
The purpose of this Proxy Statement is to give you information on which you
may base your decisions as to the choices, if any, you make on each of the
Proposals.
The enclosed proxy card or, for policyowners, Instruction Card, authorizes
the persons named or their substitutes ("proxy holders") to represent and direct
your voting interest. You may direct the Portfolio by checking the appropriate
box "For" or "Against" or you may instruct them not to vote your interest by
checking the "Abstain" box. If you merely sign, date and return your
Instruction Card with no specific instructions as to a proposal on which you are
entitled to vote, the proxy holders will vote your interest "For" the Proposal.
You may revoke your instructions at any time prior to their exercise by
providing written notice of revocation or signing a new and different
Instruction Card, each delivered to the Fund prior to the Meeting, or by
attending the Meeting and voting in person. Attendance at the Meeting will not
in and of itself constitute revocation of your instructions.
Information as to the number of outstanding shares of each Portfolio, as of
the Record Date, is set forth in Exhibit A. A listing of the owners of more
than 5% of the shares of any Portfolio as of June 19, 1998 is set forth in
Exhibit B. To the knowledge of the Fund's management, the executive officers
and Directors of the Fund, as a group, owned less than 1% of the outstanding
shares of each Portfolio as of June 19, 1998.
Each share of a Portfolio is entitled to one vote. Any fractional share of
a Portfolio is entitled to a proportionate share of one vote. All shareholders
of the Fund vote together with respect to Proposals 1, 2 and 5. Only the
shareholders of Money Market Portfolio are entitled to vote with respect to
Proposal 3. Shareholders of each Portfolio vote separately with respect to
Proposal 4.
ANNUAL REPORT
Copies of the Fund's most recent annual and semiannual reports have been
sent to shareholders of the Fund on or before the mailing of this Proxy
Statement. Shareholders of any Portfolio may obtain, free of charge, copies of
the Fund's annual and semiannual reports by writing to Waddell & Reed, Inc. at
6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission, KS 66201-9217 or calling
(800) 366-5465.
POLICYOWNERS' RIGHT TO INSTRUCT UNITED INVESTORS
The shares of the Fund are currently sold only to variable life insurance
separate accounts and variable annuity separate accounts (hereinafter
collectively referred to as the "Variable Accounts") as a funding vehicle for
variable life insurance policies and a variable annuity contract (collectively,
the "Policies") offered by the Variable Accounts of certain life insurance
companies. As of the date of this Proxy Statement, the only participating life
insurance company is United Investors Life Insurance Company ("United
Investors"). Each of the Variable Accounts has eleven Investment Divisions, the
assets of which are invested in the corresponding Portfolio of the Fund. United
Investors is the legal owner of all shares of the Fund held by the Variable
Accounts. In accordance with its view of currently applicable law, United
Investors is soliciting voting instructions from the owners of the Policies
("Policyowners") with respect to all matters to be acted upon at the Meeting.
Policyowners permitted to give instructions for a Portfolio and the number of
shares for which instructions may be given will be determined as of the Record
Date for the Meeting. The number of votes which a Policyowner has the right to
instruct will be calculated separately for each Variable Account. That number
will be determined by applying the Policyowner's percentage interest, if any, in
the Investment Division holding shares of the Portfolio to the total number of
votes attributable to that Investment Division. In connection with its
solicitation of voting instructions, it is understood and expected that United
Investors will furnish a copy of this Proxy Statement to Policyowners. All
shares held by the Variable Accounts will be voted by United Investors in
accordance with voting instructions received from Policyowners. United
Investors will vote shares attributable to the Policies as to which no timely
instructions are received, and any Portfolio shares held by United Investors as
to which Policyowners have no beneficial interest, in proportion to the voting
instructions, including abstentions, which are received with respect to the
Policies participating in that Portfolio.
THE BOARD OF DIRECTORS UNANIMOUSLY APPROVED THESE
PROPOSALS AND
RECOMMENDS THAT YOU VOTE IN FAVOR OF THEM.
PROPOSAL 1: CHANGE OF NAME OF FUND AND AMEND ARTICLES OF INCORPORATION TO
PERMIT FUTURE NAME CHANGE WITHOUT SHAREHOLDER APPROVAL
The name of the Fund is proposed to be changed in light of the anticipated
restructuring of certain subsidiaries of Torchmark Corporation ("Torchmark").
Torchmark is the publicly owned, indirect corporate parent company of the Fund's
investment manager, WRIMCO, and of Waddell & Reed, Inc. ("Waddell & Reed"), the
distributor of the Policies. The Fund's current name reflects the existing
relationship among Torchmark, WRIMCO, Waddell & Reed and United Investors, also
a subsidiary of Torchmark. If the restructuring is accomplished as planned
later in 1998, WRIMCO and Waddell & Reed will remain at that time ultimately
owned by the persons who are then shareholders of Torchmark, but their ownership
will not be through Torchmark. After the anticipated restructuring, Waddell &
Reed may not use printed materials that suggest, or may not otherwise represent,
that it has affiliation with Torchmark.
Accordingly, Fund management has proposed, and the Board of Directors of
the Fund has determined that it is advisable, to change the name of the Fund to
Target/United Funds, Inc. and, further, to avoid the necessity of a shareholders
meeting for any future name change, to permit the Board of Directors to change
the name of the Fund without shareholder approval. To do so requires amendment
of Article SECOND of the Fund's Articles of Incorporation to substitute
Target/United Funds, Inc. for the current name and amendment of Article EIGHTH
of the Fund's Articles of Incorporation (which generally provides for amendment
of the Articles by vote of the shareholders) expressly to permit the name of the
Fund to be changed by action of the Board of Directors without shareholder
approval.
If this Proposal is approved by the shareholders of the Fund and the
restructuring proceeds substantially as planned, the name change will become
effective prior to the implementation of the restructuring. If this Proposal is
not approved by shareholders of the Fund or the proposed name change is no
longer necessary or advisable, the Directors will take such action as they then
deem appropriate and in the best interests of the Fund and its shareholders.
Required Vote: Approval of Proposal 1 requires the affirmative vote of a
majority of the outstanding shares of the Fund, provided a quorum is present.
THE BOARD OF DIRECTORS RECOMMENDS THAT
YOU VOTE FOR PROPOSAL 1.
PROPOSAL 2: RATIFICATION OF THE SELECTION OF DELOITTE &
TOUCHE LLP AS THE FUND'S INDEPENDENT ACCOUNTANTS
Discussion. Deloitte & Touche LLP has been selected by the Board of
Directors, with the approval of the Audit Committee, as the Fund's independent
public accountants for the Fund's current fiscal year. Deloitte & Touche LLP
was initially engaged on December 11, 1996. The shareholders of the Fund are
entitled to vote for or against the ratification of the selection of Deloitte &
Touche LLP.
Deloitte & Touche LLP has advised the Fund that neither it nor any of its
partners has any direct or indirect financial interest or connection (other than
as independent accountants) in or with the Fund or any of its affiliates.
Deloitte & Touche LLP has been given the opportunity to make a statement at the
Meeting if it so desires. Deloitte & Touche LLP is not expected to have a
representative present at the Meeting but will be available should any matter
arise requiring its presence.
On November 5, 1996, Price Waterhouse LLP, the then independent accountants
of the Fund, resigned as the independent accountants of the Fund. Price
Waterhouse LLP audited the Fund's financial statements for the period from
January 1, 1996 through November 5, 1996. During such period, the Fund did not
have any disagreements with Price Waterhouse LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreement if not resolved to the satisfaction of Price
Waterhouse LLP would have caused them to make reference thereto in their report
on the financial statements for such periods.
Price Waterhouse LLP did not at any time during the period from January 1,
1996 through November 5, 1996 advise the Fund (i) that internal controls
necessary for the Fund to develop reliable financial statements did not exist,
(ii) that it had received information that led it to no longer be able to rely
on management's representations or that made it unwilling to be associated with
the financial statements prepared by management, (iii) of the need to expand
significantly the scope of its audit or that it had received information that if
further investigated may materially impact the fairness or reliability of a
previously issued or subsequent audit report or the underlying financial
statements or cause it to be unwilling to rely on management's representations
or be associated with the financial statements prepared by management, or (iv)
that it had received information that it concluded materially impacted the
fairness or reliability of a previously issued or subsequent audit report or the
underlying financial statements. Price Waterhouse LLP did not so expand any
such audit or conduct further investigation, and no issues existed which were
not resolved to the accountants' satisfaction prior to resignation. The Fund's
principal accountant's reports on the financial statements of the Fund for the
fiscal years 1996 and 1997 did not contain an adverse opinion or a disclaimer of
opinion, nor were they qualified or modified as to uncertainty, audit scope or
accounting principles.
Required Vote: Approval of Proposal 2 requires the affirmative vote of a
majority of the outstanding shares of the Fund, provided a quorum is present.
THE BOARD OF DIRECTORS RECOMMENDS THAT
YOU VOTE FOR PROPOSAL 2.
PROPOSAL 3: FOR MONEY MARKET PORTFOLIO ONLY:
CHANGE IN FUNDAMENTAL INVESTMENT RESTRICTION
REGARDING CONCENTRATION OF INVESTMENTS
The Fund's Money Market Portfolio currently has an investment restriction
which prohibits it from investing more than 25% of its assets in the securities
(other than U.S. Government securities) of issuers in the same industry. This
is a fundamental investment restriction and, as such, may be changed only with
approval of the shareholders of that Portfolio.
WRIMCO has proposed, and the Board of Directors has approved subject to
approval by shareholders of Money Market Portfolio, modification of this
restriction to exclude bank obligations from the 25% limit.
The Board of Directors believes that modifying this limit to permit a
greater percentage of the Portfolio's assets to be invested in bank obligations
would provide additional investment flexibility and facilitate the management of
the Portfolio. In general, the Portfolio invests in certain prescribed money
market instruments, including bank obligations. Under the Portfolio's
investment policies, the Portfolio may invest in a bank obligation only if it is
an obligation of a bank that is subject to regulation by the U.S. Government
(including foreign branches of these banks) or an obligation of a foreign bank
having total assets equal to at least U.S. $500,000,000. Further, as a money
market fund that uses the amortized cost method of valuation, the Portfolio is
subject to and operates in compliance with Rule 2a-7 under the Investment
Company Act of 1940, as amended ("1940 Act"). Among its other requirements,
Rule 2a-7 limits the Portfolio's investments in securities of any one issuer
(other than U.S. Government securities, as defined in the 1940 Act) to no more
than 5% of the Portfolio's assets. Further, under Rule 2a-7, all of the
Portfolio's investments must be rated in one of the two highest rating
categories by the requisite nationally recognized statistical rating
organizations or be comparable unrated securities, and investments rated in the
second highest rating category (or comparable unrated securities) are limited to
5% of the Portfolio's assets. With these continuing requirements, the Board
does not believe that the proposed change will result at this time in a material
change in the level of investment risk associated with investment in the
Portfolio.
If this Proposal is approved by shareholders of the Portfolio, its current
investment restriction would be amended to read as follows: (The proposed
change is reflected by the words in italics.)
Money Market Portfolio may not ... buy a security if more than
25% of its assets would then be invested in securities of companies in
any one industry (U.S. Government securities and bank obligations and
instruments are not included in this restriction; ....
If this Proposal is approved by the shareholders of Money Market Portfolio,
this investment restriction, as so amended, will become operative concurrently
with the effectiveness of an amendment to the Fund's registration statement
describing the same. If this Proposal is not approved, Money Market Portfolio's
current investment restriction will remain unchanged.
Required Vote. Approval of Proposal 3 requires the affirmative vote of a
"majority of the outstanding voting securities" of Money Market Portfolio, which
for this purpose means the affirmative vote of the lesser of (1) 67% or more of
the shares of the Portfolio present at the Meeting or represented by proxy if
more than 50% of the outstanding shares of the Portfolio are so present or
represented or (2) more than 50% of the outstanding shares of the Portfolio.
THE BOARD OF DIRECTORS RECOMMENDS THAT
YOU VOTE FOR PROPOSAL 3.
PROPOSAL 4: ADOPTION OF THE SERVICE PLAN PURSUANT TO RULE 12B-1 UNDER THE 1940
ACT
The Board of Directors of the Fund has approved the adoption of a Service
Plan pursuant to Rule 12b-1 under the 1940 Act applicable to each Portfolio,
subject to the approval of the shareholders of the Portfolio. The Plan was
approved on May 13, 1998 by the unanimous votes of the full Board and of the
Directors who are not interested persons of the Fund and have no financial
interest in the operation of the Plan or any related agreement ("Independent
Plan Directors") cast in person at a meeting called for that purpose.
Description of the Plan
Under the Plan, a Portfolio may pay certain expenses in connection with the
provision of personal services to Policyowners and/or the maintenance of
Policyowner accounts. Payments under the Plan are to be made to Waddell & Reed
which will provide, or arrange for the provision of, certain services with
respect to Policyowners.
The Plan requires that Waddell & Reed furnish to the Board of Directors of
the Fund, at least quarterly, a written report of the amounts expended pursuant
to the Plan and the purposes for which such expenditures were made. While the
Plan is in effect, the selection and nomination of the directors who are not
interested persons of the Fund are committed to the discretion of the
Independent Directors.
The Plan may be terminated as to a Portfolio at any time, without penalty,
by the vote of a majority of the outstanding shares of that Portfolio. The Plan
may be amended by vote of the Directors, including a vote of the Independent
Plan Directors, cast in person at a meeting called for that purpose. Any
material amendment to the Plan, including amendments to increase materially the
amount of fees a Portfolio is authorized to pay thereunder, requires the
approval of the shareholders of the affected Portfolio(s).
The Plan will remain in effect from year to year provided such continuance
is approved annually by a vote of the Fund's Directors, including a majority of
the Independent Plan Directors, cast in person at a meeting called for the
purpose of voting on such continuance.
The Plan provides each Portfolio with the flexibility to pay Waddell & Reed
a "service fee" for the provision of personal services to Policyowners and/or
the maintenance of their accounts. The Plan provides that each Portfolio may
pay Waddell & Reed a service fee that does not exceed on an annual basis .25 of
1% of the Portfolio's average annual net assets.
For purposes of the Plan and the application of Rule 2830 of the National
Association of Securities Dealers, Inc. ("NASD") Conduct Rules, the "service
fee" is a payment for personal services and/or the maintenance of Policyowner
accounts, as defined pursuant to Rule 2830 of the Conduct Rules. If the NASD
adopts a definition of a "service fee" for purposes of Rule 2830 that differs
from the definition of "service fee" as used in the Proposed Plan, or if the
NASD adopts a related definition intended to define the same concept, the
definition of "service fee" will be amended to conform to the NASD definition.
For each Portfolio, the annual expenses as a percentage of average net
assets of its fiscal year ended December 31, 1997*, on both an actual and pro
forma basis including the maximum proposed service fee of 0.25%, are set forth
below:
Asset
Strategy Balanced Bond Growth
-------- -------- ---- ------
Pro Pro Pro Pro
Actual FormaActual FormaActual FormaActual Forma
------ ----------- ----------- ----------- -----
Annual Fund operating expenses
(as a percentage of average net assets)
Management fees 0.80% 0.80%0.60% 0.60%0.53% 0.53%0.70% 0.70%
12b-1 fees 0.00 0.25 0.00 0.25 0.00 0.25 0.00 0.25
Other expenses 0.13 0.13 0.07 0.07 0.05 0.05 0.02 0.02
Total Portfolio
operating expenses0.93 1.18 0.67 0.92 0.58 0.83 0.72 0.97
*Note the table of expenses (both actual and pro forma) does not reflect the
separate account expenses, including sales load.
Limited-
High Term
Income Income International Bond
------ ------ ------------- -------
Pro Pro Pro Pro
Actual FormaActual FormaActual FormaActual Forma
------ ----------- ----------- ----------- -----
Annual Fund operating expenses
(as a percentage of average net assets)
Management fees 0.65% 0.65%0.70% 0.70%0.80% 0.80%0.55% 0.55%
12b-1 fees 0.00 0.25 0.00 0.25 0.00 0.25 0.00 0.25
Other expenses 0.05 0.05 0.02 0.02 0.18 0.18 0.18 0.18
Total Portfolio
operating expenses0.70 0.95 0.72 0.97 0.98 1.23 0.73 0.98
*Note the table of expenses (both actual and pro forma) does not reflect the
separate account expenses, including sales load.
Science
Money and Small
Market Technology Cap
------ ---------- -----
Pro Pro Pro
Actual FormaActual FormaActual Forma
------ ----------- ----------- -----
Annual Fund operating expenses
(as a percentage of average net assets)
Management fees 0.50% 0.50%0.51% 0.51%0.85% 0.85%
12b-1 fees 0.00 0.25 0.00 0.25 0.00 0.25
Other expenses 0.08 0.08 0.18 0.18 0.05 0.05
Total Portfolio
operating expenses0.58 0.83 0.69 0.94 0.90 1.15
*Note the table of expenses (both actual and pro forma) does not reflect the
separate account expenses, including sales load.
Director Consideration of the Plan
Prior to approving adoption of the Plan, the Board of Directors of the
Fund, including the Independent Plan Directors, reviewed detailed information
relating to the Plan. The Board also consulted with independent counsel. Among
other matters the Board considered with respect to the shares of the Fund were:
1. the level and consistency of personal services and/or maintenance of
shareholder accounts to be provided to Policyowners under the Plan;
2. the extent to which Waddell & Reed's provision of personal services
and/or other maintenance of Policyowner accounts might result in
increased Policyowner satisfaction and reduced redemptions of Fund
shares by the Variable Accounts;
3. the benefits to Policyowners from Waddell & Reed's ability to attract
and retain a professional staff to provide personal services to
Policyowners and/or maintenance of Policyowner accounts that may not
be present if Fund assets were declining;
4. the cost to Policyowners for Waddell & Reed to provide personal
services to them and/or maintenance of Policyowner accounts under the
Plan and the effect on the performance of Policyowner investment in
the Fund over various periods of time;
5. the mutual fund industry's practices in the past several years of
adopting and maintaining plans similar to the Plan and the competitive
benefits associated with the adoption of the Plan;
6. the benefit to WRIMCO whose fees for providing investment management
services to the respective Portfolios are based on the level of the
Portfolios' net assets if Portfolio assets are maintained (or possibly
increase) as a result of Waddell & Reed's personal services and
account maintenance activities under the Plan; and
7. the merits of possible alternatives to the Plan.
Following its consideration, the Board of Directors of the Fund, including
the Independent Plan Directors, concluded that the fees payable by the Fund
pursuant to the Plan were reasonable in view of the services that would be
provided by Waddell & Reed and the anticipated benefits of the Plan to the Fund.
The Directors of the Fund, including the Independent Plan Directors, determined
that the implementation of the Plan would be in the best interests of the Fund
and would have a reasonable likelihood of benefiting the Fund and the
Policyowners. The Directors, however, recognized that there was no assurance
that the benefits sought pursuant to the Plan would be achieved nor when or in
what period of time the benefits might be realized.
If this Proposal is not approved by the shareholders of a Portfolio, the
Board of Directors may consider such further action as may be appropriate and in
the best interests of the Fund.
Required Vote: The adoption of the Plan as to a Portfolio requires the
affirmative vote of "a majority of outstanding voting securities" of that
Portfolio which, for this purpose, means the affirmative vote of the lesser of
(1) 67% or more of the Portfolio's shares present at the Meeting or represented
by proxy if more than 50% of the outstanding shares of the Portfolio are so
present or represented or (2) more than 50% of the outstanding shares of the
Portfolio.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU
VOTE FOR PROPOSAL 4
PROPOSAL 5: CHANGE OF QUORUM REQUIREMENTS
FOR SHAREHOLDER MEETINGS
The Board of Directors has determined that it would be desirable to change
the number of shareholders required to be present in person or by proxy to
constitute a quorum for a shareholders meeting of the Fund. Currently, the
presence of the shareholders entitled to cast a majority of the votes entitled
to be cast at a shareholders meeting constitutes a quorum for the meeting. The
Fund is organized as a corporation under Maryland law, which would permit the
Fund to have a lesser number of votes sufficient for a quorum if the Fund's
Articles of Incorporation so provide.
Accordingly, Fund management has proposed, and the Board of Directors has
approved, amending Article FIFTH, paragraph (5), of the Fund's Articles of
Incorporation by addition of the following sentence: "The presence in person or
by proxy of stockholders entitled to cast one-third of all the votes entitled to
be cast at the meeting shall constitute a quorum for the meeting." This
proposed amendment does not affect the vote required to approve any particular
proposal at a shareholders meeting. If this Proposal is not approved by
shareholders of the Fund, the current quorum requirements will remain in effect.
Required Vote: Approval of Proposal 5 requires the affirmative vote of a
majority of the outstanding shares of the Fund, provided a quorum is present.
THE BOARD OF DIRECTORS RECOMMENDS THAT
YOU VOTE FOR PROPOSAL 5.
ADDITIONAL INFORMATION
The solicitation of proxies, the cost of which will be borne by United
Investors, will be made primarily by mail, telephone or oral communications by
representatives of the Fund, regular employees and sales representatives of
Waddell & Reed, Waddell & Reed's affiliates, or certain broker-dealers (who may
be specifically compensated for such services), or by representatives of
Management Information Services Corp. ("MIS"), professional proxy solicitors,
retained by the Portfolios. MIS will be responsible for the delivery of the
proxy materials, the receipt of the ballots, the tabulation of the votes and the
preparation of final reports to be provided to the Portfolios. The cost of
solicitation of the proxies, including the proxy solicitation fees of
approximately $75,000, will be borne by United Investors.
OTHER INFORMATION CONCERNING WRIMCO AND AFFILIATES
WRIMCO is a wholly owned, direct subsidiary of Waddell & Reed, the
distributor of the Policies. Waddell & Reed Services Company ("WARSCO"),
another wholly owned, direct subsidiary of Waddell & Reed, provides bookkeeping
and accounting services to the Fund. The address of WRIMCO and WARSCO is 6300
Lamar Avenue, Overland Park, Kansas 66202-4200.
RECEIPT OF SHAREHOLDER PROPOSALS
As a general matter, the Fund does not hold regular annual or other
meetings of shareholders. Any shareholder who wishes to submit proposals to be
considered at a special meeting of the Fund's shareholders should send such
proposals to the Fund at P.O. Box 29217, 6300 Lamar Avenue, Overland Park,
Kansas 66201-9217.
OTHER BUSINESS
The Fund does not know of any other business to be presented at the meeting
other than the matters set forth in this Proxy Statement. If any other matter
or matters are properly presented for action at the meeting, the proxy holders
will vote the shares which the Instruction Cards entitle them to vote in
accordance with their judgment on such matter or matters. By signing and
returning your Instruction Card, you give the proxy holders discretionary
authority as to any such matter or matters.
By Order of the Board of Directors
July 7, 1998 Kristen Richards
Assistant Secretary
<PAGE>
INDEX TO EXHIBITS TO PROXY STATEMENT
Exhibit A - Number of Outstanding Shares of
Each Portfolio ............................................. A-1
Exhibit B - Beneficial Ownership of Greater
than 5% of Portfolio Shares ................................ B-1
Exhibit C - Proposed Service Plan .......................... C-1
<PAGE>
EXHIBIT A
<TABLE>
Total Variable Variable Universal
Shares Life Annuity Life
Outstanding Account Account Annuity Plus
Shares PercentShares PercentShares Per
<S> <C> <C> <C> <C> <C> <C> <C>
Money Market Portfolio 43,121,803 986,518 2.29%42,011,83897.42% 123,447 0.2
Bond Portfolio 18,472,274 562,491 3.0417,895,87096.88 13,913 0.0
High Income Portfolio 25,559,278 715,918 2.8024,818,28897.10 25,072 0.1
Growth Portfolio 83,946,078 2,800,914 3.3481,034,76896.53 110,396 0.1
Income Portfolio 53,800,583 1,270,701 2.3652,446,19297.48 83,690 0.1
International Portfolio 18,569,434 697,857 3.7617,844,56596.10 27,012 0.1
Small Cap Portfolio 18,568,821 585,298 3.1517,944,52296.64 39,001 0.2
Balanced Portfolio 11,167,781 294,138 2.6310,847,68997.14 25,954 0.2
Limited-Term Bond Portfolio 636,903 15,020 2.36 621,78397.63 100 0.0
Asset Strategy Portfolio 1,972,555 102,840 5.21 1,864,70294.53 5,013 0.2
Science and Technology Portfolio2,387,968 33,654 1.41 2,317,01297.03 37,302 1.5
</TABLE>
<PAGE>
EXHIBIT B
Shares
Beneficially Owned
Name and Address ------------------
of Beneficial Owner Portfolio Shares Percent
- ------------------- --------- ------ -------
Patricia R. Means Limited-Term Bond 40,061 6.29%
4618 SE 20th Ave
Cape Coral FL 33904
<PAGE>
EXHIBIT C
SERVICE PLAN
As Adopted _____________
This Plan is adopted by Target/United Funds, Inc. (the "Fund"), pursuant to
Rule 12b-1 under the Investment Company Act of 1940, as amended (the "Act"), to
provide for payment by each series ("Portfolio") of the Fund of certain expenses
in connection with the provision of personal services to the owners of variable
life insurance policies or variable annuity contracts funded by Portfolio shares
("Policies") and/or maintenance of the accounts of such Policies
("Policyowners"). Payments under the Plan are to be made to Waddell & Reed,
Inc. ("W&R").
Service Fee
Each Portfolio is authorized to pay to W&R an amount not to exceed on an annual
basis .25 of 1% of the Portfolio's average net assets as a "service fee" to
finance Policyowner servicing by W&R, its affiliated companies, broker-dealers
who may sell the Portfolio's shares and other third parties and to encourage and
foster the maintenance of Policyowner accounts. The amounts shall be payable to
W&R monthly or at such other intervals as the board of directors may determine.
NASD Definition
The "service fee" shall be considered a payment made by the Portfolio for
personal service and/or maintenance of Policyowner accounts, as such is now
defined by the National Association of Securities Dealers, Inc. ("NASD"),
provided, however, if the NASD adopts a definition of "service fee" for purposes
of Rule 2830 and the NASD Conduct Rules that differs from the definition of
"service fee" as presently used, or if the NASD adopts a related definition
intended to define the same concept, the definition of "service fee" as used
herein shall be automatically amended to conform to the NASD definition.
Quarterly Reports
W&R shall provide to the board of directors of the Fund, and the board of
directors shall review, at least quarterly a written report of the amounts so
expended of the service fee paid or payable to it under this Plan and the
purposes for which such expenditures were made.
Approval of Plan
This Plan shall become effective as to a Portfolio when it has been approved by
a vote of at least a majority of that Portfolio's outstanding voting securities
(as defined in the Act) and by a vote of the board of directors of the Fund and
of the directors who are not interested persons of the Fund and have no direct
or indirect financial interest in the operation of the Plan or any agreement
related to this Plan (other than as directors of the Fund or as Policyowners)
("independent directors") cast in person at a meeting called for the purposes of
voting on such Plan.
Continuance
This Plan shall continue in effect for a period of one (1) year and thereafter
from year to year only so long as such continuance is approved by the directors,
including the independent directors, as specified hereinabove for the adoption
of the Plan by the directors and independent directors.
Director Continuation
In considering whether to adopt, continue or implement this Plan, the directors
shall have a duty to request and evaluate, and W&R shall have a duty to furnish,
such information as may be reasonably necessary to an informed determination of
whether this Plan should be adopted, implemented or continued.
Termination
This Plan may be terminated at any time by a vote of a majority of the
independent directors of the Fund or, as to a Portfolio, by a vote of the
majority of the outstanding voting securities of that Portfolio without penalty.
On termination, the payment of all service fees shall cease, and the Fund shall
have no obligation to W&R to reimburse it for any cost or expenditure it has
made or may make to service Policyowner accounts.
Amendments
This Plan may not be amended to increase materially the amount to be spent by a
Portfolio for personal service and/or maintenance of Policyowner accounts
without approval of the shareholders of that Portfolio, and all material
amendments of this Plan must be approved in the manner prescribed for the
adoption of the Plan as provided hereinabove.
Directors
While this Plan is in effect, the selection and nomination of the directors who
are not interested persons of the Fund shall be committed to the discretion of
the directors who are not interested persons of the Fund.
Records
Copies of this Plan and reports made pursuant to this Plan shall be preserved as
provided in Rule 12b-1(f) under the Act.
