<PAGE>
UNITED INVESTORS
A D V A N T A G E I I
VARIABLE ANNUITY
PROSPECTUS
This Prospectus describes the Deferred Variable Annuity
Policy ("Policy") issued by United Investors Life Insurance
Company ("United Investors"). The Policy can be purchased
with a single minimum Purchase Payment of $5,000, (for tax
qualified policies, the minimum Purchase Payment is lower).
Additional Purchase Payments may be made in amounts of $100
or more. No Policy will be issued if either the Annuitant
or the Owner are over age 80 nearest birthday.
The Owner selects among the five Investment Divisions of the
United Investors Annuity Variable Account (the "Variable
Account") to which Purchase Payments are allocated, and the
Owner can transfer the Policy Value among the investment
divisions ("Investment Divisions"). Assets of each
Investment Division are invested in corresponding portfolios
of TMK/United Funds, Inc. (the "Fund"), a diversified open-
end management investment company. The Fund consists of
five portfolios: the Money Market Portfolio, the Bond
Portfolio, the High Income Portfolio, the Growth Portfolio
and the Income Portfolio. The Policy Value will vary in
accordance with the investment performance of the Investment
Divisions selected by the Owner. Therefore, the Owner bears
the entire investment risk under the Policy.
The Owner can surrender the Policy for cash or make a
partial cash withdrawal (collectively, "Withdrawals"),
although Withdrawals may be subject to a withdrawal charge
and tax penalty.
This Prospectus sets forth the basic information that a
prospective investor should know before investing. A
"Statement of Additional Information" containing more
detailed information about the Policy and the Variable
Account is available free by writing United Investors at
United Investors Life Insurance Company, Variable Products
Division, P.O. Box 156, Birmingham, Alabama 35201-0156, or
by calling (205) 325-4300. The Statement of Additional
Information, which has the same date as this Prospectus, has
been filed with the Securities and Exchange Commission and
is incorporated herein by reference. The table of contents
for the Statement of Additional Information is included at
the end of this Prospectus.
This Prospectus Must Be Accompanied or Preceded By A Current
Prospectus For TMK/United Funds, Inc.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Please Read This Prospectus Carefully And Retain It For
Future Reference.
The Date of This Prospectus is May 1, 1993.
Issued By United Investors Life Insurance Company
(a Missouri Stock Company)
2001 Third Avenue South
Birmingham, Alabama 35233
U1053 (5-93)
<PAGE>
UNITED INVESTORS LIFE
ADVANTAGE II
VARIABLE ANNUITY
Prospectus Supplement dated February 1, 1994
The Prospectus dated May 1, 1993, is hereby amended as follows:
The "Reduction in Charges for Certain Groups" on page 11 of the
prospectus is deleted and replaced with the following paragraphs.
United Investors may reduce or eliminate the sales,
administrative, or Withdrawal Charges on policies that have
been sold to (1) employees and sales representatives of United
Investors or its affiliates; (2) customers of United Investors
or distributors of the Policies who are transferring existing
policy values to a Policy; (3) individuals or groups of
individuals when sales of the contract result in savings of
sales or administrative expenses; or (4) individuals or groups
of individuals where purchase payments are to be made through
an approved group payment method and where the size and type
of the group results in savings of administrative expenses.
In no event will reduction or elimination of the sales,
administrative, or Withdrawal Charges be permitted where such
reduction or elimination will be unfairly discriminatory to
any person.
U-1094-1, Ed. 2-94
<PAGE>
UNITED INVESTORS
ADVANTAGE II
VARIABLE ANNUITY
Prospectus Supplement
The Prospectus dated May 1, 1993, is hereby supplemented to indicate that
the Advantage II Variable Annuity can now be used in connection with retirement
plans that qualify under Section 457 of the Internal Revenue Code, as well as
the other types of qualified plans identified in the prospectus (at page 14).
Accordingly, the term "Qualified Policy" includes policies used in connection
with Section 457 Plans.
Internal Revenue Code Section 457 provides for certain deferred
compensation plans. These plans may be offered 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. These plans may permit participants to specify the form of
investments for their deferred compensation account. All investments under such
Plans are owned by the sponsoring employer and are subject to the claims of
general creditors of the employer. In general, all amounts received by
participants under a Section 457 plan are taxable.
Supplement dated September 1, 1993.
U-1094, Ed. 9-93
<PAGE>
TABLE OF CONTENTS
________________________________________________________________________________
Definitions Definitions ...................................... i
________________________________________________________________________________
Summary Summary .......................................... 1
________________________________________________________________________________
United Investors Life United Investors Life Insurance Company .......... 5
Insurance Company and United Investors Annuity Variable Account ........ 5
United Investors Annuity TMK/United Funds, Inc. ........................... 5
Variable Account
________________________________________________________________________________
The Policy Issuance of a Policy ............................. 6
Purchase Payments ................................ 7
Allocation of Purchase Payments .................. 7
Policy Value ..................................... 7
Surrender and Partial Withdrawals ................ 8
Transfers ........................................ 9
Death Benefit .................................... 9
Free Look Period ..............................9
________________________________________________________________________________
Charges and Deductions Annual Deduction ................................. 10
Withdrawal Charge ................................ 10
Reductions in Charges for Certain Groups ......... 11
Mortality and Expense Risk Charge ................ 11
Transaction Charge ............................... 11
Premium Taxes .................................... 12
Federal Taxes .................................... 12
Fund Expenses .................................... 12
________________________________________________________________________________
Annuity Payments Election of Annuity Payment Option ............... 12
Retirement Date .................................. 12
Available Options ................................ 12
________________________________________________________________________________
Distributor of the Distributor of the Policies ...................... 13
Policies
________________________________________________________________________________
Federal Tax Matters Introduction ..................................... 14
Taxation of Annuities in General ................. 14
________________________________________________________________________________
Voting Rights Voting Rights .................................... 16
________________________________________________________________________________
Financial Statements Financial Statements ............................. 16
________________________________________________________________________________
Statement of Additional Statement of Additional Information
Information Table of Contents ............................. 17
The Policy is not available in all States.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESMAN, OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
<PAGE>
DEFINITIONS
Annuitant ............ means the person on whose life Annuity Payments depend.
If the Contract Owner names more than one person as an
"Annuitant," the second person shall be referred to as
"Co-Annuitant." All provisions based on the date of
death of the "Annuitant" prior to the Retirement Date
will be based on the date of death of the last to
survive of the Annuitant" or "Co-Annuitant." The
"Annuitant" and Co-Annuitant" will be referred to
collectively as the "Annuitant."
Annuity Payment ...... means an amount paid monthly, starting on the
Retirement Date, by United Investors to the Annuitant
or any other payee.
Annuity Payment Option means any one of the payment options available under
the Policy.
Beneficiary .......... means the person or persons to whom this Policy's Death
Benefit is paid when the Annuitant dies.
Death Benefit ........ means the amount payable under the Policy if the
Annuitant or Owner dies before the Retirement Date.
The Death Benefit is the greater of (1) the total
Purchase Payments made less any amounts withdrawn and
any Withdrawal Charges on amounts withdrawn and less
any transaction charges or (2) the Policy Value on the
date of death.
Fund ................. means the mutual fund available for investment by the
Variable Account on the Policy Date or as later changed
by us. The Fund available as of the date of this
prospectus is TMK/United Funds, Inc.
Net Purchase Payment . means a Purchase Payment less any deduction for premium
taxes incurred at the time the Purchase Payment was
accepted.
Nonqualified Policies means Policies that do not qualify for special federal
income tax treatment.
Policy Anniversary ... means the same day and month as the Policy Date each
year that the Policy remains in force.
Policy Date .......... means the date the Policy becomes effective, and the
date from which Policy Anniversaries and Policy Years
are determined.
Policy Value ......... means the sum of all values of the Investment Divisions
under the Policy prior to the Retirement Date.
Policy Year .......... means a year that starts on the Policy Date or on a
Policy Anniversary.
Policyowner or Owner . means the person named as the owner in the application,
unless he or she has assigned ownership to someone
else.
Purchase Payment ..... means any payment made by the Policyowner under the
Policy.
Qualified Policies ... means Policies used in connection with certain plans
that qualify for special federal income tax treatment.
Retirement Date ...... is the date on which the Annuity Payments are to start.
Valuation Date ....... means a normal business day, Monday through Friday.
However, we will not value the Policy on any customary
U.S. business holiday when the New York Stock Exchange
is not open for trading. Those holidays currently are
New Year's, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Valuation Period ..... means the interval of time commencing at the close of
business of the New York Stock Exchange on each
Valuation Date and ending at the close of business the
New York Stock Exchange on the next Valuation Date.
Variable Annuity ..... means an annuity with payments which vary in amount
with the investment experience of the Variable Account.
We ................... means United Investors Life Insurance Company. "Us"
and "our" also refer to United Investors.
Written Request or
Written Notice .... means a request or notice in writing signed by the
Policyowner.
You .................. means the Owner of the Policy. "Your" and "yours" also
refer to the Policyowner.
<PAGE>
SUMMARY
The following summary of Prospectus information should be read in
conjunction with the detailed information appearing elsewhere in this
Prospectus. Unless otherwise indicated the description of the Policy contained
in this Prospectus assumes that the Policy is in force.
The Policy. The Policy is designed to aid individuals in long-term
financial planning and provides for the accumulation of capital on a tax-
deferred basis for retirement or other long-term purposes. The Policy also
provides Annuity Payments after the Retirement Date. The Owner may select from
a number of Annuity Payment Options, including a life annuity, joint life
annuity and life annuity for a guaranteed period. Annuity Payments under any of
the Annuity Payment Options are variable and are not fixed in amount. (See
Annuity Payments.)
The Policy is issued in consideration of the application and payment of the
initial Purchase Payment. The minimum initial Purchase Payment for non-
qualified policies is $5,000. For qualified plans, the initial Purchase Payment
must be at least $1,200, unless Purchase Payments will be made by means of a
bank draft authorization or a group payment method approved in advance by us.
(See Purchase Payments.) The Policy can be purchased for a single Purchase
Payment. However, additional Purchase Payments may be paid at the Policyowner's
option (within certain limits). (See Purchase Payments.) The Policy can be
purchased on a non-qualified tax basis or it can be purchased and used in
connection with plans qualifying for favorable federal income tax treatment.
The Variable Account. The Variable Account currently has five Investment
Divisions. The Investment Divisions invest solely in shares of a corresponding
portfolio of the Fund, which currently has the following five separate
investment portfolios: the Money Market Portfolio, the Bond Portfolio, the High
Income Portfolio, the Growth Portfolio, and the Income Portfolio (collectively,
the "Portfolios"). Each of the five Portfolios has a different investment
objective. (See TMK/United Funds, Inc.)
The Policyowner determines the allocation of Purchase Payments and Policy
Value among the Investment Divisions of the Variable Account. Because the
Policy Value depends on the investment experience of the selected Investment
Divisions, the Owner bears the entire investment risk under the Policy. (See
Allocation of Purchase Payments.) Prior to the Retirement Date, the
Policyowner may transfer the Policy Value from one Investment Division to one or
more other Investment Divisions up to twelve times per Policy Year at no cost.
After the Retirement Date, the Annuitant may reallocate the value of the
Annuitant's interest in the Investment Divisions once each Policy Year at no
cost. (See Transfers.)
Policy Value. On the Policy Date, the Policy Value equals the amount of
the initial Purchase Payment less any applicable premium taxes plus any accrued
interest from the date of receipt of the initial Purchase Payment to the Policy
Date. Thereafter, the Policy Value will increase or decrease from day to day
depending on the investment experience of the selected Investment Divisions.
There is no guaranteed minimum Policy Value.
The Policy Value is equal to the sum of the values of the Investment
Divisions under the Policy prior to the Retirement Date. The Policy Value will
reflect the investment performance of the selected Investment Divisions, the
charges imposed in connection with the Policy, and indirectly the expenses of
the Fund. (See Policy Value.) Accordingly, although the Policy offers the
possibility that the Policy Value will increase, there is no assurance that it
will increase, and it may decrease.
Surrender and Partial Withdrawals. You may surrender the Policy at any
time prior to the Retirement Date for the Policy Value less any applicable
Withdrawal Charge and less any premium taxes incurred upon surrender. You may
also make partial withdrawals of the Policy Value at any time after the first
Policy Year and prior to the Retirement Date. However, amounts withdrawn during
the first eight Policy Years following receipt of a Purchase Payment may be
subject to a Withdrawal Charge. (See Surrender and Partial Withdrawals.) In
addition, Withdrawals may be subject to a penalty tax. For certain Qualified
Policies, withdrawals may be severely restricted and/or penalized. (See Federal
Tax Matters.)
Death Benefit. The Policy provides a Death Benefit if the Annuitant or
Owner should die before the Retirement Date. The Death Benefit is the greater
of (1) the total Purchase Payments paid less any amounts withdrawn and any
Withdrawal Charges on amounts withdrawn and less any transaction charges or (2)
the Policy Value on the date of death. Upon death of the Annuitant the Death
Benefit under the Policy will be paid in a lump sum or under one of the Annuity
Payment Options. (See Annuity Payments.) No Death Benefit will be paid if the
Annuitant or Owner dies after the Retirement Date unless provided for in the
Annuity Payment Option then in effect. (See Death Benefit.) Upon death of the
Owner prior to the Retirement Date certain distribution requirements under
federal income tax laws will apply, as explained more fully in the Statement of
Additional Information.
Charges and Deductions. United Investors does not impose any charge or
deduction against a Purchase Payment prior to its allocation to the Variable
Account, (except for a charge for any premium taxes incurred at the time the
Purchase Payment is accepted). Deductions are made from the values in the
Investment Divisions to pay for various expenses and risks that we incur.
There is a sales charge of a maximum of 8.5% of each Purchase Payment,
which is deducted from the Policy Value in ten equal annual installments of
0.85% of the Purchase Payment. (See Annual Deduction.)
A sales charge in the form of a withdrawal charge ("Withdrawal Charge") is
assessed against each Purchase Payment withdrawn or applied under an Annuity
Payment Option within eight years after the payment is received. The Withdrawal
Charge is 8% of Purchase Payments less than one year old, and decreases 1% per
year. Purchase Payments 8 years old or older are not subject to Withdrawal
Charges.
The sales charges described herein are applicable to policies issued after
April 30, 1992. The sales charges for policies issued prior to May 1, 1992 (or
later in some states), will be as shown in your policy form. See Policies
Issued before May, 1 1992 (or later in some states).
A $20 transaction charge will apply if more than four withdrawals are made
in a Policy Year. (See Transaction Charge.) Withdrawals may be subject to a
penalty tax. (See Federal Tax Matters.)
An annual deduction of $50 is made on each Policy Anniversary to compensate
United Investors for the cost of administering the Policy. (See Annual
Deduction.)
A daily charge, at an effective annual rate of .90% of the daily value of
the Investment Divisions, will be deducted from the Investment Divisions for
United Investors' assumption of certain mortality and expense risks incurred in
connection with the Policy. (See Mortality and Expense Risk Charge.)
Summary of Fees and Charges.
The following information summarizes the fees and charges payable by the
Owner of a Policy.
Contract Owner Transaction Expenses.
Deferred sales load (as percentage of each Purchase Payment; deducted in
equal installments of .85% on each of the first ten policy
anniversaries following the date the payment is received):.... 8.5%
Surrender fees (for each withdrawal in excess of 4 per Policy Year): $20.00
Transfer fee (maximum of 12 transfers in a Policy Year): .......... 0.00
Annual Deduction: ................................................. $50.00
Variable Account Annual Expenses.
Mortality and Expense Risk Fees (expressed as a percent of the average
daily net assets of each Investment Division): ............... 0.90%
Money High
TMK/United Funds' Market Bond Income Growth Income
Annual Expenses Portfolio Portfolio Portfolio Portfolio Portfolio
- --------------- --------- --------- --------- --------- ---------
(Expressed as a Percentage
of Net Assets of the
Portfolio.)
Management fee 0.51% 0.54% 0.66% 0.71% 0.71%
Other expenses 0.14% 0.10% 0.11% 0.09% 0.14%
----- ----- ----- ----- -----
Total Investment Portfolio
annual expenses 0.65% 0.64% 0.77% 0.80% 0.85%
The purpose of this table is to assist the Owner in understanding the
various costs and expenses that an Owner will bear directly and indirectly. The
Table reflects charges and expenses of both the Variable Account and the Fund
for the year ended December 31, 1992; charges and expenses for future years may
be higher or lower. For more information on the charges summarized in this
Table, see "Charges and Deductions," and the Prospectus for the Fund.
Example
If you surrender or annuitize your contract at the end of the applicable
time period, you would pay the following expenses on a $1,000 investment,
assuming 5% annual return on assets:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Money Market Portfolio ............$85.50 $118.00 $152.27 $266.52
Bond Portfolio .................... 85.40 117.69 151.76 265.49
High Income Portfolio ............. 86.70 121.62 158.34 278.81
Growth Portfolio .................. 87.00 122.52 159.85 281.86
Income Portfolio .................. 87.50 124.03 162.37 286.93
If you do not surrender your contract, you would pay the following expenses
on a $1,000 investment, assuming 5% annual return on assets:
1 Year 3 Years 5 Years 10 Years
Money Market Portfolio ............$15.50 $68.00 $122.27 $266.52
Bond Portfolio .................... 15.40 67.69 121.76 265.49
High Income Portfolio ............. 16.70 71.62 128.34 278.81
Growth Portfolio .................. 17.00 72.52 129.85 281.86
Income Portfolio .................. 17.50 74.03 132.37 286.93
In addition, United Investors will deduct a charge for premium taxes when
they are incurred.
THESE EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR FUTURE
EXPENSES AND THE ACTUAL EXPENSES MAY BE HIGHER OR LOWER THAN THOSE SHOWN.
"Free Look" Period. You may cancel the Policy by returning it within 10
days after you receive it. When we receive the Policy we will cancel it and
refund the greater of the Policy Value or the Purchase Payment that was paid.
(See Free Look Period.)
Owner Inquiries. All inquiries regarding the Policy should be addressed or
directed to the sales agent who sold the Policy or to United Investors at the
following address:
United Investors Life Insurance Company
Variable Products Division
P.O. Box 156
Birmingham, Alabama 35201-0156
Phone: (205) 325-4300
All inquiries should include the Policy number and the Annuitant's name and
Owner's name, if different.
* * *
NOTE: The foregoing summary is qualified in its entirety by the detailed
Information in the remainder of this Prospectus and in the Prospectus
for TMK/United Funds, Inc., both of which should be referred to for
more detailed information. With respect to Qualified Policies, it
should be noted that 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 Policies, and this Prospectus does not
describe any such limitations or restrictions. (See Federal Tax
Matters.)
ACCUMULATION UNIT VALUES
Money High
Market Bond Income Growth Income
------ ---- ------ ------ ------
July 13, 1987* 1.000 1.000 1.000 1.000 --
December 31, 1987 1.026 1.029 0.991 0.963 --
January 1, 1988 1.026 1.029 0.991 0.963 --
December 31, 1988 1.088 1.097 1.131 1.084 --
January 1, 1989 1.088 1.097 1.131 1.084 --
December 31, 1989 1.174 1.216 1.074 1.371 --
January 1, 1990 1.174 1.216 1.074 1.371 --
December 31, 1990 1.254 1.287 0.987 1.286 --
January 1, 1991 1.254 1.287 0.987 1.286 --
December 31, 1991 1.312 1.482 1.312 1.735 1.072**
January 1, 1992 1.312 1.482 1.312 1.735 1.072
December 31, 1992 1.342 1.582 1.505 2.078 1.209
ACCUMULATION UNITS OUTSTANDING
December 31, 1987 124,489 196,369 779,976 760,847 --
December 31, 1988 5,870,883 3,599,836 8,300,298 10,301,884 --
December 31, 1989 7,833,120 7,035,149 11,565,436 17,401,327 --
December 31, 1990 10,673,859 10,260,056 11,430,492 25,663,814 --
December 31, 1991 13,818,073 17,155,802 15,904,632 36,185,081 13,434,291
December 31, 1992 16,837,063 29,787,569 25,935,498 55,229,057 52,063,508
*Commencement of operations.
**Commencement of operations on July 16, 1991 at 1.000
UNITED INVESTORS LIFE INSURANCE COMPANY AND
UNITED INVESTORS ANNUITY VARIABLE ACCOUNT
United Investors Life Insurance Company
United Investors Life Insurance Company is a stock life insurance company
that was incorporated in the State of Missouri on August 17, 1981, as the
successor to a company of the same name established in Missouri on September 27,
1961. United Investors is a wholly-owned subsidiary of United Investors
Management Company (formerly TMK/United, Inc.), which in turn is indirectly
owned by Torchmark Corporation. United Investors is principally engaged in
offering life insurance and annuity contracts and is admitted to do business in
the District of Columbia and all states except New York.
United Investors Annuity Variable Account
United Investors Annuity Variable Account (the "Variable Account") is
currently divided into five Investment Divisions. Each Investment Division
invests exclusively in shares of a single portfolio of the Fund. Income and
both realized and unrealized gains or losses from the assets of each Investment
Division are credited to or charged against that Investment Division without
regard to income, gains or losses from any other Investment Division of the
Variable Account or arising out of any other business United Investors may
conduct.
Although the assets in the Variable Account are the property of United
Investors, the assets in the Variable Account attributable to the Policies are
not chargeable with liabilities arising out of any other business which United
Investors may conduct. The Variable Account was initially established by United
Investors as a segregated asset account on December 8, 1981 and was modified on
January 5, 1987. The Variable Account will receive and invest the Purchase
Payments allocated to it under the Policies.
The Variable Account has been registered as a unit investment trust under
the Investment Company Act of 1940. Registration with the Securities and
Exchange Commission does not involve supervision of the management or investment
practices or policies of the Variable Account or United Investors by the
Commission and meets the definition of a separate account under the Federal
securities law.
TMK/United Funds, Inc.
The Variable Account invests in shares of TMK/United Funds, Inc. ("the
Fund"), a mutual fund of the series type with five separate investment
portfolios. The Fund currently has a Money Market Portfolio, a Bond Portfolio,
a High Income Portfolio, a Growth Portfolio, and an Income Portfolio. The
assets of each Portfolio of the Fund are held separate from the assets of the
other Portfolios. Thus, each Portfolio operates as a separate investment
portfolio, and the income or losses of one Portfolio have no effect on the
investment performance of any other Portfolio.
The investment objectives and policies of each Portfolio are summarized
below. There is no assurance that any of the Portfolios will achieve their
stated objectives. More detailed information, including a description of risks,
is in the Fund's prospectus, which accompanies this Prospectus and which should
be read carefully in conjunction with this Prospectus and retained.
The Fund is designed to provide investment vehicles for variable annuity or
variable life insurance contracts of various insurance companies. For more
information about the risks associated with the use of the same funding vehicle
for both variable annuity and variable life insurance contracts of various
insurance companies, see the Fund's prospectus.
The Fund currently offers the following five Portfolios:
The Money Market Portfolio seeks to maximize current income consistent with
stability of principal. It may invest in money market securities such as bank
obligations and instruments secured by bank obligations, commercial paper and
corporate debt obligations and obligations of the U.S. and Canadian Governments
or their respective agencies and instrumentalities. Investments in a money
market fund are neither insured nor guaranteed by the U.S. Government and there
is no assurance that the portfolio will be able to maintain a stable per share
net asset value.
The Bond Portfolio seeks current income with an emphasis on preservation of
capital. It will invest primarily in debt securities of varying yields,
qualities, and maturities.
The High Income Portfolio primarily seeks high current income. As a
secondary goal it will seek capital growth when consistent with the primary
goal. It will invest primarily in high-yield, high risk fixed-income
securities, but may have up to 20% of its assets in common stocks. High-yield
fixed-income securities may have an increased risk of default and greater market
price volatility than higher rated securities due to various circumstances. See
"Risk Factors of High Yield Investing" in the TMK/United Funds, Inc. prospectus
for a further description of the risk factors.
The Growth Portfolio primarily seeks capital growth. As a secondary goal
it will seek current income. It will invest primarily in common stocks or
securities convertible into common stocks.
The Income Portfolio seeks to maintain current income, subject to market
conditions. It will invest primarily in common stocks or securities convertible
into common stocks.
Fund Management and Fees
Waddell & Reed Investment Management Company ("the Manager") is the manager
of the Fund and provides investment advisory services to the Fund. Waddell &
Reed, Inc. previously served as Manager to the Fund and a number of other mutual
funds. On January 8, 1992, subject to the authority of the Fund's Board of
Directors, Waddell & Reed, Inc. assigned its investment management duties
(and assigned its professional staff for investment management services) to the
Manager. Waddell & Reed, Inc. will continue to act as the Fund's distributor.
Waddell & Reed, Inc. has provided to the Fund certain undertakings and
guarantees in connection with the assignment. The Manager is a wholly-owned
subsidiary of Waddell & Reed, Inc. which is a direct subsidiary of United
Investors Management Company. The Manager provides investment advice to and
supervises investments of a number of mutual funds. The Manager maintains a
large staff of experienced investment personnel and a full complement of related
support facilities. Each Portfolio pays the Manager a fee for managing its
investments at the following annual rates: Money Market Portfolio--.51 of 1% of
net assets; Bond Portfolio--.54 of 1% of net assets; High Income Portfolio--.66
of 1% of net assets; Growth Portfolio--.71 of 1% of net assets; and Income
Portfolio--.71 of 1% of net assets. These fees are a result of the combination
of two elements: (i) a specific fee computed on each Portfolio's net asset value
at the close of business each day at the following annual rates: Money Market
Portfolio-None; Bond Portfolio-.03 of 1% of net assets; High Income Portfolio-
.15 of 1% of net assets; Growth Portfolio-.20 of 1% of net assets; and Income
Portfolio--.20 of 1% of net assets; and (ii) a base fee computed each day on the
combined net asset values of all of the Portfolios and allocated among the
Portfolios based on their relative net asset size at the annual rate of .51 of
1%.
THE POLICY
The Policy is a Deferred Variable Annuity. The rights and benefits of the
Policy are described below and in the Policy. However, United Investors
reserves the right to make any modification to conform the Policy to, or to give
the Owner the benefit of, any federal or state statute or rule or regulation.
The Policy may be purchased on a non-qualified tax basis ("Nonqualified
Policy"). The Policy may also be purchased and used in connection with plans
qualifying for favorable federal income tax treatment ("Qualified Policy").
Issuance of a Policy
Individuals wishing to purchase a Policy must complete an application and
send it to United Investors' home office. Acceptance is subject to United
Investors' rules, and United Investors reserves the right to reject any
application or Purchase Payment. If the application can be accepted in the
form received, the initial Purchase Payment will be applied within two Valuation
Dates after the latter of receipt of the application or receipt of the initial
Purchase Payment. If the initial Purchase Payment cannot be applied within five
Valuation Dates after receipt because the application is incomplete, the
applicant will be contacted and given an explanation for the delay and the
initial Purchase Payment will be returned at that time unless the applicant
consents to United Investors' retaining the initial Purchase Payment and
applying it as soon as the necessary requirements are fulfilled. No Policy will
be issued if either the Annuitant or the Owner are over age 80 nearest
birthday. Coverage will only become effective on the Policy Date.
Purchase Payments
The minimum initial Purchase Payment for nonqualified policies is $5,000.
For Qualified Polices, the initial Purchase Payment must be at least $1,200 (as
an exception for Qualified Policies, 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 totaling at least $1,200 in
the first year). Additional Purchase Payments may be made 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 pay you the total
value of your annuity in a lump sum, after a 30 day notice, unless during that
time you make an additional payment.
Allocation of Purchase Payments
The Policyowner determines in the application how the initial Net Purchase
Payment will be allocated among the Investment Divisions of the Variable
Account. You may allocate any whole percentage of Net Purchase Payments, from
0% to 100%.
Between the date that the initial Purchase Payment was received and the
Policy Date, interest will be credited on the Purchase Payment as if it had been
invested in the Money Market Investment Division. Beginning on the Policy Date
and ending on the seventeenth day after the Policy Date or the first Valuation
Date thereafter, the initial Net Purchase Payment, plus any accrued interest,
will be allocated to the Money Market Investment Division. Upon the expiration
of this period, the Policy Value will be transferred to the Investment Divisions
of the Variable Account in accordance with the allocation instructions you
specify in the application. The seventeen day period is intended to cover the
10-day Free Look Period (See Free Look Period.), plus 7 days for processing and
policy delivery.
On the date we receive an additional Purchase Payment, the Net Purchase
Payment will be allocated to the Investment Divisions in accordance with your
instructions in effect or, if no instructions are in effect, in the proportions
that the value of each Investment Division bears to the Policy Value.
The Policy Value will vary with the investment performance of the
Investment Divisions you select, and you bear the entire risk for amounts
allocated to the Variable Account. 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
There is no guaranteed minimum Policy Value. The Policy Value is equal to
the sum of the values of the Investment Divisions of the Variable Account under
the Policy. The value of each Investment Division is calculated first on the
Policy Date and thereafter on each Valuation Date (a normal business day).
On the Policy Date, the value of the Investment Divisions is equal to the
amount of the initial Net Purchase Payment plus any accrued interest from the
date of the receipt of the initial Purchase Payment to the Policy Date. On any
Valuation Date thereafter, the value of each Investment Division equals:
(1) the value of the Investment Division on the previous Valuation Date, as
increased or decreased by the investment experience and daily charge for
the Investment Division during the current Valuation Period; plus
(2) the amount of any Net Purchase Payments allocated to the Investment
Division during the current Valuation Period; plus
(3) the amount of any transfers from other Investment Divisions to the
Investment Division during the current Valuation Period; minus
(4) the amount of any withdrawals (including any Withdrawal Charge or
transaction charge) from the Investment Division during the current
Valuation Period; minus
(5) the amount of any transfers to other Investment Divisions from the
Investment Division during the current Valuation Period; minus
(6) the portion of any annual deduction allocated to the Investment Division if
the current Valuation Period includes a Policy Anniversary; minus
(7) the portion of any deduction for premium taxes during the current Valuation
Period allocated to the Investment Division.
Surrender and Partial Withdrawals
Withdrawals. You may make a partial withdrawal from the Policy Value,
after the first Policy Year and prior to the Retirement Date, by sending a
Written Request to United Investors at its home office. A partial withdrawal
must be for at least $250, and the Policy Value must be at least $2,000 after a
partial withdrawal. If the Policy Value would be less than $2,000, we will
treat the request for a partial withdrawal as a request for total surrender. A
Withdrawal will ordinarily be paid within seven days of receipt of the Written
Request (unless the check for your Purchase Payment has not yet cleared your
bank).
If you do not specify the Investment Divisions from which the partial
withdrawal is to be made, the partial withdrawal will be made from the
Investment Divisions in the proportion that the value of each Investment
Division bears to the Policy Value.
You may request up to four Withdrawals per Policy Year without a charge.
If more than four Withdrawals are requested during a Policy Year, there will be
a $20 transaction charge for each Withdrawal in addition to the four
Withdrawals. Also, Withdrawal Charges may apply to total Withdrawals in a
Policy Year in excess of 10% of the cumulative Purchase Payments. (See
Withdrawal Charge, and Transaction Charge.) Any transaction charge or
Withdrawal Charge applicable to a Withdrawal will be deducted from the remaining
Policy Value, or from the amount paid if the remaining value is insufficient.
No Withdrawals may be made after the Retirement Date.
Automatic Partial Withdrawals. You may also establish automatic partial
withdrawals after the first Policy Year and prior to the Retirement Date, by
submitting a one-time Written Request. Withdrawals may be in fixed dollar
amounts on a quarterly, semi-annual or annual basis. The minimum amount you can
withdraw is $250. The maximum amount of automatic partial withdrawals in any
one policy year is 10% of the cumulative Purchase Payments made.
Automatic partial withdrawals are subject to all the other contract
provisions and terms. If an additional withdrawal is made from a contract
participating in automatic partial withdrawals, the automatic partial
withdrawals will terminate automatically and may be resumed only on or after the
next policy anniversary.
Partial withdrawals may be subject to the 10% Federal Tax Penalty on early
withdrawals and to income tax. (See Federal Tax Matters.)
Surrender. You may surrender the Policy for its Policy Value less any
Withdrawal Charge and premium taxes by sending a Written Request to United
Investors at its home office. (The Withdrawal Charge, described below, is only
applicable if a surrender or annuitization occurs in the first eight Policy
Years following receipt of a Purchase Payment.) A surrender will ordinarily be
paid within seven days of receipt of the Written Request (unless the check for
your Purchase Payment has not yet cleared your bank). The Policy will terminate
as of the date of receipt of Written Request for surrender. Withdrawals are
generally taxable transactions, and may be subject to a penalty tax. (See
Federal Tax Matters.) No surrender may be made after the Retirement Date.
Restrictions Under the Texas Optional Retirement Program and Section 403(b)
Plans. The Texas Educational Code permits participants in the Texas Optional
Retirement Program ("ORP") to withdraw or surrender their interest in a variable
annuity contract issued under the ORP only upon (1 ) termination of employment
in the Texas public institutions of higher education, (2) retirement, or (3)
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 Internal Revenue Code 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. In
accordance with the requirements of Section 403(b), any Policy used for a
Section 403(b) plan will prohibit distributions of (i) elective contributions
made in years beginning after December 31, 1988, and (ii) earnings on those
contributions and (iii) 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 death of the
employee, attainment of age 591/2, separation from service, disability, or
financial hardship, except that income attributable to elective contributions
may not be distributed in the case of hardship.
Transfers
You may transfer all or part of the value of an Investment Division to one
or more of the other Investment Divisions at any time prior to the Retirement
Date. The total amount transferred each time must be at least $500 or, if less,
the entire value of the Investment Division from which the transfer is being
made. Transfers may be made by a Written Request or by calling United Investors
if a written authorization for telephone transfers is on file. United Investors
has the authority to honor any telephone transfer request believed to be
authentic. United Investors will not be liable for the consequences of a
fraudulent telephone transfer request. And as a result, you bear the risk of
loss arising from such a fraudulent request if you authorize telephone
transfers.
Only twelve transfers may be made during each Policy Year prior to the
Retirement Date. Each transfer will be made, without the imposition of any fee
or charge, at the end of the Valuation Period during which United Investors
receives a valid, complete transfer request. United Investors may suspend or
modify this transfer privilege at any time.
Transferring the value of one Investment Division into two or more
Investment Divisions counts as one transfer request. However, transferring the
values of two Investment Divisions into one Investment Division counts a two
transfer requests.
After the Retirement Date, the Annuitant may reallocate, no more than once
each Policy Year, the value of the Annuitant's interest in the Investment
Divisions. (See Available Options.)
Death Benefit
The Policy pays a Death Benefit to the named Beneficiary if the Annuitant
dies prior to the Retirement Date while the Policy is in force. The Death
Benefit is the greater of (1) the total Purchase Payments made less any amounts
withdrawn and any Withdrawal Charges on the amounts withdrawn and less any
transaction charges or (2) the Policy Value on the date of death. United
Investors will compute the amount of the Death Benefit as of the end of the
Valuation Period during which the Annuitant dies, and will pay the Death Benefit
proceeds to the Beneficiary upon proof of the Annuitant's death. Proceeds
payable at the death of the Annuitant will be paid either in one sum or under
one of the Annuity Payment Options. If the Annuitant dies after the Retirement
Date, the amount payable, if any, will be as provided in the Annuity Payment
Option then in effect. Prior to Retirement Date, upon death of the Owner or
Joint Owner, or upon death of the Annuitant if the Annuitant is the Owner,
the payment of the Death Benefit will be subject to certain distribution
requirements under the federal income tax laws, as explained more fully in the
Statement of Additional Information. As far as permitted by law, the proceeds
under the Policy will not be subject to any claim of the Beneficiary's
creditors.
Free Look Period
If for any reason you are not satisfied with the Policy, you may return it
to us within 10 days after you receive the Policy. If you cancel the Policy
within this 10-day "Free Look" period, we will refund the greater of the Policy
Value or the Purchase Payment that was paid, and the Policy will be void from
the Policy Date. To cancel the Policy, you must mail or deliver it to either
United Investors' home office or the registered agent who sold it within 10 days
after you received it. (See Allocation of Purchase Payments.)
CHARGES AND DEDUCTIONS
United Investors does not impose any charge or deduction against a Purchase
Payment prior to its allocation to the Variable Account (except for a charge for
any premium taxes incurred when the Purchase Payment is accepted). However,
there is a sales charge of a maximum of 8.5% of each Purchase Payment, deducted
in 10 equal installments from the values of the Investment Divisions over the
first ten Policy Anniversaries following the date the Purchase Payment is
received (See below). Thereafter, certain charges (explained below) will be
deducted in connection with the Policy to compensate United Investors 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.
Annual Deduction
On each Policy Anniversary, a deduction will be made from the values of the
Investment Divisions to compensate United Investors for certain costs and
expenses, as described below.
Sales Charge--There is a deduction of 0.85% of each Purchase Payment on
each of the first ten Policy Anniversaries following the receipt of the Purchase
Payment. (As noted above, this would result in a maximum sales charge
attributable to a Purchase Payment of 8.5%). The 0.85% charge partially
compensates United Investors for certain sales and other distribution expenses
incurred, including agent sales commissions, the cost of printing prospectuses
and sales literature, advertising and other marketing and sales promotional
activities.
Deduction on Each Policy Anniversary for Administrative Expenses--United
Investors deducts an annual charge of $50, which meets the "at cost" standards
of Rule 26a-1 under the Investment Company Act of 1940, to compensate it for
expenses incurred in administering the Policy. These expenses include costs of
maintaining records, processing Death Benefit claims, surrenders, transfers and
Policy changes, providing reports to Policyowners, and overhead costs. This
charge is guaranteed not to increase during the life of the Policy. Prior to
the Retirement Date, this charge is deducted on each Policy Anniversary. After
the Retirement Date, this charge is deducted pro rata from each Annuity Payment.
Withdrawal Charge
If you make partial withdrawals under the Policy, surrender the Policy, or
annuitize the Policy, then a Withdrawal Charge may be made, measured as a
percent of the Purchase Payments included in the withdrawal (in the case of a
partial withdrawal) or the amount of the total Purchase Payments (in the case of
a surrender or annuitizing) as specified in the following table of Withdrawal
Charges:
Number of Policy Anniversaries 8 or
since receipt of Purchase Payment: 0 1 2 3 4 5 6 7 More
- ---------------------------------- - - - - - - - - ----
Withdrawal Charge ................... 8% 7% 6% 5% 4% 3% 2% 1% none
Each Policy Year, after the first, you may withdraw up to 10% of cumulative
Purchase Payments without incurring a Withdrawal Charge. This 10% portion is
called the Free Withdrawal Amount. Amounts withdrawn in addition to the Free
Withdrawal Amount may be subject to a Withdrawal Charge. The withdrawal charge
is determined by multiplying each Purchase Payment included in the withdrawal by
the withdrawal charge rate applicable to the year in which the Purchase Payment
was received.
For purposes of calculating the withdrawal charge, (1) the oldest Purchase
Payments will be treated as the first withdrawn, newer Purchase Payments next,
and appreciation last; (2) amounts withdrawn up to the Free Withdrawal Amount
will not be considered a withdrawal of Purchase Payments; and (3) if the
surrender value is withdrawn or applied under an annuity option, 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 Policy
Year in which the Purchase Payment was made. A Withdrawal Charge of 8% applies
to Purchase Payments withdrawn that are less than 1 year old. Thereafter the
withdrawal charge decreases by 1% per year. Amounts representing Purchase
Payments 8 years old or older may be withdrawn without charge.
The Withdrawal Charge will be deducted from the remaining Policy Value, or
from the amount paid if the remaining value is insufficient. The Withdrawal
Charge partially compensates United Investors for sales expenses with regard to
the Policy, including agent sales commissions, the cost of printing prospectuses
and sales literature, advertising, and other marketing and sales promotional
activities.
The amounts received by United Investors from the Withdrawal Charge, along
with the deduction for sales expenses, may not be sufficient to cover
distribution expenses. United Investors expects to recover any deficiency from
United Investors' general assets (which include amounts derived from the
mortality and expense risk charge). United Investors believes that this
distribution financing arrangement will benefit the Variable Account and
Policyowners.
Waiver Of Withdrawal Charges Rider
If the Waiver of Withdrawal Charges Rider ("Rider") is attached to your
Policy, we may waive the withdrawal charges described above provided that the
conditions described in the Rider are met including (a) an Annuitant is confined
to a "Qualified Nursing Home" or "Qualified Hospital" (as defined in the Rider)
for at least 60 days; (b) the Annuitant was age 75 or younger on the Policy
Date; (c) the Policy was in force at least one year at the time confinement
began; (d) written notice and satisfactory proof of confinement are received
no later than 90 days after confinement ends; and (e) confinement was
recommended by a "Physician" (as defined in the Rider) due to injury, sickness
or disease. We will waive only the withdrawal charges which are applicable to
Purchase Payments received prior to the date the first confinement began.
Waiver of withdrawal charges is subject to all of the conditions and provisions
of the Rider (See your Policy.). The Rider is not available in all states.
Reduction In Charges For Certain Groups
United Investors may reduce or eliminate the sales and Withdrawal Charge on
policies that have been sold to (1) employees and sales representatives of
United Investors or its affiliates; or (2) customers of United Investors or
distributors of the Policies who are transferring existing policy values
to a Policy; or (3) individuals or groups of individuals when sales of the
contract result in savings of sales and administrative expenses.
In no event will reduction or elimination of the sales or Withdrawal Charge
be permitted where such reduction or elimination will be unfairly discriminatory
to any person.
Mortality and Expense Risk Charge
United Investors deducts a daily charge from the Investment Divisions at an
effective annual rate of .90% of the average daily net assets of each Investment
Division to compensate us for assuming certain mortality and expense risks under
the Policy. United Investors may realize a profit from this charge. However,
the level of this charge is guaranteed for the life of the Policy and may not be
increased. United Investors will continue to deduct this charge after the
Retirement Date.
The mortality risk borne by United Investors arises in part from its
obligation to make monthly Annuity Payments (determined in accordance with the
annuity tables and other provisions contained in the Policy) regardless of how
long all Annuitants or any individual may live. This undertaking assures that
neither an Annuitant's own longevity, nor an improvement in general life
expectancy greater than expected, will have any adverse effect on the monthly
Annuity Payments the Annuitant will receive under the Policy. It therefore
relieves the Annuitant from the risk that he 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. United Investors also
assumes the risk that other expense charges may be insufficient to cover the
actual expenses incurred in connection with the Policy.
Transaction Charge
You may request up to four withdrawals per Policy Year without a
transaction charge. After the fourth withdrawal in a Policy Year, a $20
transaction charge will apply to each additional withdrawal. This charge will
be deducted from the remaining Policy Value, or from the amount paid if the
remaining value is insufficient.
Premium Taxes
United Investors will deduct a charge for any premium taxes incurred.
Depending on state and local law, premium taxes can be incurred when a Purchase
Payment is accepted, when Policy Value is withdrawn or surrendered, or when
Annuity Payments start.
Federal Taxes
Currently no charge is made to the Variable Account for federal income
taxes that may be attributable to the Variable Account. United Investors may,
however, make such a charge in the future. Charges for other taxes, if any,
attributable to the Variable Account may also be made. (See Federal Tax
Matters.)
Fund Expenses
The value of the assets of the Variable Account will reflect the investment
management fee and other expenses incurred by the Fund.
Policies Issued before May 1, 1992 (or later in some states)
For policies issued before May 1, 1992 (or later in some states), a sales
charge of 6% is deducted from any Purchase Payment after the initial Purchase
Payment. However, for such additional Purchase Payments, the 8.5% sales charge
otherwise deducted in 10 annual installments is not deducted and there is no
Withdrawal Charge for such payments. Certain of these older policies may be
amended to eliminate the 6% sales charge deducted from additional purchase
payments, replacing it with a sales charge of 8.5% spread over ten annual
installments. These amendments might be implemented by restating the entire
policy with the original Policy Date and other data. See your policy form.
ANNUITY PAYMENTS
Election of Payment Option
The Policyowner has the sole right to elect or change an Annuity Payment
Option during the lifetime of the Annuitant and prior to the Retirement Date,
either in the application or by Written Request any time at least 30 days before
the Retirement Date. We may require the exchange of the Policy for a contract
covering the option selected.
Retirement Date
The first Annuity Payment will be made as of the Retirement Date. You
select the Retirement Date in the application for the Policy. You may change
the Retirement Date at any time by giving us Written Notice, provided that you
give us Written Notice at least 30 days prior to the new Retirement Date. A
Retirement Date may be the first day of any calendar month commencing 30 days
after the Policy Date, regardless of the Annuitant's age. If the Retirement
Date occurs during the first eight Policy Years after receipt of a Purchase
Payment, a Withdrawal Charge will apply. (See Withdrawal Charge.) If the net
amount to be applied to an option is less than $3,000, we have the right to pay
such amount in one sum. Also, if any payment would be less than $50, we have
the right to change the frequency of payment to an interval that will result in
payments of at least $50.
Available Options
All of the options currently available are Variable Annuities. The dollar
amount of an Annuity Payment after the first payment under any of the Variable
Annuities is not fixed. The options currently available are:
Option 1: Life Annuity With No Guaranteed Period--This option provides
monthly Annuity Payments during the lifetime of the Annuitant.
No payment will be made after the death of the Annuitant. It is
possible that only one payment will be made under this option 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.
Option 2: Joint Life Annuity Continuing To The Survivor--This option
provides monthly Annuity Payments during the lifetime of the
Annuitant and a joint Annuitant. Payments will continue to the
survivor during the survivor's remaining lifetime. If the joint
Annuitant does not survive the Annuitant, payments will end with
the payment due just before the death of the Annuitant. It is
possible that only one payment or very few payments will be made
under this option if the Annuitant and joint Annuitant both die
before or shortly after payments begin.
Option 3: Life Annuity With 120 or 240 Monthly Payments Guaranteed-This
option provides monthly Annuity Payments during the lifetime of
the Annuitant. A guaranteed period of 120 or 240 months may be
chosen. If the Annuitant dies prior to the end of this
guaranteed period monthly Annuity Payments will be made to the
Beneficiary until the end of the guaranteed period.
United Investors may make other payment options available in the future and
other payment options can be arranged with our written consent.
The amount of each Annuity Payment under the options 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 made because (a) Annuity Payments vary with the investment
experience of the underlying Portfolios and the Owner therefore bears the
investment risk and (b) Annuitants may die before the actuarially predicted date
of death. As such, the 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 Option may affect the dollar amount of
each Annuity Payment. For example, if an Annuity Payment Option guaranteed for
life is chosen, the Annuity Payments may be greater or less than the Annuity
Payments for an annuity for a guaranteed period, depending on the life
expectancy of the Annuitant.
If the actual net investment experience of the Investment Divisions after
the Retirement Date is less than the assumed investment rate, then the dollar
amount of the Annuity Payments will decrease. The dollar amount of the Annuity
Payments will stay level if the net investment experience equals the assumed
investment rate, and the dollar amount of the Annuity Payments will increase if
the net investment experience exceeds the assumed investment rate. For purposes
of the Annuity Payments, the assumed investment rate is 4.0%.
After the Retirement Date, Policy Value may not be withdrawn, nor may the
Policy be surrendered. The Annuitant (if other than the Owner) will be entitled
to exercise any voting rights and to reallocate the value of the Annuitant's
interest in the 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 is to be used in connection with an employment related retirement or
benefit plan, consideration should be given, in consultation with your legal
counsel, to the impact of Norris on any such plan before making any
contributions under these Policies.
DISTRIBUTOR OF THE POLICIES
Waddell & Reed, Inc., 6300 Lamar, Overland Park, Kansas, is the
principal underwriter and the distributor of the Policies. Waddell & Reed, Inc.
is an affiliate of United Investors. Waddell & Reed, Inc. may enter into
written sales agreements with various broker-dealers to aid in the distribution
of the Policies. A commission of up to 5% of Purchase Payments plus bonus
compensation may be paid to broker-dealers or agents in connection with sales of
the Policies. Bonus compensation will be based on Purchase Payments received
(both initial and additional).
FEDERAL TAX MATTERS
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE.
Introduction
This discussion is not intended to address the tax consequences resulting
from all of the 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 adviser before initiating any transaction. This
discussion is based upon United Investors' understanding of the present federal
income tax laws as they are currently interpreted by the Internal Revenue
Service. No representation is made as to the likelihood of the continuation of
the present federal income tax laws or of the current interpretation by the
Internal Revenue Service. Moreover, no attempt has been made to consider any
applicable state or other tax laws.
The Policy may be purchased on a non-qualified tax basis ("Nonqualified
Policy") or purchased and used in connection with plans qualifying for favorable
tax treatment ("Qualified Policy"). The Qualified Policies were designed for
use by individuals whose Purchase Payments are comprised solely of proceeds from
and/or contributions under retirement plans which are intended to qualify as
plans entitled to special income tax treatment under Sections 401(a), 403(b), or
408 of the Internal Revenue Code of 1986 (the "Code"). The ultimate effect of
federal income taxes on the Policy Value, on Annuity Payments and on the
economic benefit to the Owner, the Annuitant or the Beneficiary depends on the
type of retirement plan, on the tax and employment status of the individual
concerned and on United Investors' tax status. In addition, certain
requirements must be satisfied in purchasing a Qualified Policy with proceeds
from a tax qualified plan in order to continue receiving favorable tax
treatment. Therefore, purchasers of Qualified Policies should seek competent
legal and tax advice regarding the suitability of the Policy for their
situation, the applicable requirements and the tax treatment of the rights and
benefits of a Policy. The following discussion assumes that Qualified Policies
are purchased with proceeds from and/or contributions under retirement plans
that qualify for the intended special federal income tax treatment.
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 describes such qualifications.
Section 72 of the Code governs taxation of annuities in general. United
Investors believes that an annuity owner who is a natural person generally is
not taxed on increases in the value of a Policy until distribution occurs either
in the form of a lump sum received by withdrawing all or part of the cash value
(i.e., withdrawals) or as Annuity Payments under the Annuity Payment Option
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 taxed portion of a distribution (in the form of a lump sum
payment or an annuity) 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 owner's cash
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 adviser.
The former administration did offer a budget proposal that would tax
increases in the value of a Policy. This proposal was not adopted by Congress.
There is no way to know if the current administration will offer a proposal
affecting the taxation of annuities and, if offered, whether or not Congress
would adopt it.
The following discussion applies to Policies owned by natural persons.
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"
equals the portion, if any, of any Purchase Payments paid by or on behalf of an
individual under a Policy which was not excluded from the individual's gross
income. For Policies issued in connection with qualified plans, the "investment
in the contract" can be zero. A special rule may apply to a withdrawal from a
Qualified Policy with respect to "investment in the contract" as of December 31,
1986.
Generally, in the case of a withdrawal under a Nonqualified Policy before
the annuity starting 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.
Although the tax consequences may vary depending on the Annuity Payment
Option 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 dollar amount of each Annuity Payment that is not taxed. This dollar
amount is determined by dividing the "investment in the contract" by the total
number of expected Annuity Payments. After the "investment in the contract" is
recovered, the full amount of any additional Annuity Payments is taxable.
In the case of a distribution pursuant to a Nonqualified 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: (1 )
made on or after the taxpayer attains age 591/2, (2) made as a result of the
owner's death or is attributable to the taxpayer's disability, or (3) received
in substantially equal periodic payments as a life annuity.
The tax rules applicable to a Qualified Policy vary according to the
type of plan and the terms and conditions of the plan. Special favorable tax
treatment may be available for certain types of contributions and distributions.
Adverse tax consequences may result from contributions in excess of specified
limits; distributions prior to age 59 1/2 (subject to certain exceptions);
distributions that do not conform to specified commencement and minimum
distribution rules; aggregate distributions in excess of a specified annual
amount; and in other specified circumstances.
We make no attempt to provide more than general information about the use
of the Policy with the various types of retirement plans. Owners and
participants under retirement plans as well as Annuitants and Beneficiaries are
cautioned that the rights of any person to any benefits under a Qualified Policy
may be subject to the terms and conditions of the plans themselves, regardless
of the terms and conditions of the Policy issued in connection with such a plan.
Purchasers of annuity contracts for use with any qualified retirement plan
should consult their legal counsel and tax adviser regarding the suitability of
the annuity contract.
Tax Sheltered Annuity (TSA) Section 403(b) payments made by public school
systems and certain tax exempt organizations are excludable from the gross
income of the employee, subject to certain limitations. However, these payments
may be subject to FICA (Social Security) taxes. Code Section 403(b) (11)
restricts the distribution under Code Section 403(b) annuity contracts of: (1)
elective contributions made in years beginning after December 31, 1988; (2)
earnings on those contributions; and (3) earnings in such years on amounts held
as of the last year beginning before January 1, 1989. Distribution of those
amounts may only occur upon death of the employee, attainment of age 59 1/2,
separation from service, disability, or financial hardship. In addition, income
attributable to elective contributions may not be distributed in the case of
hardship.
Individual Retirement Annuities are subject to limitations on the amount
which may be contributed and deducted and the time when distributions may
commence. In addition, distributions from certain other types of retirement
plans may be placed into an Individual Retirement Annuity on a tax deferred
basis.
All nonqualified deferred annuities entered into after October 21, 1988
that are issued by United Investors (or its affiliates) 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 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, a Policy Owner should consult a
competent tax advisor before purchasing more than one annuity contract.
A transfer or assignment of ownership of a Policy, or designation of an
Annuitant or other Beneficiary who is not also the Owner, may result in certain
tax consequences to the Owner that are not discussed herein. An Owner
contemplating any such transfer, assignment or designation should contact a
competent tax adviser with respect to the potential tax effects of such
transaction.
Amounts may be distributed from a Contract because of the death of an Owner
or an Annuitant. Generally, such amounts are includable in the income of the
recipient as follows: (1) if distributed in a lump sum, they are taxed in the
same manner as a full surrender of the Policy, as described above, or (2) if
distributed under an annuity option, they are taxed in the same manner as
annuity payments, as described above.
As noted above, the foregoing comments about the federal tax consequences
under these Policies are not exhaustive and special rules are provided with
respect to other tax situations not discussed in this prospectus. Further, the
federal tax consequences discussed herein reflect United Investors'
understanding of current law and the law may change. Federal estate 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
owner of the Policy or recipient of the distribution. A competent tax adviser
should be consulted for further information.
VOTING RIGHTS
To the extent deemed to be required by law, United Investors will vote the
Fund's shares held in the Variable Account at regular and special shareholder
meetings of the Fund in accordance with instructions received from persons
having voting interests in the corresponding Investment Divisions of the
Variable Account. If, however, the 1940 Act or any regulation thereunder should
be amended or if the present interpretation thereof should change, or if United
Investors determines that it is allowed to vote the Fund shares in its own
right, United Investors may elect to do so.
The number of votes which are available to an Owner will be calculated
separately for each Investment Division of the Variable Account. That number
will be determined by applying his or her percentage interest, if any, in a
particular Investment Division to the total number of votes attributable to that
Investment Division. Prior to the Retirement Date, the Owner holds a voting
interest in each Investment Division to which the Policy Value is allocated.
After the Retirement Date, the person receiving Annuity Payments has the voting
interest. The number of votes prior to the Retirement Date will be determined
by dividing the value of the Policy allocated to the Investment Division by the
net asset value per share of the corresponding Portfolio. After the Retirement
Date, the votes attributable to a Policy decrease as the value of the Investment
Divisions decrease with Annuity Payments. In determining the number of votes,
fractional shares will be recognized.
The number of votes of a Portfolio which are available will be determined
as of the date coincident with the date established by that Portfolio for
determining shareholders eligible to vote at the meeting of the Fund. Voting
instructions will be solicited by written communication prior to such meeting in
accordance with procedures established by the Fund.
Portfolio shares attributable to the Policies as to which no timely
instructions are received will be voted in proportion to the voting instructions
which are received with respect to all Policies participating in the 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 an Investment Division will receive
proxy material, reports and other materials relating to the appropriate
Portfolio.
FINANCIAL STATEMENTS
The financial statements for United Investors and the Variable Account (as
well as the Auditors' Reports thereon) are in the Statement of Additional
Information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information is available which contains more
details concerning the subjects discussed in this Prospectus. The following is
the Table of Contents for that Statement:
Table of Contents
Page
The Policy ................................................................ 3
Accumulation Units ..................................................... 3
Annuity Units .......................................................... 3
Net Investment Factor .................................................. 4
Determination of Annuity Payments ...................................... 5
The Contract ........................................................... 6
Misstatement of Age or Sex .............................................. 6
Annual Report .......................................................... 6
Non-Participation ...................................................... 6
Delay or Suspension of Payments ........................................ 6
Ownership .............................................................. 7
Beneficiary ............................................................ 7
Change of Owner or Beneficiary ......................................... 7
Assignment ............................................................. 8
Incontestability ....................................................... 8
Evidence of Survival ................................................... 8
Money Market Yield Calculation ............................................ 8
Federal Tax Matters ....................................................... 9
Taxation of United Investors ........................................... 9
Tax Status of the Policies ............................................. 10
Withholding ............................................................ 11
Addition, Deletion or Substitution of Investments ......................... 11
Distribution of the Policy ................................................ 13
Safekeeping of Variable Account Assets .................................... 13
State Regulation .......................................................... 13
Records and Reports ....................................................... 14
Legal Proceedings ......................................................... 14
Legal Matters ............................................................. 14
Experts ................................................................. 14
Other Information ......................................................... 15
Financial Statements ...................................................... 16
<PAGE>
UNITED INVESTORS ANNUITY VARIABLE ACCOUNT
STATEMENT OF ADDITIONAL INFORMATION
FOR THE
DEFERRED VARIABLE ANNUITY POLICY
Offered by
United Investors Life Insurance Company
This Statement of Additional Information expands upon subjects discussed in the
current Prospectus for the Deferred Variable Annuity Policy ("Policy") offered
by United Investors Life Insurance Company. You may obtain a copy of the
Prospectus dated May 1, 1993, by writing to United Investors Life Insurance
Company, Variable Products Division, P. O. Box 156, Birmingham, Alabama 35201-
0156. 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, 1993
<PAGE>
TABLE OF CONTENTS
Page Corresponding Prospectus Page
THE POLICY ........................ 3 ..................................... 6
Accumulation Units ................ 3 .....................................
Annuity Units ..................... 3 .....................................
Net Investment Factor ............. 4 .....................................
Determination of Annuity Payments . 5 .....................................
The Contract ...................... 6 .....................................
Misstatement of Age or Sex ........ 6 .....................................
Annual Report ..................... 6 .....................................
Non-Participation ................. 6 .....................................
Delay or Suspension of Payments ... 6 .....................................
Ownership ......................... 7 .....................................
Beneficiary ....................... 7 .....................................
Change of Ownership or Beneficiary 7 .....................................
Assignment ........................ 8 .....................................
Incontestability .................. 8 .....................................
Evidence of Survival .............. 8 .....................................
MONEY MARKET YIELD CALCULATION .... 8 .....................................
FEDERAL TAX MATTERS ............... 9 ..................................... 14
Taxation of United Investors ... 9 .....................................
Tax Status of the Policies .....10 .....................................
Withholding ....................11
ADDITION, DELETION OR SUBSTITUTION
OF INVESTMENTS .................11 .....................................
DISTRIBUTION OF THE POLICY ........13 ..................................... 13
SAFEKEEPING OF VARIABLE ACCOUNT
ASSETS .........................13 .....................................
STATE REGULATIONS .................13 .....................................
RECORDS AND REPORTS ...............14 .....................................
LEGAL PROCEEDINGS .................14 .....................................
LEGAL MATTERS .....................14 .....................................
EXPERTS ...........................14 .....................................
OTHER INFORMATION .................15 .....................................
FINANCIAL STATEMENTS ..............16 .....................................
<PAGE>
THE POLICY
As a supplement to the description in the Prospectus, the following
provides additional information about the Policy which may be of interest to
some Owners.
Accumulation Units
An Accumulation Unit is an accounting unit used prior to the Retirement
Date to calculate the Policy 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 found 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 at the end of the Valuation Period
during which the Net Purchase Payment is allocated to the Money Market
Investment Division. In the case of an additional Purchase Payment or transfer,
we will credit Accumulation Units for the Net Purchase Payment or transfer at
the end of the Valuation Period during which the Purchase Payment or transfer
request is received.
The value of an Accumulation Unit for each Investment Division was
initially arbitrarily set at $1 when the first investments were bought. 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 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 Retirement Date to
calculate the value of Annuity Payments. The value of an Annuity Unit in each
Investment Division was arbitrarily set at $1 when the first investments were
bought. The value for any later Valuation Period is found 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 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 from one Valuation Period to the next.
The Net Investment Factor may be greater or less than one, so the value of an
Investment Division may increase or decrease.
The Net Investment Factor of an Investment Division for any Valuation
Period is determined by dividing (1) by (2) and subtracting (3) from the result,
where:
(1) is the result of:
(a) the net asset value per share or value per unit of the investment
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 made by the investment held in the Investment
Division, if the "ex-dividend" date occurs during the current
Valuation Period; plus or minus
(c) A charge or credit for any taxes reserved for the current
Valuation Period which we determine to have resulted from the
investment operations of the Investment Division;
(2) is the result of:
(a) the net asset value per share or value per unit of the
investment held in the Investment Division, determined at the end
of the previous Valuation Period; plus or minus
(b) the charge or credit for any taxes reserved for the previous
Valuation Period; and
(3) is a deduction for certain mortality and expense risks that we assume.
Determination of Annuity Payments
At the Retirement Date, the Policy Value as of 14 days prior to the
Retirement Date, less any premium taxes incurred at that time and less any
Withdrawal Charge, will be applied to the purchase of the selected Annuity
Payment Option. The dollar amount of the first Annuity Payment is determined by
multiplying the net value applied by purchase rates based on the 1971 Individual
Mortality Table (set back two years) with interest at 4.0%.
The portion of the first 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 Annuity Payment is determined) to
determine the number of Annuity Units upon which later Annuity Payments will be
made. This number of Annuity Units will not change unless subsequently changed
by reallocation. The dollar amount of each monthly 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 as of 14 days prior to
the Annuity Payment, less a pro rata portion of the charge for administrative
expenses.
After the Retirement Date, the Annuitant may reallocate the value of the
Annuitant's interest in the Investment Divisions, no more than once each Policy
Year, by sending a Written Request to United Investors. A reallocation will be
effected during the Valuation Period as of 14 days prior to the next Annuity
Payment, by converting Annuity Units for the value transferred from an
Investment Division into Annuity Units in the Investment Division to which value
is transferred. Reallocations may cause the number of Annuity Units to change,
but will not change the dollar amount of the Annuity Payment as of the date of
reallocation.
United Investors guarantees that the dollar amount of monthly Annuity
Payments after the first monthly Annuity Payment will not be affected by
variations in expenses or mortality experience.
The Contract
The entire contract is made up of the Policy and the written application.
All statements made in the application, in the absence of fraud, are considered
representations and not warranties. Only the statements made in the written
application can be used by us to defend a claim or 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 Retirement Date we will send
you a report on your Policy. It will show the current Policy Value, 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 in our home office. However, payment of any
amount may be delayed or suspended whenever:
a) the New York Stock Exchange is closed other than customary weekend and
holiday closing, or trading on the New York Exchange is restricted as
determined by the Securities and Exchange Commission;
b) the Securities and Exchange Commission by order permits postponement
for the protection of Policyholders; or
c) an emergency exists, as determined by the Commission, as a result of
which disposal of the securities held in the Investment Divisions is
not reasonably practicable or it is not reasonably practicable to
determine the value of the Variable Account's net assets.
Payments under the Policy of any amounts derived from 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
Retirement 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. If you die, the
successor Owner, if one is named, will become the Owner. If there is no named
Owner then living, the rights of ownership will vest in the executors,
administrators or assigns of the Owner.
Beneficiary
The Beneficiary is named in the application. More than one Beneficiary may
be named. The rights of any Beneficiary who dies before the Annuitant will pass
to the surviving Beneficiary or Beneficiaries unless you provide otherwise. If
no Beneficiary is living at the Annuitant's death, we will pay the Death
Benefit, if any, to the Policyowner, if living; otherwise, it will be paid to
the Policyowner's estate.
Change of Ownership or Beneficiary
Unless you provide otherwise in writing to us, you may change the Owner or
the Beneficiary during the lifetime of the Annuitant. 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.
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.
Incontestability
United Investors will not contest the Policy.
Evidence of Survival
Where any payments under the Policy depend on the payee being alive, we may
require proof of survival prior to making the payments.
MONEY MARKET YIELD CALCULATION
In accordance with regulations adopted by the Securities and Exchange
Commission, United Investors is required to compute the Money Market Investment
Division's current annualized yield for a seven-day period in a manner which
does not take into consideration any realized or unrealized gains or losses on
shares of the Money Market Portfolio or on its portfolio securities. This
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 such seven-day
period, dividing such 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
deductions for annual administrative expenses and the mortality and expense risk
charge and income and expenses accrued during the period. Because of these
deductions, the yield for the Money Market Investment Division of the Variable
Account will be lower than the yield for the Money Market Portfolio of the Fund.
The Securities and Exchange Commission also permits United Investors 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 unannualized 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. The effective yield for the 7 days ended
December 31, 1992 was 2.56%.
The yield on amounts held in the Money Market Investment Division normally
will fluctuate on a daily basis. Therefore, the disclosed yield for any given
past period is not an indication or representation of future yields or rates of
return.
The Money Market Investment Division actual yield is affected by changes in
interest rates on money market securities, average portfolio maturity of the
Money Market Portfolio, the types and quality of portfolio securities held by
the Money Market Portfolio, and its operating expenses.
FEDERAL TAX MATTERS
Taxation of United Investors
United Investors is taxed as a life insurance company under Part 1 of
Subchapter L of the Internal Revenue Code of 1986 (the "Code"). Since the
Variable Account is not an entity separate from United Investors and its
operations form a part of United Investors, it will not be taxed separately as a
"regulated investment company" under Subchapter M of the Code. Investment
income and realized net capital gains on the assets of the Variable 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
(a) Diversification Requirements
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 Fund, 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. Although United Investors is affiliated with the Fund's manager and
Advisor, it does not control the Fund or the Portfolios' investments. However,
it has entered into an agreement regarding participation in the Fund, which
requires each Portfolio of the Fund to be operated in compliance with the
diversification requirements prescribed by the Treasury.
The Treasury has announced that such regulations do not provide guidance
concerning the tax consequences of the extent to which owners may direct their
investments to particular divisions of a separate account. It is not clear
whether additional guidance in this regard will be provided or whether it will
be applied on a prospective basis only. It is possible that when additional
guidance on this issue is promulgated, the Contracts may need to be modified to
comply with such guidance. For these reasons, United Investors reserves the
right to modify the Contracts as necessary to prevent the Owner from being
considered the owner of the assets of the Variable Account.
(b) Required Distributions
In addition to the requirements of Section 817(h) of the Code, in order to
be treated as an annuity contract for federal income tax purposes, Section 72(s)
of the Code requires any Non-qualified Policy to provide that (a) if any Owner
dies on or after the annuity starting 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 starting 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 the life
expectancy of that Beneficiary. The Owner's "Designated Beneficiary" is the
person to whom ownership of the Policy passes by reason of death and must be a
natural person. However, 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.
The Non-qualified Policies contain provisions which are intended to comply
with the requirements of Section 72(s) of the Code, although no regulations
interpreting these requirements have yet been issued. United Investors intends
to review such provisions and modify them if necessary to assure that they
comply with the requirements of Code Section 72(s) when clarified by regulation
or otherwise.
Other rules may apply to Qualified Policies.
Withholding
Pension and annuity distributions generally are subject to withholding for
the recipient's federal income tax liability at rates that vary according to the
type of distribution and the recipient's tax status. Generally, the recipient
is given the opportunity to elect not to have tax withheld from
distributions. However, effective January 1, 1993, certain distributions
from Section 401(a) and 403(b) plans are subject to mandatory withholding.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
United Investors reserves the right, subject to compliance with applicable
law, to make additions to, deletions from, or substitutions for, the shares of
the Fund that are held by the Variable Account (or any Investment Division) or
that the Variable Account (or any Investment Division) may purchase. United
Investors reserves the right to eliminate the shares of any of the Portfolios of
the Fund and to substitute shares of another Portfolio of the Fund or any other
investment vehicle or of another open-end, registered investment company if laws
or regulations are changed, if the shares of the Fund or a Portfolio are no
longer available for investment, or if in our judgment further investment in any
Portfolio should become inappropriate in view of the purposes of the Investment
Division. United Investors will not substitute any shares attributable to a
Policyowner's interest in an Investment Division of the Variable Account without
notice and prior approval of the Securities and Exchange Commission and the
insurance regulator of the state where the Policy was delivered, where required.
Nothing contained herein shall prevent the Variable Account from purchasing
other securities for other series or classes of policies, or from permitting a
conversion between series or classes of policies on the basis of requests made
by Policyowners.
United Investors also reserves the right to establish additional Investment
Divisions of the Variable Account, each of which would invest in a new Portfolio
of the Fund, or in shares of another investment company or suitable investment,
with a specified investment objective. New Investment Divisions may be
established when, in the sole discretion of United Investors, marketing needs or
investment conditions warrant, and any new Investment Divisions will be made
available to existing Policyowners on a basis to be determined by United
Investors. United Investors may also eliminate one or more Investment Divisions
if, in its sole discretion, marketing, tax, or investment conditions warrant.
In the event of any such substitution or change, United Investors may, by
appropriate endorsement, make such changes in 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, an affiliate of United Investors is registered with
the Securities and Exchange Commission under the Securities Exchange Act of 1933
as a broker-dealer and is a member of the National Association of Securities
Dealers. The total commissions paid by United Investors for the sale of the
Policy were $1,153,360 during 1990, $3,596,357 during 1991, and $8,681,390
during 1992. The Policies are 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, W&R
reserves the right to discontinue the offering of the Policies.
The Policy provides for deduction of a charge(s) for sales expenses. This
charge for sales expenses may be reduced or waived on policies sold to (1)
employees of United Investors or its affiliates; or (2) customers of United
Investors who are transferring existing policy values into a Policy.
SAFEKEEPING OF VARIABLE ACCOUNT ASSETS
United Investors holds the assets of the Variable Account. The assets are
kept physically segregated and held separate and apart from United Investors'
general account. United Investors maintains records of all purchases and
redemptions of Fund shares by each of the Investment Divisions.
STATE REGULATION
United Investors is subject to regulation by the Missouri Department of
Insurance. An annual statement is filed with the Missouri Department of
Insurance on or before March 1 of each year covering the operations and
reporting on the financial condition of United Investors as of December 31 of
the preceding year. Periodically, the 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 PROCEEDINGS
There are no legal proceedings to which the Variable Account is a party to
or to which the assets of the Variable Account are subject. United Investors is
not involved in any litigation that is of material importance in relation to its
total assets or that relates to the Variable Account.
LEGAL MATTERS
Legal advice regarding certain matters relating to federal securities laws
applicable to the issuance of the Policy described in the Prospectus have been
provided by Sutherland, Asbill & Brennan of Washington, D. C. All matters of
Missouri law pertaining to the Policy, including the validity of the Policy and
United Investors' right to issue the Policy under Missouri Insurance Law and any
other applicable state insurance or securities laws, have been passed upon by
James L. Sedgwick, Esq., President of United Investors.
EXPERTS
The balance sheet of United Investors Life Insurance Company as of December
31, 1992 and 1991, and the related statements of operations, shareholder's
equity, and cash flows for each of the years in the three-year period ended
December 31, 1992 and the balance sheet of United Investors Annuity Variable
Account as of December 31, 1992 and the related statement of operations and
changes in net assets for the years ended December 31, 1992 and December 31,
1991 have been included herein in reliance upon the report of KPMG Peat Marwick,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
OTHER INFORMATION
A Registration Statement has been filed with the 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 this Statement of Additional Information.
Statements contained in 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 instruments filed with the 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.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
United Investors Life Insurance Company
Birmingham, Alabama
We have audited the accompanying balance sheets of United Investors Life
Insurance Company as of December 31, 1992 and 1991 and the related statements of
operations, shareholder's equity and cash flows for each of the years in the
three-year period ended December 31, 1992. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of United Investors Life Insurance
Company at December 31, 1992 and 1991 and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31,1992
in conformity with generally accepted accounting principles.
KPMG Peat Marwick
Birmingham, Alabama
February 1, 1993
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
BALANCE SHEETS
(Dollar amounts in thousands)
At December 31,
--------------------
1992 1991
-------- --------
ASSETS
Investments:
Fixed maturities held for Investment, at amortized
cost (estimated market value: 1992 - $363,925;
1991 - $548, 624) ............................. $ 344,492 $514,283
Fixed maturities - available for sale, at lower of
amortized cost or market value (estimated market
value: 1992 - $197,968; 1991 - $0) ............ 189,804 0
Policy loans .................................... 7,520 6,533
Energy Investments .............................. 6,218 0
Other long-term invested assets (at market value) 17,082 10,969
Short-term investments .......................... 680 14,652
---------- --------
Total Investments ............................. 565,796 546,437
Cash ............................................... 6,976 5,521
Investments in affiliates .......................... 1,648 0
Accrued investment income (including amounts from
affiliates of $50 in 1992 and $0 in 1991) ....... 6,410 6,608
Receivables (including amounts from affiliates of
$15,110 in 1992 and $0 in 1991) ................. 17,261 1,936
Deferred acquisition costs ......................... 134,565 126,387
Goodwill ........................................... 8,193 8,477
Property and equipment ............................. 298 310
Other assets ....................................... 1,303 540
Separate account assets ............................ 293,156 146,976
---------- --------
Total assets .................................. $1,035,606 $843,192
========== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Future policy benefits .......................... $ 442,060 $400,819
Unearned and advanced premiums .................. 1,783 1,648
Other policy liabilities ........................ 7,443 6,630
---------- --------
Total policy liabilities ...................... 451,286 409,097
Accrued income taxes ............................ 38,339 42,876
Other liabilities ............................... 3,059 2,554
Due to affiliates ............................... 6,622 3,780
Separate account liability ...................... 293,156 146,976
---------- --------
Total liabilities ............................. 792,462 605,283
Shareholder's equity:
Common stock, par value $6 per share_authorized
500 thousand shares; issued and outstanding
500 thousand shares ........................... 3,000 3,000
Additional paid-in capital ..................... 137,753 134,327
Unrealized investment gains (losses) ............ 330 (149)
Retained earnings ............................... 102,061 100,731
---------- --------
Total shareholder's equity .................... 243,144 237,909
---------- --------
Total liabilities and shareholder's equity .... $1,035,606 $843,192
========== ========
See accompanying Notes to Financial Statements.
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
(Dollar amounts in thousands)
Year Ended December 31,
------------------------
1992 1991 1990
------- ------- -------
Revenue:
Premium income ................................ $50,792 $48,499 $47,318
Policy charges and fees ....................... 10,636 9,272 8,433
Net investment income (including amounts from
affiliates of ..$145 in 1992, $1,393 in 1991,
and $1,884 in 1990) ......................... 49,680 47,804 42,339
Realized gains (losses) ....................... 2,187 (295) (1,014)
Other income .................................. 0 5 1
------- ------- -------
Total revenue ................................. 113,295 105,285 97,077
Benefits and expenses:
Policy benefits:
Individual life .......................... 36,027 32,363 33,080
Annuity .................................. 16,893 15,467 12,895
------- ------- -------
Total benefits ......................... 52,920 47,830 45,975
Amortization of acquisition costs ............. 12,804 13,145 13,215
Commission and premium taxes (including amounts
to affiliates of $4,170 in 1992, of $3,485 in
1991, and $3,227 in 1990) ................... 4,723 3,972 3,739
Other operating expense (including amounts to
affiliates of $1,723 in 1992, $1,701 in 1991,
and $1,768 in 1990) ......................... 3,353 3,150 2,857
-------- ------- -------
Total benefits and expenses ................. 73,800 68,097 65,786
------- ------- -------
Net operating income before income taxes .... 39,495 37,188 31,291
Income taxes .................................. 13,165 12,264 9,350
------- ------- -------
Net income ............................... $26,330 $24,924 $21,941
See accompanying Notes to Financial Statements.
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
(Dollar amounts in thousands)
Unrealized
Additional Investment Total
Common Paid-in Gains/ Retained Shareholder's
Stock Capital (Losses) Earnings Equity
------- ------- ------- ------- -------
Year ended December 31, 1990
Balance at January 1,1990 $3,000 $133,954 $(402) $74,866 $211,418
Net income for the year .. 21,941 21,941
Dividends ................ (6,000) (6,000)
Paid in capital .......... 142 142
Net change in unrealized
investment gains (losses) (586) (586)
------ -------- ---- ------- --------
Balance at December 31, 1990 3,000 134,096 (988) 90,807 226,915
Year ended December 31, 1991
Net income for the year .. 24,924 24,924
Dividends ................ (15,000) (15,000)
Paid in capital .......... 231 231
Net change in unrealized
investment gains (losses) 839 839
------ -------- ---- ------- --------
Balance at December 31, 1991 $3,000 $134,327 $(149)$100,731 $237,909
Year ended December 31, 1992
Net income for the year ... 26,330 26,330
Dividends ................. (25,000) (25,000)
Paid in capital ........... 3,426 3,426
Net change in unrealized
investment gains (losses) 479 479
------ -------- ---- -------- --------
Balance at December 31, 1991 $3,000 $137,753 $330 $102,061 $243,144
====== ======== ==== ======== ========
See accompanying Notes to Financial Statements.
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOW
(Dollar amounts in thousands)
Year Ended December 31,
--------------------------
1992 1991 1990
------- ------- -------
Net income ....................................... $26,330 $24,924 $21,941
Adjustments to reconcile net income to cash
provided from operations:
Increase in future policy benefits ............ 21,248 17,786 14,741
Increase (decrease) in other policy benefits .. 948 383 (1,628)
Deferral of policy acquisition costs .......... (20,982) (16,325) 15,359)
Amortization of deferred acquisition costs .... 12,804 13,145 13,215
Change in accrued income taxes ................ (1,281) (485) 8,966
Depreciation .................................. 97 106 118
Adjustment for realized investment
losses (gains) .............................. (2,187) 295 1,014
Other accruals and adjustments ................ 1,740 2,463 (1,538)
------- ------- -------
Cash provided from operations .................... 38,717 42,292 41,470
Cash used for investment activities:
Investments sold or matured:
Fixed maturities _ sold ..................... 71,875 71,932 8,953
Fixed maturities _ matured .................. 106,671 43,975 34,033
Mutual funds ................................ 3,168 1,300 0
Net decrease in policy loans ................ 0 0 0
Oil and gas ................................. 634 0 0
------- ------- -------
Total investments sold or matured ........ 182,348 117,207 42,986
Acquisition of investments:
Fixed maturities ............................ (197,930) (240,106)(102,751)
Mutual funds ................................ (8,710) (2,952) (670)
Net increase in policy loans ................ (986) (1,404) 1,325)
Oil and gas ................................. (5,856) 0 0
------- ------- -------
Total acquisition of investments ......... (213,482) (244,462)(104,746)
Net (increase) decrease in short-term investments 13,972 55,313 (38,988)
Funds loaned to United Management ............. (15,000) 0 0
Funds borrowed from United Management ......... 0 17,468 20,000
Disposition of properties ..................... 7 24 0
Additions to properties ....................... (100) (18) (40)
------- ------- -------
Cash used for investment activities .............. (32,255) (54,468) (80,788)
Cash provided from (used for) financing activities:
Cash dividends paid to shareholders ........... (25,000) (15,000) (6,000)
Net receipts from deposit product operations .. 19,993 30,166 45,386
------- ------- -------
Cash provided from (used for) financing activities (5,007) 15,166 39,386
Increase in cash ................................. 1,455 2,990 68
Cash at beginning of year ........................ 5,521 2,531 2,463
------- ------- -------
Cash at end of year .............................. $ 6,976 $ 5,521 $ 2,531
Supplemental disclosure of cash flow information:
Taxes paid .................................... $14,446 $12,963 $628
See accompanying Notes to Financial Statements.
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(Dollar amounts in thousands)
Note 1 - Summary of Significant Accounting Policies
Basis of Presentation: The accompanying financial statements include the
accounts of United Investors Life Insurance Company ("United Investors") which
is a wholly-owned subsidiary of United Investors Management Company ("United
Management"). The financial statements have been prepared on the basis of
generally accepted accounting principles ("GAAP").
Investments: Investments in fixed maturities include bonds and redeemable
preferred stocks. These investments are generally held until maturity and
redeemed at face value. Therefore, even though market values may fluctuate from
time to time due to prevailing interest rates, no material losses are expected
on their ultimate disposition. United Investors generally intends to hold its
fixed maturities until final maturity and carries these securities at amortized
cost. However, certain of these securities which United Investors may not hold
to maturity have been segregated and designated as fixed maturities available
for sale. Securities available for sale are carried at the lower of amortized
cost or market value.
Investments in equity securities are valued at market, and investments in
mutual funds, which are included in other long-term investments, are valued at
market. Policy loans are carried at unpaid principal balances. Short-term
investments include investment in certificates of deposit and other interest-
bearing time deposits with original maturities within one year. If an
investment becomes permanently impaired, it is adjusted to its net realizable
value.
Energy: Income from investments in oil and gas properties of $995 thousand,
$0 thousand, and $0 thousand is included in "investment income" for the years
ended December 31, 1992, 1991, and 1990 respectively.
Realized gains and losses on disposition of investments are recognized as
revenue. The cost of investments sold is determined on the specific
identification method. Unrealized gains and losses on equity securities and
mutual funds, net of deferred income taxes, are reflected directly in
shareholder's equity.
Realized investment gains and losses and investment income attributable to
separate accounts are credited to the separate accounts and have no effect on
United Investor's net income. Investment income attributable to policyholders
is included in United Investor's net investment income. Net investment income
for the years ended December 31, 1992, 1991 and 1990 included $35.6 million,
$33.0 million, and $28.5 million, 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 approximate 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.
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 SFAS 97 are
recognized as revenue over the premium-paying period of the policy. Profits 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 for 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 of
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. 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: 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. The value assigned to the insurance purchased at the time of
Torchmark's acquisition of United Investors is included in deferred acquisition
costs.
Deferred acquisition costs, including the value of insurance purchased, for
policies other than universal life-type policies according to SFAS 97, are
amortized with interest over an estimate of the premium-paying period of the
policies in a manner which charges each year's operations in proportion to the
receipt of premium income. For universal life-type policies, acquisition costs
are amortized with interest in proportion to estimated gross profits. The
assumptions used as to interest, withdrawals and mortality are consistent with
those used in computing the liability for future policy benefits and expenses.
If it is determined that future expected experience differs significantly from
that assumed, the estimates are revised.
Income Taxes: Deferred income taxes are provided to recognize timing
differences between income determined for financial reporting purposes and
income determined for income tax purposes.
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.
Reinsurance: United Investors cedes and assumes insurance risks with other
companies. Liabilities for future policy benefits, premiums and expenses are
reported after deduction of amounts relating to reinsurance ceded and addition
of amounts relating to reinsurance assumed.
Goodwill: Goodwill represents the excess cost over the fair value of the
net assets acquired when United Investors was purchased by Torchmark in 1981 and
is being amortized on a straight-line basis over forty years.
Reclassifications: Certain amounts in the financial statements presented
have been reclassified from amounts previously reported. These
reclassifications have no effect on previously reported shareholder's equity or
net income during the periods involved.
Note 2 - Statutory Accounting (Unaudited)
United Investors is required to file statutory financial statements with
state insurance regulatory authorities. Accounting principles used to prepare
these statutory financial statements differ from GAAP.
Net income and shareholder's equity on a statutory basis for United
Investors was as follows:
Net Income Shareholders' Equity
Year ended December 31, at December 31,
--------------------------- ------------------
1992 1991 1990 1992 1991
Life insurance $14,813 $25,271 $24,239 $151,084 $161,476
The excess of shareholders' equity on a GAAP basis over that determined on
a statutory basis is not available for distribution to shareholders.
A reconciliation of United Investor's statutory net income to GAAP net
income is as follows:
Year ended December 31,
---------------------------
1992 1991 1990
------ ------ ------
Statutory net income ........................ $14,813 $25,271 $24,239
Deferral of acquisition costs ............... 20,982 16,325 15,359
Amortization of acquisition costs ........... (12,804) (13,144) (13,215)
Differences in policy liabilities ........... 4,915 (6,122) 3,893
Deferred income taxes ....................... (3,404) 2,821 (7,667)
Other ....................................... 1,828 (227) (668)
------- ------- -------
GAAP net income ............................. $26,330 $24,924 $21,941
A reconciliation of United Investor's statutory shareholder's equity to
GAAP shareholder's equity is as follows:
Year ended December 31,
-----------------------
1992 1991
---------- --------
Statutory shareholder's equity ........................ $151,084 $161,476
Differences in policy liabilities ..................... (17,858) (22,925)
Deferred acquisition costs ............................ 134,565 126,387
Deferred income taxes ................................. (38,851) (38,703)
Securities valuation reserve .......................... 3,186 1,725
Non-admitted assets ................................... 1,662 589
Other ................................................. 9,356 9,360
-------- --------
GAAP shareholder's equity ............................. $243,144 $237,909
Note 3 - lnvestment Operations
Investment income is summarized as follows:
Year ended December 31,
---------------------------
1992 1991 1990
------- ------- -------
Fixed maturities............................. $47,369 $43,101 $32,817
Policy loans................................. 544 444 327
Other long-term investments.................. 1,727 952 2,555
Short-term investments....................... 324 2,274 5,122
Interest and dividends from affiliates....... 144 1,393 1,885
------- ------- -------
50,108 48,164 42,706
Less: Investment expense .................... (428) (360) (367)
------- ------- -------
Net investment income........................ $49,680 $47,804 $42,339
======= ======= =======
Analysis of gains (losses) from investments:
Realized investment gains (losses)
Fixed maturities ......................... $2,200 $(295) $(1,014)
Mutual Funds ............................. (13) 0 0
------ ----- -------
Realized investment gains (losses) .......... $2,187 $(295) $(1,014)
====== ====== ========
Net increase (decrease) in unrecorded investment gains
on fixed maturities during the period .... $(6,744) $27,203 $(156)
======= ======= =====
A summary of fixed maturities held for Investment and available for sale by
amortized cost and estimated market value at December 31, 1992 is as follows:
Amount
Cost or Gross Gross per the
AmortizedUnrealizedUnrealized Market Balance
Cost Gains Losses Value Sheet
--------- --------- --------- --------- ---------
Fixed Maturities held for investment:
Bonds:
United States Government $254,607 $14,743 $(185) $269,165 $254,607
States, municipalities and
political subdivisions 24,993 2,992 (172) 27,813 24,993
Foreign governments ..... 1,015 0 (14) 1,001 1,015
Public utilities ........ 11,657 103 (16) 11,744 11,657
Industrial and miscellaneous 50,258 1,764 (145) 51,877 50,258
Redeemable preferred stocks 1,962 363 0 2,325 1,962
-------- ------- ----- -------- --------
Total Fixed Maturities .. 344,492 19,965 (532) 363,925 344,492
======== ======= ====== ======== ========
Fixed Maturities available for sale:
Bonds:
United States Government 179,927 7,598 0 187,525 179,927
States, municipalities and
political subdivisions 0 0 0 0 0
Foreign governments ..... 0 0 0 0 0
Public utilities ........ 0 0 0 0 0
Industrial and miscellaneous 9,877 566 0 10,443 9,877
Redeemable preferred stocks 0 0 0 0 0
-------- ------ ----- -------- --------
Total Fixed Maturities .... 189,804 8,164 0 197,968 189,804
-------- ------ ----- -------- --------
Total ..................... $534,296 $28,129 $(532) $561,893 $534,296
A summary of fixed maturities held for Investment and available for sale by
amortized cost and estimated market value at December 31, 1991 is as follows:
Amount
Cost or Gross Gross per the
AmortizedUnrealizedUnrealized Market Balance
Cost Gains Losses Value Sheet
Fixed Maturities:
Bonds:
United States Government
and government agencies
and authorities ....... $404,000 $27,657 $ 0 $431,657 $404,000
States, municipalities and
political subdivisions 26,456 3,443 (219) 29,680 26,456
Foreign governments...... 0 0 0 0 0
Public utilities......... 5,037 210 0 5,247 5,037
Industrial and miscellaneous 76,450 3,419 (249) 79,620 76,450
Redeemable preferred stock . 2,340 80 0 2,420 2,340
-------- ------- ----- -------- --------
Total Fixed Maturities .. $514,283 $34,809 $(468) $548,624 $514,283
A schedule of fixed maturities at December 31,1992 is shown below on an
amortized cost basis and on a market value basis. Actual maturities could
differ from contractual maturities due to call or prepayment.
Estimated
Amortized Market
Cost Value
--------- ---------
Due in one year or less ............................... $ 6,060 $ 6,164
Due after one year through five years.................. 25,855 27,620
Due after five years through ten years................. 68,150 71,527
Due after ten years.................................... 2,061 2,118
-------- --------
102,126 107,429
Mortgage backed securities ............................ 430,208 452,139
Redeemable preferred stock ............................ 1,962 2,325
-------- --------
$534,296 $561,893
======== ========
Proceeds from sales of fixed maturities were $71,875,247 in 1992,
$71,931,897 in 1991, and $8,952,620 in 1990. Gross gains realized on those
sales were $2,578,830 in 1992, $2,392,885 in 1991, and $484,439 in 1990. Gross
losses on those sales were $451,423 in 1992, $2,687,871 in 1991, and $620,619 in
1990.
Note 4 - Deferred Acquisition Costs
An analysis of deferred acquisition costs is as follows:
1992 1991 1990
-------- -------- --------
Balance at beginning of period ................... $126,387 $123,207 $121,063
Deferred during period:
Commissions .............................. 17,240 12,927 11,681
Other expenses ........................... 3,742 3,398 3,678
-------- -------- --------
Total deferred ......................... 147,369 139,532 136,422
Amortized during period ..................... (12,804) (13,145) (13,215)
-------- -------- --------
Balance at end of period ......................... $134,565 $126,387 $123,207
======== ======== ========
Deferred acquisition costs include the value of business purchased at the
date of Torchmark's acquisition of United Investors. These amounts at December
31, 1992, 1991, and 1990 were $25.4 million, $28.1 million, and $31.4 million,
respectively.
Note 5 - Property and Equipment
A summary of property and equipment used in the business is as follows:
At December 31,1992 At December 31,1991
------------------- -------------------
Accumulated Accumulated
CostDepreciation Cost Depreciation
---------------- ---- ------------
Data processing equipment ...... $ 138 $122 $ 126 $121
Transportation equipment ....... 158 52 103 49
Furniture and office equipment . 916 740 916 665
------ ---- ------ ----
Total ....................... $1,212 $914 $1,145 $835
------ ---- ------ ----
Depreciation expense on property and equipment used in the business was
$96.8 thousand, $106.3 thousand, and $117.5 thousand in each of the years 1992,
1991, and 1990, respectively.
Note 6 - Future Policy Benefit Reserves
A summary of the assumptions used in determining the liability for future
policy benefits is as follows:
Individual Life Insurance
Interest Assumptions:
Percent of
Years of Issue Interest Rates Liability
-------------- -------------- ---------
1962-1992 3.00% 4%
1981-1992 4.00%
1981-1985 4.50%
5.00%
1981-1992 5.50%
1986-1992 7.00% graded to 6.00% 12%
1962-1985 8.50% graded to 6.00% 10%
1981-1985 8.50% graded to 7.00% 9%
1984-1992 Interest sensitive 65%
----
100%
Mortality assumptions:
The mortality tables used are various statutory mortality tables and
modifications of:
1965-70 Select and Ultimate Table
1975-80 Select and Ultimate Table
Withdrawal assumptions:
Withdrawal assumptions are based on United Investors' experience.
Note 7 - lncome 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 an amount that would
have been paid if the company was filing a separate tax return. A company with
losses is paid a tax benefit currently to the extent that affiliated companies
with taxable income utilize those losses.
The Revenue Reconciliation Act of 1990 required life insurance companies to
begin capitalizing policy acquisition expenses and amortizing them over a period
of 120 months. The capitalized amount is determined as a percentage of net
premiums for the year on specified insurance contracts. The percentage used for
the majority of United Investor's net premiums is 1.75%. Prior to September
30,1990, policy acquisition expenses were deducted when paid. Thus, the change
to a capitalization of these expenses has increased current taxes.
In February, 1992, the Financial Accounting Standards Board issued
Statement No. 109, Accounting for Income Taxes (SFAS 109), which supersedes
Statement No. 96, "Accounting for Income Taxes" (SFAS 96). United Investors
currently accounts for income taxes under APB Opinion 11, having elected not to
adopt SFAS 96 prior to its revised effective date of 1993. Opinion 11 requires
United Investors to use the deferred method when accounting for income taxes.
This method matches annual income tax expense with pretax accounting income by
providing deferred taxes at current tax rates. Under this method, deferred
taxes arise due to differences between the timing of the recognition of items of
revenue and expense for financial reporting purposes versus income tax purposes.
SFAS 109 will require United Investors to use the asset and liability method to
provide for deferred taxes. This method compares the differences between the
financial statement basis and the tax return basis of United Investors' assets
and liabilities, and it uses enacted tax rates expected to be in effect when
such amounts are realized or settled. Under Statement 109, the effect on
deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date.
SFAS 109 is effective in 1993, with earlier adoption permitted. United
Investors plans to adopt the statement in 1993 and will elect to report the
effect of adoption as a cumulative effect of a change in accounting principle.
The cumulative effect of the adoption of Statement 109 is expected to result in
a reduction of the net deferred tax liability by approximately $4.7 million.
Prior to 1984, a portion of taxable income was excluded from current
taxation and accumulated in a special tax return memorandum account. The
December 31, 1983 balance of approximately $6.3 million is frozen and will be
taxed only if distributed or if it exceeds certain prescribed limits. It is not
anticipated that this tax will be incurred in the foreseeable future; therefore,
no provision for federal income taxes on this account has been made.
Accrued income taxes payable are summarized below:
December 31,
--------------
1991 1992
---- ----
Currently payable (receivable) ................... $ (516) $ 4,173
Deferred ......................................... 38,855 38,703
------- -------
$38,339 $42,876
======= =======
Income tax expense is summarized below:
Year Ended December 31,
------------------------
1992 1991 1990
---- ---- ----
Current tax expense ......................... $13,013 $15,314 $1,827
Deferred tax expense (benefit) .............. 152 (3,050) 7,523
------- ------- ------
$13,165 $12,264 $9,350
======= ======= ======
Deferred taxes generated by timing differences were as follows:
Year Ended December 31,
------------------------
1992 1991 1990
---- ---- ----
Deferred acquisition costs .................. $898 $ (731) $4,444
Reserve and premium adjustments ............. 218 (2,646) 2,066
Other ....................................... (964) 327 1,013
---- ------ ------
Deferred tax expense (benefit) .............. $152 $(3,050) $7,523
==== ======= ======
United Investors' effective income tax rate differed from the statutory
federal income tax rate as follows:
Year Ended December 31,
------------------------------------------------
1992 1991 1990
---------------- -------------- --------------
Amount % Amount % Amount %
------ - ------ - ------ -
Statutory federal income
tax rate ..................$13,429 34% $12,644 34% $10,639 34%
Increases (reductions) in tax
resulting from:
Tax-exempt investment
income .................. (460) (1) (458) (1) (532) (2)
Purchase accounting
differences ............. 97 77 (504) (2)
Other ..................... 99 1 (253)
------- --- ------- --- ------ ---
Income tax expense ...........$13,165 33% $12,264 33% $9,350 30%
======= === ======= === ====== ===
Note 8 - Retirement Plans
The full-time employees of United Investors are covered under a defined
benefit pension plan and a defined contribution savings plan. These plans cover
primarily employees of other Torchmark and United Management affiliates. The
total costs of these retirement plans charged to operations were as follows:
Defined Defined
Year Ended Contribution Benefit
December 31, Plans Plan
------------- ------------ -------
1992 .............................. $30 $43
1991 .............................. 29 60
1990 .............................. 30 66
Net periodic pension cost for the defined benefit plan which covers United
Investors' employees has been calculated on the projected unit credit actuarial
cost method in accordance with the Statement of Financial Accounting Standards
No. 87 ("SFAS 87"), which was adopted effective January 1, 1986. Contributions
are made to the plan equal to pension expense subject to minimums required by
regulation and maximums allowed for tax purposes. United Investors records the
difference between the SFAS 87 expense and the actual cash contribution to the
plan to a liability account. The liability recorded was $55 thousand at
December 31, 1992, and $55 thousand at December 31, 1991. The plan is organized
as a trust fund whose assets consist primarily of investments in long-term fixed
maturities and equity securities. These assets are valued at market.
United Investors accrues expense for the defined contribution plans based
on a percentage of the employees' contributions. The plans are funded by the
employee contributions and a company contribution equal to the amount of accrued
expense.
Note 9 - Reinsurance
United Investors reinsures that portion of insurance risk which is in
excess of its retention limit. The maximum net retention limit for ordinary
life insurance is $525,000 per life. Life insurance ceded represented 2% of
total life insurance in force at December 31, 1992 and 3.3% of premium income
for 1992. United Investors would be liable for the reinsured risks ceded to
other companies to the extent that such reinsuring companies are unable to meet
their obligation.
United Investors did not assume insurance risks of other companies for the
year ended December 31, 1992.
Note 10 - Related Party Transactions
The primary distributor of United Investors' Insurance products is Waddell
& Reed, Inc. ("W&R"), a United Management affiliate. W&R receives a commission
for marketing these products which was $19 million, $14.3 million, and $12.6
million for the years ended December 31, 1992, 1991, and 1990, respectively.
In December, 1984, United Investors' operations were relocated to the
premises of another Torchmark insurance affiliate. United Investors was charged
for space, equipment, and services provided by that affiliate amounting to $1.5
million in 1992, $1.5 million in 1991 and $1.6 million in 1990.
Torchmark performed certain administrative services for United Investors
for which it charged $180 thousand in 1992, $192 thousand in 1991 and $192
thousand in 1990.
United Investors loaned United Management $13.8 million in October, 1987.
The loan bears interest at a rate of 9%. United Investors included in net
investment income $1 million in interest income from this note in 1990. In
December, 1989, United Investors loaned an additional $20 million to United
Management. The loan bears interest at a rate of 11.5 %. United Investors
included in net investment income $583 thousand in interest income from this
note in 1990. In October, 1990, the notes for $13.8 million and the $20 million
were redeemed. Also in October, 1990, United Investors loaned United Management
$17.5 million. The loan bears interest at the rate of 9%. United Investors
accrued and included in net investment income $1.4 million and $301 thousand in
interest income from this note in 1991 and 1990, respectively. In November,
1991, the note for $17.5 million was redeemed. United Investors loaned United
Management $15 million in December, 1992. The loan bears interest at a rate of
7.71%. United Investors accrued and included in net investment income $29
thousand in interest income from this note in 1992.
United Investors serves as sponsor to two separate accounts and depositor
to the underlying investment fund in connection with its variable product
business. At December 31, 1992 and 1991 United Investors had investment of
$8.9 million and $8 million, respectively, in the separate accounts and $37
thousand and $2.9 million, respectively, in the underlying fund which
investments were included in other long-term invested assets and carried at
market.
Other long-term invested assets also includes investments, carried at
market, in the United Group of Mutual Funds and certain other funds for which
W&R is the sole advisor. These investments were $8.2 million and $0 at December
31, 1992 and 1991, respectively. Investment income derived from these
investments is included in net investment income.
During 1992, United Investors made open market purchases of Torchmark
Corporation Preferred Stock totaling $1.6 million. This investment is included
in investment in affiliates and is carried at cost.
During 1992, United Investors invested $5.8 million in Torch Energy VII
Limited Partnership, which is managed by Torch Energy, an affiliated company.
Of this amount, $2.8 million and $2.8 million was respectively acquired from
Globe Life and Accident Insurance Company and United American Insurance Company,
both of which are affiliates. United Investors during the same period sold $.6
million of this partnership.
Note 11 - Commitments and Contingencies
Leases: United Investors leases office equipment under various operating
lease arrangements. Rental expense was $3.1 thousand, $1.5 thousand, and none
in 1992, 1991, and 1990, respectively. There were no future minimum rental
commitments under noncancelable operating leases having remaining lease terms in
excess of one year at December 31, 1992.
Restrictions on the transfer of funds: Regulatory restrictions exist on the
transfer of funds from insurance companies. These restrictions generally limit
the payment of dividends to the statutory net gain from operations of the prior
year in the absence of special approval. Additionally, insurance companies are
not permitted to distribute the excess of shareholder's equity as determined on
a generally accepted accounting basis over that determined on a statutory basis.
Restricted net assets at December 31,1992 in compliance with all regulations
were $95.1 million.
Litigation: United Investors is engaged in routine litigation arising from
the normal course of business. In management's opinion, this litigation will
not materially affect United Investors' financial position or results of
operations.
Concentrations of credit risk: United Investors maintains a highly
diversified investment portfolio with limited concentration in any given region,
industry, or economic characteristic. The investment portfolio consists of
securities of the U.S. government or U.S. government-backed securities (78%);
securities of state and municipal governments (4%); investment-grade corporate
bonds (12%); noninvestment-grade corporate bonds (2%); United Funds (3%); and
policy loans (1%) which are secured by the underlying insurance policy value.
Short-term investments made up less than 1% of the portfolio at the end of 1992.
Investments in municipal governments and corporations are made throughout the
U.S. with no concentration in any given state. Corporate debt investments are
made in a wide range of industries. At December 31, 1992, approximately 2% of
the portfolio was invested in securities of financial institutions; 2% was
invested in food and beverage companies; 1% was invested in regulated utilities;
and 1% was invested in finance companies. Otherwise, no individual industry
represented more than 1% of United Investor's investments. At the end of 1992,
only 2% of the carrying value of securities was rated below investment grade.
Par value of these investments was $11 million, carrying value was $11 million,
and market value was $11 million. While these investments could be subject to
additional credit risk, such risk should generally be reflected in market value.
Collateral requirements: United Investors requires collateral for
investments in instruments where collateral is available and typically required
because of the nature of the investment. Since the majority of United
Investor's investments are in government, government-secured, or corporate
securities, the requirement for collateral is rare.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
United Investors Life Insurance Company
And the Contract Owners of the
United Investors Annuity Variable Account
Birmingham, Alabama
We have audited the accompanying balance sheets of United Investors Annuity
Variable Account as of December 3l, l992 and l991 and the related statements of
operations and changes in net assets for each of the years in the three-year
period ended December 3l, l992. 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 Annuity
Variable Account at December 3l, l992 and l991 and the results of its operations
and its changes in net assets for each of the years in the three-year period
ended December 3l, l992 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK
Birmingham, Alabama
April 9, l993
<PAGE>
<TABLE>
United Investors Annuity Variable Account
Statement of Operations and Changes in Net Assets
For the Year Ended December 31, 1992
<CAPTION>
Money High
Market Bond Income
Growth Income Total
------ ---- ------
- ------ ------ -----
<S> <C> <C> <C> <C>
<C> <C>
Dividend income
(Note B, D) ........... $ 617,266 $ 2,637,768 $ 2,837,761 $
10,364,106 $ 772,936 $ 17,229,837
Expenses paid to sponsor
(Note D):
Mortality and
expense risk
charge .............. $ 175,887 $ 315,285 $ 269,739 $
761,231 $ 323,776 $ 1,845,918
Contract maintenance
charges:
Sales expense ....... $ 69,978 $ 157,069 $ 125,798 $
364,018 $ 107,244 $ 824,107
Administrative
expense ........... $ 14,617 $ 38,260 $ 35,020 $
111,747 $ 30,207 $ 229,851
----------- ----------- ----------- ----
- -------- ----------- ------------
Total expenses .......... $ 260,482 $ 510,614 $ 430,557 $
1,236,996 $ 461,227 $ 2,899,876
Net investment income ... $ 356,784 $ 2,127,154 $ 2,407,204 $
9,127,110 $ 311,709 $ 14,329,961
Realized investment gains
(losses) distributed to
accounts .............. $ 0 $ 147,935 $ 16,789 $
440,890 $ 144,749 $ 750,363
Unrealized investment
gains (losses) ........ $ 0 $ (79,800) $ 1,172,479 $
5,863,220 $ 4,442,506 $ 11,398,405
----------- ----------- ----------- ----
- -------- ----------- ------------
Net gain (loss) on
investments ........... $ 0 $ 68,135 $ 1,189,268 $
6,304,110 $ 4,587,255 $ 12,148,768
----------- ----------- ----------- ----
- -------- ----------- ------------
Net increase (decrease)
in net assets from
operations ............ $ 356,784 $ 2,195,289 $ 3,596,472 $
15,431,220 $ 4,898,964 $ 26,478,729
Premium deposits &
net transfers* ........ $ 5,063,888 $20,706,652 $15,711,275 $
39,199,464 $44,480,564 $125,161,843
Transfer to sponsor for
benefits and
terminations .......... $ (952,598) $(1,214,733) $(1,155,867) $
(2,654,754) $ (826,095) $ (6,804,047)
----------- ----------- ----------- ----
- -------- ----------- ------------
Total increase
(decrease) ............ $ 4,468,074 $21,687,208 $18,151,880 $
51,975,930 $48,553,433 $144,836,525
Net assets at beginning
of period ............. $18,122,841 $25,432,350 $20,869,484 $
62,771,356 $14,405 800 $141,601,831
----------- ----------- ----------- ----
- -------- ----------- ------------
Net assets at end of
period (Note C) ....... $22,590,915 $47,119,558 $39,021,364
$114,747,286 $62,959,233 $286,438,356
=========== =========== ===========
============ =========== ============
*Includes transfer activity from (to) other portfolios.
See Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
United Investors Annuity Variable Account
Statement of Operations and Changes in Net Assets
For the Year Ended December 31, 1991
<CAPTION>
Money High
Market Bond Income
Growth Income Total
------ ---- ------
- ------ ------ -----
<S> <C> <C> <C> <C>
<C> <C>
Dividend income
(Note B, D) ........... $ 856,265 $ 1,676,056 $ 1,705,892
$10,581,398 $ 69,659 $ 14,889,270
Expenses paid to sponsor
(Note D):
Mortality and expense
risk charge ......... $ 145,279 $ 160,672 $ 135,512 $
416,422 $ 25,455 $ 883,340
Contract maintenance
charges:
Sales expense ....... $ 75,910 $ 84,516 $ 73,857 $
212,075 $ 739 $ 447,097
Administrative
expense ........... $ 15,275 $ 22,659 $ 22,063 $
69,663 $ 3,491 $ 133,151
----------- ----------- ----------- ----
- ------- ----------- ------------
Total expenses .......... $ 236,464 $ 267,847 $ 231,432 $
698,160 $ 29,685 $ 1,463,588
Net investment income ... $ 619,801 $ 1,408,209 $ 1,474,460 $
9,883,238 $ 39,974 $ 13,425,682
Realized investment gains
(losses) distributed to
accounts .............. $ 0 $ 39,326 $ (319,271) $
372,383 $ (1,801) $ 90,637
Unrealized investment
gains (losses) ........ $ 0 $ 1,227,301 $ 2,765,493 $
2,703,324 $ 854,641 $ 7,550,759
----------- ----------- ----------- ----
- -------- ----------- ------------
Net gain (loss) on
investments ........... $ 0 $ 1,266,627 $ 2,446,222 $
3,075,707 $ 852,840 $ 7,641,396
----------- ----------- ----------- ----
- -------- ----------- ------------
Net increase (decrease)
in net assets from
operations ............ $ 619,801 $ 2,674,836 $ 3,920,682
$12,958,945 $ 892,814 $ 21,067,078
Premium deposits &
net transfers* ........ $ 5,029,362 $10,172,173 $ 6,417,613
$18,167,547 $12,531,834 $ 52,318,529
Investment by
sponsor (Note E) ...... $ 0 $ 0 $ 0 $
0 $ 1,000,000 $ 1,000,000
Transfer to sponsor for
benefits and
terminations .......... $ (914,952) $ (622,754) $ (745,590)
$(1,358,484) $ (18,848) $ (3,660,628)
----------- ----------- ----------- ----
- -------- ----------- ------------
Total increase
(decrease) ............ $ 4,734,211 $12,224,255 $ 9,592,705
$29,768,008 $14,405,800 $ 70,724,979
Net assets at beginning
of period ............. $13,388,630 $13,208,095 $11,276,779
$33,003,348 $ 0 $ 70,876,852
----------- ----------- ----------- ----
- -------- ----------- ------------
Net assets at end of
period (Note C) ....... $18,122,841 $25,432,350 $20,869,484
$62,771,356 $14,405,800 $141,601,831
=========== =========== ===========
=========== =========== ============
*Includes transfer activity from (to) other portfolios.
See Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE> United Investors Annuity Variable Account
Statement of Operations and Changes in Net Assets
For the Year Ended December 31, 1990
<CAPTION>
Money
High
Market Bond
Income Growth Total
------ ----
- ------ ------ ------
<S> <C> <C> <C> <C>
<C> <C>
Dividend income (Note B, D) ......... $ 839,519 $ 874,840 $
1,364,947 $ 1,071,525 $ 4,150,831
Expenses paid to sponsor (Note D):
Mortality and expense risk charge . $ 100,412 $ 97,662 $
106,362 $ 263,237 $ 567,673
Contract maintenance charges:
Sales expense ................... $ 57,489 $ 55,203 $
72,230 $ 136,036 $ 320,958
Administrative expense .......... $ 10,458 $ 15,232 $
21,678 $ 46,881 $ 94,249
----------- ----------- ----
- ------- ------------ -----------
Total Expenses ................ $ 168,359 $ 168,097 $
200,270 $ 446,154 $ 982,880
Net investment income ............... $ 671,160 $ 706,743 $
1,164,677 $ 625,371 $ 3,167,951
Realized investment losses .......... $ 0 $ (14,186) $
(614,802) $ (132,465) $ (761,454)
Unrealized investment losses ........ $ 0 $ (40,785)
$(1,665,987) $(2,523,323) $(4,230,095)
----------- ----------- ----
- ------- ------------ -----------
Net loss on investments ............. $ 0 $ (54,971)
$(2,280,790) $(2,655,788) $(4,991,549)
Net increase (decrease) in net assets
from operations ................... $ 671,160 $ 651,772
$(1,116,113) $(2,030,417) $(1,823,598)
Premium deposits & net transfers* ... $ 4,171,270 $ 4,548,131 $
758,164 $12,216,649 $21,694,214
Transfer to sponsor for benefits
and terminations .................. $ (646,935) $ (545,536) $
(785,224) $(1,043,645) $(3,021,457)
Total increase (decrease) ........... $ 4,195,495 $ 4,654,250
$(1,143,173) $ 9,142,587 $16,849,159
Net assets at beginning of period ... $ 9,193,135 $ 8,553,845
$12,419,952 $23,860,761 $54,027,693
----------- ----------- ----
- ------- ------------ -----------
Net assets at end of period (Note C) $13,388,630 $13,208,095
$11,276,779 $33,003,348 $70,876,852
=========== ===========
=========== =========== ===========
*Includes transfer activity from (to) other portfolios.
See Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
United Investors Annuity Variable Account
Balance Sheet
As of December 3l, 1992
<CAPTION>
Money High
Market Bond Income
Growth Income Total
------ ---- ------
- ------ ------ -----
<S> <C> <C> <C> <C>
<C> <C>
Assets:
Investments in Mutual
Funds (Note B) ........ $22,597,701 $47,134,399 $39,033,718
$114,783,257 $62,978,816 $286,527,891
----------- ----------- ----------- ----
- -------- ----------- ------------
Total assets ............ 22,597,701 47,134,399 39,033,718
114,783,257 62,978,816 286,527,891
----------- ----------- ----------- ----
- -------- ----------- ------------
Liabilities:
Mortality and expense
risk charge payable
to Sponsor (Note D) ... 6,786 14,841 12,354
35,971 19,583 89,535
----------- ----------- ----------- ----
- -------- ----------- ------------
Total liabilities ....... 6,786 14,841 12,354
35,971 19,583 89,535
----------- ----------- ----------- ----
- -------- ----------- ------------
Net assets (Note C) ..... $22,590,915 $47,119,558 $39,021,364
$114,747,286 $62,959,233 $286,438,356
=========== =========== ===========
============ =========== ============
Equity:
Equity of Sponsor ....... $ 670,873 $ 790,929 $ 752,285 $
1,038,804 $ 1,209,256 $ 4,462,147
Equity of contract
owners ................ 21,920,042 46,328,629 38,269,079
113,708,482 61,749,977 281,976,209
----------- ----------- ----------- ----
- -------- ----------- ------------
Total equity ............ $22,590,915 $47,119,558 $39,021,364
$114,747,286 $62,959,233 $286,438,356
=========== =========== ===========
============ =========== ============
Accumulation units
outstanding ........... 16,837,063 29,787,569 25,935,498
55,229,057 52,063,508 179,852,695
========== ========== ==========
========== ========== ===========
Net asset value per unit $1.341737 $1.581853 $1.504554
$2.077662 $1.209278
========= ========= =========
========= =========
See Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
United Investors Annuity Variable Account
Balance Sheet
As of December 3l, 1991
<CAPTION>
Money High
Market Bond Income
Growth Income Total
------ ---- ------
- ------ ------ -----
<S> <C> <C> <C> <C>
<C> <C>
Assets:
Investments in Mutual
Funds (Note B) ........ $18,128,051 $25,439,694 $20,875,537
$62,788,983 $14,409,609 $141,641,874
----------- ----------- ----------- ----
- -------- ----------- ------------
Total assets ............ 18,128,051 25,439,694 20,875,537
62,788,983 14,409,609 141,641,874
----------- ----------- ----------- ----
- -------- ----------- ------------
Liabilities:
Mortality and expense
risk charge payable
to Sponsor (Note D) ... 5,210 7,344 6,053
17,627 3,809 40,043
----------- ----------- ----------- ----
- -------- ----------- ------------
Total liabilities ....... 5,210 7,344 6,053
17,627 3,809 40,043
----------- ----------- ----------- ----
- -------- ----------- ------------
Net assets (Note C) ..... $18,122,841 $25,432,350 $20,869,484
$62,771,356 $14,405,800 $141,601,831
=========== =========== ===========
============ =========== ============
Equity:
Equity of Sponsor ....... $ 655,762 $ 741,223 $ 656,081 $
867,375 $ 1,072,311 $ 3,992,752
Equity of contract
owners ................ 17,467,079 24,691,127 20,213,403
61,903,981 13,333,489 137,609,079
----------- ----------- ----------- ----
- -------- ----------- ------------
Total equity ............ $18,122,841 $25,432,350 $20,869,484
$62,771,356 $14,405,800 $141,601,831
=========== =========== ===========
=========== =========== ============
Accumulation units
outstanding .......... 13,818,073 17,155,802 15,904,632
36,185,081 13,434,291 96,497,879
========== ========== ==========
========== ========== ==========
Net asset value
per unit ............. $1.311532 $1.482434 $1.312164
$1.734730 $1.072316
========= ========= =========
========= =========
See Notes to Financial Statements
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
ANNUITY VARIABLE ACCOUNT
Note A - Summary of Significant Accounting Policies
- ---------------------------------------------------
Organization - The United Investors Annuity Variable Account ("the Annuity
Variable Account") was established on December 8, 1981 and modified on January
5, 1987 as a segregated account of United Investors Life Insurance Company ("the
Sponsor") and has been registered as a unit investment trust under the
Investment Company Act of 1940. The Annuity Variable Account invests in shares
of TMK/United Funds, Inc. ("the Fund"), a mutual fund with five separate
investment portfolios including a money market portfolio, a bond portfolio, a
high income portfolio, a growth portfolio and an income portfolio. The assets
of each portfolio of the fund are held separate from the assets of the other
portfolios. Thus, each portfolio operates as a separate investment portfolio,
and the investment performance of one portfolio has no effect on any other
portfolio.
Basis of Presentation - The financial statements of the Annuity Variable
Account have been prepared on an accrual basis in accordance with generally
accepted accounting principles.
Federal Taxes - Currently no charge is made to the Annuity Variable Account
for federal income taxes because no federal income tax is imposed on the Sponsor
for the Annuity Variable Account investment income under current tax law.
Note B - Investments
- --------------------
Stocks and convertible bonds of the Fund are valued at the latest sale
price on the last business day of the fiscal period as reported by the principal
securities exchange on which the issue is traded or, if no sale is reported for
a stock, the average of the latest bid and asked prices. Bonds, other than
convertible bonds, are valued using a matrix pricing system provided by a major
dealer in bonds. Convertible bonds are valued using this pricing system only on
days when there is no sale reported. Stocks which are traded over-the-counter
are priced using NASDAQ (National Association of Securities Dealers Automated
Quotations) which provides information on bid and asked prices quoted by major
dealers in such stock. Short-term debt securities are valued at amortized cost,
which approximates market.
Security transactions are accounted for by the Fund on the trade date (date
the order to buy or sell is executed). Securities gains and losses are
calculated on the specific identification method. Dividend income is recorded
on the ex-dividend date. Interest income is recorded on the accrual basis.
Investments in shares of the separate investment portfolios are stated at
market value which is the net asset value per share as determined by the
respective portfolios (see Note C - Net Assets). Dividends received from the
portfolios are reinvested daily in additional shares of the portfolios and are
recorded as dividend income on the record date.
The following is a summary of reinvested dividends by portfolio:
----------------------------------------------------------------
1992
----
Investment Portfolio Shares Reinvested Dividend Income
- -------------------- ----------------- ---------------
Money Market $ 617,266 $ 617,266
Bond 503,991 2,637,768
High Income 665,997 2,837,761
Growth 1,685,083 10,364,106
Income 131,306 772,936
1991
----
Investment Portfolio Shares Reinvested Dividend Income
- -------------------- ----------------- ---------------
Money Market $ 856,265 $ 856,265
Bond 328,945 1,676,056
High Income 444,263 1,705,892
Growth 1,890,447 10,581,398
Income 13,884 69,659
1990
----
Investment Portfolio Shares Reinvested Dividend Income
- -------------------- ----------------- ---------------
Money Market $839,519 $ 839,519
Bond 179,086 874,840
High Income 363,638 1,364,947
Growth 216,561 1,071,525
Note C - Net Assets
- -------------------
The following table illustrates by component parts the net asset value for
each portfolio:
<TABLE>
1992
----
<CAPTION>
Money High
Market Bond Income
Growth Income
------ ---- ------
- ------ ------
<S> <C> <C> <C> <C>
<C>
Cost to:
Contract owners ....... $22,259,851 $42,940,845 $35,717,529 $
89,430,926 $57,012,400
Sponsor ............... 500,000 500,000 500,000
500,000 1,000,000
Adjustment for market appreciation
(depreciation) and reinvested
dividends ............. 3,339,980 7,306,571 7,526,367
33,511,511 6,282,690
Deductions:
Mortality & expense
risk charge ......... (539,479) (653,770) (679,553)
(1,672,108) (349,231)
Contract maintenance charges:
Sales expense ....... (250,889) (325,764) (346,768)
(805,650) (110,735)
Administrative expense (48,326) (84,557) (99,509)
(260,462) (30,946)
Benefits & terminations (2,670,222) (2,563,767) (3,596,702)
(5,956,931) (844,945)
----------- ----------- ----------- ---
- -------- -----------
Net assets .............. $22,590,915 $47,119,558 $39,021,364
$114,747,286 $62,959,233
=========== =========== ===========
============ ===========
1991
----
<CAPTION>
Money High
Market Bond Income
Growth Income
------ ---- ------
- ------ ------
<S> <C> <C> <C> <C>
<C>
Cost to:
Contract owners ....... $17,195,963 $22,234,193 $20,006,265
$50,231,462 $12,531,835
Sponsor ............... 500,000 500,000 500,000
500,000 1,000,000
Adjustment for market appreciation
(depreciation) and reinvested
dividends ............. 2,722,714 4,600,668 3,499,338
16,843,295 922,499
Deductions:
Mortality & expense
risk charge ......... (363,592) (338,485) (409,814)
(910,877) (25,455)
Contract maintenance charges:
Sales expense ....... (180,911) (168,695) (220,970)
(441,632) (3,491)
Administrative expense (33,709) (46,297) (64,489)
(148,715) (739)
Benefits & terminations (1,717,624) (1,349,034) (2,440,835)
(3,302,177) (18,849)
----------- ----------- ----------- ---
- -------- -----------
Net assets .............. $18,122,841 $25,432,350 $20,869,484
$62,771,356 $14,405,800
=========== =========== ===========
=========== ===========
</TABLE>
Note D - Charges and Deductions
- -------------------------------
Fund Management and Fees
Waddell & Reed Investment Management Company ("the Manager"), is the
manager of the Fund and provides investment advisory services to the Fund. Fees
for these services are deducted from dividend income at the following annual
rates: Money Market Portfolio - .5l of l% of net assets; Bond Portfolio - .54
of l% of net assets; High Income Portfolio - .66 of l% of net assets; Growth
Portfolio - .7l of l% of net assets; and Income Portfolio - .7l of l% of net
assets. These fees are a result of the combination of two elements: (i) a
specific fee computed on each portfolio's net asset value at the close of each
business day at the following annual rates: Money Market Portfolio - None; Bond
Portfolio - .03 of 1% of net assets; High Income Portfolio - .15 of 1% of net
assets; Growth Portfolio - .20 of 1% of net assets; and Income Portfolio -.20 of
l% of net assets and (ii) a base fee computed each day on the combined net asset
values of all of the portfolios and allocated among the portfolios based on
their relative net asset size at the annual rate of .51 of 1%. The amount of
these fees have been:
1992 1991 1990
---- ---- ----
Money Market $ 99,949 $ 82,766 $ 56,955
Bond 189,765 96,771 59,740
High Income 198,425 99,686 78,056
Growth 602,022 329,431 208,073
Income 256,647 20,518 --
Mortality and Expense Risk Charge
A daily charge is deducted at an effective annual rate of .90% of the
average daily net assets of each investment portfolio to compensate the Sponsor
for certain mortality and expense risks assumed. The mortality risk arises from
the Sponsor's obligation to make annuity payments (determined in accordance with
annuity tables) regardless of how long all annuitants may live. The Sponsor
also assumes the risk that other expense charges may be insufficient to cover
the actual expenses incurred in connection with policy obligations.
Premium Deposit Charges
The Sponsor does not impose an immediate charge against premium deposits
(except for premium taxes incurred).
Contract Maintenance Charges
On each of the first ten policy anniversaries following the receipt of a
premium deposit, there is an annual deduction of .85% of each premium deposit
which compensates the Sponsor for certain sales and other distribution expenses
incurred, including agent sales commissions, the cost of printing prospectuses
and sales literature, advertising, and other marketing and sales promotional
activities.
The Sponsor deducts a charge of $50 on each policy anniversary to
compensate it for administrative expenses. This charge is "cost-based" and the
Sponsor does not expect a profit from the charge.
Premium Taxes
The Sponsor deducts a charge for premium taxes incurred in accordance with
state and local law at the time the premium deposit is accepted, when the policy
value is withdrawn or surrendered, or when annuity payments begin.
Withdrawal Charges
For surrenders occurring during the first eight policy years following the
receipt of a premium deposit, a withdrawal charge is made, measured as a percent
of the total premium deposits as specified in the following table. The
withdrawal charge percentage varies depending on the "age" of the premium
deposits included in the withdrawal - that is, the policy year in which the
premium deposit was made. Partial withdrawals may also be subject to a charge
measured as a percent of the premium deposits included in the withdrawal. A $20
transaction charge is applied if more than four withdrawals occur during a
policy year.
No. of Policy Years
Since Receipt 8 or
of Premium Deposit 0 l 2 3 4 5 6 7 More
--- --- --- --- --- --- --- --- ----
Withdrawal Charge % 8% 7% 6% 5% 4% 3% 2% 1% 0
Note E - Equity of Sponsor
The equity of the Sponsor may be withdrawn at the discretion of the Sponsor
without penalty.
