<PAGE>
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U N I T E D I N V E S T O R S
A D V A N T A G E I I SM
VARIABLE ANNUITY
PROSPECTUS
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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 ten 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 ten portfolios: the Money
Market Portfolio, the Bond Portfolio, the High Income
Portfolio, the Growth Portfolio, the Income Portfolio,
the International Portfolio, the Small Cap Portfolio, the
Balanced Portfolio, the Limited-Term Bond Portfolio and
the Asset Strategy 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.
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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.
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THE POLICIES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
ENDORSED OR GUARANTEED BY, ANY BANK, NOR ARE THEY
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER AGENCY. AN INVESTMENT IN THE
POLICIES INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS
OF PRINCIPAL.
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PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR
FUTURE REFERENCE.
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The Date of This Prospectus is May 1, 1995.
Issued By
United Investors Life Insurance Company
(a Missouri Stock Company)
2001 Third Avenue South
Birmingham, Alabama 35233
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U-1053 (5-95)
<PAGE>
UNITED INVESTORS LIFE
ADVANTAGE II
VARIABLE ANNUITY
PROSPECTUS SUPPLEMENT DATED JULY 10, 1995
The Prospectus dated May 1, 1995, is hereby amended to include the Fixed
Account as described below. The Fixed Account may not be available in all
states.
FIXED ACCOUNT
The Owner may choose to allocate all or a portion of his Purchase Payments to
the Fixed Account. We guarantee that we will credit interest at a rate of not
less than the Guaranteed Minimum Interest Rate of 4% to amounts allocated to
the Fixed Account. We may credit interest at a rate in excess of the Guaranteed
Minimum Interest Rate. ANY EXCESS INTEREST CREDITED WILL BE DETERMINED IN THE
SOLE DISCRETION OF THE COMPANY. THE OWNER ASSUMES THE RISK THAT INTEREST
CREDITED TO FIXED ACCOUNT ALLOCATIONS MAY NOT EXCEED THE GUARANTEED MINIMUM
INTEREST RATE.
The Fixed Account is not an Investment Division and is not a part of the
variable account. The Fixed Account is a part of the General Account of United
Investors Life Insurance Company. The General Account consists of all assets of
United Investors Life Insurance Company other than those in any separate
account.
That portion of the policy relating to the Fixed Account is not registered
under the Securities Act of 1933 ("1933 Act") and the Fixed Account is not
registered as an Investment Company under the Investment Company Act of 1940
("1940 Act"). Accordingly, neither the Fixed Account nor any interests therein
are subject to the provisions or restrictions of the 1933 Act or the 1940 Act,
and the disclosure regarding the Fixed Account has not been reviewed by the
staff of the Securities and Exchange Commission.
PURCHASE PAYMENTS ALLOCATED TO THE FIXED ACCOUNT
Between the date the initial purchase payment was received and the Policy Date,
we will credit interest on the initial 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, the portion of the
initial net purchase payment to be allocated to the Fixed Account, plus any
interest which accrued prior to the Policy Date, will be credited with interest
as if it had been invested in the Money Market Investment Division. On the
seventeenth day after the Policy Date, the Policy Value will be allocated among
the Fixed Account and the variable Investment Divisions according to the
allocation percentage you specified in your application. (The seventeen day
period may be extended if the Free Look Period required by state law is
extended.)
On the date we receive an Additional Purchase Payment, the net additional
purchase payment will be allocated to the Fixed Account according to the
allocation percentage specified in your application, unless subsequently
changed.
FIXED ACCOUNT VALUE
At the end of any Valuation Period, the Fixed Account Value is equal to:
(a) the sum of all Net Purchase Payments allocated to the Fixed Account;
plus
(b) any amounts transferred from the Variable Account to the Fixed Account;
plus
(c) total interest credited to the Fixed Account; less
(d) any amounts transferred from the Fixed Account to the Variable Account;
less
(e) the portion of any withdrawals, withdrawal charges, and transaction
charges allocated to the Fixed Account; less
(f) the portion of the annual deduction and premium taxes which is allocated
to the Fixed Account.
U-1094-2, Ed. 7-95
<PAGE>
POLICY VALUE
The Policy Value of the Policy prior to the Retirement Date is equal to the
Variable Account Value plus the Fixed Account Value. Variable Account Values
are not guaranteed.
SURRENDER OF FIXED ACCOUNT VALUES
The Company may defer payment of any amounts from the Fixed Account for up to
six months from the date of the request to surrender. If the Company defers
payment for more than 30 days, the Company will pay interest on the amount
deferred at a rate not less than the Guaranteed Minimum Interest Rate.
TRANSFERS PRIOR TO THE RETIREMENT DATE
You may transfer all or a part of the values held in the Fixed Account to one
or more of the variable Investment Divisions once per policy year. The amount
transferred from the Fixed Account to a variable Investment Division may not
exceed the greater of: (a) 25% of the prior Policy Anniversary's Fixed Account
Value; or (b) the amount of the prior policy year's transfer.
You may transfer all or a part of the values held in the variable Investment
Divisions to the Fixed Account up to twelve times in a policy year. However, if
a transfer is made from the Fixed Account to a variable Investment Division, no
transfer from any variable Investment Division to the Fixed Account may be made
for six months from the transfer date.
The amount transferred from a variable Investment Division to the Fixed
Account, or from the Fixed Account to a variable Investment Division must be at
least: (a) $500; or (b) the total value of the variable Investment Division or
Fixed Account, if less.
TRANSFERS AFTER THE RETIREMENT DATE
Transfers from the Fixed Account to the variable Investment Divisions are not
allowed after the Retirement Date. The Annuitant may transfer values held in
the variable Investment Divisions to the Fixed Account once per policy year.
(See Transfers, Available Options.)
CHARGES AND DEDUCTIONS
Annual Deductions (See Annual Deduction) and Deductions for Premium Taxes (See
Premium Taxes) will be made from the Fixed Account in the same proportion that
the value of the Fixed Account bears to the total Policy Value. Withdrawals and
any withdrawal charges or transaction charges associated with such withdrawals,
will be made from the Fixed Account in the same proportion that the value of
the Fixed Account bears to the entire Policy Value, unless you instruct
otherwise.
FIXED ANNUITY PAYMENTS
On the Retirement Date the Policy Value as of 14 days prior to the Retirement
Date, less any premium taxes and less any withdrawal charges, may be applied to
make Fixed Annuity Payments, Variable Annuity Payments, or a combination
thereof.
Fixed Annuity Payments provide guaranteed annuity payments which remain fixed
in amount throughout the payment period. Fixed Annuity Payments do not vary
with the investment experience of the Investment Divisions. The payment amount
will be based on our Fixed Annuity Payment rates in effect on the settlement
date. These rates are guaranteed not to be less than payments based on the 1971
Individual Annuity Mortality Table (set back two years) with interest at 4.0%.
The two year setback results in lower rates than if no setback is used. Where
requested and required by law unisex tables will be used.
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. 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.
<PAGE>
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TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
Definitions Definitions............................................ i
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Summary Summary................................................ 1
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United Investors Life United Investors Life Insurance Company................ 6
Insurance Company and United Investors Annuity Variable Account.............. 7
United Investors Annuity TMK/United Funds, Inc.................................. 7
Variable Account
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The Policy Issuance of a Policy................................... 9
Purchase Payments...................................... 9
Allocation of Purchase Payments........................ 9
Policy Value........................................... 9
Surrender and Partial Withdrawals...................... 10
Transfers.............................................. 11
Dollar Cost Averaging.................................. 11
Death Benefit.......................................... 12
Required Distributions................................. 12
Free Look Period....................................... 13
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Charges and Deductions Annual Deduction....................................... 13
Withdrawal Charge...................................... 13
Reductions in Charges for Certain Groups............... 14
Mortality and Expense Risk Charge...................... 14
Transaction Charge..................................... 15
Premium Taxes.......................................... 15
Federal Taxes.......................................... 15
Fund Expenses.......................................... 15
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Annuity Payments Election of Payment Option............................. 15
Retirement Date........................................ 16
Available Options...................................... 16
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Distributor of the
Policies Distributor of the Policies............................ 17
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Federal Tax Matters Introduction........................................... 17
Taxation of Annuities in General....................... 17
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Voting Rights Voting Rights.......................................... 20
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Financial Statements Financial Statements................................... 20
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Statement of Additional Statement of Additional Information Table of Contents.. 21
Information
</TABLE>
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>
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DEFINITIONS
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Annuitant................means the person on whose life Annuity Payments de-
pend. If the Contract Owner names more than one per-
son as an "Annuitant", the second person shall be re-
ferred to as "Co-Annuitant". All provisions based on
the date of death of the "Annuitant" prior to the Re-
tirement 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".
means an amount paid monthly, starting on the Retire-
Annuity Payment..........ment 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 benefit payable upon death of the Annuitant
or Owner.
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 pre-
mium taxes incurred at the time the Purchase Payment
was accepted.
Nonqualified Policies....means Policies that do not qualify for special fed-
eral 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 Divi-
sions 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 applica-
tion, 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 treat-
ment.
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 custom-
ary U.S. business holiday when the New York Stock Ex-
change is not open for trading. Those holidays cur-
rently are New Year's Day, Presidents' Day, Good Fri-
day, 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 Valu-
ation Date and ending at the close of business of the
New York Stock Exchange on the next Valuation Date.
i
<PAGE>
Variable Annuity.........means an annuity with payments which vary in amount
with the investment experience of the Variable Ac-
count.
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.
ii
<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 ten Investment
Divisions. The Investment Divisions invest solely in shares of a corresponding
portfolio of the Fund, which currently has the following ten separate
investment portfolios: the Money Market Portfolio, the Bond Portfolio, the
High Income Portfolio, the Growth Portfolio, the Income Portfolio, the
International Portfolio, the Small Cap Portfolio, the Balanced Portfolio, the
Limited-Term Bond Portfolio and the Asset Strategy Portfolio (collectively,
the "Portfolios"). Each of these Portfolios have 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 taxable and subject to a penalty
tax. For certain Qualified Policies, withdrawals may be severely restricted
and/or penalized. (See Federal Tax Matters.)
1
<PAGE>
DEATH BENEFIT. The Policy provides a Death Benefit if the Annuitant dies
before the Retirement Date. The Death Benefit under the Policy will be paid in
a lump sum or under one of the Annuity Payment Options. (See Death Benefit,
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. (See Required
Distributions.) If death of the Annuitant occurs prior to the Retirement Date
and the Annuitant is also the Owner or Joint Owner of the Policy, the rules
governing distribution of death benefit proceeds in the event of the death of
the Owner shall apply.
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.
<TABLE>
<S> <C>
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%
</TABLE>
2
<PAGE>
TMK/UNITED FUNDS' ANNUAL EXPENSES
(Expressed as a Percentage of Net Assets of the Portfolio)
<TABLE>
<CAPTION>
TOTAL INVESTMENT
MANAGEMENT OTHER PORTFOLIO ANNUAL
PORTFOLIO FEE EXPENSES EXPENSES
--------- ---------- -------- ----------------
<S> <C> <C> <C>
Money Market.......................... 0.51% 0.14% 0.65%
Bond.................................. 0.54% 0.08% 0.62%
High Income........................... 0.66% 0.08% 0.74%
Growth................................ 0.71% 0.06% 0.77%
Income................................ 0.71% 0.06% 0.77%
International......................... 0.81% 0.45% 1.26%
Small Cap............................. 0.86% 0.22% 1.08%
Balanced.............................. 0.61% 0.34% 0.95%
Limited-Term Bond..................... 0.56% 0.37% 0.93%
Asset Strategy........................ 0.81% 0.19% 1.00%
</TABLE>
The purpose of the following 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, 1994, for the portfolios
which commenced operations prior to that date (Money Market, Bond, High
Income, Growth, Income, International, Small Cap, Balanced, and Limited Term
Bond); expenses for the Asset Strategy Portfolio are estimated for the first
year of operation; 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:
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market............................... $85.50 $116.97 $150.21 $261.82
Bond....................................... 85.20 116.07 148.68 258.71
High Income................................ 86.40 119.69 154.77 271.10
Growth..................................... 86.70 120.60 156.29 274.17
Income..................................... 86.70 120.60 156.29 274.17
International.............................. 91.60 135.31 180.82 323.13
Small Cap.................................. 89.80 129.92 171.87 305.42
Balanced................................... 88.50 126.02 165.36 292.43
Limited-Term Bond.......................... 88.30 125.42 164.36 290.42
Asset Strategy............................. 89.00 127.52 167.87 297.44
</TABLE>
If you do not surrender your contract, you would pay the following expenses
on a $1,000 investment, assuming 5% annual return on assets:
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market............................... $15.50 $66.97 $120.21 $261.82
Bond....................................... 15.20 66.07 118.68 258.71
High Income................................ 16.40 69.69 124.77 271.10
Growth..................................... 16.70 70.60 126.29 274.17
Income..................................... 16.70 70.60 126.29 274.17
International.............................. 21.60 85.31 150.82 323.13
Small Cap.................................. 19.80 79.92 141.87 305.42
Balanced................................... 18.50 76.02 135.36 292.43
Limited-Term Bond.......................... 18.30 75.42 134.36 290.42
Asset Strategy............................. 19.00 77.52 137.87 297.44
</TABLE>
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. THE
$50 ANNUAL DEDUCTION IS REFLECTED IN THESE EXAMPLES AS A CHARGE OF 0.11% OF
THE ASSETS.
3
<PAGE>
"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.) During the period, the Purchase Payment will be held in the
Money Market Investment Division. The Free Look Period may be extended where
required by state law.
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.)
CONDENSED FINANCIAL INFORMATION
The following table gives per unit information about the financial history
of each Investment Division of the Variable Account from inception to December
31, 1994. This information should be read in conjunction with the Variable
Account financial statements (including the notes thereto) included in the
Statement of Additional Information.
4
<PAGE>
ACCUMULATION UNIT VALUES
<TABLE>
<CAPTION>
LIMITED-
MONEY HIGH SMALL TERM
MARKET BOND INCOME GROWTH INCOME INTERNATIONAL CAP BALANCED BOND
------ ----- ------ ------ ------ ------------- ----- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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 -- -- -- --
January 1, 1993......... 1.342 1.582 1.505 2.078 1.209 -- -- -- --
December 31, 1993....... 1.365 1.762 1.758 2.348 1.406 -- -- -- --
January 1, 1994......... 1.365 1.762 1.758 2.348 1.406 -- -- -- --
December 31, 1994....... 1.403 1.643 1.698 2.383 1.378 0.997*** 1.202*** 0.991*** 0.997***
</TABLE>
ACCUMULATION UNITS
OUTSTANDING
<TABLE>
<CAPTION>
MONEY HIGH LIMITED-
MARKET BOND INCOME GROWTH INCOME INTERNATIONAL SMALL CAP BALANCED TERM BOND
---------- ---------- ---------- ----------- ----------- ------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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 -- -- -- --
December 31, 1993. 17,897,447 44,792,360 38,757,852 89,948,476 108,139,963 -- -- -- --
December 31, 1994. 20,471,850 43,111,140 40,825,454 111,492,038 154,850,855 25,149,046 12,901,165 8,285,256 1,129,780
</TABLE>
*Commencement of operations.
**Commencement of operations on July 16, 1991 at 1.000.
***Commencement of operations on May 3, 1994 at 1.000.
Data is not included for the Asset Strategy Investment Division since it began
operations in 1995.
5
<PAGE>
HISTORICAL PERFORMANCE DATA
We may advertise yields and total returns for the Investment Divisions. In
addition, we may advertise the effective yield of the Money Market Investment
Division. These figures will be based on historical earnings and are not
intended to indicate future performance.
The yield of the Money Market Investment Division refers to the annualized
income generated by an investment in the Investment Division over a specified
seven-day period. The yield is calculated by assuming that the income
generated for that seven-day period is generated each seven-day period over a
52-week period and is shown as a percentage of the investment. The effective
yield is calculated similarly but, when annualized, the income earned by an
investment in the Investment Division is assumed to be reinvested. The
effective yield will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment.
The total return calculation of an Investment Division other than the Money
Market Investment Division assumes an investment has been held in the
Investment Division for various periods of time including (a) one year; (b)
five years; and (c) a period measured from the date the Investment Division
commenced operations. The total return will represent the average annual
compounded rates of return that would equate an initial investment of $1,000
to the redeemable value of that investment as of the last day of each of the
periods referenced above.
Total return figures in non-standard formats for the Investment Divisions
other than the Money Market Investment Division may also be disclosed from
time to time. The non-standard total return will assume that no surrender
occurs at the end of the applicable period. All non-standard performance data
disclosed will be accompanied by standard performance data for the same
period.
Performance data calculations are discussed in further detail in the
Statement of Additional Information.
PUBLISHED RATINGS
We may publish in advertisements, sales literature, and reports to Policy
Owners, the ratings and other information assigned to us by one or more
independent insurance industry analyst or rating organizations such as A. M.
Best Company, Standard & Poor's Corporation, and Weiss Research, Inc. These
ratings reflect the current opinion of an insurance company's financial
strength and operating performance in comparison to the norms for the
insurance industry; they do not reflect the strength, performance, or safety
(or lack thereof) of the Variable Account. The claims-paying ability rating as
measured by Standard & Poor's is an opinion of an operating insurance
company's financial capacity to meet the obligations of its insurance and
annuity policies in accordance with their terms. These ratings should not be
considered as bearing on the investment performance of the assets held in the
Variable Account or the degree of risk associated with an investment in the
Variable Account.
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.
6
<PAGE>
UNITED INVESTORS ANNUITY VARIABLE ACCOUNT
United Investors Annuity Variable Account (the "Variable Account") is
currently divided into ten 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 and meets the definition of a separate
account under the Federal securities law. 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.
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 ten separate investment
portfolios. The Fund currently has a Money Market Portfolio, a Bond Portfolio,
a High Income Portfolio, a Growth Portfolio, an Income Portfolio, an
International Portfolio, a Small Cap Portfolio, a Balanced Portfolio, a
Limited-Term Bond Portfolio, and an Asset Strategy 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 ten 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.
7
<PAGE>
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.
The International Portfolio primarily seeks long-term appreciation of
capital with a secondary goal of current income by investing primarily in
securities issued by companies or governments of any nation.
The Small Cap Portfolio seeks capital growth through a diversified holding
of securities, primarily in the common stocks of, or securities convertible
into the common stocks of, relatively new or unseasoned companies, companies
which are in their early stages of development or smaller companies positioned
in new and emerging industries where the opportunity for rapid growth is above
average.
The Balanced Portfolio primarily seeks current income with a secondary goal
of long-term appreciation of capital by investing in a variety of securities,
including debt securities, common stocks and preferred stocks.
The Limited-Term Bond Portfolio seeks a high level of current income
consistent with preservation of capital by investing primarily in debt
securities of investment grade, including debt securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities. The Portfolio
will seek to maintain a dollar weighted average maturity of its portfolio of
two to five years.
The Asset Strategy Portfolio seeks high total return with reduced risk over
the long term. It diversifies among stocks, bonds, and short-term instruments,
both in the United States and abroad.
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 Waddell & Reed Financial Services, Inc. and an indirect subsidiary of
United Investors Management Company and Torchmark Corporation. 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 consisting of two elements: (i) a
specific fee computed on each Portfolio's net asset value at the close of
business each day at the following annual rates: Money Market Portfolio--None;
Bond Portfolio--.03 of 1% of net assets; High Income Portfolio--.15 of 1% of
net assets; Growth Portfolio--.20 of 1% of net assets; Income Portfolio--.20
of 1% of net assets; International Portfolio--.30 of 1% of net assets; Small
Cap Portfolio--.35 of 1% of net assets; Balanced Portfolio--.10 of 1% of net
assets; Limited-Term Bond Portfolio--.05 of 1% of net assets; and Asset
Strategy Portfolio--.30 of 1% of net assets; and (ii) a pro rata participation
based on the relative net asset size of each Portfolio in a "Group" fee
computed each day on the combined net asset values of all of the Portfolios at
the following annual rates: Group Net Asset Level from $0 to $750 million--
Annual Group Fee Rate .51 of 1%; from $750 to $1,500 million--.49 of 1%; from
$1,500 to $2,250 million--.47 of 1%; over $2,250 million--.45 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").
8
<PAGE>
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 Policies, 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 totalling 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.
If we receive an additional Purchase Payment prior to the seventeenth day
after the Policy Date, the Net Purchase Payment will be allocated to the Money
Market Division on the date we receive the payment. On the seventeenth day
after the Policy Date, or the first Valuation Date thereafter, the Policy
Value will be allocated among the Investment Divisions according to your
instructions in effect.
If we receive an additional purchase payment on or after the seventeenth day
after the Policy Date, the Net Purchase Payment will be allocated to the
Investment Divisions according to 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).
9
<PAGE>
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.
Partial withdrawals may be subject to the 10% Federal Tax Penalty on early
withdrawals and to income tax. (See Federal Tax Matters.)
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.
Automatic partial withdrawals may be subject to the 10% Federal Tax Penalty
on early withdrawals and to income tax. (See Federal Tax Matters.)
10
<PAGE>
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.
Surrenders 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 59 1/2, 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. We employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. A personal identification
number is required in order to initiate a transfer. United Investors will not
be liable for the consequences of a fraudulent telephone transfer request we
believe to be authentic when we have followed those procedures. 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 as 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.)
DOLLAR COST AVERAGING
Prior to the Retirement Date you may authorize automatic transfers of a
fixed dollar amount from the Money Market Investment Division to up to four of
the other Investment Divisions. Automatic transfers will be made on a monthly
basis on the day of the month selected in your application. If the day of the
month selected does not fall on a Valuation Date, transfers will be made on
the next following Valuation Date. Transfers will be made at the unit values
determined on the date of each transfer.
The minimum automatic transfer amount from the Money Market Investment
Division is $100. If the transfer is to be made to more than one Investment
Division, a minimum of $25 must be transferred to each Investment Division
selected.
11
<PAGE>
Participation in the automatic transfer program does not guarantee a greater
profit nor does it protect against loss in declining markets. Automatic
transfers will not be counted as a transfer for purposes of the twelve
transfer limit specified in Transfers above.
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. In addition, where
permitted under state law, we may provide an additional Death Benefit if death
of the Annuitant occurs before the Annuitant's attained age 75. The Death
Benefit will be the greater of (1) and (2) described above or (3) the Policy
Value on the eighth Policy Anniversary, adjusted for any subsequent Purchase
Payments, any amounts withdrawn and any Withdrawal Charges on the amounts
withdrawn, and any transaction charges since that anniversary.
We will compute the amount of the Death Benefit as of the date the Death
Benefit is paid or applied under one of the Annuity Payment Options. We will
pay the Death Benefit proceeds to the Beneficiary upon receiving due proof of
death. The Death Benefit under the Policy will be paid in a lump sum or under
one of the Annuity Payment Options. (See Annuity Payments.) If the Annuitant
or Owner dies after the Retirement Date, the amount payable, if any, will be
as provided in the Annuity Payment Option then in effect.
If death of the Annuitant occurs prior to the Retirement Date and the
Annuitant is also the Owner or Joint Owner of the Policy, the rules governing
distribution of death benefit proceeds in the event of the death of Owner
shall apply. (See Required Distributions.) If there is a surviving Joint Owner
at the Annuitant's death, and the surviving Joint Owner continues the policy
in accordance with the Required Distributions rules, the named Beneficiary
does not have a right to receive the death benefit proceeds. If upon death of
the Owner, the Owner's Designated Beneficiary elects to continue the Policy in
accordance with the Required Distributions rules, the named Beneficiary does
not have a right to receive the death benefit proceeds.
As far as permitted by law, the proceeds under the Policy will not be
subject to any claim of the Beneficiary's creditors.
REQUIRED DISTRIBUTIONS
In order to be treated as an annuity contract for Federal Income Tax
purposes, Section 72(s) of the Code requires any Nonqualified 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 his life
expectancy.
The Owner's Designated Beneficiary is the person to whom ownership of the
Policy passes by reason of the death of any policyowner. If the Policy has
Joint Owners and one Owner dies, the Owner's Designated Beneficiary is the
Joint Owner. If there is no Joint Owner, upon death of the Owner, the Owner's
Designated Beneficiary is the Beneficiary named in the policy.
If the Owner's Designated Beneficiary is the surviving spouse of the Owner,
the Policy may be continued with the surviving spouse as the new Owner and no
distributions will be required.
If the Annuitant is an Owner or Joint Owner and dies prior to the Retirement
Date, and if the Owner's Designated Beneficiary does not elect to receive the
Death Benefit in a lump sum at that time, then United Investors will increase
the Policy Value so that it equals the Death Benefit amount, if that is higher
than the Policy Value. This would occur if the Owner's Designated Beneficiary
elects to delay receipt of the proceeds for up to five years, or is the
deceased Owner's spouse and elects to continue the policy, or elects to
receive
12
<PAGE>
the proceeds as annuity payments. Any such increase in the Policy Value would
be paid by United Investors, and allocated to the Investment Divisions in
proportion to the pre-existing Policy Value unless instructed otherwise.
Other rules may apply to Qualified Policies.
FREE LOOK PERIOD
If for any reason you are not satisfied with the Policy, you may return it
to us within 10 days after you receive 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.)
The "Free Look" period may be extended where required by state law.
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:
<TABLE>
<CAPTION>
NUMBER OF POLICY ANNIVERSARIES
SINCE RECEIPT OF PURCHASE PAYMENT: 0 1 2 3 4 5 6 7 8 OR MORE
- ---------------------------------- --- --- --- --- --- --- --- --- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Withdrawal Charge.................... 8% 7% 6% 5% 4% 3% 2% 1% none
</TABLE>
13
<PAGE>
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, 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.
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
14
<PAGE>
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.
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<PAGE>
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%.
16
<PAGE>
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), 408, or 457 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 an 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
17
<PAGE>
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.
In recent years, legislation has been proposed that would have adversely
modified the federal taxation of certain annuities. For example, one such
proposal would have changed the tax treatment of nonqualified annuities that
did not have "substantial life contingencies" by taxing income as it is
credited to the annuity. Although as of the date of this Prospectus Congress
is not considering any legislation regarding the taxation of annuities, there
is always the possibility that the tax treatment of annuities could change by
legislation or other means (such as IRS regulations, revenue rulings, and
judicial decisions). Moreover, it is also possible that any legislative change
could be retroactive (that is, effective prior to the date of such change).
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. Special rules may apply
to a withdrawal from a Qualified Policy with respect to "investment in the
contract" as of December 31, 1986, and in other circumstances.
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.
In the case of a full surrender under a Qualified or Nonqualified Policy,
the amount received generally will be taxable only to the extent it exceeds
the "investment in the contract".
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 59 1/2, (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.
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<PAGE>
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. Some
retirement plans are subject to distribution and other requirements that are
not incorporated into our Policy administration procedures. Owners,
participants and beneficiaries are responsible for determining that
contributions, distributions and other transactions with respect to the
Qualified Policy comply with applicable law. 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.
Code Section 401(a) permits employers to establish various types of
retirement plans for employees, and permits self-employed individuals to
establish retirement plans for themselves and their employees. These
retirement plans may permit the purchase of the Policies to accumulate
retirement savings under the plans. Adverse tax or other legal consequences to
the plan, to the participant or to both may result if this Policy is assigned
or transferred to any individual as a means to provide benefit payments,
unless the plan complies with all legal requirements applicable to such
benefits prior to transfer of the Policy.
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. The Internal Revenue Service has not addressed in a ruling of general
applicability whether a death benefit provision such as the provision in the
Policy comports with IRA qualification requirements.
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. Depending on the
terms of the particular plan, the employer may be entitled to draw on deferred
amounts for purposes unrelated to its Section 457 plan obligations. In
general, all amounts received under a Section 457 plan are taxable and are
subject to federal income tax withholding as wages.
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
19
<PAGE>
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.
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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
<TABLE>
<CAPTION>
PAGE
<S> <C>
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
Performance Data Calculations.............................................. 8
Federal Tax Matters........................................................ 11
Taxation of United Investors............................................. 11
Tax Status of the Policies............................................... 12
Withholding.............................................................. 13
Addition, Deletion or Substitution of Investments.......................... 13
Distribution of the Policy................................................. 14
Safekeeping of Variable Account Assets..................................... 15
State Regulation........................................................... 15
Records and Reports........................................................ 16
Legal Proceedings.......................................................... 16
Legal Matters.............................................................. 16
Experts.................................................................... 16
Other Information.......................................................... 17
Financial Statements....................................................... 17
</TABLE>
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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, 1994 and 1993 and the related statements
of operations, shareholder's equity and cash flow for each of the years in the
three-year period ended December 31, 1994. 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, 1994 and 1993 and the results of its
operations and its cash flow for each of the years in the three-year period
ended December 31, 1994 in conformity with generally accepted accounting
principles.
As discussed in Notes 1 and 7 to the financial statements, the Company changed
its method of accounting for income taxes to adopt the provisions of the
Financial Accounting Standards Board's (FASB's) Statement of Financial
Accounting Standards (Statement) No. 109, Accounting for Income Taxes, in 1993.
As discussed in Note 3, the Company adopted the provisions of the FASB
Statement No. 115, Accounting for Certain Investments in Debt and Equity
Securities, at December 31, 1993. Also, as discussed in Note 8, the Company
adopted the provisions of the FASB Statement No. 106, Employer's Accounting for
Postretirement Benefits Other than Pensions, in 1993.
KPMG PEAT MARWICK LLP
Birmingham, Alabama
February 1, 1995
F-1
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------
1994 1993
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities--available for sale, at fair value in
1994 and 1993 (Cost: 1994 $568,045; 1993 $565,393).... 535,194 591,446
Equity securities, at fair value (cost:1994--$2,065)... 2,502 0
Policy loans........................................... 10,178 8,654
Energy Investments..................................... 2,409 3,073
Other long-term invested assets (at fair value)........ 21,720 21,840
Short-term investments................................. 2,322 14,991
---------- ----------
Total Investments.................................... 574,325 640,004
Cash.................................................... 7,536 10,104
Accrued investment income (including amounts from
affiliates of $465
in 1994 and $26 in 1993)............................... 8,821 7,167
Receivables (including amounts from affiliates of
$35,191 in 1994 and
$8,185 in 1993)........................................ 37,496 10,270
Deferred acquisition costs.............................. 153,677 116,406
Value of insurance purchased............................ 20,983 23,231
Goodwill................................................ 7,624 7,908
Property and equipment.................................. 153 217
Other assets............................................ 1,606 1,353
Separate account assets................................. 715,203 544,327
---------- ----------
Total assets......................................... $1,527,424 $1,360,987
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Future policy benefits................................. $ 491,824 $ 472,972
Unearned and advanced premiums......................... 2,369 2,222
Other policy liabilities............................... 7,030 7,930
---------- ----------
Total policy liabilities.............................. 501,223 483,124
Accrued income taxes................................... 34,420 49,041
Other liabilities...................................... 3,622 3,568
Due to affiliates...................................... 10,243 10,986
Separate account liability............................. 715,203 544,327
---------- ----------
Total liabilities.................................... 1,264,711 1,091,046
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............................. 137,915 137,915
Unrealized investment gains (losses)................... (12,378) 11,885
Retained earnings...................................... 134,176 117,141
---------- ----------
Total shareholder's equity........................... 262,713 269,941
---------- ----------
Total liabilities and shareholder's equity........... $1,527,424 $1,360,987
========== ==========
</TABLE>
See accompanying Notes to Financial Statements.
F-2
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Premium income.................................... $ 57,753 $ 53,764 $ 50,792
Policy charges and fees........................... 18,259 13,945 10,636
Net investment income (including amounts from af-
filiates of $628 in 1994, $270 in 1993, and $145
in 1992)......................................... 46,258 46,457 49,680
Realized gains (losses)........................... (2,047) 3,473 2,187
Other income...................................... 2 0 0
-------- -------- --------
Total revenue................................... 120,225 117,639 113,295
Benefits and expenses:
Policy benefits:
Individual life.................................. 39,578 37,337 36,027
Annuity.......................................... 15,326 16,935 16,893
-------- -------- --------
Total benefits.................................. 54,904 54,272 52,920
Amortization of acquisition costs................. 15,790 13,566 12,804
Commission and premium taxes (including amounts to
affiliates of $4,008 in 1994, of $4,339 in 1993,
and $4,170 in 1992).............................. 4,205 4,396 4,723
Other operating expense (including amounts to af-
filiates of $1,774 in 1994, $1,735 in 1993,and
$1,723 in 1992).................................. 3,954 3,409 3,353
-------- -------- --------
Total benefits and expenses..................... 78,853 75,643 73,800
-------- -------- --------
Net operating income before income taxes........... 41,372 41,996 39,495
Income taxes....................................... 14,337 15,130 13,165
-------- -------- --------
Net income before cumulative effect of changes
in accounting principles....................... $ 27,035 $ 26,866 $ 26,330
Cumulative effect of changes in accounting princi-
ples.............................................. 0 3,038 0
-------- -------- --------
Net income...................................... $ 27,035 $ 29,904 $ 26,330
======== ======== ========
</TABLE>
See accompanying Notes to Financial Statements.
F-3
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
ADDITIONAL INVESTMENT TOTAL
COMMON PAID-IN GAINS/ RETAINED SHAREHOLDER'S
STOCK CAPITAL LOSSES EARNINGS EQUITY
------ ---------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1992
Balance at January
1,1992................. $3,000 $134,327 $ (149) $100,731 $237,909
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 and
losses................. 479 479
------ -------- -------- -------- --------
Balance at December 31,
1992................... 3,000 137,753 330 102,061 243,144
YEAR ENDED DECEMBER 31,
1993
Net income for the year. 29,904 29,904
Dividends............... (14,824) (14,824)
Paid in capital......... 162 162
Net change in unrealized
investment gains and
losses................. 11,555 11,555
------ -------- -------- -------- --------
Balance at December 31,
1993................... 3,000 137,915 11,885 117,141 269,941
YEAR ENDED DECEMBER 31,
1994
Net income for the year. 27,035 27,035
Dividends............... (10,000) (10,000)
Paid in capital......... 0 0
Net change in unrealized
investment gains and
losses................. (24,263) (24,263)
------ -------- -------- -------- --------
Balance at December 31,
1994................... $3,000 $137,915 $(12,378) $134,176 $262,713
====== ======== ======== ======== ========
</TABLE>
See accompanying Notes to Financial Statements.
F-4
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOW
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Net income................................... $ 27,035 $ 29,904 $ 26,330
Adjustments to reconcile net income to cash
provided from operations:
Increase in future policy benefits.......... 19,302 22,127 21,248
Increase (decrease) in other policy bene-
fits....................................... (753) 927 948
Deferral of policy acquisition costs........ (28,116) (28,029) (20,982)
Amortization of deferred acquisition costs.. 15,790 13,566 12,804
Change in accrued income taxes.............. (1,557) 4,634 (1,281)
Depreciation................................ 71 83 97
Realized (gains) losses on sale of invest-
ments and properties....................... 2,047 (3,473) (2,187)
Other accruals and adjustments.............. (1,558) 4,536 1,740
--------- --------- ---------
Cash provided from operations................ 32,261 44,275 38,717
Cash used for investment activities:
Investments sold or matured:
Fixed maturities available for sale--sold.. 64,713 42,125 0
Fixed maturities available for sale--
matured, called and repaid................ 107,977 40,299 0
Fixed maturities held to maturity--sold.... 0 4,936 71,875
Fixed maturities held to maturity--matured,
called and repaid......................... 0 120,718 106,671
Mutual funds............................... 1,149 0 3,168
Oil and gas................................ 681 4,005 634
--------- --------- ---------
Total investments sold or matured......... 174,520 212,083 182,348
Acquisition of investments:
Fixed maturities--available for sale....... (180,473) (5,075) 0
Fixed maturities--held to maturity......... 0 (229,687) (197,930)
Equity securities.......................... (102) 0 0
Mutual funds............................... (2,444) (3,636) (8,710)
Net increase in policy loans............... (1,524) (1,135) (986)
Oil and gas................................ (17) (168) (5,856)
--------- --------- ---------
Total acquisition of investments.......... (184,560) (239,701) (213,482)
Net (increase) decrease in short-term in-
vestments.................................. 12,669 (14,311) 13,972
Funds loaned to affiliates.................. (54,000) (18,000) (15,000)
Funds repaid from affiliates................ 27,000 10,001 0
Disposition of properties................... 15 0 7
Additions to properties..................... (23) (2) (100)
--------- --------- ---------
Cash used for investment activities.......... (24,379) (49,930) (32,255)
Cash provided from (used for) financing ac-
tivities:
Cash dividends paid to shareholder.......... (10,000) (2) (25,000)
Net receipts from deposit product opera-
tions...................................... (450) 8,785 19,993
--------- --------- ---------
Cash provided from (used for) financing ac-
tivities.................................... (10,450) 8,783 (5,007)
Increase (Decrease) in cash.................. (2,568) 3,128 1,455
Cash at beginning of year.................... 10,104 6,976 5,521
--------- --------- ---------
Cash at end of year.......................... $ 7,536 $ 10,104 $ 6,976
========= ========= =========
Supplemental disclosure of cash flow informa-
tion:
Taxes paid.................................. $ 14,187 $ 6,912 $ 14,446
</TABLE>
See accompanying Notes to Financial Statements.
F-5
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOW
(DOLLAR AMOUNTS IN THOUSANDS)
Supplemental disclosure of noncash investing and financing activities: There
were no noncash investing or financing activities for the years 1994 and 1992.
Supplemental disclosure of noncash investing and financing activities for
1993:
As discussed in Note 3--Summary of Significant Accounting Policies, during
1993 the Company chose to classify all of its fixed maturity investments as
available for sale. This decision resulted in a noncash transfer of $451,300
from fixed maturities held to maturity to fixed maturities available for sale.
The Company had various noncash investing and financing transactions with
affiliates during 1993. A summary of these transactions is as follows:
<TABLE>
<S> <C>
Investments sold to affiliates:
Fixed maturities transferred....................................... $ 54,315
Accrued interest transferred....................................... 664
Fixed maturities received.......................................... (54,485)
Accrued interest received.......................................... (245)
--------
Net cash received................................................ $ 249
========
Funds repaid by affiliates:
Note receivable canceled........................................... $ 15,000
Fixed maturities received.......................................... (14,707)
Accrued interest received.......................................... (292)
--------
Net cash received................................................ $ 1
========
Dividends paid to affiliates:
Fixed maturities transferred....................................... $ 14,426
Accrued interest transferred....................................... 396
Dividends declared................................................. (14,824)
--------
Net cash paid.................................................... $ 2
========
</TABLE>
For additional discussion of the above transactions, see Note 10--Related
Party Transactions.
F-6
<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: United Investors adopted the provisions of Financial Accounting
Standards Board Statement of Financial Accounting Standard (SFAS) 115 at
December 31, 1993. This standard prescribes the accounting for investments in
debt and equity securities. Also at December 31, 1993, United Investors elected
to classify all of its fixed maturity investments, which include bonds and
redeemable preferred stocks, as available for sale. SFAS 115 requires
investments classified as available for sale be carried at fair value with
unrealized gains and losses, net of deferred taxes, reflected directly in
shareholder's equity.
Investments in equity securities are valued at fair value, 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 three months. If an
investment becomes permanently impaired, such impairment is treated as a
realized loss and the investment is adjusted to net realizable value.
Realized gains and losses on disposition of investments are recognized as
revenue and are determined on a specific identification basis. Unrealized gains
and losses on equity securities, fixed maturities available for sale, 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, 1994, 1993 and 1992 included approximately
$35,700, $36,700, and $35,600, respectively, which was allocable to
policyholder reserves or accounts. Realized investment gains and losses are not
allocable to policyholders.
Determination of Fair Values of Financial Instruments: Fair value for cash,
short-term investments, receivables and payables 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. Premiums
for limited-payment life insurance contracts as defined by SFAS 97 are
recognized over the contract period. Premiums for universal life-type and
annuity contracts are added to the policy account value, and revenues from such
products are recognized as charges to the policy account value for mortality,
administration, and surrenders (retrospective deposit method). The related
benefits and expenses are matched with revenues by means of the provision for
future policy benefits and the amortization of deferred acquisition costs in a
manner which recognizes profits as they are earned over the same period.
F-7
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 Investor's
experience as adjusted to provide for possible adverse deviation. These
estimates are periodically reviewed and compared with actual experience. If it
is determined that future expected experience differs significantly from that
assumed, the estimates are revised.
Deferred acquisition costs: The costs of acquiring new insurance business are
deferred. Such costs consist of sales commissions, underwriting expenses, and
certain other selling expenses. The costs of acquiring new business through the
purchase of other companies and blocks of insurance business are also deferred.
Deferred acquisition costs, including the value of insurance purchased, for
policies other than universal life-type policies according to SFAS 97, are
amortized with interest over an estimate of the premium-paying period of the
policies in a manner which charges each year's operations in proportion to the
receipt of premium income. For 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: Income taxes are accounted for under the asset and liability
method in accordance with SFAS 109. Under the asset and liability method,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which the temporary
differences are expected to be recovered or settled. Under SFAS 109, the effect
on deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
Effective January 1, 1993, United Investors adopted SFAS 109 and reported the
cumulative effect of that change in the method of accounting for income taxes
in the 1993 statement of operations. Prior years' financial statements have not
been restated to reflect SFAS 109's provisions.
Prior to the adoption of SFAS 109, income taxes were accounted for under
Accounting Principles Board Opinion 11, which required the deferred method.
Under this method, deferred income taxes were recognized for revenue and
expense items that were reported in different years for financial reporting
purposes and income tax purposes using the tax rate applicable for the year of
the calculation. Deferred taxes were not adjusted for subsequent changes in tax
rates.
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.
F-8
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 Generally Accepted Accounting
Principles (GAAP).
Net income and shareholder's equity on a statutory basis for United Investors
was as follows:
<TABLE>
<CAPTION>
NET INCOME SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, AT DECEMBER 31,
------------------------- ---------------------
1994 1993 1992 1994 1993
------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Life insurance............... $ 7,752 $ 10,277 $ 14,813 $ 135,885 $ 141,281
</TABLE>
The excess of shareholders' equity on a GAAP basis over that determined on a
statutory basis is not available for distribution to shareholders without
regulatory approval.
A reconciliation of United Investor's statutory net income to GAAP net income
is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
------------ ----------- -------
<S> <C> <C> <C>
Statutory net income.................... $ 7,752 $ 10,277 $14,813
Deferral of acquisition costs........... 28,116 28,029 20,982
Amortization of acquisition costs....... (15,790) (13,566) (12,804)
Differences in policy liabilities....... 13,515 6,553 4,915
Deferred income taxes................... (4,272) (6,753) (152)
Adjustment for change in accounting
standard............................... 0 3,152 0
Other................................... (2,286) 2,212 (1,424)
------------ ----------- -------
GAAP net income......................... $ 27,035 $ 29,904 $26,330
============ =========== =======
</TABLE>
A reconciliation of United Investor's statutory shareholder's equity to GAAP
shareholder's equity is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1993
------------ -----------
<S> <C> <C>
Statutory shareholder's equity.......... $135,885 $ 141,281
Differences in policy liabilities....... 26,770 (11,557)
Deferred acquisition costs and value of
insurance purchased.................... 174,660 139,637
Differences in income tax liability..... (33,108) (43,256)
Asset valuation reserve................. 5,083 4,992
Non-admitted assets..................... 1,569 1,557
Fair value adjustment on Fixed Maturi-
ties available for sale................ (32,851) 26,053
Other................................... (15,295) 11,234
------------ -----------
GAAP shareholder's equity............... $262,713 $ 269,941
============ ===========
</TABLE>
F-9
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 3--INVESTMENT OPERATIONS
Investment income is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1993 1992
-------- ------- --------
<S> <C> <C> <C>
Fixed maturities................................. $ 43,532 $44,215 $ 47,369
Policy loans..................................... 730 658 544
Energy investments............................... 18 692 995
Other long-term investments...................... 1,296 636 732
Short-term investments........................... 493 424 324
Interest and dividends from affiliates........... 628 270 144
-------- ------- --------
46,697 46,895 50,108
Less: Investment expense......................... (439) (438) (428)
-------- ------- --------
Net investment income............................ $ 46,258 $46,457 $ 49,680
======== ======= ========
Analysis of gains (losses) from investments:
Realized investment gains (losses)
Fixed maturities............................... $ (2,189) $ 3,262 $ 2,200
Mutual Funds................................... 142 211 (13)
-------- ------- --------
Realized investment gains (losses).............. $ (2,047) $ 3,473 $ 2,187
======== ======= ========
Net change in unrealized investment gains
(losses) on equity securities before tax........ $ 437 $ 0 $ 0
Net change in unrealized investment gains on
fixed maturities available for sale before tax.. (58,904) 26,053 0
Other............................................ (1,557) 1,122 725
Adjustment to deferred acquisition costs......... 22,697 (9,391) 0
Applicable tax................................... 13,064 (6,229) (246)
-------- ------- --------
Net change in unrealized gains and losses on
equity and fixed maturity securities available
for sale........................................ $(24,263) $11,555 $ 479
======== ======= ========
Net decrease in market value relative to carrying
value of fixed maturities during the year....... $ 0 $ 0 $(14,908)
======== ======= ========
</TABLE>
A summary of fixed maturities available for sale by amortized cost and
estimated fair value at December 31, 1994 is as follows:
<TABLE>
<CAPTION>
AMOUNT
COST OR GROSS GROSS ESTIMATED PER THE
AMORTIZED UNREALIZED UNREALIZED FAIR BALANCE
COST GAINS LOSSES VALUE SHEET
--------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Fixed maturities available
for sale:
Bonds:
United States Government.. 18,515 37 (1,004) 17,548 17,548
Mortgage-backed securi-
ties..................... 271,726 2,526 (12,973) 261,279 261,279
MBS, GNMA Collateral...... 38,661 149 (1,261) 37,549 37,549
States, municipalities and
political subdivisions... 39,316 808 (3,674) 36,450 36,450
Foreign governments....... 6,138 0 (243) 5,895 5,895
Public utilities.......... 33,240 48 (2,905) 30,383 30,383
Industrial & miscellane-
ous...................... 160,449 179 (14,538) 146,090 146,090
Redeemable preferred
stocks................... 0 0 0 0 0
-------- ------- -------- -------- --------
Total fixed maturities... 568,045 3,747 (36,598) 535,194 535,194
Equity securities:
Common stocks:
Banks and insurance compa-
nies..................... 1,963 437 0 2,400 2,400
Industrial and all others. 102 0 0 102 102
-------- ------- -------- -------- --------
Total equity securities.... 2,065 437 0 2,502 2,502
-------- ------- -------- -------- --------
Total fixed maturities
and equity securities... $570,110 $ 4,184 $(36,598) $537,696 $537,696
======== ======= ======== ======== ========
</TABLE>
F-10
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 3--INVESTMENT OPERATIONS (CONTINUED)
A summary of fixed maturities available for sale by amortized cost and
estimated fair value at December 31, 1993 is as follows:
<TABLE>
<CAPTION>
AMOUNT
COST OR GROSS GROSS ESTIMATED PER THE
AMORTIZED UNREALIZED UNREALIZED FAIR BALANCE
COST GAINS LOSSES VALUE SHEET
--------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Bonds:
United States Government.. $ 20,464 $ 1,035 $ (22) $ 21,477 $ 21,477
Mortgage-backed securi-
ties..................... 316,139 15,605 (330) 331,414 331,414
MBS, GNMA Collateral...... 46,642 3,171 (1) 49,812 49,812
States, municipalities and
political subdivisions... 37,929 2,377 (56) 40,250 40,250
Foreign governments....... 1,014 54 0 1,068 1,068
Public utilities.......... 34,623 1,794 (199) 36,218 36,218
Industrial & miscellane-
ous...................... 106,619 3,182 (944) 108,857 108,857
Redeemable preferred stocks. 1,963 387 0 2,350 2,350
-------- ------- ------- -------- --------
Total fixed maturities.... 565,393 27,605 (1,552) 591,446 591,446
======== ======= ======= ======== ========
</TABLE>
A schedule of fixed maturities at December 31, 1994 is shown below on an
amortized cost basis and on a fair value basis. Actual maturities could differ
from contractual maturities due to call or prepayment.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
--------- ---------
<S> <C> <C>
Due in one year or less.................................. $ 5,369 $ 5,449
Due after one year through five years.................... 31,256 31,357
Due after five years through ten years................... 166,975 152,888
Due after ten years...................................... 54,059 46,673
-------- --------
257,659 236,367
Mortgage backed securities............................... 310,386 298,827
Redeemable preferred stock............................... 0 0
-------- --------
$568,045 $535,194
======== ========
</TABLE>
Proceeds from sales of fixed maturities available for sale were $64,713 in
1994 and $42,126 in 1993. Gross gains realized on these sales were $1,058 in
1994 and $999 in 1993. Gross losses on these sales were $3,468 in 1994 and $28
in 1993. Proceeds from sales of fixed maturities held to maturity were $57,392
in 1993 (including $52,458 which was the noncash value received in an
affiliated exchange of securities) and; $71,875 in 1992. Gross gains realized
on these sales were $2,039 in 1993 and $2,579 in 1992. Gross losses on these
sales sales were $451 in 1992. There were no gross losses in 1993.
F-11
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 4--DEFERRED ACQUISITION COSTS
An analysis of deferred acquisition costs and the value of insurance
purchased is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------------------- --------------------- ---------------------
DEFERRED VALUE OF DEFERRED VALUE OF DEFERRED VALUE OF
ACQUISITION INSURANCE ACQUISITION INSURANCE ACQUISITION INSURANCE
COSTS PURCHASED COSTS PURCHASED COSTS PURCHASED
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of
period................. $116,406 $ 23,231 $109,171 $ 25,394 $ 98,266 $ 28,121
Additions:
Deferred during peri-
od:
Commissions.......... 23,533 0 23,736 0 17,240 0
Other expenses....... 4,583 0 4,293 0 3,742 0
-------- -------- -------- -------- -------- --------
Total deferred...... 28,116 0 28,029 0 20,982 0
Adjustment attributable
to unrealized
investment
loss (1).............. 22,697 0 0 0 0 0
-------- -------- -------- -------- -------- --------
Total additions..... 50,813 0 28,029 0 20,982 0
Deductions:
Amortized during peri-
od................... (12,109) (2,248) (11,403) (2,163) (10,077) (2,727)
Adjustment
attributable to
unrealized investment
gains (1)............ 0 0 (9,391) 0 0 0
Adjustment
attributable to
realized investment
gains (1)............ (1,433) 0 0 0 0 0
-------- -------- -------- -------- -------- --------
Total deductions.... (13,542) (2,248) (20,794) (2,163) (10,077) (2,727)
-------- -------- -------- -------- -------- --------
Balance at end of year.. $153,677 $ 20,983 $116,406 $ 23,231 $109,171 $ 25,394
======== ======== ======== ======== ======== ========
</TABLE>
- --------
(1) Represents amounts pertaining to investments relating to universal life-
type products.
The amount of interest accrued on the unamortized balance of value of
insurance purchased was approximately $1,500, $1,700, and $1,900 for the years
ended December 31, 1994, 1993 and 1992, respectively. The average interest
accrual rates used were 6.74%, 6.88% and 7.03%, respectively. The estimated
amount of the unamortized value of business purchased balance at December 31,
1994 to be amortized during each of the next five years is: 1995, $2,098; 1996,
$1,888; 1997, $1,700; 1998, $1,530; 1999, $1,377.
In the event of lapses or early withdrawals in excess of those assumed,
deferred acquisition costs and the value of insurance purchased may not be
recoverable.
NOTE 5--PROPERTY AND EQUIPMENT
A summary of property and equipment used in the business is as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31, AT DECEMBER 31,
1994 1993
------------------- -------------------
ACCUMULATED ACCUMULATED
COST DEPRECIATION COST DEPRECIATION
------ ------------ ------ ------------
<S> <C> <C> <C> <C>
Data processing equipment............... $ 142 $ 132 $ 140 $128
Transportation equipment................ 142 72 157 71
Furniture and office equipment ......... 918 845 917 798
------ ------ ------ ----
Total................................. $1,202 $1,049 $1,214 $997
====== ====== ====== ====
</TABLE>
Depreciation expense on property and equipment used in the business was $71,
$83 and $97 in each of the years 1994, 1993, and 1992, respectively.
F-12
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
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:
<TABLE>
<CAPTION>
PERCENT OF
YEARS OF ISSUE INTEREST RATES LIABILITY
-------------- --------------------- ----------
<S> <C> <C>
1962-1994 3% level to 6% level 5%
1986-1992 7.00% graded to 6.00% 17%
1962-1985 8.50% graded to 6.00% 8%
1981-1985 8.50% graded to 7.00% 7%
1984-1994 Interest sensitive 63%
----
100%
====
</TABLE>
Mortality assumptions:
The mortality tables used are various statutory mortality tables and
modifications of:
1965-70 Select and Ultimate Table
1975-80 Select and Ultimate Table
Withdrawal assumptions:
Withdrawal assumptions are based on United Investors' experience.
F-13
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 7--INCOME TAXES
United Investors is included in the life-nonlife consolidated federal income
tax return filed by Torchmark. Under the tax allocation agreement with
Torchmark, a company with taxable income pays tax equal to the amount it would
pay if it filed a separate tax return. A company with a loss is paid a tax
benefit currently to the extent that affiliated companies with taxable income
utilize that loss.
As discussed in Note 1, United Investors adopted SFAS 109 on January 1, 1993.
The cumulative effect of this change in accounting for income taxes is a $3,200
addition to net income for the year ended December 31, 1993. This amount is
included in the cumulative effect of changes in accounting principles line on
the statement of operations.
Total income taxes were allocated as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1993
----------- -----------
<S> <C> <C>
Net operating income before income taxes.......... $ 14,337 $ 15,130
Change in accounting standards for post-retirement
benefits other than pensions..................... 0 (61)
Shareholder's equity:
Unrealized gains (losses)........................ (13,065) 6,229
Tax basis compensation expense in excess of
amounts recognized for financial reporting pur-
poses from the exercise of stock options........ 0 (162)
----------- -----------
$ 1,272 $ 21,136
=========== ===========
</TABLE>
Income tax expense before the cumulative effect of the change in accounting
principles and adjustments to shareholder's equity is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Current income tax expense............................ $10,065 $ 8,377 $13,013
Increase in January 1, 1993 deferred income tax
liability due to the increase in corporate income tax
rate to 35%.......................................... 0 801 0
Deferred income tax expense........................... 4,272 5,952 152
------- ------- -------
Total............................................... $14,337 $15,130 $13,165
======= ======= =======
</TABLE>
The effective income tax rate differed from the expected 35% rate in 1994 and
1993 and 34% rate in 1992 as shown below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1994 % 1993 % 1992 %
------- --- ------- --- ------- ---
<S> <C> <C> <C> <C> <C> <C>
Expected income taxes.................. $14,480 35% $14,699 35% $13,429 34%
Increase (reduction) in income taxes
resulting from:
Tax-exempt investment income.......... (243) 0 (485) (1) (460) (1)
Purchase accounting differences....... 99 0 99 0 97 0
Effect of tax rate change on deferred
liability............................ 0 0 801 2 0 0
Other................................. 1 0 16 0 99 0
------- --- ------- --- ------- ---
Income taxes........................... $14,337 35% $15,130 36% $13,165 33%
======= === ======= === ======= ===
</TABLE>
F-14
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 7--INCOME TAXES (CONTINUED)
The significant components of deferred income tax expense before the
cumulative effect of the change in accounting principles and adjustments to
shareholder's equity are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1993
----------- -----------
<S> <C> <C>
Deferred income tax expense (exclusive of the effect
of the component listed below)..................... $ 4,272 $ 9,030
Adjustments to deferred tax assets and liabilities
for the increase in the corporate income tax rate
from 34% to 35%.................................... 0 801
----------- -----------
$ 4,272 $ 9,831
=========== ===========
</TABLE>
For the year ended December 31, 1992, deferred income tax expense of $152
thousand resulted from timing differences in the recognition of revenue and
expense for financial reporting versus income tax reporting. The sources and
tax effect of those timing differences are presented below:
<TABLE>
<S> <C>
Deferred acquisition costs............................................ $ 898
Reserve and premium adjustments....................................... 218
Other................................................................. (964)
-----
$ 152
=====
</TABLE>
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1993
------------ -----------
<S> <C> <C>
Deferred tax assets:
Future policy benefits and unearned and advance
premiums......................................... $ 11,493 $ 15,082
Other liabilities, principally due to the current
nondeductibilty for
tax purposes of certain accrued expenses......... 180 180
Unrealized investment losses...................... 6,665 0
Other............................................. 1,062 0
------------ -----------
Total gross deferred tax assets................... 19,400 15,262
Less valuation allowance.......................... 0 0
------------ -----------
Net deferred tax assets........................... 19,400 15,262
------------ -----------
Deferred tax liabilities:
Energy investments, principally due to accelerated
depletion deductions for tax purposes............ 402 291
Deferred acquisition costs........................ 52,684 43,723
Unrealized investment gains....................... 0 6,400
Other............................................. 0 13,534
------------ -----------
Total gross deferred tax liabilities.............. 53,086 63,948
------------ -----------
Net deferred tax liability........................ 33,686 48,686
============ ===========
</TABLE>
In United Investor's opinion, all deferred tax assets will be recoverable.
United Investors has not recognized a deferred tax liability of approximately
$2,200 that arose prior to 1984 on temporary differences related to its
policyholders' surplus account. A current tax expense will be recognized in the
future if and when this tax becomes payable.
F-15
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 8--POSTRETIREMENT BENEFITS
Pension 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:
<TABLE>
<CAPTION>
DEFINED DEFINED
YEAR ENDED CONTRIBUTION BENEFIT
DECEMBER 31, PLANS PLAN
------------ ------------ -------
<S> <C> <C>
1994.................................................. $38 $66
1993.................................................. 24 61
1992.................................................. 30 43
</TABLE>
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 $121 thousand at
December 31, 1994, and $117 thousand at December 31, 1993. The plan is
organized as a trust fund whose assets consist primarily of investments in
long-term fixed maturities and equity securities. Such 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.
RETIREMENT BENEFIT PLANS OTHER THAN PENSIONS:
United Investors provides certain health care benefits ("postretirement
benefits") for its retired employees. Substantially all employees may become
eligible for these benefits if they reach retirement age while working for the
Company. Coverage under this plan of health benefits ceases when the covered
retiree and/or covered spouse are eligible for Medicare benefits.
United Investors adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," effective January 1, 1993. SFAS
106 requires that the expected cost of providing future benefits to employees
be accrued during the employees' service period until each employee reaches
full eligibility. United Investors elected to recognize the effect of the
adoption of this standard immediately as a change in accounting principle as
permitted by SFAS 106. The cumulative effect of this change in accounting
principle resulted in a $174 after-tax charge to net income. It was reported as
part of the cumulative effect of changes in accounting principles. In
accordance with the provisions of SFAS 106, prior years' financial statements
have not been restated to apply the provisions of SFAS 106.
Postretirement benefit cost for the years ending December 31, 1994 and 1993
was $16 and $18, respectively; this expense includes the expected cost of post-
retirement benefits for newly eligible or vested employees, the interest cost,
and gains and losses arising from differences between actuarial assumptions and
actual experience.
The unfunded postretirement benefit obligation for retirees and other fully
eligible or vested plan participants was $149 and $156 as of December 31, 1994
and 1993, respectively. The discount rate used in determining the accumulated
postretirement benefit obligation was 8% and the health care cost trend rate
was 13%, graded to 4.5% over 10 years.
F-16
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
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 per life. Life insurance ceded represented 2% of total life
insurance in force at December 31, 1994 and 3% of premium income for 1994.
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, 1994.
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 approximately $25,300, $25,600, and
$19,000 for the years ended December 31, 1994, 1993, and 1992, respectively.
United Investors was charged for space, equipment, and services provided by
an affiliate amounting to $1,618 in 1994, $1,543 in 1993 and $1,543 in 1992.
Torchmark Corporation (Torchmark) performed certain administrative services
for United Investors for which it charged $156 in 1994, $192 in 1993 and $180
in 1992.
In December 1992, United Investors loaned United Management $15,000 at an
interest rate of 7.71%. This loan was paid in full in March 1993 by the receipt
of approximately $14,900 in United States Treasury securities and the balance
in cash. Interest income related to this loan totaling $263 and $29 at December
31, 1993 and 1992, respectively, is included in the accompanying financial
statements. In January 1994, United Investors loaned United Management $15,000
at an interest rate of 3.75%. This loan was paid in full in February 1994.
Interest income related to this loan totaling $41 at December 31, 1994 is
included in the accompanying financial statements. In June and July 1994,
United Investors loaned Torchmark $2,000 and $17,000, respectively. The notes
bear interest at 5.3% and 5.05% respectively and were paid in full in July
1994. In November 1994, United Investors loaned Torchmark $35,000 at an
interest rate of 8.11%. Interest income related to the Torchmark loans totaling
$880 at December 31, 1994 is included in the accompanying financial statements.
During 1993, cash dividends of $14,824 were declared. There was an exchange
of a dividend in kind to United Management for the sale of United States
Treasury Securities in the amount of $14,426 million with $396 in accrued
interest and $2 was paid.
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, 1994 and 1993 United Investors had investment of
$10,000 in the separate accounts and $39 and $38, respectively, in the
underlying fund which investments were included in other long-term invested
assets and carried at market.
F-17
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 10--RELATED PARTY TRANSACTIONS (CONTINUED)
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 approximated $11,700 at December 31, 1994
and 1993. 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 $1,648. This investment is included in
investment in affiliates and is carried at cost. In April 1993, the $1,859 in
Torchmark Corporation Preferred Stock which includes accrued interest was sold
back to Torchmark Corporation in exchange for $1,859 in 8% GNMA Securities plus
$33 in cash.
In 1993, United Investors exchanged $52,500 of municipal bonds for $52,300 in
GNMA's and $200 in cash from United American Life Insurance Company.
NOTE 11--COMMITMENTS AND CONTINGENCIES
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, 1994 in compliance with all
regulations were $129,800.
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 (55%); securities of
state and municipal governments (6%); securities of foreign governments (1%);
investment-grade corporate bonds (31%); United Funds (4%); and policy loans (2%)
which are secured by the underlying insurance policy value. The balance of the
portfolio is invested in short-term investments, equity securities, and oil and
gas partnerships. 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, 1994, (1%)
or more of the portfolio was invested in the following industries: financial
services (11%); regulated utilities (5%); chemicals (3%); retailing (3%); foods
(2%); petroleum (1%); electronics (1%); communications (1%); and transportation
(1%). At the end of 1994, less than 1% of the carrying value of securities was
rated below investment grade. Par value and Amortized Cost of these investments
was $500 and market value was $511. While these investments could be subject to
additional credit risk, such risk should generally be reflected in market value.
Collateral requirements: United Investors requires collateral for investments
in instruments where collateral is available and typically required because of
the nature of the investment. Since the majority of United Investor's
investments are in government, government-secured, or corporate securities, the
requirement for collateral is rare.
F-18
<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, 1995, 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, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Corresponding Prospectus Page
<S> <C> <C> <C>
THE POLICY................................ 3 .......................... 8
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 ..........................
PERFORMANCE DATA CALCULATIONS............. 8 ..........................
FEDERAL TAX MATTERS....................... 11 .......................... 17
Taxation of United Investors............ 11 ..........................
Tax Status of the Policies.............. 12 ..........................
Withholding............................. 13 ..........................
ADDITION, DELETION OR SUBSTITUTION
OF INVESTMENTS.......................... 13 ..........................
DISTRIBUTION OF THE POLICY................ 14 .......................... 17
SAFEKEEPING OF VARIABLE ACCOUNT
ASSETS.................................. 15 ..........................
STATE REGULATION.......................... 15 ..........................
RECORDS AND REPORTS....................... 16 ..........................
LEGAL PROCEEDINGS......................... 16 ..........................
LEGAL MATTERS............................. 16 ..........................
EXPERTS................................... 16 ..........................
OTHER INFORMATION......................... 17 ..........................
FINANCIAL STATEMENTS...................... 17 ..........................
</TABLE>
2
<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
3
<PAGE>
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
4
<PAGE>
(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
5
<PAGE>
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:
6
<PAGE>
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 Owner's
Designated Beneficiary will become the Owner; if there is no Owner's Designated
Beneficiary 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
7
<PAGE>
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.
PERFORMANCE DATA CALCULATIONS
-----------------------------
We may advertise the yield and effective yield of the Money Market
Investment Division. In addition, we may advertise the total returns for other
Investment Divisions. All performance data calculations will be in accordance
with uniformly imposed SEC regulations.
Money Market Investment Division Yield Calculation
- --------------------------------------------------
In accordance with regulations adopted by the SEC, if we disclose the
current annualized yield of the Money Market Investment Division for a seven-day
period, it is required to be in a manner which does not take into consideration
any realized or unrealized gains or losses of the Money Market Portfolio or on
its portfolio securities. The current annualized yield is computed by
determining the net change (exclusive of realized gains and losses on the sale
of securities and unrealized appreciation and depreciation) in the value of a
hypothetical account having a balance of one unit of the Money Market Investment
Division at the beginning of the seven-day period, dividing the net change in
account value by the value of the account at the beginning of the period to
determine the base period return, and annualizing this quotient on a 365-day
basis. The net change in account value reflects the deduction for the Mortality
and Expense Risk Charge
8
<PAGE>
and the Administration Fee as well as reflecting income and expenses accrued
during the period. Because of these deductions, the yield for the Money Market
Investment Division will be lower than the yield for the Money Market Portfolio
of the Fund.
The SEC also permits us to disclose the effective yield of the Money Market
Investment Division for the same seven-day period, determined on a compounded
basis. The effective yield is calculated by compounding the annualized base
period return by adding one to the base period return, raising the sum to a
power equal to 365 divided by 7, and subtracting one from the result according
to the following formula:
Effective Yield = [(Base period return +1)/\365/7]-1
For the seven-day period ending December 31, 1994, the Money Market
Investment Division annualized yield was 5.91%. For the same period, the
effective yield was 6.09%.
The actual yield of the Money Market Investment Division is affected by:
(l) changes in interest rates on money market securities; (2) the average
portfolio maturity of the Money Market Portfolio; (3) the types and quality of
securities held by the Money Market Portfolio; and (4) its operating expenses.
The yield on amounts held in the Money Market Investment Division normally will
fluctuate on a daily basis. Therefore, the disclosed yields for any given past
period is not an indication or representation of future yields or rates of
return.
Average Annual Total Return Calculations
- ----------------------------------------
For each Investment Division other than the Money Market Investment
Division an average annual total return may be calculated for a given period. It
is computed by finding the average annual compounded rate of return over one,
five and ten year periods (or, where an Investment Division has been in
existence for a period less than one, five or ten years, for such lesser period)
that would equate the initial amount invested to the ending redeemable value,
according to
9
<PAGE>
the following formula:
P(1 + T)/\n = ERV
Where
P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years in the period
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the one, five or ten
year periods (or fractional portion thereof) at the
end of such period.
All recurring fees that are charged to all Policy Owner accounts are
recognized in the ending redeemable value. The average annual total return
calculation will also reflect the effect of Withdrawal Charges that may be
applicable due to surrender of the Policy at the end of a particular period.
<TABLE>
<CAPTION>
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
Investment 1 Year 5 Years Inception Inception
Division to 12/31/94 to 12/31/94 to 12/31/94 Date
----------------- ----------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
Bond -14.44% 5.11% 6.24% 7-13-87
High Income -11.11% 8.56% 6.71% 7-13-87
Growth - 6.21% 10.67% 11.71% 7-13-87
Income - 9.71% NA 7.92% 7-16-91
International NA NA -12.92% 5-03-94
Balanced NA NA -13.82% 5-03-94
Limited-Term Bond NA NA -12.95% 5-03-94
Small Cap NA NA 18.29% 5-03-94
</TABLE>
10
<PAGE>
From time to time we may also disclose average annual total returns in a
non-standard format in conjunction with the standard format described above. The
only difference between the two methods is that the non-standard format assumes
a Withdrawal Charge of 0%.
<TABLE>
<CAPTION>
NON-STANDARD AVERAGE ANNUAL TOTAL RETURN
Investment 1 Year 5 Years Inception to Inception
Division to 12/31/94 to 12/31/94 12/31/94 Date
---------- ----------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
Bond -7.44% 5.60% 6.33% 7-13-87
High Income -4.11% 8.98% 6.80% 7-13-87
Growth .79% 11.07% 11.78% 7-13-87
Income -2.71% NA 9.10% 7-16-91
International NA NA -1.15% 5-03-94
Balanced NA NA -2.09% 5-03-94
Limited Term Bond NA NA -1.18% 5-03-94
Small Cap NA NA 31.28% 5-03-94
</TABLE>
The performance information provided above reflects only the performance of
a hypothetical $1,000 payment which is allocated to the stated Investment
Division during the time period on which the calculations are based. Performance
information provided for any given past period is not an indication or
representation of future yields or rates of return.
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,
11
<PAGE>
United Investors believes that Variable Account investment income and realized
net capital gains should not be taxed to the extent that such income and gains
are retained as part of the reserves under the Policy.
Tax Status of the Policies
- --------------------------
Section 817(h) of the Code provides that the investments of the Variable
Account must be "adequately diversified" in accordance with Treasury regulations
in order for the Policies to qualify as annuity contracts under Section 72 of
the Code. The Variable Account, through each Portfolio of the 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.
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate account used to support their contracts. In those circumstances, income
and gains from the separate account assets would be includible in the variable
contract owner's gross income. The IRS has stated in published rulings that a
variable contract owner will be considered the owner of separate account assets
if the contract owner possesses incidents of ownership in those assets, such as
the ability to exercise investment control over the assets. The Treasury
Department also announced, in connection with the issuance of regulations
concerning diversification, that those regulations "do not provide guidance
concerning the circumstances in which investor control of the investments of a
segregated asset account may cause the investor (i.e., the Policyowner), rather
----
than the insurance company, to be treated as the owner of the assets in the
account." This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct their
investments to particular subaccounts without being treated as owners of the
12
<PAGE>
underlying assets." As of the date of this Prospectus, no such guidance has been
issued.
The ownership rights under the Policy are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that policy owners were not owners of separate account assets. For
example, the Policyowner has additional flexibility in allocating premium
payments and Policy Values. These differences could result in a Policyowner
being treated as the owner of a pro rata portion of the assets of the Separate
Account. In addition, the Company does not know what standards will be set
forth, if any, in the regulations or rulings which the Treasury Department has
stated it expects to issue. The Company therefore reserves the right to modify
the Policy as necessary to attempt to prevent a Policyowner from being
considered the owner of a pro rata share of the assets of the Separate Account.
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
13
<PAGE>
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
14
<PAGE>
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 $8,681,390 during 1992, $15,060,392 during 1993 and $14,158,983
during 1994. 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
15
<PAGE>
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 sheets of United Investors Life Insurance Company as of
December 31, 1994 and 1993, 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, 1994 and the balance sheet of United
Investors Annuity Variable Account as of December 31, 1994 and the
related statements of operations and changes in net assets for each of the years
in the two-year period ended December 31, 1994 have been included
herein in reliance upon the report of KPMG
16
<PAGE>
Peat Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing. The report of KPMG Peat Marwick LLP on the financial statements of
United Investors Life Insurance Company refers to changes in accounting
principles in 1993 to adopt the provisions of Statement of Financial Accounting
Standards Board's (FASB's) Statement of Financial Accounting Standards
(Statement) No. 106, "Employer's Accounting for Postretirement Benefit Plans
Other than Pensions", FASB Statement No. 109 "Accounting for Income Taxes" and
FASB Statement No. 115 "Accounting for Certain Investments in Debt and Equity
Securities".
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.
17
<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 sheet of United Investors Annuity
Variable Account as of December 31, 1994 and the related statements of
operations and changes in net assets for each of the years in the two-year
period ended December 31, 1994. These financial statements are the
responsibility of the United Investors Life Insurance Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of United Investors Annuity
Variable Account at December 31, 1994 and the results of its operations and
changes in its net assets for each of the years in the two-year period ended
December 31, 1994 in conformity with generally accepted accounting principles.
KPMG PEAT MARKWICK LLP
Birmingham, Alabama
March 24, 1995
F-19(VA)
<PAGE>
UNITED INVESTORS ANNUITY VARIABLE ACCOUNT
BALANCE SHEET
AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
LIMITED
MONEY HIGH SMALL TERM
MARKET BOND INCOME GROWTH INCOME INTERNATIONAL CAP BALANCED BOND
----------- ----------- ----------- ------------ ------------ ------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Investments in
Mutual Funds
(Note B)....... $28,736,032 $70,838,218 $69,345,708 $265,703,798 $213,367,623 $25,078,199 $15,515,690 $8,210,014 $1,126,392
----------- ----------- ----------- ------------ ------------ ----------- ----------- ---------- ----------
Total assets.... 28,736,032 70,838,218 69,345,708 265,703,798 213,367,623 25,078,199 15,515,690 8,210,014 1,126,392
----------- ----------- ----------- ------------ ------------ ----------- ----------- ---------- ----------
Liabilities:
Mortality and
expense risk
charge payable
to Sponsor
(Note D)....... 6,819 19,238 18,674 71,429 57,290 6,461 3,967 2,141 302
----------- ----------- ----------- ------------ ------------ ----------- ----------- ---------- ----------
Total
liabilities.... 6,819 19,238 18,674 71,429 57,290 6,461 3,967 2,141 302
----------- ----------- ----------- ------------ ------------ ----------- ----------- ---------- ----------
Net assets (Note
C)............. $28,729,213 $70,818,980 $69,327,034 $265,632,369 $213,310,333 $25,071,738 $15,511,723 $8,207,873 $1,126,090
=========== =========== =========== ============ ============ =========== =========== ========== ==========
Equity:
Equity of
Sponsor........ $ 0 $ 821,362 $ 849,051 $ 1,191,286 $ 1,377,549 $ 64,800 $ 78,147 $ 62,133 $ 498,367
Equity of
contract
owners......... 28,729,213 69,997,618 68,477,983 264,441,083 211,932,784 25,006,938 15,433,576 8,145,740 627,723
----------- ----------- ----------- ------------ ------------ ----------- ----------- ---------- ----------
Total equity.... $28,729,213 $70,818,980 $69,327,034 $265,632,369 $213,310,333 $25,071,738 $15,511,723 $8,207,873 $1,126,090
=========== =========== =========== ============ ============ =========== =========== ========== ==========
Accumulation
units
outstanding.... 20,471,850 43,111,140 40,825,454 111,492,038 154,850,855 25,149,046 12,901,165 8,285,256 1,129,780
=========== =========== =========== ============ ============ =========== =========== ========== ==========
Net asset value
per unit....... $ 1.403352 $ 1.642707 $ 1.698133 $ 2.382523 $ 1.377521 $ 0.996926 $ 1.202351 $ 0.990660 $ 0.996733
=========== =========== =========== ============ ============ =========== =========== ========== ==========
<CAPTION>
TOTAL
------------
<S> <C>
Assets:
Investments in
Mutual Funds
(Note B)....... $697,921,674
------------
Total assets.... 697,921,674
------------
Liabilities:
Mortality and
expense risk
charge payable
to Sponsor
(Note D)....... 186,321
------------
Total
liabilities.... 186,321
------------
Net assets (Note
C)............. $697,735,353
============
Equity:
Equity of
Sponsor........ $ 4,942,695
Equity of
contract
owners......... 692,792,658
------------
Total equity.... $697,735,353
============
Accumulation
units
outstanding.... 418,216,584
============
Net asset value
per unit.......
</TABLE>
See Notes to Financial Statements.
F-20(VA)
<PAGE>
UNITED INVESTORS ANNUITY VARIABLE ACCOUNT
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
MONEY HIGH SMALL
MARKET BOND INCOME GROWTH INCOME INTERNATIONAL CAP BALANCED
----------- ----------- ----------- ------------ ------------ ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend income
(Note B)......... $ 805,541 $ 5,074,529 $ 6,460,946 $ 18,665,142 $ 2,192,672 $ 102,730 $ 138,650 $ 75,355
Expenses paid to
Sponsor (Note D):
Mortality and
expense risk
charge.......... 193,482 680,129 642,900 2,199,666 1,697,641 66,600 35,795 21,266
Contract
maintenance
charges:
Sales expense... 72,896 466,446 406,072 1,348,093 1,105,618 29,900 17,241 6,712
Administrative
expense........ 13,931 93,256 89,299 334,561 241,263 5,139 2,367 951
----------- ----------- ----------- ------------ ------------ ----------- ----------- ----------
Total............ 280,309 1,239,831 1,138,271 3,882,320 3,044,522 101,639 55,403 28,929
Net investment
income.......... 525,232 3,834,698 5,322,675 14,782,822 (851,850) 1,091 83,247 46,426
Realized
investment gains
distributed to
accounts......... 186,770 (786,785) 138,850 349,433 1,583,034 (1,884) 16,219 (3,514)
Unrealized
investment gains
(losses)......... 0 (9,048,356) (8,483,062) (13,345,797) (6,791,434) (656,750) 1,244,257 (224,677)
----------- ----------- ----------- ------------ ------------ ----------- ----------- ----------
Net gain (loss)
on investments... 186,770 (9,835,141) (8,344,212) (12,996,364) (5,208,400) (658,634) 1,260,476 (228,191)
----------- ----------- ----------- ------------ ------------ ----------- ----------- ----------
Net increase
(Decrease) in net
assets from
operations....... 712,002 (6,000,443) (3,021,537) 1,786,458 (6,060,250) (657,543) 1,343,723 (181,765)
Premium deposits
and net
transfers*....... 6,496,435 1,631,365 6,540,269 59,695,619 72,161,591 25,773,964 14,150,544 8,359,535
Investment by
sponsor
(Note E)......... (686,770) 0 0 0 0 65,000 65,000 62,717
Transfer to
Sponsor for
benefits and
terminations..... (2,218,681) (3,714,875) (2,337,723) (7,034,280) (4,824,549) (109,683) (47,544) (32,614)
----------- ----------- ----------- ------------ ------------ ----------- ----------- ----------
Total increase
(Decrease)...... 4,302,986 (8,083,953) 1,181,009 54,447,797 61,276,792 25,071,738 15,511,723 8,207,873
Net assets at
beginning of
period........... 24,426,227 78,902,933 68,146,025 211,184,572 152,033,541 0 0 0
----------- ----------- ----------- ------------ ------------ ----------- ----------- ----------
Net assets at end
of period (Note
C)............... $28,729,213 $70,818,980 $69,327,034 $265,632,369 $213,310,333 $25,071,738 $15,511,723 $8,207,873
=========== =========== =========== ============ ============ =========== =========== ==========
<CAPTION>
LIMITED
TERM
BOND TOTAL
----------- -------------
<S> <C> <C>
Dividend income
(Note B)......... $ 34,248 $ 33,549,813
Expenses paid to
Sponsor (Note D):
Mortality and
expense risk
charge.......... 4,488 5,541,967
Contract
maintenance
charges:
Sales expense... 486 3,453,464
Administrative
expense........ 34 780,801
----------- -------------
Total............ 5,008 9,776,232
Net investment
income.......... 29,240 23,773,581
Realized
investment gains
distributed to
accounts......... (94) 1,482,029
Unrealized
investment gains
(losses)......... (33,229) (37,339,048)
----------- -------------
Net gain (loss)
on investments... (33,323) (35,857,019)
----------- -------------
Net increase
(Decrease) in net
assets from
operations....... (4,083) (12,083,438)
Premium deposits
and net
transfers*....... 630,173 195,439,495
Investment by
sponsor
(Note E)......... 500,000 5,947
Transfer to
Sponsor for
benefits and
terminations..... 0 (20,319,949)
----------- -------------
Total increase
(Decrease)...... 1,126,090 163,042,055
Net assets at
beginning of
period........... 0 534,693,298
----------- -------------
Net assets at end
of period (Note
C)............... $1,126,090 $697,735,353
=========== =============
</TABLE>
- -----
*Includes transfer activity from (to) other portfolios.
See Notes to Financial Statements.
F-21(VA)
<PAGE>
UNITED INVESTORS ANNUITY VARIABLE ACCOUNT
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
MONEY HIGH
MARKET BOND INCOME GROWTH INCOME TOTAL
----------- ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Dividend income (Note
B)..................... $ 587,062 $ 6,117,193 $ 4,580,875 $ 24,456,356 $ 1,407,288 $ 37,148,774
Expenses paid to Sponsor
(Note D):
Mortality and expense
risk charge........... 202,269 571,611 475,375 1,418,765 923,490 3,591,510
Contract maintenance
charges:
Sales expense......... 75,620 318,722 245,704 686,954 468,392 1,795,392
Administrative
expense.............. 15,013 68,544 58,931 186,707 111,355 440,550
----------- ----------- ----------- ------------ ------------ ------------
Total................... 292,902 958,877 780,010 2,292,426 1,503,237 5,827,452
Net investment income... 294,160 5,158,316 3,800,865 22,163,930 (95,949) 31,321,322
Realized investment
gains distributed to
accounts............... 0 360,419 282,351 969,025 717,613 2,329,408
Unrealized investment
gains (losses)......... 0 173,508 3,588,541 (4,922,832) 14,467,963 13,307,180
----------- ----------- ----------- ------------ ------------ ------------
Net gain (loss) on
investments............ 0 533,927 3,870,892 (3,953,807) 15,185,576 15,636,588
----------- ----------- ----------- ------------ ------------ ------------
Net increase in net
assets from operations. 294,160 5,692,243 7,671,757 18,210,123 15,089,627 46,957,910
Premium deposits and net
transfers*............. 2,948,831 27,852,571 23,551,086 82,664,163 76,389,586 213,406,237
Transfer to Sponsor for
benefits and
terminations........... (1,407,679) (1,761,439) (2,098,182) (4,437,000) (2,404,905) (12,109,205)
----------- ----------- ----------- ------------ ------------ ------------
Total increase.......... 1,835,312 31,783,375 29,124,661 96,437,286 89,074,308 248,254,942
Net assets at beginning
of period.............. 22,590,915 47,119,558 39,021,364 114,747,286 62,959,233 286,438,356
----------- ----------- ----------- ------------ ------------ ------------
Net assets at end of
period (Note C)........ $24,426,227 $78,902,933 $68,146,025 $211,184,572 $152,033,541 $534,693,298
=========== =========== =========== ============ ============ ============
</TABLE>
- --------
*Includes transfer activity from (to) other portfolios.
See Notes to Financial Statements.
F-22(VA)
<PAGE>
UNITED INVESTORS ANNUITY VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 nine separate
investment portfolios including a money market portfolio, a bond portfolio, a
high income portfolio, a growth portfolio, an income portfolio, an
international portfolio, a small cap portfolio, a balanced portfolio, and a
limited term bond portfolio. An asset strategy portfolio will become available
in July 1995. 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.
F-23(VA)
<PAGE>
UNITED INVESTORS ANNUITY VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following is a summary of reinvested dividends by portfolio:
<TABLE>
<CAPTION>
1994
----
INVESTMENT PORTFOLIO SHARES REINVESTED DIVIDEND INCOME
-------------------- ----------------- ---------------
<S> <C> <C>
Money Market.................................. 805,541 $ 805,541
Bond.......................................... 1,037,598 5,074,529
High Income................................... 1,522,278 6,460,946
Growth........................................ 3,164,334 18,665,142
Income........................................ 323,933 2,192,672
International................................. 20,576 102,730
Small Cap..................................... 23,140 138,650
Balanced...................................... 15,267 75,355
Limited Term Bond............................. 7,045 34,248
<CAPTION>
1993
----
INVESTMENT PORTFOLIO SHARES REINVESTED DIVIDEND INCOME
-------------------- ----------------- ---------------
<S> <C> <C>
Money Market.................................. 587,062 $ 587,062
Bond.......................................... 1,113,897 6,117,193
High Income................................... 1,014,974 4,580,875
Growth........................................ 3,946,993 24,456,356
Income........................................ 203,424 1,407,288
</TABLE>
F-24(VA)
<PAGE>
UNITED INVESTORS ANNUITY VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE C--NET ASSETS
The following table illustrates by component parts the net asset value for
each portfolio.
<TABLE>
<CAPTION>
MONEY HIGH SMALL
1994 MARKET BOND INCOME GROWTH INCOME INTERNATIONAL CAP BALANCED
- ---- ----------- ----------- ----------- ------------ ------------ ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cost to:
Contract Owners. $31,705,118 $72,424,782 $65,808,885 $231,790,708 $205,563,578 $25,773,964 $14,150,544 $8,359,535
Sponsor......... 0 500,000 500,000 500,000 1,000,000 65,000 65,000 62,717
Adjustment for
market
appreciation
(depreciation)
and reinvested
dividends........ 4,732,583 9,197,078 14,094,867 59,682,838 19,859,825 (555,904) 1,399,126 (152,836)
Deductions:
Mortality and
expense risk
charge......... (935,230) (1,905,510) (1,797,828) (5,290,539) (2,970,362) (66,600) (35,795) (21,266)
Contract
maintenance
charges:
Sales expense... (399,405) (1,110,932) (998,544) (2,840,697) (1,684,745) (29,900) (17,241) (6,712)
Administrative
expense........ (77,270) (246,357) (247,739) (781,730) (383,564) (5,139) (2,367) (951)
Benefits &
terminations... (6,296,583) (8,040,081) (8,032,607) (17,428,211) (8,074,399) (109,683) (47,544) (32,614)
----------- ----------- ----------- ------------ ------------ ----------- ----------- ----------
Net assets....... $28,729,213 $70,818,980 $69,327,034 $265,632,369 $213,310,333 $25,071,738 $15,511,723 $8,207,873
=========== =========== =========== ============ ============ =========== =========== ==========
<CAPTION>
1993
- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cost to:
Contract Owners. $25,208,682 $70,793,416 $59,268,615 $172,095,089 $133,401,986 $ 0 $ 0 $ 0
Sponsor......... 500,000 500,000 500,000 500,000 1,000,000 0 0 0
Adjustment for
market
appreciation
(depreciation)
and reinvested
dividends....... 3,927,042 13,957,691 15,978,134 54,014,060 22,875,554 0 0 0
Deductions:
Mortality and
expense risk
charge......... (741,748) (1,225,381) (1,154,928) (3,090,873) (1,272,721) 0 0 0
Contract
maintenance
charges:
Sales expense... (326,509) (644,486) (592,472) (1,492,604) (579,127) 0 0 0
Administrative
expense........ (63,339) (153,101) (158,440) (447,169) (142,301) 0 0 0
Benefits &
terminations... (4,077,901) (4,325,206) (5,694,884) (10,393,931) (3,249,850) 0 0 0
----------- ----------- ----------- ------------ ------------ ----------- ----------- ----------
Net assets....... $24,426,227 $78,902,933 $68,146,025 $211,184,572 $152,033,541 $ 0 $ 0 $ 0
=========== =========== =========== ============ ============ =========== =========== ==========
<CAPTION>
LIMITED
TERM
1994 BOND
- ---- -----------
<S> <C>
Cost to:
Contract Owners. $ 630,172
Sponsor......... 500,000
Adjustment for
market
appreciation
(depreciation)
and reinvested
dividends........ 926
Deductions:
Mortality and
expense risk
charge......... (4,488)
Contract
maintenance
charges:
Sales expense... (486)
Administrative
expense........ (34)
Benefits &
terminations... 0
-----------
Net assets....... $1,126,090
===========
<CAPTION>
1993
- ----
<S> <C>
Cost to:
Contract Owners. $ 0
Sponsor......... 0
Adjustment for
market
appreciation
(depreciation)
and reinvested
dividends....... 0
Deductions:
Mortality and
expense risk
charge......... 0
Contract
maintenance
charges:
Sales expense... 0
Administrative
expense........ 0
Benefits &
terminations... 0
-----------
Net assets....... $ 0
===========
</TABLE>
F-25(VA)
<PAGE>
UNITED INVESTORS ANNUITY VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE D--CHARGES AND DEDUCTIONS
FUND MANAGEMENT AND FEES
Waddell & Reed Investment Management Company ("the Manager"), is the manager
of the Fund and provides investment advisory services to the Fund. Fees for
these services are deducted from dividend income 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; Income Portfolio--.71 of 1% of net assets;
International Portfolio -.81 of 1% of net assets; Small Cap Portfolio--.86 of
1% of net assets; Balanced Portfolio .61 of 1% of net assets; and Limited Term
Bond Portfolio--.56 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 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; Income Portfolio--.20 of 1% of net assets; International
Portfolio--.30 of 1% of net assets; Small Cap Portfolio -.35 of 1% of net
assets; Balanced Portfolio--.10 of 1% of net assets; and Limited Term Bond
Portfolio--.05 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 amount of these fees have been:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Money Market........................................... $ 109,982 $ 114,750
Bond................................................... 408,825 343,491
High Income............................................ 472,709 349,242
Growth................................................. 1,740,550 1,120,880
Income................................................. 1,344,783 730,508
International.......................................... 61,048 0
Small Cap.............................................. 34,990 0
Balanced............................................... 14,690 0
Limited Term Bond...................................... 2,869 0
</TABLE>
In July 1995, the Asset Strategy Portfolio will become available. A different
method will be used in 1995 to compute the fees for the investment advisory
services. Each portfolio will pay the manager a fee for managing its
investments consisting of two elements: (i) a specific fee computed on each
portfolio's net asset value at the close of business each day at the following
annual rates: Money Market Portfolio--None; Bond Portfolio--.03 of 1% of net
assets; High Income Portfolio--.15 of 1% of net assets; Growth Portfolio--.20
of 1% of net assets; Income Portfolio--.20 of 1% of net assets; International
Portfolio--.30 of 1% of net assets; Small Cap Portfolio--.35 of 1% of net
assets; Balanced Portfolio--.10 of 1% of net assets; Limited Term Bond
Portfolio .05 of 1% of net assets; Asset Strategy Portfolio--.30 of 1% of net
assets; and (ii) a pro rata participation based on the relative net asset size
of each portfolio in a "Group" fee computed each day on the combined net asset
values of all of the portfolios at the following annual rates: Group Net Asset
Level from $0 to $750 million--Annual Group Fee Rate .51 of 1%; From $750 to
$1,500 million--.49 of 1%; from $1,500 to $2,250 million--.47 of 1%; over
$2,250 million--.45 of 1%.
F-26(VA)
<PAGE>
UNITED INVESTORS ANNUITY VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
MORTALITY AND EXPENSE RISK CHARGES
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; in other words, 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.
<TABLE>
<CAPTION>
NO. OF POLICY YEARS
SINCE RECEIPT 8 OR
OF PREMIUM DEPOSIT 0 1 2 3 4 5 6 7 MORE
- --------------------------------------------- --- --- --- --- --- --- --- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Withdrawal Charge %............................8% 7% 6% 5% 4% 3% 2% 1% 0
</TABLE>
NOTE E--EQUITY OF SPONSOR
The equity of the Sponsor may be withdrawn at the discretion of the Sponsor
without penalty.
F-27(VA)
