<PAGE>
Registration No. 33-12000
As filed with the Securities and Exchange Commission on April 29, 1998
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-4
--------
Registration Statement Under the Securities Act of 1933
Pre-Effective Amendment No. ____
Post-Effective Amendment No. 14(x)
Registration Statement Under the Investment
Company Act of 1940
Amendment No. 15(x)
___________________________________
UNITED INVESTORS ANNUITY VARIABLE ACCOUNT
(Exact Name of Registrant)
United Investors Life Insurance Company
(Name of Depositor)
2001 Third Avenue South
Birmingham, Alabama 35233
(Address of Depositor's Principal Executive Office)
Depositor's Telephone Number: (205) 325-4300
James L. Sedgwick, Esquire
United Investors Life Insurance Company
2001 Third Avenue South
Birmingham, Alabama 35233
(Name and Address of Agent for Service)
Copy to:
Frederick R. Bellamy, Esquire
Sutherland, Asbill & Brennan, LLP
1275 Pennsylvania Avenue, N.W.
Washington, D. C. 20004
____________________________________________
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[x] on May 1, 1998 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a) (I)of Rule 485
If appropriate, check the following box:
[ ] this Post-Effective Amendment designates a new effective date for a
previously filed Post-Effective Amendment.
<PAGE>
Cross Reference Sheet
Pursuant to Rule 481
Showing Location in Part A (Prospectus) and Part B
(Statement of Additional Information) of Registration
Statement of Information Required by Form N-4
___________________________________________________________________________
Part A
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<TABLE>
<CAPTION>
Item of Form N-4 Prospectus Caption
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<S> <C>
1. Cover Page..................... Cover page
2. Definition..................... Definitions
3. Synopsis....................... Summary
4. Condensed Financial Information N/A
5. General
(a) Depositor...................... United Investors Life Insurance Company
(b) Registrant..................... United Investors Annuity Variable Account
(c) Portfolio Company.............. Charges and Deductions
(d) Fund Prospectus................ TMK/United Funds, Inc.
(e) Voting Rights.................. Voting Rights
(f) Administrators................. Summary
6. Deductions and Expense............. Charges and Deductions
(a) General........................ Charges and Deductions
(b) Sales Load Percentage.......... Charges and Deductions; Annual Deduction
(c) Special Purchase Plan.......... Charges and Deductions
(d) Commissions.................... Distribution of the Policies
(e) Expenses - Registrant.......... Federal Taxes
(f) Fund Expenses.................. TMK/United Funds, Inc.
(g) Organizational Expenses........ N/A
7. Contracts
(a) Persons with Rights............ The Policy; Annuity Payments;
Voting Rights
(b) (i) Allocation of Premium
Payments................ Allocation of Purchase Payments
(ii) Transfers............... Transfers
(iii) Exchanges............... N/A
(c) Changes........................ Additions, Deletions or
Substitutions of Investments
(d) Inquiries...................... Summary
8. Annuity Period..................... Annuity Payments
9. Death Benefit...................... Death Benefits
10. Purchases and Contract Value
(a) Purchases...................... Purchase Payments and Allocation
of Purchase Payments
(b) Valuation...................... Policy Value
(c) Daily Calculation.............. Policy Value
(d) Underwriter.................... Distribution of the Policies
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Item of Form N-4 Prospectus Caption
- ---------------- ------------------
<S> <C>
11. Redemptions
(a) - By Owners................. Surrender and Partial Withdrawals
- By Annuitant.............. N/A
(b) Texas ORP................... Surrender and Partial Withdrawals
(c) Check Delay................. Surrender and Partial Withdrawals
(d) Lapse....................... N/A
(e) Free Look................... Free Look Period
12. Taxes........................... Federal Tax Matters
13. Legal Proceedings............... Legal Proceedings
14. Table of Contents for the
Statement of Additional
Information..................... Statement of Additional
Information
</TABLE>
Part B
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<TABLE>
<CAPTION>
Statement of Additional
Item of Form N-4 Information Caption
- ---------------- -------------------
<S> <C>
15. Cover Page...................... Cover Page
16. Table of Contents............... Table of Contents
17. General Information and History. N/A
18. Services
(a) Fees and Expenses of Registrant. N/A
(b) Management Contracts............ N/A
(c) Custodian....................... N/A
Independent Public Accountant... Experts
(d) Assets of Registrant............ Safekeeping of Variable
Account Assets
(e) Affiliated Persons.............. N/A
(f) Principal Underwriter........... Distribution of the Policy
19. Purchase of Securities Being
Offered............................. Distribution of the Policy
20. Underwriters........................ Distribution of the Policy
21. Calculation of Performance Data..... Performance Data Calculations
22. Annuity Payments.................... The Policy; Determination of
Annuity Payments
23. Financial Statements................ Financial Statements
</TABLE>
<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 85 nearest birthday.
The Owner may choose to allocate Purchase Payments among the
eleven Investment Divisions ("Investment Divisions") of the
United Investors Annuity Variable Account ("the Variable
Account"), to the Fixed Account which provides guaranteed
interest accumulation, or to a combination of both. In
addition, the Owner can transfer values among the Investment
Divisions and/or the Fixed Account. (See Transfers for
restrictions on transfers.) 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 the following eleven portfolios:
MONEY MARKET PORTFOLIO
BOND PORTFOLIO
HIGH INCOME PORTFOLIO
GROWTH PORTFOLIO
INCOME PORTFOLIO
INTERNATIONAL PORTFOLIO
SMALL CAP PORTFOLIO
BALANCED PORTFOLIO
LIMITED-TERM BOND PORTFOLIO
ASSET STRATEGY PORTFOLIO
SCIENCE AND TECHNOLOGY 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 for all Purchase Payments allocated to the Variable
Account. United Investors Life guarantees that Purchase
Payments allocated to the Fixed Account will earn interest at a
rate not less than the Guaranteed Minimum Interest Rate of 4%
per year.
The Owner can surrender the Policy for cash or make a partial
cash withdrawal (collectively, "Withdrawals"), although
Withdrawals may be taxable and subject to a withdrawal charge
and tax penalty.
This Prospectus sets forth the basic information that a
prospective investor should know before investing. A "Statement
of Additional Information" containing more detailed information
about the Policy and the Variable Account is available free by
writing United Investors at United Investors Life Insurance
Company, Variable Products Division, P.O. Box 156, Birmingham,
Alabama 35201-0156, or by calling (205) 325-4300. The Statement
of Additional Information, which has the same date as this
Prospectus, has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. The table
of contents for the Statement of Additional Information is
included at the end of this Prospectus.
This Prospectus Must Be Accompanied or Preceded By A Current
Prospectus For TMK/United Funds, Inc.
- -------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE
REFERENCE.
- -------------------------------------------------------------------------------
The Date of This Prospectus is May 1, 1998.
Issued By
United Investors Life Insurance Company
(a Missouri Stock Company)
2001 Third Avenue South
Birmingham, Alabama 35233
- -------------------------------------------------------------------------------
U-1053 (5-98)
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
Definitions Definitions............................................ i
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Summary Summary................................................ 1
- -------------------------------------------------------------------------------------
United Investors Life United Investors Life Insurance Company................ 8
Insurance Company and United Investors Annuity Variable Account.............. 8
United Investors Annuity TMK/United Funds, Inc.................................. 8
Variable Account
- -------------------------------------------------------------------------------------
Fixed Account Fixed Account.......................................... 10
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The Policy Issuance of a Policy................................... 11
Purchase Payments...................................... 11
Allocation of Purchase Payments........................ 11
Policy Value........................................... 12
Surrender and Partial Withdrawals...................... 13
Transfers.............................................. 14
Dollar Cost Averaging.................................. 15
Death Benefit.......................................... 15
Required Distributions................................. 16
Free Look Period....................................... 17
- -------------------------------------------------------------------------------------
Charges and Deductions Annual Deduction....................................... 17
Withdrawal Charge...................................... 18
Reductions in Charges for Certain Groups............... 19
Mortality and Expense Risk Charge...................... 19
Transaction Charge..................................... 19
Premium Taxes.......................................... 19
Federal Taxes.......................................... 20
Fund Expenses.......................................... 20
Policies Issued Before May 1, 1992..................... 20
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Annuity Payments Election of Payment Option............................. 20
Retirement Date........................................ 20
Available Options...................................... 20
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Distribution of the
Policies Distribution of the Policies........................... 22
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Federal Tax Matters Introduction........................................... 22
Taxation of Annuities in General....................... 22
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Voting Rights Voting Rights.......................................... 26
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Legal Proceedings Legal Proceedings...................................... 26
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Financial Statements Financial Statements................................... 26
- -------------------------------------------------------------------------------------
Statement of Additional Statement of Additional Information Table of Contents.. 27
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>
- -------------------------------------------------------------------------------
DEFINITIONS
- -------------------------------------------------------------------------------
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.
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 Com-
pany other than those in any separate account.
Fixed Account Value......means the value of the Fixed Account under the Poli-
cy.
Fixed Annuity............means an annuity with payments which remain fixed in
amount throughout the payment period and do not vary
with the investment experience of the variable In-
vestment Divisions.
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.
Guaranteed Minimum
Interest Rate...........means the minimum effective annual rate at which in-
terest will be credited to amounts allocated to the
Fixed Account of the Policy. The Guaranteed Minimum
Interest Rate is 4% per year.
Joint Owner..............means the persons named as the Joint Owner in the ap-
plication, unless he or she has assigned ownership to
someone else.
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.
Owner's Designated means the person to whom ownership of the Policy
Beneficiary..............passes by reason of the death of any policyowner.
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 Variable Account Value prior to the Retire-
ment Date plus the Fixed Account Value.
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.
i
<PAGE>
Valuation Date...........means a normal business day, Monday through Friday.
However, we will not value the Policy on any
customary U.S. business holiday when the New York
Stock Exchange is not open for trading. Those
holidays currently are New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
Valuation Period.........means the interval of time commencing at the close of
business of the New York Stock Exchange on each Valu-
ation Date and ending at the close of business of the
New York Stock Exchange on the next Valuation Date.
Variable Account Value...means the sum of all values of the Investment Divi-
sions of the Variable Account under the Policy.
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 may be on a variable basis,
a fixed basis, or a combination thereof. (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 eleven Investment
Divisions. The Investment Divisions invest solely in shares of a corresponding
portfolio of the Fund, which currently has the following eleven separate
investment portfolios (collectively, the "Portfolios"):
MONEY MARKET PORTFOLIO
BOND PORTFOLIO
HIGH INCOME PORTFOLIO
GROWTH PORTFOLIO
INCOME PORTFOLIO
INTERNATIONAL PORTFOLIO
SMALL CAP PORTFOLIO
BALANCED PORTFOLIO
LIMITED-TERM BOND PORTFOLIO
ASSET STRATEGY PORTFOLIO
SCIENCE AND TECHNOLOGY PORTFOLIO
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 for all
Purchase Payments allocated to, and amounts transferred to the Variable
Account. (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.)
THE FIXED 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. We guarantee that we will credit interest at a rate of not
less than the Guaranteed Minimum Interest Rate of 4% per year 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 OUR SOLE DISCRETION. THE OWNER ASSUMES THE RISK THAT INTEREST
CREDITED TO FIXED ACCOUNT ALLOCATIONS MAY NOT EXCEED THE GUARANTEED MINIMUM
INTEREST RATE. The Fixed Account may not be available in all states. (See
Fixed Account.)
1
<PAGE>
The Policyowner determines the allocation of Purchase Payments and Policy
Value to the Fixed Account. Prior to the Retirement Date, the Policyowner may
transfer all or part of the values held in the Fixed Account to one or more of
the Investment Divisions of the Variable Account once per policy year. After
the Retirement Date, transfers from the Fixed Account to the Investment
Divisions of the Variable Account are not allowed. After the Retirement Date
values held in the Investment Divisions of the Variable Account may be
transferred to the Fixed Account not more often than once per policy year.
(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.
The Policy Value is equal to the Variable Account Value under the Policy
prior to the Retirement Date plus the Fixed Account Value. (See Fixed
Account.) Variable Account Values are not guaranteed. 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.)
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 any Owner or Joint 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 or Fixed 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 and the Fixed Account 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.
2
<PAGE>
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 taxable and
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.)
These sales charges and annual deductions will be made from the Fixed
Account and the variable Investment Divisions in the same proportion that
their values bear to the total Policy Value.
A daily charge, at an effective annual rate of .90% of the average daily net
assets 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.) There is no Mortality and Expense Risk Charge for amounts in the
Fixed Account.
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 anni-
versaries 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 of the Variable Ac-
count): ............................................................. 0.90%
</TABLE>
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.......................... 0.50% 0.08% 0.58%
Bond.................................. 0.53% 0.05% 0.58%
High Income........................... 0.65% 0.05% 0.70%
Growth................................ 0.70% 0.02% 0.72%
Income................................ 0.70% 0.02% 0.72%
International......................... 0.80% 0.18% 0.98%
Small Cap............................. 0.85% 0.05% 0.90%
Balanced.............................. 0.60% 0.07% 0.67%
Limited-Term Bond..................... 0.55% 0.18% 0.73%
Asset Strategy........................ 0.80% 0.13% 0.93%
Science & Technology.................. 0.69% 0.25% 0.94%
</TABLE>
3
<PAGE>
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, 1997, except for the
Science & Technology Portfolio which are estimated for its 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............................... $84.80 $114.56 $146.06 $253.20
Bond....................................... 84.80 114.56 146.06 253.20
High Income................................ 86.00 118.19 152.16 265.65
Growth..................................... 86.20 118.80 153.18 267.71
Income..................................... 86.20 118.80 153.18 267.71
International.............................. 88.80 126.63 166.29 294.15
Small Cap.................................. 88.00 124.23 162.27 286.08
Balanced................................... 85.70 117.29 150.64 262.55
Limited-Term Bond.......................... 86.30 119.10 153.68 268.74
Asset Strategy............................. 88.30 125.13 163.78 289.11
Science & Technology....................... 88.40 125.43 164.28 290.12
</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............................... $14.80 $64.56 $116.06 $253.20
Bond....................................... 14.80 64.56 116.06 253.20
High Income................................ 16.00 68.19 122.16 265.65
Growth..................................... 16.20 68.80 123.18 267.71
Income..................................... 16.20 68.80 123.18 267.71
International.............................. 18.80 76.63 136.29 294.15
Small Cap.................................. 18.00 74.23 132.27 286.08
Balanced................................... 15.70 67.29 120.64 262.55
Limited-Term Bond.......................... 16.30 69.10 123.68 268.74
Asset Strategy............................. 18.30 75.13 133.78 289.11
Science & Technology....................... 18.40 75.43 134.28 290.12
</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.
4
<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, that portion of the Purchase Payment to
be allocated to the Investment Divisions of the Variable Account will be held
in the Money Market Investment Division. During the period, we will credit
interest on that portion of the Purchase Payment to be allocated to the Fixed
Account as if it had been invested 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, 1997. This information should be read in conjunction with the Variable
Account financial statements (including the notes thereto) included in the
Statement of Additional Information.
5
<PAGE>
ACCUMULATION UNIT VALUES
<TABLE>
<CAPTION>
MONEY HIGH INTER- SMALL
MARKET BOND INCOME GROWTH INCOME NATIONAL CAP BALANCED
---------- ---------- ---------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
July 13, 1987(a) 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(b) -- -- --
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(c) 1.202(c) 0.991(c)
January 1, 1995. 1.403 1.643 1.698 2.383 1.378 0.997 1.202 0.991
December 31,
1995........... 1.468 1.963 1.989 3.272 1.796 1.060 1.577 1.219
January 1, 1996. 1.468 1.963 1.989 3.272 1.796 1.060 1.577 1.219
December 31,
1996........... 1.528 2.012 2.217 3.645 2.132 1.209 1.696 1.344
January 1, 1997. 1.528 2.012 2.217 3.645 2.132 1.209 1.696 1.344
December 31,
1997........... 1.592 2.189 2.506 4.388 2.666 1.399 2.211 1.578
<CAPTION>
LIMITED- ASSET SCIENCE &
TERM BOND STRATEGY TECHNOLOGY
------------ ------------ -------------
<S> <C> <C> <C>
July 13, 1987(a) -- --
December 31,
1987........... -- --
January 1, 1988. -- --
December 31,
1988........... -- --
January 1, 1989. -- --
December 31,
1989........... -- --
January 1, 1990. -- --
December 31,
1990........... -- --
January 1, 1991. -- --
December 31,
1991........... -- --
January 1, 1992. -- --
December 31,
1992........... -- --
January 1, 1993. -- --
December 31,
1993........... -- --
January 1, 1994. -- --
December 31,
1994........... 0.997(c) --
January 1, 1995. 0.997 --
December 31,
1995........... 1.129 1.012(d)
January 1, 1996. 1.129 1.012
December 31,
1996........... 1.161 1.064
January 1, 1997. 1.161 1.064 --
December 31,
1997........... 1.230 1.202 1.155(e)
ACCUMULATION UNITS OUTSTANDING
<CAPTION>
MONEY HIGH INTER- SMALL
MARKET BOND INCOME GROWTH INCOME NATIONAL CAP BALANCED
---------- ---------- ---------- ----------- ----------- ---------- ---------- ----------
<S> <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
December 31,
1995........... 24,201,405 43,067,978 41,566,061 122,901,754 179,416,052 45,528,402 34,060,411 18,645,118
December 31,
1996........... 23,280,737 43,901,442 41,973,073 135,309,921 210,826,563 63,389,043 55,504,706 30,524,995
December 31,
1997........... 26,450,888 43,769,678 45,793,587 140,325,438 232,342,721 78,779,114 64,836,083 41,697,180
<CAPTION>
LIMITED- ASSET SCIENCE &
TERM BOND STRATEGY TECHNOLOGY
------------ ------------ -------------
<S> <C> <C> <C>
December 31,
1987........... -- --
December 31,
1988........... -- --
December 31,
1989........... -- --
December 31,
1990........... -- --
December 31,
1991........... -- --
December 31,
1992........... -- --
December 31,
1993........... -- --
December 31,
1994........... 1,129,780 --
December 31,
1995........... 2,002,578 4,228,164
December 31,
1996........... 2,631,935 7,517,085
December 31,
1997........... 2,888,746 7,707,088 8,213,309
</TABLE>
(a)Commencement of operations.
(b)Commencement of operations on July 16, 1991 at 1.000.
(c)Commencement of operations on May 3, 1994 at 1.000.
(d)Commencement of operations on May 1, 1995 at 1.000.
(e)Commencement of operations on April 4, 1997 at 1.000.
6
<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; (c) ten years; and (d) 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.
PREPARING FOR YEAR 2000
Existing computer programs of many businesses were developed with a two-
digit identification without consideration of the upcoming change in century
or millennium in the year 2000. Without addressing this issue, many computer
programs could fail or produce erroneous results, creating considerable
uncertainty and potentially adversely affecting the operations or business.
United Investors has been in the process of modifying its computer system
and applications for the year 2000. It is expected that the project will be
substantially completed during 1998 and that final testing will be conducted
in 1999. United Investors is utilizing primarily internal staff for this
conversion but is also using outside consultants where necessary. The cost of
this project, which is immaterial to United Investors is expensed as incurred.
As a part of its activities, United Investors is engaged electronically with
third-party financial institutions and other various organizations which may
have computer systems which are not year 2000 compliant. To the degree
possible, United Investors is verifying that these third party business
systems are currently compliant or are in the process of becoming compliant.
To the extent these systems are not compliant there is no assurance that the
potential interruptions or cost to United Investors may not be significant.
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
7
<PAGE>
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 indirectly owned by Torchmark Corporation.
United Investors is principally engaged in offering life insurance and annuity
contracts and is admitted to do business in the District of Columbia and all
states except New York.
UNITED INVESTORS ANNUITY VARIABLE ACCOUNT
United Investors Annuity Variable Account (the "Variable Account") is
currently divided into eleven 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 eleven 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, an Asset Strategy Portfolio, and a Science and
Technology 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.
8
<PAGE>
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 eleven 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
the Money Market Portfolio are neither insured nor guaranteed by the U.S.
Government and there is no assurance that the portfolio will be able to
maintain a net asset value of $1.00 per share.
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, (commonly known as "junk bonds") 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 "Debt Securities" in the
TMK/United Funds, Inc. prospectus for a further description of the risk
factors.
The Growth Portfolio primarily seeks capital growth. As a secondary goal it
will seek current income. It will invest primarily in common stocks or
securities convertible into common stocks.
The Income Portfolio primarily seeks to maintain current income, subject to
market conditions, with a secondary goal of capital growth. It will invest
primarily in common stocks or securities convertible into common stocks that
have a record of paying regular dividends on common stock or have the
potential for capital growth or that may be expected to resist market decline.
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 over the long term. It
diversifies among stocks, bonds, and short-term instruments, both in the
United States and abroad.
The Science and Technology Portfolio seeks long-term capital growth through
investments primarily in science and technology securities.
9
<PAGE>
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. The Manager
is a wholly owned subsidiary of Waddell & Reed, Inc. which is a direct
subsidiary of Waddell & Reed Financial Services, Inc. and Waddell & Reed
Financial, Inc. and an indirect subsidiary of 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:
<TABLE>
<CAPTION>
SPECIFIC FEE
ANNUAL RATE
PORTFOLIO (% OF NET ASSETS)
--------- -----------------
<S> <C>
Money Market Portfolio................................. None
Bond Portfolio......................................... 0.03%
High Income Portfolio.................................. 0.15%
Growth Portfolio....................................... 0.20%
Income Portfolio....................................... 0.20%
International Portfolio................................ 0.30%
Small Cap Portfolio.................................... 0.35%
Balanced Portfolio..................................... 0.10%
Limited-Term Bond Portfolio............................ 0.05%
Asset Strategy Portfolio............................... 0.30%
Science and Technology Portfolio....................... 0.20%
</TABLE>
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:
<TABLE>
<CAPTION>
GROUP FEE
GROUP NET ASSET ANNUAL RATE
LEVEL ($ MILLIONS) (% OF NET ASSETS)
------------------ -----------------
<S> <C>
$0-$750 million........................................ 0.51%
$750-$1,500............................................ 0.49%
$1,500-$2,250.......................................... 0.47%
over $2,250............................................ 0.45%
</TABLE>
FIXED 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.
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. We
guarantee that we will credit interest at a rate of not less than the
Guaranteed Minimum Interest Rate of 4% per year 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 OUR
SOLE DISCRETION. THE OWNER ASSUMES THE RISK THAT INTEREST
10
<PAGE>
CREDITED TO FIXED ACCOUNT ALLOCATIONS MAY NOT EXCEED THE GUARANTEED MINIMUM
INTEREST RATE. The Fixed Account may not be available in all states.
The Policyowner determines the allocation of Purchase Payments and Policy
Value to the Fixed Account. Prior to the Retirement Date, the Policyowner may
transfer all or part of the values held in the Fixed Account to one or more of
the Investment Divisions of the Variable Account once per policy year. After
the Retirement Date, transfers from the Fixed Account to the Investment
Divisions of the Variable Account are not allowed. After the Retirement Date
values held in the Investment Divisions of the Variable Account may be
transferred to the Fixed Account not more often than once per policy year.
(See Transfers.)
THE POLICY
The Policy is a Deferred Variable Annuity. The rights and benefits of the
Policy are described below and in the Policy. However, United Investors
reserves the right to make any modification to conform the Policy to, or to
give the Owner the benefit of, any federal or state statute or rule or
regulation.
The Policy may be purchased on a non-qualified tax basis ("Nonqualified
Policy"). The Policy may also be purchased and used in connection with plans
qualifying for favorable federal income tax treatment ("Qualified Policy").
ISSUANCE OF A POLICY
Individuals wishing to purchase a Policy must complete an application and
send it to United Investors' Home Office. Acceptance is subject to United
Investors' rules, and United Investors reserves the right to reject any
application or Purchase Payment. If the application can be accepted in the
form received, the initial Purchase Payment will be applied within two
Valuation Dates after the latter of receipt of the application or receipt of
the initial Purchase Payment. If the initial Purchase Payment cannot be
applied within five Valuation Dates after receipt because the application is
incomplete, the applicant will be contacted and given an explanation for the
delay and the initial Purchase Payment will be returned at that time unless
the applicant consents to United Investors' retaining the initial Purchase
Payment and applying it as soon as the necessary requirements are fulfilled.
No Policy will be issued if either the Annuitant or the Owner are over age 80
nearest birthday. Coverage will only become effective on the Policy Date.
PURCHASE PAYMENTS
The minimum initial Purchase Payment for Nonqualified Policies is $5,000.
For Qualified 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 and the Fixed Account. You may allocate any whole percentage of Net
Purchase Payments, from 0% to 100%.
11
<PAGE>
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; and the portion of the initial Net Purchase Payment
to be allocated to the Investment Divisions of the Variable Account, plus any
accrued interest, will be allocated to the Money Market Investment Division,
the portion of the initial Net Purchase Payment to be allocated to the Fixed
Account, plus any accrued interest, will be credited with interest as if it
had been invested in the Money Market Investment Division.
If we receive an additional Purchase Payment prior to the seventeenth day
after the Policy Date, on the date we receive the payment the portion of the
additional Net Purchase Payment to be allocated to the Investment Divisions of
the Variable Account will be allocated to the Money Market Investment
Division; the portion of the additional Net Purchase Payment to be allocated
to the Fixed Account will be credited with interest as if it had been invested
in 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 and the Fixed 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 on or after the seventeenth day
after the Policy Date, the Net Purchase Payment will be allocated to the
Investment Divisions and the Fixed Account according to the allocation
percentage specified in your application, unless subsequently changed.
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
The Policy Value prior to the Retirement Date is equal to the Variable
Account Value plus the Fixed Account Value. Variable Account Values are not
guaranteed. The Variable Account 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).
Variable Account Value
On the Policy Date, the value of the Investment Divisions is equal to the
amount of the initial Net Purchase Payment allocated to the Investment
Divisions of the Variable Account 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 or from the
Fixed Account 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
12
<PAGE>
(5) the amount of any transfers from the Investment Division to other
Investment Divisions or to the Fixed Account 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.
Deductions will be made from the Investment Divisions in the same proportion
that the value of the Investment Division bears to the entire Policy Value.
Variable Account Values are not guaranteed.
Fixed Account Value
At the end of any Valuation Period, the Fixed Account Value is equal to:
(1) the sum of all Net Purchase Payments allocated to the Fixed Account; plus
(2) any amounts transferred from the Variable Account to the Fixed Account;
plus
(3) total interest credited to the Fixed Account; less
(4) any amounts transferred from the Fixed Account to the Variable Account;
less
(5) the portion of any withdrawals, withdrawal charges, and transaction
charges allocated to the Fixed Account; less
(6) the portion of the annual deduction and premium taxes which is allocated
to the Fixed Account.
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). 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.
If you do not specify that the partial withdrawal is to be made from
particular Investment Divisions or the Fixed Account, the partial withdrawal
will be made from the Fixed Account and the Variable Investment Divisions in
the same proportion that their values bear to the total Policy Value.
You may request up to four Withdrawals per Policy Year without a transaction
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
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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.)
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.
Restrictions Under Other Qualified Policies. Other restrictions on
surrenders or with respect to the election, commencement, or distributions of
benefits may apply under Qualified Policies or under the terms of the plans in
respect of which Qualified Policies are issued.
TRANSFERS
You may transfer all or part of the value of an Investment Division to one
or more of the other Investment Divisions or to the Fixed Account at any time
prior to the Retirement Date, except as described below. 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 prior to the Retirement
Date. 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 one or more variable Investment Divisions or
to the Fixed Account up to twelve times in a Policy
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Year prior to the Retirement Date. 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 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 telephone 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.
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. Transfers of Fixed Account values will be counted in the
same manner.
Transfers from the Fixed Account to the variable Investment Divisions are
not allowed after the Retirement Date. The Annuitant may transfer values among
the variable Investment Divisions or from the variable Investment Divisions to
the Fixed Account once per Policy Year after the Retirement Date. (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 of the Variable Account. 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.
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 (unless the
Annuitant is also an Owner; see below). 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
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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
any 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.
Upon the death of any Policyowner prior to the Retirement Date, ownership of
the Policy passes to the Owner's Designated Beneficiary, who then has the
right to the Death Benefit. If the Policy has Joint Owners and one Owner dies,
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 the proceeds as annuity payments as described above. Any such
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<PAGE>
increase in the Policy Value would be paid by United Investors, and allocated
to the Investment Divisions and the Fixed Account in proportion to the pre-
existing Policy Value unless instructed otherwise.
The Nonqualified Policies contain provisions which are intended to comply
with the requirements of Section 72(s) of the Code, although no regulations
interpreting these requirements have yet been issued. United Investors intends
to review such provisions and modify them if necessary to assure that they
comply with the requirements of Code Section 72(s) when clarified by
regulation or otherwise.
Other rules may apply to Qualified Policies.
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 or the Fixed 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 Policy Value 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 and the Fixed Account to compensate United Investors for
certain costs and expenses, as described below. These deductions will be made
from the Fixed Account and the variable Investment Divisions in the same
proportion that their values bear to the total Policy Value.
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, 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
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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>
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).
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
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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 of the
Variable Account at an effective annual rate of .90% of the average daily net
assets of each Investment Division to compensate us for assuming certain
mortality and expense risks under the Policy. There is no Mortality and
Expense Risk Charge for amounts in the Fixed Account. 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. (State premium tax rates incurred by United
Investors currently range from 0% to 3.50%. In some states localities charge
additional premium taxes.)
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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. See Summary--Charges
and Deductions.
POLICIES ISSUED BEFORE MAY 1, 1992 (OR LATER IN SOME STATES)
For policies issued before May 1, 1992 (or later in some states), a sales
charge of 6% is deducted from any Purchase Payment after the initial Purchase
Payment. However, for such additional Purchase Payments, the 8.5% sales charge
otherwise deducted in 10 annual installments is not deducted and there is no
Withdrawal Charge for such payments. Certain of these older policies may be
amended to eliminate the 6% sales charge deducted from additional Purchase
Payments, replacing it with a sales charge of 8.5% spread over ten annual
installments. These amendments might be implemented by restating the entire
policy with the original Policy Date and other data. See your policy form.
ANNUITY PAYMENTS
ELECTION OF PAYMENT OPTION
The Policyowner has the sole right to elect or change an Annuity Payment
Option during the lifetime of the Annuitant and prior to the Retirement Date,
either in the application or by Written Request any time at least 30 days
before the Retirement Date. We may require the exchange of the Policy for a
contract covering the option selected.
RETIREMENT DATE
The first Annuity Payment will be made as of the Retirement Date. You select
the Retirement Date in the application for the Policy. You may change the
Retirement Date at any time by giving us Written Notice, provided that you
give us Written Notice at least 30 days prior to the new Retirement Date. A
Retirement Date may be the first day of any calendar month commencing 30 days
after the Policy Date, regardless of the Annuitant's age. If the Retirement
Date occurs during the first eight Policy Years after receipt of a Purchase
Payment, a Withdrawal Charge will apply. (See Withdrawal Charge.) If the net
amount to be applied to an option is less than $3,000, we have the right to
pay such amount in one sum. Also, if any payment would be less than $50, we
have the right to change the frequency of payment to an interval that will
result in payments of at least $50.
AVAILABLE OPTIONS
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 dollar amount of Variable Annuity Payments after the first is
not fixed.
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The Annuity Payment 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.
In the event that you have not selected an Annuity Payment Option on the
Retirement Date, we will make monthly Annuity Payments during the lifetime of
the Annuitant with 120 monthly payments guaranteed.
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) Variable Annuity Payments vary with the
investment experience of the underlying Portfolios and the Owner therefore
bears the investment risk under Variable Annuity Payments 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 Variable Annuity Payments will decrease. The dollar amount of
the Variable Annuity Payments will stay level if the net investment experience
equals the assumed investment rate, and the dollar amount of the Variable
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%. Fixed Annuity Payment amounts 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 Annuity Payments than if no setback is used.
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.)
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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.
DISTRIBUTION OF THE POLICIES
Waddell & Reed, Inc., 6300 Lamar, Overland Park, Kansas, is the principal
underwriter 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 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, as
amended (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. Moreover, although the likelihood
of legislative change is uncertain, there is always the possibility that the
tax treatment of the Policy could change by legislation or other means. For
instance, the President's 1999 Budget Proposal recommended legislation that,
if enacted, would adversely modify the federal taxation of the Policy. It is
also possible that any change could be retroactive (that is, effective prior
to the date of the change). A tax adviser should be consulted with respect to
legislative developments and their effect on the Policy.
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Section 72 of the Code governs taxation of annuities in general. United
Investors believes that an annuity owner who is a natural person generally is
not taxed on increases in the value of a Policy until distribution occurs
either in the form of a lump sum received by withdrawing all or part of the
cash value (i.e., withdrawals) or as Annuity Payments under the Annuity
Payment Option elected. For this purpose, the assignment, pledge, or agreement
to assign or pledge any portion of the Policy Value generally will be treated
as a distribution. The taxed portion of a distribution (in the form of a lump
sum payment or an annuity) is taxed as ordinary income.
An owner of any deferred annuity contract who is not a natural person
generally must include in income any increase in the excess of the owner's
Policy Value over the owner's investment in the contract during the taxable
year. However, there are some exceptions to this rule and you may wish to
discuss these with your tax adviser.
In recent years, proposals have been made that would adversely change the
Federal taxation of the Policies described in this prospectus. For example,
certain proposals would (1) tax transfers between investment divisions and tax
exchanges between variable annuity contracts, and (2) reduce the "investment
in the contract," thereby increasing the amount of income for purposes of
computing gain. 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" generally 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. For Fixed Annuity Payments, in general
there is no tax on the amount of each payment which represents the same ratio
that the "investment in the contract" bears to the total expected value of
annuity payments for the term of the payments; however, the remainder of each
payment is taxable. In all cases, 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
23
<PAGE>
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.
All nonqualified deferred annuities entered into after October 21, 1988 that
are issued by United Investors (or its affiliates) to the same owner during
any calendar year are treated as one annuity contract for purposes of
determining the amount includable in gross income under Section 72(e) of the
Code. In addition, there may be other situations in which the Treasury
Department may (under its authority to issue regulations or otherwise)
conclude that it would be appropriate to aggregate two or more annuity
contracts purchased by the same owner. Accordingly, a Policy Owner should
consult a competent tax advisor before purchasing more than one annuity
contract.
A transfer or assignment of ownership of a Policy, or designation of an
Annuitant or other Beneficiary who is not also the Owner, may result in
certain tax consequences to the Owner that are not discussed herein. An Owner
contemplating any such transfer, assignment or designation should contact a
competent tax adviser with respect to the potential tax effects of such
transaction.
Amounts may be distributed from a Contract because of the death of an Owner
or an Annuitant. Generally, such amounts are includable in the income of the
recipient as follows: (1) if distributed in a lump sum, they are taxed in the
same manner as a full surrender of the Policy, as described above, or (2) if
distributed under an annuity option, they are taxed in the same manner as
annuity payments, as described above. For these purposes, the investment in
the contract is not affected by an Owner's or Annuitant's death. That is, the
investment of the contract remains the amount of any Purchase Payments paid
which were not excluded from gross income.
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; and in other specified circumstances.
We make no attempt to provide more than general information about the use of
the Policy with the various types of retirement plans. Owners and participants
under retirement plans as well as Annuitants and Beneficiaries are cautioned
that the rights of any person to any benefits under a Qualified Policy may be
subject to the terms and conditions of the plans themselves, regardless of the
terms and conditions of the Policy issued in connection with such a plan. 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.
For qualified plans under Section 401(a), 403(a), 403(b), and 457, the Code
requires that distributions generally must commence no later than the later of
April 1 of the calendar year following the calendar year in which the Owner
(or plan participant) (i) reaches age 70 1/2 or (ii) retires, and must be made
in a specified form or manner. If the participant is a "5 percent owner" (as
defined in the Code), distributions generally must begin no later than April 1
of the calendar year following the calendar year in which the Owner (or plan
participant) reaches age 70 1/2. For IRAs described in Section 408,
distributions generally must commence no later than the later of April 1 of
the calendar year following the calendar year in which the Owner (or plan
participant) reaches age 70 1/2.
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
24
<PAGE>
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. The Policy
includes a Death Benefit that in some cases may exceed the greater of the
Purchase Payments or the Contract Value. The Death Benefit could be
characterized as an incidental benefit, the amount of which is limited in any
pension or profit-sharing plan. Because the Death Benefit may exceed this
limitation, employers using the Policy in connection with such plans should
consult their tax adviser.
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. The Policy includes a
Death Benefit that in some cases may exceed the greater of the Purchase
Payments or the Contract Value. The Death Benefit could be characterized as an
incidental benefit, the amount of which is limited in any tax-sheltered
annuity under section 403(b). Because the Death Benefit may exceed this
limitation, employers using the Policy in connection with such plans should
consult their tax adviser. 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. Earnings in an IRA are not taxed until distribution. IRA contributions
are limited each year to the lesser of $2,000 or 100% of the Owners adjusted
gross income and may be deductible in whole or in part depending on the
individual's income. The limit on the amount contributed to an IRA does not
apply to distributions from certain other types of qualified plans that are
"rolled over" on a tax-deferred basis into an IRA. Amounts in the IRA (other
than nondeductible contributions) are taxed when distributed from the IRA.
Distributions prior to age 59 1/2 (unless certain exceptions apply) are
subject to a 10% penalty tax. The Internal Revenue Service has not addressed
in a ruling of general applicability whether a death benefit provision such as
the provision in the Policy comports with IRA qualification requirements. See
Roth IRA Supplement following page 27.
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.
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
25
<PAGE>
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 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 Fund does not hold regular annual
shareholder meetings.
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 Variable 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 Variable
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.
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.
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.
26
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information is available which contains more
details concerning the subjects discussed in this Prospectus. The following is
the Table of Contents for that Statement:
TABLE OF CONTENTS
<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............................................................ 7
Non-Participation........................................................ 7
Delay or Suspension of Payments.......................................... 7
Ownership................................................................ 8
Beneficiary.............................................................. 8
Change of Owner or Beneficiary........................................... 8
Assignment............................................................... 8
Incontestability......................................................... 8
Evidence of Survival..................................................... 8
Performance Data Calculations.............................................. 9
Federal Tax Matters........................................................ 12
Taxation of United Investors............................................. 12
Tax Status of the Policies............................................... 12
Withholding.............................................................. 13
Addition, Deletion or Substitution of Investments.......................... 14
Distribution of the Policy................................................. 15
Safekeeping of Variable Account Assets..................................... 16
State Regulation........................................................... 16
Records and Reports........................................................ 16
Legal Matters.............................................................. 17
Experts.................................................................... 17
Other Information.......................................................... 17
Financial Statements....................................................... 18
</TABLE>
27
<PAGE>
United Investors Life Insurance Company
Supplement To The Advantage II Prospectus
Dated May 1, 1998
The following information supplements and supercedes any contrary information
contained in the Prospectus:
ROTH IRAS: Effective January 1, 1998, section 408A of the Code permits
certain eligible individuals to contribute to a Roth IRA. Contributions to a
Roth IRA, which are subject to certain limitations, are not deductible and
must be made in cash or as a rollover or transfer from another Roth IRA or
other IRA. A rollover from or conversion of an IRA to a Roth IRA may be
subject to tax and other special rules may apply. You should consult a tax
adviser before combining any converted amounts with any other Roth IRA
contributions, including any other conversion amounts from other tax years.
Distributions from a Roth IRA generally are not taxed, except that, once
aggregate distributions exceed contributions to the Roth IRA, income tax and a
10% penalty tax may apply to distributions made (1) before age 59 1/2 (subject
to certain exceptions) or (2) during the five taxable years starting with the
year in which the first contribution is made to a Roth IRA. No distribution
from a Roth IRA is required at any time before the owner's death.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
United Investors Life Insurance Company
Birmingham, Alabama
We have audited the accompanying balance sheets of United Investors Life
Insurance Company as of December 31, 1997 and 1996 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, 1997. 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, 1997 and 1996 and the results of its
operations and its cash flow for each of the years in the three-year period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Birmingham, Alabama
February 2, 1998 except
for Note 1 which is as of
March 3, 1998
F-1
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities--available for sale, at fair value
(cost: 1997--$612,600; 1996--$621,177)................. $ 635,643 $ 624,880
Policy loans............................................ 15,817 14,332
Other long-term invested assets......................... 22,488 21,411
Short-term investments.................................. 13,423 1,834
---------- ----------
Total investments..................................... 687,371 662,457
Cash..................................................... 5,288 2,404
Accrued investment income (includes amounts from
affiliates:
1997--$473; 1996--$473)................................. 11,270 10,781
Receivables ............................................. 2,826 2,635
Due from affiliates (includes funds withheld on reinsur-
ance: 1997--$190,235; 1996--$0)......................... 225,235 35,423
Deferred acquisition costs............................... 176,897 169,986
Value of insurance purchased............................. 33,754 16,160
Goodwill................................................. 6,771 7,055
Property and equipment................................... 141 156
Other assets............................................. 1,149 1,534
Separate account assets.................................. 1,876,439 1,420,025
---------- ----------
Total assets.......................................... $3,027,141 $2,328,616
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Future policy benefits.................................. $ 736,975 $ 531,297
Unearned and advance premiums........................... 2,975 2,804
Other policy liabilities................................ 8,713 8,135
---------- ----------
Total policy liabilities............................... 748,663 542,236
Accrued income taxes.................................... 58,270 43,063
Other liabilities....................................... 2,825 2,265
Due to affiliates....................................... 9,374 8,965
Separate account liabilities............................ 1,876,439 1,420,025
---------- ----------
Total liabilities..................................... 2,695,571 2,016,554
Shareholder's equity:
Common stock, par value $6 per share-authorized,
issued and outstanding:
500,000 shares......................................... 3,000 3,000
Additional paid-in capital.............................. 138,469 137,950
Unrealized investment gains, net of applicable taxes.... 14,700 4,460
Retained earnings....................................... 175,401 166,652
---------- ----------
Total shareholder's equity............................ 331,570 312,062
---------- ----------
Total liabilities and shareholder's equity............ $3,027,141 $2,328,616
========== ==========
</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,
---------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Premium income.................................... $ 68,723 $ 65,114 $ 61,792
Policy charges and fees........................... 36,582 29,403 23,109
Net investment income (includes amounts from af-
filiates: 1997--$2,863; 1996--$2,847; 1995--
$3,058; ......................................... 51,514 51,128 49,356
Realized investment gains (losses)................ (5,365) 925 1,441
Other income (includes amounts from affiliates:
1997--$11,876; 1996--$0; 1995--$0) .............. 11,876 0 4
-------- -------- --------
Total revenue................................... 163,330 146,570 135,702
Benefits and expenses:
Policy benefits:
Individual life.................................. 57,954 47,355 42,943
Annuity.......................................... 15,165 15,807 16,540
-------- -------- --------
Total policy benefits........................... 73,119 63,162 59,483
Amortization of deferred acquisition costs........ 24,898 19,850 16,602
Commissions and premium taxes (includes amounts to
affiliates: 1997--$4,928; 1996--$4,723; 1995--
$4,000; ......................................... 6,251 5,248 4,691
Other operating expense (includes amounts to af-
filiates: 1997--$3,217; 1996--$2,181; 1995--
$1,862;.......................................... 5,470 3,966 3,679
-------- -------- --------
Total benefits and expenses..................... 109,738 92,226 84,455
-------- -------- --------
Net operating income before income taxes........... 53,592 54,344 51,247
Income taxes....................................... 18,843 19,078 18,037
-------- -------- --------
Net income...................................... $ 34,749 $ 35,266 $ 33,210
======== ======== ========
</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,
1995
Balance at January 1,
1995................... $3,000 $137,915 $(12,378) $134,176 $262,713
Net income.............. 33,210 33,210
Dividends............... (7,500) (7,500)
Exercise of stock op-
tions.................. 35 35
Net change in unrealized
investment gains (loss-
es).................... 24,670 24,670
------ -------- -------- -------- --------
Balance at December 31,
1995................... 3,000 137,950 12,292 159,886 313,128
YEAR ENDED DECEMBER 31,
1996
Net income.............. 35,266 35,266
Dividends............... (28,500) (28,500)
Net change in unrealized
investment gains (loss-
es).................... (7,832) (7,832)
------ -------- -------- -------- --------
Balance at December 31,
1996................... 3,000 137,950 4,460 166,652 312,062
YEAR ENDED DECEMBER 31,
1997
Net Income.............. 34,749 34,749
Dividends............... (26,000) (26,000)
Exercise of stock op-
tions.................. 519 519
Net Change in unrealized
investment gains (loss-
es).................... 10,240 10,240
------ -------- -------- -------- --------
Balance at December 31,
1997................... $3,000 $138,469 $ 14,700 $175,401 $331,570
====== ======== ======== ======== ========
</TABLE>
See accompanying Notes to Financial Statements.
F-4
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
--------- -------- ---------
<S> <C> <C> <C>
Net income.................................... $ 34,749 $ 35,266 $ 33,210
Adjustments to reconcile net income to cash
provided from operations:
Increase in future policy benefits........... 17,878 20,692 22,011
Increase (decrease) in other policy benefits. 749 2,154 (614)
Deferral of policy acquisition costs......... (33,485) (33,744) (28,870)
Value of business acquired................... (10,000) 0 0
Amortization of deferred acquisition costs... 24,898 19,850 16,602
Change in accrued income taxes............... 10,212 (3,033) 2,644
Depreciation................................. 42 44 52
Realized (gains) losses on sale of
investments and properties.................. 5,365 (925) (1,441)
Other accruals and adjustments............... 1,817 (997) (3,525)
--------- -------- ---------
Cash provided from operations................. 52,225 39,307 40,069
Cash used for investment activities:
Investments sold or matured:
Fixed maturities available for sale--sold... 113,035 15,246 149,076
Fixed maturities available for sale--
matured, called and repaid................. 66,469 44,523 50,659
Equity securities........................... 0 0 3,341
Other long-term investments................. 2,199 482 9,316
--------- -------- ---------
Total investments sold or matured.......... 181,703 60,251 212,392
Acquisition of investments:
Fixed maturities--available for sale........ (176,905) (68,214) (244,162)
Net increase in policy loans................ (1,485) (2,033) (2,121)
Other long-term investments................. (1,517) (1,183) (1,587)
--------- -------- ---------
Total acquisition of investments........... (179,907) (71,430) (247,870)
Net (increase) decrease in short-term invest-
ments....................................... (11,589) 2,389 (1,901)
Funds loaned to affiliates................... (24,080) (3,500) (21,000)
Funds repaid from affiliates................. 24,080 3,500 21,000
Disposition of properties.................... 0 34 6
Additions to properties...................... (27) (117) (33)
--------- -------- ---------
Cash used for investment activities........... (9,820) (8,873) (37,406)
Cash used for financing activities:
Cash dividends paid to shareholder........... (27,000) (27,500) (7,500)
Net receipts from deposit product operations. (12,521) (6,572) 3,343
--------- -------- ---------
Cash used for financing activities............ (39,521) (34,072) (4,157)
Increase (decrease) in cash................... 2,884 (3,638) (1,494)
Cash at beginning of year..................... 2,404 6,042 7,536
--------- -------- ---------
Cash at end of year........................... $ 5,288 $ 2,404 $ 6,042
========= ======== =========
</TABLE>
See accompanying Notes to Financial Statements.
F-5
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization: United Investors Life Insurance Company (the "Company") is a
wholly-owned subsidiary of United Investors Management Company ("United
Management"), which is a wholly-owned subsidiary of Torchmark Corporation
("Torchmark"), the ultimate parent. On March 3, 1998, United Management
distributed the Company to Torchmark and Liberty National Life Insurance
Company, a wholly owned subsidiary of Torchmark.
Description of Business: The Company is a life insurer licensed in 49
states. The Company offers a full range of life, annuity and variable products
through its agents and is subject to competition from other insurers
throughout the United States. The Company is subject to regulation by the
insurance department of states in which it is licensed, and undergoes periodic
examinations by those departments.
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the financial statements and revenues and expenses for the reporting
period. Actual results could differ significantly from those estimates.
The estimates susceptible to significant change are those used in
determining the liability for policy reserves, losses and claims. Although
some variability is inherent in these estimates, management believes the
amounts provided are adequate.
Existing computer programs of many businesses were developed with a two-
digit identification without consideration of the upcoming change in century
or millennium in the year 2000. Without addressing this issue, many computer
programs could fail or produce erroneous results, creating considerable
uncertainty and potentially adversely affecting the operations or business.
UILIC has been in the process of modifying its computer system and
applications for the year 2000. It is expected that the project will be
substantially completed during 1998 and that final testing will be conducted
in 1999. UILIC is utilizing primarily internal staff for this conversion but
is also using outside consultants where necessary. The cost of this project,
which is immaterial to UILIC is expensed as incurred.
As a part of its activities, UILIC is engaged electronically with third-
party financial institutions and other various organizations which may have
computer systems which are not year 2000 compliant. To the degree possible,
UILIC is verifying that these third party business systems are currently
compliant or are in the process of becoming compliant. To the extent these
systems are not compliant there is no assurance that the potential
interruptions or cost to UILIC may not be significant.
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").
F-6
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Investments: United Investors classifies all of its fixed maturity
investments, which includes bonds and redeemable preferred stocks, as
available for sale. Investments classified as available for sale are carried
at fair value with unrealized gains and losses, net of deferred taxes,
reflected directly in shareholder's equity. Investments in equity securities,
which include common and nonredeemable preferred stocks, are reported at fair
value with unrealized gains and losses, net of deferred taxes, reflected
directly in shareholder's equity. Policy loans are carried at unpaid principal
balances. Short-term investments include investments in certificates of
deposit and other interest-bearing time deposits with original maturities
within three months. Other long-term investments consist of investments in
mutual funds which are carried at fair value. If an investment becomes
permanently impaired, such impairment is treated as a realized loss and the
investment is adjusted to net realizable value.
Gains and losses realized on the disposition of investments are recognized
as revenues and are determined on a specific identification basis.
Realized investment gains and losses and investment income attributable to
separate accounts are credited to the separate accounts and have no effect on
United Investor's net income. Investment income attributable to policyholders
is included in United Investor's net investment income. Net investment income
for the years ended December 31, 1997, 1996 and 1995 included approximately
$37,800, $37,600, and $38,000, respectively, which was allocable to
policyholder reserves or accounts. Realized investment gains and losses are
not allocable to policyholders.
Determination of Fair Values of Financial Instruments: Fair value for cash,
short-term investments, receivables and payables approximates carrying value.
Fair values for investment securities are based on quoted market prices, where
available. Otherwise, fair values are based on quoted market prices of
comparable instruments. Fair value of future benefits for universal life and
current interest products and annuity products are based on the fund value.
Cash: Cash consists of balances on hand and on deposit in banks and
financial institutions.
Recognition of Revenue and Related Expenses: Premiums for insurance
contracts which are not defined as universal life-type according to the
Financial Accounting Standards Board's Statement of Accounting Standards
(SFAS) 97 are recognized as revenue over the premium-paying period of the
policy. Premiums for limited-payment life insurance contracts as defined by
SFAS 97 are recognized over the contract period. Premiums for universal life-
type and annuity contracts are added to the policy account value, and revenues
from such products are recognized as charges to the policy account value for
mortality, administration, and surrenders (retrospective deposit method). The
related benefits and expenses are matched with revenues by means of the
provision for future policy benefits and the amortization of deferred
acquisition costs in a manner which recognizes profits as they are earned over
the same period.
Future Policy Benefits: The liability for future policy benefits for
universal life-type products according to SFAS 97 is represented by policy
account value. Annuity Contracts are accounted for as deposit contracts. The
liability for future policy benefits for other products is provided on the net
level premium method based on estimated investment yields, mortality,
persistency and other assumptions which were appropriate at the time the
policies were issued. Assumptions used are based on United Investor's
experience as adjusted to provide for possible adverse deviation. These
estimates are periodically reviewed and compared with actual experience. If it
is determined that future expected experience differs significantly from that
assumed, the estimates are revised.
F-7
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
Deferred acquisition costs: The costs of acquiring new insurance business
are deferred. Such costs consist of sales commissions, underwriting expenses,
and certain other selling expenses. The costs of acquiring new business
through the purchase of other companies and blocks of insurance business are
also deferred.
Deferred acquisition costs, including the value of insurance purchased, for
policies other than universal life-type policies according to SFAS 97, are
amortized with interest over an estimate of the premium-paying period of the
policies in a manner which charges each year's operations in proportion to the
receipt of premium income. For limited-payment contracts, acquisition costs
are amortized over the contract period. For universal life-type policies,
acquisition costs are amortized with interest in proportion to estimated gross
profits. The assumptions used as to interest, withdrawals and mortality are
consistent with those used in computing the liability for future policy
benefits and expenses. If it is determined that future experience differs
significantly from that previously assumed, the estimates are revised.
Deferred acquisition costs are adjusted to reflect the amounts associated with
unrealized investment gains and losses pertaining to universal life-type
products.
Income Taxes: Income taxes are accounted for under the asset and liability
method in accordance with SFAS 109. Under the asset and liability method,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement book
values and tax bases of assets and liabilities. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Interest Expense: Interest expense includes interest on borrowed funds not
used in the production of investment income. Interest expense relating to the
production of investment income is deducted from investment income.
Property and Equipment: Property and equipment is reported at cost less
allowances for depreciation. Depreciation is provided on the straight-line
method over the estimated useful lives of these assets which range from three
to ten years.
Goodwill: Goodwill represents the excess cost over the fair value of the net
assets acquired when United Investors was purchased by Torchmark Corporation
(Torchmark) in 1981 and is being amortized on a straight-line basis over forty
years.
Reclassification: Certain amounts in the financial statements presented have
been reclassified from amounts previously reported in order to be comparable
between years. These reclassifications have no effect on previously reported
shareholders' equity or net income during the periods involved.
F-8
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
Reporting Comprehensive Income (FASB Statement No. 130) is effective for
fiscal years beginning after December 15, 1997. Reclassification of prior
periods for comparative financial statements is required.
This document establishes standards for presentation of comprehensive
income, a concept of income which, in addition to net income, includes all
changes in the equity of a company other than contributions from or
distributions to shareholders. Comprehensive income is to be categorized into
certain components, each of which is to be displayed prominently in United
Investors basic financial statements.
The most significant aspect of this Statement on United Investors is the
separate disclosure of the change in unrealized gain or loss on its fixed
investments as a component of comprehensive income, rather than as a direct
adjustment of shareholders' equity.
NOTE 2--STATUTORY ACCOUNTING
United Investors is required to file statutory financial statements with
state insurance regulatory authorities. Accounting principles used to prepare
these statutory financial statements differ from GAAP. Net income and
shareholder's equity on a statutory basis for United Investors were as
follows:
<TABLE>
<CAPTION>
NET INCOME SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, AT DECEMBER 31,
----------------------- ---------------------
1997 1996 1995 1997 1996
------- ------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Life insurance................. $34,537 $26,640 $29,636 $156,676 $ 154,222
</TABLE>
The excess of shareholder's equity on a GAAP basis over that determined on a
statutory basis is not available for distribution to the shareholder without
regulatory approval.
A reconciliation of United Investors' statutory net income to GAAP net
income is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996 1995
------- ------- --------
<S> <C> <C> <C>
Statutory net income............................. $34,537 $26,640 $ 29,636
Deferral of acquisition costs.................... 33,485 33,744 28,870
Amortization of acquisition costs................ (24,898) (19,850) (16,602)
Differences in policy liabilities................ (2,113) (4,361) (6,774)
Deferred income taxes............................ (6,053) (773) (1,389)
Other............................................ (209) (134) (531)
------- ------- --------
GAAP net income.................................. $34,749 $35,266 $ 33,210
======= ======= ========
</TABLE>
A reconciliation of United Investors' statutory shareholder's equity to GAAP
shareholder's equity is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Statutory shareholder's equity.................... $156,676 $154,222
Differences in policy liabilities................. 9,540 20,834
Deferred acquisition costs and value of insurance
purchased........................................ 210,651 186,146
Deferred income taxes ............................ (52,639) (41,074)
Asset valuation reserve........................... 9,513 10,762
Nonadmitted assets................................ 1,850 1,856
Fair value adjustment on fixed maturities
available for sale............................... 23,043 3,703
Goodwill.......................................... 6,771 7,055
Due and deferred premiums......................... (30,334) (29,324)
Other............................................. (3,501) (2,118)
----------- -----------
GAAP shareholder's equity......................... $331,570 $ 312,062
=========== ===========
</TABLE>
F-9
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
The NAIC requires that a risk based capital formula be applied to all life
and health insurers. The risk based capital formula is a threshold formula
rather than a target capital formula. It is designed only to identify
companies that require regulatory attention and is not to be used to rate or
rank companies that are adequately capitalized. United Investors is adequately
capitalized under the risk based capital formula.
NOTE 3--INVESTMENT OPERATIONS
Investment income is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Fixed maturities................................... $46,000 $46,366 $43,482
Equity securities.................................. 0 0 76
Policy loans....................................... 1,107 1,001 851
Other long-term investments........................ 1,614 1,211 1,681
Short-term investments............................. 436 287 717
Interest and dividends from affiliates............. 2,863 2,847 3,058
------- ------- -------
52,020 51,712 49,865
Less investment expense............................ (506) (584) (509)
------- ------- -------
Net investment income.............................. $51,514 $51,128 $49,356
======= ======= =======
Analysis of gains (losses) from investments:
Realized investment gains (losses)
Fixed maturities................................. $(5,235) $ 925 $ 319
Equity securities................................ 0 0 1,276
Mutual funds..................................... (130) 0 (154)
------- ------- -------
Net realized gains (losses)....................... $(5,365) $ 925 $ 1,441
======= ======= =======
Analysis of change in unrealized investment gains
(losses):
Net change in unrealized investment gains (losses)
on equity securities before tax................... $ 0 $ 0 $ (438)
Net change in unrealized investment gains on fixed
maturities available for sale before tax.......... 19,340 (21,767) 58,321
Other.............................................. 1,799 861 3,602
Adjustment to deferred acquisition costs........... (5,387) 8,857 (23,532)
Applicable tax..................................... (5,512) 4,217 (13,283)
------- ------- -------
Net change in unrealized gains (losses) on equity
and fixed maturity securities available for sale.. $10,240 $(7,832) $24,670
======= ======= =======
</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 market value at December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
GROSS GROSS AMOUNT PER
AMORTIZED UNREALIZED UNREALIZED MARKET THE BALANCE
1997: COST GAINS LOSSES VALUE SHEET
- ----- --------- ---------- ---------- ------- -----------
<S> <C> <C> <C> <C> <C>
Fixed maturities available
for sale:
Bonds:
U.S. Government direct
obligations and agen-
cies.................... $22,035 $ 857 $ 0 $22,892 $22,892
GNMA's................... 124,549 5,992 (146) 130,395 130,395
Mortgage-backed
securities, GNMA
collateral.............. 23,125 591 (3) 23,713 23,713
Other mortgage-backed se-
curities................ 20,980 916 0 21,896 21,896
States, municipalities
and political
subdivisions............ 28,603 517 0 29,120 29,120
Foreign governments...... 3,298 135 0 3,433 3,433
Public utilities......... 37,189 1,504 (39) 38,654 38,654
Industrial and miscella-
neous................... 352,821 12,986 (267) 365,540 365,540
------- ------ ------ ------- -------
Total fixed maturities... 612,600 23,498 (455) 635,643 635,643
======= ====== ====== ======= =======
<CAPTION>
1996:
- -----
<S> <C> <C> <C> <C> <C>
Fixed maturities available
for sale:
Bonds:
U.S. Government direct
obligations and agen-
cies.................... $21,832 $ 79 $ (270) $21,641 $21,641
GNMA's................... 150,505 6,297 (812) 155,990 155,990
Mortgage-backed
securities, GNMA
collateral.............. 34,904 785 (6) 35,683 35,683
Other mortgage-backed se-
curities................ 4,060 -0- -0- 4,060 4,060
States, municipalities
and political
subdivisions............ 45,544 383 (894) 45,033 45,033
Foreign governments...... 3,272 158 0 3,430 3,430
Public utilities......... 22,543 483 (345) 22,681 22,681
Industrial and miscella-
neous................... 338,517 3,737 (5,892) 336,362 336,362
------- ------ ------ ------- -------
Total fixed maturities... 621,177 11,922 (8,219) 624,880 624,880
======= ====== ====== ======= =======
</TABLE>
F-11
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 3--INVESTMENT OPERATIONS (CONTINUED)
A schedule of fixed maturities by contractual maturity at December 31, 1997
is shown below on an amortized cost basis and on a market value basis. Actual
maturities could differ from contractual maturities due to call or prepayment
provisions.
<TABLE>
<CAPTION>
AMORTIZED MARKET
COST VALUE
--------- --------
<S> <C> <C>
Fixed maturities available for sale;
Due in one year or less................................. $ 4,751 $ 4,824
Due after one year through five years................... 99,621 102,200
Due after five years through ten years.................. 202,692 209,387
Due after ten years..................................... 131,058 137,232
-------- --------
438,122 453,643
Mortgage- and asset-backed securities.................... 174,478 182,000
-------- --------
$612,600 $635,643
======== ========
</TABLE>
Proceeds from sales of fixed maturities available for sale were $113,035 in
1997, $15,246 in 1996, and $149,076 in 1995. Gross gains realized on these
sales were $112 in 1997, $749 in 1996, and $3,157 in 1995. Gross losses on
these sales were $5,716 in 1997, $0 in 1996, and $2,126 in 1995.
F-12
<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>
1997 1996 1995
--------------------- --------------------- ---------------------
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
year................... $169,986 $16,160 $144,716 $18,679 $153,677 $20,983
Additions:
Deferred during peri-
od:
Commissions........... 27,664 0 28,492 0 24,258 0
Other expenses........ 5,821 0 5,252 0 4,611 0
-------- ------- -------- ------- -------- -------
Total deferred....... 33,485 0 33,744 0 28,869 0
Value of insurance
purchased............ 0 21,305 0 0 0 0
Adjustment attributable
to unrealized invest-
ment loss (1)......... 0 0 8,857 0 0 0
-------- ------- -------- ------- -------- -------
Total additions...... 33,485 21,305 42,601 0 28,869 0
Deductions:
Amortized during peri-
od................... (21,019) (3,711) (16,894) (2,519) (14,062) (2,304)
Adjustment attribut-
able to unrealized
investment gains (1). (5,387) 0 0 0 (23,532) 0
Adjustment attribut-
able to realized
investment gains (1). (168) 0 (437) 0 (236) 0
-------- ------- -------- ------- -------- -------
Total deductions..... (26,574) (3,711) (17,331) (2,519) (37,830) (2,304)
-------- ------- -------- ------- -------- -------
Balance at end of year.. $176,897 $33,754 $169,986 $16,160 $144,716 $18,679
======== ======= ======== ======= ======== =======
</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 $938, $1,100, and $1,300 for the years
ended December 31, 1997, 1996 and 1995, respectively. The average interest
accrual rates used were 6.29%, 6.44% and 6.59%, respectively. The estimated
amount of the unamortized value of business purchased balance at December 31,
1997 to be amortized during each of the next five years is: 1998, $1,640;
1999, $1,443; 2000, $1,270; 2001, $1,118; 2002, $984.
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,
1997 1996
------------------- -------------------
ACCUMULATED ACCUMULATED
COST DEPRECIATION COST DEPRECIATION
------ ------------ ------ ------------
<S> <C> <C> <C> <C>
Data processing equipment............... $ 216 $ 161 $ 192 $ 147
Transportation equipment................ 132 55 132 37
Furniture and office equipment ......... 922 913 919 903
------ ------ ------ ------
Total................................. $1,270 $1,129 $1,243 $1,087
====== ====== ====== ======
</TABLE>
Depreciation expense on property and equipment used in the business was $42,
$44 and $52 in each of the years 1997, 1996, and 1995, respectively.
F-13
<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 at December 31, 1997 is as follows:
INDIVIDUAL LIFE INSURANCE
Interest Assumptions:
<TABLE>
<CAPTION>
PERCENT OF
YEARS OF ISSUE INTEREST RATES LIABILITY
-------------- --------------------- ----------
<S> <C> <C>
1962-1997 3% level to 6% level 10%
1986-1992 7.00% graded to 6.00% 21%
1962-1985 8.50% graded to 6.00% 5%
1981-1985 8.50% graded to 7.00% 4%
1984-1997 Interest sensitive 60%
----
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.
NOTE 7--INCOME TAXES
United Investors is included in the life-nonlife consolidated federal income
tax return filed by Torchmark. Under the tax allocation agreement with
Torchmark, a company with taxable income pays tax equal to the amount it would
pay if it filed a separate tax return. A company with a loss is paid a tax
benefit currently to the extent that affiliated companies with taxable income
utilize that loss.
Total income taxes were allocated as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Net operating income before income taxes......... $18,843 $19,078 $18,037
Shareholder's equity:
Unrealized gains (losses)....................... 5,512 (4,217) 13,283
Tax basis compensation expense in excess of
amounts recognized for financial reporting
purposes from the exercise of stock options.... (519) 0 (35)
Other........................................... 1 (152) 1
------- ------- -------
$23,837 $14,709 $31,286
======= ======= =======
</TABLE>
F-14
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 7--INCOME TAXES (CONTINUED)
Income tax expense before the adjustments to shareholder's equity is
summarized below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Current income tax expense............................. $12,790 $18,305 $16,648
Deferred income tax expense............................ 6,053 773 1,389
------- ------- -------
$18,843 $19,078 $18,037
======= ======= =======
</TABLE>
In 1997, 1996, and 1995, deferred income tax expense was incurred because of
the difference between net operating income before income taxes as reported on
the statements of operations and taxable income as reported on United
Investor's income tax returns. As explained in Note 1, this difference caused
the financial statement book values of some assets and liabilities to be
different from their respective tax bases.
The effective income tax rate differed from the expected 35% rate in 1997,
1996 and 1995 as shown below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 % 1996 % 1995 %
------- --- ------- --- ------- ---
<S> <C> <C> <C> <C> <C> <C>
Expected income taxes.................. $18,757 35% $19,020 35% $17,936 35%
Increase (reduction) in income taxes
resulting from:
Tax-exempt investment income.......... (18) 0 (38) 0 (102) 0
Purchase accounting differences....... 99 0 99 0 99 0
Other................................. 5 0 (3) 0 104 0
------- --- ------- --- ------- ---
Income taxes........................... $18,843 35% $19,078 35% $18,037 35%
======= === ======= === ======= ===
</TABLE>
F-15
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 7--INCOME TAXES (CONTINUED)
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Future policy benefits and unearned and advance
premiums.......................................... $ 4,777 $ 5,936
Present value of future policy surrender charges... 13,925 9,636
Other liabilities, principally due to the current
nondeductibilty for tax purposes of certain
accrued expenses.................................. 203 147
----------- -----------
Total gross deferred tax assets.................... 18,905 15,719
----------- -----------
Net deferred tax assets............................ 18,905 15,719
----------- -----------
Deferred tax liabilities:
Deferred acquisition costs......................... 62,863 53,625
Unrealized investment gains........................ 7,914 2,402
Other.............................................. 767 766
----------- -----------
Total gross deferred tax liabilities............... 71,544 56,793
----------- -----------
Net deferred tax liability......................... 52,639 41,074
=========== ===========
</TABLE>
In United Investor's opinion, all deferred tax assets will be recoverable.
United Investors has not recognized a deferred tax liability of
approximately $2,200 that arose prior to 1984 on temporary differences related
to its policyholders' surplus account. A current tax expense will be
recognized in the future if and when this tax becomes payable.
NOTE 8--POSTRETIREMENT BENEFITS
Pension Plans: The full-time exempt 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>
1997.................................................. $44 $118
1996.................................................. 41 115
1995.................................................. 39 75
</TABLE>
Net periodic pension cost for the defined benefit plan which covers United
Investors' full-time exempt employees has been calculated on the projected
unit credit actuarial cost method in accordance with 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
F-16
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 8--POSTRETIREMENT BENEFITS (CONTINUED)
tax purposes. United Investors records the difference between the SFAS 87
expense and the actual cash contribution to the plan to a liability account.
The liability recorded was $55 at December 31, 1997, and $55 at December 31,
1996. United Investors is one of several sponsors of the defined benefit plan.
The total unfunded plan liability recorded at December 31, 1997 was $459. 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.
Postretirement 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.
Postretirement benefit cost for the years ending December 31, 1997, 1996 and
1995 was $1, $5 and $3, 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 $109 and $122 as of December 31, 1997
and 1996, respectively. The discount rate used in determining the accumulated
postretirement benefit obligation was 7.50% and the health care cost trend
rate was 9%, graded to 4.5% over 10 years.
NOTE 9--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 $29,600, $30,200, and
$25,700 for the years ended December 31, 1997, 1996, and 1995, respectively.
United Investors was charged for space, equipment, and services provided by
an affiliate amounting to $1,852 in 1997, $1,797 in 1996 and $1,706 in 1995.
Torchmark performed certain administrative services for United Investors for
which it charged $468 in 1997, $384 in 1996 and $156 in 1995.
In November 1994, United Investors loaned Torchmark $35,000 at an interest
rate of 8.11%. Interest income related to the Torchmark loans totaling $2,838
and $2,838 at December 31, 1997 and 1996, respectively, is included in the
accompanying financial statements. In January 1996, United Investors loaned
Liberty National $3,500 at an interest rate of 5.75%. This loan was paid in
full in February 1996. Interest income related to this loan totaling $9 at
December 31, 1996 is included in the accompanying financial statements. In
1997, United Investors loaned Torchmark, Liberty National and United American
$8,060, $10,520 and $5,500 respectively at an interest rate of 5.5% all of
which were repaid prior to December 31, 1997. Interest income related to these
loans totaling $1, $2, and $22 respectively are included in the accompanying
financial statements.
F-17
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 9--RELATED PARTY TRANSACTIONS (CONTINUED)
Effective January 1, 1997 United Investors assumed a block of annuity
products totaling $200,321 from United American Insurance Company (United
American), an affiliated company, on a 100% funds withheld coinsurance basis.
In connection with this transaction United Investors paid a ceding fee to
United American totaling $21,305, $10,000 of which was paid in cash, and
recorded a due from affiliates totaling $189, 016. As of December 31, 1997,
the funds withheld balance totaled $190, 235 and is included in due from
affiliates. Interest income on funds withheld at December 31, 1997 totaled
$11,876 and is included in other income. The reserve for annuity balances
assumed in connection with this transaction totaled $210,276 as of December
31, 1997.
United Investors serves as sponsor to four separate accounts and depositor
to two separate accounts of the underlying investment fund in connection with
its variable product business. At December 31, 1997 and 1996 United Investors
had investments of $16,542 and $14,000, in the separate accounts which were
included in other long-term invested assets and carried at market.
Other long-term invested assets also includes investments, carried at
market, in the United Group of Mutual Funds and certain other funds for which
W&R is the sole advisor. These investments approximated $5,946 and $5,159 at
December 31, 1997 and 1996. Investment income derived from these investments
is included in net investment income.
NOTE 10--COMMITMENTS AND CONTINGENCIES
Reinsurance: United Investors reinsures that portion of insurance risk which
is in excess of its retention limit. The maximum net retention limit for
ordinary life insurance is $500 per life. Life insurance ceded represented 2%
of total life insurance in force at December 31, 1997 and 4% of premium income
for 1997. United Investors would be liable for the reinsured risks ceded to
other companies to the extent that such reinsuring companies are unable to
meet their obligation. Except as disclosed in Note 9, United Investors does
not assume insurance risks of other companies.
Restrictions on the transfer of funds: Regulatory restrictions exist on the
transfer of funds from insurance companies. These restrictions generally limit
the payment of dividends to the statutory net gain from operations of the
prior year in the absence of special approval. Additionally, insurance
companies are not permitted to distribute the excess of shareholder's equity
as determined on a GAAP basis over that determined on a statutory basis.
Restricted net assets at December 31, 1997 in compliance with all regulations
were $177,894.
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 (26%); securities of state and municipal governments (4%)
investment-grade corporate bonds (53%), non government guaranteed mortgaged
backed securities (3%), United Funds (3%); and policy loans (3%) which are
secured by the underlying insurance policy value. The balance of the portfolio
is invested in short-term investments (2%), and non investment grade
securities (6%).
F-18
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 10--COMMITMENTS AND CONTINGENCIES (CONTINUED)
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, 1997, 1% or more of the
portfolio was invested in the following industries: financial services (21%);
public utilities (6%); chemicals and allied products (5%); transportation
(5%); manufacturing (4%); consumer goods (4%); media and communications (3%);
services (3%); machinery and equipment (2%); petroleum (2%); paper and allied
products (1%); and assets-backed securities (1%). At the end of 1997, 6% of
the carrying value of securities was rated below investment grade. Par value
of these investments was $42,275, amortized cost was $43,075, and market value
was $44,076. 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.
NOTE 11--SUPPLEMENTAL DISCLOSURES FOR CASH FLOW STATEMENT
The following table summarizes United Investors' noncash transactions, which
are not reflected on the statement of cash flow as required by GAAP:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Due from affiliates.............................. 189,016 0 0
Value of business acquired....................... 11,305 0 0
Future policy benefits........................... 200,321 0 0
The following table summarizes certain amounts paid during the period:
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Taxes paid....................................... $8,631 $22,111 $15,393
</TABLE>
F-19
<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, 1997 and the related statements of
operations and changes in net assets for each of the years in the two-year
period ended December 31, 1997. 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, 1997 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, 1997 in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Birmingham, Alabama
April 9, 1998
F-20
<PAGE>
UNITED INVESTORS ANNUITY VARIABLE ACCOUNT
BALANCE SHEET
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
MONEY HIGH SMALL
MARKET BOND INCOME GROWTH INCOME INTERNATIONAL CAP BALANCED
----------- ----------- ------------ ------------ ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Investments in Mutual
Funds (Note B).. $42,120,712 $95,828,622 $114,771,676 $615,870,930 $619,539,618 $110,216,063 $143,361,859 $65,818,681
----------- ----------- ------------ ------------ ------------ ------------ ------------ -----------
Total assets.... 42,120,712 95,828,622 114,771,676 615,870,930 619,539,618 110,216,063 143,361,859 65,818,681
----------- ----------- ------------ ------------ ------------ ------------ ------------ -----------
Liabilities:
Mortality and
expense risk
charge payable
to Sponsor
(Note D)........ 10,799 25,772 30,799 161,162 162,637 29,433 37,418 17,347
----------- ----------- ------------ ------------ ------------ ------------ ------------ -----------
Total
liabilities..... 10,799 25,772 30,799 161,162 162,637 29,433 37,418 17,347
----------- ----------- ------------ ------------ ------------ ------------ ------------ -----------
Net assets (Note
C).............. $42,109,913 $95,802,850 $114,740,877 $615,709,768 $619,376,981 $110,186,630 $143,324,441 $65,801,334
=========== =========== ============ ============ ============ ============ ============ ===========
Equity:
Equity of
Sponsor
(Note E)........ $ 0 $ 545,338 $ 1,252,806 $ 2,193,865 $ 2,665,788 $ 90,913 $ 143,685 $ 98,973
Equity of
contract owners. 42,109,913 95,257,512 113,488,071 613,515,903 616,711,193 110,095,717 143,180,756 65,702,361
----------- ----------- ------------ ------------ ------------ ------------ ------------ -----------
Total equity.... $42,109,913 $95,802,850 $114,740,877 $615,709,768 $619,376,981 $110,186,630 $143,324,441 $65,801,334
=========== =========== ============ ============ ============ ============ ============ ===========
Accumulation
units
outstanding..... 26,450,888 43,769,678 45,793,587 140,325,438 232,342,721 78,779,114 64,836,083 41,697,180
=========== =========== ============ ============ ============ ============ ============ ===========
Net asset value
per unit........ $ 1.592004 $ 2.188795 $ 2.505610 $ 4.387727 $ 2.665790 $ 1.398678 $ 2.210566 $ 1.578076
=========== =========== ============ ============ ============ ============ ============ ===========
<CAPTION>
LIMITED SCIENCE
TERM ASSET AND
BOND STRATEGY TECHNOLOGY TOTAL
----------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Assets:
Investments in Mutual
Funds (Note B).. $ 3,553,520 $9,265,906 $9,487,703 $1,829,835,290
----------- ---------- ---------- --------------
Total assets.... 3,553,520 9,265,906 9,487,703 1,829,835,290
----------- ---------- ---------- --------------
Liabilities:
Mortality and
expense risk
charge payable
to Sponsor
(Note D)........ 936 2,472 2,416 481,191
----------- ---------- ---------- --------------
Total
liabilities..... 936 2,472 2,416 481,191
----------- ---------- ---------- --------------
Net assets (Note
C).............. $ 3,552,584 9,263,434 $9,485,287 $1,829,354,099
=========== ========== ========== ==============
Equity:
Equity of
Sponsor
(Note E)........ $ 614,901 $ 12,020 $ 577,434 $ 8,195,723
Equity of
contract owners. 2,937,683 9,251,414 8,907,853 1,821,158,376
----------- ---------- ---------- --------------
Total equity.... $ 3,552,584 $9,263,434 $9,485,287 $1,829,354,099
=========== ========== ========== ==============
Accumulation
units
outstanding..... 2,888,746 7,707,088 8,213,309 692,803,832
=========== ========== ========== ==============
Net asset value
per unit........ $ 1.229801 $ 1.201937 $1.154868
=========== ========== ==========
</TABLE>
See Notes to Financial Statements.
F-21
<PAGE>
UNITED INVESTORS ANNUITY VARIABLE ACCOUNT
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MONEY HIGH SMALL
MARKET BOND INCOME GROWTH INCOME INTERNATIONAL CAP
----------- ----------- ------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dividend income
(Note B, D)....... $ 1,886,614 $ 5,708,192 $ 10,489,055 $ 51,204,373 $ 40,069,729 $ 9,707,992 $ 30,039,596
Expenses paid to
Sponsor (Note D):
Mortality and expense
risk charge...... 336,022 805,234 918,316 5,147,095 4,955,851 865,988 1,044,070
Contract
maintenance
charges:
Sales expense.... 138,232 465,629 488,076 2,688,555 2,781,398 527,293 660,187
Administrative
expense.......... 17,645 80,644 90,547 567,407 511,955 93,109 121,574
----------- ----------- ------------ ------------ ------------ ------------ ------------
Total........... 491,899 1,351,507 1,496,939 8,403,057 8,249,204 1,486,390 1,825,831
Net investment income. 1,394,715 4,356,685 8,992,116 42,801,316 31,820,525 8,221,602 28,213,765
Realized
investment gains
distributed to
accounts.......... 0 202,021 935,254 8,039,331 16,327,757 1,529,463 1,961,165
Unrealized
investment
gains (losses).... 0 2,506,728 2,048,376 47,741,139 65,419,359 2,966,361 710,012
----------- ----------- ------------ ------------ ------------ ------------ ------------
Net gain on
investments....... 0 2,708,749 2,983,630 55,780,470 81,747,116 4,495,824 2,671,177
----------- ----------- ------------ ------------ ------------ ------------ ------------
Net increase in
net assets from
operations........ 1,394,715 7,065,434 11,975,746 98,581,786 113,567,641 12,717,426 30,884,942
Premium deposits
and net
transfers*........ 13,026,483 6,671,443 16,030,703 53,678,827 81,055,696 25,015,704 22,929,684
Investment by
sponsor (Note E) 0 (500,000) 0 0 0 0 0
Transfer to
Sponsor for
benefits and
terminations...... (7,873,082) (5,756,198) (6,315,467) (29,769,554) (24,709,595) (4,199,101) (4,604,334)
----------- ----------- ------------ ------------ ------------ ------------ ------------
Total increase ... 6,548,116 7,480,679 21,690,982 122,491,059 169,913,742 33,534,029 49,210,292
Net assets at
beginning of
period............ 35,561,797 88,322,171 93,049,895 493,218,709 449,463,239 76,652,601 94,114,149
----------- ----------- ------------ ------------ ------------ ------------ ------------
Net assets at end
of period (Note
C)................ $42,109,913 $95,802,850 $114,740,877 $615,709,768 $619,376,981 $110,186,630 $143,324,441
=========== =========== ============ ============ ============ ============ ============
<CAPTION>
LIMITED
TERM ASSET SCIENCE AND
BALANCED BOND STRATEGY TECHNOLOGY TOTAL
------------ ----------- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Dividend income
(Note B, D)....... $ 5,139,580 $ 211,939 $1,039,074 $ 63,630 $ 155,559,774
Expenses paid to
Sponsor (Note D):
Mortality and expense
risk charge...... 473,631 29,971 76,508 31,665 14,684,351
Contract
maintenance
charges:
Sales expense.... 298,569 17,554 55,539 11,799 8,132,831
Administrative
expense.......... 42,440 1,978 8,084 1,441 1,536,824
------------ ----------- ----------- ------------ ---------------
Total........... 814,640 49,503 140,131 44,905 24,354,006
Net investment income. 4,324,940 162,436 898,943 18,725 131,205,768
Realized
investment gains
distributed to
accounts.......... 604,986 17,061 49,351 14,375 29,680,764
Unrealized
investment
gains (losses).... 3,143,504 (2,633) 22,267 145,238 124,700,351
------------ ----------- ----------- ------------ ---------------
Net gain on
investments....... 3,748,490 14,428 71,618 159,613 154,381,115
------------ ----------- ----------- ------------ ---------------
Net increase in
net assets from
operations........ 8,073,430 176,864 970,561 178,338 285,586,883
Premium deposits
and net
transfers*........ 18,721,153 404,235 608,002 8,827,654 246,969,584
Investment by
sponsor (Note E) 0 0 0 500,000 0
Transfer to
Sponsor for
benefits and
terminations...... (2,011,335) (85,021) (311,197) (20,705) (85,655,589)
------------ ----------- ----------- ------------ ---------------
Total increase ... 24,783,248 496,078 1,267,366 9,485,287 446,900,878
Net assets at
beginning of
period............ 41,018,086 3,056,506 7,996,068 0 1,382,453,221
------------ ----------- ----------- ------------ ---------------
Net assets at end
of period (Note
C)................ $65,801,334 $3,552,584 $9,263,434 $9,485,287 $1,829,354,099
============ =========== =========== ============ ===============
</TABLE>
- -----
*Includes transfer activity from (to) other portfolios.
See Notes to Financial Statements.
F-22
<PAGE>
UNITED INVESTORS ANNUITY VARIABLE ACCOUNT
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
<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, D)...... $ 1,690,561 $ 5,432,997 $ 7,854,352 $ 56,320,161 $ 10,899,256 $ 974,706 $ 3,710,159 $ 2,267,716
Expenses paid to
Sponsor (Note D):
Mortality and
expense risk
charge.......... 312,072 756,437 775,316 3,974,276 3,439,937 549,848 699,794 279,907
Contract
maintenance
charges:
Sales expense... 117,683 473,630 464,878 2,264,091 2,125,926 362,157 435,854 177,703
Administrative
expense........ 19,290 88,570 93,291 507,714 417,748 69,957 81,940 27,107
----------- ----------- ----------- ------------ ------------ ----------- ----------- -----------
Total............ 449,045 1,318,637 1,333,485 6,748,081 5,983,611 981,962 1,217,588 484,717
Net investment
income.......... 1,241,516 4,114,360 6,520,867 49,574,080 4,915,645 (7,256) 2,492,571 1,782,999
Realized
investment gains
distributed to
accounts......... 0 86,898 576,190 3,605,572 7,773,632 314,046 1,094,691 283,355
Unrealized
investment gains
(losses)......... 0 (2,680,176) 1,779,888 (6,845,217) 50,737,934 7,570,541 (951,002) 881,599
----------- ----------- ----------- ------------ ------------ ----------- ----------- -----------
Net gain (loss)
on investments... 0 (2,593,278) 2,356,078 (3,239,645) 58,511,566 7,884,587 143,689 1,164,954
----------- ----------- ----------- ------------ ------------ ----------- ----------- -----------
Net increase in
net assets from
operations....... 1,241,516 1,521,082 8,876,945 46,334,435 63,427,211 7,877,331 2,636,260 2,947,953
Premium deposits
and net
transfers*....... 6,985,782 7,287,237 6,418,968 64,208,394 79,372,335 22,334,127 40,101,916 16,326,239
Transfer to
Sponsor for
benefits and
terminations..... (8,197,908) (5,042,186) (4,954,968) (19,449,582) (15,602,179) (1,817,005) (2,335,514) (993,099)
----------- ----------- ----------- ------------ ------------ ----------- ----------- -----------
Total increase .. 29,390 3,766,133 10,340,945 91,093,247 127,197,367 28,394,453 40,402,662 18,281,093
Net assets at
beginning of
eriod............ 35,532,407 84,556,038 82,708,950 402,125,462 322,265,872 48,258,148 53,711,487 22,736,993
----------- ----------- ----------- ------------ ------------ ----------- ----------- -----------
Net assets at end
of period (Note
C)............... $35,561,797 $88,322,171 $93,049,895 $493,218,709 $449,463,239 $76,652,601 $94,114,149 $41,018,086
=========== =========== =========== ============ ============ =========== =========== ===========
<CAPTION>
LIMITED
TERM ASSET
BOND STRATEGY TOTAL
----------- ----------- ---------------
<S> <C> <C> <C>
Dividend income
(Note B, D)...... $ 160,174 $ 272,898 $ 89,582,980
Expenses paid to
Sponsor (Note D):
Mortality and
expense risk
charge.......... 23,691 62,883 10,874,161
Contract
maintenance
charges:
Sales expense... 13,377 36,677 6,471,976
Administrative
expense........ 1,551 5,921 1,313,089
----------- ----------- ---------------
Total............ 38,619 105,481 18,659,226
Net investment
income.......... 121,555 167,417 70,923,754
Realized
investment gains
distributed to
accounts......... 4,751 30,906 13,770,041
Unrealized
investment gains
(losses)......... (60,676) 126,503 50,559,394
----------- ----------- ---------------
Net gain (loss)
on investments... (55,925) 157,409 64,329,435
----------- ----------- ---------------
Net increase in
net assets from
operations....... 65,630 324,826 135,253,189
Premium deposits
and net
transfers*....... 903,214 3,631,664 247,569,876
Transfer to
Sponsor for
benefits and
terminations..... (173,960) (240,685) (58,807,086)
----------- ----------- ---------------
Total increase .. 794,884 3,715,805 324,015,979
Net assets at
beginning of
eriod............ 2,261,622 4,280,263 1,058,437,242
----------- ----------- ---------------
Net assets at end
of period (Note
C)............... $3,056,506 $7,996,068 $1,382,453,221
=========== =========== ===============
</TABLE>
- -----
*Includes transfer activity from (to) other portfolios.
See Notes to Financial Statements.
F-23
<PAGE>
UNITED INVESTORS ANNUITY VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
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 eleven 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, a
limited term bond portfolio, an asset strategy portfolio and a science and
technology portfolio(established during 1997). 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-24
<PAGE>
UNITED INVESTORS ANNUITY VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following is a summary of reinvested dividends by portfolio:
<TABLE>
<CAPTION>
1997
----
INVESTMENT PORTFOLIO SHARES REINVESTED DIVIDEND INCOME
-------------------- ----------------- ---------------
<S> <C> <C>
Money Market.................................. 1,886,614 $ 1,886,614
Bond.......................................... 1,063,255 5,708,192
High Income................................... 2,212,787 10,489,055
Growth........................................ 6,765,995 51,204,373
Income........................................ 3,349,892 40,069,729
International................................. 1,520,628 9,707,992
Small Cap..................................... 3,605,501 30,039,596
Balanced...................................... 759,327 5,139,580
Limited Term Bond............................. 40,850 211,939
Asset Strategy................................ 199,941 1,039,074
Science and Technology........................ 11,023 63,630
</TABLE>
<TABLE>
<CAPTION>
1996
----
INVESTMENT PORTFOLIO SHARES REINVESTED DIVIDEND INCOME
-------------------- ----------------- ---------------
<S> <C> <C>
Money Market.................................. 1,690,561 $ 1,690,561
Bond.......................................... 1,044,727 5,432,997
High Income................................... 1,716,798 7,854,352
Growth........................................ 8,286,398 56,320,161
Income........................................ 1,075,164 10,899,256
International................................. 162,478 974,706
Small Cap..................................... 462,752 3,710,159
Balanced...................................... 365,955 2,267,716
Limited Term Bond............................. 31,018 160,174
Asset Strategy................................ 53,152 272,898
</TABLE>
F-25
<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
1997 MARKET BOND INCOME GROWTH INCOME INTERNATIONAL CAP BALANCED
- ---- ----------- ------------ ------------ ------------ ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cost to:
Contract Owners. $61,674,330 $ 91,317,812 $ 94,011,814 $396,943,106 $417,270,161 $ 95,408,048 $107,461,683 $55,107,835
Sponsor......... 0 0 500,000 500,000 1,000,000 65,000 65,000 62,717
Adjustment for
market
appreciation and
reinvested
dividends........ 9,825,993 35,021,937 50,503,915 327,068,355 282,127,978 24,704,659 46,878,533 15,408,812
Deductions:
Mortality and
expense risk
charge......... (1,835,602) (4,173,414) (4,182,221) (17,379,362) (13,817,884) (1,826,182) (2,085,139) (912,114)
Contract
maintenance
charges:
Sales expense... (759,715) (2,518,824) (2,384,137) (9,578,126) (8,192,409) (1,122,057) (1,272,500) (562,156)
Administrative
expense........ (130,450) (507,569) (524,888) (2,283,506) (1,653,568) (210,201) (235,866) (82,172)
Benefits &
terminations... (26,664,643) (23,337,092) (23,183,606) (79,560,699) (57,357,297) (6,832,637) (7,487,270) (3,221,588)
----------- ------------ ------------ ------------ ------------ ------------ ------------ -----------
Net assets....... $42,109,913 $ 95,802,850 $114,740,877 $615,709,768 $619,376,981 $110,186,630 $143,324,441 $65,801,334
=========== ============ ============ ============ ============ ============ ============ ===========
<CAPTION>
1996
- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cost to:
Contract Owners.. $48,647,847 $ 84,646,369 $ 77,981,111 $343,264,279 $336,214,465 $ 70,392,344 $ 84,531,999 $36,386,682
Sponsor.......... 0 500,000 500,000 500,000 1,000,000 65,000 65,000 62,717
Adjustment for
market
appreciation and
reinvested
dividends....... 7,939,379 26,604,996 37,031,230 220,083,512 160,311,133 10,500,843 14,167,760 6,520,742
Deductions:
Mortality and
expense risk
charge.......... (1,499,580) (3,368,180) (3,263,905) (12,232,267) (8,862,033) (960,194) (1,041,069) (438,483)
Contract
maintenance
charges:
Sales expense... (621,483) (2,053,195) (1,896,061) (6,889,571) (5,411,011) (594,764) (612,313) (263,587)
Administrative
expense........ (112,805) (426,925) (434,341) (1,716,099) (1,141,613) (117,092) (114,292) (39,732)
Benefits &
terminations.... (18,791,561) (17,580,894) (16,868,139) (49,791,145) (32,647,702) (2,633,536) (2,882,936) (1,210,253)
----------- ------------ ------------ ------------ ------------ ------------ ------------ -----------
Net assets....... $35,561,797 $88,322,171 $ 93,049,895 $493,218,709 $449,463,239 $ 76,652,601 $ 94,114,149 $41,018,086
=========== ============ ============ ============ ============ ============ ============ ===========
<CAPTION>
LIMITED
TERM ASSET SCIENCE AND
1997 BOND STRATEGY TECHNOLOGY
- ---- ----------- ----------- ------------
<S> <C> <C> <C>
Cost to:
Contract Owners. $2,893,475 $8,548,676 $8,827,654
Sponsor......... 500,000 10,000 500,000
Adjustment for
market
appreciation and
reinvested
dividends........ 551,910 1,552,250 223,243
Deductions:
Mortality and
expense risk
charge......... (74,064) (151,442) (31,665)
Contract
maintenance
charges:
Sales expense... (37,875) (94,579) (11,799)
Administrative
expense........ (4,408) (14,291) (1,441)
Benefits &
terminations... (276,454) (587,180) (20,705)
----------- ----------- ------------
Net assets....... $3,552,584 $9,263,434 $9,485,287
=========== =========== ============
<CAPTION>
1996
- ----
<S> <C> <C> <C>
Cost to:
Contract Owners.. $2,489,240 $7,940,674
Sponsor.......... 500,000 10,000
Adjustment for
market
appreciation and
reinvested
dividends....... 325,543 441,558
Deductions:
Mortality and
expense risk
charge.......... (44,093) (74,934)
Contract
maintenance
charges:
Sales expense... (20,321) (39,040)
Administrative
expense........ (2,430) (6,207)
Benefits &
terminations.... (191,433) (275,983)
----------- -----------
Net assets....... $3,056,506 $7,996,068
=========== ===========
</TABLE>
F-26
<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. 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 net assets; High Income
Portfolio--.15% of net assets; Growth Portfolio--.20% of net assets; Income
Portfolio--.20% of net assets; International Portfolio--.30% of net assets;
Small Cap Portfolio--.35% of net assets; Balanced Portfolio--.10% of net
assets; Limited Term Bond Portfolio--.05% of net assets; Asset Strategy
Portfolio--.30% of net assets; Science and Technology--.20% 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%; From $750 to $1,500
million--.49%; from $1,500 to $2,250 million--.47%; over $2,250 million--.45%.
Fees for these services are deducted from dividend income. The amount of these
fees have been:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Money Market........................................... $ 185,482 $ 174,341
Bond................................................... 471,851 448,923
High Income............................................ 661,953 563,465
Growth................................................. 3,994,284 3,112,383
Income................................................. 3,847,284 2,696,678
International.......................................... 768,671 493,772
Small Cap.............................................. 985,291 666,450
Balanced............................................... 315,007 188,225
Limited Term Bond...................................... 18,187 14,668
Asset Strategy......................................... 67,893 56,906
Science and Technology................................. 25,902 0
</TABLE>
F-27
<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>
Withdrawal charges are included in transfers to sponsors for benefits and
terminations.
NOTE E--EQUITY OF SPONSOR
The equity of the Sponsor may be withdrawn at the discretion of the Sponsor
without penalty.
F-28
<PAGE>
UNITED INVESTORS ANNUITY VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE F--SELECTED UNIT DATA
Selected data for a weighted average unit of the Annuity Variable Separate
Account outstanding throughout each period follows.
<TABLE>
<CAPTION>
LIMITED
MONEY HIGH SMALL TERM ASSET SCIENCE AND
1997 MARKET BOND INCOME GROWTH INCOME INTERNATIONAL CAP BALANCED BOND STRATEGY TECHNOLOGY*
- ---- ------ ----- ------ ------ ------ ------------- ----- -------- ------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend income........ $0.08 $0.13 $0.24 $0.37 $0.18 $0.13 $0.50 $0.14 $0.08 $0.14 $0.01
Expenses............... 0.02 0.03 0.03 0.06 0.04 0.02 0.03 0.02 0.02 0.02 0.01
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Investment income--net. 0.06 0.10 0.21 0.31 0.14 0.11 0.47 0.12 0.06 0.12 0.00
Net realized and
unrealized investment
gains.................. 0 0.06 0.07 0.41 0.37 0.06 0.04 0.10 0.01 0.01 0.04
Premium deposits and
net transfers.......... 0.55 0.15 0.37 0.39 0.37 0.35 0.38 0.52 0.14 0.08 2.02
Transfer to Sponsor for
benefits and
terminations........... (0.33) (0.13) (0.15) (0.22) (0.11) (0.06) (0.08) (0.06) (0.03) (0.04) 0.00
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Increase in net asset
value.................. 0.28 0.18 0.50 0.89 0.77 0.46 0.81 0.68 0.18 0.17 2.06
Net asset value,
beginning of the
period................. 1.52 2.04 2.24 3.82 2.32 1.42 2.09 1.69 1.32 1.19 0.00
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value, end of
the period............. $1.80 $2.22 $2.74 $4.71 $3.09 $1.88 $2.90 $2.37 $1.50 $1.36 $2.06
===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
<CAPTION>
1996
- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend income........ $0.07 $0.13 $0.19 $0.44 $0.06 $0.02 $0.08 $0.09 $0.07 $0.04
Expenses............... 0.02 0.03 0.03 0.05 0.03 0.02 0.03 0.02 0.02 0.02
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Investment income--net. 0.05 0.10 0.16 0.39 0.03 0.00 0.05 0.07 0.05 0.02
Net realized and
unrealized investment
gains (losses)......... (0.29) 0.03 0.04 (0.36) 0.02 (0.30) (1.10) (0.70) (0.45) (1.34)
Premium deposits and
net transfers.......... 0.30 0.17 0.15 0.50 0.41 0.41 0.89 0.67 0.39 0.55
Transfer to Sponsor for
benefits and
terminations........... (0.35) (0.12) (0.12) (0.15) (0.08) (0.03) (0.05) (0.04) (0.08) (0.04)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Increase in net asset
value.................. (0.29) 0.18 0.23 0.38 0.38 0.08 (0.21) 0.00 (0.09) (0.81)
Net asset value,
beginning of the
period................. 1.81 1.86 2.01 3.44 1.94 1.34 2.30 1.69 1.41 2.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value, end of
the period............. $1.52 $2.04 $2.24 $3.82 $2.32 $1.42 $2.09 $1.69 $1.32 $1.19
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
* Established in 1997
F-29
<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, 1998, 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, 1998
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Corresponding Prospectus Page
<S> <C>
THE POLICY................................. 3 ......................... 10
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.............................. 7 .........................
Non-Participation.......................... 7 .........................
Delay or Suspension of Payments............ 7 .........................
Ownership.................................. 8 .........................
Beneficiary................................ 8 .........................
Change of Ownership or Beneficiary......... 8 .........................
Assignment................................. 8 .........................
Incontestability........................... 8 .........................
Evidence of Survival....................... 8 .........................
PERFORMANCE DATA CALCULATIONS.............. 9 .........................
FEDERAL TAX MATTERS........................ 12 ......................... 21
Taxation of United Investors............. 12 .........................
Tax Status of the Policies............... 12 .........................
Withholding.............................. 13 .........................
ADDITION, DELETION OR SUBSTITUTION
OF INVESTMENTS........................... 14 .........................
DISTRIBUTION OF THE POLICY................. 15 ......................... 21
SAFEKEEPING OF VARIABLE ACCOUNT
ASSETS................................... 16 .........................
STATE REGULATION........................... 16 .........................
RECORDS AND REPORTS........................ 16 .........................
LEGAL MATTERS.............................. 17 ......................... 25
EXPERTS.................................... 17 .........................
OTHER INFORMATION.......................... 17 .........................
FINANCIAL STATEMENTS....................... 18 .........................
</TABLE>
2
<PAGE>
THE POLICY
----------
As a supplement to the description in the Prospectus, the following
provides additional information about the Policy.
Accumulation Units
- ------------------
An Accumulation Unit is an accounting unit used prior to the Retirement
Date to calculate the Variable Account Value. The portion of a Net Purchase
Payment that you allocate to an Investment Division of the Variable Account is
credited as Accumulation Units in that Investment Division. Similarly, the
value that you transfer to an Investment Division of the Variable Account is
credited as Accumulation Units in that Investment Division. The number of
Accumulation Units to credit is 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 portion of the Net Purchase
Payment to be allocated to the Investment Divisions of the Variable Account 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 portion
of the Net Purchase Payment or transfer to be allocated to the Investment
Divisions of the Variable Account 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 Variable Annuity Payments. The value of an Annuity Unit
in each Investment Division was arbitrarily set at $1 when the first investments
were bought. The value for any later Valuation Period is found by (a)
3
<PAGE>
multiplying the Annuity Unit Value for an Investment Division for the last prior
Valuation Period for such Investment Division's Net Investment Factor for the
following Valuation Period, and then (b) adjusting the result to compensate for
the interest rate assumed in the annuity tables used to determine the amount of
the first Variable Annuity Payment. The value of an Annuity Unit for each
Investment Division changes to reflect the investment performance of the
Portfolio underlying that Investment Division.
Net Investment Factor
- ---------------------
The Net Investment Factor is an index applied to measure the investment
performance of an Investment Division of the Variable Account from one Valuation
Period to the next. The Net Investment Factor may be greater or less than one,
so the value of an Investment Division may increase or decrease.
The Net Investment Factor of an Investment Division for any Valuation
Period is determined by dividing (1) by (2) and subtracting (3) from the result,
where:
(1) is the result of:
(a) the net asset value per share of the Portfolio shares held in the
Investment Division determined at the end of the current
Valuation Period; plus
(b) the per share amount of any dividend or capital gain distributions
on the Portfolio shares held in the Investment Division, if the
"ex-dividend" date occurs during the current Valuation Period;
plus or minus
(c) A charge or credit for any taxes reserved for the current
Valuation Period which we determine to have resulted from the
investment operations of the Investment Division;
4
<PAGE>
(2) is the result of:
(a) the net asset value per share of the Portfolio shares held in the
Investment Division, determined at the end of the previous
Valuation Period; plus or minus
(b) the charge or credit for any taxes reserved for the previous
Valuation Period; and
(3) is a deduction for 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 and less any withdrawal charges, may be
applied to make Fixed Annuity Payments, Variable Annuity Payments, or a
combination thereof.
Fixed Annuity Payments
- ----------------------
Fixed Annuity Payments provide guaranteed annuity payments which remain
fixed in amount throughout the payment period. Fixed Annuity Payments do not
vary with the investment experience of the Investment Divisions. The payment
amount will be based on our Fixed Annuity Payment rates in effect on the
settlement date. These rates are guaranteed 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 Annuity Payments than
if no setback is used. Where requested and required by law unisex tables will
be used.
Variable Annuity Payments
- -------------------------
The dollar amount of the first Variable Annuity Payment is determined by
multiplying the net value applied by purchase rates based on the 1971 Individual
Mortality Table (set back two years) with interest at 4.0%. Annuity Mortality
Table (set back two years) with interest at 4.0%. The two year setback results
in lower Annuity Payments than if no setback is used. Where requested and
required by law unisex tables will be used.
The portion of the first Variable Annuity Payment attributed to each
Investment Division is divided by the Annuity Unit Value for the Investment
Division (as of the same date that the amount of the first Variable Annuity
Payment is determined) to determine the number of Annuity Units upon which later
Variable Annuity Payments will be made. This number of Annuity Units will not
change unless subsequently changed by reallocation. The dollar amount of each
monthly Variable Annuity Payment after the first Annuity Payment will equal the
5
<PAGE>
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 Variable 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 Variable
Annuity Payment, by converting Annuity Units for the value transferred from an
Investment Division into Annuity Units in the Investment Division to which the
value is transferred. Reallocations may cause the number of Annuity Units to
change, but will not change the dollar amount of the Variable Annuity Payment as
of the date of reallocation.
United Investors guarantees that the dollar amount of monthly Variable
Annuity Payments after the first payment will not be affected by variations in
expenses or mortality experience.
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.
6
<PAGE>
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 current
Fixed Account Value, the current value of the Investment Divisions of the
Variable Account, the Purchase Payments paid, all charges and partial
withdrawals since the last report, the current Surrender Value and the current
Death Benefit. We will also include in the report any other information required
by state law or regulation. Further, we will send you the reports required by
the Investment Company Act of 1940. You may request additional reports during
the year but we may charge a fee for any additional reports.
Non-Participation
- -----------------
The Policy is non-participating. This means that no dividends will be paid
on your Policy. It will not share in our profits or surplus earnings.
Delay or Suspension of Payments
- -------------------------------
We will normally pay a surrender or any withdrawal within seven days after
we receive your Written Request in our home office. However, payment of any
amount from the Investment Divisions of the Variable Account may be delayed or
suspended whenever:
a) the New York Stock Exchange is closed other than customary weekend and
holiday closing, or trading on the New York Exchange is restricted as
determined by the 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.
Payment of any amounts from the Fixed Account may be deferred for up to six
months from the date of the request to surrender. If payment is deferred for
more than 30 days, we will pay interest on the amount deferred at a rate not
less the Guaranteed Minimum Interest Rate.
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.
7
<PAGE>
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
request was signed, but it will not apply to payments made by us before we
accept your Written Request. We may require you to submit the Policy to us
before making a change. A change of ownership may be a taxable event.
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.
8
<PAGE>
PERFORMANCE DATA CALCULATIONS
-----------------------------
We may advertise the yield and effective yield of the Money Market
Investment Division. In addition, we may advertise the total returns for other
Investment Divisions of the Variable Account. All performance data calculations
for the Variable Account will be in accordance with uniformly imposed SEC
regulations.
Money Market Investment Division Yield Calculation
- --------------------------------------------------
In accordance with regulations adopted by the SEC, if we disclose the
current annualized yield of the Money Market Investment Division for a seven-day
period, it is required to be in a manner which does not take into consideration
any realized or unrealized gains or losses of the Money Market Portfolio or on
its portfolio securities. The current annualized yield is computed by deter
mining the net change (exclusive of realized gains and losses on the sale of
securities and unrealized appreciation and depreciation and income other than
investment income) in the value of a hypothetical account having a balance of
one unit of the Money Market Investment Division at the beginning of the seven-
day period, dividing the net change in account value by the value of the account
at the beginning of the period to determine the base period return, and
annualizing this quotient on a 365-day basis. The net change in account value
reflects the deduction for the Mortality and Expense Risk Charge and the
Administration Fee as well as reflecting income and expenses accrued during the
period. Because of these deductions, the yield for the Money Market Investment
Division will be lower than the yield for the Money Market Portfolio of the
Fund.
The SEC also permits us to disclose the effective yield of the Money Market
Investment Division for the same seven-day period, determined on a compounded
basis. The effective yield is calculated by compounding the annualized base
period return by adding one to the base period return, raising the sum to a
power equal to 365 divided by 7, and subtracting one from the result according
to the following formula:
Effective Yield = [(Base period return +1)-365/7]-1
For the seven-day period ending December 31, 1997, the Money Market
Investment Division annualized yield was 4.02%. For the same period, the
effective yield was 4.10%.
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
9
<PAGE>
held by the Money Market Portfolio; and (4) its operating expenses. The yield on
amounts held in the Money Market Investment Division normally will fluctuate on
a daily basis. Therefore, the disclosed yields for any given past period is not
an indication or representation of future yields or rates of return.
Average Annual Total Return Calculations
- ----------------------------------------
For each Investment Division of the Variable Account other than the Money
Market Investment Division an average annual total return may be calculated for
a given period. It is computed by finding the average annual compounded rate of
return over one, five and ten year periods (or, where an Investment Division has
been in existence for a period less than one, five or ten years, for such lesser
period) that would equate the initial amount invested to the ending redeemable
value, according to the following formula:
P(1 + T)^n= ERV
Where
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.
10
<PAGE>
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
Investment 1 Year to 5 Years to 10 Years to Inception to Inception
Division 12/31/97 to 12/31/97 12/31/97 12/31/97 Date
- ---------- ---------- ----------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
Bond 1.20% 5.60% 7.25% 7.20% 7-13-87
High Income 5.42% 9.69% 9.12% 8.59% 7-13-87
Growth 12.77% 15.15% 15.77% 14.59% 7-13-87
Income 17.44% 16.17% NA 15.62% 7-16-91
International 5.07% NA NA 7.83% 5-03-94
Small Cap 22.77% NA NA 22.71% 5-03-94
Balanced 9.84% NA NA 11.60% 5-03-94
Limited-Term Bond -1.70% NA NA 3.95% 5-03-94
Asset Strategy 5.39% NA NA 4.44% 5-01-95
Science & Technology NA NA NA 9.60% 4-04-97
</TABLE>
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%.
NON-STANDARD AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
Investment 1 Year to 5 Years to 10 Years to Inception to Inception
Division 12/31/97 12/31/97 12/31/97 12/31/97 Date
- ---------- -------- --------- ----------- --------- -----
<S> <C> <C> <C> <C> <C>
Bond 8.20% 6.08% 7.25% 7.20% 7-13-87
High Income 12.42% 10.11% 9.12% 8.59% 7-13-87
Growth 19.77% 15.49% 15.77% 14.59% 7-13-87
Income 24.44% 16.49% NA 15.62% 7-16-91
International 15.07% NA NA 7.83% 5-03-94
Small Cap 29.77% NA NA 22.71% 5-03-94
Balanced 16.84% NA NA 11.60% 5-03-94
Limited-Term Bond 5.30% NA NA 3.95 5-03-94
Asset Strategy 12.39% NA NA 4.44% 5-01-95
Science & Technology NA NA NA 20.77% 4-04-97
</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.
11
<PAGE>
FEDERAL TAX MATTERS
-------------------
Taxation of United Investors
- ----------------------------
United Investors is taxed as a life insurance company under Part 1 of
Subchapter L of the Internal Revenue Code of 1986 (the "Code"). Since the
Variable Account is not an entity separate from United Investors and its
operations form a part of United Investors, it will not be taxed separately as a
"regulated investment company" under Subchapter M of the Code. Investment
income and realized net capital gains on the assets of the Variable Account are
reinvested and taken into account in determining the Policy Value. As a result,
such investment income and realized net capital gains are automatically retained
as part of the reserves under the Policy. Under existing federal income tax
law, United Investors believes that Variable Account investment income and
realized net capital gains should not be taxed to the extent that such income
and gains are retained as part of the reserves under the Policy.
Tax Status of the Policies
- --------------------------
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
12
<PAGE>
contract owner's gross income. The IRS has stated in published rulings
that a variable contract owner will be considered the owner of separate account
assets if the contract owner possesses incidents of ownership in those assets,
such as the ability to exercise investment control over the assets. The
Treasury Department also announced, in connection with the issuance of
regulations concerning diversification, that those regulations "do not provide
guidance concerning the circumstances in which investor control of the
investments of a segregated asset account may cause the investor (i.e., the
----
Policyowner), rather than the insurance company, to be treated as the owner of
the assets in the account." This announcement also stated that guidance would
be issued by way of regulations or rulings on the "extent to which policyholders
may direct their investments to particular subaccounts without being treated as
owners of the underlying assets."
The ownership rights under the Policy are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that policy owners were not owners of separate account assets. For
example, the Policyowner has additional flexibility in allocating 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
- -----------
Distributions from the Policy generally are subject to withholding for the
Owner's federal income tax liability. The withholding rate varies according to
the type of distribution and the Owner's tax status.
The Owner will be provided the opportunity to elect to not have tax withheld
from distributions.
"Eligible rollover distributions" from section 401(a) plan and section
403(b) tax-sheltered annuities are subject to a mandatory federal income tax
withholding of 20%. An eligible rollover distribution is the taxable portion
of any distribution from such a plan, except certain distributions such as
distributions required by the Code or distributions in a specified annuity form.
The 20% withholding does not apply, however, if the Owner chooses a "direct
13
<PAGE>
rollover" from the plan to another tax-qualified plan or IRA.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
-------------------------------------------------
United Investors reserves the right, subject to compliance with applicable
law, to make additions to, deletions from, or substitutions for, the shares of
the Fund that are held by the Variable Account (or any Investment Division) or
that the Variable Account (or any Investment Division) may purchase. United
Investors reserves the right to eliminate the shares of any of the Portfolios of
the Fund and to substitute shares of another Portfolio of the Fund or any other
investment vehicle or of another open-end, registered investment company if laws
or regulations are changed, if the shares of the Fund or a Portfolio are no
longer available for investment, or if in our judgment further investment in any
Portfolio should become inappropriate in view of the purposes of the Investment
Division. United Investors will not substitute any shares attributable to a
Policyowner's interest in an Investment Division of the Variable Account without
notice and prior approval of the Securities and Exchange Commission and the
insurance regulator of the state where the Policy was delivered, where required.
Nothing contained herein shall prevent the Variable Account from purchasing
other securities for other series or classes of policies, or from permitting a
conversion between series or classes of policies on the basis of requests made
by Policyowners.
United Investors also reserves the right to establish additional Investment
Divisions of the Variable Account, each of which would invest in a new Portfolio
of the Fund, or in shares of another investment company or suitable investment,
with a specified investment objective. New Investment Divisions may be
established when, in the sole discretion of United Investors, marketing needs or
investment conditions warrant, and any new Investment Divisions will be made
available to existing Policyowners on a basis to be determined by United
Investors. United Investors may also eliminate one or more Investment Divisions
if, in its sole discretion, marketing, tax, or investment conditions warrant.
In the event of any such substitution or change, United Investors may, by
appropriate endorsement, make such changes in the Policies as may be necessary
or appropriate to reflect such substitution or change. If deemed by United
Investors to be in the best interests of persons having voting rights under the
Policies, the Variable Account may be operated as a management company under the
Investment Company Act of 1940, it may be deregistered under that Act in the
event such registration is no longer required, or it may be combined with other
14
<PAGE>
United Investors separate accounts.
DISTRIBUTION OF THE POLICY
--------------------------
The Policies will be sold by individuals who, in addition to being licensed
as life insurance agents for United Investors, are also registered
representatives of Waddell & Reed, Inc. ("W&R"), the principal underwriter of
the Policies, or of broker-dealers who have entered into written sales
agreements with W&R. W&R, an affiliate of United Investors is registered with
the Securities and Exchange Commission under the Securities Exchange Act of 1933
as a broker-dealer and is a member of the National Association of Securities
Dealers. The total commissions paid by United Investors for the sale of the
Policy were $13,707,504 during 1995, $17,967,189 during 1996, and $17,930,576
during 1997. 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. United
Investors may reduce or eliminate the sales charge 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; or (3) individuals or
groups of individuals when sales of the contract result in savings of sales
expenses.
15
<PAGE>
SAFEKEEPING OF VARIABLE ACCOUNT ASSETS
--------------------------------------
United Investors holds the assets of the Variable Account. The assets are
kept physically segregated and held separate and apart from United Investors'
general account. United Investors maintains records of all purchases and
redemptions of Fund shares by each of the Investment Divisions.
STATE REGULATION
----------------
United Investors is subject to regulation by the Missouri Department of
Insurance. An annual statement is filed with the Missouri Department of
Insurance on or before March 1 of each year covering the operations and
reporting on the financial condition of United Investors as of December 31 of
the preceding year. Periodically, the Missouri Department of Insurance or other
authorities examine the liabilities and reserves of United Investors and the
Variable Account, and a full examination of United Investors' operations is
conducted periodically by the National Association of Insurance Commissioners.
In addition, United Investors is subject to the insurance laws and
regulations of other states within which it is licensed or may become licensed
to operate. Generally, the insurance department of any other state applies the
laws of the state of domicile in determining permissible investments. A Policy
is governed by the law of the state in which it is delivered. The values and
benefits of each Policy are at least equal to those required by such state.
RECORDS AND REPORTS
-------------------
All records and accounts relating to the Variable Account will be maintained
by United Investors. As presently required by the Investment
Company Act of 1940 and regulations promulgated thereunder, reports containing
such information as may be required under that Act or by any other applicable
law or regulation will be sent to Owners at their last known address of record.
16
<PAGE>
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, LLP 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, 1997 and 1996, 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, 1997 and the balance sheet of United Investors Annuity Variable
Account as of December 31, 1997 and the related statements of operations and
changes in net assets for each of the years in the two-year period ended
December 31, 1997 have been included in post-effective Amendment No. 14 of Form
N-4 for the United Investors Annuity Variable Account in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
OTHER INFORMATION
-----------------
A Registration Statement has been filed with the 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.
17
<PAGE>
FINANCIAL STATEMENTS
--------------------
The financial statements of United Investors, which are included herein,
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.
18
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
United Investors Life Insurance Company
Birmingham, Alabama
We have audited the accompanying balance sheets of United Investors Life
Insurance Company as of December 31, 1997 and 1996 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, 1997. 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, 1997 and 1996 and the results of its
operations and its cash flow for each of the years in the three-year period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Birmingham, Alabama
February 2, 1998 except
for Note 1 which is as of
March 3, 1998
F-1
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities--available for sale, at fair value
(cost: 1997--$612,600; 1996--$621,177)................. $ 635,643 $ 624,880
Policy loans............................................ 15,817 14,332
Other long-term invested assets......................... 22,488 21,411
Short-term investments.................................. 13,423 1,834
---------- ----------
Total investments..................................... 687,371 662,457
Cash..................................................... 5,288 2,404
Accrued investment income (includes amounts from
affiliates:
1997--$473; 1996--$473)................................. 11,270 10,781
Receivables ............................................. 2,826 2,635
Due from affiliates (includes funds withheld on reinsur-
ance: 1997--$190,235; 1996--$0)......................... 225,235 35,423
Deferred acquisition costs............................... 176,897 169,986
Value of insurance purchased............................. 33,754 16,160
Goodwill................................................. 6,771 7,055
Property and equipment................................... 141 156
Other assets............................................. 1,149 1,534
Separate account assets.................................. 1,876,439 1,420,025
---------- ----------
Total assets.......................................... $3,027,141 $2,328,616
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Future policy benefits.................................. $ 736,975 $ 531,297
Unearned and advance premiums........................... 2,975 2,804
Other policy liabilities................................ 8,713 8,135
---------- ----------
Total policy liabilities............................... 748,663 542,236
Accrued income taxes.................................... 58,270 43,063
Other liabilities....................................... 2,825 2,265
Due to affiliates....................................... 9,374 8,965
Separate account liabilities............................ 1,876,439 1,420,025
---------- ----------
Total liabilities..................................... 2,695,571 2,016,554
Shareholder's equity:
Common stock, par value $6 per share-authorized,
issued and outstanding:
500,000 shares......................................... 3,000 3,000
Additional paid-in capital.............................. 138,469 137,950
Unrealized investment gains, net of applicable taxes.... 14,700 4,460
Retained earnings....................................... 175,401 166,652
---------- ----------
Total shareholder's equity............................ 331,570 312,062
---------- ----------
Total liabilities and shareholder's equity............ $3,027,141 $2,328,616
========== ==========
</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,
---------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Premium income.................................... $ 68,723 $ 65,114 $ 61,792
Policy charges and fees........................... 36,582 29,403 23,109
Net investment income (includes amounts from af-
filiates: 1997--$2,863; 1996--$2,847; 1995--
$3,058; ......................................... 51,514 51,128 49,356
Realized investment gains (losses)................ (5,365) 925 1,441
Other income (includes amounts from affiliates:
1997--$11,876; 1996--$0; 1995--$0) .............. 11,876 0 4
-------- -------- --------
Total revenue................................... 163,330 146,570 135,702
Benefits and expenses:
Policy benefits:
Individual life.................................. 57,954 47,355 42,943
Annuity.......................................... 15,165 15,807 16,540
-------- -------- --------
Total policy benefits........................... 73,119 63,162 59,483
Amortization of deferred acquisition costs........ 24,898 19,850 16,602
Commissions and premium taxes (includes amounts to
affiliates: 1997--$4,928; 1996--$4,723; 1995--
$4,000; ......................................... 6,251 5,248 4,691
Other operating expense (includes amounts to af-
filiates: 1997--$3,217; 1996--$2,181; 1995--
$1,862;.......................................... 5,470 3,966 3,679
-------- -------- --------
Total benefits and expenses..................... 109,738 92,226 84,455
-------- -------- --------
Net operating income before income taxes........... 53,592 54,344 51,247
Income taxes....................................... 18,843 19,078 18,037
-------- -------- --------
Net income...................................... $ 34,749 $ 35,266 $ 33,210
======== ======== ========
</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,
1995
Balance at January 1,
1995................... $3,000 $137,915 $(12,378) $134,176 $262,713
Net income.............. 33,210 33,210
Dividends............... (7,500) (7,500)
Exercise of stock op-
tions.................. 35 35
Net change in unrealized
investment gains (loss-
es).................... 24,670 24,670
------ -------- -------- -------- --------
Balance at December 31,
1995................... 3,000 137,950 12,292 159,886 313,128
YEAR ENDED DECEMBER 31,
1996
Net income.............. 35,266 35,266
Dividends............... (28,500) (28,500)
Net change in unrealized
investment gains (loss-
es).................... (7,832) (7,832)
------ -------- -------- -------- --------
Balance at December 31,
1996................... 3,000 137,950 4,460 166,652 312,062
YEAR ENDED DECEMBER 31,
1997
Net Income.............. 34,749 34,749
Dividends............... (26,000) (26,000)
Exercise of stock op-
tions.................. 519 519
Net Change in unrealized
investment gains (loss-
es).................... 10,240 10,240
------ -------- -------- -------- --------
Balance at December 31,
1997................... $3,000 $138,469 $ 14,700 $175,401 $331,570
====== ======== ======== ======== ========
</TABLE>
See accompanying Notes to Financial Statements.
F-4
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
--------- -------- ---------
<S> <C> <C> <C>
Net income.................................... $ 34,749 $ 35,266 $ 33,210
Adjustments to reconcile net income to cash
provided from operations:
Increase in future policy benefits........... 17,878 20,692 22,011
Increase (decrease) in other policy benefits. 749 2,154 (614)
Deferral of policy acquisition costs......... (33,485) (33,744) (28,870)
Value of business acquired................... (10,000) 0 0
Amortization of deferred acquisition costs... 24,898 19,850 16,602
Change in accrued income taxes............... 10,212 (3,033) 2,644
Depreciation................................. 42 44 52
Realized (gains) losses on sale of
investments and properties.................. 5,365 (925) (1,441)
Other accruals and adjustments............... 1,817 (997) (3,525)
--------- -------- ---------
Cash provided from operations................. 52,225 39,307 40,069
Cash used for investment activities:
Investments sold or matured:
Fixed maturities available for sale--sold... 113,035 15,246 149,076
Fixed maturities available for sale--
matured, called and repaid................. 66,469 44,523 50,659
Equity securities........................... 0 0 3,341
Other long-term investments................. 2,199 482 9,316
--------- -------- ---------
Total investments sold or matured.......... 181,703 60,251 212,392
Acquisition of investments:
Fixed maturities--available for sale........ (176,905) (68,214) (244,162)
Net increase in policy loans................ (1,485) (2,033) (2,121)
Other long-term investments................. (1,517) (1,183) (1,587)
--------- -------- ---------
Total acquisition of investments........... (179,907) (71,430) (247,870)
Net (increase) decrease in short-term invest-
ments....................................... (11,589) 2,389 (1,901)
Funds loaned to affiliates................... (24,080) (3,500) (21,000)
Funds repaid from affiliates................. 24,080 3,500 21,000
Disposition of properties.................... 0 34 6
Additions to properties...................... (27) (117) (33)
--------- -------- ---------
Cash used for investment activities........... (9,820) (8,873) (37,406)
Cash used for financing activities:
Cash dividends paid to shareholder........... (27,000) (27,500) (7,500)
Net receipts from deposit product operations. (12,521) (6,572) 3,343
--------- -------- ---------
Cash used for financing activities............ (39,521) (34,072) (4,157)
Increase (decrease) in cash................... 2,884 (3,638) (1,494)
Cash at beginning of year..................... 2,404 6,042 7,536
--------- -------- ---------
Cash at end of year........................... $ 5,288 $ 2,404 $ 6,042
========= ======== =========
</TABLE>
See accompanying Notes to Financial Statements.
F-5
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization: United Investors Life Insurance Company (the "Company") is a
wholly-owned subsidiary of United Investors Management Company ("United
Management"), which is a wholly-owned subsidiary of Torchmark Corporation
("Torchmark"), the ultimate parent. On March 3, 1998, United Management
distributed the Company to Torchmark and Liberty National Life Insurance
Company, a wholly owned subsidiary of Torchmark.
Description of Business: The Company is a life insurer licensed in 49
states. The Company offers a full range of life, annuity and variable products
through its agents and is subject to competition from other insurers
throughout the United States. The Company is subject to regulation by the
insurance department of states in which it is licensed, and undergoes periodic
examinations by those departments.
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the financial statements and revenues and expenses for the reporting
period. Actual results could differ significantly from those estimates.
The estimates susceptible to significant change are those used in
determining the liability for policy reserves, losses and claims. Although
some variability is inherent in these estimates, management believes the
amounts provided are adequate.
Existing computer programs of many businesses were developed with a two-
digit identification without consideration of the upcoming change in century
or millennium in the year 2000. Without addressing this issue, many computer
programs could fail or produce erroneous results, creating considerable
uncertainty and potentially adversely affecting the operations or business.
UILIC has been in the process of modifying its computer system and
applications for the year 2000. It is expected that the project will be
substantially completed during 1998 and that final testing will be conducted
in 1999. UILIC is utilizing primarily internal staff for this conversion but
is also using outside consultants where necessary. The cost of this project,
which is immaterial to UILIC is expensed as incurred.
As a part of its activities, UILIC is engaged electronically with third-
party financial institutions and other various organizations which may have
computer systems which are not year 2000 compliant. To the degree possible,
UILIC is verifying that these third party business systems are currently
compliant or are in the process of becoming compliant. To the extent these
systems are not compliant there is no assurance that the potential
interruptions or cost to UILIC may not be significant.
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").
F-6
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Investments: United Investors classifies all of its fixed maturity
investments, which includes bonds and redeemable preferred stocks, as
available for sale. Investments classified as available for sale are carried
at fair value with unrealized gains and losses, net of deferred taxes,
reflected directly in shareholder's equity. Investments in equity securities,
which include common and nonredeemable preferred stocks, are reported at fair
value with unrealized gains and losses, net of deferred taxes, reflected
directly in shareholder's equity. Policy loans are carried at unpaid principal
balances. Short-term investments include investments in certificates of
deposit and other interest-bearing time deposits with original maturities
within three months. Other long-term investments consist of investments in
mutual funds which are carried at fair value. If an investment becomes
permanently impaired, such impairment is treated as a realized loss and the
investment is adjusted to net realizable value.
Gains and losses realized on the disposition of investments are recognized
as revenues and are determined on a specific identification basis.
Realized investment gains and losses and investment income attributable to
separate accounts are credited to the separate accounts and have no effect on
United Investor's net income. Investment income attributable to policyholders
is included in United Investor's net investment income. Net investment income
for the years ended December 31, 1997, 1996 and 1995 included approximately
$37,800, $37,600, and $38,000, respectively, which was allocable to
policyholder reserves or accounts. Realized investment gains and losses are
not allocable to policyholders.
Determination of Fair Values of Financial Instruments: Fair value for cash,
short-term investments, receivables and payables approximates carrying value.
Fair values for investment securities are based on quoted market prices, where
available. Otherwise, fair values are based on quoted market prices of
comparable instruments. Fair value of future benefits for universal life and
current interest products and annuity products are based on the fund value.
Cash: Cash consists of balances on hand and on deposit in banks and
financial institutions.
Recognition of Revenue and Related Expenses: Premiums for insurance
contracts which are not defined as universal life-type according to the
Financial Accounting Standards Board's Statement of Accounting Standards
(SFAS) 97 are recognized as revenue over the premium-paying period of the
policy. Premiums for limited-payment life insurance contracts as defined by
SFAS 97 are recognized over the contract period. Premiums for universal life-
type and annuity contracts are added to the policy account value, and revenues
from such products are recognized as charges to the policy account value for
mortality, administration, and surrenders (retrospective deposit method). The
related benefits and expenses are matched with revenues by means of the
provision for future policy benefits and the amortization of deferred
acquisition costs in a manner which recognizes profits as they are earned over
the same period.
Future Policy Benefits: The liability for future policy benefits for
universal life-type products according to SFAS 97 is represented by policy
account value. Annuity Contracts are accounted for as deposit contracts. The
liability for future policy benefits for other products is provided on the net
level premium method based on estimated investment yields, mortality,
persistency and other assumptions which were appropriate at the time the
policies were issued. Assumptions used are based on United Investor's
experience as adjusted to provide for possible adverse deviation. These
estimates are periodically reviewed and compared with actual experience. If it
is determined that future expected experience differs significantly from that
assumed, the estimates are revised.
F-7
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
Deferred acquisition costs: The costs of acquiring new insurance business
are deferred. Such costs consist of sales commissions, underwriting expenses,
and certain other selling expenses. The costs of acquiring new business
through the purchase of other companies and blocks of insurance business are
also deferred.
Deferred acquisition costs, including the value of insurance purchased, for
policies other than universal life-type policies according to SFAS 97, are
amortized with interest over an estimate of the premium-paying period of the
policies in a manner which charges each year's operations in proportion to the
receipt of premium income. For limited-payment contracts, acquisition costs
are amortized over the contract period. For universal life-type policies,
acquisition costs are amortized with interest in proportion to estimated gross
profits. The assumptions used as to interest, withdrawals and mortality are
consistent with those used in computing the liability for future policy
benefits and expenses. If it is determined that future experience differs
significantly from that previously assumed, the estimates are revised.
Deferred acquisition costs are adjusted to reflect the amounts associated with
unrealized investment gains and losses pertaining to universal life-type
products.
Income Taxes: Income taxes are accounted for under the asset and liability
method in accordance with SFAS 109. Under the asset and liability method,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement book
values and tax bases of assets and liabilities. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Interest Expense: Interest expense includes interest on borrowed funds not
used in the production of investment income. Interest expense relating to the
production of investment income is deducted from investment income.
Property and Equipment: Property and equipment is reported at cost less
allowances for depreciation. Depreciation is provided on the straight-line
method over the estimated useful lives of these assets which range from three
to ten years.
Goodwill: Goodwill represents the excess cost over the fair value of the net
assets acquired when United Investors was purchased by Torchmark Corporation
(Torchmark) in 1981 and is being amortized on a straight-line basis over forty
years.
Reclassification: Certain amounts in the financial statements presented have
been reclassified from amounts previously reported in order to be comparable
between years. These reclassifications have no effect on previously reported
shareholders' equity or net income during the periods involved.
F-8
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
Reporting Comprehensive Income (FASB Statement No. 130) is effective for
fiscal years beginning after December 15, 1997. Reclassification of prior
periods for comparative financial statements is required.
This document establishes standards for presentation of comprehensive
income, a concept of income which, in addition to net income, includes all
changes in the equity of a company other than contributions from or
distributions to shareholders. Comprehensive income is to be categorized into
certain components, each of which is to be displayed prominently in United
Investors basic financial statements.
The most significant aspect of this Statement on United Investors is the
separate disclosure of the change in unrealized gain or loss on its fixed
investments as a component of comprehensive income, rather than as a direct
adjustment of shareholders' equity.
NOTE 2--STATUTORY ACCOUNTING
United Investors is required to file statutory financial statements with
state insurance regulatory authorities. Accounting principles used to prepare
these statutory financial statements differ from GAAP. Net income and
shareholder's equity on a statutory basis for United Investors were as
follows:
<TABLE>
<CAPTION>
NET INCOME SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, AT DECEMBER 31,
----------------------- ---------------------
1997 1996 1995 1997 1996
------- ------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Life insurance................. $34,537 $26,640 $29,636 $156,676 $ 154,222
</TABLE>
The excess of shareholder's equity on a GAAP basis over that determined on a
statutory basis is not available for distribution to the shareholder without
regulatory approval.
A reconciliation of United Investors' statutory net income to GAAP net
income is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996 1995
------- ------- --------
<S> <C> <C> <C>
Statutory net income............................. $34,537 $26,640 $ 29,636
Deferral of acquisition costs.................... 33,485 33,744 28,870
Amortization of acquisition costs................ (24,898) (19,850) (16,602)
Differences in policy liabilities................ (2,113) (4,361) (6,774)
Deferred income taxes............................ (6,053) (773) (1,389)
Other............................................ (209) (134) (531)
------- ------- --------
GAAP net income.................................. $34,749 $35,266 $ 33,210
======= ======= ========
</TABLE>
A reconciliation of United Investors' statutory shareholder's equity to GAAP
shareholder's equity is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Statutory shareholder's equity.................... $156,676 $154,222
Differences in policy liabilities................. 9,540 20,834
Deferred acquisition costs and value of insurance
purchased........................................ 210,651 186,146
Deferred income taxes ............................ (52,639) (41,074)
Asset valuation reserve........................... 9,513 10,762
Nonadmitted assets................................ 1,850 1,856
Fair value adjustment on fixed maturities
available for sale............................... 23,043 3,703
Goodwill.......................................... 6,771 7,055
Due and deferred premiums......................... (30,334) (29,324)
Other............................................. (3,501) (2,118)
----------- -----------
GAAP shareholder's equity......................... $331,570 $ 312,062
=========== ===========
</TABLE>
F-9
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
The NAIC requires that a risk based capital formula be applied to all life
and health insurers. The risk based capital formula is a threshold formula
rather than a target capital formula. It is designed only to identify
companies that require regulatory attention and is not to be used to rate or
rank companies that are adequately capitalized. United Investors is adequately
capitalized under the risk based capital formula.
NOTE 3--INVESTMENT OPERATIONS
Investment income is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Fixed maturities................................... $46,000 $46,366 $43,482
Equity securities.................................. 0 0 76
Policy loans....................................... 1,107 1,001 851
Other long-term investments........................ 1,614 1,211 1,681
Short-term investments............................. 436 287 717
Interest and dividends from affiliates............. 2,863 2,847 3,058
------- ------- -------
52,020 51,712 49,865
Less investment expense............................ (506) (584) (509)
------- ------- -------
Net investment income.............................. $51,514 $51,128 $49,356
======= ======= =======
Analysis of gains (losses) from investments:
Realized investment gains (losses)
Fixed maturities................................. $(5,235) $ 925 $ 319
Equity securities................................ 0 0 1,276
Mutual funds..................................... (130) 0 (154)
------- ------- -------
Net realized gains (losses)....................... $(5,365) $ 925 $ 1,441
======= ======= =======
Analysis of change in unrealized investment gains
(losses):
Net change in unrealized investment gains (losses)
on equity securities before tax................... $ 0 $ 0 $ (438)
Net change in unrealized investment gains on fixed
maturities available for sale before tax.......... 19,340 (21,767) 58,321
Other.............................................. 1,799 861 3,602
Adjustment to deferred acquisition costs........... (5,387) 8,857 (23,532)
Applicable tax..................................... (5,512) 4,217 (13,283)
------- ------- -------
Net change in unrealized gains (losses) on equity
and fixed maturity securities available for sale.. $10,240 $(7,832) $24,670
======= ======= =======
</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 market value at December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
GROSS GROSS AMOUNT PER
AMORTIZED UNREALIZED UNREALIZED MARKET THE BALANCE
1997: COST GAINS LOSSES VALUE SHEET
- ----- --------- ---------- ---------- ------- -----------
<S> <C> <C> <C> <C> <C>
Fixed maturities available
for sale:
Bonds:
U.S. Government direct
obligations and agen-
cies.................... $22,035 $ 857 $ 0 $22,892 $22,892
GNMA's................... 124,549 5,992 (146) 130,395 130,395
Mortgage-backed
securities, GNMA
collateral.............. 23,125 591 (3) 23,713 23,713
Other mortgage-backed se-
curities................ 20,980 916 0 21,896 21,896
States, municipalities
and political
subdivisions............ 28,603 517 0 29,120 29,120
Foreign governments...... 3,298 135 0 3,433 3,433
Public utilities......... 37,189 1,504 (39) 38,654 38,654
Industrial and miscella-
neous................... 352,821 12,986 (267) 365,540 365,540
------- ------ ------ ------- -------
Total fixed maturities... 612,600 23,498 (455) 635,643 635,643
======= ====== ====== ======= =======
<CAPTION>
1996:
- -----
<S> <C> <C> <C> <C> <C>
Fixed maturities available
for sale:
Bonds:
U.S. Government direct
obligations and agen-
cies.................... $21,832 $ 79 $ (270) $21,641 $21,641
GNMA's................... 150,505 6,297 (812) 155,990 155,990
Mortgage-backed
securities, GNMA
collateral.............. 34,904 785 (6) 35,683 35,683
Other mortgage-backed se-
curities................ 4,060 -0- -0- 4,060 4,060
States, municipalities
and political
subdivisions............ 45,544 383 (894) 45,033 45,033
Foreign governments...... 3,272 158 0 3,430 3,430
Public utilities......... 22,543 483 (345) 22,681 22,681
Industrial and miscella-
neous................... 338,517 3,737 (5,892) 336,362 336,362
------- ------ ------ ------- -------
Total fixed maturities... 621,177 11,922 (8,219) 624,880 624,880
======= ====== ====== ======= =======
</TABLE>
F-11
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 3--INVESTMENT OPERATIONS (CONTINUED)
A schedule of fixed maturities by contractual maturity at December 31, 1997
is shown below on an amortized cost basis and on a market value basis. Actual
maturities could differ from contractual maturities due to call or prepayment
provisions.
<TABLE>
<CAPTION>
AMORTIZED MARKET
COST VALUE
--------- --------
<S> <C> <C>
Fixed maturities available for sale;
Due in one year or less................................. $ 4,751 $ 4,824
Due after one year through five years................... 99,621 102,200
Due after five years through ten years.................. 202,692 209,387
Due after ten years..................................... 131,058 137,232
-------- --------
438,122 453,643
Mortgage- and asset-backed securities.................... 174,478 182,000
-------- --------
$612,600 $635,643
======== ========
</TABLE>
Proceeds from sales of fixed maturities available for sale were $113,035 in
1997, $15,246 in 1996, and $149,076 in 1995. Gross gains realized on these
sales were $112 in 1997, $749 in 1996, and $3,157 in 1995. Gross losses on
these sales were $5,716 in 1997, $0 in 1996, and $2,126 in 1995.
F-12
<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>
1997 1996 1995
--------------------- --------------------- ---------------------
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
year................... $169,986 $16,160 $144,716 $18,679 $153,677 $20,983
Additions:
Deferred during peri-
od:
Commissions........... 27,664 0 28,492 0 24,258 0
Other expenses........ 5,821 0 5,252 0 4,611 0
-------- ------- -------- ------- -------- -------
Total deferred....... 33,485 0 33,744 0 28,869 0
Value of insurance
purchased............ 0 21,305 0 0 0 0
Adjustment attributable
to unrealized invest-
ment loss (1)......... 0 0 8,857 0 0 0
-------- ------- -------- ------- -------- -------
Total additions...... 33,485 21,305 42,601 0 28,869 0
Deductions:
Amortized during peri-
od................... (21,019) (3,711) (16,894) (2,519) (14,062) (2,304)
Adjustment attribut-
able to unrealized
investment gains (1). (5,387) 0 0 0 (23,532) 0
Adjustment attribut-
able to realized
investment gains (1). (168) 0 (437) 0 (236) 0
-------- ------- -------- ------- -------- -------
Total deductions..... (26,574) (3,711) (17,331) (2,519) (37,830) (2,304)
-------- ------- -------- ------- -------- -------
Balance at end of year.. $176,897 $33,754 $169,986 $16,160 $144,716 $18,679
======== ======= ======== ======= ======== =======
</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 $938, $1,100, and $1,300 for the years
ended December 31, 1997, 1996 and 1995, respectively. The average interest
accrual rates used were 6.29%, 6.44% and 6.59%, respectively. The estimated
amount of the unamortized value of business purchased balance at December 31,
1997 to be amortized during each of the next five years is: 1998, $1,640;
1999, $1,443; 2000, $1,270; 2001, $1,118; 2002, $984.
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,
1997 1996
------------------- -------------------
ACCUMULATED ACCUMULATED
COST DEPRECIATION COST DEPRECIATION
------ ------------ ------ ------------
<S> <C> <C> <C> <C>
Data processing equipment............... $ 216 $ 161 $ 192 $ 147
Transportation equipment................ 132 55 132 37
Furniture and office equipment ......... 922 913 919 903
------ ------ ------ ------
Total................................. $1,270 $1,129 $1,243 $1,087
====== ====== ====== ======
</TABLE>
Depreciation expense on property and equipment used in the business was $42,
$44 and $52 in each of the years 1997, 1996, and 1995, respectively.
F-13
<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 at December 31, 1997 is as follows:
INDIVIDUAL LIFE INSURANCE
Interest Assumptions:
<TABLE>
<CAPTION>
PERCENT OF
YEARS OF ISSUE INTEREST RATES LIABILITY
-------------- --------------------- ----------
<S> <C> <C>
1962-1997 3% level to 6% level 10%
1986-1992 7.00% graded to 6.00% 21%
1962-1985 8.50% graded to 6.00% 5%
1981-1985 8.50% graded to 7.00% 4%
1984-1997 Interest sensitive 60%
----
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.
NOTE 7--INCOME TAXES
United Investors is included in the life-nonlife consolidated federal income
tax return filed by Torchmark. Under the tax allocation agreement with
Torchmark, a company with taxable income pays tax equal to the amount it would
pay if it filed a separate tax return. A company with a loss is paid a tax
benefit currently to the extent that affiliated companies with taxable income
utilize that loss.
Total income taxes were allocated as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Net operating income before income taxes......... $18,843 $19,078 $18,037
Shareholder's equity:
Unrealized gains (losses)....................... 5,512 (4,217) 13,283
Tax basis compensation expense in excess of
amounts recognized for financial reporting
purposes from the exercise of stock options.... (519) 0 (35)
Other........................................... 1 (152) 1
------- ------- -------
$23,837 $14,709 $31,286
======= ======= =======
</TABLE>
F-14
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 7--INCOME TAXES (CONTINUED)
Income tax expense before the adjustments to shareholder's equity is
summarized below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Current income tax expense............................. $12,790 $18,305 $16,648
Deferred income tax expense............................ 6,053 773 1,389
------- ------- -------
$18,843 $19,078 $18,037
======= ======= =======
</TABLE>
In 1997, 1996, and 1995, deferred income tax expense was incurred because of
the difference between net operating income before income taxes as reported on
the statements of operations and taxable income as reported on United
Investor's income tax returns. As explained in Note 1, this difference caused
the financial statement book values of some assets and liabilities to be
different from their respective tax bases.
The effective income tax rate differed from the expected 35% rate in 1997,
1996 and 1995 as shown below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 % 1996 % 1995 %
------- --- ------- --- ------- ---
<S> <C> <C> <C> <C> <C> <C>
Expected income taxes.................. $18,757 35% $19,020 35% $17,936 35%
Increase (reduction) in income taxes
resulting from:
Tax-exempt investment income.......... (18) 0 (38) 0 (102) 0
Purchase accounting differences....... 99 0 99 0 99 0
Other................................. 5 0 (3) 0 104 0
------- --- ------- --- ------- ---
Income taxes........................... $18,843 35% $19,078 35% $18,037 35%
======= === ======= === ======= ===
</TABLE>
F-15
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 7--INCOME TAXES (CONTINUED)
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Future policy benefits and unearned and advance
premiums.......................................... $ 4,777 $ 5,936
Present value of future policy surrender charges... 13,925 9,636
Other liabilities, principally due to the current
nondeductibilty for tax purposes of certain
accrued expenses.................................. 203 147
----------- -----------
Total gross deferred tax assets.................... 18,905 15,719
----------- -----------
Net deferred tax assets............................ 18,905 15,719
----------- -----------
Deferred tax liabilities:
Deferred acquisition costs......................... 62,863 53,625
Unrealized investment gains........................ 7,914 2,402
Other.............................................. 767 766
----------- -----------
Total gross deferred tax liabilities............... 71,544 56,793
----------- -----------
Net deferred tax liability......................... 52,639 41,074
=========== ===========
</TABLE>
In United Investor's opinion, all deferred tax assets will be recoverable.
United Investors has not recognized a deferred tax liability of
approximately $2,200 that arose prior to 1984 on temporary differences related
to its policyholders' surplus account. A current tax expense will be
recognized in the future if and when this tax becomes payable.
NOTE 8--POSTRETIREMENT BENEFITS
Pension Plans: The full-time exempt 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>
1997.................................................. $44 $118
1996.................................................. 41 115
1995.................................................. 39 75
</TABLE>
Net periodic pension cost for the defined benefit plan which covers United
Investors' full-time exempt employees has been calculated on the projected
unit credit actuarial cost method in accordance with 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
F-16
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 8--POSTRETIREMENT BENEFITS (CONTINUED)
tax purposes. United Investors records the difference between the SFAS 87
expense and the actual cash contribution to the plan to a liability account.
The liability recorded was $55 at December 31, 1997, and $55 at December 31,
1996. United Investors is one of several sponsors of the defined benefit plan.
The total unfunded plan liability recorded at December 31, 1997 was $459. 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.
Postretirement 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.
Postretirement benefit cost for the years ending December 31, 1997, 1996 and
1995 was $1, $5 and $3, 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 $109 and $122 as of December 31, 1997
and 1996, respectively. The discount rate used in determining the accumulated
postretirement benefit obligation was 7.50% and the health care cost trend
rate was 9%, graded to 4.5% over 10 years.
NOTE 9--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 $29,600, $30,200, and
$25,700 for the years ended December 31, 1997, 1996, and 1995, respectively.
United Investors was charged for space, equipment, and services provided by
an affiliate amounting to $1,852 in 1997, $1,797 in 1996 and $1,706 in 1995.
Torchmark performed certain administrative services for United Investors for
which it charged $468 in 1997, $384 in 1996 and $156 in 1995.
In November 1994, United Investors loaned Torchmark $35,000 at an interest
rate of 8.11%. Interest income related to the Torchmark loans totaling $2,838
and $2,838 at December 31, 1997 and 1996, respectively, is included in the
accompanying financial statements. In January 1996, United Investors loaned
Liberty National $3,500 at an interest rate of 5.75%. This loan was paid in
full in February 1996. Interest income related to this loan totaling $9 at
December 31, 1996 is included in the accompanying financial statements. In
1997, United Investors loaned Torchmark, Liberty National and United American
$8,060, $10,520 and $5,500 respectively at an interest rate of 5.5% all of
which were repaid prior to December 31, 1997. Interest income related to these
loans totaling $1, $2, and $22 respectively are included in the accompanying
financial statements.
F-17
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 9--RELATED PARTY TRANSACTIONS (CONTINUED)
Effective January 1, 1997 United Investors assumed a block of annuity
products totaling $200,321 from United American Insurance Company (United
American), an affiliated company, on a 100% funds withheld coinsurance basis.
In connection with this transaction United Investors paid a ceding fee to
United American totaling $21,305, $10,000 of which was paid in cash, and
recorded a due from affiliates totaling $189, 016. As of December 31, 1997,
the funds withheld balance totaled $190, 235 and is included in due from
affiliates. Interest income on funds withheld at December 31, 1997 totaled
$11,876 and is included in other income. The reserve for annuity balances
assumed in connection with this transaction totaled $210,276 as of December
31, 1997.
United Investors serves as sponsor to four separate accounts and depositor
to two separate accounts of the underlying investment fund in connection with
its variable product business. At December 31, 1997 and 1996 United Investors
had investments of $16,542 and $14,000, in the separate accounts which were
included in other long-term invested assets and carried at market.
Other long-term invested assets also includes investments, carried at
market, in the United Group of Mutual Funds and certain other funds for which
W&R is the sole advisor. These investments approximated $5,946 and $5,159 at
December 31, 1997 and 1996. Investment income derived from these investments
is included in net investment income.
NOTE 10--COMMITMENTS AND CONTINGENCIES
Reinsurance: United Investors reinsures that portion of insurance risk which
is in excess of its retention limit. The maximum net retention limit for
ordinary life insurance is $500 per life. Life insurance ceded represented 2%
of total life insurance in force at December 31, 1997 and 4% of premium income
for 1997. United Investors would be liable for the reinsured risks ceded to
other companies to the extent that such reinsuring companies are unable to
meet their obligation. Except as disclosed in Note 9, United Investors does
not assume insurance risks of other companies.
Restrictions on the transfer of funds: Regulatory restrictions exist on the
transfer of funds from insurance companies. These restrictions generally limit
the payment of dividends to the statutory net gain from operations of the
prior year in the absence of special approval. Additionally, insurance
companies are not permitted to distribute the excess of shareholder's equity
as determined on a GAAP basis over that determined on a statutory basis.
Restricted net assets at December 31, 1997 in compliance with all regulations
were $177,894.
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 (26%); securities of state and municipal governments (4%)
investment-grade corporate bonds (53%), non government guaranteed mortgaged
backed securities (3%), United Funds (3%); and policy loans (3%) which are
secured by the underlying insurance policy value. The balance of the portfolio
is invested in short-term investments (2%), and non investment grade
securities (6%).
F-18
<PAGE>
UNITED INVESTORS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 10--COMMITMENTS AND CONTINGENCIES (CONTINUED)
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, 1997, 1% or more of the
portfolio was invested in the following industries: financial services (21%);
public utilities (6%); chemicals and allied products (5%); transportation
(5%); manufacturing (4%); consumer goods (4%); media and communications (3%);
services (3%); machinery and equipment (2%); petroleum (2%); paper and allied
products (1%); and assets-backed securities (1%). At the end of 1997, 6% of
the carrying value of securities was rated below investment grade. Par value
of these investments was $42,275, amortized cost was $43,075, and market value
was $44,076. 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.
NOTE 11--SUPPLEMENTAL DISCLOSURES FOR CASH FLOW STATEMENT
The following table summarizes United Investors' noncash transactions, which
are not reflected on the statement of cash flow as required by GAAP:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Due from affiliates.............................. 189,016 0 0
Value of business acquired....................... 11,305 0 0
Future policy benefits........................... 200,321 0 0
The following table summarizes certain amounts paid during the period:
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Taxes paid....................................... $8,631 $22,111 $15,393
</TABLE>
F-19
<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, 1997 and the related statements of
operations and changes in net assets for each of the years in the two-year
period ended December 31, 1997. 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, 1997 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, 1997 in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Birmingham, Alabama
April 9, 1998
F-20
<PAGE>
UNITED INVESTORS ANNUITY VARIABLE ACCOUNT
BALANCE SHEET
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
MONEY HIGH SMALL
MARKET BOND INCOME GROWTH INCOME INTERNATIONAL CAP BALANCED
----------- ----------- ------------ ------------ ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Investments in Mutual
Funds (Note B).. $42,120,712 $95,828,622 $114,771,676 $615,870,930 $619,539,618 $110,216,063 $143,361,859 $65,818,681
----------- ----------- ------------ ------------ ------------ ------------ ------------ -----------
Total assets.... 42,120,712 95,828,622 114,771,676 615,870,930 619,539,618 110,216,063 143,361,859 65,818,681
----------- ----------- ------------ ------------ ------------ ------------ ------------ -----------
Liabilities:
Mortality and
expense risk
charge payable
to Sponsor
(Note D)........ 10,799 25,772 30,799 161,162 162,637 29,433 37,418 17,347
----------- ----------- ------------ ------------ ------------ ------------ ------------ -----------
Total
liabilities..... 10,799 25,772 30,799 161,162 162,637 29,433 37,418 17,347
----------- ----------- ------------ ------------ ------------ ------------ ------------ -----------
Net assets (Note
C).............. $42,109,913 $95,802,850 $114,740,877 $615,709,768 $619,376,981 $110,186,630 $143,324,441 $65,801,334
=========== =========== ============ ============ ============ ============ ============ ===========
Equity:
Equity of
Sponsor
(Note E)........ $ 0 $ 545,338 $ 1,252,806 $ 2,193,865 $ 2,665,788 $ 90,913 $ 143,685 $ 98,973
Equity of
contract owners. 42,109,913 95,257,512 113,488,071 613,515,903 616,711,193 110,095,717 143,180,756 65,702,361
----------- ----------- ------------ ------------ ------------ ------------ ------------ -----------
Total equity.... $42,109,913 $95,802,850 $114,740,877 $615,709,768 $619,376,981 $110,186,630 $143,324,441 $65,801,334
=========== =========== ============ ============ ============ ============ ============ ===========
Accumulation
units
outstanding..... 26,450,888 43,769,678 45,793,587 140,325,438 232,342,721 78,779,114 64,836,083 41,697,180
=========== =========== ============ ============ ============ ============ ============ ===========
Net asset value
per unit........ $ 1.592004 $ 2.188795 $ 2.505610 $ 4.387727 $ 2.665790 $ 1.398678 $ 2.210566 $ 1.578076
=========== =========== ============ ============ ============ ============ ============ ===========
<CAPTION>
LIMITED SCIENCE
TERM ASSET AND
BOND STRATEGY TECHNOLOGY TOTAL
----------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Assets:
Investments in Mutual
Funds (Note B).. $ 3,553,520 $9,265,906 $9,487,703 $1,829,835,290
----------- ---------- ---------- --------------
Total assets.... 3,553,520 9,265,906 9,487,703 1,829,835,290
----------- ---------- ---------- --------------
Liabilities:
Mortality and
expense risk
charge payable
to Sponsor
(Note D)........ 936 2,472 2,416 481,191
----------- ---------- ---------- --------------
Total
liabilities..... 936 2,472 2,416 481,191
----------- ---------- ---------- --------------
Net assets (Note
C).............. $ 3,552,584 9,263,434 $9,485,287 $1,829,354,099
=========== ========== ========== ==============
Equity:
Equity of
Sponsor
(Note E)........ $ 614,901 $ 12,020 $ 577,434 $ 8,195,723
Equity of
contract owners. 2,937,683 9,251,414 8,907,853 1,821,158,376
----------- ---------- ---------- --------------
Total equity.... $ 3,552,584 $9,263,434 $9,485,287 $1,829,354,099
=========== ========== ========== ==============
Accumulation
units
outstanding..... 2,888,746 7,707,088 8,213,309 692,803,832
=========== ========== ========== ==============
Net asset value
per unit........ $ 1.229801 $ 1.201937 $1.154868
=========== ========== ==========
</TABLE>
See Notes to Financial Statements.
F-21
<PAGE>
UNITED INVESTORS ANNUITY VARIABLE ACCOUNT
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MONEY HIGH SMALL
MARKET BOND INCOME GROWTH INCOME INTERNATIONAL CAP
----------- ----------- ------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dividend income
(Note B, D)....... $ 1,886,614 $ 5,708,192 $ 10,489,055 $ 51,204,373 $ 40,069,729 $ 9,707,992 $ 30,039,596
Expenses paid to
Sponsor (Note D):
Mortality and expense
risk charge...... 336,022 805,234 918,316 5,147,095 4,955,851 865,988 1,044,070
Contract
maintenance
charges:
Sales expense.... 138,232 465,629 488,076 2,688,555 2,781,398 527,293 660,187
Administrative
expense.......... 17,645 80,644 90,547 567,407 511,955 93,109 121,574
----------- ----------- ------------ ------------ ------------ ------------ ------------
Total........... 491,899 1,351,507 1,496,939 8,403,057 8,249,204 1,486,390 1,825,831
Net investment income. 1,394,715 4,356,685 8,992,116 42,801,316 31,820,525 8,221,602 28,213,765
Realized
investment gains
distributed to
accounts.......... 0 202,021 935,254 8,039,331 16,327,757 1,529,463 1,961,165
Unrealized
investment
gains (losses).... 0 2,506,728 2,048,376 47,741,139 65,419,359 2,966,361 710,012
----------- ----------- ------------ ------------ ------------ ------------ ------------
Net gain on
investments....... 0 2,708,749 2,983,630 55,780,470 81,747,116 4,495,824 2,671,177
----------- ----------- ------------ ------------ ------------ ------------ ------------
Net increase in
net assets from
operations........ 1,394,715 7,065,434 11,975,746 98,581,786 113,567,641 12,717,426 30,884,942
Premium deposits
and net
transfers*........ 13,026,483 6,671,443 16,030,703 53,678,827 81,055,696 25,015,704 22,929,684
Investment by
sponsor (Note E) 0 (500,000) 0 0 0 0 0
Transfer to
Sponsor for
benefits and
terminations...... (7,873,082) (5,756,198) (6,315,467) (29,769,554) (24,709,595) (4,199,101) (4,604,334)
----------- ----------- ------------ ------------ ------------ ------------ ------------
Total increase ... 6,548,116 7,480,679 21,690,982 122,491,059 169,913,742 33,534,029 49,210,292
Net assets at
beginning of
period............ 35,561,797 88,322,171 93,049,895 493,218,709 449,463,239 76,652,601 94,114,149
----------- ----------- ------------ ------------ ------------ ------------ ------------
Net assets at end
of period (Note
C)................ $42,109,913 $95,802,850 $114,740,877 $615,709,768 $619,376,981 $110,186,630 $143,324,441
=========== =========== ============ ============ ============ ============ ============
<CAPTION>
LIMITED
TERM ASSET SCIENCE AND
BALANCED BOND STRATEGY TECHNOLOGY TOTAL
------------ ----------- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Dividend income
(Note B, D)....... $ 5,139,580 $ 211,939 $1,039,074 $ 63,630 $ 155,559,774
Expenses paid to
Sponsor (Note D):
Mortality and expense
risk charge...... 473,631 29,971 76,508 31,665 14,684,351
Contract
maintenance
charges:
Sales expense.... 298,569 17,554 55,539 11,799 8,132,831
Administrative
expense.......... 42,440 1,978 8,084 1,441 1,536,824
------------ ----------- ----------- ------------ ---------------
Total........... 814,640 49,503 140,131 44,905 24,354,006
Net investment income. 4,324,940 162,436 898,943 18,725 131,205,768
Realized
investment gains
distributed to
accounts.......... 604,986 17,061 49,351 14,375 29,680,764
Unrealized
investment
gains (losses).... 3,143,504 (2,633) 22,267 145,238 124,700,351
------------ ----------- ----------- ------------ ---------------
Net gain on
investments....... 3,748,490 14,428 71,618 159,613 154,381,115
------------ ----------- ----------- ------------ ---------------
Net increase in
net assets from
operations........ 8,073,430 176,864 970,561 178,338 285,586,883
Premium deposits
and net
transfers*........ 18,721,153 404,235 608,002 8,827,654 246,969,584
Investment by
sponsor (Note E) 0 0 0 500,000 0
Transfer to
Sponsor for
benefits and
terminations...... (2,011,335) (85,021) (311,197) (20,705) (85,655,589)
------------ ----------- ----------- ------------ ---------------
Total increase ... 24,783,248 496,078 1,267,366 9,485,287 446,900,878
Net assets at
beginning of
period............ 41,018,086 3,056,506 7,996,068 0 1,382,453,221
------------ ----------- ----------- ------------ ---------------
Net assets at end
of period (Note
C)................ $65,801,334 $3,552,584 $9,263,434 $9,485,287 $1,829,354,099
============ =========== =========== ============ ===============
</TABLE>
- -----
*Includes transfer activity from (to) other portfolios.
See Notes to Financial Statements.
F-22
<PAGE>
UNITED INVESTORS ANNUITY VARIABLE ACCOUNT
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
<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, D)...... $ 1,690,561 $ 5,432,997 $ 7,854,352 $ 56,320,161 $ 10,899,256 $ 974,706 $ 3,710,159 $ 2,267,716
Expenses paid to
Sponsor (Note D):
Mortality and
expense risk
charge.......... 312,072 756,437 775,316 3,974,276 3,439,937 549,848 699,794 279,907
Contract
maintenance
charges:
Sales expense... 117,683 473,630 464,878 2,264,091 2,125,926 362,157 435,854 177,703
Administrative
expense........ 19,290 88,570 93,291 507,714 417,748 69,957 81,940 27,107
----------- ----------- ----------- ------------ ------------ ----------- ----------- -----------
Total............ 449,045 1,318,637 1,333,485 6,748,081 5,983,611 981,962 1,217,588 484,717
Net investment
income.......... 1,241,516 4,114,360 6,520,867 49,574,080 4,915,645 (7,256) 2,492,571 1,782,999
Realized
investment gains
distributed to
accounts......... 0 86,898 576,190 3,605,572 7,773,632 314,046 1,094,691 283,355
Unrealized
investment gains
(losses)......... 0 (2,680,176) 1,779,888 (6,845,217) 50,737,934 7,570,541 (951,002) 881,599
----------- ----------- ----------- ------------ ------------ ----------- ----------- -----------
Net gain (loss)
on investments... 0 (2,593,278) 2,356,078 (3,239,645) 58,511,566 7,884,587 143,689 1,164,954
----------- ----------- ----------- ------------ ------------ ----------- ----------- -----------
Net increase in
net assets from
operations....... 1,241,516 1,521,082 8,876,945 46,334,435 63,427,211 7,877,331 2,636,260 2,947,953
Premium deposits
and net
transfers*....... 6,985,782 7,287,237 6,418,968 64,208,394 79,372,335 22,334,127 40,101,916 16,326,239
Transfer to
Sponsor for
benefits and
terminations..... (8,197,908) (5,042,186) (4,954,968) (19,449,582) (15,602,179) (1,817,005) (2,335,514) (993,099)
----------- ----------- ----------- ------------ ------------ ----------- ----------- -----------
Total increase .. 29,390 3,766,133 10,340,945 91,093,247 127,197,367 28,394,453 40,402,662 18,281,093
Net assets at
beginning of
eriod............ 35,532,407 84,556,038 82,708,950 402,125,462 322,265,872 48,258,148 53,711,487 22,736,993
----------- ----------- ----------- ------------ ------------ ----------- ----------- -----------
Net assets at end
of period (Note
C)............... $35,561,797 $88,322,171 $93,049,895 $493,218,709 $449,463,239 $76,652,601 $94,114,149 $41,018,086
=========== =========== =========== ============ ============ =========== =========== ===========
<CAPTION>
LIMITED
TERM ASSET
BOND STRATEGY TOTAL
----------- ----------- ---------------
<S> <C> <C> <C>
Dividend income
(Note B, D)...... $ 160,174 $ 272,898 $ 89,582,980
Expenses paid to
Sponsor (Note D):
Mortality and
expense risk
charge.......... 23,691 62,883 10,874,161
Contract
maintenance
charges:
Sales expense... 13,377 36,677 6,471,976
Administrative
expense........ 1,551 5,921 1,313,089
----------- ----------- ---------------
Total............ 38,619 105,481 18,659,226
Net investment
income.......... 121,555 167,417 70,923,754
Realized
investment gains
distributed to
accounts......... 4,751 30,906 13,770,041
Unrealized
investment gains
(losses)......... (60,676) 126,503 50,559,394
----------- ----------- ---------------
Net gain (loss)
on investments... (55,925) 157,409 64,329,435
----------- ----------- ---------------
Net increase in
net assets from
operations....... 65,630 324,826 135,253,189
Premium deposits
and net
transfers*....... 903,214 3,631,664 247,569,876
Transfer to
Sponsor for
benefits and
terminations..... (173,960) (240,685) (58,807,086)
----------- ----------- ---------------
Total increase .. 794,884 3,715,805 324,015,979
Net assets at
beginning of
eriod............ 2,261,622 4,280,263 1,058,437,242
----------- ----------- ---------------
Net assets at end
of period (Note
C)............... $3,056,506 $7,996,068 $1,382,453,221
=========== =========== ===============
</TABLE>
- -----
*Includes transfer activity from (to) other portfolios.
See Notes to Financial Statements.
F-23
<PAGE>
UNITED INVESTORS ANNUITY VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
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 eleven 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, a
limited term bond portfolio, an asset strategy portfolio and a science and
technology portfolio(established during 1997). 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-24
<PAGE>
UNITED INVESTORS ANNUITY VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following is a summary of reinvested dividends by portfolio:
<TABLE>
<CAPTION>
1997
----
INVESTMENT PORTFOLIO SHARES REINVESTED DIVIDEND INCOME
-------------------- ----------------- ---------------
<S> <C> <C>
Money Market.................................. 1,886,614 $ 1,886,614
Bond.......................................... 1,063,255 5,708,192
High Income................................... 2,212,787 10,489,055
Growth........................................ 6,765,995 51,204,373
Income........................................ 3,349,892 40,069,729
International................................. 1,520,628 9,707,992
Small Cap..................................... 3,605,501 30,039,596
Balanced...................................... 759,327 5,139,580
Limited Term Bond............................. 40,850 211,939
Asset Strategy................................ 199,941 1,039,074
Science and Technology........................ 11,023 63,630
</TABLE>
<TABLE>
<CAPTION>
1996
----
INVESTMENT PORTFOLIO SHARES REINVESTED DIVIDEND INCOME
-------------------- ----------------- ---------------
<S> <C> <C>
Money Market.................................. 1,690,561 $ 1,690,561
Bond.......................................... 1,044,727 5,432,997
High Income................................... 1,716,798 7,854,352
Growth........................................ 8,286,398 56,320,161
Income........................................ 1,075,164 10,899,256
International................................. 162,478 974,706
Small Cap..................................... 462,752 3,710,159
Balanced...................................... 365,955 2,267,716
Limited Term Bond............................. 31,018 160,174
Asset Strategy................................ 53,152 272,898
</TABLE>
F-25
<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
1997 MARKET BOND INCOME GROWTH INCOME INTERNATIONAL CAP BALANCED
- ---- ----------- ------------ ------------ ------------ ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cost to:
Contract Owners. $61,674,330 $ 91,317,812 $ 94,011,814 $396,943,106 $417,270,161 $ 95,408,048 $107,461,683 $55,107,835
Sponsor......... 0 0 500,000 500,000 1,000,000 65,000 65,000 62,717
Adjustment for
market
appreciation and
reinvested
dividends........ 9,825,993 35,021,937 50,503,915 327,068,355 282,127,978 24,704,659 46,878,533 15,408,812
Deductions:
Mortality and
expense risk
charge......... (1,835,602) (4,173,414) (4,182,221) (17,379,362) (13,817,884) (1,826,182) (2,085,139) (912,114)
Contract
maintenance
charges:
Sales expense... (759,715) (2,518,824) (2,384,137) (9,578,126) (8,192,409) (1,122,057) (1,272,500) (562,156)
Administrative
expense........ (130,450) (507,569) (524,888) (2,283,506) (1,653,568) (210,201) (235,866) (82,172)
Benefits &
terminations... (26,664,643) (23,337,092) (23,183,606) (79,560,699) (57,357,297) (6,832,637) (7,487,270) (3,221,588)
----------- ------------ ------------ ------------ ------------ ------------ ------------ -----------
Net assets....... $42,109,913 $ 95,802,850 $114,740,877 $615,709,768 $619,376,981 $110,186,630 $143,324,441 $65,801,334
=========== ============ ============ ============ ============ ============ ============ ===========
<CAPTION>
1996
- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cost to:
Contract Owners.. $48,647,847 $ 84,646,369 $ 77,981,111 $343,264,279 $336,214,465 $ 70,392,344 $ 84,531,999 $36,386,682
Sponsor.......... 0 500,000 500,000 500,000 1,000,000 65,000 65,000 62,717
Adjustment for
market
appreciation and
reinvested
dividends....... 7,939,379 26,604,996 37,031,230 220,083,512 160,311,133 10,500,843 14,167,760 6,520,742
Deductions:
Mortality and
expense risk
charge.......... (1,499,580) (3,368,180) (3,263,905) (12,232,267) (8,862,033) (960,194) (1,041,069) (438,483)
Contract
maintenance
charges:
Sales expense... (621,483) (2,053,195) (1,896,061) (6,889,571) (5,411,011) (594,764) (612,313) (263,587)
Administrative
expense........ (112,805) (426,925) (434,341) (1,716,099) (1,141,613) (117,092) (114,292) (39,732)
Benefits &
terminations.... (18,791,561) (17,580,894) (16,868,139) (49,791,145) (32,647,702) (2,633,536) (2,882,936) (1,210,253)
----------- ------------ ------------ ------------ ------------ ------------ ------------ -----------
Net assets....... $35,561,797 $88,322,171 $ 93,049,895 $493,218,709 $449,463,239 $ 76,652,601 $ 94,114,149 $41,018,086
=========== ============ ============ ============ ============ ============ ============ ===========
<CAPTION>
LIMITED
TERM ASSET SCIENCE AND
1997 BOND STRATEGY TECHNOLOGY
- ---- ----------- ----------- ------------
<S> <C> <C> <C>
Cost to:
Contract Owners. $2,893,475 $8,548,676 $8,827,654
Sponsor......... 500,000 10,000 500,000
Adjustment for
market
appreciation and
reinvested
dividends........ 551,910 1,552,250 223,243
Deductions:
Mortality and
expense risk
charge......... (74,064) (151,442) (31,665)
Contract
maintenance
charges:
Sales expense... (37,875) (94,579) (11,799)
Administrative
expense........ (4,408) (14,291) (1,441)
Benefits &
terminations... (276,454) (587,180) (20,705)
----------- ----------- ------------
Net assets....... $3,552,584 $9,263,434 $9,485,287
=========== =========== ============
<CAPTION>
1996
- ----
<S> <C> <C> <C>
Cost to:
Contract Owners.. $2,489,240 $7,940,674
Sponsor.......... 500,000 10,000
Adjustment for
market
appreciation and
reinvested
dividends....... 325,543 441,558
Deductions:
Mortality and
expense risk
charge.......... (44,093) (74,934)
Contract
maintenance
charges:
Sales expense... (20,321) (39,040)
Administrative
expense........ (2,430) (6,207)
Benefits &
terminations.... (191,433) (275,983)
----------- -----------
Net assets....... $3,056,506 $7,996,068
=========== ===========
</TABLE>
F-26
<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. 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 net assets; High Income
Portfolio--.15% of net assets; Growth Portfolio--.20% of net assets; Income
Portfolio--.20% of net assets; International Portfolio--.30% of net assets;
Small Cap Portfolio--.35% of net assets; Balanced Portfolio--.10% of net
assets; Limited Term Bond Portfolio--.05% of net assets; Asset Strategy
Portfolio--.30% of net assets; Science and Technology--.20% 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%; From $750 to $1,500
million--.49%; from $1,500 to $2,250 million--.47%; over $2,250 million--.45%.
Fees for these services are deducted from dividend income. The amount of these
fees have been:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Money Market........................................... $ 185,482 $ 174,341
Bond................................................... 471,851 448,923
High Income............................................ 661,953 563,465
Growth................................................. 3,994,284 3,112,383
Income................................................. 3,847,284 2,696,678
International.......................................... 768,671 493,772
Small Cap.............................................. 985,291 666,450
Balanced............................................... 315,007 188,225
Limited Term Bond...................................... 18,187 14,668
Asset Strategy......................................... 67,893 56,906
Science and Technology................................. 25,902 0
</TABLE>
F-27
<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>
Withdrawal charges are included in transfers to sponsors for benefits and
terminations.
NOTE E--EQUITY OF SPONSOR
The equity of the Sponsor may be withdrawn at the discretion of the Sponsor
without penalty.
F-28
<PAGE>
UNITED INVESTORS ANNUITY VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE F--SELECTED UNIT DATA
Selected data for a weighted average unit of the Annuity Variable Separate
Account outstanding throughout each period follows.
<TABLE>
<CAPTION>
LIMITED
MONEY HIGH SMALL TERM ASSET SCIENCE AND
1997 MARKET BOND INCOME GROWTH INCOME INTERNATIONAL CAP BALANCED BOND STRATEGY TECHNOLOGY*
- ---- ------ ----- ------ ------ ------ ------------- ----- -------- ------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend income........ $0.08 $0.13 $0.24 $0.37 $0.18 $0.13 $0.50 $0.14 $0.08 $0.14 $0.01
Expenses............... 0.02 0.03 0.03 0.06 0.04 0.02 0.03 0.02 0.02 0.02 0.01
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Investment income--net. 0.06 0.10 0.21 0.31 0.14 0.11 0.47 0.12 0.06 0.12 0.00
Net realized and
unrealized investment
gains.................. 0 0.06 0.07 0.41 0.37 0.06 0.04 0.10 0.01 0.01 0.04
Premium deposits and
net transfers.......... 0.55 0.15 0.37 0.39 0.37 0.35 0.38 0.52 0.14 0.08 2.02
Transfer to Sponsor for
benefits and
terminations........... (0.33) (0.13) (0.15) (0.22) (0.11) (0.06) (0.08) (0.06) (0.03) (0.04) 0.00
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Increase in net asset
value.................. 0.28 0.18 0.50 0.89 0.77 0.46 0.81 0.68 0.18 0.17 2.06
Net asset value,
beginning of the
period................. 1.52 2.04 2.24 3.82 2.32 1.42 2.09 1.69 1.32 1.19 0.00
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value, end of
the period............. $1.80 $2.22 $2.74 $4.71 $3.09 $1.88 $2.90 $2.37 $1.50 $1.36 $2.06
===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
<CAPTION>
1996
- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend income........ $0.07 $0.13 $0.19 $0.44 $0.06 $0.02 $0.08 $0.09 $0.07 $0.04
Expenses............... 0.02 0.03 0.03 0.05 0.03 0.02 0.03 0.02 0.02 0.02
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Investment income--net. 0.05 0.10 0.16 0.39 0.03 0.00 0.05 0.07 0.05 0.02
Net realized and
unrealized investment
gains (losses)......... (0.29) 0.03 0.04 (0.36) 0.02 (0.30) (1.10) (0.70) (0.45) (1.34)
Premium deposits and
net transfers.......... 0.30 0.17 0.15 0.50 0.41 0.41 0.89 0.67 0.39 0.55
Transfer to Sponsor for
benefits and
terminations........... (0.35) (0.12) (0.12) (0.15) (0.08) (0.03) (0.05) (0.04) (0.08) (0.04)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Increase in net asset
value.................. (0.29) 0.18 0.23 0.38 0.38 0.08 (0.21) 0.00 (0.09) (0.81)
Net asset value,
beginning of the
period................. 1.81 1.86 2.01 3.44 1.94 1.34 2.30 1.69 1.41 2.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value, end of
the period............. $1.52 $2.04 $2.24 $3.82 $2.32 $1.42 $2.09 $1.69 $1.32 $1.19
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
* Established in 1997
F-29
<PAGE>
PART C
- ------
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
All required financial statements are included in Part B of this
Registration Statement.
(b) Exhibits
(1) Resolution of the Board of Directors of United Investors Life
Insurance Company ("United Investors") authorizing establishment of the
United Investors Annuity Variable Account.\5\
(2) Custody Agreements: Not Applicable.
(3) (a) Principal Underwriting Agreement.\5\
(b) Broker-Dealer Sales Agreement.\1\
(c) Commission Schedule.\5\
(4) Annuity Policy, Form VA92.\5\
(a) Death Benefit Endorsement, Form DBEND.\2\
(b) Variable Annuity Endorsement, Form ENDVA.\2\
(c) Fixed Account Rider, Form FA95.\3\
(5) Application.\5\
(6) (a) Certificate of Incorporation of United Investors.\4\
(b) By-Laws of United Investors.\4\
(7) Reinsurance Contracts: Not Applicable.
(8) (a) Participation Agreement for TMK/United Funds, Inc.\4\
(b) Form of Administration Agreement: Not Applicable
(9) (a) Opinion of James L. Sedgwick, Esq.\5\
(b) Consent of James L. Sedgwick, Esq.
(10) (a) Consent of Sutherland, Asbill & Brennan, LLP
(b) Consent of KPMG Peat Marwick LLP.
(11) No financial statements are omitted from item 23.
(12) Agreements/understandings for providing initial capital: Not
Applicable.
- ---------------
\1\ Incorporated herein by reference to Post-Effective Amendment No.7 to
registration statement No. 33-12000, filed on April 28, 1993.
\2\ Incorporated herein by reference to Post-Effective Amendment No.9 to
registration statement No. 33-12000, filed on April 26, 1994.
\3\ Incorporated herein by reference to Post-Effective Amendment No. 11 to
registration statement No. 33-12000, filed on February 27, 1996.
\4\ Incorporated herein by reference to Post-Effective Amendment No. 14 to
registration statement No. 33-11465, filed on May 27, 1998.
\5\ Filed herewith
<PAGE>
Item 25. Directors and Officers of the Depositor
<TABLE>
<CAPTION>
Name and Principal Position and Offices
Business Address* with Depositor
----------------- --------------
<S> <C>
C. B. Hudson** Director, Chairman of the Board, and
Chief Executive Officer
James L. Sedgwick Director and President
W. Thomas Aycock Vice President and Chief Actuary,
and Director
Tony G. Brill** Vice President and Director
Larry M. Hutchison** Director
Michael J. Klyce Vice President and Treasurer
John H. Livingston Secretary, Counsel, and Director
James L. Mayton, Jr. Vice President and Controller
Carol A. McCoy Director and Assistant
Secretary
Anthony L. McWhorter Director
Ross W. Stagner Vice President and Director
William L. Surber Vice President and Director
</TABLE>
________________________
* Unless otherwise noted, the principal business address of each person listed
is United Investors Life Insurance Company, P. O. Box 10207, Birmingham,
Alabama 35202-0207.
** Principal business address: Torchmark Corporation, 3700 South Stonebridge,
McKinney, Texas 75050.
<PAGE>
Item 26. Persons Controlled by or Under Common Control With the Depositor or
Registrant.
The Depositor, United Investors Life Insurance Company, Inc. ("United
Investors"), is indirectly owned by Torchmark Corporation. The following table
shows the persons controlled by or under common control with United Investors,
their Parent Company, and the State or Jurisdiction of Incorporation. All
companies are 100% owned by their Parent Company, unless otherwise indicated,
which is indirectly owned by Torchmark Corporation. The Registrant is a
segregated asset account of United Investors.
<TABLE>
<CAPTION>
Parent State/Jurisdiction
Company Co. Code of Incorporation
- ------- -------- ------------------
<S> <C> <C>
American Income Life Insurance Co. D Indiana
American Life and Accident Insurance Co. B Texas
Brown-Service Funeral Homes Co., Inc. C Alabama
(Services burial insurance policies)
Family Service Life Insurance Co. C Texas
Famlico, Inc. A Texas
Fiduciary Trust Company of New Hampshire G* New Hampshire
First United American Life Insurance Co. E New York
Globe Insurance Agency, Inc. B Arkansas
Globe Life And Accident Insurance Co. D Delaware
Globe Marketing Services Inc. B Oklahoma
Liberty National Auto Club, Inc. C Alabama
Liberty National GroupCare, Inc. C Alabama
Liberty National Life Insurance Co. D Alabama
Living Decisions, Inc. E Texas
Maxwell's Energy Company, Inc. D Alabama
</TABLE>
*Parent company owns 99% of the common stock.
C-3
<PAGE>
<TABLE>
<CAPTION>
Parent State/Jurisdiction
Company Co. Code of Incorporation
- ------- -------- ------------------
<S> <C> <C>
Sentinel American Life Insurance Co. A Texas
Stonegate Management Company H Alabama
Stonegate Realty Company H Delaware
Torch Royalty Company F Delaware
Torchmark Corporation Delaware
(Holding company)
Torchmark Development Corporation D Alabama
Unicon Agency, Inc. G New York
United American Insurance Co. D Delaware
United Investors Life Insurance Co. C Missouri
W & R Insurance Agency, Inc. G Missouri
W & R Insurance Agency of Alabama, Inc. G Alabama
W & R Insurance Agency of Arkansas, Inc. G Arkansas
W & R Insurance Agency of Massachusetts, Inc. G Massachusetts
W & R Insurance Agency of Montana, Inc. G Montana
W & R Insurance Agency of Nevada, Inc. G Nevada
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
Parent State/Jurisdiction
Company Co. Code of Incorporation
- ------- -------- ------------------
<S> <C> <C>
W & R Insurance Agency of Utah, Inc. G Utah
W & R Insurance Agency of Wyoming, Inc. G Wyoming
Waddell & Reed, Inc. F Delaware
(Insurance sales; investment manager)
Waddell & Reed Asset Management Co. G Missouri
Waddell & Reed Distributing, Inc. G Missouri
(Distributor for mutual funds)
Waddell & Reed Financial, Inc. D** Delaware
Waddell & Reed Financial Services, Inc. F Missouri
Waddell & Reed Investment Management Co. G Kansas
Waddell & Reed Leasing, Inc. G Missouri
(Equipment leasing partnerships)
Waddell & Reed Services Co. G Missouri
(Shareholder services)
</TABLE>
**Parent company owns 64%.
Parent Company Codes
- ----------------------------------------
A Family Service Life Insurance Co.
B Globe Life And Accident Insurance Co.
C Liberty National Life Insurance Co.
D Torchmark Corporation
E United American Insurance Co.
F Waddell & Reed Financial, Inc.
G Waddell & Reed, Inc.
H Torchmark Development Corporation
C-5
<PAGE>
Item 27. Number of Policy Owners
As of December 31, 1997, there were 36,352 owners of the Policies.
Item 28. Indemnification
Article XII of United Investors' By-Laws provides as follows:
"Each Director or officer, or former Director or officer, of this
Corporation, and his legal representatives, shall be indemnified by the
Corporation against liabilities, expenses, counsel fees and costs, reasonably
incurred by him or his estate in connection with, or arising out of, any
action, suit, proceeding or claim in which he is made a party by reason of
his being, or having been, such Director or officer; and any person who, at
the request of this Corporation, serves as Director or officer of another
corporation in which this Corporation owns corporate stock, and his legal
representatives, shall in like manner be indemnified by this Corporation;
provided that, in either case shall the Corporation indemnify such Director
or officer with respect to any matters as to which he shall be finally
adjudged in any such action, suit or proceeding to have been liable for
misconduct in the performance of his duties as such Director or officer. The
indemnification herein provided for shall apply also in respect of any amount
paid in compromise of any such action, suit, proceeding or claim asserted
against such Director or officer (including expenses, counsel fees, and costs
reasonably incurred in connection therewith), provided that the Board of
Directors shall have first approved such proposed compromise settlement and
determined that the officer or Director involved is not guilty of misconduct,
but in taking such action any Director involved shall not be qualified to
vote thereof, and if for this reason a quorum of the Board cannot be obtained
to vote on such matters, it shall be determined by a committee of three (3)
persons appointed by the shareholders at a duly called special meeting or at
a regular meeting. In determining whether or not a Director or officer is
guilty of misconduct in relation to any such matter, the Board of Directors
or committee appointed by the shareholders, as the case shall be, may rely
conclusively upon an opinion of independent legal counsel selected by such
Board or committee. The rights to indemnification herein provided shall not
be exclusive of any other rights to which such Director or officer may be
lawfully entitled."
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to Directors, officers and controlling provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a Director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such Director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
C-6
<PAGE>
Item 29. Principal Underwriters
Waddell & Reed, Inc. ("W&R") is the principal underwriter of the Policies as
defined in the Investment Company Act of 1940, and is also the principal
underwriter for certain flexible premium variable life insurance policies issued
through United Investors Life Variable Account.
The following table provides certain information with respect to each
Director, officer and partner of each principal underwriter.
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address* With Underwriter
- ------------------ --------------------
<S> <C>
Keith A. Tucker Chairman and Director
--------
Robert L. Hechler President, Chief Executive Officer, Principal
Financial Officer, Director and Treasurer
--------
Henry J. Herrmann Director
--------
Sharon K. Pappas Senior Vice President, Secretary and
General Counsel
Robert J. Williams, Jr. Executive Vice President and National
Sales Manager
Michael D. Strohm Senior Vice President and Controller
Michael G. Gerken Senior Vice President
Vice Presidents
- ---------------
David R. Burford
Steven E. Hermes
William D. Howey, Jr.
Terry M. Parker
</TABLE>
*The principal business address for the officers and Directors listed is 6300
Lamar Avenue, Overland Park, Kansas 66202-4200.
C-7
<PAGE>
Commissions Received By Principal Underwriter
---------------------------------------------
<TABLE>
<CAPTION>
Net Underwriting
Name of Principal Discounts and Compensation
Underwriter Commissions on Redemption
- ------------------------ ---------------- -------------
<S> <C> <C>
Waddell & Reed, Inc. $17,930,510.48 -0-
</TABLE>
<TABLE>
<CAPTION>
Brokerage
Commissions Compensation
----------- ------------
<S> <C>
$65.70 -0-
</TABLE>
Item 30. Location of Accounts and Records
All accounts and records required to be maintained by Section 31(a) of the
1940 Act and the rules under it are maintained by United Investors at its
administrative office.
Item 31. Management Services
All management contracts are discussed in Part A or Part B.
Item 32. Undertakings
(a) Registrant undertakes that it will file a Post-Effective Amendment to
this Registration Statement as frequently as necessary to ensure that the
audited financial statements in the Registration Statement are never more than
16 months old for so long as payments under the variable annuity contracts may
be accepted.
(b) Registrant undertakes that it will include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
post card or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
(c) Registrant undertakes to deliver any Statement of Additional Information
and any financial statements required to be made available under this Form
promptly upon written or oral request to United Investors at the address or
phone number listed in the Prospectus.
(d) United Investors Life Insurance Company represents that the fees and
charges deducted under the annuity policy form are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the risks assumed
by United Investors.
C-8
<PAGE>
STATEMENT PURSUANT TO RULE 6c-7
-------------------------------
United Investors and the Variable Account rely on 17 C.F.R. Sections 270.6c-7
and represent that the provisions of that Rule have been or will be complied
with. Accordingly, United Investors and the Variable Account are exempt from
the provisions of Sections 22(e), 27(c)(1) and 27(d) of the Investment Company
Act of 1940 with respect to any variable annuity contract participating in such
account to the extent necessary to permit compliance with the Texas Optional
Retirement Program.
SECTION 403(b) REPRESENTATIONS
------------------------------
United Investors represents that it is relying on a no-action letter dated
November 28, 1988, to the American Council of Life Insurance (Ref. No. IP-6-88)
regarding Sections 22(e), 27(c)(1), and 27(d) of the Investment Company Act of
1940, in connection with redeemability restrictions on Section 403(b) policies,
and that paragraphs numbered (1) through (4) of that letter will be complied
with.
C-9
<PAGE>
SIGNATURES
----------
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant, United Investors Annuity Variable Account, certifies that
it meets the requirements of Securities Act Rule 485(b) for effectiveness of
this Post-Effective Amendment No. 14 to the Registration Statement and has duly
caused this Post-Effective Amendment No. 14 to the Registration Statement to be
signed on its behalf in the City of Birmingham and the State of Alabama on the
29th day of April, 1998.
UNITED INVESTORS ANNUITY VARIABLE ACCOUNT
(REGISTRANT)
UNITED INVESTORS LIFE INSURANCE COMPANY
(DEPOSITOR)
/s/ James L. Sedgwick
By:______________________________________
James L. Sedgwick
As required by the Securities Act of 1933, this Post-Effective Amendment No. 14
to the Registration Statement for the United Investors Annuity Variable Account
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ C. B. Hudson
____________________________ Director, Chairman of the Board of --------
C. B. Hudson Directors and Chief Executive Officer
/s/ James L. Sedgwick
__________________________ Director and President --------
James L. Sedgwick
/s/ Thomas Aycock
___________________________ Vice President and Chief Actuary --------
W. Thomas Aycock and Director
/s/ Tony G. Brill
___________________________ Senior Vice President and Director --------
Tony G. Brill
/s/ Larry M. Hutchison
__________________________ Director --------
Larry M. Hutchison
/s/ Michael J. Klyce
__________________________ Vice President and Treasurer --------
Michael J. Klyce
/s/ James L. Mayton, Jr.
___________________________ Vice President and Controller --------
James L. Mayton, Jr.
/s/ John H. Livingston
___________________________ Secretary, Counsel and Director --------
John H. Livingston
/s/ Anthony L. McWhorter
___________________________ Director --------
Anthony L. McWhorter
___________________________ Director and Assistant Secretary --------
Carol A. McCoy
/s/ Ross W. Stagner
___________________________ Vice President and Director --------
Ross W. Stagner
/s/ William L. Surber
___________________________ Vice President and Director --------
William L. Surber
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C>
1 Resolution of the Board of Directors of United Investors Life
Insurance Company ("United Investors") authorizing establishment of
the United Investors Annuity Variable Account.
3(a) Principal Underwriting Agreement.
3(c) Commission Schedule.
4 Annuity Policy, Form VA92.
4(a) Death Benefit Endorsement, Form DBEND.
4(b) Variable Annuity Endorsement, Form ENDVA.
4(c) Fixed Account Rider, Form FA95.
5 Application.
9(a) Opinion of James L. Sedgwick, Esq.
9(b) Consent of James L. Sedgwick, Esq.
10(a) Consent of Sutherland, Asbill & Brennan, LLP
10(b) Consent of KPMG Peat Marwick LLP
</TABLE>
<PAGE>
Exhibit 1.: Resolution of the Board of Directors of United Investors Life
Insurance Company ("United Investors") authorizing establishment
of the Variable Account
United Investors Life Insurance Company
Consent of the Executive Committee
The undersigned, being all of the members of the Executive Committee of the
Board of Directors of United Investors Life Insurance, hereby adopt the
following resolutions:
WHEREAS, it is desirable that United Investors Variable Account be
reactivated with certain changes.
NOW THEREFORE, BE IT RESOLVED, that the name of the separate account
established by Board Resolution dated December 8, 1981 and modified by
Board Resolution dated July 21, 1982 be changed to United Investors Annuity
Variable Account ("Variable Account").
FURTHER RESOLVED, that the number of investment divisions established
within the Variable Account be increased from two (2) to four (4)
investment divisions.
FURTHER RESOLVED, that any two of the following: the President, the
Vice President and Actuary and the Vice President and Controller be and
they hereby are authorized to specify from time to time by written
instrument, duly attached to and made a part of the records of the
Corporation:
(1) those persons who shall be authorized to deposit such amount in
the Variable Account or in each investment division thereof as may be
necessary or appropriate to facilitate the commencement of the
Account's operations;
(2) those persons who shall be authorized to transfer funds from time
to time between the Corporation's general account and the Variable
Account as deemed necessary or appropriate and consistent with the
terms of the Variable Annuity Contract.
FINALLY RESOLVED, that the President, the Vice President and Actuary
and the Vice President and General Counsel, and each of them with full
power to act without the others, hereby are severally authorized and
empowered to prepare, execute and cause to be filed with the Securities and
Exchange Commission on behalf of the Variable Account, and by the
Corporation as sponsor and depositor as Form of Notification of
Registration Statement under the Securities Act of 1933 registering the
Contracts, and any and all amendments to the foregoing on behalf of
Variable Account and the Corporation and on behalf of and as attorneys for
the principal executive officer and/or the principal financial officer
and/or principal account officer and/or any other officer of the
Corporation.
Dated this 5/th/ day of December, 1986.
BE IT RESOLVED, that the Company, pursuant to the provisions of Section 376.309
of the Missouri Insurance Statutes, hereby establishes a separate
<PAGE>
account designated,"United Investors Variable Account "hereinafter "Variable
Account") for the following use and purposes, and subject to such conditions as
are hereinafter set forth:
FURTHER RESOLVED, that Variable Account shall be established for the purpose of
providing for the issuance by the Company of such Variable Annuity or other
Contracts ("Contracts") as the Executive Committee may designate for such
purpose and shall constitute a separate account into which allocated amounts are
paid to or held by the Company under such Contracts; and
FURTHER RESOLVED, that the income, gains and losses, whether or not realized,
from assets allocated to Variable Account shall, in accordance with the
Contracts, be credited to or charged against such account without regard to
other income, gains, or losses of the Company; and
FURTHER RESOLVED, that the fundamental investment policy of Variable Account
shall be to invest or reinvest the assets of Variable Account in securities
issued by such investment companies registered under the Investment Company Act
of 1940 as may be specified in the respective Contracts; and
FURTHER RESOLVED, that four investment divisions be, and hereby are established
within Variable Account, to which net payments under the Contracts will be
allocated in accordance with instructions received from contract holders, and
that the Executive Committee be, and hereby is, authorized to increase or
decrease the number of investment divisions in Variable Account as it deems
necessary or appropriate; and
FURTHER RESOLVED, that each such investment division shall invest only in the
shares of a single mutual fund or a single mutual fund portfolio of an
investment company organized as a series fund pursuant to the Investment Company
Act of 1940; and
FURTHER RESOLVED, that each investment division may be comprised of two sub-
divisions, one to hold the amounts contributed under Contracts issued to
retirement plans qualifying for favorable tax treatment under the provisions of
the Internal Revenue Code, as amended, and the other to hold amounts contributed
under Contracts not issued to such qualified plans; and
FURTHER RESOLVED, that the President and the Senior Vice President and Treasurer
be, and they hereby are, authorized to deposit such amount in Variable Account
or in each investment division thereof as may be necessary or appropriate to
facilitate the commencement of the Accounts operations; and
FURTHER RESOLVED, that the President and the Senior Vice President and Treasurer
be, and they hereby are, authorized to transfer funds from time to time between
United Investors general account and Variable Account as deemed necessary or
appropriate and consistent with the terms of the Contract; and
FURTHER RESOLVED, that the Executive Committee of the Company be, and is hereby,
authorized to change the designation of Variable Account to such other
designation as it may deem necessary or appropriate; and
FURTHER RESOLVED, that the appropriate officers of the Company, with such
assistance from the Company's auditors, legal counsel and independent
consultants or others as they may require, be, and they hereby are, authorized
and directed to take all action necessary to:
(a) Register Variable Account as a unit investment trust under the
Investment Company Act of 1940 as amended;
<PAGE>
(b) Register the Contracts in such amounts, which may be an indefinite
amount, as the officers of the Company shall from time to time deem
appropriate under the Securities Act of 1933; and
(c) Take all other actions which are necessary in connection with the
offering of said Contracts for sale and the operation of Variable Account
in order to comply with the Investment Company Act of 1940, the Securities
Exchange Act of 1934, the Securities Act of 1933, and other applicable
federal laws, including the filing of any amendments to registration
statements, any undertakings, and any applications for exemptions from the
Investment Company Act of 1940 or other applicable federal laws as the
officers of the Company shall deem necessary or appropriate; and
FURTHER RESOLVED, that the President, the Senior Vice President and Treasurer
and the Vice president and General Counsel, and each of them with full power to
act without the others, hereby are severally authorized and empowered to
prepare, execute and cause to be filed with the Securities and Exchange
Commission on behalf of Variable Account, and by the Company as sponsor and
depositor, a Form of Notification of Registration Statement under the Securities
Act of 1933 registering the Contracts, and any and all amendments to the
foregoing on behalf of Variable Account and the Company and on behalf of and as
attorneys for the principal executive officer and/or the principal financial
officer and/or the principal accounting officer and/or any other officer of the
Company; and
FURTHER RESOLVED, that James L Sedgwick and Paul J. Mason are hereby appointed
as agents for service under any such registration statement duly authorized to
receive communications and notices from the Securities and Exchange Commission
with respect thereto; and
FURTHER RESOLVED, that the appropriate officers of the Company be, and they
hereby are, authorized on behalf of Variable Account and on behalf of the
Company to take any and all action that they may deem necessary or advisable in
order to sell the Contracts, including any registrations, filings and
qualifications of the Company, its officers, agents and employees, and the
Contracts under the insurance and securities laws of any of the states of the
United States of America or other jurisdictions, and in connection therewith to
compare, execute, deliver and file all such applications, reports, covenants,
resolutions applications for exemptions, consents to service or process and
other papers and instruments as may be required under such laws, and to take any
and all further action which said officers or counsel of the Company may deem
necessary or desirable (including entering into whatever agreements and
contracts as may be necessary) in order to maintain such registrations or
qualifications for as long as said officers or counsel deem it to be in the best
interest of Variable Account and the Company; and
FURTHER RESOLVED, that the President and the Vice President and General Counsel
of the Company be, and hereby are, authorized in the names and on behalf of
Variable Account and the Company to execute and file irrevocable written
consents on the part of Variable Account and the Company to be used in such
states where such consents to service of process may be requisite under the
insurance or securities laws therein in connection with said registration or
qualification of Contracts and to appoint the appropriate state official, or
such other person as may be allowed by said insurance or securities laws, agent
of Variable Account and of the Company for the purpose of receiving and
accepting process; and
FURTHER RESOLVED, that the President of the Company be, and hereby is,
authorized to establish procedures under which the Company will institute
<PAGE>
procedures for providing voting rights for owners of such contracts with respect
to securities owned by Variable Account.
<PAGE>
Exhibit 3(a)
PRINCIPAL UNDERWRITING AGREEMENT
--------------------------------
AGREEMENT dated ___________, 1990, by and between United Investors
Life Insurance Company ("United Investors"), a Missouri Corporation on its own
behalf and on the behalf of United Investors Life Variable Account
("Variable Account"), and Waddell & Reed, Inc. ("W&R"), a Missouri corporation.
WITNESSETH:
WHEREAS, Variable Account is a segregated asset account established
and maintained by United Investors pursuant to the laws of the State of Missouri
for certain flexible premium variable life policies to be issued by United
Investors (the "Policies"), under which income, gains, and losses, whether or
not realized, from assets allocated to such account, will be, in accordance with
the Policies, credited to or charged against such account without regard to
other income gains, or losses of United Investors; and
WHEREAS, United Investors has registered Variable Account as a unit
investment trust under the Investment Company Act of 1940 (the "Investment
Company Act"); and
WHEREAS, W&R has registered as a broker/dealer under the Securities
Exchange Act of 1934 (the "Exchange Act") and is a member firm of the National
Association of Securities Dealers, Inc. (The "NASD"); and
WHEREAS, United Investors has registered the Policies under the Securities
Act of 1933 (the "Securities Act") and proposes to issue and sell the Policies
through W&R acting as its principal underwriter.
NOW THEREFORE, United Investors and W&R hereby mutually agree as follows:
1. Underwriter.
-----------
(a) United Investors grants to W&R the right, during the term of this
Agreement, subject to the registration requirements of the Securities Act and
the Investment Company Act and the provisions of the Exchange Act, to be the
distributor and principal underwriter of the Policies. W&R agrees to use its
best efforts to distribute the Policies, and to undertake to provide sales
services relative to the Policies and otherwise to perform all duties and
functions necessary and proper for the distribution of the Policies.
(b) To the extent necessary to offer the Policies, W&R shall be duly
registered or otherwise qualified under the securities laws of any state or
other jurisdiction. Any sales representatives of W&R soliciting applications for
the Policies shall be duly and appropriately licensed, registered or otherwise
qualified for the sale of such Policies under the federal securities laws, any
applicable insurance laws and securities laws of each state or other
jurisdiction in which such policies may lawfully be sold and in which United
Investors is licensed to sell Policies. Such direct sales representatives of W&R
shall be independent contractors. W&R shall be responsible for the training,
supervision, and control of its representatives for the purposes of the NASD
Rules of Fair Practice and federal and state securities law requirements
applicable in connection with the offering and sale of the Policies. In this
<PAGE>
connection, W&R shall retain written supervisory procedures in compliance with
NASD Rules of Fair Practice, Section 27, Paragraph 2177.
(c) W&R agrees to offer the Policies for sale in accordance with the
prospectus therefore filed with the Securities and Exchange Commission
("Commission") then in effect. W&R is not authorized to give any informationor
in such current prospectus or in such sales literature as may be authorized by
United Investors.
(d) All premium payments made or other monies payable under the Policies
shall be paid or remitted by or on behalf of Policyowners directly to United
Investors or its designated servicing agent and shall become the exclusive
property of United Investors. United Investors will retain all such payments and
monies except to the extent such payments and monies are allocated to the
Variable Account.
2. Sales Agreement.
----------------
(a) W&R is hereby authorized to enter into separate written agreements, on
such terms and conditions as W&R may determine to be not inconsistent with this
Agreement, with broker/dealers registered as such under the Exchange Act which
agree to participate in the distribution of the Policies and to use their best
efforts to solicit applications for the Policies.
(b) It is understood and agreed to by United Investors and W&R that United
Investors may from time to time propose that the Policies be distributed through
broker/dealers other than W&R. In such circumstances, W&R will agree to enter
into a sales agreement with another broker/dealer, subject to W&R's reasonable
satisfaction, through its customary review, with such other broker/dealer's
credentials and practices. W&R agrees that, if reasonably satisfied with the
credentials and practices of such other broker/dealer, a sales agreement will
not be withheld. If W&R withholds a sales agreement without substantiating its
reasons for doing so, United Investors may terminate this agreement by giving
W&R thirty (30) days written notice, notwithstanding any other provision of this
Agreement.
(c) All such sales agreements shall provide that each broker/dealer will
assume full responsibility for continued compliance by itself and its
representatives with applicable federal and state securities laws and state
insurance laws, and shall be in such forms and contain such other provisions as
United Investors may from time to time require. Such broker/dealer shall assume
any legal responsibility of United Investors for the acts, commissions, or
defalcations of such representatives insofar as they relate to the sale of the
Policies. Such broker/dealers and their representatives soliciting applications
for the Policies shall be duly and appropriately licensed, registered, or
otherwise qualified for the sale of such Policies under the federal securities
laws, any applicable insurance and securities laws of each state or other
jurisdiction in which such Policies may be lawfully sold and in which United
Investors is licensed to sell the Policies. Each such organization shall be both
registered as a broker/dealer under the Exchange Act and a member of the NASD,
or if not so registered or not such a member, then the representatives of such
organization soliciting applications for Policies shall be registered
representatives of a registered broker/dealer and NASD member which is an
affiliate of such organization and which maintains full responsibility for the
training, supervision, and control of the representatives selling the Policies.
(d) Applications for the Policies solicited by such organizations
<PAGE>
through their representatives shall be forwarded to United Investors. All
payments for Policies shall be made by check or money order payable to "United
Investors Life Insurance Company" and remitted promptly by such organizations to
United Investors as agent for W&R. United Investors may also accept wire
transfers via Federal Funds to an account designated by United Investors. All
broker/dealers who agree to participate in the distribution of the Policies
shall act as independent contractors and nothing herein contained shall
constitute such broker/dealers or their agents or employees as employees of
United Investors or W&R in connection with the sale of the Policies.
3. Compensation.
-------------
(a) For the sales services rendered by W&R and its sales representatives
and the continuing obligations spelled out herein, United Investors shall pay
W&R the commissions set forth in Schedule A to this Agreement, which Schedule
may be hereafter amended from time to time by mutual agreement of United
Investors and W&R.
(b) For Policies sold under sales agreements that W&R enters into with
other broker/dealers pursuant to paragraph 2, above, United Investors shall pay
W&R the commissions which are set forth in Schedule B to this Agreement, which
Schedule may be hereafter amended from time to time by mutual agreement of
United Investors and W&R.
4. Administrative Services.
------------------------
United Investor agrees to maintain all required books of account and
related financial records on behalf of W&R. All such books of account and
records shall be maintained and preserved pursuant to Rules 17a-3 and 17a-4
under the Exchange Act (or the corresponding provisions of any future applicable
federal securities laws or regulations). In additional, United Investors will
maintain records of all sales commissions paid to sales representatives of W&R
in connection with the sale of the Policies. All such books and records shall be
maintained by United Investors on behalf of and as agent for W&R whose property
they are and shall remain for all purposes, and shall at all times be subject to
reasonable periodic, special, or other examination by the Commission and all
other regulatory bodies having jurisdiction. United Investors also agrees to
send to W&R's customers all required confirmations on customer transactions.
5. Reports.
--------
W&R shall have the responsibility for maintaining the records of sales
representatives licensed, registered, and otherwise qualified to sell the
Policies and for furnishing periodic reports thereof to United Investors.
6. Regulation.
-----------
(a) This Agreement shall be subject to the provisions of the
Investment Company Act and the Exchange Act and the rules, regulations, and
rulings thereunder and of the NASD, from time to time in effect, including such
exemptions from the Investment Company Act as the Commission may grant, and the
terms hereof shall be interpreted and construed in accordance therewith. Without
limiting the generality of the foregoing, the term "assigned" shall not include
any transactions exempted from section 15(b) (2) of the Investment Company Act.
<PAGE>
(b) W&R shall submit to all regulatory and administrative bodies having
jurisdiction over the present and future operations of United Investors or
Variable Account any information, reports or other material which any such body
by reason of this Agreement may request or require pursuant to applicable laws
or regulations. Without limiting the generality of the foregoing, W&R shall
furnish the State of Missouri Secretary of State and/or the Director of
Insurance with any information or reports which the Secretary of State and/or
the Director of Insurance may request in order to ascertain whether the variable
life operations of United Investors are being conducted in a manner consistent
with any other applicable law or regulations.
7. Suitability.
------------
United Investors and W&R each wish to ensure that the Policies distributed
by W&R will be issued to purchasers for whom the Policy will be suitable. W&R
shall take reasonable steps to ensure that the various sales representatives
appointed by it shall not make recommendations to an applicant
to purchase a Policy in the absence of reasonable grounds to believe that the
purchase of the Policy is suitable for such applicant. While not limited to the
following, a determination of suitability shall be based on information
furnished to a sales representative after reasonable inquiry of such applicant
concerning the applicant's insurance and investment objectives and financial
situation and needs. W&R will require that the applicant complete the Owner's
Confidential Financial Information and Suitability sections of the application
for the Policy.
8. Prospectuses and Promotional Material.
--------------------------------------
United Investors shall furnish W&R with copies of all prospectuses,
financial statements, and other documents and materials which W&R reasonably
requests for use in connection with the distribution of the Policies. United
Investors shall have responsibility for the preparation, filing, and printing of
all required prospectuses and/or registration statements in connection with the
Policies, and the payment of all related expenses. W&R and United Investors
shall cooperate fully in designing, drafting, and reviewing sales promotion
materials, and with respect to the preparation of individual sales proposals
related to the sale of the Policies. W&R shall not use any such material not
provided or approved by United Investors.
9. Investigation and Proceedings.
------------------------------
(a) W&R and United Investors agree to cooperate fully in any insurance
regulatory investigation or proceeding or any judicial proceeding arising in
connection with the Policies distributed under this Agreement. W&R and United
Investors further agree to cooperate fully in any securities regulatory
inspection, inquiry, investigation or proceeding or any judicial proceeding with
respect to United Investors, W&R, their affiliates and their representatives to
the extent that such inspection, inquiry, investigation or proceeding is in
connection with the Policies distributed under this Agreement. Without limiting
the foregoing:
(i) W&R will be notified promptly of any customer complaint or notice
of any regulatory inspection, inquiry, investigation or proceeding or
judicial proceeding received by United Investors with respect to W&R or any
representative or which may affect United Investors' issuance of any
Policies marketed under this Agreement; and
<PAGE>
(ii) W&R will promptly notify United Investors of any customer
complaint or notice of any regulatory inspection, inquiry, investigation or
judicial proceeding received by W&R or any representative with respect to
United Investors or its affiliates in connection with any Policies
distributed under this Agreement or any activity in connection with any
Policies.
(b) In the case of a customer complaint, W&R and United Investors will
cooperate in investigating such complaint and shall arrive at a mutually
satisfactory response.
10. Exclusivity.
-----------
The services of W&R and United Investors under this Agreement are not
deemed to be exclusive and W&R and United Investors shall be free to render
similar services to others, including, without implied limitation, such other
separate investment accounts as are now or hereafter established by United
Investors, W&R or any affiliate of W&R so long as the services of W&R and United
Investors hereunder are not impaired or interfered with thereby.
11. Benefit.
--------
This Agreement shall inure to the benefit of and be binding upon the
successors of the parties hereto.
12. Liability.
---------
Neither party hereto shall be liable to the other for any action taken or
omitted by it, or any of its officers, agents or employees, in performing their
responsibilities under this Agreement in good faith and without gross
negligence, willful misfeasance or reckless disregard of such responsibilities.
13. Notices.
-------
All notices and other communication provided for hereunder shall be in
writing and shall be delivered by hand or mailed first class, postage prepaid,
addressed as follows:
(a) If to United Investors:
United Investors Life Insurance Company
P. O. Box 10207
Birmingham, Alabama 35202-0207
Attention: James L. Sedgwick, Esq.
(b) If to W&R:
Waddell & Reed, Inc.
Post Office Box 29217
Shawnee Mission, KS 66201-9217
Attention: Sharon K. Pappas
or to such other address as United Investor or W&R shall designate by written
notice to the other.
<PAGE>
14. Amendment.
----------
This Agreement may be amended from time to time by the mutual
agreement and consent of the parties hereto.
15. Severability.
-------------
If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby.
16. Termination.
------------
This Agreement shall be effective upon its execution. It may be
terminated at any time by either party hereto on 60 days written notice to the
other party hereto, without the payment of any penalty. Upon termination of
this Agreement, all authorizations, rights and obligations, shall cease except
(i) the obligation to settle accounts hereunder, issued pursuant to applications
received by United Investors prior to termination and (ii) the agreements
contained in paragraph 9 hereof.
17. Applicable Law.
---------------
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Missouri.
18. Counterparts.
-------------
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original and all of which shall be deemed an
instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
(Seal) UNITED INVESTORS LIFE
INSURANCE COMPANY
By:
- ----------------------- ------------------------
Title: Title:
----------------- --------------------
(seal)
Attest WADDELL & REED, INC.
By:
- ----------------------- -----------------------
Title: Title:
----------------- ---------------------
<PAGE>
Exhibit 3(c) Commission Schedule
UNITED INVESTORS LIFE
2001 Third Avenue South, P.O. Box 55926c
Birmingham, Alabama 35255-5926
(205) 325-4300
July 1, 1987
GENERAL AGENT
COMMISSION SCHEDULE AMENDMENT
The Commision Schedule dated January 1, 1985, and amended June 1, 1986, is
hereby amended by adding the following product and commission:
VARIABLE PRODUCT
- ----------------
Advantage I and II - 6.36% of all premiums received.
-------------------------------------------------------------
Amendment
March 1, 1991
Advantage II - 7.36% of all prmeiums received.
<PAGE>
Exhibit 4 Annuity Policy, Form VA92
UNITED INVESTORS LIFE INSURANCE COMPANY
A Missouri Stock Company
WE WILL PAY the monthly annuity payments to the annuitant starting on the
retirement date, as provided in this policy; and
WE WILL PROVIDE the other rights and benefits of this policy.
Payment of any benefits and all other rights are subject to the terms of this
policy. This policy is issued in consideration of the application and payment of
the initial purchase payment.
"FREE LOOK" PERIOD - You may cancel this policy by returning it by the 10th
day after you receive it. You may return it to us or to the agent who sold it
to you. When we receive the policy, we will cancel it and refund the purchase
payment that was paid.
POLICY VALUE - The policy value of this policy may increase or decrease daily
depending on the investment experience of the investment divisions.
Signed for United Investors Life Insurance Company at Birmingham, Alabama.
John H. Livingston James L. Sedgwick
Secretary President
<TABLE>
<CAPTION>
ANNUITANT: JOHN DOE ISSUE AGE: 35 MALE
<S> <C> <C> <C>
POLICY DATE: JAN 01, 1996 POLICY NUMBER: 1234567
RETIREMENT DATE: JAN 01, 2046 INITIAL PURCHASE
PAYMENT: $10,000.00
</TABLE>
DEFERRED VARIABLE ANNUITY POLICY
Annuity payments begin on the retirement date.
Death benefit payable at annuitant's death prior to the retirement date.
Purchase payments are flexible, subject to the limits described herein.
This policy is nonparticipating. Dividends are not payable.
<PAGE>
GUIDE TO POLICY PROVISIONS
<TABLE>
<CAPTION>
Section
<S> <C>
Additional Purchase Payments.. 5
Age and Sex................... 2
Assignment.................... 7
Beneficiary................... 7
Change of Beneficiary......... 7
Death Benefit................. 4
Definitions................... 1
Delay in Payments............. 13
Errors in Age or Sex.......... 6
Initial Purchase Payment...... 2
Investment Divisions.......... 12
Annuity Provisions............ 8
Policy Date................... 2
Purchase Payment Provisions... 5
Termination of Policy......... 10
Variable Account.............. 11
Variable Account Value........ 1
Withdrawals................... 9
</TABLE>
1. DEFINITIONS
- --------------------------------------------------------------------------------
Annuitant - The person on whose life annuity payments depend. If the Contract
Owner names more than one person as an "Annuitant", the second person named
shall be referred to as "Co-Annuitant". All provisions based on the date of
death of the "Annuitant" prior to the Retirement Date will be based on the date
of death of thelast to survive of the "Annuitant" or "Co-Annuitant". The
"Annuitant" and "Co-Annuitant" will be referred to collectively at the
"Annuitant".
You, Your - The owner of this policy. The owner may be someone other than the
annuitant. The owner is shown in the application unless the owner has been
changed as provided in this policy.
We, Our, Us - United Investors Life Insurance Company.
Accumulation Unit - An accounting unit used prior to the retirement date to
calculate the policy value.
Age - The issue age shown under Policy Data as determined by us from the
birthdate stated in the application. Attained ages are determined from the
policy date. We use age nearest birthdate.
Annuity Unit - An accounting unit used after the retirement date to calculate
the value of variable annuity payments.
Investment Divisions - The investment divisions named under Policy Data. Each
is part of a variable account of ours.
Net Purchase Payment - The purchase payment less any deduction for premium
taxes.
Policy Anniversary - The same day and month as the policy date each year that
the policy remains in force.
Policy Date - The date from which policy anniversaries and policy years are
determined. Your policy date is shown under Policy Data.
Policy Value - The variable account value prior to the retirement date.
Retirement Date - The date on which annuity payments are to start. The
retirement date is shown under Policy Data, unless changed.
Surrender Value - The Policy Value less any withdrawal charges and premium
taxes.
Valuation Date - Each day that the New York Stock Exchange is open for trading.
Valuation Period - The interval of time between a valuation date and the next
valuation date. It is measured from the closing of the New York Stock Exchange.
Variable Account Value - The sum of the values of the investment divisions under
this policy.
Variable Annuity - An annuity with payments which vary in amount with the
investment experience of the variable account.
Written Request - A request in writing signed by you.
Page 2
<PAGE>
2. POLICY DATA
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ANNUITANT: JOHN DOE ISSUE AGE: 35 MALE
<S> <C> <C> <C>
POLICY DATE: JAN 01, 1996 POLICY NUMBER: 1234567
RETIREMENT DATE: JAN 01, 2046 INITIAL PURCHASE
PAYMENT: $10,000.00
POLICY: DEFERRED VARIABLE ANNUITY
MINIMUM INITIAL PURCHASE PAYMENT:
NONQUALIFIED POLICIES: $5,000
QUALIFIED POLICIES: $1,200
AS AN EXCEPTION, WE WILL ACCEPT $100 PER MONTH
(AT LEAST $1,200 THE FIRST YEAR) IF PURCHASE
PAYMENTS ARE PAID BY MEANS OF A BANK DRAFT OR
GROUP PAYMENT METHOD APPROVED IN ADVANCE BY US.
MINIMUM ADDITIONAL PURCHASE PAYMENTS: $100
MAXIMUM TOTAL PURCHASE PAYMENTS: $500,000
MINIMUM PARTIAL WITHDRAWAL: $250
MINIMUM POLICY VALUE AFTER PARTIAL WITHDRAWAL: $2,000
</TABLE>
PARTIAL WITHDRAWAL WAITING PERIOD: ONE YEAR FROM POLICY DATE
INVESTMENT DIVISIONS
- --------------------------------------------------------------------------------
INVESTMENT DIVISION INVESTMENT PORTFOLIO
- ------------------------- -----------------------------
ASSET STRATEGY DIVISION ASSET STRATEGY PORTFOLIO
BALANCED DIVISION BALANCED PORTFOLIO
BOND DIVISION BOND PORTFOLIO
GROWTH DIVISION GROWTH PORTFOLIO
HIGH INCOME DIVISION HIGH INCOME PORTFOLIO
INCOME DIVISION INCOME PORTFOLIO
INTERNATIONAL DIVISION INTERNATIONAL PORTFOLIO
LIMITED-TERM BOND DIVISION LIMITED-TERM BOND PORTFOLIO
MONEY MARKET DIVISION MONEY MARKET PORTFOLIO
SMALL CAP DIVISION SMALL CAP PORTFOLIO
SCIENCE & TECHNOLOGY DIVISION SCIENCE & TECHNOLOGY PORTFOLIO
EACH INVESTMENT DIVISION IS PART OF A VARIABLE ACCOUNT OF UNITED
INVESTORS LIFE INSURANCE COMPANY.
PAGE 3
<PAGE>
2. POLICY DATA (CONTINUED)
- --------------------------------------------------------------------------------
ANNUAL DEDUCTION FOR:
SALES EXPENSES: .85% OF EACH PURCHASE PAYMENT
ON EACH OF THE FIRST TEN POLICY
ANNIVERSARIES FOLLOWING RECEIPT
OF THE PURCHASE PAYMENT
ADMINISTRATIVE EXPENSES: $50 ON EACH POLICY ANNIVERSARY
MORTALITY AND EXPENSE RISK CHARGE: .002454% PER DAY, EQUIVALENT TO
.90% PER YEAR
DEDUCTION FOR PREMIUM TAXES: AS INCURRED
TABLE OF WITHDRAWAL CHARGE RATES
- --------------------------------------------------------------------------------
POLICY ANNIVERSARIES
SINCE RECEIPT OF WITHDRAWAL
PURCHASE PAYMENT CHARGE RATE
0 8%
1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 1%
8 OR MORE 0%
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.
SEE WITHDRAWALS PROVISION ON PAGE 10.
PAGE 4
<PAGE>
2. POLICY DATA (CONTINUED)
- --------------------------------------------------------------------------------
FIXED ACCOUNT - TABLE OF GUARANTEED MINIMUM VALUES
--------------------------------------------------
GUARANTEED INTEREST RATE: 4.00%
<TABLE>
<CAPTION>
END OF MINIMUM ACCOUNT SURRENDER
POLICY YEAR VALUE VALUE
- ----------- --------------- ---------
<S> <C> <C>
1 10,400 9,600
2 10,676 9,976
3 10,962 10,362
4 11,260 10,760
5 11,570 11,170
6 11,893 11,593
7 12,228 12,028
8 12,577 12,477
9 12,939 12,939
10 13,317 13,317
11 13,709 13,709
12 14,205 14,205
13 14,721 14,721
14 15,258 15,258
15 15,817 15,817
16 16,397 16,397
17 17,001 17,001
18 17,629 17,629
19 18,282 18,282
20 18,962 18,962
</TABLE>
VALUES SHOWN ABOVE ARE BASED ON THE ASSUMPTION THAT:
(1) $10,000 purchase payment is received and allocated 100 % to the Fixed
Account. Purchase payments shown are net of premium taxes due, if any; and
(2) there are no additional purchase payments made; and
(3) there are no partial withdrawals.
If purchase payments are otherwise paid or allocated or if there are partial
withdrawals, the values will be adjusted in accordance with the provisions of
the Policy.
THE POLICY VALUE of this Policy prior to the Retirement Date is equal to the
Variable Account Value plus the Fixed Account Value. Variable Account Values
are not guaranteed.
PAGE 4A
<PAGE>
3. AMOUNT OF PROCEEDS
- --------------------------------------------------------------------------------
The proceeds payable by this policy are:
* Upon the death of the annuitant, the death benefit.
* On the retirement date, the policy value less any withdrawal charges
* On surrender of the policy prior to the retirement date, the policy value
less any withdrawal charges.
* On or after the retirement date, any proceeds will be determined by the
Annuity Payment Option in effect.
4. DEATH BENEFIT
- --------------------------------------------------------------------------------
ANNUITANT'S DEATH BEFORE THE RETIREMENT DATE - The death benefit payable if the
annuitant dies while this policy is in force is the greater of:
1. the total purchase payments made, less any amounts withdrawn, less any
withdrawal charges on the amounts withdrawn; and less any transaction
charges; or
2. the policy value on the date of death.
ANNUITANT'S DEATH AFTER THE RETIREMENT DATE - If the annuitant dies after the
retirement date, the amount payable, if any, will be as provided in the annuity
payment option then in effect.
PAYMENT OPTIONS - The death benefit may be paid in a lump sum, or under one of
the annuity payment options.
5. PURCHASE PAYMENT PROVISIONS
- --------------------------------------------------------------------------------
ALLOCATION OF PURCHASE PAYMENTS - You may choose any whole percentage for each
investment division from 0% to 100%.
INITIAL PURCHASE PAYMENT - 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 or the first valuation date thereafter, the initial net purchase payment,
plus any accrued interest, will be allocated to the Money Market Investment
Division.
On the seventeenth day after the policy date, the policy value will be allocated
among the investment divisions according to the allocation percentages you
specified in your application.
ADDITIONAL PURCHASE PAYMENTS - You may make additional purchase payments prior
to the retirement date provided they equal or exceed the minimum amount shown
under Policy Data.
On the date we receive an additional purchase payment, the net additional
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 variable account value.
MAXIMUM TOTAL PURCHASE PAYMENTS - Total purchase payments may not exceed the
maximum shown under Policy Data, unless we agree.
Page 5
<PAGE>
6. GENERAL PROVISIONS
- --------------------------------------------------------------------------------
THE CONTRACT - This policy, including the application, is the entire contract
between you and us. Any change must be made in writing by one of our officers.
All statements in the application are representations and not warranties. No
statement shall be used to void this policy or to defend against a claim unless
contained in the application.
PAYMENT OF BENEFITS - All benefits are payable at our Home Office. We may
require you to submit this policy before we approve changes or pay benefits.
ERRORS IN AGE AND SEX - If the annuitant's age or sex is misstated, the benefits
under this policy will be those the purchase payments paid would have purchased
at the correct age and sex.
INCONTESTABILITY - This policy will not be contested.
EVIDENCE OF SURVIVAL - Where any payments under this policy depend on the
recipient being alive, we may require proof of survival prior to making the
payments.
STATE LAWS - This policy is governed by the law of the state in which it is
delivered. The values and benefits of this policy are at least equal to those
required by such state.
ANNUAL REPORT - At least once a year prior to the retirement date, we will send
you a report which shows the following information:
1. the current policy value;
2. all purchase payments since the last report;
3. all charges since the last report;
4. all partial withdrawals since the last report;
5. the current surrender value; and
6. the current death benefit.
REQUIRED DISTRIBUTIONS PURSUANT TO IRC SEC 72(s) - If either the policy owner or
joint owner dies before the entire interest in the policy is distributed:
1. In general the following applies: (a) If death occurs on or after the
retirement date, 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 death; (b) If death occurs before the retirement date, the
entire interest in this policy will be distributed within 5 years after the
date of death.
2. There is an exception to (1) above, if the person to whom ownership of this
policy passes by reason of such death (hereafter referred to as the
"owner's designated beneficiary"), chooses to take any portion of his
interest in this policy as an annuity, to be paid to himself or for his
benefit, then such portion shall be treated as distributed on the date
distributions begin, provided: (a) such distributions begin no later than 1
year after the death of the owner or joint owner, whichever is first, or
such later date as may be prescribed by federal regulations; and (b) such
portion will be distributed, in accordance with regulations, either over
the lifetime of the owner's designated beneficiary, or over a period not
extending beyond his life expectancy.
3. Special rule where surviving spouse is the owner's designated beneficiary:
If the owner's designated beneficiary is the surviving spouse of the
deceased owner or joint owner, then paragraphs (1) and (2) shall be applied
by treating such spouse as the original policy owner.
Page 6
<PAGE>
7. OWNER AND BENEFICIARY
- --------------------------------------------------------------------------------
OWNER - The original owner of this policy is as shown in the application. Unless
you provide otherwise, you may exercise all rights granted by this policy during
the annuitant's lifetime. If there is more than one owner at a given time, all
must exercise the rights of ownership by joint action.
BENEFICIARY - The original beneficiary of this policy is as shown in the
application. If no beneficiary is living at the death of the annuitant, the
proceeds will be paid to you, if you are living, or to your estate.
CHANGE IN POLICY OWNER AND BENEFICIARY - Unless you provide otherwise in writing
to us, you may change the owner or beneficiary during the lifetime of the
annuitant. Changes must be made by written request filed with us. The change
will take effect on the date the request was signed, but it will not apply to
payments made by us before we accept the request in writing.
ASSIGNMENT - You may assign this policy. However, no assignment will bind us
until it is filed in writing at our Home Office. When it is filed, your rights
and the rights of any beneficiary will be subject to it. We will not be
responsible for the validity of any assignment.
Page 7
<PAGE>
8. ANNUITY PROVISIONS
- --------------------------------------------------------------------------------
RETIREMENT DATE - The first annuity payment will be made as of the retirement
date. This date is shown under Policy Data. It may be the first day of any
calendar month commencing 30 days after the policy date regardless of the
Annuitant's age.
CHANGE OF RETIREMENT DATE - You may change the retirement date, if:
1. you tell us in writing; and
2. you tell us at least 30 days prior to the new date.
ANNUITY PAYMENT OPTIONS - You may choose one or more of the following forms of
annuity payment. We may require that you exchange this contract for a
supplemental contract which provides the annuity payments.
Option 1: Life Annuity With No Guaranteed Period - This provides monthly annuity
payments during the lifetime of the annuitant. No payment will be made after
the death of the annuitant.
Option 2: Joint Life Annuity Continuing To The Survivor - This provides 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.
Option 3: Life Annuity With 120 or 240 Monthly Payments Guaranteed - This
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, payments will be made to the
beneficiary until the end of the guaranteed period
Option 4: Any form of annuity satisfactory to both us and the annuitant -
Selection of the annuity option must be made by written request to us at least
30 days prior to the retirement date.
If the net amount to be applied to an option is less than $3,000, we have the
right to pay such amount in one sum. Also, if any initial payment would be
less than $50, we have the right to change the frequency of payment to an
interval that will result in payments of at least $50.
DETERMINATION OF FIRST VARIABLE ANNUITY PAYMENT - At the retirement date, the
policy value
as of 14 days prior to the retirement date, less any premium taxes and less any
withdrawal charges, will be applied to the applicable annuity table. This will
be done in accordance with the annuity payment option chosen. The amount
payable for the first payment for each $1,000 so applied is shown in the annuity
tables.
The annuity tables are based on the 1971 Individual Annuity Mortality Table (set
back two years) with interest at 4.0%. Where requested and required by law
unisex tables will be used.
VARIABLE ANNUITY PAYMENTS AFTER THE FIRST - The dollar amount of the variable
annuity payments after the first is not fixed. It may change from month to
month. The dollar amount of such payments is determined as follows:
1. the dollar amount of the first annuity payment for each investment division
is divided by the value of the annuity unit for the valuation period ending
14 days prior to the retirement date. This result establishes the number
of annuity units for monthly annuity payments after the first. This number
of annuity units remains fixed during the annuity payment period unless
subsequently changed by reallocations.
2. the number of annuity units is multiplied by the annuity value for the
valuation period 14 days prior to the annuity payment date. This result
establishes the dollar amount of the payment for the investment division.
The total payment is the sum of the payments for all investment divisions,
less the pro-rata portion of the policy administration fee. We guarantee
that the dollar amount of each payment after the first will not be affected
by variations in expenses or mortality experience.
REALLOCATIONS DURING ANNUITY PAYMENT PERIOD - During the annuity payment period,
the annuitant alone has the sole right to reallocate the value of the
annuitant's interest in the investment divisions by written request to us,
subject to the following limitations:
1. reallocations among investment divisions may be made only once each policy
year.
2. reallocations will be made as of the next valuation period 14 days prior to
the annuity payment date.
3. reallocations may cause the number of annuity units to change, but will
not change the dollar amount of the annuity payment as of the reallocation
date.
Page 8
<PAGE>
<TABLE>
<CAPTION>
ANNUITY TABLE
JOINT AND SURVIVOR MONTHLY ANNUITY PAYMENTS
PER $1,000 PROCEEDS APPLIED
FEMALE AGE
MALE
AGE 50 55 60 65 70
<C> <C> <C> <C> <C> <C>
50 4.20 4.34 4.47 4.59 4.69
55 4.29 4.47 4.65 4.82 4.98
60 4.35 4.58 4.81 5.06 5.29
65 4.41 4.66 4.96 5.29 5.63
70 4.45 4.73 5.08 5.49 5.96
LIFE ANNUITY PAYMENTS PER $1,000 PROCEEDS APPLIED
GUARANTEED PERIOD GUARANTEED PERIOD
MALE 120 240 FEMALE 120
AGE NONE MONTHS MONTHS AGE NONE MONTHS MONTHS
<S> <C> <C> <C> <C> <C> <C> <C>
40 4.30 4.28 4.22 40 4.06 4.05 4.02
41 4.35 4.33 4.26 41 4.09 4.08 4.06
42 4.40 4.38 4.30 42 4.13 4.12 4.09
43 4.45 4.43 4.34 43 4.17 4.16 4.13
44 4.51 4.48 4.39 44 4.21 4.20 4.16
45 4.57 4.54 4.43 45 4.26 4.25 4.20
46 4.63 4.60 4.48 46 4.31 4.29 4.24
47 4.70 4.66 4.53 47 4.36 4.34 4.28
48 4.77 4.72 4.57 48 4.41 4.39 4.33
49 4.85 4.79 4.62 49 4.46 4.44 4.37
50 4.92 4.86 4.68 50 4.52 4.50 4.42
51 5.00 4.93 4.73 51 4.59 4.56 4.47
52 5.09 5.01 4.78 52 4.65 4.62 4.52
53 5.17 5.08 4.84 53 4.72 4.69 4.57
54 5.27 5.17 4.89 54 4.80 4.76 4.63
55 5.36 5.25 4.95 55 4.87 4.83 4.69
56 5.47 5.34 5.01 56 4.96 4.91 4.75
57 5.57 5.43 5.06 57 5.05 4.99 4.81
58 5.68 5.53 5.12 58 5.14 5.07 4.87
59 5.80 5.63 5.18 59 5.24 5.16 4.93
60 5.93 5.73 5.24 60 5.34 5.25 5.00
61 6.06 5.84 5.30 61 5.45 5.35 5.07
62 6.20 5.96 5.36 62 5.56 5.45 5.14
63 6.35 6.08 5.42 63 5.69 5.56 5.20
64 6.51 6.21 5.48 64 5.82 5.68 5.27
65 6.69 6.34 5.53 65 5.96 5.80 5.34
66 6.87 6.48 5.59 66 6.11 5.93 5.41
67 7.07 6.62 5.64 67 6.27 6.07 5.48
68 7.28 6.77 5.69 68 6.45 6.22 5.54
69 7.51 6.93 5.73 69 6.64 6.37 5.60
70 7.75 7.09 5.78 70 6.85 6.54 5.66
71 8.01 7.26 5.81 71 7.08 6.71 5.71
72 8.30 7.43 5.85 72 7.33 6.89 5.76
73 8.60 7.60 5.88 73 7.60 7.08 5.81
74 8.93 7.78 5.91 74 7.90 7.28 5.84
75 9.28 7.96 5.93 75 8.22 7.48 5.88
76 9.67 8.14 5.95 76 8.57 7.68 5.90
77 10.08 8.32 5.97 77 8.95 7.89 5.92
78 10.53 8.50 5.98 78 9.37 8.10 5.94
79 11.02 8.67 5.99 79 9.82 8.30 5.96
80 11.54 8.84 5.99 80 10.32 8.50 5.97
81 12.12 9.01 6.00 81 10.86 8.69 5.98
82 12.74 9.16 6.00 82 11.46 8.88 5.98
83 13.41 9.31 6.00 83 12.11 9.04 5.99
84 14.14 9.44 6.00 84 12.81 9.20 5.99
85 14.95 9.57 6.00 85 13.59 9.33 6.00
</TABLE>
Page 9
<PAGE>
9. WITHDRAWALS
- --------------------------------------------------------------------------------
How Withdrawals May be Made - Prior to the earlier of the retirement date or the
death of the annuitant, you may make withdrawals from the policy value. Partial
withdrawals may not be made until after the waiting period shown in the Policy
Data.
A withdrawal will be made from the investment divisions in the proportions that
the value of each investment division bears to the variable account value,
unless you instruct us otherwise.
Withdrawal Limits - A partial withdrawal may not be less $250.
The remaining policy value must not be less than $2,000 after a withdrawal. If
the remaining policy value would be less than this $2,000, we will treat the
request for partial withdrawal as a request for surrender of the policy for the
full policy value less any withdrawal charges.
Free Withdrawals -1. Each policy year you may withdraw the Free Withdrawal
Amount without a withdrawal charge. The Free Withdrawal Amount is equal to
10% of the cumulative purchase payments.
2. You may request up to 4 withdrawals per policy year without a transaction
charge.
Charges If You Exceed Free Withdrawal Limits -1. After the 4th withdrawal in a
policy year, a $20 transaction charge may apply to each additional
withdrawal.
2. After the Free Withdrawal Amount has been withdrawn in a policy year,
withdrawal charges may apply to additional withdrawals. The withdrawal
charge is determined by multiplying each purchase payment included in the
withdrawal by the withdrawal charge rate applicable to the year in which
the purchase payment was received. The withdrawal charge rates are as shown
in the Policy Data.
For purposes of calculating the withdrawal charge:
a. amounts withdrawn up to the Free Withdrawal Amount will not be
considered a withdrawal of purchase payments;
b. the oldest purchase payments will be treated as the first withdrawn and
newer purchase payments next; and
c. 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.
Maximum Amount of Withdrawal Charges - After the sum of all withdrawals on
which you have paid withdrawal charges equals the cumulative purchase payments,
further withdrawals will not be subject to withdrawal charges. Also, in no event
will the sum of the withdrawal charges you have paid, plus the sum of annual
deductions made for sales expenses, exceed 8.5% of the cumulative purchase
payments.
10. TERMINATION OF POLICY
- --------------------------------------------------------------------------------
Unless the policy terminates under one of the following provisions, the policy
will continue in force until the retirement date.
1. If the surrender value is withdrawn, this policy will terminate.
2. If you make no purchase payments during a 24 month period and your previous
purchase payments total less than $2,000, then we have the right to pay you
the total policy value in a lump sum. We will, however, give you 30 days
notice before exercising this right. If the total policy value is paid out
under this provision, the policy will terminate.
Page 10
<PAGE>
11. VARIABLE ACCOUNT VALUE
- --------------------------------------------------------------------------------
VARIABLE ACCOUNT VALUE - The variable account value is the sum of the values
of the investment divisions under this policy. Those available as of the policy
date are shown under Policy Data.
On the policy date, the value of the investment divisions is equal to the
initial net purchase payment plus any accrued interest from date of receipt of
the payment to the policy date.
On any subsequent date, the value of each investment division will be calculated
as:
a + b + c - d - e - f - g
where:
a. is the value of the investment division on the preceding valuation date,
multiplied by the appropriate Net Investment Factor for the current
valuation period;
b. is the amount of any net purchase payments allocated to the investment
division during the current valuation period;
c. is the amount of any transfers from other investment divisions to the
investment division during the current valuation period;
d. is the amount of any withdrawals, withdrawal charges, and transaction
charges from the investment division during the current valuation period;
e. is the amount of any transfers to other investment divisions from the
investment division during the current valuation period;
f. is the portion of any annual deduction during the current valuation period
allocated to the investment division; and
g. is the portion of any deduction for premium taxes during the current
valuation period allocated to the investment division.
ANNUAL DEDUCTIONS - On each of the first ten policy anniversary dates following
receipt of a purchase payment, a deduction will be made for sales expenses. The
deduction will be equal to the percentage of each purchase payment shown in the
Policy Data on page 4.
No deduction for sales expenses will be made after the retirement date. In no
event will the sum of annual deductions made for sales expenses, plus any
withdrawal charges you have paid, exceed 8.5% of the cumulative purchase
payments.
In addition, a deduction will be made on each policy anniversary for policy
administration, not to exceed the amount shown under Policy Data. After the
retirement date, the deduction for policy administration will be made pro-rata
from each annuity payment.
DEDUCTION FOR PREMIUM TAXES -Any premium taxes levied by a state or other
government entity will be charged against the purchase payments or variable
account value when they are incurred.
Page 11
<PAGE>
12. INVESTMENT DIVISIONS
- --------------------------------------------------------------------------------
THE INVESTMENT DIVISIONS - Each of the investment divisions is part of a
variable account of ours. Those available as of the policy date are named
under Policy Data. We have allocated a part of our assets for this and certain
other policies to the investment divisions. Such assets remain our property.
They cannot be charged, however, with liabilities from any other business in
which we may take part.
ALLOCATIONS TO, AND INVESTMENTS OF THE INVESTMENT DIVISIONS - Purchase payments,
transfers, and withdrawals will be allocated as you specify. All other
additions to or deductions from the investment divisions will be allocated in
the proportion that the value of each investment division bears to the account
value. Each investment division will buy or liquidate shares or units of the
investment portfolio shown for that investment division under Policy Data or as
later added or changed.
DETERMINING INVESTMENT RESULTS - The variable account value will change due to
the investment results of the investment divisions. We use an index to measure
these changes in investment results. The index is called a unit value. Each
investment division has its own accumulation and annuity unit values.
ACCUMULATION UNIT VALUE - For each investment division the accumulation unit
values were initially set at $1.00. Thereafter, the unit value for a given
valuation period is equal to the unit value for the prior valuation period
multiplied by the net investment factor for the given valuation period.
At the end of any valuation period prior to the retirement date the value of an
investment division is equal to the number of units multiplied by the unit
value.
ANNUITY UNIT VALUE - For each investment division the annuity unit values were
initially set at $1.00. Thereafter, the unit value for a given valuation period
is equal to the unit value for the prior valuation period multiplied by (1)
times (2) where:
1. is the net investment factor for the given valuation period; and
2. is an interest factor which neutralizes the assumed investment rate of 4.0%
per year, which is built into the mortality tables. The daily factor is
.99989255.
NET INVESTMENT FACTOR/HOW IT IS DETERMINED -The net investment factor is an
index applied to measure the investment performance of an investment division
from one valuation period to the next. The net investment factor may be greater
or less than one; therefore, the value of a unit may increase or decrease.
The net investment factor of an investment division for any valuation period is
determined by dividing (1) by (2) and subtracting (3) from the result, where:
1. is the result of:
a. the net asset value per 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 last prior
valuation period; plus or minus
b. the charge or credit for any taxes reserved for the last prior
valuation period;
3. is a deduction for certain mortality and expense risks that we assume.
MORTALITY AND EXPENSE RISK CHARGE DEDUCTION - This is a deduction from each of
the investment divisions, computed on a daily basis starting on the policy date,
which compensates us for the mortality and expense risks assumed by us under
this policy. The daily deduction rate is shown under Policy Data.
Page 12
<PAGE>
CHANGES IN THE INVESTMENT DIVISIONS - This would happen if laws or regulations
changed, we added investment divisions, the investment portfolio became
unavailable or, in our judgement, the investment was no longer suitable for the
investment divisions. If any of these situations occurred, we would have the
right to add or substitute investments other than those shown under Policy Data.
We would first seek approval of the Securities and Exchange Commission and,
where required, the insurance regulator of the state where this policy is
delivered.
OTHER CHANGES - To the extent permitted by applicable laws and regulations
(including any order of the SEC), we may make changes as follows:
1. The variable account may be operated as a management company under the
Investment Company Act of 1940, or in any other form permitted by law, if
we deem it to be in the best interest of the policy owners.
2. The variable account may be registered under the Investment Company Act
of 1940 in the event registration is no longer required.
3. The variable account may be combined with other separate investment
accounts.
4. The provisions of this and other policies may be modified to comply with
any other applicable federal or state laws; or to take advantage of any
benefits allowed by changes in applicable laws.
In the event of such changes, we may make appropriate endorsement on this and
other policies having an interest in the variable account and take other actions
as may be necessary to effect such a change.
TRANSFERS MADE AMONG YOUR INVESTMENT DIVISIONS - By written request or other
requests acceptable to us, you may transfer all or part of the value of an
investment division to one or more of the other investment divisions. The
amount transferred, however, must be at least: 1)$500; or 2)the total value in
the investment division, if less. Only twelve such transfers may be made in a
policy year prior to the retirement date. After the retirement date, one
reallocation of investment divisions per year may be made; see Annuity
Provisions. We may further suspend or modify this transfer privilege at any time
with the necessary approval of the Security and Exchange Commission.
13. DELAY OR SUSPENSION OF PAYMENTS
- --------------------------------------------------------------------------------
We will normally pay the partial withdrawal amount or the surrender value within
7 days after we receive your written request in our home office. We have the
right, however, to suspend or delay the date of any payment for any period:
1. When the New York Stock Exchange is closed
2. When trading on the New York Stock Exchange is restricted
3. When an emergency exists, and as a result:
a. disposal of securities held in the investment divisions is not
reasonably practicable; or
b. it is not reasonably practicable to fairly determine the value of the
investment divisions; or
4. During any other period when the Securities and Exchange Commission, by
order, so permits for the protection of security holders.
Rules and regulations of the Securities and Exchange Commission will govern as
to whether the conditions set forth in the above items 2 and 3 exist.
Page 13
<PAGE>
Exhibit 4(a)
DEATH BENEFIT ENDORSEMENT
- --------------------------------------------------------------------------------
This Endorsement is a part of the Policy to which it is attached.
The ANNUITANT'S DEATH BEFORE THE RETIREMENT DATE section of the DEATH BENEFIT
PROVISION is deleted and replaced with the following paragraphs.
ANNUITANT'S DEATH BEFORE THE RETIREMENT DATE - The death benefit payable if the
annuitant dies while this policy is in force is the greater of:
1. the total purchase payments made; less any amounts withdrawn; less any
withdrawal charges on the amounts withdrawn; and less any transaction
charges; or
2. the policy value.
In addition, we may provide an additional death benefit if death occurs before
the annuitant's attained age 75. The death benefit will be the greater of
paragraphs 1. and 2. described above or the policy value on the eighth policy
anniversary, adjusted for any subsequent purchase payments; any amounts
withdrawn; any withdrawal charges on 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.
UNITED INVESTORS LIFE INSURANCE COMPANY
James L. Sedgwick
President
Form DBEND
<PAGE>
Exhibit 4(b) Variable Annuity Endorsement, Form ENDVA
VARIABLE ANNUITY ENDORSEMENT
- --------------------------------------------------------------------------------
This Endorsement is a part of the Policy to which it is attached.
The following paragraph is added to the ADDITIONAL PURCHASE PAYMENTS
section of the PURCHASE PAYMENT PROVISIONS of the policy.
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.
The following paragraphs are added to the DEATH BENEFIT PROVISION of the policy.
DEATH BENEFIT DISTRIBUTIONS WHEN THE ANNUITANT IS THE POLICY OWNER - If death of
the annuitant occurs prior to the retirement date and the annuitant is also an
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. 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
Pursuant to IRC Sec 72(s) section below, the beneficiary named in the policy
does not have a right to receive the death benefit proceeds.
ELECTION BY OWNER'S DESIGNATED BENEFICIARY TO CONTINUE THE POLICY - If upon
death of the owner, the Owner's Designated Beneficiary elects to continue the
policy in accordance with the Required Distributions Pursuant to IRC Sec 72(s)
section below, the beneficiary named in the policy does not have a right to
receive the death benefit proceeds.
The REQUIRED DISTRIBUTIONS PURSUANT TO IRC SEC 72(s) section of the
GENERAL PROVISIONS of the policy is deleted and replaced
with the following paragraphs.
Owner's Designated Beneficiary - The Owner's Designated Beneficiary is the
person to whom ownership of the policy passes by reason of the death of any
policy owner. If the policy has joint owners and one owner dies, the Owner's
Designated Beneficiary is the surviving 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.
General rules - If either the policy owner or joint owner dies before the entire
interest in the policy is distributed in general the following rules apply:
1. If death occurs on or after the retirement date, the remaining portion of
such interest will be distributed at least as rapidly as under the method
of distribution being used on the date of death;
2. If death occurs prior to the retirement date, the entire proceeds must be
distributed within five years after the date of death.
Exception if the Owner's Designated Beneficiary is the owner's spouse - The
policy may be continued in the name of the deceased owner's surviving spouse.
Paragraphs 1 and 2 above shall be applied by treating such surviving spouse as
the original policy owner.
Exception if the Owner's Designated Beneficiary is someone other than the
owner's spouse -If the Owner's Designated Beneficiary chooses to take any
portion of his interest in the policy as an annuity, to be paid to himself or
for his benefit, then such portion shall be treated as distributed on the date
distributions begin, provided:
1. such distributions begin no later than 1 year after the death of the owner
or joint owner, whichever is first, or such later date as may be prescribed
by federal regulations; and
2. such portion must be distributed over his lifetime or over a period not
extending
<PAGE>
beyond his life expectancy.
We reserve the right to amend this provision at any time to conform it to
Section 72(s) of the Internal Revenue Code and to regulations issued thereunder.
UNITED INVESTORS LIFE INSURANCE COMPANY
James L. Sedgwick
President
ENDVA
<PAGE>
Exhibit 4(c)
FIXED ACCOUNT RIDER
- --------------------------------------------------------------------------------
This rider is made a part of the Policy to which it is attached. This benefit
is subject to all the provisions of this rider and this Policy.
FIXED ACCOUNT
The Owner may choose to allocate all or a portion of his Purchase Payments to
the Fixed 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.
PURCHASE PAYMENTS ALLOCATED TO THE FIXED ACCOUNT
On the seventeenth day after the Policy Date, the Policy Value will be allocated
to the Fixed Account according to the allocation percentage you specified in
your application. On the date we receive an Additional Purchase Payment, the net
additional purchase payment will be allocated to the Fixed Account according to
your instructions in effect; or if no instructions are in effect, in the same
proportion that the value of the Fixed Account bears to the entire Policy Value.
INTEREST RATES
The Guaranteed Interest Rate is shown on page 4A of the Policy. This interest
rate is the minimum effective annual rate at which interest will be credited to
amounts allocated to the Fixed Account of your Policy. The Company may credit
interest to the Fixed Account of your Policy at a rate greater than the
Guaranteed Interest Rate. Any interest credited to the Fixed Account of your
Policy in excess of the Guaranteed Interest Rate will be determined at the sole
discretion of the Company.
FIXED ACCOUNT VALUE
At the end of any Valuation Period, the Fixed Account Value is equal to:
a. the 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.
POLICY VALUE
The Policy Value of this 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. Interest will be paid at a rate not less than the Guaranteed Interest
Rate shown on page 4A.
WITHDRAWALS
A withdrawal and any withdrawal charges or transaction charges associated with
such withdrawal, 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.
<PAGE>
ANNUAL DEDUCTIONS AND DEDUCTIONS FOR PREMIUM TAXES
The Annual Deductions and Deductions for Premium Taxes described on page 11 of
your Policy will be made from the Fixed Account in the same proportion that the
value of the Fixed Account bears to the entire Policy Value.
UNITED INVESTORS LIFE INSURANCE COMPANY
(Please turn to back of page)
FA95
<PAGE>
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 the 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.
Transfers after the Retirement Date will be subject to the Reallocations During
Annuity Payment Period Provision of the Policy.
FIXED ANNUITY
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 variable Investment Divisions. The amount for
each $1,000 of Policy Value applied to make Fixed Annuity payments will be based
on our Fixed Annuity payment rates in effect on the settlement date. These
rates are guaranteed not to be less than the Life Annuity Payments Per $1,000
Proceeds Applied shown in the Annuity Tables of your Policy. The Annuity Tables
are based on the 1971 Individual Annuity Mortality Table (set back two years)
with interest at 4.0%. Where requested and required by law unisex tables will
be used.
Variable Annuity payments after the first are not fixed and may change from
month to month. Calculation of Variable Annuity payments is described in the
Annuity Provisions of your Policy.
TERMINATION
This rider will terminate on the earlier of the date the Policy is surrendered,
terminated, exchanged or annuitized.
FA95
<PAGE>
Exhibit 5 Application
APPLICATION FOR VARIABLE ANNUITY POLICY United Investors Life Ins. Co.
(Please Print or Type) P.O. Box 10207
Birmingham, AL 35202-0207
1. Proposed Annuitant: First Name Middle Name Last Name
2. Vital Statistics: Birthdate (Mo/Day/Yr) Age: Sex: ( )Male ( )Female
Social Security No.
3. Mailing Address: (Street) City State Zip Code
4. Type of Plan:
( ) Nonqualified:
Initial Purchase Payment: $__________
Additional Monthly Bank Draft Purchase Payments: $__________
( ) Qualified: Check appropriate box below
( ) IRA ( ) IRA Rollover ( ) TSA ( ) TSA Transfer
( ) Other: _________
( ) Single Purchase Payment: $__________ (Minimum $1,200)
( ) Monthly Draft Purchase Payments: $__________ (Complete form U-412-1)
( ) Monthly Group Billing Purchase Payments: $________ (Complete form U-423)
5. Amount Paid with Application: $__________
6. Retirement Date: The first of the month after the Annuitant=s Age 85 will
be used unless otherwise indicated here)
7. Form of Annuity Payments: (Life Annuity with 120 monthly payments guaranteed
unless otherwise indicated here.
8. Ownership Designation: (If other than Proposed Annuitant)
Name: Relationship: Social Security or Tax No.
Joint Owner Social Security or Tax No.
9. Beneficiary: (Give full name, date of birth, and relationship to the
Proposed Annuitant)
Primary:
Contingent Beneficiary:
10. Replacement:
a. Is policy applied for intended to replace or change existing insurance
or annuities in force? ( ) Yes ( ) No
(If "Yes", give name of company(s) and policy number(s) below:
Number Company
------ -------
b. Is this a 1035(a) exchange? ( ) Yes ( ) No
(If "Yes," attach form U-622)
11. Telephone Transfer Authorization: ( ) Yes ( ) No
(If Yes, owner must initial agreement below.)
I agree to hold United Investors Life harmless from all claims when
action is taken pursuant to a telephone transfer request based on the
owners name and policy number. _____________ (Owners Initials)
12. Dollar Cost Averaging ( ) Yes ( ) No
Automatic transfer each month of a pre-selected dollar amount from the Money
Market Investment Division to up to four other investment divisions. (Not
available to
<PAGE>
Fixed Account.)
Enter day of the month on which you would like transfers to be make:
________(1/st/ through 28/th/). If the day selected done not fall on a
Valuatoin Date, transfers will be make on the next following Valuation date.
Trasfers will be make at the unit values determined on the date of each
transfer.
Enter the total amount to be transferred: $_________________ ($100 Minimum)
Enter up to four investment divisions to which you would like transfers to
be made and the dollar amount ($25 minimum) to be transferred to each
investment division:
$ __________ Asset Strategy $ __________ Income
$ __________ Balanced $ __________ International
$ __________ Bond $ __________ Limited-Term Bond
$ __________ Growth $ __________ Small Cap
$ __________ High Income $ __________ __________________
The Transfers selected above will commence no earlier than one month
following the Policy Date shown in your policy.
13. Purchase Payment Allocation (whole percentages only)
Asset Strategy __________% Income __________%
Balanced __________% International __________%
Bond __________% Limited-Term Bond __________%
Fixed Account __________% Money Market __________%
Growth __________% Small Cap __________%
High Income __________% ________________ __________%
Total 100%
14. Application signed in ______ on _______________________
State Date
----------------------------------------------
Agent Signature.
----------------------------------------------
Agent (Please Print)
----------------------------------------------
Rep. No. Div. No. FLA License ID. No.
(Please continue on reverse side)
U-411, Ed. 5-95 Check here to receive Statement of Additional Information ( )
<PAGE>
15. Suitability:
Is the premium shown less than 20% of your net worth? ( ) Yes ( ) No
I have received a current prospectus for the variable annuity and any funds
selected. ( ) Yes ( ) No
To the best of my knowledge and belief, my answers to the questions on this
application are correct and true. I agree that this application shall be a part
of any annuity contract issued to me. I also understand that the Company
reserves the right to reject any application or purchase payment. If this
application is declined, there shall be no liability on the part of the Company
and any purchase payments submitted shall be returned.
I UNDERSTAND THAT THE ANNUITY PAYMENTS AND POLICY VALUE WILL INCREASE OR
DECREASE DEPENDING ON THE INVESTMENT PERFORMANCE OF THE INVESTMENT DIVISIONS
SELECTED.
Signed At _________________________________ Date ____________________________
City, State (Mo / Day / Year)
___________________________________________ _________________________________
Signature of Owner (If Other than Annuitant) Signature of Proposed Annuitant
___________________________________________
Signature of Joint Owner
ADDITIONAL INFORMATION
Telephone Number of Proposed Annuitant: HOME:(_____)_____ BUSINESS:(____)_____
Confidential Owner's Information:
1. Age: ______
2. Gross Family Income: $____________
3. Taxable Income: $____________
4. Number of Dependents: _______
5. Occupation: ___________________________________________________
6. Name of Employer: _____________________________________________
7. Employer's Address: ____________________________________________
8. Savings/Liquid Assets $__________________________________________
9. Other Assets (excluding home furnishings, car): $ _____________________
10. Net Worth (Assets Minus Liabilities): $______________________________
11. Are you associated with any member of the National Association of
Securities Dealers (NASD)? ( ) Yes ( ) No
12. Investment Objectives (mark all that apply): ( ) Retirement Savings
( ) Reserves ( ) Children's College ( ) Income ( ) Other needs/Goals
(specify in special remarks)
13. Special Remarks/Consideration:
Is the proposed annuitant/owner a member of your immediate family?
( )Yes ( )No
Do you know or have reason to believe that replacement of any existing
insurance or annuities is/may be involved? ( )Yes ( ) No
- -------------------------------------------------------------------------------
Signature of Representative Date Phone No.
- -------------------------------------------------------------------------------
Signature of Division Manager Date Phone No.
Agent No.: ____-_____ Reg/Div No._________________
U-411, Ed. 5-95
<PAGE>
Exhibit (9)(a) Opinion and Consent of Counsel
[United Investors Life Letterhead]
May 21, 1987
United Investors Life Insurance Company
2001 Third Avenue South
Birmingham, Alabama
Gentlemen:
With reference to the Registration Statement on Form N-4 as amended, filed by
United Investors Life Insurance Company and United Investors Annuity Variable
Account with the Securities and Exchange Commission covering flexible premium
deferred variable annuity policies, I have examined such documents and such law
as I considered necessary and appropriate, and on the basis of such examination,
it is my opinion that:
1. United Investors Life Insurance Company is duly organized and
validly existing under the laws of the State of Missouri and has been
duly authorized to issue individual flexible premium deferred variable
annuity policies by the Division of, Insurance of the State of Missouri.
2. United Investors Annuity Variable Account is a duly authorized
and existing separate account established pursuant to the provisions of
Section 376.309, of the Revised Statutes of Missouri.
3. The flexible premium deferred variable annuity policies, when
issued as contemplated by said Form N-4 Registration Statement, will
constitute legal, validly issued and binding obligations of United
Investors Life Insurance Company.
I hereby consent to the filing of this opinion as an said N-4 Registration
Statement and to the use of my name under the caption "Legal Matters" in the
Prospectus contained in the Registration Statement.
Very truly yours,
James L. Sedgwick
JLS:nlh
<PAGE>
Exhibit 9(b)
April 29, 1998
United Investors Life Insurance Company
2001 Third Avenue South
Birmingham, AL 35233
Gentlemen:
I hereby consent to the use of my opinion dated May 21, 1987 as an exhibit
to the Form N-4 Registration Statement for United Investors Annuity Variable
Account (No. 33-12000 and 811-5013) and my name under the caption "Legal
Matters" in the Statement of Additional Information contained in the
Registration Statement.
Very truly yours,
/s/ James L. Sedgwick
-----------------------
James L. Sedgwick, Esq.
President
JLS:dk
<PAGE>
Exhibit 10(a)
April 29, 1998
United Investors Life Insurance Company
2001 Third Avenue South
Birmingham, AL 35233
Re: United Investors Annuity Variable Account
File No. 33-12000
Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the Statement of Additional Information filed as part of the Post-
Effective Amendment No. 14 to the Form N-4 Registration Statement for the United
Investors Annuity Variable Account. In giving this consent, we do not admit
that we are in the category of the persons whose consent is required under
Section 7 of the Securities Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN, LLP
By:__________________________
Frederick R. Bellamy
FRB:dk
<PAGE>
Exhibit 10(b)
The Board of Directors of
United Investors Life Insurance Company
and the Contract Owners of the United
Investors Annuity Variable Account
We consent to the use of our report dated February 2, 1998 except for Note 1
which is as of March 3, 1998, relating to the balance sheets of United Investors
Life Insurance Company as of December 31, 1997 and 1996, 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, 1997, and also to the use of
our report dated April 9, 1998, relating to the balance sheet of United
Investors Annuity Variable Account as of December 31, 1997, and the related
statement of operations and changes in net assets for each of the years in the
two-year period ended December 31, 1997, as contained in Post-Effective
Amendment No. 14 to Form N-4 for United Investors Annuity Variable Account. We
also consent to the reference to our firm under the heading "Experts" in the
Statement of Additional Information.
KPMG PEAT MARWICK LLP
Birmingham, Alabama
April 29, 1998
