<PAGE>
File Nos. 33-12000 and 811-5013
As filed with the Securities and Exchange Commission on February 24, 1999
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. __ [ ]
Post-Effective Amendment No. 15 [x]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 16 [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, including Area Code: (205) 325-4300
John H. Livingston, Esquire
United Investors Life Insurance Company
2001 Third Avenue South
Birmingham, Alabama 35233
(Name and Address of Agent for Service)
Copy to:
Frederick R. Bellamy, Esquire
Sutherland Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2415
____________________________________________
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on (date) pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(l) of Rule 485
[x] on April 30, 1999 pursuant to paragraph (a)(1) of Rule 485
--------------
If appropriate, check the following box:
[ ] this Post-Effective Amendment designates a new effective date
for a previously filed Post-Effective Amendment.
Title of Securities Being Registered: Variable Annuity Policies
<PAGE>
Prospectus
May 1, 1999
Please read this prospectus carefully before investing, and keep it for
future reference. It contains important information about the Advantage II SM
variable annuity policy.
To learn more about the policy, you may want to look at the Statement of
Additional Information dated May 1, 1999 (known as the "SAI"). For a free copy
of the SAI, contact us at:
United Investors Life Insurance Co.
Variable Products Division
P. O. Box 156
Birmingham, Alabama 35201-0156
Telephone: (205) 325-4300
United Investors has filed the SAI with the U.S. Securities and Exchange
Commission (the "SEC") and has incorporated it by reference into this
prospectus. The SAI's table of contents appears on page 29 of this prospectus.
The SEC maintains an Internet website (http://www.sec.gov) that contains the
SAI, material incorporated by reference, and other information.
ADVANTAGE II SM
VARIABLE ANNUITY
DEFERRED VARIABLE ANNUITY POLICY
issued by
United Investors Life Insurance Company
through
United Investors Annuity Variable Account
The policy has 12 funding choices--one fixed account (paying a guaranteed
minimum fixed rate of interest) and eleven variable investment divisions which
invest in the following mutual fund portfolios of Target/United Funds, Inc.:
. Asset Strategy Portfolio
. Balanced Portfolio
. Bond Portfolio
. Growth Portfolio
. High Income Portfolio
. Income Portfolio
. International Portfolio
. Limited-Term Bond Portfolio
. Money Market Portfolio
. Science and Technology Portfolio
. Small Cap Portfolio
Variable annuity policies involve certain risks, and you may lose some or
all of your investment.
. We do not guarantee how any of the investment divisions will perform.
. The policy is not a deposit or obligation of any bank, and no bank endorses
or guarantees the policy.
. Neither the U.S. Government nor any Federal agency insures your investment in
the policy.
Neither the SEC nor any state securities commission has approved or disapproved
these securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
<PAGE>
Table of Contents
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<TABLE>
<S> <C>
Summary..................................................................... 1
The Policy................................................................ 1
Annuity Payments.......................................................... 1
Purchasing the Policy..................................................... 1
Funding Choices........................................................... 1
Charges and Deductions.................................................... 2
Taxes..................................................................... 4
Surrender and Partial Withdrawals......................................... 4
Death Benefit............................................................. 4
Other Information......................................................... 5
Inquiries................................................................. 5
United Investors Life Insurance Company..................................... 6
Preparing for Year 2000................................................... 6
Published Ratings......................................................... 6
United Investors Annuity Variable Account................................... 6
Target/United Funds, Inc.................................................. 7
Fund Management and Fees.................................................. 8
Fixed Account............................................................... 9
The Policy.................................................................. 10
Issuance of a Policy...................................................... 10
Purchase Payments......................................................... 10
Allocation of Purchase Payments........................................... 10
Policy Value.............................................................. 11
Variable Account Value.................................................. 11
Fixed Account Value..................................................... 11
Surrender and Partial Withdrawals......................................... 12
Withdrawals............................................................. 12
Automatic Partial Withdrawals........................................... 12
Surrender............................................................... 12
Restrictions Under the Texas ORP and Section 403(b) Plans............... 13
Restrictions Under Other Qualified Policies............................. 13
Transfers................................................................. 13
Dollar Cost Averaging..................................................... 14
Death Benefit............................................................. 14
Required Distributions.................................................... 15
"Free Look" Period........................................................ 16
Charges and Deductions...................................................... 16
Annual Deduction.......................................................... 16
Sales Charge............................................................ 16
Annual Policy Fee....................................................... 16
Withdrawal Charge......................................................... 17
Waiver of Withdrawal Charges Rider........................................ 18
Mortality and Expense Risk Charge......................................... 18
Transaction Charge........................................................ 18
Premium Taxes............................................................. 19
Federal Taxes............................................................. 19
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Fund Expenses............................................................. 19
Older Policies............................................................ 19
Reduction in Charges for Certain Groups................................... 19
Annuity Payments............................................................ 20
Election of Annuity Payment Method........................................ 20
Retirement Date........................................................... 20
Annuity Payment Methods................................................... 20
Distribution of the Policies................................................ 21
Federal Tax Matters......................................................... 22
Historical Performance Data................................................. 25
Voting Rights............................................................... 26
Legal Proceedings........................................................... 26
Financial Statements........................................................ 26
Condensed Financial Information............................................. 27
Glossary.................................................................... 28
Statement of Additional Information......................................... 29
</TABLE>
iii
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Summary
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This is a summary of some of the more important points that you should know
and consider before purchasing the Advantage II variable annuity policy.
The Policy
The Advantage II variable annuity policy lets you invest on a tax-deferred
basis for your retirement or other long-term purposes. Tax deferral allows the
entire amount you have invested to remain in the policy where it can continue
to produce an investment return. Therefore, your money could grow faster than
in a comparable taxable investment where current income taxes would be due each
year.
You may divide your Advantage II policy value among the fixed account and
eleven variable investment divisions which invest in portfolios of
Target/United Funds, Inc. We guarantee the principal and a minimum interest
rate you will receive from the fixed account. However, the value of what you
allocate to the eleven variable investment divisions is not guaranteed.
Instead, your investment in the variable investment divisions will go up or
down with the performance of the particular Target/United Funds portfolios you
select. You may lose money on investments in the variable investment divisions.
Like most annuity policies, different rules apply to the Advantage II policy
before and after the retirement date you select for your policy. Before the
retirement date, you may invest more money in your policy. After the retirement
date, you will receive one or more annuity payments. The amount of money you
accumulate in your policy before the retirement date has a major effect on the
size of the payments you receive after the retirement date.
Annuity Payments
On the retirement date, you may apply your policy value to receive fixed
annuity payments, variable annuity payments or a combination. We guarantee that
fixed annuity payments will remain constant throughout the payment period.
However, the amount of each variable annuity payment will go up or down with
the performance of the particular investment divisions you select.
You may choose among the following ways of receiving your annuity payments:
1. Payments for the lifetime of an individual you select (the annuitant).
2. Payments for the lifetime of the survivor of two individuals you select (the
annuitant and joint annuitant).
3. Payments for the lifetime of an individual (the annuitant), but guaranteed
to continue for at least 10 or 20 years.
Other annuity payment methods are available with our written consent.
Purchasing the Policy
You can purchase a "qualified" policy (one that qualifies for favorable
Federal income tax treatment), or you can purchase a policy on a non-qualified
tax basis. For a non-qualified policy, the minimum initial investment is
$5,000. For a qualified policy, the initial investment must be at least $1,200,
although we will accept installments of at least $100 per month through a bank
draft authorization or a pre-approved group payment method. You can make more
investments of at least $100 each before the retirement date.
1
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Funding Choices
You may allocate each new investment (and your existing policy value) among
variable investment divisions which invest in the following eleven portfolios
of Target/United Funds, Inc.:
.Asset Strategy Portfolio
.Balanced Portfolio
.Bond Portfolio
.Growth Portfolio
.High Income Portfolio
.Income Portfolio
.International Portfolio
.Limited-Term Bond Portfolio
.Money Market Portfolio
.Science and Technology Portfolio
.Small Cap Portfolio
In most states, you may also allocate purchase payments and your policy
value to the fixed account. We guarantee your fixed account allocation will
earn at least 4% interest per year.
Charges and Deductions
We do not deduct any charges from your purchase payments when received,
except for any premium taxes charged in your location.
We deduct a sales charge of 8.5% of each purchase payment (taken from your
policy value in ten annual installments of 0.85% each). We also deduct $50 a
year from your policy value for certain administrative expenses. These amounts
are deducted on your policy anniversary.
If you surrender your policy or make a cash withdrawal, we may deduct a
withdrawal charge. This withdrawal charge is 8% of purchase payments withdrawn
that are less than one year old. It decreases by 1% for each additional year
since we received the purchase payment deemed to be withdrawn. There is no
withdrawal charge on purchase payments eight or more years old. We also do not
deduct a withdrawal charge on the free withdrawal amount, which is the greater
of:
(a) 10% of the total purchase payments you have invested in the policy; or
(b) 10% of your policy value at the time the withdrawal is made.
The withdrawal charge also applies at the retirement date. In addition, we
deduct a $20 transaction charge for each withdrawal in excess of four in any
one policy year.
We also deduct a daily charge from the variable investment divisions to
compensate us for certain mortality and expense risks.
This charge is at an effective annual rate of 0.90% of assets. In addition,
investment management fees, 12b-1 fees, and other expenses are deducted from
each portfolio of Target/United Funds, Inc.
See the tables below and on the following page for a summary of these
charges and deductions. (We may also deduct premium tax charges.)
Policy Owner Transaction Expenses:
<TABLE>
<S> <C>
Deferred Sales Charge (% of each
purchase payment, deducted at
0.85% per year)................ 8.50%
Transaction Charge (for each
withdrawal in excess of 4 per
policy year)................... $20.00
</TABLE>
Withdrawal Charge (% of purchase payment being withdrawn):
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Years <1 1 2 3 4 5 6 7 8+
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% 8 7 6 5 4 3 2 1 0
</TABLE>
<TABLE>
<S> <C>
Annual Policy Fee................ $50.00
Variable Account Annual Expenses:
Mortality and Expense Risk Fee... 0.90%
</TABLE>
2
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Target/United Funds, Inc. Annual Expenses(/1/)
(% of average daily net assets)
<TABLE>
<CAPTION>
Management 12b-1 Other Total Portfolio
Portfolio Fee Fees(/2/) Expenses(/3/) Expenses
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<S> <C> <C> <C> <C>
Asset Strategy 0.80% 0.25% 0.13% 1.18%
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Balanced 0.60% 0.25% 0.07% 0.92%
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Bond 0.53% 0.25% 0.05% 0.83%
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Growth 0.70% 0.25% 0.02% 0.97%
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High Income 0.65% 0.25% 0.05% 0.95%
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Income 0.70% 0.25% 0.02% 0.97%
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International 0.80% 0.25% 0.18% 1.23%
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Limited-Term Bond 0.55% 0.25% 0.18% 0.98%
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Money Market 0.50% 0.25% 0.08% 0.83%
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Science and Technology 0.69% 0.25% 0.25% 1.19%
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Small Cap 0.85% 0.25% 0.05% 1.15%
</TABLE>
(/1/) These expenses are deducted directly from the assets of the Target/United
Funds, Inc. portfolios and therefore reduce their net asset value. Waddell &
Reed, Inc., the investment adviser of Target/United Funds, Inc., supplied the
above information, and we have not independently verified it. See the
Target/United Funds, Inc. prospectus for more complete information.
(/2/) Each portfolio pays a service fee to Waddell & Reed, Inc., the principal
underwriter of Target/United Funds, Inc. and the policy, of no more than 0.25%
of the portfolio's average annual net assets. The fee reimburses Waddell &
Reed, Inc. for arranging to provide personal services to policy owners and to
maintain their policies. This is a Service Plan as permitted by Rule 12b-1
under the Investment Company Act of 1940.
(/3/) Other Expenses are those incurred for the year ended December 31, 1998.
[1998 data to be provided when available]
Examples. The following tables give examples of expenses you might pay, on a
$1,000 investment, assuming 5% annual return on assets.
If you surrender or annuitize your policy at the end of the applicable time
period, you would pay the following expenses:
<TABLE>
<CAPTION>
Investment Division 1 year 3 years 5 years 10 years
------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Asset Strategy $91 $133 $176 $314
Balanced $88 $125 $163 $288
Bond $87 $122 $159 $279
Growth $89 $126 $166 $293
High Income $88 $122 $165 $291
Income $89 $126 $165 $293
International $91 $134 $179 $319
Limited-Term Bond $89 $127 $166 $294
Money Market $87 $122 $159 $279
Science and Technology $91 $133 $177 $315
Small Cap $91 $132 $175 $311
</TABLE>
3
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If you do not surrender or annuitize your policy at the end of the applicable
time period, you would pay the following expenses:
<TABLE>
<CAPTION>
Investment Division 1 year 3 years 5 years 10 years
------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Asset Strategy $21 $83 $146 $314
Balanced $18 $75 $133 $288
Bond $17 $72 $129 $279
Growth $19 $76 $136 $293
High Income $19 $76 $135 $291
Income $19 $76 $136 $293
International $21 $84 $149 $319
Limited-Term Bond $19 $77 $136 $294
Money Market $17 $72 $129 $279
Science and Technology $21 $83 $147 $315
Small Cap $21 $82 $145 $311
</TABLE>
These examples reflect the $50 annual policy fee as a charge of 0.11% of
assets in the variable investment divisions. These examples do not reflect any
premium tax charges.
These examples are not intended to represent past or future expenses. Actual
expenses may be greater or less than those shown. The assumed 5% return is
purely hypothetical. Actual returns (investment performance) will vary, and may
be more or less than 5%.
Taxes
You are generally required to pay taxes on amounts earned in a non-qualified
policy only when they are withdrawn. When you take distributions or withdrawals
from your policy, taxable earnings are considered to be paid out first,
followed by your investment in the policy.
You are generally required to pay taxes on all amounts withdrawn from a
qualified policy because purchase payments were made with before-tax dollars.
Distributions from the policy are taxed as ordinary income. You may owe a
10% Federal tax penalty for distributions or withdrawals taken before age 59
1/2.
Surrender and Partial Withdrawals
You may surrender the policy before the retirement date for its policy value
less any withdrawal charge and any premium tax charge.
After your policy has been in effect for one year, you may make a partial
withdrawal of cash from your policy value. The withdrawal must be at least
$250, and the policy value remaining after the withdrawal must be at least
$2,000.
You cannot surrender the policy or make a withdrawal after the retirement
date.
Death Benefit
The policy provides a death benefit if the annuitant dies before the
retirement date. We will pay the death benefit in a lump sum or as a series of
annuity payments.
The death benefit will always be at least the greater of:
(a) the total purchase payments you have invested in the policy (less any
withdrawals you have made and withdrawal charges and transaction charges);
or
(b) your policy value at the time the death benefit is paid.
In some states, if the annuitant dies before age 75, we will enhance the
death benefit to be the greatest of (a) above, (b) above, or:
(c) the greater of your policy value on its eighth or sixteenth anniversary
date, plus any purchase payments made since then, less any withdrawals you
have made, and withdrawal charges and transaction charges you have incurred
since then.
4
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Other Information
Free Look: You may cancel the policy by returning it within 10 days after
you receive it. When we receive the returned policy, we will cancel it and
refund the greater of your policy value or your purchase payments. During this
"free look" period, purchase payments that were allocated to any variable
investment division are held in the money market investment division. (The
"free look" period may be longer in some states.)
Automatic Partial Withdrawals: After one year, you may arrange for automatic
partial withdrawals of the same dollar amount to be made every month, three
months, six months, or twelve months. Automatic partial withdrawals cannot
exceed the free withdrawal amount in any one policy year. Automatic partial
withdrawals are not subject to the $250 minimum amount, or to the transaction
charge for more than four withdrawals in any one policy year. These withdrawals
may be taxable, and you may also incur a 10% Federal tax penalty before age 59
1/2.
Waiver of Withdrawal Charges Rider: If your policy includes the waiver of
withdrawal charges rider, we will waive withdrawal charges under certain
conditions if the annuitant becomes confined in a qualified nursing home or
qualified hospital.
Transfers: Before the retirement date, you may transfer all or part of your
policy value among the 12 funding choices. However, you may transfer out of the
fixed account only once each policy year. Other restrictions apply, especially
to fixed account transfers.
After the retirement date, the annuitant may reallocate his or her annuity
interest among the variable investment divisions or from the variable
investment divisions to the fixed account once each policy year. However, after
the retirement date, transfers from the fixed account to the variable
investment divisions are not permitted.
Dollar Cost Averaging: Before the retirement date, you may have automatic
monthly transfers made from the money market investment division to as many as
four of the other variable investment divisions. Certain minimums and other
restrictions apply.
Financial Information: Condensed financial information for the variable
investment divisions begins at page 27 of this prospectus. Our financial
statements, and full financial statements for the variable investment
divisions, are in the Statement of Additional Information.
Inquiries
If you have questions about your policy or need to make changes, contact
your financial representative who sold you the policy, or contact us at:
United Investors Life Insurance Company
Variable Products Division
P. O. Box 156
Birmingham, Alabama 35201-0156
Telephone: (205) 325-4300
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The policy is not available in all states. This prospectus does not offer to
sell securities in any jurisdiction where they cannot be lawfully sold. You
should rely only on the information contained in this prospectus or that we
have referred you to. We have not authorized anyone to provide you with
information that is different.
NOTE: Because this is a summary, it does not contain all the information
that may be important to you. You should read this entire prospectus and the
Target/United Funds, Inc. prospectus carefully before investing. For qualified
policies, the requirements of a particular retirement plan, an endorsement to
the policy, or limitations or penalties imposed by the Internal Revenue Code
may impose limits or restrictions on purchase payments, surrenders,
distributions or benefits, or on other provisions of the policy. This
prospectus does not describe these limitations or restrictions. (See "Federal
Tax Matters.")
5
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United Investors Life Insurance Company
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We were incorporated in the State of Missouri on August 17, 1981, as the
successor to a company of the same name established in Missouri on September
27, 1961. We are a stock life insurance company, indirectly owned by Torchmark
Corporation. Our principal business is selling life insurance and annuity
contracts. We are admitted to do business in the District of Columbia and all
states except New York.
Preparing for Year 2000
Existing computer programs of many businesses were developed with a two-
digit identification of the year of a transaction without consideration of the
upcoming change in century or millennium in the year 2000. This means that "00"
is used to identify the year, and computers may interpret this incorrectly as
the year 1900 instead of 2000. If this fact were ignored, many computer
programs could fail or produce erroneous results, creating considerable
uncertainty and potentially adversely affecting operations or business.
We have been in the process of modifying our computer system and
applications for the year 2000. We substantially completed this project during
1998, and will conduct final testing in 1999. We have primarily used internal
staff for this conversion but are also using outside consultants where
necessary. The cost of this project, which is immaterial to our financial
position, is expensed as incurred.
As a part of our activities, we rely on and communicate electronically with
other financial institutions and various other organizations which have
computer systems that may not be year 2000 compliant. Where possible, we are
verifying that these other business systems are now year 2000 compliant or are
in the process of becoming compliant. If these systems are not compliant, the
potential interruptions to our operations and cost to our business may 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 analysts or rating organizations such as A. M.
Best Company, Standard & Poor's Corporation, and Weiss Research, Inc. These
ratings reflect the organization's current opinion of an insurance company's
financial strength and operating performance in comparison to the norms for the
insurance industry; they do not reflect the strength, performance, risk, or
safety (or lack thereof) of the variable investment divisions. The claims-
paying ability rating as measured by Standard & Poor's is an opinion of an
operating insurance company's financial capacity to meet its obligations under
its outstanding insurance and annuity policies.
United Investors Annuity Variable Account
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The variable investment divisions are "sub-accounts" or divisions of the
United Investors Annuity Variable Account (the "Variable Account"). We
established the Variable Account as a segregated asset account on December 8,
1981 and modified it on January 5, 1987. The Variable Account will receive and
invest the purchase payments allocated to the variable investment divisions.
Our Variable Account is currently divided into eleven investment divisions.
Each division invests exclusively in shares of a single portfolio of
Target/United Funds, Inc. Income, gains and losses arising from the assets of
each investment division are credited to or charged against that division
without regard to income, gains or losses from any other investment division of
the Variable Account or arising out of any other business we may conduct.
The assets in the Variable Account are our property. However, the assets
allocated to the variable investment divisions under the policy are not
chargeable with liabilities arising out of any other business that we may
conduct.
6
<PAGE>
The Variable Account is registered with the SEC as a unit investment trust
under the Investment Company Act of 1940. It meets the definition of a
"separate account" under the Federal securities law. However, the SEC does not
supervise the management or investment practices or policies of the Variable
Account or us.
Target/United Funds, Inc.
The Variable Account invests in shares of Target/United Funds, Inc., a
mutual fund with the following separate investment portfolios:
1. Asset Strategy Portfolio;
2. Balanced Portfolio;
3. Bond Portfolio;
4. Growth Portfolio;
5. High Income Portfolio;
6. Income Portfolio;
7. International Portfolio;
8. Limited-Term Bond Portfolio;
9. Money Market Portfolio;
10. Science and Technology Portfolio; and
11. Small Cap Portfolio.
The assets of each portfolio of Target/United Funds, Inc. are separate from
the assets of the other portfolios. Thus, each portfolio operates separately,
and the income, gains, or losses of one portfolio have no effect on the
investment performance of any other portfolio.
Target/United Funds, Inc. is designed to provide an investment vehicle for
variable annuity and variable life insurance contracts issued by various
insurance companies. For more information about the risks associated with the
use of the same funding vehicle for both variable annuity and variable life
insurance contracts of various insurance companies, see the Target/United
Funds, Inc. prospectus.
The investment objectives and policies of each portfolio are summarized
below. There is no assurance that any of the portfolios will achieve their
stated objectives. More detailed information, including a description of risks,
is in the Target/United Funds, Inc. prospectus, which accompanies this
prospectus.
<TABLE>
<CAPTION>
Portfolio Investment Objective and Certain Policies
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<C> <S>
Asset Strategy The Asset Strategy Portfolio seeks high total return over the
long term. It diversifies among stocks, bonds, and short-term
instruments, both in the United States and abroad.
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Balanced 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.
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Bond The Bond Portfolio seeks current income with an emphasis on
preservation of capital. It invests primarily in debt
securities of varying yields, qualities, and maturities.
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Growth The Growth Portfolio primarily seeks capital growth. As a
secondary goal it seeks current income. It invests primarily
in common stocks or securities convertible into common stocks.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Portfolio Investment Objective and Certain Policies
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<C> <S>
High Income The High Income Portfolio primarily seeks high current income.
As a secondary goal it seeks capital growth when consistent
with the primary goal. It invests 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 Target/United Funds, Inc. prospectus for a further
description of the risk factors.)
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Income The Income Portfolio primarily seeks to maintain current
income, subject to market conditions, with a secondary goal of
capital growth. It invests 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.
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International 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.
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Limited-Term The Limited-Term Bond Portfolio seeks a high level of current
Bond 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 seeks to
maintain a dollar-weighted average maturity of its portfolio of
two to five years.
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Money Market 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. There is no assurance
that the portfolio will be able to maintain a net asset value
of $1.00 per share.
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Science and The Science and Technology Portfolio seeks long-term capital
Technology growth through investments primarily in science and technology
securities.
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Small Cap 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.
</TABLE>
Fund Management and Fees
Waddell & Reed Investment Management Company, the manager of Target/United
Funds, Inc., provides investment advisory services to its portfolios. The
manager is a wholly-owned subsidiary of Waddell & Reed, Inc., which is a
wholly-owned subsidiary of Waddell & Reed Financial Services, Inc., a holding
company. Waddell & Reed Financial Services, Inc. is a wholly-owned subsidiary
of Waddell & Reed Financial, Inc., a publicly held company.
The manager provides investment advice to and supervises investments of a
number of mutual funds. The manager maintains a large staff of experienced
investment personnel and a full complement of related support facilities. Each
Target/United Funds portfolio pays the manager a fee for managing its
investments. The fee consists of two elements:
8
<PAGE>
(i) a specific fee computed each day on the portfolio's net asset value at
the following annual rates; and
<TABLE>
<CAPTION>
Portfolio Specific Fee (%)
--------- ----------------
<S> <C>
Asset Strategy............................................. 0.30%
Balanced................................................... 0.10%
Bond....................................................... 0.03%
Growth..................................................... 0.20%
High Income................................................ 0.15%
Income..................................................... 0.20%
International.............................................. 0.30%
Limited-Term Bond.......................................... 0.05%
Money Market............................................... 0.00%
Science and Technology..................................... 0.20%
Small Cap.................................................. 0.35%
</TABLE>
(ii) the portfolio's proportionate share of a base fee computed each day on
the combined net asset values of all the portfolios at the following annual
rates:
<TABLE>
<CAPTION>
Group Net Asset
Level ($ millions) Base Fee (%)
------------------ ------------
<S> <C>
< $750.......................................................... 0.51%
$750-$1,500..................................................... 0.49%
$1,500-$2,250................................................... 0.47%
> $2,250........................................................ 0.45%
</TABLE>
The base fee is computed on the combined net asset value of all eleven
portfolios of Target/ United Funds, Inc. For 1998, the base fee rate was
0. %. [1998 rate to be provided when available]
Fixed Account
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- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The funding choice guaranteeing your principal and a minimum fixed rate of
interest is called the "fixed account." It is not registered under the
Securities Act of 1933, and it is not registered as an investment company
under the Investment Company Act of 1940. Accordingly, neither the fixed
account nor any interests therein are subject to the provisions or
restrictions of these Federal securities laws, and the disclosure regarding
the fixed account has not been reviewed by the staff of the SEC.
The fixed account is a part of our general account, which includes all of
our assets other than those in any separate account. We guarantee that we will
credit interest at a rate of not less than 4% per year to investment amounts
allocated to the fixed account. We may credit interest at a rate in excess of
4% per year, but any excess interest credited will be determined in our sole
discretion. The policy owner assumes the risk that interest credited to the
fixed account may not exceed 4% per year. The fixed account may not be
available in all states.
As the policy owner, you determine the allocation of policy value to the
fixed account. Before the retirement date, you may transfer all or part of the
values held in the fixed account to one or more of the variable investment
divisions once per policy year. After the retirement date, transfers out of
the fixed account are not allowed. After the retirement date, values in the
variable investment divisions may be transferred to the fixed account only
once per policy year. (See "Transfers.")
9
<PAGE>
The Policy
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The policy is a deferred variable annuity. Your rights and benefits as owner
of the policy are described below and in the policy. However, we reserve the
right to modify the policy to comply with any law or regulation, or to give you
the benefit of any law or regulation, where permitted by state law.
Issuance of a Policy
If you wish to purchase a policy, you must complete an application and send
it to our home office. We will generally accept your application if it conforms
to our requirements, but we reserve the right to reject any application or
purchase payment. If the application can be accepted in the form received, the
initial purchase payments will be applied within two business days after the
latter of receipt of the application or receipt of the initial purchase
payment. If the initial purchase payment cannot be applied within five business
days after receipt because the application is incomplete, we will contact you
with an explanation for the delay. Your initial purchase payment will be
returned at that time unless you consent to our retaining and applying it as
soon as the remaining application requirements are met. Both you (the policy
owner) and the annuitant (if different) must be less than 85 1/2 years old when
you purchase a policy. The policy will only become effective when we accept
your application.
Purchase Payments
The initial purchase payment for non-qualified policies must be at least
$5,000. For qualified policies, the initial purchase payment must be at least
$1,200. Additional purchase payments may be in amounts of $100 or more. 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 for the first year.
If you make no purchase payments during a 24-month period and your previous
purchase payments total less than $2,000, we have the right to cancel your
policy by paying you the policy value in a lump sum, after a 30-day notice,
unless during that time you make an additional purchase payment.
Allocation of Purchase Payments
You determine in the application how the initial purchase payment will be
allocated among the variable investment divisions and the fixed account. You
may use any whole percentage to allocate your purchase payments, from 0% to
100%.
Between the date that we receive the initial purchase payment and your
policy's effective date, we will credit interest on the purchase payment as if
it were invested in the money market investment division. Then, for seventeen
days after your policy's effective date:
(a) the portion of the initial purchase payment to be allocated to any of
the variable investment divisions (plus any accrued interest) will be
allocated to the money market investment division; and
(b) the portion of the initial purchase payment to be allocated to the
fixed account (plus any accrued interest) will be credited with
interest as if it were invested in the money market investment
division.
Any additional purchase payments we receive prior to the seventeenth day
after your policy's effective date will be treated the same way. Upon the
expiration of this period, your policy value will be transferred to the
variable investment divisions and the fixed account in accordance with your
allocation instructions. If the seventeenth day is not a business day, then we
will make this transfer on the next business day thereafter. (The seventeen-day
period is intended to cover the 10-day "free look" period, plus 7 days for
processing and policy delivery.) This period may be longer than seventeen days
in some states.
10
<PAGE>
If we receive an additional purchase payment on or after the seventeenth day
after your policy's effective date, we will allocate the purchase payment among
the funding choices according to your instructions. These will be the
allocations you specify in the application, or new instructions you provide.
Your policy value will vary with the investment performance of the variable
investment divisions you select. You bear the entire risk for amounts allocated
to the variable investment divisions. You should periodically review your
allocations of policy value in light of all relevant factors, including market
conditions and your overall financial planning requirements.
Policy Value
Your policy value prior to the retirement date is equal to:
(a) your variable account value; plus
(b) your fixed account value.
Variable Account Value. Your variable account value is not guaranteed. It
equals the sum of the values of the variable investment divisions under the
policy. The value of each variable investment division is calculated on each
business day. Business days generally are Monday through Friday, except
holidays when the New York Stock Exchange is closed.
On your policy's effective date, your variable account value is equal to the
portion of the initial purchase payment allocated to the variable investment
divisions (plus any accrued interest from the date we received the initial
purchase payment to the policy's effective date). On any business day
thereafter, the value of each variable investment division under your policy
equals:
(a) the value of the investment division on the previous business day,
increased or decreased by its investment experience and daily charge;
plus
(b) the amount of any purchase payments allocated to the investment
division since the previous business day; plus
(c) the amount of any transfers into the investment division since the
previous business day; minus
(d) the amount of any withdrawals (including any withdrawal charge or
transaction charge) from the investment division since the previous
business day; minus
(e) the amount of any transfers out of the investment division since the
previous business day; minus
(f) the portion of any annual deduction allocated to the investment
division since the previous business day; minus
(g) the portion of any deduction for premium taxes allocated to the
investment division since the previous business day.
Deductions (f) and (g) will be made from each investment division in the
same proportion that the value of the investment division bears to your entire
policy value.
Fixed Account Value. At the end of any business day, your fixed account value
is equal to:
(a) the sum of all purchase payments allocated to the fixed account; plus
(b) any amounts transferred into the fixed account; plus
(c) total interest credited; less
11
<PAGE>
(d) any amounts transferred out of the fixed account; less
(e) the portion of any withdrawals, withdrawal charges, and transaction
charges allocated to the fixed account; less
(f) the portion of the annual deduction and premium taxes which is
allocated to the fixed account.
Surrender and Partial Withdrawals
Withdrawals. You may make a partial withdrawal from your policy value after
the first policy year and prior to the retirement date. You must send a written
request to our home office in a form acceptable to us. A partial withdrawal
must be for at least $250 (except for automatic partial withdrawals), and your
remaining policy value must be at least $2,000 after a partial withdrawal. If
your policy value would be less than $2,000, we will treat the request for a
partial withdrawal as a request for complete surrender of your policy. We will
ordinarily pay a withdrawal within seven days of receipt of your written
request (unless the check for your purchase payment has not yet cleared your
bank). We may defer payment of any amounts from the fixed account for up to six
months. If we defer payment for more than 30 days, we will pay interest on the
amount deferred at a rate not less than 4% per year.
You can specify that the partial withdrawal should be made from a particular
funding choice (or choices). If you do not specify this, then the partial
withdrawal will be made from the funding choices in the same proportions that
their values bear to your total policy value.
You may request up to four withdrawals per policy year without a transaction
charge. If you request more than these four withdrawals, there will be a $20
transaction charge for each additional withdrawal during that policy year
(except for automatic partial withdrawals). Also, withdrawal charges of up to
8% may apply to withdrawal amounts in a policy year that exceed the free
withdrawal amount. (See "Withdrawal Charge" and "Transaction Charge.") Any
transaction charge or withdrawal charge will be deducted from your remaining
policy value, or from the amount paid if your remaining policy value is
insufficient. No withdrawals may be made after the retirement date.
Partial withdrawals may be subject to a 10% Federal tax penalty and to
income tax. (See "Federal Tax Matters.")
Automatic Partial Withdrawals. You may also establish automatic partial
withdrawals by submitting a one-time written request. These automatic partial
withdrawals of a fixed dollar amount may be requested on a monthly, quarterly,
semi-annual or annual basis. The maximum amount of automatic partial
withdrawals in any one policy year is the free withdrawal amount. Automatic
partial withdrawals are only available after the first policy year and before
the retirement date. They are not subject to the $250 minimum, and the $20
transaction charge does not apply.
Automatic partial withdrawals are subject to all the other policy provisions
and terms. If an additional withdrawal is made from a policy participating in
automatic partial withdrawals, the automatic partial withdrawals will terminate
automatically and may be resumed only on or after the next policy anniversary.
Automatic partial withdrawals may be subject to a 10% Federal tax penalty
and to income tax. (See "Federal Tax Matters.")
Surrender. You may surrender your policy for its policy value, less any
withdrawal charge and premium taxes, by sending a written request to our 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 your written request (unless the check for a purchase
payment has not yet cleared your bank). Your policy will terminate as of the
date we
12
<PAGE>
receive your written request for surrender. Surrenders are generally taxable
transactions, and may be subject to a 10% Federal tax penalty. (See "Federal
Tax Matters.") No surrender may be made after the retirement date.
Restrictions Under the Texas ORP and Section 403(b) Plans. The Texas
Educational Code does not permit participants in the Texas Optional Retirement
Program ("ORP") to withdraw or surrender their interest in a variable annuity
contract issued under the ORP except upon:
(a) termination of employment in the Texas public institutions of higher
education;
(b) retirement; or
(c) death.
Accordingly, a participant in the ORP (or the participant's estate if the
participant has died) will be required to obtain a certificate of termination
from the employer or a certificate of death before the account can be redeemed.
Similar restrictions apply to variable annuity contracts used as funding
vehicles for Section 403(b) retirement plans. Section 403(b) of the Internal
Revenue Code provides for tax-deferred retirement savings plans for employees
of certain non-profit and educational organizations. As required by Section
403(b), any policy used for a Section 403(b) plan will prohibit distributions
of:
(a) elective contributions made in years beginning after December 31, 1988;
(b) earnings on those contributions; and
(c) earnings on amounts attributable to elective contributions held as of
the end of the last year beginning before January 1, 1989.
However, distributions of such amounts will be allowed upon:
(a) death of the employee;
(b) reaching age 59 1/2;
(c) separation from service;
(d) disability; or
(e) financial hardship (except that income attributable to elective
contributions may not be distributed in the case of hardship).
Restrictions Under Other Qualified Policies. Other restrictions on
surrenders or with respect to the election, commencement, or distributions of
benefits may apply under qualified policies or under the terms of the plans for
which qualified policies are issued.
Transfers
You may transfer all or part of your variable account value out of a
variable investment division (to one or more of the other variable investment
divisions or to the fixed account) at any time before the retirement date,
except as described below. You may transfer all or a part of your fixed account
value to one or more of the variable investment divisions once per policy year
before the retirement date.
You may make 12 transfers in a policy year. Transferring from one variable
investment division into two or more other variable investment divisions counts
as one transfer request. However, transferring from two
13
<PAGE>
variable investment divisions into one variable investment division counts as
two transfer requests. Transfers from the fixed account are counted in the same
manner. If a transfer is made out of the fixed account, then no transfer into
the fixed account may be made for six months from the transfer date.
Any amount transferred must be at least:
(a) $500; or
(b) the total value of the variable investment division or fixed account,
if less.
In addition, any 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.
Transfers may be made by a written request to our home office or by calling
us if a written authorization for telephone transfers is on file. We have the
authority to honor any telephone transfer request believed to be authentic. We
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. For example, you may be required to use a personal
identification number to initiate a telephone transfer. We will not be liable
for the consequences of a fraudulent telephone transfer request we believe to
be authentic when we have followed those procedures. As a result, you bear the
risk of loss arising from such a fraudulent request if you give us
authorization for telephone transfers.
We will make each transfer, without the imposition of any fee or charge, at
the end of the first business day during which or after which we receive a
valid, complete transfer request. We may suspend or modify this transfer
privilege at any time.
You are not allowed to transfer value from the fixed account to the variable
investment divisions 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.
Dollar Cost Averaging
Before the retirement date, you may authorize automatic transfers of a fixed
dollar amount from the money market division to as many as four of the other
variable investment divisions. Automatic transfers will be made monthly on the
day of the month you select. (If that day of the month does not fall on a
business day, then transfers will be made on the next following business day.)
Transfers will be made at the unit values determined on the date of each
transfer.
The minimum automatic transfer amount is $100. If the transfer is to be made
into more than one variable investment division, a minimum of $25 must be
transferred into each other variable investment division selected.
Participation in the automatic transfer program does not guarantee a greater
profit, nor does it protect against loss in declining markets. You should
consider your ability to continue the program through all market conditions.
Automatic dollar cost averaging transfers will not be counted as transfers for
purposes of the 12-transfer limit specified in "Transfers" above.
Death Benefit
The policy pays a death benefit to the beneficiary named in the policy if
the annuitant dies before 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:
14
<PAGE>
(a) the total purchase payments made, less any amounts withdrawn and any
withdrawal charges, and less any transaction charges; or
(b) the policy value.
In addition, in some states, we may provide an enhanced death benefit if the
annuitant dies before attained age 75. In this case, the death benefit will be
the greatest of (a) and (b), as described above, or:
(c) the greater of your policy value on its eighth or sixteenth anniversary
date, plus any purchase payments made since then, less any withdrawals
you have made, and withdrawal charges or transaction charges you have
incurred since then.
Upon receiving due proof of death, we will pay the death benefit proceeds to
the beneficiary in a lump sum or under one of the annuity payment methods. (See
"Annuity Payments.") However, we will not compute the amount of the death
benefit until the date it is paid, and we cannot pay the death benefit until we
receive both due proof of death and instructions on how to pay it (that is, as
a lump sum or applied under one of the annuity payment methods). If the
annuitant or the owner dies after the retirement date, the amount payable, if
any, will be as provided in the annuity payment method then in effect.
If the annuitant dies before the retirement date and the annuitant is also
the owner or a joint owner of the policy, then special rules (governing
distribution of death benefit proceeds in the event of the death of an owner)
shall apply. (See "Required Distributions" below.)
The beneficiary named in the policy will not always have a right to the
death benefits even if the annuitant or owner dies. 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, then the
beneficiary named in the policy will not 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, then the
beneficiary named in the policy 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, the Internal Revenue Code requires any non-qualified policy to
provide that:
(a) if any owner dies before the retirement date, then the entire interest
in the policy will be distributed within five years after the date of
that owner's death; and
(b) if any owner dies on or after the retirement date but before the time
the entire interest in the policy has been distributed, then the
remaining portion of such interest will be distributed at least as
rapidly as under the method of distribution being used as of the date
of that owner's death.
These requirements will be considered satisfied as to any portion of the
owner's interest that is payable as annuity payments, beginning within one year
of that owner's death, that will be made over the life of the owner's
designated beneficiary or over a period not extending beyond his life
expectancy.
If any owner dies before the retirement date, then ownership of the policy
passes to the owner's designated beneficiary, who then has the right to the
death benefit. If the policy has joint owners and one owner dies, then the
owner's designated beneficiary is the joint owner. If there is no joint owner
and the owner dies, then the owner's designated beneficiary is the beneficiary
named in the policy.
If the owner's designated beneficiary is the surviving spouse of the owner,
then the policy may be continued with the surviving spouse as the new owner and
no distributions will be required.
15
<PAGE>
If an annuitant is an owner or joint owner and that annuitant dies before
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 we will increase
the policy value so that it equals the death benefit amount, if that is higher
than the policy value. This would occur if the owner's designated beneficiary:
(a) elects to delay receipt of the proceeds for up to five years;
(b) is the deceased owner's spouse and elects to continue the policy;
or
(c) elects to receive the proceeds as annuity payments, as described
above.
Any such increase in the policy value would be paid by us. We will allocate it
to the variable investment divisions and the fixed account in proportion to the
pre-existing policy value, unless instructed otherwise.
The non-qualified policies contain provisions which are intended to comply
with the requirements of the Internal Revenue Code. However, no regulations
interpreting these requirements have been issued. We intend to review such
provisions and modify them if necessary to assure that they comply with the
applicable requirements when clarified by regulation or otherwise.
Other rules may apply to qualified policies.
"Free Look" Period
If for any reason you are not satisfied with the policy, you may return it
to us within 10 days after you receive it. If you cancel the policy within this
10-day "free look" period, we will refund the greater of the policy value or
the purchase payment that was paid, and the policy will be void from its
effective date. To cancel the policy, you must mail or deliver it either to our
home office or to the registered agent who sold it within 10 days after you
receive it. (See "Allocation of Purchase Payments.") The "free look" period may
be longer than 10 days where required by state law.
Charges and Deductions
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
We do not deduct any charges from a purchase payment (except for a charge
for any premium taxes). However, there is a sales charge 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. In addition, certain other charges are deducted to compensate us for
providing the insurance benefits set forth in the policy, for administering and
distributing the policy, for any applicable taxes, and for assuming certain
risks in connection with the policy. These charges are described below.
Annual Deduction
On each policy anniversary, we deduct two charges from your policy value.
One is for sales expenses and one is an annual policy fee for administrative
expenses. These deductions will be made from the variable investment divisions
and the fixed account in the same proportion that their values bear to the
total policy value.
Sales Charge. We deduct a sales charge 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 sales charge of 8.5%
of each purchase payment.) The sales charge partially compensates us for
certain sales and other distribution expenses, including agent sales
commissions, the cost of printing prospectuses and sales literature,
advertising and other marketing and sales promotional activities.
Annual Policy Fee. We deduct an annual policy fee of $50 from each policy,
for administering the policy. These expenses include costs of maintaining
records, processing death benefit claims, surrenders, transfers and
16
<PAGE>
policy changes, providing reports to policy owners, and overhead costs. We
guarantee not to increase this charge during the life of the policy. Before the
retirement date, this charge is deducted on each policy anniversary. After the
retirement date, this charge is deducted pro rata from each annuity payment.
Withdrawal Charge
We may deduct a withdrawal charge if you:
(a) make partial withdrawals under the policy;
(b) surrender the policy; or
(c) annuitize the policy.
The withdrawal charge is a percent of the purchase payments deemed to be
included in the withdrawal (in the case of a partial withdrawal) or the total
purchase payments (in the case of a surrender or annuitizing), as specified in
the following table of withdrawal charge rates:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Number of Policy Anniversaries
since receipt of Purchase Payment: 0 1 2 3 4 5 6 7 8+
- --------------------------------------------------------------------------
Withdrawal Charge
(% of Purchase Payment): 8% 7% 6% 5% 4% 3% 2% 1% none
</TABLE>
There is a "free withdrawal amount" that can be withdrawn without a
withdrawal charge. This is only available after the first policy year. The free
withdrawal amount is the greater of:
(a) 10% of cumulative purchase payments; or
(b) 10% of policy value at the time of withdrawal.
Amounts withdrawn in excess of the free withdrawal amount may be subject to the
withdrawal charge.
The withdrawal charge is determined by multiplying each purchase payment
deemed included in the withdrawal by the applicable withdrawal charge rate
specified in the table above.
For purposes of calculating the withdrawal charge:
(a) the oldest purchase payments will be treated as the first withdrawn,
newer purchase payments next, and appreciation last;
(b) amounts withdrawn up to the free withdrawal amount will not be
considered a withdrawal of purchase payments; and
(c) if the surrender value is withdrawn or applied under an annuity payment
method, the withdrawal charge will apply to all purchase payments not
previously assessed with a withdrawal charge.
As shown above, the withdrawal charge percentage varies, depending on the
"age" of the purchase payments included in the withdrawal--that is, the number
of policy years since the purchase payment was paid. A withdrawal charge of 8%
applies to purchase payments withdrawn that are less than 1 year old.
Thereafter the withdrawal charge rate decreases by one percentage point each
year. Amounts representing purchase payments that are at least 8 years old may
be withdrawn without charge.
We will deduct the withdrawal charge from the remaining policy value, or
from the amount paid if there is not enough value remaining. The withdrawal
charge partially compensates us for sales expenses, including
17
<PAGE>
agent sales commissions, the cost of printing prospectuses and sales
literature, advertising, and other marketing and sales promotional activities.
The amounts we receive from the withdrawal charge, along with the sales
charge, may not be sufficient to cover distribution expenses. We expect to
recover any deficiency from our general assets (which include amounts derived
from the mortality and expense risk charge, as described below).
Waiver of Withdrawal Charges Rider
We waive the withdrawal charges described above if the annuitant becomes
confined to a nursing home or hospital, provided that certain conditions are
met. These conditions include:
(a) the waiver of withdrawal charges rider is attached to your policy;
(b) the annuitant is confined to a "Qualified Nursing Home" or "Qualified
Hospital" for at least 60 days;
(c) the annuitant was age 75 or younger on the policy's effective date;
(d) the policy was in force at least one year at the time confinement
began;
(e) written notice and satisfactory proof of confinement are received no
later than 90 days after confinement ends; and
(f) confinement was recommended by a "Physician" due to injury, sickness or
disease.
We will waive only the withdrawal charges which are applicable to purchase
payments received before 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.
Mortality and Expense Risk Charge
We deduct a daily charge from the variable investment divisions at an
effective annual rate of 0.90% of their average daily net assets. This charge
compensates us for assuming certain mortality and expense risks. No mortality
and expense risk charge is deducted from the fixed account. We may realize a
profit from this charge. However, the level of this charge is guaranteed for
the life of the policy and may not be increased. We will continue to deduct
this charge after the retirement date.
The mortality risk we bear arises in part from our obligation to make
monthly annuity payments regardless of how long all annuitants or any
individual may live. These payments are guaranteed in accordance with the
annuity tables and other provisions contained in the policy. This assures you
that neither the longevity of the annuitant, nor an unanticipated improvement
in general life expectancy, will have any adverse effect on the monthly annuity
payments the annuitant will receive under the policy. Our obligation therefore
relieves the annuitant from the risk that he or she will outlive the funds
accumulated for retirement. The mortality risk also arises in part because of
the risk that the death benefit may be greater than the policy value. We also
assume the risk that other expense charges may be insufficient to cover the
actual expenses we incur.
Transaction Charge
You may make up to 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. We will deduct this charge from the
remaining policy value, or from the amount paid if there is not enough value
remaining. The $20 transaction charge does not apply to automatic partial
withdrawals.
18
<PAGE>
Premium Taxes
We will deduct a charge for any premium taxes we incur. Depending on state
and local law, premium taxes can be incurred when you make a purchase payment,
when policy value is withdrawn or surrendered, or when annuity payments start.
(The state premium tax rates currently range from 0% to 3.50%. Some local
governments charge additional premium taxes.)
Federal Taxes
Currently no charge is made for Federal income taxes that may be
attributable to the Variable Account. We may, however, make such a charge in
the future. Charges for other taxes, if any, attributable to the Variable
Account may also be made. (See "Federal Tax Matters.")
Fund Expenses
The value of the assets of the variable investment divisions will reflect
the investment management fee and other expenses incurred by the corresponding
portfolios of Target/United Funds, Inc. (See "Summary--Charges and
Deductions.")
Older Policies
For some older 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 ten annual installments) does not
apply 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 changes might be made
by restating the entire policy with its original effective date and other data.
(See your policy.)
Reduction in Charges for Certain Groups
We may reduce or eliminate the sales, administrative, or withdrawal charges
on policies that have been sold to:
(a) our employees and sales representatives, or those of our affiliates or
distributors of the policy;
(b) our customers or distributors of the policies who are transferring
existing policy values to a policy;
(c) individuals or groups when sales of the policy result in savings of
sales or administrative expenses; or
(d) individuals or groups where purchase payments are paid through an
approved group payment method and where the size and type of the group
results in savings of administrative expenses.
We will not reduce or eliminate the sales, administrative, or withdrawal
charges where such reduction or elimination will unfairly discriminate against
any person.
19
<PAGE>
Annuity Payments
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Election of Annuity Payment Method
As the policy owner, you have the sole right to elect an annuity payment
method in the application. You can also change that election, during the
lifetime of the annuitant and before the retirement date, 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 method 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 by giving us written notice at least 30 days before the old
retirement date (and at least 30 days before the new retirement date).
A retirement date must be the first day of any calendar month. It must also
be at least 30 days after the policy's effective date.
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.")
Annuity Payment Methods
The policy value as of 14 days before the retirement date (less any premium
taxes and withdrawal charges) may be applied to annuity payments. They can be
fixed annuity payments, variable annuity payments, or a combination of both.
Fixed annuity payments provide guaranteed annuity payments which remain
fixed in amount throughout the payment period. Variable annuity payments vary
with the investment experience of the variable investment divisions. The dollar
amount of variable annuity payments after the first is not fixed.
Annuity payment methods currently include:
<TABLE>
<S> <C>
Life Annuity with No This method provides monthly annuity payments during the
Guaranteed Period lifetime of the annuitant. No payment will be made after the
death of the annuitant. Only one payment will be made under
this method if the annuitant dies before the second payment is
due; only two payments will be made if the annuitant dies
before the third payment is due; and so forth.
- ------------------------------------------------------------------------------------------
Joint Life Annuity This method provides monthly annuity payments during the
Continuing to lifetime of the annuitant and a joint annuitant. Payments will
the Survivor continue to the survivor for the survivor's remaining
lifetime. Only one payment or very few payments will be made
under this method if the annuitant and joint annuitant both
die before or shortly after payments begin.
- ------------------------------------------------------------------------------------------
Life Annuity with 120 or This method provides monthly annuity payments during the
240 Monthly Payments lifetime of the annuitant. A guaranteed period of 120 or 240
Guaranteed months (10 or 20 years) 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.
</TABLE>
Other annuity payment methods are currently available with our written consent.
If you have not selected an annuity payment method on the retirement date,
we will make monthly annuity payments during the lifetime of the annuitant with
120 monthly payments guaranteed.
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<PAGE>
The amount of each annuity payment under the methods described above will
depend on the sex and age of the annuitant (or annuitants) at the time the
first payment is due. The annuity payments may be more or less than the total
purchase payments, and more or less than the policy value, because:
(a) variable annuity payments vary with the investment experience of the
underlying portfolios of Target/United Funds, Inc. and you therefore
bear the investment risk under variable annuity payments; and
(b) annuitants may die before the actuarially predicted date of death.
Therefore, the dollar amount of annuity payments cannot be predicted. The
method of computing the annuity payments is described in more detail in the
Statement of Additional Information.
The duration of the annuity payment guarantee will affect the dollar amount
of each payment. For example, payments guaranteed for 20 years will be less
than payments guaranteed for 10 years.
Whether variable annuity payments decrease, increase, or remain level
depends on whether the net investment performance is worse than the "assumed
investment rate," better than that rate, or equal to that rate. The assumed
investment rate is 4.0% per year. The dollar amount of the variable annuity
payments will decrease if the actual net investment experience of the variable
investment division(s) you select is less than the assumed investment rate. The
dollar amount of the variable annuity payments will increase if the actual net
investment experience exceeds the assumed investment rate. The dollar amount of
the variable annuity payments will stay the same if the actual net investment
experience equals the assumed investment rate.
Fixed annuity payment amounts will be based on our fixed annuity payment
rates in effect on the retirement 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.
If the net amount to be applied to an annuity payment method is less than
$3,000, we have the right to pay such amount in one sum. Also, if any payment
would be less than $50, we have the right to reduce the frequency of payment to
an interval that will result in payments of at least $50.
After the retirement date, the policy value may not be withdrawn, nor may
the policy be surrendered. The annuitant will be entitled to exercise any
voting rights and to reallocate the value of his or her interest in the
variable investment divisions. (See "Voting Rights" and "Transfers.")
The policies offered by this prospectus contain life annuity tables that
provide for different benefit payments to men and women of the same age,
although they provide for unisex tables where requested and required by law.
Nevertheless, in accordance with the U.S. Supreme Court's decision in Arizona
Governing Committee v. Norris, in certain employment-related situations,
annuity tables that do not vary on the basis of sex must be used. Accordingly,
if the policy will be used in connection with an employment-related retirement
or benefit plan, you should give consideration, in consultation with your legal
counsel, to the impact of Norris on any such plan before making any
contributions under these policies.
Distribution of the Policies
- --------------------------------------------------------------------------------
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Waddell & Reed, Inc. of 6300 Lamar, Overland Park, Kansas, is the principal
underwriter of the policies. Waddell & Reed, Inc. may enter into written sales
agreements with various broker-dealers to aid in the distribution of the
policies. A commission plus bonus compensation may be paid to broker-dealers or
agents in connection with sales of the policies. Bonus compensation will be
based on the amount of purchase payments received.
21
<PAGE>
Federal Tax Matters
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- --------------------------------------------------------------------------------
The following discussion is general and is not intended as tax advice.
We do not intend to address the tax consequences resulting from all
situations in which a person may be entitled to or may receive a distribution
under a policy. Any person concerned about these tax implications should
consult a competent tax advisor before initiating any transaction. This
discussion is based upon our understanding of the present Federal income tax
laws as they are currently interpreted by the Internal Revenue Service. We have
not assessed the likelihood of the continuation of the present Federal income
tax laws or of their current interpretation by the Internal Revenue Service.
Moreover, we have not attempted to consider any applicable state or other tax
laws.
The policy may be purchased on a non-tax-qualified basis ("non-qualified
policy") or as a qualified policy. Qualified policies are designed for use with
retirement plans entitled to special income tax treatment under the Internal
Revenue Code of 1986, as amended (the "Code").
Possible Changes in Taxation. Although the likelihood of legislative change
is uncertain, there is always the possibility that the tax treatment of the
policy could change by legislation or other means (such as U.S. Treasury
Department regulations, Internal Revenue Service revenue rulings, and judicial
decisions). It is possible that any change could be retroactive (that is,
effective prior to the date of the change). You should consult a tax advisor
regarding such developments and their effect on the policy.
Taxation of Annuities in General. The following discussion assumes that the
policy will qualify as an annuity contract for Federal income tax purposes. The
Statement of Additional Information and "Required Distributions" (at page 15 of
this prospectus) describe the requirements necessary to qualify.
Section 72 of the Code governs taxation of annuities in general.
An annuity owner who is a natural person generally is not taxed on increases
in the value of a policy until distribution occurs. Distribution could be
either in the form of a lump sum received by withdrawing all or part of the
cash value (i.e., surrender or partial withdrawal) or in the form of annuity
payments under the annuity payment method elected. For this purpose, the
assignment, pledge, or agreement to assign or pledge any portion of the policy
value generally will be treated as a distribution. The taxable portion of a
distribution (in the form of a lump sum payment or annuity payments) is taxed
as ordinary income.
An owner of any deferred annuity contract who is not a natural person
generally must include in income any increase in the excess of the policy value
over the owner's "investment in the contract" during the taxable year. However,
there are some exceptions to this rule, and you may wish to discuss these with
your tax advisor.
The following discussion applies to policies owned by natural persons.
Withdrawals. In the case of a withdrawal under a qualified policy, a ratable
portion of the amount received is taxable, generally based on the ratio of the
"investment in the contract" to the total policy value. The "investment in the
contract" generally equals the portion, if any, of purchase payments paid with
after-tax dollars (that is, purchase payments that were not excluded from the
individual's gross income). For qualified policies, the "investment in the
contract" can be zero. Special rules may apply to a withdrawal from a qualified
policy.
Generally, in the case of a partial withdrawal under a non-qualified policy
before the retirement date, amounts received are first treated as taxable
income to the extent that the policy value immediately before the withdrawal
exceeds the "investment in the contract" at that time. Any additional amount
withdrawn is not taxable.
In the case of a full surrender under a non-qualified policy, the amount
received generally will be taxable to the extent it exceeds the "investment in
the contract."
22
<PAGE>
Annuity Payments. Although the tax consequences may vary depending on the
annuity payment method elected under the policy, generally only the portion of
the annuity payment that represents the amount by which the policy value
exceeds the "investment in the contract" will be taxed.
. For variable annuity payments, in general the taxable portion of each
annuity payment (prior to recovery of the "investment in the contract")
is determined by a formula which establishes a specific non-taxable
dollar amount of each annuity payment. This dollar amount is determined
by dividing the "investment in the contract" by the total number of
expected annuity payments.
. For fixed annuity payments, in general there is no tax on the portion of
each annuity payment which reflects the ratio that the "investment in
the contract" bears to the total expected value of annuity payments for
the term of the payments; however, the remainder of each annuity payment
is taxable.
In all cases, after the "investment in the contract" is recovered, the full
amount of any additional annuity payments is taxable.
Penalty Tax. In the case of a distribution from a non-qualified policy,
there may be imposed a Federal penalty tax equal to 10% of the amount treated
as taxable income. In general, however, there is no penalty tax on
distributions:
(a) made on or after the taxpayer attains age 59 1/2;
(b) made as a result of an owner's death or attributable to the taxpayer's
disability; or
(c) received in substantially equal periodic payments as a life annuity.
Other tax penalties may apply to distributions from a qualified policy.
Aggregation of Contracts. All non-qualified deferred annuities entered into
after October 21, 1988 that we (or our affiliates) issued to the same owner
during any calendar year are treated as one annuity contract for purposes of
determining the amount includable in gross income under Section 72(e) of the
Code. In addition, there may be other situations in which the U.S. Treasury
Department may (under its authority to issue regulations or otherwise) conclude
that it would be appropriate to aggregate two or more annuity contracts
purchased by the same owner. Accordingly, you should consult a competent tax
advisor before purchasing more than one annuity contract.
Transfers and Assignments. A transfer or assignment of ownership of a
policy, or designation of an annuitant or other beneficiary who is not also the
owner, may result in certain tax consequences to the policy owner that are not
discussed herein. If you are contemplating any such transfer, assignment or
designation, you should contact a competent tax advisor with respect to the
potential tax effects of such transaction.
Death Benefits. Amounts may be distributed from a policy because of the
death of a policy owner or an annuitant. Generally, such amounts are includable
in the income of the recipient as follows:
(a) if distributed in a lump sum, they are taxed in the same manner as a
full surrender of the policy, as described above; or
(b) if distributed under an annuity payment method, they are taxed in the
same manner as annuity payments, as described above.
Qualified Policies. The tax rules applicable to a qualified policy vary
according to the type of plan and the terms and conditions of the plan. The
following events may cause adverse tax consequences:
(a) contributions in excess of specified limits;
(b) distributions prior to age 59 1/2 (subject to certain exceptions);
23
<PAGE>
(c) distributions that do not conform to specified commencement and
minimum distribution rules; and
(d) other circumstances specified in the Code.
We make no attempt to provide more than general information about the use
of the policy with the various types of retirement plans. The terms and
conditions of the retirement plans may limit the rights otherwise available to
you under a qualified policy. You are responsible for determining that
contributions, distributions and other transactions with respect to the
qualified policy comply with applicable law. If you are purchasing an annuity
contract for use with any qualified retirement plan, you should consult your
legal counsel and tax advisor regarding the suitability of the annuity
contract.
Required Distributions. For qualified plans under Sections 401(a), 403(a),
403(b), and 457, the Code requires that distributions generally must begin by
the later of April 1 of the calendar year following the calendar year in which
the policy owner (or plan participant): (a) reaches age 70 1/2; or (b)
retires. Distributions must be made in a specified form and manner. If the
participant is a "5 percent owner" (as defined in the Code), distributions
generally must begin no later than April 1 of the calendar year following the
calendar year in which the policy owner (or plan participant) reaches age 70
1/2. For Individual Retirement Annuities (IRAs) described in Section 408 of
the Code, distributions generally must begin no later than April 1 of the
calendar year following the calendar year in which the policy owner (or plan
participant) reaches age 70 1/2.
Corporate Pension and Profit-Sharing Plans. Section 401(a) of the Code
permits employers to establish various types of retirement plans for
employees, and permits self-employed individuals to establish retirement plans
for themselves and their employees. Adverse tax or other legal consequences to
the plan, to the participant or to both may result if this policy is purchased
by a Section 401(a) plan and later assigned or transferred to any individual.
The policy includes a death benefit that in some cases may exceed the greater
of purchase payments or policy value. The death benefit could be characterized
as an incidental benefit, the amount of which is limited in any pension or
profit-sharing plan. Because the death benefit may exceed this limitation,
employers using the policy in connection with such plans should consult their
tax advisor.
Section 403(b) Plans. Under Code Section 403(b), public school systems and
certain tax-exempt organizations may purchase annuity contracts for their
employees. Generally, payments to Section 403(b) annuity contracts will be
excluded from the gross income of the employee, subject to certain
limitations. However, these payments may be subject to FICA (Social Security)
taxes. The policy includes a death benefit that in some cases may exceed the
greater of purchase payments or policy value. The death benefit could be
characterized as an incidental benefit, the amount of which is limited in any
tax-sheltered annuity under Section 403(b). Because the death benefit may
exceed this limitation, employers using the policy in connection with such
plans should consult their tax advisor. Under Section 403(b) annuity
contracts, the following amounts may only be distributed upon death of the
employee, attainment of age 59 1/2, separation from service, disability, or
financial hardship:
(a) elective contributions made in years beginning after December 31,
1988;
(b) earnings on those contributions; and
(c) earnings in such years on amounts held as of the last year beginning
before January 1, 1989.
In addition, income attributable to elective contributions may not be
distributed in the case of hardship.
Individual Retirement Annuities. Section 408 of the Code limits the amount
which may be contributed to an IRA each year to the lesser of $2,000 or 100%
of the policy owner's adjusted gross income. These contributions may be
deductible in whole or in part depending on the individual's income. The limit
on the amount contributed to an IRA does not apply to distributions from
certain other types of qualified plans that are "rolled over" on a tax-
deferred basis into an IRA. Amounts in the IRA (other than non-deductible
contributions) are taxed when distributed from the IRA. Distributions prior to
age 59 1/2 (unless certain
24
<PAGE>
exceptions apply) are subject to a 10% penalty tax. The Internal Revenue
Service has not addressed in a ruling of general applicability whether a death
benefit provision such as the provision in the policy meets IRA qualification
requirements.
Roth IRAs. Section 408A of the Code permits certain eligible individuals to
contribute to a Roth IRA. Contributions to a Roth IRA, which are subject to
certain limitations, are not deductible and must be made in cash or as a
rollover or transfer from another Roth IRA or other IRA. A rollover from or
conversion of an IRA to a Roth IRA may be subject to tax, and other special
rules may apply. You should consult a tax advisor before combining any
converted amounts with any other Roth IRA contributions, including any other
conversion amounts from other tax years. Distributions from a Roth IRA
generally are not taxed, except that--once aggregate distributions exceed
contributions to the Roth IRA--income tax and a 10% penalty tax may apply to
distributions made:
(a) before age 59 1/2 (subject to certain exceptions); or
(b) during the five taxable years starting with the year in which the first
contribution is made to any Roth IRA.
No distribution from a Roth IRA is required at any time before the policy
owner's death.
Deferred Compensation Plans. Section 457 of the Code provides for certain
deferred compensation plans available with respect to service for state
governments, local governments, political subdivisions, agencies,
instrumentalities and certain affiliates of such entities, and tax-exempt
organizations. These plans are subject to various restrictions on contributions
and distributions. Under non-governmental plans, all amounts are subject to the
claims of general creditors of the employer, and depending on the terms of the
particular plan, the employer may be entitled to draw on deferred amounts for
purposes unrelated to its Section 457 plan obligations.
All Policies. As noted above, the foregoing comments about the Federal tax
consequences under the policy are not exhaustive, and special rules apply to
other tax situations not discussed in this prospectus. Further, the Federal tax
consequences discussed herein reflect our understanding of current law, and the
law may change. Federal estate tax and state and local estate, inheritance and
other tax consequences of ownership or receipt of distributions under a policy
depend on the individual circumstances of each policy owner or recipient of a
distribution. A competent tax advisor should be consulted for further
information.
Historical Performance Data
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
We may advertise yields and total returns for the investment divisions of
the Variable Account. In addition, we may advertise the effective yield of the
money market investment division. These figures are historical and are not
intended to indicate future performance.
The yield of the money market investment division is the annualized income
generated by an amount invested in that option over a specified seven-day
period. We assume that the income generated for that seven-day period is
generated each seven-day period over a 52-week period. We show the result as a
percentage of the amount invested. We calculate the effective yield similarly
but assume that the income earned is reinvested every seven days. The
compounding effect of this assumed reinvestment causes the effective yield to
be slightly higher than the yield.
We calculate the total return of investment divisions for portfolios other
than the money market portfolio for various periods of time, including:
(a) one year;
(b) five years;
25
<PAGE>
(c) ten years; and
(d) the period starting when the investment division commenced operations.
The average annual total return is the annual compounded rate of return at
which an initial investment of $1,000 would have grown to reach to the
redeemable value of that investment at the end of each of the various
measurement periods. We may also disclose cumulative total returns and returns
for various time periods.
We may disclose performance figures that reflect the withdrawal charge, and
also figures that assume the policy is not surrendered and therefore do not
reflect any withdrawal charge.
The Statement of Additional Information has more information about
performance data calculations.
Voting Rights
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- --------------------------------------------------------------------------------
To the extent required by law, we will vote shares of Target/United Funds,
Inc. held by the Variable Account according to instructions received from
persons having voting interests in those variable investment divisions. If,
however, the 1940 Act or any regulation thereunder should be amended or if the
present interpretation thereof should change, or if we determine that we are
allowed to vote the Target/United Funds, Inc. shares in our own right, we may
elect to do so. Target/United Funds, Inc. does not hold regular annual
shareholder meetings.
The number of votes that you may direct to us to cast will be calculated
separately for each variable investment division. We will determine that number
by applying your percentage interest, if any, in a particular variable
investment division to the total number of votes attributable to that variable
investment division. Before the retirement date, you hold a voting interest in
each variable investment division to which policy value is allocated. After the
retirement date, the person receiving variable annuity payments has the voting
interest. After the retirement date, the votes attributable to a policy
decrease as the value of the variable investment divisions under your policy
decrease with each variable annuity payment. In determining the number of
votes, fractional shares will be recognized.
The number of votes for a portfolio which are available will be determined
as of the record date established by Target/United Funds, Inc. Voting
instructions will be solicited by written communication prior to such meeting
in accordance with procedures established by Target/United Funds, Inc.
Portfolio shares attributable to the policies for which no timely
instructions are received will be voted in proportion to the voting
instructions which are received with respect to all Advantage II policies
participating in the variable investment division. Voting instructions to
abstain on any item to be voted upon will be applied on a pro rata basis to
reduce the votes eligible to be cast.
Each person having a voting interest in a variable investment division will
receive proxy material, reports and other materials relating to the appropriate
portfolio of Target/United Funds, Inc.
Legal Proceedings
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- --------------------------------------------------------------------------------
There are no legal proceedings to which the Variable Account is a party to
or to which the assets of the Variable Account are subject. We are not involved
in any litigation that is of material importance in relation to its total
assets or that relates to the Variable Account.
Financial Statements
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Our financial statements and those for the Variable Account (as well as the
Auditors' Reports thereon) are in the Statement of Additional Information.
26
<PAGE>
Condensed Financial Information
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The following table gives "per unit" information about the financial history
of each variable investment division for the last ten years. This information
should be read in conjunction with the Variable Account's financial statements
(including the notes thereto) included in the Statement of Additional
Information.
ACCUMULATION UNIT VALUES
<TABLE>
<CAPTION>
Money High Inter- Small
Investment Market Bond Income Growth Income national Cap Balanced
Division: ---------- ---------- ---------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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(a) -- -- --
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(b) 1.202(b) 0.991(b)
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
January 1,
1998........... 1.592 2.189 2.506 4.388 2.666 1.399 2.211 1.578
December 31,
1998........... 1.658 2.329 2.532 5.537 3.201 1.856 2.429 1.700
<CAPTION>
Limited- Science
Term Asset and
Investment Bond Strategy Technology
Division: ------------ ------------- -------------
<S> <C> <C> <C>
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(b) -- --
January 1,
1995........... 0.997 -- --
December 31,
1995........... 1.129 1.012(c) --
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(d)
January 1,
1998........... 1.230 1.202 1.155
December 31,
1998........... 1.300 1.310 1.672
ACCUMULATION UNITS OUTSTANDING
<CAPTION>
Money High Inter- Small
Investment Market Bond Income Growth Income national Cap Balanced
Division: ---------- ---------- ---------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
December 31,
1998........... 31,698,628 47,362,351 48,355,147 143,565,102 246,348,082 87,048,577 71,391,390 52,558,411
<CAPTION>
Limited- Science
Term Asset and
Investment Bond Strategy Technology
Division: ------------ ------------- -------------
<S> <C> <C> <C>
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
December 31,
1998........... 3,396,477 10,190,875 19,514,662
</TABLE>
(a) Commencement of operations on July 16, 1991 at 1.000.
(c) Commencement of operations on
- -------- May 1, 1995 at 1.000.
(b) Commencement of operations on May 3, 1994 at 1.000.
(d) Commencement of operations on
April 4, 1997 at 1.000.
27
<PAGE>
Glossary
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Annuitant The annuitant is the individual whose life expectancy
determines the size of annuity payments and whose actual
lifetime may determine the duration of annuity payments.
- ------------------------------------------------------------------------------------
Beneficiary The beneficiary is the individual or individuals to whom the
death benefit is paid if the annuitant dies before the
retirement date.
- ------------------------------------------------------------------------------------
Business Day A business day is Monday through Friday, except for 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.
- ------------------------------------------------------------------------------------
Joint Annuitant The joint annuitant, if any, is a second individual whose
joint life expectancy with the annuitant determines the size
of annuity payments and whose actual lifetime with the
annuitant may determine the duration of annuity payments.
- ------------------------------------------------------------------------------------
Owner's Designated The owner's designated beneficiary (a joint owner, if any, or
Beneficiary the beneficiary named in the policy) is the individual who
becomes owner of the policy upon the death of an owner.
- ------------------------------------------------------------------------------------
Policy Year A policy year is a year that starts on the policy's effective
date or on a policy anniversary.
- ------------------------------------------------------------------------------------
Retirement Date The retirement date is the date on which annuity payments are
to start.
- ------------------------------------------------------------------------------------
We, Us, Our We are United Investors Life Insurance Company.
- ------------------------------------------------------------------------------------
You, Your You are the policy owner.
</TABLE>
28
<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 the Statement of Additional Information:
Table of Contents
<TABLE>
<S> <C>
The Policy.................................................................. 3
Accumulation Units........................................................ 3
Annuity Units............................................................. 3
Net Investment Factor..................................................... 4
Determination of Annuity Payments......................................... 4
Fixed Annuity Payments.................................................. 4
Variable Annuity Payments............................................... 5
The Contract.............................................................. 5
Misstatement of Age or Sex................................................ 6
Annual Report............................................................. 6
Non-Participation......................................................... 6
Delay or Suspension of Payments........................................... 6
Ownership................................................................. 6
Beneficiary............................................................... 7
Change of Owner or Beneficiary............................................ 7
Assignment................................................................ 7
Incontestability.......................................................... 7
Evidence of Survival...................................................... 7
Performance Data Calculations............................................... 7
Money Market Investment Division Yield Calculation........................ 7
Average Annual Total Return Calculations.................................. 8
Federal Tax Matters......................................................... 10
Taxation of United Investors.............................................. 10
Tax Status of the Policies................................................ 11
Required Distributions.................................................... 12
Withholding............................................................... 12
Addition, Deletion or Substitution of Investments........................... 12
Distribution of the Policy.................................................. 13
Safekeeping of Variable Account Assets...................................... 14
State Regulation............................................................ 14
Records and Reports......................................................... 14
Legal Matters............................................................... 14
Experts..................................................................... 15
Other Information........................................................... 15
Financial Statements........................................................ 15
</TABLE>
29
<PAGE>
United Investors Annuity Variable Account
Statement of Additional Information
-----------------------------------
for the
ADVANTAGE II(SM)
VARIABLE ANNUITY
Offered by
United Investors Life Insurance Company
This Statement of Additional Information expands upon subjects discussed in the
current Prospectus for the Advantage II(SM) Deferred Variable Annuity Policy
(the "Policy") offered by United Investors Life Insurance Company. You may
obtain a copy of the Prospectus dated May 1, 1999, 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, 1999
<PAGE>
TABLE OF CONTENTS
Corresponding
Page in
Page Prospectus
---- -------------
THE POLICY .............................................. 3 10
Accumulation Units .................................... 3
Annuity Units ......................................... 3
Net Investment Factor ................................. 4
Determination of Annuity Payments ..................... 4
Fixed Annuity Payments ............................. 4
Variable Annuity Payments .......................... 5
The Contract .......................................... 5
Misstatement of Age or Sex ............................ 6
Annual Report ......................................... 6
Non-Participation ..................................... 6
Delay or Suspension of Payments ....................... 6
Ownership ............................................. 6
Beneficiary ........................................... 7
Change of Ownership or Beneficiary .................... 7
Assignment ............................................ 7
Incontestability ...................................... 7
Evidence of Survival .................................. 7
PERFORMANCE DATA CALCULATIONS ........................... 7 25
Money Market Investment Division Yield Calculation .... 7
Average Annual Total Return Calculations .............. 8
FEDERAL TAX MATTERS ..................................... 10 22
Taxation of United Investors .......................... 10
Tax Status of the Policies ............................ 11
Required Distributions ................................ 12
Withholding ........................................... 12
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS ....... 12
DISTRIBUTION OF THE POLICY .............................. 13 21
SAFEKEEPING OF VARIABLE ACCOUNT ASSETS .................. 14
STATE REGULATION ........................................ 14
RECORDS AND REPORTS ..................................... 14
LEGAL MATTERS ........................................... 14 26
EXPERTS ................................................. 15
OTHER INFORMATION ....................................... 15
FINANCIAL STATEMENTS .................................... 15 26
- 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)
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.
- 3 -
<PAGE>
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;
(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
- 4 -
<PAGE>
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
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.
- 5 -
<PAGE>
Misstatement of Age or Sex
- --------------------------
If the Annuitant's age or sex is misstated, we will adjust each benefit and
any amount to be paid to reflect the correct age and sex.
Annual Report
- -------------
At least once each Policy Year prior to the Retirement Date we will send
you a report on your Policy. It will show the current Policy Value, the 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 U.S. Securities and Exchange Commission;
b) the U.S. 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.
Ownership
- ---------
The Policy belongs to you, the Policyowner. Unless you provide
- 6 -
<PAGE>
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. Your ability to assign a Qualified Policy may be restricted.
Incontestability
- ----------------
United Investors will not contest the Policy.
Evidence of Survival
- --------------------
Where any payments under the Policy depend on the payee being alive, we may
require proof of survival prior to making the payments.
PERFORMANCE DATA CALCULATIONS
-----------------------------
We may advertise the yield and effective yield of the Money Market
Investment Division. In addition, we may advertise the total returns for other
Investment Divisions 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
- 7 -
<PAGE>
current annualized yield of the Money Market Investment Division for a seven-day
period, it is required to be in a manner which does not take into consideration
any realized or unrealized gains or losses of the Money Market Portfolio or on
its portfolio securities. The current annualized yield is computed by
determining the net change (exclusive of realized gains and losses on the sale
of securities and unrealized appreciation and depreciation 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] - l
For the seven-day period ending December 31, 1998, the Money Market
Investment Division annualized yield was 3.31%. For the same period, the
effective yield was 3.37%.
The actual yield of the Money Market Investment Division is affected by:
(l) changes in interest rates on money market securities; (2) the average
portfolio maturity of the Money Market Portfolio; (3) the types and quality of
securities held by the Money Market Portfolio; and (4) its operating expenses.
The yield on amounts held in the Money Market Investment Division normally will
fluctuate on a daily basis. Therefore, the disclosed yields for any given past
period is not an indication or representation of future yields or rates of
return.
Average Annual Total Return Calculations
- ----------------------------------------
For each Investment Division of the Variable Account other than the Money
Market Investment Division an average annual total return may be calculated for
a given period. It is computed by finding the average annual compounded rate of
return over one, five and ten year periods (or, where an Investment Division has
been in existence for a period less than one, five or ten years, for such lesser
period) that would equate the initial amount
- 8 -
<PAGE>
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.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
Investment 1 Year to 5 Years to 10 Years to Inception to Inception
Division 12/31/98 12/31/98 12/31/98 12/31/98 Date
- ---------- --------- ---------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Asset Strategy 1.43% N/A N/A 5.86% 5/01/95
Balanced 0.16% N/A N/A 10.83% 5/03/94
Bond -1.15% 4.61% 7.21% 7.08% 7/13/87
Growth 18.65% 17.78% 17.10% 15.52% 7/13/87
High Income -6.50% 6.47% 7.78% 7.86% 7/13/87
Income 12.52% 16.93% N/A 16.21% 7/16/91
International 25.16% N/A N/A 13.00% 5/03/94
Limited-Term Bond -1.83% N/A N/A 4.44% 5/03/94
Science and Technology 37.23% N/A N/A 30.46% 4/04/97
Small Cap 2.34% N/A N/A 19.88% 5/03/94
</TABLE>
From time to time we may also disclose average annual total returns 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%.
- 9 -
<PAGE>
NON-STANDARD AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
Investment 1 Year to 5 Years to 10 Years to Inception to Inception
Division 12/31/98 12/31/98 12/31/98 12/31/98 Date
- ---------- --------- ---------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Asset Strategy 8.43% N/A N/A 7.02% 5/01/95
Balanced 7.16% N/A N/A 11.41% 5/03/94
Bond 5.85% 5.11% 7.21% 7.08% 7/13/87
Growth 25.65% 18.09% 17.10% 15.52% 7/13/87
High Income 0.50% 6.93% 7.78% 7.86% 7/13/87
Income 19.52% 17.25% N/A 16.26% 7/16/91
International 32.16% N/A N/A 13.54% 5/03/94
Limited-Term Bond 5.17% N/A N/A 5.16% 5/03/94
Science and Technology 44.23% N/A N/A 33.72% 4/04/97
Small Cap 9.34% N/A N/A 20.32% 5/03/94
</TABLE>
The performance information provided above reflects only the performance of
a hypothetical $1,000 payment which is allocated to the stated Investment
Division during the time period on which the calculations are based.
Performance information provided for any given past period is not an indication
or representation of future yields or rates of return.
The figures shown above do not reflect the "12b-l" service fee for periods
prior to the August 31, 1998 effective date of the Service Plan. If the Service
Plan had been in effect during the periods shown, returns would have been lower.
FEDERAL TAX MATTERS
-------------------
Taxation of United Investors
- ----------------------------
United Investors is taxed as a life insurance company under Part 1 of
Subchapter L of the Internal Revenue Code of 1986 (the "Code"). Since the
Variable Account is not an entity separate from United Investors 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
- 10 -
<PAGE>
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. United Investors does not control the Fund or the Portfolios'
investments. However, it has entered into an agreement regarding participation
in the Fund, which requires each Portfolio of the Fund to be operated in
compliance with the diversification requirements prescribed by the Treasury.
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for Federal income tax purposes, of the assets of the
separate account used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includible in the
variable contract owner's gross income. The IRS has stated in published rulings
that a variable contract owner will be considered the owner of separate account
assets if the contract owner possesses incidents of ownership in those assets,
such as the ability to exercise investment control over the assets. The
Treasury Department also announced, in connection with the issuance of
regulations concerning diversification, that those regulations "do not provide
guidance concerning the circumstances in which investor control of the
investments of a segregated asset account may cause the investor (i.e., the
Policyowner), rather than the insurance company, to be treated as the owner of
the assets in the account." This announcement also stated that guidance would
be issued by way of regulations or rulings on the "extent to which policyholders
may direct their investments to particular subaccounts without being treated as
owners of the 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
- 11 -
<PAGE>
considered the owner of a pro rata share of the assets of the Separate Account.
Required Distributions
- ----------------------
In order to be treated as an annuity contract for Federal income tax
purposes, Section 72(s) of the Code requires any nonqualified Policy to provide
that (a) if any Owner dies on or after the annuity 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.
If the Owner's designated Beneficiary is the surviving spouse of the Owner,
the Policy may be continued with the surviving spouse as the new Owner and no
distributions will be required.
Withholding
- -----------
Distributions from the Policy generally are subject to withholding for the
Owner's Federal income tax liability. The withholding rate varies according to
the type of distribution and the Owner's tax status. The Owner will be provided
the opportunity to elect to not have tax withheld from distributions.
"Eligible rollover distributions" from section 401(a) plans 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
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
- 12 -
<PAGE>
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 U.S. Securities
and Exchange Commission and the insurance regulator of the state where the
Policy was delivered, where required. Nothing contained herein shall prevent the
Variable Account from purchasing other securities for other series or classes of
policies, or from permitting a conversion between series or classes of policies
on the basis of requests made by Policyowners.
United Investors also reserves the right to establish additional Investment
Divisions of the Variable Account, each of which would invest in a new Portfolio
of the Fund, or in shares of another investment company or suitable investment,
with a specified investment objective. New Investment Divisions may be
established when, in the sole discretion of United Investors, marketing needs or
investment conditions warrant, and any new Investment Divisions will be made
available to existing Policyowners on a basis to be determined by United
Investors. United Investors may also eliminate one or more Investment Divisions
if, in its sole discretion, marketing, tax, or investment conditions warrant.
In the event of any such substitution or change, United Investors may, by
appropriate endorsement, make such changes in the Policies as may be necessary
or appropriate to reflect such substitution or change. If deemed by United
Investors to be in the best interests of persons having voting rights under the
Policies, the Variable Account may be operated as a management company under the
Investment Company Act of 1940, it may be deregistered under that Act in the
event such registration is no longer required, or it may be combined with other
United Investors separate accounts.
DISTRIBUTION OF THE POLICY
--------------------------
The Policies will be sold by individuals who, in addition to being licensed
as life insurance agents for United Investors, are also registered
representatives of Waddell & Reed, Inc. ("W&R"), the principal underwriter of
the Policies, or of broker-dealers who have entered into written sales
agreements with W&R. W&R is registered with the U.S. Securities and Exchange
Commission under the Securities Exchange Act of 1934 as a broker-dealer and is a
member of the National Association of Securities Dealers. The total commissions
paid by United Investors for the sale of the Policy were
- 13 -
<PAGE>
$17,967,189 during 1996, $17,930,576 during 1997, and $__,___,___ during 1998.
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.
SAFEKEEPING OF VARIABLE ACCOUNT ASSETS
--------------------------------------
United Investors holds the assets of the Variable Account. The assets are
kept physically segregated and held separate and apart from United Investors'
general account. United Investors maintains records of all purchases and
redemptions of Fund shares by each of the Investment Divisions.
STATE REGULATION
----------------
United Investors is subject to regulation by the Missouri Department of
Insurance. An annual statement is filed with the Missouri Department of
Insurance on or before March 1 of each year covering the operations and
reporting on the financial condition of United Investors as of December 31 of
the preceding year. Periodically, the Missouri Department of Insurance or other
authorities examine the liabilities and reserves of United Investors and the
Variable Account, and a full examination of United Investors' operations is
conducted periodically by the National Association of Insurance Commissioners.
In addition, United Investors is subject to the insurance laws and
regulations of other states within which it is licensed or may become licensed
to operate. Generally, the insurance department of any other state applies the
laws of the state of domicile in determining permissible investments. A Policy
is governed by the law of the state in which it is delivered. The values and
benefits of each Policy are at least equal to those required by such state.
RECORDS AND REPORTS
-------------------
All records and accounts relating to the Variable Account will be
maintained by United Investors. As presently required by the Investment Company
Act of 1940 and regulations promulgated thereunder, reports containing such
information as may be required under that Act or by any other applicable law or
regulation will be sent to Owners at their last known address of record.
LEGAL MATTERS
-------------
Legal advice regarding certain matters relating to Federal securities
- 14 -
<PAGE>
laws applicable to the issuance of the Policy described in the Prospectus have
been provided by Sutherland Asbill & Brennan LLP of Washington, D.C.
EXPERTS
-------
The balance sheets of United Investors Life Insurance Company as of
December 31, 1998 and 1997, 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, 1998 and the balance sheet of United Investors Annuity
Variable Account as of December 31, 1998 and the related statements of
operations and changes in net assets for each of the years in the two-year
period ended December 31, 1998 have been included herein in reliance upon the
report of ____________________, 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 U.S. Securities and
Exchange Commission under the Securities Act of 1933 as amended, with respect to
the Policies discussed in this Statement of Additional Information. Not all of
the information set forth in the Registration Statement, amendments and exhibits
thereto has been included in 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 U.S. Securities and Exchange
Commission.
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.
- 15 -
<PAGE>
PART C: OTHER INFORMATION
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements
--------------------
All required financial statements to be filed by amendment.
(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.\2\
(2) Custody Agreements: Not Applicable.
(3) (a) Principal Underwriting Agreement.\4\
(b) Broker-Dealer Sales Agreement.\5\
(c) Commission Schedule.\3\
(4) (a) Annuity Policy, Form VA92.\4\
(b) Annuity Policy, Form VA87.\1\
(c) Death Benefit Endorsement, Form DBEND.\6\
(d) Variable Annuity Endorsement, Form ENDVA.\6\
(e) Fixed Account Rider, Form FA95.\7\
(f) Death Benefit and Withdrawals Endorsement, Form VE98.\1\
(5) Application.\3\
(6) (a) Certificate of Incorporation of United Investors.\8\
(b) By-Laws of United Investors.\8\
(7) Reinsurance Contracts: Not Applicable.
(8) (a) Participation Agreement for TMK/United Funds, Inc.\9\
(b) Form of Administration Agreement: Not Applicable
(9) Opinion of Counsel.\10\
(10) (a) Consent of Sutherland Asbill & Brennan LLP.\10\
(b) Consent of Independent Auditors.\10\
(11) Financial statements omitted from Item 23: Not Applicable.
(12) Agreements/understandings for providing initial capital:
Not Applicable.
(13) Performance Data Calculations.\7\
- ---------------------------------
\1\ Filed herewith.
\2\ Incorporated herein by reference to the Exhibit filed electronically with
Post-Effective Amendment No. 14 to Form N-4 Registration Statement, File
No. 33-12000, filed on April 29, 1998 (previously filed on February 13,
1987 as an Exhibit to Form N-4 Registration Statement, File No. 33-12000).
\3\ Incorporated herein by reference to the Exhibit filed electronically with
Post-Effective Amendment No. 14 to Form N-4 Registration Statement, File
No. 33-12000, filed on April 29, 1998 (previously filed on May 27, 1987 as
an Exhibit to Pre-Effective Amendment No. 1 to Form N-4 Registration
Statement, File No. 33-12000).
\4\ Incorporated herein by reference to the Exhibit filed electronically with
Post-Effective Amendment No. 14 to Form N-4 Registration Statement, File
No. 33-12000, filed on April 29, 1998 (previously filed on April 15, 1992
as an Exhibit to Post-Effective Amendment No. 6 to Form N-4 Registration
Statement, File No. 33-12000).
\5\ Incorporated herein by reference to the Exhibit filed electronically with
Post-Effective Amendment No. 14 to Form N-4 Registration Statement, File
No. 33-12000, filed on April 29, 1998 (previously filed on April 28, 1993
as an Exhibit to Post-Effective Amendment No. 7 to Form N-4 Registration
C-1
<PAGE>
Statement, File No. 33-12000).
\6\ Incorporated herein by reference to the Exhibit filed electronically with
Post-Effective Amendment No. 14 to Form N-4 Registration Statement, File
No. 33-12000, filed on April 29, 1998 (previously filed on April 26, 1994
as an Exhibit to Post-Effective Amendment No. 9 to Form N-4 Registration
Statement, File No. 33-12000).
\7\ Incorporated herein by reference to the Exhibit filed electronically with
Post-Effective Amendment No. 11 to Form N-4 Registration Statement, File
No. 33-12000, filed on February 27, 1996.
\8\ Incorporated herein by reference to the Exhibit filed electronically with
Post-Effective Amendment No. 12 to Form S-6 Registration Statement, File
No. 33-11465, filed on April 30, 1998 (previously filed on January 22, 1987
as an Exhibit to the Form S-6 Registration Statement, File No. 33-11465).
\9\ Incorporated herein by reference to the Exhibit filed electronically with
Post-Effective Amendment No. 12 to Form S-6 Registration Statement, File
No. 33-11465, filed on April 30, 1998 (previously filed on April 15, 1992
as an Exhibit to Post-Effective Amendment No. 6 to Form N-4 Registration
Statement, File No. 33-12000).
\10\ To be filed by amendment.
Item 25. Directors and Officers of the Depositor
---------------------------------------
Name and Principal Position and Offices
Business Address* with Depositor
- ----------------- --------------
C. B. Hudson** Chairman of the Board of Directors and Chief
Executive Officer
Anthony L. McWhorter Director and President
W. Thomas Aycock Director, Vice President and Chief Actuary
Tony G. Brill** Director and Executive Vice President - Administration
Mark S. McAndrew** Senior Vice President - Marketing
Larry M. Hutchison** Director
Michael J. Klyce Vice President and Treasurer
John H. Livingston Director, Secretary and Counsel
James L. Mayton, Jr. Vice President and Controller
Carol A. McCoy Director and Assistant Secretary
Ross W. Stagner Director and Vice President
Terry W. Davis Director
- -------------------------
* 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 75070.
C-2
<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.
Parent State/Jurisdiction
Company Co. Code of Incorporation
- ------------------------------------------ -------- ------------------
American Income Life Insurance Co. A Indiana
American Life and Accident Insurance Co. A Texas
Brown-Service Funeral Homes Co., Inc. B Alabama
(Services burial insurance policies)
First United American Life Insurance Co. D New York
Globe Insurance Agency, Inc. A Arkansas
Globe Life And Accident Insurance Co. C Delaware
Globe Marketing Services Inc. A Oklahoma
Liberty National Auto Club, Inc. B Alabama
Liberty National GroupCare, Inc. B Alabama
Liberty National Life Insurance Co. C Alabama
Maxwell's Energy Company, Inc. C Alabama
Stonegate Management Company E Alabama
Stonegate Realty Company E Delaware
Torch Royalty Company B Delaware
Torchmark Corporation (holding company) Delaware
Torchmark Development Corporation C Alabama
United American Insurance Co. C Delaware
United Investors Life Insurance Co. B* Missouri
Waddell & Reed Asset Management Co. C Missouri
- -------------------------
* Parent company owns 81%; remaining 19% owned by Torchmark Corporation.
Parent Company Codes
- -----------------------------------------
A Globe Life And Accident Insurance Co.
B Liberty National Life Insurance Co.
C Torchmark Corporation
D United American Insurance Co.
E Torchmark Development Corporation
C-3
<PAGE>
Item 27. Number of Policy Owners
-----------------------
As of December 31, 1998, there were 40,251 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-4
<PAGE>
Item 29. Principal Underwriters
----------------------
(a) Waddell & Reed, Inc. ("W&R") is the principal underwriter of the Policies
as defined in the Investment Company Act of 1940, and is also the principal
underwriter for certain flexible premium variable life insurance policies
issued through United Investors Life Variable Account, United Investors
Universal Life Variable Account, and Target/United Funds, Inc.
(b) The following table provides certain information with respect to each
Director, officer and partner of each principal underwriter.
Name and Principal Positions and Offices
Business Address* With Underwriter
- ------------------ ---------------------
Keith A. Tucker Chairman and Director
--------
Robert L. Hechler President, Chief Executive Officer, Principal
Financial Officer, Director and Treasurer
--------
Henry J. Herrmann Director
--------
Helge K. Lee 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
David R. Burford Vice President
Steven E. Hermes Vice President
William D. Howey, Jr. Vice President
Terry M. Parker Vice President
- -------------------------
* The principal business address for the officers and Directors listed is
6300 Lamar Avenue, Overland Park, Kansas 66202-4200.
(c) Commissions Received By Principal Underwriter
---------------------------------------------
Net Underwriting
Name of Principal Discounts and Compensation
Underwriter Commissions on Redemption
- ------------------------ ---------------- -------------
Waddell & Reed, Inc. $21,171,510.98 -0-
Brokerage
Commissions Compensation
----------- ------------
-0- -0-
Item 30. Location of Accounts and Records
--------------------------------
All accounts and records required to be maintained by Section 31(a) of the
1940 Act and the rules under it are maintained by United Investors at its
administrative office.
C-5
<PAGE>
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.
STATEMENT PURSUANT TO RULE 6c-7
-------------------------------
United Investors and the Variable Account rely on 17 C.F.R. Sections
270.6c-7 and represent that the provisions of that Rule have been or will be
complied with. Accordingly, United Investors and the Variable Account are exempt
from the provisions of Sections 22(e), 27(c)(1) and 27(d) of the Investment
Company Act of 1940 with respect to any variable annuity contract participating
in such account to the extent necessary to permit compliance with the Texas
Optional Retirement Program.
SECTION 403(b) REPRESENTATIONS
------------------------------
United Investors represents that it is relying on a no-action letter
dated November 28, 1988, to the American Council of Life Insurance (Ref. No. IP-
6-88) regarding Sections 22(e), 27(c)(1), and 27(d) of the Investment Company
Act of 1940, in connection with redeemability restrictions on Section 403(b)
policies, and that paragraphs numbered (1) through (4) of that letter will be
complied with.
C-6
<PAGE>
SIGNATURES
----------
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has caused this Registration Statement to be signed on its
behalf in the City of Birmingham and the State of Alabama on the 23rd day of
February, 1999.
UNITED INVESTORS ANNUITY VARIABLE ACCOUNT
(REGISTRANT)
UNITED INVESTORS LIFE INSURANCE COMPANY
(DEPOSITOR)
By: /s/ Anthony L. McWhorter
------------------------------------
Anthony L. McWhorter
President
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ C. B. Hudson Chairman of the Board of Directors
- ---------------------- and Chief Executive Officer 2-23-99
C. B. Hudson
/s/ Anthony L. McWhorter Director and President 2-23-99
- ------------------------
Anthony L. McWhorter
/s/ W. Thomas Aycock Director, Vice President and 2-23-99
- ------------------------ Chief Actuary
W. Thomas Aycock
/s/ Tony G. Brill Director and Executive Vice 2-23-99
- ------------------------ President - Administration
Tony G. Brill
Senior Vice President - Marketing
- ------------------------ -------------------
Mark S. McAndrew
Director
- ------------------------ -------------------
Larry M. Hutchison
/s/ Michael J. Klyce Vice President and Treasurer 2-23-99
- ------------------------
Michael J. Klyce
/s/ James L. Mayton, Jr. Vice President and Controller 2-23-99
- ------------------------
James L. Mayton, Jr.
/s/ John H. Livingston Director, Secretary and Counsel 2-23-99
- ------------------------
John H. Livingston
/s/ Carol A. McCoy Director and Assistant Secretary 2-23-99
- ------------------------
Carol A. McCoy
/s/ Ross W. Stagner Director and Vice President 2-23-99
- ------------------------
Ross W. Stagner
/s/ Terry W. Davis Director 2-23-99
- ------------------------
Terry W. Davis
</TABLE>
<PAGE>
EXHIBIT INDEX
B4(B) Annuity Policy, Form VA87.
B4(F) Death Benefit and Withdrawals Endorsement, Form VE98
<PAGE>
Exhibit B4(B) Annuity Policy Form, VA87
UNITED INVESTORS LIFE INSURANCE COMPANY
A Missouri Stock Company
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.
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 Anthony L. McWhorter
Secretary President
ANNUITANT: JOHN DOE ISSUE AGE: 39 MALE
POLICY DATE: OCT 02, 1998 POLICY NUMBER: 1234567
RETIREMENT DATE: OCT 02, 2054 INITIAL PURCHASE
PAYMENT: 5,000.00
<PAGE>
GUIDE TO POLICY PROVISIONS
Section
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..............................................................10
1. DEFINITIONS
- ------------------------------------------------------------------------------
Annuitant - The person on whose life annuity payments depend.
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
<PAGE>
retirement date is shown under Policy Data, unless changed.
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 VA2
<PAGE>
2. POLICY DATA
- -------------------------------------------------------------------------------
ANNUITANT: JOHN DOE ISSUE AGE: 39 MALE
POLICY DATE: OCT 02, 1998 POLICY NUMBER: 1234567
RETIREMENT DATE: OCT 02, 2054 INITIAL PURCHASE
PAYMENT: $5,000
POLICY: DEFERRED VARIABLE ANNUITY
PARTIAL WITHDRAWAL WAITING PERIOD: ONE YEAR
MINIMUM INITIAL PURCHASE PAYMENT: $5,000
MINIMUM ADDITIONAL PURCHASE PAYMENTS: $1,000 EACH PAYMENT
MAXIMUM TOTAL PURCHASE PAYMENTS: $5,000
MAXIMUM NUMBER OF PURCHASE
PAYMENTS PER POLICY YEAR NO MAXIMUM
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 THE INITIAL PURCHASE
PAYMENT ON EACH OF THE FIRST
TEN POLICY ANNIVERSARIES
ADMINISTRATIVE EXPENSES: $50 ON EACH POLICY ANNIVERSARY
MORTALITY AND EXPENSE RISK CHARGE: .002454% PER DAY, EQUIVALENT TO
.90% PER YEAR
DEDUCTION FROM EACH PURCHASE
PAYMENT FOR SALES EXPENSE:
INITIAL PAYMENT: NONE
ADDITIONAL PAYMENTS: 6.00%
DEDUCTION FOR PREMIUM TAXES: AS INCURRED
TABLE OF WITHDRAWAL CHARGE RATES
- ------------------------------------------------------------------------------
POLICY WITHDRAWAL
YEAR CHARGES
1 8% OF THE INITIAL PURCHASE PAYMENT
2 7% OF THE INITIAL PURCHASE PAYMENT
3 6% OF THE INITIAL PURCHASE PAYMENT
4 5% OF THE INITIAL PURCHASE PAYMENT
5 4% OF THE INITIAL PURCHASE PAYMENT
6 3% OF THE INITIAL PURCHASE PAYMENT
7 2% OF THE INITIAL PURCHASE PAYMENT
8 1% OF THE INITIAL PURCHASE PAYMENT
THEREAFTER 0% OF THE INITIAL PURCHASE PAYMENT
In no event will more than the initial purchase payment be subject to withdrawal
charges.
PAGE 4 VA3
<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.
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%. You may allocate your payments to no more
than four investment divisions.
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.
On the policy date: The initial net purchase payment, plus any accrued interest,
will be allocated to the Money Market Investment Division.
At the end of the "Free Look" period: 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:
1. they do not exceed the maximum number of purchase payments per policy year
shown under Policy Data; and
2. they equal or exceed the minimum amount shown under Policy Data.
On the date we receive an additional purchase payment, it will be allocated to
the investment divisions in the proportions that the value of each investment
division bears to the variable account value, unless otherwise specified.
MAXIMUM TOTAL PURCHASE PAYMENTS - Total purchase payments may not exceed the
maximum shown under Policy Data, unless we agree.
Page 5 VA6
<PAGE>
6. GENERAL PROVISIONS
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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 VA8
<PAGE>
7. OWNER AND BENEFICIARY
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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 VA9
<PAGE>
8. ANNUITY PROVISIONS
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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.
<PAGE>
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.
4. there may be an interest in no more than four investment divisions after
the reallocation.
Page 8 VA9
<PAGE>
ANNUITY TABLES
JOINT AND SURVIVOR MONTHLY ANNUITY PAYMENTS
PER $1,000 PROCEEDS APPLIED
FEMALE AGE
MALE
AGE 50 55 60 65 70
50 4.21 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 120 240
AGE NONE MONTHS MONTHS AGE NONE MONTHS MONTHS
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
<PAGE>
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
Page 9
<PAGE>
9. WITHDRAWALS
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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 are subject to 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 any partial
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 up to 10% of cumulative purchase payments
without a withdrawal charge.
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 will
apply to each additional withdrawal.
2. After 10% of cumulative purchase payments has been withdrawn in a policy
year, withdrawal charges will apply to excess withdrawals. The withdrawal
charge rates are shown in the Policy Data.
Maximum Amount of Withdrawal Charges - After the sum of all withdrawals on
which you have paid withdrawal charges equals the initial purchase payment,
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 initial purchase payment.
10. TERMINATION OF POLICY
- ------------------------------------------------------------------------------
Unless the full policy value less any withdrawal charges is withdrawn, the
policy will continue in force until the retirement date. If the full policy
value less any withdrawal charges is withdrawn, this policy will terminate.
Page 10 VA1091
<PAGE>
11. VARIABLE ACCOUNT VALUE
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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 - A deduction will be made on each of the first ten policy
anniversary dates prior to the retirement date for sales expenses equal to the
percentage of the initial purchase payment shown under Policy Data. In no event,
however, will the sum of annual deductions made for sales expenses, plus any
withdrawal charges you have paid, exceed 8.5% of the initial purchase payment.
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 VA11
<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
<PAGE>
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 VA12
<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 deregistered 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) $1,000; 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. You may
have value in no more than four investment divisions at any time. 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 B4(F)
DEATH BENEFIT AND WITHDRAWALS 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 greatest 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; or
3. if death occurs before the annuitant's attained age 75, the highest of the
policy values as of the eighth or sixteenth policy anniversaries, increased
by any subsequent purchase payments; less any amounts withdrawn; less any
withdrawal charges on amounts withdrawn; and less any transaction charges
since that anniversary.
We will compute the amount of death benefit as of the date the death benefit is
paid or applied under one of the annuity payment options.
The FREE WITHDRAWALS section of the WITHDRAWALS provision is deleted and
replaced with the following paragraphs.
Free Withdrawals -
Each policy year you may withdraw the Free Withdrawal Amount without a
withdrawal charge. The Free Withdrawal Amount is equal to the greater of:
1. 10% of the cumulative purchase payments; or
2. 10% of the policy value.
You may request up to 4 withdrawals per policy year without a transaction
charge. Any automatic partial withdrawals will not be charged a transaction
charge.
UNITED INVESTORS LIFE INSURANCE COMPANY
President
