11 We grew our life insurance sales and reduced our packaging and postage expenses; life insurance sales increased 10% and the associated expenses declined 2%. Per dollar of annualized premium issued, we spent $.63 in 2002, compared to $.71 in 2001. For the business issued in the last two years, underwriting margin is greater than for business issued earlier. As we go forward, we expect the overall underwriting margin to grow at a rate equal to or greater than the growth rate of our premium income. Going forward into 2003, although we don’t expect any further reductions in our per unit acquisition expenses, we do expect strong growth in sales, premium, and underwriting margin. Annualized premium issued increased 13% to $130 million. Premium income increased 10% to $337 million, and underwriting margin increased 7% to $79 million. Of our life distribution systems, American Income is not only our fastest growing, but also produces the highest underwriting margin, both in dollars and as a percentage of premium income. Going forward into 2003, expectations are for continued impressive growth in life insurance sales, premium, and underwriting margin. American Income is a “union label” company. Our sales force, with the endorsement of unions at the local level, markets insurance products to union members. At year end, our sales force included 1,975 producing agents, over 200 more agents than a year earlier. Annualized premium issued increased 35% to $103 million. Premium income increased 11% to $329 million, and underwriting margin increased 13% to $102 million. AMERICAN INCOME AGENCY OPERATION DIRECT RESPONSE OPERATION (In millions, except %) HEALTH  LIFE ANNUALIZED PREMIUM ISSUED 123 112 7 3 UNDERWRITING MARGIN: PREMIUM 316 289 22 18 POLICY OBLIGATIONS 155 49% 135 47% 18 80% 15 82% ACQUISITION EXPENSES 85 27% 82 29% 2 7% 1 8% UNDERWRITING MARGIN 76 24% 72 25% 3 13% 2 10% 2001 $ 2002 $ %* %* 2001 $ %* 2002 $ %* (In millions, except %) HEALTH  LIFE ANNUALIZED PREMIUM ISSUED 92 66 11 10 UNDERWRITING MARGIN: PREMIUM 277 247 52 50 POLICY OBLIGATIONS 94 34% 84 34% 20 38% 18 37% ACQUISITION EXPENSES 100 36% 92  37% 13 25% 12 25% UNDERWRITING MARGIN 83 30% 71 29% 19 37% 19 38% 2001 $ 2002 $ %* 2001 $ %* %* 2002 $ %* * PERCENT OF PREMIUM * PERCENT OF PREMIUM Letter to Shareholders • 2002 Annual Report