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Rule 497(e)
File Nos. 333-46389
811-08645
Prospectus SELECT TEN PLUS
FLEXIBLE PREMIUM VARIABLE ANNUITY*
issued by INTEGRITY LIFE INSURANCE COMPANY
This prospectus describes a flexible premium variable annuity offered by
Integrity Life Insurance Company, an indirect wholly owned subsidiary of ARM
Financial Group, Inc. The individual contracts and group certificates
(CONTRACTS) offered by this prospectus provide several types of benefits, some
of which have tax-favored status under the Internal Revenue Code of 1986, as
amended. The contracts are funded by Separate Account Ten. Contributions under
the contracts are allocated to the next available investment division of
Separate Account Ten. There is no sales load on the contracts.
Contributions to Separate Account Ten are allocated to its Select Ten Plus
Division March, Select Ten Plus Division June, Select Ten Plus Division
September, or Select Ten Plus Division December (each a SELECT TEN PLUS DIVISION
or a DIVISION, and collectively, the SELECT TEN PLUS DIVISIONS or the
DIVISIONS), which invest directly in securities. This prospectus describes the
contract, provides background information regarding Separate Account Ten and
provides information regarding the investment activities and operations of the
Divisions, including their investment policies.
We currently offer a Short Term Account (STA) in connection with contributions
to the Divisions. Contributions in the STA accumulate at a fixed interest rate
that we declare each calendar quarter, guaranteed never to be less than an
effective annual yield of 3%. YOUR CONTRIBUTIONS ARE HELD IN THE STA UNTIL THEY
ARE TRANSFERRED TO THE NEXT AVAILABLE SELECT TEN PLUS DIVISION. ALL ASSETS IN
THE STA ARE TRANSFERRED TO THE NEXT AVAILABLE SELECT TEN PLUS DIVISION ON A
QUARTERLY BASIS.
This prospectus contains information about the contracts that you should know
before investing. You should read this prospectus and any supplements, and
retain them for future reference.
For further information and assistance, you should contact our Administrative
Office at Integrity Life Insurance Company, P.O. Box 740074, Louisville,
Kentucky 40201-0074. The express mail address is Integrity Life Insurance
Company, 515 West Market Street, Louisville, Kentucky 40202-3319. You may also
call the following toll-free number: 1-800-325-8583.
Registration statements relating to the contracts, which include a Statement of
Additional Information (SAI) dated July 29, 1998, have been filed with the
Securities and Exchange Commission. The SAI is incorporated by reference into
this prospectus. A copy of the SAI is available free of charge by writing to or
calling our Administrative Office. A table of contents for the SAI follows the
table of contents for this prospectus.
* NOTE: CONTRACTS ISSUED IN THE STATE OF OREGON WILL BE SINGLE PREMIUM VARIABLE
ANNUITIES RATHER THAN FLEXIBLE PREMIUM VARIABLE ANNUITIES. ALL REFERENCES TO
FLEXIBLE CONTRIBUTIONS ARE SINGLE CONTRIBUTIONS FOR THIS STATE.
THE CONTRACTS ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF OR GUARANTEED BY ANY
BANK, NOR ARE THEY INSURED BY THE FDIC. THEY ARE SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is July 29, 1998.
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TABLE OF CONTENTS
PAGE
SECTION 1 - SUMMARY
Your Variable Annuity Contract . . . . . . . . . . . . . . . . . . . . . .5
Your Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
How Your Contract is Taxed . . . . . . . . . . . . . . . . . . . . . . . .5
Your Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Account Value and Cash Value . . . . . . . . . . . . . . . . . . . . . . .5
Charges and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Withdrawals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Your Initial Right to Revoke . . . . . . . . . . . . . . . . . . . . . . .6
Table of Annual Fees and Expenses. . . . . . . . . . . . . . . . . . . . .6
Financial Information. . . . . . . . . . . . . . . . . . . . . . . . . . .7
SECTION 2 - INTEGRITY AND SEPARATE ACCOUNT TEN
Integrity Life Insurance Company . . . . . . . . . . . . . . . . . . . . .8
Separate Account Ten . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Assets of Separate Account Ten . . . . . . . . . . . . . . . . . . . . . .8
Changes In How We Operate. . . . . . . . . . . . . . . . . . . . . . . . .8
SECTION 3 - YOUR INVESTMENT OPTIONS
The Select Ten Plus Divisions. . . . . . . . . . . . . . . . . . . . . . .9
Short Term Account . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
SECTION 4 - THE SELECT TEN PLUS DIVISIONS OF SEPARATE ACCOUNT TEN
Investment Strategy. . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Investment Objective and Policies. . . . . . . . . . . . . . . . . . . . 11
Performance Information. . . . . . . . . . . . . . . . . . . . . . . . . 12
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 5 - MANAGEMENT OF SEPARATE ACCOUNT TEN
Board of Managers of Separate Account Ten. . . . . . . . . . . . . . . . 16
The Investment Adviser . . . . . . . . . . . . . . . . . . . . . . . . . 16
The Sub-Adviser. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 6 - DEDUCTIONS AND CHARGES
Separate Account Charges . . . . . . . . . . . . . . . . . . . . . . . . 17
Annual Administrative Charge . . . . . . . . . . . . . . . . . . . . . . 17
Division Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
State Premium Tax Deduction. . . . . . . . . . . . . . . . . . . . . . . 17
Tax Reserve. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
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SECTION 7 - TERMS OF PINNACLE YOUR VARIABLE ANNUITY
Contributions Under Your Contract. . . . . . . . . . . . . . . . . . . . 18
Your Account Value . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Your Purchase of Units in Separate Account Ten . . . . . . . . . . . . . 18
How We Determine Unit Value. . . . . . . . . . . . . . . . . . . . . . . 19
Withdrawals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Assignments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Death Benefits and Similar Benefit Distributions . . . . . . . . . . . . 20
Annuity Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Annuities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Annuity Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Timing of Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
How You Make Requests and Give Instructions. . . . . . . . . . . . . . . 22
SECTION 8 - VOTING RIGHTS
How We Determine Your Voting Shares. . . . . . . . . . . . . . . . . . . 22
How Separate Account Ten Interests Are Voted . . . . . . . . . . . . . . 22
Separate Account Voting Rights . . . . . . . . . . . . . . . . . . . . . 22
SECTION 9 - TAX ASPECTS OF THE CONTRACTS
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Tax Status of Integrity. . . . . . . . . . . . . . . . . . . . . . . . . 23
Your Contract is an Annuity. . . . . . . . . . . . . . . . . . . . . . . 23
Taxation of Annuities Generally. . . . . . . . . . . . . . . . . . . . . 23
Distribution-at-Death Rules. . . . . . . . . . . . . . . . . . . . . . . 24
Diversification Standards. . . . . . . . . . . . . . . . . . . . . . . . 24
Tax-Favored Retirement Programs. . . . . . . . . . . . . . . . . . . . . 25
Individual Retirement Annuities. . . . . . . . . . . . . . . . . . . . 25
Tax Sheltered Annuities. . . . . . . . . . . . . . . . . . . . . . . . 25
Simplified Employee Pensions . . . . . . . . . . . . . . . . . . . . . 26
Corporate and Self-Employed (H.R. 10 and Keogh) Pension
and Profit Sharing Plans. . . . . . . . . . . . . . . . . . . . . . . 26
Deferred Compensation Plans of State and Local Governments and
Tax-Exempt Organizations. . . . . . . . . . . . . . . . . . . . . . . 26
Distributions Under Tax-Favored Retirement Programs. . . . . . . . . . . 26
Federal and State Income Tax Withholding . . . . . . . . . . . . . . . . 27
Impact of Taxes on Integrity . . . . . . . . . . . . . . . . . . . . . . 27
Transfers from the STA to the Divisions. . . . . . . . . . . . . . . . . 27
SECTION 10 - ADDITIONAL INFORMATION
Systematic Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . 28
Income Plus Withdrawal Program . . . . . . . . . . . . . . . . . . . . . 28
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
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SAI TABLE OF CONTENTS
Part 1 - Integrity and Custodian
Part 2 - Distribution of the Contracts
Part 3 - Investment Restrictions and Policies of the Select Ten Plus Divisions
Part 4 - Management of Separate Account Ten
Part 5 - Portfolio Transactions and Brokerage
Part 6 - Performance Information
Part 7 - Determination of Accumulation Unit Values
Part 8 - Determination of Annuity Unit Values
Part 9 - Financial Statements
If you would like to receive a copy of the Statement of Additional Information,
please complete the form below and send it to:
Administrative Office
Integrity Life Insurance Company
P.O. Box 740074
Louisville, KY 40201-0074
ATTN: Request for SAI of Separate Account Ten
Name:
--------------------------------------------
Address:
- -------------------------------------------------
City: State: Zip:
-------------------------------- --------- -----------------
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SECTION 1 -- SUMMARY
YOUR VARIABLE ANNUITY CONTRACT
In this prospectus, WE, OUR and US mean Integrity Life Insurance Company
(INTEGRITY), an indirect wholly owned subsidiary of ARM Financial Group, Inc.
(ARM). We offer individual variable annuity contracts. In certain states, we
offer certificates under a group variable annuity contract instead of contracts.
When we use the words contract or certificate, we are referring to both the
individual contracts and the group certificates.
You can invest for retirement by purchasing a contract if you properly complete
a Customer Profile form (an application or enrollment form may be required in
some states) and make a minimum initial contribution. In this prospectus, YOU
and YOUR mean the Annuitant, the person upon whose life the annuity benefit and
the death benefit are based, usually the Owner of the contract. If the Annuitant
does not own the contract, all of the rights under the contract belong to the
Owner until annuity payments begin. If a Joint Owner is named, the contract
rights are shared with the Owner. Contract changes or any transactions allowed
under the contract require both signatures. The rules governing distribution at
death apply when the first Owner dies. See "Distribution-at-Death Rules" in
Section 9.
Your retirement or endowment date (RETIREMENT DATE) will be no later than your
98th birthday or earlier, if required by law, unless you notify us of a
different date.
YOUR BENEFITS
Your contract provides an Account Value, an annuity benefit, and a death
benefit. See "Your Account Value," "Death Benefits and Similar Benefit
Distributions" and "Annuity Benefits" in Section 7.
Your benefits may be received under a contract subject to the usual rules for
taxation of annuities, including the tax-deferral of earnings until withdrawal.
The contract also can provide your benefits under certain tax-favored retirement
programs, which are subject to special rules covering such matters as
eligibility and contribution amounts. See Section 9, "Tax Aspects of the
Contracts" for detailed information.
HOW YOUR CONTRACT IS TAXED
Under current law, any increases in the value of your contributions to your
contract are tax deferred and will not be included in your taxable income until
withdrawn. See Section 9, "Tax Aspects of the Contracts."
YOUR CONTRIBUTIONS
The minimum initial contribution in most states is currently $1,000. Minimum
initial contribution for residents of Pennsylvania and South Carolina is $3,000.
Subsequent contributions of at least $100 can be made. Special rules for lower
minimum initial and subsequent contributions apply for certain tax-favored
retirement plans. See "Contributions Under Your Contract" in Section 7.
ACCOUNT VALUE AND CASH VALUE
The sum of your values in the Divisions and/or the STA is referred to as the
ACCOUNT VALUE. Your CASH VALUE is equal to your Account Value, reduced by the
pro rata portion of the annual administrative charge, if applicable. See
"Charges and Fees" below.
CHARGES AND FEES
If your Account Value is less than $50,000 as of the last day of any contract
year prior to your Retirement Date, an annual administrative expense charge of
$30 is deducted from your contract. See Section 6, "Deductions and Charges."
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A charge at an effective annual rate of 1.35% of the Account Value of the assets
in each Division is made daily. We make this charge to cover mortality and
expense risks (1.20%) and certain administrative expenses (.15%). The charge
will never be greater than an effective annual rate of 1.35% of the Account
Value of the assets in each Division. See Section 6, "Deductions and Charges."
Investment management fees and other expenses are deducted from amounts invested
in the Divisions. Investment management fees of a Division cannot be increased
without the consent of its shareholders. See "Table of Annual Fees and
Expenses" below and the discussion relating to the investment adviser and sub-
adviser in Section 5.
For providing investment management services to the Divisions, Integrity Capital
Advisors, Inc. (INTEGRITY CAPITAL ADVISORS) will receive a monthly fee based on
an annual rate of .50% of each Division's average daily net assets. Integrity
Capital Advisors will pay a portion of those fees to National Asset Management
Corporation (NATIONAL ASSET) for its services under a sub-advisory agreement at
an annual rate of .10% of the Divisions' average daily net assets up to $100
million and .05% of the Divisions' average daily net assets in excess of $100
million. Integrity Capital Advisors has guaranteed it will pay National Asset a
minimum sub-advisory fee of $25,000 during the Divisions' first year of
operations.
WITHDRAWALS
You may make an unlimited number of withdrawals from your contract as frequently
as you wish. Each withdrawal must be for at least $300. Most withdrawals made
by you prior to age 59-1/2 are also subject to a 10% federal tax penalty. In
addition, some tax-favored retirement programs limit withdrawals. See Section 9,
"Tax Aspects of the Contracts." For Pennsylvania and South Carolina residents,
a $3,000 minimum account balance is required to remain in your contract after
any withdrawal.
YOUR INITIAL RIGHT TO REVOKE
Within ten days after you receive your contract, you may cancel it by returning
it to our Administrative Office. The 10-day period may be extended if required
by state law. We will refund all your contributions with an adjustment for any
investment gain or loss on the contributions put into each Division from the
date units were purchased until the date your contract is received by us,
including any charges deducted. If state law instead requires a refund of your
contributions without any adjustment, we will return that amount to you.
TABLE OF ANNUAL FEES AND EXPENSES
<TABLE>
<CAPTION>
CONTRACT OWNER TRANSACTION EXPENSES
<S> <C>
Sales Load on Purchases...................................$0
Deferred Sales Load.......................................$0
Annual Administrative Charge (1)........................ $30
Annual Expenses of Separate Account Ten
(AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE) (2)
Mortality and Expense Risk Charge.......................1.20%
Administrative Expenses................................ .15%
-----
Total Separate Account Annual Expenses................. 1.35%
-----
-----
Division Annual Expenses After Reimbursement
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees (3)..................................... .50%
-----
Other Expenses (4)...................................... .35%
-----
Total Annual Expenses................................... .85%
-----
-----
</TABLE>
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(1) The annual administrative charge is $30. This charge applies only if the
Account Value is less than $50,000 at the end of any contract year prior to your
Retirement Date. See "Annual Administrative Charge" in Section 6.
(2) See "Separate Account Charges" in Section 6.
(3) Integrity Capital Advisors will pay a portion of its management fee to
National Asset for its services under a sub-advisory agreement at an annual rate
of .10% of the Divisions' average daily net assets up to $100 million and .05%
of the Divisions' average daily net assets in excess of $100 million. Integrity
Capital Advisors has guaranteed it will pay National Asset a minimum
sub-advisory fee of $25,000 during the Divisions' first year of operations.
(4) Integrity Capital Advisors has agreed to reimburse each Division for
operating expenses (excluding management fees) above an annual rate of .35% of
the Division's average net assets. Absent such reimbursement, Integrity Capital
Advisors estimates that operating expenses would be approximately .35%.
Integrity Capital Advisors has reserved the right to withdraw or modify its
policy of expense reimbursement for the Divisions, but has no current intention
to do so during 1998.
EXAMPLES
The examples below show the expenses that would be borne by the Annuitant per
$1,000 investment, assuming a $60,000 average contract value and a 5% annual
rate of return on assets.
CUMULATIVE EXPENSES PER $1,000 INVESTMENT WHETHER YOU ELECT THE NORMAL FORM OF
ANNUITY, SURRENDER OR CONTINUE YOUR CONTRACT AT THE END OF THE APPLICABLE
PERIOD:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Select Ten Plus Division - March $20.48 $63.20 $108.38 $233.07
Select Ten Plus Division - June $20.48 $63.20 $108.38 $233.07
Select Ten Plus Division - September $20.48 $63.20 $108.38 $233.07
Select Ten Plus Division - December $20.48 $63.20 $108.38 $233.07
</TABLE>
These examples assume the current level of fixed charges that are borne by
Separate Account Ten and the investment management fees and estimated other
expenses (after reimbursement) of the Divisions. ACTUAL DIVISION EXPENSES MAY
BE GREATER OR LESS THAN THOSE ON WHICH THESE EXAMPLES WERE BASED. The annual
rate of return assumed in the examples is not an estimate or guarantee of future
investment performance. The table also assumes an estimated $60,000 average
contract value, so that the administrative charge per $1,000 of net asset value
in Separate Account Ten is $0.50. Such per $1,000 charge would be higher for
smaller Account Values and lower for higher values.
The above table and examples are intended to assist your understanding of the
various costs and expenses that apply to your contract, directly or indirectly.
These tables reflect expenses of Separate Account Ten as well as those of the
Divisions. Premium taxes upon annuitization also may be applicable.
FINANCIAL INFORMATION
No condensed financial information is provided for any of the Divisions because
as of December 31, 1997, the Divisions had not commenced operations.
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SECTION 2 - INTEGRITY AND SEPARATE ACCOUNT TEN
INTEGRITY LIFE INSURANCE COMPANY
Integrity is a stock life insurance company organized under the laws of Ohio.
Its principal executive offices are located in Louisville, Kentucky. We are
authorized to sell life insurance and annuities in 45 states and the District of
Columbia. In addition to the contracts, we sell flexible premium annuity
contracts with underlying investment options, fixed single premium annuity
contracts, and flexible premium annuity contracts offering both traditional
fixed guaranteed interest rates along with fixed equity indexed options. We are
currently licensed to sell variable contracts in 45 states and the District of
Columbia. In addition to issuing annuity products, we have entered into
agreements with other insurance companies to provide administrative and
investment support for products to be designed, underwritten and sold by these
companies.
Integrity is an indirect wholly owned subsidiary of ARM. ARM specializes in the
asset accumulation business, providing retail and institutional customers with
products and services designed to serve the growing long-term savings and
retirement markets. At December 31, 1997, ARM had $6.9 billion of assets under
management.
Integrity is currently evaluating, on an ongoing basis, its computer systems and
the systems of other companies on which Integrity's operations rely to determine
if they will function properly with respect to dates in the year 2000 and
beyond. These activities are designed to ensure that there is no adverse effect
on Integrity's core business operations. While Integrity believes its planning
efforts are adequate to address its year 2000 concerns, there can be no
guarantee that the systems of other companies on which Integrity's operations
rely will be converted on a timely basis and will not have a material effect on
Integrity.
SEPARATE ACCOUNT TEN
Separate Account Ten is established and maintained under the insurance laws of
the State of Ohio. Separate Account Ten is registered with the Securities and
Exchange Commission (the SEC) under the Investment Company Act of 1940 (1940
ACT) as a management investment company. Registration with the SEC does not
involve any supervision by the SEC of the management or investment policies or
practices of Separate Account Ten.
ASSETS OF SEPARATE ACCOUNT TEN
Under Ohio law, we own the assets of Separate Account Ten and use them to
support the variable portion of your contract and other variable annuity
contracts. Annuitants under other variable annuity contracts will participate
in Separate Account Ten in proportion to the amounts relating to their
contracts. Separate Account Ten's assets supporting the variable portion of
these variable contracts may not be used to satisfy liabilities arising out of
any other business of ours. Under certain unlikely circumstances, one Division
may be liable for claims relating to the operations of another Division.
Income, gains and losses, whether or not realized, from assets allocated to
Separate Account Ten are credited to or charged against Separate Account Ten
without regard to our other income, gains or losses. We may permit charges owed
to us to stay in Separate Account Ten, and thus may participate proportionately
in Separate Account Ten. Amounts in Separate Account Ten in excess of reserves
and other liabilities belong to us, and we may transfer them to our general
account (GENERAL ACCOUNT).
CHANGES IN HOW WE OPERATE
We may modify how we or Separate Account Ten operates, subject to your approval
when required by the 1940 Act or other applicable law or regulation. You will be
notified if any changes result in a material change in the investments of a
Division. WE MAY:
- add Divisions to or remove Divisions from Separate Account Ten, combine two
or more Divisions within Separate Account Ten, or withdraw assets relating
to your contract from one Division and put them into another;
- register or end the registration of Separate Account Ten under the 1940
Act;
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- operate Separate Account Ten under the direction of a committee or
discharge such a committee at any time (the committee may be composed of a
majority of persons who are "interested persons" of Integrity under the
1940 Act);
- restrict or eliminate any voting rights of Owners or others who have voting
rights that affect Separate Account Ten;
- operate Separate Account Ten or one or more of the Divisions in any other
form the law allows. We may make any legal investments we wish. In
choosing these investments, we will rely on our own or outside counsel for
advice.
SECTION 3 - YOUR INVESTMENT OPTIONS
THE SELECT TEN PLUS DIVISIONS
Separate Account Ten is currently divided into four Divisions: March, June,
September and December. Each Division is a non-diversified investment company
which invests directly in securities. There can be no assurance that any
Division will meet its investment objective. Separate Account Ten may also
offer other securities which are not available through the purchase of the
contracts offered by this prospectus.
Integrity Capital Advisors serves as investment adviser of the Divisions and
National Asset serves as the sub-adviser of the Divisions. For providing
investment management services to the Divisions, Integrity Capital Advisors will
receive a monthly fee based on an annual rate of .50% of each Division's average
daily net assets. Integrity Capital Advisors will pay a portion of those fees
to National Asset for its services under a sub-advisory agreement at an annual
rate of .10% of the Divisions' average daily net assets up to $100 million and
.05% of the Divisions' average daily net assets in excess of $100 million.
Integrity Capital Advisors has guaranteed it will pay National Asset a minimum
sub-advisory fee of $25,000 during the Divisions' first year of operations.
Integrity Capital Advisors has agreed to reimburse each Division for operating
expenses (excluding management fees) above an annual rate of .35% of the
Division's average net assets. Integrity Capital Advisors has reserved the
right to withdraw or modify its policy of expense reimbursement for the
Divisions, but has no current intention to do so during 1998.
FOR COMPLETE INFORMATION ABOUT THE SELECT TEN PLUS DIVISIONS, INCLUDING THE
RISKS ASSOCIATED WITH THEIR INVESTMENTS, SEE "INVESTMENT STRATEGY," "INVESTMENT
OBJECTIVE AND POLICIES," AND "RISK FACTORS" IN SECTION 4.
SHORT TERM ACCOUNT
A Short Term Account (STA) is used in connection with contributions to the
Divisions. The STA guarantees an interest rate that we declare in advance for
each calendar quarter. This interest rate applies to all contributions within
the STA at the time the rate is declared. We guarantee that the STA's effective
annual yield will never be less than 3.0%. The STA may not be currently
available in some states.
New contributions to a Select Ten Plus Division are held in the STA until the
day preceding the next available Investment Date, as described in "Investment
Strategy" in Section 4. All assets in the STA are transferred to the next
available Select Ten Plus Division on a quarterly basis. Transfers into the STA
from the Divisions are not permitted. We reserve the right to hold new
contributions received less than five Business Days before any Investment Date
in the STA until the next following Investment Date.
SECTION 4 -- THE SELECT TEN PLUS DIVISIONS OF SEPARATE ACCOUNT TEN
INVESTMENT STRATEGY
The Divisions seek total return by acquiring the ten highest yielding stocks in
the Dow Jones Industrial Average (DJIA) in equal weights and holding them for
approximately twelve months, with each new Division commencing on the last
Business Day of each calendar quarter. At the end of each Division's twelve-
month period, the Division's portfolio is restructured
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to again hold the ten highest yielding stocks in the DJIA in equal weights for
the next twelve months. Separate Account Ten may have different investment
portfolios, i.e., the four Divisions, operating simultaneously for their
respective twelve-month periods.
New contributions and transfers to each of the four Divisions will be invested
on only one day of each year (the "Investment Date"), as follows:
DIVISION INVESTMENT DATE
-------- ---------------
Select Ten Plus Division - March last Business Day of March
Select Ten Plus Division - June last Business Day of June
Select Ten Plus Division - September last Business Day of September
Select Ten Plus Division - December last Business Day of December
The term "equal weights" means that if you invested $100 in a Division, the
Division would buy $10 of each of the ten highest yielding stocks. The term
"highest yielding stocks" means the yield for each stock calculated by
annualizing the last quarterly or semi-annual ordinary dividend distributed on
that stock and dividing the result by the market value of that stock as of the
close of the NYSE on the Business Day prior to the Investment Date. This rate
is historical, and there is no assurance that any dividends will be declared or
paid in the future on the stocks in the Divisions.
The weights of the individual stock positions will not be rebalanced during the
year, nor will additional contributions be accepted during any Division's
twelve-month holding period. Rather, additional contributions will be invested
on the next available Investment Date.
As discussed above, new contributions to a Division will be held in the STA
until the day preceding the next available Investment Date. Transfers into the
STA from the Divisions are not permitted. We reserve the right to hold
contributions received less than five Business Days before any Investment Date
in the STA until the next following Investment Date. See also "Short Term
Account" in Section 3.
Dividends from stocks in each Division's portfolio will be reinvested on the day
the dividend is received in additional shares of the stock that paid the
dividend.
Upon the receipt of a withdrawal request, approximately equal dollar amounts of
shares of each of the ten stocks will be sold, such that the total dollar amount
sold equals the amount of the withdrawal.
This investment strategy is based on three time-tested investment principles:
(1) time in the market is more important than timing the market; (2) the stocks
to buy are the ones everyone else is selling; and (3) dividends can be an
important part of total return. Investment in a number of companies with high
dividends relative to their stock prices is designed to increase a Division's
potential for higher returns. Investing in these stocks of the DJIA may be
effective as well as conservative because regular dividends are common for
established companies and dividends have accounted for a substantial portion of
the total return on stocks of the DJIA as a group. Each Division's return will
consist of a combination of capital appreciation and current dividend income.
There can be no assurance that the dividend rates on the selected stocks will be
maintained. Reduction or elimination of a dividend could adversely affect the
stock price as well.
To the extent any of the ten highest yielding stocks qualifying for a Division
are reasonably believed to receive 15% or more of their revenues from
securities-related activities, the Division will allocate a maximum of 5% of its
assets to each of those stocks, and will allocate the remainder of its assets
among the remaining stocks not so limited. Separate Account Ten has applied to
the SEC for exemptive relief from this limitation, but there is no assurance as
to when or if it will be granted.
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The Divisions follow a buy and hold investment strategy in contrast to the
frequent portfolio changes of a fund based on economic, financial and market
analyses. In this regard, adverse developments concerning a stock including the
adverse financial condition of the issuer, a failure to maintain a current
dividend rate, the institution of legal proceedings against the issuer, a
default under certain documents materially and adversely affecting the future
declaration of dividends, or a decline in the price or the occurrence of other
market or credit factors (including a public tender offer or a merger or
acquisition transaction) that might otherwise make retention of the stock
detrimental to the interest of investors, will generally not cause the Divisions
to dispose of a stock or cease buying it.
The DJIA consists of 30 common stocks chosen by the editors of THE WALL STREET
JOURNAL as representative of the New York Stock Exchange and of American
industry. The companies are highly capitalized in their industries and their
stocks are widely followed and held by individual and institutional investors.
Companies with an asterisk were the ten highest yielding stocks in the DJIA as
of the market close on June 30, 1998. The ten highest yielding stocks in the
DJIA are commonly known as the "Dogs of the Dow:"
Allied Signal Procter & Gamble
J.P. Morgan* American Express
Minnesota Mining & Manufacturing* International Paper*
DuPont Philip Morris*
Eastman Kodak* United Technologies
Goodyear Sears Roebuck
Johnson & Johnson Exxon*
IBM Hewlett-Packard
General Electric Coca-Cola
General Motors* Union Carbide
McDonald's Walt Disney
Chevron* AT&T*
Caterpillar* Travelers
Boeing Walmart
Merck Aluminum Co. of America
The designations "Dow Jones-Registered Trademark-," "Dow Jones Industrial
Average-SM-" and "DJIA-SM-" are the property of Dow Jones & Company, Inc. (DOW
JONES). Dow Jones is not affiliated with Integrity, has not participated in any
way in the creation of the Divisions or in the selection of stocks included in
the Divisions and has not reviewed or approved any information included in this
prospectus. The Divisions are not sponsored, endorsed, sold or promoted by Dow
Jones, and Dow Jones has no relationship whatsoever to the Divisions. The Dow
Jones Industrial Average-SM- is determined, composed and calculated by Dow Jones
without regard to the Divisions. Dow Jones is not responsible for and does not
participate in the determination of the timing of, prices at, or quantities of
the Divisions' shares to be issued or in the determination or calculation of the
equation by which the Divisions' shares are to be redeemed. Dow Jones has no
obligation or liability whatsoever in connection with the administration or
marketing of the Divisions.
INVESTMENT OBJECTIVE AND POLICIES
The Divisions seek total return by acquiring the ten highest dividend yielding
common stocks in the DJIA. "Highest yielding stocks" means the yield for each
stock calculated by annualizing the last quarterly or semi-annual ordinary
dividend distributed on that stock and dividing the result by the market value
of that stock as of the close of the NYSE on the Business Day prior to the
Investment Date. This yield is historical and there is no assurance that any
dividends will be declared or paid in the future on the stocks in the Divisions.
No leverage or borrowing is used (except that each Division may borrow up to 5%
of its total assets for temporary or emergency purposes) nor does any Division's
portfolio contain other kinds of securities to enhance yield.
The selection process is a straightforward, objective, mathematical application
that ignores any subjective factors concerning an issuer in the DJIA, an
industry or the economy generally. The application of the selection process may
cause a Division
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to own a stock that the sub-adviser does not recommend for purchase and, in
fact, the sub-adviser may have sell recommendations on a number of the stocks at
the time the stocks are selected for inclusion in a Division's portfolio.
Various theories attempt to explain why a common stock is among the ten highest
yielding stocks in the DJIA at any given time: (1) the issuer may be in
financial difficulty or out of favor in the market because of weak earnings or
performance or forecasts or negative publicity; (2) uncertainties relating to
pending or threatened litigation or pending or proposed legislation or
government regulation; (3) the stock may be a cyclical stock reacting to
national and international economic developments; or (4) the market may be
anticipating a reduction in or the elimination of the issuer's dividend. Some of
the foregoing factors may be relevant to only a segment of an issuer's overall
business yet the publicity may be strong enough to outweigh otherwise solid
business performance. In addition, companies in certain industries have
historically paid relatively high dividends.
PERFORMANCE INFORMATION
Performance data for the Divisions, including yield and total return of the
Divisions, may appear in advertisements or sales literature. Performance data
for any Division reflects only the performance of a hypothetical investment in
the Division during the particular time period on which the calculations are
based. Performance information should be considered in light of the investment
objective and policies of the Divisions and the market conditions during the
given time period. It should not be considered as a representation of
performance to be achieved in the future.
TOTAL RETURNS are based on the overall dollar or percentage change in value of a
hypothetical investment in a Division. Total return quotations reflect changes
in share price, the automatic reinvestment by the Division of all distributions
and the deduction of applicable contract charges and expenses. Total returns
also may be shown that do not take into account the annual administrative charge
applicable where the Account Value is less than $50,000 at the end of a contract
year.
A CUMULATIVE TOTAL RETURN reflects a Division's performance over a stated period
of time. An AVERAGE ANNUAL TOTAL RETURN reflects the hypothetical annually
compounded return that would have produced the same cumulative total return if
the Division's performance had been constant over the entire period. Because
average annual total returns tend to smooth out variations in a Division's
returns, you should recognize that they are not the same as actual year-by-year
results.
The Divisions may also advertise YIELD. These measures reflect the income
generated by an investment in the Division over a specified period of time. This
income is annualized and shown as a percentage. Yields do not take into account
capital gains or losses.
For a detailed description of the methods used to determine yield and total
return for the Divisions, see the SAI.
At December 31, 1997, the Select Ten Plus Divisions had not commenced
operations. However, the performance of the investment strategies for the
Divisions relative to other investment strategies can be demonstrated using
historical data.
The returns shown in the following tables reflect the historical performance of
a hypothetical investment in the Ten Highest Yielding Stocks in the DJIA and the
performance of the DJIA. They are not guarantees of future performance and
should not be used as predictors of returns to be expected in connection with
any Division. Stock prices (which will fluctuate in value) and dividends (which
may be increased, reduced or eliminated) can affect the returns. The strategy
has underperformed the DJIA certain years. Accordingly, there can be no
assurance that any Division will outperform the DJIA over the life of the
Division.
An investor in a Division would not necessarily realize as high a total return
on an investment in the stocks upon which the hypothetical returns are based for
the following reasons: the total return figures shown do not reflect insurance
charges, brokerage commissions, Division expenses or taxes, and the Divisions
are established at different times of the year. If the above-mentioned charges
were reflected in the hypothetical returns, the returns would be lower than
those presented here. See Section 6, "Deductions and Charges."
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<TABLE>
<CAPTION>
COMPARISON OF TOTAL RETURN (1)
TEN HIGHEST DIVIDEND
YEAR YIELDING STOCKS (2) DJIA
---- ------------------- ----
<S> <C> <C>
1973 3.9% (13.1)%
1974 (1.3)% (23.1)%
1975 55.9% 44.4%
1976 34.8% 22.7%
1977 0.9% (12.7)%
1978 (0.1)% 2.7%
1979 12.4% 10.5%
1980 27.2% 21.5%
1981 5.0% (3.4)%
1982 23.6% 25.8%
1983 38.7% 25.7%
1984 7.6% 1.1%
1985 29.5% 32.8%
1986 32.1% 26.9%
1987 6.1% 6.0%
1988 22.9% 16.0%
1989 26.5% 31.7%
1990 (7.6)% (0.4)%
1991 39.3% 23.9%
1992 7.9% 7.4%
1993 27.3% 16.8%
1994 4.1% 4.9%
1995 36.7% 36.4%
1996 27.9% 28.9%
1997 21.9% 24.9%
Cumulative 6,558% 2,042%
</TABLE>
- ----------------------------------
(1) Total Return represents the sum of the percentage change in market value of
each group of stocks between the first trading day of a period and the total
dividends paid on each group of stocks during the period divided by the opening
market value of each group of stocks as of the first trading day of a period.
Total Return does not take into consideration any commissions, expenses or
taxes. Total Return does not take into consideration any reinvestment of
dividend income. Over the twenty-five years listed above, the Ten Highest
Dividend Yielding Stocks in the DJIA achieved an average annual total return of
18.3%. In addition, over this period, the strategy achieved a greater average
annual total return than that of the DJIA, which was 13.0%. Although each
Division seeks to achieve a better performance than the DJIA as a whole, there
can be no assurance that a Division will achieve a better performance.
Performance may also be compared to the performance on the same basis as the S&P
500 Composite Price Stock Index or performance data from publications such as
Morningstar Publications, Inc. Source: BEATING THE DOW, by Michael O'Higgins
with John Downes, published by Harper Perennial, 1992. Used with permission of
the authors.
(2) The Ten Highest Dividend Yielding Stocks in the DJIA for any given year
were selected by ranking the dividend yields for each of the stocks in the
index, as of the beginning of that year, based upon an annualization of the last
quarterly or semi-annual regular dividend distribution (which would have been
declared in the preceding year) divided by that stock's market value on the
first trading day on the NYSE in that year.
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<TABLE>
<CAPTION>
HOW THE STRATEGY HAS PERFORMED
[Graphic mountain chart to be presented]
Ten Highest Dividend
YEAR YIELDING DJIA STOCKS DJIA INDEX
---- -------------------- ----------
<S> <C> <C>
1973 $ 10,390 $ 8,690
1974 10,255 6,683
1975 15,987 9,650
1976 21,551 11,840
1977 21,745 10,336
1978 21,723 10,616
1979 24,417 11,730
1980 31,058 14,252
1981 32,611 13,768
1982 40,308 17,320
1983 55,907 21,771
1984 60,155 22,010
1985 77,901 29,230
1986 102,908 37,092
1987 109,185 39,318
1988 134,188 45,609
1989 169,748 60,067
1990 156,848 59,827
1991 218,489 74,125
1992 235,749 79,610
1993 300,109 92,985
1994 312,413 97,541
1995 427,069 133,046
1996 546,221 171,496
1997 665,843 214,199
</TABLE>
The chart above represents a hypothetical investment of $10,000 in the DJIA and
the Ten Highest Dividend Yielding DJIA Stocks (but not the Divisions) from
January 1, 1973 through December 31, 1997 and should not be considered
indicative of future results. The chart assumes that all dividends during a year
are reinvested at the end of that year and does not reflect insurance charges,
commissions, expenses or taxes. The value of the ten highest dividend-yielding
DJIA stocks would have been $414,656 if the following fees and expenses had been
charged: annual insurance charges of 1.20%, management fees of .50%, insurance
company administrative fees of .15% and other expenses of .35%. There can be no
assurance that any of the Divisions will outperform the DJIA.
The calculations of total return assume the reinvestment of all dividends and
capital gains distributions at the end of the year. Investors should not rely
on the preceding financial information as an indication of the past or future
performance of the Divisions.
STANDARDIZED PERFORMANCE DATA
From time to time, Integrity may advertise historical total returns for the
Divisions. These figures will be calculated according to standardized methods
prescribed by the SEC. They will be based on historical earnings and are not
intended to indicate future performance.
The total return calculations for a Division do not reflect the effect of any
premium taxes that may be applicable to a particular contract. To the extent
that any or all of a premium tax is applicable to a particular contract, the
total return of that
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contract will be reduced. For additional information regarding total returns
calculated using the standard formats briefly summarized above, please refer to
the SAI, a copy of which may be obtained from our Administrative Office upon
request.
NON-STANDARDIZED PERFORMANCE DATA
Integrity may from time to time also advertise or disclose average annual total
return or other performance data in non-standard formats for a Division. The
non-standard performance data may make assumptions such as the amount invested
in a Division, differences in time periods to be shown, or the effect of partial
withdrawals or annuity payments and may also make other assumptions.
All non-standard performance data will be advertised only if the standard
performance data is also disclosed. For additional information regarding the
calculation of other performance data, please refer to the SAI, a copy of which
may be obtained from our Administrative Office upon request.
RISK FACTORS
An investment in a Division entails certain risks, including the risk that the
value of your investment will decline if the financial condition of the issuers
of the stocks becomes impaired or if the general condition of the stock market
worsens and the risk that holders of common stocks have generally inferior
rights to receive payments from the issuer in comparison with the rights of
creditors of, or holders of debt obligations or preferred stocks issued by, the
issuer. Moreover, common stocks do not represent an obligation of the issuer and
therefore do not offer any assurance of income or provide the degree of
protection of capital provided by debt securities. Common stocks in general may
be especially susceptible to general stock market movements and to volatile
increases and decreases in value as market confidence in and perceptions of the
issuers change. These perceptions are based on unpredictable factors including
expectations regarding government, economic, monetary and fiscal policies,
inflation and interest rates, economic expansion or contraction, and global or
regional political, economic or banking crises. Neither the investment adviser
nor the sub-adviser can predict the direction or scope of any of these factors.
Each Division is non-diversified and will invest a larger portion of its assets
in the securities of fewer issuers than diversified investment companies. As a
result, an investment in a Division may be subject to greater fluctuations in
value than an investment in a diversified investment company. In addition, a
Division may be concentrated in one or more of types of issuers. Concentration
may involve additional risk because of the decreased diversification of
economic, financial and market risks. Moreover, changing approaches to
regulation, particularly with respect to the environment or with respect to the
petroleum or tobacco industry, may have a negative impact on certain companies
represented in a Division's portfolio. Set forth below is a brief description
of certain risks associated with stocks which may be held by the Divisions.
Additional information is contained in the SAI.
Certain of the issuers of the stocks refine, market and transport oil and
related petroleum products. The principal risks faced by these companies include
the price and availability of oil, the level of demand for oil and petroleum
products, refinery capacity and operating margins, the cost of financing
required for exploration and expansion and increasing expenses necessary to
comply with environmental and other energy related laws and regulations. Oil
prices generally depend upon the available supply of crude oil and the
willingness and ability of companies to adjust production levels. Declining U.S.
crude oil production is likely to lead to increased dependence on foreign
sources of oil and to uncertain supply for refiners and the risk of
unpredictable supply disruptions. In addition, future scientific advances with
new energy sources could have an adverse impact on the petroleum and natural gas
industries.
INVESTMENT RESTRICTIONS
The Divisions are subject to investment restrictions that are described in the
SAI. Those investment restrictions, the investment objective, and any investment
policies identified as "fundamental" cannot be changed without a majority vote
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of the Owners. All other investment policies and practices described in this
prospectus and in the SAI are not fundamental, and may be changed by the Board
of Managers without Owner approval.
SECTION 5 -- MANAGEMENT OF SEPARATE ACCOUNT TEN
BOARD OF MANAGERS OF SEPARATE ACCOUNT TEN
The business and affairs of Separate Account Ten are managed under the direction
of a Board of Managers, which currently consists of four (4) members. The Board
of Managers has responsibility for the investment management related operations
of Separate Account Ten and matters arising under the 1940 Act. The Board of
Managers does not have responsibility for the payment of obligations under the
contracts and administration of the contracts. These matters are Integrity's
responsibility.
THE INVESTMENT ADVISER
Integrity Capital Advisors (formerly known as ARM Capital Advisors, Inc.) serves
as the investment adviser to Separate Account Ten pursuant to an investment
advisory agreement. Integrity Capital Advisors is a wholly owned subsidiary of
ARM and is registered as an investment adviser under the Investment Advisers Act
of 1940. Its offices are located at 515 West Market Street, Louisville,
Kentucky 40202.
Integrity Capital Advisors has overall responsibility, subject to the
supervision of the Board of Managers, for administering all operations of the
Divisions and for monitoring and evaluating the management of the assets of the
Divisions by the sub-adviser. Integrity Capital Advisors is also responsible
for monitoring and evaluating the sub-adviser on a periodic basis and will
consider its performance record with respect to the investment objective and
policies of the Divisions.
As investment adviser, Integrity Capital Advisors provides the overall business
management and administrative services necessary for each Division's operation.
Integrity Capital Advisors furnishes or procures on behalf of the Divisions the
services and information necessary to the proper conduct of the Divisions'
business. Integrity Capital Advisors also acts as liaison among the various
service providers to the Divisions, including the custodian, portfolio
accounting personnel, sub-adviser, counsel and auditors. Integrity Capital
Advisors is also responsible for ensuring that the Divisions operate in
compliance with applicable legal requirements and for monitoring the
sub-adviser for compliance with requirements under applicable law and with the
investment policies and restrictions of the Divisions.
Integrity Capital Advisors is authorized to exercise full investment discretion
and make all determinations with respect to the investment of each Division's
assets and the purchase and sale of securities for the Divisions in the event
that at any time a sub-adviser is not engaged to manage the assets of the
Divisions. In such event, Integrity Capital Advisors will be entitled to, in
addition to its usual compensation for services as investment adviser, a fee
that would otherwise be paid to the sub-adviser.
THE SUB-ADVISER
National Asset serves as the sub-adviser to the Divisions and in that capacity
provides investment advisory services for the Divisions including security
selection. Pursuant to the sub-advisory agreement, and subject to each
Division's investment objective and policies, National Asset makes all
determinations with respect to the investment of each Division's assets and the
purchase and sale of securities and other investments.
National Asset is a Kentucky corporation with executive offices at National City
Tower, Louisville, Kentucky 40202. Since its inception in 1979, National Asset
has provided customized investment management services to corporations,
governmental entities, foundations, endowments, and similar entities. As of
December 31, 1997, National Asset managed approximately $8.5 billion in assets.
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SECTION 6 -- DEDUCTIONS AND CHARGES
SEPARATE ACCOUNT CHARGES
Integrity deducts from the unit value every calendar day an amount equal to an
effective annual rate of 1.35% of the Account Value in the Divisions. This daily
expense rate cannot be increased without your consent. Various portions of this
total charge, as described below, pay for certain services to the Separate
Account and the contracts.
A daily charge equal to an effective annual rate of .15% of the value of each
Division is deducted for administrative expenses not covered by the annual
administrative charge described below. The daily administrative charge, like the
annual administrative charge, is designed to reimburse Integrity for expenses
actually incurred.
A daily charge equal to an effective annual rate of 1.20% of the value of each
Division is deducted for Integrity's assuming the expense risk (.85%) and the
mortality risk (.35%) under the contract. The expense risk is the risk that our
actual expenses of administering the contracts will exceed the annual
administrative expense charge. In this context, mortality risk refers to the
cost of insuring the risk Integrity takes that annuitants, as a class of
persons, will live longer than estimated and therefore require Integrity to pay
out more annuity benefits than anticipated. The relative proportion of the
mortality and expense risk charges may be modified, but the total effective
annual risk charge of 1.20% of the value of the Divisions may not be increased
on your contract.
Integrity may realize a gain from these daily charges to the extent they are not
needed to meet the actual expenses incurred.
ANNUAL ADMINISTRATIVE CHARGE
If your Account Value is less than $50,000 on the last day of any contract year
prior to the your Retirement Date, Integrity charges an annual administrative
charge of $30. This charge is deducted from your Account Value and will reduce
the number of units credited to you. The annual administrative charge will be
pro-rated based on the number of days that have elapsed in the contract year in
the event of the Annuitant's retirement, death, or termination of a contract
during a contract year.
REDUCTION OR ELIMINATION OF SEPARATE ACCOUNT OR ADMINISTRATIVE CHARGES
The separate account or administrative charges may be reduced or eliminated when
contract sales are made to individuals or to a group of individuals in such a
manner that results in savings of expenses. The entitlement to such a reduction
will be based on:
(1) the size and type of the group of individuals to whom the contract is
offered; and/or
(2) the amount of expected contribution.
Any reduction or elimination of the separate account or administrative charges
will not unlawfully discriminate against any person.
DIVISION CHARGES
The Divisions invest directly in securities and certain investment management
fees and other expenses are deducted directly from the Divisions. See "Table of
Annual Fees and Expenses" in Section 1, and Section 3, "Your Investment
Options."
STATE PREMIUM TAX DEDUCTION
Integrity will not deduct state premium taxes from your contributions before
applying the contributions to the Divisions, unless required to pay such taxes
under applicable state law. If the Annuitant elects an annuity benefit,
Integrity will deduct
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any applicable state premium taxes from the amount otherwise available for an
annuity benefit. State premium taxes, if applicable, currently range up to 4%.
TAX RESERVE
We have the right to make a charge in the future for taxes or for reserves set
aside for taxes, which will reduce the investment experience of the Divisions.
SECTION 7 -- TERMS OF YOUR VARIABLE ANNUITY
CONTRIBUTIONS UNDER YOUR CONTRACT
You can make contributions of at least $100 at any time up to the Annuitant's
Retirement Date. Your first contribution, however, cannot be less than $1,000.
Minimum initial contribution for residents of Pennsylvania and South Carolina
is $3,000 after any withdrawals. We will accept contributions of at least $50
for salary allotment programs. We have special rules for minimum contribution
amounts for tax-favored retirement programs. See "Tax-Favored Retirement
Programs" in Section 9.
We may limit the total contributions under one contract to $1,000,000 if you are
under age 76 or to $250,000 if you are over age 76. Once you reach eight years
before your Retirement Date, we may refuse to accept any contribution made for
you. Contributions may also be limited by various laws or prohibited by
Integrity for all Annuitants under the contract. If your contributions are made
under a tax-favored retirement program, we will not measure them against the
maximum limits set by law.
Contributions are applied to the next available Division and are used to pay
annuity and death benefits. Each contribution is credited as of the date we
have RECEIVED (as defined below) the contribution at our Administrative Office.
Contributions to the Select Ten Plus Divisions are subject to special rules
described in "Investment Strategy" in Section 4. Wire transfers of federal
funds are deemed received on the day of transmittal if credited to our account
by 3 p.m. Eastern Time, otherwise they are deemed received on the next Business
Day. Contributions by check or mail are deemed received not later than the
second Business Day after they are delivered to our Administrative Office. A
BUSINESS DAY is defined as any day that the New York Stock Exchange is open.
YOUR ACCOUNT VALUE
Your Account Value reflects various charges. See Section 6, "Deductions and
Charges." Annual deductions are made as of the last day of each contract year.
Charges against Separate Account Ten are reflected daily. Any amount allocated
to a Division will go up or down in value depending on the investment experience
of that Division. For contributions allocated to the Divisions, there are no
guaranteed values.
YOUR PURCHASE OF UNITS IN SEPARATE ACCOUNT TEN
Allocations to the Divisions are used to purchase units. On any given day, the
value you have in a Division is the unit value multiplied by the number of units
credited to you in that Division. The units of each Division have different unit
values.
The number of units purchased or redeemed (sold) in any Division is calculated
by dividing the dollar amount of the transaction by the Division's unit value,
calculated after the close of business that day. The number of units for a
Division at any time is the number of units purchased less the number of units
redeemed. The value of units of Separate Account Ten varies with the
performance of the securities held by the Divisions. The unit values also
change because of deductions and charges we make to Separate Account Ten. The
number of units credited to you, however, will not vary because of changes in
unit values. Units of a Division are purchased when you allocate new
contributions or transfer prior contributions to that Division. Units are
redeemed when you make withdrawals or transfer amounts from a Division. We also
redeem units to pay
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the death benefit when the Annuitant dies and to pay the annual administrative
charge. Please note that special rules apply to the timing of allocations to
the Select Ten Plus Divisions. See "Investment Strategy" in Section 4.
HOW WE DETERMINE UNIT VALUE
We determine unit values for each Division on the Valuation Date. The Valuation
Date for purposes of determining unit values is 4 p.m. Eastern Time on each day
the New York Stock Exchange is open for business.
We determine a net investment factor for each Division as follows:
- First, we take the value of the assets in the Division at the end of the
preceding period.
- Next, we add any investment income and capital gains, realized or
unrealized, credited to the assets during the current valuation period.
- Then, we subtract any capital losses, realized or unrealized, charged
against the assets during the current valuation period.
- Next, we subtract any amount charged against the Division for any taxes.
- Then, we divide this amount by the value of the assets in the Division at
the end of the preceding valuation period.
- Then we subtract the daily charge for management and investment advice for
each day in the valuation period and a daily charge for estimated operating
expenses for each day in the valuation period.
- Finally, we subtract a daily asset charge for each calendar day since the
last day on which a unit value was determined (for example, a Monday
calculation will include charges for Saturday and Sunday). The daily charge
is .00003721, which is an effective annual rate of 1.35%. This charge is
for the mortality risk, administrative expenses and expense risk assumed by
us under the contract.
Generally, this means that we adjust unit values to reflect what happens to the
Divisions, and also for the mortality and expense risk charge and any charge for
administrative expenses or taxes.
WITHDRAWALS
You may make an unlimited number of withdrawals from your contract as frequently
as you wish. The minimum withdrawal permitted is $300. For residents of
Pennsylvania and South Carolina a $3,000 minimum account balance is required to
remain in your contract after any withdrawal. Most withdrawals made by you
prior to age 59-1/2 are also subject to a 10% federal tax penalty. In addition,
some tax-favored retirement programs limit withdrawals. See Section 9, "Tax
Aspects of the Contracts" for further information regarding various tax
consequences associated with the contracts.
ASSIGNMENTS
You may not assign the contract as collateral or security for a loan, but an
Owner whose contract is not related to a tax-favored program may otherwise
assign the contract before the Annuitant's Retirement Date. An assignment of the
contract as a gift may, however, have adverse tax consequences. See Section 9,
"Tax Aspects of the Contracts." Integrity will not be bound by an assignment
unless it is in writing, and we have received it at the Administrative Office.
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DEATH BENEFITS AND SIMILAR BENEFIT DISTRIBUTIONS
We will pay a death benefit to the Annuitant's surviving beneficiary (or
beneficiaries, in equal shares) if the last Annuitant dies before annuity
payments have started. For contracts issued before the youngest Annuitant's
71st birthday, if the last Annuitant dies before annuity payments have started,
the death benefit is the higher of:
(a) the contract account value at the end of the business day on which we
receive due proof of death; or
(b) the total of all contributions, reduced on a pro rata basis for prior
withdrawals.
The amount of the reduction in (b) above will be determined by dividing the
amount of the withdrawal by the annuity account value on the transaction date
and multiplying this percentage by the then current death benefit. For
contracts issued on or after the youngest Annuitant's 71st birthday, if the last
Annuitant dies before annuity payments have started, the death benefit is the
contract account value at the end of the business day on which we receive due
proof of death.
Death benefits (and benefit distributions required because of a separate Owner's
death) can be paid in a lump sum or as an annuity. If no benefit option is
selected for the beneficiary at the Annuitant's death, the beneficiary can
select an option.
The beneficiary of the death benefit under a contract is selected by the Owner.
An Owner may change beneficiaries by submitting the appropriate form to the
Administrative Office. If no Annuitant's beneficiary survives the Annuitant,
then the death benefit is generally paid to the Annuitant's estate. No death
benefit will be paid after the Annuitant's death if there is a contingent
Annuitant. In that case, the contingent Annuitant becomes the new Annuitant
under the contract.
The maximum issue age for the Annuitant is 85 years old.
ANNUITY BENEFITS
All annuity benefits under your contract are calculated as of the Retirement
Date selected by you. The Retirement Date can be changed by written notice to
the Administrative Office any time prior to the Retirement Date. The Retirement
Date may be no later than your 98th birthday or earlier, if required by law. The
terms of the contracts applicable to the various retirement programs, along with
the federal tax laws, establish certain minimum and maximum retirement ages.
Annuity benefits may take the form of a lump sum payment or an annuity. A lump
sum payment will provide the Annuitant with the Cash Value under the contract,
shortly after the Retirement Date. The amount applied for the purchase of an
annuity benefit will be the Account Value, except that the Cash Value will be
the amount applied if the annuity benefit does not have a life contingency and
either the term is less than five years or the annuity can be commuted to a lump
sum payment.
ANNUITIES
Alternate forms of annuity benefits can provide for fixed or variable payments
which may be made monthly, quarterly, semi-annually or annually. Variable
payments will be funded through one or more Divisions. For any annuity, the
minimum amount applied to the annuity must be $2,000 and the minimum initial
payment must be at least $20.
If you have not already selected a form of annuity, we will send you, within six
months prior to your Retirement Date, an appropriate notice form on which you
may indicate the type of annuity you desire or confirm to us that the normal
form of annuity, as defined below, is to be provided. However, if we do not
receive a completed form from you on or before your Retirement Date, we will
deem the Retirement Date to have been extended until we receive your written
instructions at our Administrative Office. During such extension, the values
under your contract in the various Divisions will remain invested in such
Divisions and amounts remaining in Divisions will continue to be subject to the
investment risks associated with the Divisions. However, your Retirement Date
cannot be extended beyond your 98th birthday or earlier, if required by law. You
will receive a lump sum benefit if you do not make an election by such date.
We currently offer the following types of annuities:
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A PERIOD CERTAIN ANNUITY provides for fixed or variable payments, or both, to
the Annuitant or the Annuitant's beneficiary (the PAYEE) for a fixed period. The
amount is determined by the period selected. The Annuitant, or if the payee dies
before the end of the period selected, the payee's beneficiary, may elect to
receive the total present value of future payments in cash.
A PERIOD CERTAIN LIFE ANNUITY provides for fixed or variable payments, or both,
for at least the period selected and thereafter for the life of the payee or the
payee and another annuitant under a joint and survivor annuity. You may not
change or redeem the annuity once payments have begun. If the payee (or the
payee and the other annuitant under a joint and survivor annuity) dies before
the period selected ends, the remaining payments will go to another named payee
who may have the right to redeem the annuity and secure the present value of
future guaranteed payments in a lump sum. The NORMAL FORM OF ANNUITY is a fixed
life income annuity with 10 years of payments guaranteed, funded through our
General Account.
A LIFE INCOME ANNUITY provides fixed payments for the life of the payee or the
payee and another annuitant under a joint and survivor annuity. Once a life
income annuity is selected, the form of annuity cannot be changed or redeemed
for a lump sum payment by the Annuitant or any payee.
ANNUITY PAYMENTS
Fixed annuity payments will not change and are based upon annuity rates provided
in your contract. The size of payments will depend on the form of annuity that
was chosen and, in the case of a life income annuity, on the payee's age (or
payee and a joint annuitant in the case of a joint and survivor annuity) and sex
(except under most tax-favored retirement programs). If Integrity's current
annuity rates then in effect would yield a larger payment, those current rates
will apply instead of the tables.
Variable annuity payments are funded only in the Divisions through the purchase
of annuity units. The Division or Divisions selected cannot be changed after
annuity payments begin. The SAI provides further information concerning the
determination of annuity payments. The number of units purchased is equal to
the amount of the first annuity payment divided by the new annuity unit value
for the valuation period which includes the due date of the first annuity
payment. The amount of the first annuity payment is determined in the same
manner for a variable annuity as it is for a fixed annuity. The number of
annuity units stays the same for the annuity payment period but the new annuity
unit value changes to reflect the investment income and the realized and
unrealized capital gains and losses of the Division or Divisions selected, after
charges made against it. Annuity unit values assume a base rate of net
investment return of 5%, except in states which require a lower rate in which
case 3.5% will be used. The annuity unit value will rise or fall depending on
whether the actual rate of net investment return is higher or lower than the
assumed base rate. In the SAI, see "Determination of Annuity Unit Values."
If the age or sex of an annuitant has been misstated, any benefits will be those
which would have been purchased at the correct age and sex. Any overpayments or
underpayments made by us will be charged or credited with interest at the rate
of 6% per year. If we have made overpayments because of incorrect information
about age or sex, we will deduct the overpayment from the next payment or
payments due. We add underpayments to the next payment.
TIMING OF PAYMENT
We normally make payments from the Divisions within seven days after receipt of
the required form at our Administrative Office. Our action can be deferred,
however, for any period during which (1) the New York Stock Exchange has been
closed or trading on it is restricted; (2) sales of securities or determination
of the fair value of Separate Account Ten assets is not reasonably practicable
because of an emergency; or (3) the SEC, by order, permits Integrity to defer
action in order to protect persons with interests in the Separate Account Ten.
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HOW YOU MAKE REQUESTS AND GIVE INSTRUCTIONS
When you communicate in writing with our Administrative Office, use the address
on the first page of this prospectus. Your request or instruction cannot be
honored unless it is in proper and complete form. Whenever possible, use one of
our printed forms, which may be obtained from our Administrative Office.
SECTION 8 - VOTING RIGHTS
HOW WE DETERMINE YOUR VOTING SHARES
Owners with accumulation value in the Divisions have certain voting rights.
Each such owner will be given one vote for every $1.00 of accumulation value in
a Division with fractional interests counted, unless a different allocation of
voting rights is required under applicable law for an investment medium for
variable annuity contracts.
HOW SEPARATE ACCOUNT TEN INTERESTS ARE VOTED
Separate Account Ten's rules do not require Separate Account Ten to hold annual
meetings of owners of interests in Separate Account Ten, although special
meetings may be called for Separate Account Ten for purposes such as electing or
removing members of the Board of Managers, changing fundamental policies, or
approving a contract for investment advisory services. When required, "the vote
of a majority of the outstanding voting securities" of Separate Account Ten
means the lesser of:
(1) The holders of more than 50% of all votes entitled to be cast with
respect to Separate Account Ten; or,
(2) The holders of at least 67% of the votes which are present at a
meeting of such persons or represented by proxy.
We will determine the number of votes you can instruct us to vote 60 days or
less before Separate Account Ten's meeting.
SEPARATE ACCOUNT VOTING RIGHTS
Under the 1940 Act, certain actions (such as some of those described under
"Changes in How We Operate" in Section 2) may require Owner approval. In that
case, you will be entitled to a number of votes based on the value you have in
the Division, as described above under "How We Determine Your Voting Shares."
We will cast votes attributable to amounts we have in the Divisions in the same
proportions as votes cast by Owners.
SECTION 9 - TAX ASPECTS OF THE CONTRACTS
INTRODUCTION
The effect of federal income taxes on the amounts held under a contract, on
annuity payments, and on the economic benefits to the Owner, Annuitant, and the
beneficiary or other payee may depend on Integrity's tax status, on the type of
retirement plan, if any, for which the contract is purchased, and upon the tax
and employment status of the individuals concerned.
The following discussion of the federal income tax treatment of the contract is
not exhaustive, does not purport to cover all situations and is not intended to
be tax advice. It is based upon our understanding of the present federal income
tax laws as currently interpreted by the Internal Revenue Service (IRS) and
various courts. No representation is made regarding the likelihood of
continuation of the present federal income tax laws or of the current
interpretations by the IRS or the courts. Future legislation may affect annuity
contracts adversely. Moreover, no attempt has been made to consider any
applicable state or other tax laws. Because of the inherent complexity of such
laws and the fact that tax results will vary according to the particular
circumstances of the individual involved and, if applicable, the qualified plan,
any person contemplating the purchase of a contract, contemplating selection of
annuity payments under the contract, or receiving annuity payments under a
contract should consult a qualified tax adviser. INTEGRITY DOES NOT MAKE ANY
GUARANTEE REGARDING
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THE TAX STATUS, FEDERAL, STATE, OR LOCAL, OF ANY CONTRACT OR ANY TRANSACTION
INVOLVING THE CONTRACTS.
TAX STATUS OF INTEGRITY
Integrity is taxed as a life insurance company under Part I of Subchapter L of
the Internal Revenue Code of 1986, as amended (the CODE). Since Separate
Account Ten is not a separate entity from Integrity and its operations form a
part of Integrity, it will not be taxed separately as "regulated investment
companies" under Subchapter M of the Code. Investment income and realized
capital gains on the assets of Separate Account Ten are reinvested and taken
into account in determining the accumulation value. Under existing federal
income tax law, Separate Account Ten's investment income, including realized net
capital gains, is not taxed to Integrity. Integrity reserves the right to make
a deduction for taxes should they be imposed with respect to such items in the
future.
YOUR CONTRACT IS AN ANNUITY
Under the federal tax law, any individual can purchase an annuity with after-tax
dollars and exclude any annuity earnings in taxable income until an actual
distribution is taken from the annuity. Alternatively, the individual (or
employer) may purchase the annuity to fund a tax-favored retirement program
(contributions are with pre-tax dollars), such as an IRA or qualified plan.
Finally, the individual (or employer) may purchase the annuity to fund a Roth
IRA (contributions are with after-tax dollars and earnings are excluded in
taxable income at distribution).
This prospectus covers the basic tax rules that apply to an annuity purchased
directly with after-tax dollars, (NONQUALIFIED ANNUITY), and some of the special
tax rules which apply to an annuity purchased to fund a tax-favored retirement
program, (QUALIFIED ANNUITY). A qualified annuity may restrict your rights and
benefits in order to qualify for its special treatment under the federal tax
law.
TAXATION OF ANNUITIES GENERALLY
Section 72 of the Code governs the taxation of annuities. In general, an Owner
is not taxed on increases in value under a contract until some form of
withdrawal or distribution is made under the contract. However, under certain
circumstances, the increase in value may be subject to current federal income
tax. For example, corporations, partnerships, trusts and other non-natural
persons cannot defer the taxation of current income credited to the contract
unless an exception applies. In addition, if an Owner transfers an annuity as a
gift to someone other than a spouse (or divorced spouse), any increase in its
value will be taxed at the time of transfer. The assignment or pledge of any
portion of the value of a contract will be treated as a distribution of that
portion of the value of the contract.
Section 72 provides that the proceeds of a full or partial withdrawal from a
contract prior to the date on which annuity payments begin are treated first as
taxable income to the extent that the Account Value exceeds the "investment" or
"basis" in the contract and then as non-taxable recovery of the investment or
basis in the contract. Generally, the investment or basis in the contract
equals the contributions made by or on your behalf, less any amounts previously
withdrawn which were not treated as taxable income. Special rules may apply if
the contract includes contributions made prior to August 14, 1982 which were
rolled over to the contract in a tax-free exchange.
Once annuity payments begin, the Annuitant recovers a portion of the investment
tax-free from each payment. The non-taxable portion of each payment is based on
the ratio of the Annuitant's investment to his or her expected return under the
contract (exclusion ratio). The remainder of each payment will be ordinary
income.
After you have recovered your total investment, future payments are fully
included in income. If the Annuitant dies prior to recovering the total
investment, a deduction for the remaining basis will generally be allowed on the
Annuitant's final federal income tax return.
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Withholding of federal income taxes on all distributions may be required unless
the recipient who is eligible elects not to have any amounts withheld and
properly notifies Integrity of that election.
The taxable portion of a distribution is treated as ordinary income and is taxed
at ordinary income tax rates. In addition, a tax penalty of 10% applies to the
taxable portion of a distribution unless the distribution is: (1) on or after
the date on which the taxpayer attains age 59-1/2; (2) as a result of the death
of the Owner; (3) part of a series of substantially equal periodic payments (not
less frequently than annually) for the life (or life expectancy) of the taxpayer
or joint lives (or joint life expectancies) of the taxpayer and beneficiary; (4)
attributable to the taxpayer becoming disabled within the meaning of Code
Section 72(m)(7); (5) from certain qualified plans (note, however, other
penalties may apply); (6) under a qualified funding asset (as defined in Section
130(d) of the Code); (7) purchased by an employer on termination of certain
types of qualified plans and held by the employer until the employee separates
from service; (8) under an immediate annuity as defined in Code Section
72(u)(4); or (9) purchase of a first home (distribution up to $10,000,
applicable to IRAs only).
However, the withdrawal provisions of your contract still apply. See
"Withdrawals" in Section 7.
All annuity contracts issued by Integrity or its affiliates to one Annuitant
during any calendar year are treated as a single contract in measuring the
taxable income that results from surrenders and withdrawals under any one of the
contracts.
DISTRIBUTION-AT-DEATH RULES
Under Section 72(s) of the Code, in order to be treated as an annuity, a
contract must provide the following distribution rules: (a) if any Owner dies
on or after the Retirement Date and before the entire interest in the contract
has been distributed, then the remaining portion of such interest must be
distributed at least as quickly as the method in effect on the date of the
Owner's death; and (b) if any Owner dies before the Retirement Date, the entire
interest in the contract must be distributed within five years after the date of
the Owner's death. To the extent such interest is payable to a beneficiary,
however, such interest may be annuitized over the life of that beneficiary or
over a period not extending beyond the life expectancy of that beneficiary, so
long as distributions commence within one year after the Owner's death. If the
beneficiary is the spouse of the Owner, the contract (along with the deferred
tax status) may be continued in the name of the spouse as the Owner.
DIVERSIFICATION STANDARDS
Each Division will be required to adhere to regulations adopted by the Treasury
Department pursuant to Section 817(h) of the Code prescribing asset
diversification requirements for investment companies whose shares are sold to
insurance company separate accounts funding variable contracts. The investment
manager for the Divisions monitors the investments in order to comply with the
regulations to assure that the contracts continue to be treated as annuities for
federal income tax purposes.
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. In those circumstances, income and gains
from the separate account assets would be includable in the variable contract
owner's gross income. 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 Owner), 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." As of the date of
this prospectus, no such guidance has been issued.
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TAX-FAVORED RETIREMENT PROGRAMS
The contract is designed for use in connection with certain types of retirement
plans which receive favorable treatment under the Code. Numerous special tax
rules apply to the participants in such qualified plans and to the contracts
used in connection with such qualified plans. These tax rules vary according to
the type of plan and the terms and conditions of the plan itself. Owners,
Annuitants, and beneficiaries are cautioned that the rights of any person to any
benefits under qualified plans may be subject to the terms and conditions of the
plans themselves, regardless of the terms and conditions of the contract. In
addition, loans from qualified contracts, where allowed, are subject to a
variety of limitations, including restrictions as to the amount that may be
borrowed, the duration of the loan, and the manner in which the loans must be
repaid. (Owners should always consult their tax advisors and retirement plan
fiduciaries prior to exercising their loan privileges.) Also, special rules
apply to the time at which distributions must commence and the form in which the
distributions must be paid. THEREFORE, NO ATTEMPT IS MADE TO PROVIDE MORE THAN
GENERAL INFORMATION ABOUT THE USE OF CONTRACTS WITH THE VARIOUS TYPES OF
QUALIFIED PLANS.
Integrity reserves the right to change its administrative rules, such as minimum
contribution amounts, as needed to comply with the Code as to tax-favored
retirement programs.
Following are brief descriptions of various types of qualified plans in
connection with which Integrity may issue a contract.
TRADITIONAL INDIVIDUAL RETIREMENT ANNUITIES
Code Section 408(b) permits eligible individuals to contribute to an individual
retirement program known as a Traditional IRA. An individual who receives
compensation and who has not reached age 70-1/2 by the end of the tax year may
establish a Traditional IRA and make contributions up to the deadline for filing
his or her federal income tax return for that year (without extensions).
Traditional IRAs are subject to limitations on the amount that may be
contributed, the persons who may be eligible, and on the time when distributions
may commence. An individual may also rollover amounts distributed from another
Traditional IRA, Roth IRA or another tax-favored retirement program to a
Traditional IRA contract. Your Traditional IRA contract will be issued with a
rider outlining the special terms of your contract which apply to Traditional
IRAs. The Owner will be deemed to have consented to any other amendment unless
the Owner notifies us that he or she does not consent within 30 days from the
date we mail the amendment to the Owner.
ROTH INDIVIDUAL RETIREMENT ANNUITIES
Section 408(A) of the Code permits eligible individuals to contribute to an
individual retirement program known as a Roth IRA. An individual who receives
compensation may establish a Roth IRA and make contributions up to the deadline
for filing his or her federal income tax return for that year (without
extensions). Roth IRAs are subject to limitations on the amount that may be
contributed, the persons who are eligible to contribute, and on the time when a
tax-favored distribution may commence. An individual may also rollover amounts
distributed from another Roth IRA or Traditional IRA to a Roth IRA contract.
Your Roth IRA contract will be issued with a rider outlining the special terms
of your contract which apply to Roth IRAs. Any amendment made for the purpose
of complying with provisions of the Code and related regulations may be made
without consent of the Owner. The Owner will be deemed to have consented to any
other amendment unless the Owner notifies us that he or she does not consent
within 30 days from the date we mail the amendment to the Owner.
SIMPLE INDIVIDUAL RETIREMENT ANNUITIES
Currently, we do not issue Individual Retirement Annuities known as a "SIMPLE
IRA" as defined in Section 408(b) of the Code.
TAX SHELTERED ANNUITIES
Section 403(b) of the Code permits the purchase of tax-sheltered annuities (TSA)
by public schools and certain charitable, educational and scientific
organizations described in Section 501(c)(3) of the Code. The contract is not
intended to accept
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other than employee contributions. Such contributions are not includible in the
gross income of the employee until the employee receives distributions from the
contract. The amount of contributions to the TSA is limited to certain maximums
imposed by Code sections 403(b), 415 and 402(g). Furthermore, the Code sets
forth additional restrictions governing such items as transferability,
distributions and withdrawals. Any employee should obtain competent tax advice
as to the tax treatment and suitability of such an investment. Your contract
will be issued with a rider outlining the special terms which apply to a TSA.
SIMPLIFIED EMPLOYEE PENSIONS
Section 408(k) of the Code allows employers to establish simplified employee
pension plans (SEP-IRAS) for their employees, using the employees' IRAs for such
purposes, if certain criteria are met. Under these plans the employer may,
within specified limits, make deductible contributions on behalf of the
employees to IRAs. Employers intending to use the contract in connection with
such plans should seek competent advice. The SEP-IRA will be issued with a rider
outlining the special terms of the contract.
CORPORATE AND SELF-EMPLOYED (H.R. 10 AND KEOGH) PENSION AND PROFIT SHARING PLANS
Sections 401(a) and 403(a) of the Code permit corporate employers to establish
various types of tax-favored retirement plans for employees. The Self-Employed
Individuals' Tax Retirement Act of 1962, as amended, commonly referred to as
"H.R. 10" or "Keogh," permits self-employed individuals also to establish such
tax-favored retirement plans for themselves and their employees. Such
retirement plans may permit the purchase of the contract in order to provide
benefits under the plans. Employers intending to use the contract in connection
with such plans should seek competent advice. The Company reserves the right to
request documentation to substantiate that a qualified plan exists and is being
properly administered. Integrity does not administer such plans.
DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT
ORGANIZATIONS
Section 457 of the Code permits employees of state and local governments and
tax-exempt organizations to defer a portion of their compensation without paying
current taxes. The employees must be participants in an eligible deferred
compensation plan. To the extent the contracts are used in connection with an
eligible plan, employees are considered general creditors of the employer and
the employer as Owner of the contract has the sole right to the proceeds of the
contract. However, Section 457(g), as added by the Small Business and Jobs
Protection Act (SBJPA) of 1996, provides that on and after August 20, 1996, a
plan maintained by an eligible governmental employer must hold all assets and
income of the plan in a trust, custodial account, or annuity contract for the
exclusive benefit of participants and their beneficiaries. If the plan is in
existence on August 20, 1996, the employer need not establish a trust, custodial
account, or annuity contract until January 1, 1999. Loans to employees may be
permitted under such plans; however, a Section 457 plan is not required to allow
loans. Contributions to a contract in connection with an eligible government
plan are subject to limitations. Those who intend to use the contracts in
connection with such plans should seek competent advice. The Company reserves
the right to request documentation to substantiate that a qualified plan exists
and is being properly administered. Integrity does not administer such plans.
DISTRIBUTIONS UNDER TAX-FAVORED RETIREMENT PROGRAMS
Distributions from tax-favored plans are subject to certain restrictions. Prior
to the enactment of the 1996 SBJPA, distributions of minimum amounts specified
by the Code must have commenced by April 1 of the calendar year following the
calendar year in which the participant reaches age 70-1/2. The SBJPA provides
participants in qualified plans, with the exception of five-percent owners and
Traditional IRA holders, to begin receiving distributions by April 1 of the
calendar year following the later of either (i) the calendar year in which the
employee reaches age 70-1/2, or (ii) the calendar year in which the employee
retires. Additional distribution rules apply after the participant's death.
Failure to make mandatory distributions may result in the imposition of a 50%
penalty tax on any difference between the required distribution amount and the
amount distributed. Distributions to a participant from all plans (other than
457 plans) in a calendar year that exceed a specific limit under the Code are
generally subject to a 15% penalty tax (in addition to any ordinary income tax)
on the
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excess portion of the distributions. However, the SBJPA of 1996 has suspended
the excise tax on excess distributions. The provision relating to the excise
tax on excess distributions is effective with respect to distributions received
in 1997, 1998 and 1999.
The Taxpayer Relief Act of 1997 creating Roth IRAs eliminates mandatory
distribution at age 70-1/2 for Roth IRAs.
Distributions from a tax-favored plan (not including a Traditional IRA subject
to Code Section 408 or a Roth IRA) to an employee, surviving spouse, or former
spouse who is an alternate payee under a qualified domestic relations order, in
the form of a lump sum settlement or periodic annuity payments for a fixed
period of fewer than 10 years are subject to mandatory income tax withholding of
20% of the taxable amount of the distribution, unless (1) the distributee
directs the transfer of such amounts in cash to another plan or Traditional IRA;
or (2) the payment is a minimum distribution required under the Code. The
taxable amount is the amount of the distribution less the amount allocable to
after-tax contributions. All other types of taxable distributions are subject
to withholding unless the distributee elects not to have withholding apply.
We are not permitted to make distributions from a contract unless a request has
been made. It is therefore your responsibility to comply with the minimum
distribution rules. You should consult your tax adviser regarding these rules
and their proper application.
The above description of the federal income tax consequences of the different
types of tax-favored retirement plans which may be funded by the contract is
only a brief summary and is not intended as tax advice. The rules governing the
provisions of plans are extremely complex and often difficult to comprehend.
Anything less than full compliance with all applicable rules, all of which are
subject to change, may have adverse tax consequences. A prospective Owner
considering adoption of a plan and purchase of a contract in connection
therewith should first consult a qualified and competent tax adviser, with
regard to the suitability of the contract as an investment vehicle for the plan.
FEDERAL AND STATE INCOME TAX WITHHOLDING
When required, Integrity will withhold and remit to the U.S. Government a part
of the taxable portion of each distribution made under a contract unless the
distributee notifies Integrity at or before the time of the distribution of an
election not to have any amounts withheld. In certain circumstances, Integrity
may be required to withhold tax, as explained above. The withholding rates
applicable to the taxable portion of periodic annuity payments (other than
eligible rollover distributions) are the same as the withholding rates generally
applicable to payments of wages. In addition, the withholding rate applicable
to the taxable portion of non-periodic payments (including withdrawals prior to
the maturity date) is 10%. The withholding rate applicable to eligible rollover
distributions is 20% unless such distribution is paid directly to an eligible
retirement plan.
Certain states have indicated that pension and annuity withholding will apply to
payments made to residents. Generally, an election out of federal withholding
will also be considered an election out of state withholding. For more
information concerning a particular state, call our Administrative Office at the
toll-free number.
IMPACT OF TAXES ON INTEGRITY
The contracts provide that Integrity may charge Separate Account Ten for taxes.
Integrity can also set up reserves for taxes.
TRANSFERS FROM THE STA TO THE DIVISIONS
There is no tax liability for the transfer of your contributions from the STA to
a Division.
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SECTION 10 - ADDITIONAL INFORMATION
SYSTEMATIC WITHDRAWALS
We offer a program for systematic withdrawals that allows you to pre-authorize
periodic withdrawals from your contract prior to your Retirement Date. You may
choose to have withdrawals made monthly, quarterly, semi-annually or annually
and may specify the day of the month (other than the 29th, 30th or 31st) on
which the withdrawal is to be made. You may specify a dollar amount for each
withdrawal or an annual percentage to be withdrawn. The minimum systematic
withdrawal currently is $100. For residents of Pennsylvania, South Carolina and
Washington State a $3,000 minimum account balance is required to remain in your
Contract after any withdrawals. You may also specify an account for direct
deposit of your systematic withdrawals. To enroll under our systematic
withdrawal program, you must deliver the appropriate administrative form to our
Administrative Office. Withdrawals may begin not less than one business day
after our receipt of the form. You or we may terminate your participation in the
program upon one day's prior written notice, and we may terminate or amend the
systematic withdrawal program at any time. If on any withdrawal date you do not
have sufficient values to make all of the withdrawals you have specified, no
withdrawals will be made and your enrollment in the program will be ended.
WITHDRAWALS MAY BE SUBJECT TO THE 10% FEDERAL TAX PENALTY FOR EARLY WITHDRAWALS
UNDER THE CONTRACTS AND TO INCOME TAXATION. See Section 9, "Tax Aspects of the
Contracts."
INCOME PLUS WITHDRAWAL PROGRAM
We offer the Income Plus Withdrawal Program that allows you to pre-authorize
substantially equal periodic withdrawals, based on your life expectancy, from
your contract prior to your reaching age 59-1/2. Income Plus Withdrawals are
exempt from the 10% penalty tax, normally applicable to early distributions made
prior to age 59-1/2, but remain subject to ordinary income tax. See "Taxation
of Annuities Generally," in Section 9. Once distributions begin they should not
be changed or stopped until the later of age 59-1/2 or five years from the date
of the first distribution. If you change or stop the distribution or take an
additional withdrawal, you may be liable for the 10% penalty tax that would have
otherwise been due on all prior distributions made under the Income Plus
Withdrawal Program and for any interest thereon.
The Income Plus Withdrawal Program may be elected at any time if you are below
age 59-1/2. You can elect this option by submitting the proper election form to
our Administrative Office. You may choose to have withdrawals made monthly,
quarterly, semi-annually or annually and may specify the day of the month (other
than the 29th, 30th or 31st) on which the withdrawal is to be made. We will
calculate the amount of the distribution under a method selected by you. The
minimum Income Plus Withdrawal currently is $100. You must also specify an
account for direct deposit of your Income Plus Withdrawals.
To enroll under our Income Plus Withdrawal Program, you must deliver the
appropriate administrative form to our Administrative Office. Withdrawals may
begin not less than one Business Day after our receipt of the form. You or we
may terminate your participation in the program upon seven Business Days prior
written notice, and we may terminate or amend the Income Plus Program at any
time. If on any withdrawal date you do not have sufficient values to make all
of the withdrawals you have specified, no withdrawals will be made and your
enrollment in the program will be ended. This program is not available in
concert with the Short Term Account.
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STATEMENT OF ADDITIONAL INFORMATION RULE 497(e)
FILE NOS. 333-46389
JULY 29, 1998 811-08645
FOR
SELECT TEN PLUS
FLEXIBLE PREMIUM VARIABLE ANNUITY
ISSUED BY
INTEGRITY LIFE INSURANCE COMPANY
AND
FUNDED THROUGH SEPARATE ACCOUNT TEN
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
Part 1 - Integrity and Custodian . . . . . . . . . . . . . . . . . . . . . . . . . .1
Part 2 - Distribution of the Contracts . . . . . . . . . . . . . . . . . . . . . . .3
Part 3 - Investment Restrictions and Policies of the Select Ten Plus Divisions . . .3
Part 4 - Management of Separate Account Ten. . . . . . . . . . . . . . . . . . . . .5
Part 5 - Portfolio Transactions and Brokerage. . . . . . . . . . . . . . . . . . . .7
Part 6 - Performance Information . . . . . . . . . . . . . . . . . . . . . . . . . .8
Part 7 - Determination of Accumulation Unit Values . . . . . . . . . . . . . . . . 11
Part 8 - Determination of Annuity Unit Values. . . . . . . . . . . . . . . . . . . 11
Part 9 - Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
This Statement of Additional Information (SAI) is not a prospectus. It should
be read in conjunction with the prospectus for the contracts, dated July 29,
1998. For definitions of special terms used in the SAI, please refer to the
prospectus.
A copy of the prospectus to which this SAI relates is available at no charge by
writing the Administrative Office at Integrity Life Insurance Company
(Integrity), P.O. Box 740074, Louisville, Kentucky 40201-0074, or by calling
1-800-325-8583.
PART 1 - INTEGRITY AND CUSTODIAN
Integrity is an Ohio stock life insurance company that sells life insurance and
annuities. Its principal executive offices are located at 515 West Market
Street, Louisville, Kentucky, 40202. Integrity, the depositor of Separate
Account Ten, is a wholly owned subsidiary of Integrity Holdings, Inc., a
Delaware corporation which is a holding company engaged in no active business.
Integrity owns 100% of the stock of National Integrity Life Insurance Company, a
New York stock life insurance corporation. All outstanding shares of Integrity
Holdings, Inc. are owned by ARM Financial Group, Inc. (ARM), a Delaware
corporation which is a financial services company focusing on the long-term
savings and retirement marketplace by providing retail and institutional
products and services throughout the United States. ARM owns 100% of the stock
of (i) ARM Securities Corporation (ARM SECURITIES), a Minnesota corporation,
registered with the SEC as a broker-dealer and a member of the National
Association of Securities Dealers, Inc., (ii) Integrity Capital Advisors, Inc.,
a New York corporation registered with the SEC as an investment adviser, (iii)
SBM Certificate Company, a Minnesota corporation registered with the SEC as an
issuer of face-amount certificates, and (iv) ARM Transfer Agency, Inc., a
Delaware corporation registered with the SEC as a transfer and dividend
disbursing agency.
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In June 1997, ARM completed an initial public offering (the "Offering") of
9.2 million shares of Class A common stock, par value of $.01 per share (the
"New Class A Common Stock"), of which 5.75 million shares were sold by ARM
and 3.45 million shares were sold by the Morgan Stanley Stockholders (as
defined below). Concurrent with the closing of the Offering, ARM amended and
restated its Certificate of Incorporation to effectuate a recapitalization
such that (i) the common equity of ARM consists of New Class A Common Stock
and Class B Non-Voting Common Stock, par value of $.01 per share (the "New
Class B Common Stock" and, together with the New Class A Common Stock, the
"New Common Stock"), (ii) authorized shares of the New Class A Common Stock
and New Class B Common Stock were increased to 150 million shares and 50
million shares, respectively, (iii) each outstanding share of common stock of
ARM was converted into one share of New Class A Common Stock, (iv) certain
shares of the New Class A Common Stock owned by private equity funds
sponsored by Morgan Stanley, Dean Witter & Co. (the successor to Morgan
Stanley Group Inc. in its merger with Dean Witter, Discover & Co.) (the
"Morgan Stanley" Stockholders) were converted into New Class B Common Stock
such that, after giving effect to such conversion, but not giving effect to
the Offering, the Morgan Stanley Stockholders owned, in the aggregate, 49% of
the outstanding New Class A Common Stock, and (v) each share of New Common
Stock was split into 706 shares of New Common Stock. Holders of New Class B
Common Stock have no right to vote on matters submitted to a vote of
stockholders, except in certain circumstances. Shares of the New Class B
Common Stock have no preemptive or other subscription rights and are
convertible into an equal number of shares of New Class A Common Stock (1) at
the option of the holder thereof to the extent that, following such
conversion, the Morgan Stanley Stockholders will not, in the aggregate, own
more than 49% of the outstanding shares of New Class A Common Stock, and (2)
automatically upon the transfer of such shares by any Morgan Stanley
Stockholder to a person that is not a Morgan Stanley Stockholder or an
affiliate of a Morgan Stanley Stockholder. The Morgan Stanley Stockholders
owned approximately 91% of the outstanding shares of ARM's common stock prior
to the Offering and approximately 53% following the Offering.
On April 22, 1998, ARM filed a registration statement with the SEC for a
secondary offering of its Class A Common Stock (the "Secondary Offering"). The
Morgan Stanley Stockholders and a syndicate of underwriters led by Morgan
Stanley & Co. Incorporated proposed to sell up to 12.4 million shares. The
Secondary Offering was completed on May 7, 1998, and all shares proposed to be
sold were sold. Accordingly, the Secondary Offering resulted in the complete
divestiture of the Morgan Stanley Stockholders, and ARM is now 100% publicly
owned, trading on the New York Stock Exchange (NYSE). No person has the direct
or indirect power to control ARM, except insofar as he or she may have such
power by virtue of his or her capacity as a director or executive officer
thereof; no individual beneficially owns more than 5% of the common shares.
Investors Fiduciary Trust Company is the custodian for the shares of stocks
owned by Separate Account Ten. The shares are held in book-entry form.
Reports and marketing materials, from time to time, may include information
concerning the rating of Integrity, as determined by A.M. Best Company, Moody's
Investors Service, Inc., Standard & Poor's Corporation, Duff & Phelps
Corporation, or other recognized rating services. Integrity is currently rated
"A" (Excellent) by A.M. Best Company, and has received claims paying ability
ratings of "A" (Good) from Standard & Poor's Corporation, "Baa1" from Moody's
Investors Service, Inc., and "A+" (High) from Duff and Phelps Credit Rating
Company. However, Integrity does not guarantee the investment performance of
the portfolios, and these ratings do not reflect protection against investment
risk.
Under prior management, Integrity was subject to a consent order in the State of
Florida under which it was precluded from writing new business in Florida from
May, 1992 to November, 1994. The consent order was entered into on May 6, 1992
as a result of noncompliance with certain investment restrictions under Florida
law. Due to the substantial asset restructuring and capital infusions involved
with Integrity's acquisition by ARM in November, 1993, Integrity came to be
fully in compliance with the investment limitations of the State of Florida and
a request for full relief from the consent order was granted by the Florida
Department of Insurance on November 4, 1994.
PART 2 - DISTRIBUTION OF THE CONTRACTS
ARM Securities, a wholly owned subsidiary of ARM, is the principal underwriter
of the contracts. ARM Securities is registered with the SEC as a broker-dealer
and is a member in good standing of the National Association of Securities
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Dealers, Inc. ARM Securities' address is 515 West Market Street, Louisville,
Kentucky 40202. The contracts are offered through ARM Securities on a
continuous basis.
We generally pay a maximum distribution allowance of up to 1.0% of initial
contributions, plus up to 1.0% trail commission paid on Account Value each
contract year after the first year. Integrity may from time to time pay or
allow additional promotional incentives, in the form of cash or other
compensation, to broker-dealers that sell contracts. In some instances, such
other incentives may be offered only to certain broker-dealers that sell or are
expected to sell during specified time periods certain minimum amounts of the
contracts.
PART 3 - INVESTMENT RESTRICTIONS AND POLICIES OF THE SELECT TEN PLUS DIVISIONS
INVESTMENT RESTRICTIONS
The investment objective of each Division is to seek total return. The
Divisions' investment strategy, objective and policies are described in
Section 4 of the prospectus under the captions "Investment Strategy" and
"Investment Objective and Policies." The following are the Divisions
fundamental investment limitations which cannot be changed without
shareholder approval.
Each Division :
1. May not borrow money, except that each Division may borrow up to 5% of its
total assets (not including the amount borrowed) from a bank for temporary
or emergency purposes (but not for leverage or the purchase of
investments).
2. May not issue senior securities, except as permitted under the 1940 Act.
May not act as an underwriter of another issuer's securities, except to the
extent that the Divisions may be deemed to be an underwriter within the
meaning of the Securities Act of 1933 in connection with the purchase and
sale of portfolio securities.
3. May not purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments.
4. May not make loans if, as a result, more than 33 1/3% of that Division's
total assets would be lent to other persons, except through (i) purchases
of debt securities or other debt instruments, or (ii) engaging in
repurchase agreements.
5. May not purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not prohibit
the Divisions from purchasing or selling securities or other instruments
backed by real estate or of issuers engaged in real estate activities).
The following are the Divisions non-fundamental operating policies which may be
changed by the Board of Managers of the Divisions without shareholder approval.
Each Division may not:
1. Sell securities short, unless the Division owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short, or
unless it covers such short sale as required by the current rules and
positions of the SEC or its staff.
2. Purchase securities on margin, except that each Division may obtain such
short-term credits as are necessary for the clearance of transactions.
3. Invest in illiquid securities if, as a result of such investment, more than
15% of its net assets would be invested in illiquid securities, or such
other amounts as may be permitted under the 1940 Act.
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<PAGE>
4. Purchase securities of other investment companies except in compliance with
the 1940 Act and applicable state law.
5. Make any loans other than loans of portfolio securities, except through (i)
purchases of debt securities or other debt instruments, or (ii) engaging in
repurchase agreements.
Except for the fundamental investment limitations listed above and the Divisions
investment objective, the other investment policies described in the prospectus
and this SAI are not fundamental and may be changed with the approval of the
Divisions Board of Managers. Unless noted otherwise, if a percentage
restriction is adhered to at the time of investment, a later increase or
decrease in percentage resulting from a change in the Divisions assets (i.e.,
due to cash inflows or redemptions) or in market value of the investment or the
Divisions assets will not constitute a violation of that restriction.
INVESTMENT POLICIES AND TECHNIQUES
The following information supplements the discussion of the Divisions investment
strategy, objective, policies and techniques that are described in Section 4 of
the prospectus under the captions Investment Strategy, Investment Objective and
Policies and Risk Factors.
LENDING OF PORTFOLIO SECURITIES. Each Division is authorized to lend up to 33
1/3% of the total value of its portfolio securities to broker-dealers or
institutional investors that the investment adviser and sub-adviser deem
qualified, but only when the borrower maintains with the Divisions custodian
bank collateral either in cash or money market instruments in an amount at least
equal to the market value of the securities loaned, plus accrued interest and
dividends, determined on a daily basis and adjusted accordingly. Although each
Division is authorized to lend, the Divisions do not presently intend to engage
in lending. In determining whether to lend securities to a particular
broker-dealer or institutional investor, the investment adviser and sub-adviser
will consider, and during the period of the loan will monitor, all relevant
facts and circumstances, including the creditworthiness of the borrower. The
Divisions will retain authority to terminate any loans at any time. The
Divisions may pay reasonable administrative and custodial fees in connection
with a loan and may pay a negotiated portion of the interest earned on the cash
or money market instruments held as collateral to the borrower or placing
broker. The Divisions will receive reasonable interest on the loan or a flat
fee from the borrower and amounts equivalent to any dividends, interest or other
distributions on the securities loaned. The Divisions will retain record
ownership of loaned securities to exercise beneficial rights, such as voting and
subscription rights and rights to dividends, interest or other distributions,
when retaining such rights is considered to be in the Divisions interest.
REPURCHASE AGREEMENTS. The Divisions may enter into repurchase agreements with
certain banks or non-bank dealers. In a repurchase agreement, a Division buys a
security at one price, and at the time of sale, the seller agrees to repurchase
the obligation at a mutually agreed upon time and price (usually within seven
days). The repurchase agreement, thereby, determines the yield during the
purchaser's holding period, while the seller's obligation to repurchase is
secured by the value of the underlying security. The investment adviser and
sub-adviser will monitor, on an ongoing basis, the value of the underlying
securities to ensure that the value always equals or exceeds the repurchase
price plus accrued interest. Repurchase agreements could involve certain risks
in the event of a default or insolvency of the other party to the agreement,
including possible delays or restrictions upon the Divisions ability to dispose
of the underlying securities. Although no definitive creditworthiness criteria
are used, the investment adviser reviews the creditworthiness of the banks and
non-bank dealers with which any Division enters into repurchase agreements to
evaluate those risks. The Divisions may, under certain circumstances, deem
repurchase agreements collateralized by U.S. government securities to be
investments in U.S. government securities.
PART 4 - MANAGEMENT OF SEPARATE ACCOUNT TEN
BOARD OF MANAGERS OF SEPARATE ACCOUNT TEN
The business and affairs of Separate Account Ten are managed under the direction
of a Board of Managers, currently consisting of four (4) members (MANAGERS),
according to a set of rules adopted by the Board of Managers called Rules and
Regulations of Separate Account Ten. The Board of Managers has responsibility
for the investment management related
4
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operations of Separate Account Ten and matters arising under the 1940 Act. The
Board of Managers does not have responsibility for the payment of obligations
under the contracts and administration of the contracts. These matters are
Integritys responsibility. The day-to-day operations of Separate Account Ten
are the responsibility of its officers. The names, addresses, and ages of the
Managers and the officers of Separate Account Ten, together with information as
to their principal business occupations during the past five years, are set
forth below.
Name, Age and Address Other Business Activities in Past 5 Years
--------------------- -----------------------------------------
John R. Lindholm (49)* Director of ARM since April 1998; President-Retail
515 West Market Street Business Division of ARM since January 1997;
Louisville, KY 40202 President of Integrity since November 1993; President
of National Integrity since September 1997; he had
been Executive Vice President- Chief Marketing
Officer of ARM Financial Group, Inc., since July
1993; Chief Marketing Officer of Analytical Risk
Management, L.P., since March 1992; Chief Marketing
Officer and a Managing Director of the ICH Capital
Management Group, ICH Corporation, Louisville,
Kentucky, June 1990 to February 1992; prior thereto,
Chief Marketing Officer and Managing Director of
Capital Holding Corporations Accumulation and
Investment Group. Director of the mutual funds in
the State Bond Group of mutual funds, June 1995 to
December 1996.
John Katz (59) Investment banker, since January 1991; Chairman and
10 Hemlock Road Chief Executive Officer, Sams Restaurant Group, Inc.
Hartsdale, NY 10530 (a restaurant holding company), June 1991 to August
1992; Executive Vice President, Equitable Investment
Corporation (an indirect wholly owned subsidiary of
The Equitable Life Assurance Society of the United
States, through which it owned and managed its
investment operations), January 1989 to January 1991;
and Senior Vice President, Equitable Investment
Corporation, December 1985 to January 1989. Director
of the mutual funds in the State Bond Group of mutual
funds, June 1995 to December 1996.
William B. Faulkner President, William Faulkner and Associates, business
(70) and institutional adviser, since 1986; Consultant to
240 East Plato Blvd. American Hoist & Derrick Company, construction
St. Paul, Minnesota equipment manufacturer, 1986 to 1989; prior thereto,
55107 Vice President and Assistant to the President,
American Hoist & Derrick Company. Director of the
mutual funds in the State Bond Group of mutual funds,
June 1984 to December 1996.
Chris LaVictoire Mahai Senior Vice President, Markets and Products Unit,
(42) Star Tribune/Cowles Media Company, since August 1995;
425 Portland Avenue Vice President, Marketing Director, Star Tribune,
Minneapolis, MN 55488 since September 1992; self-employed consultant,
marketing services, 1990 to 1992; prior thereto,
Senior Vice President of Corporate Relations and
marketing, First Bank System, Inc. Director of the
funds in the State Bond Group of mutual funds,
January 1992 to December 1996.
* Mr. Lindholm is an INTERESTED PERSON, as defined in the 1940 Act, by virtue
of his position with ARM Financial Group, Inc.
THE INVESTMENT ADVISER
Integrity Capital Advisors serves as the investment adviser to Separate Account
Ten pursuant to an investment advisory agreement. Integrity Capital Advisors is
a wholly owned subsidiary of ARM and is registered as an investment adviser
under the Investment Advisers Act of 1940. Its offices are located at 515 West
Market Street, Louisville, Kentucky 40202.
Subject to the direction of the Board of Managers, Integrity Capital Advisors is
responsible for providing all supervisory and management services reasonably
necessary for the operation of Separate Account Ten other than those investment
advisory services performed by the sub-adviser. These services include, but are
not limited to, (i) coordinating all matters relating to the functions of the
sub-adviser, custodian, accountants, attorneys, and other parties performing
services or operational
5
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functions for Separate Account Ten, (ii) providing Separate Account Ten, at
Integrity Capital Advisors expense, with the services of a sufficient number of
persons competent to perform such administrative and clerical functions as are
necessary to provide effective supervision and administration of Separate
Account Ten, (iii) making its officers and employees available to the Board of
Managers and officers of Separate Account Ten for consultation and discussions
regarding the supervision and administration of Separate Account Ten, (iv)
maintaining or supervising the maintenance by the sub-adviser or third parties
approved by Separate Account Ten of such books and records as may be required by
applicable federal or state law, (v) preparing or supervising the preparation by
third parties approved by Separate Account Ten of all federal, state and local
tax returns and reports of Separate Account Ten required by applicable law, (vi)
preparing, filing and arranging for the distribution of proxy materials and
periodic reports to Owners as required by applicable law, (vii) preparing and
arranging for the filing of such registration statements and other documents
with the SEC and other federal and state regulatory authorities as may be
required by applicable law, (viii) taking such other action with respect to
Separate Account Ten as may be required by applicable law, including without
limitation, the rules and regulations of the SEC and other regulatory agencies,
and (ix) providing Separate Account Ten, at Integrity Capital Advisors expense,
with adequate personnel, office space, communications facilities, and other
facilities necessary for its operations as contemplated in the investment
advisory agreement. Other responsibilities of Integrity Capital Advisors are
described in the prospectus.
Integrity Capital Advisors is authorized to exercise full investment discretion
and make all determinations with respect to the investment of the Divisions
assets and the purchase and sale of securities for the Divisions in the event
that at any time a sub-adviser is not engaged to manage the assets of the
Divisions. In such event, Integrity Capital Advisors will be entitled to, in
addition to its usual compensation for services as investment adviser, a fee
that would otherwise be paid to the sub-adviser. The Divisions pay Integrity
Capital Advisors a monthly fee based on an annual rate of .50% of the Divisions
average daily net assets. Integrity Capital Advisors will pay a portion of
those fees to National Asset Management Corporation (NATIONAL ASSET) for its
services under the sub-advisory agreement at an annual rate of . 10% of the
Divisions average daily net assets up to $100 million and .05% of the Divisions
average daily net assets in excess of $100 million. Integrity Capital Advisers
has guaranteed a minimum sub-advisory fee of $25,000 to National Asset during
the Divisions first year of operations.
Integrity Capital Advisors has agreed to reimburse the Divisions for operating
expenses (excluding management fees) above an annual rate of .35% of average net
assets for the Divisions. Integrity Capital Advisors has reserved the right to
withdraw or modify its policy of expense reimbursement for the Portfolios, but
has no current intention to do so during 1998.
THE SUB-ADVISER
National Asset serves as the sub-adviser to the Divisions and in that capacity
provides investment advisory services for the Divisions including security
selection. Subject to the supervision of the Board of Managers and Integrity
Capital Advisors, National Asset will provide a continuous investment program
for the Divisions and will determine the composition of its assets, including
determinations with respect to the purchase, retention and sale of securities,
cash and other investments contained in the Divisions portfolio. National Asset
will also provide investment research and conduct a continuous program of
evaluation, investment, sales and reinvestment of the Divisions assets.
National Asset will receive a monthly fee for its services based on an annual
rate of .10% of the Divisions average daily net assets up to $100 million and
.05% of the Divisions average daily net assets in excess of $100 million.
Integrity Capital Advisers has guaranteed a minimum sub-advisory fee of $25,000
to National Asset during the Divisions first year of operations.
PART 5 - PORTFOLIO TRANSACTIONS AND BROKERAGE
Investment decisions for the Divisions are made by National Asset, subject to
the supervision of the Board of Managers of Separate Account Ten and Integrity
Capital Advisors. National Asset has investment advisory clients other than the
Divisions. A particular security may be bought or sold by National Asset for
certain clients even though it could have been bought or sold for other clients
at the same time. In the event that two or more clients simultaneously purchase
or sell the same security, each days transactions in such security are, insofar
as possible, allocated between such clients in a manner deemed fair and
reasonable by National Asset. Although there is no specified formula for
allocating such transactions, the various allocation methods used by National
Asset, and the results of such allocations, are subject to the periodic review
by Integrity Capital Advisors and the Board of Managers of Separate Account Ten.
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<PAGE>
National Asset places all orders for the purchase and sale of securities,
options, and futures contracts for the Divisions through a substantial number of
brokers and dealers. In executing transactions, National Asset will attempt to
obtain the best execution for the Divisions taking into account such factors as
price (including the applicable brokerage commission or dollar spread), size of
order, the nature of the market for the security, the timing of the transaction,
the reputation, experience and financial stability of the broker-dealer
involved, the quality of the service, the difficulty of execution and
operational facilities of the firms involved, and the firms risk in positioning
a block of securities. In transactions on stock exchanges in the United States,
payments of brokerage commissions are negotiated. In effecting purchases and
sales of securities in transactions on U.S. stock exchanges for the Divisions,
National Asset may pay higher commission rates than the lowest available when
National Asset believes it is reasonable to do so in light of the value of the
brokerage and research services provided by the broker effecting the
transaction, as described below. In the case of securities traded on some
foreign stock exchanges, brokerage commissions may be fixed and National Asset
may be unable to negotiate commission rates for these transactions. In the case
of securities traded on the over-the-counter markets, there is generally no
stated commission, but the price includes an undisclosed commission or markup.
It has for many years been a common practice in the investment advisory business
for advisers of investment companies and other institutional investors to
receive research services from broker-dealers which execute portfolio
transactions for the clients of such advisers. Consistent with this practice,
National Asset may receive research services for the Divisions from many
broker-dealers with which National Asset places the Divisions portfolio
transactions. These services, which in some cases may also be purchased for
cash, include such matters as general economic and security market reviews,
industry and company reviews, evaluations of securities and recommendations as
to the purchase and sale of securities. Some of these services may be of value
to National Asset and its affiliates in advising its various clients (including
the Divisions), although not all of these services are necessarily useful and of
value in managing the Divisions. The sub-advisory fee paid by Integrity Capital
Advisors to National Asset is not reduced because National Asset and its
affiliates receive such services.
A permitted by Section 28(e) of the Securities Exchange Act of 1934, National
Asset may cause the Divisions to pay a broker-dealer a disclosed commission
for effecting a securities transaction for the Divisions in excess of the
commission which another broker-dealer would have charged for effecting that
transaction in recognition of the value of the "brokerage and research
services" provided by the broker-dealer. Brokerage and research services
include (i) furnishing advice as to the value of securities, the advisability
of investing in purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities, (ii) furnishing analyses
and reports concerning issuers, industries, securities, economic factors and
trends, portfolio strategy, and the performance of accounts, and (iii)
effecting securities transactions and performing functions incidental thereto
(e.g., clearance, settlement, and custody).
National Asset may place orders for the purchase and sale of exchange-listed
portfolio securities with a broker-dealer that is an affiliate of National
Asset where, in the judgment of National Asset, such firm will be able to
obtain a price and execution at least as favorable as other qualified
brokers. Pursuant to rules of the SEC, a broker-dealer that is an affiliate
of the investment adviser or sub-adviser, or, if it is also a broker-dealer,
the sub-adviser, may receive and retain compensation for effecting portfolio
transactions for an account on a national securities exchange of which the
broker-dealer is a member if the transaction is "executed" on the floor of
the exchange by another broker that is not an "associated person" of the
affiliated broker-dealer or sub-adviser, and if there is in effect a written
contract between the sub-adviser and the account expressly permitting the
affiliated broker-dealer or sub-adviser to receive and retain such
compensation. The sub-advisory agreement provides that National Asset may
retain compensation on transactions effected for the Divisions in accordance
with the terms of these rules.
SEC rules further require that commissions paid to such an affiliated
broker-dealer or sub-adviser by the account on exchange transactions not
exceed "usual and customary brokerage commission." The rules define "usual
and customary" commissions to include amounts which are "reasonable and fair
compared to the commission, fee or other remuneration received or to be
received by other brokers in connection with comparable transactions
involving similar securities being purchased or sold on a securities exchange
during a comparable period of time." The Board of Managers has adopted
procedures for evaluating the reasonableness of commissions paid to
broker-dealers that are affiliated with National Asset and will review these
procedures periodically.
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PART 6 - PERFORMANCE INFORMATION
Each Division may from time to time include the Average Annual Total Return, the
Cumulative Total Return, and Yield of its units in advertisements or in other
information furnished to shareholders. Performance information is computed
separately for each Division in accordance with the formulas described below.
At any time in the future, total return and yields may be higher or lower than
in the past and there can be no assurance that any historical results will
continue.
TOTAL RETURNS
Total returns reflect all aspects of a Division's return, including the
automatic reinvestment by the Division of all distributions and the deduction
of all applicable charges to the Division on an annual basis, including
mortality risk and expense charges, the annual administrative charge and
other charges against contract values. Quotations also will assume a
termination (surrender) at the end of the particular period. Total returns
may be shown simultaneously that do not take into account the annual
administrative charge.
Nonstandardized "total return" will be calculated in a similar manner and for
the same time periods as the average annual total return and for three years
except total return will assume an initial investment of $60,000. An assumed
initial investment of $60,000 will be used because that figure more closely
approximates the size of a typical contract than does the $1,000 figure used
in calculating the standardized average annual total return quotations. The
amount of the hypothetical initial investment assumed affects performance
because the annual administrative charge is a fixed per contract charge.
AVERAGE ANNUAL TOTAL RETURNS are calculated by determining the growth or decline
in the value of a hypothetical historical investment in the Division over
certain periods, including 1, 5, and 10 years (up to the life of the Division),
and then calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant over the period. Investors should realize that the Division's
performance is not constant over time, but changes from year to year, and that
the average annual returns represent the averages of historical figures as
opposed to the actual historical performance of a Division during any portion of
the period illustrated. Average annual returns are calculated pursuant to the
n
following formula: P(1+T) = ERV, where P is a hypothetical initial payment of
$1,000, T is the average annual total return, n is the number of years, and ERV
is the withdrawal value at the end of the period.
CUMULATIVE TOTAL RETURNS are UNAVERAGED and reflect the simple percentage change
in the value of a hypothetical investment in the Division over a stated period
of time. In addition to the period since inception, cumulative total returns may
be calculated on a year-to-date basis at the end of each calendar month in the
current calendar year. The last day of the period for year-to-date returns is
the last day of the most recent calendar month at the time of publication.
YIELDS
The Divisions may advertise yields. Yields quoted in advertising reflect the
change in value of a hypothetical investment in the Division over a stated
period of time, not taking into account capital gains or losses. Yields are
annualized and stated as a percentage.
PERFORMANCE COMPARISONS
Performance information for a Division may be compared, in reports and
advertising, to: (1) Standard & Poor's Stock Index (S&P 500), Dow Jones
Industrial Averages, (DJIA), Donoghue Money Market Institutional Averages, or
other unmanaged indices generally regarded as representative of the securities
markets; (2) other variable annuity separate accounts or other investment
products tracked by Lipper Analytical Services, Inc. or the Variable Annuity
Research and Data Service, which are widely used independent research firms that
rank mutual funds and other investment companies by overall performance,
investment objectives, and assets; and (3) the Consumer Price Index (measure of
inflation) to assess the real rate of return from an investment in a contract.
Unmanaged indices may assume the reinvestment of dividends but generally do not
reflect deductions for annuity charges, investment management costs, brokerage
costs and other transaction costs that are normally paid when directly investing
in securities.
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Each Division may from time to time also include the ranking of its performance
figures relative to such figures for groups of mutual funds categorized by
Lipper Analytical Services (LIPPER) as having the same or similar investment
objectives or by similar services that monitor the performance of mutual funds.
Each Division may also from time to time compare its performance to average
mutual fund performance figures compiled by Lipper in LIPPER PERFORMANCE
ANALYSIS. Advertisements or information furnished to present shareholders or
prospective investors may also include evaluations of a Division published by
nationally recognized ranking services and by financial publications that are
nationally recognized such as BARRON'S, BUSINESS WEEK, CDA TECHNOLOGIES, INC.,
CHANGING TIMES, CONSUMER'S DIGEST, DOW JONES INDUSTRIAL AVERAGE, FINANCIAL
PLANNING, FINANCIAL TIMES, FINANCIAL WORLD, FORBES, FORTUNE, GLOBAL INVESTOR,
HULBERT'S FINANCIAL DIGEST, INSTITUTIONAL INVESTOR, INVESTORS DAILY, MONEY,
MORNINGSTAR MUTUAL FUNDS, THE NEW YORK TIMES, PERSONAL INVESTOR, STANGER'S
INVESTMENT ADVISER, VALUE LINE, THE WALL STREET JOURNAL, WIESENBERGER INVESTMENT
COMPANY SERVICE and USA TODAY.
The performance figures described above may also be used to compare the
performance of a Division's units against certain widely recognized standards or
indices for stock and bond market performance. The following are the indices
against which the Divisions may compare performance:
The Standard & Poor's Composite Index of 500 Stocks (the S&P 500) is a market
value-weighted and unmanaged index showing the changes in the aggregate market
value of 500 stocks relative to the base period 1941-43. The S&P 500 Index is
composed almost entirely of common stocks of companies listed on the NYSE,
although the common stocks of a few companies listed on the American Stock
Exchange or traded OTC are included. The 500 companies represented include 381
industrial, 37 utility, 11 transportation and 71 financial services concerns.
The S&P 500 Index represents about 80% of the market value of all issues traded
on the NYSE.
The Dow Jones Composite Average (or its component averages) is an unmanaged
index composed of 30 blue-chip industrial corporation stocks (Dow Jones
Industrial Average), 15 utilities company stocks and 20 transportation stocks.
Comparisons of performance assume reinvestment of dividends.
The New York Stock Exchange composite or component indices are unmanaged indices
of all industrial, utilities, transportation and finance company stocks listed
on the New York Stock Exchange.
The Wilshire 5000 Equity Index (or its component indices) represents the return
of the market value of all common equity securities for which daily pricing is
available. Comparisons of performance assume reinvestment of dividends.
The Morgan Stanley Capital International EAFE Index is an arithmetic, market
value-weighted average of the performance of over 900 securities on the stock
exchanges of countries in Europe, Australia and the Far East.
The Morgan Stanley Capital International World Index - An arithmetic, market
value-weighted average of the performance of over 1,470 securities listed on the
stock exchanges of countries in Europe, Australia, the Far East, Canada and the
United States.
The National Association of Securities Dealers Automated Quotation System
(NASDAQ) Composite Index covers 4,500 stocks traded over the counter. It
represents many small company stocks but is heavily influenced by about 100 of
the largest NASDAQ stocks. It is a value-weighted index calculated on price
change only and does not include income.
The NASDAQ Industrial Index is composed of more than 3,000 industrial issues.
It is a value-weighted index calculated on price change only and does not
include income.
The Value Line (Geometric) Index is an unweighted index of the approximately
1,700 stocks followed by the VALUE LINE INVESTMENT SURVEY.
The 50/50 Index assumes a static mix of 50% of the S&P 500 Index and 50% of the
Lehman Government Corporate Index.
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Other Composite Indices: 70% S&P 500 Index and 30% NASDAQ Industrial Index; 35%
S&P 500 Index and 65% Salomon Brothers High Grade Bond Index; and 65% S&P Index
and 35% Salomon Brothers High Grade Bond Index.
The Russell 2000/Small Stock Index comprises the smallest 2000 stocks in the
Russell 3000 Index, and represents approximately 11% of the total U.S. equity
market capitalization. The Russell 3000 Index comprises the 3,000 largest U.S.
companies by market capitalization. The smallest company has a market value of
roughly $20 million.
The Russell 2500 Index is comprised of the bottom 500 stocks in the Russell 1000
Index which represents the universe of stocks from which most active money
managers typically select; and all the stocks in the Russell 2000 Index. The
largest security in the index has a market capitalization of approximately 1.3
billion.
The Consumer Price Index (or Cost of Living Index), published by the United
States Bureau of Labor Statistics is a statistical measure of change, over time,
in the price of goods and services in major expenditure groups.
STOCKS, BONDS, BILLS AND INFLATION, published by Hobson Associates, presents an
historical measure of yield, price and total return for common and small company
stocks, long-term government bonds, Treasury bills and inflation.
Savings and Loan Historical Interest Rates as published in the United States
Savings & Loan League Fact Book.
Historical data supplied by the research departments of First Boston
Corporation, the J.P. Morgan companies, Salomon Brothers, Merrill Lynch, Pierce,
Fenner & Smith, Shearson Lehman Hutton and Bloomberg L.P.
The MSCI Combined Far East Free ex Japan Index is a market-capitalization
weighted index comprising stocks in Hong Kong, Indonesia, Korea, Malaysia,
Philippines, Singapore and Thailand. Korea is included in the MSCI Combined
Far East Free ex Japan Index at 20% of its market capitalization.
For those Divisions which have not been investment divisions within Separate
Account Ten for one of the quoted periods, the standardized average annual total
return and nonstandardized total return quotations will show the investment
performance such Divisions would have achieved (reduced by the applicable
charges) had they been investment divisions within Separate Account Ten for the
period quoted.
INDIVIDUALIZED COMPUTER GENERATED ILLUSTRATIONS
Integrity may from time to time use computer-based software available through
Morningstar, CDA/Wiesenberger and/or other firms to provide registered
representatives and existing and/or potential owners of the contracts with
individualized hypothetical performance illustrations for the Divisions. Such
illustrations may include, without limitation, graphs, bar charts and other
types of formats presenting the following information: (i) the historical
results of a hypothetical investment in a single Division; (ii) the historical
fluctuation of the value of a single Division (actual and hypothetical); (iii)
the historical results of a hypothetical investment in more than one Division;
(iv) the historical performance of two or more market indices in relation to one
another and/or one or more Divisions; (v) the historical performance of two or
more market indices in comparison to a single Division or a group of Divisions;
(vi) a market risk/reward scatter chart showing the historical risk/reward
relationship of one or more mutual funds or Divisions to one or more indices and
a broad category of similar anonymous variable annuity subaccounts; and (vii)
Division data sheets showing various information about one or more Divisions
(such as information concerning total return for various periods, fees and
expenses, standard deviation, alpha and beta, investment objective, inception
date and net assets). We reserve the right to republish figures independently
provided by Morningstar or any similar agency or service.
PART 7 - DETERMINATION OF ACCUMULATION UNIT VALUES
The accumulation unit value of a Division will be determined on each day the New
York Stock Exchange is open for trading. The accumulation units are valued as
of the close of business on the New York Stock Exchange, which currently is 4:00
p.m., Eastern time. Each Divisions accumulation unit value is calculated
separately. The accumulation unit value is computed by dividing the value of
the securities held by the Division plus any cash or other assets, less its
liabilities, by the
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number of outstanding units. Securities are valued using the amortized cost
method of valuation, which approximates market value. Under this method of
valuation, the difference between the acquisition cost and value at maturity is
amortized by assuming a constant (straight-line) accretion of a discount or
amortization of a premium to maturity. Cash, receivables and current payables
are generally carried at their face value.
PART 8 - DETERMINATION OF ANNUITY UNIT VALUES
The annuity unit value was initially fixed at $1.00 for contracts with assumed
base rates of net investment return of 5% or 3.5% a year. For each valuation
period thereafter, it is the annuity value for the preceding valuation period
multiplied by the adjusted net investment factor under the contracts. For each
valuation period, the adjusted net investment factor is equal to the net
investment factor reduced for each day in the valuation period by:
* .00013366 for a contract with an assumed base rate of net investment return
of 5% a year; or
* .00009425 for a contract with an assumed base rate of net investment return
of 3.5% a year.
Because of this adjustment, the annuity unit value rises and falls depending on
whether the actual rate of net investment return (after charges) is higher or
lower than the assumed base rate.
All certificates have a 5% assumed base rate, except in states where that rate
is not permitted. Annuity payments under contracts with an assumed base rate of
3.5% will at first be smaller than those under contracts with a 5% assumed base
rate. Payments under the 3.5% contracts, however, will rise more rapidly when
unit values are rising, and payments will fall more slowly when unit values are
falling, than those under 5% contracts.
The amounts of variable annuity payments are determined as follows:
Payments normally start on the Annuitant's retirement date. The first three
monthly payments are the same. Each of the first three monthly payments will be
based on the amount taken from the tables in the contract or on our current
rates, whichever is more favorable to the participant. Where Integrity's
current annuity rates are used, contributions in the current and five prior
participation years will qualify for Integritys current individual annuity rates
applicable to funds derived from sources outside Integrity. The balance of the
proceeds will qualify for Integrity's current individual annuity rates for
payment of proceeds.
The first three monthly payments depend on the assumed base rate of net
investment return and the forms of annuity chosen (and any fixed period). If the
annuity involves a life contingency, the risk class and the age of the
annuitants will affect payments.
Payments after the first three months will vary according to the investment
performance of the Division or Divisions selected. After that, each payment
will be calculated by multiplying the number of annuity units credited by the
average annuity unit value for the second calendar month before the due date of
the payment. The number of annuity units credited equals the initial periodic
payment divided by the annuity unit value for the valuation period that includes
the due date of the first annuity payment. The average annuity unit value is
the average of the annuity unit values for the valuation periods ending in that
month. Each business day together with any non-business day or consecutive non-
business day immediately preceding such business day will constitute a
valuation period.
ILLUSTRATION OF CHANGES IN ANNUITY UNIT VALUES. To show how we determine
variable annuity payments from month to month, assume that the contract value on
a retirement date is enough to fund an annuity with a monthly payment of $363
and that the annuity unit value for the valuation period that includes the due
date of the first annuity payment is $1.05. The number of annuity units
credited under your contract would be 345.71 (363 divided by 1.05 = 345.71).
If the fourth monthly payment is due in March, and the average annuity unit
value for January was $1.10, the annuity payment for March would be the number
of units (345.71) times the average annuity unit value ($1.10), or $380.28. If
the average annuity unit value was $1.00 in February, the annuity payment for
April would be 345.71 times $1.00, or $345.71.
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For period certain life annuities and life income annuities, the participant may
not surrender or redeem once annuity payments commence. For period certain life
annuities only, if the payee (or the payee and the other annuitant under a joint
and survivor annuity) dies before the period selected ends, the remaining
payments will go to another named payee who may have the right to redeem the
annuity and secure the present value of future guaranteed payments in a lump
sum. The present value of future guaranteed payments for a period certain is
based on the number of payments left, the assumed base rate of net return, the
number of annuity units and the annuity unit value for the date Integrity
receives a written request for lump sum payment of remaining values. Assets held
in Separate Account Ten are at least equal to all statutory reserves required
for such Separate Account.
PART 9 - FINANCIAL STATEMENTS
Ernst & Young LLP, Suite 2100, 400 West Market Street, Louisville, Kentucky
40202, is our independent auditor and serves as independent auditor of Separate
Account Ten. Ernst & Young LLP on an annual basis will audit certain financial
statements prepared by management and express an opinion on such financial
statements based on their audits.
No financial statements of Separate Account Ten are included because as of the
date of this SAI, Separate Account Ten had not yet filed its financial
statements for the semi-annual period ending June 30, 1998. Separate Account
Ten commenced operations June 30, 1998.
The financial statements of Integrity should be distinguished from the financial
statements of Separate Account Ten and should be considered only as they relate
to the ability of Integrity to meet its obligations under the contracts. They
should not be considered as relating to the investment performance of the assets
held in Separate Account Ten.
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