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Previous: VARIABLE ACCOUNT A OF KEYPORT BENEFIT LIFE INSURANCE CO, 24F-2NT, 1999-02-26 |
Next: LLANY SEPARATE ACCOUNT R FOR FLEXIBLE PREM VARI LIFE INSUR, 485APOS, 1999-02-26 |
<PAGE>
Separate Account Ten
of
Integrity Life Insurance Company
Annual Report
December 31, 1998
Contents
President's Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . .2
Financial Statements, Financial Highlights, and Schedule of Investments:
Select Ten Plus Division-June . . . . . . . . . . . . . . . . . . . . . .3
Select Ten Plus Division-September. . . . . . . . . . . . . . . . . . . .6
Select Ten Plus Division-December . . . . . . . . . . . . . . . . . . . .9
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . 12
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR THE
GENERAL INFORMATION OF THE UNIT HOLDERS OF THE SEPARATE ACCOUNT. THIS REPORT IS
NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE SEPARATE ACCOUNT
UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS. NEITHER THE SEPARATE
ACCOUNT NOR ARM SECURITIES CORPORATION, THE PRINCIPAL UNDERWRITER FOR SEPARATE
ACCOUNT UNITS, IS A BANK AND SEPARATE ACCOUNT UNITS ARE NOT BACKED OR GUARANTEED
BY ANY BANK OR INSURED BY THE FEDERAL DEPOSITORY INSURANCE CORPORATION.
<PAGE>
January 22, 1999
Dear Unit Holders:
Enclosed is the Separate Account Ten annual report for the fiscal period ended
December 31, 1998. The report includes details on the investment holdings in
the June, September, and December Divisions of Separate Account Ten as of
December 31, 1998, as well as other pertinent financial information.
Separate Account Ten follows the popular investment methodology often referred
to as the "Dow Ten" or the "Dow Dividend Strategy." Separate Account Ten is
dedicated to assisting you in achieving your long-term investment goals.
Thank you for your confidence. If you have any questions or comments, please
feel free to contact us at your convenience.
Sincerely,
Edward J. Haines
President, Separate Account Ten of Integrity Life Insurance Company
1
<PAGE>
Report of Independent Auditors
The Unit Holders and Board of Directors
Separate Account Ten of Integrity Life
Insurance Company
We have audited the accompanying statements of assets and liabilities of
Separate Account Ten of Integrity Life Insurance Company (the Separate Account)
(comprised of Select Ten Plus Division-June, Select Ten Plus Division-September
and Select Ten Plus Division-December), including the schedules of investments,
as of December 31, 1998, and the related statements of operations and changes in
net assets and financial highlights for each of the periods indicated therein.
These financial statements and financial highlights are the responsibility of
the Separate Account's management. Our responsibility is to express an opinion
on these financial statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
financial highlights. Our procedures included confirmation of securities owned
at December 31, 1998, by correspondence with the custodian. As to securities
relating to uncompleted transactions, we performed other auditing procedures. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the divisions of the Separate Account at December 31, 1998, and the results
of their operations, changes in their net assets, and financial highlights for
each of the periods indicated therein in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Kansas City, Missouri
January 29, 1999
2
<PAGE>
Select Ten Plus Division - June
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
<S> <C>
ASSETS
Investments in securities, at value (cost $1,977,918)--See accompanying schedule $ 2,056,681
Cash 12,864
Dividends, interest and other receivables 8,776
-----------------
TOTAL ASSETS 2,078,321
LIABILITIES
Accrued expenses 22,641
Payable for investment securities purchased 12,660
-----------------
TOTAL LIABILITIES 35,301
-----------------
NET ASSETS $ 2,043,020
-----------------
-----------------
UNIT VALUE, offering and redemption price per unit $ 10.43
-----------------
-----------------
Units outstanding 195,841
-----------------
-----------------
<CAPTION>
Statement of Operations
JUNE 30, 1998
(COMMENCEMENT OF
OPERATIONS)
THROUGH
DECEMBER 31, 1998
-----------------
<S> <C>
INVESTMENT INCOME - DIVIDENDS $ 26,883
EXPENSES
Mortality and expense risk and administrative charges 13,473
Investment advisory and management fees 4,990
Custody and accounting fees 10,377
Professional fees 3,524
Directors' fees and expenses 3,150
Printing and filing fees 3,312
Other expenses 3,069
-----------------
Total expenses before reimbursement 41,895
Less: expense reimbursement (19,956)
-----------------
Net expenses 21,939
-----------------
Net investment income 4,944
Realized and Unrealized Gain on Investments
Net realized gain on investment securities 925
Unrealized appreciation on investment securities 78,763
-----------------
Net gain on investments 79,688
-----------------
Net increase in net assets resulting from operations $ 84,632
-----------------
-----------------
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
Select Ten Plus Division - June
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
JUNE 30, 1998
(COMMENCEMENT OF
OPERATIONS)
THROUGH
DECEMBER 31, 1998
-----------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 4,944
Net realized gain on investments 925
Change in net unrealized appreciation 78,763
-----------------
Net increase in net assets resulting from operations 84,632
Contract related transactions:
Contributions from contract holders (196,589 units) 1,965,893
Cost of units redeemed (748 units) (7,505)
-----------------
Net increase in net assets resulting from unit transactions 1,958,388
TOTAL INCREASE IN NET ASSETS 2,043,020
NET ASSETS
Beginning of period -
-----------------
End of period $ 2,043,020
-----------------
-----------------
SEE ACCOMPANYING NOTES.
<CAPTION>
Financial Highlights
JUNE 30,1998
(COMMENCEMENT OF
OPERATIONS)
THROUGH
DECEMBER 31, 1998
-----------------
<S> <C>
SELECTED PER-UNIT DATA
Unit value, beginning of period $ 10.00
Income from investment operations:
Net investment income 0.03
Net realized and unrealized gain on investments 0.40
-----------------
Total from investment operations 0.43
-----------------
Unit value, end of period $ 10.43
-----------------
-----------------
TOTAL RETURN 4.30%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $ 2,043
Ratio of net investment income to average net assets 0.50%
Ratio of expenses to average net assets 2.20%
Ratio of net investment income to average net assets before voluntary
expense reimbursement (1.50%)
Ratio of expenses to average net assets before voluntary expense reimbursement 4.20%
Portfolio turnover rate 0.86%
</TABLE>
PERCENTAGE AMOUNTS ARE ANNUALIZED, EXCEPT TOTAL RETURN AND PORTFOLIO TURNOVER
RATE.
4
<PAGE>
Select Ten Plus Division - June
Schedule of Investments
December 31, 1998
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- -----
<S> <C> <C>
COMMON STOCKS (100%)
BASIC MATERIALS (10.6%)
International Paper Company 4,864 $ 217,968
CAPITAL GOODS (18.0%)
Caterpillar, Inc. 4,207 193,522
Minnesota Mining & Manufacturing 2,478 176,248
-----------
369,770
COMMUNICATION SERVICES (13.0%)
AT&T Corporation 3,546 266,836
CONSUMER CYCLICAL (20.5%)
Eastman Kodak Company 2,851 205,272
General Motors Corporation 3,025 216,477
-----------
421,749
CONSUMER STAPLE (13.3 %)
Philip Morris Company, Inc. 5,123 274,080
ENERGY (20.4 %)
Chevron Corporation 2,471 204,939
Exxon Corporation 2,937 214,768
-----------
419,707
FINANCIAL (4.2%)
J.P. Morgan Company, Inc. 824 86,571
-----------
TOTAL COMMON STOCKS (Cost $1,977,918) 2,056,681
-----------
TOTAL INVESTMENTS (100.0%) $ 2,056,681
-----------
-----------
</TABLE>
OTHER INFORMATION:
Purchases and sales of securities, excluding short-term securities, for the
period ended December 31, 1998 aggregated $1,993,850 and $16,857, respectively.
At December 31, 1998, net unrealized appreciation for tax purposes aggregated
$78,763 of which $152,941 related to appreciated investment securities and
$74,178 related to depreciated investment securities. The aggregate cost of
securities is the same for book and tax purposes.
SEE ACCOMPANYING NOTES.
5
<PAGE>
Select Ten Plus Division - September
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
<S> <C>
ASSETS
Investments in securities, at value (cost $10,746,149)--See accompanying schedule $ 11,014,215
Dividends, interest and other receivables 30,869
Cash 2,306
-----------------
TOTAL ASSETS 11,047,390
LIABILITIES
Accrued expenses 32,854
Payable for investment securities purchased 2,150
-----------------
TOTAL LIABILITIES 35,004
-----------------
NET ASSETS $ 11,012,386
-----------------
-----------------
UNIT VALUE, offering and redemption price per unit $ 10.26
-----------------
-----------------
Units outstanding 1,072,954
-----------------
-----------------
<CAPTION>
Statement of Operations
SEPTEMBER 30, 1998
(COMMENCEMENT OF
OPERATIONS)
THROUGH
DECEMBER 31, 1998
-----------------
<S> <C>
INVESTMENT INCOME - DIVIDENDS $ 78,307
EXPENSES
Mortality and expense risk and administrative charges 38,162
Investment advisory and management fees 14,134
Custody and accounting fees 5,127
Professional fees 3,504
Directors' fees and expenses 3,133
Printing and filing fees 3,294
Other expenses 3,052
-----------------
Total expenses before reimbursement 70,406
Less: expense reimbursement (8,263)
-----------------
Net expenses 62,143
-----------------
Net investment income 16,164
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investment securities 2,620
Unrealized appreciation on investment securities 268,066
-----------------
Net gain on investments 270,686
-----------------
Net increase in net assets resulting from operations $ 286,850
-----------------
-----------------
</TABLE>
SEE ACCOMPANYING NOTES.
6
<PAGE>
Select Ten Plus Division - September
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
(COMMENCEMENT OF
OPERATIONS)
THROUGH
DECEMBER 31, 1998
-----------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 16,164
Net realized gain on investments 2,620
Change in net unrealized appreciation 268,066
-----------------
Net increase in net assets resulting from operations 286,850
Contract related transactions:
Contributions from contract holders (1,084,432 units) 10,841,972
Cost of units redeemed (11,478 units) (116,436)
-----------------
Net increase in net assets resulting from unit transactions 10,725,536
-----------------
TOTAL INCREASE IN NET ASSETS 11,012,386
NET ASSETS
Beginning of period -
-----------------
End of period $ 11,012,386
-----------------
-----------------
SEE ACCOMPANYING NOTES.
<CAPTION>
Financial Highlights
SEPTEMBER 30, 1998
(COMMENCEMENT OF
OPERATIONS)
THROUGH
DECEMBER 31, 1998
-----------------
<S> <C>
SELECTED PER-UNIT DATA
Unit value, beginning of period $ 10.00
Income from investment operations:
Net investment income 0.02
Net realized and unrealized gain on investments 0.24
-----------------
Total from investment operations 0.26
-----------------
Unit value, end of period $ 10.26
-----------------
-----------------
TOTAL RETURN 2.60%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $ 11,012
Ratio of net investment income to average net assets 0.57%
Ratio of expenses to average net assets 2.20%
Ratio of net investment income to average net assets before voluntary
expense reimbursement 0.28%
Ratio of expenses to average net assets before voluntary expense reimbursement 2.49%
Portfolio turnover rate 1.35%
</TABLE>
PERCENTAGE AMOUNTS ARE ANNUALIZED, EXCEPT TOTAL RETURN AND PORTFOLIO TURNOVER
RATE.
7
<PAGE>
Select Ten Plus Division - September
Schedule of Investments
December 31, 1998
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- -----
<S> <C> <C>
COMMON STOCKS (100%)
BASIC MATERIALS (8.6%)
Du Pont (E.I.) de Nemours and Company 17,921 $ 950,933
CAPITAL GOODS (18.6%)
Caterpillar, Inc. 22,733 1,045,718
Minnesota Mining & Manufacturing 14,134 1,005,281
------------
2,050,999
CONSUMER CYCLICAL (30.6%)
Eastman Kodak Company 13,561 976,392
General Motors Corporation 18,902 1,352,674
The Goodyear Tire & Rubber Company 20,599 1,038,962
------------
3,368,028
CONSUMER STAPLE (11.2%)
Philip Morris Company, Inc. 23,025 1,231,838
ENERGY (19.4%)
Chevron Corporation 12,421 1,030,167
Exxon Corporation 15,104 1,104,480
------------
2,134,647
FINANCIAL (11.6%)
J.P. Morgan Company, Inc. 12,162 1,277,770
------------
TOTAL COMMON STOCKS (Cost $10,746,149) 11,014,215
------------
TOTAL INVESTMENTS (100.0%) $ 11,014,215
------------
------------
</TABLE>
OTHER INFORMATION:
Purchases and sales of securities, excluding short-term securities, for the
period ended December 31, 1998 aggregated $10,891,121 and $147,592,
respectively. At December 31, 1998, net unrealized appreciation for tax
purposes aggregated $268,066 of which $659,286 related to appreciated investment
securities and $391,220 related to depreciated investment securities. The
aggregate cost of securities is the same for book and tax purposes.
SEE ACCOMPANYING NOTES.
8
<PAGE>
Select Ten Plus Division - December
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
<S> <C>
ASSETS
Investments in securities, at value (cost $14,784,736)--See accompanying schedule $ 14,519,611
Cash 14,786,409
-----------------
TOTAL ASSETS 29,306,020
LIABILITIES
Payable for investment securities purchased 14,784,736
Accrued expenses 844
-----------------
TOTAL LIABILITIES 14,785,580
-----------------
NET ASSETS $ 14,520,440
-----------------
-----------------
UNIT VALUE, offering and redemption price per unit $ 9.82
-----------------
-----------------
Units outstanding 1,478,641
-----------------
-----------------
<CAPTION>
Statement of Operations
FOR THE ONE DAY
PERIOD ENDED
DECEMBER 31, 1998
(COMMENCEMENT
OF OPERATIONS)
-----------------
<S> <C>
INVESTMENT INCOME - DIVIDENDS $ -
EXPENSES
Mortality and expense risk and administrative charges 537
Investment advisory and management fees 199
Custody and accounting fees 55
Professional fees 14
Directors' fees and expenses 17
Other expenses 22
-----------------
Net expenses 844
-----------------
Net investment loss (844)
Unrealized Loss on Investments
Unrealized depreciation on investment securities (265,125)
-----------------
Net loss on investments (265,125)
-----------------
Net decrease in net assets resulting from operations $ (265,969)
-----------------
-----------------
</TABLE>
SEE ACCOMPANYING NOTES.
9
<PAGE>
Select Ten Plus Division - December
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
FOR THE ONE DAY
PERIOD ENDED
DECEMBER 31, 1998
(COMMENCEMENT
OF OPERATIONS)
-----------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment loss $ (844)
Change in net unrealized depreciation (265,125)
-----------------
Net decrease in net assets resulting from operations (265,969)
Contract related transactions:
Contributions from contract holders (1,478,641 units) 14,786,409
-----------------
TOTAL INCREASE IN NET ASSETS 14,520,440
NET ASSETS
Beginning of period -
-----------------
End of period $ 14,520,440
-----------------
-----------------
SEE ACCOMPANYING NOTES.
<CAPTION>
Financial Highlights
FOR THE ONE DAY
PERIOD ENDED
DECEMBER 31, 1998
(COMMENCEMENT
OF OPERATIONS)
-----------------
<S> <C>
SELECTED PER-UNIT DATA
Unit value, beginning of period $ 10.00
Loss from investment operations:
Net investment loss -*
Net realized and unrealized loss on investments (0.18)
-----------------
Total from investment operations (0.18)
-----------------
Unit value, end of period $ 9.82
-----------------
-----------------
TOTAL RETURN (1.80%)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $ 14,520
Ratio of net investment loss to average net assets (2.12%)
Ratio of expenses to average net assets 2.12%
Portfolio turnover rate -
</TABLE>
* Less than $0.01
PERCENTAGE AMOUNTS ARE ANNUALIZED, EXCEPT TOTAL RETURN AND PORTFOLIO TURNOVER
RATE.
10
<PAGE>
Select Ten Plus Division - December
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- -----
<S> <C> <C>
COMMON STOCKS (100%)
BASIC MATERIALS (19.9%)
Du Pont (E.I.) de Nemours and Company 26,340 $ 1,397,666
International Paper Company 33,360 1,494,945
------------
2,892,611
CAPITAL GOODS (19.7%)
Caterpillar, Inc. 31,425 1,445,550
Minnesota Mining & Manufacturing 19,990 1,421,789
------------
2,867,339
CONSUMER CYCLICAL (30.5%)
Eastman Kodak Company 20,570 1,481,040
General Motors Corporation 20,520 1,468,463
The Goodyear Tire & Rubber Company 29,230 1,474,288
------------
4,423,791
CONSUMER STAPLE (10.0%)
Philip Morris Company, Inc. 27,000 1,444,500
ENERGY (10.0%)
Chevron Corporation 17,520 1,453,065
FINANCIAL (9.9%)
J.P. Morgan Company, Inc. 13,690 1,438,305
------------
TOTAL COMMON STOCKS (Cost $14,784,736) 14,519,611
------------
TOTAL INVESTMENTS (100.0%) $ 14,519,611
------------
------------
</TABLE>
OTHER INFORMATION:
Purchases of securities, excluding short-term securities, for the
period ended December 31, 1998 aggregated $14,784,736. At December
31, 1998, net unrealized depreciation for tax purposes aggregated
$265,125 of which $282,695 related to depreciated investment
securities and $17,570 related to appreciated investment securities.
The aggregate cost of securities is the same for book and tax
purposes.
SEE ACCOMPANYING NOTES.
11
<PAGE>
Separate Account Ten of Integrity Life Insurance Company
Notes to Financial Statements
December 31, 1998
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Separate Account Ten of Integrity Life Insurance Company (the "Separate
Account") was formed on February 4, 1998. The Separate Account is registered
under the Investment Company Act of 1940 as a management investment company.
Contributions to the Separate Account are currently limited to PINNACLE contract
holders and SYNDICATED SELECT TEN PLUS contract holders. PINNACLE and
SYNDICATED SELECT TEN PLUS are flexible premium variable annuity products issued
by Integrity Life Insurance Company ("Integrity"). The Separate Account is
currently divided into four divisions: Select Ten Plus Division-March, Select
Ten Plus Division-June, Select Ten Plus Division-September, and Select Ten Plus
Division-December ("Division(s)"). Each Division is a non-diversified
investment company which invests directly in securities. 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. Each Division is open for new investments on only one day of
each year. The twelve month holding period begins on the last business day of
the month for which the Division is named. For example, the Select Ten Plus
Division-June invests only on the last business day of June each year. As of
December 31, 1998, the March Division was the only Division that did not have
invested assets. The assets of the Separate Account are owned by Integrity.
ARM Securities Corporation ("ARM Securities"), a registered broker-dealer under
the Securities Exchange Act of 1934 and a member of the National Association of
Securities Dealers, Inc., distributes units of the Separate Account. Integrity
Capital Advisors, Inc. ("Integrity Capital"), an investment adviser registered
under the Investment Advisers Act of 1940, provides management services to the
Separate Account pursuant to a management agreement. National Asset Management
Corporation ("National Asset"), an investment adviser registered under the
Investment Advisers Act of 1940, serves as the sub-adviser of the Divisions
pursuant to a sub-advisory agreement.
ARM Financial Group, Inc. ("ARM") is the ultimate parent of Integrity, Integrity
Capital and ARM Securities. ARM specializes in the growing asset accumulation
business with particular emphasis on retirement savings and investment products.
At December 31, 1998, ARM had approximately $9.9 billion of assets under
management.
12
<PAGE>
Separate Account Ten of Integrity Life Insurance Company
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for investment companies.
SECURITY VALUATION
Common stocks are valued at the last sale price on the exchange on which they
are primarily traded.
SECURITY TRANSACTIONS
Securities transactions are accounted for as of trade date net of brokerage
fees, commissions and transfer fees. Dividend income is recorded on the
ex-dividend date. Interest income is accrued daily. Realized gains and losses
on sales of investments are determined on the basis of the first-in, first-out
method for all of the Divisions.
FEDERAL INCOME TAX MATTERS
Operations of the Separate Account are included in the income tax return of
Integrity, which is taxed as a life insurance company under the Internal Revenue
Code. The Separate Account will not be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code. Under existing federal income
tax law, no taxes are payable on the investment income or on the capital gains
of the Separate Account.
USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
2. EXPENSES
Integrity assumes mortality and expense risks and incurs certain administrative
expenses related to the operations of the Separate Account and deducts a charge
from the assets of the Divisions at an annual rate of 1.20% and 0.15% of average
daily net assets, respectively, to cover these risks and expenses. In addition,
an annual charge of $30 per contract is assessed if the contract holder's
account value is less than $50,000 at the end of any participation year prior to
the contract holder's retirement date (as defined by the contract).
13
<PAGE>
Separate Account Ten of Integrity Life Insurance Company
Notes to Financial Statement (continued)
3. INVESTMENT ADVISORY AGREEMENTS AND PAYMENTS TO RELATED PARTIES
Integrity Capital serves as investment adviser for the Divisions and National
Asset serves as the sub-adviser for the Divisions. For providing investment
management services to the Divisions, Integrity Capital receives a monthly fee
based on an annual rate of .50% of each Division's average daily net assets.
Integrity Capital, not the Separate Account, pays sub-advisory 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
has guaranteed it will pay National Asset a minimum sub-advisory fee of $25,000
during the Separate Account's first year of operations. Integrity Capital has
agreed to reimburse each Division for operating expenses (excluding management
fees and mortality and expense charges) above an annual rate of .35% of the
Divisions' average net assets.
Certain officers and directors of the Separate Account are also officers of ARM,
ARM Securities, Integrity Capital, and Integrity. The Separate Account does not
pay any amounts to compensate these individuals.
14
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