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<PAGE>
Separate Account Ten
of
Integrity Life Insurance Company
Annual Report
December 31, 1999
Contents
<TABLE>
<S> <C>
President's Letter.............................................................1
Report of Independent Auditors.................................................2
Financial Statements, Financial Highlights, and Schedule of Investments:
Select Ten Plus Division-March...............................................3
Select Ten Plus Division-June................................................7
Select Ten Plus Division-September..........................................11
Select Ten Plus Division-December...........................................15
Notes to Financial Statements.................................................19
</TABLE>
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>
February 14, 2000
Dear Unit Holders:
Enclosed is the Separate Account Ten annual report for the fiscal period ended
December 31, 1999. The report includes details on the investment holdings in the
March, June, September, and December Divisions of Separate Account Ten as of
December 31, 1999, 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,
/s/ Edward J. Haines
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-March, 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,
1999, 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 audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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, 1999, by correspondence with
the custodian and broker. As to certain 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 audits provide 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, 1999, and the results
of their operations, changes in their net assets, and financial highlights for
each of the periods indicated therein in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
Kansas City, Missouri
January 28, 2000
2
<PAGE>
Select Ten Plus Division - March
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------
<S> <C>
ASSETS
Investments in securities, at value (cost $6,753,216)--See accompanying schedule $ 6,812,742
Due from investment advisor 1,846
Dividends receivable 19,644
------------------------
TOTAL ASSETS 6,834,232
LIABILITIES
Cash overdraft 6,697
Accrued expenses 27,536
------------------------
TOTAL LIABILITIES 34,233
------------------------
NET ASSETS $ 6,799,999
========================
UNIT VALUE, offering and redemption price per unit $ 10.24
========================
Units outstanding 664,381
========================
</TABLE>
Statement of Operations
<TABLE>
<CAPTION>
MARCH 31, 1999
(COMMENCEMENT OF
OPERATIONS) THROUGH
DECEMBER 31, 1999
------------------------
<S> <C>
INVESTMENT INCOME - DIVIDENDS $ 163,112
EXPENSES
Mortality and expense risk and administrative charges 85,208
Investment advisory and management fees 31,558
Custody and accounting fees 15,282
Professional fees 5,000
Directors' fees and expenses 6,251
Printing and filing fees 3,295
Other expenses 4,922
------------------------
Total expenses before reimbursement 151,516
Less: expense reimbursement (12,658)
------------------------
Net expenses 138,858
------------------------
Net investment income 24,254
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 147,764
Net unrealized appreciation during the period on investments 59,526
------------------------
Net realized and unrealized gain on investments 207,290
------------------------
Net increase in net assets resulting from operations $ 231,544
========================
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
Select Ten Plus Division - March
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
MARCH 31, 1999
(COMMENCEMENT OF
OPERATIONS) THROUGH
DECEMBER 31, 1999
------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 24,254
Net realized gain on investments 147,764
Net unrealized appreciation during the period on investments 59,526
------------------------
Net increase in net assets resulting from operations 231,544
Contract related transactions:
Contributions from contract holders (798,422 units) 7,991,654
Cost of units redeemed (134,041 units) (1,423,199)
------------------------
Net increase in net assets resulting from unit transactions 6,568,455
------------------------
TOTAL INCREASE IN NET ASSETS 6,799,999
NET ASSETS
Beginning of period -
------------------------
End of period $ 6,799,999
========================
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
Select Ten Plus Division - March
Financial Highlights
<TABLE>
<CAPTION>
MARCH 31, 1999
(COMMENCEMENT OF
OPERATIONS) THROUGH
DECEMBER 31, 1999
-----------------------
<S> <C>
SELECTED PER-UNIT DATA
Unit value, beginning of period $ 10.00
Income from investment operations:
Net investment income 0.04
Net realized and unrealized gain on investments 0.20
-----------------------
Total from investment operations 0.24
-----------------------
Unit value, end of period $ 10.24
=======================
TOTAL RETURN 2.35%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $ 6,800
Ratio of net investment income to average net assets 0.38%
Ratio of expenses to average net assets 2.20%
Ratio of net investment income to average net assets before voluntary
expense reimbursement 0.18%
Ratio of expenses to average net assets before voluntary expense reimbursement 2.40%
Portfolio turnover rate 22%
</TABLE>
PERCENTAGE AMOUNTS ARE ANNUALIZED, EXCEPT TOTAL RETURN AND PORTFOLIO TURNOVER
RATE.
5
<PAGE>
Select Ten Plus Division - March
Schedule of Investments
December 31, 1999
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
-------------- ---------------
<S> <C> <C>
COMMON STOCKS (100.0%)
BASIC MATERIALS (34.9%)
Du Pont (E.I.) de Nemours and Company 11,457 $ 754,730
Exxon Mobil Corporation 9,903 797,810
International Paper Company 14,580 822,859
---------------
2,375,399
CAPITAL GOODS (23.5%)
Caterpillar, Inc. 14,362 675,912
Minnesota Mining and Manufacturing Company 9,429 922,863
---------------
1,598,775
CONSUMER CYCLICAL (15.3%)
Eastman Kodak Company 10,489 694,896
The Goodyear Tire & Rubber Company 12,432 350,427
---------------
1,045,323
CONSUMER STAPLE (6.2%)
Philip Morris Companies, Inc. 18,242 422,986
ENERGY (10.1%)
Chevron Corporation 7,916 685,724
FINANCIAL (10.0%)
J.P. Morgan & Company, Inc. 5,406 684,535
---------------
TOTAL COMMON STOCKS (Cost $6,753,216) 6,812,742
---------------
TOTAL INVESTMENTS (100.0%) $ 6,812,742
===============
</TABLE>
OTHER INFORMATION:
Cost of purchases and proceeds from sales of securities, excluding
short-term securities, for the period ended December 31, 1999 aggregated
$8,405,848 and $1,800,396, respectively. At December 31, 1999, net
unrealized appreciation for tax purposes aggregated $59,526 of which
$562,724 related to appreciated investments and $503,198 related to
depreciated investments. The aggregate cost of investments was the same for
book and tax purposes.
SEE ACCOMPANYING NOTES.
6
<PAGE>
Select Ten Plus Division - June
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------
<S> <C>
ASSETS
Investments in securities, at value (cost $7,162,739)--See accompanying schedule $ 6,441,407
Cash 4,456
Due from investment advisor 1,933
Dividends receivable 19,927
----------------------
TOTAL ASSETS 6,467,723
LIABILITIES
Accrued expenses 36,749
----------------------
NET ASSETS $ 6,430,974
======================
UNIT VALUE, offering and redemption price per unit $ 10.14
======================
Units outstanding 634,209
======================
Statement of Operations
YEAR ENDED
DECEMBER 31, 1999
----------------------
<S> <C>
INVESTMENT INCOME - DIVIDENDS $ 131,487
EXPENSES
Mortality and expense risk and administrative charges 64,928
Investment advisory and management fees 24,047
Custody and accounting fees 20,350
Professional fees 6,990
Directors' fees and expenses 6,249
Printing and filing fees 6,570
Other expenses 6,088
----------------------
Total expenses before reimbursement 135,222
Less: expense reimbursement (29,414)
----------------------
Net expenses 105,808
----------------------
Net investment income 25,679
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments 109,186
Net unrealized depreciation during the period on investments (800,095)
----------------------
Net realized and unrealized loss on investments (690,909)
----------------------
Net decrease in net assets resulting from operations $ (665,230)
======================
</TABLE>
SEE ACCOMPANYING NOTES.
7
<PAGE>
Select Ten Plus Division - June
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
JUNE 30, 1998
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 25,679 $ 4,944
Net realized gain on investments 109,186 925
Net unrealized appreciation (depreciation) during the period
on investments (800,095) 78,763
-------------------------------------------
Net increase (decrease) in net assets resulting from operations (665,230) 84,632
Contract related transactions:
Contributions from contract holders (557,624 and 196,589 units,
respectively) 6,304,246 1,965,893
Cost of units redeemed (119,256 and 748 units, respectively) (1,251,062) (7,505)
-------------------------------------------
Net increase in net assets resulting from unit transactions 5,053,184 1,958,388
-------------------------------------------
TOTAL INCREASE IN NET ASSETS 4,387,954 2,043,020
NET ASSETS
Beginning of period 2,043,020 -
-------------------------------------------
End of period $ 6,430,974 $ 2,043,020
===========================================
</TABLE>
SEE ACCOMPANYING NOTES.
8
<PAGE>
Select Ten Plus Division - June
Financial Highlights
<TABLE>
<CAPTION>
JUNE 30,1998
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------------------------------
<S> <C> <C>
SELECTED PER-UNIT DATA
Unit value, beginning of period $ 10.43 $ 10.00
Income (loss) from investment operations:
Net investment income 0.02 0.03
Net realized and unrealized gain (loss) on investments (0.31) 0.40
--------------------------------------------
Total from investment operations (0.29) 0.43
--------------------------------------------
Unit value, end of period $ 10.14 $ 10.43
============================================
TOTAL RETURN (2.78%) 4.30%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $ 6,431 $ 2,043
Ratio of net investment income to average net assets 0.54% 0.50%
Ratio of expenses to average net assets 2.20% 2.20%
Ratio of net investment loss to average net assets before voluntary
expense reimbursement (0.08%) (1.50%)
Ratio of expenses to average net assets before voluntary expense
reimbursement 2.82% 4.20%
Portfolio turnover rate 43% 1%
</TABLE>
PERCENTAGE AMOUNTS ARE ANNUALIZED, EXCEPT TOTAL RETURN AND PORTFOLIO TURNOVER
RATE.
9
<PAGE>
Select Ten Plus Division - June
Schedule of Investments
December 31, 1999
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
-------------- ----------------
<S> <C> <C>
COMMON STOCKS (100.0%)
BASIC MATERIALS (23.1%)
Du Pont (E.I.) de Nemours and Company 10,411 $ 685,825
Exxon Mobil Corporation 9,997 805,383
----------------
1,491,208
CAPITAL GOODS (20.9%)
Caterpillar, Inc. 11,728 551,949
Minnesota Mining and Manufacturing Company 8,089 791,711
----------------
1,343,660
COMMUNICATION SERVICES (0.0%)
AT&T Corporation -* 4
CONSUMER CYCLICAL (27.3%)
Eastman Kodak Company 10,318 683,568
General Motors Corporation 10,323 750,353
The Goodyear Tire & Rubber Company 11,429 322,155
----------------
1,756,076
CONSUMER STAPLE (6.5%)
Philip Morris Companies, Inc. 18,147 420,784
ENERGY (11.0%)
Chevron Corporation 8,178 708,419
FINANCIAL (11.2%)
J.P. Morgan & Company, Inc. 5,696 721,256
----------------
TOTAL COMMON STOCKS (Cost $7,162,739) 6,441,407
----------------
TOTAL INVESTMENTS (100.0%) $6,441,407
----------------
----------------
</TABLE>
OTHER INFORMATION:
Cost of purchases and proceeds from sales of securities, excluding
short-term securities, for the period ended December 31, 1999 aggregated
$7,192,357 and $2,116,723, respectively. At December 31, 1999, net
unrealized depreciation for tax purposes aggregated $721,332 of which
$207,973 related to appreciated investments and $929,305 related to
depreciated investments. The aggregate cost of investments was the same for
book and tax purposes.
* Less than one.
SEE ACCOMPANYING NOTES.
10
<PAGE>
Select Ten Plus Division - September
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------
<S> <C>
ASSETS
Investments in securities, at value (cost $11,541,867)--See accompanying schedule $11,262,352
Due from investment advisor 2,638
Dividends receivable 47,027
Receivable for investments sold 32,070
----------------------
TOTAL ASSETS 11,344,087
LIABILITIES
Cash overdraft 29,194
Accrued expenses 68,339
----------------------
TOTAL LIABILITIES 97,533
----------------------
NET ASSETS $11,246,554
======================
UNIT VALUE, offering and redemption price per unit $ 10.11
======================
Units outstanding 1,111,983
======================
</TABLE>
Statement of Operations
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
----------------------
<S> <C>
INVESTMENT INCOME - DIVIDENDS $ 317,948
EXPENSES
Mortality and expense risk and administrative charges 154,779
Investment advisory and management fees 57,325
Custody and accounting fees 20,350
Professional fees 13,903
Directors' fees and expenses 12,432
Printing and filing fees 13,067
Other expenses 12,111
----------------------
Total expenses before reimbursement 283,967
Less: expense reimbursement (31,735)
----------------------
Net expenses 252,232
----------------------
Net investment income 65,716
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments 278,707
Net unrealized depreciation during the period on investments (547,581)
----------------------
Net realized and unrealized loss on investments (268,874)
----------------------
Net decrease in net assets resulting from operations $ (203,158)
======================
</TABLE>
SEE ACCOMPANYING NOTES.
11
<PAGE>
Select Ten Plus Division-September
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 65,716 $ 16,164
Net realized gain on investments 278,707 2,620
Net unrealized appreciation (depreciation) during the period on investments (547,581) 268,066
----------------------------------------------
Net increase (decrease) in net assets resulting from operations (203,158) 286,850
Contract related transactions:
Contributions from contract holders (427,004 and 1,084,432 units,
respectively) 4,567,272 10,841,972
Cost of units redeemed (387,975 and 11,478 units, respectively) (4,129,946) (116,436)
----------------------------------------------
Net increase in net assets resulting from unit transactions 437,326 10,725,536
----------------------------------------------
TOTAL INCREASE IN NET ASSETS 234,168 11,012,386
NET ASSETS
Beginning of period -
11,012,386
----------------------------------------------
End of period $ 11,246,554 $11,012,386
==============================================
</TABLE>
SEE ACCOMPANYING NOTES.
12
<PAGE>
Select Ten Plus Division-September
Financial Highlights
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------------------------------
<S> <C> <C>
SELECTED PER-UNIT DATA
Unit value, beginning of period $ 10.26 $ 10.00
Income (loss) from investment operations:
Net investment income 0.05 0.02
Net realized and unrealized gain (loss) on investments (0.20) 0.24
--------------------------------------------
Total from investment operations (0.15) 0.26
--------------------------------------------
Unit value, end of period $ 10.11 $ 10.26
============================================
TOTAL RETURN (1.42%) 2.60%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $ 11,247 $ 11,012
Ratio of net investment income to average net assets 0.57% 0.57%
Ratio of expenses to average net assets 2.20% 2.20%
Ratio of net investment income to average net assets before voluntary
expense reimbursement 0.29% 0.28%
Ratio of expenses to average net assets before voluntary expense
reimbursement 2.48% 2.49%
Portfolio turnover rate 50% 1%
</TABLE>
PERCENTAGE AMOUNTS ARE ANNUALIZED, EXCEPT TOTAL RETURN AND PORTFOLIO TURNOVER
RATE.
13
<PAGE>
Select Ten Plus Division - September
Schedule of Investments
December 31, 1999
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
------------- -----------------
<S> <C> <C>
COMMON STOCKS (100.0%)
BASIC MATERIALS (11.5%)
Du Pont (E.I.) de Nemours and Company 19,600 $ 1,291,150
CAPITAL GOODS (20.2%)
Caterpillar, Inc. 21,303 1,002,572
Minnesota Mining and Manufacturing Company 13,059 1,278,150
-----------------
2,280,722
CONSUMER CYCLICAL (28.1%)
Eastman Kodak Company 16,810 1,113,662
General Motors Corporation 19,686 1,430,926
The Goodyear Tire & Rubber Company 21,960 618,997
-----------------
3,163,585
CONSUMER STAPLE (17.7%)
Philip Morris Companies, Inc. 36,682 850,564
Sears, Roebuck and Company 37,680 1,146,885
-----------------
1,997,449
ENERGY (10.3%)
Chevron Corporation 13,334 1,155,058
FINANCIAL (12.2%)
J.P. Morgan & Company, Inc. 10,854 1,374,388
-----------------
TOTAL COMMON STOCKS (Cost $11,541,867) 11,262,352
-----------------
TOTAL INVESTMENTS (100.0%) $ 11,262,352
=================
</TABLE>
OTHER INFORMATION:
Cost of purchases and proceeds from sales of securities, excluding
short-term securities, for the period ended December 31, 1999 aggregated
$6,341,272 and $5,824,261 respectively. At December 31, 1999, net
unrealized depreciation for tax purposes aggregated $279,515 of which
$987,085 related to appreciated investments and $1,266,600 related to
depreciated investments. The aggregate cost of investments was the same for
book and tax purposes.
SEE ACCOMPANYING NOTES.
14
<PAGE>
Select Ten Plus Division - December
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------
<S> <C>
ASSETS
Investments in securities, at value (cost $12,370,944)--See accompanying schedule $ 12,850,250
Cash 1,787,405
Dividends, interest and other receivables 29,076
Receivable for investments sold 1,901,913
Receivable for fund shares sold 13,997
----------------------
TOTAL ASSETS 16,582,641
LIABILITIES
Accrued expenses 29,522
Payable for investments purchased 3,440,394
----------------------
TOTAL LIABILITIES 3,469,916
----------------------
NET ASSETS $ 13,112,725
======================
UNIT VALUE, offering and redemption price per unit $ 10.15
======================
Units outstanding 1,291,739
======================
</TABLE>
Statement of Operations
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
----------------------
<S> <C>
INVESTMENT INCOME - DIVIDENDS $ 383,961
EXPENSES
Mortality and expense risk and administrative charges 197,035
Investment advisory and management fees 72,976
Custody and accounting fees 20,354
Professional fees 5,000
Directors' fees and expenses 6,249
Printing and filing fees 3,296
Other expenses 4,919
----------------------
Net expenses 309,829
----------------------
Net investment income 74,132
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on investments (161,661)
Net unrealized appreciation during the period on investments 744,431
----------------------
Net realized and unrealized gain on investments 582,770
----------------------
Net increase in net assets resulting from operations $ 656,902
======================
</TABLE>
SEE ACCOMPANYING NOTES.
15
<PAGE>
Select Ten Plus Division - December
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
FOR THE ONE DAY
PERIOD ENDED
DECEMBER 31, 1998
YEAR ENDED (COMMENCEMENT
DECEMBER 31, 1999 OF OPERATIONS)
------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss) $ 74,132 $ (844)
Net realized loss on investments (161,661) -
Net unrealized appreciation (depreciation) during the period on investments 744,431 (265,125)
------------------------------------------
Net increase (decrease) in net assets resulting from operations 656,902 (265,969)
Contract related transactions:
Contributions from contract holders (218,388 and 1,478,641 units,
respectively) 2,213,528 14,786,409
Cost of units redeemed (405,290 and 0 units, respectively) (4,278,145) -
------------------------------------------
Net increase (decrease) in net assets resulting from unit transactions (2,064,617) 14,786,409
------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (1,407,715) 14,520,440
NET ASSETS
Beginning of period 14,520,440 -
------------------------------------------
End of period $13,112,725 $ 14,520,440
==========================================
</TABLE>
SEE ACCOMPANYING NOTES.
16
<PAGE>
Select Ten Plus Division - December
Financial Highlights
<TABLE>
<CAPTION>
FOR THE ONE DAY
PERIOD ENDED
DECEMBER 31, 1998
YEAR ENDED (COMMENCEMENT
DECEMBER 31, 1999 OF OPERATIONS)
------------------------------------------
<S> <C> <C>
SELECTED PER-UNIT DATA
Unit value, beginning of period $ 9.82 $ 10.00
Income (loss) from investment operations:
Net investment income (loss) 0.05 -*
Net realized and unrealized gain (loss) on investments 0.28 (0.18)
------------------------------------------
Total from investment operations 0.33 (0.18)
------------------------------------------
Unit value, end of period $ 10.15 $ 9.82
==========================================
TOTAL RETURN 3.38% (1.80%)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $ 13,113 $ 14,520
Ratio of net investment income (loss) to average net assets 0.51% (2.12%)
Ratio of expenses to average net assets 2.12% 2.12%
Portfolio turnover rate 36% -
</TABLE>
* Less than $0.01
PERCENTAGE AMOUNTS ARE ANNUALIZED, EXCEPT TOTAL RETURN AND PORTFOLIO TURNOVER
RATE.
17
<PAGE>
Select Ten Plus Division - December
Schedule of Investments
December 31, 1999
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
------------- ----------------
<S> <C> <C>
COMMON STOCKS (100.0%)
BASIC MATERIALS (31.9%)
Du Pont (E.I.) de Nemours and Company 21,073 $ 1,388,184
Exxon Mobil Corporation 16,049 1,297,762
International Paper Company 25,162 1,420,101
----------------
4,106,047
CAPITAL GOODS (18.9%)
Caterpillar, Inc. 23,541 1,107,899
Minnesota Mining and Manufacturing Company 13,527 1,323,955
----------------
2,431,854
COMMUNICATION SERVICES (10.0%)
SBC Communications Inc. 26,530 1,283,057
CONSUMER CYCLICAL (18.9%)
Eastman Kodak Company 16,012 1,060,795
General Motors Corporation 18,812 1,367,397
----------------
2,428,192
CONSUMER STAPLE (9.7%)
Philip Morris Companies, Inc. 53,603 1,242,920
FINANCIAL (10.6%)
J.P. Morgan & Company, Inc. 10,726 1,358,180
----------------
TOTAL COMMON STOCKS (Cost $12,370,944) 12,850,250
----------------
TOTAL INVESTMENTS (100.0%) $ 12,850,250
================
</TABLE>
OTHER INFORMATION:
Cost of purchases and proceeds from sales of securities, excluding
short-term securities, for the period ended December 31, 1999 aggregated
$5,109,955 and $7,362,086, respectively. At December 31, 1999, net
unrealized appreciation for tax purposes aggregated $479,306 of which
$1,070,190 related to appreciated investments and $590,884 related to
depreciated investments. The aggregate cost of investments was the same for
book and tax purposes.
SEE ACCOMPANYING NOTES.
18
<PAGE>
Separate Account Ten of Integrity Life Insurance Company
Notes to Financial Statements
December 31, 1999
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Separate Account Ten of Integrity Life Insurance Company (the "Separate
Account") was established as of 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 (the "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 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-March
invests only on the last business day of March each year. 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 provides retirement savings and investment
products through it insurance company subsidiaries. At December 31, 1999, ARM
had approximately $4.8 billion of assets under management.
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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 ("GAAP") 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
Security 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). Integrity
Capital has agreed to reimburse each Division for operating expenses (excluding
management fees and mortality and expense charges) above an annual rate of 0.35%
of the Divisions' average net assets.
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Separate Account Ten of Integrity Life Insurance Company
Notes to Financial Statements (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 0.50% of each Division's average daily net assets.
Integrity Capital, not the Separate Account, pays sub-advisory fees to National
Asset based on the combined average daily net assets of the Integrity Divisions
and the portfolios that comprise Select Ten Plus Fund, LLC of National Integrity
Life Insurance Company (collectively, the "net asset base"). Fees under the
sub-advisory agreement are paid at an annual rate of 0.10% of the net asset base
up to $100 million and 0.05% of the net asset base in excess of $100 million.
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.
4. EVENTS RELATING TO ARM AND INTEGRITY
On July 29, 1999, ARM announced that it was restructuring its institutional
business and positioning its retail business and technology operations for the
sale of ARM or its businesses or its assets. Following the July 29, 1999
announcement, the ratings of ARM and Integrity were significantly lowered
several times by four major rating agencies, materially and adversely affecting
Integrity's ability to market and maintain persistency of retail products. As a
result, ARM sought protection with respect to its insurance subsidiary,
Integrity, from the Ohio Department of Insurance. Integrity is domiciled in
Ohio. On August 20, 1999, Integrity consented to a Supervision Order issued by
the Ohio Department of Insurance, which remains in effect. Unless the Ohio
Department of Insurance begins proceedings for the appointment of a
rehabilitator or liquidator, the Supervision Order will automatically be
extended for successive 60-day periods until written notice is given to
Integrity ending the supervision.
This regulatory action is intended to ensure an orderly process for addressing
the financial obligations of Integrity and to protect the interests of its
individual policyholders. Integrity will continue payments of death benefits,
previously scheduled systematic withdrawals, previously scheduled immediate
annuity payments, and agent commissions, but must receive written consent from
the Ohio Department of Insurance for other payments. In particular, the
Supervision Order suspends the processing of surrenders of fixed annuity
policies except in cases of approved hardship. The Supervision Order does not
affect the surrender of variable annuity contracts, including the contracts
through which the Divisions of the Separate Account are offered.
On December 17, 1999 ARM announced that it had signed a definitive agreement
whereby Western and Southern Life Insurance Company ("Western and Southern")
would acquire the ARM's insurance subsidiaries, Integrity and National Integrity
Life Insurance Company.
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Separate Account Ten of Integrity Life Insurance Company
Notes to Financial Statements (continued)
4. EVENTS RELATING TO ARM AND INTEGRITY (CONTINUED)
Western and Southern is part of the Western-Southern Enterprise, a financial
services group which also includes Western-Southern Life Assurance Company,
Columbus Life Insurance Company, Touchstone Advisors, Inc., Fort Washington
Investment Advisors, Inc., Todd Investment Advisors, Inc., Countrywide Financial
Services, Capital Analysts Incorporated and Eagle Realty Group, Inc. Assets
owned or under management by the group exceed $20 billion. Western and Southern
is rated A++ (Superior) by A.M. Best, AAA (Highest) by Duff & Phelps, AAA
(Extremely Strong) by Standard & Poor's, and Aa2 (Excellent) by Moody's.
The acquisition of the insurance companies by Western and Southern is being
implemented in a chapter 11 case filed by ARM under the U.S. Bankruptcy Code.
The closing of the transaction is subject to the approval of the Ohio Department
of Insurance, the New York Department of Insurance, and the Bankruptcy Court, as
well as to other customary conditions to closing. The transaction is expected to
close late in the first quarter of 2000; however, there can be no assurance as
to obtaining the required approvals or the timing of the closing of the
transaction.
Integrity Capital will not be acquired by Western and Southern. Accordingly, it
is contemplated that Integrity Capital will assign the current management
agreement between Integrity Capital and the Separate Account to Touchstone
Advisers, Inc., an indirect wholly-owned subsidiary of Western and Southern. The
assignment of the management agreement will automatically terminate the
agreement, and will also terminate the current sub-advisory agreements between
the Separate Account and National Asset.
The Board of Managers of the Separate Account will be asked to approve new
management and sub-advisory agreements and a distribution agreement for the
Separate Account. These new agreements will be subject to contractholder
approval. The new management and sub-advisory agreements are expected to
contain the same material terms as the current management and sub-advisory
agreements. It is anticipated that the contractholders meeting will occur
early in the second quarter of 2000.
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