<PAGE>
SELECT TEN PLUS FUND, LLC
OF
NATIONAL INTEGRITY LIFE INSURANCE COMPANY
SEMI-ANNUAL REPORT
JUNE 30, 1999
CONTENTS
President's Letter.............................................................1
Financial Statements, Financial Highlights, and Schedule of
Investments:
Select Ten Plus Fund Portfolio-June.....................................2
Notes to Financial Statements..................................................6
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR THE
GENERAL INFORMATION OF THE UNIT HOLDERS OF THE FUND. THIS REPORT IS NOT
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED
OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS. NEITHER THE FUND NOR ARM SECURITIES
CORPORATION, THE PRINCIPAL UNDERWRITER FOR FUND UNITS, IS A BANK AND FUND UNITS
ARE NOT BACKED OR GUARANTEED BY ANY BANK OR INSURED BY THE FEDERAL DEPOSITORY
INSURANCE CORPORATION.
<PAGE>
[LETTER HEAD]-REGISTERED TRADEMARK-
NATIONAL INTEGRITY
Life Insurance Company
A member of the ARM Financial Group
August 12, 1999
Dear Unit Holders:
I am pleased to introduce the Select Ten Plus Fund, LLC semi-annual report for
the fiscal period ended June 30, 1999. The semi-annual report details the
investment holdings in the June Portfolio of Select Ten Plus Fund, LLC as of
June 30, 1999, as well as other financial information.
Select Ten Plus Fund, LLC, which follows the popular "Dow Ten" investment
strategy, exists for the sole purpose of helping to provide a valuable tool that
assists you in meeting your investment objectives.
Thank you for your confidence. If you have any questions or comments, please
contact us at your convenience.
Sincerely,
/s/ Edward J. Haines
Edward J. Haines
President
15 Matthews Street, Suite 200
Goshen,New York 10924
Phone: 800-335-2821
Fax: 914-615-1034
1
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SELECT TEN PLUS PORTFOLIO - JUNE
STATEMENT OF ASSETS AND LIABILITIES
UNAUDITED
<TABLE>
<CAPTION>
JUNE 30, 1999
---------------
ASSETS
<S> <C>
Investments in securities, at value (cost $441,228)--See accompanying schedule $ 443,575
Cash 441,530
---------------
TOTAL ASSETS 885,105
LIABILITIES
Payable for investments purchased 441,250
---------------
TOTAL LIABILITIES 441,250
---------------
NET ASSETS $ 443,855
---------------
---------------
UNIT VALUE, offering and redemption price per unit $ 10.05
---------------
---------------
Units outstanding 44,153
---------------
---------------
STATEMENT OF OPERATIONS
UNAUDITED
FOR THE ONE DAY
PERIOD ENDED
JUNE 30, 1999
(COMMENCEMENT
OF OPERATIONS)
---------------
INVESTMENT INCOME - DIVIDENDS $ -
EXPENSES
Investment advisory and management fees 6
Other expenses 16
---------------
Total expenses 22
---------------
Net investment loss (22)
UNREALIZED GAIN ON INVESTMENTS
Unrealized appreciation on investments 2,347
---------------
Change in net unrealized gain on investments 2,347
---------------
Net increase in net assets resulting from operations $ 2,325
---------------
---------------
</TABLE>
SEE ACCOMPANYING NOTES.
2
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SELECT TEN PLUS PORTFOLIO - JUNE
STATEMENT OF CHANGES IN NET ASSETS
UNAUDITED
<TABLE>
<CAPTION>
FOR THE ONE DAY
PERIOD ENDED
JUNE 30, 1999
(COMMENCEMENT
OF OPERATIONS)
---------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C>
Operations:
Net investment loss $ (22)
Change in net unrealized appreciation on investments 2,347
---------------
Net increase in net assets resulting from operations 2,325
Contract related transactions:
Contributions from contract holders (44,153 units) 441,530
---------------
Total increase in net assets 443,855
NET ASSETS
Beginning of period -
---------------
End of period $ 443,855
---------------
---------------
</TABLE>
SEE ACCOMPANYING NOTES.
3
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SELECT TEN PLUS PORTFOLIO - JUNE
FINANCIAL HIGHLIGHTS
UNAUDITED
<TABLE>
<CAPTION>
FOR THE ONE DAY
PERIOD ENDED
JUNE 30, 1999
(COMMENCEMENT
OF OPERATIONS)
---------------
SELECTED PER-UNIT DATA
<S> <C>
Unit value, beginning of period $ 10.00
Loss from investment operations:
Net investment income - *
Net unrealized gain on investments 0.05
---------------
Total from investment operations 10.05
---------------
Unit value, end of period $ 10.05
---------------
---------------
TOTAL RETURN 0.50%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $ 444
Ratio of net investment loss to average net assets (1.82%)
Ratio of expenses to average net assets 1.82%
Portfolio turnover rate - *
</TABLE>
PERCENTAGE AMOUNTS ARE ANNUALIZED, EXCEPT TOTAL RETURN AND PORTFOLIO TURNOVER
RATE.
* Less than $0.01.
4
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SELECT TEN PLUS PORTFOLIO - JUNE
SCHEDULE OF INVESTMENTS
JUNE 30,1999
UNAUDITED
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------------- ---------------
<S> <C> <C>
COMMON STOCKS (100.0%)
BASIC MATERIALS (10.0%)
Du Pont (E.I.) de Nemours and Company 651 $ 44,471
CAPITAL GOODS (19.8%)
Caterpillar Inc. 731 43,860
Minnesota Mining and Manufacturing Company 507 44,077
---------------
87,937
CONSUMER CYCLICAL (30.1%)
Eastman Kodak Company 648 43,902
General Motors Corporation 682 45,012
The Goodyear Tire & Rubber Company 754 44,345
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133,259
CONSUMER STAPLE (10.0%)
Phillip Morris Companies, Inc. 1,105 44,407
ENERGY (19.8%)
Chevron Corporation 465 44,262
Exxon Corporation 565 43,576
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87,838
FINANCIAL (10.3%)
J.P. Morgan & Company, Inc. 325 45,663
TOTAL COMMON STOCKS (Cost $441,228) 443,575
---------------
TOTAL INVESTMENTS (100.0%) $ 443,575
---------------
---------------
</TABLE>
OTHER INFORMATION:
Purchases excluding short-term securities, for the period ended June 30,
1999 aggregated $441,228. At June 30, 1999, net unrealized appreciation for
tax purposes aggregated $2,347 of which $3,460 related to appreciated
investments and $1,113 related to depreciated investments. The aggregate
cost of investments was the same for book and tax purposes.
SEE ACCOMPANYING NOTES.
5
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SELECT TEN PLUS FUND, LLC OF NATIONAL INTEGRITY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
UNAUDITED
1.ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Select Ten Plus Fund, LLC (the "Fund") was formed as of September 30, 1998.
The Fund is registered under the Investment Company Act of 1940 as a
non-diversified, open-end management investment company. Contributions to
the Fund are presently limited to PINNACLE contract holders. PINNACLE is a
flexible premium variable annuity product issued by National Integrity Life
Insurance Company ("National Integrity"). National Integrity is a wholly
owned subsidiary of Integrity Life Insurance Company ("Integrity"). The
Fund is currently divided into four portfolios: Select Ten Plus
Portfolio-March, Select Ten Plus Portfolio-June, Select Ten Plus
Portfolio-September, and Select Ten Plus Portfolio-December (the
"Portfolio(s)"). Each Portfolio is a non-diversified investment company
which invests directly in securities. The Portfolios 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.
To the extent any of the ten highest yielding stocks qualifying for a
Portfolio are reasonably believed to receive 15% or more of their revenues
from securities-related activities, the Portfolio 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. The Fund
has applied to the Securities and Exchange Commission for exemptive relief
from this limitation, but there is no assurance as to when or if it will be
granted. Each Portfolio 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 Portfolio is named. For example, the Select Ten
Plus Portfolio-June invests only on the last business day of June each
year. As of June 30, 1999, the June Portfolio was the only Portfolio that
had invested assets. The assets of the Fund are owned by National
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 Fund.
Integrity Capital Advisors, Inc. ("Integrity Capital"), an investment
adviser registered under the Investment Advisers Act of 1940, provides
management services to the Fund 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 Portfolios pursuant to a sub-advisory agreement.
ARM Financial Group, Inc. ("ARM") is the ultimate parent of National
Integrity, Integrity Capital and ARM Securities. 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 June 30, 1999, ARM had approximately $10.4
billion of assets under management.
6
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SELECT TEN PLUS FUND, LLC OF NATIONAL 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
Securities transactions are accounted for as of trade date net of brokerage
fees, commissions and transfer fees. Interest income is accrued daily. Dividend
income is recorded on the ex-dividend date. Realized gains and losses on sales
of investments are determined on the basis of the first-in, first-out method for
all of the Portfolios.
FEDERAL INCOME TAX MATTERS
The Fund complied with the requirements of the Internal Revenue Code applicable
to regulated investment companies and distributed its taxable net investment
income and net realized gains. Therefore, no provision for federal or state
income tax is required.
USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period. Actual
results could differ from those estimates.
2. INVESTMENT ADVISORY AGREEMENTS AND PAYMENTS TO RELATED PARTIES
Integrity Capital serves as investment adviser of the Portfolios and National
Asset serves as the sub-adviser of the Portfolios. For providing investment
management services to the Portfolios, Integrity Capital receives a monthly fee
based on an annual rate of .50% of each Portfolio's average daily net assets.
Integrity Capital, not the Fund, pays sub-advisory fees to National Asset based
on the combined average daily net assets of the National Integrity Portfolios
and the Divisions that comprise Separate Account Ten of Integrity Life Insurance
Company (collectively, the "net asset base"). Fees under the sub-advisory
agreement are paid at an annual rate of .10% of the net asset base up to $100
million and .05% of the net asset base in excess of
7
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SELECT TEN PLUS FUND, LLC OF NATIONAL INTEGRITY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT ADVISORY AGREEMENTS AND PAYMENTS TO RELATED PARTIES (CONTINUED)
$100 million. Integrity Capital has guaranteed it will pay National Asset a
minimum sub-advisory fee of $25,000 during the first year of operation for the
Fund and Separate Account Ten of Integrity Life Insurance Company.
Certain officers and directors of the Fund are also officers of ARM, ARM
Securities, Integrity Capital Advisors, and National Integrity. The Fund does
not pay any amounts to compensate these individuals.
3. SUBSEQUENT EVENTS RELATING TO ARM AND INTEGRITY
On July 29, 1999, ARM announced that it is restructuring its institutional
business and positioning its retail business and technology operations for the
sale of ARM. ARM's efforts to find a buyer have been unsuccessful. As a result,
ARM has 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. The Supervision Order will remain in effect for 60
days. Unless the Ohio Department of Insurance begins proceedings for the
appointment of a rehabilitator or liquidator, the Supervision Order may
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. ARM believes that Integrity has adequate assets to
meet its obligations to individual retail 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 policies except in cases of approved hardship. Integrity intends
to seek appropriate relief to the extent necessary from the Securities and
Exchange Commission to effectuate the suspension of surrenders.
The possibility exists that National Integrity could be placed under
rehabilitation by the New York Department of Insurance if the New York
Department believes that such action is necessary or appropriate to protect the
interests of policyholders. New York is the domiciliary state of National
Integrity.
The Board of Directors of ARM is continuing to explore all strategic
alternatives, including the sale of ARM's subsidiaries or its businesses. There
can be no assurance that a transaction for the sale of ARM's insurance
subsidiaries or its businesses will be developed or consummated or as
8
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SELECT TEN PLUS FUND, LLC OF NATIONAL INTEGRITY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. SUBSEQUENT EVENTS RELATING TO ARM AND INTEGRITY (CONTINUED)
to the price or value that might be obtained.
If ARM is unable to find a suitable buyer for its subsidiaries or its businesses
or receive a significant infusion of capital from an investor or investors, then
ARM's ability to continue as a going concern is in substantial doubt. Without
the financial strength of a buyer or investor, ARM will likely not have adequate
levels of capital to service its obligations, including the $38 million debt and
$75 million of preferred stock. There can be no assurance that ARM will be able
to obtain sufficient capital to meet its liquidity needs. Accordingly, ARM is
considering all of the options available to it, including a possible bankruptcy
filing at the holding company level.
Integrity Capital is a wholly owned subsidiary of ARM. Integrity Capital is
dependent on ARM for its employees, overhead and services provided. The Board of
Managers is monitoring the situation involving ARM. Pursuant to an Investment
Services Agreement and Administrative Services Agreement, Integrity Capital's
operations are administered and managed by ARM. Following the July 29, 1999
announcement, certain of ARM's insurance subsidiaries' ratings were lowered by
four significant rating agencies. If ARM were to liquidate under federal or
state bankruptcy laws, there can be no assurance that Integrity Capital would be
able to provide services under the agreements mentioned above.
9
