<PAGE>
As filed with the Securities and Exchange Commission on April 6, 1999
Registration No. 333-69483
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A/A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.__1__ [ X ]
Post-Effective Amendment No.____ []
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No._1__ [ X ]
(Check appropriate box or boxes)
SELECT TEN PLUS FUND, LLC
-------------------------
(Exact Name of Registrant)
515 WEST MARKET STREET, LOUISVILLE, KY 40202
--------------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number, including area code (502) 582-7900
--------------
Kevin L. Howard
National Integrity Life Insurance Company
515 West Market Street
Louisville, Kentucky 40202
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon after the effective
date of this Registration Statement as is practicable.
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on May 1, 1999 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a) (1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
SELECT TEN PLUS FUND, LLC
Prospectus - May 1, 1999
Select Ten Plus Fund, LLC is a no-load mutual fund consisting of four separate
investment portfolios. The Select Ten Plus Portfolios seek total return by
investing in the ten highest dividend yielding companies included in the Dow
Jones Industrial Average.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 1 - RISK/RETURN SUMMARY
Investment Objective and Strategy. . . . . . . . . . . . . . . . . . . . .
Principal Risks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 2 - THE FUND
Investment Objective . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment Strategy. . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Dow Jones Industrial Average . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 3 - PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . .
SECTION 4 - SHAREHOLDER INFORMATION
Pricing of Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase and Redemption of Shares. . . . . . . . . . . . . . . . . . . . .
Dividends and Distributions. . . . . . . . . . . . . . . . . . . . . . . .
Tax Consequences of Investing in the Fund. . . . . . . . . . . . . . . . .
SECTION 5 - MANAGEMENT
The Investment Adviser . . . . . . . . . . . . . . . . . . . . . . . . . .
The Sub-Adviser. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year 2000 Preparation. . . . . . . . . . . . . . . . . . . . . . . . . . .
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. WE HAVE NOT AUTHORIZED ANYONE TO MAKE
ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS.
<PAGE>
SECTION 1 - RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE AND STRATEGY
The Select Ten Plus Portfolios of the Fund seek total return. To achieve this
goal, the four Portfolios buy shares of the ten highest dividend yielding common
stocks in the Dow Jones Industrial Average (DJIA) in equal weights as determined
on a specified business day. Each of the Portfolios holds these stocks for a
period of twelve months. At the end of a Portfolio's twelve-month period, the
Portfolio restructures its investment portfolio to invest in the ten stocks with
the highest current dividend yield in the DJIA for another twelve months.
PRINCIPAL RISKS
As with any investment in common stocks, the value of your investment in a
Portfolio may rise and fall in response to the specific performance of a stock's
issuer and the general performance of the stock market and you may lose money.
In addition, there are risks associated with the Portfolios' investment
strategy, including:
(1) greater fluctuation in value than a diversified mutual fund because
the Portfolios are non-diversified, meaning they invest a large
portion of assets in the securities of a few issuers. In addition, a
Portfolio is more likely than a diversified mutual fund to be
concentrated in one or more types of issuers. Concentration may
involve additional risk because of the decreased diversification of
economic, financial and market risks.
(2) decreased diversification of economic, financial, and market risks
because of industry concentration; and
(3) potential adverse effects on issuers of particular industries as a
result of regulatory change, including the petroleum and tobacco
industries, as well as industries that may affect the environment.
SECTION 2 - THE FUND
INVESTMENT OBJECTIVE
The Portfolios seek total return by investing in shares of the ten highest
dividend yielding common stocks in the DJIA in equal weights and holding them
for twelve months. The dividend yield for each stock is 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 New York Stock Exchange (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
Portfolios. The term "equal weights" means that if you invested $100 in a
Portfolio, the Portfolio would buy $10 of each of the ten highest yielding
stocks.
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 Portfolio to own a stock that the sub-adviser does not recommend for
purchase. 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 Portfolio's
portfolio.
To the extent we reasonably believe that any of the ten highest dividend
yielding common stocks in the DJIA receives 15% or more of its revenues from
securities-related activities, we will allocate a maximum of 5% of the relevant
Portfolio's assets to each such stock, and will allocate the remainder of its
assets among the remaining
1
<PAGE>
stocks not so limited. The Fund 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.
INVESTMENT STRATEGY
Each of the four Portfolios begins operations on the last business day of a
specified calendar quarter. The Fund may have four different investment
portfolios, I.E., the four Portfolios, operating simultaneously for their
respective twelve-month periods. At the end of each Portfolio's twelve-month
period, the Portfolio's portfolio is restructured to again hold the ten highest
yielding stocks in the DJIA in equal weights for the next twelve months. We
will not rebalance the weights of the individual stock positions during a
twelve-month period.
Contributions to each of the Portfolios are invested on only one day of each
year as follows:
<TABLE>
<CAPTION>
Portfolio Investment Date
--------- ---------------
<S> <C>
Select Ten Plus Portfolio - March last Business Day of March
Select Ten Plus Portfolio - June last Business Day of June
Select Ten Plus Portfolio - September last Business Day of September
Select Ten Plus Portfolio - December last Business Day of December
</TABLE>
On the day we receive a dividend from a stock in a Portfolio's investment
portfolio, we will reinvest it in the form of additional shares of that stock.
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.
The Fund's buy and hold investment strategy is very different from the frequent
portfolio changes made by other mutual funds based on economic, financial, and
market analyses. Therefore, the Portfolios will generally buy or keep a stock
despite adverse developments relating to the stock that might otherwise make
investing in the stock detrimental to the interest of investors. Such adverse
developments include 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).
The 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 Portfolio'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 have
accounted for a substantial portion of the total return on stocks of the DJIA as
a group. Each Portfolio's return will consist of a combination of capital
appreciation and current dividend income.
2
<PAGE>
THE DOW JONES INDUSTRIAL AVERAGE
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.
The companies marked below with an asterisk are the ten highest yielding stocks
in the DJIA as of the market close on December 31, 1998. The ten highest
yielding stocks in the DJIA are commonly known as the "Dogs of the Dow:"
AT&T Hewlett-Packard
Allied Signal IBM
Aluminum Co. of America International Paper*
American Express J.P. Morgan*
Boeing Johnson & Johnson
Caterpillar* McDonald's
Chevron* Merck
Citigroup Minnesota Mining & Manufacturing*
Coca-Cola Philip Morris*
DuPont* Proctor & Gamble
Eastman Kodak* Sears Roebuck
Exxon Union Carbide
General Electric United Technologies
General Motors* Walmart
Goodyear* Walt Disney
There are various theories 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, performance or forecasts, or
negative publicity;
(2) there may be uncertainties because of 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.
While these factors may affect only a part of an issuer's overall business, the
publicity may be strong enough to outweigh otherwise solid business performance.
In addition, companies in certain industries have historically paid relatively
high dividends.
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 the Fund, has not participated in any
way in the creation of the Portfolios or in the selection of stocks included in
the Portfolios and has not reviewed or approved any information included in this
prospectus. The Portfolios are not sponsored, endorsed, sold or promoted by Dow
Jones, and Dow Jones has no relationship whatsoever with the Portfolios. The
DJIA is determined, composed and calculated by Dow Jones without regard to the
Portfolios. Dow Jones is not responsible for and does not participate in the
determination of the timing, price, or quantity of the Portfolios' shares to be
issued or in the determination or calculation of the equation by which the
Portfolios' shares are to be redeemed. Dow Jones has no obligation or liability
whatsoever in connection with the administration or marketing of the Portfolios.
3
<PAGE>
RISK FACTORS
RISKS IN GENERAL
An investment in a Portfolio entails certain risks common to all stock
investments. Stocks fluctuate in price for a variety of reasons. For example,
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. Common stocks in general may be especially susceptible to
general stock market movements and to increases and decreases in value as market
confidence in and perceptions of the issuers change. These perceptions are
based on unpredictable factors, including government, economic, monetary and
fiscal policies, inflation and interest rates, economic expansion or
contraction, and global or regional political, economic or banking crises. In
addition, investors in common stocks generally have inferior rights to receive
payments from the issuer in comparison with investors in 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.
STRATEGY SPECIFIC RISKS
Each Portfolio 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 Portfolio may be subject to greater fluctuation in
value than an investment in a diversified investment company. In addition, a
Portfolio may be concentrated in issuers primarily engaged in a particular
industry. 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 Portfolio's portfolio.
SECTION 3 - PERFORMANCE INFORMATION
At December 31, 1998, the Fund had not commenced operations. However, the
performance of the investment strategies for the Portfolios 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 do not reflect the performance of any Portfolio
and do not guarantee future performance or predict any Portfolio's returns.
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 Portfolio will outperform the DJIA over the life of the Portfolio.
An investor in a Portfolio would not necessarily realize as high a total return
on an investment in the stocks upon which the hypothetical returns are based
because (1) the total return figures shown do not reflect Portfolio expenses or
brokerage commissions, and (2) the Portfolios 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. In addition,
total return does not take into consideration separate account charges or
contract charges.
4
<PAGE>
COMPARISON OF HISTORICAL TOTAL RETURN (1)
BETWEEN THE STRATEGY AND THE DJIA
<TABLE>
<CAPTION>
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%
1998 10.7% 18.1%
Cumulative 7,271.4% 2,429.7%
</TABLE>
- ----------------------------------
(1) Total Return is the sum of the percentage change in market value of each
group of stocks between the first and last trading days 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 expenses
or commissions. Over the twenty-six years listed above, the ten highest
dividend yielding stocks in the DJIA achieved an average annual total
return of 18.0%. Over this period, the strategy achieved a greater average
annual total return than that of the DJIA, which was 13.2%. Although each
Portfolio seeks to achieve a better performance than the DJIA as a whole,
we cannot guarantee that a Portfolio will achieve a better performance.
Performance may also be compared to the performance of the S&P 500
Composite Price Stock Index or performance data from publications such as
Morningstar Publications, Inc. Source for years 1973-1997: BEATING THE
DOW, by Michael O'Higgins with John Downes, published by Harper Perennial,
1992. Used with permission of the authors. Source for 1998: ARM.
(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 at 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.
5
<PAGE>
HOW THE STRATEGY HAS PERFORMED
<TABLE>
<CAPTION>
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
1998 737,136 252,971
</TABLE>
The table above represents a hypothetical investment of $10,000 in the DJIA and
the ten highest dividend yielding DJIA Stocks from January 1, 1973 through
December 31, 1998. The table assumes that all dividends and distributions
during a year are reinvested at the end of that year and does not reflect
expenses or commissions. The value of the ten highest dividend-yielding DJIA
stocks would have been $449,913 if the following fees and expenses had been
charged: (1) insurance charges of 1.20%, (2) management fees of .50%, (3)
administrative fees of .15%, and (4) other expenses of .35%.
Investors should not rely on the preceding performance information as an
indication of the past or future performance of the Portfolios. There can be no
assurance that any of the Portfolios will outperform the DJIA.
6
<PAGE>
SECTION 4 - SHAREHOLDER INFORMATION
PRICING OF SHARES
The net asset value of the shares of each Portfolio will be determined on each
day the NYSE is open for trading. The net assets are valued based on market
quotations as of the close of business of the NYSE, which is currently 4:00 pm,
Eastern Time. Purchase and redemption orders will be priced at the next net
asset value calculated after your order is accepted. Each Portfolio's net asset
value per share is calculated separately by dividing the value of the securities
held by the Portfolio plus any cash or other assets, less liabilities, by the
number of outstanding shares of the Portfolio.
PURCHASE AND REDEMPTION OF SHARES
Only separate accounts of National Integrity Life Insurance Company established
to fund variable annuity contracts may invest in the Portfolios. The separate
accounts purchase shares without a sales load at the net asset value per share
next determined after receipt and acceptance of the purchase order.
Shares of the Portfolios are redeemed at net asset value without any redemption
charge. Upon receipt of a redemption 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 redemption. Payment upon redemption
is normally made within seven days of receipt of the request, unless redemption
is suspended or payment is delayed as permitted by the SEC.
DIVIDENDS AND DISTRIBUTIONS
All dividend and capital gain distributions will automatically be reinvested in
additional shares at net asset value.
TAX CONSEQUENCES OF INVESTING IN THE FUND
The Fund is a limited liability company with all of its interests owned by
National Integrity Life Insurance Company. Accordingly, the Fund is taxed as
part of the operations of National Integrity Life Insurance Company and is not
taxed separately.
Shares of the Fund are held under the terms of a variable annuity contract.
Under current tax law, interest income, dividend income and capital gains of the
Fund are not currently taxable when left to accumulate within a variable annuity
contract.
Because every investor's situation is unique, please consult a tax adviser about
federal, state and local tax consequences of your variable annuity contract's
investment in the Fund.
SECTION 5 - MANAGEMENT
THE INVESTMENT ADVISER
Integrity Capital Advisors Inc. (formerly known as ARM Capital Advisors, Inc.)
serves as the investment adviser to the Fund. Integrity Capital Advisors (or
its predecessor) provides investment management and supervisory services to
investment companies, and has been in operation since October 1994. Integrity
Capital Advisors is a wholly owned subsidiary of ARM Financial Group, Inc., a
financial services company which provides retail and institutional products and
services to the long-term savings and retirement market. Its offices are
located at 515 West Market Street, Louisville, Kentucky 40202.
7
<PAGE>
Integrity Capital Advisors has overall responsibility for administering all
operations of the Portfolios and for monitoring and evaluating the management of
the assets of the Portfolios by the sub-adviser. Specifically, Integrity
Capital Advisors:
- provides the overall business management and administrative services
necessary for each Portfolio's operation;
- furnishes or procures on behalf of the Portfolios the services and
information necessary to the proper conduct of the Portfolios'
business;
- acts as liaison among the various service providers to the Portfolios,
including the custodian, portfolio accounting personnel, sub-adviser,
counsel, and auditors;
- is responsible for ensuring that the Portfolios 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 Portfolios; and
- is responsible for monitoring and evaluating the sub-adviser on a
periodic basis and considering its performance record with respect to
the investment objective and policies of the Portfolios.
Integrity Capital Advisors is authorized to exercise full investment discretion
and make all determinations with respect to the investment of each Portfolio's
assets and the purchase and sale of securities for the Portfolios in the event
that at any time a sub-adviser is not engaged to manage the assets of the
Portfolios.
For providing investment management services to the Portfolios, Integrity
Capital Advisors will receive a monthly fee based on an annual rate of .50% of
each Portfolio's average daily net assets.
THE SUB-ADVISER
National Asset Management Corporation serves as the sub-adviser to the
Portfolios and in that capacity provides investment advisory services for the
Portfolios, including security selection. Subject to each Portfolio's
investment objective and policies, National Asset makes all determinations with
respect to the investment of each Portfolio'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, 1998, National Asset managed approximately $10.2 billion in assets.
YEAR 2000 PREPARATION
Integrity Capital Advisors is currently evaluating, on an ongoing basis, its
computer systems and the systems of other companies on which the Fund'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 the Fund's core business operations. While
Integrity Capital Advisors 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 the Fund's operations rely will be converted on a timely
basis and will not have a material effect on the Fund.
8
<PAGE>
Select Ten Plus Fund, LLC's shares are sold only to separate accounts of
National Integrity Life Insurance Company as an investment medium for its
variable annuity contracts.
More information about Select Ten Plus Fund, LLC is available in its Statement
of Additional Information (SAI). The SAI is incorporated by reference into this
prospectus. To obtain a copy of the SAI free of charge, or to request other
information, please contact Select Ten Plus Fund, LLC by telephone at
1-800-325-8583 or by mail at 515 West Market Street, 8th Floor, Louisville,
Kentucky 40202.
You can review and copy information about Select Ten Plus Fund, LLC at the SEC's
Public Reference Room in Washington, D.C. For hours of operation of the Public
Reference Room, please call 1-800-SEC-0330. You may also obtain information
about Select Ten Plus Fund, LLC on the SEC's internet site at
http://www.sec.gov, or, upon payment of a duplicating fee, by writing the SEC's
Public Reference Section, Washington, D.C. 20459-6009.
Select Ten Plus Fund, LLC Investment Company Act File No. 811-09179.
9
<PAGE>
SELECT TEN PLUS FUND, LLC
Statement of Additional Information
May 1, 1999
TABLE OF CONTENTS
Page
<TABLE>
<S> <C>
Section 1 - The Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Section 2 - Investment Restrictions and Policies. . . . . . . . . . . . . .
Section 3 - Management of the Fund. . . . . . . . . . . . . . . . . . . . .
Section 4 - Investment Advisory and Other Services. . . . . . . . . . . . .
Section 5 - Portfolio Transactions and Brokerage. . . . . . . . . . . . . .
Section 6 - Purchase, Redemption, and Pricing of Shares . . . . . . . . . .
Section 7 - Taxation of the Fund. . . . . . . . . . . . . . . . . . . . . .
Section 8 - Calculation of Performance Data . . . . . . . . . . . . . . . .
Section 9 - Financial Statements. . . . . . . . . . . . . . . . . . . . . .
</TABLE>
This Statement of Additional Information (SAI) is not a prospectus. It should
be read in conjunction with the prospectus for the Select Ten Plus Fund, LLC
dated May 1, 1999. A copy of the prospectus is available at no charge by
writing to the Fund at 515 West Market Street, 8th Floor, Louisville, Kentucky
40202, or by calling 1-800-325-8583.
<PAGE>
SECTION 1 - THE FUND
The Select Ten Plus Fund, LLC is a non-diversified, open-end management
investment company organized on September 30, 1998, in Delaware as a limited
liability company.
SECTION 2 - INVESTMENT RESTRICTIONS AND POLICIES
INVESTMENT RESTRICTIONS
The following are the Portfolios' fundamental investment restrictions that
cannot be changed without approval of the shareholders. At all meetings of the
shareholders called for this purpose, the presence in person or by proxy of
shareholders entitled to cast one-quarter of the votes entitled to be cast at
the meeting shall constitute a quorum for the transaction of business at that
meeting. If, however, the vote of a majority of the outstanding voting
securities, as defined in the Investment Company Act of 1940 (1940 ACT), is
required for action to be taken on any matter to be brought before the meeting,
there shall be present, either in person or by proxy, shareholders entitled to
cast more than one-half of the total number of votes in order to constitute a
quorum. A majority, in this case, means (a) sixty-seven percent (67%) or more
of the votes present at a meeting if shareholders entitled to more than fifty
percent (50%) of the outstanding votes are present or represented by proxy; or
(b) more than fifty percent (50%) of the outstanding votes of the Portfolio,
whichever is less. Separate votes are taken by each Portfolio if a matter
affects only that Portfolio.
Each Portfolio may not:
1. Issue senior securities, except as permitted under the 1940 Act.
2. Borrow money, except that each Portfolio 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).
3. Act as an underwriter of another issuer's securities, except to the extent
that the Portfolios 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.
4. Make loans if, as a result, more than 33-1/3 % of that Portfolio'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. Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prohibit the Portfolios
from purchasing or selling securities or other instruments backed by real
estate or of issuers engaged in real estate activities).
6. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments.
Any change to these restrictions also requires a majority vote of the Managers
at a regular meeting or at a special meeting called for that purpose.
The following are the Portfolios' non-fundamental operating policies, which may
be changed by the Managers without approval of the shareholders.
<PAGE>
Each Portfolio may not:
1. Sell securities short, unless the Portfolio 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 Portfolio 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.
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 restrictions listed above and the
Portfolios' investment objective, which includes the objective of total return
but not the procedures described in the prospectus in Section 2, "The Fund," the
other investment policies described in the prospectus and this SAI are not
fundamental and may be changed with the approval of the 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
Portfolios' assets (I.E., due to cash inflows or redemptions) or in market value
of the investment or the Portfolios' assets will not constitute a violation of
that restriction.
INVESTMENT POLICIES AND TECHNIQUES
The following information supplements the discussion of the Portfolios'
investment objective and strategy found in the prospectus in Section 1,
"Risk/Return Summary," and Section 2, "The Fund."
LENDING OF PORTFOLIO SECURITIES. Each Portfolio is authorized to lend up to
33% 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 Portfolios' custodian
bank collateral either 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
Portfolio is authorized to lend, the Portfolios 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
Portfolios will retain authority to terminate any loans at any time. The
Portfolios 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 Portfolios 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 Portfolios 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 Portfolios' interest.
REPURCHASE AGREEMENTS. The Portfolios may enter into repurchase agreements with
certain banks or non-bank dealers. In a repurchase agreement, a Portfolio 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
2
<PAGE>
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 Portfolios' 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 Portfolio
enters into repurchase agreements to evaluate those risks. The Portfolios may,
under certain circumstances, deem repurchase agreements collateralized by U.S.
government securities to be investments in U.S. government securities.
SECTION 3 - MANAGEMENT OF THE FUND
The Fund is governed by four Managers. The Managers are responsible for
overseeing the management of the Fund's business and affairs and play a vital
role in protecting the interests of its holders. Among other things, the
Managers approve and review the Fund's contracts and other arrangements and
monitor Fund operations. The names, addresses, and ages of the Managers and
officers of the Fund, together with information as to their principal business
occupations during the past five years, are set forth below.
<TABLE>
<CAPTION>
Name, Age & Address Position with the Fund Principal Occupation(s) During Past 5 Years
------------------- ---------------------- --------------------------------------------
<S> <C> <C>
John R. Lindholm (50)* Chairman of the Board of President of Integrity Life Insurance Company and Vice
515 W. Market Street Managers President and Chief Marketing Officer of National
Louisville, KY 40202 Integrity Life Insurance Company since November, 1993,
Executive Vice President - Chief Marketing Officer of ARM
Financial Group, Inc. since July, 1993, Director of the
mutual funds in the State Bond Group of mutual funds from
June 1995 to December 1996.
Chris LaVictoire Mahai (43) Manager President, clavm, inc. (a firm that provides consulting,
425 Portland Avenue project management and infomediary services to
Minneapolis, MN 55488 organizations interested in creating and implementing
innovative business, community and marketplace strategies
and initiatives); Poynter Fellow, the Poynter Institute
for Media Studies, Board Member (Cowles Media) Star
Tribune Foundation from September 1992 to June 1998;
Senior Vice President, Cowles Media Company/ Star Tribune
from August 1993 to June 1998; Director of the mutual
funds in the State Bond Group of mutual funds from June
1984 to December 1996.
William B. Faulkner (70) Manager President, William Faulkner & Associates (business and
240 East Plato Blvd. institutional adviser) since 1986. Director of the mutual
St. Paul, MN 55107 funds in the State Bond Group of mutual funds from June
1995 to December 1996.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Name, Age & Address Position with the Fund Principal Occupation(s) during past 5 years
------------------- ---------------------- -------------------------------------------
<S> <C> <C>
John Katz (59) Manager Investment banker since January 1991; Director of the
10 Hemlock Road mutual funds in the State Bond Group of mutual funds from
Hartsdale, NY 10530 June 1995 to December 1996.
Edward J. Haines (51) President Senior Vice President of Marketing for ARM Financial Group,
515 W. Market Street Inc. since December, 1993.
Louisville, KY 40202
Kevin L. Howard (34) Secretary Assistant General Counsel of ARM Financial Group, Inc.
515 W. Market Street since January, 1994.
Louisville, KY 40202
Barry G. Ward (37) Controller Controller of ARM Financial Group Inc. since June, 1996,
515 W. Market Street Accounting Officer of ARM from October, 1993 until June,
Louisville, KY 40202 1996.
Peter Resnik (38) Treasurer Treasurer of ARM Financial Group Inc. since December,
515 W. Market Street 1992.
Louisville, KY 40202
Michael A. Cochran (39) Tax Officer Tax Officer of ARM Financial Group Inc. since October,
515 W. Market Street 1997, Tax Executive for Ernst & Young, LLP from July, 1984
Louisville, KY 40202 until October, 1997.
</TABLE>
* Mr. Lindholm is an interested person as defined in the 1940 Act by virtue
of his position with ARM Financial Group, Inc.
The Fund pays Managers who are not interested persons of the Fund fees for
serving as Managers. Because the Fund is not yet operational, no fees have been
paid to the Managers under this provision. The estimate of fees to be paid to
Managers who are not interested persons of the Fund is $1,000.00 per year,
exclusive of expenses. Because the investment adviser and the sub-adviser
perform substantially all of the services necessary for the operation of the
Fund, the Fund requires no employees. No officer, director or employee of
Integrity Life Insurance Company, National Integrity Life Insurance Company, the
investment adviser or the sub-adviser receives any compensation from the Fund
for acting as a Manager.
The following table sets forth for the fiscal year ending December 31, 1999, the
estimated compensation to be paid by the Fund to the non-interested Managers.
Managers who are interested persons, as defined in the 1940 Act, receive no
compensation from the Fund.
4
<PAGE>
<TABLE>
<CAPTION>
Pension or Retirement Estimated Annual Total Compensation
Aggregate Compensation Benefits Accrued as Part Benefits Upon From Fund Paid to
Name of Manager From Fund of Fund Expense Retirement Managers
--------------- ---------------------- ------------------------ ---------------- ------------------
<S> <C> <C> <C> <C>
William B. Faulkner $1,000.00 None N/A $1,000.00
John Katz $1,000.00 None N/A $1,000.00
Chris L. Mahai $1,000.00 None N/A $1,000.00
</TABLE>
As of December 31, 1998, the Managers and officers of the Fund as a group,
owned less than 1% of the outstanding membership interests of the Fund.
The Managers are also members of the Board of Managers of Separate Account Ten
of Integrity Life Insurance company, a management investment company, and of the
Board of Directors of The Legends Fund, Inc., an open-end management investment
company, both of which have the same investment adviser as the Fund.
SECTION 4 - INVESTMENT ADVISORY AND OTHER SERVICES
THE INVESTMENT ADVISER
Integrity Capital Advisors Inc. serves as the investment adviser to the Fund
pursuant to an investment advisory agreement. Integrity Capital Advisors is a
wholly owned subsidiary of ARM Financial Group, Inc. 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 Managers, Integrity Capital Advisors is
responsible for providing all supervisory and management services reasonably
necessary for the Fund's operation, 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 functions for the Fund;
(ii) providing the Fund, at Integrity Capital Advisor's 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 the Fund;
(iii) making its officers and employees available to the Managers of
the Fund for consultation and discussions regarding the supervision
and administration of the Fund;
(iv) maintaining or supervising the maintenance by the sub-adviser or third
parties approved by the Fund of such books and records as may be
required by applicable federal or state law;
5
<PAGE>
(v) preparing or supervising the preparation by third parties approved by
the Fund of all federal, state and local tax returns and reports of
the Fund required by applicable law;
(vi) 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;
(vii) taking such other action with respect to the Fund as may be
required by applicable law, including without limitation, the rules
and regulations of the SEC and other regulatory agencies; and
(viii) providing the Fund, at Integrity Capital Advisor's 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 Portfolios' assets and the purchase and sale of securities for the
Portfolios in the event that at any time a sub-adviser is not engaged to manage
the assets of the Portfolios.
The Portfolios pay Integrity Capital Advisors a monthly fee based on an annual
rate of .50% of the Portfolio's average daily net assets. Integrity Capital
Advisors will pay a portion of those fees to National Asset Management
Corporation for its services as sub-adviser to the Fund. In the event that at
any particular time a sub-adviser is not engaged, Integrity Capital Advisors
will be entitled to keep the entire fee, including the portion of the fee that
would otherwise be paid to the sub-adviser.
Integrity Capital Advisors has agreed to reimburse the Portfolios for operating
expenses (excluding management fees) which exceed an annual rate of .35% of
average net assets of the Portfolios. Integrity Capital Advisors has reserved
the right to withdraw or modify its policy of expense reimbursement for the
Portfolios, but has no current intention of doing so.
THE SUB-ADVISER
National Asset Management Corporation ("National Asset") serves as the
sub-adviser to the Portfolios and in that capacity provides investment advisory
services for the Portfolios, 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 Portfolios and will
determine the composition of each Portfolio's assets, including determinations
with respect to the purchase, retention and sale of securities, cash and other
investments contained in the Portfolio's portfolio. National Asset will also
provide investment research and conduct a continuous program of evaluation,
investment, sales and reinvestment of the Portfolios' assets. National Asset
will receive a monthly fee for its services based on an annual rate of .10% of
each Portfolio's average daily net assets up to $100 million and .05% of each
Portfolio's average daily net assets in excess of $100 million. Integrity
Capital Advisors has guaranteed a minimum sub-advisory fee of $25,000 to
National Asset during the Portfolios' first year of operations.
CUSTODIAN
Investors Fiduciary Trust Company, 801 Pennsylvania Avenue, Kansas City,
Missouri 64105, is the Fund's custodian and is responsible for safeguarding its
cash and securities. The shares are held in book-entry form.
6
<PAGE>
INDEPENDENT AUDITOR
Ernst & Young LLP, Suite 2100, 400 West Market Street, Louisville, Kentucky
40202, serves as the Fund's independent auditor. On an annual basis, Ernst &
Young LLP will audit certain financial statements prepared by management and
express an opinion on such financial statements based on its audit.
SECTION 5 - PORTFOLIO TRANSACTIONS AND BROKERAGE
Investment decisions for the Portfolios are made by National Asset, subject to
the supervision of the Board of Managers and Integrity Capital Advisors.
National Asset has investment advisory clients other than the Portfolios. 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 day's 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 Managers.
National Asset places all orders for the purchase and sale of securities,
options, and futures contracts for the Portfolios through a substantial number
of brokers and dealers. In executing transactions, National Asset will attempt
to obtain the best execution for the Portfolios 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 firm's 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 Portfolios, 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 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 who execute portfolio transactions
for the clients of such advisers. Consistent with this practice, National Asset
may receive research services for the Portfolios from many of the broker-dealers
with whom National Asset places the Portfolio's 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 Portfolios,
although not all of these services are necessarily useful and of value in
managing the Portfolios. The sub-advisory fee paid by Integrity Capital
Advisors to National Asset is not reduced because National Asset and its
affiliates receive such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, National
Asset may cause the Portfolios to pay a broker-dealer a disclosed commission for
effecting a securities transaction for the Portfolios 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
7
<PAGE>
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
Portfolios 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."
SECTION 6 - PURCHASE, REDEMPTION, AND PRICING OF SHARES
The separate accounts of National Integrity Life Insurance Company may purchase
and redeem shares of each Portfolio on each day the New York Stock Exchange
(NYSE) is open for trading based on, among other things, the amount of premium
payments to be invested and surrendered and transfers to be effected on that day
pursuant to the relevant variable annuity contracts.
The Fund may suspend redemption privileges or postpone the date of payment
during the following periods:
(1) when the NYSE is closed (other than customary weekend or holiday
closings);
(2) when trading on the NYSE is restricted or an emergency exists as
determined by the SEC, so that disposal of the Fund's investments or
determination of net asset value is not reasonably practicable; or
(3) for such other periods as the SEC, by order, may otherwise permit.
The net asset value of the shares of each Portfolio will be determined on each
day the NYSE is open for trading. The net assets are valued as of the close of
business of the NYSE, which currently is 4:00 p.m., Eastern time. Each
Portfolio's net asset value per share is calculated separately by dividing the
value of the securities held by the Portfolio plus any cash or other assets,
less its liabilities, by the number of outstanding shares. Equity securities
are valued each day at the close of business of the NYSE. Money market
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.
SECTION 7 - TAXATION OF THE FUND
8
<PAGE>
The Fund is not a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). However, as a limited
liability company whose membership interests are sold only to National Integrity
Life Insurance Company, the Fund is disregarded as an entity for purposes of
federal income taxation. The Fund does not pay federal income tax on its
interest income, dividend income and capital gains. Instead, National Integrity
Life Insurance Company, through its separate accounts, is treated as owning the
assets of the Fund directly and its tax obligations thereon are computed
pursuant to Subchapter L of the Code. Moreover, under current tax law, interest
income, dividend income and capital gains of the Fund are not currently taxable
to National Integrity Life Insurance Company or to variable annuity contract
owners when left to accumulate within a variable annuity contract. Tax
disclosure relating to variable annuity contracts that offer the Fund as an
underlying investment is contained in the prospectuses for those contracts.
SECTION 8 - CALCULATION OF PERFORMANCE DATA
Each Portfolio may from time to time include the total return and yield of its
shares in advertisements or in other information furnished to contract holders.
Performance information is computed separately for each Portfolio 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. Any statement of a Portfolio's
performance will also disclose the performance of the separate account funding
the variable annuity contracts which invest in the Fund.
TOTAL RETURNS
Total returns reflect all aspects of a Portfolio's return, including the
automatic reinvestment by the Portfolio of all distributions. Quotations also
will assume a redemption at the end of the particular period.
Non-standardized total return will be calculated in a similar manner except that
total return will assume an initial investment of $60,000 instead of $1,000 and
will be calculated for a 3 year period as well as 1, 5, and 10 years (up to the
life of the Portfolio). 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.
AVERAGE ANNUAL TOTAL RETURNS are calculated by determining the growth or decline
in the value of a hypothetical historical investment in a Portfolio over certain
periods, including 1, 5, and 10 years (up to the life of the Portfolio), 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 Portfolio'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 Portfolio during any portion
of the period illustrated. Average annual returns are calculated pursuant to
the following formula:
n
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 redemption 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 a Portfolio 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.
9
<PAGE>
YIELD
The Portfolios may advertise yields. Yields quoted in advertising reflect the
change in value of a hypothetical investment in a Portfolio over a stated period
of time, not taking into account capital gains or losses. Yields are annualized
and stated as a percentage.
PERFORMANCE COMPARISONS
Each Portfolio may from time to time include in reports and advertising 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 Portfolio 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
contract owners or prospective investors may also include evaluations of a
Portfolio 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 Portfolio's shares against certain widely recognized standards
or indices for stock and bond market performance. The following are the indices
against which the Portfolios may compare performance:
The Standard & Poor's Composite Index of 500 Stocks (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 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 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 NYSE composite or component indices are unmanaged indices of all industrial,
utilities, transportation and finance company stocks listed on the NYSE.
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.
10
<PAGE>
The Morgan Stanley Capital International World Index is 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 and 50% of the Lehman
Brothers Government/Corporate Bond Index.
Other Composite Indices: 70% S&P 500 and 30% NASDAQ Industrial Index; 35% S&P
500 and 65% Salomon Brothers High Grade Bond Index; and 65% S&P 500 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.
SECTION 9 - FINANCIAL STATEMENTS
No financial statements of the Fund are included because as of the date of this
SAI, the Fund had not yet commenced operations.
11
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
--------
(a) Certificate of Formation of Select Ten Plus Fund, LLC
(b) Operating Agreement (Rules and Regulations) of Select Ten Plus
Fund, LLC
(c) Not applicable
(d) (1)Form of Management Agreement between Select Ten Plus Fund, LLC
and Integrity Capital Advisors, Inc.
(d) (2) Form of Sub-Advisory Agreement between Integrity Capital
Advisors, Inc. and National Asset Management Corporation
(e) Not applicable
(f) Not applicable
(g) Form of Custody, Recordkeeping and Agency Agreement between
Select Ten Plus Fund, LLC and Investors Fiduciary Trust Company
(h) Form of Participation Agreement between Select Ten Plus Fund, LLC
and National Integrity Life Insurance Company
(i) Opinion of Counsel
(j) Not applicable
(k) Not applicable
(l) Not applicable
(m) Not applicable
(n) Not applicable
(o) Not applicable
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND
Separate Account II of National Integrity Life Insurance Company (NATIONAL
INTEGRITY) owns all of the outstanding membership interests of Registrant.
Shares are voted by National Integrity in accordance with instructions received
from its variable annuity contractowners who allocate contributions to the Fund.
Integrity Life Insurance Company (INTEGRITY), an Ohio stock life
corporation, owns 100% of the voting securities of National Integrity, a New
York stock life corporation. The voting securities of Integrity are 100% owned
by Integrity Holdings, Inc., a Delaware corporation, which is a holding company
engaged in no active business. The voting securities of Integrity Holdings, Inc.
are 100% owned by ARM Financial Group, Inc. (ARM FINANCIAL), a Delaware
corporation, which is a holding company. ARM Financial also owns 100% of the
voting stock of ARM Securities Corp. (ARMSC), a Minnesota corporation, which is
registered with the SEC as a
C-1
<PAGE>
broker-dealer and is a member of the National Association of Securities Dealers,
Inc. In addition, ARM Financial owns 100% of the stock of Integrity Capital
Advisors, Inc. (formerly known as ARM Capital Advisors, Inc.), a Delaware
corporation registered with the SEC as an investment adviser; 100% of SBM
Certificate Company, a Minnesota corporation registered with the SEC as a face
amount certificate company; and 100% of ARM Transfer Agency, Inc., a Delaware
corporation.
In June 1997, ARM Financial completed an initial public offering (the
"IPO") of 9.2 million shares of common stock, of which 5.75 million shares were
sold by ARM Financial and 3.45 million shares were sold by investment funds
sponsored by Morgan Stanley, Dean Witter, Discover & Co. (the "MSDW Funds").
Following the IPO, the MSDW Funds owned in the aggregate approximately 53% of
the outstanding shares of common stock of ARM Financial. On May 8, 1998, the
MSDW Funds sold their entire remaining interest in ARM Financial pursuant to a
secondary public offering of shares of common stock. As a result, ARM Financial
is 100% publicly owned.
ITEM 25. INDEMNIFICATION
ARTICLES OF ORGANIZATION OF THE FUND. The Articles of Organization of the
Fund provide in substance that no director or officer of the Fund shall be
liable to the Fund or its shareholders for money damages, unless the director or
officer is subject to liability by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of duties in the conduct of his or her
office.
RULES AND REGULATIONS OF THE FUND. The Rules and Regulations of the Fund
provide for the indemnification of present and former officers and directors of
the Fund against liability by reason of service to the Fund, unless the officer
or director is subject to liability by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his or her office (DISABLING CONDUCT). No indemnification shall be made to an
officer or director unless there has been a final adjudication on the merits, a
dismissal of a proceeding for insufficiency of evidence of Disabling Conduct, or
a reasonable determination has been made that no Disabling Conduct occurred.
The Fund may advance payment of expenses only if the officer or director to be
indemnified undertakes to repay the advance unless indemnification is made and
if one of the following applies: the officer or director provides a security
for his or her undertaking, the Fund is insured against losses from any lawful
advances, or a reasonable determination has been made that there is reason to
believe the officer or director ultimately will be entitled to indemnification.
INSURANCE. The directors and officers of the Fund, Integrity Capital, as
investment adviser, are insured under a policy issued by American International
Specialty Lines Insurance Company. The annual limit on such policy is $2
million.
BY-LAWS OF INTEGRITY CAPITAL. The By-Laws of Integrity Capital provide for
the indemnification by Integrity Capital of directors and officers of Integrity
Capital and of any person serving at the request of Integrity Capital as a
director or officer of another corporation and permits the payment of expenses
for covered persons. Thus, the officers and directors of the Fund and Integrity
Capital indemnified by Integrity Capital for their services in connection with
the Fund to the extent set forth in the By-Laws.
Integrity Capital's By-Laws provide, in Article IX, as follows:
Section 9.01 INDEMNIFICATION. (a) The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in
the right of the Corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by
him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the Corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of NOLO CONTENDERE or its
equivalent,
C-2
<PAGE>
shall not, of itself, create a presumption that the person did not act in
good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, he had reasonable cause to believe that his
conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact that he is or
was a director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or matter
as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery
of the State of Delaware or the court in which such action or suit was
brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for
such expenses which Court of Chancery or such other court shall deem
proper.
(c) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense
of any action, suit or proceeding referred to in Section 9.01(a) and
(b) of these By-laws, or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.
(d) Any indemnification under Section 9.01(a) and (b) of these
By-laws (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper
in the circumstances because he has met the applicable standard of
conduct set forth in Section 9.01(a) and (b) of these By-laws. Such
determination shall be made (i) by the Board by a majority vote of a
quorum consisting of directors who were not parties to such action,
suit or proceeding, or (ii) if such a quorum is not obtainable, or,
even if obtainable, a quorum of disinterested directors so directs,
by independent legal counsel in a written opinion, or (iii) by the
stockholders of the Corporation.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the
Corporation in advance of the final disposition of the action, suit or
proceeding upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the
Corporation pursuant to this Article IX. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid
upon such terms and conditions, if any, as the Board deems
appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, other Sections of this Article IX shall not be
deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any
law, by-law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in an official capacity and
as to action in another capacity while holding such office.
(g) For purpose of this Article IX, references to "the Corporation"
shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate existence
had continued, would have had power and authority to indemnify its
directors, officers, employees or agents so that any person who is or
was a director, officer, employee or agent of such constituent
corporation, or is
C-3
<PAGE>
or was serving at the request of such constituent corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position
under the provisions of this Article IX with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
(h) For purposes of this Article IX, references to "other
enterprises" shall include employee benefit plans; references to
"fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan; and references to "serving at the
request of the Corporation" shall include any service as a director,
officer, employee or agent of the Corporation which imposes duties on,
or involves service by, such director, officer, employee or agent with
respect to any employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have
acted in a manner "not opposed to the best interests of the
Corporation" as referred to in this Article IX.
(i) In indemnification and advancement of expenses provided by, or
granted pursuant to, this Article IX shall, unless otherwise provided
when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors, and administrators of such a person.
Section 9.02 INSURANCE FOR INDEMNIFICATION. The Corporation may
purchase and maintain insurance on behalf of or for any person who is
or was a director, officer, employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against any liability asserted
against him and incurred by him in any such capacity, or arising out
of his status as such, whether or not the Corporation would have the
power to indemnify him against such liability under the provisions of
Section 145 of the General Corporation Law.
AGREEMENTS. The Fund, including each director, officer and controlling
person of the Fund, is entitled to indemnification against certain liabilities
as described in Article VIII of the Participation Agreement filed as Exhibit (h)
to this Registration Statement, except that the Fund may not indemnify
directors, officers and controlling persons who are its Affiliated persons, as
defined in Section 2(a)(3) of the 1940 Act.
UNDERTAKING
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Integrity Capital Advisors, Inc., the Fund's investment adviser, is a
registered investment adviser providing individual discretionary investment
management services and investment advisory services to various categories of
institutional and individual clients. The names of the officers and directors
of Integrity Capital and their business activities during the past two fiscal
years, are set forth below. The principal business address of ARM Financial, the
parent of Integrity Capital, is 515 W. Market Street, 8th Floor, Louisville,
Kentucky 40202.
C-4
<PAGE>
<TABLE>
<CAPTION>
Name Business Activities in Past Two Fiscal Years
---- --------------------------------------------
<S> <C>
Martin H. Ruby Chairman of the Board and Chief Executive Officer of
Integrity Capital and ARM Financial since February 1998;
Co-Chairman of the Board and Co-Chief Executive Officer
of Integrity Capital since October 1994; Co-Chief
Executive Officer and a director of ARM Financial since
July 15, 1993.
Peter S. Resnik Treasurer of Integrity Capital since October 1994;
Treasurer of ARM Financial since December 1993.
Michael A. Cochran Tax Officer of Integrity Capital and ARM Financial since
October 1997; Senior Manager and Principal of Ernst &
Young LLP (and its predecessors) from 1984 - 1997.
Barry G. Ward Chief Financial Officer and Controller of Integrity
Capital since March 1996; Controller and Chief Financial
Officer of ARM Financial since October 1993.
</TABLE>
OFFICERS AND PARTNERS OR DIRECTORS OF THE SUB-ADVISERS: The names of the
officers and partners or directors of National Asset Management Corporation and
Integrity Capital Advisors, Inc. and their business activities during the past
two fiscal years, are incorporated herein by reference to their respective Form
ADVs, as amended to the date of their most recent filing with the Securities and
Exchange Commission (SEC), as set forth below:
National Asset Management Corporation: Form ADV dated March 30, 1999 SEC File
No. 801-14666
Integrity Capital Advisors, Inc.: Form ADV dated December 4, 1998, SEC File
No. 801- 47942
ITEM 27. PRINCIPAL UNDERWRITERS
Not applicable
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
The records required to be maintained by Section 31 (a) of the Investment
Company Act of 1940 and Rules 31a-1 to 31a-3 promulgated thereunder, are
maintained by ARM Financial, parent of Integrity Capital, at its offices at 515
W. Market Street, 8th Floor, Louisville, Kentucky 40202, or with the Fund's
custodian, Investors Fiduciary Trust Company, at its offices at 127 West Tenth
Street, Kansas City, Missouri 64105.
ITEM 29. MANAGEMENT SERVICES
Not applicable.
ITEM 30. UNDERTAKINGS
Not applicable.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, duly authorized, on
this 1st day of April, 1999.
SELECT TEN PLUS FUND, LLC
(Registrant)
By: /s/ Edward Haines
------------------------------
Edward Haines
Title: President
Pursuant to the requirement of the Securities Act of 1933, this amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
/s/ Edward Haines President April 1, 1999
- --------------------------- (Principal Executive Officer)
Edward Haines
/s/ Peter Resnik Treasurer April 1, 1999
- --------------------------- (Principal Financial Officer)
Peter Resnik
/s/ Barry G. Ward Controller April 1, 1999
- --------------------------- (Principal Accounting Officer)
Barry G. Ward
* Director April 1, 1999
- ---------------------------
William B. Faulkner
* Director April 1, 1999
- ---------------------------
John Katz
/s/ John R. Lindholm Director April 1, 1999
- ---------------------------
John R. Lindholm
* Director April 1, 1999
- ---------------------------
Chris LaVictoire Mahai
</TABLE>
*This Amendment has been signed by each of the persons so indicated by me the
undersigned as Attorney-in-Fact.
By /S/ KEVIN L. HOWARD
-------------------------
Attorney-in-Fact
<PAGE>
EXHIBIT (g)
INVESTMENT ACCOUNTING AGREEMENT
THIS AGREEMENT is made effective as of the ________ day of ______________,
1999, by and between INVESTORS FIDUCIARY TRUST COMPANY, a trust company
established under the laws of the state of Missouri, having its principal place
of business at 801 Pennsylvania, Kansas City, Missouri 64105 ("IFTC"), and
Select Ten Plus Fund, LLC, a Delaware limited liability company, having its
statutory home office at 515 West Market Street, Louisville, Kentucky, 40202
(the "Fund").
WITNESSETH:
WHEREAS, the Fund desires to appoint IFTC as its agent to perform certain
investment accounting and recordkeeping functions for investment portfolio
assets of the Fund; and
WHEREAS, IFTC is willing to accept such appointment on the terms and
conditions hereinafter set forth.
NOW THEREFORE, for and in consideration of the mutual promises contained
herein, the parties hereto, intending to be legally bound, mutually covenant and
agree as follows:
1. APPOINTMENT OF AGENT. The Fund hereby constitutes and appoints IFTC as its
agent to perform certain investment accounting and recordkeeping functions
for each Fund relating to portfolio transactions required under Rule 31a of
the Investment Company Act of 1940 (the "1940 Act") and to value the
Assets.
2. REPRESENTATIONS AND WARRANTIES.
A. The Fund hereby represents, warrants and acknowledges to IFTC:
1. That it is a corporation duly organized and existing and in good
standing under the laws of its state of organization, and that it
is registered under the 1940 Act; and
2. That it has the requisite power and authority under applicable
law, its articles of organization and its operating agreement to
enter into this Agreement; it has taken all requisite action
necessary to appoint IFTC as investment accounting and
recordkeeping agent for the Fund; this Agreement has been duly
executed and delivered by the Fund; and this Agreement
constitutes a legal, valid and binding obligation of the Fund,
enforceable in accordance with its terms.
B. IFTC hereby represents, warrants and acknowledges to the Fund:
1. That it is a trust company duly organized and existing and in good
standing under the laws of the State of Missouri; and
1
<PAGE>
2. That it has the requisite power and authority under applicable law,
its charter and its bylaws to enter into and perform this Agreement;
this Agreement has been duly executed and delivered by IFTC; and this
Agreement constitutes a legal, valid and binding obligation of IFTC,
enforceable in accordance with its terms.
3. DUTIES AND RESPONSIBILITIES OF THE PARTIES.
A. DELIVERY OF ACCOUNTS AND RECORDS. The Fund will turn over or cause to
be turned over to IFTC all accounts and records needed by IFTC to
perform its duties and responsibilities hereunder fully and properly.
IFTC may rely conclusively on the completeness and correctness of such
accounts and records.
B. ACCOUNTS AND RECORDS. IFTC will prepare and maintain, under the
direction of and as interpreted by the Fund, the Fund's accountants
and/or other advisors, such accounts and records: (a) needed to
perform the accounting and recordkeeping functions under Rule 31a of
the 1940 Act; (b) required as a basis for calculation of the valuation
of the Assets; and (c) as otherwise agreed upon by the parties. The
Fund will advise IFTC in writing of all applicable record retention
requirements. IFTC will preserve such accounts and records in the
manner and for the periods agreed upon by the parties. The Fund will
furnish, in writing or its electronic or digital equivalent, accurate
and timely information needed by IFTC to complete such accounts and
records when such information is not readily available from generally
accepted securities industry services or publications.
C. ACCOUNTS AND RECORDS PROPERTY OF THE FUND. IFTC acknowledges that all
of the accounts and records maintained by IFTC pursuant hereto are the
property of the Fund and will be made available to the Fund for
inspection or reproduction within a reasonable period of time, upon
demand. IFTC will assist the Fund's independent auditors, or upon the
prior written approval of the Fund, or upon demand, any regulatory
body, in any requested review of the Fund's accounts and records,
provided, that the Fund will reimburse IFTC for all expenses and
employee time invested in any such review outside of routine and
normal periodic reviews. Upon receipt from the Fund of the necessary
information or instructions, IFTC will supply information from the
books and records it maintains for the Fund that the Fund may
reasonably request for tax returns, questionnaires, periodic reports
to regulators and such other reports and information requests as the
Fund and IFTC may agree upon from time to time.
D. ADOPTION OF PROCEDURES. IFTC and the Fund may from time to time adopt
such procedures as they agree upon, and IFTC may conclusively assume
that no procedure approved or directed by the Fund, the Fund's
accountants or other advisors conflicts with or violates any
requirements of any the Fund's prospectus the articles of
2
<PAGE>
organization, operating agreement, any applicable law, rule or
regulation, or any order, decree or agreement by which the Fund may be
bound. The Fund will be responsible for notifying IFTC of any
statutes, regulations, rules, requirements or policies or any changes
thereto which may impact IFTC's responsibilities or procedures under
this Agreement.
E. VALUATION OF ASSETS. IFTC will value the Assets in accordance with
the Fund's Instructions (as defined below) utilizing the pricing
sources designated by the Fund ("Pricing Sources").
4. INSTRUCTIONS.
A. The term "Instructions," as used herein, means written (including
telecopied, telexed, or electronically transmitted) or oral
instructions which IFTC reasonably believes were given by a designated
representative of the Fund. The Fund will deliver to IFTC, prior to
delivery of any Assets to IFTC and thereafter from time to time as
changes therein are necessary, written Instructions naming one or more
designated representatives to give Instructions in the name and on
behalf of the Fund, which Instructions may be received and accepted by
IFTC as conclusive evidence of the authority of any designated
representative to act for the Fund and may be considered to be in full
force and effect until receipt by IFTC of notice to the contrary.
Unless such written Instructions delegating authority to any person to
give Instructions specifically limit such authority to specific
matters or require that the approval of anyone else will first have
been obtained, IFTC will be under no obligation to inquire into the
right of such person, acting alone, to give any Instructions
whatsoever. If the Fund fails to provide IFTC any such Instructions
naming designated representatives, any Instructions received by IFTC
from a person reasonably believed to be an appropriate representative
of the Fund will constitute valid and proper Instructions hereunder.
The term "designated representative" may include the Fund's employees
and agents, including investment managers and their employees.
B. No later than the next business day immediately following each oral
Instruction, the Fund will send IFTC written confirmation of such oral
Instruction. At IFTC's sole discretion, IFTC may record on tape, or
otherwise, any oral Instruction whether given in person or via
telephone, each such recording identifying the date and the time of
the beginning and ending of such oral Instruction.
C. The Fund will provide upon IFTC's request a certificate signed by an
officer or designated representative of the Fund, as conclusive proof
of any fact or matter required to be ascertained from the Fund
hereunder. The Fund will also provide IFTC Instructions with respect
to any matter concerning this Agreement requested by IFTC. If IFTC
reasonably believes that it could not prudently act according to the
Instructions, or the instruction or advice of the Fund's accountants
or counsel, it may in its discretion, with notice to the Fund, not act
according to such Instructions.
3
<PAGE>
5. LIMITATION OF LIABILITY OF IFTC. IFTC is not responsible or liable for,
and the Fund will indemnify and hold IFTC harmless from and against, any
and all costs, expenses, losses, damages, charges, counsel fees (including,
without limitation, disbursements and the allocable cost of in-house
counsel), payments and liabilities which may be asserted against or
incurred by IFTC or for which IFTC may be held to be liable, arising out of
or attributable to:
A. IFTC's action or failure to act pursuant hereto; provided that IFTC
has acted in good faith and with reasonable care; and provided
further, that in no event shall IFTC be liable for consequential,
special, or punitive damages;
B. IFTC's payment of money as requested by the Fund, or the taking of any
action which might make it or its nominee liable for payment of monies
or in any other way; provided, however, that nothing herein obligates
IFTC to take any such action or expend its own monies except in its
sole discretion;
C. IFTC's action or failure to act hereunder upon any Instruction,
advice, notice, request, consent, certificate or other instrument or
paper appearing to it to be genuine and to have been properly
executed, including any Instruction, communications, data or other
information received by IFTC by means of the Systems, as hereinafter
defined, or any electronic system of communication;
D. IFTC's action or failure to act in good faith reliance on the advice
or opinion of counsel for the Fund or of its own counsel with respect
to questions or matters of law, which advice or opinion may be
obtained by IFTC at the expense of the Fund, or on the Instruction,
advice or statements of any officer or employee of the Fund or the
Fund's accountants or other authorized individuals, and other persons
believed by it in good faith to be expert in matters upon which they
are consulted;
E. Any error, omission, inaccuracy or other deficiency in any accounts
and records or other information provided by or on behalf of the Fund
to IFTC, including the accuracy of the prices quoted by the Pricing
Sources or for the information supplied by the Fund to value the
Assets (except to the extent such inaccuracy results from IFTC's lack
of reasonable care in performing the agreed-upon tolerance checks as
to the data furnished), or the failure of the Fund to provide, or
provide in a timely manner, any accounts, records, or information
needed by IFTC to perform its duties hereunder;
F. The Fund's refusal or failure to comply with the terms hereof
(including without limitation the Fund's failure to pay or reimburse
IFTC under Section 5 hereof), the Fund's negligence or willful
misconduct, or the failure of any representation or warranty of the
Fund hereunder to be and remain true and correct in all respects at
all times;
4
<PAGE>
G. The use or misuse, whether authorized or unauthorized, of the Systems
or any electronic system of communication used hereunder, by the Fund
or by any person who acquires access to the Systems or such other
systems through the terminal device, passwords, access instructions or
other means of access to such Systems or such other system which are
utilized by, assigned to or otherwise made available to the Fund,
except to the extent attributable to any negligence or willful
misconduct by IFTC;
H. Loss occasioned by the acts, omissions, defaults or insolvency of any
broker, bank, trust company, securities system or any other person
with whom IFTC may deal; and
I. The failure or delay in performance of its obligations hereunder, or
those of any entity for which it is responsible hereunder, arising out
of or caused, directly or indirectly, by circumstances beyond the
affected entity's reasonable control, including, without limitation:
any interruption, loss or malfunction of any utility, transportation,
computer (hardware or software) or communication service; inability to
obtain labor, material, equipment or transportation, or a delay in
mails; governmental or exchange action, statute, ordinance, rulings,
regulations or direction; war, strike, riot, emergency, civil
disturbance, terrorism, vandalism, explosions, labor disputes,
freezes, floods, fires, tornadoes, acts of God or public enemy,
revolutions, or insurrection.
6. COMPENSATION. In consideration for its services hereunder, the Fund will
pay to IFTC the compensation set forth in a separate fee schedule to be
agreed to by the Fund and IFTC from time to time, and, upon demand,
reimbursement for IFTC's cash disbursements and reasonable out-of-pocket
costs and expenses, including attorney's fees and disbursements, incurred
by IFTC in connection with the performance of services hereunder.
7. TERM AND TERMINATION. The initial term of this Agreement is for a period
of one (1) year. Thereafter, either the Fund or IFTC may terminate this
Agreement by notice in writing, delivered or mailed, postage prepaid, to
the other party and received not less than ninety (90) days prior to the
date upon which such termination will take effect. Upon termination
hereof:
A. The Fund will pay IFTC its fees and compensation due hereunder and its
reimbursable disbursements, costs and expenses paid or incurred to
such date and the Fund will designate a successor investment
accounting agent (which may be the Fund) by Instruction to IFTC; and
B. IFTC will, upon payment of all sums due to IFTC from the Fund
hereunder, deliver all accounts and records and other properties of
the Fund to the successor, or, if none, to the Fund, at IFTC's office.
In the event that accounts, records or other properties remain in the
possession of IFTC after
5
<PAGE>
the date of termination hereof for any reason other than IFTC's failure to
deliver the same, IFTC is entitled to compensation as provided in the
then-current fee schedule for its services during such period, and the
provisions hereof relating to the duties and obligations of IFTC will remain in
full force and effect.
8. NOTICES. Notices, requests, instructions and other writings addressed to
the Fund at the address set forth above, Attention: _________________, or
at such other address as the Fund may have designated to IFTC in writing,
will be deemed to have been properly given to the Fund hereunder. Notices,
requests, Instructions and other writings addressed to IFTC at the address
set forth above, Attention: Vice President, Investment Accounting, or to
such other address as it may have designated to the Fund in writing, will
be deemed to have been properly given to IFTC hereunder.
9. THE SYSTEMS; CONFIDENTIALITY.
A. If IFTC provides the Fund direct access to the computerized investment
portfolio recordkeeping and accounting systems used by IFTC
("Systems") or if IFTC and the Fund agree to utilize any electronic
system of communication, the Fund agrees to implement and enforce
appropriate security policies and procedures to prevent unauthorized
or improper access to or use of the Systems or such other system.
B. The Fund will preserve the confidentiality of the Systems and the
tapes, books, reference manuals, instructions, records, programs,
documentation and information of, and other materials relevant to, the
Systems and the business of IFTC ("Confidential Information"). The
Fund agrees that it will not voluntarily disclose any such
Confidential Information to any other person other than its own
employees who reasonably have a need to know such information pursuant
hereto. The Fund will return all such Confidential Information to IFTC
upon termination or expiration hereof.
C. The Fund has been informed that the Systems are licensed for use by
IFTC and its affiliates from one or more third parties ("Licensors"),
and the Fund acknowledges that IFTC and Licensors have proprietary
rights in and to the Systems and all other IFTC or Licensor programs,
code, techniques, know-how, data bases, supporting documentation, data
formats, and procedures, including without limitation any changes or
modifications made at the request or expense or both of the Fund
(collectively, the "Protected Information"). The Fund acknowledges
that the Protected Information constitutes confidential material and
trade secrets of IFTC and Licensors. The Fund will preserve the
confidentiality of the Protected Information, and the Fund hereby
acknowledges that any unauthorized use, misuse, disclosure or taking
of Protected Information, residing or existing internal or external to
a computer, computer system, or computer network, or the knowing and
unauthorized accessing or causing to be accessed of any computer,
computer system, or computer network, may be subject to civil
liabilities and criminal penalties under applicable
6
<PAGE>
law. The Fund will so inform employees and agents who have access to the
Protected Information or to any computer equipment capable of accessing the
same. Licensors are intended to be and are third party beneficiaries of the
Fund's obligations and undertakings contained in this Section.
D. The Fund hereby represents and warrants to IFTC that it has determined
to its satisfaction that the Systems are appropriate and suitable for
its use. THE SYSTEMS ARE PROVIDED ON AN AS IS, AS AVAILABLE BASIS.
IFTC EXPRESSLY DISCLAIMS ALL WARRANTIES INCLUDING, BUT NOT LIMITED TO,
THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE, EXCEPT THOSE WARRANTIES EXPRESSLY STATED HEREIN.
10. MULTIPLE FUNDS. If Schedule A lists more than one Fund:
A. Each Fund will be regarded for all purposes hereunder as a separate
party apart from each other Fund. Unless the context otherwise
requires, with respect to every transaction covered hereby, every
reference herein to the Fund is deemed to relate solely to the
particular Fund to which such transaction relates. Under no
circumstances will the rights, obligations or remedies with respect to
a particular Fund constitute a right, obligation or remedy applicable
to any other Fund. The use of this single document to memorialize the
separate agreement of each Fund is understood to be for clerical
convenience only and will not constitute any basis for joining the
Funds for any reason.
B. The Fund may appoint IFTC as its investment accounting and
recordkeeping agent for additional Funds from time to time by written
notice, provided that IFTC consents to such addition. Rates or
charges for each additional Fund will be as agreed upon by IFTC and
The Fund in writing.
11. MISCELLANEOUS.
A. This Agreement will be construed according to, and the rights and
liabilities of the parties hereto will be governed by the laws of the
State of Missouri without reference to the choice of law principles
thereof.
B. All terms and provisions hereof will be binding upon, inure to the
benefit of and be enforceable by the parties hereto and their
respective successors and permitted assigns.
C. The representations and warranties, the indemnifications extended
hereunder, and the provisions of Section 9 hereof are intended to and
will continue after and survive the expiration, termination or
cancellation hereof.
7
<PAGE>
D. No provisions hereof may be amended or modified in any manner except
by a written agreement properly authorized and executed by each party
hereto.
E. The failure of either party to insist upon the performance of any
terms or conditions hereof or to enforce any rights resulting from any
breach of any of the terms or conditions hereof, including the payment
of damages, will not be construed as a continuing or permanent waiver
of any such terms, conditions, rights or privileges, but the same will
continue and remain in full force and effect as if no such forbearance
or waiver had occurred. No waiver, release or discharge of any
party's rights hereunder will be effective unless contained in a
written instrument signed by the party sought to be charged.
F. The captions herein are included for convenience of reference only,
and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
G. This Agreement may be executed in two or more counterparts, each of
which is deemed an original but all of which together constitute one
and the same instrument.
H. If any provision hereof is determined to be invalid, illegal, in
conflict with any law or otherwise unenforceable, the remaining
provisions hereof will be considered severable and will not be
affected thereby, and every remaining provision hereof will remain in
full force and effect and will remain enforceable to the fullest
extent permitted by applicable law.
I. The benefits of this Agreement may not be assigned by either party nor
may either party delegate all or a portion of its duties hereunder
without the prior written consent of the other party. Notwithstanding
the foregoing, The Fund agrees that IFTC may delegate all or a portion
of its duties to an affiliate of IFTC provided that such delegation
shall not reduce the obligations of IFTC under this Agreement.
J. Neither the execution nor performance hereof will be deemed to create
a partnership or joint venture by and between IFTC and The Fund or any
Fund.
K. Except as specifically provided herein, this Agreement does not in any
way affect any other agreements entered into among the parties hereto
and any actions taken or omitted by either party hereunder will not
affect any rights or obligations of the other party hereunder.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective duly authorized officers.
8
<PAGE>
SELECT TEN PLUS FUND, LLC INVESTORS FIDUCIARY TRUST
COMPANY
By: By:
--------------------- --------------------
Name: Name:
Title: Title:
9
<PAGE>
SCHEDULE A--LIST OF FUND DIVISIONS
10
<PAGE>
EXHIBIT (h)
PARTICIPATION AGREEMENT
among
SELECT TEN PLUS FUND, LLC
ARM SECURITIES CORPORATION
and
NATIONAL INTEGRITY LIFE INSURANCE COMPANY
THIS AGREEMENT, entered into as of the _____ day of ________, 1999 by and
among NATIONAL INTEGRITY LIFE INSURANCE COMPANY (hereinafter the "Company"), a
New York corporation, on its own behalf and on behalf of each separate account
of the Company set forth on Schedule A hereto as may be amended from time to
time (each such account hereinafter referred to as the "Account"), SELECT TEN
PLUS FUND, LLC (hereinafter the "Fund"), a Delaware corporation, and ARM
SECURITIES CORPORATION (hereinafter the "Distributor"), a Delaware corporation.
WHEREAS, the Fund is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end management investment company and
its shares are registered under the Securities Act of 1933, as amended
(hereinafter the "1933 Act"); and
WHEREAS, the capital stock of the Fund is divided into several series of
shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Fund is available to act as the investment vehicle for
separate accounts established for variable annuity contracts and may in the
future be available as an investment medium for separate accounts established
for variable life insurance policies (collectively, the "Variable Insurance
Products"); and
WHEREAS, the Variable Insurance Products are to be offered by insurance
companies which have entered into participation agreements with the Fund and the
Distributor (hereinafter "Participating Insurance Companies"); and
WHEREAS, each Account is a duly organized, validly existing segregated
<PAGE>
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to one or more Variable Insurance Products; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain Variable Insurance Products ("Contracts"), and
the Distributor is authorized to sell such shares to each Account at the net
asset value of the respective Portfolios; and
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act and has registered or will register the
Contracts under the 1933 Act: and
WHEREAS, ARM Capital Advisors, Inc. ("ARM Capital") is duly registered as
an investment adviser under the Investment Advisers Act of 1940 and any
applicable state securities laws; and
WHEREAS, the Distributor is registered as a broker dealer with the
Securities and Exchange Commission (the "SEC") under the Securities Exchange Act
of 1934, as amended (hereinafter the "1934 Act"), and is a member in good
standing of the National Association of Securities Dealers, Inc. (hereinafter
"NASD");
WHEREAS, the Distributor serves as principal underwriter for Fund shares
pursuant to a Distribution Agreement dated August 30, 1995 between the
Distributor and the Fund.
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Distributor agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Fund and the Distributor agree to sell to the Company those shares
of the Fund which each Account orders, executing such orders on a daily
basis at the net asset value next computed after receipt by the Fund or its
designee of the order for the shares of the Fund. For purposes of this
Section 1.1, the Company shall be the designee of the Fund for receipt of
such orders from each Account and receipt by such designee shall constitute
receipt by the Fund; provided that the Fund receives notice of such order
by 9:30 a.m. New York time on the next following Business Day. "Business
Day" shall mean any day on which the New York Stock Exchange is open for
trading and on which the Fund calculates its net asset value pursuant to
the rules of the SEC.
1.2. The Fund agrees to make its shares available indefinitely for purchase
<PAGE>
at the applicable net asset value per share by the Company and its Accounts
on those days on which the Fund calculates its net asset value pursuant to
rules of the SEC and the Fund shall use reasonable efforts to calculate
such net asset value on each day which the New York Stock Exchange is open
for trading. Notwithstanding the foregoing, the Board of Directors of the
Fund (hereinafter the "Board") may refuse to sell shares of any Portfolio
to any person, or suspend or terminate the offering of shares of any
Portfolio if such action is required by law or by regulatory authorities
having jurisdiction or is, in the sole discretion of the Board acting in
good faith and in light of their fiduciary duties under federal and any
applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.3. The Fund and the Distributor agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts.
No shares of any Portfolio will be sold to the general public. The Fund and
the Distributor agree that each participation agreement with a
Participating Insurance Company will contain substantially identical terms
as this Agreement, including in particular Articles I, III, V, VII and
Sections 2.5 and 2.12 of Article II of this Agreement.
1.4. The Fund and the Distributor agree that they will not sell Fund shares
to any insurance company or its separate accounts other than the Company
and Integrity, or their affiliates unless the Fund has obtained an order
from the SEC granting Participating Insurance Companies exceptions from the
provisions of sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act, to the
extent necessary to permit shares of the Fund to be sold to and held by
separate accounts of both affiliated and unaffiliated life insurance
companies (hereinafter the "Shared Funding Exemptive Order").
1.5. The Fund agrees to redeem for cash, on the Company's request, any full
or fractional shares of the Fund held by the Company and it Accounts,
executing such requests on a daily basis, in a manner consistent with the
provisions of Section 22(e) of the 1940 Act, at the net asset value next
computed after receipt by the Fund or its designee of the request for
redemption, without any redemption charge. For purposes of this Section
1.5, the Company shall be the designee of the Fund for receipt of requests
for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of
such request for redemption on the next following Business Day.
1.6. The Company agrees to purchase and redeem the shares of each Portfolio
offered by the then current prospectus of the Fund and in accordance with
the provisions of such prospectus. The Company agrees
3
<PAGE>
that all net amounts available under the Separate Accounts listed on
Schedule A shall be invested in the Fund, in such other Funds advised by
the Adviser as may be mutually agreed to in writing by the parties hereto,
or in the Company's general account, provided that such amounts may also be
invested in an investment company other than the Fund if (a) such other
investment company, or the series thereof to be invested in, has investment
objectives or policies that are substantially different from the investment
objectives and policies of all the Portfolios of the Fund (excluding any
Portfolios for which the Company has terminated this Agreement pursuant to
Section 10.1(b)); or (b) such other investment company was available as a
funding vehicle for the Contracts prior to the date of this Agreement and
the Company so informs the Fund and Distributor prior to their signing this
Agreement; or (c) the Fund and Distributor consent to the use of such other
investment company or portfolio.
1.7. The Company shall pay for Fund shares on the next Business Day after
an order to purchase Fund shares is made in accordance with the provisions
of Section 1.1 hereof. Payment shall be in federal funds transmitted by
wire. For purpose of Section 2.10 and 2.11, upon receipt by the Fund of the
federal funds so wired, such funds shall cease to be the responsibility of
the Company and shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account. Shares
ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount or division of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone, followed
by written confirmation) to the Company of any income, dividends or capital
gain distributions payable on the Fund's shares. The Company hereby elects
to receive all such income dividends and capital gain distributions as are
payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right with respect to each Portfolio to revoke this
election and to receive all such income dividends and capital gain
distributions in cash. The Fund shall notify the Company of the number of
shares so issued as payment of such dividends and distributions.
1.10. The Fund shall make the net asset value per share for each Portfolio
available to the Company or its designee on a daily basis as soon as
reasonably practical after the net asset value per share is calculated and
shall use its best efforts to make such net asset value per share available
by 7 p.m. New York time.
4
<PAGE>
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act; that the Contracts will be issued and sold
in compliance in all material respects with all applicable Federal and
State laws and that the sale of the Contracts shall comply in all material
respects with state insurance suitability requirements. The Company further
represents and warrants that it is an insurance company duly organized and
in good standing under applicable law and that it has legally and validly
established each Account prior to any issuance or sale thereof as a
separate account under Section 4240 of the New York Insurance Law and has
registered or, prior to any issuance or sale of the Contracts, will
register each Account as a unit investment trust in accordance with the
provisions of the 1940 Act to serve as a unit investment trust for the
Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of New York and
all applicable federal and state securities laws and that the Fund is and
shall remain registered under the 1940 Act. The Fund shall amend the
Registration Statement for its shares under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of
its shares. The Fund shall register and qualify the shares for sale in
accordance with the laws of the various states only if and to the extent
deemed advisable by the Fund or the Distributor.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986,
as amended (the "Code"), that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision)
and that it will notify the Company immediately upon having a reasonable
basis for believing that it has ceased to so qualify or that it might not
so qualify in the future.
2.4. The Company represents that the Contracts are currently treated as
endowment, annuity or life insurance contracts under applicable provisions
of the Code, that it will make every effort to maintain such treatment and
that it will notify the Fund and the Distributor immediately upon having a
reasonable basis for believing that the Contracts have ceased to be so
treated or that they might not be so treated in the future.
2.5. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or
5
<PAGE>
otherwise, although it may make such payments in the future, subject to
compliance with applicable requirements under federal and state law. The
Fund may in the future adopt a "no fee" or "defensive" Rule 12b-1 Plan
under which it makes no payments for distribution expenses (a "Rule 12b-1
Plan"). To the extent that it decides to finance distribution expenses
pursuant to Rule 12b-1, the Fund will undertake to have the Board, a
majority of whom are not interested persons of the Fund, formulate and
approve any Rule 12b-1 Plan to finance distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various
states except that the Fund represents that the Fund's investment policies,
fees and expenses are and shall at all times remain in compliance with the
laws of the State of New York and the Fund and the Distributor represent
that their respective operations are and shall at all times remain in
material compliance with the laws of the State of New York to the extent
required to perform this Agreement.
2.7. The Distributor represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Distributor further represents that it will sell and distribute the Fund
shares in accordance with the laws of the State of New York and all
applicable state and federal securities laws, including without limitation
the 1933 Act, the 1934 Act and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly existing
under the laws of the State of Maryland and that it does and will comply in
all material respects with the 1940 Act.
2.9. The Fund represents and warrants that the Adviser is and shall remain
duly registered in all material respects under all applicable federal and
state securities laws and that the Adviser shall perform its obligations
for the Fund in compliance in all material respects with the laws of the
State of New York and any applicable state and federal securities laws.
2.10. The Fund and Distributor represent and warrant that all of their
directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund
are and shall continue to be at all times covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund in an amount not less
than the minimal coverage as required currently by Rule 179-(1) of the 1940
Act or
6
<PAGE>
related provisions as may be promulgated from time to time. Such bond shall
include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities
dealing with the money and/or securities of the Fund are and shall continue
to be at all times covered by a blanket fidelity bond or similar coverage
for the benefit of the Fund, in an amount not less than the minimal
coverage as required currently by entities subject to the requirements of
Rule 17g-1 of the 1940 Act or related provisions as may be promulgated from
time to time. The Bond shall include coverage for larceny and embezzlement
and shall be issued by a reputable bonding company.
ARTICLE III. PROSPECTUSES, STATEMENTS OF ADDITIONAL INFORMATION AND PROXY
STATEMENTS; VOTING
3.1. The Fund shall provide to the Company such documentation (including a
camera ready final copy of each prospectus or supplement thereto as set in
type at the Fund's expense) and other assistance as is reasonably necessary
in order for the Company once each year (or more frequently if the
prospectus for the Fund is amended) to have the prospectus for the
Contracts and the Fund's prospectus printed together in one document (such
printing to be at the Company's expense).
3.2. The Fund's prospectus shall state that the current Statement of
Additional Information for the Fund is available from the Distributor (or
in the Fund's discretion, the Prospectus shall state that such Statement is
available from the Fund), and the Distributor (or the Fund), at its
expense, shall print, or otherwise reproduce, and provide such Statement
free of charge to the Company and to each Contract owner who requests such
Statement. At the request of the Company, the Fund shall provide to the
Company a camera ready final copy of such Statement.
3.3. The Fund shall promptly notify the Company of any anticipated
amendments to the Fund's registration statement or supplements to the
prospectus.
3.4. The Fund, at its expense, shall provide the Company with copies of its
proxy material, reports to stockholders and other communications to
stockholders in such quantity as the Company shall reasonably require for
distributing to Contract owners. At the request of the Company, the Fund
shall provide a camera ready copy of such communication to the Company,
7
<PAGE>
which may combine such communication with a communication of the Company or
the Accounts, which communications may be bound together. In such case the
printing expenses of the combined communications shall be borne by the
Company and the Fund in proportion to the number of pages for which they
are respectively responsible.
3.5. If and to the extent required by law the Company shall
(a) solicit voting instructions from Contract owners;
(b) vote the Fund shares in accordance with instructions received from
Contract owners: and
(c) vote Fund shares for which no instructions have been received in the
same proportion as Fund shares of such Portfolio for which
instructions have been received;
so long as and to the extent that the SEC continues to interpret the 1940
Act to require pass-through voting privileges for Variable Insurance
Products owners. The Company reserves the right to vote Fund shares held in
any separate account in its own right to the extent permitted by law.
Participating Insurance Companies shall be responsible for assuring that
each of their separate accounts participating in the Fund calculates voting
privileges in a manner consistent with the standards set forth on Schedule
B attached hereto and incorporated herein by this reference, which
standards will also be provided to the other Participating Insurance
Companies, and with the requirements of the 1940 Act.
3.6. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the
Fund is not one of the trusts described in Section 16(c) of that Act) as
well as with Sections 16(a) and, if and when applicable, 16(b). Further,
the Fund will act in accordance with the SEC's interpretation of the
requirements of Section 16(a) with respect to periodic elections of
directors and with whatever rules the Commission may promulgate with
respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee the text and, to the extent relevant, the graphic component
of each piece of sales literature or other promotional material in which
the Fund or its investment adviser or the Distributor is named, at least
fifteen Business Days prior to its use. No such material shall be used if
the Fund or its
8
<PAGE>
designee object to such use within fifteen Business Days after receipt of
such material.
4.2. The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection
with the sale of the Contracts other than the information or
representations contained in the registration statement and prospectus for
the Fund shares, as such registration statement and prospectus may be
amended or supplemented from time to time, or in reports or proxy
statements for the Fund, or in sales literature or other promotional
material approved by the Fund or its designee or by the Distributor, except
with the permission of the Fund or the Distributor or the designee of
either.
4.3. The Fund, Distributor, or its designee shall furnish, or shall cause
to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least fifteen Business Days prior to its
use. No such material shall be used if the Company or its designee object
to such use within fifteen Business Days after receipt for such material.
4.4. The Fund and the Distributor shall not give any information or make
any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or
representations contained in a registration statement or prospectus for the
Contracts, as such registration statement and prospectus may be amended or
supplemented from time to time, or in published reports for each Account
which are in the public domain or approved by the Company for distribution
to Contact owners, or in sales literature or other promotional material
approved by the Company or its designee, except with the permission of the
Company.
4.5. The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, Statements of Additional
Information, reports, proxy statements, sales literature and other
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to the Fund or
its shares, contemporaneously with the filing of such document with the SEC
or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, Statements of Additional
Information, reports, solicitations for voting instructions, sales
literature and other promotional materials, applications for exemptions,
requests for
9
<PAGE>
no-action letters, and all amendments to any of the above, that relate to
the Contracts or each Account, contemporaneously with the filing of such
document with the SEC.
4.7. For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such
as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media),
sales literature (I.E.,, any written communication distributed or made
generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or
published article), educational or training materials or other
communications distributed or made generally available to some or all
agents or employees, and registration statements prospectuses, Statements
of Additional Information, shareholder reports, and proxy materials.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund and Distributor shall pay no fee or other compensation to the
Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements a Rule 12b-1 Plan to finance distribution expenses,
then the Distributor may make payments to the Company or to the underwriter
for the Contracts if and in amount agreed to by the Distributor in writing
and such payments will be made out of existing fees otherwise payable to
the Distributor, past profits of the Distributor or other resources
available to the Distributor. No such payments shall be made directly by
the Fund. Currently, no such payments are contemplated.
5.2. All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund, except as otherwise provided herein. The Fund
shall see to it that all its shares are registered and authorized for
issuance in accordance with applicable federal law and, if and to the
extent deemed advisable by the Fund, in accordance with applicable state
laws prior to their sale. The Fund shall bear the expenses for the cost of
registration and qualification of the Fund's shares, preparation and filing
of the Fund's prospectus and registration statement, proxy materials and
reports, setting the prospectus in type, setting in type and printing the
proxy materials and reports to shareholders (including the costs of
printing a prospectus that constitutes an annual report), the setting in
type of, and the printing or other reproduction for each Contract owner of,
the statement of additional information, the preparation of all statements
and notices required by any
10
<PAGE>
federal or state law, and all taxes on the issuance or transfer of the
Fund's shares.
5.3. The Company shall bear the expenses of printing and distributing the
Fund's prospectus to owners of Contracts issued by the Company and of
distributing the Fund's proxy materials and reports to such Contract
owners.
11
<PAGE>
ARTICLE VI. DIVERSIFICATION
6.1. The Fund will at all times invest money from the Contracts in such a
manner as to ensure that the Contracts will be treated as variable
contracts under the Code and the regulations issued thereunder. Without
limiting the scope of the foregoing, the Fund will at all times comply with
Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life
insurance contracts and any amendments or other modifications to such
Section or Regulations. The Fund shall promptly notify the Company of any
breach by any Portfolio of this Article VI.
ARTICLE VII. POTENTIAL CONFLICTS
From and after the date the Fund obtains a Shared Funding Exemptive Order,
or begin serving as a funding medium for variable life insurance policies:
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material
conflict may arise for a variety of reasons, including: (a) an action by
any state insurance regulatory authority; (b) a change in applicable
federal or state insurance, tax, or securities laws or regulations, or a
public ruling, private letter ruling, no-action or interpretative letter,
or any similar action by insurance, tax, or securities regulatory
authorities; (c) an administrative or judicial decision in any relevant
proceeding; (d) the manner in which the investments of any Portfolio are
being managed; (e) a difference in voting instructions given by variable
annuity contract and variable life insurance contract owners; or (f) a
decision by an insurer to disregard the voting instructions of contract
owners. The Board shall promptly inform the Company if it determines that
an irreconcilable material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out
its responsibilities under the Shared Funding Exemptive Order by providing
the Board with all information reasonably necessary for the Board to
consider any issues raised. This includes, but is not limited to, an
obligation by the Company to inform the Board whenever contract owner
voting instructions are disregarded.
7.3. If it is determined by a majority of the Board, or a majority of its
12
<PAGE>
disinterested directors, that a material irreconcilable conflict exists,
the Company and other Participating Insurance Companies shall, at their
expense and to the extent reasonably practicable (as determined by a
majority of the disinterested directors), take whatever steps are necessary
to remedy or eliminate the irreconcilable material conflict, up to and
including: (1) withdrawing the assets allocable to some or all of the
separate accounts from the Fund or any Portfolio and reinvesting such
assets in a different investment medium, including (but not limited to)
another Portfolio of the Fund, or submitting the question whether such
segregation should be implemented to a vote of all affected contract owners
and, as appropriate, segregating the assets of any appropriate group (I.E,,
annuity contract owners, life insurance policy owners, or variable contract
owners of one or more Participating Insurance Companies) that votes in
favor of such segregation, or offering to the affected contract owners the
option of making such a change; and (2) establishing a new registered
management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote,
the Company may be required, at the Fund's election, to withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account; provided, however that such withdrawal and
termination shall be limited to the extent required by the foregoing
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board. Any such withdrawal and termination
must take place within six (6) months after the Fund gives written notice
that this provision is being implemented, and until the end of that six
month period the Distributor and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares
of the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts
with the majority of other state regulators, then the Company will withdraw
the affected Account's investment in the Fund and terminate this Agreement
with respect to such Account within six (6) months after the Board informs
the Company in writing that it has determined that such decision has
created an irreconcilable material conflict; provided, however, that such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of
the disinterested members of the Board. Until the end of the foregoing six
month period, the Distributor and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares
of the
13
<PAGE>
Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict,
but in no event will the Fund be required to establish a new funding medium
for the Contracts. The Company shall not be required by Section 7.3 to
establish a new funding medium for the Contracts if an offer to do so has
been declined by vote of a majority of Contract owners materially adversely
affected by the irreconcilable material conflict. In the event that the
Board determines that any proposed action does not adequately remedy any
irreconcilable material conflict, then the Company will withdraw the
Account's investment in the Fund and terminate this Agreement within six
(6) months after the Board informs the Company in writing of the foregoing
determination, provided, however, that such withdrawal and termination
shall be limited to the extent required by any such material irreconcilable
conflict as determined by a majority of the disinterested members of the
Board.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
8.1(a). The Company agrees to indemnify and hold harmless the Fund
and each of the members of the Board and Fund officers and each
person, if any, who controls the Fund within the meaning of
Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Company) or litigation
(including legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at
common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Fund's
shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the registration statement or prospectus for the Contracts
or sales literature for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be
14
<PAGE>
stated therein or necessary to make the statements therein
not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission
was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of the
Fund for use in the Registration Statement or prospectus
for the Contracts or in the Contracts or sales literature
(or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Fund shares;
or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the registration statement, prospectus or
sales literature of the Fund not supplied by the Company or
persons under its control) or wrongful conduct of the
Company or persons under its control, with respect to the
sale or distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature of the Fund or
any amendment thereof or supplement thereto or the omission
or alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading if such a statement or
omission was made in reliance upon information furnished to
the Fund by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to provide
the services and furnish the materials under the terms of
this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company, as limited by and
in accordance with provisions of Sections 8.1 (b) and 8.1
(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims,
15
<PAGE>
damages, liabilities or litigation incurred or assessed against
an Indemnified Party as such may arise from such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in
the performance of such Indemnified Party's duties or by reason
of such Indemnified Party's reckless disregard of obligations or
duties under this Agreement or to the Fund, whichever is
applicable.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the
Company in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or
after such Indemnified Party shall have received notice of such
service on any designated agent), but failure to notify the
Company of any such claim shall not relieve the Company from any
liability which it may have to the Indemnified Party against whom
such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to
participate, at its own expense, in the defense of such action.
The Company also shall be entitled to assume the defense thereof,
with counsel satisfactory to the party named in the action, and
to settle the claim at its own expense, provided however, that no
such settlement shall, without the Indemnified Parties' written
consent, include any factual stipulations referring to the
Indemnified Parties or their conduct. After notice from the
Company to such party of the Company's election to assume the
defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the
Company will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than
reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of
the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Fund shares or the
Contracts or the operation of the Fund.
8.2 INDEMNIFICATION BY THE DISTRIBUTOR
16
<PAGE>
8.2(a). The Distributor agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person,
if any, who controls the Company within the meaning of Section 15
of the 1933 Act (collectively, the "Indemnified Parties" for
purposes of this Section 8.2) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with
the written consent of the Distributor) or litigation (including
legal and other expenses) to which the Indemnified Parties may
become subject under any statute, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof) or settlements are related to the
sale or acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the Registration Statement or prospectus or sales
literature of the Fund (or any amendment or supplement to
any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that
this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and
in conformity with information furnished to the Distributor
or Fund by or on behalf of the Company for use in the
registration statement or prospectus for the Fund or in
sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the registration statement, prospectus or
sales literature for the Contracts not supplied by the
Fund, Distributor or persons under their control) or
wrongful conduct of Fund or the Distributor or persons
under their control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
17
<PAGE>
statement of a material fact contained in a registration
statement, prospectus, or sales literature covering the
Contracts, or any amendment thereof or supplement thereto,
or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statement or statements therein not misleading, if
such statement or omission was made in reliance upon
information furnished to the Company by or on behalf of the
Fund or the Distributor; or
(iv) arise as a result of any failure by the Distributor to
provide the services and furnish the materials under the
terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Distributor in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Distributor; as
limited by and in accordance with the provisions of
Sections 8.2(b) and 8.2(c) hereof.
8.2(b). The Distributor shall not be liable under this
indemnification provision with respect to any losses, claims,
damages, liabilities or litigation incurred or assessed against
an Indemnified Party as such may arise from such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in
the performance of such Indemnified Party's duties or by reason
of such Indemnified Party's reckless disregard of obligations and
duties under this Agreement or to each Company or the Account,
whichever is applicable.
8.2(c). The Distributor shall not be liable under this
indemnification provision with respect to any claim made against
an Indemnified Party unless such Indemnified Party shall have
notified the Distributor in writing within a reasonable time
after the summons or other first legal process giving information
of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have
received notice of such service on any designated agent), but
failure to notify the Distributor of any such claim shall not
relieve the Distributor from any liability which it may have to
the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In
18
<PAGE>
case any such action is brought against the Indemnified Parties,
the Distributor will be entitled to participate, at its own
expense, in the defense thereof. The Distributor also shall be
entitled to assume the defense thereof, with counsel satisfactory
to the party named in the action, and to settle the claim at its
own expense, provided however, that no such settlement shall,
without the Indemnified Parties' written permission, include any
factual stipulations referring to the Indemnified Parties or
their conduct. After notice from the Distributor to such party of
the Distributor's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Distributor will not
be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently
in connection with the defense thereof other than reasonable
costs of investigation.
8.2(d). The Company agrees promptly to notify the Distributor of
the commencement of any litigation or proceedings against it or
any of its officers or directors in connection with the issuance
or sale of the Contracts or the operation of each Account.
8.3. INDEMNIFICATION BY THE FUND
8.3(a). The Fund agrees to indemnify and hold harmless the Company,
and each of its directors and officers and each person, if any,
who controls the Company within the meaning of Section 15 of the
1933 Act, other than Affiliated persons (as defined in Section
2(a)(3) of the 1940 Act) of the Fund (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against
any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Fund)
or litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute, at
common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or
settlements result from the gross negligence, bad faith or
willful misconduct of the Board or any member thereof, are
related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure to comply with the
19
<PAGE>
diversification requirements specified in Article VI of
this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b)
and 8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an
Indemnified Party as such may arise from such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of
such Indemnified Party's reckless disregard of obligations and
duties under this Agreement or to the Company, the Fund, the
Distributor or each Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Fund
in writing within a reasonable time after the summons or other
first legal process giving information of the nature of the claim
shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on
any designated agent), but failure to notify the Fund of any such
claim shall not relieve the Fund from any liability which it may
have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In
case any such action is brought against the Indemnified Parties,
the Fund will be entitled to participate, at its own expense, in
the defense thereof. The Fund also shall be entitled to assume
the defense thereof, with counsel satisfactory to the party named
in the action, and to settle the claim at its own expense,
provided however, that no such settlement shall, without the
Indemnified Parties' written permission, include any factual
stipulations referring to the Indemnified Parties or their
conduct. After notice from the Fund to such party of the Fund's
election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses
20
<PAGE>
of any additional counsel retained by it, and the Fund will not
be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently
in connection with the defense thereof other than reasonable
costs of investigation.
8.3(d). The Company and the Distributor agree promptly to notify
the Fund of the commencement of any litigation or proceedings
against it or any of its respective officers or directors in
connection with this Agreement, the issuance or sale of the
Contracts, with respect to the operation of each Account, or the
sale or acquisition of shares of the Fund.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
SEC may grant (including, but not limited to, the Shared Funding Exemptive
Order), and the terms hereof shall be interpreted and construed in
accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon one year advance written notice to the
other parties; provided, however such notice shall not be given
earlier than one year following the date of this Agreement; or
(b) at the option of the Company to the extent that shares of Portfolios
are not reasonably available to meet the requirements of the Contracts
as determined by the Company, provided however, that such termination
shall apply only to the Portfolio(s) not reasonably available. Prompt
notice of the election to terminate for such cause shall be furnished
by the Company; or
(c) at the option of the Fund in the event that formal administrative
proceedings are instituted against the Company by the NASD, the SEC,
any state insurance department or any other regulatory body
21
<PAGE>
regarding the Company's duties under this Agreement or related to the
sale of the Contracts, with respect to the operation of any Account,
or the purchase of the Fund shares, provided however, that the Fund
determines in its sole judgment exercised in good faith, that any such
administrative proceedings will have a material adverse effect upon
the ability of the Company to perform its obligations under this
Agreement; or
(d) at the option of the Company in the event that formal administrative
proceedings are instituted against the Fund or Distributor by the
NASD, the SEC, or any state securities or insurance department or any
other regulatory body, provided, however, that the Company determines
in its sole judgment exercised in good faith, that any such
administrative proceedings will have a material adverse effect upon
the ability of the Fund or Distributor to perform its obligations
under this Agreement; or
(e) with respect to any Account, upon requisite vote of the Contract
owners having an interest in such Account (or any subaccount or
division) to substitute the shares of another investment company for
the corresponding Portfolio shares of the Fund in accordance with the
terms of the Contracts for which those Portfolio shares had been
selected to serve as the underlying investment media. The Company will
give 30 days' prior written notice to the Fund of the date of any
proposed vote to replace the Fund's shares; or
(f) at the option of the Company, in the event any of the Fund's shares
are not registered, issued or sold in accordance with applicable state
and/or federal law or such law precludes the use of such shares as the
underlying investment media of the Contracts issued or to be issued by
the Company; or
(g) at the option of the Company, if the Fund ceases to qualify as a
Regulated Investment Company under Subchapter M of the Code or under
any successor or similar provision, or if the Company reasonably
believes that the Fund may fail to so qualify; or
(h) at the option of the Company, if the Fund fails to meet the
diversification requirements specified in Article VI hereof; or
(i) at the option of either the Fund or the Distributor, if (1) the Fund
or the Distributor, respectively, shall determine, in its sole
judgment reasonably exercised in good faith, that the Company has
suffered a
22
<PAGE>
material adverse change in its business or financial condition or is
the subject of material adverse publicity and such material adverse
change or material adverse publicity will have a material adverse
impact upon the business and operations of either the Fund or the
Distributor, (2) the Fund or the Distributor shall notify the Company
in writing of such determination and its intent to terminate this
Agreement, and (3) after considering the actions taken by the Company
and any other changes in circumstances since the giving of such
notice, such determination of the Fund or the Distributor shall
continue to apply on the sixtieth (60th) day following the giving of
such notice, which sixtieth day shall be the effective date of
termination; or
(j) at the option of the Company, if (1) the Company shall determine, in
its sole judgment reasonably exercised in good faith, that either the
Fund or the Distributor has suffered a material adverse change in its
business or financial condition or is the subject of material adverse
publicity and such material adverse change or material adverse
publicity will have a material adverse impact upon the business and
operations of the Company, (2) the Company shall notify the Fund and
the Distributor in writing of such determination and its intent to
terminate the Agreement, and (3) after considering the actions taken
by the Fund and/or the Distributor and any other changes in
circumstances since the giving of such notice, such determination
shall continue to apply on the sixtieth (60th) day following the
giving of such notice, which sixtieth day shall be the effective date
of termination; or
(k) at the option of either the Fund or the Distributor, if the Company
gives the Fund and the Distributor the written notice specified in
Section 1.6(b) hereof and at the time such notice was given there was
no notice of termination outstanding under any other provision of this
Agreement; provided, however any termination under this Section
10.1(k) shall be effective forty five (45) days after the notice
specified in Section 1.6(b) was given.
10.2. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 10.1 (a) may be exercised for
any reason or for no reason.
10.3. NOTICE REQUIREMENT No termination of this Agreement shall be effective
unless and until the party terminating this Agreement gives prior written
notice to all other parties to this Agreement of its intent to terminate,
which notice shall set forth the basis for such termination. Furthermore,
23
<PAGE>
(a) in the event that any termination is based upon the provisions of
Article VII, or the provision of Section 10.1(a), 10.1(i), 10.1(j) or
10.1(k) of this Agreement, such prior written notice shall be given
in advance of the effective date of termination as required by such
provisions; and
(b) in the event that any termination is based upon the provisions of
Section 10.1 (c) or 10.1 (d) of this Agreement, such prior written
notice shall be given at least ninety (90) days before the effective
date of termination.
10.4. EFFECT OF TERMINATION Notwithstanding any termination of this
Agreement, the Fund and the Distributor shall, at the option of the
Company, continue to make available additional shares of the Fund pursuant
to the terms and conditions of this Agreement, for all Contracts in effect
on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts"). Specifically, without limitation, the
owners of the Existing Contracts shall be permitted to reallocate
investments in the Fund, redeem investments in the Fund and/or invest in
the Fund upon the making of additional purchase payments under the Existing
Contracts. The parties agree that this Section 10.4 shall not apply to any
terminations under Article VII and the effect of such Article VII
terminations shall be governed by Article VII of this Agreement.
10.5. The Company shall not redeem Fund shares attributable to the Contracts
(as opposed to Fund shares attributable to the Company's assets held in
each Account) except (a) as necessary to implement Contract Owner initiated
transactions, (b) as required by state and/or federal laws or regulations
or judicial or other legal precedent of general application (hereinafter a
"Legally Required Redemption"), or (c) upon termination of this Agreement
with respect to one or more Portfolios. Upon request, the Company will
promptly furnish to the Fund and the Distributor the opinion of counsel for
the Company (which counsel shall be reasonably satisfactory to the Fund and
the Distributor) to the effect that any redemption pursuant to clause (b)
above is a Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contracts, the Company shall not prevent
Contract owners from allocating payments to a Portfolio that was otherwise
available under the Contracts without first giving the Fund or the
Distributor ninety (90) days notice of its intention to do so.
10.6. If for any reason the shares of any Portfolio are no longer to be made
available, then, at the request of the Company, the Fund and the
Distributor shall cooperate with the Company so that the provisions of
Section 26(b) of
24
<PAGE>
the 1940 Act will be complied with as soon as reasonably practicable and
substitution of an underlying funding medium accomplished without
disruption of sales of securities to the Account or any subaccount or
division thereof in connection with such Contracts.
10.7. Articles II and VIII and Sections 12.1, 12.6, and 12.7 shall survive
termination of this Agreement.
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to, or when received by overnight or other delivery service by, a party at
the address of such party set forth below or at such other address as such party
may from time to time specify in writing to the other parties.
If to the Fund: Select Ten Plus Fund, LLC
515 West Market Street, 8th Floor
Louisville, KY 40202
Attention: Kevin L. Howard
If to the Company: National Integrity Life Insurance Company
515 West Market Street, 8th Floor
Louisville, KY 40202
Attention: General Counsel
If to the Distributor: ARM Securities Corporation
515 West Market Street, 8th Floor
Louisville, KY 40202
Attention: President
ARTICLE XII. MISCELLANEOUS
12.1. All persons dealing with the Fund must look solely to the property of
the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
12.2. Subject to the requirements of legal process and regulatory authority,
each party hereto shall treat as confidential the names and addresses of
the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted
by this Agreement, shall not disclose, disseminate or utilize such names
and addresses and other confidential information until such time as it may
come into the public domain without the express written consent of the
affected
25
<PAGE>
party.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the
same instrument.
12.5. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC,
the NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby. Notwithstanding the generality of the foregoing, each
party hereto further agrees to furnish the California Insurance
Commissioner with any information or reports in connection with services
provided under this Agreement which such Commissioner may request in order
to ascertain whether the variable life insurance operations of the Company
are being conducted in a manner consistent with the California Variable
Life Insurance Regulations and any other applicable law or regulations.
12.7. The Fund and Distributor agree that to the extent any advisory or
other fees received by the Fund, the Distributor or the Adviser are
determined to be unlawful in legal or administrative proceedings under the
1973 NAIC model variable life insurance regulation in the states of
California, Colorado, Maryland or Michigan, the Distributor shall indemnify
and reimburse the Company for any out of pocket expenses and actual damages
the Company has incurred as a result of any such proceeding; provided
however, that the provisions of Section 8.2(b) and 8.2(c) of this Agreement
shall apply to such indemnification and reimbursement obligation. Such
indemnification and reimbursement obligation shall be in addition to any
other indemnification and reimbursement obligations of the Fund and/or the
Distributor under this Agreement.
12.8. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to
under state and
26
<PAGE>
federal laws.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
as of the date first written above.
NATIONAL INTEGRITY LIFE INSURANCE COMPANY
By:______________________________________
Title:___________________________________
27
<PAGE>
ARM SECURITIES CORP. SELECT TEN PLUS FUND, LCC
By:_______________________________ By:____________________________
Title:____________________________ Title:_________________________
28
<PAGE>
SCHEDULE A
ACCOUNTS
Date of Resolution of Company's Board
Name of Account which Established the Account
- --------------- -------------------------------------
29
<PAGE>
SCHEDULE B
PROXY VOTING PROCEDURES
The following is a list or procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Distributor, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the Distributor as
early as possible before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation procedures. At this
time the Distributor will inform the Company of the Record, Mailing and
Meeting dates. This will be done verbally approximately two months before
the meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of
units which are attributed to each contractowner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to
call in the number of Customers to the Fund as soon as possible,
but no later than two weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of a proxy statement.
The Distributor will provide at least one copy of the last Annual Report to
the Company.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Legal Department
of the Adviser or its affiliate must approve the Card before it is printed.
Allow approximately 24 business days for printing information on the Cards.
Information commonly found on the Cards includes:
a. name (legal name as found on account registration)
30
<PAGE>
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of votes
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
5. During this time, the Fund or its counsel will develop and produce, and the
Fund will pay for, the Notice of Proxy and the Proxy Statement (one
document). Printed and folded notices and statements will be sent to the
Company for insertion into envelopes (envelopes and return envelopes are
provided and paid for by the Insurance Company). Contents of the envelope
sent to Customers by the Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by the Company) addressed to the
Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small, single
sheet of paper that requests Customers to vote as quickly as possible
and that their vote is important.)
e. cover letter - optional, supplied by the Company
6. The above contents should be received by the Company approximately 3-5
business days before the mail date. The individual in charge at the Company
reviews and approves the contents of the mailing package to ensure
correctness and completeness. A copy of this approval is sent to the Fund
or its counsel.
7. Package mailed by the Company.
* The Fund MUST allow at least a 15-day solicitation time to the Company
as the shareowner. (A 5-week period is recommended.) Solicitation time
is calculated as calendar days from (but NOT including) the meeting,
counting backwards.
8. Collection and tabulation of Cards begins. Cards sorted on arrival by
proposal into vote categories of all yes, no, or mixed replies, and data
entry begun.
Note: Postmarks are not generally needed. A need for postmark
information would be due to a Company's internal procedure.
31
<PAGE>
9. Signatures on Card checked against legal name on account registration which
was printed or affixed on the Card.
Note: For example, if the account registration is under "Bertram C.
Jones, Trustee," then that is the exact legal name and is the
signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to the Customer with an explanatory letter a
new Card and a return envelope. The mutilated or illegible Card is
disregarded and considered to be NOT RECEIVED for purposes of vote
tabulation. Any Cards that have "kicked out" (e.g. mutilated, illegible) of
the procedure are "hand verified," i.e., examined as to why they did not
complete the system. Any questions on those Cards are usually remedied
individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receive the tabulations stated
in terms of a percentage and the number of SHARES.) The Fund or its counsel
must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to the Fund on
the morning of the meeting not later than 10:00 a.m. New York Time. The
Fund or its counsel may request an earlier deadline if required to
calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
The Fund will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, the Fund will be
permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
32
<PAGE>
Exhibit i
[ARM FINANCIAL GROUP, INC. LETTERHEAD]
April 1, 1999
National Integrity Life Insurance Company
15 Matthews Street, Suite 200
Goshen, NY 10924
Re: Select Ten Plus Fund, LLC (the "Fund")
Dear Sirs:
This opinion is furnished in connection with the Registration Statement on Form
N-1A for Select Ten Plus Fund, LLC filed under the Securities Act of 1933,
333-69843, and the Investment Company Act of 1940, 811-09179.
In rendering this opinion, I have examined such documents, records, and matters
of law as I deemed necessary for purposes of this opinion. I have assumed the
genuineness of all signatures of all parties, the authenticity of all documents
submitted as originals, the correctness of all copies and the correctness of all
facts set forth in the certificates delivered to us and the correctness of all
written or oral statements made to us.
Based upon and subject to the foregoing, it is my opinion that the shares that
will be issued by the Fund when sold will be legally issued, fully paid and
nonassessable.
This opinion is rendered solely in connection with the Registration Statement on
Form N-1A under which the shares will be registered and may not be relied upon
for any other purposes without my written consent. I hereby consent to the use
of this opinion as an exhibit to such Registration Statement.
Sincerely,
/s/ Nancy E. Anderson
- ---------------------
Nancy E. Anderson
Assistant General Counsel
