<PAGE>
As filed with the Securities and Exchange Commission
on May 1, 1996.
Registration No. 33-56654
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [_]
---
Post-Effective Amendment No. 5 [X]
---
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 14 [X]
----
(Check appropriate box or boxes)
Separate Account I of Integrity Life Insurance Company
(Exact Name of Registrant)
Integrity Life Insurance Company
(Name of Depositor)
239 S. Fifth Street, 12th Floor Louisville, KY 40202
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (502) 582-7900
----------------
John McGeeney
Integrity Life Insurance Company
239 S. Fifth Street, 12th Floor
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)
[X] immediately upon filing pursuant to paragraph (b) of Rule 485
[_] on (date) pursuant to paragraph (b) of Rule 485
[_] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[_] on (date) pursuant to paragraph (a)(1) 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.
The registrant has registered an indefinite amount of securities under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940. The Rule 24f-2 Notice for the issuer's most recent fiscal year was
filed on February 29, 1996.
<PAGE>
CROSS REFERENCE SHEET
Showing Location in Part A (Prospectus) and Part B (Statement of Additional
Information) of Information required By Form N-4
PART A: INFORMATION REQUIRED IN PROSPECTUS
<TABLE>
<CAPTION>
Form N-4 Item No. Location in Prospectus
<S> <C>
1. Cover Page Cover Page
2. Definitions Part 1 - Summary
3. Synopsis Part 1 - Summary; Table of Annual
Fees and Expenses; Examples
4. Condensed Financial Information Part 1 - Financial Information
5. General Description of Registrant, Part 2 - Integrity and the Separate Account;
Annuity Contracts Part 3 - Your Investment Options
6. Deductions Part 4 - Deductions and Charges
7. General Description of Variable Part 5 - Terms of Your Pinnacle Variable
Annuity contracts Annuity Contract
8. Annuity Period Part 5 - Terms of Your Pinnacle Variable
Annuity Contract
9. Death Benefit Part 5 - Terms of Your Pinnacle Variable
Annuity Contract
10. Purchases and Contract Value Part 5 - Terms of Your Pinnacle Variable
Annuity Contract
11. Redemptions Part 5 - Terms of Your Pinnacle Variable
Annuity Contract
12. Taxes Part 7 - Tax Aspects of the Contracts
13. Legal Proceedings Not Applicable
14. Table of Contents of the Statement Table of Contents
of Additional Information
</TABLE>
<PAGE>
PART B: INFORMATION REQUIRED IN STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
Form N-4 Item No. Location in Statement of Additional
Information
<S> <C>
15. Cover Page Cover Page
16. Table of Contents Cover Page
17. General Information and History Part 1 - Integrity and Custodian
18. Services Part 1 - Integrity and Custodian
19. Purchase of Securities Being Offered Part 2 - Distribution of the Contracts
20. Underwriters Part 2 - Distribution of the Contract
21. Calculation of Performance Data Part 3 - Performance Information
22. Annuity Payments Not Applicable
23. Financial Statements Part 5 - Financial Statements
</TABLE>
<PAGE>
Prospectus
==========
FLEXIBLE PREMIUM VARIABLE ANNUITY
issued by INTEGRITY LIFE INSURANCE COMPANY
This prospectus describes a flexible premium variable annuity offered by
Integrity Life Insurance Company, an indirect wholly owned subsidiary of ARM
Financial Group, Inc. The individual contracts and group certificates
(contracts) offered by this prospectus provide several types of benefits, some
of which have tax-favored status under the Internal Revenue Code of 1986, as
amended. Contributions under the contracts may be allocated to the various
investment divisions of our Separate Account I (Variable Account Options, or
individually, Option) or to our Fixed Accounts, or both.
Contributions to the Variable Account Options are invested in shares of
corresponding portfolios of the Variable Insurance Products Fund and Variable
Insurance Products Fund II (the Funds or Fund). The Funds are part of the
Fidelity Investments(R) group of companies. The values allocated to the Options
reflect the investment performance of the Funds' portfolios. The prospectus for
the Funds describes the investment objectives, policies and risks of each of the
Funds' portfolios. There are ten Variable Account Options available:
. Money Market . Investment Grade Bond
. High Income . Asset Manager
. Equity-Income . Index 500
. Growth . Contrafund
. Overseas . Asset Manager: Growth
We currently offer Guaranteed Rate Options and a Systematic Transfer Option,
together referred to as Fixed Accounts. Your allocation to a Guaranteed Rate
Option accumulates at a fixed interest rate we declare at the beginning of the
duration you select. A market value adjustment (Market Value Adjustment) will be
made for withdrawals, surrenders, transfers and certain other transactions
before the expiration of your GRO Account, but your value under a GRO Account
may not be decreased below an amount equal to your allocation plus interest
compounded at an annual effective rate of 3% (Minimum Value), less previous
withdrawals and any applicable contingent withdrawal charges. Your allocation to
the Systematic Transfer Option accumulates at a fixed interest rate that we
declare each calendar quarter, guaranteed never to be less than an effective
annual yield of 3%. You must transfer all contributions you make to the
Systematic Transfer Option into other Investment Options within one year of
contribution.
This prospectus contains information about the contracts that you should know
before investing. You should read this prospectus and any supplements, and
retain them for future reference. This prospectus is not valid unless provided
with the current prospectus for the Funds, which you should also read.
For further information and assistance, you should contact our Administrative
Office at Integrity Life Insurance Company, P.O. Box 182080, Columbus, OH 43218.
The express mail address is Integrity Life Insurance Company, 200 East Wilson
Bridge Road, Worthington, Ohio 43085. You may also call the following toll-free
number: 1-800-325-8583.
A registration statement relating to the contracts, which includes a Statement
of Additional Information (SAI) dated May 1, 1996, has been filed with the
Securities and Exchange Commission. The SAI is incorporated by reference into
this prospectus. A copy of the SAI is available free of charge by writing to or
calling our Administrative Office. A table of contents for the SAI follows the
table of contents for this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is May 1, 1996.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART 1 - SUMMARY PAGE
<S> <C>
Your Variable Annuity Contract............................................ 1
Your Benefits............................................................. 1
How Your Contract is Taxed................................................ 1
Your Contributions........................................................ 1
Your Investment Options................................................... 1
Variable Account Options.................................................. 1
Account Value, Adjusted Account Value and Cash Value...................... 2
Transfers................................................................. 2
Charges and Fees.......................................................... 2
Withdrawals............................................................... 2
Your Initial Right to Revoke.............................................. 3
Table of Annual Fees and Expenses......................................... 4
Financial Information..................................................... 7
PART 2 - INTEGRITY AND THE SEPARATE ACCOUNT
Integrity Life Insurance Company.......................................... 8
The Separate Account and the Variable Account Options..................... 8
Assets of Our Separate Account............................................ 8
Changes In How We Operate................................................. 8
PART 3 - YOUR INVESTMENT OPTIONS
The Funds................................................................. 9
The Funds' Investment Adviser......................................... 10
Investment Objectives of the Portfolios............................... 11
Fixed Accounts............................................................ 13
Guaranteed Rate Options............................................... 13
Renewals of GRO Accounts............................................. 13
Market Value Adjustments............................................. 13
Systematic Transfer Option............................................ 14
PART 4 - DEDUCTIONS AND CHARGES
Separate Account Charges.................................................. 15
Annual Administrative Charge.............................................. 15
Fund Charges.............................................................. 15
State Premium Tax Deduction............................................... 15
Contingent Withdrawal Charge.............................................. 16
Transfer Charge........................................................... 16
Tax Reserve............................................................... 17
PART 5 - TERMS OF YOUR VARIABLE ANNUITY
Contributions Under Your Contract......................................... 17
Your Account Value........................................................ 17
Your Purchase of Units in Our Separate Account............................ 18
How We Determine Unit Value............................................... 18
Transfers................................................................. 19
Withdrawals............................................................... 19
Assignments............................................................... 19
Death Benefits and Similar Benefit Distributions.......................... 20
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Annuity Benefits.......................................................... 20
Annuities................................................................. 21
Annuity Payments.......................................................... 21
Timing of Payment......................................................... 22
How You Make Requests and Give Instructions............................... 22
PART 6 - VOTING RIGHTS
Fund Voting Rights........................................................ 23
How We Determine Your Voting Shares....................................... 23
How Fund Shares Are Voted................................................. 23
Separate Account Voting Rights............................................ 23
PART 7 - TAX ASPECTS OF THE CONTRACTS
Introduction.............................................................. 24
Your Contract is an Annuity............................................... 24
Taxation of Annuities Generally........................................... 24
Distribution-at-Death Rules............................................... 24
Diversification Standards................................................. 24
Tax-Favored Retirement Programs........................................... 25
Individual Retirement Annuities....................................... 26
Tax Sheltered Annuities............................................... 26
Simplified Employee Pensions.......................................... 27
Corporate and Self-Employed (H.R. 10 and Keogh) Pension
and Profit Sharing Plans............................................. 27
Deferred Compensation Plans of State and Local Governments and
Tax-Exempt Organizations............................................. 27
Distributions Under Tax-Favored Retirement Programs....................... 27
Federal and State Income Tax Withholding.................................. 28
Impact of Taxes to Integrity.............................................. 28
Transfers Among Investment Options........................................ 28
PART 8 - ADDITIONAL INFORMATION
Systematic Withdrawals.................................................... 28
Dollar Cost Averaging..................................................... 29
Systematic Transfer Program............................................... 29
Asset Rebalancing......................................................... 29
Systematic Contributions.................................................. 30
Performance Information................................................... 30
</TABLE>
Appendix A - Illustration of a Market Value Adjustment
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS.
<PAGE>
SAI TABLE OF CONTENTS
Part 1 - Integrity and Custodian
Part 2 - Distribution of the Contracts
Part 3 - Performance Information
Part 4 - Death Benefit Information for Contracts Issued Prior to January 1, 1996
Part 5 - Financial Statements
If you would like to receive a copy of the Statement of Additional Information,
please complete the form below and send it to:
Administrative Office
Integrity Life Insurance Company
P.O. Box 182080
Columbus, OH 43218
ATTN: Request for SAI of Separate Account I
Name:
-----------------------------------------
Address:
--------------------------------------
City: State: Zip:
---------------- -------- -------
<PAGE>
PART 1 -- SUMMARY
YOUR VARIABLE ANNUITY CONTRACT
In this prospectus, we, our and us mean Integrity Life Insurance Company
(Integrity), an indirect wholly owned subsidiary of ARM Financial Group, Inc.
(ARM Financial Group). We offer individual variable annuity contracts. In
certain states, we offer certificates under a group variable annuity contract
instead of contracts. When we use the words contract or certificate, we are
referring to both the individual contracts and the group certificates.
You can invest for retirement by purchasing a contract if you properly complete
a Customer Profile form (an application or enrollment form may be required in
some states) and make a minimum initial contribution. In this prospectus, you
and your mean the Annuitant, the person upon whose life the Annuity Benefit and
the Death Benefit are based, usually the Owner of the contract. If the Annuitant
does not own the contract, all of the rights under the contract belong to the
Owner until annuity payments begin.
Your retirement or endowment date (Retirement Date) will be the date you
specify, but no later than your 85th birthday or the tenth contract anniversary,
whichever is later.
YOUR BENEFITS
Your contract provides an Account Value, an annuity benefit, and a death
benefit. See "Your Account Value," "Death Benefits and Similar Benefit
Distributions" and "Annuity Benefits" in Part 5.
Your benefits may be received under a contract subject to the usual rules for
taxation of annuities, including the tax-deferral of earnings until withdrawal.
The contract also can provide your benefits under certain tax-favored retirement
programs, which are subject to special rules covering such matters as
eligibility and contribution amounts. See Part 7, "Tax Aspects of the Contracts"
for detailed information.
HOW YOUR CONTRACT IS TAXED
Under current law, any increases in the value of your contributions to your
contract are tax deferred and will not be included in your taxable income until
withdrawn. See Part 7, "Tax Aspects of the Contracts."
YOUR CONTRIBUTIONS
The minimum initial contribution currently is $1,000. Subsequent contributions
of at least $100 can be made. Special rules for lower minimum initial and
subsequent contributions apply for certain tax-favored retirement plans. See
"Contributions Under Your Contract" in Part 5.
YOUR INVESTMENT OPTIONS
You may allocate contributions to the Variable Account Options or to the Fixed
Accounts, or both. The Variable Account Options and the Fixed Accounts are
together referred to as the Investment Options. Contributions may be allocated
to up to nine Investment Options. See "Contributions Under Your Contract" in
Part 5. To select Investment Options most suitable for you, see Part 3, "Your
Investment Options."
VARIABLE ACCOUNT OPTIONS
The Variable Account Options invest in shares of corresponding investment
portfolios of the Funds, each a "series" type of mutual fund. Each investment
portfolio is referred to as a Portfolio. The investment objective of each
Variable Account Option and its corresponding Portfolio is the same. Your value
in a Variable Account Option will vary depending on the performance of the
corresponding Portfolio. For a full description of the Funds, see the Funds'
prospectus and the Funds' Statement of Additional Information.
1
<PAGE>
ACCOUNT VALUE, ADJUSTED ACCOUNT VALUE AND CASH VALUE
The sum of your values under the Fixed Accounts plus your values in the Variable
Account Options is referred to as the Account Value. Your Adjusted Account Value
is your Account Value, as increased or decreased (but not below the Minimum
Value) by any Market Value Adjustments. Your Cash Value is equal to your
Adjusted Account Value, reduced by any applicable contingent withdrawal charge
and will be reduced by the pro rata portion of the annual administrative charge,
if applicable. See "Charges and Fees" below.
TRANSFERS
You may transfer all or portions of your Account Value among the Investment
Options, subject to the conditions described under "Transfers" in Part 5.
Transfers from any Investment Option must be for at least $250. Transfers may be
arranged through our telephone transfer service. See Part 5, "Transfers."
Transfers may also be made under special services we offer to dollar cost
average or rebalance your investment in the Variable Account Options, or to
transfer your Systematic Transfer Option contributions. See Part 8, "Dollar Cost
Averaging," "Asset Rebalancing," and "Systematic Transfer Program."
CHARGES AND FEES
If your Account Value is less than $50,000 as of the last day of any contract
year prior to your Retirement Date, an annual administrative expense charge of
$30 is deducted from your contract. See Part 4, "Deductions and Charges."
A charge at an effective annual rate of 1.35% of the Account Value in the
Variable Account Options is made daily. We make this charge to cover mortality
and expense risks (1.20%) and certain administrative expenses (.15%). The charge
will never be greater than an effective annual rate of 1.35% of the Account
Value in the Variable Account Options. See Part 4, "Deductions and Charges."
Investment advisory fees and other expenses are deducted from amounts invested
by the Separate Account in the Funds. For providing investment management
services to the Portfolios of the Funds, Fidelity Management and Research
Company (Fidelity Management) receives fees from the Portfolios based on the
average net assets of each Portfolio. The highest annual rate at which any of
the Portfolios paid advisory fees in 1995 was .76% of average net assets.
Advisory fees cannot be increased without the consent of Fund shareholders. See
"Table of Annual Fees and Expenses" below and "The Funds' Investment Adviser" in
Part 3.
If you frequently transfer funds from one Investment Option to another, certain
transfers may become subject to a charge. We will not, however, charge more than
$20 per transfer. See "Transfer Charge" in Part 4.
When you make withdrawals from your contract, a contingent withdrawal charge may
be deducted from your Account Value. This sales charge will be in addition to
the Market Value Adjustment applicable to early withdrawals from GRO Accounts.
See "Withdrawals" below and "Guaranteed Rate Options" in Part 3.
WITHDRAWALS
You may make an unlimited number of withdrawals from your contract as frequently
as you wish. Each withdrawal must be for at least $300. A sales charge of up to
7% of the amount withdrawn, in excess of any free withdrawal amount (defined
below), will be deducted from your Account Value, unless one of the exceptions
applies. This charge defrays marketing expenses. See "Contingent Withdrawal
Charge" in Part 4. Most withdrawals made by you prior to age 59-1/2 are also
subject to a 10% federal tax penalty. In addition, some tax-favored retirement
programs limit withdrawals. See Part 7, "Tax Aspects of the Contracts." For
partial withdrawals, the total amount deducted from your Account Value will
include the withdrawal amount requested, any applicable Market Value Adjustment,
and any applicable withdrawal charge, so that the net amount you receive will be
the amount requested.
2
<PAGE>
The free withdrawal amount is a non-cumulative amount which you may take as a
partial withdrawal each contract year without being subject to the contingent
withdrawal charge or any Market Value Adjustment. It is equal to the greater of
(i) 10% of the Account Value, minus cumulative prior withdrawals in the current
contract year, and (ii) the investment gain under the contract during the prior
contract year, minus such cumulative withdrawals.
YOUR INITIAL RIGHT TO REVOKE
Within ten days after you receive your contract, you may cancel it by returning
it to our Administrative Office. We will refund all your contributions with an
adjustment for any investment gain or loss on the contributions put into each
Variable Account Option from the date units were purchased until the date your
contract is received by us. If state law instead requires a refund of your
contributions without any adjustment, we will return that amount to you. For
allocations to Fixed Accounts, we will refund to you the amount of your
contributions.
3
<PAGE>
TABLE OF ANNUAL FEES AND EXPENSES
Contract Owner Transaction Expenses
- -----------------------------------
<TABLE>
<CAPTION>
<S> <C>
Sales Load on Purchases.............................................. $0
Deferred Sales Load (1).............................................. 7% Maximum
Exchange Fee (2)..................................................... $0
Annual Administrative Charge (3)..................................... $30
</TABLE>
Separate Account Annual Expenses (as a
percentage of average account value) (4)
- ---------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Mortality and Expense Risk Fees...................................... 1.20%
Administrative Expenses.............................................. .15%
----
Total Separate Account Annual Expenses............................... 1.35%
====
</TABLE>
Fund Annual Expenses After Reimbursement
(as a percentage of average net assets) (5)
- ------------------------------------------
<TABLE>
<CAPTION>
Management Other Total Annual
Fees(6) Expenses Expenses
---------- -------- ------------
<S> <C> <C> <C>
Money Market Portfolio....................... .24% .09% .33%
High Income Portfolio........................ .60% .11% .71%(7)
Equity-Income Portfolio...................... .51% .10% .61%
Growth Portfolio............................. .61% .09% .70%
Overseas Portfolio........................... .76% .15% .91%
Investment Grade Bond Portfolio.............. .45% .14% .59%
Asset Manager Portfolio...................... .71% .10% .81%(7)
Index 500 Portfolio.......................... .09% .19% .28%(8)
Contrafund Portfolio......................... .61% .11% .72%(7)
Asset Manager: Growth Portfolio.............. .59% .41% 1.00%(7)(8)
</TABLE>
- ---------------------
(1) See "Deductions and Charges - Contingent Withdrawal Charge" in Part 4. You
may make a partial withdrawal of up to 10% of the Account Value in any contract
year or the investment gain under the contract during the previous contract
year, whichever is greater, less withdrawals during the current contract year,
without assessment of any withdrawal charge.
(2) After the first twelve transfers during a contract year, Integrity has the
right to impose a transfer charge of $20 per transfer. This charge would not
apply to transfers made for dollar cost averaging, asset rebalancing, or
systematic transfers. See "Deductions and Charges - Transfer Charge" in Part 4.
(3) The annual administrative charge is $30. This charge applies only if the
Account Value is less than $50,000 at the end of any contract year prior to your
Retirement Date. See "Deductions and Charges - Annual Administrative Charge" in
Part 4.
(4) See "Deductions and Charges - Separate Account Charges" in Part 4.
4
<PAGE>
(5) In the Funds' prospectus, see "Management, Distribution and Service Fees."
(6) Management fees for all Portfolios, other than Index 500 Portfolio, are
calculated by adding a group fee rate to an individual fund fee rate, and
multiplying the result by the Portfolio's average net assets. The individual
fund fee rate ranges from .03% to .45% and is shown by Portfolio on Page 10. The
group fee rate is based on the average net assets of all mutual funds advised by
Fidelity Management, and it drops as total assets under management increase.
This rate cannot rise above .52% for Equity-Income, Growth, Overseas, Asset
Manager, Asset Manager: Growth, and Contrafund Portfolios. It cannot rise above
.37% for Money Market, High Income, and Investment Grade Bond Portfolios. The
Money Market fee also includes an income based component. The income based
component is 6% of that portion of the portfolio's gross yield which exceeds a
5% return (but capped at a maximum of .24%). The 1995 aggregate rates, comprised
of the individual and group fee rates, are shown on page 10. Absent
reimbursement, Index 500 Portfolio would have paid a monthly management fee at
the annual rate of .28% of the Portfolio's average net assets. The management
fees in the above table reflect management fees paid in 1995.
(7) A portion of the brokerage commissions the Portfolio paid was used to reduce
its expenses. With this reduction, total fund annual expenses actually were .79%
for Asset Manager Portfolio. The reduction in expenses for the High Income,
Contrafund, and Asset Manager: Growth Portfolios did not impact the total fund
annual expense percentage.
(8) The Portfolio's expenses were voluntarily reduced by the fund's investment
adviser. Absent such reimbursement, management fees, other expenses, and total
fund annual expenses would have been .28%, .19% and .47%, respectively for Index
500 Portfolio, and would have been .71%, .42% and 1.13%, respectively for Asset
Manager: Growth Portfolio.
EXAMPLES
The examples below show the expenses that would be borne by the Annuitant per
$1,000 investment, assuming a $40,000 average contract value and a 5% annual
rate of return on assets.
Expenses per $1,000 investment if you surrender your contract at the end of the
- -------------------------------------------------------------------------------
applicable period:
- -----------------
<TABLE>
<CAPTION>
Portfolio 1 year 3 years 5 years 10 years
- --------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market........... $87.96 $105.54 $125.44 $206.36
High Income............ $91.86 $117.34 $145.29 $246.89
Equity-Income.......... $90.83 $114.25 $140.10 $236.37
Growth................. $91.76 $117.03 $144.77 $245.84
Overseas............... $93.91 $123.51 $155.60 $267.61
Investment Grade Bond.. $90.63 $113.63 $139.06 $234.26
Asset Manager.......... $92.88 $120.43 $150.46 $257.30
Index 500.............. $87.45 $103.98 $122.81 $200.91
Contrafund............. $91.96 $117.65 $145.81 $247.94
Asset Manager: Growth.. $94.83 $126.28 $160.22 $276.79
</TABLE>
5
<PAGE>
Expenses per $1,000 investment if you do not surrender your contract at the end
- -------------------------------------------------------------------------------
of the applicable period:
- ------------------------
<TABLE>
<CAPTION>
Portfolio 1 year 3 years 5 years 10 years
- --------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market........... $17.96 $55.54 $ 95.44 $206.36
High Income............ $21.86 $67.34 $115.29 $246.89
Equity-Income.......... $20.83 $64.25 $110.10 $236.37
Growth................. $21.76 $67.03 $114.77 $245.84
Overseas............... $23.91 $73.51 $125.60 $267.61
Investment Grade Bond.. $20.63 $63.63 $109.06 $234.26
Asset Manager.......... $22.88 $70.43 $120.46 $257.30
Index 500.............. $17.45 $53.98 $ 92.81 $200.91
Contrafund............. $21.96 $67.65 $115.81 $247.94
Asset Manager: Growth.. $24.83 $76.28 $130.22 $276.79
</TABLE>
Expenses per $1,000 investment if you elect the normal form of annuity at the
- -----------------------------------------------------------------------------
end of the applicable period:
- ----------------------------
Same expenses per $1,000 investment as shown in table immediately above.
These examples assume a continuation of the fixed charges that are borne by the
Separate Account and of the investment advisory fees and other expenses of the
Funds as they were for the year ended December 31, 1995. ACTUAL FUND EXPENSES
MAY BE GREATER OR LESS THAN THOSE ON WHICH THESE EXAMPLES WERE BASED. The annual
rate of return assumed in the examples is not an estimate or guarantee of future
investment performance. The table also assumes an estimated $40,000 average
contract value, so that the administrative charge per $1,000 of net asset value
in the Separate Account is $0.75. Such per $1,000 charge would be higher for
smaller Account Values and lower for higher values.
The above table and examples are intended to assist your understanding of the
various costs and expenses that apply to your contract, directly or indirectly.
These tables reflect expenses of the Separate Account as well as those of the
Portfolios. Premium taxes upon annuitization also may be applicable.
6
<PAGE>
FINANCIAL INFORMATION
The table below shows the unit value for each Variable Account Option at
inception, the number of units outstanding at December 31 of each year since
inception, and the unit value at the end of each period. The unit value at the
beginning of each period is the unit value as of the end of the previous period.
UNIT VALUES AND UNITS OUTSTANDING
---------------------------------
<TABLE>
<CAPTION>
Investment Asset
Money High Equity- Grade Asset Index Contra- Manager:
Market Income Income Growth Overseas Bond Manager 500 fund Growth
Division Division Division Division Division Division Division Division Division Division
-------- -------- -------- --------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Date of Inception* $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
December 31, 1987 $10.18 - $ 7.74 $ 7.51 $ 8.13 10.21 $ 8.00 - - -
Number of units 1,952 - 25,560 50 7,250 26,988 29,166 - - -
December 31, 1988 $10.75 - $ 8.49 $ 7.48 $ 8.93 $10.69 $ 8.98 - - -
Number of units 2,062 - 8,962 2,043 2,019 45,789 11,300 - - -
December 31, 1989 $11.57 - $10.41 $10.45 $11.02 $12.20 $11.16 - - -
Number of units 43,299 - 8,517 2,284 1,937 4,372 10,635 - - -
December 31, 1990 $12.34 - $ 9.04 $11.04 $10.16 $12.82 $11.02 - - -
Number of units 2,427 - 29,446 2,060 1,779 3,350 12,194 - - -
December 31, 1991 $12.90 - $12.92 $17.96 $12.44 $14.38 $13.60 - - -
Number of units 1,422 - 7,198 1,777 945 1,160 5,272 - - -
December 31, 1992 $13.22 - $14.90 $19.36 $10.95 $15.13 $15.01 - - -
Number of units 68,139 - 124,911 129,511 35,346 80,734 309,292 - - -
December 31, 1993 $13.46 $11.45 $17.38 $22.80 $14.83 $16.57 $17.92 $10.52 - -
Number of units 346,644 615,289 748,436 444,077 480,406 330,360 1,748,246 98,288 - -
December 31, 1994 $13.84 $11.12 $18.35 $22.49 $14.88 $15.73 $16.60 $10.49 - -
Number of units 1,363,372 989,407 1,206,683 988,674 1,272,218 454,358 3,509,145 218,119 - -
December 31, 1995 $14.46 $13.23 $24.46 $30.03 $16.10 $18.20 $19.15 $14.20 $13.50 $12.03
Number of units 1,823,146 2,238,450 2,264,897 1,665,857 1,308,440 627,020 2,973,440 474,834 1,068,907 175,138
</TABLE>
*Inception dates for the High Income Option and the Index 500 Option were
February 19, 1993 and March 4, 1993, respectively. The Inception date for the
Contrafund Option and the Asset Manager: Growth Option was February 6, 1995.
Inception dates for the remaining Options all were in the third quarter of
1987. Prior to September 3, 1991, the Variable Account Options invested in
shares of corresponding portfolios of Prism Investment Trust, and the Money
Market, Equity-Income, Growth, Overseas, Investment Grade Bond and Asset
Manager Options were known as the Money Market, Common Stock, Aggressive
Stock, Global, Bond and Balanced Options, respectively.
7
<PAGE>
PART 2 - INTEGRITY AND THE SEPARATE ACCOUNT
INTEGRITY LIFE INSURANCE COMPANY
Integrity is a stock life insurance company organized under the laws of Ohio.
Our home office is in Worthington, Ohio and our principal executive office is in
Louisville, Kentucky. We are authorized to sell life insurance and annuities in
45 states and the District of Columbia. In addition to the contracts, we sell
flexible premium annuity contracts with an underlying investment medium other
than the Funds, fixed single premium annuity contracts, and flexible premium
annuity contracts offering both traditional fixed guaranteed interest rates
along with fixed equity indexed options. We are currently licensed to sell
variable contracts in 44 states and the District of Columbia. In addition to
issuing annuity products, we have entered into agreements with other insurance
companies to provide administrative and investment support for products to be
designed, underwritten and sold by these companies.
Integrity is an indirect wholly owned subsidiary of ARM Financial Group. ARM
Financial Group is a financial services company providing retail and
institutional products and services to the long-term savings and retirement
market. At December 31, 1995, ARM Financial Group had $5.4 billion of customer
deposits and funds under management.
THE SEPARATE ACCOUNT AND THE VARIABLE ACCOUNT OPTIONS
The Separate Account is established and maintained under the insurance laws of
the State of Ohio. It is a unit investment trust registered with the Securities
and Exchange Commission (the SEC) under the Investment Company Act of 1940 (1940
Act). A unit investment trust is a type of investment company. SEC registration
does not involve any supervision by the SEC of the management or investment
policies of the Separate Account. Each Variable Account Option invests in shares
of a corresponding Portfolio of the Funds. We plan to establish additional
Options, some of which may not be available for your allocations. The Variable
Account Options currently available to you are listed on the cover page of this
prospectus. Prior to September 3, 1991, the Portfolios then offered invested in
shares of corresponding portfolios of Prism Investment Trust.
ASSETS OF OUR SEPARATE ACCOUNT
Under Ohio law, we own the assets of our Separate Account and use them to
support the variable portion of your contract and other variable annuity
contracts. Annuitants under other variable annuity contracts will participate in
the Separate Account in proportion to the amounts relating to their contracts.
The Separate Account's assets supporting the variable portion of these variable
contracts may not be used to satisfy liabilities arising out of any other
business of ours. Under certain unlikely circumstances, one Variable Account
Option may be liable for claims relating to the operations of another Option.
Income, gains and losses, whether or not realized, from assets allocated to the
Separate Account are credited to or charged against the Separate Account without
regard to our other income, gains or losses. We may permit charges owed to us to
stay in the Separate Account, and thus may participate proportionately in the
Separate Account. Amounts in the Separate Account in excess of reserves and
other liabilities belong to us, and we may transfer them to our general account
(General Account).
CHANGES IN HOW WE OPERATE
We may modify how we or our Separate Account operate, subject to your approval
when required by the 1940 Act or other applicable law or regulation. You will be
notified if any changes result in a material change in the underlying
investments of a Variable Account Option. WE MAY:
- add Options to, or remove Options from, our Separate Account, combine two
or more Options within our Separate Account, or withdraw assets relating to
your contract from one Option and put them into another;
8
<PAGE>
- - register or end the registration of the Separate Account under the 1940
Act;
- - operate our Separate Account under the direction of a committee or
discharge such a committee at any time (the committee may be composed of a
majority of persons who are "interested persons" of Integrity under the
1940 Act);
- restrict or eliminate any voting rights of Owners or others who have voting
rights that affect our Separate Account;
- cause one or more Options to invest in a mutual fund other than or in
addition to the Funds;
- - operate our Separate Account or one or more of the Options in any other
form the law allows, including a form that allows us to make direct
investments. We may make any legal investments we wish. In choosing these
investments, we will rely on our own or outside counsel for advice.
PART 3 - YOUR INVESTMENT OPTIONS
THE FUNDS
Each of the Funds is an open-end diversified management investment company
registered under the 1940 Act. Such registration does not involve supervision by
the SEC of the investments or investment policies of the Funds. The Funds are
each a "series" type of investment company with diversified portfolios. The
Funds do not impose a sales charge or "load" for buying and selling their
shares. The shares of the Portfolios of the Funds are bought and sold by the
Separate Account at their respective net asset values.
The Funds are designed to serve as investment vehicle for variable annuity and
variable life contracts of insurance companies. Shares of the Portfolios of the
Funds currently are available to the separate accounts of a number of insurance
companies, both affiliated and unaffiliated with Fidelity Management or
Integrity. The Board of Trustees of each of the Funds is responsible for
monitoring the Fund for the existence of any material irreconcilable conflict
between the interests of the policyowners of all separate accounts investing in
the Fund and determining what action, if any, should be taken in response. If we
believe that a Fund's response to any of those events insufficiently protects
our contract owners, we will see to it that appropriate and available action is
taken to protect our contract owners. See "The Fund and the Fidelity
Organization" in the Funds' prospectus for a further discussion of the risks
associated with the offering of Fund shares to our Separate Account and the
separate accounts of other insurance companies.
Shares of Portfolios of the Funds are made available to the Separate Account
under two essentially identical Participation Agreements (Participation
Agreement or Agreements). The Participation Agreements are among the applicable
Fund, Fidelity Distributors Corporation which is the principal underwriter for
shares of the Funds (Distributor), and Integrity. If state or federal law
precludes the sale of the Funds' or any Portfolio's shares to the Separate
Account, or in certain other circumstances, sales of shares to the Separate
Account may be suspended and/or the Participation Agreements may be terminated
as to the Funds or the affected Portfolio. Also, the Participation Agreements
may be terminated by any party thereto with one year's written notice.
Notwithstanding termination of the Participation Agreement, the Fund and the
Distributor are obligated to continue to make the Funds' shares available for
contracts outstanding on the date the Participation Agreement terminates, unless
the Participation Agreement was terminated due to an irreconcilable conflict
among contract owners of different separate accounts. If for any reason the
shares of any Portfolio are no longer available for purchase by the Separate
Account for outstanding contracts, the parties to the Participation Agreements
have agreed to cooperate to comply with the 1940 Act in arranging for the
substitution of another funding medium as soon as reasonably practicable and
without disruption of sales of shares to the Separate Account or any Variable
Account Option.
The Funds' Investment Adviser. Fidelity Management & Research Company (Fidelity
Management), a registered investment adviser under the Investment Advisers Act
of 1940, serves as the investment adviser to each Fund. Fidelity Management,
whose principal address is 82 Devonshire Street, Boston,
9
<PAGE>
Massachusetts, is a wholly owned subsidiary of FMR Corp. and is part of Fidelity
Investments(R), one of the largest investment management organizations in the
United States. Fidelity Investments(R) includes a number of different companies,
which provide a variety of financial services and products to individuals and
corporations.
Fidelity Management provides investment research and portfolio management
services to mutual funds and other clients. At December 31, 1995, Fidelity
Management advised funds having more than 23 million shareholder accounts with a
total value of more than $354 billion. For certain of the Portfolios, Fidelity
Management has entered into sub-advisory agreements with affiliated companies
that are part of the Fidelity Investments(R) organization. Fidelity Management,
not the Portfolios, pays the sub-advisers for their services to the Portfolios.
The Portfolios of the Funds pay monthly advisory fees to Fidelity Management.
The advisory fee payable by each of the Portfolios, other than the Money Market
Portfolio and the Index 500 Portfolio, is composed of a group fee rate and an
individual fund fee rate. The group fee rate is based on the average monthly net
assets of all mutual funds advised by Fidelity Management. For the Equity-
Income, Growth, Overseas, Asset Manager, Contrafund, and Asset Manager: Growth
Portfolios, the group fee rate cannot rise above .52%. For the High Income and
Investment Grade Bond Portfolios, the group fee rate cannot rise above .37%. The
group fee rate drops as total assets under management increase.
The Money Market Portfolio's advisory fee is made up of two components: a basic
fee rate and an income-based component. The basic fee rate is the sum of a group
fee rate as described above (but capped at a maximum of .37%) and an individual
fund fee rate of .03%. The income based component is 6% of that portion of the
fund's gross yield which exceeds a 5% return (but capped at a maximum of .24%).
The Index 500 Portfolio pays a monthly fee at the annual rate of .28% of the
Portfolio's average net assets.
Set forth in the table below is the individual fund fee rate for the portfolios
and their 1995 aggregate advisory rate, comprised of the individual and group
rates, as a percentage of average net assets, and the Index 500 Portfolio's 1995
advisory rate as a percentage of average net assets.
1995
Portfolio Individual Rate Aggregate Rate
- --------- --------------- --------------
Money Market .03% .24%
High Income .45% .60%
Equity-Income .20% .51%
Growth .30% .61%
Overseas .45% .76%
Investment Grade Bond .30% .45%
Asset Manager .40% .71%
Index 500 N/A .00%
Contrafund .30% .61%
Asset Manager: Growth .40% .71%
Investment Objectives of the Portfolios. Set forth below is a summary of the
investment objectives of the Portfolios of the Funds. There can be no assurance
that these objectives will be achieved. YOU SHOULD READ THE FUNDS' PROSPECTUS
CAREFULLY BEFORE INVESTING.
10
<PAGE>
MONEY MARKET PORTFOLIO
----------------------
Money Market Portfolio seeks to obtain as high a level of current income as is
consistent with preserving capital and providing liquidity. It invests only in
high-quality, U.S. dollar denominated money market securities of domestic and
foreign issuers, such as certificates of deposit, obligations of governments and
their agencies, and commercial paper and notes.
HIGH INCOME PORTFOLIO
---------------------
High Income Portfolio seeks to obtain a high level of current income by
investing primarily in high-yielding, lower rated, fixed-income securities,
while also considering growth of capital. It normally invests at least 65% of
its total assets in income-producing debt securities and preferred stocks,
including convertible securities, and up to 20% in common stocks and other
equity securities. In view of the types of securities in which this Portfolio
invests, you should read the complete risk disclosure for this Portfolio in the
Funds' prospectus before investing in it.
EQUITY-INCOME PORTFOLIO
-----------------------
Equity-Income Portfolio seeks reasonable income by investing primarily in income
producing equity securities, with the potential for capital appreciation as a
consideration. It normally invests at least 65% of its assets in income-
producing common or preferred stock and the remainder in debt securities.
GROWTH PORTFOLIO
----------------
Growth Portfolio seeks to achieve capital appreciation, normally by purchase of
common stocks, although investments are not restricted to any one type of
security. Capital appreciation may also be found in other types of securities,
including bonds and preferred stocks.
OVERSEAS PORTFOLIO
------------------
Overseas Portfolio seeks long-term growth of capital primarily through
investments in foreign securities. It normally invests at least 65% of its
assets in securities from at least three countries outside North America.
INVESTMENT GRADE BOND PORTFOLIO
-------------------------------
Investment Grade Bond Portfolio seeks as high a level of current income as is
consistent with the preservation of capital by investing in a broad range of
investment-grade fixed-income securities. It will maintain a dollar-weighted
average portfolio maturity of ten years or less. For 80% of its assets, the
Investment Grade Bond Portfolio purchases only securities rated A or better by
Moody's Investors Service, Inc. or Standard & Poor's Corporation or unrated
securities judged by Fidelity Management to be of equivalent quality.
ASSET MANAGER PORTFOLIO
-----------------------
Asset Manager Portfolio seeks high total return with reduced risk over the long-
term by allocating its assets among stocks, bonds and short-term fixed-income
instruments. The expected "neutral" mix of assets, which will occur when the
investment adviser concludes there is minimal relative difference in value
between the three asset classes, is 40% in equities, 40% in intermediate to
long-term bonds and 20% in short-term fixed income instruments.
11
<PAGE>
INDEX 500 PORTFOLIO
-------------------
Index 500 Portfolio seeks to provide investment results that correspond to the
total return (i.e., the combination of capital changes and income) of common
stocks publicly traded in the United States. In seeking this objective, the
Portfolio attempts to duplicate the composition and total return of the Standard
& Poor's 500 Composite Stock Price Index while keeping transaction costs and
other expenses low.
CONTRAFUND PORTFOLIO
--------------------
Contrafund Portfolio is a growth fund which seeks to increase the value of your
investment over the long term by investing in equity securities of companies
that are undervalued or out of favor. This approach focuses on companies that
are currently out of public favor but show potential for capital appreciation.
Contrafund Portfolio invests primarily in common stock and securities
convertible into common stock, but it has the flexibility to invest in any type
of security that may produce capital appreciation.
ASSET MANAGER: GROWTH PORTFOLIO
-------------------------------
Asset Manager: Growth Portfolio is an asset allocation fund which seeks to
maximize total return over the long term through investments in stocks, bonds,
and short-term instruments. The fund has a neutral mix which represents the way
the fund's investments will generally be allocated over the long term. The range
and approximate neutral mix for each asset class are shown below:
<TABLE>
<CAPTION>
Range Neutral Mix
------ ------------
<S> <C> <C>
Stock Class 0-100% 65%
Bond Class 0-100% 30%
Short-Term Class 0-100% 5%
</TABLE>
12
<PAGE>
FIXED ACCOUNTS
Because of applicable exemptive and exclusionary provisions, interests in
contracts attributable to Fixed Accounts have not been registered under the
Securities Act of 1933 ("1933 Act"), nor under the Investment Company Act of
1940 ("1940 Act"). Thus, neither such contracts nor our General Account, which
guarantees the values and benefits under those contracts, are generally subject
to regulation under the provisions of the 1933 Act or the 1940 Act. Accordingly,
we have been advised that the staff of the Securities and Exchange Commission
has not reviewed the disclosure in this prospectus relating to the Fixed
Accounts or the General Account. Disclosures regarding the Fixed Accounts or the
General Account may, however, be subject to certain generally applicable
provisions of the Federal securities laws relating to the accuracy and
completeness of statements made in prospectuses.
GUARANTEED RATE OPTIONS
We offer Guaranteed Rate Options (GROs) with durations of two, four, six and ten
years. We may from time to time change the durations available. Each allocation
to a Guaranteed Rate Option locks in a fixed effective annual interest rate
declared by us (Guaranteed Interest Rate) for the duration you select (your GRO
Account). Each contribution or transfer to a Guaranteed Rate Option establishes
a new GRO Account at the then-current Guaranteed Interest Rate declared by us.
We will not declare an interest rate less than 3%. Each GRO Account expires at
the end of the duration you have selected. See "Renewals of GRO Accounts" below.
Values and benefits under your contract attributable to Guaranteed Rate Options
are guaranteed by the reserves in our GRO separate account as well as by our
General Account.
The value of each of your GRO Accounts is referred to as a GRO Value. The GRO
Value at the expiration of the GRO Account, assuming you have not transferred or
withdrawn any amounts, will be the amount allocated plus interest at the
Guaranteed Interest Rate. We credit interest daily at an effective annual rate
equal to the Guaranteed Interest Rate. We allocate interest at the end of each
contract year and at the time of any transfer, full or partial withdrawal,
payment of a death benefit or purchase of any annuity benefit.
Each group of GRO Accounts of the same duration is referred to as a Guaranteed
Rate Option, i.e. all of your two-year GRO Accounts are one Guaranteed Rate
Option while all of your four-year GRO Accounts are another Guaranteed Rate
Option.
You may obtain information about our current Guaranteed Interest Rates by
calling our Administrative Office.
ALLOCATIONS TO GUARANTEED RATE OPTIONS MAY NOT BE MADE UNDER CONTRACTS ISSUED IN
CERTAIN STATES.
Renewals of GRO Accounts. When a GRO Account expires, a new GRO Account of the
same duration, at the then-current Guaranteed Interest Rate, will be established
unless you withdraw your GRO Value or transfer it to another Investment Option.
We will notify you in writing before the expiration of your GRO Accounts. You
must notify us prior to the expiration of your GRO Accounts of any changes you
desire to make. See "Transfers" in Part 5.
Any renewal of a GRO Account will be implemented on the expiration date of the
GRO Account. You will receive the current Guaranteed Interest Rate applicable on
the expiration date. If a GRO Account expires and it cannot be renewed for the
same duration, it will be renewed for the next shortest available duration,
unless you instruct us otherwise within 30 days prior to expiration of the GRO
Account. You may not choose, and we will not renew a GRO Account that expires
after your Retirement Date.
Market Value Adjustments. A Market Value Adjustment is an adjustment, either up
or down, in your GRO Value prior to the expiration of your GRO Account. A Market
Value Adjustment will be made for each transfer, partial withdrawal in excess of
the free withdrawal amount, surrender, or purchase of an annuity benefit from a
GRO Account that occurs other than within 30 days prior to the expiration of the
GRO
13
<PAGE>
Account. There will be no Market Value Adjustment made for a death benefit. The
market adjusted value may be higher or lower than the GRO Value. In no event,
however, may the market adjusted value in each GRO Account be less than the
Minimum Value, an amount equal to your allocation to such GRO Account plus 3%
interest, compounded annually, less previous withdrawals from such GRO Account
and less any applicable contingent withdrawal charges. The Minimum Value for
partial withdrawals or transfers will be calculated on a pro-rata basis.
The Market Value Adjustment applicable to a GRO Account prior to its expiration
reflects the relationship between the Guaranteed Interest Rate for such GRO
Account and the then-current Guaranteed Interest Rate applicable to a newly
elected GRO Account of a duration equal to the time remaining in your GRO
Account. The Market Value Adjustment will reduce the GRO Value (but not below
the Minimum Value) if the current Guaranteed Interest Rate is higher than the
Guaranteed Interest Rate being credited to amounts under your GRO Account.
Conversely, the Market Value Adjustment will increase the GRO Value if the
current Guaranteed Interest Rate is lower than the Guaranteed Interest Rate
being credited to amounts under your GRO Account.
The Market Value Adjustment for a GRO Account is determined under the following
formula:
MVA = GRO Value x [(1 + I)/N/12/ / (1 + J + .0025)/N/12/ - 1], where
I is the Guaranteed Interest Rate being credited to the GRO Account subject
to the Market Value Adjustment,
J is the current Guaranteed Interest Rate, as of the effective date of the
application of the Market Value Adjustment, for current allocations to a
GRO Account, the length of which is equal to the number of whole months
remaining in your GRO Account. Subject to certain adjustments, if such
remaining period is not equal to an exact period for which we have declared
a new Guaranteed Interest Rate, J will be determined by interpolating
between the Guaranteed Interest Rates for GRO Accounts of durations closest
to (next higher and next lower) the remaining period described above.
N is the number of whole months remaining in your GRO Account.
For contracts issued in certain states, the formula above will be adjusted to
comply with applicable state requirements.
If the remaining term of your GRO Account is 30 days or less, the Market Value
Adjustment for your GRO Account shall be zero. If for any reason we are no
longer declaring current Guaranteed Interest Rates, then for purposes of
determining J we will use the yield to maturity of United States Treasury Notes
with the same remaining term as your GRO Account, interpolating when necessary,
in place of the current Guaranteed Interest Rate or Rates.
For illustrations of the application of the Market Value Adjustment formula, see
Appendix A.
SYSTEMATIC TRANSFER OPTION
We also offer a Systematic Transfer Option (STO) which guarantees an interest
rate that we declare in advance for each calendar quarter. You MUST transfer all
STO contributions into other Investment Options within one year of your most
recent STO contribution. Transfers will be made automatically in equal quarterly
or monthly installments of not less than $1,000 each. No transfers into the STO
from other Investment Options are permitted. Withdrawals from the STO are
subject to normal contingent withdrawal charges. We guarantee that the STO's
effective annual yield will never be less than 3.0%. See "Systematic Transfer
Program" in Part 8 for details on this program.
14
<PAGE>
PART 4 -- DEDUCTIONS AND CHARGES
SEPARATE ACCOUNT CHARGES
Integrity deducts from the unit value every calendar day an amount equal to an
effective annual rate of 1.35% of the Account Value in the Variable Account
Options. This daily expense rate cannot be increased without your consent.
Various portions of this total charge, as described below, pay for certain
services to the Separate Account and the contracts.
A daily charge equal to an effective annual rate of .15% of the value of each
Variable Account Option is deducted for administrative expenses not covered by
the annual administrative charge described below. The daily administrative
charge, like the annual administrative charge, is designed to reimburse
Integrity for expenses actually incurred, without profit.
A daily charge equal to an effective annual rate of 1.20% of the value of each
Variable Account Option is deducted for Integrity's assuming the expense risk
(.85%) and the mortality risk (.35%) under the contract. The expense risk is the
risk that our actual expenses of administering the contracts will exceed the
annual administrative expense charge. In this context, mortality risk refers to
the cost of insuring the risk Integrity takes that annuitants, as a class of
persons, will live longer than estimated and therefore require Integrity to pay
out more annuity benefits than anticipated. The relative proportion of the
mortality and expense risk charges may be modified, but the total effective
annual risk charge of 1.20% of the value of the Variable Account Options may not
be increased.
Integrity may realize a gain from these daily charges to the extent they are not
needed to meet the actual expenses incurred.
ANNUAL ADMINISTRATIVE CHARGE
If your Account Value is less than $50,000 on the last day of any contract year
prior to the your Retirement Date, Integrity charges an annual administrative
charge of $30. This charge is deducted from your Account Value in each
Investment Option on a pro-rata basis. The portion of the charge applicable to
the Variable Account Options will reduce the number of units credited to you.
The portion of the charge applicable to Fixed Accounts is withdrawn in dollars.
The annual administrative charge will be pro-rated based on the number of days
that have elapsed in the contract year in the event of the Annuitant's
retirement, death, or termination of a contract during a contract year. The
annual administrative charge is waived for employees of Integrity or National
Integrity Life Insurance Company, a wholly owned subsidiary of Integrity
(National Integrity), who purchase contracts under the salary allotment program
of either company.
FUND CHARGES
Our Separate Account purchases shares of the Funds at net asset value. That
price reflects investment advisory fees and other direct expenses that have
already been deducted from the assets of the Funds. The amount charged for
investment management may not be increased without the prior approval of the
Funds' respective shareholders. See "The Funds" in Part 3.
STATE PREMIUM TAX DEDUCTION
Integrity will not deduct state premium taxes from your contributions before
applying the contributions to the Investment Options, unless required to pay
such taxes under applicable state law. If the Annuitant elects an annuity
benefit, Integrity will deduct any applicable state premium taxes from the
amount otherwise available for an annuity benefit. State premium taxes, if
applicable, currently range up to 4%.
15
<PAGE>
CONTINGENT WITHDRAWAL CHARGE
No sales charges are applied when you make a contribution to the contract.
Contributions withdrawn will be subject to a withdrawal charge of up to 7%. As
shown below, the percentage charge varies, depending upon the "age" of the
contributions included in the withdrawal-that is, the contract year in which
each contribution was made. The maximum percentage of 7% would apply if the
entire amount of the withdrawal consisted of contributions made during your
current contract year. No withdrawal charge applies when you withdraw
contributions made earlier than your fifth prior contract year. For purposes of
calculating the withdrawal charge, (1) the oldest contributions will be treated
as the first withdrawn and more recent contributions next, and (2) partial
withdrawals up to the free withdrawal amount will not be considered a withdrawal
of any contributions. For partial withdrawals, the total amount deducted from
your Account Value will include the withdrawal amount requested, any applicable
Market Value Adjustment, and any applicable withdrawal charge, so that the net
amount you receive will be the amount requested.
During any contract year, no charge will be applied to your partial withdrawals
that do not exceed the free withdrawal amount. On any Business Day, the free
withdrawal amount is the greater of (i) 10% of your Account Value or (ii) any
investment gain during the prior contract year; less withdrawals during the
current contract year. Investment gain is calculated as the increase in the
Account Value during the prior contract year, minus contributions during such
year, plus withdrawals made during such year. If any partial withdrawal exceeds
the free withdrawal amount, we will deduct the applicable contingent withdrawal
charge with respect to such excess amount. The contingent withdrawal charge is a
sales charge to defray our costs of selling and promoting the contracts. We do
not expect that revenues from contingent withdrawal charges will cover all of
such costs. Any shortfall will be made up from our General Account assets,
including any profits from other charges under the contracts.
<TABLE>
<CAPTION>
Contract year in Which Charge as a % of the
Withdrawn Contribution Was Made Contribution Withdrawn
------------------------------- ----------------------
<S> <C>
Current.......................... 7%
First Prior...................... 6
Second Prior..................... 5
Third Prior...................... 4
Fourth Prior..................... 3
Fifth Prior...................... 2
Sixth Prior and Earlier.......... 0
</TABLE>
No contingent withdrawal charge will be applied to any amount withdrawn if the
Annuitant uses the withdrawal either to purchase from Integrity an immediate
annuity benefit with life contingencies or an immediate annuity without life
contingencies which provides for level payments over five or more years, with a
restricted prepayment option. Similarly, no charge will be applied if the
Annuitant dies and the withdrawal is made by the Annuitant's beneficiary. See
"Death Benefits and Similar Benefit Distributions" in Part 5.
Unless specifically instructed otherwise, Integrity will make withdrawals
(including any applicable charges) from the Investment Options in the same ratio
the Annuitant's Account Value in each Investment Option bears to the Annuitant's
total Account Value. The minimum withdrawal permitted is $300.
TRANSFER CHARGE
No charge is made for your first twelve transfers (excluding dollar cost
averaging and asset rebalancing transfers, and systematic transfers from the
STO) among the Variable Account Options or the Guaranteed Rate Options during a
contract year. We are, however, permitted to charge up to $20 for each
additional transfer during that contract year. See "Transfers" in Part 5.
Transfers from a Guaranteed Rate Option may be subject to a Market Value
Adjustment. See "Guaranteed Rate Options" in Part 3.
16
<PAGE>
TAX RESERVE
We have the right to make a charge in the future for taxes or for reserves set
aside for taxes, which will reduce the investment experience of the Variable
Account Options.
PART 5 TERMS OF YOUR VARIABLE ANNUITY
CONTRIBUTIONS UNDER YOUR CONTRACT
You can make contributions of at least $100 at any time up to the Annuitant's
Retirement Date. Your first contribution, however, cannot be less than $1,000.
We will accept contributions of at least $50 for salary allotment programs. We
have special rules for minimum contribution amounts for tax-favored retirement
programs. See "Special Rules for Tax-Favored Retirement Programs" in Part 7.
We may limit the total contributions under one contract to $1,000,000 if you are
under age 76 or to $250,000 if you are 76 to 79 years of age. Once you reach age
80, we may refuse to accept any contribution made for you. Contributions may
also be limited by various laws or prohibited by Integrity for all Annuitants
under the contract. If your contributions are made under a tax-favored
retirement program, we will not measure them against the maximum limits set by
law.
Contributions are applied to the various Investment Options selected by you and
are used to pay annuity and death benefits.
Each contribution is credited as of the date we have received (as defined below)
at our Administrative Office both the contribution and instructions for
allocation among the Investment Options. At any time you may have amounts in not
more than nine Investment Options. For purposes of calculating the nine
Investment Options, each of your GRO Accounts counts as one Investment Option.
Wire transfers of federal funds are deemed received on the day of transmittal if
credited to our account by 3 p.m. Eastern Time, otherwise they are deemed
received on the next Business Day. Contributions by check or mail are deemed
received not later than the second Business Day after they are delivered to our
Administrative Office. A Business Day is any day other than a weekend or a
national bank holiday.
You can change your choice of Investment Options at any time by writing to the
Administrative Office. The request should indicate your contract number and the
specific change, and you should sign the request. When it is received by the
Administrative Office, the change will be effective for any contribution which
accompanies it and for all future contributions.
YOUR ACCOUNT VALUE
Your Account Value reflects various charges. See Part 4, "Deductions and
Charges." Annual deductions are made as of the last day of each contract year.
Withdrawal charges and Market Value Adjustments, if applicable, are made as of
the effective date of the transaction. Charges against our Separate Account are
reflected daily. Any amount allocated to a Variable Account Option will go up or
down in value depending on the investment experience of that Option. For
contributions allocated to the Variable Account Options, there are no guaranteed
values. The value of your contributions allocated to Fixed Accounts is
guaranteed, subject to any applicable Market Value Adjustments. See "Guaranteed
Rate Options" in Part 3.
YOUR PURCHASE OF UNITS IN OUR SEPARATE ACCOUNT
Allocations to the Variable Account Options are used to purchase units. On any
given day, the value you have in a Variable Account Option is the unit value
multiplied by the number of units credited to you in that Option. The units of
each Variable Account Option have different unit values.
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The number of units purchased or redeemed (sold) in any Variable Account Option
is calculated by dividing the dollar amount of the transaction by the Option's
unit value, calculated after the close of business that day. The number of units
for a Variable Account Option at any time is the number of units purchased less
the number of units redeemed. The value of units fluctuates with the investment
performance of the corresponding Portfolios of the Funds which in turn reflects
the investment income and realized and unrealized capital gains and losses of
the Portfolios, as well as the Funds' expenses. The unit values also change
because of deductions and charges we make to our Separate Account. The number of
units credited to you, however, will not vary because of changes in unit values.
Units of a Variable Account Option are purchased when you allocate new
contributions or transfer prior contributions to that Option. Units are redeemed
when you make withdrawals or transfer amounts from a Variable Account Option. We
also redeem units to pay the death benefit when the Annuitant dies and to pay
the annual administrative charge.
HOW WE DETERMINE UNIT VALUE
We determine unit values for each Variable Account Option at the end of each day
we are open for business and changes in the value of Fund shares have a material
effect on unit values. We are closed on national business holidays and also on
Martin Luther King, Jr. Day and the Friday after Thanksgiving. The end of a day
for purposes of determining unit values is 4 pm Eastern Time.
The unit value of each Variable Account Option for any day on which we determine
unit values is equal to the unit value for the last day on which a unit value
was determined multiplied by the net investment factor for that Option on the
current day. We determine a net investment factor for each Option as follows:
- First, we take the value of the shares belonging to the Option in the
corresponding Portfolio at the close of business that day (before giving
effect to any transactions for that day, such as contributions or
withdrawals). For this purpose, we use the share value reported to us by
the Funds.
- Next, we add any dividends or capital gains distributions by the Funds on
that day.
- Then, we divide this amount by the value of the amounts in the Option at
the close of business on the last day on which a unit value was determined
(after giving effect to any transactions on that day).
- Then, we subtract a daily asset charge for each calendar day since the last
day on which a unit value was determined (for example, a Monday calculation
will include charges for Saturday and Sunday). The daily charge is
.00003723, which is an effective annual rate of 1.35%. This charge is for
the mortality risk, administrative expenses and expense risk assumed by us
under the contract.
- Finally, we subtract any daily charge for taxes or amounts set aside as a
reserve for taxes.
Generally, this means that we adjust unit values to reflect what happens to the
Funds, and also for the mortality and expense risk charge and any charge for
administrative expenses or taxes.
TRANSFERS
You may transfer your Account Value among the Variable Account Options and the
Guaranteed Rate Options, subject to Integrity's then current transfer
restrictions. You may not make a transfer into the STO. Transfers to a
Guaranteed Rate Option must be to a newly elected Guaranteed Rate Option (i.e.
to a Guaranteed Rate Option that you have not elected before) at the then-
current Guaranteed Interest Rate, unless Integrity otherwise consents. Transfers
from a Guaranteed Rate Option other than within 30 days prior to the expiration
date of a GRO Account are subject to a Market Value Adjustment. See
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"Guaranteed Rate Options" in Part 3. For amounts in Guaranteed Rate Options,
transfers will be made according to the order in which monies were originally
allocated to any Guaranteed Rate Option.
The amount transferred must be at least $250 or, if less, the entire amount in
the Investment Option. After twelve transfers have been made by you during a
contract year, a charge of up to $20 may apply to each additional transfer
during that contract year, except that no charge will be made for transfers
under our dollar cost averaging, asset rebalancing or systematic transfer
programs, described in Part 8. Once annuity payments begin, transfers are no
longer permitted.
Written transfer requests must be sent directly to the Administrative Office.
Each Annuitant's request for a transfer must specify the contract number, the
amounts to be transferred and the Investment Options to and from which the
amounts are to be transferred. Transfers may also be arranged through our
telephone transfer service provided you have established a Personal
Identification Number (PIN Code). We will honor telephone transfer instructions
from any person who provides correct identifying information, and we are not
responsible in the event of a fraudulent telephone transfer which is believed
to be genuine in accordance with these procedures. Accordingly, you bear the
risk of loss if unauthorized persons make transfers on your behalf.
A transfer request will be effective as of the Business Day it is received by
our Administrative Office. A transfer request does not change the allocation of
current or future contributions among the Investment Options. Telephone
transfers may be requested from 8:30 am - 5:00 pm, Eastern Time, on any day we
are open for business. You will receive the Variable Account Options' unit
values as of the close of business on the day you call. Accordingly, transfer
requests received after 4:00 pm Eastern Time will be processed using unit
values as of the close of business on the next Business Day after the day you
call. All transfers will be confirmed in writing.
WITHDRAWALS
You may make an unlimited number of withdrawals from your contract as
frequently as you wish. Each withdrawal must be for at least $300. A withdrawal
charge of up to 7% of the total withdrawal, as adjusted for any applicable
Market Value Adjustment and the withdrawal charge itself will be deducted from
your Account Value, unless one of the exceptions applies. See "Guaranteed Rate
Options" in Part 3 and "Contingent Withdrawal Charge" in Part 4. Most
withdrawals made by you prior to age 59-1/2 are also subject to a 10% federal
tax penalty. In addition, some tax-favored retirement programs limit
withdrawals. See Part 7, "Tax Aspects of the Contracts" for further information
regarding various tax consequences associated with the contracts.
ASSIGNMENTS
You may not assign the contract as collateral or security for a loan, but an
Annuitant whose contract is not related to a tax-favored program may otherwise
assign the contract before the Annuitant's Retirement Date. An assignment of
the contract as a gift may, however, have adverse tax consequences. See Part 7,
"Tax Aspects of the Contracts." Integrity will not be bound by an assignment
unless it is in writing and we have received it at the Administrative Office.
DEATH BENEFITS AND SIMILAR BENEFIT DISTRIBUTIONS
A death benefit is available to a beneficiary if the Annuitant dies prior to
the Retirement Date. The amount of the death benefit is the greatest of:
. your Account Value
. the highest Account Value at the beginning of any contract year, plus
subsequent contributions and minus subsequent withdrawals
. your total contributions less the sum of withdrawals
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"Subsequent withdrawals" for purposes of calculation of a death benefit reflect
any market value adjustments applicable to such withdrawals.
SEE THE STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1996 REGARDING DEATH
BENEFIT INFORMATION FOR CONTRACTS ISSUED PRIOR TO JANUARY 1, 1996.
The death benefit amount is determined as of the date proof of death and
instructions for payment of proceeds are received by the Administrative Office.
Death benefits (and benefit distributions required because of a separate
Owner's death) can be paid in a lump sum or as an annuity. If no benefit option
is selected for the beneficiary at the Annuitant's death, the beneficiary can
select an option.
The beneficiary of the death benefit under a contract is selected by the Owner.
An Owner may change beneficiaries by submitting the appropriate form to the
Administrative Office. If no Annuitant's beneficiary survives the Annuitant,
then the death benefit is generally paid to the Annuitant's estate. No death
benefit will be paid after the Annuitant's death if there is a contingent
Annuitant. In that case, the contingent Annuitant becomes the new Annuitant
under the contract.
Generally, the Owner also may select his or her own beneficiary. If the Owner
dies before the Annuitant's Retirement Date, an Owner's beneficiary will become
the Owner of the contract and may be required to receive benefit distributions.
ANNUITY BENEFITS
All annuity benefits under your contract are calculated as of the Retirement
Date selected by you. The Retirement Date can be changed by written notice to
the Administrative Office any time prior to the Retirement Date. The Retirement
Date may be no later than your 85th birthday or the tenth contract anniversary,
whichever is later. The terms of the contracts applicable to the various
retirement programs, along with the federal tax laws, establish certain minimum
and maximum retirement ages.
Annuity benefits may take the form of a lump sum payment or an annuity. A lump
sum payment will provide the Annuitant with the Cash Value under the contract,
shortly after the Retirement Date. The amount applied for the purchase of an
annuity benefit will be the Adjusted Account Value, except that the Cash Value
will be the amount applied if the annuity benefit does not have a life
contingency and either the term is less than five years or the annuity can be
commuted to a lump sum payment without a withdrawal charge applying.
ANNUITIES
Alternate forms of annuity benefits can provide for fixed payments which may be
made monthly, quarterly, semi-annually or annually. For any annuity, the
minimum amount applied to the annuity must be $2,000 and the minimum initial
payment must be at least $20.
If you have not already selected a form of annuity, we will send you, within
six months prior to your Retirement Date, an appropriate notice form on which
you may indicate the type of annuity you desire or confirm to us that the
normal form of annuity, as defined below, is to be provided. However, if we do
not receive a completed form from you on or before your Retirement Date, we
will deem the Retirement Date to have been extended until we receive your
written instructions at our Administrative Office. During such extension, the
values under your contract in the various Investment Options will remain
invested in such options and amounts remaining in Variable Account Options will
continue to be subject to the investment risks associated with those Options.
However, your Retirement Date cannot be extended beyond your 85th birthday or
your tenth contract anniversary, whichever is later. You will receive a lump
sum benefit if you do not make an election by such date.
We currently offer the following types of annuities:
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A period certain annuity provides for fixed payments to the Annuitant or the
Annuitant's beneficiary (the payee) for a fixed period. The amount is determined
by the period selected. The Annuitant, or if the payee dies before the end of
the period selected, the payee's beneficiary, may elect to receive the total
present value of future payments in cash.
A period certain life annuity provides for fixed payments for at least the
period selected and thereafter for the life of the payee or the payee and
another annuitant under a joint and survivor annuity. You may not change or
redeem the annuity once payments have begun. If the payee (or the payee and the
other annuitant under a joint and survivor annuity) dies before the period
selected ends, the remaining payments will go to another named payee who may
have the right to redeem the annuity and secure the present value of future
guaranteed payments in a lump sum. The NORMAL FORM OF ANNUITY is a fixed life
income annuity with 10 years of payments guaranteed, funded through our General
Account.
A life income annuity provides fixed payments for the life of the payee or the
payee and another annuitant under a joint and survivor annuity. Once a life
income annuity is selected, the form of annuity cannot be changed or redeemed
for a lump sum payment by the Annuitant or any payee.
ANNUITY PAYMENTS
Fixed annuity payments will not change and are based upon annuity rates
provided in your contract. The size of payments will depend on the form of
annuity that was chosen and, in the case of a life income annuity, on the
payee's age (or payee and a joint annuitant in the case of a joint and survivor
annuity) and sex (except under most tax-favored retirement programs). If
Integrity's current annuity rates then in effect would yield a larger payment,
those current rates will apply instead of the tables.
If the age or sex of an annuitant has been misstated, any benefits will be
those which would have been purchased at the correct age and sex. Any
overpayments or underpayments made by us will be charged or credited with
interest at the rate of 6% per year. If we have made overpayments because of
incorrect information about age or sex, we will deduct the overpayment from the
next payment or payments due. We add underpayments to the next payment.
TIMING OF PAYMENT
We normally make payments from the Variable Account Options, or apply your
Adjusted Account Value to the purchase of an annuity within seven days after
receipt of the required form at our Administrative Office. Our action can be
deferred, however, for any period during which (1) the New York Stock Exchange
has been closed or trading on it is restricted; (2) sales of securities or
determination of the fair value of Separate Account assets is not reasonably
practicable because of an emergency; or (3) the SEC, by order, permits
Integrity to defer action in order to protect persons with interests in the
Separate Account. Integrity can defer payment of your Fixed Accounts for up to
six months, and interest will be paid on any such payment delayed for 30 days
or more.
HOW YOU MAKE REQUESTS AND GIVE INSTRUCTIONS
When you communicate in writing with our Administrative Office, use the address
on the first page of this prospectus. Your request or instruction cannot be
honored unless it is in proper and complete form. Whenever possible, use one of
our printed forms, which may be obtained from our Administrative Office.
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PART 6 - VOTING RIGHTS
FUND VOTING RIGHTS
Integrity is the legal owner of the shares of the Funds held by the Separate
Account and, as such, has the right to vote on certain matters. Among other
things, we may vote to elect the Funds' Board of Directors, to ratify the
selection of independent auditors for the Funds, and on any other matters
described in the Funds' current prospectus or requiring a vote by shareholders
under the 1940 Act.
Whenever a shareholder vote is taken, we give you the opportunity to tell us
how to vote the number of shares purchased as a result of contributions to your
contract. We will send you Fund proxy materials and a form for giving us voting
instructions.
If we do not receive instructions in time from all Owners, we will vote shares
in a Portfolio for which no instructions have been received in the same
proportion as we vote shares for which we have received instructions. Under EDC
Plans and certain Qualified Plans, your voting instructions must be communicated
to us indirectly, through your employer, but we are not responsible for any
failure by your employer to solicit your instructions or to communicate your
instructions to us. We will vote any Fund shares that we are entitled to vote
directly, because of amounts we have accumulated in our Separate Account, in the
same proportions that other Owners vote. If the federal securities laws or
regulations or interpretations of them change so that we are permitted to vote
shares of the Funds in our own right or to restrict Owner voting, we may do so.
HOW WE DETERMINE YOUR VOTING SHARES
You may participate in voting only on matters concerning the Portfolios in which
your contributions have been invested. We determine the number of Fund shares in
each Variable Account Option that are attributable to your contract by dividing
the amount of your Account Value allocated to that Option by the net asset value
of one share of the corresponding Portfolio as of the record date set by the
Funds' Board for the Funds' shareholders' meeting. The record date for this
purpose must be no more than 60 days before the meeting of the Funds. We count
fractional shares. After annuity payments have commenced, voting rights are
calculated in a similar manner based on the actuarially determined value of your
interest in each Variable Account Option.
HOW FUND SHARES ARE VOTED
All Fund shares are entitled to one vote; fractional shares have fractional
votes. Voting is on a Portfolio-by-Portfolio basis, except for certain matters
(for example, election of Directors) which require collective approval. On
matters on which the interests of the individual Portfolios differ, the approval
of the shareholders in one Portfolio is not needed in order to make a decision
in another Portfolio. To the extent shares of the Funds are sold to separate
accounts of other insurance companies, the shares voted by such companies in
accordance with instructions received from their contract holders will dilute
the effect of voting instructions received by Integrity from its Owners.
SEPARATE ACCOUNT VOTING RIGHTS
Under the 1940 Act, certain actions (such as some of those described under
"Changes in How We Operate" in Part 2) may require Owner approval. In that case,
you will be entitled to a number of votes based on the value you have in the
Variable Account Options, as described above under "How We Determine Your Voting
Shares." We will cast votes attributable to amounts we have in the Variable
Account Options in the same proportions as votes cast by Owners.
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PART 7 - TAX ASPECTS OF THE CONTRACTS
INTRODUCTION
The effect of federal income taxes on the amounts held under a contract, on
annuity payments, and on the economic benefits to the Owner, Annuitant, and the
beneficiary or other payee may depend on Integrity's tax status, on the type of
retirement plan, if any, for which the contract is purchased, and upon the tax
and employment status of the individuals concerned.
The following discussion of the federal income tax treatment of the contract is
not exhaustive, does not purport to cover all situations and is not intended to
be tax advice. It is based upon understanding of the present federal income tax
laws as currently interpreted by the Internal Revenue Service (IRS). No
representation is made regarding the likelihood of continuation of the present
federal income tax laws or of the current interpretations by the IRS or the
courts. Future legislation may affect annuity contracts adversely. Moreover, no
attempt has been made to consider any applicable state or other laws. Because of
the inherent complexity of such laws and the fact that tax results will vary
according to the particular circumstances of the individual involved and, if
applicable, the qualified plan, any person contemplating the purchase of a
contract, contemplating selection of annuity payments under the contract, or
receiving annuity payments under a contract should consult a qualified tax
adviser. INTEGRITY DOES NOT MAKE ANY GUARANTEE REGARDING THE TAX STATUS,
FEDERAL, STATE, OR LOCAL, OF ANY CONTRACT OR ANY TRANSACTION INVOLVING THE
CONTRACTS.
YOUR CONTRACT IS AN ANNUITY
Under the federal tax law, any individual can purchase an annuity with after-tax
dollars and exclude any annuity earnings in taxable income until an actual
distribution is taken from the annuity. Alternatively, the individual (or
employer) may purchase the annuity to fund a tax-favored retirement program
(contributions are with pre-tax dollars), such as an IRA or qualified plan.
This prospectus covers the basic tax rules that apply to an annuity purchased
directly with after-tax dollars, (nonqualified annuity), and some of the special
tax rules which apply to an annuity purchased to fund a tax-favored retirement
program, (qualified annuity). A qualified annuity may restrict your rights and
benefits in order to qualify for its special treatment under the federal tax
law.
TAXATION OF ANNUITIES GENERALLY
Section 72 of the Internal Revenue Code of 1986, as amended (the Code), governs
the taxation of annuities. In general, a contract Owner is not taxed on
increases in value under a contract until some form of withdrawal or
distribution is made under the contract. However, under certain circumstances,
the increase in value may be subject to current federal income tax. For example,
corporations, partnerships, trusts and other non-natural persons cannot defer
the taxation of current income credited to the contract unless an exception
applies. In addition, if an Owner transfers an annuity as a gift to someone
other than a spouse (or divorced spouse), any increase in its value will be
taxed at the time of transfer. The assignment or pledge of any portion of the
value of a contract will be treated as a distribution of that portion of the
value of the contract.
Section 72 provides that the proceeds of a full or partial withdrawal from a
contract prior to the date on which annuity payments begin are treated first as
taxable income to the extent that the Account Value exceeds the "investment" or
"basis" in the contract and then as non-taxable recovery of the investment or
basis in the contract. Generally, the investment or basis in the contract equals
the contributions made by or on your behalf, less any amounts previously
withdrawn which were not treated as taxable income. Special rules may apply if
the contract includes contributions made prior to August 14, 1982 which were
rolled over to the contract in a tax-free exchange.
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Once annuity payments begin, the Annuitant recovers a portion of the investment
tax-free from each payment. The non-taxable portion of each payment is based on
the ratio of the Annuitant's investment to his or her expected return under the
contract (exclusion Ratio). The remainder of each payment will be ordinary
income.
After you have recovered your total investment, future payments are fully
included in income. If the Annuitant dies prior to recovering the total
investment, a deduction for the remaining basis will generally be allowed on the
Annuitant's final federal income tax return.
Withholding of federal income taxes on all distributions may be required unless
the recipient who is eligible elects not to have any amounts withheld and
properly notifies Integrity of that election.
The taxable portion of a distribution is treated as ordinary income and is taxed
at ordinary income tax rates. In addition, a tax penalty of 10% applies to the
taxable portion of a distribution unless the distribution is: (1) on or after
the date on which the taxpayer attains age 59-1/2; (2) as a result of the death
of the Owner; (3) attributable to the taxpayer becoming disabled within the
meaning of Code Section 72(m)(7); (4) part of a series of substantially equal
periodic payments (not less frequently than annually) for the life (or life
expectancy) of the taxpayer or joint lives (or joint life expectancies) of the
taxpayer and beneficiary; (5) from certain qualified plans (note, however, other
penalties may apply); (6) under a qualified funding asset (as defined in Section
130(d) of the Code); (7) purchased by an employer on termination of certain
types of qualified plans and held by the employer until the employee separates
from service; or (8) under an immediate annuity as defined in Code Section
72(u)(4).
All annuity contracts issued by Integrity or its affiliates to one Annuitant
during any calendar year are treated as a single contract in measuring the
taxable income that results from surrenders and withdrawals under any one of the
contracts.
DISTRIBUTION-AT-DEATH RULES
Under section 72(s) of the Code, in order to be treated as an annuity, a
contract must provide the following distribution rules: (a) if any Owner dies on
or after the Retirement Date and before the entire interest in the contract has
been distributed, then the remaining portion of such interest must be
distributed at least as quickly as the method in effect on the date of the
Owner's death; and (b) if any Owner dies before the Retirement Date, the entire
interest in the contract must be distributed within five years after the date of
the Owner's death. To the extent such interest is payable to a beneficiary,
however, such interest may be annuitized over the life of that beneficiary or
over a period not extending beyond the life expectancy of that beneficiary, so
long as distributions commence within one year after the Owner's death. If the
beneficiary is the spouse of the Owner, the contract (along with the deferred
tax status) may be continued in the name of the spouse as the Owner.
If the Owner is not an individual, the "primary annuitant," as defined in the
Code, is considered the Owner. The primary annuitant is the individual who is of
primary importance in affecting the timing of the amount of payout under a
contract. In addition, when the Owner is not an individual, a change in the
primary annuitant is treated as the death of the Owner. Finally, in the case of
joint owners, the distribution-at-death rules will be applied at the death of
the first Owner.
DIVERSIFICATION STANDARDS
Each Portfolio of the Fund will be required to adhere to regulations adopted by
the Treasury Department pursuant to Section 817(h) of the Code prescribing asset
diversification requirements for investment companies whose shares are sold to
insurance company separate accounts funding variable contracts. The investment
manager for the Funds monitors the investments in order to comply with the
regulations to assure that the contracts continue to be treated as annuities for
federal income tax purposes.
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The IRS has stated in published rulings that a variable contract owner will be
considered the owner of separate account assets if the contract owner possesses
incidents of ownership in those assets, such as the ability to exercise
investment control over the assets. In those circumstances, income and gains
from the separate account assets would be includable in the variable contract
owner's gross income. The Treasury Department also announced, in connection with
the issuance of regulations concerning diversification, that those regulations
"do not provide guidance concerning the circumstances in which investor control
of the investments of a segregated asset account may cause the investor (i.e.,
the Contract Owner), rather than the insurance company, to be treated as the
owner of the assets in the account." This announcement also stated that guidance
would be issued by way of regulations or rulings on the "extent to which
policyholders may direct their investments to particular subaccounts without
being treated as owners of the underlying assets." As of the date of this
prospectus, no such guidance has been issued.
TAX FAVORED RETIREMENT PROGRAMS
The contract is designed for use in connection with certain types of retirement
plans which receive favorable treatment under the Code. Numerous special tax
rules apply to the participants in such qualified plans and to the contracts
used in connection with such qualified plans. These tax rules vary according to
the type of plan and the terms and conditions of the plan itself. Contract
Owners, Annuitants, and beneficiaries are cautioned that the rights of any
person to any benefits under qualified plans may be subject to the terms and
conditions of the plans themselves, regardless of the terms and conditions of
the contract. In addition, loans from qualified contracts, where allowed, are
subject to a variety of limitations, including restrictions as to the amount
that may be borrowed, the duration of the loan, and the manner in which the
loans must be repaid. (Owners should always consult their tax advisors and
retirement plan fiduciaries prior to exercising their loan privileges.) Also,
special rules apply to the time at which distributions must commence and the
form in which the distributions must be paid. THEREFORE, NO ATTEMPT IS MADE TO
PROVIDE MORE THAN GENERAL INFORMATION ABOUT THE USE OF CONTRACTS WITH THE
VARIOUS TYPES OF QUALIFIED PLANS.
Integrity reserves the right to change its administrative rules, such as minimum
contribution amounts, as needed to comply with the Code as to tax-favored
retirement programs.
Following are brief descriptions of various types of qualified plans in
connection with which Integrity may issue a contract.
Individual Retirement Annuities
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Code Section 408 permits eligible individuals to contribute to an individual
retirement program known as an IRA. An individual who receives compensation and
who has not reached age 70-1/2 by the end of the tax year may establish an IRA
and make contributions up to the deadline for filing his or her federal income
tax return for that year (without extensions). IRAs are subject to limitations
on the amount that may be contributed, the persons who may be eligible, and on
the time when distributions may commence. An individual may also rollover
amounts distributed from another IRA or another tax-favored retirement program
to an IRA contract. Your IRA contract will be issued with a rider outlining the
special terms of your contract which apply to IRAs.
Tax Sheltered Annuities
- -----------------------
Section 403(b) of the Code permits the purchase of tax-sheltered annuities (TSA)
by public schools and certain charitable, educational and scientific
organizations described in Section 501(c)(3) of the Code. The contract is not
intended to accept other than employee contributions. Such contributions are not
includible in the gross income of the employee until the employee receives
distributions from the contract. The amount of contributions to the TSA is
limited to certain maximums imposed by Code sections 403(b), 415 and 402(g).
Furthermore, the Code sets forth additional restrictions governing such items as
transferability, distributions and withdrawals. Any employee should obtain
competent tax
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advice as to the tax treatment and suitability of such an investment. Your
contract will be issued with a rider outlining the special terms which apply to
a TSA.
Simplified Employee Pensions
- ----------------------------
Section 408(k) of the Code allows employers to establish simplified employee
pension plans (SEP-IRAs) for their employees, using the employees' IRAs for such
purposes, if certain criteria are met. Under these plans the employer may,
within specified limits, make deductible contributions on behalf of the
employees to IRAs. Employers intending to use the contract in connection with
such plans should seek competent advice. The SEP-IRA will be issued with a rider
outlining the special terms of the contract.
Corporate and Self-Employed (H.R. 10 and Keogh) Pension and Profit Sharing
- --------------------------------------------------------------------------
Plans
- -----
Sections 401(a) and 403(a) of the Code permit corporate employers to establish
various types of tax-favored retirement plans for employees. The Self-Employed
Individuals' Tax Retirement Act of 1962, as amended, commonly referred to as
"H.R. 10" or "Keogh," permits self-employed individuals also to establish such
tax-favored retirement plans for themselves and their employees. Such retirement
plans may permit the purchase of the contract in order to provide benefits under
the plans. Employers intending to use the contract in connection with such plans
should seek competent advice. The Company reserves the right to request
documentation to substantiate that a qualified plan exists and is being properly
administered. Integrity does not administer such plans.
Deferred Compensation Plans of State and Local Governments and Tax-Exempt
- -------------------------------------------------------------------------
Organizations
- -------------
Section 457 of the Code permits employees of state and local governments and
tax-exempt organizations to defer a portion of their compensation without paying
current taxes. The employees must be participants in an eligible deferred
compensation plan. To the extent the contracts are used in connection with an
eligible plan, employees are considered general creditors of the employer and
the employer as Owner of the contract has the sole right to the proceeds of the
contract. Loans to employees are not permitted under such plans. Contributions
to a contract in connection with an eligible government plan are subject to
limitations. Those who intend to use the contracts in connection with such plans
should seek competent advice. The Company reserves the right to request
documentation to substantiate that a qualified plan exists and is being properly
administered. Integrity does not administer such plans.
DISTRIBUTIONS UNDER TAX FAVORED RETIREMENT PROGRAMS
Distributions from tax favored plans are subject to certain restrictions.
Distributions of minimum amounts specified by the Code must commence by April 1
of the calendar year following the calendar year in which the participant
reaches age 70 1/2. Additional distribution rules apply after the participant's
death. Failure to make mandatory distributions may result in the imposition of a
50% penalty tax on any difference between the required distribution amount and
the amount distributed. Distributions to a participant from all plans (other
than 457 plans) in a calendar year that exceed a specific limit under the Code
are generally subject to a 15% penalty tax (in addition to any ordinary income
tax) on the excess portion of the distributions.
Distributions from a tax favored plan (not including an IRA subject to Code
Section 408) to an employee, surviving spouse, or former spouse who is an
alternate payee under a qualified domestic relations order, in the form of a
lump sum settlement or periodic annuity payments for a fixed period of fewer
than 10 years are subject to mandatory income tax withholding of 20% of the
taxable amount of the distribution, unless (1) the distributee directs the
transfer of such amounts in cash to another plan or an IRA; or (2) the payment
is a minimum distribution required under the Code. The taxable amount is the
amount of the distribution less the amount allocable to after-tax contributions.
All other types of taxable distributions are subject to withholding unless the
distributee elects not to have withholding apply.
26
<PAGE>
We are not permitted to make distributions from a contract unless a request has
been made. It is therefore your responsibility to comply with the minimum
distribution rules. You should consult your tax adviser regarding these rules
and their proper application.
The above description of the federal income tax consequences of the different
types of tax favored retirement plans which may be funded by the contract is
only a brief summary and is not intended as tax advice. The rules governing the
provisions of plans are extremely complex and often difficult to comprehend.
Anything less than full compliance with all applicable rules, all of which are
subject to change, may have adverse tax consequences. A prospective contract
Owner considering adoption of a plan and purchase of a contract in connection
therewith should first consult a qualified and competent tax adviser, with
regard to the suitability of the contract as an investment vehicle for the
plan.
FEDERAL AND STATE INCOME TAX WITHHOLDING
Integrity will withhold and remit to the U.S. government a part of the taxable
portion of each distribution made under a contract unless the distributee
notifies Integrity at or before the time of the distribution of an election not
to have any amounts withheld. In certain circumstances, Integrity may be
required to withhold tax, as explained above. The withholding rates applicable
to the taxable portion of periodic annuity payments (other than eligible
rollover distributions) are the same as the withholding rates generally
applicable to payments of wages. In addition, the withholding rate applicable
to the taxable portion of non-periodic payments (including withdrawals prior to
the maturity date) is 10%. As discussed above, the withholding rate applicable
to eligible rollover distributions is 20%.
Certain states have indicated that pension and annuity withholding will apply
to payments made to residents. Generally, an election out of federal
withholding will also be considered an election out of state withholding. For
more information concerning a particular state, call our Administrative Office
at the toll-free number.
IMPACT OF TAXES TO INTEGRITY
The contracts provide that Integrity may charge the Separate Account for taxes.
Integrity can also set up reserves for taxes.
TRANSFERS AMONG INVESTMENT OPTIONS
There will not be any tax liability if you transfer any part of the Account
Value among the Investment Options of your contract.
PART 8 - ADDITIONAL INFORMATION
SYSTEMATIC WITHDRAWALS
We offer a program for systematic withdrawals that allows you to pre-authorize
periodic withdrawals from your contract prior to your retirement date. You may
choose to have withdrawals made monthly, quarterly, semi-annually or annually
and may specify the day of the month (other than the 29th, 30th or 31st) on
which the withdrawal is to be made. You may specify a dollar amount for each
withdrawal or an annual percentage to be withdrawn. The minimum systematic
withdrawal currently is $300. You may also specify an account for direct
deposit of your systematic withdrawals. To enroll under our systematic
withdrawal program, you must deliver the appropriate administrative form to our
Administrative Office. Withdrawals may begin not less than one business day
after our receipt of the form. You or we may terminate your participation in
the program upon one day's prior written notice, and we may terminate or amend
the systematic withdrawal program at any time. If on any withdrawal date you do
not have sufficient values to make all of the withdrawals you have specified,
no withdrawals will be made and your enrollment in the program will be
ended.
27
<PAGE>
Amounts withdrawn by you under the systematic withdrawal program may be within
the free withdrawal amount in which case neither a contingent withdrawal charge
nor a Market Value Adjustment will be made. See "Contingent Withdrawal Charge"
in Part 4. AMOUNTS WITHDRAWN UNDER THE SYSTEMATIC WITHDRAWAL PROGRAM IN EXCESS
OF THE FREE WITHDRAWAL AMOUNT WILL BE SUBJECT TO A CONTINGENT WITHDRAWAL CHARGE
AND A MARKET VALUE ADJUSTMENT IF APPLICABLE. WITHDRAWALS ALSO MAY BE SUBJECT TO
THE 10% FEDERAL TAX PENALTY FOR EARLY WITHDRAWALS UNDER THE CONTRACTS AND TO
INCOME TAXATION. See Part 7, "Tax Aspects of the Contracts."
DOLLAR COST AVERAGING
We offer a dollar cost averaging program under which allocations to the Money
Market Option are automatically transferred on a monthly or quarterly basis to
one or more other Variable Account Options. You must specify a dollar amount to
be transferred into each Variable Account Option, and the current minimum
transfer to each Option is $250. No transfer charge will apply to transfers
under our dollar cost averaging program, and such transfers will not count
towards the twelve transfers you may make in a contract year before we may
impose a transfer charge.
To enroll under our dollar cost averaging program, you must deliver the
appropriate administrative form to our Administrative Office. You or we may
terminate your participation in the program upon one day's prior written
notice, and we may terminate or amend the dollar cost averaging program at any
time. If you do not have sufficient funds in the Money Market Option to
transfer to each Variable Account Option specified, no transfer will be made
and your enrollment in the program will be ended.
SYSTEMATIC TRANSFER PROGRAM
We also offer a systematic transfer program under which contributions to the
Systematic Transfer Option (STO) are automatically transferred on a monthly or
quarterly basis, as selected by you, to one or more other Investment Options.
Your STO contributions will be transferred in equal installments of not less
than $1,000 over a one year period. If you do not have sufficient funds in the
STO to transfer to each Option specified, a final transfer will be made on a
pro rata basis and your enrollment in the program will be ended. Any funds
remaining in the STO at the end of the one year period during which transfers
are required to be made will be transferred at the end of such period on a pro
rata basis to the Options previously elected by you for this program. No
transfer charge will apply to transfers under our systematic transfer program,
and such transfers will not count towards the twelve transfers you may make in
a contract year before we may impose a transfer charge.
To enroll under our systematic transfer program, you must deliver the
appropriate administrative form to our Administrative Office. We reserve the
right to terminate the systematic transfer program in whole or in part, or to
place restrictions on contributions to the program.
ASSET REBALANCING
We offer an asset rebalancing program. You can select the frequency for
rebalancing. Frequencies available include rebalancing monthly, quarterly,
semi-annually or annually. The value in the Variable Account Options will be
automatically rebalanced by transfers among such Variable Account Options, and
you will receive a confirmation notice after each rebalancing. Transfers will
occur only to and from those Variable Account Options where you have current
contribution allocations. No transfer charge will apply to transfers under our
asset rebalancing program, and such transfers will not count towards the twelve
transfers you may make in a contract year before we may impose a transfer
charge.
Fixed Accounts are not eligible for the asset rebalancing program.
28
<PAGE>
To enroll under our asset rebalancing program, you must deliver the appropriate
administrative form to our Administrative Office. You should be aware that
other allocation programs, such as dollar cost averaging, as well as transfers
and withdrawals that you make, may not work in concert with the asset
rebalancing program. You should, therefore, monitor your use of such other
programs, transfers, and withdrawals while the asset rebalancing program is in
effect. You or we may terminate your participation in the program upon one
day's prior written notice, and we may terminate or amend the asset rebalancing
program at any time.
SYSTEMATIC CONTRIBUTIONS
We offer a program for systematic contributions that allows you to pre-
authorize monthly withdrawals from your checking account for payment to us. To
enroll under our program, you must deliver the appropriate administrative form
to our Administrative Office. You or we may terminate your participation in the
program upon 30 days' prior written notice. Your participation may be
terminated by us if your bank declines to make any payment. The minimum amount
for systematic contributions is $100 per month.
PERFORMANCE INFORMATION
Performance data for the Variable Account Options, including the yield and
effective yield of the Money Market Option, the yield of the other Options, and
the total return of all of the Options may appear in advertisements or sales
literature. Performance data for any Option reflects only the performance of a
hypothetical investment in the Option during the particular time period on
which the calculations are based. Performance information should be considered
in light of the investment objectives and policies of the Portfolio in which
the Option invests and the market conditions during the given time period, and
it should not be considered as a representation of performance to be achieved
in the future.
Total returns are based on the overall dollar or percentage change in value of
a hypothetical investment in an Option. Total return quotations reflect changes
in Fund share price, the automatic reinvestment by the Option of all
distributions and the deduction of applicable contract charges and expenses,
including any contingent withdrawal charge that would apply if a contract Owner
surrendered the contract at the end of the period indicated. Total returns also
may be shown that do not take into account the contingent withdrawal charge or
the annual administrative charge applicable where the Account Value is less
than $50,000 at the end of a contract year.
A cumulative total return reflects an Option's performance over a stated period
of time. An average annual total return reflects the hypothetical annually
compounded return that would have produced the same cumulative total return if
the Option's performance had been constant over the entire period. Because
average annual total returns tend to smooth out variations in an Option's
returns, you should recognize that they are not the same as actual year-by-year
results.
Some Options may also advertise yield. These measures reflect the income
generated by an investment in the Option over a specified period of time. This
income is annualized and shown as a percentage. Yields do not take into account
capital gains or losses or the contingent withdrawal charge.
The Money Market Option may advertise its current and effective yield. Current
yield reflects the income generated by an investment in the Option over a
specified 7-day period. Effective yield is calculated in a similar manner
except that income earned is assumed to be reinvested. The Investment Grade
Bond and High Income Option may advertise a 30-day yield which reflects the
income generated by an investment in such Option over a specified 30-day
period.
For a detailed description of the methods used to determine yield and total
return for the Variable Account Options, see the SAI.
29
<PAGE>
APPENDIX A
ILLUSTRATION OF A MARKET VALUE ADJUSTMENT
Contribution:................. $40,000.00
GRO Account duration:......... 6 Years
Guaranteed Interest Rate:..... 5% Annual Effective Rate
The following examples illustrate how the Market Value Adjustment and the
contingent withdrawal charge may effect the values of a contract upon a
withdrawal. The 5% assumed Guaranteed Interest Rate is the same rate used in
the Example under "Table of Annual Fees and Expenses" in this Prospectus. In
these examples, the withdrawal occurs three years after the Participation Date.
The Market Value Adjustment operates in a similar manner for transfers. No
contingent withdrawal charge applies to transfers.
The GRO Value for this $40,000 contribution is $53,603.83 at the expiration of
the GRO Account. After three years, the GRO Value is $46,305.00. It is also
assumed, for the purposes of these examples, that no prior partial withdrawals
or transfers have occurred.
The Market Value Adjustment will be based on the rate we are then crediting (at
the time of the withdrawal) on new contributions to GRO Accounts of the same
duration as the time remaining in your GRO Account, rounded to the next higher
number of complete months. If we do not declare a rate for the exact time
remaining, we will interpolate between the Guaranteed Interest Rates for GRO
Accounts of durations closest to (next higher and next lower) the remaining
period described above. Three years after the initial contribution, there would
have been three years remaining in your GRO Account. These examples also show
the withdrawal charge which would be calculated separately.
EXAMPLE OF A DOWNWARD MARKET VALUE ADJUSTMENT:
A downward Market Value Adjustment results from a full or partial withdrawal
that occurs when interest rates have increased. Assume interest rates have
increased three years after the initial contribution and we are then crediting
6.5% for a three-year GRO Account. Upon a full withdrawal, the Market Value
Adjustment, applying the above formula would be:
-0.0483785 = [(1 + .05)/36/12/ / (1 + .065 + .0025)/36/12]/ - 1
The Market Value Adjustment is a reduction of $2,240.17 from the GRO Value:
-$2,240.17 = -0.0483785 X $46,305.00
The Market Adjusted Value would be:
$44,064.83 = $46,305.00 - $2,240.17
A withdrawal charge of 4% would be assessed against the $40,000 original
contribution:
$1,600.00 = $40,000.00 X .04
Thus, the amount payable on a full withdrawal would be:
$42,464.83 = $46,305.00 - $2,240.17 - $1,600.00
30
<PAGE>
If instead of a full withdrawal, $20,000 was requested, we would first
determine the free withdrawal amount:
Greater of:
a) $4,630.50 = $46,305.00 X .10
or
b) $2,205.00 = gain in prior contract year
Free Amount = $4,630.50
The non-free amount would be:
$15,369.50 = $20,000.00 - $4,630.50
The Market Value Adjustment, which is only applicable to the non-free amount,
would be
- $743.55 = - .0483785 X $15,369.50
The withdrawal charge would be:
$671.38 = [($15,369.50 + $743.55)/1 - .04] - ($15,369.50 + 743.55)
Thus, the total amount needed to provide $20,000 after the Market Value
Adjustment and withdrawal charge would be:
$21,414.93 = $20,000.00 + $743.55 + $671.38
EXAMPLE OF AN UPWARD MARKET VALUE ADJUSTMENT:
An upward Market Value Adjustment results from a full or partial withdrawal
that occurs when interest rates have decreased. Assume interest rates have
decreased three years after the initial contribution and we are then crediting
4% for a three-year GRO Account. Upon a full withdrawal, the Market Value
Adjustment, applying the formula set forth in the prospectus, would be:
0.0217384 = [(1 + .05)/36/12/ / (1 + .04 + .0025)/36/12]/ - 1
The Market Value Adjustment is an increase of $1,006.60 to the GRO Value:
$1,006.60 = 0.0217384 X $46,305.00
The Market Adjusted Value would be:
$47,311.60 = $46,305.00 + $1,006.60
A withdrawal charge of 4% would be assessed against the $40,000 original
contribution:
$1,600.00 = $40,000.00 X .04
Thus, the amount payable on a full withdrawal would be:
$45,711.60 = $46,305.00 + $1,006.60 - $1,600.00
31
<PAGE>
If instead of a full withdrawal, $20,000 was requested, the free withdrawal
amount and non-free amount would first be determined as above:
Free Amount = $ 4,630.50
Non-Free Amount = $15,369.50
The Market Value Adjustment would be:
$334.11 = .0217384 X $15,369.50
The withdrawal charge would be:
$626.47 = [($15,369.50 - $334.11)/1 - .04] - ($15,369.50 - $334.11)
Thus, the total amount needed to provide $20,000 after the Market Value
Adjustment and withdrawal charge would be:
$20,292.36 = $20,000.00 - $334.11 + $626.47
Actual Market Value Adjustments may have a greater or lesser impact than shown
in the examples, depending on the actual change in interest crediting rate and
the timing of the withdrawal or transfer in relation to the time remaining in
the GRO Account.
32
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1996
FOR
FLEXIBLE PREMIUM VARIABLE ANNUITY
ISSUED BY
INTEGRITY LIFE INSURANCE COMPANY
AND
FUNDED THROUGH ITS SEPARATE ACCOUNT I
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Part 1 - Integrity and Custodian.................................................... 2
Part 2 - Distribution of the Contracts.............................................. 3
Part 3 - Performance Information.................................................... 3
Part 4 - Death Benefit Information for Contracts Issued Prior to January 1, 1996.... 10
Part 5 - Financial Statements....................................................... 10
</TABLE>
This Statement of Additional Information (SAI) is not a prospectus. It should
be read in conjunction with the prospectus for the contracts, dated May 1,
1996. For definitions of special terms used in the SAI, please refer to the
prospectus.
A copy of the prospectus to which this SAI relates is available at no charge
by writing the Administrative Office at Integrity Life Insurance Company
("Integrity"), P.O. Box 192080, Columbus, Ohio 43218, or by calling
1-800-325-8583.
<PAGE>
PART 1 - INTEGRITY AND CUSTODIAN
Integrity is an Ohio stock life insurance company that sells life insurance and
annuities. Its principal executive offices are located at 239 S. Fifth Street,
Louisville, Kentucky, 40202, and it maintains administrative offices in
Columbus, Ohio. Integrity, the depositor of Separate Account I, is a wholly
owned subsidiary of Integrity Holdings, Inc., a Delaware corporation which is a
holding company engaged in no active business. Integrity owns 100% of stock of
National Integrity Life Insurance Company, a New York stock life insurance
corporation. All outstanding shares of Integrity Holdings, Inc. are owned by
ARM Financial Group, Inc., a Delaware corporation which is a financial services
company focusing on the long-term savings and retirement marketplace by
providing retail and institutional products and services throughout the United
States (ARM). ARM owns 100% of the stock of (i) SBM Financial Services, Inc., a
Minnesota corporation (SBM Financial Services), registered with the SEC as a
broker-dealer and a member of the National Association of Securities Dealers,
Inc., (ii) ARM Capital Advisors, Inc., a New York corporation registered with
the SEC as an investment adviser, (iii) SBM Certificate Company, a Minnesota
corporation registered with the SEC as an issuer of face-amount certificates,
and (iv) ARM Transfer Agency, Inc., a Delaware corporation registered with the
SEC as a transfer and dividend disbursing agency. Approximately 91% of the
outstanding voting stock of ARM is owned by The Morgan Stanley Leveraged Equity
Fund II, L.P., Morgan Stanley Capital Partners III, L.P., Morgan Stanley
Capital Investors, L.P., and MSCP III 892 Investors, L.P., each of which is a
Delaware limited partnership (collectively, the MSCP Funds). The MSCP Funds are
private equity funds sponsored by Morgan Stanley Group, Inc., a Delaware
corporation that, through its subsidiaries, provides a wide range of financial
services on a global basis (Morgan Stanley). The general partner of each of the
MSCP Funds is a wholly owned subsidiary of Morgan Stanley. Oldarm Limited
Partnership, a Kentucky limited partnership, New ARM, LLC, a Kentucky limited
liability company, and certain employees and management of ARM own in the
aggregate approximately 9% of the voting stock of ARM.
No person has the direct or indirect power to control Morgan Stanley except
insofar as he or she may have such power by virtue of his or her capacity as a
director or executive officer thereof. Morgan Stanley is publicly held; no
individual beneficially owns more than 5% of the common shares; however,
approximately 31% of such shares are subject to a stockholders' agreement or
voting agreement among certain current and former principals and employees of
Morgan Stanley and its predecessor.
Beginning in 1994, ARM Financial Group provided substantially all of the
services required to be performed on behalf of the Separate Account. Total fees
paid to ARM Financial Group by Integrity for management services in 1995,
including services applicable to the Registrant, were $7,462,365.
Integrity is the custodian for the shares of the Funds owned by the Separate
Account. The Funds' shares are held in book-entry form.
Reports and marketing materials, from time to time, may include information
concerning the rating of Integrity, as determined by A.M. Best Company, Moody's
Investor Service, Standard & Poor's Corporation, Duff & Phelps Corporation, or
other recognized rating services. Integrity is currently rated "A" (Excellent)
by A.M. Best Company, and has received claims paying ability ratings of "A"
(Good) from Standard & Poor's Corporation, Baa1 from Moody's Investors Service,
Inc., and "A+" (High) from Duff and Phelps Credit Rating Company. However,
Integrity does not guarantee the investment performance of the portfolios, and
these ratings do not reflect protection against investment risk.
Under prior management, Integrity was subject to a consent order in the State
of Florida under which it was precluded from writing new business in Florida
from May, 1992 to November, 1994. The consent order was entered into on May 6,
1992 as a result of noncompliance with certain investment restrictions under
Florida law. Due to the substantial asset restructuring and capital infusions
involved with Integrity's acquisition by ARM Financial Group, Inc. in November,
1993, Integrity came to be fully in compliance with the investment limitations
of the State of Florida and a request for full relief from the consent order
was granted by the Florida Department of Insurance on November 4, 1994.
2
<PAGE>
PART 2 - DISTRIBUTION OF THE CONTRACTS
SBM Financial Services, an affiliate of Integrity, is the principal underwriter
of the contracts. SBM Financial Services is registered with the SEC as a
broker-dealer and is a member in good standing of the National Association of
Securities Dealers, Inc. The contracts are offered through SBM Financial
Services on a continuous basis.
We generally pay a maximum distribution allowance of 6% of contributions. The
amount of distribution allowances paid was $6,110,040, $5,858,050 and
$4,824,583 for the years ended December 31, 1995, 1994, and 1993, respectively.
Integrity may from time to time pay or allow additional promotional incentives,
in the form of cash or other compensation, to broker-dealers that sell
contracts. In some instances, such other incentives may be offered only to
certain broker-dealers that sell or are expected to sell during specified time
periods certain minimum amounts of the contracts.
PART 3 - PERFORMANCE INFORMATION
Each Variable Account Option may from time to time include the Average Annual
Total Return, the Cumulative Total Return, and Yield of its shares in
advertisements or in information furnished to shareholders. The Money Market
Option may also from time to time include the Yield and Effective Yield of its
shares in information furnished to shareholders. Performance information is
computed separately for each Option in accordance with the formulas described
below. At any time in the future, total return and yields may be higher or
lower than in the past and there can be no assurance that any historical
results will continue.
Total Returns
Total returns reflect all aspects of an Option's return, including the
automatic reinvestment by the Option of all distributions and the deduction of
all applicable charges to the Option on an annual basis, including mortality
risk and expense charges, the annual administrative charge and other charges
against contract values. For purposes of charges not based upon a percentage of
contract values, an average account value of $40,000 has been used. Quotations
also will assume a termination (surrender) at the end of the particular period
and reflect the deductions of the contingent withdrawal charge, if applicable.
Any such total return calculation will be based upon the assumption that the
Option corresponding to the investment portfolio was in existence throughout
the stated period and that the applicable contractual charges and expenses of
the Option during the stated period were equal to those currently applicable
under the contract. Total returns may be shown simultaneously that do not take
into account deduction of the contingent withdrawal charge, and/or the annual
administrative charge.
Average annual total returns are calculated by determining the growth or
decline in value of a hypothetical historical investment in the Option over
certain periods, including 1, 3, 5, and 10 years (up to the life of the
Option), 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 Option'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 an Option during any portion of
the period illustrated. Average annual returns are calculated pursuant to the
following formula: P(1+T)/n/ = ERV, where P is a hypothetical initial payment
of $1,000, T is the average annual total return, n is the number of years, and
ERV is the withdrawal value at the end of the period.
3
<PAGE>
Cumulative total returns are unaveraged and reflect the simple percentage
change in the value of a hypothetical investment in the Option over a stated
period of time. In addition to the period since inception, cumulative total
returns may be calculated on a year-to-date basis at the end of each calendar
month in the current calendar year. The last day of the period for year-to-date
returns is the last day of the most recent calendar month at the time of
publication.
Yields
Some Options may advertise yields. Yields quoted in advertising reflect the
change in value of a hypothetical investment in the Option over a stated period
of time, not taking into account capital gains or losses or the imposition of
any contingent withdrawal charge. Yields are annualized and stated as a
percentage.
Current yield and effective yield are calculated for the Money Market Option.
Current Yield is based on the change in the value of a hypothetical investment
(exclusive of capital changes) over a particular 7-day period, less a
hypothetical charge reflecting deductions from contract values during the
period (the base period), and stated as a percentage of the investment at the
start of the base period (the base period return). The base period return is
then annualized by multiplying by 365/7, with the resulting yield figure
carried to at least the nearest hundredth of one percent. Effective yield
assumes that all dividends received during an annual period have been
reinvested. This compounding effect causes effective yield to be higher than
current yield. Calculation of effective yield begins with the same base period
return used in the calculation of current yield, which is then annualized to
reflect weekly compounding pursuant to the following formula:
Effective Yield = {(Base Period Return) + 1)/365/7/} - 1
4
<PAGE>
The table below provides average annual total returns for each Option for the
one and three year periods ending March 31, 1996 and from inception through
March 31, 1996. The "contract continues" columns show returns if the contract
continues and is not terminated, and the "contract surrendered" columns show
returns if the contract is surrendered at the end of the period, in which case
contingent withdrawal charges may apply. The performance information is based
on the historical investment experience of the Options and does not indicate or
represent future experience.
AVERAGE ANNUAL TOTAL RETURNS FOR ONE YEAR PERIOD ENDING 03/31/96 AND SINCE
INCEPTION*
<TABLE>
<CAPTION>
Period Since Inception One Year Period Three Year Period
---------------------- --------------- -----------------
Contract Contract
Contract Surrendered Contract Surrendered
Option Continues 03/31/96 Continues 03/31/96 Contract Continues
- ------ --------- -------- --------- -------- ------------------
<S> <C> <C> <C> <C> <C>
Equity-Income 17.02% 16.57% 27.48% 21.41% 16.84%
Asset Manager 9.20% 8.65% 16.14% 10.06% 7.59%
Growth 15.86% 15.40% 32.92% 26.84% 16.32%
Overseas 7.32% 6.73% 13.29% 7.21% 10.81%
Investment Grade 6.22% 5.62% 9.04% 2.97% 4.18%
Bond
Index 500 13.89% 12.81% 30.11% 24.03% 13.85%
High Income 10.59% 9.47% 16.67% 10.60% 10.04%
Asset Manager: 21.83% 16.63% 23.11% 17.04% n/a
Growth
Contrafund 34.68% 29.56% 32.12% 26.05% n/a
</TABLE>
*The inception date for each Option is set forth in the table below.
5
<PAGE>
The table below provides cumulative total returns for each Option from inception
through March 31, 1996, and Year-To-Date from January 1, 1996 through March 31,
1996. The "contract continues" columns show returns if the contract continues
and is not terminated, and the "contract surrendered" column shows returns if
the contract is surrendered at the end of the period, in which case contingent
withdrawal charges apply. The performance information is based on the historical
investment experience of the Options and does not indicate or represent future
experience.
CUMULATIVE TOTAL RETURNS FOR PERIOD SINCE INCEPTION TO 03/31/96 AND FOR YEAR-TO-
DATE PERIOD FROM 01/01/96 THROUGH 03/31/96
<TABLE>
<CAPTION>
Year-To-Date
Through
Period Since Inception 3/31/96 Three Year
---------------------- ------- ----------
Contract
Contract Surrendered Contract Contract Inception
Option Continues 03/31/96 Continues Continues Date*
- ------ --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Equity-Income 105.32% 101.98% 3.99% 58.02% 09/03/91
Asset Manager 49.63% 46.29% 2.61% 24.56% 09/03/91
Growth 96.20% 92.85% 5.03% 57.38% 09/03/91
Overseas 38.20% 34.85% 3.37% 36.06% 09/03/91
Investment Grade Bond 31.84% 28.50% -2.29% 13.08% 09/03/91
Index 500 49.21% 44.98% 5.10% 47.56% 09/03/91
High Income 36.79% 32.56% 3.39% 33.26% 02/19/93
Asset Manager: 25.31% 19.22% 4.14% n/a 02/08/95
Growth
Contrafund 40.52% 34.43% 4.11% n/a 02/08/95
</TABLE>
*Inception Dates reflect date of first trade.
Performance Comparisons
Performance information for an Option may be compared, in reports and
advertising, to: (1) Standard & Poor's Stock Index (S&P 500), Dow Jones
Industrial Averages, (DJIA), Donahue Money Market Institutional Averages, or
unmanaged indices generally regarded as representative of the securities
markets; (2) other variable annuity separate accounts or other investment
products traced by Lipper Analytical Services, Inc. or the Variable Annuity
Research and Data Service, which are widely used independent research firms that
rank mutual funds and other investment companies by overall performance,
investment objectives, and assets; and (3) the Consumer Price Index (measure of
inflation) to assess the real rate of return from an investment in a contract.
Unmanaged indices may assume the reinvestment of dividends but generally do not
reflect deductions for annuity charges, investment management costs, brokerage
costs and other transaction costs that are normally paid when directly investing
in securities.
6
<PAGE>
Each Option may from time to time also include the ranking of its performance
figures relative to such figures for groups of mutual funds categorized by
Lipper Analytical Services (Lipper) as having the same or similar investment
objectives or by similar services that monitor the performance of mutual funds.
Each Option may also from time to time compare its performance to average
mutual fund performance figures compiled by Lipper in Lipper Performance
Analysis. Advertisements or information furnished to present shareholders or
prospective investors may also include evaluations of an Option 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 an Option's shares against certain widely recognized standards
or indices for stock and bond market performance. The following are the indices
against which the Options may compare performance:
The Standard & Poor's Composite Index of 500 Stocks (the S&P 500) is a market
value-weighted and unmanaged index showing the changes in the aggregate market
value of 500 stocks relative to the base period 1941-43. The S&P 500 Index is
composed almost entirely of common stocks of companies listed on the NYSE,
although the common stocks of a few companies listed on the American Stock
Exchange or traded OTC are included. The 500 companies represented include 400
industrial, 60 transportation and 50 financial services concerns. The S&P 500
Index represents about 80% of the market value of all issues traded on the
NYSE.
The Dow Jones Composite Average (or its component averages) is an unmanaged
index composed of 30 blue-chip industrial corporation stocks (Dow Jones
Industrial Average), 15 utilities company stocks and 20 transportation stocks.
Comparisons of performance assume reinvestment of dividends.
The New York Stock Exchange composite or component indices are unmanaged
indices of all industrial, utilities, transportation and finance company stocks
listed on the New York Stock Exchange.
The Wilshire 5000 Equity Index (or its component indices) represents the return
of the market value of all common equity securities for which daily pricing is
available. Comparisons of performance assume reinvestment of dividends.
The Morgan Stanley Capital International EAFE Index is an arithmetic, market
value-weighted average of the performance of over 900 securities on the stock
exchanges of countries in Europe, Australia and the Far East.
The Morgan Stanley Capital International World Index - An arithmetic, market
value-weighted average of the performance of over 1,470 securities listed on
the stock exchanges of countries in Europe, Australia, the Far East, Canada and
the United States.
The Goldman Sachs 100 Convertible Bond Index currently includes 67 bonds and 33
preferred stocks. The original list of names was generated by screening for
convertible issues of $100 million or greater in market capitalization. The
index is priced monthly.
The Lehman Brothers Government Bond Index (the Lehman Government Index) is a
measure of the market value of all public obligations of the U.S. Treasury; all
publicly issued debt of all agencies of the U.S. Government and all quasi-
federal corporations; and all corporate debt guaranteed by the U.S. Government.
Mortgage-backed securities, flower bonds and foreign targeted issues are not
included in the Lehman Government Index.
7
<PAGE>
The Lehman Brothers Government/Corporate Bond Index (the Lehman
Government/Corporate Index) is a measure of the market value of approximately
5,300 bonds with a face value currently in excess of $1 million, which have at
least one year to maturity and are rated "Baa" or higher (investment grade) by
a nationally recognized statistical rating agency.
The Lehman Brothers Government/Corporate Intermediate Bond Index (the Lehman
Government/Corporate Intermediate Index) is composed of all bonds covered by
the Lehman Brothers Government/Corporate Bond Index with maturities between one
and 9.99 years. Total return comprises price appreciation/depreciation and
income as a percentage of the original investment. Indexes are rebalanced
monthly by market capitalization.
The Lehman Brothers Intermediate Treasury Bond Index includes bonds with
maturities between one and ten years with a face value currently in excess of
$1 million, that are rated investment grade or higher by a nationally
recognized statistical rating agency.
The Shearson Lehman Long-Term Treasury Bond Index is composed of all bonds
covered by the Shearson Lehman Hutton Treasury Bond Index with maturities of 10
years or greater.
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 Salomon Brothers GNMA Index includes pools of mortgages originated by
private lenders and guaranteed by the mortgage pools of the Government National
Mortgage Association.
The Salomon Brothers' World Market Index is a measure of the return of an
equally weighted basket of short-term (three month U.S. Government securities
and bank deposits) investments in eight major currencies: the U.S. dollars, UK
pounds sterling, Canadian dollars, Japanese yen, Swiss francs, French francs,
German deutsche mark and Netherlands guilder.
The Salomon Brothers Broad Investment-Grade Bond Index contains approximately
3,800 Treasury and agency, corporate and mortgage bonds with a rating of BBB or
higher, a stated maturity of at least one year, and a par value outstanding of
$25 million or more. The index is weighted according to the market value of all
bond issues included in the index.
The Salomon Brothers High Grade Corporate Bond Index consists of publicly
issued, non-convertible corporate bonds rated AA or AAA. It is a value-
weighted, total return index, including approximately 800 issues with
maturities of 12 years or grater.
The Salomon Brothers World Bond Index measures the total return performance of
high-quality securities in major sectors of the international bond market. The
index covers approximately 600 bonds from 10 currencies: Australian dollars,
Canadian dollars, European Currency Units, French francs, Japanese yen,
Netherlands guilder, Swiss francs, UK pounds sterling, U.S. dollars, and German
deutsche marks.
The J.P. Morgan Global Government Bond Index is a total return, market
capitalization weighted index, rebalanced monthly consisting of the following
countries: Australia, Belgium, Canada, Denmark, France, Germany, Italy, Japan,
Netherlands, Spain, Sweden, United Kingdom and United States.
8
<PAGE>
The 50/50 Index assumes a static mix of 50% of the S&P 500 Index and 50% of the
Lehman Government Corporate Index.
Other Composite Indices: 70% S&P 500 Index and 30% NASDAQ Industrial Index; 35%
S&P 500 Index and 65% Salomon Brothers High Grade Bond Index; and 65% S&P Index
and 35% Salomon Brothers High Grade Bond Index.
The SEI Median Balanced Fund Universe measures a group of funds with an average
annual equity commitment and an average annual bond - plus - private -placement
commitment greater than 5% each year. SEI must have at least two years of data
for a fund to be considered for the population.
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.
The First Boston High Yield Index generally includes over 180 issues with an
average maturity range of seven to ten years with a minimum capitalization of
$100 million. All issues are individually trader-priced monthly.
In reports or other communications to shareholders, the Fund may also describe
general economic and market conditions affecting the Options and may compare
the performance of the Options with (1) that of mutual funds included in the
rankings prepared by Lipper or similar investment services that monitor the
performance of insurance company separate accounts or mutual funds, (2)
IBC/Donoghue's Money Fund Report, (3) other appropriate indices of investment
securities and averages for peer universe of funds which are described in this
Statement of Additional Information, or (4) data developed by Integrity or any
of the Sub-Advisers derived from such indices or averages.
9
<PAGE>
Individualized Computer Generated Illustrations
Integrity may from time to time use computer-based software available through
Morningstar, CDA/Wiesenberger and/or other firms to provide registered
representatives and existing and/or potential owners of the contracts with
individualized hypothetical performance illustrations for some or all of the
Variable Account Options. Such illustrations may include, without limitation,
graphs, bar charts and other types of formats presenting the following
information: (i) the historical results of a hypothetical investment in a
single Option; (ii) the historical fluctuation of the value of a single Option
(actual and hypothetical); (iii) the historical results of a hypothetical
investment in more than one Option; (iv) the historical performance of two or
more market indices in relation to one another and/or one or more Options; (v)
the historical performance of two or more market indices in comparison to a
single Option or a group of Options; (vi) a market risk/reward scatter chart
showing the historical risk/reward relationship of one or more mutual funds or
Options to one or more indices and a broad category of similar anonymous
variable annuity subaccounts; and (vii) Option data sheets showing various
information about one or more Options (such as information concerning total
return for various periods, fees and expenses, standard deviation, alpha and
beta, investment objective, inception date and net assets). We reserve the
right to republish figures independently provided by Morningstar or any similar
agency or service.
PART 4 - DEATH BENEFIT INFORMATION FOR CONTRACTS ISSUED PRIOR TO
JANUARY 1, 1996
Notwithstanding anything in the prospectus to the contrary, for contracts
issued during 1995, the amount of the death benefit is the greatest of:
. your Adjusted Account Value
. the highest Account Value at the beginning of any contract year, plus
subsequent contributions and minus subsequent withdrawals
. your total contributions less the sum of withdrawals
Notwithstanding anything in the prospectus to the contrary, for contracts
issued prior to January 1, 1995, the amount of the death benefit is the
greatest of:
. your Adjusted Account Value
. the Account Value at the beginning of the seventh contract year, plus
subsequent contributions and minus subsequent withdrawals
. your total contributions less the sum of withdrawals
"Subsequent withdrawals" for purposes of calculation of a death benefit reflect
any market value adjustments applicable to such withdrawals.
PART 5 - FINANCIAL STATEMENTS
Ernst & Young LLP, 400 West Market Street, Louisville, Kentucky 40202, is our
independent auditor and serves as independent auditor of the Separate Account.
Ernst & Young LLP on an annual basis will audit certain financial statements
prepared by management and express an opinion on such financial statements
based on their audits.
The financial statements of the Separate Account and the statutory-basis
financial statements of Integrity as of and for the years ended December 31,
1995 and 1994 included in this SAI have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports included herein.
The financial statements of Integrity should be distinguished from the
financial statements of the Separate Account and should be considered only as
it relates to the ability of Integrity to meet its obligations under the
contract. They should not be considered as relating to the investment
performance of the assets held in the Separate Account.
10
<PAGE>
Financial Statements
Separate Account I
of
Integrity Life Insurance Company
December 31, 1995
With Report of Independent Auditors
<PAGE>
Separate Account I
of
Integrity Life Insurance Company
Financial Statements
December 31, 1995
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors............................................... 1
Audited Financial Statements
Statement of Assets and Liabilities......................................... 2
Statement of Operations..................................................... 4
Statements of Changes in Net Assets......................................... 6
Notes to Financial Statements.............................................. 10
</TABLE>
<PAGE>
Report of Independent Auditors
Contract Holders
Separate Account I of Integrity Life Insurance Company
We have audited the accompanying statement of assets and liabilities of Separate
Account I of Integrity Life Insurance Company (comprising, respectively, the
Money Market, High Income, Equity-Income, Growth, Overseas, Investment Grade
Bond, Asset Manager, Index 500, Asset Manager: Growth, and Contrafund Divisions)
as of December 31, 1995, and the related statements of operations and changes in
net assets for the periods indicated therein. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned in Variable Insurance Products Fund and
Variable Insurance Products Fund II (Fidelity VIP Funds) as of December 31,
1995, by correspondence with the transfer agent of the Funds. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
divisions constituting the Integrity Life Insurance Company Separate Account I
at December 31, 1995, and the results of their operations and changes in their
net assets for each of the periods indicated herein in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Louisville, Kentucky
April 19, 1996
1
<PAGE>
Separate Account I of Integrity Life Insurance Company
Statement of Assets and Liabilities
December 31, 1995
<TABLE>
<CAPTION>
MONEY HIGH EQUITY -
MARKET INCOME INCOME GROWTH OVERSEAS
DIVISION DIVISION DIVISION DIVISION DIVISION
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in Fidelity VIP Funds at value (cost of
$247,769,093 in the aggregate) $26,369,295 $29,616,280 $55,440,447 $50,061,266 $21,011,796
LIABILITIES
Payable to (receivable from) the general account of
Integrity 6,604 1,586 41,066 35,580 (54,088)
------------------------------------------------------------------
NET ASSETS $26,362,691 $29,614,694 $55,399,381 $50,025,686 $21,065,884
==================================================================
Unit value $ 14.46 $ 13.23 $ 24.46 $ 30.03 $ 16.10
==================================================================
Units outstanding 1,823,146 2,238,450 2,264,897 1,665,857 1,308,440
==================================================================
</TABLE>
See accompanying notes.
2
<PAGE>
Separate Account I of Integrity Life Insurance Company
Statement of Assets and Liabilities (continued)
December 31, 1995
<TABLE>
<CAPTION>
ASSET
INVESTMENT ASSET INDEX MANAGER: CONTRA-
GRADE BOND MANAGER 500 GROWTH FUND
DIVISION DIVISION DIVISION DIVISION DIVISION TOTAL
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in Fidelity VIP Funds at value
(cost of $247,769,093 in the aggregate) $11,413,982 $56,983,663 $ 6,740,850 $ 2,107,966 $14,427,205 $274,172,750
LIABILITIES
Payable to (receivable from) the general
account of Integrity 2,218 42,287 (1,793) 1,056 (3,040) 71,476
--------------------------------------------------------------------------------
NET ASSETS $11,411,764 $56,941,376 $ 6,742,643 $ 2,106,910 $14,430,245 $274,101,274
================================================================================
Unit value $ 18.20 $ 19.15 $ 14.20 $ 12.03 $ 13.50
==================================================================
Units outstanding 627,020 2,973,440 474,834 175,138 1,068,907
==================================================================
</TABLE>
See accompanying notes.
3
<PAGE>
Separate Account I of Integrity Life Insurance Company
Statement of Operations
Year Ended December 31, 1995
<TABLE>
<CAPTION>
MONEY HIGH EQUITY -
MARKET INCOME INCOME GROWTH OVERSEAS
DIVISION DIVISION DIVISION DIVISION DIVISION
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from Fidelity VIP Funds $1,190,708 $ 847,477 $ 2,090,573 $ 133,546 $ 141,460
EXPENSES
Mortality and expense risk and administrative
charges 284,297 245,316 501,726 490,747 252,603
--------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 906,411 602,161 1,588,847 (357,201) (111,143)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on sales of investments - 421,460 398,434 1,747,660 74,370
Net unrealized appreciation (depreciation) of
investments:
Beginning of period 227 (36,180) 307,294 150,087 (388,476)
End of period (1,163) 1,820,824 8,678,431 7,671,018 1,015,935
--------------------------------------------------------------
Change in net unrealized appreciation/
depreciation during the period (1,390) 1,857,004 8,371,137 7,520,931 1,404,411
--------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (1,390) 2,278,464 8,769,571 9,268,591 1,478,781
--------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 905,021 $2,880,625 $10,358,418 $8,911,390 $1,367,638
==============================================================
</TABLE>
See accompanying notes.
4
<PAGE>
Separate Account I of Integrity Life Insurance Company
Statement of Operations (continued)
Year Ended December 31, 1995
<TABLE>
<CAPTION>
INVESTMENT ASSET
GRADE ASSET INDEX MANAGER: CONTRA-
BOND MANAGER 500 GROWTH FUND
DIVISION DIVISION DIVISION DIVISION* DIVISION* TOTAL
------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from Fidelity VIP Funds $ 248,975 $ 1,222,443 $ 44,262 $ 82,736 $ 181,181 $ 6,183,361
EXPENSES
Mortality and expense risk and
administrative charges 122,798 769,768 50,285 9,315 79,833 2,806,688
------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 126,177 452,675 (6,023) 73,421 101,348 3,376,673
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on sales of
investments (41,212) 773,658 135,255 20,837 306,555 3,837,017
Net unrealized appreciation (depreciation)
of investments:
Beginning of period (342,585) (2,242,077) 18,176 - - (2,533,534)
End of period 889,374 4,628,621 966,863 7,420 726,334 26,403,657
------------------------------------------------------------------------
Change in net unrealized appreciation/
depreciation during the period 1,231,959 6,870,698 948,687 7,420 726,334 28,937,191
------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS 1,190,747 7,644,356 1,083,942 28,257 1,032,889 32,774,208
------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $1,316,924 $ 8,097,031 $1,077,919 $101,678 $1,134,237 $36,150,881
========================================================================
</TABLE>
* For the period February 6, 1995 (commencement of operations) to
December 31, 1995.
See accompanying notes.
5
<PAGE>
Separate Account I of Integrity Life Insurance Company
Statement of Changes in Net Assets
Year Ended December 31, 1995
<TABLE>
<CAPTION>
MONEY HIGH EQUITY -
MARKET INCOME INCOME GROWTH OVERSEAS
DIVISION DIVISION DIVISION DIVISION DIVISION
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS
Net investment income (loss) $ 906,411 $ 602,161 $ 1,588,847 $ (357,201) $ (111,143)
Net realized gain (loss) on sales of
investments -- 421,460 398,434 1,747,660 74,370
Change in net unrealized appreciation/
depreciation during the period (1,390) 1,857,004 8,371,137 7,520,931 1,404,411
-----------------------------------------------------------------------
Net increase in net assets resulting from
operations 905,021 2,880,625 10,358,418 8,911,390 1,367,638
INCREASE (DECREASE) IN NET ASSETS FROM
CONTRACT RELATED TRANSACTIONS
Contributions from contract holders 20,334,306 11,774,062 15,978,463 14,692,149 5,584,300
Contract terminations and benefits (3,262,823) (651,621) (2,258,085) (2,305,745) (1,398,897)
Net transfers among investment options (10,489,510) 4,609,207 9,173,422 6,493,844 (3,417,808)
-----------------------------------------------------------------------
Net increase (decrease) in net assets derived
from contract related transactions 6,581,973 15,731,648 22,893,800 18,880,248 767,595
-----------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS 7,486,994 18,612,273 33,252,218 27,791,638 2,135,233
Net assets, beginning of year 18,875,697 11,002,421 22,147,163 22,234,048 18,930,651
-----------------------------------------------------------------------
NET ASSETS, END OF YEAR $26,362,691 $29,614,694 $55,399,381 $50,025,686 $21,065,884
=======================================================================
UNIT TRANSACTIONS
Contributions 1,439,814 920,318 733,711 553,520 364,819
Terminations and benefits (239,468) (50,330) (109,024) (84,599) (92,992)
Net transfers (740,572) 379,055 433,527 208,262 (235,605)
-----------------------------------------------------------------------
Increase (decrease) in units 459,774 1,249,043 1,058,214 677,183 36,222
=======================================================================
</TABLE>
See accompanying notes.
6
<PAGE>
Separate Account I of Integrity Life Insurance Company
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1995
<TABLE>
<CAPTION>
INVESTMENT ASSET
GRADE ASSET INDEX MANAGER: CONTRA-
BOND MANAGER 500 GROWTH FUND
DIVISION DIVISION DIVISION DIVISION* DIVISION* TOTAL
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income (loss) $ 126,177 $ 452,675 $ (6,023) $ 73,421 $ 101,348 $ 3,376,673
Net realized gain (loss) on sales of
investments (41,212) 773,658 135,255 20,837 306,555 3,837,017
Changes in net unrealized appreciation/
depreciation during the period 1,231,959 6,870,698 948,687 7,420 726,334 28,937,191
-----------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 1,316,924 8,097,031 1,077,919 101,678 1,134,237 36,150,881
INCREASE (DECREASE) IN NET ASSETS FROM
CONTRACT RELATED TRANSACTIONS
Contributions from contract holders 2,732,767 7,813,632 2,590,878 1,618,000 9,189,750 92,308,307
Contract terminations and benefits (598,195) (4,780,955) (211,930) (7,244) (78,792) (15,554,287)
Net transfers among investment options 814,239 (12,437,415) 997,890 394,476 4,185,050 323,395
-----------------------------------------------------------------------------------
Net increase (decrease) in net assets
derived from contract related transactions 2,948,811 (9,404,738) 3,376,838 2,005,232 13,296,008 77,077,415
-----------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS 4,265,735 (1,307,707) 4,454,757 2,106,910 14,430,245 113,228,296
Net assets, beginning of year 7,146,029 58,249,083 2,287,886 -- -- 160,872,978
-----------------------------------------------------------------------------------
NET ASSETS, END OF YEAR $11,411,764 $56,941,376 $6,742,643 $2,106,910 $14,430,245 $274,101,274
===================================================================================
UNIT TRANSACTIONS
Contributions 159,543 453,078 200,180 141,402 734,758
Terminations and benefits (35,875) (283,950) (18,438) (616) (9,811)
Net transfers 48,994 (704,833) 74,973 34,352 343,960
--------------------------------------------------------------------
Increase (decrease) in units 172,662 (535,705) 256,715 175,138 1,068,907
====================================================================
</TABLE>
*For the period February 6, 1995 (commencement of operations) to
December 31, 1995.
See accompanying notes.
7
<PAGE>
Separate Account I of Integrity Life Insurance Company
Statement of Changes in Net Assets
Year Ended December 31, 1994
<TABLE>
<CAPTION>
MONEY HIGH EQUITY
MARKET INCOME INCOME GROWTH
DIVISION DIVISION DIVISION DIVISION
------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income (loss) $ 520,326 $ 683,901 $ 897,356 $ 446,029
Net realized gain (loss) on sales of
investments -- (516,635) 304,256 143,796
Change in net unrealized appreciation/
depreciation during the period 213 (321,640) (256,264) (504,945)
------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 520,539 (154,374) 945,348 84,880
INCREASE (DECREASE) IN NET ASSETS FROM
CONTRACT RELATED TRANSACTIONS
Contributions from contract holders 21,643,360 4,311,125 9,460,972 9,955,775
Contract terminations and benefits (1,085,525) (255,523) (3,155,579) (962,825)
Net transfers among investment options (6,869,228) 56,577 1,890,970 3,030,967
------------------------------------------------------
Net increase in net assets derived from
contract related transactions 13,688,607 4,112,179 8,196,363 12,023,917
------------------------------------------------------
INCREASE IN NET ASSETS 14,209,146 3,957,805 9,141,711 12,108,797
Net assets, beginning of year 4,666,551 7,044,616 13,005,452 10,125,251
------------------------------------------------------
NET ASSETS, END OF YEAR $18,875,697 $11,002,421 $22,147,163 $22,234,048
======================================================
UNIT TRANSACTIONS
Contributions 1,587,152 375,895 529,463 470,116
Terminations and benefits (79,139) (21,769) (171,313) (43,374)
Net transfers (491,285) 19,992 100,097 117,855
------------------------------------------------------
Increase in units 1,016,728 374,118 458,247 544,597
======================================================
</TABLE>
See accompanying notes.
8
<PAGE>
Separate Account I of Integrity Life Insurance Company
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1994
<TABLE>
<CAPTION>
INVESTMENT ASSET
OVERSEAS GRADE BOND MANAGER INDEX 500
DIVISION DIVISION DIVISION DIVISION TOTAL
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS
Net investment income (loss) $ (151,157) $ (74,339) $ 1,077,535 $ (20,045) $ 3,379,606
Net realized gain (loss) on sales of
investments 373,451 (44,973) 219,467 214 479,576
Change in net unrealized appreciation/
depreciation during the period (710,584) (224,172) (5,059,060) 15,663 (7,060,789)
------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (488,290) (343,484) (3,762,058) (4,168) (3,201,607)
INCREASE (DECREASE) IN NET ASSETS FROM
CONTRACT RELATED TRANSACTIONS
Contributions from contract holders 10,337,826 3,188,701 36,175,287 985,715 96,058,761
Contract terminations and benefits (867,716) (295,106) (2,770,158) (106,875) (9,499,307)
Net transfers among investment options 2,825,487 (876,555) (2,718,283) 378,924 (2,281,141)
------------------------------------------------------------------------------
Net increase in net assets derived from
contract related transactions 12,295,597 2,017,040 30,686,846 1,257,764 84,278,313
------------------------------------------------------------------------------
INCREASE IN NET ASSETS 11,807,307 1,673,556 26,924,788 1,253,596 81,076,706
Net assets, beginning of year 7,123,344 5,472,473 31,324,295 1,034,290 79,796,272
------------------------------------------------------------------------------
NET ASSETS, END OF YEAR $18,930,651 $7,146,029 $58,249,083 $2,287,886 $160,872,978
==============================================================================
UNIT TRANSACTIONS
Contributions 669,465 196,883 2,075,458 94,413
Terminations and benefits (52,718) (18,546) (149,420) (10,092)
Net transfers 175,065 (54,339) (165,139) 35,510
-------------------------------------------------------------
Increase in units 791,812 123,998 1,760,899 119,831
=============================================================
</TABLE>
See accompanying notes.
9
<PAGE>
Separate Account 1
of
Integrity Life Insurance Company
Notes to Financial Statements
December 31, 1995
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF OPERATIONS
Integrity Life Insurance Company ("Integrity") established Separate Account I
(the "Separate Account") on May 19, 1986, for the purpose of issuing flexible
payment variable annuity contracts ("contracts"). The Separate Account is a unit
investment trust registered with the Securities and Exchange Commission under
the Investment Company Act of 1940. The operations of the Separate Account are
part of Integrity.
Integrity is an indirect wholly owned subsidiary of ARM Financial Group, Inc.
("ARM"). ARM is a financial services company focusing on the long-term savings
and retirement marketplace by providing retail and institutional products and
services throughout the United States.
Contract holders may allocate or transfer their account values to one or more of
the Separate Account's investment divisions or, for certain contract holders, to
a guaranteed interest division provided by Integrity, or both. Certain contract
holders may also allocate or transfer a portion or all of their account values
to one or more fixed guaranteed rate options of Integrity's Separate Account
GPO. The Separate Account investment divisions are invested in shares of
corresponding investment portfolios of the Variable Insurance Products Fund and
Variable Insurance Products Fund II (collectively the "Fidelity VIP Funds"). The
Fidelity VIP Funds are "series" type mutual funds managed by Fidelity Management
and Research Company ("Fidelity Management"). Prior to September 3, 1991, the
Separate Account investment divisions then offered were invested in shares of
corresponding portfolios of Prism Investment Trust. The contract holder's
account value allocated to the investment divisions of the Separate Account
reflect the investment performance of the Fidelity VIP Funds' corresponding
portfolios. The Separate Account currently has ten investment divisions
available. The investment objective of each division and its corresponding
portfolio are the same. Set forth below is a summary of the investment
objectives of the portfolios of the Fidelity VIP Funds.
10
<PAGE>
Separate Account 1
of
Integrity Life Insurance Company
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Money Market Portfolio seeks to obtain as high a level of current income as
is consistent with preserving capital and providing liquidity. It invests
only in high-quality, U.S. dollar denominated money market securities of
domestic and foreign issuers, such as certificates of deposit, obligations
of governments and their agencies, and commercial paper and notes.
High Income Portfolio seeks to obtain a high level of current income by
investing primarily in high-yielding, lower rated, fixed-income securities,
while also considering growth of capital. It normally invests at least 65%
of its total assets in income-producing debt securities and preferred
stocks, including convertible securities, and up to 20% in common stocks and
other equity securities.
Equity-Income Portfolio seeks reasonable income by investing primarily in
income producing equity securities, with the potential for capital
appreciation as a consideration. It normally invests at least 65% of its
assets in income-producing common or preferred stock and the remainder in
debt securities.
Growth Portfolio seeks to achieve capital appreciation, normally by purchase
of common stocks, although investments are not restricted to any one type of
security. Capital appreciation may also be found in other types of
securities, including bonds and preferred stocks.
Overseas Portfolio seeks long-term growth of capital primarily through
investments in foreign securities. It normally invests 65% of its assets in
securities from at least three countries outside North America.
Investment Grade Bond Portfolio seeks as high a level of current income as
is consistent with the preservation of capital by investing in a broad range
of investment-grade fixed-income securities. It will maintain a dollar-
weighted average portfolio maturity of ten years or less. For 80% of its
assets, the portfolio purchases only securities rated A or better by Moody's
Investors Service, Inc. or Standard & Poor's Corporation or unrated
securities judged by Fidelity Management to be of equivalent quality.
11
<PAGE>
Separate Account 1
of
Integrity Life Insurance Company
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Asset Manager Portfolio seeks high total return with reduced risk over the
long-term by allocating its assets among stocks, bonds and short-term fixed-
income instruments. The expected "neutral" mix of assets, which will occur
when the investment adviser concludes there is minimal relative difference
in value between the three asset classes, is 40% in equities, 40% in
intermediate to long-term bonds and 20% in short-term fixed-income
instruments. The portfolio's relatively large investment in countries with
limited or developing capital markets may involve greater risks than
investments in more developed markets and the prices of such investments may
be volatile.
Index 500 Portfolio seeks to provide investment results that correspond to
the total return (i.e., the combination of capital changes and income) of
common stocks publicly traded in the United States. In seeking this
objective, the portfolio attempts to duplicate the composition and total
return of the Standard & Poor's 500 Composite Stock Price Index while
keeping transaction costs and other expenses low.
Asset Manager: Growth Portfolio is an asset allocation fund which seeks to
maximize total return over the long term through investments in stocks,
bonds, and short-term instruments. The fund has a neutral mix which
represents the general allocation of the fund's investments over the long
term. The approximate neutral mix for stocks, bonds and short-term
instruments is 65%, 30% and 5%, respectively.
Contrafund Portfolio is a growth fund which seeks to increase the value of
the investment over the long-term by investing in equity securities of
companies that are undervalued or out of favor. This approach focuses on
companies that are currently out of public favor but show potential for
capital appreciation. Contrafund Portfolio invests primarily in common stock
and securities convertible into common stock, but it has the flexibility to
invest in any type of security that may produce capital appreciation.
The assets of the Separate Account are owned by Integrity. The portion of the
Separate Account's assets supporting the contracts may not be used to satisfy
liabilities arising out of any other business of Integrity.
12
<PAGE>
Separate Account 1
of
Integrity Life Insurance Company
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for unit investment trusts.
INVESTMENTS
Investments in shares of the Fidelity VIP Funds are valued at the net asset
values of the respective portfolios, which approximates fair value. The
difference between cost and fair value is reflected as unrealized appreciation
and depreciation of instruments.
Share transactions are recorded on the trade date. Realized gains and losses on
sales of shares of the Fidelity VIP Funds are determined based on the identified
cost basis.
Dividends from income and capital gain distributions are recorded on the ex-
dividend date. Dividends from the portfolios are reinvested in the portfolios
and are reflected in the unit value of the divisions of the Separate Account.
UNIT VALUE
Unit values for the Separate Accounts are computed at the end of each business
day. The unit value is equal to the unit value for the preceding business day
multiplied by a net investment factor. This net investment factor is determined
based on the value of the underlying mutual fund of the Separate Account,
reinvested dividends and capital gains, new premium deposits or withdrawals, and
the daily asset charge for the mortality and expense risk and administrative
charges. Unit values are adjusted daily for all activity in the Separate
Account.
TAXES
Operations of the Separate Account are included in the income tax return of
Integrity, which is taxed as a life insurance company under the Internal Revenue
Code. The Separate Account will not be taxed as a regulated investment company
under Subchapter
13
<PAGE>
Separate Account 1
of
Integrity Life Insurance Company
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
M of the Internal Revenue Code. Under existing federal income tax law, no taxes
are payable on the investment income or on the capital gains of the Separate
Account.
2. INVESTMENTS
The aggregate cost of portfolio shares purchased and proceeds from portfolio
shares sold during the year ended December 31, 1995 and the cost of shares held
at December 31, 1995 for each division were as follows:
PURCHASES SALES COST
--------------------------------------
Money Market Division $36,955,580 $29,467,519 $26,370,458
High Income Division 22,662,187 6,327,217 27,795,456
Equity-Income Division 27,164,221 2,641,872 46,762,016
Growth Division 28,325,626 9,767,409 42,390,248
Overseas Division 11,956,061 11,354,340 19,995,861
Investment Grade Bond Division 7,521,709 4,444,627 10,524,608
Asset Manager Division 6,068,190 14,980,616 52,355,042
Index 500 Division 4,478,275 1,109,335 5,773,987
Asset Manager: Growth Division 2,269,262 189,553 2,100,546
Contrafund Division 14,822,694 1,428,378 13,700,871
3. EXPENSES
Integrity assumes mortality and expense risks and incurs certain administrative
expenses related to the operations of the Separate Account and deducts a charge
from the assets of the Separate Account at an annual rate of 1.20% and 0.15% of
net assets, respectively, to cover these risks and expenses. In addition, an
annual charge of $30 per contract is assessed if the participant's contract
value is less than $50,000 at the end of any participation year prior to the
participant's retirement date (as defined by the participant's contract).
14
<PAGE>
Financial Statements
(Statutory Basis)
Integrity Life Insurance Company
Years Ended December 31, 1995 and 1994
with Report of Independent Auditors
<PAGE>
Integrity Life Insurance Company
Financial Statements
(Statutory Basis)
Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Report of Independent Auditors............................................... 1
Audited Financial Statements
Balance Sheets (Statutory Basis)............................................. 3
Statements of Operations (Statutory Basis)................................... 5
Statements of Changes in Capital and Surplus (Statutory Basis)............... 6
Statements of Cash Flows (Statutory Basis)................................... 7
Notes to Financial Statements................................................ 9
</TABLE>
<PAGE>
Report of Independent Auditors
Board of Directors
Integrity Life Insurance Company
We have audited the accompanying statutory basis balance sheet of Integrity Life
Insurance Company as of December 31, 1995, and the related statutory basis
statements of operations, changes in capital and surplus, and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The Company presents its financial statements in conformity with accounting
practices prescribed or permitted by the Ohio Department of Insurance. The
variances between such practices and generally accepted accounting principles
and the effects on the accompanying financial statements are described in
Note 1.
In our opinion, because of the materiality of the effects of the variances
between generally accepted accounting principles and the accounting practices
referred to in the preceding paragraph, the financial statements referred to
above are not intended to and do not present fairly, in conformity with
generally accepted accounting principles, the financial position of Integrity
Life Insurance Company at December 31, 1995, or the results of its operations or
its cash flows for the year then ended. However, in our opinion, the
supplementary information included in Note 1 presents fairly, in all material
respects, shareholder's equity at December 31, 1995, and net income for the year
then ended in conformity with generally accepted accounting principles.
1
<PAGE>
Also, in our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Integrity Life Insurance
Company at December 31, 1995, and the results of its operations and its cash
flows for the year then ended in conformity with accounting practices prescribed
or permitted by the Ohio Department of Insurance.
We previously audited and reported on the statutory basis balance sheet and the
statutory basis statements of operations, changes in capital and surplus, and
cash flows of Integrity Life Insurance Company for the year ended December 31,
1994, prior to their restatement for the 1995 statutory merger as described in
Note 2. The contribution of Integrity Life Insurance Company to total admitted
assets, capital and surplus, and net income represented 68%, 75%, and 87% of the
respective restated totals. Statutory basis financial statements of the other
merged company included in the 1994 restated statutory basis statements were
audited and reported on separately by other auditors. We also have audited, as
to combination only, the accompanying statutory basis balance sheet and the
related statutory basis statements of operations, changes in capital and
surplus, and cash flows for the year ended December 31, 1994, after restatement
for the 1995 statutory merger; in our opinion, such statutory basis financial
statements have been properly combined on the basis described in Note 2 to the
statutory basis financial statements.
/s/ Ernst & Young LLP
Louisville, Kentucky
February 23, 1996
2
<PAGE>
Integrity Life Insurance Company
Balance Sheets (Statutory Basis)
DECEMBER 31,
1995 1994*
------------------------
(In Thousands)
Admitted assets
Cash and invested assets:
Bonds $1,755,236 $1,799,778
Preferred stocks 7,604 3,367
Subsidiaries 39,139 35,744
Real estate 512 1,705
Mortgage loans 38,612 91,130
Policy loans 94,642 90,571
Cash and short-term investments 54,476 80,556
Other invested assets 13,754 6,834
------------------------
Total cash and invested assets 2,003,975 2,109,685
Separate account assets 544,664 363,008
Accrued investment income 27,806 28,273
Broker balances receivable 6,636 1,132
Reinsurance balances receivable 6,795 2,518
Other admitted assets 2,892 5,264
------------------------
Total admitted assets $2,592,768 $2,509,880
========================
3
<PAGE>
DECEMBER 31,
1995 1994*
-------------------------
(In Thousands)
Liabilities and capital and surplus
Liabilities:
Policy and contract liabilities:
Life and annuity reserves $1,858,672 $1,975,872
Unpaid claims 2,121 1,921
Deposits on policies to be issued 702 1,239
-------------------------
Total policy and contract liabilities 1,861,495 1,979,032
Separate account liabilities 543,081 360,609
Accounts payable and accrued expenses 3,659 5,346
Transfers to Separate Accounts due or accrued, net (30,146) (23,242)
Reinsurance balances payable 2,472 1,739
Federal income taxes 2,986 744
Asset valuation reserve 12,410 8,526
Interest maintenance reserve 35,217 30,104
Other liabilities 15,567 3,481
-------------------------
Total liabilities 2,446,741 2,366,339
Capital and surplus:
Common stock, $2 par value, 1,500,000
shares authorized, issued and outstanding 3,000 3,000
Paid-in capital 87,535 82,941
Unassigned surplus 55,492 57,600
-------------------------
Total capital and surplus 146,027 143,541
-------------------------
Total liabilities and capital and surplus $2,592,768 $2,509,880
=========================
See accompanying notes.
* Restated to include the balances of State Bond and Mortgage Life Insurance
Company (see note 2).
4
<PAGE>
Integrity Life Insurance Company
Statements of Operations (Statutory Basis)
YEAR ENDED DECEMBER 31,
1995 1994*
-----------------------
(In Thousands)
Premiums and other revenues:
Premiums and annuity considerations $ 14,010 $ 39,422
Deposit-type funds 232,682 278,408
Net investment income 152,365 158,847
Amortization of the interest maintenance reserve 2,947 4,240
Other income 11,654 8,399
---------------------
Total premiums and other revenues 413,658 489,316
Benefits paid or provided:
Death benefits 24,688 24,060
Annuity benefits 39,092 38,692
Surrender benefits 322,569 264,613
Interest on funds left on deposit 1,059 165
Payments on supplementary contracts 9,423 10,252
Decrease in insurance and annuity reserves (125,970) (79,091)
Other, principally reinsurance transactions - (4,138)
---------------------
Total benefits paid or provided 270,861 254,553
Insurance and other expenses:
Commissions 16,215 23,314
General expenses 11,927 13,012
Taxes, licenses and fees 794 2,648
Net transfers to separate account 92,817 167,407
Other expenses 1,184 836
---------------------
Total insurance and other expenses 122,937 207,217
---------------------
Gain from operations before federal income taxes and net
realized capital losses 19,860 27,546
Federal income taxes 1,370 3,215
---------------------
Gain from operations before net realized capital losses 18,490 24,331
Net realized capital gains (losses), less capital gains
tax expense (benefit) (1995-$1,543,000;
1994-($3,303,000)) and excluding net gains (losses)
transferred to the interest maintenance reserve
(1995-$8,061,000; 1994-($31,520,000)) (918) (458)
---------------------
Net income $ 17,572 $ 23,873
=====================
See accompanying notes.
* Restated to include the combined results of Integrity Life Insurance Company
and State Bond and Mortgage Life Insurance Company (see note 2).
5
<PAGE>
Integrity Life Insurance Company
Statements of Changes in Capital and Surplus (Statutory Basis)
Years ended December 31, 1995 and 1994
TOTAL
COMMON PAID-IN UNASSIGNED CAPITAL AND
STOCK SURPLUS SURPLUS SURPLUS
------------------------------------------
(In Thousands)
Balances, January 1, 1994* $2,000 $ 83,941 $ 41,864 $127,805
Net income 23,873 23,873
Net change in unrealized gains
(losses) of subsidiaries (532) (532)
Increase in nonadmitted assets (70) (70)
Decrease from change in
valuation basis (4,107) (4,107)
Increase in asset valuation
reserve (2,861) (2,861)
Dividends to shareholder (650) (650)
Change in surplus in separate
accounts (695) (695)
Change in par value 1,000 (1,000)
Transfers from separate account 778 778
------------------------------------------
Balances, December 31, 1994* 3,000 82,941 57,600 143,541
Net income 17,572 17,572
Net change in unrealized gain
(losses) of subsidiary 5,174 5,174
Decrease in nonadmitted assets 125 125
Decrease from change in
valuation basis (8,593) (8,593)
Increase in asset valuation
reserve (3,884) (3,884)
Capital contributions 19,850 19,850
Mark to market adjustment for
SBM Life (15,256) (15,256)
Dividends to shareholder (12,800) (12,800)
Change in surplus in separate
accounts (816) (816)
Transfer from separate account 1,114 1,114
------------------------------------------
Balances, December 31, 1995 $3,000 $ 87,535 $ 55,492 $146,027
==========================================
See accompanying notes.
* Restated to include the balances and combined results of Integrity Life
Insurance Company and State Bond and Mortgage Life Insurance Company (see
note 2).
6
<PAGE>
Integrity Life Insurance Company
Statements of Cash Flows (Statutory Basis)
Year Ended December 31,
1995 1994*
----------------------
(In Thousands)
Operations:
Premiums, policy proceeds, and other considerations
received $ 246,692 $ 317,842
Net investment income received 153,357 155,582
Commission and expense allowances received (returned)
on reinsurance ceded 3,155 (2,787)
Benefits paid (395,810) (337,631)
Insurance expenses paid (31,313) (36,475)
Other income received net of other expenses paid 4,488 6,642
Net transfers to separate account (99,721) (177,042)
Federal income taxes paid - (2,101)
---------------------
Net cash used in operations (119,152) (75,970)
Proceeds from sales, maturities, or repayments of
investments:
Bonds 1,075,864 787,130
Preferred stocks 7,604 3,478
Common stocks 3,300 -
Mortgage loans 50,528 86,213
Real estate 638 150
Other invested assets 3,360 -
Miscellaneous proceeds - 533
---------------------
Total investment proceeds 1,141,294 877,504
---------------------
Net proceeds from sales, maturities, or repayments of
investments 1,141,294 877,504
Other cash provided:
Capital and surplus paid-in 19,850 -
Other sources 16,930 8,161
---------------------
Total other cash provided 36,780 8,161
---------------------
Total cash provided 1,058,922 809,695
---------------------
7
<PAGE>
Integrity Life Insurance Company
Statements of Cash Flows (Statutory Basis) (continued)
Year Ended December 31,
1995 1994*
----------------------
(In Thousands)
Cost of investments acquired:
Bonds $1,036,258 $840,254
Preferred and common stocks 13,340 6,734
Other invested assets 10,472 6,000
Miscellaneous applications - 1,219
--------------------
Total investments acquired 1,060,070 854,207
Other cash applied:
Dividends to stockholders 12,800 650
Other applications, net 12,132 19,920
--------------------
Total other cash applied 24,932 20,570
--------------------
Total cash used 1,085,002 874,777
--------------------
Net decrease in cash and short-term investments (26,080) (65,082)
Cash and short-term investments at beginning of year 80,556 145,638
--------------------
Cash and short-term investments at end of year $ 54,476 $ 80,556
====================
See accompanying notes.
* Restated to include the combined results of Integrity Life Insurance Company
and State Bond and Mortgage Life Insurance Company (see note 2).
8
<PAGE>
Integrity Life Insurance Company
Notes to Financial Statements (Statutory Basis)
December 31, 1995
1. ORGANIZATION AND ACCOUNTING POLICIES
ORGANIZATION
Integrity Life Insurance Company ("Integrity" or the "Company") is an indirect
wholly owned subsidiary of ARM Financial Group, Inc. ("ARM"). ARM acquired the
Company and its wholly owned insurance subsidiary, National Integrity Life
Insurance Company ("National Integrity"), on November 26, 1993 from The National
Mutual Life Association of Australasia Limited ("National Mutual"). The Company
is domiciled in the state of Ohio. Integrity, currently licensed in 44 states
and the District of Columbia, and National Integrity Life Insurance company
provide retail and institutional products throughout the United States to the
long-term savings and retirement marketplace.
On June 14, 1995, the Company's indirect parent, ARM, completed the acquisition
of substantially all of the assets and business operations of SBM Company
("SBM"), including all of the issued and outstanding capital stock of SBM's
subsidiaries, State Bond and Mortgage Life Insurance Company ("SBM Life"),
domiciled in Minnesota, and SBM Financial Services, Inc. ("SBM Financial
Services"), and SBM's management contracts with the State Bond group of mutual
funds (the "Acquisition"). By virtue of the Acquisition, ARM acquired control of
SBM Certificate Company, a wholly owned subsidiary of SBM Life. Concurrent with
the Acquisition, ARM acquired all outstanding shares of the authorized capital
stock of SBM certificate Company from SBM Life for a purchase price of $3.3
million. The designated effective date of the Acquisition was May 31, 1995.
The aggregate purchase price for the Acquisition was $38.8 million. ARM financed
the Acquisition by issuing a total of 9,770 shares of ARM's Class A common stock
to certain private equity funds managed by a subsidiary of Morgan Stanley Group
Inc. and certain private investors for an aggregate sale price of $63.5 million.
ARM used proceeds from issuance of the new common equity in excess of the
adjusted purchase price for the Acquisition to (i) make a $19.9 million capital
contribution to SMB Life, (ii) acquire SBM Certificate Company from SBM Life for
$3.3 million, and (iii) provide for fees and expenses related to the
Acquisition.
ARM's $19.9 million capital contribution to SBM Life was used to strengthen SBM
Life's financial position and allowed for a significant investment portfolio
restructuring immediately following the acquisition with no adverse effect on
statutory adjusted capital
9
<PAGE>
Integrity Life Insurance Company
Notes to Financial Statements (Statutory Basis) (continued)
1. ORGANIZATION AND ACCOUNTING POLICIES (CONTINUED)
and surplus. In connection with the Acquisition, on May 31, 1995, SBM Life was
permitted by the Insurance Division of the State of Minnesota Department of
Commerce to record a direct charge to paid-in capital of $15.3 million which
represented the effect of marking to market its entire bond portfolio on that
date.
BASIS OF PRESENTATION
The accompanying financial statements of the Company have been prepared in
conformity with accounting practices prescribed or permitted by the Ohio
Department of Insurance. Such practices vary from generally accepted accounting
principles ("GAAP"). The more significant variances from GAAP are as follows:
INVESTMENTS
Investments in bonds and preferred stocks are reported at amortized cost or
market value based on their National Association of Insurance Commissioners
("NAIC") rating; for GAAP, such fixed maturity investments are designated at
purchase as held-to-maturity, trading, or available-for-sale. Held-to-
maturity fixed investments are reported at amortized cost, and the remaining
fixed maturity investments are reported at fair value with unrealized
holding gains and losses reported in operations for those designated as
trading and as a separate component of shareholder's equity for those
designated as available-for-sale. In addition, fair values of certain
investments in bonds and stocks are based on values specified by the NAIC,
rather than on actual or estimated market values. Mortgage loans on real
estate in good standing are reported at unpaid principal balances. Realized
gains and losses are reported in income net of income tax and transfers to
the interest maintenance reserve. Changes between cost and admitted
investment asset amounts are credited or charged directly to unassigned
surplus rather than to a separate surplus account. The Asset Valuation
Reserve is determined by an NAIC prescribed formula and is reported as a
liability rather than unassigned surplus. Under a formula prescribed by the
NAIC, the Company defers the portion of realized gains and losses on sales
of fixed income investments, principally bonds and mortgage loans,
attributable to changes in the general level of interest rates and amortizes
those deferrals over the remaining period to maturity based on the
individual security sold using the seriatim method.
10
<PAGE>
Integrity Life Insurance Company
Notes to Financial Statements (Statutory Basis) (continued)
1. ORGANIZATION AND ACCOUNTING POLICIES (CONTINUED)
The net deferral is reported as the Interest Maintenance Reserve in the
accompanying balance sheets. Under GAAP, realized gains and losses are
reported in the income statement on a pretax basis in the period that the
asset giving rise to the gain or loss is sold and valuation allowances are
provided when there has been a decline in value deemed other than temporary,
in which case, the provision for such declines would be charged to income.
SUBSIDIARIES
The accounts and operations of the Company's subsidiaries are not
consolidated with the accounts and operations of the Company as would be
required under GAAP.
POLICY ACQUISITION COSTS
Costs of acquiring and renewing business are expensed when incurred. Under
GAAP, acquisition costs related to investment-type products, to the extent
recoverable from future gross profits, are amortized generally in proportion
to the present value of expected gross profits from surrender charges and
investment, mortality, and expense margins.
NONADMITTED ASSETS
Certain assets designated as "nonadmitted," principally agents' debit
balances, are excluded from the accompanying balance sheets and are charged
directly to unassigned surplus.
PREMIUMS
Revenues for investment-type products consist of the entire premium received
and benefits represent the death benefits paid and the change in policy
reserves. Under GAAP, such premiums received are accounted for as deposits
and therefore not recognized as premium revenue; benefits paid equal to the
policy account value are accounted for as a return of deposit instead of
benefit expense.
11
<PAGE>
Integrity Life Insurance Company
Notes to Financial Statements (Statutory Basis) (continued)
1. ORGANIZATION AND ACCOUNTING POLICIES (CONTINUED)
BENEFIT RESERVES
Certain policy reserves are calculated using statutorily prescribed interest
and mortality assumptions rather than on estimated expected experience or
actual account balances as would be required under GAAP.
FEDERAL INCOME TAXES
Deferred federal income taxes are not provided for differences between the
financial statement amounts and tax bases of assets and liabilities.
The effects of the foregoing variances from GAAP on the accompanying statutory
basis financial statements are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
------------------------
(In Thousands)
<S> <C> <C>
Net income as reported in the accompanying
statutory basis financial statements $17,572 $ 23,873
Deferred policy acquisition costs, net of
amortization 16,651 23,976
Adjustments to policyholder deposits (5,994) (15,773)
Adjustments to invested asset carrying values at
acquisition date (769) (3,727)
Amortization of value of insurance in force (7,104) (3,830)
Amortization of interest maintenance reserve (3,906) (5,795)
Adjustments for realized investment gains (losses) 5,313 (35,510)
Adjustments for federal income tax benefit (expense) (4,719) 5,341
Investment in subsidiary 4,833 3,953
Adjustment for SBM Life operating results prior to
the acquisition (see Note 1) 4,604 (3,062)
Other 1,274 (1,204)
-------------------------
Net income (loss), GAAP basis $27,755 $ (11,758)
=========================
</TABLE>
12
<PAGE>
Integrity Life Insurance Company
Notes to Financial Statements (Statutory Basis) (continued)
1. ORGANIZATION AND ACCOUNTING POLICIES (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
---------------------
(In Thousands)
<S> <C> <C>
Capital and surplus as reported in the accompanying
statutory basis financial statements $ 146,027 $ 143,541
Adjustments to policyholder deposits (167,158) (118,036)
Adjustments to invested asset carrying values at
acquisition date (18,541) (23,085)
Asset valuation reserve and interest
maintenance reserve 82,941 83,189
Value of insurance in force 91,202 37,175
Goodwill 7,090 -
Deferred policy acquisition costs 43,318 26,667
Net unrealized gains (losses) on available-for-sale
investments 24,127 (104,905)
Adjustment for restatement of capital and surplus due
to the Merger (see Note 2) - (35,675)
Other 7,127 2,002
---------------------
Shareholder's equity, GAAP basis $ 216,133 $ 10,873
=====================
</TABLE>
Other significant accounting practices are as follows:
INVESTMENTS
Bonds, preferred stocks, common stocks, and short-term investments, are stated
at values prescribed by the NAIC, as follows:
Bonds and short-term investments are reported at cost or amortized cost; the
discount or premium on bonds is amortized using the interest method. For
loan-backed bonds, anticipated prepayments are considered when determining
the amortization of discount or premium.
13
<PAGE>
Integrity Life Insurance Company
Notes to Financial Statements (Statutory Basis) (continued)
1. ORGANIZATION AND ACCOUNTING POLICIES (CONTINUED)
Prepayment assumptions for loan-backed bonds and structured securities were
obtained from broker-dealer survey values or internal estimates. These
assumptions are consistent with the current interest rate and economic
environment. The retrospective adjustment method is used to value all such
securities.
Preferred stocks are reported at cost or amortized cost.
The Company's insurance subsidiary is reported at equity in the underlying
statutory basis of its net assets. Changes in admitted asset carrying amounts
of investments in subsidiaries are credited or charged directly to unassigned
surplus.
Mortgage loans and policy loans are reported at unpaid principal balances.
Short-term investments includes investments with maturities of less than one
year at the date of acquisition.
Realized capital gains and losses are determined using the specific
identification method.
BENEFITS
Insurance and annuity reserves are developed by actuarial methods and are
determined based on published tables using statutorily specified interest rates
and valuation methods that will provide, in the aggregate, reserves that are
greater than or equal to the minimum or guaranteed policy cash values or the
amounts required by the Ohio Department of Insurance. The Company waives
deduction of deferred fractional premiums on the death of life and annuity
policy insureds and does not return any premium beyond the date of death.
Surrender values on policies do not exceed the corresponding benefit reserve.
Policies issued subject to multiple table substandard extra premiums are valued
on the standard reserve basis which recognizes the non-level incidence of the
excess mortality costs. Additional reserves are established when the results of
cash flow testing under various interest rate scenarios indicate the need for
such reserves.
Tabular interest, tabular less actual reserve released, and tabular cost have
been determined by formula as prescribed by the NAIC.
14
<PAGE>
Integrity Life Insurance Company
Notes to Financial Statements (Statutory Basis) (continued)
1. Organization and Accounting Policies (continued)
POLICY AND CONTRACT CLAIMS
Unpaid benefits and related expenses are established for estimates of payments
to be made on individual insurance claims that have been incurred and reported,
and estimates of losses which have occurred but have not been reported.
Management believes that its reserve estimate for policy and contract claims is
adequate.
REINSURANCE
Reinsurance premiums, benefits and expenses are accounted for on bases
consistent with those used in accounting for the original policies issued and
the terms of the reinsurance contracts. Premiums, benefits and expenses, and the
reserves for policy and contract liabilities are reported net, rather than
gross, of reinsured amounts.
SEPARATE ACCOUNTS
Separate account assets and liabilities reported in the accompanying balance
sheets represent funds that are separately administered, principally for
variable annuity contracts. Separate account assets are reported at market
value. Surrender charges collectible by the general account in the event of
variable policy surrenders are reported as a negative liability rather than an
asset pursuant to prescribed NAIC accounting practices. The operations of the
separate accounts are not included in the accompanying financial statements,
except for separate accounts with guarantees.
USE OF ESTIMATES
The preparation of financial statements in compliance with statutory accounting
practices requires management to make estimates and assumptions that affect
amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
2. MERGER
On December 31, 1995 and pursuant to approvals received from the applicable
regulatory authorities, including the Ohio Department of Insurance, SBM Life was
merged with and into the Company (the "Merger"). In accordance with prescribed
statutory accounting practices, the statutory basis financial statements
retroactively give effect to the merger.
15
<PAGE>
Integrity Life Insurance Company
Notes to Financial Statements (Statutory Basis) (continued)
2. MERGER (CONTINUED)
Accordingly, the accompanying 1994 financial statements and notes to financial
statements of the Company have been restated to include the accounts of SBM
Life. The capital stock and paid-in capital reported at December 31, 1995 and
1994 represent balances for the Company (adjusted for the aforementioned charge
to paid-in-capital and offsetting capital contribution). All remaining SBM Life
capital and surplus is included as unassigned surplus. Selected financial
information of the separate entities prior to the Merger is as follows:
<TABLE>
<CAPTION>
INTEGRITY SBM LIFE ADJUSTMENTS MERGED
---------------------------------------------------
<S> <C> <C> <C> <C>
(In Thousands)
1995:
Admitted assets $1,835,147 $757,621 - $2,592,768
Capital and surplus 112,096 33,931 - 146,027
Net income 15,816 1,756 - 17,572
1994:
Admitted assets $1,714,643 $798,243 $(3,006) $2,509,880
Capital and surplus 107,866 32,627 3,048 143,541
Net income 20,811 3,062 - 23,873
</TABLE>
3. PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company's statutory basis financial statements are prepared in accordance
with accounting practices prescribed or permitted by the Ohio Department of
Insurance. "Prescribed" statutory accounting practices include state laws,
regulations, and general administrative rules, as well as a variety of
publications of the NAIC. "Permitted" statutory accounting practices encompass
all accounting practices that are not prescribed; such practices may differ from
state to state, may differ from company to company within a state, and may
change in the future. The NAIC currently is in the process of recodifying
statutory accounting practices, the result of which is expected to constitute
the only source of "prescribed" statutory accounting practices. Accordingly,
that project, which is expected to be completed in 1997, will likely change, to
some extent, prescribed statutory accounting practices, and may result in
changes to the accounting practices that the Company uses to prepare its
statutory financial statements. Although the recodification project is meant to
be surplus neutral, there is not enough available information for the industry
to assess the impact of such project.
16
<PAGE>
Integrity Life Insurance Company
Notes to Financial Statements (Statutory Basis) (continued)
3. PERMITTED STATUTORY ACCOUNTING PRACTICES (CONTINUED)
On December 30, 1994, the Company redomesticated from Arizona to Ohio. In
conjunction with the redomestication, written approval was received from the
Ohio Department of Insurance to offset the reported deficit in the Company's
unassigned funds account against its gross paid-in and contributed surplus
account as of December 31, 1993. The Company requested permission for that
accounting because prescribed statutory accounting practices did not address
that subject. The change did not affect the total capital and surplus of the
Company as of December 31, 1994.
4. INVESTMENTS
The cost or amortized cost and the fair, or comparable, value of investments in
bonds are summarized as follows:
<TABLE>
<CAPTION>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
At December 31, 1995:
U.S. treasury securities and obligations of U.S.
government agencies $187,867 $ 3,089 $ 71 $ 190,885
States and political subdivisions 9,193 495 - 9,688
Foreign governments 60,881 433 577 60,737
Public utilities 76,388 3,822 2 80,208
Other corporate securities 577,088 15,845 8,103 584,830
Asset-backed securities 109,480 - - 109,480
Mortgage-backed securities 734,339 52 1 734,390
-----------------------------------------------
Total bonds $1,755,236 $23,736 $ 8,754 $1,770,218
===============================================
At December 31, 1994:
U.S. treasury securities and obligations of U.S.
government agencies $114,749 $ 5 $ 4,035 $ 110,719
States and political subdivisions 50,964 47 5,255 45,756
Foreign governments 44,383 - 5,101 39,282
Public utilities 130,134 - 12,946 117,188
Other corporate securities 539,613 634 43,574 496,673
Asset-backed securities 15,299 - - 15,299
Mortgage-backed securities 904,636 253 69,964 834,925
-----------------------------------------------
Total bonds $1,799,778 $ 939 $140,875 $1,659,842
===============================================
</TABLE>
17
<PAGE>
Integrity Life Insurance Company
Notes to Financial Statements (Statutory Basis) (continued)
4. INVESTMENTS (CONTINUED)
Fair values are based on published quotations of the Securities Valuation Office
of the NAIC. Fair values generally represent quoted market value prices for
securities traded in the public marketplace, or analytically determined values
using bid or closing prices for securities not traded in the public marketplace.
However, for certain investments for which the NAIC does not provide a value,
the Company uses the amortized cost amount as a substitute for fair value in
accordance with prescribed guidance. As of December 31, 1995 and 1994, the fair
value of investments in bonds includes $646,393,000 and $560,877,000,
respectively, of bonds that were valued at amortized cost.
A summary of the cost or amortized cost and fair value of the Company's
investments in bonds at December 31, 1995, by contractual maturity, is as
follows:
<TABLE>
<CAPTION>
COST OR
AMORTIZED FAIR
COST VALUE
-----------------------------
(In Thousands)
<S> <C> <C>
Maturity:
One or less $ 19,580 $ 19,578
After one through five 239,562 240,306
After five through ten 169,588 170,211
After ten 482,687 496,253
Asset-backed securities 109,480 109,480
Mortgage-backed securities 734,339 734,390
-----------------------------
Total $1,755,236 $1,770,218
=============================
</TABLE>
The expected maturities in the foregoing table may differ from the contractual
maturities because certain borrowers have the right to call or prepay
obligations with or without call or prepayment penalties and because asset-
backed and mortgage-backed securities (including floating-rate securities)
provide for periodic payments throughout their life.
Proceeds from the sales of investments in bonds during 1995 and 1994 were
$912,298,000 and $633,723,000; gross gains of $21,015,000 and $2,746,000, and
gross losses of $10,561,000 and $37,209,000 were realized on those sales,
respectively.
At December 31, 1995 and 1994, bonds with an admitted asset value of $24,192,000
and $22,699,000, respectively, were on deposit with state insurance departments
to satisfy regulatory requirements.
18
<PAGE>
Integrity Life Insurance Company
Notes to Financial Statements (Statutory Basis) (continued)
4. INVESTMENTS (CONTINUED)
Unrealized gains and losses on investments in subsidiaries are reported directly
in surplus and do not affect operations. The gross unrealized gains and losses
on, and the cost and fair value of, those investments are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
At December 31, 1995:
Subsidiary $17,823 $21,316 $ - $39,139
===================================================
At December 31, 1994:
Subsidiaries $21,704 $17,734 $3,694 $35,744
===================================================
</TABLE>
The Company has made no new investments in mortgage loans during 1995. The
maximum percentage of any one loan to the value of the security at the time of
the loan exclusive of any purchase money mortgages is 75%. Fire insurance at
least equal to the excess of the loan over the maximum loan which would be
permitted by law on the land without the buildings is required on all properties
covered by mortgage loans. As of year-end the Company held no mortgages with
interest more than one year past due. During 1995, no interest rates of
outstanding mortgage loans were reduced. No amounts have been advanced by the
Company.
In connection with the change in control of the Company during 1993, National
Mutual agreed to indemnify the Company pursuant to a Guaranty Agreement dated
November 26, 1993, with respect to (i) principal (up to 100%) of the Company's
mortgage loans' statutory book value as of December 31, 1992 and (ii)
contractual interest payments (based on the original principal amount) of all
acquired commercial and agricultural mortgage loans. In support of its
indemnification obligations, National Mutual has placed $23.0 million into
escrow in favor of the Company and National Integrity until the mortgage loans
have been repaid in full.
19
<PAGE>
Integrity Life Insurance Company
Notes to Financial Statements (Statutory Basis) (continued)
4. INVESTMENTS (CONTINUED)
Major categories of the Company's net investment income are summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994
-------------------------
(In Thousands)
<S> <C> <C>
Income:
Bonds $138,791 $139,953
Preferred stocks 680 205
Mortgage loans 7,140 12,770
Real estate 118 92
Policy loans 6,150 6,070
Short-term investments and cash 3,696 3,861
Other investment income (loss) 911 (39)
-------------------------
Total investment income 157,486 162,912
Investment expenses (5,121) (4,065)
--------------------------
Net investment income $152,365 $158,847
==========================
</TABLE>
5. REINSURANCE
Consistent with prudent business practices and the general practice of the
insurance industry, the Company reinsures mortality risks under certain of its
insurance products with other insurance companies through reinsurance
agreements. These reinsurance agreements primarily cover single premium
endowment contracts and variable life insurance policies. Through these
reinsurance agreements, substantially all mortality risks associated with SPE
deposits and substantially all risks associated with variable life business have
been reinsured with non-affiliated insurance companies. A contingent liability
exists with respect to insurance ceded which would become a liability should the
reinsurer be unable to meet the obligations assumed under these reinsurance
agreements.
Reinsurance ceded has reduced premiums by $9,644,000 in 1995 and $4,005,000 in
1994, benefits paid or provided by $422,000 in 1995 and $628,000 in 1994 and
policy and contract liabilities by $67,447,000 at December 31, 1995 and
$104,216,000 at December 31, 1994. Reinsurance assumed is not significant to
the Company's premiums, benefits or policy and contract liabilities.
20
<PAGE>
Integrity Life Insurance Company
Notes to Financial Statements (Statutory Basis) (continued)
6. FEDERAL INCOME TAXES
The Company files a consolidated return with National Integrity. The method of
allocation between the companies is based on separate return calculations. For
1995, SBM Life will file a separate return.
Income before income taxes differs from taxable income principally due to value
of insurance in force, policy acquisition costs, and differences in policy and
contract liabilities and investment income for tax and financial reporting
purposes.
The current year tax provision and prior year tax provision were calculated
including net operating loss carryover benefits of $14,084,000 and $1,757,000,
respectively.
The Company had a net operating loss carryforward of approximately $7.0 million
and $25.4 million at December 31, 1995 and December 31, 1994, respectively,
expiring in the years 2005 to 2007.
Federal income tax regulations allowed certain special deductions for 1983 and
prior years which are accumulated in a memorandum tax account designated as
"policyholders' surplus". Generally, this policyholders' surplus account will
become subject to tax at the then-current rates only if the accumulated balance
exceeds certain maximum limitations or if certain cash distributions are deemed
to be paid out of the account. At December 31, 1995, SBM Life had accumulated
approximately $1,738,000 in its separate policyholders' surplus account. The
Company has no plans to distribute amounts from the policyholders' surplus
account, and no further additions to the account are allowed by the Tax Reform
Act of 1984.
7. SURPLUS
Dividends that ARM may receive from the Company in any year without prior
approval of the Ohio Insurance Commissioner are limited by statute to the
greater of (i) 10% of the Company's statutory capital and surplus as of the
preceding December 31, or (ii) the Company's statutory net income for the
preceding year. The maximum dividend payments that may be made by the Company to
ARM during 1996 are $17,572,000.
21
<PAGE>
Integrity Life Insurance Company
Notes to Financial Statements (Statutory Basis) (continued)
7. SURPLUS (CONTINUED)
Under New York insurance laws, National Integrity may pay dividends to Integrity
only out of its earnings and surplus, subject to at least thirty days' prior
notice to the New York Insurance Superintendent and no disapproval from the
Superintendent prior to the date of such dividend, the Superintendent may
disapprove a proposed dividend if the Superintendent finds that the financial
condition of National Integrity does not warrant such distribution.
The NAIC adopted Risk-Based Capital ("RBC") requirements which became effective
December 31, 1993, that attempt to evaluate the adequacy of a life insurance
company's adjusted statutory capital and surplus in relation to investment,
insurance and other business risks. The RBC formula will be used by the states
as an early warning tool to identify possible under capitalized companies for
the purpose of initiating regulatory action and is not designed to be a basis
for ranking the financial strength of insurance companies. In addition, the
formula defines a new minimum capital standard which supplements the previous
system of low fixed minimum capital and surplus requirements.
The RBC requirements provide for four different levels of regulatory attention
depending on the ratio of the company's adjusted capital and surplus to its RBC.
As of December 31, 1995 and 1994, the adjusted capital and surplus of the
Company is substantially in excess of the minimum level of RBC that would
require regulatory response.
22
<PAGE>
Integrity Life Insurance Company
Notes to Financial Statements (Statutory Basis) (continued)
8. ANNUITY RESERVES
At December 31, 1995 and 1994, the Company's annuity reserves and deposit fund
liabilities that are subject to discretionary withdrawal (with adjustment),
subject to discretionary withdrawal without adjustment, and not subject to
discretionary withdrawal provisions are summarized as follows:
AMOUNT PERCENT
-------------------------
(In Thousands)
At December 31, 1995:
Subject to discretionary withdrawal (with
adjustment):
With market value adjustment $ 81,678 4.0%
At book value less current surrender charge of
5% or more 371,396 18.0
At market value 404,273 19.5
-------------------------
Total with adjustment or at market value 857,347 41.5
Subject to discretionary withdrawal (without
adjustment) at book value with minimal or no
charge or adjustment 664,997 32.2
Not subject to discretionary withdrawal 542,014 26.3
-------------------------
Total annuity reserves and deposit fund
liabilities--before reinsurance 2,064,358 100.0%
============
Less reinsurance ceded 62,808
----------
Net annuity reserves and deposit fund liabilities $2,001,550
==========
23
<PAGE>
Integrity Life Insurance Company
Notes to Financial Statements (Statutory Basis) (continued)
8. ANNUITY RESERVES (CONTINUED)
AMOUNT PERCENT
-------------------------
(In Thousands)
At December 31, 1994:
Subject to discretionary withdrawal (with
adjustment):
With market value adjustment $ 49,122 2.4%
At book value less current surrender charge of
5% or more 418,712 20.6
At market value 268,099 13.1
-------------------------
Total with adjustment or at market value 753,933 36.1
Subject to discretionary withdrawal (without
adjustment) at book value with minimal or no
charge or adjustment 776,196 38.1
Not subject to discretionary withdrawal 526,708 25.8
-------------------------
Total annuity reserves and deposit fund
liabilities--before reinsurance 2,038,837 100.0%
============
Less reinsurance ceded 104,629
----------
Net annuity reserves and deposit fund liabilities $1,934,208
==========
9. SEPARATE ACCOUNTS
Separate accounts assets and liabilities represent funds segregated for the
benefit of variable annuity and variable life policyholders who generally bear
the investment risk (mutual fund options), or for certain policyholders who are
guaranteed a fixed rate of return (guaranteed rate options). Assets held in
separate accounts are carried at estimated fair values.
24
<PAGE>
Integrity Life Insurance Company
Notes to Financial Statements (Statutory Basis) (continued)
9. SEPARATE ACCOUNTS (CONTINUED)
Information regarding the separate accounts of the Company as of and for the
year ended December 31, 1995 is as follows:
<TABLE>
<CAPTION>
*NONINDEXED NON-
GUARANTEE GUARANTEED
LESS THAN OR SEPARATE
EQUAL TO 4% ACCOUNTS TOTAL
----------------------------------------
<S> <C> <C> <C>
(In Thousands)
Premiums, deposits and other considerations $21,240 $108,590 $129,830
=======================================
Reserves for separate accounts with assets at
fair value $81,678 $429,907 $511,585
=======================================
Reserves for separate accounts by
withdrawal characteristics:
Subject to discretionary withdrawal
(with adjustment):
With market value adjustment $81,678 $ - $81,678
At market value - 429,907 429,907
---------------------------------------
Total separate account reserves $81,678 $429,907 $511,585
=======================================
*Separate accounts with guarantees.
</TABLE>
25
<PAGE>
Integrity Life Insurance Company
Notes to Financial Statements (Statutory Basis) (continued)
9. SEPARATE ACCOUNTS (CONTINUED)
A reconciliation of the amounts transferred to and from the separate accounts
for the years ended December 31, 1995 and 1994 is presented below:
<TABLE>
<CAPTION>
1995 1994
-------------------------
(In Thousands)
<S> <C> <C>
Transfers as reported in the Summary of
Operations of the Separate Accounts
Statement:
Transfers to Separate Accounts $129,830 $195,591
Transfers from Separate Accounts (43,344) (33,003)
---------------------
Net transfers to Separate Accounts 86,486 162,588
Reconciling adjustments:
Mortality and expense charges reported as
other income 4,726 3,432
Policy deductions reported as other income 1,605 1,387
---------------------
Transfers as reported in the Summary of
Operations of the Life, Accident and
Health Annual Statement $92,817 $167,407
=====================
</TABLE>
10. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure of fair value
information about all financial instruments, including insurance liabilities
classified as investment contracts, unless specifically exempted. The fair value
of a financial instrument is the amount at which the instrument could be
exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. Accordingly, the aggregate
26
<PAGE>
Integrity Life Insurance Company
Notes to Financial Statements (Statutory Basis) (continued)
10. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
fair value amounts presented do not necessarily represent the underlying value
of such instruments. For financial instruments not separately disclosed below,
the carrying amount is a reasonable estimate of fair value.
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
-------------------------------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Assets:
Bonds $1,755,236 $1,797,097 $1,799,778 $1,632,221
Preferred stocks 7,604 8,623 3,367 3,331
Mortgage loans 38,612 38,612 91,130 91,130
Liabilities:
Life and annuity reserves
for investment-type contracts $1,490,606 $1,571,032 $1,609,997 $1,634,330
Separate account reserves 485,951 484,406 316,178 315,177
</TABLE>
Mortgage Loans
Pursuant to the terms of the acquisition of the Company, payments of principal
and interest on mortgage loans are guaranteed by National Mutual. Principal
received in excess of statutory book value is to be returned to National Mutual.
Accordingly, book value is deemed to be fair value.
Life and Annuity Reserves for Investment-type Contracts
The fair value of structured settlements and immediate annuities are based on
discounted cash flow calculations using a market yield rate for assets with
similar durations. The fair value of structured settlements and immediate
annuities represents the fair values of those insurance policies as a whole. The
fair value amounts of the remaining annuities are primarily based on the cash
surrender values of the underlying policies.
Separate Account Reserves
The fair value of separate account reserves for investment-type products equals
the cash surrender values.
27
<PAGE>
Integrity Life Insurance Company
Notes to Financial Statements (Statutory Basis) (continued)
11. RELATED PARTY TRANSACTIONS
Effective January 1, 1994, the Company entered into an Administrative Services
Agreement with ARM. ARM performs certain administrative and special services for
the Company to assist with its business operations. The services include
policyholder services; accounting, tax and auditing; underwriting; marketing and
product development; functional support services; payroll functions; personnel
functions; administrative support services; and investment functions. During
1995 and 1994, the Company was charged $9,691,000 and $11,261,000, respectively
for these services in accordance with the requirements of applicable insurance
law and regulations.
In connection with the acquisition of the Company and its subsidiaries in 1993,
ARM obtained a Term Loan Facility Agreement in the principal amount of $40.0
million. The loan amount is secured by a pledge of the shares of common stock of
Integrity.
28
<PAGE>
PART C
OTHER INFORMATION
-----------------
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
(a) Financial Statements included in Part A:
----------------------------------------
Part 1 - Financial Information
Financial Statements included in Part B:
----------------------------------------
Separate Account I:
-------------------
Report of Independent Auditors
Statement of Assets and Liabilities as of December 31, 1995
Statement of Operations for the Year Ended December 31, 1995
Statements of Changes in Net Assets for the Years Ended December 31,
1995 and 1994
Notes to Financial Statements
Integrity Life Insurance Company:
---------------------------------
Report of Independent Auditors
Balance Sheets (Statutory Basis) as of December 31, 1995 and 1994
Statements of Operations (Statutory Basis) for the Years Ended
December 31, 1995 and 1994
Statements of Changes in Surplus (Statutory Basis) for the Years Ended
December 31, 1995 and 1994
Statements of Cash Flows (Statutory Basis) for the Years Ended
December 31, 1995 and 1994
Notes to Financial Statements
(b) Exhibits:
---------
The following exhibits are filed herewith:
1. Resolutions of the Board of Directors of Integrity Life
Insurance Company (Integrity) authorizing the establishment
of Separate Account I, the Registrant. Incorporated by
reference from Registrant's Form N-4 registration statement
(File No. 33-8903), filed on September 19, 1986.
2. Not applicable.
3.(a) Form of Selling/General Agent Agreement between Integrity
and broker dealers. Incorporated by reference from post-
effective amendment no. 5 to Registrant's Form N-4
registration statement (File No. 33-8903), filed on February
28, 1992.
3.(b) Form of Variable Contract Principal Underwriter Agreement
with SBM Financial Services (FILED HEREWITH).
4.(a) Form of trust agreement. Incorporated by reference from
Registrant's Form N-4 registration statement (File No. 33-
51268), filed on August 24, 1992.
4.(b) Form of group variable annuity contract. Incorporated by
reference from pre-effective amendment no. 1 to Registrant's
Form N-4 registration statement (File No. 33-51268), filed
on November 9, 1992.
<PAGE>
4.(c) Form of variable annuity certificate. Incorporated by
reference from Registrant's Form S-1 registration statement
(File No. 33-51270), filed on August 24, 1992.
4.(d) Forms of riders to certificate for qualified plans.
Incorporated by reference from pre-effective amendment no. 1
to Registrant's Form N-4 registration statement (File No.
33-51268), filed on November 9, 1992.
4.(e) Form of individual variable annuity contract. Incorporated
by reference to pre-effective amendment no. 1 to
Registrant's Form S-1 registration statement (File No. 33-
51270), filed on November 10, 1992.
4.(f) Form of rider for use in certain states eliminating the
Guarantee Period Options. Incorporated by reference to
Registrant's Form N-4 registration statement filed on
December 31, 1992.
4.(g) Alternate form of variable annuity contract for use in
certain states (FILED HEREWITH).
5. Form of application. Incorporated by reference to Form N-4
registration statement (File No. 33-56658), filed on
December 31, 1992.
6.(a) Certificate of Incorporation of Integrity. Incorporated by
reference to post-effective amendment no. 4 to Registrant's
Form N-4 registration statement (File No. 33-56654), filed
on April 28, 1995.
6.(b) By-Laws of Integrity. Incorporated by reference to post-
effective amendment no. 4 to Registrant's Form N-4
registration statement (File No. 33-56654), filed on April
28, 1995.
7. Reinsurance Agreement between Integrity and Connecticut
General Life Insurance Company (CIGNA) effective January 1,
1995 (filed herewith).
8.(a) Participation Agreement Among Variable Insurance Products
Fund, Fidelity Distributors Corporation ("FDC") and
Integrity, dated November 20, 1990. Incorporated by
reference from post-effective amendment no. 5 to
Registrant's Form N-4 registration statement (File No.
33-8903), filed on February 28, 1992.
8.(b) Participation Agreement Among Variable Insurance Products
Fund II, FDC and Integrity, dated November 20, 1990.
Incorporated by reference from post-effective amendment no.
5 to Registrant's Form N-4 registration statement (File No.
33-8903), filed on February 28, 1992.
8.(c) Amendment No. 1 to Participation Agreements Among Variable
Insurance Products Fund, Variable Insurance Products Fund
II, FDC, and Integrity (filed herewith).
9. Opinion and Consent of John R. McGeeney, Co-General Counsel
(FILED HEREWITH).
10. Consents of Ernst & Young LLP (FILED HEREWITH).
11. Not applicable.
12. Not applicable.
13. Schedule for computation of performance quotations (FILED
HEREWITH).
2
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
---------------------------------------
Set forth below is information regarding the directors and principal
officers of Integrity, the Depositor:
<TABLE>
<CAPTION>
Directors:
- ----------
Name and Principal Business Address Position and Offices with Depositor
- ----------------------------------- -----------------------------------
<S> <C>
Mark A. Adkins Director and Operations Control Officer
Integrity Life Insurance Company
200 East Wilson Bridge Road
Worthington, OH 43085
Kathleen M. Bryan Director and Operations Officer
Integrity Life Insurance Company
200 East Wilson Bridge Road
Worthington, OH 43085
Wilda Gay Clay Director
Integrity Life Insurance Company
200 East Wilson Bridge Road
Worthington, OH 43085
John Franco Director, Co-Chairman of the Board and Co-Chief
Integrity Life Insurance Company Executive Officer
239 S. Fifth Street, 12th Floor
Louisville, KY 40202
William H. Guth Director and Product Administration Officer
Integrity Life Insurance Company
200 East Wilson Bridge Road
Worthington, OH 43085
Mark W. Murphy Director
Integrity Life Insurance Company
200 East Wilson Bridge Road
Worthington, OH 43085
David R. Ramsay Director
Morgan Stanley Group Inc.
1221 Avenue of the Americas
New York, NY 10020
Martin H. Ruby Director, Co-Chairman of the Board and Co-Chief
Integrity Life Insurance Company Executive Officer
239 S. Fifth Street, 12th Floor
Louisville, KY 40202
Emad A. Zikry Director and Executive Vice President--Chief Investment
ARM Capital Advisors, Inc. Officer
200 Park Avenue, 20th Floor
New York, NY 10166
</TABLE>
3
<PAGE>
Selected Officers: (The business address for each of the principal officers
listed below is 239 S. Fifth Street, 12th Floor, Louisville,
Kentucky 40202.)
<TABLE>
<CAPTION>
Name and Principal Business Address Position and Offices with Depositor
- ----------------------------------- -----------------------------------
<S> <C>
John R. Lindholm President
Robert H. Scott Co-General Counsel and Secretary
Peter S. Resnik Treasurer
Dennis L. Carr Executive Vice President-Chief Actuary
David E. Ferguson Executive Vice President-Chief Administrative Officer
Edward L. Zeman Executive Vice President-Chief Financial Officer
Barry G. Ward Controller
John R. McGeeney Co-General Counsel
Rose M. Culbertson Tax Officer
</TABLE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
INTEGRITY OR REGISTRANT
Integrity, the depositor of Separate Account I, is a wholly owned
subsidiary of Integrity Holdings, Inc., a Delaware corporation which is a
holding company engaged in no active business. Integrity owns 100% of stock of
National Integrity Life Insurance Company, a New York stock life insurance
corporation. All outstanding shares of Integrity Holdings, Inc. are owned by ARM
Financial Group, Inc., a Delaware corporation which is a financial services
company focusing on the long-term savings and retirement marketplace by
providing retail and institutional products and services throughout the United
States (ARM). ARM owns 100% of the stock of (i) SBM Financial Services, Inc., a
Minnesota corporation (SBM Financial Services), registered with the SEC as a
broker-dealer and a member of the National Association of Securities Dealers,
Inc., (ii) ARM Capital Advisors, Inc., a New York corporation registered with
the SEC as an investment adviser, (iii) SBM Certificate Company, a Minnesota
corporation registered with the SEC as an issuer of face-amount certificates,
and (iv) ARM Transfer Agency, Inc., a Delaware corporation registered with the
SEC as a transfer and dividend disbursing agency. Approximately 91% of the
outstanding voting stock of ARM is owned by The Morgan Stanley Leveraged Equity
Fund II, L.P., Morgan Stanley Capital Partners III, L.P., Morgan Stanley Capital
Investors, L.P., and MSCP III 892 Investors, L.P., each of which is a Delaware
limited partnership (collectively, the MSCP Funds). The MSCP Funds are private
equity funds sponsored by Morgan Stanley Group Inc., a Delaware corporation
that, through its subsidiaries, provides a wide range of financial services on a
global basis(Morgan Stanley). The general partner of each of the MSCP Funds is a
wholly owned subsidiary of Morgan Stanley. Oldarm Limited Partnership, a
Kentucky limited partnership, New ARM, LLC, a Kentucky limited liability
company, and certain employees and management of ARM own in the aggregate
approximately 9% of the voting stock of ARM.
No person has the direct or indirect power to control Morgan Stanley
except insofar as he or she may have such power by virtue of his or her capacity
as a director or executive officer thereof. Morgan Stanley is publicly held; no
individual beneficially owns more than 5% of the common shares; however,
approximately 31% of such shares are subject to a stockholders' agreement or
voting agreement among certain current and former principals and employees of
Morgan Stanley and its predecessor.
The following is a complete list of the subsidiaries of Morgan
Stanley. All subsidiaries are wholly owned by their immediate parent company and
are incorporated in Delaware, except where noted otherwise in parentheses.
4
<PAGE>
MORGAN STANLEY GROUP INC.
- -------------------------
Fourth Street Development Co. Incorporated
Fourth Street Ltd.
Jolter Investments Inc.
Morgan Rundle Inc.
MR Ventures Inc.
Morgan Stanley Advisory Partnership Inc.
Morgan Stanley Asset Management Inc.
Morgan Stanley Asset Management Holdings Inc.
*Miller Anderson & Sherrerd, LLP (Pennsylvania)
Morgan Stanley Baseball, Inc.
Morgan Stanley Capital I Inc.
Morgan Stanley Capital Group Inc.
Morgan Stanley Capital (Jersey) Limited (Jersey, Channel Islands)
Morgan Stanley Capital Partners III, Inc.
Morgan Stanley Capital Services Inc.
Morgan Stanley Commercial Mortgage Capital, Inc.
Morgan Stanley Commodities Management, Inc.
Morgan Stanley Derivative Products Inc.
Morgan Stanley Developing Country Debt II, Inc.
Morgan Stanley Emerging Markets Inc.
Morgan Stanley Equity (C.I.) Limited (Jersey, Channel, Islands)
Morgan Stanley Equity Investors Inc.
Morgan Stanley Finance (Jersey) Limited (Jersey, Channel Islands)
Morgan Stanley Insurance Agency Inc.
Morgan Stanley (Jersey) Limited (Jersey, Channel Islands)
Morgan Stanley LEF I, Inc.
Morgan Stanley Leveraged Capital Fund Inc.
Morgan Stanley Leveraged Equity Fund II, Inc.
Morgan Stanley Capital Partners Asia Limited (Hong Kong)
Morgan Stanley Leveraged Equity Holdings Inc.
Morgan Stanley Market Products Inc.
Morgan Stanley Mortgage Capital Inc. (New York)
Morgan Stanley Real Estate Investment Management Inc.
Morgan Stanley Real Estate Fund, Inc.
MSREF I, L.L.C.
MSREF I-CO, L.L.C.
Morgan Stanley Real Estate Investment Management II, Inc.
MSREF II-CO, L.L.C.
Morgan Stanley Realty Incorporated
Brooks Harvey & Co., Inc.
Morgan Stanley Realty of California Inc. (California)
Morgan Stanley Realty of Illinois Inc.
Brooks Harvey of Florida, Inc. (Florida)
Brooks Harvey & Co. of Hawaii, Inc.
Morgan Stanley Realty Japan Ltd. (Japan)
BH-MS Realty Inc.
BH-MS Leasing Inc.
BH-Sartell Inc.
The Morgan Stanley Scholarship Fund, Inc. (Not-for-Profit)
Morgan Stanley Services Inc.
Morgan Stanley Technical Services Inc.
Morgan Stanley Technical Services MB/VC Inc.
Morgan Stanley Trust Company (New York)
MS Prospect & Co.
Morgan Stanley Venture Capital Inc.
Morgan Stanley Venture Capital II, Inc.
Morgan Stanley Ventures Inc.
5
<PAGE>
Morstan Development Company, Inc.
Moranta, Inc. (Georgia)
Porstan Development Company, Inc. (Oregon)
MS 10020, Inc.
MS Financing Inc.
Morgan Stanley 750 Building Corp.
MS Tokyo Properties Ltd. (Japan)
MS Holdings Incorporated
MS SP Urban Horizons, Inc.
MS Urban Horizons, Inc.
MS Venture Capital (Japan) Inc.
MSAM/Kokusai, Inc.
MSBF Inc.
MSCP III Holdings, Inc.
MSPL Co. Inc.
MSREF II, Inc.
MSREF II, L.L.C.
MS/USA Leasing Inc.
PG Holdings, Inc.
PG Investors, Inc.
PG Investors II, Inc.
Pierpont Power, Inc. (New York)
Romley Computer Leasing Inc.
Strategic Investments I, Inc.
THE MORGAN STANLEY LEVERAGED EQUITY FUND II, L.P.
- -------------------------------------------------
(The general partner of which is Morgan Stanley Leveraged Equity Fund II, Inc.)
American Italian Pasta Company
Amerin Corporation
Amerin Guaranty Corporation
ARM Financial Group, Inc.
CIMIC Holdings Limited
Consolidated Hydro, Inc.
Fort Howard Corporation
Hamilton Services Limited
PageMart Nationwide, Inc.
PSF Finance, L.P.
Premium Standard Forms, Inc.
Container Corporation of America
Risk Management Solutions
Silgan Holdings Inc.
Silgan Corporation
Sullivan Holdings Inc.
Sullivan Communications, Inc.
Sullivan Graphics, Inc.
MORGAN STANLEY CAPITAL PARTNERS III, L.P.
- -----------------------------------------
(The general partner of the general partner which is Morgan Stanley Capital
Partners III, Inc.)
ARM Financial Group, Inc.
CSG Systems International, Inc.
The Compucare Company
Highlands Gas Corporation
ECO II Holdings
PSF Finance, L.P.
Premium Standard Forms, Inc.
Nokia Aluminum
SITA Telecommunications Holdings, N.V.
MORGAN STANLEY & CO. INCORPORATED
- ---------------------------------
(100% owned by Morgan Stanley Group Inc.)
HRJ Corporation
Morgan Stanley Flexible Ageements Inc.
Morgan Stanley Securities Trading Inc.
Morgan Stanley Stock Loan Inc.
MS Securities Services Inc.
NRSD Corporation
Prime Dealer Services Corp.
6
<PAGE>
MORGAN STANLEY INTERNATIONAL INCORPORATED
- -----------------------------------------
(100% owned by Morgan Stanley Group Inc.)
Bank Morgan Stanley AG (Switzerland)
Morgan Stanley AOZT (Russia)
Morgan Stanley Asia (China) Limited (Hong Kong)
Morgan Stanley Asia Holdings I Inc.
Morgan Stanley Asia Holdings II Inc.
Morgan Stanley Asia Holdings III Inc.
Morgan Stanley Asia Holdings IV Inc.
Morgan Stanley Asia Holdings V Inc.
Morgan Stanley Asia Holdings VI Inc.
Morgan Stanley Asia Pacific (Holdings) Limited (Cayman Islands)
Morgan Stanley Asia Regional (Holdings) I LLC (Cayman Islands)
Morgan Stanley Asia Limited (Hong Kong)
Morgan Stanley Futures (Hong Kong) Limited (Hong Kong)
Morgan Stanley Hong Kong Securities Limited Hong Kong)
Morgan Stanley Pacific Limited (Hong Kong)
Morgan Stanley Asia Regional (Holdings) II LLC (Cayman Islands)
Morgan Stanley Asia Regional (Holdings) III LLC (Cayman Islands)
Morgan Stanley Asia Regional (Holdings) IV LLC (Cayman Islands)
**Morgan Stanley Japan (Holdings) Ltd. (Cayman Islands)
Morgan Stanley Japan Limited (Hong Kong)
Morgan Stanley Asia Pacific (Holdings) I Limited (Cayman Islands)
Morgan Stanley Asia (Singapore) Pte Ltd (Republic of Singapore)
Morgan Stanley Asia (Taiwan) Ltd. (Republic of China)
Morgan Stanley Asset & Investment Trust Management Co., Limited (Japan)
Morgan Stanley Asset Management Singapore Limited (Republic of Singapore)
Morgan Stanley Australia Limited (Australia)
Morgan Stanley Bank Luxembourg S.A. (Luxembourg)
Morgan Stanley Canada Limited (Canada)
Morgan Stanley Capital SA (France)
Morgan Stanley Capital Group (Singapore) Pte Ltd (Republic of Singapore)
Morgan Stanley Capital (Luxembourg) S.A. (Luxembourg)
Morgan Stanley Developing Country Debt, Ltd. (Bermuda)
Morgan Stanley Financial Services Beteiligungs GmbH (Germany)
Morgan Stanley Futures (Singapore) Pte Ltd (Republic of Singapore)
Morgan Stanley Group (Europe) Plc (England)
Morgan Stanley Asset Management Limited (England)
Morgan Stanley Capital Group Limited (England)
Morgan Stanley (Europe) Limited (England)
Morgan Stanley Finance plc (England)
Morgan Stanley Properties Limited (England)
Morgan Stanley Property Management (UK) Limited (England)
Morgan Stanley Services (UK) Limited (England)
Morgan Stanley UK Group (England)
Morgan Stanley & Co. International Limited (England)
Morgan Stanley International Nominees Limited (England)
Morgan Stanley & Co. Limited (England)
Morgan Stanley Securities Limited (England)
Morstan Nominees Limited (England)
MS Leasing UK Limited (England)
MS Volatility Fund N.V. (Netherlands Antilles)
Morgan Stanley Holding (Deutschland) GmbH (Germany)
Morgan Stanley Bank AG (Germany)
Morgan Stanley Hong Kong Nominees Limited (Hong Kong)
Morgan Stanley International Insurance Ltd. (Bermuda)
7
<PAGE>
Morgan Stanley Latin America Incorporated
Morgan Stanley do Brasil Limitada (Brazil)
MS Carbocol Advisors Incorporated (Delaware)
MS Ferrovias Advisors Incorporated (Delaware)
Morgan Stanley Mauritius Company Limited (Mauritius)
***Morgan Stanley Asset Management India Private Limited (India)
***Morgan Stanley India Securities Private Limited (India)
Morgan Stanley Offshore Investment Company Ltd. (Cayman Islands)
Morgan Stanley Overseas Services (Jersey) Limited (Jersey, Channel Islands)
Morgan Stanley S.A. (France)
Morgan Stanley SICAV Management S.A. (Luxembourg)
Morgan Stanley South Africa (Pty) Limited (South Africa)
Morgan Stanley (Structured Products) Jersey Limited (Jersey, Channel Islands)
Morgan Stanley Wertpapiere GmbH (Germany)
MS Italy (Holdings) Inc.
Banca Morgan Stanley SpA (Italy)
MS LDC, Ltd.
MSL Incorporated
___________________________
* 95% owned by Morgan Stanley Asset Management Holdings Inc., 3% owned by MSL
Incorporated and 2% owned by MS Holdings Incorporated.
** 25% owned by Morgan Stanley Asia Pacific (Holdings) I Limited.
*** 25% owned by non-Morgan Stanley entities.
[THE FINANCIAL STATEMENTS OF INTEGRITY ARE NOT CONSOLIDATED WITH ITS
SUBSIDIARY NATIONAL INTEGRITY LIFE INSURANCE COMPANY, OR ANY OTHER AFFILIATE.]
ITEM 27. NUMBER OF CONTRACTOWNERS
------------------------
As of April 9, 1996 there were 7,008 contractowners.
ITEM 28. INDEMNIFICATION
---------------
By-Laws of Integrity. Integrity's By-Laws provide, in Article V, as follows:
- ---------------------
Section 5.1 Indemnification of Directors, Officers, Employees and
Incorporators. To the extent permitted by the laws of the State of Ohio, subject
to all applicable requirements thereof:
a) The Corporation shall indemnify or agree to 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, trustee,
officer, employee, or agent of another corporation, domestic or foreign,
non-profit or for profit, partnership, joint venture, trust, or other
enterprise, against expenses, including attorney's fees, judgements,
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, or conviction, or upon a plea
of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act 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, he
had reasonable cause to believe that his conduct was unlawful.
8
<PAGE>
(b) The Corporation shall indemnify or agree to 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, trustee, officer, employee, or agent
of another corporation, domestic or foreign, non-profit or for profit,
partnership, joint venture, trust, or other enterprise, against expenses,
including attorney's 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, except that no indemnification shall be made in
respect to any of the following:
(1) Any claim, issue, or matter as to which such person is adjudged to
be liable for negligence or misconduct in the performance of his duty to
the Corporation unless, and only to the extent the court of common pleas
or the court in which such action or suit was brought determines upon
application that, despite the adjudication of liability, but in view of
all circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as the court of common pleas or
such other court shall deem proper;
(2) Any action of suit in which the only liability asserted against a
Director is pursuant to Section 1701.95 of the Ohio Revised Code.
(c) To the extent that a Director, trustee, officer, employee, or agent has been
successful in the merits or otherwise in defense of any action, suit, or
proceeding referred to in division (a) and (b) of this Article, or in defense of
any claim, issue or matter therein, he shall be indemnified against expenses,
including attorney's fees, actually and reasonably incurred by him in connection
with the action, suit, or proceeding.
(d) Any indemnification under divisions (a) and (b) of this Article, unless
ordered by a court, shall be made by the Corporation only as authorized in the
specific case upon the 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 divisions (a) and (b) of this
Article. Such determination shall be made as follows:
(1) By a majority vote of a quorum consisting of Directors of the
Corporation who were not and are not parties to or threatened with any
such action, suit, or proceeding;
(2) If the quorum described in division (d)(1) of this Article is not
obtainable or if a majority vote of a quorum of disinterested Directors
so directs, in a written opinion by independent legal counsel other than
an attorney, or a firm having associated with it an attorney, who has
been retained by or who has performed services for the Corporation or
any person to be indemnified within the past five years;
(3) By the Shareholders; or
(4) By the court of common pleas or the court in which such action, suit
or proceeding was brought.
Any determination made by the disinterested Directors under Article (d)(1) or by
independent legal counsel under Article (d)(2) shall be promptly communicated to
the person who threatened or brought the action or suit by in the right of the
Corporation under (b) of this Article, and within ten days after receipt of such
notification, such person shall have the right to petition the court of common
pleas or the court in which such action or suit was brought to review the
reasonableness of such determination.
(e)(1) Expenses, including attorney's fees, incurred by a Director in defending
the action, suit, or proceeding shall be paid by the Corporation as they are
incurred, in advance of the final
9
<PAGE>
disposition of the action, suit, or proceeding upon receipt of an
undertaking by or on behalf of the Director in which he agrees to do
both of the following:
(i) Repay such amount if it is proved by clear and convincing
evidence in a court of competent jurisdiction that his action or
failure to act involved an act or omission undertaken with
deliberate intent to cause injury to the Corporation or
undertaken with reckless disregard for the best interests of the
Corporation;
(ii) Reasonably cooperate with the Corporation concerning the
action, suit or proceeding.
(2) Expenses, including attorney's fees, incurred by a Director,
officer, employee, or agent in defending any action, suit, or proceeding
referred to in divisions (a) and (b) of this Article, may be paid by the
Corporation as they are incurred, in advance of the final disposition of
the action, suit, or proceeding as authorized by the Directors in the
specific case upon receipt of an undertaking by or on behalf of the
Director, officer, employee, or agent to repay such amount, if it
ultimately is determined that he is not entitled to be indemnified by
the Corporation.
(f) The indemnification authorized by this section shall not be
exclusive of, and shall be in addition to, any other rights granted to
those seeking indemnification under the Articles or the Regulations for
any agreement, vote of Shareholders or disinterested Directors, or
otherwise, both as to action in his official capacity and as to action
in another capacity while holding such office, and shall 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.
(g) The Corporation may purchase and maintain insurance or furnish
similar protection, including but not limited to trust funds, letters of
credit, or self 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, domestic or foreign, non-
profit or for profit, 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 this section. Insurance may be purchased from or
maintained with a person in which the Corporation has a financial
interest.
By-Laws of SBM Financial Services. SBM Financial Services' By-Laws provide, in
Sections 4.01 and 4.02, as follows:
Section 4.01 Indemnification. The Corporation shall indemnify its
officers and directors for such expenses and liabilities, in such manner, under
such circumstances, and to such extent, as required or permitted by Minnesota
Statutes, Section 302A.521, as amended from time to time, or as required or
permitted by other provisions of law.
Section 4.02 Insurance. The Corporation may purchase and maintain
insurance on behalf of any person in such person's official capacity against any
liability asserted against and incurred by such person in or arising from that
capacity, whether or not the Corporation would otherwise be required to
indemnify the person against the liability.
Insurance. The directors and officers of Integrity and SBM Financial Services
are insured under a policy, issued by National Union. The total annual limit on
such policy is $10 million, and the policy insures the officers and directors
against certain liabilities arising out of their conduct in such capacities.
Agreements. Integrity and SBM Financial Services, including each director,
officer and controlling person of Integrity and SBM Financial Services, are
entitled to indemnification against certain liabilities as described in Sections
5.2, 5.3 and 5.5 of the Selling/General Agent Agreement and Section 9 of the
Form of Variable Contract Principal Underwriter Agreement incorporated as
Exhibit 3 to this Registration Statement. Those sections are incorporated by
reference into this response. In addition, Integrity and SBM Financial Services,
including each director, officer and controlling person of Integrity and SBM
Financial Services, are entitled to indemnification against certain liabilities
as described in Article VIII of the Participation Agreements
10
<PAGE>
incorporated as Exhibits 8(a) and 8(b) to this Registration Statement. That
article is incorporated by reference into this response. Certain officers and
directors of Integrity are officers and directors of SBM Financial Services (see
Item 25 and Item 29 of this Part C).
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 29. PRINCIPAL UNDERWRITERS
----------------------
(a) SBM Financial Services is the principal underwriter for Separate
Account I. SBM Financial Services also serves as an underwriter for Separate
Account II of Integrity, Separate Accounts I and II of National Integrity Life
Insurance Company, The Legends Fund, Inc. and for the State Bond group of mutual
funds. Integrity is the Depositor of Separate Accounts I, II and VUL.
(b) The names and business addresses of the officers and directors
of, and their positions with, SBM Financial Services are as follows:
<TABLE>
<CAPTION>
<S> <C>
Name and Principal Business Address Position and Offices with SBM Financial Services
- ----------------------------------- ------------------------------------------------
Edward J. Haines Director and President
239 South Fifth Street
Louisville, Kentucky 40202
John R. McGeeney Director, Secretary, General Counsel and Compliance Officer
239 South Fifth Street
Louisville, Kentucky 40202
Peter S. Resnik Treasurer
239 South Fifth Street
Louisville, Kentucky 40202
Walter W. Balek Vice President
200 East Wilson Bridge Road
Worthington, Ohio 43085
Dale C. Bauman Vice President
200 East Wilson Bridge Road
Worthington, Ohio 43085
Robert Bryant Vice President
200 East Wilson Bridge Road
Worthington, Ohio 43085
Richard Carlblom Vice President
200 East Wilson Bridge Road
Worthington, Ohio 43085
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Ronald Geiger Vice President
200 East Wilson Bridge Road
Worthington, Ohio 43085
Barry G. Ward Controller
239 South Fifth Street
Louisville, Kentucky 40202
Rose M. Culbertson Tax Officer
239 South Fifth Street
Louisville, Kentucky 40202
William H. Guth Operations Officer
200 East Wilson Bridge Road
Worthington, Ohio 43085
David L. Anders Marketing Officer
200 East Wilson Bridge Road
Worthington, Ohio 43085
Patricia L. Mack Assistant Secretary
239 South Fifth Street
Louisville, Kentucky 40202
</TABLE>
(c) Not applicable.
ITEM 30. 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 Integrity at 239 S. Fifth Street, 12th Floor, Louisville,
Kentucky 40202.
ITEM 31. MANAGEMENT SERVICES
-------------------
The contract under which management-related services are provided to
Integrity is discussed under Part 1 of Part B.
ITEM 32. UNDERTAKINGS
------------
The Registrant hereby undertakes:
(a) to file a post-effective amendment to this registration
statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement are
never more than 16 months old for so long as payments under the
variable annuity contracts may be accepted;
(b) to include either (1) as part of any application to purchase a
contract offered by the prospectus, a space that an applicant
can check to request a Statement of Additional Information, or
(2) a postcard or similar written communication affixed to or
included in the prospectus that the applicant can remove to send
for a Statement of Additional Information;
(c) to deliver any Statement of Additional Information and any
financial statements required to be made available under this
Form promptly upon written or oral request.
12
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company
Act of 1940, the Registrant and the Depositor certify that they meet all of the
requirements for effectiveness of this post-effective amendment to their
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and have duly caused this amendment to the Registration Statement to be signed
on their behalf, in the City of Louisville and State of Kentucky on this 1st
day of May, 1996.
SEPARATE ACCOUNT I OF
INTEGRITY LIFE INSURANCE COMPANY
(Registrant)
By: Integrity Life Insurance Company
(Depositor)
By: /s/ John R. Lindholm
------------------------------
John R. Lindholm
President
INTEGRITY LIFE INSURANCE COMPANY
(Depositor)
By: /s/ John R. Lindholm
------------------------------
John R. Lindholm
President
13
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Depositor has duly caused this amendment to the Registration Statement
to be signed on its behalf, in the City of Louisville and State of Kentucky on
this 1st day of May, 1996.
INTEGRITY LIFE INSURANCE COMPANY
(Depositor)
By: /s/ John R. Lindholm
------------------------------
John R. Lindholm
President
As required by the Securities Act of 1933, this amendment to the
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
PRINCIPAL EXECUTIVE OFFICER: /s/ John R. Lindholm
------------------------------------------
John R. Lindholm, President
Date:
PRINCIPAL FINANCIAL OFFICER: /s/ Edward L. Zeman
------------------------------------------
Edward L. Zeman, Executive Vice President-
Chief Financial Officer
Date:
PRINCIPAL ACCOUNTING OFFICER: /s/ Barry G. Ward
------------------------------------------
Barry G. Ward, Controller
Date:
DIRECTORS:
/s/ Mark A. Adkins /s/ Mark W. Murphy
- ---------------------------- --------------------------------------
Mark A. Adkins Mark W. Murphy
Date: Date:
/s/ Kathleen M. Bryan /s/ David R. Ramsay
- ---------------------------- --------------------------------------
Kathleen M. Bryan David R. Ramsay
Date: Date:
/s/ Wilda Gay Clay /s/ Martin H. Ruby
- ---------------------------- --------------------------------------
Wilda Gay Clay Martin H. Ruby
Date: Date:
/s/ John Franco /s/ Emad A. Zikry
- ---------------------------- --------------------------------------
John Franco Emad A. Zikry
Date: Date:
/s/ William H. Guth
- ----------------------------
William H. Guth
Date:
14
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No.
<S> <C>
3 Form of Variable Contract Principal Underwriter Agreement with SBM Financial Services.
4(g) Alternate form of variable annuity contract for use in certain states.
7(a) Reinsurance Agreement between Integrity and Connecticut General Life Insurance Company.
8(c) Amendment No. 1 to Participation Agreements.
9 Opinion and Consent of John R. McGeeney, Co-General Counsel.
10 Consents of Ernst & Young LLP.
13 Schedule for computation of performance quotations.
</TABLE>
15
<PAGE>
EXHIBIT 3
FORM OF
-------
VARIABLE CONTRACT PRINCIPAL UNDERWRITER AGREEMENT
-------------------------------------------------
THIS AGREEMENT made as of the ___ day of ___________, 19___, by and between
Integrity Life Insurance Company, an Ohio stock life insurance company (the
"Company") and SBM Financial Services, Inc., a Minnesota corporation and a
registered broker-dealer (the "Distributor").
WITNESSETH:
WHEREAS, the Distributor is registered as a broker-dealer with the
Securities and Exchange Commission (the "SEC") under the Securities Exchange Act
of 1934 (the "1934 Act") and is a member of the National Association of
Securities Dealers, Inc. (the "NASD");
WHEREAS, the Company and its Separate Accounts listed on Exhibit A as may
be amended from time to time (the "Accounts"), each a separate investment
account established by the Company pursuant to Section 3907.15 of the Ohio
Insurance Law and a registered investment company under the Investment Company
Act of 1940 (the "1940 Act") of the type referred to as a unit investment trust,
propose to offer for sale certain variable annuity contracts (the "Contracts")
which may be deemed to be securities under the Securities Act of 1933 (the "1933
Act");
WHEREAS, each Account will invest solely in specified securities of the
underlying mutual funds offered within the Contracts;
WHEREAS, the parties desire to have the Distributor act as principal
underwriter for each Account and assume such supervisory responsibility as is
required by federal and state securities law and applicable requirements of the
NASD for the securities activities of any "person associated" (as that term is
defined in Section 3(a)(18) of the 1934 Act) with the Distributor, including
Company personnel engaged directly or indirectly in the Company's variable
annuity insurance operations (the "Associated Persons");
WHEREAS, the parties desire to have the Company perform certain services in
connection with the sale of the Contracts;
NOW, THEREFORE, in consideration of the covenants and mutual promises
herein contained, the Distributor and the Company agree as follows:
1. The Distributor will act as the principal underwriter of the Contracts
in each state or other jurisdiction where the Contracts may legally be sold.
The Company and the Distributor will from time to time enter into separate
written agreements ("Selling Agreements") on such terms and conditions as the
parties may determine not inconsistent with this Agreement, with one or more
individuals or organizations which agree to participate in the distribution of
the
<PAGE>
Contracts. Such individuals or organizations ("Dealers") shall be registered as
broker-dealers under the 1934 Act and members of the NASD. Each such Dealer and
its representatives soliciting applications for Contracts shall be duly and
appropriately licensed for the sale of the Contracts under the insurance law and
any applicable securities law of each state or other jurisdiction in which the
Dealer or representative is required to be so licensed. The Selling Agreements
shall be in such form as approved by the Company.
2. The Distributor will assume such supervisory responsibility for the
securities activities of, and for securities law compliance by, its Associated
Persons, as is required by applicable federal and state law and NASD
requirements, including the NASD Rules of Fair Practice. The Distributor will
have such responsibility as is contemplated by Section 15(b)(4)(E) of the 1934
Act in connection with the training, supervision and control of its Associated
Persons. The parties understand that certain sales literature and materials
intended for use in connection with the sale of Contracts may require filings
with and/or approvals from the SEC, NASD and other regulatory authorities. In
advance of using any such literature or materials, the Distributor will obtain
the approval of the Company and will make any such required regulatory filing or
seek any such required approval. The Distributor will provide appropriate
training materials for its Associated Persons, use its best efforts to prepare
them to complete satisfactorily any and all applicable NASD and state
qualification exams, register the Associated Persons as its registered
representatives before they engage in securities activities, and supervise them
in the performance of such activities. It is understood and agreed that the
office of the Distributor at 239 S. Fifth Street, 12th Floor, Louisville,
Kentucky 40202 will be designated the Office of Supervisory Jurisdiction of the
Distributor and will perform such functions as are agreed to by the Company and
the Distributor.
3. Distributor shall ensure that each Dealer supervises its registered
representatives. Dealers shall assume any legal responsibilities of Company for
the acts, omissions or defalcations of its registered representatives insofar as
they relate to the sale of the Contracts. Applications for Contracts solicited
by such Dealers through its registered representatives shall be transmitted
directly to the Company, and if received by Distributor, shall be forwarded to
Company. All payments under the Contracts received by the Distributor shall be
remitted promptly to Company.
4. The Company will bear the cost of all services and expenses, including
legal services and expenses and registration, filing and other fees, in
connection with (a) registering and qualifying the Accounts, the Contracts, and
(b) licensing the Associated Persons with federal and state regulatory
authorities and the NASD when applicable, and (c) printing and distributing all
of the Accounts' registration statements, prospectuses and statements of
additional information for the Contracts (including amendments), Contracts,
Account notices and periodic reports, proxy solicitation material, and Account
sales literature and advertising.
5. The Company will, in connection with the sale of the Contracts, pay all
amounts (including sales commissions) due to Dealers who sell Contracts under
Selling Agreements, in amounts specified in the Selling Agreements and agreed to
by the Company.
-2-
<PAGE>
6. The Distributor will be responsible for compliance with respect to the
maintenance and preservation in accordance with all applicable federal and state
securities laws and regulations, including Rules 17a-3 and 17a-4 under the 1934
Act, of all books and records required to be maintained in connection with the
offer and sale of the Contracts being distributed pursuant to this Agreement.
The Company shall maintain and preserve such books and records on behalf of and
as the agent for the Distributor in conformity with the requirements of Rules
17a-3 and 17a-4 under the 1934 Act. Such books and records shall be the
property of the Distributor and shall at all times be subject to inspection by
the NASD and the SEC in accordance with Section 17(a) of the 1934 Act. The
Company, acting as agent for the Distributor upon or prior to completion of each
transaction for which a confirmation is legally required, will send a written
confirmation for each such transaction reflecting the facts of the transaction.
7. The Distributor will execute such papers and do such acts and things as
shall from time to time be reasonably requested by the Company for the purpose
of (a) maintaining the registration statements relating to the Contracts under
the 1933 Act and the 1940 Act, and (b) qualifying and maintaining qualification
of the Contracts for sale under the applicable laws of any state. It will,
however, remain the responsibility of the Company to obtain and maintain all
necessary approvals and registration of the Contracts with all relevant
regulatory authorities.
8. The Distributor is not authorized to give any information, or to make
any representations concerning the Contracts, Accounts or the Company other than
those contained in the current registration statements, prospectuses or
statements of additional information (as amended from time to time) for the
Contracts filed with the SEC or such sales literature and materials as may be
authorized by the Company.
9. The Company guarantees the performance of all of the Distributor's
obligations, imposed by any of Section 27(d) or 27(f) of the 1940 Act or
paragraph (b) of Rule 27d-2 adopted by the SEC under the 1940 Act, to the extent
applicable, to make refunds required of the principal underwriter of the
Contracts issued in connection with the Accounts. If, and to the extent that,
after notifying the Company of its intention to do so, the Distributor makes any
refund of any charges required under Section 27(d) or Section 27(f) of the 1940
Act or Rule 27d-2(b) thereunder, the Company will indemnify the Distributor for,
and hold it harmless against, the payment of such amount.
10. Each party hereto shall advise the other promptly of (a) any action of
the SEC or any authorities of any state or territory, of which it has knowledge,
affecting registration or qualifications of the Accounts or the Contracts, or
the right to offer the Contracts for sale, and (b) the happening of any event
which makes untrue any statement, or which requires the making of any change in
the registration statements or prospectuses or statements of additional
information in order to make the statements therein not misleading.
-3-
<PAGE>
11. There shall be no net compensation for either the services provided by
the Distributor or the services provided by the Company in connection with this
Agreement.
12. The obligations of the Distributor under this Agreement relate solely
to its status as the principal underwriter of the Contracts and nothing in this
Agreement shall be construed as imposing or giving rise to any duty or liability
of the Distributor with respect to the sale, registration or qualification of
the Underlying Securities.
13. The services of the Distributor and the Company under this Agreement
are not deemed to be exclusive and the Distributor and the Company shall be free
to render similar services to others, including, without implied limitation,
such other separate investment accounts as are now or hereafter established by
the Company, the Distributor or any affiliate of the Distributor.
14. This Agreement shall continue in full force and effect until
terminated. This Agreement may be terminated at any time without penalty by 60
days written notice by either party.
15. This Agreement shall be governed by and construed in accordance with
the laws of the State of Ohio.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
INTEGRITY LIFE INSURANCE COMPANY
By:_________________________________
Title:______________________________
SBM FINANCIAL SERVICES, INC.
By:_________________________________
Title:______________________________
-5-
<PAGE>
EXHIBIT A
INTEGRITY LIFE INSURANCE COMPANY
Separate Accounts
- -----------------
Separate Account I of Integrity Life Insurance Company
Separate Account II of Integrity Life Insurance Company
-6-
<PAGE>
EXHIBIT 4(g)
EXHIBIT 4(g) -- GRANDMASTER II
INTEGRITY
INTEGRITY LIFE INSURANCE COMPANY
A MEMBER OF THE ARM FINANCIAL GROUP
- --------------------------------------------------------------------------------
This contract ("Contract") creates a legal agreement between Integrity Life
Insurance Company (the "Company," "we," or "us") and the Owner ("you" or
"your"). The amounts that you contribute to this Contract and that we accept are
your "Contributions." We have issued this Contract to you in consideration of
your first Contribution. As the purchaser of the Contract, you are the Owner and
Annuitant, unless we accept a different arrangement that you have requested.
This Contract is incontestable and may not be pledged or assigned except with
our consent.
[_] PLEASE READ YOUR CONTRACT CAREFULLY. DURING A 10 DAY FREE LOOK PERIOD, YOU
HAVE THE RIGHT TO CANCEL THIS CONTRACT. If you are not satisfied, simply check
the box and return it to us or the agent who sold it, within 10 days of receipt.
We will promptly void it and send you the Account Value plus any Charges
deducted.
CERTAIN BENEFITS UNDER THIS CONTRACT ARE VARIABLE, BASED UPON THE INVESTMENT
EXPERIENCE OF A VARIABLE ACCOUNT. SUCH ACCOUNTS MAY INCREASE OR DECREASE IN
VALUE AS DESCRIBED IN THE CONTRACT AND ARE NOT GUARANTEED AS TO AMOUNT.
THE RESTRICTED SURRENDER ACCOUNTS DO NOT PROVIDE CASH SURRENDER VALUES DURING
THE RESTRICTION PERIOD. GPO ACCOUNTS ARE SUBJECT TO A MARKET VALUE ADJUSTMENT IF
TRANSFERRED OR WITHDRAWN DURING THE GUARANTEE PERIOD.
Your new Contract provides for an Account Value, a Death Benefit and an Annuity
Benefit.
YOUR ACCOUNT VALUE reflects (i) Contributions, (ii) net investment performance
for Variable Account(s), or credited interest and market value adjustment
("Adjustment") for Fixed Account(s), less (iii) all applicable charges outlined
on your Schedule Page ("Charges"), and withdrawals (or transfers).
YOUR DEATH BENEFIT guarantees that your Beneficiary will never receive less than
your Contributions, reduced only by withdrawals. Even if investment performance
was down!
YOUR ANNUITY BENEFIT makes fixed payments guaranteed for 10 years or for life,
if longer.
The Death Benefit and the Annuity Benefit are based on the life of the
Annuitant. If the Annuitant lives to the Endowment Date (as defined on your
Schedule Page), we will apply your entire Account Value to your choice of the
Annuity Benefits we then offer.
You may allocate all, a portion or none of your Account Value to any Separate
Account, Subaccount or other accumulation option then available under this
Contract ("Account").
- --------------------------------------------------------------------------------
WE WANT TO HEAR FROM YOU. If you have questions, complaints, or need any other
help with your Contract, please write to us at 200 East Wilson Bridge Road,
Worthington, Ohio 43085 or P.O. Box # 182080, Columbus, Ohio 43218 or call us at
1 - 800 - 325 - 8583.
John R. Lindholm John R. McGeeney
President Secretary
FLEXIBLE PREMIUM COMBINATION ENDOWMENT ANNUITY
NON-PARTICIPATING
INT95 Page 1
<PAGE>
ACCOUNTS
--------
ACCOUNT VALUES of your Contract (or of any Account) equal: All Contributions
designated to Variable Account(s) are adjusted to reflect (i) daily net
investment results, less (ii) Charges and withdrawals (or transfers). All
Contributions designated to Fixed Account(s) are adjusted to reflect (i) daily
interest credited, and Adjustments made, less (ii) Charges and withdrawals (or
transfers). The Contract is nonparticipating, does not pay dividends or share
in our profits or surplus earnings. We calculate Account Values as of the end
of each Company business day ("Business Day"). We will send you annual
statements showing your Account Value. Once Annuity or Death Benefits start,
the Contract no longer has an Account Value.
SEPARATE ACCOUNTS are segregated asset accounts which we may divide into one or
more Subaccounts. We own the assets of each Subaccount and keep them separate
from the assets of our General Account. This means that the income, gains and
losses of each Subaccount will be credited to, or charged against, that Account
without regard to any income, gains or losses in our General Account or in any
other investment account. We must hold assets in each Subaccount at least equal
to all statutory reserves required for such Account; we will never use such
assets to support any other business, and we will transfer assets to any such
Account from our General Account if necessary to meet this requirement. We may
use excess assets in any Account in any way we choose.
VARIABLE ACCOUNTS are Subaccounts invested in designated portfolios. At the end
of each Business Day, we adjust Variable Account Values to reflect the net
investment results in such portfolios ("Unit Value"). Unit Values are calculated
by multiplying the Unit Value of the particular Subaccount on the preceding
Business Day by the net investment factor for that Subaccount for the valuation
period then ended. The value of the Subaccount on each Business Day is then
determined by multiplying the number of Unit Values in that Subaccount by the
Unit Values on that Business Day. You may withdraw or transfer your Variable
Account Values subject to Charges and other Contract terms.
FIXED ACCOUNTS are offered as nonunitized Separate Accounts or General Account
options and as "Continuous Access" or "Restricted Surrender" Accounts. We
credit interest on your Fixed Account Values, if any, at interest rates we have
declared effective for such Accounts ("Rates"). Each Rate will be guaranteed
for a period of time we declare ("Guarantee Period"). We may declare Rates
which are level guarantees, external indexes not in our control, or combinations
of the two. Fixed Account Values (after Adjustments, but not Charges) will
always equal at least all allocations (less withdrawals or transfers) in such
Accounts accumulated at 2.25% per annum, unless a higher minimum rate is
required by applicable law. We reserve the right to declare and credit
additional interest based on Contribution or withdrawal dates, economic
conditions or on any other lawful nondiscriminatory basis. Unless declared
otherwise, interest accrues daily, compounding annually.
INDEX
-----
ACCOUNTS . . . . . . . . .PAGE 2 & 4 SCHEDULE PAGE . . . . . . . .PAGE 3
BENEFITS . . . . . . . . . . .PAGE 4 OTHER TERMS . . . . . . .PAGE 4 & 5
INT95 Page 2
<PAGE>
CONTRACT SCHEDULE PAGE
----------------------
OWNER/ANNUITANT: [John Doe]
CONTRACT NUMBER: [Specimen]
CONTRACT DATE: [September 1,1994]
ENDOWMENT DATE: [85th birthday or 10th Anniversary, whichever is later]
DEATH BENEFIT DATE(S): [Date we receive proof of Annuitant's death]
SEPARATE ACCOUNT(S): [GPO]
INITIAL CONTRIBUTION: [$5,000]
INITIAL ALLOCATION: [100% - Ten Year GRO]
AVAILABLE ACCOUNT(S)
VARIABLE ACCOUNTS:
VARIABLE ACCOUNT OPTIONS ARE OFFERED AS TAX-DEFERRED, CONTINUOUS ACCESS
ACCOUNTS, SEPARATE ACCOUNT
SUBACCOUNT: Fidelity Investments Variable Insurance Products I & II
PORTFOLIOS: Money Market, High Income, Equity-Income, Growth,
Contrafund, Overseas, Investment Grade Bond, Assets
Manager, Index 500 and Asset Manager: Growth
TRANSFER RESTRICTIONS: None
WITHDRAWAL RESTRICTIONS: None
ENHANCED DEATH BENEFIT: Highest Variable Option Account Value at the beginning
of any Contract Year, PLUS subsequent Contributions,
reduced pro rata for any subsequent Partial Withdrawals
or transfers
- --------------------------------------------------------------------------------
FIXED ACCOUNTS:
GUARANTEED RATE OPTION "GRO" 2, 4, 6 & 10 YRS, TAX-DEFERRED, CONTINUOUS ACCESS,
GRO SUBACCOUNT
TRANSFER RESTRICTIONS: Adjustment will apply to all transfers outside a 30-day
window occurring 30 days before end of any Guarantee
Period; if transferred to another GRO, the GRO must be
to a newly elected Guarantee Period at the then current
rate.
WITHDRAWAL RESTRICTIONS: Adjustment and Company Charges will apply to all Excess
and/or Full Withdrawals
MINIMUM GUARANTEE: 100% of allocations to GROs LESS Partial Withdrawals or
Transfers ACCUMULATED AT 3% per annum LESS Company
Charges
SHORT TERM OPTION "STO", 1 YR, TAX-DEFERRED, CONTINUOUS ACCESS, STO SUBACCOUNT
TRANSFER RESTRICTIONS: Funds MUST be systematically transferred to other
Available Accounts within a 12-month period, as
reasonably determined by the Company
WITHDRAWAL RESTRICTIONS: Company Charges will apply to all Excess and/or Full
Withdrawals
MINIMUM GUARANTEE: 100% of allocations to STO LESS Partial Withdrawals or
Transfers ACCUMULATED at 3% per annum LESS Company
Charges
Capitalized terms shall have the meanings set forth above or
elsewhere in your Contract.
INT95 GRANDMASTER II Page 3
<PAGE>
CHARGES AND ADJUSTMENTS
------------------------
TAX CHARGES OF: [Insert applicable premium taxes or other taxes as assessed, if
any. If not applicable, insert NOT APPLICABLE]
ADMINISTRATION CHARGE NOT TO EXCEED: $30, waived if Account Value over $50,000.
Covers some costs of administration, deducted on each Contract Date Anniversary
or if earlier, pro rata, upon Full or Partial Withdrawal or Annuitant's death.
DAILY CHARGE NOT TO EXCEED THE EQUIVALENT OF: 1.35% per year of Variable Account
Values. Covers mortality and expense risks, and certain administrative costs,
deducted daily as a Net Investment Factor of .00003723
TRANSFER CHARGES NOT TO EXCEED: $20 after 12 transfers per year
<TABLE>
<S> <C>
WITHDRAWAL CHARGES NOT TO EXCEED: Charge 7% 6% 5% 4% 3% 2% 0%
-------------------------------------------------------------------------------
Anniversaries since Contribution 0 1 2 3 4 5 6
</TABLE>
FREE WITHDRAWAL: 10% of Continuous Access Accounts LESS Partial
Withdrawals since last Contract Anniversary. Applied
only to Partial Withdrawals.
EXCESS WITHDRAWALS: Amount withdrawn from Continuous Access Accounts in
excess of Free Withdrawal.
PARTIAL WITHDRAWAL: A portion of Account Value withdrawn from Continuous
Access Accounts.
FULL WITHDRAWALS: Entire Account Value withdrawn from Continuous Access
Accounts and there are no allocations to the Restricted
Surrender Accounts
Withdrawal Charges are deducted (1) as a percentage of Excess Withdrawals and
(2) on Full Withdrawal or selection of an Annuity Benefit to be paid out over
less than five years without any life contingency, as a percentage of total
Contribution(s) less all Excess Withdrawal(s), all calculated per Contribution
on a first in first out basis.
- --------------------------------------------------------------------------------
ADJUSTMENT (FOR MARKET VALUE):
N/12 N/12
Market Value Adjustment = [(1 + A) / (1+B+.0025) ] - 1;
WHERE:
A = Guaranteed Rate
B = Current Rate Offered on Guarantee Periods Equal to the Time Remaining
in The Guarantee Period
N = Number of Months Remaining in Guarantee Period
Applied to GROs only, prior to any Full or Excess Withdrawal, any transfer
(before final 30 days of Guarantee Period) or any Annuity Benefit, as a positive
or negative adjustment to the applicable portion of your Account Value by
multiplying the amount requested by the factor above, calculated on a first in
first out basis, as reasonably determined by us.
- --------------------------------------------------------------------------------
Capitalized terms shall have the meanings set forth above or
elsewhere in your Contract.
INT95 GRANDMASTER II Page 3-Continued
<PAGE>
CONTINUOUS ACCESS ACCOUNTS may be fully or partially withdrawn at any time
before we begin payment of Annuity or Death Benefits, subject to Charges,
Adjustments and all other Contract terms. Unless you have elected otherwise, at
the end of any Continuous Access Account's Guarantee Period, we will renew that
allocation in the same or most similar Account then available which will not
extend past the Endowment Date. RESTRICTED SURRENDER ACCOUNTS may NOT be
withdrawn during the applicable Restricted Surrender Period. Before the end of
any Restricted Surrender Period, we will notify you of the allocation and
withdrawal options available at the end of the Restricted Surrender Period.
Unless you have elected otherwise, we will then allocate your Restricted
Surrender Account Value to the Account option that we have designated for that
purpose which option period will not extend past the Endowment Date. RESTRICTED
TRANSFER ACCOUNTS may NOT be transferred into any other Account while the
restrictions remain in effect. Otherwise, transfers may be made subject to our
rules.
BENEFITS
--------
ANNUITY BENEFIT: If the Annuitant lives to the Endowment Date, we guarantee
monthly annuity payments for the Annuitant's lifetime with a minimum of 10
years' payments ("Payments Certain"). The amount of each payment is based on
your last Account Value and all other Contract terms, with 3% interest under the
1983 Individual Annuity Mortality Table. We may offer more favorable rates and
other Annuity Benefits.
DEATH BENEFIT: If the last Annuitant dies, we will pay a Death Benefit to any
surviving Beneficiaries (designated by you) in equal shares, or otherwise to
your estate. If your surviving spouse is the Beneficiary, then he or she may
decline the Death Benefit and continue as the new Owner. Before the Endowment
Date, this Death Benefit is the greatest of: 100% of your Contributions (less
withdrawals), or your Account Value(s) on the Death Benefit Date(s), reduced pro
rata for withdrawals. On or after the Endowment Date, this Death Benefit is each
of any remaining Payments Certain, payable when originally due.
TAX RULES: For "Tax-Deferred" allocations only, if you die before the Endowment
Date we must pay any benefit due to a non-spousal Beneficiary: a) in a lump sum
within five years of death or b) starting within a year of death, in annuity
payments payable for such Beneficiary's life expectancy or less. We further
reserve the right to, and we shall, administer all Contracts which are
"Qualified" contracts under applicable sections of the Internal Revenue Code of
1986, as amended, in accordance with all applicable laws and regulations in
effect from time to time (all of which are hereby fully incorporated herein by
reference and shall govern over any other provisions of the Contract to the
contrary), or as otherwise required in our reasonable judgment to maintain such
Qualified status or treatment, subject to all applicable legal and regulatory
approvals.
OTHER TERMS
-----------
MAXIMUM CHARGES: Charges or Adjustments will never exceed any legal limits in
the state where the Contract is delivered. Surrender Charges and Adjustments
will not apply to Death Benefits. Daily Charges (or any other asset based
Charges) will never apply to Fixed Accounts.
INT95 Page 4
<PAGE>
RIGHTS RESERVED: Subject to required approvals by federal and state authorities
and to all Company administrative rules which are lawful, nondiscriminatory and
consistent with this Contract, we reserve the right to: require reasonable
documentation prior to administering any transaction or benefit; waive or reduce
restrictions or Charges; increase benefits; defer the payment of withdrawals
from Fixed Accounts for up to six months; deduct (as an additional Charge) any
premium tax or other tax assessed on us for the Contract; add, substitute,
combine, delete, deregister or operate (as a management investment company or in
any other lawful form) any Account; refuse any Contribution; allow partial
withdrawals from Restricted Surrender Accounts; declare (or change)
prospectively any rules regarding maximum or minimum Contributions, Account
Value balances, Annuity Benefit amounts, allocations, transfers, other
transactions, or any other administrative rules. You will be notified of all
material rules that affect your Contract. New rules will only be declared
prospectively.
ENTIRE CONTRACT: The Contract, together with any Riders or endorsements, is our
entire agreement with you. The Contract may not be endorsed or amended unless
signed by one of our executive officers; no others have any authority to amend
or waive its provisions.
MISSTATEMENT OF AGE OR SEX: If we learn that an Annuitant's age or sex is
misstated, any benefits will be those which would have been purchased at the
correct age and sex. Any overpayments or underpayments made by us will be
charged or credit with interest at the rate of 6% per year. Any underpayments
will be paid in a lump sum with interest credited with the next payment due, and
any overpayments will be deducted with interest from future payments. To the
extent permitted by law, any proceeds or other rights of your Contract shall not
be subject to creditors' claims or legal process.
INT95 Page 5
<PAGE>
Exhibit 7 to
Integrity Separate Account I
and
Integrity Separate Account II
VARIABLE ANNUITY GUARANTEED DEATH BENEFIT
Effective JANUARY 1, 1995
between
INTEGRITY LIFE INSURANCE COMPANY
(LOUISVILLE, KENTUCKY)
and
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CIGNA REINSURANCE
(Hartford, Connecticut)
<PAGE>
REINSURANCE AGREEMENT, Effective JANUARY 1, 1995
between
INTEGRITY LIFE INSURANCE COMPANY
(LOUISVILLE, KENTUCKY)
and
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
CIGNA REINSURANCE
(Hartford, Connecticut)
INDEX
-----
<TABLE>
<CAPTION>
ARTICLE PAGE
------- ----
<S> <C> <C>
Access to Records XI 10
Amounts at Risk II 1
Arbitration XVI 13
Automatic Excess Reinsurance III 2
Claims VII 7
Currency XIII 11
DAC Tax Regulation Election XVII 14
Delays, Errors, or Omissions XII 11
Effective Date; Term and Termination XVIII 15
Extra Contractual Obligations VIII 8
Hold Harmless XIV 11
Insolvency XV 12
Liability of Connecticut General IV 4
Litigation IX 10
Notices XIX 17
Offset X 10
Parties to the Agreement I 1
Premium Accounting VI 6
Reinsurance Premiums V 5
</TABLE>
SCHEDULES
---------
A. Maximum Limits of Reinsurance in Connecticut General
B. Policy Forms and Funds Subject to this Reinsurance Agreement
C. Limits and Rules of INTEGRITY LIFE
D. Quarterly Reinsurance Premium Rates
E. Quarterly Reporting Format
<PAGE>
REINSURANCE AGREEMENT
(hereinafter called Agreement)
between
INTEGRITY LIFE INSURANCE COMPANY
(hereinafter called INTEGRITY LIFE)
and
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
(hereinafter called Connecticut General)
It is agreed by the two companies as follows:
ARTICLE I PARTIES TO THE AGREEMENT
------------------------------------
This Agreement is solely between INTEGRITY LIFE and Connecticut General and the
performance
of obligations of each party under the Agreement shall be rendered solely to the
other party. It shall not create any right, interest or legal relationship to
or with anyone other than INTEGRITY LIFE or Connecticut General. Nor shall this
Agreement create any legal relationship, interest or right whatever between
Connecticut General and any certificate holder, beneficiary, policy owner,
applicant, or assignee under any policy and/or policies issued by INTEGRITY
LIFE.
ARTICLE II AMOUNTS AT RISK
----------------------------
A. The reinsurance death benefit is the excess of the minimum guaranteed death
benefit over the contract value. At issue, the minimum guaranteed death
benefit is equal to the purchase price of the contract. Upon a contract
withdrawal or additional purchase payment, the guaranteed minimum death
benefit is decreased or increased to reflect the transaction. On each policy
anniversary, to attained age 85, the minimum guaranteed death benefit equals
the greater of:
a) contract value;
b) the prior anniversary guaranteed minimum death benefit plus any
purchase payments less any withdrawals since the prior
anniversary;
Please refer to Schedule C for a detailed discussion of the guaranteed
minimum death benefit.
B. After age 85, the minimum guaranteed death benefit is the annuity value and
the reinsurance amount at risk is zero.
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<PAGE>
C. The contract value represents the certificate holder's invested assets in
the funds in Schedule B as it appears in the records of INTEGRITY LIFE
before application of any surrender charges, on any given date.
D. The amount at risk each quarter will be calculated as the reinsurance death
benefit for each variable annuity contract covered under this agreement. For
determining the amount at risk, the minimum guaranteed death benefit and the
contract value are calculated as the average of the values at the end of the
current quarter and the end of the prior quarter. The amount at risk cannot
fall below zero.
ARTICLE III AUTOMATIC EXCESS REINSURANCE
------------------------------------------
A. On and after the effective date of this Agreement, INTEGRITY LIFE shall cede
and Connecticut General shall accept reinsurance of the reinsurance death
benefit for all variable annuity contracts, subject to the following:
1. the maximum reinsurance provided on any one life shall not exceed the
amounts set forth in Schedule A;
2. policies where the certificate holder has an attained age 85 or older
will be excluded;
3. the policy issued by INTEGRITY LIFE shall be on the specimen forms,
enhancements, and supplemental materials that INTEGRITY LIFE has
furnished Connecticut General and identified on Schedule B, attached
hereto;
4. reinsurance will only apply to assets invested in those funds
identified on Schedule B, attached hereto;
5. the policies underwritten by INTEGRITY LIFE shall be issued pursuant to
the limits and rules furnished Connecticut General and attached to this
Agreement as Schedule C;
6. the terms, conditions and restrictions contained in this Agreement.
B. INTEGRITY LIFE and Connecticut General further agree that the forms,
supplemental materials, and funds identified on Schedule B were reviewed and
approved by Connecticut General prior to the effective date of this
Agreement. It is also agreed that INTEGRITY LIFE shall not issue coverage
under new or revised forms or funds unless such new or revised forms or
funds have been reviewed and approved by Connecticut General. INTEGRITY LIFE
shall provide written notice of its intention to issue coverage based on new
or revised forms or funds and Connecticut General shall be entitled to
thirty (30) calendar days following receipt of such notice in which to
review such new or revised forms or funds. If Connecticut General fails to
provide written notice within the thirty (30) calendar day review period of
its decision to
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<PAGE>
deny approval, Connecticut General shall be deemed to have provided
approval on the basis that INTEGRITY LIFE requested.
C. INTEGRITY LIFE shall provide written notice to Connecticut General of any
changes in its published limits and rules identified on Schedule C, and
Connecticut General shall have no liability pursuant to revised limits and
rules unless and until Connecticut General provides written notice to
INTEGRITY LIFE that such revised limits and rules are acceptable. If
Connecticut General fails to provide written notice of acceptance within
thirty (30) days, such changes in limits shall be considered to have been
approved.
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<PAGE>
ARTICLE IV LIABILITY OF CONNECTICUT GENERAL
---------------------------------------------
Connecticut General's liability for reinsurance under this Agreement shall
follow that of INTEGRITY LIFE in every case, and be subject in all respects to
the general stipulations, terms, clauses, conditions, waivers and modifications
of the policies issued by INTEGRITY LIFE as supplemented.
In no event shall Connecticut General have any reinsurance liability unless the
policy issued by INTEGRITY LIFE is in force and the underwriting and issuance of
coverage by INTEGRITY LIFE constitutes the doing of business in a state of the
United States of America in which INTEGRITY LIFE is properly licensed and
authorized to do business.
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<PAGE>
ARTICLE V REINSURANCE PREMIUMS
--------------------------------
The quarterly premiums for reinsurance subject to the terms and conditions of
this Agreement shall be determined by application of the rates set forth in
Schedule D to the amount of reinsurance coverage provided for each annuity
insured by INTEGRITY LIFE, subject to the following:
1. The reinsurance premiums shall be based on the annuitant's age at the
end of each quarter. If the contract is jointly owned, the reinsurance
premiums shall be based on the age of the younger annuitant. INTEGRITY
LIFE shall determine the annuitant's age at the time it prepares the
quarterly exposure data submission for the variable annuity guaranteed
death benefit, as set forth in Schedule E, attached hereto.
2. The Age Adjusted Aggregate Contract Value is the sum of the contract
values in all of INTEGRITY LIFE's variable annuities subject to this
Agreement, minus contract values for certificate holders who are
ATTAINED AGE 85 OR OLDER and minus contract values attributable to
amounts in excess of the maximum purchase amounts listed in Schedule A.
The Age Adjusted Aggregate Contract Values times one fourth (1/4) of
the minimum premium rate will be remitted to Connecticut General in
advance for the current quarter, at the time of settlement for the
prior quarter.
3. For attained ages less than 65, the premium over each calendar year
will be at least equivalent to the Age Adjusted Aggregate Contract
Values times 3.0 BASIS POINTS (.0003), subject to the funds set forth
in Schedule B.
4. For attained ages less than 65, the maximum premium over each calendar
year will be no more than the Age Adjusted Aggregate Contract Values
times 9.2 BASIS POINTS (.00092), subject to the funds set forth in
Schedule B.
5. For attained ages 65 and over, the annual premium rate is 15.2 BASIS
POINTS (.00152) times the Age Adjusted Aggregate Contract Values,
subject to the funds set forth in Schedule B.
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<PAGE>
ARTICLE VI PREMIUM ACCOUNTING
-------------------------------
A. INTEGRITY LIFE shall forward to Connecticut General on or before the last
calendar day of April, July, October, and January a quarterly statement as
set forth in Schedule E. INTEGRITY LIFE shall also remit any premium due for
the prior quarter along with an advance minimum premium for the current
quarter, in accordance with Section (2) of Article V.
B. The payment of the reinsurance premium by INTEGRITY LIFE shall be a
condition precedent to any liability by Connecticut General under the terms
and conditions of this Agreement. If the reinsurance premium payment is not
paid by INTEGRITY LIFE in accordance with the preceding paragraph,
Connecticut General shall have the right to terminate reinsurance under this
Agreement. If Connecticut General elects to exercise its right of
termination, Connecticut General shall provide written notice to INTEGRITY
LIFE not less than thirty (30) calendar days prior to termination. If all
reinsurance premiums in arrears, including any which may fall due within the
thirty (30) day period, are not received by Connecticut General prior to the
expiration date of such period, Connecticut General shall be relieved of all
liability incurred after the termination date. Connecticut General may, at
its option, reinstate the reinsurance at any time within sixty (60) calendar
days following such termination if INTEGRITY LIFE makes payment of all
reinsurance premiums due and payable up to the date of reinstatement and
provides full disclosure of all claims incurred between the date of
termination and the reinstatement date. If Connecticut General agrees to
such reinstatement, it shall be liable for reinsurance on only those claims
incurred by INTEGRITY LIFE between the termination date and reinstatement
date that INTEGRITY LIFE discloses to Connecticut General. In the event that
INTEGRITY LIFE is unaware of such claim, Connecticut General will
nevertheless be liable for claims that are reported to INTEGRITY LIFE in the
ninety day period following reinstatement.
C. Connecticut General's right to terminate reinsurance pursuant to this
ARTICLE shall be without prejudice to its right to collect reinsurance
premiums for the period that reinsurance was in force prior to the
expiration of the thirty (30) calendar day notice. Pursuant to Article X of
this Agreement, Connecticut General may set off against amounts due
INTEGRITY LIFE the amount of reinsurance premium in arrears, up to and
including the termination date.
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<PAGE>
ARTICLE VII CLAIMS
--------------------
A. INTEGRITY LIFE is solely responsible for payment of its claims under the
policies, master contracts or certificates identified on Schedule B. For all
policies reinsured hereunder, INTEGRITY LIFE shall provide Connecticut
General with proof of claim, proof of claim payment and any other claim
documentation reasonably requested by Connecticut General. Payment of
reinsurance shall made by Connecticut General in one sum regardless of the
method of payment by INTEGRITY LIFE and within thirty (30) calendar days
following receipt of required claim documentation.
B. INTEGRITY LIFE shall notify Connecticut General of its intentions to
contest, compromise, or litigate a claim involving reinsurance. Connecticut
General's liability shall then be determined under the provision of Articles
VIII and IX.
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<PAGE>
ARTICLE VIII EXTRA CONTRACTUAL OBLIGATIONS
--------------------------------------------
A. In no event shall Connecticut General participate in punitive, exemplary or
compensatory damages or statutory penalties (hereinafter referred to as
"extra contractual obligations") which are awarded against INTEGRITY LIFE as
a result of an act, omission or course of conduct committed by INTEGRITY
LIFE in connection with the reinsurance under this Agreement, unless
Connecticut General shall have been made aware of and shall have concurred
in written notice to INTEGRITY LIFE pursuant to the provisions of the
following paragraph, with the actions taken, or not taken, by INTEGRITY LIFE
which lead to the awarding of extra contractual obligations.
B. INTEGRITY LIFE shall provide written notice to Connecticut General of any
act, omission, course of conduct or impending claim which potentially may
involve extra contractual obligations within ten (10) days after becoming
aware of such act, omission, course of conduct or claim and such
notification shall include a suggested course of action or inaction for
Connecticut General's review. Connecticut General then has the obligation to
provide INTEGRITY LIFE with written notice of its decision to concur or not
concur with INTEGRITY LIFE's suggested course of action or inaction. If
Connecticut General concurs, payment of any extra contractual obligations,
including attorney's fees, legal or arbitration costs, special
investigations and similar expenses, but excluding the salaries of employees
of INTEGRITY LIFE, will be shared by Connecticut General and INTEGRITY LIFE
based on the proportionate share of contractual liability of each party
under this Agreement. If Connecticut General does not concur, Connecticut
General shall then be liable only to the extent of its liability under this
Agreement pursuant to the limitations set forth in Schedule A.
The following definitions shall apply:
(1) "Punitive damages" are those damages awarded as a penalty, the amount
of which is not governed, nor fixed by statute.
(2) "Statutory penalties" are those amounts which are awarded as a penalty
but fixed in amount by statute.
(3) "Compensatory damages" are those amounts awarded to compensate for the
actual damages sustained, and are not awarded as a penalty nor fixed in
amount by statute.
(4) "Proportionate share" is the amount of liability that each party to the
Agreement bears related to total claim. For example, if total claim is
$100,000 and the account value is $50,000, and Connecticut General is
liable for reinsurance coverage for the remaining $50,000, the
proportionate share of each party is 50%.
The language of the article shall be deemed effective only as and to the
extent permitted by the law of any applicable jurisdiction.
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<PAGE>
C. Notwithstanding anything stated herein, this Agreement shall not apply to
any extra contractual obligations incurred by INTEGRITY LIFE as a result of
any fraudulent and/or criminal act by any employee, officer, agent, or
director of INTEGRITY LIFE acting individually or collectively or in
collusion with any person or corporation or any other entity or organization
or party involved in the representation, defense or settlement of any claim
covered hereunder.
D. Recoveries under any form of insurance or reinsurance which protects
INTEGRITY LIFE against extra contractual obligations under this article or
claims under Article 8 shall inure to the benefit of this Agreement and will
be shared by Connecticut General and INTEGRITY LIFE based on the
proportionate share of contractual liability of each party.
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<PAGE>
ARTICLE IX LITIGATION
-----------------------
A. In the event of any action brought against INTEGRITY LIFE under any policy
that is subject to the terms and conditions of this Agreement, INTEGRITY
LIFE shall provide a copy of such action and written notice of such action
within a reasonable time, not to exceed five (10) business days of
notification to Connecticut General. INTEGRITY LIFE and Connecticut General
shall mutually agree on the selection and appointment of local counsel to
represent INTEGRITY LIFE in such action. If Connecticut General is a party
to action brought against INTEGRITY LIFE, INTEGRITY LIFE shall counsel with
Connecticut General on the selection and appointment of local counsel to
represent INTEGRITY LIFE in such action.
B. Connecticut General shall have primary responsibility for managing any
litigation or any response made to any action brought against INTEGRITY LIFE
and for all decisions to be made concerning the representation, defense
and/or settlement of such actions. Connecticut General's responsibility
includes a duty to be reasonable and consult in good faith.
C. INTEGRITY LIFE and Connecticut General agree that all litigation costs,
excluding the salaries of employees of INTEGRITY LIFE and Connecticut
General, shall be shared by Connecticut General and INTEGRITY LIFE based on
the proportionate share of liability of INTEGRITY LIFE and Connecticut
General as defined in Section (d) of Article VIII.
ARTICLE X OFFSET
------------------
Either party shall have, and may exercise at any time and from time to time, the
right to offset any balance or balances whether on account of premiums or on
account of losses or otherwise, due from one party to the other under the terms
of this Agreement. However, in the event of insolvency of INTEGRITY LIFE
subject to the provisions of Article XV, offset shall only be allowed in
accordance with the statutes and/or regulations of the state having jurisdiction
over the insolvency.
ARTICLE XI ACCESS TO RECORDS
------------------------------
Connecticut General, or its duly authorized representative, shall have
reasonable access, upon reasonable notice, to the books and records of INTEGRITY
LIFE as far as they relate to insurance or reinsurance falling within the terms
and conditions of this Agreement, and in the event of any claim for loss being
made hereunder shall have reasonable access to all claims records at any time
until the final settlement of all claims.
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<PAGE>
ARTICLE XII DELAYS, ERRORS OR OMISSIONS
-----------------------------------------
No accidental delay, errors or omissions on the part of INTEGRITY LIFE shall
relieve Connecticut General of liability provided such delay, errors or
omissions are rectified as soon as reasonably possible after discovery.
However, Connecticut General shall not be liable with respect to any reinsurance
which may have been inadvertently included in the premium computation but which
ought not to have been included by reason of the terms and conditions of this
Agreement. It is expressly understood and agreed that if failure to comply with
any terms of this Agreement is hereby shown to be unintentional or the result of
misunderstanding or oversight on the part of either party, both parties shall be
restored to the position they would have occupied had no such error or oversight
occurred, subject always to the correction of the error or oversight.
ARTICLE XIII CURRENCY
-----------------------
All retentions and limits hereunder are expressed in United States dollars and
all premium and loss payments shall be made in United States currency. For the
purposes of this Agreement, amounts paid or received by Connecticut General in
any other currency shall be converted into United States dollars at the rates of
exchange on the date such transactions are entered on the books of Connecticut
General.
ARTICLE XIV HOLD HARMLESS
---------------------------
A. Connecticut General shall indemnify and hold INTEGRITY LIFE harmless from
any and all liability, loss, damage, fines, punitive damages, penalties and
costs, including expenses and attorney's fees, which results from any
negligence or willful misconduct of Connecticut General in fulfilling its
duties and obligations under this Agreement or which results from any action
which exceeds its authority under this Agreement.
B. INTEGRITY LIFE shall indemnify and hold Connecticut General harmless from
any and all liability, loss, damage, fines, punitive damages, penalties and
costs, including expenses and attorney's fees, which results from any
negligence or willful misconduct of INTEGRITY LIFE in fulfilling its duties
and obligations under this Agreement or which results from any action which
exceeds its authority under this Agreement.
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<PAGE>
ARTICLE XV INSOLVENCY
-----------------------
In the event of insolvency of INTEGRITY LIFE, the reinsurance under this
Agreement shall be payable directly by Connecticut General to INTEGRITY LIFE or
to its liquidator, receiver, conservator or statutory successor on the basis of
Connecticut General's liability to INTEGRITY LIFE without diminution because of
the insolvency of INTEGRITY LIFE or because the liquidator, receiver,
conservator or statutory successor of INTEGRITY LIFE has failed to pay all or a
portion of any claim. It is agreed, however, that the liquidator, receiver,
conservator or statutory successor of INTEGRITY LIFE shall give written notice
to Connecticut General of the pendency of a claim against INTEGRITY LIFE within
a reasonable time after such claim is filed in the receivership, conservation,
insolvency or liquidation proceeding and that during the pendency of such claim,
Connecticut General may investigate such claim and interpose, at its own
expense, in the proceeding where such claim is to be adjudicated, any defense or
defenses that it may deem available to INTEGRITY LIFE or its liquidator,
receiver, conservator or statutory successor. The expense thus incurred by
Connecticut General shall be chargeable, subject to the approval of the Court,
against INTEGRITY LIFE as part of the expense of conservation or liquidation to
the extent of a pro rata share of the benefit which may accrue to INTEGRITY LIFE
solely as a result of the defense undertaken by Connecticut General.
Where two or more reinsurers are involved in the same claim and a majority in
interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of this Agreement as though such
expense had been incurred by INTEGRITY LIFE.
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<PAGE>
ARTICLE XVI ARBITRATION
-------------------------
In the event of any dispute or difference of opinion between the parties
hereafter arising with respect to the rights or liabilities of either party,
INTEGRITY LIFE and Connecticut General mutually agree that such dispute or
difference of opinion shall be submitted to arbitration. One arbiter shall be
chosen by INTEGRITY LIFE, the other arbiter by Connecticut General, and the
third arbiter chosen by the two arbiters before they enter arbitration. All
arbiters shall be active or retired disinterested executive officers of
insurance or reinsurance companies other than those companies named in this
contract or active or retired members of the Society of Actuaries. If either
INTEGRITY LIFE or Connecticut General fail to choose an arbiter within thirty
(30) calendar days following the written request by the other party to do so,
the requesting party shall have the right to choose the two arbiters who shall,
in turn, choose the third arbiter before entering into arbitration. If the two
arbiters fail to agree upon the selection of the third arbiter with thirty (30)
calendar days following the last to be chosen, the two arbiters shall each
recommend one name within ten (10) calendar days thereafter and one name shall
be drawn by lots to determine the third arbiter. The arbiters shall interpret
this Agreement as an honorable engagement and not merely as a legal obligation,
and a majority decision of these arbiters shall be final and binding on both
parties and there shall be no appeal from the decision. The arbiters shall
interpret this Agreement liberally rather than according to the rules of law.
The arbiters are released from judicial formalities and may abstain from
following the strict rules of law. The meeting of the arbiters shall be in a
neutral location mutually agreed upon by the arbiters. The cost of arbitration
shall be borne equally by both parties unless the arbiters decide otherwise. It
is specifically the intent of both parties that this arbitration provision shall
replace and be in lieu of any Federal or State statutory arbitration provision.
Judgement upon the final decision of the arbiters may be entered in any court of
competent jurisdiction.
This article shall survive the termination of this Agreement.
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<PAGE>
ARTICLE XVII DAC TAX REGULATION ELECTION
------------------------------------------
Connecticut General and INTEGRITY LIFE hereby agree to make an election pursuant
to Internal Revenue Code Regulation Section 1.848-2(g)(8). This election shall
be effective for all taxable years for which the Reinsurance Agreement remains
in effect.
The terms used in this article are defined by reference to Regulation Section
1.848-2 promulgated on December 28, 1992. The term "Net Consideration" will
refer to net consideration as defined in the treasury regulation section 1.848-
2F.
Connecticut General and INTEGRITY LIFE agree that the entity with net positive
consideration for the reinsurance agreement for each taxable year will
capitalize specified policy acquisition expenses with respect to the reinsurance
agreement without regard to the general deductions limitation of Section
848(c)(1) of the Internal Revenue Code of 1986, as amended.
Connecticut General and INTEGRITY LIFE agree to exchange information pertaining
to the amount of net consideration under the reinsurance agreement each year to
ensure consistency. To achieve this, INTEGRITY LIFE shall provide Connecticut
General with a schedule of its calculation of the net consideration for all
reinsurance agreements in force between them for a taxable year by no later than
June 1 of the succeeding year. Connecticut General shall advise INTEGRITY LIFE
if it disagrees with the amounts provided by no later than July 1, otherwise the
amounts will be presumed correct and shall be reported by both parties in their
respective tax returns for such tax year. If Connecticut General contests
INTEGRITY LIFE's calculation of the net consideration, the Parties agree to act
in good faith to resolve any differences within thirty (30) days of the date
Connecticut General submits its alternative calculation and report the amounts
agreed upon in their respective tax returns for such tax year.
Connecticut General represents and warrants that it is subject to U.S. taxation
under either Subchapter L or Subpart F of Part III of Subchapter N of the
Internal Revenue Code of 1986, as amended.
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<PAGE>
ARTICLE XVIII EFFECTIVE DATE; TERM AND TERMINATION
----------------------------------------------------
A. The effective date of this Agreement is JANUARY 1, 1995. This Agreement
remains effective for all business written by INTEGRITY LIFE through
DECEMBER 31, 1999, unless terminated pursuant to the paragraphs listed
below.
B. ONCE EACH CALENDAR YEAR, INTEGRITY LIFE shall have the option to recapture
existing contracts beginning with the twentieth (20) anniversary of their
reinsurance hereunder. Recapture must be made on an issue year basis, and no
contracts can be recaptured unless all contracts with earlier issue years
are recaptured.
C. Connecticut General shall have the option of terminating this Agreement for
new business or for new and existing business, upon delivery of thirty (30)
calendar days written notice to INTEGRITY LIFE, within thirty (30) days of
the happening of any of the following events:
(1) INTEGRITY LIFE's A. M. Best rating is reduced to a "C" or lower.
----------
(2) An order appointing a receiver, conservator or trustee for management
of INTEGRITY LIFE is entered or a proceeding is commenced for
rehabilitation, liquidation, supervision or conservation of INTEGRITY
LIFE.
(3) The Securities and Exchange Commission revokes the licenses of
INTEGRITY LIFE to conduct business.
D. Connecticut General shall have the option of terminating this Agreement for
new business only, upon delivery of thirty (30) calendar days written notice
to INTEGRITY LIFE, within thirty (30) days of the happening of the following
event:
(1) INTEGRITY LIFE is merged, purchased or there is any other change (in
whole or in part) in ownership of INTEGRITY LIFE.
E. INTEGRITY LIFE shall have the option of terminating this Agreement for new
business or for new and existing business, upon delivery of thirty (30)
calendar days written notice to Connecticut General, within 30 days of the
happening of any of the following events:
(1) Connecticut General's A. M. Best rating is reduced to a "C" or lower.
----------
(2) An order appointing a receiver, conservator or trustee for management
of Connecticut General is entered or a proceeding is commenced for
rehabilitation, liquidation, supervision or conservation of Connecticut
General.
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<PAGE>
F. INTEGRITY LIFE shall have the option of terminating this Agreement for new
business only, upon delivery of thirty (30) calendar days written notice to
Connecticut General, within 30 days of the happening of the following event:
(1) Connecticut General is merged, purchased or there is any other change
in its ownership.
G. If this Agreement is terminated, Connecticut General shall be relieved of
all liability to INTEGRITY LIFE:
(1) for claims incurred following the termination date of this Agreement
under such certificates issued by INTEGRITY LIFE on or after the
termination date; and
(2) for claims incurred prior to the termination date of this Agreement,
but proof of claim approved by INTEGRITY LIFE and proof of claim
payment made by INTEGRITY LIFE is not provided to Connecticut General
within eighteen (18) calendar months following the end of the month in
which termination of the Agreement is effective.
H. Both parties shall continue to be entitled to all offset credits provided by
Article X for the entire amount of premiums due and payable by the other
party up to the effective date of termination.
I. INTEGRITY LIFE shall not have the right to assign or transfer any portion of
the rights, duties and obligations of INTEGRITY LIFE under the terms and
conditions of this Agreement, except to affiliates under common control,
without the written approval of Connecticut General. Connecticut General
shall not have the right to assign or transfer any portion of the rights,
duties and obligations of Connecticut General under the terms and conditions
of this Agreement without the written approval of INTEGRITY LIFE.
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<PAGE>
ARTICLE XIX NOTICES
---------------------
All notices required to be given hereunder shall be in writing and shall be
deemed delivered if personally delivered, sent via facsimile, or dispatched by
certified or registered mail, return receipt requested, postage prepaid,
addressed to the parties as follows:
Dennis L. Carr, FSA
Executive Vice President
INTEGRITY LIFE INSURANCE COMPANY
239 South 5th Street, 12th Floor
Louisville, KY 40202
Phone No. (502) 582-7948 Fax No. (502) 582-7903
Timothy J. Ruark, FSA
Assistant Vice President and Actuary
CIGNA Reinsurance, R-26
900 Cottage Grove Road
Hartford, CT 06152-4026
Phone No. (860) 726-4053 Fax No. (860) 726-3153
Notice shall be deemed given on the date it is deposited in the mail or sent via
facsimile in accordance with the foregoing. Any party may change the address to
which to send notices by notifying the other party of such change of address in
writing in accordance with the foregoing.
This Agreement constitutes the entire contract between the parties and shall be
deemed to have been made under and governed by the laws of the State of
Connecticut. Any amendment or modification hereto shall be in writing, endorsed
upon or attached hereto and signed by both INTEGRITY LIFE and Connecticut
General.
In witness whereof, the parties hereto have caused this Agreement to be signed
in duplicate on the dates indicated to be effective as of the date specified
above.
INTEGRITY LIFE INSURANCE COMPANY
Date: December 28, 1995 By: /s/ Dennis L. Carr
---------------------
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
Date: January 3, 1996 By: /s/ Timothy J. Ruark
----------------------
- --------------------------------------------------------------------------------
Integrity Life CIGNA Reinsurance
GrandMaster II December 20, 1995
-17-
<PAGE>
SCHEDULE A
----------
Maximum Limits of Reinsurance in Connecticut General
The maximum Purchase Amount issued on the life of each insured without prior
approval:
$3,500,000
The maximum purchase amount is the sum of all premium contributions less
withdrawals in the contract.
- --------------------------------------------------------------------------------
Integrity Life CIGNA Reinsurance
GrandMaster II December 20, 1995
SCHEDULE A
<PAGE>
SCHEDULE B
----------
Contracts and Funds Subject to this Reinsurance Agreement
<TABLE>
<CAPTION>
Form
Number* Policy Description Date
- ------- ------------------ ----
<S> <C> <C>
GrandMaster II Flexible Payment Variable Annuity
*Includes all state variations
Fund Date Fund Description
- --------- ----------------
Third Quarter 1987 Money Market Portfolio
February 19, 1993 High Income Portfolio
Third Quarter 1987 Equity Income Portfolio
Third Quarter 1987 Growth Portfolio
Third Quarter 1987 Overseas Portfolio
Third Quarter 1987 Investment Grade Bond Portfolio
Third Quarter 1987 Asset Manager Portfolio
March 4, 1993 Index 500 Portfolio
February 6, 1995 Contrafund Portfolio
February 6, 1995 Asset Manager: Growth Portfolio
</TABLE>
- --------------------------------------------------------------------------------
Integrity Life CIGNA Reinsurance
GrandMaster II December 20, 1995
SCHEDULE B
<PAGE>
SCHEDULE C
----------
Limits and Rules of INTEGRITY LIFE
1) INTEGRITY LIFE will determine the Minimum Guaranteed Death Benefit for each
deceased within seven (7) working days of written notice of death.
2) INTEGRITY LIFE has the right to refuse annuity contributions of $1,000,000
for attained ages under 76, $250,000 for attained ages 76 to 79, and any
amount for attained ages 80 or over.
3) The minimum initial purchase payment, other than salary allotment programs,
is $1,000. The minimum initial contribution to a spousal IRS is $250.
MINIMUM GUARANTEED DEATH BENEFIT
A death benefit is available to a beneficiary if a participant dies prior to his
or her retirement date. The amount of the death benefit is the greatest of (1)
the participant's contract value, or (2) the minimum death benefit, which equals
total contributions less the sum of withdrawals.
INTEGRITY LIFE will offer an administrative program which has the effect of
locking in the increase IF ANY in the contract value on each contract
anniversary for purposes of calculation of the minimum death benefit. Under
this program an option is offered to "step up" the minimum death benefit to the
contract value on each contract anniversary if the contract value on such
contract anniversary is greater than the minimum death benefit described in (2)
above (total contributions) and is greater than the contract value on any
previous contract anniversary. This will be effected as a tax-free exchange
into an identical contract, but without new surrender charges. Once this option
is elected, "total contributions" for purposes of calculation of the minimum
death benefit described in (2) above will equal the highest contract value
(which is greater than total contributions less withdrawals) as of any contract
anniversary, less withdrawals made subsequent to such contract anniversary.
- --------------------------------------------------------------------------------
Integrity Life CIGNA Reinsurance
GrandMaster II December 20, 1995
SCHEDULE C
<PAGE>
SCHEDULE D
----------
Quarterly Reinsurance Premium Rates
Exposure Based
Per $1,000 Exposed
<TABLE>
<CAPTION>
Ages Male Female
---- ---- ------
<S> <C> <C>
Less than 35 0.20 0.10
35 - 39 0.26 0.14
40 - 44 0.40 0.20
45 - 49 0.67 0.33
50 - 54 1.25 0.56
55 - 59 2.23 0.92
60 - 64 3.55 1.44
</TABLE>
- --------------------------------------------------------------------------------
Integrity Life CIGNA Reinsurance
GrandMaster II December 20, 1995
SCHEDULE D
<PAGE>
SCHEDULE E
----------
Quarterly Reporting Format
1. Following the end of each calendar quarter, the Quarterly Detail Page,
Fund/Exposure-Based exhibit (attached) must be prepared for each Qualified
plan and Non-Qualified plan separately.
2. The tabulation should be on an Adjusted Basis, which requires omission of
excess contract values due to an issue amount in excess of $3.5 million and
annuity account values for attained ages of 85 or older.
3. The tabulation is on a seriatim basis, with each contract contributing
toward the totals for both exposure and aggregate contract value.
4. The tabulation is necessary to assess the correct amount at risk for
accurate calculation of reinsurance premium. The ceding company can choose
to report values a) as weighted averages during the quarter, or b) as of the
end of the quarter. This election must be denoted on the submission.
5. At year end reporting, a tabulation of exposures by age and sex based on a
percentage decrease in account value by fund type as specified by the NAIC
must be submitted for reserve purposes.
- --------------------------------------------------------------------------------
Integrity Life CIGNA Reinsurance
GrandMaster II December 20, 1995
SCHEDULE E
<PAGE>
EXHIBIT 8(c)
AMENDMENT NO. 1 TO PARTICIPATION AGREEMENT AMONG
VARIABLE INSURANCE PRODUCTS FUND
FIDELITY DISTRIBUTORS CORPORATION
and
INTEGRITY LIFE INSURANCE COMPANY
WHEREAS, INTEGRITY LIFE INSURANCE COMPANY (the "Company"), VARIABLE
INSURANCE PRODUCTS FUND (the "Fund") and FIDELITY DISTRIBUTORS CORPORATION have
previously entered into a Participation Agreement (the "Agreement") containing
certain arrangements concerning prospectus costs; and
WHEREAS, the Trustees of the Fund have approved certain changes to the
expense structure of the Fund; and
NOW, THEREFORE, the parties do hereby agree to amend the Agreement by
substituting the following arrangement in place of any inconsistent language in
the Participation Agreement, wherever found:
1. The Fund will provide to the Company each year, at the Fund's cost,
such number of prospectuses and Statements of Additional Information as are
actually distributed to the Company's then-existing variable life and/or
variable annuity contract owners.
2. If the Company takes camera-ready film or computer diskettes containing
the Fund's prospectus and/or Statement of Additional Information in lieu of
receiving hard copies of these documents, the Fund will reimburse the Company in
an amount computed as follows. The number of prospectuses and Statements of
Additional Information actually distributed to existing contract owners by the
Company will be multiplied by the Funds's actual per-unit cost of printing the
documents.
3. The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund in order to verify that
the prospectuses and Statements of Additional Information provided to the
Company, or the reimbursement made to the Company, are or have been used only
for the purposes set forth hereinabove.
IN WITNESS WHEREOF we have set our hand as of the 15th day of December,
1994.
INTEGRITY LIFE INSURANCE COMPANY
By: /s/John R. McGeeney
Name: John R. McGeeney
Title: Secretary
VARIABLE INSURANCE PRODUCTS FUND FIDELITY DISTRIBUTORS CORPORATION
By: /s/J. Gary Burkhead By: KAL
Name: J. Gary Burkhead Name: Kurt A. Lange
Title: Senior Vice President Title: President
<PAGE>
AMENDMENT NO. 1 TO PARTICIPATION AGREEMENT AMONG
VARIABLE INSURANCE PRODUCTS FUND II
FIDELITY DISTRIBUTORS CORPORATION
and
INTEGRITY LIFE INSURANCE COMPANY
WHEREAS, INTEGRITY LIFE INSURANCE COMPANY (the "Company"), VARIABLE
INSURANCE PRODUCTS FUND II (the "Fund") and FIDELITY DISTRIBUTORS CORPORATION
have previously entered into a Participation Agreement (the "Agreement")
containing certain arrangements concerning prospectus costs; and
WHEREAS, the Trustees of the Fund have approved certain changes to the
expense structure of the Fund; and
NOW, THEREFORE, the parties do hereby agree to amend the Agreement by
substituting the following arrangement in place of any inconsistent language in
the Participation Agreement, wherever found:
1. The Fund will provide to the Company each year, at the Fund's cost,
such number of prospectuses and Statements of Additional Information as are
actually distributed to the Company's then-existing variable life and/or
variable annuity contract owners.
2. If the Company takes camera-ready film or computer diskettes containing
the Fund's prospectus and/or Statement of Additional Information in lieu of
receiving hard copies of these documents, the Fund will reimburse the Company in
an amount computed as follows. The number of prospectuses and Statements of
Additional Information actually distributed to existing contract owners by the
Company will be multiplied by the Funds's actual per-unit cost of printing the
documents.
3. The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund in order to verify that
the prospectuses and Statements of Additional Information provided to the
Company, or the reimbursement made to the Company, are or have been used only
for the purposes set forth hereinabove.
IN WITNESS WHEREOF we have set our hand as of the 15th day of December,
1994.
INTEGRITY LIFE INSURANCE COMPANY
By: /s/John R. McGeeney
Name: John R. McGeeney
Title: Secretary
VARIABLE INSURANCE PRODUCTS FUND II FIDELITY DISTRIBUTORS CORPORATION
By: /s/J. Gary Burkhead By: KAL
Name: J. Gary Burkhead Name: Kurt A. Lange
Title: Senior Vice President Title: President
<PAGE>
EXHIBIT 9
April 24, 1996
Integrity Life Insurance Company
239 South Fifth Street, 12th Floor
Louisville, KY 40202
Re: Separate Account I of Integrity Life Insurance Company (the "Separate
Account")
Dear Sirs:
This opinion is furnished in connection with the Registration Statement on Form
N-4 for the Separate Account and Integrity Life Insurance Company ("Integrity"),
filed under the Securities Act of 1933 and the Investment Company Act of 1940.
The Registration Statement covers an indefinite number of units of interest in
the Separate Account. Contributions to be received under individual variable
annuity contracts ("Contracts") and group variable annuity certificates
("Certificates") offered by Integrity may be allocated to the Separate Account
to support reserves for such Contracts and Certificates.
I have examined all such corporate records of Integrity and such other documents
and such laws as I consider appropriate as a basis for the opinion hereinafter
expressed. On the basis of such examination, it is my opinion that:
1. Integrity is a corporation duly organized and validly existing under the
laws of the State of Ohio.
2. The Separate Account was established and is maintained pursuant to the laws
of the State of Ohio, under which income, gains and losses, whether or not
realized, from assets allocated to such Separate Account are, in accordance
with the contracts and certificates, credited to or charged against the
Separate Account without regard to other income, gains or losses of
Integrity. Although contractual obligations with respect to the funds of the
Separate Account constitute corporate obligations of Integrity, the specific
amounts payable from accumulations in the Separate Account in accordance
with the Contracts and Certificates depend upon the investment experience of
the Separate Account.
3. Assets allocated to the Separate Account will be owned by Integrity;
Integrity will not be a trustee with respect thereto. The Contracts and
Certificates provide that the portion of the assets of the Separate Account
equal to the reserves and other Contract and Certificate liabilities with
respect to the Separate Account will not be chargeable with liabilities
arising out of any other business Integrity may conduct, and that Integrity
reserves the right to transfer assets of the Separate Account in excess of
such reserves and other Contract and Certificate liabilities to the General
Account of Integrity.
<PAGE>
4. When issued and sold as described above, the Contracts and Certificates will
be duly authorized and will constitute validly issued and binding
obligations of Integrity in accordance with their terms. Purchasers of the
Contracts and Certificates will be subject only to the deductions, charges
and fees set forth in the Prospectus.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement.
Sincerely,
/s/John R. McGeeney
John R. McGeeney
<PAGE>
Exhibit No. (10)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Financial Statements"
and to the use of our report dated April 19, 1996, with respect to the financial
statements of Separate Account I of Integrity Life Insurance Company in Post-
Effective Amendment No. 5 to the Registration Statement (Form N-4 No. 33-56654)
and Amendment No. 14 to the Registration Statement (Form N-4 No. 811-4844) and
related Prospectus of Integrity Life Insurance Company.
/s/Ernst & Young LLP
Louisville, Kentucky
April 25, 1996
<PAGE>
Exhibit No. (10)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Financial Statements"
and to the use of our report dated February 23, 1996, with respect to the
statutory basis financial statements of Integrity Life Insurance Company in
Post-Effective Amendment No. 5 to the Registration Statement (Form N-4 No. 33-
56654) and Amendment No. 14 to the Registration Statement (Form N-4 No. 811-
4844) and related Prospectus of Integrity Life Insurance Company.
/s/Ernst & Young LLP
Louisville, Kentucky
April 25, 1996
<PAGE>
EXHIBIT 13
Average Annual Total Returns were calculated as follows:
T = the nth root of (the applicable ERVs divided by $1,000) - 1, where:
n is the number of years in the applicable period;
ERV without surrenders = ending account value of $1,000 contribution
over the applicable period (net of administrative, mortality and
expense fees);
ERV (ending redeemable value) with surrenders = ending account value of
$1,000 contribution over the applicable period (net of administrative,
mortality and expense fees) - the applicable surrender charge.
Cumulative total returns are unaveraged and reflect the simple percentage change
in the value of a hypothetical investment over a stated period of time.
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.
