<PAGE>
As filed with the Securities and Exchange Commission
on August 31, 2000
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 1 [X]
Post-Effective Amendment No.___ [ ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 24 [X]
(Check appropriate box or boxes)
Separate Account I of National Integrity Life Insurance Company
(Exact Name of Registrant)
National Integrity Life Insurance Company
(Name of Depositor)
515 West Market Street, Louisville, KY 40202
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (502) 582-7900
G. Stephen Wastek
Integrity Life Insurance Company
515 West Market Street
Louisville, Kentucky 40202
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering:
As soon after the effective date of this Filing.
Title of Securities Registered
Individual Deferred Variable Annuity Contracts
=======================================================
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8 (a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PROSPECTUS
ANNUICHOICE
FLEXIBLE PREMIUM VARIABLE ANNUITY
issued by NATIONAL INTEGRITY LIFE INSURANCE COMPANY
This prospectus describes flexible premium variable annuity contracts offered to
individuals and to groups by Integrity Life Insurance Company, a subsidiary of
The Western and Southern Life Insurance Company (W&S). The contracts
(collectively, a CONTRACT) provide several types of benefits, some of which have
tax-favored status under the Internal Revenue Code of 1986, as amended. Separate
Account I funds the variable annuity contract. You may allocate contributions to
various available investment divisions of the Separate Account, called Variable
Account Options, or to our Fixed Accounts, or both. The Variable Account Options
and Fixed Accounts are together referred to as INVESTMENT OPTIONS.
Your contributions to the Variable Account Options of Separate Account I are
invested in shares of the Portfolios of the following mutual funds:
<TABLE>
<CAPTION>
FIDELITY'S VIP FUNDS JANUS ASPEN SERIES
-------------------- ------------------
<S> <C>
Fidelity VIP Equity Income Janus Aspen Series Balanced
Fidelity VIP Growth Janus Aspen Series Worldwide Growth
Fidelity VIP Overseas Janus Aspen Series Growth
Fidelity VIP High Income Janus Aspen Series Aggressive Growth
Fidelity VIP Investment Grade Bonds Janus Aspen Series Capital Appreciation
Fidelity VIP II Asset Manager Janus Aspen Series Equity Income
Fidelity VIP II Index Fund 500 Janus Aspens Series International Growth
Fidelity VIP II Contra Fund Janus Aspen Series Strategic Value
Fidelity VIP II Asset Manager Growth
Fidelity VIP III Growth Opportunities MFS FUNDS
Fidelity VIP III Balanced ---------
Fidelity VIP III Growth and Income MFS Emerging Growth
Fidelity VIP III Mid Cap MFS Growth With Income
Fidelity VIP Money Market MFS Mid Cap
MFS New Discovery
MFS Capital Opportunities
MFS Growth
MFS Total Return
</TABLE>
We also offer Guaranteed Rate Options (GROs) and a Systematic Transfer Option
(STO), together referred to as FIXED ACCOUNTS. The money you put into a GRO
earns a fixed interest rate that we declare at the beginning of the duration you
select. A MARKET VALUE ADJUSTMENT will be made for withdrawals, surrenders,
transfers and certain other transactions made before your GRO Account expires.
However, your value under a GRO can't be decreased below an amount equal to your
contribution less prior withdrawals plus interest compounded at an annual
effective rate of 3% (MINIMUM VALUE). Withdrawal charges and an annual
administrative charge may apply, and may invade principal. Your allocation to
the STO earns 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 STO INTO OTHER INVESTMENT OPTIONS
WITHIN ONE YEAR OF CONTRIBUTION ON A MONTHLY OR QUARTERLY BASIS.
This prospectus contains information about the contract that you should know
before investing. You should read this prospectus and any supplements, and
retain them for future reference. This prospectus isn't valid unless provided
with the current Portfolio prospectuses, which you should also read.
This product offers several optional features, including an Added Value Option
where Integrity credits a percentage of purchase payments to your
account. Expenses for a contract with these options will be higher than for a
contract without the options. Over time, the benefit of the Added Value Option
may be more than offset by the fees associated with the option. Please refer to
Section 6, "Optional Contract Features" for further detail.
1
<PAGE>
For further information and assistance, contact our Administrative Office at
National Integrity Life Insurance Company, 15 Matthews Street, Suite 200.
Goshen, New York, 10924. You may also call us at 1-800-325-8583.
Registration statements relating to the contract, which include a Statement of
Additional Information (SAI) dated January 1, 2001, have been filed with the
Securities and Exchange Commission. The SAI is incorporated by reference into
this prospectus. A free copy of the SAI is available by writing to or calling
our Administrative Office. The table of contents for the SAI is found in
Appendix E.
THE CONTRACT IS NOT A DEPOSIT OR OTHER OBLIGATION OF, OR GUARANTEED BY, ANY
BANK, NOR IS IT INSURED BY THE FDIC. IT IS SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
CONTRACT OR PASSED ON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
YOU CAN REVIEW AND COPY INFORMATION ABOUT THE CONTRACT AT THE SEC'S PUBLIC
REFERENCE ROOM IN WASHINGTON, D.C. FOR HOURS OF OPERATION OF THE PUBLIC
REFERENCE ROOM, PLEASE CALL 1-800-SEC-0330. YOU MAY ALSO OBTAIN INFORMATION
ABOUT THE CONTRACT ON THE SEC'S INTERNET SITE AT HTTP://WWW.SEC.GOV. COPIES OF
THAT INFORMATION ARE ALSO AVAILABLE, AFTER PAYING A DUPLICATING FEE, BY
ELECTRONIC REQUEST TO [email protected] OR BY WRITING THE SEC'S PUBLIC
REFERENCE SECTION, WASHINGTON, D.C. 20459-0102.
The date of this prospectus is January 1, 2001.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1 - SUMMARY
Your Variable Annuity Contract..................................................................6
Your Benefits...................................................................................6
How Your Contract is Taxed......................................................................6
Your Contributions..............................................................................6
Your Investment Options.........................................................................6
Variable Account Options........................................................................6
Account Value, Adjusted Account Value and Cash Value ...........................................7
Transfers.......................................................................................7
Charges and Fees................................................................................7
Withdrawals.....................................................................................7
Your Initial Right to Revoke....................................................................7
Risk/Return Summary: Investments and Risks.....................................................7
Table of Annual Fees and Expenses...............................................................9
Examples.......................................................................................13
SECTION 2 - NATIONAL INTEGRITY AND THE SEPARATE ACCOUNT
National Integrity Life Insurance Company......................................................15
The Separate Account and the Variable Account Options..........................................15
Assets of Our Separate Account.................................................................15
Changes In How We Operate......................................................................15
SECTION 3 - YOUR INVESTMENT OPTIONS
Fidelity's Variable Insurance Products Funds...................................................16
Janus Aspen Series.............................................................................18
MFS Funds......................................................................................19
Fixed Accounts.................................................................................21
Guaranteed Rate Options..................................................................21
Renewals of GRO Accounts..............................................................21
Market Value Adjustments..............................................................22
Systematic Transfer Option...............................................................22
SECTION 4 - DEDUCTIONS AND CHARGES
Separate Account Charges.......................................................................23
Annual Administrative Charge...................................................................23
Portfolio and Division Charges.................................................................23
Reduction or Elimination of Separate Account or Administrative Charges.........................23
State Premium Tax Deduction....................................................................23
Contingent Withdrawal Charge...................................................................23
Recapture of Added Value Option................................................................24
Reduction or Elimination of the Contingent Withdrawal Charge...................................24
Transfer Charge................................................................................25
Hardship Waiver................................................................................25
Tax Reserve....................................................................................25
SECTION 5 - TERMS OF YOUR VARIABLE ANNUITY
Contributions Under Your Contract..............................................................25
Your Account Value.............................................................................26
Units in Our Separate Account..................................................................26
How We Determine Unit Value....................................................................26
Transfers......................................................................................27
Excessive Trading..............................................................................27
Withdrawals....................................................................................27
</TABLE>
3
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<TABLE>
<S> <C>
Assignments....................................................................................28
Death Benefits.................................................................................28
Annuity Benefits...............................................................................28
Annuities......................................................................................28
Fixed Annuity Payments.........................................................................29
Timing of Payment..............................................................................29
Standard Death Benefit.........................................................................29
How You Make Requests and Give Instructions....................................................30
SECTION 6 - OPTIONAL CONTRACT FEATURES
Added Value Option.............................................................................30
Death Benefit Options..........................................................................31
SECTION 7 - VOTING RIGHTS
Portfolio Voting Rights........................................................................31
How We Determine Your Voting Shares............................................................32
How Portfolio Shares Are Voted.................................................................32
Separate Account Voting Rights.................................................................32
SECTION 8 - TAX ASPECTS OF THE CONTRACT
Introduction...................................................................................32
Your Contract is an Annuity....................................................................32
Taxation of Annuities Generally................................................................33
Distribution-at-Death Rules....................................................................34
Diversification Standards......................................................................34
Tax-Favored Retirement Programs................................................................34
Federal and State Income Tax Withholding.......................................................34
Impact of Taxes on Integrity...................................................................34
Transfers Among Investment Options.............................................................34
SECTION 9 - ADDITIONAL INFORMATION
Systematic Withdrawals.........................................................................35
Income Plus Withdrawal Program.................................................................35
Dollar Cost Averaging..........................................................................36
Systematic Transfer Program....................................................................36
Customized Asset Reallocation..................................................................36
Systematic Contributions.......................................................................36
Performance Information........................................................................37
Legal Proceedings..............................................................................37
APPENDIX A - FINANCIAL INFORMATION FOR THE SEPARATE ACCOUNT...................................38
APPENDIX B - ADDED VALUE OPTION EXAMPLES.......................................................39
APPENDIX C - HOW THE MARKET AFFECTS THE ADDED VALUE OPTION ....................................41
APPENDIX D - ILLUSTRATION OF A MARKET VALUE ADJUSTMENT.........................................44
APPENDIX E - TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION..........................47
</TABLE>
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.
4
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GLOSSARY
ACCOUNT VALUE - the value of your contract, which consists of the values of your
Fixed Accounts and Variable Account Options added together.
ADJUSTED ACCOUNT VALUE - your Account Value increased or decreased by any Market
Value Adjustment made to your GRO Account.
ANNUITANT - the person upon whose life an annuity benefit and death benefit are
based.
BUSINESS DAY - any day that the New York Stock Exchange is open.
CASH VALUE - your Adjusted Account Value reduced by any withdrawal charges
and/or any pro rata annual administrative charges that may apply.
ENHANCED RATE - a higher rate of interest we may declare for the first year of
any GRO Account that exceeds the Guaranteed Interest Rate credited during the
rest of the Guarantee Period.
FIRST-YEAR TOTAL CONTRIBUTIONS - All monies deposited into the annuity by either
the owner or the company during the first 12 calendar months the contract is in
force.
FIXED ACCOUNTS - Guaranteed Rate Options and the Systematic Transfer Option.
GRO - Guaranteed Rate Option, which offer duration's of two, three, five, seven
and ten years and lock in a fixed annual effective interest rate.
GRO VALUE - the value of a GRO Account. The GRO Value at the expiration of a GRO
Account, assuming you haven't withdrawn or transferred any amounts, will be the
amount you put in plus interest at the Guaranteed Interest Rate.
GUARANTEE PERIOD - the duration of your GRO Account.
GUARANTEED INTEREST RATE - a fixed annual effective interest rate that we
declare for the duration of your GRO Account.
MARKET VALUE ADJUSTMENT ("MVA") - an upward or downward adjustment (never below
the Minimum Value) made to the value of your GRO Account for withdrawals,
surrenders, transfers and certain other transactions made before the GRO Account
expires.
MINIMUM VALUE - an amount equal to your net allocation to a GRO Account, less
prior withdrawals (and associated charges), accumulated at 3% interest annually,
less any administrative charge.
PORTFOLIO - an investment portfolio of a mutual fund in which Separate Account I
invests its assets.
RETIREMENT DATE - the date you elect annuity payments to begin. The Retirement
Date can't be later than your 98th birthday, or earlier if required by law.
STO - Systematic Transfer Option - our STO provides a guaranteed interest rate;
contributions to the STO must be transferred into other Investment Options
within one year of your most recent STO contribution.
UNIT - a measure of your ownership interest in a Variable Account Option.
UNIT VALUE - the value of each unit calculated on any Business Day.
VARIABLE ACCOUNT OPTIONS - the various investment options available to you under
the contract.
5
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SECTION I - SUMMARY
YOUR VARIABLE ANNUITY CONTRACT
When this prospectus uses the terms "we," "our" and "us," it means National
Integrity Life Insurance Company (NATIONAL INTEGRITY). When it uses the terms
"you" and "your" it means the Annuitant, who is the person upon whose life the
annuity benefit and the death benefit are based. That person is usually the
owner of the contract. If the Annuitant doesn't own the contract, the owner has
all the rights under the contract until annuity payments begin. If there are
joint owners, they share the contract rights and any changes or transactions
must be signed by both of them. The death of the first joint owner will
determine the timing of distribution.
If you want to invest for retirement by buying a AnnuiCHOICE Variable Annuity,
complete a Customer Profile form (unless your state requires an application) and
send it to us along with at least the minimum initial contribution. Because the
premium is flexible, additional contributions can be any amount you choose, as
long as they are above the minimum required contribution discussed below.
YOUR BENEFITS
Your contract has an Account Value, an annuity benefit and a death benefit.
These benefits are described in more detail below.
Your benefits under the annuity contract may be controlled by the usual tax
rules for annuities, including deferral of taxes on your investment growth until
you actually make a withdrawal. You should read Section 8, "Tax Aspects of the
Contract" for more information, and possibly consult a tax adviser. The contract
can also provide your benefits under tax-favored retirement programs, which may
be subject to special eligibility and contribution rules.
HOW YOUR CONTRACT IS TAXED
Under the current tax laws, any increases in the value of your contributions
won't be considered part of your taxable income until you make a withdrawal.
However, most of the withdrawals you make before you are 59 1/2 years old are
subject to a 10% federal tax penalty on the taxable portion of the amounts
withdrawn.
YOUR CONTRIBUTIONS
The minimum initial contribution is $1,000. Additional contributions can be as
little as $100. Some tax-favored retirement plans allow smaller contributions.
For more details on contribution requirements, see Section 5, "Contributions
Under Your Contract."
YOUR INVESTMENT OPTIONS
You may have your contributions placed in the Variable Account Options or in the
Fixed Accounts, or place part of your contributions in each of them. The
Variable Account Options and Fixed Accounts are together referred to as the
INVESTMENT OPTIONS. See "Contributions Under Your Contract" in Section 5. To
select investment Options most suitable for you, see Section 3, "Your Investment
Options".
VARIABLE ACCOUNT OPTIONS
Each of the Variable Account Options invests in shares of an investment
portfolio of a mutual fund. Each investment portfolio is referred to as a
PORTFOLIO. The investment goals of each Variable Account Option are the same as
the Portfolio in which it's invested. For example, if your investment goal is to
save money for retirement, you might choose a GROWTH oriented Variable Account
Option, which invests in a GROWTH Portfolio. Your value in a Variable Account
Option will vary with the performance of the corresponding Portfolio. For a full
description of each Portfolio, see that Portfolio's prospectus and Statement of
Additional Information.
6
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ACCOUNT VALUE, ADJUSTED ACCOUNT VALUE AND CASH VALUE
Your ACCOUNT VALUE consists of the values of your Fixed Accounts and Variable
Account Options added together. Your ADJUSTED ACCOUNT VALUE is your Account
Value increased or decreased by any MARKET VALUE ADJUSTMENT. Your Account Value
in the GROs can never be decreased below the Minimum Value. You'll find a
discussion of Market Value Adjustment in the Guaranteed Rate Options paragraph
of Section 3, "Your Investment Options." Your Cash Value is your ADJUSTED
ACCOUNT VALUE reduced by any withdrawal charges or pro rata annual
administrative charges that may apply. Fees and charges are discussed in more
detail below.
TRANSFERS
You may transfer all or any part of your Account Value among the Investment
Options, although there are some restrictions that apply. You can find these
under "Transfers" in Section 5. Any transfer must be for at least $250 and may
be arranged through our telephone transfer service. Transfers may also be made
among certain Investment Options under the following special programs: (i)
Dollar Cost Averaging, (ii) Customized Asset Rebalancing, or (iii) transfer of
your STO contributions. All of these programs are discussed in Section 9. If you
make more than twelve transfers between your Investment Options in one contract
year, your account can be charged up to $20 for each transfer.
CHARGES AND FEES
An annual administrative expense charge of $30 is deducted from your Account. A
daily charge equal to an annual fee of 1.00% is deducted from the Account Value
of each of your Variable Account Options to cover mortality and expense risks
and certain administrative expenses. The charges will never be greater than
this. For more information about these charges, see Section 4, "Deductions and
Charges."
WITHDRAWALS
You may make withdrawals as often as you wish. Each withdrawal must be for at
least $300. You may withdraw up to 10% of your Account Value each contract year
with no withdrawal charges. After the first 10% within a contract year, there
will be a charge for any withdrawals you make, based upon the length of time
your money has been in your account. See Section 4, "Contingent Withdrawal
Charge" and Section 5, "Withdrawals."
YOUR INITIAL RIGHT TO REVOKE (FREE LOOK PERIOD)
You can cancel your contract within ten days after you receive it by returning
it to our Administrative Office. We will extend the ten-day period as required
by law in certain states. If you cancel your contract, we'll return your Account
Value, which may be more or less than your initial contribution. If your state
requires, upon cancellation we'll return your contribution without any
adjustments. We'll return the amount of any contribution to the Guaranteed Rate
Option upon cancellation.
Risk/Return Summary: Investments and Risks
VARIABLE ANNUITY INVESTMENT GOALS
The investment goals of the AnnuiChoice Flexible Premium Variable Annuity are
protecting your investment, building for retirement and providing future income.
We strive to achieve these goals through extensive portfolio diversification and
superior portfolio management.
RISKS
An investment in any of the Variable Account Options carries with it certain
risks, including the risk that the value of your investment will decline and you
could lose money. This could happen if one of the issuers of the stocks becomes
financially impaired or if the stock market as a whole declines. Because most of
the Variable Account Options are in common stocks, there's also the inherent
risk that holders of common stock generally are behind creditors and holders of
preferred stock for payments in the event of the bankruptcy of a stock issuer.
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There are certain risks that are specific to certain industries or market
sectors. Examples of this are industries that are highly regulated and could
experience declines due to burdensome regulations and industries such as the
tobacco industry that are the subject of lawsuits and governmental scrutiny.
Some issuers of stock refine, market and transport oil and related petroleum
products. These companies face the risks of price and availability of oil, the
level of demand for the products, refinery capacity and operating costs, the
cost of financing the exploration for oil and the increasing expenses necessary
to comply with environmental and other energy related regulations. Declining
U.S. crude oil production is likely to lead to increased dependence on foreign
sources of oil and to uncertain supply for refiners and the risk of
unpredictable supply disruptions. In addition, future scientific advances with
new energy sources could have a negative impact on the petroleum and natural gas
industries.
For a complete discussion of the risks associated with an investment in any
particular Portfolio, see the prospectus of that Portfolio.
8
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TABLE OF ANNUAL FEES AND EXPENSES
<TABLE>
<CAPTION>
Owner Transaction Expenses
----------------------------
<S> <C>
Sales Load on Purchases........................................................................... $0
Deferred Sales Load (as a percentage of contributions) (1)................................ 8% Maximum
Exchange Fee (2).................................................................................. $0
</TABLE>
<TABLE>
<CAPTION>
Annual Administrative Charge
------------------------------
<S> <C>
Annual Administrative Charge...................................................................... $30
</TABLE>
<TABLE>
<CAPTION>
Annual Expenses of the Separate Accounts
(as a Percentage of Separate Account Value) (3)
------------------------------------------------
<S> <C>
Mortality and Expense Risk Charge............................................................ .85%
Administrative Expenses...................................................................... .15%
-----
Total Separate Account Annual Expenses....................................................... 1.00%
=====
</TABLE>
Optional Contract Expenses
(as a Percentage of Separate Account Value)
---------------------------------------------
Added Value Option
For an additional annual charge of .15% of separate account value, Integrity
will credit 1% of purchase payment(s) made to the contract during the first 12
months the contract is in force. An additional charge of .15% will be charged
for each additional 1% credited to the contract. A maximum of 5% can be credited
to the contract. These charges will assessed until 7 years from the date the
contract was issued.
<TABLE>
<CAPTION>
Added Value Option Charge Total Separate Account with Added Value Option
------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C>
1% ...................... .15% 1%......................... 1.15%
2% ...................... .30% 2%......................... 1.30%
3% ...................... .45% 3%......................... 1.45%
4% ...................... .60% 4%......................... 1.60%
5% ...................... .75% 5%......................... 1.75%
</TABLE>
The dollar amount of the charge for the Added Value Option is subject to a
minimum and maximum amount. The minimum amount is .145% multiplied by FIRST-YEAR
TOTAL CONTRIBUTIONS. The maximum amount is .182% multiplied by FIRST-YEAR TOTAL
CONTRIBUTIONS. To calculate the minimum and maximum dollar amounts, multiply the
FIRST-YEAR TOTAL CONTRIBUTIONS, by the percentages in the following chart, for
the Added Value Option you select.
<TABLE>
<CAPTION>
Added Value Option Minimum Percentage Maximum Percentage
------------------ ------------------ ------------------
<S> <C> <C>
1% .145% .182%
2% .290% .364%
3% .435% .546%
4% .580% .728%
5% .725% .910%
</TABLE>
SEE APPENDIX B FOR AN EXPLANATION AND EXAMPLES OF HOW TO CALCULATE THE CHARGES
FOR THE BONUS SELECTED.
The fee for the Added Value Option will also be assessed against the fixed
account in the identical manner as it is assessed against the separate account.
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Death Benefit Options
An applicant may choose among three death benefits as a replacement for the
standard death benefit. The annual fees for the optional death benefits are:
<TABLE>
<S> <C>
Option A..........................................................0.15%
Total Variable Account Charges with Option A......................1.15%
Option B..........................................................0.30%
Total Variable Account Charges with Option B......................1.30%
Option C..........................................................0.35%
Total Variable Account Charges with Option C......................1.35%
</TABLE>
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<TABLE>
<CAPTION>
Portfolio Annual Expenses After Waivers/Reimbursements
(as a percentage of average net assets)
---------------------------------------
Management Other Total Annual
Portfolio Fees Expenses Expenses
--------- ---- -------- --------
<S> <C> <C> <C>
Fidelity VIP Equity Income, Service Class 2 .48% .35%(4) .83%(5)
Fidelity VIP Growth, Service Class 2 .58% .35%(4) .93%(5)
Fidelity VIP Overseas, Service Class 2 .73% .43%(4) 1.16%(5)
Fidelity VIP High Income, Service Class 2 .58% .37%(4) .95%(5)
Fidelity VIP II Investment Grade Bonds, Service Class 2 .43% .39%(4) .82%(5)
Fidelity VIP II Asset Manager, Service Class 2 .53% .36%(4) .89%(5)
Fidelity VIP II Index 500, Service Class 2 .24% .36%(4) .60%(5)
Fidelity VIP II Contra Fund, Service Class 2 .58% .37%(4) .95%(5)
Fidelity VIP II Asset Manager Growth, Service Class 2 .53% .36%(4) .89%(5)
Fidelity VIP III Growth Opportunities, Service Class 2 .58% .38%(4) .96%(5)
Fidelity VIP III Balanced, Service Class 2 .43% .41%(4) .84%(5)
Fidelity VIP III Growth and Income, Service Class 2 .48% .38%(4) .86%(5)
Fidelity VIP III Mid Cap, Service Class 2 .57% .68%(4) 1.25%(5)
Fidelity VIP Money Market, Service Class 2 .18% .37%(4) .55%(5)
Janus Aspens Series Balanced, Service Shares .65% .27%(6) .92%(7)
Janus Aspen Series Worldwide Growth, Service Shares .65% .30%(6) .95%(7)
Janus Aspen Series Growth, Service Shares .65% .27%(6) .92%(7)
Janus Aspen Series Aggressive Growth, Service Shares .65% .27%(6) .92%(7)
Janus Aspen Series Capital Appreciation, Service Shares .65% .29%(6) .94%(7)
Janus Aspen Series Equity Income, Service Shares .65% .88%(6) 1.53%(7) (8)
Janus Aspen Series International Growth, Service Shares .65% .36%(6) 1.01%(7)
Janus Aspen Series Strategic Value, Service Shares .65% .60%(6) 1.25%(7)
MFS Emerging Growth, Service Class .75% .29%(9) 1.04%(10) (11)
MFS Growth With Income, Service Class .75% .33%(9) 1.08%(10) (11)
MFS Mid Cap, Service Class .75% .35%(9) 1.10%(10) (11)
MFS New Discovery , Service Class .90% .37%(9) 1.27%(10) (11)
MFS Capital Opportunities, Service Class .75% .36%(9) 1.11%(10) (11)
MFS Growth, Service Class .75% .36%(9) 1.11%(10) (11)
MFS Total Return, Service Class .75% .35%(9) 1.10%(10) (11)
</TABLE>
---------------------------------------------------------
1) See "Deductions and Charges" in Section 4. A 10% free withdrawal is
available in any contract year.
2) After the first 12 transfers during a contract year, we can charge a
transfer fee of $20 for each transfer. This charge does not apply to
transfers made for dollar cost averaging, asset rebalancing, or systematic
transfers. See "Deductions and Charges" in Section 4.
3) See "Deductions and Charges" in Section 4.
4) The Other Expenses presented in the table reflect the payment of .25%
pursuant to a Rule 12b-1 Plan adopted by the underlying mutual funds.
5) Service Class 2 expenses are based on estimated expenses for the first
year.
6) The Other Expenses presented in the table reflect the payment of .25%
pursuant to a Rule 12b-1 plan adopted by the Janus Aspen Series.
7) Expenses are based on the estimated expenses that the new Service Shares
Class of each portfolio expects to incur in its initial fiscal year. All
expenses are shown without the effect of expense offset arrangements.
8) There is a contractual waiver of expenses between their portfolio and Janus
Capital Corporation. The waiver is first applied to the Management Fees and
then against Other Expenses, and will continue until at least the next
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annual renewal of the management agreement. Without such waiver, the
Management Fee and the Total Annual Expenses for the Janus Equity Income
Portfolio would have been .65% and 1.52% respectively.
9) The Other Expenses reflect the payment of .20% pursuant to a Rule 12b-1
plan adopted by MFS Trust.
10) Each portfolio has an expense offset arrangement that reduce portfolio
custodian fees based upon the amount of cash maintained by the portfolio
with its custodian and dividend disbursing agent. The portfolios may enter
into other similar arrangements and directed brokerage arrangement, which
would have the effect of reducing the expenses. The Other Expenses do not
take into account these expense reductions and therefor higher that actual
expenses of the portfolios. Had these expense reductions been taken into
account, the Total Annual Expenses would be lower.
11) Massachusetts Financial Services Company has contractually agreed, subject
to reimbursement, to bear the portfolio expenses such that Other Expenses
(after taking into account the expense offset arrangement described in
footnote 10) do not exceed .15% annually (not including the .20% Rule 12b-1
fee described in footnote 9). The contractual fee arrangement will continue
until at least May 1, 2001, unless changed with the consent of the board of
trustees that oversee the portfolio.
12
<PAGE>
EXAMPLES
The examples below show the expenses on a $1,000 investment, assuming a $60,000
average contract value and a 5% annual rate of return on assets. These figures
do not include the Added Value Option.
<TABLE>
<CAPTION>
Cumulative expenses per $1,000 investment if you surrender your contract at the end of the period shown:
--------------------------------------------------------------------------------------------------------
Portfolio 1 Year 3 Years 5 Years 10 Years
------------------ ---------------------------------------------------
<S> <C> <C> <C> <C>
Fidelity VIP Equity Income, Service Class 2 $89.25 $129.48 $152.11 $220.28
Fidelity VIP Growth, Service Class 2 $90.28 $132.58 $157.34 $230.95
Fidelity VIP Overseas, Service Class 2 $92.63 $139.70 $169.26 $255.08
Fidelity VIP High Income, Service Class 2 $90.48 $133.20 $158.38 $233.07
Fidelity VIP II Investment Grade Bonds, Service Class 2 $89.15 $129.17 $151.59 $219.21
Fidelity VIP II Asset Manager, Service Class 2 $89.87 $131.34 $155.25 $226.29
Fidelity VIP II Index 500, Service Class 2 $86.90 $122.31 $140.02 $195.33
Fidelity VIP II Contra Fund, Service Class 2 $90.48 $133.20 $158.38 $233.07
Fidelity VIP II Asset Manager Growth, Service Class 2 $89.87 $131.34 $155.25 $226.69
Fidelity VIP III Growth Opportunities, Service Class 2 $90.58 $133.51 $158.90 $234.13
Fidelity VIP III Balanced, Service Class 2 $89.35 $129.75 $152.64 $221.35
Fidelity VIP III Growth with Income, Service Class 2 $89.56 $130.41 $153.68 $223.49
Fidelity VIP III Mid Cap, Service Class 2 $93.56 $142.47 $173.90 $264.37
Fidelity VIP Money Market, Service Class 2 $86.38 $120.75 $137.37 $189.83
Janus Aspen Series Balanced, Service Shares $90.17 $132.37 $156.82 $229.88
Janus Aspen Series Worldwide Growth, Service Shares $90.48 $133.20 $158.38 $233.07
Janus Aspen Series Growth, Service Shares $90.17 $132.27 $156.82 $229.88
Janus Aspen Series Aggressive Growth, Service Shares $90.17 $132.27 $156.82 $229.88
Janus Aspen Series Capital Appreciation, Service Shares $90.38 $132.89 $157.86 $323.01
Janus Aspen Series Equity Income, Service Shares $96.42 $151.07 $188.21 $292.73
Janus Aspen Series International Growth, Service Shares $91.10 $135.06 $161.50 $239.40
Janus Aspen Series Strategic Value, Service Shares $93.56 $142.47 $173.90 $264.37
MFS Emerging Growth, Service Class $91.40 $135.99 $163.06 $242.56
MFS Growth with Income, Service Class $91.81 $137.23 $165.13 $246.75
MFS Mid-Cap, Service Class $92.02 $137.84 $166.16 $248.84
MFS New Discovery, Service Class $93.76 $143.09 $174.93 $266.42
MFS Capital Opportunities, Service Class $92.12 $138.15 $166.68 $249.88
MFS Growth, Service Class $92.12 $138.15 $166.68 $249.88
MFS Total Return, Service Class $92.02 $137.84 $166.16 $248.84
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Cumulative expenses per $1,000 investment if you chose to annuitize or not surrender your contract at the end of the
--------------------------------------------------------------------------------------------------------------------
specified period (i.e. No deferred sales load charged):
-------------------------------------------------------
Portfolio 1 Year 3 Years 5 Years 10 Years
--------- -----------------------------------------------
<S> <C> <C> <C> <C>
Fidelity VIP Equity Income, Service Class 2 $19.25 $59.48 $102.11 $220.28
Fidelity VIP Growth, Service Class 2 $20.28 $62.58 $107.34 $230.95
Fidelity VIP Overseas, Service Class 2 $22.63 $69.70 $119.26 $255.08
Fidelity VIP high Income, Service Class 2 $20.48 $63.20 $108.38 $233.07
Fidelity VIP II Investment Grade Bonds, Service Class 2 $19.15 $59.17 $101.59 $219.21
Fidelity VIP II Asset Manager, Service Class 2 $19.87 $61.34 $105.25 $226.69
Fidelity VIP II Index 500, Service Class 2 $16.90 $52.31 $90.02 $195.33
Fidelity VIP II Contra Fund, Service Class 2 $20.48 $63.20 $108.38 $233.07
Fidelity VIP II Asset Manager Growth, Service Class 2 $19.87 $61.34 $105.25 $226.69
Fidelity VIP III Growth Opportunities, Service Class 2 $20.58 $63.51 $108.90 $234.13
Fidelity VIP III Balanced, Service Class 2 $19.35 $59.79 $102.64 $221.35
Fidelity VIP III Growth with Income, Service Class 2 $19.56 $60.41 $103.68 $223.49
Fidelity VIP III Mid Cap, Service Class 2 $23.56 $72.47 $123.90 $264.37
Fidelity VIP Money Market. Service Class 2 $16.38 $50.57 $87.37 $189.83
Janus Aspen Series Balanced, Service Shares $20.17 $62.27 $106.82 $229.88
Janus Aspen Series Worldwide Growth, Service Shares $20.48 $63.20 $108.38 $233.07
Janus Aspen Series Growth, Service Shares $20.17 $62.27 $106.82 $229.88
Janus Aspen Series Aggressive Growth, Service Shares $20.17 $62.27 $106.82 $229.88
Janus Aspen Series Capital Appreciation, Service Shares $20.38 $62.89 $107.86 $232.01
Janus Aspen Series Equity Income, Service Shares $26.42 $81.07 $138.21 $292.73
Janus Aspen Series International Growth, Service Shares $21.10 $65.06 $11.50 $239.40
Janus Aspen Series Strategic Value, Service Shares $23.56 $72.47 $123.90 $264.37
MFS Emerging Growth, Service Class $21.40 $65.99 $113.06 $242.56
MFS Growth with Income, Service Class $21.81 $67.23 $115.13 $246.75
MFS Mid Cap, Service Class $22.02 $67.84 $116.16 $248.84
MFS New Discovery, Service Class $23.76 $73.09 $124.93 $266.42
MFS Capital Opportunities, Service Class $22.12 $68.15 $116.68 $249.88
MFS Growth, Service Class $22.12 $68.15 $116.68 $249.88
MFS Total Return, Service Class $22.02 $67.84 $116.16 $248.84
</TABLE>
These examples assume the current charges that are borne by the Separate
Account. The annual rate of return assumed in the examples isn't an estimate or
guarantee of future investment performance. The table also assumes an estimated
$60,000 average contract value, so that the administrative charge per $1,000 of
net asset value in the Separate Account is $0.50. The per $1,000 charge would be
higher for smaller Account Values and lower for higher values.
The above table and examples are shown only to increase your understanding of
the various costs and expenses that apply to your contract, directly or
indirectly. Premium taxes at the time of payout also may be applicable.
14
<PAGE>
SECTION 2 - NATIONAL INTEGRITY AND THE SEPARATE ACCOUNTS
NATIONAL INTEGRITY LIFE INSURANCE COMPANY
National Integrity is a stock life insurance company organized under the laws of
New York. Our principal executive offices are located in Goshen, New York. We
are authorized to sell life insurance and annuities in 8 states and the District
of Columbia. We sell flexible premium annuities with underlying investment
options, fixed single premium annuity contracts and flexible premium annuity
contracts offering both traditional fixed guaranteed interest rates along with
fixed equity indexed options. Integrity is a subsidiary of W&S, a mutual life
insurance company originally organized under the laws of the State of Ohio on
February 23, 1888.
THE SEPARATE ACCOUNTS AND THE VARIABLE ACCOUNT OPTIONS
The Separate Account was established in 1986, and is maintained under the
insurance laws of the State of New York. It is a unit investment trust, which is
a type of investment company, registered with the Securities and Exchange
Commission (SEC). SEC registration does not mean that the SEC is involved in any
way in supervising the management or investment polices of the separate account.
Each variable account Option invests in shares of a corresponding portfolio. We
may establish additional options from time to time. The variable account options
currently available are listing in Section 3, "Your Investment Options".
ASSETS OF OUR SEPARATE ACCOUNTS
Under New York 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 participate in the
Separate Accounts in proportion to the amounts in their contracts. We can't use
the Separate Account's assets supporting the variable portion of these contracts
to satisfy liabilities arising out of any of our other businesses. Under certain
unlikely circumstances, one Variable Account Option may be liable for claims
relating to the operation of another Option.
Income, gains and losses, whether realized or unrealized, from assets allocated
to the Separate Accounts are credited to or charged against the Separate
Accounts without regard to our other income, gains or losses. We may allow
charges owed to us to stay in the Separate Accounts, and thus can participate
proportionately in the Separate Accounts. Amounts in the Separate Accounts
greater than reserves and other liabilities belong to us, and we may transfer
them to our general account.
CHANGES IN HOW WE OPERATE
We may change how we or our Separate Account operate, subject to your approval
when required by the Investment Company Act of 1940 (1940 ACT) or other
applicable law or regulation. We'll notify you 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 Accounts, or withdraw assets relating
to your contract from one Option and put them into another;
- register or end the registration of the Separate Accounts under the 1940
Act;
- operate our Separate Accounts under the direction of a committee or
discharge 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 Accounts;
- cause one or more Options to invest in a mutual fund other than or in
addition to the Portfolios;
- operate our Separate Accounts 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'll rely on our own or outside counsel for advice.
SECTION 3 - YOUR INVESTMENT OPTIONS
Each of the Portfolios is an open-end diversified management investment company
registered with the SEC.
15
<PAGE>
The Portfolios serve as investment vehicles for variable annuity and variable
life contracts of insurance companies. Shares of the Portfolios are currently
available to the separate accounts of a number of insurance companies, both
affiliated and unaffiliated with FMR or Integrity. The Board of Trustees of each
of the Portfolios is responsible for monitoring the Fund for any material
irreconcilable conflict between the interests of the policyowners of all
separate accounts investing in the Portfolio and determining what action, if
any, should be taken in response. If we believe that a Portfolio's response to
any of those events doesn't adequately protect our contract owners, we'll see to
it that appropriate and available action is taken. See the Portfolios'
prospectus for a further discussion of the risks associated with the offering of
shares to our Separate Account and the separate accounts of other insurance
companies.
FIDELITY
THE PORTFOLIOS' INVESTMENT ADVISER. Fidelity Management & Research Company (FMR)
is a registered investment adviser under the Investment Advisers Act of 1940. It
serves as the investment adviser to each Portfolio. Bankers Trust Company ("BT")
is the VIP II Index 500 Portfolio's sub-adviser. BT, a New York banking
corporation, is a wholly owned subsidiary of Bankers Trust New York Corporation.
INVESTMENT OBJECTIVES OF THE PORTFOLIOS. Below is a summary of the investment
objectives of the Portfolios of Fidelity's VIP Funds. There are no guarantees
that a Portfolio will be able to achieve its objective. YOU SHOULD READ
FIDELITY'S VIP FUNDS' PROSPECTUS CAREFULLY BEFORE INVESTING.
VIP MONEY MARKET PORTFOLIO
VIP Money Market Portfolio seeks to earn a high level of current income while
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.
VIP HIGH INCOME PORTFOLIO
VIP High Income Portfolio seeks a high current income, while also considering
growth of capital. It normally invests at least 65% of its total assets in
income-producing debt securities, preferred stocks, and convertible securities,
with an emphasis on lower-quality debt securities.
VIP EQUITY-INCOME PORTFOLIO
VIP Equity-Income Portfolio seeks reasonable income. The Portfolio will also
consider the potential for capital appreciation. The Portfolio seeks a yield
that exceeds the composite yield on the securities comprising the S&P 500. FMR
normally invests at least 65% of the Portfolio's total assets in
income-producing equity securities.
VIP GROWTH PORTFOLIO
VIP Growth Portfolio seeks capital appreciation. FMR invests the Portfolio's
assets in companies FMR believes have above-average growth potential. Growth may
be measured by factors such as earnings or revenue. Companies with high growth
potential tend to be companies with higher than average price/earnings (P/E)
ratios. Companies with strong growth potential often have new products,
technologies, distribution channels or other opportunities or have a strong
industry or market position. The stocks of these companies are often called
"growth" stocks.
VIP OVERSEAS PORTFOLIO
VIP Overseas Portfolio seeks long-term growth of capital primarily through
investments in foreign securities. It normally invests at least 65% of its
assets in foreign securities.
VIP II INVESTMENT GRADE BOND PORTFOLIO
16
<PAGE>
VIP II Investment Grade Bond Portfolio seeks as high a level of current income
as is consistent with the preservation of capital by investing in U.S.
dollar-denominated investment-grade bonds.
VIP II ASSET MANAGER PORTFOLIO
VIP II Asset Manager Portfolio seeks high total return with reduced risk over
the long-term by allocating its assets among stocks, bonds and short-term money
market instruments.
VIP II INDEX 500 PORTFOLIO
VIP II 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.
VIP II CONTRAFUND(R) PORTFOLIO
VIP II Contrafund(R) Portfolio seeks long-term capital appreciation. FMR
normally invests the Portfolio's assets primarily in common stocks. FMR invests
the Portfolio's assets in securities of companies whose value FMR believes is
not fully recognized by the public. The types of companies in which the
Portfolio may invest include companies experiencing positive fundamental change
such as a new management team or product launch, a significant cost-cutting
initiative, a merger or acquisition, or a reduction in industry capacity that
should lead to improved pricing; companies whose earning potential has increased
or is expected to increase more than generally perceived; companies that have
enjoyed recent market popularity but which appear to have temporarily fallen out
of favor for reasons that are considered non-recurring or short-term; and
companies that are undervalued in relation to securities of other companies in
the same industry.
VIP II ASSET MANAGER: GROWTH PORTFOLIO
VIP II Asset Manager: Growth Portfolio is an asset allocation fund that seeks to
maximize total return over the long term through investments in stocks, bonds,
and short-term money market 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 50-100% 70%
Bond Class 0-50% 25%
Short-Term/
Money Market Class 0-50% 5%
</TABLE>
VIP III GROWTH OPPORTUNITIES PORTFOLIO
VIP III Growth Opportunities Portfolio seeks to provide capital growth. FMR
normally invests the Portfolio's assets primarily in common stocks. FMR may also
invest the Portfolio's assets in other types of securities, including bonds,
which may be lower-quality debt securities.
VIP III BALANCED PORTFOLIO
VIP III Balanced Portfolio seeks both income and growth of capital by investing
approximately 65% of assets in stocks and other equity securities, and the
remainder in bonds and other debt securities, including lower-quality debt
securities, when its outlook is neutral.
VIP III GROWTH & INCOME PORTFOLIO
17
<PAGE>
VIP III Growth & Income Portfolio seeks high total return through a combination
of current income and capital appreciation. FMR normally invests a majority of
the Portfolio's assets in common stocks with a focus on those that pay current
dividends and show potential for capital appreciation. FMR may also invest the
Portfolio's assets in bonds, including lower-quality debt securities, as well as
stocks that are not currently paying dividends, but offer prospects for future
income or capital appreciation.
VIP III MID CAP PORTFOLIO
FMR normally invests the VIP III Mid Cap Portfolio's assets primarily in common
stocks. FMR normally invests at least 65% of the Portfolio's total assets in
securities of companies with medium market capitalizations. Medium market
capitalization companies are those whose market capitalization is similar to the
capitalization of companies in the S&P Mid Cap 400 at the time of the
investment. Companies whose capitalization no longer meets this definition after
purchase continue to be considered to have a medium market capitalization for
purposes of the 65% policy.
JANUS ASPEN SERIES
Each portfolio of the Janus Aspen Series is a mutual fund registered with the
SEC. Janus Capital Corporation serves as the investment adviser to each
Portfolio.
INVESTMENT OBJECTIVES OF THE PORTFOLIOS. Below is a summary of the investment
goals of the Portfolios of the Janus Aspen Series. There are no guarantees that
these objectives will be met. YOU SHOULD READ THE JANUS ASPEN SERIES
PROSPECTUSES CAREFULLY BEFORE INVESTING.
JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO
Janus Aspen Aggressive Growth Portfolio seeks long-term growth of capital. It is
a non-diversified portfolio that pursues its objective by normally investing at
least 50% of its equity assets in securities issued by medium-sized companies.
Medium-sized companies are those whose market capitalizations fall within the
range of companies in the S&P MidCap 400 Index. Market capitalization is a
commonly used measure of the size and value of a company. The market
capitalizations within the Index will vary, but as of December 31, 1999, they
ranged from approximately $170 million to $37 billion.
JANUS ASPEN GROWTH PORTFOLIO
Janus Aspen Growth Portfolio seeks long-term growth of capital in a manner
consistent with the preservation of capital. It is a diversified portfolio that
pursues its objective by investing primarily in common stocks selected for their
growth potential. Although the Portfolio can invest in companies of any size, it
generally invests in larger, more established companies.
JANUS ASPEN CAPITAL APPRECIATION PORTFOLIO
Janus Aspen Capital Appreciation Portfolio seeks long-term growth of capital. It
is a non-diversified portfolio that pursues its objective by investing primarily
in common stocks selected for their growth potential. The Portfolio may invest
in companies of any size, from larger, well-established companies to smaller,
emerging growth companies.
JANUS ASPEN BALANCED PORTFOLIO
Janus Aspen Balanced Portfolio seeks long-term capital growth, consistent with
capital preservation and balanced by current income. It is a diversified
portfolio that pursues its objective by normally investing 40-60% of its assets
in securities selected primarily for their growth potential and 40-60% of its
assets in securities selected primarily for their income potential. The
Portfolio normally invests at least 25% of its assets in fixed-income
securities.
JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO
18
<PAGE>
Janus Aspen Worldwide Growth Portfolio seeks long-term growth of capital in a
manner consistent with the preservation of capital. It is a diversified
portfolio that pursues its objective by investing primarily in common stocks of
companies of any size throughout the world. The Portfolio normally invests in
issuers from at least five different countries, including the United States. The
Portfolio may at times invest in fewer than five countries or even a single
country.
JANUS ASPEN MONEY MARKET PORTFOLIO
Janus Aspen Money Market Portfolio seeks maximum current income to the extent
consistent with stability of capital. There is no guarantee that the Portfolio
will meet its investment goal or be able to maintain a stable net asset value of
$1.00 per share. The Portfolio will invest in high quality, short-term money
market instruments that present minimal credit risks, as determined by Janus
Capital. The Portfolio may invest only in U.S. dollar-denominated instruments
that have a remaining maturity of 397 days or less (as calculated pursuant to
Rule 2a-7 under the 1940 Act) and will maintain a dollar-weighted average
portfolio maturity of 90 days or less.
JANUS ASPEN EQUITY INCOME PORTFOLIO
Janus Aspen Equity Income Portfolio seeks current income and long-term growth of
capital. It normally emphasizes investments in common stocks, and growth
potential is a significant investment consideration. The Portfolio tries to
provide a lower level of volatility than the S&P 500 Index. Normally, it invests
at least 65% of its assets in income-producing equity securities including
common and preferred stocks, warrants and securities that are convertible to
common or preferred stocks.
JANUS ASPEN INTERNATIONAL GROWTH PORTFOLIO
Janus Aspen International Growth Portfolio seeks long-term growth of capital. It
normally invests at least 65% of its total assets in securities of issuers from
at least five different countries, excluding the United States. Although the
Portfolio intends to invest substantially all of its assets in issuers located
outside the United States, it may invest in U.S. issuers and it may at times
invest all of its assets in fewer than five countries, or even a single country.
JANUS ASPEN STRATEGIC VALUE PORTFOLIO
Janus Aspen Strategic Value Portfolio seeks long-term growth of capital. It is a
non-diversified portfolio that pursues its objective by investing primarily in
common stocks with the potential for long-term growth of capital using a "value"
approach. The "value" approach the portfolio manager uses emphasizes investments
in companies he believes are undervalued relative to their intrinsic worth.
MFS FUNDS
Each portfolio of the MFS Variable Insurance Trust is a diversified mutual fund
registered with the SEC. Massachusetts Financial Services Company is the
investment adviser to the MFS Funds.
INVESTMENT OBJECTIVES OF THE PORTFOLIOS. Below is a summary of the investment
objectives of the Portfolios of the MFS Funds. There is no guarantee that these
objectives will be met. YOU SHOULD READ THE PROSPECTUS FOR MFS VARIABLE
INSURANCE TRUST CAREFULLY BEFORE INVESTING.
MFS CAPITAL OPPORTUNITIES PORTFOLIO
MFS Capital Opportunities Portfolio seeks capital appreciation by normally
investing at least 65% of its total assets in common stocks and related
securities. The Portfolio focuses on companies that MFS believes have favorable
growth prospects and attractive valuations based on current and expected
earnings or cash flow.
MFS EMERGING GROWTH PORTFOLIO
MFS Emerging Growth Portfolio seeks long term growth of capital by normally
investing at least 65% of its total assets in common stocks and related
securities of emerging growth companies. Emerging growth companies are
19
<PAGE>
companies that MFS believes are either (1) early in their life cycle but which
have the potential to become major enterprises, or (2) major enterprises whose
rates of earnings growth are expected to accelerate because of special factors,
such as rejuvenated management, new products, changes in consumer demand, or
basic changes in the economic environment. Emerging growth companies may be of
any size, and MFS would expect these companies to have products, technologies,
management, markets and opportunities that will facilitate earnings growth over
time that is well above the growth rate of the overall economy and the rate of
inflation.
MFS GROWTH WITH INCOME PORTFOLIO
MFS Growth With Income Portfolio seeks to provide reasonable current income and
long-term growth of capital and income by normally investing at least 65% of its
total assets in common stocks and related securities. While the Portfolio may
invest in companies of any size, it generally focuses on companies with larger
market capitalizations that MFS believes have sustainable growth prospects and
attractive valuations based on current and expected earnings or cash flow. The
Portfolio will also seek to generate gross income equal to approximately 90% of
the dividend yield on the Standard & Poor's 500 Composite Index.
MFS MID CAP GROWTH PORTFOLIO
MFS Mid Cap Growth Portfolio seeks long term growth of capital by normally
investing at least 65% of its total assets in common stocks and related
securities of companies with medium market capitalization that MFS believes have
above-average growth potential. Medium market capitalization companies are
defined by the Portfolio as companies with market capitalizations equaling or
exceeding $250 million but not exceeding the top of the Russell Midcap Growth
Index range at the time of the Portfolio's investment. Companies whose market
capitalizations fall below $250 million or exceed the top of the Russell Midcap
Growth Index range after purchase continue to be considered
medium-capitalization companies for purposes of the Portfolio's 65% investment
policy. As of February 29, 2000, the top of the Russell Midcap Growth Index
range was $59.6 billion.
MFS NEW DISCOVERY PORTFOLIO
MFS New Discovery Portfolio seeks capital appreciation by normally investing at
least 65% of its total assets in common stocks and related securities of
emerging growth companies. Emerging growth companies are companies that MFS
believes offer superior prospects for growth and are either (1) early in their
life cycle but which have the potential to become major enterprises, or (2)
major enterprises whose rates of earnings growth are expected to accelerate
because of special factors, such as rejuvenated management, new products,
changes in consumer demand, or basic changes in the economic environment. While
emerging growth companies may be of any size, the Portfolio will generally focus
on smaller cap emerging growth companies that are early in their life cycle. MFS
would expect these companies to have products, technologies, management, markets
and opportunities that will facilitate earnings growth over time that is well
above the growth rate of the overall economy and the rate of inflation.
MFS GROWTH PORTFOLIO
MFS Growth Portfolio seeks to provide long-term growth of capital and future
income rather than current income by investing, under normal market conditions,
at least 80% of its total assets in common stocks and related securities, such
as preferred stocks, convertible securities and depositary receipts for those
securities, of companies which MFS believes offer better than average prospects
for long-term growth. MFS looks particularly for companies which demonstrate:
(1) a strong franchise, strong cash flows and a recurring revenue stream; (2) a
strong industry position where there is potential for high profit margins or
substantial barriers to new entry in the industry; (3) a strong management with
a clearly defined strategy; and (4) new products or services.
MFS TOTAL RETURN PORTFOLIO
MFS Total Return Portfolio seeks mainly to provide above-average income
(compared to a portfolio invested entirely in equity securities) consistent with
the prudent employment of capital, and secondarily to provide a reasonable
opportunity for growth of capital and income. The Portfolio invests in a
combination of equity and fixed income securities. Under normal market
conditions, the Portfolio invests (1) at least 40%, but not more than
20
<PAGE>
75%, of its net assets in common stocks and related securities such as preferred
stock, bonds, warrants or rights convertible into stock, and depositary receipts
for those securities; and (2) at least 25% of its net assets in non-convertible
fixed income securities. The Portfolio may vary the percentage of its assets
invested in any one type of security, within the limits described above, in
accordance with MFS's interpretation of economic and money market conditions,
fiscal and monetary policy and underlying security values.
Management fees and other expenses deducted from each Portfolio are described in
that Portfolio's prospectus. Some of the Portfolios' investment advisers may
compensate us for providing administrative services in connection with the
Portfolios. This compensation is paid from the investment adviser's assets. FOR
A PROSPECTUS CONTAINING MORE COMPLETE INFORMATION ON ANY PORTFOLIO, CALL OUR
ADMINISTRATIVE OFFICE TOLL-FREE AT 1-800-433-1778.
FIXED ACCOUNTS
FOR VARIOUS LEGAL REASONS, GRO CONTRACTS HAVEN'T BEEN REGISTERED UNDER THE 1940
ACT OR THE SECURITIES ACT OF 1933 ("1933 ACT"). THUS, NEITHER THE GRO 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 HASN'T REVIEWED THE DISCLOSURE IN THIS
PROSPECTUS RELATING TO THE GROS OR THE GENERAL ACCOUNT. DISCLOSURES REGARDING
THE GROS 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 GROs with durations of two, three, five, seven and ten years. We can
change the durations available from time to time. When you put money in a GRO,
that locks in a fixed effective annual interest rate that we declare (GUARANTEED
INTEREST RATE) for the duration you select. The duration of your GRO Account is
the GUARANTEE PERIOD. Each contribution or transfer to a GRO establishes a new
GRO Account for the duration you choose at the then-current Guaranteed Interest
Rate we declare. We won't 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. All contributions you make to a GRO Account are placed in a
non-unitized separate account. Values and benefits under your GRO contract 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 haven't transferred or
withdrawn any amounts, will be the amount you put in plus interest at the
Guaranteed Interest Rate. We credit interest daily at an effective annual rate
equal to the Guaranteed Interest Rate.
We may declare a higher rate of interest in the first year of any GRO Account
that exceeds the Guaranteed Interest Rate credited during the rest of the
Guarantee Period (ENHANCED RATE). This Enhanced Rate will be guaranteed for the
Guaranteed Period's first year and is declared at the time of purchase. We can
declare and credit additional interest based on Contribution, Account Value,
withdrawal dates, economic conditions or on any other lawful, nondiscriminatory
basis (ADDITIONAL INTEREST). Any Enhanced Rate and Additional Interest credited
to your GRO Account will be separate from the Guaranteed Interest Rate and not
used in the Market Value Adjustment formula. THE ENHANCED RATE OR ADDITIONAL
INTEREST MAY NOT BE AVAILABLE IN CERTAIN STATES.
Each group of GRO Accounts of the same duration is considered one GRO. For
example, all of your three-year GRO Accounts are one GRO while all of your
five-year GRO Accounts are another GRO, even though they may have different
maturity dates.
You can get our current Guaranteed Interest Rates by calling our Administrative
Office.
ALLOCATIONS TO GROS CAN'T BE MADE UNDER CONTRACTS ISSUED IN CERTAIN STATES.
RENEWALS OF GRO ACCOUNTS. When a GRO Account expires, we'll set up a new GRO
Account for the same duration as your old one, at the then-current Guaranteed
Interest Rate, unless you withdraw your GRO Value or
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transfer it to another Investment Option. We'll notify you in writing before
your GRO Accounts expire. You must tell us before the expiration of your GRO
Accounts if you want to make any changes.
The effective date of a renewal of a GRO Account will be the expiration date of
the old GRO Account. If a GRO Account expires and it can't be renewed for the
same duration, the new GRO Account will be set up for the next shortest
duration. For example, if your expiring GRO Account was for 10 years and when it
expires we don't offer a 10-year GRO, but we do offer a seven-year GRO, your new
one will be for seven years. You can tell us if you want something different
within 30 days before the GRO Account expires. You may not choose, and we won't
renew, a GRO Account that expires after your Retirement Date.
MARKET VALUE ADJUSTMENTS. A MARKET VALUE ADJUSTMENT is an adjustment, either up
or down, that we make to your GRO Value if you make an early withdrawal or
transfer from your GRO Account. No Market Value Adjustment is made for free
withdrawal amounts or for withdrawals or transfers made within 30 days of the
expiration of the GRO Account. In addition, we won't make a Market Value
Adjustment for a death benefit. The market adjusted value may be higher or lower
than the GRO Value, but will never be less than the MINIMUM VALUE. Minimum Value
is an amount equal to your contribution to the GRO Account, less previous
withdrawals (and associated charges) from the GRO Account plus 3% interest,
compounded annually and less any applicable contingent withdrawal and
administrative charges. Withdrawal charges and the administrative expense charge
could take away part of your principal.
The Market Value Adjustment we make to your GRO Account is based on the changes
in our Guaranteed Interest Rate. If our Guaranteed Interest Rate has increased
since the time of your investment, the Market Value Adjustment will reduce your
GRO Value (but not below the Minimum Value). On the other hand, if our
Guaranteed Interest Rate has decreased since the time of your investment, the
Market Value Adjustment will increase your GRO Value.
The Market Value Adjustment (MVA) for a GRO Account is determined under the
following formula:
N/12 N/12
MVA = GRO Value x [(1 + A) / (1 + B + .0025) - 1], where
A is the Guaranteed Interest Rate being credited to the GRO Account
subject to the Market Value Adjustment,
B is the current Guaranteed Interest Rate, as of the effective date of
the Market Value Adjustment, for current allocations to a GRO Account,
with a duration that is equal to the number of whole months remaining in
your GRO Account. Subject to certain adjustments, if that remaining
period isn't equal to an exact period for which we have declared a new
Guaranteed Interest Rate, B will be determined by a formula that finds a
value between the Guaranteed Interest Rates for GRO Accounts of the next
highest and next lowest durations.
N is the number of whole months remaining in your GRO Account.
For contracts issued in certain states, the formula will be adjusted to comply
with state requirements.
If for any reason we are no longer declaring current Guaranteed Interest Rates,
then for purposes of determining B we'll use the yield to maturity of U. S.
Treasury Notes with the same remaining term as your GRO Account, using a formula
to find a value 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 B.
SYSTEMATIC TRANSFER OPTION
We also offer a Systematic Transfer Option that guarantees an interest rate that
we declare in advance for each calendar quarter. This interest rate applies to
all contributions made to the STO Account during the calendar quarter for which
the rate has been declared. You MUST transfer all STO contributions into other
Investment Options within one year of your most recent STO contribution.
Transfers are automatically made in approximately equal quarterly or monthly
installments of at least $1,000 each. You can't transfer from other Investment
Options into the STO. Normal contingent withdrawal charges apply to withdrawals
from the STO. We guarantee that the
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STO's effective annual yield will never be less than 3.0%. See "Systematic
Transfer Program" in Section 9 for details on this program.
SECTION 4 - DEDUCTIONS AND CHARGES
SEPARATE ACCOUNT CHARGES
We deduct a daily expense amount from the Unit Value equal to an effective
annual rate of 1.00% of your Account Value in the Variable Account Options. This
daily expense rate can't be increased without your consent. Of the 1.00% total
charge, .15% is used to reimburse us for administrative expenses not covered by
the annual administrative charge described below. We deduct the remaining .85%
for assuming the mortality and expense risk under the contract. The expense risk
is the risk that our actual expenses of administering the contract will exceed
the annual administrative expense charge. Mortality risk, as used here, refers
to the risk we take that annuitants, as a class of persons, will live longer
than estimated and we will be required to pay out more annuity benefits than
anticipated. The mortality and expense risk charge compensate us for the
mortality and expense risks we assume under the contract and the expenses
associated with the bonus. We expect to make a profit form this fee. The
relative proportion of the mortality and expense risk charge may be changed, but
the total 1.00% effective annual risk charge can't be increased.
ANNUAL ADMINISTRATIVE CHARGE
We charge an annual administrative charge of $30. This charge is deducted pro
rata from your Account Value in each Investment Option. The part of the charge
deducted from the Variable Account Options reduces the number of Units we credit
to you. The part of the charge deducted from the Fixed Accounts is withdrawn in
dollars. The annual administrative charge is pro-rated in the event of the
Annuitant's retirement, death, annuitization or contract termination during a
contract year.
PORTFOLIO
The Separate Account buys shares of the Portfolios at net asset value. That
price reflects investment management fees and other direct expenses that have
already been deducted from the assets of the Portfolios. The amount charged for
investment management can't be increased without shareholder approval.
REDUCTION OR ELIMINATION OF SEPARATE ACCOUNT OR ADMINISTRATIVE CHARGES
We can reduce or eliminate the separate account or administrative charges for
individuals or groups of individuals if we anticipate expense savings. We may do
this based on the size and type of the group or the amount of the contribution.
We won't unlawfully discriminate against any person or group if we reduce or
eliminate these charges.
STATE PREMIUM TAX DEDUCTION
We won't deduct state premium taxes from your contributions before investing
them in the Investment Options, unless required by your state law. If the
Annuitant elects an annuity benefit, we'll deduct any applicable state premium
taxes from the amount available for the annuity benefit. State premium taxes
currently range up to 4%.
CONTINGENT WITHDRAWAL CHARGE
We don't deduct sales charges when you make a contribution to the contract.
However, contributions withdrawn may be subject to a withdrawal charge of up to
8%. As shown below, the charge varies, depending upon the "age" of the
contributions included in the withdrawal - that is, the number of years that
have passed since each contribution was made. The maximum of 8% would apply if
the entire amount of the withdrawal consisted of contributions made during your
current contribution year. We don't deduct withdrawal charges when you withdraw
contributions made more than seven years before your withdrawal. To calculate
the withdrawal charge, (1) the oldest contributions are treated as the first
withdrawn and more recent contributions next, and (2) partial withdrawals up to
the free withdrawal amount aren't subject to the withdrawal charge. For partial
withdrawals, the
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total amount deducted from your account will include the withdrawal amount
requested, any Market Value Adjustment that applies, and any withdrawal charges
that apply, so that the net amount you receive will be the amount you requested.
You may take up to 10% of your account value (less any earlier withdrawal in the
same year) each year without any contingent withdrawal charge or Market Value
Adjustment. This is referred to as your "free withdrawal." If you don't take any
free withdrawals in one year, you can't add it to the next year's free
withdrawal. If you aren't 59 1/2, federal tax penalties may apply.
<TABLE>
<CAPTION>
Contribution Year in Which Charge as a % of the
Withdrawn Contribution Was Made Contribution Withdrawn
-------------------------------- ----------------------
<S> <C>
Current.............................................. 7%
First................................................ 7%
Second............................................... 7%
Third................................................ 6%
Fourth .............................................. 5%
Fifth ............................................... 4%
Sixth ............................................... 3%
Seventh (+).......................................... 0%
</TABLE>
We won't deduct a contingent withdrawal charge if you use the withdrawal to buy
from us either an immediate annuity benefit with life contingencies, or an
immediate annuity without life contingencies with a restricted prepayment option
that provides for level payments over five or more years. Similarly, we won't
deduct a charge if the Annuitant dies. See "Standard Death Benefit" in Section
5.
RECAPTURE OF THE ADDED VALUE OPTION
If you select the Added Value Option, and you make any withdrawal in excess of
the 10% free withdrawal, all or part of the Added Value Option will be
recaptured by the company and not distributed. The chart below shows what
portion of the Added Value Option originally credited will be recaptured in the
case of a partial or complete surrender in excess of the free withdrawal amount.
The amount recaptured is based upon the year the withdrawal is taken.
<TABLE>
<CAPTION>
Policy Year Amount of Added Value Option Recaptured
------------------------------------------------------------------------
<S> <C> <C>
1 100%
2 85%
3 65%
4 55%
5 40%
6 25%
7 10%
8 0%
</TABLE>
Prior to recapturing the Added Value Option on any contracts that have been
issued, National Integrity must obtain approval to do so from the Securities and
Exchange Commission. National Integrity will not recapture the Added Value
Option on any contract until such approval is obtained.
REDUCTION OR ELIMINATION OF THE CONTINGENT WITHDRAWAL CHARGE
We can reduce or eliminate the contingent withdrawal charge for individuals or a
group of individuals if we anticipate expense savings. We may do this based on
the size and type of the group, the amount of the contribution, or whether there
is some relationship with us. Examples of these relationships would include
being an employee of Integrity or an affiliate, receiving distributions or
making internal transfers from other contracts we issued, or transferring
amounts held under qualified plans we or our affiliate sponsored. We won't
unlawfully discriminate against any person or group if we reduce or eliminate
the contingent withdrawal charge.
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TRANSFER CHARGE
If you make more than twelve transfers among your Investment Options during one
contract year, we may charge your account up to $20 for each additional transfer
during that year. Transfer charges don't apply to transfers under (i) Dollar
Cost Averaging, (ii) Customized Asset Rebalancing, or (iii) systematic transfers
from the STO, nor do these transfers count toward the twelve free transfers you
can make during a year.
HARDSHIP WAIVER
We can waive contingent withdrawal charges on full or partial withdrawal
requests of $1,000 or more under a hardship circumstance. We can also waive the
Market Value Adjustment on any amounts withdrawn from the GRO Accounts. Hardship
circumstances include the owner's (1) confinement to a nursing home, hospital or
long term care facility, (2) diagnosis of terminal illness with any medical
condition that would result in death or total disability, and (3) unemployment.
We can require reasonable notice and documentation including, but not limited
to, a physician's certification and Determination Letter from a State Department
of Labor. Some of the hardship circumstances listed above may not apply in some
states, and, in other states, may not be available at all. The waivers of
withdrawal charges and Market Value Adjustment apply to the owner, not to the
Annuitant. If there are joint owners, the waivers apply to the primary owner. If
no primary owner can be determined, the waivers will apply to the youngest
owner.
TAX RESERVE
We can make a charge in the future for taxes or for reserves set aside for
taxes, which will reduce the investment performance of the Variable Account
Options.
SECTION 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, can't be less than $1,000. We
have special rules for minimum contribution amounts for tax-favored retirement
programs. See "Tax-Favored Retirement Programs" in the SAI.
We may limit the total contributions under a contract to $1,000,000 if you are
under age 76 or to $250,000 if you are over age 76. Once you reach nine years
before your Retirement Date, we may refuse to accept any contribution.
Contributions may also be limited by various laws or prohibited by us for all
annuitants under the contract. If your contributions are made under a
tax-favored retirement program, we won't measure them against the maximum limits
set by law.
Contributions are applied to the various Investment Options you select 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. 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 when they are delivered in good order to our Administrative Office.
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 the Administrative Office
receives it, the change will be effective for any contribution that accompanies
it and for all future contributions. See "Transfers" in Section 5.
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YOUR ACCOUNT VALUE
Your Account Value reflects various charges. See Section 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 Accounts 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. The value
of contributions allocated to the Variable Account Options isn't guaranteed. The
value of your contributions allocated to the Fixed Accounts is guaranteed,
subject to any applicable Market Value Adjustments. See "Guaranteed Rate
Options" in Section 3.
UNITS IN OUR SEPARATE ACCOUNTS
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.
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 as of 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 of Separate Account I
fluctuates with the investment performance of the corresponding Portfolios,
which in turn reflects the investment income and realized and unrealized capital
gains and losses of the Portfolios, as well as the Portfolios' expenses. Your
Unit Values also change because of deductions and charges we make to our
Separate Accounts. The number of Units credited to you, however, won't vary due
to 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 4 p.m. Eastern Time
on each Business Day. The Unit Value of each Variable Account Option in Separate
Account I for any Business Day is equal to the Unit Value for the previous
Business Day, multiplied by the NET INVESTMENT FACTOR for that Option on the
current day. We determine a NET INVESTMENT FACTOR for each Option in Separate
Account I 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 Portfolios.
- Next, we add any dividends or capital gains distributions by the Portfolio
on that day.
- Then we charge or credit for any taxes or amounts set aside as a reserve
for taxes.
- Then we divide this amount by the value of the amounts in the Option at the
close of business on the last day that a Unit Value was determined (after
giving effect to any transactions on that day).
- Finally, we subtract a daily asset charge for each calendar day since the
last day that a Unit Value was determined (for example, a Monday
calculation will include charges for Saturday and Sunday). The daily charge
is an amount equal to an effective annual rate of 1.00%. This charge is for
the mortality risk, administrative expenses and expense risk we assumed
under the contract.
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TRANSFERS
You may transfer your Account Value among the Variable Account Options and the
GROs, subject to our transfer restrictions. You can't make a transfer into the
STO. Transfers to a GRO must be to a newly elected GRO (that is, to a GRO that
you haven't already purchased) at the then-current Guaranteed Interest Rate,
unless we agree otherwise. Unless you make a transfer from a GRO within 30 days
before the expiration date of a GRO Account, the transfer is subject to a Market
Value Adjustment. See "Guaranteed Rate Options" in Section 3. Transfers from
GROs will be made according to the order in which money was originally allocated
to the GRO.
The amount transferred must be at least $250 or, if less, the entire amount in
the Investment Option. You have twelve free transfers during a contract year.
After those twelve transfers, a charge of up to $20 may apply to each additional
transfer during that contract year. No charge will be made for transfers under
our Dollar Cost Averaging, Customized Asset Rebalancing, or Systematic Transfer
programs, described in Section 9.
You may request a transfer by sending a written request directly to the
Administrative Office. Each 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 if you've established a Personal Identification
Number (PIN CODE). We'll honor telephone transfer instructions from any person
who provides correct identifying information and we aren't responsible for
fraudulent telephone transfers we believe to be genuine according to these
procedures. Accordingly, you bear the risk of loss if unauthorized persons make
transfers on your behalf.
A transfer request is effective as of the Business Day it is received our
Administrative Office. A transfer request doesn't change the allocation of
current or future contributions among the Investment Options. Telephone
transfers may be requested from 9:00 a.m. - 5:00 p.m., Eastern Time, on any day
we're open for business. You'll receive the Variable Account Options' Unit
Values as of the close of business on the day you call. Accordingly, transfer
requests for Variable Account Options received after 4:00 p.m. Eastern Time (or
the close of the New York Stock Exchange, if earlier) 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.
Transfer requests submitted by agents or market timing services that represent
multiple policies will be processed not later than the next Business Day after
the requests are received by our Administrative Office.
EXCESSIVE TRADING
We reserve the right to limit the number of transfers in any contract year or to
refuse any transfer request for an owner or certain owners if: (a) we believe in
our sole discretion that excessive trading by the owner or owners or a specific
transfer request or group of transfer requests may have a detrimental effect on
Unit Values or the share prices of the underlying mutual funds; or (b) we are
informed by one or more of the underlying mutual funds that the purchase or
redemption of shares is to be restricted because of excessive trading, or that a
specific transfer or group of transfers is expected to have a detrimental effect
on share prices of affected underlying mutual funds. We also have the right,
which may be exercised in our sole discretion, to prohibit transfers occurring
on consecutive Business Days.
We will notify you or your designated representative if your requested transfer
is not made. Current SEC rules preclude us from processing your request at a
later date if it is not made when initially requested. ACCORDINGLY, YOU WILL
NEED TO SUBMIT A NEW TRANSFER REQUEST IN ORDER TO MAKE A TRANSFER THAT WAS NOT
MADE BECAUSE OF THESE LIMITATIONS.
WITHDRAWALS
You may make withdrawals as often as you wish. Each withdrawal must be at least
$300. The money will be taken from your Investment Options pro rata, in the same
proportion their value bears to your total Account Value. For example, if your
Account Value is divided in equal 25% shares among four Investment Options, when
you make a withdrawal, 25% of the money withdrawn will come from each of your
Investment Options. You can tell us if you
27
<PAGE>
want your withdrawal handled differently. During the first seven years of your
contract, there is a contingent withdrawal charge for any withdrawals other than
free withdrawals (discussed below). The charge starts at 8% and decreases
depending on the age of your account. This charge is in addition to any Market
Value Adjustments made to early withdrawals from GRO Accounts. If the Added
Value Option is selected, there will also be a recapture of the initial amount
credited. See Section 4 "Recapture of Added Value Option" for details. Under
some circumstances, the contingent withdrawal charge and Market Value Adjustment
may be waived.
When you make a partial withdrawal, the total amount deducted from your Account
Value will include the withdrawal amount requested plus any contingent
withdrawal charges and any Market Value Adjustments. The total amount that you
receive will be the total that you requested. Most of the withdrawals you make
before you are 59 1/2 years olD are subject to a 10% federal tax penalty. If
your contract is part of a tax-favored retirement plan, the plan may limit your
withdrawals. See "Tax Aspects of the Contract" in Section 8.
ASSIGNMENTS
If your contract isn't part of a tax-favored program, you may assign the
contract before the Annuitant's Retirement Date. You can't, however, make a
partial assignment. An assignment of the contract may have adverse tax
consequences. See Section 8, "Tax Aspects of the Contract." We won't be bound by
an assignment unless it is in writing and is received at our Administrative
Office in a form acceptable to us.
ANNUITY BENEFITS
All annuity benefits under your contract are calculated as of the Retirement
Date you select. You can change the Retirement Date by writing to the
Administrative Office any time before the Retirement Date. The Retirement Date
can't be later than your 98th birthday, or earlier if required by law. Contract
terms applicable to various retirement programs, along with federal tax laws,
establish certain minimum and maximum retirement ages.
Annuity benefits may be a lump sum payment or paid out over time. A lump sum
payment will provide the Annuitant with the Cash Value under the contract
shortly after the Retirement Date. The amount applied toward the purchase of an
annuity benefit is the Account Value less any pro-rata annual administrative
charge, except that the Cash Value will be the amount applied if the annuity
benefit doesn't have a life contingency and either the term is less than five
years or the annuity can be changed to a lump sum payment without a withdrawal
charge.
ANNUITIES
Annuity benefits can provide for fixed payments, which may be made monthly,
quarterly, semi-annually or annually. You can't change or redeem the annuity
once payments have begun. For any annuity, the minimum initial payment must be
at least $100 monthly, $300 quarterly, $600 semi-annually or $1,200 annually.
If you haven't already elected a lump sum payment or an annuity benefit, we'll
send you a notice within six months before your Retirement Date outlining your
options. If you fail to notify us of your benefit payment election before your
Retirement Date, you'll receive a lump sum benefit.
We currently offer the following types of annuities:
A LIFE AND TEN YEARS CERTAIN ANNUITY is a fixed life income annuity with 10
years of payments guaranteed, funded through our general account.
A PERIOD CERTAIN ANNUITY provides for fixed payments to the Annuitant or the
Annuitant's beneficiary for a fixed period. The amount is determined by the
period selected. If the Annuitant dies before the end of the period selected,
the Annuitant's beneficiary can choose 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 after that for the life of the Annuitant, or for the lives
of the Annuitant and another annuitant under a joint and survivor annuity. If
the Annuitant (or the Annuitant and the other annuitant under a joint and
survivor annuity) dies before the period
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selected ends, the remaining payments will go to the Annuitant's beneficiary.
The Annuitant's beneficiary can redeem the annuity and receive the present value
of future guaranteed payments in a lump sum.
A LIFE INCOME ANNUITY provides fixed payments to the Annuitant for the life of
the Annuitant, or until the last annuitant dies under a joint and survivor
annuity.
FIXED ANNUITY PAYMENTS
Fixed annuity payments won't 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 Annuitant's age (or
Annuitant and a joint annuitant in the case of a joint and survivor annuity) and
sex (except under most tax-favored retirement programs). If our current annuity
rates would provide a larger payment, those current rates will apply instead of
the contract rates.
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'll deduct the overpayment from the next payment or payments
due. We add underpayments to the next payment.
TIMING OF PAYMENT
We normally 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 delayed, however, for any period during which:
(1) the New York Stock Exchange has been closed or trading on it is restricted;
(2) an emergency exists so that disposal of securities isn't reasonably
practicable or it isn't reasonably practicable for a Separate Account
fairly to determine the value of its net assets; or
(3) the SEC, by order, permits us to delay action to protect persons with
interests in the Separate Accounts. We can delay payment of your Fixed
Accounts for up to six months, and interest will be paid on any payment
delayed for 30 days or more.
STANDARD DEATH BENEFIT
We'll pay a death benefit to the Annuitant's surviving beneficiary (or
beneficiaries, in equal shares) if the last Annuitant dies before annuity
payments have started. There are three different types of death benefits. One is
for policyholders who are age 73 or younger when they purchase the contract. The
second is for policyholders who purchase the contract when they are between age
74 and 85. The third is for someone who is age 86 or older when they purchase
the contract.
FOR CONTRACTS WHERE THE ISSUE AGE IS 73 YEARS OLD OR YOUNGER:
If the policyholder dies in the first seven years after the contract is issued,
the death benefit is the greater of:
a. total contributions minus withdrawals; or
b. current account value
At the end of seven years, the death benefit automatically becomes the greater
of current account value or total contributions, minus withdrawals. This is the
minimum death benefit.
If the policyholder dies more than seven years after the date of issue, the
death benefit is the greater of:
a. minimum death benefit plus subsequent contributions, minus
withdrawals; or
b. current account value
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FOR CONTRACTS WHERE THE ISSUE AGE IS BETWEEN 74 AND 85 YEARS OLD:
The death benefit is the greater of:
a. total contributions minus withdrawals; or
b. current account value
FOR CONTRACT WHERE THE ISSUE AGE IS 86 YEARS OLD OR OLDER:
The death benefit is the current account value.
The reductions in the death benefit for subsequent withdrawals will be
calculated on a pro-rata basis with respect to Account Value at the time of
withdrawal.
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 a benefit option hasn't
been selected for the beneficiary at the Annuitant's death, the beneficiary can
select an option.
The owner selects the beneficiary of the death benefit. An owner may change
beneficiaries by sending the appropriate form to the Administrative Office. If
an Annuitant's beneficiary doesn't survive the Annuitant, then the death benefit
is generally paid to the Annuitant's estate. A death benefit won't 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.
HOW YOU MAKE REQUESTS AND GIVE INSTRUCTIONS
When you write to our Administrative Office, use the address on the cover page
of this prospectus. We can't honor your request or instruction unless it's
proper and complete. Whenever possible, use one of our printed forms, which may
be obtained from our Administrative Office.
SECTION 6- OPTIONAL CONTRACT FEATURES
For an additional charge, the following options are available to contract
purchasers. These options must be elected at the time of application and will
replace or supplement standard contract benefits. Charges for the optional
benefits are in addition to the standard variable account charges. The fee for
the Added Value Option is assessed against the variable and fixed accounts.
ADDED VALUE OPTION
For any deposit made within the first 12 months the contract is in effect,
National Integrity will credit from 1% up to 5% of premium payments made into
the annuity. For example, if $50,000 is deposited into the annuity in the first
12 months, and the 3% Added Value Option is selected, National Integrity will
credit $1500 to the account.
The charge is .15% annually for each percentage of Added Value Option requested.
For example, if the 3% option is selected, the annual charge will be .45%. This
charge is subject to a minimum and maximum dollar amount. This charge is
assessed quarterly to both the variable and fixed accounts National Integrity
will discontinue deducting the charges seven years from the date the contract
was issued. Some or all of the Added Value Option will be recaptured by the
company when total or partial withdrawals are taken out of the contract. See
Section 1, "Table of Fees and Expenses", "Appendix B", and Section 4 "recapture
of Added Value Option".
National Integrity uses this charge as well as a portion of the early withdrawal
charges and mortality and expense charges to recover the cost of providing the
Added Value Option. Under certain circumstances, such as periods of poor market
performance, the cost associated with the Added Value Option may exceed the sum
of the Added Value Option and any related earnings. Generally, if the stock
market grows at more than 8% annually, a policyholder will benefit from having
the Added Value Option. If the stock market grows at less than 8%annually, or
the policyholder invests substantially in the fixed accounts, the policyholder
will not benefit from the Added Value Option. See Appendix C for some examples
of how market growth can affect the benefit of the Added Value Option.
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DEATH BENEFIT OPTIONS
Any of the following options may be elected when the contract is purchased.
These options may not be cancelled once the contract is issued. They may not be
added after the contract is issued. Reductions in death benefits due to
subsequent withdrawals are calculated on a pro-rata basis with respect to the
account value at the time of withdrawal.
OPTION A (Highest Anniversary)
For issue ages up to and including age 75, the death benefit will be the greater
of:
a. highest account value on any contract anniversary before age 81, plus
any subsequent contribution, minus any withdrawals; or
b. the standard contract death benefit.
This option is not available for issue ages of 76 or older.
OPTION B (Step Up)
For issue ages up to and including age 75, the death benefit will be the greater
of:
a. total contributions, minus any subsequent withdrawals, accumulated at
an annual growth rate of 5% from the date of each contribution or
withdrawal. The growth rate of 5% will stop accruing at the earlier of
age 81 or when the accumulated amount reaches 200% of the sum of
contributions minus withdrawals; or
b. The standard contract death benefit.
This option is not available for issue ages of 76 or older.
OPTION C (Greater of Highest Anniversary or Step Up)
For issue ages up to and including age 75, the death benefit will be the greater
of:
a. the death benefit if Option A had been chosen; or
b. the death benefit if Option B had been chosen; or
c. the standard contract death benefit.
This option is not available for issue ages of 76 or older.
SECTION 7 - VOTING RIGHTS
PORTFOLIO VOTING RIGHTS
We are the legal owner of the shares of the Portfolios held by Separate Account
I and, therefore, have the right to vote on certain matters. Among other things,
we may vote to elect a Portfolio's Board of Directors, to ratify the selection
of independent auditors for a Portfolio, and on any other matters described in a
Portfolio's 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'll send you Portfolio proxy materials and a form for giving us
voting instructions.
If we don't receive instructions in time from all owners, we'll vote shares in a
Portfolio for which we have not received instructions in the same proportion as
we vote shares for which we have received instructions. Under eligible deferred
compensation plans and certain qualified plans, your voting instructions must be
sent to us indirectly, through your employer, but we aren't responsible for any
failure by your employer to solicit your instructions or to send your
instructions to us. We'll vote any Portfolio shares that we're entitled to vote
directly, because of amounts we have accumulated in Separate Account I, in the
same proportion that other owners vote. If
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<PAGE>
the federal securities laws or regulations or interpretations of them change so
that we're permitted to vote shares of a Portfolio on our behalf or to restrict
owner voting, we may do so.
HOW WE DETERMINE YOUR VOTING SHARES
You vote only on matters concerning the Portfolios in which your contributions
are invested. We determine the number of Portfolio shares in each Variable
Account Option under your contract by dividing your Account Value allocated to
that Option by the net asset value of one share of the corresponding Portfolio
on the record date set by a Portfolio's Board for its shareholders' meeting. For
this purpose, the record date can't be more than 60 days before the meeting of a
Portfolio. 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 PORTFOLIO SHARES ARE VOTED
All Portfolio 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) that require collective approval. On
matters where the interests of the individual Portfolios differ, the approval of
the shareholders in one Portfolio isn't needed to make a decision in another
Portfolio. To the extent shares of a Portfolio are sold to separate accounts of
other insurance companies, the shares voted by those companies according to
instructions received from their contract holders will dilute the effect of
voting instructions received by us 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 Section 2) may require owner approval. In that
case, you'll 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'll cast votes attributable to amounts we have in the Variable
Account Options in the same proportions as votes cast by owners.
SECTION 8 - TAX ASPECTS OF THE CONTRACT
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 several factors. These factors may
include Integrity's tax status, the type of retirement plan, if any, for which
the contract is purchased, and the tax and employment status of the individuals
concerned.
The following discussion of the federal income tax treatment of the contract
isn't designed to cover all situations and isn't intended to be tax advice. It
is based upon our understanding of the federal income tax laws as currently
interpreted by the Internal Revenue Service (IRS) and various courts. We cannot
guarantee that the IRS or the courts won't change their views on the treatment
of these contracts. Future legislation could affect annuity contracts adversely.
Moreover, we have not attempted to consider any applicable state or other tax
laws. Because of the complexity of tax laws and the fact that tax results will
vary according to particular circumstances, anyone considering the purchase of a
contract, selecting annuity payments under the contract, or receiving annuity
payments under a contract should consult a qualified tax adviser. NATIONAL
INTEGRITY DOES NOT MAKE ANY GUARANTEE REGARDING THE TAX STATUS, FEDERAL, STATE,
OR LOCAL, OF ANY CONTRACT OR ANY TRANSACTION INVOLVING THE CONTRACT.
YOUR CONTRACT IS AN ANNUITY
Under federal tax law, anyone can purchase an annuity with after-tax dollars.
Earnings under the contract won't generally be taxed until you make a
withdrawal. An individual (or employer) may also purchase the annuity to fund a
tax-favored retirement program (contributions are with pre-tax dollars), such as
an IRA or qualified plan. Finally, an individual (or employer) may purchase the
annuity to fund a Roth IRA (contributions are with after-tax dollars and
earnings may be excluded from taxable income at distribution).
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This prospectus covers the basic tax rules that apply to an annuity purchased
directly with after-tax dollars (a nonqualified annuity), and some of the
special tax rules that apply to an annuity purchased to fund a tax-favored
retirement program (a qualified annuity). A qualified annuity may restrict your
rights and benefits to qualify for its special treatment under 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, contributions you put into the annuity
(your "basis" or "investment" in the contract) will not be taxed when you
receive the amounts back in a distribution. Also, an owner generally isn't taxed
on the annuity's earnings (increases in Account Value) 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 can't defer tax on the annuity's income unless an exception applies. In
addition, if an owner transfers an annuity as a gift to someone other than a
spouse (or former spouse), all increases in the Account Value are taxed at the
time of transfer. The assignment or pledge of any portion of the value of a
contract is treated as a taxable distribution of that portion of the value of
the contract.
You can take withdrawals from the contract or you can wait to annuitize it when
the annuitant reaches a certain age. The tax implications are different for each
type of distribution. Section 72 of the Code states that the proceeds of a full
or partial withdrawal from a contract before annuity payments begin are treated
first as taxable income, but only to the extent of the increase of the Account
Value. The rest of the withdrawal, representing your basis in the annuity, is
not taxable. Generally, the investment or basis in the contract equals the
contributions made by you or on your behalf, minus any amounts previously
withdrawn that weren't treated as taxable income. Special rules may apply if the
contract includes contributions made before August 14, 1982 that were rolled
over to the contract in a tax-free exchange.
If you take annuity payments over the lifetime of the annuitant, part of each
payment is considered to be a tax-free return of your investment. This tax-free
portion of each payment is determined using a ratio of the owner's investment to
his or her expected return under the contract (exclusion ratio). The rest of
each payment will be ordinary income. When all of these tax-free portions add up
to your investment in the annuity, future payments are entirely ordinary income.
If the Annuitant dies before recovering the total investment, a deduction for
the remaining basis will generally be allowed on the owner's final federal
income tax return.
We may be required to withhold federal income taxes on all distributions unless
the eligible recipients elect not to have any amounts withheld and properly
notify us of that election.
The taxable portion of a distribution is taxed at ordinary income tax rates. In
addition, you may be subject to a 10% penalty on the taxable portion of a
distribution unless it is:
(1) on or after the date on which the taxpayer attains age 59 1/2;
(2) as a result of the owner's death;
(3) part of a series of "substantially equal periodic payments" (paid at
least annually) for the life (or life expectancy) of the taxpayer or
joint lives (or joint life expectancies) of the taxpayer and
beneficiary;
(4) a result of the taxpayer becoming disabled within the meaning of Code
Section 72(m)(7);
(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;
(8) under an immediate annuity as defined in Code Section 72(u)(4);
(9) for the purchase of a first home (distribution up to $10,000);
(10) for certain higher education expenses; or
(11) to cover certain deductible medical expenses.
Please note that items (9), (10) and (11) apply to IRAs only.
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Any withdrawal provisions of your contract will also apply. See "Withdrawals" in
Section 5.
All annuity contracts issued by us or our 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 date the annuity starts and before the entire interest in the
contract has been distributed, then the rest of that annuity must be distributed
at least as quickly as the method in effect when the owner died; and (b) if any
owner dies before the date the annuity starts, the entire contract must be
distributed within five years after the owner's death. However, any interest
that is payable to a beneficiary may be annuitized over the life of that
beneficiary, as long as distributions begin within one year after the owner
dies. If the beneficiary is the owner's spouse, the contract (along with the
deferred tax status) may be continued in the spouse's name as the owner.
DIVERSIFICATION STANDARDS
We manage the investments in the annuities under Section 817(h) of the Code to
ensure that you will be taxed as described above.
TAX FAVORED RETIREMENT PROGRAMS
An owner can use this annuity with certain types of retirement plans that
receive favorable tax treatment under the Code. Numerous tax rules apply to the
participants in these qualified plans and to the contracts used in connection
with those qualified plans. These tax rules vary according to the type of plan
and the terms and conditions of the plan itself. 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 on the amount that may be borrowed, the
duration of the loan, and repayment of the loan. (Owners should always consult
their tax advisors and retirement plan fiduciaries before taking any loans from
the plan.) Also, special rules apply to the time at which distributions must
begin and the form in which the distributions must be paid. THE SAI CONTAINS
GENERAL INFORMATION ABOUT THE USE OF CONTRACTS WITH THE VARIOUS TYPES OF
QUALIFIED PLANS.
FEDERAL AND STATE INCOME TAX WITHHOLDING
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 ON NATIONAL INTEGRITY
The contract allows us to charge the Separate Account for taxes. We can also set
up reserves for taxes.
TRANSFERS AMONG INVESTMENT OPTIONS
Under current tax law there won't be any tax liability if you transfer any part
of the Account Value among the Investment Options of your contract.
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SECTION 9 - ADDITIONAL INFORMATION
SYSTEMATIC WITHDRAWALS
We offer a program that allows you to pre-authorize periodic withdrawals from
your contract before your Retirement Date. You can choose to have withdrawals
made monthly, quarterly, semi-annually or annually and can specify the day of
the month (other than the 29th, 30th or 31st) on which the withdrawal is made.
You may specify a dollar amount for each withdrawal or an annual percentage to
be withdrawn. The minimum systematic withdrawal currently is $100. You may also
specify an account for direct deposit of your systematic withdrawals. To enroll
under our systematic withdrawal program, send the appropriate form to our
Administrative Office. Withdrawals may begin one Business Day after we receive
the form. You may terminate your participation in the program upon one day's
prior written notice, and we may end or change the systematic withdrawal program
at any time. If on any withdrawal date you don't have enough money in your
accounts to make all of the withdrawals you have specified, no withdrawal will
be made and your enrollment in the program will be ended.
Amounts you withdraw under the systematic withdrawal program may be within the
free withdrawal amount. If so, we won't deduct a contingent withdrawal charge or
make a Market Value Adjustment. See "Contingent Withdrawal Charge" in Section 4.
AMOUNTS WITHDRAWN UNDER THE SYSTEMATIC WITHDRAWAL PROGRAM GREATER THAN THE FREE
WITHDRAWAL AMOUNT WILL BE SUBJECT TO A CONTINGENT WITHDRAWAL CHARGE, A MARKET
VALUE ADJUSTMENT, AND THE ADDED VALUE OPTION RECAPTURE IF APPLICABLE.
WITHDRAWALS ALSO MAY BE SUBJECT TO THE 10% FEDERAL TAX PENALTY FOR EARLY
WITHDRAWAL AND TO INCOME TAXATION. See Section 8, "Tax Aspects of the Contract."
INCOME PLUS WITHDRAWAL PROGRAM
We offer an Income Plus Withdrawal Program that allows you to pre-authorize
equal periodic withdrawals, based on your life expectancy, from your contract
before you reach age 59 1/2. You won't have to pay any tax penalty for these
withdrawals, but they will be subject to ordinary income tax. See "Taxation of
Annuities Generally," in Section 7. Once you begin receiving distributions, they
shouldn't be changed or stopped until the later of:
- the date you reach age 59 1/2; or
- five years from the date of the first distribution.
If you change or stop the distribution or take an additional withdrawal, you may
have to pay a 10% penalty tax that would have been due on all prior
distributions made under the Income Plus Withdrawal Program, plus any interest.
You can choose the Income Plus Withdrawal Program at any time if you're younger
than 59 1/2. You can elect this option by sending the election form to our
Administrative Office. You can choose to have withdrawals made monthly,
quarterly, semi-annually or annually and can specify the day of the month (other
than the 29th, 30th or 31st) on which the withdrawal is made. We'll calculate
the amount of the distribution under a method you select, subject to a minimum,
which is currently $100. You must also specify an account for direct deposit of
your withdrawals.
To enroll in our Income Plus Withdrawal Program, send the appropriate form to
our Administrative Office. Your withdrawals will begin at least one Business Day
after we receive your form. You may end your participation in the program upon
seven Business Days prior written notice, and we may end or change the Income
Plus Withdrawal Program at any time. If on any withdrawal date you don't have
enough money in your accounts to make all of the withdrawals you have specified,
no withdrawal will be made and your enrollment in the program will end. This
program isn't available in connection with the Systematic Withdrawal Program,
Dollar Cost Averaging, or Systematic Transfer Option.
If you haven't used up your free withdrawals in any given contract year, amounts
you withdraw under the Income Plus Withdrawal Program may be within the free
withdrawal amount. If they are, no contingent withdrawal charge or Market Value
Adjustment will be made. See "Contingent Withdrawal Charge" in Section 4.
AMOUNTS WITHDRAWN UNDER THE INCOME PLUS WITHDRAWAL PROGRAM IN EXCESS OF THE FREE
WITHDRAWAL AMOUNT WILL BE
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SUBJECT TO A CONTINGENT WITHDRAWAL CHARGE, A MARKET VALUE ADJUSTMENT, AND THE
ADDED VALUE OPTION RECAPTURE IF APPLICABLE.
DOLLAR COST AVERAGING
We offer a dollar cost averaging program under which we transfer contributions
allocated to the Fidelity Money Market Option to one or more other Variable
Account Options on a monthly, quarterly, semi-annual or annual basis. You must
tell us how much you want to be transferred into each Variable Account Option.
The current minimum transfer to each Option is $250. We won't charge a transfer
charge under our dollar cost averaging program, and these transfers won't count
towards the twelve free transfers you may make in a contract year.
To enroll under our dollar cost averaging program, send the appropriate form to
our Administrative Office. You may end your participation in the program upon
one day's prior written notice, and we may end or change the dollar cost
averaging program at any time. If you don't have enough money in the Fidelity
Money Market Option to transfer to each Variable Account Option specified, no
transfer will be made and your enrollment in the program will end.
SYSTEMATIC TRANSFER PROGRAM
We also offer a systematic transfer program under which we transfer
contributions allocated to the STO to one or more other Investment Options on a
monthly or quarterly basis, as you determine. See Section 3, "Systematic
Transfer Option." We'll transfer your STO contributions in equal installments of
at least $1,000 over a one-year period. If you don't have enough money 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 end. All interest accrued and
any money still in the STO at the end of the period during which transfers are
scheduled to be made will be transferred at the end of that period on a pro rata
basis to the Options you chose for this program. There is no charge for
transfers under this program, and these transfers won't count towards the twelve
free transfers you may make in a contract year.
To enroll under our systematic transfer program, send the appropriate form to
our Administrative Office. We can end the systematic transfer program in whole
or in part, or restrict contributions to the program. This program may not be
available in some states.
CUSTOMIZED ASSET REBALANCING
We offer a Customized Asset Rebalancing program that allows you to determine how
often rebalancing occurs. You can choose to rebalance monthly, quarterly,
semi-annually or annually. The value in the Variable Account Options will
automatically be rebalanced by transfers among your Investment 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. We won't charge a transfer charge for transfers under
our Customized Asset Rebalancing program, and they won't count towards your
twelve free transfers.
Fixed Accounts aren't eligible for the Customized Asset Rebalancing program.
To enroll in our Customized Asset Rebalancing program, send the appropriate 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 with the Customized Asset Rebalancing program. You
should, therefore, monitor your use of other programs, transfers, and
withdrawals while the Customized Asset Rebalancing program is in effect. You may
terminate your participation in the program upon one day's prior written notice,
and we may terminate or change the Customized Asset Rebalancing program at any
time.
SYSTEMATIC CONTRIBUTIONS
We offer a program for systematic contributions that allows you to pre-authorize
monthly, quarterly, or semi-annual withdrawals from your checking account to
make your contributions. To enroll in this program, send the appropriate form to
our Administrative Office. You or we may end your participation in the program
with 30 days'
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prior written notice. We may end your participation if your bank declines to
make any payment. The minimum amount for systematic contributions is $100 per
month.
PERFORMANCE INFORMATION
Performance data for the Investment Options, including the yield and effective
yield and total return of the Investment Options, may appear in advertisements
or sales literature. This performance data is based only on the performance of a
hypothetical investment in that Option during the particular period of time on
which the calculations are based. Performance information should be considered
in light of investment objectives and policies of the Portfolio in which the
Option invests and the market conditions during the given time frame. It
shouldn't be considered 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 information reflects changes
in Portfolio share price, the automatic reinvestment of all distributions and
the deduction of contract charges and expenses that may apply, including any
contingent withdrawal charge that would apply if an owner surrendered the
contract at the end of the period shown.
CUMULATIVE TOTAL RETURNS show an Investment Option's performance over a specific
period of time, usually several years. An AVERAGE ANNUAL TOTAL RETURN shows the
hypothetical yearly return that would produce the same cumulative total return
if the Investment Option experienced exactly the same return each year for the
entire period shown. Because performance will fluctuate on a year-by-year basis,
the average annual total returns tend to show a smooth result that won't mirror
actual performance, even though the end result will be the same.
Some Investment Options may also advertise YIELD, which shows the income
generated by an investment in that particular Option over a specified period of
time. This income is annualized and shown as a percentage. Yields don't take
into account capital gains or losses or the contingent withdrawal charge that
may apply if you withdraw your money at the end of the hypothetical time period.
The Janus Aspen Money Market Option may advertise its CURRENT and EFFECTIVE
YIELD. Current yield reflects the income generated by an investment in that
Option over a specified seven-day period. Effective yield is calculated in a
similar manner, except that it assumes that the income earned is reinvested, and
the income on the reinvested amount is included.
For a detailed description of the methods used to determine the yield and total
return for the Variable Account Options, see the Statement of Additional
Information.
LEGAL PROCEEDINGS
National Integrity is a party to litigation and arbitration proceedings in the
ordinary course of its business. None of these matters is expected to have a
material adverse effect on Integrity.
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APPENDIX A
Condensed financial information is not provided for any of the Fidelity, Janus,
or MFS funds because as of the date of this prospectus those sub-accounts had
not started operations in Separate Account I. The Unit Value for each of those
sub-accounts at inception will be $10.00.
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APPENDIX B
CALCULATING THE ADDED VALUE CHARGE
TO CALCULATE THE CHARGE FOR THE ADDED VALUE OPTION, FOLLOW THESE STEPS:
STEP 1, calculate the minimum and maximum dollar amount charge allowed.
Minimum = FIRST-YEAR TOTAL CONTRIBUTIONS (x) minimum Added Value Option charge
Maximum = FIRST-YEAR TOTAL CONTRIBUTIONS (x) maximum Added Value Option charge
Divide the minimum or maximum by 4 to determine the minimum or maximum quarterly
charge.
STEP 2, calculate the amount of the charge for the Added Value Option.
Contract value at the end of 12 months (x) percentage charge for the Added
Value Option.
STEP 3, determine if the fee goes above the maximum allowable dollar amount or
below the minimum. If the fee is above the maximum dollar amount, the maximum
dollar amount will be charged. If it is below the maximum, but above the
minimum, that fee will be applied. If the charge is below the minimum dollar
amount, the minimum dollar amount will be charged.
EXAMPLES:
The following applies to all examples:
First year premium deposits: $50,000
Credit amount of 3%: $1,500
Total first-year deposits = $51,500
EXAMPLE 1, MAXIMUM ADDED VALUE OPTION CHARGE
Account value at the end of 12 months = $68,212
STEP 1, calculate the minimum and maximum Added Value Option charge allowed.
$51,500 x .00435 = $224.03 annual / $56.01 quarterly minimum Added Value Option
charge
$51,500 x .00546 = $281.19 annual / $70.30 quarterly maximum Added Value Option
charge
STEP 2, calculate the percentage charge for the Added Value Option.
$68, 212 x .0045 = $306.95 annual / $76.74 quarterly
STEP 3, compare the percentage charge to the minimum and maximum to determine
the actual charge.
Minimum charge = $224.03
Maximum charge = $281.19
Percentage charge = $306.95
Charge assessed against this account will be $281.19 / $70.30 quarterly
EXAMPLE 2, PERCENTAGE ADDED VALUE OPTION CHARGE
Account value at the end of 12 months = $54,900
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STEP 1
Same as example 1
STEP 2, calculate the percentage charge for the Added Value Option.
$54,900 x .0045 = $247.05 annual / $61.76 quarterly
STEP 3, compare the percentage charge to the minimum and maximum to determine
the actual charge.
Minimum charge = $224.03 Maximum charge = $281.19 Percentage charge = $247.05
Charge assessed against this account will be $247.05 annual / $61.76 quarterly
EXAMPLE 3, MINIMUM ADDED VALUE OPTION CHARGE
Account value at the end of 12 months = $43,208
STEP 1
Same as example 1
STEP 2, calculate the percentage charge for the Added Value Option.
$43,208 x .0045 = $194.44 annual / 48.61 quarterly
STEP 3, compare the percentage charge to the minimum and maximum to determine
actual charge.
Minimum charge = $224.03
Maximum charge = $281.19
Percentage charge = $194.44
Charge assessed against this account will be $224.03 annual / $48.61quarterly
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APPENDIX C
These examples show how stock market performance affects the Added Value Option.
The examples below show a comparison between a policy with the Added Value
Option (AVO) and without depending upon how the market performs. The TOTAL FIRST
YEAR CONTRIBUTIONS are $50,000 and the 3% option was selected for a credit of
$1500.
Account values are for the end of each policy year.
The graphs below each example show how the charge for the Added Value Option
works based on market performance and how the minimum and maximum charge is
applied.
<TABLE>
<CAPTION>
Example 1: Market performs at a hypothetical 4% annualized rate of return:
--------------------------------------------------------------------------
Policy Year Account Value Without AVO Account Value With AVO
<S> <C> <C>
1 $51,450 $52,756
2 $52,943 $54,044
3 $54,480 $55,363
4 $56,063 $56,716
5 $57,692 $58,103
6 $58,370 $59,524
7 $61,097 $60,980
</TABLE>
Illustration of AVO Charges
$1,500 Credit on $50,000 Policy
Hypothetical 4.0% Annualized Rate of Return
[BAR CHART]
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<TABLE>
<CAPTION>
Example 2: Market performs at a hypothetical 8% annualized rate of return:
--------------------------------------------------------------------------
Policy Year Account Value Without AVO Account Value with AVO
<S> <C> <C>
1 $53,430 $54,786
2 $57,097 $58,285
3 $61,018 $62,008
4 $65,211 $65,980
5 $69,694 $70,228
6 $74,486 $74,769
7 $79,611 $79,625
</TABLE>
Illustration of AVO Charges
$1,500 Credit on $50,000 Policy
Hypothetical 8.0% Annualized Rate of Return
[BARCHART]
42
<PAGE>
<TABLE>
<CAPTION>
Example 3: Market performs at a hypothetical 12%annualized rate of return.
--------------------------------------------------------------------------
Policy Year Account Value Without AVO Account Value with AVO
<S> <C> <C>
1 $55,410 $56,817
2 $61,409 $62,686
3 $68,060 $69,183
4 $75,435 $75,388
5 $83,612 $84,377
6 $92,679 $93,235
7 $102,733 $103,056
</TABLE>
Illustration of AVO Charges
$1,500 Bonus on $50,000 Policy
Hypothetical 12.0% Annualized Rate of Return
[BARCHART]
43
<PAGE>
APPENDIX D
ILLUSTRATION OF A MARKET VALUE ADJUSTMENT
Contribution: $50,000.00
GRO Account duration: 7 Years
Guaranteed Interest Rate: 5% Annual Effective Rate
The following examples illustrate how the Market Value Adjustment and the
contingent withdrawal charge may affect 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 at the end of the three year period after the
initial contribution. The Market Value Adjustment operates in a similar manner
for transfers. Contingent withdrawal charges don't apply to transfers.
The GRO Value for this $50,000 contribution is $70,355.02 at the expiration of
the GRO Account. After three years, the GRO Value is $57,881.25. It is also
assumed for these examples that you haven't made any prior partial withdrawals
or transfers.
The Market Value Adjustment will be based on the rate we are 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 lower
number of complete months. If we don't declare a rate for the exact time
remaining, we'll use a formula to find a rate using 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 four 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 that at that time,
we're crediting 6.25% for a four-year GRO Account. Upon a full withdrawal, the
Market Value Adjustment, applying the above formula would be:
48/12 48/12
-0.0551589 = [(1 + .05) / (1 + .0625 + .0025) ] - 1
The Market Value Adjustment is a reduction of $3,192.67 from the GRO Value:
-$3,192.67 = -0.0551589 X $57,881.25
The Market Adjusted Value would be:
$54,688.58 = $57,881.25 - $3,192.67
A withdrawal charge of 6% would be assessed against the $50,000 original
contribution:
$3,000.00 = $50,000.00 X .06
Thus, the amount payable on a full withdrawal would be:
$51,688.58 = $57,881.25 - $3,192.67 - $3,000.00
44
<PAGE>
If instead of a full withdrawal, $20,000 was requested, we would first determine
the free withdrawal amount:
$5,788.13 = $57,881.25 X .10
Free Amount = $5,788.13
The non-free amount would be:
$14,211.87 = $20,000.00 - $5,788.13
The Market Value Adjustment, which is only applicable to the non-free amount,
would be
- $783.91 = -0.0551589 X $14,211.87
The withdrawal charge would be:
$957.18 = [($14,211.87+ $783.91)/(1 - .06)] - ($14,211.87+ 783.91)
Thus, the total amount needed to provide $20,000 after the Market Value
Adjustment and withdrawal charge would be:
$21,741.09 = $20,000.00 + $783.91 + $957.18
The ending Account Value would be:
$36,140.16 = $57,881.25 - $21,741.09
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're crediting 4% for a
four-year GRO Account. Upon a full withdrawal, the Market Value Adjustment,
applying the formula set forth in the prospectus, would be:
.0290890 = [(1 + .05)48/12 / (1 + .04 + .0025)48/12] - 1
The Market Value Adjustment is an increase of $1,683.71 to the GRO Value:
$1,683.71 = .0290890 X $57,881.25
The Market Adjusted Value would be:
$59,564.96 = $57,881.25 + $1,683.71
A withdrawal charge of 6% would be assessed against the $50,000 original
contribution:
$3,000.00 = $50,000.00 X .06
Thus, the amount payable on a full withdrawal would be:
$56,564.96 = $57,881.25 + $1,683.71 - $3,000.00
45
<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 = $ 5,788.13
Non-Free Amount = $14,211.87
The Market Value Adjustment would be:
$413.41 = .0290890 X $14,211.87
The withdrawal charge would be:
$880.75 = [($14,211.87 - $413.41)/(1 - .06)] - ($14,211.87 -
$413.41)
Thus, the total amount needed to provide $20,000 after the Market Value
Adjustment and withdrawal charge would be:
$20,467.34 = $20,000.00 - $413.41 + $880.75
The ending Account Value would be:
$37,413.91 = $57,881.25 - $20,467.34
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. Also, the Market Value Adjustment
can never decrease the Account Value below your premium plus 3% interest,
before any applicable charges. Account values less than $50,000 will be
subject to a $30 annual charge.
The above examples will be adjusted to comply with applicable state regulation
requirements for contracts issued in certain states.
46
<PAGE>
APPENDIX E - TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
Part 1 - National Integrity and Custodian
Part 2 - Distribution of the Contracts
Part 3 - Performance Information
Part 4 - Determination of Accumulation Values
Part 5 - Tax Favored Retirement Programs
Traditional Individual Retirement Annuities
Roth Individual Retirement Annuities
SIMPLE Individual Retirement Annuities
Tax Sheltered Annuities
Simplified Employee Pensions
Corporate and Self-Employed (H.R.10 and Keogh) Pension and Profit Sharing
Plans
Deferred Compensation Plans of State and Local Governments and Tax-Exempt
Organizations
Distributions Under Tax Favored Retirement Programs
Part 6 - 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
National Integrity Life Insurance Company
15 Matthews Street, Suite 200
Goshen, NY 10924
ATTN: Request for SAI of Separate Account I (AnnuiCHOICE)
Name:
-----------------------------------------------------------
Address
-----------------------------------------------------------
City: State: Zip:
----------------- ---------- ---------------
47
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 1, 2001
FOR
ANNUICHOICE
FLEXIBLE PREMIUM VARIABLE ANNUITY
ISSUED BY
NATIONAL INTEGRITY LIFE INSURANCE COMPANY
AND
FUNDED THROUGH ITS SEPARATE ACCOUNT I
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
Part 1 - National Integrity and Custodian.......................................................................1
Part 2 - Distribution of the Contracts..........................................................................1
Part 3 - Performance Information................................................................................1
Part 4 - Determination of Accumulation Values...................................................................5
Part 5 - Tax Favored Retirement Programs........................................................................6
Traditional Individual Retirement Annuities................................................................6
Roth Individual Retirement Annuities.......................................................................6
SIMPLE Individual Retirement Annuities.....................................................................6
Tax Sheltered Annuities....................................................................................6
Simplified Employee Pensions...............................................................................7
Corporate and Self-Employed (H.R.10 and Keogh) Pension and Profit Sharing Plans............................7
Deferred Compensation Plans of State and Local Governments and Tax-Exempt Organizations....................7
Distributions Under Tax Favored Retirement Programs........................................................7
Part 6 - Financial Statements...................................................................................8
</TABLE>
This Statement of Additional Information (SAI) is not a prospectus. It should be
read in conjunction with the prospectus for the contracts, dated January 1,
2001. 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 National Integrity Life Insurance Company
("National Integrity"), 15 Matthews Street, Suite 200, Goshen, NY 10924, or by
calling 1-800-433-1778.
<PAGE>
PART 1 - NATIONAL INTEGRITY AND CUSTODIAN
National Integrity, the depositor of Separate Account I, is a wholly owned
subsidiary of Integrity Life Insurance Company and an indirect subsidiary of The
Western and Southern Life Insurance Company ("W&S"), a mutual life insurance
company originally organized under the laws of the State of Ohio on February 23,
1888.
Until March 3, 2000, National Integrity was an indirect wholly owned subsidiary
of ARM Financial Group, Inc. ("ARM"). ARM provided substantially all of the
services required to be performed on behalf of the Separate Account. Total fees
paid to ARM by National Integrity for management services in 1997 were
$5,855,216, in 1998 were $8,766,003, and in 1999 were $7,558,793.
National 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 National 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, "AAA" (Extremely Strong) by Standard &
Poor's Corporation, "Aa2" (Excellent) by Moody's Investors Service, Inc., and
"AAA" (Highest) by Duff and Phelps Credit Rating Company. However, National
Integrity doesn't guarantee the investment performance of the portfolios, and
these ratings don't reflect protection against investment risk.
TAX STATUS OF NATIONAL INTEGRITY
National Integrity is taxed as a life insurance company under Part I of
Subchapter L of the Internal Revenue Code of 1986, as amended (the CODE). Since
the Separate Accounts aren't separate entities from National Integrity and their
operations form a part of National Integrity, they aren't taxed separately as
"regulated investment companies" under Subchapter M of the Code. Investment
income and realized capital gains on the assets of the Separate Accounts are
reinvested and taken into account in determining the accumulation value. Under
existing federal income tax law, the Separate Accounts' investment income,
including realized net capital gains, isn't taxed to National Integrity.
National Integrity can make a tax deduction if federal tax laws change to
include these items in our taxable income.
PART 2 - DISTRIBUTION OF THE CONTRACTS
Touchstone Securities, Inc. ("Touchstone Securities"), 311 Pike Street,
Cincinnati, Ohio 45202, and indirect subsidiary of W&S and an affiliate of
National Integrity, is the principal underwriter of the contracts. Touchstone
Securities 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 Touchstone Securities on a continuous basis.
We generally pay a maximum distribution allowance of 7.5% of initial
contribution and 7% of additional contributions, plus .50% trail commission paid
on Account Value after the 8th Contract Year. The amount of distribution
allowances paid was $1,040,858 for the year ended December 31, 1999, $1,753,582
for the year ended December 31, 1998, and $2,647,756 for the year ended December
31, 1997. Distribution allowances weren't retained by ARM Securities
Corporation, the principal underwriter for the contracts prior to March 3, 2000,
during these years. National 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, those types of incentives
may be offered only to certain broker-dealers that sell or are expected to sell
certain minimum amounts of the contracts during specified time periods, maintain
a specific number of contracts with the company, or maintain a certain level of
assets managed by the company.
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 VIP Money Market
Option may also from time to time include the Yield and Effective Yield of its
shares in information
1
<PAGE>
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 we
can't guarantee 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 charges
that apply 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 will be 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 they would apply. Any
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 that currently apply under the
contract. Total returns may be shown at the same time 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
shown. 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.
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 any contingent
withdrawal charge. Yields are annualized and stated as a percentage.
CURRENT YIELD and EFFECTIVE YIELD are calculated for the VIP 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:
365/7
Effective Yield = {(Base Period Return) + 1) } - 1
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), Donoghue Money Market Institutional Averages, or
other unmanaged indices generally regarded as representative of the securities
markets; (2) other variable annuity separate accounts or other investment
products tracked 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
2
<PAGE>
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.
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.
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
3
<PAGE>
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.
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.
4
<PAGE>
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 National Integrity
or any of the Sub-Advisers derived from such indices or averages.
INDIVIDUALIZED COMPUTER GENERATED ILLUSTRATIONS
National 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 - DETERMINATION OF ACCUMULATION UNIT VALUES
The accumulation unit value of an Option will be determined on each day the New
York Stock Exchange is open for trading. The accumulation units are valued as of
the close of business on the New York Stock Exchange, which
5
<PAGE>
currently is 4:00 p.m., Eastern time. Each Option's accumulation unit value is
calculated separately. For all Options, the accumulation unit value is computed
by dividing the value of the securities held by the Option plus any cash or
other assets, less its liabilities, by the number of outstanding units.
Securities are valued using the amortized cost method of valuation, which
approximates market value. Under this method of valuation, the difference
between the acquisition cost and value at maturity is amortized by assuming a
constant (straight-line) accretion of a discount or amortization of a premium to
maturity. Cash, receivables and current payables are generally carried at their
face value.
PART 5 - TAX FAVORED RETIREMENT PROGRAMS
The contracts described in the prospectus may be used in connection with certain
tax-favored retirement programs, for groups and individuals. Following are brief
descriptions of various types of qualified plans in connection with which
National Integrity may issue a contract. National 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.
TRADITIONAL INDIVIDUAL RETIREMENT ANNUITIES
Code Section 408(b) permits eligible individuals to contribute to an individual
retirement program known as a Traditional IRA. An individual who receives
compensation and who has not reached age 70-1/2 by the end of the tax year may
establish a Traditional IRA and make contributions up to the deadline for filing
his or her federal income tax return for that year (without extensions).
Traditional 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 begin. An individual may also rollover amounts distributed from another
Traditional IRA, Roth IRA or another tax-favored retirement program to a
Traditional IRA contract. Your Traditional IRA contract will be issued with a
rider outlining the special terms of your contract that apply to Traditional
IRAs. The Owner will be deemed to have consented to any other amendment unless
the Owner notifies us that he or she does not consent within 30 days from the
date we mail the amendment to the Owner.
ROTH INDIVIDUAL RETIREMENT ANNUITIES
Section 408(A) of the Code permits eligible individuals to contribute to an
individual retirement program known as a Roth IRA. An individual who receives
compensation may establish a Roth IRA and make contributions up to the deadline
for filing his or her federal income tax return for that year (without
extensions). Roth IRAs are subject to limitations on the amount that may be
contributed, the persons who are eligible to contribute, and on the time when a
tax-favored distribution may begin. An individual may also rollover amounts
distributed from another Roth IRA or Traditional IRA to a Roth IRA contract.
Your Roth IRA contract will be issued with a rider outlining the special terms
of your contract which apply to Roth IRAs. Any amendment made for the purpose of
complying with provisions of the Code and related regulations may be made
without the consent of the Owner. The Owner will be deemed to have consented to
any other amendment unless the Owner notifies us that he or she does not consent
within 30 days from the date we mail the amendment to the Owner.
SIMPLE INDIVIDUAL RETIREMENT ANNUITIES
Currently, we do not issue Individual Retirement Annuities known as a "SIMPLE
IRA" as defined in Section 408(p) of the Code.
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
excluded from 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 advice as to the tax treatment and suitability of such an
investment. Your contract will be issued with a rider outlining the special
terms that apply to a TSA.
6
<PAGE>
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 these
plans should seek competent advice. The Company can request documentation to
substantiate that a qualified plan exists and is being properly administered.
National 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. However, Section 457(g), as added by the Small Business and Jobs
Protection Act (SBJPA) of 1996, provides that on and after August 20, 1996, a
plan maintained by an eligible governmental employer must hold all assets and
income of the plan in a trust, custodial account, or annuity contract for the
exclusive benefit of participants and their beneficiaries. Plans in existence on
August 20, 1996, should have established a trust, custodial account, or annuity
contract by January 1, 1999. Loans to employees may be permitted under such
plans; however, a Section 457 plan is not required to allow loans. 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 can request documentation to
substantiate that a qualified plan exists and is being properly administered.
National Integrity does not administer such plans.
DISTRIBUTIONS UNDER TAX FAVORED RETIREMENT PROGRAMs
Distributions from tax-favored plans are subject to certain restrictions.
Participants in qualified plans, with the exception of five-percent owners, must
begin receiving distributions by April 1 of the calendar year following the
later of either (i) the year in which the employee reaches age 70-1/2 or (ii)
the calendar year in which the employee retires. Participants in Traditional
IRAs must begin receiving distributions by April 1 of the calendar year
following the year in which the employee reaches age 70-1/2. Additional
distribution rules apply after the participant's death. If you don't take
mandatory distributions you may owe a 50% penalty tax on any difference between
the required distribution amount and the amount distributed. Owners of
traditional IRAs and five percent owners must begin distributions by age 70-1/2.
The Taxpayer Relief Act of 1997 creating Roth IRAs eliminates mandatory
distribution at age 70 1/2 for Roth IRAs.
Distributions from a tax-favored plan (not including a Traditional IRA subject
to Code Section 408(a) Roth IRA) 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 Traditional 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.
7
<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 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.
PART 6 - FINANCIAL STATEMENTS
Ernst & Young LLP 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 National Integrity should be distinguished from the
financial statements of the Separate Account and should be considered only as
they relate to the ability of National 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.
8
<PAGE>
Financial Statements
(Statutory Basis)
National Integrity Life
Insurance Company
YEARS ENDED DECEMBER 31, 1999 AND 1998
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE>
National Integrity Life Insurance Company
Financial Statements
(Statutory Basis)
Years Ended December 31, 1999 and 1998
CONTENTS
Report of Independent Auditors.........................................1
Audited Financial Statements
Balance Sheets (Statutory Basis).......................................2
Statements of Income (Statutory Basis).................................4
Statements of Changes in Capital and Surplus (Statutory Basis).........5
Statements of Cash Flows (Statutory Basis).............................6
Notes to Financial Statements (Statutory Basis)........................8
<PAGE>
Report of Independent Auditors
Board of Directors
National Integrity Life Insurance Company
We have audited the accompanying statutory basis balance sheets of National
Integrity Life Insurance Company as of December 31, 1999 and 1998, and the
related statutory basis statements of income, changes in capital and surplus,
and cash flows for the years 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 audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements 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 audits provide a reasonable basis for our
opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the New York Insurance Department, which practices differ from
accounting principles generally accepted in the United States. The variances
between such practices and accounting principles generally accepted in the
United States and the effects on the accompanying financial statements are
described in Note 1.
In our opinion, because of the effects of the matter described in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with accounting principles generally accepted in the United States,
the financial position of National Integrity Life Insurance Company at December
31, 1999 and 1998, or the results of its operations or its cash flows for the
years then ended.
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of National Integrity
Life Insurance Company at December 31, 1999 and 1998, and the results of its
operations and its cash flows for the years then ended in conformity with
accounting practices prescribed or permitted by the New York Insurance
Department.
/s/ Ernst & Young LLP
Louisville, Kentucky
March 31, 2000
1
<PAGE>
National Integrity Life Insurance Company
Balance sheets (Statutory Basis)
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
-------------------------------
(IN THOUSANDS)
<S> <C> <C>
ADMITTED ASSETS
Cash and invested assets:
Bonds $ 345,374 $ 360,012
Preferred stocks 9,740 9,740
Mortgage loans 2,350 2,835
Policy loans 29,246 26,695
Cash and short-term investments 110,583 78,883
Receivable for securities 1,826 -
Federal income tax recoverable 2,769 -
Other invested assets 3,776 3,786
-------------------------------
Total cash and invested assets 505,664 481,951
Separate account assets 841,835 771,953
Accrued investment income 9,618 5,062
Other admitted assets 71 718
-------------------------------
Total admitted assets $ 1,357,188 $ 1,259,684
===============================
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
-----------------------------------
(IN THOUSANDS)
<S> <C> <C>
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Policy and contract liabilities:
Life and annuity reserves $ 460,159 $ 437,286
Unpaid claims 50 50
Deposits on policies to be issued 1,067 1,243
-----------------------------------
Total policy and contract liabilities 461,276 438,579
Separate account liabilities 841,835 771,953
Accounts payable and accrued expenses 339 13
Transfers to separate accounts due or (accrued), net (14,732) (27,297)
Reinsurance balances payable 334 207
Federal income taxes - 1,005
Asset valuation reserve 3,526 3,204
Interest maintenance reserve 7,884 8,443
Other liabilities 1,547 4,074
-----------------------------------
Total liabilities 1,302,009 1,200,181
Capital and surplus:
Common stock, $10 par value, 200,000 shares
authorized, issued, and outstanding 2,000 2,000
Paid-in surplus 59,244 59,244
Special surplus funds - 750
Unassigned surplus (deficit) (6,065) (2,491)
-----------------------------------
Total capital and surplus 55,179 59,503
-----------------------------------
Total liabilities and capital and surplus $ 1,357,188 $ 1,259,684
===================================
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
National Integrity Life Insurance Company
Statements of Income (Statutory Basis)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
(IN THOUSANDS)
-----------------------------------
<S> <C> <C>
Premiums and other revenues:
Premiums and annuity considerations $ 13,615 $ 13,496
Deposit-type funds 137,690 196,927
Net investment income 39,019 36,077
Amortization of the interest maintenance reserve 1,127 1,478
Income from Separate Account Seed Money Investment 14,800 -
Reserve adjustments on reinsurance ceded 78,722 -
Other revenues 16,400 8,331
-----------------------------------
Total premiums and other revenues 301,373 256,309
Benefits paid or provided:
Death benefits 961 4,098
Annuity benefits 20,560 16,475
Surrender benefits 221,211 142,420
Payments on supplementary contracts 1,812 1,637
Increase (decrease) in insurance and annuity reserves 22,961 (9,247)
Other benefits 93 101
-----------------------------------
Total benefits paid or provided 267,598 155,484
Insurance and other expenses:
Commissions 17,791 8,904
General expenses 7,393 14,876
Taxes, licenses and fees 795 228
Net transfers to separate accounts 213 63,171
Other expenses 643 3,871
-----------------------------------
Total insurance and other expenses 26,835 91,050
-----------------------------------
Gain from operations before federal income taxes
and net realized capital gains (losses) 6,940 9,775
Federal income tax expense (benefit) (5,113) 31
Gain from operations before net realized -----------------------------------
capital gains (losses) 12,053 9,744
Net realized capital gains (losses), excluding realized
capital gains (losses) net of tax transferred to the
interest maintenance reserve (1999-$567; 1998-$2,681) (1,255) 147
-----------------------------------
Net income $ 10,798 $ 9,891
===================================
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
National Integrity Life Insurance Company
Statements of Changes in Capital and Surplus (Statutory Basis)
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
SPECIAL UNASSIGNED TOTAL
COMMON PAID-IN SURPLUS SURPLUS CAPITAL AND
STOCK SURPLUS FUNDS (DEFICIT) SURPLUS
--------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1998 $ 2,000 $ 59,244 $ 750 $ (7,977) $ 54,017
Net income 9,891 9,891
Increase in asse
valuation reserve (1,634) (1,634)
Dividend to shareholder (2,771) (2,771)
-------------------------------------------------------------------------
Balance, December 31, 1998 2,000 59,244 750 (2,491) 59,503
Net income 10,798 10,798
Increase in asset
valuation reserve (322) (322)
Release of Special Surplus Funds (750) 750
Change in surplus in
separate accounts (14,800) (14,800)
-------------------------------------------------------------------------
Balance, December 31, 1999 $ 2,000 $ 59,244 $ - $ (6,065) $ 55,179
==========================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
National Integrity Life Insurance Company
Statements of Cash Flows (Statutory Basis)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
-------------------------------------
(IN THOUSANDS)
<S> <C> <C>
OPERATIONS:
Premiums, policy proceeds, and other
considerations received $ 151,305 $ 210,424
Net investment income received 33,836 36,344
Commission and expense allowances received on
reinsurance ceded 83,164 8
Benefits paid (244,637) (164,730)
Insurance expenses paid (25,653) (24,148)
Other income received net of other expenses paid 11,458 4,368
Net transfers from (to) separate accounts 12,352 (66,100)
Federal income taxes recovered (paid) 2,441 (4,670)
-------------------------------------
Net cash used in operations 24,266 (8,504)
INVESTMENT ACTIVITIES:
Proceeds from sales, maturities, or repayments
of investments:
Bonds 95,849 291,759
Preferred stocks - 38,672
Mortgage loans 485 407
Other invested assets - 8
Net gains on cash and short-term investments 8 64
Total investment proceeds 96,342 330,910
Taxes paid on capital gains (1,407) (1,407)
-------------------------------------
Net proceeds from sales, maturities, or repayments
of investments 94,935 329,503
Cost of investments acquired:
Bonds 80,974 232,584
Preferred stocks - 26,322
-------------------------------------
Total cost of investments acquired 80,974 258,906
Net increase in policy loans and premium notes 2,551 299
-------------------------------------
Net cash provided by investment activities 11,410 70,298
</TABLE>
6
<PAGE>
National Integrity Life Insurance Company
Statements of Cash Flows (Statutory Basis) (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
----------------------------------
(IN THOUSANDS)
<S> <C> <C>
FINANCING AND MISCELLANEOUS ACTIVITIES:
Other cash provided:
Other sources 2,311 8,644
------------------------------
Total other cash provided 2,311 8,644
------------------------------
Other cash applied:
Dividends to shareholder - 2,771
Other applications, net 6,286 862
------------------------------
Total other cash applied 6,286 3,633
------------------------------
Net cash provided by (used in) financing and
miscellaneous activities (3,975) 5,011
------------------------------
Net increase in cash and short-term investments 31,701 66,805
Cash and short-term investments at beginning of year 78,883 12,078
------------------------------
Cash and short-term investments at end of year $ 110,584 $ 78,883
==============================
</TABLE>
SEE ACCOMPANYING NOTES.
7
<PAGE>
National Integrity Life Insurance Company
Notes to Financial Statements (Statutory Basis)
December 31, 1999
1. ORGANIZATION AND ACCOUNTING POLICIES
ORGANIZATION
National Integrity Life Insurance Company (the "Company") is a wholly owned
subsidiary of Integrity Life Insurance Company ("Integrity") which is an
indirect wholly owned subsidiary of ARM Financial Group, Inc. ("ARM"). The
Company is domiciled in the state of New York. The Company, currently licensed
in eight states and the District of Columbia, specializes in the asset
accumulation business with particular emphasis on retirement savings and
investment products.
BASIS OF PRESENTATION
The accompanying financial statements of the Company have been prepared in
conformity with accounting practices prescribed or permitted by the New York
Insurance Department. Such practices vary from accounting principles generally
accepted in the United States ("GAAP"). The more significant variances from GAAP
are as follows:
INVESTMENTS
Investments in bonds and preferred stocks are reported at amortized cost or fair
value based on the 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 fair values
used for GAAP.
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
8
<PAGE>
National Integrity Life Insurance Company
Notes to Financial Statements (Statutory Basis) (continued)
1. ORGANIZATION AND ACCOUNTING POLICIES (CONTINUED)
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 of the individual security
sold using the seriatim method. 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 include
provisions when there has been a decline in asset values deemed other than
temporary.
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
emergence of gross profits over the estimated term of the underlying policies.
NONADMITTED ASSETS
Certain assets designated as "nonadmitted," principally receivables greater than
90 days past due, are excluded from the accompanying balance sheets and are
charged directly to unassigned surplus.
PREMIUMS AND BENEFITS
Revenues include premiums and deposits received and benefits include death
benefits paid and the change in policy reserves. Under GAAP, such premiums and
deposits received are accounted for as a deposit liability 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.
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.
9
<PAGE>
National Integrity Life Insurance Company
Notes to Financial Statements (Statuatory Basis) (continued)
1. ORGANIZATION AND ACCOUNTING POLICIES (CONTINUED)
FEDERAL INCOME TAXES
Deferred federal income taxes are not provided for differences between the
financial statement amounts and tax bases of assets and liabilities.
STATEMENT OF CASH FLOWS
Cash and short-term investments in the statement of cash flows represent cash
balances and investments with initial maturities of one year or less. Under
GAAP, the corresponding captions of cash and cash equivalents include cash
balances and investments with initial maturities of three months or less.
The effects of the foregoing variances from GAAP on the accompanying statutory
basis financial statements are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Net income as reported in the accompanying statutory
basis financial statements $ 10,798 $ 9,891
Deferred policy acquisition costs, net of amortization 4,073 9,940
Adjustments to customer deposits (2,613) (4,560)
Adjustments to invested asset carrying values at
acquisition date 19 (32)
Amortization of value of insurance in force (831) (539)
Amortization of interest maintenance reserve (1,127) (1,478)
Adjustments for realized investment gains (losses) (1,106) 3,646
Adjustments for federal income tax expense (8,084) (5,200)
Other (2,629) (107)
------------------------------------
Net income (loss), GAAP basis $ (1,500) $ 11,561
====================================
</TABLE>
10
<PAGE>
National Integrity Life Insurance Company
Notes to Financial Statements (Statutory Basis) (continued)
1. ORGANIZATION AND ACCOUNTING POLICIES (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Capital and surplus as reported in the accompanying statutory basis
financial statements $ 55,179 $ 59,503
Adjustments to customer deposits (28,245) (37,356)
Adjustments to invested asset carrying values at
acquisition date (1,231) 77
Asset valuation reserve and interest maintenance reserve 11,410 11,646
Value of insurance in force 3,702 4,159
Deferred policy acquisition costs 48,063 43,497
Net unrealized gains (losses) on available-for-sale securities
(48,105) (7,076)
Other (5,378) 3,474
------------------------------------
Shareholder's equity, GAAP basis $ 35,395 $ 77,924
====================================
</TABLE>
Other significant accounting practices are as follows:
INVESTMENTS
Bonds, preferred 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 and structured securities, anticipated prepayments
are considered when determining the amortization of discount or premium.
Prepayment assumptions for loan-backed bonds and structured securities are
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.
Short-term investments include investments with maturities of less than one
year at the date of acquisition.
11
<PAGE>
National Integrity Life Insurance Company
Notes to Financial Statements (Statutory Basis) (continued)
1. ORGANIZATION AND ACCOUNTING POLICIES (CONTINUED)
Mortgage loans and policy loans are reported at unpaid principal balances.
Realized capital gains and losses are determined using the average cost method.
BENEFITS
Life 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 New York Insurance Department. The Company waives deduction of
deferred fractional premiums upon 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.
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 financial
statements represent funds that are separately administered, principally for
variable annuity contracts. Separate account assets are reported at fair value.
Surrender charges collectible by the general account in the event of variable
annuity contract surrenders are reported as a negative liability rather than an
asset pursuant to prescribed NAIC accounting practices. Policy related activity
12
<PAGE>
National Integrity Life Insurance Company
Notes to Financial Statements (Statutory Basis) (continued)
1. ORGANIZATION AND ACCOUNTING POLICIES (CONTINUED)
involving cashflows, such as premiums and benefits, are reported in the
accompanying financial statements of income in separate line items combined with
related general account amounts. Investment income and interest credited on
deposits held in guaranteed separate accounts are included in the accompanying
statements of income as a net amount included in net transfers to (from)
separate accounts. The Company receives administrative fees for managing the
nonguaranteed separate accounts and other fees for assuming mortality and
certain expense risks. Such fees are included in other revenues.
USE OF ESTIMATES
The preparation of financial statements 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. PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company's statutory basis financial statements are prepared in accordance
with accounting practices prescribed or permitted by the New York Insurance
Department. "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. In 1998, the NAIC adopted codified statutory accounting
practices ("Codification"). Codification 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 basis
financial statements. Codification will require adoption by the various states
before it becomes the prescribed statutory basis of accounting for insurance
companies domesticated within those states. Accordingly, before Codification
13
<PAGE>
National Integrity Life Insurance Company
Notes to Financial Statements (Statutory Basis) (continued)
2. PERMITTED STATUTORY ACCOUNTING PRACTICES (CONTINUED)
becomes effective for the Company, New York must adopt Codification as the
prescribed basis of accounting on which domestic insurers must report their
statutory basis results to the Insurance Department. At this time it is unclear
whether New York will adopt Codification. The Company is monitoring developments
related to codification and assessing the potential effects any changes would
have on the Company's statutory basis financial statements.
3. INVESTMENTS
The cost or amortized cost and the fair value of investments in bonds are
summarized as follows:
<TABLE>
<CAPTION>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
-----------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
At December 31, 1999:
Mortgage-backed securities $ 120,317 $ 8 $ 4 $ 120,321
Corporate securities 182,138 15 11,959 170,194
Asset-backed securities 22,877 - - 22,877
U.S. Treasury securities and
obligations of U.S. government
agencies 3,229 1 199 3,031
Foreign governments 16,813 94 1,886 15,021
-----------------------------------------------------------------------
Total bonds $ 345,374 118 14,048 331,444
=======================================================================
At December 31, 1998:
Mortgage-backed securities $ 184,619 $ - $ - $ 184,619
Corporate securities 129,725 3,426 7,681 125,470
Asset-backed securities 26,483 - - 26,483
U.S. Treasury securities and
obligations of U.S. government
agencies 2,489 112 - 2,601
Foreign governments 16,696 - 2,471 14,225
-----------------------------------------------------------------------
Total bonds $ 360,012 $ 3,538 $ 10,152 $ 353,398
=======================================================================
</TABLE>
14
<PAGE>
National Integrity Life Insurance Company
Notes to Financial Statements (Statutory Basis) (continued)
3. 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, 1999 and 1998, the fair
value of investments in bonds includes $242.4 million and $256.2 million,
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, 1999, by contractual maturity, is as
follows:
<TABLE>
COST OR
AMORTIZED COST FAIR VALUE
------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Years to maturity:
One or less $ 1,068 $ 1,062
After one through five 37,355 37,161
After five through ten 24,019 22,460
After ten 139,738 127,563
Asset-backed securities 22,877 22,877
Mortgage-backed securities 120,317 120,321
------------------------------------
Total $ 345,374 $ 331,444
====================================
</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 1999 and 1998 were $40.7
million and $262.0 million; gross gains of $1.4 million and $5.6 million, and
gross losses of $2.8 million and $1.4 million were realized on those sales,
respectively.
15
<PAGE>
National Integrity Life Insurance Company
Notes to Financial Statements (Statutory Basis) (continued)
3. INVESTMENTS (CONTINUED)
At December 31, 1999 and 1998, bonds with an admitted asset value of $1,220,000
and $1,218,000, respectively, were on deposit with state insurance departments
to satisfy regulatory requirements.
The Company's mortgage loan portfolio is primarily comprised of agricultural
loans. The Company has made no new investments in mortgage loans since 1988. 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 was 75%. Fire insurance is
required on all properties covered by mortgage loans. As of December 31, 1999,
the Company held no mortgages with interest more than one year past due. During
1999, no interest rates of outstanding mortgage loans were reduced. No amounts
have been advanced by the Company.
Major categories of the Company's net investment income are summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Income:
Bonds $ 29,956 $ 31,054
Preferred stocks 796 1,328
Mortgage loans 219 245
Policy loans 2,238 2,014
Cash and short-term investments 6,218 2,147
Other 320 279
------------------------------------
Total investment income 39,747 37,067
Investment expenses (725) (656)
Interest expense on repurchase agreements (3) (334)
------------------------------------
Net investment income $ 39,019 $ 36,077
====================================
</TABLE>
16
<PAGE>
National Integrity Life Insurance Company
Notes to Financial Statements (Statutory Basis) (continued)
4. REINSURANCE
Consistent with prudent business practices and the general practice of the
insurance industry, the Company reinsures risks under certain of its insurance
products with other insurance companies through reinsurance agreements. Through
these reinsurance agreements' substantially all mortality risks associated with
single premium endowment and variable annuity 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.
The effect of reinsurance on premiums, annuity considerations and deposit-type
funds is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
-------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Direct premiums and amounts assessed against
policyholders $229,228 $ 199,389
Reinsurance assumed 10,640 11,757
Reinsurance ceded (88,563) (723)
-------------------------------------
Net premiums, annuity considerations and deposit-
type funds $151,305 $ 210,423
=====================================
</TABLE>
5. FEDERAL INCOME TAXES
The Company files a consolidated return with Integrity. The method of allocation
between the companies is based on separate return calculations with current
benefit taken for the use of the Company's losses and credits in the
consolidated return.
Income before income taxes differs from taxable income principally due to value
of insurance in force, interest maintenance reserves and differences in policy
and contract liabilities and investment income for tax and financial reporting
purposes.
17
<PAGE>
National Integrity Life Insurance Company
Notes to Financial Statements (Statutory Basis) (continued)
6. SURPLUS
The ability of the Company to pay dividends is limited by state insurance laws.
Under New York insurance laws, the Company may pay dividends 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 the Company
does not warrant such distribution.
The NAIC's Risk-Based Capital ("RBC") requirements 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 is
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, 1999 and 1998, the adjusted capital
and surplus of the Company is in excess of the minimum level of RBC that would
require regulatory response.
18
<PAGE>
National Integrity Life Insurance Company
Notes to Financial Statements (Statutory Basis) (continued)
7. ANNUITY RESERVES
At December 31, 1999 and 1998, the Company's general and separate account
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:
<TABLE>
<CAPTION>
Amount Percent
---------------------------------
(IN THOUSANDS)
<S> <C> <C>
At December 31, 1999:
Subject of discretionary withdrawal (with adjustment):
With market value adjustment $ 209,485 17.3%
At book value less surrender charge of 5% or more 156,431 12.9%
----------------
At market value 617,377 50.9%
-----------------
Total with adjustment or at market value 983,293 81.1%
Subject to discretionary withdrawal (without adjustment)
at book value less surrender charge of 5% or more 166,356 13.7%
Not subject to discretionary withdrawal 62,646 5.2%
---------------------------------
Total annuity reserves and deposit fund liabilities
(before reinsurance) 1,212,295
Less reinsurance ceded 3,772
-----------------
Net annuity reserves and deposit fund liabilities $ 1,208,523 100.0%
=================================
At December 31, 1998:
Subject of discretionary withdrawal (with adjustment):
With market value adjustment $ 221,118 20.0%
At book value less surrender charge of 5% or more 71,502 6.5%
At market value 523,230 47.4%
---------------------------------
Total with adjustment or at market value 815,850 73.9%
Subject to discretionary withdrawal (without adjustment)
at book value less surrender charge of 5% or more 228,629 20.7%
Not subject to discretionary withdrawal 60,076 5.4%
---------------------------------
Total annuity reserves and deposit fund liabilities
(before reinsurance) 1,104,555 100.0%
================
Less reinsurance ceded -
-----------------
Net annuity reserves and deposit fund liabilities $ 1,104,555
=================
</TABLE>
19
<PAGE>
National Integrity Life Insurance Company
Notes to Financial Statements (Statutory Basis) (continued)
8. SEPARATE ACCOUNTS
The Company's guaranteed separate accounts include non-indexed products and
options (i.e., guaranteed rate options). The guaranteed rate options are sold as
a fixed annuity product or as an investment option within the Company's variable
annuity products.
The Company's nonguaranteed separate accounts primarily include variable
annuities. The net investment experience of variable annuities is credited
directly to the policyholder and can be positive or negative.
Assets held in separate accounts are carried at estimated fair values.
Information regarding the separate accounts of the Company as of and for the
year ended December 31, 1999 is as follows:
<TABLE>
<CAPTION>
*NONINDEXED NONGUARANTEED
GUARANTEED MORE SEPARATE
THAN 4% ACCOUNTS TOTAL
--------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Premiums, deposits and other considerations $ 10,627 $ 60,894 $ 71,521
========================================================
Reserves for separate accounts with assets at
fair value $ 209,485 $ 617,562 $ 827,047
========================================================
Reserves for separate accounts by withdrawal characteristics:
Subject to discretionary withdrawal (with adjustment):
With market value adjustment $ 209,485 $ - $ 209,485
At book value without market value
adjustment and with current surrender
charge of 5% or more - - -
At market value - 617,562 617,562
--------------------------------------------------------
Total with adjustment or at market value 209,485 617,562 827,047
Not subject to discretionary withdrawal - - -
--------------------------------------------------------
Total separate accounts reserves $ 209,485 $ 617,562 $ 827,047
========================================================
</TABLE>
* Separate accounts with guarantees.
20
<PAGE>
National Integrity Life Insurance Company
Notes to Financial Statements (Statutory Basis) (continued)
8. SEPARATE ACCOUNTS (CONTINUED)
A reconciliation of the amounts transferred to and from the separate accounts
for the years ended December 31, 1999 and 1998 is presented below:
<TABLE>
<CAPTION>
1999 1998
------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Transfers as reported in the Summary of Operations of the Separate Accounts
Statement:
Transfers to separate accounts $ 71,521 $ 119,350
Transfers from separate accounts (71,472) (56,316)
------------------------------------
Net transfers to separate accounts 49 63,034
Reconciling adjustments:
Other revenues 164 137
------------------------------------
Transfers as reported in the Summary of Operations of the Life,
Accident and Health Annual Statement $ 213 $ 63,171
====================================
</TABLE>
9. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosures 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 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.
21
<PAGE>
National Integrity Life Insurance Company
Notes to Financial Statements (Statutory Basis) (continued)
9. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------------------- --------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------------------------------- --------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Bonds $345,374 $290,545 $360,012 $348,766
Preferred stocks 9,740 7,680 9,740 7,981
Mortgage loans 2,350 2,350 2,835 2,835
Cash and short-term investments 110,583 110,583 78,883 78,883
Liabilities:
Life and annuity reserves for
investment-type contracts $382,394 $378,233 $360,606 $359,972
Separate accounts annuity
reserves 826,862 826,164 744,349 733,365
</TABLE>
BONDS AND PREFERRED STOCKS
Fair values for bonds and preferred stocks are based on quoted market prices
where available. For bonds and preferred stocks for which a quoted market price
is not available, fair values are estimated using internally calculated
estimates or quoted market prices of comparable investments.
MORTGAGE LOANS AND CASH AND SHORT-TERM INVESTMENTS
The carrying amount of mortgage loans and cash and short-term investments
approximates their fair value.
LIFE AND ANNUITY RESERVES FOR INVESTMENT-TYPE CONTRACTS
The fair value of single premium immediate annuity reserves are based on
discounted cash flow calculations using a market yield rate for assets with
similar durations. The fair value of deposit fund liabilities and the remaining
annuity reserves are based on the cash surrender value of the underlying
contracts.
SEPARATE ACCOUNTS ANNUITY RESERVES
The fair value of separate accounts annuity reserves for investment-type
products equals the cash surrender values.
22
<PAGE>
National Integrity Life Insurance Company
Notes to Financial Statements (Statutory Basis) (continued)
10. RELATED PARTY TRANSACTIONS
Effective January 1, 1994, the Company entered into an Administrative Services
Agreement and an Investment Advisory Agreement with ARM. Under these agreements,
ARM performs certain administrative investment advisory 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
1999 and 1998, the Company was charged $7.6 million and $8.6 million,
respectively, for these services in accordance with the requirements of
applicable insurance law and regulations.
11. OTHER ITEMS
On July 29, 1999, ARM announced that it was restructuring its institutional
business and positioning its retail business and technology operations for the
sale of ARM or its businesses or its assets. Following the July 29, 1999
announcement, the ratings of ARM and its insurance subsidiaries were
significantly lowered several times by four major rating agencies, materially
and adversely affecting the Company's ability to market retail products and
adversely affecting the persistency of its existing business.
In order to preserve and maximize value for policyholders as well as for ARM's
creditors and/or stockholders, ARM requested supervision with respect to it's
insurance subsidiary Integrity from the Ohio Department of Insurance, its
domiciliary regulator. On August 20, 1999, the Ohio Department of Insurance
issued a Supervision Order. Under the terms of the Supervision Order, Integrity
continued payments of death benefits, previously scheduled systematic
withdrawals, previously scheduled immediate annuity payments, and agent
commissions, but could not make other payments without approval from the Ohio
Department of Insurance. The Supervision Order also suspended the processing of
surrenders of policies except in cases of approved hardship. On August 31, 1999,
the Supervision Order was amended to allow Integrity Life Insurance Company to
resume processing surrender requests from its variable life and annuity
policyholders.
On December 17, 1999, ARM entered into a Purchase Agreement (the "Purchase
Agreement") with The Western and Southern Life Insurance Company ("W&S") whereby
W&S agreed to acquire ARM's insurance subsidiaries, Integrity and National
Integrity Insurance Company, the ("Insurance Subsidiaries").
23
<PAGE>
National Integrity Life Insurance Company
Notes to Financial Statements (Statutory Basis) (continued)
11. OTHER ITEMS (CONTINUED)
On March 3, 2000, ARM closed the transaction contemplated by the Purchase
Agreement (the "Closing"). Under the terms of the Purchase Agreement, the
purchase price of $119.3 million is subject to a number of downward price
adjustments (see below) and was placed in an escrow account. The Company does
not expect any remaining proceeds in the escrow (after any such downward
adjustments) to be distributed from the escrow prior to the 12 month anniversary
of the Closing.
The $119.3 million purchase price may be decreased to the extent that the sum of
the Insurance Subsidiaries' statutory surplus and asset valuation reserves set
forth on the Insurance Subsidiaries' final February 29, 2000 balance sheet (less
certain enumerated items) is more than $1 million less than the sum of the
Insurance Subsidiaries' statutory surplus and asset valuation reserves set forth
in the Insurance Subsidiaries September 30, 1999 statutory financial statements
plus $2.2 million. The purchase price may be increased to the extent that the
sum of the Insurance Subsidiaries' statutory surplus and asset valuation
reserves set forth on the Insurance Subsidiaries' final February 29, 2000
balance sheet (less certain enumerated items) is more than $1 million greater
than the sum of the Insurance Subsidiaries' statutory surplus and asset
valuation reserves set forth on the Insurance Subsidiaries' September 30, 1999
statutory financial statements plus $2.2 million.
Subject to certain specified limitations, the purchase price may also be
decreased to the extent of any losses by W&S arising out of any inaccuracy in or
breach of any of ARM's representations, warranties or covenants.
The purchase price may be further decreased to the extent of any "losses" from
the sales or deemed sales of certain securities owned by the Insurance
Subsidiaries (the "Securities"). The Securities, which the parties have agreed
are to be sold, are set forth on a confidential list. "Losses" are calculated as
the aggregate amount by which the "carrying value" of the Securities exceeds the
aggregate net sale proceeds from the sales or deemed sales of the Securities.
The aggregate "carrying value" of the Securities as of February 29, 2000 was
$453.5 million. Losses of $4.7 million have been recognized on securities sold
subsequent to entering into the sale transaction.
24
<PAGE>
Financial Statements
Separate Account I
of
National Integrity Life Insurance Company
DECEMBER 31, 1999
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE>
Separate Account I
of
National Integrity Life Insurance Company
Financial Statements
December 31, 1999
CONTENTS
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
<PAGE>
Report of Independent Auditors
Contract Holders
Separate Account I of National Integrity Life Insurance Company
We have audited the accompanying statement of assets and liabilities of Separate
Account I of National 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,
Contrafund, Growth Opportunities, Balanced, Growth & Income, and Mid Cap Service
Class Divisions) as of December 31, 1999, the related statement of operations
for the year then ended and statements of 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements 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 mutual fund shares owned in Variable
Insurance Products Fund, Variable Insurance Products Fund II and Variable
Insurance Products Fund III (collectively the "Fidelity VIP Funds") as of
December 31, 1999, by correspondence with the transfer agent of the Fidelity VIP
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 Separate Account I of National Integrity Life Insurance
Company at December 31, 1999, and the results of their operations and changes in
their net assets for each of the periods indicated therein, in conformity with
accounting principles generally accepted in the United States.
Louisville, Kentucky /s/ Ernst & Young LLP
April 12, 2000
1
<PAGE>
Separate Account I of National Integrity Life Insurance Company
Statement of Assets and Liabilities
December 31, 1999
<TABLE>
<CAPTION>
MONEY EQUITY- INVESTMENT ASSET
MARKET HIGH INCOME INCOME GROWTH OVERSEAS GRADE BOND MANAGER
DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in Fidelity VIP Funds
at value (aggregate cost of
$351,618,203) $ 21,562,323 $ 31,176,658 $ 75,213,986 $ 81,311,083 $ 21,048,888 $ 10,337,495 $ 30,345,705
Receivable from (payable to) the
general account of National
Integrity 6,039 5,558 (4,712) 3,174 (318) 740 1,612
---------------------------------------------------------------------------------------------------
NET ASSETS $ 21,568,362 $ 31,182,216 $ 75,209,274 $ 81,314,257 $ 21,048,570 $ 10,338,235 $ 30,347,317
===================================================================================================
Unit value $ 13.93 $ 17.05 $ 42.47 $ 82.26 $ 33.94 $ 18.57 $ 31.72
===================================================================================================
Units outstanding 1,548,339 1,828,869 1,770,880 988,503 620,170 556,717 956,725
===================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
2
<PAGE>
Separate Account I of National Integrity Life Insurance Company
Statement of Assets and Liabilities (continued)
December 31, 1999
<TABLE>
<CAPTION>
ASSET
MANAGER: GROWTH
INDEX 500 GROWTH CONTRAFUND OPPORTUNITIES
DIVISION DIVISION DIVISION DIVISION
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments in Fidelity VIP Funds at value
(aggregate cost of $351,618,203) $ 51,803,547 $ 10,933,364 $70,979,245 $ 11,686,202
Receivable from (payable to) the general
account of National Integrity (2,246) (385) 4,929 475
-------------------------------------------------------------------
NET ASSETS $ 51,801,301 $ 10,932,979 $ 70,984,174 $ 11,686,677
===================================================================
Unit value $ 34.30 $ 23.14 $ 30.65 $ 15.16
===================================================================
Units outstanding 1,510,242 472,471 2,315,960 770,889
===================================================================
<CAPTION>
GROWTH & MID CAP
BALANCED INCOME SERVICE CLASS
DIVISION DIVISION DIVISION TOTAL
------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments in Fidelity VIP Funds at value
(aggregate cost of $351,618,203) $ 7,361,316 $ 15,748,886 $ 873,923 $ 440,382,621
Receivable from (payable to) the general
account of National Integrity (1,121) (487) 329 13,587
------------------------------------------------------------
NET ASSETS $ 7,360,195 $ 15,748,399 $ 874,252 $440,396,208
============================================================
Unit value $ 13.59 $ 16.78 $ 12.94
============================================
Units outstanding 541,589 938,522 67,562
============================================
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
Separate Account I of National Integrity Life Insurance Company
Statement of Operations
Year Ended December 31, 1999
<TABLE>
<CAPTION>
MONEY EQUITY-
MARKET HIGH INCOME INCOME GROWTH
DIVISION DIVISION DIVISION DIVISION
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Reinvested dividends from Fidelity VIP Funds $ 1,476,262 $ 3,282,850 $ 4,148,854 $ 7,135,873
EXPENSES
Mortality and expense risk and
administrative charges 397,480 420,008 1,163,594 940,822
----------------------------------------------------------------------
NET INVESTMENT INCOME 1,078,782 2,862,842 2,985,260 6,195,051
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on sales of investments - (2,822,581) 7,014,671 6,057,567
Net unrealized appreciation (depreciation)
of investments
Beginning of period 11,413 (1,665,786) 17,270,036 16,538,280
End of period 11,413 619,609 11,039,871 25,716,113
----------------------------------------------------------------------
Change in net unrealized appreciation/
depreciation during the period - 2,285,395 (6,230,165) 9,177,833
----------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS - (537,186) 784,506 15,235,400
----------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 1,078,782 $ 2,325,656 $ 3,769,766 $ 21,430,451
======================================================================
<CAPTION>
INVESTMENT ASSET
OVERSEAS GRADE BOND MANAGER
DIVISION DIVISION DIVISION
----------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Reinvested dividends from Fidelity VIP Funds $ 659,274 $ 513,878 $ 2,564,787
EXPENSES
Mortality and expense risk and
administrative charges 235,500 172,743 451,088
----------------------------------------------
NET INVESTMENT INCOME 423,774 341,135 2,113,699
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on sales of investments 2,344,821 (28,358) 1,919,584
Net unrealized appreciation (depreciation)
of investments
Beginning of period 771,733 386,531 5,285,685
End of period 4,315,885 (235,957) 4,153,701
----------------------------------------------
Change in net unrealized appreciation/
depreciation during the period 3,544,152 (622,488) (1,131,984)
----------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS 5,888,973 (650,846) 787,600
----------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 6,312,747 $ (309,711) $ 2,901,299
==============================================
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
Separate Account I of National Integrity Life Insurance Company
Statement of Operations (continued)
Year Ended December 31, 1999
<TABLE>
<CAPTION>
ASSET
MANAGER: GROWTH
INDEX 500 GROWTH CONTRAFUND OPPORTUNITIES
DIVISION DIVISION DIVISION DIVISION
----------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Reinvested dividends from Fidelity VIP Funds $ 793,851 $ 824,460 $ 2,614,185 $ 330,938
EXPENSES
Mortality and expense risk and
administrative charges 697,072 155,316 900,642 167,667
----------------------------------------------------------------
NET INVESTMENT INCOME 96,779 669,144 1,713,543 163,271
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on sales of investments 5,682,354 568,971 5,725,497 614,855
Net unrealized appreciation (depreciation)
of investments
Beginning of period 10,550,064 1,293,807 19,846,348 1,513,343
End of period 13,584,720 1,515,760 25,922,092 1,032,100
----------------------------------------------------------------
Change in net unrealized appreciation/
depreciation during the period 3,034,656 221,953 6,075,744 (481,243)
----------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS 8,717,010 790,924 11,801,241 133,612
----------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $8,813,789 $1,460,068 $ 13,514,784 $ 296,883
================================================================
<CAPTION>
GROWTH & MID CAP
BALANCED INCOME SERVICE CLASS
DIVISION DIVISION DIVISION (1) TOTAL
-------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Reinvested dividends from Fidelity VIP Funds $ 278,209 $ 227,495 $ 6,263 $24,857,179
EXPENSES
Mortality and expense risk and
administrative charges 96,968 197,762 1,709 5,998,371
--------------------------------------------------------
NET INVESTMENT INCOME 181,241 29,733 4,554 18,858,808
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on sales of investments 298,900 1,940,706 2,574 29,319,561
Net unrealized appreciation (depreciation)
of investments
Beginning of period 375,864 1,782,414 - 73,959,732
End of period 71,434 865,195 152,482 88,764,418
--------------------------------------------------------
Change in net unrealized appreciation/
depreciation during the period (304,430) (917,219) 152,482 14,804,686
--------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (5,530) 1,023,487 155,056 44,124,247
--------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 175,711 $1,053,220 $159,610 $62,983,055
========================================================
</TABLE>
(1)For the period June 15, 1999 (commencement of operations) to
December 31, 1999
SEE ACCOMPANYING NOTES.
5
<PAGE>
Separate Account I of National Integrity Life Insurance Company
Statement of Changes in Net Assets
Year Ended December 31, 1999
<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) $ 1,078,782 $ 2,862,842 $ 2,985,260 $ 6,195,051
Net realized gain (loss) on sales of investments - (2,822,581) 7,014,671 6,057,567
Change in net unrealized appreciation/
depreciation during the period - 2,285,395 (6,230,165) 9,177,833
-----------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 1,078,782 2,325,656 3,769,766 21,430,451
INCREASE (DECREASE) IN NET ASSETS FROM CONTRACT
RELATED TRANSACTIONS
Contributions from contract holders 3,142,440 1,516,213 1,482,020 1,776,268
Contract terminations and benefits (13,361,824) (5,778,831) (11,730,999) (11,768,764)
Net transfers among investment options (189,190) (465,189) (5,798,175) 8,204,398
-----------------------------------------------------------------
Net increase (decrease) in net assets
from contract related transactions (10,408,574) (4,727,807) (16,047,154) (1,788,098)
-----------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS (9,329,792) (2,402,151) (12,277,388) 19,642,353
Net assets, beginning of year 30,898,154 33,584,367 87,486,662 61,671,904
-----------------------------------------------------------------
NET ASSETS, END OF YEAR $ 21,568,362 $ 31,182,216 $75,209,274 $ 81,314,257
=================================================================
UNIT TRANSACTIONS
Contributions 231,459 89,689 34,710 26,333
Terminations and benefits (971,025) (351,686) (277,014) (165,572)
Net transfers (14,491) (10,784) (147,514) 111,228
-----------------------------------------------------------------
Net increase (decrease) in units (754,057) (272,781) (389,818) (28,011)
=================================================================
<CAPTION>
INVESTMENT ASSET
OVERSEAS GRADE BOND MANAGER
DIVISION DIVISION DIVISION
---------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income (loss) $ 423,774 $ 341,135 $ 2,113,699
Net realized gain (loss) on sales of investments 2,344,821 (28,358) 1,919,584
Change in net unrealized appreciation/
depreciation during the period 3,544,152 (622,488) (1,131,984)
---------------------------------------------
Net increase (decrease) in net assets resulting
from operations 6,312,747 (309,711) 2,901,299
INCREASE (DECREASE) IN NET ASSETS FROM CONTRACT
RELATED TRANSACTIONS
Contributions from contract holders 355,987 486,069 425,103
Contract terminations and benefits (3,075,353) (1,664,507) (6,239,455)
Net transfers among investment options 987,114 2,559,041 (1,500,014)
---------------------------------------------
Net increase (decrease) in net assets
from contract related transactions (1,732,252) 1,380,603 (7,314,366)
---------------------------------------------
INCREASE (DECREASE) IN NET ASSETS 4,580,495 1,070,892 (4,413,067)
Net assets, beginning of year 16,468,075 9,267,343 34,760,384
---------------------------------------------
NET ASSETS, END OF YEAR $ 21,048,570 $ 10,338,235 $ 30,347,317
=============================================
UNIT TRANSACTIONS
Contributions 13,604 25,872 14,316
Terminations and benefits (112,456) (89,393) (207,128)
Net transfers 36,266 132,996 (51,582)
---------------------------------------------
Net increase (decrease) in units (62,586) 69,475 (244,394)
=============================================
</TABLE>
SEE ACCOMPANYING NOTES.
6
<PAGE>
Separate Account I of National Integrity Life Insurance Company
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1999
<TABLE>
<CAPTION>
ASSET
MANAGER: GROWTH
INDEX 500 GROWTH CONTRAFUND OPPORTUNITIES
DIVISION DIVISION DIVISION DIVISION
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income (loss) $ 96,779 $ 669,144 $ 1,713,543 $ 163,271
Net realized gain (loss) on sales of investments 5,682,354 568,971 5,725,497 614,855
Change in net unrealized appreciation/
depreciation during the period 3,034,656 221,953 6,075,744 (481,243)
--------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 8,813,789 1,460,068 13,514,784 296,883
INCREASE (DECREASE) IN NET ASSETS FROM CONTRACT
RELATED TRANSACTIONS
Contributions from contract holders 1,869,443 383,228 1,562,188 706,335
Contract terminations and benefits (5,905,547) (1,306,422) (9,489,419) (1,009,656)
Net transfers among investment options 578,145 (2,335,710) 1,711,646 790,939
--------------------------------------------------------------------
Net increase (decrease) in net assets
from contract related transactions (3,457,959) (3,258,904) (6,215,585) 487,618
--------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS 5,355,830 (1,798,836) 7,299,199 784,501
Net assets, beginning of year 46,445,471 12,731,815 63,684,975 10,902,176
--------------------------------------------------------------------
NET ASSETS, END OF YEAR $ 51,801,301 $ 10,932,979 $ 70,984,174 $ 11,686,677
====================================================================
UNIT TRANSACTIONS
Contributions 61,063 18,189 58,408 47,356
Terminations and benefits (186,967) (61,301) (349,089) (68,546)
Net transfers 26,251 (110,059) 59,242 52,447
--------------------------------------------------------------------
Net increase (decrease) in units (99,653) (153,171) (231,439) 31,257
====================================================================
<CAPTION>
MID CAP
GROWTH & SERVICE
BALANCED INCOME CLASS
DIVISION DIVISION DIVISION (1) TOTAL
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income (loss) $ 181,241 $ 29,733 $ 4,554 $ 18,858,808
Net realized gain (loss) on sales of investments 298,900 1,940,706 2,574 29,319,561
Change in net unrealized appreciation/
depreciation during the period (304,430) (917,219) 152,482 14,804,686
-----------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 175,711 1,053,220 159,610 62,983,055
INCREASE (DECREASE) IN NET ASSETS FROM CONTRACT
RELATED TRANSACTIONS
Contributions from contract holders 555,881 1,001,553 3,500 15,266,228
Contract terminations and benefits (640,873) (1,331,220) (536) (73,303,406)
Net transfers among investment options 1,905,097 2,369,960 711,678 9,529,740
-----------------------------------------------------------------
Net increase (decrease) in net assets
from contract related transactions 1,820,105 2,040,293 714,642 (48,507,438)
-----------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS 1,995,816 3,093,513 874,252 14,475,617
Net assets, beginning of year 5,364,379 12,654,886 - 425,920,591
-----------------------------------------------------------------
NET ASSETS, END OF YEAR $ 7,360,195 $ 15,748,399 $ 874,252 $440,396,208
=================================================================
UNIT TRANSACTIONS
Contributions 41,314 62,203 343
Terminations and benefits (47,835) (82,253) (47)
Net transfers 141,101 146,320 67,266
-----------------------------------------------------
Net increase (decrease) in units 134,580 126,270 67,562
=====================================================
</TABLE>
(1)For the period June 15, 1999 (commencement of operations) to
December 31, 1999
SEE ACCOMPANYING NOTES.
7
<PAGE>
Separate Account I of National Integrity Life Insurance Company
Statement of Changes in Net Assets
Year Ended December 31, 1998
<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) $ 888,782 $ 3,728,044 $ 4,069,072 $ 5,745,699
Net realized gain on sales of investments - (801,344) 4,379,481 3,135,995
Change in net unrealized appreciation/
depreciation during the period 11,413 (4,872,337) (591,885) 7,969,381
----------------------------------------------------------------
Net increase in net assets resulting
from operations 900,195 (1,945,637) 7,856,668 16,851,075
INCREASE (DECREASE) IN NET ASSETS FROM CONTRACT
RELATED TRANSACTIONS
Contributions from contract holders 7,683,172 8,856,054 7,648,252 3,421,968
Contract terminations and benefits (2,691,835) (2,997,649) (5,623,280) (2,755,249)
Net transfers among investment options 6,847,731 (6,026,119) (4,949,952) (1,119,971)
----------------------------------------------------------------
Net increase (decrease) in net assets
from contract related transactions 11,839,068 (167,714) (2,924,980) (453,252)
----------------------------------------------------------------
INCREASE IN NET ASSETS 12,739,263 (2,113,351) 4,931,688 16,397,823
Net assets, beginning of year 18,158,891 35,697,718 82,554,974 45,274,081
----------------------------------------------------------------
NET ASSETS, END OF YEAR $ 30,898,154 $ 33,584,367 $ 87,486,662 $ 61,671,904
================================================================
UNIT TRANSACTIONS
Contributions 584,624 525,737 201,453 69,040
Terminations and benefits (202,925) (181,235) (149,003) (55,771)
Net transfers 513,031 (351,400) (136,924) (23,611)
----------------------------------------------------------------
Net increase (decrease) in units 894,730 (6,898) (84,474) (10,342)
================================================================
<CAPTION>
INVESTMENT ASSET
OVERSEAS GRADE BOND MANAGER
DIVISION DIVISION DIVISION
----------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income (loss) $ 930,750 $ 273,063 $ 3,675,533
Net realized gain on sales of investments 978,292 259,705 1,045,088
Change in net unrealized appreciation/
depreciation during the period (305,002) 37,093 (406,409)
---------------------------------------------
Net increase in net assets resulting
from operations 1,604,040 569,861 4,314,212
INCREASE (DECREASE) IN NET ASSETS FROM CONTRACT
RELATED TRANSACTIONS
Contributions from contract holders 1,093,541 1,092,650 1,930,458
Contract terminations and benefits (1,055,210) (743,383) (3,832,539)
Net transfers among investment options (430,261) 1,199,932 (228,711)
---------------------------------------------
Net increase (decrease) in net assets
from contract related transactions (391,930) 1,549,199 (2,130,792)
---------------------------------------------
INCREASE IN NET ASSETS 1,212,110 2,119,060 2,183,420
Net assets, beginning of year 15,255,965 7,148,283 32,576,964
---------------------------------------------
NET ASSETS, END OF YEAR $ 16,468,075 $ 9,267,343 $ 34,760,384
=============================================
UNIT TRANSACTIONS
Contributions 46,142 66,699 71,404
Terminations and benefits (45,504) (40,466) (141,174)
Net transfers (21,246) 57,607 (6,639)
---------------------------------------------
Net increase (decrease) in units (20,608) 83,840 (76,409)
=============================================
</TABLE>
SEE ACCOMPANYING NOTES.
8
<PAGE>
Separate Account I of National Integrity Life Insurance Company
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1998
<TABLE>
<CAPTION>
ASSET
MANAGER: GROWTH
INDEX 500 GROWTH CONTRAFUND OPPORTUNITIES
DIVISION DIVISION DIVISION DIVISION
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income (loss) $ 781,829 $ 802,579 $ 2,072,832 $ 96,869
Net realized gain on sales of investments 3,619,609 352,411 2,624,759 225,476
Change in net unrealized appreciation/
depreciation during the period 4,829,291 170,991 8,987,068 1,285,059
-----------------------------------------------------------------------
Net increase in net assets resulting
from operations 9,230,729 1,325,981 13,684,659 1,607,404
INCREASE (DECREASE) IN NET ASSETS FROM CONTRACT
RELATED TRANSACTIONS
Contributions from contract holders 5,157,740 2,886,782 6,518,733 3,346,797
Contract terminations and benefits (1,781,004) (281,616) (2,443,405) (233,462)
Net transfers among investment options 603,805 948,447 (2,118,664) 2,333,223
-----------------------------------------------------------------------
Net increase (decrease) in net assets
from contract related transactions 3,980,541 3,553,613 1,956,664 5,446,558
-----------------------------------------------------------------------
INCREASE IN NET ASSETS 13,211,270 4,879,594 15,641,323 7,053,962
Net assets, beginning of year 33,234,201 7,852,221 48,043,652 3,848,214
-----------------------------------------------------------------------
NET ASSETS, END OF YEAR $ 46,445,471 $ 12,731,815 $ 63,684,975 $ 10,902,176
=======================================================================
UNIT TRANSACTIONS
Contributions 204,765 162,656 305,274 257,477
Terminations and benefits (71,117) (15,048) (114,077) (17,672)
Net transfers 17,967 30,614 (107,575) 178,875
-----------------------------------------------------------------------
Net increase (decrease) in units 151,615 178,222 83,622 418,680
=======================================================================
<CAPTION>
GROWTH &
BALANCED INCOME
DIVISION DIVISION TOTAL
---------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income (loss) $ 95,616 $ (94,422) $ 23,066,246
Net realized gain on sales of investments 138,125 536,772 16,494,369
Change in net unrealized appreciation/
depreciation during the period 283,572 1,666,976 19,065,211
---------------------------------------------
Net increase in net assets resulting
from operations 517,313 2,109,326 58,625,826
INCREASE (DECREASE) IN NET ASSETS FROM CONTRACT
RELATED TRANSACTIONS
Contributions from contract holders 1,434,916 3,045,089 54,116,152
Contract terminations and benefits (145,600) (309,544) (24,893,776)
Net transfers among investment options 1,567,149 3,885,871 2,512,480
---------------------------------------------
Net increase (decrease) in net assets
from contract related transactions 2,856,465 6,621,416 31,734,856
---------------------------------------------
INCREASE IN NET ASSETS 3,373,778 8,730,742 90,360,682
Net assets, beginning of year 1,990,601 3,924,144 335,559,909
---------------------------------------------
NET ASSETS, END OF YEAR $ 5,364,379 $ 12,654,886 $ 425,920,591
=============================================
UNIT TRANSACTIONS
Contributions 125,126 228,119
Terminations and benefits (18,419) (22,336)
Net transfers 125,073 284,554
-----------------------------
Net increase (decrease) in units 231,780 490,337
=============================
</TABLE>
SEE ACCOMPANYING NOTES.
9
<PAGE>
Separate Account I
of
National Integrity Life Insurance Company
Notes to Financial Statements
December 31, 1999
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
National Integrity Life Insurance Company ("National Integrity") established
Separate Account I (the "Separate Account") on May 19, 1986, under the
insurance laws of the State of New York, for the purpose of issuing flexible
premium 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, as amended. The operations of the
Separate Account are part of National Integrity.
National Integrity is a wholly owned subsidiary of Integrity Life Insurance
Company ("Integrity") which, prior to March 3, 2000, was an indirect wholly
owned subsidiary of ARM Financial Group, Inc. ("ARM"). Effective March 3, 2000,
Integrity and National Integrity were acquired by the Western and Southern Life
Insurance Company ("W&S"). (See Note 4 of Notes to Financial Statements.)
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 National Integrity, or both. Certain
contract holders may also allocate or transfer a portion or all of their account
values to one or more fixed rate guaranteed rate options of National Integrity's
Separate Account GPO.
The Separate Account investment divisions are invested in shares of
corresponding investment portfolios of the Variable Insurance Products Fund,
Variable Insurance Products Fund II and Variable Insurance Products Fund III
(collectively the "Fidelity VIP Funds"). The Fidelity VIP Funds are "series"
type mutual funds managed by Fidelity Management and Research Company ("Fidelity
Management"). The contract holder's account value in a Separate Account division
will vary depending on the performance of the corresponding portfolio. The
Separate Account currently has fourteen 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 operative
portfolios of the Fidelity VIP Funds at December 31, 1999 for this Separate
Account.
10
<PAGE>
Separate Account I
of
National Integrity Life Insurance Company
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MONEY MARKET PORTFOLIO seeks to earn as high a level of current income while
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 a high current income while also considering growth
of capital. It normally invests at least 65% of its total assets in
income-producing debt securities, preferred stocks and convertible securities,
with an emphasis on lower-quality debt securities.
EQUITY-INCOME PORTFOLIO seeks reasonable income. The Portfolio will also
consider the potential for capital appreciation. The Portfolio seeks a yield
which exceeds the composite yield on the securities compromising S&P 500. It
normally invests at least 65% of the Portfolio's assets in income-producing
equity securities.
GROWTH PORTFOLIO seeks capital appreciation. It invests in companies that are
believed to have above-average growth potential. These companies tend to have
higher than average price/earnings (P/E) ratios. Companies with strong growth
potential often have new products, technologies, distribution channels or other
opportunities for a strong industry or market position. The stocks of these
companies are often called "growth" stocks.
OVERSEAS PORTFOLIO seeks long-term growth of capital primarily through
investments in foreign securities. It normally invests at least 65% of its
assets in foreign securities.
INVESTMENT GRADE BOND PORTFOLIO seeks as high a level of current income as is
consistent with the preservation of capital by investing in U.S.
dollar-denominated investment-grade bonds.
ASSET MANAGER PORTFOLIO seeks high total return with reduced risk over the
long-term by allocating its assets among stocks, bonds and short-term money
market instruments.
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.
11
<PAGE>
Separate Account I
of
National Integrity Life Insurance Company
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 money market instruments. The Portfolio has a neutral mix, which
represents the way the fund's investments will generally be allocated over the
long term. The approximate neutral mix for stocks, bonds and short-term
instruments is 70%, 25% and 5%, respectively.
CONTRAFUND PORTFOLIO seeks long-term capital appreciation by investing assets
primarily in common stocks. The Portfolio invests assets in securities of
companies whose value may not fully be recognized by the public. The types of
companies in which the Portfolio may invest include companies experiencing
positive fundamental change such as a new management team or product launch, a
significant cost-cutting initiative, a merger or acquisition, or a reduction in
industry capacity that should lead to improved pricing; companies whose earning
potential has increased or is expected to increase more than generally
perceived; companies that have enjoyed recent market popularity but which appear
to have temporarily fallen out of favor for reasons that are considered
non-recurring or short-term; and companies that are undervalued in relation to
securities of other companies in the same industry.
GROWTH OPPORTUNITIES PORTFOLIO seeks to provide capital growth by investing
primarily in common stocks. The Portfolio has the ability to purchase other
types of securities, including bonds which may be lower-quality debt securities.
BALANCED PORTFOLIO seeks both income and growth of capital by investing
approximately 65% of assets in stocks and other equity securities, and the
reminder in bonds and other debt securities including lower-quality debt
securities, when its outlook is neutral.
GROWTH & INCOME PORTFOLIO seeks high total return through a combination of
current income and capital appreciation by investing mainly in common stocks
with a focus on those that pay current dividends and show potential for capital
appreciation. Investments may also include bonds, including lower-quality debt
securities, as well as stocks that are not currently paying dividends, but offer
prospects for future income or capital appreciation.
12
<PAGE>
Separate Account I
of
National Integrity Life Insurance Company
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MID CAP SERVICE CLASS PORTFOLIO invest primarily in common stocks with at least
65% of the Portfolio's total assets in securities of companies with medium
market capitalizations. Medium market capitalization companies are those whose
market capitalization is similar to the similar to the capitalization of
companies in the S&P Mid Cap 400 at the time of the investment. Companies whose
capitalization no longer meets this definition after purchase continue to be
considered to have a medium market capitalization for purposes of the 65%
policy.
The assets of the Separate Account are owned by National 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 National Integrity.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States 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 investments.
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 and distributions from the Fidelity VIP Fund
portfolios are reinvested in the respective portfolios and are reflected in the
unit value of the divisions of the Separate Account.
13
<PAGE>
Separate Account I
of
National Integrity Life Insurance Company
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
UNIT VALUE
Unit values for the Separate Account divisions 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 portfolios 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
National Integrity, which is taxed as a life insurance company under the
Internal Revenue Code. The Separate Account will not be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code. Under the
provisions of the policies, National Integrity has the right to charge the
Separate Account for federal income tax attributable to the Separate Account. No
charge is currently being made against the Separate Account for such tax since,
under current tax law, National Integrity pays no tax on investment income and
capital gains reflected in variable life insurance policy reserves. However,
National Integrity retains the right to charge for any federal income tax
incurred which is attributable to the Separate Account if the law is changed.
Charges for state and local taxes, if any, attributable to the Separate Account
may also be made.
USE OF ESTIMATES
The preparation of financial statements requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
14
<PAGE>
Separate Account I
of
National Integrity Life Insurance Company
Notes to Financial Statements (continued)
2. INVESTMENTS
The aggregate cost of portfolio shares purchased and proceeds from portfolio
shares sold during 1999 and the cost of shares held at December 31, 1999 for
each division were as follows:
<TABLE>
<CAPTION>
DIVISION PURCHASES SALES COST
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market $65,716,746 $75,086,003 $ 21,550,910
High Income 32,534,798 34,398,669 30,557,049
Equity-Income 11,144,145 24,175,502 64,174,115
Growth 21,150,065 16,772,352 55,594,970
Overseas 15,412,659 16,722,969 16,733,003
Investment Grade Bond 7,699,189 5,980,542 10,573,452
Asset Manager 4,193,855 9,398,189 26,192,004
Index 500 10,801,872 14,165,038 38,218,827
Asset Manager: Growth 1,861,925 4,454,586 9,417,604
Contrafund 7,914,026 12,424,816 45,057,153
Growth Opportunities 4,310,459 3,658,059 10,654,102
Balanced 5,840,775 3,837,725 7,289,882
Growth & Income 12,207,073 10,139,303 14,883,691
Mid Cap Service Class 757,537 38,670 721,441
--------------------
$351,618,203
====================
</TABLE>
3. EXPENSES
National 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 account 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).
15
<PAGE>
Separate Account I
of
National Integrity Life Insurance Company
Notes to Financial Statements (continued)
4. EVENTS RELATING TO NATIONAL INTEGRITY, INTEGRITY AND ARM
On July 29, 1999, ARM announced that it was restructuring its institutional
business and positioning its retail business and technology operations for
the sale of ARM or its businesses or its assets. Following the July 29, 1999
announcement, the ratings of ARM and its insurance subsidiaries, including
National Integrity, were significantly lowered several times by four major
rating agencies, materially and adversely affecting National Integrity's
ability to market retail products and adversely affecting the persistency of
its existing business during the remainder of 1999.
On December 17, 1999 ARM entered into a Purchase Agreement (the "Purchase
Agreement") with W&S whereby W&S agreed to acquire Integrity and National
Integrity. On March 3, 2000, W&S and ARM closed the transaction contemplated by
the Purchase Agreement. The Company has been assigned a AAA (Extremely Strong)
rating for financial strength by Standard & Poor's, AAA (Highest) for claims
paying ability from Duff & Phelps' and A (Excellent) for financial strength from
A.M. Best. It is expected that Moody's will assign similar ratings to National
Integrity.
W&S is part of the Western-Southern Enterprise, a financial services group which
also includes Western-Southern Life Assurance Company, Columbus Life Insurance
Company, Touchstone Advisors, Inc., Fort Washington Investment Advisors, Inc.,
Todd Investment Advisors, Inc., Countrywide Financial Services, Capital Analysts
Incorporated and Eagle Realty Group, Inc. Assets owned or under management by
the group exceed $20 billion. Western and Southern is rated A++ (Superior) by
A.M. Best, AAA (Highest) by Duff & Phelps, AAA (Extremely Strong) by Standard &
Poor's, and Aa2 (Excellent) by Moody's.
16
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS INCLUDED IN PART A:
Section 1 - Condensed Financial Information for the Portfolios
FINANCIAL STATEMENTS INCLUDED IN PART B:
SEPARATE ACCOUNT I:
Report of Independent Auditors
Statement of Assets and Liabilities as of December 31, 1999
Statement of Operations for the Year Ended December 31, 1999
Statements of Changes in Net Assets for the Years Ended December 31,
1999 and 1998
Notes to Financial Statements
NATIONAL INTEGRITY LIFE INSURANCE COMPANY:
Report of Independent Auditors
Balance Sheets (Statutory Basis) as of December 31, 1999 and 1998
Statements of Income (Statutory Basis) for the Years Ended
December 31, 1999 and 1998
Statements of Changes in Capital and Surplus (Statutory Basis) for
the Years Ended December 31, 1999 and 1998
Statements of Cash Flows (Statutory Basis) for the Years Ended
December 31, 1999 and 1998
Notes to Financial Statements (Statutory Basis)
(b) EXHIBITS:
The following exhibits are filed herewith:
1. Resolutions of the Board of Directors of National
Integrity Life Insurance Company (NATIONAL INTEGRITY)
authorizing the establishment of Separate Account I, the
Registrant. Incorporated by reference from Registrant's
Form N-4 registration statement (File No.
33-8905), filed on September 19, 1986.
2. Not applicable.
3.(a) Form of Selling/General Agent Agreement among National
Integrity, Integrity Financial Services, Inc. ("IFS")
(the previous principal underwriter) and broker dealers.
Incorporated by reference from post-effective amendment
no. 5 to Registrant's Form N-4 registration statement
(File No. 33-8905) filed on March 2, 1992.
3.(b) Form of Variable Contract Principal Underwriter
Agreement with Touchstone Securities, Inc. ("Touchstone
Securities"). Incorporated by reference from
Registrant's Form N-4 registration statement (File No.
33-56658) filed on April 28, 2000.
4.(a) Form of trust agreement. Incorporated by reference from
Registrant's Form N-4 registration statement (File No.
33-51126), filed on August 20, 1992.
4.(b) Form of group variable annuity contract. Incorporated by
reference from Registrant's Form N-4 registration
statement (File No. 33-56658), filed on December 31,
1992.
<PAGE>
4.(c) Form of variable annuity certificate. Incorporated by
reference from Registrant's Form N-4 registration
statement (File No. 33-56658), filed on December 31,
1992.
4.(d) Form of riders to certificate for qualified plans.
Incorporated by reference from amendment no. 1 to
Registrant's Form S-1 registration statement (File No.
33-51122), filed on November 10, 1992.
5. Form of application. Incorporated by reference from
Registrant's Form N-4 registration statement (File No.
33-56658), filed on December 31, 1992.
6.(a) Certificate of Incorporation of National Integrity.
Incorporated by reference from Registrant's Form N-4
registration statement (File No. 33-33119), filed on
January 19, 1990.
6.(b) By-Laws of National Integrity. Incorporated by reference
from Registrant's Form N-4 registration statement (File
No. 33-33119), filed on January 19, 1990.
7. Reinsurance Agreement between National Integrity and
Connecticut General Life Insurance Company (CIGNA)
effective January 1, 1995 (filed herewith). Incorporated
by reference from Registrant's Form N-4 registration
statement (File No. 33-56658), filed on April 28, 1995.
8.(a) Participation Agreement Among Variable Insurance
Products Fund, Fidelity Distributors Corporation ("FDC")
and National Integrity, dated November 20, 1990.
Incorporated by reference from post-effective amendment
no. 5 to Registrant's Form N-4 registration statement
(File No. 33-8905), filed on March 2, 1992.
8.(b) Participation Agreement Among Variable Insurance
Products Fund II, FDC and National Integrity, dated
November 20, 1990. Incorporated by reference from
post-effective amendment no. 5 to Registrant's Form N-4
registration statement (File No. 33-8905), filed on
March 2, 1992.
8.(c) Amendment No. 1 to Participation Agreements Among
Variable Insurance Products Fund, Variable Insurance
Products Fund II, FDC, and National Integrity.
Incorporated by reference from Registrant's Form N-4
registration statement (File No. 33-56658), filed on May
1, 1996.
8.(d) Participation Agreement Among Variable Insurance
Products Fund III, FDC and National Integrity.
Incorporated by reference from Registrant's Form N-4
registration statement (File No. 33-56658) filed on May
6, 1998.
9. Opinion and Consent of G. Stephen Wastek.
10. Consent of Ernst & Young LLP.
11. Not applicable.
12. Not applicable.
13. Schedule for computation of performance quotations.
Incorporated by reference from Registrant's Form N-4
registration statement (File No. 33-56658), filed on May
1, 1996.
2
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
Set forth below is information regarding the directors and principal
officers of National Integrity, the Depositor.
DIRECTORS:
---------
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS ADDRESS POSITION AND OFFICES WITH DEPOSITOR
----------------------------------- -----------------------------------
<S> <C>
John F. Barrett Director
400 Broadway, Cincinnati, Ohio 45202
Dennis L. Carr Director, Executive Vice President and Chief Actuary
515 W. Market, Louisville, Kentucky 40202
Daniel J. Downing Director
15 Matthews Street, Goshen, New York 10924
Eric C. Fast Director
100 First Stamford Place
Stamford, Connecticut 06092
John R. Lindholm Director and President
515 W. Market, Louisville, Kentucky 40202
Cameron F. MacRae Director
125 W. 55th Street, New York, New York 10019
Robert L. Walker Director
400 Broadway, Cincinnati, Ohio 45202
William J. Williams Director
400 Broadway, Cincinnati, Ohio 45202
Donald J. Wuebbling Director
400 Broadway, Cincinnati, Ohio 45202
SELECTED OFFICERS
-----------------
NAME AND PRINCIPAL BUSINESS ADDRESS POSITION AND OFFICES WITH DEPOSITOR
----------------------------------- -----------------------------------
John R. Lindholm* Director and President
Dennis L. Carr* Director, Executive Vice President & Chief Actuary
James G. Kaiser Executive Vice President
333 Ludlow Street
Stamford, CT 06902
Don W. Cummings* Senior Vice President & Chief Financial Officer
William F. Ledwin Senior Vice President & Chief Investment Officer
400 Broadway, Cincinnati, Ohio 45202
William H. Guth* Senior Vice President
Edward J. Haines* Senior Vice President
Kevin L. Howard* Senior Vice President
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Kenneth A. Palmer* Senior Vice President
Scott Vincini Senior Vice President, National Sales Manager
333 Ludlow Street
Stamford, CT 06902
James J. Vance Vice President & Treasurer
400 Broadway, Cincinnati, Ohio 45202
Joseph F. Vap* Director, Financial Operations
Edward J. Babbitt Secretary
400 Broadway, Cincinnati, Ohio 45202
</TABLE>
* Principal Business Address: 515 West Market Street, Louisville, KY 40202
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH NATIONAL
INTEGRITY OR REGISTRANT
The Western and Southern Life Insurance Company ("WSLIC"); Ohio corporation
Western-Southern Life Assurance Company ("WSLAC"); Ohio corporation;
100% owned by WSLIC
Courtyard Nursing Care, Inc.; Ohio corporation; 100% owned by
WSLAC; ownership and operation of real estate.
IFS Financial Services, Inc. ("IFS"); Ohio corporation; 100%
owned by WSLAC; development and marketing of financial
products for distribution through financial institutions.
IFS Systems, Inc.; Delaware corporation; 100% owned by
IFS; development, marketing and support of software
systems.
IFS Insurance Agency, Inc.; Ohio corporation; 99% owned by
IFS, 1% owned by William F. Ledwin; general insurance
agency.
Touchstone Securities, Inc.; Nebraska corporation; 100%
owned by IFS; securities broker-dealer.
Touchstone Advisors, Inc.; Ohio corporation; 100% owned by
IFS; registered investment adviser.
IFS Agency Services, Inc.; Pennsylvania corporation; 100%
owned by IFS; general insurance agency.
IFS Agency, Inc.; Texas corporation; 100% owned by an
individual; general insurance agency.
IFS General Agency, Inc.; Pennsylvania corporation; 100%
owned by William F. Ledwin; general insurance agency.
Integrity Life Insurance Company; Ohio corporation; 100% owned by WSLIC.
National Integrity Life Insurance Company; New York corporation;
100% owned by Integrity Life Insurance Company.
Seasons Congregate Living, Inc.; Ohio corporation; 100% owned by WSLIC;
ownership and operation of real estate.
4
<PAGE>
Latitudes at the Moors, Inc.; Florida corporation; 100% owned by WSLIC;
ownership and operation of real estate.
WestAd Inc.; Ohio corporation; 100% owned by WSLIC, general advertising,
book-selling and publishing.
Fort Washington Investment Advisors, Inc.; Ohio corporation; 100% owned
by WSLIC; registered investment adviser.
Todd Investment Advisors, Inc.; Kentucky corporation; 100% owned
by Fort Washington Investment Advisors, Inc.;
registered investment adviser.
Countrywide Financial Services, Inc.; Ohio corporation; 100%
owned by Fort Washington Investment Advisors, Inc.
Countrywide Investments, Inc.; Ohio corporation; 100%
owned by Countrywide Financial Services, Inc.;
registered investment advisor and broker dealer.
CW Fund Distributors, Inc.; Ohio corporation; 100%
owned by Countrywide Finacial Services, Inc.;
registered broker dealer
CountrywideFund Services, Inc.; Ohio corporation; 100%
owned by Countrywide Financial Services, Inc.
Columbus Life Insurance Company; Ohio corporation; 100% owned by WSLIC;
insurance.
Colmain Properties, Inc.; Ohio corporation; 100% owned by
Columbus Life Insurance Company; acquiring, owning,
managing, leasing, selling real estate.
Colpick, Inc.; Ohio corporation; 100% owned by Colmain
Properties, Inc.; acquiring, owning, managing,
leasing and selling real estate.
CAI Holding Company, Inc.; Ohio corporation; 100% owned by
Columbus Life Insurance Company; holding company.
Capital Analysts Incorporated; Delaware corporation;
100% owned by CAI Holding Company; securities
broker-dealer and registered investment advisor.
Capital Analysts Agency, Inc.; Ohio corporation; 99%
owned by Capital Analysts Incorporated, 1% owned
by William F. Ledwin; general insurance agency.
Capital Analysts Agency, Inc.; Texas corporation; 100%
owned by an individual who is a resident of
Texas, but under contractual association with
Capital Analysts Incorporated; general insurance
agency.
Capital Analysts Insurance Agency, Inc.; Massachusetts
corporation; 100% owned by Capital Analysts
Incorporated; general insurance agency.
CLIC Company I; Delaware corporation; 100% owned by Columbus
Life Insurance Company; holding company.
CLIC Company II; Delaware corporation; 100% owned by Columbus
Life Insurance Company; holding company.
Eagle Properties, Inc.; Ohio corporation; 100% owned by WSLIC;
ownership, development and management of real estate.
5
<PAGE>
Seasons Management Company; Ohio corporation; 100 % owned by
Eagle Properties, Inc.; management of real estate.
Waslic Company II; Delaware corporation; 100% owned by WSLIC; holding
company.
WestTax, Inc.; Ohio corporation, 100% owned by WSLIC; preparation and
electronic filing of tax returns.
Florida Outlet Marts, Inc.; Florida corporation; 100% owned by WSLIC;
ownership and operation of real estate.
AM Concepts Inc.; Delaware corporation, 100% owned by WSLIC;
venture capital investment in companies engaged in alternative
marketing of financial products.
Western-Southern Agency, Inc.; Ohio corporation; 99% owned by WSLIC; 1%
owned by William F. Ledwin; general insurance agency.
Western-Southern Agency Services, Inc.; Pennsylvania corporation; 100%
owned by WSLIC; general insurance agency.
W-S Agency of Texas, Inc.; Texas corporation; 100% owned by an
individual; general insurance agency.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of August 28, 2000 there were 6136 contract owners of Separate
Account I of National Integrity.
ITEM 28. INDEMNIFICATION
BY-LAWS OF TOUCHSTONE SECURITIES, INC. The By-Laws of Interactive Financial
Solutions, now called Touchstone Securities provide, in Article IV, as follows:
INDEMNIFICATION, GENERALLY. To the extent permitted by the law of
the State of Ohio and subject to all applicable requirements thereof:
Section 1. Any person made or threatened to be made a party to any
action or proceeding, whether civil or criminal, by reason of the
fact that he is or was a director, officer, employee, trustee, agent
of another company or incorporator of the Company shall be
indemnified by the Company;
Section 4. Any person made or threatened to be made a party to any
action or proceeding, whether civil or criminal, by reason of the
fact that he is or was a director, officer, employee, trustee, agent
of another company or incorporator of the Company and not covered by
Section 1, may be indemnified upon approval of
(a) a majority voted of a quorum consisting of
disinterested directors, or
(b) independent legal counsel, or
(c) by the members, or
(d) by the Court of Common Please of Hamilton County, Ohio
or the court where such action was brought.
Section 5. The related expenses of any such person in any other of
said categories may be advanced by the Company.
6
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Touchstone Securities is the principal underwriter for Separate
Account I. Touchstone Securities also serves as an underwriter for the contracts
issued under National Integrity Life Insurance Company's Separate Accounts II
and VUL; Integrity Life Insurance Company's Separate Accounts I, II, VUL and
Ten; contracts issued under Western-Southern Life Assurance Company's Separate
Accounts 1 and 2; The Legends Fund, Inc.; and for the shares of several series
(Funds) of Touchstone Series Trust (formerly Select Advisors Trust A),
Touchstone Strategic Trust, Touchstone Investment Trust and Touchstone Tax-Free
Trust; each of which is affiliated with the Depositor. National 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, Touchstone Securities, are as follows:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS ADDRESS POSITION AND OFFICES WITH TOUCHSTONE SECURITIES
----------------------------------- -----------------------------------------------
<S> <C>
James N. Clark* Director
Jill T. McGruder Director, Chief Executive Officer and President
311 Pike Street
Cincinnati, Ohio 45202
Edward S. Heenan* Director and Controller
William F. Ledwin* Director
Donald J. Wuebbling* Director
Richard K. Taulbee* Vice President
Robert F. Morand* Secretary
Patricia Wilson Chief Compliance Officer
311 Pike Street
Cincinnati, Ohio 45202
</TABLE>
*Principal Business Address: 400 Broadway, Cincinnati, Ohio 45202
(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 National Integrity at 515 West Market Street, Louisville,
Kentucky 40202 or 15 Matthews Street, Suite 200, Goshen, New York 10924.
ITEM 31. MANAGEMENT SERVICES
There are currently no management-related services provided to the Registrant.
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;
7
<PAGE>
(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; and
(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.
National Integrity represents that aggregate charges under variable annuity
contracts described in this Registration Statement are reasonable in relation to
the services rendered, the expenses expected to be incurred, and the risks
assumed by National Integrity.
8
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant and the Depositor 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 the 24th day of July, 2000.
SEPARATE ACCOUNT I OF
NATIONAL INTEGRITY LIFE INSURANCE COMPANY
(Registrant)
By: National Integrity Life Insurance Company
(Depositor)
By: /s/ John R. Lindholm
-----------------------
John R. Lindholm
President
NATIONAL INTEGRITY LIFE INSURANCE COMPANY
(Depositor)
By: /s/ John R. Lindholm
-----------------------
John R. Lindholm
President
9
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant and the Depositor have 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 24th day of July, 2000.
NATIONAL 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: 07/24/2000
PRINCIPAL FINANCIAL OFFICER: /s/ Don W. Cummings
-----------------------
Don W. Cummings, Senior Vice President and
Chief Financial Officer
Date: 07/24/2000
PRINCIPAL ACCOUNTING OFFICER: /s/ Joseph F. Vap
-----------------------
Joseph F. Vap, Director, Financial Operations
Date: 07/24/2000
DIRECTORS:
/s/ John F. Barrett
------------------- --------------------
John F. Barrett Cameron F. MacRae
Date: 07/24/2000 Date: 07/24/2000
/s/ Dennis L. Carr /s/ Robert L. Walker
------------------- --------------------
Dennis L. Carr Robert L. Walker
Date: 07/24/2000 Date: 07/24/2000
/s/ Daniel J. Downing /s/ William J. Williams
--------------------- ------------------------
Daniel J. Downing William J. Williams
Date: 07/24/2000 Date: 07/24/2000
------------------- /s/ Donald J. Wuebbling
Eric C. Fast ------------------------
Date: 07/24/2000 Donald J. Wuebbling
Date: 07/24/2000
/s/ John R. Lindholm
---------------------
John R. Lindholm
Date: 07/24/2000
10
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER
9. Consent of G. Stephen Wastek
11
