As filed with the Securities and Exchange Commission on April 28, 2000
Registration No. 033-76582
Registration No. 811-8420
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 11 [ X ]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 20 [ X ]
(Check appropriate box or boxes)
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WESTERN-SOUTHERN LIFE ASSURANCE COMPANY SEPARATE ACCOUNT 1
(Exact Name of Registrant)
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
(Name of Depositor)
400 Broadway
Cincinnati, Ohio 45202
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number (513) 629-1800
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Copy to:
DONALD J. WUEBBLING, ESQ. MARK H. LONGENECKER, ESQ.
400 Broadway Frost & Jacobs LLP
Cincinnati, Ohio 45202 2500 PNC Center
(Name and Address of Agent for Service) 201 East Fifth Street
Cincinnati, Ohio 45202
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Approximate Date of Proposed Public Offering: Continuous Offering
It is proposed that this filing will become effective (check appropriate box)
___ immediately upon filing pursuant to paragraph (b) of rule 485
XX on May 1, 2000 pursuant to paragraph (b) of Rule 485
___ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
___ on (date) pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following box:
___ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Touchstone Gold Variable Annuity Contracts
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<TABLE>
<CAPTION>
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY SEPARATE ACCOUNT 1
TOUCHSTONE GOLD VARIABLE ANNUITY
CROSS-REFERENCE SHEET REQUIRED BY RULE 495(A)
FORM N-4 PART A ITEM NO. HEADING IN PROSPECTUS
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<S> <C>
1. Cover Page Cover Page
2. Definitions Glossary
3. Synopsis
(a) Fee and Expense Tables Fee and Expense Tables
(b) Synopsis Summary
4. Condensed Financial Information
(a) Accumulation Unit Values Accumulation Unit Values, Supplement A
(b) Performance Information Performance Information
(c) Financial Statements Financial Statements
5. General Description of Registrant, Depositor and
Portfolio Companies
(a) Depositor WSLAC and Separate Account 1
(b) Registrant WSLAC and Separate Account 1
(c) Portfolio Company Information about the Investment Options
(d) Prospectus Information about the Investment Options
(e) Voting Voting Rights
(f) Administrator Service Providers
6. Deductions and Expenses
(a) Deductions Charges
(b) Sales load Charges
(c) Special purchase plans Purchasing Your Contract
(d) Commissions Service Providers
(e) Portfolio company expenses Information about the Investment Options
(f) Registrant's expenses Charges
7. General Description of Variable Annuity Contracts
(a) Rights Other Information about Your Contract
(b) Allocations, transfers and exchanges Purchasing Your Contract, Transferring Your Money
i
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<CAPTION>
FORM N-4 PART A ITEM NO. HEADING IN PROSPECTUS
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(c) Changes in contracts or operations Information about the Investment Options
(d) Contract owner inquiries Summary
8. Annuity Period
(a) Level of benefits Annuity Income Payment Options
(b) Annuity commencement date Annuity Income Payment Options
(c) Annuity payments Annuity Income Payment Options
(d) Assumed investment return Not applicable
(e) Minimums Annuity Income Payment Options
(f) Rights to change options or
transfer contract value Annuity Income Payment Options
9. Death Benefit
(a) Death benefit calculation Guaranteed Death Benefit
(b) Forms of benefits Guaranteed Death Benefit
10. Purchases and Contract Value
(a) Procedures for purchases Purchasing Your Contract
(b) Accumulation unit values Accumulation Unit Values; Supplement A
(c) Calculation of accumulation unit values Valuation of Your Investments
(d) Principal underwriter Service Providers
11. Redemptions
(a) Redemption procedures Accessing Your Money, Annuity Income Payments Options
(b) Texas Optional Retirement Program Supplement C
(c) Delay Accessing Your Money, Other Information about Your Contract
(d) Lapse Other Information about Your Contract
(e) Revocation rights Purchasing Your Contract
12. Taxes
(a) Tax consequences Federal Income Tax Information, Supplement B, Supplement C
ii
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<CAPTION>
FORM N-4 PART A ITEM NO. HEADING IN PROSPECTUS
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<S> <C>
(b) Qualified plans Federal Income Tax Information, Supplement B, Supplement C
(c) Impact of taxes Federal Income Tax Information, Supplement B, Supplement C
13. Legal Proceedings Not Applicable
14. Table of Contents for Statement of
Additional Information Table of Contents of Statement of Additional Information
<CAPTION>
FORM N-4 PART B ITEM NO. HEADING IN SAI OR PROSPECTUS
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<S> <C>
15. Cover Page Cover Page (SAI)
16. Table of Contents Table of Contents (SAI)
17. General Information and History
(a) Name change Not Applicable
(b) Attribution of assets Not Applicable
(c) Control of depositor WSLAC and Separate Account 1 (Prospectus)
18. Services
(a) Fees, expenses and costs Not Applicable
(b) Management-related services Service Providers
(c) Custodian and independent
public accountant Independent Accountants (SAI)
(d) Other custodianship Not Applicable
(e) Affiliated service agents Not Applicable
(f) Depositor as principal underwriter Not Applicable
19. Purchase of Securities Being Offered
(a) Manner of offering Distribution of the Contracts (SAI),
Service Providers (Prospectus)
(b) Sales Load Charges (Prospectus)
20. Underwriters Distribution of the Contracts (SAI),
Service Providers (Prospectus)
21. Calculation of Performance Data Sub-Account Performance (SAI)
22. Annuity Payments Fixed Annuity Income Payments (SAI)
23. Financial Statements
iii
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<CAPTION>
FORM N-4 PART B ITEM NO. HEADING IN SAI OR PROSPECTUS
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<S> <C>
(a) Registrant Financial Statements (SAI)
(b) Depositor Financial Statements (SAI)
</TABLE>
PART C
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C of the Registration Statement.
iv
<PAGE>
TOUCHSTONE GOLD VARIABLE ANNUITY
PROSPECTUS
MAY 1, 2000
Western-Southern Life Assurance Company
Separate Account I
This Prospectus describes the Touchstone Gold Variable Annuity Contract and the
investment options available to Contract owners. It contains information you
should know before purchasing a Contract and selecting your investment options.
Please read this Prospectus carefully and keep it for future reference.
The Touchstone Gold Variable Annuity Contract is issued by Western-Southern Life
Assurance Company (WSLAC). The Contract is an investment alternative for
investors who want to accumulate money on a tax-deferred basis for retirement or
other long-term goals.
You can purchase a Contract for $2,000 or more. You can also purchase a Contract
in connection with certain types of retirement plans, such as a Traditional or
Roth IRA or a 403(b) plan, for $1,000 or more. If you select our Automatic
Investment Plan, you can purchase a Contract with regular installment payments
of $50 or more. The Contract also includes a flexible purchase payment feature
that allows you to make additional payments later.
You tell us how to invest your payments. Your investment options include 18
Sub-Accounts and the Fixed Account. Each Sub-Account invests in an underlying
Fund with the same investment objective. The Funds include:
o AIM V.I. Growth o Touchstone Emerging Growth
o AIM V.I. Government Securities o Touchstone International Equity
o Alger American Small Capitalization o Touchstone High Yield
o Alger American Growth o Touchstone Value Plus
o Deutsche VIT Equity 500 Index o Touchstone Growth & Income
o MFS VIT Emerging Growth o Touchstone Enhanced 30
o MFS VIT Growth with Income o Touchstone Balanced
o PIMCO Long-Term U.S. Government Bond o Touchstone Bond
o Touchstone Small Cap Value o Touchstone Standby Income
The Fixed Account is an additional investment option. It is a fixed-rate option,
backed by the general assets of WSLAC.
The Statement of Additional Information dated May 1, 2000 contains more
information about the Contract, WSLAC and its Separate Account 1. It has been
filed with the Securities and Exchange Commission (SEC) and is legally part of
this Prospectus. The table of contents for the Statement of Additional
Information is located on page 50 of this Prospectus. For a free copy, call the
Touchstone Variable Annuity Service Center at 800.669.2796 (press 2).
The Securities and Exchange Commission maintains a web site (http://www.sec.gov)
that contains the Statement of Additional Information, certain other material
that is legally part of the registration statement of Separate Account 1, and
other information about Separate Account 1. You can view these documents at the
Public Reference Room of the SEC or obtain copies, for a fee, by writing to the
Public Reference Room of the SEC, 450 Fifth Street N.W., Washington, D.C.
20549-6009. You can also call the SEC at 800.SEC.0330.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the Contracts or determined if this
Prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
The Contracts are not deposits or obligations of any bank. No bank has
guaranteed or endorsed the Contracts. The Contracts are not federally insured by
the Federal Deposit Insurance Corporation, the Federal Reserve Board, the
National Credit Union Share Insurance Fund or any other agency.
Investments in variable annuities involve investment risk, including possible
loss of principal and earnings.
<PAGE>
You should rely only on the information contained in the Contract, the
Touchstone Gold Variable Annuity Prospectus, the Statement of Additional
Information or our approved sales literature. The description of the Contract in
this Prospectus is subject to the specific terms of your Contract as it contains
specific contractual provisions and conditions. If the terms of your Contract
differ from the description of the Contract in the Prospectus, you should rely
on the terms in your Contract.
No one is authorized to give any information or make any representation other
than those contained in the Contract, this Prospectus, the Statement of
Additional Information or our approved sales literature.
<PAGE>
Table Of Contents
Table Of Contents
Page
Cover Page............................................................... 1
Table Of Contents........................................................ 3
Glossary................................................................. 4
Fee And Expense Tables................................................... 5
Summary................................................................. 8
Purchasing Your Contract................................................ 10
Transferring Your Money................................................. 12
Accessing Your Money.................................................... 14
Charges................................................................. 17
Information About The Investment Options................................ 20
Valuation Of Your Investments.......................................... 23
Performance Information................................................. 24
Annuity Income Payment Options.......................................... 25
Guaranteed Death Benefit................................................ 28
WSLAC And Separate Account 1............................................ 29
Underwriter............................................................. 30
Voting Rights........................................................... 31
Other Information About Your Contract................................... 32
Federal Income Tax Information.......................................... 34
Supplement A: Accumulation Unit Values.................................. 40
Supplement B: Section 401 Plans and Section 403(b) Plans................ 42
Supplement C: State of Texas Optional Retirement Program................ 47
Table Of Contents For Statement Of Additional Information............... 50
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Touchstone GOLD Variable Annuity Prospectus
<PAGE>
Glossary
Glossary
ACCUMULATION UNIT
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A unit of measure used to calculate a Contract owner's share of a Sub-Account.
ACCUMULATION UNIT VALUE
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The dollar value of an Accumulation Unit in a Sub-Account.
ANNUITANT
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The person whose life is used to determine the amount of any annuity income
payments and the length of time for which the payments are made.
CODE
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The Internal Revenue Code of 1986, as amended.
CONTRACT
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The Touchstone Gold Variable Annuity Contract, including the application and
any amendments, riders or endorsements.
CONTRACT DATE
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The effective date of a Contract. The Contract Date is shown on page 3 of your
Contract.
CONTRACT VALUE
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The total value of your Contract at any time before or on the Income Date.
This represents the sum of the value of your investments in the Sub-Accounts
and the value of your investments in the Fixed Account.
CONTRACT YEAR
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A year that starts on your Contract Date or the anniversary of your Contract
Date.
FIXED ACCOUNT
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An option that provides a fixed rate of interest.
FUND
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Each Sub-Account invests in a Fund that has the same investment objective as
the Sub-Account.
INCOME DATE
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The date on which annuity payments are scheduled to begin.
SUB-ACCOUNT
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Each Sub-Account invests in a Fund, which has the same investment objective as
the Sub-Account.
SURRENDER VALUE
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The Contract Value minus any surrender charges and contract maintenance
charge.
WSLAC, WE, OUR AND US
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Western-Southern Life Assurance Company.
YOU AND YOUR
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The owner of the Contract.
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Touchstone GOLD Variable Annuity Prospectus
<PAGE>
Fee And Expense Tables
Fee And Expense Tables
These tables describe the fees and expenses that you may pay directly or
indirectly if you purchase a contract. More complete information about these
fees and expenses is located in the "Charges" section of this Prospectus on
pages 17 through 19.
Contract Owner Transaction Expenses
Maximum Contingent Deferred Sales Charge (Surrender Charge) 7.00%
(as a percentage of amount surrendered or withdrawn)*
Annual Contract Maintenance Charge** $35.00
Sub-Account
Annual Expenses
(as a percentage of
average account value)
Mortality and Expense Risk Charges 1.20%
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Contract Administration Charge 0.15%
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Total 1.35%
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Fund Expenses
(as a percentage of average daily net assets
and after expense reimbursement)* * *
Advisor Other Total
Fee Expenses Expenses
AIM V.I. Growth 0.63% 0.10% 0.73%
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AIM V.I. Government Securities 0.50% 0.40% 0.90%
Alger American
Small Capitalization 0.85% 0.05% 0.90%
Alger American Growth 0.75% 0.04% 0.79%
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Deutsche VIT Equity 500 Index 0.20% 0.10% 0.30%
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MFS VIT Emerging Growth 0.75% 0.09% 0.84%
MFS VIT Growth with Income 0.75% 0.13% 0.88%
PIMCO Long-Term
U.S. Government Bond 0.40% 0.25% 0.65%
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Touchstone Small Cap Value 0.80% 0.20% 1.00%
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Touchstone Emerging Growth 0.80% 0.35% 1.15%
Touchstone International Equity 0.95% 0.30% 1.25%
Touchstone High Yield 0.60% 0.20% 0.80%
Touchstone Value Plus 0.75% 0.40% 1.15%
Touchstone Growth & Income 0.80% 0.05% 0.85%
Touchstone Enhanced 30 0.65% 0.10% 0.75%
Touchstone Balanced 0.80% 0.10% 0.90%
Touchstone Bond 0.55% 0.20% 0.75%
Touchstone Standby Income 0.25% 0.25% 0.50%
* The surrender charge does not apply to certain transactions. We may reduce the
surrender charge when Contracts are sold to a group. The surrender charge is
based on the number of years a purchase payment has been invested in your
Contract and decreases over time. If a purchase payment has been invested for 7
years or more when you withdraw that purchase payment, you will not pay a
surrender charge.
* * In certain states and for certain retirement plans, we can waive, reduce or
eliminate the annual contract maintenance charge.
* * * Since the Touchstone Small Cap Value, High Yield and Enhanced 30 Funds
commenced operations in 1999, expenses for these Funds in this table and the
following table are based on estimates.
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Touchstone GOLD Variable Annuity Prospectus
<PAGE>
Fee And Expense Tables
The "Total Expenses" column in this table represents the expenses paid by the
Funds, not necessarily the expenses incurred by the Funds. The advisors or
custodians for some of the Funds have agreed to waive or reimburse certain fees
and expenses incurred by those Funds. The advisors or custodians that have
agreed to limit the expenses paid by one or more of the Funds are:
o Bankers Trust Company has agreed to waive its advisory fee and to
reimburse the Deutsche VIT Equity 500 Index Fund so that the
Fund's total operating expenses will not exceed 0.30%.
o Pacific Investment Management Company has agreed to reduce its
administrative fee, subject to potential future reimbursement, to
the extent that total expenses of the PIMCO Fund would exceed
0.65%.
o Touchstone Advisors, Inc. has agreed to waive certain fees or
reimburse each of the Touchstone Funds so that each Fund's
expenses do not exceed the percentage listed for that Fund in
this table. The agreement will remain in place until at least
December 31, 2000.
If these advisors did not agree to waive or reimburse certain fees and expenses
of the respective Funds, the total expenses of each of those Funds would be
higher as indicated in the table that follows. If the Fund is not the subject of
an agreement to waive or reimburse expenses, the "Total Expenses" column in this
table will be the same as the "Total Expenses" column in the preceding table.
Total Expenses
(Before reimbursement)
AIM V.I. GROWTH 0.73%
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AIM V.I. GOVERNMENT SECURITIES 0.90%
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ALGER AMERICAN SMALL CAPITALIZATION 0.90%
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ALGER AMERICAN GROWTH 0.79%
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DEUTSCHE VIT EQUITY 500 INDEX 0.43%
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MFS VIT EMERGING GROWTH 0.84%
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MFS VIT GROWTH WITH INCOME 0.88%
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PIMCO LONG-TERM U.S. GOVERNMENT BOND 0.71%
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TOUCHSTONE SMALL CAP VALUE 2.03%*
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TOUCHSTONE EMERGING GROWTH 1.42%
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TOUCHSTONE INTERNATIONAL EQUITY 1.84%
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TOUCHSTONE HIGH YIELD 1.53%*
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TOUCHSTONE VALUE PLUS 2.37%
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TOUCHSTONE GROWTH & INCOME 1.28%
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TOUCHSTONE ENHANCED 30 1.77%*
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TOUCHSTONE BALANCED 1.35%
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TOUCHSTONE BOND 1.07%
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TOUCHSTONE STANDBY INCOME 0.87%
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* Ratios are annualized.
Examples
These examples should help you compare the cost of purchasing a Contract with
the cost of purchasing other variable annuity contracts.
The examples assume that you invest $1,000 in each Sub-Account, your investment
has a 5% return each year and the Fund's total expenses are the same as shown on
the previous page in the column entitled "Total Expenses" in the "Fund Expenses"
table. Your actual costs may be higher or lower than the costs shown in the
examples.
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Touchstone GOLD Variable Annuity Prospectus
<PAGE>
Fee And Expense Tables
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Example 1 This example assumes that you surrender your Contract at the end
of the applicable time period.
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1 Year 3 Years 5 Years 10 Years
AIM V.I. Growth $93 $124 $156 $257
AIM V.I. Government Securities $94 $129 $165 $275
Alger American Small Capitalization $94 $129 $165 $275
Alger American Growth $93 $126 $159 $263
Deutsche VIT Equity 500 Index $88 $111 $133 $211
MFS VIT Emerging Growth $94 $127 $162 $269
MFS VIT Growth with Income $94 $129 $164 $273
PIMCO Long-Term U.S. Government Bond $92 $122 $152 $248
Touchstone Small Cap Value $96 $132 * *
Touchstone Emerging Growth $97 $137 $178 $301
Touchstone International Equity $98 $140 $183 $311
Touchstone High Yield $93 $126 * *
Touchstone Value Plus $97 $137 $178 $301
Touchstone Growth & Income $94 $128 $162 $270
Touchstone Enhanced 30 $93 $125 * *
Touchstone Balanced $94 $129 $165 $275
Touchstone Bond $93 $125 $157 $259
Touchstone Standby Income $90 $117 $144 $232
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Example 2 This example assumes that you annuitize your Contract at the end
of the applicable time period and choose at least a 5-year
payout period.
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1 Year 3 Years 5 Years 10 Years
AIM V.I. Growth $93 $70 $120 $257
AIM V.I. Government Securities $94 $75 $129 $275
Alger American Small Capitalization $94 $75 $129 $275
Alger American Growth $93 $72 $123 $263
Deutsche VIT Equity 500 Index $88 $57 $ 97 $211
MFS VIT Emerging Growth $94 $73 $126 $269
MFS VIT Growth with Income $94 $75 $128 $273
PIMCO Long-Term U.S. Government Bond $92 $68 $116 $248
Touchstone Small Cap Value $96 $78 * *
Touchstone Emerging Growth $97 $83 $142 $301
Touchstone International Equity $98 $86 $147 $311
Touchstone High Yield $93 $72 * *
Touchstone Value Plus $97 $83 $142 $301
Touchstone Growth & Income $94 $74 $126 $270
Touchstone Enhanced 30 $93 $71 * *
Touchstone Balanced $94 $75 $129 $275
Touchstone Bond $93 $71 $121 $259
Touchstone Standby Income $90 $63 $108 $232
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Example 3 This example assumes that you do not surrender your Contract.
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
AIM V.I. Growth $23 $70 $120 $257
AIM V.I. Government Securities $24 $75 $129 $275
Alger American Small Capitalization $24 $75 $129 $275
Alger American Growth $23 $72 $123 $263
Deutsche VIT Equity 500 Index $18 $57 $ 97 $211
MFS VIT Emerging Growth $24 $73 $126 $269
MFS VIT Growth with Income $24 $75 $128 $273
PIMCO Long-Term U.S. Government Bond $22 $68 $116 $248
Touchstone Small Cap Value $26 $78 * *
Touchstone Emerging Growth $27 $83 $142 $301
Touchstone International Equity $28 $86 $147 $311
Touchstone High Yield $23 $72 * *
Touchstone Value Plus $27 $83 $142 $301
Touchstone Growth & Income $24 $74 $126 $270
Touchstone Enhanced 30 $23 $71 * *
Touchstone Balanced $24 $75 $129 $275
Touchstone Bond $23 $71 $121 $259
Touchstone Standby Income $20 $63 $108 $232
* Information is shown only for Funds with 10 months of operations.
7
Touchstone GOLD Variable Annuity Prospectus
<PAGE>
Summary
Summary
This summary highlights some basic information about the Touchstone Gold
Variable Annuity Contract. More information about the Contract is located on
pages 10 through 33 of this Prospectus. If the terms of your Contract differ
from the description of the Contract in this Prospectus, you should rely on the
terms of your Contract.
How the Contract Works
The Contract is a contract between you and WSLAC. The Contract, like all
variable annuity contracts, has two phases: the accumulation phase and the
annuity income phase. During the accumulation phase, earnings on your investment
accumulate on a tax-deferred basis. The annuity income phase begins when you
start to receive annuity income payments. The amount of money you accumulate
during the accumulation phase determines the amount of the annuity income
payments you receive. You can select one of several annuity income payment
options.
The Contract also provides a guaranteed death benefit that is payable to a
designated beneficiary when the Annuitant dies. Generally, the Contract
guarantees that the beneficiary will receive the greater of either the total
purchase payments less any withdrawals or the Contract Value, regardless of
investment performance.
Who Should Purchase the Contract
The Contract allows you to accumulate money on a tax-deferred basis for
retirement or other long-term goals through various investment options.
Generally, the higher your tax bracket, the more you will benefit from the
tax-deferred feature of the Contract. You should not purchase a Contract if you
are looking for a short-term investment or if you cannot take the risk of
getting less money back than you paid for the Contract. You may want to consult
a tax advisor or other investment professional before you purchase a Contract.
Purchasing a Contract
You can purchase a Contract for $2,000 or more. You can also purchase a Contract
in connection with certain types of retirement plans, such as a Traditional or
Roth IRA or a 403(b) plan, for $1,000 or more. If you select our Automatic
Investment Plan, you can purchase a Contract with regular installment payments
of $50 or more. The Contract also includes a flexible purchase payment feature
that allows you to make additional payments later.
Selecting Your Investment Options
You can allocate your purchase payments among the following investment options.
Sub-Accounts
The Sub-Accounts are designed to offer you a better return than the Fixed
Account. This better return is not guaranteed. Depending on market conditions,
you can make or lose money in any Sub-Account.
o AIM V.I. Growth o Touchstone Emerging Growth
o AIM V.I. Government Securities o Touchstone International Equity
o Alger American Small Capitalization o Touchstone High Yield
o Alger American Growth o Touchstone Value Plus
o Deutsche VIT Equity 500 Index o Touchstone Growth & Income
o MFS VIT Emerging Growth o Touchstone Enhanced 30
o MFS VIT Growth with Income o Touchstone Balanced
o PIMCO Long-Term U.S. Government Bond o Touchstone Bond
o Touchstone Small Cap Value o Touchstone Standby Income
8
Touchstone GOLD Variable Annuity Prospectus
<PAGE>
Summary
Fixed Account
The Fixed Account offers you a fixed return. While your money is invested in the
Fixed Account, we guarantee to pay you interest at a set rate. We may change the
interest rate, but we guarantee that the effective annual rate will be at least
3%.
Transferring Among Investment Options
You can transfer money from one investment option to another. Like all variable
annuities, transfers between investment options are tax-free. The minimum
transfer amount is $250. We limit the number of times you can transfer between
investment options in each Contract Year and the amount you can transfer from
the Fixed Account.
Accessing Your Money
You can access your money at any time during the accumulation phase. Each
Contract Year, you can generally withdraw up to 10% of your purchase payments
not already withdrawn without a charge by making partial or systematic
withdrawals. If you withdraw more than 10% in a Contract Year, there may be a
surrender charge. The maximum surrender charge is 7% of the amount withdrawn and
declines to 0% over time.
Also be aware that you may be required to pay income taxes and a 10% federal
penalty tax on any amount you withdraw.
Charges and Fees
A $35 contract maintenance charge is ordinarily deducted each year from your
Contract Value. Other administrative charges are deducted at an annual rate of
no more than 1.35% of your Contract Value. Depending on the investment options
you choose, you may indirectly pay investment advisory fees. Some charges and
fees do not apply to money invested in the Fixed Account.
10-Day Review Period
You have 10 days to review your Contract after you receive it. If you are not
satisfied with your Contract, you can cancel it but must do so by returning it
to the Touchstone Variable Annuity Service Center at P.O. Box 2850, Cincinnati,
Ohio 45201-2850 within 10 days after you receive it. If you cancel your
Contract, in most cases we will refund the Contract Value to you. However, some
state laws may require us to refund your purchase payments.
Additional Information
Representatives at the Touchstone Variable Annuity Service Center can answer
your questions about the Contract. You can call the Service Center at
800.669.2796 (press 2).
Accumulation Unit Values
The Accumulation Unit Values for each Sub-Account that commenced operations
before January 1, 2000, are shown in Supplement A on pages 40 and 41.
9
Touchstone GOLD Variable Annuity Prospectus
<PAGE>
Purchasing Your Contract
Purchasing Your Contract
To obtain an application to purchase a Contract, please contact your investment
advisor or the Touchstone Variable Annuity Service Center by mail at P.O. Box
2850, Cincinnati, Ohio 45201-2850 or by phone at 800.669.2796 (press 2).
Minimumand Maximum Purchase Payments
o You can purchase a Contract for $2,000 or more.
o A purchase of over $500,000 may be made with prior approval from
Touchstone.
o You can also purchase a Contract in connection with certain types
of retirement plans, such as a Traditional or Roth IRA, a 403(b)
plan, a SIMPLE IRA (Savings Incentive Match Plans for Employees),
or a SEP (Simplified Employee Pension Plan), for $1,000 or more.
o You can make additional investments in your Contract at any time
before the Income Date. Each additional purchase payment must be
at least $100.
o You can also purchase a Contract and make additional payments
through automatic or scheduled installment payments, such as
pre-authorized checking account deductions, salary deductions or
electronic funds transfers. If you select our Automatic
Investment Plan, you can purchase a Contract with regular
installment payments of $50 or more. Each automatic installment
payment must be at least $50 and your total installment payments
in the first Contract Year must be at least $600.
10-Day Review Period
You have 10 days to review your Contract after you receive it. This 10-day
review period is called the free look period. The state where you live may
require us to give you a longer free look period.
If you are not satisfied with the Contract, you can cancel it during the free
look period. To cancel the Contract, you must return it to the Touchstone
Variable Annuity Service Center at P.O. Box 2850, Cincinnati, Ohio 45201-2850
within 10 days after you receive it. If you cancel the Contract, in most cases
we will refund the Contract Value to you. However, some state laws may require
us to refund your purchase payments.
Investment Options
You decide how to allocate your purchase payments by selecting from the
following investment options.
Sub-Accounts
o AIM V.I. Growth o Touchstone Emerging Growth
o AIM V.I. Government Securities o Touchstone International Equity
o Alger American Small Capitalization o Touchstone High Yield
o Alger American Growth o Touchstone Value Plus
o Deutsche VIT Equity 500 Index o Touchstone Growth & Income
o MFS VIT Emerging Growth o Touchstone Enhanced 30
o MFS VIT Growth with Income o Touchstone Balanced
o PIMCO Long-Term U.S. Government Bond o Touchstone Bond
o Touchstone Small Cap Value o Touchstone Standby Income
10
Touchstone GOLD Variable Annuity Prospectus
<PAGE>
Purchasing Your Contract
Fixed Account
o One year fixed return of at least 3%.
Allocation of Purchase Payments
Your allocation instructions are included in your application and shown on page
3 of your Contract. You can change your allocation instructions by writing to
us. When we receive a purchase payment from you, we allocate it based on the
most recent allocation instructions we have received from you.
The following guidelines apply to the allocation of your purchase payments:
o Allocate at least 1% of your initial purchase payment to each
investment option you choose.
o Use whole percentages. For example, you can allocate 33% or 34%
to an investment option, not 33 1/3%.
o Make sure your percentages total 100%.
Allocation Changes by Phone. You can change the allocation of your future
purchase payments over the phone by following these steps:
Step 1. Fill out either the telephone authorization part of the application or a
Telephone Authorization Form. You can get a copy of either form by contacting
the Touchstone Variable Annuity Service Center. You must complete and return one
of these forms before you call to change your allocations over the phone.
Step 2. Call the Touchstone Variable Annuity Service Center at 800.669.2796
(press 2) between 8:00 a.m. and 4:00 p.m. Eastern Time.
Give the representative the following information:
o Your Social Security number
o Your Contract number or other precise information that identifies
your Contract
o Your allocation instructions
Allocation Changes in Writing. You can change the allocation of your future
purchase payments by writing to the Touchstone Variable Annuity Service Center.
Your written instructions must include the following information:
o Your Contract number or other precise information that identifies
your Contract
o Your allocation instructions
[SIDEBAR]: oooYou should review your selected investment options and
allocations periodically to determine if they are appropriate considering
market conditions and your financial objectives.
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Touchstone GOLD Variable Annuity Prospectus
<PAGE>
Transferring Your Money
Transferring Your Money
You can transfer money from one investment option to another. You can make
transfers by phone or in writing.
The following guidelines apply to transfers other than dollar cost averaging
transfers:
o Each transfer must be at least $250.
o The allocation to each investment option must be at least 1% of
the total transfer amount.
o You can transfer money among the Sub-Accounts once every 30 days.
o You can transfer from the Fixed Account only once each Contract
Year, transferring up to 25% of your money in the Fixed Account.
o You can transfer to the Fixed Account only once each Contract
Year, transferring an unlimited amount.
Transfers by Phone. You can transfer your money by calling us and following
these steps:
Step 1. Fill out either the telephone transfer authorization part of the
application or a Telephone Authorization Form. You can get a copy of either form
by contacting the Touchstone Variable Annuity Service Center. You must complete
and return one of these forms before you call to transfer your money.
Step 2. Call the Touchstone Variable Annuity Service Center at 800.669.2796
(press 2) between 8:00 a.m. and 4:00 p.m. Eastern time.
Give the representative the following information:
o Your Social Security number
o Your Contract number or other precise information that identifies
your Contract
o Your transfer instructions
Transfers in Writing. You can also transfer your money by writing to the
Touchstone Variable Annuity Service Center. Your written instructions must
include the following information:
o Your Contract number or other precise information that identifies
your Contract
o Your transfer instructions
Third Party Authorization
You can authorize a third party to transfer money for you. To do so, you must
complete the telephone access authorization section of the application or a
Telephone Authorization Form. Contact the Touchstone Variable Annuity Service
Center at 800.669.2796 (press 2) for additional information.
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Touchstone GOLD Variable Annuity Prospectus
<PAGE>
Transferring Your Money
Touchstone's Dollar Cost Averaging Program
Dollar cost averaging is a method of investing equal amounts of money at regular
intervals. Dollar cost averaging allows you to purchase more Accumulation Units
when prices are low and fewer when prices are high. For dollar cost averaging to
be effective, you should continue to invest during both market ups and downs.
You should also consider your financial ability to maintain a consistent level
of investment over time.
Touchstone's Dollar Cost Averaging Program allows you to transfer amounts at
regular intervals from the Touchstone Standby Income Sub-Account or the Fixed
Account to other Sub-Accounts. You can make the following transfers:
o A specific dollar amount
o A specific percentage of your money in the Touchstone Standby
Income Sub-Account or the Fixed Account
o Earnings in the Touchstone Standby Income Sub-Account or the
Fixed Account
You select the number and the frequency of your transfers in Touchstone's Dollar
Cost Averaging Program. We will transfer the money on the anniversary of your
Contract Date each month or each quarter.
The following guidelines apply to dollar cost averaging transfers:
o Your ContractValue must be at least $10,000.
o Dollar cost averaging transfers must continue for at least 12
months.
o Each transfer must be at least $200.
o The allocation to each Sub-Account must be at least 1% of the
transfer amount.
To set up dollar cost averaging transfers, sign and complete the dollar cost
averaging section of the application or the Dollar Cost Averaging Form. These
forms can be obtained from the Touchstone Variable Annuity Service Center at
800.669.2796 (press 2) or P.O. Box 2850, Cincinnati, Ohio 45201-2850.
Dollar cost averaging transfers will stop if we complete the number of transfers
you requested, you ask us to stop after using the program for at least 12
months, you do not have enough money in your accounts to complete the transfer,
or the program is discontinued. If we discontinue the program, you will be
allowed to complete the number of transfers you previously requested.
[SIDEBAR]: oooDollar CostAveraging
- --------------------------------------------------------------------------------
Dollar cost averaging can result in a lower average cost of investing over
time. While dollar cost averaging does not guarantee a profit or prevent a
loss, you have a higher likelihood to profit from this long-term investment
method.
13
Touchstone GOLD Variable Annuity Prospectus
<PAGE>
Accessing Your Money
Accessing Your Money
Your Contract is designed to help you achieve your long-term investment goals.
However, there may be times when you need to access the money you have invested
in your Contract. You can access your money at any time during the accumulation
phase by making a partial withdrawal, by making systematic withdrawals or by
canceling your Contract.
If you withdraw money from your Contract or cancel your Contract, you may have
to pay a surrender charge. Surrender charges are explained on page 18.
Partial Withdrawals
To withdraw money from your Contract, send written instructions to the
Touchstone Variable Annuity Service Center at P.O. Box 2850, Cincinnati, Ohio
45201-2850. For help with a partial withdrawal, please call the Touchstone
Variable Annuity Service Center at 800.669.2796 (press 2).
The following guidelines apply to partial withdrawals:
o Include your Contract number or other information that identifies
your Contract and the amount to be withdrawn in your
instructions.
o Each withdrawal must be at least $250.
o If your Contract Value is reduced below $2,000 by the partial
withdrawal, we reserve the right to terminate your Contract by
paying you the Surrender Value.
If the total withdrawal amount taken during the Contract Year (systematic
withdrawals that exceed your interest earnings plus any partial withdrawals) is
more than 10% of your purchase payments not already withdrawn, you may have to
pay a surrender charge.
Systematic Withdrawal Plan
The Systematic Withdrawal Plan allows you to withdraw a specific dollar amount
from your Contract on a monthly, quarterly, semiannual or annual basis. The
minimum amount for each systematic withdrawal is $100. To set up systematic
withdrawals, contact the Touchstone Variable Annuity Service Center at
800.669.2796 (press 2) or at P.O. Box 2850, Cincinnati, Ohio 45201-2850.
If you use the Systematic Withdrawal Plan, you may have to pay a surrender
charge if you withdraw more than your earnings. Any amount withdrawn that
exceeds your earnings will be applied to your free withdrawal amount, which is
described on page 15. You can discontinue your systematic withdrawals at any
time by sending written instructions to us.
Canceling Your Contract
You can cancel your Contract at any time during the accumulation phase. When you
cancel your Contract, we pay you the Surrender Value. This payment terminates
your Contract and our obligations under the Contract.
To cancel your Contract, send written instructions to the Touchstone Variable
Annuity Service Center at P.O. Box 2850, Cincinnati, Ohio 45201-2850. Include
your Contract number or other information that identifies your Contract in your
instructions. For assistance, please call the Touchstone Variable Annuity
Service Center at 800.669.2796 (press 2).
14
Touchstone GOLD Variable Annuity Prospectus
<PAGE>
Accessing Your Money
The Surrender Value will equal the Contract Value, less any applicable surrender
charge, contract maintenance charge and premium taxes. Because investment
performance and applicable charges affect your Contract Value, the Surrender
Value may be less than the total of your purchase payments.
Penalty Taxes
If you withdraw money from your Contract or cancel your Contract before you or
the Annuitant (as applicable) reach age 59 1/2, you generally will have to pay a
federal penalty tax. This tax is equal to 10% of the amount of the payment you
receive that is treated as taxable income. More information about penalty taxes
is located on page 36.
Accessing Your Money Without Paying Surrender Charges
To provide you with flexible access to your money, we do not impose surrender
charges on the following transactions:
Purchase Payments Invested for 7 Years. If a purchase payment has been invested
for 7 years or more, you will not pay a surrender charge when you withdraw that
purchase payment.
Free Amounts. Each Contract Year you can withdraw previously invested purchase
payments without paying a surrender charge if the total amount you withdraw that
year (systematic withdrawal amounts that exceed earnings plus any partial
withdrawals) does not exceed 10% of your eligible purchase payments that have
not been already withdrawn. These amounts are called free amounts.
Withdrawal of Earnings. If the systematic withdrawal amount you withdraw
includes any earnings on your Contract, you will not pay a surrender charge on
the earnings. A withdrawal under the Systematic Withdrawal Plan normally will
include earnings.
If a Contract is owned by a charitable remainder trust, the trust may withdraw
the difference between the Contract Value and the total purchase payments
without paying a surrender charge in states where regulatory approval has been
received.
Medical Care Access. We waive the surrender charge on amounts withdrawn when you
or the Annuitant have been confined to a long-term care facility or hospital for
30 days or more after the Contract Date at the time of the withdrawal.
Death Benefits. We do not impose a surrender charge on the death benefit that we
pay when the Annuitant dies.
Annuity Income Payments. Generally, you will not pay any surrender charges on
annuity income payments if the payments begin after the 2nd anniversary of your
Contract Date and continue for at least 5 years.
If you decide to take a reduced, lump sum payment instead of the remaining
annuity payments, you may have to pay a surrender charge.
15
Touchstone GOLD Variable Annuity Prospectus
<PAGE>
Accessing Your Money
Processing Withdrawals
When we process your partial or systematic withdrawal, we withdraw money from
each of your investment options on a pro-rata basis. For example, in a situation
where no charges are applicable to the withdrawal, if you have 25% of your money
in the Touchstone International Equity Sub-Account and 75% of your money in the
Touchstone Balanced Sub-Account and you want to withdraw $2,000, we will
withdraw $500 from the Touchstone International Equity Sub-Account (25% of
$2,000) and $1,500 from the Touchstone Balanced Sub-Account (75% of $2,000).
If you want us to process your withdrawal on a different basis, such as
withdrawing all the money from one Sub-Account, you must provide specific
instructions in your withdrawal request.
We will generally send payments to you within 7 days of the date that we process
your request. We may delay calculating the amount of the payment from a
Sub-Account or sending a payment from a Sub-Account for any of the following
reasons:
o The New York Stock Exchange is closed on a day that it normally
would be open.
o Trading on the New York Stock Exchange is restricted.
o Because of an emergency, it is not reasonably practicable for the
Sub-Accounts to sell securities or to fairly determine the value
of their investments.
o The SEC permits us to postpone payments from the Sub-Accounts for
your protection.
As required by most states, we reserve the right to delay payments from the
Fixed Account for up to 6 months. We do not expect to delay payments from the
Fixed Account and we will notify you if there will be a delay.
16
Touchstone GOLD Variable Annuity Prospectus
<PAGE>
Charges
Charges
Administrative Charges
We incur administrative costs in setting up your Contract, maintaining records
of your Contract and sending you confirmations and statements about your
Contract. By paying a contract maintenance charge and a contract administration
charge, you reimburse us for the administrative costs we expect to incur.
- ------------------------------------------------------------------------------
Contract Maintenance Contract Administration
Charge Charge
o On the anniversary of your o On each day the New
Contract Date each year York Stock Exchange
until annuity payments is open for trading.
begin.
o The date we start annuity
payments.
o The date you completely
When Charged? surrender your Contract.
- ------------------------------------------------------------------------------
o $35 each year during the o The effective annual
first 10 years of your rate of the charge is
Contract. 0.15%.
o After the 10th anniversary
of your Contract Date,
the lesser of $35 and 0.17%
of your ContractValue
on each subsequent anniversary
How Much Charged? of your Contract Date.
- ------------------------------------------------------------------------------
o We reduce your Contract o We deduct this charge
Value.The number of from the Accumulation
Accumulation Units you UnitValue of each Sub-
own in each Sub-Account Account.We do not
is reduced and the value of impose this charge on
your investment in the your money in the Fixed
Fixed Account is reduced Account.
How Charged? on a pro-rata basis.
- ------------------------------------------------------------------------------
If we receive appropriate governmental approvals, we may reduce or eliminate the
contract maintenance charge.
Mortality and Expense Risk Charges
We assume two risks with every Contract: a mortality risk and an expense risk.
We take a mortality risk that the Annuitant will live longer than expected or we
will pay a death benefit greater than your Contract Value. We also take an
expense risk that the administrative charges will not pay all the administrative
costs of your Contract.
You pay us to assume these risks by paying mortality and expense risk charges.
On each Valuation Date, we deduct the mortality and expense risk charges from
the Accumulation Unit Value of each Sub-Account. We do not impose these charges
on your money in the Fixed Account. The effective annual rate of these charges
is 1.20%, which includes 0.80% for assuming mortality risk and 0.40% for
assuming expense risk. If we do not actually incur the risks associated with
these charges, we will make money from collecting these charges.
17
Touchstone GOLD Variable Annuity Prospectus
<PAGE>
Charges
If surrender charges do not cover the distribution expenses of the Contracts, we
will pay those expenses from our general account, including amounts derived from
the expense risk charge.
Calculating the Surrender Charge
To calculate the surrender charge, amounts will be withdrawn from the following
sources in the order listed:
o Free amounts
o Purchase payments that have been invested for more than 7 years
o Other purchase payments in the order in which we received them,
starting with the oldest purchase payment
o Earnings
Under the Systematic Withdrawal Plan or if a Contract is owned by a charitable
remainder trust, amounts will be withdrawn first from earnings and then in the
order listed above. For tax purposes, the IRS treats all your withdrawals as if
all earnings are withdrawn first. Consult your tax advisor for more information.
You do not pay a surrender charge on free amounts, purchase payments that have
been invested for more than 7 years or systematic withdrawal payments of
earnings. Free amounts will be withdrawn from purchase payments that have been
invested less than 8 years, starting with the oldest purchase payment.
The amount of the surrender charge is based on the number of years a purchase
payment has been invested in your Contract. The following table shows how much
the surrender charge will be when you withdraw a purchase payment:
Completed Years from
Date of Purchase Payment Surrender Charge
Less than 1 year....................... 7% of the purchase payment
1 year but less than 2 years........... 7% of the purchase payment
2 years but less than 3 years.......... 6% of the purchase payment
3 years but less than 4 years.......... 5% of the purchase payment
4 years but less than 5 years.......... 4% of the purchase payment
5 years but less than 6 years.......... 2% of the purchase payment
6 years but less than 7 years.......... 1% of the purchase payment
7 years or more........................ None
We will waive the surrender charges if payments begin under one of the annuity
income payment options, the annuity income payments begin in the third Contract
Year or later, and the annuity income payments are scheduled to be made for at
least five years.
18
Touchstone GOLD Variable Annuity Prospectus
<PAGE>
Charges
Reduced Surrender Charges for Certain Contracts
Under certain circumstances, we can reduce or eliminate the surrender charge
when Contracts are sold to a trustee, to an employer, pursuant to a retirement
plan or otherwise sold to a group. We will consider several factors before we
reduce or eliminate any surrender charges. Some of those factors are the group
size, the total amount of the group's purchase payments, how the group's
purchase payments are made, the type of plan involved and our distribution
costs. However, we will not reduce or eliminate any surrender charges if the
reduction or elimination unfairly discriminates against any person or is
prohibited by state law.
Premium Taxes
Certain states and government authorities charge a premium tax on your purchase
payments. The premium tax may be as much as 3.5% of your purchase payments.
These premium taxes are charged either when you make purchase payments or when
we begin annuity payments.
Currently, we pay all of the premium taxes charged by states and government
authorities. However, we may decide to stop paying the premium taxes in the
future. We would then deduct the amount of the premium taxes from your Contract
Value at one of the following times. When:
o We pay the premium tax
o You surrender or withdraw money from your Contract
o The death benefit is paid o Annuity payments begin
19
Touchstone GOLD Variable Annuity Prospectus
<PAGE>
INFORMATION ABOUT THE INVESTMENT OPTIONS
Information About The Investment Options
The Sub-Accounts and the Funds
Each Sub-Account invests in a corresponding Fund. These tables contain
information about the investment objective, Advisor and Sub-Advisor of each
Fund:
<TABLE>
<CAPTION>
<S> <C> <C>
Investment Objective Advisors/Sub-Advisors
AIM V.I. Growth The Fund seeks to provide growth of capital. AIM Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------
AIM V.I. The Fund seeks to achieve a high level of
Government current income consistent with reasonable
Securities concern for safety of principal. AIM Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------
Alger American The Fund seeks to provide long-term
Small Capitalization capital appreciation. Fred Alger Management, Inc.
- ----------------------------------------------------------------------------------------------------------------
Alger The Fund seeks to provide long-term
American Growth capital appreciation. Fred Alger Management, Inc.
- ----------------------------------------------------------------------------------------------------------------
DEUTSCHE VIT The Fund seeks to match the
EQUITY 500 INDEX performance of the S&P 500. Bankers Trust Company
- ----------------------------------------------------------------------------------------------------------------
MFS VIT The Fund seeks to provide long-term Massachusetts Financial
Emerging Growth growth of capital. Services Company
- ----------------------------------------------------------------------------------------------------------------
The Fund seeks to provide reasonable
MFS VIT Growth current income and long-term Massachusetts Financial
with Income capital and income growth. Services Company
- ----------------------------------------------------------------------------------------------------------------
The Fund seeks to maximize total
PIMCO Long-Term return, consistent with the
U.S. Government preservation of capital and Pacific Investment
Bond prudent investment management. Management Company
- ----------------------------------------------------------------------------------------------------------------
Touchstone The Fund seeks long-term growth
Small Cap Value of capital. Todd Investment Advisors, Inc.*
- ----------------------------------------------------------------------------------------------------------------
The Fund seeks to increase the value of David L. Babson & Company, Inc.*
Touchstone its shares as a primary goal and to earn Westfield Capital Management
Emerging Growth income as a secondary goal. Company, Inc.*
- ----------------------------------------------------------------------------------------------------------------
Touchstone The Fund seeks to increase the value of
International Equity its shares over the long-term. Credit Suisse Asset Management*
- ----------------------------------------------------------------------------------------------------------------
The Fund seeks to achieve a high level of
Touchstone current income as its main goal with Fort Washington Investment
High Yield capital appreciation as a secondary goal. Advisors, Inc.*
- ----------------------------------------------------------------------------------------------------------------
Touchstone The Fund seeks to increase the value of Fort Washington Investment
Value Plus its shares over the long-term. Advisors, Inc.*
- ----------------------------------------------------------------------------------------------------------------
*Sub-Advisors to Touchstone Advisors, Inc.
</TABLE>
20
Touchstone GOLD Variable Annuity Prospectus
<PAGE>
INFORMATION ABOUT THE INVESTMENT OPTIONS
<TABLE>
<CAPTION>
<S> <C> <C>
Investment Objective Advisors/Sub-Advisors
The Fund seeks to increase the value of
Touchstone its shares over the long-term, while
Growth & Income receiving dividend income. Scudder Kemper Investments, Inc.*
- ----------------------------------------------------------------------------------------------------------------------
The Fund seeks to achieve a total
Touchstone return that is higher than that of the
Enhanced 30 Dow Jones Industrial Average (DJIA). Todd Investment Advisors, Inc.*
- ----------------------------------------------------------------------------------------------------------------------
Touchstone The Fund seeks to achieve an increase in
Balanced value and current income. OpCap Advisors, Inc.*
- ----------------------------------------------------------------------------------------------------------------------
The Fund seeks to provide a high level of Fort Washington Investment
Touchstone Bond dividends and distributions. Advisors, Inc.*
- ----------------------------------------------------------------------------------------------------------------------
The Fund seeks to provide a higher level of
current income than a money market fund, while
also seeking to prevent large fluctuations in the
value of the Sub- Account's initial investment.
Touchstone The Fund does not try to keep a constant $1.00 Fort Washington Investment
Standby Income per share net asset value. Advisors, Inc.*
- ----------------------------------------------------------------------------------------------------------------------
*Sub-Advisors to Touchstone Advisors, Inc.
More complete information about each Fund, including
information about its expenses, is included in its
prospectus, which is contained in this booklet.
Please read the Fund's prospectus carefully before
you select it as an investment option.
</TABLE>
21
TOUCHSTONE GOLD VARIABLE ANNUITY PROSPECTUS
<PAGE>
INFORMATION ABOUT THE INVESTMENT OPTIONS
Changes in the Sub-Accounts and the Funds
We may add, delete or combine Sub-Accounts. New Sub-Accounts will invest in
Funds we consider suitable. We may also substitute a new Fund or similar
investment option for the Fund in which a Sub-Account invests. We would make a
substitution to ensure the underlying Fund continues to be a suitable
investment. A substitution may be triggered by unsatisfactory investment
performance, a change in laws or regulations, a change in a Fund's investment
objectives or restrictions, a change in the availability of the Fund for
investment, or any other reason. Before any substitution, we will obtain any
required approvals, including approval from the SEC or from Contract owners.
The Fixed Account
At the time you allocate a purchase payment or transfer any of your Contract
Value to the Fixed Account, we assign an interest rate to that amount. We will
guarantee that rate of return for one year. At the end of each year, we assign a
new interest rate to that amount and its related earnings, which is again
guaranteed for at least one year. Different interest rates may apply to
different amounts in the Fixed Account depending upon the timing of the
allocation or transfer and the interest rates assigned each time.
We guarantee funds allocated or transferred to the Fixed Account will earn an
effective annual rate of at least 3%.
22
TOUCHSTONE GOLD VARIABLE ANNUITY PROSPECTUS
<PAGE>
VALUATION OF YOUR INVESTMENTS
Valuation Of Your Investments
Sub-Accounts
The value of your interest in a Sub-Account is measured in Accumulation Units.
An Accumulation Unit is an accounting unit of measure. It is similar to a share
of a mutual fund. The value of an Accumulation Unit varies from day to day
depending on the investment performance of the Fund in which the Sub-Account is
invested and the expenses of the Sub-Account.
The Accumulation Unit Value of each Sub-Account is calculated on each day
that the New York Stock Exchange is open for business (Valuation Date). The
Accumulation Unit Value of a Sub-Account on any Valuation Date is calculated by
dividing the value of the Sub-Account's net assets by the number of Accumulation
Units credited to the Sub-Account on the Valuation Date.
When you allocate purchase payments to a Sub-Account, your Contract is credited
with Accumulation Units. Other transactions, such as withdrawals, exchanges, and
payments of the annual contract maintenance charge, will increase or decrease
the number of Accumulation Units credited to your Contract.
The number of Accumulation Units added to or subtracted from your Contract is
calculated by dividing the dollar amount of the transaction by the Accumulation
Unit Value for the Sub-Account at the close of trading on the Valuation Date
when we process the transaction. To calculate the Accumulation Unit Value of a
Sub-Account on any Valuation Date, we start with the Accumulation Unit Value
from the preceding Valuation Date and adjust it to reflect the following items:
o The investment performance of the Sub-Account, which is based on
the investment performance of the corresponding Fund
o Any dividend or distributions paid by the corresponding Fund o
Any charges or credits for taxes that we determined were the
result of the investment operations of the Sub-Account
o The mortality and expense risk charge
o The contract administration charge
We reserve the right to change the number and value of the Accumulation Units
credited to your Contract so long as the change does not affect your Contract
Value or the benefits or other provisions of your Contract.
Fixed Account
The value of the Fixed Account is calculated daily and reflects the following
transactions:
o Purchase payments allocated to the Fixed Account
o Withdrawals from the Fixed Account
o Transfers to and from the Fixed Account
o Interest credited to the Fixed Account
o Charges assessed against the Fixed Account, such as surrender
charges and contract maintenance charges
[SIDEBAR]: ooo Accumulation Unit
- --------------------------------------------------------------------------------
A unit of measure used to calculate a Contract owner's share of a Sub-Account.
Although it is not the same as a mutual fund share, it is similar.
[SIDEBAR]: ooo Accumulation Unit Value
- --------------------------------------------------------------------------------
The dollar value of an Accumulation Unit in a Sub-Account.
23
TOUCHSTONE GOLD VARIABLE ANNUITY PROSPECTUS
<PAGE>
PERFORMANCE INFORMATION
Performance Information
We may include performance information for the Sub-Accounts in advertisements,
sales literature and reports to Contract owners. This performance information
will be based on historical performance. It is not intended to predict the
future performance of a Sub-Account.
Standardized Performance Information
We usually advertise average annual total return. Average annual total return
represents the average compounded rate of return on a hypothetical initial
investment of $1,000. It is calculated by comparing the hypothetical $1,000
investment in a Sub-Account to the hypothetical surrender value of the
investment at the end of a period. The periods that we normally include are 1
year, 5 year and 10 year periods. If a Sub-Account has not been available for
the complete period, we include the period for which it was available.
Average annual total return reflects historical investment results and expenses
of the Sub-Account for a specific period. It also reflects any surrender charge
that you might pay if you surrendered your Contract at the end of the period. It
does not include any deductions for premium taxes.
Non-Standardized Performance Information
We may use other performance information, such as cumulative total return and
total return for other periods of time. We may compare the performance of a
Sub-Account to the performance of other separate accounts or investments as
listed in rankings prepared by independent organizations that monitor the
performance of separate accounts and other investments. We may also include
evaluations of the Sub-Accounts published by nationally recognized ranking
services or by nationally recognized financial publications.
24
TOUCHSTONE GOLD VARIABLE ANNUITY PROSPECTUS
<PAGE>
ANNUITY INCOME PAYMENT OPTIONS
Annuity Income Payment Options
Annuity Phase
During the annuity phase, we will make periodic annuity income payments based on
the annuity income payment option you choose (1A, 1B, 2A, 2B) as described on
the following page. In the Contract, we refer to annuity income payment options
as payout plans.
Determining the Income Date
Annuity income payments start on a specific date called the Income Date. The
Income Date is shown on page 3 of your Contract. If you do not select an Income
Date, the Income Date will be based on the birthday of the Annuitant. The
Annuitant is a natural person selected by you whose life is used to determine
the duration and amount of any annuity payments.
Generally, unless you have selected another date, the Income Date is the first
anniversary of your Contract Date on or after the Annuitant's 80th birthday. If
your Contract has not been in effect for 10 years on the Annuitant's 80th
birthday, the Income Date will be the 10th anniversary of your Contract Date.
You can change the Income Date by writing to us. We must receive this notice on
or before the scheduled Income Date. Once annuity income payments begin, you
cannot change the Income Date.
Choosing the Payee
You choose the person or persons to receive the annuity income payments. If you
do not select someone, the Annuitant will automatically receive the annuity
income payments. You can change the person you selected at any time by writing
to us. If the person you select to receive annuity income payments dies, you
will receive the annuity income payments unless you select another payee.
Determining the Payment Amount
Annuity income payment amounts are based on the Surrender Value of your Contract
on the Income Date and the payment option you choose. However, the Surrender
Value will equal your Contract Value and you will not pay any surrender charges
on annuity income payments if the payments begin after the 2nd anniversary of
your Contract Date and continue for at least 5 years.
Under all payment plans, we guarantee that you will earn interest at a minimum
rate of 3% each year.
Choosing the Frequency
Generally, we make annuity income payments monthly. You can request annuity
income payments on a quarterly, semiannual, or annual basis. If the Surrender
Value of your Contract is less than $1,000, we make one annuity income payment
in an amount equal to the Surrender Value. If each periodic payment will be less
than $50, we will change the frequency of the payments to increase the amount of
each periodic payment to at least $50.
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TOUCHSTONE GOLD VARIABLE ANNUITY PROSPECTUS
<PAGE>
ANNUITY INCOME PAYMENT OPTIONS
Choosing the Payment Option
You can select one of the four annuity income payment options described below at
any time before the Income Date. Some states may limit the availability of
payment options. You can change the payment option you selected by writing to
us. We must receive this notice on or before the scheduled Income Date. Once
annuity income payments begin, you cannot change your payment option.
If you do not elect an annuity payment option, Life Income Option 2A (monthly
payments guaranteed for 10 years) will apply.
Overview of Annuity Income Payment Options
Installment Income Option 1A Fixed Period -- you select the number of years.
- --------------------------------------------------------------------------------
Installment Income Option 1B Fixed Amount -- you select the amount of the
monthly payment.
- --------------------------------------------------------------------------------
Life Income Option 2A One Life -- we make payments as long as the
Annuitant lives.
- --------------------------------------------------------------------------------
Life Income Option 2B Joint and Survivor -- we make payments as long
as either the Annuitant or another designated
person lives.
- --------------------------------------------------------------------------------
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TOUCHSTONE GOLD VARIABLE ANNUITY PROSPECTUS
<PAGE>
ANNUITY INCOME PAYMENT OPTIONS
<TABLE>
<CAPTION>
Annuity Income Payment Options
<S> <C>
Fixed Period
Monthly Payment Amount: Based on the Surrender Value of your Contract
and the number of years in the payment period. The monthly payments will
remain the same throughout the payment period
Payment Period: You select the number of years, but no more than 30.
Special Rule for Qualified Contract: Payment period may not extend beyond
Installment Income the life expectancy of the Annuitant.
Option 1A Option to Request Lump Sum Payment: Available at any time.
- ----------------------------------------------------------------------------------------------------------
Fixed Amount
Monthly Payment Amount: You select the amount,
which must be at least $5 for each $1,000 of
SurrenderValue. For example, if your
SurrenderValue is $60,000, the minimum monthly
payment amount is $300 ($5 x 60).The monthly
payments will remain the same throughout the
payment period. Payment Period: Payments are made
until the entire amount, including interest, is
paid.
Special Rule for Qualified Contract: Payment period may not extend beyond
Installment Income the life expectancy of the Annuitant.
Option 1B Option to Request Lump Sum Payment: Available at any time.
- ----------------------------------------------------------------------------------------------------------
One Life
Monthly Payment Amount: Based on the Surrender
Value of your Contract, the age and gender of the
Annuitant on the date of the first payment, and
the number of years chosen for guaranteed
payments.The monthly payments will remain the same
throughout the payment period. Payment Period: You
select 10 or 20 years as the guaranteed payment
period. We make payments for as long as the
Annuitant lives even if the Annuitant lives longer
than the selected period. For example, if you
select a 10-year guaranteed payment period and the
Annuitant lives for 12 years, we make payments for
12 years. Special Rule for Qualified Contract:
Payment period may not extend beyond the life
expectancy of the Annuitant.
Life Income Option to Request Lump Sum Payment: Not available after the first payment
Option 2A is made.
- ----------------------------------------------------------------------------------------------------------
Joint and Survivor
Monthly Payment Amount: Based on the
SurrenderValue of your Contract and the age and
gender of the Annuitant and another designated
person on the date of the first payment.The
monthly payments will remain the same throughout
the payment period.
Payment Period: Based on the lifetimes of the
Annuitant and another designated person. Payments
continue as long as either person is living. If
either person dies before the first payment, we
make annuity payments during the survivor's
lifetime under Life Income Option 2A guaranteed
for 10 years.
Special Rule for Qualified Contract: Payment period may not extend beyond
the life expectancy of the Annuitant or the joint life expectancies of the
Annuitants.
Life Income Option to Request Lump Sum Payment: Not available after the first payment
Option 2B is made.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
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TOUCHSTONE GOLD VARIABLE ANNUITY PROSPECTUS
<PAGE>
Guaranteed Death Benefit
Guaranteed Death Benefit
If the Annuitant dies before the Income Date, we will pay a guaranteed death
benefit instead of annuity payments. We do not deduct a surrender charge from
the death benefit payment.
You select one or more person(s) who will receive this death benefit. These
people are called beneficiaries. You can change your beneficiaries at any time
by writing to us.
To determine the death benefit amount, we must receive proof of death of the
Annuitant and payment instructions for the beneficiary. If we do not receive
payment instructions for the beneficiary within 60 days of receipt of the proof
of death, we may pay the beneficiary in one lump sum. You can find additional
information about designating a beneficiary and payment instructions in your
Contract.
Based upon the date we receive the proof of death and payment instructions, we
calculate the amount of the death benefit according to the following table:
- --------------------------------------------------------------------------------
Annuitant dies before annuity payments begin, before the first day of the
calendar month after the annuitant's 80th birthday, and
- --------------------------------------------------------------------------------
Before the 7th anniversary of the On or after the 7th anniversary
Contract Date of the Contract Date
The death benefit amount will The death benefit amount will
equal the greater of the following equal the greatest of the following
2 amounts: 3 amounts:
o The ContractValue on the date o The ContractValue on the date
we receive proof of death of the we receive proof of death of the
Annuitant and payment instructions Annuitant and payment instructions
for the beneficiary for the beneficiary
o The sum of all purchase payments o The sum of all purchase payments
minus any amounts withdrawn, minus any amounts withdrawn,
including any surrender charges including any surrender charges
on the withdrawals on the withdrawals
o The Contract Value on the most
recent septennial anniversary*
of the Contract Date plus any
purchase payments made since
that anniversary minus any
amounts withdrawn since that
anniversary, including any
surrender charges on the
withdrawals
* A septennial anniversary occurs every 7 years. For example, the 7th, 14th,
21st and 28th anniversaries of the Contract Date are each a septennial
anniversary.
- --------------------------------------------------------------------------------
Annuitant dies before annuity payments begin but on or after the first day
of the calendar month after the Annuitant's 80th birthday.
- --------------------------------------------------------------------------------
The death benefit amount will equal the ContractValue on the day we receive
proof of death of the Annuitant and payment instructions for the beneficiary.
- --------------------------------------------------------------------------------
Annuitant dies after annuity income payments begin.
- --------------------------------------------------------------------------------
Any remaining benefits will be paid based on the annuity income payment option
in effect.
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TOUCHSTONE GOLD VARIABLE ANNUITY PROSPECTUS
<PAGE>
WSLAC And Separate Account 1
WSLAC And Separate Account 1
WSLAC
Western-Southern Life Assurance Company (WSLAC) is a stock life insurance
company organized under the laws of the State of Ohio on December 1, 1980. It is
a wholly-owned subsidiary of The Western and Southern Life Insurance Company, a
mutual life insurance company organized under the laws of the State of Ohio on
February 23, 1888. Both companies issue insurance and annuity contracts and are
located at 400 Broadway, Cincinnati, Ohio 45202.
Investments allocated to the Fixed Account are held in WSLAC's general account
along with WSLAC's other assets. The interests of the Fixed Account have not
been registered under the Securities Act of 1933 and WSLAC's general account has
not been registered as an investment company under the Investment Company Act of
1940. As a result, the staff of the SEC has not reviewed the information in this
Prospectus about the Fixed Account.
Separate Account 1
WSLAC established Separate Account 1 (SA1) under Ohio law on July 27, 1992. SA1
supports the Contracts and certain other variable annuity contracts that it
issues. SA1 is registered with the SEC as a unit investment trust. We may
operate SA1 as a management investment company or any other form permitted by
law. We may also deregister SA1 if registration with the SEC is no longer
required.
SA1 currently offers 18 Sub-Account options to purchasers of the Contracts. SA1
holds the investments allocated to the Sub-Accounts by the owners of the
Contracts. It also holds assets for the benefit of owners of certain other
variable annuity contracts that it issues. SA1 invests the assets of each
Sub-Account in the corresponding Fund. The investment objective of a Sub-Account
and the Fund in which it invests are identical.
WSLAC owns SA1's assets but it separates SA1's assets from its general account
assets and the assets of its other separate accounts. Liabilities from any other
businesses conducted by WSLAC will not be charged to SA1's assets. We hold SA1's
assets exclusively for the benefit of owners and beneficiaries of the Contracts
and certain other variable annuity contracts issued by WSLAC. WSLAC is obligated
to pay all benefits provided under the Contracts.
The income, capital gains and capital losses of each Sub-Account are credited to
or charged against the assets of that Sub-Account without regard to the income,
capital gains or capital losses of any other Sub-Account or WSLAC.
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TOUCHSTONE GOLD VARIABLE ANNUITY PROSPECTUS
<PAGE>
Underwriter
Underwriter
Touchstone Securities, Inc. is the distributor of the Contracts. Its principal
business address is 311 Pike Street, Cincinnati, Ohio 45202. Touchstone
Securities is a wholly-owned subsidiary of IFS Financial Services, Inc., a
wholly-owned subsidiary of WSLAC.
Touchstone Securities pays sales commissions to persons or entities that sell
the Contracts. These persons are called dealers. Sales commissions may be
calculated as a percentage of the purchase payments received for a Contract or a
percentage of the Contract Value (sometimes called a trail commission). Sales
commissions may also be based on a dealer's total sales and other performance
factors (sometimes called production bonuses). Touchstone Securities may also
pay dealers for other services not directly related to Contract sales.
30
TOUCHSTONE GOLD VARIABLE ANNUITY PROSPECTUS
<PAGE>
Voting Rights
Voting Rights
Because each Sub-Account invests in a corresponding Fund, WSLAC is entitled to
vote at any meeting of a Fund's shareholders. WSLAC, on behalf of the SA1, votes
the shares of a Fund that are held by a Sub-Account according to the
instructions of the owners of Contracts who have invested in that Sub-Account.
If you have money in a Sub-Account on the record date for a meeting of the
shareholders of the corresponding Fund, we will ask you for voting instructions.
Your voting instructions will apply to a specific number of Fund shares. We will
calculate this number by determining the percentage of a Sub-Account that you
own and applying this percentage to the total number of Fund shares that the
Sub-Account owns.
We will mail materials to you at least 14 days before the shareholder meeting so
you can provide your voting instructions to us. If we do not receive voting
instructions from you, we will still vote the shares for which you are entitled
to provide instructions. We will vote these shares in the same proportion as the
voting instructions received by Contract owners who provide instructions. If
WSLAC itself is entitled to vote at the shareholder meeting, it will vote its
shares in the same manner.
We may not ask Contract owners for voting instructions if the applicable rules
and regulations change and permit us to vote the shares of a Fund. We may also
change the manner in which we calculate the number of shares for which you can
provide voting instructions if the applicable rules and regulations change.
We may disregard the voting instructions of Contract owners under certain
circumstances and state insurance regulators may require us to disregard these
instructions under certain circumstances. If we disregard the voting
instructions we receive, we will include a summary of our actions in our next
report to you.
31
TOUCHSTONE GOLD VARIABLE ANNUITY PROSPECTUS
<PAGE>
Other Information About Your Contract
Other Information About Your Contract
Rely on Your Contract
The description of the Contract in this Prospectus is subject to the specific
terms of your Contract as it contains specific contractual provisions and
conditions. If the terms of your Contract differ from the description of the
Contract in the Prospectus, you should rely on the terms in your Contract.
Confirmations and Statements
We will send you a confirmation of each purchase payment and other financial
transactions, such as transfers and partial withdrawals. We will also send you a
statement each year showing the value of your investment in the Sub-Accounts and
Fixed Account.
If you have invested money in a Sub-Account, you will also receive semi-annual
reports for the underlying Fund of that Sub-Account. These semi-annual reports
will include a list of portfolio securities held by the underlying Fund.
Processing Guidelines
We use certain guidelines to determine when we will process your Contract
application and other instructions. These processing guidelines determine your
Contract Date and the effective date of instructions that you send to us. The
effective date depends upon the time of day we receive your application or your
instructions, whether the New York Stock Exchange is open at that time and
whether your applications and instructions are in good order.
If we receive an incomplete application or incomplete instructions from you, we
will contact you for more information. If we have not received all the
application information that we need within 5 business days of the day we
received your application, we will return your initial purchase payment to you
unless you tell us not to return it.
If you are the sole owner of your Contract, you must sign your Contract
application and other instructions. If you and another person are joint owners
of your Contract, you and your joint owner must both sign your Contract
application and other instructions.
Security Procedures
We have established security procedures for telephone transactions, such as
recording telephone calls. In the future, we may also require a personal
identification number (PIN). We will not be liable for losses due to
unauthorized or fraudulent telephone instructions if we follow reasonable
security procedures and reasonably believe the instructions are genuine.
32
TOUCHSTONE GOLD VARIABLE ANNUITY PROSPECTUS
<PAGE>
Other Information About Your Contract
Cancellation ofYour Contract
If you have not made a purchase payment for 2 years, we may cancel your Contract
if the total of your purchase payments less any partial withdrawals is less than
$2,000 and your Contract Value is less than $2,000.
We will send you a notice before cancellation. You will have 14 days from the
date of the notice to make an additional purchase payment and increase your
total purchase payments to $2,000 or your Contract Value to $2,000. If you make
this payment, we will not cancel your Contract. If you do not make this payment,
we will cancel your Contract and pay you the Surrender Value.
Misstatement of Age or Gender
If the age or gender of the Annuitant is misstated in information sent to us, we
will change any benefits under the Contract to those benefits that your purchase
payments would have purchased if the correct age and gender had been stated. If
we do not discover the misstatement until after annuity payments have started,
we will deduct any overpayments, plus compound interest, from subsequent
payments and we will pay any underpayments, plus compound interest, in a lump
sum.
Assignment
Generally, you may assign your Contract, but you may assign a Contract purchased
in connection with a retirement plan only if assignment is permitted under
applicable law and the documents governing the plan. We will not be bound by any
assignment until written notice of the assignment is received and recorded at
the Touchstone Variable Annuity Service Center. Your rights and the rights of
your beneficiary will be affected by an assignment. We are not responsible for
the validity or tax consequences of any assignment.
Loans
You may be permitted to take a loan from your Contract if you purchased it in
connection with a 403(b) plan and the plan documents permit such loans. Loans
are not permitted under any other type of Contract.
No Dividends
The Contracts are "non-participating", which means that they do not pay
dividends. The investment results of the investment options that you choose are
reflected in your benefits.
Financial Statements and Additional Contract Information
Financial statements of WSLAC and SA1 are included in the Statement of
Additional Information along with additional information about the Contracts.
The table of contents of the Statement of Additional Information is on page 50.
For a free copy, call the Touchstone Variable Annuity Service Center at
800.669.2796 (press 2).
33
TOUCHSTONE GOLD VARIABLE ANNUITY PROSPECTUS
<PAGE>
Federal Income Tax Information
Federal Income Tax Information
The following discussion summarizes the impact of certain federal income tax
laws on contributions to, earnings of and distributions from a Contract. It is
based on our understanding of these laws as they are currently in effect and
interpreted. It is not tax advice. You should consult your own tax advisor
before you purchase a Contract. Because this is a summary, it does not contain
all the information that may be important to you.
The impact of federal income taxes on your investment in a Contract depends,
among other things, on the following factors:
o WSLAC's tax status
o The tax status of the Contract
o Your tax status
o The tax status of your beneficiary
o The tax status of the person you select to receive annuity
payments
Your investment may also be affected by changes that occur in the federal income
tax laws and by other tax laws, such as state or local income tax laws, federal
estate and gift tax laws and local estate and other similar laws. The effect of
such other laws on your investment in a Contract are generally not discussed in
this summary.
The following discussion assumes "you" are the owner of a Contract or, when the
Contract is purchased in connection with a retirement plan that is described
below as a Qualified Plan, "you" are the plan participant for whose benefit the
contract is purchased.
Tax Status ofWSLAC
WSLAC is taxed as a life insurance company. Because the operations of the SA1
are part of WSLAC, WSLAC is responsible for any federal income taxes related to
the income of the SA1 and its Sub-Accounts. You are responsible for all taxes
related to your investment in a Contract.
Tax Status of the Contract
We believe that any Contract will be treated as an "annuity contract" under the
Internal Revenue Code (Code) and thus will provide the federal income tax
consequences discussed in this summary. We do not, however, guarantee the tax
status of any Contract. You bear the complete risk that any Contract you own may
not be treated as an "annuity contract" under the Code. A more detailed
discussion of various matters that might affect your Contract's status as an
"annuity contract" is included in the Statement of Additional Information.
If a Contract you own is not treated as an "annuity contract", the earnings
allocable to your investment in the Contract will be included in your income for
federal income tax purposes on a current basis, even if you have not yet
received payments from the Contract.
The discussions entitled "Tax Treatment of Non-Qualified Contracts" and "Tax
Treatment of Qualified Contracts" will apply only if the applicable Contract is
treated as an "annuity contract" under the Code.
34
TOUCHSTONE GOLD VARIABLE ANNUITY PROSPECTUS
<PAGE>
Federal Income Tax Information
Tax Treatment of Non-Qualified Contracts
The information in this section of the Prospectus relates to Contracts that are
not purchased in connection with a retirement plan or program which qualifies
under Section 401, 403(b), 408, 408A or 457 of the Code. In this section of the
Prospectus, these Contracts will be called "Non-Qualified Contracts".
A Non-Qualified Contract is intended to be a tax-deferred investment. This means
that, if the Contract qualifies as an "annuity contract" under the Code, you
will not have to include in income for federal income tax purposes the
investment earnings of your Non-Qualified Contract until you make a withdrawal
from the Contract, surrender it or start receiving annuity payments from it.
When you make a withdrawal from your Non-Qualified Contract, surrender it or
receive an annuity payment from it, you will have to include in income for
federal income tax purposes the portion of the payment that reflects investment
earnings (but no other part of the payment which reflects an amount that has
already been included in your income for federal income tax purposes).
Different rules may apply to an owner of a Non-Qualified Contract that is not a
natural person, such as a corporation or trust. If the owner of a Non-Qualified
Contract is not a natural person, you should consult a tax advisor for more
information about these rules.
The following discussion in this section explains how the general principles of
tax-deferred investing apply to a Non-Qualified Contract when the owner of such
Contract is a natural person. The discussion assumes at all times that your
Non-Qualified Contract will be treated as an "annuity contract" under the Code.
Tax Treatment of Purchase Payments
Generally, any purchase payments that you invest in your Non-Qualified Contract
will not be deductible in determining your federal income tax.
Tax Treatment ofWithdrawals, Surrenders and Distributions
You will generally have to include in income for federal income tax purposes the
portion of any payment from your Non-Qualified Contract that exceeds the portion
of the cost basis (or principal) of the Contract which is allocable to such
payment. The difference between the cost basis and the value of your
Non-Qualified Contract represents the increase in the value of the Contract. The
taxable portion of a payment from your Non-Qualified Contract is generally taxed
at your marginal income tax rate.
Tax Treatment of Partial Withdrawals and Surrenders
Partial Withdrawals. A partial withdrawal refers to a withdrawal from your
Non-Qualified Contract that is less than its total value and is not paid in the
form of an annuity. Usually, a partial withdrawal of the value of your
Non-Qualified Contract will be treated for tax purposes as coming first from
earnings (which represent the increase in the value of the Contract). This
portion of the withdrawal will be included in your income for federal income tax
purposes.
After the earnings portion is exhausted, the remainder of any partial withdrawal
will be treated as coming from your principal in the Contract (generally the sum
of the purchase payments; it also may include any employer or other payments for
the Contract that were previously included in your income for federal income tax
purposes). This portion of the withdrawal will not be included in your income
for federal income tax purposes.
[SIDEBAR]: oooThe cost basisof your Non-Qualified Contract is generally the
sum of your purchase payments for the Contract.
35
TOUCHSTONE GOLD VARIABLE ANNUITY PROSPECTUS
<PAGE>
Federal Income Tax Information
If your Non-Qualified Contract contains investments made prior to August 14,
1982, however, a partial withdrawal from the Contract will be treated, to the
extent it is allocable to such pre-August 14, 1982 investments, as coming first
from principal and then, only after the principal portion is exhausted, from
earnings.
Surrenders. If you surrender your Non-Qualified Contract and receive a lump sum
payment of its entire value, the portion of the payment that exceeds your then
remaining cost basis in the Contract will be included in your income for federal
income tax purposes. You will not include in income for federal income tax
purposes the part of the payment that is equal to such cost basis.
Tax Treatment of Annuity Payments
If annuity payments are made under your Non-Qualified Contract, a fixed portion
of each payment is generally excludable from your income for federal income tax
purposes as a tax-free recovery of your cost basis in the Contract and the
balance is included in your income for such purposes.
The portion of the payment that is excludable from income is determined under
detailed rules provided in the Code (which in general terms determine such
excludable amount by dividing your cost basis in the Contract at the time the
annuity payments begin by the expected return under such Contract).
If the annuity payments continue after your cost basis has been recovered, such
additional payments will generally be included in full in income for federal
income tax purposes.
For the above purposes, your cost basis in the Contract will be reduced to
reflect the value of any period certain or refund guarantee form in which the
annuity payments are to be made, if applicable.
Penalty Tax on Distributions
Generally, a penalty equal to 10% of the amount of any payment that is
includable in your income for federal income tax purposes will apply to any
distribution you receive from a Non-Qualified Contract in addition to ordinary
income tax.
This 10% penalty will not apply, however, if the distribution meets certain
conditions. Some of the distributions that are excepted from the 10% penalty are
listed below:
o A distribution that is made on or after the date you reach age 59
1/2
o A distribution that is made on or after your death
o A distribution that is made when you are totally disabled (as
defined in section 72(m) of the Code)
o A distribution that is made as part of a series of substantially
equal periodic payments which are made at least annually for your
life (or life expectancy) or the joint lives (or joint life
expectancies) of you and your joint Annuitant under the Contract
o A part of a distribution that is attributable to your investment
in the Contract prior to August 14, 1982
o A distribution that is paid under an immediate annuity within the
meaning of Section 72(u)(4) of the Code, which generally refers
to an annuity contract that has been purchased with a single
premium or annuity consideration, under which payments begin no
later than one year from the purchase of the contract and which
provides for a series of substantially equal periodic payments to
be made at least annually during the annuity period
36
TOUCHSTONE GOLD VARIABLE ANNUITY PROSPECTUS
<PAGE>
Federal Income Tax Information
Tax Treatment of Assignments
An assignment or pledge by you of your Non-Qualified Contract may be treated as
if it were a payment to you of all or part of the value of the Contract and
therefore may be a taxable event. You should consult your own tax advisor before
you assign or pledge your Non-Qualified Contract.
Required Distributions
To qualify as an "annuity contract" under the Code, your Non-Qualified Contract
must meet certain distribution requirements in the event you die.
Generally, if you die before annuity payments begin under the Contract, the
amounts accumulated under your Non-Qualified Contract either must be distributed
within 5 years of your death or must begin to be paid within one year of your
death under a method that will pay the entire value of the Contract over the
life (or a period not extending beyond the life expectancy) of your designated
beneficiary under the Contract.
Special rules apply, however, if your beneficiary under the Contract is your
surviving spouse. If your spouse is your designated beneficiary under the
Contract, these rules involving required distributions in the event of death
will be applied as if your surviving spouse had been the original owner of the
Contract.
If you die after annuity payments have begun, payments generally must continue
at least as rapidly as under the method in effect at your death (unless such
method provides that payments stop at your death).
Withholding
Payments received from your Non-Qualified Contract are, to the extent includable
in your income for federal income tax purposes, generally subject to federal
income tax withholding, unless you elect not to have taxes withheld and you
notify us that you are making this election.
Your tax status, the type of distribution and any election you make as to the
withholding amount that is to apply will determine how much money must be
withheld if you fail to elect out of withholding.
Multiple Non-Qualified Contracts
All Non-Qualified Contracts that are issued to you by the same company within a
calendar year period are generally treated as one Contract for purposes of
determining the tax consequences of any distribution, and this may cause adverse
or unanticipated tax consequences. As a result, you should consult a tax advisor
before purchasing more than one Non-Qualified Contract in any calendar year
period in order to discuss the effect of such multiple purchases.
37
TOUCHSTONE GOLD VARIABLE ANNUITY PROSPECTUS
<PAGE>
Federal Income Tax Information
Tax Treatment of Qualified Contracts
The information in this section of the Prospectus relates to Contracts that are
purchased in connection with certain retirement plans. In this section of the
Prospectus, these retirement plans will be called "Qualified Plans" and
Contracts purchased in connection with Qualified Plans will be called "Qualified
Contracts".
A Qualified Contract is intended to be a tax-deferred investment. This means
that, if the Qualified Contract and the Qualified Plan under which it was
purchased meet certain applicable rules of the Code, you will not have to
include in income for federal income tax purposes the investment earnings of
your Qualified Contract until a payment (or payments) are made to you.
When you take a distribution payment from your Qualified Contract, or receive an
annuity payment from it, you will generally have to include in income for
federal income tax purposes the entire amount of the payment (except to the
extent it reflects your own "after-tax" contributions to the Contract or any
other cost basis you may have under the Contract).
Types of Qualified Contracts
The Qualified Contracts are designed to be suitable for use with the following
types of Qualified Plans:
o Traditional IRAs (individual retirement annuities under Section
408 of the Code)
o Roth IRAs (individual retirement annuities under Section 408A of
the Code)
o Section 401 plans (plans qualified under Section 401(a) of the
Code, such as profit sharing plans, including so-called 401(k)
plans and money purchase pension plans)
o Section 403(b) plans (tax-sheltered annuities under Section
403(b) of the Code)
o Section 457 Deferred Compensation plans (deferred compensation
plans under Section 457 of the Code)
o SEPs (Simplified Employee Pension Plans under Section 408(k) of
the Code)
o SIMPLE IRAs (Savings Incentive Match Plans for Employees under
Section 408(p) of the Code)
o Texas ORP plans (State of Texas Optional Retirement Program
plans)
Because of the minimum purchase payment requirements, Qualified Contracts may
not be appropriate for some retirement plans.
38
TOUCHSTONE GOLD VARIABLE ANNUITY PROSPECTUS
<PAGE>
Federal Income Tax Information
Limitations Imposed by the Code or the Qualified Plan
In most cases, the Code places limitations and restrictions on how a Qualified
Plan can be designed and operated. These limitations and restrictions relate to
various issues, including:
o Amounts of allowable contributions
o Form, manner and timing of distributions
o Vesting and nonforfeitability of interests
o Nondiscrimination in eligibility, participation, contributions
and benefits
o Tax treatment of distributions, withdrawals and surrenders
o Withdrawal from the plan, such as while the plan participant is
still employed by the employer of the plan
o Receipt and taxation of loans
A Qualified Contract that is issued under or in connection with a Qualified Plan
is subject to the terms and conditions of the Qualified Plan. If the information
in the Qualified Plan documents differs from the information in the Qualified
Contract, you should rely on the information in the Qualified Plan.
Tax Consequences of Participating in a Qualified Plan
The tax consequences of participating in a Qualified Plan vary with the type of
plan and the terms and conditions of the plan. Various penalty and excise taxes
may apply to contributions to or distributions from a Qualified Contract if the
contributions or distributions violate the limitations of the Qualified Plan or
the Code. Certain restrictions and penalties may apply to withdrawals and
surrenders from a Qualified Contract.
Traditional and Roth IRAs. To help you understand the tax consequences of
purchasing a Qualified Contract in connection with a Traditional IRA or a Roth
IRA, we will provide you with an IRA Disclosure Statement.
Section 401 Plans and Section 403(b) Plans. To help you understand the tax
consequences of purchasing a Qualified Contract in connection with a Section 401
plan or a Section 403(b) plan, we have included a supplement in this Prospectus
as to such plans. The supplement summarizes certain federal income tax laws and
is based on our understanding of these laws. Because the supplement is a
summary, it does not contain all the information that may be important to you.
The supplement is for general informational purposes only.
Texas Optional Retirement Program. To help you understand the tax consequences
of purchasing a Qualified Contract in connection with the Texas Optional
Retirement Program, we have included a supplement in this Prospectus as to this
program. The supplement summarizes certain state and federal income tax laws and
is based on our understanding of these laws. Because the supplement is a
summary, it does not contain all the information that may be important to you.
The supplement is for general informational purposes only.
Other Qualified Plans. You should contact your own tax advisor for more
information about the tax consequences of investing in a Qualified Contract in
connection with a Section 457 Deferred Compensation, a SEP or a SIMPLE IRA plan.
[SIDEBAR]: ***The tax rules regarding Qualified Plans are complex, change
frequently and will have different applications depending on individual facts
and circumstances. You should consult your own tax advisors before you
purchase a Qualified Contract.
39
TOUCHSTONE GOLD VARIABLE ANNUITY PROSPECTUS
<PAGE>
Supplement A
Supplement A
Accumulation UnitValues
The Accumulation Unit Values shown in the table below are for an Accumulation
Unit outstanding throughout the periods. An explanation of how an Accumulation
Unit Value is calculated is located on page 23 in this Prospectus.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Years Ended Unit Value at Unit Value at Number of Units
December 31 Beginning of Year End of Year at End of Year
AIM V.I. Growth 1999* 10.000000 12.386830 1,200,117
- -------------------------------------------------------------------------------------
AIM V.I. Government
Securities 1999* 10.000000 9.928089 51,404
- -------------------------------------------------------------------------------------
Alger American
Small Capitalization 1999* 10.000000 13.645334 150,574
- -------------------------------------------------------------------------------------
Alger American
Growth 1999* 10.000000 12.050408 1,426,332
- -------------------------------------------------------------------------------------
MFS VIT
Emerging Growth 1999* 10.000000 16.408335 424,862
- -------------------------------------------------------------------------------------
MFS VIT Growth
with Income 1999* 10.000000 10.298332 842,535
- -------------------------------------------------------------------------------------
PIMCO Long-Term
U.S. Government
Bond 1999* 10.000000 9.641838 234,504
- -------------------------------------------------------------------------------------
Touchstone
Small Cap Value 1999* 10.000000 11.485000 19,113
- -------------------------------------------------------------------------------------
1995** 10.000000 11.687169 14,972
1996 11.687169 12.817847 236,639
1997 12.817847 16.905544 921,086
Touchstone 1998 16.905544 17.227461 1,527,712
Emerging Growth 1999 17.227461 24.945052 1,194,568
- -------------------------------------------------------------------------------------
1995** 10.000000 11.230830 15,645
1996 11.230830 12.350885 252,346
1997 12.350885 13.984724 939,980
Touchstone 1998 13.984724 16.586786 1,501,239
International Equity 1999 16.586796 22.335784 1,273,417
- -------------------------------------------------------------------------------------
</TABLE>
[SIDEBAR]: ***Accumulation Unit
- --------------------------------------------------------------------------------
A unit of measure used to calculate a Contract owner's share of a Sub-Account.
Although it is not the same as a mutual fund share, it is similar.
[SIDEBAR]: ***Accumulation Unit Value
- --------------------------------------------------------------------------------
The dollar value of an Accumulation Unit in a Sub-Account.
40
TOUCHSTONE GOLD VARIABLE ANNUITY PROSPECTUS
<PAGE>
Supplement A
Years Ended Unit Value at Unit Value at Number of Units
December 31 Beginning of Year End of Year at End of Year
Touchstone
High Yield 1999* 10.000000 9.186113 108,456
- ----------------------------------------------------------------------------
Touchstone 1998*** 10.000000 10.119923 221,536
Value Plus 1999 10.119923 11.484675 503,145
- ----------------------------------------------------------------------------
1995** 10.000000 12.490239 28,701
1996 12.490239 14.161478 451,141
1997 14.161478 16.749955 1,858,720
Touchstone 1998 16.749955 17.758155 2,973,336
Growth & Income 1999 17.758155 17.957567 2,362,289
- ----------------------------------------------------------------------------
Touchstone
Enhanced 30 1999* 10.000000 10.649017 263,644
- ----------------------------------------------------------------------------
1995** 10.000000 11.962842 28,416
1996 11.962842 13.782738 266,916
1997 13.782738 16.130170 1,153,567
Touchstone 1998 16.130170 16.780412 2,142,449
Balanced 1999 16.780412 18.149355 1,713,391
- ----------------------------------------------------------------------------
1995** 10.000000 11.262524 28,863
1996 11.262524 11.395131 235,025
1997 11.395131 12.137441 936,431
1998 12.137441 12.960022 1,764,079
Touchstone Bond 1999 12.960022 12.623260 1,527,257
- ----------------------------------------------------------------------------
1995** 10.000000 10.317194 42,991
1996 10.317194 10.711418 306,751
1997 10.711418 11.140654 1,033,781
Touchstone 1998 11.140654 11.621488 1,653,441
Standby Income 1999 11.621488 12.023580 1,832,005
- ----------------------------------------------------------------------------
* Sub-Account operations began on May 17, 1999
** Sub-Account operations began on February 23, 1995
*** Sub-Account operations began on May 1, 1998
41
TOUCHSTONE GOLD VARIABLE ANNUITY PROSPECTUS
<PAGE>
Supplement B
Supplement B
Federal Income Tax Information Section 401 and Section 403(b) Plans
Section 401(a) of the Code permits sole proprietorships, partnerships,
corporations and certain other organizations operating businesses to establish
various types of Qualified Plans (called "Section 401 plans" in this Supplement)
for their employees (and, if applicable, those self-employed persons working in
the businesses). A Qualified Contract may be purchased to provide benefits to a
participant in a Section 401 plan.
Section 403(b) of the Code permits public schools and certain charitable,
educational and scientific organizations described in Section 501(c)(3) of the
Code to purchase Qualified Contracts as "tax sheltered annuities" (called
"Section 403(b) plans" in this Supplement) for their employees.
The Code places limitations and restrictions on all Section 401 and Section
403(b) plans, but the specific rules set forth in the applicable plan will also
affect how the plan works. If the information in the Qualified Plan documents
differs from the information in the Qualified Contract or in this Supplement,
you should rely on the information in the Qualified Plan documents.
This discussion explains certain federal income tax rules applicable to a
Qualified Contract purchased in connection with a Section 401 or a Section
403(b) plan. This discussion assumes at all times that the Contract qualifies as
an "annuity contract" and a "Qualified Contract", and that the plan to which it
relates qualifies as a "Qualified Plan" under the Code.
Tax Treatment of Contributions
Other than "after-tax" contributions made by you to a Section 401 plan,
contributions to a Section 401 or a Section 403(b) plan generally are not
included in your income for federal income tax purposes until the contributions
are distributed from the plan, provided such contributions are not in excess of
any benefit, contribution or nondiscrimination limits that apply to the plan.
Tax Treatment of Distributions
Except for the special tax treatments described below, any distributions from a
Qualified Contract purchased in connection with a Section 401 or Section 403(b)
plan generally are included in your (or, if applicable, your beneficiary's)
income for federal income tax purposes as ordinary income, except to the extent
the distributions are allocable to your after-tax contributions.
Special Tax Treatment for Lump Sum Distributions from a Section 401 Plan. If you
receive (or your beneficiary receives) an amount from a Qualified Contract as
part of a distribution from a Section 401 plan, if the distribution qualifies as
a lump sum distribution under the Code and if you were born before January 1,
1936, the portion of the distribution that is included in income may be eligible
for special tax treatment. Your plan administrator should provide you with
information about the tax treatment of a lump sum distribution at the time you
receive such a distribution.
[SIDEBAR]: ***Because the provisions of Section 401 plans and Section 403(b)
plans vary from plan to plan, you should contact your plan admin istrator for
additional information.
42
TOUCHSTONE GOLD VARIABLE ANNUITY PROSPECTUS
<PAGE>
Supplement B
Special Rules for Distributions that are Rolled Over. In addition, special rules
apply to a distribution from a Qualified Contract to you (or your surviving
spouse in the event he or she is your beneficiary with respect to the
distribution) that relates to a Section 401 or a Section 403(b) plan if such
distribution is properly rolled over in accordance with the provisions of the
Code. These provisions contain various requirements, including the requirement
that the rollover be made directly from the distributing plan or within 60 days
of receipt:
o To a Traditional IRA or to an individual retirement account under
Section 408 of the Code (and the rollover is being made by you or
your spouse as beneficiary)
o To another Section 401 plan or a certain kind of annuity plan
under Section 403(a) of the Code (if the distribution is from a
Section 401 plan and the rollover is being made by you)
o To a Section 403(b) plan (if the distribution is from a Section
403(b) plan and the rollover is being made by you)
These special rules only apply to distributions that qualify as "eligible
rollover distributions" under the Code. In general, a distribution from a
Section 401 or Section 403(b) plan will be an eligible rollover distribution
except to the extent:
o It represents the return of your "after-tax" contributions or is
not otherwise includable in income
o It is part of a series of payments made for your life (or life
expectancy) or the joint lives (or joint life expectancies) of
you and your beneficiary under the plan or for a period of more
than ten years
o It is made from a Section 401 plan by reason of a hardship and is
not permitted to be made by a Section 401 plan other than because
of the hardship.
o It is a required minimum distribution under Section 401(a)(9) of
the Code as described below
Required minimum distributions under Section 401(a)(9) of the Code include the
following required payments:
o Except as noted below, minimum payments are required for the
calendar year in which you reach age 70 1/2 or any later calendar
year
o If the plan is a Section 401 plan that is not maintained by
certain governmental or church-sponsored organizations and if you
are not treated under the Code as owning 5% or more of the
employer of the applicable plan, minimum distributions are
required for the later of the calendar year in which you reach
age 70 1/2 or the calendar year you terminate employment with the
employer, or for any calendar year.
The administrator of the applicable Section 401 or Section 403(b) plan should
provide additional information about these rollover tax rules when a
distribution is made.
43
TOUCHSTONE GOLD VARIABLE ANNUITY PROSPECTUS
<PAGE>
Supplement B
Special Rules for Distributions in the Form of Annuity Payments. If any
distribution is made from a Qualified Contract that relates to a Section 401 or
Section 403(b) plan and is made in the form of annuity payments (and is not
eligible for rollover or is not in any event rolled over), a fixed portion of
each payment is generally excludable from income for federal income tax purposes
to the extent it is treated as allocable to your "after-tax" contributions to
the Contract (and any other cost basis you have in the Contract). To the extent
the payment exceeds such portion, it is includable in income for federal income
tax purposes.
The portion of the annuity payment that is excludable from income is determined
under detailed rules provided in the Code. In very general terms, these detailed
rules determine such excludable amount by dividing your "after-tax"
contributions and other cost basis in the Contract that remain in the plan at
the time the annuity payments begin by the anticipated number of payments to be
made under the Contract. If the annuity payments continue after the number of
anticipated payments has been made, such additional payments will generally be
included in full in income for federal income tax purposes.
Withholding. If any part of a distribution from a Qualified Contract that
relates to a Section 401 or a Section 403(b) plan is eligible for rollover, but
is not directly rolled over to a Traditional IRA or another eligible employer
plan or account pursuant to your election, it is generally subject to federal
income tax withholding at a rate of 20%.
Any taxable part of a distribution from a Qualified Contract that is not
eligible for a direct rollover is subject to different withholding rules that
are described in the Code. You can generally elect completely out of withholding
as to such part.
Penalty Tax on Withdrawals
Generally, there is a penalty tax equal to 10% of the portion of any payment
from a Qualified Contract issued in connection with a Section 401 or a Section
403(b) plan that is included in your income for federal income tax purposes.
This 10% penalty will not apply, however, if the distribution meets certain
conditions. Some of the distributions that are excepted from the 10% penalty are
listed below:
o A distribution that is made on or after the date you reach age 59
1/2
o A distribution that is properly rolled over to a Traditional IRA
or to another eligible employer plan or account
o A distribution that is made on or after your death
o A distribution that is made when you are totally disabled (as
defined in Section 72(m) of the Code)
o A distribution that is made as part of a series of substantially
equal periodic payments which begin after you separate from
service with the employer of the applicable plan and are made at
least annually for your life (or life expectancy) or the joint
lives (or joint life expectancies) of you and your joint
Annuitant under the Qualified Contract
o A distribution that is made to you by reason of your separation
from service with the employer of the applicable plan when such
separation occurs during or after the calendar year in which you
reach age 55
o A distribution that is made to you to the extent it does not
exceed the amount allowable to you as a deduction for medical
care under Section 213 of the Code (determined without regard to
whether or not you itemize deductions)
44
TOUCHSTONE GOLD VARIABLE ANNUITY PROSPECTUS
<PAGE>
Supplement B
o A distribution that is made to an alternate payee of yours
pursuant to a Qualified Domestic Relations Order (that meets the
conditions of Section 414(p) of the Code)
Required Distributions
Distributions from a Qualified Contract issued in connection with a Section 401
or a Section 403(b) plan must meet certain rules concerning required
distributions that are set forth in the Code. Such rules are summarized below:
o Except as noted below, required distributions to you generally
must start by April 1 of the calendar year following the calendar
year in which you reach age 70 1/2.
o If a Section 401 plan is involved (except for a Section 401 plan
maintained by certain governmental or church-sponsored
organizations) and you are not considered a 5% or more owner of
the employer of the plan under the rules of the Code, the
required distributions to you generally do not have to start
until April 1 of the calendar year following the later of the
calendar year in which you reach age 70 1/2 or the calendar year
in which you terminate employment with the employer.
o When distributions are required to be made to you under the Code,
they must generally be made over your life (or a period not
extending beyond your life expectancy) or over the joint lives
(or a period not extending beyond the joint life expectancies) of
you and a designated beneficiary under the plan. In general, at
least a certain minimum amount, determined under the Code and
regulations issued thereunder, must be made each year.
In addition, other rules apply under the Code to determine when and how required
minimum distributions must be made in the event of your death. The applicable
plan documents should contain such rules.
Special Provisions
Loans. Qualified Contracts used for Section 403(b) plans generally allow you to
borrow money from such Contracts. In addition, certain Section 401 plans may
allow you to borrow money from a Qualified Contract that is used for such plans.
In order to meet the rules of the Code so that such loans are not considered
taxable distributions when made, such loans must generally meet the rules listed
below:
o The amount of each loan must generally be at least $1,000.
o The interest rate on each loan must be comparable to the rate
charged by commercial lenders for similar loans.
o The loan must be repaid in substantially equal payments made at
least quarterly.
o Generally, you cannot surrender or annuitize the Contract while a
loan is outstanding.
o There may also be restrictions on the maximum time for repaying
the loan. The maximum term of any such loan is normally 5 years,
except that a longer period may be able to apply to a loan used
to purchase your principal residence.
45
TOUCHSTONE GOLD VARIABLE ANNUITY PROSPECTUS
<PAGE>
Supplement B
A Section 403(b) or a Section 401 plan may contain additional or different rules
on loans from a Qualified Contract. The administrator of the applicable Section
403(b) or Section 401 plan should be able to provide information about these
rules.
Withdrawal Limitations. The Code limits the withdrawal of amounts from a
Qualified Contract used for a Section 401 or Section 403(b) plan to the extent
it is attributable to contributions made pursuant to a pre-tax salary reduction
agreement or other cash or deferred arrangement. This limit applies in a
Qualified Contract used for a Section 403(b) plan only to the extent the
withdrawal is attributable to contributions made after December 31, 1988.
If such withdrawal limitations apply, withdrawals of such amounts generally can
be made only when you reach age 59 1/2, when you separate from service with the
employer of the plan, when you become totally disabled or die or in the case of
your financial hardship (that meets certain rules described in the Code).
Withdrawals for hardship do not include earnings allocated for you under the
plan after 1988.
In the case of a Section 401 plan, distributions may also be permitted in the
event of the plan's termination or when the plan employer sells substantially
all of the assets used in a trade or business of the employer or all of the
employer's interest is a subsidiary and you continue service with the purchaser
of such assets or interest, provided certain conditions are met.
You should consult your own tax advisor about the tax consequences of and rules
for a loan or a withdrawal from a Section 401 or Section 403(b) plan.
46
TOUCHSTONE GOLD VARIABLE ANNUITY PROSPECTUS
<PAGE>
Supplement C
Supplement C
State ofTexas Optional Retirement Program
The Contract is eligible for the State of Texas Optional Retirement Program
(ORP). Plans established under the Texas ORP will be referred to as "Texas ORP
Plans" in this Supplement. Contracts purchased in connection with Texas ORP
Plans will be referred to as "ORP Contracts" in this Supplement.
ORP Contracts
Eligible Participants. An ORP Contract may be purchased to provide benefits to a
participant in a Texas ORP Plan. Employees of Texas "state supported
institutions of higher education" may direct contributions and transfers to an
ORP Contract. "State supported institutions of higher education" is defined in
Section 51.351 of Subchapter G of Title 3 of the Higher Education Code of the
State of Texas.
Employer Premiums. Employer premiums are purchase payments applied to the ORP
Contract that are attributable to employer contributions other than
contributions made through a salary reduction agreement. Employer premiums are
subject to vesting under the rules governing Texas ORP Plans.
Loans. Participants in a Texas ORP Plan are not allowed to borrow money from an
ORP Contract.
Distributions. Distributions of funds from an ORP Contract may only be made upon
the occurrence of a "distributable event". Title 8, Chapter 830.105 of the Texas
Government Code defines "distributable event" as death, retirement, termination
of employment in all public institutions of higher education in Texas, or
attainment of age 70 1/2.
Distributions from an ORP Contract are considered to have begun if:
o Distributions are made on account of you reaching your required
beginning date
o Before the required beginning date, irrevocable distributions
commence over a period permitted and in an annuity form
acceptable under Section 1.401(a)(9) of the Regulations
Specific Plan Rules. The Internal Revenue Code and Texas laws place limitations
and restrictions on Texas ORP Plans, but the specific rules set forth in the
applicable plan will also affect how the plan works. Because the provisions of
Texas ORP Plans vary from plan to plan, you should contact your plan
administrator for additional information. If the information in the Texas ORP
Plan documents differs from the information in the ORP Contract or in this
Supplement, you should rely on the information in the Texas ORP Plan documents.
47
TOUCHSTONE GOLD VARIABLE ANNUITY PROSPECTUS
<PAGE>
Supplement C
Federal Income Tax Information
This discussion explains certain federal income tax rules applicable to an ORP
Contract. This discussion assumes at all times that the Contract qualifies as an
"annuity contract" under the Code, the Contract qualifies as an "ORP Contract"
under Texas law and the plan to which it relates qualifies as a "Texas ORP Plan"
under Texas law.
The specific rules related to ORP Contracts and Texas ORP Plans discussed in the
previous section, such as the rules on when distributions may be made from an
ORP Contract, are applicable in addition to the federal income tax rules
discussed in this section.
Tax Treatment of Contributions
Contributions to a Texas ORP Plan generally are not included in your income for
federal income tax purposes until the contributions are distributed from the
plan, provided such contributions are not in excess of any benefit, contribution
or nondiscrimination limits that apply to the plan.
Tax Treatment of Distributions
Any distributions from a Texas ORP Plan generally are included in income for
federal income tax purposes as ordinary income, except to the extent the
distributions are allocable to your after-tax contributions.
In addition, special rules apply to a distribution from an ORP Contract if such
distribution is properly rolled over in accordance with the provisions of the
Code. The administrator of the applicable Texas ORP Plan should provide
additional information about these rollover tax rules when a distribution is
made.
Penalty Tax on Withdrawals
Generally, there is a penalty tax equal to 10% of the portion of any payment
from an ORP Contract that is included in your income for federal income tax
purposes.
This 10% penalty will not apply, however, if the distribution meets certain
conditions. Some of the distributions that are excepted from the 10% penalty are
listed below:
o A distribution that is made on or after the date you reach age 59
1/2
o A distribution that is properly rolled over to a Traditional IRA
or to another eligible employer plan or account
o A distribution that is made on or after your death
o A distribution that is made when you are totally disabled (as
defined in Section 72(m) of the Code)
o A distribution that is made as part of a series of substantially
equal periodic payments which begin after you separate from
service with the employer of the applicable plan and are made at
least annually for your life (or life expectancy) or the joint
lives (or joint life expectancies) of you and your joint
Annuitant under the ORP Contract
48
TOUCHSTONE GOLD VARIABLE ANNUITY PROSPECTUS
<PAGE>
Supplement C
o A distribution that is made to you by reason of your separation
from service with the employer of the applicable plan when such
separation occurs during or after the calendar year in which you
reach age 55
o A distribution that is made to you to the extent it does not
exceed the amount allowable to you as a deduction for medical
care under Section 213 of the Code (determined without regard to
whether or not you itemize deductions)
o A distribution that is made to an alternate payee of yours
pursuant to a Qualified Domestic Relations Order (that meets the
conditions of Section 414(p) of the Code)
Required Distributions Under the Code
Distributions from an ORP Contract must meet certain rules concerning required
distributions that are set forth in the Code. Such rules are summarized below:
o Except as noted below, required distributions generally must
start by April 1 of the calendar year following the calendar year
in which you reach age 70 1/2.
o If you do not terminate your employment until after age 70 1/2,
the required distributions generally do not have to start until
April 1 of the calendar year following the later of the calendar
year in which you reach age 70 1/2 or the calendar year in which
you terminate employment with the employer.
o When distributions are required under the Code, a certain minimum
amount, determined under the Code and regulations issued
thereunder, must be made each year.
In addition, other rules apply under the Code to determine when and how required
minimum distributions must be made in the event of your death. The applicable
plan documents will contain such rules.
Withdrawal Limitations Under the Code
The Code limits the withdrawal of amounts from an ORP Contract to the extent it
is attributable to contributions made pursuant to a salary reduction agreement
or other cash or deferred arrangement. If such withdrawal limitations apply,
withdrawals of such amounts generally can be made only when you reach age 59
1/2, when you separate from service with the employer of the plan, when you
become totally disabled or die or in the case of your financial hardship (that
meets certain rules described in the Code). Withdrawals for hardship do not
include earnings allocated for you under a Texas ORP Plan after 1988.
You should consult your own tax advisor about the tax consequences of and rules
for a withdrawal from a Texas ORP Plan.
49
TOUCHSTONE GOLD VARIABLE ANNUITY PROSPECTUS
<PAGE>
Table Of Contents For Statement Of Additional Information
Table Of Contents For Statement Of Additional Information
Page
General......................................................... 3
Safekeeping Of Assets........................................... 3
Distribution Of The Contracts................................... 3
Sub-Account Performance......................................... 4
Sub-Account Accumulation Unit Value............................. 6
Fixed Account Value............................................. 7
Fixed Annuity Income Payments................................... 7
Qualification As An "Annuity Contract".......................... 8
Independent Accountants......................................... 10
Financial Statements............................................ 10
50
TOUCHSTONE GOLD VARIABLE ANNUITY PROSPECTUS
<PAGE>
<PAGE>
TOUCHSTONE GOLD VARIABLE ANNUITY
SUPPLEMENTAL PROSPECTUS
MAY 1, 2000
Western-Southern Life Assurance Company
Separate Account 1
Western-Southern Life Assurance Company (WSLAC) is providing you with this
Supplemental Prospectus that supplements and should be read with the prospectus
for the Touchstone Gold Variable Annuity dated May 1, 2000 (Gold Prospectus).
The Gold Prospectus contains details regarding your Contract. Please read the
Gold Prospectus and this Supplemental Prospectus carefully and keep them for
future reference.
This Supplemental Prospectus describes the Touchstone Income
Opportunity Sub-Account, an additional investment option of the Contract
available only to Contract owners who were
o Actively participating in an automatic investment program or an
automatic asset allocation program on April 30, 2000 and
o Allocating payments to the Touchstone Income Opportunity Sub-Account
through that automatic investment program or automatic asset
allocation program.
This additional investment option will be available to you only through your
previously established automatic investment program or automatic asset
allocation program. This investment option will terminate when you no longer
have money in the Touchstone Income Opportunity Sub-Account.
The Touchstone Gold Variable Annuity Contract is issued by WSLAC. The Contract
is an investment alternative for investors who want to accumulate money on a
tax-deferred basis for retirement or other long-term goals.
The Statement of Additional Information dated May 1, 2000 contains more
information about the Contract, WSLAC and its Separate Account 1. It has been
filed with the Securities and Exchange Commission (SEC) and is legally part of
this Prospectus. The table of contents for the Statement of Additional
Information is located on page 50 of the Gold Prospectus. For a free copy,
call the Touchstone Variable Annuity Service Center at 800.669.2796 (press 2).
The Securities and Exchange Commission maintains a web site (http://www.sec.gov)
that contains the Statement of Additional Information, certain other material
that is legally part of the registration statement of Separate Account 1, and
other information about Separate Account 1. You can view these documents at the
Public Reference Room of the SEC or obtain copies, for a fee, by writing to the
Public Reference Room of the SEC, 450 Fifth Street N.W., Washington, D.C.
20549-6009. You can also call the SEC at 800.SEC.0330.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the Contracts or determined if this
Prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
The Contracts are not deposits or obligations of any bank. No bank has
guaranteed or endorsed the Contracts. The Contracts are not federally insured by
the Federal Deposit Insurance Corporation, the Federal Reserve Board, the
National Credit Union Share Insurance Fund or any other agency.
Investments in variable annuities involve investment risk, including possible
loss of principal and earnings.
You should rely only on the information contained in the Contract, the
Gold Prospectus, this Supplemental Prospectus, the Statement of Additional
Information or our approved sales literature. The description of the Contract in
the Gold Prospectus is subject to the specific terms of your Contract as it
contains specific contractual provisions and conditions. If the terms of your
Contract differ from those in the Gold Prospectus, you should rely on the terms
of your Contract.
No one is authorized to give any information or make any representation other
than those contained in the Contract, the Gold Prospectus, this Supplemental
Prospectus, the Statement of Additional Information or our approved sales
literature.
<PAGE>
TABLE OF CONTENTS
PAGE
Cover Page. 1
Table Of Contents 2
Glossary 3
Fee And Expense Tables 4
Information About The Investment Option 6
<PAGE>
3
GLOSSARY
ACCUMULATION UNIT
- --------------------------------------------------------------------------------
A unit of measure used to calculate a Contract owner's share of a Sub-Account.
ACCUMULATION UNIT VALUE
- --------------------------------------------------------------------------------
The dollar value of an Accumulation Unit in a Sub-Account.
CONTRACT
- --------------------------------------------------------------------------------
The Touchstone Gold Variable Annuity Contract, including the application and
any amendments, riders or endorsements.
CONTRACT DATE
- --------------------------------------------------------------------------------
The effective date of a Contract. The Contract Date is shown on page 3 of your
Contract.
CONTRACT VALUE
- --------------------------------------------------------------------------------
The total value of your Contract at any time before or on the Income Date. This
represents the sum of the value of your investments in the Sub-Accounts and the
value of your investments in the Fixed Account.
CONTRACT YEAR
- --------------------------------------------------------------------------------
A year that starts on your Contract Date or the anniversary of your Contract
Date.
FUND
- --------------------------------------------------------------------------------
Each Sub-Account invests in a Fund that has the same investment objective as
the Sub-Account.
SUB-ACCOUNT
- --------------------------------------------------------------------------------
Each Sub-Account invests in a Fund, which has the same investment objective as
the Sub-Account.
SURRENDER CHARGE
- --------------------------------------------------------------------------------
Each Sub-Account invests in a Fund, which has the same investment objective as
the Sub-Account.
WSLAC, WE, OUR AND US
- --------------------------------------------------------------------------------
Western-Southern Life Assurance Company.
YOU AND YOUR
- --------------------------------------------------------------------------------
The owner of the Contract.
<PAGE>
4
FEE AND EXPENSE TABLES
These tables describe the fees and expenses that you may pay directly or
indirectly if you purchase a contract. More complete information about these
fees and expenses is located in the "Charges" section of the Gold Prospectus on
pages 17 through 19.
Contract Owner Transaction Expenses
MAXIMUM Contingent Deferred Sales Charge (Surrender Charge) 7.00%
(as a percentage of amount surrendered or withdrawn)*
Annual Contract Maintenance Charge* * $35.00
- --------------------------------------------------------------------------------
Sub-Account
Annual Expenses
(as a percentage of
average account value)
- --------------------------------------------------------------------------------
MORTALITY AND EXPENSE RISK CHARGES 1.20%
CONTRACT ADMINISTRATION CHARGE 0.15%
TOTAL 1.35%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Fund Expenses
Touchstone Income Opportunity
(as a percentage of average daily net assets
and after expense reimbursement)
- --------------------------------------------------------------------------------
ADVISOR FEE 0.65%
OTHER EXPENSES 0.20%
TOTAL EXPENSES 0.85%***
- --------------------------------------------------------------------------------
* The surrender charge does not apply to certain transactions. We may reduce
the surrender charge when Contracts are sold to a group. The surrender
charge is based on the number of years a purchase payment has been invested
in your Contract and decreases over time. If a purchase payment has been
invested for 7 years or more when you withdraw that purchase payment, you
will not pay a surrender charge.
** In certain states and for certain retirement plans, we can waive, reduce or
eliminate the annual contract maintenance charge.
*** Touchstone Advisors, Inc. has agreed to waive certain fees or reimburse the
Fund so that the Fund's expenses do not exceed the percentage listed in
this table. The agreement will remain in place until at least December 31,
2000. If the waiver and reimbursement had not been in place, the total
expenses of the Fund would have been 1.29%.
<PAGE>
5
Examples
These examples should help you compare the cost of investing in the
Touchstone Income Opportunity Sub-Account with the cost of investing in other
Sub-Accounts available under the Contract.
The examples assume that you invest $1,000 in the Touchstone Income
Opportunity Sub-Account, your investment has a 5% return each year and the
Touchstone Income Opportunity Fund's total expenses are the same as shown in
the table on the previous page in the row entitled "Total Expenses (after
Reimbursement)". Your actual costs may be higher or lower than the costs shown
in the examples.
- --------------------------------------------------------------------------------
Example 1 This example assumes that you surrender your Contract at the end of
the applicable time period.
1 Year 3 Years 5 Years 10 Years
Touchstone Income Opportunity $94 $128 $162 $270
- --------------------------------------------------------------------------------
Example 2 This example assumes that you annuitize your Contract at the end of
the applicable time period and choose at least a 5-year payout period.
1 Year 3 Years 5 Years 10 Years
Touchstone Income Opportunity $94 $74 $126 $270
- --------------------------------------------------------------------------------
Example 3 This example assumes that you do not surrender your Contract.
1 Year 3 Years 5 Years 10 Years
Touchstone Income Opportunity $24 $74 $126 $270
<PAGE>
6
INFORMATION ABOUT THE INVESTMENT OPTION
The Sub-Account and the Fund
The Touchstone Income Opportunity Sub-Account invests in the Touchstone
Income Opportunity Fund. This table contains information about the investment
objective, Advisor and Sub-Advisor of the Fund:
- --------------------------------------------------------------------------------
Investment Objective Advisors/Sub-Advisors
- --------------------------------------------------------------------------------
The Fund seeks to achieve Alliance Capital
TOUCHSTONE a high level of current income Management L.P.*
INCOME OPPORTUNITY as its main goal. The Fund may
also seek to increase the value
of its Shares, if consistent
with its main goal.
- --------------------------------------------------------------------------------
* Sub-Advisor to Touchstone Advisors, Inc.
More complete information about the Fund, including information about its
expenses, is included in its prospectus, which is attached to this Supplemental
Prospectus. Please read the Fund's prospectus carefully.
Changes in the Sub-Accounts and the Funds
As described in the Gold Prospectus, we may substitute a new Fund or similar
investment option for the Fund in which a Sub-Account invests. We would make a
substitution to ensure the underlying Fund continues to be a suitable
investment. A substitution may be triggered by unsatisfactory investment
performance, a change in laws or regulations, a change in a Fund's investment
objectives or restrictions, a change in the availability of the Fund for
investment, or any other reason. Before any substitution, we will obtain any
required approvals, including approval from the SEC or from Contract owners.
WE ARE CURRENTLY SEEKING APPROVAL FROM THE SEC TO SUBSTITUTE SHARES OF
THE TOUCHSTONE HIGH YIELD FUND DESCRIBED IN THE GOLD PROSPECTUS FOR
SHARES OF THE TOUCHSTONE INCOME OPPORTUNITY FUND. AFTER WE RECEIVE THE
APPROVAL FROM THE SEC, WE WILL AUTOMATICALLY REDEEM THE SHARES OF THE
TOUCHSTONE INCOME OPPORTUNITY FUND HELD BY THE TOUCHSTONE INCOME
OPPORTUNITY SUB-ACCOUNT AND USE THE REDEMPTION PROCEEDS TO BUY SHARES
OF THE TOUCHSTONE HIGH YIELD FUND.
Accumulation Unit Values
The Accumulation Unit Values shown in the table below are for an Accumulation
Unit outstanding throughout the periods. An explanation of how Accumulation Unit
Value is calculated is located on page 23 in the Gold Prospectus.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Years Ended Unit Value at Unit Value at Number of Units
Sub-Account December 31 Beginning of Year End of Year at End of Year
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995* 10.000000 12.515143 20,015
1996 12.515143 15.727477 334,062
TOUCHSTONE 1997 15.727477 17.401250 1,296,326
INCOME OPPORTUNITY 1998 17.401250 15.048926 2,018,328
1999 15.048926 15.255314 1,405,602
</TABLE>
- --------------------------------------------------------------------------------
* Sub-Account operations began on February 23, 1995.
<PAGE>
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
SEPARATE ACCOUNT 1
TOUCHSTONE GOLD VARIABLE ANNUITY
FLEXIBLE PURCHASE PAYMENT DEFERRED
VARIABLE ANNUITY CONTRACTS
----------------------------
STATEMENT OF ADDITIONAL INFORMATION
May 1, 2000
----------------------------
This Statement of Additional Information is not a prospectus, but
contains information in addition to that set forth in the current prospectus
dated May 1, 2000 (the "Prospectus") for certain variable annuity contracts
("Contracts") offered by Western-Southern Life Assurance Company ("WSLAC")
through its Separate Account 1 ("SA1"), and should be read in conjunction with
the Prospectus. Unless otherwise noted, the terms used in this Statement of
Additional Information have the same meanings as those set forth in the
Prospectus.
A copy of the Prospectus may be obtained by calling the Touchstone
Variable Annuity Service Center at 800.669.2796 (press 2) or by written request
to WSLAC at P.O. Box 2850, Cincinnati, Ohio 45201-2850.
FORM 7135-0005
<PAGE>
TABLE OF CONTENTS
OF
STATEMENT OF ADDITIONAL INFORMATION
Page
General............................................................3
Safekeeping of Assets..............................................3
Distribution of the Contracts......................................3
Sub-Account Performance............................................4
Sub-Account Accumulation Unit Value................................6
Fixed Account Value................................................7
Fixed Annuity Income Payments......................................7
Qualification as an "Annuity Contract".............................8
Diversification...........................................8
Excessive Control.........................................8
Required Distributions....................................9
Independent Accountants...........................................10
Financial Statements..............................................10
2
<PAGE>
General
Except as otherwise indicated herein, all capitalized terms shall have
the meanings assigned to them in the Prospectus.
WSLAC is subject to regulation by the Ohio Department of Insurance,
which periodically examines its financial condition and operations. WSLAC also
is subject to the insurance laws and regulations of all jurisdictions in which
it offers Contracts. Copies of the Contract have been filed with, and, where
required, approved by insurance regulators in those jurisdictions. WSLAC must
submit annual statements of its operations, including financial statements, to
such state insurance regulators so that they may determine solvency and
compliance with applicable state insurance laws and regulations.
WSLAC and SA1 have filed a Registration Statement regarding the
Contracts with the Securities and Exchange Commission under the Investment
Company Act of 1940 and the Securities Act of 1933. The Prospectus and this
Statement of Additional Information do not contain all of the information in the
Registration Statement.
Safekeeping of Assets
The assets of SA1 are held by WSLAC, separate from WSLAC's general
account assets and any other separate accounts that WSLAC has or will establish.
WSLAC maintains records of all purchases and redemptions of the interests in the
Funds held by the Sub-Accounts. WSLAC maintains fidelity bond coverage for the
acts of its officers and employees.
Distribution of the Contracts
As disclosed in the Prospectus, the Contracts are distributed through
Touchstone Securities, Inc. (the "Distributor"), which is a wholly-owned
subsidiary of IFS Financial Services, Inc. ("IFS"). IFS is a wholly-owned
subsidiary of WSLAC. The Distributor is a member of the National Association of
Securities Dealers, Inc. The offering of the Contracts is continuous, and WSLAC
does not anticipate discontinuing offering the Contracts, although it reserves
the right to do so.
Sales commissions attributable in part to the Touchstone Gold Variable
Annuity Contracts and paid by WSLAC to the Distributor and amounts retained by
the Distributor are shown below for the periods indicated.
<TABLE>
<CAPTION>
Amounts
Period Sales Commissions Paid Retained by Distributor
- ---------------------------------------- -------------------------- ----------------------------
<S> <C> <C>
For the year ended December 31, 1996 $ 1,902,186 $ 305,688
For the year ended December 31, 1997 $ 7,686,342 $ 790,452
For the year ended December 31, 1998 $10,684,643 $1,437,628
For the year ended December 31, 1999 $ 4,963,651 $ 601,693
</TABLE>
3
<PAGE>
Sub-Account Performance
The performance of the Sub-Accounts may be quoted or advertised by
WSLAC in various ways. All performance information supplied by WSLAC in
advertising is based upon historical results of the Sub-Accounts and is not
intended to indicate future performance of either one. Total returns and other
performance information may be quoted numerically or in a table, graph or
similar illustration. The value of an Accumulation Unit and total returns
fluctuate in response to market conditions, interest rates and other factors.
Average annual total returns are calculated by determining the average
annual compounded rates of return over one, five and ten year periods (or since
commencement of operations) that would equate an initial hypothetical investment
to the ending redeemable value according to the following formula:
P (1 + T)n = ERV where:
P = a hypothetical initial purchase payment of $1,000
T = average annual total return
n = number of years and/or portion of a year
ERV = ending redeemable value of a hypothetical initial purchase
payment of $1,000 at the end of the applicable period
4
<PAGE>
<TABLE>
<CAPTION>
The following table sets forth the type of total return data for each
of the Sub-Accounts that will be used in advertising, in each case for the
period ended December 31, 1999.
Total Return
Average Annual Total Total Return For Year Since Inception
Sub-Account Total Return for Year Return Since Inception Measured by Change in Accumulation Unit Value*
- ------------------------- ---------------------- ------------------------ -----------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Growth** 13.37% 13.37% 23.87% 23.87%
AIM V.I. Government Securities** -11.22% -11.22% -0.72% -0.72%
Alger American Small Capitalization** 25.95% 25.95% 36.45% 36.45%
Alger American Growth** 10.00% 10.00% 20.50% 20.50%
MFS VIT Emerging Growth** 53.58% 53.58% 64.08% 64.08%
MFS VIT Growth with Income** -7.52% -7.52% 2.98% 2.98%
PIMCO Long-Term U.S. Government Bond** -14.08% -14.08% -3.58% -3.58%
Touchstone Small Cap Value** 4.35% 4.35% 14.85% 14.85%
Touchstone Emerging Growth*** 34.30% 17.91% 44.80% 149.45%
Touchstone International Equity*** 24.16% 15.08% 34.66% 123.36%
Touchstone High Yield** -18.64% -18.64% -8.14% -8.14%
Touchstone Value Plus**** 2.99% 0.42% 13.49% 14.85%
Touchstone Growth & Income*** -9.38% 9.59% 1.12% 79.58%
Touchstone Enhanced 30** -4.01% -4.01% 6.49% 6.49%
Touchstone Balanced*** -2.34% 9.86% 8.16% 81.49%
Touchstone Bond*** -13.10% 0.93% -2.60% 26.23%
Touchstone Standby Income*** -7.04% -0.25% 3.46% 20.24%
Touchstone Income Opportunity** -9.13% 5.56% 1.37% 52.55%
</TABLE>
* Calculated by determining the change in the Accumulation Unit Value from
the beginning of the period to the end of the period and dividing such
amount by the Accumulation Unit Value at the end of the period.
** Average annual total return since inception based on a period beginning
May 17, 1999.
*** Average annual total return since inception based on a period beginning
February 28, 1995.
**** Average annual total return since inception based on a period beginning
May 1, 1998.
While average annual total returns are a convenient means of comparing
investment alternatives, investors should realize that any Sub-Account's
performance is not constant over time, but changes from year to year, and that
average annual total returns represent averaged figures as opposed to the actual
year-to-year performance of any Sub-Account.
Average annual total return is calculated as required by applicable
regulations. In addition to average annual total returns, a Sub-Account may
quote cumulative total returns reflecting the simple change in value of any
investment over a stated period. Average annual and cumulative total returns may
be quoted as a percentage or as a dollar amount.
"Total return" or "average annual total return" quoted in advertising
reflects all aspects of a Sub-Account's return, including the effect of
reinvestment by the Sub-Account
5
<PAGE>
of income and capital gain distributions and any change in the Sub-Account's
value over the applicable period. Such quotations reflect administrative charges
and risk charges. Since the Contract is intended as a long-term investment,
total return calculations will assume that no partial withdrawals from the
hypothetical Contract occurred during the applicable period, but that a
Surrender Charge would be incurred upon the hypothetical withdrawal at the end
of the applicable period.
Any total return quotation provided for a Sub-Account should not be
considered as representative of the performance of the Sub-Account in the
future, since the net asset value will vary based not only on the type, quality
6
<PAGE>
and maturities of the securities held in the underlying fund in which the
Sub-Account invests, but also on changes in the current value of such securities
and on changes in the expenses of the Sub-Account and the underlying fund. These
factors and possible differences in the methods used to calculate total return
should be considered when comparing the total return of a Sub-Account to total
returns published for other investment companies or other investment vehicles.
WSLAC may advertise examples of the effects of dollar cost averaging,
whereby a Contract owner periodically invests a fixed dollar amount in a
Sub-Account, thereby purchasing fewer Accumulation Units when prices are high
and more Accumulation Units when prices are low. While such a strategy does not
assure a profit nor guard against a loss in a declining market, the Contract
owner's average cost per Accumulation Unit can be lower than if fixed numbers of
Accumulation Units had been purchased at the same intervals or if the same total
amount of money were put into the Contract all at one point in time. In
evaluating dollar cost averaging, owners should consider their ability to
continue purchasing Accumulation Units during periods of low price levels.
Performance information for any Sub-Account may be compared, in reports
to Contract owners and in advertising, to stock indices, other variable annuity
separate accounts or other products tracked by Lipper Analytical Services, or
other widely used independent research firms, which rank variable annuities and
investment companies by overall performance, investment objectives and assets.
Unmanaged indices may assume the reinvestment of dividends but generally do not
reflect deductions for annuity charges and investment management costs.
Sub-Accounts Accumulation Unit Value
In this discussion, the term Valuation Period means the period of time
beginning at the close of trading on the New York Stock Exchange (NYSE) on one
Valuation Date, as defined below, and ending at the close of trading on the NYSE
on the next succeeding Valuation Date. A Valuation Date is each day valuation of
the Sub-Accounts is required by law including every day that the NYSE is open.
The value of an Accumulation Unit at the close of any Valuation Period
is determined for each Sub-Account by multiplying the Accumulation Unit Value of
the Sub-Account at the close of the immediately preceding Valuation Period by
the "Net Investment Factor" (described below). Depending upon investment
performance of the underlying fund in which the Sub-Account is invested, the
Accumulation Unit Value may increase or decrease.
The Net Investment Factor for each Sub-Account for any Valuation Period
is determined by dividing (a) by (b) and subtracting (c) from the result, where:
(a) equals: (1) the net asset value per share of the underlying
fund at the end of the current Valuation Period, plus
(2) the per share amount of any dividend or capital
gain distribution made by the underlying fund on
shares held in the Sub-Account if the "ex-dividend"
date occurs during the current Valuation Period, plus
or minus
(3) a per share charge or credit for any taxes
reserved, which are determined by WSLAC to have
resulted from the investment operations of the
Sub-Account during the current Valuation Period;
(b) is the net asset value per share of the corresponding underlying
fund determined at the end of the immediately preceding Valuation
Period; and
7
<PAGE>
(c) is a factor representing the charges deducted from the Sub-Account
on a daily basis for the daily portion of the annual Mortality and
Expense Risk Charge and the annual Contract Administration Charge.
Fixed Account Value
Fixed Account Value is calculated on a daily basis by the following
formula:
PP + XFT + I - XFF - WD = FAV where
PP = the sum of all purchase payments allocated to the Fixed
Account
XFT = any amount transferred to the Fixed Account from a Sub-Account
I = interest credited by WSLAC to the Fixed Account
XFF = any amounts transferred from the Fixed Account to a Sub-Account
WD =any amounts withdrawn for charges or deductions, or in
connection with any surrenders or partial withdrawals
Fixed Annuity Income Payments
The Contracts provide only for fixed annuity payment options. The
amount of such payments is calculated by applying the Surrender Value at
annuitization, less any applicable premium tax, to the income payment rates for
the income payment option selected. Annuity payments will be the larger of:
o the income based on the rates shown in the Contract's Annuity Tables for
the income payment option chosen; and
o the income calculated by applying the proceeds as a single premium at
WSLAC's current rates in effect on the date of the first annuity
payment for the same option.
Annuity payments under any of the income payment options will not vary
in dollar amount and will not be affected by the future investment performance
of the Variable Account.
Qualification as an "Annuity Contract"
For the Contract to be treated as an "annuity contract" under the Code,
the Contract must meet certain requirements under the Code. The following
sections discuss various matters that might affect the Contract's status as an
"annuity contract".
Diversification
Section 817(h) of the Code imposes certain diversification standards on
the underlying assets of all variable annuity contracts. The Code generally
provides that a variable contract will not be treated as an annuity contract for
any period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the United States Treasury Department,
adequately diversified. The Code contains a safe harbor provision which provides
that variable contracts such as the Contracts meet the diversification
8
<PAGE>
requirements if, as of the end of each quarter, (1) the underlying assets meet
the diversification standards prescribed elsewhere in the Code for an entity to
be classified as a regulated investment company and (2) no more than 55% of the
total assets consist of cash, cash items, U.S. government securities and
securities of other regulated investment companies.
In March 1989, the Treasury Department issued regulations that
established diversification requirements for the investment portfolios such as
the Funds underlying variable contracts. The regulations amplify the
diversification requirements for variable contracts set forth in the Code and
provide an alternative to the safe harbor provision described in Section 817(h)
of the Code. Under the Regulations, an investment portfolio will be deemed
adequately diversified if: (1) no more than 55% of the value of the total assets
of the investment portfolio is represented by any one investment; (2) no more
than 70% of the value of the total assets of the investment portfolio is
represented by any two investments; (3) no more than 80% of the value of the
total assets of the investment portfolio is represented by any three
investments; and (4) no more than 90% of the value of the total assets of the
investment portfolio is represented by any four investments.
The Sub-Accounts, through each of the Funds, intends to comply with the
diversification requirements of the Code and the regulations. The Advisor has
agreed to manage the Funds so as to comply with such requirements.
Excessive Control
The Treasury Department has from time to time suggested that guidelines
may be forthcoming under which a variable annuity contract will not be treated
as an annuity contract for tax purposes if the owner of the contract has
excessive control over the investments underlying the contract (i.e., the owner
is able to transfer values among Sub-Accounts with only limited restrictions).
If a variable contract is not treated as an annuity contract, the owner of such
contract would be considered the owner of the assets of a separate account, and
income and gains from that account would be included each year in the owner's
gross income. No such guidelines have been issued to date.
The issuance of such guidelines, or regulations or rulings dealing with
excessive control issues, might require the Company to impose limitations on an
owner's right to transfer all or part of the Contract Value among the
Sub-Accounts and the Fixed Account or to make other changes in the Contract as
necessary to attempt to prevent an owner from being considered the owner of any
assets of a Sub-Account. The Company therefore reserves the right to make such
changes. It is not known whether any such guidelines, regulations or rulings, if
adopted, would have retroactive effect.
Required Distributions
Additionally, in order to qualify as an annuity contract under the
Code, a Non-Qualified Contract must meet certain requirements regarding
distributions in the event of the death of the owner. In general, if the owner
dies before the entire value of the Contract is distributed, the remaining value
of the Contract must be distributed according to provisions of the Code. Upon
9
<PAGE>
the death of an owner prior to commencement of annuity payments, (1) the amounts
accumulated under a Contract must be distributed within five years, or (2) if
distributions to a designated beneficiary within the meaning of Section 72 of
the Code begin within one year of the owner's death, distributions are permitted
over a period not extending beyond the life (or life expectancy) of the
designated beneficiary.
The above rules are modified if the designated beneficiary is the
surviving spouse. The surviving spouse is not required to take distributions
from the Contract under the above rules as a beneficiary and may continue the
Contract and take distributions under the above rules as if the surviving spouse
were the original owner. If distributions have begun prior to the death of the
owner, such distributions must continue at least as rapidly as under the method
in effect at the date of the owner's death (unless the method in effect provides
that payments cease at the death of the owner).
For Qualified Contracts issued in connection with tax-qualified plans
and traditional individual retirement annuities, the plan documents and rules
will determine mandatory distribution rules. However, under the Code,
distributions from Contracts issued under Qualified Plans (other than
traditional and Roth individual retirement annuities and certain governmental or
church-sponsored Qualified Plans) for employees who are not 5% owners of the
sponsoring employer generally must commence no later than April 1 of the
calendar year following the calendar year in which the employee terminates
employment or the calendar year in which he or she reaches age 70 1/2, whichever
is later. Such distributions must be made over a period that does not exceed the
life expectancy of the employee or the joint life and last survivor expectancy
of the employee and a designated beneficiary. Distributions from Contracts
issued under traditional individual retirement annuities (but not Roth IRAs) or
to 5% owners of the sponsoring employer from Contracts issued under Qualified
Plans (other than certain governmental or church-sponsored Qualified Plans) must
commence by April 1 of the calendar year after the calendar year in which the
individuals reach age 70 1/2 even if they have not terminated employment. A
penalty tax of 50% may be imposed on any amount by which the required minimum
distribution in any year exceeds the amount actually distributed.
If the Contract is a Qualified Contract issued in connection with a
traditional individual retirement annuity, a SIMPLE account, or a plan which
qualifies under Sections 403(b), 408 or 457 of the Code, the Company will send a
notice to the owner when the owner or Annuitant, as applicable, reaches age 70
1/2. The notice will summarize the required minimum distribution rules and
advise the owner of the date that such distributions must begin from the
Qualified Contract or other traditional individual retirement annuities of the
owner. The owner has sole responsibility for requesting distributions under the
Qualified Contract or other traditional individual retirement annuities (to the
extent permitted by the Code) that will satisfy the minimum distribution rules.
In the case of a distribution from a Qualified Contract issued under a plan
which qualifies under Section 401 of the Code, the Company will not send a
notice when the owner or Annuitant, as applicable, reaches age 70 1/2, and the
owner (or the employer sponsoring the Qualified Plan) has sole responsibility
for requesting distributions under the Qualified Contract that will satisfy the
minimum distribution rules.
10
<PAGE>
Independent Accountants
Ernst & Young LLP, independent auditors, have audited the financial
statements of Western-Southern Life Assurance Company Separate Account 1 and
Western-Southern Life Assurance Company at December 31, 1999 and for the period
then ended, as set forth in their reports. We have included our financial
statements in the statement of additional information and elsewhere in the
registration statement in reliance on Ernst & Young LLP's reports, given on
their authority as experts in accounting and auditing.
The financial statement for the year ended December 31, 1998 for
Western-Southern Life Assurance Company Separate Account 1 and the financial
statements as of December 31, 1998 and for the year then ended for
Western-Southern Life Assurance Company included in this Registration Statement
have been so included in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
Financial Statements
The following financial statements for Western-Southern Life Assurance
Company Separate Account 1 at and for the fiscal periods indicated are attached
hereto:
1. Report of Ernst & Young LLP.
2. Report of PricewaterhouseCoopers LLP.
3. Statement of Net Assets as of December 31, 1999.
4. Statement of Operations and Changes in Net Assets for the periods
ended December 31, 1999 and 1998.
5. Notes to Financial Statements.
6. Supplementary Information - Selected Per Unit Data and Ratios for the
period ended December 31, 1999.
The following statutory-basis financial statements for Western-Southern
Life Assurance Company at and for the fiscal periods indicated are attached
hereto:
1. Report of Ernst & Young LLP.
2. Report of PricewaterhouseCoopers LLP.
3. Statutory-basis Balance Sheets as of December 31, 1999 and 1998.
4. Statutory-basis Statements of Income for the years ended
December 31, 1999 and 1998.
5. Statutory-basis Statements of Changes in Capital and Surplus for the
years ended December 31, 1999 and 1998.
6. Statutory-basis Statements of Cash Flows for the years ended
December 31, 1999 and 1998.
7. Notes to statutory-basis Financial Statements.
8. Supplemental Schedule of Selected Statutory-Basis Financial Data for
the year ended December 31, 1999.
11
<PAGE>
Financial Statements
Western-Southern Life Assurance Company Separate Account 1
Period ended December 31, 1999
with Report of Independent Auditors
<PAGE>
Western-Southern Life Assurance Company
Separate Account 1
Financial Statements
Period ended December 31, 1999
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Ernst & Young LLP.................................................................................1
Report of PricewaterhouseCoopers LLP........................................................................2
Audited Financial Statements
Statement of Net Assets.....................................................................................3
Statement of Operations and Changes in Net Assets for the Period ended December 31, 1999....................4
Statement of Operations and Changes in Net Assets for the Period ended December 31, 1998....................6
Notes to Financial Statements...............................................................................7
Supplementary Information-Selected Per Unit Data and Ratios................................................14
</TABLE>
<PAGE>
Report of Independent Auditors
Contractholders of Western-Southern Life Assurance Company Separate Account 1
and
Board of Directors of Western-Southern Life Assurance Company
We have audited the accompanying statement of net assets of Western-Southern
Life Assurance Company Separate Account 1 (comprising, respectively, the AIM
V.I. Growth Fund, AIM V.I. Government Securities Fund, Alger American Small
Capitalization Portfolio, Alger American Growth Portfolio, MFS Emerging Growth
Series, MFS Growth with Income Series, PIMCO Long-Term U.S. Government Bond
Portfolio, Touchstone Small Cap Value Fund, Touchstone Emerging Growth Fund,
Touchstone International Equity Fund, Touchstone Income Opportunity Fund,
Touchstone High Yield Bond Fund, Touchstone Value Plus Fund, Touchstone Growth &
Income Fund, Touchstone Enhanced 30 Fund, Touchstone Balanced Fund, Touchstone
Bond Fund, and Touchstone Standby Income Fund) as of December 31, 1999, and the
related statement of operations and changes in net assets and selected per unit
data and ratios for the period indicated therein. These financial statements and
per unit data and ratios are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
selected per unit data and ratios based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and per
unit data and ratios are free from material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1999, by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and selected per unit data and ratios
referred to above present fairly, in all material respects, the financial
position of each of the respective sub-accounts constituting the
Western-Southern Life Assurance Company Separate Account 1 at December 31, 1999,
and the results of their operations and changes in their net assets and the
selected per unit data and ratios for each of the periods indicated therein, in
conformity with accounting principles generally accepted in the United States.
/s/Ernst & Young LLP
Cincinnati, Ohio
April 18, 2000
<PAGE>
Report of Independent Accountants
To the Contractholders and Board of Directors of
Western-Southern Life Assurance Company
In our opinion, the accompanying statement of operations and changes in net
assets presents fairly, in all material respects, the results of operations and
changes in net assets of Western-Southern Life Assurance Company Separate
Account 1 for the year ended December 31, 1998 in conformity with accounting
principles generally accepted in the United States. This financial statement is
the responsibility of the Company's management; our responsibility is to express
an opinion on this financial statement based on our audit. We conducted our
audit of this statement in accordance with auditing standards generally accepted
in the United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above. We have not
audited the financial statements of Western-Southern Life Assurance Company
Separate Account 1 for any period subsequent to December 31, 1998.
/s/PricewaterhouseCoopers LLP
January 22, 1999
Cincinnati, Ohio
<PAGE>
Western-Southern Life Assurance Company Separate Account 1
Statement of Net Assets
December 31, 1999
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investments at current market value:
AIM Variable Insurance Funds, Inc.
AIM V.I. Growth Fund (502,191 shares, cost $14,101,719) $16,195,659
AIM V.I. Government Securities Fund (66,069 shares, cost $724,292) 702,313
The Alger American Fund
Alger American Small Capitalization Portfolio (43,280 shares, cost $1,942,326) 2,386,916
Alger American Growth Portfolio (292,695 shares, cost $15,999,155) 18,843,709
MFS Variable Insurance Trust
MFS Emerging Growth Series (215,553 shares, cost $5,655,583) 8,178,084
MFS Growth with Income Series (431,964 shares, cost $8,852,489) 9,205,150
PIMCO Variable Insurance Trust
PIMCO Long-Term U.S. Government Bond Portfolio (270,976 shares, cost $2,582,970) 2,498,403
Touchstone Variable Series Trust
Touchstone Small Cap Value Fund (22,223 shares, cost $233,576) 262,013
Touchstone Emerging Growth Fund (1,627,394 shares, cost $26,221,259) 31,294,777
Touchstone International Equity Fund (1,709,394 shares, cost $23,679,052) 29,982,763
Touchstone Income Opportunity Fund (2,907,832 shares, cost $28,586,715) 22,390,305
Touchstone High Yield Bond Fund (130,629 shares, cost $1,245,130) 1,124,715
Touchstone Value Plus Fund (559,024 shares, cost $5,995,306) 6,272,254
Touchstone Growth & Income Fund (4,116,275 shares, cost $43,157,283) 44,085,307
Touchstone Enhanced 30 Fund (276,104 shares, cost $2,743,121) 2,912,897
Touchstone Balanced Fund (2,358,389 shares, cost $33,830,884) 32,545,772
Touchstone Bond Fund (2,051,672 shares cost $20,854,198) 20,475,686
Touchstone Standby Income Fund (2,296,148 shares, cost $22,901,249) 22,777,787
---------------
Total assets 272,134,510
LIABILITIES
Accounts payable 960
---------------
Total net assets $272,133,550
===============
Net Assets
Variable annuity contracts $272,130,732
Retained in the variable account by Western-Southern Life Assurance Company 2,818
---------------
Total net assets $272,133,550
===============
</TABLE>
See accompanying notes
<PAGE>
<TABLE>
<CAPTION>
Western-Southern Life Assurance Company Separate Account 1
Statement of Operations and Changes in Net Assets
Period Ended December 31, 1999
Alger
AIM V.I. American
AIM V.I. Government Small Alger
Growth Securities Capitalization American
Total Sub-Account* Sub-Account* Sub-Account* Sub-Account*
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income:
Dividends and capital gains $ 15,651,106 $ 545,103 $ 25,152 $ - $ -
Miscellaneous income (loss) 66,598 (479) 648 6,148 16,496
Expenses:
Mortality and expense risk,
and administrative charge 3,274,568 70,929 4,569 8,034 93,476
-----------------------------------------------------------------------------
Net investment income (loss) 12,443,136 473,695 21,231 (1,886) (76,980)
Net change in unrealized appreciation
(depreciation) on investments 18,944,602 2,093,939 (21,979) 444,591 2,844,554
Realized gain (loss) on investments 877,188 18,950 1,987 23,881 73,047
-----------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 19,821,790 2,112,889 (19,992) 468,472 2,917,601
-----------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from operations 32,264,926 2,586,584 1,239 466,586 2,840,621
-----------------------------------------------------------------------------
Contract owners activity:
Payments received from contract owners 38,034,180 1,193,467 184,753 302,317 1,279,276
-----------------------------------------------------------------------------
Net transfers between subaccounts
and/or fixed account 14,754,302 13,091,897 545,688 1,639,137 15,867,691
Withdrawals and surrenders (35,539,462) (673,978) (29,267) (20,849) (1,140,229)
Contract maintenance charge (164,087) (2,412) (106) (251) (3,673)
-----------------------------------------------------------------------------
Net increase from contract activity 17,084,933 13,608,974 701,068 1,920,354 16,003,065
-----------------------------------------------------------------------------
Net increase in net assets 49,349,859 16,195,558 702,307 2,386,940 18,843,686
-----------------------------------------------------------------------------
Net assets, at beginning of period 222,783,691 - - - -
-----------------------------------------------------------------------------
Net assets, at end of period $ 272,133,550 $ 16,195,558 $ 702,307 $2,386,940 $18,843,686
=============================================================================
MFS VIT MFS VIT PIMCO Long-term Touchstone
Emerging Growth with U.S. Government Small Cap
Growth Income Bond Value
Sub-Account* Sub-Account* Sub-Account* Sub-Account*
------------------------------------------------------------
<S> <C> <C> <C> <C>
Income:
Dividends and capital gains $ - $ - $ 54,475 $ -
Miscellaneous income (loss) 23,292 2,071 (45) (669)
Expenses:
Mortality and expense risk,
and administrative charge 26,405 46,298 12,886 1,068
------------------------------------------------------------
Net investment income (loss) (3,113) (44,227) 41,544 (1,737)
Net change in unrealized appreciation
(depreciation) on investments 2,522,501 352,661 (84,568) 28,437
Realized gain (loss) on investments 77,751 (10,940) (14,078) 147
------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 2,600,252 341,721 (98,646) 28,584
------------------------------------------------------------
Net increase (decrease) in
net assets resulting from operations 2,597,139 297,494 (57,102) 26,847
------------------------------------------------------------
Contract owners activity:
Payments received from contract owners 878,014 1,154,252 412,680 30,233
------------------------------------------------------------
Net transfers between subaccounts
and/or fixed account 4,970,017 8,310,446 2,199,940 207,049
Withdrawals and surrenders (266,368) (555,130) (57,540) (2,076)
Contract maintenance charge (731) (1,840) (294) (41)
------------------------------------------------------------
Net increase from contract activity 5,580,932 8,907,728 2,554,786 235,165
------------------------------------------------------------
Net increase in net assets 8,178,071 9,205,222 2,497,684 262,012
------------------------------------------------------------
Net assets, at beginning of period - - - -
------------------------------------------------------------
Net assets, at end of period $ 8,178,071 $9,205,222 $2,497,684 $ 262,012
============================================================
</TABLE>
See accompanying notes.
*For the period May 17, 1999 (commencement of operations) to December 31, 1999.
4
<PAGE>
Western-Southern Life Assurance Company Separate Account 1
Statement of Operations and Changes in Net Assets (continued)
Period Ended December 31, 1999
<TABLE>
<CAPTION>
Touchstone Touchstone Touchstone
Emerging International Income Touchstone Touchstone
Growth Equity Opportunity High Yield Value Plus
Sub-Account Sub-Account Sub-Account Sub-Account* Sub-Account
Income:
<S> <C> <C> <C> <C> <C>
Dividends and capital gains $ 4,461,162 $ 2,333,180 $ 3,289,948 $ 67,309 $ 260,091
Miscellaneous income (loss) 7,874 7,314 4,059 (525) 4,805
Expenses:
Mortality and expense risk,
and administrative charge 363,409 352,581 372,731 6,598 85,334
Net investment income (loss) 4,105,627 1,987,913 2,921,276 60,186 179,562
Net change in unrealized
appreciation (depreciation)
on investments 4,381,161 4,459,056 1,893,908 (120,415) 57,543
Realized gain (loss) on
investments 1,951,255 1,527,227 (4,546,198) (4,884) 502,737
Net realized and unrealized gain
(loss) on investments 6,332,416 5,986,283 (2,652,290) (125,299) 560,280
Net increase (decrease) in net
assets resulting from operations 10,438,043 7,974,196 268,986 (65,113) 739,842
Contract owners activity:
Payments received from
contract owners 2,863,523 3,096,907 3,648,734 95,244 2,136,366
Net transfers between
subaccounts and/or fixed
account (5,377,672) (3,304,612) (9,271,705) 1,117,907 1,947,871
Withdrawals and surrenders (3,983,109) (3,703,777) (3,660,134) (23,217) (951,317)
Contract maintenance charge (21,868) (18,744) (20,259) (126) (3,664)
Net increase (decrease) from
contract activity (6,519,126) (3,930,226) (9,303,364) 1,189,808 3,129,256
Net increase (decrease) in net
assets 3,918,917 4,043,970 (9,034,378) 1,124,695 3,869,098
Net assets, at beginning of period 27,375,814 25,938,804 31,424,661 - 2,403,142
Net assets, at end of period $ 31,294,731 $ 29,982,774 $ 22,390,283 $ 1,124,695 $ 6,272,240
</TABLE>
See accompanying notes.
* For the period May 17, 1999 (commencement of operations) to December 31,
1999.
5
<PAGE>
<TABLE>
<CAPTION>
Touchstone Touchstone
Growth and Touchstone Touchstone Touchstone Standby
Income Enhanced 30 Balanced Bond Income
Sub-Account Sub-Account* Sub-Account Sub-Account Sub-Account
Income:
<S> <C> <C> <C> <C> <C>
Dividends and capital gains $ - $ 13,371 $ 3,167,267 $ 218,816 $ 1,215,232
Miscellaneous income (loss) (3,636) 2,402 (1,209) (818) (1,130)
Expenses:
Mortality and expense risk,
and administrative charge 715,777 12,636 490,941 321,625 289,271
Net investment income (loss) (719,413) 3,137 2,675,117 (103,627) 924,831
Net change in unrealized
appreciation (depreciation)
on investments 928,024 169,776 (493,395) (378,512) (132,680)
Realized gain (loss) on
investments 849,333 3,085 653,179 (169,740) (59,551)
Net realized and unrealized gain
(loss) on investments 1,777,357 172,861 159,784 (548,252) (192,231)
Net increase (decrease) in net
assets resulting from operations 1,057,944 175,998 2,834,901 (651,879) 732,600
Contract owners activity:
Payments received from
contract owners 6,681,395 259,554 5,475,943 4,245,407 4,096,115
Net transfers between
subaccounts and/or fixed
account (10,774,601) 2,535,592 (7,904,729) (4,188,048) 3,142,434
Withdrawals and surrenders (7,303,961) (57,867) (5,217,610) (2,975,467) (4,917,566)
Contract maintenance charge (40,989) (462) (24,554) (14,028) (10,045)
Net increase (decrease) from
contract activity (11,438,156) 2,736,817 (7,670,950) (2,932,136) 2,310,938
Net increase (decrease) in net
assets (10,380,212) 2,912,815 (4,836,049) (3,584,015) 3,043,538
Net assets, at beginning of period 54,465,458 - 37,381,794 24,059,710 19,734,308
Net assets, at end of period $ 44,085,246 $ 2,912,815 $ 32,545,745 $ 20,475,695 $ 22,777,846
</TABLE>
See accompanying notes.
* For the period May 17, 1999 (commencement of operations) to December 31,
1999.
<PAGE>
Western-Southern Life Assurance Company Separate Account 1
Statement of Operations and Changes in Net Assets
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Touchstone Touchstone Touchstone
Emerging International Income
Growth Equity Opportunity
Total Sub-Account Sub-Account Sub-Account
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Income:
Dividends and capital gains $ 7,790,557 $ 949,247 $ 855,477 $ 3,182,093
Miscellaneous income (loss) 38,997 (2,563) 12,273 10,204
Expenses:
Mortality and expense risk, and administrative charge 2,427,007 293,715 282,611 397,116
--------------------------------------------------------------
Net investment income (loss) 5,402,547 652,969 585,139 2,795,181
Net change in unrealized appreciation (depreciation) on investments (3,978,283) (776,947) 1,667,350 (7,057,484)
Realized gain (loss) on investments 342,534 431,014 410,552 (659,377)
--------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (3,635,749) (345,933) 2,077,902 (7,716,861)
--------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 1,766,798 307,036 2,663,041 (4,921,680)
--------------------------------------------------------------
Contract owners activity:
Payments received from contract owners 115,835,531 12,397,017 11,156,959 18,716,854
Net transfers between subaccounts and/or fixed account 1,426,873 1,374,341 871,994 (2,260,691)
Withdrawals and surrenders (16,702,244) (2,261,213) (1,887,141) (2,651,298)
Contract maintenance charge (91,368) (12,823) (11,413) (16,220)
--------------------------------------------------------------
Net increase from contract activity 100,468,792 11,497,322 10,130,399 13,788,645
--------------------------------------------------------------
Net increase in net assets 102,235,590 11,804,358 12,793,440 8,866,965
--------------------------------------------------------------
Net assets, at beginning of period 120,548,101 15,571,456 13,145,364 22,557,696
--------------------------------------------------------------
Net assets, at end of period $222,783,691 $27,375,814 $ 25,938,804 $31,424,661
==============================================================
See accompanying notes.
Touchstone Touchstone
Touchstone Growth and Touchstone Touchstone Standby
Value Plus Income Balanced Bond Income
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income:
Dividends and capital gains $ 6,117 $ - $ 1,889,245 $ - $ 908,378
Miscellaneous income (loss) 1,075 (2,166) 10,320 746 9,108
Expenses:
Mortality and expense risk, and administrative charge 10,259 582,000 400,076 237,929 223,301
------------------------------------------------------------------
Net investment income (loss) (3,067) (584,166) 1,499,489 (237,183) 694,185
Net change in unrealized appreciation (depreciation)
on investments 219,404 1,880,378 (1,248,671) 1,318,608 19,079
Realized gain (loss) on investments (216,120) - 377,228 - (763)
------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 3,284 1,880,378 (871,443) 1,318,608 18,316
------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 217 1,296,212 628,046 1,081,425 712,501
------------------------------------------------------------------
Contract owners activity:
Payments received from contract owners 900,471 27,198,189 19,309,239 11,285,726 14,871,076
Net transfers between subaccounts and/or fixed account 1,574,297 2,696,317 1,500,884 1,592,079 (5,922,348)
Withdrawals and surrenders (71,597) (4,484,468) (2,649,241) (1,258,041) (1,439,245)
Contract maintenance charge (246) (24,273) (14,359) (7,358) (4,676)
------------------------------------------------------------------
Net increase from contract activity 2,402,925 25,385,765 18,146,523 11,612,406 7,504,807
------------------------------------------------------------------
Net increase in net assets 2,403,142 26,681,977 18,774,569 12,693,831 8,217,308
------------------------------------------------------------------
Net assets, at beginning of period - 27,783,481 18,607,225 11,365,879 11,517,000
------------------------------------------------------------------
Net assets, at end of period $2,403,142 $54,465,458 $ 37,381,794 $ 24,059,710 $19,734,308
===================================================================
See accompanying notes.
</TABLE>
6
<PAGE>
Western-Southern Life Assurance Company Separate Account 1
Notes to Financial Statements
December 31, 1999
1. ORGANIZATION AND NATURE OF BUSINESS
Western-Southern Life Assurance Company Separate Account 1 (the "Account") is a
unit investment trust registered under the Investment Company Act of 1940 (the
"1940 Act"), established by the Western-Southern Life Assurance Company (the
"Company"), a life insurance company which is a wholly owned subsidiary of The
Western and Southern Life Insurance Company. The Account is a funding vehicle
for individual variable annuity contracts, and commenced operations on February
23, 1995 with the issuance of the first Touchstone Variable Annuity contract,
now called the Touchstone Gold Variable Annuity. The first Touchstone Select
Variable Annuity contract was issued on March 2, 1998.
The variable annuity contracts are designed for individual investors and group
plans that desire to accumulate capital on a tax-deferred basis for retirement
or other long-term objectives. The variable annuity contracts are distributed
across the United States through a network of broker-dealers and wholesalers.
2. SIGNIFICANT ACCOUNTING POLICIES
The Account has eighteen investment sub-accounts, each of which invests in the
corresponding portfolio (a "Portfolio") of AIM Variable Insurance Funds, Inc.,
The Alger American Fund, MFS Variable Insurance Trust, PIMCO Variable Insurance
Trust or Touchstone Variable Series Trust, each of which is an open-ended
diversified management investment company. Each sub-account's value fluctuates
on a day to day basis depending on the investment performance of the Portfolio
in which the sub-account is invested. A contractholder may also allocate funds
to the Fixed Account, which is part of the general account of the Company. Due
to exemptive and exclusionary provisions, interests in the Fixed Account have
not been registered under the Securities Act of 1933 (the "1933 Act") and the
Company's general account has not been registered as an investment company under
the 1940 Act. Sub-account transactions are recorded on the trade date and income
from dividends is recorded on the ex-dividend date. Realized gains and losses on
the sales of investments are computed on the basis of specific identification.
Upon annuitization, the contract assets are transferred to the general account
of the Company. Accordingly, contract reserves are recorded by the Company. See
the related prospectus for a more detailed understanding of the annuity
contracts.
3. CONTRACT CHARGES
Certain deductions for administrative and risk charges are deducted pro rata
from the Accumulation Unit Values of each Sub-Account in order to compensate the
Company for administrative expenses and for the assumption of mortality and
expense risks. These charges are made daily at an annual effective rate of 1.35%
for the Touchstone Gold Variable Annuity. For the Touchstone Select Variable
Annuity, the effective rates are 1.35% for the Standard Death Benefit, (Option
1), 1.45% for the Annual Step Up Death Benefit, (Option 2) and 1.55% for the
Accumulating Death Benefit (Option 3).
7
<PAGE>
Western-Southern Life Assurance Company Separate Account 1
Notes to Financial Statements
3. CONTRACT CHARGES (continued)
The Company also deducts an annual contract maintenance charge from the contract
value on each contract anniversary and upon any full surrender. For the
Touchstone Gold Variable Annuity, the contract maintenance charge is $35 for the
first ten contract years and the lesser of (a) $35 and (b) 0.17% of the contract
value after the tenth contract anniversary. For the Touchstone Select Variable
Annuity, the contract maintenance charge is $40 for the first ten contract
years, and if the contract value is less than $50,000 after the tenth Contract
Anniversary, the charge is the lesser of (a) $40 or (b) 0.14% of the Contract
Value.
Since no deduction for a sales charge is made from the payments received from
contract owners, a surrender charge is imposed on certain surrenders and partial
withdrawals to cover expenses relating to promotion, sale and distribution of
the contracts. The surrender charge is assessed on each redemption, except for
certain amounts excluded from charges under the contract. For the Touchstone
Gold Variable Annuity, this charge ranges from 7% to 0% depending on the number
of years since the payment was received. For the Touchstone Select Variable
Annuity, this charge ranges from 8% to 0%, depending on the number of years
since the payment was received.
4. USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
5. TAXES
The Account is not taxed separately because the operations of the Account are
part of the total operations of the Company. The Company is taxed as a life
insurance company under the Internal Revenue Code. Under existing federal income
tax law, no taxes are payable on the investment income or on the capital gains
of the Account.
8
<PAGE>
Western-Southern Life Assurance Company Separate Account 1
Notes to Financial Statements
6. PURCHASES AND SALES OF INVESTMENTS
The following table shows aggregate cost of shares of the portfolios purchased
and proceeds from shares of the portfolios sold by the corresponding
sub-accounts for the period ended December 31, 1999.
AIM Variable Insurance Funds, Inc.
AIM V.I. Growth Fund* $ 14,926,913 $ 844,143
AIM V.I. Government Securities Fund* 1,021,460 299,155
The Alger American Fund
Alger American Small Capitalization Portfolio* 2,113,416 194,971
Alger American Growth Portfolio* 17,659,064 1,732,956
The MFS Variable Insurance Trust
MFS VIT Emerging Growth Series* 6,118,643 540,811
MFS VIT Growth with Income Series* 9,576,475 713,046
PIMCO Variable Insurance Trust
PIMCO Long-Term U.S. Government Bond Portfolio* 3,103,540 506,491
Touchstone Variable Series Trust
Touchstone Small Cap Value Fund* 252,745 19,317
Touchstone Emerging Growth Fund 7,457,259 9,870,703
Touchstone International Equity Fund 5,236,242 7,178,620
Touchstone Income Opportunity Fund 6,472,324 12,854,427
Touchstone High Yield Bond Fund* 1,328,724 78,711
Touchstone Value Plus Fund 7,532,599 4,223,770
Touchstone Growth & Income Fund 60,429,441 72,586,938
Touchstone Enhanced 30 Fund* 3,035,563 295,526
Touchstone Balanced Fund 7,672,101 12,667,947
Touchstone Bond Fund 29,234,695 32,270,444
Touchstone Standby Income Fund 14,356,585 11,117,871
Total $ 197,527,788 $ 167,995,847
* For the period May 17, 1999 (commencement of operations) to December 31,
1999.
9
<PAGE>
Western-Southern Life Assurance Company Separate Account 1
Notes to Financial Statements
7. UNIT VALUES
The following table shows a summary of units outstanding for variable annuity
contracts for the period January 1, 1999 to December 31, 1999. Eighteen unit
values are calculated for the Touchstone Gold Variable Annuity. Eighteen unit
values are calculated for each of the death benefit options in the Touchstone
Select Variable Annuity.
<TABLE>
<CAPTION>
Touchstone Gold Variable Annuity
Transfers between
Beginning Units Units Purchased Units Redeemed Sub-accounts
<S> <C> <C> <C> <C>
AIM V.I. Growth* - 111,599 (61,242) 1,149,759
AIM V.I. Government Securities* - 8,516 (2,829) 45,716
Alger American Small Capitalization* - 27,301 (1,890) 125,163
Alger American Growth * - 121,236 (106,185) 1,411,281
MFS VIT Emerging Growth * - 78,202 (20,756) 367,416
MFS VIT Growth with Income * - 116,307 (55,167) 781,395
PIMCO Long-Term U.S. Government Bond* - 31,683 (5,519) 208,341
Touchstone Small Cap Value* - 3,002 (175) 16,287
Touchstone Emerging Growth 1,527,712 130,121 (215,295) (247,970)
Touchstone International Equity 1,501,239 155,612 (215,225) (168,209)
Touchstone Income Opportunity 2,018,328 214,368 (242,619) (584,475)
Touchstone High Yield Bond* - 10,046 (2,202) 100,612
Touchstone Value Plus 221,536 186,867 (87,170) 181,912
Touchstone Growth & Income 2,973,336 323,474 (400,237) (534,284)
Touchstone Enhanced 30* - 24,893 (5,733) 244,484
Touchstone Balanced 2,142,449 286,061 (299,282) (415,837)
Touchstone Bond 1,764,079 302,007 (227,511) (311,318)
Touchstone Standby Income 1,653,441 331,469 (416,028) 263,123
</TABLE>
<TABLE>
<CAPTION>
Ending Units Unit Value Ending Value
<S> <C> <C> <C>
AIM V.I. Growth* 1,200,117 12.386830 $ 14,865,649
AIM V.I. Government Securities* 51,404 9.928089 510,342
Alger American Small Capitalization* 150,574 13.645334 2,054,637
Alger American Growth * 1,426,332 12.050408 17,187,887
MFS VIT Emerging Growth * 424,862 16.408335 6,971,280
MFS VIT Growth with Income * 842,535 10.298332 8,676,706
PIMCO Long-Term U.S. Government Bond* 234,504 9.641838 2,261,051
Touchstone Small Cap Value* 19,113 11.485000 219,520
Touchstone Emerging Growth 1,194,568 24.945052 29,798,557
Touchstone International Equity 1,273,417 22.335784 28,442,767
Touchstone Income Opportunity 1,405,602 15.255314 21,442,905
Touchstone High Yield Bond* 108,456 9.186113 996,288
Touchstone Value Plus 503,145 11.484675 5,778,458
Touchstone Growth & Income 2,362,289 17.957567 42,420,972
Touchstone Enhanced 30* 263,644 10.649017 2,807,550
Touchstone Balanced 1,713,391 18.149355 31,096,952
Touchstone Bond 1,527,257 12.623260 19,278,956
Touchstone Standby Income 1,832,005 12.023580 22,027,255
Total - Touchstone Gold Variable Annuity $256,837,732
</TABLE>
10
<PAGE>
Western-Southern Life Assurance Company Separate Account 1
Notes to Financial Statements
7. UNIT VALUES (continued)
Touchstone Select Variable Annuity - Death Benefit Option 1
<TABLE>
<CAPTION>
Transfers between
Beginning Units Units Purchased Units Redeemed Sub-accounts
<S> <C> <C> <C> <C>
AIM V.I. Growth* - 2,194 (12) 23,064
AIM V.I. Government Securities* - 10,012 - 3
Alger American Small Capitalization* - 464 - 7,430
Alger American Growth * - 2,116 (46) 17,686
MFS VIT Emerging Growth * - 646 - 15,466
MFS VIT Growth with Income * - 484 (32) 9,024
PIMCO Long-Term U.S. Government Bond* - 10,137 - 2
Touchstone Small Cap Value* - 5 - 122
Touchstone Emerging Growth 28,741 5,176 (395) (18,391)
Touchstone International Equity 9,911 6,334 (520) (2,966)
Touchstone Income Opportunity 18,594 9,304 (691) (7,834)
Touchstone High Yield Bond* - 10 - 8
Touchstone Value Plus 1,566 985 (13) (365)
Touchstone Growth & Income 24,000 10,936 (676) (9,606)
Touchstone Enhanced 30* - 468 - 103
Touchstone Balanced 14,419 14,208 (638) (2,687)
Touchstone Bond 10,275 9,534 (493) (994)
Touchstone Standby Income 9,529 7,485 (856) (4,950)
</TABLE>
<TABLE>
<CAPTION>
Ending Units Unit Value Ending Value
<S> <C> <C> <C>
AIM V.I. Growth* 25,247 12.386830 $ 312,728
AIM V.I. Government Securities* 10,015 9.928089 99,431
Alger American Small Capitalization* 7,894 13.645334 107,715
Alger American Growth * 19,756 12.050408 238,072
MFS VIT Emerging Growth * 16,112 16.408335 264,374
MFS VIT Growth with Income * 9,476 10.298332 97,592
PIMCO Long-Term U.S. Government Bond* 10,139 9.641838 97,761
Touchstone Small Cap Value* 127 11.485000 1,454
Touchstone Emerging Growth 15,131 14.214694 215,085
Touchstone International Equity 12,759 14.606860 186,364
Touchstone Income Opportunity 19,373 8.566546 165,962
Touchstone High Yield Bond* 18 9.186113 170
Touchstone Value Plus 2,173 11.484675 24,963
Touchstone Growth & Income 24,655 10.057167 247,954
Touchstone Enhanced 30* 571 10.649017 6,077
Touchstone Balanced 25,302 10.909260 276,024
Touchstone Bond 18,322 10.262853 188,036
Touchstone Standby Income 11,207 10.724095 120,184
Total - Touchstone Select Variable Annuity - Death Benefit Option 1 $ 2,649,946
</TABLE>
11
<PAGE>
Western-Southern Life Assurance Company Separate Account 1
Notes to Financial Statements
7. UNIT VALUES (continued)
<TABLE>
<CAPTION>
Touchstone Select Variable Annuity - Death Benefit Option 2
Transfers between
Beginning Units Units Purchased Units Redeemed Sub-accounts
<S> <C> <C> <C> <C>
AIM V.I. Growth* - 357 (1,285) 69,346
AIM V.I. Government Securities* - 3 (35) 1,599
Alger American Small Capitalization* - 3 (1) 7,749
Alger American Growth * - 101 (1,792) 99,306
MFS VIT Emerging Growth * - 354 (538) 46,034
MFS VIT Growth with Income * - 77 (850) 33,379
PIMCO Long-Term U.S. Government Bond* - 29 (280) 6,238
Touchstone Small Cap Value* - 3 - -
Touchstone Emerging Growth 55,818 36,332 (1,357) (20,263)
Touchstone International Equity 56,762 26,038 (1,463) (26,315)
Touchstone Income Opportunity 57,519 22,397 (1,349) (24,256)
Touchstone High Yield Bond* - 3 (193) 6,240
Touchstone Value Plus 14,257 13,853 (644) 2,848
Touchstone Growth & Income 97,264 45,638 (2,435) (48,187)
Touchstone Enhanced 30* - 3 (14) 3,037
Touchstone Balanced 77,704 21,755 (2,575) (37,242)
Touchstone Bond 63,396 18,198 (7,812) (14,463)
Touchstone Standby Income 23,666 7,407 (1,386) 9,065
</TABLE>
<TABLE>
<CAPTION>
Ending Units Unit Value Ending Value
<S> <C> <C> <C>
AIM V.I. Growth* 68,418 12.379215 $ 846,965
AIM V.I. Government Securities* 1,567 9.921983 15,548
Alger American Small Capitalization* 7,751 13.636950 105,704
Alger American Growth * 97,614 12.042990 1,175,568
MFS VIT Emerging Growth * 45,851 16.398265 751,880
MFS VIT Growth with Income * 32,605 10.291984 335,571
PIMCO Long-Term U.S. Government Bond* 5,986 9.635907 57,675
Touchstone Small Cap Value* 3 11.477941 34
Touchstone Emerging Growth 70,531 14.188941 1,000,764
Touchstone International Equity 55,022 14.580435 802,241
Touchstone Income Opportunity 54,310 8.551007 464,407
Touchstone High Yield Bond* 6,050 9.180462 55,538
Touchstone Value Plus 30,313 11.465820 347,565
Touchstone Growth & Income 92,281 10.039383 926,441
Touchstone Enhanced 30* 3,026 10.642464 32,200
Touchstone Balanced 59,641 10.889480 649,465
Touchstone Bond 59,319 10.244845 607,715
Touchstone Standby Income 38,751 10.704652 414,819
Total - Touchstone Select Variable Annuity - Death Benefit Option 2 $ 8,590,100
</TABLE>
12
<PAGE>
Western-Southern Life Assurance Company Separate Account 1
Notes to Financial Statements
7. UNIT VALUES (continued)
<TABLE>
<CAPTION>
Touchstone Select Variable Annuity - Death Benefit Option 3
Transfers between
Beginning Units Units Purchased Units Redeemed Sub-accounts
<S> <C> <C> <C> <C>
AIM V.I. Growth* - 3 (100) 13,856
AIM V.I. Government Securities* - 3 (75) 7,836
Alger American Small Capitalization* - 3 (36) 8,756
Alger American Growth * - 3 (100) 20,218
MFS VIT Emerging Growth * - 3 (61) 11,684
MFS VIT Growth with Income * - 3 (24) 9,291
PIMCO Long-Term U.S. Government Bond* - 3 (76) 8,505
Touchstone Small Cap Value* - 3 (28) 3,600
Touchstone Emerging Growth 23,219 11,202 (151) (14,478)
Touchstone International Equity 29,122 11,832 (400) (2,667)
Touchstone Income Opportunity 48,384 17,074 (641) (27,677)
Touchstone High Yield Bond* - 3 (72) 7,992
Touchstone Value Plus 117 0 (84) 10,560
Touchstone Growth & Income 46,256 16,027 (1,230) (12,161)
Touchstone Enhanced 30* - 3 (49) 6,344
Touchstone Balanced 49,859 13,542 (1,436) (13,822)
Touchstone Bond 40,070 8,559 (466) (8,947)
Touchstone Standby Income 16,910 3,378 (145) 33
</TABLE>
<TABLE>
<CAPTION>
Ending Units Unit Value Ending Value
<S> <C> <C> <C>
AIM V.I. Growth* 13,759 12.371603 $ 170,216
AIM V.I. Government Securities* 7,763 9.915876 76,986
Alger American Small Capitalization* 8,723 13.628563 118,884
Alger American Growth * 20,120 12.035582 242,159
MFS VIT Emerging Growth * 11,627 16.388191 190,537
MFS VIT Growth with Income * 9,271 10.285647 95,353
PIMCO Long-Term U.S. Government Bond* 8,432 9.629981 81,197
Touchstone Small Cap Value* 3,575 11.470881 41,004
Touchstone Emerging Growth 19,792 14.163243 280,325
Touchstone International Equity 37,887 14.554025 551,402
Touchstone Income Opportunity 37,140 8.535505 317,009
Touchstone High Yield Bond* 7,924 9.174801 72,699
Touchstone Value Plus 10,593 11.446986 121,254
Touchstone Growth & Income 48,892 10.019510 489,879
Touchstone Enhanced 30* 6,298 10.635910 66,988
Touchstone Balanced 48,143 10.869753 523,304
Touchstone Bond 39,216 10.224963 400,988
Touchstone Standby Income 20,176 10.685255 215,588
Total - Touchstone Select Variable Annuity - Death Benefit Option 3 $ 4,055,772
Total $272,133,550
</TABLE>
* Calculation of the AIM V.I. Growth, AIM V.I. Government Securities, Alger
American Small Capitalization, Alger American Growth, MFS Emerging Growth,
MFS Growth with Income, PIMCO Long-Term U. S. Government Bond, Touchstone
Small Cap Value, Touchstone High Yield, and Touchstone Enhanced 30 Unit
Values began May 17, 1999 when those sub-accounts commenced operations.
13
<PAGE>
<TABLE>
<CAPTION>
Western-Southern Life Assurance Company Separate Account 1 - Touchstone Variable Annuity
Supplementary Information-Selected Per Unit Data and Ratios
(Selected data for an accumulation unit outstanding throughout each year)
Period Ended December 31, 1999
AIM V.I. MFS VIT
AIM V.I. Government Alger Small Emerging
Growth Securities Capitalization Alger Growth Growth
Sub-Account * Sub-Account * Sub-Account * Sub-Account * Sub-Account *
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per unit data
Investment income $ 0.439650 $ 0.364418 $ - $ - $ -
Expenses 0.087924 0.083236 0.090549 0.087435 0.094146
--------------------------------------------------------------------------------------------------
Net investment income (loss) 0.351726 0.281182 (0.090549) (0.087435) (0.094146)
Net realized and
unrealized gain (loss)
on investments 2.035104 (0.353093) 3.735883 2.137843 6.502481
Net increase (decrease)
in net asset value 2.386830 (0.071911) 3.645334 2.050408 6.408335
Beginning of period 10.000000 10.000000 10.000000 10.000000 10.000000
--------------------------------------------------------------------------------------------------
End of period $ 12.386830 $ 9.928089 $ 13.645334 $ 12.050408 $ 16.408335
==================================================================================================
Ratios
Ratio of operating
expense to average
net assets (%) 0.88% 1.30% 0.67% 0.99% 0.65%
Ratio of net investment
income (loss) to
average net assets (%) 5.85% 6.05% -0.16% -0.82% -0.08%
PIMCO Long-
MFS VIT Term U.S. Touchstone Touchstone
Growth with Government Small Cap Emerging
Income Bond Value Growth
Sub-Account * Sub-Account * Sub-Account * Sub-Account
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per unit data
Investment income $ - $ 0.342537 $ - $ 3.528588
Expenses 0.082868 0.082489 0.086301 0.255612
--------------------------------------------------------------------------------------------
Net investment income (loss) (0.082868) 0.260048 (0.086301) 3.272976
Net realized and
unrealized gain (loss)
on investments 0.381200 (0.618210) 1.571301 4.444615
Net increase (decrease)
in net asset value 0.298332 (0.358162) 1.485000 7.717591
Beginning of period 10.000000 10.000000 10.000000 17.227461
--------------------------------------------------------------------------------------------
End of period $ 10.298332 $ 9.641838 $ 11.485000 $ 24.945052
============================================================================================
Ratios
Ratio of operating
expense to average
net assets (%) 1.01% 1.03% 0.82% 1.24%
Ratio of net investment
income (loss) to
average net assets (%) -0.96% 3.33% -1.33% 14.00%
</TABLE>
*Calculation of the AIM V.I. Growth, AIM V.I. Government Securities, Alger
American Small Capitalization, Alger American Growth, MFS VIT Emerging
Growth, MFS VIT Growth with Income, PIMCO Long-Term U.S. Government Bond,
Touchstone Small Cap Value, Touchstone High Yield, and Touchstone Enhanced
30 Unit Values began May 17, 1999, when those sub-accounts commenced
operations.
14
<PAGE>
<TABLE>
<CAPTION>
Western-Southern Life Assurance Company Separate Account 1 - Touchstone Variable Annuity
Supplementary Information-Selected Per Unit Data and Ratios (continued)
(Selected data for an accumulation unit outstanding throughout each year)
Period Ended December 31, 1999
Touchstone Touchstone Touchstone
International Income Touchstone Touchstone Growth &
Equity Opportunity High Yield Value Plus Income
Sub-Account Sub-Account Sub-Account * Sub-Account Sub-Account
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------
Per unit data
Investment income $ 1.735354 $ 2.120979 $ - $ 0.474317 $ -
Expenses 0.232633 0.201849 0.079325 0.143693 0.246179
-----------------------------------------------------------------------------------------
Net investment income (loss 1.502721 1.919130 (0.079325) 0.330624 (0.246179)
Net realized and
unrealized gain (loss)
on investments 4.246277 (1.712742) (0.734561) 1.034128 0.445591
-----------------------------------------------------------------------------------------
Net increase (decrease)
in net asset value 5.748998 0.206388 (0.813887) 1.364752 0.199412
Beginning of period 16.586786 15.048926 10.000000 10.119923 17.758155
-----------------------------------------------------------------------------------------
End of period $ 22.335784 $ 15.255314 $ 9.186113 $ 11.484675 $ 17.957567
=========================================================================================
Ratios
Ratio of operating
expense to average
net assets (%) 1.26% 1.39% 1.17% 1.97% 1.45%
Ratio of net investment
income (loss) to
average net assets (%) 7.11% 10.86% 10.70% 4.14% -1.46%
Touchstone
Touchstone Touchstone Touchstone Standby
Enhanced 30 Balanced Bond Income
Sub-Account * Sub-Account Sub-Account Sub-Account
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------
Per unit data
Investment income $ 0.049339 $ 1.759141 $ 0.114428 $ 0.666818
Expenses 0.084761 0.233152 0.171100 0.158436
------------------------------------------------------------------------------
Net investment income (loss (0.035422) 1.525989 (0.056672) 0.508382
Net realized and
unrealized gain (loss)
on investments 0.684439 (0.157046) (0.280090) (0.106290)
------------------------------------------------------------------------------
Net increase (decrease)
in net asset value 0.649017 1.368943 (0.336762) 0.402092
Beginning of period 10.000000 16.780412 12.960022 11.621488
------------------------------------------------------------------------------
End of period $ 10.649017 $ 18.149355 $ 12.623260 $ 12.023580
==============================================================================
Ratios
Ratio of operating
expense to average
net assets (%) 0.87% 1.40% 1.44% 1.36%
Ratio of net investment
income (loss) to
average net assets (%) 0.22% 7.65% -0.47% 4.35%
</TABLE>
*Calculation of the AIM V.I. Growth, AIM V.I. Government Securities, Alger
American Small Capitalization, Alger American Growth, MFS VIT Emerging
Growth, MFS VIT Growth with Income, PIMCO Long-Term U.S. Government Bond,
Touchstone Small Cap Value, Touchstone High Yield, and Touchstone
Enhanced 30 Unit Values began May 17, 1999, when those sub-accounts
commenced operations.
15
<PAGE>
<TABLE>
<CAPTION>
Western-Southern Life Assurance Company Separate Account 1 - Touchstone Select Variable Annuity - Option 1
Supplementary Information-Selected Per Unit Data and Ratios (continued)
(Selected data for an accumulation unit outstanding throughout each year)
Period Ended December 31, 1999
AIM V.I. MFS VIT
AIM V.I. Government Alger Small Emerging
Growth Securities Capitalization Alger Growth Growth
Sub-Account * Sub-Account * Sub-Account * Sub-Account * Sub-Account *
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per unit data
Investment income $ 0.439650 $ 0.364418 $ - $ - $ -
Expenses 0.087924 0.083236 0.090549 0.087435 0.094146
----------------------------------------------------------------------------------
Net investment income (loss) 0.351726 0.281182 (0.090549) (0.087435) (0.094146)
Net realized and
unrealized gain (loss)
on investments 2.035104 (0.353093) 3.735883 2.137843 6.502481
----------------------------------------------------------------------------------
Net increase (decrease)
in net asset value 2.386830 (0.071911) 3.645334 2.050408 6.408335
Beginning of period 10.000000 10.000000 10.000000 10.000000 10.000000
----------------------------------------------------------------------------------
End of period $ 12.386830 $ 9.928089 $ 13.645334 $ 12.050408 $ 16.408335
==================================================================================
Ratios
Ratio of operating
expense to average
net assets (%) 0.88% 1.30% 0.67% 0.99% 0.65%
Ratio of investment
income-net to
average net assets (%) 5.85% 6.05% -0.16% -0.82% -0.08%
PIMCO Long-
MFS VIT Term U.S. Touchstone Touchstone
Growth with Government Small Cap Emerging
Income Bond Value Growth
Sub-Account * Sub-Account * Sub-Account* Sub-Account
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Per unit data
Investment income $ - $ 0.342537 $ - $ 2.010731
Expenses 0.082868 0.082489 0.086301 0.145658
----------------------------------------------------------------
Net investment income (loss) (0.082868) 0.260048 (0.086301) 1.865073
Net realized and
unrealized gain (loss)
on investments 0.381200 (0.618210) 1.571301 2.532716
----------------------------------------------------------------
Net increase (decrease)
in net asset value 0.298332 (0.358162) 1.485000 4.397789
Beginning of period 10.000000 10.000000 10.000000 9.816905
----------------------------------------------------------------
End of period $ 10.298332 $ 9.641838 $ 11.485000 $ 14.214694
================================================================
Ratios
Ratio of operating
expense to average
net assets (%) 1.01% 1.03% 0.82% 1.24%
Ratio of investment
income-net to
average net assets (%) -0.96% 3.33% -1.33% 14.00%
</TABLE>
*Calculation of the AIM V.I. Growth, AIM V.I. Government Securities, Alger
American Small Capitalization, Alger American Growth, MFS VIT Emerging
Growth, MFS VIT Growth with Income, PIMCO Long-Term U.S. Government Bond,
Touchstone Small Cap Value, Touchstone High Yield, and Touchstone Enhanced
30 Unit Values began May 17, 1999, when those sub-accounts commenced
operations.
16
<PAGE>
<TABLE>
<CAPTION>
Western-Southern Life Assurance Company Separate Account 1 - Touchstone Select Variable Annuity - Option 1
Supplementary Information-Selected Per Unit Data and Ratios (continued)
(Selected data for an accumulation unit outstanding throughout each year)
Period Ended December 31, 1999
Touchstone Touchstone
International Income Touchstone Touchstone
Equity Opportunity High Yield Value Plus
Sub-Account Sub-Account Sub-Account* Sub-Account
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Per unit data
Investment income $ 1.134864 $ 1.191025 $ - $ 0.474317
Expenses 0.152135 0.113347 0.079325 0.143693
--------------------------------------------------------------
Net investment income (loss) 0.982729 1.077678 (0.079325) 0.330624
Net realized and
unrealized gain (loss)
on investments 2.776923 (0.961780) (0.734562) 1.034128
--------------------------------------------------------------
Net increase (decrease)
in net asset value 3.759652 0.115898 (0.813887) 1.364752
Beginning of period 10.847208 8.450648 10.000000 10.119923
--------------------------------------------------------------
End of period $ 14.606860 $ 8.566546 $ 9.186113 $ 11.484675
==============================================================
Ratios
Ratio of operating
expense to average
net assets (%) 1.26% 1.39% 1.17% 1.97%
Ratio of investment
income-net to
average net assets (%) 7.11% 10.86% 10.70% 4.14%
Touchstone Touchstone
Growth & Touchstone Touchstone Touchstone Standby
Income Enhanced 30 Balanced Bond Income
Sub-Account Sub-Account * Sub-Account Sub-Account Sub-Account
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per unit data
Investment income $ - $ 0.049339 $ 1.057389 $ 0.093031 $ 0.594750
Expenses 0.137873 0.084761 0.140144 0.139106 0.141312
--------------------------------------------------------------------------------------
Net investment income (loss) (0.137873) (0.035422) 0.917245 (0.046075) 0.453438
Net realized and
unrealized gain (loss)
on investments 0.249555 0.684439 (0.094401) (0.227709) (0.094797)
--------------------------------------------------------------------------------------
Net increase (decrease)
in net asset value 0.111682 0.649017 0.822844 (0.273784) 0.358641
Beginning of period 9.945485 10.000000 10.086416 10.536637 10.365454
--------------------------------------------------------------------------------------
End of period $ 10.057167 $ 10.649017 $ 10.909260 $ 10.262853 $ 10.724095
======================================================================================
Ratios
Ratio of operating
expense to average
net assets (%) 1.45% 0.87% 1.40% 1.44% 1.36%
Ratio of investment
income-net to
average net assets (%) -1.46% 0.22% 7.65% -0.47% 4.35%
</TABLE>
*Calculation of the AIM V.I. Growth, AIM V.I. Government Securities, Alger
American Small Capitalization, Alger American Growth, MFS VIT Emerging
Growth, MFS VIT Growth with Income, PIMCO Long-Term U.S. Government Bond,
Touchstone Small Cap Value, Touchstone High Yield, and Touchstone
Enhanced 30 Unit Values began May 17, 1999, when those sub-accounts
commenced operations.
17
<PAGE>
<TABLE>
<CAPTION>
Western-Southern Life Assurance Company Separate Account 1 - Touchstone Select Variable Annuity - Option 2
Supplementary Information-Selected Per Unit Data and Ratios (continued)
(Selected data for an accumulation unit outstanding throughout each year)
Period Ended December 31, 1999
AIM V.I. MFS VIT
AIM V.I. Government Alger Small Emerging
Growth Securities Capitalization Alger Growth Growth
Sub-Account Sub-Account * Sub-Account * Sub-Account * Sub-Account *
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per unit data
Investment income $ 0.439401 $ 0.364212 $ - $ - $ -
Expenses 0.094356 0.089325 0.097172 0.093831 0.101032
-----------------------------------------------------------------------------------------------
Net investment income 0.345045 0.274887 (0.097172) (0.093831) (0.101032)
Net realized and
unrealized gain (loss)
on investments 2.034170 (0.352904) 3.734122 2.136821 6.499297
-----------------------------------------------------------------------------------------------
Net increase (decrease)
in net asset value 2.379215 (0.078017) 3.636950 2.042990 6.398265
Beginning of period 10.000000 10.000000 10.000000 10.000000 10.000000
-----------------------------------------------------------------------------------------------
End of period $12.379215 $ 9.921983 $ 13.636950 $ 12.042990 $ 16.398265
================================================================================================
Ratios
Ratio of operating
expense to average
net assets (%) 0.88% 1.30% 0.67% 0.99% 0.65%
Ratio of investment
income-net to
average net assets 5.85% 6.05% -0.16% -0.82% -0.08%
PIMCO Long-
Term U.S. Touchstone Touchstone
MFS VIT Growth Government Small Cap Emerging
with Income Bond Value Growth
Sub-Account * Sub-Account * Sub-Account * Sub-Account
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per unit data
Investment income $ - $ 0.342431 $ - $ 2.007110
Expenses 0.088931 0.088524 0.092615 0.156152
-----------------------------------------------------------------------------
Net investment income (0.088931) 0.253907 (0.092615) 1.850958
Net realized and
unrealized gain (loss)
on investments 0.380915 (0.618000) 1.570556 2.529212
-----------------------------------------------------------------------------
Net increase (decrease)
in net asset value 0.291984 (0.364093) 1.477941 4.380170
Beginning of period 10.000000 10.000000 10.000000 9.808771
-----------------------------------------------------------------------------
End of period $ 10.291984 $ 9.635907 $ 11.477941 $ 14.188941
==============================================================================
Ratios
Ratio of operating
expense to average
net assets (%) 1.01% 1.03% 0.82% 1.24%
Ratio of investment
income-net to
average net assets -0.96% 3.33% -1.33% 14.00%
</TABLE>
*Calculation of the AIM V.I. Growth, AIM V.I. Government Securities,
Alger American Small Capitalization, Alger American Growth, MFS VIT
Emerging Growth, MFS VIT Growth with Income, PIMCO Long-Term U.S.
Government Bond, Touchstone Small Cap Value, Touchstone High Yield, and
Touchstone Enhanced 30 Unit Values began May 17, 1999, when those
sub-accounts commenced operations.
18
<PAGE>
<TABLE>
<CAPTION>
Western-Southern Life Assurance Company Separate Account 1 - Touchstone Select Variable Annuity - Option 2
Supplementary Information-Selected Per Unit Data and Ratios (continued)
(Selected data for an accumulation unit outstanding throughout each year)
Period Ended December 31, 1999
Touchstone Touchstone Touchstone
International Income Touchstone Touchstone Growth &
Equity Opportunity High Yield Value Plus Income
Sub-Account Sub-Account Sub-Account * Sub-Account Sub-Account
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per unit data
Investment income $ 1.132823 $ 1.189003 $ - $ 0.473544 $ -
Expenses 0.163097 0.121517 0.085129 0.154075 0.147817
------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.969726 1.067486 (0.085129) 0.319469 (0.147817)
Net realized and
unrealized gain (loss)
on investments 2.772469 (0.960119) (0.734409) 1.033095 0.249508
------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net asset value 3.742195 0.107367 (0.819538) 1.352564 0.101691
Beginning of period 10.838240 8.443640 10.000000 10.113256 9.937692
------------------------------------------------------------------------------------------------------
End of period $ 14.580435 $ 8.551007 $ 9.180462 $ 11.465820 $ 10.039383
======================================================================================================
Ratios
Ratio of operating
expense to average
net assets (%) 1.26% 1.39% 1.17% 1.97% 1.45%
Ratio of investment
income-net to
average net assets (%) 7.11% 10.86% 10.70% 4.14% -1.46%
Touchstone
Touchstone Touchstone Touchstone Standby
Enhanced 30 Balanced Bond Income
Sub-Account * Sub-Account Sub-Account Sub-Account
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per unit data
Investment income $ 0.049309 $ 1.055483 $ 0.092949 $ 0.593960
Expenses 0.090962 0.150244 0.149141 0.151497
-------------------------------------------------------------------------------------
Net investment income (loss) (0.041653) 0.905239 (0.056192) 0.442463
Net realized and
unrealized gain (loss)
on investments 0.684117 (0.093810) (0.227493) (0.094682)
-------------------------------------------------------------------------------------
Net increase (decrease)
in net asset value 0.642464 0.811429 (0.283685) 0.347781
Beginning of period 10.000000 10.078051 10.528530 10.356871
-------------------------------------------------------------------------------------
End of period $ 10.642464 $ 10.889480 $ 10.244845 $ 10.704652
=====================================================================================
Ratios
Ratio of operating
expense to average
net assets (%) 0.87% 1.40% 1.44% 1.36%
Ratio of investment
income-net to
average net assets (%) 0.22% 7.65% -0.47% 4.35%
</TABLE>
*Calculation of the AIM V.I. Growth, AIM V.I. Government Securities, Alger
American Small Capitalization, Alger American Growth, MFS VIT Emerging
Growth, MFS VIT Growth with Income, PIMCO Long-Term U.S. Government Bond,
Touchstone Small Cap Value, Touchstone High Yield, and Touchstone Enhanced
30 Unit Values began May 17, 1999, when those sub-accounts commenced
operations.
19
<PAGE>
<TABLE>
<CAPTION>
Western-Southern Life Assurance Company Separate Account 1 - Touchstone Select Variable Annuity - Option 3
Supplementary Information-Selected Per Unit Data and Ratios (continued)
(Selected data for an accumulation unit outstanding throughout each year)
Period Ended December 31, 1999
AIM V.I. MFS VIT
AIM V.I. Government Alger Small Emerging
Growth Securities Capitalization Alger Growth Growth
Sub-Account * Sub-Account * Sub-Account * Sub-Account * Sub-Account *
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per unit data
Investment income $ 0.439152 $ 0.364006 $ - $ - $ -
Expenses 0.100783 0.095411 0.103792 0.100223 0.107913
----------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.338369 0.268595 (0.103792) (0.100223) (0.107913)
Net realized and
unrealized gain (loss)
on investments 2.033234 (0.352719) 3.732355 2.135805 6.496104
----------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net asset value 2.371603 (0.084124) 3.628563 2.035582 6.388191
Beginning of period 10.000000 10.000000 10.000000 10.000000 10.000000
----------------------------------------------------------------------------------------------------------
End of period $ 12.371603 $ 9.915876 $ 13.628563 $ 12.035582 $ 16.388191
==========================================================================================================
Ratios
Ratio of operating
expense to average
net assets (%) 0.88% 1.30% 0.67% 0.99% 0.65%
Ratio of investment
income-net to
average net assets (% 5.85% 6.05% -0.16% -0.82% -0.08%
</TABLE>
<TABLE>
<CAPTION>
PIMCO Long-
Term U.S. Touchstone Touchstone
MFS VIT Growth Government Small Cap Emerging
with Income Bond Value Growth
Sub-Account * Sub-Account * Sub-Account * Sub-Account
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per unit data
Investment income $ - $ 0.342325 $ - $ 2.003496
Expenses 0.094991 0.094555 0.098924 0.166617
--------------------------------------------------------------------------------
Net investment income (loss) (0.094991) 0.247770 (0.098924) 1.836879
Net realized and
unrealized gain (loss)
on investments 0.380638 (0.617789) 1.569805 2.525725
--------------------------------------------------------------------------------
Net increase (decrease)
in net asset value 0.285647 (0.370019) 1.470881 4.362604
Beginning of period 10.000000 10.000000 10.000000 9.800639
--------------------------------------------------------------------------------
End of period $ 10.285647 $ 9.629981 $ 11.470881 $ 14.163243
================================================================================
Ratios
Ratio of operating
expense to average
net assets (%) 1.01% 1.03% 0.82% 1.24%
Ratio of investment
income-net to
average net assets (% -0.96% 3.33% -1.33% 14.00%
</TABLE>
*Calculation of the AIM V.I. Growth, AIM V.I. Government Securities, Alger
American Small Capitalization, Alger American Growth, MFS VIT Emerging
Growth, MFS VIT Growth with Income, PIMCO Long-Term U.S. Government Bond,
Touchstone Small Cap Value, Touchstone High Yield, and Touchstone Enhanced
30 Unit Values began May 17, 1999, when those sub-accounts commenced
operations.
<PAGE>
<TABLE>
<CAPTION>
Western-Southern Life Assurance Company Separate Account 1 - Touchstone Select Variable Annuity - Option 3
Supplementary Information-Selected Per Unit Data and Ratios (continued)
(Selected data for an accumulation unit outstanding throughout each year)
Period Ended December 31, 1999
Touchstone Touchstone Touchstone
International Income Touchstone Touchstone Growth &
Equity Opportunity High Yield Value Plus Income
Sub-Account Sub-Account Sub-Account* Sub-Account Sub-Account
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per unit data
Investment income $ 1.130783 $1.186987 $ - $ 0.472771 -
Expenses 0.174029 0.129664 0.090930 0.164433 0.157701
--------------------------------------------------------------------
Net investment
income (loss) 0.956754 1.057323 (0.090930) 0.308338 (0.157701)
Net realized and
unrealized gain (loss)
on investments 2.768012 (0.958455) (0.734269) 1.032048 0.249418
--------------------------------------------------------------------
Net increase (decrease)
in net asset value 3.724766 0.098868 (0.825199) 1.340386 0.091717
Beginning of period 10.829259 8.436637 10.000000 10.106600 9.927793
--------------------------------------------------------------------
End of period $14.554025 $8.535505 $9.174801 $11.446986 $10.019510
====================================================================
Ratios
Ratio of operating
expense to average 1.26% 1.39% 1.17% 1.97% 1.45%
net assets (%)
Ratio of investment
income-net to 7.11% 10.86% 10.70% 4.14% -1.46%
average net assets (%)
Touchstone
Touchstone Touchstone Touchstone Standy
Enchanced 30 Balanced Bond Income
Sub-Account* Sub-Account Sub-Account Sub-Account
--------------------------------------------------------
<S> <C> <C> <C> <C>
Per unit data
Investment income $ 0.049279 $ 1.053582 $ 0.092850 $ 0.593171
Expenses 0.097159 0.160317 0.159121 0.161654
--------------------------------------------------------
Net investment
income (loss) (0.047880) 0.893265 (0.066271) 0.431517
Net realized and
unrealized gain (loss)
on investments 0.683790 (0.093218) (0.227226) (0.094555)
--------------------------------------------------------
Net increase (decrease)
in net asset value 0.635910 0.800047 (0.293497) 0.336962
Beginning of period 10.000000 10.069706 10.518460 10.348293
--------------------------------------------------------
End of period $ 10.635910 $10.869753 $10.224963 $10.685255
=========================================================
Ratios
Ratio of operating
expense to average 0.87% 1.40% 1.44% 1.36%
net assets (%)
Ratio of investment
income-net to 0.22% 7.65% -0.47% 4.35%
average net assets (%)
*Calculation of the AIM V.I. Growth, AIM V.I. Government Securities, Alger
American Small Capitalization, Alger American Growth, MFS VIT Emerging
Growth, MFS VIT Growth with Income, PIMCO Long-Term U.S. Government Bond,
Touchstone Small Cap Value, Touchstone High Yield, and Touchstone Enhanced
30 Unit Values began May 17, 1999, when those sub-accounts commenced
operations.
</TABLE>
21
<PAGE>
Statutory-Basis Financial Statements
and Supplemental Schedule
Western-Southern Life Assurance Company
Years ended December 31, 1999 and 1998
with Reports of Independent Auditors
<PAGE>
Western-Southern Life Assurance Company
Statutory-Basis Financial Statements
Years ended December 31, 1999 and 1998
CONTENTS
Report of Ernst & Young, LLP...................................................1
Report of PricewaterhouseCoopers LLP...........................................2
Financial Statements
Balance Sheets - Statutory-Basis...............................................3
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 Statutory-Basis Financial Statements..................................7
Supplemental Data:
Report on Supplemental Schedule of Selected Statutory-Basis Financial Data....24
Supplemental Schedule of Selected Statutory-Basis Financial Data..............25
<PAGE>
Report of Independent Auditors
Board of Directors
Western-Southern Life Assurance Company
We have audited the accompanying statutory-basis balance sheet of Western-
Southern Life Assurance Company as of December 31, 1999, and the related
statutory-basis statements of income, changes in capital and surplus, and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As described in Note 2 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Ohio Insurance Department, which practices differ from
generally accepted accounting principles. The variances between such practices
and generally accepted accounting principles and the effects on the accompanying
financial statements are described in Note 2.
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 generally accepted accounting principles, the financial position
of Western-Southern Life Assurance Company at December 31, 1999, or the results
of its operations or its cash flows for the year then ended.
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Western-Southern
Life Assurance Company at December 31, 1999, and the results of its operations
and its cash flows for the year then ended in conformity with accounting
practices prescribed or permitted by the Ohio Insurance Department.
/s/ ERNST & YOUNG LLP
April 18, 2000
1
<PAGE>
Report of Independent Accountants
To the Board of Directors
Western-Southern Life Assurance Company
We have audited the accompanying statutory statements of admitted assets,
liabilities and surplus of Western-Southern Life Assurance Company (the
"Company") as of December 31, 1998, and the related statutory statements of
income and changes in surplus, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with 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 audit provides a reasonable basis for our
opinion.
As described in Note 2 to the financial statements, the Company prepared these
financial statements using accounting practices prescribed or permitted by the
Insurance Department of the State of Ohio, which practices differ from
accounting principles generally accepted in the United States. The effects on
the financial statements of the variances between the statutory basis of
accounting and generally accepted accounting principles are material; they are
described in Note 2.
In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of the Company as of December 31, 1998, or the results of its operations or its
cash flows for the year then ended.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the admitted assets, liabilities and surplus of the
Company as of December 31, 1998, and the results of its operations and its cash
flows for the year then ended, on the basis of accounting described in Note 2.
We have not audited the financial statements of Western-Southern Life Assurance
Company for any period subsequent to December 31, 1998.
/s/PricewaterhouseCoopers LLP
April 26, 1999
Cincinnati, Ohio
<PAGE>
Western-Southern Life Assurance Company
Balance Sheets - Statutory-Basis
as of December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------------------------------------------
Admitted Assets (in thousands)
<S> <C> <C>
Bonds $ 3,515,462 $ 3,131,311
Preferred and common stocks 107,636 92,174
Mortgage loans 204,451 154,593
Policy loans 50,261 50,767
Cash, cash equivalents and short-term investments 64,497 78,050
Other invested assets 28,386 21,402
Total cash and invested assets 3,970,693 3,528,297
Investment income due and accrued 48,099 43,360
Reinsurance due, held by parent 32,135 32,826
Other assets 1,957 2,754
Separate account assets 273,195 224,275
Total admitted assets $ 4,326,079 $ 3,831,512
Liabilities and Capital and Surplus
Policy reserves $ 3,674,385 $ 3,222,016
Policy claims in process of settlement 7,566 7,335
Federal income taxes payable 29,745 21,680
Amounts due to parent:
Reinsurance premiums 27,545 27,643
General expenses 3,148 1,020
Liability for temporary investments held for affiliates 4,625 35,018
Other liabilities 35,339 16,407
Interest maintenance reserve 19,577 26,672
Asset valuation reserves 47,524 41,558
Separate account liabilities 273,195 224,275
Total liabilities $ 4,122,649 $ 3,623,624
Capital and Surplus
Common stock, $1 par value, authorized 10,000,000 shares,
issued and outstanding 2,500,000 and 1,500,000, respectively 2,500 1,500
Paid-in surplus 239,000 240,000
Unassigned deficit (38,070) (33,612)
Total capital and surplus 203,430 207,888
Total liabilities and capital and surplus $ 4,326,079 $ 3,831,512
</TABLE>
See accompanying notes.
3
<PAGE>
Western-Southern Life Assurance Company
Statements of Income - Statutory-Basis
for the years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------------------------------------------
(in thousands)
Revenue:
<S> <C> <C>
Premiums $ 791,153 $ 603,400
Net investment income 274,079 254,103
Other 192 321
1,065,424 857,824
Policy benefits and expenses:
Death benefits 128,577 110,269
Annuity benefits 279,714 179,939
Surrender benefits 32,595 32,600
Other benefits 7,994 6,821
Increase in policy reserves 452,368 287,977
Net transfers to separate account 13,309 97,429
Commissions on premiums 55,225 49,724
General expenses 61,764 67,341
1,031,546 832,100
Gain from operations before federal income tax expense
and net realized capital gains (losses) 33,878 25,724
Federal income tax expense 17,761 6,388
Net gain from operations before net realized capital
gains (losses) 16,117 19,336
Net realized capital gains (losses), less federal income tax
expense (benefit) of $(355) in 1999 and $2,310 in 1998 and
transfers to (from) the Interest Maintenance Reserve of $(1,172)
in 1999 and $13,390 in 1998 (5,774) 2,860
Net income $ 10,343 $ 22,196
</TABLE>
See accompanying notes.
4
<PAGE>
Western-Southern Life Assurance Company
Statements of Changes in Capital and Surplus - Statutory-Basis
for the years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------------------------------------------
(in thousands)
<S> <C> <C>
Capital and surplus, beginning of year $ 207,888 $ 178,079
Net income 10,343 22,196
Change in net unrealized gains (losses):
Unaffiliated common stock 4,963 (7,541)
Subsidiaries (8,726) (5,090)
Other invested assets 3,334 70
(Increase) decrease in asset valuation reserve (5,964) 142
Capital contributions - 20,000
Other (8,408) 32
Capital and surplus, end of year $ 203,430 $ 207,888
</TABLE>
See accompanying notes.
5
<PAGE>
Western-Southern Life Assurance Company
Statements of Cash Flows - Statutory-Basis
for the years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------------------------------------------
(in thousands)
Operating Activities:
<S> <C> <C>
Premium and annuity considerations $ 788,385 $ 600,439
Net investment income received 261,345 240,628
Surrender and annuity benefits paid (311,604) (212,766)
Death and other benefits to policyholders (144,258) (123,480)
Commissions, other expenses and taxes paid (105,850) (105,880)
Net transfers to separate accounts (13,309) (97,429)
Federal income taxes paid to parent (9,419) (11,282)
Other revenues less expenses (18,043) (19,600)
Net cash provided by operations 447,247 270,630
Investment activities:
Proceeds from investments sold, matured or repaid:
Bonds 1,148,425 1,230,984
Stocks 8,245 79,793
Mortgage loans 23,627 10,548
Other invested assets 5,761 8,008
Total investment proceeds 1,186,058 1,329,333
Cost of investments acquired:
Bonds (1,537,444) (1,488,085)
Stocks (27,470) (60,477)
Mortgage loans (73,540) (47,827)
Other invested assets (8,910) (5,596)
Total investments acquired (1,647,364) (1,601,985)
Net change in policy and other loans 506 464
Net cash used by investment activities (460,800) (272,188)
Financing activities:
Other cash provided:
Capital contributions - 20,000
Net cash provided by financing activities - 20,000
Net change in cash, cash equivalents and short-term investments (13,553) 18,442
Cash, cash equivalents and short-term investments:
Beginning of year 78,050 59,608
End of year $ 64,497 $ 78,050
</TABLE>
See accompanying notes.
6
<PAGE>
Western-Southern Life Assurance Company
Notes to Statutory-Basis Financial Statements
December 31, 1999 and 1998
1. ORGANIZATION AND NATURE OF BUSINESS
Western-Southern Life Assurance Company (the Company) is a wholly owned
subsidiary of The Western and Southern Life Insurance Company (Western and
Southern), a mutual life insurance Company. The Company is domiciled in Ohio.
The Company offers individual annuities and interest-sensitive life insurance
products through Western and Southern's agents and various financial
institutions. The Company is licensed in forty-four states and the District of
Columbia, actively selling in twenty-one states, and 94% of its field force is
located in twelve midwest and south-central states.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Company is subject to regulation by the Department of Insurance of the State
of Ohio (the Department) and other states in which the Company operates. The
Company files financial statements with these departments using statutory
accounting practices (SAP) prescribed or permitted by the Department and used in
the preparation of the accompanying statutory-basis financial statements.
Prescribed statutory accounting practices include a variety of publications of
the National Association of Insurance Commissioners (NAIC), as well as state
laws, regulations and general administrative rules. Permitted statutory
accounting practices encompass all accounting practices not so prescribed; such
practices differ from state-to-state, may differ from company-to-company within
a state and may change in the future. These practices differ in some respects
from generally accepted accounting principles (GAAP). The more significant
differences are:
o Certain assets are excluded from the statement of admitted assets,
liabilities and capital and surplus as "nonadmitted assets" (principally
furniture and equipment) for statutory reporting purposes.
o Debt securities classified as available for sale are carried at amortized
cost rather than fair value.
o Deferred federal income taxes are not provided for statutory reporting
purposes.
o The accounts and operations of the Company's subsidiaries are not
consolidated with the accounts and operations of the Company as would be
required by GAAP.
7
<PAGE>
Western-Southern Life Assurance Company
Notes to Statutory-Basis Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
o For statutory reporting purposes, the Company defers the portion of
realized capital gains and losses (using a formula prescribed by the NAIC)
on sales of fixed income investments, principally bonds and mortgage loans,
attributable to changes in the general level of interest rates. These
deferrals are amortized over the remaining period to maturity. The
deferral, net of federal income taxes, is reported in the accompanying
balance sheets as the "Interest Maintenance Reserve."
o For statutory reporting purposes, the "Asset Valuation Reserve" is
determined by a NAIC prescribed formula and is reported as a liability.
o For statutory reporting purposes, revenues for universal life policies and
annuity contracts consist of the entire premium received, and benefits
represent the death benefits paid and the change in policy reserves. For
GAAP, premiums received in excess of policy charges would not be recognized
as premium revenue and benefits would represent the excess of benefits paid
over the policy account value and interest credited to the account values.
o The costs of acquiring new business, such as commissions, certain costs of
policy underwriting and issuance and certain variable agency expenses, have
not been deferred for statutory reporting purposes.
At December 31, 1999 and 1998, the Company's GAAP unaudited equity was
$330,709,000 and $387,759,000, respectively. Unaudited GAAP net income was
$13,805,000 and $34,899,000 for 1999 and 1998, respectively.
The Company received written approval from the Department to record guaranty
fund assessments as billed and defer the amount on the balance sheet to the
extent that they are recoverable through premium tax credits. When the tax
credits are realized, the deferred tax assessment is removed from the balance
sheet as a charge to premium tax expense. The Company also received approval to
record all taxes, including interest, assessments, settlements and corrections
through the Statement of Operations, rather than as a direct charge to surplus.
There is no prescribed accounting treatment for these transactions.
In March 1998, the NAIC finalized the Codification of Statutory Accounting
Principles guidance ("Codification") which will replace the current Accounting
Practices and Procedures manual as the NAIC's primary guidance on statutory
accounting. Codification provides guidance for areas where statutory accounting
has been silent and changes current statutory accounting in some areas.
Principal changes that are expected to impact the Company include the recording
of deferred taxes and changes in the mortgage loan reserve.
8
<PAGE>
Western-Southern Life Assurance Company
Notes to Statutory-Basis Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
The Department has adopted Codification, effective January 1, 2001. The Company
has not estimated the potential impact of Codification to its statutory-basis
financial statements.
Significant accounting policies are as follows:
REVENUES AND EXPENSES
Premium revenues on fixed premium policies are recognized when due over the
premium paying period of the policies. Premium revenues on flexible premium
policies are recognized when received. Commissions and other costs of acquiring
the policies are charged to expense when incurred.
VALUATION OF INVESTMENTS
o Debt securities and stock values are as prescribed by the NAIC; debt
securities principally at amortized cost, preferred stocks in good standing
at cost and all other stocks at market.
o Single class and multi-class mortgage-backed/asset-backed securities are
valued at amortized cost using the interest method, including anticipated
prepayments. Prepayment assumptions are obtained from an external source
and are based on the current interest rate and economic environment. The
retrospective adjustment method is used to value all such securities.
o The Company's subsidiaries are reported at the GAAP-basis of their net
assets. Dividends from subsidiaries are included in net investment income.
The remaining change in the subsidiaries equity is included in the change
in net unrealized capital gains or losses.
o Mortgage loans not in default are carried at outstanding indebtedness less
unamortized premium or discount. Mortgage loans in default are recorded at
the lower of the related indebtedness or fair market value.
o Property acquired in satisfaction of debt is recorded at the lower of cost
less accumulated depreciation or fair market value.
o Policy loan values are carried at outstanding indebtedness not in excess of
policy cash surrender value.
9
<PAGE>
Western-Southern Life Assurance Company
Notes to Statutory-Basis Financial Statements
2. SIGNIFICANT ACCOUNTING POLICES (continued)
o Real estate joint ventures and partnerships are accounted for under the
equity method. The equity in earnings for real estate joint ventures
and general partnerships are recorded through net investment income.
The equity in earnings for limited partnership interests is recorded to
surplus.
The asset valuation reserve serves to provide a reserve, recorded through
unassigned surplus, against fluctuations in the market values of debt
securities, stocks, mortgage loans, real estate and other invested assets. The
interest maintenance reserve defers the recognition of realized capital gains
and losses resulting from changes in interest rates on fixed income investments
sold and amortizes the gains and losses into investment income over the
approximate remaining life of the investments sold. The net gain (loss) deferred
as a result of recording the interest maintenance reserve was ($1,172,000) and
$13,390,000, which is net of federal income tax expense (benefit) of ($631,000)
and $7,211,000 in 1999 and 1998, respectively.
Realized gains and losses from sales of securities are determined on the basis
of specific identification and recognized on the trade date. Realized gains and
losses, adjusted for the interest maintenance reserve, are included in the
determination of net income. Adjustments to fair market value for permanent
declines in value of mortgage loans, property acquired in satisfaction of debt
and real estate are treated as realized losses and are included in net income.
Adjustments for declines, which are not permanent, are treated as unrealized
losses. Unrealized gains and losses on all investments are reported as
adjustments to unassigned surplus.
POLICY RESERVES
Policy reserves for life insurance, annuity contracts and supplemental benefits
are developed by using accepted actuarial methods and are computed principally
on the Commissioner's Annuity Reserve Valuation Method. The following mortality
tables and interest rates are used:
<TABLE>
<CAPTION>
Percentage of
Reserves
----------------------------------
1999 1998
---------------- -----------------
Life insurance
1958 and 1980 Commissioners standard Ordinary,
<S> <C> <C>
31/2% -51/2% 25.3% 28.2%
Annuities
Various, 21/2 -8 1/4% 74.0 71.1
Supplemental benefits:
Various, 21/2% -81/4% 0.7 0.7
---------------- -----------------
100% 100%
---------------- -----------------
</TABLE>
10
<PAGE>
Western-Southern Life Assurance Company
Notes to Statutory-Basis Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Surrender values on policies do not exceed the corresponding benefit reserves.
Additional reserves are established when the results of cash flow testing under
various interest rate scenarios indicate the need for such reserves or the net
premiums exceed the gross premiums on any insurance in force.
For substandard table ratings, mean reserves are based on 125% to 500% of
standard mortality rates. For flat extra ratings, mean reserves are based on the
standard or substandard mortality rates increased by the cost of the additional
mortality indicated by the rating.
As of December 31, 1999, reserves of $779,000 are recorded on inforce amounts of
$15,655,000 for which gross premiums are less than the net premiums according to
the standard of valuation required by the Department.
Tabular interest, tabular less actual reserves released, and tabular cost have
been determined by formula. Tabular interest on funds not involving life
contingencies is calculated as one-hundredth of the product of such valuation
rate of interest times the mean of the amount of funds subject to such valuation
rate of interest held at the beginning and end of the year of valuation.
The liabilities related to guaranteed investment contracts and policyholder
funds left on deposit with the Company generally are equal to fund balances less
applicable surrender charges.
POLICY AND CONTRACT CLAIMS
Policy claims reserves represent the estimated ultimate net cost of all reported
and unreported claims incurred through December 31, 1999 and 1998. The reserves
for unpaid claims are estimated using individual case-basis valuations and
statistical analysis. These estimates are subject to the effects of trends in
claim severity and frequency. Although considerable variability is inherent in
such estimates, management believes that the reserves for claims are adequate.
The estimates are continually reviewed and adjusted as necessary as experience
develops or new information becomes known; such adjustments are included in
current operations.
2. SIGNIFICANT ACCOUNTING POLICES (continued)
11
<PAGE>
Western-Southern Life Assurance Company
Notes to Statutory-Basis Financial Statements
SEPARATE ACCOUNT
The Company maintains two separate accounts that hold investments related to the
Company's variable annuity products. The assets of the separate accounts consist
primarily of mutual funds, which are recorded at market value.
The activity within the separate accounts, including realized and unrealized
gains or losses on its investments, has no effect on net income or
policyholders' surplus of the Company.
CASH AND CASH EQUIVALENTS
The Company considers short-term investments with an original maturity of three
months or less to be cash equivalents.
FEDERAL INCOME TAXES
Western and Southern files a consolidated tax return with its eligible
subsidiaries, including the Company. The provision for federal income taxes is
allocated to the Company using a separate return method based upon a written
agreement. Under the agreement, the benefits from losses of subsidiaries are not
retained by the subsidiary companies but are allocated among those companies in
the consolidated group having taxable income.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting practices
prescribed or permitted by insurance regulatory authorities requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
RECLASSIFICATION
Previously reported amounts for 1998 have in some instances been reclassified to
conform to the 1999 presentation.
12
<PAGE>
Western-Southern Life Assurance Company
Notes to Statutory-Basis Financial Statements
3. DEBT AND EQUITY SECURITIES
Fair values for debt securities are based on quoted market prices. The amortized
cost and estimated fair values of investments in debt securities at December 31,
1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999
---------------------------------------------------------------
Amortized Cost Unrealized Unrealized Estimated
Gains Losses Fair Value
--------------- --------------- --------------- ---------------
(in thousands)
U.S. Treasury securities and obligations of
U.S. government corporations and agencies
<S> <C> <C> <C> <C>
$ 37,379 $ 115 $ 1,500 $ 35,994
Debt securities issued by states of the
U.S. and political subdivisions of the
states 40,736 984 409 41,311
Corporate securities 2,190,337 16,339 86,174 2,120,502
Mortgage-backed securities 1,247,010 6,053 33,427 1,219,636
--------------- --------------- --------------- ---------------
Total $ 3,515,462 $ 23,491 $ 121,510 $ 3,417,443
=============== =============== =============== ===============
1998
-------------- --------------- ---------------- ---------------
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
-------------- --------------- ---------------- ---------------
(in thousands)
U.S. Treasury securities and obligations of
U.S. government corporations and agencies
$ 57,830 $ 1,721 $ 321 $ 59,230
Debt securities issued by states of the
U.S. and political subdivisions of the
states 85,647 6,582 92,226
3
Corporate securities 1,892,905 91,970 19,520 1,965,355
Mortgage-backed securities 1,094,929 27,111 1,063 1,120,977
--------------- --------------- --------------- --------------
Total $ 3,131,311 $ 127,384 $ 20,907 $ 3,237,788
=============== =============== =============== ==============
</TABLE>
13
<PAGE>
<PAGE>
Western-Southern Life Assurance Company
Notes to Statutory-Basis Financial Statements
3. DEBT AND EQUITY SECURITIES (continued)
The amortized cost and estimated fair value of debt securities at December 31,
1999, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Cost Estimated Fair Value
(in thousands)
<S> <C> <C>
Due in one year or less $ 56,194 $ 55,975
Due after one year through five years 911,723 898,407
Due after five years through ten years 883,964 844,669
Due after 10 years 416,571 398,756
Mortgage-backed securities 1,247,010 1,219,636
Total $ 3,515,462 $ 3,417,443
</TABLE>
Proceeds from sales of investments in debt securities during 1999 and 1998 were
$1,148,425,000 and $1,230,984,000, respectively. Gross gains of $13,397,000 and
$24,034,000 and gross losses of $14,950,000 and $6,483,000 were realized on
those sales in 1999 and 1998, respectively.
14
<PAGE>
Western-Southern Life Assurance Company
Notes to Statutory-Basis Financial Statements
3. DEBT AND EQUITY SECURITIES (continued)
Unrealized gains and losses on investments in common stocks and on investments
in subsidiaries are reported directly in equity and do not affect net income.
The gross unrealized gains and gross unrealized losses on, and the cost and fair
value of those investments and preferred stocks are as follows:
<TABLE>
<CAPTION>
1999
---------------------------------------------------------------
Unrealized Unrealized
Cost Gains Losses Fair Value
--------------- --------------- --------------- ---------------
(in thousands)
<S> <C> <C> <C> <C>
Preferred stocks $ 46,218 $ - $ 4,321 $ 41,897
=============== =============== =============== ===============
Common stocks $ 54,831 $ 12,502 $ 5,915 $ 61,418
Subsidiaries 38,395 - 38,395
--------------- --------------- --------------- ---------------
Total common stock $ 93,226 $ 12,502 $ 44,310 $ 61,418
=============== =============== =============== ===============
1998
---------------------------------------------------------------
Unrealized Unrealized
Cost Gains Losses Fair Value
--------------- --------------- --------------- ---------------
(in thousands)
Preferred stocks $ 42,421 $ 822 $ 308 $ 42,935
=============== =============== =============== ===============
Common stocks $ 48,130 $ 6,613 $ 4,990 $ 49,753
Subsidiaries 29,669 - 29,669 -
--------------- --------------- --------------- ---------------
Total common stock $ 77,779 $ 6,613 $ 34,659 $ 49,753
=============== =============== =============== ===============
</TABLE>
Proceeds from sales of investments in equity securities during 1999 and 1998
were $8,245,000 and $79,793,000, respectively. There were no realized gains for
1999 and $7,148,000 for 1998. Gross losses of $1,000 and $1,537,000 were
realized on these sales in 1999 and 1998, respectively.
15
<PAGE>
Western-Southern Life Assurance Company
Notes to Statutory-Basis Financial Statements
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following sets forth the fair values of the Company's financial instruments.
Fair values for debt, equity and short term investment securities are based on
quoted market prices. See footnote 3 for fair value disclosures.
The fair values for mortgage loans, consisting principally of commercial real
estate loans, are estimated using discounted cash flow analyses, using interest
rates currently being offered for similar loans collateralized by properties
with similar investment risk. The fair values for mortgage loans in default are
established at the lower of the fair market value of the related underlying
collateral or carrying value of the loan. Carrying and fair values of mortgage
loans were $204,451,000 and $202,643,000, and $154,593,000 and $161,615,000 at
December 31, 1999 and 1998, respectively.
The fair values for the Company's liabilities under investment-type insurance
contracts are estimated using discounted cash flow calculations based on
interest rates currently being offered for similar contracts with maturities
consistent with those remaining for the contracts being valued. Carrying and
fair values of investment-type contract reserves are $2,653,410,000 and
$2,615,287,000, and $2,228,960,000 and $2,201,779,000 at December 31, 1999 and
1998, respectively.
The Company believes it is not practicable to estimate the fair value of policy
loans. These assets, totaling $50,261,000 and $50,767,000 at December 31, 1999
and 1998, respectively, are carried at their aggregate unpaid principal
balances. Estimation of the fair value is not practicable as the loans have no
stated maturity and are an integral part of the related insurance contracts.
Certain reserves for investment-type insurance contracts do not include
mortality or morbidity risk. Fair values for insurance reserves are not required
to be disclosed. However, the estimated fair values of all insurance reserves
and investment contracts are taken into consideration in the Company's overall
management of interest rate risk.
16
<PAGE>
Western-Southern Life Assurance Company
Notes to Statutory-Basis Financial Statements
5. CONCENTRATIONS AT CREDIT RISK
Interest changes may have temporary effects on the sale and profitability of
annuity products offered by the Company. Although the rates offered by the
Company are adjustable in the long-term, in the short-term they may be subject
to contractual and competitive restrictions which may prevent timely adjustment.
The Company's management constantly monitors interest rates with respect to a
spectrum of duration and sells annuities that permit flexible responses to
interest rate changes as part of the Company's management of interest spreads.
However, adverse changes in investment yields on invested assets will affect the
earnings on those products with a guaranteed return.
At December 31, 1999, the Company held unrated or less-than-investment grade
corporate bonds of $294,268,000, with an aggregate fair value of $270,421,000.
Those holdings amounted to 8.4% of the Company's investments in bonds and 6.8%
of the Company's total admitted assets. The Company performs periodic
evaluations of the relative credit standing of the issuers of these bonds. The
Company considers these evaluations in their overall investment strategy.
The Company's investments in mortgage loans principally involve commercial real
estate. At December 31, 1999, 51.8% of such mortgages ($105,799,000) involved
properties located in Ohio and Texas. Such investments consist of first mortgage
liens on completed income-producing properties; the mortgage outstanding on any
individual property does not exceed $21,500,000.
During 1999, the respective maximum and minimum lending rates for new commercial
mortgage loans issued were 8.1% and 7.5%. No other categories of mortgage loans
were issued. At the issuance of a loan, the percentage of loan to value on any
one loan does not exceed 80%. At December 31, 1999, the Company held no
mortgages with interest overdue beyond one year. At December 31, 1999, the
Company's investments in mortgage loans were not subject to prior liens. All
properties covered by mortgage loans have fire insurance at least equal to the
excess of the loan over the maximum loan that would be allowed on the land
without the building. During 1999, the Company did not reduce interest rates on
any outstanding mortgages. At December 31, 1999 the Company held no mortgage
loans that require payments of principal or interest be made based upon cash
flows generated by the property serving as collateral for the loans or that have
a diminutive payment required.
17
<PAGE>
Western-Southern Life Assurance Company
Notes to Statutory-Basis Financial Statements
6. RELATED PARTY TRANSACTIONS
The Company has three modified coinsurance agreements under which it cedes all
of its universal life insurance business to its parent. Under the terms of the
agreement, the Company retains the reserves and related assets. The Company also
records in its summaries of operations premiums less experience refunds,
commissions, adjustments to reserves as specified in the agreement, benefits
incurred and other related expenses of this business. The net effect of the
agreements on operations of the Company has been recorded as an increase in
general expenses of $8,536,000 and $6,922,000 in 1999 and 1998, respectively.
The Company also has a coinsurance agreement under which it assumes all of its
parent's flexible premium annuity business. Under the terms of this agreement,
the Company assumed reserves of $22,819,000 and $25,255,000 as of December 31,
1999 and 1998, respectively. Amounts included in the statements of income
resulting from this agreement are as follows:
1999 1998
-----------------------------------------
(in thousands)
Premiums $ 189 $ 735
Net investment income (2,248) 1,633
Benefits and expenses 4,285 3,689
Decrease in policy reserves (2,436) (1,879)
Reinsurance of risk does not discharge the primary liability of the Company, the
Company remains contingently liable with respect to any reinsurance ceded, and
this contingency would become an actual liability in the event that the assuming
company becomes unable to meet its obligation under the reinsurance agreement.
The Company has no employees of its own and reimburses its parent for management
services and rent. Management services provided by the parent amounted to
$34,942,000 and $41,232,000 in 1999 and 1998, respectively. Rent expense was
$4,585,000 and $4,155,000 in 1999 and 1998, respectively.
18
<PAGE>
Western-Southern Life Assurance Company
Notes to Statutory-Basis Financial Statements
6. RELATED PARTY TRANSACTIONS (continued)
During 1999 and 1998, the Company made capital contributions of $8,726,000 and
$5,090,000 respectively, to its wholly owned subsidiary IFS Financial Services
(IFS). Additionally, the Company pays commissions to IFS for sales made on
behalf of the Company. These commissions totaled $5,076,000 and $2,358,000 in
1999 and 1998, respectively.
At December 31, 1999 and 1998, the Company had $55,338,000 and $43,537,000,
respectively, invested in the Touchstone Funds, mutual funds administered by
Touchstone Advisors, Inc., a wholly owned subsidiary of IFS.
7. FEDERAL INCOME TAXES
The federal income tax provision reflects an effective tax rate different than
the prevailing federal income tax rate due in part to various exclusions and
special deductions available to life insurance companies. Following is a
reconciliation between the amount of tax computed at the federal statutory rate
of 35% and the federal income tax provision (exclusive of taxes related to
capital gains or losses) reflected in the statements of income:
<TABLE>
<CAPTION>
1999 1998
----------------------------------
(in thousands)
<S> <C> <C>
Income tax computed at statutory rate $ 11,857 $ 9,003
Increase (decrease) in taxes resulting from:
Adjustments to statutory reserves for tax purposes 6,000 296
Deferred acquisition costs recorded for tax purposes 3,214 1,193
Reclassification of capital gains to ordinary income 1,174 911
Bond discount accrual (2,930) (3,011)
Difference between book and tax income from
investments in partnerships 602 (1,450)
Amortization of IMR (2,073) (2,263)
Changes in prior period estimates (142) 1,362
Other
Federal income taxes 59 347
---------------- -----------------
$ 17,761 $ 6,388
================ =================
</TABLE>
The Company made tax payments in the amount of $9,419,000 and $11,925,000 in
1999 and 1998, respectively.
19
<PAGE>
Western-Southern Life Assurance Company
Notes to Statutory-Basis Financial Statements
8. RECONCILIATION TO ANNUAL STATEMENT
Certain items on the balance sheet have been reclassified which results in a
difference between the audited total assets and total assets for the 1999 and
1998 annual statements. The reclasses had no effect on income or capital and
surplus. Reconciliation to the annual statement total assets as of December 31,
1999 and 1998 is summarized as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------------
(in thousands)
<S> <C> <C>
Total assets per audited balance sheet $ 4,326,079 $ 3,831,512
Life insurance premium and annuity considerations
deferred and uncollected (27,545) (27,643)
Unpaid losses on reinsurance ceded (6,707) (6,870)
------------------ -----------------
Total assets per annual statement $ 4,291,827 $ 3,796,999
================== =================
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
Various lawsuits have arisen in the ordinary course of the Company's business.
In each of the matters, the Company believes its defenses are meritorious and
that the eventual outcome will not have a material effect on the Company's
financial position.
At December 31, 1999 the Company does not have any material leases for office
space or equipment.
10. REGULATORY RESTRICTIONS
The Company is required by statutory regulations to meet minimum risked-based
capital standards. Risk-based capital is a method of measuring the minimum
amount of capital appropriate for an insurance company to support its overall
business operations in consideration of its size and risk profile. At December
31, 1999 and 1998, the Company substantially exceeded the minimum risk-based
capital standards.
State regulatory authorities have powers relating to granting and revoking
licenses to transact business, the licensing of agents, the regulation of
premium rates and trade practices, the form and content of insurance policies,
the content of advertising material, financial statements and the nature of
permitted practices.
20
<PAGE>
Western-Southern Life Assurance Company
Notes to Statutory-Basis Financial Statements
10. REGULATORY RESTRICTIONS (continued)
Under Ohio law, the Company is subject to certain statutory restrictions on
dividends it may pay to its parent. Dividends paid from other than "earned
surplus" also require prior regulatory approval. During 1999, the Company did
not pay dividends to Western and Southern.
11. ANNUITY RESERVES
At December 31, 1999, the Company's annuity reserves and deposit fund
liabilities that are subject to discretionary withdrawal (with adjustment),
subject to discretionary withdrawal (without adjustment), and not subject to
discretionary withdrawal provisions are summarized as follows:
<TABLE>
<CAPTION>
Amount Percent
(in thousands)
Subject to discretionary withdrawal:
<S> <C> <C> <C>
At book value less current surrender charge of 5% or more $1,709,931 62.6%
Subject to discretionary withdrawal (without
adjustment) at book value with minimal or no
charge or adjustment 960,368 35.1
Not subject to discretionary withdrawal * 63,674 2.3
Total net annuity reserves and deposit fund liabilities 2,733,973 100%
================ ============
</TABLE>
* Amount is net of $32,000 of reserves ceded through a reinsurance agreement.
The net annuity reserves and deposit fund liabilities shown above are included
in "Policy reserves" in the balance sheets.
12. SEPARATE ACCOUNTS
21
<PAGE>
Western-Southern Life Assurance Company
Notes to Statutory-Basis Financial Statements
Separate accounts held by the Company represent funds, which are administered
for variable annuity contracts. The assets consist of mutual funds. The assets
are carried at market value.
The separate account assets do not have any minimum guarantees and the
investment risks associated with market value changes are borne entirely by the
policyholder.
Information regarding the separate accounts of the Company as of and for the
year ended December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Nonguaranteed
Separate Accounts
----------------------
(in thousands)
Premiums, deposits and other considerations for the year ended December 31, 1999
<S> <C>
$ 53,011
======================
Reserves for separate accounts as of December 31, 1999
(all subject to discretionary withdrawal) $273,195
======================
A reconciliation of the amounts transferred to and from the separate accounts is
presented below:
1999
----------------------
----------------------
(in thousands)
Transfers as reported in the statements of income of the separate accounts
statement:
Transfers to separate accounts $ 53,011
Transfers from separate accounts 39,772
----------------------
----------------------
Net transfers to separate accounts 13,239
Reconciling Adjustments:
Miscellaneous income 70
----------------------
Net transfers as reported in the statements of income $ 13,309
======================
</TABLE>
22
<PAGE>
Western-Southern Life Assurance Company
Notes to Statutory-Basis Financial Statements
13. SUBSEQUENT EVENT
On April 18, 2000, Western and Southern's Board of Directors adopted a plan of
reorganization under Ohio's law. This plan of reorganization provides for the
reorganization of Western and Southern as a stock life insurance company that is
initially a wholly owned subsidiary, and at all times must be at least
majority-controlled subsidiary, of a mutual insurance holding company in
accordance with the requirements of Sections 3913.25 to 3913.38 of the Ohio
Revised Code. To become effective, the plan of reorganization must be approved
by policyholders, and thereafter by the Superintendent of Insurance of the State
of Ohio.
23
<PAGE>
Report of Independent Auditors on Other Financial Information
To the Board of Directors of
Western-Southern Life Assurance Company
Our audit was conducted for the purpose of forming an opinion on the
statutory-basis financial statements taken as a whole. The accompanying
supplemental schedule of selected statutory-basis financial data is presented to
comply with the National Association of Insurance Commissioners' Annual
Statement Instructions and is not a required part of the statutory-basis
financial statements. Such information has been subjected to the auditing
procedures applied in our audit of the statutory-basis financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
statutory-basis financial statements taken as a whole.
This report is intended solely for the information and use of the Company and
state insurance regulatory authorities and is not intended to be and should not
be used for anyone other than these specified parties.
/s/ ERNST & YOUNG LLP
April 18, 2000
24
<PAGE>
Western-Southern Life Assurance Company
Supplemental Schedule of Selected Statutory-Basis Financial Data
for the year ended December 31, 1999
(in thousands)
Investment income earned:
Government bonds $ 23,996
Other bonds (unaffiliated) 209,441
Bonds of affiliates 883
Preferred stocks (unaffiliated) 3,819
Preferred stocks of affiliates -
Common stocks (unaffiliated) 6,830
Common stocks of affiliates -
Mortgage loans 14,308
Real estate 1,013
Premium notes, policy loans and liens 3,573
Collateral loans -
Cash on hand and on deposit 1
Short-term investment 8,162
Other invested assets 13
Derivative instruments -
Aggregate write-ins for investment income 312
Gross investment income 272,351
Real estate owned - book value less encumbrances 7,828
Mortgage loans - book value
Farm mortgages -
Residential mortgages -
Commercial mortgages 204,451
Total mortgage loans 204,451
Mortgage loans by standing - book value:
Good standing 204,451
Good standing with restructured terms -
Interest overdue more than three months, not in
foreclosure -
Foreclosure in process -
Other long-term assets - statement value:
Collateral loans -
Bonds and stocks of parents, subsidiaries and
affiliates - book value:
Bonds 3,930
Preferred stocks -
Common stocks 38,395
25
<PAGE>
Western-Southern Life Assurance Company
Supplemental Schedule of Selected Statutory-Basis Financial Data
for the year ended December 31, 1999
(in thousands)
Bonds and short-term investments by class and maturity:
Bonds by maturity - statement value due within
one year or less $ 180,260
Over 1 year through 5 years 1,217,029
Over 5 years through 10 years 1,219,224
Over 10 years through 20 years 367,234
Over 20 years 599,612
Total by maturity 3,583,359
Bonds by class - statement value:
Class 1 2,562,873
Class 2 726,218
Class 3 138,897
Class 4 127,167
Class 5 28,204
Class 6 -
Total by class 3,583,359
Total bonds publicly traded 3,176,254
Total bonds privately placed 407,105
Preferred stocks - statement value 46,218
Common stocks - market value 61,418
Short-term investments - book value 67,898
Financial options owned - statement value -
Financial options written and in force - statement value -
Financial future contracts open - current price -
Life insurance in force:
Industrial -
Ordinary 20,763,751
Credit life -
Group life -
Amount of accidental death insurance under ordinary
policies 1,020,362
26
<PAGE>
Western-Southern Life Assurance Company
Supplemental Schedule of Selected Statutory-Basis Financial Data
for the year ended December 31, 1999
(in thousands)
Life insurance policies with disability provisions
in force: $
Industrial -
Ordinary 10,971,308
Credit life -
Group life -
Supplemental contract in force:
Ordinary - not involving life contingencies
Amount on deposit 1,968
Income payable 3,865
Ordinary - involving life contingencies
Amount on deposit -
Income payable 888
Annuities:
Ordinary:
Immediate - amount of income payable 7,964
Deferred - fully paid account balance 1,552,493
Deferred - Not fully paid - account balance 1,118,942
Group:
Amount of income payable -
Fully paid account balance -
Not fully paid account balance -
Accident and health insurance - premium in force:
Ordinary -
Group -
Credit -
Deposit funds and dividend accumulations:
Deposit funds - account balance 85
Dividend accumulation - account balance -
27
<PAGE>
Western-Southern Life Assurance Company
Supplemental Schedule of Selected Statutory-Basis Financial Data
for the year ended December 31, 1999
(in thousands)
Claim payments 1999:
Group and accident and health year ended
December 31, 1999 $
1999 -
1998 -
1997 -
Other accident and health
1999 -
1998 -
1997 -
Other coverages that use developmental methods to calculate
1999 -
1998 -
1997 -
28
<PAGE>
Distributor
Touchstone Securities, Inc. Sub-Accounts
311 Pike Street
Cincinnati, Ohio 45202 o AIM V.I. Growth
(800) 669-2796 (press 3) o AIM V.I. Government Securities
o Alger American Small
Capitalization
Sponsor o Alger American Growth
o Deutsche Equity 500 Index
Touchstone Advisors, Inc. o MFS VIT Emerging Growth
311 Pike Street o MFS VIT Growth with Income
Cincinnati, Ohio 45202 o PIMCO Long-Term U.S. Government
Bond
o Touchstone Small Cap Value
Touchstone Variable Annuity Service Center o Touchstone Emerging Growth
o Touchstone International Equity
Touchstone Variable Annuity Service Center o Touchstone High Yield
P.O. Box 2850 o Touchstone Value Plus
Cincinnati, Ohio 45201-2850 o Touchstone Growth & Income
(800) 669-2796 (press 2) o Touchstone Enhanced 30
o Touchstone Balanced
Transfer Agent o Touchstone Bond
o Touchstone Standby Income
State Street Bank and Trust Company o Touchstone Income Opportunity
P.O. Box 8578
Boston, Massachusetts 02266-8518
Administrator, Custodian
and Fund Accounting Agent
Investors Bank & Trust Company STATEMENT OF
200 Clarendon Street ADDITIONAL INFORMATION
Boston, Massachusetts 02116 May 1, 2000
Independent Accountants
Ernst & Young LLP
250 East Fifth Street
Cincinnati, Ohio 45202
Legal Counsel
Frost & Jacobs LLP
2500 PNC Center
201 East Fifth Street
Cincinnati, Ohio 45202
<PAGE>
PART C
ITEM 24 -- FINANCIAL STATEMENTS AND EXHIBITS
(a) No financial statements are included in Part A.
The following financial statements are incorporated by reference into
Part B:
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY SEPARATE ACCOUNT 1
(1) Report of Ernst & Young LLP.
(2) Report of PricewaterhouseCoopers LLP.
(3) Statement of Net Assets as of December 31, 1999.
(4) Statement of Operations and Changes in Net Assets for the
periods ended December 31, 1999 and 1998.
(5) Notes to Financial Statements.
(6) Supplementary Information - Selected Per Unit Data and Ratios
for the period ended December 31, 1999.
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
(1) Report of Ernst & Young LLP.
(2) Report of PricewaterhouseCoopers LLP.
(3) Statuory-basis Balance Sheets as of December 31, 1999
and 1998.
(4) Statutory-basis Statements of Income for the years ended
December 31, 1999 and 1998.
(5) Statutory-basis Statements of Changes in Capital and Surplus
for the years ended December 31, 1999 and 1998.
(6) Statutory-basis Statements of Cash Flows for the years ended
December 31, 1999 and 1998.
(7) Notes to statutory-basis Financial Statements.
(8) Supplemental Schedule for Selected Statutory-Basis Financial
Data for the year ended December 31, 1999.
(b) Exhibits:
(1) Resolutions of the Executive Committee of the Board of Directors
of Western-Southern Life Assurance Company (the "Company")
establishing Western-Southern Life Assurance Company Separate
Account 1. (5)
(2) Not Applicable.
-1-
<PAGE>
(3) (a) Distributor Agreement between the Company (on behalf
of Separate Account 1) and Touchstone Securities,
Inc.(3)
(b) Commission Schedule. (3)
(c) Specimens of General Agency Agreement.(5)
(4) (a) Specimen Touchstone Variable Annuity Contract 9408-5550
WSA.(5)
(b) Specimen Endorsement for SIMPLE IRA 9801-5600 WSA
END.(5)
(c) Specimen Endorsement for IRA 9801-5606 WSA END.(5)
(d) Specimen Endorsement for SEP-IRA 9801-5614 WSA END.(5)
(e) Specimen Tax Sheltered Annuity Endorsement 9801-5610
WSA END. (5)
(f) Specimen Endorsement for Roth IRA 9801-5607 WSA END.(5)
(g) Specimen 401 Plan Endorsement 9801-5611 WSA END.(5)
(h) Specimen Charitable Remainder Unitrust Endorsement
9611-5612 WSA END.(5)
(i) Specimen Free Withdrawal Amount Endorsement 9611-5613
WSA END.(5)
(j) Specimen Additional Waiver of Surrender Charges Rider
9501-5201 WSA. (5)
(k) Specimen Endorsement 9912-5573 WSA END.
(5) Specimen Application Form for Touchstone Variable Annuity
DO-11-IFS-VARI-9805. (5)
(6) (a) Amended Articles of Incorporation of the Company. (1)
(b) Amended Code of Regulations of the Company. (1)
(7) Not Applicable.
(8) (a) (i) Administration Agreement between Investors Bank &
Trust Company and Select Advisors Variable
Insurance Trust ("VIT") n/k/a Touchstone Variable
Series Trust ("TVST"). (2)
(ii) Amendment to Administration Agreement. (4)
(b) Fund Accounting Agreement between Investors Bank &
Trust Company and VIT n/k/a TVST. (2)
-2-
<PAGE>
(c) Amended and Restated Custodian Agreement between
Investors Bank & Trust Company and VIT n/k/a TVST. (6)
(d) Restated and Amended Sponsor Agreement between
Touchstone Advisors, Inc. and TVST.
(e) (i) Fund Participation Agreement between
Western-Southern Life Assurance Company ("WSLAC")
and VIT n/k/a TVST.
(ii) Amendment No. 1 to Fund Participation Agreement
between WSLAC and TVST.
(iii) Participation Agreement among The Alger American
Fund, WSLAC and Fred Alger & Company.
(iv) Service Agreement between Fred Alger Management
Inc. and WSLAC.
(v) Participation Agreement among AIM Variable
Insurance Funds, Inc., WSLAC and Touchstone
Securities, Inc.
(vi) Participation Agreement among MFS Variable
Insurance Trust, WSLAC and Massachusetts
Financial Services Company.
(vii) Participation Agreement among WSLAC, PIMCO
Variable Insurance Trust and PIMCO Funds
Distributors LLC.
(viii) Service Agreement between PIMCO Funds
Distributors LLC and WSLAC.
(ix) Administrative Service Agreement between WSLAC
and AIM Advisors, Inc.
(9) Opinion and Consent of Donald J. Wuebbling, Esq. (5)
(10) (a) Consent of Ernst & Young LLP.
(b) Consent of PricewaterhouseCoopers LLP
(11) Not Applicable.
(12) Not Applicable.
(13) Schedule for Computation of Performance Quotations provided in
Registration Statement in response to Item 21. (3)
(14) Not Applicable.
-3-
<PAGE>
(99) Powers of Attorney -- Directors of the Company.
- -------------------------------------------------------------------------------
(1) Incorporated herein by reference to Post-Effective
Amendment No. 2 to the Registration Statement of the
Registrant filed with the Securities and Exchange
Commission (the "SEC") on April 29, 1996 (File Nos.
33-76582 and 811-8420).
(2) Incorporated herein by reference to Post-Effective
Amendment No. 3 to the Registration Statement of TVST
filed with the SEC on February 28, 1997 (File Nos.
033-76566 and 811-08416).
(3) Incorporated herein by reference to Post-Effective
Amendment No. 7 to the Registration Statement of the
Registrant filed with the SEC on May 1, 1998 (File
Nos. 33-76582 and 811-8420).
(4) Incorporated herein by reference to Post-Effective
Amendment No. 8 to the Registration Statement of TVST
filed with the SEC on July 30, 1998 (File Nos.
033-76566 and 811-08416).
(5) Incorporated herein by reference to Post-Effective
Amendment No. 9 to the Registration Statement of the
Registrant filed with the SEC on November 5, 1998
(File Nos. 33-76582 and 811-8420).
(6) Incorporated herein by reference to Post-Effective
Amendment No. 11 to the Registration Statement of
TVST filed with the SEC on April 30, 1999 (File Nos.
033-76566 and 811-08416).
ITEM 25. -- DIRECTORS AND OFFICERS OF THE DEPOSITOR
The directors and officers of the Company are listed below. Unless
otherwise noted, the principal business address of all persons listed in
Item 25 is 400 Broadway, Cincinnati, Ohio 45202.
William J. Williams Chairman of the Board and Director
John F. Barrett Director, Chief Executive Officer
and President
James N. Clark Director and Secretary
Dr. J. Harold Kotte Director
Dr. Lawrence C. Hawkins Director
Omni-Man, Inc.
3909 Reading Road
Cincinnati, Ohio 45229
Eugene P. Ruehlmann Director
Vorys, Sater, Seymour and Pease
Suite 2100 Atrium Two
221 East Fourth Street
Cincinnati, Ohio 45202
-4-
<PAGE>
Thomas L. Williams Director
North American Properties
212 East Third Street
Suite 300
Cincinnati, Ohio 45202
Donald A. Bliss Director
10892 East Fanfol Lane
Scottsdale, Arizona 85259
George H. Walker Director
Stifel, Nicolaus & Co.
500 N. Broadway
St. Louis, Missouri 63102
Rev. James E. Hoff, S.J. Director
Xavier University
3800 Victory Parkway
Cincinnati, Ohio 45207]
Herbert R. Brown Vice President
Keith T. Clark Vice President and Medical Director
Bryan C. Dunn Senior Vice President and Chief
Marketing Officer
David G. Ennis Vice President and Auditor
Noreen J. Hayes Senior Vice President
Edward S. Heenan Vice President and Comptroller
Dale P. Hennie Senior Vice President
Carroll R. Hutchinson Senior Vice President
William F. Ledwin Senior Vice President and Chief
Investment Officer
Harold V. Lyons Vice President and Actuary
-5-
<PAGE>
Nora E. Moushey Senior Vice President and Chief
Actuary
Jill T. McGruder Senior Vice President
J. J. Miller Senior Vice President
Mario J. San Marco Vice President
Thomas M. Stapleton Vice President
Robert H. Starnes Vice President
Richard K. Taulbee Vice President
Robert L. Walker Senior Vice President and Chief
Financial Officer
Donald J. Wuebbling Senior Vice President and
General Counsel
James J. Vance Treasurer
ITEM 26. -- PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR 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.
-6-
<PAGE>
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.
Seasons Congregate Living, Inc.; Ohio corporation; 100% owned
by WSLIC; ownership and operation of real estate.
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 Washigton Investment Advisors, Inc.; registered invest-
ment adviser.
Countrywide Financial Services, Inc. ("CFS"); Ohio corporation,
100% owned by Fort Washington Investment Advisors, Inc.;
financial services company.
Countrywide Fund Services, Inc.; Ohio corporation; 100%
owned by CFS; registered transfer agent.
Countrywide Investments, Inc.; Ohio corporation; 100%
owned by CFS; registered investment advisor and
registered broker-dealer.
CW Fund Distributors, Inc.; Delaware corporation; 100%
owned by CFS; registered broker-dealer.
-7-
<PAGE>
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.
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.
-8-
<PAGE>
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 December 31, 1999, there were 2,964 owners of Qualified Contracts
and 2,809 owners of Non-Qualified Contracts offered pursuant to this
Registration Statement (Touchstone Gold Variable Annuity Contracts).
ITEM 28. -- INDEMNIFICATION
The Amended Code of Regulations of the Company provides that, to the
fullest extent not prohibited by applicable law, the Company shall
indemnify each director, officer and employee against any and all costs
and expenses (including attorney fees, judgments, fines, penalties,
amounts paid in settlement, and other disbursements) actually and
reasonably incurred by or imposed upon such director, officer or
employee in connection with any action, suit, investigation or
proceedings (or any claim or other matter therein), whether civil,
criminal, administrative or otherwise in nature, including any
settlements thereof of any appeals therein, with respect to which such
director, officer or employee is named or otherwise becomes or is
threatened to be made a party by reason of being or at any time having
been a director, officer or employee of the Company, or, at the
direction or request of the Company, a director, trustee, officer,
administrator, manager, employee, adviser or other agent of or fiduciary
for any other corporation, partnership, trust, venture or other entity
or enterprise including any employee benefit plan; provided, however,
that no person shall be indemnified to the extent, if any, that the
directors of the Company, acting at a meeting at which a quorum of
directors who are not parties to or threatened with any such action,
suit, investigation or proceeding, determine that such indemnification
is contrary to applicable law.
Any director of the Company who is a party to or threatened with any
such action, suit, investigation or proceeding shall not be qualified to
vote; and if for this reason a quorum of directors, who are not
disqualified from voting by reason of being parties to or threatened
with such action, suit, investigation or proceeding, cannot be obtained,
such determination shall be made by three attorneys at law, who have not
theretofore represented the Company in any matter and who shall be
selected by all of the officers and directors of the Company
-9-
<PAGE>
who are not parties to or threatened with any such action, suit,
investigation or proceeding. If there are no officers or directors who
are qualified to make such selection, the selection shall be made by a
Judge of the Court of Common Pleas of Hamilton County, Ohio. Such
indemnification shall not be deemed exclusive of any other right to
which such director, officer or employee may be entitled under the
Company's articles of incorporation, code of regulations, any
agreement, any insurance purchased by the Company, vote of
shareholders or otherwise.
The Board of Directors of the Company also may, in its discretion,
secure and maintain insurance policies against any liability asserted
against and incurred by any of the Company's directors, officers or
employees.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid
by a trustee, director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted
by such trustee, director, officer or controlling person in connection
with the securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed
in the Act and will be governed by the final adjudication of such
issues.
ITEM 29. -- PRINCIPAL UNDERWRITERS
(a) Touchstone Securities, Inc. ("Touchstone Securities") acts as
distributor for Contracts issued under Western-Southern Life
Assurance Company Separate Accounts 1 and 2 and as distributor
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.
(b) Set forth below are the names, principal business addresses and
positions of each director and officer of Touchstone Securities.
Name Position/Office with
---- Touchstone Securities
---------------------
James N. Clark Director
400 Broadway
Cincinnati, Ohio 45202
Jill T. McGruder Director, Chief Executive
311 Pike Street Officer and President
Cincinnati, Ohio 45202
-10-
<PAGE>
Edward S. Heenan Director and Controller
400 Broadway
Cincinnati, Ohio 45202
William F. Ledwin Director
400 Broadway
Cincinnati, Ohio 45202
Donald J. Wuebbling Director
400 Broadway
Cincinnati, Ohio 45202
Richard K. Taulbee Vice President
400 Broadway
Cincinnati, Ohio 45202
Robert F. Morand Secretary
400 Broadway
Cincinnati, Ohio 45202
Patricia Wilson Chief Compliance Officer
311 Pike Street
Cincinnati, Ohio 45202
(c) The following table sets forth information about all commissions
and compensation received by the principal underwriter,
Touchstone Securities, Inc.
<TABLE>
<CAPTION>
Net Underwriting Discounts and Compensation on Brokerage Commissions Compensation
Commissions Redemptions
------------------------------- -------------------- ---------------------- ---------------------
<S> <C> <C> <C> <C>
$ 601,693 $ -0- $ -0- $ -0-
</TABLE>
ITEM 30. -- LOCATION OF ACCOUNTS AND RECORDS
Accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules
promulgated thereunder are maintained by the Company at 400 Broadway,
Cincinnati, Ohio 45202.
ITEM 31. -- MANAGEMENT SERVICES
Not Applicable.
-11-
<PAGE>
ITEM 32. -- UNDERTAKINGS
Registrant undertakes to:
(a) 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
Contracts may be accepted;
(b) 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) deliver any Statement of Additional Information and any
financial statements required to be made available under this
Form promptly upon written or oral request directed to the
address or telephone number contained in the Prospectus.
Registrant represents that it is relying upon a "no-action" letter
issued to the American Council of Life Insurance concerning that
conflict between the redeemability requirements of sections 22(e),
27(c)(1) and 27(d) of the Investment Company Act of 1940 and the limits
on the redeemability of variable annuities imposed by Section
403(b)(11) of the Internal Revenue Code. The Registrant has included
disclosure concerning the 403(b)(11) restrictions in its prospectus and
sales literature, and established a procedure whereby each plan
participant will sign a statement acknowledging these restrictions
before a Contract is issued. Sales representatives have been instructed
to bring the restrictions to the attention of potential plan
participants.
Registrant represents that it is relying upon Rule 6c-7 promulgated
under the Investment Company Act of 1940, as amended, with respect to
offering variable annuity contracts to participants in the Texas
Optional Retirement Program ("Program") and that it has complied with
or will comply with the provisions of paragraphs (a)-(d) of Rule 6c-7.
Registrant has included appropriate disclosure regarding the
restrictions on redemption imposed by the Program in each registration
statement, including the prospectus, used in connection with the
Program. Registrant will (1) include appropriate disclosure regarding
the restrictions on redemption imposed by the Program in any sales
literature used in connection with the offer of annuity contracts to
Program participants, (2) instruct sales representatives who solicit
Program participants to purchase annuity contracts specifically to
bring the restrictions on redemption imposed by the Program to the
attention of potential Program participants, and (3) obtain from each
Program participant who purchases an annuity contract in connection
with the Program, prior to or at the time of such purchase, a signed
statement acknowledging the restrictions on redemption imposed by the
Program.
Pursuant to Section 26(e) of the Investment Company Act of 1940, as
amended, Western-Southern Life Assurance Company represents that, with
respect to the Contracts registered with the Commission by this
Registration Statement, as it may be amended,
-12-
<PAGE>
and offered by the Prospectus included in this Registration Statement,
all fees and charges imposed for any purpose and in any manner and
deducted under the Contracts, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be
incurred, and the risks assumed by the Western-Southern Life
Assurance Company.
-13-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Depositor, on behalf of itself and the
Registrant, certifies that the Registrant meets the requirements of Securities
Act Rule 485(b) for effectiveness of this Post-Effective Amendment to
Registrant's Registration Statement and has duly caused this Post-Effective
Amendment No. 11 to Registrant's Registration Statement under the Securities Act
of 1933 (Touchstone Gold Variable Annuity Contract) and Amendment No. 20 to
Registrant's Registration Statement under the Investment Company Act of 1940 to
be signed on its behalf, in the City of Cincinnati and State of Ohio on the
26th day of April, 2000.
WESTERN-SOUTHERN LIFE ASSURANCE
COMPANY SEPARATE ACCOUNT 1
By WESTERN-SOUTHERN LIFE
ASSURANCE COMPANY
By /s/ Edward S. Heenan
--------------------
Edward S. Heenan,
Vice President and Controller
As required by the Securities Act of 1933, this Registration Statement
has been signed below by the following persons in the capacities and on the
date(s) indicated below.
PRINCIPAL EXECUTIVE OFFICER:
/s/ John F. Barrett April 26, 2000
- --------------------------------------------
John F. Barrett,
President, Director and
Chief Executive Officer
PRINCIPAL FINANCIAL OFFICER:
/s/ Robert L. Walker April 26, 2000
- --------------------------------------------
Robert L. Walker,
TreasurerSenior Vice President and
Chief Financial Officer
DIRECTORS:
DONALD A. BLISS
JAMES N. CLARK
LAWRENCE C. HAWKINS
JAMES E. HOFF, S.J. By /s/ Edward S. Heenan
J. HAROLD KOTTE --------------------
EUGENE P. RUEHLMANN Edward S. Heenan,
GEORGE H. WALKER as attorney-in fact for
each Director
THOMAS L. WILLIAMS April 26, 2000
WILLIAM J. WILLIAMS
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE
4 (k) Specimen Endorsement
8 (d) Restated and Amended Sponsor Agreement between
Touchstone Advisors, Inc. and Touchstone
Variable Series Trust ("TVST")
8(e)(i) Fund Participation Agreement between
Western-Southern Life Assurance Company
("WSLAC") and TVST
8 (e)(ii) Amendment No. 1 to Fund Participation Agreement
between WSLAC and TVST
8 (e)(iii) Participation Agreement among The Alger American
Fund, WSLAC and Fred Alger & Company
8 (e)(iv) Service Agreement between Fred Alger Management Inc.
and WSLAC
8 (e)(v) Participation Agreement among AIM Variable Insurance
Funds, Inc., WSLAC and Touchstone Securities, Inc.
8 (e)(vi) Participation Agreement among MFS Variable Insurance
Trust, WSLAC and Massachusetts Financial Services
Company
8 (e)(vii) Participation Agreement among WSLAC, PIMCO Variable
Insurance Trust and PIMCO Funds
Distributors LLC
8 (e)(viii) Service Agreement between PIMCO Funds Distributors
LLC and WSLAC
8 (e)(ix) Administrative Services Agreement between WSLAC and AIM
Advisors, Inc.
10 (a) Consent of Ernst & Young LLP
10 (b) Consent of PricewaterhouseCoopers LLP
99 Powers of Attorney--Directors of the Company
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
ENDORSEMENT
The "Allocation of Purchase Payments" provision set forth in your Contract is
hereby amended in its entirety to read as follows:
ALLOCATION OF PURCHASE PAYMENTS
- --------------------------------------------------------------------------------
You elect to have purchase payments allocated to the Fixed Account
and/or one or more Sub-Accounts of the Variable Account. Each
allocation must be in whole percentages. The sum of the allocation
percentages must equal 100%.
The allocation of the initial purchase payment is set forth on page 3.
Additional purchase payments will be allocated in the same manner as
your initial purchase payment unless you request a change to your
allocation percentages. All purchase payments received after a change
in allocation will be invested in the same manner as your most recent
allocation unless you request another change to your allocation
percentages. Any change to your allocation percentages must be in
writing unless telephone access authorization has been received and
approved by the Company.
The "Transfers" provision set forth in your Contract is hereby amended in its
entirety to read as follows:
TRANSFERS
- --------------------------------------------------------------------------------
You may transfer all or a portion of the Contract Value among the
Sub-Accounts and the Fixed Account. A transfer request must be in
writing unless telephone access authorization has been received and
approved by the Company. Transfers must be in amounts not less than
$250 and may be made:
among Sub-Accounts once every thirty days;
from one or more Sub-Accounts to the Fixed Account once per
Contract Year; and
from the Fixed Account to one or more Sub-Accounts per Contract
Year, restricted to a maximum of 25% of the Fixed Account Value.
When transferring Contract Value to more than one Sub-Account, not less
than 1% of the total amount being transferred can be directed to each
such Sub-Account.
We may at any time revoke or modify the transfer provisions. Any change
will be confirmed in writing to you.
<PAGE>
The following "Dollar Cost Averaging" provision is hereby added to your
Contract:
DOLLAR COST AVERAGING
- --------------------------------------------------------------------------------
You may request in writing, at any time prior to the Income Date, that
the Company automatically transfer specified dollar amounts, earnings
or specified percentages from the Fixed Account or from the Standby
Income Sub-Account to other Sub-Accounts on the monthly or quarterly
anniversary of the Contract Date. You must select this automatic
transfer, known as "Dollar Cost Averaging," for a period of at least 12
months. The minimum Dollar Cost Averaging transfer is $200, with a
minimum allocation per Sub-Account of 1% of the total amount
transferred. Dollar Cost Averaging is available only if the Contract
Value is at least $10,000. Dollar Cost Averaging will terminate when
any of the following occurs: (1) the number of designated transfers has
been completed; (2) the portion of the Contract Value in the Fixed
Account or in the Standby Income Sub-Account is insufficient to
complete the next scheduled transfer; (3) the Contract Owner requests
termination; or (4) the Contract is terminated. A request to terminate
Dollar Cost Averaging must be in writing unless telephone access
authorization has been received and approved by the Company. There is
no charge at this time for Dollar Cost Averaging, but the Company
reserves the right to charge a fee for this service. The Company also
reserves the right to terminate Dollar Cost Averaging, on a prospective
basis, upon 30 days' written notice to you. Such termination would not
affect Dollar Cost Averaging programs already in place.
9912-5572 WSA END
RESTATED AND AMENDED SPONSOR AGREEMENT
RESTATED AND AMENDED SPONSOR AGREEMENT, dated as of May 1, 1999, by and
between Touchstone Variable Series Trust (formerly Select Advisors Variable
Insurance Trust), a Massachusetts business trust (the "Trust"), and Touchstone
Advisors, Inc., an Ohio corporation ("Touchstone");
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940, as amended
(collectively with the rules and regulations promulgated thereunder as amended
from time to time, the "1940 Act");
WHEREAS, the Trust engaged Touchstone to act as the sponsor for, and to
provide certain management and supervisory services with respect to, all
currently existing or future series (each a "Fund") of the Trust, pursuant to a
Sponsor Agreement dated as of September 9, 1994 between the Trust and
Touchstone, as amended (the "Sponsor Agreement); and
WHEREAS, the parties have amended the Sponsor Agreement as reflected in
the following amendments to the Sponsor Agreement: Amendment No. 1 dated as of
May 1, 1998, Amendment No. 2 dated as of January 1, 1999, and Amendment No. 3
dated as of May 1, 1999; and
WHEREAS, the parties wish to amend the Sponsor Agreement to reflect the
addition of the Touchstone Small Cap Value Fund, the Touchstone Enhanced 30 Fund
and the Touchstone High Yield Fund and to restate the Sponsor Agreement in full.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Duties of Touchstone. Subject to the direction and control of the
Board of Trustees of the Trust (the "Board"), Touchstone shall perform such
sponsorship and management and supervisory services as may from time to time be
reasonably requested by the Trust, which shall include without limitation: (a)
providing office space, equipment and clerical personnel necessary for
performing the management functions herein set forth; (b) arranging, if desired
by the Trust, for directors, officers or employees of Touchstone to serve as
Trustees, officers or agents of the Trust if duly elected or appointed to such
positions and subject to their individual consent and to any limitations imposed
by law; (c) supervising the overall administration of the Trust, including the
provision of services to the Trust by the Trust's administrator and fund
accounting agent, transfer agent and custodian, which services include without
limitation: (i) updating of corporate organizational documents, and the
negotiation of contracts and fees with and the monitoring and coordinating of
performance and billings of the Trust's transfer agent, custodian, shareholder
servicing agents and other independent contractors or agents, (ii) the
<PAGE>
preparation of and filing of documents required for compliance by the Trust with
applicable laws and regulations (including state "blue sky" laws and
regulations), including registration statements on Form N-1A (or other
applicable form), prospectuses and statements of additional information and
semi-annual and annual reports to the Trust's shareholders, (iii) reviewing
(including coordinating the preparing of, but not preparing) tax returns, (iv)
preparation of agendas and supporting documents for and minutes of meetings of
Trustees and of committees of Trustees, in each case on behalf of the Funds, or
any of them, and preparation of notices, proxy statements and minutes of
meetings of shareholders of the Trust or of one or more of the Funds, (v) the
maintenance of books and records of the Trust in respect of the Funds, (vi)
telephone coverage to respond to shareholder inquiries regarding the Funds,
(vii) the provision of monitoring reports and assistance regarding the Funds'
compliance with federal securities and tax laws including compliance with the
1940 Act and Subchapter M of the Internal Revenue Code of 1986, as amended,
(viii) the dissemination of yield and other performance information regarding
the Funds to newspapers and tracking services, (ix) the preparation of annual
renewals for fidelity bond and errors and omissions insurance coverage, (x) the
development of a budget for the Trust on behalf of the Funds, the establishment
of the rate of expense accruals and the arrangement of the payment of all fixed
and management expenses of the Funds, and (xi) the determination of each Fund's
net asset value and the provision of all other fund accounting services to the
Funds.
2. Organization Expenses. Touchstone shall pay all of the organization
expenses of the Trust required to be paid prior to the Trust's or any Fund's
commencement of investment operations. The Funds shall reimburse Touchstone,
without any interest or carrying charges, for such organization expenses.
3. Allocation of Charges and Expenses. Touchstone shall pay the entire
salaries and wages of all of the Trust's Trustees, officers and agents who
devote part or all of their time to the affairs of Touchstone or its affiliates,
and the wages and salaries of such persons shall not be deemed to be expenses
incurred by the Trust.
4. Operating Expense Waivers or Reimbursement. Touchstone shall waive
all or a portion of its fee pursuant to this Sponsor Agreement and/or reimburse
a portion of the operating expenses (including amortization of organization
expense, but excluding interest, taxes, brokerage commissions and other
portfolio transaction expenses, capital expenditures and extraordinary expenses)
("Expenses") of each Fund of the Trust such that after such reimbursement the
aggregate Expenses of each such Fund of the Trust shall be equal on an annual
basis to the following percentages of the average daily net assets of the Fund
for the Fund's then-current fiscal year:
-2-
<PAGE>
Touchstone Small Cap Value Fund 1.00%
Touchstone Emerging Growth Fund 1.15%
Touchstone International Equity Fund 1.25%
Touchstone Income Opportunity Fund 0.85%
Touchstone High Yield Fund 0.80%
Touchstone Value Plus Fund 1.15%
Touchstone Growth & Income Fund 0.85%
Touchstone Enhanced 30 Fund 0.75%
Touchstone Balanced Fund 0.90%
Touchstone Bond Fund 0.75%
Touchstone Standby Income Fund 0.50%
Touchstone's obligations in this Section 5 may be terminated, with
respect to any Fund, by Touchstone as of the end of any calendar quarter after
December 31, 1999, upon at least 30 days prior written notice to the Trust (an
"Expense Cap Termination").
5. Compensation of Touchstone. For the services to be rendered, the
facilities to be provided and the expenses to be assumed by Touchstone
hereunder, the Trust shall pay to Touchstone a sponsor fee from the assets of
each Fund equal on an annual basis to 0.20% of the Fund's average daily net
assets for that Fund's then-current fiscal year.
If Touchstone serves under this Agreement for less than the
whole of any month, the compensation to Touchstone hereunder shall be prorated.
For purposes of computing the fees payable to Touchstone hereunder, the net
asset value of each Fund shall be computed in the manner specified in that
Fund's then-current registration statement.
Touchstone hereby waives all of its fees under this Agreement
with respect to each Fund until April 30, 2000.
6. Limitation of Liability of Touchstone. Touchstone shall not be
liable for any error of judgment or mistake of law or for any act or omission in
the sponsorship or management of the Trust or the performance of its duties
hereunder, except for willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of the reckless disregard of its
obligations and duties hereunder. As used in this Section 6, the term
"Touchstone" shall include Touchstone and/or any of its affiliates and the
directors, officers and employees of Touchstone and/or any of its affiliates.
7. Activities of Touchstone. The services of Touchstone to the Trust
are not to be deemed exclusive, Touchstone being free to render similar
sponsorship and management services and/or other services to other parties. It
is understood that Trustees and officers of the Trust, and shareholders of a
Fund are or may become interested in Touchstone and/or any of its affiliates, as
directors, officers, employees, or otherwise, and that directors, officers and
employees of
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Touchstone and/or any of its affiliates are or may become similarly interested
in the Trust and that Touchstone and/or any of its affiliates may be or become
interested in the Trust as a shareholder of a Fund or otherwise.
8. Duration, Termination and Amendment. This Agreement shall become
effective as of the day and year first above written and shall govern the
relations between the parties hereto until terminated in accordance with this
Section 8. Except for an Expense Cap Termination, this Agreement may not be
amended except by an instrument in writing signed by both parties.
This agreement may be terminated, with respect to any Fund or Funds:
(a) by Touchstone, either (i) at the end of the calendar
quarter after December 31, 1999 during which Touchstone has given at
least 30 days advance written notice to the Trust, on behalf of each
such Fund, that it is terminating this agreement as to such fund or
(ii) at such time as Touchstone ceases to be the investment advisor to
each such Fund. In the event of a termination pursuant to the foregoing
clause (i) of the foregoing sentence, each party's obligations
hereunder shall terminate as to each such Fund as of the end of the
calendar quarter in which the notice of termination is given; in the
event of a termination pursuant to clause (ii) of the preceding
sentence, Touchstone's obligations hereunder shall terminate as to each
such Fund as of the effective date of its termination as investment
advisor.
(b) by the Board, or by the vote of a "majority of the
outstanding voting securities" (as such phrase is defined in the 1940
Act) of each such Fund, as of the end of the calendar quarter during
which the Trust, on behalf of each such Fund, has given at least 30
days advance written notice to Touchstone that it is terminating this
agreement as to each such Fund.
9. Subcontracting by Touchstone. Touchstone may subcontract for the
performance of Touchstone's obligations hereunder with any one or more persons;
provided, however, that Touchstone shall be as fully responsible to the Trust
for the acts and omissions of any subcontractor as it would be for its own acts
or omissions.
10. Severability. If any provision of this Agreement shall become or
shall be found to be invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
11. Notice. Any notices under this Agreement shall be in writing
addressed and delivered personally (or by telecopy) or mailed postage-paid, to
the other party at such address as such other party may designate in accordance
with this paragraph for the receipt of such notice. Until further notice to the
other party, it is agreed that the address of the Trust and Touchstone shall be
311 Pike Street, Cincinnati, Ohio 45202.
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12. Miscellaneous. Each party agrees to perform such further actions
and execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Ohio. The captions in this Agreement are
included for convenience only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed in any number of counterparts, each of which shall be
deemed to be an original, but such counterparts shall, together, constitute only
one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written. The
person signing on behalf of the Trust has executed this Agreement not
individually, but as an officer under the Trust's Declaration of Trust, and the
obligations of this Agreement are not binding upon such person or upon any of
the Trust's Trustees, officers or shareholders individually, but bind only the
Trust estate.
TOUCHSTONE VARIABLE SERIES TRUST
By: /s/ Jill T. McGruder
Jill T. McGruder
President
TOUCHSTONE ADVISORS, INC.
By: /s/ Patricia Wilson
Patricia Wilson
Compliance Officer
FUND PARTICIPATION AGREEMENT
This Fund Participation Agreement (the "Agreement"), dated as of the
1st of January, 1999, is made by and among WESTERN-SOUTHERN LIFE ASSURANCE
COMPANY ("Western-Southern"), on its own behalf and on behalf of
Western-Southern Life Assurance Company Separate Account 1 and Western-Southern
Life Assurance Company Separate Account 2 (each a "Separate Account") and the
various sub-accounts of each Separate Account as set forth in Exhibit A attached
hereto (each a "Sub-Account"), and TOUCHSTONE VARIABLE SERIES TRUST (formerly,
the Select Advisors Variable Insurance Trust), a Massachusetts business trust
(the "Trust"), and each separate series of the Trust, as set forth on Exhibit
B-2 attached hereto (each a "Fund" or together the "Funds"), all of which Funds
serve as underlying investment media for the Sub-Accounts.
The parties hereby agree as follows:
1. Representations and Agreements of the Parties.
1.1 The Trust makes the following representations and covenants:
(a) The Trust has been established and is validly existing and in
good standing as a business trust under the laws of the
Commonwealth of Massachusetts and consists of separate series
described in the most recent Post-Effective Amendment to its
Registration Statement on Form N-1A filed with the SEC (the
"Trust Registration Statement").
(b) The Trust is a no-load diversified, open-end, management
investment company and is duly registered under the Investment
Company Act of 1940, as amended (the "1940 Act"). The offering
of the securities of the Trust has been duly registered under
the Securities Act of 1933, as amended (the "1933 Act").
(c) The Trust has supplied the information regarding the Trust and
each of the Funds to Western-Southern for inclusion in the
Post-Effective Amendments to the Registration Statements filed
by Western-Southern with the SEC (the "Western-Southern
Registration Statements") for of the Contracts (as defined in
Section 1.2) to be issued by each of the Separate Accounts.
The information does not contain any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading.
(d) The Trust Registration Statement does not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or a material fact that is
necessary in order to make the statements therein not
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misleading. This representation does not extend to statements
or omissions made in reliance upon and in conformity with
written information furnished by Western-Southern for
inclusion in the Trust Registration Statement.
(e) The Trust and each Fund will comply with and qualify under the
requirements applicable to regulated investment companies
under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), and the Trust will notify
Western-Southern immediately upon having a reasonable basis
for believing that the Trust or any Fund has ceased to comply
with these requirements.
(f) Each Fund will comply with the diversification requirements
set forth in Section 5(b)(1) of the 1940 Act and Section
817(h) of the Code and Section 1.817-5(b) of the regulations
under the Code, and the Trust will cause each Fund to comply
with these diversification requirements. The Trust will notify
Western-Southern immediately upon having a reasonable basis
for believing that any Fund has ceased to meet these
requirements or might not meet these requirements in the
future.
(g) Except for shares or interests sold for organizational
purposes prior to the effective date of its initial
Registration Statement, the Trust will not sell shares of or
interests in the Funds to purchasers other than the Separate
Accounts or one or more other separate accounts established by
Western-Southern or other life insurance companies.
1.2 Western-Southern represents and covenants as follows:
(a) It is an insurance company duly organized and in good standing
under applicable law and has legally and validly established
the Separate Accounts as separate accounts under Ohio law, and
has registered each Separate Account as a unit investment
trust under the 1940 Act to serve as an investment vehicle for
variable annuity contracts to be offered by the Separate
Accounts (the "Contracts").
(b) The Contracts provide for the allocation of net amounts
received by Western-Southern to the Separate Accounts and to
the Sub-Accounts. Selection of a particular Sub-Account is
made by the Contract owner, who may change such selection from
time to time in accordance with the terms of the applicable
Contract.
(c) The offering of the Contracts has been registered under the
1933 Act.
(d) Each Sub-Account is a "segregated asset account" for purposes
of diversification testing. Interests in each Sub-Account are
offered exclusively through the purchase of a "variable
contract," within the meaning of such term under Section
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817(d) of the Code. Western-Southern will exercise its best
efforts to continue to meet such definitional requirements,
and will notify the Trust immediately upon having a reasonable
basis for believing that a Sub-Account has ceased to meet
these requirements or might not meet these requirements in the
future.
(e) The information regarding Western-Southern and the Separate
Accounts that Western-Southern and the Separate Account have
supplied to the Trust for inclusion in the Trust Registration
Statement does not contain any untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading.
1.3 The representations and covenants contained in Sections 1.1 and
1.2 are continuing representations and covenants of each party making them and
must be satisfied throughout the term of this Agreement. The Trust will provide
Western-Southern, within ten (10) business days (y) after the end of each year,
a letter from the appropriate officer of each Trust certifying to the continued
accuracy of the representations contained in Section 1.1, above, and (z) after
the end of each calendar quarter, a detailed listing of the individual
securities and other assets, if any, held by each Fund as of the end of such
calendar quarter. Western-Southern will provide the Trust, within ten (10)
business days after the end of each year, a letter from the appropriate officer
of Western-Southern certifying to the continued accuracy of the representations
contained in Section 1.2, above.
2. Marketing. Western-Southern through its Distributor, Touchstone
Securities, Inc. (the "Distributor") will make all reasonable efforts to market
the Contracts. In marketing the contracts, Western-Southern and the Distributor
will comply with all applicable state or federal securities and insurance laws.
3. Valuation and Order.
3.1 The Trust will cause Investors Bank and Trust Company, the
administrative services and fund accounting agent for the Trust ("IBT"), or any
other person acting in a similar role, to provide to Western-Southern, promptly
following the close of trading (the "Close") on each Business Day (as defined in
3.4, below), (x) the net asset value per share for each Fund as of the Close on
that Business Day, (y) the per share amount of any dividend or capital gain
distribution made by a Fund in respect of the shares held by the related
Sub-Account, if the "ex-dividend" date for such dividend or distribution has
occurred since the Close of the preceding Business Day, and (z) based on these
net asset values and dividends and distributions, the Accumulation Unit Value
(as such term is defined in the Western-Southern Registration Statement) to be
used in determining values in each Sub-Account.
3.2 Western-Southern shall be the designee of the Trust for receipt of
orders from the Separate Accounts. Accordingly, receipt of an order for the
purchase or the redemption of shares of the Trust by Western-Southern shall, for
purposes of the calculations described in Section 3.1,
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<PAGE>
above, constitute receipt of an order by the Trust, provided that the Trust
receives notice of the order by 11:00 A.M. on the following Business Day. Orders
received by Western-Southern will be sent directly to the Trust or its specified
agent, and payment for purchases, net of redemptions, will be wired to a
custodial account designated by the Trust. If redemptions for the Trusts for any
period exceed purchases, the Trust will wire the excess amount to an account
designated by Western-Southern. The Trust will execute all orders from
Western-Southern (whether net purchases or net redemptions) at the net asset
value per share, as determined as of the Close on the preceding Business Day,
i.e., the Business Day on which the orders were duly received by
Western-Southern from owners of the Contracts in accordance with the
Western-Southern Registration Statement. Promptly after executing the orders,
the Trust will provide to Western-Southern a written confirmation, which shall
include (x) the number of shares of the Trust in each Fund at the Close of the
preceding Business Day, (y) a detailed account, by dollars and by shares, of the
purchases and redemptions for the Trust (and the net result of the purchases and
redemptions) by each Sub-Account since the Close of the preceding Business Day,
and (z) the number of shares of each Fund of the Trust held by each Fund's
corresponding Sub-Account after all such orders have been executed.
Notwithstanding the above, the Trusts shall not be held responsible for
providing Western-Southern with values, or with investment results, on any day
that is not a Business Day, when an emergency exists making the valuation of a
Fund's portfolio securities not reasonably practicable, or during any period
when the Securities and Exchange Commission ("SEC") has by order permitted the
suspension of pricing of shares for the protection of shareholders.
3.3 "Business Day" shall mean any day on which the New York Stock
Exchange is open for trading and each other day, if any, on which the Trust is
required to calculate the net asset value of a Fund, as set forth in the Trust's
Registration Statement.
4.1 Expenses. All expenses related to (y) the establishment and
operation of the Trust, including all costs of registration and other compliance
under state and federal laws and (z) the performance by the Trust of its
obligations under this Agreement, shall be paid by the Trust.
4.2 Documents and Information. The Trust will provide to
Western-Southern, for use by the Separate Accounts and the Sub-Accounts, a
reasonable quantity of (w) all prospectuses of the Trust or any Fund required
for delivery to existing Contract owners and all related statements of
additional information, (x) all proxy material required for meetings of
shareholders of the Trust or any Fund thereof, (y) all periodic reports to
shareholders of the Trust required to be delivered to the Contract owners and
(z) any other material reasonably required to be distributed to the owners of
the Contracts.
5. Sales Representations. Western-Southern and its agents shall not
make any representations concerning the Funds other than those contained in (y)
the then current prospectuses and related statements of additional information
of the Separate Accounts for the Contracts issued by the Separate Accounts and
(z) any current printed sales literature of either
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<PAGE>
Separate Account related to the Contracts that is delivered to the Trust and as
to which the Trust has not objected by notice to Western-Southern given in
accordance with Section 12.
6. Administrative Services to Contract Owners. Administrative services
to Contract owners shall be the responsibility of Western-Southern and shall not
be the responsibility of the Trust. The Trust recognizes that Western-Southern,
through the Separate Accounts and the Sub-Accounts, will be the sole shareholder
of the Trust and the Funds for the benefit of owners of the Contracts.
7. Disclosures.
(a) The Trust will provide Western-Southern, after the end of each
fiscal year, with such investment advisory data and other
expense data of each Fund for the fiscal year, and with such
other information as may be necessary, to enable
Western-Southern to fulfill, on a timely basis, its prospectus
disclosure obligations under state and/or federal securities
laws and its obligations under variable annuity insurance
requirements.
(b) The Trust will provide Western-Southern, as soon as reasonably
practical after the end of each fiscal year, with all
information regarding the Funds required by Western-Southern
to meet the requirements imposed on it and/or the Separate
Accounts and the Sub-Accounts pursuant to Rule 30d-2
promulgated by the SEC under the 1940 Act.
(c) The Trust will promptly disclose in writing to
Western-Southern any information regarding the Trust, or any
Fund, that is reasonably required by Western-Southern in order
to cause the information regarding the Trust and the Funds
included in the prospectuses, statements of additional
information and other disclosure documents then being used by
Western-Southern in connection with its offering of the
Contracts to conform to the representations and covenants made
in Section 1.1.
8. Voting. So long as, and to the extent that, the SEC continues to
interpret the 1940 Act to require (and so long as any state insurance department
or agency having jurisdiction requires) pass-through voting privileges for
variable contract owners, the Trust will provide Western-Southern, on a timely
basis and at no cost to Western-Southern, with sufficient copies of all proxy
material for distribution to the Contract owners. Western-Southern will
distribute all the material and will vote shares in the Fund in accordance with
instructions received from the Contract owners. Western-Southern shall vote
those shares for which no instructions have been received in the same proportion
as the portion for which instructions have been received from Contract owners.
Western-Southern will not recommend or oppose action in connection with any such
vote or interfere with any such solicitation of proxies.
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<PAGE>
9. Insurance. The Trust shall maintain, without cost or expense to
Western-Southern, (y) fidelity bond coverage in an amount not less than the
minimum coverage required by Rule 17g-1 under the 1940 Act, and (z) errors and
omissions coverage in an amount and with companies reasonably acceptable to
Western-Southern. The Trust and each Fund shall be named insureds under each
such coverage. At the request of Western-Southern, which may be made not more
frequently than twice in any calendar year, the Trust will supply, or cause the
company issuing such policies to supply, evidence in writing, satisfactory to
Western-Southern, that the bonds and other insurance policies called for by this
paragraph are then in force with such companies and in such amounts as either
comply with Rule 17g-1 or have been approved by Western-Southern.
10. Termination. This Agreement shall terminate as to the sale
and issuance of new Contracts:
(a) at the option of any party, upon not less than 60 days advance
written notice to the other parties;
(b) at the option of the Trust, with respect to any one or more of
the Funds, if the Trust determines and demonstrates to the
reasonable satisfaction of Western-Southern that liquidation
of the Fund or Funds is in the best interests of each Fund and
its beneficial owners; provided that any such Fund shall be
continued in operation for a sufficient period of time after
the determination to permit the substitution of the shares or
of another investment company for the shares of the Fund,
pursuant to SEC regulation;
(c) at the option of Western-Southern, immediately upon delivery
of written notice to the Trust, if (x) interests in any Fund
of the Trust are not available for any reason to meet the
requirements of the Contracts, as determined by
Western-Southern, provided that the termination shall be
effective only as to those Funds that are not reasonably
available, or (y) any one or more of the representations set
forth in Section 1.1 are, individually or in the aggregate,
materially untrue, or if the Trust breaches any one or more
of the terms of this Agreement and such breaches are,
individually or in the aggregate, material, or (z) any
combination of untrue representations and breaches of
agreement terms are, individually or in the aggregate,
material;
(d) at the option of the Trust, immediately upon delivery of
written notice to Western-Southern, upon institution of formal
proceedings against either Separate Account or
Western-Southern by the National Association of Securities
Dealers ("NASD"), the SEC or any other regulatory body;
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<PAGE>
(e) at the option of Western-Southern, immediately upon delivery
of written notice to the Trust, upon institution of formal
proceedings against the Trust by the NASD, the SEC or any
other regulatory body;
(f) with respect to any Fund, if either the requisite vote of the
Contract owners having an interest in the Fund is obtained
for, or the SEC gives requisite approval to, the substitution
of the shares or interests of another investment company for
the shares of the Fund as investments for any one or more of
the Sub-Accounts; provided that Western-Southern gives the
Trust not less than 60 days prior written notice of either (y)
any such proposed vote of Contract owners or (z) any proposed
application for an order of substitution from the SEC; or
(g) if interests in the Funds are not issued or sold in
conformance with federal law or such law precludes the use of
shares in the Funds as an underlying investment media for the
Sub-Accounts or, indirectly, for the Contracts issued or to be
issued by Western-Southern. Prompt notice shall be given by
any party to the other such parties in the event the
conditions of this subparagraph (g) occur.
11. Termination Does Not Relieve Certain Obligations. Termination as
the result of any cause listed in Section 10, except as and in respect of any
Fund or Funds as to which this Agreement was terminated in accordance with
Section 10(b), shall not affect the obligation of the Trust to provide shares of
the Funds for investment by the Sub-Accounts (and all related information
required by Western-Southern, the Separate Accounts and the Sub-Accounts to meet
the requirements of the 1940 Act and the Code as to such investment) in
connection with the Contracts then in force for which the shares of the Funds
are serving as underlying investment media, unless the further sale of the
shares is proscribed by law, by the SEC or by any other regulatory body.
12. Notices. Any notice, claim, request or demand required by this
Agreement shall be in writing and shall be deemed to have been duly given on the
day delivered or transmitted by fax or on the third business day after mailing
(first class, postage prepaid) to the addresses or fax numbers set forth below:
(a) If to Western-Southern (for itself or on behalf of either
Separate Account or any Sub-Account):
Western-Southern Life Assurance Company
400 Broadway
Cincinnati, Ohio 45202
Fax: (513) 629-1081
Attn: William F. Ledwin
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<PAGE>
with a copy to:
Donald J. Wuebbling
Vice President & General Counsel
Western-Southern Life Assurance Company
400 Broadway
Cincinnati, Ohio 45202
Fax: (513) 629-1044
(b) If to the Trust (for itself or on behalf of any of its Funds):
Touchstone Variable Series Trust
311 Broadway Street
Cincinnati, Ohio 45202
Fax: (513) 361-7982
Attn: Jill T. McGruder
with a copy to:
Karen M. McLaughlin
Frost & Jacobs LLP
2500 PNC Center
Cincinnati, Ohio 45202
Fax: (513) 651-6981
13. No Waiver. The forbearance or neglect of any party to insist upon
strict compliance by any other party, with any of the provisions of this
Agreement, whether continuing or not, or to declare a termination against the
other parties, shall not be construed as a waiver or any of the rights or
privileges of any party hereunder. No waiver of any right or privilege of any
party arising from any default or failure of performance by any party shall
affect the rights or privileges of the other parties in the event of a further
default or failure of performance.
14. Assignment. No party to this Agreement may assign this Agreement
or any interest in the Agreement, by operation of law or otherwise, without
the prior written consent of all other parties to this Agreement.
15. Governing Law. This Agreement shall be construed and the provisions
of this Agreement interpreted under and in accordance with the laws of Ohio.
This Agreement shall be subject to the provisions of the federal securities
statutes, rules and regulations, including such exemptions from those statutes,
rules and regulations as the SEC may grant and the terms of this Agreement shall
be interpreted and construed in accordance therewith.
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<PAGE>
16. Trust Liability. All persons dealing with the Trust must look
solely to the property of the Trust for the enforcement of any claims against
the Trust. None of the Trustees, officers, agents or shareholders of the Trust
shall be personally liable for obligations entered into on behalf of the Trust.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
1st day of January, 1999.
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
By: /s/ William F. Ledwin
William F. Ledwin
Senior Vice President
TOUCHSTONE VARIABLE SERIES TRUST
By: /s/ Jill T. McGruder
Jill T. McGruder
President
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<PAGE>
EXHIBIT A
Emerging Growth Sub-Account
International Equity Sub-Account
Income Opportunity Sub-Account
Value Plus Sub-Account
Growth & Income Sub-Account
Balanced Sub-Account
Bond Sub-Account
Standby Income Sub-Account
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EXHIBIT B
Touchstone Emerging Growth Fund
Touchstone International Equity Fund
Touchstone Income Opportunity Fund
Touchstone Value Plus Fund
Touchstone Growth & Income Fund
Touchstone Balanced Fund
Touchstone Bond Fund
Touchstone Standby Income Fund
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FUND PARTICIPATION AGREEMENT BY AND AMONG
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
AND TOUCHSTONE VARIABLE INSURANCE TRUST
AMENDMENT NO. 1
This Amendment No. 1 to the Fund Participation Agreement is dated as of May 1,
1999 and amends Exhibit A to the Fund Participation Agreement (the "Agreement")
dated January 1, 1999 made by and among (1) Western-Southern Life Assurance
Company (Western-Southern"), on its own behalf and on behalf of Western-Southern
Life Assurance Separate Account No. 1 and Western-Southern Life Assurance
Company Separate Account No. 2 (each called a "Separate Account") and the
various sub-accounts of each thereof as set forth in Exhibit A attached hereto
and as may be amended from time to time (each a "Sub-Account") and (2)
Touchstone Variable Insurance Trust, a Massachusetts business trust ("TVST"),
and each separate series thereof, as set forth on Exhibit B hereof (each such
portfolio of TVST being herein called a "Fund" or, together, the "Funds"), all
of which Funds shall be made available to serve as underlying investment media
for the Sub-Accounts.
WHEREAS, Western-Southern's Board of Directors has determined to establish three
additional sub-accounts to be designated the Small Cap Value Sub-Account, the
High Yield Sub-Account and the Enhanced 30 Sub-Account; and
WHEREAS, the Board of Trustees of TVST has amended and restated the
Establishment and Designation of Series appended to its Declaration of Trust
(the "Declaration") to add three additional series of Shares (as defined in the
Declaration), to be designated the Small Cap Value Fund, the High Yield Fund and
the Enhanced 30 Fund;
NOW THEREFORE, Exhibits A and B to the Agreement are hereby amended, effective
as of May 1, 1999, to read as set forth in Exhibits A and B to this Agreement,
the sole changes in Exhibit A being the addition of the Small Cap Value
Sub-Account, the High Yield Sub-Account and the Enhanced 30 Sub-Account and the
sole changes in Exhibit B being the addition of the Small Cap Value Fund, the
High Yield Fund and the Enhanced 30 Fund.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed and
delivered in their names and on their behalf as of the day and year first above
written.
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY TOUCHSTONE VARIABLE INSURANCE TRUST
By: /s/ Patricia Wilson By: /s/ Jill T. McGruder
Patricia Wilson Jill T. McGruder
Chief Compliance Officer President
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<PAGE>
EXHIBIT A TO AMENDMENT NO. 1 TO FUND PARTICIPATION AGREEMENT
Small Cap Value Sub-Account
Emerging Growth Sub-Account
International Equity Sub-Account
Income Opportunity Sub-Account
High Yield Sub-Account
Value Plus Sub-Account
Growth & Income Sub-Account
Enhanced 30 Sub-Account
Balanced Sub-Account
Bond Sub-Account
Standby Income Sub-Account
<PAGE>
EXHIBIT B TO AMENDMENT NO. 1 TO FUND PARTICIPATION AGREEMENT
Touchstone Small Cap Value Fund
Touchstone Emerging Growth Fund
Touchstone International Equity Fund
Touchstone Income Opportunity Fund
Touchstone High Yield Fund
Touchstone Value Plus Fund
Touchstone Growth & Income Fund
Touchstone Enhanced 30 Fund
Touchstone Balanced Fund
Touchstone Bond Fund
Touchstone Standby Income Fund
PARTICIPATION AGREEMENT
THIS AGREEMENT is made this 31st day of March, 1999, by and among The
Alger American Fund (the "Trust"), an open-end management investment company
organized as a Massachusetts business trust, Western-Southern Life Assurance
Company, on its own behalf, and on behalf of its Separate Account I and Separate
Account II, a life insurance company organized as a corporation under the laws
of the State of Ohio, (the "Company"), on its own behalf and on behalf of each
segregated asset account of the Company set forth in Schedule A, as may be
amended from time to time (the "Accounts"), and Fred Alger & Company,
Incorporated, a Delaware corporation, the Trust's distributor (the
"Distributor").
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "Commission") as an open-end management investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"), and has an
effective registration statement relating to the offer and sale of the various
series of its shares under the Securities Act of 1933, as amended (the "1933
Act");
WHEREAS, the Trust and the Distributor desire that Trust shares be used
as an investment vehicle for separate accounts established for variable life
insurance policies and variable annuity contracts to be offered by life
insurance companies which have entered into fund participation agreements with
the Trust (the "Participating Insurance Companies");
WHEREAS, shares of beneficial interest in the Trust are divided into
the following series which are available for purchase by the Company for the
Accounts: Alger American Small Capitalization Portfolio, Alger American Growth
Portfolio, Alger American Income and Growth Portfolio, Alger American Balanced
Portfolio, Alger American MidCap Growth Portfolio, and Alger American Leveraged
AllCap Portfolio;
WHEREAS, the Trust has received an order from the Commission, dated
February 17, 1989 (File No. 812-7076), granting Participating Insurance
Companies and their separate accounts exemptions from the provisions of Sections
9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the
Portfolios of the Trust to be sold to and held by variable annuity and variable
life insurance separate accounts of both affiliated and unaffiliated life
insurance companies (the "Shared Funding Exemptive Order");
WHEREAS, the Company has registered or will register under the 1933 Act
certain variable life insurance policies and variable annuity contracts to be
issued by the Company under which the Portfolios are to be made available as
investment vehicles (the "Contracts");
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act unless an exemption from registration
under the 1940 Act is available and the Trust has been so advised:
<PAGE>
WHEREAS, the Company desires to use shares of the Portfolios indicated
on Schedule A as investment vehicles for the Accounts,
NOW THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
ARTICLE I.
Purchase and Redemption of Trust Portfolio Shares
1.1 For purposes of this Article 1, the Company shall be the Trust's
agent for the receipt from each account of purchase orders and requests for
redemption pursuant to the Contracts relating to each Portfolio, provided that
the Company notifies the Trust of such purchase orders and requests for
redemption ordinarily by 9:30 a.m. Eastern time ( but on occasion may notify the
Trust by 10:00 a.m. Eastern time) on the next following Business Day, as defined
in Section 1.3.
1.2 The Trust shall make shares of the Portfolios available to the
Accounts at the net asset value next computed after receipt of a purchase order
by the Trust (or its agent), as established in accordance with the provisions of
the then current prospectus of the Trust describing Portfolio purchase
procedures. The Company will transmit orders from time to time to the Trust for
the purchase and redemption of shares of the Portfolios. The Trustees of the
Trust (the "Trustees") may refuse to sell shares of any Portfolio to any person,
or suspend or terminate the offering of shares of any Portfolio if such action
is required by law or by regulatory authorities having jurisdiction or if, in
the sole discretion of the Trustees acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, such action is
deemed in the best interests of the shareholders of such Portfolio.
1.3 The Company shall pay for the purchase of shares of a Portfolio on
behalf of an Account with federal funds to be transmitted by wire to the Trust,
with the reasonable expectation of receipt by the Trust by 2:00 p.m. Eastern
time on the next Business Day after the Trust (or its agent) receives the
purchase order. Upon receipt by the Trust of the federal funds so wired, such
funds shall cease to be the responsibility of the Company and shall become the
responsibility of the Trust for this purpose. "Business Day" shall mean any day
on which the New York Stock Exchange is open for trading and on which the Trust
calculates its net asset value pursuant to the rules of the Commission.
1.4 The Trust will redeem for cash any full or fractional shares of any
Portfolio, when requested by the Company on behalf of an Account, at the net
asset value next computed after receipt by the Trust (or its agent) of the
request for redemption, as established in accordance with the provisions of the
then current prospectus of the Trust describing Portfolio redemption procedures.
The Trust shall make payment for such shares in the manner established from time
to time by the Trust. Proceeds of redemption with respect to a Portfolio will
normally be paid to the Company for an Account in federal funds transmitted by
wire to the Company by order of the Trust with the reasonable expectation of
receipt by the Company by 2:00 p.m. Eastern time on the next Business Day after
the receipt by the Trust (or its agent) of the request for redemption. Such
payment may be delayed if, for example, the Portfolio's cash position so
requires or if
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extraordinary market conditions exist, but in no event shall payment be delayed
for a greater period than is permitted by the 1940 Act. The Trust reserves the
right to suspend the right of redemption, consistent with Section 22(e) of the
1940 Act and any rules thereunder.
1.5 Payments for the purchase of shares of the Trust's Portfolios by
the Company under Section 1.3 and payments for the redemption of shares of the
Trust's Portfolios under Section 1.4 on any Business Day may be netted against
one another for the purpose of determining the amount of any wire transfer.
1.6 Issuance and transfer of the Trust's Portfolio shares will be by
book entry only. Stock certificates will not be issued to the Company or the
Accounts. Portfolio Shares purchased from the Trust will be recorded in the
appropriate title for each Account or the appropriate subaccount of each
Account.
1.7 The Trust shall furnish, on or before the ex-dividend date, notice
to the Company of any income dividends or capital gain distributions payable on
the shares of any Portfolio of the Trust. The Company hereby elects to receive
all such income dividends and capital gain distributions as are payable on a
Portfolio's shares in additional shares of that Portfolio. The Trust shall
notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.8 The Trust shall calculate the net asset value of each Portfolio on
each Business Day, as defined in Section 1.3. The Trust shall make the net asset
value per share for each Portfolio available to the Company or its designated
agent on a daily basis as soon as reasonably practical after the net asset value
per share is calculated and shall use its best efforts to make such net asset
value per share available to the Company by 6:30 p.m. Eastern time each Business
Day.
1.9 The Trust agrees that its Portfolio shares will be sold only to
Participating Insurance Companies and their segregated asset accounts, to the
Fund Sponsor or its affiliates and to such other entities as may be permitted by
Section 817(h) of the Code, the regulations hereunder, or judicial or
administrative interpretations thereof. No shares of any Portfolio will be sold
directly to the general public. The Company agrees that it will use Trust shares
only for the purposes of funding the Contracts through the Accounts listed in
Schedule A, as amended from time to time.
1.10 The Trust agrees that all Participating Insurance Companies shall
have the obligations and responsibilities regarding pass-through voting and
conflicts of interest corresponding materially to those contained in Section 2.9
and Article IV of this Agreement.
ARTICLE II.
Obligations of the Parties
2.1 The Trust shall prepare and be responsible for filing with the
Commission and any state regulators requiring such filing all shareholder
reports, notices, proxy materials (or similar materials such as voting
instruction solicitation materials), prospectuses and statements of additional
information of the Trust. The Trust shall bear the costs of registration and
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qualification of shares of the Portfolios, preparation and filing of the
documents listed in this Section 2.1 and all taxes to which an issuer is subject
on the issuance and transfer of its shares.
2.2 The Company shall distribute such prospectuses, proxy statements
and periodic reports of the Trust to the Contract owners as required to be
distributed to such Contract owners under applicable federal or state law.
2.3 The Trust shall provide such documentation (including a final copy
of the Trust's prospectus as set in type or in camera-ready copy) and other
assistance as is reasonably necessary in order for the Company to print together
in one document the current prospectus for the Contracts issued by the Company
and the current prospectus for the Trust. The Trust shall bear the expense of
printing copies of its current prospectus that will be distributed to existing
Contract owners, and the Company shall bear the expense of printing copies of
the Trust's prospectus that are used in connection with offering the Contracts
issued by the Company.
2.4 The Trust and the Distributor shall provide (1) at the Trust's
expense, one copy of the Trust's current Statement of Additional Information
("SAI") to the Company and to any Contract owner who requests such SAI, (2) at
the Company's expense, such additional copies of the Trust's current SAI as the
Company shall reasonably request and that the Company shall require in
accordance with applicable law in connection with offering the Contracts issued
by the Company.
2.5 The Trust, at its expense, shall provide the Company with copies of
its proxy material, periodic reports to shareholders and other communications to
shareholders in such quantity as the Company shall reasonably require for
purposes of distributing to Contract owners. The Trust, at the Company's
expense, shall provide the Company with copies of its periodic reports to
shareholders and other communications to shareholders in such quantity as the
Company shall reasonably request for use in connection with offering the
Contracts issued by the Company. If requested by the Company in lieu thereof,
the Trust shall provide such documentation (including a final copy of the
Trust's proxy materials, periodic reports to shareholders and other
communications to shareholders, as set in type or in camera-ready copy) and
other assistance as reasonably necessary in order for the Company to print such
shareholder communications for distribution to Contract owners.
2.6 The Company agrees and acknowledges that the Distributor is the
sole owner of the name and mark "Alger" and that all use of any designation
comprised in whole or part of such name or mark under this Agreement shall inure
to the benefit of the Distributor. Except as provided in Section 2.5, the
Company shall not use any such name or mark on its own behalf or on behalf of
the Accounts or Contracts in any registration statement, advertisement, sales
literature or other materials relating to the Accounts or Contracts without the
prior written consent of the Distributor. Upon termination of this Agreement for
any reason, the Company shall cease all use of any such name or mark as soon as
reasonably practicable.
2.7 The Company shall furnish, or cause to be furnished, to the Trust
or its designee a copy of each Contract prospectus and/or statement of
additional information describing the Contracts, each report to Contract owners,
proxy statement, application for exemption or request for no-action letter in
which the Trust or the Distributor is named contemporaneously with the
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filing of such document with the Commission. The Company shall furnish, or shall
cause to be furnished, to the Trust or its designee each piece of sales
literature or other promotional material in which the Trust or the Distributor
is named, at least five Business Days prior to its use. No such material shall
be used if the Trust or its designee reasonably objects to such use within three
Business Days after receipt of such material.
2.8 The Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust or
the Distributor in connection with the sale of the Contracts other than
information or representations contained in and accurately derived from the
registration statement or prospectus for the Trust shares (as such registration
statement and prospectus may be amended or supplemented from time to time),
annual and semi-annual reports of the Trust, Trust-sponsored proxy statements,
or in sales literature or other promotional material approved by the Trust or
its designee, except as required by legal process or regulatory authorities or
with the prior written permission of the Trust, the Distributor or their
respective designees. The Trust and the Distributor agree to respond to any
request for approval on a prompt and timely basis. The Company shall adopt and
implement procedures reasonably designed to ensure that "broker only" materials
including information therein about the Trust or the Distributor are not
distributed to existing or prospective Contract owners.
2.9 The Trust shall use its best efforts to provide the Company, on a
timely basis, with such information about the Trust, the Portfolios and the
Distributor, in such form as the Company may reasonably require, as the Company
shall reasonably request in connection with the preparation of registration
statements, prospectuses and annual and semi-annual reports pertaining to the
Contracts.
2.10 The Trust and the Distributor shall not give, and agree that no
affiliate of either of them shall give, any information or make any
representations or statements on behalf of the Company or concerning the
Company, the Accounts or the Contracts other than information or representations
contained in and accurately derived from the registration statement or
prospectus for the Contracts (as such registration statement and prospectus may
be amended or supplemented from time to time), or in materials approved by the
Company for distribution including sales literature or other promotional
materials, except as required by legal process or regulatory authorities or with
the prior written permission of the Company. The Company agrees to respond to
any request for approval on a prompt and timely basis.
2.11 So long as, and to the extent that, the Commission interprets the
1940 Act to require passthrough voting privileges for Contract owners, the
Company will provide pass-through voting privileges to Contract owners whose
cash values are invested, through the registered Accounts, in shares of one or
more Portfolios of the Trust. The Trust shall require all Participating
Insurance Companies to calculate voting privileges in the same manner and the
Company shall be responsible for assuring that the Accounts calculate voting
privileges in the manner established by the Trust. With respect to each
registered Account, the Company will vote shares of each Portfolio of the Trust
held by a registered Account and for which no timely voting instructions from
Contract owners are received in the same proportion as those shares for which
voting instructions are received. The Company and its agents will in no way
recommend or oppose or interfere with the solicitation of proxies for Portfolio
shares held to fund the Contacts without the prior written consent of the Trust,
which consent may be withheld in the
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Trust's sole discretion. The Company reserves the right, to the extent permitted
by law, to vote shares held in any Account in its sole discretion.
2.12 The Company and the Trust will each provide to the other
information about the results of any regulatory examination relating to the
Contracts or the Trust, including relevant portions of any "deficiency letter"
and any response thereto.
2.13 No compensation shall be paid by the Trust to the Company, or by
the Company to the Trust, under this Agreement (except for specified expense
reimbursements). However, nothing herein shall prevent the parties hereto from
otherwise agreeing to perform, and arranging for appropriate compensation for,
other services relating to the Trust, the Accounts or both.
ARTICLE III.
Representations and Warranties
3.1 The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of the State of Ohio and that
it has legally and validly established each Account as a segregated asset
account under such law as of the date set forth in Schedule A, and that
Touchstone Securities, Inc., the principal underwriter for the Contracts, is
registered as a broker-dealer under the Securities Exchange Act of 1934 and is a
member in good standing of the National Association of Securities Dealers, Inc.
3.2 The Company represents and warrants that it has registered or,
prior to any issuance or sale of the Contracts, will register each Account as a
unit investment trust in accordance with the provisions of the 1940 Act and
cause each Account to remain so registered to serve as a segregated asset
account for the Contracts, unless an exemption from registration is available.
3.3 The Company represents and warrants that the Contracts will be
registered under the 1933 Act unless an exemption from registration is available
prior to any issuance or sale of the Contracts; the Contracts will be issued and
sold in compliance in all material respects with all applicable federal and
state laws; and the sale of the Contracts shall comply in all material respects
with state insurance law suitability requirements.
3.4 The Trust represents and warrants that it is duly organized and
validly existing under the laws of the Commonwealth of Massachusetts and that it
does and will comply in all material respects with the 1940 Act and the rules
and regulations thereunder.
3.5 The Trust and the Distributor represent and warrant that the
Portfolio shares offered and sold pursuant to this Agreement will be registered
under the 1933 Act and sold in accordance with all applicable federal and state
laws, and the Trust shall be registered under the 1940 Act prior to and at the
time of any issuance or sale of such shares. The Trust shall amend its
registration statement under the 1933 Act and the 1940 Act from time to time as
required in order to effect the continuous offering of its shares. The Trust
shall register and qualify its shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Trust.
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3.6 The Trust represents and warrants that the investments of each
Portfolio will comply with the diversification requirements for variable
annuity, endowment or life insurance contracts set forth in Section 817(h) of
the Internal Revenue Code of 1986, as amended (the "Code"), and the rules and
regulations thereunder, including without limitation Treasury Regulation
1.817-5, and will notify the Company immediately upon having a reasonable basis
for believing any Portfolio has ceased to comply or might not so comply and will
immediately take all reasonable steps to adequately diversify the Portfolio to
achieve compliance within the grace period afforded by Regulation 1.817-5.
3.7 The Trust represents and warrants that it is currently qualified as
a "regulated investment company" under Subchapter M of the Code, that it will
make every effort to maintain such qualification and will notify the Company
immediately upon having a reasonable basis for believing it has ceased to so
qualify or might not so qualify in the future.
3.8 The Trust represents and warrants that it, its directors, officers,
employees and others dealing with the money or securities, or both, of a
Portfolio shall at all times be covered by a blanket fidelity bond or similar
coverage for the benefit of the Trust in an amount not less than the minimum
coverage required by Rule 17g-1 or other applicable regulations under the 1940
Act. Such bond shall include coverage for larceny and embezzlement and be issued
by a reputable bonding company.
3.9 The Distributor represents that it is duly organized and validly
existing under the laws of the State of Delaware and that it is registered, and
will remain registered, during the term of this Agreement, as a broker-dealer
under the Securities Exchange Act of 1934 and is a member in good standing of
the National Association of Securities Dealers, Inc.
ARTICLE IV.
Potential Conflicts
4.1 The parties acknowledge that a Portfolio's shares may be made
available for investment to other Participating Insurance Companies. In such
event, the Trustees will monitor the Trust for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
Participating Insurance Companies. A material irreconcilable conflict may arise
for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance, tax
or securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax, or
securities regulatory authorities; (c) an administrative or judicial decision in
any relevant proceeding; (d) the manner in which the investments of any
Portfolio are being managed; (e) a difference in voting instructions given by
variable annuity contract and variable life insurance contract owners; or (f) a
decision by an insurer to disregard the voting instructions of contract owners.
The Trust shall promptly inform the Company of any determination by the Trustees
that a material irreconcilable conflict exists and of the implications thereof.
4.2 The Company agrees to report promptly any potential or existing
conflicts of which it is aware to the Trustees. The Company will assist the
Trustees in carrying out their responsibilities under the Shared Funding
Exemptive Order by providing the Trustees with all
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information reasonably necessary for and requested by the Trustees to consider
any issues raised including, but not limited to, information as to a decision by
the Company to disregard Contract owner voting instructions. All communications
from the Company to the Trustees may be made in care of the Trust.
4.3 If it is determined by a majority of the Trustees, or a majority of
the disinterested Trustees, that a material irreconcilable conflict exists that
affects the interests of contract owners, the Company shall, in cooperation with
other Participating Insurance Companies whose contract owners are also affected,
at its own expense and to the extent reasonably practicable (as determined by
the Trustees) take whatever steps are necessary to remedy or eliminate the
material irreconcilable conflict, which steps could include: (a) withdrawing the
assets allocable to some or all of the Accounts from the Trust or any Portfolio
and reinvesting such assets in a different investment medium, including (but not
limited to) another Portfolio of the Trust, or submitting the question of
whether or not such segregation should be implemented to a vote of all affected
Contract owners and, as appropriate, segregating the assets of any appropriate
group (i.e., annuity contract owners, life insurance contract owners, or
variable contract owners of one or more Participating Insurance Companies) that
votes in favor of such segregation, or offering to the affected Contract owners
the option of making such a change; and (b) establishing a new registered
management investment company or managed separate account.
4.4 If a material irreconcilable conflict arises because of a decision
by the Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Trust's election, to withdraw the affected Account's
investment in the Trust and terminate this Agreement with respect to such
Account; provided, however that such withdrawal and termination shall be limited
to the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested Trustees. Any such withdrawal and
termination must take place within six (6) months after the Trust gives written
notice that this provision is being implemented. Until the end of such six (6)
month period, the Trust shall continue to accept and implement orders by the
Company for the purchase and redemption of shares of the Trust.
4.5 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Trust and terminate this Agreement with
respect to such Account within six (6) months after the Trustees inform the
Company in writing that the Trust has determined that such decision has created
a material irreconcilable conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested
Trustees. Until the end of such six (6) month period, the Trust shall continue
to accept and implement orders by the Company for the purchase and redemption of
shares of the Trust.
4.6 For purposes of Section 4.3 through 4.6 of this Agreement, a
majority of the disinterested Trustees shall determine whether any proposed
action adequately remedies any material irreconcilable conflict, but in no event
will the Trust be required to establish a new funding medium for any Contract.
The Company shall not be required to establish a new funding medium for the
Contracts if an offer to do so has been declined by vote of a majority of
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Contract owners materially adversely affected by the material irreconcilable
conflict. In the event that the Trustees determine that any proposed action does
not adequately remedy any material irreconcilable conflict, then the Company
will withdraw the Account's investment in the Trust and terminate this Agreement
within six (6) months after the Trustees inform the Company in writing of the
foregoing determination; provided, however, that such withdrawal and termination
shall be limited to the extent required by any such material irreconcilable
conflict as determined by a majority of the disinterested Trustees.
4.7 The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonably request so that the
Trustees may fully carry out the duties imposed upon them by the Shared Funding
Exemptive Order, and said reports, materials and data shall be submitted more
frequently if reasonably deemed appropriate by the Trustees.
4.8 If and to the extent that Rule 6e-3(T) is amended, or Rule 6e-3 is
adopted, to provide exemptive relief from any provision of the 1940 Act or the
rules promulgated thereunder with respect to mixed or shared funding (as defined
in the Shared Funding Exemptive Order) on terms and conditions materially
different from those contained in the Shared Funding Exemptive Order, then the
Trust and/or the Participating Insurance Companies, as appropriate, shall take
such steps as may be necessary to comply with Rule 6e-3(T), as amended, or Rule
6e-3, as adopted, to the extent such rules are applicable.
ARTICLE V.
Indemnification
5.1 Indemnification By the Company. The Company agrees to indemnify and
hold harmless the Distributor, the Trust and each of its Trustees, officers,
employees and agents and each person, if any, who controls the Trust within the
meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties"'
for purposes of this Section 5.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Company, which consent shall not be unreasonably withheld) or expenses
(including the reasonable costs of investigating or defending any alleged loss,
claim, damage, liability or expense and reasonable legal counsel fees incurred
in connection therewith) (collectively, "Losses"), to which the Indemnified
Parties may become subject under any statute or regulation, or at common law or
otherwise, insofar as such Losses are related to the sale or acquisition of the
Contracts or Trust shares and:
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in a registration statement or
prospectus for the Contracts or in the Contracts themselves or in sales
literature generated or approved by the Company on behalf of the Contracts or
Accounts (or any amendment or supplement to any of the foregoing) (collectively,
"Company Documents" for the purposes of this Article V), or arise out of or are
based upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, provided that this indemnity shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement or omission was
made in reliance upon and was accurately derived from
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written information furnished to the Company by or on behalf of the Trust for
use in Company Documents or otherwise for use in connection with the sale of the
Contracts or Trust shares; or
(b) arise out of or result from statements or representations (other
than statements or representations contained in and accurately derived from
Trust Documents as defined in Section 5.2(a)) or wrongful conduct of the Company
or persons under its control, with respect to the sale or acquisition of the
Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or alleged untrue
statement of a material fact contained in Trust Documents as defined in Section
5.2(a) or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading if such statement or omission was made in reliance upon and
accurately derived from written information furnished to the Trust by or on
behalf of the Company; or
(d) arise out of or result from any failure by the Company to provide
the services or furnish the materials required under the terms of this
Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Company; or
(f) arise out of or result from the provision by the Company to the
Trust of insufficient or incorrect information regarding the purchase or sale of
shares of any Portfolio, or the failure of the Company to provide such
information on a timely basis.
5.2 Indemnification by the Distributor. The Distributor agrees to
indemnify and hold harmless the Company and each of its directors, officers,
employees, and agents and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for the purposes of this Section 5.2) against any and all losses,
claims, damages, liabilities (including amounts paid in settlement with the
written consent of the Distributor, which consent shall not be unreasonably
withheld) or expenses (including the reasonable costs of investigating or
defending any alleged loss. claim, damage, liability or expense and reasonable
legal counsel fees incurred in connection therewith) (collectively, "Losses"),
to which the Indemnified Parties may become subject under any statute or
regulation, or at common law or otherwise, insofar as such Losses are related to
the sale or acquisition of the Contracts or Trust shares and:
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the registration statement
or prospectus for the Trust (or any amendment or supplement thereto)
(collectively, "Trust Documents" for the purposes of this Article V), or arise
out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this indemnity shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement or
omission was made in reliance upon and was accurately derived from written
information furnished to the Distributor or the Trust by or on
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behalf of the Company for use in Trust Documents or otherwise for use in
connection with the sale of the Contracts or Trust shares; or
(b) arise out of or result from statements or representations (other
than statements or representations contained in and accurately derived form
Company Documents) or wrongful conduct of the Distributor or persons under its
control, with respect to the sale or acquisition of the Contracts or Portfolio
shares; or
(c) arise out of or result from any untrue statement or alleged untrue
statement of a material fact contained in Company Documents or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading if such statement or
omission was made in reliance upon and accurately derived from written
information furnished to the Company by or on behalf of the Trust; or
(d) arise out of or result from any failure by the Distributor or the
Trust to provide the services or furnish the materials required under the terms
of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Distributor or the Trust in this
Agreement or arise out of or result from any other material breach of this
Agreement by the Distributor or the Trust.
5.3 None of the Company, the Trust or the Distributor shall be liable
under the indemnification provisions of Sections 5.1 or 5.2, as applicable, with
respect to any Losses incurred or assessed against an Indemnified Party that
arise from such Indemnified Party's willful misfeasance, bad faith or negligence
in the performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations or duties under this
Agreement.
5.4 None of the Company, the Trust or the Distributor shall be liable
under the indemnification provisions of Sections 5.1 or 5.2, as applicable, with
respect to any claim made against an Indemnified party unless such Indemnified
Party shall have notified the other party in writing within a reasonable time
after the summons, or other first written notification, giving information of
the nature of the claim shall have been served upon or otherwise received by
such Indemnified Party (or after such Indemnified Party shall have received
notice of service upon or other notification to any designated agent), but
failure to notify the party against whom indemnification is sought of any such
claim shall not relieve that party from any liability which it may have to the
Indemnified Party in the absence of Sections 5.1 and 5.2.
5.5 In case any such action is brought against an Indemnified Party,
the indemnifying party shall be entitled to participate, at its own expense, in
the defense of such action. The indemnifying party also shall be entitled to
assume the defense thereof, with counsel reasonably satisfactory to the party
named in the action. After notice from the indemnifying party to the Indemnified
Party of an election to assume such defense, the Indemnified Party shall bear
the fees and expenses of any additional counsel retained by it, and the
indemnifying party will not be liable to the Indemnified Party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
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ARTICLE VI.
Termination
6.1 This Agreement shall terminate:
(a) at the option of any party upon 60 days advance written notice to
the other parties, unless a shorter time is agreed to by the parties;
(b) at the option of the Trust or the Distributor if the Contracts
issued by the Company cease to qualify as annuity contracts or life insurance
contracts, as applicable, under the Code or if the Contracts are not registered,
issued or sold in accordance with applicable state and/or federal law; or
(c) at the option of any party upon a determination by a majority of
the Trustees of the Trust, or a majority of its disinterested Trustees, that a
material irreconcilable conflict exists, or
(d) at the option of the Company upon institution of formal proceedings
against the Trust or the Distributor by the NASD, the SEC, or any state
securities or insurance department or any other regulatory body regarding the
Trust's or the Distributor's duties under this Agreement or related to the sale
of Trust shares or the operation of the Trust; or
(e) at the option of the Company if the Trust or a Portfolio fails to
meet the diversification requirements specified in Section 3.6 hereof, or
(f) at the option of the Company if shares of the Series are not
reasonably available to meet the requirements of the Variable Contracts issued
by the Company, as determined by the Company, and upon prompt notice by the
Company to the other parties; or
(g) at the option of the Company in the event any of the shares of the
Portfolio are not registered, issued or sold in accordance with applicable state
and/or federal law, or such law precludes the use of such shares as the
underlying investment media of the Variable Contracts issued or to be issued by
the Company; or
(h) at the option of the Company, if the Portfolio fails to qualify as
a Regulated Investment Company under Subchapter M of the Code; or
(i) at the option of the Distributor if it shall determine in its sole
judgment exercised in good faith, that the Company and/or its affiliated
companies has suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this Agreement or is the
subject of material adverse publicity.
6.2 Notwithstanding any termination of this Agreement, the Trust shall,
at the option of the Company, continue to make available additional shares of
any Portfolio and redeem shares of any Portfolio pursuant to the terms and
conditions of this Agreement for all Contracts in effect on the effective date
of termination of this Agreement.
12
<PAGE>
6.3 The provisions of Article V shall survive the termination of this
Agreement, and the provisions of Article IV and Section 2.9 shall survive the
termination of this Agreement as long as shares of the Trust are held on behalf
of Contract owners in accordance with Section 6.2.
ARTICLE VII.
Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Trust or its Distributor:
Fred Alger Management, Inc.
30 Montgomery Street
Jersey City, NJ 07302
Attn: Gregory S. Duch
If to the Company:
Western-Southern Life Assurance Company
400 Broadway
Cincinnati, Ohio 45202
Attn: Jill T. McGruder, Senior Vice President
ARTICLE VIII.
Miscellaneous
8.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
8.2 This Agreement may be executed in two or more counterparts, each of
which taken together shall constitute one and the same instrument.
8.3 If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
8.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York. It
shall also be subject to the provisions of the federal securities laws and the
rules and regulations thereunder and to any orders of the Commission granting
exemptive relief therefrom and the conditions of such orders. Copies of any such
orders shall be promptly forwarded by the Trust to the Company.
13
<PAGE>
8.5 All liabilities of the Trust arising. directly or indirectly, under
this Agreement, of any and every nature whatsoever, shall be satisfied solely
out of the assets of the Trust and no Trustee, officer, agent or holder of
shares of beneficial interest of the Trust shall be personally liable for any
such liabilities.
8.6 Each party shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Commission, the National Association of Securities Dealers, Inc. and state
insurance regulators) and shall permit such authorities reasonable access to its
books and records in connection with any investigation or inquiry relating to
this Agreement or the transactions contemplated hereby.
8.7 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
8.8 This Agreement shall not be exclusive in any respect.
8.9 Neither this Agreement nor any rights or obligations hereunder may
be assigned by either party without the prior written approval of the other
party.
8.10 No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties.
8.11 Each party hereto shall, except as required by law or otherwise
permitted by this Agreement, treat as confidential the names and addresses of
the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto, and shall not disclose such
confidential information without the written consent of the affected party
unless such information has become publicly available.
14
<PAGE>
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Participation Agreement as of the date and year first
above written.
Fred Alger & Company, Incorporated
By: ______________________________
Name:
Title:
The Alger American Fund
By: ______________________________
Name:
Title:
Western-Southern Life Assurance Company
By: ___________________________________
Name: Jill T. McGruder
Title: Senior Vice President
15
<PAGE>
SCHEDULE A
THE TRUST:
The Alger American Fund:
Alger American Growth Portfolio
Alger American Small Capitalization Portfolio
THE ACCOUNT(S):
Western-Southern Life Assurance Company Separate Account 1 (established
in 1994)
Western-Southern Life Assurance Company Separate Account 2 (established
in 1994)
SERVICE AGREEMENT
AGREEMENT dated as of March 31, 1999, between Fred Alger Management,
Inc. ("Alger"), a New York Corporation with its principal offices at 1 World
Trade Center, Suite 9333, New York, NY 10048, as Investment Adviser for The
Alger American Fund (the "Fund"), and Western-Southern Life Assurance Company,
on its own behalf, and on behalf of its Separate Account 1 and Separate Account
2 (the "Company"), an Ohio corporation having its principal office and place of
business at 420 Broadway, Cincinnati, OH 45202.
In consideration of the promises and mutual covenants set forth in this
Agreement, the Parties agree as follows:
1. SERVICES PROVIDED
The Company agrees to provide services to the Fund including the
following:
(a) responding to inquiries from the Company Contract owners using one
or more Portfolios of the Fund as an investment vehicle regarding the services
performed by the Company as they relate to the Fund;
(b) providing information to Alger and to Contract owners with respect
to shares attributable to Contract owner accounts;
(c) printing and mailing of shareholder communications from the Fund
consistent with the Participation Agreement dated March 31, 1999 (such as
proxies, shareholder reports, annual and semi-annual financial statements and
dividend, distribution and tax notices) as may be required;
(d) communication directly with Contract owners concerning the Fund's
operations;
(e) providing such other similar services as Alger may reasonably
request pursuant to the extent permitted or required under applicable statutes,
rules, and regulations.
2. EXPENSE ALLOCATION
Subject to Paragraph 3 hereof, the Company or its affiliates shall
initially bear the costs of the following:
(a) printing and distributing the Fund's prospectus, statement of
additional information and any amendments or supplements thereto, periodic
reports to shareholders, Fund proxy material and other shareholder
communications (collectively, the "Fund Materials") to be distributed to
prospective Contract owners;
(b) printing and distributing all sales literature or promotional
material developed by the Company or its affiliates and relating to the
contracts;
<PAGE>
(c) servicing Contract owners who have allocated Contract value to a
Portfolio, which servicing shall include, but is not limited to, the items
listed in Paragraph 1 of this Agreement.
3. PAYMENT OF EXPENSES
(a) Alger will pay the Company a quarterly fee equal to a percentage of
the average daily net assets of the Portfolios attributable to Contracts, at the
annual rate set forth in the following schedule ("Portfolio Servicing Fee"), in
connection with the expenses incurred by the Company under Paragraph 2 hereof:
0.25% of all assets invested in any Portfolio of the Fund.
(b) From time to time, the Parties hereto shall review the Portfolio
Servicing Fee to determine whether it reasonably approximates the incurred and
anticipated costs, over time of the Company in connection with its duties
hereunder. The Parties agree to negotiate in good faith any change to the
Portfolio Servicing Fee proposed by a Party in good faith.
4. TERM OF AGREEMENT
This Agreement shall continue in effect for so long as Alger or its
successor(s) in interest, or any affiliate thereof, continues to perform in a
similar capacity for the Fund, and for so long as any Contract value or any
monies attributable to the Company is allocated to a Portfolio, provided,
however, that either party may Terminate this Agreement upon a material breach
of this Agreement by the other party that remains uncured for 60 days after
written notice by the terminating party. However, Portfolio Servicing Fees shall
in no event be paid to the Company more than one year after the termination of
this Agreement.
5. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless Alger and its
officers, directors and affiliates from any and all loss, liability and expense
resulting from the gross negligence or willful wrongful act of the Company under
this Agreement, except to the extent such loss, liability or expense is the
result of the willful misfeasance, bad faith or gross negligence of Alger in the
performance of its duties, or by reason of the reckless disregard of its
obligations and duties under this Agreement.
(b) Alger agrees to indemnify and hold harmless the Company and its
officers, directors and affiliates from any and all loss, liability and expense
resulting from the gross negligence or willful wrongful act of Alger under this
Agreement, except to the extent such loss, liability or expense is the result of
the willful misfeasance, bad faith or gross negligence of the Company in the
performance of its duties, or by reason of the reckless disregard of its
obligations and duties under this Agreement.
6. NOTICE
Notices and communications required or permitted hereby will be given
to the following persons at the following addresses and facsimile numbers, or
such other persons, addresses or facsimile numbers as the Party receiving such
notices or communications may subsequently direct in writing:
2
<PAGE>
Fred Alger Management, Inc.
1 World Trade Center
Suite 9333
New York, NY 10048
Attn: Gregory S. Duch
Fax: (201) 451-8768
Western-Southern Life Assurance Company
400 Broadway
Cincinnati, Ohio 45202
Attn: Jill T. McGruder
Fax: (513) 361-7982
7. APPLICABLE LAW
Except insofar as the Investment Company Act of 1940 or other federal
laws and regulations may be controlling, this Agreement will be construed and
the provisions hereof interpreted under and in accordance with New York law,
without regard for that state's principles of conflict of laws.
8. SEVERABILITY
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
9. RIGHTS CUMULATIVE
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, that the Parties are entitled to under federal and state
laws.
10. ASSIGNMENT
Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written consent of the other party
thereto.
11. AMENDMENT
This Agreement may be amended or modified in whole or in part only by a
written agreement executed by both parties.
3
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their duly authorized officers signing below.
FRED ALGER MANAGEMENT, INC,
By: ____________________________
Gregory S. Duch
Executive Vice President
WESTERN-SOUTHERN LIFE
ASSURANCE COMPANY
By: ____________________________
Name: Jill T. McGruder
Title: Senior Vice President
4
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS,
AND
TOUCHSTONE SECURITIES, INC.
<PAGE>
TABLE OF CONTENTS
DESCRIPTION PAGE
Section 1. Available Funds....................................................2
1.1 Availability................................................2
1.2 Addition, Deletion or Modification of Funds.................2
1.3 No Sales to the General Public..............................2
Section 2. Processing Transactions............................................2
2.1 Timely Pricing and Orders...................................2
2.2 Timely Payments.............................................3
2.3 Applicable Price............................................3
2.4 Dividends and Distributions.................................4
2.5 Book Entry .................................................4
Section 3. Costs and Expenses.................................................4
3.1 General.....................................................4
3.2 Parties To Cooperate........................................4
Section 4. Legal Compliance...................................................4
4.1 Tax Laws ...................................................4
4.2 Insurance and Certain Other Laws ...........................6
4.3 Securities Laws.............................................7
4.4 Notice of Certain Proceedings and Other Circumstances.......8
4.5 LIFE COMPANY To Provide Documents; Information About AVIF...9
4.6 AVIF To Provide Documents; Information About LIFE COMPANY...10
Section 5. Mixed and Shared Funding...........................................11
5.1 General.....................................................11
5.2 Disinterested Directors.....................................11
5.3 Monitoring for Material Irreconcilable Conflicts............11
5.4 Conflict Remedies...........................................12
5.5 Notice to LIFE COMPANY......................................13
5.6 Information Requested by Board of Directors.................14
5.7 Compliance with SEC Rules...................................14
5.8 Other Requirements..........................................14
Section 6. Termination........................................................14
6.1 Events of Termination.......................................14
6.2 Notice Requirement for Termination..........................15
6.3 Funds To Remain Available...................................16
i
<PAGE>
DESCRIPTION PAGE
6.4 Survival of-Warranties and Indemnifications.................16
6.5 Continuance of Agreement for Certain Purposes...............16
Section 7. Parties To Cooperate Respecting Termination........................16
Section 8. Assignment.........................................................17
Section 9. Notices............................................................17
Section 10. Voting Procedures.................................................17
Section 11. Foreign Tax Credits...............................................18
Section 12. Indemnification...................................................18
12.1 Of AVIF by LIFE COMPANY and UNDERWRITER.....................18
12.2 Of LIFE COMPANY and UNDERWRITER by AVIF.....................20
12.3 Effect of Notice............................................22
12.4 Successors..................................................23
Section 13. Applicable Law....................................................23
Section 14. Execution in Counterparts.........................................23
Section 15. Severability......................................................23
Section 16. Rights Cumulative.................................................23
Section 17. Headings..........................................................23
Section 18. Confidentiality...................................................23
Section 19. Trademarks and Fund Names.........................................24
Section 20. Parties to Cooperate..............................................25
ii
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 31st day of March, 1999
("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"); Western-Southern Life Assurance Company, an Ohio life
insurance company ("LIFE COMPANY"), on behalf of itself and each of its
segregated asset accounts listed in Schedule A hereto, as the parties hereto may
amend from time to time (each, an "Account," and collectively, the "Accounts");
and Touchstone Securities, Inc., an affiliate of LIFE COMPANY and the principal
underwriter of the Contracts ("UNDERWRITER") (collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, AVIF is registered with the Securities and Exchange Commission
("SEC") as an open-end management Investment Company under the Investment
Company Act of 1940, as amended (the " 1940 Act"); and
WHEREAS, AVIF currently consists of thirteen separate series
("Series"), shares ("Shares") of each of which are registered under the
Securities Act of 1933, as amended (the "1933 Act") and are currently sold to
one or more separate accounts of life insurance companies to fund benefits under
variable annuity contracts and variable life insurance contracts; and
WHEREAS, AVIF will make Shares of each Series listed on Schedule A
hereto as the Parties hereto may amend from time to time (each a "Fund";
reference herein to "AVIF" includes reference to each Fund, to the extent the
context requires) available for purchase by the Accounts; and
WHEREAS, LIFE COMPANY will be the issuer of certain variable annuity
contracts and variable life insurance contracts ("Contracts") as set forth on
Schedule A hereto, as the Parties hereto may amend from time to time, which
Contracts (hereinafter collectively, the "Contracts"), if required by applicable
law, will be registered under the 1933 Act; and
WHEREAS, LIFE COMPANY will fund the Contracts through the Accounts,
each of which may be divided into two or more subaccounts ("Subaccounts";
reference herein to an "Account" includes reference to each Subaccount thereof
to the extent the context requires); and
WHEREAS, LIFE COMPANY will serve as the depositor of the Accounts, each
of which is registered as a unit investment trust investment company under the
1940 Act (or exempt therefrom), and the security interests deemed to be issued
by the Accounts under the Contracts will be registered as securities under the
1933 Act (or exempt therefrom); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase Shares in one or more of the Funds
on behalf of the Accounts to fund the Contracts; and
1
<PAGE>
WHEREAS, UNDERWRITER is a broker-dealer registered with the SEC under
the Securities Exchange Act of 1934 ("1934-Act") and it member in good standing
of the National Association of Securities Dealers, Inc. ("NASD");
NOW, THEREFORE, in consideration of thc mutual benefits and promises
contained herein, tile Parties hereto agree as follows:
SECTION 1. AVAILABLE FUNDS
1.1 AVAILABILITY.
------------
AVIF will make Shares of each Fund available to LIFE COMPANY for
purchase and redemption at net asset value and with no sales charges, subject to
the terms and conditions of this Agreement. The Board of Directors of AVIF may
refuse to sell Shares of any Fund to any person, or suspend or terminate the
offering of Shares of any Fund if such action is required by law or by
regulatory authorities having jurisdiction or if, in the sole discretion of the
Directors acting in good faith and in light of their fiduciary duties under
federal and any applicable state laws, such action is deemed in the best
interests of the shareholders of such Fund.
1.2 ADDITION, DELETION OR MODIFICATION OF HANDS.
The Parties hereto may agree, from time to time, to add other Funds to
provide additional funding media for the Contracts, or to delete, combine, or
modify existing Funds, by amending Schedule A hereto. Upon such amendment to
Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein shall
include a reference to any such additional Fund. Schedule A, as amended from
time to time, is incorporated herein by reference and is a part hereof.
1.3 NO SALES TO THE GENERAL PUBLIC.
AVIF represents and warrants that no Shares of any Fund have been or
will be sold to the general public.
SECTION 2. PROCESSING TRANSACTIONS
2.1 TIMELY PRICING AND ORDERS.
(a) AVIF or Its designated agent will use its best efforts to provide
LIFE COMPANY with the net asset value per Share for each Fund by 6:00 p.m.
Central Time on each Business Day. As used herein, "Business Day" shall mean any
day on which (1) the New York Stock Exchange is open for regular trading, (ii)
AVIF calculates the Fund's net asset value, and (iii) LIFE COMPANY is open for
business.
(b) LIFE COMPANY will use the data provided by AVIF each Business Day
pursuant to paragraph (a) immediately above to calculate Account Unit values and
to process
2
<PAGE>
transactions that receive that same Business Day's Account unit values. LIFE
COMPANY will perform such Account processing the same Business Day, and will
place corresponding orders to purchase or redeem Shares with AVIF by 9:00 a.m.
Central Time the following Business Day; provided, however-, that AVIF shall
provide additional time to LIFE COMPANY in the event that AVIF is unable to meet
the 6:00 p.m. time stated in paragraph (a) immediately above. Such additional
time shall be equal to the additional time that AVIF takes to make the net asset
Values available to LIFE COMPANY.
(c) With respect to payment of the purchase price by LIFE COMPANY and
of redemption proceeds by AVIF, LIFE COMPANY and AVIF shall net purchase and
redemption orders with respect to each Fund and shall transmit one net payment
per Fund in accordance with Section 2.2, below.
(d) If AVIF provides materially incorrect Share net asset value
information (as determined under SEC guidelines), LIFE COMPANY shall be entitled
to an adjustment to the number of Shares purchased or redeemed to reflect the
correct net asset value per Share. Any material error in the calculation or
reporting of net asset value per Share, dividend or capital gain information
shall be reported promptly upon discovery to LIFE COMPANY.
2.2 TIMELY PAYMENTS.
LIFE COMPANY will wire payment for net purchases to a custodial account
designated by AVIF by 1:00 p.m. Central Time on the same day as the order for
Shares is placed, to the extent practicable. AVIF will wire payment for net
redemptions to an account designated by LIFE COMPANY by 1:00 p.m. Central Time
on the same day as the Order is placed, to the extent practicable, but in any
event within five (5) calendar days after the date the order is placed in order
to enable LIFE COMPANY to pay redemption proceeds within the time specified in
Section 22(e) of the 1940 Act or such shorter period of time as may be required
by law.
2.3 APPLICABLE PRICE.
(a) Share purchase payments and redemption orders that result from
purchase payments, premium payments, surrenders and other transactions under
Contracts (collectively, "Contract transactions") and that LIFE COMPANY receives
prior to the close of regular trading on the New York Stock Exchange on a
Business Day will be executed at the net asset values of the appropriate Funds
next-computed after receipt by AVIF or its designated agent of the orders. For
purposes of this Section 2.3(a), LIFE COMPANY shall be the designated agent of
AVIF for receipt of orders relating to Contract transactions on each Business
Day and receipt by such designated agent shall constitute receipt by AVIF;
provided that AVIF receives notice of such orders by 9:00 a.m. Central Time on
the next following Business Day or such later time as computed in accordance
with Section 2.1(b) hereof.
(b) All other Share purchases and redemptions by LIFE COMPANY will be
effected at the net asset values of the appropriate Funds next computed after
receipt by AVIF or its designated agent of the order therefor, and such orders
will be irrevocable.
3
<PAGE>
2.4 DIVIDENDS AND DISTRIBUTIONS.
---------------------------
AVIF will furnish notice by wire or telephone (followed by written
confirmation) on OF prior to tile payment date to LIFE COMPANY of any income
dividends or capital gain distributions payable on the Shares of any Fund. LIFE
COMPANY hereby elects to reinvest all dividends and capital gains distributions
in additional Shares of the corresponding Fund at the ex-dividend date net asset
values until LIFE COMPANY otherwise notifies AVIF in writing, it being agreed by
the Parties that the ex-dividend date and the payment date with respect to any
dividend or distribution will be the same Business Day. LIFE COMPANY reserves
the right to revoke this election and to receive all such income dividends and
capital gain distributions in cash.
2.5 BOOK ENTRY.
Issuance and transfer of AVIF Shares will be by book entry only. Stock
certificates will not be issued to LIFE COMPANY. Shares ordered from AVIF will
be recorded III all appropriate title for LIFE COMPANY, on behalf of its
Account.
SECTION 3. COSTS AND EXPENSES
3.1 GENERAL.
-------
Except as otherwise specifically provided in Schedule C, attached
hereto and made a part hereof, each Party will bear, or arrange for others to
bear, all expenses incident to its performance under this Agreement.
3.2 PARTIES TO COOPERATE.
Each Party agrees to cooperate with the others, as applicable, in
arranging to print, mail and/or deliver, in a timely manner, combined or
coordinated prospectuses or other materials of AVIF and the Accounts.
SECTION 4. LEGAL COMPLIANCE
4.1 TAX LAWS.
(a) AVIF represents and warrants that each Fund is currently qualified
as a regulated investment company ("RIC") under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), and represents that it will use
its best efforts to qualify and to maintain qualification of each Fund as a RIC.
AVIF will notify LIFE COMPANY immediately upon having a reasonable basis for
believing that a Fund has ceased to so qualify or that it might not so qualify
in the future.
(b) AVIF represents that it will use its best efforts to comply and to
ma' compliance with the diversification requirements set forth in Section 817(h)
of the Code and Section 1.817-5(b) of the regulations under the Code. AVIF will
notify LIFE COMPANY immediately upon having a reasonable basis for believing
that a Fund has ceased to so comply or
4
<PAGE>
that a Fund might not so comply in the future. In the event of a breach of this
Section 4. 1 (b) by AVIF, it will take all reasonable steps to adequately
diversify the Fund so as to achieve compliance within the grace period afforded
by Section 1.817-5 of the regulations under the Code.
(c) LIFE COMPANY agrees that if the Internal Revenue Service ("IRS")
asserts in writing in connection with any governmental audit Or review of LIFE
COMPANY or, to LIFE COMPANY's knowledge, of any Participant, that any Fund has
failed to comply with tile diversification requirements of Section 817(h) of the
Code or LIFE COMPANY otherwise becomes aware of an facts that could give rise to
any claim against AVIF or its affiliates as a result of such a failure or
alleged failure:
(i) LIFE, COMPANY shall promptly notify AVIF of such assertion or
potential claim (subject to the Confidentiality provisions of Section 18 as to
ally Participant);
(ii) LIFE COMPANY shall consult with AVIF as to how to minimize
any liability that may false as a result of such failure or alleged failure;
(iii) LIFE COMPANY shall use its best efforts to minimize any
liability of AVIF or its affiliates resulting from such failure, including,
without limitation, demonstrating, pursuant to Treasury Regulations Section
1.817-5(a)(2), to the Commissioner of the IRS that such failure was inadvertent;
(iv) LIFE COMPANY shall permit AVIF, its affiliates and their
legal and accounting advisors to participate in any conferences, settlement
discussions or other administrative or judicial proceeding or contests
(including judicial appeals thereof) with the IRS, any Participant or any other
claimant regarding any claims that could give rise to liability to AVIF or its
affiliates as a result of such a failure or alleged failure; provided, however,
that LIFE COMPANY will retain control of the conduct of such conferences,
discussions, proceedings, contests or appeals;
(v) any written materials to be submitted by LIFE COMPANY to
the IRS, any Participant or any other claimant in connection with any of the
foregoing proceedings or contests (including, without limitation, any such
materials to be submitted to the IRS pursuant to Treasury Regulations Section
1.817-5(a)(2)), (a) shall be provided by LIFE COMPANY to AVIF (together with any
supporting information or analysis); subject to the confidentiality provisions
of Section 18, at least ten (10) business days or such shorter period to which
the Parties hereto agree prior to the day oil which such proposed materials tire
to be submitted, and (b) shall not be submitted by LIFE COMPANY to any such
person without the express written consent of AVIF which shall not be
unreasonably withheld;
(vi) LIFE COMPANY shall provide AVIF or its affiliates and their
accounting and legal advisors with such cooperation as AVIF shall reasonably
request (including, without limitation, by permitting AVIF and its accounting
and legal advisors to review the relevant books and records of LIFE COMPANY) in
order to facilitate review by AVIF or its advisors of any written Submissions
provided to `It pursuant to the preceding clause
5
<PAGE>
or its assessment of the validity or amount of any claim against its arising
from such a failure or alleged failure;
(vii) LIFE COMPANY shall not with respect to any claim of the
IRS or any Participant that would give rise to a certain against AVIF or its
affiliates (a) compromise or settle any claim, (b) accept any adjustment on
audit, or (c) forego any allowable administrative or judicial appeals, without
the express written consent of AVIF or its affiliates, which shall not be
unreasonably withheld, provided that LIFE COMPANY shall not be required, after
exhausting all administrative penalties, to appeal any adverse Judicial decision
unless AVIF or Its affiliates shall have provided an opinion of independent
counsel to the effect that a reasonable basis exists for taking such appeal; and
provided further that the costs of any such appeal shall be borne equally by the
Parties hereto; and
(viii) AVIF and its affiliates shall have no liability as a
result of such failure or alleged failure if LIFE COMPANY fails to comply with
any of the foregoing clauses (i) through (vii), and such failure could be shown
to have materially contributed to the liability.
Should AVIF or any of its affiliates refuse to give its written consent
to any compromise or settlement of any claim or liability hereunder, LIFE
COMPANY may, in its discretion, authorize AVIF or its affiliates to act in the
name of LIFE COMPANY in, and to control the conduct of, such conferences,
discussions, proceedings, contests or appeals and all administrative or judicial
appeals thereof, and in that event AVIF or its affiliates shall bear the fees
and expenses associated with the conduct of the proceedings that it is so
authorized to control; provided, that in no event shall LIFE COMPANY have any
liability resulting from AVIFs refusal to accept the proposed settlement or
compromise with respect to any failure caused by AVIF. As used in this
Agreement, the term to affiliates" shall have the same meaning as "affiliated
person" as defined in Section 2(a)(3) of the 1940 Act.
(d) LIFE COMPANY represents and warrants that the Contracts currently
are and will be treated as annuity contracts or life insurance contracts under
applicable provisions of the Code and that it will use its best efforts to
maintain such treatment; LIFE COMPANY will notify AVIF immediately upon having a
reasonable basis for believing that any of the Contracts have ceased to be so
treated or that they might not be so treated in the future.
(e) LIFE COMPANY represents and warrants that each Account is a
"segregated asset account" and that interests `in elicit Account are offered
exclusively through the purchase of or transfer into a "variable contract,"
within the meaning of such terms under Section 8 1 7 of the Code and the
regulations thereunder-. LIFE COMPANY will use its best efforts to continue to
meet such definitional] requirements, find it will notify AVIF Immediately Upon
having a reasonable basis for believing that such requirements have ceased to be
met or that they might not be met in the future.
4.2 INSURANCE AND CERTAIN OTHER LAWS.
--------------------------------
(a) AVIF will use its best efforts to comply with any applicable state
insurance laws or regulations, to the extent specifically requested in writing
by LIFE COMPANY, including, the furnishing of information not other-wise
available to LIFE
6
<PAGE>
COMPANY which is required by state insurance law to enable LIFE COMPANY to
obtain the authority needed to issue the Contracts in any applicable state.
(b) LIFE COMPANY represents and warrants that (i) it is all insurance
company duly organized, validly existing and in good standing under the laws of
the State of Ohio and has full corporate power, authority and legal right to
execute, deliver and perform its duties and comply with its obligations under
this Agreement, (ii) it has legally and validly established and maintains each
Account as a segregated asset account under Section 3907.15 of the Ohio
Insurance Law and the regulations thereunder, and (iii) the Contracts comply in
all material respects with all other applicable federal and state laws and
regulations.
(c) AVIF represents and warrants that it is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Maryland and has full power, authority, and legal right to execute, deliver, and
perform its duties and comply with its obligations under this Agreement.
4.3 SECURITIES LAWS.
---------------
(a) LIFE COMPANY represents and warrants that (1) interests in each
Account pursuant to the Contracts will be registered under the 1933 Act to the
extent required by the 1933 Act, (ii) the Contracts will be duly authorized for
issuance and sold in compliance with all applicable federal and state laws,
including, without limitation, the 1933 Act, the 1934 Act, the 1940 Act and Ohio
law, (iii) each Account is and will remain registered under the 1940 Act, to the
extent required by the 1940 Act, (iv) each Account does and will comply in all
material respects with the requirements of the 1940 Act and the rules
thereunder, to the extent required, (v) each Accounts 1933 Act registration
statement relating to the Contracts, together with any amendments thereto, will
at all times comply in all material respects with the requirements of the 1933
Act and the rules thereunder, (vi) LIFE COMPANY will amend the registration
statement for its Contracts under the 1933 Act and for its Accounts under the
1940 Act from time to time as required in order to effect the continuous
offering of its Contracts or as may otherwise be required by applicable law, and
(vii) each Account Prospectus will at all times comply in all material respects
with the requirements of the 1933 Act and the rules thereunder.
(b) AVIF represents and warrants that (i) Shares sold pursuant to this
Agreement will be registered under the 1933 Act to the extent required by the
1933 Act and duly authorized for issuance and sold in compliance with Maryland
law, (ii) AVIF is and will remain registered under the 1940 Act to the extent
required by the 1940 Act, (iii) AVIF will amend the registration statement for
its Shares under the 1933 Act and itself under the 1940 Act from time to time as
required in order to effect the continuous offering of its Shares, (iv) AVIF
does and will comply in all material respects with the requirements of the 1940
Act and the rules thereunder, (v) AVIF s 1933 Act registration statement,
together with any amendments thereto, will at all times comply in all material
respects with the requirements of the 1933 Act and rules thereunder, and (vi)
AVIF s Prospectus will at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder.
7
<PAGE>
(c) AVIF will at its expense register and qualify its Shares for sale
In accordance with the laws of any state or other jurisdiction and to the extent
reasonably deemed advisable by AVIF.
(d) AVIF currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it reserves the right to make such payments in the future. To the
extent that it decides to finance distribution expenses pursuant to Rule 12b-1,
AVIF undertakes to have its Board of Directors, a majority of whom are not
"interested" persons of the Fund, formulate and approve any plan under Rule
12b-1 to finance distribution expenses.
(e) AVIF represents and warrants that all of its trustees, officers,
employees, investment advisers, and other individuals/entities having access to
the funds and/or securities of the Fund are and continue to be at all times
covered by a blanket fidelity bond or similar coverage for the benefit of the
Fund in an amount not less than the minimal coverage as required currently by
Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated from
time to time. The aforesaid bond includes coverage for larceny and embezzlement
and is issued by a reputable bonding company.
4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES.
-----------------------------------------------------
(a) AVIF will immediately notify LIFE COMPANY of (i) the issuance by
any court or regulatory body of any stop order, cease and desist order, or other
similar order with respect to AVIF s registration statement under the 1933 Act
or AVIF Prospectus, (ii) any request by the SEC for any amendment to such
registration statement or AVIF Prospectus that may affect the offering of Shares
of AVIF, (Iii) the initiation of any proceedings for that purpose or for any
other purpose relating to the registration or offering of AVIF s Shares, or (iv)
any other action or circumstances that may prevent the lawful offer or sale of
Shares of any Fund in any state or jurisdiction, including, without limitation,
any circumstances in which (a) such Shares are not registered and, in all
material respects, issued and sold in accordance with applicable state and
federal law, or (b) such law precludes the use of such Shares as an underlying
Investment medium of the Contracts issued or to be issued-by LIFE COMPANY. AVIF
will make every reasonable effort to prevent the issuance, with respect to any
Fund, of any such stop order, cease and desist order or similar order and, if
any such order is issued, to obtain the lifting thereof at the earliest possible
time.
(b) LIFE COMPANY will immediately notify AVIF of (i) the issuance by
any court or regulatory body of any stop order, cease and desist order, or other
similar order with respect to each Account's registration statement under the
1933 Act relating to the Contracts or each Account Prospectus, (ii) any request
by the SEC for any amendment to such registration statement or Account
Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation
of any proceedings for that purpose or for any other purpose relating to the
registration or offering of each Account's interests pursuant to the Contracts,
or (iv) any other action or circumstances that may prevent the lawful offer or
sale of said interests in any state or jurisdiction, including, without
limitation, any circumstances in which said interests are not registered and, in
all material respects, issued and sold in accordance with applicable state and
federal law. LIFE COMPANY will make every reasonable effort to prevent the
issuance of any
8
<PAGE>
such stop order, cease and desist order or similar order and, if any such order
is issued, to obtain the lifting thereof at the earliest possible time.
4.5 LIFE COMPANY TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF.
---------------------------------------------------------
(a) LIFE COMPANY will provide to AVIF or its designated agent at least
one (1) complete copy of all SEC registration statements, Account Prospectuses,
reports, any preliminary and final voting instruction solicitation material,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to each Account or the Contracts,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
(b) LIFE COMPANY will provide to AVIF or its designated agent at least
one (1) complete copy of each piece of sales literature or other promotional
material in which AVIF or any of its affiliates is named, at least five (5)
Business Days prior to its use or such shorter period as the Parties hereto may,
from time to time, agree upon. No such material shall be used if AVIF or its
designated agent objects to such use within five (5) Business Days after receipt
of such material or such shorter period as the Parties hereto may, from time to
time, agree upon. AVIF hereby designates AIM as the entity to receive such sales
literature, until such time as AVIF appoints another designated agent by giving
notice to LIFE COMPANY in the manner required by Section 9 hereof.
(c) Neither LIFE COMPANY nor any of its affiliates, will give any
information or make any representations or statements on behalf of or concerning
AVIF or its affiliates in connection with the sale of the Contracts other than
(i) the information or representations contained in the registration statement,
including the AVIF Prospectus contained therein, relating to Shares, as such
registration statement and AVIF Prospectus may be amended from time to time; or
(ii) in reports or proxy materials for AVIF; or (iii) in published reports for
AVIF that are in the public domain and approved by AVIF for distribution; or
(iv) in sales literature or other promotional material approved by AVIF, except
with the express written permission of AVIF
(d) LIFE COMPANY shall adopt and implement procedures reasonably
designed to ensure that information concerning AVIF and its affiliates that is
intended for use only by brokers or agents selling the Contracts (i.e.,
information that is not intended for distribution to Participants) ("broker only
materials") is so used, and neither AVIF nor any of its affiliates shall be
liable for any losses, damages or expenses relating to the improper use of such
broker only materials.
(e) For the purposes of this Section 4.5, the phrase "sales literature
or other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media, (e.g.,
on-line networks such as the Internet or other electronic messages), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational
9
<PAGE>
or training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
4.6 AVIF TO PROVIDE DOCUMENTS; INFORMATION ABOUT LIFE COMPANY.
---------------------------------------------------------
(a) AVIF will provide to LIFE COMPANY at least one (1) complete copy of
all SEC registration statements, AVIF Prospectuses, reports, any preliminary and
final proxy material, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to AVIF or the
Shares of a Fund, contemporaneously with the filing of such document with the
SEC or other regulatory authorities.
(b) AVIF will provide to LIFE COMPANY a camera ready copy of all AVIF
prospectuses and printed copies, in an amount specified by LIFE COMPANY, of AVIF
statements of additional information, proxy materials, periodic reports to
shareholders and other materials required by law to be sent to Participants who
have allocated any Contract value to a Fund. AVIF will provide such copies to
LIFE COMPANY in a timely manner so as to enable LIFE COMPANY, as the case may
be, to print and distribute such materials within the time required by law to be
furnished to Participants.
(c) AVIF will provide to LIFE COMPANY or its designated agent at least
one (1) complete copy of each piece of sales literature or other promotional
material in which LIFE COMPANY, or any of its respective affiliates is named, or
that refers to the Contracts, at least five (5) Business Days prior to its use
or such shorter period as the Parties hereto may, from time to time, agree upon.
No such material shall be used if LIFE COMPANY or its designated agent objects
to such use within five (5) Business Days after receipt of such material or such
shorter period as the Parties hereto may, from time to time, agree upon. LIFE
COMPANY shall receive all such sales literature until such time as it appoints a
designated agent by giving notice to AVIF in the manner required by Section 9
hereof.
(d) Neither AVIF nor any of its affiliates will give any information or
make any representations or statements on behalf of or concerning LIFE COMPANY,
each Account, or the Contracts other than (i) the information or representations
contained in the registration statement, including each Account Prospectus
contained therein, relating to the Contracts, as such registration statement and
Account Prospectus may be amended from time to time; or (ii) in published
reports for the Account or the Contracts that are in the public domain and
approved by LIFE COMPANY for distribution; or (iii) in sales literature or,
other- promotional material approved by LIFE COMPANY or its affiliates, except
with the express written permission of LIFE COMPANY.
(e) AVIF shall cause its principal underwriter to adopt and implement
procedures reasonably designed to ensure that information concerning LIFE
COMPANY, and its respective affiliates that is intended for use only by brokers
or agents selling the Contracts (i.e., information that is not intended for
distribution to Participants) ("broker only materials") is so used, and neither
LIFE COMPANY, nor any of its respective affiliates shall be liable in any
losses, damages or expenses relating to the improper use of such broker only
materials.
10
<PAGE>
(f) For purposes of this Section 4.6, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other- public media, (e.g.,
on-line networks such as the Internet or other electronic messages), sales
literature, (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminal texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
SECTION 5. MIXED AND SHARED FUNDING
5.1 GENERAL.
-------
The SEC has granted an order to AVIF exempting it from certain
provisions of the 1940 Act and rules thereunder so that AVIF may be available
for investment by certain other entities, including, without limitation,
separate accounts funding variable annuity contracts or variable life insurance
contracts, separate accounts of insurance companies unaffiliated with LIFE
COMPANY, and trustees of qualified pension and retirement plans (collectively,
"Mixed and Shared Funding"). The Parties recognize that the SEC has imposed
terms and conditions for such orders that are substantially identical to many of
the provisions of this Section 5. Sections 5.2 through 5.8 below shall apply
pursuant to such an exemptive order granted to AVIF AVIF hereby notifies LIFE
COMPANY that, in the event that AVIF implements Mixed and Shared Funding, it may
be appropriate to include in the prospectus pursuant to which a Contract is
offered disclosure regarding the potential risks of Mixed and Shared Funding.
5.2 DISINTERESTED DIRECTORS.
AVIF agrees that its Board of Directors shall at all times consist of
directors a majority of whom (the "Disinterested Directors") are not interested
persons of AVIF within the meaning of Section 2(a)(19) of the 1940 Act and the
rules thereunder and as modified by any applicable orders of the SEC, except
that if this condition is not met by reason of the death, disqualification, or
bona fide resignation of any director, then the operation of this condition
shall be suspended (a) for a period of forty-five (45) days if the vacancy or
vacancies may be filled by the Board; (b) or a period of sixty (60) days if a
vote of shareholders is required to fill the vacancy or vacancies; or (c) for
such longer period as the SEC may prescribe by order upon application.
5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS.
AVIF agrees that its Board of Directors will monitor for the existence
of any material irreconcilable conflict between the interests of the
Participants in all separate accounts of life insurance companies utilizing AVIF
("Participating Insurance Companies"), including
11
<PAGE>
each Account, and participants in all qualified retirement and pension plans
investing in AVIF ("Participating Plans"). LIFE COMPANY agrees to inform the
Board of Directors of AVIF of the existence of or any potential for any such
material irreconcilable conflict of which it is aware. The concept of a
"material irreconcilable conflict" is not defined by the 1940 Act or the rules
thereunder, but the Parties recognize that such a conflict may arise for a
variety of reasons, including, without limitations
(a) an action by any state insurance or other regulatory authority,
(b) a change in applicable federal or state insurance, tax or
Securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax or
securities regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding;
(d) the manner in which the investments of any Fund are being managed;
(e) a difference in voting instructions given by variable annuity
contract and variable life insurance contract Participants or by Participants of
different Participating Insurance Companies;
(f) a decision by a Participating Insurance Company to disregard the
voting instructions of Participants; or
(g) a decision by a Participating Plan to disregard the voting
instructions of Plan participants.
Consistent with the SECs requirements in connection with exemptive
orders of the type referred to in Section 5.1 hereof, LIFE COMPANY will assist
the Board of Directors In carrying out its responsibilities by providing the
Board of Directors with all information reasonably necessary for the Board of
Directors to consider any issue raised, including information as to a decision
by LIFE COMPANY to disregard voting instructions of Participants. LIFE COMPANY's
responsibilities in connection with the foregoing shall be carried out with a
view only to the interests of Participants.
5.4 CONFLICT REMEDIES.
-----------------
(a) It is agreed that if it is determined by a majority of the members
of the Board of Directors or a majority of the Disinterested Directors that a
material irreconcilable conflict exists, LIFE COMPANY will, if it is a
Participating Insurance Company for which a material irreconcilable conflict is
relevant, at its own expense and to the extent reasonably practicable (as
determined by a majority of the Disinterested Directors), take whatever steps
are necessary to remedy or eliminate the material irreconcilable conflict, which
steps may Include, but line not limited to:
(i) withdrawing the assets allocable to some or all of the
Accounts from AVIF of any Fund and reinvesting such assets in a different
investment medium, including another Fund of AVIF, or submitting the question
whether such segregation should be
12
<PAGE>
implemented to a vote often affected Participants and, as appropriate,
segregating the assets of any particular group (e.g., annuity Participants, life
insurance Participants or all Participants) that votes in favor of such
segregation, or offering to the affected Participants the option of making such
a change; and
(ii) establishing a new registered investment company of the
type defined as a "management company" in Section 4(3) of the 1 940 Act or a new
separate account that is operated as a management company.
(b) If the material irreconcilable conflict arises because of LIFE
COMPANY's decision to disregard Participant voting instructions and that
decision represents a minority position or would preclude a majority vote, LIFE
COMPANY may be required, at AVIF s election, to withdraw each Account's
investment in AVIF or any Fund. No charge or penalty will be imposed as a result
of such withdrawal. Any such withdrawal must take place within six (6) months
after AVIF gives notice to LIFE COMPANY that this provision is being
implemented, and until such withdrawal AVIF shall continue to accept and
implement orders by LIFE COMPANY for the purchase and redemption of Shares of
AVIF
(c) If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to LIFE COMPANY conflicts with
the majority of other state regulators, then LIFE COMPANY will withdraw each
Account's investment in AVIF within six (6) months after AVIFs Board of
Directors informs LIFE COMPANY that it has determined that such decision has
created a material irreconcilable conflict, and until such withdrawal AVIF shall
continue to accept and implement orders by LIFE COMPANY for the purchase and
redemption of Shares of AVIF. No charge or penalty will be imposed as a result
of such withdrawal.
(d) LIFE COMPANY agrees that any remedial action taken by it in
resolving any material irreconcilable conflict will be carried out at its
expense and with a view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Directors will
determine whether or not any proposed action adequately remedies any material
irreconcilable conflict. In no event, however, will AVIF or any of its
affiliates be required to establish a new funding medium for any Contracts. LIFE
COMPANY will not be required by the terms hereof to establish a new funding
medium for any Contracts if an offer to do so likes been declined by vote of a
majority of Participants materially adversely affected by the material
irreconcilable conflict.
5.5 NOTICE TO LIFE COMPANY.
----------------------
AVIF will promptly make known in writing to LIFE COMPANY the Board of
Directors' determination of the existence of a material irreconcilable conflict,
a description of the facts that give rise to such conflict and the implications
of such conflict.
13
<PAGE>
5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS.
LIFE COMPANY and AVIF (or its investment adviser) will at least
annually submit to the Board of Directors of AVIF such reports, materials or
data as the Board of Directors may reasonably request so that the Board of
Directors may fully carry out the obligations imposed upon it by the provisions
hereof or any exemptive order granted by the SEC to permit Mixed and Shared
Funding, and said reports, materials and data will be submitted at any
reasonable time deemed appropriate by the Board of Directors. All reports
received by the Board of Directors of potential or existing conflicts, and all
Board of Directors actions with regard to determining the existence of a
conflict, notifying Participating Insurance Companies and Participating Plans of
a conflict, and determining whether any proposed action adequately remedies a
conflict, will be properly recorded in the minutes of the Board of Directors or
other appropriate records, and such minutes or other records will be made
available to the SEC upon request.
5.7 COMPLIANCE WITH SEC RULES.
If, at any time during which AVIF is serving as an investment medium
for variable life insurance Contracts, 1940 Act Rules 6e-3(T) or, if applicable,
6e-2 are amended or Rule 6e-3 is adopted to provide exemptive relief with
respect to Mixed and Shared Funding, AVIF agrees that it will comply with the
terms and conditions thereof and that the terms of this Section 5 shall be
deemed modified if and only to the extent required in order also to comply with
the terms and conditions of such exemptive relief that is afforded by any of
said rules that are applicable.
5.8 OTHER REQUIREMENTS.
AVIF will require that each Participating Insurance Company and
Participating Plan enter into an agreement with AVIF that contains in substance
the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a), 4.4(b),
4.5(a), 5, and 10 of this Agreement.
SECTION 6. TERMINATION
6.1 EVENTS OF TERMINATION.
Subject to Section 6.4 below, this Agreement will terminate as to a
Fund:
(a) at the option of any party, with or without cause with respect to
the Fund, upon six (6) months advance written notice to the other parties, or,
It' later, upon receipt of any required exemptive relief from the SEC, unless
otherwise agreed to in writing by the parties; or
(b) at the option of AVIF upon institution of formal proceedings
against LIFE COMPANY or its affiliates by the NASD, the SEC, any state insurance
regulator or any other regulatory body regarding LIFE COMPANY's obligations
under this Agreement or related to the sale of the Contracts, the operation of
each Account, or the purchase of Shares, if, in each case, AVIF reasonably
determines that such proceedings, or the facts on which such proceedings
14
<PAGE>
would be based, naive a material likelihood of imposing material adverse
consequences on the Fund with respect to which the Agreement is to be
terminated; or
(c) at the option of LIFE COMPANY upon institution of formal
proceedings against AVIF, its principal underwriter, or its investment adviser
by the NASD, the SEC, or any state Insurance regulator or any other regulatory
body regarding AVIF s obligations under this Agreement or related to the
operation or management of AVIF or the purchase of AVIF Shares, if, in each
case, LIFE COMPANY reasonably determines that such proceedings, or the facts on
which such proceedings would be based, have a material likelihood of imposing
material adverse consequences on LIFE COMPANY, or the Subaccount corresponding
to the Fund with respect to which the Agreement -is to he terminated; or
(d) at the option of any Party in the event that (i) the Fund's Shares
are not registered and, in all material respects, issued and sold in accordance
with any applicable federal or state law, or (ii) such law precludes the use of
such Shares as an underlying investment medium of the Contracts issued or to be
issued by LIFE COMPANY; or
(e) upon termination of the corresponding Subaccount's investment in
the Fund pursuant to Section 5 hereof; or
(f) at the option of LIFE COMPANY if the Fund ceases to qualify as a
RIC under Subchapter M of the Code or under successor or similar provisions, or
if LIFE COMPANY reasonably believes that the Fund may fail to so qualify; or
(g) at the option of LIFE COMPANY if the Fund fails to comply with
Section 817(h) of the Code or with successor or similar provisions, or if LIFE
COMPANY reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF if the Contracts issued b LIFE COMPANY cease
to qualify as annuity contracts or life insurance contracts under the Code
(other than by reason of the Fund's noncompliance with Section 817(h) or
Subchapter M of the Code) or if interests in an Account under the Contracts are
not registered, where required, and, in all material respects, are not issued or
sold in accordance with any applicable federal or state law; or
(i) upon another Party's material breach of any provision of this
Agreement.
6.2 NOTICE REQUIREMENT FOR TERMINATION.
No termination of this Agreement will be effective unless and until the
Party terminating this Agreement gives prior written notice to the other Party
to this Agreement of its intent to terminate, and such notice shall set forth
the basis for such termination. Furthermore:
(a) In the event that any termination is based upon the provisions of
Section 6.1(a) or 6.1(e) hereof, such prior written notice shall be given at
least six (6) months in advance of the effective date of termination unless a
shorter time is agreed to by the Parties hereto;
(b) in the event that any termination is based upon the provisions of
Sections 6.1(b) or 6. 1 (c) hereof, such prior written notice shall be given at
least ninety (90) days in
15
<PAGE>
advance of the effective date of termination unless a shorter time is agreed to
by the Parties hereto; and
(c) In the event that any termination is based upon the provisions of
Sections 6. 1 (d), 6.1(f ), 6.1(g), 6.1(h) or 6.1(i) hereof , such prior written
notice shall be given as soon as possible within twenty-four (24) hours enter
the terminating Party learns of tile event causing termination to be required.
6.3 FUNDS TO REMAIN AVAILABLE.
-------------------------
Notwithstanding any termination of this Agreement, AVIF will, at the
option of LIFE COMPANY, continue to make available additional shares of the Fund
pursuant to the terms and conditions of this Agreement, for all Contracts in
effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts"). Specifically, without limitation, the
owners of the Existing Contracts will be permitted to reallocate investments in
the Fund (as in effect on such date), redeem investments in the Fund and/or
invest in the Fund upon the making of additional purchase payments under the
Existing Contracts. The parties agree that this Section 6.3 will not apply to
any terminations under Section 5 and the effect of such terminations will be
governed by Section 5 of this Agreement.
6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS.
All warranties and indemnifications will survive the termination of
this Agreement.
6.5 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES.
If any Party terminates this Agreement with respect to any Fund
pursuant to Sections 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i)
hereof, this Agreement shall nevertheless continue in effect as to any Shares of
that Fund that are outstanding as of the date of such termination (the "Initial
Termination Date"). This continuation shall extend to the earlier of the date as
of which an Account owns no Shares of the affected Fund or a date (the "Final
Termination Date") six (6) months following the Initial Termination Date, except
that LIFE COMPANY may, by written notice shorten said six (6) month period in
the case of a termination pursuant to Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or
6.1(i).
SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION
The Parties hereto agree to cooperate and give reasonable assistance to
one another in taking all necessary and appropriate steps for the purpose of
ensuring that an Account owns no Shares of a Fund after the Final Termination
Date with respect thereto, or, in the case of a termination pursuant to Section
6.1(a), the termination date specified in the notice of termination. Such steps
In include combining the affected Account with another Account, substituting
other mutual fund shares for those of the affected Fund, or otherwise
terminating participation by the Contracts in such Fund.
16
<PAGE>
SECTION 8. ASSIGNMENT
This Agreement may not be assigned by any Party, except with the
written consent of each other Party.
SECTION 9. NOTICES
Notices and communications required or permitted by Section 9 hereof
will be given by means mutually acceptable to the Parties concerned. Each other
notice or communication required or permitted by this Agreement will be given to
the following persons at the following addresses and facsimile numbers, or such
other persons, addresses or facsimile numbers as the Party receiving such
notices or communications may subsequently direct in writing:
AIM VARIABLE INSURANCE FUNDS, INC.
11 Greenway Plaza, Suite 100
Houston, Texas 77046
Facsimile: (713) 993-9185
Attn: Nancy L. Martin, Esq.
LIFE COMPANY
Western-Southern Life Assurance Company
400 Broadway
Cincinnati, Ohio 45202
(513) 361-7982
Attn: Jill T. McGruder
UNDERWRITER
Touchstone Securities, Inc.
311 Pike Street
Cincinnati, Ohio 45202
(513) 361-7982
Attn: Jill T. McGruder
SECTION 10. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section 3
hereof, LIFE COMPANY will distribute all proxy material furnished by AVIF to
Participants to whom pass-through voting privileges are required to be extended
and will solicit voting instructions from Participants. LIFE COMPANY will vote
Shares in accordance with timely instructions received from Participants. LIFE
COMPANY will vote Shares that are (a) not attributable to Participants to whom
pass-through voting privileges are extended, or (b) attributable to
Participants, but for
17
<PAGE>
which no timely instructions have been received, in the same proportion as
Shares for which said instructions have been received from Participants, so long
as and to the extent that the SEC continues to interpret the 1940 Act to require
pass through voting privileges for Participants. Neither LIFE COMPANY nor any of
its affiliates will in any way recommend action in connection with or oppose or
Interfere with the solicitation of proxies for the Shares held for such
Participants. LIFE COMPANY reserves the right to vote shares held in any Account
in its own right, to the extent permitted by law. LIFE COMPANY shall be
responsible for assuring that each of its Accounts holding Shares calculates
voting privileges in a manner required by the mixed and Shared Funding exemptive
order obtained by AVIF. AVIF will notify LIFE COMPANY of any changes of
interpretations or amendments to Mixed and Shared Funding exemptive order it has
obtained. AVIF will comply with all provisions of the 1940 Act requiring voting
by shareholders, and in particular, AVIF either will provide for annual meetings
(except-insofar as the SEC may interpret Section 16 of the 1940 Act not to
require such meetings) or will comply with Section 16(c) of the 1940 Act
(although AVIF is not one of the trusts described in Section 16(c) of that Act)
as well as with Sections 16(a) and, if and when applicable, 16(b). Further, AVIF
will act in accordance with the SEC's interpretation of the requirements of
Section 16(a) with respect to periodic elections of directors and with whatever
rules the SEC may promulgate with respect thereto.
SECTION 11. FOREIGN TAX CREDITS
AVIF agrees to consult in advance with LIFE COMPANY concerning any
decision to elect or not to elect pursuant to Section 853 of the Code to pass
through the benefit of any foreign tax credits to its shareholders.
SECTION 12. INDEMNIFICATION
12.1 OF AVIF BY LIFE COMPANY AND UNDERWRITER.
---------------------------------------
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c),
below, LIFE COMPANY and UNDERWRITER agree to indemnify and hold harmless AVIF,
its affiliates, and each person, if any, who controls AVIF or its affiliates
within the meaning of Section 15 of the 1933 Act and each of their respective
directors and officers, (collectively, the "Indemnified Parties" for purposes of
this Section 12.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of LIFE COMPANY
and UNDERWRITER) or actions in respect thereof (including, to the extent
reasonable, legal find other expenses'), to which the Indemnified Parties may
become subject under any statute, regulation at common law or otherwise;
provided, the Account owns shares of the Fund ;and insofar as such losses,
claims, damages, liabilities or actions:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any Accounts 1933 Act
registration statement, any Account Prospectus, the Contracts, or sales
literature or advertising for the Contracts (or any amendment or Supplement to
any of the foregoing), or arise out of or are based upon the omission or the
alleged omission to State therein a material fact required to be stated therein
or necessary to intake the statements therein not misleading; provided, that
this agreement to indemnify shall not apply as to any Indemnified Party if Such
statement or omission or such
18
<PAGE>
alleged statement or omission was made in reliance upon and in conformity with
information furnished to LIFE COMPANY or UNDERWRITER by or on behalf of AVIF for
use in any Account's 1933 Act registration statement, any Account Prospectus,
the Contracts, or sales literature or advertising or otherwise for use in
connection with the sale of Contracts or Shares (or any amendment or Supplement
to any of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations contained in AVIF.s
1933 Act registration statement, AVIF Prospectus, sales literature or
advertising of AVIF, or any amendment or supplement to any of the foregoing, not
supplied for use therein by or on behalf of LIFE COMPANY, UNDERWRITER or their
respective affiliates and on which such persons have reasonably relied) or the
negligent, illegal or fraudulent conduct of LIFE COMPANY, UNDERWRITER or their
respective affiliates or persons under their control (including, without
limitation, their employees and "persons associated with a member," as that term
is defined in paragraph (q) of Article I of the NASD's By-Laws), in connection
with the sale or distribution of the Contracts or Shares; or
(iii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in AVIF's 1933 Act
registration statement, AVIF Prospectus, sales literature or advertising of
AVIF, or any amendment or supplement to any of the foregoing, or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading if such a statement
or omission was made in reliance upon and in conformity with information
furnished to AVIF or its affiliates by or on behalf of LIFE COMPANY, UNDERWRITER
or their respective affiliates for use in AVIF's 1933 Act registration
statement, AVIF Prospectus, sales literature or advertising of AVIF, or any
amendment or supplement to any of the foregoing; or
(iv) arise as a result of any failure by LIFE COMPANY or
UNDERWRITER to perform the obligations, provide the services and furnish the
materials required of them under the terms of this Agreement, or any material
breach of any representation and/or warranty made by LIFE COMPANY or UNDERWRITER
In this Agreement or arise out of or result from any other material breach of
this Agreement by LIFE COMPANY or UNDERWRITER; or
(v) arise as a result of failure by the Contracts issued by LIFE
COMPANY to qualify as annuity contracts or life insurance contracts under the
Code, otherwise than by reason of any Fund's failure to comply with Subchapter M
or Section 817(h) of the Code.
(b) Neither LIFE COMPANY nor UNDERWRITER shall he liable under this
Section 12.1 with respect to any losses, claims, damages, liabilities or actions
to which an Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance by that
Indemnified Party of its duties or by reason of that Indemnified Party's
reckless disregard of obligations or duties (i) under this Agreement, or (ii) to
AVIF.
19
<PAGE>
(c) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this
Section 12.1 with respect to any action against an Indemnified Party unless AVIF
shall have notified LIFE COMPANY and UNDERWRITER in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the action shall have been served upon such Indemnified Party (or
after such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify LIFE COMPANY and UNDERWRITER of any
such action shall not relieve LIFE COMPANY and UNDERWRITER from any liability
which they may have to the Indemnified Party against whom such action is brought
otherwise than on account of this Section 12. 1. Except as otherwise provided
herein, in case any such action is brought against an Indemnified Party, LIFE
COMPANY and UNDERWRITER shall be entitled to participate, at their own expense,
in the defense of such action and also shall be entitled to assume the defense
thereof, with counsel approved by the Indemnified Party named in the action,
which approval shall not be unreasonably withheld. After notice from LIFE
COMPANY or UNDERWRITER to such Indemnified Party of LIFE COMPANY'S or
UNDERWRITER'S election to assume the defense thereof, the Indemnified Party will
cooperate fully with LIFE COMPANY and UNDERWRITER and shall bear the fees and
expenses of any additional counsel retained by it, and neither LIFE COMPANY nor
UNDERWRITER will be liable to such Indemnified Party under this Agreement for
any legal or other expenses subsequently incurred by such Indemnified Party
independently in connection with the defense thereof, other than reasonable
costs of investigation.
12.2 OF LIFE COMPANY AND UNDERWRITER BY AVIF.
---------------------------------------
(a) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e), below, AVIF agrees to indemnify and hold harmless LIFE COMPANY,
UNDERWRITER, their respective affiliates, and each person, if any, who controls
LIFE COMPANY, UNDERWRITER or their respective affiliates within the meaning of
Section 15 of the 1933 Act and each of their respective directors and officers,
(collectively. the "Indemnified Parties" for purposes of this Section 12.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of AVIF) or actions in respect thereof
(including, to the extent reasonable, legal and other expenses), to which the
Indemnified Parties may become subject under any statute, regulation, at common
law, or otherwise; provided, the Account owns shares of the Fund and insofar as
such losses, claims, damages, liabilities or actions:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in AVIF s 1933 Act
registration statement, AVIF Prospectus or sales literature or advertising of
AVIF (or any amendment or supplement to any of the foregoing), or arise Out of
or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; provided, that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished to AVIF or its affiliates by or on behalf of LIFE COMPANY,
UNDERWRITER or their respective affiliates for use in AVIF's 1933 Act
registration statement, AVIF Prospectus, or its sales literature or advertising
or otherwise for use in connection with the sale of Contracts or Shares (or any
amendment or supplement to any of the foregoing); or
20
<PAGE>
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations contained in any
Account's 1933 Act registration statement, any Account Prospectus, sales
literature or advertising for the Contracts, or any amendment or supplement to
any of the foregoing, not supplied for use therein by or on behalf of AVIF or
its affiliates and on which such persons have reasonably relied) or the
negligent, illegal or fraudulent conduct of AVIF or its affiliates or persons
under its control (including, without limitation, their employees and "persons
associated with a member" as that term is defined in Section (q) of Article I of
the NASD By-Laws), in connection with the sale or distribution of AVIF Shares;
or
(iii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any Account's 1933
Act registration statement, any Account Prospectus, sales literature or
advertising covering the Contracts, or any amendment or supplement to any of the
foregoing, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, if such statement or omission was made in reliance upon and in
conformity with information furnished to LIFE COMPANY, UNDERWRITER or their
respective affiliates by or on behalf of AVIF for use in any Account's 1933 Act
registration statement, any Account Prospectus, sales literature or advertising
covering the Contracts, or any amendment or supplement to any of the foregoing;
or
(iv) arise as a result of any failure by AVIF to perform the
obligations, provide the services and furnish the materials required of it under
the terms of this Agreement, or any material breach of any representation and/or
warranty made by AVIF in this Agreement or arise out of or result from any other
material breach of this Agreement by AVIF.
(b) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e) hereof, AVIF agrees to indemnify and hold harmless the Indemnified
Parties from and against any and all losses, claims, damages, liabilities
(including amounts paid in settlement thereof with, the written consent of
AVIF), or actions In respect thereof (including, to the extent reasonable, legal
and other expenses) to which the Indemnified Parties may become subject directly
or indirectly under any statute, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or actions directly or indirectly result
from or arise out of the failure of any Fund to operate as a regulated
investment company in compliance with (i) Subchapter M of the Code and
regulations thereunder, or (ii) Section 817(h) of the Code and regulations
thereunder, including, without limitation, any income taxes and related
penalties, rescission charges, liability tinder state law to Participants
asserting liability against LIFE COMPANY pursuant to the Contracts, the costs of
any ruling and closing agreement or other settlement with the IRS, and the cost
of any substitution by LIFE COMPANY of Shares of another investment company or
portfolio for those of any adversely affected Fund as a funding medium for each
Account that LIFE COMPANY reasonably deems necessary or appropriate as a result
of the noncompliance.
(c) AVIF shall not be liable under this Section 12.2 with respect to
any losses, claims, damages, liabilities or actions to which an Indemnified
Party would otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance by that Indemnified Party of its duties or
by reason of such Indemnified Party's reckless disregard of its
21
<PAGE>
obligations and duties (i) under this Agreement, or (ii) to LIFE COMPANY,
UNDERWRITER, each Account or Participants.
(d) AVIF shall not be liable under this Section 12.2 with respect to
any action against an Indemnified Party unless the Indemnified Party shall have
notified AVIF in writing within a reasonable time after the summons or other
first legal process giving information of the nature of the action shall have
been served upon such Indemnified Party (or after such Indemnified Party shall
have received notice of such service on any designated agent), but failure to
notify AVIF of any such action shall not relieve AVIF from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this Section 12.2. Except as otherwise provided
herein, in case any such action is brought against an Indemnified Party, AVIF
will be entitled to participate, at its own expense, in the defense of such
action and also shall be entitled to assume the defense thereof (which shall
include, without limitation, the conduct of any ruling request and closing
agreement or other settlement proceeding with the IRS), with counsel approved by
the Indemnified Party named in the action, which approval shall not be
unreasonably withheld. After notice from AVIF to such Indemnified Party of AVIF
s election to assume the defense thereof, the Indemnified Party will cooperate
fully with AVIF and shall bear the fees and expenses of any additional counsel
retained by it, and AVIF will not be liable to such Indemnified Party under this
Agreement for any legal or other expenses subsequently incurred by such
Indemnified Party independently in connection with the defense thereof, other
than reasonable costs of investigation.
(e) In no event shall AVIF be liable under the indemnification
provisions contained in this Agreement to any individual or entity, including,
without limitation, LIFE COMPANY, UNDERWRITER or any other Participating
Insurance Company or any Participant, with respect to any losses, claims,
damages, liabilities or expenses that arise out of or result from (i) a breach
of any representation, warranty, and/or covenant made by LIFE COMPANY or
UNDERWRITER hereunder or by any Participating Insurance Company under an
agreement containing substantially similar representations, warranties and
covenants; (ii) the failure by LIFE COMPANY or any Participating Insurance
Company to maintain its segregated asset account (which invests in any Fund) as
a legally and validly established segregated asset account under applicable
state law and as a duly registered unit investment trust under the provisions of
the 1940 Act (unless exempt therefrom); or (iii) the failure by LIFE COMPANY or
any Participating Insurance Company to maintain its variable annuity or life
insurance contracts (with respect to which any Fund serves as an underlying
funding vehicle) as annuity contracts or life insurance contracts under
applicable provisions of the Code.
12.3 EFFECT OF NOTICE.
----------------
Any notice given by the indemnifying Party to an Indemnified Party
referred to in Sections 12.1(c) or 12.2(d) above of participation in or control
of any action by the indemnifying Party will in no event be deemed to be an
admission by the indemnifying Party of liability, culpability or responsibility,
and the indemnifying Party will remain free to contest liability with respect to
the response to the claim among the Parties or otherwise.
22
<PAGE>
12.4 SUCCESSORS.
A successor by law of any Party shall be entitled to the benefits of
the indemnification contained in this Section 12.
SECTION 13. APPLICABLE LAW
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with Maryland law, without regard for that state's
principles of conflict of laws.
SECTION 14. EXECUTION IN COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the same
instrument.
SECTION 15. SEVERABILITY
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
SECTION 16. RIGHTS CUMULATIVE
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or equity, that the Parties are entitled to under federal and state laws.
SECTION 17. HEADINGS
The Table of Contents and Headings used in this Agreement are for
purposes of reference only arid shall not limit or define the meaning of tile
provisions of this Agreement.
SECTION 18. CONFIDENTIALITY
AVIF acknowledges that the identities of the customers of LIFE COMPANY
or any of its affiliates (collectively, the "LIFE COMPANY Protected Parties" for
purposes of this Section 18), information maintained regarding those customers,
and all computer programs and procedures or other information developed by the
LIFE COMPANY Protected Parties or any of their employees or agents in connection
with LIFE COMPANY's performance of its duties under this Agreement are the
valuable property of the LIFE COMPANY Protected Parties. AVIF agrees that if it
comes into possession of any list or compilation of the identities of or other
information about the LIFE COMPANY Protected Parties' customers, or any other
information or property of the LIFE COMPANY Protected Parties, other than such
information as may be independently developed or compiled by AVIF from
information supplied to it by the LIFE COMPANY Protected Parties' customers who
also maintain accounts directly with AVIF, AVIF will hold such information or
property in confidence and refrain from using, disclosing or distributing any of
such information or other property except: (a) with LIFE COMPANY's prior written
consent; or (b) as required by law or judicial process. LIFE COMPANY
acknowledges
23
<PAGE>
that the identities of the customers of AVIF or any of its affiliates
(collectively, the "AVIF Protected Parties" for purposes of this Section 18),
information maintained regarding those customers, and all computer programs and
procedures or other information developed by the AVIF Protected Parties or any
of their employees or agents in connection with AVIF's performance of its duties
under this Agreement are the valuable property of the AVIF Protected Parties.
LIFE COMPANY agrees that if it comes into possession of any list or compilation
of the identities of or other information about the AVIF Protected Parties'
customers or any other information or property of the AVIF Protected Parties,
other than such information as may be independently developed or compiled by
LIFE COMPANY from information supplied to it by the AVIF Protected Parties'
customers who also maintain accounts directly with LIFE COMPANY, LIFE COMPANY
will hold such information or property in confidence and refrain from using,
disclosing or distributing any of such information or other property except: (a)
with AVIF's prior written consent; or (b) as required by law or judicial
process. Each party acknowledges that any breach of the agreements in this
Section 18 would result in immediate and irreparable harm to the other parties
for which there would be no adequate remedy at law and agree that in the event
of such a breach, the other parties will be entitled to equitable relief by way
of temporary arid permanent injunctions, as well as such other relief as any
Court of competent jurisdiction deems appropriate.
SECTION 19. TRADEMARKS AND FUND NAMES
(a) A I M Management Group Inc. ("AIM" or "licensor"), an affiliate of
AVIF, owns all right, title and interest in and to the name, trademark and
service mark "AIM" and such other trade names, trademarks and service marks as
may be set forth on Schedule B, as amended from time to time by written notice
from AIM to LIFE COMPANY (the "AIM licensed marks" or the "licensor's licensed
marks") and is authorized to use and to license other persons to use such marks.
LIFE COMPANY and its affiliates are hereby granted a non-exclusive license to
use the AIM licensed marks in connection with LIFE COMPANY's performance of the
services contemplated under this Agreement, subject to the terms find conditions
set forth in this Section 19.
(b) The grant of license to LIFE COMPANY and its affiliates ( the
"licensee") shall terminate automatically upon termination of this Agreement.
Upon automatic termination, the licensee shall cease to use the licensor's
licensed mark's. except that LIFE COMPANY shall have the right to continue to
service any outstanding Contracts bearing any of the AIM licensed marks. Upon
AIM's elective termination of this license, LIFE COMPANY and its affiliates
shall immediately cease to issue any new annuity or life insurance contracts
bearing any of the AIM licensed marks and shall likewise cease any activity
which suggests that it has any right under any of the AIM licensed marks or that
it has any association with AIM, except that LIFE COMPANY shall have the right
to continue to service outstanding Contracts bearing any of the AIM licensed
marks.
(c) The licensee shall obtain the prior written approval of the
licensor for the public release by such licensee of any materials bearing the
licensor's licensed marks. The licensor's approvals shall not be unreasonably
withheld.
24
<PAGE>
(d) During the term of this grant of license, a licensor may request
that a licensee submit samples of any materials bearing any of the licensor's
licensed marks which were previously approved by the licensor but, due to
changed circumstances, the licensor may wish to reconsider. If, on
reconsideration, or on initial review, respectively, any such samples fail to
meet with the written approval of the licensor, then the licensee shall
immediately cease distributing such disapproved materials. The licensor's
approval shall not be unreasonably withheld, and the licensor, when requesting
reconsideration of a prior approval, shall assume the reasonable expenses of
withdrawing and replacing such disapproved materials. The licensee shall obtain
the prior written approval of the licensor for the use of any new materials
developed to replace the disapproved materials, in the manner set forth above.
(e) The licensee hereunder: (i) acknowledges and stipulates that, to
the best of the knowledge of the licensee, the licensor's licensed marks are
valid and enforceable trademarks and/or service marks and that such licensee
does not own the licensor's licensed marks and claims no rights therein other
than as a licensee under this Agreement; (ii) agrees never to contend otherwise
in legal proceedings or in other circumstances; and (iii) acknowledges and
agrees that the use of the licensor's licensed marks pursuant to this grant of
license shall inure to the benefit of the licensor.
SECTION 20. PARTIES TO COOPERATE
Each party to this Agreement will cooperate with each other party and
all appropriate governmental authorities (including, without limitation, the
SEC, the NASD and state insurance regulators) and will permit each other and
such authorities reasonable access to its books and records (including copies
thereof) in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
---------------------------------------------
25
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers signing below.
<TABLE>
<CAPTION>
AIM VARIABLE INSURANCE FUNDS, INC.
<S> <C>
Attest: By:
------------------------------------- ---------------------------------
Name: Nancy L. Martin Name: Robert H. Graham
Title Assistant Secretary Title: President
WESTERN-SOUTHERN LIFE ASSURANCE
COMPANY, on behalf of- itself- and
its separate accounts
Attest: By:
------------------------------------- ----------------------------------
Name: Name: Jill T. McGruder
------------------------------------- -----------------------------
Title: Title: Senior Vice President
------------------------------------- -----------------------------
TOUCHSTONE SECURITIES
Attest: /s/ David E. Dennison By:
------------------------------------- ----------------------------------
Name: David E. Dennison. Name: Jill T. McGruder
------------------------------------- -----------------------------
Title: Vice President Title: Senior Vice President
------------------------------------- -----------------------------
</TABLE>
763354.01
26
<PAGE>
SCHEDULE A
FUNDS AVAILABLE UNDER THE CONTRACTS
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I Growth Portfolio
AIM V.I Government Securities Portfolio
SEPARATE ACCOUNTS UTILIZING THE FUNDS
Western-Southern Life Assurance Company Separate Account 1
Western-Southern Life Assurance Company Separate Account 2
CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS
Touchstone Gold Variable Annuity
Touchstone Select Variable Annuity
Touchstone Advisor Variable Annuity
1
<PAGE>
SCHEDULE B
AIM VARIABLE INSURANCE FUNDS, INC-
AIM V.I Growth Fund
AIM V.I. Government Securities Fund
AIM and Design
1
<PAGE>
<TABLE>
<CAPTION>
Schedule C
EXPENSE ALLOCATIONS
============================================================ =========================================================
<S> <C>
LIFE COMPANY AVIF
- ----------------------------------------------------------------------------------------------------------------------
preparing and filing the Account' s registration statement preparing and filing the Fund's registration
statement
- ----------------------------------------------------------------------------------------------------------------------
text composition for Account prospectuses and supplements text composition for Fund prospectuses and
supplements
- ----------------------------------------------------------------------------------------------------------------------
text alterations of prospectuses (Account) and supplements text alterations of prospectus (Fund) and
(Account) supplements (Fund)
- ----------------------------------------------------------------------------------------------------------------------
printing Account and Fund prospectuses and supplements a camera ready Fund prospectus
- ----------------------------------------------------------------------------------------------------------------------
text composition and printing Account SAls text composition and printing Fund SAls
- ----------------------------------------------------------------------------------------------------------------------
mailing and distributing Account SAIs to mailing and distributing Fund SAls to policy
policy owners upon request by policy owners owners upon request by policy owners
- ----------------------------------------------------------------------------------------------------------------------
mailing and distributing prospectuses (Account and Fund)
and supplements (Account and Fund) to policy owners of
record as required by Federal Securities Laws and to
prospective purchasers
- ----------------------------------------------------------------------------------------------------------------------
text composition (Account), printing, mailing, and text composition of annual and semi-annual
distributing annual and semi-annual reports for Account reports (Fund)
(Fund and Account as, applicable)
- ----------------------------------------------------------------------------------------------------------------------
text composition, printing, mailing, distributing, and text composition, printing, mailing,
tabulation of proxy statements and voting instruction distributing and tabulation of proxy statements
solicitation materials to policy owners with respect to and voting instruction solicitation materials
proxies related to the Account to policy owners with respect to proxies
related to the Fund
- ----------------------------------------------------------------------------------------------------------------------
preparation, printing and distributing sales material and
advertising relating to the Funds, insofar as such
materials relate to the Contracts and filing such
materials with and obtaining approval from, the SEC, the
NASD, any state insurance regulatory authority, and tiny
other appropriate regulatory authority, to the extent
required
- ----------------------------------------------------------------------------------------------------------------------
preparation, printing and distributing sales material and advertising relating
to the Funds, insofar as such materials relate to the Contracts and filing such
materials with and obtaining approval from, the SEC, the NASD, any state
insurance regulatory authority, and tiny other appropriate regulatory authority,
to the extent required
============================================================ =========================================================
</TABLE>
1
PARTICIPATION AGREEMENT
AMONG
MFS VARIABLE INSURANCE TRUST,
------------------------------------
AND
MASSACHUSETTS FINANCIAL SERVICES COMPANY
THIS AGREEMENT, made and entered this 31st day of March 1999, by and
among MFS VARIABLE INSURANCE TRUST, a Massachusetts business trust (the
"Trust"), WESTERN-SOUTHERN LIFE ASSURANCE COMPANY, a/an _________ corporation
(the "Company") on its own behalf and on behalf of each of the segregated asset
accounts of the Company set forth in Schedule A hereto, as may be amended from
time to time (the "Accounts"), and MASSACHUSETTS FINANCIAL SERVICES COMPANY, a
Delaware corporation ("MFS").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and its shares are registered or will be registered under the Securities Act of
1933, as amended (the "1933 Act");
WHEREAS, shares of beneficial interest of the Trust are divided into
several series of shares, each representing the interests in a particular
managed pool of securities and other assets,
WHEREAS, the series of shares of the Trust offered by the Trust to the
Company and the Accounts are set forth on Schedule A attached hereto (each, a
"Portfolio," and, collectively, the "Portfolios");
WHEREAS, MFS is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
law, and is the Trust's investment adviser;
WHEREAS, the Company will issue certain variable annuity and/or
variable life insurance contracts (individually, the "Policy" or, collectively,
the "Policies") which, if required by applicable law, will be registered under
the 1933 Act;
WHEREAS, the Accounts are duly organized, validly existing segregated
asset accounts, established by resolution of the Board of Directors of the
Company, to set aside and invest assets attributable to the aforesaid variable
annuity and/or variable life insurance contracts that are allocated to the
Accounts (the Policies and the Accounts covered by this Agreement, and each
corresponding Portfolio covered by this Agreement in which the Accounts invest,
is specified in Schedule A attached hereto as may be modified from time to
time);
<PAGE>
WHEREAS, the Company has registered or will register the Accounts as
unit investment trusts under the 1940 Act (unless exempt therefrom);
WHEREAS, MFS Fund Distributors, Inc. (the "Underwriter") is registered
as a broker-dealer with the Securities and Exchange Commission (the "SEC") under
the Securities Exchange Act of 1934, as amended (hereinafter the "1934 Act"),
and is a member in good standing of the National Association of Securities
Dealers, Inc. (the "NASD");
WHEREAS, Touchstone Securities, Inc., the underwriter for the
individual variable annuity and the variable life policies, is registered as a
broker-dealer with the SEC under the 1934 Act and is a member in good standing
of the NASD; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in one or more of the
Portfolios specified in Schedule A attached hereto (the "Shares") on behalf of
the Accounts to fund the Policies, and the Trust intends to sell such Shares to
the Accounts at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Trust,
MFS, and the Company agree as follows:
ARTICLE I.
SALE OF TRUST SHARES
1.1 The Trust agrees to sell to the Company those Shares which the
Accounts order (based on orders placed by Policy holders on that Business Day,
as defined below) and which are available for purchase by such Accounts,
executing such orders on a daily basis at the net asset value next computed
after receipt by the Trust or its designee of the order for the Shares. For
purposes of this Section 1.1, the Company shall be the designee of the Trust for
receipt of such orders from Policy owners and receipt by such designee shall
constitute receipt by the Trust; provided that the Trust receives notice of such
orders by 9:30 a.m. New York time on the next following Business Day. "Business
Day" shall mean any day on which the New York Stock Exchange, Inc. (the "NYSE")
is open for trading and on which the Trust calculates its net asset value
pursuant to the rules of the SEC.
1.2 The Trust agrees to make the Shares available indefinitely for
purchase at the applicable net asset value per share by the Company and the
Accounts on those days on which the Trust calculates its net asset value
pursuant to rules of the SEC and the Trust shall calculate such net asset value
on each day which the NYSE is open for trading. Notwithstanding the foregoing,
the Board of Trustees of the Trust (the "Board") may refuse to sell any Shares
to the Company and the Accounts, or suspend or terminate the offering of the
Shares if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Board acting in good faith and
in light of its fiduciary duties under federal and any applicable state laws,
necessary in the best interest of the Shareholders of such Portfolio.
2
<PAGE>
1.3 The Trust and MFS agree that the Shares will be sold only to
insurance companies which have entered into participation agreements with the
Trust and MFS (the "Participating Insurance Companies") and their separate
accounts, qualified pension and retirement plans and MFS or its affiliates. The
Trust and MFS will not sell Trust shares to any insurance company or separate
account unless an agreement containing provisions substantially the same as
Articles III and VII of this Agreement is in effect to govern such sales. The
Company will not resell the Shares except to the Trust or its agents.
1.4 The Trust agrees to redeem for cash, on the Company's request, any
full or fractional Shares held by the Accounts (based on orders placed by Policy
owners on that Business Day), executing such requests on a daily basis at the
net asset value next computed after receipt by the Trust or its designee of the
request for redemption. For purposes of this Section 1.4, the Company shall be
the designee of the Trust for receipt of requests for redemption from Policy
owners and receipt by such designee shall constitute receipt by the Trust,
provided that the Trust receives notice of such request for redemption by 9:30
a.m. New York time on the next following Business Day.
1.5 Each purchase, redemption and exchange order placed by the Company
shall be placed separately for each Portfolio and shall not be netted with
respect to any Portfolio. However, with respect to payment of the purchase price
by the Company and of redemption proceeds by the Trust, the Company and the
Trust shall net purchase and redemption orders with respect to each Portfolio
and shall transmit one net payment for all of the Portfolios in accordance with
Section 1.6 hereof.
1.6 In the event of net purchases, the Company shall pay for the Shares
by 2:00 p.m. New York time on the next Business Day after an order to purchase
the Shares is made in accordance with the provisions of Section 1.1. hereof. In
the event of net redemptions, the Trust shall pay the redemption proceeds by
2:00 p.m. New York time on the next Business Day after an order to redeem the
shares is made in accordance with the provisions of Section 1.4. hereof. All
such payments shall be in federal funds transmitted by wire.
1.7 Issuance and transfer of the Shares will be by book entry only.
Stock certificates will not be issued to the Company or the Accounts. The Shares
ordered from the Trust will be recorded in an appropriate title for the Accounts
or the appropriate subaccounts of the Accounts.
1.8 The Trust shall furnish same day notice (by wire or telephone
followed by written confirmation) to the Company of any dividends or capital
gain distributions payable on the Shares. The Company hereby elects to receive
all such dividends and distributions as are payable on a Portfolio's Shares in
additional Shares of that Portfolio. The Trust shall notify the Company of the
number of Shares so issued as payment of such dividends and distributions.
1.9 The Trust or its custodian shall make the net asset value per share
for each Portfolio available to the Company on each Business Day as soon as
reasonably practical after the net asset value per share is calculated and shall
use its best efforts to make such net asset value per share available by 6:30
p.m. New York time. In the event that the Trust is unable to meet the 6:30 p.m.
time stated herein, it shall provide additional time for the Company to place
orders for the purchase and redemption of Shares. Such additional time shall be
equal to the
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additional time which the Trust takes to make the net asset value available to
the Company. If the Trust provides materially incorrect share net asset value
information, the Trust shall make an adjustment to the number of shares
purchased or redeemed for the Accounts to reflect the correct net asset value
per share. Any material error in the calculation or reporting of net asset value
per share, dividend or capital gains information shall be reported promptly upon
discovery to the Company.
ARTICLE II.
CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS
2.1 The Company represents and warrants that the Policies are or will
be registered under the 1933 Act or are exempt from or not subject to
registration thereunder, and that the Policies will be issued, sold, and
distributed in compliance in all material respects with all applicable state and
federal laws, including without limitation the 1933 Act, the Securities Exchange
Act of 1934, as amended (the "1934 Act"), and the 1940 Act. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and validly
established the Account as a segregated asset account under applicable law and
has registered or, prior to any issuance or sale of the Policies, will register
the Accounts as unit investment trusts in accordance with the provisions of the
1940 Act (unless exempt therefrom) to serve as segregated investment accounts
for the Policies, and that it will maintain such registration for so long as any
Policies are outstanding. The Company shall amend the registration statements
under the 1933 Act for the Policies and the registration statements under the
1940 Act for the Accounts from time to time as required in order to effect the
continuous offering of the Policies or as may otherwise be required by
applicable law. The Company shall register and qualify the Policies for sales in
accordance with the securities laws of the various states only if and to the
extent deemed necessary by the Company.
2.2 The Company represents and warrants that the Policies are currently
and at the time of issuance will be treated as life insurance, endowment or
annuity contract under applicable provisions of the Internal Revenue Code of
1986, as amended (the "Code"), that it will maintain such treatment and that it
will notify the Trust or MFS immediately upon having a reasonable basis for
believing that the Policies have ceased to be so treated or that they might not
be so treated in the future.
2.3 The Company represents and warrants that Touchstone Securities,
Inc. ("Touchstone"), the underwriter for the individual variable annuity and the
variable life policies, is a member in good standing of the NASD and is a
registered broker-dealer with the SEC. The Company represents and warrants that
the Company and Touchstone will sell and distribute such policies in accordance
in all material respects with all applicable state and federal securities laws,
including without limitation the 1933 Act, the 1934 Act, and the 1940 Act.
2.4 The Trust and MFS represent and warrant that the Shares sold
pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with the laws of The Commonwealth
of Massachusetts and all applicable federal and state securities laws and that
the Trust is and shall remain registered under the 1940 Act. The
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Trust shall amend the registration statement for its Shares under the 1933 Act
and the 1940 Act from time to time as required in order to effect the continuous
offering of its Shares. The Trust shall register and qualify the Shares for sale
in accordance with the laws of the various states only if and to the extent
deemed necessary by the Trust.
2.5 MFS represents and warrants that the Underwriter is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC. The
Trust and MFS represent that the Trust and the Underwriter will sell and
distribute the Shares in accordance in all material respects with all applicable
state and federal securities laws, including without limitation the 1933 Act,
the 1934 Act, and the 1940 Act.
2.6 The Trust represents that it is lawfully organized and validly
existing under the laws of The Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act and any applicable
regulations thereunder.
2.7 MFS represents and warrants that it is and shall remain duly
registered under all applicable federal securities laws and that it shall
perform its obligations for the Trust in compliance in all material respects
with any applicable federal securities laws and with the securities laws of The
Commonwealth of Massachusetts. MFS represents and warrants that it is not
subject to state securities laws other than the securities laws of The
Commonwealth of Massachusetts and that it is exempt from registration as an
investment adviser under the securities laws of The Commonwealth of
Massachusetts.
2.8 No less frequently than annually, the Company shall submit to the
Board such reports, material or data as the Board may reasonably request so that
it may carry out fully the obligations imposed upon it by the conditions
contained in the exemptive application pursuant to which the SEC has granted
exemptive relief to permit mixed and shared funding (the "Mixed and Shared
Funding Exemptive Order").
ARTICLE III.
PROSPECTUS AND PROXY STATEMENTS; VOTING
3.1 At least annually, the Trust or its designee shall provide the
Company, free of charge, with as many copies of the current prospectus
(describing only the Portfolios listed in Schedule A hereto) for the Shares as
the Company may reasonably request for distribution to existing Policy owners
whose Policies are funded by such Shares. The Trust or its designee shall
provide the Company, at the Company's expense, with as many copies of the
current prospectus for the Shares as the Company may reasonably request for
distribution to prospective purchasers of Policies. If requested by the Company
in lieu thereof, the Trust or its designee shall provide such documentation
(including a "camera ready" copy of the new prospectus as set in type or, at the
request of the Company, as a diskette in the form sent to the financial printer)
and other assistance as is reasonably necessary in order for the parties hereto
once each year (or more frequently if the prospectus for the Shares is
supplemented or amended) to have the prospectus for the Policies and the
prospectus for the Shares printed together in one document; the expenses of such
printing to be apportioned between (a) the Company and (b) the Trust or its
designee in proportion to the number of pages of the Policy and Shares'
prospectuses, taking account of
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other relevant factors affecting the expense of printing, such as covers,
columns, graphs and charts; the Trust or its designee to bear the cost of
printing the Shares' prospectus portion of such document for distribution to
owners of existing Policies funded by the Shares and the Company to bear the
expenses of printing the portion of such document relating to the Accounts;
provided, however, that the Company shall bear all printing expenses of such
combined documents where used for distribution to prospective purchasers or to
owners of existing Policies not funded by the Shares. In the event that the
Company requests that the Trust or its designee provides the Trust's prospectus
in a "camera ready" or diskette format, the Trust shall be responsible for
providing the prospectus in the format in which it or MFS is accustomed to
formatting prospectuses and shall bear the expense of providing the prospectus
in such format (e.g., typesetting expenses), and the Company shall bear the
expense of adjusting or changing the format to conform with any of its
prospectuses.
3.2 The prospectus for the Shares shall state that the statement of
additional information for the Shares is available from the Trust or its
designee. The Trust or its designee, at its expense, shall print and provide
such statement of additional information to the Company (or a master of such
statement suitable for duplication by the Company) for distribution to any owner
of a Policy funded by the Shares. The Trust or its designee, at the Company's
expense, shall print and provide such statement to the Company (or a master of
such statement suitable for duplication by the Company) for distribution to a
prospective purchaser who requests such statement or to an owner of a Policy not
funded by the Shares.
3.3 The Trust or its designee shall provide the Company free of charge
copies, if and to the an extent applicable to the Shares, of the Trust's proxy
materials, reports to Shareholders and other communications to Shareholders in
such quantity as the Company shall reasonably require for distribution to Policy
owners.
3.4 Notwithstanding the provisions of Sections 3.1, 3.2, and 3.3 above,
or of Article V below, the Company shall pay the expense of printing or
providing documents to the extent such cost is considered a distribution
expense. Distribution expenses would include by way of illustration, but are not
limited to, the printing of the Shares' prospectus or prospectuses for
distribution to prospective purchasers or to owners of existing Policies not
funded by such Shares.
3.5 The Trust hereby notifies the Company that it may be appropriate to
include in the prospectus pursuant to which a Policy is offered disclosure
regarding the potential risks of mixed and shared funding:
3.6 If and to the extent required by law, the Company shall:
(a) solicit voting instructions from Policy owners;
(b) vote the Shares in accordance with instructions received from
Policy owners; and
(c) vote the Shares for which no instructions have been received in the
same proportion as the Shares of such Portfolio for which instructions have been
received from Policy owners;
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so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass through voting privileges for variable contract owners. The Company
will in no way recommend action in connection with or oppose or interfere with
the solicitation of proxies for the Shares held for such Policy owners. The
Company reserves the right to vote shares held in any segregated asset account
in its own right, to the extent permitted by law. Participating Insurance
Companies shall be responsible for assuring that each of their separate accounts
holding Shares calculates voting privileges in the manner required by the Mixed
and Shared Funding Exemptive Order. The Trust and MFS will notify the Company of
any changes of interpretations or amendments to the Mixed and Shared Funding
Exemptive Order.
ARTICLE IV.
SALES MATERIAL AND INFORMATION
4.1 The Company shall furnish, or shall cause to be furnished, to the
Trust or its designee, each piece of sales literature or other promotional
material in which the Trust, MFS, any other investment adviser to the Trust, or
any affiliate of MFS are named, at least three (3) Business Days prior to its
use. No such material shall be used if the Trust, MFS, or their respective
designees reasonably objects to such use within three (3) Business Days after
receipt of such material.
4.2 The Company shall not give any information or make any
representations or statement on behalf of the Trust, MFS, any other investment
adviser to the Trust, or any affiliate of MFS or concerning the Trust or any
other such entity in connection with the sale of the Policies other than the
information or representations contained in the registration statement,
prospectus or statement of additional information for the Shares, as such
registration statement, prospectus and statement of additional information may
be amended or supplemented from time to time, or in reports or proxy statements
for the Trust, or in sales literature or other promotional material approved by
the Trust, MFS or their respective designees, except with the permission of the
Trust, MFS or their respective designees. The Trust, MFS or their respective
designees each agrees to respond to any request for approval on a prompt and
timely basis. The Company shall adopt and implement procedures reasonably
designed to ensure that information concerning the Trust, MFS or any of their
affiliates which is intended for use only by brokers or agents selling the
Policies (i.e., information that is not intended for distribution to Policy
owners or prospective Policy owners) is so used, and neither the Trust, MFS nor
any of their affiliates shall be liable for any losses, damages or expenses
relating to the improper use of such broker only materials.
4.3 The Trust or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company and/or the Accounts is named, at
least three (3) Business Days prior to its use. No such material shall be used
if the Company or its designee reasonably objects to such use within three (3)
Business Days after receipt of such material.
4.4 The Trust and MFS shall not give, and agree that the Underwriter
shall not give, any information or make any representations on behalf of the
Company or concerning the Company, the Accounts, or the Policies in connection
with the sale of the Policies other than the information or representations
contained in a registration statement, prospectus, or statement of
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additional information for the Policies, as such registration statement,
prospectus and statement of additional information may be amended or
supplemented from time to time, or in reports for the Accounts, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company. The Company or its designee
agrees to respond to any request for approval on a prompt and timely basis. The
parties hereto agree that this Section 4.4. is neither intended to designate nor
otherwise imply that MFS is an underwriter or distributor of the Policies.
4.5 The Company and the Trust (or its designee in lieu of the Company
or the Trust, as appropriate) will each provide to the other at least one
complete copy of all registration statements, prospectuses, statements of
additional information, reports, proxy statements, sales literature and other
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to the Policies, or
to the Trust or its Shares, prior to or contemporaneously with the filing of
such document with the SEC or other regulatory authorities. The Company and the
Trust shall also each promptly inform the other of the results of any
examination by the SEC (or other regulatory authorities) that relates to the
Policies, the Trust or its Shares, and the party that was the subject of the
examination shall provide the other party with a copy of relevant portions of
any "deficiency letter" or other correspondence or written report regarding any
such examination.
4.6 The Trust and MFS will provide the Company with as much notice as
is reasonably practicable of any proxy solicitation for any Portfolio, and of
any material change in the Trust's registration statement, particularly any
change resulting in change to the registration statement or prospectus or
statement of additional information for any Account. The Trust and MFS will
cooperate with the Company so as to enable the Company to solicit proxies from
Policy owners or to make changes to its prospectus, statement of additional
information or registration statement, in an orderly manner. The Trust and MFS
will make reasonable efforts to attempt to have changes affecting Policy
prospectuses become effective simultaneously with the annual updates for such
prospectuses.
4.7 For purpose of this Article IV and Article VIII, the phrase "sales
literature or other promotional material" includes but is not limited to
advertisements (such as material published, or designed for use in, a newspaper,
magazine, or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures, or other public media),
and sales literature (such as brochures, circulars, reprints or excerpts or any
other advertisement, sales literature, or published articles), distributed or
made generally available to customers or the public, educational or training
materials or communications distributed or made generally available to some or
all agents or employees.
ARTICLE V.
FEES AND EXPENSES
5.1 The Trust shall pay no fee or other compensation to the Company
under this Agreement, and the Company shall pay no fee or other compensation to
the Trust, except that if the Trust or any Portfolio adopts and implements a
plan pursuant to Rule l2b-1 under the 1940
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Act to finance distribution and Shareholder servicing expenses, then, subject to
obtaining any required exemptive orders or regulatory approvals, the Trust may
make payments to the Company or to the underwriter for the Policies if and in
amounts agreed to by the Trust in writing. Each party, however, shall, in
accordance with the allocation of expenses specified in Articles III and V
hereof, reimburse other parties for expenses initially paid by one party but
allocated to another party. In addition, nothing herein shall prevent the
parties hereto from otherwise agreeing to perform, and arranging for appropriate
compensation for, other services relating to the Trust and/or to the Accounts.
5.2 The Trust or its designee shall bear the expenses for the cost of
registration and qualification of the Shares under all applicable federal and
state laws, including preparation and filing of the Trust's registration
statement, and payment of filing fees and registration fees; preparation and
filing of the Trust's proxy materials and reports to Shareholders; setting in
type and printing its prospectus and statement of additional information (to the
extent provided by and as determined in accordance with Article III above);
setting in type and printing the proxy materials and reports to Shareholders (to
the extent provided by and as determined in accordance with Article III above);
the preparation of all statements and notices required of the Trust by any
federal or state law with respect to its Shares; all taxes on the issuance or
transfer of the Shares; and the costs of distributing the Trust's prospectuses
and proxy materials to owners of Policies funded by the Shares and any expenses
permitted to be paid or assumed by the Trust pursuant to a plan, if any, under
Rule 12b-1 under the 1940 Act. The Trust shall not bear any expenses of
marketing the Policies.
5.3 The Company shall bear the expenses of distributing the Shares'
prospectus or prospectuses in connection with new sales of the Policies and of
distributing the Trust's Shareholder reports to Policy owners. The Company shall
bear all expenses associated with the registration, qualification, and filing of
the Policies under applicable federal securities and state insurance laws; the
cost of preparing, printing and distributing the Policy prospectus and statement
of additional information; and the cost of preparing, printing and distributing
annual individual account statements for Policy owners as required by state
insurance laws.
ARTICLE VI.
DIVERSIFICATION AND RELATED LIMITATIONS
6.1 The Trust and MFS represent and warrant that each Portfolio of the
Trust will meet the diversification requirements of Section 817(h)(1) of the
Code and Treas. Reg. 1.817-5, relating to the diversification requirements for
variable annuity, endowment, or life insurance contracts, as they may be amended
from time to time (and any revenue rulings, revenue procedures, notices, and
other published announcements of the Internal Revenue Service interpreting these
sections), as if those requirements applied directly to each such Portfolio.
6.2 The Trust and MFS represent that each Portfolio will elect to be
qualified as a Regulated Investment Company under Subchapter M of the Code and
that they will maintain such Qualification (under Subchapter M or any successor
or similar provision).
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ARTICLE VII.
POTENTIAL MATERIAL CONFLICTS
7.1 The Trust agrees that the Board, constituted with a majority of
disinterested trustees, will monitor each Portfolio of the Trust for the
existence of any material irreconcilable conflict between the interests of the
variable annuity contract owners and the variable life insurance policy owners
of the Company and/or affiliated companies ("contract owners") investing in the
Trust. The Board shall have the sole authority to determine if a material
irreconcilable conflict exists, and such determination shall be binding on the
Company only if approved in the form of a resolution by a majority of the Board,
or a majority of the disinterested trustees of the Board. The Board will give
prompt notice of any such determination to the Company.
7.2 The Company agrees that it will be responsible for assisting the
Board in carrying out its responsibilities under the conditions set forth in the
Trust's exemptive application pursuant to which the SEC has granted the Mixed
and Shared Funding Exemptive Order by providing the Board, as it may reasonably
request, with all information necessary for the Board to consider any issues
raised and agrees that it will be responsible for promptly reporting any
potential or existing conflicts of which it is aware to the Board including, but
not limited to, an obligation by the Company to inform the Board whenever
contract owner voting instructions are disregarded. The Company also agrees
that, if a material irreconcilable conflict arises, it will at its own cost
remedy such conflict up to and including (a) withdrawing the assets allocable to
some or all of the Accounts from the Trust or any Portfolio and reinvesting such
assets in a different investment medium, including (but not limited to) another
Portfolio of the Trust, or submitting to a vote of all affected contract owners
whether to withdraw assets from the Trust or any Portfolio and reinvesting such
assets in a different investment medium and, as appropriate, segregating the
assets attributable to any appropriate group of contract owners that votes in
favor of such segregation, or offering to any of the affected contract owners
the option of segregating the assets attributable to their contracts or
policies, and (b) establishing a new registered management investment company
and segregating the assets underlying the Policies, unless a majority of Policy
owners materially adversely affected by the conflict have voted to decline the
offer to establish a new registered management investment company.
7.3 A majority of the disinterested trustees of the Board shall
determine whether any proposed action by the Company adequately remedies any
material irreconcilable conflict. In the event that the Board determines that
any proposed action does not adequately remedy any material irreconcilable
conflict, the Company will withdraw from investment in the Trust each of the
Accounts designated by the disinterested trustees and terminate this Agreement
within six (6) months after the Board informs the Company in writing of the
foregoing determination; provided, however, that such withdrawal and termination
shall be limited to the extent required to remedy any such material
irreconcilable conflict as determined by a majority of the disinterested
trustees of the Board.
7.4 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated
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thereunder with respect to mixed or shared funding (as defined in the Mixed and
Shared Funding Exemptive Order) on terms and conditions materially different
from those contained in the Mixed and Shared Funding Exemptive Order, then (a)
the Trust and/or the Participating Insurance Companies, as appropriate, shall
take such steps, as may be necessary to comply with Rule 6e-2 and 6e-3(T), as
amended, and Rule 6e-3, as adopted, to the extent such rules are applicable; and
(b) Sections 3.5, 3.6, 7.1, 7.2, 7.3 and 7.4 of this Agreement shall continue in
effect only to the extent that terms and conditions substantially identical to
such Sections are contained in such Rule(s) as so amended or adopted.
ARTICLE VIII.
INDEMNIFICATION
8.1 Indemnification by the Company
The Company agrees to indemnify and hold harmless the Trust, MFS, any
affiliates of MFS, and each of their respective directors/trustees, officers and
each person, if any, who controls the Trust or MFS within the meaning of Section
15 of the 1933 Act, and any agents or employees of the foregoing (each an
"Indemnified Party," or collectively, the "Indemnified Parties" for purposes of
this Section 8.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Company)
or expenses (including reasonable counsel fees) to which any Indemnified Party
may become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Shares or the Policies and:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement,
prospectus or statement of additional information for the Policies or contained
in the Policies or sales literature or other promotional material for the
Policies (or any amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading provided that this agreement to indemnify shall not apply
as to any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reasonable reliance upon and in conformity
with information furnished to the Company or its designee by or on behalf of the
Trust or MFS for use in the registration statement, prospectus or statement of
additional information for the Policies or in the Policies or sales literature
or other promotional material (or any amendment or supplement) or otherwise for
use in connection with the sale of the Policies or Shares; or
(b) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration statement,
prospectus, statement of additional information or sales literature or other
promotional material of the Trust not supplied by the Company or its designee,
or persons under its control and on which the Company has reasonably relied) or
wrongful conduct of the Company or persons under its control, with respect to
the sale or distribution of the Policies or Shares; or
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(c) arise out of any untrue statement or alleged untrue statement of a
material fact contained in the registration statement, prospectus, statement of
additional information, or sales literature or other promotional literature of
the Trust, or any amendment thereof or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statement or statements therein not misleading, if such
statement or omission was made in reliance upon information furnished to the
Trust by or on behalf of the Company; or
(d) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Company; or
(e) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement;
as limited by and in accordance with the provisions of this Article VIII.
8.2 Indemnification by the Trust
The Trust agrees to indemnify and hold harmless the Company and each of
its directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act, and any agents or employees of
the foregoing (each an "Indemnified Party," or collectively, the "Indemnified
Parties" for purposes of this Section 8.2) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Trust) or expenses (including reasonable counsel fees) to which
any Indemnified Party may become subject under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of the Shares or the Policies and:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement,
prospectus, statement of additional information or sales literature or other
promotional material of the Trust (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statement therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in
reasonable reliance upon and in conformity with information furnished to the
Trust, MFS, the Underwriter or their respective designees by or on behalf of the
Company for use in the registration statement, prospectus or statement of
additional information for the Trust or in sales literature or other promotional
material for the Trust (or any amendment or supplement) or otherwise for use in
connection with the sale of the Policies or Shares; or
(b) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration statement,
prospectus, statement of additional information or sales literature or other
promotional material for the Policies not supplied by the Trust, MFS, the
Underwriter or any of their respective designees or persons
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under their respective control and on which any such entity has reasonably
relied) or wrongful conduct of the Trust or persons under its control, with
respect to the sale or distribution of the Policies or Shares; or
(c) arise out of any untrue statement or alleged untrue statement of a
material fact contained in the registration statement, prospectus, statement of
additional information, or sales literature or other promotional literature of
the Accounts or relating to the Policies, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in reliance upon
information furnished to the Company by or on behalf of the Trust, MFS or the
Underwriter; or
(d) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this Agreement (including a
failure, whether unintentional or in good faith or otherwise, to comply with the
diversification requirements specified in Article VI of this Agreement) or arise
out of or result from any other material breach of this Agreement by the Trust;
or
(e) arise out of or result from the materially incorrect or untimely
calculation or reporting of the daily net asset value per share or dividend or
capital gain distribution rate; or
(f) arise as a result of any failure by the Trust to provide the
services and furnish the materials under the terms of the Agreement;
as limited by and in accordance with the provisions of this Article VIII.
8.3 In no event shall the Trust be liable under the Indemnification
provisions contained in this Agreement to any individual or entity, including
without limitation, the Company, or any Participating Insurance Company or any
Policy holder, with respect to any losses, claims, damages, liabilities or
expenses that arise out of or result from (i) a breach of any representation,
warranty, and/or covenant made by the Company hereunder or by any Participating
Insurance Company under an agreement containing substantially similar
representations, warranties and covenants; (ii) the failure by the Company or
any Participating Insurance Company to maintain its segregated asset account
(which invests in any Portfolio) as a legally and validly established segregated
asset account under applicable state law and as a duly registered unit
investment trust under the provisions of the 1940 Act (unless exempt therefrom);
or (iii) the failure by the Company or any Participating Insurance Company to
maintain its variable annuity and/or variable life insurance contracts (with
respect to which any Portfolio serves as an underlying funding vehicle) as life
insurance, endowment or annuity contracts under applicable provisions of the
Code.
8.4 Neither the Company nor the Trust shall be liable under the
indemnification provisions contained in this Agreement with respect to any
losses, claims, damages, liabilities or expenses to which an Indemnified Party
would otherwise be subject by reason of such Indemnified Party's willful
misfeasance, willful misconduct, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement.
13
<PAGE>
8.5 Promptly after receipt by an Indemnified Party under this Section
8.5. of notice of commencement of any action, such Indemnified Party will, if a
claim in respect thereof is to be made against the indemnifying party under this
section, notify the indemnifying party of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any Indemnified Party otherwise than under this
section. In case any such action is brought against any Indemnified Party, and
it notified the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, assume the defense thereof, with counsel satisfactory to such Indemnified
Party. After notice from the indemnifying party of its intention to assume the
defense of an action, the Indemnified Party shall bear the expenses of any
additional counsel obtained by it, and the indemnifying party shall not be
liable to such Indemnified Party under this section for any legal or other
expenses subsequently incurred by such Indemnified Party in connection with the
defense thereof other than reasonable costs of investigation.
8.6 Each of the parties agrees promptly to notify the other parties of
the commencement of any litigation or proceeding against it or any of its
respective officers, directors, trustees, employees or 1933 Act control persons
in connection with the Agreement, the issuance or sale of the Policies, the
operation of the Accounts, or the sale or acquisition of Shares.
8.7 A successor by law of the parties to this Agreement shall be
entitled to the benefits of the indemnification contained in this Article VIII.
The Indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX.
APPLICABLE LAW
9.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
and the terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X.
NOTICE OF FORMAL PROCEEDINGS
The Trust, MFS, and the Company agree that each such party shall
promptly notify the other parties to this Agreement, in writing, of the
institution of any formal proceedings brought against such party or its
designees by the NASD, the SEC, or any insurance department or any other
regulatory body regarding such party's duties under this Agreement or related to
the sale of the Policies, the operation of the Accounts, or the purchase of the
Shares.
14
<PAGE>
ARTICLE XI.
TERIMINATION
11.1 This Agreement shall terminate with respect to the Accounts, or
one, some, or all Portfolios:
(a) at the option of any party upon six (6) months' advance written
notice to the other parties; or
(b) at the option of the Company to the extent that the Shares of
Portfolios are not reasonably available to meet the requirements of the Policies
or are not "appropriate funding vehicles" for the Policies, as reasonably
determined by the Company. Without limiting the generality of the foregoing, the
Shares of a Portfolio would not be "appropriate funding vehicles" if, for
example, such Shares did not meet the diversification or other requirements
referred to in Article VI hereof; or if the Company would be permitted to
disregard Policy owner voting instructions pursuant to Rule 6e-2 or 6e-3(T)
under the 1940 Act. Prompt notice of the election to terminate for such cause
and an explanation of such cause shall be furnished to the Trust by the Company;
or
(c) at the option of the Trust or MFS upon institution of formal
proceedings against the Company by the NASD, the SEC, or any insurance
department or any other regulatory body regarding the Company's duties under
this Agreement or related to the sale of the Policies, the operation of the
Accounts, or the purchase of the Shares; or
(d) at the option of the Company upon institution of formal proceedings
against the Trust by the NASD, the SEC, or any state securities or insurance
department or any other regulatory body regarding the Trust's or MFS' duties
under this Agreement or related to the sale of the Shares, or
(e) at the option of the Company, the Trust or MFS upon receipt of any
necessary regulatory approvals and/or the vote of the Policy owners having an
interest in the Accounts (or any subaccounts) to substitute the shares of
another investment company for the corresponding Portfolio Shares in accordance
with the terms of the Policies for which those Portfolio Shares had been
selected to serve as the underlying investment media. The Company will give
thirty (30) days' prior written notice to the Trust of the Date of any proposed
vote or other action taken to replace the Shares, or
(f) termination by either the Trust or MFS by written notice to the
Company, if either one or both of the Trust or MFS respectively, shall
determine, in their sole judgment exercised in good faith, that the Company has
suffered a material adverse change in its business, operations, financial
condition, or prospects since the date of this Agreement or is the subject of
material adverse publicity. or
(g) termination by the Company by written notice to the Trust and MFS,
if the Company shall determine, in its sole judgment exercised in good faith,
that the Trust or MFS has suffered a material adverse change in this business,
operations, financial condition or prospects since the date of this Agreement or
is the subject of material adverse publicity; or
15
<PAGE>
(h) at the option of any party to this Agreement, upon another party's
material breach of any provision of this Agreement; or
(i) upon assignment of this Agreement, unless made with the written
consent of the parties hereto.
11.2 The notice shall specify the Portfolio or Portfolios, Policies
and, if applicable, the Accounts as to which the Agreement is to be terminated.
11.3 It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 11.1(a) may be exercised for cause
or for no cause.
11.4 Except as necessary to implement Policy owner initiated
transactions, or as required by state Insurance laws or regulations, the Company
shall not redeem the Shares attributable to the Policies (as opposed to the
Shares attributable to the Company's assets held in the Accounts), and the
Company shall not prevent Policy owners from allocating payments to a Portfolio
that was otherwise available under the Policies, until thirty (30) days after
the Company shall have notified the Trust of its intention to do so.
11.5 Notwithstanding any termination of this Agreement, the Trust and
MFS shall, at the option of the Company, continue to make available additional
shares of the Portfolios pursuant to the terms and conditions of this Agreement,
for all Policies in effect on the effective date of termination of this
Agreement (the "Existing Policies"), except as otherwise provided under Article
VII of this Agreement. Specifically, without limitation, the owners of the
Existing Policies shall be permitted to transfer or reallocate investment under
the Policies, redeem investments in any Portfolio and/or invest in the Trust
upon the making of additional purchase payments under the Existing Policies.
ARTICLE XII.
NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail, overnight courier or facsimile to the other party at the address
of such party set forth below or at such other address as such party may from
time to time specify in writing to the other party.
If to the Trust:
MFS Variable Insurance Trust
500 Boylston Street
Boston, Massachusetts 02116
Facsimile No.: (617) 954-6624
Attn: Stephen L. Cavan, Secretary
If to the Company:
Western-Southern Life Assurance Company
16
<PAGE>
400 Broadway
Cincinnati, Ohio 45202
Facsimile No.: (513) 361-7982
Attn: Jill T. McGruder
If to MFS:
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
Facsimile No.: (617) 954-6624
Attn: Stephen E. Cavan, General Counsel
ARTICLE XIII.
MISCELLANEOUS
13.1 Subject to the requirement of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Policies and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement or as otherwise required by applicable law or regulation, shall
not disclose, disseminate or utilize such names and addresses and other
confidential information without the express written consent of the affected
party until such time as it may come into the public domain.
13.2 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.3 This Agreement may be executed simultaneously in one or more
counterparts, each of which taken together shall constitute one and the same
instrument.
13.4 If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
13.5 The Schedule attached hereto, as modified from time to time, is
incorporated herein by reference and is part of this Agreement.
13.6 Each party hereto shall cooperate with each other party in
connection with inquiries by appropriate governmental authorities (including
without limitation the SEC, the NASD, and state insurance regulators) relating
to this Agreement or the transactions contemplated hereby.
13.7 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
17
<PAGE>
13.8 A copy of the Trust's Declaration of Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts. The Company
acknowledges that the obligations of or arising out of this instrument are not
binding upon any of the Trust's trustees, officers, employees, agents or
shareholders individually, but are binding solely upon the assets and property
of the Trusts in accordance with its proportionate interest hereunder. The
Company further acknowledges that the assets and liabilities of each Portfolio
are separate and distinct and that the obligations of or arising out of this
instrument are binding solely upon the assets or property of the Portfolio on
whose behalf the Trust has executed this instrument. The Company also agrees
that the obligations of each Portfolio hereunder shall be several and not joint,
in accordance with its proportionate interest hereunder, and the Company agrees
not to proceed against any Portfolio for the obligations of another Portfolio.
18
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified above.
-----------------------------------------------
By its authorized officer,
By:
-------------------------------------------
Jill T. McGruder
Senior Vice President
MFS VARIABLE INSURANCE TRUST,
ON BEHALF OF THE PORTFOLIOS
By its authorized officer and not individually,
By:
-------------------------------------------
James R. Bordewick, Jr. OR Stephen E. Cavan
Assistant Secretary OR Secretary
MASSACHUSETTS FINANCIAL SERVICES COMPANY
By its authorized officer,
By:
------------------------------------------
Jeffrey L. Shames OR Arnold D. Scott
Chairman and Chief Executive Officer OR
Senior Vice President
19
<PAGE>
As of March 31, 1999
SCHEDULE A
ACCOUNTS, POLICIES AND PORTFOLIOS
SUBJECT TO THE PARTICIPATION AGREEMENT
<TABLE>
<CAPTION>
<S> <C> <C>
============================================ ======================================== ===================================
Name of Separate
Account and Date Policies Funded Portfolios
Established by Board of Directors by Separate Account Applicable to Policies
============================================ ======================================== ===================================
Western-Southern Life Assurance Company Touchstone Gold Variable Annuity MFS VIT Emerging Growth Series
Separate Account 1 (established 1994) Touchstone Select Variable Annuity MFS VIT Growth with Income Series
Western-Southern Life Assurance Company Touchstone Advisors Variable Annuity
Separate Account 2 (established 1994)
- -------------------------------------------- ---------------------------------------- -----------------------------------
</TABLE>
20
PARTICIPATION AGREEMENT
AMONG
[INSURANCE COMPANY],
PIMCO VARIABLE INSURANCE TRUST,
AND
PIMCO FUNDS DISTRIBUTORS LLC
THIS AGREEMENT, dated as of the 31st day of March, 1999 by and among
Western-Southern Life Assurance Company (the "Company"), an Ohio life insurance
company, on its own behalf and on behalf of each segregated asset account of the
Company set forth on Schedule A hereto as may be amended from time to time (each
account hereinafter referred to as the "Account"), PIMCO Variable Insurance
Trust (the "Fund"), a Delaware business trust, and PIMCO Funds Distributors LLC
(the "Underwriter"), a Delaware limited liability company.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance and variable annuity
contracts (the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and
Underwriter ("Participating Insurance Companies");
WHEREAS, the shares of beneficial interest of the Fund are divided into
several series of shares, each designated a "Portfolio" and representing the
interest in a particular managed portfolio of securities and other assets;
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission (the "SEC") granting Participating Insurance Companies and
variable annuity and variable life insurance separate accounts exemptions from
the provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment
Company Act of 1940, as amended, (the "1940 Act") and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, if and to the extent necessary to permit shares of
the Fund to be sold to and held by variable annuity and variable life insurance
separate accounts of both affiliated and unaffiliated life insurance companies
(the "Mixed and Shared Funding Exemptive Order");
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (the "1933 Act");
WHEREAS, Pacific Investment Management Company (the "Adviser"), which
serves as investment adviser to the Fund, is duly registered as an investment
adviser under the federal Investment Advisers Act of 1940, as amended;
<PAGE>
WHEREAS, the Company has issued or will issue certain variable life
insurance and/or variable annuity contracts supported wholly or partially by the
Account (the "Contracts"), and said Contracts are listed in Schedule A hereto,
as it may be amended from time to time by mutual written agreement;
WHEREAS, the Account is duly established and maintained as a segregated
asset account, duly established by the Company, on the date shown for such
Account on Schedule A hereto, to set aside and invest assets attributable to the
aforesaid Contracts;
WHEREAS, the Underwriter, which serves as distributor to the Fund, is
registered as a broker dealer with the SEC under the Securities Exchange Act of
1934, as amended (the "1934 Act"), and is a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolios") on behalf of the Account to fund the
aforesaid Contracts, and the Underwriter is authorized to sell such shares to
the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1 The Fund has granted to the Underwriter exclusive authority to
distribute the Fund's shares, and has agreed to instruct, and has so instructed,
the Underwriter to make available to the Company for purchase on behalf of the
Account Fund shares of those Designated Portfolios selected by the Underwriter.
Pursuant to such authority and instructions, and subject to Article X hereof,
the Underwriter agrees to make available to the Company for purchase on behalf
of the Account, shares of those Designated Portfolios listed on Schedule A to
this Agreement, such purchases to be effected at net asset value in accordance
with Section 1.3 of this Agreement. Notwithstanding the foregoing, (i) Fund
series (other than those listed on Schedule A) in existence now or that may be
established in the future will be made available to the Company only as the
Underwriter may so provide, and (ii) the Board of Trustees of the Fund (the
"Board") may suspend or terminate the offering of Fund shares of any Designated
Portfolio or class thereof, if such action is required by law or by regulatory
authorities having jurisdiction or if, in the sole discretion of the Board
acting in good faith and in light of its fiduciary duties under federal and any
applicable state laws, suspension or termination is necessary in the best
interests of the shareholders of such Designated Portfolio.
1.2 The Fund shall redeem, at the Company's request, any full or
fractional Designated Portfolio shares held by the Company on behalf of the
Account, such redemptions to be effected at net asset value in accordance with
Section 1.3 of this Agreement. Notwithstanding the foregoing, (i) the Company
shall not redeem Fund shares attributable to Contract owners except in the
circumstances permitted in Section 10.3 of this Agreement, and (ii) the Fund may
2
<PAGE>
delay redemption of Fund shares of any Designated Portfolio to the extent
permitted by the 1940 Act, and any rules, regulations or orders thereunder.
1.3 Purchase and Redemption Procedures
(a) The Fund hereby appoints the Company as an agent of the Fund for
the limited purpose of receiving purchase and redemption requests on behalf of
the Account (but not with respect to any Fund shares that may be held in the
general account of the Company) for shares of those Designated Portfolios made
available hereunder, based on allocations of amounts to the Account or
subaccounts thereof under the Contracts and other transactions relating to the
Contracts or the Account. Receipt of any such request (or relevant transactional
information therefor) on any day the New York Stock Exchange is open for trading
and on which the Fund calculates its net asset value pursuant to the rules of
the SEC (a "Business Day") by the Company as such limited agent of the Fund
prior to the time that the Fund ordinarily calculates its net asset value as
described from time to time in the Fund Prospectus (which as of the date of
execution of this Agreement is 4:00 p.m. Eastern Time) shall constitute receipt
by the Fund on that same Business Day, provided that the Fund receives notice of
such request by 9:30 a.m. Eastern Time on the next following Business Day.
(b) The Company shall pay for shares of each Designated Portfolio on
the same day that it notifies the Fund of a purchase request for such shares.
Payment for Designated Portfolio shares shall be made in federal funds
transmitted to the Fund by wire to be received by the Fund by 4:00 p.m. Eastern
Time on the day the Fund is notified of the purchase request for Designated
Portfolio shares (unless the Fund determines and so advises the Company that
sufficient proceeds are available from redemption of shares of other Designated
Portfolios effected pursuant to redemption requests tendered by the Company on
behalf of the Account). If federal funds are not received on time, such funds
will be invested, and Designated Portfolio shares purchased thereby will be
issued, as soon as practicable and the Company shall promptly, upon the Fund's
request, reimburse the Fund for any charges, costs, fees, interest or other
expenses incurred by the Fund in connection with any advances to, or borrowing
or overdrafts by, the Fund, or any similar expenses incurred by the Fund, as a
result of portfolio transactions effected by the Fund based upon such purchase
request. Upon receipt of federal funds so wired, such funds shall cease to be
the responsibility of the Company and shall become the responsibility of the
Fund.
(c) Payment for Designated Portfolio shares redeemed by the Account or
the Company shall be made in federal funds transmitted by wire to the Company or
any other designated person on the next Business Day after the Fund is properly
notified of the redemption order of such shares (unless redemption proceeds are
to be applied to the purchase of shares of other Designated Portfolios in
accordance with Section 1.3(b) of this Agreement), except that the Fund reserves
the right to redeem Designated Portfolio shares in assets other than cash and to
delay payment of redemption proceeds to the extent permitted under Section 22(e)
of the 1940 Act and any Rules thereunder, and in accordance with the procedures
and policies of the Fund as described in the then current prospectus. The Fund
shall not bear any responsibility whatsoever for the proper disbursement or
crediting of redemption proceeds by the Company; the Company alone shall be
responsible for such action.
3
<PAGE>
(d) Any purchase or redemption request for Designated Portfolio shares
held or to be held in the Company's general account shall be effected at the net
asset value per share next determined after the Fund's receipt of such request,
provided that, in the case of a purchase request, payment for Fund shares so
requested is received by the Fund in federal funds prior to close of business
for determination of such value, as defined from time to time in the Fund
Prospectus.
1.4 The Fund shall use its best efforts to make the net asset value per
share for each Designated Portfolio available to the Company by 6:30 p.m.
Eastern Time each Business Day, and in any event, as soon as reasonably
practicable after the net asset value per share for such Designated Portfolio is
calculated, and shall calculate such net asset value in accordance with the
Fund's Prospectus. Neither the Fund, any Designated Portfolio, the Underwriter,
nor any of their affiliates shall be liable for any information provided to the
Company pursuant to this Agreement which information is based on incorrect
information supplied by the Company or any other Participating Insurance Company
to the Fund or the Underwriter.
1.5 The Fund shall furnish notice (by wire or telephone followed by
written confirmation) to the Company as soon as reasonably practicable of any
income dividends or capital gain distributions payable on any Designated
Portfolio shares. The Company, on its behalf and on behalf of the Account,
hereby elects to receive all such dividends and distributions as are payable on
any Designated Portfolio shares in the form of additional shares of that
Designated Portfolio. The Company reserves the right, on its behalf and on
behalf of the Account, to revoke this election and to receive all such dividends
and capital gain distributions in cash. The Fund shall notify the Company
promptly of the number of Designated Portfolio shares so issued as payment of
such dividends and distributions.
1.6 Issuance and transfer of Fund shares shall be by book entry only.
Stock certificates will not be issued to the Company or the Account. Purchase
and redemption orders for Fund shares shall be recorded in an appropriate ledger
for the Account or the appropriate subaccount of the Account.
1.7 (a) The parties hereto acknowledge that the arrangement
contemplated by this Agreement is not exclusive; the Fund's shares may be sold
to other insurance companies (subject to Section 1.8 hereof) and the cash value
of the Contracts may be invested in other investment companies, provided,
however, that until this Agreement is terminated pursuant to Article X, the
Company shall promote the Designated Portfolios on the same basis as other
funding vehicles available under the Contracts. Funding vehicles other than
those listed on Schedule A to this Agreement may be available for the investment
of the cash value of the Contracts, provided, however, (i) any such vehicle or
series thereof, has investment objectives or policies that are substantially
different from the investment objectives and policies of the Designated
Portfolios available hereunder; (ii) the Company gives the Fund and the
Underwriter 45 days written notice of its intention to make such other
investment vehicle available as a funding vehicle for the Contracts; and (iii)
unless such other investment company was available as a Funding vehicle for the
Contracts prior to the date of this Agreement and the Company has so informed
the Fund and the Underwriter prior to their signing this Agreement, the Fund or
Underwriter consents in writing to the use of such other vehicle, such consent
not to be unreasonably withheld.
4
<PAGE>
(b) The Company shall not, without prior notice to the Underwriter
(unless otherwise required by applicable law), take any action to operate the
Account as a management investment company under the 1940 Act.
(c) The Company shall not, without prior notice to the Underwriter
(unless otherwise required by applicable law), induce Contract owners to change
or modify the Fund or change the Fund's distributor or investment adviser.
(d) The Company shall not, without prior notice to the Fund, induce
Contract owners to vote on any matter submitted for consideration by the
shareholders of the Fund in a manner other than as recommended by the Board of
Trustees of the Fund.
1.8 The Underwriter and the Fund shall sell Fund shares only to
Participating Insurance Companies and their separate accounts and to persons or
plans ("Qualified Persons") that communicate to the Underwriter and the Fund
that they qualify to purchase shares of the Fund under Section 817(h) of the
Internal Revenue Code of 1986, as amended (the "Code") and the regulations
thereunder without impairing the ability of the Account to consider the
portfolio investments of the Fund as constituting investments of the Account for
the purpose of satisfying the diversification requirements of Section 817(h).
The Underwriter and the Fund shall not sell Fund shares to any insurance company
or separate account unless an agreement complying with Article VI of this
Agreement is in effect to govern such sales, to the extent required. The Company
hereby represents and warrants that it and the Account are Qualified Persons.
The Fund reserves the right to cease offering shares of any Designated Portfolio
in the discretion of the Fund.
ARTICLE II. Representations and Warranties
2.1 The Company represents and warrants that the Contracts (a) are, or
prior to issuance will be, registered under the 1933 Act, or (b) are not
registered because they are properly exempt from registration under the 1933 Act
or will be offered exclusively in transactions that are properly exempt from
registration under the 1933 Act. The Company further represents and warrants
that the Contracts will be issued and sold in compliance in all material
respects with all applicable federal securities and state securities and
insurance laws and that the sale of the Contracts shall comply in all material
respects with state insurance suitability requirements. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law, that it has legally and validly established
the Account prior to any issuance or sale thereof as a segregated asset account
under [INSERT STATE] insurance laws, and that it (a) has registered or, prior to
any issuance or sale of the Contracts, will register the Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts, or alternatively (b) has not
registered the Account in proper reliance upon an exclusion from registration
under the 1940 Act. The Company shall register and qualify the Contracts or
interests therein as securities in accordance with the laws of the various
states only if and to the extent deemed advisable by the Company.
2.2 The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in
5
<PAGE>
compliance with applicable state and federal securities laws and that the Fund
is and shall remain registered under the 1940 Act. The Fund shall amend the
registration statement for its shares under the 1933 Act and the 1940 Act from
time to time as required in order to effect the continuous offering of its
shares. The Fund shall register and qualify the shares for sale in accordance
with the laws of the various states only if and to the extent deemed advisable
by the Fund or the Underwriter.
2.3 The Fund may make payments to finance distribution expenses
pursuant to Rule 12b-1 under the 1940 Act. Prior to financing distribution
expenses pursuant to Rule 12b-1, the Fund will have the Board, a majority of
whom are not interested persons of the Fund, formulate and approve a plan
pursuant to Rule 12b-1 under the 1940 Act to finance distribution expenses.
2.4 The Fund makes no representations as to whether any aspect of its
operations, including, but not limited to, investment policies, fees and
expenses, complies with the insurance and other applicable laws of the various
states.
2.5 The Fund represents that it is lawfully organized and validly
existing under the laws of the State of Delaware and that it does and will
comply in all material respects with the 1940 Act.
2.6 The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with any applicable state and federal securities laws.
2.7 The Fund and the Underwriter represent and warrant that all of
their trustees/directors, officers, employees, investment advisers, and other
individuals or entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimum coverage as required currently by Rule 17g-1 of the 1940 Act or related
provisions as may be promulgated from time to time. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
2.8 The Company represents and warrants that all of its directors,
officers, employees, and other individuals/entities employed or controlled by
the Company dealing with the money and/or securities of the Account are covered
by a blanket fidelity bond or similar coverage for the benefit of the Account,
in an amount not less than $5 million. The aforesaid bond includes coverage for
larceny and embezzlement and is issued by a reputable bonding company. The
Company agrees to hold for the benefit of the Fund and to pay to the Fund any
amounts lost from larceny, embezzlement or other events covered by the aforesaid
bond to the extent such amounts properly belong to the Fund pursuant to the
terms of this Agreement. The Company agrees to make all reasonable efforts to
see that this bond or another bond containing these provisions is always in
effect, and agrees to notify the Fund and the Underwriter in the event that such
coverage no longer applies.
6
<PAGE>
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1 The Underwriter shall provide the Company with as many copies of
the Fund's current prospectus (describing only the Designated Portfolios listed
on Schedule A) or, to the extent permitted, the Fund's profiles as the Company
may reasonably request. The Company shall bear the expense of printing copies of
the current prospectus and profiles for the Contracts that will be distributed
to existing Contract owners, and the Company shall bear the expense of printing
copies of the Fund's prospectus and profiles that are used in connection with
offering the Contracts issued by the Company. If requested by the Company in
lieu thereof, the Fund shall provide such documentation (including a final copy
of the new prospectus on diskette at the Fund's expense) and other assistance as
is reasonably necessary in order for the Company once each year (or more
frequently if the prospectus for the Fund is amended) to have the prospectus for
the Contracts and the Fund's prospectus or profile printed together in one
document (such printing to be at the Company's expense).
3.2 The Fund's prospectus shall state that the current Statement of
Additional Information ("SAI") for the Fund is available, and the Underwriter
(or the Fund), at its expense, shall provide a reasonable number of copies of
such SAI free of charge to the Company for itself and for any owner of a
Contract who requests such SAI
3.3 The Fund shall provide the Company with information regarding the
Fund's expenses, which information may include a table of fees and related
narrative disclosure for use in any prospectus or other descriptive document
relating to a Contract. The Company agrees that it will use such information in
the form provided. The Company shall provide prior written notice of any
proposed modification of such information, which notice will describe in detail
the manner in which the Company proposes to modify the information, and agrees
that it may not modify such information in any way without the prior consent of
the Fund.
3.4 The Fund, at its expense, shall provide the Company with copies of
its proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners.
3.5 The Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received from
Contract owners; and
(iii) vote Fund shares for which no instructions have been received in
the same proportion as Fund shares of such portfolio for which instructions have
been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners or to the
extent otherwise required by law. The Company will vote Fund shares held in any
segregated asset account in the same proportion as Fund shares of such portfolio
for which voting instructions have been received from Contract owners, to the
extent permitted by law.
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3.6 Participating Insurance Companies shall be responsible for assuring
that each of their separate accounts participating in a Designated Portfolio
calculates voting privileges as required by the Shared Funding Exemptive Order
and consistent with any reasonable standards that the Fund may adopt and provide
in writing.
ARTICLE IV. Sales Material and Information
4.1 The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material that the Company develops and in which the Fund (or a Designated
Portfolio thereof) or the Adviser or the Underwriter is named. No such material
shall be used until approved by the Fund or its designee, and the Fund will use
its best efforts for it or its designee to review such sales literature or
promotional material within ten Business Days after receipt of such material.
The Fund or its designee reserves the right to reasonably object to the
continued use of any such sales literature or other promotional material in
which the Fund (or a Designated Portfolio thereof) or the Adviser or the
Underwriter is named, and no such material shall be used if the Fund or its
designee so object.
4.2 The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund or
the Adviser or the Underwriter in connection with the sale of the Contracts
other than the information or representations contained in the registration
statement or prospectus or SAI for the Fund shares, as such registration
statement and prospectus or SAI may be amended or supplemented from time to
time, or in reports or proxy statements for the Fund, or in sales literature or
other promotional material approved by the Fund or its designee or by the
Underwriter, except with the permission of the Fund or the Underwriter or the
designee of either.
4.3 The Fund and the Underwriter, or their designee, shall furnish, or
cause to be furnished, to the Company, each piece of sales literature or other
promotional material that it develops and in which the Company, and/or its
Account, is named. No such material shall be used until approved by the Company,
and the Company will use its best efforts to review such sales literature or
promotional material within ten Business Days after receipt of such material.
The Company reserves the right to reasonably object to the continued use of any
such sales literature or other promotional material in which the Company and/or
its Account is named, and no such material shall be used if the Company so
objects.
4.4 The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, the
Account, or the Contracts other than the information or representations
contained in a registration statement, prospectus (which shall include an
offering memorandum, if any, if the Contracts issued by the Company or interests
therein are not registered under the 1933 Act), or SAI for the Contracts, as
such registration statement, prospectus, or SAI may be amended or supplemented
from time to time, or in published reports for the Account which are in the
public domain or approved by the Company for distribution to Contract owners, or
in sales literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5 The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, SAls, reports, proxy statements,
sales literature and other
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<PAGE>
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to the Fund or its
shares, promptly after the filing of such document(s) with the SEC or other
regulatory authorities.
4.6 The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses (which shall include an offering
memorandum, if any, if the Contracts issued by the Company or interests therein
are not registered under the 1933 Act), SAls, reports, solicitations for voting
instructions, sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any of the
above, that relate to the Contracts or the Account, promptly after the filing of
such document(s) with the SEC or other regulatory authorities. The Company shall
provide to the Fund and the Underwriter any complaints received from the
Contract owners pertaining to the Fund or the Designated Portfolio.
4.7 The Fund will provide the Company with as much notice as is
reasonably practicable of any proxy solicitation for any Designated Portfolio,
and of any material change in the Fund's registration statement, particularly
any change resulting in a change to the registration statement or prospectus for
any Account. The Fund will work with the Company so as to enable the Company to
solicit proxies from Contract owners, or to make changes to its prospectus or
registration statement, in an orderly manner. The Fund will make reasonable
efforts to attempt to have changes affecting Contract prospectuses become
effective simultaneously with the annual updates for such prospectuses.
4.8 For purposes of this Article IV, the phrase "sales literature and
other promotional materials" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
SAIs, shareholder reports, proxy materials, and any other communications
distributed or made generally available with regard to the Fund.
ARTICLE V. Fees and Expenses
5.1 The Fund and the Underwriter shall pay no fee or other compensation
to the Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Fund or Underwriter may make payments to the Company or to
the underwriter for the Contracts if and in amounts agreed to by the Underwriter
in writing, and such payments will be made out of existing fees otherwise
payable to the Underwriter, past profits of the Underwriter, or other resources
available to the Underwriter. Currently, no such payments are contemplated.
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<PAGE>
5.2 All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Fund's shares.
5.3 The Company shall bear the expenses of distributing the Fund's
prospectus to owners of Contracts issued by the Company and of distributing the
Fund's proxy materials and reports to such Contract owners.
ARTICLE VI. Diversification and Qualification
6.1 The Fund will invest its assets in such a manner as to ensure that
the Contracts will be treated as annuity or life insurance contracts, whichever
is appropriate, under the Code and the regulations issued thereunder (or any
successor provisions). Without limiting the scope of the foregoing, each
Designated Portfolio has complied and will continue to comply with Section
817(h) of the Code and Treasury Regulation ss.1.817-5, and any Treasury
interpretations thereof, relating to the diversification requirements for
variable annuity, endowment, or life insurance contracts, and any amendments or
other modifications or successor provisions to such Section or Regulations. In
the event of a breach of this Article VI by the Fund, it will take all
reasonable steps (a) to notify the Company of such breach and (b) to adequately
diversify the Fund so as to achieve compliance within the grace period afforded
by Regulation 1.817-5.
6.2 The Fund represents that it is or will be qualified as a Regulated
Investment Company under Subchapter M of the Code, and that it will make every
effort to maintain such qualification (under Subchapter M or any successor or
similar provisions) and that it will notify the Company immediately upon having
a reasonable basis for believing that it has ceased to so qualify or that it
might not so qualify in the future.
6.3 The Company represents that the Contracts are currently, and at the
time of issuance shall be, treated as life insurance or annuity insurance
contracts, under applicable provisions of the Code, and that it will make every
effort to maintain such treatment, and that it will notify the Fund and the
Underwriter immediately upon having a reasonable basis for believing the
Contracts have ceased to be so treated or that they might not be so treated in
the future. The Company agrees that any prospectus offering a contract that is a
"modified endowment contract" as that term is defined in Section 7702A of the
Code (or any successor or similar provision), shall identify such contract as a
modified endowment contract.
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<PAGE>
ARTICLE VII. Potential Conflicts
The following provisions shall apply only upon issuance of the Mixed and Shared
Funding Order and the sale of shares of the Fund to variable life insurance
separate accounts, and then only to the extent required under the 1940 Act.
7.1 The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the Contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
owners. The Board shall promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
7.2 The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Mixed and Shared Funding Exemptive Order, by
providing the Board with all information reasonably necessary for the Board to
consider any issues raised. This includes, but is not limited to, an obligation
by the Company to inform the Board whenever Contract owner voting instructions
are disregarded.
7.3 If it is determined by a majority of the Board, or a majority of
its disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested Board members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account.
7.4 If a material irreconcilable conflict arises because of a decision
by the Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the Account's investment in
the Fund and terminate this Agreement with respect to each Account; provided,
however, that such withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as determined by a
majority of
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<PAGE>
the disinterested members of the Board. Any such withdrawal and termination must
take place within six (6) months after the Fund gives written notice that this
provision is being implemented, and until the end of that six month period the
Fund shall continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Fund.
7.5 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Accounts investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Fund shall continue to
accept and implement orders by the Company for the purchase (and redemption) of
shares of the Fund.
7.6 For purposes of Section 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contract if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination; provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7 If and to the extent the Mixed and Shared Funding Exemption Order
or any amendment thereto contains terms and conditions different from Sections
3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement, then the Fund
and/or the Participating Insurance Companies, as appropriate, shall take such
steps as may be necessary to comply with the Mixed and Shared Funding Exemptive
Order, and Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4 and 7.5 of this Agreement
shall continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in the Mixed and Shared
Funding Exemptive Order or any amendment thereto. If and to the extent that Rule
6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive
relief from any provision of the 1940 Act or the rules promulgated thereunder
with respect to mixed or shared funding (as defined in the Mixed and Shared
Funding Exemptive Order) on terms and conditions materially different from those
contained in the Mixed and Shared Funding Exemptive Order, then (a) the Fund
and/or the Participating Insurance Companies, as appropriate, shall take such
steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and
Rule 6e-3, as adopted, to the extent such rules are applicable; and (b) Sections
3.5, 3.6, 7.1., 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in
effect only to the extent that terms and conditions substantially identical to
such Sections are contained in such Rule(s) as so amended or adopted.
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<PAGE>
ARTICLE VIII. Indemnification
8.1 Indemnification By the Company
(a) The Company agrees to indemnify and hold harmless the Fund and the
Underwriter and each of its trustees/directors and officers, and each person, if
any, who controls the Fund or Underwriter within the meaning of Section 15 of
the 1933 Act or who is under common control with the Underwriter (collectively,
the "Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any statute
or regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements:
(i) arise out of or are based upon any untrue statement or
alleged untrue statements of any material fact contained in the registration
statement, prospectus (which shall include a written description of a Contract
that is not registered under the 1933 Act), or SAI for the Contracts or
contained in the Contracts or sales literature for the Contracts (or any
amendment or supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with information furnished
to the Company by or on behalf of the Fund for use in the registration
statement, prospectus or SAI for the Contracts or in the Contracts or sales
literature (or any amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares, or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in the
registration statement, prospectus, SAI, or sales literature of the Fund not
supplied by the Company or persons under its control) or wrongful conduct of the
Company or its agents or persons under the Company's authorization or control,
with respect to the sale or distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement, prospectus,
SAI, or sales literature of the Fund or any amendment thereof or supplement
thereto or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading if such a statement or omission was made in reliance upon information
furnished to the Fund by or on behalf of the Company; or
(iv) arise as a result of any material failure by the Company
to provide the services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in good faith or
otherwise, to comply with the qualification requirements specified in Article VI
of this Agreement); or
13
<PAGE>
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Company; or
(vi) as limited by and in accordance with the provisions of
Sections 8.1(b) and 8. 1 (c) hereof.
(b) The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of its obligations or duties under this Agreement.
(c) The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
`information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, the Company shall be entitled to participate, at
its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Company will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
(d) The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund shares or the Contracts or the operation of the
Fund.
8.2 Indemnification by the Underwriter
(a) The Underwriter agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Underwriter) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute
or regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the registration
statement or prospectus or SAI
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<PAGE>
or sales literature of the Fund (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Underwriter or Fund by
or on behalf of the Company for use in the registration statement, prospectus or
SAI for the Fund or in sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or Fund shares;
or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in the
registration statement, prospectus, SAI or sales literature for the Contracts
not supplied by the Underwriter or persons under its control) or wrongful
conduct of the Fund or Underwriter or persons under their control, with respect
to the sale or distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement, prospectus,
SAI or sales literature covering the Contracts, or any amendment thereof or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statement
or statements therein not misleading, if such statement or omission was made in
reliance upon information furnished to the Company by or on behalf of the Fund
or the Underwriter; or
(iv) arise as a result of any failure by the Fund or the
Underwriter to provide the services and furnish the materials under the terms of
this Agreement (including a failure of the Fund, whether unintentional or in
good faith or otherwise, to comply with the diversification and other
qualification requirements specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this Agreement or
arise out of or result from any other material breach of this Agreement by the
Underwriter; as limited by and in accordance with the provisions of Sections
8.2(b) and 8.2(c) hereof.
(b) The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance or such Indemnified Party's duties or by reason of such Indemnified
Party's -reckless disregard of obligations and duties under this Agreement or to
the Company or the Account, whichever is applicable.
(c) The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve
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<PAGE>
the Underwriter from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Party, the Underwriter will be entitled to participate, at its own
expense, in the defense thereof. The Underwriter also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Underwriter to such party of the Underwriter's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Underwriter
will not be liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation.
The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
8.3 Indemnification By the Fund
(a) The Fund agrees to indemnify and hold harmless the Company and each
of its directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.3) against any and all losses, claims,
expenses, damages, liabilities (including amounts paid in settlement with the
written consent of the Fund) or litigation (including legal and other expenses)
to which the Indemnified Parties may be required to pay or may become subject
under any statute or regulation, at common law or otherwise, insofar as such
losses, claims, expenses, damages, liabilities or expenses (or actions in
respect thereof) or settlements, are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this Agreement (including
a failure, whether unintentional or in good faith or otherwise, to comply with
the diversification and other qualification requirements specified in Article VI
of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement or arise out
of or result from any other material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
(b) The Fund shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation to which
an Indemnified Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to the
Company, the Fund, the Underwriter or the Account, whichever is applicable.
(c) The Fund shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have
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<PAGE>
notified the Fund in writing within a reasonable time after the summons or other
first legal process giving information of the nature of the claim shall have
been served upon such Indemnified Party (or after such Indemnified Party shall
have received notice of such service on any designated agent), but failure to
notify the Fund of any such claim shall not relieve the Fund from any liability
which it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, the Fund will be entitled to
participate, at its own expense, in the defense thereof The Fund also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Fund to such party of the Fund's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Fund will
not be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
(d) The Company and the Underwriter agree promptly to notify the Fund
of the commencement of any litigation or proceeding against it or any of its
respective officers or directors in connection with the Agreement, the issuance
or sale of the Contracts, the operation of the Account, or the sale or
acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of California.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, any Mixed and Shared Funding Exemptive Order)
and the terms hereof' shall be interpreted and construed in accordance
therewith. If, in the future, the Mixed and Shared Funding Exemptive Order
should no longer be necessary under applicable law, then Article VII shall no
longer apply.
ARTICLE X. Termination
10.1 This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party, for any reason with respect to some or
all Designated Portfolios, by three (3) months advance written notice delivered
to the other parties; or
(b) termination by the Company by written notice to the Fund and the
Underwriter based upon the Company's determination that shares of the Fund are
not reasonably available to meet the requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund and the
Underwriter in the event any of the Designated Portfolio's shares are not
registered, issued or sold in accordance with applicable state and/or federal
law or such law precludes the use of such
17
<PAGE>
shares as the underlying investment media of the Contracts issued or to be
issued by the Company; or
(d) termination by the Fund or Underwriter in the event that formal
administrative proceedings are instituted against the Company by the NASD, the
SEC, the Insurance Commissioner or like official of any state or any other
regulatory body regarding the Company's duties under this Agreement or related
to the sale of the Contracts, the operation of any Account, or the purchase of
the Fund's shares; provided, however, that the Fund or Underwriter determines in
its sole judgment exercised in good faith, that any such administrative
proceedings will have a material adverse effect upon the ability of the Company
to perform its obligations under this Agreement; or
(e) termination by the Company in the event that formal administrative
proceedings are instituted against the Fund or Underwriter by the NASD, the SEC,
or any state securities or insurance department or any other regulatory body;
provided, however, that the Company determines in its sole judgment exercised
`in good faith, that any such administrative proceedings will have a material
adverse effect upon the ability of the Fund or Underwriter to perform its
obligations under this Agreement; or
(f) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Designated Portfolio in the event that such
Portfolio ceases to qualify as a Regulated Investment Company under Subchapter M
or fails to comply with the Section 817(h) diversification requirements
specified in Article VI hereof, or if the Company reasonably believes that such
Portfolio may fall to so qualify or comply; or
(g) termination by the Fund or Underwriter by written notice to the
Company in the event that the Contracts fall to meet the qualifications
specified in Article VI hereof-, or
(h) termination by either the Fund or the Underwriter by written notice
to the Company, if either one or both of the Fund or the Underwriter
respectively, shall determine, in their sole judgment exercised in good faith,
that the Company has suffered a material adverse change in its business,
operations, financial condition, or prospects since the date of this Agreement
or is the subject of material adverse publicity; or
(i) termination by the Company by written notice to the Fund and the
Underwriter, if the Company shall detennine, in its sole judgment exercised in
good faith, that the Fund, Adviser, or the Underwriter has suffered a material
adverse change in its business, operations, financial condition or prospects
since the date of this Agreement or is the subject of material adverse
publicity; or
(j) termination by the Fund or the Underwriter by written notice to the
Company, if the Company gives the Fund and the Underwriter the written notice
specified in Section 1.7(a)(ii) hereof and at the time such notice was given
there was no notice of termination outstanding under any other provision of this
Agreement; provided, however, any termination under this Section 10.10) shall be
effective forty-five days after the notice specified in Section 1.7(a)(ii) was
given; or
18
<PAGE>
(k) termination by the Company upon any substitution of the shares of
another investment company or series thereof for shares of a Designated
Portfolio of the Fund in accordance with the terms of the Contracts, provided
that the Company has given at least 45 days prior written notice to the Fund and
Underwriter of the date of substitution; or
(l) termination by any party in the event that the Fund's Board of
Trustees determines that a material irreconcilable conflict exists as provided
in Article VII.
10.2 Notwithstanding any termination of this Agreement, the Fund and
the Underwriter shall, at the option of the Company, continue to make available
additional shares of the Fund pursuant to the terms and conditions of this
Agreement, for all Contracts in effect on the effective date of termination of
this Agreement (hereinafter referred to as "Existing Contracts"), unless the
Underwriter requests that the Company seek an order pursuant to Section 26(b) of
the 1940 Act to permit the substitution of other securities for the shares of
the Designated Portfolios. The Underwriter agrees to split the cost of seeking
such an order, and the Company agrees that it shall reasonably cooperate with
the Underwriter and seek such an order upon request. Specifically, the owners of
the Existing Contracts may be permitted to reallocate investments in the Fund,
redeem investments in the Fund and/or invest in the Fund upon the making of
additional purchase payments under the Existing Contracts (subject to any such
election by the Underwriter). `Me parties agree that this Section 10.2 shall not
apply to any terminations under Article VII and the effect of such Article VII
terminations shall be governed by Article VII of this Agreement. The parties
further agree that this Section 10.2 shall not apply to any terminations under
Section 10.1(g) of this Agreement.
10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract owner initiated or
approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), (iii) upon 45 days
prior written notice to the Fund and Underwriter, as permitted by an order of
the SEC pursuant to Section 26(b) of the 1940 Act, but only if a substitution of
other securities for the shares of the Designated Portfolios is consistent with
the terms of the Contracts, or (iv) as permitted under the terms of the
Contract. Upon request, the Company will promptly furnish to the Fund and the
Underwriter reasonable assurance that any redemption pursuant to clause (ii)
above is a Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contacts, the Company shall not prevent
Contract owners from allocating payments to a Portfolio that was otherwise
available under the Contracts without first giving the Fund or the Underwriter
45 days notice of its intention to do so.
10.4 Notwithstanding any termination of this Agreement, each party's
obligation under Article VIII to indemnify the other parties shall survive.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
19
<PAGE>
If to the Fund: PIMCO Variable Insurance Trust
840 Newport Center Drive
Suite 300
Newport Beach, CA 92660
If to the Company. Western-Southern Life Assurance Company
400 Broadway
Cincinnati, Ohio 45202
If to Underwriter: PIMCO Funds Distributors LLC
2187 Atlantic Street
Stamford, CT 06902
ARTICLE XII. Miscellaneous
12.1 All persons dealing with the Fund must look solely to the property
of the Fund, and in the case of a series company, the respective Designated
Portfolios listed on Schedule A hereto as though-each such Designated Portfolio
had separately contracted with the Company and the Underwriter for the
enforcement of any claims against the Fund. The parties agree that neither the
Board, officers, agents or shareholders of the Fund assume any personal
liability or responsibility for obligations entered into by or on behalf of the
Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as such information has come into the
public domain.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the Ohio Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request
20
<PAGE>
in order to ascertain whether the variable annuity operations of the Company are
being conducted in a manner consistent with the Ohio variable annuity laws and
regulations and any other applicable law or regulations.
12.7 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies, and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
12.8 This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto.
12.9 The Company shall furnish, or shall cause to be furnished. to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory accounting
principles) and annual report (prepared under generally accepted accounting
principles) filed with any state or federal regulatory body or other-wise made
available to the public, as soon as practicable and in any event within 90 days
after the end of each fiscal year; and
(b) any registration statement (without exhibits) and financial reports
of the Company filed with the Securities and Exchange Commission or any state
insurance regulatory, as soon as practicable after the filing thereof.
21
<PAGE>
IN WITNESS WHEREOF, each of the par-ties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
COMPANY:
WESTERN-SOUTHERN LIFE ASSURANCE
COMPANY By its authorized officer
By:
------------------------------
Title: Jill T. McGruder, Senior
Senior Vice President
Date: March 31, 1999
PIMCO VARIABLE INSURANCE TRUST
By its authorized officer
By:
------------------------------
Title:
---------------------------
Date:
---------------------------
PIMCO FUNDS DISTRIBUTORS LLC
By its authorized officer
By:
------------------------------
Title:
---------------------------
Date:
---------------------------
22
<PAGE>
Schedule A
PIMCO Variable Insurance Trust Portfolios :
PIMCO Long Term U.S. Government Bond Portfolio
Western-Southern Life Assurance Company Separate Account 1
Touchstone Gold Variable Annuity
Touchstone Select Variable Annuity
Western-Southern Life Assurance Company Separate Account 2
Touchstone Advisors Variable Annuity
Dated: March 31, 1999
--------------------------
SERVICES AGREEMENT
The terms and conditions of this Services Agreement between Pacific
Investment Management Company ("PIMCO") and Western-Southern Life Assurance
Company (the "Company") are effective as of March 31, 1999.
WHEREAS, the Company, PIMCO Funds Distributors LLC and PIMCO Variable
Insurance Trust (the "Trust") have entered into a Fund Participation Agreement
dated March 31, 1999, as may be amended from time to time (the "Participation
Agreement"), pursuant to which the Company, on behalf of certain of its separate
accounts (the "Separate Accounts"), purchases shares ("Shares") of certain
Portfolios of the Trust ("Portfolios") to serve as an investment vehicle under
certain variable annuity and/or variable life insurance contracts ("Variable
Contracts") offered by the Company, which Portfolios may be one of several
investment options available under the Variable Contracts; and
WHEREAS, PIMCO recognizes that it will derive substantial savings in
administrative expenses by virtue of having a sole shareholder rather than
multiple shareholders in connection with each Separate Account's investments in
the Portfolios, and that in the course of soliciting applications for Variable
Contracts issued by the Company and in servicing owners of such Variable
Contracts, the Company will provide information about the Trust and its
Portfolios from time to time, answer questions concerning the Trust and its
Portfolios, including questions respecting Variable Contract owners' interests
in one or more Portfolios, and provide services respecting investments in the
Portfolios; and
WHEREAS, PIMCO wishes to compensate the Company for the efforts of the
Company in providing written and oral information and services regarding the
Trust to Variable Contract owners; and
WHEREAS, the following represents the collective intention and
understanding of the service fee agreement between PIMCO and the Company.
NOW, THEREFORE, in consideration of their mutual promises, the Company
and PIMCO agree as follows:
1. Services. The Company and/or its affiliates agree to provide
services ("Services") to owners of Variable Contracts including,
but not limited to: teleservicing support in connection with the
Portfolios; delivery of current Trust prospectuses, reports,
notices, proxies and proxy statements and other informational
materials; facilitation of the tabulation of Variable Contract
owners' votes in the event of a Trust shareholder vote;
maintenance of Variable Contract records reflecting Shares
purchased and redeemed and Share balances, and the conveyance of
that information to the Trust or PIMCO as may be reasonably
requested; provision of support services, including providing
information about the Trust and its Portfolios and answering
questions concerning the Trust and its Portfolios, including
questions respecting Variable Contract owners' interests in one
or more
<PAGE>
Portfolios; provision and administration of Variable Contract
features for the benefit of Variable Contract owners in
connection with the Portfolios, which may include fund transfers,
dollar cost averaging, asset allocation, portfolio rebalancing,
earnings sweep, and pre-authorized deposits and withdrawals; and
provision of other services as may be agreed upon from time to
time.
2. Compensation. In consideration of the Services, PIMCO agrees to
pay to the Company a service fee at an annual rate equal to
twenty-five (25) basis points (.25%) of the average daily value
of the Shares held in the Separate Accounts. Such payments will
be made monthly in arrears. For purposes of computing the payment
to the Company under this paragraph 2, the average daily value of
Shares held in the Separate Accounts over a monthly period shall
be computed by totaling such Separate Accounts' aggregate
investment (Share net asset value multiplied by total number of
Shares held by such Separate Accounts) on each business day
during the calendar month, and dividing by the total number of
business days during such month. The payment to the Company under
this paragraph 2 shall be calculated by PIMCO at the end of each
calendar month and will be paid to the Company within 30 days
thereafter. Payment will be accompanied by a statement showing
the calculation of the monthly amounts payable by PIMCO and such
other supporting data as may be reasonably requested by the
Company.
3. Term. This Services Agreement shall remain in full force and
effect for an initial term of one year, and shall automatically
renew for successive one year periods. This Services Agreement
may be terminated by either party hereto upon 30 days written
notice to the other. This Services Agreement shall terminate
automatically upon the redemption of all Shares held in the
Separate Accounts, upon termination of the Participation
Agreement, upon a material, unremedied breach of the
Participation Agreement, as to a Portfolio upon termination of
the investment advisory agreement between the Trust, on behalf of
such Portfolio, and PIMCO, or upon assignment of the
Participation Agreement by either the Company or PIMCO.
Notwithstanding the termination of this Services Agreement, PIMCO
will continue to pay the service fees in accordance with
paragraph 2 so long as net assets of the Separate Accounts remain
in a Portfolio, provided such continued payment is permitted in
accordance with applicable law and regulation.
4. Amendment. This Services Agreement may be amended only upon
mutual agreement of the parties hereto in writing.
5. Effect on Other Terms, Obligations and Covenants. Nothing herein
shall amend, modify, or supersede any contractual terms,
obligations or covenants among or between any of the Company,
PIMCO or the Trust previously or currently in effect, including
those contractual terms, obligations or covenants in the
Participation Agreement.
<PAGE>
In witness whereof, the parties have caused their duly authorized
officers to execute this Services Agreement.
PACIFIC INVESTMENT MANAGEMENT
COMPANY
-----------------------------
By:
Title:
Date:
WESTERN-SOUTHERN LIFE ASSURANCE
COMPANY
-------------------------------
By: Jill T. McGruder
Title: Senior Vice President
Date: March 31, 1999
ADMINISTRATIVE SERVICES AGREEMENT
WESTERN-SOUTHERN LIFE ASSURANCE COMPANY ("INSURER") and A I M ADVISORS,
INC. ("AIM") (collectively, the "Parties") mutually agree to the arrangements
set forth in this Administrative Services Agreement (the "Agreement") dated as
of March 31, 1999.
WHEREAS, AIM is the investment adviser to AIM Variable Insurance Funds,
Inc. (the "Fund"); and
WHEREAS, AIM has entered into an amended Master Administrative Services
Agreement, dated May 1, 1998, with the Fund ("Master Agreement") pursuant to
which it has agreed to provide, or arrange to provide, certain administrative
services, including such services as may be requested by the Fund's Board of
Directors from time to time; and
WHEREAS, INSURER issues variable life insurgence policies and/or
variable annuity contracts (collectively, the "Contracts"); and
WHEREAS, INSURER has entered into a participation agreement, dated
March 31, 1999 ("Participation Agreement") with the Fund, pursuant to which the
Fund has agreed to make shares of certain of its portfolios ("Portfolios")
available for purchase by one or more of INSURER's separate accounts or
divisions thereof (each, a "Separate Account"), in connection with the
allocation by Contract owners of purchase payments to corresponding investment
options offered under the Contracts; and
WHEREAS, INSURER and AIM expect that the Fund, and its Portfolios, can
derive substantial savings in administrative expenses by virtue of having one or
more Separate Accounts of INSURER each as a single shareholder of record of
Portfolio shares, rather than having numerous public shareholders of such
shares; and
WHEREAS, INSURER and AIM expect that the Fund, and its Portfolios, can
derive such substantial savings because INSURER performs the administrative
services listed on Schedule A hereto for the Fund in connection with the
Contracts issued by INSURER; and
WHEREAS, INSURER has no contractual or other legal obligation to
perform such administrative services, other than pursuant to this Agreement and
the Participation Agreement; and
WHEREAS, INSURER desires to be compensated for providing such
administrative services; and
WHEREAS, AIM desires that the Fund benefit from the lower
administrative expenses resulting from the administrative services performed by
INSURER; and
WHEREAS, AIM desires to retain the administrative services of INSURER
and to compensate INSURER for providing such administrative services;
<PAGE>
NOW, THEREFORE, the Parties agree as follows:
SECTION 1. ADMINISTRATIVE SERVICES; PAYMENTS THEREFOR.
(a) INSURER shall provide the administrative services set out in
Schedule A hereto and made a part hereof, as the same may be amended from time
to time. For such services, AIM agrees to pay to INSURER a quarterly fee
("Quarterly Fee") equal to a percentage of the average daily net assets of the
Fund attributable to the Contracts issued by INSURER ("INSURER Fund Assets") at
the following annual rates:
ANNUAL RATE TOTAL AVERAGE QUARTERLY NET ASSETS FOR ALL PORTFOLIOS
.0% Less than $10 million
.15% $10 million but less than $200 million
.20% $200 million or more
(b) AIM shall calculate the Quarterly Fee at the end of each calendar
quarter and will make such payment to INSURER, without demand or notice by
INSURER, within 30 days thereafter, in a manner mutually agreed upon by the
Parties from time to time.
(c) From time to time, the Parties shall review the Quarterly Fee to
determine whether it exceeds or is reasonably expected to exceed the incurred
and anticipated costs, over time, of INSURER. The Parties agree to negotiate in
good faith a reduction to the Quarterly Fee as necessary to eliminate any such
excess or as necessary to reflect a reduction in the fee paid by the Fund to AIM
pursuant to the Master Agreement.
SECTION 2. NATURE OF PAYMENTS.
The Parties to this Agreement recognize and agree that AIM's payments
hereunder are for administrative services only and do not constitute payment in
any manner for investment advisory services or for costs of distribution of
Contracts or of Portfolio shares, and are not otherwise related to investment
advisory or distribution services or expenses. INSURER represents and warrants
that the fees to be paid by AIM for services to be rendered by INSURER pursuant
to the terms of this Agreement are to compensate the INSURER for providing
administrative services to the Fund, and are not designed to reimburse or
compensate INSURER for providing administrative services with respect to the
Contracts or any Separate Account.
SECTION 3. TERM AND TERMINATION.
Any Party may terminate this Agreement, without penalty, on 60 days
written notice to the other Party. Unless so terminated, this Agreement shall
continue in effect for so long as AIM or its successor(s) in interest, or any
affiliate thereof, continues to perform in a similar capacity for the Fund, and
for so long as INSURER provides the services contemplated hereunder with respect
to Contracts under which values or monies are allocated to a Portfolio.
2
<PAGE>
SECTION 4. AMENDMENT.
---------------------------
This Agreement may be amended upon mutual agreement of the Parties in
writing.
SECTION 5. NOTICES.
-------------------------
All notices, requests, demands and other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered
Western-Southern Life Assurance Company
400 Broadway
Cincinnati, Ohio 45202
Facsimile: (513) 361-7982
Attention: Jill T. McGruder
A I M ADVISORS, INC.
11 Greenway Plaza, Suite 100
Houston, Texas 77046
Facsimile: (713) 993-9185
Attention: Nancy L. Martin, Esquire
SECTION 6. MISCELLANEOUS
(a) Successors and Assigns. This Agreement shall be binding upon the
Parties and their transferees, successors and assigns. The benefits of and the
right to enforce this Agreement shall accrue to the Parties and their
transferees, successors and assigns.
(b) Assignment. Neither this Agreement nor any of the rights,
obligations or liabilities of any Party hereto shall be assigned without the
written consent of the other Party.
(c) Intended Beneficiaries. Nothing in this Agreement shall be
construed to give any person or entity other than the Parties, as well as the
Fund, any legal or equitable claim, right or remedy. Rather, this Agreement is
intended to be for the sole and exclusive benefit of the Parties, as well as the
Fund.
(d) Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original but all of which shall together constitute
one and the same instrument.
(e) Applicable Law. This Agreement shall be interpreted, construed, and
enforced in accordance with the laws of the State of Delaware without reference
to tile conflict of law principles thereof.
(f) Severability. If any portion of this Agreement shall be found to be
invalid or unenforceable by a court or tribunal or regulatory agency of
competent jurisdiction, the remainder shall not be affected thereby, but shall
have the same force and effect as if the invalid or unenforceable portion had
not been inserted.
3
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date of first above written.
LIFE INSURANCE, COMPANY
By:
--------------------------
Title: Senior Vice President
A I M ADVISORS, INC.
By:
---------------------------
Title:
------------------------
4
<PAGE>
SCHEDULE A
ADMINISTRATIVE SERVICES FOR
AIM VARIABLE INSURANCE FUNDS, INC.
INSURER shall provide certain administrative services respecting the
operations of the Fund, as set forth below. This Schedule, which may be amended
from time to time as mutually agreed upon by INSURER and AIM, constitutes an
integral part of the Agreement to which it is attached. Capitalized terms used
herein shall, unless otherwise noted, have the same meaning as the defined terms
in the Agreement to which this Schedule relates.
A. RECORDS OF PORTFOLIO SHARE TRANSACTIONS; MISCELLANEOUS RECORDS
1. INSURER shall maintain master accounts with the Fund, on behalf of
each Portfolio which accounts shall bear the name of INSURER as the record owner
of Portfolio shares on behalf of each Separate Account investing in the
Portfolio.
2. INSURER shall maintain a daily journal setting out the number of
shares of each Portfolio purchased, redeemed or exchanged by Contract owners
each day, as well as the net purchase or redemption orders for Portfolio shares
submitted each day, to assist AIM, the Fund and/or the Fund's transfer agent in
tracking and recording Portfolio share transactions, and to facilitate the
computation of each Portfolio's net asset value per share. INSURER shall
promptly provide AIM, the Fund, and the Fund's transfer agent with a copy of
such journal entries or information appearing thereon in such format as may be
reasonably requested from time to time. INSURER shall provide such other
assistance to AIM, the Fund, and the Fund's transfer agent as may be necessary
to cause various Portfolio share transactions effected by Contract owners to be
properly reflected on the books and records of the Fund.
3. In addition to the foregoing records, and without limitation,
INSURER shall maintain and preserve all records as required by law to be
maintained and preserved in connection with providing administrative services
hereunder.
B. ORDER PLACEMENT AND PAYMENT
1. INSURER shall determine the net amount to be transmitted to the
Separate Accounts as a result of redemptions of each Portfolio's shares based on
Contract owner redemption requests and shall disburse or credit to the Separate
Accounts all proceeds of redemptions of Portfolio shares. INSURER shall notify
the Fund of the cash required to meet redemption payments.
2. INSURER shall determine the net amount to be transmitted to the Fund
as a result of purchases of Portfolio shares based on Contract owner purchase
payments and transfers allocated to the Separate Accounts investing in each
Portfolio. INSURER shall transmit net purchase payments to the Fund's custodian.
<PAGE>
C. ACCOUNTING SERVICES
INSURER shall perform miscellaneous accounting services as may be
reasonably requested from time to time by AIM, which services shall relate to
the business contemplated by the Participation Agreement between INSURER and the
Fund, as amended from time to time. Such services shall include, without
limitation, periodic reconciliation and balancing of INSURER's books and records
with those of the Fund with respect to such matters as cash accounts, Portfolio
share purchase and redemption orders placed with the Fund, dividend and
distribution payments by the Fund, and such other accounting matters that may
arise from time to time in connection with the operations of the Fund as related
to the business contemplated by the Participation Agreement.
D. REPORTS
INSURER acknowledges that AIM may, from time to time, be called upon by
the Fund's Board of Directors ("Board"), to provide various types of information
pertaining to the operations of the Fund and related matters, and that AIM also
may, from time to time, decide to provide such information to the Board in its
own discretion. Accordingly, INSURER agrees to provide AIM with such assistance
as AIM may reasonably request so that AIM can report such information to the
Fund's Board in a timely manner. INSURER acknowledges that such information and
assistance shall be in addition to the information and assistance required of
INSURER pursuant to the Fund's mixed and shared funding SEC exemptive order,
described in the Participation Agreement.
INSURER further agrees to provide AIM with such assistance as AIM may
reasonably request with respect to the preparation and submission of reports and
other documents pertaining to the Fund to appropriate regulatory bodies and
third party reporting services.
E. FUND-RELATED CONTRACT OWNER SERVICES
INSURER agrees to print and distribute, in a timely manner,
prospectuses, statements of additional information, supplements thereto,
periodic reports, proxy materials and any other materials of the Fund required
by law or otherwise to be given to its shareholders, including, without
limitation, Contract owners investing in Portfolio shares. INSURER further
agrees to provide telephonic support for Contract owners, including, without
limitation, advice with respect to inquiries about the Fund and each Portfolio
thereof (not including information about performance or related to sales),
communicating with Contract owners about Fund (and Separate Account)
performance, and assisting with proxy solicitations, specifically with respect
to soliciting voting instructions from Contract owners.
F. MISCELLANEOUS SERVICES
INSURER shall provide such other administrative support to the Fund as
mutually agreed between INSURER and AIM or the Fund from time to time. INSURER
shall, from time to time,
2
<PAGE>
relieve the Fund of other usual or incidental administration services of the
type ordinarily borne by mutual funds that offer shares to individual members of
the general public.
3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the captions "Experts" and
"Financial Statements" and to the use of our reports dated April 18, 2000, with
respect to the statutory-basis financial statements of Western-Southern Life
Assurance Company, and the financial statements of Western-Southern Life
Assurance Company Separate Account 1, in Post-effective Amendment No. 11 (Form
N-4 No. 033-76582) and Post-effective Amendment No. 20 (Form N-4 No. 811-8420)
to the Registration Statements and related Statement of Additional Information
of Western-Southern Life Assurance Company Separate Account 1 dated May 1, 2000.
/s/ Ernst & Young LLP
Cincinnati, Ohio
April 26, 2000
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form N-4 (File
No. 033-76582) of our reports, dated April 26, 1999 and January 22, 1999,
respectively, on our audits of the financial statements of Western-Southern Life
Assurance Company and Western-Southern Life Assurance Company Separate Account
1, which appear in such Registration Statement. We also consent to the reference
to us under the heading "Experts" in such Registration Statement.
/s/PricewaterhouseCoopers LLP
Cincinnati, Ohio
April 27, 2000
POWER OF ATTORNEY
WHEREAS, WESTERN-SOUTHERN LIFE ASSURANCE COMPANY, an Ohio corporation
(the "Company"), proposes to file with the Securities and Exchange Commission on
or before May 1, 2000, pursuant to the provisions of the Securities Act of 1933,
as amended, and the rules and regulations thereunder, and the Investment Company
Act of 1940, as amended, and the rules and regulations thereunder,
post-effective amendments to the registration statements of the Company's
Separate Account 1 and post-effective amendments to the registration statement
of the Company's Separate Account 2 (collectively, the "Post-Effective
Amendments"); and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Edward
S. Heenan and Robert L. Walker his attorneys in fact, for him and in his name,
place and stead and in his office and capacity with the Company, to execute and
file the Post-Effective Amendments, including the prospectuses, statements of
additional information and exhibits included therein, and thereafter to execute
and file any additional amended post-effective amendment or amendments, amended
prospectus or prospectuses, amended statement or statements of additional
information, amended exhibits or any supplements to any of the foregoing
(collectively, the "Amended Documents"), hereby giving and granting to said
attorneys full power and authority to do and perform each and every act and
thing whatsoever requisite and necessary to be done in and about the premises as
fully to all intents and purposes as he might or could do if personally present
at the doing thereof, hereby ratifying and confirming all that said attorneys
may or shall lawfully do or cause to be done by virtue hereof.
This authority hereby granted is limited to the execution and delivery
of the Post-Effective Amendments and Amended Documents and included documents
and, unless earlier revoked by me or expressly extended by me in writing, shall
remain in force and effective only until such Post-Effective Amendments shall
have become effective under the federal securities laws and in any event no
later than June 30, 2000.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
18th day of April, 2000.
/s/ John F. Barrett
-------------------
John F. Barrett
<PAGE>
POWER OF ATTORNEY
WHEREAS, WESTERN-SOUTHERN LIFE ASSURANCE COMPANY, an Ohio corporation
(the "Company"), proposes to file with the Securities and Exchange Commission on
or before May 1, 2000, pursuant to the provisions of the Securities Act of 1933,
as amended, and the rules and regulations thereunder, and the Investment Company
Act of 1940, as amended, and the rules and regulations thereunder,
post-effective amendments to the registration statements of the Company's
Separate Account 1 and post-effective amendments to the registration statement
of the Company's Separate Account 2 (collectively, the "Post-Effective
Amendments"); and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John F.
Barrett, Edward S. Heenan and Robert L. Walker, and each of them individually,
his attorney in fact, for him and in his name, place and stead and in his office
and capacity with the Company, to execute and file the Post-Effective
Amendments, including the prospectuses, statements of additional information and
exhibits included therein, and thereafter to execute and file any additional
amended post-effective amendment or amendments, amended prospectus or
prospectuses, amended statement or statements of additional information, amended
exhibits or any supplements to any of the foregoing (collectively, the "Amended
Documents"), hereby giving and granting to said attorneys full power and
authority to do and perform each and every act and thing whatsoever requisite
and necessary to be done in and about the premises as fully to all intents and
purposes as he might or could do if personally present at the doing thereof,
hereby ratifying and confirming all that said attorneys may or shall lawfully do
or cause to be done by virtue hereof.
This authority hereby granted is limited to the execution and delivery
of the Post-Effective Amendments and Amended Documents and included documents
and, unless earlier revoked by me or expressly extended by me in writing, shall
remain in force and effective only until such Post-Effective Amendments shall
have become effective under the federal securities laws and in any event no
later than June 30, 2000.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
18th day of April, 2000.
/s/ Donald A. Bliss
-------------------
Donald A. Bliss
<PAGE>
POWER OF ATTORNEY
WHEREAS, WESTERN-SOUTHERN LIFE ASSURANCE COMPANY, an Ohio corporation
(the "Company"), proposes to file with the Securities and Exchange Commission on
or before May 1, 2000, pursuant to the provisions of the Securities Act of 1933,
as amended, and the rules and regulations thereunder, and the Investment Company
Act of 1940, as amended, and the rules and regulations thereunder,
post-effective amendments to the registration statements of the Company's
Separate Account 1 and post-effective amendments to the registration statement
of the Company's Separate Account 2 (collectively, the "Post-Effective
Amendments"); and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John F.
Barrett, Edward S. Heenan and Robert L. Walker, and each of them individually,
his attorney in fact, for him and in his name, place and stead and in his office
and capacity with the Company, to execute and file the Post-Effective
Amendments, including the prospectuses, statements of additional information and
exhibits included therein, and thereafter to execute and file any additional
amended post-effective amendment or amendments, amended prospectus or
prospectuses, amended statement or statements of additional information, amended
exhibits or any supplements to any of the foregoing (collectively, the "Amended
Documents"), hereby giving and granting to said attorneys full power and
authority to do and perform each and every act and thing whatsoever requisite
and necessary to be done in and about the premises as fully to all intents and
purposes as he might or could do if personally present at the doing thereof,
hereby ratifying and confirming all that said attorneys may or shall lawfully do
or cause to be done by virtue hereof.
This authority hereby granted is limited to the execution and delivery
of the Post-Effective Amendments and Amended Documents and included documents
and, unless earlier revoked by me or expressly extended by me in writing, shall
remain in force and effective only until such Post-Effective Amendments shall
have become effective under the federal securities laws and in any event no
later than June 30, 2000.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
18th day of April, 2000.
/s/ James N. Clark
------------------
James N. Clark
<PAGE>
POWER OF ATTORNEY
WHEREAS, WESTERN-SOUTHERN LIFE ASSURANCE COMPANY, an Ohio corporation
(the "Company"), proposes to file with the Securities and Exchange Commission on
or before May 1, 2000, pursuant to the provisions of the Securities Act of 1933,
as amended, and the rules and regulations thereunder, and the Investment Company
Act of 1940, as amended, and the rules and regulations thereunder,
post-effective amendments to the registration statements of the Company's
Separate Account 1 and post-effective amendments to the registration statement
of the Company's Separate Account 2 (collectively, the "Post-Effective
Amendments"); and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John F.
Barrett, Edward S. Heenan and Robert L. Walker, and each of them individually,
his attorney in fact, for him and in his name, place and stead and in his office
and capacity with the Company, to execute and file the Post-Effective
Amendments, including the prospectuses, statements of additional information and
exhibits included therein, and thereafter to execute and file any additional
amended post-effective amendment or amendments, amended prospectus or
prospectuses, amended statement or statements of additional information, amended
exhibits or any supplements to any of the foregoing (collectively, the "Amended
Documents"), hereby giving and granting to said attorneys full power and
authority to do and perform each and every act and thing whatsoever requisite
and necessary to be done in and about the premises as fully to all intents and
purposes as he might or could do if personally present at the doing thereof,
hereby ratifying and confirming all that said attorneys may or shall lawfully do
or cause to be done by virtue hereof.
This authority hereby granted is limited to the execution and delivery
of the Post-Effective Amendments and Amended Documents and included documents
and, unless earlier revoked by me or expressly extended by me in writing, shall
remain in force and effective only until such Post-Effective Amendments shall
have become effective under the federal securities laws and in any event no
later than June 30, 2000.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
18th day of April, 2000.
/s/ Dr. Lawrence C. Hawkins
---------------------------
Dr. Lawrence C. Hawkins
<PAGE>
POWER OF ATTORNEY
WHEREAS, WESTERN-SOUTHERN LIFE ASSURANCE COMPANY, an Ohio corporation
(the "Company"), proposes to file with the Securities and Exchange Commission on
or before May 1, 2000, pursuant to the provisions of the Securities Act of 1933,
as amended, and the rules and regulations thereunder, and the Investment Company
Act of 1940, as amended, and the rules and regulations thereunder,
post-effective amendments to the registration statements of the Company's
Separate Account 1 and post-effective amendments to the registration statement
of the Company's Separate Account 2 (collectively, the "Post-Effective
Amendments"); and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John F.
Barrett, Edward S. Heenan and Robert L. Walker, and each of them individually,
his attorney in fact, for him and in his name, place and stead and in his office
and capacity with the Company, to execute and file the Post-Effective
Amendments, including the prospectuses, statements of additional information and
exhibits included therein, and thereafter to execute and file any additional
amended post-effective amendment or amendments, amended prospectus or
prospectuses, amended statement or statements of additional information, amended
exhibits or any supplements to any of the foregoing (collectively, the "Amended
Documents"), hereby giving and granting to said attorneys full power and
authority to do and perform each and every act and thing whatsoever requisite
and necessary to be done in and about the premises as fully to all intents and
purposes as he might or could do if personally present at the doing thereof,
hereby ratifying and confirming all that said attorneys may or shall lawfully do
or cause to be done by virtue hereof.
This authority hereby granted is limited to the execution and delivery
of the Post-Effective Amendments and Amended Documents and included documents
and, unless earlier revoked by me or expressly extended by me in writing, shall
remain in force and effective only until such Post-Effective Amendments shall
have become effective under the federal securities laws and in any event no
later than June 30, 2000.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
18th day of April, 2000.
Dr. J. Harold Kotte
-------------------
Dr. J. Harold Kotte
<PAGE>
POWER OF ATTORNEY
WHEREAS, WESTERN-SOUTHERN LIFE ASSURANCE COMPANY, an Ohio corporation
(the "Company"), proposes to file with the Securities and Exchange Commission on
or before May 1, 2000, pursuant to the provisions of the Securities Act of 1933,
as amended, and the rules and regulations thereunder, and the Investment Company
Act of 1940, as amended, and the rules and regulations thereunder,
post-effective amendments to the registration statements of the Company's
Separate Account 1 and post-effective amendments to the registration statement
of the Company's Separate Account 2 (collectively, the "Post-Effective
Amendments"); and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John F.
Barrett, Edward S. Heenan and Robert L. Walker, and each of them individually,
his attorney in fact, for him and in his name, place and stead and in his office
and capacity with the Company, to execute and file the Post-Effective
Amendments, including the prospectuses, statements of additional information and
exhibits included therein, and thereafter to execute and file any additional
amended post-effective amendment or amendments, amended prospectus or
prospectuses, amended statement or statements of additional information, amended
exhibits or any supplements to any of the foregoing (collectively, the "Amended
Documents"), hereby giving and granting to said attorneys full power and
authority to do and perform each and every act and thing whatsoever requisite
and necessary to be done in and about the premises as fully to all intents and
purposes as he might or could do if personally present at the doing thereof,
hereby ratifying and confirming all that said attorneys may or shall lawfully do
or cause to be done by virtue hereof.
This authority hereby granted is limited to the execution and delivery
of the Post-Effective Amendments and Amended Documents and included documents
and, unless earlier revoked by me or expressly extended by me in writing, shall
remain in force and effective only until such Post-Effective Amendments shall
have become effective under the federal securities laws and in any event no
later than June 30, 2000.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
18th day of April, 2000.
/s/ Eugene P. Ruehlmann
-----------------------
Eugene P. Ruehlmann
<PAGE>
POWER OF ATTORNEY
WHEREAS, WESTERN-SOUTHERN LIFE ASSURANCE COMPANY, an Ohio corporation
(the "Company"), proposes to file with the Securities and Exchange Commission on
or before May 1, 2000, pursuant to the provisions of the Securities Act of 1933,
as amended, and the rules and regulations thereunder, and the Investment Company
Act of 1940, as amended, and the rules and regulations thereunder,
post-effective amendments to the registration statements of the Company's
Separate Account 1 and post-effective amendments to the registration statement
of the Company's Separate Account 2 (collectively, the "Post-Effective
Amendments"); and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John F.
Barrett, Edward S. Heenan and Robert L. Walker, and each of them individually,
his attorney in fact, for him and in his name, place and stead and in his office
and capacity with the Company, to execute and file the Post-Effective
Amendments, including the prospectuses, statements of additional information and
exhibits included therein, and thereafter to execute and file any additional
amended post-effective amendment or amendments, amended prospectus or
prospectuses, amended statement or statements of additional information, amended
exhibits or any supplements to any of the foregoing (collectively, the "Amended
Documents"), hereby giving and granting to said attorneys full power and
authority to do and perform each and every act and thing whatsoever requisite
and necessary to be done in and about the premises as fully to all intents and
purposes as he might or could do if personally present at the doing thereof,
hereby ratifying and confirming all that said attorneys may or shall lawfully do
or cause to be done by virtue hereof.
This authority hereby granted is limited to the execution and delivery
of the Post-Effective Amendments and Amended Documents and included documents
and, unless earlier revoked by me or expressly extended by me in writing, shall
remain in force and effective only until such Post-Effective Amendments shall
have become effective under the federal securities laws and in any event no
later than June 30, 2000.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
18th day of April, 2000.
/s/ Thomas L. Williams
----------------------
Thomas L. Williams
<PAGE>
POWER OF ATTORNEY
WHEREAS, WESTERN-SOUTHERN LIFE ASSURANCE COMPANY, an Ohio corporation
(the "Company"), proposes to file with the Securities and Exchange Commission on
or before May 1, 2000, pursuant to the provisions of the Securities Act of 1933,
as amended, and the rules and regulations thereunder, and the Investment Company
Act of 1940, as amended, and the rules and regulations thereunder,
post-effective amendments to the registration statements of the Company's
Separate Account 1 and post-effective amendments to the registration statement
of the Company's Separate Account 2 (collectively, the "Post-Effective
Amendments"); and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John F.
Barrett, Edward S. Heenan and Robert L. Walker, and each of them individually,
his attorney in fact, for him and in his name, place and stead and in his office
and capacity with the Company, to execute and file the Post-Effective
Amendments, including the prospectuses, statements of additional information and
exhibits included therein, and thereafter to execute and file any additional
amended post-effective amendment or amendments, amended prospectus or
prospectuses, amended statement or statements of additional information, amended
exhibits or any supplements to any of the foregoing (collectively, the "Amended
Documents"), hereby giving and granting to said attorneys full power and
authority to do and perform each and every act and thing whatsoever requisite
and necessary to be done in and about the premises as fully to all intents and
purposes as he might or could do if personally present at the doing thereof,
hereby ratifying and confirming all that said attorneys may or shall lawfully do
or cause to be done by virtue hereof.
This authority hereby granted is limited to the execution and delivery
of the Post-Effective Amendments and Amended Documents and included documents
and, unless earlier revoked by me or expressly extended by me in writing, shall
remain in force and effective only until such Post-Effective Amendments shall
have become effective under the federal securities laws and in any event no
later than June 30, 2000.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
18th day of April, 2000.
/s/ William J. Williams
----------------------
William J. Williams
<PAGE>
POWER OF ATTORNEY
WHEREAS, WESTERN-SOUTHERN LIFE ASSURANCE COMPANY, an Ohio corporation
(the "Company"), proposes to file with the Securities and Exchange Commission on
or before May 1, 2000, pursuant to the provisions of the Securities Act of 1933,
as amended, and the rules and regulations thereunder, and the Investment Company
Act of 1940, as amended, and the rules and regulations thereunder,
post-effective amendments to the registration statements of the Company's
Separate Account 1 and post-effective amendments to the registration statement
of the Company's Separate Account 2 (collectively, the "Post-Effective
Amendments"); and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John F.
Barrett, Edward S. Heenan and Robert L. Walker, and each of them individually,
his attorney in fact, for him and in his name, place and stead and in his office
and capacity with the Company, to execute and file the Post-Effective
Amendments, including the prospectuses, statements of additional information and
exhibits included therein, and thereafter to execute and file any additional
amended post-effective amendment or amendments, amended prospectus or
prospectuses, amended statement or statements of additional information, amended
exhibits or any supplements to any of the foregoing (collectively, the "Amended
Documents"), hereby giving and granting to said attorneys full power and
authority to do and perform each and every act and thing whatsoever requisite
and necessary to be done in and about the premises as fully to all intents and
purposes as he might or could do if personally present at the doing thereof,
hereby ratifying and confirming all that said attorneys may or shall lawfully do
or cause to be done by virtue hereof.
This authority hereby granted is limited to the execution and delivery
of the Post-Effective Amendments and Amended Documents and included documents
and, unless earlier revoked by me or expressly extended by me in writing, shall
remain in force and effective only until such Post-Effective Amendments shall
have become effective under the federal securities laws and in any event no
later than June 30, 2000.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
18th day of April, 2000.
/s/ George H. Walker
-------------------
George H. Walker
<PAGE>
POWER OF ATTORNEY
WHEREAS, WESTERN-SOUTHERN LIFE ASSURANCE COMPANY, an Ohio corporation
(the "Company"), proposes to file with the Securities and Exchange Commission on
or before May 1, 2000, pursuant to the provisions of the Securities Act of 1933,
as amended, and the rules and regulations thereunder, and the Investment Company
Act of 1940, as amended, and the rules and regulations thereunder,
post-effective amendments to the registration statements of the Company's
Separate Account 1 and post-effective amendments to the registration statement
of the Company's Separate Account 2 (collectively, the "Post-Effective
Amendments"); and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints John F.
Barrett, Edward S. Heenan and Robert L. Walker, and each of them individually,
his attorney in fact, for him and in his name, place and stead and in his office
and capacity with the Company, to execute and file the Post-Effective
Amendments, including the prospectuses, statements of additional information and
exhibits included therein, and thereafter to execute and file any additional
amended post-effective amendment or amendments, amended prospectus or
prospectuses, amended statement or statements of additional information, amended
exhibits or any supplements to any of the foregoing (collectively, the "Amended
Documents"), hereby giving and granting to said attorneys full power and
authority to do and perform each and every act and thing whatsoever requisite
and necessary to be done in and about the premises as fully to all intents and
purposes as he might or could do if personally present at the doing thereof,
hereby ratifying and confirming all that said attorneys may or shall lawfully do
or cause to be done by virtue hereof.
This authority hereby granted is limited to the execution and delivery
of the Post-Effective Amendments and Amended Documents and included documents
and, unless earlier revoked by me or expressly extended by me in writing, shall
remain in force and effective only until such Post-Effective Amendments shall
have become effective under the federal securities laws and in any event no
later than June 30, 2000.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
18th day of April, 2000.
/s/ Rev. James E. Hoff, S.J.
----------------------------
Rev. James E. Hoff, S.J.
