<PAGE>
As filed with the Securities and Exchange Commission on March 23, 1999
Registration Nos. 811-8728 and 333-____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. ___ [ ]
Post-Effective Amendment No. ___ [ ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 2 [X]
(Check appropriate box or boxes)
Separate Account III of Integrity Life Insurance Company
(Exact Name of Registrant)
Integrity Life Insurance Company
(Name of Depositor)
515 West Market Street, Louisville, KY 40202
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (502) 582-7900
Kevin L. Howard
Integrity Life Insurance Company
515 West Market Street
Louisville, Kentucky 40202
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon after the effective date
of this Registration Statement as is practicable.
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b) of Rule 485
/ / on (date) pursuant to paragraph (b) of Rule 485
/ / 60 days after filing pursuant to paragraph (a)(1) of Rule 485
/ / on (date) pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered......... Variable Annuity Contracts
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, MARCH 23, 1999
PROSPECTUS
EASY@NNUITY-TM-
FLEXIBLE PREMIUM VARIABLE ANNUITY
issued by INTEGRITY LIFE INSURANCE COMPANY
This prospectus describes a flexible premium variable annuity contract
offered solely through our website (www.easy-annuity.com). The contract
provides several types of benefits, some of which have tax-favored status
under the Internal Revenue Code of 1986, as amended. Separate Account III
funds the variable annuity contract. You may allocate contributions to
various investment divisions of our Separate Account, called INVESTMENT
OPTIONS. There are no sales loads, withdrawal charges, or insurance charges
on the contract.
Your contributions to the Investment Options are invested in shares of the
portfolios of the following Insurance Trust Funds (Funds): Janus Aspen Series,
Federated Insurance Series, and BT Insurance Funds Trust. The value of your
contributions to the Investment Options reflects the performance of the Funds.
The prospectuses for the Funds describe the investment objectives, policies and
risks of each of the Funds. YOU CAN VIEW THE CURRENT PROSPECTUS OF EACH FUND
OFFERED AS AN INVESTMENT OPTION BY CLICKING ON THE NAME OF THE FUND BELOW. There
are 17 Investment Options available under Separate Account III:
JANUS ASPEN SERIES
Janus Aspen Growth Portfolio
Janus Aspen Aggressive Growth Portfolio
Janus Aspen Capital Appreciation Portfolio
Janus Aspen International Growth Portfolio
Janus Aspen Worldwide Growth Portfolio
Janus Aspen Balanced Portfolio
Janus Aspen Equity-Income Portfolio
Janus Aspen Growth and Income Portfolio
Janus Aspen Money Market Portfolio
FEDERATED INVESTORS
Federated Fund for Government Securities II
Federated Quality Bond Fund II
Federated High Income Bond Fund II
Federated Strategic Income Fund II
Federated Utility Fund II
BT FUNDS TRUST
Equity 500 Index Fund
Small Cap Index Fund
EAFE-Registered Trademark- Equity Index Fund
<PAGE>
WE CAN'T GUARANTEE THAT THE JANUS ASPEN MONEY MARKET PORTFOLIO WILL MEET ITS
INVESTMENT GOAL OR BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE.
This prospectus contains information about the contracts that you should know
before investing. You should read this prospectus and any supplements, and
retain them for future reference. You should also read the current Fund
prospectuses.
Registration statements relating to the contracts, which include a Statement of
Additional Information (SAI) dated May __, 1999, have been filed with the
Securities and Exchange Commission. The SAI is incorporated by reference into
this prospectus. The SAI, whose Table of Contents appears in Appendix B, may be
viewed by clicking here (SAI) or through the SEC website (http://WWW.SEC.GOV).
THE CONTRACTS ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY ANY
BANK, NOR DOES THE FDIC INSURE THEM. THEY ARE SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
CONTRACTS OR PASSED ON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
The date of this Prospectus is May __, 1999.
TABLE OF CONTENTS
SECTION 1 - SUMMARY
Your Variable Annuity Contract
Your Benefits
How Your Contract is Taxed
Your Contributions
Investment Options
Account Value
Transfers
Charges and Fees
Withdrawals
Your Initial Right to Revoke
Risk/Return Summary: Investments and Risks
Security
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Year 2000
Table of Annual Fees and Expenses
SECTION 2 - INTEGRITY AND THE SEPARATE ACCOUNT
Integrity Life Insurance Company
The Separate Account and the Investment Options
Assets of Our Separate Account
Changes In How We Operate
SECTION 3 - YOUR INVESTMENT OPTIONS
Janus Aspen Series
Investment Objectives of the Funds
Federated Insurance Series
Investment Objectives of the Funds
BT Insurance Funds Trust
Investment Objectives of the Funds
SECTION 4 - DEDUCTIONS AND CHARGES
Separate Account and Insurance Charges
Monthly Administrative Charge
Reduction or Elimination of Monthly Administrative Charge
Fund Charges
State Premium Tax Deduction
No Sales or Withdrawal Charges
Transfer Charge
Tax Reserve
SECTION 5 - TERMS OF YOUR VARIABLE ANNUITY
Contributions Under Your Contract
Your Account Value
Units in Our Separate Account
How We Determine Unit Value
Transfers
Withdrawals and Systematic Withdrawals
Assignments
Death Benefits and Similar Benefit Distributions
Annuity Benefits and the Maturity Date
Annuities
Fixed Annuity Payments
Timing of Payment
SECTION 6 - VOTING RIGHTS
<PAGE>
Fund Voting Rights
How We Determine Your Voting Shares
How Fund Shares Are Voted
Separate Account Voting Rights
SECTION 7 - TAX ASPECTS OF THE CONTRACTS
Introduction
Your Contract is an Annuity
Taxation of Annuities Generally
Distribution-at-Death Rules
Diversification Standards
Tax-Favored Retirement Programs
Federal and State Income Tax Withholding
Impact of Taxes on Integrity
Transfers Among Investment Options
SECTION 8 - PERFORMANCE INFORMATION
Calculation of Performance Data
APPENDIX A - FINANCIAL INFORMATION
APPENDIX B - SAI TABLE OF CONTENTS
<PAGE>
Section 1 - Summary
YOUR VARIABLE ANNUITY CONTRACT
When this prospectus uses the terms "we," "our" and "us," it means Integrity
Life Insurance Company. When it uses the terms "you" and "your" it means the
Owner, who has all of the rights under the contract until annuity benefits
begin. The ANNUITANT is the person upon whose life the annuity benefit and the
death benefit are based. The Annuitant must be the Owner of the contract or the
Owner's spouse, unless your easy@nnuity contract is funded by an existing
annuity contract through a SECTION 1035 EXCHANGE.
If you want to invest for retirement by buying an easy@nnuity contract, complete
the online Customer Profile through the INTERNET SERVICE CENTER (unless your
state requires a manually signed application) and make a minimum initial
contribution. Because the premium is flexible, your future contributions can be
any amount you choose over $100.
Prospectuses and all required reports for the easy@nnuity and the Funds, as
well as all transaction confirmations, periodic account statements, and other
correspondence, will be made available on our website or transmitted
electronically to your easyFile for viewing and printing. You'll be notified
by e-mail whenever updated prospectuses, materials or reports become
available, or when confirmations, notices, statements, reports,
correspondence or other information is placed in your EASYFILE. ALL DOCUMENTS
AND REPORTS RELATING TO YOUR EASY@NNUITY ARE ONLY PROVIDED ELECTRONICALLY.
PAPER VERSIONS OF THESE DOCUMENTS WILL NOT BE SENT. OF COURSE, YOU CAN PRINT
OUT ANY DOCUMENT WE MAKE AVAILABLE OR TRANSMIT TO YOU, AND WE ENCOURAGE YOU
TO DO SO. IF IT BECOMES IMPORTANT TO YOU TO RECEIVE PAPER DOCUMENTS AND
REPORTS DIRECTLY FROM US, YOU SHOULD CONSIDER WHETHER THIS CONTRACT REMAINS
APPROPRIATE FOR YOU, OR WHETHER YOU SHOULD EXCHANGE IT FOR AN ANNUITY
CONTRACT THAT PROVIDES PRINTED MATERIALS. THERE IS NO FEE OR CHARGE TO
EXCHANGE YOUR CONTRACT.
If you have questions about your easy@nnuity, you should first consult the
"Frequently Asked Questions" section of our website, which you may do by
clicking here (FAQS). If we haven't answered your question there, you can e-mail
us at [email protected] and we'll answer as promptly as we can.
YOUR BENEFITS
Your contract has an ACCOUNT VALUE, an annuity benefit and a death benefit.
These benefits are described in more detail below.
Your benefits under the annuity contract may be controlled by the usual tax
rules for annuities, including deferral of taxes on your investment growth until
you actually make a withdrawal. You should read Section 7, "Tax Aspects of the
Contracts" for more information, and possibly consult a tax adviser. The
contract can also provide your benefits under Individual Retirement
Arrangements, which are subject to special eligibility and contribution rules.
HOW YOUR CONTRACT IS TAXED
<PAGE>
Under the current tax laws, any increases in the value of your investment won't
be considered part of your taxable income until you withdraw it. However, most
of the withdrawals you make before you are 59 1/2 years old are subject to a 10%
federal tax penalty on the taxable portion of the amounts withdrawn.
YOUR CONTRIBUTIONS
The minimum initial contribution is $10,000. Contributions after your initial
one can be as little as $100. For more details on contribution requirements, see
Section 5, "Contributions Under Your Contract."
INVESTMENT OPTIONS
You may place your contributions in the Investment Options. Each of the
Investment Options invests in shares of investment portfolios of mutual funds.
Each investment portfolio is referred to as a FUND. The investment goals of each
Investment Option are the same as the Fund in which it's invested. Your value in
an Investment Option will vary with the performance of the corresponding Fund.
To select Investment Options that most closely reflect your investment goals,
see "Your Investment Options" in Section 3.
ACCOUNT VALUE
Your ACCOUNT VALUE consists of the values of your Investment Options added
together.
TRANSFERS
You may transfer all or any part of your Account Value among the Investment
Options, although there are some restrictions that apply. You can find these
under "Transfers" in Section 5. Any transfer must be for at least $250 in total,
and may only be performed online through the Internet Service Center. If you
make more than twelve transfers between your Investment Options in one POLICY
YEAR, your account will be charged $20 for each additional transfer.
CHARGES AND FEES
There are no sales loads, withdrawal charges, separate account or insurance
"mortality and expense" charges deducted from your contract. An administrative
expense charge of $5.50 is deducted monthly from your contract. For more
information about this charge, see Section 4, "Deductions and Charges."
Investment management fees and other expenses are deducted from amounts that
Separate Account III invests in the Funds. The advisory fees of a Fund can't be
increased without the consent of its shareholders. See "Table of Annual Fees and
Expenses" below and the discussions about the fees of various investment
advisers in Section 3.
WITHDRAWALS
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You may make withdrawals of at least $100 as often as you wish. See Section 5,
"Withdrawals."
YOUR INITIAL RIGHT TO REVOKE
You can cancel your contract within ten days after you receive it by
executing a Contract Cancellation transaction through the Internet Service
Center. The ten-day period may be extended as required by law in some states.
Transfers between Investment Options aren't permitted during the ten-day
period (or longer, if required by state law). If you cancel your contract,
we'll return your entire contribution, with adjustments made for any
investment gain or loss experienced by the Investment Options from the date
you purchased it until the date you cancel it, along with any charges
deducted. If your state requires, upon cancellation we'll return your
contribution without any adjustments.
RISK/RETURN SUMMARY: INVESTMENTS AND RISKS
VARIABLE ANNUITY INVESTMENT GOALS
The investment goals of the easy@nnuity are protecting your investment, building
for retirement and providing future income. We strive to achieve these goals
through extensive portfolio diversification and superior portfolio management.
RISKS
An investment in any of the Investment Options carries with it certain risks,
including the risk that the value of your investment will decline and you could
lose money. This could happen if one of the issuers of the stocks becomes
financially impaired or if the stock market as a whole declines. Because most
of the Investment Options are in common stocks, there's also the inherent risk
that holders of common stock generally are behind creditors and holders of
preferred stock for payments in the event of the bankruptcy of a stock issuer.
Some of the Investment Options are non-diversified, which means that they may
invest a large amount of their assets in a very small number of issuers. As a
result, an investment in a non-diversified Investment Option may experience
greater fluctuations in value than an investment in a diversified Investment
Option.
For a complete discussion of the risks associated with an investment in any
particular Investment Option, see the prospectus of the corresponding Fund.
SECURITY
Our web site uses generally accepted and available encryption software and
protocols, including Secure Socket Layer. This is to prevent unauthorized people
from eavesdropping or intercepting information you send or receive from us. This
may require that you use certain readily available versions of web browsers. As
new security software or other technology becomes available, we may enhance our
systems.
<PAGE>
You'll be required to provide your user ID and password to access account
information and perform transactions at the easy@nnuity site. Do not share your
password with anyone else. We'll honor instructions from any person who provides
correct identifying information, and we are not responsible for fraudulent
transfers we believe to be genuine according to these procedures. Accordingly,
you bear the risk of loss if unauthorized persons conduct any transaction on
your behalf. Avoid using passwords that can be guessed, and consider changing
your password frequently. Our employees or representatives will not ask you for
your password.
You'll be notified by e-mail when confirmations, notices, statements, reports,
correspondence or other information is placed in your easyFile. This can help
detect if an unauthorized person has used your account without your knowledge.
It is your responsibility to review your easyFile and to notify us promptly of
any unusual activity.
We only honor instructions from someone logged into our secure website using a
valid user ID and password. We can't guarantee the privacy or reliability of
e-mail, so we won't honor requests for transfers or changes received by e-mail,
nor will we send account information through e-mail. All transfers or changes
should be made through our secure web site.
If you want to ensure that our encryption system is operating properly, go to
the icon that looks like a "locked padlock." This shows that encryption is
working between your browser and our web server. You can click or double-click
on the padlock to get more information about the server. When you click the
"view certificate" button (in Netscape) or the "subject" section (in Internet
Explorer) you should see "ARM Financial Group" listed as the owner of the server
you're connected to. This confirms that you're securely connected to our server.
YEAR 2000
Many computer programs are written so that only the last two digits of the year
are read. Because of this, many computer systems will read the year 2000 as
1900. This could cause many programs to malfunction. We are evaluating, on an
ongoing basis, our computer systems and the systems of other companies on which
we rely, to determine if they'll function properly, and make the transition from
1999 to 2000 smoothly. These activities are designed to ensure that there is no
adverse effect on our business operations. While we've been working very hard to
make sure that this process will be problem-free, we can't guarantee that there
won't be some Year 2000 problems experienced by our systems and we can't make
any representations or guarantees that the outside sources on which we rely will
be ready to make a smooth transition to Year 2000 with their systems.
<PAGE>
TABLE OF ANNUAL FEES AND EXPENSES
CONTRACT OWNER TRANSACTION EXPENSES
Sales Load on Purchases . . . . . . . . . . . . . . . . . . 0%
Deferred Sales Load . . . . . . . . . . . . . . . . . . . . 0%
Surrender Fees. . . . . . . . . . . . . . . . . . . . . . . $0
Transfer Fee (1). . . . . . . . . . . . . . . . . . . . . . $0
SEPARATE ACCOUNT ANNUAL EXPENSES
Mortality and Expense Risk Fees . . . . . . . . . . . . . . $0
Account Fees and Expenses . . . . . . . . . . . . . . . . . $0
Total Separate Account Annual Expenses. . . . . . . . . . . $0
MONTHLY ADMINISTRATIVE CHARGE (2) . . . . . . . . . . . . . . . . $5.50
Fund Annual Expenses After Waivers/Reimbursements
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
FUND FEE EXPENSES EXPENSES
- ---- --- -------- --------
<S> <C> <C> <C>
Janus Aspen Growth . . . . . . . . . 0.65%(3) 0.03%(3) 0.68%(3)
Janus Aspen Aggressive Growth. . . . 0.72% 0.03% 0.75%
Janus Aspen Capital Appreciation . . 0.70%(3) 0.22%(3) 0.92%(3)
Janus Aspen International Growth . . 0.66%(3) 0.20%(3) 0.86%(3)
Janus Aspen Worldwide Growth . . . . 0.65%(3) 0.07%(3) 0.72%(3)
Janus Aspen Balanced . . . . . . . . 0.72% 0.02% 0.74%
Janus Aspen Equity Income. . . . . . 0.14%(3) 1.11%(3) 1.25%(3)
Janus Aspen Growth and Income. . . . 0.00%(3) 1.25%(3) 1.25%(3)
Janus Aspen Money Market . . . . . . 0.25% 0.09% 0.34%
Federated Fund for U.S.
Government Securities II . . . . . . 0.52%(4) 0.33%(4)(5) 0.85%(4)
Federated Quality Bond Fund II . . . 0.60%(4) 0.10%(4)(5) 0.70%(4)
Federated High Income Bond Fund II . 0.60% 0.18%(5) 0.78%
Federated Strategic Income Fund II . 0.85%(4) 0.00%(4)(5) 0.85%(4)
Federated Utility Fund II. . . . . . 0.68%(4) 0.25%(4)(5) 0.93%(4)
BT Equity 500 Index. . . . . . . . . 0.20% 0.10% 0.30%(6)
BT Small Cap Index . . . . . . . . . 0.35% 0.10% 0.45%(6)
BT EAFE-Registered Trademark- Index. 0.45% 0.20% 0.65%(6)
</TABLE>
- --------------------------------------------------------------------------------
(1) After the first twelve transfers during a policy year, we impose a transfer
charge of $20 per transfer. See "Deductions and Charges - Transfer Charge" in
Section 4.
(2) See "Deductions and Charges - Monthly Administrative Charge" in Section 4.
(3) The fees and expenses in the table above are based on gross expenses after
expense offset arrangements for the fiscal year ended December 31, 1998. Fee
reductions for the Janus Aspen Growth, Aggressive Growth, Capital Appreciation,
International Growth, Worldwide Growth, Balanced, Equity Income and Growth and
Income Portfolios reduce the management fee to the level of the corresponding
Janus retail fund. Other waivers, if applicable, are first applied against the
Management Fee and then against Other Expenses. Without waivers or reductions,
the Management Fee, Other Expenses, and Total Annual Expenses would have been
.72%, .03%, and .75% for Growth Portfolio, .75%, .22% and .97% for Capital
Appreciation Portfolio, .75%, .20% and .95% for International Growth Portfolio,
67%, .07%, and .74% for Worldwide Growth Portfolio, .75%, 1.11% and 1.86% for
<PAGE>
Equity Income Portfolio, and .75%, 2.31% and 3.06% for the Growth and Income
Portfolio. Janus has agreed to continue the waivers and fee reductions until at
least the next annual renewal of the advisory agreement.
(4) The Management Fee has been reduced to reflect the voluntary waiver of a
portion of the Management Fee. Without the voluntary waiver, the Management Fee,
Other Expenses, and Total Annual Expenses would have been .60%, .33%, and .93%
for Fund for U.S. Government Securities II, and .75%, .25% and 1.00% for Utility
Fund II. The fees and expenses for the Quality Bond Fund II and the Strategic
Income Fund II are based on the estimated net expenses after waiver that the
Funds expect to incur in their initial fiscal year. Without the voluntary
waiver, the Management Fee, Other Expenses, and Total Annual Expenses are
estimated to be .60%, .47%, and 1.07% for the Quality Bond Fund II, and to be
.85%, .54%, and 1.39% for the Strategic Income Fund II. Federated Advisers can
terminate the voluntary waivers at any time.
(5) The Federated Funds may charge a shareholder services fee of up to .25%
and a distribution (12b-1) fee of up to 25%. The Funds did not pay or accrue
a shareholder services fee or a distribution (12b-1) fee for the year ended
December 31, 1998, and have no present intention of paying or accruing a
shareholder services fee or a distribution (12b-1) fee for the year ending
December 31, 1999.
(6) Bankers Trust has voluntarily agreed to waive or reimburse expenses so that
the Total Annual Expenses won't exceed the following percentages of the Funds'
average daily net assets: .30% for Equity 500 Index, .45% for Small Cap Index,
and .65% for EAFE Equity Index. Absent waivers/reimbursements, the Total Annual
Expenses would have been 1.19% for Equity 500 Index, 1.58% for Small Cap Index,
and 1.66% for EAFE Equity Index. Bankers Trust can terminate the voluntary
waivers/reimbursements at any time.
EXAMPLE
The example below shows the expenses charged to the Annuitant per $1,000
investment, assuming a $50,000 average contract value and a 5% annual rate of
return on assets.
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PER $1,000 INVESTMENT WHETHER OR NOT YOU SURRENDER OR
ANNUITIZE YOUR CONTRACT AT THE END OF THE SPECIFIED PERIOD:
<S> <C> <C> <C> <C>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Janus Aspen Growth . . . . . . . . . . . . . $ 8.29 $25.74 $44.46 $ 97.50
Janus Aspen Aggressive Growth. . . . . . . . $ 9.01 $27.97 $48.29 $105.86
Janus Aspen Capital Appreciation . . . . . . $10.75 $33.36 $57.56 $125.92
Janus Aspen International Growth . . . . . . $10.13 $31.46 $54.30 $118.88
Janus Aspen Worldwide Growth . . . . . . . . $ 8.70 $27.02 $46.65 $102.28
Janus Aspen Balanced . . . . . . . . . . . .$ 8.90 $27.65 $47.75 $104.67
Janus Aspen Equity Income. . . . . . . . . . $14.13 $43.77 $75.36 $163.91
Janus Aspen Growth and Income. . . . . . . .$14.13 $43.77 $75.36 $163.91
Janus Aspen Money Market . . . . . . . . . . $ 4.80 $14.89 $25.66 $ 56.06
Federated Fund for Government Securities II. $10.03 $31.14 $53.75 $117.70
Federated Quality Bond Fund II . . . . . . . $ 8.49 $26.38 $45.56 $ 99.89
Federated High Income Bond Fund II . . . . . $ 9.31 $28.92 $49.93 $109.42
Federated Strategic Income Fund II . . . . . $10.03 $31.14 $53.75 $117.70
Federated Utility Fund II. . . . . . . . . . $10.85 $33.68 $58.11 $127.09
BT Equity 500 Index. . . . . . . . . . . . . $ 4.39 $13.61 $23.44 $ 51.09
BT Small Cap Index . . . . . . . . . . . . . $ 5.93 $18.41 $31.77 $ 69.62
BT EAFE7 Equity Index. . . . . . . . . . . . $ 7.98 $24.79 $42.81 $ 93.90
</TABLE>
This example assumes the current charges that are borne by the Separate Account,
and the investment management fees and other expenses of the Funds as they were
for their most recent fiscal years or estimated expenses (after reimbursement),
if applicable. ACTUAL FUND EXPENSES MAY BE GREATER OR LESS THAN THOSE ON WHICH
THESE EXAMPLES WERE BASED. The annual rate of return assumed in the examples
isn't an estimate or guarantee of future investment
<PAGE>
performance. The table also assumes an estimated $50,000 average contract value,
so that the administrative charge per $1,000 of net asset value in the Separate
Account is $1.32 annually. The per $1,000 charge would be higher for smaller
Account Values and lower for higher values.
The above table and examples are shown only to increase your understanding of
the various costs and expenses that apply to your contract, directly or
indirectly. These tables show expenses of the Separate Accounts as well as those
of the Funds. Premium taxes at the time of payout also may be applicable.
CONDENSED FINANCIAL INFORMATION FOR THE SEPARATE ACCOUNT IS PROVIDED IN APPENDIX
A.
SECTION 2 - INTEGRITY AND THE SEPARATE ACCOUNT
INTEGRITY LIFE INSURANCE COMPANY
Integrity is a stock life insurance company organized under the laws of Ohio.
Our principal executive offices are located in Louisville, Kentucky. We are
authorized to sell life insurance and annuities in 47 states and the District of
Columbia. We sell flexible premium variable annuities with underlying investment
options, fixed single premium annuity contracts, and flexible premium annuity
contracts offering both traditional fixed guaranteed interest rates and fixed
equity indexed options. In addition to issuing annuity products, we provide
administrative and investment support for products designed, underwritten and
sold by other insurance companies.
Integrity is an indirect wholly owned subsidiary of ARM Financial Group, Inc.
(ARM), which specializes in providing retail and institutional customers with
products and services designed for long-term savings and retirement planning.
ARM is a publicly traded company listed on the New York Stock Exchange under the
symbol "ARM." At December 31, 1998, ARM had $9.9 billion of assets under
management.
THE SEPARATE ACCOUNT AND THE INVESTMENT OPTIONS
The Separate Account was established in 1994 and is maintained under the
insurance laws of the State of Ohio. Separate Account III is a unit investment
trust, which is a type of investment company, registered with the Securities and
Exchange Commission (SEC). SEC registration doesn't mean that the SEC is
involved in any way in supervising the management or investment policies of
Separate Account III. Each of Separate Account III's Investment Options invests
in shares of a corresponding Fund. We may establish additional Investment
Options from time to time. The Investment Options currently available are listed
in Section 3, "Your Investment Options."
ASSETS OF OUR SEPARATE ACCOUNT
Under Ohio law, we own the assets of our Separate Account and use them to
support the variable portion of yours and other variable annuity contracts.
Annuitants under other variable annuity contracts participate in the Separate
Account in proportion to the amounts in their contracts. We can't use the
Separate Account's assets supporting the variable portion of these contracts to
<PAGE>
satisfy liabilities arising out of any of our other businesses. Under certain
unlikely circumstances, one Investment Option may be liable for claims relating
to the operation of another Option.
Income, gains and losses, whether realized or unrealized, from assets allocated
to the Separate Account are credited to or charged against the Separate Account
without regard to our other income, gains or losses. We may allow charges owed
to us to stay in the Separate Account, and thus can participate proportionately
in the Separate Account. Amounts in the Separate Account greater than reserves
and other liabilities belong to us, and we may transfer them to our general
account.
CHANGES IN HOW WE OPERATE
We may change how we or our Separate Accounts operate, subject to your approval
when required by the Investment Company Act of 1940 or other applicable law or
regulation. We'll notify you if any changes result in a material change in the
underlying investments of a Investment Option. WE MAY:
- - add Investment Options to, or remove Investment Options from, our Separate
Account, combine two or more Investment Options within our Separate
Accounts, or withdraw assets relating to your contract from one Investment
Option and put them into another;
- - register or end the registration of the Separate Accounts under the 1940
Act;
- - operate our Separate Accounts under the direction of a committee or
discharge a committee at any time (the committee may be composed of a
majority of persons who are "interested persons" of Integrity under the
1940 Act);
- - restrict or eliminate any voting rights of Owners or others who have voting
rights that affect our Separate Accounts;
- - cause one or more Investment Options to invest in a mutual fund other than
or in addition to the Funds;
- - operate our Separate Accounts or one or more of the Investment Options in
any other form the law allows, including a form that allows us to make
direct investments. We may make any legal investments we wish. In choosing
these investments, we'll rely on our own or outside counsel for advice.
SECTION 3 - YOUR INVESTMENT OPTIONS
You place your contributions in the Investment Options. Each of the Investment
Options invests in shares of investment portfolios of mutual funds. Each
investment portfolio is referred to as a FUND. The investment goals of each
Investment Option are the same as the Fund in which it's invested. For example,
if your investment goal is to save money for retirement, you might choose a
GROWTH oriented Investment Option, which invests in a GROWTH Fund. Your value in
an Investment Option will vary with the performance of the corresponding Fund.
For a full description of each Fund, see that Fund's prospectus and Statement of
Additional Information. YOU CAN VIEW THE CURRENT PROSPECTUS OF EACH FUND OFFERED
AS AN INVESTMENT OPTION BY CLICKING ON THE NAME OF THE FUND BELOW.
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JANUS ASPEN SERIES
Janus Aspen Series is a mutual fund registered under the 1940 Act. Registration
under the Act doesn't mean that the SEC supervises the investments or investment
policies of the Janus Aspen Series. Janus Capital Corporation serves as the
investment adviser to each Fund. Janus, whose principal address is 100 Fillmore
Street, Denver, Colorado 80206, has served as investment adviser to Janus Fund
since its inception in 1970. Janus currently serves as investment adviser to all
of the Janus retail funds and Aspen Series funds, as well as adviser or
sub-adviser to other mutual funds and individual, corporate, charitable and
retirement accounts. As of December 31, 1998 Janus managed over $100 billion in
assets.
INVESTMENT OBJECTIVES OF THE FUNDS. Below is a summary of the investment goals
of the FUNDs of the Janus Aspen Series. There are no guarantees that these
objectives will be met. YOU SHOULD READ THE JANUS ASPEN SERIES' PROSPECTUSES
CAREFULLY BEFORE INVESTING.
JANUS ASPEN GROWTH PORTFOLIO
Janus Aspen Growth Portfolio seeks long-term growth of capital in a manner
consistent with the preservation of capital. It is a diversified portfolio that
pursues its objective by investing primarily in common stocks of issuers of any
size. The Fund generally invests in larger, more established issuers.
JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO
Janus Aspen Aggressive Growth Portfolio seeks long-term growth of capital by
investing primarily in common stocks. It is a non-diversified portfolio that
pursues its objective by normally investing at least 50% of its equity assets in
securities issued by medium-sized companies. Medium-sized companies are those
whose market capitalizations fall within the range of companies in the S&P
MidCap 400 Index. Companies whose capitalization falls outside this range after
the Fund's initial purchase continue to be considered medium-sized companies for
the purpose of this policy. Subject to the above policy, the Fund may also
invest in smaller or larger issuers.
JANUS ASPEN CAPITAL APPRECIATION PORTFOLIO
Janus Aspen Capital Appreciation Portfolio seeks long-term growth of capital. It
is a non-diversified portfolio that pursues its objective by investing primarily
in common stocks of issuers of any size, which may include larger
well-established issuers and/or smaller emerging growth companies.
JANUS ASPEN INTERNATIONAL GROWTH PORTFOLIO
Janus Aspen International Growth Portfolio seeks long term growth of capital.
It is a diversified portfolio that pursues its objective primarily through
investments in common stocks of issuers located outside the United States.
The Fund has the flexibility to invest on a worldwide basis in companies and
other organizations of any size, regardless of country of organization or
place of
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principal business activity. The Fund normally invests at least 65% of its
total assets in securities of issuers from at least five different countries,
excluding the United States. Although the Fund intends to invest
substantially all of its assets in issuers located outside the United States,
it may at times invest in U.S. issuers, and it may at times invest all of its
assets in fewer than five countries or even a single country.
JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO
Janus Aspen Worldwide Growth Portfolio seeks long-term growth of capital in a
manner consistent with preservation of capital. It is a diversified portfolio
that pursues its objective primarily through investments in common stocks of
foreign and domestic issuers. The Fund has the flexibility to invest on a
worldwide basis in companies and other organizations of any size, regardless
of country of organization or place of principal business activity. Janus
Aspen Worldwide Growth Portfolio normally invests in issuers from at least
five different countries, including the United States. The Fund may at times
invest in fewer than five countries or even a single country.
JANUS ASPEN BALANCED PORTFOLIO
Janus Aspen Balanced Portfolio seeks long-term capital growth, consistent with
preservation of capital and balanced by current income. It is a diversified
portfolio that, under normal circumstances, pursues its objective by investing
40-60% of its assets in securities selected primarily for their growth potential
and 40-60% of its assets in securities selected primarily for their income
potential. The Fund normally invests at least 25% of its assets in fixed-income
senior securities, which include debt securities and preferred stocks.
JANUS ASPEN EQUITY INCOME PORTFOLIO
Janus Aspen Equity Income Portfolio seeks current income and long-term growth of
capital. It is a diversified portfolio that pursues its objective by normally
investing at least 65% of its invested assets in income-producing equity
securities. Equity securities include common stocks, preferred stocks, and
securities convertible into common or preferred stocks. Growth potential is a
significant investment consideration and the Fund may hold securities selected
solely for their growth potential.
JANUS ASPEN GROWTH AND INCOME PORTFOLIO
Janus Aspen Growth and Income Portfolio seeks long term capital growth and
current income. It is a diversified portfolio that, under normal circumstances,
pursues its objective by investing up to 75% of its assets in equity securities
selected primarily for their growth potential and at least 25% of its assets in
securities that the portfolio manager believes have income potential. The Fund
normally emphasizes the growth component. However, in unusual circumstances,
the Fund may reduce the growth component of its portfolio to 25% of its assets.
JANUS ASPEN MONEY MARKET PORTFOLIO
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Janus Aspen Money Market Portfolio seeks to provide maximum current income to
the extent consistent with stability of capital. There is no assurance that the
Fund will achieve its investment objective or be able to maintain a stable net
asset value of $1.00 per share. An investment in this fund is neither insured
nor guaranteed by the U.S. government.
FEDERATED INSURANCE SERIES
Federated Insurance Series is registered under the 1940 Act. Each of the
Funds is a diversified mutual fund. Registration under the Act doesn't mean
that the SEC supervises the investments or investment policies of the
Federated Insurance Series. Federated Investment Management Company
(formerly, Federated Advisors) serves as the investment adviser to each Fund.
Federated, whose principal address is Federated Investors Tower, 1001 Liberty
Avenue, Pittsburgh, Pennsylvania 15222, was founded in 1955 and is one of the
ten largest mutual fund managers in the United States. As of December 31,
1998, Federated managed or administered more than $140 billion in assets.
INVESTMENT OBJECTIVES OF THE FUNDS. Below is a summary of the investment
objectives of the FUNDs of the Federated Insurance Series. There are no
guarantees that these objectives will be met. YOU SHOULD READ THE PROSPECTUS FOR
THE FEDERATED INSURANCE SERIES CAREFULLY BEFORE INVESTING.
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II
Federated Fund for U.S. Government Securities II seeks to provide current
income. It is a diversified portfolio that pursues its objective by investing at
least 65% of the value of its total assets in securities issued or guaranteed as
to payment of principal and interest by the U.S. government, its agencies, or
instrumentalities. For purposes of this 65% limitation, the Fund will consider
collateralized mortgage obligations issued by U.S. government agencies or
instrumentalities to be U.S. government securities.
FEDERATED QUALITY BOND FUND II
Federated Quality Bond Fund II seeks current income. It is a diversified
portfolio that pursues its objective by investing through diversified holdings
across domestic high yield corporate debt obligations, U.S. Government
securities, and international bonds.
FEDERATED HIGH INCOME BOND FUND II
Federated High Income Bond Fund II seeks high current income. It pursues its
objective by investing primarily in a professionally managed, diversified
portfolio of fixed income securities. The fixed income securities in which the
Fund intends to invest are lower-rated corporate debt obligations, which are
commonly referred to as "junk bonds." Some of these fixed income securities may
involve equity features. Capital growth will be considered, but only when
consistent with the investment objective of high current income.
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FEDERATED STRATEGIC INCOME FUND II
Federated Strategic Income Fund II seeks high current income. It pursues its
objective by allocating the portfolio among three categories of fixed income
securities: domestic investment grade (including U.S. government, mortgage
backed and corporate), domestic non-investment grade corporate (also known as
"junk bonds"), and foreign. Based upon historical returns, the Fund's investment
adviser expects the three categories of investments to have different returns
and risks under similar market conditions. The adviser relies on the differences
in the expected performance of each category to manage risks by allocating the
Fund's portfolio among the three categories. The adviser also seeks to enhance
the Fund's performance by allocating more of its portfolio to the category that
the adviser expects to offer the best balance between risk and return. While the
Fund's portfolio usually includes securities from all three categories, the Fund
limits the amount it may invest in a single category to 50% of assets.
FEDERATED UTILITY FUND II
Federated Utility Fund II seeks to achieve high current income and moderate
capital appreciation. It pursues its objective by investing primarily in a
professionally managed, diversified portfolio of equity and debt securities of
utility companies.
BT INSURANCE FUNDS TRUST
The BT Insurance Funds Trust is an open-end management investment company
registered under the 1940 Act. Registration under the Act doesn't mean that the
SEC supervises the investments or investment policies of the BT Insurance Funds
Trust. Each of the BT Funds is a separate portfolio of the BT Insurance Funds
Trust, a mutual fund. Bankers Trust Global Asset Management Services, a unit of
Bankers Trust, is the investment adviser to the BT Funds Trust. Bankers Trust, a
New York banking corporation with executive offices at 130 Liberty Street (One
Bankers Trust Plaza), New York, New York 10006, is a wholly owned subsidiary of
Bankers Trust New York Corporation. As of December 31, 1998, Bankers Trust New
York Corporation was the eighth largest bank holding company in the United
States with total assets of approximately $156 billion.
INVESTMENT OBJECTIVES OF THE FUNDS. Following is a summary of the investment
objectives of the BT Funds Trust. We can't guarantee that these objectives will
be met. YOU SHOULD READ THE BT FUNDS TRUST PROSPECTUSES CAREFULLY BEFORE
INVESTING.
EQUITY 500 INDEX FUND
The Equity 500 Index Fund seeks to replicate as closely as possible (before
expenses are deducted) the total return of the Standard & Poor's 500 Composite
Stock Price Index (the S&P 500), an index emphasizing large-capitalization
stocks. The Fund will include the common stock of those companies included in
the S&P 500, other than Bankers Trust New York Corporation, selected on the
basis of computer-generated statistical data that are deemed representative of
the industry diversification of the entire S&P 500.
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SMALL CAP INDEX FUND
The Small Cap Index Fund seeks to replicate as closely as possible (before
expenses are deducted) the total return of the Russell 2000 Small Stock Index
(the RUSSELL 2000), an index consisting of 2,000 small-capitalization common
stocks. The Fund will include the common stock of companies included in the
Russell 2000, on the basis of computer-generated statistical data, that are
deemed representative of the industry diversification of the entire Russell
2000. The stocks of the Russell 2000 included in the Fund will be selected using
a statistical sampling technique known as "optimization." This process selects
stocks for the Fund so that various industry weightings, market capitalizations
and fundamental characteristics (for example, price-to-book, price-to-earnings
and debt-to-asset ratios and dividend yields) closely approximate those of the
Russell 2000. The stocks held by the Fund are weighted to make the Fund's
aggregate investment characteristics similar to those of the Russell 2000 as a
whole.
EAFE-REGISTERED TRADEMARK- EQUITY INDEX FUND
The EAFE-Registered Trademark- Equity Index Fund seeks to replicate as closely
as possible (before expenses are deducted) the total return of the Morgan
Stanley Capital International Europe, Australia, Far East (EAFE) Index, a
capitalization-weighted index containing approximately 1,100 equity securities
of companies located outside the United States. The Fund invests primarily in
stocks of businesses organized and domiciled outside of the United States or for
which the principal trading market is outside the United States. Statistical
methods will be used to replicate the EAFE-Registered Trademark- Index by buying
most of the EAFE-Registered Trademark- Index securities. Securities purchased
for the Fund will generally, but not necessarily, be traded on a foreign
securities exchange.
SECTION 4 -- DEDUCTIONS AND CHARGES
SEPARATE ACCOUNT AND INSURANCE CHARGES
There are no separate account or insurance "mortality and expense" risk charges
deducted from your contract.
MONTHLY ADMINISTRATIVE CHARGE
The only charge Integrity makes is a monthly administrative charge of $5.50.
This charge is deducted pro rata from your Account Value in each Investment
Option. The charge is deducted from the Investment Options and reduces your
number of units.
REDUCTION OR ELIMINATION OF MONTHLY ADMINISTRATIVE CHARGE
We can reduce or eliminate the administrative charge for individuals or groups
of individuals if we anticipate expense savings. We may do this based on the
size and type of the group, the amount of the contribution, or whether there is
some relationship with Integrity. Examples of these relationships would include
being an employee of Integrity or an affiliate, receiving distributions or
making internal transfers from other contracts we issued, or transferring
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amounts held under qualified plans we or our affiliates sponsored. We won't
unlawfully discriminate against any person or group if we reduce or eliminate
this charge.
FUND CHARGES
Separate Account III buys shares of the Funds at net asset value. That price
reflects investment management fees and other expenses already deducted from the
assets of the Funds. The amount charged for investment management can't be
increased without the prior approval of a Fund's shareholders. See Section 1,
"Table of Annual Fees and Expenses."
STATE PREMIUM TAX DEDUCTION
Integrity won't deduct state premium taxes from your contributions before
investing them in the Investment Options, unless required to by your state law.
If the Annuitant elects an annuity benefit, we'll deduct any applicable state
premium taxes from the amount available for the annuity benefit. State premium
taxes currently range up to 4%, if applicable.
NO SALES OR WITHDRAWAL CHARGES
We don't deduct sales charges when you make a contribution to the contract, nor
do we deduct surrender or withdrawal charges when you withdraw contributions.
However, if you aren't 59-1/2, federal tax penalties may apply to the taxable
portion of amounts withdrawn or distributed.
TRANSFER CHARGE
If you make more than twelve transfers among your Investment Options during one
policy year, we will charge your account $20 for each additional transfer during
that year. For purposes of this policy, a transfer occurs when you move money
between two or more Investment Options. Transfers among several Investment
Options that are all effective at the end of the same Business Day are only
counted as one transfer.
TAX RESERVE
We can make a charge in the future for taxes or for reserves set aside for
taxes, which will reduce the investment experience of the Investment Options.
SECTION 5 -- TERMS OF YOUR VARIABLE ANNUITY
CONTRIBUTIONS UNDER YOUR CONTRACT
You can make contributions of at least $100 at any time up to the Annuitant's
Maturity Date. Your first contribution, however, can't be less than $10,000. We
limit the total contributions under one contract to $1,000,000, although you may
send us an e-mail for consideration of larger amounts. Contributions may also be
limited by various laws or prohibited by Integrity for all annuitants under the
contract.
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Contributions are applied to the various Investment Options you select and are
used to pay annuity and death benefits. Each contribution is credited as of the
date we have RECEIVED (as defined below) both the contribution and instructions
for allocation among the Investment Options. Wire transfers of federal funds are
deemed received on the day of transmittal if credited to our account by 3 p.m.
Eastern Time, otherwise they are deemed received on the next Business Day.
Contributions by check or mail are deemed received when they are delivered to
our lockbox. A BUSINESS DAY is defined as any day that the New York Stock
Exchange is open.
You can change your choice of Investment Options at any time through the
Internet Service Center. See "Transfers" in Section 5.
We also offer a program for SYSTEMATIC CONTRIBUTIONS that allows you to
pre-authorize monthly, quarterly or semi-annual withdrawals from your checking
account to make your contributions. You can enroll in the program, revise your
participation in the program or change your bank account that makes systematic
contributions through the Internet Service Center. You or we may end your
participation in the program with 30 days' notice. We may end your participation
if your bank declines to make any payment. The minimum amount for systematic
contributions is $100 monthly, $300 quarterly, or $600 semi-annually.
YOUR ACCOUNT VALUE
Your Account Value reflects an administrative charge that is deducted monthly.
See Section 4, "Deductions and Charges." Any amount allocated to an Investment
Option will go up or down in value depending on the investment experience of
that Option. The value of contributions allocated to the Investment Options
isn't guaranteed.
UNITS IN OUR SEPARATE ACCOUNT
Allocations to the Investment Options are used to purchase units. On any given
day, the value you have in an Investment Option is the unit value multiplied by
the number of units credited to you in that Option. The units of each Investment
Option have different unit values.
The number of units purchased or redeemed (sold) in any Investment Option is
calculated by dividing the dollar amount of the transaction by the Option's unit
value, calculated as of the close of business that day. The number of units for
an Investment Option at any time is the number of units purchased less the
number of units redeemed. The value of units of Separate Account III fluctuates
with the investment performance of the corresponding Funds, which in turn
reflects the investment income and realized and unrealized capital gains and
losses of the Funds, as well as the Funds' expenses.
The number of units credited to you won't vary due to changes in unit values.
Units of an Investment Option are purchased when you allocate new contributions
or transfer prior contributions to that Option. Units are redeemed when you make
withdrawals or transfer amounts from an Investment Option. We also redeem units
to pay the death benefit when the Annuitant dies and to pay the monthly
administrative charge.
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HOW WE DETERMINE UNIT VALUE
We determine unit values for each Investment Option at 4 p.m. Eastern Time on
each Business Day. A BUSINESS DAY is defined as any day that the New York Stock
Exchange is open.
The unit value of each Investment Option in Separate Account III for any
Business Day is equal to the unit value for the previous Business Day,
multiplied by the NET INVESTMENT FACTOR for that Investment Option on the
current day. We determine a NET INVESTMENT FACTOR as follows:
- - First, we take the value of the Fund shares held in the Investment Option
at the close of business that day (before giving effect to any transactions
for that day, such as contributions or withdrawals). For this purpose, we
use the share value reported to us by the Funds.
- - Next, we add any dividends or capital gains distributions by the Fund on
that day.
- - Then, we charge or credit for any taxes or amounts set aside as a reserve
for taxes.
- - Then, we divide this amount by the value of the amounts in the Investment
Option at the close of business on the last day that a unit value was
determined (after giving effect to any transactions on that day).
Generally, this means that we adjust unit values to reflect what happens to the
Funds, and also for any taxes that may be imposed.
TRANSFERS
You may transfer your Account Value among the Investment Options at any time
through the Internet Service Center. The amount transferred must be at least
$250 in total. After you've made twelve transfers during a policy year, you'll
be charged $20 for each additional transfer during that policy year. Transfers
among several Investment Options that are all effective at the end of the same
Business Day are only counted as one transfer. Once annuity payments begin,
transfers aren't permitted.
All transfers must be performed through the Internet Service Center. Your
Personal Identification Number (PIN CODE) is required to effect a transfer.
We'll honor transfer instructions from any person who provides correct
identifying information and we aren't responsible for fraudulent transfers we
believe to be genuine according to these procedures. Accordingly, you bear the
risk of loss if unauthorized persons make transfers on your behalf.
A transfer request is effective as of the Business Day it's received by us
through the Internet Service Center. You'll receive the Investment Options' unit
values as of the close of business on the day you execute the transfer if it's
received by us by 4:00 p.m. Eastern Time. Accordingly, transfer requests for
Investment Options received after 4:00 p.m. Eastern Time (or the close of the
New York Stock Exchange, if earlier) will be processed using unit values as of
the close of business on the next Business Day. Please take into account
transmittal time, as heavy traffic on
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the internet may delay our receipt of your transfer request. All transfers will
be confirmed to your easyFile. A transfer request doesn't change the allocation
of current or future contributions among the Investment Options.
WITHDRAWALS AND SYSTEMATIC WITHDRAWALS
All withdrawals must be made via electronic funds transfer (EFT) to your bank
account. You may make withdrawals as often as you wish. Each withdrawal must be
at least $100. The money will be withdrawn pro rata from your Investment Options
based on your Account Value. For example, if your assets are divided in equal
25% shares among four Investment Options, when you make a withdrawal, 25% of the
money withdrawn will come from each of your Investment Options. You can instruct
us to withdraw your money in different proportions if you wish.
We also offer a program for SYSTEMATIC WITHDRAWALS that allows you to
pre-authorize periodic withdrawals via EFT from your contract to your bank
account prior to your Maturity Date. You can choose to have withdrawals made
monthly, quarterly, semi-annually or annually and can specify the day of the
month (other than the 29th, 30th or 31st) on which the withdrawal is made. You
may specify a dollar amount or a percentage for each withdrawal. The minimum
systematic withdrawal currently is $100. You can enroll in our systematic
withdrawal program through the Internet Service Center. Withdrawals may begin
one business day after you notify us. You may terminate your participation in
the program upon three days' notice prior to your next scheduled systematic
withdrawal. We may end or change the systematic withdrawal program at any time.
If on any withdrawal date you don't have enough money in your accounts to make
all of the withdrawals you have specified, no withdrawal will be made and your
enrollment in the program will be ended.
The total amount that you receive will be the total that you requested. You
can change your bank account that receives withdrawals or systematic
withdrawals through the Internet Service Center. Most of the withdrawals or
distributions you make before you are 59 1/2 years old are subject to a 10%
federal tax penalty on the taxable portion of the amounts withdrawn or
distributed. If your contract is part of a tax-favored retirement plan, the
plan may limit your withdrawals. See "Tax Aspects of the Contracts" in
Section 7.
ASSIGNMENTS
We can't assume any responsibility for the validity or effect of any assignment.
DEATH BENEFITS AND SIMILAR BENEFIT DISTRIBUTIONS
We'll pay a death benefit to the Annuitant=s surviving beneficiary (or
beneficiaries, in equal shares) if the last Annuitant dies before annuity
payments have started. If the Annuitant dies before age 60 and before annuity
payments have started, the death benefit is the higher of:
a) the contract Account Value at the end of the business day when we receive
proof of death, or
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b) the total of all contributions, each reduced on a pro rata basis for prior
withdrawals. We'll determine the amount of the reduction by dividing the
amount of the withdrawal by the contract Account Value on the transaction
date and multiplying this percentage by the total of all contributions on
the transaction date less prior pro rata reductions for withdrawals.
Death benefits can be paid in a lump sum or as an annuity. If a benefit option
hasn't been selected for the beneficiary at the Annuitant's death, the
beneficiary can select an option.
You have all the rights under the contract until annuity payments begin. If
there are Joint Owners, they share the contract rights. The death of the first
Joint Owner will determine the timing of the distribution unless the surviving
spouse elects to continue the contract as Owner and Annuitant.
You select the beneficiary or beneficiaries of the death benefit. The death
benefit, which is shared equally by surviving beneficiaries, is paid upon the
Annuitant's death. You may change beneficiaries by executing the appropriate
transaction through the Internet Service Center. If no beneficiaries survive the
Annuitant, then the death benefit is generally paid to the Annuitant's estate. A
death benefit won't be paid after the Annuitant's death if there is an
additional Annuitant. In that case, the additional Annuitant becomes the new
Annuitant under the contract.
ANNUITY BENEFITS AND THE MATURITY DATE
All annuity benefits under your contract are calculated as of the MATURITY DATE.
The Maturity Date is the date you elect annuity benefits to begin. The Maturity
Date can't be later than the Annuitant's 98th birthday, or earlier if required
by law. Contract terms applicable to various retirement programs, along with
federal tax laws, establish certain minimum and maximum retirement ages.
Annuity benefits may be a lump sum payment or paid out over a period of time. A
lump sum payment will provide you with the Account Value under the contract,
shortly after the Maturity Date. The amount applied toward the election of a
periodic annuity (discussed below) is the Account Value.
ANNUITIES
Annuity benefits can provide for fixed payments, which may be made monthly,
quarterly, semi-annually or annually. You can't change or redeem the annuity
once payments have begun. For any annuity, the minimum initial payment must be
at least $100 monthly, $300 quarterly, $600 semi-annually, or $1,200 annually.
If you haven't yet elected a lump sum payment or an annuity benefit, we'll
deliver to your easyFile a notice within six months prior to the Annuitant's
98th birthday outlining your options. If you fail to notify us of your benefit
payment election prior to the Annuitant's 98th birthday, you'll receive a lump
sum benefit.
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We currently offer the following types of annuities:
A LIFE AND TEN YEARS CERTAIN ANNUITY is a fixed life income annuity with 10
years of payments guaranteed, funded through our General Account.
A PERIOD CERTAIN ANNUITY provides for fixed payments for a guaranteed number of
years. The amount is determined by the period selected. If the payee dies before
the end of the period selected, the payee's beneficiary can choose to receive
the total present value of future payments in cash.
A PERIOD CERTAIN LIFE ANNUITY provides for fixed payments for at least the
period selected and after that for the life of the payee, or for the lives of
the payee and another annuitant under a joint and survivor annuity. If the payee
(or the payee and the other annuitant under a joint and survivor annuity) dies
before the period selected ends, the remaining payments will go to the payee's
beneficiary. The payee's beneficiary can redeem the annuity and receive the
present value of future guaranteed payments in a lump sum.
A LIFE INCOME ANNUITY provides fixed payments to the payee for the life of the
Annuitant, or until the last annuitant dies under a joint and survivor annuity.
FIXED ANNUITY PAYMENTS
Fixed annuity payments won't change and are based upon annuity rates provided in
your contract. The size of payments will depend on the form of annuity that was
chosen and, in the case of a life income annuity, on the payee's age (or payee
and a joint annuitant in the case of a joint and survivor annuity) and sex
(except under most tax-favored retirement programs). If our current annuity
rates would provide a larger payment, those current rates will apply instead of
the rates provided in your contract.
If the age or sex of an annuitant has been misstated, any benefits will be those
which would have been purchased at the correct age and sex. Any overpayments or
underpayments made by us will be charged or credited with interest at the rate
of 6% per year. If we have made overpayments because of incorrect information
about age or sex, we'll deduct the overpayment from the next payment or payments
due. We add underpayments to the next payment.
TIMING OF PAYMENT
We normally make payments from the Investment Options, or apply your Account
Value to the purchase of an annuity within seven days after receipt of your
annuitization instructions through the Internet Service Center. Our action can
be delayed, however, for any period during which
(1) the New York Stock Exchange has been closed or trading on it is restricted;
(2) an emergency exists so that disposal of securities isn't reasonably
practicable or it isn't reasonably practicable for a Separate Account
fairly to determine the value of its net assets; or
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(3) the SEC, by order, permits us to delay action to protect persons with
interests in the Separate Account.
SECTION 6 - VOTING RIGHTS
FUND VOTING RIGHTS
We are the legal owner of the shares of the Funds held by Separate Account III
and, therefore, have the right to vote on certain matters. Among other things,
we may vote to elect a Fund's Board of Directors, to ratify the selection of
independent auditors for a Fund, and on any other matters described in a Fund's
current prospectus or requiring a vote by shareholders under the 1940 Act.
Whenever a shareholder vote is taken, we give you the opportunity to tell us how
to vote the number of shares we purchase as a result of contributions to your
contract. We'll send Fund proxy materials to your easyFile and advise you how
you can give us voting instructions.
If we don't receive instructions in time from all Owners, we'll vote shares in a
Fund for which we have not received instructions in the same proportion as we
vote shares for which we have received instructions. We'll vote any Fund shares
that we're entitled to vote directly, because of amounts we have accumulated in
Separate Account III, in the same proportion that other Owners vote. If the
federal securities laws or regulations or interpretations of them change so that
we're permitted to vote shares of a Fund on our behalf or to restrict Owner
voting, we may do so.
HOW WE DETERMINE YOUR VOTING SHARES
You vote only on matters concerning the Funds in which your contributions are
invested. We determine the number of Fund shares in each Investment Option under
your contract by dividing your Account Value allocated to that Option by the net
asset value of one share of the corresponding Fund on the record date set by a
Fund's Board for its shareholders' meeting. For this purpose, the record date
can't be more than 60 days before the meeting of a Fund. We count fractional
shares. After annuity payments have commenced, voting rights are calculated in a
similar manner based on the actuarially determined value of your interest in
each Investment Option.
HOW FUND SHARES ARE VOTED
All Fund shares are entitled to one vote; fractional shares have fractional
votes. Voting is on a Fund-by-Fund basis, except for certain matters (for
example, election of Directors) that require collective approval. On matters
where the interests of the individual Funds differ, the approval of the
shareholders in one Fund isn't needed to make a decision in another Fund. To the
extent shares of a Fund are sold to separate accounts of other insurance
companies, the shares voted by those companies according to instructions
received from their contract holders will dilute the effect of voting
instructions received by Integrity from its Owners.
<PAGE>
SEPARATE ACCOUNT VOTING RIGHTS
Under the 1940 Act, certain actions (such as some of those described under
"Changes in How We Operate" in Section 2) may require Owner approval. In that
case, you'll be entitled to a number of votes based on the value you have in the
Investment Options, as described above under "How We Determine Your Voting
Shares." We'll cast votes attributable to amounts we have in the Investment
Options in the same proportions as votes cast by Owners.
SECTION 7 - TAX ASPECTS OF THE CONTRACTS
INTRODUCTION
The effect of federal income taxes on the amounts held under a contract, on
annuity payments, and on the economic benefits to the Owner, Annuitant, and the
beneficiary or other payee may depend on several factors. These can include
Integrity's tax status, on the type of retirement plan, if any, for which the
contract is purchased, and on the tax and employment status of the individuals
concerned.
The following discussion of the federal income tax treatment of the contract
isn't designed to cover all situations and isn't intended to be tax advice. It's
based upon our understanding of the federal income tax laws as currently
interpreted by the Internal Revenue Service (IRS) and various courts. We can't
guarantee that the tax code or the courts will or won't change their views on
the treatment of these contracts. Future legislation could affect annuity
contracts adversely. Moreover, we haven't attempted to consider any applicable
state or other tax laws. Because of the complexity of tax laws and the fact that
tax results will vary according to particular circumstances, anyone considering
the purchase of a contract, selecting annuity payments under the contract, or
receiving annuity payments under a contract should consult a qualified tax
adviser. INTEGRITY DOESN'T MAKE ANY GUARANTEE REGARDING THE TAX STATUS, FEDERAL,
STATE, OR LOCAL, OF ANY CONTRACT OR ANY TRANSACTION INVOLVING THE CONTRACTS.
YOUR CONTRACT IS AN ANNUITY
Under federal tax law, anyone can purchase an annuity with after-tax dollars and
your annuity earnings won't be taxed until you make a withdrawal. Or, an
individual may purchase the annuity to fund a tax-favored retirement program
(contributions are with pre-tax dollars), such as an IRA.
This prospectus covers the basic tax rules that apply to an annuity purchased
directly with after-tax dollars (a nonqualified annuity), and some of the
special tax rules that apply to an annuity purchased to fund a tax-favored
retirement program, (a qualified annuity). A qualified annuity may restrict your
rights and benefits to qualify for its special treatment under federal tax law.
TAXATION OF ANNUITIES GENERALLY
<PAGE>
Section 72 of the Code governs the taxation of annuities. In general, money you
pay for the annuity (your "basis" or "investment" in the contract) won't be
taxed when you receive the amounts back in a distribution. Also, you aren't
taxed on the annuity's earnings (increases in Account Value) until some form of
withdrawal or distribution is made under the contract. However, under certain
circumstances, the increase in value may be subject to current federal income
tax. If an Owner transfers an annuity as a gift to someone other than a spouse
(or former spouse), all increases in the Account Value are taxed at the time of
transfer. The assignment or pledge of any portion of the value of a contract is
treated as a taxable distribution of that portion of the value of the contract.
You can take withdrawals from the contract or you can wait to annuitize it when
the Annuitant reaches a certain age. The tax implications are different for each
type of distribution. Section 72 of the Code says that the proceeds of a full or
partial withdrawal from a contract before annuity payments begin are treated
first as taxable income, but only to the extent of the increase of the Account
Value. The rest of the withdrawal, representing your basis in the annuity, isn't
taxable. Generally, the investment or basis in the contract equals the
contributions made by you or on your behalf, minus any amounts previously
withdrawn that weren't treated as taxable income. Special rules may apply if the
contract includes contributions made prior to August 14, 1982 that were rolled
over to the contract in a tax-free exchange.
If you take annuity payments, part of each payment is considered to be a
tax-free return of your investment. This non-taxable portion of each payment is
figured using a ratio of your investment to your expected return under the
contract (exclusion ratio). Once you get the tax-free part, the rest of each
payment will be considered the increase of your Account Value, and is ordinary
income. When all of these tax-free portions add up to your investment in the
annuity, future payments are all counted as an increase in your Account Value,
and are taxable income. If the Annuitant dies before recovering the total
investment, a deduction for the remaining basis will generally be allowed on the
Owner's final federal income tax return.
We may be required to withhold federal income taxes on all distributions unless
the eligible recipients elect not to have any amounts withheld and properly
notify Integrity of that election.
The taxable portion of a distribution is taxed at ordinary income tax rates. In
addition, you may be subject to a 10% penalty on the taxable portion of a
withdrawal or distribution unless it is:
- - on or after the date on which the taxpayer attains age 591/2;
- - as a result of the Owner's death;
- - part of a series of "substantially equal periodic payments" (paid at least
annually) for the life (or life expectancy) of the taxpayer or joint lives
(or joint life expectancies) of the taxpayer and beneficiary;
- - a result of the taxpayer becoming disabled within the meaning of Code
Section 72(m)(7);
- - from certain qualified plans (note, however, other penalties may apply);
- - under a qualified funding asset (as defined in Section 130(d) of the Code);
- - under an immediate annuity as defined in Code Section 72(u)(4); or
<PAGE>
- - for the purchase of a first home (distribution up to $10,000, applicable to
IRAs only).
Any withdrawal provisions of your contract will also apply. See "Withdrawals" in
Section 5.
All annuity contracts issued to the same Owner by Integrity or its affiliates
based on the same Annuitant or Annuitants during any policy year are treated as
a single contract in measuring the taxable income that results from surrenders
and withdrawals under any one of the contracts.
DISTRIBUTION-AT-DEATH RULES
Under Section 72(s) of the Code, in order to be treated as an annuity, a
contract must provide the following distribution rules: (a) if any Owner dies on
or after the date the annuity starts and before the entire interest in the
contract has been distributed, then the rest of that annuity must be distributed
at least as quickly as the method in effect when the Owner died; and (b) if any
Owner dies before the date the annuity starts, the entire contract must be
distributed within five years after the Owner's death. However, any interest
that is payable to a death beneficiary may be annuitized over the life of that
beneficiary, as long as distributions begin within one year after the Owner
dies. If the death beneficiary is the Owner's spouse, the contract (along with
the deferred tax status) may be continued in the spouse's name as the Owner.
DIVERSIFICATION STANDARDS
Integrity manages the investments in the annuities under Section 817(h) of the
Code to ensure that you will be taxed as described above.
TAX-FAVORED RETIREMENT PROGRAMS
An owner can use this annuity with certain types of retirement plans that
receive favorable treatment under the Code. Numerous tax rules apply to the
participants in these qualified plans and to the contracts used in connection
with those qualified plans. These tax rules vary according to the type of plan
and the terms and conditions of the plan itself. Owners, Annuitants, and
beneficiaries are cautioned that the rights of any person to any benefits under
qualified plans may be subject to the terms and conditions of the plans
themselves, regardless of the terms and conditions of the contract. In addition,
loans from qualified contracts, where allowed, are subject to a variety of
limitations, including restrictions on the amount that may be borrowed, the
duration of the loan, and repayment of the loan. (Owners should always consult
their tax advisors and retirement plan fiduciaries before taking any loans from
the plan.) Also, special rules apply to the time at which distributions must
begin and the form in which the distributions must be paid. THE STATEMENT OF
ADDITIONAL INFORMATION CONTAINS GENERAL INFORMATION ABOUT THE USE OF CONTRACTS
WITH THE VARIOUS TYPES OF QUALIFIED PLANS.
FEDERAL AND STATE INCOME TAX WITHHOLDING
Certain states have indicated that pension and annuity withholding will apply to
payments made to residents. Generally, an election out of federal withholding
will also be considered an election out of state withholding.
<PAGE>
IMPACT OF TAXES ON INTEGRITY
The contracts allow Integrity to charge the Separate Account for taxes.
Integrity can also set up reserves for taxes.
TRANSFERS AMONG INVESTMENT OPTIONS
There won't be any tax liability if you transfer any part of the Account Value
among the Investment Options of your contract.
SECTION 8 - PERFORMANCE INFORMATION
CALCULATION OF PERFORMANCE DATA
Performance data for the Investment Options, including the yield and effective
yield and total return of the Investment Options, may appear in advertisements
or sales literature. This performance data is based only on the performance of a
hypothetical investment in that Investment Option during the particular period
of time on which the calculations are based. Performance information should be
considered in light of investment objectives and policies of the Fund in which
the Investment Option invests and the market conditions during the given time
frame, and it shouldn't be considered a representation of performance to be
achieved in the future.
TOTAL RETURNS are based on the overall dollar or percentage change in value of a
hypothetical investment in an Investment Option. Total return information
reflects changes in Fund share price, the automatic reinvestment of all
distributions and the deduction of contract charges and expenses that may apply.
CUMULATIVE TOTAL RETURNS show an Investment Option's performance over a specific
period of time, usually several years. An AVERAGE ANNUAL TOTAL RETURN shows the
hypothetical yearly return that would produce the same cumulative total return
if the Investment Option experienced exactly the same return each year for the
entire period shown. Because performance will fluctuate on a year-by-year basis,
the average annual total returns tend to show a smooth result that won't mirror
actual performance, even though the end result will be the same.
Some Investment Options may also advertise YIELD, which shows the income
generated by an investment in that particular Option over a specified period of
time. This income is annualized and shown as a percentage. Yields don't take
into account capital gains or losses.
The Janus Aspen Money Market Option may advertise its CURRENT and EFFECTIVE
YIELD. Current yield reflects the income generated by an investment in that
Option over a specified seven-day period. Effective yield is calculated in a
similar manner, except that it assumes that the income earned is reinvested, and
the income on the reinvested amount is included. Investment Options may also
advertise a 30-day yield, which reflects the income generated by an investment
in an Option over a specified 30-day period.
<PAGE>
For a detailed description of the methods used to determine the yield and total
return for the Investment Options, see the Statement of Additional Information.
APPENDIX A
FINANCIAL INFORMATION FOR THE SEPARATE ACCOUNT
No condensed financial information is provided for any of the Investment Options
because as of the date of this Prospectus the Options hadn't started operations.
The unit value for each Investment Option at inception will be $10.00. The
inception date for the Janus Aspen Growth, Janus Aspen Aggressive Growth, Janus
Aspen Capital Appreciation, Janus Aspen International Growth, Janus Aspen
Worldwide Growth, Janus Aspen Balanced, Janus Aspen Equity Income, Janus Aspen
Growth and Income, Janus Aspen Money Market, Federated Fund for U.S. Government
Securities II, Federated Quality Bond Fund II, Federated High Income Bond Fund
II, Federated Strategic Income Fund II, Federated Utility Fund II, BT Equity 500
Index, BT Small Cap Index, and BT EAFE7 Equity Index is May __, 1999.
APPENDIX B
SAI TABLE OF CONTENTS
Part 1 - Integrity and Custodian
Part 2 - Distribution of the Contracts
Part 3 - Performance Information
Part 4 - Determination of Accumulation Unit Values
Part 5 - Tax Favored Retirement Programs
Part 6 - Financial Statements
The Statement of Additional Information may be viewed by clicking here (SAI).
<PAGE>
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND
MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL THESE
SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. THE STATEMENT OF ADDITIONAL
INFORMATION IS NOT A PROSPECTUS.
SUBJECT TO COMPLETION, MARCH 23, 1999
STATEMENT OF ADDITIONAL INFORMATION
EASY@NNUITY
FLEXIBLE PREMIUM VARIABLE ANNUITY
ISSUED BY
INTEGRITY LIFE INSURANCE COMPANY
AND FUNDED THROUGH ITS
SEPARATE ACCOUNT III
TABLE OF CONTENTS
Part 1 - Integrity and Custodian
Part 2 - Distribution of the Contracts
Part 3 - Performance Information
Part 4 - Determination of Accumulation Unit Values
Part 5 - Tax-Favored Retirement Programs
Part 6 - Financial Statements
This Statement of Additional Information (SAI), dated May __, 1999, is not a
prospectus. It should be read in conjunction with the prospectus for the
contract, dated May __, 1999. For definitions of special terms used in the SAI,
please refer to the prospectus.
The prospectus to which this SAI relates is available through our website or by
clicking here: (PROSPECTUS)
PART 1 - INTEGRITY AND CUSTODIAN
Integrity Life Insurance Company is an Ohio stock life insurance company
organized in 1966 that sells life insurance and annuities. Its principal
executive offices are located at 515 West Market Street, Louisville, Kentucky,
40202. Integrity, the depositor of Separate Account III, is a wholly owned
subsidiary of Integrity Holdings, Inc., a Delaware corporation that's a holding
company engaged in no active business. Integrity owns 100% of the stock of
National Integrity Life Insurance Company, a New York stock life insurance
corporation. All outstanding shares of Integrity Holdings, Inc. are owned by ARM
Financial Group, Inc. (ARM), a Delaware corporation that's a financial services
company focusing on the long-term savings and retirement marketplace by
providing retail and institutional products and services throughout the United
States. ARM owns 100% of the stock of (i) ARM Securities Corporation (ARM
SECURITIES), a Minnesota corporation, registered with the SEC as a broker-dealer
and a member of the National Association of Securities Dealers, Inc., (ii)
Integrity Capital Advisors, Inc., a Delaware corporation registered with the SEC
as an investment adviser, (iii) SBM Certificate Company, a Minnesota corporation
registered with the SEC as an issuer of face-amount certificates, and (iv) ARM
Transfer Agency, Inc., a Delaware corporation registered with the SEC as a
transfer and dividend disbursing agency.
ARM is 100% publicly owned, trading on the New York Stock Exchange (NYSE). No
one has the direct or indirect power to control ARM, except power he or she may
have by virtue of his or her capacity as a director or executive officer of ARM;
no individual beneficially owns more than 5% of the common shares. ARM provides
substantially all of the services required to be performed on behalf of Separate
Account III.
Integrity is the custodian for the shares of Portfolios owned by Separate
Account III. The shares are held in book-entry form. Reports and marketing
materials, from time to time, may include information concerning the rating of
Integrity, as determined by A.M. Best Company, Moody's Investors Service, Inc.,
Standard & Poor's Corporation, Duff & Phelps Corporation, or other recognized
rating services. Integrity is currently rated "A" (Excellent) by A.M. Best
Company, and has received claims paying ability ratings of "A" (Good) from
Standard & Poor's Corporation, "Baa1" from Moody's Investors Service, Inc., and
"A+" (High) from Duff and Phelps Credit Rating Company. However, Integrity
<PAGE>
doesn't guarantee the investment performance of the portfolios, and these
ratings don't reflect protection against investment risk.
Integrity is taxed as a life insurance company under Part I of Subchapter L of
the Internal Revenue Code of 1986, as amended (the CODE). Since Separate Account
III isn't a separate entity from Integrity and its operations form a part of
Integrity, it isn't taxed separately as a "regulated investment company" under
Subchapter M of the Code. Investment income and realized capital gains on the
assets of Separate Account III are reinvested and taken into account in
determining the accumulation value. Under existing federal income tax law,
Separate Account III's investment income, including realized net capital gains,
isn't taxed to Integrity. Integrity can make a tax deduction if federal tax laws
change to include these items in our taxable income.
Under prior management, Integrity was subject to a consent order in the State of
Florida that precluded it from writing new business in Florida from May, 1992 to
November, 1994. The consent order was entered into on May 6, 1992 as a result of
noncompliance with certain investment restrictions under Florida law. Due to the
substantial asset restructuring and capital infusions involved with Integrity's
acquisition by ARM in November, 1993, Integrity was able to comply with the
investment limitations of the State of Florida. A request for full relief from
the consent order was granted by the Florida Department of Insurance on November
4, 1994.
PART 2 - DISTRIBUTION OF THE CONTRACTS
ARM Securities, a wholly owned subsidiary of ARM, is the principal underwriter
of the contracts. ARM Securities is registered with the SEC as a broker-dealer
and is a member in good standing of the National Association of Securities
Dealers, Inc. ARM Securities' address is 515 West Market Street, Louisville,
Kentucky 40202. The contracts are offered through ARM Securities on a continuous
basis.
We don't pay a distribution allowance in connection with the contracts, and
distribution allowances aren't retained by ARM Securities. Integrity may from
time to time provide or allow transaction-based fees or other promotional
incentives, in the form of cash or other compensation, to broker-dealers that
distribute contracts.
PART 3 - PERFORMANCE INFORMATION
Each Investment Option may from time to time include the Average Annual Total
Return, the Cumulative Total Return, and Yield of its units in advertisements or
in other information furnished to shareholders. The Janus Aspen Money Market
Option may also from time to time include the Yield and Effective Yield of its
units in information furnished to shareholders. Performance information is
computed separately for each Option in accordance with the formulas described
below. At any time in the future, total return and yields may be higher or lower
than in the past and there is no guarantee that any historical results will
continue.
TOTAL RETURNS
Total returns reflect all aspects of an Option's return, including the automatic
reinvestment by the Option of all distributions and the deduction of the monthly
administrative charge. Total returns may also be shown that don't take into
account deduction of the monthly administrative charge.
Nonstandardized "total return" will be calculated in a similar manner and for
the same time periods as the average annual total return and for three years
except total return will assume an initial investment of $50,000. We use an
assumed initial investment of $50,000 because that figure more closely
approximates the size of a typical contract than does the $1,000 figure used in
calculating the standardized average annual total return quotations. The amount
of the hypothetical initial investment assumed affects performance because the
annual administrative charge is a fixed per contract charge. For purposes of
determining these investment results, the actual investment performance of each
fund is reflected as of the date each fund commenced operations, although the
Contracts weren't available at that time.
An AVERAGE ANNUAL TOTAL RETURN shows the hypothetical yearly return that would
produce the same cumulative total return if the Investment Option experienced
exactly the same return each year for the entire period shown. Because the
performance will fluctuate on a year-by-year basis, the average annual total
returns tend to show a smooth result that
<PAGE>
won't mirror the actual performance, even though the end result will be the
same. Investors should realize that the Option's performance isn't constant
over time, but changes from year to year, and that the average annual returns
represent the averages of historical figures as opposed to the actual
historical performance of an Option during any portion of the period
illustrated. Average annual returns are calculated pursuant to the following
formula: P(1+T)(n) = ERV, where P is a hypothetical initial payment of
$1,000, T is the average annual total return, n is the number of years, and
ERV is the withdrawal value at the end of the period.
CUMULATIVE TOTAL RETURNS are UNAVERAGED and reflect the simple percentage change
in the value of a hypothetical investment in the Option over a stated period of
time. In addition to the period since inception, cumulative total returns may be
calculated on a year-to-date basis at the end of each calendar month in the
current calendar year. The last day of the period for year-to-date returns is
the last day of the most recent calendar month at the time of publication.
YIELDS
Some Options may advertise yields. Yields quoted in advertising reflect the
change in value of a hypothetical investment in the Option over a stated period
of time, not taking into account capital gains or losses. Yields are annualized
and stated as a percentage.
CURRENT YIELD and EFFECTIVE YIELD are calculated for the Janus Money Market
Option. Current Yield is based on the change in the value of a hypothetical
investment (exclusive of capital changes) over a particular 7-day period, less a
hypothetical charge reflecting deductions from contract values during the period
(the BASE PERIOD), and stated as a percentage of the investment at the start of
the base period (the BASE PERIOD RETURN). The base period return is then
annualized by multiplying by 365/7, with the resulting yield figure carried to
at least the nearest hundredth of one percent. Effective yield assumes that all
dividends received during an annual period have been reinvested. This
compounding effect causes effective yield to be higher than current yield.
Calculation of effective yield begins with the same base period return used in
the calculation of current yield, which is then annualized to reflect weekly
compounding pursuant to the following formula:
Effective Yield = {(Base Period Return) + 1)(365/7)} - 1
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SEC STANDARDIZED AVERAGE ANNUAL RETURN
FOR THE PERIOD ENDED 12/31/98(1)
All figures are unaudited.
ACCOUNT
INCEPTION LIFE OF
VARIABLE OPTIONS DATE(2) 1 YEAR 5 YEAR 10 YEAR ACCOUNT
<S> <C> <C> <C> <C> <C>
Janus Aspen Growth 5/_/99 n/a n/a n/a x.xx%
Janus Aspen Aggressive Growth 5/_/99 n/a n/a n/a x.xx
Janus Aspen Capital Appreciation 5/_/99 n/a n/a n/a x.xx
Janus Aspen Worldwide Growth 5/_/99 n/a n/a n/a x.xx
Janus Aspen International Growth 5/_/99 n/a n/a n/a x.xx
Janus Aspen Balanced 5/_/99 n/a n/a n/a x.xx
Janus Aspen Equity-Income 5/_/99 n/a n/a n/a x.xx
Janus Aspen Growth and Income 5/_/99 n/a n/a n/a x.xx
Federated Fund for Government 5/_/99 n/a n/a n/a x.xx
Securities II
Federated Quality Bond II 5/_/99 n/a n/a n/a x.xx
Federated High Income Bond II 5/_/99 n/a n/a n/a x.xx
Federated Strategic Income II 5/_/99 n/a n/a n/a x.xx
Federated Utility II 5/_/99 n/a n/a n/a x.xx
BT Equity 500 Index 5/_/99 n/a n/a n/a x.xx
BT Small Cap Index 5/_/99 n/a n/a n/a x.xx
BT EAFE Equity Index 5/_/99 n/a n/a n/a x.xx
</TABLE>
<PAGE>
(1) Standard average annual return reflects past fund performance based on a
$1,000 hypothetical investment over the period indicated. The performance
figures reflect the monthly administrative charge of $5.50, but exclude
deductions for applicable premium tax charges.
(2) Inception date of the Investment Option represents first trade date.
Returns for accounts in operation for less than one year aren't annualized.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
NON-STANDARD RETURNS FOR THE PERIOD ENDED 12/31/98
All figures are unaudited.
AVERAGE ANNUAL RETURN
FUND YEAR-TO-DATE -------------------------------------------
VARIABLE OPTIONS INCEPTION DATE(1) RETURN(2) 1 YEAR 3 YEAR 5 YEAR LIFE OF FUND
<S> <C> <C> <C> <C> <C> <C>
Janus Aspen Growth 9/13/93
Janus Aspen Aggressive Growth 9/13/93
Janus Aspen Capital Appreciation 5/1/97 n/a n/a
Janus Aspen Worldwide Growth 9/13/93
Janus Aspen International Growth 5/2/94 n/a
Janus Aspen Balanced 9/13/93 n/a n/a
Janus Aspen Equity-Income 5/1/97
Janus Aspen Growth and Income 5/1/98 n/a n/a n/a
Federated Fund for Govt. Securities II 3/28/94 n/a
Federated Quality Bond II 5/_/99 n/a n/a n/a n/a
Federated High Income Bond II 3/1/94 n/a
Federated Strategic Income II 5/_/99 n/a n/a n/a n/a
Federated Utility II 2/10/94 n/a
BT Equity 500 Index 12/31/92
BT Small Cap Index 8/13/96 n/a n/a
BT EAFE Equity Index 6/21/96 n/a n/a
<CAPTION>
CUMULATIVE TOTAL RETURN
FUND ---------------------------------------
VARIABLE OPTIONS INCEPTION DATE(1) 3 YEAR 5 YEAR LIFE OF FUND
<S> <C> <C> <C> <C>
Janus Aspen Growth 9/13/93
Janus Aspen Aggressive Growth 9/13/93
Janus Aspen Capital Appreciation 5/1/97 n/a n/a
Janus Aspen Worldwide Growth 9/13/93
Janus Aspen International Growth 5/2/94 n/a
Janus Aspen Balanced 9/13/93 n/a n/a
Janus Aspen Equity-Income 5/1/97 n/a n/a
Janus Aspen Growth and Income 5/1/98 n/a
Federated Fund for Govt. Securities II 3/28/94
Federated Quality Bond II 5/_/99 n/a n/a n/a
Federated High Income Bond II 3/1/94
Federated Strategic Income II 5/_/99 n/a n/a n/a
Federated Utility II 2/10/94 n/a
BT Equity 500 Index 12/31/92
BT Small Cap Index 8/13/96 n/a n/a
BT EAFE Equity Index 6/21/96 n/a n/a
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CALENDAR YEAR RETURN(2)
FUND -----------------------------------------------------------
VARIABLE OPTIONS INCEPTION DATE(1) 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
Janus Aspen Growth 9/13/93
Janus Aspen Aggressive Growth 9/13/93
Janus Aspen Capital Appreciation 5/1/97 n/a n/a n/a
Janus Aspen Worldwide Growth 9/13/93
Janus Aspen International Growth 5/2/94
Janus Aspen Balanced 9/13/93
Janus Aspen Equity-Income 5/1/97 n/a n/a n/a
Janus Aspen Growth and Income 5/1/98 n/a n/a n/a n/a
Federated Fund for Govt. Securities II 3/28/94
Federated Quality Bond II 5/_/99 n/a n/a n/a n/a n/a
Federated High Income Bond II 3/1/94
Federated Strategic Income II 5/_/99 n/a n/a n/a n/a n/a
Federated Utility II 2/10/94
BT Equity 500 Index 12/31/92
BT Small Cap Index 8/13/96 n/a n/a
BT EAFE Equity Index 6/21/96 n/a n/a
</TABLE>
(1) Represents the inception date of the underlying Funds. Performance data for
periods prior to the actual inception of the Investment Options is
hypothetical and based on the performance of the underlying Funds. This
performance data has been adjusted to include the monthly administrative
charge of $5.50.
(2) For the Period ended _________.
(3) Italicized returns are calculated from the inception date through year-end.
PERFORMANCE COMPARISONS
Performance information for an Option may be compared, in reports and
advertising, to: (1) Standard & Poor's Stock Index (S&P 500), Dow Jones
Industrial Averages, (DJIA), Donoghue Money Market Institutional Averages, or
other unmanaged indices generally regarded as representative of the securities
markets; (2) other variable annuity separate accounts or other investment
products tracked by Lipper Analytical Services, Inc. (LIPPER) or the Variable
Annuity Research and Data Service, which are widely used independent research
firms that rank mutual funds and other investment companies by overall
performance, investment objectives, and assets; and (3) the Consumer Price Index
(measure of inflation) to assess the real rate of return from an investment in a
contract. Unmanaged indices may assume the reinvestment of dividends but
generally don't reflect deductions for annuity charges, investment management
costs, brokerage costs and other transaction costs that are normally paid when
directly investing in securities.
Each Option may, from time to time, also include the ranking of its performance
figures relative to such figures for groups of mutual funds categorized by
Lipper as having the same or similar investment objectives or by similar
services that monitor the performance of mutual funds. Each Option may also from
time to time compare its performance to average mutual fund performance figures
compiled by Lipper in LIPPER PERFORMANCE ANALYSIS. Advertisements or information
furnished to present shareholders or prospective investors may also include
evaluations of an Option published by nationally recognized ranking services and
by financial publications that are nationally recognized such as BARRON'S,
BUSINESS WEEK, CDA TECHNOLOGIES, INC., CHANGING TIMES, CONSUMER'S DIGEST, DOW
JONES INDUSTRIAL AVERAGE, FINANCIAL PLANNING, FINANCIAL TIMES, FINANCIAL WORLD,
FORBES, FORTUNE, GLOBAL INVESTOR, HULBERT'S FINANCIAL DIGEST, INSTITUTIONAL
INVESTOR, INVESTORS DAILY, MONEY, MORNINGSTAR MUTUAL FUNDS, THE NEW YORK TIMES,
PERSONAL INVESTOR, STANGE'S INVESTMENT ADVISER, VALUE LINE, THE WALL STREET
JOURNAL, WIESENBERGER INVESTMENT COMPANY SERVICE AND USA TODAY.
<PAGE>
The performance figures described above may also be used to compare the
performance of an Option's units against certain widely recognized standards or
indices for stock and bond market performance. Following are representative
indices against which the Options may compare performance:
The Standard & Poor's Composite Index of 500 Stocks (the S&P 500) is a market
value-weighted and unmanaged index showing the changes in the total market value
of 500 stocks compared to the base period 1941-43. The S&P 500 Index is composed
almost entirely of common stocks of companies listed on the NYSE, although the
common stocks of a few companies listed on the American Stock Exchange or traded
OTC are included. The S&P 500 Index represents about 80% of the market value of
all issues traded on the NYSE.
The Dow Jones Composite Average (or its component averages) is an unmanaged
index composed of 30 blue-chip industrial corporation stocks (Dow Jones
Industrial Average), 15 utilities company stocks and 20 transportation stocks.
Comparisons of performance assume reinvestment of dividends.
The New York Stock Exchange composite or component indices are unmanaged indices
of all industrial, utilities, transportation and finance company stocks listed
on the New York Stock Exchange.
The Wilshire 5000 Equity Index (or its component indices) represents the return
of the market value of all common equity securities for which daily pricing is
available. Comparisons of performance assume reinvestment of dividends.
The Morgan Stanley Capital International EAFE Index is an arithmetic, market
value-weighted average of the performance of over 900 securities on the stock
exchanges of countries in Europe, Australia and the Far East.
The Lehman Brothers Government Bond Index (the LEHMAN GOVERNMENT INDEX) is a
measure of the market value of all public obligations of the U.S. Treasury; all
publicly issued debt of all agencies of the U.S. Government and all
quasi-federal corporations; and all corporate debt guaranteed by the U.S.
Government. Mortgage-backed securities, flower bonds and foreign targeted issues
aren't included in the Lehman Government Index.
The Lehman Brothers Government/Corporate Bond Index (the LEHMAN
GOVERNMENT/CORPORATE INDEX) is a measure of the market value of approximately
5,300 bonds with a face value currently in excess of $1 million, which have at
least one year to maturity and are rated "Baa" or higher (INVESTMENT GRADE) by a
nationally recognized statistical rating agency.
The Lehman Brothers Government/Corporate Intermediate Bond Index (the LEHMAN
GOVERNMENT/CORPORATE INTERMEDIATE INDEX) is composed of all bonds covered by the
Lehman Brothers Government/Corporate Bond Index with maturities between one and
9.99 years. Total return comprises price appreciation/depreciation and income as
a percentage of the original investment. Indexes are rebalanced monthly by
market capitalization.
The Value Line (Geometric) Index is an unweighted index of the approximately
1,700 stocks followed by the VALUE LINE INVESTMENT SURVEY.
The Salomon Brothers GNMA Index includes pools of mortgages originated by
private lenders and guaranteed by the mortgage pools of the Government National
Mortgage Association.
The Salomon Brothers Broad Investment-Grade Bond Index contains approximately
3,800 Treasury and agency, corporate and mortgage bonds with a rating of BBB or
higher, a stated maturity of at least one year, and a par value outstanding of
$25 million or more. The index is weighted according to the market value of all
bond issues included in the index.
The Salomon Brothers High Grade Corporate Bond Index consists of publicly
issued, non-convertible corporate bonds rated AA or AAA. It is a value-weighted,
total return index, including approximately 800 issues with maturities of 12
years or grater.
The Salomon Brothers World Bond Index measures the total return performance of
high-quality securities in major sectors of the international bond market. The
index covers approximately 600 bonds from 10 currencies: Australian dollars,
Canadian dollars, European Currency Units, French francs, Japanese yen,
Netherlands guilder, Swiss francs, UK pounds sterling, U.S. dollars, and German
deutsche marks.
<PAGE>
The J.P. Morgan Global Government Bond Index is a total return, market
capitalization weighted index, rebalanced monthly consisting of the following
countries: Australia, Belgium, Canada, Denmark, France, Germany, Italy, Japan,
Netherlands, Spain, Sweden, United Kingdom and United States.
The Russell 2000/Small Stock Index comprises the smallest 2000 stocks in the
Russell 3000 Index, and represents approximately 11% of the total U.S. equity
market capitalization. The Russell 3000 Index comprises the 3,000 largest U.S.
companies by market capitalization. The smallest company has a market value of
roughly $20 million.
The Consumer Price Index (or Cost of Living Index), published by the United
States Bureau of Labor Statistics is a statistical measure of change, over time,
in the price of goods and services in major expenditure groups.
Historical data supplied by the research departments of various broker dealers,
analysts or pricing services, including but not limited to CS First Boston
Corporation, the J.P. Morgan companies, Salomon Brothers, Merrill Lynch, and
Bloomberg L.P.
In reports or other communications to shareholders, the Funds may also describe
general economic and market conditions affecting the Portfolios and may compare
the performance of the Portfolios with (1) that of mutual funds included in the
rankings prepared by Lipper or similar investment services that monitor the
performance of insurance company separate accounts or mutual funds, (2)
IBC/Donoghue's Money Fund Report, (3) other appropriate indices of investment
securities and averages for peer universe of funds, or (4) data developed by
Integrity or any of the Funds' investment advisers derived from such indices or
averages.
For those Investment Options which haven't been investment divisions within the
Separate Account for one of the quoted periods, the standardized average annual
total return and nonstandardized total return quotations will show the
investment performance those Options would have achieved (reduced by the
applicable charges) if they had been investment divisions within the Separate
Account for the period quoted.
COMPUTER GENERATED ILLUSTRATIONS
Integrity may, from time to time, use computer-based software available through
Morningstar, CDA/Wiesenberger and/or other firms to provide potential owners of
the contracts with hypothetical performance illustrations for some or all of the
Investment Options. These illustrations may include, without limitation, graphs,
bar charts and other types of formats presenting the following information: (i)
the historical results of a hypothetical investment in a single Option; (ii) the
historical fluctuation of the value of a single Option (actual and
hypothetical); (iii) the historical results of a hypothetical investment in more
than one Option; (iv) the historical performance of two or more market indices
in relation to one another and/or one or more Options; (v) the historical
performance of two or more market indices in comparison to a single Option or a
group of Options; (vi) a market risk/reward scatter chart showing the historical
risk/reward relationship of one or more mutual funds or Options to one or more
indices and a broad category of similar anonymous variable annuity subaccounts;
and (vii) Option data sheets showing various information about one or more
Options (such as information concerning total return for various periods, fees
and expenses, standard deviation, alpha and beta, investment objective,
inception date and net assets). We can republish figures independently provided
by Morningstar or any similar agency or service.
PART 4 - DETERMINATION OF ACCUMULATION UNIT VALUES
The accumulation unit value of an Option will be determined on each day the New
York Stock Exchange is open for trading. The accumulation units are valued as of
the close of business on the New York Stock Exchange, which currently is 4:00
p.m., Eastern time. Each Option's accumulation unit value is calculated
separately. For all Options other than the Janus Money Market Option, the
accumulation unit value is computed by dividing the value of the securities held
by the Option plus any cash or other assets, less its liabilities, by the number
of outstanding units. For the Janus Money Market Option, accumulation unit value
is computed by dividing the value of the investments and other assets minus
liabilities by the number of units outstanding. Securities are valued using the
amortized cost method of valuation, which approximates market value. Under this
method of valuation, the difference between the acquisition cost and value at
maturity is amortized by assuming a constant (straight-line) accretion of a
discount or amortization of a premium to maturity. Cash, receivables and current
payables are generally carried at their face value.
<PAGE>
PART 5 - TAX-FAVORED RETIREMENT PROGRAMS
The contracts described in this Prospectus may be used in connection with
certain tax-favored retirement programs, for groups and for individuals.
Following are brief descriptions of various types of qualified plans in
connection with which Integrity may issue a contract. Integrity reserves the
right to change its administrative rules, such as minimum contribution amounts,
as needed to comply with the Code as to tax-favored retirement programs.
TRADITIONAL INDIVIDUAL RETIREMENT ANNUITIES
Code Section 408(b) permits eligible individuals to contribute to an individual
retirement program known as a Traditional IRA. An individual who receives
compensation and who hasn't reached age 70-1/2 by the end of the tax year may
establish a Traditional IRA and make contributions up to the deadline for filing
his or her federal income tax return for that year (without extensions).
Traditional IRAs are limited on the amount that may be contributed, the persons
who may be eligible, and the time when distributions may begin. An individual
may also roll over amounts distributed from another Traditional IRA or another
tax-favored retirement program to a Traditional IRA contract. Your Traditional
IRA contract will be issued with a rider outlining the special terms of your
contract that apply to Traditional IRAs. The Owner will be deemed to have
consented to any other amendment unless the Owner notifies us that he or she
doesn't consent within 30 days from the date we mail the amendment.
SIMPLIFIED EMPLOYEE PENSIONS
Section 408(k) of the Code allows employers to establish simplified employee
pension plans (SEP-IRAS) for their employees, using the employees' IRAs for such
purposes, if certain criteria are met. Under these plans the employer may,
within specified limits, make deductible contributions on behalf of the
employees to IRAs. Employers intending to use the contract in connection with
such plans should seek competent advice. The SEP-IRA will be issued with a rider
outlining the special terms of the contract.
TAX SHELTERED ANNUITIES
Section 403(b) of the Code permits the purchase of tax-sheltered annuities (TSA)
by employees of public schools and certain charitable, educational and
scientific organizations described in Section 501(c)(3) of the Code. The
contract isn't intended to accept other than employee contributions. Such
contributions aren't counted as part of the gross income of the employee until
the employee receives distributions from the contract. The amount of
contributions to the TSA is limited to certain maximums imposed by Code sections
403(b), 415 and 402(g). The Code also sets forth additional restrictions
governing such items as transferability, distributions and withdrawals. An
employee under this type of plan should consult a tax adviser as to the tax
treatment and suitability of such an investment. Your contract will be issued
with a rider outlining the special terms that apply to a TSA.
CORPORATE AND SELF-EMPLOYED (H.R. 10 AND KEOGH) PENSION AND PROFIT SHARING
PLANS Sections 401(a) and 403(a) of the Code permit corporate employers to
establish various types of tax-favored retirement plans for employees. The
Self-Employed Individuals' Tax Retirement Act of 1962, as amended, commonly
referred to as "H.R. 10" or "Keogh," permits self-employed individuals to also
establish tax-favored retirement plans for themselves and their employees.
Tax-favored retirement plans may permit the purchase of the contract to provide
benefits under the plans. Employers intending to use the contract in connection
with tax-favored plans should seek competent advice. We can request
documentation to substantiate that a qualified plan exists and is being properly
administered. We don't administer these types of plans.
DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT
ORGANIZATIONS
Section 457 of the Code permits employees of state and local governments and
tax-exempt organizations to defer a portion of their compensation without paying
current taxes. The employees must be participants in an eligible deferred
compensation plan. To the extent the contracts are used in connection with an
eligible plan, employees are considered general creditors of the employer and
the employer as Owner of the contract has the sole right to the proceeds of the
contract. However, Section 457(g) provides that on and after August 20, 1996, a
plan maintained by an eligible governmental employer must hold all assets and
income of the plan in a trust, custodial account, or annuity contract for the
exclusive benefit of participants and their beneficiaries. Loans to employees
may be permitted under such
<PAGE>
plans; however, a Section 457 plan isn't required to allow loans.
Contributions to a contract in connection with an eligible government plan
are limited. Those who intend to use the contracts in connection with such
plans should seek competent advice. We can request documentation to
substantiate that a qualified plan exists and is being properly administered.
We don't administer such plans.
DISTRIBUTIONS UNDER TAX FAVORED RETIREMENT PROGRAMS.
Distributions from tax-favored plans are subject to certain restrictions.
Participants in qualified plans, with the exception of five-percent owners and
Traditional IRA holders, must begin receiving distributions by April 1 of the
calendar year following the later of either (i) the year in which the employee
reaches age 70-1/2, or (ii) the calendar year in which the employee retires.
Additional distribution rules apply after the participant's death. If you don't
take mandatory distributions you may owe a 50% penalty tax on any difference
between the required distribution amount and the amount distributed.
Distributions from a tax-favored plan (not including a Traditional IRA or a Roth
IRA) to an employee, surviving spouse, or former spouse who is an alternate
payee under a qualified domestic relations order, in the form of a lump sum
settlement or periodic annuity payments for a fixed period of fewer than 10
years are subject to mandatory income tax withholding of 20% of the taxable
amount of the distribution, unless (1) the payee directs the transfer of the
amounts in cash to another plan or Traditional IRA; or (2) the payment is a
minimum distribution required under the Code. The taxable amount is the amount
of the distribution less the amount allocable to after-tax contributions. All
other types of taxable distributions are subject to withholding unless the payee
doesn't elect to have withholding apply.
We aren't permitted to make distributions from a contract unless you make a
request. It's your responsibility to comply with the minimum distribution rules.
You should consult your tax adviser regarding these rules.
This description of the federal income tax consequences of the different types
of tax-favored retirement plans that can be funded by the contract is only a
brief summary and isn't intended as tax advice. The rules governing the
provisions of plans are extremely complex and often difficult to comprehend.
Anything less than full compliance with all applicable rules, all of which are
subject to change, may have adverse tax consequences. A prospective Owner
considering adopting a plan and buying a contract to fund the plan should first
consult a qualified and competent tax adviser, with regard to the suitability of
the contract as an investment vehicle for the plan.
PART 6 - FINANCIAL STATEMENTS
Ernst & Young LLP, Suite 2100, 400 West Market Street, Louisville, Kentucky
40202, is our independent auditor and serves as independent auditor of the
Separate Account. Ernst & Young LLP on an annual basis will audit certain
financial statements prepared by management and express an opinion on such
financial statements based on their audits.
Financial statements of Separate Account III aren't included here because as
of the date of this SAI, the easy@nnuity contract funded by Separate Account
III hadn't yet begun operations.
The financial statements of Integrity should be distinguished from the financial
statements of the Separate Account and should be considered only as they relate
to the ability of Integrity to meet its obligations under the contracts. They
shouldn't be considered as relating to the investment performance of the assets
held in the Separate Account.
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS INCLUDED IN PART B:
INTEGRITY LIFE INSURANCE COMPANY:
Report of Independent Auditors*
Balance Sheets (Statutory Basis) as of December 31, 1998 and 1997*
Statements of Income (Statutory Basis) for the Years Ended
December 31, 1998 and 1997*
Statements of Changes in Capital and Surplus (Statutory Basis) for the
Years Ended December 31, 1998 and 1997*
Statements of Cash Flows (Statutory Basis) for the Years Ended
December 31, 1998 and 1997*
Notes to Financial Statements (Statutory Basis)*
*To be filed by pre-effective amendment
(b) EXHIBITS:
The following exhibits are filed herewith:
1. Resolutions of the Board of Directors of Integrity Life
Insurance Company (INTEGRITY) and Certification of the Chief
Executive Officer authorizing the reestablishment of Separate
Account III, the Registrant.
2. Not applicable.
3. Form of Variable Contract Principal Underwriter Agreement with
ARM Securities Corporation. (To be filed by pre-effective
amendment).
4.(a) Form of variable annuity contract
4.(b) Form of rider to certificate for Traditional IRA.
5. Form of application
6.(a) Certificate of Incorporation of Integrity. Incorporated by
reference to post-effective amendment no. 4 to Form N-4
registration statement (File No. 33-51268), filed on
April 28, 1995.
6.(b) By-Laws of Integrity. Incorporated by reference to
post-effective amendment no. 4 to Form N-4 registration
statement (File No. 33-51268), filed on April 28, 1995.
7. Not applicable.
8.(a) Form of Participation Agreement among Janus Aspen Series,
Integrity Life Insurance Company, and Separate Account III.
1
<PAGE>
8.(b) Form of Participation Agreement among Insurance Series,
Federated Securities Corp., and Integrity Life Insurance
Company.
8.(c). Form of Participation Agreement among BT Insurance Funds Trust,
Bankers Trust Company, and Integrity Life Insurance Company.
9. Opinion and Consent of Kevin L. Howard. (To be filed by
pre-effective amendment).
10. Consents of Ernst & Young LLP. (not applicable).
11. Not applicable.
12. Not applicable.
13. Schedule for computation of performance quotations. (To be
filed by pre-effective amendment).
14. Not applicable.
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
Set forth below is information regarding the directors and principal
officers of Integrity, the Depositor:
DIRECTORS:
<TABLE>
<CAPTION>
Name and Principal Business Address Position and Offices with Depositor
- ----------------------------------- -----------------------------------
<S> <C>
Mark A. Adkins Director and Operations Control Officer
Integrity Life Insurance Company
200 East Wilson Bridge Road
Worthington, OH 43085
John R. Lindholm Director and President
Integrity Life Insurance Company
515 West Market Street
Louisville, KY 40202
Susan M. McEntire Director
Integrity Life Insurance Company
200 East Wilson Bridge Road
Worthington, OH 43085
John R. McGeeney Director
Integrity Life Insurance Company
515 West Market Street
Louisville, KY 40202
William H. Guth Director and Product Administration Officer
Integrity Life Insurance Company
515 West Market Street
Louisville, KY 40202
Martin H. Ruby Director, Chairman of the Board and Chief
Integrity Life Insurance Company Executive Officer
515 West Market Street
Louisville, KY 40202
2
<PAGE>
</TABLE>
SELECTED OFFICERS: (The business address for each of the principal officers
listed below is 515 West Market Street, Louisville,
Kentucky 40202.)
<TABLE>
<CAPTION>
Name and Principal Business Address Position and Offices with Depositor
- ----------------------------------- -----------------------------------
<S> <C>
Martin H. Ruby Chairman of the Board, Chief Executive Officer
John R. Lindholm President
John R. McGeeney Executive Vice President and General Counsel
Dennis L. Carr Executive Vice President and Chief Actuary
David E. Ferguson Executive Vice President and Chief Technology Officer
William H. Panning Executive Vice President and Chief Investment Officer
Edward L. Zeman Executive Vice President and Chief Financial Officer
Michael A. Cochran Tax Officer
Peter S. Resnik Treasurer
Barry G. Ward Controller
Patricia L. Tackett Secretary
</TABLE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH INTEGRITY OR
REGISTRANT
Integrity, the depositor of Separate Account III, is a wholly owned
subsidiary of Integrity Holdings, Inc., a Delaware corporation which is a
holding company engaged in no active business. Integrity owns 100% of stock of
National Integrity Life Insurance Company, a New York stock life insurance
corporation. All outstanding shares of Integrity Holdings, Inc. are owned by
ARM Financial Group, Inc., (ARM) a Delaware corporation which is a financial
services company focusing on the long-term savings and retirement marketplace by
providing retail and institutional products and services throughout the United
States. ARM owns 100% of the stock of (i) ARM Securities Corporation (ARM
SECURITIES), a Minnesota corporation, registered with the SEC as a broker-dealer
and a member of the National Association of Securities Dealers, Inc., (ii)
Integrity Capital Advisors, Inc., a New York corporation registered with the SEC
as an investment adviser, (iii) SBM Certificate Company, a Minnesota corporation
registered with the SEC as an issuer of face-amount certificates, and (iv) ARM
Transfer Agency, Inc., a Delaware corporation registered with the SEC as a
transfer and dividend disbursing agency.
In June 1997, ARM Financial completed an initial public offering (the
"IPO") of 9.2 million shares of common stock, of which 5.75 million shares were
sold by ARM Financial and 3.45 million shares were sold by investment funds
sponsored by Morgan Stanley, Dean Witter, Discover & Co. (the "MSDW Funds").
Following the IPO, the MSDW Funds owned in the aggregate approximately 53% of
the outstanding shares of common stock of ARM Financial. On May 8, 1998, the
MSDW Funds sold their entire remaining interest in ARM Financial pursuant to a
secondary public offering of shares of common stock. As a result, ARM Financial
is 100% publicly owned.
3
<PAGE>
ITEM 27. NUMBER OF CONTRACT OWNERS
As of December 31, 1998 there were no contract owners of Separate
Account III of Integrity, as the easyannuity contract funded by the separate
account had not yet commenced operations.
ITEM 28. INDEMNIFICATION
BY-LAWS OF INTEGRITY. Integrity's By-Laws provide, in Article V, as follows:
Section 5.1 INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND
INCORPORATORS. To the extent permitted by the laws of the State of Ohio,
subject to all applicable requirements thereof:
(a) The Corporation shall indemnify or agree to indemnify any person
who was or is a party or is threatened to be made a party, to any
threatened, pending, or completed action, suit, or proceeding, whether
civil, criminal, administrative, or investigative, other than an
action by or in the right of the Corporation, by reason of the fact
that he is or was a Director, officer, employee, or agent of the
Corporation or is or was serving at the request of the Corporation as
a Director, trustee, officer, employee, or agent of another
corporation, domestic or foreign, non-profit or for profit,
partnership, joint venture, trust, or other enterprise, against
expenses, including attorney's fees, judgements, fines, and amounts
paid in settlement actually and reasonably incurred by him in
connection with such action, suit, or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the Corporation, and with respect to any
criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit, or
proceeding by judgment, order, settlement, or conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in
a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal action
or proceeding, he had reasonable cause to believe that his conduct was
unlawful.
(b) The Corporation shall indemnify or agree to indemnify any person
who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action or suit by or in the right of
the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a Director, officer, employee, or agent of the
Corporation, or is or was serving at the request of the Corporation as
a Director, trustee, officer, employee, or agent of another
corporation, domestic or foreign, non-profit or for profit,
partnership, joint venture, trust, or other enterprise, against
expenses, including attorney's fees, actually and reasonably incurred
by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Corporation,
except that no indemnification shall be made in respect to any of the
following:
(1) Any claim, issue, or matter as to which such person is
adjudged to be liable for negligence or misconduct in the
performance of his duty to the Corporation unless, and only to
the extent the court of common pleas or the court in which such
action or suit was brought determines upon application that,
despite the adjudication of liability, but in view of all
circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as the court of common
pleas or such other court shall deem proper;
(2) Any action of suit in which the only liability asserted
against a Director is pursuant to Section 1701.95 of the Ohio
Revised Code.
(c) To the extent that a Director, trustee, officer, employee, or
agent has been successful in the merits or otherwise in defense
of any action, suit, or proceeding referred to in division (a)
and (b) of this Article, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses,
including attorney's fees, actually and reasonably incurred by
him in connection with the action, suit, or proceeding.
(d) Any indemnification under divisions (a) and (b) of this Article,
unless ordered by a court, shall be made by the Corporation only
as authorized in the specific case upon the determination that
indemnification
4
<PAGE>
of the Director, officer, employee, or agent is proper in the
circumstances because he has met the applicable standard of
conduct set forth in divisions (a) and (b) of this Article. Such
determination shall be made as follows:
(1) By a majority vote of a quorum consisting of Directors of
the Corporation who were not and are not parties to or threatened
with any such action, suit, or proceeding;
(2) If the quorum described in division (d)(1) of this Article
is not obtainable or if a majority vote of a quorum of
disinterested Directors so directs, in a written opinion by
independent legal counsel other than an attorney, or a firm
having associated with it an attorney, who has been retained by
or who has performed services for the Corporation or any person
to be indemnified within the past five years;
(3) By the Shareholders; or
(4) By the court of common pleas or the court in which such
action, suit or proceeding was brought.
Any determination made by the disinterested Directors under Article
(d)(1) or by independent legal counsel under Article (d)(2) shall be
promptly communicated to the person who threatened or brought the
action or suit by in the right of the Corporation under (b) of this
Article, and within ten days after receipt of such notification, such
person shall have the right to petition the court of common pleas or
the court in which such action or suit was brought to review the
reasonableness of such determination.
(e) (1) Expenses, including attorney's fees, incurred by a Director
in defending the action, suit, or proceeding shall be paid by the
Corporation as they are incurred, in advance of the final disposition
of the action, suit, or proceeding upon receipt of an undertaking by
or on behalf of the Director in which he agrees to do both of the
following:
(i) Repay such amount if it is proved by clear and
convincing evidence in a court of competent jurisdiction
that his action or failure to act involved an act or
omission undertaken with deliberate intent to cause injury
to the Corporation or undertaken with reckless disregard for
the best interests of the Corporation;
(ii) Reasonably cooperate with the Corporation concerning
the action, suit or proceeding.
(2) Expenses, including attorney's fees, incurred by a Director,
officer, employee, or agent in defending any action, suit, or
proceeding referred to in divisions (a) and (b) of this Article,
may be paid by the Corporation as they are incurred, in advance
of the final disposition of the action, suit, or proceeding as
authorized by the Directors in the specific case upon receipt of
an undertaking by or on behalf of the Director, officer,
employee, or agent to repay such amount, if it ultimately is
determined that he is not entitled to be indemnified by the
Corporation.
(f) The indemnification authorized by this section shall not be
exclusive of, and shall be in addition to, any other rights granted to
those seeking indemnification under the Articles or the Regulations
for any agreement, vote of Shareholders or disinterested Directors, or
otherwise, both as to action in his official capacity and as to action
in another capacity while holding such office, and shall continue as
to a person who has ceased to be a Director, officer, employee, or
agent and shall inure to the benefit of the heirs, executors, and
administrators of such a person.
(g) The Corporation may purchase and maintain insurance or furnish
similar protection, including but not limited to trust funds, letters
of credit, or self insurance, on behalf of or for any person who is or
was a Director, officer, employee, or agent of the Corporation, or is
or was serving at the request of the Corporation as a Director,
officer, employee, or agent of another corporation, domestic or
foreign, non-profit or for profit, partnership, joint venture, trust,
or other enterprise, against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify
him against such liability under this section. Insurance may be
purchased from or maintained with a person in which the Corporation
has a financial interest.
BY-LAWS OF ARM SECURITIES. ARM Securities' By-Laws provide, in Sections 4.01
and 4.02, as follows:
5
<PAGE>
SECTION 4.01 INDEMNIFICATION. The Corporation shall indemnify its
officers and directors for such expenses and liabilities, in such manner, under
such circumstances, and to such extent, as required or permitted by Minnesota
Statutes, Section 302A.521, as amended from time to time, or as required or
permitted by other provisions of law.
SECTION 4.02 INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person in such person's official capacity against any
liability asserted against and incurred by such person in or arising from that
capacity, whether or not the Corporation would otherwise be required to
indemnify the person against the liability.
INSURANCE. The directors and officers of Integrity and ARM Securities are
insured under a policy issued by National Union. The total annual limit on such
policy is $10 million, and the policy insures the officers and directors against
certain liabilities arising out of their conduct in such capacities.
AGREEMENTS. Integrity and ARM Securities, including each director, officer
and controlling person of Integrity and ARM Securities, are entitled to
indemnification against certain liabilities as described in the Form of
Variable Contract Principal Underwriter Agreement included as Exhibit 3 to
this Registration Statement. Those sections are incorporated by reference
into this response. In addition, Integrity, including each director, officer
and controlling person of Integrity, may be entitled to indemnification
against certain liabilities as described in the Form of Participation
Agreements incorporated as Exhibits 8(a), 8(b) and 8(c) to this Registration
Statement. Certain officers and directors of Integrity are officers and
directors of ARM Securities (see Item 25 and Item 29 of this Part C).
UNDERTAKING. Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 29. PRINCIPAL UNDERWRITER
(a) ARM Securities is the principal underwriter for Separate Account III.
ARM Securities also serves as an underwriter for Separate Accounts I, II and Ten
of Integrity, Separate Accounts I and II of National Integrity Life Insurance
Company, and The Legends Fund, Inc. Integrity is the Depositor of Separate
Accounts I, II, III, Ten and VUL.
(b) The names and business addresses of the officers and directors of, and
their positions with, ARM Securities are as follows:
<TABLE>
<CAPTION>
Name and Principal Business Address Position and Offices with Arm Securities
- ----------------------------------- ----------------------------------------
<S> <C>
Edward J. Haines Director and President
515 West Market Street
Louisville, Kentucky 40202
John R. McGeeney Director, Secretary, General Counsel and Compliance
515 West Market Street Officer
Louisville, Kentucky 40202
Peter S. Resnik Treasurer
515 West Market Street
Louisville, Kentucky 40202
6
<PAGE>
Dale C. Bauman Vice President
100 North Minnesota Street
New Ulm, Minnesota 56073
Robert Bryant Vice President
1550 East Shaw #120
Fresno, California 93710
Ronald Geiger Vice President
100 North Minnesota Street
New Ulm, Minnesota 56073
Barry G. Ward Controller
515 West Market Street
Louisville, Kentucky 40202
Michael A. Cochran Tax Officer
515 West Market Street
Louisville, Kentucky 40202
William H. Guth Operations Officer
515 West Market Street
Louisville, Kentucky 40202
David L. Anders Marketing Officer
515 West Market Street
Louisville, Kentucky 40202
</TABLE>
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The records required to be maintained by Section 31(a) of the Investment Company
Act of 1940 and Rules 31a-1 to 31a-3 promulgated thereunder, are maintained by
Integrity at 515 West Market Street, Louisville, Kentucky 40202.
ITEM 31. MANAGEMENT SERVICES
The contract under which management-related services are provided to Integrity
is discussed under Part 1 of Part B.
ITEM 32. UNDERTAKINGS
The Registrant hereby undertakes:
(a) to file a post-effective amendment to this registration statement as
frequently as is necessary to ensure that the audited financial
statements in the registration statement are never more than 16 months
old for so long as payments under the variable annuity contracts may
be accepted;
(b) to include either (1) as part of any application to purchase a
contract offered by the prospectus, a space that an applicant can
check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in
the prospectus that the applicant can remove to send for a Statement
of Additional Information; and
(c) to deliver any Statement of Additional Information and any financial
statements required to be made available under this Form promptly upon
written or oral request.
Integrity represents that the aggregate charges under variable annuity contracts
described in this Registration Statement are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the risks assumed.
7
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant and the Depositor have duly caused this Registration
Statement to be signed on their behalf, in the City of Louisville and State
of Kentucky on this 22nd day of March, 1999.
SEPARATE ACCOUNT III OF
INTEGRITY LIFE INSURANCE COMPANY
(Registrant)
By: Integrity Life Insurance Company
(Depositor)
By: /s/ John R. Lindholm
--------------------------------
John R. Lindholm
President
INTEGRITY LIFE INSURANCE COMPANY
(Depositor)
By: /s/ John R. Lindholm
--------------------------------
John R. Lindholm
President
8
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the date
indicated.
PRINCIPAL EXECUTIVE OFFICER: /s/ John R. Lindholm
--------------------------------------------
John R. Lindholm, President
Date: 03/22/99
PRINCIPAL FINANCIAL OFFICER: /s/ Edward L. Zeman
--------------------------------------------
Edward L. Zeman, Executive Vice President-
Chief Financial Officer
Date: 03/22/99
PRINCIPAL ACCOUNTING OFFICER: /s/ Barry G. Ward
--------------------------------------------
Barry G. Ward, Controller
Date: 03/22/99
DIRECTORS:
/s/ Mark A. Adkins /s/ Susan M. McEntire
- ------------------------------ --------------------------------------------
Mark A. Adkins Susan M. McEntire
Date: 03/22/99 Date: 03/22/99
/s/ William H. Guth /s/ Martin H. Ruby
- ------------------------------ --------------------------------------------
William H. Guth Martin H. Ruby
Date: 03/22/99 Date: 03/22/99
/s/ John R. Lindholm
- ------------------------------
John R. Lindholm
Date: 03/22/99
/s/ John McGeeney
- ------------------------------
John R. McGeeney
Date: 03/22/99
9
<PAGE>
UNANIMOUS WRITTEN CONSENT IN LIEU OF A SPECIAL MEETING
OF THE BOARD OF DIRECTORS OF
INTEGRITY LIFE INSURANCE COMPANY
MARCH 9, 1999
REESTABLISHMENT OF SEPARATE ACCOUNTS
WHEREAS, Section 3907.15 of the Ohio Insurance Law permits the
establishment by a domestic life insurance company of one or more separate
accounts, and permits the allocation to such separate accounts of any amounts
which are to be applied to provide benefits or other contractual payments
payable in fixed or variable dollar amounts, or both, in connection with
policies, annuities or other contracts whether on an individual or group basis.
NOW, THEREFORE, BE IT:
RESOLVED, that pursuant to Section 3907.15 of the Ohio Insurance Law, the
Separate Accounts named below which support various variable annuity contracts
(the "Contracts"), are hereby reestablished under Ohio law, effective December
31, 1994:
Separate Account I established May 19, 1986
Separate Account II established May 21, 1992
Separate Account III established August 19, 1994
FURTHER RESOLVED, that the portion of the assets held in such separate
accounts equal to the reserves and other contractual liabilities under the
Contracts shall not be chargeable with liabilities arising out of any other
business of the Corporation; and
FURTHER RESOLVED, that the provisions of those Board Resolutions
authorizing and establishing Separate Accounts I, II, and III, which are not
contrary hereto, shall remain in full force and effect.
<PAGE>
CERTIFICATE OF CHIEF EXECUTIVE OFFICER
Pursuant to an authorizing resolution of the Board of Directors of Integrity
Life Insurance Company adopted on November 14, 1990, the purpose of Separate
Account III is hereby amended. Whereas Separate Account III was established
as a funding medium for annuity contract form no. FPVA-INT-94(DR) and state
variations; and, whereas, no contracts on such form no. remain in effect;
and, whereas, Separate Account III holds no assets for any other purpose at
this time, now then Separate Account III shall serve as a funding medium for
annuity contract form INT99 and state variations thereof, as of the date
hereof.
/s/ Martin H. Ruby
--------------------------------
Martin H. Ruby
Chairman of the Board and Chief Executive Officer
March 9, 1999
--------------------------------
Date
<PAGE>
[LOGO] INTEGRITY
LIFE INSURANCE COMPANY
A member of the ARM Financial Group
THIS CONTRACT ("CONTRACT") creates a legal agreement between Integrity Life
Insurance Company ("COMPANY", "WE" OR "US") and the Owner ("YOU" or "YOUR").
The amount(s) that you contribute to this Contract and that we accept are your
"CONTRIBUTIONS." We have issued this Contract to you in consideration of your
first Contribution. As the purchaser of the Contract, you are its "OWNER" and
"ANNUITANT", unless we accept a different arrangement that you have requested.
PLEASE READ YOUR CONTRACT CAREFULLY. DURING A 10 DAY FREE LOOK PERIOD, YOU
HAVE THE RIGHT TO CANCEL THIS CONTRACT. If you are not satisfied, simply check
the box and return it to us or the agent who sold it, within 10 days of receipt.
We will promptly void it and return all the current Account Value (adjusted for
net investment performance).
Your new Contract provides for an Account Value, a Death Benefit and an Annuity
Benefit.
THE ACCOUNT VALUE(S) of your Contract, or of any Available Account, equal: your
Contribution(s) ADJUSTED FOR net investment performance MINUS Partial
Withdrawals (or transfers) and Taxes (if applicable).
Your DEATH BENEFIT guarantees that your Beneficiary will never receive less than
the highest Account Value(s) on the Death Benefit Date(s), reduced for
Withdrawals and/or Taxes on a pro rata basis.
YOUR ANNUITY BENEFIT makes fixed payments guaranteed for 10 years or for life,
if longer.
- -------------------------------------------------------------------------------
CERTAIN OPTIONS UNDER THIS CONTRACT MAY BE VARIABLE, BASED UPON THE INVESTMENT
EXPERIENCE OF A SEPARATE ACCOUNT. SUCH VARIABLE ACCOUNT OPTIONS MAY INCREASE
OR DECREASE IN VALUE AS DESCRIBED IN THE CONTRACT AND ARE NOT GUARANTEED AS TO
AMOUNT.
- --------------------------------------------------------------------------------
WE WANT TO HEAR FROM YOU. If you have questions, complaints, or need any help
with your Contract, please send us an e-mail at _______________________.
--------------------- -----------------------
/s/ John R. Lindholm /s/ Patricia L. Tackett
--------------------- -----------------------
John R. Lindholm Patricia L. Tackett
President Secretary
FLEXIBLE PREMIUM
DEFERRED VARIABLE ANNUITY
ALL CAPITALIZED TERMS ARE DEFINED ON YOUR SCHEDULE PAGE
OR ELSEWHERE IN THIS CONTRACT.
INT99 Page 1 (5/99)
<PAGE>
INDEX
PAGE NO.
Right to Cancel Contract . . . . . . . . . . . . . . . . 1
Account Value. . . . . . . . . . . . . . . . . . . . . . 1
Available Account(s) . . . . . . . . . . . . . . . . . . 2
Contract Schedule Page . . . . . . . . . . . . . . . . . 3
Contributions, Earnings and Company Charges. . . . . . . 2,4
Transfers and Withdrawals . . . . . . . . . . . . . . . . 4
Ownership and Death Benefit . . . . . . . . . . . . . . . 1,4
Annuity Benefits for Tax-Deferred Available Accounts. . . 1,5
Annuity Table . . . . . . . . . . . . . . . . . . . . . . 5
General Provisions. . . . . . . . . . . . . . . . . . . . 6
- --------------------------------------------------------------------------------
AVAILABLE ACCOUNT(S):
SEPARATE ACCOUNT OR GENERAL ACCOUNT OPTIONS: Separate Accounts are segregated
asset accounts which we may divide into one or more subaccounts ("SEPARATE
ACCOUNT"). We own the assets of each Separate Account and keep them separate
from the assets of our General Account. This means that the income, gains and
losses of each Separate Account will be credited to, or charged against, that
Separate Account without regard to any income, gains or losses in our General
Account or in any other investment account. We must hold assets in each Separate
Account at least equal to all statutory reserves required for such Separate
Account; we will never use such assets to support any other business, and we
will transfer assets to any Separate Account from our General Account if
necessary to meet this requirement. We may use excess assets in any Separate
Account in any way we choose. Fixed Separate Account(s) are offered as
nonunitized Separate Accounts.
QUALIFIED OR NON-QUALIFIED CONTRACTS: QUALIFIED ANNUITY CONTRACTS are defined
under Sections 401(a), 403(b) and 408 of the Internal Revenue Code of 1986, as
amended (the "CODE") ("QUALIFIED CONTRACT"). NON-QUALIFIED CONTRACTS are any
contract other than those described under the sections of the Code listed above
("NON-QUALIFIED CONTRACT").
TAX-DEFERRED AND TAXABLE ACCOUNT(s): TAX-DEFERRED ACCOUNT(s) meet the required
distribution rules pursuant to Section 72(s) of the Code ("TAX-DEFERRED
ACCOUNT(S)"). TAXABLE ACCOUNT(S) do not meet the required distribution rules of
Section 72(s) of the Code ("TAXABLE ACCOUNT(S)").
VARIABLE ACCOUNT OPTIONS: Variable Account Options available on the Contract
Date are listed on your Schedule Page. Variable Account Option are unitized
subaccounts ("SUBACCOUNTS") and invest in designated portfolios ("PORTFOLIOS").
Each Subaccount will invest only in a single portfolio. The investment
performance of each Subaccount is linked directly to the investment experience
of the underlying Portfolio which may be positive or negative.
RIGHTS RESERVED BY THE COMPANY: Except as otherwise set out in this Contract,
subject to required approvals by federal and state authorities and to all
Company administrative rules which are lawful, nondiscriminatory and consistent
with this Contract, we reserve the right to: (i) deregister a Separate Account
under the Investment Company Act of 1940; (ii) combine any two or more Separate
Accounts; (iii) operate a Separate Account as a management investment company or
any other form permitted by law; (iv) add, substitute, combine or delete
Separate Account(s) Options; (v) to add, change or completely delete a Separate
Account.
CONTRIBUTIONS, EARNINGS AND COMPANY CHARGES:
CONTRIBUTIONS: You determine, using whole percentages, what portion of your
initial Contribution will be allocated among the Available Accounts offered on
the Contract Date. For Non-Qualified Contracts, we are under no obligation to
accept any initial Contribution of less than $500 or any additional Contribution
of less than $100 and we reserve the right from time to time to modify such
amounts. We may accept initial and additional Contributions of not less than
$50 in connection with Qualified Contracts. Contributions over $1,000,000
require prior Company approval. You may choose to allocate nothing to a
particular Available Account.
ALL CAPITALIZED TERMS ARE DEFINED ON YOUR SCHEDULE PAGE
OR ELSEWHERE IN THIS CONTRACT.
INT99 Page 2 (5/99)
<PAGE>
CONTRACT SCHEDULE PAGE
PRIMARY OWNER:
JOINT OWNER:
ANNUITANT:
ANNUITANT'S BENEFICIARY: See attached Beneficiary Addendum.
CONTRACT NUMBER:
CONTRACT DATE:
RETIREMENT DATE: Age 98
DEATH BENEFIT DATE(S): Date we receive due proof of Annuitant's death
SEPARATE ACCOUNT(S): III
INITIAL CONTRIBUTION:
See Confirmation Notice for Allocation
Breakdown. Initial and Additional Allocations
limited to nine (9) Options. Each Portfolio,
GRO, and STO count as one (1) Option.
AVAILABLE ACCOUNT(S)
VARIABLE ACCOUNT OPTIONS ARE OFFERED AS TAX-DEFERRED, CONTINUOUS ACCESS
ACCOUNTS, SEPARATE ACCOUNT
- --------------------------------------------------------------------------------
SUBACCOUNT: (1) BT Funds, (2) Federated Investors and (3) Janus
Aspen Series
PORTFOLIOS: BT -- Equity 500 Index Fund, Small Cap Index Fund and
EAFE Equity Index Fund
FEDERATED -- Fund for Government Securities II, Quality
Bond Fund II, High Income Bond Fund II and Utility Fund
II
JANUS ASPEN -- Money Market, Growth, Aggressive Growth,
Capital Appreciation, Worldwide Growth, International
Growth, Growth and Income, Balanced, and Equity Income.
CONTRIBUTIONS: $10,000 Initial Contribution; $100 additional
Contribution
TRANSFER RESTRICTIONS: $250 minimum or entire Portfolio Account Value if value
falls below $250. Transfers must be initiated on line
through Internet Service Center. Transfers executed
after 4 p.m. eastern time or Business Day, whichever is
later, will be processed next Business Day. BUSINESS
DAY is defined as any day that the New York Stock
Exchange is open.
WITHDRAWAL RESTRICTIONS: $100 minimum by Electronic Fund Transfer through
Internet Service Center.
- --------------------------------------------------------------------------------
COMPANY CHARGES
ADMINISTRATION CHARGE: $5.50 per month deducted from entire Contract Account
Value on the last calendar Business Day of each month.
No proration for Partial or Full Withdrawals, death or
annuitization. PARTIAL WITHDRAWALS are a portion of the
Account Value withdrawn from Continuous Access
Accounts. A FULL WITHDRAWAL is the entire Account
Value withdrawn from Continuous Access Accounts
TRANSFER CHARGES: $20 after 12 transfers per policy year
DAILY CHARGE: Mortality and Expense Charges are not applicable to
this Contract.
WITHDRAWAL CHARGES: Withdrawal Charges are not applicable to this Contract
ALL CAPITALIZED TERMS ARE DEFINED ON YOUR SCHEDULE PAGE
OR ELSEWHERE IN THIS CONTRACT.
INT99 Page 3 (5/99)
<PAGE>
INVESTMENT EXPERIENCE: At the end of each Company business day ("BUSINESS
DAY"), we adjust Variable Account Options to reflect the net investment results
in such Accounts on a per unit basis ("UNIT VALUE"). Unit Values are calculated
by multiplying the Unit Value of the particular Subaccount on the preceding
Business Day by the net investment factor for that Subaccount relative to the
Business Day then ended. The net investment factor is a factor applied to a
Subaccount that reflects daily changes in the value of the Subaccount due to (i)
an increase or decrease in the value of the Subaccount due to net investment
result.; (ii) a charge, as described on the Contract Schedule Page, for
mortality and expense risks assumed by us, and (iii) a charge as described on
the Schedule Page to cover the cost of administering the Account ("NET
INVESTMENT FACTOR"). The Account Value on each Business Day is then determined
by multiplying the number of units in that Account by the Unit Values on that
Business Day.
MINIMUM GUARANTEE: Your Account Value (not including Taxes, if applicable, or
other Company Charges) will always equal at least the minimum percentage(s) of
all Contributions required by law (LESS Partial Withdrawals) PLUS OR MINUS
investment performance on Variable Accounts, if any, all as reasonably
calculated by us ("MINIMUM GUARANTEE").
PREMIUM TAX: A regulatory tax may be assessed on the Company by your state on
the Contributions you make to this Contract ("TAXES"). This tax will be
deducted from Contributions when received, or from the Account Value upon Full
or Partial Withdrawal, the payment of an Annuity Benefit or the payment of a
Death Benefit.
MAXIMUM COMPANY CHARGES: Company Charges and Taxes (if applicable) will never
exceed any legal limits in the state where the Contract is delivered. Company
Charges may be waived or reduced uniformly on all contracts issued under certain
plans or arrangements which are expected to result in administrative cost
savings. No reduction or waiver will be made that is unfairly discriminatory to
any person. We may waive any Company Charges attributable to Contracts received
during specific periods of time and under conditions and limitations set by the
Company.
TRANSFERS AND WITHDRAWALS:
TRANSFERS: You may make transfers among the Available Account(s) at any time,
subject to the terms, restrictions and conditions on the Schedule Page.
Transfers must be made through the Internet Service Center ("ISC").
PARTIAL OR FULL WITHDRAWAL: You may make a Partial or Full Withdrawal at any
time before the Retirement Date subject to the terms, restrictions and
conditions on the Schedule Page. You may not make a Partial or Full Withdrawal
after the Retirement Date. Upon your Written Request, you may elect to have the
Full Withdrawal amount paid in a lump sum, or you may elect to have it all paid
out under any available Annuity Benefit. On the date we receive your email
requesting a Full Withdrawal, the amount payable is the Account Value. We
reserve the right to defer the payment for up to six (6) months. If your
balance under this Contract is ever less than $1,000, we reserve the right to
liquidate the account. You will be notified if your balance is below the
minimum, and will be given sixty (60) days in which to make an additional
Contribution. The minimum partial withdrawal is $300 and may be changed from
time to time at our discretion.
OWNERSHIP AND DEATH BENEFIT:
OWNERSHIP OF THE CONTRACT: The Annuitant is the Owner unless we have accepted
another designated Owner. During the Annuitant's lifetime, all rights and
privileges under this contract may be exercised solely by you. From time to
time, we may require proof that the Annuitant is still living.
ALL CAPITALIZED TERMS ARE DEFINED ON YOUR SCHEDULE PAGE
OR ELSEWHERE IN THIS CONTRACT.
INT99 Page 4 (5/99)
<PAGE>
DEATH BENEFIT: If the last Annuitant dies, we will pay a Death Benefit in equal
shares to any surviving person or persons designated by you to whom any benefit
is due upon the Annuitant's death ("BENEFICIARY(IES)"), or otherwise to you or
your estate. If your surviving spouse is the Beneficiary, then he or she may
decline the Death Benefit and continue as the new Owner. Before the Retirement
Date, and before the last Annuitant attains age 60, the Death Benefit will equal
the greatest of (i) account Value on the Death Benefit Date, or (ii) the sum of
all Contributions, less pro rata withdrawals. After the last Annuitant attains
age 60, the Death Benefit will equal the current Account Value. On or after the
Retirement Date, this Death Benefit is each of any remaining Payments Certain,
payable when originally due. The Annuitant's Beneficiary may choose to receive
a lump sum payment or to receive a series of payments under one of the Annuity
Benefits available under the Contract.
TAX RULES: For "Tax-Deferred" allocations only, if you die before the
Retirement Date we must pay any benefit due to a non-spousal Beneficiary: a) in
a lump sum within five years of death or b) starting within a year of death, in
annuity payments payable for such Beneficiary's life expectancy or less. We
further reserve the right to, and we shall, administer all Contracts which are
"Qualified" Contracts under applicable sections of the Internal Revenue Code of
1986, as amended, in accordance with all applicable laws and regulations in
effect from time to time (all of which are hereby fully incorporated herein by
reference and shall govern over any other provisions of the Contract to the
contrary), or as otherwise required in our reasonable judgment to maintain such
Qualified status or treatment, subject to all applicable legal and regulatory
approvals.
ANNUITY BENEFITS FOR TAX-DEFERRED AVAILABLE ACCOUNT(S):
ANNUITY BENEFIT: If the Annuitant lives to the Retirement Date, we guarantee
monthly annuity payments for the Annuitant's lifetime with a minimum of 10 years
payments ("FIXED ANNUITY PAYMENT OPTION"). The amount of each payment is based
on your last Account Value and all other Contract terms, with 3% interest under
the "Annuity 2000 Mortality Table" or an "Age Last Birthday" basis. We may
offer more favorable rates and other Annuity Benefits.
Annuity Payments: Annuity payments are made monthly starting on the Retirement
Date. The annuity payments are guaranteed to be no less than the amount
provided by the annuity tables. The minimum payment is $100. The number of
payments made in a year may be adjusted to maintain this minimum. If the
Account Value is less than $5,000, we have the right to pay that amount in a
lump sum. We may require proof of the Annuitant's age before making payments.
From time to time, we may require proof that the Annuitant is living.
ANNUITY TABLE: The Annuity Table shows the guaranteed minimum amount of monthly
annuity payment for each $1,000 of Account Value for the Fixed Annuity Payment
Option. We may, at the time of election of a Fixed Annuity Payment Option,
offer more favorable rates in lieu of the guaranteed rate shown in the annuity
tables. The amount of each annuity payment will depend on the Annuitant's sex
and age on the birthday prior to the date the first Annuity Payment is due.
ALL CAPITALIZED TERMS ARE DEFINED ON YOUR SCHEDULE PAGE
OR ELSEWHERE IN THIS CONTRACT.
INT99 Page 5 (5/99)
<PAGE>
- -------------------------------------------------------------------------------
ANNUITY BENEFIT PAYABLE ON THE LIFE ANNUITY FORM*
(MINIMUM MONTHLY INCOME PER $1,000 OF ACCOUNT VALUE)
FIXED ANNUITY BENEFIT
WITH 10 YEARS OF PAYMENTS GUARANTEED
(INTEREST RATE OF 3%)
<TABLE>
<CAPTION>
Age Males Females
<S> <C> <C>
60 $4.93 $4.58
61 $5.05 $4.68
62 $5.16 $4.79
63 $5.29 $4.90
64 $5.42 $5.01
65 $5.55 $5.14
66 $5.69 $5.27
67 $5.84 $5.40
68 $5.99 $5.55
69 $6.15 $5.70
70 $6.31 $5.86
</TABLE>
*Based on 3% interest and the Annuity 2000 Mortality Table on an Age Last
Birthday basis.
GENERAL PROVISIONS:
ENTIRE CONTRACT: The entire contract consists of this Contract, including any
riders or endorsements. Changes to this Contract are not valid unless we make
them in writing. They must be signed by one of our Executive Officers. No
agent has the authority to change this Contract or to waive any of its
provisions.
INCONTESTABILITY: This Contract is incontestable from the Contract Date.
NONPARTICIPATING: This Contract is nonparticipating. This means we do not pay
dividends on it. The Contract will not share in our profits or surplus.
PROTECTION OF PROCEEDS AND PAYMENTS: To the extent permitted by law, neither
the proceeds nor any payments under this Contract shall be subject to the claims
of creditors or legal process.
ANNUAL STATEMENT: You will receive an annual statement once each year. It will
show such things as the beginning and ending Account Values, as well as any
additional Contributions, Partial Withdrawals, or Company Charges for the year
that apply to this Contract. The statement may contain other information
required by law or regulation
ALL CAPITALIZED TERMS ARE DEFINED ON YOUR SCHEDULE PAGE
OR ELSEWHERE IN THIS CONTRACT.
INT99 Page 6 (5/99)
<PAGE>
MISSTATEMENT OF AGE OR SEX: If the Annuitant's age or sex is misstated,
payments will be adjusted to the amount that would have been provided for at the
correct age or sex. If payments have already commenced and the misstatement has
caused an underpayment, the full amount due will be paid with the next scheduled
payment. If the misstatement has caused an overpayment, the amount due will be
deducted from one or more future payments.
CONTRACT AMENDMENT: We will amend this Contract from time to time in cases
where we are acting to comply applicable state law and/or regulation or with the
United States Internal Revenue Code and/or regulations of the United States
Treasury Department, or are acting to maintain the tax-deferred status of this
Contract, pursuant to those provisions or regulations.
THE INTERNET SERVICE CENTER: The Internet Service Center ("ISC") is maintained
to provide you with useful information concerning your Contract. For security,
you must assign a Personal Identification Number ("PIN") and we will provide you
with an access number ("LOGIN"). Both the PIN and Login are needed each time
you enter the ISC to retrieve information or perform various transactions under
your Contract. You are responsible for the confidentiality and use of your PIN
and Login. You will be responsible for all transactions entered through and
under your PIN and Login and any transactions received by us will be deemed to
have been received from you. You are required to immediately notify us if your
PIN and Login become lost or stolen.
You agree to provide us with your e-mail address, promptly provide us with any
changes to your e-mail address and accept electronic communications from us at
the e-mail address you specify. Written Requests and/or Written Notices
referred to in your Contract are required to be e-mailed at the address provided
in your Contract unless otherwise directed by the ISC.
All required documents, notifications and other material concerning your
Contract shall be made available to you through the ISC. You will be assigned a
personal folder inside the ISC where your information and documentation shall be
stored. We will consider documentation to be delivered once information is
placed in your personal folder at the ISC. We will notify you via e-mail to
your e-mail address on file.
We may require a "pen and paper" signature for certain transactions. In these
circumstances, we will accept a faxed or mailed signature. We cannot accept
e-mail requests for transactions that require a signature.
ALL CAPITALIZED TERMS ARE DEFINED ON YOUR SCHEDULE PAGE
OR ELSEWHERE IN THIS CONTRACT.
INT99 Page 7 (5/99)
<PAGE>
THE INTERNET SERVICE CENTER
The Internet Service Center ("ISC") is maintained to provide you with useful
information concerning your Contract. For security, you must assign a Personal
Identification Number ("PIN") and we will provide you with an access number
("LOGIN"). Both the PIN and Login are needed each time you enter the ISC to
retrieve information or perform various transactions under your Contract. You
are responsible for the confidentiality and use of your PIN and Login. You will
be responsible for all transactions entered through and under your PIN and Login
and any transactions received by us will be deemed to have been received from
you. You are required to immediately notify us if your PIN and Login become
lost or stolen.
You agree to provide us with your e-mail address, promptly provide us with any
changes to your e-mail address and accept electronic communications from us at
the e-mail address you specify. Written Requests and/or Written Notices
referred to in your Contract are required to be e-mailed at the address provided
in your Contract unless otherwise directed by the ISC.
All required documents, notifications and other material concerning your
Contract shall be made available to you through the ISC. You will be assigned a
personal folder inside the ISC where your information and documentation shall be
stored. We will consider documentation to be delivered once information is
placed in your personal folder at the ISC. We will notify you via e-mail to
your e-mail address on file.
We may require a "pen and paper" signature for certain transactions. In these
circumstances, we will accept a faxed or mailed signature. We cannot accept
e-mail requests for transactions that require a signature.
<PAGE>
[LOGO] INTEGRITY
LIFE INSURANCE COMPANY
A member of the ARM Financial Group
TRADITIONAL INDIVIDUAL RETIREMENT ANNUITY ENDORSEMENT
This Endorsement is attached to and made a part of the Annuity Contract (the
"Contract") issued by Integrity Life Insurance Company (the "Company") to
qualify the Contract as an Individual Retirement Annuity under Section 408(b) of
the Internal Revenue Code (the "Code"), as the same may be amended or
supplemented from time to time. All references to Code Sections are to those
Sections as they may be amended and/or renumbered from time to time. If any
provisions of the Contract conflict with this Endorsement, the provisions of
this Endorsement will apply.
ARTICLE I - OWNERSHIP
The individual who participates in this individual retirement annuity (the
"Owner") is the Owner of the Contract. The Contract is established for the
exclusive benefit of the Owner and his or her Beneficiary. The Owner may
exercise all rights under the Contract during his or her lifetime. The
Owner's interest in the Contract is nonforfeitable and nontransferable.
The Contract may not be sold, assigned, discounted or pledged as collateral
or as security for the performance of an obligation or for any other
purpose. Separate records will be maintained for the interest of each
individual.
ARTICLE II - DEPOSIT LIMITS
The Company may accept deposits on behalf of the Owner for a tax year of
the Owner. Deposits shall be in cash and shall not be fixed, and the total
deposit shall be limited to a maximum of $2,000 for any tax year unless the
deposit is a rollover contribution described in Section 402(c), 403(a)(4),
403(b)(8) or 408(d)(3) of the Code or an employer contribution to a
simplified employee pension plan described in Section 408(k) of the Code.
No contributions will be accepted under a SIMPLE plan established by any
employer pursuant to Code Section 408(p). No transfer or rollover of funds
attributable to contributions made by a particular employer under its
SIMPLE plan will be accepted from a SIMPLE IRA, that is, an IRA used in
conjunction with a SIMPLE plan, prior to the expiration of the 2-year
period beginning on the date the individual first participated in that
employer's SIMPLE plan.
Any refund of premiums (other than those attributable to excess deposits)
will be applied, before the close of the calendar year following the year
of the refund, toward the payment of future premiums or the purchase of
additional benefits.
ARTICLE III - DISTRIBUTION LIMITS
1. All distributions made hereunder shall be made in accordance with the
requirements of Section 401(a)(9) of the Code, including the incidental
death benefit requirements of Section 401(a)(9)(G) of the Code, and the
regulations thereunder, including the minimum distribution incidental
benefit requirement of Section 1.401(a)(9)-2 of the Proposed Income Tax
Regulations.
I.95-07 Page 1
<PAGE>
Life expectancy is computed by use of the expected return multiples in
Tables V and VI in Section 1.72-9 of the Income Tax Regulations. Unless
otherwise elected by the Owner by the time distributions are required to
begin, life expectancies shall be recalculated annually. Such election
shall be irrevocable by the Owner and shall apply to all subsequent
years. The life expectancy of a non-spouse beneficiary may not be
recalculated. Instead, life expectancy will be calculated using the
attained age of such beneficiary during the calendar year in which the
individual attains age 70-1/2, and payments for subsequent years shall
be calculated based on such life expectancy reduced by one for each
calendar year which has elapsed since the calendar year life expectancy
was first calculated.
2. The Owner's entire interest in the Contract must be distributed, or begin
to be distributed, by the Owner's required beginning date, which is the
April 1 following the calendar year in which the Owner reaches age 70-1/2.
For each succeeding year, a distribution must be made on or before
December 31. By the required beginning date the Owner may elect, in a
manner acceptable to the Company, to have the balance in the Contract
distributed in one of the following forms:
a. a single sum payment;
b. equal or substantially equal payments over the life of the Owner;
c. equal or substantially equal payments over the lives of the Owner and
his or her designated Beneficiary;
d. equal or substantially equal payments over a specified period that may
not be longer than the Owner's life expectancy;
e. equal or substantially equal payments over a specified period that may
not be longer than the joint life and last survivor expectancy of the
Owner and his or her designated Beneficiary.
3. Payments must be made in periodic payments at intervals of no longer than
one year. If the Owner elects distributions in the form of annuity
payments, the payments must be either nonincreasing or they may increase
only as provided in Q & A F-3 of Section 1.401(a)(9)-1 of the Proposed
Income Tax Regulations.
4. If the Owner does not elect a method of payout by the April 1 following the
calendar year in which he or she reaches age 70-1/2, the Company shall have
complete and sole discretion to make payments pursuant to one of the forms
described in paragraph 2 above.
5. If the Owner rolls over or transfers individual retirement annuity or
account (IRA) funds or qualified retirement plan funds into the Contract,
within the meaning of Code Section 402(c), after April 1 of the year
following the year he or she attained age 70-1/2, the choice of the method
of payout will be made according to whether the Owner had elected to
recalculate or to not recalculate the minimum distributions from the
distributing or transferring plan, as follows:
a. If the Owner elected to not recalculate the minimum distributions from
the distributing or transferring plan, the payout option applicable
for this Contract must be made over a period certain not exceeding the
remaining applicable life expectancy. The remaining applicable life
expectancy is the applicable life expectancy used to determine the
minimum distribution from the distributing or transferring plan for
the year in which the transaction occurs (the distribution which may
not be rolled over or transferred into this receiving plan), minus
1.0. Payouts may not be made for the life of the Owner or for the
lives of the Owner and the Beneficiary.
I.95-07 Page 2
<PAGE>
b. If the Owner elected to recalculate the minimum distributions, payouts
from this Contract may be made (1) for the life of the Owner, (2) for
the lives of the Owner and the Beneficiary, (3) for the life of the
Owner or for the lives of the Owner and the Beneficiary with a period
certain not longer than the remaining applicable life expectancy, or
(4) a period certain not longer than the remaining applicable life
expectancy. The remaining applicable life expectancy is the
applicable life expectancy used to determine the current year minimum
distribution from the distributing or transferring plan for the year
in which the transaction occurs (the distribution which may not be
rolled over or transferred into this receiving plan), minus 1.0.
6. If the Owner receives payouts according a period certain, the period
certain may not be lengthened after the date payouts begin, even if the
original period established is shorter than the maximum permitted.
7. If the payout option is a life annuity or a life annuity with a period
certain not exceeding 20 years, the following rule will apply. The first
payout made on or before the April 1 following the year the Owner attained
age 70-1/2 must be in the amount required for one payout interval. The
second payout need not be made until the end of the next payout interval,
even if that payout interval ends in the next calendar year.
If the payout schedule is a period certain annuity without a life
contingency or a life annuity with a period certain exceeding 20 years,
periodic payouts for each distribution calendar year (i.e., a year for
which a minimum distribution is required) will be combined and treated as
an annual amount. The amount which is required to be distributed on or
before April 1 following the year the Owner attains age 70-1/2 is the
annual amount for Owner's first distribution calendar year. The annual
amount for other distribution calendar years, including the annual amount
for the calendar year in which the Owner's required beginning date occurs,
must be distributed on or before December 31 of the calendar year for which
the distribution is required.
8. If the Owner dies before his or her entire interest is distributed, the
entire remaining interest will be distributed as follows:
a. If the Owner dies on or after distributions have begun, the entire
remaining interest must be distributed at least as rapidly as provided
under that section.
b. If the Owner dies before distributions have begun, the entire
remaining interest must be distributed as elected by the Owner or, if
the Owner has not so elected, as elected by the Beneficiary or
Beneficiaries, as follows:
1) by December 31st of the year containing the fifth anniversary of
the Owner's death; or
2) in equal or substantially equal payments over the life or life
expectancy of the designated Beneficiary or Beneficiaries
starting by December 31st of the year following the year of the
Owner's death. If, however, the Beneficiary is the Owner's
surviving spouse, then this distribution is not required to begin
before December 31st of the year in which the Owner would have
turned 70-1/2.
c. If the Beneficiary is the Owner's surviving spouse, the spouse may
treat the Owner's IRA as his or her own IRA. This will be deemed to
have occurred if such surviving spouse makes a regular contribution to
the IRA, makes a rollover to or from such IRA, or fails to elect any
of the above provisions. In addition, the Beneficiary may roll over
or transfer the Owner's interest to the Beneficiary's own IRA if the
Beneficiary is the Owner's surviving spouse.
I.95-07 Page 3
<PAGE>
9. Life expectancy is computed by use of the expected return multiples in
Tables V and VI of Section 1.72-9 of the Income Tax Regulations. For
purposes of distributions beginning after the Owner's death, unless
otherwise elected by the surviving spouse by the time distributions are
required to begin, life expectancies shall be recalculated annually. Such
election shall be irrevocable by the surviving spouse and shall apply to
all subsequent years. In the case of any other designated Beneficiary,
life expectancies shall be calculated using the attained age of such
Beneficiary during the calendar year in which distributions are required to
begin pursuant to this section, and payments for any subsequent calendar
year shall be calculated based on such life expectancy reduced by one for
each calendar year which has elapsed since the calendar year life
expectancy was first calculated.
Distributions under this section are considered to have begun if
distributions are made on account of the Owner reaching his or her required
beginning date or if prior to the required beginning date distributions
irrevocably commence to an Owner over a period permitted and in an annuity
form acceptable under Section 1.401(a)(9) of the Regulations.
ARTICLE IV - REPORTING
Unless the Owner dies, is disabled (as defined in Code Section 72(m)), or
reaches age 59-1/2 before any amount is paid out from the Contract, the
Company must receive from the Owner a statement explaining how he or she
intends to dispose of the amount paid out.
The Owner agrees to provide the Company with information necessary for the
Company to prepare any report required under Section 408(i) of the Code and
Regulations Sections 1.408-5 and 1.408-6.
The Company shall furnish annual calendar year reports concerning the
status of the annuity.
ARTICLE V - AMENDMENTS
Any amendment made for the purpose of complying with provisions of the
Code and related regulations may be made without the consent of the
Owner. The Owner will be deemed to have consented to any other amendment
unless the Owner notifies the Company that he or she does not consent
within 30 days from the date the Company mails the amendment to the
Owner.
ARTICLE VI - RESPONSIBILITY OF THE PARTIES
The Company shall not be responsible for any penalties, taxes, judgments or
expenses incurred by the Owner in connection with this IRA and shall have
no duty to determine whether any contributions to or distributions from
this IRA comply with the Code, regulations or rulings.
INTEGRITY LIFE INSURANCE COMPANY
-------------------- -------------------
/s/ John R. Lindholm /s/ Robert H. Scott
-------------------- -------------------
John R. Lindholm Robert H. Scott
President Secretary
I.95-07 Page 4
<PAGE>
EASY@NNUITY CUSTOMER PROFILE
________________________________________________________________________________
CUSTOMER INFORMATION:
________________________________________________________________________________
NAME PHONE SOCIAL SECURITY NUMBER
________________________________________________________________________________
ADDRESS
________________________________________________________________________________
CITY STATE ZIP
SEX: / / Male / / Female TRAD. IRA: / / NONQUALIFIED: / /
DATE OF BIRTH: ________________________ BENEFICIARY: _____________________
INITIAL ALLOCATION: $________________________
WILL YOUR ANNUITY BE FUNDED BY REPLACING AN EXISTING ANNUITY OR LIFE INSURANCE?
_____ YES _____ NO
(ADDITIONAL FORMS ARE REQUIRED)
ALLOCATION AMONG VARIABLE OPTIONS:
SUBACCOUNT: BT Funds Trust
PORTFOLIOS: Equity 500 Index Fund (720) _____, Small Cap Index Fund (721)
____, and EAFE Equity Index Fund (722) _____
SUBACCOUNT: Federated Investors
PORTFOLIOS: Fund for Government Securities II (723) ____, Quality Bond Fund
II (724) ____, High Income Bond Fund II (725) ____, Utility Fund
II (726) ____
SUBACCOUNT: Janus Aspen Series
PORTFOLIOS: Growth Portfolio (728) ____, Aggressive Growth Portfolio (729)
____, Capital Appreciation Portfolio (730) ____, Worldwide Growth
Portfolio (731) ____, International Growth Portfolio (732) ____,
Growth and Income Portfolio (733) ____, Balanced Portfolio (734)
____, Equity-Income Portfolio (735) ____ and Money Market
Portfolio (727) ____
<PAGE>
JANUS ASPEN SERIES
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT is made this 1st day of October, 1997, between JANUS ASPEN
SERIES, an open-end management investment company organized as a Delaware
business trust (the "Trust"), and Integrity Life Insurance Company, a life
insurance company organized 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 on Schedule A, as may be amended from time to time (the "Accounts").
W I T N E S S E T H:
WHEREAS, the Trust has registered with the Securities and Exchange
Commission as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"), and has registered the offer
and sale of its shares under the Securities Act of 1933, as amended (the "1933
Act"); and
WHEREAS, the Trust desires to act as an investment vehicle for separate
accounts established for variable life insurance policies and variable annuity
contracts to be offered by insurance companies that have entered into
participation agreements with the Trust (the "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares, each series representing an interest in a particular managed
portfolio of securities and other assets (the "Portfolios"); and
WHEREAS, the Trust has received an order from the Securities and Exchange
Commission 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 Trust to be sold to and held by
variable annuity and variable life insurance separate accounts of both
affiliated and unaffiliated life insurance companies and certain qualified
pension and retirement plans (the "Exemptive Order"); and
WHEREAS, the Company has registered or will register (unless registration
is not required under applicable law) certain variable life insurance policies
and/or variable annuity contracts under the 1933 Act (the "Contracts"); and
WHEREAS, the Company has registered or will register (unless registration
is not required under applicable law) each Account as a unit investment trust
under the 1940 Act; and
WHEREAS, the Company desires to utilize shares of one or more Portfolios as
an investment vehicle of the Accounts;
<PAGE>
NOW, THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
ARTICLE I
SALE OF TRUST SHARES
1.1 The Trust shall make shares of its Portfolios available to the
Accounts at the net asset value next computed after receipt of such purchase
order by the Trust (or its agent), as established in accordance with the
provisions of the then current prospectus of the Trust. Shares of a particular
Portfolio of the Trust shall be ordered in such quantities and at such times as
determined by the Company to be necessary to meet the requirements of the
Contracts. 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 is, 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, necessary in the best interests of the shareholders of such
Portfolio.
1.2 The Trust will redeem 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. The Trust shall make payment for such shares in the
manner established from time to time by the Trust, but in no event shall payment
be delayed for a greater period than is permitted by the 1940 Act.
1.3 For the purposes of Sections 1.1 and 1.2, the Trust hereby appoints
the Company as its agent for the limited purpose of receiving and accepting
purchase and redemption orders resulting from investment in and payments under
the Contracts. Receipt by the Company shall constitute receipt by the Trust
provided that i) such orders are received by the Company in good order prior to
the time the net asset value of each Portfolio is priced in accordance with its
prospectus and ii) the Trust receives notice of such orders by 11:00 a.m. New
York time on the next following Business Day. "Business Day" shall mean any day
on which the New York Stock Exchange is open for trading and on which the Trust
calculates its net asset value pursuant to the rules of the Securities and
Exchange Commission.
1.4 Purchase orders that are transmitted to the Trust in accordance with
Section 1.3 shall be paid for no later than 12:00 noon New York time on the same
Business Day that the Trust receives notice of the order. Payments shall be
made in federal funds transmitted by wire.
1.5 Issuance and transfer of the Trust's shares will be by book entry
only. Stock certificates will not be issued to the Company or the Account.
Shares ordered from the Trust will be recorded in the appropriate title for each
Account or the appropriate subaccount of each Account.
-2-
<PAGE>
1.6 The Trust shall furnish prompt notice to the Company of any income
dividends or capital gain distributions payable on the Trust's shares. 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.
1.7 The Trust shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 6 p.m. New York
time.
1.8 The Trust agrees that its shares will be sold only to Participating
Insurance Companies and their separate accounts and to certain qualified pension
and retirement plans to the extent permitted by the Exemptive Order. No shares
of any Portfolio will be sold directly to the general public. The Company
agrees that Trust shares will be used only for the purposes of funding the
Contracts and Accounts listed in Schedule A, as amended from time to time.
1.9 The Trust agrees that all Participating Insurance Companies shall
have the obligations and responsibilities regarding pass-through voting and
conflicts of interest corresponding to those contained in Section 2.8 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
Securities and Exchange 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 qualification of its shares, 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 At the option of the Company, the Trust shall either (a) provide the
Company (at the Company's expense) with as many copies of the Trust's current
prospectus, annual report, semi-annual report and other shareholder
communications, including any amendments or supplements to any of the foregoing,
as the Company shall reasonably request; or (b) provide the Company with a
camera ready copy of such documents in a form suitable for printing. The Trust
shall provide the Company with a copy of its statement of additional information
in a form suitable for duplication by the Company. The Trust (at its expense)
shall provide the Company with copies of any Trust-sponsored proxy materials in
such quantity as the Company shall reasonably require for distribution to
Contract owners.
-3-
<PAGE>
2.3 The Company shall bear the costs of printing and distributing the
Trust's prospectus, statement of additional information, shareholder reports and
other shareholder communications to owners of and applicants for policies for
which the Trust is to serve as an investment vehicle. The Company shall bear the
costs of distributing proxy materials (or similar materials such as voting
solicitation instructions) to Contract owners. The Company assumes sole
responsibility for ensuring that such materials are delivered to Contract owners
in accordance with applicable federal and state securities laws, provided that
Trust provides such materials in a prompt manner and in a form and format in
accordance with applicable federal and state securities laws.
2.4 The Company agrees and acknowledges that the Trust's adviser, Janus
Capital Corporation ("Janus Capital"), is the sole owner of the name and mark
"Janus" and that all use of any designation comprised in whole or part of Janus
(a "Janus Mark") under this Agreement shall inure to the benefit of Janus
Capital. Except as provided in Section 2.5, the Company shall not use any Janus
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 Janus
Capital. Upon termination of this Agreement for any reason, the Company shall
cease all use of any Janus Mark(s) as soon as reasonably practicable.
2.5 The Company shall furnish, or cause to be furnished, to the Trust or
its designee, a copy of each Contract prospectus or statement of additional
information in which the Trust or its investment adviser is named prior to the
filing of such document with the Securities and Exchange 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 its investment adviser is named, at least fifteen Business Days
prior to its use. No such material shall be used if the Trust or its designee
reasonably objects to such use within fifteen Business Days after receipt of
such material.
2.6 The Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust or
its investment adviser 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),
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 written
permission of the Trust or its designee.
2.7 The Trust shall not give any information or make any representations
or statements on behalf of the Company or concerning the Company or its
affiliates, 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
-4-
<PAGE>
Company for distribution including sales literature or other promotional
materials, except as required by legal process or regulatory authorities or with
the written permission of the Company.
2.8 So long as, and to the extent that the Securities and Exchange
Commission interprets the 1940 Act to require pass-through voting privileges for
variable policyowners, the Company will provide pass-through voting privileges
to owners of policies whose cash values are invested, through the Accounts, in
shares 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 as reasonably established by the Trust. With respect to each
Account, the Company will vote shares of the Trust held by the Account and for
which no timely voting instructions from policyowners are received as well as
shares it owns that are held by that Account, 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 Trust shares held by Contract owners without the prior written consent of
the Trust, which consent may be withheld in the Trust's sole discretion.
2.9 The Company shall notify the Trust of any applicable state insurance
laws that restrict the Portfolios' investments or otherwise affect the operation
of the Trust and shall notify the Trust of any changes in such laws.
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 on the date set forth in Schedule A.
3.2 The Company represents and warrants that each Account (1) has been
registered or, prior to any issuance or sale of the Contracts, will be
registered as a unit investment trust in accordance with the provisions of the
1940 Act or, alternatively (2) has not been registered in proper reliance upon
an exclusion from registration under the 1940 Act.
3.3 The Company represents and warrants that the Contracts or interests
in the Accounts (1) are or, prior to issuance, will be registered as securities
under the 1933 Act or, alternatively (2) 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 and state laws; and the sale of the Contracts shall comply in all
material respects with state insurance suitability requirements.
-5-
<PAGE>
3.4 The Trust represents and warrants that it is duly organized and
validly existing under the laws of the State of Delaware.
3.5 The Trust represents and warrants that the Trust shares offered and
sold pursuant to this Agreement will be registered under the 1933 Act and the
Trust shall be registered under the 1940 Act prior to 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.
3.6 The Trust represents and warrants that the investments of each
Portfolio will comply with the diversification requirements set forth in Section
817(h) of the Internal Revenue Code of 1986, as amended, and the rules and
regulations thereunder.
ARTICLE IV
POTENTIAL CONFLICTS
4.1 The parties acknowledge that the Trust'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. 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 Trustees shall promptly inform the Company if they determine that
an irreconcilable material conflict exists and the implications thereof.
4.2 The Company agrees to promptly report 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 Exemptive Order by
providing the Trustees with all information reasonably necessary for 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.
4.3 If it is determined by a majority of the Trustees, or a majority of
its 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 expense and to the extent reasonably practicable (as determined
-6-
<PAGE>
by the Trustees) take whatever steps are necessary to remedy or eliminate the
irreconcilable material 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 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
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 Sections 4.3 through 4.6 of this Agreement, a
majority of the disinterested Trustees shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Company 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 Contract owners
materially adversely affected by the irreconcilable material conflict. In the
event that the Trustees determine that any proposed action does not adequately
remedy any irreconcilable material 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
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<PAGE>
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 Exemptive
Order, and said reports, materials and data shall be submitted more frequently
if deemed appropriate as reasonably determined by the Trustees.
4.8 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 Exemptive Order) on terms and conditions materially different
from those contained in the Exemptive Order, then the Trust 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.
ARTICLE V
INDEMNIFICATION
5.1 INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and
hold harmless 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
Article V) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Company) 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:
(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 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
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<PAGE>
(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.
5.2 INDEMNIFICATION BY THE TRUST. The Trust 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 purposes
of this Article V) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Trust) 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:
(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 in sales literature
generated or approved by the Trust or its investment adviser on behalf of
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 Trust by or on 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
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<PAGE>
(b) arise out of or result from statements or representations
(other than statements or representations contained in and accurately
derived from Company Documents) or wrongful conduct of the Trust 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 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 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 Trust in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Trust.
5.3 Neither the Company nor the Trust 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 gross negligence in
the performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations or duties under this
Agreement.
5.4 Neither the Company nor the Trust 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 the Indemnified Parties,
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
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<PAGE>
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
ARTICLE VI
TERMINATION
6.1 This Agreement may be terminated by either party for any reason by
one hundred eighty (180) days advance written notice delivered to the other
party.
6.2 Notwithstanding any termination of this Agreement, the Trust shall,
at the option of the Company, continue to make available additional shares of
the Trust (or 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, provided that the Company continues to pay the costs set forth
in Section 2.3.
6.3 The provisions of Article V shall survive the termination of this
Agreement, and the provisions of Article IV and Section 2.8 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:
Janus Aspen Series
100 Fillmore Street
Denver, Colorado 80206
Attention: General Counsel
If to the Company:
Integrity Life Insurance Company
515 West Market Street, 8th Floor
Louisville, KY 40202
Attention: General Counsel - Retail Business Division
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<PAGE>
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 simultaneously 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 State of Colorado.
8.5 The parties to this Agreement acknowledge and agree that all
liabilities of the Trust and/or the Accounts 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/or the Accounts and that no Trustee,
officer, agent or holder of shares of beneficial interest of the Trust or the
Accounts 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 Securities and
Exchange 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 The parties to this Agreement acknowledge and agree that 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.
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<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.
JANUS ASPEN SERIES
By: /s/ Bonnie Howe
---------------------------------------
Name: Bonnie M Howe
-------------------------------------
Title: Assistant Vice President
------------------------------------
INTEGRITY LIFE INSURANCE COMPANY
By: /s/ John R. Lindholm
---------------------------------------
Name: John R. Lindholm
-------------------------------------
Title: President
------------------------------------
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<PAGE>
SCHEDULE A
SEPARATE ACCOUNTS AND ASSOCIATED CONTRACTS
<TABLE>
<CAPTION>
Name of Separate Account and Contracts Funded
Date Established by Board of Directors By Separate Account
- -------------------------------------- -------------------
<S> <C>
Separate Account II Pinnacle Flexible Premium Variable Annuity
May 21, 1992
Separate Account III easyannuity-TM- Flexible Premium Variable
August 19, 1994, reestablished Annuity
March 9, 1999
</TABLE>
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<PAGE>
FUND PARTICIPATION AGREEMENT
This AGREEMENT is made this __ day of ________________, 199__, by and
between __________________________ (the "Insurer"), a life insurance company
domiciled in ___________________, on its behalf and on behalf of the segregated
asset accounts of the Insurer listed on Exhibit A to this Agreement (the
"Separate Accounts"); Insurance Series (the "Fund"), a Massachusetts business
trust; and Federated Securities Corp. (the "Distributor"), a Pennsylvania
corporation.
W I T N E S S E T H
WHEREAS, the Fund 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 ("1940 Act") and the Fund is authorized to issue
separate classes of shares of beneficial interest ("shares"), each representing
an interest in a separate portfolio of assets known as a "portfolio" and each
portfolio has its own investment objective, policies, and limitations; and
WHEREAS, the Fund is available to offer shares of one or more of its
portfolios to separate accounts of insurance companies that fund variable
annuity contracts ("Variable Contracts") and to serve as an investment medium
for Variable Contracts offered by insurance companies that have entered into
participation agreements substantially similar to this agreement ("Participating
Insurance Companies"), and the Fund will be made available in the future to
offer shares of one or more of its portfolios to separate accounts of insurance
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<PAGE>
companies that fund variable life insurance policies (at which time such
policies would also be "Variable Contracts" hereunder), and
WHEREAS, the Fund is currently comprised of eight separate portfolios, and
other portfolios may be established in the future; and
WHEREAS, the Fund has obtained an order from the SEC dated December 29,
1993 (File No. 812-8620), 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 1940 Act and
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, 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 life insurance companies that may
or may not be affiliated with one another (hereinafter the "Mixed and Shared
Funding Exemptive Order"); and
WHEREAS, the Distributor is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended ("1934 Act"), and is a
member in good standing of the National Association of Securities Dealers, Inc.
("NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Insurer wishes to purchase shares of one or more of the Fund's
portfolios on behalf of its Separate Accounts to serve as an investment medium
for Variable Contracts funded by the Separate Accounts, and the Distributor is
authorized to sell shares of the Fund's portfolios;
2
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and covenants hereinafter set forth, the parties hereby agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1 The Distributor agrees to sell to the Insurer those shares of the
portfolios offered and made available by the Fund and identified on Exhibit B
("Portfolios") that the Insurer orders on behalf of its Separate Accounts, and
agrees to execute such orders on each day on which the Fund calculates its net
asset value pursuant to rules of the SEC ("business day") at the net asset value
next computed after receipt and acceptance by the Fund or its agent of the order
for the shares of the Fund.
1.2 The Fund agrees to make available on each business day shares of
the Portfolios for purchase at the applicable net asset value per share by the
Insurer on behalf of its Separate Accounts; provided, however, that the Board of
Trustees of the Fund may refuse to sell shares of any Portfolio to any person,
or suspend or terminate the offering of shares of any Portfolio, if such action
is required by law or by regulatory authorities having jurisdiction or is, in
the sole discretion of the Trustees, acting in good faith and in light of the
Trustees' fiduciary duties under applicable law, necessary in the best interests
of the shareholders of any Portfolio.
1.3 The Fund and the Distributor agree that shares of the Portfolios of
the Fund will be sold only to Participating Insurance Companies, their separate
accounts, and other persons consistent with each Portfolio being adequately
diversified pursuant to Section 817(h) of the Internal Revenue Code of 1986, as
3
<PAGE>
amended ("Code"), and the regulations thereunder. No shares of any Portfolio
will be sold directly to the general public to the extent not permitted by
applicable tax law.
1.4 The Fund and the Distributor will not sell shares of the Portfolios
to any insurance company or separate account unless an agreement containing
provisions substantially the same as the provisions in Article IV of this
Agreement is in effect to govern such sales.
1.5 Upon receipt of a request for redemption in proper form from the
Insurer, the Fund agrees to redeem any full or fractional shares of the
Portfolios held by the Insurer, ordinarily executing such requests on each
business day at the net asset value next computed after receipt and acceptance
by the Fund or its agent of the request for redemption, except that the Fund
reserves the right to suspend the right of redemption, consistent with Section
22(e) of the 1940 Act and any rules thereunder. Such redemption shall be paid
consistent with applicable rules of the SEC and procedures and policies of the
Fund as described in the current prospectus.
1.6 For purposes of Sections 1.2 and 1.5, the Insurer shall be the
agent of the Fund for the limited purpose of receiving and accepting purchase
and redemption orders from each Separate Account and receipt of such orders by
4:00 p.m. Eastern time by the Insurer shall be deemed to be receipt by the Fund
for purposes of Rule 22c-1 of the 1940 Act; provided that the Fund receives
notice of such orders on the next following business day prior to 4:00 p.m.
Eastern time on such day, although the Insurer will use its best efforts to
provide such notice by 9:00 a.m. Eastern time.
4
<PAGE>
1.7 The Insurer agrees to purchase and redeem the shares of each
Portfolio in accordance with the provisions of the current prospectus for the
Fund.
1.8 The Insurer shall pay for shares of the Portfolio on the next
business day after it places an order to purchase shares of the Portfolio.
Payment shall be in federal funds transmitted by wire.
1.9 Issuance and transfer of shares of the Portfolios will be by book
entry only unless otherwise agreed by the Fund. Stock certificates will not be
issued to the Insurer or the Separate Accounts unless otherwise agreed by the
Fund. Shares ordered from the Fund will be recorded in an appropriate title for
the Separate Accounts or the appropriate subaccounts of the Separate Accounts.
1.10 The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Insurer of any income dividends or
capital gain distributions payable on the shares of the Portfolios. The Insurer
hereby elects to reinvest in the Portfolio all such dividends and distributions
as are payable on a Portfolio's shares and to receive such dividends and
distributions in additional shares of that Portfolio. The Insurer reserves the
right to revoke this election in writing and to receive all such dividends and
distributions in cash. The Fund shall notify the Insurer of the number of
shares so issued as payment of such dividends and distributions.
1.11 The Fund shall instruct its recordkeeping agent to advise the
Insurer on each business day of the net asset value per share for each Portfolio
as
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<PAGE>
soon as reasonably practical after the net asset value per share is calculated
and shall use its best efforts to make such net asset value per share available
by 7:00 p.m. Eastern time.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1 The Insurer represents and warrants that it is an insurance company
duly organized and in good standing under applicable law and that it is taxed as
an insurance company under Subchapter L of the Code.
2.2 The Insurer represents and warrants that it has legally and validly
established each of the Separate Accounts as a segregated asset account under
the ____________________ Insurance Code, and that each of the Separate Accounts
is a validly existing segregated asset account under applicable federal and
state law.
2.3 The Insurer represents and warrants that the Variable Contracts
issued by the Insurer or interests in the Separate Accounts under such Variable
Contracts (1) are or, prior to issuance, will be registered as securities under
the Securities Act of 1933 ("1933 Act") or, alternatively, (2) 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.
2.4 The Insurer represents and warrants that each of the Separate
Accounts (1) has been registered as a unit investment trust in accordance with
6
<PAGE>
the provisions of the 1940 Act or, alternatively, (2) has not been registered in
proper reliance upon an exclusion from registration under the 1940 Act.
2.5 The Insurer represents that it believes, in good faith, that the
Variable Contracts issued by the Insurer are currently treated as annuity
contracts or life insurance policies (which may include modified endowment
contracts), whichever is appropriate, under applicable provisions of the Code.
2.6 The Fund represents and warrants that it is duly organized as a
business trust under the laws of the Commonwealth of Massachusetts, and is in
good standing under applicable law.
2.7 The Fund represents and warrants that the shares of the Portfolios
are duly authorized for issuance in accordance with applicable law and that the
Fund is registered as an open-end management investment company under the 1940
Act.
2.8 The Fund represents that it believes, in good faith, that the
Portfolios currently comply with the diversification provisions of Section
817(h) of the Code and the regulations issued thereunder relating to the
diversification requirements for variable life insurance policies and variable
annuity contracts.
2.9 The Distributor represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC.
ARTICLE III. GENERAL DUTIES
7
<PAGE>
3.1 The Fund shall take all such actions as are necessary to permit the
sale of the shares of each Portfolio to the Separate Accounts, including
maintaining its registration as an investment company under the 1940 Act, and
registering the shares of the Portfolios sold to the Separate Accounts under the
1933 Act for so long as required by applicable law. The Fund shall amend its
Registration Statement filed with the SEC under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of the
shares of the Portfolios. The Fund shall register and qualify the shares for
sale in accordance with the laws of the various states to the extent deemed
necessary by the Fund or the Distributor.
3.2 The Fund shall make every effort to maintain qualification of each
Portfolio as a Regulated Investment Company under Subchapter M of the Code (or
any successor or similar provision) and shall notify the Insurer immediately
upon having a reasonable basis for believing that a Portfolio has ceased to so
qualify or that it might not so qualify in the future.
3.3 The Fund shall make every effort to enable each Portfolio to comply
with the diversification provisions of Section 817(h) of the Code and the
regulations issued thereunder relating to the diversification requirements for
variable life insurance policies and variable annuity contracts and any
prospective amendments or other modifications to Section 817 or regulations
thereunder, and shall notify the Insurer immediately upon having a reasonable
basis for believing that any Portfolio has ceased to comply.
3.4 The Insurer shall take all such actions as are necessary under
applicable federal and state law to permit the sale of the Variable Contracts
8
<PAGE>
issued by the Insurer, including registering each Separate Account as an
investment company to the extent required under the 1940 Act, and registering
the Variable Contracts or interests in the Separate Accounts under the Variable
Contracts to the extent required under the 1933 Act, and obtaining all necessary
approvals to offer the Variable Contracts from state insurance commissioners.
3.5 The Insurer shall make every effort to maintain the treatment of
the Variable Contracts issued by the Insurer as annuity contracts or life
insurance policies, whichever is appropriate, under applicable provisions of the
Code, and shall notify the Fund and the Distributor immediately upon having a
reasonable basis for believing that such Variable Contracts have ceased to be so
treated or that they might not be so treated in the future.
3.6 The Insurer shall offer and sell the Variable Contracts issued by
the Insurer in accordance with applicable provisions of the 1933 Act, the 1934
Act, the 1940 Act, the NASD Rules of Fair Practice, and state law respecting the
offering of variable life insurance policies and variable annuity contracts.
3.7 The Distributor shall sell and distribute the shares of the
Portfolios of the Fund in accordance with the applicable provisions of the 1933
Act, the 1934 Act, the 1940 Act, the NASD Rules of Fair Practice, and state law.
3.8 During such time as the Fund engages in Mixed Funding or Shared
Funding, a majority of the Board of Trustees of the Fund shall consist of
persons who are not "interested persons" of the Fund ("disinterested Trustees"),
as defined by 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 provision of
this
9
<PAGE>
Section 3.8 is not met by reason of the death, disqualification, or bona fide
resignation of any Trustee or Trustees, then the operation of this provision
shall be suspended (a) for a period of 45 days if the vacancy or vacancies may
be filled by the Fund's Board; (b) for a period of 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.
3.9 The Insurer and its agents will not in any way recommend any
proposal or oppose or interfere with any proposal submitted by the Fund at a
meeting of owners of Variable Contracts or shareholders of the Fund, and will in
no way recommend, oppose, or interfere with the solicitation of proxies for Fund
shares held by Contract Owners, without the prior written consent of the Fund,
which consent may be withheld in the Fund's sole discretion.
3.10 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities having jurisdiction (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.
ARTICLE IV. POTENTIAL CONFLICTS
4.1 During such time as the Fund engages in Mixed Funding or Shared
Funding, the parties hereto shall comply with the conditions in this Article IV.
10
<PAGE>
4.2 The Fund's Board of Trustees shall monitor the Fund for the
existence of any material irreconcilable conflict (1) between the interests of
owners of variable annuity contracts and variable life insurance policies, and
(2) between the interests of owners of Variable Contracts ("Variable Contract
Owners") issued by different Participating Life Insurance Companies that invest
in the Fund. 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
interpretive 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 of
the Fund are being managed; (e) a difference in voting instructions given by
variable annuity and variable life insurance contract owners; or (f) a decision
by a Participating Insurance Company to disregard the voting instructions of
Variable Contract Owners.
4.3 The Insurer agrees that it shall report any potential or existing
conflicts of which it is aware to the Fund's Board of Trustees. The Insurer
will be responsible for assisting the Board of Trustees of the Fund in carrying
out its responsibilities under the Mixed and Shared Funding Exemptive Order, or,
if the Fund is engaged in Mixed Funding or Shared Funding in reliance on Rule
6e-2, 6e-3(T), or any other regulation under the 1940 Act, the Insurer will be
responsible for assisting the Board of Trustees of the Fund in carrying out its
responsibilities under such regulation, 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 Insurer to inform the
Board whenever Variable Contract Owner voting instructions are disregarded.
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The Insurer shall carry out its responsibility under this Section 4.3 with a
view only to the interests of the Variable Contract Owners.
4.4 The Insurer agrees that in the event that it is determined by a
majority of the Board of Trustees of the Fund or a majority of the Fund's
disinterested Trustees that a material irreconcilable conflict exists, the
Insurer shall, at its expense and to the extent reasonably practicable (as
determined by a majority of the disinterested Trustees of the Board of the
Fund), 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 another portfolio of the Fund, or submitting the question as to
whether such segregation should be implemented to a vote of all affected
Variable Contract Owners and, as appropriate, segregating the assets of any
appropriate group (I.E., annuity contract owners or life insurance contract
owners of contracts issued by one or more Participating Insurance Companies),
that votes in favor of such segregation, or offering to the affected Variable
Contract Owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account. If a
material irreconcilable conflict arises because of the Insurer's decision to
disregard Variable Contract Owners' voting instructions and that decision
represents a minority position or would preclude a majority vote, the Insurer
shall be required, at the Fund's election, to withdraw the Separate Accounts'
investment in the Fund, 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, and no
charge or penalty will be imposed as a result of such withdrawal. These
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responsibilities shall be carried out with a view only to the interests of the
Variable Contract Owners. A majority of the disinterested Trustees of the Fund
shall determine whether or not any proposed action adequately remedies any
material irreconcilable conflict, but in no event will the Fund or its
investment adviser or the Distributor be required to establish a new funding
medium for any Variable Contract. The Insurer shall not be required by this
Section 4.4 to establish a new funding medium for any Variable Contract if any
offer to do so has been declined by vote of a majority of Variable Contract
Owners materially adversely affected by the material irreconcilable conflict.
4.5 The Insurer, at least annually, shall submit to the Fund's Board of
Trustees such reports, materials, or data as the Board reasonably may request so
that the Trustees of the Fund may fully carry out the obligations imposed upon
the Board by the conditions contained in the application for the Mixed and
Shared Funding Exemptive Order and said reports, materials, and data shall be
submitted more frequently if deemed appropriate by the Board.
4.6 All reports of potential or existing conflicts received by the
Fund's Board of Trustees, and all Board action with regard to determining the
existence of a conflict, notifying Participating Insurance Companies of a
conflict, and determining whether any proposed action adequately remedies a
conflict, shall be properly recorded in the minutes of the Board of Trustees of
the Fund or other appropriate records, and such minutes or other records shall
be made available to the SEC upon request.
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4.7 The Board of Trustees of the Fund shall promptly notify the Insurer
in writing of its determination of the existence of an irreconcilable material
conflict and its implications.
ARTICLE V. PROSPECTUSES AND PROXY STATEMENTS; VOTING
5.1 The Insurer shall distribute such prospectuses, proxy statements
and periodic reports of the Fund to the owners of Variable Contracts issued by
the Insurer as required to be distributed to such Variable Contract Owners under
applicable federal or state law.
5.2 The Distributor shall provide the Insurer with as many copies of
the current prospectus of the Fund as the Insurer may reasonably request. If
requested by the Insurer in lieu thereof, the Fund shall provide such
documentation (including a final copy of the Fund's prospectus as set in type or
in camera-ready copy) and other assistance as is reasonably necessary in order
for the Insurer to either print a stand-alone document or print together in one
document the current prospectus for the Variable Contracts issued by the
Insurer and the current prospectus for the Fund, or a document combining the
Fund prospectus with prospectuses of other funds in which the Variable Contracts
may be invested. The Fund shall bear the expense of printing copies of its
current prospectus that will be distributed to existing Variable Contract
Owners, and the Insurer shall bear the expense of printing copies of the Fund's
prospectus that are used in connection with offering the Variable Contracts
issued by the Insurer.
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5.3 The Fund and the Distributor shall provide, at the Fund's expense,
such copies of the Fund's current Statement of Additional Information ("SAI") as
may reasonably be requested, to the Insurer and to any owner of a Variable
Contract issued by the Insurer who requests such SAI.
5.4 The Fund, at its expense, shall provide the Insurer with copies of
its proxy materials, periodic reports to shareholders, and other communications
to shareholders in such quantity as the Insurer shall reasonably require for
purposes of distributing to owners of Variable Contracts issued by the Insurer.
The Fund, at the Insurer's expense, shall provide the Insurer with copies of its
periodic reports to shareholders and other communications to shareholders in
such quantity as the Insurer shall reasonably request for use in connection with
offering the Variable Contracts issued by the Insurer. If requested by the
Insurer in lieu thereof, the Fund shall provide such documentation (including a
final copy of the Fund'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 Insurer to print
such shareholder communications for distribution to owners of Variable Contracts
issued by the Insurer.
5.5 For so long as the SEC interprets the 1940 Act to require
pass-through voting by Participating Insurance Companies whose Separate Accounts
are registered as investment companies under the 1940 Act, the Insurer shall
vote shares of each Portfolio of the Fund held in a Separate Account or a
subaccount thereof, whether or not registered under the 1940 Act, at regular and
special meetings of the Fund in accordance with instructions timely received by
the Insurer (or its designated agent) from owners of Variable Contracts funded
by
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such Separate Account or subaccount thereof having a voting interest in the
Portfolio. The Insurer shall vote shares of a Portfolio of the Fund held in a
Separate Account or a subaccount thereof that are attributable to the Variable
Contracts as to which no timely instructions are received, as well as shares
held in such Separate Account or subaccount thereof that are not attributable to
the Variable Contracts and owned beneficially by the Insurer (resulting from
charges against the Variable Contracts or otherwise), in the same proportion as
the votes cast by owners of the Variable Contracts funded by that Separate
Account or subaccount thereof having a voting interest in the Portfolio from
whom instructions have been timely received. The Insurer shall vote shares of
each Portfolio of the Fund held in its general account, if any, in the same
proportion as the votes cast with respect to shares of the Portfolio held in all
Separate Accounts of the Insurer or subaccounts thereof, in the aggregate.
5.6 During such time as the Fund engages in Mixed Funding or Shared
Funding, the Fund shall disclose in its prospectus that (1) the Fund is intended
to be a funding vehicle for variable annuity and variable life insurance
contracts offered by various insurance companies, (2) material irreconcilable
conflicts possibly may arise, and (3) the Board of Trustees of the Fund will
monitor events in order to identify the existence of any material irreconcilable
conflicts and to determine what action, if any, should be taken in response to
any such conflict. The Fund hereby notifies the Insurer that prospectus
disclosure may be appropriate regarding potential risks of offering shares of
the Fund to separate accounts funding both variable annuity contracts and
variable life insurance policies and to separate accounts funding Variable
Contracts of unaffiliated life insurance companies.
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ARTICLE VI. SALES MATERIAL AND INFORMATION
6.1 The Insurer shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund (or any Portfolio thereof) or its investment adviser
or the Distributor is named at least 15 days prior to the anticipated use of
such material, and no such sales literature or other promotional material shall
be used unless the Fund and the Distributor or the designee of either approve
the material or do not respond with comments on the material within 10 days from
receipt of the material.
6.2 The Insurer agrees that neither it nor any of its affiliates or
agents shall give any information or make any representations or statements on
behalf of the Fund or concerning the Fund other than the information or
representations contained in the Registration Statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee and by the Distributor or its designee, except with the permission of
the Fund or its designee and the Distributor or its designee.
6.3 The Fund or the Distributor or the designee of either shall furnish
to the Insurer or its designee, each piece of sales literature or other
promotional material in which the Insurer or its Separate Accounts are named at
least 15 days prior to the anticipated use of such material, and no such
material shall be used unless the Insurer or its designee approves the material
or does not respond with comments on the material within 10 days from receipt of
the material.
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6.4 The Fund and the Distributor agree that each and the affiliates and
agents of each shall not give any information or make any representations on
behalf of the Insurer or concerning the Insurer, the Separate Accounts, or the
Variable Contracts issued by the Insurer, other than the information or
representations contained in a registration statement or prospectus for such
Variable Contracts, as such registration statement and prospectus may be amended
or supplemented from time to time, or in reports for the Separate Accounts or
prepared for distribution to owners of such Variable Contracts, or in sales
literature or other promotional material approved by the Insurer or its
designee, except with the permission of the Insurer.
6.5 The Fund will provide to the Insurer at least one complete copy of
the Mixed and Shared Funding Exemptive Application and any amendments thereto,
all prospectuses, Statements of Additional Information, reports, proxy
statements and other voting solicitation materials, and all amendments and
supplements to any of the above, that relate to the Fund or its shares, promptly
after the filing of such document with the SEC or other regulatory authorities.
6.6 The Insurer will provide to the Fund all prospectuses (which shall
include an offering memorandum if the Variable Contracts issued by the Insurer
or interests therein are not registered under the 1933 Act), Statements of
Additional Information, reports, solicitations for voting instructions relating
to the Fund, and all amendments or supplements to any of the above that relate
to the Variable Contracts issued by the Insurer or the Separate Accounts which
utilize the Fund as an underlying investment medium, promptly after the filing
of such document with the SEC or other regulatory authority.
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6.7 For purposes of this Article VI, 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, computerized media, or other
public media), sales literature (I.E., any written communication distributed or
made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications distributed
or made generally available to some or all agents or employees.
ARTICLE VII. INDEMNIFICATION
7.1 INDEMNIFICATION BY THE INSURER
7.1(a) The Insurer agrees to indemnify and hold harmless the Fund,
each of its Trustees and officers, any affiliated person of the Fund within the
meaning of Section 2(a)(3) of the 1940 Act, and the Distributor (collectively,
the "Indemnified Parties" for purposes of this Section 7.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Insurer) or litigation expenses (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 litigation expenses are related to the sale or
acquisition of the Fund's shares or the Variable Contracts issued by the Insurer
and:
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(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 (which shall include an
offering memorandum) for the Variable Contracts issued by the
Insurer or sales literature for such Variable 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 Insurer by or on behalf of the Fund for use in the
registration statement or prospectus for the Variable Contracts
issued by the Insurer or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of
such Variable Contracts or Fund shares; or
(ii) arise out of or as a result of any statement or
representation (other than statements or representations contained
in the registration statement, prospectus or sales literature of
the Fund not supplied by the Insurer or persons under its control)
or wrongful conduct of the Insurer or any of its affiliates,
employees or agents with respect to the sale or distribution of the
Variable Contracts issued by the Insurer or the Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus, or sales literature of the Fund or any amendment
thereof or supplement thereto or the omission or alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if such a
statement or omission was made in reliance upon information
furnished to the Fund by or on behalf of the Insurer; or
(iv) arise out of or result from any material breach of any
representation and/or warranty made by the Insurer in this
Agreement or arise out of or result from any other material breach
of this Agreement by the Insurer;
except to the extent provided in Sections 7.1(b) and 7.1(c) hereof.
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7.1(b) The Insurer shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
expenses to which an Indemnified Party would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of the
Indemnified Party's duties or by reason of the Indemnified Party's reckless
disregard of obligations or duties under this Agreement or to the Fund.
7.1(c) The Insurer shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Party shall have notified the Insurer 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
Party shall have received notice of such service on any designated agent), but
failure to notify the Insurer of any such claim shall not relieve the Insurer
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 Insurer
shall be entitled to participate, at its own expense, in the defense of such
action. The Insurer also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from the
Insurer to such party of the Insurer'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 Insurer 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.
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7.1(d) The Indemnified Parties shall promptly notify the Insurer
of the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund shares or the Variable Contracts issued by
the Insurer or the operation of the Fund.
7.2 INDEMNIFICATION BY THE DISTRIBUTOR
7.2(a) The Distributor agrees to indemnify and hold harmless the
Insurer, its affiliated principal underwriter of the Variable Contracts, and
each of their directors and officers and any affiliated person of the Insurer
within the meaning of Section 2(a)(3) of the 1940 Act (collectively, the
"Indemnified Parties" for purposes of this Section 7.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Distributor) or litigation expenses (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 litigation expenses are related to the sale or
acquisition of the Fund's shares or the Variable Contracts issued by the Insurer
and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of the
Fund (or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided
that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity
with information furnished to the Distributor or the Fund or the
designee of either by or on behalf of the Insurer for use in the
registration statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or otherwise for use in
the registration statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or otherwise for use
22
<PAGE>
in connection with the sale of the Variable Contracts issued by the
Insurer or Fund shares; or
(ii) arise out of or as a result of any statement or
representations (other than statements or representations contained
in the registration statement, prospectus or sales literature for
the Variable Contracts not supplied by the Distributor or any
employees or agents thereof) or wrongful conduct of the Fund or
Distributor, or the affiliates, employees, or agents of the Fund or
the Distributor with respect to the sale or distribution of the
Variable Contracts issued by the Insurer or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus, or sales literature covering the Variable Contracts
issued by the Insurer, 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 Insurer by or on behalf of the Fund; or
(iv) arise out of or result from any material breach of any
representation and/or warranty made by the Distributor in this
Agreement or arise out of or result from any other material breach
of this Agreement by the Distributor;
except to the extent provided in Sections 7.2(b) and 7.2(c) hereof.
7.2(b) The Distributor shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation expenses to which an Indemnified Party would otherwise
be subject by reason of willful misfeasance, bad faith, or gross negligence in
the performance of the Indemnified Party's duties or by reason of the
Indemnified Party's reckless disregard of obligations or duties under this
Agreement or to the Insurer or the Separate Accounts.
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<PAGE>
7.2(c) The Distributor shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Party shall have notified the Distributor in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Party shall have received notice of such
service on any designated agent), but failure to notify the Distributor of any
such claim shall not relieve the Distributor from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Distributor will be entitled to
participate, at is own expense, in the defense thereof. The Distributor also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Distributor to such party
of the Distributor's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Distributor will not be liable to such party under this Agreement for
any legal or other expense subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
7.2(d) The Insurer shall promptly notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Variable Contracts
issued by the Insurer or the operation of the Separate Accounts.
7.3 INDEMNIFICATION BY THE FUND
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7.3(a) The Fund agrees to indemnify and hold harmless the Insurer,
its affiliated principal underwriter of the Variable Contracts, and each of
their directors and officers and any affiliated person of the Insurer within the
meaning of Section 2(a)(3) of the 1940 Act (collectively, the "Indemnified
Parties" for purposes of this Section 7.3) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Fund) or litigation expenses (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 litigation expenses are related to the sale or acquisition of the
Fund's shares or the Variable Contracts issued by the Insurer and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of the
Fund (or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided
that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity
with information furnished to the Distributor or the Fund or the
designee of either by or on behalf of the Insurer for use in the
registration statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Variable Contracts issued by the
Insurer or Fund shares; or
(ii) arise out of or as a result of any statement or
representation (other than statements or representations contained
in the registration statement, prospectus or sales literature for
the Variable Contracts not supplied by the Distributor or any
employees or agents thereof) or wrongful conduct of the Fund, or
the affiliates, employees, or agents of the Fund, with respect to
the sale or distribution of the Variable Contracts issued by the
Insurer or Fund shares; or
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<PAGE>
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus or sales literature covering the Variable Contracts
issued by the Insurer, 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 Insurer by or on behalf of the Fund; or
(iv) 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;
except to the extent provided in Sections 7.3(b) and 7.3(c) hereof.
7.3(b) The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
expenses to which an Indemnified Party would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of the
Indemnified Party's duties or by reason of the Indemnified Party's reckless
disregard of obligations or duties under this Agreement or to the Insurer or the
Separate Accounts.
7.3(c) The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such party shall have notified the Fund in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon such Indemnified Party (or after such
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
26
<PAGE>
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.
7.3(d) The Insurer shall promptly notify the Fund 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 Variable Contracts
issued by the Insurer or the sale of the Fund's shares.
ARTICLE VIII. APPLICABLE LAW
8.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Pennsylvania.
8.2 This Agreement shall be subject to the provisions of the 1933,
1934, and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
may grant (including, but not limited to, the Mixed and Shared Funding Exemptive
Order), and the terms hereof shall be interpreted and construed in accordance
therewith.
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ARTICLE IX. TERMINATION
9.1 This Agreement shall terminate:
(a) at the option of any party upon 180 days advance written
notice to the other parties; or
(b) at the option of the Insurer if shares of the Portfolios are
not reasonably available to meet the requirements of the Variable Contracts
issued by the Insurer, as determined by the Insurer, and upon prompt notice by
the Insurer to the other parties; or
(c) at the option of the Fund or the Distributor upon institution
of formal proceedings against the Insurer or its agent by the NASD, the SEC, or
any state securities or insurance department or any other regulatory body
regarding the Insurer's duties under this Agreement or related to the sale of
the Variable Contracts issued by the Insurer, the operation of the Separate
Accounts, or the purchase of the Fund shares; or
(d) at the option of the Insurer upon institution of formal
proceedings against the Fund or the Distributor by the NASD, the SEC, or any
state securities or insurance department or any other regulatory body; or
(e) upon requisite vote of the Variable Contract Owners having an
interest in the Separate Accounts (or any subaccounts thereof) to substitute the
shares of another investment company for the corresponding shares of the Fund
28
<PAGE>
or a Portfolio in accordance with the terms of the Variable Contracts for which
those shares had been selected or serve as the underlying investment media; or
(f) in the event any of the shares of a 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 Insurer; or
(g) by any party to the Agreement upon a determination by a
majority of the Trustees of the Fund, or a majority of its disinterested
Trustees, that an irreconcilable conflict, as described in Article IV hereof,
exists; or
(h) at the option of the Insurer if the Fund or a Portfolio fails
to meet the requirements under Subchapter M of the Code for qualification as a
Regulated Investment Company specified in Section 3.2 hereof or the
diversification requirements specified in Section 3.3 hereof.
9.2 Each party to this Agreement shall promptly notify the other
parties to the Agreement of the institution against such party of any such
formal proceedings as described in Sections 9.1(c) and (d) hereof. The Insurer
shall give 60 days prior written notice to the Fund of the date of any proposed
vote of Variable Contract Owners to replace the Fund's shares as described in
Section 9.1(e) hereof.
9.3 Except as necessary to implement Variable Contract Owner initiated
transactions, or as required by state insurance laws or regulations, the Insurer
shall not redeem Fund shares attributable to the Variable Contracts
29
<PAGE>
issued by the Insurer (as opposed to Fund shares attributable to the Insurer's
assets held in the Separate Accounts), and the Insurer shall not prevent
Variable Contract Owners from allocating payments to a Portfolio, until 60 days
after the Insurer shall have notified the Fund or Distributor of its intention
to do so.
9.4 Notwithstanding any termination of this Agreement, the Fund and the
Distributor shall at the option of the Insurer continue to make available
additional shares of the Fund pursuant to the terms and conditions of this
Agreement, for all Variable Contracts in effect on the effective date of
termination of this Agreement (hereinafter referred to as "Existing Contracts").
Specifically, without limitation, based upon instructions from the owners of the
Existing Contracts, the Separate Accounts shall be permitted to reallocate
investments in the Portfolios of the Fund and redeem investments in the
Portfolios, and shall be permitted to invest in the Portfolios in the event that
owners of the Existing Contracts make additional purchase payments under the
Existing Contracts. If this Agreement terminates, the parties agree that
Sections 3.10, 7.1, 7.2, 7.3, 8.1, and 8.2, and, to the extent that all or a
portion of the assets of the Separate Accounts continue to be invested in the
Fund or any Portfolio of the Fund, Articles I, II, and IV and Sections 5.5 and
5.6 will remain in effect after termination.
ARTICLE X. 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.
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If to the Fund:
Insurance Series
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
Attn.: John W. McGonigle
If to the Distributor:
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
Attn.: John W. McGonigle
If to the Insurer:
ARTICLE XI: MISCELLANEOUS
11.1 The Fund and the Insurer agree that if and to the extent Rule 6e-2
or Rule 6e-3(T) under the 1940 Act is amended or if Rule 6e-3 is adopted in
final form, to the extent applicable, the Fund and the Insurer shall each take
such steps as may be necessary to comply with the Rule as amended or adopted in
final form.
11.2 A copy of the Fund's Agreement and Declaration of Trust is on file
with the Secretary of the Commonwealth of Massachusetts and notice is hereby
given that any agreements that are executed on behalf of the Fund by any Trustee
or officer of the Fund are executed in his or her capacity as Trustee or officer
and not individually. The obligations of this Agreement shall only be
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binding upon the assets and property of the Fund and shall not be binding upon
any Trustee, officer or shareholder of the Fund individually.
11.3 Nothing in this Agreement shall impede the Fund's Trustees or
shareholders of the shares of the Fund's Portfolios from exercising any of the
rights provided to such Trustees or shareholders in the Fund's Agreement and
Declaration of Trust, as amended, a copy of which will be provided to the
Insurer upon request.
11.4 Administrative services to Variable Contract Owners shall be the
responsibility of Insurer. Insurer, on behalf of its separate accounts will be
the sole shareholder of record of Fund shares. Fund and Distributor recognize
that they will derive a substantial savings in administrative expense by virtue
of having a sole shareholder rather than multiple shareholders. In
consideration of the administrative savings resulting from having a sole
shareholder rather than multiple shareholders, Distributor agrees to pay to
Insurer an amount computed at an annual rate of .25 of 1% of the average daily
net asset value of shares held in subaccounts for which Insurer provides
administrative services. Distributor's payments to Insurer are for
administrative services only and do not constitute payment in any manner for
investment advisory services.
11.5 It is understood that the name "Federated" or any derivative
thereof or logo associated with that name is the valuable property of the
Distributor and its affiliates, and that the Insurer has the right to use such
name (or derivative or logo) only so long as this Agreement is in effect. Upon
termination of this Agreement the Insurer shall forthwith cease to use such name
(or derivative or logo).
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11.6 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.
11.7 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
11.8 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.
11.9 This Agreement may not be assigned by any party to the Agree-ment
except with the written consent of the other parties to the Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
INSURANCE SERIES
ATTEST: BY:
---------------------------- ------------------------------
Name: Name:
------------------------------ ----------------------------
Title: Title:
----------------------------- ---------------------------
FEDERATED SECURITIES CORP.
ATTEST: BY:
---------------------------- ------------------------------
Name: Name:
------------------------------ ----------------------------
Title: Title:
----------------------------- ---------------------------
[INSURER NAME]
ATTEST: BY:
---------------------------- ------------------------------
Name: Name:
------------------------------ ----------------------------
Title: Title:
----------------------------- ---------------------------
34
<PAGE>
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT made as of the ____ day of _____________, 199__ by and among
BT Insurance Funds Trust ("TRUST"), a Massachusetts business trust, Bankers
Trust Company ("ADVISER"), a New York banking corporation, and ______________
("LIFE COMPANY"), a life insurance company organized under the laws of the State
of _____________.
WHEREAS, TRUST is registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940, as amended (the "'40 Act"), as
an open-end, diversified management investment company; and
WHEREAS, TRUST is comprised of several series funds (each a "Portfolio"),
with those Portfolios currently available being listed on Appendix A hereto; and
WHEREAS, TRUST was organized to act as the funding vehicle for certain
variable life insurance and/or variable annuity contracts ("Variable Contracts")
offered by life insurance companies through separate accounts ("Separate
Accounts") of such life insurance companies ("Participating Insurance
Companies"); and
WHEREAS, TRUST may also offer its shares to certain qualified pension and
retirement plans ("Qualified Plans"); and
WHEREAS, TRUST has received an order from the SEC, 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 '40 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 Contract Separate
Accounts of both affiliated and unaffiliated Participating Insurance Companies
and Qualified Plans ("Exemptive Order"); and
WHEREAS, LIFE COMPANY has established or will establish one or more
Separate Accounts to offer Variable Contracts and is desirous of having TRUST as
one of the underlying funding vehicles for such Variable Contracts; and
WHEREAS, ADVISER is a "bank" as defined in the Investment Advisers Act of
1940, as amended (the "Advisers Act") and as such is excluded from the
definition of "Investment Adviser" and is not required to register as an
investment adviser pursuant to the Advisers Act; and
WHEREAS, ADVISER serves as the TRUST's investment adviser; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase shares of TRUST to fund the
aforementioned Variable Contracts and TRUST is authorized to sell such shares to
LIFE COMPANY at such shares' net asset value;
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NOW, THEREFORE, in consideration of their mutual promises, LIFE COMPANY,
TRUST, and ADVISER agree as follows:
Article I. SALE OF TRUST SHARES
1.1 TRUST agrees to make available to the Separate Accounts of LIFE
COMPANY shares of the selected Portfolios as listed on Appendix B for investment
of purchase payments of Variable Contracts allocated to the designated Separate
Accounts as provided in TRUST's Registration Statement.
1.2 TRUST agrees to sell to LIFE COMPANY those shares of the selected
Portfolios of TRUST which LIFE COMPANY orders, executing such orders on a daily
basis at the net asset value next computed after receipt by TRUST or its
designee of the order for the shares of TRUST. For purposes of this Section
1.2, LIFE COMPANY shall be the designee of TRUST for receipt of such orders from
the designated Separate Account and receipt by such designee shall constitute
receipt by TRUST; provided that LIFE COMPANY receives the order by 4:00 p.m. New
York time and TRUST receives notice from LIFE COMPANY by telephone or facsimile
(or by such other means as TRUST and LIFE COMPANY may agree in writing) of such
order by 8:00 a.m. New York time on the next Business Day. "Business Day"
shall mean any day on which the New York Stock Exchange is open for trading and
on which TRUST calculates its net asset value pursuant to the rules of the SEC.
1.3 TRUST agrees to redeem on LIFE COMPANY's request, any full or
fractional shares of TRUST held by LIFE COMPANY, executing such requests on a
daily basis at the net asset value next computed after receipt by TRUST or its
designee of the request for redemption, in accordance with the provisions of
this Agreement and TRUST's Registration Statement. (In the event of a conflict
between the provisions of this Agreement and the Trust's Registration Statement,
the provisions of the Registration Statement shall govern.) For purposes of
this Section 1.3, LIFE COMPANY shall be the designee of TRUST for receipt of
requests for redemption from the designated Separate Account and receipt by such
designee shall constitute receipt by TRUST; provided that LIFE COMPANY receives
the request for redemption by 4:00 p.m. New York time and TRUST receives notice
from LIFE COMPANY by telephone or facsimile (or by such other means as TRUST and
LIFE COMPANY may agree in writing) of such request for redemption by 9:00 a.m.
New York time on the next Business Day.
1.4 TRUST shall furnish, on or before each ex-dividend date, notice to
LIFE COMPANY of any income dividends or capital gain distributions payable on
the shares of any Portfolio of TRUST. LIFE 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 the Portfolio. TRUST shall notify
LIFE COMPANY or its designee of the number of shares so issued as payment of
such dividends and distributions.
1.5 TRUST shall make the net asset value per share for the selected
Portfolio(s) available to LIFE COMPANY on a daily basis as soon as reasonably
practicable after the net asset value per share is calculated but shall use its
best efforts to make such net asset value available by 6:30
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<PAGE>
p.m. New York time. If TRUST provides LIFE COMPANY with materially incorrect
share net asset value information through no fault of LIFE COMPANY, LIFE COMPANY
on behalf of the Separate Accounts, shall be entitled to an adjustment to the
number of shares purchased or redeemed to reflect the correct share net asset
value. Any material error in the calculation of net asset value per share,
dividend or capital gain information shall be reported promptly upon discovery
to LIFE COMPANY.
1.6 At the end of each Business Day, LIFE COMPANY shall use the
information described in Section 1.5 to calculate Separate Account unit values
for the day. Using these unit values, LIFE COMPANY shall process each such
Business Day's Separate Account transactions based on requests and premiums
received by it by the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m. New York time) to determine the net dollar amount
of TRUST shares which shall be purchased or redeemed at that day's closing net
asset value per share. The net purchase or redemption orders so determined
shall be transmitted to TRUST by LIFE COMPANY by 8:00 a.m. New York Time on the
Business Day next following LIFE COMPANY's receipt of such requests and premiums
in accordance with the terms of Sections 1.2 and 1.3 hereof.
If LIFE COMPANY's order requests the purchase of TRUST shares, LIFE
COMPANY shall pay for such purchase by wiring federal funds to TRUST or its
designated custodial account on the day the order is transmitted by LIFE
COMPANY. If LIFE COMPANY's order requests a net redemption resulting in a
payment of redemption proceeds to LIFE COMPANY, TRUST shall use its best efforts
to wire the redemption proceeds to LIFE COMPANY by the next Business Day, unless
doing so would require TRUST to dispose of Portfolio securities or otherwise
incur additional costs. In any event, proceeds shall be wired to LIFE COMPANY
within the time period permitted by the '40 Act or the rules, orders or
regulations thereunder, and TRUST shall notify the person designated in writing
by LIFE COMPANY as the recipient for such notice of such delay by 3:00 p.m. New
York Time on the same Business Day that LIFE COMPANY transmits the redemption
order to TRUST. If LIFE COMPANY's order requests the application of redemption
proceeds from the redemption of shares to the purchase of shares of another Fund
advised by ADVISER, TRUST shall so apply such proceeds on the same Business Day
that LIFE COMPANY transmits such order to TRUST.
1.8 TRUST agrees that all shares of the Portfolios of TRUST will be sold
only to Participating Insurance Companies which have agreed to participate in
TRUST to fund their Separate Accounts and/or to Qualified Plans, all in
accordance with the requirements of Section 817(h)(4) of the Internal Revenue
Code of 1986, as amended ("Code") and Treasury Regulation 1.817-5. Shares of the
TRUST's Portfolios will not be sold directly to the general public.
1.9 TRUST may refuse to sell shares of any Portfolio to any person, or
suspend or terminate the offering of the shares of or liquidate any Portfolio of
TRUST if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Board of Trustees of the TRUST
(the "Board"), acting in good faith and in light of its duties under federal and
any applicable state laws, deemed necessary, desirable or appropriate and in the
best interests of the shareholders of such Portfolios.
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<PAGE>
1.10 Issuance and transfer of Portfolio shares will be by book entry only.
Stock certificates will not be issued to LIFE COMPANY or the Separate Accounts.
Shares ordered from Portfolio will be recorded in appropriate book entry titles
for the Separate Accounts.
Article II. REPRESENTATIONS AND WARRANTIES
2.1 LIFE COMPANY represents and warrants that it is an insurance company
duly organized and in good standing under the laws of ___________________ and
that it has legally and validly established each Separate Account as a
segregated asset account under such laws, and that ___________________, the
principal underwriter for the Variable Contracts, is registered as a
broker-dealer under the Securities Exchange Act of 1934 (the "'34 Act").
2.2 LIFE COMPANY represents and warrants that it has registered or, prior
to any issuance or sale of the Variable Contracts, will register each Separate
Account as a unit investment trust ("UIT") in accordance with the provisions of
the '40 Act and cause each Separate Account to remain so registered to serve as
a segregated asset account for the Variable Contracts, unless an exemption from
registration is available.
2.3 LIFE COMPANY represents and warrants that the Variable Contracts will
be registered under the Securities Act of 1933 (the "'33 Act") unless an
exemption from registration is available prior to any issuance or sale of the
Variable Contracts, and that the Variable Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws
(including all applicable blue sky laws) and further that the sale of the
Variable Contracts shall comply in all material respects with applicable state
insurance law suitability requirements.
2.4 LIFE COMPANY represents and warrants that the Variable Contracts are
currently and at the time of issuance will be treated as life insurance,
endowment or annuity contracts under applicable provisions of the Code, that it
will maintain such treatment and that it will notify TRUST immediately upon
having a reasonable basis for believing that the Variable Contracts have ceased
to be so treated or that they might not be so treated in the future.
2.5 TRUST represents and warrants that the Fund shares offered and sold
pursuant to this Agreement will be registered under the '33 Act and sold in
accordance with all applicable federal laws, and TRUST shall be registered under
the '40 Act prior to and at the time of any issuance or sale of such shares.
TRUST, subject to Section 1.9 above, shall amend its registration statement
under the '33 Act and the '40 Act from time to time as required in order to
effect the continuous offering of its shares. 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 TRUST.
2.6 TRUST represents and warrants that each Portfolio will comply with the
diversification requirements set forth in Section 817(h) of the Code, and the
rules and regulations thereunder, including without limitation Treasury
Regulation 1.817-5, and will notify LIFE COMPANY immediately upon having a
reasonable basis for believing any Portfolio has ceased to comply and
4
<PAGE>
will immediately take all reasonable steps to adequately diversify the Portfolio
to achieve compliance.
2.7 TRUST represents and warrants that each Portfolio invested in by the
Separate Account will be treated as a "regulated investment company" under
Subchapter M of the Code, and will notify LIFE COMPANY immediately upon having a
reasonable basis for believing it has ceased to so qualify or might not so
qualify in the future.
2.8 ADVISER represents and warrants that it shall perform its obligations
hereunder in compliance in all material respects with any applicable state and
federal laws.
Article III. PROSPECTUS AND PROXY STATEMENTS
3.1 TRUST shall prepare and be responsible for filing with the SEC 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 TRUST.
TRUST shall bear the costs of registration and qualification of shares of the
Portfolios, preparation and filing of the documents listed in this Section 3.1
and all taxes and filing fees to which an issuer is subject on the issuance and
transfer of its shares.
3.2 TRUST or its designee shall provide LIFE COMPANY, free of charge, with
as many copies of the current prospectus (or prospectuses), statements of
additional information, annual and semi-annual reports and proxy statements for
the shares of the Portfolios as LIFE COMPANY may reasonably request for
distribution to existing Variable Contract owners whose Variable Contracts are
funded by such shares. TRUST or its designee shall provide LIFE COMPANY, at LIFE
COMPANY's expense, with as many copies of the current prospectus (or
prospectuses) for the shares as LIFE COMPANY may reasonably request for
distribution to prospective purchasers of Variable Contracts. If requested by
LIFE COMPANY, TRUST or its designee shall provide such documentation (including
a "camera ready" copy of the current prospectus (or prospectuses) as set in type
or, at the request of LIFE 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 a year (or more frequently if the prospectus (or
prospectuses) for the shares is supplemented or amended) to have the prospectus
for the Variable Contracts and the prospectus (or prospectuses) for the TRUST
shares printed together in one document. The expenses of such printing will be
apportioned between LIFE COMPANY and TRUST in proportion to the number of pages
of the Variable Contract and TRUST prospectus, taking account of other relevant
factors affecting the expense of printing, such as covers, columns, graphs and
charts; TRUST shall bear the cost of printing the TRUST prospectus portion of
such document for distribution only to owners of existing Variable Contracts
funded by the TRUST shares and LIFE COMPANY shall bear the expense of printing
the portion of such documents relating to the Separate Account; provided,
however, LIFE COMPANY shall bear all printing expenses of such combined
documents where used for distribution to prospective purchasers or to owners of
existing Variable Contracts not funded by the shares. In the event that LIFE
COMPANY requests that TRUST or its designee provide TRUST's prospectus in a
"camera ready" or diskette format, TRUST shall be responsible for providing the
prospectus (or
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<PAGE>
prospectuses) in the format in which it is accustomed to formatting prospectuses
and shall bear the expense of providing the prospectus (or prospectuses) in such
format (e.g. typesetting expenses), and LIFE COMPANY shall bear the expense of
adjusting or changing the format to conform with any of its prospectuses.
3.3 TRUST will provide LIFE COMPANY with at least one complete copy of all
prospectuses, statements of additional information, annual and semi-annual
reports, proxy statements, exemptive applications and all amendments or
supplements to any of the above that relate to the Portfolios promptly after the
filing of each such document with the SEC or other regulatory authority. LIFE
COMPANY will provide TRUST with at least one complete copy of all prospectuses,
statements of additional information, annual and semi-annual reports, proxy
statements, exemptive applications and all amendments or supplements to any of
the above that relate to a Separate Account promptly after the filing of each
such document with the SEC or other regulatory authority.
Article IV. SALES MATERIALS
4.1 LIFE COMPANY will furnish, or will cause to be furnished, to TRUST and
ADVISER, each piece of sales literature or other promotional material in which
TRUST or ADVISER is named, at least fifteen (15) Business Days prior to its
intended use. No such material will be used if TRUST or ADVISER objects to its
use in writing within ten (10) Business Days after receipt of such material.
4.2 TRUST and ADVISER will furnish, or will cause to be furnished, to LIFE
COMPANY, each piece of sales literature or other promotional material in which
LIFE COMPANY or its Separate Accounts are named, at least fifteen (15) Business
Days prior to its intended use. No such material will be used if LIFE COMPANY
objects to its use in writing within ten (10) Business Days after receipt of
such material.
4.3 TRUST and its affiliates and agents shall not give any information or
make any representations on behalf of LIFE COMPANY or concerning LIFE COMPANY,
the Separate Accounts, or the Variable Contracts issued by LIFE COMPANY, other
than the information or representations contained in a registration statement or
prospectus for such Variable Contracts, as such registration statement and
prospectus may be amended or supplemented from time to time, or in reports of
the Separate Accounts or reports prepared for distribution to owners of such
Variable Contracts, or in sales literature or other promotional material
approved by LIFE COMPANY or its designee, except with the written permission of
LIFE COMPANY.
4.4 LIFE COMPANY and its affiliates and agents shall not give any
information or make any representations on behalf of TRUST or concerning TRUST
other than the information or representations contained in a registration
statement or prospectus for TRUST, as such registration statement and prospectus
may be amended or supplemented from time to time, or in sales literature or
other promotional material approved by TRUST or its designee, except with the
written permission of TRUST.
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4.5 For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without limitation,
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 (such as any written communication distributed or made
generally available to customers or the public, including brochures, circulars,
research reports, market letters, form letters, seminar texts, or 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 National Association of Securities Dealers, Inc. ("NASD")
rules, the '40 Act, the '33 Act or rules thereunder.
Article V. POTENTIAL CONFLICTS
5.1 The parties acknowledge that TRUST has received an order from the SEC
granting relief from various provisions of the '40 Act and the rules thereunder
to the extent necessary to permit TRUST shares to be sold to and held by
Variable Contract separate accounts of both affiliated and unaffiliated
Participating Insurance Companies and Qualified Plans. The Exemptive Order
requires TRUST and each Participating Insurance Company to comply with
conditions and undertakings substantially as provided in this Section 5. The
TRUST will not enter into a participation agreement with any other Participating
Insurance Company unless it imposes the same conditions and undertakings as are
imposed on LIFE COMPANY hereby.
5.2 The Board will monitor TRUST for the existence of any material
irreconcilable conflict between the interests of Variable Contract owners of all
separate accounts and with participants of Qualified Plans investing in TRUST.
An irreconcilable material conflict may arise for a variety of reasons, which
may include: (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 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 TRUST are being managed; (e) a difference in voting instructions
given by Variable Contract owners; (f) a decision by a Participating Insurance
Company to disregard the voting instructions of Variable Contract owners and (g)
if applicable, a decision by a Qualified Plan to disregard the voting
instructions of plan participants.
5.3 LIFE COMPANY will report any potential or existing conflicts of which
it becomes aware to the Board. LIFE COMPANY will be responsible for assisting
the Board in carrying out its duties in this regard by providing the Board with
all information reasonably necessary for the Board to consider any issues
raised. The responsibility includes, but is not limited to, an obligation by
the LIFE COMPANY to inform the Board whenever it has determined to disregard
Variable Contract owner voting instructions. These responsibilities of LIFE
COMPANY will be carried out with a view only to the interests of the Variable
Contract owners.
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5.4 If a majority of the Board or majority of its disinterested Trustees,
determines that a material irreconcilable conflict exists affecting LIFE
COMPANY, LIFE COMPANY, at its expense and to the extent reasonably practicable
(as determined by a majority of the Board's disinterested Trustees), will take
any steps necessary to remedy or eliminate the irreconcilable material conflict,
including; (a) withdrawing the assets allocable to some or all of the Separate
Accounts from TRUST or any Portfolio thereof and reinvesting those assets in a
different investment medium, which may include another Portfolio of TRUST, or
another investment company; (b) submitting the question as to whether such
segregation should be implemented to a vote of all affected Variable Contract
owners and as appropriate, segregating the assets of any appropriate group
(i.e., variable annuity or variable life insurance Contract owners of one or
more Participating Insurance Companies) that votes in favor of such segregation,
or offering to the affected Variable Contract owners the option of making such a
change; and (c) establishing a new registered management investment company (or
series thereof) or managed separate account. If a material irreconcilable
conflict arises because of LIFE COMPANY's decision to disregard Variable
Contract owner voting instructions, and that decision represents a minority
position or would preclude a majority vote, LIFE COMPANY may be required, at the
election of TRUST, to withdraw the Separate Account's investment in TRUST, and
no charge or penalty will be imposed as a result of such withdrawal. The
responsibility to take such remedial action shall be carried out with a view
only to the interests of the Variable Contract owners.
For the purposes of this Section 5.4, a majority of the disinterested
members of the Board shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
TRUST or ADVISER (or any other investment adviser of TRUST) be required to
establish a new funding medium for any Variable Contract. Further, LIFE COMPANY
shall not be required by this Section 5.4 to establish a new funding medium for
any Variable Contracts if any offer to do so has been declined by a vote of a
majority of Variable Contract owners materially and adversely affected by the
irreconcilable material conflict.
5.5 The Board's determination of the existence of an irreconcilable
material conflict and its implications shall be made known promptly and in
writing to LIFE COMPANY.
5.6 No less than annually, LIFE COMPANY shall submit to the Board such
reports, materials or data as the Board may reasonably request so that the Board
may fully carry out its obligations. Such reports, materials, and data shall be
submitted more frequently if deemed appropriate by the Board.
Article VI. VOTING
6.1 LIFE COMPANY will provide pass-through voting privileges to all
Variable Contract owners so long as the SEC continues to interpret the '40 Act
as requiring pass-through voting privileges for Variable Contract owners.
Accordingly, LIFE COMPANY, where applicable, will vote shares of the Portfolio
held in its Separate Accounts in a manner consistent with voting instructions
timely received from its Variable Contract owners. LIFE COMPANY will be
responsible for assuring that each of its Separate Accounts that participates in
TRUST calculates
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<PAGE>
voting privileges in a manner consistent with other Participating Insurance
Companies. LIFE COMPANY will vote shares for which it has not received timely
voting instructions, as well as shares it owns, in the same proportion as its
votes those shares for which it has received voting instructions.
6.2 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or if
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
'40 Act or the rules thereunder with respect to mixed and shared funding on
terms and conditions materially different from any exemptions granted in the
Exemptive Order, then TRUST, and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with Rule
6e-2 and Rule 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent
such Rules are applicable.
Article VII. INDEMNIFICATION
7.1 INDEMNIFICATION BY LIFE COMPANY. LIFE COMPANY agrees to
indemnify and hold harmless TRUST, ADVISER and each of their Trustees,
directors, principals, officers, employees and agents and each person, if any,
who controls TRUST or ADVISER within the meaning of Section 15 of the '33 Act
(collectively, the "Indemnified Parties") against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of LIFE COMPANY, which consent shall not be unreasonably withheld) or
litigation or threatened litigation (including legal and other expenses), to
which the Indemnified Parties may become subject under any statute, regulation,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of TRUST's shares or the Variable Contracts 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 Variable Contracts or contained in the
Variable 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 in writing to
LIFE COMPANY by or on behalf of TRUST for use in the registration statement
or prospectus for the Variable Contracts or in the Variable Contracts or
sales literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Variable Contracts or TRUST shares; or
(b) arise out of or result from (i) statements or representations
(other than statements or representations contained in the registration
statement, prospectus or sales literature of TRUST not supplied by LIFE
COMPANY, or persons under its control) or (ii) wrongful conduct of LIFE
COMPANY or persons under its control, with respect to the sale or
distribution of the Variable Contracts or TRUST shares; or
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(c) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement, prospectus, or sales
literature of 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 statements therein not
misleading if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with information
furnished in writing to TRUST by or on behalf of LIFE COMPANY; or
(d) arise as a result of any failure by LIFE COMPANY to provide
substantially the services and furnish the materials 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 LIFE COMPANY in this Agreement or
arise out of or result from any other material breach of this Agreement by
LIFE COMPANY.
7.2 LIFE COMPANY shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party to the extent that such losses, claims,
damages, liabilities or litigation are attributable to such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations or duties under this Agreement.
7.3 LIFE 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 LIFE 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 LIFE COMPANY of any
such claim shall not relieve LIFE 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, LIFE COMPANY shall be entitled to participate at
its own expense in the defense of such action. LIFE COMPANY also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from LIFE COMPANY to such party of LIFE
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 LIFE
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.
7.4 INDEMNIFICATION BY TRUST. TRUST agrees to indemnify and hold harmless
LIFE COMPANY and each of its directors, officers, employees, and agents and each
person, if any, who controls LIFE COMPANY within the meaning of Section 15 of
the '33 Act (collectively, the "Indemnified Parties") against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of TRUST which consent shall not be unreasonably withheld)
or litigation or threatened litigation (including legal and other expenses)
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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 are
related to the sale or acquisition of TRUST's shares or the Variable Contracts
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 or prospectus or sales literature of 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 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 in
writing to ADVISER or TRUST by or on behalf of LIFE COMPANY for use in
the registration statement or prospectus for TRUST or in sales
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Variable Contracts or TRUST shares; or
(b) arise out of or result from (i) statements or
representations (other than statements or representations contained in
the registration statement, prospectus or sales literature for the
Variable Contracts not supplied by ADVISER or TRUST or persons under
its control) or (ii) gross negligence or wrongful conduct or willful
misfeasance of TRUST or persons under its control, with respect to the
sale or distribution of the Variable Contracts or TRUST shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus, or sales literature covering the Variable 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 statements therein not misleading, if
such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished in
writing to LIFE COMPANY for inclusion therein by or on behalf of
TRUST; or
(d) arise as a result of (i) a failure by TRUST to provide
substantially the services and furnish the materials under the terms
of this Agreement; or (ii) a failure by a Portfolio(s) invested in by
the Separate Account to comply with the diversification requirements
of Section 817(h) of the Code; or (iii) a failure by a Portfolio(s)
invested in by the Separate Account to qualify as a "regulated
investment company" under Subchapter M of the Code; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by TRUST in this Agreement or
arise out of or result from any other material breach of this
Agreement by TRUST.
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7.5 TRUST shall not be liable under this indemnification provision with
respect to any losses, claims, damages, liabilities or litigation incurred or
assessed against an Indemnified Party to the extent that such losses, claims,
damages, liabilities or litigation are attributable to 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.
7.6 TRUST 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 TRUST 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 TRUST of any such claim shall not relieve TRUST
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, TRUST shall
be entitled to participate at its own expense in the defense thereof. TRUST
also shall be entitled to assume the defense thereof, with counsel satisfactory
to the party named in the action. After notice from TRUST to such party of
TRUST's election to assume the defense thereof, the Indemnified Party shall bear
the fees and expenses of any additional counsel retained by it, and TRUST 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.
Article VIII. TERM; TERMINATION
8.1 This Agreement shall be effective as of the date hereof and shall
continue in force until terminated in accordance with the provisions herein.
8.2 This Agreement shall terminate in accordance with the following
provisions:
(a) At the option of LIFE COMPANY or TRUST at any time from the
date hereof upon 180 days' notice, unless a shorter time is agreed to
by the parties;
(b) At the option of LIFE COMPANY, if TRUST shares are not
reasonably available to meet the requirements of the Variable
Contracts as determined by LIFE COMPANY. Prompt notice of election to
terminate shall be furnished by LIFE COMPANY, said termination to be
effective ten days after receipt of notice unless TRUST makes
available a sufficient number of shares to reasonably meet the
requirements of the Variable Contracts within said ten-day period;
(c) At the option of LIFE COMPANY, upon the institution of
formal proceedings against TRUST by the SEC, the NASD, or any other
regulatory body, the expected or anticipated ruling, judgment or
outcome of which would, in LIFE COMPANY's reasonable judgment,
materially impair TRUST's ability to meet and perform TRUST's
obligations and duties hereunder. Prompt notice of election to
terminate
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shall be furnished by LIFE COMPANY with said termination to be effective
upon receipt of notice;
(d) At the option of TRUST, upon the institution of formal
proceedings against LIFE COMPANY and/or its broker-dealer affiliates
by the SEC, the NASD, or any other regulatory body, the expected or
anticipated ruling, judgment or outcome of which would, in TRUST's
reasonable judgment, materially impair LIFE COMPANY's ability to meet
and perform its obligations and duties hereunder. Prompt notice of
election to terminate shall be furnished by TRUST with said
termination to be effective upon receipt of notice;
(e) In the event TRUST's shares are not registered, issued or
sold in accordance with applicable state or federal law, or such law
precludes the use of such shares as the underlying investment medium
of Variable Contracts issued or to be issued by LIFE COMPANY.
Termination shall be effective upon such occurrence without notice;
(f) At the option of TRUST if the Variable Contracts cease to
qualify as annuity contracts or life insurance contracts, as
applicable, under the Code, or if TRUST reasonably believes that the
Variable Contracts may fail to so qualify. Termination shall be
effective upon receipt of notice by LIFE COMPANY;
(g) At the option of LIFE COMPANY, upon TRUST's breach of any
material provision of this Agreement, which breach has not been cured
to the satisfaction of LIFE COMPANY within ten days after written
notice of such breach is delivered to TRUST;
(h) At the option of TRUST, upon LIFE COMPANY's breach of any
material provision of this Agreement, which breach has not been cured
to the satisfaction of TRUST within ten days after written notice of
such breach is delivered to LIFE COMPANY;
(i) At the option of TRUST, if the Variable Contracts are not
registered, issued or sold in accordance with applicable federal
and/or state law. Termination shall be effective immediately upon
such occurrence without notice;
In the event this Agreement is assigned without the prior written consent
of LIFE COMPANY, TRUST, and ADVISER, termination shall be effective immediately
upon such occurrence without notice.
8.3 Notwithstanding any termination of this Agreement pursuant to Section
8.2 hereof, TRUST at its option may elect to continue to make available
additional TRUST shares, as provided below, for so long as TRUST desires
pursuant to the terms and conditions of this Agreement, for all Variable
Contracts in effect on the effective date of termination of this Agreement
(hereinafter referred to as "Existing Contracts"). Specifically, without
limitation, if
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TRUST so elects to make additional TRUST shares available, the owners of the
Existing Contracts or LIFE COMPANY, whichever shall have legal authority to do
so, shall be permitted to reallocate investments in TRUST, redeem investments in
TRUST and/or invest in TRUST upon the payment of additional premiums under the
Existing Contracts. In the event of a termination of this Agreement pursuant to
Section 8.2 hereof, TRUST and ADVISER, as promptly as is practicable under the
circumstances, shall notify LIFE COMPANY whether TRUST elects to continue to
make TRUST shares available after such termination. If TRUST shares continue to
be made available after such termination, the provisions of this Agreement shall
remain in effect and thereafter either TRUST or LIFE COMPANY may terminate the
Agreement, as so continued pursuant to this Section 8.3, upon sixty (60) days'
prior written notice to the other party.
8.4 Except as necessary to implement Variable Contract owner initiated
transactions, or as required by state insurance laws or regulations, LIFE
COMPANY shall not redeem the shares attributable to the Variable Contracts (as
opposed to the shares attributable to LIFE COMPANY's assets held in the Separate
Accounts), and LIFE COMPANY shall not prevent Variable Contract owners from
allocating payments to a Portfolio that was otherwise available under the
Variable Contracts until thirty (30) days after the LIFE COMPANY shall have
notified TRUST of its intention to do so.
Article IX. NOTICES
Any notice hereunder shall be given by registered or certified mail return
receipt requested 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 TRUST:
BT Insurance Funds Trust
c/o First Data Investor Services Group, Inc.
One Exchange Place
53 State Street, Mail Stop BOS 865
Boston, MA 02109
Attn: Elizabeth Russell, Legal Dep't
AND
c/o BT Alex. Brown
One South Street, Mail Stop 1-18-6
Baltimore, MD 21202
Attn: Brian Wixsted, Mutual Fund Services
If to ADVISER:
Bankers Trust Company - U.S. Investment Management
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130 Liberty Street
New York, NY 10006
Attn.: Vinay Mendiratta, Mail Stop 2355
If to LIFE COMPANY:
Notice shall be deemed given on the date of receipt by the addressee as
evidenced by the return receipt.
Article X. MISCELLANEOUS
10.1 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.
10.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
10.3 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.
10.4 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 SEC granting exemptive
relief therefrom and the conditions of such orders.
10.5 It is understood and expressly stipulated that neither the
shareholders of shares of any Portfolio nor the Trustees or officers of TRUST or
any Portfolio shall be personally liable hereunder. No Portfolio shall be
liable for the liabilities of any other Portfolio. All persons dealing with
TRUST or a Portfolio must look solely to the property of TRUST or that
Portfolio, respectively, for enforcement of any claims against TRUST or that
Portfolio. It is also understood that each of the Portfolios shall be deemed to
be entering into a separate Agreement with LIFE COMPANY so that it is as if each
of the Portfolios had signed a separate Agreement with LIFE COMPANY and that a
single document is being signed simply to facilitate the execution and
administration of the Agreement.
10.6 Each party 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.
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10.7 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.
10.8 If the Agreement terminates, the parties agree that Article 7 and
Sections 10.5, 10.6 and 10.7 shall remain in effect after termination.
10.9 No provision of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by TRUST,
ADVISER and the LIFE COMPANY.
10.10 No failure or delay by a party in exercising any right or remedy
under this Agreement will operate as a waiver thereof and no single or partial
exercise of rights shall preclude a further or subsequent exercise. The rights
and remedies provided in this Agreement are cumulative and not exclusive of any
rights or remedies provided by law.
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Fund Participation Agreement as of the date and year first above
written.
BT INSURANCE FUNDS TRUST
By:
---------------------------------------
Name:
Title:
BANKERS TRUST COMPANY
By:
---------------------------------------
Name:
Title:
[Insert Name of LIFE COMPANY]
By:
---------------------------------------
Name:
Title:
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APPENDIX A
To Participation Agreement by and among _________________, ________________ and
______________________.
List of portfolios:
<PAGE>
APPENDIX B
To Participation Agreement by and among __________________, ________________ and
______________________.
List of variable separate accounts:
