<PAGE> 1
As filed with the Securities and Exchange Commission on April 26, 1996
Registration No. 33-89028
811-8964
- --------------------------------------------------------------------------------
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. 1 /x/
-----
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 2 /x/
-----
IL ANNUITY AND INSURANCE CO.
----------------------------
SEPARATE ACCOUNT 1
------------------
(Exact Name of Registrant)
IL ANNUITY AND INSURANCE COMPANY
--------------------------------
(Name of Depositor)
2960 North Meridian Street, Indianapolis, Indiana 46208
-------------------------------------------------------
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, including Area Code:
(317) 927-6500
<TABLE>
<S> <C>
Name and Address of Agent for Service: Copy to:
Margaret M. McKinney, Esq. Stephen E. Roth, Esquire
Vice President, Associate General Counsel and Secretary Sutherland, Asbill & Brennan
Indianapolis Life Insurance Company 1275 Pennsylvania Avenue, N.W.
2960 North Meridian Street Washington, D.C. 20004-2404
Indianapolis, Indiana 46208
</TABLE>
Approximate date of proposed public offering:
As soon as practicable after effectiveness of the Registration Statement.
DECLARATION PURSUANT TO RULE 24f-2
An indefinite amount of securities has been registered under the Securities Act
of 1933 pursuant to Rule 24f-2 under the Investment Company Act of 1940 in
connection with the separate account. The Rule 24f-2 Notice for the fiscal
year ending December 31, 1995 was filed with the Commission on February 23,
1996.
-------------------
It is proposed that this filing will become effective:
/ / immediately upon filing pursuant to paragraph (b) of Rule 485
/x/ on May 1, 1996 pursuant to paragraph (b) of Rule 485
/ / 60 days after filing pursuant to paragraph (a) of Rule 485
/ / on (date) pursuant to paragraph (a) of the Rule 485
<PAGE> 2
CROSS REFERENCE SHEET
Pursuant to Rule 495
Showing location in Part A (Prospectus) and Part B (Statement of
Additional Information) of Registration Statement of information required by
Form N-4.
PART A
<TABLE>
<CAPTION>
ITEM OF FORM N-4 PROSPECTUS CAPTION
<S> <C>
1. Cover Page . . . . . . . . . . . . . . . . . . . . . . . . . Cover Page
2. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . Definitions
3. Synopsis . . . . . . . . . . . . . . . . . . . . . . . . . Expense Tables; Summary
4. Condensed Financial
Information . . . . . . . . . . . . . . . . . . . . . . . . . Condensed Financial Information; Historical
Performance Data
5. General Description of Registrant,
Depositor and Portfolio Companies
(a) Depositor . . . . . . . . . . . . . . . . . . . . . . . IL Annuity and Insurance Company
(b) Registrant . . . . . . . . . . . . . . . . . . . . . . . IL Annuity and Insurance Co. Separate Account 1
(c) Portfolio Company . . . . . . . . . . . . . . . . . . . The Funds
(d) Fund Prospectus . . . . . . . . . . . . . . . . . . . . The Funds; Availability of Funds
(e) Voting Rights . . . . . . . . . . . . . . . . . . . . . Voting Rights
(f) Administrators . . . . . . . . . . . . . . . . . . . . . N/A
6. Deductions and Expenses
(a) General . . . . . . . . . . . . . . . . . . . . . . . . Charges and Deductions; Summary
(b) Sales Load . . . . . . . . . . . . . . . . . . . . . . . Charges and Deductions; Summary
(c) Special Purchase Plan . . . . . . . . . . . . . . . . . Premium Payments; Transfer Privileges
(d) Commissions . . . . . . . . . . . . . . . . . . . . . . Distribution of the Contracts
(e) Expenses - Registrant . . . . . . . . . . . . . . . . . Charges and Deductions; Summary
(f) Fund Expenses . . . . . . . . . . . . . . . . . . . . . Charges and Deductions
(g) Organizational Expenses . . . . . . . . . . . . . . . . N/A
7. Contracts
(a) Persons with Rights . . . . . . . . . . . . . . . . . . Summary; Addition, Deletion or Substitution of
Investments; Description of the Contract; Payout
Plan Options; Voting Rights; Death Benefit Before the
Annuity Commencement Date; Death of Payee After the
Annuity Commencement Date; Modification; Election of
Payout Plan Options
(b) (i) Allocation of
Premium Payments . . . . . . . . . . . . . . . . Summary; Premium Payments; Free-Look Period; Allocation
of Net Premium Payments
(ii) Transfers . . . . . . . . . . . . . . . . . . . . Summary; Transfer Privileges
(iii) Exchanges . . . . . . . . . . . . . . . . . . . . Transfers, Assignments or Exchange of a Contract
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Item of Form N-4 Prospectus Caption
- ---------------- ------------------
<S> <C> <C>
(c) Changes . . . . . . . . . . . . . . . . . . . . Additions, Deletions or Substitutions of Investments;
Description of the Contract; Modification
(d) Inquiries . . . . . . . . . . . . . . . . . . . Cover page; Inquiries
8. Annuity Period . . . . . . . . . . . . . . . . . . . . . Summary; Payout Plan Options
9. Death Benefit . . . . . . . . . . . . . . . . . . . . . Death Benefit Before the Annuity Commencement Date; Death
of Payee After the Annuity Commencement Date
10. Purchases and Contract Value
(a) Purchases . . . . . . . . . . . . . . . . . . . Summary; Issuance of a Contract; Premium Payments; Free
Look Period; Allocation of Net Premium Payments;
Separate Account Value; Transfer Privileges
(b) Valuation . . . . . . . . . . . . . . . . . . . Definitions; Separate Account Value
(c) Daily Calculation . . . . . . . . . . . . . . . Definitions; Separate Account Value
(d) Underwriter . . . . . . . . . . . . . . . . . . Issuance of a Contract; Distribution of the Contracts
11. Redemptions
(a) - By Owners . . . . . . . . . . . . . . . . . . Summary; Transfer Privilege; Full and Partial Withdrawals;
Annuity Payments on the Annuity Commencement Date;
Payments; Payout Plan Options; Federal Tax Matters
- By Annuitant . . . . . . . . . . . . . . . . . Summary; Transfer Privilege; Full and Partial Withdrawals;
Annuity Payments on the Annuity Commencement Date;
Payments; Payout Plan Options; Federal Tax Matters
(b) Texas ORP . . . . . . . . . . . . . . . . . . . N/A
(c) Check Delay . . . . . . . . . . . . . . . . . . Payments
(d) Lapse . . . . . . . . . . . . . . . . . . . . . Contract Loans
(e) Free Look . . . . . . . . . . . . . . . . . . . Summary; Free Look Period
12. Taxes . . . . . . . . . . . . . . . . . . . . . . . . Summary; Federal Tax Matters
13. Legal Proceedings . . . . . . . . . . . . . . . . . . . Legal Proceedings
14. Table of Contents for the
Statement of Additional Information . . . . . . . . . . Statement of Additional Information Table of Contents
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
Item of Form N-4 Prospectus Caption
- ---------------- ------------------
PART B
ITEM OF FORM N-4 STATEMENT OF ADDITIONAL INFORMATION CAPTION
<S> <C>
15. Cover Page . . . . . . . . . . . . . . . . . . . . . . . Cover Page
16. Table of Contents . . . . . . . . . . . . . . . . . . . Table of Contents
17. General Information and
History . . . . . . . . . . . . . . . . . . . . . . . . IL Annuity and Insurance Company; IL Annuity and Insurance
Co. Separate Accout 1; the Funds (Prospectus)
18. Services
(a) Fees and Expenses of
Registrant . . . . . . . . . . . . . . . . . . . Charges and Deductions (Prospectus)
(b) Management Contracts . . . . . . . . . . . . . . Termination of Participation Agreements
(c) Custodian . . . . . . . . . . . . . . . . . . . Safekeeping of Account Assets
Independent
Auditors . . . . . . . . . . . . . . . . . . . . Experts
(d) Assets of Registrant . . . . . . . . . . . . . . IL Annuity and Insurance Co. Separate Account 1
(Prospectus)
(e) Affiliated Persons . . . . . . . . . . . . . . . IL Annuity and Insurance Company (Prospectus)
(f) Principal Underwriter . . . . . . . . . . . . . Distribution of the Contracts (Prospectus)
19. Purchase of Securities
Being Offered . . . . . . . . . . . . . . . . . Distribution of the Contracts (Prospectus)
Offering Sales Load . . . . . . . . . . . . . . N/A
20. Underwriters . . . . . . . . . . . . . . . . . . . . . . Distribution of the Contracts (Prospectus)
21. Calculation of Performance
Data . . . . . . . . . . . . . . . . . . . . . . Calculation of Historical Performance Data; Historical
Performance Data (Prospectus)
22. Annuity Payments . . . . . . . . . . . . . . . . . . . . Variable Annuity Payments; Payout Plan Options
(Prospectus)
23. Financial Statements . . . . . . . . . . . . . . . . . . Financial Statements
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
Item of Form N-4 Prospectus Caption
- ---------------- ------------------
PART C -- OTHER INFORMATION
ITEM OF FORM N-4 PART C CAPTION
<S> <C>
24. Financial Statements
and Exhibits . . . . . . . . . . . . . . . . . . . . . . Financial Statements and Exhibits
(a) Financial Statements . . . . . . . . . . . . . . (a) Financial Statements
(b) Exhibits . . . . . . . . . . . . . . . . . . . . (b) Exhibits
25. Directors and Officers
of the Depositor . . . . . . . . . . . . . . . . . . . . Directors and Officers of IL Annuity and Insurance Company
26. Persons Controlled By or
Under Common Control with
the Depositor or Registrant . . . . . . . . . . . . . . Persons Controlled By or Under Common Control with the
Depositor or Registrant
27. Number of Contractowners . . . . . . . . . . . . . . . . Number of owners
28. Indemnification . . . . . . . . . . . . . . . . . . . . Indemnification
29. Principal Underwriters . . . . . . . . . . . . . . . . . Principal Underwriter
30. Location of Accounts
and Records . . . . . . . . . . . . . . . . . . . . . . Location of Books and Records
31. Management Services . . . . . . . . . . . . . . . . . . Management Services
32. Undertakings . . . . . . . . . . . . . . . . . . . . . . Undertakings and Representations
Signature Page . . . . . . . . . . . . . . . . . . . . . Signatures
</TABLE>
<PAGE> 6
PROSPECTUS FOR THE
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
Offered by
IL ANNUITY AND INSURANCE COMPANY
2960 North Meridian Street
Indianapolis, Indiana 46208
Telephone: (317) 927-6500
(800) 388-1331
This Prospectus describes the flexible premium deferred variable annuity
contract (the "Contract") being offered by IL Annuity and Insurance Company (the
"Company" or "Il Annuity"). The Contract is designed to aid individuals in
long-term financial planning and provides for the accumulation of capital on a
tax-deferred basis for retirement and other long-term purposes. The Contract may
be sold to or used in connection with retirement plans, including those that
qualify for favorable federal tax treatment under the Internal Revenue Code.
Net Premium Payments and Contract Values will be allocated, as designated
by the Owner, to one or more of the Variable Accounts of the IL Annuity and
Insurance Co. Separate Account 1 (the "Separate Account") or to the Fixed
Account (which is part of the Company's General Account and pays interest at
declared rates guaranteed to equal or exceed 3%) or to both. The assets of each
Variable Account will be invested solely in an investment portfolio
("Portfolio") of a designated mutual fund ("Fund"). Currently, there are seven
such Funds with 15 Portfolios available under this Contract:
The Alger American Fund:
MidCap Growth Portfolio and Small Capitalization Portfolio
Fidelity Variable Insurance Products ("VIP") Fund:
Equity-Income Portfolio, Growth Portfolio and Money Market Portfolio
Fidelity Variable Insurance Products ("VIP") Fund II:
Asset Manager Portfolio, Contrafund Portfolio, Index 500 Portfolio
and Investment Grade Bond Portfolio
OCC Accumulation Trust:
Managed Portfolio and Small Cap Portfolio
T. Rowe Price Fixed Income Series, Inc.:
Limited-Term Bond Portfolio
T. Rowe Price International Series, Inc.:
International Stock Portfolio
Van Eck Worldwide Insurance Trust:
Gold and Natural Resources Portfolio and Worldwide Balanced Portfolio
The Contract Value of the Contracts prior to the Annuity Commencement Date,
except for amounts in the Fixed Account, will vary according to the investment
performance of the Portfolios in which the selected Variable Accounts are
invested. The Owner bears the entire investment risk on amounts allocated to the
Variable Accounts.
THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE FUNDS.
This Prospectus sets forth basic information about the Contract and the
Separate Account that a prospective investor should know before investing.
Additional information about the Contract and the Separate Account is contained
in the Statement of Additional Information, which has been filed with the
Securities and Exchange Commission. The Statement of Additional Information has
the same date as this Prospectus and is incorporated herein by reference. The
table of contents for the Statement of Additional
<PAGE> 7
information is on page of this prospectus. You may obtain a copy of the
Statement of Additional Information free of charge by writing to or calling the
Company at the address or phone number shown above.
PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Unlike bank and credit union accounts, Contract Value invested in the
Separate Account is not insured. Investment of Contract Value in the Separate
Account involves certain risks including loss of Premium Payments (principal).
Separate Account Value is not deposited in or guaranteed by any bank or credit
union and is not guaranteed by any government agency.
The Date of This Prospectus is May 1, 1996
ii
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DEFINITIONS.......................................................................... 3
EXPENSE TABLES....................................................................... 6
SUMMARY.............................................................................. 11
The Contract.................................................................... 11
Charges and Deductions.......................................................... 13
Annuity Provisions.............................................................. 14
Federal Tax Status.............................................................. 14
CONDENSED FINANCIAL INFORMATION...................................................... 14
THE COMPANY AND THE SEPARATE ACCOUNT................................................. 15
IL Annuity and Insurance Company................................................ 15
IL Annuity and Insurance Co. Separate Account 1................................. 16
THE FUNDS............................................................................ 16
The Alger American Fund......................................................... 17
Fidelity Variable Insurance Products Fund and Fidelity Variable
Insurance Products Fund II.................................................... 17
OCC Accumulation Trust.......................................................... 18
T. Rowe Price Fixed Income Series, Inc.......................................... 19
T. Rowe Price International Series, Inc......................................... 19
Van Eck Worldwide Insurance Trust............................................... 19
Availability of the Funds....................................................... 20
Addition, Deletion or Substitution of Investments............................... 20
Resolving Material Conflicts.................................................... 21
DESCRIPTION OF THE CONTRACT.......................................................... 21
Issuance of a Contract.......................................................... 21
Premium Payments................................................................ 22
Free-Look Period................................................................ 22
Allocation of Net Premium Payments.............................................. 22
Separate Account Value.......................................................... 23
Transfer Privileges............................................................. 24
Full and Partial Withdrawals.................................................... 26
Contract Loans.................................................................. 27
Death Benefit Before the Annuity Commencement Date.............................. 28
Death of Payee After the Annuity Commencement Date.............................. 29
The Maturity Benefit............................................................ 29
Annuity Payments on the Annuity Commencement Date............................... 30
Payments........................................................................ 31
Modification.................................................................... 31
Reports to Owners............................................................... 32
Inquiries....................................................................... 32
THE FIXED ACCOUNT.................................................................... 32
Fixed Account Value............................................................. 32
Transfer Privileges............................................................. 33
Payment Deferral................................................................ 33
CHARGES AND DEDUCTIONS............................................................... 33
Withdrawal Charge (Contingent Deferred Sales Charge)............................ 33
Contract Fee.................................................................... 35
Asset-Based Administration Charge............................................... 35
Transfer Fee.................................................................... 35
Mortality and Expense Risk Charge............................................... 35
</TABLE>
1
<PAGE> 9
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Expenses................................................................... 36
Premium Taxes................................................................... 36
Other Taxes..................................................................... 36
PAYOUT PLAN OPTIONS.................................................................. 36
Election of Payout Plan Options................................................. 36
Fixed Annuity Payments.......................................................... 37
Variable Annuity Payments....................................................... 37
Description of Payout Plan Options.............................................. 37
HISTORICAL PERFORMANCE DATA.......................................................... 38
FEDERAL TAX MATTERS.................................................................. 40
Introduction.................................................................... 40
Tax Status of the Contract...................................................... 40
Taxation of Annuities........................................................... 41
Transfers, Assignments or Exchanges of a Contract............................... 43
Withholding..................................................................... 43
Multiple Contracts.............................................................. 43
Taxation of Qualified Plans..................................................... 44
Possible Charge for the Company's Taxes......................................... 44
Other Tax Consequences.......................................................... 44
DISTRIBUTION OF THE CONTRACTS........................................................ 45
LEGAL PROCEEDINGS.................................................................... 45
VOTING RIGHTS........................................................................ 45
COMPANY HOLIDAYS..................................................................... 46
FINANCIAL STATEMENTS................................................................. 46
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS................................ 47
</TABLE>
2
<PAGE> 10
DEFINITIONS
ACCUMULATION UNIT -- A unit of measure used to calculate the value of a Variable
Account prior to the Annuity Commencement Date.
ANNUITANT -- The person or persons whose life (or lives) determine the annuity
payment benefits payable under the Contract and whose death determines the Death
Benefit. The maximum number of joint annuitants is two and provisions referring
to the death of an annuitant mean the death of the last surviving annuitant. The
Annuitant may not be changed.
ANNUITY COMMENCEMENT DATE -- The date when the adjusted Contract Value will be
applied under an annuity payment option, if the Annuitant is still living. The
Owner of a Non-Qualified Contract may specify an Annuity Commencement Date; if
the Owner does not specify, the Annuity Commencement Date is the later of the
Annuitant's age 70 or 10 years after the Date of Issue. For Qualified Contracts,
the Annuity Commencement Date is fixed at age 70 1/2.
ANNUITY SERVICE OFFICE -- The office which provides service for the Contract.
The mailing address for the Annuity Service Office is P.O. Box 364, Haddam,
Connecticut 06438.
ANNUITY UNIT -- An accounting unit of measure used to calculate the amount of
annuity payments under a variable annuity option.
BENEFICIARY -- The person named by the Owner to receive the Death Benefit if the
Annuitant dies before the Annuity Commencement Date.
THE CODE -- The Internal Revenue Code of 1986, as amended.
CONTINGENT OWNER -- The person or persons who will own the Contract following
the Owner's death (or the death of the last surviving Joint Owner).
CONTRACT FEE -- A charge deducted from Contract Value at the end of each
contract quarter or on the date of full withdrawal, if earlier, to cover the
Company's cost of providing certain administrative services related to the
Contracts and the Separate Account. The charge is $7.50 per contract quarter.
Deduction of the Contract Fee is currently waived for all Qualified Contracts.
The Company also currently waives quarterly deduction of the Contract Fee for
Non-Qualified Contracts whose cumulative Premium Payments on the date the
Contract Fee is assessed are equal to or greater than $100,000. The Company
reserves the right to modify this waiver upon 30 days written notice to Contract
Owners.
CONTRACT VALUE -- The total amount invested under the Contract. It is the sum of
the Separate Account Value and the Fixed Account Value.
CONTRACT YEAR -- A twelve-month period beginning on the Date of Issue or on a
contract anniversary.
DATE OF ISSUE -- The date shown on the specifications page of the Contract on
which the first Contract Year begins.
DUE PROOF OF DEATH -- Proof of death that is satisfactory to the Company. Such
proof may consist of the following if acceptable to the Company: (a) a certified
copy of the death record; (b) a certified copy of a court decree reciting a
finding of death; (c) any other proof satisfactory to the Company.
ELIGIBLE VARIABLE ACCOUNT -- A Premium Payment will qualify for the Maturity
Benefit if it: (a) has been allocated to an Eligible Variable Account; (b) has
remained in that same Eligible Variable Account until the Maturity Benefit Date;
and (c) has remained in that same Eligible Variable Account for a minimum of ten
years. The Eligible Variable Accounts currently include all Variable Accounts
except the Van Eck Gold and Natural Resources Variable Account.
FIXED ACCOUNT -- Part of the Company's General Account to which Net Premium
Payments and transferred amounts may be allocated. The Fixed Account provides
guarantees of principal and interest. Special limits apply to transfers of
Contract Value to and from the Fixed Account. See page .
3
<PAGE> 11
FIXED ACCOUNT CURRENT RATE -- The applicable interest rate contained in a
schedule of rates established by the Company from time to time. The rate of
interest applicable to the initial Premium Payment is shown on the
specifications page of the Contract.
FIXED ACCOUNT VALUE -- The value of the Contract in the Fixed Account prior to
the Annuity Commencement Date.
FUND -- A designated open-end management investment company (or investment
portfolio thereof) or unit investment trust in which a Variable Account invests.
GENERAL ACCOUNT -- The assets of the Company other than those allocated to the
Separate Account or any other separate account of the Company.
MATURITY BENEFIT -- If the Contract is in the accumulation phase on the Maturity
Benefit Date, the Maturity Benefit is equal to: (a) the sum of the Premium
Payments which were allocated to an Eligible Variable Account and which have
remained in that same Eligible Variable Account until the Maturity Benefit Date
and for a minimum of ten years; MINUS (b) the value of the Eligible Variable
Account on the Maturity Benefit Date.
MATURITY BENEFIT DATE -- The later of the Annuitant's age 70 or 10 years after
the Date of Issue. If the Contract is owned by Joint Owners who are spouses at
the time one Joint Owner dies, the Maturity Benefit Date will become the date
the surviving spouse attains age 70. If the Contract is owned by Joint Owners
who are not spouses and one of the Joint Owners dies before the Maturity Benefit
Date, the Maturity Benefit is not available to the sole surviving Owner.
NET PREMIUM PAYMENT -- A Premium Payment minus any applicable premium tax
deducted from Premium Payments.
NON-QUALIFIED CONTRACT -- A Contract that is not a "Qualified Contract."
OWNER -- The person(s) who owns the Contract and who is entitled to exercise all
rights and privileges provided in the Contract. The maximum number of Joint
Owners is two. Joint Owners are not permitted under Qualified Contracts.
PAYEE -- The person or persons entitled to receive annuity payments. The
"Successor Payee" named by the Owner is the person who will receive any
guaranteed annuity payments after the death of the sole surviving Payee.
PAYOUT PLAN -- An arrangement under which annuity payments are made under the
Contract.
QUALIFIED CONTRACT -- A Contract that is issued in connection with retirement
plans that qualify for special federal income tax treatment under Sections 401,
403(b), or 408 of the Code.
SEC -- U.S. Securities and Exchange Commission.
SEPARATE ACCOUNT -- IL Annuity and Insurance Co. Separate Account 1 which is not
part of the Company's General Account. The Separate Account is divided into
Variable Accounts, each of which invests in shares of a corresponding Portfolio
of a designated Fund.
SEPARATE ACCOUNT VALUE -- The value of the Contract in the Separate Account
prior to the Annuity Commencement Date.
SURRENDER VALUE -- The Contract Value MINUS (1) any applicable Withdrawal
Charges; MINUS (2) any premium taxes not previously deducted; and MINUS (3) the
Contract Fee. For a 403(b) Qualified Plan, the outstanding loan amount, if any,
is also deducted from Contract Value.
VALUATION DAY -- For each Variable Account, each day on which the New York Stock
Exchange is open for business except for the holidays listed in the prospectus
under "Holidays" and any day that a Variable Account's corresponding fund does
not value its shares.
4
<PAGE> 12
VALUATION PERIOD -- The period commencing at the close of the New York Stock
Exchange ("NYSE") on each Valuation Day and ending at the close of the NYSE for
the next succeeding Valuation Day.
VARIABLE ACCOUNT -- A subdivision of the Separate Account; the assets of each
Variable Account are invested in a corresponding Portfolio of a designated Fund.
WRITTEN REQUEST -- A written notice or request in a form satisfactory to the
Company which is signed by the Owner and received at the Annuity Service Office.
5
<PAGE> 13
EXPENSE TABLES
The following expense information assumes that the entire Contract Value is
in the Separate Account.
OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C>
Sales Charge Imposed on Premium Payments............................................ None
Maximum Withdrawal Charge (contingent
deferred sales charge) as a percentage of
Premium Payments(1)............................................................... 7.0%
No fee for first twelve transfers in a
Transfer Fee.................................. Contract Year
<CAPTION>
The Company reserves the right to charge a $25 fee for each transfer thereafter during a
Contract Year
<S> <C>
ANNUALIZED CONTRACT FEE(2).......................................................... $30
</TABLE>
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of net assets)
<TABLE>
<S> <C>
Mortality and Expense Risk Charge.................................................. 1.25%
Other Separate Account Expenses(3)................................................. 0.15
----
Total Separate Account Annual Expenses........................................ 1.40%
====
</TABLE>
ANNUAL FUND EXPENSES
(as a percentage of average net assets after expense cap or expense deferral)
ALGER AMERICAN FUND ANNUAL EXPENSES
<TABLE>
<CAPTION>
SMALL
MIDCAP GROWTH CAPITALIZATION
PORTFOLIO PORTFOLIO
------------- --------------
<S> <C> <C>
Management Fees (investment advisory fees)........................ 0.80% 0.85%
Other Expenses After Reimbursement................................ 0.10 0.07
----- -----
Total Annual Portfolio Expenses
(after reimbursements)..................................... 0.90% 0.92%
===== =====
</TABLE>
FIDELITY VIP FUND ANNUAL EXPENSES
<TABLE>
<CAPTION>
EQUITY INCOME GROWTH MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO
------------- ---------- ------------
<S> <C> <C> <C>
Management Fees (investment advisory fees)............... 0.51% 0.61% 0.24%
Other Expenses After Reimbursement....................... 0.10 0.09 0.09
----- ----- -----
Total Annual Portfolio Expenses
(after reimbursements)............................ 0.61% 0.70% 0.33%
===== ===== =====
</TABLE>
6
<PAGE> 14
FIDELITY VIP FUND II ANNUAL EXPENSES
<TABLE>
<CAPTION>
ASSET INVESTMENT
MANAGER CONTRAFUND INDEX 500 GRADE BOND
PORTFOLIO(4) PORTFOLIO(4) PORTFOLIO(5) PORTFOLIO
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Management Fees (investment advisory fees)......... 0.71% 0.61% 0.00% 0.45%
Other Expenses After Reimbursement................. 0.10 0.12 0.28 0.14
----- ----- ----- -----
Total Annual Portfolio Expenses
(after reimbursements)...................... 0.81% 0.73% 0.28% 0.59%
===== ====== ===== =====
</TABLE>
OCC ACCUMULATION TRUST ANNUAL EXPENSES
<TABLE>
<CAPTION>
MANAGED SMALL CAP
PORTFOLIO(6) PORTFOLIO(6)
---------- ---------
<S> <C> <C>
Management Fees (investment advisory fees)............................... 0.80% 0.80%
Other Expenses After Reimbursement....................................... 0.14 0.20
----- -----
Total Annual Portfolio Expenses
(after reimbursements)............................................ 0.94% 1.00%
===== =====
</TABLE>
T. ROWE PRICE FIXED INCOME SERIES, INC. ANNUAL EXPENSES
<TABLE>
<CAPTION>
LIMITED-TERM
BOND
PORTFOLIO(7)
-------------
<S> <C>
Management Fees (investment advisory fees)................................... 0.70%
Other Expenses............................................................... 0.00
-----
Total Annual Portfolio Expenses......................................... 0.70%
=====
</TABLE>
T. ROWE PRICE INTERNATIONAL SERIES, INC. ANNUAL EXPENSES
<TABLE>
<CAPTION>
INTERNATIONAL
STOCK
PORTFOLIO(7)
--------------
<S> <C>
Management Fees (investment advisory fees).................................. 1.05%
Other Expenses.............................................................. 0.00
-----
Total Annual Portfolio Expenses........................................ 1.05%
=====
</TABLE>
VAN ECK WORLDWIDE INSURANCE TRUST ANNUAL EXPENSES
<TABLE>
<CAPTION>
GOLD AND
NATURAL WORLDWIDE
RESOURCES BALANCED
PORTFOLIO PORTFOLIO(8)
--------------- ---------------
<S> <C> <C>
Management Fees (investment advisory fees)................ 1.00% 0.0%
Other Expenses After Reimbursement........................ 0.21 0.0
----- ---
Total Annual Portfolio Expenses
(after reimbursements)............................. 1.21% 0.0%
====== ===
</TABLE>
Premium taxes may be applicable, depending on the laws of various
jurisdictions.
The purpose of these tables is to assist the Contract Owner in
understanding the costs and expenses that he or she will bear directly or
indirectly. The table reflects the actual charges and expenses for the Separate
7
<PAGE> 15
Account and for each Portfolio for the fiscal year ended December 31, 1995. For
a more complete description of the various charges and expenses described in
these tables, see "Charges and Deductions" and the prospectus for each Portfolio
which accompanies this prospectus.
(1) A Withdrawal Charge is deducted only if a full or partial withdrawal occurs
during the first nine Contract Years; no Withdrawal Charge is deducted from
a full or partial surrender in Contract Years ten and later. Amounts subject
to the Withdrawal Charge will be deemed to be first from Premium Payments,
then from earnings. No Withdrawal Charge applies to Contract Value in excess
of aggregate Premium Payments. For the first six Contract Years, the maximum
charge is 7% of the amount withdrawn. For amounts withdrawn within the
seventh year from the Date of Issue, the charge is 6% of the amount
withdrawn. Thereafter, the Withdrawal Charge decreases by 2% for each
subsequent Contract Year until it is zero in year ten. (See "Charges for
Partial or Full Withdrawals.")
(2) Deduction of the Contract Fee is currently waived for all Qualified
Contracts. The Company also currently waives deduction of the Contract Fee
for Non-Qualified Contracts whose cumulative Premium Payments on the date
the Contract Fee is assessed are equal to or greater than $100,000.
(3) Asset-based administrative charge.
(4) A portion of the brokerage commissions paid by the Asset Manager and
Contrafund Portfolios was used to reduce Portfolio expenses, so that Total
Annual Portfolio Expenses after the reduction were 0.79% for Asset Manager
and 0.72% for Contrafund.
(5) The expenses for the Fidelity Index 500 Portfolio were voluntarily reduced
by the Fund's investment adviser. Absent reimbursements, Management Fee,
Other Expenses and Total Annual Portfolio Expenses would have been 0.28%,
0.19% and 0.47%, respectively.
(6) The Total Annual Portfolio Expenses of the OCC Accumulation Trust Portfolios
as of December 31, 1995 have been restated to reflect new Management Fee and
expense limitation arrangements in effect as of May 1, 1996. Effective May
1, 1996, the Total Annual Portfolio Expenses of the Managed and Small Cap
Portfolios of the OCC Accumulation Trust are contractually limited by OpCap
Advisors so that their respective annualized operating expenses do not
exceed 1.25% of their respective average daily net assets. Furthermore,
through April 30, 1997, the annualized operating expenses of the Managed and
Small Cap Portfolios will be voluntarily limited by OpCap Advisors so that
annualized operating expenses of these Portfolios do not exceed 1.00% of
their respective average daily net assets. Without such voluntary expense
limitations, and taking into account the revised contractual provisions
effective May 1, 1996 concerning management fees and expense limitations,
the Management Fees, Other Expenses and Total Annual Portfolio Expenses
incurred for the fiscal year ended December 31, 1995 would have been: .80%,
.14% and .94%, respectively, for the Managed Portfolio; and .80%, .39% and
1.19%, respectively, for the Small Cap Portfolio.
(7) The Limited-Term Bond Portfolio pays T. Rowe Price an annual all-inclusive
fee of 0.70% based on its average daily net assets. The International Stock
Portfolio pays Rowe Price-Fleming International, Inc. ("Price-Fleming") an
annual all-inclusive fee of 1.05% based on its average daily net assets.
These fees pay for investment management services and other operating costs
of the Portfolios.
(8) The Worldwide Balanced Portfolio's expenses were voluntarily reduced by the
Portfolio's investment adviser. Absent such reimbursement, Management Fees,
Other Expenses, and Total Annual Portfolio Expenses would have been 0.75%,
0.60%, and 1.35%, respectively. Other Expenses of 0.60% are based on a net
asset estimation of $30 million.
8
<PAGE> 16
EXAMPLES
(NOTE: The examples shown below are entirely hypothetical. They are not
representations of past or future performance or expenses. Actual performance
and/or expenses may be more or less than shown.)
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets and charges and expenses reflected in the Fee Table
above:
1. If You surrender your Contract (or if you elect to annuitize under
a period certain option for a specified period of less than 10 years) at
the end of the applicable time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Alger American Fund
MidCap Growth Portfolio.................................... $88.01 $139.49
Small Capitalization Portfolio............................. $88.22 $140.12
Fidelity VIP Fund
Equity-Income Portfolio.................................... $84.96 $130.29
Growth Portfolio........................................... $85.91 $133.15
Money Market Portfolio..................................... $82.03 $121.35
Fidelity VIP Fund II
Asset Manager Portfolio.................................... $87.06 $136.64
Contrafund Portfolio....................................... $86.22 $134.10
Index 500 Portfolio........................................ $81.50 $119.74
Investment Grade Bond Portfolio............................ $84.76 $129.65
OCC Accumulation Trust
Managed Portfolio.......................................... $88.43 $140.76
Small Cap Portfolio........................................ $89.06 $142.65
T. Rowe Price Fixed Income Series, Inc.
Limited-Term Bond Portfolio................................ $85.91 $133.15
T. Rowe Price International Series, Inc.
International Stock Portfolio.............................. $89.58 $144.23
Van Eck Worldwide Insurance Trust
Gold and Natural Resources Portfolio....................... $91.26 $149.27
Worldwide Balanced Portfolio............................... $78.57 $110.74
</TABLE>
9
<PAGE> 17
2. If You do not surrender your Contract (or if you elect to annuitize
under a life contingency option or under a period certain option for a
minimum specified period of 10 years) at the end of the applicable time
period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Alger American Fund
MidCap Growth Portfolio..................................... $25.01 $ 76.85
Small Capitalization Portfolio.............................. $25.22 $ 77.48
Fidelity VIP Fund
Equity-Income Portfolio..................................... $21.96 $ 67.69
Growth Portfolio............................................ $22.91 $ 70.53
Money Market Portfolio...................................... $19.03 $ 58.79
Fidelity VIP Fund II
Asset Manager Portfolio..................................... $24.06 $ 74.01
Contrafund Portfolio........................................ $23.22 $ 71.48
Index 500 Portfolio......................................... $18.50 $ 57.19
Investment Grade Bond Portfolio............................. $21.76 $ 67.05
OCC Accumulation Trust
Managed Portfolio........................................... $25.43 $ 78.11
Small Cap Portfolio......................................... $26.06 $ 79.99
T. Rowe Price Fixed Income Series, Inc.
Limited-Term Bond Portfolio................................. $22.91 $ 70.53
T. Rowe Price International Series, Inc.
International Stock Portfolio............................... $26.58 $ 81.56
Van Eck Worldwide Insurance Trust
Gold and Natural Resources Portfolio........................ $28.26 $ 86.58
Worldwide Balanced Portfolio................................ $15.57 $ 48.23
</TABLE>
The examples provided above assume that no transfer charges or premium
taxes have been assessed. The examples also reflect that the annualized Contract
Fee of $30 is assessed on an average Contract Value of $34,179, which translates
the Contract Fee into a .09% charge for the purposes of the examples based on a
$1,000 investment.
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. THE ASSUMED
5% ANNUAL RATE OF RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE GREATER OR LESS
THAN THIS ASSUMED RATE.
10
<PAGE> 18
SUMMARY
THE CONTRACT
Issuance of a Contract. The Contract is a flexible premium deferred
variable annuity issued by IL Annuity and Insurance Company. Contracts may be
sold in connection with retirement plans that may or may not qualify for special
federal tax treatment under the Code. The maximum age for Owners on the Date of
Issue is 85. Annuity payments are deferred until the Annuity Commencement Date.
(See "Issuance of a Contract.")
Free-Look Period. The Owner has the right to return the Contract for any
reason within 10 days after he or she receives it (or within 20 days of receipt
if the Contract is replacing another annuity contract or insurance policy). The
contract must be returned to the Annuity Service Office. The Owner's Written
Request for cancellation must accompany the Contract. The returned contract will
be treated as if it were never issued. In certain states the Owner may have more
than 10 days to return the Contract for a refund. The amount that the Company
refunds will vary according to state requirements. Most states allow the Company
to refund an amount equal to the sum of: (i) the difference between the Premium
Payments made and the amounts allocated to the Fixed Account and the Separate
Account; and (ii) the Contract Value as of the date the contract and request for
cancellation is received at the Annuity Service Office. The Contract Owner bears
the investment risk for Premium Payments allocated to the Variable Accounts
during the period prior to the Company's receipt of the Contract and Written
Request for cancellation.
A few states require a return of Premium Payments. In these states, the
refund amount will be the greater of: (i) the amount of Premium Payments made
under the Contract; and (ii) the Contract Value on the date the Contract is
received at the Annuity Service Office, plus any amounts which may have been
deducted for premium taxes. In these states, the Company will allocate Premium
Payments to the Money Market Variable Account for 15 calendar days from the date
the initial Premium Payment is credited to the Contract. (See "Free-Look
Period.")
Premium Payments. The minimum amount which the Company will accept as an
initial Premium Payment is $1,000; the maximum amount of the initial premium is
$250,000. Subsequent Premium Payments of not less than $1,000 may be paid under
the Contract at any time until the earliest of: (a) the Annuity Commencement
Date; (b) full withdrawal of Contract Value; or (c) the date the Owner attains
age 85 (age 70 1/2 if this is a Qualified Contract). Additional premiums in
amounts up to two times the initial premium may be paid annually. The Company
will not accept total premiums in excess of $250,000. The Company reserves the
right to waive these premium limitations. (See "Premium Payments.")
Allocation of Net Premium Payments. Net Premium Payments under a Contract
will be allocated, as designated by the Owner, to any available Variable Account
of the Separate Account and to the Fixed Account or to both, subject to any
minimum allocation amounts established by the Company. In states where the
Company must refund Premium Payments in the event the Owner exercises the
free-look right, any portion of the initial Net Premium Payments to be allocated
to a Variable Account will be allocated to the Money Market Variable Account for
a 15-day period following the date the initial Premium Payment is credited to
the Contract. At the end of that period, the amount in the Money Market Variable
Account will be allocated to the Variable Accounts selected by the Owner. The
assets of each Variable Account will be invested solely in a corresponding
Portfolio of a Fund. The Contract Value, except for amounts in the Fixed
Account, will vary according to the investment performance of the Portfolio(s)
in which the selected Variable Account(s) is invested. Interest will be credited
to amounts in the Fixed Account at a guaranteed minimum rate of 3% per year, or
a higher current interest rate declared by the Company. (See "Allocation of Net
Premium Payments.")
Transfers. Prior to the Annuity Commencement Date, the Owner may transfer
Contract Value from one or more of the Variable Accounts or the Fixed Account to
another one or more of the Variable Accounts, subject to certain restrictions.
If the Owner transfers Contract Value from an Eligible Variable Account, the
Owner will no longer be eligible for the Maturity Benefit that applied to the
transferred amount. (See "Maturity Benefit.")
11
<PAGE> 19
Transfers to the Fixed Account must be at least $1,000. Prior to the
Annuity Commencement Date, the Owner may transfer up to 20% of the Fixed Account
Value from the Fixed Account to one or more of the Variable Accounts in any
Contract Year. No fee is charged for transfers from the Fixed Account to one or
more Variable Accounts and such transfers are not considered a transfer for
purposes of assessing a transfer charge. (See "Transfer Privileges.")
The Company reserves the right to impose a transfer charge of $25 for the
thirteenth and each subsequent request made by the Owner to transfer Contract
Value from one or more Variable Accounts to another one or more of the Variable
Accounts or the Fixed Account during a single Contract Year prior to the Annuity
Commencement Date. (See "Charges and Deductions.")
Partial Withdrawal. Prior to the Annuity Commencement Date, the Owner may
submit a Written Request to withdraw part of the Contract Value in amounts not
less than $250. If the remaining Contract Value is reduced to less than $1,000
by the partial withdrawal, the Company reserves the right to pay the Surrender
Value to the Owner in a lump sum. The Federal tax laws impose penalties upon,
and in some cases prohibit, certain premature distributions from the Contract
before or after the date on which the annuity payments are to begin. (See
"Federal Tax Matters.") Amounts withdrawn may be subject to a Withdrawal Charge
(Contingent Deferred Sales Charge), depending on the number of years between the
request for withdrawal and the Contract's Date of Issue. In any Contract Year,
an amount equal to 10% of the Contract Value at the beginning of the Contract
Year may be withdrawn without Withdrawal Charges. (See "Withdrawal
Charge -- Full and Partial Withdrawals.")
Full Withdrawal. Upon Written Request before the Annuity Commencement
Date, the Owner may cancel the Contract and receive its Surrender Value. (See
"Full and Partial Withdrawals.") As with partial withdrawals, Federal tax laws
impose penalties upon, and in some cases prohibit, certain premature
distributions from the Contract before or after the date on which the annuity
payments are to begin. (See "Federal Tax Matters.")
Death Benefit. If the Annuitant dies before the Annuity Commencement
Date, the Beneficiary will receive a Death Benefit. The Death Benefit will be
equal to the greater of:
(1) Premium Payments made under the Contract, less partial withdrawals
as of the date the Company receives due proof of the deceased's
death and payment instructions; or
(2) Contract Value as of the date the Company receives due proof of the
deceased's death and payment instructions;
LESS any applicable premium taxes not previously deducted. If the Owner dies
before the Annuity Commencement Date, the Contract Value (or if the Owner is
also the Annuitant, the Death Benefit) must generally be distributed to the
Beneficiary within five years after the date of the Owner's death. (See "Death
Benefit Before the Annuity Commencement Date.")
Maturity Benefit. If the Contract is in the accumulation phase on the
Maturity Benefit Date, IL Annuity will calculate the Maturity Benefit for each
Eligible Variable Account. The Maturity Benefit will be credited to Contract
Value only for those Eligible Variable Accounts that meet the following
condition. The value of the Eligible Variable Account on the Maturity Benefit
Date must be less than the sum of those Premium Payments which: (a) the Owner
initially allocated to the Eligible Variable Account; (b) have remained
continuously in the Eligible Variable Account; and (c) have been in the Eligible
Variable Account for a minimum of ten years.
The Maturity Benefit which will be calculated for each Eligible Variable
Account is equal to: (a) the sum of the Premium Payments which have remained in
an Eligible Variable Account from the time of initial Premium Payment until the
Maturity Benefit Date, provided ten years have elapsed from the time of initial
payment until the Maturity Benefit Date; minus (b) the value of the Eligible
Variable Account on the Maturity Benefit Date.
The Maturity Benefit Date is the later of the Annuitant's age 70 and 10
years after the Date of Issue. If the Contract is owned by Joint Owners who are
spouses at the time one Joint Owner dies, the Maturity Benefit
12
<PAGE> 20
Date will become the date the surviving spouse attains age 70. If the Contract
is owned by Joint Owners who are not spouses and one of the Joint Owners dies
before the Maturity Benefit Date, the Maturity Benefit is not available to the
sole surviving Owner. The Eligible Variable Accounts currently include all
Variable Accounts except the Van Eck Gold and Natural Resources Variable
Account.
The Maturity Benefit will not be credited to Contract Value if the Owner
chooses an Annuity Commencement Date which is earlier than the Maturity Benefit
Date. The Maturity Benefit will not be calculated for amounts transferred or
withdrawn out of an Eligible Variable Account. (See "Maturity Benefit.")
CHARGES AND DEDUCTIONS
The following charges and deductions are assessed under the Contract:
Withdrawal Charge (Contingent Deferred Sales Charge). No charge for sales
expenses is deducted from Premium Payments at the time Premium Payments are
paid. However, a Withdrawal Charge is deducted upon full or partial withdrawal
of Contract Value during the first nine Contract Years. No Withdrawal Charge
will be assessed on distributions made in the event the contract terminates due
to the death of the Annuitant or Owner or if Contract Values are applied to a
life contingency option or an annuity plan with a period certain of at least 10
years.
For amounts withdrawn within the first six years from the Date of Issue,
the charge is 7.0% of the amount withdrawn. For amounts withdrawn during the
seventh year from the Date of Issue, the charge is 6.0% of the amount withdrawn.
For each Contract Year thereafter, the Withdrawal Charge decreases by 2.0% for
each subsequent Contract Year until it is zero in year ten. Amounts subject to
the Withdrawal Charge will be deemed to be first from Premium Payments, then
from earnings. No Withdrawal Charge is assessed upon the withdrawal of Contract
Value in excess of aggregate Premium Payments or on withdrawals made in Contract
Years ten or later. (See "Withdrawal Charge -- Charges for Full or Partial
Withdrawals.")
In any Contract Year, an amount equal to 10% of the Contract Value at the
beginning of the Contract Year may be withdrawn without Withdrawal Charges. (See
"Withdrawal Charge.") The Withdrawal Charge also may be waived in cases of
extended hospitalization, long-term care, terminal illness, or to pay for post
secondary education, as provided in the Contract. (See "Withdrawal
Charge -- Waiver of Withdrawal Charge.")
Contract Fee. At the end of each Contract quarter (or on the date of full
surrender of the Contract) prior to the Annuity Commencement Date, the Company
deducts a quarterly Contract Fee of $7.50 from the Contract Value. Deduction of
the Contract Fee is currently waived for all Qualified Contracts. The Company
also currently waives quarterly deduction of the Contract Fee for Non-Qualified
Contracts whose cumulative Premium Payments on the date the Contract Fee is
assessed are equal to or greater than $100,000. The Company reserves the right
to modify this waiver upon 30 days written notice to Contract Owners. This
charge does not apply after an annuity payout plan has begun. (See "Contract
Fee.")
Transfer Fee. The Company reserves the right to impose a transfer charge
of $25 for the thirteenth and each subsequent request made by the Owner to
transfer Contract Value from one or more Variable Accounts to another one or
more of the Variable Accounts or the Fixed Account during a single Contract Year
prior to the Annuity Commencement Date. (See "Transfer Fee.")
Mortality and Expense Risk Charge. The Company deducts a daily mortality
and expense risk charge to compensate it for assuming certain mortality and
expense risks. The charge is deducted from the assets of the Separate Account at
a rate of 0.003404% per day which is an annual rate of 1.25% (approximately
0.90% for mortality risk and 0.35% for expense risks). This charge will continue
to be assessed if annuity payments are made on a variable basis after the
Annuity Commencement Date. (See "Mortality and Expense Risk Charge.")
Asset-Based Administration Charge. The Company deducts a daily
administration charge to compensate it for certain expenses it incurs in
administration of the Contract. The charge is deducted from the assets
13
<PAGE> 21
of the Separate Account at an annual rate of 0.15%. This charge will continue to
be assessed after annuitization if annuity payments are made on a variable
basis. (See "Asset-Based Administration Charge.")
Premium Taxes. Various states and other governmental entities levy a
premium tax, currently ranging up to 3.5%, on annuity contracts issued by
insurance companies. Premium tax rates are subject to change from time to time
by legislative and other governmental action. In addition, other governmental
units within a state may levy such taxes. If state or other premium taxes are
applicable to a Contract, they will be deducted either: (a) from Premium
Payments as they are received, (b) from Contract Value upon partial or full
withdrawal, (c) upon application of adjusted Contract Value to a payout plan
option, or (d) upon payment of a Death Benefit. (See "Premium Taxes.")
Investment Advisory Fees and Other Expenses of the Funds. Because each
Variable Account purchases shares of the Funds, the net assets of each Variable
Account will reflect the investment advisory fee incurred by the corresponding
Portfolio of the Funds. For each Portfolio, an investment advisor is paid a
daily fee by the Funds for its investment advisory services. The advisory fees
are based on the average daily net assets of the Portfolio, and, as a result,
the amount of the advisory fee will depend upon the Portfolio and the assets of
such Portfolio. Each Portfolio of the Fund in which the Variable Accounts invest
is also responsible for its own expenses. Presently, certain fees and expenses
of the Funds are waived and reimbursed. (See the accompanying Prospectuses of
the Funds for further details.)
ANNUITY PROVISIONS
Payout Plan Options. On the Annuity Commencement Date, the Contract Value
(adjusted as described below) will be applied to a payout plan option, unless
the Owner chooses to receive the Surrender Value in a lump sum. Adjusted
Contract Value is Contract Value, LESS applicable premium tax not yet deducted,
LESS the quarterly Contract Fee, and, for an installment income annuity payout
plan with a payout period of less than 10 years, LESS any applicable Withdrawal
Charge. (See "Payout Plan Options.")
FEDERAL TAX STATUS
Generally, a distribution (including a full or partial withdrawal or Death
Benefit payment) may result in taxable income. In certain circumstances, a 10%
penalty tax may apply. For a further discussion of the federal tax status of
variable annuity contracts, see "Federal Tax Status."
CONDENSED FINANCIAL INFORMATION
The following condensed financial information is derived from the financial
statements of the Separate Account. The data should be read in conjunction with
the financial statements, related notes and other financial information included
in the Statement of Additional Information. See "Financial Statements"
concerning the financial statements contained in the Statement of Additional
Information.
14
<PAGE> 22
The Variable Accumulation Unit values and the number of Variable
Accumulation Units outstanding for each Variable Account for the periods shown
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------------------------------------------
ALGER ALGER FIDELITY FIDELITY FIDELITY
MIDCAP GROWTH SMALL CAPITALIZATION EQUITY-INCOME GROWTH MONEY MARKET
VARIABLE ACCOUNT VARIABLE ACCOUNT VARIABLE ACCOUNT VARIABLE ACCOUNT VARIABLE ACCOUNT
---------------- -------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value at
Beginning of Period......... $ 10.000 $ 10.000 $ 10.000 $ 10.000 $ 10.000
Accumulation Unit Value at
End of Period............... $ 9.786 $ 9.675 $ 10.616 $ 9.604 0
Number of Accumulation
Units Outstanding at
End of Period............... 2,764 1,709 3,789 2,199 0
</TABLE>
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY FIDELITY QUEST FOR VALUE
ASSET MANAGER CONTRAFUND INDEX 500 INVESTMENT GRADE BOND MANAGED VARIABLE
VARIABLE ACCOUNT VARIABLE ACCOUNT VARIABLE ACCOUNT VARIABLE ACCOUNT ACCOUNT(A)
---------------- ---------------- ---------------- --------------------- -----------------
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value at
Beginning of Period....... $ 10.000 $ 10.000 $ 10.000 $10.000 $10.000
Accumulation Unit Value at
End of Period............. $ 8.224 $ 10.091 $ 10.514 $10.247 $10.380
Number of Accumulation
Units Outstanding at
End of Period............. 255 5,731 3,538 1,668 161
</TABLE>
<TABLE>
<CAPTION>
QUEST FOR VALUE
SMALL CAP T.ROWE PRICE T.ROWE PRICE VAN ECK VAN ECK
VARIABLE LIMITED-TERM BOND INTERNATIONAL STOCK GOLD/NAT. RESOURCES WORLDWIDE BALANCED
ACCOUNT(a) VARIABLE ACCOUNT VARIABLE ACCOUNT VARIABLE ACCOUNT VARIABLE ACCOUNT
----------------- ----------------- ------------------- ------------------- ------------------
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value
at Beginning of
Period................ $10.000 $10.000 $10.000 $10.000 $ 10.000
Accumulation Unit Value
at End of Period...... $10.388 $10.042 $10.487 $10.621 $ 10.010
Number of Accumulation
Units Outstanding at
End of Period......... 1,182 1,485 2,530 58 1,201
</TABLE>
- ---------------
(a) Effective May 1, 1996, Quest for Value Accumulation Trust changed its name
to the OCC Accumulation Trust.
THE COMPANY AND THE SEPARATE ACCOUNT
IL ANNUITY AND INSURANCE COMPANY
IL Annuity and Insurance Company, formerly known as Sentry Investors Life
Insurance Company, is a stock life insurance company organized under the laws of
the Commonwealth of Massachusetts on December 21, 1965 and incorporated on March
9, 1966. The Company changed its named to "IL Annuity and Insurance Company" on
January 17, 1995.
Effective October 31, 1994, the Company entered into an assumption
reinsurance agreement with Sentry Life Insurance Company ("Sentry") whereby
Sentry assumed all of the existing insurance in-force and related assets and
liabilities from the Company.
On November 1, 1994, the Company became a wholly-owned subsidiary of the
Indianapolis Life Group of Companies, Inc., which is a wholly-owned subsidiary
of Indianapolis Life Insurance Company. Indianapolis Life Insurance Company is a
mutual life insurance company chartered under Indiana law in 1905 with assets as
of December 31, 1995 which exceeded $1.48 billion.
The Company is subject to regulation by the Insurance Department of the
State of Massachusetts as well as by the insurance departments of all other
states and jurisdictions in which it does business. The Company
15
<PAGE> 23
submits annual statements on its operations and finances to insurance officials
in such states and jurisdictions. The forms for the Contract described in this
Prospectus are filed with and (where required) approved by insurance officials
in each state and jurisdiction in which Contracts are sold.
IL ANNUITY AND INSURANCE CO. SEPARATE ACCOUNT 1
The IL Annuity and Insurance Co. Separate Account I (the "Separate
Account") was established by the Company as a separate account under
Massachusetts insurance law on November 1, 1994. The Separate Account will
receive and invest Net Premium Payments made under the Contracts. In addition,
the Separate Account may receive and invest Premium Payments for any other
variable annuity contracts issued in the future by the Company.
Although the assets in the Separate Account are the property of the
Company, the portion of the assets in the Separate Account equal to the reserves
and other contract liabilities of the Separate Account are not chargeable with
the liabilities arising out of any other business which the Company may conduct
and which has no specific relation to or dependence upon the Separate Account.
The assets of the Separate Account are available to cover the general
liabilities of the Company only to the extent that the Separate Account's assets
exceed its liabilities arising under the Contracts and any other contracts
supported by the Separate Account. The Company has the right to transfer to the
general account any assets of the Separate Account which are in excess of
reserves and other contract liabilities. All obligations arising under the
Contracts are general corporate obligations of the Company. Income, gains and
losses, whether or not realized, from assets allocated to the Separate Account
are credited to or charged against the Separate Account without regard to other
income, gains or losses of any other separate account or of the Company.
The Separate Account currently is divided into fifteen Variable Accounts
but may, in the future, include additional Variable Accounts. Each Variable
Account invests exclusively in shares of a single corresponding fund. The
income, gains and losses, whether or not realized, from the assets allocated to
each Variable Account are credited to or charged against that Variable Account
without regard to income, gains or losses from any other Variable Account.
The Separate Account has been registered with the SEC as a unit investment
trust under the Investment Company Act of 1940 (the "1940 Act") and meets the
definition of a separate account under the federal securities laws. Registration
with the SEC does not involve supervision of the management or investment
practices or policies of the Separate Account or the Company by the SEC. The
Separate Account is also subject to the laws of the State of Massachusetts which
regulate the operations of insurance companies domiciled in Massachusetts.
THE FUNDS
Each Variable Account of the Separate Account invests in shares of the
Portfolios of seven series-type mutual funds (the "Funds"). Each Fund currently
available under the Contract is registered with the SEC under the Investment
Company Act of 1940 (the "1940 Act") as an open-end, management investment
company. Such registration does not involve supervision of the management or
investment practices or policies of the companies or their funds by the SEC.
Each Variable Account invests exclusively in a designated investment
Portfolio of one of the Funds. The assets of each Portfolio of each series Fund
are separate from the assets of that Fund's other Portfolios, and each Portfolio
has separate investment objectives and policies. As a result, each Portfolio
operates as a separate investment Portfolio and the income or losses of one
Portfolio has no effect on the investment performance of any other Portfolio.
Some of the Funds may, in the future, create additional portfolios.
The investment objectives and policies of each Portfolio are summarized
below. THERE IS NO ASSURANCE THAT ANY FUND WILL ACHIEVE ITS STATED OBJECTIVES.
More detailed information, including a description of risks and expenses, may be
found in the prospectuses for the Funds which must accompany or precede this
prospectus and which should be read carefully and retained for future reference.
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Each of the Funds is managed by an investment adviser registered with the
SEC under the Investment Advisers Act of 1940, as amended. Each investment
manager is responsible for the selection of Portfolio investments consistent
with the investment objectives and policies of the Portfolio, and conducts
securities trading for the Portfolio.
Certain Variable Accounts invest in Portfolios that have similar investment
objectives and/or policies; therefore, before choosing Variable Accounts,
carefully read the individual prospectuses for the Funds along with this
prospectus.
THE ALGER AMERICAN FUND
The MidCap Growth Variable Account and the Small Capitalization Variable
Account will invest exclusively in shares of the MidCap Growth Portfolio and the
Small Capitalization Portfolio of The Alger American Fund ("The Alger Fund").
The Alger Fund is intended to be a funding vehicle for variable annuity and
variable life insurance contracts offered by the separate accounts of certain
life insurance companies and may, in the future, offer its shares to qualified
pension and retirement plans.
The Alger Fund consists of six Portfolios of which two, the MidCap Growth
Portfolio and the Small Capitalization Portfolio, are available for investment
under the Contracts. The investment objectives of these Portfolios are as
follows:
MIDCAP GROWTH PORTFOLIO -- The investment objective of the Portfolio
is long-term capital appreciation. Except during temporary defensive
periods, the Portfolio invests at least 65% of its total assets in equity
securities of companies that, at the time of purchase of the securities,
have total market capitalization within the range of companies included in
the S&P MidCap 400 Index, updated quarterly. The S&P MidCap Index is
designed to track the performance of medium capitalization companies. At
the date of this Prospectus, the range of market capitalization of these
companies was $153 million to $8.9 billion. The Portfolio may invest up to
35% of its total assets in equity securities of companies that, at the time
of purchase, have total market capitalization outside the range of
companies included in the S&P MidCap 400 Index and in excess of that amount
(up to 100% of its assets) during temporary defensive periods.
SMALL CAPITALIZATION PORTFOLIO -- The investment objective of the
Portfolio is long-term capital appreciation. Except during temporary
defensive periods, the Portfolio invests at least 65% of its total assets
in equity securities of companies that, at the time of purchase of the
securities, have total market capitalization within the range of companies
included in the Russell 2000 Growth Index, updated quarterly. The Russell
2000 Growth Index is designed to track the performance of small
capitalization companies. At the date of this Prospectus, the range of
market capitalization of these companies was $20 million to $3.0 billion.
The Portfolio may invest up to 35% of its total assets in equity securities
of companies that, at the time of purchase, have total market
capitalization outside the range of companies included in the Russell 2000
Growth Index and in excess of that amount (up to 100% of its assets) during
temporary defensive periods.
Fred Alger Management, Inc. ("Alger Management") serves as investment
adviser for the MidCap Growth and Small Capitalization Portfolios of The Alger
American Fund. Fred Alger & Company, Incorporated, an affiliate of Alger
Management, will serve as the Portfolios' broker in effecting substantially all
of the portfolio transactions on security exchanges.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND AND FIDELITY VARIABLE INSURANCE
PRODUCTS FUND II
The Equity-Income Variable Account, the Growth Variable Account and the
Money Market Variable Account will invest in shares of their corresponding
Portfolios of Fidelity's Variable Insurance Products Fund ("VIP Fund"); the
Asset Manager Variable Account, the Contrafund Variable Account, the Index 500
Variable Account and the Investment Grade Bond Variable Account will invest in
shares of their corresponding Portfolios of the Variable Insurance Products Fund
II ("VIP Fund II"). The VIP Fund and the VIP Fund II each offer insurance
companies a selection of investment vehicles for variable annuity contracts and
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variable life insurance products. The VIP fund issues five "series" of shares,
each of which represents an interest in a separate Portfolio within the VIP
Fund. Three of these series are available for investment under the Contracts:
Equity-Income Portfolio; Growth Portfolio and the Money Market Portfolio. The
VIP Fund II issues five "series," four of which are available for investment
under the Contracts: Asset Manager Portfolio; Contrafund Portfolio; Index 500
Portfolio and Investment Grade Bond Portfolio.
The investment objectives of the pertinent Portfolios of the Funds are set
forth below.
EQUITY-INCOME PORTFOLIO -- The Portfolio seeks reasonable income by
investing primarily in income-producing equity securities.
GROWTH PORTFOLIO -- seeks to achieve capital appreciation by investing
in common stocks and securities convertible into common stock of companies
that the adviser believes have above-average growth potential. The
Portfolio, however, is not restricted to any one type of security and may
pursue capital appreciation through the purchase of bonds and preferred
stocks.
MONEY MARKET PORTFOLIO -- seeks to earn a high level of current income
while maintaining a stable $1.00 share price by investing in high-quality,
short-term money market securities of different types.
ASSET MANAGER PORTFOLIO -- seeks to obtain high total return with
reduced risk over the long-term by allocating its assets among stocks,
bonds, short-term and other instruments of U.S. and foreign issuers.
CONTRAFUND PORTFOLIO -- seeks capital appreciation by investing in
companies that the adviser believes to be undervalued due to an overly
pessimistic appraisal by the public.
INDEX 500 PORTFOLIO -- seeks to match the total return of the S&P 500
while keeping expenses low. The adviser normally invests at least 80% (65%
if Portfolio assets are below $20 million) of the Portfolio's assets in
equity securities of companies that compose the S&P 500.
INVESTMENT GRADE BOND PORTFOLIO -- seeks high current income by
investing in fixed-income obligations of all types.
The Portfolios of the VIP Fund and the VIP Fund II are managed by Fidelity
Management & Research Company ("FMR"). On behalf of the Money Market Portfolio,
FMR has entered in a subadvisory agreement with FMR Texas, Inc., pursuant to
which FMR Texas, Inc. has primary responsibility for providing investment
management services to the Portfolio. On behalf of the Asset Manager Portfolio
and the Contrafund Portfolio, FMR has entered into subadvisory agreements with
Fidelity Investment Management and Research (U.K.) Inc. ("FMR (U.K.)") and
Fidelity Management and Research (Far East) Inc. ("FMR Far East"), pursuant to
which those entities provide research and investment recommendations with
respect to companies based outside the United States. FMR (U.K.) focuses
primarily on companies based in Europe, while FMR Far East focuses primarily on
companies based in Asia and the Pacific Basin.
OCC ACCUMULATION TRUST
The Managed Variable Account and the Small Cap Variable Account will invest
only in shares of their corresponding portfolios of the OCC Accumulation Trust
("OCC Trust") (formerly known as the Quest for Value Accumulation Trust). Shares
of the OCC Trust are sold only to separate accounts of life insurance companies
established to fund variable annuity and variable life insurance contracts, and
may, in the future, offer its shares to qualified pension and retirement plans.
The OCC Trust currently has seven Portfolios, two of which are available
for investment under the Contracts: the Managed Portfolio and the Small Cap
Portfolio. The investment objectives of the Portfolios available under the
Contracts are described below.
MANAGED PORTFOLIO -- seeks growth of capital over time through
investment in a portfolio consisting of common stocks, bonds and cash
equivalents, the percentages of which will vary based on management's
assessments of relative investment values.
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SMALL CAP PORTFOLIO -- seeks capital appreciation through investment
in a diversified portfolio of equity securities of companies with market
capitalizations of under $1 billion.
The OCC Trust receives investment advice with respect to each of its
Portfolios from OpCap Advisors, a subsidiary of Oppenheimer Capital which is a
subsidiary of Oppenheimer Financial Corp.
T. ROWE PRICE FIXED INCOME SERIES, INC.
The Limited-Term Bond Variable Account will invest exclusively in shares of
the Limited-Term Bond Portfolio of the T. Rowe Price Fixed Income Series, Inc..
Shares of the T. Rowe Price Limited-Term Bond Portfolio are sold only to the
separate accounts of insurance companies to provide an investment vehicle for
variable annuity and variable life insurance products.
The T. Rowe Price Fixed Income Series, Inc. currently consists of one
Portfolio: the Limited-Term Bond Portfolio.
LIMITED-TERM BOND PORTFOLIO -- seeks a high level of income consistent
with modest price fluctuations by investing primarily in short- and
intermediate-term investment-grade debt securities.
T. Rowe Price Associates, Inc. is responsible for the selection and
management of the portfolio investments of T. Rowe Price Limited-Term Bond
Portfolio and receives a single, all-inclusive fee based on the Portfolio's
average daily net assets to cover investment management and operating expenses.
T. ROWE PRICE INTERNATIONAL SERIES, INC.
The International Stock Variable Account will invest exclusively in shares
of the International Stock Portfolio of the T. Rowe Price International Series,
Inc.. Shares of the T. Rowe Price International Stock Portfolio are sold only to
the separate accounts of insurance companies to provide an investment vehicle
for variable annuity and variable life insurance products.
The T. Rowe Price International Series, Inc. currently consists of one
Portfolio: the International Stock Portfolio.
INTERNATIONAL STOCK PORTFOLIO -- seeks long-term growth of capital
through investments primarily in common stocks of established non-U.S.
companies.
Rowe Price-Fleming International, Inc. ("Price-Fleming") is responsible for
the selection and management of the Portfolio's investments. Incorporated in
1979 as a joint venture between T. Rowe Price Associates, Inc. ("T. Rowe Price")
and Robert Fleming Holdings Limited ("Fleming"), Price-Fleming receives a
single, all-inclusive fee based on the Portfolio's average daily net assets to
cover investment management and operating expenses.
VAN ECK WORLDWIDE INSURANCE TRUST
The Worldwide Balanced Variable Account and the Gold and Natural Resources
Variable Account will invest exclusively in shares of the Worldwide Balanced
Portfolio and the Gold and Natural Resources Portfolio of the Van Eck Worldwide
Insurance Trust (the "Van Eck Trust"). Shares of the Van Eck Trust are offered
only to various insurance company separate accounts to fund the benefits of
variable insurance and variable annuity contracts.
The Van Eck Trust currently consists of five Portfolios, two of which are
available for investment under the Contracts: Worldwide Balanced Portfolio and
Gold and Natural Resources Portfolio.
The investment objectives of the pertinent Portfolios of the Van Eck Trust
are as follows:
GOLD AND NATURAL RESOURCES PORTFOLIO -- seeks long-term capital
appreciation by investing in equity and debt securities of companies
engaged in the exploration, development, production and distribution of
gold and other natural resources, such as strategic and other metals,
minerals, forest products, oil, natural gas and coal. Current income is not
an investment objective.
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WORLDWIDE BALANCED PORTFOLIO -- seeks long-term capital appreciation
together with current income by investing in equity securities, fixed
income securities and short-term instruments.
Van Eck Associates Corporation serves as investment adviser and manager to
the Van Eck Gold and Natural Resources Portfolio pursuant to an Advisory
Agreement with the Van Eck Trust. Fiduciary International, Inc. serves as
sub-investment adviser to the Van Eck Worldwide Balanced Portfolio pursuant to a
Sub-Investment Advisory Agreement with the Van Eck Trust.
THERE IS NO ASSURANCE THAT ANY PORTFOLIO WILL ACHIEVE ITS STATED OBJECTIVE.
MORE DETAILED INFORMATION, INCLUDING A DESCRIPTION OF EACH PORTFOLIO'S
INVESTMENT OBJECTIVE AND POLICIES AND A DESCRIPTION OF RISKS INVOLVED IN
INVESTING IN EACH OF THE PORTFOLIOS AND OF EACH PORTFOLIO'S FEES AND EXPENSES,
IS CONTAINED IN THE PROSPECTUSES FOR THE FUNDS, CURRENT COPIES OF WHICH
ACCOMPANY THIS PROSPECTUS. INFORMATION CONTAINED IN THE FUNDS' PROSPECTUSES
SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE CONCERNING THE ALLOCATION
OF PREMIUM PAYMENTS TO OR TRANSFERS AMONG THE VARIABLE ACCOUNTS.
An investment in a Variable Account, or in any Portfolio, including the
Money Market Portfolio, is not insured or guaranteed by the U.S. Government and
there can be no assurance that the Money Market Portfolio will be able to
maintain a stable net asset value per share.
The Company cannot guarantee that each Fund will always be available for
its variable annuity contracts, but in the unlikely event that a fund is not
available, the Company will do everything reasonably practicable to secure the
availability of a comparable fund. Shares of each Portfolio are purchased and
redeemed at net asset value, without a sales charge.
IL Annuity has entered into agreements with the investment adviser of
several of the Funds pursuant to which each such investment adviser will pay IL
Annuity a servicing fee based upon an annual percentage of the average aggregate
net assets invested by IL Annuity on behalf of the Separate Account. These
agreements reflect administrative services provided to the Funds by IL Annuity.
Payments of such amounts by the Funds will not increase the fees paid by the
Funds or their shareholders.
AVAILABILITY OF THE FUNDS
The Separate Account purchases shares of each of the Funds in accordance
with a participation agreement between the Company and the Fund. The termination
provisions of these agreements vary. A summary of the termination provisions of
these agreements may be found in the Statement of Additional Information. Should
a participation agreement between the Company and a Fund terminate, the Separate
Account may not be able to purchase additional shares of that Fund. Likewise, in
certain circumstances, it is possible that shares of a Fund may not be available
to the Separate Account even if the participation agreement relating to that
Fund has not been terminated. In either event, Owners will no longer be able to
allocate Premium Payments or transfer Contract Value to the Variable Account
investing in that Fund.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
The Company reserves the right, subject to applicable law, to make
additions to, deletions from, or substitutions for the shares of a fund that are
held in the Separate Account or that the Separate Account may purchase. If the
shares of a fund are no longer available for investment or if, in the Company's
judgment, further investment in any fund should become inappropriate, the
Company may redeem the shares, if any, of that fund and substitute shares of
another fund. The Company will not substitute any shares attributable to a
Contract's interest in a Variable Account without notice and prior approval of
the SEC and state insurance authorities, to the extent required by the 1940 Act
or other applicable law.
The Company also reserves the right to establish additional Variable
Accounts of the Separate Account, each of which would invest in shares of a new
corresponding fund having a specified investment objective. The Company may, in
its sole discretion, establish new Variable Accounts or eliminate or combine one
or more Variable Accounts if marketing needs, tax considerations or investment
conditions warrant. Any new Variable Accounts may be made available to existing
Contract Owners on a basis to be determined by the Company. Subject to obtaining
any approvals or consents required by applicable law, the assets of one or more
Variable
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Accounts may be transferred to any other Variable Account if, in the sole
discretion of the Company, marketing, tax, or investment conditions warrant.
In the event of any such substitution or change, the Company may (by
appropriate endorsement, if necessary) change the Contract to reflect the
substitution or change. If the Company considers it to be in the best interest
of Owners and Annuitants, and subject to any approvals that may be required
under applicable law, the Separate Account may be operated as a management
investment company under the 1940 Act, it may be deregistered under that Act if
registration is no longer required, it may be combined with other Company
separate accounts, or its assets may be transferred to another separate account
of the Company. In addition, the Company may, when permitted by law, restrict or
eliminate any voting rights of Owners or other persons who have such rights
under the Contracts.
If shares of a Fund underlying an Eligible Variable Account are no longer
available for investment by the Separate Account such that the Company is forced
to redeem all shares of the Fund held by the Eligible Variable Account, the
Company reserves the right not to pay the Maturity Benefit on those Premium
Payments allocated to the Eligible Variable Account that would otherwise qualify
for the Maturity Benefit. The Company will continue to pay a Maturity Benefit on
Premium Payments allocated to an Eligible Variable Account if: (a) the Fund
underlying an Eligible Variable Account changes its investment objective; or (b)
the Company determines that an investment in the Fund underlying an Eligible
Variable Account is no longer appropriate in light of the purposes of the
Separate Account. (See "Maturity Benefit.")
RESOLVING MATERIAL CONFLICTS
The Funds currently sell shares to registered separate accounts of
insurance companies other than the Company to support other variable annuity
contracts and variable life insurance contracts. In addition, some of the Funds
may in the future be sold to other separate accounts of the Company and may in
the future be sold to separate accounts of other affiliated life insurance
companies to support other variable annuity or variable life insurance
contracts. Moreover, shares of some of the Funds may in the future be sold to
qualified retirement plans. As a result, there is a possibility that an
irreconcilable material conflict may arise between the interests of Contract
Owners owning Contracts whose Contract Values are allocated to the Separate
Account and of Contract Owners owning Contracts whose Contract Values are
allocated to one or more other separate accounts investing in any one of the
Funds. There is also the possibility that a material conflict may arise between
the interests of Contract Owners generally, or certain classes of Contract
Owners, and participating qualified retirement plans or participants in such
retirement plans.
The Company currently does not foresee any disadvantages to Owners arising
from the sale of such shares to support variable life insurance contracts or
variable annuity contracts of other companies or to qualified retirement plans.
However, the management of the Funds will each monitor events related to their
Fund in order to identify any material irreconcilable conflicts that might
possibly arise as a result of such Fund's offering its shares to (1) support
both variable life insurance contracts and variable annuity contracts, or (2)
support the variable life insurance contracts and/or variable annuity contracts
issued by various unaffiliated insurance companies. In addition, the management
of the Funds will monitor the Funds in order to identify any material
irreconcilable conflicts that might possibly arise as a result of the sale of
its shares to qualified retirement plans, if applicable. In the event of such a
conflict, the management of the appropriate Fund would determine what action, if
any, should be taken in response to the conflict. In addition, if the Company
believes that the response of the Funds to any such conflict insufficiently
protects Owners, it will take appropriate action on its own, including
withdrawing the Separate Account's investment in such Funds, as appropriate.
(See the individual Fund prospectuses for greater detail.)
DESCRIPTION OF THE CONTRACT
ISSUANCE OF A CONTRACT
In order to purchase a Contract, application must be made to the Company
through a licensed representative of the Company, who is also a registered
representative of IL Securities, Inc. or a broker-dealer
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having a selling agreement with IL Securities, Inc. or a broker-dealer having a
selling agreement with such broker-dealer. Contracts may be sold to or in
connection with retirement plans that do not qualify for special tax treatment
as well as retirement plans that qualify for special tax treatment under the
Code. The maximum age for Owners on the Date of Issue is 85.
PREMIUM PAYMENTS
The minimum amount which the Company will accept as an initial Premium
Payment is $1,000; the maximum amount of the initial premium is $250,000.
Subsequent Premium Payments may be paid under the Contract at any time until the
earliest of: (a) the Annuity Commencement Date; (b) full withdrawal of Contract
Value; or (c) the date the Owner attains age 85 (age 70 1/2 for Qualified
Plans), and must be for at least $1,000. The Company will not accept total
premiums under the Contract in excess of $250,000. The Company reserves the
right to waive these limitations.
Under the Company's Automatic Premium Payment Plan, the Owner can select an
annual or semi-annual payment schedule pursuant to which Premium Payments will
be automatically deducted from a bank or credit union account or other source.
The minimum size of such payment is $1,000.
FREE-LOOK PERIOD
The Contract provides for an initial "Free-Look" Period. The Owner has the
right to return the Contract within 10 days of receiving it (or within 20 days
of receipt if the Contract is replacing another annuity contract or insurance
policy). In some jurisdictions, this period may be longer than 10 days. When the
Company receives a Written Request for cancellation and the returned Contract at
the Annuity Service Office before the end of this period, the Company will
cancel the Contract.
The amount that the Company will refund will vary according to state
requirements. In most states, the Company will refund to the Owner an amount
equal to the sum of: (i) the difference between the Premium Payments paid and
the amounts allocated to the Variable Accounts and the Fixed Account under the
Contract; and (ii) the Contract Value as of the date the Contract and the
Written Request for cancellation are received at the Annuity Service Office. The
Contract Owner bears the investment risk only for premiums allocated to the
Variable Accounts during the period prior to the Company's receipt of the
Contract and Written Request for cancellation.
A few states require the return of Premium Payments. If state law requires
that Premium Payments be returned, the amount of the refund will be the greater
of: (i) the Premium Payments made under the Contract; and (ii) the Contract
Value (without reduction of any withdrawal charge) on the date the Contract is
received at the Annuity Service Office, plus any amount that may have been
deducted for premium taxes. In those states where Premium Payments must be
returned, the Company will allocate Premium Payments to the Money Market
Variable Account for 15 calendar days from the date the initial Premium Payment
is credited to the Contract.
ALLOCATION OF NET PREMIUM PAYMENTS
At the time of application, the Owner selects how the initial Net Premium
Payment is to be allocated among the Variable Accounts and the Fixed Account.
Any allocation must be for at least 1% of a Premium Payment and be in whole
percentages.
If the application for a Contract is properly completed and is accompanied
by all the information necessary to process it, including payment of the initial
Premium Payment, the initial Net Premium Payment will be allocated, as
designated by the Owner, to one or more of the Variable Accounts or to the Fixed
Account within two valuation days of receipt of such Premium Payment by the
Company at its Annuity Service Office. If the application is not properly
completed, the Company reserves the right to retain the Premium Payment for up
to five valuation days while it attempts to complete the application. If the
application is not complete at the end of the 5-day period, the Company will
inform the applicant of the reason for the delay and the initial Premium Payment
will be returned immediately, unless the applicant specifically
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consents to the Company retaining the Premium Payment until the application is
complete. Once the application is complete, the initial Net Premium Payment will
be allocated as designated by the Owner within two valuation days.
Notwithstanding the foregoing, in jurisdictions where the Company must
refund aggregate Premium Payments in the event the Owner exercises the free-look
right, the Company will place any portion of the initial Net Premium Payments
allocated to a Variable Account into the Money Market Variable Account for a
15-day period following the date on which the initial Premium Payment is
credited to the Contract. At the end of that period, the amount in the Money
Market Variable Account will be allocated to the Variable Accounts as designated
by the Owner based on the proportion that the allocation percentage for each
such Variable Account bears to the sum of the allocation percentages.
Any subsequent Net Premium Payments will be allocated as of the end of the
valuation period in which the subsequent Net Premium Payment is received by the
Company and will be allocated in accordance with the allocation schedule in
effect at the time the Premium Payment is received. However, Owners may direct
individual payments to a specific Variable Account or to the Fixed Account (or
any combination thereof) without changing the existing allocation schedule. The
allocation schedule may be changed by the Owner at any time by Written Request.
Changing the Premium Payment allocation schedule will not change the allocation
of existing Contract Value among the Variable Accounts or the Fixed Account.
THE CONTRACT VALUES ALLOCATED TO A VARIABLE ACCOUNT WILL VARY WITH THAT VARIABLE
ACCOUNT'S INVESTMENT EXPERIENCE. THE OWNER BEARS THE ENTIRE INVESTMENT RISK FOR
AMOUNTS ALLOCATED TO THE VARIABLE ACCOUNTS. OWNERS SHOULD PERIODICALLY REVIEW
THEIR PREMIUM PAYMENT ALLOCATION SCHEDULE IN LIGHT OF MARKET CONDITIONS AND
THEIR OVERALL FINANCIAL OBJECTIVES.
SEPARATE ACCOUNT VALUE
The Separate Account Value will reflect the investment experience of the
selected Variable Accounts, any Net Premium Payments paid, any surrenders or
partial withdrawals, any transfers, and any charges assessed in connection with
the Contract. There is no guaranteed minimum Separate Account Value, and,
because a Contract's Separate Account Value on any future date depends upon a
number of variables, it cannot be predetermined.
Calculation of Separate Account Value. The Separate Account Value is
determined at the end of each valuation period. The value will be the aggregate
of the values attributable to the Contract in each of the Variable Accounts,
determined for each Variable Account by multiplying that Variable Account's unit
value for the relevant valuation period by the number of accumulation units of
that Variable Account allocated to the Contract.
Determination of Number of Accumulation Units. Any amounts allocated or
transferred to the Variable Accounts will be converted into Variable Account
accumulation units. The number of accumulation units to be credited to a
Contract is determined by dividing the dollar amount being allocated or
transferred to a Variable Account by the accumulation unit value for that
Variable Account at the end of the valuation period during which the amount was
allocated or transferred. The number of accumulation units in any Variable
Account will be increased at the end of the valuation period by any Net Premium
Payments allocated to the Variable Account during the current valuation period
and by any amounts transferred to the Variable Account from another Variable
Account or from the Fixed Account during the current valuation period.
Any amounts transferred, surrendered or deducted from a Variable Account
will be processed by cancelling or liquidating accumulation units. The number of
accumulation units to be cancelled is determined by dividing the dollar amount
being removed from a Variable Account by the accumulation unit value for that
Variable Account at the end of the valuation period during which the amount was
removed. The number of accumulation units in any Variable Account will be
decreased at the end of the valuation period by: (a) any amounts transferred
(including any applicable transfer fee) from that Variable Account to another
Variable Account or to the Fixed Account, (b) any amounts withdrawn or
surrendered during that valuation period,
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(c) any Withdrawal Charge or premium tax assessed upon a partial withdrawal or
surrender, and (d) the quarterly contract fee, if assessed during that valuation
period.
Determination of Accumulation Unit Value. The accumulation unit value for
each Variable Account's first valuation period was set at $10. The accumulation
unit value for a Variable Account is calculated for each subsequent Valuation
Period by multiplying the Accumulation Unit Value at the end of the immediately
preceding Valuation Period by the Net Investment Factor for the Valuation Period
for which the value is being determined.
Net Investment Factor. The Net Investment Factor is an index that measures
the investment performance of a Variable Account from one Valuation Period to
the next. Each Variable Account has its own Net Investment Factor, which may be
greater or less than one. The Net Investment Factor for each Variable Account
for a Valuation Period equals 1 plus the fraction obtained by dividing (a) by
(b) where:
(a) is the net result of:
1. the investment income, dividends, and capital gains, realized or
unrealized, credited during the current Valuation Period; PLUS
2. the amount credited or released from reserves for taxes attributed
to the operation of the Variable Account; MINUS
3. the capital losses, realized or unrealized, charged during the
current Valuation Period; MINUS
4. any amount charged for taxes or any amount set aside during the
Valuation Period as a reserve for taxes attributable to the
operation or maintenance of the Variable Account; MINUS
5. the amount charged for mortality and expense risk for that
Valuation Period; MINUS
6. the amount charged for administration for that Valuation Period;
and
(b) is the value of the assets in the Variable Account at the end of the
preceding Valuation Period, adjusted for allocations and transfers
to and withdrawals and transfers from the Variable Account occurring
during that preceding Valuation Period.
TRANSFER PRIVILEGES
General. Before the Annuity Commencement Date and subject to the
restrictions described below, the Owner may transfer all or part of the amount
in a Variable Account or the Fixed Account to another Variable Account or the
Fixed Account.
If the Owner transfers Contract Value from an Eligible Variable Account,
the Owner will no longer be eligible for the Maturity Benefit that applied to
that amount. For the purpose of determining the Maturity Benefit, transfers out
of an Eligible Variable Account will be accounted for on a last-in, first-out
("LIFO") basis. (See "Maturity Benefit.")
Transfers to the Fixed Account must be at least $1,000. Prior to the
Annuity Commencement Date, the Owner may transfer up to 20% of the Fixed Account
Value from the Fixed Account to one or more of the Variable Accounts in any
Contract Year. No fee is charged for transfers from the Fixed Account to one or
more Variable Accounts and such a transfer is not considered a transfer for
purposes of assessing a transfer charge.
Transfers will be made as of the valuation day on which Written Request
requesting such transfer is received by the Company if received before 4:00 p.m.
Eastern Time. Transfers will be made as of the valuation day next following the
day on which Written Request requesting such transfer is received if received
after 4:00 p.m. Eastern Time. Subject to the foregoing restrictions, there
currently is no limit on the number of transfers that can be made prior to the
Annuity Commencement Date among or between Variable Accounts or to the Fixed
Account.
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Telephone Transfers. Transfers will be made based upon instructions given
by telephone, provided the Company has a currently valid telephone transfer
authorization form on file signed by the Owner(s). A telephone transfer
authorization form received by the Company at the Annuity Service Office is
valid until it is rescinded or revoked in writing by the Owner(s) or until a
subsequently dated form signed by the Owner(s) is received at the Annuity
Service Office.
The Company will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine and if it follows such procedures it will
not be liable for any losses due to unauthorized or fraudulent instructions. The
Company, however, may be liable for such losses if it does not follow those
reasonable procedures. The procedures the Company may follow for telephone
transfers include providing a written confirmation of all transfers made
pursuant to telephone instructions, requiring a form of personal identification
prior to acting on instructions received by telephone, and tape recording
instructions received by telephone.
The Company reserves the right to modify, restrict, suspend or eliminate
the transfer privileges (including the telephone transfer facility) at any time,
for any class of Contracts, for any reason. In particular, the Company reserves
the right to not honor transfers requested by a third party holding a power of
attorney from an Owner where that third party requests simultaneous transfers on
behalf of the Owners of two or more Contracts.
Transfer Fee. The Company reserves the right to impose a transfer charge
of $25 for the thirteenth and each subsequent request made by the Owner to
transfer Contract Value from one or more Variable Accounts to another one or
more of the Variable Accounts or the Fixed Account during a single Contract Year
prior to the Annuity Commencement Date. (See "Charges and Deductions.")
Dollar-Cost Averaging. If elected at the time of the application or at any
time thereafter before the Annuity Commencement Date by Written Request, an
Owner may systematically or automatically transfer (on a quarterly basis)
specified dollar amounts from one or more Variable Accounts or the Fixed Account
to one or more other Variable Accounts. This is known as the dollar-cost
averaging method of investment. The fixed dollar amount will purchase more
accumulation units of a Variable Account when their value is lower and fewer
units when their value is higher. Over time, the cost per unit averages out to
be less than if all purchases of units had been made at the highest value and
greater than if all purchases had been made at the lowest value. The dollar-cost
averaging method of investment reduces the risk of making purchases only when
the price of accumulation units is high. It does not assure a profit or protect
against a loss in declining markets.
The minimum transfer amount for dollar-cost averaging is $100 to each
Variable Account. Once elected, dollar-cost averaging remains in effect for the
life of the Contract until Separate Account Value in the Variable Account from
which transfers are being made is depleted (and the value of the Fixed Account
is expended if transfers are being made from the Fixed Account) or until the
Owner cancels the election (by Written Request or by telephone if the Company
has the Owner's telephone authorization form on file). There is no additional
charge for dollar-cost averaging and a transfer under this program is not
considered a transfer for purposes of assessing a transfer change. The Company
reserves the right to discontinue offering the dollar-cost averaging facility at
any time and for any reason.
Interest Sweep. Prior to the Annuity Commencement Date, the Owner may
elect to have any interest credited to the Fixed Account automatically
transferred on a quarterly basis to one or more Variable Accounts. There is no
charge for interest sweep transfers and an interest sweep transfer is not
considered a transfer for purposes of assessing a transfer charge. Amounts
transferred out of the Fixed Account due to an interest sweep transfer are
counted toward the 20% of Fixed Account Value that may be transferred out of the
Fixed Account during any Contract Year.
Automatic Account Balancing Service. If elected at the time of the
application or requested at any time thereafter before the Annuity Commencement
Date by Written Request, an Owner may instruct the Company to automatically
transfer (on a quarterly basis) Contract Value among specified Variable Accounts
in order to match the Owner's currently effective Premium Payment allocation
schedule. Such percentage allocations must be in whole percentages and be at
least 1% per allocation. Owners may start and stop
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Automatic Account Balancing at any time. There is no additional charge for using
Automatic Account Balancing and an account balancing transfer is not considered
a transfer for purposes of assessing a transfer charge. The Company reserves the
right to discontinue offering the automatic account balancing service at any
time and for any reason.
FULL AND PARTIAL WITHDRAWALS
Full Withdrawals. At any time before the Annuity Commencement Date, the
Owner may surrender the contract for its Surrender Value. The Surrender Value is
equal to the Contract Value MINUS (1) any applicable Withdrawal Charges; MINUS
(2) any premium taxes not previously deducted; MINUS (3) the contract fee. For
Qualified Plans, any outstanding loan balance is also deducted. The Surrender
Value will be determined as of the valuation day on the date that the Written
Request requesting surrender and the Contract are received at the Company's
Annuity Service Office. The Surrender Value will be paid in a lump sum unless
the Owner requests payment under a payout plan option. A full withdrawal may
have adverse federal income tax consequences, including a penalty tax. (See
"Taxation of Annuities.")
Partial Withdrawals. At any time before the Annuity Commencement Date, an
Owner may submit a Written Request to withdraw part of the Contract Value in
amounts not less than $250. The maximum amount is that which would leave the
remaining Surrender Value equal to $1,000. If the remaining Contract Value is
reduced to less than $1,000 by the partial withdrawal, the Company reserves the
right to pay the Surrender Value to the Owner in a lump sum. The Company will
withdraw the amount requested from the Contract Value as of the Valuation Day
that the Written Request requesting the partial withdrawal is received. Any
applicable Withdrawal Charge also will be deducted from the remaining Contract
Value. (See "Withdrawal Charge.")
The Owner may specify the amount of the partial withdrawal to be made from
the Variable Accounts or the Fixed Account. If the Owner does not so specify, or
if the amount in the designated Variable Accounts or Fixed Account is inadequate
to comply with the request, the partial withdrawal will be made on a pro rata
basis from the Fixed Account and Variable Accounts in which Contract Value is
invested based on the proportion that the Variable Account Values and the Fixed
Account Value bear to the Contract Value prior to the partial withdrawal.
If the Owner withdraws Contract Value from an Eligible Variable Account,
the Owner will no longer be eligible for the Maturity Benefit that applied to
that amount. (See "Maturity Benefit.")
For purposes of calculating the Maturity Benefit, withdrawals from the
Variable Accounts and the Fixed Account will be accounted for on a last-in,
first-out ("LIFO") basis. (See "Maturity Benefit.") For purposes of calculating
the Withdrawal Charge, all withdrawals will be deemed to be first from Premium
Payments, then from earnings. (See "Withdrawal Charge.")
A partial withdrawal may have adverse federal income tax consequences,
including a penalty tax. (See "Taxation of Annuities.")
Full and Partial Withdrawal Restrictions. The Owner's right to make full
and partial withdrawals is subject to any restrictions imposed by applicable law
or employee benefit plan.
Restrictions on Distributions from Certain Types of Contracts. There are
certain restrictions on surrenders of and partial withdrawals from Contracts
used as funding vehicles for Code Section 403(b) retirement programs. Section
403(b)(11) of the Code restricts the distribution under Section 403(b) annuity
contracts of: (i) elective contributions made in years beginning after December
31, 1988; (ii) earnings on those contributions; and (iii) earnings in such years
on amounts held as of the last year beginning before January 1, 1989.
Distributions of those amounts may only occur upon the death of the employee,
attainment of age 59 1/2, separation from service, disability, or financial
hardship. In addition, income attributable to elective contributions may not be
distributed in the case of hardship.
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CONTRACT LOANS
Owners of Contracts issued in connection with retirement programs meeting
the requirements of Section 403(b) of the Code (other than those programs
subject to Title 1 of the Employee Retirement Income Security Act of 1984) may
borrow from the Company using their Contracts as collateral. Loans such as these
are subject to the provisions of any applicable retirement program and to the
Code. Owners should, therefore, consult their tax and retirement plan advisers
prior to taking a contract loan.
At any time, Owners may borrow the lesser of (1) the maximum loan amount
permitted under the Code, and (2) 90% of the Surrender Value of their Contract
less any existing loan amount. Loans in excess of the maximum amount permitted
under the Code may be treated as a taxable distribution rather than a loan. The
minimum loan amount is $1,000. The Company will only make contract loans after
approving a written application by the Owner. The written consent of all
assignees and irrevocable beneficiaries must be obtained before a loan will be
given.
When a loan is made, the Company transfers an amount equal to the amount
borrowed from Separate Account Value or Fixed Account Value to the loan account.
The loan account is part of the Company's general account and Contract Value in
the loan account does not participate in the investment experience of any
Variable Account or Fixed Account. The Owner must indicate in the loan
application from which Variable Accounts or Fixed Account, and in what amounts,
Contract Value is to be transferred to the loan account. In the absence of any
such instructions from the Owner, the transfer(s) are made pro-rata on a last-
in, first out ("LIFO") basis from all Variable Accounts having Separate Account
Value and from the Fixed Account. Loans may be repaid by the Owner at any time
before the Annuity Commencement Date. Upon the repayment of any portion of a
loan, an amount equal to the repayment will be transferred from the loan account
to the Variable Account(s) or Fixed Account designated by the Owner or according
to the Owner's current Premium Payment allocation instructions.
The Company charges interest on contract loans at an effective annual rate
of 6.0%. The Company pays interest on the Contract Value in the loan account at
rates it determines from time to time but never less than an effective annual
rate of 3.0%. Consequently, the net cost of a loan is the difference between
6.0% and the rate being paid from time to time on the Contract Value in the loan
account. The Company may declare from time to time higher current interest
rates. Different current interest rates may be applied to the loan account than
the rest of the Fixed Account. If not repaid, loans will automatically reduce
the amount of any Death Benefit, the amount payable upon a partial or full
withdrawal of Contract Value and the amount applied on the Annuity Commencement
Date to provide annuity payments.
If at any time, the loan amount of a Contract exceeds the Surrender Value,
the Contract will be in default. In this event, the Company will send a Written
Request of default to the Owner stating the amount of loan repayment needed to
reinstate the Contract and the Owner will have 60 days, from the day the notice
is mailed, to pay the stated amount. If the Company does not receive the
required loan repayment within 60 days, it will terminate the Contract without
value. In addition, in order to comply with the requirements of the Code, loans
must be repaid in substantially equal installments, at least quarterly, over a
period of no longer than five years (which can be longer for certain home
loans). If these requirements are not satisfied, or if the Contract terminates
while a loan is outstanding, the loan balance will be treated as a taxable
distribution and may be subject to penalty tax, and the treatment of the
Contract under section 403(b) may be adversely affected.
Any loan amount outstanding upon the death of the Owner or Annuitant is
deducted from any Death Benefit paid. In addition, a contract loan, whether or
not repaid, will have a permanent effect on the Contract Value because the
investment experience of the Separate Account and the interest rates applicable
to the Fixed Account do not apply to the portion of Contract Value transferred
to the loan account. The longer the loan remains outstanding, the greater this
effect is likely to be.
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DEATH BENEFIT BEFORE THE ANNUITY COMMENCEMENT DATE
Death of an Owner. If the Contract is owned by Joint Owners and one Owner
dies prior to the Annuity Commencement Date, the surviving Owner becomes the
sole Owner. If the Contract is owned by one person and a Contingent Owner is
named, the Contingent Owner will become the Owner if the sole Owner dies. If
there is no surviving Owner, the estate of the Owner will become the Owner. If
the Owner or Joint Owner who is the Annuitant dies before the Annuity
Commencement Date, then the provisions relating to the death of an Annuitant
(described below) will govern.
The following options are available to sole surviving Owners or new Owners
of Non-Qualified Contracts who are not the Annuitant:
(1) If the Owner is the spouse of the deceased Owner, he or she may
continue the Contract as the new Owner.
(2) If the Owner is not the spouse of the deceased Owner:
(a) he or she may elect to receive the Contract Value, LESS any
premium taxes not yet deducted, in a single sum within 5 years of
the deceased Owner's death; or
(b) he or she may elect to receive the Contract Value paid out under
one of the approved payout plan options, provided that
distributions begin within one year of the deceased Owner's death
and the distribution period under the payout plan is for the life
of, or for a period not exceeding the life expectancy of, the
sole surviving or new Owner.
If he or she does not elect one of the above options, the Company
will pay the Contract Value five years from the date of the deceased
Owner's death.
Under any of these options, sole surviving Owners or new Owners may exercise all
Ownership rights and privileges from the date of the deceased Owner's death
until the date that the Contract Value is paid. Similar rules apply to Qualified
Contracts.
Death of the Annuitant. If the Annuitant dies before the Annuity
Commencement Date, the Company will pay the Death Benefit described below to the
Beneficiaries named by the Owner in a lump sum. (Owners also may name contingent
beneficiaries.) If the Owner has named two or more primary beneficiaries, they
will share equally in the Death Benefit unless the Owner has specified
otherwise. If there are no living primary beneficiaries at the time of the
Annuitant's death, payments will be made to those contingent beneficiaries who
are living when payment of the Death Benefit is due. If all the beneficiaries
have predeceased the Annuitant, the Company will pay the Death Benefit to the
Owner, if living, or the Annuitant's estate. In lieu of a lump sum payment, the
beneficiary may elect, within 60 days of the date the Company receives due proof
of the Annuitant's death, to apply the Death Benefit to a payout plan option.
If the Annuitant who is also an Owner dies, the provisions described
immediately above apply except that the beneficiary may only apply the Death
Benefit payment to a payout plan option if:
(1) payments under the option begin within one (1) year of the
Annuitant's death; and
(2) payments under the option are payable over the beneficiary's life or
over a period not greater than the beneficiary's life expectancy.
Death Benefit. If the Annuitant dies before the Annuity Commencement Date,
the Death Benefit is an amount equal to the greater of:
(1) aggregate Premium Payments made under the Contract, LESS partial
withdrawals as of the date the Company receives due proof of the
deceased's death and payment instructions; or
(2) Contract Value as of the date the Company receives due proof of the
deceased's death and payment instructions;
LESS any applicable premium taxes not previously deducted. If the Contract is a
Qualified Contract, any outstanding loan amount on the date the Death Benefit is
paid will also be deducted.
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DEATH OF PAYEE AFTER THE ANNUITY COMMENCEMENT DATE
If the Payee dies after the Annuity Commencement Date, any Joint Payee
becomes the sole Payee. If there is no Joint Payee, the Successor Payee becomes
the sole Payee. If there is no Successor Payee, the remaining benefits are paid
to the estate of the last surviving Payee. The death of the Payee after the
Annuity Commencement Date will have the effect stated in the payout plan option
pursuant to which annuity payments are being made. If the Owner dies on or after
the Annuity Commencement Date, any payments that remain must be made at least as
rapidly as under the payout plan in effect on the date of the Owner's death.
THE MATURITY BENEFIT
If the Contract is in the accumulation phase on the Maturity Benefit Date,
IL Annuity will calculate the Maturity Benefit for each Eligible Variable
Account. The Maturity Benefit will be credited to Contract Value only for those
Eligible Variable Accounts that meet the following condition. The value of the
Eligible Variable Account on the Maturity Benefit Date must be less than the sum
of those Premium Payments which: (a) the Owner initially allocated to the
Eligible Variable Account; (b) have remained continuously in that same Eligible
Variable Account; and (c) have been in that same Eligible Variable Account for a
minimum of ten years.
The Maturity Benefit which will be calculated for each Eligible Variable
Account is equal to: (a) the sum of the Premium Payments which have remained in
an Eligible Variable Account from the time of initial Premium Payment until the
Maturity Benefit Date, provided ten years have elapsed from the time of initial
payment until the Maturity Benefit Date; minus (b) the value of the Eligible
Variable Account on the Maturity Benefit Date.
The Maturity Benefit Date is the later of the Annuitant's age 70 and 10
years after the Date of Issue. If the Contract is owned by Joint Owners who are
spouses at the time one Joint Owner dies, the Maturity Benefit Date will become
the date the surviving spouse attains age 70. If the Contract is owned by Joint
Owners who are not spouses and one of the Joint Owners dies before the Maturity
Benefit Date, the Maturity Benefit is not available to the sole surviving Owner.
Eligible Variable Accounts are those Variable Accounts shown on the
specifications page of the Contract which invest in Funds which, in turn, invest
primarily in stocks, equity securities, bonds or money market instruments.
The Maturity Benefit will not be credited to Contract Value if the Owner
chooses an Annuity Commencement Date which is earlier than the Maturity Benefit
Date. The Maturity Benefit will not be calculated for amounts withdrawn or
transferred into or out of an Eligible Variable Account, including transfers
resulting from Dollar Cost Averaging or Automatic Account Balancing. Withdrawals
and transfers out of an Eligible Variable Account will be accounted for on a
last-in, first-out ("LIFO") basis.
The following examples illustrate how the Maturity Benefit works:
Example #1:
Suppose an Owner at age 48 buys a Non-Qualified Contract and allocates
a Premium Payment of $5,000 to the same Eligible Variable Account each year
until age 70, the Annuity Commencement Date. The Owner does not withdraw or
transfer any amounts from the Eligible Variable Account. The Owner is the
Annuitant; the Annuity Commencement Date is the same date as the Maturity
Benefit Date (Owner's age 70). On that date, IL Annuity will calculate the
Maturity Benefit for the Eligible Variable Account. IL Annuity will total
the value of all Premium Payments that have remained continuously in the
Eligible Variable Account for ten years by adding all Premium Payments made
from the Owner's age 48 to the Owner's age 60 ($5,000 X 12
years = $60,000). If the value of the Eligible Variable Account on the
Maturity Benefit Date is less than $60,000, IL Annuity will automatically
credit the difference to Contract Value.
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Example #2:
Assume the same facts as Example #1, except that the Owner specifies
an Annuity Commencement Date of age 65. At age 65, the Owner receives
payments under one of the payout options permitted under the Contract. At
age 70 (the Maturity Benefit Date), IL Annuity does not calculate the
Maturity Benefit; no Maturity Benefit is credited to Contract Value. By
selecting an Annuity Commencement Date (age 65) that is earlier than the
Maturity Benefit Date (age 70), the Owner forfeited all eligibility for the
Maturity Benefit.
Example #3:
Assume the same facts as Example #1, except that the Owner transfers
(or withdraws) $40,000 from the Eligible Variable Account at age 65. The
amounts transferred (or withdrawn) will be accounted for on a last-in
first-out basis so that the Premium Payments made most recently will be the
first Premium Payments deducted from Contract Value. The $40,000 transfer
(or withdrawal) is equal to 8 years of Premium Payments at $5,000 per year.
Therefore, the transfer (or withdrawal) will remove from the Eligible
Variable Account the Premium Payments made by the Owner for eight years
counting back from age 65 to age 58 ($5,000 at age 65; $5,000 at age 64;
$5,000 at age 63, and so on). As in Example #1, the Maturity Benefit Date
and the Annuity Commencement Date are the Owner's age 70. At age 70, IL
Annuity will calculate the Maturity Benefit on Premium Payments held in the
Eligible Variable Account at least 10 years by looking at those Premium
Payments made age 60 and earlier. Because the transfer (or withdrawal)
removed the Premium Payments for ages 58, 59 and 60 from the Eligible
Variable Account, the Maturity Benefit will be calculated on the Premium
Payments made from age 48 through age 57 ($5,000, per year X 10 years =
$50,000). If on the Maturity Benefit Date the value of the Eligible
Variable Account is less than $50,000, IL Annuity will automatically credit
the difference to Contract Value.
Example #4:
Spousal Joint Owners: If the Contract is owned by Joint Owners who are
spouses at the time one of the Joint Owners dies, the surviving spouse may
continue the Contract. The Maturity Benefit Date will become the date the
surviving spouse attains age 70. On that date, IL Annuity will calculate
the Maturity Benefit for each Eligible Variable Account based on those
Premium Payments that were initially allocated to an Eligible Variable
Account that have remained continuously in that Eligible Variable Account
for ten years.
Example #5:
If the Contract is owned by Joint Owners who are not spouses and one
of the Joint Owners dies, the Maturity Benefit is not available to the sole
surviving Owner.
If shares of a Fund underlying an Eligible Variable Account are no longer
available for investment by the Separate Account and IL Annuity is forced to
redeem all shares of the Fund held by the Eligible Variable Account, the Company
reserves the right not to pay the Maturity Benefit on those Premium Payments
allocated to the Eligible Variable Account that would otherwise qualify for the
Maturity Benefit. The Company will continue to pay a Maturity Benefit on Premium
Payments allocated to an Eligible Variable Account if: (a) the Fund underlying
an Eligible Variable Account changes its investment objective; or (b) the
Company determines that an investment in the Fund underlying an Eligible
Variable Account is no longer appropriate in light of the purposes of the
Separate Account.
ANNUITY PAYMENTS ON THE ANNUITY COMMENCEMENT DATE
The Annuity Commencement Date is selected by the Owner. If the Owner does
not specify, the Annuity Commencement Date is the later of the Annuitant's age
70 or ten (10) years after the Date of Issue. For non-qualified contracts, the
Annuity Commencement Date may be no later than the contract anniversary
following
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the Annuitant's 85th birthday. For qualified contracts, the Annuity Commencement
Date must be no later than the Annuitant's age 70 1/2 or any other date meeting
the requirements of the Code.
If the Owner changes the Annuity Commencement Date to a date earlier than
the Maturity Benefit Date, then the Owner will lose his/her eligibility for the
Maturity Benefit.
The Annuity Commencement Date may be changed subject to the following
limitations: (1) the Owner's Written Request must be received at the Annuity
Service Office at least 31 days before the current Annuity Commencement Date,
and (2) the requested Annuity Commencement Date must be a Contract Anniversary
or the date on which the Owner fully withdraws the Surrender Value.
On the Annuity Commencement Date, the adjusted Contract Value will be
applied under the life income payout plan option with ten years guaranteed,
unless the Owner elects to have the proceeds paid under another payment option
or to receive the Surrender Value in a lump sum. (See "Payout Plan Options.") In
certain states, the Surrender Value will be applied to the payout plan option
rather than the adjusted Contract Value. Unless the Owner instructs the Company
otherwise, amounts in the Fixed Account will be used to provide a fixed-payout
plan option and amounts in the Separate Account will be used to provide a
variable payout plan option.
The adjusted Contract Value is the Contract Value:
(1) MINUS the pro-rated portion of the Contract Fee (unless the Annuity
Commencement Date falls on the contract quarter);
(2) MINUS any applicable premium taxes not yet deducted.
For Qualified Plans, the amount of any outstanding loan is also deducted,
and distributions must satisfy certain requirements specified in the Code.
PAYMENTS
Any full or partial withdrawal, Death Benefit payment, (or in the case of
Qualified Plans, payment of contract loan proceeds) will usually be paid within
seven days of receipt of a Written Request, any information or documentation
reasonably necessary to process the request, and (in the case of a Death
Benefit) receipt and filing of due proof of death. However, payments may be
postponed if:
1. the New York Stock Exchange is closed, other than customary weekend
and holiday closings, or trading on the exchange is restricted as
determined by the SEC; or
2. the SEC permits by an order the postponement for the protection of
Owners; or
3. the SEC determines that an emergency exists that would make the
disposal of securities held in the Separate Account or the
determination of the value of the Separate Account's net assets not
reasonably practicable.
If a recent check or draft has been submitted, the Company has the right to
delay payment until it has assured itself that the check or draft has been
honored.
The Company has the right to defer payment of any full or partial
withdrawal or transfer from the Fixed Account for up to six months from the date
of receipt of Written Request for such a surrender or transfer. If payment is
not made within 30 days after receipt of documentation necessary to complete the
transaction, or such shorter period required by a particular jurisdiction,
interest will be added to the amount paid from the date of receipt of
documentation at 3% or such higher rate required for a particular jurisdiction.
MODIFICATION
Upon notice to the Owner, the Company may modify the Contract if:
1. necessary to permit the Contract or the Separate Account to comply
with any applicable law or regulation issued by a government agency;
or
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2. necessary to assure continued qualification of the Contract under the
Code or other federal or state laws relating to retirement annuities
or variable annuity contracts; or
3. necessary to reflect a change in the operation of the Separate
Account; or
4. the modification provides additional investment options.
In the event of most such modifications, the Company will make appropriate
endorsement to the Contract.
REPORTS TO OWNERS
At least annually, the Company will mail to each Owner, at such Owner's
last known address of record, a report setting forth the Contract Value
(including the Contract Value in each Variable Account and the Fixed Account) of
the Contract, Premium Payments paid and charges deducted since the last report,
partial withdrawals made since the last report and any further information
required by any applicable law or regulation.
INQUIRIES
Inquiries regarding a Contract may be made by writing to the Company at its
Annuity Service Office.
THE FIXED ACCOUNT
An Owner may allocate some or all of the Net Premium Payments and transfer
some or all of the Contract Value to the Fixed Account, which is part of the
Company's general account and pays interest at declared rates. The principal,
after deductions, is also guaranteed. The Company's general account supports its
insurance and annuity obligations. Since the Fixed Account is part of the
general account, the Company assumes the risk of investment gain or loss on this
amount. All assets in the general account are subject to the Company's general
liabilities from business operations. The Fixed Account may not be available in
all states.
The Fixed Account has not been, and is not required to be, registered with
the SEC under the Securities Act of 1933, and neither the Fixed Account nor the
Company's general account has been registered as an investment company under the
1940 Act. Therefore, neither the Company's general account, the Fixed Account,
nor any interests therein are generally subject to regulation under the 1933 Act
or the 1940 Act. The disclosures relating to the Fixed Account which are
included in this prospectus are for the Owner's information and have not been
reviewed by the SEC. However, such disclosures may be subject to certain
generally applicable provisions of federal securities laws relating to the
accuracy and completeness of statements made in prospectuses.
FIXED ACCOUNT VALUE
The portion of the Contract Value allocated to the Fixed Account is the
Fixed Account Value which is credited with interest, as described below. The
Fixed Account Value reflects interest credited to Contract Value in the Fixed
Account, Net Premium Payments allocated to or Contract Value transferred to the
Fixed Account, transfers of Contract Value out of the Fixed Account, full and
partial withdrawals from the Fixed Account, and charges assessed in connection
with the Contract. The Fixed Account Value is guaranteed to accumulate at a
minimum effective annual interest rate of 3%.
The Fixed Account Value is equal to: (1) Net Premium Payments allocated to
the Fixed Account, PLUS (2) amounts transferred to the Fixed Account, PLUS (3)
interest credited the Fixed Account, MINUS (4) any partial withdrawals or
transfers from the Fixed Account, and MINUS (5) any withdrawal charges, contract
fees or premium taxes deducted from the Fixed Account.
The Company intends to credit the Fixed Account with interest at current
rates in excess of the minimum guaranteed rate but is not obligated to do so.
These current interest rates are influenced by, but do not necessarily
correspond to, prevailing general market interest rates. Because the Company, in
its sole discretion,
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<PAGE> 40
anticipates changing the current interest rate from time to time, different
allocations to the Fixed Account will be credited with different current
interest rates. The interest rate to be credited to each amount allocated or
transferred to the Fixed Account will apply to the end of the calendar year in
which such amount is received or transferred. At the end of the calendar year,
the Company will determine a new current interest rate on such amount and
accrued interest thereon (which may be a different current interest rate from
the current interest rate on new allocations to the Fixed Account on that date).
The rate declared on such amount and accrued interest will be guaranteed for the
following calendar year. Any interest credited on amounts in the Fixed Account
in excess of the minimum guaranteed effective rate of 3% per year will be
determined in the sole discretion of the Company. The Owner therefore assumes
the risk that interest credited may not exceed the minimum guaranteed rate.
Amounts deducted from the Fixed Account for the administration fee,
withdrawals, transfers to the Variable Accounts, and other charges are
currently, for the purpose of crediting interest, accounted for on a last-in,
first-out ("LIFO") basis.
The Company reserves the right to change the method of crediting interest
from time to time, provided that such changes do not have the effect of reducing
the guaranteed rate of interest below 3% per annum or shorten the period for
which the interest rate applies to less than one calendar year (except for the
year in which such amount is received or transferred).
TRANSFER PRIVILEGES
General. Transfers to the Fixed Account must be at least $1,000. A
transfer charge of $25 will be imposed for the thirteenth and each subsequent
request made by the Owner to transfer Contract Value from one or more Variable
Accounts to the Fixed Account (or to one or more Variable Accounts) during a
single Contract Year prior to the Annuity Commencement Date.
Prior to the Annuity Commencement Date, the Owner may transfer up to 20% of
the Fixed Account Value from the Fixed Account to one or more of the Variable
Accounts in any Contract Year. No fee is charged for transfers from the Fixed
Account to one or more Variable Accounts and such a transfer is not considered a
transfer for purposes of assessing a transfer charge.
Dollar-Cost Averaging. An Owner may elect to automatically transfer (on a
quarterly basis) specified dollar amounts from the Fixed Account (as well as one
or more Variable Accounts) to one or more Variable Accounts. The minimum
transfer amount for dollar-cost averaging is $100 to each Variable Account. Once
elected, dollar-cost averaging from the Fixed Account remains in effect for the
life of the Contract until the Fixed Account is depleted or until the Owner
cancels the election (by Written Request or by telephone if the Company has the
Owner's telephone authorization form on file). There is no additional charge for
dollar-cost averaging and a transfer under this program is not considered a
transfer for purposes of assessing a transfer charge. The Company reserves the
right to discontinue offering the dollar-cost averaging facility at any time and
for any reason. (See "Transfer Privileges -- Dollar Cost Averaging.")
PAYMENT DEFERRAL
The Company has the right to defer payment of any full or partial
withdrawal or transfer from the Fixed Account for up to six months from the date
of receipt of Written Request for such a surrender or transfer. If payment is
not made within 30 days after receipt of documentation necessary to complete the
transaction, or such shorter period required by a particular jurisdiction,
interest will be added to the amount paid from the date of receipt of
documentation at 3% or such higher rate required for a particular jurisdiction.
CHARGES AND DEDUCTIONS
WITHDRAWAL CHARGE (CONTINGENT DEFERRED SALES CHARGE)
General. No charge for sales expenses is deducted from Premium Payments at
the time Premium Payments are paid. However, within certain time limits
described below, a Withdrawal Charge (contingent
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<PAGE> 41
deferred sales charge) is deducted from the Contract Value if a full or partial
withdrawal is made before the Annuity Commencement Date. Also, a Withdrawal
Charge is deducted from amounts applied to certain payout plan options. (See
"Annuity Payments on the Annuity Commencement Date".)
In the event Withdrawal Charges are not sufficient to cover sales expenses,
the loss will be borne by the Company; conversely, if the amount of such charges
proves more than enough to cover such expenses, the excess will be retained by
the Company. The Company does not currently believe that the Withdrawal Charges
imposed will cover the expected costs of distributing the Contracts. Any
shortfall will be made up from the Company's general assets which may include
amounts derived from the mortality and expense risk charge.
Charge for Partial or Full Withdrawal. A charge is imposed on the partial
or full withdrawal of Premium Payments during the first nine Contract Years. The
Withdrawal Charge is assessed as a percentage of the amount withdrawn based on
the number of years between the request for Withdrawal and the Date of Issue and
is based on the rates in the table below. The Withdrawal Charge is separately
calculated for each withdrawal of Contract Value within the first nine years
from the Contract's Date of Issue. Amounts subject to the Withdrawal Charge will
be deemed to be first from Premium Payments, then from earnings. No Withdrawal
Charge applies to Contract Value in excess of aggregate Premium Payments.
<TABLE>
<CAPTION>
NUMBER OF CHARGE AS PERCENTAGE
CONTRACT YEARS OF PREMIUM PAYMENTS
------------------------------------------------------- --------------------
<S> <C>
0-6............................................... 7.0%
7 ............................................... 6.0%
8 ............................................... 4.0%
9 ............................................... 2.0%
10 ............................................... 0%
</TABLE>
Any applicable Withdrawal Charge is deducted pro-rata from the remaining
value in the Variable Accounts or Fixed Account from which the withdrawal is
being made. If such remaining Separate Account Value or Fixed Account Value is
insufficient for this purpose, the Withdrawal Charge is deducted pro-rata from
all Variable Accounts and the Fixed Account in which the Contract is invested
based on the remaining Contract Value in each Variable Account and the Fixed
Account.
Free Withdrawal Amount. In each contract year, up to 10% of Contract
Value, as determined at the beginning of the Contract Year, may be withdrawn
during that year without a Withdrawal Charge (the "Annual Free Withdrawal
Amount"). Any amounts withdrawn in excess of this 10% during the first nine full
years from the Contract's Date of Issue will be assessed a Withdrawal Charge.
This right is not cumulative from contract year to contract year. Such
withdrawals remain subject to the 10% federal penalty tax if made by an Owner
before age 59 1/2.
Waiver of Withdrawal Charge. If permitted by state law, upon Written
Request from the Owner before the Annuity Commencement Date, the Withdrawal
Charge will be waived on any full or partial withdrawal if the Annuitant or the
Annuitant's spouse is confined for a specified period to a hospital (as
described in the Contract) or a long term care facility (as described in the
Contract). If the Annuitant becomes terminally ill (as described in the
Contract) prior to the Annuity Commencement Date and if permitted by state law,
the Company will waive the Withdrawal Charge on any full withdrawal or any
partial withdrawal, provided the partial withdrawal is at least $500 and a
$5,000 balance remains in the Accounts after the withdrawal.
Under the terms of the Post-Secondary Education Rider, if the Owner, the
Owner's spouse, the Owner's child or the Annuitant is enrolled in a college,
university, vocational, technical, trade or business school, the Company will
waive the Withdrawal Charge on one withdrawal of up to 20% of Contract Value in
each Contract Year prior to the Annuity Commencement Date while the Annuitant is
alive, so long as this waiver is permitted by state law. The maximum withdrawal
permitted under the Post-Secondary Education Rider, when combined with the
Annual Free Withdrawal Amount, is 20% of Contract Value. Prior to the
withdrawal, the Company must receive at its Home Office written proof of
enrollment satisfactory to the Company within
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<PAGE> 42
one (1) year of the date of enrollment. (See "Free Withdrawal Amount" and the
"Statement of Additional Information".)
Employee and Agent Purchases. If permitted by state law, the Withdrawal
Charge will be waived on any full or partial withdrawals from Contracts sold to
agents or employees of Indianapolis Life Insurance Company (or its affiliates
and subsidiaries).
CONTRACT FEE
At the end of each Contract quarter (or on the date of full surrender of
the Contract) prior to the Annuity Commencement Date, the Company deducts from
the Contract Value a quarterly contract fee of $7.50 to reimburse it for
administrative expenses relating to the Contract. The fee will be deducted from
each Variable Account and the Fixed Account based on the proportion that the
value in each such Variable Account and the Fixed Account bears to the total
Contract Value. The Company does not expect to make a profit on this fee. The
charge does not apply after an annuity payout plan has begun. Deduction of the
Contract Fee is currently waived for all Qualified Contracts. The Company also
currently waives deduction of the Contract Fee for Non-Qualified Contracts whose
cumulative Premium Payments on the date the Contract Fee is assessed are equal
to or greater than $100,000. The Company reserves the right to modify this
waiver upon 30 days written notice to Contract Owners.
ASSET-BASED ADMINISTRATION CHARGE
The Company deducts a daily administration charge to compensate it for
certain expenses it incurs in administration of the Contract. The charge is
deducted from the assets of the Separate Account at an annual rate of 0.15%.
This charge will continue to be assessed after annuitization if annuity payments
are made on a variable basis. The Company does not expect to make a profit from
this charge. There is no necessary relationship between the amount of this
administration charge and the amount of expenses that may be attributable to a
particular Contract.
TRANSFER FEE
A transfer fee of $25 will be imposed for the 13th and each subsequent
transfer during a Contract year. For the purpose of assessing such a transfer
fee, each Written Request would be considered to be one transfer, regardless of
the number of Variable Accounts affected by the transfer. The transfer fee would
be deducted from the Variable Account from which the transfer is made. If a
transfer is made from more than one Variable Account at the same time, the
transfer fee would be deducted pro-rata from the remaining Separate Account
Value in such Variable Account(s). The Company reserves the right to waive the
transfer fee.
MORTALITY AND EXPENSE RISK CHARGE
To compensate the Company for assuming mortality and expense risks, the
Company deducts a daily mortality and expense risk charge from the assets of the
Separate Account. The charge is at a daily rate of 0.003404%. If applied on an
annual basis this rate would be 1.25% (approximately 0.90% for mortality risk
and 0.35% for expense risk). This charge will continue to be assessed if annuity
payments are made on a variable basis either before or after the Annuity
Commencement Date.
The mortality risk the Company assumes is that Annuitants may live for a
longer period of time than estimated when the guarantees in the Contract were
established. Because of these guarantees, each Annuitant is assured that
longevity will not have an adverse effect on the annuity payments received. The
mortality risk that the Company assumes also includes a guarantee to pay a Death
Benefit if the Annuitant dies before the Annuity Commencement Date. The expense
risk that the Company assumes is the risk that the administrative fees and
transfer fees (if imposed) may be insufficient to cover actual future expenses.
If the mortality and expense risk charge is insufficient to cover the
actual cost of the mortality and expense risks undertaken by the Company, the
Company will bear the shortfall. Conversely, if the charge
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<PAGE> 43
proves more than sufficient, the excess will be profit to the Company and will
be available for any proper corporate purpose including, among other things,
payment of sales expenses.
FUND EXPENSES
Because the Separate Account purchases shares or units of the various
Funds, the net assets of the Separate Account will reflect the investment
advisory fees and other operating expenses incurred by such Funds. See the
accompanying current Prospectuses for the Funds.
PREMIUM TAXES
Various states and other governmental entities levy a premium tax,
currently ranging up to 3.5%, on annuity contracts issued by insurance
companies. Premium tax rates are subject to change from time to time by
legislative and other governmental action. In addition, other government units
within a state may levy such taxes.
The timing of tax levies varies from one taxing authority to another. If
premium taxes are applicable to a Contract, they will be deducted either (a)
from Premium Payments as they are received, (b) from Contract Value upon full or
partial withdrawal, (c) from adjusted Contract Value upon application to a
payout plan option, or (d) upon payment of a Death Benefit. The Company,
however, reserves the right to deduct premium taxes at the time such taxes are
paid to the taxing authority.
OTHER TAXES
Currently, no charge is made against the Separate Account for any federal,
state or local taxes (other than premium taxes) that the Company incurs or that
may be attributable to the Separate Account or the Contracts. The Company may,
however, make such a charge in the future from Surrender Value, Death Benefits
or annuity payments, as appropriate. Such taxes may include taxes (levied by any
government entity) which the Company determines to have resulted from: (1) the
establishment or maintenance of the Separate Account, (2) receipt by the Company
of Premium Payments, (3) issuance of the Contracts, or (4) the payment of
annuity payments.
PAYOUT PLAN OPTIONS
ELECTION OF PAYOUT PLAN OPTIONS
On the Annuity Commencement Date, the adjusted Contract Value will be
applied under a payout plan option, unless the Owner elects to receive the
Surrender Value in a single sum. (See "Annuity Payments on the Annuity
Commencement Date.") If an election of a payout plan option is not on file at
the Company's Annuity Service Office on the Annuity Commencement Date, the
proceeds will be paid as a life income annuity with payments for ten years
guaranteed. A payout plan option may be elected, revoked, or changed by the
Owner at any time before the Annuity Commencement Date while the Annuitant is
living. An election of a payout plan option and any revocation or change must be
made by Written Request signed by the Owner and/or beneficiary, as appropriate.
The Owner may elect to apply any portion of the adjusted Contract Value to any
payout plan described below or any other plan then being offered by the Company.
The payout plans currently offered by the Company provide either variable
annuity payments or fixed annuity payments or a combination of both.
Prior to the Annuity Commencement Date, the Owner can apply the entire
Surrender Value under a payout plan option, or a beneficiary can apply the Death
Benefit under a payout plan option. The payout plan options available are
described below.
The Company reserves the right to refuse the election of a payout plan
option other than paying the adjusted Contract Value in a lump sum if the total
amount applied to a payout plan option would be less than $2,500, or the amount
of payments would be less than $25.
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<PAGE> 44
FIXED ANNUITY PAYMENTS
Fixed annuity payments are periodic payments from the Company to the
designated Annuitant, the amount of which is fixed and guaranteed by the
Company. The amount of each payment depends only on the form and duration of the
payout plan option chosen, the age of the Annuitant, the sex of the Annuitant
(if applicable), the amount applied to purchase the annuity payments and the
applicable annuity purchase rates in the Contract. The annuity purchase rates in
the Contract are based on a minimum guaranteed interest rate of 3.0%. The
Company may, in its sole discretion, make annuity payments in an amount based on
a higher interest rate.
VARIABLE ANNUITY PAYMENTS
The dollar amount of the first variable annuity payment is determined in
the same manner as that of a fixed annuity payment. Therefore, for any
particular amount applied to a particular payout plan option, the dollar amount
of the first variable annuity payment and the first fixed annuity payment
(assuming such fixed payment is based on the minimum guaranteed 3.0% interest
rate) would be the same. Variable annuity payments after the first payment are
similar to fixed annuity payments except that the amount of each payment varies
to reflect the net investment performance of the Variable Account(s) selected by
the Owner or Annuitant.
The net investment performance of a Variable Account is translated into a
variation in the amount of variable annuity payments through the use of annuity
units. The amount of the first variable annuity payment associated with each
Variable Account is applied to purchase annuity units at the annuity unit value
for the Variable Account on the Annuity Commencement Date. The number of annuity
units of each Variable Account attributable to a Contract then remains fixed
unless an exchange of annuity units is made as described below. Each Variable
Account has a separate annuity unit value that changes with each valuation
period in substantially the same manner as do accumulation units of the Variable
Account.
The dollar value of each variable annuity payment after the first is equal
to the sum of the amounts determined by multiplying the number of annuity units
under a Contract of a particular Variable Account by the annuity unit value for
the Variable Account for the valuation period which ends immediately preceding
the date of each such payment. If the net investment return of the Variable
Account for a payment period is equal to the pro-rated portion of the 3.0%
annual assumed investment rate, the variable annuity payment attributable to
that Variable Account for that period will equal the payment for the prior
period. To the extent that such net investment return exceeds an annualized rate
of 3.0% for a payment period, the payment for that period will be greater than
the payment for the prior period and to the extent that such return for a period
falls short of an annualized rate of 3.0%, the payment for that period will be
less than the payment for the prior period. The Owner may choose an assumed
interest rate of 3.0%, 4.0%, or 5.0% at the time a variable payout plan is
selected.
After the Annuity Commencement Date, a Annuitant may change the selected
Variable Account(s) by Written Request up to one time per contract year. No
charge is assessed for this transfer. Such a change will be made by exchanging
annuity units of one Variable Account for another Variable Account on an
equivalent dollar value basis. See the Statement of Additional Information for
examples of annuity unit value calculations and variable annuity payment
calculations.
DESCRIPTION OF PAYOUT PLAN OPTIONS
Option 1 -- Installment Income For a Fixed Period. To have the proceeds
paid out in equal monthly installments for a fixed number of years between 1 and
30 years. The amount of the payment is not guaranteed if a variable payout plan
is selected. If a fixed payout plan is selected, the payments for each $1,000
applied will not be less than those shown in the Fixed Period Table in Section
13 of the Contract. In the event of the Payee's death, a Successor Payee may
receive the payments or may elect to receive the present value of the remaining
payments in a lump sum. If there is no Successor Payee, the present value of the
remaining payments will be paid to the estate of the last surviving Payee.
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<PAGE> 45
Option 2 -- Installment Income In a Fixed Amount. To have the proceeds
paid out in equal monthly installments of $5.00 or more for each $1,000 applied
until the full amount is paid out. The number of payments is not guaranteed if a
variable payout plan is selected. If a fixed payout plan is selected, payments
will be made until the full amount applied with compound interest at an annual
rate of not less than 3% is paid out. In the event of the Payee's death, a
Successor Payee may receive the payments or may elect to receive the present
value of the remaining payments in a lump sum. If there is no Successor Payee,
the present value of the remaining payments will be paid to the estate of the
last surviving Payee.
Option 3 -- One Life Income. To have the proceeds paid in monthly
installments during the Payee's lifetime for as long as the Payee lives,* or
while the Payee is living with the guarantee that payments will be made for a
period certain of ten years; or while the Payee is living with the guarantee
that payments will be made for a period certain of twenty years. The amount of
each payment is not guaranteed if a variable payout plan is selected. If a fixed
payout plan is selected, the payment for each $1,000 applied will not be less
than that shown in the One Life Table in Section 12 of the Contract. Payments
guaranteed for 10 or 20 years certain may be commuted. Payments guaranteed only
for the life of the Payee may not be commuted.
Option 4 -- Joint and Survivor Life Income. To have proceeds paid out in
monthly installments jointly to two Payees and after one dies to the surviving
Payee.* If one Payee dies before the due date of the first payment, the
surviving Payee will receive payments under the One Life Income Option 3 with
payments guaranteed for 10 years certain. The payments may not be commuted.
The amount of each payment will be determined from the tables in the
Contract that apply to the particular option using the Annuitant's age (and if
applicable, sex). Age will be determined from the last birthday at the due date
of the first payment.
HISTORICAL PERFORMANCE DATA
From time to time, the Company may advertise or include in sales literature
yields, effective yields and total returns for the Variable Accounts. These
figures are based on historical earnings and do not indicate or project future
performance. The Company also may, from time to time, advertise or include in
sales literature Variable Account performance relative to certain performance
rankings and indices compiled by independent organizations. More detailed
information as to the calculation of performance, as well as comparisons with
unmanaged market indices, appears in the Statement of Additional Information.
Effective yields and total returns for the Variable Accounts are based on
the investment performance of the corresponding Fund. The performance of a Fund
in part reflects its expenses. (See the Prospectuses for the Funds.)
The yield of the Money Market Variable Account refers to the annualized
income generated by an investment in the Variable Account over a specified
seven-day period. The yield is calculated by assuming that the income generated
for that seven-day period is generated each seven-day period over a 52-week
period and is shown as a percentage of the investment. The effective yield is
calculated similarly but, when annualized, the income earned by an investment in
the Variable Account is assumed to be reinvested. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment.
The yield of a Variable Account (except the Money Market Variable Account)
refers to the annualized income generated by an investment in the Variable
Account over a specified 30-day or one-month period. The yield is calculated by
assuming that the income generated by the investment during that 30-day or
one-month period is generated each period over a 12-month period and is shown as
a percentage of the investment.
Yield quotations do not reflect the Withdrawal Charge.
The total return of a Variable Account refers to return quotations assuming
an investment under a Contract has been held in the Variable Account for various
periods of time. For periods prior to the date the
- ---------------
* IT IS POSSIBLE UNDER THIS OPTION TO RECEIVE ONLY ONE ANNUITY PAYMENT IF THE
PAYEE DIES (OR PAYEES DIE) BEFORE THE DUE DATE OF THE SECOND PAYMENT OR TO
RECEIVE ONLY TWO ANNUITY PAYMENTS IF THE PAYEE DIES (OR PAYEES DIE) BEFORE THE
DUE DATE OF THE THIRD PAYMENT, AND SO ON.
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<PAGE> 46
Separate Account commenced operations, performance information will be
calculated based on the performance of the various Funds and the assumption that
the Variable Accounts were in existence for the same periods as those indicated
for the Funds, with the level of Contract charges that were in effect at the
inception of the Variable Accounts for the Contracts (this is referred to as
"hypothetical" performance data). When a Variable Account or Fund has been in
operation for one, five, and ten years, respectively, the total return for these
periods will be provided.
The average annual total return quotations represent the average annual
compounded rates of return that would equate an initial investment of $1,000
under a Contract to the redemption value of that investment as of the last day
of each of the periods for which total return quotations are provided. Average
annual total return information shows the average annual percentage change in
the value of an investment in the Variable Account from the beginning date of
the measuring period to the end of that period. This standardized version of
average annual total return reflects all historical investment results, less all
charges and deductions applied against the Variable Account (including any
Withdrawal Charge that would apply if an Owner terminated the Contract at the
end of each period indicated, but excluding any deductions for premium taxes).
In addition to the standard version described above, total return
performance information computed on different non-standard bases may be used in
advertisements or sales literature. Average annual total return information may
be presented, computed on the same basis as described above, except deductions
will not include the Withdrawal Charge. In addition, the Company may from time
to time disclose average annual total return in non-standard formats and
cumulative total return for Contracts funded by the Variable Accounts.
The Company may also disclose yield, standard total returns, and
non-standard total returns for the Portfolios of the Funds, including such
disclosures for periods prior to the date the Variable Account commenced
operations.
Non-standard performance data will only be disclosed if the standard
performance data for the required periods is also disclosed. For additional
information regarding the calculation of other performance data, please refer to
the Statement of Additional Information.
In advertising and sales literature, the performance of each Variable
Account may be compared with the performance of other variable annuity issuers
in general or to the performance of particular types of variable annuities
investing in mutual Funds, or investment Portfolios of mutual Funds with
investment objectives similar to the Variable Account. Lipper Analytical
Services, Inc. ("Lipper"), Variable Annuity Research Data Service ("VARDS") and
Morningstar, Inc. ("Morningstar") are independent services which monitor and
rank the performance of variable annuity issuers in each of the major categories
of investment objectives on an industry-wide basis.
Lipper's and Morningstar's rankings include variable life insurance issuers
as well as variable annuity issuers. VARDS rankings compare only variable
annuity issuers. The performance analyses prepared by Lipper, VARDS and
Morningstar each rank such issuers on the basis of total return, assuming
reinvestment of distributions, but do not take sales charges, redemption fees,
or certain expense deductions at the separate account level into consideration.
In addition, VARDS prepares risk rankings, which consider the effects of market
risk on total return performance. This type of ranking provides data as to which
Funds provide the highest total return within various categories of Funds
defined by the degree of risk inherent in their investment objectives.
Advertising and sales literature may also compare the performance of each
Variable Account to the Standard & Poor's Index of 500 Common Stocks, a widely
used measure of stock performance. This unmanaged index assumes the reinvestment
of dividends but does not reflect any "deduction" for the expense of operating
or managing an investment Portfolio. Other independent ranking services and
indices may also be used as a source of performance comparison.
The Company may also report other information including the effect of
tax-deferred compounding on a Variable Account's investment returns, or returns
in general, which may be illustrated by tables, graphs, or charts. All income
and capital gains derived from Variable Account investments are reinvested and
can lead to
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<PAGE> 47
substantial long-term accumulation of assets, provided that the Variable Account
investment experience is positive.
FEDERAL TAX MATTERS
THE FOLLOWING DISCUSSION IS GENERAL AND
IS NOT INTENDED AS TAX ADVICE
INTRODUCTION
This discussion is not intended to address the tax consequences resulting
from all of the situations in which a person may be entitled to or may receive a
distribution under the annuity contract issued by the Company. Any person
concerned about these tax implications should consult a competent tax advisor
before initiating any transaction. This discussion is based upon the Company's
understanding of the present federal income tax laws, as they are currently
interpreted by the Internal Revenue Service ("IRS"). No representation is made
as to the likelihood of the continuation of the present federal income tax laws
or of the current interpretation by the IRS. Moreover, no attempt has been made
to consider any applicable state or other tax laws.
The Contract may be purchased on a non-qualified basis or purchased and
used in connection with plans qualifying for favorable tax treatment. The
Qualified Contract is designed for use by individuals whose Premium Payments are
comprised solely of proceeds from and/or contributions under retirement plans
which are intended to qualify as plans entitled to special income tax treatment
under Sections 401(a), 403(b), or 408 of the Code. The ultimate effect of
federal income taxes on the amounts held under a Contract, or annuity payments,
and on the economic benefit to the Owner, the Annuitant, or the beneficiary
depends on the type of retirement plan, on the tax and employment status of the
individual concerned, and on the Company's tax status. In addition, certain
requirements must be satisfied in purchasing a Qualified Contract with proceeds
from a tax-qualified plan and receiving distributions from a Qualified Contract
in order to continue receiving favorable tax treatment. Some retirement plans
are subject to distribution and other requirements that are not incorporated
into our Contract administration procedures. Owners, participants and
beneficiaries are responsible for determining that contributions, distributions
and other transactions with respect to the Contracts comply with applicable law.
Therefore, purchasers of Qualified Contracts should seek competent legal and tax
advice regarding the suitability of a Contract for their situation, the
applicable requirements, and the tax treatment of the rights and benefits of a
Contract. The following discussion assumes that Qualified Contracts are
purchased with proceeds from and/or contributions under retirement plans that
qualify for the intended special federal income tax treatment.
TAX STATUS OF THE CONTRACT
Diversification Requirements. Section 817(h) of the Code provides that
separate account investments underlying a contract must be "adequately
diversified" in accordance with Treasury regulations in order for the contract
to qualify as an annuity contract under Section 72 of the Code. The Separate
Account, through each underlying Fund, intends to comply with the
diversification requirements prescribed in regulations under Section 817(h) of
the Code, which affect how the assets in the various Variable Accounts may be
invested. Although the Company does not have direct control over the Funds in
which the Separate Account invests, we believe that each Fund in which the
Separate Account owns shares will meet the diversification requirements, and
therefore, the Contract will be treated as an annuity contract under the Code.
In certain circumstances, Owners of variable annuity contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate account used to support their contracts. In those circumstances, income
and gains from the separate account assets would be includible in the variable
annuity contract owner's gross income. The IRS has stated in published rulings
that a variable contract owner will be considered the owner of separate account
assets if the contract owner possesses incidents of ownership in those assets,
such as the ability to exercise investment control over the assets. The Treasury
Department has also announced, in connection with the issuance of regulations
concerning investment diversification, that those
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<PAGE> 48
regulations "do not provide guidance concerning the circumstances in which
investor control of the investments of a segregated asset account may cause the
investor (i.e., the contract owner), rather than the insurance company, to be
treated as the owner of the assets in the account." This announcement also
states that guidance would be issued by way of regulations or rulings on the
"extent to which policyholders may direct their investments to particular
Variable Accounts without being treated as owners of the underlying assets." As
of the date of this prospectus, no such guidance has been issued.
The ownership rights under the Contracts are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that contract owners were not owners of separate account assets. For
example, the Owner of a Contract has the choice of one or more Variable Accounts
in which to allocate Net Premium Payments and Contract Values, and may be able
to transfer among Variable Accounts more frequently than in such rulings. These
differences could result in an Owner being treated as the Owner of a pro rata
share of the assets of the Separate Account. In addition, the Company does not
know what standards will be set forth, if any, in the regulations or rulings
which the Treasury Department has stated it expects to issue. The Company
therefore reserves the right to modify the Contract as necessary to attempt to
prevent the contract Owner from being considered the Owner of any portion of the
assets of the Separate Account.
Required Distributions. In order to be treated as an annuity contract for
federal income tax purposes, Section 72(s) of the Code requires any
Non-Qualified Contract to provide that: (a) if any Owner dies on or after the
Annuity Commencement Date but prior to the time the entire interest in the
contract has been distributed, the remaining portion of such interest will be
distributed at least as rapidly as under the method of distribution being used
as of the date of that Owner's death; and (b) if any Owner dies prior to the
Annuity Commencement Date, the entire interest in the Contract will be
distributed within five years after the date of the Owner's death. These
requirements will be considered satisfied as to any portion of the Owner's
interest which is payable to or for the benefit of a "designated beneficiary"
and which is distributed over the life of such beneficiary or over a period not
extending beyond the life expectancy of that beneficiary, provided that such
distributions begin within one year of that Owner's death. The Owner's
"designated beneficiary" is the person designated by such Owner as a beneficiary
and to whom Ownership of the contract passes by reason of death and must be a
natural person. However, if the Owner's "designated beneficiary" is the
surviving spouse of the Owner, the Contract may be continued with the surviving
spouse as the new Owner.
The Non-Qualified Contracts contain provisions which are intended to comply
with the requirements of Section 72(s) of the Code, although no regulations
interpreting these requirements have yet been issued. The Company intends to
review such provisions and modify them if necessary to assure that they comply
with the requirements of Code Section 72(s) when clarified by regulation or
otherwise.
Other rules may apply to Qualified Contracts.
The following discussion assumes that the Contracts will qualify as annuity
contracts for federal income tax purposes.
TAXATION OF ANNUITIES
In General. Section 72 of the Code governs taxation of annuities in
general. The Company believes that an Owner who is a natural person is not taxed
on increases in the value of a Contract until distribution occurs by withdrawing
all or part of the Contract Value (e.g., partial and full withdrawals) or as
annuity payments under the payment option elected. For this purpose, the
assignment, pledge, or agreement to assign or pledge any portion of the Contract
Value (and in the case of a Qualified Contract, any portion of an interest in
the qualified plan) generally will be treated as a distribution. The taxable
portion of a distribution (in the form of a single sum payment or payment
option) is taxable as ordinary income.
The Owner of any annuity contract who is not a natural person generally
must include in income any increase in the excess of the Contract Value over the
"investment in the contract" during the taxable year. There are some exceptions
to this rule, and a prospective Owner that is not a natural person may wish to
discuss these with a competent tax advisor.
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<PAGE> 49
The following discussion generally applies to Contracts owned by natural
persons.
Withdrawals. In the case of a partial withdrawal from a Qualified
Contract, under Section 72(e) of the Code, a ratable portion of the amount
received is taxable, generally based on the ratio of the "investment in the
contract" to the participant's total accrued benefit or balance under the
retirement plan. The "investment in the contract" generally equals the portion,
if any, of any Premium Payment paid by or on behalf of the individual under a
Contract which was not excluded from the individual's gross income. For
Contracts issued in connection with qualified plans, the "investment in the
contract" can be zero. Special tax rules may be available for certain
distributions from Qualified Contracts.
In the case of a partial withdrawal from a Non-Qualified Contract, under
Section 72(e), any amounts received are generally first treated as taxable
income to the extent that the Contract Value immediately before the partial
withdrawal exceeds the "investment in the contract" at that time. Any additional
amount withdrawn is not taxable. With respect to a Non-qualified Contract,
partial withdrawals are generally treated as taxable income to the extent that
the Contract Value immediately before the withdrawal exceeds the "investment in
the contract" at that time. Withdrawals are treated as taxable income to the
extent that the amount received exceeds the investment in the contract.
In the case of a full withdrawal under a Qualified or Non-Qualified
Contract, the amount received generally will be taxable only to the extent it
exceeds the "investment in the contract."
Section 1035 of the Code generally provides that no gain or loss shall be
recognized on the exchange of one annuity contract for another. If the
surrendered contract was issued prior to August 14, 1982, the tax rules formerly
provided that the surrender was taxable only to the extent the amount received
exceeds the Owner's investment in the contract will continue to apply to amounts
allocable to investments in that contract prior to August 14, 1982. In contrast,
contracts issued after January 19, 1985 in a Code Section 1035 exchange are
treated as new contracts for purposes of the penalty and distribution-at-death
rules. Special rules and procedures apply to Section 1035 transactions.
Prospective Owners wishing to take advantage of Section 1035 should consult
their tax adviser.
Annuity Payments. Although tax consequences may vary depending on the
payment option elected under an annuity contract, under Code Section 72(b),
generally (prior to recovery of the investment in the contract) gross income
does not include that part of any amount received as an annuity under an annuity
contract that bears the same ratio to such amount as the investment in the
contract bears to the expected return at the annuity starting date. For variable
annuity payments, the taxable portion is generally determined by an equation
that establishes a specific dollar amount of each payment that is not taxed. The
dollar amount is determined by dividing the "investment in the contract" by the
total number of expected periodic payments. However, the entire distribution
will be taxable once the recipient has recovered the dollar amount of his or her
"investment in the contract." For fixed annuity payments, in general, there is
no tax on the portion of each payment which represents the same ratio that the
"investment in the contract" bears to the total expected value of the annuity
payments for the term of the payments; however, the remainder of each annuity
payment is taxable until the recovery of the investment in the contract, and
thereafter the full amount or each annuity payment is taxable. If death occurs
before full recovery of the investment in the contract, the unrecovered amount
may be deducted on the Annuitant's final tax return.
Taxation of Death Benefit Proceeds. Amounts may be distributed from a
Contract because of the death of the Owner or Annuitant. Generally, such amounts
are includible in the income of the recipient as follows: (i) if distributed in
a lump sum, they are taxed in the same manner as a full surrender of the
contract or (ii) if distributed under a payment option, they are taxed in the
same way as annuity payments.
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<PAGE> 50
Penalty Tax on Certain Withdrawals. In the case of a distribution pursuant
to a Non-Qualified Contract, there may be imposed a federal penalty tax equal to
10% of the amount treated as taxable income. In general, however, there is no
penalty on distributions:
1. made on or after the taxpayer reaches age 59 1/2;
2. made on or after the death of the holder (or if the holder is not an
individual, the death of the primary Annuitant);
3. attributable to the taxpayer's becoming disabled;
4. a part of a series of substantially equal periodic payments (not less
frequently than annually) for the life (or life expectancy) of the
taxpayer or the joint lives (or joint life expectancies) of the
taxpayer and his or her designated beneficiary;
5. made under certain annuities issued in connection with structured
settlement agreements; and
6. made under an annuity contract that is purchased with a single
Premium Payment when the Annuity Commencement Date is no later than a
year from purchase of the annuity and substantially equal periodic
payments are made, not less frequently than annually, during the
annuity payment period.
Other tax penalties may apply to certain distributions under a Qualified
Contract.
Possible Changes in Taxation. In past years, legislation has been proposed
that would have adversely modified the federal taxation of certain annuities.
For example, one such proposal would have changed the tax treatment of
non-qualified annuities that did not have "substantial life contingencies" by
taxing income as it is credited to the annuity. Although as of the date of this
prospectus Congress is not considering any legislation regarding taxation of
annuities, there is always the possibility that the tax treatment of annuities
could change by legislation or other means (such as IRS regulations, revenue
rulings, judicial decisions, etc.). Moreover, it is also possible that any
change could be retroactive (that is, effective prior to the date of the
change).
TRANSFERS, ASSIGNMENTS OR EXCHANGES OF A CONTRACT
A transfer of Ownership of a Contract, the designation of an Annuitant,
Annuitant or other beneficiary who is not also the Owner, the selection of
certain Annuity Commencement Dates or the exchange of a Contract may result in
certain tax consequences to the Owner that are not discussed herein. An Owner
contemplating any such transfer, assignment, or exchange of a Contract should
contact a competent tax advisor with respect to the potential tax effects of
such a transaction.
WITHHOLDING
Pension and annuity distributions generally are subject to withholding for
the recipient's federal income tax liability at rates that vary according to the
type of distribution and the recipient's tax status. Recipients, however,
generally are provided the opportunity to elect not to have tax withheld from
distributions. Effective January 1, 1994, distributions from certain qualified
plans are generally subject to mandatory withholding. Certain states also
require withholding of state income tax whenever federal income tax is withheld.
MULTIPLE CONTRACTS
All non-qualified deferred annuity contracts entered into after October 21,
1988 that are issued by the Company (or its affiliates) to the same Owner during
any calendar year are treated as one annuity Contract for purposes of
determining the amount includible in gross income under Section 72(e). The
effects of this rule are not yet clear; however, it could affect the time when
income is taxable and the amount that might be subject to the 10% penalty tax
described above. In addition, the Treasury Department has specific authority to
issue regulations that prevent the avoidance of Section 72(e) through the serial
purchase of annuity contracts or otherwise. There may also be other situations
in which the Treasury may conclude that it would be
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<PAGE> 51
appropriate to aggregate two or more annuity contracts purchased by the same
Owner. Accordingly, a Contract Owner should consult a competent tax advisor
before purchasing more than one annuity contract.
TAXATION OF QUALIFIED PLANS
The Contracts are designed for use with several types of qualified plans.
The tax rules applicable to participants in these qualified plans vary according
to the type of plan and the terms and conditions of the plan itself. Special
favorable tax treatment may be available for certain types of contributions and
distributions. Adverse tax consequences may result from contributions in excess
of specified limits; distributions prior to age 59 1/2 (subject to certain
exceptions); distributions that do not conform to specified commencement and
minimum distribution rules; aggregate distributions in excess of a specified
annual amount; and in other specified circumstances. Therefore, no attempt is
made to provide more than general information about the use of the Contracts
with the various types of qualified retirement plans. Contract Owners, the
Annuitants, and Beneficiaries are cautioned that the rights of any person to any
benefits under these qualified retirement plans may be subject to the terms and
conditions of the plans themselves, regardless of the terms and conditions of
the Contract, but the Company shall not be bound by the terms and conditions of
such plans to the extent such terms contradict the Contract, unless the Company
consents. Brief descriptions follow of the various types of qualified retirement
plans in connection with a Contract. The Company will amend the Contract as
necessary to conform it to the requirements of such plan.
Corporate Pension and Profit Sharing Plans and H.R. 10 Plans. Section
401(a) of the Code permits corporate employers to establish various types of
retirement plans for employees, and permits self-employed individuals to
establish these plans for themselves and their employees. These retirement plans
may permit the purchase of the Contracts to accumulate retirement savings under
the plans. Adverse tax or other legal consequences to the plan, to the
participant or to both may result if this Contract is assigned or transferred to
any individual as a means to provide benefit payments, unless the plan complies
with all legal requirements applicable to such benefits prior to transfer of the
Contract. Employers intending to use the Contract with such plans should seek
competent advice.
Individual Retirement Annuities. Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program known as an
"Individual Retirement Annuity" or "IRA". These IRAs are subject to limits on
the amount that may be contributed, the persons who may be eligible, and on the
time when distributions may commence. Also, distributions from certain other
types of qualified retirement plans may be "rolled over" on a tax-deferred basis
into an IRA. Sales of the Contract for use with IRAs may be subject to special
requirements of the Internal Revenue Service. Employers may establish Simplified
Employee Pension (SEP) Plans to provide IRA contributions on behalf of their
employees.
Tax Sheltered Annuities. Section 403(b) of the Code allows employees of
certain Section 501(c)(3) organizations and public schools to exclude from their
gross income the Premium Payments paid, within certain limits, on a Contract
that will provide an annuity for the employee's retirement. These Premium
Payments may be subject to FICA (social security) tax.
POSSIBLE CHARGE FOR THE COMPANY'S TAXES
At the present time, the Company makes no charge to the Variable Accounts
for any Federal, state, or local taxes that the Company incurs which may be
attributable to such Variable Accounts or the Contracts. The Company, however,
reserves the right in the future to make a charge for any such tax or other
economic burden resulting from the application of the tax laws that it
determines to be properly attributable to the Variable Accounts or to the
Contracts.
OTHER TAX CONSEQUENCES
As noted above, the foregoing comments about the Federal tax consequences
under these Contracts are not exhaustive, and special rules are provided with
respect to other tax situations not discussed in the Prospectus. Further, the
Federal income tax consequences discussed herein reflect the Company's
understanding of current law and the law may change. Federal estate and state
and local estate, inheritance and other tax
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consequences of Ownership or receipt of distributions under a Contract depend on
the individual circumstances of each Owner or recipient of the distribution. A
competent tax advisor should be consulted for further information.
DISTRIBUTION OF THE CONTRACTS
The Contracts will be offered to the public on a continuous basis. The
Company does not anticipate discontinuing the offering of the Contracts, but
reserves the right to discontinue the offering. Applications for Contracts are
solicited by agents who are licensed by applicable state insurance authorities
to sell the Company's variable annuity contracts and who are also registered
representatives of IL Securities, Inc. or broker-dealers having selling
agreements with IL Securities, Inc. or broker-dealers having selling agreements
with such broker-dealers. IL Securities, Inc. is a wholly-owned subsidiary of
the Indianapolis Life Group of Companies, Inc., which, in turn, is a
wholly-owned subsidiary of Indianapolis Life Insurance Company and is registered
with the SEC under the Securities Exchange Act of 1934 as a broker-dealer and is
a member of the National Association of Securities Dealers, Inc.
IL Securities, Inc. acts as the principal underwriter, as defined in the
1940 Act, of the Contracts for the Separate Account pursuant to an Underwriting
Agreement between the Company and IL Securities, Inc. IL Securities, Inc. is not
obligated to sell any specific number of Contracts. The principal business
address for IL Securities, Inc. is P.O. Box 1230, 2960 North Meridian Street,
Indianapolis, Indiana 46208.
The Company may pay sales commissions to broker-dealers up to an amount
equal to 6% of the Premium Payments paid under a Contract. In addition,
asset-based trailer commissions of up to 1.25% may be paid. The Company may also
pay up to 1.00% on Premium Payments to IL Securities to compensate it for
certain distribution expenses. These broker-dealers are expected to compensate
sales representatives in varying amounts from these commissions. The Company
also may pay other distribution expenses such as production incentive bonuses,
agent's insurance and pension benefits, and agency expense allowances. These
distribution expenses do not result in any additional charges against the
Contracts that are not described under "Charges and Deductions."
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account is a party or
the assets of the Separate Account are subject. The Company is not involved in
any litigation that is of material importance in relation to its total assets or
that relates to the Separate Account.
VOTING RIGHTS
In accordance with its view of current applicable law, the Company will
vote Fund shares held in the Separate Account at regular and special shareholder
meetings of the Funds in accordance with instructions received from persons
having voting interests in the corresponding Variable Accounts. If, however, the
1940 Act or any regulation thereunder should be amended, or if the present
interpretation thereof should change, or the Company otherwise determines that
it is allowed to vote the shares in its own right, it may elect to do so.
The number of votes that an Owner or Annuitant has the right to instruct
will be calculated separately for each Variable Account of the Separate Account,
and may include fractional votes. Prior to the Annuity Commencement Date, an
Owner holds a voting interest in each Variable Account to which the Contract
Value is allocated. After the Annuity Commencement Date, the Annuitant has a
voting interest in each Variable Account from which variable annuity payments
are made.
For each Owner, the number of votes attributable to a Variable Account will
be determined by dividing the Contract Value attributable to that Owner's
Contract in that Variable Account by the net asset value per share of the Fund
in which that Variable Account invests. For each Annuitant, the number of votes
attributable to a Variable Account will be determined by dividing the liability
for future variable annuity payments to be paid from that Variable Account by
the net asset value per share of the Fund in which that
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<PAGE> 53
Variable Account invests. This liability for future payments is calculated on
the basis of the mortality assumptions, the 3.0% assumed investment rate used in
determining the number of annuity units of that Variable Account credited to the
Annuitant's Contract and annuity unit value of that Variable Account on the date
that the number of votes is determined. As variable annuity payments are made to
the Annuitant, the liability for future payments decreases as does the number of
votes.
The number of votes available to an Owner or Annuitant will be determined
as of the date coincident with the date established by the Fund for determining
shareholders eligible to vote at the relevant meeting of the Fund's
shareholders. Voting instructions will be solicited by written communication
prior to such meeting in accordance with procedures established for the Fund.
Each Owner or Annuitant having a voting interest in a Variable Account will
receive proxy materials and reports relating to any meeting of shareholders of
the Fund in which that Variable Account invests.
Fund shares as to which no timely instructions are received and shares held
by the Company in a Variable Account as to which no Owner or Annuitant has a
beneficial interest will be voted in proportion to the voting instructions which
are received with respect to all Contracts participating in that Variable
Account. Voting instructions to abstain on any item to be voted upon will be
applied to reduce the total number of votes eligible to be cast on a matter.
COMPANY HOLIDAYS
The Company is closed on the following holidays: the Friday following
Thanksgiving, the day preceding Christmas when Christmas falls on Tuesday
through Saturday, the day following Christmas when Christmas falls on Sunday or
Monday, and the day following New Year's Day when it falls on a Sunday, the
Monday following New Year's Day when New Year's Day falls on a Saturday, and the
day preceding or following Independence Day when it falls on Saturday or Sunday.
FINANCIAL STATEMENTS
IL Annuity and Insurance Company, formerly known as Sentry Investors Life
Insurance Company, became a wholly-owned subsidiary of the Indianapolis Life
Group of Companies, Inc. on November 1, 1994. Immediately prior thereto, the
Company entered into an assumption reinsurance agreement with Sentry Life
Insurance Company ("Sentry") whereby Sentry assumed all of the insurance
in-force and related assets and liabilities from the Company. The effect of the
reinsurance agreement was to transfer all of the insurance related assets and
liabilities to Sentry, leaving only bonds, cash and state insurance department
licenses to be acquired by the Indianapolis Life Group of Companies, Inc. No
business was issued by the Company through December 31, 1994.
The audited statement of net assets of IL Annuity and Insurance Co.
Separate Account 1 as of December 31, 1995 and the related statements of
operations and changes in net assets for the year then ended, as well as the
Report of the Independent Auditors, are included in the Statement of Additional
Information ("SAI"). The audited balance sheets for the Company as of December
31, 1995 and 1994, and the related statements of income, stockholder's equity,
and cash flows for the year ended December 31, 1995 and the two months ended
December 31, 1994, as well as the Report of the Independent Auditors, are
contained in the SAI. The financial statements of the Company should be
considered only as bearing on the ability of the Company to meets its
obligations under the Contracts. They should not be considered as bearing on the
investment performance of the assets held in the Separate Account.
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STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
Additional information about the Contract and the Separate Account is
contained in the Statement of Additional Information. A Statement of Additional
Information is available (at no cost) by writing the Company at the address
shown on the front cover or by calling 1-800-388-1331. The following is the
Table of Contents for that Statement.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ADDITIONAL CONTRACT PROVISIONS.......................................................
The Contract....................................................................
Incontestability................................................................
Misstatement of Age or Sex......................................................
Nonparticipation................................................................
Riders..........................................................................
CALCULATION OF HISTORICAL PERFORMANCE DATA...........................................
Money Market Variable Account Yields............................................
Other Variable Account Yields...................................................
Average Annual Total Returns....................................................
Other Total Returns.............................................................
Effect of the Annual Contract Fee on Performance Data...........................
Other Information...............................................................
VARIABLE ANNUITY PAYMENTS............................................................
Assumed Investment Rate.........................................................
Amount of Variable Annuity Payments.............................................
Annuity Unit Value..............................................................
TERMINATION OF PARTICIPATION AGREEMENTS..............................................
The Alger American Fund.........................................................
Fidelity Variable Insurance Products Fund.......................................
Fidelity Variable Insurance Products Fund II....................................
OCC Accumulation Trust..........................................................
T. Rowe Price Fixed Income Series, Inc. ........................................
T. Rowe Price International Series, Inc. .......................................
Van Eck Worldwide Insurance Trust...............................................
SAFEKEEPING OF ACCOUNT ASSETS........................................................
LEGAL MATTERS........................................................................
EXPERTS..............................................................................
OTHER INFORMATION....................................................................
FINANCIAL STATEMENTS.................................................................
</TABLE>
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STATEMENT OF ADDITIONAL INFORMATION
for the
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
Issued Through
IL ANNUITY AND INSURANCE CO. SEPARATE ACCOUNT 1
Offered by
IL ANNUITY AND INSURANCE COMPANY
2960 North Meridian Street
Indianapolis, Indiana 46208
--------------------
This Statement of Additional Information expands upon subjects
discussed in the current Prospectus for the flexible premium deferred variable
annuity contract (the "Contract") offered by IL Annuity and Insurance Company.
You may obtain a copy of the Prospectus dated May 1, 1996 by calling
1-800-388-1331 or by writing to the Annuity Service Center: IL Annuity and
Insurance Company, P.O. Box 364, Haddam, Connecticut 06438. Terms used in the
current Prospectus for the Contract are incorporated in this Statement.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND
SHOULD BE READ ONLY IN CONJUNCTION WITH THE PROSPECTUSES FOR THE CONTRACT AND
THE FUNDS.
The date of this Statement of Additional Information is May 1, 1996.
<PAGE> 56
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ADDITIONAL CONTRACT PROVISIONS
The Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Incontestability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Misstatement of Age or Sex . . . . . . . . . . . . . . . . . . . . . . . . .
Nonparticipation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Riders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CALCULATION OF HISTORICAL PERFORMANCE DATA . . . . . . . . . . . . . . . . . . . . .
Money Market Variable Account Yields . . . . . . . . . . . . . . . . . . . .
Other Variable Account Yields . . . . . . . . . . . . . . . . . . . . . . .
Average Annual Total Returns . . . . . . . . . . . . . . . . . . . . . . . .
Other Total Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of the Contract Fee on Performance Data . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
VARIABLE ANNUITY PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assumed Investment Rate . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount of Variable Annuity Payments . . . . . . . . . . . . . . . . . . . .
Annuity Unit Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TERMINATION OF PARTICIPATION AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . .
The Alger American Fund . . . . . . . . . . . . . . . . . . . . . . . . . .
Fidelity Variable Insurance Products Fund . . . . . . . . . . . . . . . . .
Fidelity Variable Insurance Products Fund II . . . . . . . . . . . . . . . .
OCC Accumulation Trust . . . . . . . . . . . . . . . . . . . . . . . . . . .
T. Rowe Price Fixed Income Series, Inc. . . . . . . . . . . . . . . . . . .
T. Rowe Price International Series, Inc. . . . . . . . . . . . . . . . . . .
Van Eck Worldwide Insurance Trust . . . . . . . . . . . . . . . . . . . . .
SAFEKEEPING OF ACCOUNT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
<PAGE> 57
ADDITIONAL CONTRACT PROVISIONS
THE CONTRACT
The entire contract is the Contract, the signed application, the data
page, the endorsements, riders and all other attached papers. The statements
made in the application are deemed representations and not warranties. The
Company will not use any statement in defense of a claim or to void the
Contract unless it is contained in the application.
Any change in the Contract or waiver of its provisions must be in
writing and signed by the Company's President, a Vice President, Secretary or
Assistant Secretary. No other person -- no agent or Registered Representative
- -- has authority to change or waive any provision of this Contract.
Upon notice to the Contract Owner, the Company may modify the Contract
if necessary to permit the Contract or the Separate Account to comply with any
applicable law or regulation issued by a governmental agency; or if necessary
to assure continued qualification of the contract under the Internal Revenue
Code or other federal or state laws relating to retirement annuities or
variable annuity contracts; or if necessary to effect a change in the operation
of the Separate Account or to provide additional investment options.
In the event of such modifications, the Company will make the
appropriate endorsement to the Contract.
INCONTESTABILITY
The Company will not contest the Contract from the Date of Issue.
MISSTATEMENT OF AGE OR SEX
The Company may require proof of age, sex, and right to payments
before making any life annuity payments. If the age or sex (if applicable) of
the annuitant has been misstated, the Annuity Commencement Date and the amount
of the annuity payments will be determined using the correct age and sex. If
misstatement of age or sex results in annuity payments that are too large, the
overpayments will be charged with compound interest against subsequent
payments. If the Company has made payments that are too small, the
underpayments will be paid with compound interest upon receipt of notice of the
underpayments. Adjustments for overpayments or underpayments will be paid
interest at the rate then in use to determine the rate of payments.
NONPARTICIPATION
The Contract does not participate in the Company's surplus earnings or
profits.
<PAGE> 58
RIDERS
Except in the limited circumstances described below, the Company will
issue four riders automatically upon the issuance of each Contract. These
riders provide for the waiver of the Withdrawal Charge in case of extended
hospitalization, long term care, terminal illness, or the post secondary
education of certain family members or the Annuitant, as provided in the rider.
There is no additional charge for the issuance of the riders, which are
available only at the issuance of the Contract. All riders may not be
available in all states.
CALCULATION OF HISTORICAL PERFORMANCE DATA
From time to time, the Company may disclose yields, total returns, and
other performance data pertaining to the Contracts for a Variable Account.
Such performance data will be computed, or accompanied by performance data
computed, in accordance with the standards defined by the SEC.
MONEY MARKET VARIABLE ACCOUNT YIELDS
From time to time, advertisements and sales literature may quote the
current annualized yield of the Money Market Variable Account for a seven-day
period in a manner which does not take into consideration any realized or
unrealized gains or losses on shares of Money Market Portfolio of the Fidelity
Variable Insurance Products Fund or on that Portfolio's portfolio securities.
This current annualized yield is computed by determining the net
change (exclusive of realized gains and losses on the sale of securities and
unrealized appreciation and depreciation) at the end of the seven-day period in
the value of a hypothetical account under a Contract having a balance of one
unit of the Money Market Variable Account at the beginning of the period,
dividing such net change in account value by the value of the hypothetical
account at the beginning of the period to determine the base period return, and
annualizing this quotient on a 365-day basis. The net change in account value
reflects: 1) net income from the fund attributable to the hypothetical
account; and 2) charges and deductions imposed under the Contract which are
attributable to the hypothetical account. The charges and deductions include
the per unit charges for the hypothetical account for: 1) the annualized
Contract Fee; 2) the mortality and expense risk charge; and 3) the asset-based
administration charge. For purposes of calculating current yields for a
Contract, an average per unit Contract Fee is used based on the $30 annualized
Contract Fee which is deducted in four equal payments at the end of each
Contract Quarter. Current Yield is calculated according to the following
formula:
2
<PAGE> 59
Current Yield = ((NCS - ES)/UV) X (365/7)
Where:
NCS = the net change in the value of the Money Market
Portfolio (exclusive of realized gains or losses on
the sale of securities and unrealized appreciation
and depreciation) for the seven-day period
attributable to a hypothetical account having a
balance of one Variable Account unit.
ES = per unit expenses attributable to the hypothetical
account for the seven-day period.
UV = the unit value for the first day of the seven-day
period.
365/7
Effective yield = (1 + ((NCS-ES)/UV)) - 1
Where:
NCS = the net change in the value of the Money Market
Portfolio (exclusive of realized gains or losses on
the sale of securities and unrealized appreciation
and depreciation) for the seven-day period
attributable to a hypothetical account having a
balance of one Variable Account unit.
ES = per unit expenses attributable to the hypothetical
account for the seven-day period.
UV = the unit value for the first day of the seven-day
period.
Because of the charges and deductions imposed under the Contract, the
yield for the Money Market Variable Account is lower than the yield for the
Money Market Portfolio.
The current and effective yields on amounts held in the Money Market
Variable Account normally fluctuate on a daily basis. THEREFORE, THE DISCLOSED
YIELD FOR ANY GIVEN PAST PERIOD IS NOT AN INDICATION OR REPRESENTATION OF
FUTURE YIELDS OR RATES OF RETURN. The Money Market Variable Account's actual
yield is affected by changes in interest rates on money market securities,
average portfolio maturity of the Money Market Portfolio, the types and quality
of portfolio securities held by the Money Market Portfolio and the Money Market
Portfolio's operating expenses. Yields on amounts held in the Money Market
Variable Account may also be presented for periods other than a seven-day
period.
3
<PAGE> 60
Yield calculations do not take into account the Withdrawal Charge
under the Contract equal to 2% to 7% of Premium Payments withdrawn during the
first full nine years from the Contract's Date of Issue. A Withdrawal Charge
will not be imposed upon partial withdrawal in any Contract Year on an amount
equal to 10% of Contract Value at the beginning of the Contract Year. No
Withdrawal Charge applies to Contract Value in excess of aggregate Premium
Payments.
OTHER VARIABLE ACCOUNT YIELDS
From time to time, sales literature or advertisements may quote the
current annualized yield of one or more of the Variable Accounts (except the
Money Market Variable Account) under the Contract for 30-day or one-month
periods. The annualized yield of a Variable Account refers to income generated
by the Variable Account during a 30-day or one-month period and is assumed to
be generated each period over a 12-month period.
The yield is computed by: 1) dividing the net investment income of
the fund attributable to the Variable Account units less Variable Account
expenses for the period; by 2) the maximum offering price per unit on the last
day of the period times the daily average number of units outstanding for the
period; by 3) compounding that yield for a six-month period; and by 4)
multiplying that result by 2. Expenses attributable to the Variable Account
include the annualized Contract Fee, the asset-based administration charge and
the mortality and expense risk charge. The yield calculation assumes a
Contract Fee of $30 per year per Contract deducted at the end of each Contract
Year. For purposes of calculating the 30-day or one-month yield, an average
Contract Fee based on the average Contract Value in the Variable Account is
used to determine the amount of the charge attributable to the Variable Account
for the 30-day or one-month period. The 30-day or one-month yield is
calculated according to the following formula:
6
Yield = 2 X (((NI - ES)/(U X UV)) + 1) - 1)
Where:
NI = net income of the portfolio for the 30-day or
one-month period attributable to the Variable
Account's units.
ES = expenses of the Variable Account for the 30-day or
one-month period.
U = the average number of units outstanding.
UV = the unit value at the close (highest) of the last
day in the 30-day or one-month period.
Because of the charges and deductions imposed under the Contracts, the
yield for the Variable Account is lower than the yield for the corresponding
fund.
4
<PAGE> 61
The yield on the amounts held in the Variable Accounts normally
fluctuates over time. THEREFORE, THE DISCLOSED YIELD FOR ANY GIVEN PAST PERIOD
IS NOT AN INDICATION OR REPRESENTATION OF FUTURE YIELDS OR RATES OF RETURN. A
Variable Account's actual yield is affected by the types and quality of
portfolio securities held by the corresponding fund and that fund's operating
expenses.
Yield calculations do not take into account the Withdrawal Charge
under the Contract equal to 2% to 7% of Premium Payments withdrawn during the
first full nine years from the Contract's Date of Issue. A Withdrawal Charge
will not be imposed upon partial withdrawal in any Contract Year on an amount
equal to 10% of Contract Value at the beginning of the Contract Year.
AVERAGE ANNUAL TOTAL RETURNS
From time to time, sales literature or advertisements may also quote
average annual total returns for one or more of the Variable Accounts for
various periods of time.
When a Variable Account or portfolio has been in operation for 1, 5,
and 10 years, respectively, the average annual total return for these periods
will be provided. Average annual total returns for other periods of time may,
from time to time, also be disclosed.
Standard average annual total returns represent the average annual
compounded rates of return that would equate an initial investment of $1,000
under a Contract to the redemption value of that investment as of the last day
of each of the periods. The ending date for each period for which total return
quotations are provided will be for the most recent calendar quarter-end
practicable, considering the type of the communication and the media through
which it is communicated.
Standard average annual total returns are calculated using Variable
Account unit values which the Company calculates on each valuation day based on
the performance of the Variable Account's underlying fund, the deductions for
the mortality and expense risk charge, the deductions for the asset-based
administration charge and the annualized Contract Fee. The calculation assumes
that the Contract Fee is $30 per year per Contract deducted at the end of each
Contract year. For purposes of calculating average annual total return, an
average per-dollar per-day Contract Fee attributable to the hypothetical
account for the period is used. The calculation also assumes surrender of the
Contract at the end of the period for the return quotation. Total returns will
therefore reflect a deduction of the Withdrawal Charge for any period less than
ten years. The total return is calculated according to the following formula:
5
<PAGE> 62
1/N
TR = ((ERV/P) ) - 1
Where:
TR = the average annual total return net of Variable
Account recurring charges.
ERV = the ending redeemable value (net of any applicable
Withdrawal Charge) of the hypothetical account at
the end of the period.
P = a hypothetical initial payment of $1,000.
N = the number of years in the period.
From time to time, sales literature or advertisements may quote
average annual total returns for periods prior to the date the Variable
Accounts commenced operations. Such performance information for the Variable
Accounts is calculated based on the performance of the various funds and the
assumption that the Variable Accounts were in existence for the same periods as
those indicated for the funds, with the level of Contract charges that were in
effect at the inception of the Variable Accounts.
OTHER TOTAL RETURNS
From time to time, sales literature or advertisements may also quote
average annual total returns that do not reflect the Withdrawal Charge. These
are calculated in exactly the same way as average annual total returns
described above, except that the ending redeemable value of the hypothetical
account for the period is replaced with an ending value for the period that
does not take into account any charges on amounts surrendered or withdrawn.
The Company may disclose cumulative total returns in conjunction with
the standard formats described above. The cumulative total returns will be
calculated using the following formula:
CTR = (ERV/P) - 1
Where:
CTR = The cumulative total return net of Variable Account
recurring charges for the period.
ERV = The ending redeemable value of the hypothetical investment at
the end of the period.
P = A hypothetical single payment of $1,000.
6
<PAGE> 63
EFFECT OF THE CONTRACT FEE ON PERFORMANCE DATA
The Contract provides for a $7.50 Contract Fee to be deducted at the
end of each Contract Quarter from the Fixed and Variable Accounts based on the
proportion that the value of each such Account bears to the total Contract
Value. For purposes of reflecting the Contract Fee in yield and total return
quotations, the Contract Fee is converted into a per-dollar per-day charge
based on the average Contract Value in the Separate Account of all Contracts on
the last day of the period for which quotations are provided. The per-dollar
per-day average charge will then be adjusted to reflect the basis upon which
the particular quotation is calculated.
OTHER INFORMATION
The following is a partial list of those publications which may be
cited in the Funds' advertising shareholder materials which contain articles
describing investment results or other data relative to one or more of the
Variable Accounts. Other publications may also be cited.
Broker World Financial World
Across the Board Advertising Age
American Banker Barron's
Best's Review Business Insurance
Business Month Business Week
Changing Times Consumer Reports
Economist Financial Planning
Forbes Fortune
Inc. Institutional Investor
Insurance Forum Insurance Sales
Insurance Week Journal of Accountancy
Journal of the American Society of Journal of Commerce
CLU & ChFC
Life Insurance Selling Life Association News
MarketFacts Manager's Magazine
National Underwriter Money
Morningstar, Inc. Nation's Business
New Choices (formerly 50 Plus) New York Times
Pension World Pensions & Investments
Rough Notes Round the Table
U.S. Banker VARDs
Wall Street Journal Working Woman
7
<PAGE> 64
VARIABLE ANNUITY PAYMENTS
ASSUMED INVESTMENT RATE
The discussion concerning the amount of variable annuity payments
which follows this section is based on an assumed investment rate of 3.0% per
year. Under the Contract, the Contract Owner may choose an assumed interest
rate of 3.0%, 4.0% or 5.0% at the time a variable payout plan is selected. The
assumed investment rate is used merely in order to determine the first monthly
payment per thousand dollars of applied value. THIS RATE DOES NOT BEAR ANY
RELATIONSHIP TO THE ACTUAL NET INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT OR
OF ANY VARIABLE ACCOUNT.
AMOUNT OF VARIABLE ANNUITY PAYMENTS
The amount of the first variable annuity payment to a payee will
depend on the amount (i.e., the adjusted Contract Value, the Surrender Value,
the death benefit) applied to effect the variable annuity payment as of the
Annuity Commencement Date, the annuity payout plan option selected, and the age
and sex (if applicable) of the annuitant. The Contracts contain tables
indicating the dollar amount of the first annuity payment under each annuity
payment option for each $1,000 applied at various ages. These tables are based
upon the 1983 Table A (promulgated by the Society of Actuaries) and an assumed
investment rate of 3.0% per year.
The portion of the first monthly variable annuity payment derived from
a Variable Account is divided by the annuity unit value for that Variable
Account (calculated as of the date of the first monthly payment). The number
of such units will remain fixed during the annuity period, assuming the
Annuitant makes no exchanges of annuity units for annuity units of another
Variable Account or to provide a fixed annuity payment.
In any subsequent month, for any Contract, the dollar amount of the
variable annuity payment derived from each Variable Account is determined by
multiplying the number of annuity units of that Variable Account attributable
to that Contract by the value of such annuity unit at the end of the valuation
period immediately preceding the date of such payment.
The annuity unit value will increase or decrease from one payment to
the next in proportion to the net investment return of the Variable Account or
Variable Accounts supporting the variable annuity payments, less an adjustment
to neutralize the 3.0% assumed investment rate referred to above. Therefore,
the dollar amount of annuity payments after the first will vary with the amount
by which the net investment return of the appropriate Variable Accounts is
greater or less than 3.0% per year. For example, for a Contract using only one
Variable Account to generate variable annuity payments, if that Variable
Account has a cumulative net investment return of 5% over a one year period,
the first annuity payment in the next year will be approximately 2% greater
than the payment on the same date in the
8
<PAGE> 65
preceding year. If such net investment return is 1% over a one year period,
the first annuity payment in the next year will be approximately 2 percentage
points less than the payment on the same date in the preceding year. (See also
"Variable Annuity Payments" in the Prospectus.)
ANNUITY UNIT VALUE
The value of an annuity unit is calculated at the same time that the
value of an accumulation unit is calculated and is based on the same values for
fund shares and other assets and liabilities. (See "Separate Account Value" in
the Prospectus.) The annuity unit value for each Variable Account's first
valuation period was set at $100. The annuity unit value for a Variable
Account is calculated for each subsequent valuation period by dividing (1) by
(2), then multiplying this quotient by (3) and then multiplying the result by
(4), where:
(1) is the accumulation unit value for the current valuation
period;
(2) is the accumulation unit value for the immediately preceding
valuation period;
(3) is the annuity unit value for the immediately preceding
valuation period; and
(4) is a special factor designed to compensate for the assumed
investment rate of 3.0% built into the table used to compute
the first variable annuity payment.
The following illustrations show, by use of hypothetical examples, the
method of determining the annuity unit value and the amount of several variable
annuity payments based on one Variable Account.
ILLUSTRATION OF CALCULATION OF ANNUITY UNIT VALUE
<TABLE>
<S> <C>
1. Accumulation unit value for current valuation period . . . . . . . . . . . . . . . . . . . . . . . . . 11.15
2. Accumulation unit value for immediately preceding valuation period . . . . . . . . . . . . . . . . . . 11.10
3. Annuity unit value for immediately preceding valuation period . . . . . . . . . . . . . . . . . . . 105.00
4. Factor to compensate for the assumed investment rate of 3.0% . . . . . . . . . . . . . . . . . . . . . 9975
5. Annuity unit value of current valuation period ((1) / (2)) x (3) x (4) . . . . . . . . . . . . . . 105.2093
</TABLE>
ILLUSTRATION OF VARIABLE ANNUITY PAYMENTS
<TABLE>
<S> <C>
1. Number of accumulation units at Maturity Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
2. Accumulation unit value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1500
3. Adjusted Contract Value (1)x(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $111,500
4. First monthly annuity payment per $1,000 of adj. Contract Value . . . . . . . . . . . . . . . . . . . 5.89
5. First monthly annuity payment (3)x(4) / 1,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . $656.74
</TABLE>
9
<PAGE> 66
<TABLE>
<S> <C>
6. Annuity unit value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105.2093
7. Number of annuity units (5)/(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2422
8. Assume annuity unit value for second month equal to . . . . . . . . . . . . . . . . . . . . . 105.3000
9. Second monthly annuity payment (7)x(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $657.30
10. Assume annuity unit value for third month equal to . . . . . . . . . . . . . . . . . . . . . . 104.9000
11. Third monthly annuity payment (7)x(10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $654.81
</TABLE>
TERMINATION OF PARTICIPATION AGREEMENTS
The participation agreements pursuant to which the Funds sell their
shares to the Variable Account contain varying provisions regarding
termination. The following summarizes those provisions:
THE ALGER AMERICAN FUND. This agreement provides for termination: (1)
on six months' advance written notice by any party; (2) at IL Annuity's option
if shares of any Portfolio are not reasonably available to meet the
requirements of the Contracts or are not registered, issued or sold in
accordance with applicable state and/or federal law; (3) at IL Annuity's option
if any Portfolio ceases to be qualified as a Regulated Investment Company under
Subchapter M of the Internal Revenue Code (the "Code"); (4) at IL Annuity's
option if any Portfolio fails to meet certain diversification requirements of
the Code; (5) at the option of the Fund or Fred Alger & Company, Inc. (the
"Distributor"), upon a determination that IL Annuity has suffered a material
adverse change in its business, operations, financial condition or prospects or
is the subject of material adverse publicity; (6) by IL Annuity upon a
determination that either the Fund or the Distributor has suffered a material
adverse change in its business, operations, financial condition or prospects or
is the subject of material adverse publicity; (7) by the Fund or the
Distributor if the Contracts cease to qualify as annuity contracts or endowment
contracts under the Code or if the Contracts are not registered, issued or sold
in accordance with state and/or federal law; or (8) on 180 days written notice
upon a determination by any party that a material irreconcilable conflict
exists.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND and FIDELITY VARIABLE
INSURANCE PRODUCTS FUNDS II. These agreements provide for termination: (1) on
six months' advance written notice by any party; (2) at IL Annuity's option if
shares of any Portfolio are not reasonably available to meet the requirements
of the Contracts or are not registered, issued or sold in accordance with
applicable state and/or federal law; (3) at IL Annuity's option if any
Portfolio ceases to be qualified as a Regulated Investment Company under
Subchapter M of the Internal Revenue Code (the "Code"); (4) at IL Annuity's
option if any Portfolio fails to meet certain diversification requirements of
the Code; (5) at the option of the Fund or Fidelity Distributors Corporation
(the "Underwriter") upon a determination that IL Annuity has suffered a
material adverse change in its business, operations, financial condition or
prospects or is the subject of material adverse publicity; (6) by IL Annuity
upon a determination that either the Fund or the Underwriter has suffered a
material adverse change in its business,
10
<PAGE> 67
operations, financial condition or prospects or is the subject of material
adverse publicity; or (7) by the Fund or the Underwriter if IL Annuity provides
written notice of its intent to use another investment company as a funding
vehicle for the Contracts.
OCC ACCUMULATION TRUST. These agreements provide for termination:
(1) on six months' advance written notice by any party; (2) at IL Annuity's
option if shares of any Portfolio are not reasonably available to meet the
requirements of the Contracts; (3) at IL Annuity's option if any Portfolio
ceases to be qualified as a Regulated Investment Company under Subchapter M of
the Internal Revenue Code (the "Code"); (4) at IL Annuity's option if any
Portfolio fails to meet certain diversification requirements of the Code; (5)
at the option of the Fund upon a determination that IL Annuity has suffered a
material adverse change in its business, operations, financial condition or
prospects or is the subject of material adverse publicity; (6) by IL Annuity
upon a determination that the Fund has suffered a material adverse change in
its business, operations, financial condition or prospects or is the subject of
material adverse publicity; (7) by the Fund or IL Annuity if IL Annuity
receives necessary regulatory approvals to substitute shares of another
investment company as a funding vehicle for the Contracts; (8) by the Fund upon
institution of certain proceedings against IL Annuity; (9) at IL Annuity's
option upon institution of certain administrative proceedings against the Fund
or the Underwriter; (10) by the Fund or IL Annuity upon a determination that
certain irreconcilable conflicts exist; or (11) at the option of the Fund or IL
Annuity, upon the other party's material breach of any provision in the
Participation Agreement.
T. ROWE PRICE FIXED INCOME SERIES, INC. AND T. ROWE PRICE
INTERNATIONAL SERIES, INC. These agreements provide for termination: (1) on
six months' advance written notice by any party; (2) at IL Annuity's option if
shares of any Portfolio are not reasonably available to meet the requirements
of the Contracts or are not registered, issued or sold in accordance with
applicable state and/or federal law; (3) at IL Annuity's option if any
Portfolio ceases to be qualified as a Regulated Investment Company under
Subchapter M of the Internal Revenue Code (the "Code"); (4) at IL Annuity's
option if any Portfolio fails to meet certain diversification requirements of
the Code; (5) at the option of the Fund or T. Rowe Price Investment Services,
Inc. (the "Underwriter") upon a determination that IL Annuity has suffered a
material adverse change in its business, operations, financial condition or
prospects or is the subject of material adverse publicity; (6) by IL Annuity
upon a determination that either the Fund or the Underwriter has suffered a
material adverse change in its business, operations, financial condition or
prospects or is the subject of material adverse publicity; (7) by the Fund or
the Underwriter if IL Annuity provides written notice of its intent to use
another investment company as a funding vehicle for the Contracts; (8) by the
Fund or the Underwriter upon institution of certain proceedings against IL
Annuity; or (9) at IL Annuity's option upon institution of certain
administrative proceedings against the Fund or the Underwriter.
VAN ECK WORLDWIDE INSURANCE TRUST. This agreement provides for
termination: (1) on six months' advance written notice by any party; (2) at IL
Annuity's option if shares of any Portfolio are not reasonably available to
meet the requirements of the Contracts or are not
11
<PAGE> 68
registered, issued or sold in accordance with applicable state and/or federal
law; (3) at IL Annuity's option if any Portfolio ceases to be qualified as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code
(the "Code"); (4) at IL Annuity's option if any Portfolio fails to meet certain
diversification requirements of the Code; (5) at the option of the Trust or Van
Eck Associates Corporation (the "Adviser") upon a determination that IL Annuity
has suffered a material adverse change in its business, operations, financial
condition or prospects or is the subject of material adverse publicity; (6) by
IL Annuity upon a determination that either the Trust or the Adviser has
suffered a material adverse change in its business, operations, financial
condition or prospects or is the subject of material adverse publicity; (7) by
IL Annuity, the Adviser or the Trust, upon institution of certain proceedings
against the broker-dealers marketing the Contracts, the Adviser or the Trust;
(8) upon a decision by IL Annuity to substitute the Trust's shares with the
shares of another investment company; or (9) upon assignment of the Agreement.
SAFEKEEPING OF ACCOUNT ASSETS
The Company holds the title to the assets of the Separate Account.
The assets are kept physically segregated and held separate and apart from the
Company's General Account assets and from the assets in any other separate
account.
Records are maintained of all purchases and redemptions of Portfolio
shares held by each of the Variable Accounts.
The officers and employees of the Company are covered by an insurance
company blanket bond issued by National Union Fire Insurance Company of
Pittsburgh Pennsylvania to Indianapolis Life Insurance Company and its various
subsidiaries in the amount of twenty million dollars. The bond insures against
dishonest and fraudulent acts of officers and employees.
LEGAL MATTERS
All matters relating to Massachusetts law pertaining to the Contracts,
including the validity of the Contracts and the Company's authority to issue
the Contracts, have been passed upon by Margaret M. McKinney, Vice President,
Associate General Counsel and Secretary of the Company. Sutherland, Asbill &
Brennan of Washington, D.C. has provided advice on certain matters relating to
the federal securities laws.
12
<PAGE> 69
EXPERTS
The balance sheets of IL Annuity and Insurance Company as of December
31, 1995 and 1994, and the related statements of income, stockholder's equity,
and cash flows for the year ended December 31, 1995 and the two months ended
December 31, 1994, and the statement of net assets of IL Annuity and Insurance
Co. Separate Account 1 as of December 31, 1995, and the related statements of
operations and changes in net assets for the year then ended, appearing in this
Statement of Additional Information and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
the authority of such firm as experts in accounting and auditing.
OTHER INFORMATION
A registration statement has been filed with the SEC under the
Securities Act of 1933, as amended, with respect to the Contracts discussed in
this Statement of Additional Information. Not all the information set forth in
the registration statement, amendments and exhibits thereto has been included
in this Statement of Additional Information. Statements contained in this
Statement of Additional Information concerning the content of the Contracts and
other legal instruments are intended to be summaries. For a complete statement
of the terms of these documents, reference should be made to the instruments
filed with the SEC.
FINANCIAL STATEMENTS
13
<PAGE> 70
Financial Statements
IL Annuity and Insurance Company
Year ended December 31, 1995 and
Two Months Ended December 31, 1994
With Report of Independent Auditors
<PAGE> 71
IL Annuity and Insurance Company
Financial Statements
Year ended December 31, 1995 and Two Months
Ended December 31, 1994
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . 1
Audited Financial Statements
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . 3
Statements of Stockholder's Equity . . . . . . . . . . . . . . . . . . 4
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . 6
</TABLE>
<PAGE> 72
[ERNST & YOUNG LLP LETTERHEAD]
Report of Independent Auditors
Board of Directors
IL Annuity and Insurance Company
We have audited the accompanying balance sheets of IL Annuity and Insurance
Company, wholly owned by Indianapolis Life Group of Companies, Inc., (which is
wholly owned by Indianapolis Life Insurance Company), as of December 31, 1995
and 1994, and the related statements of income, stockholder's equity, and cash
flows for the year ended December 31, 1995 and the two months ended December
31, 1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of IL Annuity and Insurance
Company at December 31, 1995 and 1994, and the results of its operations and
its cash flows for the year ended December 31, 1995 and the two months ended
December 31, 1994 in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
March 22, 1996
1
<PAGE> 73
IL Annuity and Insurance Company
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
-------------------------------
<S> <C> <C>
ASSETS
Fixed maturity securities (Note 2) $6,478,844 $5,165,662
Cash 440,601 140,266
Accrued investment income 81,030 28,875
Prepaid expenses - 100,000
Goodwill, net of accumulated amortization of $127,769
in 1995 and $18,253 in 1994 2,062,550 2,172,066
Separate account assets 287,171 -
------------------------------
Total assets $9,350,196 $7,606,869
==============================
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Future policy benefit reserves $ 7,500 $ -
Payable to affiliate (Note 5) 89,437
Accounts payable and other liabilities 68,003 171
Federal income taxes (Note 3) - 9,395
Separate account liabilities 287,171 -
------------------------------
Total liabilities 452,111 9,566
Stockholder's equity (Note 4):
Common stock, $250 par value in 1995; $150
par value in 1994:
Authorized and issued--10,000 shares 2,500,000 1,500,000
Additional paid-in capital 6,762,659 6,112,659
Unrealized gains (losses) on investments 206,719 (32,908)
Retained earnings (deficit) (571,293) 17,552
------------------------------
Total stockholder's equity 8,898,085 7,597,303
------------------------------
Total liabilities and stockholder's equity $9,350,196 $7,606,869
==============================
</TABLE>
See accompanying notes.
2
<PAGE> 74
IL Annuity and Insurance Company
Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED TWO MONTHS ENDED
DECEMBER 31 1995 DECEMBER 31 1994
---------------- ----------------
<S> <C> <C>
Revenue:
Investment income $ 402,408 $47,728
Net realized capital gains 936 -
-----------------------------------
403,344 47,728
Expenses:
Commissions 17,044 -
General expenses and other 772,011 1,904
Taxes, licenses and fees 97,527 624
Amortization of goodwill 109,516 18,253
-----------------------------------
996,098 20,781
-----------------------------------
Income (loss) before federal income taxes (592,754) 26,947
Federal income taxes (benefit) (3,909) 9,395
-----------------------------------
Net income (loss) $(588,845) $17,552
===================================
</TABLE>
See accompanying notes.
3
<PAGE> 75
IL Annuity and Insurance Company
Statements of Stockholder's Equity
<TABLE>
<CAPTION>
UNREALIZED
ADDITIONAL GAINS RETAINED
COMMON PAID-IN (LOSSES) ON EARNINGS
STOCK CAPITAL INVESTMENTS (DEFICIT) TOTAL
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at November 1, 1994 $1,500,000 $6,112,659 $ - $ - $7,612,659
Net income - - - 17,552 17,552
Change in unrealized losses - - (32,908) - (32,908)
-------------------------------------------------------------------------
Balance at December 31, 1994 $1,500,000 $6,112,659 $(32,908) $ 17,552 $7,597,303
Net loss - - - (588,845) (588,845)
Capital contribution 1,000,000 650,000 - - 1,650,000
Change in unrealized gains - - 239,627 - 239,627
-------------------------------------------------------------------------
Balance at December 31, 1995 $2,500,000 $6,762,659 $206,719 $ (571,293) $8,898,085
=========================================================================
</TABLE>
See accompanying notes.
4
<PAGE> 76
IL Annuity and Insurance Company
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED TWO MONTHS ENDED
DECEMBER 31 1995 DECEMBER 31 1994
------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(588,845) $17,552
Adjustments to reconcile net income (loss) to net cash
used by operating activities:
Amortization of discount on investments (77,287) (10,386)
Amortization of goodwill 109,516 18,253
Changes in operating assets and liabilities:
Accrued investment income (52,155) 51,376
Prepaid expenses 100,000 (100,000)
Future policy benefit reserves 7,500 -
Accounts payable and accrued liabilities 157,269 171
Federal income taxes (9,395) 9,395
------------------------------------
Net cash used by operating activities (353,397) (13,639)
INVESTING ACTIVITIES
Sales and maturity of investments 5,247,404 -
Purchase of investments (6,243,672) (2,922,685)
------------------------------------
Net cash used for investing activities (996,268) (2,922,685)
FINANCING ACTIVITIES
Capital and surplus contributed by parent 1,650,000 -
------------------------------------
Net increase (decrease) in cash 300,335 (2,936,324)
Cash at beginning of period 140,266 3,076,590
------------------------------------
Cash at end of period $440,601 $140,266
====================================
</TABLE>
See accompanying notes.
5
<PAGE> 77
IL Annuity and Insurance Company
Notes to Financial Statements
December 31, 1995
1. ORGANIZATION, BASIS OF PRESENTATION AND ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
Effective November 1, 1994, Indianapolis Life Group of Companies, Inc. (ILGC),
a wholly owned subsidiary of Indianapolis Life Insurance Company, acquired all
of the outstanding stock of Sentry Investors Life Insurance Company (the
Company), a stock life insurance company wholly owned by the Sentry Life
Insurance Company (Sentry). Prior to the acquisition, Sentry entered into an
assumption reinsurance agreement with the Company whereby Sentry assumed all of
the insurance in-force and related assets and liabilities from the Company. The
effect of the reinsurance agreement was to transfer all of the insurance
related assets and liabilities to Sentry, leaving only bonds, cash and state
insurance department licenses to be acquired by ILGC. No business was issued by
the Company through December 31, 1994. The Company, when acquired by ILGC, was
accounted for using the purchase method of accounting which resulted in a new
basis of accounting for assets and liabilities of the Company using push down
accounting. Accordingly, only operations from the date of acquisition have
been presented for 1994. In January 1995, the name of the Company was changed
to IL Annuity and Insurance Company.
Preparation of the financial statements requires management to make estimates
and assumptions that effect amounts reported in the financial statements and
accompanying notes. Such estimates and assumptions could change in the future
as more information becomes known, which could impact the amounts reported and
disclosed herein.
ACCOUNTING POLICIES
FIXED MATURITY SECURITIES
Fixed maturity securities are classified as "available-for-sale" securities and
are reported at fair value. Fair values are based on quoted market prices. The
unrealized gains or losses on these securities are included as a separate
component of stockholder's equity unless there is deemed to be an other than
temporary decline in value, in which case the loss is charged to income.
6
<PAGE> 78
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
1. ORGANIZATION, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (CONTINUED)
CASH
Cash includes cash on hand and demand deposits.
GOODWILL
Goodwill is amortized over the period of 20 years using the straight-line
method.
FUTURE POLICY BENEFIT RESERVES
Future policy benefit reserves for annuity products represent policy account
balances before applicable surrender charges. Interest was credited on annuity
products at 5.5%. One annuity product was sold in late 1995.
SEPARATE ACCOUNTS
Separate account assets and liabilities represent funds that are separately
administered, principally for variable annuity contracts, and for which the
contractholder, rather than the Company, bears the investment risk. Separate
account contractholders have no claim against the assets of the general account
of the Company. Separate account assets are reported at market value. The
operations of the separate accounts are not included in the accompanying
financial statements.
REVENUE RECOGNITION
Revenue for annuity products will consist of policy charges for the cost of
insurance, policy administration charges, and surrender charges assessed
against policyholder account balances during the period.
FEDERAL INCOME TAXES
The Company files a stand-alone federal income tax return.
7
<PAGE> 79
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
2. FIXED MATURITY SECURITIES
Fixed maturity securities consist of United States government securities at
December 31.
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------------------------------------------------------
<S> <C> <C> <C> <C>
1995 $6,272,125 $206,719 $ _ $6,478,844
==============================================================
1994 $5,198,570 $ _ $32,908 $5,165,662
==============================================================
</TABLE>
Fixed maturity securities by date of scheduled maturity consist of the
following at December 31, 1995.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
----------------------------
<S> <C> <C>
Due in one year or less $3,522,746 $3,527,980
Due after one year through five years 992,125 1,914,891
Due after five years through ten years 1,728,336 1,003,010
Due after ten years 28,918 32,963
----------------------------
$6,272,125 $6,478,844
============================
</TABLE>
3. FEDERAL INCOME TAXES
Significant components of the provision for federal income taxes consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
--------------------------
<S> <C> <C>
Federal income taxes (benefit) at 35% $(207,464) $ 9,431
Effect of net operating loss 203,677 -
Other, net (122) (36)
--------------------------
Federal income taxes (benefit) $ (3,909) $ 9,395
==========================
</TABLE>
8
<PAGE> 80
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
3. FEDERAL INCOME TAXES (CONTINUED)
At December 31, 1995, the financial statements included deferred tax assets of
$219,527, offset by a valuation allowance of $131,326 and deferred tax
liabilities of $88,201. At December 31, 1994, the financial statements
included $3,969 of deferred tax liabilities. The significant components of the
Company's deferred tax assets and liabilities were net operating losses,
amortization of goodwill and bond discount and unrealized investment gains and
losses.
The deferred tax liability related to the net unrealized gains has been offset
by net operating losses for 1995, and the deferred tax asset related to the net
unrealized losses was fully reserved with a valuation allowance at December 31,
1994.
At December 31, 1995, the Company has unused federal tax net operating loss
carryforwards of $218,154, expiring in the year 2010.
4. STOCKHOLDER'S EQUITY
Massachusetts insurance regulations require the Company to maintain a minimum
capital and surplus of $1,200,000. Statutory capital and surplus at December
31, 1995 and 1994 was $6,705,332 and $5,367,711, respectively. Statutory net
income (loss) for 1995 and 1994 was $(489,852) and $601,876, respectively.
Generally, the maximum amount of dividends which can be paid to its stockholder
without prior approval of the Insurance Commissioner of the State of
Massachusetts is 10% of statutory surplus at the prior year end. In 1996, the
Company can pay dividends of $420,533 without prior approval of the Insurance
Commissioner.
5. RELATED PARTY TRANSACTIONS
The Company was allocated expenses of $607,027 from Indianapolis Life Insurance
Company for 1995, in conjunction with expense allocation agreements for various
administrative assistance.
9
<PAGE> 81
Financial Statements
IL Annuity and Insurance Co. Separate Account 1
Year ended December 31, 1995
with Report of Independent Auditors
<PAGE> 82
IL Annuity and Insurance Co. Separate Account 1
Financial Statements
Year ended December 31, 1995
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . 1
Audited Financial Statements
Statement of Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Statements of Changes in Net Assets . . . . . . . . . . . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>
<PAGE> 83
[ERNST & YOUNG LLP LETTERHEAD]
Report of Independent Auditors
Board of Directors
IL Annuity and Insurance Co.
We have audited the accompanying statement of net assets of IL Annuity and
Insurance Co. Separate Account 1 (the Account) as of December 31, 1995, and the
related statements of operations and changes in net assets for the year then
ended. These financial statements are the responsibility of the Account's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1995,
by correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of IL Annuity and Insurance Co.
Separate Account 1 at December 31, 1995, the results of its operations and
changes in its net assets for the year then ended in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
April 9, 1996
1
<PAGE> 84
IL Annuity and Insurance Co. Separate Account 1
Statement of Net Assets
December 31, 1995
<TABLE>
<CAPTION>
VALUE IN
ACCUMULATION UNITS IN
PERCENT OF PERIOD AND ACCUMULATION UNIT
NET ASSETS NET ASSETS PERIOD VALUE
-------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments at net asset value:
Alger American Fund:
Alger American Midcap Growth Fund--1,391.586
shares at $19.44 per share (cost--$26,716) 9.4% $ 27,052 2,764 $ 9.786
Alger Small Capitalization Fund--419.469 shares at
$39.41 per share (cost--$16,297) 5.8 16,531 1,709 9.675
Fidelity Variable Insurance Products Fund and Fund II:
Fidelity Asset Manager Fund--132.658 shares at
$15.79 per share (cost--$2,026) 0.7 2,095 255 8.224
Fidelity Contra Fund--4,196.803 shares at $13.78 per
share (cost--$57,463) 20.1 57,832 5,731 10.091
Fidelity Equity Income Fund--2,087.494 shares at
$19.27 per share (cost--$40,017) 14.0 40,226 3,789 10.616
Fidelity Growth Fund--723.135 shares at $29.20 per
share (cost--$20,983) 7.3 21,116 2,199 9.604
Fidelity Index 500 Fund--491.347 shares at $75.71 per
share (cost--$37,081) 13.0 37,200 3,538 10.514
Fidelity Investment Grade Bond Fund--1,369.377
shares at $12.48 per share (cost--$17,049) 6.0 17,090 1,668 10.247
Quest for Value Accumulation Trust:
Quest Managed Fund--55.472 shares at $30.14 per
share (cost--$1,641) 0.6 1,672 161 10.380
Quest Small Capitalization Fund--616.496 shares at
$19.91 per share (cost--$12,157) 4.3 12,274 1,182 10.388
T. Rowe Price International Series, Inc.:
T. Rowe Price International Stock Fund--2,341.482
shares at $11.33 per share (cost--$26,272) 9.2 26,529 2,530 10.487
T. Rowe Price Fixed Income Series, Inc.:
T. Rowe Price Limited-term Bond Fund--2,953.6
shares at $5.05 per share (cost--$14,915) 5.2 14,916 1,485 10.042
Van Eck Investment Trust:
Van Eck Gold and Natural Resources Fund--42.41
shares at $14.42 per share (cost--$613) 0.2 612 58 10.621
Van Eck Worldwide Balanced Fund--1,203.866 shares
at $9.99 per share (cost--$12,015) 4.2 12,026 1,201 10.010
---------------------------
Total investments and net assets (cost--$285,245) 100.0% $287,171
===========================
</TABLE>
See accompanying notes.
2
<PAGE> 85
IL Annuity and Insurance Co. Separate Account 1
Statement of Operations
Year ended December 31, 1995
<TABLE>
<CAPTION>
ALGER FIDELITY
AMERICAN ALGER SMALL ASSET FIDELITY FIDELITY FIDELITY
MIDCAP GROWTH CAPITALIZATION MANAGER CONTRA EQUITY GROWTH
COMBINED FUND FUND FUND FUND INCOME FUND FUND
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dividend income $ 9 $ - $ - $ - $ 9 $ - $ -
Mortality and expense
charges (8) (3) (1) - - - -
Net realized gain on
investments 18 - - - 18 - -
Net change in unrealized
appreciation on investments 1,926 336 234 69 369 209 133
------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from
operations $1,945 $333 $233 $ 69 $ 396 $ 209 $ 133
================================================================================================
</TABLE>
3
<PAGE> 86
IL Annuity and Insurance Co. Separate Account 1
Statement of Operations (continued)
<TABLE>
<CAPTION>
FIDELITY T. ROWE PRICE
FIDELITY INDEX INVESTMENT GRADE QUEST MANAGED QUEST SMALL INTERNATIONAL
500 FUND BOND FUND FUND CAPITALIZATION FUND STOCK FUND
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dividend income $ - $ - $ - $ - $ -
Mortality and expense charges - - (1) (1) -
Net realized gain on investments - - - - -
Net change in unrealized
appreciation (depreciation)
on investments 119 41 31 117 257
-------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from
operations $ 119 $ 41 $ 30 $ 116 $257
=====================================================================================
</TABLE>
<TABLE>
<CAPTION>
T. ROWE PRICE VAN ECK GOLD AND VAN ECK
LIMITED-TERM NATURAL WORLDWIDE
BOND FUND RESOURCES FUND BALANCED FUND
----------------------------------------------------
<S> <C> <C> <C>
Dividend income $ - $ - $ -
Mortality and expense charges - - (2)
Net realized gain on investments - - -
Net change in unrealized
appreciation (depreciation)
on investments 1 (1) 11
----------------------------------------------------
Net increase (decrease) in net
assets resulting from
operations $ 1 $ (1) $ 9
====================================================
</TABLE>
See accompanying notes.
4
<PAGE> 87
IL Annuity and Insurance Co. Separate Account 1
Statements of Changes in Net Assets
Year ended December 31, 1995
<TABLE>
<CAPTION>
ALGER AMERICAN ALGER SMALL
MIDCAP GROWTH CAPITALIZATION FIDELITY ASSET FIDELITY CONTRA
COMBINED FUND FUND MANAGER FUND FUND
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Changes from operations:
Dividend income $ 9 $ - $ - $ - $ 9
Mortality and expense charges (8) (3) (1) - -
Net realized gain on investments 18 - - - 18
Net change in unrealized
appreciation (depreciation) on
investments 1,926 336 234 69 369
---------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 1,945 333 233 69 396
Net increase from contract purchases 285,226 26,719 16,298 2,026 57,435
---------------------------------------------------------------------------------
Total increase (decrease) in net assets 287,171 27,052 16,531 2,095 57,831
---------------------------------------------------------------------------------
Net assets at December 31, 1995 $287,171 $27,052 $16,531 $2,095 $57,831
=================================================================================
</TABLE>
<TABLE>
<CAPTION>
FIDELITY EQUITY FIDELITY
INCOME FUND GROWTH FUND
------------------------------
<S> <C> <C>
Changes from operations:
Dividend income $ - $ -
Mortality and expense charges - -
Net realized gain on investments - -
Net change in unrealized
appreciation (depreciation) on
investments 209 133
------------------------------
Net increase (decrease) in net assets
resulting from operations 209 133
Net increase from contract purchases 40,017 20,983
------------------------------
Total increase (decrease) in net assets 40,226 21,116
------------------------------
Net assets at December 31, 1995 $40,226 $21,116
==============================
</TABLE>
See accompanying notes.
5
<PAGE> 88
IL Annuity and Insurance Co. Separate Account 1
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
FIDELITY QUEST SMALL T. ROWE PRICE
FIDELITY INDEX INVESTMENT GRADE QUEST MANAGED CAPITALIZATION INTERNATIONAL
500 FUND BOND FUND FUND FUND STOCK FUND
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Changes from operations:
Dividend income $ - $ - $ - $ - $ -
Mortality and expense charges - - (1) (1) -
Net realized gain on investments - - - - -
Net change in unrealized
appreciation (depreciation) on
investments 119 41 31 117 257
-----------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 119 41 30 116 257
Net increase from contract purchases 37,081 17,049 1,642 12,158 26,272
-----------------------------------------------------------------------------------
Total increase (decrease) in net assets 37,200 17,090 1,672 12,274 26,529
-----------------------------------------------------------------------------------
Net assets at December 31, 1995 $37,200 $17,090 $1,672 $12,274 $26,529
===================================================================================
</TABLE>
<TABLE>
<CAPTION>
T. ROWE PRICE VAN ECK GOLD AND VAN ECK
LIMITED-TERM NATURAL WORLDWIDE
BOND FUND RESOURCES FUND BALANCED FUND
----------------------------------------------------
<S> <C> <C> <C>
Changes from operations:
Dividend income $ - $ - $ -
Mortality and expense charges - - (2)
Net realized gain on investments - - -
Net change in unrealized
appreciation (depreciation) on
investments 1 (1) 11
----------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 1 (1) 9
Net increase from contract purchases 14,915 613 12,018
----------------------------------------------------
Total increase (decrease) in net assets 14,916 612 12,027
----------------------------------------------------
Net assets at December 31, 1995 $ 14,916 $ 612 $12,027
====================================================
</TABLE>
See accompanying notes.
6
<PAGE> 89
IL Annuity and Insurance Co. Separate Account 1
Notes to Financial Statements
December 31, 1995
1. ACCOUNTING POLICIES
THE ACCOUNT
IL Annuity and Insurance Co. Separate Account 1 (the Account) is a segregated
investment account of the IL Annuity and Insurance Company (the Company) and is
registered under the Investment Company Act of 1940, as amended, as a unit
investment trust. The Account was established under Massachusetts law on
November 1, 1994 and commenced operations in November, 1995.
INVESTMENTS
The Account invests in the following Funds:
Alger American Fund--Midcap Growth Fund, Small Capitalization Fund
Fidelity Variable Insurance Products Fund and Fund II--Asset Manager Fund,
Contra Fund, Equity Income Fund, Growth Fund, Index 500 Fund, Investment
Grade Bond Fund
Quest for Value Accumulation Trust--Managed Fund, Small Capitalization Fund
T. Rowe Price International Series, Inc.--International Stock Fund
T. Rowe Price Fixed Income Series, Inc.--Limited-term Bond Fund
Van Eck Investment Trust--Gold and Natural Resources Fund, Worldwide
Balanced Fund
Investments in Funds are stated at the closing net asset value per share on
December 31, 1995.
Investment transactions are accounted for on a trade date basis and the cost of
investments sold is determined by the average cost method.
DIVIDENDS
Dividends paid to the Account are automatically reinvested in shares of the
Funds on the payable date.
7
<PAGE> 90
IL Annuity and Insurance Co. Separate Account 1
Notes to Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
FEDERAL INCOME TAXES
Operations of the Account form a part of, and are taxed with, operations of the
Company, which is taxed as a "life insurance company" as defined by the
Internal Revenue Code. Using current law, no federal income taxes are payable
with respect to the Account's net investment income and the net realized gain
on investments.
2. MORTALITY AND EXPENSE GUARANTEES AND OTHER TRANSACTIONS WITH AFFILIATE
Amounts are paid to the Company for mortality and expense guarantees at the
rate of 0.003404% of the current value of the Account per day (1.25% on an
annual basis). The Account also pays the Company for other expenses such as
contract fees ($7.50 per contract at the end of each quarter), and asset-based
administration and investment advisory fees (.15% on an annual basis).
Accordingly, the Company is responsible for all sales, general and
administrative expenses applicable to the Account.
3. PURCHASES AND SALES OF SECURITIES
The aggregate cost of investments purchased and sold were as follows:
<TABLE>
<CAPTION>
AGGREGATE COST OF
PURCHASES SALES
--------------------------
<S> <C> <C>
Alger American Midcap Growth Fund $ 28,694 $ 1,978
Alger Small Capitalization Fund 16,298 1
Fidelity Asset Manager Fund 4,030 2,004
Fidelity Contra Fund 59,468 2,005
Fidelity Equity Income Fund 40,017 -
Fidelity Growth Fund 22,984 2,001
Fidelity Index 500 Fund 37,081 -
Fidelity Investment Grade Bond Fund 17,049 -
Quest Managed Fund 1,641 -
Quest Small Capitalization Fund 14,181 2,024
T. Rowe Price International Stock Fund 26,272 -
T. Rowe Price Limited-term Bond Fund 14,915 -
Van Eck Gold and Natural Resources Fund 613 -
Van Eck Worldwide Balanced Fund 13,018 1,003
--------------------------
$296,261 $11,016
==========================
</TABLE>
8
<PAGE> 91
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
All required financial statements are included in Part B of this
Registration Statement.
(b) Exhibits
(1) Certified resolution of the Board of Directors of IL Annuity
and Insurance Company (the "Company") authorizing
establishment of IL Annuity and Insurance Co. Separate Account
1 (the "Separate Account").(1/)
(2) Not applicable.
(3) (a) Form of Distribution Agreement among the Company, the
Separate Account and IL Securities, Inc. ("IL
Securities").(2/)
(b) Form of Sales Agreement among the Company, IL
Securities, Inc. and a broker-dealer.(2/)
(4) (a) Form of Flexible Premium Deferred Variable Annuity
Contract.(2/)
(b) Form of Qualified Plan Endorsement, IRA Endorsement,
Endorsement for Qualified 403(b) Annuity, Unisex
Rider, Additional Waiver of Withdrawal Charge Rider -
Hospitalization, Additional Waiver of Withdrawal
Charge Rider - Terminal Illness, Additional Waiver of
Withdrawal Charge Rider - Long Term Care, Additional
Waiver of Withdrawal Charge Rider - Post Secondary
Education.(1/)
(5) Form of Application for Flexible Premium Variable Annuity.(2/)
(6) (a) Articles of Incorporation of IL Annuity and Insurance
Company.(1/)
(b) By-Laws of IL Annuity and Insurance Company.(1/)
(7) Not Applicable.
(8) (a) Form of Participation Agreement between Fidelity
Variable Insurance Products Fund and IL Annuity and
Insurance Company.(2/)
(b) Form of Participation Agreement between Fidelity
Variable Insurance Products Fund II and IL Annuity
and Insurance Company.(2/)
(c) Form of Participation Agreement between Van Eck
Investment Trust and IL Annuity and Insurance
Company.(2/)
<PAGE> 92
(d) Form of Participation Agreement between T. Rowe Price
International Series, Inc. and IL Annuity and
Insurance Company.(2/)
(e) Form of Participation Agreement between T. Rowe Price
Fixed Income Series, Inc. and IL Annuity and
Insurance Company.(2/)
(f) Form of Participation Agreement between Quest for
Value Accumulation Trust and IL Annuity and Insurance
Company.(2/)
(g) Form of Participation Agreement between The Alger
American Fund and IL Annuity and Insurance
Company.(2/)
(h) Form of Services Agreement between Financial
Administration Services, Inc. and IL Annuity and
Insurance Company.(2/)
(9) Opinion and Consent of Margaret M. McKinney, Esquire.(1/)
(10) (a) Consent of Sutherland, Asbill & Brennan.(3/)
(b) Consent of Ernst & Young LLP.(3/)
(11) No financial statements will be omitted from Item 23.
(12) Not applicable.
(13) Not applicable.
(14) Not applicable.
(15) Powers of Attorney.(1/ 3/)
- ------------------------
(1/) Incorporated by reference to the like-numbered exhibit to the initial
filing of this Form N-4 Registration Statement of IL Annuity and Insurance Co.
Separate Account 1, File No. 33-89028 (January 31, 1995).
(2/) Incorporated by reference to the like-numbered exhibit to
Pre-Effective Amendment No. 1 to this Form N-4 Registration Statement of IL
Annuity and Insurance Co. Separate Account 1, File No. 33-89028 (August 29,
1995).
(3/) Filed herewith.
- C-2 -
<PAGE> 93
ITEM 25. DIRECTORS AND OFFICERS OF IL ANNUITY AND INSURANCE COMPANY
<TABLE>
<CAPTION>
Name and Principal Business Address* Position and Office with Depositor
- ------------------------------------ ----------------------------------
<S> <C>
Larry R. Prible Chairman of the Board and Director
Gregory J. Carney President, Chief Executive Officer and
Director
Margaret M. McKinney Secretary and Director
William L. Boyd Director
John J. Fahrenbach Director
Garrett P. Ryan Director
Gene E. Trueblood Treasurer
Rebecca Rissen Assistant Secretary
- -----------
</TABLE>
* Unless otherwise indicated, the principal business address is 2960 North
Meridian Street, Indianapolis, Indiana 46208.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE
DEPOSITOR OR REGISTRANT
<TABLE>
<CAPTION>
Percent of Voting
Name Jurisdiction Securities Owned Principal Business
- ---- ------------ ------------------ ------------------
<S> <C> <C> <C>
Indianapolis Life Indiana Mutual Company Life & Health Insurance
Insurance Company*
("Indianapolis Life")
The Indianapolis Life Group Indiana All voting securities Holding Company
of Companies, Inc. owned by Indianapolis
("The Indianapolis Group") Life
IL Securities, Inc.* Indiana All voting securities Broker/Dealer
owned by The
Indianapolis Group
IL Term Insurance Company* Indiana All voting securities Life & Health Insurance
owned by The
Indianapolis Group
Bankers Life Insurance New York All voting securities Life & Health Insurance
Company of New York* owned by The
Indianapolis Group
Western Security Life Arizona All voting securities Life & Health Insurance
Insurance Company* owned by Indianapolis
Life
</TABLE>
- ----------
* File Separate Financial Statements.
- C-3 -
<PAGE> 94
ITEM 27. NUMBER OF CONTRACTOWNERS
As of March 1, 1996, there were a total of 37 Contracts in force -- 24
non-qualified and 13 qualified.
ITEM 28. INDEMNIFICATION
The By-Laws of IL Annuity and Insurance Company provide, in Article X,
as follows:
ARTICLE X
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Any director or officer or his legal representative shall be
indemnified by the Company against reasonable expenses including the
cost of any settlement and counsel fees paid or incurred in connection
with any action, suit or proceeding to which any such director or
officer or his legal representative may be made a party by reason of
his being or having been such director or officer, provided it shall
not be determined by a final determination thereof on the merits that
such director or officer was in any substantial way derelict in the
performance of his duties, or provided that such action, suit or
proceeding shall be settled without a final determination on the
merits and it shall be determined that such officer or director had
not in any substantial way been derelict in the performance of his
duties as charged therein, such determination to be made by a majority
of the members of the Board of Directors who were not parties to such
action, suit or proceedings, though less than a quorum, or by any one
or more disinterested persons to whom the question may be referred by
the Board of Directors. The foregoing right of indemnification shall
not be exclusive of any other rights to which any director or officer
may be entitled as a matter of law or which may be lawfully granted to
him.
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.
- C-4 -
<PAGE> 95
ITEM 29. PRINCIPAL UNDERWRITER
(a) IL Securities is the registrant's principal underwriter.
(b) Officers and Directors of IL Securities, and their addresses, are as
follows:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* With the Underwriter with Registrant
- ------------------ --------------------- ---------------
<S> <C> <C>
Larry R. Prible Chairman of the Board Chairman of the Board
Gregory J. Carney President, Chief Executive President, Chief Executive
Officer and Director Officer and Director
Margaret M. McKinney Secretary and Director Secretary and Director
William L. Boyd Director Director
John J. Fahrenbach Director Director
Garrett P. Ryan Director Director
Joe C. Lowe Vice-President None
Gene E. Trueblood Treasurer Treasurer
</TABLE>
- ------------
* All of the persons listed above have as their principal business address:
P.O. Box 1230, 2960 North Meridian Street, Indianapolis, Indiana 46208.
(c)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Name of Net Underwriting
Principal Discounts and Compensation on Brokerage
Underwriter Commissions Redemption Commissions Compensation
- ----------- ----------- --------------- ------------- ------------
<S> <C> <C> <C> <C>
IL Securities, Inc. 0 0 0 $2,900.68
</TABLE>
Commissions are paid by the Company directly to agents who are registered
representatives of the principal underwriter, or to broker-dealers that have
entered into a selling agreement with the principal underwriter, or broker
dealers having selling agreements with such broker-dealers with respect to the
sales of the Contracts.
ITEM 30. LOCATION OF BOOKS AND RECORDS
All of the accounts, books, records or other documents required to be
kept by Section 31(a) of the Investment Company Act of 1940 and rules
thereunder, are maintained by IL Annuity and Insurance Company at its home
office and by Financial Administrative Services, Inc., 95 Bridge Street,
Haddam, Connecticut 06438.
- C-5 -
<PAGE> 96
ITEM 31. MANAGEMENT SERVICES
All management contracts are discussed in Part A or Part B of this
registration statement.
ITEM 32. UNDERTAKINGS AND REPRESENTATIONS
(a) The registrant undertakes that it will 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 as long as purchase payments under the contracts offered
herein are being accepted.
(b) The registrant undertakes that it will 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 post card or
similar written communication affixed to or included in the
prospectus that the applicant can remove and send to IL
Annuity and Insurance Company for a statement of additional
information.
(c) The registrant undertakes to deliver any statement of
additional information and any financial statements required
to be made available under this Form N-4 promptly upon written
or oral request to the Company at the address or phone number
listed in the prospectus.
(d) The Company represents that in connection with its offering of
the contracts as funding vehicles for retirement plans meeting
the requirements of Section 403(b) of the Internal Revenue
Code of 1986, it is relying on a no-action letter dated
November 28, 1988, to the American Council of Life Insurance
(Ref. No. IP-6-88) regarding Sections 22(e), 27(c)(1), and
27(d) of the Investment Company Act of 1940, and that
paragraphs numbered (1) through (4) of that letter will be
complied with.
- C-6 -
<PAGE> 97
As required by the Securities Act of 1933 and the Investment Company
Act of 1940, the Registrant, IL Annuity and Insurance Co. Separate Account 1,
certifies that it meets the requirements of Securities Act Rule 485(b) for
effectiveness of this registration statement and has caused this Post-Effective
Amendment No. 1 to its registration statement to its to be signed on its
behalf, in the City of Indianapolis, and the State of Indiana, on this 26th day
of April, 1996.
IL ANNUITY AND INSURANCE CO.
SEPARATE ACCOUNT 1 (Registrant)
Attest: /s/ Margaret M. McKinney By: /s/ Gregory J. Carney
------------------------ ---------------------
Margaret M. McKinney Gregory J. Carney
President
By: IL ANNUITY AND INSURANCE
COMPANY (Depositor)
Attest: /s/ Margaret M. McKinney By: /s/ Gregory J. Carney
------------------------ ---------------------
Margaret M. McKinney Gregory J. Carney
President
As required by the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the duties
indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman of the Board and April 26, 1996
- --------------------------- Director
Larry R. Prible
* President, Chief Executive April 26, 1996
- --------------------------- Officer and Director
Gregory J. Carney
* Treasurer April 26, 1996
- --------------------------- (Principal Financial Officer)
Gene E. Trueblood
* Comptroller April 26, 1996
- --------------------------- (Chief Accounting Officer)
Richard G. Darragh
</TABLE>
<PAGE> 98
<TABLE>
<S> <C>
* Secretary and Director April 26, 1996
- ---------------------------
Margaret M. McKinney
* Director April 26, 1996
- ---------------------------
William L. Boyd
* Director April 26, 1996
- ---------------------------
John J. Fahrenbach
* Director April 26, 1996
- ---------------------------
Garrett P. Ryan
/s/ Margaret M. McKinney *On April 26, 1996, as Attorney-in-Fact pursuant to powers of attorney previously
- -------------------------- filed and filed herewith, and in her own capacity as Secretary and Director.
* By Margaret M. McKinney
</TABLE>
<PAGE> 99
EXHIBIT INDEX
(10) (a) Consent of Sutherland, Asbill & Brennan.
(b) Consent of Ernst & Young LLP.
(15) Power of Attorney
<PAGE> 1
Exhibit 10(a)
April 26, 1996
Board of Directors
IL Annuity and Insurance Company
2960 North Meridian Street
Indianapolis, Indiana 46208
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption
"Legal Matters" in the Statement of Additional Information filed as part of the
Post-Effective Amendment No. 1 to the registration statement on Form N-4 for IL
Annuity and Insurance Co. Separate Account 1. In giving this consent, we do
not admit that we are in the category of the persons whose consent is required
under Section 7 of the Securities Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN
By: /s/ Stephen E. Roth
----------------------------
Stephen E. Roth
<PAGE> 1
Exhibit 10(b)
[ERNST & YOUNG LLP LETTERHEAD]
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated March 22, 1996 and April 9, 1996, in Post Effective
Amendment No. 1 to the Registration Statement (Form N-4 No. 33-89028) and
related Statement of Additional Information of IL Annuity and Insurance Co.
Separate Account 1 dated April 26, 1996.
/s/ ERNST & YOUNG LLP
April 26, 1996
<PAGE> 1
EXHIBIT 15
POWER OF ATTORNEY
I, the undersigned, Richard G. Darragh, Comptroller of IL Annuity
and Insurance Company, a Massachusetts corporations, does hereby constitute and
appoint Margaret M. McKinney, as my true and lawful attorney, with full power
to her to sign for me and in my name and in the capacity indicated below, the
Registration Statements filed with the Securities and Exchange Commission for
the purpose of registering IL Annuity and Insurance Company Separate Account 1,
established by IL Annuity and Insurance Company on November 1, 1994 as a unit
investment trust under the Investment Company Act of 1940 and the variable
annuity contracts issued by said separate account under the Securities Act of
1933, and any and all amendments thereto, hereby ratifying and confirming my
signature as it may be signed by my said attorney to said Registration
Statements and any and all amendments thereto.
Witness my hand on the date set forth below.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Richard G. Darragh Comptroller April 15, 1996
- ----------------------
Richard G. Darragh
</TABLE>
