<PAGE> 1
As filed with the Securities and Exchange Commission on August 8, 1997
Registration Nos. 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. 5 [x]
-----
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 6 [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>
<CAPTION>
Name and Address of Agent for Service: Copy to:
<S> <C>
Margaret M. McKinney, Esq. Stephen E. Roth, Esquire
Vice President, General Counsel and Secretary Sutherland, Asbill & Brennan LLP
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, 1996 was filed with the Commission on February 23,
1997.
-------------------
It is proposed that this filing will become effective:
[x] immediately upon filing pursuant to paragraph (b) of Rule
485
[ ] on ________________ pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a) of Rule
485
[ ] on _____________ 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> <C>
1. Cover Page . . . . . . . . . . . . . . . . . . . . . . . . . . Cover Page
2. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . Definitions
3. Synopsis . . . . . . . . . . . . . . . . . . . . . . . . . . . Fee Table; Summary
4. Condensed Financial
Information . . . . . . . . . . . . . . . . . . . . . . . . . Appendix I: Condensed Financial Information;
How to Review Investment Performance of the
Variable Accounts
5. General Description of Registrant,
Depositor and Portfolio Companies
(a) Depositor . . . . . . . . . . . . . . . . . . . . . . . About IL Annuity and Insurance Company
(b) Registrant . . . . . . . . . . . . . . . . . . . . . . . IL Annuity and Insurance Co. Separate Account 1
(c) Portfolio Company . . . . . . . . . . . . . . . . . . . The Portfolios
(d) Fund Prospectus . . . . . . . . . . . . . . . . . . . . The Portfolios
(e) Voting Rights . . . . . . . . . . . . . . . . . . . . . Voting Rights
(f) Administrators . . . . . . . . . . . . . . . . . . . . . N/A
6. Deductions and Expenses
(a) General . . . . . . . . . . . . . . . . . . . . . . . . Fees and Charges; Summary
(b) Sales Load . . . . . . . . . . . . . . . . . . . . . . . Fees and Charges; Summary
(c) Special Purchase Plan . . . . . . . . . . . . . . . . . Fees and Charges
(d) Commissions . . . . . . . . . . . . . . . . . . . . . . Other Information
(e) Expenses - Registrant . . . . . . . . . . . . . . . . . Fees and Charges; Summary
(f) Fund Expenses . . . . . . . . . . . . . . . . . . . . . Fees and Charges
(g) Organizational Expenses . . . . . . . . . . . . . . . . N/A
7. Contracts
(a) Persons with Rights . . . . . . . . . . . . . . . . . Summary; The Portfolios; The Pay-In Period, Payout
Period; Voting Rights; Death Benefit
(b) (i) Allocation of
Premium Payments . . . . . . . . . . . . . . . Summary; Pay-In Period; Other Information
(ii) Transfers . . . . . . . . . . . . . . . . . . . Summary; Transfers
(iii) Exchanges . . . . . . . . . . . . . . . . . . . Transfers
(c) Changes . . . . . . . . . . . . . . . . . . . . . . . The Portfolios; Other Information
(d) Inquiries . . . . . . . . . . . . . . . . . . . . . . Cover page; Other Information
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Item of Form N-4 Prospectus Caption
- ---------------- ------------------
<S> <C> <C>
8. Annuity Period . . . . . . . . . . . . . . . . . . . . Summary; Payout Period
9. Death Benefit . . . . . . . . . . . . . . . . . . . . Death Benefits
10. Purchases and Contract Value
(a) Purchases . . . . . . . . . . . . . . . . . . . . . . Summary; Transfers; Pay-In Period
(b) Valuation . . . . . . . . . . . . . . . . . . . . . . Definitions; Pay-In Period
(c) Daily Calculation . . . . . . . . . . . . . . . . . . Definitions; Pay-In Period
(d) Underwriter . . . . . . . . . . . . . . . . . . . . . Other Information
11. Redemptions
(a) - By Owners . . . . . . . . . . . . . . . . . . . . . Summary; Transfers; Withdrawals; Payout
Period; Federal Tax Matters
- By Annuitant . . . . . . . . . . . . . . . . . . . . Summary; Transfers; Withdrawals; Payout
Period; Federal Tax Matters
(b) Texas ORP . . . . . . . . . . . . . . . . . . . . . . Withdrawals
(c) Check Delay . . . . . . . . . . . . . . . . . . . . . Other Information
(d) Lapse . . . . . . . . . . . . . . . . . . . . . . . . Contract Loans
(e) Free Look . . . . . . . . . . . . . . . . . . . . . . Summary; Pay-In 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
PART B
<TABLE>
<CAPTION>
ITEM OF FORM N-4 STATEMENT OF ADDITIONAL INFORMATION CAPTION
<S> <C> <C>
15. Cover Page . . . . . . . . . . . . . . . . . . . . . . . . . . Cover Page
16. Table of Contents . . . . . . . . . . . . . . . . . . . . . . Table of Contents
17. General Information and
History . . . . . . . . . . . . . . . . . . . . . . . . . . . About IL Annuity and Insurance Company; IL
Annuity and Insurance Co. Separate Account 1;
the Portfolios (Prospectus)
18. Services
(a) Fees and Expenses of
Registrant . . . . . . . . . . . . . . . . . . . . . . . Fees and Charges (Prospectus)
(b) Management Contracts . . . . . . . . . . . . . . . . . . Termination of Participation Agreements
(c) Custodian . . . . . . . . . . . . . . . . . . . . . . . Safekeeping of Account Assets
Independent
Auditors . . . . . . . . . . . . . . . . . . . . . . . . Experts
(d) Assets of Registrant . . . . . . . . . . . . . . . . . . About IL Annuity and Insurance Co. Separate
Account 1 (Prospectus)
(e) Affiliated Persons . . . . . . . . . . . . . . . . . . . About IL Annuity and Insurance Company
(Prospectus)
(f) Principal Underwriter . . . . . . . . . . . . . . . . . Distribution of the Contracts
19. Purchase of Securities
Being Offered . . . . . . . . . . . . . . . . . . . . . Distribution of the Contracts
Offering Sales Load . . . . . . . . . . . . . . . . . . N/A
20. Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . Distribution of the Contracts
21. Calculation of Performance
Data . . . . . . . . . . . . . . . . . . . . . . . . . . Calculation of Historical Performance Data; How
to Review Investment Performance of the
Variable Accounts (Prospectus)
22. Annuity Payments . . . . . . . . . . . . . . . . . . . . . . . Variable Annuity Payments; Payout Period
(Prospectus)
23. Financial Statements . . . . . . . . . . . . . . . . . . . . . Financial Statements
</TABLE>
<PAGE> 5
PART C -- OTHER INFORMATION
<TABLE>
<CAPTION>
ITEM OF FORM N-4 PART C CAPTION
<S> <C> <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
IL ANNUITY AND INSURANCE CO. SEPARATE ACCOUNT I
VISIONARY VARIABLE ANNUITY
PROSPECTUS DATED MAY 1, 1997
This document is incorporated by reference to the Prospectus
filed with Post-Effective Amendment No. 4 to the Registration
Statement on Form N-4 of IL Annuity and Insurance Co. Separate
Account 1, File No. 33-89028 (April 28, 1997).
<PAGE> 7
PROSPECTUS FOR THE
VISIONARY CHOICE
FLEXIBLE PREMIUM INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACT
ALSO KNOWN AS
MODIFIED SINGLE PREMIUM INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACT
Issued by
IL ANNUITY AND INSURANCE COMPANY
2960 North Meridian Street
Indianapolis, Indiana 46208
Telephone: (317) 927-6500
(888) 232-6486
This prospectus describes the VISIONARY CHOICE variable annuity, an
individual deferred variable annuity contract (the "Contract") being offered by
IL Annuity and Insurance Company (the "Company," "we," "us," or "our"). Under
the terms of the Contract, we promise to pay the Annuitant a series of income
payments in the form of annuity payments starting on the Annuity Start Date you
choose. (You will be the Annuitant unless you state otherwise.) Until the
Annuity Start Date, the Contract is in the Pay-in Period and allows you to
accumulate assets on a tax-deferred basis for retirement and other long-term
purposes. VISIONARY CHOICE may be available to you when you participate in a
retirement plan that qualifies for deferral of federal income taxes.
Non-Qualified Contracts are also available.
You may direct your Premium Payments, as well as any value accumulated
under your Contract, to one or more of 19 Variable Accounts of the IL Annuity
and Insurance Co. Separate Account 1 (the "Separate Account") and/or to the
Fixed Account. The money you place in the Fixed Account will earn interest at a
rate guaranteed by the Company to equal or exceed 3% annually. The money you
place in a Variable Account will be invested solely in an investment portfolio
("Portfolio") of a mutual fund ("Fund"). The value of the assets you place in
the Variable Accounts will vary according to the investment performance of the
Portfolios. Currently you may choose among 19 Portfolios of 10 Funds:
The Alger American Fund:
MidCap Growth Portfolio and Small Capitalization Portfolio
Fidelity Variable Insurance Products ("VIP") Fund and Fidelity VIP
Fund II:
Equity-Income Portfolio, Growth Portfolio, Money Market Portfolio,
Asset Manager Portfolio, Contrafund Portfolio, Index 500 Portfolio
and Investment Grade Bond Portfolio
OCC Accumulation Trust:
Managed Portfolio and Small Cap Portfolio
Royce Capital Fund:
Royce Micro-Cap Portfolio
SAFECO Resources Series Trust:
SAFECO Equity Portfolio and SAFECO Growth Portfolio
SoGen Variable Funds, Inc.:
SoGen Overseas Variable 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:
Worldwide Hard Assets Portfolio (formerly Gold and Natural Resources
Portfolio) and Worldwide Balanced Portfolio
<PAGE> 8
You bear the entire investment risk on the assets you place in the Variable
Accounts. This means that, depending on market conditions, you may increase or
lose the principal you have invested in any of these Portfolios.
With the VISIONARY CHOICE, you choose one of two withdrawal charge options
at the time you complete your application. You also choose, at no additional
charge, either an enhanced death benefit option or a living benefit option. And,
if your initial Premium Payment is $100,000 or more, you may choose one of two
free withdrawal options on your application. ONCE YOU CHOOSE YOUR OPTIONS, YOU
MAY NOT CHANGE THEM.
THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE FUNDS.
This prospectus contains important information about the Contract and the
Separate Account that you should know before investing. Additional information
about the Contract and the Separate Account is contained in the Statement of
Additional Information ("SAI") that has been filed with the Securities and
Exchange Commission. The SAI has the same date as this prospectus and is legally
a part of this prospectus. The table of contents for the SAI is on page of this
prospectus. You may obtain a free copy of the SAI by writing to us at the
address shown above or by calling 1-888-232-6486.
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.
The Contract is not available in all states.
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 possible loss of Premium Payments.
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 August 8, 1997
ii
<PAGE> 9
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DEFINITIONS........................................................................... 2
FEE TABLE............................................................................. 5
SUMMARY OF THE VISIONARY CHOICE CONTRACT.............................................. 12
ABOUT IL ANNUITY AND THE SEPARATE ACCOUNT............................................. 16
THE PORTFOLIOS........................................................................ 17
THE PAY-IN PERIOD..................................................................... 21
TRANSFERS BETWEEN INVESTMENT OPTIONS.................................................. 23
FEES AND CHARGES...................................................................... 25
THE PAYOUT PERIOD..................................................................... 29
WITHDRAWAL OF CONTRACT VALUE.......................................................... 31
CONTRACT LOANS........................................................................ 32
DEATH BENEFITS........................................................................ 33
THE LIVING BENEFIT.................................................................... 35
THE FIXED ACCOUNT..................................................................... 37
HOW TO REVIEW INVESTMENT PERFORMANCE OF THE VARIABLE ACCOUNTS......................... 39
VOTING RIGHTS......................................................................... 41
FEDERAL TAX MATTERS................................................................... 41
OTHER INFORMATION..................................................................... 46
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION.......................... 49
APPENDIX I: CONDENSED FINANCIAL INFORMATION........................................... A-1
</TABLE>
1
<PAGE> 10
DEFINITIONS
ACCUMULATION UNIT -- An accounting measure we use to calculate the value of a
Variable Account during the Pay-in Period.
ANNUITANT -- You are the Annuitant, unless you state otherwise in your
application. The Annuitant is the person or persons whose life (or lives)
determines the dollar amount of the annuity payments that will be paid under the
Contract. If the Annuitant dies before the Annuity Start Date, we will pay a
death benefit. The maximum number of joint annuitants is two. Provisions
referring to the death of an Annuitant mean the death of the last surviving
Annuitant. The Annuitant named in the application may not be changed.
ANNUITY START DATE -- The date when the Annuitant will begin to receive annuity
payments. (You are the Annuitant, unless you tell us otherwise at the time of
your application.) If you own a Non-Qualified Contract, we will ask you to
select an Annuity Start Date. If you do not select a date, the Annuity Start
Date is either the Annuitant's age 70 or 10 years after the Date of Issue,
whichever is later. If you own a Qualified Contract, the Annuity Start Date is
fixed at the Annuitant's age 70 1/2.
ANNUITY UNIT -- An accounting measure we use to calculate the value of your
annuity payments if you choose to receive annuity payments from the Variable
Accounts.
BENEFICIARY -- The person you name to receive the death benefit if the Owner or
Annuitant dies before the Annuity Start Date.
BUSINESS DAY -- Each day on which the New York Stock Exchange is open for
business, except for the holidays listed in this prospectus under "Holidays" and
except for any day on which the Portfolio in which a Variable Account invests
does not value its shares.
THE CODE -- The Internal Revenue Code of 1986, as amended.
THE COMPANY ("WE," "US," "OUR") -- IL Annuity and Insurance Company, a
Massachusetts stock life insurance company.
CONTRACT ANNIVERSARY -- The same month and day as the Date of Issue in each
calendar year during which the Contract is in force.
CONTRACT FEE -- During the Pay-in Period, we will deduct this charge from your
Contract Value at the end of each contract quarter and on the date you fully
withdraw all value from the Contract. We use the Contract Fee to cover our cost
of providing certain administrative services related to the Contracts and the
Separate Account.
CONTRACT VALUE -- The total amount you have accumulated under the Contract. It
is the sum of the Separate Account Value and the Fixed Account Value.
CONTRACT YEAR -- A twelve-month period that we measure from the anniversary of
the Date of Issue. The first Contract Year begins on the Date of Issue.
DATE OF ISSUE -- The date we issue your Contract. It is shown on the
specifications page of the Contract and is the date on which the first Contract
Year begins.
DEATH BENEFIT ANNIVERSARY -- Every third Contract Anniversary beginning on the
Date of Issue.
DUE PROOF OF DEATH -- Proof of death that is satisfactory to us. Such proof may
consist of the following if acceptable to us: (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 us.
ELIGIBLE PREMIUM PAYMENT -- That part of a Premium Payment that you initially
allocated to a particular Eligible Variable Account at the time of payment,
provided you made the payment at least ten (10) years prior to the Living
Benefit Date. (See "Living Benefit.")
ELIGIBLE VARIABLE ACCOUNT -- Currently all Variable Accounts except the Van Eck
Worldwide Hard Assets Variable Account. (See "Living Benefit.")
2
<PAGE> 11
ENHANCED DEATH BENEFIT -- If you elect the three-year stepped-up Enhanced Death
Benefit option at the time of purchase, the Enhanced Death Benefit will equal
the greater of: (a) the Contract Value as of the date we receive due proof of
the deceased's death and payment instructions; or (b) the highest Contract Value
on any Death Benefit Anniversary preceding the date the death benefit is
determined, plus any Premium Payments and minus any withdrawals and charges
incurred between such Death Benefit Anniversary and the date the death benefit
is determined.
FIXED ACCOUNT -- Part of our General Account to which you may apportion Net
Premium Payments and to which you may transfer assets under the Contract. The
Fixed Account provides guarantees of principal and interest. Special limits
apply to transfers of Contract Value to and from the Fixed Account. (See "Fixed
Account.")
FIXED ACCOUNT CURRENT RATE -- The interest rate contained in a schedule of rates
we set from time to time. The rate of interest we will credit to the initial
Premium Payment, if allocated to the Fixed Account, is shown on the
specifications page of the Contract.
FIXED ACCOUNT VALUE -- The value of your Contract in the Fixed Account before
the Annuity Start Date.
FUNDS -- Each of (i) The Alger American Fund; (ii) Fidelity VIP Fund; (iii)
Fidelity VIP Fund II; (iv) OCC Accumulation Trust; (v) Royce Capital Fund; (vi)
SAFECO Resource Series Trust; (vii) SoGen Variable Funds, Inc.; (viii) T. Rowe
Price Fixed Income Series, Inc.; (ix) T. Rowe Price International Series, Inc.;
and (x) Van Eck Worldwide Insurance Trust. Each Variable Account invests in a
separate investment portfolio ("Portfolio") of a Fund. Each Fund is either an
open-end management investment company or a unit investment trust.
GENERAL ACCOUNT -- The account that contains all of our assets other than those
held in the separate accounts.
LIVING BENEFIT -- If you elect the Living Benefit option at the time of purchase
and if the Contract is in the Pay-in Period on the Living Benefit Date, the
Living Benefit for a particular Eligible Variable Account is equal to: (a) the
sum of the Eligible Premium Payments for that particular Eligible Variable
Account; MINUS (b) a percentage of any transfer or withdrawal from that Eligible
Variable Account; and MINUS (c) the value of that Eligible Variable Account on
the Living Benefit Date. (See "Living Benefit.")
LIVING BENEFIT DATE -- The Annuitant's age 70 or 10 years after the Date of
Issue, whichever is later. If the Contract is owned by Joint Owners who are
spouses at the time one Joint Owner dies, the Living Benefit Date will become
the date the surviving spouse attains age 70.
NET PREMIUM PAYMENT -- A Premium Payment minus any applicable premium tax.
NON-QUALIFIED CONTRACT -- A Contract that is not a "Qualified Contract."
OWNER ("YOU" OR "YOUR") -- The person(s) who owns the Contract and who is
entitled to exercise all rights and privileges provided in the Contract. The
term also includes any person designated as a Joint Owner. 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. You may
name a "Successor Payee" to receive any guaranteed annuity payments after the
death of the sole surviving Payee.
PAY-IN PERIOD -- The period of time that begins when your Contract is issued and
continues until the date you begin to receive annuity payments on the Annuity
Start Date. The Pay-in Period will also end if you fully withdraw your Contract
before the Annuity Start Date.
PAYOUT PERIOD -- The period of time during which you will receive in a steady
stream of annuity payments the money you have accumulated under your Contract.
It begins on the Annuity Start Date.
PAYOUT OPTION -- The arrangement under which annuity payments are made to you.
You may choose to have your annuity payments made on a fixed, a variable, or a
combination payout basis.
PORTFOLIO -- The separate investment portfolios of the Funds. The Portfolios
currently offered through the Contract are listed on the front cover of this
prospectus.
3
<PAGE> 12
PREMIUM PAYMENT YEAR -- The twelve-month period beginning on the date we receive
any Premium Payment. It is used to calculate the Withdrawal Charge if you choose
the Date of Premium Payment Withdrawal Charge Option.
QUALIFIED CONTRACT -- A Contract issued in connection with retirement plans that
qualify for special federal income tax treatment under Sections 401(a), 403(b),
or 408 of the Code.
SEC -- U.S. Securities and Exchange Commission.
SEPARATE ACCOUNT -- IL Annuity and Insurance Co. Separate Account 1. It is not
part of our General Account. The Separate Account is divided into Variable
Accounts, each of which invests solely in shares of a designated Portfolio.
SEPARATE ACCOUNT VALUE -- The value of the Contract in the Separate Account
before the Annuity Start Date.
SERVICE CENTER -- The office of USA Administration Services, Inc., an
administrator that provides administrative service for the Contracts. The
mailing address for the Service Center is P.O. Box 29163, Overland Park, KS
66201.
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 Contract, the outstanding loan amount, if
any, is also deducted from Contract Value.
VARIABLE ACCOUNT -- A subdivision of the Separate Account. A Variable Account
invests solely in the shares of a designated Portfolio of a Fund.
WRITTEN REQUEST -- A written notice or request in a form satisfactory to us that
is signed by you and received at the Service Center.
4
<PAGE> 13
FEE TABLE
The following expense information assumes that you have invested your
entire Contract Value in the Separate Account.
CONTRACT OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Withdrawal Charge (as a percentage of Premium Payments withdrawn(1))........... 7.0%
Transfer Fee(2) (No charge for first 12 transfers in a Contract Year; thereafter, $25
fee per transfer).................................................................... $ 0
Contract Fee ($7.50 per quarter, annualized)(3)........................................ $30
</TABLE>
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of Separate Account Value)
<TABLE>
<S> <C>
Mortality and Expense Risk Charge..................................................... 1.25%
Administrative Expense Charge......................................................... 0.15%
Total Separate Account Annual Expenses........................................... 1.40%
</TABLE>
INVESTMENT PORTFOLIO ANNUAL EXPENSES
(as a percentage of average daily net assets of a Portfolio after expense
cap or reimbursement)
<TABLE>
<CAPTION>
MANAGEMENT FEES OTHER EXPENSES TOTAL ANNUAL
(INVESTMENT (AFTER EXPENSES (AFTER
NAME OF PORTFOLIO ADVISORY FEES) REIMBURSEMENT) REIMBURSEMENT)
- --------------------------------------------------- --------------- -------------- ---------------
<S> <C> <C> <C>
Alger American Fund
MidCap Growth Portfolio.......................... 0.80% 0.04% 0.84%
Small Capitalization Portfolio................... 0.85% 0.03% 0.88%
Fidelity VIP Fund
Equity Income Portfolio(4)....................... 0.51% 0.07% 0.58%
Growth Portfolio(4).............................. 0.61% 0.08% 0.69%
Money Market Portfolio........................... 0.21% 0.09% 0.30%
Fidelity VIP Fund II
Asset Manager Portfolio(4)....................... 0.64% 0.10% 0.74%
Contrafund Portfolio(4).......................... 0.61% 0.13% 0.74%
Index 500 Portfolio(5)........................... 0.13% 0.15% 0.28%
Investment Grade Bond Portfolio.................. 0.45% 0.13% 0.58%
OCC Accumulation Trust
Managed Portfolio(6)............................. 0.80% 0.10% 0.90%
Small Cap Portfolio(6)........................... 0.80% 0.22% 1.02%
Royce Capital Fund
Royce Micro-Cap Portfolio(7)..................... 0.00% 1.35% 1.35%
SAFECO Resources Series Trust
SAFECO Equity Portfolio.......................... 0.72% 0.03% 0.75%
SAFECO Growth Portfolio(8)....................... 0.72% 0.07% 0.79%
SoGen Variable Funds, Inc.
SoGen Overseas Portfolio(9)...................... 0.75% 1.00% 1.75%
T. Rowe Price Fixed Income Series, Inc.
Limited-Term Bond Portfolio(10).................. 0.70% 0.00% 0.70%
T. Rowe Price International Series, Inc.
International Stock Portfolio(10)................ 1.05% 0.00% 1.05%
Van Eck Worldwide Insurance Trust
Worldwide Hard Assets Portfolio.................. 1.00% 0.08% 1.08%
Worldwide Balanced Portfolio(11)................. 0.00% 0.00% 0.00%
</TABLE>
Premium taxes are not shown here, but may be charged by some states. (See
"Premium Taxes".)
5
<PAGE> 14
The purpose of the fee table is to assist you in understanding the costs
and expenses that you will pay directly or indirectly when you invest in the
Contract. The table reflects the actual charges and expenses for the Separate
Account and the Portfolios for the year ended December 31, 1996. For a more
complete description of these charges and expenses, see "Fees and Charges" in
this prospectus and the prospectus for each Portfolio that is attached to this
prospectus.
(1) In any Contract Year after the first Contract Year, you may withdraw a
portion of your Contract Value without incurring a Withdrawal Charge. This
amount is called the Free Withdrawal Amount. If your initial Premium
Payment is less than $100,000, the Free Withdrawal Amount is 10% of
Contract Value each year, as determined at the beginning of the Contract
Year. If you do not withdraw the full 10% in any Contract Year, the
remaining amount does not roll over to the next Contract Year. If your
initial Premium Payment is $100,000 or more, the Free Withdrawal Amount
will depend on the Free Withdrawal Option you choose at the time you
purchase your Contract. If you choose the CUMULATIVE 10% OPTION, you may
withdraw up to 10% of your Contract Value as of the beginning of each
Contract Year after the first Contract Year and we will not charge you a
Withdrawal Charge on that amount. If you do not withdraw the full 10% in
any one Contract Year, the remaining percentage may be rolled over to the
next Contract Year, up to a maximum of 50% after 5 years, as determined as
of the beginning of each Contract Year. If you choose the EARNINGS OPTION,
you may withdraw all your Contract earnings at any time after the first
Contract Year without incurring a Withdrawal Charge. (See "Fees and
Charges -- Withdrawal Charge.")
The Contract also gives you a choice between two Withdrawal Charge options.
If you choose the DATE OF ISSUE WITHDRAWAL CHARGE OPTION, we will calculate
the Withdrawal Charge from the Date of Issue. Under this option, we will
deduct the Withdrawal Charge from all withdrawals of Premium Payments that
occur during the first nine Contract Years and that are greater than the
Free Withdrawal Amount. No Withdrawal Charge is deducted from full or
partial withdrawals that occur in Contract Years ten and later. For the
first six Contract Years, the Withdrawal Charge is 7% of the amount
withdrawn, decreasing to 6% in the seventh Contract Year, and declining by
2% for each subsequent Contract Year until it is zero in Contract Year ten.
If you choose the DATE OF PREMIUM PAYMENT WITHDRAWAL CHARGE OPTION, we will
calculate the Withdrawal Charge from the date you make a Premium Payment.
Under this option, we will deduct a Withdrawal Charge from all withdrawals
of Premium Payments that we have held for less than seven years and that
are greater than the Free Withdrawal Amount. Premium Payments withdrawn
during the first year after receipt by us are subject to a 7% Withdrawal
Charge, decreasing by 1% annually until it is zero in Premium Payment Year
eight. (See "Fees and Charges -- Withdrawal Charge.")
(2) We will not charge you a transfer fee on the first twelve transfers in a
Contract Year. We will charge a $25 fee for each transfer you make after
the twelfth during a Contract Year.
(3) We will not charge a Qualified Contract for the Contract Fee. We also
currently will not charge a Non-Qualified Contract for the Contract Fee
once the total Premium Payments you have paid equals $100,000.
(4) A portion of the brokerage commissions paid by certain Portfolios was used
to reduce Portfolio expenses. In addition, certain Portfolios have entered
into arrangements with their custodian and transfer agent whereby interest
earned on uninvested cash balances was used to reduce custodian and
transfer agent expenses. Including these reductions, the total operating
expenses presented in the table above would have been 0.56% for Equity
Income Portfolio, 0.67% for Growth Portfolio, 0.73% for Asset Manager
Portfolio, and 0.71% for Contrafund Portfolio.
(5) The investment adviser to the Fidelity Index 500 Portfolio agreed to
reimburse a portion of that Portfolio's expenses during 1996. Without this
reimbursement, the Portfolio's Management Fee, Other Expenses and Total
Annual Portfolio Expenses would have been 0.28%, 0.15%, and 0.43%,
respectively.
(6) The Total Annual Portfolio Expenses of the OCC Accumulation Trust
Portfolios as of December 31, 1996 have been restated to reflect new
Management Fee and expense limitation arrangements in effect as of May 1,
1996. Additionally, Other Expenses are shown gross of certain expense
offsets afforded the Portfolios which effectively lowered overall custody
expenses. Effective May 1, 1996, the Total Annual
6
<PAGE> 15
Portfolio Expenses of the Managed and Small Cap Portfolios are
contractually limited by OpCap Advisors so that their respective
annualized operating expenses (net of any expense offsets) do not exceed
1.25% of their respective average daily net assets. Furthermore, through
December 31, 1997, the annualized operating expenses of the Managed and
Small Cap Portfolios will be voluntarily limited by OpCap Advisors so that
annualized operating expenses (net of any expense offsets) of these
Portfolios do not exceed 1.00% of their respective average daily net
assets. Without such contractual and voluntary expense limitations, and
without giving effect to any expense offsets, the Management Fees, Other
Expenses and Total Annual Portfolio Expenses incurred for the fiscal year
ended December 31, 1996 would have been: 0.80%, 0.10% and 0.90%,
respectively, for the Managed Portfolio; and 0.80%, 0.26 and 1.06%,
respectively, for the Small Cap Portfolio.
(7) The Royce Micro-Cap Portfolio did not commence operations during 1996. The
numbers provided in the fee table are estimates of the expenses that the
Portfolio expects to incur during fiscal year 1997. Quest Advisory Corp.,
the investment adviser to the Portfolio, has voluntarily committed to waive
its management fees and reimburse Other Expenses through December 31, 1997
to the extent necessary to maintain Total Annual Expenses of the Portfolio
at or below 1.35%. Without such waiver and reimbursement, it is expected
that the Management Fee would be 1.25% and Total Annual Expenses would be
3.24% for fiscal year 1997.
(8) During the year ended December 31, 1996, SAFECO Life Insurance Company paid
for or reimbursed a portion of the Other Expenses of the SAFECO Growth
Portfolio. Without such reimbursement, Other Expenses for the year ended
December 31, 1996 were 0.12% of the Portfolio's net assets.
(9) The SoGen Overseas Portfolio did not commence operations during 1996. The
numbers provided in the fee table are estimates of the expenses that the
Portfolio expects to incur during fiscal year 1997. Other Expenses for this
Portfolio include a 0.25% charge for 12b-1 fees. The 12b-1 fee is imposed
to enable the Portfolio to recover certain sales expenses, including
compensation to broker-dealers, the cost of printing prospectuses,
advertising costs and shareholder servicing-related expenses for the
Portfolio. Over a long period of time, the total amount of 12b-1 fees paid
may exceed the amount of sales charges imposed by other portfolios.
(10) 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.
(11) 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 1.00%,
1.49%, and 2.49%, respectively.
7
<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.)
Examples 1 and 2 show expenses for Contracts with a DATE OF ISSUE
WITHDRAWAL CHARGE OPTION.
Examples: You would pay the following expenses on a $1,000
investment, assuming a 5% annual return on assets and the changes and
expenses listed on the Fee Table above.
1. If you fully withdraw all Contract Value (or if you elect to
annuitize under a period certain option for a period of less than 10
years) at the end of the stated time period:
<TABLE>
<CAPTION>
NAME OF PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------- ------- ------- ------- --------
<S> <C> <C> <C> <C>
Alger American Fund
MidCap Growth Portfolio.......... $ 94.50 $143.44 $198.64 $ 273.95
Small Capitalization Portfolio... $ 94.92 $144.61 $200.74 $ 278.14
Fidelity VIP Fund
Equity-Income Portfolio.......... $ 91.77 $135.79 $184.89 $ 246.26
Growth Portfolio................. $ 92.92 $139.03 $190.73 $ 258.07
Money Market Portfolio........... $ 88.83 $127.50 $169.91 $ 215.62
Fidelity VIP Fund II
Asset Manager Portfolio.......... $ 93.45 $140.50 $193.37 $ 263.39
Contrafund Portfolio............. $ 93.45 $140.50 $193.37 $ 263.39
Index 500 Portfolio.............. $ 88.62 $126.90 $168.83 $ 213.40
Investment Grade Bond
Portfolio...................... $ 91.77 $135.79 $184.89 $ 246.26
OCC Accumulation Trust
Managed Portfolio................ $ 95.13 $145.20 $201.79 $ 280.23
Small Cap Portfolio.............. $ 96.39 $148.72 $208.07 $ 292.69
Royce Capital Fund
Royce Micro-Cap Portfolio........ $ 99.85 $158.33 N/A N/A
SAFECO Resources Series Trust
SAFECO Equity Portfolio.......... $ 93.55 $140.80 N/A N/A
SAFECO Growth Portfolio.......... $ 93.97 $141.97 N/A N/A
SoGen Variable Funds, Inc.
SoGen Overseas Variable
Portfolio...................... $104.04 $169.90 N/A N/A
T. Rowe Price Fixed Income Series
Limited-Term Bond Portfolio...... $ 93.03 $139.32 $191.26 $ 259.13
T. Rowe Price International
Series
International Stock Portfolio.... $ 96.70 $149.59 $209.64 $ 295.78
Van Eck Worldwide Insurance Trust
Worldwide Hard Assets
Portfolio...................... $ 97.01 $150.47 $211.20 $ 298.86
Worldwide Balanced Portfolio..... $ 85.69 $118.56 $153.65 $ 181.82
</TABLE>
8
<PAGE> 17
2. If you do not fully withdraw all Contract Value (or if you elect
to annuitize under a payout plan with a life contingency or under a
period certain option with a period certain of at least 10 years) at the
end of the stated time:
<TABLE>
<CAPTION>
NAME OF PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Alger American Fund
MidCap Growth Portfolio........... $24.50 $ 75.31 $128.64 $ 273.95
Small Capitalization Portfolio.... $24.92 $ 76.57 $130.74 $ 278.14
Fidelity VIP Fund
Equity-Income Portfolio........... $21.77 $ 67.09 $114.89 $ 246.26
Growth Portfolio.................. $22.92 $ 70.57 $120.73 $ 258.07
Money Market Portfolio............ $18.83 $ 58.18 $ 99.91 $ 215.62
Fidelity VIP Fund II
Asset Manager Portfolio........... $23.45 $ 72.15 $123.37 $ 263.39
Contrafund Portfolio.............. $23.45 $ 72.15 $123.37 $ 263.39
Index 500 Portfolio............... $18.62 $ 57.55 $ 98.83 $ 213.40
Investment Grade Bond Portfolio... $21.77 $ 67.09 $114.89 $ 246.26
OCC Accumulation Trust
Managed Portfolio................. $25.13 $ 77.20 $131.79 $ 280.23
Small Cap Portfolio............... $26.39 $ 80.97 $138.07 $ 292.69
Royce Capital Fund
Royce Micro-Cap Portfolio......... $29.85 $ 91.30 N/A N/A
SAFECO Resources Series Trust
SAFECO Equity Portfolio........... $23.55 $ 72.47 N/A N/A
SAFECO Growth Portfolio........... $23.97 $ 73.73 N/A N/A
SoGen Variable Funds, Inc.
SoGen Overseas Variable
Portfolio....................... $34.04 $103.72 N/A N/A
T. Rowe Price Fixed Income Series
Limited-Term Bond Portfolio....... $23.03 $ 70.89 $121.26 $ 259.13
T. Rowe Price International Series
International Stock Portfolio..... $26.70 $ 81.91 $139.64 $ 295.78
Van Eck Worldwide Insurance Trust
Worldwide Hard Assets Portfolio... $27.01 $ 82.85 $141.20 $ 298.86
Worldwide Balanced Portfolio...... $15.69 $ 48.59 $ 83.65 $ 181.82
</TABLE>
9
<PAGE> 18
Examples 3-4 show examples for Contracts with the DATE OF PREMIUM PAYMENT
WITHDRAWAL OPTION.
Examples: You would pay the following expenses on a $1,000 investment,
assuming a 5% annual return on assets and the charges and expenses listed on the
Fee Table above:
3. If you fully withdraw all Contract Value (or if you elect to
annuitize under a period certain option for a period of less than 10
years) at the end of the stated time period:
<TABLE>
<CAPTION>
NAME OF PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------- ------- ------- ------- --------
<S> <C> <C> <C> <C>
Alger American Fund
MidCap Growth Portfolio.......... $ 94.50 $123.97 $158.64 $ 273.95
Small Capitalization Portfolio... $ 94.92 $125.17 $160.74 $ 278.14
Fidelity VIP Fund
Equity-Income Portfolio.......... $ 91.77 $116.16 $144.89 $ 246.26
Growth Portfolio................. $ 92.92 $119.47 $150.73 $ 258.07
Money Market Portfolio........... $ 88.83 $107.69 $129.91 $ 215.62
Fidelity VIP Fund II
Asset Manager Portfolio.......... $ 93.45 $120.97 $153.37 $ 263.39
Contrafund Portfolio............. $ 93.45 $120.97 $153.37 $ 263.39
Index 500 Portfolio.............. $ 88.62 $107.09 $128.83 $ 213.40
Investment Grade Bond
Portfolio...................... $ 91.77 $116.16 $144.89 $ 246.26
OCC Accumulation Trust
Managed Portfolio................ $ 95.13 $125.77 $161.79 $ 280.23
Small Cap Portfolio.............. $ 96.39 $129.36 $168.07 $ 292.69
Royce Capital Fund
Royce Micro-Cap Portfolio........ $ 99.85 $139.18 N/A N/A
SAFECO Resources Series Trust
SAFECO Equity Portfolio.......... $ 93.55 $121.27 N/A N/A
SAFECO Growth Portfolio.......... $ 93.97 $122.47 N/A N/A
SoGen Variable Funds, Inc.
SoGen Overseas Variable
Portfolio...................... $104.04 $150.99 N/A N/A
T. Rowe Price Fixed Income Series
Limited-Term Bond Portfolio...... $ 93.03 $119.77 $151.26 $ 259.13
T. Rowe Price International
Series
International Stock Portfolio.... $ 96.70 $130.26 $169.64 $ 295.78
Van Eck Worldwide Insurance Trust
Worldwide Hard Assets
Portfolio...................... $ 97.01 $131.15 $171.20 $ 298.86
Worldwide Balanced Portfolio..... $ 85.69 $ 98.57 $113.65 $ 181.82
</TABLE>
10
<PAGE> 19
4. If you do not fully withdraw all Contract Value (or if you elect
to annuitize under a payout plan with a life contingency or under a
period certain option with a period certain of at least 10 years) at the
end of the stated time:
<TABLE>
<CAPTION>
NAME OF PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Alger American Fund
MidCap Growth Portfolio........... $24.50 $ 75.31 $128.64 $ 273.95
Small Capitalization Portfolio.... $24.92 $ 76.57 $130.74 $ 278.14
Fidelity VIP Fund
Equity-Income Portfolio........... $21.77 $ 67.09 $114.89 $ 246.26
Growth Portfolio.................. $22.92 $ 70.57 $120.73 $ 258.07
Money Market Portfolio............ $18.83 $ 58.18 $ 99.91 $ 215.62
Fidelity VIP Fund II
Asset Manager Portfolio........... $23.45 $ 72.15 $123.37 $ 263.39
Contrafund Portfolio.............. $23.45 $ 72.15 $123.37 $ 263.39
Index 500 Portfolio............... $18.62 $ 57.55 $ 98.83 $ 213.40
Investment Grade Bond Portfolio... $21.77 $ 67.09 $114.89 $ 246.26
OCC Accumulation Trust
Managed Portfolio................. $25.13 $ 77.20 $131.79 $ 280.23
Small Cap Portfolio............... $26.39 $ 80.97 $138.07 $ 292.69
Royce Capital Fund
Royce Micro-Cap Portfolio......... $29.85 $ 91.30 N/A N/A
SAFECO Resources Series Trust
SAFECO Equity Portfolio........... $23.55 $ 72.47 N/A N/A
SAFECO Growth Portfolio........... $23.97 $ 73.73 N/A N/A
SoGen Variable Funds, Inc.
SoGen Overseas Variable
Portfolio....................... $34.04 $103.72 N/A N/A
T. Rowe Price Fixed Income Series
Limited-Term Bond Portfolio....... $23.03 $ 70.89 $121.26 $ 259.13
T. Rowe Price International Series
International Stock Portfolio..... $26.70 $ 81.91 $139.64 $ 295.78
Van Eck Worldwide Insurance Trust
Worldwide Hard Assets Portfolio... $27.01 $ 82.85 $141.20 $ 298.86
Worldwide Balanced Portfolio...... $15.69 $ 48.59 $ 83.65 $ 181.82
</TABLE>
The examples provided above assume that no transfer charges or premium
taxes have been assessed. The examples reflect the annualized Contract Fee of
$30 assessed on an average Contract Value of $30,000. This translates the
Contract Fee into a 0.10% 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.
There is a table of Condensed Financial Information that contains the
accumulated unit value history of the Separate Account. That table is found in
Appendix A -- Condensed Financial Information.
11
<PAGE> 20
SUMMARY OF THE VISIONARY CHOICE CONTRACT
Purchasing Your Contract. The VISIONARY CHOICE Contract is an individual
deferred variable annuity issued by IL Annuity and Insurance Company. You may
purchase this Contract with $1,000 or more under most circumstances. We will not
issue a Contract if you are older than 85 on the Date of Issue.
The Contract provides a means for investing on a tax-deferred basis. This
means that you will not be taxed on earnings or appreciation in your Contract
until you withdraw your money. The Contract may be sold in connection with
retirement plans, some of which may qualify for special federal tax treatment
under the Code. (See "The Pay-In Period -- Issuing Your Contract.")
Cancellation -- The 10 Day Free-Look Period. You have the right to cancel
the Contract for any reason within 10 days after you receive it (or within 20
days if the Contract is replacing another annuity contract or insurance policy).
The Contract must be returned to our Service Center. Your Written Request to
cancel the Contract must accompany the Contract. The returned Contract will be
treated as if it were never issued. In certain states you may have more than 10
days to return the Contract for a refund. The amount that we refund will vary
according to state requirements. If we are required by state law to refund your
original Premium Payment, we will allocate your initial Premium Payment to the
Money Market Variable Account during the Free-Look Period. (See "The Pay-In
Period -- Cancellation -- The 10-Day Free-Look Period.")
Premium Payments. A Premium Payment is the money you pay us to buy the
Visionary Choice Contract. The Contract generally gives you the flexibility to
make Premium Payments as often as you like, although you may choose to make only
a single Premium Payment. After you buy the Contract, you may send us Premium
Payments of $1,000 or more at any time during the Pay-in Period, so long as they
do not exceed two times the amount of your initial Premium Payment in any year.
We generally will not accept total Premium Payments in excess of $250,000. We
reserve the right to waive these limitations. (See "Premium Payments.")
Designating Your Investment Options. When you purchase your Contract, we
will ask you to provide us with written instructions telling us how to allocate
your Premium Payments among the Portfolios of the Variable Accounts and the
Fixed Account. You may place your Premium Payments in one or more Variable
Accounts and/or the Fixed Account, subject to certain restrictions. (See "The
Pay-In Period.")
Transfers. During the Pay-in Period, you may transfer your Contract Value
from the Variable Accounts and the Fixed Account to other Variable Account(s)
and the Fixed Account, subject to certain restrictions. (See "Transfers Between
Investment Options.") If you transfer Contract Value from an Eligible Variable
Account, the transfer will reduce the amount of the Eligible Premium Payments on
which the Living Benefit is based. (See "Living Benefit.")
Transfers to the Fixed Account must be at least $1,000. During the Pay-in
Period, you may transfer up to 20% of the Fixed Account Value (as determined at
the beginning of the Contract Year) 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
"Transfers Between Investment Options.")
Once you begin to receive annuity payments, you may make one transfer
between the Variable Accounts each Contract Year. (See "The Payout Period.")
Partial Withdrawals. During the Pay-in Period, you may withdraw part of
your Contract Value by sending a Written Request to the Service Center. The
amount of your request must be at least $250. If the Contract Value remaining
after your partial withdrawal is less than $1,000, we reserve the right to pay
you the Surrender Value in a lump sum. Amounts withdrawn may be subject to a
Withdrawal Charge, depending the Withdrawal Charge Option you chose at the time
of purchase. In any Contract Year after the first Contract Year, you may
withdraw a portion of your Contract Value without incurring a Withdrawal Charge,
called the Free Withdrawal Amount. (See "Fees and Charges -- Withdrawal
Charge.")
Withdrawals from an Eligible Variable Account will reduce the amount of the
Eligible Premium Payments on which the Living Benefit is based. (See "Living
Benefit.")
12
<PAGE> 21
The Federal tax laws may impose income taxes and tax penalties upon, and in
some cases prohibit, certain premature withdrawals from the Contract before or
after the Annuity Start Date. (See "Federal Tax Matters.")
Full Withdrawal. During the Pay-in Period, you may cancel the Contract and
receive its Surrender Value by sending us a Written Request. (See "Withdrawal of
Contract Value.") As with partial withdrawals, Federal tax laws may impose
income taxes and tax penalties upon, and in some cases prohibit, certain
premature withdrawals from the Contract before or after the Annuity Start Date.
(See "Federal Tax Matters.")
Death Benefit. If the Annuitant dies before the Annuity Start Date, the
Beneficiary will receive a Death Benefit. The Death Benefit will be determined
as of the date we receive due proof of the deceased's death and payment
instructions. If you do not choose the Enhanced Death Benefit option at the time
of purchase, the Death Benefit will equal the greater of:
(1) the sum of all Premium Payments made under the Contract, LESS
partial withdrawals as of the date the Death Benefit is determined;
or
(2) the Contract Value as of the date the Death Benefit is determined;
LESS any applicable premium taxes not previously deducted.
If you elect the three year stepped-up Enhanced Death Benefit option at the
time of purchase, an Enhanced Death Benefit will be payable upon the death of
the Annuitant before the Annuity Start Date and will be determined as of the
date we receive due proof of the deceased's death and payment instructions. The
Enhanced Death Benefit will be the greater of:
(1) the Contract Value as of the date the Enhanced Death Benefit is
determined; or
(2) the highest Contract Value on any Death Benefit Anniversary
preceding the date the Enhanced Death Benefit is determined,
adjusted for any Premium Payments received, withdrawals taken and
charges incurred between such Death Benefit Anniversary and the date
the Enhanced Death Benefit is determined. This value is initially
set on the first Death Benefit Anniversary and equals the greater
of: (a) the sum of Premium Payments, MINUS partial withdrawals; or
(b) Contract Value, on that date. This value will be reset on every
future Death Benefit Anniversary (that is, every third Contract
Anniversary) to equal Contract Value on that date only if Contract
Value on that Death Benefit Anniversary is greater than the Enhanced
Death Benefit Value on any previous Death Benefit Anniversary. Once
reset, this value will never decrease unless partial withdrawals are
made;
LESS any applicable premium taxes not previously deducted.
Age Limitation on Death Benefit Provision: If the Annuitant dies at or
after age 75 (or ten years after the Date of Issue, whichever is later) but
before the Annuity Start Date, the Death Benefit under either Death Benefit
option will equal Contract Value LESS any applicable premium taxes not yet
deducted, as of the date we receive due proof of death and payment instructions.
(See "Death Benefits.")
Living Benefit. If you elect the Living Benefit option at the time of
purchase and the Contract is in the Paying Period on the Living Benefit Date, IL
Annuity will calculate the Living Benefit for each Eligible Variable Account in
which you have value as of that date. The Living Benefit will be credited to the
Contract Value of an Eligible Variable Account only if the value of the Eligible
Variable Account on the Living Benefit Date is less than: (a) the sum of the
Eligible Premium Payments for such Eligible Variable Account, MINUS (b) a
percentage of all prior withdrawals and transfers from such Eligible Variable
Account.
Eligible Premium Payments are those Premium Payments you initially
allocated to a particular Eligible Variable Account at the time of payment,
provided you made the payment at least ten (10) years prior to the Living
Benefit Date.
13
<PAGE> 22
On the Living Benefit Date, the Living Benefit that will be credited to
each Eligible Variable Account will be equal to: (a) the sum of the Eligible
Premium Payments for that particular Eligible Variable Account; MINUS (b) a
percentage of all prior withdrawals and transfers from that Eligible Variable
Account; MINUS (c) the value of that Eligible Variable Account as of the Living
Benefit Date.
The Living 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 two persons who are spouses
at the time one dies, the Living Benefit Date will become the date the surviving
spouse attains age 70. If the Contract is owned by two persons who are not
spouses and one of them dies before the Living Benefit Date, the Living Benefit
is not available to the sole survivor. The Eligible Variable Accounts currently
include all Variable Accounts except the Van Eck Worldwide Hard Assets Variable
Account.
The Living Benefit will not be credited to Contract Value if you have
elected to begin receiving annuity payments before the Living Benefit Date. (See
"Living Benefit.")
Transfers and withdrawals from an Eligible Variable Account will reduce the
amount of the Eligible Premium Payments on which the Living Benefit is based.
(See "Living Benefit.")
FEES AND CHARGES
The following charges and deductions are assessed under the Contract:
Withdrawal Charge. We will deduct a Withdrawal Charge if you withdraw all
or part of your Contract Value during certain time periods. The amount of the
Withdrawal Charge depends on the Withdrawal Charge Option and Free Withdrawal
Option you choose at the time you purchase the Contract. We do not assess a
Withdrawal Charge in the event the Contract terminates due to your death or the
death of the Annuitant or if you decide to begin to receive annuity payments
under an annuity payout plan with a life contingency or an annuity payout plan
with at least 10 years of guaranteed payments.
The Contract gives you a choice between two Withdrawal Charge Options. If
you choose the DATE OF ISSUE WITHDRAWAL CHARGE OPTION, we will calculate the
Withdrawal Charge from the Date of Issue. We will deduct the Withdrawal Charge
from all withdrawals of Premium Payments that: (1) are greater than the Free
Withdrawal Amount, and (2) that occur during the first nine Contract Years.
Under this option, no Withdrawal Charge is deducted from full or partial
withdrawals that occur in Contract Years ten and later. For the first six
Contract Years, the Withdrawal Charge is 7% of the amount withdrawn that exceeds
the Free Withdrawal Amount, decreasing to 6% in the seventh Contract Year, and
declining by 2% for each subsequent Contract Year until it is zero in Contract
Year ten.
If you choose the DATE OF PREMIUM PAYMENT WITHDRAWAL CHARGE OPTION, we will
calculate the Withdrawal Charge from the date you make a Premium Payment and
deduct a Withdrawal Charge from all withdrawals of Premium Payments that we have
held for less than seven years and that are greater than the Free Withdrawal
Amount. Premium Payments in excess of the Free Withdrawal Amount that are
withdrawn during the first year after payment are subject to a 7% Withdrawal
Charge, decreasing by 1% annually, until it is zero in Premium Payment Year 8.
Under either option, for purposes of calculating the Withdrawal Charge, a
withdrawal is deemed to come first from Premium Payments and then from earnings.
In addition, the money that has been held the longest in the Contract will be
deemed to be the first money withdrawn. This is called the "first in, first out"
method of accounting or "FIFO." (See "Fees and Charges.")
In any Contract Year after the first Contract Year, you may withdraw a
portion of your Contract Value without incurring a Withdrawal Charge. This
amount is called the Free Withdrawal Amount. Withdrawals under the Systematic
Withdrawal Program are permitted a Free Withdrawal Amount, as determined below,
during the first Contract Year. If your initial Premium Payment is less than
$100,000, the Free Withdrawal Amount is 10% of Contract Value each year, as
determined at the beginning of the Contract Year. If you do not withdraw the
full 10% in any Contract Year, the remaining amount does NOT roll over to the
next Contract Year. If your initial Premium Payment is $100,000 or more, the
value of the Free Withdrawal Amount
14
<PAGE> 23
depends on the Free Withdrawal Option you choose at the time you purchase your
Contract. If you choose the CUMULATIVE 10% OPTION, you may withdraw up to 10% of
your Contract Value as of the beginning of each Contract Year after the first
Contract Year and we will not charge you a Withdrawal Charge on that amount. If
you do not withdraw the full 10% in any one Contract Year, the remaining
percentage may be rolled over to the next Contract Year, up to a maximum of 50%
after 5 years as determined as of the beginning of each Contract Year. If you
choose the EARNINGS OPTION, you may withdraw all your Contract earnings at any
time after the first Contract Year without incurring a Withdrawal Charge. (See
"Fees and Charges -- 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 "Fees and Charges -- Withdrawal
Charge.")
Contract Fee. At the end of each Contract quarter (and on the date of full
withdrawal from the Contract) during the Pay-in Period, we will deduct a
quarterly Contract Fee of $7.50 from the Contract Value. Currently we waive the
Contract Fee for Qualified Contracts. We also do not charge the Contract Fee if
the Contract is a Non-Qualified Contract whose cumulative Premium Payments on
the date the Contract Fee is charged are equal to or greater than $100,000. We
reserve the right to modify this waiver upon 30 days written notice to you. We
do not charge a Contract Fee after annuity payments have begun. (See "Fees and
Charges -- Contract Fee.")
Transfer Fee. During the Pay-in Period, you may make 12 transfers each
Contract Year at no charge. We will impose a transfer fee of $25 for the
thirteenth and each subsequent transfer you make during a Contract Year before
the Annuity Start Date. (See "Fees and Charges -- Transfer Fee.")
Mortality and Expense Risk Charge. We will deduct a daily mortality and
expense risk charge as compensation for our 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. This is equal to 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 after the Annuity Start Date if annuity
payments are made on a variable basis. (See "Fees and Charges -- Mortality and
Expense Risk Charge.")
Asset-Based Administrative Charge. We will deduct a daily administrative
charge as compensation for certain expenses we incur in administrating the
Contract. The charge is deducted from the assets of each Variable Account at an
annual rate of 0.15%. This charge will continue to be assessed after you begin
to receive annuity payments if you choose to receive annuity payments on a
variable basis. (See "Fees and Charges -- Asset-Based Administrative Charge.")
Premium Taxes. Various states and other governmental entities charge a
premium tax on annuity contracts issued by insurance companies. Premium tax
rates currently range up to 3.5%, depending on the state. 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. We are
responsible for the payment of these taxes and, if necessary, we will make a
deduction from the value of your Contract either: (a) from Premium Payments as
we receive them, (b) from Contract Value upon partial or full withdrawal, (c)
when annuity payments begin, or (d) upon payment of a Death Benefit. (See "Fees
and Charges -- Premium Taxes.")
Investment Advisory Fees and Other Expenses of the Funds. Each Portfolio
pays investment management charges to its investment adviser based on a
percentage of the Portfolio's average daily net assets. These advisory fees and
other Portfolio charges and expenses are fully described in the attached
prospectuses for the Portfolios. These charges are indirectly passed on to you.
In addition, the SoGen Overseas Portfolio deducts a 12b-1 fee from the
Portfolio's assets at a maximum annual rate of 0.25% of the average daily value
of the Portfolio's net assets. The 12b-1 fees may be used to reimburse IL
Annuity for certain administrative and distribution support services provided to
the Overseas Portfolio.
15
<PAGE> 24
ANNUITY PROVISIONS
Payout Options. Under the Contract, you may choose to receive regular
annuity payments under one of several available payout plans. You may also
choose the month and year on which those payments are to begin. (This is the
Annuity Start Date.) On the Annuity Start Date, the Contract Value (adjusted as
described below) will be used to calculate the amount of your annuity payments
under the payment plan you choose, unless you choose 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 Period.")
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."
ABOUT IL ANNUITY 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. We changed our name to "IL Annuity and Insurance Company" on January
17, 1995.
Effective October 31, 1994, we entered into an assumption reinsurance
agreement with Sentry Life Insurance Company ("Sentry") whereby Sentry assumed
all of our existing insurance in-force and related assets and liabilities.
On November 1, 1994, we 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, 1996 which exceeded $1.596 billion.
We are 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 we do business. We submit annual statements on our
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
We established the IL Annuity and Insurance Co. Separate Account I (the
"Separate Account") 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 certain other variable annuity contracts we may
issue in the future.
Although the assets in the Separate Account are our property, 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 that we may conduct and that has no specific
relation to or dependence upon the Separate Account. The assets of the Separate
Account are available to cover our general liabilities 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. We have 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 our general corporate obligations. Income, gains and losses,
16
<PAGE> 25
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 nineteen 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 PORTFOLIOS
Each Variable Account of the Separate Account invests exclusively in shares
of a designated Portfolio of a series-type mutual fund ("Fund"). Shares of each
Portfolio are purchased and redeemed at net asset value, without a sales charge.
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.
The assets of each Portfolio of each 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.
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
adviser is responsible for the selection of the investments of the Portfolio.
These investments must be consistent with the investment objective, policies and
restrictions of that Portfolio.
The investment objective of each Portfolio is summarized below. THERE IS NO
ASSURANCE THAT ANY PORTFOLIO WILL ACHIEVE ITS STATED OBJECTIVES. More detailed
information, including a description of risks, fees and expenses of each
Portfolio, may be found in the prospectuses for the Funds which are attached to
this prospectus.
CERTAIN PORTFOLIOS HAVE SIMILAR INVESTMENT OBJECTIVES AND/OR POLICIES. YOU
SHOULD READ THE PROSPECTUSES FOR THE PORTFOLIOS CAREFULLY BEFORE YOU INVEST.
THE ALGER AMERICAN FUND
The MidCap Growth Portfolio and the Small Capitalization Portfolio of The
Alger American Fund ("The Alger Fund") are available for investment under the
Contract. The investment objective of each Portfolio is:
MIDCAP GROWTH PORTFOLIO -- seeks to obtain 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 400 Index is designed to track the
performance of medium capitalization companies. As of March 31, 1997, the
range of market capitalization of these companies was $120 million to $7.19
billion.
17
<PAGE> 26
SMALL CAPITALIZATION PORTFOLIO -- seeks to obtain 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, ("Russell Index") or the S&P SmallCap 600 Index updated
quarterly. Both indexes are broad indices of small capitalization stocks.
As of March 31, 1997, the range of market capitalization of the companies
in the Russell Index was $10 million to $1.94 billion; the range of
capitalization of the companies in the S&P SmallCap 600 Index at that date
was $32 million to $2.579 billion.
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 Portfolio, the Growth Portfolio and the Money Market
Portfolio of Fidelity's Variable Insurance Products Fund ("VIP Fund"), as well
as the Asset Manager Portfolio, the Contrafund Portfolio, the Index 500
Portfolio and the Investment Grade Bond Portfolio of the Variable Insurance
Products Fund II ("VIP Fund II") are available for investment under the
Contract. The investment objective of each Portfolio is:
EQUITY-INCOME 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.
18
<PAGE> 27
OCC ACCUMULATION TRUST
The Managed Portfolio and the Small Cap Portfolio of the OCC Accumulation
Trust ("OCC Trust") (formerly known as the Quest for Value Accumulation Trust)
are available for investment under the Contract. The investment objective of
each Portfolio is:
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.
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.
ROYCE CAPITAL FUND
The Royce Micro-Cap Portfolio of the Royce Capital Fund is available for
investment under the Contract and has the following investment objective:
ROYCE MICRO-CAP PORTFOLIO -- seeks long-term capital appreciation,
primarily through investments in common stocks and convertible securities
of small and micro-cap companies. Production of income is incidental to
this objective.
Quest Advisory Corp. serves as the investment adviser to the Portfolio.
SAFECO RESOURCE SERIES TRUST
The SAFECO Equity Portfolio and the SAFECO Growth Portfolio of the SAFECO
Resource Series Trust are available for investment under the Contract. The
investment objective of each Portfolios is:
SAFECO EQUITY PORTFOLIO -- seeks long-term growth of capital and
reasonable current income. The Equity Portfolio ordinarily invests
principally in common stocks or securities convertible into common stocks.
SAFECO GROWTH PORTFOLIO -- seeks growth of capital and the increased
income that ordinarily follows from such growth. The Growth Portfolio
ordinarily invests a preponderance of its assets in common stock selected
for potential appreciation.
Each Portfolio is managed by SAFECO Asset Management Company.
SOGEN VARIABLE FUNDS, INC.
The SoGen Overseas Variable Portfolio of the SoGen Variable Funds, Inc. is
available for investment under the Contract and has the following investment
objective:
SOGEN OVERSEAS VARIABLE PORTFOLIO -- seeks long-term growth of capital
by investing primarily in securities of small and medium size non-U.S.
companies. It particularly seeks companies that have growth potential,
financial strength and stability, strong management and fundamental value.
The Portfolio may invest in securities traded in mature markets (for
example, Japan, Canada and the United Kingdom) and in emerging markets
(Mexico and Indonesia, for example). The Portfolio may invest up to 20% of
its total assets in debt securities, that may include lower-rated
securities, commonly referred to a "junk bonds" and securities that are not
rated. The greater risks involved in foreign investing should be understood
and carefully considered. See the Portfolio's Prospectus for a description
of these risks.
Societe Generale Asset Management Corp., which is indirectly owned by
Societe Generale, one of France's largest banks, serves as the Portfolio's
investment adviser.
19
<PAGE> 28
T. ROWE PRICE FIXED INCOME SERIES, INC.
The Limited-Term Bond Portfolio of the T. Rowe Price Fixed Income Series,
Inc. is available for investment under the Contract and has the following
investment objective:
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 Portfolio of the T. Rowe Price International
Series, Inc. is available for investment under the Contract and has the
following investment objective:
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 Portfolio and the Worldwide Hard Assets Portfolio of
the Van Eck Worldwide Insurance Trust (the "Van Eck Trust") are available for
investment under the Contract. The investment objective of each Portfolio is:
WORLDWIDE HARD ASSETS (FORMERLY GOLD AND NATURAL RESOURCES)
PORTFOLIO -- seeks long-term capital appreciation by investing globally,
primarily in "Hard Asset Securities" of companies that are directly or
indirectly engaged to a significant extent in the exploration, development,
production or distribution of one or more of the following: (i) precious
metals, (ii) ferrous and non-ferrous metals, (iii) energy, (iv) forest
products, (v) real estate, and (vi) other basic non-agricultural
commodities.
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 Worldwide Hard Assets Portfolio pursuant to an Advisory Agreement
with the Van Eck Trust. Fiduciary International, Inc. is expected to serve as
sub-investment adviser to the Van Eck Worldwide Balanced Portfolio pursuant to a
Sub-Investment Advisory Agreement with the Van Eck Trust when the Portfolio's
assets reach a level at which it is appropriate to utilize the sub-investment
advisor's services.
An investment in a 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.
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 on behalf of the Funds will not increase the fees paid
by the Funds or their shareholders.
20
<PAGE> 29
AVAILABILITY OF THE FUNDS
We cannot guarantee that each Portfolio will always be available for
investment through the Contracts, but in the unlikely event that a Portfolio is
not available, we will do everything reasonably practicable to secure the
availability of a comparable portfolio. The Separate Account purchases shares of
each Portfolio in accordance with a participation agreement we have entered into
with each Fund. If a participation agreement terminates, the Separate Account
may not be able to purchase additional shares of the Portfolios of that Fund. In
such case, you will no longer be able to allocate Premium Payments or transfer
Contract Value to the Variable Account investing in that Portfolio.
We reserve the right, subject to applicable law, to make additions to,
deletions from, or substitutions for the shares of a Portfolio that are held in
the Separate Account. If the shares of a Portfolio are no longer available for
investment or if, in our judgment, further investment in any Portfolio should
become inappropriate, we may redeem the shares of that Portfolio and substitute
shares of another portfolio. We will not substitute any shares without notice
and prior approval of the SEC and state insurance authorities, to the extent
required by the 1940 Act or other applicable law.
We also reserve the right in our sole discretion to establish additional
Variable Accounts, or eliminate or combine one or more Variable Accounts, if
marketing needs, tax considerations or investment conditions warrant. We will
determine if new or substituted Variable Accounts will be available to existing
Contract Owners. Subject to obtaining any approvals or consents required by law,
the assets of one or more Variable Accounts may also be transferred to any other
Variable Account if, in our sole discretion, marketing, tax, or investment
conditions warrant. Additional information regarding termination of
participation agreements, substitutions of investments and resolving conflicts
among Funds may be found in the Statement of Additional Information.
THE PAY-IN PERIOD
The Pay-in Period begins when your first Premium Payment is made and
continues until you begin to receive annuity payments during the Payout Period.
The Pay-in Period may also end when you fully withdraw all of your Contract
Value before the Payout Period.
PURCHASING A CONTRACT
You may purchase a Contract with a Premium Payment of $1,000 or more. The
maximum first Premium Payment is $250,000. To purchase a Contract, you must make
an application to us either through one of our licensed representatives who is
also a registered representative of IL Securities, Inc., or a broker-dealer
having a selling agreement with IL Securities, Inc. 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. We will not issue you a Contract if you are older than 85 on the
Date of Issue.
PREMIUM PAYMENTS
Premium Payments must be at least $1,000. You may make Premium Payments at
any time until the earliest of: (a) the Annuity Start Date; (b) the date you
fully withdraw all Contract Value; or (c) the date you reach age 85 (age 70 1/2
for Qualified Contracts). In any one Contract Year, we will not accept Premium
Payments that total more than two times your first Premium Payment. We will not
accept total Premium Payments in excess of $250,000. However, we reserve the
right to waive these limitations.
Under the Automatic Premium Payment Plan, you may select an annual,
semi-annual, quarterly or monthly payment schedule under which we will
automatically deduct Premium Payments from a bank or credit union account or
other source. The minimum amount of such payment is $1,000.
21
<PAGE> 30
CANCELLATION -- THE 10 DAY FREE-LOOK PERIOD
You have the right to cancel the Contract for any reason within 10 days
after you receive 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. To cancel the Contract, you must send a
Written Request for cancellation and the returned Contract to the Service Center
before the end of the Free-Look Period.
The amount that we will refund to you will vary according to state
requirements. In most states, we will refund to you 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 Service Center. You bear the investment risk
for Premium Payments allocated to the Variable Accounts during the free-look
period.
A few states require us to return Premium Payments upon cancellation. 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 the deduction of a Withdrawal Charge) on the
date the Contract and the Written Request for cancellation is received at our
Service Center, plus any amount that may have been deducted for premium taxes.
In those states where Premium Payments must be returned, we 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 we credit the initial Premium Payment to your Contract. At the end of that
period, the amount in the Money Market Variable Account will be allocated to the
Variable Accounts you selected on your application based on the allocation
percentages you specified.
DESIGNATING YOUR INVESTMENT OPTIONS
When you fill out your application, you will give us instructions on how to
allocate your first Net Premium Payment among the nineteen Variable Accounts and
the Fixed Account. The amount you direct to a particular Variable Account and/or
to the Fixed Account must equal at least 1% of the Premium Payment.
Once we receive your Premium Payment and your completed application at the
Service Center, we will issue your Contract and direct your first Net Premium
Payment within two (2) Business Days to the Variable Accounts and/or the Fixed
Account in accordance with your instructions, subject to the limitations set
forth above under "Cancellation -- The 10-Day Free Look Period."
If you did not give us all the information we need, we will contact you. If
we cannot complete the application within five (5) Business Days, we will either
send back your money immediately or obtain your permission to keep your money
until we receive all the necessary information. Once the application is
complete, we will direct your first Net Premium Payment to the Variable Accounts
and/or the Fixed Account according to your instructions within two Business
Days.
We will credit any additional Premium Payments you make to your Contract as
of the same Business Day we receive them. Our Business Day closes when the New
York Stock Exchange closes, usually at 4 p.m. Eastern Time. If we receive your
Premium Payments after the close of our Business Day, we will calculate and
credit them the next Business Day. We will direct your Premium Payment to the
Variable Accounts and/or the Fixed Account according to your written
instructions in effect at the time we receive it. However, you may direct
individual Premium Payments to a specific Variable Account or to the Fixed
Account (or any combination thereof) without changing your instructions. You may
change your instructions directing your investments at any time by sending us a
Written Request or by telephone authorization. Changing such instructions will
not change the way existing Contract Value is apportioned among the Variable
Accounts or the Fixed Account.
THE CONTRACT VALUE ALLOCATED TO A VARIABLE ACCOUNT WILL VARY WITH THE INVESTMENT
EXPERIENCE OF THAT VARIABLE ACCOUNT. YOU BEAR THE ENTIRE INVESTMENT RISK FOR
AMOUNTS YOU ALLO-
22
<PAGE> 31
CATE TO THE VARIABLE ACCOUNTS. YOU SHOULD PERIODICALLY REVIEW YOUR PREMIUM
PAYMENT ALLOCATION INSTRUCTIONS IN LIGHT OF MARKET CONDITIONS AND YOUR OVERALL
FINANCIAL OBJECTIVES.
SEPARATE ACCOUNT VALUE
The value of your investment in the Separate Account will go up or down
depending on the investment experience of the Portfolios underlying the Variable
Accounts you select for investment. Separate Account Value will be decreased by
any partial withdrawals, transfers and Separate Account charges. There is no
guaranteed minimum Separate Account Value. Because the value in the Separate
Account of your Contract on any future date depends upon market conditions, it
cannot be predetermined.
Calculating Separate Account Value. The Separate Account Value is
determined at the end of each Business Day. It is the sum of the assets you have
in each of the Variable Accounts. To measure the value of each Variable Account,
we use a unit of measure called an Accumulation Unit.
Determining the Number of Accumulation Units. Any money you allocate or
transfer to a Variable Account will be converted into Accumulation Units and
will increase the number of Accumulation Units credited to the Variable Account.
We determine the number of Accumulation Units to be credited to the Variable
Account by dividing the dollar amount of the payment or transfer by the
Accumulation Unit value for that Variable Account as of the end of that Business
Day. (See "Determining Accumulation Unit Value" below.)
Any amounts transferred, withdrawn 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 value of an Accumulation Unit for
that Variable Account as of the end of the Business Day during which the amount
was removed. The number of Accumulation Units in any Variable Account will be
decreased at the end of each Business Day by:
(a) any amounts transferred (and any applicable Transfer Fee) from that
Variable Account to another Variable Account or to the Fixed
Account,
(b) any amounts withdrawn during that Business Day,
(c) any Withdrawal Charge or premium tax assessed upon a full or partial
withdrawal, and
(d) the quarterly Contract Fee, if assessed on that Business Day.
Determining Accumulation Unit Value. On the first day of operation for
each Variable Account, the value of an Accumulation Unit for that Variable
Account is set at $10. We recalculate the value of an Accumulation Unit for each
Variable Account at the end of each Business Day. Accumulation Unit Value is
calculated by multiplying the value of an Accumulation Unit at the end of the
immediately preceding Business Day by the Variable Account's Net Investment
Factor for the current Business Day. The Net Investment Factor for each Variable
Account reflects the investment performance and capital gains and losses
(whether realized or unrealized) of the underlying Portfolio and certain
Separate Account charges for that Business Day. The formula for computing the
Net Investment Factor may be found in the Statement of Additional Information.
TRANSFERS BETWEEN INVESTMENT OPTIONS
General. Before the Annuity Start Date and subject to the restrictions
described below, you 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 you have chosen the Living Benefit option and you transfer Contract
Value from an Eligible Variable Account, you will reduce the amount of the
Eligible Premium Payments on which your Living Benefit is based. (See "Living
Benefit.") IT IS IMPORTANT THAT YOU READ THE SECTION ON "LIVING BENEFIT" SO THAT
YOU MAY BETTER UNDERSTAND HOW THIS FEATURE OF THE CONTRACT WORKS.
23
<PAGE> 32
Transfers to the Fixed Account must be at least $1,000. Before the Annuity
Start Date, you may transfer up to 20% of the Fixed Account Value (as determined
at the beginning of the Contract Year) from the Fixed Account to one or more of
the Variable Accounts in any Contract Year. We measure a Contract Year from the
anniversary of the day we issued your Contract. We do not charge a Transfer Fee
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 Business Day on which we receive your
Written Request or telephone authorization to transfer, provided we receive it
before the close of our Business Day, usually 4:00 p.m. Eastern Time. If we
receive your request after the close of our Business Day, we will make the
transfer as of the next Business Day. There currently is no limit on the number
of transfers that you can make before the Annuity Start Date among or between
Variable Accounts or to the Fixed Account.
Telephone Transfers. We will make a transfer based upon instructions you
give us over the telephone, provided we have on file a currently valid telephone
transfer authorization that you have signed. If you have not completed such an
authorization on your application, you must send a telephone transfer
authorization form to our Service Center. Your authorization is valid until you
revoke it in writing or until the Service Center receives a subsequently dated
form that you have signed. You may use your telephone to authorize a transfer
from one Variable Account or the Fixed Account to another Variable Account or
the Fixed Account, to change the allocation instructions for future investments,
to change Dollar-Cost Averaging, interest sweep and Automatic Account Balancing
options and/or to request a partial withdrawal.
We will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. If we follow such procedures we will not
be liable for any losses due to unauthorized or fraudulent instructions. We may
be liable for such losses if we do not follow those reasonable procedures. The
procedures that we may follow for telephone transfers include providing you with
a written confirmation of all transfers made according to telephone
instructions, requiring a form of personal identification prior to acting on
instructions received by telephone, and tape recording instructions received by
telephone.
We reserve 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, we reserve the right not to
honor transfers requested by a third party holding a power of attorney from you
where that third party requests simultaneous transfers on your behalf of two or
more Contracts.
Transfer Fee. We will impose a transfer fee of $25 for the thirteenth and
each subsequent transfer request you make. There is currently no limit on the
number of transfers you can make of 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 before the Annuity Start Date. (See "Charges and
Deductions.")
Dollar-Cost Averaging. The Dollar-Cost Averaging Program permits you to
systematically transfer (on a monthly or quarterly basis) a set dollar amount
from one or more Variable Accounts or the Fixed Account to any other Variable
Accounts. 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.
You may elect to participate in the Dollar-Cost Averaging program when you
complete your application, or at any other time before the Annuity Start Date,
by sending us a Written Request. To use the Dollar-Cost Averaging program, you
must transfer at least $100 to each Variable Account. Once you elect the
program, it remains in effect for the life of the Contract until the value of
the Variable Account from which transfers are being made is depleted, and/or the
value of the Fixed Account is expended, or until you cancel the program by
Written Request or by telephone request if we have your telephone authorization
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
24
<PAGE> 33
assessing a transfer change. We reserve the right to discontinue offering the
dollar-cost averaging facility at any time and for any reason.
Dollar-Cost Averaging from an Eligible Variable Account will reduce the
amount of the Eligible Premium Payments on which the Living Benefit is based.
(See "Living Benefit.")
Interest Sweep. Before the Annuity Start Date, you 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. Once your money has been allocated
among the Variable Accounts, the performance of each Variable Account may cause
your allocation to shift. You may instruct us to automatically rebalance (on a
monthly or quarterly basis) your Variable Account values to return to the
percentages specified in your allocation instructions. You may elect to
participate in the Automatic Account Balancing Service when you complete your
application or at any other time before the Annuity Start Date by sending us a
Written Request. Your percentage allocations must be in whole percentages and be
at least 1% per allocation. You may start and stop Automatic Account Balancing
at any time by sending us a Written Request or by telephone request, if we have
your telephone authorization on file. 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. We reserve the right to
discontinue offering the automatic account balancing service at any time and for
any reason.
Automatic Account Balancing from an Eligible Variable Account will reduce
the amount of the Eligible Premium Payments on which the Living Benefit is
based. (See "Living Benefit.")
FEES AND CHARGES
WITHDRAWAL CHARGE
General. We do not deduct a charge for sales expenses from Premium
Payments at the time Premium Payments are paid to us. However, we do deduct a
Withdrawal Charge if you fully or partially withdraw Contract Value before the
Annuity Start Date. We do not assess a Withdrawal Charge on withdrawals made in
the event the Contract terminates due to your death or the death of the
Annuitant, or if you decide to begin to receive annuity payments and you choose
an annuity payout plan with a life contingency or an annuity payout plan with a
period certain of at least 10 years.
The amount of the Withdrawal Charge you may incur depends on the Withdrawal
Charge Option you choose at the time you purchase your Contract. ONCE YOU CHOOSE
YOUR WITHDRAWAL CHARGE OPTION, YOU CANNOT CHANGE IT. If your initial Premium
Payment is $100,000 or more, you may choose one of two Free Withdrawal Options
at the time you complete your application.
Withdrawal Charge Options. When you purchase your Contract, you must
choose between two Withdrawal Charge Options.
The DATE OF ISSUE WITHDRAWAL CHARGE OPTION is designed for the owner who
wishes to make additional Premium Payments periodically over the life of the
Contract. The charge expires after the ninth Contract Year, benefiting those
owners who intend to continue to make Premium Payments after the ninth Contract
Year.
The PREMIUM PAYMENT WITHDRAWAL CHARGE OPTION is more suitable for the owner
who currently intends to make only a single Premium Payment or several Premium
Payments close in time to the date the Contract is issued. This charge option is
not designed for the owner who intends to make additional Premium Payments over
an extended period of time because each time you make another Premium Payment,
the seven-year period for paying the Withdrawal Charge begins again.
25
<PAGE> 34
The Withdrawal Charge is separately calculated for each withdrawal you
make. For purposes of calculating the Withdrawal Charge, the money that has been
held the longest in the Contract will be deemed to be the first money withdrawn.
In addition, amounts subject to the Withdrawal Charge will be deemed to be first
from Premium Payments, and then from earnings. This means that we will not
deduct a Withdrawal Charge on withdrawals of that portion of your Contract Value
that exceeds the sum total of your Premium Payments.
IF YOU CHOOSE THE DATE OF ISSUE WITHDRAWAL CHARGE OPTION: We will impose a
Withdrawal Charge on all partial or full withdrawals of Premium Payments that
you make during the first nine Contract Years if the amount of the withdrawal
exceeds the Free Withdrawal Amount. The Withdrawal Charge is calculated as a
percentage of the amount you withdraw based on the number of years between the
date we receive your Written Request for withdrawal and the Date of Issue. The
rate of the Withdrawal Charge is listed in the table below. Under this option,
no Withdrawal Charge is deducted from full or partial withdrawals that you make
in Contract Years ten and later.
<TABLE>
<CAPTION>
CHARGE AS PERCENTAGE
CONTRACT YEAR OF PREMIUM PAYMENTS
------------------------------------------------------- --------------------
<S> <C>
1-6............................................... 7.0%
7................................................. 6.0
8................................................. 4.0
9................................................. 2.0
10+............................................... 0
</TABLE>
IF YOU CHOOSE THE DATE OF PREMIUM PAYMENT WITHDRAWAL CHARGE OPTION: We
will calculate the Withdrawal Charge by determining the length of time between
the date we receive your Written Request for a withdrawal and the date you made
the Premium Payment being withdrawn. We will deduct a Withdrawal Charge if you
withdraw a Premium Payment that we have held for less than seven Premium Payment
Years if it is greater than the Free Withdrawal Amount.
<TABLE>
<CAPTION>
CHARGE AS PERCENTAGE
PREMIUM PAYMENT YEAR OF PREMIUM PAYMENTS
------------------------------------------------------- --------------------
<S> <C>
1................................................. 7.0%
2................................................. 6.0
3................................................. 5.0
4................................................. 4.0
5................................................. 3.0
6................................................. 2.0
7................................................. 1.0
8+................................................ 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 any Contract Year after the first, you may
withdraw a portion of your Contract Value without incurring a Withdrawal Charge.
This amount is called the Free Withdrawal Amount. Withdrawals under the
Systematic Withdrawal Program are also permitted a Free Withdrawal Amount, as
determined below, during the first Contract Year. If your initial Premium
Payment is less than $100,000, the Free Withdrawal Amount is 10% of Contract
Value each year, as determined at the beginning of the Contract Year. If you do
not withdraw the full 10% in any Contract Year, the remaining amount does not
roll over to the next Contract Year.
26
<PAGE> 35
If your initial Premium Payment is $100,000 or more, the Free Withdrawal
Amount depends on the Free Withdrawal Option you choose at the time you purchase
your Contract. Once you choose an option, you cannot change it.
IF YOU CHOOSE THE CUMULATIVE 10% OPTION: After the first Contract Year,
you may withdraw up to 10% of your Contract Value as of the beginning of each
Contract Year and we will not charge you a Withdrawal Charge on that amount. If
you do not withdraw the full 10% in any one Contract Year, the remaining
percentage may be rolled over to the next Contract Year, up to a maximum of 50%
of Contract Value measured as of the beginning of each Contract Year.
IF YOU CHOOSE THE EARNINGS OPTION: After the first Contract Year, you may
withdraw part or all of your earnings under the Contract at any time without
incurring a Withdrawal Charge. Earnings are equal to your Contract Value minus
Premium Payments, transfers and partial withdrawals.
Any amounts withdrawn in excess of the Free Withdrawal Amount will be
assessed a Withdrawal Charge, depending on the Withdrawal Charge Option you
choose. (See "Withdrawal Charge.") Free withdrawals may be subject to the 10%
federal penalty tax if made before you reach age 59 1/2.
Waiver of Withdrawal Charge. If state law permits, we will waive the
Withdrawal Charge 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) before the Annuity Start Date and
if permitted by state law, we 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. We
must receive your Written Request to waive the charge before the Annuity Start
Date.
Under the terms of the Post-Secondary Education Rider, if you, your spouse,
your child or the Annuitant is enrolled in a college, university, vocational,
technical, trade or business school, we will waive the Withdrawal Charge on one
withdrawal of up to 20% of Contract Value in each Contract Year before the
Annuity Start 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 Free Withdrawal Amount,
is 20% of Contract Value. Before the withdrawal, we must receive at our Home
Office written proof of enrollment to our satisfaction within one (1) year of
the date of enrollment. (See "Free Withdrawal Amount" and the Statement of
Additional Information.)
Employee and Agent Purchases. If state law permits, we will waive the
Withdrawal Charge 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 withdrawal of
Contract Value) before the Annuity Start Date, we will deduct from the Contract
Value a quarterly contract fee of $7.50 as reimbursement for our 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.
We will not charge the Contract Fee after an annuity payout plan has begun.
Deduction of the Contract Fee is currently waived for all Qualified Contracts.
We also currently waive 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. We reserve the right to modify
this waiver upon 30 days written notice to you.
ASSET-BASED ADMINISTRATIVE CHARGE
We will deduct a daily administrative charge as compensation for certain
expenses we incur in the administration of the Contract. The charge is deducted
from the assets of the Separate Account at an annual rate of 0.15%. We will
continue to assess this charge after annuitization if annuity payments are made
on a
27
<PAGE> 36
variable basis. There is no necessary relationship between the amount of this
administrative 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 the 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 will 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). We reserve the right to waive the transfer
fee.
MORTALITY AND EXPENSE RISK CHARGE
As compensation for assuming mortality and expense risks, we will deduct 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 Start Date.
The mortality risk we assume 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 we assume also includes a guarantee to pay a Death Benefit
if the Annuitant dies before the Annuity Start Date. The expense risk that we
assume is the risk that the administrative fees and transfer fees (if imposed)
may be insufficient to cover actual future expenses.
FUND EXPENSES
Because the Separate Account purchases shares or units of the various
Portfolios of the Funds, the net assets of the Separate Account will be reduced
by the investment advisory fees and other operating expenses incurred by such
Portfolios. See the attached prospectuses for the Portfolios.
PREMIUM TAXES
Various states and other governmental entities charge a premium tax on
annuity contracts issued by insurance companies. Premium tax rates currently
range up to 3.5%, depending on the state. 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. We are responsible for
the payment of these taxes and, if necessary, we will make a deduction from the
value of your Contract either: (a) from Premium Payments as we receive them, (b)
from Contract Value upon partial or full withdrawal, (c) when annuity payments
begin, or (d) upon payment of a Death Benefit. We, however, reserve 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 we incur or that may be
attributable to the Separate Account or the Contracts. We 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 we determine to have resulted from: (1) the establishment or
maintenance of the Separate Account, (2) receipt by us of Premium Payments, (3)
issuance of the Contracts, or (4) the payment of annuity payments.
28
<PAGE> 37
THE PAYOUT PERIOD
The Payout Period is that period of time during which you will receive in a
steady stream of annuity payments the money you have accumulated under your
Contract. It begins on the Annuity Start Date. You may choose to have your
annuity payments made on a fixed, a variable, or a combination payout basis.
When you choose to have your Payout Option on a variable basis, you may keep the
same Variable Accounts to which your Premium Payments were allocated, or
transfer to different ones.
THE ANNUITY START DATE. If you own a Non-Qualified Contract, you may
select the Annuity Start Date on which you will begin to receive annuity
payments. If you do not specify a date, the Annuity Start Date is the later of
the Annuitant's age 70 or 10 years after the Date of Issue. For Qualified
Contracts purchased in connection with qualified plans under Code sections
401(a), 401(k), 403(a), 403(b) and 457, the Code requires that the Annuity
Commencement Date must be no later than April 1 of the calendar year following
the later of the year in which the Owner (i) reaches age 70 1/2 or (ii) retires.
If the Owner is a "5 percent owner" (as defined in the Code), or in the case of
an IRA that satisfies Code section 408, the Annuity Commencement Date must be no
later than the date described in (i).
If you have chosen the Living Benefit option at the time you purchase the
Contract and you select an Annuity Start Date that is earlier than the Living
Benefit Date (i.e., the later of the Annuitant's age 70 or 10 years after the
Date of Issue), you will lose your eligibility for the Living Benefit. (See
"Living Benefit.")
You may change your Annuity Start Date if: (1) we receive your Written
Request at the Service Center at least 31 days before the current Annuity Start
Date, and (2) the Annuity Start Date you request is a Contract Anniversary or it
is the date on which you fully withdraw the Surrender Value.
ANNUITY PAYOUT OPTIONS. You may elect, revoke, or change your annuity
payout plan at any time before the Annuity Start Date while the Annuitant is
living by sending us a Written Request signed by you and/or your beneficiary, as
appropriate. You may choose one of the payout plans described below or any other
plan being offered by us as of the Annuity Start Date. The payout plans we
currently offer provide either variable annuity payments or fixed annuity
payments or a combination of both.
You may select to receive annuity payments on a monthly, quarterly,
semi-annual or annual basis. The first payment under any payout plan will be
made on the fifteenth day of the month immediately following the Annuity Start
Date. Subsequent payments shall be made on the fifteenth of the month.
If you do not select an annuity payout plan by the Annuity Start Date, we
will apply the adjusted Contract Value under Option 3, One Life Income with
payments guaranteed for 10 years, as described below.
Anytime before the Annuity Start Date, you may have the entire Surrender
Value paid to you as an annuity under one of the payout plans. A beneficiary may
have the Death Benefit paid as an annuity under one of the payout plans.
We reserve the right to pay you the adjusted Contract Value in a lump sum
and not as an annuity if your adjusted Contract Value after the Annuity Start
Date would be less than $2,500, or the amount of annuity payments would be less
than $25.
DETERMINING THE AMOUNT OF THE ANNUITY PAYMENT. On the Annuity Start Date,
the adjusted Contract Value will be used to calculate your annuity payments
under the payout plan you select, unless you choose to receive the Surrender
Value in a lump sum. In certain states, we must use the Surrender Value of your
Contract to calculate your annuity payments under the payout plan you choose,
rather than the adjusted Contract Value.
The adjusted Contract Value is the Contract Value on the Annuity Start
Date:
(1) MINUS the quarterly Contract Fee;
(2) MINUS any applicable premium taxes not yet deducted; and
(3) for an installment income annuity payout plan with a payout period
of less than 10 years, MINUS any applicable Withdrawal Charge.
29
<PAGE> 38
For Qualified Contracts, the amount of any outstanding loan is also
deducted, and distributions must satisfy certain requirements specified in the
Code.
We do not assess a Withdrawal Charge if you choose an annuity payout plan
with a life contingency or an installment payout plan with a period certain of
at least 10 years.
FIXED ANNUITY PAYMENTS
Fixed annuity payments are periodic payments that we make to the Annuitant.
The amount of the fixed annuity payment is fixed and guaranteed by us. The
amount of each payment depends only on the form and duration of the payout plan
you choose, the age of the Annuitant, the sex of the Annuitant (if applicable),
the amount of your Contract Value 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%. We may, in our sole discretion, make annuity
payments in an amount based on a higher interest rate.
VARIABLE ANNUITY PAYMENTS
As with fixed annuity payments, variable annuity payout plans guarantee
income either for life or the number of years that you have chosen. The amount
of your variable annuity payments will depend on the current value of the
underlying investments, which varies over time. Your contract will contain
annuity tables which demonstrate how the initial annuity payment rate is
derived. This rate is different for each payout plan, and varies by age and sex
of the annuitant. The contract will also permit you to choose a benchmark rate
of return for the Payout Period. You may choose a benchmark rate of 3.0%, 4.0%
or 5.0% annually. If the net investment performance is greater than this
benchmark rate, your payments will increase. If the performance falls below this
benchmark, your payments will decline. Therefore, if you choose a 5.0% benchmark
rate, you assume more risk that your income check may occasionally decline than
if you choose a 3.0% benchmark rate. For further details on Variable Annuity
Payments, see the Statement of Additional Information.
Transfers. After the Annuity Start Date, an Annuitant may change the
Variable Account(s) in which the annuity payout plan is invested once per
Contract Year by sending us a Written Request. No charge is assessed for this
transfer. We will make the transfer 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 ANNUITY PAYOUT OPTIONS
Option 1 -- Installment Income For a Fixed Period. Under this option, we
will make equal monthly annuity payments 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 of Contract Value 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.
Option 2 -- Installment Income In a Fixed Amount. Under this option, we
will make equal monthly payments of $5.00 or more for each $1,000 of Contract
Value used to purchase the option 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. Under this option, we will make an annuity
payment each month so long as the Payee is alive,* or for a guaranteed 10 or 20
year period. If when the Payee dies, we have made annuity
- ---------------
* 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.
30
<PAGE> 39
payments for less than the selected guaranteed period, we will continue to
make annuity payments for the rest of the guaranteed period. 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 of Contract Value used to
purchase the option 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. Under this option, we will
make annuity payments each month so long as two Payees are alive, or if one
Payee dies to the surviving Payee.* If one Payee dies before the due date of the
first payment, the surviving Payee will receive payments under Option 3 -- One
Life Income with payments guaranteed for 10 years. 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.
WITHDRAWAL OF CONTRACT VALUE
Full Withdrawals. At any time before the Annuity Start Date, you may
withdraw fully from 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; and MINUS (3) the Contract Fee.
For Qualified Contracts, any outstanding loan balance is also deducted. The
Surrender Value will be determined as of the Business Day that we receive your
Written Request requesting full withdrawal and your Contract at our Service
Center. The Surrender Value will be paid in a lump sum unless you request
payment under a payout plan. (See "The Payout Period.") A full withdrawal may
have adverse federal income tax consequences, including a penalty tax. (See
"Federal Tax Matters.")
Partial Withdrawals. At any time before the Annuity Start Date, you may
send a Written Request or a telephone request to us to withdraw part of your
Contract Value. You must withdraw at least $250. We will withdraw the amount you
request from the Contract Value as of the Business Day on which we receive your
Written Request for the partial withdrawal. We will then reduce the amount
remaining in the Contract by any applicable Withdrawal Charge. Your Contract
Value after a partial withdrawal must be at least $1,000. If your Contract Value
after a partial withdrawal is less than $1,000, we reserve the right to pay you
the Surrender Value in a lump sum. (See "Fees and Charges -- Withdrawal
Charge.")
You may specify how much you wish to withdraw from each Variable Account
and/or the Fixed Account. If you do not specify, or if you do not have
sufficient assets in the Variable Accounts or Fixed Account you specified to
comply with your request, we will make the partial withdrawal on a pro rata
basis from the Fixed Account and those Variable Accounts in which you have
invested. We will base the pro rata reduction on the ratio that the value in
each Variable Account and the Fixed Account has to the entire Contract Value
before the partial withdrawal.
If you have elected the Living Benefit option and you withdraw Contract
Value from an Eligible Variable Account, you will reduce the amount of the
Eligible Premium Payments on which your Living Benefit is based. IT IS IMPORTANT
THAT YOU READ THE SECTION ON "LIVING BENEFIT" SO THAT YOU MAY BETTER UNDERSTAND
HOW THIS FEATURE OF THE CONTRACT WORKS.
INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO ANY
WITHDRAWAL YOU MAKE. (See "Federal Tax Matters.")
Systematic Withdrawal Program. The Systematic Withdrawal Program provides
an automatic monthly or quarterly payment to you, the Owner, from the amounts
you have accumulated in the Variable Accounts and/or the Fixed Account. The
minimum amount you may withdraw is $100. The maximum amount that may be
transferred and withdrawn out of the Fixed Account in any Contract Year under
all circumstances (Dollar-Cost Averaging, Systematic Withdrawals and Partial
Withdrawals) is 20% of the Fixed Account Value as determined at the beginning of
the Contract Year. To use the program, you must maintain a $1,000
31
<PAGE> 40
balance in your Contract. You may elect to participate in the Systematic
Withdrawal Program at any time before the Annuity Start Date by sending a
Written Request to our Service Center. Once you elect the program, it remains in
effect unless the balance in your Contract drops below $1,000. You may cancel
the program at any time by sending us a Written Request or by calling us by
telephone if we have your telephone authorization on file.
We will assess a Withdrawal Charge on these withdrawals, unless the amount
you withdraw under the Systematic Withdrawal Program qualifies as a Free
Withdrawal Amount or unless Withdrawal Charges no longer apply to the amounts
withdrawn. Withdrawals under the Systematic Withdrawal Program are permitted a
Free Withdrawal Amount during the first Contract Year. (See "Fees and
Charges -- Withdrawal Charge.") We do not deduct any other charges for this
program.
All Systematic Withdrawals will be paid to you on the same day each month,
provided that day is a Business Day. If it is not, then payment will be made on
the next Business Day. Systematic withdrawals may be taxable, subject to
withholding, and subject to a 10% penalty tax. (See "Federal Tax Matters.") We
reserve the right to discontinue offering the Systematic Withdrawal Program at
any time and for any reason.
Systematic Withdrawals from an Eligible Variable Account will reduce the
amount of the Eligible Premium Payments on which the Living Benefit is based.
(See "Living Benefit.")
Full and Partial Withdrawal Restrictions. Your right to make full and
partial withdrawals is subject to any restrictions imposed by applicable law or
employee benefit plan.
Restrictions Under the Texas Optional Retirement Program. Section 36.105
of the Texas Educational Code permits participants in the Texas Optional
Retirement Program ("ORP") to withdraw their interests in a variable annuity
contract issued under the ORP only upon: (1) termination of employment in the
Texas public institutions of higher education; (2) retirement; or (3) death.
Accordingly, a participant in the ORP (or the participant's estate if the
participant has died) will be required to obtain a certificate of termination
from the employer, or a certificate of death, before the Contract can be
surrendered.
Restrictions on Distributions from Certain Types of Contracts. There are
certain restrictions on full 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.
CONTRACT LOANS
If your Contract is issued to you in connection with retirement programs
meeting the requirements of Section 403(b) of the Code (other than those
programs subject to Title I of the Employee Retirement Income Security Act of
1974), you may borrow from us using your Contract as collateral. Loans such as
these are subject to the provisions of any applicable retirement program and to
the Code. You should, therefore, consult your tax and retirement plan advisers
before taking a contract loan.
At any time prior to the year the Owner reaches age 70 1/2, you may borrow
the lesser of (1) the maximum loan amount permitted under the Code, and (2) 90%
of the Surrender Value of your Contract less any existing loan amount,
determined as of the date of the loan. Loans in excess of the maximum amount
permitted under the Code will be treated as a taxable distribution rather than a
loan. The minimum loan amount is $1,000. We will only make contract loans after
approving your written application. The written consent of all assignees and
irrevocable beneficiaries must be obtained before a loan will be given.
When a loan is made, we will transfer 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 our general account, and Contract Value in the loan
account does not participate in the investment experience of any Variable
Account
32
<PAGE> 41
or Fixed Account. You 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
you, 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 you at any time before the Annuity Start 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 as designated by you or according to your current Premium Payment
allocation instructions.
We charge interest on contract loans at an effective annual rate of 6.0%.
We pay interest on the Contract Value in the loan account at rates we determine
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. We 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 Start 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, we will send you a written
notice of default stating the amount of loan repayment needed to reinstate the
Contract, and you will have 60 days, from the day the notice is mailed, to pay
the stated amount. If we do not receive the required loan repayment within 60
days, we 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) of the Code
may be adversely affected.
Any loan amount outstanding at the time of your death or the death of the
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.
DEATH BENEFITS
DEATH BENEFITS BEFORE THE ANNUITY START DATE
Death Benefit. If the Annuitant dies before the Annuity Start Date, the
Beneficiary will receive a Death Benefit. If you do not choose the Enhanced
Death Benefit option, the Death Benefit will be equal to the greater of:
(1) the sum of all Premium Payments made under the Contract, LESS
partial withdrawals, as of the date we receive due proof of the
deceased's death and payment instructions; or
(2) the Contract Value as of the date we receive due proof of the
deceased's death and payment instructions;
LESS any applicable premium taxes not previously deducted.
Enhanced Death Benefit. If you elect the three year stepped-up Enhanced
Death Benefit option at the time of purchase, the minimum Enhanced Death Benefit
payable upon the death of the Annuitant before the Annuity Start Date will be
reset every third year on the Death Benefit Anniversary if the Contract Value on
such Death Benefit Anniversary is greater than the Contract Value on the
previous Death Benefit Anniversary. The Enhanced Death Benefit will equal the
greater of:
(1) the Contract Value as of the date we receive due proof of the
deceased's death and payment instructions; or
33
<PAGE> 42
(2) the highest Contract Value as of any Death Benefit Anniversary
preceding the date the Enhanced Death Benefit is determined, plus
any Premium Payments, and minus any withdrawals and charges,
incurred between such Death Benefit Anniversary and the date the
Enhanced Death Benefit is determined. This value is initially set on
the first Death Benefit Anniversary and equals the greater of: (a)
the sum of Premium Payments, MINUS partial withdrawals; or (b)
Contract Value, on that date. This value will be reset on every
future Death Benefit Anniversary (that is, every third Contract
Anniversary) to equal Contract Value on that date only if Contract
Value on that Death Benefit Anniversary is greater than the Enhanced
Death Benefit Value on any previous Death Benefit Anniversary. Once
reset, this value will never decrease unless partial withdrawals are
made;
LESS any applicable premium taxes not previously deducted.
Age Limitation Under Either Death Benefit Option. If the Annuitant dies at
or after age 75 (or ten years after the Date of Issue, whichever is later) but
before the Annuity Start Date, the Death Benefit will equal Contract Value, LESS
any applicable premium taxes not yet deducted, as of the date we receive due
proof of death and payment instructions.
Loans. If the Contract is a Qualified Contract, any outstanding loan
amount on the date the Death Benefit is paid will also be deducted from the
Death Benefit.
Distribution Upon the Owner's Death. If you own the Contract with another
person, and one of you dies before the Annuity Start Date, the survivor becomes
the sole Beneficiary regardless of your designation. If there is no surviving
Owner, your named Beneficiary will become the Beneficiary upon your death. (You
may name primary and contingent beneficiaries.) If you have named two or more
primary Beneficiaries, they will share equally in the death benefit (described
below) unless you have specified otherwise. If there are no living primary
Beneficiaries at the time of your 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 you, we will pay the death
benefit to your estate. If you or a Joint Owner who is the Annuitant dies before
the Annuity Start Date, then the provisions relating to the death of an
Annuitant (described below) will govern.
If you are not the Annuitant and you die before the Annuitant and before
the Annuity Start Date, then the following options are available to your
Beneficiary:
(1) If such Beneficiary is the spouse of the deceased Owner, the spouse
may continue the Contract as the new Owner.
(2) If such Beneficiary is not the spouse of the deceased Owner:
(a) such Beneficiary 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) such Beneficiary may elect to receive the Contract Value paid out
under one of the approved payout plans, 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
Beneficiary.
If such Beneficiary does not elect one of the above options, we will
pay the Contract Value, LESS any premium taxes not yet deducted, within five
years from the date of the deceased Owner's death.
Under any of the distribution options in this section, "Distribution Upon the
Owner's Death," the Beneficiary 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. The above
distribution requirements will apply only upon the death of the first Joint
Owner.
Distribution Upon the Death of the Annuitant. If the Annuitant (including
an Owner who is the Annuitant) dies before the Annuity Start Date, we will pay
the Death Benefit described above in "Death Benefits Before the Annuity Start
Date" in a lump sum to your named Beneficiaries within five years after the date
of the Annuitant's death. (You may name primary and contingent beneficiaries.)
If you have named two
34
<PAGE> 43
or more primary Beneficiaries, they will share equally in the Death Benefit
unless you have 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, we will pay the
Death Benefit to you, if living, or the Annuitant's estate. In lieu of a lump
sum payment, the Beneficiary may elect, within 60 days of the date we receive
due proof of the Annuitant's death, to apply the Death Benefit to a payout plan.
(See "Payout Options.")
If you are also the Annuitant and you die, the provisions described
immediately above apply, except that the Beneficiary may only apply the Death
Benefit payment to a payout plan 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 OF PAYEE AFTER THE ANNUITY START DATE
If the Payee dies after the Annuity Start 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
Start Date will have the effect stated in the payout plan pursuant to which
annuity payments are being made. If any Owner dies on or after the Annuity Start
Date, any payments that remain must be made at least as rapidly as under the
payout plan in effect on the date of the your death.
THE LIVING BENEFIT
If you elect the Living Benefit option at the time you purchase the
Contract and if, on the Living Benefit Date, you have not begun to receive
annuity payments, IL Annuity will calculate the Living Benefit for each Eligible
Variable Account in which you have value. The Living Benefit will be credited to
the Contract Value of an Eligible Variable Account only if the value of the
Eligible Variable Account on the Living Benefit Date is less than: (a) the sum
of the Eligible Premium Payments for such Eligible Variable Account, MINUS (b) a
percentage of all prior withdrawals and transfers from the Eligible Variable
Account.
Eligible Premium Payments are those Premium Payments that you initially
allocated to a particular Eligible Variable Account at the time of payment,
provided you made the payment at least ten (10) years prior to the Living
Benefit Date.
The Living Benefit that will be credited to each Eligible Variable Account
on the Living Benefit Date is equal to: (a) the sum of the Eligible Premium
Payments for that particular Eligible Variable Account; MINUS (b) a percentage
of all prior withdrawals and transfers from that Eligible Variable Account;
MINUS (c) the value of that Eligible Variable Account on the Living Benefit
Date.
The Living Benefit Date is the later of the Annuitant's age 70 and 10 years
after the Date of Issue. If you purchase a Contract at age 60 or older, only
your initial Premium Payment will be an Eligible Premium Payment for purposes of
calculating the Living Benefit. (See Example #5 below)
If the Contract is owned by persons who are spouses at the time one Joint
Owner dies, the Living 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 Living Benefit Date, the Living Benefit
is not available to the sole surviving Owner. An Eligible Variable Account is a
Variable Account shown on the specifications page of the Contract which invests
in a Portfolio which, in turn, invests primarily in stocks, equity securities,
bonds or money market instruments. Currently, all Variable Accounts, except the
Van Eck Worldwide Hard Assets Variable Account, are Eligible Variable Accounts.
The Living Benefit will not be credited to Contract Value if you choose an
Annuity Start Date that is earlier than the Living Benefit Date.
35
<PAGE> 44
A TRANSFER OR A PARTIAL WITHDRAWAL OF PREMIUM PAYMENTS OUT OF AN ELIGIBLE
VARIABLE ACCOUNT WILL REDUCE THE AMOUNT OF ELIGIBLE PREMIUM PAYMENTS HELD IN THE
ELIGIBLE VARIABLE ACCOUNT IN THE SAME PROPORTION AS THE TRANSFER OR WITHDRAWAL
REDUCED THE VALUE OF THE ELIGIBLE VARIABLE ACCOUNT. EXAMPLES #3, 4 AND 6 BELOW
ILLUSTRATE HOW THIS FEATURE OF THE LIVING BENEFIT WORKS.
For purposes of calculating the value of an Eligible Variable Account, we
deem all transfers and withdrawals to be first a withdrawal of Premium Payments,
then of earnings. Transfers out of an Eligible Variable Account include
transfers resulting from Dollar Cost Averaging or Automatic Account Balancing;
withdrawals out of an Eligible Variable Account include withdrawals resulting
from the Systematic Withdrawal Payments.
The following examples illustrate how the Living Benefit works:
Example #1:
Suppose an Owner buys a Contract with a single Premium Payment of
$50,000 at age 55 and immediately allocates the $50,000 to an Eligible
Variable Account. The Owner does not withdraw or transfer any amounts from
the Eligible Variable Account. As of the Living Benefit Date (which is
fifteen years later when the Owner is age 70), the $50,000 qualifies as an
Eligible Premium Payment because it was made fifteen years prior to the
Living Benefit Date and so it meets the requirement that payment be made
ten years prior to the Living Benefit Date.
On the Living Benefit Date (Owner's age 70), IL Annuity will calculate
the Living Benefit for the Eligible Variable Account. IL Annuity will total
the value of all Eligible Premium Payments in the Eligible Variable
Account -- in this case $50,000. If the value of the Eligible Variable
Account on the Living Benefit Date is less than $50,000, IL Annuity will
automatically credit the difference to Contract Value.
Example #2:
Assume the same facts as in Example #1, except that the Owner
specifies an Annuity Start Date of age 65 and begins to receive payments
under one of the payout options available under the Contract. At age 70
(the Living Benefit Date), IL Annuity does not calculate the Living Benefit
and does not credit a Living Benefit to Contract Value. By selecting an
Annuity Start Date (age 65) that is earlier than the Living Benefit Date
(age 70), the Owner forfeited all eligibility for the Living Benefit.
Example #3:
Assume the same facts as in Example #1, except that the Owner
transfers $40,000 from the Eligible Variable Account at age 69. At that
time, the total value of the Eligible Variable Account is $100,000. The
transfer of $40,000 reduced the value of the Eligible Variable Account by
40% ($40,000/$100,000 = .40). No additional transfers or withdrawals are
made prior to the Living Benefit Date. On the Living Benefit Date, the sum
of the Eligible Premium Payments is $50,000 and is reduced by 40% to take
into account the transfer at age 69 ($50,000 X .40 = $20,000), leaving
$30,000 ($50,000 -- $20,000 = $30,000). If on the Living Benefit Date the
value of the Eligible Variable Account is less than $30,000, IL Annuity
will automatically credit the difference to Contract Value.
Example #4:
Assume the same facts as in Example #1, except that at age 65 the
Owner deposits (or transfers) an additional $50,000 Premium Payment into
the Eligible Variable Account. At age 69, when the value of the Eligible
Variable Account is $150,000, the Owner withdraws $40,000. The withdrawal
reduced the value of the Eligible Variable Account by 26.667%
($40,000/$150,000 = .26667). No additional transfers or withdrawals are
made before the Living Benefit Date. On the Living Benefit Date, the sum of
Eligible Premium Payments is $50,000. (The second Premium Payment of
$50,000 does not qualify as an Eligible Premium Payment because it was made
only five years prior to the Living Benefit Date and does not meet the
requirement that payment be made ten years prior to the Living Benefit
Date.) This sum is then reduced by 26.667% to take into account the
transfer at age 69 ($50,000 X .26667 = $13,333.33), leaving
36
<PAGE> 45
$36,666.67 ($50,000 -- $13,333.33 = $36,666.67). If on the Living Benefit
Date the value of the Eligible Variable Account is less than $36,666.67, IL
Annuity will automatically credit the difference to Contract Value.
Example #5:
Assume the Owner deposits Premium Payments of $5,000 per year into the
same Eligible Variable Account beginning at age 55 until the Living Benefit
Date. By age 70, the Owner had paid $75,000 in Premium Payments and had
taken no withdrawals or transfers. The sum of the Eligible Premium Payments
on the Living Benefit Date (age 70) is $25,000 because only the five
Premium Payments made prior to age 60 ($5,000 X 5 = $25,000) meet the
requirement that payment be made ten years prior to the Living Benefit
Date. If on the Living Benefit Date the value of the Eligible Variable
Account is less than $25,000, IL Annuity will automatically credit the
difference to Contract Value.
Example #6:
Assume the same facts as in Example #5, except that the Owner
transfers $10,000 out of the Eligible Variable Account at age 68 when the
value of the Eligible Variable Account is $100,000. The transfer reduced
the value of the Eligible Variable Account by 10% ($10,000/$100,000 = .10).
The next year, the Owner withdraws $9,000 when the value of the Eligible
Variable Account is $90,000. The withdrawal reduced the value of the
Eligible Variable Account by 10% ($9,000/$90,000 = .10). No additional
transfers or withdrawals are made prior to the Living Benefit Date. On the
Living Benefit Date the sum of the Eligible Premium Payments ($25,000) is
reduced by 20% to take into account both the 10% transfer at age 68 and the
10% withdrawal at age 69 ($25,000 x .20 = $5,000), leaving $20,000
($25,000 -- $5,000 = $20,000). If on the Living Benefit Date the value of
the Eligible Variable Account is less than $20,000, IL Annuity will
automatically credit the difference to Contract Value.
Example #7:
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 Living Benefit Date will become the date the
surviving spouse attains age 70. On that date, IL Annuity will calculate
the Living Benefit for each Eligible Variable Account with value.
Example #8:
If the Contract is owned by Joint Owners who are not spouses and one
of the Joint Owners dies, the Living Benefit is not available to the sole
surviving Owner.
We will continue to pay a Living Benefit on Premium Payments allocated to
an Eligible Variable Account if: (a) the Portfolio underlying an Eligible
Variable Account changes its investment objective; (b) we determine that an
investment in the Portfolio underlying an Eligible Variable Account is no longer
appropriate in light of the purposes of the Separate Account; or (c) shares of a
Portfolio 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 Portfolio held by the Eligible Variable Account.
THE FIXED ACCOUNT
You may allocate some or all of your Net Premium Payments and transfer some
or all of your Contract Value to the Fixed Account. The Fixed Account offers a
guarantee of principal (after deductions for fees and expenses) as well as
interest guaranteed by IL Annuity to be not less than 3% per year. The Fixed
Account is part of our general account. Our general account supports our
insurance and annuity obligations. Since the Fixed Account is part of the
general account, we assume the risk of investment gain or loss on this amount.
All assets in the general account are subject to our 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 our
general account have been registered as an investment
37
<PAGE> 46
company under the 1940 Act. Therefore, neither our 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 your 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 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 to 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.
We intend to credit the Fixed Account with interest at current rates in
excess of the minimum guaranteed rate of 3%, but we are not obligated to do so.
Current interest rates are influenced by, but do not necessarily correspond to,
prevailing general market interest rates. Because we, in our sole discretion,
anticipate changing the current interest rate from time to time, different
allocations you make to the Fixed Account will be credited with different
current interest rates. The interest rate we credit to amounts allocated or
transferred to the Fixed Account will apply to the end of the calendar year in
which we receive the amount. At the end of the calendar year, we 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). We will guarantee the rate of
interest we declare on such amount and accrued interest for the following
calendar year. We will determine, in our sole discretion, any interest to be
credited on amounts in the Fixed Account in excess of the minimum guaranteed
effective rate of 3% per year. You therefore assume the risk that interest
credited to amounts in the Fixed Account may not exceed the minimum 3%
guaranteed rate.
For purposes of making withdrawals, transfers or deductions of fees and
charges from the Fixed Account, we will consider such withdrawals to have come
from the last money into the contract, that is, on a last-in, first-out ("LIFO")
basis.
We reserve the right to change the method of crediting interest from time
to time, provided that such changes do not reduce the guaranteed rate of
interest below 3% per year 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 may be imposed for the thirteenth and each subsequent
request you make 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 before the Annuity Start Date.
Before the Annuity Start Date, you may transfer up to 20% of the Fixed
Account Value (as determined at the beginning of the Contract Year) 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. You may elect to participate in the Dollar-Cost
Averaging Program at the time of your application, or at any time thereafter
before the Annuity Start Date by sending us a Written Request. The Dollar-Cost
Averaging Program permits you to systematically transfer (on a monthly or
quarterly basis) a set dollar amount from the Fixed Account to any other
Variable Accounts. The minimum amount that may be transferred under the
Dollar-Cost Averaging Program is $100 to each Variable Account. The maximum
amount that may be transferred and withdrawn out of the Fixed Account in any
Contract Year under all circumstances (Dollar-Cost Averaging, Systematic
Withdrawals and Partial Withdrawals) is 20% of the Fixed Account Value as
determined at the beginning of the Contract Year. Once elected, dollar-cost
averaging from
38
<PAGE> 47
the Fixed Account remains in effect for the life of the Contract until the value
of the Fixed Account is depleted or until you cancel your participation by
Written Request or by telephone if we have your telephone authorization 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. We reserve 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
We have 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 we receive
your Written Request for such a withdrawal or transfer at our Service Center. If
we do not give you a payment within 30 days after we receive all necessary
documentation, or such shorter period required by a particular jurisdiction, we
will credit interest at 3%, or such higher rate as is required for a particular
jurisdiction, to the amount to be paid from the date we received the
documentation.
HOW TO REVIEW INVESTMENT PERFORMANCE OF THE VARIABLE ACCOUNTS
From time to time, we 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.
We 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.
Performance data for the Variable Accounts is based on the investment
performance of the corresponding Portfolio of a Fund and reflects its expenses.
(See the attached 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 (other than 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 Separate Account
commenced operations, performance information will be calculated based on the
performance of the various Portfolios and the assumption that the Variable
Accounts were in existence for the same periods as those indicated for the
Portfolios, assuming that the current level of Contract charges were in effect
during those periods and assuming the monthly (rather than daily) deduction of
mortality and expense risk charges and administrative charges. When a Variable
Account or Portfolio 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
39
<PAGE> 48
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 you 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, we 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.
We may also disclose yield, standard total returns, and non-standard total
returns for the Portfolios of the Funds, including such disclosures for periods
before 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 (including illustrations), 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"), CDA Investment Technologies
("CDA"), 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, CDA, VARDS and
Morningstar rank or illustrate 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.
We may also report other information including the effect of systematic
withdrawals, systematic investments and 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 substantial long-term
accumulation of assets, provided that the Variable Account investment experience
is positive.
40
<PAGE> 49
VOTING RIGHTS
We are the legal owner of the Portfolio shares held in the Variable
Accounts. However, when a Portfolio is required to solicit the votes of its
shareholders through the use of proxies, we believe that current law requires us
to solicit you and other Contract Owners as to how we should vote the Portfolio
shares held in the Variable Accounts. If we determine that we no longer are
required to solicit your votes, we may vote the shares in our own right.
When we solicit your vote, the number of votes you have will be calculated
separately for each Variable Account in which you have an investment. The number
of your votes is based on the net asset value per share of the Portfolio in
which the Variable Account invests. It may include fractional shares. Before the
Annuity Start Date, you hold a voting interest in each Variable Account to which
the Contract Value is allocated. After the Annuity Start Date, the Annuitant has
a voting interest in each Variable Account from which variable annuity payments
are made. If you have a voting interest in a Variable Account, you will receive
proxy materials and reports relating to any meeting of shareholders of the
Portfolio in which that Variable Account invests.
If we do not receive timely voting instructions for Portfolio shares or if
we own the shares, we will vote those shares in proportion to the voting
instructions we receive. Instructions we receive to abstain on any item will
reduce the total number of votes being cast on a matter. For further details as
to how we determine the number of your votes, see the Statement of Additional
Information.
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 us. Any person concerned about
these tax implications should consult a competent tax advisor before initiating
any transaction. This discussion is based upon our 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 you, the Annuitant, or the beneficiary depends on
the type of retirement plan, on the tax and employment status of the individual
concerned, and on our 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.
41
<PAGE> 50
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 we do 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 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, we do 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. We, therefore, reserve the
right to modify the Contract as necessary to attempt to prevent you 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 Start Date but before 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 before the Annuity Start Date, the
entire interest in the Contract will be distributed within five years after the
date of your 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 to whom
ownership of the Contract passes by reason of death. However, if a "designated
beneficiary" is the surviving spouse of a deceased 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. We intend 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.
42
<PAGE> 51
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. We believe that if you are a natural person you are 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.
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.
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 before August 14, 1982, the tax rules formerly
providing that the withdrawal was taxable only to the extent the amount received
exceeds your investment in the contract will continue to apply to amounts
allocable to investments in that contract before 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. Persons
who may wish 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 of each annuity
43
<PAGE> 52
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 an Owner or the 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
withdrawal from the contract or (ii) if distributed under a payment option, they
are taxed in the same way as annuity payments.
Other rules relating to distributions at death apply to Qualified
Contracts. You should consult your legal counsel and tax adviser regarding these
rules and their impact on Qualified Contracts.
Penalty Tax on Certain Withdrawals. In the case of a distribution from 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 owner (or if the owner 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; or
6. made under an annuity contract that is purchased with a single
Premium Payment when the Annuity Start 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 before 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 Start Dates or the exchange of a Contract may result in certain
tax consequences to you 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.
44
<PAGE> 53
MULTIPLE CONTRACTS
All non-qualified deferred annuity contracts entered into after October 21,
1988 that are issued by the us (or our affiliates) to you 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 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 we 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. We 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 and their employers 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 and deducted, 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. The Internal Revenue
Service has not reviewed the Contract for qualification as an IRA, and has not
generally ruled whether a death benefit provision such as the provision in the
Contract comports with IRA qualification requirements.
Simple Retirement Accounts. Beginning January 1, 1997, certain small
employers may establish Simple Retirement Accounts as provided by Section 408(p)
of the Code, under which employees may elect to defer up to $6,000 (as increased
for cost of living adjustments) as a percentage of compensation. The sponsoring
employer is required to make a matching contribution on behalf of contributing
employees. Distributions from a Simple Retirement Account are subject to the
same restrictions that apply to IRA distributions and are taxed as ordinary
income. Subject to certain exceptions, premature distributions prior to age
59 1/2 are subject
45
<PAGE> 54
to a 10% penalty tax, which is increased to 25% if the distribution occurs
within the first two years after the commencement of the employee's
participation in the plan. The failure of the Simple Retirement Account to meet
Code requirements may result in adverse tax consequences.
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.
RESTRICTIONS UNDER QUALIFIED CONTRACTS
Other restrictions with respect to the election, commencement, or
distribution of benefits may apply under Qualified Contracts or under the terms
of the plans in respect of which Qualified Contracts are issued.
POSSIBLE CHARGE FOR THE COMPANY'S TAXES
At the present time, we make no charge to the Variable Accounts for any
Federal, state, or local taxes that we incur which may be attributable to such
Variable Accounts or the Contracts. We, however, reserve 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 this prospectus. Further, the
Federal income tax consequences discussed herein reflect our understanding of
current law, and the law may change. Federal estate and state and local estate,
inheritance and other tax 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.
OTHER INFORMATION
HOLIDAYS
In addition to federal holidays, we are closed on the following days: the
Friday after Thanksgiving, the day before Christmas when Christmas falls on
Tuesday through Saturday, the day after Christmas when Christmas falls on Sunday
or Monday, and the day after New Year's Day when it falls on a Sunday, the
Monday after New Year's Day when New Year's Day falls on a Saturday, and the day
before or after Independence Day when it falls on Saturday or Sunday.
PAYMENTS
We will usually pay you any full or partial withdrawal, Death Benefit
payment, (or for Qualified Contracts only, payment of your loan proceeds) within
seven days after we receive your Written Request, any information or
documentation we reasonably need to process your request, and in the case of a
Death Benefit receipt and filing of due proof of death.
However, we may be required to suspend or postpone payments during any
period when:
1. the New York Stock Exchange is closed, other than customary weekend
and holiday closings;
2. trading on the New York Stock Exchange is restricted as determined by
the SEC;
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; or
46
<PAGE> 55
4. the SEC permits, by order, the suspension or postpone of payments for
your protection.
If a recent check or draft has been submitted, we have the right to delay
payment until we have assured ourselves that the check or draft has been
honored.
We have the right to defer payment for a full or partial withdrawal or
transfer from the Fixed Account for up to six months from the date we receive
your Written Request. If we do not make a payment within 30 days after we
receive the documentation we need to complete the transaction (or a shorter
period if required by a particular jurisdiction), we will credit interest to the
amount to be paid from the date we received the necessary documentation at a
rate of 3% (or such higher rate required for a particular jurisdiction).
MODIFICATION
Upon notice to you, we may modify the Contract to:
1. permit the Contract or the Separate Account to comply with any
applicable law or regulation issued by a government agency; or
2. 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. reflect a change in the operation of the Separate Account; or
4. provide additional investment options.
In the event of most such modifications, we will make appropriate
endorsement to the Contract.
DISTRIBUTION OF THE CONTRACTS
IL Securities, Inc. ("IL Securities"), P.O. Box 1230, 2960 North Meridian
Street, Indianapolis, Indiana 46208, acts as the distributor for the Contracts.
IL Securities is an affiliate of Indianapolis Life Insurance Company.
Sales commissions will be paid to broker-dealers who sell the Contracts.
Broker-dealers will be paid commissions of up to 7.2% of Premium Payments. Other
commissions of up to 1.25% may also be paid. We may also pay up to 1.00% of
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. In addition, we 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 other than those
described under "Fees and Charges."
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account is a party or
the assets of the Separate Account are subject. We are not involved in any
litigation that is of material importance in relation to our total assets or
that relates to the Separate Account.
REPORTS TO OWNERS
We will mail a report to you at least annually at your last known address
of record. The report will state 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 your Contract may be made by writing to us at our
Service Center.
47
<PAGE> 56
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, we
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 us. 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 us
through December 31, 1994.
The audited statement of net assets of IL Annuity and Insurance Co.
Separate Account 1 as of December 31, 1996 and the related statement of
operations for the year then ended and statements of changes in net assets for
the two years 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, 1996 and 1995, and the related
statements of income, stockholder's equity, and cash flows for the years then
ended 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 our ability to meet our
obligations under the Contracts. They should not be considered as bearing on the
investment performance of the assets held in the Separate Account.
48
<PAGE> 57
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
Additional information about the Contract and the Separate Account is
contained in the Statement of Additional Information (SAI). You may obtain a
free copy of the SAI by writing to us at the address shown on the front cover or
by calling 1-888-232-6486. 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....................................................................
Options.............................................................................
CALCULATION OF HISTORICAL PERFORMANCE DATA............................................
Money Market Variable Account Yields................................................
Other Variable Account Yields.......................................................
Average Annual Total Returns........................................................
Other (Non-Standard) Total Returns..................................................
Effect of the Contract Fee on Performance Data......................................
Other Information...................................................................
NET INVESTMENT FACTOR.................................................................
VARIABLE ANNUITY PAYMENTS.............................................................
Assumed Investment Rate.............................................................
Amount of Variable Annuity Payments.................................................
Annuity Unit Value..................................................................
HISTORIC PERFORMANCE DATA
General Limitations.................................................................
Variable Account Performance Figures................................................
Adjusted Historical Portfolio Performance Figures...................................
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS.....................................
Resolving Material Conflicts........................................................
TERMINATION OF PARTICIPATION AGREEMENTS...............................................
The Alger American Fund.............................................................
Fidelity Variable Insurance Products Fund...........................................
Fidelity Variable Insurance Products Fund II........................................
OCC Accumulation Trust..............................................................
Royce Capital Fund..................................................................
SAFECO Resource Series Trust........................................................
SoGen Variable Funds, Inc. .........................................................
T. Rowe Price Fixed Income Series, Inc..............................................
T. Rowe Price International Series, Inc.............................................
Van Eck Worldwide Insurance Trust...................................................
VOTING RIGHTS.........................................................................
SAFEKEEPING OF ACCOUNT ASSETS.........................................................
DISTRIBUTION OF THE CONTRACTS.........................................................
LEGAL MATTERS.........................................................................
EXPERTS...............................................................................
OTHER INFORMATION.....................................................................
FINANCIAL STATEMENTS..................................................................
</TABLE>
49
<PAGE> 58
APPENDIX I
CONDENSED FINANCIAL INFORMATION
The following condensed information includes Accumulation Unit values for
the periods indicated. This data is obtained from the financial statements of
the Separate Account. The data should be read together with the financial
statements, related notes and other financial information included in the
Statement of Additional Information. (See "Financial Statements" in the
Statement of Additional Information.)
<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....... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $10.00
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>
OCC
FIDELITY FIDELITY FIDELITY FIDELITY ACCUMULATION*
ASSET MANAGER CONTRAFUND INDEX 500 INVESTMENT GRADE BOND MANAGED
VARIABLE ACCOUNT VARIABLE ACCOUNT VARIABLE ACCOUNT VARIABLE ACCOUNT VARIABLE ACCOUNT
---------------- ---------------- ---------------- --------------------- ----------------
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value at
Beginning of Period..... $ 10.00 $ 10.00 $ 10.00 $10.00 $ 10.00
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>
VAN ECK
OCC ACCUMULATION* T.ROWE PRICE T.ROWE PRICE WORLDWIDE VAN ECK
SMALL CAP LIMITED-TERM BOND INTERNATIONAL STOCK HARD ASSETS** WORLDWIDE BALANCED
VARIABLE ACCOUNT VARIABLE ACCOUNT VARIABLE ACCOUNT VARIABLE ACCOUNT VARIABLE ACCOUNT
----------------- ----------------- ------------------- ------------------- ------------------
<S> <C> <C> <C> <C> <C>
Accumulation Unit
Value at Beginning
of Period.......... $10.00 $10.00 $10.00 $10.00 $ 10.00
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>
- ---------------
* Prior to May 1, 1996, OCC Accumulation Trust was called Quest for Value
Accumulation Trust.
** Prior to May 1, 1997, Van Eck Worldwide Hard Assets Variable Account was
called Van Eck Gold and Natural Resources.
A-1
<PAGE> 59
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------------------------------------------
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....... $ 9.786 $ 9.675 $ 10.616 $ 9.604 $ 10.00
Accumulation Unit Value at
End of Period............. $ 10.812 $ 9.955 $ 11.958 $ 10.868 $ 10.456
Number of Accumulation Units
Outstanding at End of
Period.................... 109,955 181,361 195,400 164,945 179,504
</TABLE>
<TABLE>
<CAPTION>
OCC
FIDELITY FIDELITY FIDELITY FIDELITY ACCUMULATION*
ASSET MANAGER CONTRAFUND INDEX 500 INVESTMENT GRADE BOND MANAGED
VARIABLE ACCOUNT VARIABLE ACCOUNT VARIABLE ACCOUNT VARIABLE ACCOUNT VARIABLE ACCOUNT
---------------- ---------------- ---------------- --------------------- ----------------
<S> <C> <C> <C> <C> <C>
Accumulation Unit Value at
Beginning of Period..... $ 8.224 $ 10.091 $ 10.514 $10.247 $ 10.380
Accumulation Unit Value at
End of Period........... $ 11.817 $ 12.105 $ 12.734 $10.422 $ 12.567
Number of Accumulation
Units Outstanding at End
of Period............... 61,512 203,860 193,803 57,476 133,102
</TABLE>
<TABLE>
<CAPTION>
VAN ECK
OCC ACCUMULATION* T.ROWE PRICE T.ROWE PRICE WORLDWIDE VAN ECK
SMALL CAP LIMITED-TERM BOND INTERNATIONAL STOCK HARD ASSETS** WORLDWIDE BALANCED
VARIABLE ACCOUNT VARIABLE ACCOUNT VARIABLE ACCOUNT VARIABLE ACCOUNT VARIABLE ACCOUNT
----------------- ----------------- ------------------- ------------------- ------------------
<S> <C> <C> <C> <C> <C>
Accumulation Unit
Value at Beginning
of Period.......... $10.388 $10.042 $ 10.487 $10.621 $ 10.010
Accumulation Unit
Value at End of
Period............. $12.148 $ 9.946 $ 11.780 $12.356 $ 11.019
Number of
Accumulation Units
Outstanding at End
of Period.......... 40,024 27,325 122,831 29,990 26,719
</TABLE>
- ---------------
* Prior to May 1, 1996, OCC Accumulation Trust was called Quest for Value
Accumulation Trust.
** Prior to May 1, 1997, Van Eck Worldwide Hard Assets Variable Account was
called Van Eck Gold and Natural Resources.
A-2
<PAGE> 60
STATEMENT OF ADDITIONAL INFORMATION
for the
VISIONARY AND VISIONARY CHOICE
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACTS
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 each of the Visionary and Visionary
Choice flexible premium deferred variable annuity Contracts (each, the
"Contract") offered by IL Annuity and Insurance Company.
The Owner may obtain a copy of the Prospectus for the Visionary
Contract dated May 1, 1997 by calling 1-800-388-1331 or by writing to the
Annuity Service Center: IL Annuity and Insurance Company, P.O. Box 290764,
Wethersfield, CT 06129.
The Owner may obtain a copy of the Prospectus for the Visionary Choice
Contract dated August 8, 1997 by calling 1-888-232-6486 or by writing to the
Annuity Service Center: IL Annuity and Insurance Company, c/o USA
Administration Services, Inc., P.O. Box 29163, Overland Park, KS 66201.
Terms used in the current Prospectus for each contract are
incorporated into this Statement.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS
AND SHOULD BE READ ONLY IN CONJUNCTION WITH THE PROSPECTUSES
FOR THE OWNER'S CONTRACT AND THE FUNDS.
The date of this Statement of Additional Information is August 8,
1997.
<PAGE> 61
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ADDITIONAL CONTRACT PROVISIONS................................................................................ 1
The Contract......................................................................................... 1
Incontestability..................................................................................... 1
Misstatement of Age or Sex........................................................................... 1
Nonparticipation..................................................................................... 1
Options ............................................................................................ 2
CALCULATION OF HISTORICAL PERFORMANCE DATA.................................................................... 2
Money Market Variable Account Yields................................................................. 2
Other Variable Account Yields........................................................................ 4
Average Annual Total Returns......................................................................... 5
Other (Non-Standard) Total Returns................................................................... 6
Effect of the Contract Fee on Performance Data....................................................... 7
Other Information................................................................................... 7
HISTORIC PERFORMANCE DATA..................................................................................... 8
GENERAL LIMITATIONS.................................................................................. 8
Variable Account Performance Figures................................................................. 8
Adjusted Historical Portfolio Performance Figures.................................................... 9
NET INVESTMENT FACTOR......................................................................................... 18
VARIABLE ANNUITY PAYMENTS..................................................................................... 19
Assumed Investment Rate.............................................................................. 19
Amount of Variable Annuity Payments.................................................................. 20
Annuity Unit Value................................................................................... 20
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS............................................................. 22
Resolving Material Conflicts......................................................................... 22
TERMINATION OF PARTICIPATION AGREEMENTS....................................................................... 23
The Alger American Fund.............................................................................. 23
Fidelity Variable Insurance Products Fund............................................................ 23
Fidelity Variable Insurance Products Fund II......................................................... 23
OCC Accumulation Trust............................................................................... 24
Royce Capital Fund................................................................................... 24
SAFECO Resource Series Trust......................................................................... 24
SoGen Variable Funds, Inc............................................................................ 25
T. Rowe Price Fixed Income Series, Inc............................................................... 26
T. Rowe Price International Series, Inc.............................................................. 26
Van Eck Worldwide Insurance Trust.................................................................... 26
VOTING RIGHTS................................................................................................. 26
SAFEKEEPING OF ACCOUNT ASSETS................................................................................. 27
DISTRIBUTION OF THE CONTRACT 31 CONTRACTS..................................................................... 27
LEGAL MATTERS................................................................................................. 28
</TABLE>
- i -
<PAGE> 62
<TABLE>
<S> <C>
EXPERTS....................................................................................................... 28
OTHER INFORMATION............................................................................................. 28
FINANCIAL STATEMENTS.......................................................................................... 29
</TABLE>
- ii -
<PAGE> 63
ADDITIONAL CONTRACT PROVISIONS
THE CONTRACT
The entire contract is the Contract, the signed application, the data
page, the endorsements, options 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.
- 1 -
<PAGE> 64
OPTIONS
Except in the limited circumstances described below, the Company will
issue four options automatically upon the issuance of each Contract. These
options 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
option. There is no additional charge for the issuance of the options, which
are available only at the issuance of the Contract. All options may not be
available in all states.
CALCULATION OF HISTORICAL PERFORMANCE DATA
The Company may advertise and 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
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 the Money Market Portfolio.
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 Variable 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 Variable Account value by the value of the
hypothetical Variable 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 Portfolio attributable
to the hypothetical Variable Account; and 2) charges and deductions imposed
under the Contract which are attributable to the hypothetical Variable Account.
These charges and deductions include the per unit charges 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> 65
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 Variable
Account having a balance of one Variable Account
unit.
ES = per unit expenses attributable to the
hypothetical Variable 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 Variable
Account having a balance of one Variable Account
unit.
ES = per unit expenses attributable to the
hypothetical Variable 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 securities held by the Money Market Portfolio and that 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> 66
Yield calculations do not take into account the Withdrawal Charge that
is assessed on certain withdrawals of Contract Value. The amount of the
Withdrawal Charge depends on the Withdrawal Charge Option and the Free
Withdrawal Option chosen by the Owner at the time of purchase. See "Fees and
Charges" in the prospectus for further description of these options. No
Withdrawal Charge applies to Contract Value in excess of aggregate Premium
Payments.
OTHER VARIABLE ACCOUNT YIELDS
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
Portfolio 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; and 3) compounding that yield for a six-month period; and 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
Portfolio.
- 4 -
<PAGE> 67
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
securities held by the corresponding Portfolio and that Portfolio's operating
expenses.
Yield calculations do not take into account the Withdrawal Charge that
is assessed on certain withdrawals of Contract Value. The amount of the
Withdrawal Charge depends on the Withdrawal Charge Option and the Free
Withdrawal Option chosen by the Owner at the time of purchase. See "Fees and
Charges" in the prospectus for further description of these options.
AVERAGE ANNUAL TOTAL RETURNS
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 underlying 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 Portfolio, 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 $7.50 per quarter per Contract deducted at the end of
each Contract quarter. For purposes of calculating average annual total return,
an average per-dollar per-day Contract Fee attributable to the hypothetical
Variable Account for the period is used. The calculation also assumes total
withdrawal of the Contract at the end of the period for the return quotation
and will take into account the Withdrawal Charge applicable to the Contract
that is assessed on certain withdrawals of Contract Value.
- 5 -
<PAGE> 68
Standard total return is calculated according to the following formula:
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
Variable Account at the end of the period.
P = a hypothetical initial payment of $1,000.
N = the number of years in the period.
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 Portfolios and the
assumption that the Variable Accounts were in existence for the same periods as
those of the Portfolios, with the level of Contract charges that were in effect
at the inception of the Variable Accounts, except that, in some instances, the
mortality and expense risk charge will be deducted on a monthly (rather than
daily) basis.
OTHER (NON-STANDARD) TOTAL RETURNS
Sales literature or advertisements may also quote average annual total
returns that do not reflect any Withdrawal Charges available under the
Contracts. Such non-standard total returns are calculated in exactly the same
way as average annual total returns described above, except that the ending
redeemable value of the hypothetical Variable Account for the period is
replaced with an ending value for the period that does not take into account
any Withdrawal Charges.
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> 69
For periods prior to the date the Separate Account commenced
operations, performance information may be calculated based on the performance
of the various Portfolios, assuming that the Variable Accounts were in
existence for the same periods as the Portfolios, assuming that the current
level of Contract charges were in effect during those periods and assuming the
monthly (rather than daily) deduction of mortality and expense risk charges and
administrative charges.
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
CLU & ChFC Journal of Commerce
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> 70
HISTORIC PERFORMANCE DATA
General Limitations
The Figures below represent the past performance of the Variable
Accounts and are not indicative of future performance. The figures may reflect
the waiver of advisory fees and reimbursement of other expenses.
The Funds have provided the performance data for the Portfolios. The
Variable Account performance data is derived from the data provided by the
Funds. None of the Funds are affiliated with IL Annuity. In preparing the
tables below, IL Annuity has relied on the data provided by the Funds. While Il
Annuity has no reason to doubt the accuracy of the figures provided by the
Funds, IL Annuity has not verified those figures. No performance is provided
for the Royce Micro-Cap, SAFECO Equity, SAFECO Growth, or SoGen Overseas
Variable Accounts since, prior to the date of this Statement, these Variable
Accounts had not yet commenced operations.
Variable Account Performance Figures
The charts below show the historical performance data for The Variable
Accounts since each Variable Account's commencement of operations. These
figures are not an indication of future performance of the Variable Accounts.
Some of the figures reflect the waiver of advisory fees and reimbursement of
other expenses for part or all of the periods indicated. For Variable Accounts
which commenced operations during a calendar year, the performance data is
annualized.
Standard average annual total returns for periods since the inception
of each variable account are as follows. These figures include the daily
deduction of a mortality and expenses charge at an annual rate of 1.25%, The
daily deduction of an administrative expenses charge at an annual rate of
0.15%, The quarterly deduction of an administration charge of $7.50 Adjusted
for average account size, and the maximum contingent deferred sales load of 7%.
<TABLE>
<CAPTION>
=================================================================================================================
VARIABLE ACCOUNT FOR THE 1-YEAR FOR THE PERIOD FROM
(DATE OF COMMENCEMENT OF PERIOD ENDED COMMENCEMENT OF
OPERATION OF VARIABLE ACCOUNT) 12/31/96 VARIABLE ACCOUNT
OPERATIONS TO 12/31/96
- -----------------------------------------------------------------------------------------------------------------
ALGER AMERICAN FUND
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Midcap Growth 3.24% 3.31%
Small Capitalization -3.85% -2.92%
- -----------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND
- ----------------------------------------------------------------------------------------------------------------
Equity Income 5.59% 11.84%
Growth 6.01% 3.86%
=================================================================================================================
</TABLE>
- 8 -
<PAGE> 71
<TABLE>
<CAPTION>
=================================================================================================================
VARIABLE ACCOUNT FOR THE 1-YEAR FOR THE PERIOD FROM
(DATE OF COMMENCEMENT OF PERIOD ENDED COMMENCEMENT OF
OPERATION OF VARIABLE ACCOUNT) 12/31/96 VARIABLE ACCOUNT
OPERATIONS TO 12/31/96
=================================================================================================================
FIDELITY VIP FUND II
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Asset Manager 5.90% 10.03%
Contrafund 12.51% 13.95%
Index 500 14.01% 18.40%
Investment Grade Bond -4.77% -1.86%
- -----------------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
- -----------------------------------------------------------------------------------------------------------------
Managed 13.96% 17.67%
Small Cap 9.96% 14.04%
- -----------------------------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
- -----------------------------------------------------------------------------------------------------------------
Royce Micro-cap N/A N/A
- -----------------------------------------------------------------------------------------------------------------
SAFECO RESOURCES SERIES TRUST
- -----------------------------------------------------------------------------------------------------------------
Equity N/A N/A
Growth N/A N/A
- -----------------------------------------------------------------------------------------------------------------
SOGEN VARIABLE FUNDS, INC.
- -----------------------------------------------------------------------------------------------------------------
Sogen Overseas N/A N/A
- -----------------------------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
- -----------------------------------------------------------------------------------------------------------------
Limited-term Bond -10.04% -8.11%
- -----------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
- -----------------------------------------------------------------------------------------------------------------
International Stock 6.00% 8.78%
- -----------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST
- -----------------------------------------------------------------------------------------------------------------
Worldwide Hard Assets 9.32% 8.48%
Worldwide Balanced 2.97% 2.98%
=================================================================================================================
</TABLE>
Non-standard average annual total returns for periods since the
inception of each Variable Account are as follows. These figures include the
daily deduction of a mortality and expenses charge at an annual rate of 1.25%,
And the daily deduction of an administrative expenses charge at an annual rate
of 0.15%, But they do not reflect the quarterly deduction of an administration
charge of $7.50 And the maximum contingent deferred sales load of 7%, which, if
deducted, would reduce performance. Non-standard performance data will only be
disclosed if standard performance data for the required periods is also
disclosed.
- 9 -
<PAGE> 72
<TABLE>
<CAPTION>
=================================================================================================================
VARIABLE ACCOUNT FOR THE 1-YEAR FOR THE PERIOD FROM
(DATE OF COMMENCEMENT OF PERIOD ENDED COMMENCEMENT OF
OPERATION OF VARIABLE ACCOUNT) 12/31/96 VARIABLE ACCOUNT
OPERATIONS TO 12/31/96
- -----------------------------------------------------------------------------------------------------------------
ALGER AMERICAN FUND
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Midcap Growth 10.34% 9.36%
Small Capitalization 2.73% 2.76%
- -----------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND
- -----------------------------------------------------------------------------------------------------------------
Equity Income 12.69% 17.81%
Growth 13.11% 9.90%
Money Market 3.94% 3.95%
- -----------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND II
- -----------------------------------------------------------------------------------------------------------------
Asset Manager 13.01% 16.02%
Contrafund 19.62% 19.91%
Index 500 21.11% 24.32%
Investment Grade Bond 1.75% 3.88%
- -----------------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
- -----------------------------------------------------------------------------------------------------------------
Managed 21.07% 23.60%
Small Cap 17.07% 20.00%
- -----------------------------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
- -----------------------------------------------------------------------------------------------------------------
Royce Micro-cap N/A N/A
- -----------------------------------------------------------------------------------------------------------------
SAFECO RESOURCES SERIES TRUST
- -----------------------------------------------------------------------------------------------------------------
Equity N/A N/A
Growth N/A N/A
- -----------------------------------------------------------------------------------------------------------------
SOGEN VARIABLE FUNDS, INC.
- -----------------------------------------------------------------------------------------------------------------
Sogen Overseas N/A N/A
- -----------------------------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
- -----------------------------------------------------------------------------------------------------------------
Limited-term Bond -3.93% -2.73%
- -----------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
- -----------------------------------------------------------------------------------------------------------------
International Stock 13.11% 14.78%
- -----------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST
- -----------------------------------------------------------------------------------------------------------------
Worldwide Hard Assets 16.42% 14.48%
Worldwide Balanced 10.08% 9.03%
=================================================================================================================
</TABLE>
Standard cumulative total returns for periods since the inception of each
Variable Account are as follows. These figures include the daily deduction of a
mortality and expenses charge at an annual rate of 1.25%, the daily deduction
of an annual administrative expenses charge at an
- 10 -
<PAGE> 73
annual rate of 0.15%, The quarterly deduction of an administration charge of
$7.50 Adjusted for average account size, and the maximum contingent deferred
sales load of 7%.
<TABLE>
<CAPTION>
=================================================================================================================
VARIABLE ACCOUNT FOR THE 1-YEAR FOR THE PERIOD FROM
(DATE OF COMMENCEMENT OF PERIOD ENDED COMMENCEMENT OF
OPERATION OF VARIABLE ACCOUNT) 12/31/96 VARIABLE ACCOUNT
OPERATIONS TO 12/31/96
- -----------------------------------------------------------------------------------------------------------------
ALGER AMERICAN FUND
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Midcap Growth 3.24% 3.87%
Small Capitalization -3.85% -3.40%
- -----------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND
- -----------------------------------------------------------------------------------------------------------------
Equity Income 5.59% 13.94%
Growth 6.01% 4.51%
Money Market -2.73% -2.09%
- -----------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND II
- -----------------------------------------------------------------------------------------------------------------
Asset Manager 5.90% 11.80%
Contrafund 12.51% 16.45%
Index 500 14.01% 21.77%
Investment Grade Bond -4.77% -2.17%
- -----------------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
- -----------------------------------------------------------------------------------------------------------------
Managed 13.96% 20.91%
Small Cap 9.96% 16.57%
- -----------------------------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
- -----------------------------------------------------------------------------------------------------------------
Royce Micro-cap N/A N/A
- -----------------------------------------------------------------------------------------------------------------
SAFECO RESOURCES SERIES TRUST
- -----------------------------------------------------------------------------------------------------------------
Equity N/A N/A
Growth N/A N/A
- -----------------------------------------------------------------------------------------------------------------
SOGEN VARIABLE FUNDS, INC.
- -----------------------------------------------------------------------------------------------------------------
Sogen Overseas N/A N/A
- -----------------------------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
- -----------------------------------------------------------------------------------------------------------------
Limited-term Bond -10.04% -9.40%
- -----------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
- -----------------------------------------------------------------------------------------------------------------
International Stock 6.00% 10.31%
- -----------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST
- -----------------------------------------------------------------------------------------------------------------
Worldwide Hard Assets 9.32% 9.96%
Worldwide Balanced 2.97% 3.48%
=================================================================================================================
</TABLE>
- 11 -
<PAGE> 74
Non-standard cumulative total returns for each Variable Account for the
periods since the inception of each Variable Account are as follows. These
figures include the daily deduction of a mortality and expenses charge at an
annual rate of 1.25%, And the daily deduction of the annual administrative
expenses charge at an annual rate of 0.15%, But they do not reflect the
quarterly deduction of an administration charge of $7.50 And the maximum
contingent deferred sales load of 7%, which, if deducted, would reduce
performance. Non-standard performance data will only be disclosed if standard
performance data for the required periods is also disclosed.
<TABLE>
<CAPTION>
=================================================================================================================
VARIABLE ACCOUNT FOR THE 1-YEAR FOR THE PERIOD FROM
(DATE OF COMMENCEMENT OF PERIOD ENDED COMMENCEMENT OF
OPERATION OF VARIABLE ACCOUNT) 12/31/96 VARIABLE ACCOUNT
OPERATIONS TO 12/31/96
- -----------------------------------------------------------------------------------------------------------------
ALGER AMERICAN FUND
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Midcap Growth 10.34% 11.01%
Small Capitalization 2.73% 3.23%
- -----------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND
- -----------------------------------------------------------------------------------------------------------------
Equity Income 12.69% 21.07%
Growth 13.11% 11.64%
Money Market 3.94% 4.62%
- -----------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND II
- -----------------------------------------------------------------------------------------------------------------
Asset Manager 13.01% 18.93%
Contrafund 19.62% 23.59%
Index 500 21.11% 28.91%
Investment Grade Bond 1.75% 4.54%
- -----------------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
- -----------------------------------------------------------------------------------------------------------------
Managed 21.07% 28.04%
Small Cap 17.07% 23.71%
- -----------------------------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
- -----------------------------------------------------------------------------------------------------------------
Royce Micro-cap N/A N/A
- -----------------------------------------------------------------------------------------------------------------
SAFECO RESOURCES SERIES TRUST
- -----------------------------------------------------------------------------------------------------------------
Equity N/A N/A
Growth N/A N/A
- -----------------------------------------------------------------------------------------------------------------
SOGEN VARIABLE FUNDS, INC.
- -----------------------------------------------------------------------------------------------------------------
Sogen Overseas N/A N/A
- -----------------------------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
- -----------------------------------------------------------------------------------------------------------------
Limited-term Bond -3.93% -3.18%
=================================================================================================================
</TABLE>
- 12 -
<PAGE> 75
<TABLE>
<CAPTION>
=================================================================================================================
VARIABLE ACCOUNT FOR THE 1-YEAR FOR THE PERIOD FROM
(DATE OF COMMENCEMENT OF PERIOD ENDED COMMENCEMENT OF
OPERATION OF VARIABLE ACCOUNT) 12/31/96 VARIABLE ACCOUNT
OPERATIONS TO 12/31/96
- -----------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
International Stock 13.11% 17.44%
- -----------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST
- -----------------------------------------------------------------------------------------------------------------
Worldwide Hard Assets 16.42% 17.09%
Worldwide Balanced 10.08% 10.61%
=================================================================================================================
</TABLE>
Adjusted Historical Portfolio Performance Figures
The charts below show "adjusted" historical performance data for the
Portfolios, including for periods prior to the inception of the Variable
Accounts, based on the performance of each Portfolio since its inception date,
with a level of charges equal to those currently assessed under the Contracts.
THESE FIGURES ARE NOT AN INDICATION OF THE FUTURE PERFORMANCE OF THE VARIABLE
ACCOUNTS. Some of the figures reflect the waiver of advisory fees and
reimbursement of other expenses for part or all of the periods indicated.
Adjusted historical standard average annual total returns for periods
since the inception of each Portfolio are as follows. These figures include the
daily deduction of the mortality and expenses charges at an annual rate of
1.25% (Except that, prior to 11/1/95, deductions are monthly), the daily
deduction of the annual administrative expenses charge at an annual rate of
0.15% (Except that, prior to 11/1/95, deductions are monthly), the quarterly
deduction of the administration charge of $7.50 Adjusted for average account
size, and the deduction of the maximum contingent deferred sales load of 7%
<TABLE>
<CAPTION>
=======================================================================================================================
FOR THE PERIOD
VARIABLE ACCOUNT FOR THE 1- FOR THE 5- FOR THE 10-YEAR FROM
(DATE OF COMMENCEMENT OF YEAR YEAR PERIOD ENDED COMMENCEMENT
OPERATION OF CORRESPONDING PERIOD ENDED PERIOD ENDED 12/31/96 OF PORTFOLIO
PORTFOLIO) 12/31/96 12/31/96 OPERATIONS
TO 12/31/96
- ----------------------------------------------------------------------------------------------------------------------
ALGER AMERICAN FUND
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Midcap Growth Portfolio 3.24% N/A N/A 20.49%
Small Capitalization Portfolio -3.85% 9.36% N/A 18.99%
- ----------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND
- ----------------------------------------------------------------------------------------------------------------------
Equity Income Portfolio 5.59% 15.56% 12.01% 11.67%
Growth Portfolio 6.01% 13.14% 13.75% 13.51%
Money Market Portfolio -2.73% 1.82% 3.94% 5.08%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
- 13 -
<PAGE> 76
<TABLE>
<CAPTION>
==============================================================================================================================
FOR THE PERIOD
VARIABLE ACCOUNT FOR THE 1- FOR THE 5- FOR THE 10-YEAR FROM
(DATE OF COMMENCEMENT OF YEAR YEAR PERIOD ENDED COMMENCEMENT
OPERATION OF CORRESPONDING PERIOD ENDED PERIOD ENDED 12/31/96 OF PORTFOLIO
PORTFOLIO) 12/31/96 12/31/96 OPERATIONS
TO 12/31/96
- -----------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND II
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Asset Manager Portfolio 5.90% 8.71% N/A 9.95%
Contrafund Portfolio 12.51% N/A N/A 28.61%
Index 500 Portfolio 14.01% N/A N/A 14.51%
Investment Grade Bond Portfolio -4.77% 2.64% N/A 3.32%
- -----------------------------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
- -----------------------------------------------------------------------------------------------------------------------------
Managed Portfolio 13.96% 16.85% N/A 18.65%
Small Cap Portfolio 9.96% 11.96% N/A 13.11%
- -----------------------------------------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
- -----------------------------------------------------------------------------------------------------------------------------
Royce Micro-cap Portfolio N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------
SAFECO RESOURCES SERIES TRUST
- -----------------------------------------------------------------------------------------------------------------------------
Equity Portfolio N/A N/A N/A N/A
Growth Portfolio N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------
SOGEN VARIABLE FUNDS, INC.
- -----------------------------------------------------------------------------------------------------------------------------
Sogen Overseas Portfolio N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
- -----------------------------------------------------------------------------------------------------------------------------
Limited-term Bond Portfolio -10.04% N/A N/A -0.90%
- -----------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
- -----------------------------------------------------------------------------------------------------------------------------
International Stock Portfolio 6.00% N/A N/A 6.08%
- -----------------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST
- -----------------------------------------------------------------------------------------------------------------------------
Worldwide Hard Assets Portfolio 9.32% 9.87% N/A 4.90%
Worldwide Balanced Portfolio 2.97% N/A N/A 2.98%
=============================================================================================================================
</TABLE>
Adjusted historical non-standard average annual total returns for
periods since the inception of each Portfolio are as follows. These figures
include the daily deduction of the mortality and expenses charge at an annual
rate of 1.25% (Except that, prior to 11/1/95, deductions are monthly), and the
daily deduction of the annual administrative expenses charge at the annual rate
of 0.15% (Except that, prior to 11/1/95, deductions are monthly), but they do
not reflect the quarterly deduction of the administration charge of $7.50 And
the maximum contingent deferred sales load of 7%, which, if deducted, would
reduce performance. Nonstandard performance data will only be disclosed if
standard performance data for the required periods is also disclosed.
- 14 -
<PAGE> 77
<TABLE>
<CAPTION>
=============================================================================================================================
FOR THE PERIOD
VARIABLE ACCOUNT FOR THE 1- FOR THE 5- FOR THE 10-YEAR FROM
(DATE OF COMMENCEMENT OF YEAR YEAR PERIOD ENDED COMMENCEMENT
OPERATION OF CORRESPONDING PERIOD ENDED PERIOD ENDED 12/31/96 OF PORTFOLIO
PORTFOLIO) 12/31/96 12/31/96 OPERATIONS
TO 12/31/96
- -----------------------------------------------------------------------------------------------------------------------------
ALGER AMERICAN FUND
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
Midcap Growth Portfolio 10.34% N/A N/A 21.77%
Small Capitalization Portfolio 2.73% 10.42% N/A 19.11%
- -----------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND
- -----------------------------------------------------------------------------------------------------------------------------
Equity Income Portfolio 12.69% 16.42% 12.08% 11.75%
Growth Portfolio 13.11% 14.07% 13.81% 13.58%
Money Market Portfolio 3.94% 3.19% 4.02% 5.15%
- -----------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND II
- -----------------------------------------------------------------------------------------------------------------------------
Asset Manager Portfolio 13.01% 9.78% N/A 10.33%
Contrafund Portfolio 19.62% N/A N/A 31.57%
Index 500 Portfolio 21.11% N/A N/A 15.61%
Investment Grade Bond Portfolio 1.75% 3.97% N/A 3.80%
- -----------------------------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
- -----------------------------------------------------------------------------------------------------------------------------
Managed Portfolio 21.07% 17.68% N/A 18.78%
Small Cap Portfolio 17.07% 12.92% N/A 13.28%
- -----------------------------------------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
- -----------------------------------------------------------------------------------------------------------------------------
Royce Micro-cap Portfolio N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------
SAFECO RESOURCES SERIES TRUST
- -----------------------------------------------------------------------------------------------------------------------------
Equity Portfolio N/A N/A N/A N/A
Growth Portfolio N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------
SOGEN VARIABLE FUNDS, INC.
- -----------------------------------------------------------------------------------------------------------------------------
Sogen Overseas Portfolio N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
- -----------------------------------------------------------------------------------------------------------------------------
Limited-term Bond Portfolio -3.93% N/A N/A 1.73%
- -----------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
- -----------------------------------------------------------------------------------------------------------------------------
International Stock Portfolio 13.11% N/A N/A 8.43%
- -----------------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST
- -----------------------------------------------------------------------------------------------------------------------------
Worldwide Hard Assets Portfolio 16.42% 10.89% N/A 5.40%
Worldwide Balanced Portfolio 10.08% N/A N/A 9.03%
=============================================================================================================================
</TABLE>
- 15 -
<PAGE> 78
Adjusted historical standard cumulative total returns for periods since the
inception of each Portfolio are as follows. These figures include the daily
deduction of the mortality and expenses charge at an annual rate of 1.25%
(Except that, prior to 11/1/95, deductions are monthly), the daily deduction of
the annual administrative expenses charge at an annual rate of 0.15% (Except
that, prior to 11/1/95, deductions are monthly), the quarterly deduction of an
administration charge of $7.50, And the maximum contingent deferred sales load
of 7%.
<TABLE>
<CAPTION>
=============================================================================================================================
FOR THE PERIOD
VARIABLE ACCOUNT FOR THE 1-YEAR FOR THE 5-YEAR FOR THE 10-YEAR FROM
(DATE OF COMMENCEMENT OF PERIOD ENDED PERIOD ENDED PERIOD ENDED COMMENCEMENT OF
OPERATION OF CORRESPONDING 12/31/96 12/31/96 12/31/96 PORTFOLIO
PORTFOLIO) OPERATIONS
TO 12/31/96
- -----------------------------------------------------------------------------------------------------------------------------
ALGER AMERICAN FUND
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Midcap Growth Portfolio 3.24% N/A N/A 95.01%
Small Capitalization Portfolio -3.85% 56.43% N/A 319.68%
- -----------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND
- -----------------------------------------------------------------------------------------------------------------------------
Equity Income Portfolio 5.59% 106.10% 210.77% 207.19%
Growth Portfolio 6.01% 85.39% 262.56% 262.73%
Money Market Portfolio -2.73% 9.43% 47.16% 106.90%
- -----------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND II
- -----------------------------------------------------------------------------------------------------------------------------
Asset Manager Portfolio 5.90% 51.80% N/A 98.91%
Contrafund Portfolio 12.51% N/A N/A 61.97%
Index 500 Portfolio 14.01% N/A N/A 79.86%
Investment Grade Bond Portfolio -4.77% 13.94% N/A 29.82%
- -----------------------------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
- -----------------------------------------------------------------------------------------------------------------------------
Managed Portfolio 13.96% 117.85% N/A 315.72%
Small Cap Portfolio 9.96% 75.96% N/A 179.15%
- -----------------------------------------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
- -----------------------------------------------------------------------------------------------------------------------------
Royce Micro-cap Portfolio N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------
SAFECO RESOURCES SERIES TRUST
- -----------------------------------------------------------------------------------------------------------------------------
Equity Portfolio N/A N/A N/A N/A
Growth Portfolio N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------
SOGEN VARIABLE FUNDS, INC.
- -----------------------------------------------------------------------------------------------------------------------------
Sogen Overseas Portfolio N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
- -----------------------------------------------------------------------------------------------------------------------------
Limited-term Bond Portfolio -10.04% N/A N/A -2.32%
- -----------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
- -----------------------------------------------------------------------------------------------------------------------------
International Stock Portfolio 6.00% N/A N/A 17.62%
=============================================================================================================================
</TABLE>
- 16 -
<PAGE> 79
<TABLE>
<CAPTION>
=============================================================================================================================
FOR THE PERIOD
VARIABLE ACCOUNT FOR THE 1-YEAR FOR THE 5-YEAR FOR THE 10-YEAR FROM
(DATE OF COMMENCEMENT OF PERIOD ENDED PERIOD ENDED PERIOD ENDED COMMENCEMENT OF
OPERATION OF CORRESPONDING 12/31/96 12/31/96 12/31/96 PORTFOLIO
PORTFOLIO) OPERATIONS
TO 12/31/96
- -----------------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Worldwide Hard Assets Portfolio 9.32% 60.08% N/A 42.06%
Worldwide Balanced Portfolio 2.97% N/A N/A 3.48%
=============================================================================================================================
</TABLE>
Adjusted historical non-standard cumulative total returns for periods since
the inception of each Portfolio are as follows. These figures include the daily
deduction of the mortality and expenses charges at an annual rate of 1.25%
(except that, prior to 11/1/95, deductions are monthly), the daily deduction of
the administrative expenses charge at an annual rate of 0.15% (except that,
prior to 11/1/95, deductions are monthly), but they do not reflect the
quarterly deduction of the administration charge of $7.50, and the maximum
contingent deferred sales load of 7%, which, if deducted, would reduce
performance. Nonstandard performance data will only be disclosed if standard
performance data for the required periods is also disclosed.
<TABLE>
<CAPTION>
=============================================================================================================================
FOR THE PERIOD
VARIABLE ACCOUNT FOR THE 1-YEAR FOR THE 5- FOR THE 10-YEAR FROM
(DATE OF COMMENCEMENT OF PERIOD ENDED YEAR PERIOD ENDED COMMENCEMENT OF
OPERATION OF CORRESPONDING 12/31/96 PERIOD ENDED 12/31/96 PORTFOLIO OPERATIONS
PORTFOLIO) 12/31/96 TO 12/31/96
- -----------------------------------------------------------------------------------------------------------------------------
ALGER AMERICAN FUND
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Midcap Growth Portfolio 10.34% N/A N/A 102.52%
Small Capitalization Portfolio 2.73% 64.15% N/A 323.27%
- -----------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND
- -----------------------------------------------------------------------------------------------------------------------------
Equity Income Portfolio 12.69% 113.85% 212.80% 209.28%
Growth Portfolio 13.11% 93.13% 264.68% 264.92%
Money Market Portfolio 3.94% 16.97% 48.35% 108.90%
- -----------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND II
- -----------------------------------------------------------------------------------------------------------------------------
Asset Manager Portfolio 13.01% 59.44% N/A 103.96%
Contrafund Portfolio 19.62% N/A N/A 69.20%
Index 500 Portfolio 21.11% N/A N/A 87.50%
Investment Grade Bond Portfolio 1.75% 21.49% N/A 34.77%
- -----------------------------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
- -----------------------------------------------------------------------------------------------------------------------------
Managed Portfolio 21.07% 125.66% N/A 319.58%
Small Cap Portfolio 17.07% 83.63% N/A 182.64%
- -----------------------------------------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
- -----------------------------------------------------------------------------------------------------------------------------
Royce Micro-cap Portfolio N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
- 17 -
<PAGE> 80
<TABLE>
<CAPTION>
=============================================================================================================================
FOR THE PERIOD
VARIABLE ACCOUNT FOR THE 1-YEAR FOR THE 5-YEAR FOR THE 10-YEAR FROM
(DATE OF COMMENCEMENT OF PERIOD ENDED PERIOD ENDED PERIOD ENDED COMMENCEMENT OF
OPERATION OF CORRESPONDING 12/31/96 12/31/96 12/31/96 PORTFOLIO
PORTFOLIO) OPERATIONS
TO 12/31/96
- -----------------------------------------------------------------------------------------------------------------------------
SAFECO RESOURCES SERIES TRUST
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity Portfolio N/A N/A N/A N/A
Growth Portfolio N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------
SOGEN VARIABLE FUNDS, INC.
- -----------------------------------------------------------------------------------------------------------------------------
Sogen Overseas Portfolio N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
- -----------------------------------------------------------------------------------------------------------------------------
Limited-term Bond Portfolio -3.93% N/A N/A 4.53%
- -----------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
- -----------------------------------------------------------------------------------------------------------------------------
International Stock Portfolio 13.11% N/A N/A 24.93%
- -----------------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST
- -----------------------------------------------------------------------------------------------------------------------------
Worldwide Hard Assets Portfolio 16.42% 67.71% N/A 47.07%
Worldwide Balanced Portfolio 10.08% N/A N/A 10.61%
=============================================================================================================================
</TABLE>
NET INVESTMENT FACTOR
The Net Investment Factor is an index that measures the investment
performance of a Variable Account from one Business Day 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 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 at the end of the
current Business Day; 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
at the end of the current Business Day, MINUS
4. any amount charged for taxes or any amount set aside
during the Business Day as a reserve for taxes
attributable to the operation or maintenance of the
Variable Account; MINUS
- 18 -
<PAGE> 81
5. the amount charged for mortality and expense risk on
that Business Day; MINUS
6. the amount charged for administration on that
Business Day; and
(b) is the value of the assets in the Variable Account at the end
of the preceding Business Day, adjusted for allocations and
transfers to and withdrawals and transfers from the Variable
Account occurring during that preceding Business Day.
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 variable payout plan, the dollar amount of the
first variable annuity payment and the first fixed annuity payment (assuming
the fixed payment is based on the minimum guaranteed 3.0% interest rate) will
be the same. Later variable annuity payments, however, will vary to reflect the
net investment performance of the Variable Account(s) selected by the Owner or
the 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 adjusted Contract Value for each Variable Account is used to
purchase annuity units at the annuity unit value for that Variable Account on
the Annuity Start Date. The number of annuity units in each Variable Account
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
each Business Day in substantially the same way as does the value of an
accumulation unit of a Variable Account.
The dollar value of each variable annuity payment after the first is
determined by multiplying the number of annuity units of a particular Variable
Account by the annuity unit value for that Variable Account on the Business Day
immediately preceding the date of each 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 for that
Variable Account for that period will equal the payment for the prior period.
If the 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. Similarly, if the 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.
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
- 19 -
<PAGE> 82
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 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
- 20 -
<PAGE> 83
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
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>
- 21 -
<PAGE> 84
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
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 of the
Company's separate accounts, or the assets may be transferred to another
separate account. In addition, the Company may, when permitted by law, restrict
or eliminate any voting rights the Owner has under the Contracts.
The Company will continue to pay a Living Benefit under the Visionary Choice
Contract and a Maturity Benefit under the Visionary Contract on Premium
Payments allocated to an Eligible Variable Account if: (a) the Portfolio
underlying an Eligible Variable Account changes its investment objective; (b)
the Company determines that an investment in the Portfolio underlying an
Eligible Variable Account is no longer appropriate in light of the purposes of
the Separate Account; or (c) shares of a Portfolio underlying an Eligible
Variable Account are no longer available for investment by the Separate Account
and the Company is forced to redeem all shares of the Portfolio held by the
Eligible Variable Account. (See the Prospectus for the Owner's Contract.)
RESOLVING MATERIAL CONFLICTS
The Funds currently sell shares to registered separate accounts of
insurance companies other than IL Annuity to support other variable annuity
contracts and variable life insurance contracts. In addition, some of the Funds
may in the future be sold to the Company's other separate accounts 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 Owner's interests in
owning a Contract whose Contract Value is allocated to the Separate Account and
of persons 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 the Owner
that would arise from the sale of Fund 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
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
- 22 -
<PAGE> 85
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 does not sufficiently protect the
Owner, the Company 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.)
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 FUND 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, operations, financial condition or
prospects or is the subject of material adverse publicity; or (7) by the Fund
or the
- 23 -
<PAGE> 86
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. 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; (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.
ROYCE CAPITAL FUND. This agreement provides for termination: (1) at
the option of IL Annuity or the Royce Trust (the "Trust") upon 180 days'
notice; (2) at the option of IL Annuity, if the Trust shares are not reasonably
available to meet the requirements of the Contracts; (3) at the option of IL
Annuity, upon the institution of certain formal proceedings against the Trust
by the SEC, the National Association of Securities Dealers, Inc. ("NASD"), or
any other regulatory body; (4) at the option of the Advisor of the Trust or the
Trust, upon the institution of certain formal proceedings against IL Annuity by
the SEC, the NASD or any other regulatory body; (5) in the event the Trust's
shares are not registered, issued or sold in accordance with applicable state
or federal law, or such law precludes the use of such shares as the underlying
investment medium of Contracts; (6) at the option of the Adviser of the Trust
or the Trust, if the Contracts cease to qualify as annuity contracts or life
insurance contracts, as applicable, under the Code; (7) at the option of IL
Annuity, upon the Trust's unremedied breach of any material provision of this
agreement; (8) at the option of the Adviser of the Trust or the Trust, upon IL
Annuity's unremedied breach of any material provision of this agreement; (9) at
the option of the Adviser of the Trust or the Trust, if the Contracts are not
registered, issued or sold in accordance with applicable federal and/or state
law; (10) in the event this agreement is assigned without the prior written
consent of IL Annuity and the Trust.
SAFECO RESOURCE SERIES TRUST. This agreement shall terminate as to the
sale and issuance of new Contracts: (1) at the option of either IL Annuity or
the SAFECO Trust ("Trust"), upon 180 days' advance written notice to the other;
(2) at the option of IL Annuity, upon ten days' advance written notice to the
Trust if shares of the Portfolios are not available for any reason to meet the
requirements of the Contracts as determined by IL Annuity; (3) at the option of
IL Annuity , upon the institution of certain formal proceedings against the
Trust or Adviser by
- 24 -
<PAGE> 87
the SEC, the National Association Of Securities Dealers, inc. ("NASD"), or any
other regulatory body ; (4) at the option of the Trust, upon the institution of
certain formal proceedings against IL Annuity or the principal underwriter for
the Contracts by the SEC, the NASD or any other regulatory body; (5) in the
event the Trust's shares are not registered, issued or sold in accordance with
applicable state or federal law, or such law precludes the use of such shares
as the underlying investment medium of Contracts; (6) upon the receipt of any
necessary regulatory approvals, or the requisite vote of Contract owners having
an interest in the Portfolios, to substitute for shares of the Portfolios the
shares of another investment company in accordance with the terms of the
applicable Contracts; (7) at the option of the Trust, if the Contracts cease to
qualify as annuity contracts or life insurance contracts, as applicable, under
the Code; (8) at the option of IL Annuity, upon the Trust's unremedied breach
of any material provision of this agreement; (9) at the option of the Trust,
upon IL Annuity's unremedied breach of any material provision of this
agreement; (10) at the option of the Trust, if the Contracts are not
registered, issued or sold in accordance with applicable federal and/or state
law; (11) in the event this agreement is assigned without the prior written
consent of IL Annuity, the Trust or Adviser.
SOGEN VARIABLE FUNDS, INC. This agreement shall continue in full force
and effect until the first to occur of: (1) termination by any party, for any
reason with respect to the Portfolio, by 120 days advance written notice
delivered to the other parties; or (2) termination by IL Annuity by written
notice to the SoGen Fund and its Underwriter based upon IL Annuity's
determination that shares of the Portfolio are not reasonably available to meet
the requirements of the Contracts; or (3) termination by IL Annuity by written
notice to the SoGen Fund and its Underwriter in the event the Portfolio's
shares are not registered, issued or sold in accordance with applicable state
and/or federal law or such law precludes the use of such shares as the
underlying investment media of the Contracts; or (4) termination by the SoGen
Fund or its Underwriter in the event that certain formal administrative
proceedings are instituted against IL Annuity by the NASD, the SEC, the
Insurance Commissioner or like official of any state or any other regulatory
body; or (5) termination by IL Annuity in the event that certain formal
administrative proceedings are instituted against the SoGen Fund or Underwriter
by the NASD, the SEC, or any state securities or insurance department or any
other regulatory body; or (6) termination by IL Annuity by written notice to
the SoGen Fund and its Underwriter in the event that the Portfolio ceases to
qualify as a Regulated Investment Company under Subchapter M or fails to comply
with the Section 817(h) diversification requirements of the Code; or (7)
termination by the SoGen Fund or its Underwriter by written notice to IL
Annuity in the event that the Contracts fail to meet certain qualifications; or
(8) termination by either the SoGen Fund or its Underwriter by written notice
to IL Annuity if either one or both of the SoGen Fund or its Underwriter
respectively, shall determine, in their sole judgment exercised in good faith,
that IL Annuity has suffered a material adverse change in its business,
operations, financial condition, or prospects since the date of the
Participation Agreement or is the subject of material adverse publicity; or (9)
termination by IL Annuity by written notice to the SoGen Fund and its
Underwriter, if the Company shall determine, in its sole judgment exercised in
good faith, that the SoGen Fund, its Adviser, or its Underwriter has suffered a
material adverse change in its business, operations, financial condition or
prospects since the date of this agreement or is the subject of material
adverse publicity; or (10) termination by IL Annuity upon any substitution of
the shares of another investment company or series thereof for shares of the
Portfolio in
- 25 -
<PAGE> 88
accordance with the terms of the Contracts; or (11) termination by any party in
the event that the SoGen Fund's Board of Directors determines that a material
irreconcilable conflict exists.
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 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.
VOTING RIGHTS
The number of the Owner's votes is determined by dividing the Contract
Value the Owner has in a Variable Account by the net asset value per share of
the Portfolio 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 Portfolio in
which that
- 26 -
<PAGE> 89
Variable Account invests. This liability for future payments is calculated on
the basis of the mortality assumptions. The assumed investment rate the Owner
selected is 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 the Owner or an 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
Portfolio's shareholders. Voting instructions will be solicited by written
communication prior to such meeting in accordance with procedures established
for the Fund.
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.
DISTRIBUTION OF THE CONTRACTS
IL Securities, Inc., P.O. Box 1230, 2960 North Meridian Street,
Indianapolis, Indiana 46208, acts as the distributor for the Contracts. IL
Securities, Inc. is wholly-owned by the Indianapolis Life Group of Companies,
Inc., which, in turn, is wholly-owned by Indianapolis Life Insurance Company.
IL Securities, Inc. 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.
The Company offers the Contracts 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. Agents who sell the
Contracts are licensed by applicable state insurance authorities to sell the
Contracts and are 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.
- 27 -
<PAGE> 90
The Company may pay sales commissions to broker-dealers up to an
amount equal to 7.2% 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% of Premium Payments to IL Securities to
compensate it for certain distribution expenses. The broker-dealers are
expected to compensate sales representatives in varying amounts from these
commissions. The Company may also pay other distribution expenses such as
production incentive bonuses, an agent's insurance and pension benefits, and
agency expense allowances. These distribution expenses do not result in any
additional charges against the Contracts other than those described in the
prospectus under "Fees and Charges." IL Securities, Inc. received and retained
$195,937.53 in underwriting commissions during fiscal year 1996, and $2,900.68
in fiscal year 1995.
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,
General Counsel and Secretary of the Company. Sutherland, Asbill & Brennan LLP
of Washington, D.C. has provided advice on certain matters relating to the
federal securities laws.
EXPERTS
The balance sheets of IL Annuity and Insurance Company as of December
31, 1996 and 1995, and the related statements of income, stockholder's equity,
and cash flows for the years then ended 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, 1996, 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.
- 28 -
<PAGE> 91
FINANCIAL STATEMENTS
- 29 -
<PAGE> 92
Financial Statements
IL Annuity and Insurance Company
Years ended December 31, 1996 and 1995
and Two Months Ended December 31, 1994
With Report of Independent Auditors
<PAGE> 93
IL Annuity and Insurance Company
Financial Statements
Years ended December 31, 1996 and 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> 94
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, 1996
and 1995, and the related statements of income, stockholder's equity, and cash
flows for the years then ended 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, 1996 and 1995, and the results of its operations and
its cash flows for the years then ended and the two months ended December 31,
1994 in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
April 4, 1997
1
<PAGE> 95
IL Annuity and Insurance Company
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
----------------------------------
<S> <C> <C>
ASSETS
Fixed maturity securities $ 57,530,548 $ 6,478,844
Cash 3,283,442 440,601
Accrued investment income 565,974 81,030
Deferred acquisition costs 4,860,881 -
Goodwill, net of accumulated amortization of $237,285
in 1996 and $127,769 in 1995 1,953,034 2,062,550
Receivables and other assets 5,681 -
Separate account assets 19,804,429 287,171
----------------------------------
Total assets $ 88,003,989 $ 9,350,196
==================================
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Future policy benefit reserves $ 45,729,780 $ 7,500
Payable to affiliate - 89,437
Accounts payable and other liabilities 3,855,498 68,003
Federal income taxes 93,278 72,352
Separate account liabilities 19,804,429 287,171
----------------------------------
Total liabilities 69,482,985 524,463
Stockholder's equity:
Common stock, $250 par value:
Authorized and issued--10,000 shares 2,500,000 2,500,000
Additional paid-in capital 17,262,659 6,762,659
Net unrealized gains on investments 155,340 134,367
Retained earnings (deficit) (1,396,995) (571,293)
----------------------------------
Total stockholder's equity 18,521,004 8,825,733
----------------------------------
Total liabilities and stockholder's equity $ 88,003,989 $ 9,350,196
==================================
</TABLE>
See accompanying notes.
2
<PAGE> 96
IL Annuity and Insurance Company
Statements of Income
<TABLE>
<CAPTION>
TWO MONTHS
ENDED
YEARS ENDED DECEMBER 31 DECEMBER 31
1996 1995 1994
---------------------------------------------------
<S> <C> <C> <C>
Revenue:
Annuity considerations $ 346,265 $ - $ -
Investment income 884,450 402,408 47,728
Net realized capital gains 131,664 936 -
---------------------------------------------------
1,362,379 403,344 47,728
Expenses:
Annuity benefits 168,089 - -
Interest on policy or contract funds 381,690 - -
Commissions 916,084 17,044 -
General expenses and other 1,275,445 772,011 1,904
Amortization of deferred acquisition costs 366,562 - -
Amortization of goodwill 109,516 109,516 18,253
Taxes, licenses and fees 94,737 97,527 624
Change in reserve credits (1,133,676) 996,098 20,781
---------------------------------------------------
2,178,447 996,098 20,781
---------------------------------------------------
Loss before federal income taxes (816,068) (592,754) 26,947
Federal income taxes (benefit) 9,634 (3,909) 9,395
---------------------------------------------------
Net loss $ (825,702) $ (588,845) $ 17,552
===================================================
</TABLE>
See accompanying notes.
3
<PAGE> 97
IL Annuity and Insurance Company
Statements of Stockholder's Equity
<TABLE>
<CAPTION>
NET UNREALIZED RETAINED
ADDITIONAL PAID- GAINS (LOSSES) EARNINGS
COMMON STOCK IN CAPITAL ON 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 net of
deferred taxes - - 167,275 - 167,275
----------------------------------------------------------------------------------------
Balance at December 31, 1995 2,500,000 6,762,659 134,367 (571,293) 8,825,733
Net loss - - - (825,702) (825,702)
Capital contribution - 10,500,000 - - 10,500,000
Change in unrealized gains net of
deferred taxes - - 20,993 - 20,993
----------------------------------------------------------------------------------------
Balance at December 31, 1996 $ 2,500,000 $ 17,262,659 $ 155,360 $ (1,396,995) $ 18,521,024
========================================================================================
</TABLE>
See accompanying notes.
4
<PAGE> 98
IL Annuity and Insurance Company
Statements of Cash Flows
<TABLE>
<CAPTION>
TWO MONTHS
ENDED
YEARS ENDED DECEMBER 31 DECEMBER 31
1996 1995 1994
---------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (825,702) $ (588,845) $ 17,552
Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
Amortization of discount on investments 56,760 (77,287) (10,386)
Amortization of goodwill 109,516 109,516 18,253
Changes in operating assets and liabilities:
Deferred acquisition costs (4,860,881) - -
Accrued investment income (484,944) (52,155) 51,376
Receivables and other assets (5,681) 100,000 (100,000)
Future policy benefit reserves 45,722,280 7,500 -
Accounts payable and accrued liabilities 3,698,235 157,269 171
Federal income taxes 20,926 (9,395) 9,395
---------------------------------------------------
Net cash provided (used) by operating activities 43,430,509 (353,397) (13,639)
INVESTING ACTIVITIES
Sales and maturity of investments 81,055,536 5,247,404 -
Purchase of investments (132,143,204) (6,243,672) (2,922,685)
---------------------------------------------------
Net cash used for investing activities (51,087,668) (996,268) (2,922,685)
FINANCING ACTIVITIES
Capital and surplus contributed by parent 10,500,000 1,650,000 -
---------------------------------------------------
Net cash provided by financing activities 10,500,000 1,650,000 -
---------------------------------------------------
Net increase (decrease) in cash 2,842,841 300,335 (2,936,324)
Cash at beginning of period 440,601 140,266 3,076,590
---------------------------------------------------
Cash at end of year $ 3,283,442 $ 440,601 $ 140,266
===================================================
</TABLE>
See accompanying notes.
5
<PAGE> 99
IL Annuity and Insurance Company
Notes to Financial Statements
December 31, 1996
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. The Company exists under the laws of the
State of Massachusetts and is licensed to do business in forty-one states and
the District of Columbia.
The Company offers flexible premium deferred annuity contracts which may be
offered in connection with retirement plans. The premiums collected on variable
annuity contracts are invested primarily in various mutual funds held in a
Separate Account at the direction of the policyholder.
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> 100
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.
DEFERRED ACQUISITION COSTS
Costs relating to the acquisition of annuity products, primarily commissions
and certain costs of marketing, policy issuance and underwriting, which vary
with and are directly related to the production of new business, are deferred
and included in the deferred acquisition cost asset to the extent that such
cost are recoverable from future policy related revenues. Deferred acquisition
costs, with interest, are amortized over the lives of the policies in a
relationship to the present value of estimated future gross profits, discounted
using the interest rate credited to the policy.
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%.
THIRD-PARTY ADMINISTRATORS
The Company has contractual arrangements with two third-party administrators to
distribute its annuity products.
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 Account are not included in the accompanying
financial statements.
7
<PAGE> 101
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
1. ORGANIZATION, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenue for annuity products consist of policy charges for the cost of
insurance, policy administration charges, and surrender charges assessed
against policyholder account balances.
FEDERAL INCOME TAXES
The Company files a stand-alone federal income tax return.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year presentation.
2. FIXED MATURITY SECURITIES
Fixed maturity securities at December 31 consist of:
<TABLE>
<CAPTION>
1996
----------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------------------------------------------------
<S> <C> <C> <C> <C>
United States Government $ 29,027,551 $ 117,666 $ 172 $ 29,145,045
Public Utilities 980,073 3,278 1,055 982,296
Industrial and miscellaneous 27,283,940 199,881 80,614 27,403,207
----------------------------------------------------------
$ 57,291,564 $ 320,825 $ 81,841 $ 57,530,548
==========================================================
<CAPTION>
1995
----------------------------------------------------------
<S> <C> <C> <C> <C>
United States Government $ 6,272,125 $ 206,719 $ -- $ 6,478,844
==========================================================
</TABLE>
8
<PAGE> 102
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
2. FIXED MATURITY SECURITIES (CONTINUED)
Fixed maturity securities by date of scheduled maturity consist of the
following at December 31, 1996.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
----------------------------------
<S> <C> <C>
Due in one year or less $ 20,188,916 $ 20,193,375
Due after one year through five years 12,959,868 13,117,043
Due after five years through ten years 17,127,953 17,115,815
Due after ten years 7,014,827 7,104,315
----------------------------------
$ 57,291,564 $ 57,530,548
==================================
</TABLE>
3. FEDERAL INCOME TAXES
Significant components of the provision for federal income taxes consist of the
following:
<TABLE>
<CAPTION>
TWO MONTHS
ENDED
YEARS ENDED DECEMBER 31 DECEMBER 31
1996 1995 1994
--------------------------------------------
<S> <C> <C> <C>
Federal income taxes (benefit) at 35% $ (285,624) $ (207,464) $ 9,431
Effect of net operating loss 297,882 203,677 -
Other, net (2,624) (122) (36)
--------------------------------------------
Federal income taxes (benefit) $ 9,634 $ (3,909) $ 9,395
============================================
</TABLE>
At December 31, 1996 and 1995 the financial statements included deferred tax
assets of $2,235,015 and $219,527, offset by a valuation allowance of $501,560
and $203,678 and deferred tax liabilities of $1,817,099 and $88,201,
respectively. The significant components of the Company's deferred tax assets
and liabilities were net operating losses, deferred acquisition costs,
amortization of goodwill and bond discount and unrealized investment gains and
losses.
At December 31, 1996, the Company has unused federal tax net operating loss
carryforwards of approximately $500,000, expiring in the year 2014.
9
<PAGE> 103
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
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, 1996 and 1995 was $13,683,197 and $6,705,332, respectively. Statutory net
income (loss) for 1996, 1995 and 1994 was $(3,252,584), $(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.
5. RELATED PARTY TRANSACTIONS
The Company was allocated expenses of $1,436,861 and $607,027 from
Indianapolis Life Insurance Company for 1996 and 1995, respectively, in
conjunction with expense allocation agreements for various administrative
assistance.
6. SUBSEQUENT EVENT
Effective March 31, 1997, the Company signed a binding letter of intent to
enter into a modified coinsurance agreement with Transamerica Occidental Life
Insurance Company (Transamerica), whereby Transamerica will reinsure the
Company's new annuity product, retroactive to August 1, 1996. The agreement
must be signed within 90 days of the date of the letter of intent.
10
<PAGE> 104
Financial Statements
IL Annuity and Insurance Co. Separate Account 1
Years ended December 31, 1996 and 1995
with Report of Independent Auditors
<PAGE> 105
IL Annuity and Insurance Co. Separate Account 1
Financial Statements
Years ended December 31, 1996 and 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> 106
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, 1996, and the
related statement of operations for the year then ended, and statements of
changes in net assets for each of the two years in the period 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1996, 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 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 Co.
Separate Account 1 at December 31, 1996, the results of its operations for the
year then ended and the changes in its net assets for each of the two years in
the period then ended in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG, LLP
April 4, 1997
1
<PAGE> 107
IL Annuity and Insurance Co. Separate Account 1
Statement of Net Assets
December 31, 1996
<TABLE>
<CAPTION>
VALUE IN
ACCUMULATION UNITS IN
PERCENT OF PERIOD AND ACCUMULATION
NET ASSETS NET ASSETS PERIOD UNIT VALUE
------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments at net asset value:
Alger American Fund:
Alger American Midcap Growth Portfolio--55,683.32
shares at $21.35 per share (cost--$1,143,917) 6.00% $ 1,188,839 109,955 $ 10.812
Alger Small Capitalization Portfolio--44,130.49 shares at
$40.91 per share (cost--$1,809,559) 9.12 1,805,378 181,361 9.955
Fidelity Variable Insurance Products Fund and Fund II:
Fidelity Asset Manager Portfolio--42,935.35 shares at
$16.93 per share (cost--$678,964) 3.67 726,896 61,512 11.817
Fidelity Contra Portfolio--149,018.62 shares
at $16.56 per share (cost--$2,233,998) 12.46 2,467,748 203,860 12.105
Fidelity Equity Income Portfolio--111,107.87 shares at
$21.03 per share (cost--$2,189,705) 11.80 2,336,599 195,400 11.958
Fidelity Growth Portfolio--57,566.65 shares at $31.14
per share (cost--$1,718,234) 9.05 1,792,626 164,945 10.868
Fidelity Index 500 Portfolio--27,688.39 shares
at $89.13 per share (cost--$2,316,389) 12.46 2,467,866 193,803 12.734
Fidelity Investment Grade Bond Portfolio--48,940.94
shares at $12.24 per share (cost--$579,753) 3.02 599,037 57,476 10.422
Fidelity Money Market Portfolio--1,876,845.33 shares
at $1.00 per share (cost--$1,876,845) 9.48 1,876,845 179,504 10.456
Oppenheimer Capital Accumulation Trust:
OCC Managed Portfolio--46,192.71 shares at $36.21
per share (cost--$1,561,738) 8.44 1,672,638 133,102 12.567
OCC Small Capitalization Portfolio--21,504.33 shares
at $22.61 per share (cost--$451,876) 2.46 486,213 40,024 12.148
T. Rowe Price International Series, Inc.:
T. Rowe Price International Stock Portfolio--114,476.76
shares at $12.64 per share (cost--$1,375,498) 7.31 1,446,986 122,831 11.780
T. Rowe Price Fixed Income Series, Inc.:
T. Rowe Price Limited-term Bond Portfolio--55,128.24
shares at $4.93 per share (cost--$ 269,534) 1.37 271,782 27,325 9.946
Van Eck Worldwide Insurance Trust:
Van Eck Gold and Natural Resources Portfolio--
22,161.97 shares at $16.72 per share (cost--$357,605) 1.87 370,548 29,990 12.356
Van Eck Worldwide Balanced Portfolio--26,429.75
shares at $11.14 per share (cost--$271,927) 1.49 294,427 26,719 11.019
------------------------------
Total investments and net assets (cost--$18,835,534) 100.00% $ 19,804,428
==============================
</TABLE>
See accompanying notes.
2
<PAGE> 108
IL Annuity and Insurance Co. Separate Account 1
Statement of Operations
Year ended December 31, 1996
<TABLE>
<CAPTION>
ALGER
AMERICAN FIDELITY
MIDCAP ALGER SMALL ASSET
GROWTH CAPITALIZATION MANAGER
COMBINED PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dividend income $ 60,811 $ - $ - $ 302
Mortality and expense charges (105,371) (6,658) (10,322) (4,254)
Net realized gain on investments 23,983 6,277 1,331 249
Net change in unrealized appreciation
(depreciation) on investments 971,570 45,600 (3,859) 48,435
---------------------------------------------------------------------------------
Net increase in net assets
resulting from operations $ 950,993 $ 45,219 $ (12,850) $ 44,732
=================================================================================
<CAPTION>
FIDELITY
FIDELITY EQUITY FIDELITY FIDELITY
CONTRA INCOME GROWTH INDEX 500
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dividend income $ - $ 93 $ 96 $ 760
Mortality and expense charges (14,269) (13,031) (10,781) (9,452)
Net realized gain on investments 1,185 2,672 2,434 1,952
Net change in unrealized appreciation
(depreciation) on investments 234,561 146,988 74,508 151,359
------------------------------------------------------------------------
Net increase in net assets
resulting from operations $ 221,477 $ 136,722 $ 66,257 $ 144,619
========================================================================
</TABLE>
See accompanying notes.
3
<PAGE> 109
IL Annuity and Insurance Co. Separate Account 1
Statement of Operations (continued)
Year ended December 31, 1996
<TABLE>
<CAPTION>
FIDELITY FIDELITY T. ROWE PRICE
INVESTMENT MONEY OCC OCC SMALL INTERNATIONAL
GRADE BOND MARKET MANAGED CAPITALIZATION STOCK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dividend income $ 1,427 $ 37,449 $ 27 $ 464 $ 11,229
Mortality and expense charges (3,531) (10,051) (6,402) (2,004) (8,956)
Net realized gain on investments - - 17 1,193 6,672
Net change in unrealized appreciation
(depreciation) on investments 19,544 9 110,869 34,676 71,734
---------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations $ 17,440 $ 27,407 $ 104,511 $ 34,329 $ 80,679
=======================================================================================
<CAPTION>
T. ROWE PRICE VAN ECK GOLD VAN ECK
LIMITED-TERM AND NATURAL WORLDWIDE
BOND RESOURCES BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------------------------
<S> <C> <C> <C>
Dividend income $ 7,667 $ 1,164 $ 133
Mortality and expense charges (1,814) (1,738) (2,108)
Net realized gain on investments - - -
Net change in unrealized appreciation
(depreciation) on investments 1,258 12,945 22,943
--------------------------------------------------------
Net increase in net assets
resulting from operations $ 7,111 $ 12,371 $ 20,968
========================================================
</TABLE>
See accompanying notes.
4
<PAGE> 110
IL Annuity and Insurance Co. Separate Account 1
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
ALGER
AMERICAN
MIDCAP ALGER SMALL FIDELITY ASSET
GROWTH CAPITALIZATION MANAGER
COMBINED PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Changes from 1995 operations:
Dividend income $ 9 $ - $ - $ -
Mortality and expense charges (8) (3) (1) -
Net realized gain on investments 18 - - -
Net change in unrealized appreciation
(depreciation) on investments 1,926 336 234 69
--------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 1,945 333 233 69
Net increase from contract purchases 296,235 28,694 16,298 4,030
Net decrease from
redemptions-withdrawals (11,009) (1,975) - (2,004)
--------------------------------------------------------------------------------
Total increase in net assets 287,171 27,052 16,531 2,095
--------------------------------------------------------------------------------
Net assets at December 31, 1995 287,171 27,052 16,531 2,095
Changes from 1996 operations:
Dividend income 60,811 - - 302
Mortality and expense charges (105,371) (6,658) (10,322) (4,254)
Net realized gain on investments 23,983 6,277 1,331 249
Net change in unrealized appreciation
(depreciation) on investments 971,570 45,600 (3,859) 48,435
--------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 950,993 45,219 (12,850) 44,732
Net increase from contract purchases 25,697,169 1,400,011 2,250,168 1,057,510
Net decrease from
redemptions-withdrawals (7,130,905) (283,443) (448,471) (377,441)
--------------------------------------------------------------------------------
Total increase in net assets 19,517,257 1,161,787 1,788,847 724,801
--------------------------------------------------------------------------------
Net assets at December 31, 1996 $ 19,804,428 $ 1,188,839 $ 1,805,378 $ 726,896
================================================================================
<CAPTION>
FIDELITY FIDELITY EQUITY FIDELITY
CONTRA INCOME GROWTH FIDELITY INDEX
PORTFOLIO PORTFOLIO PORTFOLIO 500 PORTFOLIO
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Changes from 1995 operations:
Dividend income $ 9 $ - $ - $ -
Mortality and expense charges - - - -
Net realized gain on investments 18 - - -
Net change in unrealized appreciation
(depreciation) on investments 369 209 133 119
--------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 396 209 133 119
Net increase from contract purchases 59,441 40,017 22,983 37,081
Net decrease from
redemptions-withdrawals (2,005) - (2,000) -
--------------------------------------------------------------------------
Total increase in net assets 57,832 40,226 21,116 37,200
--------------------------------------------------------------------------
Net assets at December 31, 1995 57,832 40,226 21,116 37,200
Changes from 1996 operations:
Dividend income - 93 96 760
Mortality and expense charges (14,269) (13,031) (10,781) (9,452)
Net realized gain on investments 1,185 2,672 2,434 1,952
Net change in unrealized appreciation
(depreciation) on investments 234,561 146,988 74,508 151,359
--------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 221,477 136,722 66,257 144,619
Net increase from contract purchases 2,620,184 2,563,577 1,898,462 2,475,413
Net decrease from
redemptions-withdrawals (431,745) (403,926) (193,209) (189,366)
--------------------------------------------------------------------------
Total increase in net assets 2,409,916 2,296,373 1,771,510 2,430,666
--------------------------------------------------------------------------
Net assets at December 31, 1996 $ 2,467,748 $ 2,336,599 $ 1,792,626 $ 2,467,866
==========================================================================
</TABLE>
See accompanying notes.
5
<PAGE> 111
IL Annuity and Insurance Co. Separate Account 1
Statements of Changes in Net Assets (Continued)
<TABLE>
<CAPTION>
FIDELITY FIDELITY
INVESTMENT MONEY OCC OCC SMALL
GRADE BOND MARKET MANAGED CAPITALIZATION
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Changes from 1995 operations:
Dividend income $ - $ - $ - $ -
Mortality and expense charges - - (1) (1)
Net realized gain on investments - - - -
Net change in unrealized appreciation
(depreciation) on investments 41 - 31 117
-------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 41 - 30 116
Net increase from contract purchases 17,049 - 1,642 14,181
Net decrease from
redemptions-withdrawals - - - (2,023)
-------------------------------------------------------------------------------------
Total increase in net assets 17,090 - 1,672 12,274
-------------------------------------------------------------------------------------
Net assets at December 31, 1995 17,090 - 1,672 12,274
Changes from 1996 operations:
Dividend income 1,427 37,449 27 464
Mortality and expense charges (3,531) (10,051) (6,402) (2,004)
Net realized gain on investments - - 17 1,193
Net change in unrealized appreciation
(depreciation) on investments 19,544 9 110,869 34,676
-------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 17,440 27,407 104,511 34,329
Net increase from contract purchases 811,171 5,071,581 1,815,229 562,799
Net decrease from
redemptions-withdrawals (246,664) (3,222,143) (248,774) (123,189)
-------------------------------------------------------------------------------------
Total increase in net assets 581,947 1,876,845 1,670,966 473,939
-------------------------------------------------------------------------------------
Net assets at December 31, 1996 $ 599,037 $ 1,876,845 $ 1,672,638 $ 486,213
=====================================================================================
<CAPTION>
T. ROWE PRICE T. ROWE PRICE VAN ECK GOLD VAN ECK
INTERNATIONAL LIMITED-TERM AND NATURAL WORLDWIDE
STOCK BOND RESOURCES BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Changes from 1995 operations:
Dividend income $ - $ - $ - $ -
Mortality and expense charges - - - (2)
Net realized gain on investments - - - -
Net change in unrealized appreciation
(depreciation) on investments 257 1 (1) 11
-----------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 257 1 (1) 9
Net increase from contract purchases 26,272 14,915 613 12,018
Net decrease from
redemptions-withdrawals - - - -
-----------------------------------------------------------------------------
Total increase in net assets 26,529 14,916 612 12,027
-----------------------------------------------------------------------------
Net assets at December 31, 1995 26,529 14,916 612 12,027
Changes from 1996 operations:
Dividend income 11,229 7,667 1,164 133
Mortality and expense charges (8,956) (1,814) (1,738) (2,108)
Net realized gain on investments 6,672 - - -
Net change in unrealized appreciation
(depreciation) on investments 71,734 1,258 12,945 22,943
-----------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 80,679 7,111 12,371 20,968
Net increase from contract purchases 1,836,213 347,111 500,604 487,137
Net decrease from
redemptions-withdrawals (496,435) (97,356) (143,039) (225,705)
-----------------------------------------------------------------------------
Total increase in net assets 1,420,457 256,866 369,936 282,400
-----------------------------------------------------------------------------
Net assets at December 31, 1996 $ 1,446,986 $ 271,782 $ 370,548 $ 294,427
=============================================================================
</TABLE>
See accompanying notes.
6
<PAGE> 112
IL Annuity and Insurance Co. Separate Account 1
Notes to Financial Statements
December 31, 1996
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 Portfolio--Midcap Growth Portfolio, Small Capitalization
Portfolio
Fidelity Variable Insurance Products Fund and Fund II--Asset Manager
Portfolio, Contra Portfolio, Equity Income Portfolio, Growth Portfolio,
Index 500 Portfolio, Investment Grade Bond Portfolio, Money Market
Portfolio
Oppenheimer Capital Accumulation Trust--Managed Portfolio, Small
Capitalization Portfolio
T. Rowe Price International Series, Inc.--International Stock Portfolio
T. Rowe Price Fixed Income Series, Inc.--Limited-term Bond Portfolio
Van Eck Worldwide Investment Trust--Gold and Natural Resources Poerfolio,
Worldwide Balanced Portfolio
Investments in funds are stated at the closing net asset value per share on
December 31.
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> 113
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.
8
<PAGE> 114
Part C
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) (i) Form of Contract for the Visionary Flexible
Premium Deferred Variable Annuity.2/
(ii) Form of Contract for the Visionary Choice
Flexible Premium Deferred Variable Annuity.4/
(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) (a) Form of Application for the Visionary Flexible
Premium Deferred Variable Annuity.2/
(b) Form of Application for the Visionary Choice Flexible
Premium Deferred Variable Annuity.4/
(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.
C-1
<PAGE> 115
(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/
(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/
(i) Participation Agreement between Royce Capital Fund
and IL Annuity and Insurance Company. 6/
(j) Participation Agreement among SAFECO Resource Series
Trust, SAFECO Asset Management Company, and IL
Annuity and Insurance Company. 6/
(k) Participation Agreement among SoGen Variable Funds,
Inc., Societe Generale Securities Corporation, and IL
Annuity and Insurance Company. 6/
(l) Form of Services Agreement between USA Administration
Services, Inc. and IL Annuity and Insurance Company.
6/
(9) Opinion and Consent of Margaret M. McKinney, Esquire.1/
(10) (a) Consent of Sutherland, Asbill & Brennan LLP.6/
(b) Consent of Ernst & Young LLP. 6/
C-2
<PAGE> 116
(11) No financial statements will be omitted from Item 23.
(12) Not applicable.
(13) Performance Data Schedules. 6/
(14) Not applicable.
(15) Powers of Attorney.1/ 3/ 5/
- -------------
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/ Incorporated by reference to the like-numbered exhibit to
Post-Effective Amendment No. 1 to this Form N-4 Registration Statement of IL
Annuity and Insurance Co. Separate Account 1, File No. 33-89028 (April 26,
1996).
4/ Incorporated by reference to the like-numbered exhibit to
Post-Effective Amendment No. 2 to this Form N-4 Registration Statement of IL
Annuity and Insurance Co. Separate Account 1, File No. 33-89028 (October 23,
1996).
5/ Incorporated by reference to the like-numbered exhibit to
Post-Effective Amendment No. 4 to this Form N-4 Registration Statement of IL
Annuity and Insurance Co. Separate Account 1, File No. 33-89028 (April 28,
1997).
6/ Filed herewith.
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
John J. Fahrenbach Director
Larry A. Halbach Director
Garrett P. Ryan Director
Stephen J. Shorrock** Director
Karla K. Vest Director
Richard G. Darragh Controller
Gene E. Trueblood Treasurer
Rebecca Rissen Assistant Secretary
</TABLE>
- -----------
C-3
<PAGE> 117
* Unless otherwise indicated, the principal business address is 2960 North
Meridian Street, Indianapolis, Indiana 46208.
** The Principal Business Address of Mr. Shorrock is 65 Froehlich Farm
Blvd., Woodbury, NY 11797-9847.
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 Company* Insurance
("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 Indiana All voting securities Life & Health
Company* owned by The Insurance
Indianapolis Group
Bankers Life Insurance New York All voting securities Life & Health
Company of New York* owned by Insurance
Indianapolis Life
Western Security Life Arizona All voting securities Life & Health
Insurance Company* owned by Indianapolis Insurance
Life
</TABLE>
- ----------
* File Separate Financial Statements.
ITEM 27. NUMBER OF CONTRACTOWNERS
As of June 30, 1997, there were a total of 1,438 Visionary Contracts
in force -- 471 non-qualified and 967 qualified. No Visionary Choice
Contracts have been sold.
C-4
<PAGE> 118
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.
ITEM 29. PRINCIPAL UNDERWRITER
(a) IL Securities, Inc. is the registrant's principal underwriter.
(b) Officers and Directors of IL Securities, and their addresses, are as
follows:
C-5
<PAGE> 119
<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
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>
IL Securities, $195,937.53
Inc.
</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 Visionary 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, with regard to the Visionary Contract, at the offices of Financial
Administrative Services, Inc., 1290 Silas Deane Highway, Wethersfield, CT
06109-4303, and with regard to the Visionary Choice Contract, at the offices of
USA Administration Services, Inc., P.O. Box 29163, Overland Park, KS 66201.
ITEM 31. MANAGEMENT SERVICES
All management contracts are discussed in Part A or Part B of this
registration statement.
C-6
<PAGE> 120
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.
(e) The Company and the Separate Account rely on 17 C.F.R. Section
270.6c-7 and represent that the provisions of that Rule have
been or will be complied with. Accordingly, the Company and
the Separate Account are exempt from the provisions of
Sections 22(e), 27(c)(1) and 27(d) of the Investment Company
Act of 1940 with respect to any variable annuity contract
participating in the Separate Account to the extent necessary
to permit compliance with the Texas Optional Retirement
Program.
(f) IL Annuity and Insurance Company ("IL Annuity") hereby
represents that the fees and charges deducted under the
Contracts, in the aggregate, are reasonable in relation to the
services rendered, the expenses expected to be incurred, and
the risks assumed by IL Annuity.
C-7
<PAGE> 121
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 statements and has caused this
Post-Effective Amendment No. 5 to its registration statement to be signed on
its behalf, in the City of Indianapolis, and the State of Indiana, on this 6th
day of August, 1997.
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 dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman of the Board and August 6, 1997
- --------------------------- Director
Larry R. Prible
* President, Chief Executive August 6, 1997
- --------------------------- Officer and Director
Gregory J. Carney
* Treasurer August 6, 1997
- --------------------------- (Principal Financial Officer)
Gene E. Trueblood
* Controller August 6, 1997
- --------------------------- (Chief Accounting Officer)
Richard G. Darragh
</TABLE>
<PAGE> 122
<TABLE>
<CAPTION>
<S> <C>
* Secretary August 6, 1997
- ---------------------------
Margaret M. McKinney
* Director August 6, 1997
- ---------------------------
John J. Fahrenbach
* Director August 6, 1997
- ---------------------------
Larry A. Halbach
* Director August 6, 1997
- ---------------------------
Garrett P. Ryan
* Director August 6, 1997
- ---------------------------
Stephen J. Shorrock
* Director August 6, 1997
- ---------------------------
Karla K. Vest
/s/ Margaret M. McKinney On August 6, 1997, as Attorney-in-Fact pursuant
- -------------------------- to powers of attorney previously filed and in her own
* By Margaret M. McKinney capacity as Secretary.
</TABLE>
C-9
<PAGE> 123
EXHIBIT INDEX
(8) (i) Participation Agreement between Royce Capital Fund
and IL Annuity and Insurance Company.
(j) Participation Agreement among SAFECO Resource Series
Trust, SAFECO Asset Management Company, and IL
Annuity and Insurance Company.
(k) Participation Agreement among SoGen Variable Funds,
Inc., Societe Generale Securities Corporation, and IL
Annuity and Insurance Company.
(l) Form of Services Agreement between USA Administration
Services, Inc. and IL Annuity and Insurance Company.
(10) (a) Consent of Sutherland, Asbill & Brennan LLP
(b) Consent of Ernst & Young LLP
(13) Schedule of Performation Computations
<PAGE> 1
EXHIBIT 8(i)
PARTICIPATION AGREEMENT
THIS AGREEMENT made as of the 13 day of June, 1997 by and among
ROYCE CAPITAL FUND (the "Trust"), a Delaware business trust, ROYCE &
ASSOCIATES, INC. ("Royce" or the "Adviser"), a New York corporation and IL
ANNUITY AND INSURANCE COMPANY (the "Company"), a life insurance company
organized under the laws of the State of Massachusetts.
WHEREAS, the Trust is registered with the Securities and Exchange
Commission ("SEC") under the Investment Company Act of 1940, as amended (the
"'40 Act"), as an open-end, diversified management investment company; and
WHEREAS, the Trust is organized as a series fund comprised of several
Funds ("Funds"), and those currently available are listed on Appendix A hereto
as such Appendix may be amended from time to time; and
WHEREAS, the Trust was organized to act as the funding vehicle for
certain variable life insurance and/or variable annuity contracts ("Variable
Contracts") offered by life insurance companies through separate accounts
("Separate Accounts") of such life insurance companies ("Participating
Insurance Companies") and also offers its shares to certain qualified pension
and retirement plans ("Qualified Plans"); and
WHEREAS, the Trust has received an order from the SEC, granting
Participating Insurance Companies and their separate accounts exemptions from
the provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the '40 Act, and
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Funds of the Trust to be sold to and held by variable
annuity and variable life insurance separate accounts of both affiliated and
unaffiliated Participating Insurance Companies and Qualified Plans ("Exemptive
Order"); and
WHEREAS, Royce is registered under the Investment Advisers Act of
1940, as amended, and serves as investment adviser to the Trust; and
WHEREAS, the Company has established or will establish one or more
separate accounts ("Separate Accounts") to offer Variable Contracts and is
desirous of having the Trust as one of the underlying funding vehicles for such
Variable Contracts, as set forth in Appendix B hereto; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares of the Trust to fund the
aforementioned Variable Contracts, and the Trust is authorized to sell such
shares to the Company at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company
and the Trust agree as follows:
<PAGE> 2
Article I. SALE OF TRUST SHARES
1.1 The Trust agrees to make available to the Separate
Accounts of the Company shares of the selected Funds as listed on Appendix B as
such Appendix may be amended from time to time ("Available Funds") for
investment of purchase payments of Variable Contracts allocated to the
designated Separate Accounts as provided in the Trust's Registration Statement.
1.2 The Trust agrees to sell to the Company those shares of
the selected Funds of the Trust which the Company orders, executing such orders
on a daily basis at the net asset value next computed after receipt by the
Trust or its designee of the order for the shares of the Trust. For purposes
of this Section 1.2, the Company shall be the designee of the Trust for receipt
of such orders from the designated Separate Account and receipt by such
designee shall constitute receipt by the Trust; provided that the Company
receives the order by 4:00 p.m. Eastern time and the Trust receives notice from
the Company by telephone or facsimile (or by such other means as the Trust and
the Company may agree in writing) of such order by 9:00 a.m. Eastern time on
the next following Business Day. "Business Day" shall mean any day on which
the New York Stock Exchange is open for trading and on which the Trust
calculates its net asset value pursuant to the rules of the SEC.
1.3 The Trust agrees to redeem on the Company's request,
any full or fractional shares of the Trust held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Trust or its designee of the request for redemption, in accordance with the
provisions of this Agreement and the Trust's Registration Statement. For
purposes of this Section 1.3, the Company shall be the designee of the Trust
for receipt of requests for redemption from the designated Separate Account and
receipt by such designee shall constitute receipt by the Trust; provided that
the Company receives the request for redemption by 4:00 p.m. Eastern time and
the Trust receives notice from the Company by telephone or facsimile (or by
such other means as the Trust and the Company may agree in writing) of such
request for redemption by 9:00 a.m. Eastern time on the next following Business
Day. The Trust reserves the right to suspend the right of redemption or
postpone the date of payment or satisfaction upon redemption consistent with
Section 22(e) of the '40 Act and any rules, regulations or orders thereunder,
and in accordance with any procedures and policies described in the current
prospectus of the Fund(s).
1.4 The Trust shall furnish, on or before the ex-dividend
date, notice to the Company of any income dividends or capital gain
distributions payable on the shares of any Fund of the Trust. The Company
hereby elects to receive all such income dividends and capital gain
distributions as are payable on a Fund's shares in additional shares of the
Fund. The Trust shall notify the Company or its designee of the number of
shares so issued as payment of such dividends and distributions.
-2-
<PAGE> 3
1.5 The Trust shall make the net asset value per share for
the selected Fund(s) available to the Company on a daily basis as soon as
reasonably practicable after the net asset value per share is calculated but
shall use its best efforts to make such net asset value available by 6:30 p.m.
Eastern time. If the Trust provides the Company with materially incorrect
share net asset value information through no fault of the Company, the Company
on behalf of the Separate Accounts, shall be entitled to an adjustment to the
number of shares purchased or redeemed to reflect the correct share net asset
value, and the Trust shall reimburse the Company for any charges, costs, fees,
or other expenses incurred by the Company as a result of such incorrect
information. Any material error in the calculation of net asset value per
share, dividend or capital gain information shall be reported promptly upon
discovery to the Company. Neither the Trust, the Funds, the Funds' investment
adviser, nor any of their affiliates shall be liable for any information
provided to the Company pursuant to this Agreement which information is based
on incorrect information furnished by the Company to the Trust or the Funds'
investment adviser.
1.6 At the end of each Business Day, the Company shall use
the information described in Section 1.5 to calculate Separate Account unit
values for the day. Using these unit values, the Company shall process each
such Business Day's Separate Account transactions based on requests and
premiums received by it by the close of trading on the floor of the New York
Stock Exchange (currently 4:00 p.m. Eastern time) to determine the net dollar
amount of the Trust shares which shall be purchased or redeemed at that day's
closing net asset value per share. The net purchase or redemption orders so
determined shall be transmitted to the Trust by the Company by 9:00 a.m.
Eastern time on the Business Day next following the Company's receipt of such
requests and premiums in accordance with the terms of Sections 1.2 and 1.3
hereof.
1.7 If the Company's order requests the net purchase of
Trust shares, the Company shall pay for such purchase by wiring federal funds
to the Trust or its designated custodial account on the day the order is
transmitted by the Company. If payment in federal funds is not received or is
received by the Trust after 4:00 p.m. Eastern time on such day, the Company
shall promptly, upon request by the Trust, reimburse the Fund for any charges,
costs, fees, interest or other expenses incurred by the Fund in connection with
any advances to, or borrowings or overdrafts by, the Fund, or any similar
expenses incurred by the Fund, as a result of portfolio transactions effected
by the Fund based upon such purchase request. If the Company's order requests
a net redemption resulting in a payment of redemption proceeds to the Company,
the Trust shall use its best efforts to wire the redemption proceeds to the
Company by the next Business Day. In any event, proceeds shall be wired to the
Company within three Business Days or such longer period permitted by the '40
Act or the rules, orders or regulations thereunder, and the Trust shall use its
best efforts to notify the person designated in writing by the Company as the
recipient for such notice of such delay by 3:00 p.m. Eastern time the same
Business Day that the Company transmits the redemption order to the Trust. If
the Company's order requests the application of redemption proceeds from the
redemption of shares to the purchase of shares of another Fund set forth on
Appendix B hereto, the Trust shall so apply such proceeds the same Business Day
that the Company transmits such orders to the Trust.
-3-
<PAGE> 4
1.8 The Trust agrees that all shares of the Funds of the
Trust will be sold only to Participating Insurance Companies which have agreed
to participate in the Trust to fund their Separate Accounts and/or to Qualified
Plans, all in accordance with the requirements of Section 817(h) of the
Internal Revenue Code of 1986, as amended ("Code"), and Treasury Regulation
1.817-5. Shares of the Funds of the Trust will not be sold directly to the
general public.
1.9 The Trust may refuse to sell shares of any Fund to any
person, or suspend or terminate the offering of the shares of any Fund if such
action is required by law or by regulatory authorities having jurisdiction or
is, in the sole discretion of the Board of Trustees of the Trust (the "Board"),
acting in good faith and in light of its duties under federal and any
applicable state laws, deemed necessary, desirable or appropriate and in the
best interests of the shareholders of such Funds.
1.10 Issuance and transfer of Fund shares will be by book
entry only. Stock certificates will not be issued to the Company or the
Separate Accounts. Shares ordered from a Fund will be recorded in appropriate
book entry titles for the Separate Accounts.
1.11 The Company agrees and acknowledges that the Trust's
adviser, Royce & Associates, Inc., is the sole owner of the name and mark
"Royce" and that all use of any designation comprised in whole or part of Royce
(a "Royce Mark") under this Agreement shall inure to the benefit of Royce.
Except as provided in Sections 3.4 and 4.1, the Company shall not use any Royce
Mark on its own behalf or on behalf of the Separate Accounts or Variable
Contracts in any registration statement, advertisement, sales literature or
other materials relating to the Separate Accounts or Variable Contracts without
the prior written consent of Royce. Upon termination of this Agreement for any
reason, the Company shall cease all use of any Royce Mark as soon as reasonably
practicable.
1.12 The Trust and the Adviser agree and acknowledge that
the Company has applied for trademark protection of the marks "Visionary,"
"Visionary Variable Annuity" and "Visionary Choice Variable Annuity"
(collectively the "Visionary Marks) and that the Company believes it will be
granted exclusive rights to the Visionary Marks in the field of insurance
underwriting. The Trust and Adviser further agree and acknowledge that all use
of any designation comprised in whole or in part of the Visionary Marks under
this Agreement shall inure to the benefit of the Company. Except as provided
in Sections 3.5 and 4.2, neither the Trust nor the Adviser shall use any
Visionary Marks on behalf of itself or any affiliate in any registration
statement, advertisement, sales literature or other materials without the prior
written consent of the Company. Upon termination of this Agreement for any
reason, the Trust and the Adviser shall cease all use of any Visionary Marks as
soon as reasonably practicable.
-4-
<PAGE> 5
Article II. REPRESENTATIONS AND WARRANTIES
2.1 The Company represents and warrants that it is an
insurance company duly organized and in good standing under the laws of
Massachusetts and that it has legally and validly established each Separate
Account as a segregated asset account under such laws.
2.2 The Company represents and warrants that it has
registered or, prior to any issuance or sale of the Variable Contracts, will
register each Separate Account as a unit investment trust ("UIT") in accordance
with the provisions of the '40 Act and cause each Separate Account to remain so
registered to serve as a segregated asset account for the Variable Contracts,
unless an exemption from registration is available.
2.3 The Company represents and warrants that the Variable
Contracts will be registered under the Securities Act of 1933 (the "'33 Act")
unless an exemption from registration is available prior to any issuance or
sale of the Variable Contracts and that the Variable Contracts will be issued
and sold in compliance in all material respects with all applicable federal and
state laws and further that the sale of the Variable Contracts shall comply in
all material respects with state insurance law suitability requirements.
2.4 Subject to Section 2.6 hereof, the Company represents
and warrants that the Variable Contracts are currently and at the time of
issuance will be treated as life insurance, endowment or annuity contracts
under applicable provisions of the Code, that it will maintain such treatment
and that it will notify the Trust immediately upon having a reasonable basis
for believing that the Variable Contracts have ceased to be so treated or that
they might not be so treated in the future.
2.5 The Trust and the Adviser represent and warrant that
the Fund shares offered and sold pursuant to this Agreement will be registered
under the '33 Act and sold in accordance with all applicable federal and state
laws, and the Trust shall be registered under the '40 Act prior to and at the
time of any issuance or sale of such shares. The Trust, subject to Section 1.9
above, shall amend its registration statement under the '33 Act and the '40 Act
from time to time as required in order to effect the continuous offering of its
shares. The Trust shall arrange for the sale of its shares in accordance with
the laws of the various states only if and to the extent deemed advisable by
the Trust.
2.6 The Trust and the Adviser represent and warrant that
each Fund will comply with the diversification requirements set forth in
Section 817(h) of the Code, and the rules and regulations thereunder, including
without limitation Treasury Regulation 1.817-5, and will notify the Company
immediately upon having a reasonable basis for believing any Fund has ceased to
comply or might not so comply and will immediately take all reasonable steps to
adequately diversify the Fund to achieve compliance.
-5-
<PAGE> 6
2.7 The Trust and the Adviser represent and warrant that
each Fund invested in by the Separate Account intends to elect to be treated as
a "regulated investment company" under Subchapter M of the Code, and to qualify
for such treatment for each taxable year and will notify the Company
immediately upon having a reasonable basis for believing it has ceased to so
qualify or might not so qualify in the future.
2.8 The Adviser represents and warrants that it is duly
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended.
Article III. PROSPECTUS AND PROXY STATEMENTS
3.1 The Trust shall prepare and be responsible for filing
with the SEC and any state regulators requiring such filing all shareholder
reports, notices, proxy materials (or similar materials such as voting
instruction solicitation materials), prospectuses and statements of additional
information of the Trust. The Trust shall bear the costs of registration of
shares of the Funds, preparation and filing of the documents listed in this
Section 3.1 and all taxes and filing fees to which an issuer is subject on the
issuance and transfer of its shares.
3.2 At least annually, the Trust or its designee shall
provide the Company, free of charge, with as many copies of the current
prospectus for the shares of the Available Funds as the Company may reasonably
request for distribution to existing Variable Contract owners whose Variable
Contracts are funded by such shares. The Trust or its designee shall provide
the Company, at the Company's expense, with as many copies of the current
prospectus for the shares of the Available Funds as the Company may reasonably
request for distribution to prospective purchasers of Variable Contracts. If
requested by the Company in lieu thereof, the Trust or its designee shall
provide such documentation (including a "camera ready" copy of the new
prospectus as set in type or, at the request of the Company, as a diskette in
the form sent to the financial printer) and other assistance as is reasonably
necessary in order for the parties hereto once a year (or more frequently if
the prospectus for the shares is supplemented or amended) to have the
prospectus for the Variable Contracts and the prospectus for the Available
Funds printed together in one document. The expenses of such printing will be
apportioned between (a) the Company and (b) the Available Funds in proportion
to the number of pages of the Variable Contract and Available Funds'
prospectus, taking account of other relevant factors affecting the expense of
printing, such as covers, columns, graphs and charts; the Available Funds to
bear the cost of printing the shares' prospectus portion of such document for
distribution only to owners of existing Variable Contracts funded by the
Available Funds and the Company to bear the expense of printing the portion of
such documents relating to the Separate Account; provided, however, the Company
shall bear all printing expenses of such combined documents where used for
distribution to prospective purchasers or to owners of existing Variable
Contracts not funded by the shares. In the event that the Company requests
that the Trust or its designee provide the Available Funds' prospectus in a
"camera ready" or diskette format, the Trust shall be responsible for providing
the prospectus in the format in which it is accustomed to formatting
prospectuses and shall bear the expense of providing the prospectus in such
format (e.g.,
-6-
<PAGE> 7
typesetting expenses), and the Company shall bear the expense of adjusting or
changing the format to conform with any of its prospectuses.
3.3 The obligations of the Trust and the Company with
respect to the Available Funds' and Variable Contracts' prospectuses set forth
in Section 3.2 shall apply in the same manner to the Trust's and Variable
Contracts' statements of additional information; provided that such statements
of additional information need only be duplicated unless the Trust and the
Company agree that such documents should be printed.
3.4 The Trust, at its expense, shall provide the Company
with copies of its proxy statements, reports to shareholders and other
communications (except for prospectuses and statements of additional
information, which are covered in Section 3.2) to Variable contract owners in
such quantity as the Company shall reasonably require for distribution to
existing Variable Contract owners.
3.5 The Trust will provide the Company with at least one
complete copy of all prospectuses, statements of additional information, annual
and semi-annual reports, proxy statements, exemptive applications and all
amendments or supplements to any of the above that relate to the Funds promptly
after the filing of each such document with the SEC or other regulatory
authority. The Company will provide the Trust with at least one complete copy
of all prospectuses, statements of additional information, annual and
semi-annual reports, proxy statements, exemptive applications and all
amendments or supplements to any of the above that relate to a Separate Account
promptly after the filing of each such document with the SEC or other
regulatory authority.
Article IV. SALES MATERIALS
4.1 The Company will furnish, or will cause to be
furnished, to the Trust, each piece of sales literature or other promotional
material in which the Trust or its investment adviser is named, at least
fifteen (15) Business Days prior to its intended use. No such material will be
used if the Trust objects to its use in writing within ten (10) Business Days
after receipt of such material.
4.2 The Trust will furnish, or will cause to be furnished,
to the Company, each piece of sales literature or other promotional material in
which the Company or its Separate Accounts or the Variable Contracts are named,
at least fifteen (15) Business Days prior to its intended use. No such
material will be used if the Company objects to its use in writing within ten
(10) Business Days after receipt of such material.
4.3 The Trust and its affiliates and agents shall not give
any information or make any representations on behalf of the Company or
concerning the Company, the Separate Accounts or the Variable Contracts issued
by the Company, other than the information or representations contained in a
registration statement or prospectus for such Variable Contracts, as such
-7-
<PAGE> 8
registration statement and prospectus may be amended or supplemented from time
to time, or in reports of the Separate Accounts or reports prepared for
distribution to owners of such Variable Contracts, or in sales literature or
other promotional material approved by the Company or its designee, except with
the written permission of the Company.
4.4 The Company and its affiliates and agents shall not
give any information or make any representations on behalf of the Trust or the
Adviser or concerning the Trust or the Adviser other than the information or
representations contained in a registration statement or prospectus for the
Trust, as such registration statement and prospectus may be amended or
supplemented from time to time, or in sales literature or other promotional
material approved by the Trust or its designee, except with the written
permission of the Trust.
4.5 For purposes of this Agreement, the phrase "sales
literature or other promotional material" or words of similar import include,
without limitation, advertisements (such as material published, or designed for
use, in a newspaper, magazine or other periodical, radio, television, telephone
or tape recording, videotape display, signs or billboards, motion pictures, the
internet or other public media), sales literature (such as any written
communication distributed or made generally available to customers or the
public, including brochures, circulars, research reports, market letters, form
letters, seminar texts or reprints or excerpts of any other advertisement,
sales literature or published article), educational or training materials or
other communications distributed or made generally available to some or all
agents or employees, registration statements, prospectuses, statements of
additional information, shareholder reports and proxy materials and any other
material constituting sales literature or advertising under National
Association of Securities Dealers, Inc. rules, the '40 Act or the '33 Act.
Article V. POTENTIAL CONFLICTS
5.1 The parties acknowledge that the Trust has received an
Exemptive Order from the SEC granting relief from various provisions of the '40
Act and the rules thereunder to the extent necessary to permit the Trust shares
to be sold to and held by variable annuity and variable life insurance separate
accounts of both affiliated and unaffiliated Participating Insurance Companies
and Qualified Plans. The Exemptive Order requires the Trust and each
Participating Insurance Company to comply with conditions and undertakings as
provided in this Section 5. The Trust will not enter into a participation
agreement with any other Participating Insurance Company unless it imposes the
same conditions and undertakings as are imposed on the Company hereby.
5.2 The Board will monitor the Trust for the existence of
any irreconcilable material conflict between and among the interests of
Variable Contract owners of all separate accounts and of plan participants of
Qualified Plans investing in the Trust, and determine what action, if any,
should be taken in response to such conflicts. An irreconcilable material
conflict may arise for a variety of reasons, which may include: (a) an action
by any state insurance regulatory authority; (b) a change in applicable federal
or state insurance, tax or securities laws or regulations, or a public ruling,
private letter ruling or any similar action by insurance, tax or
-8-
<PAGE> 9
securities regulatory authorities; (c) an administrative or judicial decision
in any relevant proceeding; (d) the manner in which the investments of the
Trust are being managed; (e) a difference in voting instructions given by
variable annuity and variable life insurance Contract owners; (f) a decision by
a Participating Insurance Company to disregard the voting instructions of
Variable Contract owners; and (g) if applicable, a decision by a Qualified Plan
to disregard the voting instructions of plan participants.
5.3 The Company will report any potential or existing
conflicts to the Board. The Company will be responsible for assisting the
Board in carrying out its duties in this regard by providing the Board with all
information reasonably necessary for the Board to consider any issues raised.
The responsibility includes, but is not limited to, an obligation by the
Company to inform the Board whenever it has determined to disregard Variable
Contract owner voting instructions. These responsibilities of the Company will
be carried out with a view only to the interests of the Variable Contract
owners.
5.4 If a majority of the Board or majority of its
disinterested trustees, determines that a material irreconcilable conflict
exists, affecting the Company, the Company, at its expense and to the extent
reasonably practicable (as determined by a majority of the Board's
disinterested trustees), will take any steps necessary to remedy or eliminate
the irreconcilable material conflict, including: (a) withdrawing the assets
allocable to some or all of the Separate Accounts from the Trust or any Fund
thereof and reinvesting those assets in a different investment medium, which
may include another Fund of the Trust, or another investment company; (b)
submitting the question as to whether such segregation should be implemented to
a vote of all affected Variable Contract owners and, as appropriate,
segregating the assets of any appropriate group (i.e., variable annuity or
variable life insurance Contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
Variable Contract owners the option of making such a change; and (c)
establishing a new registered management investment company or managed separate
account. If an irreconcilable material conflict arises because of the
Company's decision to disregard Variable Contract owner voting instructions,
and that decision represents a minority position or would preclude a majority
vote, the Company may be required, at the election of the Trust to withdraw the
Separate Account's investment in the Trust, and no charge or penalty will be
imposed as a result of such withdrawal. To the extent permitted by applicable
law, the Company shall bear the responsibility of taking remedial action in the
event of Board determination of the existence of a material irreconcilable
conflict and the cost of such remedial action and this responsibility shall be
carried out with a view only to the interests of the Variable Contract owners.
For purposes of this Section 5.4, a majority of the disinterested
members of the Board shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
the Trust or its investment adviser (or any other investment adviser of the
Trust) be required to establish a new funding medium for any Variable Contract.
Further, the Company shall not be required by this Section 5.4 to establish a
new funding
-9-
<PAGE> 10
medium for any Variable Contracts if any offer to do so has been declined by a
vote of a majority of Variable Contract owners materially and adversely
affected by the irreconcilable conflict.
5.5 The Board's determination of the existence of an
irreconcilable material conflict and its implications shall be made known
promptly and in writing to the Company.
5.6 No less than annually, the Company shall submit to the
Board such reports, materials or data as the Board may reasonably request so
that the Board may fully carry out its obligations. Such reports, materials
and data shall be submitted more frequently if deemed appropriate by the Board.
Article VI. VOTING
6.1 The Company will provide pass-through voting privileges
to all Variable Contract owners so long as the SEC continues to interpret the
'40 Act as requiring pass-through voting privileges for Variable Contract
owners. Accordingly, the Company, where applicable, will vote shares of the
Funds held in its Separate Accounts in a manner consistent with voting
instructions timely received from its Variable Contract owners. However, the
Company reserves the right to disregard the voting instructions of the Variable
Contract owners to the extent such action is permitted by Rule 6e-2 or Rule
6e-3(T) of the '40 Act. The Company will be responsible for assuring that each
of its Separate Accounts that participates in the Trust calculates voting
privileges in a manner consistent with other Participating Insurance Companies.
The Company will vote shares for which it has not received timely voting
instructions, as well as shares it owns, in the same proportion as its votes
those shares for which it has received voting instructions. The Trust will
notify the Company of the Trust's intention to file proxy solicitation
materials with the SEC prior to such filing.
6.2 If and to the extent Rule 6e-2 and Rule 6e-3(T) are
amended, or if Rule 6e-3 is adopted, to provide exemptive relief from any
provision of the '40 Act or the rules thereunder with respect to mixed and
shared funding on terms and conditions materially different from any exemptions
granted in the Exemptive Order, then the Trust and/or the Participating
Insurance Companies, as appropriate, shall take such steps as may be necessary
to comply with Rule 6e-2 and Rule 6e-3(T), as amended, and Rule 6e-3, as
adopted, to the extent such Rules are applicable.
6.3 The Trust will comply with all provisions of the '40
Act requiring voting by shareholders, and in particular the Trust will either
provide for annual meetings or comply with Section 16(c) of the '40 Act
(although the Trust is not one of the trusts described in Section 16(c) of that
Act) as well as Sections 16(a) and, if and when applicable, 16(b). Further,
the Trust will act in accordance with the SEC's interpretation of the
requirements of Section 16(a) with respect to periodic elections of trustees
and with whatever rule the SEC may promulgate with respect thereto.
-10-
<PAGE> 11
Article VII. INDEMNIFICATION
7.1 Indemnification by the Company. The Company agrees to
indemnify and hold harmless the Trust, and each of its Trustees, principals,
officers, employees, agents and affiliates, including the Adviser
(collectively, the "Indemnified Parties" for purposes of this Article VII)
against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Company, which consent shall
not be unreasonably withheld) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Trust's shares or the
Variable Contracts and:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in a registration statement or prospectus for the
Variable Contracts or contained in the Variable
Contracts or in sales literature generated or approved
by the Company on behalf of the Variable Contracts or
Separate Accounts (or any amendment or supplement to
any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state
therein a material fact required to be stated therein
or necessary to make the statements therein not
misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity
with information furnished to the Company by or on
behalf of the Trust for use in the registration
statement or prospectus for the Variable Contracts or
in the Variable Contracts or sales literature (or any
amendment or supplement) or otherwise for use in
connection with the sale of the Variable Contracts or
the Trust shares; or
(b) arise out of or as a result of any statement or
representation (other than statements or
representations contained in the registration
statement, prospectus or sales literature of the Trust
not supplied by the Company, or persons under its
control) or wrongful conduct of the Company or persons
under its control, with respect to the sale or
distribution of the Variable Contracts or the Trust
shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a
registration statement, prospectus or sales literature
of the Trust or any amendment thereof or supplement
thereto or the omission or alleged omission to state
therein a material fact required to be stated therein
or necessary to make the statements therein not
misleading if such statement or omission or such
alleged statement or omission was made in reliance upon
and in conformity with information furnished to the
Trust by or on behalf of the Company; or
(d) arise as a result of any failure by the Company to
provide substantially the services and furnish the
materials under the terms of this Agreement; or
-11-
<PAGE> 12
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Company in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Company.
7.2 The Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party as
such may arise from such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations or duties
under this Agreement.
7.3 The Company shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Company in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify the Company of
any such claim shall not relieve the Company from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise
than on account of this indemnification provision. In case any such action is
brought against an Indemnified Party, the Company shall be entitled to
participate at its own expense in the defense of such action. The Company also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Company to such party of
the Company's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the Company will not be liable to such party under this Agreement for any legal
or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
7.4 Indemnification by the Trust. The Trust agrees to
indemnify and hold harmless the Company and each of its directors, officers,
employees, and agents and each person, if any, who controls the Company within
the meaning of Section 15 of the '33 Act (collectively, the "Indemnified
Parties" for the purposes of this Article VII) against any and all losses,
claims, damages, liabilities (including amounts paid in settlement with the
written consent of the Trust, which consent shall not be unreasonably withheld)
or litigation (including legal and other expenses) to which the Indemnified
Parties may become subject under any statute, or regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of the Trust's shares or the Variable Contracts and:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in the registration statement or prospectus or sales
literature of the Trust (or any amendment or supplement
to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state
-12-
<PAGE> 13
therein a material fact required to be stated therein
or necessary to make the statements therein not
misleading; provided that this Agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity
with information furnished to the Trust by or on behalf
of the Company for use in the registration statement or
prospectus for the Trust or in sales literature (or any
amendment or supplement) or otherwise for use in
connection with the sale of the Variable Contracts or
the Trust shares; or
(b) arise out of or as a result of statements or
representations (other than statements or
representations contained in the registration
statement, prospectus or sales literature for the
Variable Contracts not supplied by the Trust or persons
under its control) or wrongful conduct of the Trust or
persons under its control, with respect to the sale or
distribution of the Variable Contracts or the Trust
shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a
registration statement, prospectus, or sales literature
covering the Variable Contracts, or any amendment
thereof or supplement thereto or the omission or
alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, if such statement or
omission or such alleged statement or omission was made
in reliance upon and in conformity with information
furnished to the Company for inclusion therein by or on
behalf of the Trust; or
(d) arise as a result of (i) a failure by the Trust to
provide substantially the services and furnish the
materials under the terms of this Agreement; or (ii) a
failure by a Fund(s) invested in by the Separate
Account to comply with the diversification requirements
of Section 817(h) of the Code; or (iii) a failure by a
Fund(s) invested in by the Separate Account to qualify
as a "regulated investment company" under Subchapter M
of the Code; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Trust.
7.5 The Trust shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith,
or gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement.
7.6 The Trust shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified
-13-
<PAGE> 14
the Trust in writing within a reasonable time after the summons or other first
legal process giving information of the nature of the claim shall have been
served upon such Indemnified Party (or after such Indemnified Party shall have
received notice of such service on any designated agent), but failure to notify
the Trust of any such claim shall not relieve the Trust from any liability
which it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, the Trust shall be entitled
to participate at its own expense in the defense thereof. The Trust also shall
be entitled to assume the defense thereof, with counsel satisfactory to the
party named in the action. After notice from the Trust to such party of the
election by the Trust to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the Trust will not be liable to such party under this Agreement for any legal
or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
7.7 Indemnification by the Adviser. The Adviser agrees to
indemnify and hold harmless the Company and each of its directors, officers,
employees, and agents and each person, if any, who controls the Company within
the meaning of Section 15 of the '33 Act (collectively, the "Indemnified
Parties" for the purposes of this Article VII) against any and all losses,
claims, damages, liabilities (including amounts paid in settlement with the
written consent of the Adviser, which consent shall not be unreasonably
withheld) or litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute, or regulation, at
common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of the Trust's shares or the Variable Contracts and:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in the registration statement or prospectus or sales
literature of the Trust (or any amendment or supplement
to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state
therein a material fact required to be stated therein
or necessary to make the statements therein not
misleading; provided that this Agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity
with information furnished to the Trust or Adviser by
or on behalf of the Company for use in the registration
statement or prospectus for the Trust or in sales
literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the
Variable Contracts or the Trust shares; or
(b) arise out of or as a result of statements or
representations (other than statements or
representations contained in the registration
statement, prospectus or sales literature for the
Variable Contracts not supplied by the Trust or Adviser
or persons under their control) or wrongful conduct of
the Trust or the Adviser or
-14-
<PAGE> 15
persons under their control, with respect to the sale
or distribution of the Variable Contracts or the Trust
shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a
registration statement, prospectus or sales literature
covering the Variable Contracts, or any amendment
thereof or supplement thereto or the omission or
alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, if such statement or
omission or such alleged statement or omission was made
in reliance upon and in conformity with information
furnished to the Company for inclusion therein by or on
behalf of the Trust; or
(d) arise as a result of (i) a failure by the Trust or the
Adviser to provide substantially the services and
furnish the materials under the terms of this
Agreement, or (ii) a failure by a Fund(s) invested in
by the Separate Account to comply with the
diversification requirements of Section 817(h) of the
Code; or (iii) a failure by a Fund(s) invested in by
the Separate Account to qualify as a "regulated
investment company" under Subchapter M of the Code; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Trust or the
Adviser in this Agreement or arise out of or result
from any other material breach of this Agreement by the
Trust or the Adviser.
7.8 The Adviser shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith,
or gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement.
7.9 The Adviser shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Adviser in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify the Adviser of
any such claim shall not relieve the Adviser from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise
than on account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Adviser shall be entitled to
participate at its own expense in the defense thereof. The Adviser also shall
be entitled to assume the defense thereof, with counsel satisfactory to the
party named in the action. After notice from the Adviser to such party of the
election by the Adviser to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the Adviser will not be
-15-
<PAGE> 16
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
7.10 It is understood that these indemnities shall have no
effect on any other agreement or arrangement between the Trust and/or its
series and the Adviser.
Article VIII. TERM; TERMINATION
8.1 This Agreement shall be effective as of the date hereof
and shall continue in force until terminated in accordance with the provisions
herein.
8.2 This Agreement shall terminate in accordance with the
following provisions:
(a) At the option of the Company or the Trust at any time
from the date hereof upon 180 days' notice, unless a
shorter time is agreed to by the parties;
(b) At the option of the Company, if the Trust shares are
not reasonably available to meet the requirements of
the Variable Contracts as determined by the Company.
Prompt notice of election to terminate shall be
furnished by the Company, said termination to be
effective ten days after receipt of notice unless the
Trust makes available a sufficient number of shares to
reasonably meet the requirements of the Variable
Contracts within said ten-day period;
(c) At the option of the Company, upon the institution of
formal proceedings against the Trust by the SEC, the
National Association of Securities Dealers, Inc. or any
other regulatory body, the expected or anticipated
ruling, judgment or outcome of which would, in the
Company's reasonable judgment, materially impair the
Trust's ability to meet and perform the Trust's
obligations and duties hereunder. Prompt notice of
election to terminate shall be furnished by the
Company, with said termination to be effective upon
receipt of notice;
(d) At the option of the Adviser or the Trust, upon the
institution of formal proceedings against the Company
by the SEC, the National Association of Securities
Dealers, Inc. or any other regulatory body, the
expected or anticipated ruling, judgment or outcome of
which would, in the Adviser or the Trust's reasonable
judgment, materially impair the Company's ability to
meet and perform its obligations and duties hereunder.
Prompt notice of election to terminate shall be
furnished by the Adviser or the Trust, with said
termination to be effective upon receipt of notice;
(e) In the event the Trust's shares are not registered,
issued or sold in accordance with applicable state or
federal law, or such law precludes the use of such
shares as the
-16-
<PAGE> 17
underlying investment medium of Variable Contracts
issued or to be issued by the Company. Termination
shall be effective upon such occurrence without notice;
(f) At the option of the Adviser or the Trust, if the
Variable Contracts cease to qualify as annuity
contracts or life insurance contracts, as applicable,
under the Code, or if the Trust reasonably believes
that the Variable Contracts may fail to so qualify.
Termination shall be effective upon receipt of notice
by the Company;
(g) At the option of the Company, upon the Trust's breach
of any material provision of this Agreement, which
breach has not been cured to the satisfaction of the
Company within ten days after written notice of such
breach is delivered to the Trust;
(h) At the option of the Adviser or the Trust, upon the
Company's breach of any material provision of this
Agreement, which breach has not been cured to the
satisfaction of the Adviser or the Trust within ten
days after written notice of such breach is delivered
to the Company;
(i) At the option of the Adviser or the Trust, if the
Variable Contracts are not registered, issued or sold
in accordance with applicable federal and/or state law.
Termination shall be effective immediately upon such
occurrence without notice;
(j) In the event this Agreement is assigned without the
prior written consent of the Company and the Trust,
termination shall be effective immediately upon such
occurrence without notice. This Agreement may be
assigned by the Adviser only after prior written notice
to the Company
8.3 Notwithstanding any termination of this Agreement
pursuant to Section 8.2 hereof, the Trust at the option of the Company will
continue to make available additional Trust shares, as provided below, pursuant
to the terms and conditions of this Agreement, for all Variable Contracts in
effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts"). Specifically, without limitation, the
owners of the Existing Contracts or the Company, whichever shall have legal
authority to do so, shall be permitted to reallocate investments in the Trust,
redeem investments in the Trust and/or invest in the Trust upon the payment of
additional premiums under the Existing Contracts.
8.4 Notwithstanding any termination of this Agreement
pursuant to Section 8.2 hereof, all rights and obligations arising under
Article VII of this Agreement shall survive.
-17-
<PAGE> 18
Article IX. NOTICES
ANY NOTICE HEREUNDER SHALL BE GIVEN BY REGISTERED OR CERTIFIED MAIL
RETURN RECEIPT REQUESTED TO THE OTHER PARTY AT THE ADDRESS OF SUCH PARTY SET
FORTH BELOW OR AT SUCH OTHER ADDRESS AS SUCH PARTY MAY FROM TIME TO TIME
SPECIFY IN WRITING TO THE OTHER PARTY.
IF TO THE TRUST OR THE ADVISER:
ROYCE CAPITAL FUND OR ROYCE & ASSOCIATES, INC.
1414 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
ATTN: HOWARD J. KASHNER, ESQ.
IF TO THE COMPANY:
IL ANNUITY AND INSURANCE CO.
2960 N. MERIDIAN STREET
INDIANPOLIS, IN 46208
ATTENTION: MARGARET MCKINNEY, ESQ.
NOTICE SHALL BE DEEMED GIVEN ON THE DATE OF RECEIPT BY THE ADDRESSEES,
AS EVIDENCED BY THE RETURN RECEIPT.
Article X. MISCELLANEOUS
10.1 The captions in this Agreement are included for
convenience of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
10.2 This Agreement may be executed simultaneously in two or
more counterparts, each of which taken together shall constitute one and the
same instrument.
10.3 If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
the Agreement shall not be affected thereby.
10.4 This Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws of the State of New
York. It shall also be subject to the provisions of the federal securities
laws and the rules and regulations thereunder and to any orders of the SEC
granting exemptive relief therefrom and the conditions of such orders.
10.5 It is understood and expressly stipulated that neither
the shareholders of shares of any Fund nor the Trustees or officers of the
Trust or any Fund shall be personally liable hereunder. No Fund shall be
liable for the liabilities of any other Fund. All persons dealing with
-18-
<PAGE> 19
the Trust or a Fund must look solely to the property of the Trust or that Fund,
respectively, for enforcement of any claims against the Trust or that Fund. It
is also understood that each of the Funds shall be deemed to be entering into a
separate Agreement with the Company, so that it is as if each of the Funds had
signed a separate Agreement with the Company and that a single document is
being signed simply to facilitate the execution and administration of the
Agreement.
10.6 Each party shall cooperate with each other party and
all appropriate governmental authorities (including without limitation the SEC,
the National Association of Securities Dealers, Inc. and state insurance
regulators) and shall permit such authorities reasonable access to its books
and records in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
10.7 The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights, remedies
and obligations, at law or in equity, which the parties hereto are entitled to
under state and federal laws.
10.8 No provision of this Agreement may be amended or
modified in any manner except by a written agreement properly authorized and
executed by the Trust and the Company.
IN WITNESS WHEREOF, the parties have caused their duly
authorized officers to execute this Fund Participation Agreement as of the date
and year first above written.
ROYCE CAPITAL FUND
By: /s/ CHARLES M. ROYCE
---------------------------
Name: Charles M. Royce
Title: President
ROYCE & ASSOCIATES, INC.
By: /s/ CHARLES M. ROYCE
--------------------------
Name: Charles M. Royce
Title: President
IL ANNUITY AND INSURANCE COMPANY
By: /s/ GREGORY J. CARNEY
---------------------------
Name: Gregory J. Carney
Title: President
-19-
<PAGE> 20
APPENDIX A
The Trust and its Funds
Royce Capital Fund:
Royce Premier Portfolio
Royce Total Return Portfolio
Royce Micro-Cap Portfolio
<PAGE> 21
APPENDIX B
<TABLE>
<CAPTION>
Separate Accounts Selected Funds
- ----------------- --------------
<S> <C>
IL Annuity and Insurance Company Royce Micro-Cap Portfolio
Separate Account I
</TABLE>
<PAGE> 1
EXHIBIT 8(j)
TRUST PARTICIPATION AGREEMENT
THIS AGREEMENT made as of the 9th day of July, 1997, by and among
SAFECO Resource Series Trust, an unincorporated business trust organized under
the laws of the State of Delaware ("Trust"), SAFECO Asset Management Company, a
Washington corporation ("Adviser"), and IL Annuity and Insurance Company ("Life
Company"), a life insurance company organized under the laws of the State of
Massachusetts.
WHEREAS, Trust is registered with the Securities and Exchange
Commission ("SEC") under the Investment Company Act of 1940, as amended ("'40
Act"), as an open-end, diversified management investment company; and
WHEREAS, Trust is organized as a series fund comprised of several
portfolios, with those then currently available under this Agreement being
listed on Schedule A hereto, as it may be amended from time to time
("Portfolios"); and
WHEREAS, Trust was organized to act as the funding vehicle for certain
variable life insurance and/or variable annuity contracts ("Variable
Contracts") offered by life insurance companies through separate accounts of
such life insurance companies ("Participating Insurance Companies"); and
WHEREAS, Trust may also offer its shares to certain qualified pension
and retirement plans ("Qualified Plans"); and
WHEREAS, Trust has obtained an order from the SEC, granting
Participating Insurance Companies and their separate accounts exemptions from
the provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the '40 Act, and
Rules 6e-2(a)(2), 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent
necessary to permit shares of the Portfolios of the Trust to be sold to and
held by Variable Contract separate accounts of both affiliated and unaffiliated
Participating Insurance Companies and Qualified Plans (File No. 812-9658)
("Exemptive Order"); and
WHEREAS, Life Company has established or will establish one or more
separate accounts ("Separate Accounts") to offer Variable Contracts and desires
to have the Trust as one of the underlying funding vehicles for certain
Variable Contracts to be issued by Life Company as set forth on Schedule A
hereto, as it may be amended from time to time; and
WHEREAS, Adviser is registered with the SEC as an investment adviser
under the Investment Advisers Act of 1940, as amended, and acts as the Trust's
investment adviser; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, Life Company intends to purchase shares of Trust to fund the
aforementioned Variable Contracts and Trust is authorized to sell such shares
to Life Company at net asset value.
<PAGE> 2
NOW, THEREFORE, in consideration of their mutual promises, Life
Company, Trust, and Adviser agree as follows:
Article I. SALE OF TRUST SHARES
1.1 Trust agrees, as provided in its Registration Statement, to make
available to the Separate Accounts, and any sub-accounts thereof, shares of the
selected Portfolios as listed on Schedule B hereto, as it may be amended from
time to time, for investment of purchase payments of Variable Contracts
allocated to the designated Separate Accounts.
1.2 Trust agrees to sell to Life Company those shares of the
selected Portfolios which Life Company orders. Orders which are sent by Life
Company to Trust and received by Trust by 8:00 a.m. Pacific time, will be
executed by Trust at the net asset value determined on the prior Business Day.
Any orders received by Trust after 8:00 a.m. and prior to 1:00 p.m. Pacific
time, will be executed by Trust at the net asset value next computed pursuant
to the rules of the SEC. For purposes of this Section 1.2, Trust hereby
appoints Life Company as its designee for receipt of such orders from the
designated Separate Account and receipt by such designee shall constitute
receipt by Trust; provided that Trust receives notice from Life Company by
telephone or facsimile (or by such other means as Trust and Life Company may
agree in writing) of receipt of such orders by 8:00 a.m. Pacific time on the
next following Business Day. "Business Day" shall mean any day on which the
New York Stock Exchange is open for trading and on which Trust calculates its
net asset value pursuant to the rules of the SEC.
1.3 Trust agrees to redeem, on Life Company's request, any full or
fractional shares of Trust held by Life Company, executing such requests on
each Business Day at the net asset value next computed after receipt by Trust
or its designee of the request for redemption, in accordance with the
provisions of this Agreement and Trust's Registration Statement. For purposes
of this Section 1.3, Life Company hereby appoints Trust as its designee for
receipt of requests for redemption from the designated Separate Account and
receipt by such designee shall constitute receipt by Trust; provided that Trust
receives notice from Life Company by telephone or facsimile (or by such other
means as Trust and Life Company may agree in writing) of receipt of such
request for redemption by 8:00 a.m. Pacific time on the next following Business
Day.
1.4 In the event that Life Company's order results in a net purchase
of Portfolio shares, Life Company shall pay for Portfolio shares by 11:00 a.m.
Pacific time on the same Business Day that the notice of order to purchase
Trust shares is made in accordance with the provisions of this section. If
Life Company's order requests a net redemption resulting in a payment of
redemption proceeds to Life Company, Trust shall normally pay and transmit the
proceeds of redemptions of Portfolio shares by 11:00 a.m. Pacific time on the
same Business Day that the notice of a redemption order is received in
accordance with the provisions of this Agreement, unless doing so would require
Trust to dispose of Portfolio securities or otherwise incur additional costs.
In any event, proceeds shall be wired to Life Company within three (3) Business
Days or such longer period permitted by the '40 Act or the rules, orders or
regulations thereunder, and Trust shall
2
<PAGE> 3
notify the person designated in writing by Life Company as the recipient for
such notice of such delay by 1:00 p.m. Pacific time the same Business Day that
Life Company transmits the redemption order to Trust. If Life Company's order
requests the application of redemption proceeds from the redemption of shares
to the purchase of shares of another fund advised by Adviser, Trust shall so
apply such proceeds the same Business Day that Life Company transmits such
order to Trust. Any payment made pursuant to this Section 1.4 shall be in
federal funds transmitted by wire.
1.5 Trust will provide to Life Company closing net asset value per
share for the selected Portfolio(s) at the close of trading each Business Day.
In any event, Trust shall use its best efforts to make the net asset value per
share for each Portfolio available by 3:30 p.m. Pacific time each Business Day,
and as soon as reasonably practicable after the net asset value per share for
each Portfolio is calculated, and shall calculate such net asset value in
accordance with the Trust's Registration Statement. Any material error in the
calculation of the net asset value of the Portfolios shall be reported
immediately to Life Company.
1.6 At the end of each Business Day, Life Company shall use the
information described in Section 1.5 to calculate Separate Account unit values
for the day. Using these unit values, Life Company shall process each such
Business Day's Separate Account transactions based on requests and premiums
received by it by the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m. New York time) to determine the net dollar amount
of Trust shares which shall be purchased or redeemed at that day's closing net
asset value per share. The net purchase or redemption orders so determined
shall be transmitted to Trust by Life Company by 8:00 a.m. Pacific time on the
Business Day next following Life Company's receipt of such requests and
premiums in accordance with the terms of Sections 1.2 and 1.3 hereof. Orders
will be sent directly, via facsimile (or by such other means as Trust and Life
Company may agree in writing), to Trust or such other person as the Trust may
designate.
1.7 Trust agrees that all shares of the Portfolios will be sold only
to Participating Insurance Companies which have agreed to participate in Trust
to fund their separate accounts and/or to Qualified Plans, all in accordance
with the requirements of Section 817(h) of the Internal Revenue Code of 1986,
as amended ("Code") and Treasury Regulation 1.817-5. Shares of the Portfolios
will not be sold directly to the general public.
1.8 Trust shall furnish, on or before the ex-dividend date, notice
to Life Company of any income dividends or capital gain distributions payable
on the shares of any Portfolio. Life Company hereby elects to receive all such
income dividends and capital gain distributions as are payable on a Portfolio's
shares in additional shares of the Portfolio. Trust shall notify Life Company
or its designee of the number of shares so issued as payment of such dividends
and distributions.
1.9 Trust may refuse to sell shares of any Portfolio to any person
or suspend or terminate the offering of the shares of or liquidate any
Portfolio if such action is required by law or by
3
<PAGE> 4
regulatory authorities having jurisdiction or is, in the sole discretion of the
Board of Trustees of the Trust (the "Board"), acting in good faith and in light
of its duties under federal and any applicable state laws, deemed necessary,
desirable or appropriate and in the best interests of the shareholders of such
Portfolios.
1.10 Issuance and transfer of Portfolio shares will be by book entry
only. Stock certificates will not be issued to Life Company or the Separate
Accounts. Shares ordered from the Portfolio(s) will be recorded in appropriate
book entry titles for the Separate Accounts.
1.11 Each party has the right to rely on information or confirmations
provided by each other party (or by any affiliate of each other party) and
shall not be liable in the event that an error is a result of any
misinformation supplied by any other party or any such affiliate. If a mistake
is caused in supplying such information or confirmations, which results in a
reconciliation with incorrect information, the amount required to make a
Variable Contract owner's or participant's account whole shall be borne by the
party providing the incorrect information.
Article II. REPRESENTATIONS AND WARRANTIES
2.1 Life Company represents and warrants that it is an insurance
company duly organized and in good standing under the laws of its state of
domicile and that it has legally and validly established each Separate Account
as a segregated asset account under such laws, and that IL Securities, Inc.,
the principal underwriter for the Variable Contracts, is registered as a
broker-dealer under the Securities Exchange Act of 1934, as amended.
2.2 Life Company represents and warrants that it has registered or,
prior to any issuance or sale of the Variable Contracts, will register and
maintain the registration of each Separate Account as a unit investment trust
in accordance with the provisions of the '40 Act, unless an exemption from
registration is available.
2.3 Life Company represents and warrants that the Variable Contracts
will be registered under the Securities Act of 1933, as amended ("'33 Act")
unless an exemption from registration is available prior to any issuance or
sale of the Variable Contracts and that the Variable Contracts will be issued
and sold in compliance in all material respects with all applicable federal and
state laws and further that the sale of the Variable Contracts shall comply in
all material respects with applicable state insurance law suitability
requirements.
2.4 Life Company represents and warrants that the Variable Contracts
are currently and at the time of issuance will be treated as life insurance,
endowment or annuity contracts under applicable provisions of the Code, that it
will maintain such treatment and that it will notify Trust immediately upon
having a reasonable basis for believing that the Variable Contracts have ceased
to be so treated or that they might not be so treated in the future.
4
<PAGE> 5
2.5 Life Company represents and warrants that its directors,
officers, and employees, if any, dealing with the money and/or securities of
Trust are and shall continue to be at all times covered by a blanket fidelity
bond or similar coverage in an amount not less than $2 million. The aforesaid
bond shall include coverage for larceny and embezzlement and shall be issued by
a reputable bonding company. Life Company agrees that any amounts received
under such bond that arise from the arrangements contemplated by this Agreement
shall be held by Life Company for the benefit of Trust.
2.6 Adviser and Trust represent and warrant that their directors,
officers, and employees, if any, dealing with the money and/or securities of
Trust are and shall continue to be at all times covered by a blanket fidelity
bond or similar coverage in an amount not less than the minimal coverage as
required currently by Rule 17g-1 of the '40 Act or related provisions as may be
promulgated from time to time. The aforesaid bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable bonding company.
Adviser and Trust agree that any amounts received under such bond that arise
from the arrangements contemplated by this Agreement shall be held by them for
the benefit of Trust.
2.7 Adviser and Trust make no representation as to whether any
aspect of Trust's operations (including, but not limited to, fees and expenses
and investment policies) complies with the insurance laws or regulations of the
various states. Trust agrees that it will make every reasonable effort to
remain in material compliance with the applicable laws of such states of whose
requirements Life Company informs it.
2.8 Trust represents and warrants that it is duly organized and in
good standing under the laws of its state of domicile and that it is in
compliance and will comply in all material respects with the '40 Act.
2.9 Trust represents and warrants that Trust shares offered and sold
pursuant to this Agreement will be registered under the '33 Act and sold in
accordance with all applicable federal and state laws, and Trust shall be
registered under the '40 Act prior to and at the time of any issuance or sale
of such shares. Trust, subject to Section 1.9 above, shall amend its
Registration Statement under the '33 Act and the '40 Act from time to time as
required in order to effect the continuous offering of its shares. Trust shall
register and qualify its shares for sale in accordance with the laws of the
various states only if and to the extent deemed advisable by Trust.
2.10 Trust represents and warrants that each Portfolio will comply
with the diversification requirements set forth in Section 817(h) of the Code,
and the rules and regulations thereunder, including without limitation Treasury
Regulation 1.817-5, and will notify Life Company immediately upon having a
reasonable basis for believing any Portfolio has ceased to comply or might not
so comply and will immediately take all reasonable steps to adequately
diversify the Portfolio to achieve compliance.
5
<PAGE> 6
2.11 Trust represents and warrants that each Portfolio invested in by
the Separate Account intends to elect to be treated as a "regulated investment
company" under Subchapter M of the Code, and to qualify for such treatment for
each taxable year and will notify Life Company immediately upon having a
reasonable basis for believing it has ceased to so qualify or might not so
qualify in the future.
2.12 Adviser represents and warrants that it is and will remain duly
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended, and licensed in all material respects under all applicable federal
and state securities laws and shall perform its obligations hereunder in
compliance in all material respects with any applicable state and federal laws.
Article III. PROSPECTUS AND PROXY STATEMENTS
3.1 Trust shall prepare and be responsible for filing with the SEC
and any state regulators requiring such filing all shareholder reports,
notices, proxy materials (or similar materials such as voting instruction
solicitation materials), prospectuses and statements of additional information
of Trust. Trust shall bear the costs of registration and qualification of
shares of the Portfolios, preparation and filing of the documents listed in
this Section 3.1 and all taxes and filing fees to which an issuer is subject on
the issuance and transfer of its shares.
3.2 At least annually, Trust or its designee shall provide Life
Company with the current prospectus, statement of additional information and
any supplements thereto for the shares of the Portfolios listed on Schedule A,
in the form of "camera ready" copy as set in type or, at the request of Life
Company, as a diskette in the form sent to the financial printer. Trust shall
be responsible for providing the prospectus and/or statement of additional
information in the format (i.e., "camera ready" or diskette) in which it is
accustomed to formatting prospectuses and/or statements of additional
information and shall bear the expense of providing the prospectus and/or
statement of additional information, and any supplements thereto, in such
format (e.g. typesetting expenses), and Life Company shall bear the expense of
adjusting or changing the format to conform with any of its prospectuses and/or
statements of additional information. At Life Company's option and expense,
once a year (or more frequently if the prospectus and/or statement of
additional information for the shares is supplemented or amended), Life Company
may cause Trust's prospectus and/or statement of additional information to be
printed separately and/or together in one document with the prospectus and/or
statement of additional information for other investment companies and/or for
the Variable Contracts. Life Company shall be responsible for the costs of
printing Trust's prospectus and/or statement of additional information, either
separately or in combination as aforesaid, and of distribution to existing
Variable Contract owners ("Owners") whose Variable Contracts are funded by such
shares and to prospective purchasers of Variable Contracts.
6
<PAGE> 7
3.3 Trust will provide Life Company with at least one complete copy
of all prospectuses, statements of additional information, annual and
semi-annual reports, proxy statements, exemptive applications and all
amendments or supplements to any of the above that relate to Trust or the
Portfolios promptly after the filing of each such document with the SEC or
other regulatory authority. The prospectus for the Portfolios shall state that
the statement of additional information for the Portfolios is available from
Trust or its designated agent, and such statement shall be provided free of
charge to any Variable Contract Owner or participant who requests a copy. Life
Company will provide Trust with at least one complete copy of all prospectuses,
statements of additional information, annual and semi-annual reports, proxy
statements, exemptive applications and all amendments or supplements to any of
the above that relate to a Separate Account promptly after the filing of each
such document with the SEC or other regulatory authority.
3.4 Trust currently does not make and does not intend to make any
payments to finance distribution expenses pursuant to Rule 12b-1 under the '40
Act or otherwise, although it may make such payments in the future. To the
extent that it decides to finance distribution expenses pursuant to Rule 12b-1,
Trust undertakes to have its Board of Trustees, a majority of whom are not
interested persons of Trust, formulate and approve any plan under Rule 12b-1 to
finance distribution expenses. Trust will notify Life Company of the adoption
of any plan under Rule 12b-1.
Article IV. SALES MATERIALS
4.1 Life Company will furnish, or will cause to be furnished, to
Trust and Adviser for review, each piece of sales literature or other
promotional material in which Trust, or any selected Portfolio thereof, or
Adviser is named, before such material is submitted to any regulatory body for
review, and in any event, at least fifteen (15) Business Days prior to its use.
No such material will be used if Trust or Adviser objects to its use in writing
within fifteen (15) Business Days after receipt of such material.
4.2 Advertising and sales literature with respect to Life Company,
the Separate Accounts and/or the Variable Contracts prepared by Trust, Adviser
or any affiliate thereof will be submitted to Life Company for review before
such material is submitted to any regulatory body for review, and in any event,
at least fifteen (15) Business Days prior to its use. No such material will be
used if Life Company objects to its use in writing within fifteen (15) Business
Days after receipt of such material.
4.3 Trust and its affiliates and agents shall not give any
information or make any representations on behalf of Life Company or concerning
Life Company, the Separate Accounts or the Variable Contracts issued by Life
Company, other than the information or representations contained in a
registration statement or prospectus for such Variable Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in reports of the Separate Accounts or reports prepared for
distribution to Owners of such Variable
7
<PAGE> 8
Contracts, or in sales literature or other promotional material approved by
Life Company or its designee, without the written permission of Life Company.
4.4 Life Company and its affiliates and agents shall not give any
information or make any representations on behalf of Trust or concerning Trust
other than the information or representations contained in a Registration
Statement or prospectus for Trust, as such Registration Statement and
prospectus may be amended or supplemented from time to time, or in reports of
the Trust or reports prepared for distribution to owners of shares of the Trust
or for Owners of the Variable Contracts, or in sales literature or other
promotional material approved by Trust or its designee, without the written
permission of Trust.
4.5 For purposes of this Agreement, the phrase "sales literature or
other promotional material" or words of similar import include, without
limitation, advertisements (such as material published, or designed for use, in
a newspaper, magazine or other periodical, radio, television, electronic media,
telephone or tape recording, videotape display, signs or billboards, motion
pictures or other public media), sales literature (such as any written
communication distributed or made generally available to customers or the
public, including brochures, circulars, research reports, market letters, form
letters, seminar texts, or reprints or excerpts of any other advertisement,
sales literature, or published article), educational or training materials or
other communications distributed or made generally available to some or all
agents or employees, registration statements, prospectuses, statements of
additional information, shareholder reports and proxy materials, and any other
material constituting sales literature or advertising under National
Association of Securities Dealers, Inc. ("NASD") rules, the '40 Act or the '33
Act.
4.6 Trust and Adviser agree and acknowledge that Life Company has
applied for trademark protection of the marks "Visionary", "Visionary Variable
Annuity", and "Visionary Choice Variable Annuity" (collectively, the "Visionary
Marks") and that Life Company believes it will be granted exclusive rights to
the Visionary Marks in the field of insurance underwriting. Trust and Adviser
further agree and acknowledge that all use of any designation comprised in
whole or in part of the Visionary Marks under this Agreement shall inure to the
benefit of Life Company. Except as provided in Section 4.2, neither Trust nor
Adviser shall use any Visionary Marks on behalf of itself or any affiliate in
any registration statement, advertisement, sales literature or other materials
without the prior written consent of Life Company. Upon termination of this
Agreement for any reason, Trust and Adviser shall cease all use of any
Visionary Marks as soon as reasonably practicable.
Article V. ADMINISTRATION OF SEPARATE ACCOUNTS
5.1 Administrative services to Owners/participants of the Variable
Contracts issued by Life Company shall be the responsibility of Life Company
and shall not be the responsibility of Trust or Adviser. Adviser recognizes
Life Company as the sole shareholder of fund shares issued under this
Agreement. From time to time, Adviser may pay amounts from its past profits to
Life Company for providing certain administrative services for Trust or its
Portfolios, or for providing
8
<PAGE> 9
Owners with other services that relate to Trust. These services may include,
among other things, sub-accounting services, answering inquiries of Owners
regarding the Portfolios, transmitting, on behalf of Trust, proxy statements,
annual reports, updated prospectus and other communications to Variable
Contract Owners regarding Trust and its Portfolios and such other related
services as Trust and Life Company may from time to time agree. In
consideration of the savings resulting from such arrangement, and to compensate
Life Company for its costs, Adviser agrees to pay to Life Company an amount
equal to 25 basis points (0.25%) per annum of the average aggregate amount
invested by Life Company in the Portfolios under this Agreement. Payment of
such amounts by Adviser will not increase the fees paid by Trust, the
Portfolios or their shareholders.
5.2 The parties agree that Adviser's payments to Life Company are
for administrative services only and do not constitute payment in any manner
for investment advisory services or for costs of distribution.
5.3 For the purposes of computing the administrative fee
reimbursement contemplated by this Article V, the average aggregate amount
invested by Life Company over a one-month period shall be computed by totaling
Life Company's aggregate investment (share net asset value multiplied by total
number of shares held by Life Company) on each Business Day during the month
and dividing by the total number of Business Days during each month.
5.4 Adviser will calculate the reimbursement of administrative
expenses at the end of each calendar quarter and will make such reimbursement
to Life Company within thirty (30) days thereafter. The reimbursement check
will be accompanied by a statement showing the calculation of the monthly
amounts payable by Adviser and such other supporting data as may be reasonably
requested by Life Company.
Article VI. POTENTIAL CONFLICTS
6.1 Life Company has received a copy of the amended and restated
application for exemptive relief filed by Trust and certain affiliates on
December 20, 1995 with the SEC and the Exemptive Order issued by the SEC on
January 17, 1996, in response thereto. Life Company has reviewed the
conditions to the requested relief set forth in such application for exemptive
relief.
6.2 The Board will monitor Trust for the existence of any material
irreconcilable conflict between the interests of Variable Contract Owners of
all separate accounts investing in Trust. A material irreconcilable conflict
may arise for a variety of reasons, which may include: (a) an action by any
state insurance regulatory authority; (b) a change in applicable federal or
state insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling or any similar action by insurance, tax or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of Trust are being
managed; (e) a difference in voting instructions given by Variable Contract
Owners/participants; (f) a decision by a Participating Insurance Company to
disregard the voting
9
<PAGE> 10
instructions of Variable Contract Owners/participants and (g) if applicable, a
decision by a Qualified Plan to disregard the voting instructions of plan
participants.
6.3 Life Company will report any potential or existing conflicts to
the Board. Life Company will be responsible for assisting the Board in
carrying out its duties in this regard by providing the Board with all
information reasonably necessary for the Board to consider any issues raised,
including, but not limited to, an obligation by the Life Company to inform the
Board whenever it has determined to disregard Variable Contract Owner voting
instructions. These responsibilities of Life Company will be carried out with
a view only to the interests of the Variable Contract Owners.
6.4 If a majority of the Board or majority of its disinterested
members determines that a material irreconcilable conflict exists affecting
Life Company, Life Company, at its expense and to the extent reasonably
practicable (as determined by a majority of the Board's disinterested members),
will take any steps necessary to remedy or eliminate the material
irreconcilable conflict as determined by a majority of the Board's
disinterested members, including: (a) withdrawing the assets allocable to some
or all of the Separate Accounts from Trust or any Portfolio thereof and
reinvesting those assets in a different investment medium, which may include
another Portfolio of Trust, or another investment company; (b) submitting the
question as to whether an alternative investment should be implemented to a
vote of all affected Variable Contract Owners and as appropriate, segregating
the assets of any appropriate group (i.e variable annuity or variable life
insurance contract owners of one or more Participating Insurance Companies)
that votes in favor of such segregation, or offering to the affected Variable
Contract Owners the option of making such a change; and (c) establishing a new
registered management investment company (or series thereof) or managed
separate account. If a material irreconcilable conflict arises because of Life
Company's decision to disregard Variable Contract Owner voting instructions,
and that decision represents a minority position or would preclude a majority
vote, Life Company may be required, at the election of Trust, to withdraw the
Separate Account's investment in Trust, and no charge or penalty will be
imposed as a result of such withdrawal. The responsibility to take such
remedial action shall be carried out with a view only to the interests of the
Variable Contract Owners.
For the purposes of this Section 6.4, a majority of the disinterested
members of the Board shall determine whether or not any proposed action
adequately remedies any material irreconcilable conflict but in no event will
Trust or Adviser (or any other investment adviser of Trust) be required to
establish a new funding medium for any Variable Contract. Further, Life
Company shall not be required by this Section 6.4 to establish a new funding
medium for any Variable Contracts if any offer to do so has been declined by a
vote of a majority of Variable Contract Owners materially and adversely
affected by the material irreconcilable conflict.
6.5 Trust shall give Life Company prompt written notice of the
Board's determination of the existence of a material irreconcilable conflict
and its implications.
10
<PAGE> 11
6.6 No less than annually, Life Company shall submit to the Board
such reports, materials or data as the Board may reasonably request so that the
Board may fully carry out its obligations under this Article VI. Such reports,
materials and data shall be submitted more frequently if deemed appropriate by
the Board.
Article VII. VOTING
7.1 Life Company will provide pass-through voting privileges to all
Variable Contract Owners so long as the SEC continues to interpret the '40 Act
as requiring pass-through voting privileges for Variable Contract Owners.
Accordingly, Life Company, when applicable, will distribute to Variable
Contract Owners and participants all proxy material furnished by Adviser and
will vote shares of the Portfolios held in its Separate Accounts in a manner
consistent with voting instructions timely received from its Variable Contract
Owners. Life Company will be responsible for assuring that each of its
Separate Accounts that participates in Trust calculates voting privileges in a
manner consistent with other Participating Insurance Companies. Life Company
will vote shares for which it has not received timely voting instructions, as
well as shares it owns, in the same proportion as it votes those shares for
which it has received voting instructions. Life Company reserves the right to
disregard the voting instructions of participants/Owners to the extent such
action is permitted by Rules 6e-2 or 6e-3(T) under the '40 Act and is permitted
under applicable state insurance laws affecting Trust.
7.2 Trust shall notify Life Company of Trust's intent to file proxy
solicitation materials with the SEC as soon as practicable prior to such
filing. Life Company and its agents shall not oppose or interfere with the
solicitation of proxies for Portfolio shares held for Variable Contract Owners
and participants, unless required to by applicable law. Trust shall notify
Life Company of any shareholder proposal upon its inclusion in the proxy
solicitation materials filed with the SEC.
7.3 Trust shall comply with all provisions of the '40 Act requiring
voting by shareholders, and in particular Trust will either provide for annual
meetings or comply with Section 16(c) of the '40 Act (although Trust is not one
of the trusts described in Section 16(c) of that Act) as well as Sections 16(a)
and, if and when applicable, 16(b). Further, Trust shall act in accordance
with the SEC's interpretation of the requirements of Section 16(a) with respect
to periodic elections of trustees and with whatever rule the SEC may promulgate
with respect thereto.
7.4 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or
if Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
'40 Act or the rules thereunder with respect to mixed and shared funding on
terms and conditions materially different from any exemptions granted in the
Exemptive Order, then Trust, and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with Rule 6e-2
and Rule 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
Rules are applicable.
11
<PAGE> 12
Article VIII. INDEMNIFICATION
8.1 Indemnification by Life Company. Life Company agrees to
indemnify and hold harmless Trust, Adviser and each of their directors,
principals, officers, employees and agents and each person, if any, who
controls Trust or Adviser within the meaning of Section 15 of the '33 Act
(collectively, the "Indemnified Parties" for purposes of Sections 8.1, 8.2, 8.3
and 8.4 of this Article VIII) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
Life Company, which consent shall not be unreasonably withheld) or litigation
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of Trust
shares or the Variable Contracts and:
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the
registration statement or prospectus or sales literature of the
Variable Contracts or contained in the Variable Contracts (or
any amendment or supplement to any of the foregoing), or arise
out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to
any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to Life Company or an
affiliate thereof by or on behalf of Trust for use in the
registration statement or prospectus for the Variable Contracts
or in the Variable Contracts or sales literature (or any
amendment or supplement) or otherwise for use in connection with
the sale of the Variable Contracts or Trust shares; or
(b) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus or sales literature of Trust
not supplied by Life Company or an affiliate thereof) or
wrongful conduct of Life Company or persons under its control,
with respect to the sale or distribution of the Variable
Contracts or Trust shares; or
(c) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a Registration Statement,
prospectus, or sales literature of Trust or any amendment
thereof or supplement thereto or the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading if such statement or omission or such alleged
statement or omission was made in reliance upon and in
conformity with information furnished to Trust for inclusion
therein by or on behalf of Life Company; or
(d) arise out of any failure by Life Company to provide in all
material respects the specified services and furnish the
materials under the terms of this Agreement; or
12
<PAGE> 13
(e) arise out of or result from any material breach of any
representation and/or warranty made by Life Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by Life Company.
8.2 Life Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation to which an Indemnified Party would otherwise be subject by reason
of Indemnified Party's willful misfeasance, bad faith or gross negligence in
the performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations or duties under this
Agreement or to Trust or Adviser, whichever is applicable.
8.3 Life Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified Life Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served on any designated
party (or after such Indemnified Party shall have received notice of such
service on any designated agent), but failure to notify Life Company of any
such claim shall not relieve Life Company from any liability which it may have
to the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, Life Company shall be entitled to participate, at
its own expense, in the defense thereof. Life Company also shall be entitled
to assume the defense thereof, with counsel satisfactory to the party named in
the action. After notice from Life Company to such party of Life Company's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and Life Company
will not be liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation.
8.4 Trust or Adviser agrees promptly to notify Life Company of the
commencement of any litigation or proceedings against it or any of its
officers, trustees or directors in connection with the issuance or sale of the
shares of the selected Portfolio(s) or the operations of the Trust.
8.5 Indemnification by Trust and Adviser. Trust and Adviser agree
to indemnify and hold harmless Life Company and each of its directors,
officers, employees, and agents and each person, if any, who controls Life
Company within the meaning of Section 15 of the '33 Act (collectively, the
"Indemnified Parties" for the purposes of Sections 8.5, 8.6, 8.7 and 8.8 of
this Article VIII) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of Trust or
Adviser, which consent shall not be unreasonably withheld) or litigation
(including legal and other expenses) to which the Indemnified Parties may
become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of Trust
shares or the Variable Contracts and:
13
<PAGE> 14
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
Registration Statement or prospectus or sales literature of
Trust (or any amendment or supplement to any of the foregoing),
or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to Adviser or Trust
or an affiliate thereof by or on behalf of Life Company for use
in the Registration Statement or prospectus for Trust or in
sales literature (or any amendment or supplement) or otherwise
for use in connection with the sale of the Variable Contracts or
Trust shares; or
(b) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature of the
Variable Contracts not supplied by Trust, Adviser or an
affiliate thereof) or wrongful conduct of Trust or Adviser or
persons under their control, with respect to the sale or
distribution of Trust shares; or
(c) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement,
prospectus, or sales literature of the Variable Contracts or any
amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading if such statement or omission or such alleged
statement or omission was made in reliance upon and in
conformity with information furnished to Life Company for
inclusion therein by or on behalf of Trust; or
(d) arise out of any failure by Trust or Adviser to provide in all
material respects the specified services and furnish the
materials under the terms of this Agreement (including a
failure, whether unintentional or in good faith or otherwise, to
comply with the diversification requirements specified in
Section 2.10 of this Agreement); or
(e) arise out of or result from any material breach of any
representation and/or warranty made by Trust or Adviser in this
Agreement or arise out of or result from any other material
breach of this Agreement by Trust or Adviser.
8.6 Trust or Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation to which an Indemnified Party would otherwise be subject by reason
of such Indemnified Party's willful misfeasance, bad faith, or gross negligence
in the performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations and duties under this
Agreement or to Life Company or the Separate Accounts, whichever is applicable.
14
<PAGE> 15
8.7 Trust or Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified Trust or Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served on any designated
party (or after such Indemnified Party shall have received notice of such
service on any designated agent), but failure to notify Trust or Adviser of any
such claim shall not relieve Trust or Adviser from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise
than on account of this indemnification provision. In case any such action is
brought against an Indemnified Party, Trust or Adviser shall be entitled to
participate, at its own expense, in the defense thereof. Trust or Adviser also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from Trust or Adviser to such
party of Trust or Adviser's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and Trust or Adviser will not be liable to such party under
this Agreement for any legal or other expenses subsequently incurred by such
party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.8 Life Company agrees promptly to notify Trust or Adviser of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Variable Contracts
or the operation of each Separate Account.
Article IX. TERM; TERMINATION
9.1 This Agreement shall be effective as of the date hereof and
shall continue in force until terminated in accordance with the provisions
herein.
9.2 This Agreement shall terminate in accordance with the following
provisions:
(a) At the option of Life Company or Trust at any
time from the date hereof upon 180 days'
notice, unless a shorter time is agreed to by
the parties;
(b) At the option of Life Company, if Trust
shares are not reasonably available to meet
the requirements of the Variable Contracts as
determined by Life Company. Prompt notice of
election to terminate shall be furnished by
Life Company, said termination to be
effective ten (10) days after receipt of
notice unless Trust makes available a
sufficient number of shares to reasonably
meet the requirements of the Variable
Contracts within said ten-day period;
(c) At the option of Life Company, upon the
institution of formal proceedings against
Trust or Adviser by the SEC, the NASD, or any
other regulatory body, the expected or
anticipated ruling, judgment or outcome of
which would, in Life Company's reasonable
judgment, materially impair Trust's
15
<PAGE> 16
ability to meet and perform Trust's
obligations and duties hereunder. Prompt
notice of election to terminate shall be
furnished by Life Company with said
termination to be effective upon receipt of
notice;
(d) At the option of Trust, upon the institution
of formal proceedings against Life Company or
the principal underwriter for the Variable
Contracts by the SEC, the NASD, or any other
regulatory body, the expected or anticipated
ruling, judgment or outcome of which would,
in Trust's reasonable judgment, materially
impair Life Company's ability to meet and
perform its obligations and duties hereunder.
Prompt notice of election to terminate shall
be furnished by Trust with said termination
to be effective upon receipt of notice;
(e) In the event Trust's shares are not
registered, issued or sold in accordance with
applicable federal and/or state law and any
applicable rules and regulations thereunder,
or such law precludes the use of such shares
as the underlying investment media for
Variable Contracts issued or to be issued by
Life Company. Termination shall be effective
upon such occurrence without notice;
(f) Upon the receipt of any necessary regulatory
approvals, or requisite vote of Variable
Contract Owners or participants having an
interest in the Portfolios, to substitute for
shares of the Portfolios the shares of
another investment company in accordance with
the terms of the applicable Variable
Contracts. Life Company shall give sixty
(60) days' written notice to Adviser of any
proposed request for regulatory approvals or
vote to replace the Portfolios' shares;
(g) At the option of Trust if the Variable
Contracts cease to qualify as annuity
contracts or life insurance contracts, as
applicable, under the Code, or if Trust
reasonably believes that the Variable
Contracts may fail to so qualify.
Termination shall be effective upon receipt
of notice by Life Company;
(h) At the option of Life Company, upon Trust's
breach of any material provision of this
Agreement, which breach has not been cured to
the satisfaction of Life Company within
thirty (30) days after written notice of such
breach is delivered to Trust;
(i) At the option of Trust, upon Life Company's
breach of any material provision of this
Agreement, which breach has not been cured to
the satisfaction of Trust within thirty (30)
days after written notice of such breach is
delivered to Life Company;
16
<PAGE> 17
(j) At the option of Trust, if the Variable
Contracts are not registered, issued or sold
in accordance with applicable federal and/or
state law and any applicable rules and
regulations thereunder. Termination shall be
effective immediately upon such occurrence
without notice; and
(k) In the event this Agreement is assigned
without the prior written consent of Life
Company, Trust and Adviser. Termination
shall be effective immediately upon such
occurrence without notice.
9.3 If the need for substitution of the shares of another investment
company, pursuant to Section 26(b) of the '40 Act, arises out of the failure of
the Portfolios' shares to be registered, issued or sold to Life Company in
conformance with federal law, or such law precludes the use of shares of the
Portfolios as underlying investment media for Variable Contracts issued or to
be issued by the Company as a result of a failure of Trust to comply with such
law, the expenses of obtaining such order shall be reimbursed by Adviser.
Adviser shall cooperate with Life Company in connection with such application.
9.4 Notwithstanding any termination of this Agreement pursuant to
Section 9.2 hereof, and unless the further sale of shares of the Portfolios is
proscribed by applicable law or the SEC or other regulatory body, Trust will
continue to make available additional Trust shares, as provided below, pursuant
to the terms and conditions of this Agreement, for all Variable Contracts in
effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts"). Specifically, without limitation, the
Owners of the Existing Contracts shall be permitted to reallocate investments
in Trust, redeem investments in Trust and/or invest in Trust upon the payment
of additional premiums under the Existing Contracts. In the event of a
termination of this Agreement pursuant to Section 9.2 hereof, Trust and
Adviser, as promptly as is practicable under the circumstances, shall notify
Life Company whether Trust under applicable law may continue to make Trust
shares available after such termination. If Trust shares continue to be made
available after such termination, the provisions of this Agreement shall remain
in effect and thereafter either Trust or Life Company may terminate the
Agreement, as so continued pursuant to this Section 9.4, upon sixty (60) days'
prior written notice to the other party.
9.5 Except as necessary to implement Variable Contract Owner
initiated transactions, or as required by state insurance laws or regulations,
Life Company shall not redeem the shares attributable to the Variable Contracts
(as opposed to the shares attributable to Life Company's assets held in the
Separate Accounts), and Life Company shall not prevent Variable Contract Owners
from allocating payments to a Portfolio that was otherwise available under the
Variable Contracts until sixty (60) days after Life Company shall have notified
Trust of its intention to do so.
17
<PAGE> 18
Article X. NOTICES
Any notice hereunder shall be given by registered or certified mail return
receipt requested to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify in
writing to the other party.
If to Life Company: IL Annuity and Insurance Company
2960 N. Meridien Street
Indianapolis, Indiana 46208
Attention: General Counsel
If to Trust: SAFECO Resource Series Trust
4333 Brooklyn Avenue N.E.
Seattle, Washington 98185
Attention: Controller
If to Adviser: SAFECO Asset Management Company
4333 Brooklyn Avenue N.E.
Seattle, Washington 98185
Attention: Institutional Division
Notice shall be deemed given on the date of receipt by the addressee
as evidenced by the return receipt.
Article XI. MISCELLANEOUS
11.1 The captions in this Agreement are included for convenience
of reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
11.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
11.3 This Agreement may not be assigned by any party without the
written consent of all parties.
11.4 If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
11.5 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Washington.
It shall also be subject to the
18
<PAGE> 19
provisions of the federal securities laws and the rules and regulations
thereunder and to any orders of the SEC granting exemptive relief therefrom and
the conditions of such orders.
11.6 It is understood and expressly stipulated that neither the
shareholders of shares of any Portfolio nor the Trustees or officers of Trust
or any Portfolio shall be personally liable hereunder. No Portfolio shall be
liable for the liabilities of any other Portfolio. All persons dealing with
Trust or a Portfolio must look solely to the property of Trust or that
Portfolio, respectively, for enforcement of any claims against Trust or that
Portfolio. It is also understood that each of the Portfolios shall be deemed
to be entering into a separate Agreement with Life Company so that it is as if
each of the Portfolios had signed a separate Agreement with Life Company and
that a single document is being signed simply to facilitate the execution and
administration of the Agreement.
11.7 Each party shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
11.8 The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights, remedies
and obligations, at law or in equity, which the parties hereto are entitled to
under state and federal laws.
11.9 No provision of this Agreement may be amended or modified in
any manner except by a written agreement properly authorized and executed by
Trust, Adviser and Life Company.
19
<PAGE> 20
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Trust Participation Agreement as of the date and year
first above written.
SAFECO Resource Series Trust
By: /s/ NEAL A. FULLER
---------------------------
Name: Neal A. Fuller
Title: Vice President and Controller
SAFECO Asset Management Company
By: /s/ LESLIE EGGERLING
---------------------------
Name: Leslie Eggerling
Title: Vice President
IL Annuity and Insurance Company
By: /s/ GREGORY J. CARNEY
----------------------------
Name: Gregory J. Carney
Title: President and CEO
20
<PAGE> 21
SCHEDULE A
SAFECO Resource Series Trust - Portfolios
Equity Portfolio
Growth Portfolio
IL Annuity and Insurance Company - Variable Contracts
Visionary Choice Variable Annuity
<PAGE> 22
SCHEDULE B
<TABLE>
<S> <C>
Separate Accounts and Sub-Accounts Selected Portfolios
- ---------------------------------- -------------------
IL Annuity and Insurance Company Separate Account I
Safeco Resource Equity Portfolio Sub-Account Equity Portfolio
Safeco Resource Growth Portfolio Sub-Account Growth Portfolio
</TABLE>
<PAGE> 1
EXHIBIT 8(k)
PARTICIPATION AGREEMENT
AMONG
IL ANNUITY AND INSURANCE COMPANY ,
SOGEN VARIABLE FUNDS, INC.,
AND
SOCIETE GENERALE SECURITIES CORPORATION
THIS AGREEMENT, dated as of the 1st day of September, 1997 by and among
IL Annuity and Insurance Company, (the "Company"), a Massachusetts insurance
company, on its own behalf and on behalf of each segregated asset account of
the Company set forth on Schedule A hereto as may be amended from time to time
(each account hereinafter referred to as the "Account"), SoGen Variable Funds,
Inc. (the "Fund"), a corporation organized under the laws of Maryland, and
Societe Generale Securities Corporation (the "Underwriter"), a New York
corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is or will be available to act as the investment vehicle
for separate accounts established for variable life insurance and variable
annuity contracts (the "Variable Insurance Products") to be offered by
insurance companies which have entered into participation agreements with the
Fund and Underwriter ("Participating Insurance Companies");
WHEREAS, the shares of common stock of the Fund are divided into
several series of shares, each designated a "Portfolio" and representing the
interest in a particular managed portfolio of securities and other assets;
WHEREAS, the Fund will, to the extent necessary, obtain an order from
the Securities and Exchange Commission (the "SEC") granting Participating
Insurance Companies and variable annuity and variable life insurance separate
accounts exemptions from the provisions of sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended, (the "1940 Act") and
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, if and to the extent necessary
to permit shares of the Fund to be sold to and held by variable annuity and
variable life insurance separate accounts of both affiliated and unaffiliated
life insurance companies (the "Mixed and Shared Funding Exemptive Order");
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under
the Securities Act of 1933, as amended (the "1933 Act");
<PAGE> 2
WHEREAS, Societe Generale Asset Management Corp. (the "Adviser"), which
serves as investment adviser to the Fund, is duly registered as an investment
adviser under the federal Investment Advisers Act of 1940, as amended, and any
applicable state securities laws;
WHEREAS, the Company has issued or will issue certain variable life
insurance and/or variable annuity contracts supported wholly or partially by
the Account (the "Contracts"), and said Contracts are listed in Schedule A
hereto, as it may be amended from time to time by mutual written agreement;
WHEREAS, the Account is duly established and maintained as a segregated
asset account, duly established by the Company, on the date shown for such
Account on Schedule A hereto, to set aside and invest assets attributable to
the aforesaid Contracts;
WHEREAS, the Underwriter, which serves as distributor to the Fund, is
registered as a broker dealer with the SEC under the Securities Exchange Act of
1934, as amended (the "1934 Act"), and is a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolios") on behalf of the Account to fund the
aforesaid Contracts, and the Underwriter is authorized to sell such shares to
the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Fund has granted to the Underwriter
exclusive authority to distribute the Fund's shares, and has agreed to
instruct, and has so instructed, the Underwriter to make available to the
Company for purchase on behalf of the Account Fund shares of those Designated
Portfolios selected by the Underwriter. Pursuant to such authority and
instructions, and subject to Article X hereof, the Underwriter agrees to make
available to the Company for purchase on behalf of the Account, shares of those
Designated Portfolios listed on Schedule A to this Agreement, such purchases to
be effected at net asset value in accordance with Section 1.3 of this
Agreement. Notwithstanding the foregoing, (i) Fund series (other than those
listed on Schedule A) in existence now or that may be established in the future
will be made available to the
- 2 -
<PAGE> 3
Company only as the Underwriter may so provide, and (ii) the Board of Directors
of the Fund (the "Board") may suspend or terminate the offering of Fund shares
of any Designated Portfolio or class thereof, if such action is required by law
or by regulatory authorities having jurisdiction or if, in the sole discretion
of the Board acting in good faith and in light of its fiduciary duties under
federal and any applicable state laws, suspension or termination is necessary
in the best interests of the shareholders of such Designated Portfolio.
1.2 The Fund shall redeem, at the Company's
request, any full or fractional Designated Portfolio shares held by the Company
on behalf of the Account, such redemptions to be effected at net asset value in
accordance with Section 1.3 of this Agreement. Notwithstanding the foregoing,
(i) the Company shall not redeem Fund shares attributable to Contract owners
except in the circumstances permitted in Section 10.3 of this Agreement, and
(ii) the Fund may delay redemption of Fund shares of any Designated Portfolio
to the extent permitted by the 1940 Act, any rules, regulations or orders
thereunder, or the then current Fund Prospectus.
1.3 Purchase and Redemption Procedures
(a) The Fund hereby appoints the Company
as an agent of the Fund for the limited purpose of receiving purchase
and redemption requests on behalf of the Account (but not with respect
to any Fund shares that may be held in the general account of the
Company) for shares of those Designated Portfolios made available
hereunder, based on allocations of amounts to the Account or
subaccounts thereof under the Contracts and other transactions
relating to the Contracts or the Account. Receipt of any such request
(or relevant transactional information therefor) on any day the New
York Stock Exchange is open for trading and on which the Fund
calculates it net asset value pursuant to the rules of the SEC (a
"Business Day") by the Company as such limited agent of the Fund prior
to the time that the Fund calculates its net asset value as described
from time to time in the Fund Prospectus (which as of the date of
execution of this Agreement is 4:00 p.m. Eastern Time) shall
constitute receipt by the Fund on that same Business Day, provided
that the Fund receives notice of such request by 9:30 a.m. Eastern
Time on the next following Business Day.
(b) The Company shall pay for shares of
each Designated Portfolio on the same day that it notifies the Fund of
a purchase request for such shares. Payment for Designated Portfolio
shares shall be made in federal funds transmitted to the Fund by wire
to be received by the Fund by 4:00 p.m. Eastern Time on the day the
Fund is notified of the purchase request for Designated Portfolio
shares (unless the Fund determines and so advises the Company that
sufficient proceeds are available from redemption of shares of other
- 3 -
<PAGE> 4
Designated Portfolios effected pursuant to redemption requests
tendered by the Company on behalf of the Account). If federal funds
are not received on time, such funds will be invested, and Designated
Portfolio shares purchased thereby will be issued, as soon as
practicable and the Company shall promptly, upon the Fund's request,
reimburse the Fund for any charges, costs, fees, interest or other
expenses incurred by the Fund in connection with any advances to, or
borrowing or overdrafts by, the Fund, or any similar expenses incurred
by the Fund, as a result of portfolio transactions effected by the
Fund based upon such purchase request. Upon receipt of federal funds
so wired, such funds shall cease to be the responsibility of the
Company and shall become the responsibility of the Fund.
(c) Payment for Designated Portfolio
shares redeemed by the Account or the Company shall be made in federal
funds transmitted by wire to the Company or any other designated
person on the next Business Day after the Fund is properly notified of
the redemption order of such shares (unless redemption proceeds are to
be applied to the purchase of shares of other Designated Portfolio in
accordance with Section 1.3(b) of this Agreement), except that the
Fund reserves the right to delay payment of redemption proceeds to the
extent permitted under Section 22(e) of the 1940 Act and any Rules
thereunder, and in accordance with the procedures and policies of the
Fund as described in the then current prospectus. The Fund shall not
bear any responsibility whatsoever for the proper disbursement or
crediting of redemption proceeds by the Company, the Company alone
shall be responsible for such action.
(d) Any purchase or redemption request
for Designated Portfolio shares held or to be held in the Company's
general account shall be effected at the net asset value per share
next determined after the Fund's receipt of such request, provided
that, in the case of a purchase request, payment for Fund shares so
requested is received by the Fund in federal funds prior to close of
business for determination of such value, as defined from time to time
in the Fund Prospectus.
1.4 The Fund shall use its best efforts to make
the net asset value per share for each Designated Portfolio available to the
Company by 6:30 p.m. Eastern Time each Business Day, and in any event, as soon
as reasonably practicable after the net asset value per share for such
Designated Portfolio is calculated, and shall calculate such net asset value in
accordance with the Fund's Prospectus. If the Fund provides the Company with
materially incorrect share net asset value information through no fault of the
Company, the Company on behalf of the Account shall be entitled, to the extent
reasonably practicable, to an adjustment to the number of shares purchased or
redeemed to reflect the correct net asset value, and the Underwriter shall
promptly, on request of the Company, reimburse the Company, or cause the
responsible party to
- 4 -
<PAGE> 5
reimburse the Company, for any reasonable out-of-pocket charges, costs, fees or
other expenses incurred by the Company in implementing the steps determined by
the Fund to be necessary to correct the pricing error. Neither the Fund, any
Designated Portfolio, the Underwriter, nor any of their affiliates shall be
liable for any information provided to the Company pursuant to this Agreement
which information is based on incorrect information supplied by the Company to
the Fund or the Underwriter.
1.5 The Fund shall furnish notice (by wire or
telephone followed by written confirmation) to the Company as soon as
reasonably practicable of any income dividends or capital gain distributions
payable on any Designated Portfolio shares. The Company, on its behalf and on
behalf of the Account, hereby elects to receive all such dividends and
distributions as are payable on any Designated Portfolio shares in the form of
additional shares of that Designated Portfolio. The Company reserves the
right, on its behalf and on behalf of the Account, to revoke this election and
to receive all such dividends and capital gain distributions in cash. The Fund
shall notify the Company promptly of the number of Designated Portfolio shares
so issued as payment of such dividends and distributions.
1.6. Issuance and transfer of Fund shares shall be
by book entry only. Stock certificates will not be issued to the Company or
the Account. Purchase and redemption orders for Fund shares shall be recorded
in an appropriate ledger for the Account or the appropriate subaccount of the
Account.
1.7. (a) The parties hereto acknowledge that
the arrangement contemplated by this Agreement is not exclusive; the
Fund's shares may be sold to other insurance companies (subject to
Section 1.8 hereof) and the cash value of the Contracts may be
invested in other investment companies, provided, however, that until
this Agreement is terminated pursuant to Article X, the Company shall
give equivalent prominence to the Designated Portfolios as the Company
provides to other funding vehicles available under the Contracts in
promotional materials that describe funding vehicles available under
the Contracts and are published by the Company.
(b) The Company shall not, without prior
notice to the Underwriter (unless otherwise required by applicable
law) take any action to operate the Account as a management investment
company under the 1940 Act.
(c) The Company shall not, without prior
notice to the Underwriter (unless otherwise required by applicable
law), induce Contract owners to change or modify the Fund or change
the Fund's distributor or investment adviser.
- 5 -
<PAGE> 6
1.8. The Underwriter and the Fund shall sell Fund
shares only to Participating Insurance Companies and their separate accounts
and to persons or plans ("Qualified Persons") that qualify to purchase shares
of the Fund under Section 817(h) of the Internal Revenue Code of 1986, as
amended (the "Code") and the regulations thereunder without impairing the
ability of the Account to consider the portfolio investments of the Fund as
constituting investments of the Account for the purpose of satisfying the
diversification requirements of Section 817(h). The Underwriter and the Fund
shall not sell Fund shares to any insurance company or separate account unless
an agreement complying with Article VI of this Agreement is in effect to govern
such sales. Subject to Sections 6.1 and 6.2 hereof, the Company hereby
represents and warrants that it and the Account are Qualified Persons. The
Fund reserves the right to cease offering shares of any Designated Portfolio in
the discretion of the Fund.
ARTICLE II. Representations and Warranties
2.1 The Company represents and warrants that the
Contracts (a) are or, prior to issuance, will be registered under the 1933 Act
or, alternatively (b) are not registered because they are properly exempt from
registration under the 1933 Act or will be offered exclusively in transactions
that are properly exempt from registration under the 1933 Act. The Company
further represents and warrants that the Contracts will be issued and sold in
compliance in all material respects with all applicable federal securities and
state securities and insurance laws and that the sale of the Contracts shall
comply in all material respects with state insurance suitability requirements.
The Company further represents and warrants that it is an insurance company
duly organized and in good standing under applicable law, that it has legally
and validly established the Account prior to any issuance or sale thereof as a
segregated asset account under Massachusetts insurance laws, and that it (a)
has registered or, prior to any issuance or sale of the Contracts, will
register the Account as a unit investment trust in accordance with the
provisions of the 1940 Act to serve as a segregated investment account for the
Contracts, or alternatively (b) has not registered the Account in proper
reliance upon an exclusion from registration under the 1940 Act. The Company
shall register and qualify the Contracts or interests therein as securities in
accordance with the laws of the various states only if and to the extent deemed
advisable by the Company.
2.2 The Fund represents and warrants that Fund
shares sold pursuant to this Agreement shall be registered under the 1933 Act,
duly authorized for issuance and sold in compliance with the laws of the
Commonwealth of Massachusetts and the State of Indiana and applicable federal
securities laws and that the Fund is and shall remain registered under the 1940
Act. The Fund shall amend the registration statement for its shares under the
1933 Act and the 1940 Act from time to time as required in order to effect the
continuous offering of its shares. The Fund shall register
- 6 -
<PAGE> 7
and qualify the shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3 The Fund intends to make payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act. In this
regard, the Fund's board of directors, a majority of whom are not interested
persons of the Fund, have formulated and approved the Fund's plan adopted
pursuant to Rule 12b-1 under the 1940 Act to finance distribution expenses.
2.4 The Fund makes no representations as to
whether any aspect of its operations, including, but not limited to, investment
policies, fees and expenses, complies with the insurance and other applicable
laws of the various states, except that the Fund represents that the Fund's
investment policies, fees and expenses, are and shall at all times remain in
compliance with the laws of the Commonwealth of Massachusetts and the State of
Indiana to the extent required to perform this Agreement, provided, however,
that the Company shall notify the Fund with respect to any additional
requirements that are specifically directed to the Company by state insurance
departments.
2.5 The Fund represents that it is lawfully
organized and validly existing under the laws of the State of Maryland and that
it does and will comply in all material respects with the 1940 Act.
2.6 The Underwriter represents and warrants that
it is a member in good standing of the NASD and is registered as a
broker-dealer with the SEC. The Underwriter further represents that it will
sell and distribute the Fund shares in accordance with the laws of the
Commonwealth of Massachusetts and the State of Indiana and any applicable state
and federal securities laws.
2.7 The Underwriter represents and warrants that
the Adviser is and shall remain duly registered under all applicable federal
and state securities laws and that the Adviser shall perform its obligations
for the Fund in compliance in all material respects with the laws of the
Commonwealth of Massachusetts and the State of Indiana and any applicable state
and federal securities laws.
2.8 The Fund and the Underwriter represent and
warrant that all of their directors, officers, employees, investment advisers,
and other individuals or entities dealing with the money and/or securities of
the Fund are and shall continue to be at all times covered by a blanket
fidelity bond or similar coverage for the benefit of the Fund in an amount not
less than the minimum coverage as required currently by Rule 17g-1 of the 1940
Act or related provisions as may be promulgated from time to time.
- 7 -
<PAGE> 8
The aforesaid bond shall include coverage for larceny and embezzlement and
shall be issued by a reputable bonding company.
2.9 The Company represents and warrants that all
of its directors, officers, employees, investment advisers, and other
individuals/entities employed or controlled by the Company dealing with the
money and/or securities of the Account are covered by a blanket fidelity bond
or similar coverage for the benefit of the Account, in an amount not less than
$5 million. The aforesaid bond includes coverage for larceny and embezzlement
and is issued by a reputable bonding company.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1 The Underwriter shall provide the Company
with as many copies of the Fund's current prospectus (describing only the
Designated Portfolios listed on Schedule A) as the Company may reasonably
request. The Company shall bear the expense of printing copies of the current
prospectus for the Contracts that will be distributed to existing Contract
owners, and the Company shall bear the expense of printing copies of the Fund's
prospectus that are used in connection with offering the Contracts issued by
the Company. If requested by the Company in lieu thereof, the Fund shall
provide such documentation (including a final copy of the new prospectus on
diskette at the Fund's expense) and other assistance as is reasonably necessary
in order for the Company once each year (or more frequently if the prospectus
for the Fund is amended) to have the prospectus for the Contracts and the
prospectus for the Designated Portfolios printed together in one document (such
printing to be at the Company's expense).
3.2 The Fund's prospectus shall state that the
current Statement of Additional Information ("SAI") for the Fund is available,
and the Underwriter (or the Fund), at its expense, shall provide a reasonable
number of copies of such SAI free of charge to the Company for itself and for
any owner of a Contract who requests such SAI.
3.3 The Fund, at its expense, shall provide the
Company with copies of its proxy material, reports to shareholders, and other
communications to shareholders in such quantity as the Company shall reasonably
require for distributing to Contract owners.
3.4 The Company shall:
(i) solicit voting instructions from
Contract owners;
- 8 -
<PAGE> 9
(ii) vote the Fund shares in accordance
with instructions received from
Contract owners; and
(iii) vote Fund shares for which no
instructions have been received in the
same proportion as Fund shares of such
portfolio for which instructions have
been received.
The Company will vote Fund shares held in any segregated asset account in the
same proportion as Fund shares of such portfolio for which voting instructions
have been received from Contract owners, to the extent permitted by law.
3.5 Participating Insurance Companies shall be
responsible for assuring that each of their separate accounts participating in
a Designated Portfolio calculates voting privileges as required by the Shared
Funding Exemptive Order and consistent with any reasonable standards that the
Fund may adopt and provide in writing. The Fund hereby confirms that the
manner in which the Company currently calculates voting privileges is
consistent with the manner in which other Participating Insurance Companies are
required to calculate voting privileges. The Fund and the Underwriter will
notify the Company if either becomes aware that another Participating Insurance
Company has changed the manner in which it so calculates voting privileges.
3.6 The Fund will comply with all provisions of
the 1940 Act requiring voting by shareholders, and in particular the fund will
either provide for annual meetings or comply with Section 16(c) of the 1940 Act
(although the Fund is not one of the trusts described in Section 16(c) of that
Act) as well as Sections 16(a) and, if and when applicable, 16(b). Further,
the Fund will act in accordance with the SEC's interpretation of the
requirements of Section 16(a) with respect to periodic elections of trustees
and with whatever rule the Commission may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1 The Company shall furnish, or shall cause to
be furnished, to the Fund or its designee, at least fifteen business days prior
to first use, each piece of sales literature or other promotional material that
the Company develops and in which the Fund (or a Designated Portfolio thereof)
or the Adviser or the Underwriter is named. No such material shall be used
until approved by the Fund or its designee, and the Fund will use its best
efforts for it or its designee to review such sales literature or promotional
material within ten Business Days after receipt of such material. The Fund or
its designee reserves the right to reasonably object to the continued use of
any such sales literature or other promotional material in which the Fund (or a
Designated Portfolio thereof) or the
- 9 -
<PAGE> 10
Adviser or the Underwriter is named, and no such material shall be used if the
Fund or its designee so object.
4.2 The Company shall not give any information or
make any representations or statements on behalf of the Fund or concerning the
Fund in connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus or SAI
for the Fund shares, as such registration statement and prospectus or SAI may
be amended or supplemented from time to time, or in reports or proxy statements
for the Fund, or in sales literature or other promotional material approved by
the Fund or its designee or by the Underwriter, except with the permission of
the Fund or the Underwriter or the designee of either.
4.3 The Fund and the Underwriter, or their
designee, shall furnish, or shall cause to be, furnished, to the Company, at
least fifteen business days prior to first use, each piece of sales literature
or other promotional material that it develops and in which the Company, and/or
its Account, or the Contracts, is named. No such material shall be used until
approved by the Company, and the Company will use its best efforts to review
such sales literature or promotional material within ten Business Days after
receipt of such material. The Company reserves the right to reasonably object
to the continued use of any such sales literature or other promotional material
in which the Company and/or its Account, or the Contracts, is named, and no
such material shall be used if the Company so objects.
4.4. The Fund and the Underwriter shall not give
any information or make any representations on behalf of the Company or
concerning the Company, the Account, or the Contracts other than the
information or representations contained in a registration statement,
prospectus (which shall include an offering memorandum, if any, if the
Contracts issued by the Company or interests therein are not registered under
the 1933 Act), or SAI for the Contracts, as such registration statement,
prospectus, or SAI may be amended or supplemented from time to time, or in
published reports for the Account which are in the public domain or approved by
the Company for distribution to Contract owners, or in sales literature or
other promotional material approved by the Company or its designee, except with
the permission of the Company.
4.5 The Fund will provide to the Company at least
one complete copy of all registration statements, prospectuses, SAIs, reports,
proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document(s) with the SEC or other regulatory
authorities. The Fund will provide to the Company any complaints received that
pertain to the Company, the Account, or the Contracts.
- 10 -
<PAGE> 11
4.6 The Company will provide to the Fund at least
one complete copy of all registration statements, prospectuses (which shall
include an offering memorandum, if any, if the Contracts issued by the Company
or interests therein are not registered under the 1933 Act), SAIs, reports,
solicitations for voting instructions, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Contracts or the Account,
contemporaneously with the filing of such document(s) with the SEC or other
regulatory authorities. The Company shall provide to the Fund and the
Underwriter any complaints received from the Contract owners pertaining to the
Fund or the Designated Portfolio.
4.7 The Fund will provide the Company with as
much notice as is reasonably practicable of any proxy solicitation for any
Designated Portfolio, and of any material change in the Fund's registration
statement, particularly any change resulting in a change to the registration
statement or prospectus for any Account. The Fund will work with the Company
so as to enable the Company to solicit proxies from Contract owners, or to make
changes to its prospectus or registration statement, in an orderly manner. The
Fund will make reasonable efforts to attempt to have changes affecting Contract
prospectuses become effective simultaneously with the annual updates for such
prospectuses.
4.8 For purposes of this Article IV, the phrase
"sales literature and other promotional materials" includes, but is not limited
to, any of the following that refer to the Fund or any affiliate of the Fund:
advertisements (such as material published, or designed for use in, a
newspaper, magazine, or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures, or other
public media), and sales literature (i.e., any written or electronic
communication distributed or made generally available to customers or the
public, including brochures, circulars, reports, market letters, form letters,
telemarketing scripts, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), distributed or made
generally available to customers or to the public, educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
SAIs, shareholder reports, proxy materials, and any other communications
distributed or made generally available with regard to the Fund.
ARTICLE V. Fees and Expenses
5.1 The Fund and the Underwriter shall pay no fee
or other compensation to the Company under this Agreement, except that, the
Underwriter may, to the extent permitted under the Fund's distribution plan
adopted pursuant to Rule 12b-1
- 11 -
<PAGE> 12
under the 1940 Act, make payments to the Company or to the underwriter for the
Contracts if and in amounts agreed to by the Underwriter in writing, and such
payments will be made out of existing fees otherwise payable to the
Underwriter, past profits of the Underwriter, or other resources available to
the Underwriter. No such payments shall be made directly by the Fund.
5.2 All expenses incident to performance by the
Fund under this Agreement shall be paid by the Fund. The Fund shall see to it
that all its shares are registered and authorized for issuance in accordance
with applicable federal law and, if and to the extent deemed advisable by the
Fund, in accordance with applicable state laws prior to their sale. The Fund
shall bear the expenses for the cost of registration and qualification of the
Fund's shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Fund's shares.
5.3 The Company shall bear the expenses of
distributing the Fund's prospectus to owners of Contracts issued by the Company
and of distributing the Fund's proxy materials and reports to such Contract
owners.
ARTICLE VI. Diversification and Qualification
6.1 The Fund will invest its assets in such a
manner as to ensure that the Contracts will be treated as annuity or life
insurance contracts, whichever is appropriate, under the Code and the
regulations issued thereunder (or any successor provisions). Without limiting
the scope of the foregoing, each Designated Portfolio has complied and will
continue to comply with Section 817(h) of the Code and Treasury Regulation
Section 1.817-5, and any Treasury interpretations thereof, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts, and any amendments or other modifications or successor provisions to
such Section or Regulations. In the event of a breach of this Article VI by
the Fund, it will take all reasonable steps (a) to notify the Company of such
breach and (b) to adequately diversify the Fund so as to achieve compliance
within the grace period afforded by Regulation 817.5.
6.2 The Fund represents that it is or will be
qualified as a Regulated Investment Company under Subchapter M of the Code, and
that it will make every effort to maintain such qualification (under Subchapter
M or any successor or similar provisions) and that it will notify the Company
immediately upon having a
- 12 -
<PAGE> 13
reasonable basis for believing that it has ceased to so qualify or that it
might not so qualify in the future.
6.3 Subject to Sections 6.1 and 6.2 hereof, the
Company represents that the Contracts are currently, and at the time of
issuance shall be, treated as life insurance or annuity insurance contracts,
under applicable provisions of the Code, and that it will make every effort to
maintain such treatment, and that it will notify the Fund and the Underwriter
immediately upon having a reasonable basis for believing the Contracts have
ceased to be so treated or that they might not be so treated in the future.
The Company agrees that any prospectus offering a contract that is a "modified
endowment contract" as that term is defined in Section 7702A of the Code (or
any successor or similar provision), shall identify such contract as a modified
endowment contract.
ARTICLE VII. Potential Conflicts
The following provisions shall apply only upon issuance of the Mixed and Shared
Funding Order and the sale of shares of the Fund to variable life insurance
separate accounts.
7.1 The Board will monitor the Fund for the
existence of any material irreconcilable conflict between the interests of the
Contract owners of all separate accounts investing in the Fund. An
irreconcilable material conflict may arise for a variety of reasons, including:
(a) an action by any state insurance regulatory authority; (b) a change in
applicable federal or state insurance, tax, or securities laws or regulations,
or a public ruling, private letter ruling, no-action or interpretative letter,
or any similar action by insurance, tax, or securities regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding; (d) the
manner in which the investments of any Portfolio are being managed; (e) a
difference in voting instructions given by variable annuity contract and
variable life insurance contract owners; or (f) a decision by an insurer to
disregard the voting instructions of contract owners. The Board shall promptly
inform the Company if it determines that an irreconcilable material conflict
exists and the implications thereof.
7.2. The Company will report any potential or
existing conflicts of which it is aware to the Board. The Company will assist
the Board in carrying out its responsibilities under the Mixed and Shared
Funding Exemptive Order, by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This includes, but is
not limited to, an obligation by the Company to inform the Board whenever
Contract owner voting instructions are disregarded.
- 13 -
<PAGE> 14
7.3 If it is determined by a majority of the
Board, or a majority of its disinterested members, that a material
irreconcilable conflict exists, the Company and other Participating Insurance
Companies shall, at their expense (to be allocated as near as practicable in
proportion to such parties' respective responsibilities for such conflict) and
to the extent reasonably practicable (as determined by a majority of the
disinterested Board members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a
vote of all affected contract owners and, as appropriate, segregating the
assets of any appropriate group (i.e., annuity contract owners, life insurance
contract owners, or variable contract owners of one or more Participating
Insurance Companies) that votes in favor of such segregation, or offering to
the affected contract owners the option of making such a change; and (2)
establishing a new registered management investment company or managed separate
account.
7.4 If a material irreconcilable conflict arises
because of a decision by the Company to disregard Contract owner voting
instructions and that decision represents a minority position or would preclude
a majority vote, the Company may be required, at the Fund's election, to
withdraw the Account's investment in the Fund and terminate this Agreement with
respect to each Account; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested
members of the Board. Any such withdrawal and termination must take place
within six (6) months after the Fund gives written notice that this provision
is being implemented, and until the end of that six month period the Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
7.5 If a material irreconcilable conflict arises
because a particular state insurance regulator's decision applicable to the
Company conflicts with the majority of other state regulators, then the Company
will withdraw the affected Account's investment in the Fund and terminate this
Agreement with respect to such Account within six months after the Board
informs the Company in writing that it has determined that such decision has
created an irreconcilable material conflict; provided, however, that such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested members of the Board. Until the end of the foregoing six month
period, the Fund shall continue to accept and implement orders by the Company
for the purchase (and redemption) of shares of the Fund.
- 14 -
<PAGE> 15
7.6 For purposes of Section 7.3 through 7.6 of
this Agreement, a majority of the disinterested members of the Board shall
determine whether any proposed action adequately remedies any irreconcilable
material conflict, but in no event will the Fund be required to establish a new
funding medium for the Contracts. The Company shall not be required by Section
7.3 to establish a new funding medium for the Contract if an offer to do so has
been declined by vote of a majority of Contract owners materially adversely
affected by the irreconcilable material conflict. In the event that the Board
determines that any proposed action does not adequately remedy any
irreconcilable material conflict, then the Company will withdraw the Account's
investment in the Fund and terminate this Agreement within six (6) months after
the Board informs the Company in writing of the foregoing determination;
provided, however, that such withdrawal and termination shall be limited to the
extent required by any such material irreconcilable conflict as determined by a
majority of the disinterested members of the Board.
7.7 If and to the extent the Mixed and Shared
Funding Exemption Order or any amendment thereto contains terms and conditions
different from Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4, and 7.5 of this
Agreement, then the Fund and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with the Mixed
and Shared Funding Exemptive Order, and Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3,
7.4 and 7.5 of this Agreement shall continue in effect only to the extent that
terms and conditions substantially identical to such Sections are contained in
the Mixed and Shared Funding Exemptive Order or any amendment thereto. If and
to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is
adopted, to provide exemptive relief from any provision of the 1940 Act or the
rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Mixed and Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Mixed and Shared
Funding Exemptive Order, then (a) the Fund and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the
extent such rules are applicable; and (b) Sections 3.4, 3.5, 7.1., 7.2, 7.3,
7.4, and 7.5 of this Agreement shall continue in effect only to the extent that
terms and conditions substantially identical to such Sections are contained in
such Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1 Indemnification By the Company
8.1(a). The Company agrees to indemnify and hold
harmless the Fund, the Underwriter, the Adviser and each of its directors and
officers, and each person, if any, who controls the Fund or Underwriter within
the meaning of Section 15 of the
- 15 -
<PAGE> 16
1933 Act (collectively, the "Indemnified Parties" for purposes of this Section
8.1) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Company) or
litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements:
(i) arise out of or are based upon any
untrue statement or alleged untrue statements
of any material fact contained in the
registration statement, prospectus (which
shall include an offering memorandum, if
any), or SAI for the Contracts or contained
in the Contracts or sales literature for the
Contracts (or any amendment or supplement to
any of the foregoing), or arise out of or are
based upon the omission or the alleged
omission to state therein a material fact
required to be stated therein or necessary to
make the statements therein not misleading,
provided that this agreement to indemnify
shall not apply as to any Indemnified Party
if such statement or omission or such alleged
statement or omission was made in reliance
upon and in conformity with information
furnished to the Company by or on behalf of
the Fund for use in the registration
statement, prospectus or SAI for the
Contracts or in the Contracts or sales
literature (or any amendment or supplement)
or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of
statements or representations (other than
statements or representations contained in
the registration statement, prospectus, SAI,
or sales literature of the Fund not supplied
by the Company or persons under its control)
or wrongful conduct of the Company or its
agents or persons under the Company's
authorization or control, with respect to the
sale or distribution of the Contracts or Fund
Shares; or
(iii) arise out of any untrue statement or
alleged untrue statement of a material fact
contained in a registration statement,
prospectus, SAI, or sales literature of the
Fund or any amendment thereof or supplement
thereto or the omission or alleged omission
to state therein a material fact required to
be stated therein or necessary to make the
- 16 -
<PAGE> 17
statements therein not misleading if such a
statement or omission was made in reliance
upon information furnished to the Fund by or
on behalf of the Company; or
(iv) arise as a result of any material
failure by the Company to provide the
services and furnish the materials under the
terms of this Agreement (including a failure,
whether unintentional or in good faith or
otherwise, to comply with the qualification
requirements specified in Article VI of this
Agreement); or
(v) arise out of or result from any
material breach of any representation and/or
warranty made by the Company in this
Agreement or arise out of or result from any
other material breach of this Agreement by
the Company,
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith,
or gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of its obligations or
duties under this Agreement.
8.1(c). The Company shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Company in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify the Company of
any such claim shall not relieve the Company from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise
than on account of this indemnification provision. In case any such action is
brought against an Indemnified Party, the Company shall be entitled to
participate, at its own expense, in the defense of such action. The Company
also shall be entitled to assume the defense thereof, with counsel satisfactory
to the party named in the action. After notice from the Company to such party
of the Company's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the Company will not be liable to such party under this Agreement for any legal
or other expenses subsequently incurred by such party
- 17 -
<PAGE> 18
independently in connection with the defense thereof other than reasonable
costs of investigation.
8.1(d). The Indemnified Parties will promptly notify
the Company of the commencement of any litigation or proceedings against them
in connection with the issuance or sale of the Fund shares or the Contracts or
the operation of the Fund.
8.2 Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold
harmless the Company and each of it directors and officer and each person, if
any, who controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements:
(i) arise out of or are based upon any
untrue statement or alleged untrue statement
of any material fact contained in the
registration statement or prospectus or SAI
or sales literature of the Fund (or any
amendment or supplement to any of the
foregoing), or arise out of or are based upon
the omission or the alleged omission to state
therein a material fact required to be stated
therein or necessary to make the statements
therein not misleading, provided that this
agreement to indemnify shall not apply as to
any Indemnified Party if such statement or
omission or such alleged statement or
omission was made in reliance upon and in
conformity with information furnished to the
Underwriter or Fund by or on behalf of the
Company for use in the registration
statement, prospectus or SAI for the Fund or
in sales literature (or any amendment or
supplement) or otherwise for use in
connection with the sale of the Contracts or
Fund shares; or
(ii) arise out of or as a result of
statements or representations (other than
statements or representations contained in
the registration statement, prospectus, SAI
or sales literature for the Contracts not
supplied by the Underwriter or persons under
its control) or wrongful
- 18 -
<PAGE> 19
conduct of the Fund or Underwriter or persons
under their control, with respect to the sale
or distribution of the Contracts or Fund
shares; or
(iii) arise out of any untrue statement or
alleged untrue statement of a material fact
contained in a registration statement,
prospectus, SAI or sales literature covering
the Contracts, or any amendment thereof or
supplement thereto, or the omission or
alleged omission to state therein a material
fact required to be stated therein or
necessary to make the statement or statements
therein not misleading, if such statement or
omission was made in reliance upon
information furnished to the Company by or on
behalf of the Fund or the Underwriter; or
(iv) arise as a result of any failure by
the Fund or the Underwriter to provide the
services and furnish the materials under the
terms of this Agreement (including a failure
of the Fund, whether unintentional or in good
faith or otherwise, to comply with the
diversification and other qualification
requirements specified in Article VI of this
Agreement); or
(v) arise out of or result from any
material breach of any representation and/or
warranty made by the Underwriter in this
Agreement or arise out of or result from any
other material breach of this Agreement by
the Underwriter;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith,
or gross negligence in the performance or such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time
- 19 -
<PAGE> 20
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify the Underwriter of any such claim shall not
relieve the Underwriter from any liability which it may have to the Indemnified
Party against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Party, the Underwriter will be entitled to participate, at its own
expense, in the defense thereof. The Underwriter also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Underwriter to such party of the Underwriter's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Underwriter
will not be liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation.
8.2(d)The Company agrees promptly to notify the
Underwriter of the commencement of any litigation or proceedings against it or
any of its officers or directors in connection with the issuance or sale of the
Contracts or the operation of the Account.
ARTICLE IX. Applicable Law
9.1 This Agreement shall be construed and the
provisions hereof interpreted under and in accordance with the laws of the
State of New York.
9.2 This Agreement shall be subject to the
provisions of the 1933, 1934 and 1940 Acts, and the rules and regulations and
rulings thereunder, including such exemptions from those statutes, rules and
regulations as the SEC may grant (including, but not limited to, any Mixed and
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith. If, in the future, the Mixed and Shared
Funding Exemptive Order should no longer be necessary under applicable law,
then Article VII shall no longer apply.
ARTICLE X. Termination
10.1 This Agreement shall continue in full force
and effect until the first to occur of:
(a) termination by any party, for any reason with
respect to some or all Designated Portfolios,
by 120 days advance written notice delivered
to the other parties; or
- 20 -
<PAGE> 21
(b) termination by the Company by written notice
to the Fund and the Underwriter based upon
the Company's determination that shares of
the Fund are not reasonably available to meet
the requirements of the Contracts; or
(c) termination by the Company by written notice
to the Fund and the Underwriter in the event
any of the Designated Portfolio's shares are
not registered, issued or sold in accordance
with applicable state and/or federal law or
such law precludes the use of such shares as
the underlying investment media of the
Contracts issued or to be issued by the
Company; or
(d) termination by the Fund or Underwriter in the
event that formal administrative proceedings
are instituted against the Company by the
NASD, the SEC, the Insurance Commissioner or
like official of any state or any other
regulatory body regarding the Company's
duties under this Agreement or related to the
sale of the Contracts, the operation of any
Account, or the purchase of the Fund's
shares; provided, however, that the Fund or
Underwriter determines in its sole judgment
exercised in good faith, that any such
administrative proceedings will have a
material adverse effect upon the ability of
the Company to perform its obligations under
this Agreement; or
(e) termination by the Company in the event that
formal administrative proceedings are
instituted against the Fund or Underwriter by
the NASD, the SEC, or any state securities or
insurance department or any other regulatory
body; provided, however, that the Company
determines in its sole judgment exercised in
good faith, that any such administrative
proceedings will have a material adverse
effect upon the ability of the Fund or
Underwriter to perform its obligations under
this Agreement; or
(f) termination by the Company by written notice
to the Fund and the Underwriter with respect
to any Designated Portfolio in the event that
such Portfolio ceases to qualify as a
Regulated Investment Company under Subchapter
M or fails to comply with the Section 817(h)
diversification
- 21 -
<PAGE> 22
requirements specified in Article VI hereof,
or if the Company reasonably believes that
such Portfolio may fail to so qualify or
comply; or
(g) termination by the Fund or Underwriter by
written notice to the Company in the event
that the Contracts fail to meet the
qualifications specified in Article VI
hereof; or
(h) termination by either the Fund or the
Underwriter by written notice to the Company,
if either one or both of the Fund or the
Underwriter respectively, shall determine, in
their sole judgment exercised in good faith,
that the Company has suffered a material
adverse change in its business, operations,
financial condition, or prospects since the
date of this Agreement or is the subject of
material adverse publicity; or
(i) termination by the Company by written notice
to the Fund and the Underwriter, if the
Company shall determine, in its sole judgment
exercised in good faith, that the Fund,
Adviser, or the Underwriter has suffered a
material adverse change in its business,
operations, financial condition or prospects
since the date of this Agreement or is the
subject of material adverse publicity; or
(j) termination by the Company upon any
substitution of the shares of another
investment company or series thereof for
shares of a Designated Portfolio of the Fund
in accordance with the terms of the
Contracts, provided that the Company has
given at least 45 days prior written notice
to the Fund and Underwriter of the date of
substitution; or
(k) termination by any party in the event that
the Fund's Board of Directors determines that
a material irreconcilable conflict exists as
provided in Article VII.
10.2 Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall, at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"), unless the Underwriter elects to compel a substitution of other
securities for the shares of the Designated Portfolios as may be
- 22 -
<PAGE> 23
required under Article VII. Specifically, the owners of the Existing Contracts
may be permitted to reallocate investments in the Fund, redeem investments in
the Fund and/or invest in the Fund upon the making of additional purchase
payments under the Existing Contracts (subject to any such election by the
Underwriter). The parties agree that this Section 10.2 shall not apply to any
terminations under Article VII and the effect of such Article VII terminations
shall be governed by Article VII of this Agreement. The parties further agree
that this Section 10.2 shall not apply to any terminations under Section
10.1(f) or (g) of this Agreement.
10.3 The Company shall not redeem Fund shares
attributable to the Contracts (as opposed to Fund shares attributable to the
Company's assets held in the Account) except (i) as necessary to implement
Contract owner initiated or approved transactions, (ii) as required by state
and/or federal laws or regulations or judicial or other legal precedent of
general application (hereinafter referred to as a "Legally Required
Redemption"), (iii) as permitted by an order of the SEC pursuant to Section
26(b) of the 1940 Act, but only if a substitution of other securities for the
shares of the Designated Portfolios is consistent with the terms of the
Contracts, or (iv) as permitted under the terms of the Contract. Upon request,
the Company will promptly furnish to the Fund and the Underwriter reasonable
assurance that any redemption pursuant to clause (ii) above is a Legally
Required Redemption. Furthermore, except in cases where permitted under the
terms of the Contracts, the Company shall not prevent Contract owners from
allocating payments to a Portfolio that was otherwise available under the
Contracts without first giving the Fund or the Underwriter 45 days notice of
its intention to do so.
10.4 Notwithstanding any termination of this
Agreement, each party's obligation under Article VIII to indemnify the other
parties shall survive.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by
registered or certified mail, postage prepaid, return receipt requested, or by
nationally recognized overnight courier, charges prepaid, with evidence of
delivery, to the other party at the address of such party set forth below or at
such other address as such party may from time to time specify in writing to
the other parties, and such notice shall be effective upon delivery.
If to the Fund:
SoGen Variable Funds, Inc.
1221 Avenue of the Americas
New York, NY 10020
Attention: Jean-Marie Eveillard
- 23 -
<PAGE> 24
If to the Company:
IL Annuity and Insurance Company
2960 N. Meridian Street
Indianapolis, IN 46208
Attention: Margaret McKinney, Esq.
If to the Underwriter:
Societe Generale Securities Corporation
1221 Avenue of the Americas
New York, NY 10020
ARTICLE XII. Miscellaneous
12.1 All persons dealing with the Fund must look
solely to the property of the Fund, and in the case of a series company, the
respective Designated Portfolios listed on Schedule A hereto as though each
such Designated Portfolio had separately contracted with the Company and the
Underwriter for the enforcement of any claims against the Fund. The parties
agree that neither the Board, officers, agents or shareholders of the Fund
assume any personal liability or responsibility for obligations entered into by
or on behalf of the Fund.
12.2 Subject to the requirements of legal process
and regulatory authority, each party hereto shall treat as confidential the
names and addresses of the owners of the Contracts and all information
reasonably identified as confidential in writing by any other party hereto and,
except as permitted by this Agreement, shall not disclose, disseminate or
utilize such names and addresses and other confidential information without the
express written consent of the affected party until such time as such
information has come into the public domain.
12.3 The captions in this Agreement are included
for convenience of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously
in two or more counterparts, each of which taken together shall constitute one
and the same instrument.
- 24 -
<PAGE> 25
12.5 If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of the Agreement shall not be affected thereby.
12.6 Each party hereto shall cooperate with each
other party and all appropriate governmental authorities (including without
limitation the SEC, the NASD, and state insurance regulators) and shall permit
such authorities reasonable access to its books and records in connection with
any investigation or inquiry relating to this Agreement or the transactions
contemplated hereby. Notwithstanding the generality of the foregoing, each
party hereto further agrees to furnish the Massachusetts and Indiana Insurance
Commissioner with any information or reports in connection with services
provided under this Agreement which such Commissioner may request in order to
ascertain whether the variable annuity operations of the Company are being
conducted in a manner consistent with the Massachusetts and Indiana variable
annuity laws and regulations and any other applicable law or regulations.
12.7 The rights, remedies and obligations contained
in this Agreement are cumulative and are in addition to any and all rights,
remedies, and obligations, at law or in equity, which the parties hereto are
entitled to under state and federal laws.
12.8 This Agreement or any of the rights and
obligations hereunder may not be assigned by any party without the prior
written consent of all parties hereto.
12.9 The Company shall furnish, or shall cause to be
furnished, to the Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared
under statutory accounting principles) and
annual report (prepared under generally
accepted accounting principles) filed with
any state or federal regulatory body or
otherwise made available to the public, as
soon as practicable and in any event within
90 days after the end of each fiscal year;
and
(b) any registration statement (without exhibits)
and financial reports of the Company filed
with the Securities and Exchange Commission
or any state insurance regulatory, as soon as
practicable after the filing thereof.
- 25 -
<PAGE> 26
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
COMPANY: IL ANNUITY AND INSURANCE COMPANY
By its authorized officer
By: /s/ GREGORY J. CARNEY
-----------------------------------
Title: President
--------------------------------
Date: 6/27/97
---------------------------------
FUND: SOGEN VARIABLE FUNDS, INC.
By its authorized officer
By: /s/ PHILIP F. BAFUNDO
-----------------------------------
Title: Vice President
--------------------------------
Date: 7/25/97
---------------------------------
UNDERWRITER: SOCIETE GENERALE SECURITIES CORPORATION
By its authorized officer
By: /s/ CATHERINE A. SHAFFER
-----------------------------------
Title: First Vice President
--------------------------------
Date: 7/8/97
---------------------------------
- 26 -
<PAGE> 27
SCHEDULE A
Segregated Asset Accounts of the Company
IL Annuity and Insurance Company Separate Account I
Contracts to be Issued by the Company
VCA - 97
Designated Portfolio Shares to be Purchased
SoGen Overseas Variable Fund
Other Funding Vehicles Available Under the Contracts
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
Royce Capital Fund
Safeco Resource Series Trust
- 27 -
<PAGE> 1
EXHIBIT 8(l)
FORM OF USA ADMINISTRATION SERVICES, INC.
SERVICES AGREEMENT
* * *
THIS AGREEMENT ("Agreement") made as of this 30th day of May,
1997 by and between IL Annuity and Insurance Company (Client), a Massachusetts
Corporation, and USA Administration Services, Inc. (USA), a Kansas Corporation.
WHEREAS, Client is or will be in the business of issuing and
underwriting life insurance and/or annuity products; and
WHEREAS, USA has developed an administration capability to provide for
the administrative support and servicing of life insurance and annuity
products, which includes administrative processes, administrative support
personnel, software, data processing equipment, and other services
("Administration Functions");
WHEREAS, Client desires to appoint USA as its Third Party
Administrator in connection with the specific life insurance and/or annuity
products identified in Schedule A ("Contract" or "Contracts"), and USA desires
to provide such services and necessary facilities, equipment, and personnel to
perform those Third Party Administrator functions set forth in Schedule B;
NOW, THEREFORE, in consideration of the mutually acceptable terms of
this Agreement, the parties agree as follows:
Article 1 Appointment as Agent to Provide Services.
1.01 Subject to the terms and conditions set forth in this
Agreement, Client hereby appoints and retains USA, and USA hereby agrees to act
as Client's agent to provide the services, functions and procedures described
in Schedule B (such services are described collectively hereinafter as
"Services").
1.02 Additional services may be added to this Agreement as
Services by a written amendment to Schedule B. USA, however, has sole
discretion to permit any such amendments to Schedule B. Client shall be
responsible for any additional costs resulting from implementing any requested
amendments to Schedule B. Such costs will be mutually agreed to, in writing, by
the parties.
Article 2 Services; and Performance Standards.
2.01 USA shall perform the Services provided for in Schedule B in
accordance
1
<PAGE> 2
with performance standards set forth in Schedule B or incorporated by reference
therein ("Performance Standards"). Whenever Client has not established a
standard, USA agreed to follow generally accepted customer and standards
accepted in the insurance industry in performing such services.
2.02 If at any time USA's performance of Services is not in compliance
with the Performance Standards, USA shall use its best efforts to take
necessary curative actions to bring its performance into compliance within
thirty (30) days of Client giving USA written notice of USA's non-compliance.
2.03 When Client determines that either the Services or Performance
Standards needs modification in response to any Federal or state law or
regulation, it shall inform USA of the change in such law or regulation, and
the parties shall seek to come to a mutually agreeable modification of this
Agreement in response to same. Client shall be responsible for any increased
costs associated with such modification. Such costs will be mutually agreed
to, in writing, by the parties.
2.04 USA shall have the right, at any time, and from time to time, to
alter and modify the Administration Functions and any systems, programs,
procedures or facilities used or employed in performing its duties and
obligations hereunder, provided that no such alteration or modification that
materially adversely affects the Services Client receives under this Agreement
will be implemented without USA first obtaining Client's consent, which shall
not be unreasonably withheld. "Materially" means, without limitation, any
departure or deviation from (a) the Performance Standards set forth in Schedule
B or the standards set forth in this Agreement or (b) any applicable laws,
rules and regulations.
2.05 If Client requests that USA design and implement an enhancement
to accommodate either one or more special features peculiar to Client's
Contracts, or, if Client requests any other changes, then USA shall investigate
the feasibility, time and cost for such enhancements or changes. Any
enhancement or change specific to Client's needs shall be designed and
implemented only after a written agreement to do so is reached between USA and
Client. Client will be responsible, in such cases, for any additional costs
associated with such an enhancement. Such costs will be mutually agreed
to, in writing, by the parties.
2.06 USA will make its standard operating reports available to Client
at no additional expense. If Client requests modification to USA's standard
reports, or requests other customized reports beyond the scope of the standard
reports, Client and USA must mutually agree on their format and content. Client
shall be responsible for any increased cost associated with such modified or
customized reports, if any. Such costs will be mutually agreed to, in writing,
by the parties.
Article 3 Fees and Expenses.
3.01 In consideration of the Services to be performed by USA pursuant
to this Agreement, Client shall pay USA the fees and expenses described on
Schedule C. Such amount shall be due upon receipt of USA's monthly billing
statement. The fees contained in the billing will be for past services.
USA shall not be entitled to compensation or other payments except as
expressly set forth on Schedule C unless such compensation or payments are
agreed to in writing between USA and Client. All fees and expenses are payable
in United States Dollars.
2
<PAGE> 3
3.02 Client shall also reimburse USA for all reasonable out-of-pocket
expenses incurred in its performance of this Agreement, as described on Schedule
C. Any such expenses shall be subject to the prior consent of the Client, and
if over $2,000 prior written consent.
3.03 USA may impose a late payment charge of 1.5 percent per month, or
the highest rate permitted by law, whichever is lower, on balances due under
this Agreement but unpaid for over thirty (30) days. Client may, however
withhold amounts which are due under this Agreement and in good faith disputed,
and not have such amounts subject to USA's late payment charge, provided that:
(A) Client provides USA with written notice describing its dispute with USA
before the payment is due; (B) the parties use their best effort to resolve the
dispute within ninety (90) days after Client's notice; and (C) in the event the
dispute is not resolved within ninety (90) days, disputed amounts would be
resolved by arbitration.
3.04 Client shall pay or reimburse USA for all Federal, state and
local sales, excise, use and/or similar taxes based on payments to be made
hereunder, (excluding, however, any tax on USA's income) unless Client has
provided USA with evidence reasonably satisfactory to USA that such payments
are exempt from any such taxes.
3.05 On each anniversary date of this Agreement's effective date, USA
may increase the charges identified on Schedule C by a rate equal to the
percentage increase in the United States Department of Labor Consumer Price
Index -- All Urban Consumers (1982-84 = 100).
Article 4 Allocation of Responsibilities Between Client and USA.
4.01 Notwithstanding any other provision of this Agreement, Client
retains sole legal responsibility and authority for the Services provided to
its Contract holders and agents. USA has no responsibility or liability under
the Contracts and, accordingly, may not modify or cause to be modified any term
or condition of any Contract or waive any term or condition thereof. The
Contracts are solely the liability of Client, are solely underwritten by
Client, and USA shall not provide or be responsible for any underwriting
services for the Contracts, the Contracts' sales and/or marketing, and/or the
Contracts' separate accounts, where applicable.
4.02 Client shall, on a timely basis, provide USA with current, final
forms of its contracts, prospectuses and applications, and the names and states
of license of all insurance and/or broker-dealer agents and representatives
authorized to sell the Contracts.
4.03 Client shall, on a timely basis, provide USA with information it
needs to carry out the Services it is to provide under this Agreement.
4.04 Client shall solely be responsible for interpreting the language
of the Contracts' provisions (including benefits), and determining the rates,
(premium, interest, etc.) product pricing, claims evaluation and payment
procedures applicable to the Contracts. Client must provide USA in a timely
fashion with its written rules, procedures and documentation pertaining to the
servicing of the Contracts.
Further, if Client
3
<PAGE> 4
modifies or amends such rules, procedures and documentation, USA will not be
obligated to implement any such modification or amendment until mutually
agreeable terms of a corresponding modification or amendment of the Services
have been reached between Client and USA.
4.05 USA shall use only such advertising pertaining to the Contracts
that has been approved in writing by Client in advance of its use.
4.06 USA will promptly notify Client in writing if it receives written
notice of any lawsuit, regulatory complaint or demand by any third party which
may materially affect Client. In the event any Contract holder notifies or
complains to USA that his or her claim has been wrongfully or improperly
denied/handled or has any other complaint or problem regarding his or her
Contract, USA shall notify such Contract holder that he or she has the right to
submit a request for review to Client of his or her complaint or problem.
Article 5 Banking Arrangements.
5.01 The payment to USA of any premiums or charges for the Contracts
by or on behalf of a Contract holder shall be deemed to have been received by
Client, and the payment of return premiums or claim payments forwarded by
Client to USA shall not be deemed to have been paid to a Contract holder or
claimant until such payments are received by the Contract holder or claimant.
5.02 Banking arrangements will be established upon the mutual written
agreement of Client and USA. In all cases, Client will be the sole owner and
solely responsible for establishing and maintaining such bank account(s) which
will be in Client's name. In the event that USA collects premiums, or disburses
funds on behalf of Client, such premiums or disbursements will be completed by
USA in a fiduciary capacity. USA shall comply with all applicable Federal and
State laws, rules and regulations. For all deposits, USA will immediately (an
in no event longer than twenty-four (24) hours) make such deposits of
premiums into such bank account designated and owned by Client. Client shall
require the bank in which Client's bank account(s) are maintained to send all
original account statements to Client, clearly reporting all deposits and
withdrawals. USA shall receive copies of the account statements for
reconciliation purposes, and upon Client's request, promptly furnish Client
with copies of all such bank records pertaining the deposits and
withdrawals it made to Client's bank account(s) on behalf of Client.
Reconciliation should be completed by USA within a reasonable time from receipt
of account statement from Client. Any problem with such reconciliation should
be promptly reported to Client and the bank where the account is located.
Article 6 USA's Representations, Warranties and Covenants.
USA represents and warrants to Client that:
6.01 USA is a corporation duly organized and existing in good standing
under the laws of the State of Kansas.
6.02 USA has the power and authority under the laws of the State of
Kansas and under its charter and by-laws to enter into and perform the Services
contemplated in this Agreement.
4
<PAGE> 5
6.03 All requisite corporate and other acts or proceedings required to
be taken to authorize the execution, delivery and performance of this Agreement
have been taken.
6.04 USA is a licensed Third Party Administrator in each state where
said license is required of USA for the Services performed under this
Agreement and USA shall maintain all licenses required by and comply with
applicable state laws, rules and regulations.
6.05 USA has and will continue to have and maintain the necessary
facilities to perform Services under this Agreement.
6.06 Whenever required by a state, USA shall maintain a deposit or a
bond in favor of such state to be held in trust for the benefit and protection
of that state's Contract holders and insurers whose monies USA handles. In
addition, USA shall comply with any other bond and insurance requirements of
applicable state law.
6.07 USA is covered under a fidelity/crime bond, with a limit of at
least $1 million. Such a bond, or its replacement, covers USA from damages
resulting from any acts or occurrences covered under said bond. USA is also
covered under a Professional Liability Policy, or its replacement, with a limit
of at least $1 million for damages resulting from any acts, errors or omissions
in the performance of professional services.
5
<PAGE> 6
Article 7 Client's Representations, Warranties and Covenants.
Client represents and warrants to USA that:
7.01 Client is a corporation duly organized and existing in good
standing under the laws of Massachusetts.
7.02 Client is qualified and licensed to carry on its business in those
jurisdictions in which it transacts business and is required to be qualified or
licensed.
7.03 Client has the power and authority under law and under its charter
and by-laws to enter into and perform its obligations under this Agreement.
7.04 All requisite corporate and other acts or proceedings required to
be taken to authorize the execution, delivery and performance of this Agreement
have been taken.
7.05 All of the prospectuses, contracts and other forms provided or
required by Client shall have been approved by all required regulatory agencies
and are or shall be in compliance with all applicable Federal, state, and local
laws and regulations.
7.06 Client has and will continue to comply with all laws with respect
to the Contracts and it has and will continue to make all required filings with
regulatory agencies in connection with the offer, sale, or administration of
the Contracts.
7.07 Client shall fulfill all of its lawful obligations with respect to
the Contracts, regardless of any dispute between Client and USA.
Article 8 Confidentiality
8.01 Client acknowledges that USA has sole ownership or other
proprietary rights in and to the Administration Functions, and that the
Administration Functions constitute USA's confidential material and trade
secrets.
8.02 Except as is necessary for USA's administration of the Contracts
or as required by law, Client agrees to maintain the confidentiality of, and
not disclose to any third party (excluding independent auditors, regulatory
examiners and legal counsel), the Administration Functions, or any other
information about USA's internal affairs, business plans, and business
practices. Client further agrees not to use any such information regarding the
Administration Functions, or any information about USA's internal affairs,
business plans and business practices in competition with USA. If Client is
ordered by a court of competent jurisdiction to disclose Client's or USA's
confidential information, or it is served with or otherwise becomes aware of
a motion or similar request (including, but not limited to depositions,
interrogatories, requests for documents, subpoenas, or civil investigative
demands) that such an order be issued, Client shall not be liable for
6
<PAGE> 7
disclosure of such confidential information required by such order if Client
promptly notifies USA in writing of such order. This notification is to permit
USA to seek a protective order or take other appropriate action at USA's cost.
Client will also cooperate in USA's efforts to obtain a protective order or
other reasonable assurance that confidential treatment will be accorded USA's
confidential information.
If, in the absence of a protective order, Client is, in the written
opinion of Client's counsel addressed to USA, compelled as a matter of law to
disclose USA's confidential information, Client may disclose to the party
compelling disclosure only the part of USA's confidential information as is
required by law to be disclosed (in which case, prior to such disclosure,
Client will advice and consult with USA and its counsel as to such disclosure
and the nature and wording of such disclosure) and Client will use its best
efforts to obtain confidential treatment therefor.
8.03 USA either owns the software or has licensed to use the software
which supports the Services it will provide under this Agreement. USA shall be
the owner and shall have the right to all copyrights, patents, and other
similar protection that flow from the work product that results from any
programming services USA performs for Client, including, but not limited to,
program code, documentation, specifications, logic, and design.
8.04 USA shall hold the software source code for the software
component of the Administration Functions in escrow with Transamerica
Reinsurance (TARe), assign TARe as escrow agent, and TARe shall make such
source code available to Client at no charge under a license agreement in the
event that USA files for bankruptcy or ceases to engage in the business of
providing Third Party Administration services.
Article 9 Books, Records, Data and Audits.
9.01 USA shall establish and maintain procedures for the safekeeping
of policy forms, check forms and facsimile signature imprinting devices, if
any, and all other documents, reports, records, books and files related to the
Contracts (excluding the Administration Functions), and all transactions
between USA, Client and Client's Contract holders and agents (collectively,
"Client's Books and Records"). USA shall maintain Client's Books and Records
in an accessible and usable form to Client and place for the duration of
this Agreement and seven years thereafter, according to industry standards
reasonably applied and as required by applicable law, including but not limited
to Rules 17a-3 and 17a-4 of the Securities Exchange Act of 1934, as amended.
9.02 USA shall maintain the records and other data pertaining to the
Contracts at all times in order to provide back-up recordkeeping. USA shall
maintain backup computer tape files on a daily basis stored in an off-site
location.
9.03 Upon reasonable notice to USA, Client and any applicable insurance
or securities regulator shall have full and free access, during ordinary
business hours, to Client's Books and Records, which shall be in a usable form.
Client and the applicable
7
<PAGE> 8
insurance or securities regulator shall keep confidential USA's confidential
information or trade secrets (as described in Article 8) contained in Client's
Books and Records.
9.04 Upon reasonable notice to USA, Client or its duly authorized
independent auditors have the right under this Agreement to perform on-site
audits of Client's Book and Records directly pertaining to the Contracts, and
the Services performed under this Agreement and to interview management
personnel involved in performing the services of USA in this Agreement, and to
review systems of internal controls. Such audits shall take place in
accordance with reasonable procedures as defined by generally accepted auditing
practices. Client shall reimburse USA for any unreasonable costs and expenses
(including personnel time and materials) incurred in connection with such
audits.
9.05 It is expressly understood and agreed that Client's Books and
Records are Client's sole property, and that such property shall be held by USA
as an agent, during the term of this Agreement. All information furnished by
Client or its Contract holders to USA hereunder (including Client's Books and
Records, data, information, financial information and information about its
internal affairs, business plans and business practices) is confidential (the
"Client Confidential Information") and USA shall not disclose such information,
directly or indirectly, to any third party except to the extent that USA is
required by law to make such disclosure, is required to perform the Services,
or as authorized in writing by Client. If USA is requested to disclose any
Client confidential information, USA will promptly notify Client to permit
Client to seek a protective order or take other appropriate action at Client's
sole cost. USA will also cooperate in Client's efforts to obtain a protective
order or other reasonable assurance that confidential treatment will be
accorded the Client confidential information. If, in the absence of a
protective order, USA is, in the written opinion of USA's counsel addressed to
Client, compelled as a matter of law to disclose the Client confidential
information, USA may disclose to the party compelling disclosure only the part
of the Client confidential information as is required by law to be disclosed
(in which case, prior to such disclosure, USA will advice and consult with
Client and its counsel as to such disclosure and the nature and wording of such
disclosure) and USA will use its best efforts to obtain confidential treatment
therefor.
9.06 Each party shall promptly notify the other of any demand or
request by any court, Federal, state, local or provincial government agency or
other regulatory body to examine or audit the Contracts serviced under this
Agreement.
Article 10 Delivery of Materials to Covered Individuals.
10.01 Any policies, certificates, booklets, termination notices or
other written communications delivered by Client to USA for delivery to
Contract holders will be promptly delivered by USA after receipt by USA of
Client's delivery instructions.
Article 11 Trademarks.
11.01 Neither USA nor Client shall use trademarks or service marks
without the prior written consent of the owners.
Article 12 Limitation of Liability/Warranty of Fitness.
12.01 In the event a malfunction of any computer software or equipment
which supports the Administration Functions causes an error or mistake in any
record, report,
8
<PAGE> 9
data, information or output under the terms of this Agreement, USA shall at its
expense correct and reprocess such records, provided that either: (A) Client
shall promptly notify USA in writing of such error or mistake; or (B) the
Contract holder shall promptly notify USA or Client of such error or mistake.
USA may, prior to its correction or reprocessing, in its discretion, require
Client's written instructions regarding such error or mistake.
12.02 In the case of any breach by USA related to this Agreement or
any transaction under this Agreement, regardless of the basis of the claim, USA
will only be liable for:
A. Bodily injury (including death) and damage to real property
and tangible personal property; and
B. The amount of actual loss or damage suffered by Client,
limited to the aggregate of the fees Client paid to USA
under this Agreement during the eight months immediately
preceding the occurrence of the claim, whichever is less.
12.03 Notwithstanding anything to the contrary herein, USA shall
not be responsible for, and Client shall indemnify and hold USA harmless from
and against, any and all costs, expenses, losses, damages, charges, counsel
fees, payments, and liability which may be asserted against USA or for which it
may be held liable, arising out of or attributable to:
A. Any action taken by USA in good faith and with due diligence
in compliance with the terms of this Agreement;
B. Client's failure to:
(1)comply with Federal, state or local laws or regulations
with respect to the offering and/or sale of the Contracts
or the records maintained;
(2)use and employ the Administration Functions and its
facilities in accordance with the procedures as set forth
and described in the reference manuals USA delivered to
Client;
(3)utilize USA's control procedures as set forth and described
in the reference manuals USA delivered to Client; or
(4)verify promptly reports received through use of the
Administration Functions.
C. Client's refusal or failure to comply with the terms of this
Agreement, or, which arise out of Client's action or
willful misconduct, or, which arise out of Client's breach
of any representation or warranty hereunder;
D. Client's errors and mistakes in the use of the Administration
Functions, and its facilities and control procedures;
E. Third party claims against Client for loss or damage; or
9
<PAGE> 10
F. USA's reliance on or use of information, data, records and
documents received from Client, its custodian or other
agents in performing the Services.
12.04 Notwithstanding anything to the contrary herein, Client shall
not be responsible for and USA shall indemnify and hold Client harmless from
and against, any and all costs, expenses, losses, damages, charges, counsel
fees, payments, and liability which may be asserted against Client or for which
it may be held liable, arising out of or attributable to:
A. Any action taken by Client in good faith and with due diligence
in compliance with the terms of this Agreement;
C. USA's refusal or failure to comply with the terms of this
Agreement, or, which may arise out of USA's action or willful
misconduct, or, which arise out of USA's breach of any
representations or warranties hereunder;
D. USA's errors and mistakes in the use of the Administration
Functions, and its facilities and control procedures; or
E. Third party claims against USA for loss or damages.
12.05 In no event shall USA be liable to Client under any provision
of this Agreement for exemplary, special, punitive or consequential damages.
12.06 No action, regardless of its form, may be brought more than
three (3) years after the cause of action has accrued.
Article 13 Dispute Resolution.
13.01 Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by Client and USA by means
of arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, and judgment upon the award rendered by the
arbitrator(s) shall be final and binding upon the parties and may be entered
and enforced as a judgment in any court having jurisdiction thereof.
Notwithstanding the foregoing, Client agrees that the provisions of Article 8
or 13 herein may be enforced by temporary or permanent injunction, without the
necessity of a bond. Such injunctive relief shall be in addition to and not in
place of any other remedy provided in this Agreement.
Article 14 Term and Termination.
14.01 The effective date of this Agreement is the date first written
above, unless otherwise agreed to by the parties.
14.02 Subject to termination as provided herein, this Agreement shall
remain in force and effect for a period of four (4) years from its effective
date.
14.03 This Agreement is renewable at terms that will be negotiated no
later than one hundred eighty (180) days prior to the termination of this
Agreement, otherwise this Agreement will terminate pursuant to its terms.
14.04 This Agreement may be terminated by Client with written notice
to USA
10
<PAGE> 11
one hundred eighty (180) days prior to the desired termination date. In the
event of such notice of termination, the Agreement shall terminate no earlier
than the one hundred eightieth day following receipt of such notice. Client may
execute a standard perpetual License Agreement and pay USA a discounted license
fee.
In consideration for early termination, if Client does not execute a
standard License Agreement, then Client agrees to pay USA the minimum monthly
maintenance fee for the number of months remaining in the initial term of this
Agreement.
14.05 If Client materially breaches this Agreement or fails to pay fees
and expenses hereunder, USA may give Client written notice of its breach of
this Agreement, and if such breach shall not have been remedied within sixty
(60) days after such written notice is given, USA may then terminate this
Agreement by giving Client thirty (30) days written notice of such intention to
terminate this Agreement.
14.06 If USA fails to comply with the material obligations and
Performance Standards contained in this Agreement, Client shall notify USA in
writing of such failure. "Material" means, without limitation, any departure or
deviation from (a) the Performance Standards set forth in Schedule B or the
standards set forth in this Agreement or (b) any applicable laws, rules and
regulations. If USA has not corrected such failure within a time
frame set reasonably by Client in writing, but in no event less than thirty
(30) days, Client may then immediately terminate this Agreement without
prejudice to of any of Client's rights or remedies against USA for breach of
this Agreement. In such a case, there will be no early termination fee charged
to the Client. Following such termination, Client may, at its option, enter
into a license agreement and pay USA a one time license fee, or transition, at
Client's expense, the administration of Client's Contracts to its own systems
and facilities or to another third party administrator.
14.07 During the period between the delivery of the notice of
termination and the effective date of termination, this Agreement shall remain
in effect and the parties shall continue to operate in accordance with the
terms of this Agreement except as the parties may otherwise agree in writing.
14.08 If USA elects to terminate this Agreement pursuant to Section
14.05 and for other than the nonpayment of fees and expenses, and, if Client
shall so request in writing, USA shall continue to provide Services under this
Agreement to Client for a period of four (4) months following such termination,
with such Services to be provided in accordance with the terms of this
Agreement and at 133 percent of the fees in effect for the term immediately
preceding such four (4) month period.
14.09 In the event that this Agreement is terminated, USA agrees that,
in order to assist in providing uninterrupted Services to Client, it shall
offer Client reasonable assistance to Client in converting Client's records
from the Administration Functions to whatever service or system Client selects,
subject to Client's payment to USA for such assistance at USA's standard rates
and fees in effect at that time.
14.10 Client shall provide written notice to any state or Federal
regulatory agency of any termination or cancellation or any other change in
this Agreement as required by any applicable law or regulation.
14.11 Upon termination of this Agreement, Client will return to USA all
documentation and information relating to the Administration Functions and any
other
11
<PAGE> 12
similar or related materials (and any copies thereof) confidential to USA.
Subject to Articles 8 and 9 hereof, USA will return Client's Books and Records.
Notwithstanding the above, any computer hardware, including storage media, upon
which Client's data is stored shall remain the sole property of USA. Client
agrees to allow USA reasonable access to all such returned records in the event
that USA requests such access for any reasonable and legitimate purpose,
including as a result of any regulatory request, litigation or any similar
necessity.
Article 15 Force Majeure.
15.01 If USA is unable to perform Services under this Agreement
because of strikes, equipment or transmission failure or damage, or other
causes beyond its control, e.g. floods, riots, or acts of god, then USA will
use its best efforts to assist Client to obtain alternate sources for the
Services. USA will not be liable for any interruption in the Services or
damages resulting from such causes, but USA shall cooperate with Client to
minimize and mitigate the damage, loss of data, delays or errors resulting from
an uncontrollable event.
Article 16 Non-Solicitation.
16.01 Neither USA nor its parent or affiliates shall use Client's
Books and Records or other of Client's proprietary information to contact
Client's Contract holders or any person with any interest or expectations in
the Contracts for the purpose of inducing them to purchase any non-Client
product. USA shall not sell or disclose in any manner (except to provide
Services under this Agreement) a list, partial or complete, of the applicants
for Contracts or Client's Contract holders or persons with any interest or
expectation in any Contract.
Article 17 Notices and Requests.
17.01 All notices and requests in connection with this Agreement shall
be given or made upon the respective parties in writing and shall be deemed
given as of the day deposited in the U.S. mails, postage pre-paid, certified or
registered, return receipt requested, and addressed as follows:
<TABLE>
<S> <C>
If to USA: USA Administration Services, Inc.,
12900 Metcalf, #200, Overland Park, Kansas 66213
Attn: J. Peter Donlon
If to Client: IL Annuity and Insurance Company
2960 North Meridian Street
</TABLE>
<PAGE> 13
Indianapolis, Indiana 46208
Attn: Gregory J. Carney
or to such other address(es) as the party to receive the notice or request so
designated by written notice to the other party.
Article 18 Insolvency.
18.01 It is expressly agreed by the parties that in the event either
USA or Client becomes insolvent or otherwise admits in writing its inability to
pay its debts when they become due, becomes bankrupt, seeks protection under
any law for the protection of insolvents, or has a receiver or conservator
appointed for it under any law pertaining to insolvency, that such event in and
of itself shall be deemed to be a material breach of this Agreement and
that the other party's obligation to perform or its right to receive the
benefits of this Agreement is terminated.
Article 19 Governing Laws.
19.01 This Agreement shall be governed by and construed in accordance
with the laws of the State of Kansas without regard to conflicts of law
principles.
Article 20 Enforceability.
20.01 If any provision of this Agreement shall be held to be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall in no way be affected or impaired thereby.
Article 21 No Waiver.
21.01 The failure of either party to exercise in any respect any right
provided for herein shall not be deemed to be a waiver of such right or of any
right hereunder.
Article 22 Assignments.
22.01 This Agreement and the rights and duties hereunder shall not be
assignable by the parties hereto except upon the written consent of the other
party, which shall not be unreasonably withheld.
22.02 This Agreement shall inure to the benefit of and be binding upon
the
13
<PAGE> 14
parties hereto and their respective successors and permitted assigns.
Article 23 Independent Contractor.
23.01 Client recognizes USA as an independent contractor. Nothing
contained herein shall be construed to create the relationship of employer and
employee between Client and USA.
23.02 USA is neither obliged nor expected to provide Services to
Client exclusively. Nothing contained herein shall prevent or restrict USA from
acting as a Third Party Administrator or providing any other service for other
insurance companies or others, whether or not affiliated with USA, in any
jurisdiction with respect to any insurance or annuity product, including
products which may be competitive to those of Client.
Article 24 Miscellaneous.
24.01 The headings in this Agreement are for purposes of reference only
and shall not affect in any way the meaning, construction or interpretation of
this Agreement.
24.02 This Agreement may be executed in several counterparts, each of
which is an original, but all of which together shall constitute one
instrument.
24.03 All of the Schedules which are referred to in this Agreement
shall be part of this Agreement.
24.04 This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the subject
matter thereof, whether oral or written and this Agreement may not be modified
except in a written instrument executed by both of the parties hereto.
24.05 Each party shall promptly deliver to the other a copy of any
preliminary or final examination or audit report with regard to the Contracts
serviced or Services provided under this Agreement which is issued by any
Federal, state, or local governmental agency within ten (10) days after it
receives it.
24.06 The rights and obligations of the parties set forth in Articles
6, 8, 9, 13 and 14 herein, shall survive the termination of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their names and on their behalf by and through their duly
authorized officers.
USA ADMINISTRATION SERVICES, INC.
14
<PAGE> 15
By /s/ J. PETER DONLON
Date June 3, 1997
IL ANNUITY AND INSURANCE COMPANY
By /s/ MARGARET M. MCKINNEY
Date 6/2/97
15
<PAGE> 16
LISTING OF ATTACHED SCHEDULES:
<TABLE>
<CAPTION>
SCHEDULE ITEM
<S> <C>
A SPECIFIC CONTRACTS
B USA SERVICES AND FUNCTIONS
SMART GUIDE
C PROFESSIONAL FEES
D STANDARD SYSTEMS REPORTS
E EXAMPLES: STANDARD SYSTEM EXTRACTS
F PENALTY SCHEDULE
</TABLE>
16
<PAGE> 1
EXHIBIT 10(a)
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
STEPHEN E. ROTH
DIRECT LINE: (202) 383-0158
Internet: [email protected]
August 5, 1997
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. 5 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 LLP
By: /s/ Stephen E. Roth
-------------------
Stephen E. Roth
<PAGE> 1
[ERNST & YOUNG LLP LETTERHEAD]
Exhibit 10(b)
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 April 4, 1997, in Post Effective Amendment No. 5 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
August 8, 1997.
Ernst & Young LLP
August 5, 1997
<PAGE> 1
IL ANNUITY AND INSURANCE COMPANY
COMPUTATION OF ADJUSTED HISTORICAL NON-STANDARD CUMULATIVE TOTAL RETURN
The formula used to calculate total return is :
CTR = (ERV / P) - 1
where
CTR = Cumulative total return
ERV = Ending redeemable value of the initial investment (prior to
any applicable Withdrawal Charge and contract fee) of the
hypothetical Variable Account at the end of the period shown
P = $1,000.00 initial investment
<TABLE>
<S> <C> <C>
1. Alger American MidCap Growth
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
CTR = 58.85% CTR = N/A
ERV = 1588.467 ERV =
P = 1000 P = 1000
b). For the period from 5/31/93 to 12/31/96 d). For the 10 year period ending 12/31/96
CTR = 102.52% CTR = N/A
ERV = 2025.193 ERV =
P = 1000 P = 1000
2. Alger American Small Capitalization
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
CTR = 43.90% CTR = 64.15%
ERV = 1438.973 ERV = 1641.495
P = 1000 P = 1000
b). For the period from 9/30/88 to 12/31/96 d). For the 10 year period ending 12/31/96
CTR = 323.27% CTR = N/A
ERV = 4232.687 ERV =
P = 1000 P = 1000
3. Fidelity VIP Equity Income
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
CTR = 59.00% CTR = 113.85%
ERV = 1590.043 ERV = 2138.522
P = 1000 P = 1000
b). For the period from 10/31/86 to 12/31/96 d). For the 10 year period ending 12/31/96
CTR = 209.28% CTR = 212.80%
ERV = 3092.808 ERV = 3127.953
P = 1000 P = 1000
4. Fidelity VIP Growth Fund
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
CTR = 52.17% CTR = 93.13%
ERV = 1521.666 ERV = 1931.326
P = 1000 P = 1000
b). For the period from 10/31/86 to 12/31/96 d). For the 10 year period ending 12/31/96
CTR = 264.92% CTR = 264.68%
ERV = 3649.213 ERV = 3646.83
P = 1000 P = 1000
5. Fidelity VIP Money Market
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
CTR = 11.79% CTR = 16.97%
ERV = 1117.916 ERV = 1169.747
P = 1000 P = 1000
b). For the period from 4/30/82 to 12/31/96 d). For the 10 year period ending 12/31/96
CTR = 108.90% CTR = 48.35%
ERV = 2089.047 ERV = 1483.477
P = 1000 P = 1000
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
6. Fidelity VIP II Asset Manager
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
CTR = 21.03% CTR = 59.44%
ERV = 1210.344 ERV = 1594.396
P = 1000 P = 1000
b). For the period from 9/30/89 to 12/31/96 d). For the 10 year period ending 12/31/96
CTR = 103.96% CTR = N/A
ERV = 2039.599 ERV =
P = 1000 P = 1000
7. Fidelity VIP II Contrafund
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
CTR = N/A CTR = N/A
ERV = ERV =
P = 1000 P = 1000
b). For the period from 1/31/95 to 12/31/96 d). For the 10 year period ending 12/31/96
CTR = 69.20% CTR = N/A
ERV = 1692.026 ERV =
P = 1000 P = 1000
8. Fidelity VIP II Index 500
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
CTR = 63.96% CTR = N/A
ERV = 1639.561 ERV =
P = 1000 P = 1000
b). For the period from 8/31/92 to 12/31/96 d). For the 10 year period ending 12/31/96
CTR = 87.50% CTR = N/A
ERV = 1875.002 ERV =
P = 1000 P = 1000
9. Fidelity VIP II Investment Grade Bond
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
CTR = 11.84% CTR = 21.49%
ERV = 1118.368 ERV = 1214.939
P = 1000 P = 1000
b). For the period from 12/31/88 to 12/31/96 d). For the 10 year period ending 12/31/96
CTR = 34.77% CTR = N/A
ERV = 1347.696 ERV =
P = 1000 P = 1000
10. OCC Accumulation Managed
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
CTR = 77.13% CTR = 125.66%
ERV = 1771.311 ERV = 2256.557
P = 1000 P = 1000
b). For the period from 8/31/88 to 12/31/96 d). For the 10 year period ending 12/31/96
CTR = 319.58% CTR = N/A
ERV = 4195.76 ERV =
P = 1000 P = 1000
11. OCC Accumulation Small Cap
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
CTR = 30.01% CTR = 83.63%
ERV = 1300.055 ERV = 1836.267
P = 1000 P = 1000
b). For the period from 8/31/88 to 12/31/96 d). For the 10 year period ending 12/31/96
CTR = 182.64% CTR = N/A
ERV = 2826.383 ERV =
P = 1000 P = 1000
12. T. Rowe Price Limited Term Bond
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
CTR = N/A CTR = N/A
ERV = ERV =
P = 1000 P = 1000
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
b). For the period from 5/31/94 to 12/31/96 d). For the 10 year period ending 12/31/96
CTR = 4.53% CTR = N/A
ERV = 1045.263 ERV =
P = 1000 P = 1000
13. T. Rowe Price International Stock
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
CTR = N/A CTR = N/A
ERV = ERV =
P = 1000 P = 1000
b). For the period from 3/31/94 to 12/31/96 d). For the 10 year period ending 12/31/96
CTR = 24.93% CTR = N/A
ERV = 1249.328 ERV =
P = 1000 P = 1000
14. Van Eck Worldwide Hard Assets
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
CTR = 9.06% CTR = 67.71%
ERV = 1090.576 ERV = 1677.082
P = 1000 P = 1000
b). For the period from 8/31/89 to 12/31/96 d). For the 10 year period ending 12/31/96
CTR = 47.07% CTR = N/A
ERV = 1470.654 ERV =
P = 1000 P = 1000
15. Van Eck Worldwide Balanced
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
CTR = N/A CTR = N/A
ERV = ERV =
P = 1000 P = 1000
b). For the period from 10/31/95 to 12/31/96 d). For the 10 year period ending 12/31/96
CTR = 10.61% CTR = N/A
ERV = 1106.071 ERV =
P = 1000 P = 1000
</TABLE>
<PAGE> 4
IL ANNUITY AND INSURANCE COMPANY
COMPUTATION OF ADJUSTED HISTORICAL STANDARD CUMULATIVE TOTAL RETURN
The formula used to calculate total return is :
CTR = (ERV / P) - 1
where
CTR = Cumulative total return
ERV = Ending redeemable value of the initial investment (net of
any applicable Withdrawal Charge and contract fee) of the
hypothetical Variable Account at the end of the period
shown
P = $1,000.00 initial investment
<TABLE>
<S> <C> <C>
1. Alger American MidCap Growth
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
CTR = 51.45% CTR = N/A
ERV = 1514.48 ERV =
P = 1000 P = 1000
b). For the period from 5/31/93 to 12/31/96 d). For the 10 year period ending 12/31/96
CTR = 95.01% CTR = N/A
ERV = 1950.089 ERV =
P = 1000 P = 1000
2. Alger American Small Capitalization
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
CTR = 36.53% CTR = 56.43%
ERV = 1365.251667 ERV = 1564.345667
P = 1000 P = 1000
b). For the period from 9/30/88 to 12/31/96 d). For the 10 year period ending 12/31/96
CTR = 319.68% CTR = N/A
ERV = 4196.753333 ERV =
P = 1000 P = 1000
3. Fidelity VIP Equity Income
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
CTR = 51.62% CTR = 106.10%
ERV = 1516.184667 ERV = 2061.029
P = 1000 P = 1000
b). For the period from 10/31/86 to 12/31/96 d). For the 10 year period ending 12/31/96
CTR = 207.19% CTR = 210.77%
ERV = 3071.925333 ERV = 3107.686667
P = 1000 P = 1000
4. Fidelity VIP Growth Fund
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
CTR = 44.78% CTR = 85.39%
ERV = 1447.798667 ERV = 1853.905
P = 1000 P = 1000
b). For the period from 10/31/86 to 12/31/96 d). For the 10 year period ending 12/31/96
CTR = 262.73% CTR = 262.57%
ERV = 3627.296667 ERV = 3625.65
P = 1000 P = 1000
5. Fidelity VIP Money Market
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
CTR = 4.47% CTR = 9.43%
ERV = 1044.742333 ERV = 1094.295667
P = 1000 P = 1000
b). For the period from 4/30/82 to 12/31/96 d). For the 10 year period ending 12/31/96
CTR = 106.90% CTR = 47.16%
ERV = 2069.029667 ERV = 1471.561
P = 1000 P = 1000
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
6. Fidelity VIP II Asset Manager
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
CTR = 13.68% CTR = 51.80%
ERV = 1136.795 ERV = 1518.039333
P = 1000 P = 1000
b). For the period from 9/30/89 to 12/31/96 d). For the 10 year period ending 12/31/96
CTR = 98.91% CTR = N/A
ERV = 1989.056333 ERV =
P = 1000 P = 1000
7. Fidelity VIP II Contrafund
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
CTR = N/A CTR = N/A
ERV = ERV =
P = 1000 P = 1000
b). For the period from 1/31/95 to 12/31/96 d). For the 10 year period ending 12/31/96
CTR = 61.97% CTR = N/A
ERV = 1619.659667 ERV =
P = 1000 P = 1000
8. Fidelity VIP II Index 500
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
CTR = 56.55% CTR = N/A
ERV = 1565.454667 ERV =
P = 1000 P = 1000
b). For the period from 8/31/92 to 12/31/96 d). For the 10 year period ending 12/31/96
CTR = 79.86% CTR = N/A
ERV = 1798.550667 ERV =
P = 1000 P = 1000
9. Fidelity VIP II Investment Grade Bond
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
CTR = 4.51% CTR = 13.94%
ERV = 1045.1 ERV = 1139.397
P = 1000 P = 1000
b). For the period from 12/31/88 to 12/31/96 d). For the 10 year period ending 12/31/96
CTR = 29.82% CTR = N/A
ERV = 1298.175667 ERV =
P = 1000 P = 1000
10. OCC Accumulation Managed
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
CTR = 69.71% CTR = 117.85%
ERV = 1697.129 ERV = 2178.499667
P = 1000 P = 1000
b). For the period from 8/31/88 to 12/31/96 d). For the 10 year period ending 12/31/96
CTR = 315.72% CTR = N/A
ERV = 4157.17 ERV =
P = 1000 P = 1000
11. OCC Accumulation Small Cap
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
CTR = 22.64% CTR = 75.96%
ERV = 1226.383 ERV = 1759.571
P = 1000 P = 1000
b). For the period from 8/31/88 to 12/31/96 d). For the 10 year period ending 12/31/96
CTR = 179.15% CTR = N/A
ERV = 2791.517 ERV =
P = 1000 P = 1000
12. T. Rowe Price Limited Term Bond
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
CTR = N/A CTR = N/A
ERV = ERV =
P = 1000 P = 1000
</TABLE>
<PAGE> 6
<TABLE>
<S> <C> <C>
b). For the period from 5/31/94 to 12/31/96 d). For the 10 year period ending 12/31/96
CTR = -2.32% CTR = N/A
ERV = 976.799 ERV =
P = 1000 P = 1000
13. T. Rowe Price International Stock
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
CTR = N/A CTR = N/A
ERV = ERV =
P = 1000 P = 1000
b). For the period from 3/31/94 to 12/31/96 d). For the 10 year period ending 12/31/96
CTR = 17.62% CTR = N/A
ERV = 1176.204333 ERV =
P = 1000 P = 1000
14. Van Eck Worldwide Hard Assets
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
CTR = 1.77% CTR = 60.08%
ERV = 1017.733 ERV = 1600.804667
P = 1000 P = 1000
b). For the period from 8/31/89 to 12/31/96 d). For the 10 year period ending 12/31/96
CTR = 42.06% CTR = N/A
ERV = 1420.556667 ERV =
P = 1000 P = 1000
15. Van Eck Worldwide Balanced
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
CTR = N/A CTR = N/A
ERV = ERV =
P = 1000 P = 1000
b). For the period from 10/31/95 to 12/31/96 d). For the 10 year period ending 12/31/96
CTR = 3.48% CTR = N/A
ERV = 1034.827 ERV =
P = 1000 P = 1000
</TABLE>
<PAGE> 7
IL ANNUITY AND INSURANCE COMPANY
COMPUTATION OF ADJUSTED HISTORICAL NON-STANDARD AVERAGE ANNUAL TOTAL RETURN
The formula used to calculate total return is :
(1/N)) - 1
T = ((ERV / P)
where
T = Average Annual Total Return
ERV = Ending redeemable value of the initial investment (prior to
any applicable Withdrawal Charge and contract fee) of the
hypothetical Variable Account at the end of the period
shown
P = $1,000.00 initial investment
N = Number of years
<TABLE>
<S> <C> <C>
1. Alger American MidCap Growth
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
T = 16.68% T = N/A
ERV = 1588.467 ERV =
P = 1000 P = 1000
N = 3 N = 5
b). For the period from 5/31/93 to 12/31/96 d). For the 10 year period ending 12/31/96
T = 21.77% T = N/A
ERV = 2025.193 ERV =
P = 1000 P = 1000
N = 3.583333 N = 10
2. Alger American Small Capitalization
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
T = 12.90% T = 10.42%
ERV = 1438.973 ERV = 1641.495
P = 1000 P = 1000
N = 3 N = 5
b). For the period from 9/30/88 to 12/31/96 d). For the 10 year period ending 12/31/96
T = 19.11% T = N/A
ERV = 4232.687 ERV =
P = 1000 P = 1000
N = 8.25 N = 10
3. Fidelity VIP Equity Income
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
T = 16.72% T = 16.42%
ERV = 1590.043 ERV = 2138.522
P = 1000 P = 1000
N = 3 N = 5
b). For the period from 10/31/86 to 12/31/96 d). For the 10 year period ending 12/31/96
T = 11.75% T = 12.08%
ERV = 3092.808 ERV = 3127.953
P = 1000 P = 1000
N = 10.1666 N = 10
4. Fidelity VIP Growth Fund
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
T = 15.02% T = 14.07%
ERV = 1521.666 ERV = 1931.326
P = 1000 P = 1000
N = 3 N = 5
b). For the period from 10/31/86 to 12/31/96 d). For the 10 year period ending 12/31/96
T = 13.58% T = 13.81%
ERV = 3649.213 ERV = 3646.83
P = 1000 P = 1000
N = 10.1666 N = 10
5. Fidelity VIP Money Market
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
T = 3.79% T = 3.19%
ERV = 1117.916 ERV = 1169.747
P = 1000 P = 1000
N = 3 N = 5
</TABLE>
<PAGE> 8
<TABLE>
<S> <C> <C>
b). For the period from 4/30/82 to 12/31/96 d). For the 10 year period ending 12/31/96
T = 5.15% T = 4.02%
ERV = 2089.047 ERV = 1483.477
P = 1000 P = 1000
N = 14.6666 N = 10
6. Fidelity VIP II Asset Manager
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
T = 6.57% T = 9.78%
ERV = 1210.344 ERV = 1594.396
P = 1000 P = 1000
N = 3 N = 5
b). For the period from 9/30/89 to 12/31/96 d). For the 10 year period ending 12/31/96
T = 10.33% T = N/A
ERV = 2039.599 ERV =
P = 1000 P = 1000
N = 7.25 N = 10
7. Fidelity VIP II Contrafund
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
T = N/A T = N/A
ERV = ERV =
P = 1000 P = 1000
N = 3 N = 5
b). For the period from 1/31/95 to 12/31/96 d). For the 10 year period ending 12/31/96
T = 31.57% T = N/A
ERV = 1692.026 ERV =
P = 1000 P = 1000
N = 1.91666 N = 10
8. Fidelity VIP II Index 500
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
T = 17.92% T = N/A
ERV = 1639.561 ERV =
P = 1000 P = 1000
N = 3 N = 5
b). For the period from 8/31/92 to 12/31/96 d). For the 10 year period ending 12/31/96
T = 15.61% T = N/A
ERV = 1875.002 ERV =
P = 1000 P = 1000
N = 4.3333 N = 10
9. Fidelity VIP II Investment Grade Bond
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
T = 3.80% T = 3.97%
ERV = 1118.368 ERV = 1214.939
P = 1000 P = 1000
N = 3 N = 5
b). For the period from 12/31/88 to 12/31/96 d). For the 10 year period ending 12/31/96
T = 3.80% T = N/A
ERV = 1347.696 ERV =
P = 1000 P = 1000
N = 8 N = 10
10. OCC Accumulation Managed
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
T = 20.99% T = 17.68%
ERV = 1771.311 ERV = 2256.557
P = 1000 P = 1000
N = 3 N = 5
b). For the period from 8/31/88 to 12/31/96 d). For the 10 year period ending 12/31/96
T = 18.78% T = N/A
ERV = 4195.76 ERV =
P = 1000 P = 1000
N = 8.33333 N = 10
</TABLE>
<PAGE> 9
<TABLE>
<S> <C> <C>
11. OCC Accumulation Small Cap
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
T = 9.14% T = 12.92%
ERV = 1300.055 ERV = 1836.267
P = 1000 P = 1000
N = 3 N = 5
b). For the period from 8/31/88 to 12/31/96 d). For the 10 year period ending 12/31/96
T = 13.28% T = N/A
ERV = 2826.383 ERV =
P = 1000 P = 1000
N = 8.33333 N = 10
12. T. Rowe Price Limited Term Bond
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
T = N/A T = N/A
ERV = ERV =
P = 1000 P = 1000
N = 3 N = 5
b). For the period from 5/31/94 to 12/31/96 d). For the 10 year period ending 12/31/96
T = 1.73% T = N/A
ERV = 1045.263 ERV =
P = 1000 P = 1000
N = 2.5833 N = 10
13. T. Rowe Price International Stock
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
T = N/A T = N/A
ERV = ERV =
P = 1000 P = 1000
N = 3 N = 5
b). For the period from 3/31/94 to 12/31/96 d). For the 10 year period ending 12/31/96
T = 8.43% T = N/A
ERV = 1249.328 ERV =
P = 1000 P = 1000
N = 2.75 N = 10
14. Van Eck Worldwide Hard Assets
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
T = 2.93% T = 10.89%
ERV = 1090.576 ERV = 1677.082
P = 1000 P = 1000
N = 3 N = 5
b). For the period from 8/31/89 to 12/31/96 d). For the 10 year period ending 12/31/96
T = 5.40% T = N/A
ERV = 1470.654 ERV =
P = 1000 P = 1000
N = 7.333 N = 10
15. Van Eck Worldwide Balanced
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
T = N/A T = N/A
ERV = ERV =
P = 1000 P = 1000
N = 3 N = 5
b). For the period from 10/31/95 to 12/31/96 d). For the 10 year period ending 12/31/96
T = 9.03% T = N/A
ERV = 1106.071 ERV =
P = 1000 P = 1000
N = 1.166667 N = 10
</TABLE>
<PAGE> 10
IL ANNUITY AND INSURANCE COMPANY
COMPUTATION OF ADJUSTED HISTORICAL STANDARD AVERAGE ANNUAL TOTAL RETURN
The formula used to calculate total return is :
(1/N)) - 1
T = ((ERV / P)
where
T = Average Annual Total Return
ERV = Ending redeemable value of the initial investment (net of any
applicable Withdrawal Charge and contract fee) of the
hypothetical Variable Account at the end of the period shown
P = $1,000.00 initial investment
N = Number of years
<TABLE>
<S> <C> <C>
1. Alger American MidCap Growth
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
T = 14.84% T = N/A
ERV = 1514.48 ERV =
P = 1000 P = 1000
N = 3 N = 5
b). For the period from 5/31/93 to 12/31/96 d). For the 10 year period ending 12/31/96
T = 20.49% T = N/A
ERV = 1950.089 ERV =
P = 1000 P = 1000
N = 3.583333 N = 10
2. Alger American Small Capitalization
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
T = 10.94% T = 9.36%
ERV = 1365.252 ERV = 1564.346
P = 1000 P = 1000
N = 3 N = 5
b). For the period from 9/30/88 to 12/31/96 d). For the 10 year period ending 12/31/96
T = 18.99% T = N/A
ERV = 4196.753 ERV =
P = 1000 P = 1000
N = 8.25 N = 10
3. Fidelity VIP Equity Income
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
T = 14.88% T = 15.56%
ERV = 1516.185 ERV = 2061.029
P = 1000 P = 1000
N = 3 N = 5
b). For the period from 10/31/86 to 12/31/96 d). For the 10 year period ending 12/31/96
T = 11.67% T = 12.01%
ERV = 3071.925 ERV = 3107.687
P = 1000 P = 1000
N = 10.1666 N = 10
4. Fidelity VIP Growth Fund
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
T = 13.13% T = 13.14%
ERV = 1447.799 ERV = 1853.905
P = 1000 P = 1000
N = 3 N = 5
b). For the period from 10/31/86 to 12/31/96 d). For the 10 year period ending 12/31/96
T = 13.51% T = 13.75%
ERV = 3627.297 ERV = 3625.65
P = 1000 P = 1000
N = 10.1666 N = 10
5. Fidelity VIP Money Market
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
T = 1.47% T = 1.82%
ERV = 1044.742 ERV = 1094.296
P = 1000 P = 1000
N = 3 N = 5
</TABLE>
<PAGE> 11
<TABLE>
<S> <C> <C>
b). For the period from 4/30/82 to 12/31/96 d). For the 10 year period ending 12/31/96
T = 5.08% T = 3.94%
ERV = 2069.03 ERV = 1471.561
P = 1000 P = 1000
N = 14.6666 N = 10
6. Fidelity VIP II Asset Manager
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
T = 4.37% T = 8.71%
ERV = 1136.795 ERV = 1518.039
P = 1000 P = 1000
N = 3 N = 5
b). For the period from 9/30/89 to 12/31/96 d). For the 10 year period ending 12/31/96
T = 9.95% T = N/A
ERV = 1989.056 ERV =
P = 1000 P = 1000
N = 7.25 N = 10
7. Fidelity VIP II Contrafund
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
T = N/A T = N/A
ERV = ERV =
P = 1000 P = 1000
N = 3 N = 5
b). For the period from 1/31/95 to 12/31/96 d). For the 10 year period ending 12/31/96
T = 28.61% T = N/A
ERV = 1619.66 ERV =
P = 1000 P = 1000
N = 1.91666 N = 10
8. Fidelity VIP II Index 500
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
T = 16.11% T = N/A
ERV = 1565.455 ERV =
P = 1000 P = 1000
N = 3 N = 5
b). For the period from 8/31/92 to 12/31/96 d). For the 10 year period ending 12/31/96
T = 14.51% T = N/A
ERV = 1798.551 ERV =
P = 1000 P = 1000
N = 4.3333 N = 10
9. Fidelity VIP II Investment Grade Bond
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
T = 1.48% T = 2.64%
ERV = 1045.1 ERV = 1139.397
P = 1000 P = 1000
N = 3 N = 5
b). For the period from 12/31/88 to 12/31/96 d). For the 10 year period ending 12/31/96
T = 3.32% T = N/A
ERV = 1298.176 ERV =
P = 1000 P = 1000
N = 8 N = 10
10. OCC Accumulation Managed
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
T = 19.28% T = 16.85%
ERV = 1697.129 ERV = 2178.5
P = 1000 P = 1000
N = 3 N = 5
b). For the period from 8/31/88 to 12/31/96 d). For the 10 year period ending 12/31/96
T = 18.65% T = N/A
ERV = 4157.17 ERV =
P = 1000 P = 1000
N = 8.33333 N = 10
</TABLE>
<PAGE> 12
<TABLE>
<S> <C> <C>
11. OCC Accumulation Small Cap
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
T = 7.04% T = 11.96%
ERV = 1226.383 ERV = 1759.571
P = 1000 P = 1000
N = 3 N = 5
b). For the period from 8/31/88 to 12/31/96 d). For the 10 year period ending 12/31/96
T = 13.11% T = N/A
ERV = 2791.517 ERV =
P = 1000 P = 1000
N = 8.33333 N = 10
12. T. Rowe Price Limited Term Bond
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
T = N/A T = N/A
ERV = ERV =
P = 1000 P = 1000
N = 3 N = 5
b). For the period from 5/31/94 to 12/31/96 d). For the 10 year period ending 12/31/96
T = -0.90% T = N/A
ERV = 976.799 ERV =
P = 1000 P = 1000
N = 2.5833 N = 10
13. T. Rowe Price International Stock
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
T = N/A T = N/A
ERV = ERV =
P = 1000 P = 1000
N = 3 N = 5
b). For the period from 3/31/94 to 12/31/96 d). For the 10 year period ending 12/31/96
T = 6.08% T = N/A
ERV = 1176.204 ERV =
P = 1000 P = 1000
N = 2.75 N = 10
14. Van Eck Worldwide Hard Assets
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
T = 0.59% T = 9.87%
ERV = 1017.733 ERV = 1600.805
P = 1000 P = 1000
N = 3 N = 5
b). For the period from 8/31/89 to 12/31/96 d). For the 10 year period ending 12/31/96
T = 4.90% T = N/A
ERV = 1420.557 ERV =
P = 1000 P = 1000
N = 7.333 N = 10
15. Van Eck Worldwide Balanced
a). For the 3 year period ending 12/31/96 c). For the 5 year period ending 12/31/96
T = N/A T = N/A
ERV = ERV =
P = 1000 P = 1000
N = 3 N = 5
b). For the period from 10/31/95 to 12/31/96 d). For the 10 year period ending 12/31/96
T = 2.98% T = N/A
ERV = 1034.827 ERV =
P = 1000 P = 1000
N = 1.166667 N = 10
</TABLE>
<PAGE> 13
IL ANNUITY AND INSURANCE COMPANY
COMPUTATION OF NON-STANDARD CUMULATIVE TOTAL RETURN
The formula used to calculate total return is :
CTR = (ERV / P) - 1
where
CTR = Cumulative total return
ERV = Ending redeemable value of the initial investment (prior to
any applicable Withdrawal Charge and contract fee) of the
hypothetical Variable Account at the end of the period shown
P = $1,000.00 initial investment
1. Alger American MidCap Growth
a). For the 1 year period ending 12/31/96
CTR = 10.34%
ERV = 1103.405
P = 1000
b). For the period from 11/1/95 to 12/31/96
CTR = 11.01%
ERV = 1110.051
P = 1000
2. Alger American Small Capitalization
a). For the 1 year period ending 12/31/96
CTR = 2.73%
ERV = 1027.319
P = 1000
b). For the period from 11/1/95 to 12/31/96
CTR = 3.23%
ERV = 1032.304
P = 1000
3. Fidelity VIP Equity Income
a). For the 1 year period ending 12/31/96
CTR = 12.69%
ERV = 1126.931
P = 1000
b). For the period from 11/1/95 to 12/31/96
CTR = 21.07%
ERV = 1210.748
P = 1000
4. Fidelity VIP Growth Fund
a). For the 1 year period ending 12/31/96
CTR = 13.11%
ERV = 1131.09
P = 1000
b). For the period from 11/1/95 to 12/31/96
CTR = 11.64%
ERV = 1116.448
P = 1000
5. Fidelity VIP Money Market
a). For the 1 year period ending 12/31/96
CTR = 3.94%
ERV = 1039.39
P = 1000
b). For the period from 11/1/95 to 12/31/96
CTR = 4.62%
ERV = 1046.241
P = 1000
<PAGE> 14
6. Fidelity VIP II Asset Manager
a). For the 1 year period ending 12/31/96
CTR = 13.01%
ERV = 1130.096
P = 1000
b). For the period from 11/1/95 to 12/31/96
CTR = 18.93%
ERV = 1189.349
P = 1000
7. Fidelity VIP II Contrafund
a). For the 1 year period ending 12/31/96
CTR = 19.62%
ERV = 1196.202
P = 1000
b). For the period from 11/1/95 to 12/31/96
CTR = 23.59%
ERV = 1235.905
P = 1000
8. Fidelity VIP II Index 500
a). For the 1 year period ending 12/31/96
CTR = 21.11%
ERV = 1211.145
P = 1000
b). For the period from 11/1/95 to 12/31/96
CTR = 28.91%
ERV = 1289.125
P = 1000
9. Fidelity VIP II Investment Grade Bond
a). For the 1 year period ending 12/31/96
CTR = 1.75%
ERV = 1017.505
P = 1000
b). For the period from 11/1/95 to 12/31/96
CTR = 4.54%
ERV = 1045.413
P = 1000
10. OCC Accumulation Managed
a). For the 1 year period ending 12/31/96
CTR = 21.07%
ERV = 1210.664
P = 1000
b). For the period from 11/1/95 to 12/31/96
CTR = 28.04%
ERV = 1280.448
P = 1000
11. OCC Accumulation Small Cap
a). For the 1 year period ending 12/31/96
CTR = 17.07%
ERV = 1170.699
P = 1000
b). For the period from 11/1/95 to 12/31/96
CTR = 23.71%
ERV = 1237.063
P = 1000
<PAGE> 15
12. T. Rowe Price Limited Term Bond
a). For the 1 year period ending 12/31/96
CTR = -3.93%
ERV = 960.743
P = 1000
b). For the period from 11/1/95 to 12/31/96
CTR = -3.18%
ERV = 968.189
P = 1000
13. T. Rowe Price International Stock
a). For the 1 year period ending 12/31/96
CTR = 13.11%
ERV = 1131.053
P = 1000
b). For the period from 11/1/95 to 12/31/96
CTR = 17.44%
ERV = 1174.449
P = 1000
14. Van Eck Worldwide Hard Assets
a). For the 1 year period ending 12/31/96
CTR = 16.42%
ERV = 1164.218
P = 1000
b). For the period from 11/1/95 to 12/31/96
CTR = 17.09%
ERV = 1170.891
P = 1000
15. Van Eck Worldwide Balanced
a). For the 1 year period ending 12/31/96
CTR = 10.08%
ERV = 1100.769
P = 1000
b). For the period from 11/1/95 to 12/31/96
CTR = 10.61%
ERV = 1106.071
P = 1000
<PAGE> 16
IL ANNUITY AND INSURANCE COMPANY
COMPUTATION OF STANDARD CUMULATIVE TOTAL RETURN
The formula used to calculate total return is :
CTR = (ERV / P) - 1
where
CTR = Cumulative total return
ERV = Ending redeemable value of the initial investment (net of
any applicable Withdrawal Charge and contract fee) of the
hypothetical Variable Account at the end of the period shown
P = $1,000.00 initial investment
1. Alger American MidCap Growth
a). For the 1 year period ending 12/31/96
CTR = 3.24%
ERV = 1032.387
P = 1000
b). For the period from 11/1/95 to 12/31/96
CTR = 3.87%
ERV = 1038.744
P = 1000
2. Alger American Small Capitalization
a). For the 1 year period ending 12/31/96
CTR = -3.85%
ERV = 961.4963
P = 1000
b). For the period from 11/1/95 to 12/31/96
CTR = -3.40%
ERV = 966.0137
P = 1000
3. Fidelity VIP Equity Income
a). For the 1 year period ending 12/31/96
CTR = 5.59%
ERV = 1055.877
P = 1000
b). For the period from 11/1/95 to 12/31/96
CTR = 13.94%
ERV = 1139.412
P = 1000
4. Fidelity VIP Growth Fund
a). For the 1 year period ending 12/31/96
CTR = 6.01%
ERV = 1060.059
P = 1000
b). For the period from 11/1/95 to 12/31/96
CTR = 4.51%
ERV = 1045.126
P = 1000
5. Fidelity VIP Money Market
a). For the 1 year period ending 12/31/96
CTR = -2.73%
ERV = 972.6893
P = 1000
b). For the period from 11/1/95 to 12/31/96
CTR = -2.09%
ERV = 979.0743
P = 1000
<PAGE> 17
6. Fidelity VIP II Asset Manager
a). For the 1 year period ending 12/31/96
CTR = 5.90%
ERV = 1059.038
P = 1000
b). For the period from 11/1/95 to 12/31/96
CTR = 11.80%
ERV = 1118.018
P = 1000
7. Fidelity VIP II Contrafund
a). For the 1 year period ending 12/31/96
CTR = 12.51%
ERV = 1125.117
P = 1000
b). For the period from 11/1/95 to 12/31/96
CTR = 16.45%
ERV = 1164.525
P = 1000
8. Fidelity VIP II Index 500
a). For the 1 year period ending 12/31/96
CTR = 14.01%
ERV = 1140.06
P = 1000
b). For the period from 11/1/95 to 12/31/96
CTR = 21.77%
ERV = 1217.745
P = 1000
9. Fidelity VIP II Investment Grade Bond
a). For the 1 year period ending 12/31/96
CTR = -4.77%
ERV = 952.3243
P = 1000
b). For the period from 11/1/95 to 12/31/96
CTR = -2.17%
ERV = 978.3033
P = 1000
10. OCC Accumulation Managed
a). For the 1 year period ending 12/31/96
CTR = 13.96%
ERV = 1139.583
P = 1000
b). For the period from 11/1/95 to 12/31/96
CTR = 20.91%
ERV = 1209.064
P = 1000
11. OCC Accumulation Small Cap
a). For the 1 year period ending 12/31/96
CTR = 9.96%
ERV = 1099.63
P = 1000
b). For the period from 11/1/95 to 12/31/96
CTR = 16.57%
ERV = 1165.69
P = 1000
<PAGE> 18
12. T. Rowe Price Limited Term Bond
a). For the 1 year period ending 12/31/96
CTR = -10.04%
ERV = 899.5623
P = 1000
b). For the period from 11/1/95 to 12/31/96
CTR = -9.40%
ERV = 906.0457
P = 1000
13. T. Rowe Price International Stock
a). For the 1 year period ending 12/31/96
CTR = 6.00%
ERV = 1060.033
P = 1000
b). For the period from 11/1/95 to 12/31/96
CTR = 10.31%
ERV = 1103.128
P = 1000
14. Van Eck Worldwide Hard Assets
a). For the 1 year period ending 12/31/96
CTR = 9.32%
ERV = 1093.182
P = 1000
b). For the period from 11/1/95 to 12/31/96
CTR = 9.96%
ERV = 1099.597
P = 1000
15. Van Eck Worldwide Balanced
a). For the 1 year period ending 12/31/96
CTR = 2.97%
ERV = 1029.738
P = 1000
b). For the period from 11/1/95 to 12/31/96
CTR = 3.48%
ERV = 1034.827
P = 1000
<PAGE> 19
IL ANNUITY AND INSURANCE COMPANY
COMPUTATION OF NON-STANDARD AVERAGE ANNUAL TOTAL RETURN
The formula used to calculate total return is :
(1/N)) - 1
T = ((ERV / P)
where
T = Average Annual Total Return
ERV = Ending redeemable value of the initial investment (prior to
any applicable Withdrawal Charge and contract fee) of the
hypothetical Variable Account at the end of the period
shown
P = $1,000.00 initial investment
N = Number of years
1. Alger American MidCap Growth
a). For the 1 year period ending 12/31/96
T = 10.34%
ERV = 1103.405
P = 1000
N = 1
b). For the period from 11/1/95 to 12/31/96
T = 9.36%
ERV = 1110.051
P = 1000
N = 1.166667
2. Alger American Small Capitalization
a). For the 1 year period ending 12/31/96
T = 2.73%
ERV = 1027.319
P = 1000
N = 1
b). For the period from 11/1/95 to 12/31/96
T = 2.76%
ERV = 1032.304
P = 1000
N = 1.166667
3. Fidelity VIP Equity Income
a). For the 1 year period ending 12/31/96
T = 12.69%
ERV = 1126.931
P = 1000
N = 1
b). For the period from 11/1/95 to 12/31/96
T = 17.81%
ERV = 1210.748
P = 1000
N = 1.166667
4. Fidelity VIP Growth Fund
a). For the 1 year period ending 12/31/96
T = 13.11%
ERV = 1131.09
P = 1000
N = 1
b). For the period from 11/1/95 to 12/31/96
T = 9.90%
ERV = 1116.448
P = 1000
N = 1.166667
5. Fidelity VIP Money Market
a). For the 1 year period ending 12/31/96
T = 3.94%
ERV = 1039.39
P = 1000
N = 1
<PAGE> 20
b). For the period from 11/1/95 to 12/31/96
T = 3.95%
ERV = 1046.241
P = 1000
N = 1.166667
6. Fidelity VIP II Asset Manager
a). For the 1 year period ending 12/31/96
T = 13.01%
ERV = 1130.096
P = 1000
N = 1
b). For the period from 11/1/95 to 12/31/96
T = 16.02%
ERV = 1189.349
P = 1000
N = 1.166667
7. Fidelity VIP II Contrafund
a). For the 1 year period ending 12/31/96
T = 19.62%
ERV = 1196.202
P = 1000
N = 1
b). For the period from 11/1/95 to 12/31/96
T = 19.91%
ERV = 1235.905
P = 1000
N = 1.166667
8. Fidelity VIP II Index 500
a). For the 1 year period ending 12/31/96
T = 21.11%
ERV = 1211.145
P = 1000
N = 1
b). For the period from 11/1/95 to 12/31/96
T = 24.32%
ERV = 1289.125
P = 1000
N = 1.166667
9. Fidelity VIP II Investment Grade Bond
a). For the 1 year period ending 12/31/96
T = 1.75%
ERV = 1017.505
P = 1000
N = 1
b). For the period from 11/1/95 to 12/31/96
T = 3.88%
ERV = 1045.413
P = 1000
N = 1.166667
10. OCC Accumulation Managed
a). For the 1 year period ending 12/31/96
T = 21.07%
ERV = 1210.664
P = 1000
N = 1
b). For the period from 11/1/95 to 12/31/96
T = 23.60%
ERV = 1280.448
P = 1000
N = 1.166667
<PAGE> 21
11. OCC Accumulation Small Cap
a). For the 1 year period ending 12/31/96
T = 17.07%
ERV = 1170.699
P = 1000
N = 1
b). For the period from 11/1/95 to 12/31/96
T = 20.00%
ERV = 1237.063
P = 1000
N = 1.166667
12. T. Rowe Price Limited Term Bond
a). For the 1 year period ending 12/31/96
T = -3.93%
ERV = 960.743
P = 1000
N = 1
b). For the period from 11/1/95 to 12/31/96
T = -2.73%
ERV = 968.189
P = 1000
N = 1.166667
13. T. Rowe Price International Stock
a). For the 1 year period ending 12/31/96
T = 13.11%
ERV = 1131.053
P = 1000
N = 1
b). For the period from 11/1/95 to 12/31/96
T = 14.78%
ERV = 1174.449
P = 1000
N = 1.166667
14. Van Eck Worldwide Hard Assets
a). For the 1 year period ending 12/31/96
T = 16.42%
ERV = 1164.218
P = 1000
N = 1
b). For the period from 11/1/95 to 12/31/96
T = 14.48%
ERV = 1170.891
P = 1000
N = 1.166667
15. Van Eck Worldwide Balanced
a). For the 1 year period ending 12/31/96
T = 10.08%
ERV = 1100.769
P = 1000
N = 1
b). For the period from 11/1/95 to 12/31/96
T = 9.03%
ERV = 1106.071
P = 1000
N = 1.166667
<PAGE> 22
IL ANNUITY AND INSURANCE COMPANY
COMPUTATION OF STANDARD AVERAGE ANNUAL TOTAL RETURN
The formula used to calculate total return is :
(1/N)) - 1
T = ((ERV / P)
where
T = Average Annual Total Return
ERV = Ending redeemable value of the initial investment (net of any
applicable Withdrawal Charge and contract fee) of the
hypothetical Variable Account at the end of the period shown
P = $1,000.00 initial investment
N = Number of years
1. Alger American MidCap Growth
a). For the 1 year period ending 12/31/96
T = 3.24%
ERV = 1032.387
P = 1000
N = 1
b). For the period from 11/1/95 to 12/31/96
T = 3.31%
ERV = 1038.744
P = 1000
N = 1.166667
2. Alger American Small Capitalization
a). For the 1 year period ending 12/31/96
T = -3.85%
ERV = 961.4963
P = 1000
N = 1
b). For the period from 11/1/95 to 12/31/96
T = -2.92%
ERV = 966.0137
P = 1000
N = 1.166667
3. Fidelity VIP Equity Income
a). For the 1 year period ending 12/31/96
T = 5.59%
ERV = 1055.877
P = 1000
N = 1
b). For the period from 11/1/95 to 12/31/96
T = 11.84%
ERV = 1139.412
P = 1000
N = 1.166667
4. Fidelity VIP Growth Fund
a). For the 1 year period ending 12/31/96
T = 6.01%
ERV = 1060.059
P = 1000
N = 1
b). For the period from 11/1/95 to 12/31/96
T = 3.86%
ERV = 1045.126
P = 1000
N = 1.166667
5. Fidelity VIP Money Market
a). For the 1 year period ending 12/31/96
T = -2.73%
ERV = 972.6893
P = 1000
N = 1
<PAGE> 23
b). For the period from 11/1/95 to 12/31/96
T = -1.80%
ERV = 979.0743
P = 1000
N = 1.166667
6. Fidelity VIP II Asset Manager
a). For the 1 year period ending 12/31/96
T = 5.90%
ERV = 1059.038
P = 1000
N = 1
b). For the period from 11/1/95 to 12/31/96
T = 10.03%
ERV = 1118.018
P = 1000
N = 1.166667
7. Fidelity VIP II Contrafund
a). For the 1 year period ending 12/31/96
T = 12.51%
ERV = 1125.117
P = 1000
N = 1
b). For the period from 11/1/95 to 12/31/96
T = 13.95%
ERV = 1164.525
P = 1000
N = 1.166667
8. Fidelity VIP II Index 500
a). For the 1 year period ending 12/31/96
T = 14.01%
ERV = 1140.06
P = 1000
N = 1
b). For the period from 11/1/95 to 12/31/96
T = 18.40%
ERV = 1217.745
P = 1000
N = 1.166667
9. Fidelity VIP II Investment Grade Bond
a). For the 1 year period ending 12/31/96
T = -4.77%
ERV = 952.3243
P = 1000
N = 1
b). For the period from 11/1/95 to 12/31/96
T = -1.86%
ERV = 978.3033
P = 1000
N = 1.166667
10. OCC Accumulation Managed
a). For the 1 year period ending 12/31/96
T = 13.96%
ERV = 1139.583
P = 1000
N = 1
b). For the period from 11/1/95 to 12/31/96
T = 17.67%
ERV = 1209.064
P = 1000
N = 1.166667
<PAGE> 24
11. OCC Accumulation Small Cap
a). For the 1 year period ending 12/31/96
T = 9.96%
ERV = 1099.63
P = 1000
N = 1
b). For the period from 11/1/95 to 12/31/96
T = 14.04%
ERV = 1165.69
P = 1000
N = 1.166667
12. T. Rowe Price Limited Term Bond
a). For the 1 year period ending 12/31/96
T = -10.04%
ERV = 899.5623
P = 1000
N = 1
b). For the period from 11/1/95 to 12/31/96
T = -8.11%
ERV = 906.0457
P = 1000
N = 1.166667
13. T. Rowe Price International Stock
a). For the 1 year period ending 12/31/96
T = 6.00%
ERV = 1060.033
P = 1000
N = 1
b). For the period from 11/1/95 to 12/31/96
T = 8.78%
ERV = 1103.128
P = 1000
N = 1.166667
14. Van Eck Worldwide Hard Assets
a). For the 1 year period ending 12/31/96
T = 9.32%
ERV = 1093.182
P = 1000
N = 1
b). For the period from 11/1/95 to 12/31/96
T = 8.48%
ERV = 1099.597
P = 1000
N = 1.166667
15. Van Eck Worldwide Balanced
a). For the 1 year period ending 12/31/96
T = 2.97%
ERV = 1029.738
P = 1000
N = 1
b). For the period from 11/1/95 to 12/31/96
T = 2.98%
ERV = 1034.827
P = 1000
N = 1.166667
