<PAGE> 1
As filed with the Securities and Exchange Commission on April 28, 1999
Registration Nos. 033-89028
811-8964
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
----
Post-Effective Amendment No. 8 [X]
----
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 9 [X]
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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
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(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>
Janis B. Funk, Esq., Vice President Law, Individual Stephen E. Roth, Esq.
Indianapolis Life Insurance Company Sutherland Asbill & Brennan LLP
2960 North Meridian Street 1275 Pennsylvania Avenue, N.W.
Indianapolis, Indiana 46208 Washington, D.C. 20004-2415
</TABLE>
Approximate date of proposed public offering: As soon
as practicable after effectiveness of the Registration Statement.
-------------------
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1999 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
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Title of securities being registered: Units of Interests in a separate
account under flexible premium deferred variable annuity contracts and the
guarantee of IL Annuity and Insurance Co. relating thereto.
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<TABLE>
<CAPTION>
PROSPECTUS VISIONARY
MAY 1, 1999
<S> <C>
Please read this prospectus carefully before FLEXIBLE PREMIUM DEFERRED VARIABLE
investing, and keep it for future reference. It ANNUITY
contains important information about the
Visionary variable annuity. issued by
IL ANNUITY AND INSURANCE COMPANY
To learn more about the Visionary Contract, you through the
may want to look at the Statement of Additional IL ANNUITY AND INSURANCE CO.
Information dated May 1, 1999 (known as the SEPARATE ACCOUNT 1
"SAI"). For a free copy of the SAI, contact us
at:
The Visionary Contract ("Contract") has 15 funding
choices--one fixed account (paying a guaranteed minimum
fixed rate of interest) and 14 variable accounts
IL Annuity and Insurance Company which invest in the following mutual fund portfolios:
Administrative Office
2960 North Meridian Street
Indianapolis, Indiana 46208
Telephone: (800) 388-1331 THE ALGER AMERICAN FUND
- MidCap Growth
- Small Capitalization
We have filed the SAI with the U.S. Securities
and Exchange Commission (the "SEC") and FIDELITY VARIABLE INSURANCE PRODUCTS FUND ("VIP")
have incorporated it by reference into this - Equity-Income
prospectus. The SAI's table of contents appears - Growth
at the end of this prospectus. - Money Market
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II ("VIPII")
The SEC maintains an Internet website - Asset Manager
(http://www.sec.gov) that contains the SAI, - Contrafund
material incorporated by reference, and other - Index 500
information. You may also read and copy these - Investment Grade Bond
materials at the SEC's public reference room in
Washington, D.C. Call 1-800-SEC-0330 for OCC ACCUMULATION TRUST
information above the SEC's public reference - Managed
room. - Small Cap
T. ROWE PRICE FIXED INCOME SERIES, INC.
- Limited-Term
T. ROWE PRICE INTERNATIONAL SERIES, INC.
- International Stock
VARIABLE ANNUITY CONTRACTS INVOLVE CERTAIN
RISKS, AND YOU MAY LOSE SOME OR ALL OF YOUR VAN ECK WORLDWIDE INSURANCE TRUST
INVESTMENT. - Worldwide Hard Assets
- - The investment performance of the
portfolios in which the variable accounts
invest will vary.
- - We do not guarantee how any of the
portfolios will perform.
- - The Contract is not a deposit or obligation
of any bank, and no bank endorses or
guarantees the Contract.
- - Neither the U.S. Government nor any
federal agency insures your investment in
the policy.
</TABLE>
THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
Glossary..................................................................... 4
Highlights................................................................... 6
The Contract........................................................ 6
How to Invest....................................................... 7
Cancellation -- The 10 Day Free-Look Period......................... 7
Investment Options.................................................. 7
Transfers........................................................... 8
Partial Withdrawals................................................. 9
Full Withdrawal..................................................... 9
Death Benefit....................................................... 9
Maturity Benefit.................................................... 10
Fees and Charges.................................................... 10
Annuity Provisions.................................................. 11
Federal Tax Status.................................................. 11
Inquiries........................................................... 11
FEE TABLE.................................................................... 12
Condensed Financial Information..................................... 16
The Company and the Separate Account......................................... 16
IL Annuity and Insurance Company.................................... 16
IL Annuity and Insurance Co. Separate Account 1..................... 17
The Portfolios............................................................... 18
Investment Objectives of the Portfolios............................. 18
Investment Advisers to the Funds.................................... 20
Availability of the Funds........................................... 21
The Pay-In Period............................................................ 22
Purchasing a Contract............................................... 22
Premium Payments.................................................... 23
Cancellation -- The 10 Day Free-Look Period......................... 23
Designating Your Investment Options................................. 24
Your Contract Value.......................................................... 25
Separate Account Value.............................................. 25
Transfers Between Investment Options......................................... 26
General............................................................. 26
Telephone Transfers................................................. 26
Transfer Fee........................................................ 27
Dollar-Cost Averaging............................................... 27
Interest Sweep...................................................... 28
Automatic Account Balancing Service................................. 28
Access to Your Money......................................................... 28
Full Withdrawals.................................................... 28
Partial Withdrawals................................................. 29
Systematic Withdrawal Program ..................................... 30
Full and Partial Withdrawal Restrictions............................ 30
Restrictions on Distributions from Certain Types of Contracts....... 30
Contract Loans............................................................... 31
Death Benefits............................................................... 32
Death Benefit Before the Annuity Start Date......................... 32
Distribution Upon the Owner's Death................................. 33
Distribution Upon the Death of the Annuitant........................ 33
</TABLE>
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<TABLE>
<S> <C>
Death of Payee After the Annuity Start Date....................... 34
The Maturity Benefit....................................................... 34
Fees and Charges........................................................... 38
Withdrawal Charge (Contingent Deferred Sales Charge).............. 38
Contract Fee...................................................... 40
Asset-Based Administration Charge................................. 40
Mortality and Expense Risk Charge................................. 40
Transfer Fee...................................................... 41
Portfolio Fees and Charges........................................ 41
Premium Taxes..................................................... 41
Other Taxes....................................................... 41
The Payout Period.......................................................... 41
The Annuity Start Date............................................ 42
Annuity Payout Options............................................ 42
Determining the Amount of Your Annuity Payment.................... 43
Fixed Annuity Payments............................................ 43
Variable Annuity Payments......................................... 43
Annuity Unit Value .............................................. 44
Description of Annuity Payout Options............................. 44
The Fixed Account.......................................................... 45
Fixed Account Value............................................... 46
Fixed Account Transfers........................................... 47
Investment Performance of the Variable Accounts............................ 48
Voting Rights.............................................................. 50
Federal Tax Matters........................................................ 51
Taxation of Non-Qualified Contracts............................... 51
Taxation of Qualified Contracts................................... 53
Other Tax Issues ................................................. 54
Our Income Taxes.................................................. 54
Possible Tax Law Changes.......................................... 55
Other Information.......................................................... 55
Holidays.......................................................... 55
Payments.......................................................... 55
Modification...................................................... 56
Distribution of the Contracts..................................... 56
Legal Proceedings................................................. 57
Reports to Owners................................................. 57
Inquiries......................................................... 57
Year 2000 Matters................................................. 57
Financial Statements.............................................. 58
Statement of Additional Information Table of Contents...................... 58
Appendix A................................................................. A-1
</TABLE>
<PAGE> 5
GLOSSARY
For your convenience, we are providing a glossary of the special terms we
use in this prospectus.
ACCUMULATION UNIT -- The measurement we use before the Annuity Start Date to
calculate the value of each variable account at the end of each Valuation Day.
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 payment benefits we will pay under
the Contract and whose death determines the death benefit. The annuitant may not
be changed.
ANNUITY START DATE -- The date when we start making annuity payments under the
Contract. (The term "Annuity Commencement Date" is used in the Contract.)
ANNUITY UNIT -- A measurement 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 annuitant
dies before we start making annuity payments.
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."
(The term "Valuation Date" is used in the Contract.)
COMPANY ("WE,""US,""OUR") -- IL Annuity and Insurance Company.
CONTRACT ANNIVERSARY -- The same date in each year as the date of issue.
CONTRACT VALUE -- The total amount you have accumulated under the Contract. It
is the total of the money you have in the separate account and the fixed
account.
DATE OF ISSUE -- The date we issue your contract. It is shown on the
specifications page of the Contract. We measure contract years and contract
anniversaries from the date of issue and is the date on which the first contract
year begins.
DUE PROOF OF DEATH -- Proof of death that we find satisfactory, such as a
certified copy of the death records, or a certified copy of a court decree
reciting a finding of death.
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<PAGE> 6
ELIGIBLE PREMIUM PAYMENT -- That part of any premium payment that you allocate
to a particular Eligible Variable Account at the time of payment, provided
payment was made at least ten (10) years before the Maturity Benefit Date.
ELIGIBLE VARIABLE ACCOUNT -- Variable accounts the Company designates to be
guaranteed by the Maturity Benefit. Currently all variable accounts are so
designated.
FIXED ACCOUNT --An option to which you can direct your money under the Contract.
It provides a guarantee of principal and interest. The assets supporting the
fixed account are held in our general account.
FUNDS --The open-end management investment companies listed on the front page of
this Prospectus. This Contract allows you to invest in certain investment
portfolios of the Funds.
MATURITY BENEFIT -- A guarantee we provide regarding your Contract's value in
the variable accounts on the Maturity Benefit Date.
MATURITY BENEFIT DATE -- The later of the annuitant's age 70 or 10 years after
the date of issue. Special rules apply to joint owners.
OWNER OR OWNERS ("YOU" OR "YOUR") --The person(s) having the privileges of
ownership stated in the Contract. Joint owners may be permitted.
PAYEE -- The person or persons entitled to receive annuity payments. You may
name a "successor payee" who will receive any guaranteed annuity payments after
the death of the sole surviving payee.
PAY-IN PERIOD -- The period that begins when we issue your Contract and ends on
the Annuity Start Date. During the pay-in period, earnings accumulate on a
tax-deferred basis.
PAYOUT PERIOD -- The period that begins on the Annuity Start Date during which
you receive annuity payments based on the money you have accumulated under your
Contract.
PAYOUT PLAN --The arrangement you choose under which we pay annuity payments to
you after the Annuity Start Date. You may choose whether the dollar amount of
the payments you receive will be fixed, or will vary with the investment
experience of the variable accounts in which you are invested at that time, or
whether you will receive a combination of fixed and variable payments.
PORTFOLIO -- A separate investment portfolio of a Fund in which a variable
account invests.
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QUALIFIED CONTRACT -- A Contract that is issued in connection with retirement
plans that qualify for special federal income tax treatment under sections
401(a), 403(b), 408 or 408A of the Internal Revenue Code.
SEPARATE ACCOUNT -- IL Annuity and Insurance Co. Separate Account 1, a separate
investment account divided into variable accounts that we established to receive
and invest the premium payments we receive under the Contract. Assets in the
separate account are not part of our general account.
SERVICE CENTER -- USA Administration Services, Inc., the administrator for the
Contracts. The mailing address for the Service Center is P.O. Box 2948,
Overland Park, KS 66201-1348 or 12900 Metcalf Avenue, Suite 200, Overland Park,
KS 66213-2620. You can call the Service Center office at 1-888-232-6486.
VARIABLE ACCOUNT -- A subdivision of the Separate Account that invests
exclusively in shares of a single portfolio of a Fund. The investment
performance of each variable account is linked directly to the investment
performance of the portfolio in which it invests.
WRITTEN REQUEST -- Your signed written notice or request. We must receive your
written request at the Service Center and it must be in a form we find
satisfactory.
HIGHLIGHTS
===============================================================================
These highlights provide only a brief overview of the more important
features of the Visionary Contract. More detailed information about the Contract
appears later in this prospectus. Please read this prospectus carefully.
THE CONTRACT
An annuity is a contract where you agree to make one or more payments to
us and, in return, we agree to pay a series of payments to you at a later date
chosen by you. The Visionary Contract is a special kind of annuity that is:
- FLEXIBLE PREMIUM - you may add premium payments at any time.
- TAX-DEFERRED - you do not have to pay taxes on earnings until you
take money out by full or partial cash withdrawals, or until we make
annuity payments to you, or we pay the death benefit.
- VARIABLE - its value fluctuates with the performance of the mutual
fund portfolios in which you invest. You bear the investment risk on
the amounts you invest.
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<PAGE> 8
- AVAILABLE WITH RETIREMENT PLANS - you may purchase this annuity in
connection with retirement plans, including those that qualify for
favorable federal tax treatment.
Like all deferred annuities, the Contract has two phases: the "pay-in"
period and the "payout" period. During the pay-in period, you can allocate money
to any combination of investment alternatives. Any earnings on your investments
accumulate tax-deferred. The payout period begins once you start receiving
regular annuity payments from your contract value. The money you can accumulate
during the pay-in period, as well as the annuity payout option you choose, will
determine the dollar amount of any annuity payments you receive.
HOW TO INVEST
You may purchase the Contract with a single payment of $1,000 or more
under most circumstances. We will not issue a Contract if you are older than age
85 on the date of issue.
You can pay additional premiums of $1,000 or more with some limitations.
Send your premium payments to the Service Center, P.O. Box 2948, Overland Park,
KS 66201-1348 or 12900 Metcalf Avenue, Suite 200, Overland Park, KS 66213-2620.
You can call the Service Center office at 1-888-232-6486.
CANCELLATION -- THE 10 DAY FREE-LOOK PERIOD
You have the right to cancel the Contract for a refund within 10 days
after you receive it (or within 20 days if the Contract is replacing another
annuity contract or insurance policy). You must return the Contract to our
Service Center along with your written request to cancel the Contract. We will
treat the returned Contract as if it had never been issued. In some states you
may have more than 10 days. The amount that we refund will vary according to
state requirements. If we refund your original premium payment, we will put your
premium payment to the Money Market variable account during the free-look
period.
INVESTMENT OPTIONS
You may invest your money in any of 14 portfolios by directing it into the
corresponding variable account. The portfolios now available to you under the
Contract are:
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<TABLE>
<S> <C>
THE ALGER AMERICAN FUND OCC ACCUMULATION TRUST
- - MidCap Growth - Managed
- - Small Capitalization - Small Cap
FIDELITY VIP T. ROWE PRICE FIXED INCOME SERIES, INC.
- - Equity-Income - Limited-Term Bond
- - Growth T. ROWE PRICE INTERNATIONAL SERIES, INC.
- - Money Market - International Stock
FIDELITY VIP II VAN ECK WORLDWIDE INSURANCE TRUST
- - Asset Manager - Worldwide Hard Assets
- - Contrafund
- - Index 500
- - Investment Grade Bond
</TABLE>
Each variable account invests exclusively in shares of one portfolio of a
Fund. Each portfolio's assets are held separately from the other portfolios and
each portfolio has separate investment objectives and policies. The portfolios
are described in the prospectuses for the Funds that accompany this prospectus.
Depending on market conditions, you can make or lose money in any of the
variable accounts. We reserve the right to offer other investment choices in the
future.
THE VALUE OF YOUR INVESTMENT IN THE VARIABLE ACCOUNTS WILL FLUCTUATE DAILY
BASED ON THE INVESTMENT RESULTS OF THE PORTFOLIOS IN WHICH YOU INVEST, AND ON
THE FEES AND CHARGES DEDUCTED.
You may also direct your money to the fixed account and receive a
guaranteed rate of return. Money you place in the fixed account will earn
interest for one year periods at a fixed rate that is guaranteed by us never to
be less than 3.0%.
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. Transfers may reduce the value
of the Maturity Benefit guarantee.
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. We do not charge a fee for transfers
from the fixed account to one or more variable accounts, nor do we consider such
transfers to be transfers for purposes of assessing a transfer charge.
You may make 12 free transfers each contract year. We impose a $25 charge
per transfer on each transfer after the twelfth during a contract year before
the Annuity Start Date.
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<PAGE> 10
Once you begin to receive annuity payments, you may make one transfer
between the variable accounts each contract year.
PARTIAL WITHDRAWALS
During the pay-in period, you may receive a cash withdrawal of part of
your contract value by sending a written request to the Service Center. The
minimum amount you can withdraw is $250.
Your cash withdrawal may be subject to a withdrawal charge, if you
withdraw premium payments during the first nine contract years. In any contract
year after the first contract year, you may withdraw a portion of your contract
value, called the free withdrawal amount, without incurring a withdrawal charge.
Withdrawals may reduce the value of the Maturity Benefit guarantee.
You may have to pay federal income taxes and a penalty tax on any money
you withdraw from the Contract. The federal tax laws may prohibit certain
premature withdrawals from the Contract before or after the Annuity Start Date.
FULL WITHDRAWAL
During the pay-in period, you may cancel the Contract and receive its
surrender value by sending us a written request. As with partial withdrawals,
you may have to pay federal income taxes and a penalty tax on any money you
withdraw from the Contract. The federal tax laws may prohibit certain premature
withdrawals from the Contract before or after the Annuity Start Date.
DEATH BENEFIT
We will pay the death benefit to the beneficiary on the annuitant's death
before the Annuity Start Date.
The death benefit will equal the greater of:
- the sum of premium payments made under the Contract, LESS partial
withdrawals as of the date the death benefit is determined; or
- the contract value as of the date the death benefit is determined.
In determining the death benefit, we will also subtract any premium taxes
that apply.
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MATURITY BENEFIT
The Maturity Benefit guarantees a minimum value in the variable accounts
on the later of the annuitant's 70th birthday, or the Contract's tenth
anniversary, provided certain conditions are met. The Maturity Benefit is based
on the premium payments that are directed into the Eligible Variable Accounts at
the time of payment, reduced by adjusted withdrawals and transfers, provided the
payment is made before the Maturity Benefit Date.
We will not credit your Contract with any Maturity Benefit if you elect to
receive annuity payments before the Maturity Benefit Date.
Transfers and withdrawals from an Eligible Variable Account will reduce
the value of the Maturity Benefit.
FEES AND CHARGES
Withdrawal Charge. We will deduct a withdrawal charge if you withdraw all
or part of your contract value during the first nine contract years. The amount
of the withdrawal charge depends upon the number of years since we issued your
Contract. The withdrawal charge is 7% in the first six contract years,
decreasing to 6% in the seventh contract year, and then declining by 2% in each
subsequent contract year, until it is zero in contract year ten.
We do not assess a withdrawal charge on the death benefit or on 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 withdrawal charge 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.
Contract Fee. We deduct a quarterly contract fee of $7.50 from your
contract value at the end of each contract quarter during the pay-in period and
on the date of full withdrawal. Certain exceptions apply.
Transfer Fee. You may make 12 free transfers each contract year. We impose
a $25 charge per transfer on each transfer after the twelfth during a contract
year before the Annuity Start Date.
Mortality and Expense Risk Charge. We will deduct a daily mortality and
expense risk charge from your value in the variable accounts at an annual rate
of 1.25%. We will continue to deduct this charge after you begin to receive
annuity payments if you choose to receive variable annuity payments.
Asset-Based Administrative Charge. We will deduct a daily administrative
charge from your value in the variable account at an annual rate of 0.15%. We
will continue to assess this
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charge after you begin to receive annuity payments if you choose to receive
variable annuity payments.
Premium Taxes. We will deduct state premium taxes, which currently range
from 0% up to 3.5%, if your state requires us to pay the tax. If necessary, we
will make the deduction either: (a) from premium payments as we receive them,
(b) from your contract value upon partial or full withdrawal, (c) when annuity
payments begin, or (d) upon payment of a death benefit.
Portfolio Fees and Charges. Each portfolio deducts portfolio management
fees and charges from the amounts you have invested in the portfolios. These
charges currently annually range from .30% to 1.16% annually. See the Fee Table
in this Prospectus and the prospectuses for the portfolios.
ANNUITY PROVISIONS
Payout Options. The Contract allows you to receive periodic annuity
payments beginning on the Annuity Start Date you select. You may choose among
several payout plans. You may receive income payments for a specific period of
time or for life, with or without a guaranteed number of payments.
We will use your adjusted contract value on the Annuity Start Date to
calculate the amount of your annuity payments under the payment plan you choose.
If you select a variable payout option, the dollar amount of your payments may
go up or down depending on the investment results of the portfolios you invest
in at that time.
FEDERAL TAX STATUS
Generally, a distribution, including a full or partial withdrawal or death
benefit payment, may be taxed. 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."
INQUIRIES
If you need additional information, please contact us at:
Service Center
P.O. Box 2948
Overland Park, KS 66201-1348
or
12900 Metcalf Avenue, Suite 200
Overland Park, KS 66213-2620
1-888-232-6486.
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FEE TABLE
===============================================================================
The Fee Table illustrates the current expenses and fees under the Contract
as well as the portfolios' fees and expenses for the 1998 calendar year. The
purpose of this table is to help you understand the various costs and expenses
that you will pay directly and indirectly.
YOUR TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Charge Imposed on Premium Payments..............................................................None
Maximum Withdrawal Charge (contingent deferred
sales charge) as a percentage of premium payments(1)............................................7.0%
Transfer Fee.........................................................No fee for first twelve transfers in
a contract year, then $25 per
additional transfer
ANNUALIZED CONTRACT FEE (2)...........................................................................$30
</TABLE>
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C>
Mortality and Expense Risk Charge....................................................................1.25%
Administrative Expenses..............................................................................0.15%
-----
Total Separate Account Annual Expenses...............................................................1.40%
</TABLE>
ANNUAL FUND EXPENSES
(as a percentage of average net assets after fee waiver or expense
reimbursements)
<TABLE>
<CAPTION>
TOTAL ANNUAL
EXPENSES (AFTER
MANAGEMENT OTHER EXPENSES WAIVERS
FEES (AFTER AND
NAME OF PORTFOLIO (AFTER WAIVERS) REIMBURSEMENT) REIMBURSEMENT)
- ----------------- --------------- -------------- --------------
<S> <C> <C> <C>
Alger American Fund
MidCap Growth Portfolio 0.80% 0.04% 0.84%
SmallCap Portfolio 0.85% 0.04% 0.89%
</TABLE>
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<TABLE>
<CAPTION>
TOTAL ANNUAL
EXPENSES (AFTER
MANAGEMENT OTHER EXPENSES WAIVERS
FEES (AFTER AND
NAME OF PORTFOLIO (AFTER WAIVERS) REIMBURSEMENT) REIMBURSEMENT)
- ----------------- --------------- -------------- --------------
<S> <C> <C> <C>
Fidelity VIP
Equity-Income Portfolio (3) 0.49% 0.09% 0.58%
Growth Portfolio (3) 0.59% 0.09% 0.68%
Money Market Portfolio 0.20% 0.10% 0.30%
Fidelity VIP II
Asset Manager Portfolio (3) 0.54% 0.10% 0.64%
Contrafund Portfolio (3) 0.59% 0.11% 0.70%
Index 500 Portfolio (3) 0.24% 0.11% 0.35%
Investment Grade Bond Portfolio 0.43% 0.14% 0.57%
OCC Accumulation Trust
Managed Portfolio (4) 0.78% 0.04% 0.82%
Small Cap Portfolio (4) 0.80% 0.08% 0.88%
T. Rowe Price Fixed Income
Series, Inc.
Limited-Term Bond Portfolio
(5) 0.70% 0.00% 0.70%
T. Rowe PriceInternational
Series, Inc.
International Stock
Portfolio(5) 1.05% 0.00% 1.05%
Van Eck Worldwide
Insurance Trust
Worldwide Hard Assets
Portfolio 1.00% 0.16% 1.16%
</TABLE>
1/ We do not assess a withdrawal charge if the Contract terminates due to
your death or the annuitant's death, 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.
2/ We waive this fee for Qualified Contracts. We also waive this fee for
Non-Qualified Contracts with cumulative premium payments of at least $100,000.
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<PAGE> 15
3/ A portion of the brokerage commissions that the Equity Income, Growth,
Asset Manager, Index 500 and Contrafund Portfolios pay was used to reduce fund
expenses. In addition, these Portfolios have entered into arrangements with
their custodian whereby credits realized as a result of uninvested cash balances
were used to reduce custodian expenses. Including these reductions, the total
operating expenses presented in the fee table would have been: 0.57% for the
Equity Income Portfolio; 0.66% for the Growth Portfolio; 0.63% for the Asset
Manager Portfolio; 0.28% for the Index 500 Portfolio; and 0.66% for the
Contrafund Portfolio.
4/ The Other Expenses of the OCC Accumulation Trust Portfolios as of December
31, 1998 are shown without a reduction for certain expense offsets afforded the
Portfolios which effectively lowered overall custody expenses. The Total Annual
Portfolio Expenses of the Managed and Small Cap Portfolios are limited by OpCap
Advisors so that their respective annualized operating expenses (net of any
expense offsets) do not exceed 1.00% of their respective average daily net
assets. These limitations had a negligible effect, so that without such
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, 1998 would have been: 0.78%, 0.04% and 0.82%,
respectively, for the Managed Portfolio; and 0.80%, 0.08% and 0.88%,
respectively, for the Small Cap Portfolio.
5/ The Limited-Term Bond Portfolio pays T. Rowe Price an annual all-inclusive
fee of 0.70%, computed daily and paid monthly, 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%, computed daily and
paid monthly, based on its average daily net assets. These fees pay for
investment management services and other operating costs of the Portfolios.
EXAMPLES
(NOTE: The examples shown below are entirely hypothetical. They do not
represent past or future performance or expenses. Actual performance and/or
expenses may be more or less than shown.)
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets, and charges and expenses reflected in the Fee Table
above:
1. If you surrender your Contract (or if you elect to annuitize under a
period certain option for a specified period of less than 10 years) at the
end of the applicable time period:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ALGER AMERICAN FUND
MidCap Growth $ 94.50 $ 143.44 $ 198.64 $ 273.95
- -------------------------------------------------------------------------------------------------------
Small Capitalization $ 95.02 $ 144.91 $ 201.27 $ 279.19
- -------------------------------------------------------------------------------------------------------
FIDELITY VIP
Equity-Income $ 91.77 $ 135.79 $ 184.89 $ 246.26
- -------------------------------------------------------------------------------------------------------
Growth $ 92.82 $ 138.74 $ 190.20 $ 257.00
- -------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 16
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market $ 88.83 $ 127.50 $ 169.91 $ 215.62
- -------------------------------------------------------------------------------------------------------
FIDELITY VIP II
Asset Manager $ 92.40 $ 137.56 $ 188.08 $ 252.72
- -------------------------------------------------------------------------------------------------------
Contrafund $ 93.03 $ 139.32 $ 191.26 $ 259.13
- -------------------------------------------------------------------------------------------------------
Index 500 $ 89.36 $ 128.98 $ 172.60 $ 221.16
- -------------------------------------------------------------------------------------------------------
Investment Grade Bond $ 91.67 $ 135.49 $ 184.36 $ 245.18
- -------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
Managed $ 94.29 $ 142.85 $ 197.59 $ 271.84
- -------------------------------------------------------------------------------------------------------
Small Cap $ 94.92 $ 144.61 $ 200.74 $ 278.14
- -------------------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME
SERIES, INC.
Limited-Term Bond $ 93.03 $ 139.32 $ 191.26 $ 259.13
- -------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL
SERIES, INC.
International Stock $ 96.70 $ 149.59 $ 209.64 $ 295.78
- -------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE
INSURANCE TRUST
Worldwide Hard Assets $ 97.85 $ 152.80 $ 215.36 $ 307.03
- -------------------------------------------------------------------------------------------------------
</TABLE>
2. If you do not surrender your Contract (or if you elect to annuitize under
a life contingency option or under a period certain option for a minimum
specified period of 10 years) at the end of the applicable time period:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ALGER AMERICAN FUND
MidCap Growth $ 24.50 $ 75.31 $ 128.64 $ 273.95
- -------------------------------------------------------------------------------------------------------
Small Capitalization $ 25.02 $76.88 $ 131.27 $ 279.19
- -------------------------------------------------------------------------------------------------------
FIDELITY VIP
Equity-Income $ 21.77 $ 67.09 $ 114.89 $ 246.26
- -------------------------------------------------------------------------------------------------------
Growth $ 22.82 $ 70.25 $ 120.20 $ 257.00
- -------------------------------------------------------------------------------------------------------
Money Market $ 18.83 $ 58.18 $ 99.91 $ 215.62
- -------------------------------------------------------------------------------------------------------
FIDELITY VIP II
Asset Manager $ 22.40 $ 68.99 $ 118.08 $ 252.72
- -------------------------------------------------------------------------------------------------------
Contrafund $ 23.03 $ 70.89 $ 121.26 $ 259.13
- -------------------------------------------------------------------------------------------------------
Index 500 $ 19.36 $ 59.78 $ 102.60 $ 221.16
- -------------------------------------------------------------------------------------------------------
Investment Grade Bond $ 21.67 $ 66.77 $ 114.36 $ 245.18
- -------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
Managed $ 24.29 $ 74.68 $ 127.59 $ 271.84
- -------------------------------------------------------------------------------------------------------
Small Cap $ 24.92 $ 76.57 $ 130.74 $ 278.14
- -------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 17
<TABLE>
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
T. ROWE PRICE FIXED INCOME
SERIES, INC.
Limited-Term Bond $ 23.03 $ 70.89 $ 121.26 $ 259.13
- -------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL
SERIES, INC.
International Stock $ 26.70 $ 81.91 $ 139.64 $ 295.78
- -------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE
INSURANCE TRUST
Worldwide Hard Assets $ 27.85 $ 85.36 $ 145.36 $ 307.03
- -------------------------------------------------------------------------------------------------------
</TABLE>
The examples provided above assume that no transfer charges or premium
taxes have been assessed. The examples also reflect the contract fee of $30 as
being assessed on an average contract value of $30,000, which translates the
contract fee into a 0.10% charge for the purposes of the examples based on a
$1,000 investment.
THE EXAMPLES DO NOT REPRESENT PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER OR LESSER THAN THOSE SHOWN. THE ASSUMED 5% ANNUAL RATE OF RETURN IS
HYPOTHETICAL. IT DOES NOT REPRESENT PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE
GREATER OR LESS THAN THIS ASSUMED RATE.
CONDENSED FINANCIAL INFORMATION
Condensed financial information for the variable accounts is included at
the end of this prospectus.
THE COMPANY AND THE SEPARATE ACCOUNT
===============================================================================
IL ANNUITY AND INSURANCE COMPANY
IL Annuity and Insurance Company, formerly known as Sentry Investors Life
Insurance Company, is a stock life insurance company organized under the laws of
the Commonwealth of
Massachusetts on December 21, 1965 and incorporated on March 9, 1966. We changed
our name to "IL Annuity and Insurance Company" on January 17, 1995.
On October 31, 1994, we entered into an assumption reinsurance agreement
with Sentry Life Insurance Company ("Sentry"). Under that agreement, 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. ("Indianapolis Life Group"), which is
a majority-owned subsidiary of Indianapolis Life Insurance Company. Indianapolis
Life Insurance Company is a mutual life
16
<PAGE> 18
insurance company chartered under Indiana law in 1905 with assets as of December
31, 1998 which approximated $1.78 billion.
At the end of 1997, American United Life Insurance Company ("AUL") and
Indianapolis Life Insurance Company took preliminary steps toward an
affiliation. At that time, AUL invested $8,910,000 in Indianapolis Life Group of
Companies, Inc. ("IL Group") and on March 30, 1998 AUL invested an additional
$18,090,000. On March 31, 1999, an Investment and Funding Agreement was executed
between IL Group, AUL and Legacy Marketing Group ("LMG"). The Agreement provides
for additional investments in IL Group, the purpose of which is to provide
additional capital to IL Annuity. As a result of these investments and related
transactions, as of March 31, 1999, Indianapolis Life Insurance Company retains
ownership of 61.30% of the stock of IL Group, AUL owns 32.44% of the IL Group
stock and LMG owns 6.26% of the IL Group stock. The Agreement to affiliate does
contain provisions which would allow AUL to invest additional amounts in IL
Group, and potentially to own up to 49.9% of the outstanding IL Group stock.
IL ANNUITY AND INSURANCE CO. SEPARATE ACCOUNT 1
We established 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 any other variable annuity contracts that we
issue in the future.
The assets in the separate account are our property. However, 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 conduct and that which is not
specifically related to, or dependent on, 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, whether or not realized, from assets allocated to the separate
account are credited to or charged against the separate account without regard
to our other income, gains or losses or those of any other separate account.
The separate account currently is divided into fourteen variable accounts
that are available for investment 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.
17
<PAGE> 19
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 in shares of a
designated portfolio of a series-type mutual fund. 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 are separate from the assets of 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
manager is responsible for the selection of portfolio investments consistent
with the portfolios's investment objectives and policies, and conducts
securities trading for the portfolio.
In addition, the investment objectives and policies of certain portfolios
are similar to the investment objectives and policies of other portfolios that
may be managed by the same investment adviser or manager. The investment results
of the portfolios, however, may be higher or lower than the results of other
such portfolios. We make no assurance, and no representation, that the
investment results of any of the portfolios will be comparable to the investment
results of any other portfolio, even if the other portfolio has the same
investment adviser or manager.
An investment in a variable account, or in any portfolio, including the
Money Market Portfolio, is not insured or guaranteed by the U.S. Government and
there can be no assurance that the Money Market Portfolio will be able to
maintain a stable net asset value per share.
INVESTMENT OBJECTIVES OF THE PORTFOLIOS
The investment objective of each portfolio is summarized below. WE GIVE NO
ASSURANCE THAT ANY PORTFOLIO WILL ACHIEVE ITS STATED OBJECTIVES. You can find
more detailed information, including a description of risks, fees and expenses
of each portfolio in the prospectuses for the portfolios which accompany this
prospectus.
18
<PAGE> 20
CERTAIN PORTFOLIOS HAVE SIMILAR INVESTMENT OBJECTIVES AND/OR POLICIES. YOU
SHOULD CAREFULLY READ THE PROSPECTUSES FOR THE PORTFOLIOS BEFORE YOU INVEST.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
PORTFOLIO INVESTMENT OBJECTIVE
- -------------------------------------------------------------------------------------
<S> <C>
THE ALGER AMERICAN seeks long-term capital appreciation.
MIDCAP GROWTH The portfolio focuses on midsize
PORTFOLIO companies with promising growth
potential. Under normal circumstances,
the portfolio invests primarily in the
equity securities of companies having a
market capitalization within the range
of companies in the S&P(R) MidCap 400
Index.
- -------------------------------------------------------------------------------------
THE ALGER AMERICAN seeks long-term capital appreciation.
SMALL CAPITALIZATION The portfolio focuses on small,
PORTFOLIO fast-growing companies that offer
innovative products, services or
technologies to a rapidly expanding
marketplace. Under normal circumstances,
the portfolio invests primarily in the
equity securities of small
capitalization companies. A small
capitalization company is one that has a
market capitalization within the range
of the Russell(R) 2000 Growth or the
S&P(R)SmallCap 600 Index.
- -------------------------------------------------------------------------------------
FIDELITY VIP seeks reasonable income and will also
EQUITY-INCOME consider the potential for capital
PORTFOLIO appreciation. The portfolio seeks a
yield which exceeds the composite yield
on the securities comprising the S&P 500
by investing primarily in
income-producing equity securities.
- -------------------------------------------------------------------------------------
FIDELITY VIP seeks to achieve capital appreciation by
GROWTH PORTFOLIO investing in common stocks that the
adviser believes have above-average
growth potential.
- -------------------------------------------------------------------------------------
FIDELITY VIP seeks to earn a high level of current
MONEY MARKET income as is consistent with the
PORTFOLIO preservation of capital and liquidity by
investing in high-quality, short-term
money market securities of different
types.
- -------------------------------------------------------------------------------------
FIDELITY VIP II seeks to obtain a high total return
ASSET MANAGER with reduced risk over the long-term by
PORTFOLIO allocating its assets among stocks,
bonds and short-term instruments.
- -------------------------------------------------------------------------------------
FIDELITY VIP II seeks long-term capital appreciation by
CONTRAFUND PORTFOLIO investing primarily in common stocks of
companies whose value the adviser
believes is not fully recognized by the
public.
- -------------------------------------------------------------------------------------
FIDELITY VIP II seeks to match the total return of the
INDEX 500 PORTFOLIO S&P 500. The adviser normally invests
at least 80% of the portfolio's assets
in equity securities of companies that
compose the S&P 500.
- -------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 21
<TABLE>
- ------------------------------------------------------------------------------------------
<S> <C>
FIDELITY VIP II seeks as high a level of current income as
INVESTMENT GRADE is consistent with the preservation of
BOND PORTFOLIO capital by investing in U.S. dollar-denominated
investment grade bonds.
- ------------------------------------------------------------------------------------------
OCC ACCUMULATION seeks growth of capital over time through
MANAGED PORTFOLIO 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.
- ------------------------------------------------------------------------------------------
OCC ACCUMULATION seeks capital appreciation through investment
SMALL CAP PORTFOLIO in a diversified portfolio of equity securities
of companies with market capitalizations of
under $1 billion.
- ------------------------------------------------------------------------------------------
T. ROWE PRICE seeks a high level of income consistent with
LIMITED-TERM BOND moderate fluctuation in principal value. The
PORTFOLIO portfolio will invest at least 65% of total
assets in short- and intermediate-term,
investment-grade debt securities.
- ------------------------------------------------------------------------------------------
T. ROWE PRICE seeks long-term growth of capital through
INTERNATIONAL STOCK investments primarily in common stocks of
PORTFOLIO established, non-U.S. companies.
- ------------------------------------------------------------------------------------------
VAN ECK seeks long-term capital appreciation by
WORLDWIDE HARD investing globally, primarily in "Hard Asset
ASSETS PORTFOLIO 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) natural resources,
(iii) real estate, and (iv) commodities.
- ------------------------------------------------------------------------------------------
</TABLE>
INVESTMENT ADVISERS TO THE FUNDS
THE ALGER AMERICAN FUND. 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 portfolio's 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 portfolios of the VIP Fund and the VIP Fund II are managed
by Fidelity Management & Research Company ("FMR"). On behalf of VIP Money Market
Portfolio, FMR has entered in a sub-advisory agreement with Fidelity Investments
Money Management, Inc. ("FIMM"), under which FIMM has primary responsibility for
choosing investments for the funds. On behalf of VIPII Asset Manager Portfolio,
FMR has entered into a sub-advisory agreement with FIMM, under which FIMM
chooses certain types of investments for the portfolio. On behalf of VIPII Asset
Manager Portfolio and VIPII Contrafund Portfolio, FMR has
20
<PAGE> 22
entered into sub-advisory agreements with Fidelity Investment Management and
Research (U.K.) Inc. ("FMR (U.K.)") and Fidelity Management and Research (Far
East) Inc. ("FMR Far East"), under which the sub-advisers provide investment
research advice on issuers based outside the United States and may also provide
investment advisory services to the funds.
OCC ACCUMULATION TRUST. The OCC Trust receives investment advice with
respect to each of its portfolios from OpCap Advisors. OpCap Advisors is a
subsidiary of Oppenheimer Capital which is an indirect wholly owned subsidiary
of PIMCO Advisors L.P.
T. ROWE PRICE FIXED INCOME SERIES, INC. 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. 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. 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.
We have entered into agreements with the investment adviser of several of
the Funds whereby each such investment adviser will pay us a servicing fee based
on an annual percentage of the average aggregate net assets we invest on behalf
of the separate account. These agreements reflect administrative services we
provide to the Funds. Payments of such amounts by the Funds will not increase
the fees the Funds or their shareholders pay.
AVAILABILITY OF THE FUNDS
We cannot guarantee that each portfolio will always be available for
investment through the Contracts.
We reserve the right, subject to applicable law, to make additions to,
deletions from, or substitutions for the shares of a fund that are held in the
separate account or that the separate account may purchase. If the shares of a
fund are no longer available for investment or if, in our judgment, further
investment in any fund should become inappropriate, we may redeem the shares, if
any, of that fund and substitute shares of another fund. We will not substitute
any shares attributable to a Contract's interest in a variable account without
notice and prior approval of the SEC and state insurance authorities, to the
extent required by the 1940 Act or other applicable law.
21
<PAGE> 23
We also reserve the right to establish additional variable accounts of the
separate account, each of which would invest in shares of a new corresponding
fund having a specified investment objective. We may, in our sole discretion,
establish new variable accounts or eliminate or combine one or more variable
accounts if marketing needs, tax considerations or investment conditions
warrant. We may make any new variable accounts available to you on a basis that
we determine. Subject to obtaining any approvals or consents required by
applicable law, we may transfer the assets of one or more variable accounts 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 SAI.
In the event of any such substitution or change, we may change the
Contract to reflect the substitution or change. If we consider it to be in the
Owner's and annuitant's best interest, 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;
- deregistered under the 1940 Act if registration is no longer
required;
- combined with other Company separate accounts; or transferred to
another separate account of ours.
In addition, we may, when permitted by law, restrict or eliminate any
voting rights under the Contracts.
We will continue to pay a Maturity Benefit on premium payments allocated
to an Eligible Variable Account if:
- the portfolio underlying an Eligible Variable Account changes its
investment objective;
- 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 shares of a portfolio underlying an Eligible Variable Account are
no longer available for investment and we are forced to redeem all
shares of the portfolio held by the Eligible Variable Account.
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 will also end if 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.
22
<PAGE> 24
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 of 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 tax code. We will not issue you a
Contract if you are older than age 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 other than Roth IRAs).
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 per month.
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:
- the difference between the premium payments you paid and the amounts
you allocated to the variable accounts and the fixed account under
the Contract; AND
- the contract value as of the date we receive the Contract and the
written request for cancellation 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:
23
<PAGE> 25
- the premium payments you paid under the Contract; and
- the contract value (without the deduction of a withdrawal charge) on
the date we receive the Contract and the written request for
cancellation at our Service Center, plus any premium taxes we
deducted.
In those states where we must return premium payments, we will place the
money you 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, we will direct the amount
in the Money Market variable account 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 fourteen 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
at the accumulation unit value computed at the end of the business day on which
we receive the payments. 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 and/or to the fixed account 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 your instructions will not change the way existing
contract value is apportioned among the variable accounts or the fixed account.
24
<PAGE> 26
THE CONTRACT VALUE YOU DIRECTED TO A VARIABLE ACCOUNT WILL VARY WITH THE
INVESTMENT EXPERIENCE OF THAT VARIABLE ACCOUNT. YOU BEAR THE ENTIRE INVESTMENT
RISK FOR AMOUNTS YOU ALLOCATE TO THE VARIABLE ACCOUNTS. YOU SHOULD PERIODICALLY
REVIEW YOUR PREMIUM PAYMENT ALLOCATION INSTRUCTIONS IN LIGHT OF MARKET
CONDITIONS AND YOUR OVERALL FINANCIAL OBJECTIVES.
YOUR CONTRACT VALUE
===============================================================================
SEPARATE ACCOUNT VALUE
Your separate account value will reflect the investment experience of the
selected variable accounts, any net premium payments paid, any surrenders or
partial withdrawals, any transfers, and any charges assessed in connection with
the Contract. There is no guaranteed minimum separate account value. A
Contract's separate account value depends upon a number of variables, therefore
it cannot be predetermined.
CALCULATING SEPARATE ACCOUNT VALUE. Your separate account value is
determined at the end of each business day. The value will be the total of
your Contract's value in each of the variable accounts.
NUMBER OF ACCUMULATION UNITS. Any amounts you allocate or transfer to the
variable accounts will be converted into variable account accumulation units. We
determine the number of accumulation units to be credited to your Contract by
dividing the dollar amount being allocated or transferred by the accumulation
unit value for that variable account at the end of the business day during
which the amount was allocated or transferred. The number of accumulation units
in any variable account will be increased at the end of the business day by
any net premium payments allocated to the variable account during the current
business day and by any amounts transferred to the variable account from
another variable account or from the fixed account during the current business
day.
Any amounts transferred, surrendered or deducted from a variable account
will be processed by canceling or liquidating accumulation units. The number of
accumulation units to be canceled is determined by dividing the dollar amount
being removed from a variable account by the accumulation unit value for that
variable account at the end of the business day during which the amount was
removed. The number of accumulation units in any variable account will be
decreased at the end of the business day by:
- any amounts transferred (including any applicable transfer fee) from
that variable account to another variable account or to the fixed
account;
- any amounts withdrawn or surrendered on that business day;
- any withdrawal charge or premium tax assessed upon a partial
withdrawal or surrender; and
25
<PAGE> 27
- the quarterly contract fee, if assessed on that business day.
ACCUMULATION UNIT VALUE. The accumulation unit value for each variable
account's first business day was set at $10. The accumulation unit value for
a variable account is calculated for each subsequent business day by
multiplying the accumulation unit value at the end of the immediately preceding
business day by the Net Investment Factor for the business day for which
the value is being determined.
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 transfer money out of an Eligible Variable Account, you will reduce
the amount of the Eligible Premium Payments on which the Maturity Benefit is
based. (See "Maturity Benefit.") IT IS IMPORTANT THAT YOU READ THE SECTION ON
"MATURITY BENEFIT" BEFORE YOU MAKE A TRANSFER.
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.
We will make transfers as of the valuation day on which we receive a
written request for such transfer at our Service Center before 4:00 p.m. Eastern
Time. Transfers received after 4:00 p.m. Eastern Time will be made as of the
next Valuation Day. There currently is no limit on the total number of transfers
that can be made prior to 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
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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 per contract year. See below.
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
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<PAGE> 29
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 assessing a
transfer change. We reserve the right to discontinue offering the Dollar-Cost
Averaging program at any time and for any reason.
Dollar-Cost Averaging from an Eligible Variable Account will reduce the
value of the Eligible Premium Payment on which the Maturity Benefit is based.
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 your variable account values (on a
monthly or quarterly basis) to return to the percentages specified in your
allocation instructions. You may elect to participate in the Automatic Account
Balancing 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 at any time and for any reason.
Automatic Account Balancing from an Eligible Variable Account will reduce
the value of the Eligible Premium Payment on which the Maturity Benefit is
based.
ACCESS TO YOUR MONEY
===============================================================================
FULL WITHDRAWALS
At any time before the Annuity Start Date, you may withdraw fully from the
Contract for its surrender value.
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The surrender value is equal to :
- the contract value; MINUS
- any applicable withdrawal charges; MINUS
- any premium taxes not previously deducted; and MINUS
- the contract fee unless waived.
For Qualified Contracts, any outstanding loan balance is also deducted.
The surrender value will be determined as of the business day on which we
receive your written request for a full withdrawal, plus your Contract, at our
Service Center. The surrender value will be paid in a lump sum unless you
request payment under a payout plan. A full withdrawal may have adverse federal
income tax consequences, including a penalty tax.
PARTIAL WITHDRAWALS
At any time before the Annuity Start Date, you may send a written 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.
You may specify the amount of the partial withdrawal to be made from the
variable accounts or the fixed account. If you do not so specify, or if the
amount in the designated variable accounts or fixed account is inadequate to
comply with the request, the partial withdrawal will be made on a pro rata basis
from the fixed account and variable accounts in which contract value is invested
based on the proportion that the variable account values and the fixed account
value bear to the contract value prior to the partial withdrawal.
If you withdraw contract value from an Eligible Variable Account, the
withdrawal will reduce the amount of the Eligible Premium Payments on which the
Maturity Benefit is based. IT IS IMPORTANT THAT YOU READ THE SECTION ON
"MATURITY BENEFIT" BEFORE YOU MAKE A WITHDRAWAL.
For purposes of calculating the Maturity Benefit, withdrawals from the
variable accounts and the fixed account will be accounted for on a last-in,
first-out ("LIFO") basis. For purposes of calculating the withdrawal charge, all
withdrawals will be deemed to be first from premium payments, then from
earnings. (See "Withdrawal Charge.")
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INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO ANY
WITHDRAWAL YOU MAKE.
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 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. 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. 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
value of the Eligible Premium Payment on which the Maturity Benefit is based.
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 ON DISTRIBUTIONS FROM CERTAIN TYPES OF CONTRACTS
There are certain restrictions on surrenders of and partial withdrawals
from Contracts used as funding vehicles for Internal Revenue Code section 403(b)
retirement programs. Section 403(b)(11) of the Internal Revenue Code restricts
the distribution under section 403(b) annuity contracts of elective
contributions made in years beginning after December 31, 1988; earnings
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on those contributions; and 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 was issued in connection with retirement programs meeting
the requirements of section 403(b) of the Internal Revenue Code other than those
programs subject to Title I of the Employee Retirement Income Security Act of
1984, 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 Internal Revenue Code. You should consult your tax and retirement plan
advisers prior to taking a contract loan.
At any time prior to the year you reach age 70 1/2, you may borrow the
lesser of:
- the maximum loan amount permitted under the Internal Revenue Code;
and
- 90% of the surrender value of your Contract less any existing loan
amount, determined as of the date of the loan.
Loans that exceed the maximum amount permitted under the Internal Revenue
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 a
written application by you. The written consent of all assignees and irrevocable
beneficiaries must be obtained before a loan will be given.
When a loan is made, we 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 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. You may repay the loans at any time before the Annuity Start Date. Upon
the repayment of any portion of a loan, we will transfer an amount equal to the
repayment from the loan account to the variable account(s) or fixed account
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
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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 a written request
of default to you stating the amount of loan repayment needed to reinstate the
Contract. 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 Internal Revenue Code, loans must be repaid in
substantially equal installments, at least quarterly, over a period of no longer
than five years. This can be longer for certain home loans. If these
requirements are not satisfied, or if the Contract terminates while a loan is
outstanding, the loan balance will be treated as a taxable distribution and may
be subject to penalty tax, and the treatment of the Contract under section
403(b) may be adversely affected.
Any loan amount outstanding upon the death of you or your 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 BENEFIT BEFORE THE ANNUITY START DATE
If the annuitant dies before the Annuity Start Date, the death benefit is
an amount equal to the greater of:
- 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
- contract value as of the date we receive due proof of the deceased's
death and payment instructions.
In determining the death benefit, we will also subtract any applicable
premium taxes not previously deducted. If the Contract is a Qualified Contract,
any outstanding loan amount on the date the death benefit is paid will also be
deducted.
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DISTRIBUTION UPON THE OWNER'S DEATH
If the Contract is owned by joint owners and one owner dies prior to the
Annuity Start Date, the surviving owner becomes the sole owner. If the Contract
is owned by one person and a contingent owner is named, the contingent owner
will become the owner if the sole owner dies. If there is no surviving owner,
your estate will become the owner. If you or the 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.
The following options are available to sole surviving owners or new owners
of Non-Qualified Contracts who are not the annuitant:
(1) If the owner is the spouse of the deceased owner, he or she
may continue the Contract as the new owner.
(2) If the owner is not the spouse of the deceased owner:
- he or she may elect to receive the contract value, LESS
any premium taxes not yet deducted, in a single sum
within 5 years of the deceased owner's death; or
- he or she may elect to receive the contract value paid
out under one of the approved payout plan options,
provided that distributions begin within one year of
the deceased owner's death and the distribution period
under the payout plan is for the life of, or for a
period not exceeding the life expectancy of, the sole
surviving or new owner.
If he or she does not elect one of the above options, we will pay the
contract value five years from the date of the deceased owner's death.
Under any of these options, sole surviving owners or new owners may
exercise all ownership rights and privileges from the date of the deceased
owner's death until the date that the contract value is paid. Similar rules
apply to Qualified Contracts. 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. If you
have named two 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
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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.
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:
- payments under the option begin within one (1) year of the
annuitant's death; and
- 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 option 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 Owner's death.
THE MATURITY BENEFIT
===============================================================================
If the Contract is in the accumulation phase on the Maturity Benefit Date,
we will calculate the Maturity Benefit for each Eligible Variable Account in
which you have value. The Maturity Benefit will be credited to the contract
value of an Eligible Variable Account only if the value of the Eligible Variable
Account on the Maturity Benefit Date is less than:
- the sum of the Eligible Premium Payments for such Eligible Variable
Account; MINUS
- a percentage of all prior withdrawals and transfers from the
Eligible Variable Account.
Eligible Premium Payments are any premium payments that are allocated to a
particular Eligible Variable Account at the time of payment, provided the
payment was made at least ten (10) years prior to the Maturity Benefit Date.
We do not assess a charge for the Maturity Benefit.
The Maturity Benefit to be credited to each Eligible Variable Account on
the Maturity Benefit Date is equal to:
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<PAGE> 36
- the sum of the Eligible Premium Payments for that particular
Eligible Variable Account; MINUS
- a percentage of all prior withdrawals and transfers from that
Eligible Variable Account; MINUS
- the value of that Eligible Variable Account on the Maturity Benefit
Date.
The Maturity Benefit Date is the later of the annuitant's age 70 or 10
years after the date of issue. If the Contract is owned by joint owners who are
spouses at the time one joint owner dies, the Maturity Benefit Date will become
the date the surviving spouse attains age 70. If the Contract is owned by joint
owners who are not spouses and one of the joint owners dies before the Maturity
Benefit Date, the Maturity Benefit is not available to the sole surviving owner.
Currently, all variable accounts are Eligible Variable Accounts. The Van Eck
Worldwide Hard Assets variable account became an Eligible Variable Account on
March 5, 1998. Only new allocations made to the Van Eck Worldwide Hard Assets
variable account on or after March 5, 1998 will be treated as Eligible Premium
Payments for purposes of calculating the Maturity Benefit on the Maturity
Benefit Date, provided the new allocations have been held in that variable
account for ten (10) years.
The Maturity Benefit will not be credited to contract value if you choose
an Annuity Start Date that is earlier than the Maturity Benefit Date.
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 MATURITY 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 Maturity Benefit works:
EXAMPLE #1:
Suppose you buy a Contract with a single premium payment of $50,000 at age
55 and immediately allocate the $50,000 to an Eligible Variable Account. You do
not withdraw or transfer any amounts from the Eligible Variable Account. As of
the Maturity Benefit Date (which is fifteen years later when you are age 70),
the $50,000 qualifies as an Eligible Premium Payment because it was made fifteen
years prior to the Maturity Benefit Date and so it meets the requirement that
payment be made ten years prior to the Maturity Benefit Date.
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<PAGE> 37
On the Maturity Benefit Date (age 70), we will calculate the Maturity
Benefit for the Eligible Variable Account. We 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 Maturity 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 you specify an Annuity
Start Date of age 65 and begin to receive payments under one of the payout
options available under the Contract. At age 70 (the Maturity Benefit Date), we
do not calculate the Maturity Benefit and do not credit a Maturity Benefit to
contract value. By selecting an Annuity Start Date (age 65) that is earlier than
the Maturity Benefit Date (age 70), you forfeited all eligibility for the
Maturity Benefit.
EXAMPLE #3:
Assume the same facts as in Example #1, except that you transfer $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 Maturity Benefit Date.
On the Maturity 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 H .40 = $20,000), leaving $30,000 ($50,000 -- $20,000 = $30,000). If on
the Maturity Benefit Date the value of the Eligible Variable Account is less
than $30,000, we will automatically credit the difference to contract value.
EXAMPLE #4:
Assume the same facts as in Example #1, except that at age 65 you deposit
(or transfer) 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,
you withdraw $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 Maturity Benefit Date. On the Maturity 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 Maturity Benefit Date and does not meet
the requirement that payment be made ten years prior to the Maturity Benefit
Date.) This sum is then reduced by 26.667% to take into account the transfer at
age 69 ($50,000 H .26667 = $13,333.33), leaving $36,666.67 ($50,000 --
$13,333.33 = $36,666.67). If on the Maturity Benefit Date the value of the
Eligible Variable Account is less than $36,666.67, we will automatically credit
the difference to your contract value.
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EXAMPLE #5:
Assume you deposit premium payments of $5,000 per year into the same
Eligible Variable Account beginning at age 55 until the Maturity Benefit Date.
By age 70, you had paid $75,000 in premium payments and had taken no withdrawals
or transfers. The sum of the Eligible Premium Payments on the Maturity Benefit
Date (age 70) is $25,000 because only the five premium payments made prior to
age 60 ($5,000 H 5 = $25,000) meet the requirement that payment be made ten
years prior to the Maturity Benefit Date. If on the Maturity Benefit Date the
value of the Eligible Variable Account is less than $25,000, we will
automatically credit the difference to contract value.
EXAMPLE #6:
Assume the same facts as in Example #5, except that you transfer $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, you withdraw
$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 Maturity Benefit Date. On the Maturity 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 H .20 = $5,000),
leaving $20,000 ($25,000 -- $5,000 = $20,000). If on the Maturity Benefit Date
the value of the Eligible Variable Account is less than $20,000, we 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 Maturity Benefit Date will become the date the
surviving spouse attains age 70. On that date, we will calculate the Maturity
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 Maturity Benefit is not available to the sole
surviving owner.
* * *
We will continue to pay a Maturity Benefit on premium payments allocated
to an Eligible Variable Account if:
- the portfolio underlying an Eligible Variable Account changes its
investment objective;
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- 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
- shares of a portfolio underlying an Eligible Variable Account are no
longer available for investment by the separate account and we are
forced to redeem all shares of the portfolio held by the Eligible
Variable Account.
FEES AND CHARGES
===============================================================================
WITHDRAWAL CHARGE (CONTINGENT DEFERRED SALES CHARGE)
No charge for sales expenses is deducted from premium payments at the time
premium payments are paid. However, within certain time limits described below,
a withdrawal charge (contingent deferred sales charge) is deducted from the
contract value if a full or partial withdrawal is made before the Annuity Start
Date. Also, a withdrawal charge is deducted from amounts applied to certain
payout plan options.
In the event withdrawal charges are not sufficient to cover sales
expenses, we bear the loss. Conversely, if the amount of such charges proves
more than enough to cover such expenses, we will retain the excess. We do not
currently believe that the withdrawal charges imposed will cover the expected
costs of distributing the Contracts. Any shortfall will be made up from our
general assets which may include amounts derived from the mortality and expense
risk charge.
CHARGE FOR PARTIAL OR FULL WITHDRAWAL
Prior to the Annuity Start Date, you will be charged for any partial or
full withdrawal of premium payments during the first nine contract years. The
withdrawal charge is assessed as a percentage of the amount withdrawn based on
the number of years between the request for withdrawal and the date of issue and
is based on the rates in the table below. The withdrawal charge is separately
calculated for each withdrawal of contract value within the first nine years
from the Contract's date of issue. Amounts subject to the withdrawal charge will
be deemed to be first from premium payments, then from earnings. No withdrawal
charge applies to contract value in excess of aggregate premium payments.
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<PAGE> 40
<TABLE>
<CAPTION>
NUMBER OF CHARGE AS PERCENTAGE
CONTRACT OF PREMIUM
YEARS PAYMENTS
----- --------
<S> <C>
0-6 7.0%
7 6.0%
8 4.0%
9 2.0%
10 0%
</TABLE>
Any applicable withdrawal charge is deducted pro-rata from the remaining
value in the variable accounts or fixed account from which the withdrawal is
being made. If the remaining separate account value or fixed account value is
insufficient, the withdrawal charge is deducted pro-rata from all variable
accounts and the fixed account in which the Contract is invested.
FREE WITHDRAWAL AMOUNT
In each contract year after the first contract year, you may withdraw up
to 10% of contract value, as determined at the beginning of the contract year,
without a withdrawal charge. This amount is called the free withdrawal amount.
Any amounts withdrawn in excess of this 10% after the first and through the
ninth full contract year will be assessed a withdrawal charge. This right is not
cumulative from contract year to contract year. Such withdrawals may be subject
to the 10% federal penalty tax if you make them before age 59 1/2. They may also
be subject to federal income tax. Withdrawals under the Systematic Withdrawal
Program are permitted to take a free withdrawal amount during the first contract
year.
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 or a
long term care facility. If the annuitant becomes terminally ill 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. These waivers are described in more detail in the
Contract.
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 per contract year. 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.
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<PAGE> 41
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 ADMINISTRATION CHARGE
We deduct a daily administrative charge as compensation for certain
expenses we incur in the administration of the Contract. We deduct the charge
from your 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 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. We do not expect to make a profit from this charge.
MORTALITY AND EXPENSE RISK CHARGE
As compensation for assuming mortality and expense risks, we deduct a
daily mortality and expense risk charge from your assets of the separate
account. The charge is at a daily rate of 0.003404%. On an annual basis this
rate is 1.25%. We continue to assess this charge 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. We may use any profits from
this charge to pay the costs of distributing the Contracts.
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<PAGE> 42
TRANSFER FEE
A transfer fee of $25 will be imposed for the 13th and each subsequent
transfer during a contract year. Each written request would be considered to be
one transfer, regardless of the number of variable accounts affected by the
transfer. We deduct the transfer fee 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 may waive the transfer
fee.
PORTFOLIO FEES AND CHARGES
Each portfolio deducts portfolio management fees and charges from the
amounts you have invested in the portfolios. These charges range from 0.30% to
1.16%. See the Fee Table in this Prospectus and the 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. We are responsible for paying these
taxes. If necessary, we will deduct the cost of such taxes from the value of
your Contract either:
- from premium payments as we receive them,
- from contract value upon partial or full withdrawal,
- when annuity payments begin, or
- upon payment of a death benefit.
We may deduct premium taxes at the time we pay such taxes.
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, deduct
such a charge in the future, if necessary.
THE PAYOUT PERIOD
===============================================================================
When the payout period begins, you will receive a steady stream of annuity
payments from the money you have accumulated under your Contract. The payout
period begins on the Annuity Start Date. You may choose to receive your annuity
payments on a fixed or variable basis, or a combination of both. If 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 during the pay-in period,
or transfer to different variable accounts.
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<PAGE> 43
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, no later than the contract
anniversary following the annuitant's 85th birthday. 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 tax code sections 401(a), 401(k), 403(b) and 457, the tax
code requires that the Annuity Start Date must be no later than April 1 of the
calendar year following the later of the year in which you (a) reach age 70
1/2 or (b) retire and the payment must be made in a specified form or manner.
If you are a "5 percent owner" (as defined in the Code), or in the case of an
IRA that satisfies tax code section 408, the Annuity Start Date must be no later
than the date described in (a). Roth IRAs under 408A of the tax code do not
require distributions at any time prior to your death.
If you select an Annuity Start Date that is earlier than the Maturity
Benefit Date (i.e., 10 years after the date of issue), you will lose your
eligibility for the Maturity Benefit.
We will start annuity payments to the annuitant on the Annuity Start Date
shown in your Contract, unless you change the date. 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
The payout option you select will affect the dollar amount of each annuity
payment you receive. 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.
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. The adjusted contract
value will be allocated to a fixed and variable payout in the same proportion
that your interest in the fixed and variable accounts bears to the total
contract value on the Annuity Start Date.
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.
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<PAGE> 44
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 YOUR ANNUITY PAYMENT
On the Annuity Start Date, we will use the adjusted contract value 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; MINUS
- the quarterly contract fee; MINUS
- any applicable premium taxes not yet deducted; and
- for an installment income annuity payout plan with a payout period
of less than 10 years, MINUS any applicable withdrawal charge.
For Qualified Contracts, the amount of any outstanding loan is also
deducted; distributions must satisfy certain requirements specified in the tax
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 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 adjusted 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
Variable annuity payout plans provide the annuitant with periodic payments
that increase or decrease with the annuity unit values of the variable accounts
in which you are invested. Your
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<PAGE> 45
contract contains 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 permits you to choose an assumed interest rate of 3.0%, 4.0%
or 5.0% annually. If the net investment performance of the variable accounts you
invest in is greater than this assumed interest rate, your payments will
increase. If the performance falls below this assumed interest rate, your
payments will decline. Therefore, if you choose a 5.0% assumed interest rate,
you assume more risk that your annuity payment may decline than if you choose a
3.0% assumed interest rate. The selected portfolio's performance must grow at a
rate at least equal to the assumed interest rate (plus the mortality and expense
risk charge and the administrative expense charge) in order to avoid a decrease
in variable annuity payments. This means that each month a portfolio's
annualized investment return must be at least 4.4%, 5.4% or 6.5% in order for
payments with a 3.0%, 4.0% or 5.0% assumed interest rate to remain level. For
further details on variable annuity payments, see the SAI.
ANNUITY UNIT VALUE
On the Annuity Start Date, we will use your adjusted contract value to
purchase annuity units at that day's annuity unit value for each variable
account in which you have value. The number of annuity units we credit will
remain fixed unless you transfer units among variable accounts. The value of
each annuity unit will vary each business day to reflect the investment
experience of the underlying portfolio, reduced by the mortality and expense
risk charge and the administrative expense charge, and adjusted by an interest
factor to neutralize the assumed interest rate.
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 remaining 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. In the event of
the payee's death, a successor payee may receive the payments or may elect to
receive the present value of the remaining payments in a lump sum. If there is
no successor payee, the present value of the remaining payments will be paid to
the estate of the last surviving payee.
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<PAGE> 46
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 payments for less than the
selected guaranteed period, we will continue to make annuity payments to the
successor payee 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.
- ---------------
* 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.
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.
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. We also
guarantee that you will earn interest at a rate of a least 3% per year on
amounts in the fixed account. The fixed account is part of our general account.
Our general account supports our insurance and annuity obligations. Because 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 is not registered with the SEC under the Securities Act
of 1933. Neither the fixed account nor our general account have been registered
as an investment 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
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<PAGE> 47
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:
- net premium payments allocated to the fixed account; PLUS
- amounts transferred to the fixed account; PLUS
- interest credited to the fixed account; MINUS
- any partial withdrawals or transfers from the fixed account; and
MINUS
- 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.
We have no specific formula for determining current interest rates.
The fixed account value will not share in the investment performance of
the company's general account. 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 the money you place in the fixed account
will apply to the end of the calendar year in which we receive such 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).
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<PAGE> 48
FIXED ACCOUNT TRANSFERS
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 or one or more variable accounts 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 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 program at any time and for any reason.
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 state, we will
credit interest at 3%, or such higher rate as is required for a particular
state, to the amount to be paid from the date we received the documentation.
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<PAGE> 49
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 SAI.
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 accompanying prospectuses for the portfolios.)
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. When a variable account 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
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<PAGE> 50
measuring period to the end of that period. This standardized version of average
annual total return reflects all historical investment results, less all charges
and deductions applied against the variable account (including any withdrawal
charge that would apply if 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 disclose yield and total returns for the portfolios, including such
disclosures for periods prior to the date the variable account commenced
operations. Sales literature or advertisements may quote adjusted yields and
total returns for the portfolios since their inception reduced by some or all of
the fees and charges under the Contract. Such adjusted historic portfolio
performance may include data that precedes the inception dates of the variable
accounts. This data is designed to show the performance that could have resulted
if the Contract had been in existence during that time.
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 SAI.
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 Technology ("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.
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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. This information 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.
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 SAI.
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FEDERAL TAX MATTERS
===============================================================================
The following discussion is general in nature and is not intended as tax
advice. Each person concerned should consult a competent tax advisor. No attempt
is made to consider any applicable state tax or other tax laws.
We believe that our Contracts will qualify as annuity contracts for
Federal income tax purposes and the following discussion assumes that they will
so qualify. Further information on the tax status of the Contract can be found
in the SAI under the heading "Tax Status of the Contracts."
When you invest in an annuity contract, you usually do not pay taxes on
your investment gains until you withdraw the money -- generally for retirement
purposes. In this way, annuity contracts have been recognized by the tax
authorities as a legitimate means of deferring tax on investment income.
We believe that if you are a natural person you will not be taxed on
increases in the contract value of your Contract until a distribution occurs or
until annuity payments begin. (The agreement to assign or pledge any portion of
a Contract's accumulation value and, in the case of a Qualified Contract
described below, any portion of an interest in the qualified plan, generally
will be treated as a distribution.) When annuity payments begin, you will be
taxed only on the investment gains you have earned and not on the payments you
made to purchase the Contract. Generally, withdrawals from your annuity should
only be made once the annuitant reaches age 59- 1/2, dies or is disabled,
otherwise a tax penalty of ten percent of the amount treated as income could be
applied against any amounts included in income, in addition to the tax otherwise
imposed on such amount.
If you invest in a variable annuity as part of a pension plan or
employer-sponsored retirement program, your Contract is called a Qualified
Contract. If your annuity is independent of any formal retirement or pension
plan, it is called a Non-Qualified Contract.
TAXATION OF NON-QUALIFIED CONTRACTS
NON-NATURAL PERSON
If a non-natural person owns a non-qualified annuity contract, the owner
generally must include in income any increase in the excess of the accumulation
value over the investment in the contract (generally, the premiums or other
consideration paid for the contract) during the taxable year. There are some
exceptions to this rule and a prospective owner that is not a natural person
should discuss these with a tax adviser.
51
<PAGE> 53
The following discussion generally applies to Contracts owned by natural
persons.
WITHDRAWALS
When a withdrawal from a Non-Qualified Contract occurs, the amount
received will be treated as ordinary income subject to tax up to an amount equal
to the excess (if any) of the accumulation value immediately before the
distribution over the Owner's investment in the contract (generally, the
premiums or other consideration paid for the Contract, reduced by any amount
previously distributed from the Contract that was not subject to tax) at that
time. In the case of a surrender under a Non-Qualified Contract, the amount
received generally will be taxable only to the extent it exceeds the Owner's
investment in the contract.
PENALTY TAX ON CERTAIN WITHDRAWALS
In the case of a distribution from a Non-Qualified Contract, there may be
imposed a federal tax penalty equal to ten percent of the amount treated as
income. In general, however, there is no penalty on distributions:
- made on or after the taxpayer reaches age 59 1/2;
- made on or after the death of an Owner;
- attributable to the taxpayer's becoming disabled; or
- made as part of a series of substantially equal periodic payments
for the life (or life expectancy) of the taxpayer.
Other exceptions may apply under certain circumstances and special rules
may apply in connection with the exceptions enumerated above. You should consult
a tax adviser with regard to exceptions from the penalty tax.
ANNUITY PAYMENTS
Although tax consequences may vary depending on the payout option elected
under an annuity contract, a portion of each annuity payment is generally not
taxed and the remainder is taxed as ordinary income. The non-taxable portion of
an annuity payment is generally determined in a manner that is designed to allow
you to recover your investment in the contract ratably on a tax-free basis over
the expected stream of annuity payments, as determined when annuity payments
start. Once your investment in the contract has been fully recovered, however,
the full amount of each annuity payment is subject to tax as ordinary income.
TAXATION OF DEATH BENEFIT PROCEEDS
Amounts may be distributed from a Contract because of your death or the
death of the Annuitant. Generally, such amounts are includible in the income of
the recipient as follows: (a)
52
<PAGE> 54
if distributed in a lump sum, they are taxed in the same manner as a surrender
of the Contract, or (b) if distributed under a payout option, they are taxed in
the same way as annuity payments.
TRANSFERS, ASSIGNMENTS OR EXCHANGES OF A CONTRACT
A transfer or assignment of ownership of a Contract, the designation of an
annuitant, 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, should
consult a tax advisor as to the tax consequences.
WITHHOLDING
Annuity distributions are generally subject to withholding for the
recipient's federal income tax liability. Recipients can generally elect,
however, not to have tax withheld from distributions.
MULTIPLE CONTRACTS
All annuity contracts that are issued by us (or our affiliates) to the
same Owner during any calendar year are treated as one annuity contract for
purposes of determining the amount includible in such Owner's income when a
taxable distribution occurs.
TAXATION OF QUALIFIED CONTRACTS
The tax rules that apply to Qualified Contracts vary according to the type
of retirement plan and the terms and conditions of the plan. Your rights under a
Qualified Contract may be subject to the terms of the retirement plan itself,
regardless of the terms of the Qualified Contract. Adverse tax consequences may
result if you do not ensure that contributions, distributions and other
transactions with respect to the Contract comply with the law.
INDIVIDUAL RETIREMENT ACCOUNTS (IRAs), as defined in Sections 219 and 408
of the Internal Revenue Code (Code), permit individuals to make annual
contributions of up to the lesser of $2,000 or 100% of adjusted gross income.
The contributions may be deductible in whole or in part, depending on the
individual's income. Distributions from certain pension plans may be rolled over
into an IRA on a tax-deferred basis without regard to these limits. So-called
Simple IRAs under Section 408(p) of the Code, and Roth IRAs under Section 408A,
may also be used in connection with variable annuity contracts. Simple IRAs
allow employees to defer a percentage of annual compensation up to $6,000 to a
retirement plan, provided the sponsoring employer makes matching or non-elective
contributions. The penalty for a premature distribution from a SIMPLE IRA that
occurs within the first two years after the employee begins to participate in
the plan is 25%, rather than the usual 10%. Contributions to Roth IRAs are not
tax-deductible, and contributions must be made in cash, or as a rollover or
transfer from another
53
<PAGE> 55
Roth IRA or IRA. A rollover or conversion of an IRA to a Roth IRA may be subject
to tax. Distributions from Roth IRAs are generally not taxed. In addition to the
10% penalty which generally applies to distributions made before age 59 1/2, a
10% penalty will be imposed for any distribution made from a Roth IRA during the
five taxable years starting after you first contribute to any Roth IRA.
CORPORATE PENSION AND PROFIT-SHARING PLANS under Section 401(a) of the
Code allow corporate employers to establish various types of retirement plans
for employees, and self-employed individuals to establish qualified plans for
themselves and their employees.
Adverse tax consequences to the retirement plan, the participant or both
may result if the Contract is transferred to any individual as a means to
provide benefit payments, unless the plan complies with all the requirements
applicable to such benefits prior to transferring the Contract.
TAX-SHELTERED ANNUITIES under Section 403(b) of the Code permit public
schools and other eligible employers to purchase annuity contracts and mutual
fund shares through custodial accounts on behalf of employees. Generally, these
purchase payments are excluded for tax purposes from employee gross incomes.
However, these payments may be subject to Social Security taxes.
Distributions of salary reduction contributions and earnings (other than
your salary reduction accumulation as of December 31, 1988) are not allowed
prior to age 59 1/2, separation from service, death or disability. Salary
reduction contributions may also be distributed upon hardship, but would
generally be subject to penalties.
OTHER TAX ISSUES
You should note that the Contract includes a death benefit that in some
cases may exceed the greater of the Premium Payments or the Contract Value. The
death benefit could be viewed as an incidental benefit, the amount of which is
limited in any 401(a) or 403(b) plan. Because the death benefit may exceed this
limitation, employers using the Contract in connection with corporate pension
and profit-sharing plans, or tax-sheltered annuities, should consult their tax
adviser.
Qualified Contracts (other than Roth IRAs) have minimum distribution rules
that govern the timing and amount of distributions. You should refer to your
retirement plan, adoption agreement, or consult a tax advisor for more
information about these distribution rules.
OUR INCOME TAXES
At the present time, we make no charge for any Federal, state or local
taxes (other than the charge for state and local premium taxes) that we incur
that may be attributable to the investment
54
<PAGE> 56
divisions (that is, the variable accounts) of the separate account or to the
Contracts. We do have the right in the future to make additional charges for any
such tax or other economic burden resulting from the application of the tax laws
that we determine is attributable to the investment divisions of the separate
account or the Contracts.
Under current laws in several states, we may incur state and local taxes
(in addition to premium taxes). These taxes are not now significant and we are
not currently charging for them. If they increase, we may deduct charges for
such taxes.
POSSIBLE TAX LAW CHANGES
Although the likelihood of legislative changes is uncertain, there is
always the possibility that the tax treatment of the Contracts could change by
legislation or otherwise. Consult a tax adviser with respect to legislative
developments and their effect on the Contract.
We have the right to modify the Contract in response to legislative
changes that could otherwise diminish the favorable tax treatment that annuity
contract owners currently receive. We make no guarantee regarding the tax status
of any contract and do not intend the above discussion as tax advice.
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. We do not
conduct any business on those days.
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 all the required information. The required
information includes 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:
55
<PAGE> 57
- the New York Stock Exchange is closed, other than customary weekend
and holiday closings;
- trading on the New York Stock Exchange is restricted as determined
by the SEC;
- 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
- the SEC permits, by order, the suspension or postponement 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 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 surrender or transfer. If payment is not made
within 30 days after we receive the documentation necessary to complete the
transaction, or such shorter period required by a particular state, interest
will be added to the amount paid from the date of receipt of documentation at 3%
or such higher rate required for a particular state.
MODIFICATION
Upon notice to you, we may modify the Contract to:
- permit the Contract or the separate account to comply with any
applicable law or regulation issued by a government agency;
- assure continued qualification of the Contract under the tax code or
other federal or state laws relating to retirement annuities or
variable annuity contracts;
- reflect a change in the operation of the separate account; or
- 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 a wholly-owned subsidiary of IL Group, a company owned by
Indianapolis Life Insurance Company and the American United Life Insurance
Company. IL Securities is registered with the SEC under the Securities Exchange
Act of 1934 as broker-dealer and is a member of the National Association of
Securities Dealers, Inc.
56
<PAGE> 58
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 1.25% 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
We and our affiliates, like other life insurance companies, are involved
in lawsuits, including class action lawsuits. In some class action and other
lawsuits involving other insurers, substantial damages have been sought and/or
material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, we believe that at the present
time there are no pending or threatened lawsuits that are reasonably likely to
have a material adverse impact on the separate account or the Company.
REPORTS TO OWNERS
At least annually, we will mail to you, at your last known address of
record, a report setting forth:
- the contract value (including the contract value in each variable
account and the fixed account) of the Contract;
- premium payments paid and charges deducted since the last report;
and
- partial withdrawals made since the last report and any further
information required by any applicable law or regulation.
INQUIRIES
You may make inquiries regarding a Contract by writing to us at our
Service Center.
YEAR 2000 MATTERS
Like all financial services providers, we use systems that may be affected
by Year 2000 transition issues. We also rely on service providers, including the
portfolios and the administrator, that may be affected by Year 2000 issues. We
have developed, and are in the process of implementing, a Year 2000 transition
plan. In addition, we are in the process of confirming that the portfolios and
its service providers are also engaged in similar transition plans. The
resources that are being devoted to this effort are substantial. It is difficult
to predict with precision whether the amount of resources ultimately devoted, or
the outcome of these
57
<PAGE> 59
efforts, will have any negative impact on our operations. However, as of the
date of this Prospectus, it is not anticipated that owners will experience
negative effects on their investment, or on the services provided in connection
therewith, as a result of Year 2000 transition implementation. We currently
anticipate that our systems will be Year 2000 compliant in a timely manner, but
there can be no assurance that we will be successful, or that interaction with
other service providers will not impair services at that time.
FINANCIAL STATEMENTS
The audited statement of net assets of IL Annuity and Insurance Co.
Separate Account 1 as of December 31, 1998 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, as well as the Report of the
Independent Auditors, are included in the SAI. Our audited balance sheets as of
December 31, 1998 and 1997, and the related statements of income, shareholder's
equity, and cash flows for each of the three years in the period ended December
31, 1998, as well as the Report of the Independent Auditors, are contained in
the SAI. Our financial statements 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.
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
Additional information about the Contract and the separate account is
contained in the SAI. A SAI is available (at no cost) by writing to us at the
address shown on the front cover or by calling 1-800-388-1331. The following is
the Table of Contents for that Statement.
Additional Contract Provisions
The Contract
Incontestability
Incorrect Age or Sex
Nonparticipation
Options
Tax Status of the Contracts
Calculation of Variable Account and Adjusted Historic Portfolio Performance Data
Money Market Variable Account Yields
Other Variable Account Yields
Average Annual Total Returns for the Variable Accounts
Non-Standard Variable Account Total Returns
Effect of the Contract Fee on Performance Data
Other Information
Variable Account Performance Figures
Adjusted Historical Portfolio Performance Figures
58
<PAGE> 60
Variable Annuity Payments
Assumed Investment Rate
Amount of Variable Annuity Payments
Annuity Unit Value
Addition, Deletion or Substitution of Investments
Resolving Material Conflicts
Termination of Participation Agreements
The Alger American Fund
Fidelity Variable Insurance Products Fund and 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
59
<PAGE> 61
APPENDIX A
CONDENSED FINANCIAL INFORMATION
The following condensed financial information shows accumulation unit
values for each variable account for each year since the variable account
started operation. Accumulation unit value is the unit we use to calculate the
value of your interest in a variable account. Accumulation unit value ("AUV")
does not reflect the deduction of certain charges that we subtract from your
Contract Value. The data is obtained from the audited financial statement of the
Separate Account that can be found in the SAI.
Alger American Fund: MidCap Growth Variable Account
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
AUV at the beginning AUV at the end of Accumulation units
of the year the year outstanding at the
end of the year
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $12.263 $15.757 537,127
- --------------------------------------------------------------------------------------------------
1997 $10.812 $12.263 294,506
- --------------------------------------------------------------------------------------------------
1996 $9.786 $10.812 109,955
- --------------------------------------------------------------------------------------------------
1995 $10.00 $9.786 2,764
- --------------------------------------------------------------------------------------------------
</TABLE>
Alger American Fund: Small Capitalization Variable Account
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
AUV at the beginning AUV at the end of Accumulation units
of the year the year outstanding at the
end of the year
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $10.936 $12.459 502,984
- --------------------------------------------------------------------------------------------------
1997 $9.955 $10.936 372,229
- --------------------------------------------------------------------------------------------------
1996 $9.675 $9.955 181,361
- --------------------------------------------------------------------------------------------------
1995 $10.00 $9.675 1,709
- --------------------------------------------------------------------------------------------------
</TABLE>
A-1
<PAGE> 62
Fidelity VIP Fund: Equity-Income Variable Account
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
AUV at the beginning AUV at the end of Accumulation units
of the year the year outstanding at the
end of the year
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $15.114 $16.631 1,355,289
- --------------------------------------------------------------------------------------------------
1997 $11.958 $15.114 781,937
- --------------------------------------------------------------------------------------------------
1996 $10.616 $11.958 195,400
- --------------------------------------------------------------------------------------------------
1995 $10.00 $10.616 3,789
- --------------------------------------------------------------------------------------------------
</TABLE>
Fidelity VIP Fund: Growth Variable Account
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
AUV at the beginning AUV at the end of Accumulation units
of the year the year outstanding at the
end of the year
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $13.240 $18.206 948,233
- --------------------------------------------------------------------------------------------------
1997 $10.868 $13.240 462,381
- --------------------------------------------------------------------------------------------------
1996 $9.604 $10.868 164,945
- --------------------------------------------------------------------------------------------------
1995 $10.00 $9.604 2,199
- --------------------------------------------------------------------------------------------------
</TABLE>
Fidelity VIP Fund: Money Market Variable Account
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
AUV at the beginning AUV at the end of Accumulation units
of the year the year outstanding at the
end of the year
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $10.888 $11.329 1,070,535
- --------------------------------------------------------------------------------------------------
1997 $10.456 $10.888 486,050
- --------------------------------------------------------------------------------------------------
1996 $10.00 $10.456 179,504
- --------------------------------------------------------------------------------------------------
1995 $10.00 $0 0
- --------------------------------------------------------------------------------------------------
</TABLE>
A-2
<PAGE> 63
Fidelity VIP Fund: Asset Manager Variable Account
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
AUV at the beginning AUV at the end of Accumulation units
of the year the year outstanding at the
end of the year
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $14.066 $15.954 503,498
- --------------------------------------------------------------------------------------------------
1997 $11.817 $14.066 212,897
- --------------------------------------------------------------------------------------------------
1996 $8.224 $11.817 61,512
- --------------------------------------------------------------------------------------------------
1995 $10.00 $8.224 255
- --------------------------------------------------------------------------------------------------
</TABLE>
Fidelity VIP Fund: Contrafund Variable Account
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
AUV at the beginning AUV at the end of Accumulation units
of the year the year outstanding at the
end of the year
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $14.824 $18.996 1,228,022
- --------------------------------------------------------------------------------------------------
1997 $12.105 $14.824 638,524
- --------------------------------------------------------------------------------------------------
1996 $10.091 $12.105 203,860
- --------------------------------------------------------------------------------------------------
1995 $10.00 $10.091 5,731
- --------------------------------------------------------------------------------------------------
</TABLE>
Fidelity VIP Fund: Index 500 Variable Account
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
AUV at the beginning AUV at the end of Accumulation units
of the year the year outstanding at the
end of the year
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $16.672 $21.088 1,895,005
- --------------------------------------------------------------------------------------------------
1997 $12.734 $16.672 826,178
- --------------------------------------------------------------------------------------------------
1996 $10.514 $12.734 193,803
- --------------------------------------------------------------------------------------------------
1995 $10.00 $10.514 3,538
- --------------------------------------------------------------------------------------------------
</TABLE>
A-3
<PAGE> 64
Fidelity VIP Fund: Investment Grade Bond Variable Account
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
AUV at the beginning AUV at the end of Accumulation units
of the year the year outstanding at the
end of the year
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $11.214 $12.032 691,547
- --------------------------------------------------------------------------------------------------
1997 $10.422 $11.214 274,009
- --------------------------------------------------------------------------------------------------
1996 $10.247 $10.422 57,476
- --------------------------------------------------------------------------------------------------
1995 $10.00 $10.247 1,668
- --------------------------------------------------------------------------------------------------
</TABLE>
OCC Accumulation Trust: Managed Variable Account*
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
AUV at the beginning AUV at the end of Accumulation units
of the year the year outstanding at the
end of the year
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $15.160 $16.011 1,396,806
- --------------------------------------------------------------------------------------------------
1997 $12.567 $15.160 672,203
- --------------------------------------------------------------------------------------------------
1996 $10.380 $12.567 133,102
- --------------------------------------------------------------------------------------------------
1995 $10.00 $10.380 161
- --------------------------------------------------------------------------------------------------
</TABLE>
OCC Accumulation Trust: Small Cap Variable Account*
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
AUV at the beginning AUV at the end of Accumulation units
of the year the year outstanding at the
end of the year
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $14.649 $13.139 295,186
- --------------------------------------------------------------------------------------------------
1997 $12.148 $14.649 162,435
- --------------------------------------------------------------------------------------------------
1996 $10.388 $12.148 40,024
- --------------------------------------------------------------------------------------------------
1995 $10.00 $10.388 1,182
- --------------------------------------------------------------------------------------------------
</TABLE>
A-4
<PAGE> 65
T. Rowe Price Fixed Income Series, Inc.: Limited-Term Bond Variable Account
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
AUV at the beginning AUV at the end of Accumulation units
of the year the year outstanding at the
end of the year
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $10.767 $11.505 348,151
- --------------------------------------------------------------------------------------------------
1997 $9.946 $10.767 136,902
- --------------------------------------------------------------------------------------------------
1996 $10.042 $9.946 27,325
- --------------------------------------------------------------------------------------------------
1995 $10.00 $10.042 1,485
- --------------------------------------------------------------------------------------------------
</TABLE>
T. Rowe Price International Series, Inc.: International Stock Variable Account
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
AUV at the beginning AUV at the end of Accumulation units
of the year the year outstanding at the
end of the year
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $11.979 $13.684 660,670
- --------------------------------------------------------------------------------------------------
1997 $11.780 $11.979 368,187
- --------------------------------------------------------------------------------------------------
1996 $10.487 $11.780 122,831
- --------------------------------------------------------------------------------------------------
1995 $10.00 $10.487 2,530
- --------------------------------------------------------------------------------------------------
</TABLE>
Van Eck Worldwide Insurance Trust: Worldwide Hard Assets Variable Account**
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
AUV at the beginning AUV at the end of Accumulation units
of the year the year outstanding at the
end of the year
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $11.983 $8.156 230,762
- --------------------------------------------------------------------------------------------------
1997 $12.356 $11.983 166,188
- --------------------------------------------------------------------------------------------------
1996 $10.621 $12.356 29,990
- --------------------------------------------------------------------------------------------------
1995 $10.00 $10.621 58
- --------------------------------------------------------------------------------------------------
</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-5
<PAGE> 66
A-6
<PAGE> 67
<TABLE>
<CAPTION>
<S> <C>
PROSPECTUS VISIONARY CHOICE
MAY 1, 1999
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
Please read this prospectus carefully before issued by
investing, and keep it for future reference. It IL ANNUITY AND INSURANCE COMPANY
contains important information about the through the
Visionary Choice variable annuity. IL ANNUITY AND INSURANCE CO.
SEPARATE ACCOUNT 1
To learn more about the Visionary Choice
Contract, you may want to look at the Statement The Visionary Choice Contract ("Contract")
has 19 funding choices--one fixed account (paying a
of Additional Information dated May 1, 1999 guaranteed minimum fixed rate of interest) and 18
(known as the "SAI"). For a free copy of the SAI, variable accounts which invest in the following
contact us at: mutual fund portfolios:
THE ALGER AMERICAN FUND
IL Annuity and Insurance Company - MidCap Growth
Administrative Office - Small Capitalization
2960 North Meridian Street FIDELITY VARIABLE INSURANCE PRODUCTS FUND
Indianapolis, Indiana 46208 ("VIP")
Telephone: 1-800-388-1331 - Equity-Income
- Growth
We have filed the SAI with the U.S. Securities - Money Market
and Exchange Commission ("SEC") and have FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
incorporated it by reference into this prospectus. ("VIP II")
The SAI's table of contents appears at the end of - Asset Manager
this prospectus. - Contrafund
- Index 500
The SEC maintains an Internet website - Investment Grade Bond
(http://www.sec.gov) that contains the SAI, OCC ACCUMULATION TRUST
material incorporated by reference, and other - Managed
information. You may also read and copy these - Small Cap
materials at the SEC's public reference room in ROYCE CAPITAL FUND
Washington, D.C. Call 1-800-SEC-0330 for - Royce Micro-Cap
information about the SEC's public reference SAFECO RESOURCE SERIES TRUST
room. - SAFECO Equity
- SAFECO Growth
VARIABLE ANNUITY CONTRACTS INVOLVE CERTAIN SOGEN VARIABLE FUNDS, INC.
RISKS, AND YOU MAY LOSE SOME OR ALL OF YOUR - SoGen Overseas Variable
INVESTMENT. T. ROWE PRICE FIXED INCOME SERIES, INC.
- - The investment performance of the portfolios - Limited-Term Bond
in which the variable accounts invest will T. ROWE PRICE INTERNATIONAL SERIES, INC.
vary. - International Stock
- - We do not guarantee how any of the VAN ECK WORLDWIDE INSURANCE TRUST
portfolios will perform. - Worldwide Hard Assets
- - The Contract is not a deposit or obligation of
any bank, and no bank endorses or guarantees
the Contract.
- - Neither the U.S. Government nor any federal
agency insures your investment in the policy.
THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
</TABLE>
<PAGE> 68
TABLE OF CONTENTS
<TABLE>
<S> <C>
Glossary...............................................................................- 1 -
Highlights.............................................................................- 3 -
The Contract.....................................................................- 3 -
How to Invest....................................................................- 3 -
Cancellation -- The 10 Day Free-Look Period......................................- 3 -
Investment Options...............................................................- 4 -
Transfers........................................................................- 4 -
Access to Your Money.............................................................- 5 -
Death Benefit....................................................................- 5 -
Living Benefit...................................................................- 5 -
Fees and Charges.................................................................- 6 -
Annuity Provisions...............................................................- 7 -
Federal Tax Status...............................................................- 7 -
Inquiries........................................................................- 7 -
Fee Table..............................................................................- 8 -
Examples........................................................................- 11 -
Condensed Financial Information.................................................- 15 -
About IL Annuity and the Separate Account.............................................- 15 -
IL Annuity and Insurance Company................................................- 15 -
IL Annuity and Insurance Co. Separate Account 1.................................- 15 -
The Portfolios........................................................................- 16 -
Investment Objectives of the Portfolios.........................................- 17 -
Investment Advisers to the Funds................................................- 19 -
Availability of the Funds.......................................................- 20 -
The Pay-In Period.....................................................................- 21 -
Purchasing a Contract...........................................................- 21 -
Premium Payments................................................................- 21 -
Cancellation -- The 10 Day Free-Look Period.....................................- 21 -
Designating Your Investment Options.............................................- 22 -
Your Contract Value...................................................................- 23 -
Separate Account Value..........................................................- 23 -
Transfers Between Investment Options..................................................- 24 -
General.........................................................................- 24 -
Telephone Transfers.............................................................- 25 -
Transfer Fee....................................................................- 25 -
Dollar-Cost Averaging...........................................................- 25 -
Interest Sweep..................................................................- 26 -
Automatic Account Balancing Service.............................................- 26 -
Access to Your Money..................................................................- 26 -
Full Withdrawals................................................................- 26 -
Partial Withdrawals.............................................................- 27 -
Systematic Withdrawal Program...................................................- 27 -
Full and Partial Withdrawal Restrictions........................................- 28 -
Restrictions on Distributions from Certain Types of Contracts...................- 28 -
Contract Loans........................................................................- 28 -
Death Benefits........................................................................- 30 -
Death Benefits Before the Annuity Start Date....................................- 30 -
Loans ..........................................................................- 31 -
Distribution Upon the Owner's Death.............................................- 31 -
Distribution Upon the Death of the Annuitant....................................- 32 -
</TABLE>
<PAGE> 69
<TABLE>
<S> <C>
Death of Payee After the Annuity Start Date.....................................- 32 -
The Living Benefit....................................................................- 32 -
Fees and Charges......................................................................- 35 -
Withdrawal Charge...............................................................- 35 -
Contract Fee....................................................................- 38 -
Asset-Based Administrative Charge...............................................- 38 -
Mortality and Expense Risk Charge...............................................- 38 -
Transfer Fee....................................................................- 39 -
Portfolio Fees and Charges......................................................- 39 -
Premium Taxes...................................................................- 39 -
Other Taxes.....................................................................- 39 -
The Payout Period.....................................................................- 39 -
The Annuity Start Date..........................................................- 39 -
Annuity Payout Options..........................................................- 40 -
Determining the Amount of Your Annuity Payment..................................- 40 -
Fixed Annuity Payments..........................................................- 41 -
Variable Annuity Payments.......................................................- 41 -
Annuity Unit Value ............................................................- 42 -
Transfers.......................................................................- 42 -
Description of Annuity Payout Options...........................................- 42 -
The Fixed Account.....................................................................- 43 -
Fixed Account Value.............................................................- 43 -
Fixed Account Transfers.........................................................- 44 -
Investment Performance of the Variable Accounts.......................................- 45 -
Voting Rights.........................................................................- 47 -
Federal Tax Matters...................................................................- 47 -
Taxation of Non-Qualified Contracts.............................................- 48 -
Taxation of Qualified Contracts.................................................- 50 -
Other Tax Issues ...............................................................- 51 -
Our Income Taxes................................................................- 51 -
Possible Tax Law Changes ......................................................- 51 -
Other Information.....................................................................- 51 -
Holidays........................................................................- 51 -
Payments........................................................................- 52 -
Modification....................................................................- 52 -
Distribution of the Contracts...................................................- 52 -
Legal Proceedings...............................................................- 53 -
Reports to Owners...............................................................- 53 -
Inquiries.......................................................................- 53 -
Year 2000 Matters...............................................................- 53 -
Financial Statements............................................................- 53 -
Statement of Additional Information Table of Contents.................................- 55 -
Condensed Financial Information......................................................... A-1
Glossary...............................................................................- 1 -
Highlights.............................................................................- 3 -
The Contract.....................................................................- 3 -
How to Invest....................................................................- 3 -
Cancellation -- The 10 Day Free-Look Period......................................- 3 -
Investment Options...............................................................- 4 -
Transfers........................................................................- 4 -
Access to Your Money.............................................................- 5 -
</TABLE>
<PAGE> 70
<TABLE>
<S> <C>
Death Benefit....................................................................- 5 -
Living Benefit...................................................................- 5 -
Fees and Charges.................................................................- 6 -
Annuity Provisions...............................................................- 7 -
Federal Tax Status...............................................................- 7 -
Inquiries........................................................................- 7 -
Fee Table..............................................................................- 8 -
Examples........................................................................- 11 -
Condensed Financial Information.................................................- 15 -
About IL Annuity and the Separate Account.............................................- 15 -
IL Annuity and Insurance Company................................................- 15 -
IL Annuity and Insurance Co. Separate Account 1.................................- 15 -
The Portfolios........................................................................- 16 -
Investment Objectives of the Portfolios.........................................- 17 -
Investment Advisers to the Funds................................................- 19 -
Availability of the Funds.......................................................- 20 -
The Pay-In Period.....................................................................- 21 -
Purchasing a Contract...........................................................- 21 -
Premium Payments................................................................- 21 -
Cancellation -- The 10 Day Free-Look Period.....................................- 21 -
Designating Your Investment Options.............................................- 22 -
Your Contract Value...................................................................- 23 -
Separate Account Value..........................................................- 23 -
Transfers Between Investment Options..................................................- 24 -
General.........................................................................- 24 -
Telephone Transfers.............................................................- 25 -
Transfer Fee....................................................................- 25 -
Dollar-Cost Averaging...........................................................- 25 -
Interest Sweep..................................................................- 26 -
Automatic Account Balancing Service.............................................- 26 -
Access to Your Money..................................................................- 26 -
Full Withdrawals................................................................- 26 -
Partial Withdrawals.............................................................- 27 -
Systematic Withdrawal Program...................................................- 27 -
Full and Partial Withdrawal Restrictions........................................- 28 -
Restrictions on Distributions from Certain Types of Contracts...................- 28 -
Contract Loans........................................................................- 28 -
Death Benefits........................................................................- 30 -
Death Benefits Before the Annuity Start Date....................................- 30 -
Loans ..........................................................................- 31 -
Distribution Upon the Owner's Death.............................................- 31 -
Distribution Upon the Death of the Annuitant....................................- 32 -
Death of Payee After the Annuity Start Date.....................................- 32 -
The Living Benefit....................................................................- 32 -
Fees and Charges......................................................................- 35 -
Withdrawal Charge...............................................................- 35 -
Contract Fee....................................................................- 38 -
Asset-Based Administrative Charge...............................................- 38 -
Mortality and Expense Risk Charge...............................................- 38 -
Transfer Fee....................................................................- 39 -
Portfolio Fees and Charges......................................................- 39 -
</TABLE>
<PAGE> 71
<TABLE>
<S> <C>
Premium Taxes...................................................................- 39 -
Other Taxes.....................................................................- 39 -
The Payout Period.....................................................................- 39 -
The Annuity Start Date..........................................................- 39 -
Annuity Payout Options..........................................................- 40 -
Determining the Amount of Your Annuity Payment..................................- 40 -
Fixed Annuity Payments..........................................................- 41 -
Variable Annuity Payments.......................................................- 41 -
Annuity Unit Value ............................................................- 42 -
Transfers.......................................................................- 42 -
Description of Annuity Payout Options...........................................- 42 -
The Fixed Account.....................................................................- 43 -
Fixed Account Value.............................................................- 43 -
Fixed Account Transfers.........................................................- 44 -
Investment Performance of the Variable Accounts.......................................- 45 -
Voting Rights.........................................................................- 47 -
Federal Tax Matters...................................................................- 47 -
Taxation of Non-Qualified Contracts.............................................- 48 -
Taxation of Qualified Contracts.................................................- 50 -
Other Tax Issues ...............................................................- 51 -
Our Income Taxes................................................................- 51 -
Possible Tax Law Changes ......................................................- 51 -
Other Information.....................................................................- 51 -
Holidays........................................................................- 51 -
Payments........................................................................- 52 -
Modification....................................................................- 52 -
Distribution of the Contracts...................................................- 52 -
Legal Proceedings...............................................................- 53 -
Reports to Owners...............................................................- 53 -
Inquiries.......................................................................- 53 -
Year 2000 Matters...............................................................- 53 -
Financial Statements............................................................- 53 -
Statement of Additional Information Table of Contents.................................- 55 -
Condensed Financial Information....................................................... A-1
</TABLE>
<PAGE> 72
GLOSSARY
For your convenience, we are providing a glossary of the special terms we
use in this prospectus.
ACCUMULATION UNIT -- The measurement we use before the Annuity Start Date to
calculate the value of each variable account at the end of each business day.
ANNUITANT -- You are the annuitant, unless you state otherwise in your
application. The annuitant is the person (or persons) whose life (or lives) we
use to determine the dollar amount and duration of the annuity payments that we
will pay under the Contract and whose death determines the death benefit. You
may choose joint annuitants in some cases. You may not change the annuitant you
name in the application.
ANNUITY START DATE -- The date when we will begin to pay annuity payments to the
annuitant. (You are the annuitant, unless you tell us otherwise at the time of
your application.)
ANNUITY UNIT -- The measurement 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 annuitant
dies before we start making annuity payments.
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."
COMPANY ("WE," "US," "OUR") -- IL Annuity and Insurance Company.
CONTRACT ANNIVERSARY -- The same date in each year as the date of issue.
CONTRACT VALUE -- The total amount you have accumulated under the Contract. It
is equal to the money you have under the Contract in the separate account and
the fixed account.
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 we find satisfactory, such as a
certified copy of the death record, or a certified copy of a court decree
reciting a finding of death.
ELIGIBLE PREMIUM PAYMENT -- That portion of your first Premium Payment that you
allocate to a particular Eligible Variable Account on the date of issue. We use
it as a benchmark for calculating the Living
Benefit.
ELIGIBLE VARIABLE ACCOUNT -- Variable accounts the Company designates to be
guaranteed by the Living Benefit. Currently all variable accounts are so
designated.
FIXED ACCOUNT -- An option to which you can direct your money under the
Contract. It provides a guarantee of principal and interest. The assets
supporting the fixed account are held in our general account.
<PAGE> 73
FUNDS -- The open-end management investment companies listed on the front page
of this Prospectus. This Contract allows you to invest in certain investment
portfolios of the Funds.
LIVING BENEFIT -- A guarantee we provide regarding your Contract's value in the
variable accounts on the Living Benefit Date, provided you select the Living
Benefit option on your application.
LIVING BENEFIT DATE -- 10 years after the date of issue.
OWNER OR OWNERS ("YOU" OR "YOUR") -- The person(s) having the privileges of
ownership stated in the Contract. Joint owners may be permitted.
PAYEE -- The person(s) 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 that begins when we issue your Contract and ends on
the Annuity Start Date. During the pay-in period, earnings accumulate on a
tax-deferred basis.
PAYOUT PERIOD -- The period that begins on the Annuity Start Date during which
you receive annuity payments based on the money you have accumulated under your
Contract.
PAYOUT OPTION -- The arrangement you choose under which we pay annuity payments
to you after the Annuity Start Date. You may choose whether the dollar amount of
the payments you receive will be fixed, or will vary with the investment
experience of the variable accounts in which you are invested at that time, or
whether you will receive a combination of fixed and variable payments.
PORTFOLIO -- A separate investment portfolio of a Fund in which a variable
account invests.
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),
408, or 408A of the Internal Revenue Code.
SEPARATE ACCOUNT -- IL Annuity and Insurance Co. Separate Account 1, a separate
investment account divided into variable accounts that we established to receive
and invest the premium payments we receive under the Contract. Assets in the
separate account are not part of our general account.
SERVICE CENTER -- USA Administration Services, Inc., the administrator for the
Contracts. The mailing address for the Service Center is P.O. Box 29163,
Overland Park, KS 66201-1348 or 12900 Metcalf Avenue, Suite 200, Overland Park,
KS 66213-2620. You can call the Service Center office at 1-888-232-6486.
VARIABLE ACCOUNT -- A subdivision of the separate account that invests
exclusively in shares of a single portfolio of a Fund. The investment
performance of each variable account is linked directly to the investment
performance of the portfolio in which it invests.
WRITTEN REQUEST -- Your signed, written notice or request. We must receive your
written request at the Service Center and it must be in a form satisfactory to
us.
- 2 -
<PAGE> 74
HIGHLIGHTS
================================================================================
These highlights provide only a brief overview of the more important
features of the Visionary Choice Contract. More detailed information about the
Contract appears later in this prospectus. Please read this prospectus
carefully.
THE CONTRACT
An annuity is a contract where you agree to make one or more payments to
us and, in return, we agree to pay a series of payments to you at a later date
chosen by you. The Visionary Choice Contract is a special kind
of annuity that is:
- FLEXIBLE PREMIUM - you may add premium payments at any time.
- TAX-DEFERRED - you do not have to pay taxes on earnings until
you take money out by full or partial cash withdrawals, or we
make annuity payments to you, or we pay the death benefit.
- VARIABLE - its value fluctuates with the performance of the
mutual fund portfolios in which you invest. You bear the
investment risk on the amounts you invest.
- AVAILABLE WITH RETIREMENT PLANS - you may purchase this
annuity in connection with retirement plans, including those
that qualify for favorable federal tax treatment.
Like all deferred annuities, the Contract has two phases: the "pay-in"
period and the "payout" period. During the pay-in period, you can allocate money
to any combination of investment alternatives. Any earnings on your investments
accumulate tax-deferred. The payout period begins once you start receiving
regular annuity payments from your contract value. The money you can accumulate
during the pay-in period, as well as the annuity payout option you choose, will
determine the dollar amount of any annuity payments you receive.
HOW TO INVEST
You may purchase the Contract with a single payment of $1,000 or more
under most circumstances. We will not issue a Contract if you are older than age
85 on the date of issue.
You can pay additional premiums of $1,000 or more with some limitations.
Send your premium payments to the Service Center, P.O. Box 29163, Overland Park,
KS 66201-1348 or 12900 Metcalf Avenue, Suite 200, Overland Park, KS 66213-2620.
You can call the Service Center office at 1-888-232-6486.
CANCELLATION -- THE 10 DAY FREE-LOOK PERIOD
You may return your Contract for a refund within 10 days after you receive
it. The amount of the refund will generally be the total purchase payments you
paid, plus or minus any gains or losses on the amounts you invested in the
variable accounts. We determine the value of the refund as of the date we
receive the refunded Contract.
We will pay the refund within 7 days after we receive the Contract. The
Contract will then be deemed void. In some states you may have more than 10
days, or receive a different refund amount. If we refund
- 3 -
<PAGE> 75
your original premium payment, we will put your premium payment to the Money
Market Variable account during the free-look period.
INVESTMENT OPTIONS
You may invest your money in any of 18 portfolios by directing it into the
corresponding variable account. The portfolios now available to you under the
Contract are:
<TABLE>
<S> <C>
THE ALGER AMERICAN FUND ROYCE CAPITAL FUND
- MidCap Growth - Royce Micro-Cap
- Small Capitalization SAFECO RESOURCE SERIES TRUST
FIDELITY VIP - SAFECO Equity
- Equity-Income - SAFECO Growth
- Growth SOGEN VARIABLE FUNDS, INC.
- Money Market - SoGen Overseas Variable
FIDELITY VIP II T. ROWE PRICE FIXED INCOME SERIES, INC.
- Asset Manager - Limited-Term Bond
- Contrafund T. ROWE PRICE INTERNATIONAL SERIES, INC.
- Index 500 - International Stock
- Investment Grade Bond VAN ECK WORLDWIDE INSURANCE TRUST
OCC ACCUMULATION TRUST - Worldwide Hard Assets
- Managed
- Small Cap
</TABLE>
Each variable account invests exclusively in shares of one portfolio of a
Fund. Each portfolio's assets are held separately from the other portfolios and
each portfolio has separate investment objectives and policies. The portfolios
are described in the prospectuses for the Funds that accompany this prospectus.
The value of your investment in the variable accounts will fluctuate daily
based on the investment results of the portfolios in which you invest, and on
the fees and charges deducted.
Depending on market conditions, you can make or lose money in any of the
variable accounts. We reserve the right to offer other investment choices in the
future.
You may also direct your money to the fixed account and receive a
guaranteed rate of return. Money you place in the fixed account will earn
interest for one year periods at a fixed rate that is guaranteed by us never
to be less than 3.0%.
TRANSFERS
You have the flexibility to transfer assets within your Contract. At any
time during the pay-in period, you may transfer amounts among the variable
accounts and between the fixed account and any variable account. Certain
restrictions apply to transfers to and from the fixed account.
You may make 12 free transfers each contract year. We impose a $25 charge
per transfer on each transfer after the twelfth during a contract year before
the Annuity Start Date.
Transfers will reduce the value of the Living Benefit guarantee.
- 4 -
<PAGE> 76
Once you begin to receive annuity payments, you may make one transfer
among the variable accounts each contract year.
ACCESS TO YOUR MONEY
During the pay-in period, you may receive a cash withdrawal of part of
your contract value. The minimum amount you can withdraw is $250. You may also
fully withdraw all your value from the Contract
and receive its surrender value.
Full and partial withdrawals may be subject to a withdrawal charge,
depending upon the withdrawal charge option you chose at the time of purchase
and the timing of the withdrawal. In any contract year after the first contract
year, you may withdraw a portion of your contract value, called the free
withdrawal amount,
without incurring a withdrawal charge.
Withdrawals will reduce the value of the Living Benefit guarantee.
You may have to pay federal income taxes and a penalty tax on any money
you withdraw from the Contract.
DEATH BENEFIT
We will pay the death benefit to the beneficiary on the annuitant's death
before the Annuity Start Date.
The death benefit will equal the greater of:
- the sum of premium payments made under the Contract, LESS
partial withdrawals as of the date we determine the death
benefit; or
- the contract value as of the date we determine the death
benefit.
If you elect the enhanced death benefit option, the enhanced death benefit
will be the greater of:
- the contract value as of the date we determine the enhanced
death benefit; or
- the highest contract value on any Death Benefit Anniversary,
adjusted for any premium payments received, withdrawals taken
and charges incurred between such Death Benefit Anniversary
and the date we determine the enhanced death benefit.
We set the value of the enhanced death benefit initially on the first
Death Benefit Anniversary (that is, the third Contract Anniversary) and reset it
every third Contract Anniversary if the value is greater. Once reset,
this value will never decrease unless you make a partial withdrawal.
In determining both the enhanced and the standard death benefit, we will
subtract any applicable premium taxes not previously deducted.
A different death benefit calculation applies if the annuitant dies at or
after age 75.
LIVING BENEFIT
The Living Benefit guarantees a minimum value in the variable accounts on
the Contract's tenth anniversary, provided certain conditions are met. The
Living Benefit is based on the first premium payment
- 5 -
<PAGE> 77
that you direct into the Eligible Variable Accounts at the time of premium
payment reduced by adjusted withdrawals and transfers.
We will not credit your Contract with any Living Benefit if you elect to
receive annuity payments before
the Living Benefit Date.
Transfers and withdrawals from an Eligible Variable Account will reduce
the value of the Living Benefit.
FEES AND CHARGES
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 on the death benefit or on annuity
payments under an annuity payout plan with a life contingency or an annuity
payout plan with at least 10 years of guaranteed payments.
You may choose 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. The date of issue withdrawal charge is 7% in the first
six Contract Years, decreasing to 6% in the seventh Contract Year, and then
declining by 2% in 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.
The date of premium payment withdrawal charge is 7% in the first Contract Year,
decreasing by 1% in each subsequent Contract Year, until it is zero in Contract
Year eight.
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.
The withdrawal charge 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.
CONTRACT FEE. We deduct a quarterly contract fee of $7.50 from your
contract value at the end of each contract quarter during the pay-in period and
on the date of full withdrawal. Certain exceptions apply.
TRANSFER FEE. You may make 12 free transfers each contract year. We impose
a $25 charge per transfer on each transfer after the twelfth during a contract
year before the Annuity Start Date.
MORTALITY AND EXPENSE RISK CHARGE. We will deduct a daily mortality and
expense risk charge from your value in the variable accounts at an annual rate
of 1.25%. We will continue to deduct this charge after you begin to receive
annuity payments if you choose to receive variable annuity payments.
ASSET-BASED ADMINISTRATIVE CHARGE. We will deduct a daily administrative
charge from your value in the variable account at an annual rate of 0.15%. We
will continue to assess this charge after you begin to receive annuity payments
if you choose to receive variable annuity payments.
- 6 -
<PAGE> 78
PREMIUM TAXES. We will deduct state premium taxes, which currently range
from 0% up to 3.5%, if your state requires us to pay the tax. If necessary, we
will make the deduction either: (a) from premium payments as we receive them,
(b) from your contract value upon partial or full withdrawal, (c) when annuity
payments begin, or (d) upon payment of a death benefit.
PORTFOLIO FEES AND CHARGES. Each portfolio deducts portfolio management
fees and charges from the amounts you have invested in the portfolios. These
charges currently range from .30% to 1.50% annually. See the Fee Table in this
Prospectus and the prospectuses for the portfolios.
ANNUITY PROVISIONS
PAYOUT OPTIONS. The Contract allows you to receive periodic annuity
payments beginning on the Annuity Start Date you select. You may choose among
several payout plans. You may receive income payments for a specific period of
time or for life, with or without a guaranteed number of payments.
We will use your adjusted contract value on the Annuity Start Date to
calculate the amount of your annuity payments under the payment plan you choose.
If you select a variable payout option, the dollar amount of your payments may
go up or down depending on the investment results of the portfolios you invest
in at that time.
FEDERAL TAX STATUS
Generally, a distribution, including a full or partial withdrawal or death
benefit payment, may be taxed. 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."
INQUIRIES
If you need additional information, please contact us at:
Service Center
P.O. Box 29163
Overland Park, KS 66201-1348
or
12900 Metcalf Avenue, Suite 200
Overland Park, KS 66213-2620
1-888-232-6486.
- 7 -
<PAGE> 79
FEE TABLE
The Fee Table illustrates the current expenses and fees under the Contract
as well as the portfolios' fees and expenses for the 1998 calendar year. The
purpose of this table is to help you understand the various
costs and expenses that you will pay directly and indirectly.
YOUR TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Charge Imposed on Premium Payments..............................................................None
Maximum Withdrawal Charge
(as a percentage of your premium payment)(1)................................................... 7.0%
Transfer Fee..............................................................No fee for the first 12 transfer
in a contract year then $25
per additional transfer
ANNUALIZED CONTRACT FEE(2) ..................................................................................$30
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average net assets)
Mortality and Expense Risk Charge....................................................................1.25%
Administrative Expenses..............................................................................0.15%
-----
Total Separate Account Annual Expenses...............................................................1.40%
</TABLE>
ANNUAL FUND EXPENSES
(as a percentage of average net assets after fee waivers and expense
reimbursements)
<TABLE>
<CAPTION>
TOTAL ANNUAL
EXPENSES (AFTER
MANAGEMENT OTHER EXPENSES WAIVERS
FEES 12b-1 (AFTER AND
NAME OF PORTFOLIO (AFTER WAIVERS) FEES REIMBURSEMENT) REIMBURSEMENT)
- ----------------- --------------- ---- -------------- --------------
<S> <C> <C> <C> <C>
Alger American Fund
- -------------------
MidCap Growth Portfolio 0.80% 0.00% 0.04% 0.84%
SmallCap Portfolio 0.85% 0.00% 0.04% 0.89%
Fidelity VIP
- ------------
Equity-Income Portfolio (3) 0.49% 0.00% 0.09% 0.58%
Growth Portfolio (3) 0.59% 0.00% 0.09% 0.68%
Money Market Portfolio 0.20% 0.00% 0.10% 0.30%
</TABLE>
- 8 -
<PAGE> 80
<TABLE>
<CAPTION>
TOTAL ANNUAL
EXPENSES (AFTER
MANAGEMENT OTHER EXPENSES WAIVERS
FEES 12b-1 (AFTER AND
NAME OF PORTFOLIO (AFTER WAIVERS) FEES REIMBURSEMENT) REIMBURSEMENT)
- ----------------- --------------- ---- -------------- --------------
<S> <C> <C> <C> <C>
Fidelity VIP II
- ---------------
Asset Manager Portfolio (3) 0.54% 0.00% 0.10% 0.64%
Contrafund Portfolio (3) 0.59% 0.00% 0.11% 0.70%
Index 500 Portfolio (3) 0.24% 0.00% 0.11% 0.35%
Investment Grade Bond 0.43% 0.00% 0.14% 0.57%
Portfolio
OCC Accumulation Trust
- ----------------------
Managed Portfolio (4) 0.78% 0.00% 0.04% 0.82%
Small Cap Portfolio (4) 0.80% 0.00% 0.08% 0.88%
Royce Capital Fund
- ------------------
Royce Mid-Cap Portfolio 0.01% 0.00% 1.34% 1.35%
(5)
SAFECO Resources Series
- -----------------------
Trust
- ----- 0.74% 0.00% 0.04% 0.78%
SAFECO Equity Portfolio
SAFECO Growth Portfolio 0.74% 0.00% 0.06% 0.80%
SoGen Variable Funds, Inc.
- --------------------------
SoGen Overseas Portfolio 0.00% 0.25% 1.25% 1.50%
(6)
T. Rowe Price Fixed Income
- --------------------------
Series, Inc. 0.70% 0.00% 0.00% 0.70%
- ------------
Limited-Term Bond
Portfolio (7)
T. Rowe Price International
- ---------------------------
Series, Inc. 1.05% 0.00% 0.00% 1.05%
- ------------
International Stock
Portfolio(7)
Van Eck Worldwide
- -----------------
Insurance Trust 1.00% 0.00% 0.16% 1.16%
- ---------------
Worldwide Hard Assets
Portfolio
</TABLE>
- 9 -
<PAGE> 81
1/ 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 if the Contract terminates due to your death
or the annuitant's death, 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.
2/ We waive this fee for Qualified Contracts. We also waive this fee for
Non-Qualified Contracts with cumulative premium payments of $100,000 or more.
3/ A portion of the brokerage commissions that the Equity Income, Growth, Asset
Manager, Index 500 and Contrafund Portfolios pay was used to reduce fund
expenses. In addition, these Portfolios have entered into arrangements with
their custodian whereby credits realized as a result of uninvested cash balances
were used to reduce custodian expenses. Including these reductions, the total
operating expenses presented in the fee table would have been: 0.57% for the
Equity Income Portfolio; 0.66% for the Growth Portfolio; 0.63% for the Asset
Manager Portfolio; 0.28% for the Index 500 Portfolio; and 0.66% for the
Contrafund Portfolio.
4/ The Other Expenses of the OCC Accumulation Trust Portfolios as of December
31, 1998 are shown without a reduction for certain expense offsets afforded the
Portfolios which effectively lowered overall custody expenses. The Total Annual
Portfolio Expenses of the Managed and Small Cap Portfolios are limited by OpCap
Advisors so that their respective annualized operating expenses (net of any
expense offsets) do not exceed 1.00% of their respective average daily net
assets. These limitations had a negligible effect, so that without such
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, 1998 would have been: 0.78%, 0.04% and 0.82%,
respectively, for the Managed Portfolio; and 0.80%, 0.08% and 0.88%,
respectively, for the Small Cap Portfolio.
5/ Royce & Associates, Inc., the investment adviser to the Royce Micro-Cap
Portfolio, has contractually agreed to waive its management fees and reimburse
Other Expenses through December 31, 1999 to the extent necessary to maintain
Total Annual Expenses of the Portfolio at or below 1.35%. Without such waiver
and reimbursement, the Management Fee was 1.25% and Total Annual Expenses were
2.59% for fiscal year 1998.
6/ The 12b-1 fee for the SoGen Overseas Portfolio 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. Under the terms of an investment advisory agreement
dated August 16, 1996, the SoGen Overseas Portfolio pays its investment adviser
a monthly advisory fee at an annual rate of 0.75% of the average daily net
assets of the Portfolio. For year ended December 31, 1998, the adviser waived
its investment advisory fee in its entirety and reimbursed the Portfolio for all
expenses in excess of 1.50% of average daily net assets. Without such waiver and
reimbursements, the Management Fee was 0.75%, Other Expenses were 4.23%, and
Total Annual Expenses were 4.98%.
- 10 -
<PAGE> 82
7/ The Limited-Term Bond Portfolio pays T. Rowe Price an annual all-inclusive
fee of 0.70%, computed daily and paid monthly, 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%, computed daily and
paid monthly, based on its average daily net assets. These fees pay for
investment management services and other operating costs of the Portfolios.
The purpose of these tables is to assist you in understanding the costs and
expenses that you will bear directly or indirectly. The table reflects the
actual charges and expenses for the separate account and for each portfolio
for the fiscal year ended December 31, 1998.
EXAMPLES
(NOTE: The examples shown below are entirely hypothetical. They do not
represent 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.
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets, and charges and expenses reflected in the Fee Table
above:
1. If you surrender your Contract (or if you elect to annuitize under a
period certain option for a specified period of less than 10 years)
at the end of the applicable time period:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ALGER AMERICAN FUND
MidCap Growth $ 94.50 $ 143.44 $ 198.64 $ 273.95
- ---------------------------------------------------------------------------------------------------------------------------------
Small Capitalization $ 95.02 $ 144.91 $ 201.27 $ 279.19
- ---------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP
Equity-Income $ 91.77 $ 135.79 $ 184.89 $ 246.26
- ---------------------------------------------------------------------------------------------------------------------------------
Growth $ 92.82 $ 138.74 $ 190.20 $ 257.00
- ---------------------------------------------------------------------------------------------------------------------------------
Money Market $ 88.83 $ 127.50 $ 169.91 $ 215.62
- ---------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP II
Asset Manager $ 92.40 $ 137.56 $ 188.08 $ 252.72
- ---------------------------------------------------------------------------------------------------------------------------------
Contrafund $ 93.03 $ 139.32 $ 191.26 $ 259.13
- ---------------------------------------------------------------------------------------------------------------------------------
Index 500 $ 89.36 $ 128.98 $ 172.60 $ 221.16
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Grade Bond $ 91.67 $ 135.49 $ 184.36 $ 245.18
- ---------------------------------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
Managed $ 94.29 $ 142.85 $ 197.59 $ 271.84
- ---------------------------------------------------------------------------------------------------------------------------------
Small Cap $ 94.92 $ 144.61 $ 200.74 $ 278.14
- ---------------------------------------------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
Royce Micro-Cap $ 99.85 $ 158.33 $ 224.95 $ 326.17
- ---------------------------------------------------------------------------------------------------------------------------------
SAFECO RESOURCES SERIES TRUST
SAFECO Equity $ 93.87 $ 141.68 $ 195.48 $ 267.62
SAFECO Growth $ 94.08 $ 142.27 $ 196.54 $ 269.74
- ---------------------------------------------------------------------------------------------------------------------------------
SOGEN VARIABLE FUNDS, INC.
SoGen Overseas Variable $101.42 $ 162.68 $ 232.09 $ 341.02
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- 11 -
<PAGE> 83
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
T. ROWE PRICE FIXED INCOME
SERIES, INC.
Limited-Term Bond $ 93.03 $ 139.32 $ 191.26 $ 259.13
- -----------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL
SERIES, INC.
International Stock $ 96.70 $ 149.59 $ 209.64 $ 295.78
- -----------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE
TRUST
Worldwide Hard Assets $ 97.85 $ 152.80 $ 215.36 $ 307.03
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
2. If you do not surrender your Contract (or if you elect to annuitize under
a life contingency option or under a period certain option for a minimum
specified period of 10 years) at the end of the applicable time
period:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ALGER AMERICAN FUND
MidCap Growth $ 24.50 $ 75.31 $ 128.64 $ 273.95
- -----------------------------------------------------------------------------------------------------------------------
Small Capitalization $ 25.02 $ 76.88 $ 131.27 $ 279.19
- -----------------------------------------------------------------------------------------------------------------------
FIDELITY VIP
Equity-Income $ 21.77 $ 67.09 $ 114.89 $ 246.26
- -----------------------------------------------------------------------------------------------------------------------
Growth $ 22.82 $ 70.25 $ 120.20 $ 257.00
- -----------------------------------------------------------------------------------------------------------------------
Money Market $ 18.83 $ 58.18 $ 99.91 $ 215.62
- -----------------------------------------------------------------------------------------------------------------------
FIDELITY VIP II
Asset Manager $ 22.40 $ 68.99 $ 118.08 $ 252.72
- -----------------------------------------------------------------------------------------------------------------------
Contrafund $ 23.03 $ 70.89 $ 121.26 $ 259.13
- -----------------------------------------------------------------------------------------------------------------------
Index 500 $ 19.36 $ 59.78 $ 102.60 $ 221.16
- -----------------------------------------------------------------------------------------------------------------------
Investment Grade Bond $ 21.67 $ 66.77 $ 114.36 $ 245.18
- -----------------------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
Managed $ 24.29 $ 74.68 $ 127.59 $ 271.84
- -----------------------------------------------------------------------------------------------------------------------
Small Cap $ 24.92 $ 76.57 $ 130.74 $ 278.14
- -----------------------------------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
Royce Micro-Cap $ 29.85 $ 91.30 $ 155.18 $ 326.17
- -----------------------------------------------------------------------------------------------------------------------
SAFECO RESOURCES SERIES TRUST
SAFECO Equity $ 23.87 $ 73.41 $ 125.48 $ 267.62
SAFECO Growth $ 24.08 $ 74.04 $ 126.54 $ 269.74
- -----------------------------------------------------------------------------------------------------------------------
SOGEN VARIABLE FUNDS, INC.
SoGen Overseas Variable $ 31.42 $ 95.97 $ 162.87 $ 341.02
- -----------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME
SERIES, INC.
Limited-Term Bond $ 23.03 $ 70.89 $ 121.26 $ 259.13
- -----------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL
SERIES, INC.
International Stock $ 26.70 $ 81.91 $ 139.64 $ 295.78
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
- 12 -
<PAGE> 84
<TABLE>
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE
TRUST
Worldwide Hard Assets $ 27.85 $ 85.36 $ 145.36 $ 307.03
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Examples 3 and 4 show Contracts with a DATE OF PREMIUM PAYMENT WITHDRAWAL
OPTION.
3. If You surrender your Contract (or if you elect to annuitize under a
period certain option for a specified period of less than 10 years) at the
end of the applicable time period:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ALGER AMERICAN FUND
MidCap Growth $ 94.50 $ 123.97 $ 158.64 $ 273.95
- -----------------------------------------------------------------------------------------------------------------------------
Small Capitalization $ 95.02 $ 125.47 $ 161.27 $ 279.19
- -----------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP
Equity-Income $ 91.77 $ 116.16 $ 144.89 $ 246.26
- -----------------------------------------------------------------------------------------------------------------------------
Growth $ 92.82 $ 119.17 $ 150.20 $ 257.00
- -----------------------------------------------------------------------------------------------------------------------------
Money Market $ 88.83 $ 107.69 $ 129.91 $ 215.62
- -----------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP II
Asset Manager $ 92.40 $ 117.97 $ 148.08 $ 252.72
- -----------------------------------------------------------------------------------------------------------------------------
Contrafund $ 93.03 $ 119.77 $ 151.26 $ 259.13
- -----------------------------------------------------------------------------------------------------------------------------
Index 500 $ 89.36 $ 109.21 $ 132.60 $ 221.16
- -----------------------------------------------------------------------------------------------------------------------------
Investment Grade Bond $ 91.67 $ 115.86 $ 144.36 $ 245.18
- -----------------------------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
Managed $ 94.29 $ 123.37 $ 157.59 $ 271.84
- -----------------------------------------------------------------------------------------------------------------------------
Small Cap $ 94.92 $ 125.17 $ 160.74 $ 278.14
- -----------------------------------------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
Royce Micro-Cap $ 99.85 $ 139.18 $ 185.08 $ 326.17
- -----------------------------------------------------------------------------------------------------------------------------
SAFECO RESOURCES SERIES TRUST
SAFECO Equity $ 93.87 $ 122.17 $ 155.48 $ 267.62
- -----------------------------------------------------------------------------------------------------------------------------
SAFECO Growth $ 94.08 $ 122.77 $ 156.54 $ 269.74
- -----------------------------------------------------------------------------------------------------------------------------
SOGEN VARIABLE FUNDS, INC.
SoGen Overseas Variable $101.42 $ 143.62 $ 192.54 $ 341.02
- -----------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME
SERIES, INC.
Limited-Term Bond $ 93.03 $ 119.77 $ 151.26 $ 259.13
- -----------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL
SERIES, INC.
International Stock $ 96.70 $ 130.26 $ 169.64 $ 295.78
- -----------------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE
TRUST
Worldwide Hard Assets $ 97.85 $ 133.53 $ 175.36 $ 307.03
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
- 13 -
<PAGE> 85
4. If You do not surrender your Contract (or if you elect to annuitize under
a life contingency option or under a period certain option for a minimum
specified period of 10 years) at the end of the applicable time
period:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ALGER AMERICAN FUND
MidCap Growth $ 24.50 $ 75.31 $ 128.64 $ 273.95
- -----------------------------------------------------------------------------------------------------------------------------
Small Capitalization $ 25.02 $ 76.88 $ 131.27 $ 279.19
- -----------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP
Equity-Income $ 21.77 $ 67.09 $ 114.89 $ 246.26
- -----------------------------------------------------------------------------------------------------------------------------
Growth $ 22.82 $ 70.25 $ 120.20 $ 257.00
- -----------------------------------------------------------------------------------------------------------------------------
Money Market $ 18.83 $ 58.18 $ 99.91 $ 215.62
- -----------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP II
Asset Manager $ 22.40 $ 68.99 $ 118.08 $ 252.72
- -----------------------------------------------------------------------------------------------------------------------------
Contrafund $ 23.03 $ 70.89 $ 121.26 $ 259.13
- -----------------------------------------------------------------------------------------------------------------------------
Index 500 $ 19.36 $ 59.78 $ 102.60 $ 221.16
- -----------------------------------------------------------------------------------------------------------------------------
Investment Grade Bond $ 21.67 $ 66.77 $ 114.36 $ 245.18
- -----------------------------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
Managed $ 24.29 $ 74.68 $ 127.59 $ 271.84
- -----------------------------------------------------------------------------------------------------------------------------
Small Cap $ 24.92 $ 76.57 $ 130.74 $ 278.14
- -----------------------------------------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
Royce Micro-Cap $ 29.85 $ 91.30 $ 155.18 $ 326.17
- -----------------------------------------------------------------------------------------------------------------------------
SAFECO RESOURCES SERIES
TRUST $ 23.87 $ 73.41 $ 125.48 $ 267.62
SAFECO Equity
- -----------------------------------------------------------------------------------------------------------------------------
SAFECO Growth $ 24.08 $ 74.04 $ 126.54 $ 269.74
- -----------------------------------------------------------------------------------------------------------------------------
SOGEN VARIABLE FUNDS, INC.
SoGen Overseas Variable $ 31.42 $ 95.97 $ 162.87 $ 341.02
- -----------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME
SERIES, INC.
Limited-Term Bond $ 23.03 $ 70.89 $ 121.26 $ 259.13
- -----------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL
SERIES, INC.
International Stock $ 26.70 $ 81.91 $ 139.64 $ 295.78
- -----------------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE
INSURANCE TRUST
Worldwide Hard Assets $ 27.85 $ 85.36 $ 145.36 $ 307.03
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The examples provided above assume that no transfer charges or premium
taxes have been assessed. The examples also reflect the contract fee of $30 as
if it were assessed on an average contract value of $30,000, which translates
the contract fee into a 0.10% charge for the purposes of the examples based on a
$1,000 investment.
THE EXAMPLES DO NOT REPRESENT PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESSER THAN THOSE SHOWN. THE ASSUMED 5% ANNUAL RATE OF RETURN IS
HYPOTHETICAL. IT DOES NOT REPRESENT PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE
GREATER OR LESS THAN THIS ASSUMED RATE.
- 14 -
<PAGE> 86
CONDENSED FINANCIAL INFORMATION
Condensed financial information for the variable accounts is included at
the end of this prospectus.
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. ("Indianapolis Life Group"), which is
a majority-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, 1998 which approximated $1.78
billion.
At the end of 1997, American United Life Insurance Company ("AUL") and
Indianapolis Life Insurance Company took preliminary steps toward an
affiliation. At that time, AUL invested $8,910,000 in Indianapolis Life Group of
Companies, Inc. ("IL Group") and on March 30, 1998 AUL invested an additional
$18,090,000. On March 31, 1999, an Investment and Funding Agreement was executed
between IL Group, AUL and Legacy Marketing Group ("LMG"). The Agreements
provides for additional investments in IL Group, the purpose of which is to
provide additional capital to IL Annuity. As a result of these investments and
related transactions, as of March 31, 1999, Indianapolis Life Insurance Company
retains ownership of 61.30% of the stock of IL Group, AUL owns 32.44% of the IL
Group stock and LMG owns 6.26% of the IL Group stock. The Agreement to affiliate
does contain provisions which would allow AUL to invest additional amounts in IL
Group, and potentially to own up to 49.9% of the outstanding IL Group stock.
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 and under 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
- 15 -
<PAGE> 87
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, 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 is divided into 18 variable accounts. Additional
variable accounts may be available in the future. Each variable account invests
exclusively in shares of a single corresponding portfolio. 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, the funds or of us by the SEC.
The separate account is also subject to the laws of the Commonwealth 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 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 1940
as an open-end, management investment company.
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.
In addition, the investment objectives and policies of certain portfolios
are similar to the investment objectives and policies of other portfolios that
may be managed by the same investment adviser or manager. The investment results
of the portfolios, however, may be higher or lower than the results of other
such portfolios. We make no assurance, and no representation, that the
investment results of any of
- 16 -
<PAGE> 88
the portfolios will be comparable to the investment results of any other
portfolio, even if the other portfolio has the same investment adviser or
manager.
An investment in a variable account, or in any portfolio, including the
Money Market Portfolio, is not insured or guaranteed by the U.S. Government and
there can be no assurance that the Money Market Portfolio will be able to
maintain a stable net asset value per share.
We cannot guarantee that each Portfolio will always be available for its
variable annuity contracts. Shares of each portfolio are purchased and redeemed
at net asset value, without a sales charge.
INVESTMENT OBJECTIVES OF THE PORTFOLIOS
The investment objective of each portfolio is summarized below. WE GIVE NO
ASSURANCE THAT ANY PORTFOLIO WILL ACHIEVE ITS STATED OBJECTIVES. You can find
more detailed information, including a description of risks, fees and expenses
of each portfolio in the prospectuses for the Funds which accompany this
prospectus.
CERTAIN PORTFOLIOS HAVE SIMILAR INVESTMENT OBJECTIVES AND/OR POLICIES. YOU
SHOULD CAREFULLY READ THE PROSPECTUSES FOR THE PORTFOLIOS BEFORE YOU INVEST.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
THE ALGER AMERICAN seeks long-term capital appreciation. The portfolio focuses on mid-size
MIDCAP GROWTH companies with promising growth potential. Under normal circumstances,
PORTFOLIO the portfolio invests primarily in the equity securities of companies having
a market capitalization within the range of companies in the S&P(R) MidCap
400 Index.
- --------------------------------------------------------------------------------------------------------------------------------
THE ALGER AMERICAN seeks long-term capital appreciation. The portfolio focuses on small, fast-
SMALL CAPITALIZATION growing companies that offer innovative products, services or technologies
PORTFOLIO to a rapidly expanding marketplace. Under normal circumstances, the portfolio
invests primarily in the equity securities of small capitalization companies. A
small capitalization company is one that has a market capitalization within the
range of the Russell(R) 2000 Growth Index or the S&P(R) SmallCap 600 Index.
- --------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP seeks reasonable income and will also consider the potential for capital
EQUITY-INCOME PORTFOLIO appreciation. The portfolio seeks a yield which exceeds the composite
yield on the securities comprising the S&P 500 by investing primarily in
income-producing equity securities.
- --------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP seeks to achieve capital appreciation by investing in common stocks that
GROWTH PORTFOLIO the adviser believes have above-average growth potential.
- --------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP seeks to earn a high level of current income as is consistent with the
MONEY MARKET preservation of capital and liquidity by investing in high-quality, short-
PORTFOLIO term money market securities of different types.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- 17 -
<PAGE> 89
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
FIDELITY VIP II seeks to obtain a high total return with reduced risk over the long-term by
ASSET MANAGER allocating its assets among stocks, bonds and short-term instruments.
PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP II seeks long-term capital appreciation by investing primarily in common
CONTRAFUND PORTFOLIO stocks of companies whose value the adviser believes is not fully recognized
by the public.
- --------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP II seeks to match the total return of the S&P 500. The adviser normally
INDEX 500 PORTFOLIO invests at least 80% of the portfolio's assets in equity securities of
companies that compose the S&P 500.
- --------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP II seeks as high a level of current income as is consistent with the
INVESTMENT GRADE BOND preservation of capital by investing in U.S. dollar-denominated investment
PORTFOLIO grade bonds.
- --------------------------------------------------------------------------------------------------------------------------------
OCC ACCUMULATION seeks growth of capital over time through investment in a portfolio
MANAGED PORTFOLIO consisting of common stocks, bonds and cash equivalents, the percentages
of which will vary based on management's assessments of relative investment
values.
- --------------------------------------------------------------------------------------------------------------------------------
OCC ACCUMULATION seeks capital appreciation through investment in a diversified
SMALL CAP PORTFOLIO portfolio of equity securities of companies with market capitalizations of under
$1 billion.
- --------------------------------------------------------------------------------------------------------------------------------
ROYCE MICRO-CAP seeks long-term growth of capital. The adviser invests the portfolio's
PORTFOLIO assets primarily in a broadly diversified portfolio of equity securities
issued by micro-cap companies (stock market capitalization below $300 million).
- --------------------------------------------------------------------------------------------------------------------------------
SAFECO EQUITY seeks long-term growth of capital and reasonable current income. During
PORTFOLIO normal market conditions, the portfolio will invest primarily in equity
securities (common stock and preferred stock), and may invest in securities
convertible into common stock (including convertible corporate bonds and
convertible preferred stock). The portfolio typically invests in common stocks
of large, established companies that are proven performers.
- --------------------------------------------------------------------------------------------------------------------------------
SAFECO GROWTH seeks growth of capital and the increased income that ordinarily follows
PORTFOLIO from such growth. The Growth Portfolio invests most of its assets in
common stock selected primarily for potential appreciation.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- 18 -
<PAGE> 90
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
SOGEN OVERSEAS seeks long-term growth of capital by investing primarily in securities of
VARIABLE PORTFOLIO 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
as "junk bonds" and securities that are not rated. The greater risks involved in
foreign investing and investing in junk bonds should be understood and carefully
considered. See the Portfolio's Prospectus for a description of these risks.
- --------------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE seeks a high level of income consistent with moderate fluctuation in
LIMITED-TERM BOND principal value. The portfolio will invest at least 65% of total assets in
PORTFOLIO short- and intermediate-term, investment-grade debt securities.
- --------------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE seeks long-term growth of capital through investments primarily in
INTERNATIONAL STOCK common stocks of established, non-U.S. companies.
PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------------
VAN ECK seeks long-term capital appreciation by investing globally, primarily in "Hard
WORLDWIDE HARD ASSETS Asset Securities" of companies that are directly or indirectly engaged to a
PORTFOLIO significant extent in the exploration, development,production or distribution
of one or more of the following: (i) precious metals, (ii) natural resources,
(iii) real estate, and (iv) commodities.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
INVESTMENT ADVISERS TO THE FUNDS
THE ALGER AMERICAN FUND. 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 portfolio's 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 portfolios of the VIP Fund and the VIP Fund II are managed
by Fidelity Management & Research Company ("FMR"). On behalf of VIP Money Market
Portfolio, FMR has entered in a subadvisory agreement with Fidelity Investments
Money Management, Inc. ("FIMM"), under which FIMM has primary responsibility for
choosing investments for the fund. On behalf of VIP II Asset Manager Portfolio,
FMR has entered into a sub-advisory agreement with FIMM, under which FIMM
chooses certain types of investments for the portfolio. On behalf of VIP II
Asset Manager Portfolio and VIP II Contrafund Portfolio, FMR has entered into
sub-advisory agreements with Fidelity Investment Management and Research (U.K.)
Inc. ("FMR (U.K.)") and Fidelity Management and Research (Far East) Inc. ("FMR
Far East"), under which the sub-advisers may provide investment research and
advice on issuers based outside the United States and may also provide
investment advisory services to the funds.
- 19 -
<PAGE> 91
OCC ACCUMULATION TRUST. The OCC Trust receives investment advice with
respect to each of its portfolios from OpCap Advisors. OpCap Advisors is a
subsidiary of Oppenheimer Capital which is an indirect wholly owned subsidiary
of PIMCO Advisors L.P.
ROYCE CAPITAL FUND. Royce & Associates, Inc. serves as the investment
adviser to the portfolio.
SAFECO RESOURCE SERIES TRUST. Each portfolio is managed by SAFECO Asset
Management Company.
SOGEN VARIABLE FUNDS, INC. 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.
T. ROWE PRICE FIXED INCOME SERIES, INC. 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. 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. 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.
We have entered into agreements with the investment adviser of several of
the Funds pursuant to which each such investment adviser will pay us a servicing
fee based upon an annual percentage of the average aggregate net assets we have
invested on behalf of the separate account. These agreements reflect
administrative services we have provided to the Funds. Payments of such amounts
on behalf of the Funds will not increase the fees paid by the Funds or their
shareholders.
AVAILABILITY OF THE FUNDS
We cannot guarantee that each portfolio will always be available for
investment through the Contracts.
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.
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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 SAI.
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 will also end if 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 of 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 tax code. We will not issue you a
Contract if you are older than age 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 other than Roth IRAs).
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 per month.
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
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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:
- the difference between the premium payments you paid and the amounts
you allocated to the variable accounts and the fixed account under
the Contract; AND
- the contract value as of the date we receive the Contract and the
written request for cancellation 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:
- the premium payments you paid under the Contract; and
- the contract value (without the deduction of a withdrawal charge) on
the date we receive the Contract and the written request for
cancellation at our Service Center, plus any premium taxes we
deducted.
In those states where we must return premium payments, we will place the
money you 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, we will direct the amount
in the Money Market variable account 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 eighteen 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 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 2 business days.
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We will credit any additional premium payments you make to your Contract
at the accumulation unit value computed at the end of the business day on which
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 and/or to the fixed account 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
your instructions will not change the way existing contract value is apportioned
among the variable accounts or the fixed account.
THE CONTRACT VALUE YOU DIRECTED TO A VARIABLE ACCOUNT WILL VARY WITH THE
INVESTMENT EXPERIENCE OF THAT VARIABLE ACCOUNT. YOU BEAR THE ENTIRE INVESTMENT
RISK FOR AMOUNTS YOU ALLOCATE TO THE VARIABLE ACCOUNTS. YOU SHOULD PERIODICALLY
REVIEW YOUR PREMIUM PAYMENT ALLOCATION INSTRUCTIONS IN LIGHT OF MARKET
CONDITIONS AND YOUR OVERALL FINANCIAL OBJECTIVES.
YOUR CONTRACT VALUE
================================================================================
SEPARATE ACCOUNT VALUE
Your separate account value will reflect the investment experience of the
selected variable accounts, any net premium payments paid, any surrenders or
partial withdrawals, any transfers, and any charges assessed in connection with
the Contract. There is no guaranteed minimum separate account value. A
Contract's separate account value depends upon a number of variables, therefore
it cannot be predetermined.
CALCULATING SEPARATE ACCOUNT VALUE
Your separate account value is determined at the end of each business
day. The value will be the total of your Contract's value in each of the
variable accounts, we determine your Contract's value in each variable account
by multiplying that variable account's unit value for the relevant valuation
period by the number of accumulation units of that variable account allocated
to the Contract.
NUMBER OF ACCUMULATION UNITS
Any amounts you allocate or transfer to the variable accounts will be
converted into variable account accumulation units. We determine the number of
accumulation units to be credited to your Contract by dividing the dollar amount
being allocated or transferred to a variable account by the accumulation unit
value for that variable account at the end of the business day during which
the amount was allocated or transferred. The number of accumulation units in any
variable account will be increased at the end of the business day by any net
premium payments allocated to the variable account during the current business
day and by any amounts transferred to the variable account from another
variable account or from the fixed account during the current business day.
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Any amounts transferred, surrendered or deducted from a variable account
will be processed by canceling or liquidating accumulation units. The number of
accumulation units to be canceled is determined by dividing the dollar amount
being removed from a variable account by the accumulation unit value for that
variable account at the end of the business day during which the amount was
removed. The number of accumulation units in any variable account will be
decreased at the end of the business day by:
- any amounts transferred (including any applicable transfer
fee) from that variable account to another variable account or
to the fixed account;
- any amounts withdrawn or surrendered on that business day;
- any withdrawal charge or premium tax assessed upon a partial
withdrawal or surrender; and
- the quarterly contract fee, if assessed on that business day.
ACCUMULATION UNIT VALUE
The accumulation unit value for each variable account's first business day
was set at $10. The accumulation unit value for a variable account is
calculated for each subsequent business day by multiplying the accumulation
unit value at the end of the immediately preceding business day by the Net
Investment Factor for the business day for which the value is being
determined.
The formula for computing the Net Investment Factor is in the SAI.
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 transfer money out of an Eligible Variable Account, you will reduce
the value of Living Benefit guarantee. IT IS IMPORTANT THAT YOU READ THE SECTION
ON "LIVING BENEFIT" BEFORE YOU MAKE A TRANSFER IF YOU HAVE SELECTED THE LIVING
BENEFIT OPTION.
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
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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 per contract year. See Fees and Charges.
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.
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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 assessing a
transfer change. We reserve the right to discontinue offering the Dollar-Cost
Averaging program at any time and for any reason.
Dollar-Cost Averaging from an Eligible Variable Account will reduce the
value of the Eligible Premium Payment on which the Living Benefit is based.
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 your variable account values (on a
monthly or quarterly basis) to return to the percentages specified in your
allocation instructions. You may elect to participate in the Automatic Account
Balancing 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 at any time and for any reason.
Automatic Account Balancing from an Eligible Variable Account will reduce
the value of the Eligible Premium Payment on which the Living Benefit is based.
ACCESS TO YOUR MONEY
================================================================================
FULL WITHDRAWALS
At any time before the Annuity Start Date, you may withdraw fully from the
Contract for its surrender value.
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The surrender value is equal to :
- the contract value; MINUS
- any applicable withdrawal charges; MINUS
- any premium taxes not previously deducted; and MINUS
- the contract fee unless waived.
For Qualified Contracts, any outstanding loan balance is also deducted.
The surrender value will be determined as of the business day on which we
receive your written request for a full withdrawal, plus your Contract, at our
Service Center. The surrender value will be paid in a lump sum unless you
request payment under a payout plan. A full withdrawal may have adverse federal
income tax consequences, including a penalty tax.
PARTIAL WITHDRAWALS
At any time before the Annuity Start Date, you may send a written 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.
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 are
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 withdraw money from an Eligible Variable Account, you will reduce
the value of the Eligible Premium Payment on which your Living Benefit is based.
IT IS IMPORTANT THAT YOU READ THE SECTION ON "LIVING BENEFIT" BEFORE YOU MAKE A
WITHDRAWAL IF YOU HAVE SELECTED THE LIVING BENEFIT OPTION.
INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO ANY
WITHDRAWAL YOU MAKE.
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 balance in your Contract.
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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. 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. 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
value of the Eligible Premium Payment on which the Living Benefit is based.
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 ON DISTRIBUTIONS FROM CERTAIN TYPES OF CONTRACTS
There are certain restrictions on full and partial withdrawals from
Contracts used as funding vehicles for tax code section 403(b) retirement
programs. section 403(b)(11) of the tax code restricts the distribution under
Section 403(b) annuity contracts of: elective contributions made in years
beginning after December 31, 1988, earnings on those contributions, and 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 tax 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 tax code. You should, therefore, consult your tax and retirement plan
advisers before taking a contract loan.
At any time prior to the year you reach age 70 1/2, you may borrow the
lesser of:
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- the maximum loan amount permitted under the tax code; or
- 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. You must obtain the written consent of all assignees and
irrevocable beneficiaries before we will give a loan.
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 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 tax 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. Additionally, the treatment of the Contract under
section 403(b) of the tax 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.
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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:
- 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
- the contract value as of the date we receive due proof of the
deceased's death and payment instructions.
In determining the death benefit, we will also subtract any applicable
premium taxes not previously deducted.
ENHANCED DEATH BENEFIT
To receive the enhanced death benefit, you must select it when you
purchase your Contract. If you elect the three year stepped-up enhanced death
benefit option at the time of purchase, the minimum enhanced death benefit 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:
- the contract value as of the date we receive due proof of the
deceased's death and payment instructions; or
- 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.
In determining the enhanced death benefit, we will also subtract any
applicable premium taxes not previously deducted.
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AGE LIMITATION UNDER EITHER DEATH BENEFIT OPTION
If the annuitant dies at or after age 75 (or 10 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, we will also deduct any
outstanding loan amount on the date the death benefit is paid 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 apply.
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:
- If the beneficiary is the spouse of the deceased owner, the spouse
may continue the Contract as the new owner;
- If the beneficiary is not the spouse of the deceased owner;
- the 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
- 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 the 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.
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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. If you
have named two 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.
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:
- payments under the option begin within one (1) year of the
annuitant's death; and
- 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 owner's death.
THE LIVING BENEFIT
================================================================================
If you elect the Living Benefit option at the time of application and if
you do not choose to receive annuity payments until you have owned the Contract
for at least 10 years, we will calculate the Living Benefit for each Eligible
Variable Account on the Living Benefit Date. The Living Benefit will be credited
to an Eligible Variable Account if the value of the Eligible Variable Account on
the Living Benefit Date is less than the current value of the Eligible Premium
Payment for that Eligible Variable Account.
We do not assess a charge for the Living Benefit.
An Eligible Premium Payment is that portion of your first premium payment
that you allocated to a particular Eligible Variable Account on the date of
issue. It will be reduced by a percentage of all withdrawals and transfers you
make out of that Eligible Variable Account.
The Living Benefit that we will credit to a particular Eligible Variable
Account on the Living Benefit Date is:
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- the value of the Eligible Premium Payment on the date of issue for
that particular Eligible Variable Account; MINUS
- a percentage of all withdrawals and transfers from that Eligible
Variable Account; MINUS
- the value of that Eligible Variable Account on the Living Benefit
Date.
The Living Benefit Date is 10 years after the date of issue.
If the Contract is owned by persons who are spouses at the time one joint
owner dies, the Living Benefit Date will remain the same date. 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 original Living Benefit Date remains in
effect provided no distributions have occurred as a result of the owner's death.
Currently, all variable accounts are Eligible Variable Accounts.
You will not receive the Living Benefit if you choose an Annuity Start
Date that is earlier than the Living Benefit Date.
A TRANSFER OR A PARTIAL WITHDRAWAL OF PREMIUM PAYMENTS OUT OF AN ELIGIBLE
VARIABLE ACCOUNT WILL REDUCE THE VALUE OF ELIGIBLE PREMIUM PAYMENT FOR THE
ELIGIBLE VARIABLE ACCOUNT IN THE SAME PROPORTION AS THE TRANSFER OR WITHDRAWAL
REDUCED THE VALUE OF THE ELIGIBLE VARIABLE ACCOUNT. EXAMPLES #3 AND 4 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 you buy a Contract with a single premium payment of $50,000 and
immediately allocate the $50,000 to an Eligible Variable Account. You do not
withdraw or transfer any amounts from the Eligible Variable Account. As of the
Living Benefit Date (which is ten years later), $50,000 is the current value of
the Eligible Premium Payment on the Living Benefit Date.
We will calculate the Living Benefit for the Eligible Variable Account by
comparing the current value of the Eligible Premium Payment in the Eligible
Variable Account on the Living Benefit Date ($50,000) to the value of the
Eligible Variable Account on the Living Benefit Date. In this example, if the
value of the Eligible Variable Account is less than $50,000 (the current value
of the Eligible Premium Payment) on the Living Benefit Date, we will
automatically credit the difference to contract value.
EXAMPLE #2:
Assume the same facts as in Example #1, except that you specify an Annuity
Start Date of the sixth contract anniversary and begin to receive payments under
one of the payout options available under the
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Contract. On the Living Benefit Date, we will not calculate the Living Benefit
and will not credit a Living Benefit to contract value. By selecting an Annuity
Start Date (the 6th contract anniversary) that is earlier than the Living
Benefit Date (10 years from the date of issue), you forfeited all eligibility
for the Living Benefit.
EXAMPLE #3:
Assume the same facts as in Example #1, except that you transfer $40,000
from the Eligible Variable Account in the eighth contract year. 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 initial value of the
Eligible Premium Payment ($50,000) is reduced by 40% to take into account the
transfer in the eighth contract year ($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, we will automatically credit the
difference to contract value.
EXAMPLE #4:
Assume the same facts as in Example #1, except that in the fourth contract
year you deposit (or transfer) an additional $50,000 premium payment into the
Eligible Variable Account. In the eighth contract year 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 initial value of
the Eligible Premium Payment is $50,000. (The second Premium Payment of $50,000
does not qualify as an Eligible Premium Payment because it was made after the
date of issue.) This Eligible Premium Payment is then reduced by 26.667% to take
into account the transfer in the eighth contract year ($50,000 X .26667 =
$13,333.33), leaving $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, we will automatically credit the difference to your contract value.
EXAMPLE #5:
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 remain unchanged as 10 years
from the date of issue. On that date, we will calculate the Living Benefit for
each Eligible Variable Account with value.
EXAMPLE #6:
If the Contract is owned by joint owners who are not spouses and one of
the joint owners dies, the Living Benefit will be calculated on the original
Living Benefit Date, provided the survivor has not received any distributions as
a result of the owner's death.
* * *
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<PAGE> 106
We will continue to pay a Living Benefit on an Eligible Premium Payment
allocated to an Eligible Variable Account if:
- the portfolio underlying an Eligible Variable Account changes its
investment objective;
- 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
- shares of a portfolio underlying an Eligible Variable Account are no
longer available for investment by the separate account and were
forced to redeem all shares of the portfolio held by the Eligible
Variable Account.
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 will deduct any applicable
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:
1. The DATE OF ISSUE WITHDRAWAL CHARGE OPTION: This 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.
2. 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 withdrawal 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 with respect to that payment.
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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.
This is called the "first in, first out" method of accounting or "FIFO." 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: Prior to the
annuity start date, 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 of Premium
YEAR 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: Prior
to the annuity start date, 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 of Premium
YEAR 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>
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<PAGE> 108
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 after the first, 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 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 after 5 years 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.
Amounts withdrawn in excess of the free withdrawal amount will be assessed
a withdrawal charge, depending on the withdrawal charge option you choose. Free
withdrawals may be subject to the 10% federal penalty tax if made before you
reach age 59 1/2. They also may be subject to federal income tax.
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 or a
long term care facility. If the annuitant becomes terminally ill 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. These waivers are described in more detail in the
Contract.
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
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<PAGE> 109
maximum withdrawal permitted under the Post-Secondary Education Rider, when
combined with the free withdrawal amount, is 20% of contract value per contract
year. 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.
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 deduct a daily administrative charge as compensation for certain
expenses we incur in the administration of the Contract. We deduct the charge
from your 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 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.
MORTALITY AND EXPENSE RISK CHARGE
As compensation for assuming mortality and expense risks, we deduct a
daily mortality and expense risk charge from your assets of the separate
account. The charge is at a daily rate of 0.003404%. On an annual basis this
rate is 1.25%. We continue to assess this charge 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. We may use any profits from
this charge to pay the costs of distributing the Contracts.
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<PAGE> 110
TRANSFER FEE
A transfer fee of $25 will be imposed for the 13th and each subsequent
transfer during a contract year. Each written request would be considered to be
one transfer, regardless of the number of variable accounts affected by the
transfer. We deduct the transfer fee 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 may waive the transfer
fee.
PORTFOLIO FEES AND CHARGES
Each portfolio deducts investment charges from the amounts you have
invested in the portfolios. These charges range from 0.30% to 1.50%. See the Fee
Table in this Prospectus and the 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. We are responsible for paying these
taxes. If necessary, we will deduct the cost of such taxes from the value of
your Contract either:
- from premium payments as we receive them,
- from contract value upon partial or full withdrawal,
- when annuity payments begin, or
- upon payment of a death benefit.
We may deduct premium taxes at the time we pay such taxes.
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, deduct
such a charge in the future, if necessary.
THE PAYOUT PERIOD
================================================================================
When the payout period begins you will receive a steady stream of annuity
payments from the money you have accumulated under your Contract. The payout
period begins on the Annuity Start Date. You may choose to receive your annuity
payments on a fixed or variable basis, or a combination of both. If 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 during the pay-in period,
or transfer to different variable accounts.
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
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<PAGE> 111
with qualified plans under tax code sections 401(a), 401(k), 403(b) and 457, the
tax code requires that the Annuity Start Date must be no later than April 1 of
the calendar year following the later of the year in which you (a) reach age 70
1/2 or (b) retire and the payment must be made in a specified form or manner. If
you are a "5 percent owner" (as defined in the Code), or in the case of an IRA
that satisfies tax code section 408, the Annuity Start Date must be no later
than the date described in (a). Roth IRAs under 408A of the tax code do not
require distributions at any time prior to your death.
If you choose 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., 10 years after the date of issue), you will lose your
eligibility for the Living Benefit.
We will start annuity payments to the annuitant on the Annuity Start Date
shown in your Contract, unless you change the date. 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. If you decide to annuitize after you
surrender your Contract, the Annuity Start Date will be the date of the full
withdrawal.
ANNUITY PAYOUT OPTIONS
The payout option you select will affect the dollar amount of each annuity
payment you receive. 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. The adjusted contract
value will be allocated to a fixed and variable payout in the same proportion
that your interest in the fixed and variable accounts bears to the total
contract value on the Annuity Start Date.
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 YOUR ANNUITY PAYMENT
On the Annuity Start Date, we will use the adjusted contract value to
calculate your annuity payments under the payout plan you select, unless you
choose to receive the surrender value in a lump sum. In
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<PAGE> 112
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; MINUS
- the quarterly contract fee; MINUS
- any applicable premium taxes not yet deducted; and
- for an installment income annuity payout plan with a payout period
of less than 10 years, MINUS any applicable withdrawal charge.
For Qualified Contracts, the amount of any outstanding loan is also
deducted; distributions must satisfy certain requirements specified in the tax
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 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 adjusted 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
Variable annuity payout plans provide the annuitant with periodic payments
that increase or decrease with the annuity unit values of the variable accounts
in which you are invested. Your contract contains 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 permits you to choose an assumed interest rate of 3.0%, 4.0%
or 5.0% annually. If the net investment performance of the variable accounts you
invest in is greater than this assumed interest rate, your payments will
increase. If the performance falls below this assumed interest rate, your
payments will decline. Therefore, if you choose a 5.0% assumed interest rate,
you assume more risk that your annuity payment may decline than if you choose a
3.0% assumed interest rate. The selected portfolio's performance must grow at a
rate at least equal to the assumed interest rate (plus the mortality and expense
risk charge and the administrative expense charge) in order to avoid a decrease
in variable annuity payments. This means that each month a portfolio's
annualized investment return must be at least 4.4%,
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5.4% or 6.5% in order for payments with a 3.0%, 4.0% or 5.0% assumed interest
rate to remain level. For further details on variable annuity payments, see the
SAI.
ANNUITY UNIT VALUE
On the Annuity Start Date, we will use your adjusted contract value to
purchase annuity units at that day's annuity unit value for each variable
account in which you have value. The number of annuity units we credit will
remain fixed unless you transfer units among variable accounts. The value of
each annuity unit will vary each business day to reflect the investment
experience of the underlying portfolio, reduced by the mortality and expense
risk charge and the administrative expense charge, and adjusted by an interest
factor to neutralize the assumed interest rate.
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 SAI 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 remaining 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. 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 payments for less than the
selected guaranteed period, we will continue to make annuity payments to the
successor payee 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 4 -- JOINT AND
SURVIVOR LIFE INCOME. Under this option, we will make annuity payments each
month so long
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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.
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* 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.
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.
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. We also
guarantee that you will earn interest at a rate of a least 3% per year on
amounts in the fixed account. The fixed account is part of our general account.
Our general account supports our insurance and annuity obligations. Because 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 is not registered with the SEC under the Securities Act
of 1933. Neither the fixed account nor our general account have been registered
as an investment 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:
- net premium payments allocated to the fixed account; PLUS
- amounts transferred to the fixed account; PLUS
- interest credited to the fixed account; MINUS
- any partial withdrawals or transfers from the fixed account; and MINUS
- 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.
We have no specific formula for determining current interest rates.
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The fixed account value will not share in the investment performance of
the company's general account. 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 the money you place in the fixed account
will apply to the end of the calendar year in which we receive such 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).
FIXED ACCOUNT TRANSFERS
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 or one or more variable accounts 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 the fixed account remains in effect for the life of the Contract
until the
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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
program at any time and for any reason.
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 state, we will
credit interest at 3%, or such higher rate as is required for a particular
state, to the amount to be paid from the date we received the documentation.
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 SAI.
Performance data for the variable accounts is based on the investment
performance of the corresponding portfolio of a Fund and reflects the deduction
of some or all fees and charges currently assessed under the contract. (See the
accompanying 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
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been held in the variable account for periods of time. When a variable
account has been in operation for one, five, and ten years, respectively, the
total return for these periods will be provided.
The average annual total return quotations represent the average annual
compounded rates of return that would equate an initial investment of $1,000
under a Contract to the redemption value of that investment as of the last day
of each of the periods for which total return quotations are provided. Average
annual total return information shows the average annual percentage change in
the value of an investment in the variable account from the beginning date of
the measuring period to the end of that period. This standardized version of
average annual total return reflects all historical investment results, less all
charges and deductions applied against the variable account (including any
withdrawal charge that would apply if 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 and total returns for the portfolios, including
such disclosures for periods before the date the variable account commenced
operations. Sales literature or advertisements may quote adjusted yields and
total returns for the portfolios since their inception reduced by some or all of
the fees and charges under the Contract. Such adjusted historic portfolio
performance may include data that precedes the inception dates of the variable
accounts. This data is designed to show the performance that could have resulted
if the Contract had been in existence during that time.
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 SAI.
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
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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. We may illustrate this
information by using 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.
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 SAI.
FEDERAL TAX MATTERS
================================================================================
The following discussion is general in nature and is not intended as tax
advice. Each person concerned should consult a competent tax advisor. No attempt
is made to consider any applicable state tax or other tax laws.
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<PAGE> 119
We believe that our Contracts will qualify as annuity contracts for
federal income tax purposes and the following discussion assumes that they will
so qualify. Further information on the tax status of the Contract can be found
in the SAI under the heading "Tax Status of the Contracts."
When you invest in an annuity contract, you usually do not pay taxes on
your investment gains until you withdraw the money -- generally for retirement
purposes. In this way, annuity contracts have been recognized by the tax
authorities as a legitimate means of deferring tax on investment income.
We believe that if you are a natural person you will not be taxed on
increases in the contract value of your Contract until a distribution occurs or
until annuity payments begin. (The agreement to assign or pledge any portion of
a Contract's accumulation value and, in the case of a Qualified Contract
described below, any portion of an interest in the qualified plan, generally
will be treated as a distribution.) When annuity payments begin, you will be
taxed only on the investment gains you have earned and not on the payments you
made to purchase the Contract. Generally, withdrawals from your annuity should
only be made once the annuitant reaches age 59-1/2, dies or is disabled,
otherwise a tax penalty of ten percent of the amount treated as income could be
applied against any amounts included in income, in addition to the tax otherwise
imposed on such amount.
If you invest in a variable annuity as part of a pension plan or
employer-sponsored retirement program, your Contract is called a Qualified
Contract. If your annuity is independent of any formal retirement or pension
plan, it is called a Non-Qualified Contract.
TAXATION OF NON-QUALIFIED CONTRACTS
NON-NATURAL PERSON
If a non-natural person owns a non-qualified annuity contract, the owner
generally must include in income any increase in the excess of the accumulation
value over the investment in the contract (generally, the premiums or other
consideration paid for the contract) during the taxable year. There are some
exceptions to this rule and a prospective owner that is not a natural person
should discuss these with a tax adviser.
The following discussion generally applies to Contracts owned by natural
persons.
WITHDRAWALS
When a withdrawal from a Non-Qualified Contract occurs, the amount
received will be treated as ordinary income subject to tax up to an amount equal
to the excess (if any) of the accumulation value immediately before the
distribution over the Owner's investment in the contract (generally, the
premiums or other consideration paid for the Contract, reduced by any amount
previously distributed from the Contract that was not subject to tax) at that
time. In the case of a surrender under a Non-Qualified Contract, the amount
received generally will be taxable only to the extent it exceeds the Owner's
investment in the contract.
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<PAGE> 120
PENALTY TAX ON CERTAIN WITHDRAWALS
In the case of a distribution from a Non-Qualified Contract, there may be
imposed a federal tax penalty equal to ten percent of the amount treated as
income. In general, however, there is no penalty on distributions:
- made on or after the taxpayer reaches age 59 1/2;
- made on or after the death of an Owner;
- attributable to the taxpayer's becoming disabled; or
- made as part of a series of substantially equal periodic payments
for the life (or life expectancy) of the taxpayer.
Other exceptions may apply under certain circumstances and special rules
may apply in connection with the exceptions enumerated above. You should consult
a tax adviser with regard to exceptions from the penalty tax.
ANNUITY PAYMENTS
Although tax consequences may vary depending on the payout option elected
under an annuity contract, a portion of each annuity payment is generally not
taxed and the remainder is taxed as ordinary income. The non-taxable portion of
an annuity payment is generally determined in a manner that is designed to allow
you to recover your investment in the contract ratably on a tax-free basis over
the expected stream of annuity payments, as determined when annuity payments
start. Once your investment in the contract has been fully recovered, however,
the full amount of each annuity payment is subject to tax as ordinary income.
TAXATION OF DEATH BENEFIT PROCEEDS
Amounts may be distributed from a Contract because of your death or the
death of 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 surrender of the Contract, or (ii) if distributed under a
payout option, they are taxed in the same way as annuity payments.
TRANSFERS, ASSIGNMENTS OR EXCHANGES OF A CONTRACT
A transfer or assignment of ownership of a Contract, the designation of an
annuitant, 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, should
consult a tax advisor as to the tax consequences.
WITHHOLDING
Annuity distributions are generally subject to withholding for the
recipient's federal income tax liability. Recipients can generally elect,
however, not to have tax withheld from distributions.
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MULTIPLE CONTRACTS
All annuity contracts that are issued by us (or our affiliates) to the
same Owner during any calendar year are treated as one annuity contract for
purposes of determining the amount includible in such Owner's income when a
taxable distribution occurs.
TAXATION OF QUALIFIED CONTRACTS
The tax rules that apply to Qualified Contracts vary according to the type
of retirement plan and the terms and conditions of the plan. Your rights under a
Qualified Contract may be subject to the terms of the retirement plan itself,
regardless of the terms of the Qualified Contract. Adverse tax consequences may
result if you do not ensure that contributions, distributions and other
transactions with respect to the Contract comply with the law.
INDIVIDUAL RETIREMENT ACCOUNTS (IRAs), as defined in Sections 219 and 408
of the Internal Revenue Code (the "Code"), permit individuals to make annual
contributions of up to the lesser of $2,000 or 100% of adjusted gross income.
The contributions may be deductible in whole or in part, depending on the
individual's income. Distributions from certain pension plans may be rolled over
into an IRA on a tax-deferred basis without regard to these limits. So-called
Simple IRAs under section 408(p) of the Code, and Roth IRAs under section 408A,
may also be used in connection with variable annuity contracts. Simple IRAs
allow employees to defer a percentage of annual compensation up to $6,000 to a
retirement plan, provided the sponsoring employer makes matching or non-elective
contributions. The penalty for a premature distribution from a SIMPLE IRA that
occurs within the first two years after the employee begins to participate in
the plan is 25%, rather than the usual 10%. Contributions to Roth IRAs are not
tax-deductible, and contributions must be made in cash, or as a rollover or
transfer from another Roth IRA or IRA. A rollover or conversion of an IRA to a
Roth IRA may be subject to tax. Distributions from Roth IRAs are generally not
taxed. In addition to the 10% penalty which generally applies to distributions
made before age 59 1/2, a 10% penalty will be imposed for any distribution made
from a Roth IRA during the five taxable years starting after you first
contribute to any Roth IRA.
CORPORATE PENSION AND PROFIT-SHARING PLANS under section 401(a) of the
Code allow corporate employers to establish various types of retirement plans
for employees, and self-employed individuals to establish qualified plans for
themselves and their employees.
Adverse tax consequences to the retirement plan, the participant or both
may result if the Contract is transferred to any individual as a means to
provide benefit payments, unless the plan complies with all the requirements
applicable to such benefits prior to transferring the Contract.
TAX-SHELTERED ANNUITIES under section 403(b) of the Code permit public
schools and other eligible employers to purchase annuity contracts and mutual
fund shares through custodial accounts on behalf of employees. Generally, these
purchase payments are excluded for tax purposes from employee gross incomes.
However, these payments may be subject to Social Security taxes.
Distributions of salary reduction contributions and earnings (other than
your salary reduction accumulation as of December 31, 1988) are not allowed
prior to age 59 1/2, separation from service, death or disability. Salary
reduction contributions may also be distributed upon hardship, but would
generally be subject to penalties.
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OTHER TAX ISSUES
You should note that the Contract includes a death benefit that in some
cases may exceed the greater of the Premium Payments or the contract value. The
death benefit could be viewed as an incidental benefit, the amount of which is
limited in any 401(a) or 403(b) plan. Because the death benefit may exceed this
limitation, employers using the Contract in connection with corporate pension
and profit-sharing plans, or tax-sheltered annuities, should consult their tax
adviser.
Qualified Contracts (other than Roth IRAs) have minimum distribution rules
that govern the timing and amount of distributions. You should refer to your
retirement plan, adoption agreement, or consult a tax advisor for more
information about these distribution rules.
OUR INCOME TAXES
At the present time, we make no charge for any federal, state or local
taxes (other than the charge for state and local premium taxes) that we incur
that may be attributable to the investment divisions (that is, the variable
accounts) of the separate account or to the Contracts. We do have the right in
the future to make additional charges for any such tax or other economic burden
resulting from the application of the tax laws that we determine is attributable
to the investment divisions of the separate account or the Contracts.
Under current laws in several states, we may incur state and local taxes
(in addition to premium taxes). These taxes are not now significant and we are
not currently charging for them. If they increase, we may deduct charges for
such taxes.
POSSIBLE TAX LAW CHANGES
Although the likelihood of legislative changes is uncertain, there is
always the possibility that the tax treatment of the Contracts could change by
legislation or otherwise. Consult a tax adviser with respect to legislative
developments and their effect on the Contract.
We have the right to modify the Contract in response to legislative
changes that could otherwise diminish the favorable tax treatment that annuity
contract owners currently receive. We make no guarantee regarding the tax status
of any contract and do not intend the above discussion as tax advice.
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. We do not
conduct any business on those days.
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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 all the required information. The required
information includes 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:
- the New York Stock Exchange is closed, other than customary weekend
and holiday closings;
- trading on the New York Stock Exchange is restricted as determined
by the SEC;
- 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
- the SEC permits, by order, the suspension or postponement 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 state), 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 state).
MODIFICATION
Upon notice to you, we may modify the Contract to:
- permit the Contract or the separate account to comply with any
applicable law or regulation issued by a government agency;
- assure continued qualification of the Contract under the tax code or
other federal or state laws relating to retirement annuities or
variable annuity contracts;
- reflect a change in the operation of the separate account; or
- 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 a wholly-owned subsidiary of IL Group, a company owned by
Indianapolis Life Insurance Company and the American United Life Insurance
Company. IL Securities 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..
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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 1.25% 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
We and our affiliates, like other life insurance companies, are involved
in lawsuits, including class action lawsuits. In some class action and other
lawsuits involving other insurers, substantial damages have been sought and/or
material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, we believe that at the present
time there are no pending or threatened lawsuits that are reasonably likely to
have a material adverse impact on the separate account or us.
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.
YEAR 2000 MATTERS
Like all financial services providers, we utilize systems that may be
affected by Year 2000 transition issues. We also rely on service providers,
including the portfolios and the administrator, that may be affected by Year
2000 issues. We have developed, and are in the process of implementing, a Year
2000 transition plan. In addition, we are in the process of confirming that the
portfolios and their service providers are also engaged in similar transition
plans. The resources that are being devoted to this effort are substantial. It
is difficult to predict with precision whether the amount of resources
ultimately devoted, or the outcome of these efforts, will have any negative
impact on our operations. However, as of the date of this prospectus, it is not
anticipated that owners will experience negative effects on their investment, or
on the services provided in connection, as a result of Year 2000 transition
implementation. We currently anticipate that its systems will be Year 2000
compliant in a timely manner, but there can be no assurance that we will be
successful, or that interaction with other service providers will not impair
services at that time.
FINANCIAL STATEMENTS
The audited statement of net assets of IL Annuity and Insurance Co.
Separate Account 1 as of December 31, 1998 and the related statement of
operations for the year then ended and statements of
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changes in net assets for each of the two years in the period then ended, as
well as the Report of the Independent Auditors, are included in the Statement of
Additional Information ("SAI"). Our audited balance sheets as of December 31,
1998 and 1997, and the related statements of income, shareholder's equity, and
cash flows for each of the three years in the period ended December 31, 1998, as
well as the Report of the Independent Auditors, are contained in the SAI. Our
financial statements 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.
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STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
<TABLE>
<S> <C>
Page
Additional Contract Provisions....................................................................
The Contract................................................................................
Incontestability............................................................................
Incorrect Age or Sex........................................................................
Nonparticipation............................................................................
Options.....................................................................................
Tax Status of the Contracts.................................................................
Calculation of Variable Account and Adjusted Historic Portfolio Performance Data..................
Money Market Variable Account Yields........................................................
Other Variable Account Yields...............................................................
Average Annual Total Returns for the Variable Accounts......................................
Non-Standard Variable Account Total Returns.................................................
Effect of the Contract Fee on Performance Data..............................................
Other Information...........................................................................
Variable Account Performance Figures........................................................
Adjusted Historical Portfolio Performance Figures...........................................
Variable Annuity Payments.........................................................................
Assumed Investment Rate.....................................................................
Amount of Variable Annuity Payments.........................................................
Annuity Unit Value..........................................................................
Addition, Deletion or Substitution of Investments.................................................
Resolving Material Conflicts................................................................
Termination of Participation Agreements...........................................................
The Alger American Fund.....................................................................
Fidelity Variable Insurance Products Fund and 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>
- 55 -
<PAGE> 127
APPENDIX A
CONDENSED FINANCIAL INFORMATION
The following condensed financial information shows accumulation unit
values for each variable account for each year since the variable account
started operation. Accumulation unit value is the unit we use to calculate the
value of your interest in a variable account. Accumulation unit value does not
reflect the deduction of certain charges that we subtract from your Contract
Value. The data is obtained from the audited financial statement of the separate
account that can be found in the SAI.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Alger American Fund: MidCap Growth Variable Account
- -----------------------------------------------------------------------------------------------------------
Accumulation unit Accumulation unit Number of
value at the beginning value at the end of the accumulation units
of the year year outstanding at the end
of the year
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $12.263 $15.757 537,127
- -----------------------------------------------------------------------------------------------------------
1997 $10.812 $12.263 94,506
- -----------------------------------------------------------------------------------------------------------
1996 $ 9.786 $10.812 109,955
- -----------------------------------------------------------------------------------------------------------
1995 $10.00 $ 9.786 2,764
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Alger American Fund: Small Capitalization Variable Account
- -----------------------------------------------------------------------------------------------------------
Accumulation unit Accumulation unit Number of
value at the beginning value at the end of the accumulation units
of the year year outstanding at the end
of the year
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $10.936 $12.459 502,984
- -----------------------------------------------------------------------------------------------------------
1997 $ 9.955 $10.936 372,229
- -----------------------------------------------------------------------------------------------------------
1996 $ 9.675 $ 9.955 181,361
- -----------------------------------------------------------------------------------------------------------
1995 $10.00 $ 9.675 1,709
- -----------------------------------------------------------------------------------------------------------
</TABLE>
A-1
<PAGE> 128
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund: Equity-Income Variable Account
- -------------------------------------------------------------------------------------------------------------
Accumulation unit Accumulation unit Number of
value at the beginning value at the end of the accumulation units
of the year year outstanding at the end
of the year
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $15.114 $16.631 1,355,289
- -------------------------------------------------------------------------------------------------------------
1997 $11.958 $15.114 781,937
- -------------------------------------------------------------------------------------------------------------
1996 $10.616 $11.958 195,400
- -------------------------------------------------------------------------------------------------------------
1995 $10.00 $10.616 3,789
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund: Growth Variable Account
- -------------------------------------------------------------------------------------------------------------
Accumulation unit Accumulation unit Number of
value at the beginning value at the end of the accumulation units
of the year year outstanding at the end
of the year
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $13.240 $18.206 948,233
- -------------------------------------------------------------------------------------------------------------
1997 $10.868 $13.240 462,381
- -------------------------------------------------------------------------------------------------------------
1996 $ 9.604 $10.868 164,945
- -------------------------------------------------------------------------------------------------------------
1995 $10.00 $ 9.604 2,199
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund: Money Market Variable Account
- -------------------------------------------------------------------------------------------------------------
Accumulation unit Accumulation unit Number of
value at the beginning value at the end of the accumulation units
of the year year outstanding at the end
of the year
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $10.888 $11.329 1,070,535
- -------------------------------------------------------------------------------------------------------------
1997 $10.456 $10.888 486,050
- -------------------------------------------------------------------------------------------------------------
1996 $10.00 $10.456 179,504
- -------------------------------------------------------------------------------------------------------------
1995 $10.00 $ 0 0
- -------------------------------------------------------------------------------------------------------------
</TABLE>
A-2
<PAGE> 129
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund: Asset Manager Variable Account
- -------------------------------------------------------------------------------------------------------------
Accumulation unit Accumulation unit Number of
value at the beginning value at the end of the accumulation units
of the year year outstanding at the end
of the year
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $14.066 $15.954 503,498
- -------------------------------------------------------------------------------------------------------------
1997 $11.817 $14.066 212,897
- -------------------------------------------------------------------------------------------------------------
1996 $ 8.224 $11.817 61,512
- -------------------------------------------------------------------------------------------------------------
1995 $10.00 $ 8.224 255
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Fidelity VIP Fund: Contrafund Variable Account
- ---------------------------------------------------------------------------------------------------------
Accumulation unit Accumulation unit Number of
value at the beginning value at the end of the accumulation units
of the year year outstanding at the end
of the year
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $14.824 $18.996 1,228,022
- ---------------------------------------------------------------------------------------------------------
1997 $12.105 $14.824 638,524
- ---------------------------------------------------------------------------------------------------------
1996 $10.091 $12.105 203,860
- ---------------------------------------------------------------------------------------------------------
1995 $10.00 $10.091 5,731
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Fidelity VIP Fund: Index 500 Variable Account
- ------------------------------------------------------------------------------------------------------
Accumulation unit Accumulation unit Number of
value at the beginning value at the end of the accumulation units
of the year year outstanding at the end
of the year
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $16.672 $21.088 1,895,005
- ------------------------------------------------------------------------------------------------------
1997 $12.734 $16.672 826,178
- ------------------------------------------------------------------------------------------------------
1996 $10.514 $12.734 193,803
- ------------------------------------------------------------------------------------------------------
1995 $10.00 $10.514 3,538
- ------------------------------------------------------------------------------------------------------
</TABLE>
A-3
<PAGE> 130
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Fidelity VIP Fund: Investment Grade Bond Variable Account
- ---------------------------------------------------------------------------------------------------
Accumulation unit Accumulation unit Number of
value at the beginning value at the end of the accumulation units
of the year year outstanding at the end
of the year
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $11.214 $12.032 691,547
- ---------------------------------------------------------------------------------------------------
1997 $10.422 $11.214 274,009
- ---------------------------------------------------------------------------------------------------
1996 $10.247 $10.422 57,476
- ---------------------------------------------------------------------------------------------------
1995 $10.00 $10.247 1,668
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
OCC Accumulation Trust: Managed Variable Account*
- --------------------------------------------------------------------------------------------------
Accumulation unit Accumulation unit Number of
value at the beginning value at the end of the accumulation units
of the year year outstanding at the end
of the year
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $15.160 $16.011 1,396,806
- --------------------------------------------------------------------------------------------------
1997 $12.567 $15.160 672,203
- --------------------------------------------------------------------------------------------------
1996 $10.380 $12.567 133,102
- --------------------------------------------------------------------------------------------------
1995 $10.00 $10.380 161
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
OCC Accumulation Trust: Small Cap Variable Account*
- -------------------------------------------------------------------------------------------------
Accumulation unit Accumulation unit Number of
value at the beginning value at the end of the accumulation units
of the year year outstanding at the end
of the year
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $14.649 $13.139 295,186
- -------------------------------------------------------------------------------------------------
1997 $12.148 $14.649 162,435
- -------------------------------------------------------------------------------------------------
1996 $10.388 $12.148 40,024
- -------------------------------------------------------------------------------------------------
1995 $10.00 $10.388 1,182
- -------------------------------------------------------------------------------------------------
</TABLE>
A-4
<PAGE> 131
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Royce Capital Fund: Royce Micro-Cap Variable Account
- ------------------------------------------------------------------------------------------------
Accumulation unit Accumulation unit Number of
value at the beginning value at the end of the accumulation units
of the year year outstanding at the end
of the year
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $10.920 $11.198 286,635
- ------------------------------------------------------------------------------------------------
1997*** $10.000 $10.920 69,105
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
SAFECO Resource Series Trust: SAFECO Equity Variable Account
- ---------------------------------------------------------------------------------------------
Accumulation unit Accumulation unit Number of
value at the beginning value at the end of the accumulation units
of the year year outstanding at the end
of the year
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $10.495 $12.917 814,921
- ---------------------------------------------------------------------------------------------
1997*** $10.000 $10.495 104,775
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
SAFECO Resource Series Trust: SAFECO Growth Variable Account
- ----------------------------------------------------------------------------------------------
Accumulation unit Accumulation unit Number of
value at the beginning value at the end of the accumulation units
of the year year outstanding at the end
of the year
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $11.092 $11.134 1,596,318
- ----------------------------------------------------------------------------------------------
1997*** $10.000 $11.092 122,625
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
SoGen Variable Funds, Inc.: SoGen Overseas Variable Account
- ---------------------------------------------------------------------------------------------
Accumulation unit Accumulation unit Number of
value at the beginning value at the end of the accumulation units
of the year year outstanding at the end
of the year
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $9.322 $9.572 196,153
- ---------------------------------------------------------------------------------------------
1997*** $10.000 $9.322 56,588
- ---------------------------------------------------------------------------------------------
</TABLE>
A-5
<PAGE> 132
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
T. Rowe Price Fixed Income Series, Inc.: Limited-Term Bond Variable Account
- -----------------------------------------------------------------------------------------------------
Accumulation unit Accumulation unit Number of
value at the beginning value at the end of the accumulation units
of the year year outstanding at the end
of the year
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $10.767 $11.505 348,151
- -----------------------------------------------------------------------------------------------------
1997 $ 9.946 $10.767 136,902
- -----------------------------------------------------------------------------------------------------
1996 $10.042 $ 9.946 27,325
- -----------------------------------------------------------------------------------------------------
1995 $10.00 $10.042 1,485
- -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
T. Rowe Price International Series, Inc.: International Stock Variable Account
- -----------------------------------------------------------------------------------------------------
Accumulation unit Accumulation unit Number of
value at the beginning value at the end of the accumulation units
of the year year outstanding at the end
of the year
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $11.979 $13.684 660,670
- -----------------------------------------------------------------------------------------------------
1997 $11.780 $11.979 368,187
- -----------------------------------------------------------------------------------------------------
1996 $10.487 $11.780 122,831
- -----------------------------------------------------------------------------------------------------
1995 $10.00 $10.487 2,530
- -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust: Worldwide Hard Assets Variable Account**
- ---------------------------------------------------------------------------------------------------
Accumulation unit Accumulation unit Number of
value at the beginning value at the end of the accumulation units
of the year year outstanding at the end
of the year
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $11.983 $8.156 230,762
- ---------------------------------------------------------------------------------------------------
1997 $12.356 $11.983 166,188
- ---------------------------------------------------------------------------------------------------
1996 $10.621 $12.356 29,990
- ---------------------------------------------------------------------------------------------------
1995 $10.00 $10.621 58
- ---------------------------------------------------------------------------------------------------
</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.
*** Period from September 1, 1997 to December 31, 1997.
A-6
s
<PAGE> 133
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 ("we", "us", "our").
You may obtain a copy of the Prospectus for the Visionary Contract
dated May 1, 1999 by calling 1-888-232-6486 or by writing to the Service
Center: IL Annuity and Insurance Company, P.O. Box 2948, Overland Park, KS
66201-1348 or 12900 Metcalfe Avenue, Suite 200, Overland Park, KS 66213-2620.
You may obtain a copy of the Prospectus for the Visionary Choice
Contract dated May 1, 1999 by calling 1-888-232-6486 or by writing to the
Service Center: IL Annuity and Insurance Company, c/o USA Administration
Services, Inc., P.O. Box 29163, Overland Park, KS 66201-1348 or 12900 Metcalfe
Avenue, Overland Park, KS 66213-2620.
This Statement incorporates terms used in the current Prospectus for
each Contract.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
ONLY IN CONJUNCTION WITH THE PROSPECTUSES FOR YOUR CONTRACT AND THE FUNDS.
The date of this Statement of Additional Information is May 1, 1999.
<PAGE> 134
TABLE OF CONTENTS
<TABLE>
<CATPION>
Page
<S> <C>
Additional Contract Provisions...............................................................2
The Contract.........................................................................2
Incontestability.....................................................................2
Incorrect Age or Sex.................................................................2
Nonparticipation.............................................................3
Options..............................................................................3
Calculation of Variable Account and Adjusted Historic Portfolio Performance Data.............4
Money Market Variable Account Yields.................................................4
Other Variable Account Yields........................................................6
Average Annual Total Returns for the Variable Accounts...............................7
Non-Standard Variable Account Total Returns..........................................8
Effect of the Contract Fee on Performance Data.......................................9
Other Information....................................................................9
Variable Account Performance Figures................................................10
Adjusted Historical Portfolio Performance Figures...................................16
Net Investment Factor.......................................................................22
Variable Annuity Payments...................................................................22
Assumed Investment Rate.............................................................23
Amount of Variable Annuity Payments.................................................23
Annuity Unit Value..................................................................24
Addition, Deletion or Substitution of Investments...........................................26
Resolving Material Conflicts........................................................26
Termination of Participation Agreements.....................................................27
The Alger American Fund.............................................................27
Fidelity Variable Insurance Products Fund and Fund II...............................28
OCC Accumulation Trust..............................................................28
Royce Capital Fund..................................................................29
SAFECO Resource Series Trust........................................................29
SoGen Variable Funds, Inc...........................................................30
T. Rowe Price Fixed Income Series, Inc..............................................31
T. Rowe Price International Series, Inc.............................................31
Van Eck Worldwide Insurance Trust...................................................32
Voting Rights...............................................................................32
Safekeeping of Account Assets...............................................................33
Distribution of the Contracts...............................................................33
Legal Matters...............................................................................34
Experts.................................................................................... 34
OTHER INFORMATION...........................................................................34
FINANCIAL STATEMENTS........................................................................34
</TABLE>
- 1 -
<PAGE> 135
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. We will
not use any statement in defense of a claim or to void the Contract unless the
application contains it.
Any change in the Contract or waiver of its provisions must be in
writing and signed by our 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 you, we may modify the Contract if necessary to:
- permit the Contract or the Separate Account to comply with any
applicable law or regulation that a governmental agency issues;
or
- 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
- effect a change in the operation of the Separate Account or to
provide additional investment options.
In the event of such modifications, we will make the appropriate
endorsement to the Contract.
INCONTESTABILITY
We will not contest the Contract from the Date of Issue.
INCORRECT AGE OR SEX
We 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 stated incorrectly, then we will determine the Annuity Start Date and
the amount of the annuity payments by using the correct age and sex. If a
misstatement of age or sex results in annuity payments that are too large, then
we will charge the overpayments with compound interest against subsequent
payments. If we have made payments that are too small, then we will pay the
underpayments with compound interest upon receipt of notice of the
underpayments. We will pay adjustments for overpayments or underpayments with
interest at the rate then in use to determine the rate of payments.
- 2 -
<PAGE> 136
NONPARTICIPATION
The Contract does not participate in our surplus earnings or profits.
OPTIONS
Except in the limited circumstances described below, we 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.
TAX STATUS OF THE CONTRACTS
Tax law imposes several requirements that variable annuities must
satisfy in order to receive the tax treatment normally accorded to annuity
contracts.
Diversification Requirements. The Code requires that the investments of
each investment division of the separate account underlying the Contracts be
"adequately diversified" in order for the Contracts to be treated as annuity
contracts for Federal income tax purposes. It is intended that each investment
division, through the fund in which it invests, will satisfy these
diversification requirements.
Owner Control. In certain circumstances, owners of variable annuity
contracts have been considered for Federal income tax purposes to be the owners
of the assets of the separate account supporting their contracts due to their
ability to exercise investment control over those assets. When this is the
case, the contract owners have been currently taxed on income and gains
attributable to the variable account assets. There is little guidance in this
area, and some features of our Contracts, such as the flexibility of an owner
to allocate premium payments and transfer amounts among the investment
divisions of the separate account, have not been explicitly addressed in
published rulings. While we believe that the Contracts do not give Owners
investment control over separate account assets, we reserve the right to modify
the Contracts as necessary to prevent an Owner from being treated as the Owner
of the separate account assets supporting the Contract.
Required Distributions. In order to be treated as an annuity contract
for Federal income tax purposes, section 72(s) of the Internal Revenue Code
requires any Non-Qualified Contract to contain certain provisions specifying
how your interest in the Contract will be distributed in the event of the death
of a holder of the Contract. The Non-Qualified Contracts contain provisions
that are intended to comply with these Code requirements, 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 applicable requirements when such requirements are clarified by
regulation or otherwise.
- 3 -
<PAGE> 137
Other rules may apply to Qualified Contracts.
CALCULATION OF VARIABLE ACCOUNT AND ADJUSTED HISTORIC PORTFOLIO PERFORMANCE
DATA
We may advertise and disclose historic performance data for the
Variable Accounts, including yields, standard annual total returns, and
nonstandard measures of performance of the Variable Accounts. Such performance
data will be computed, or accompanied by performance data computed, in
accordance with the SEC defined standards.
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
that does not take into consideration any realized or unrealized gains or
losses, or income other than investment income, on shares of the Money Market
Portfolio.
We compute this current annualized yield by determining the net change
(not including any realized gains and losses on the sale of securities,
unrealized appreciation and depreciation, and income other than investment
income) 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. We divide that 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.
Then we annualize this quotient on a 365-day basis. The net change in account
value reflects (i) net income from the Money Market Portfolio in which the
hypothetical Variable Account invests; and (ii) charges and deductions imposed
under the Contract that are attributable to the hypothetical Variable Account.
These charges and deductions include the per unit charges for the
annualized Contract Fee, the mortality and expense risk charge and the
asset-based administration charge. For purposes of calculating current yields
for a Contract, we use an average per unit Contract Fee based on the $30
annualized Contract Fee that we deduct in four equal payments at the end of
each Contract Quarter.
We calculate the current yield by the following formula:
Current Yield = ((NCS - ES)/UV) X (365/7)
Where:
NCS = the net change in the value of the Money Market
Portfolio (not including any realized gains or losses
on the sale of securities,
- 4 -
<PAGE> 138
unrealized appreciation and depreciation, and income
other than investment income) for the seven-day period
attributable to a hypothetical Variable Account having
a balance of one Variable Account unit.
ES = per unit charges deducted from the hypothetical
Variable Account for the seven-day period.
UV = the unit value for the first day of the seven-day
period.
We may also disclose the effective yield of the Money Market Variable
Account for the same seven-day period, determined on a compounded basis. We
calculate the effective yield by compounding the unannualized base period
return by adding one to the base return, raising the sum to a power equal to
365 divided by 7, and subtracting one from the result.
365/7
Effective Yield = (1 + ((NCS-ES)/UV)) - 1
Where:
NCS = the net change in the value of the Money Market
Portfolio (not including any realized gains or losses
on the sale of securities, unrealized appreciation and
depreciation, and income other than investment income)
for the seven-day period attributable to a hypothetical
Variable Account having a balance of one Variable
Account unit.
ES = per unit charges deducted from the hypothetical
Variable Account for the seven-day period.
UV = the unit value for the first day of the seven-day
period.
The Money Market Variable Account's yield is lower than the Money
Market Portfolio's yield because of the charges and deductions that the
Contract imposes.
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. We may also present yields on amounts held in the Money Market
Variable Account for periods other than a seven-day period.
- 5 -
<PAGE> 139
Yield calculations do not take into account the Withdrawal Charge that
we assess on certain withdrawals of Contract Value. The amount of the
Withdrawal Charge depends on the Withdrawal Charge Option and the Free
Withdrawal Option that you choose 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.
Based on the method of calculation described above, for the seven-day
period ended December 31, 1998, the current yield and the effective yield for
the Money Market Variable Account were as follows:
Current yield: 3.58%
Effective yield: 3.65%
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 that the Variable Account
generates during a 30-day or one-month period and is assumed to be generated
during each period over a 12-month period.
We compute the annualized 30-day yield by:
1. Subtracting the Variable Account expenses for the period
from the net investment income of the portfolio
attributable to the Variable Account units;
2. Dividing 1. by the maximum offering price per unit on the
last day of the period;
3. Multiplying 2. by the daily average number of units
outstanding for the period;
4. compounding that yield for a six-month period; and
5. multiplying the result in 4. by 2.
Expenses of the Variable Account include the annualized Contract Fee,
the asset-based administration charge and the mortality and expense risk
charge. The yield calculation assumes that we deduct a Contract Fee of $30 per
year per Contract at the end of each Contract Year. For purposes of calculating
the 30-day or one-month yield, we use an average Contract Fee based on the
average Contract Value in the Variable Account to determine the amount of the
charge attributable to the Variable Account for the 30-day or one-month period.
We calculate the 30-day or one-month yield by the following formula:
6
Yield = 2 X (((NI - ES)/(U X UV)) + 1) - 1)
Where:
- 6 -
<PAGE> 140
NI = net income of the portfolio for the 30-day or one-month
period attributable to the Variable Account's units.
ES = charges deducted from 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.
The yield for the Variable Account is lower than the yield for the
corresponding portfolio because of the charges and deductions that the Contract
imposes.
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. The
types and quality of securities that a portfolio holds and its operating
expenses affect the corresponding Variable Account's actual yield.
Yield calculations do not take into account the Withdrawal Charge that
we assess on certain withdrawals of Contract Value. The amount of the
Withdrawal Charge depends on the Withdrawal Charge Option and the Free
Withdrawal Option that you choose at the time of purchase. See "Fees and
Charges" in the prospectus for further description of these options.
AVERAGE ANNUAL TOTAL RETURNS FOR THE VARIABLE ACCOUNTS
Sales literature or advertisements may quote average annual total
returns for one or more of the Variable Accounts for various periods of time.
If we advertise total return for the Money Market Variable Account, then those
advertisements and sales literature will include a statement that yield more
closely reflects current earnings than total return.
When a Variable Account has been in operation for 1, 5, and 10 years,
respectively, we will provide the average annual total return for these
periods. We may also disclose average annual total returns for other periods of
time.
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. Each period's ending date for which we provide total
return quotations will be for the most recent calendar quarter-end practicable,
considering the type of the communication and the media through which it is
communicated.
We calculate the standard average annual total returns using Variable
Account unit values that we calculate on each valuation day based on the
performance of the Variable
- 7 -
<PAGE> 141
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 we deduct a Contract Fee
of $7.50 per quarter per Contract at the end of each Contract quarter. For
purposes of calculating average annual total return, we use an average
per-dollar per-day Contract Fee attributable to the hypothetical Variable
Account for the period. 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 Visionary Contract and the Date
of Issue Withdrawal Charge option under the Visionary Choice Contract that we
assess on certain withdrawals of Contract Value.
We calculate the standard total return by 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.
NON-STANDARD VARIABLE ACCOUNT TOTAL RETURNS
Sales literature or advertisements may quote average annual total
returns for the Variable Accounts that do not reflect any Withdrawal Charges.
We calculate such nonstandard total returns in exactly the same way as the
average annual total returns described above, except that we replace the ending
redeemable value of the hypothetical Variable Account for the period with an
ending value for the period that does not take into account any Withdrawal
Charges.
We may disclose cumulative total returns in conjunction with the
standard formats described above. We calculate the cumulative total returns
using the following formula:
CTR = (ERV/P) - 1
Where:
CTR = The cumulative total return net of Variable Account
recurring charges for the period.
- 8 -
<PAGE> 142
ERV = The ending redeemable value of the hypothetical
investment at the end of the period.
P = A hypothetical single payment of $1,000.
ADJUSTED HISTORIC PORTFOLIO PERFORMANCE DATA
Sales literature or advertisements may quote adjusted yields and total
returns for the portfolios since their inception reduced by some or all of the
fees and charges under the Contract. Such adjusted historic Portfolio
performance may include data that precedes the inception dates of the Variable
Accounts. This data is designed to show the performance that would have
resulted if the Contract had been in existence during that time.
We will disclose nonstandard performance data only if we disclose the
standard performance data for the required periods.
EFFECT OF THE CONTRACT FEE ON PERFORMANCE DATA
The Contract provides for the deduction of a $7.50 Contract Fee at the
end of each Contract Quarter from the Fixed and Variable Accounts. We base it
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, we convert the Contract Fee 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. Then, we adjust
the per-dollar per-day average charge to reflect the basis upon which we
calculate the particular quotation.
OTHER INFORMATION
The following is a partial list of those publications that the Funds'
advertising shareholder materials may cite as containing articles describing
investment results or other data relative to one or more of the Variable
Accounts. They may cite other publications.
<TABLE>
<S> <C>
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
</TABLE>
- 9 -
<PAGE> 143
<TABLE>
<S> <C>
Insurance Week Journal of Accountancy
Journal of the American Society of Journal of Commerce
CLU & ChFC
Life Insurance Selling Life Association News
MarketFacts Manager's Magazine
National Underwriter Money
Morningstar, Inc. Nation's Business
New Choices (formerly 50 Plus) New York Times
Pension World Pensions & Investments
Rough Notes Round the Table
U.S. Banker VARDs
Wall Street Journal Working Woman
</TABLE>
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 Portfolios' performance data. We derive the
Variable Account performance data from the data that the Funds provide. None of
the Funds are affiliated with IL Annuity. In preparing the tables below, IL
Annuity relied on the Funds= data. While IL Annuity has no reason to doubt the
accuracy of the figures provided by the Funds, IL Annuity has not verified
those figures.
VARIABLE ACCOUNT PERFORMANCE FIGURES
The following charts 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.
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 withdrawal charge of 7% in the first six
years, decreasing to 6% in the seventh Contract Year, and then declining by
2% in each subsequent Contract Year until it is zero in Contract Year ten.
- 10 -
<PAGE> 144
<TABLE>
<CAPTION>
===============================================================================================
Variable Account For the 1-year For the 3-year For the period
(Date Variable Account period ended period ended from
operations began) 12/31/98 12/31/98 beginning of
Variable Account
operations to
12/31/98
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ALGER AMERICAN FUND
- -----------------------------------------------------------------------------------------------
MidCap Growth (11/6/95) 21.39% 15.33% 13.72%
Small Capitalization (11/6/95) 6.83% 6.63% 5.05%
- -----------------------------------------------------------------------------------------------
FIDELITY VIP FUND
- -----------------------------------------------------------------------------------------------
Equity Income (11/6/95) 3.05% 14.31% 14.62%
Growth (11/6/95) 30.45% 22.10% 19.62%
Money Market (11/6/95)* -2.50% 1.74% 1.76%
- -----------------------------------------------------------------------------------------------
FIDELITY VIP FUND II
- -----------------------------------------------------------------------------------------------
Asset Manager (11/6/95) 6.36% 13.24% 13.45%
Contrafund (11/6/95) 21.07% 21.71% 20.68%
Index 500 (11/6/95) 19.29% 24.54% 23.91%
Investment Grade Bond (11/6/95) 0.48% 3.27% 3.54%
- -----------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
- -----------------------------------------------------------------------------------------------
Managed (11/6/95) -1.11% 13.68% 13.56%
Small Cap (11/6/95) -16.03% 6.07% 6.83%
- -----------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
- -----------------------------------------------------------------------------------------------
Royce Micro-Cap (9/1/97) -3.93% N/A 3.59%
- -----------------------------------------------------------------------------------------------
SAFECO RESOURCE SERIES TRUST
- -----------------------------------------------------------------------------------------------
Equity (9/1/97) 16.06% N/A 16.08%
Growth (9/1/97) -6.00% N/A 3.13%
- -----------------------------------------------------------------------------------------------
SOGEN VARIABLE FUNDS, INC.
- -----------------------------------------------------------------------------------------------
SoGen Overseas (9/1/97) -4.65% N/A -8.59%
- -----------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
- -----------------------------------------------------------------------------------------------
Limited-Term Bond (11/6/95) -0.95% 2.29% 2.27%
- -----------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
- -----------------------------------------------------------------------------------------------
International Stock (11/6/95) 7.86% 6.83% 7.62%
- -----------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST
- -----------------------------------------------------------------------------------------------
Worldwide Hard Assets (11/6/95) -36.25% -10.45% -9.50%
===============================================================================================
</TABLE>
- 11 -
<PAGE> 145
* Yield more closely reflects current earnings of the Money Market
Variable Account than its total return.
Nonstandard 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%.
These figures do not reflect the quarterly deduction of an
administration charge and the withdrawal charge 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>
===============================================================================================
Variable Account For the 1-year For the 3-year For the period
(Date Variable Account period ended period ended from
operations began) 12/31/98 12/31/98 beginning of
Variable Account
operations
to 12/31/98
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ALGER AMERICAN FUND
- -----------------------------------------------------------------------------------------------
MidCap Growth (11/6/95) 28.50% 17.16% 15.47%
Small Capitalization (11/6/95) 13.93% 8.74% 7.11%
- -----------------------------------------------------------------------------------------------
FIDELITY VIP FUND
- -----------------------------------------------------------------------------------------------
Equity Income (11/6/95) 10.08% 16.16% 16.34%
Growth (11/6/95) 37.56% 23.74% 21.21%
Money Market (11/6/95) * 4.16% 4.04% 3.95%
- -----------------------------------------------------------------------------------------------
FIDELITY VIP FUND II
- -----------------------------------------------------------------------------------------------
Asset Manager (11/6/95) 13.46% 15.12% 15.21%
Contrafund (11/6/95) 28.18% 23.36% 22.24%
Index 500 (11/6/95) 26.40% 26.11% 25.38%
Investment Grade Bond (11/6/95) 7.34% 5.51% 5.66%
- -----------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
- -----------------------------------------------------------------------------------------------
Managed (11/6/95) 5.64% 15.54% 15.31%
Small Cap (11/6/95) -10.28% 8.19% 8.81%
- -----------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
- -----------------------------------------------------------------------------------------------
Royce Micro-Cap (9/1/97) 2.63% N/A 8.85%
===============================================================================================
</TABLE>
- 12 -
<PAGE> 146
<TABLE>
<CAPTION>
===============================================================================================
Variable Account For the 1-year For the 3-year For the period
(Date Variable Account period ended period ended from
operations began) 12/31/98 12/31/98 beginning of
Variable Account
operations
to 12/31/98
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SAFECO RESOURCE SERIES TRUST
- -----------------------------------------------------------------------------------------------
Equity (9/1/97) 23.17% N/A 21.16%
Growth (9/1/97) 0.42% N/A 8.39%
- -----------------------------------------------------------------------------------------------
SOGEN VARIABLE FUNDS, INC.
- -----------------------------------------------------------------------------------------------
SoGen Overseas (9/1/97) 1.86% N/A -3.87%
- -----------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
- -----------------------------------------------------------------------------------------------
Limited-Term Bond (11/6/95) 5.81% 4.58% 4.45%
- -----------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
- -----------------------------------------------------------------------------------------------
International Stock (11/6/95) 14.96% 8.93% 9.57%
- -----------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST
- -----------------------------------------------------------------------------------------------
Worldwide Hard Assets (11/6/95) -31.88% -8.40% -7.52%
===============================================================================================
</TABLE>
* Yield more closely reflects current earnings of the Money Market Variable
Account than its total return.
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 annual rate of 0.15%; the
quarterly deduction of an administration charge of $7.50 adjusted for average
account size; and the withdrawal charge of 7% in the first six Contract Years,
decreasing to 6% in the seventh Contract Year, and then declining by 2% in each
subsequent Contract Year until it is zero in Contract Year ten.
<TABLE>
<CAPTION>
===============================================================================================
Variable Account For the 1-year For the 3-year For the period
(Date Variable Account period ended period ended from
operations began) 12/31/98 12/31/98 beginning of
Variable Account
operations
to 12/31/98
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ALGER AMERICAN FUND
- -----------------------------------------------------------------------------------------------
MidCap Growth (11/6/95) 21.39% 53.42% 49.96%
Small Capitalization (11/6/95) 6.83% 21.23% 16.80%
- -----------------------------------------------------------------------------------------------
FIDELITY VIP FUND
- -----------------------------------------------------------------------------------------------
Equity Income (11/6/95) 3.05% 49.36% 53.75%
- -----------------------------------------------------------------------------------------------
Growth (11/6/95) 30.45% 82.04% 75.90%
- -----------------------------------------------------------------------------------------------
Money Market (11/6/95) -2.50% 5.30% 5.65%
- -----------------------------------------------------------------------------------------------
</TABLE>
- 13 -
<PAGE> 147
<TABLE>
<CAPTION>
===============================================================================================
Variable Account For the 1-year For the 3-year For the period
(Date Variable Account period ended period ended from
operations began) 12/31/98 12/31/98 beginning of
Variable Account
operations
to 12/31/98
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FIDELITY VIP FUND II
- -----------------------------------------------------------------------------------------------
Asset Manager (11/6/95) 6.36% 45.19% 48.86%
Contrafund (11/6/95) 21.07% 80.30% 80.89%
Index 500 (11/6/95) 19.29% 93.15% 96.56%
Investment Grade Bond (11/6/95) 0.48% 10.14% 11.60%
- -----------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
- -----------------------------------------------------------------------------------------------
Managed (11/6/95) -1.11% 46.90% 49.30%
Small Cap (11/6/95) -16.03% 19.32% 23.15%
- -----------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
- -----------------------------------------------------------------------------------------------
Royce Micro-Cap (9/1/97) -3.93% N/A 4.82%
- -----------------------------------------------------------------------------------------------
SAFECO RESOURCE SERIES TRUST
- -----------------------------------------------------------------------------------------------
Equity (9/1/97) 16.06% N/A 22.00%
Growth (9/1/97) -6.00% N/A 4.20%
- -----------------------------------------------------------------------------------------------
SOGEN VARIABLE FUNDS, INC.
- -----------------------------------------------------------------------------------------------
SoGen Overseas (9/1/97) -4.65% N/A -11.28%
- -----------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
- -----------------------------------------------------------------------------------------------
Limited-Term Bond (11/6/95) -0.95% 7.04% 7.34%
- -----------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
- -----------------------------------------------------------------------------------------------
International Stock (11/6/95) 7.86% 21.92% 26.01%
- -----------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST
- -----------------------------------------------------------------------------------------------
Worldwide Hard Assets (11/6/95) -36.25% -28.20% -26.97%
===============================================================================================
</TABLE>
* Yield more closely reflects current earnings of the Money Market Variable
Account than its total return.
Nonstandard 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%.
These figures do not reflect the quarterly deduction of an
administration charge and the withdrawal charge which, if deducted, would
reduce performance.
- 14 -
<PAGE> 148
Nonstandard 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 3-year For the period
(Date Variable Account period ended period ended from
operations began) 12/31/98 12/31/98 beginning of
Variable Account
operations
to 12/31/98
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ALGER AMERICAN FUND
- -----------------------------------------------------------------------------------------------
MidCap Growth (11/6/95) 28.50% 60.81% 57.39%
Small Capitalization (11/6/95) 13.93% 28.58% 24.18%
- -----------------------------------------------------------------------------------------------
FIDELITY VIP FUND
- -----------------------------------------------------------------------------------------------
Equity Income (11/6/95) 10.08% 56.73% 61.15%
Growth (11/6/95) 37.56% 89.48% 83.37%
Money Market (11/6/95)* 4.16% 12.62% 12.99%
- -----------------------------------------------------------------------------------------------
FIDELITY VIP FUND II
- -----------------------------------------------------------------------------------------------
Asset Manager (11/6/95) 13.46% 52.56% 56.26%
Contrafund (11/6/95) 28.18% 87.72% 88.35%
Index 500 (11/6/95) 26.40% 100.58% 104.02%
Investment Grade Bond (11/6/95) 7.34% 17.46% 18.96%
- -----------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
- -----------------------------------------------------------------------------------------------
Managed (11/6/95) 5.64% 54.25% 56.68%
Small Cap (11/6/95) -10.28% 26.63% 30.48%
- -----------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
- -----------------------------------------------------------------------------------------------
Royce Micro-Cap (9/1/97) 2.63% N/A 11.98%
- -----------------------------------------------------------------------------------------------
SAFECO RESOURCE SERIES TRUST
- -----------------------------------------------------------------------------------------------
Equity (9/1/97) 23.17% N/A 29.17%
Growth (9/1/97) 0.42% N/A 11.35%
- -----------------------------------------------------------------------------------------------
SOGEN VARIABLE FUNDS, INC.
- -----------------------------------------------------------------------------------------------
SoGen Overseas (9/1/97) 1.86% N/A -5.12%
- -----------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
- -----------------------------------------------------------------------------------------------
Limited-Term Bond (11/1/95) 5.81% 14.37% 14.69%
- -----------------------------------------------------------------------------------------------
</TABLE>
- 15 -
<PAGE> 149
<TABLE>
<CAPTION>
===============================================================================================
Variable Account For the 1-year For the 3-year For the period
(Date Variable Account period ended period ended from
operations began) 12/31/98 12/31/98 beginning of
Variable Account
operations
to 12/31/98
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
T. ROWE PRICE INTERNATIONAL SERIES, INC.
- -----------------------------------------------------------------------------------------------
International Stock (11/6/95) 14.96% 29.25% 33.37%
- -----------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST
- -----------------------------------------------------------------------------------------------
Worldwide Hard Assets (11/6/95) -31.88% -23.15% -21.83%
===============================================================================================
</TABLE>
* Yield more closely reflects current earnings of the Money Market Variable
Account than its total return.
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 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 the inception of the corresponding Variable Account,
deductions are monthly); the daily deduction of the annual administrative
expenses charge at an annual rate of 0.15% (except that, prior to the inception
of the corresponding Variable Account, deductions are monthly); the quarterly
deduction of the administration charge of $7.50 adjusted for average account
size; and the withdrawal charge of 7% in the first six Contract Years
decreasing to 6% in the seventh Contract Year, and then declining by 2% in each
subsequent Contract Year until it is zero in Contract Year ten.
<TABLE>
<CAPTION>
===============================================================================================
Portfolio For the For the For the For the For the period
(Date Portfolio operations began) 1-year 3-year 5 -year 10-year from beginning
period period period period of Portfolio
ended ended ended ended operations
12/31/98 12/31/98 12/31/98 12/31/98 to 12/31/98
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALGER AMERICAN FUND
- -----------------------------------------------------------------------------------------------
MidCap Growth (5/3/93) 21.39% 15.33% 17.47% N/A 22.13%
Small Capitalization (9/20/88) 6.83% 6.63% 11.51% 18.66% 17.67%
- -----------------------------------------------------------------------------------------------
</TABLE>
- 16 -
<PAGE> 150
<TABLE>
<CAPTION>
===============================================================================================
Portfolio For the For the For the For the For the period
(Date Portfolio operations began) 1-year 3-year 5 -year 10-year from beginning
period period period period of Portfolio
ended ended ended ended operations
12/31/98 12/31/98 12/31/98 12/31/98 to 12/31/98
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIDELITY VIP FUND
- -----------------------------------------------------------------------------------------------
Equity Income (10/9/86) 3.05% 14.31% 16.37% 13.87% 12.70%
Growth (10/9/86) 30.45% 22.10% 19.82% 17.96% 15.89%
Money Market (4/2/82)* -2.50% 1.74% 2.58% 3.67% 5.00%
- -----------------------------------------------------------------------------------------------
FIDELITY VIP FUND II
- -----------------------------------------------------------------------------------------------
Asset Manager (9/6/89) 6.36% 13.24% 9.26% N/A 11.39%
Contrafund (1/3/95) 21.07% 21.71% N/A N/A 26.33%
Index 500 (8/27/92) 19.29% 24.54% 21.39% N/A 19.13%
Investment Grade Bond (12/5/88) 0.48% 3.27% 3.98% 4.43% 4.39%
- -----------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
- -----------------------------------------------------------------------------------------------
Managed (8/31/88) -1.11% 13.68% 16.86% 17.47% 17.56%
Small Cap (8/31/88) -16.03% 6.07% 5.87% 11.60% 11.36%
- -----------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
- -----------------------------------------------------------------------------------------------
Royce Micro-Cap (12/27/96) -3.93% N/A N/A N/A 7.53%
- -----------------------------------------------------------------------------------------------
SAFECO RESOURCE SERIES TRUST
- -----------------------------------------------------------------------------------------------
Equity (11/6/86) 16.06% 20.88% 16.55% 15.89% 14.48%
Growth (12/31/92) -6.00% 21.45% 22.73% N/A 24.77%
- -----------------------------------------------------------------------------------------------
SOGEN VARIABLE FUNDS, INC.
- -----------------------------------------------------------------------------------------------
SoGen Overseas (2/3/97) -4.65% N/A N/A N/A -4.32%
- -----------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
- -----------------------------------------------------------------------------------------------
Limited-Term Bond (5/13/94) -0.95% 2.29% N/A N/A 3.46%
- -----------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
- -----------------------------------------------------------------------------------------------
International Stock (3/31/94) 7.86% 6.83% N/A N/A 6.55%
- -----------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST
- -----------------------------------------------------------------------------------------------
Worldwide Hard Assets -36.25% -10.45% -7.67% N/A -0.41%
(8/31/89)
===============================================================================================
</TABLE>
* Yield more closely reflects current earnings of the Money Market Portfolio
than its total return.
Adjusted historical 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
- 17 -
<PAGE> 151
expenses charge at an annual rate of 1.25% (except that, prior to the inception
of the corresponding Variable Account, deductions are monthly); and the daily
deduction of the annual administrative expenses charge at the annual rate of
0.15% (except that, prior to the inception of the corresponding Variable
Account, deductions are monthly).
These figures do not reflect the quarterly deduction of the
administration charge and any applicable withdrawal charge which, if deducted,
would reduce performance.
<TABLE>
<CAPTION>
===================================================================================================
Portfolio For the For the For the For the For the period
(Date Portfolio 1-year 3-year 5-year 10-year from beginning
operations began) period period period period of Portfolio
ended ended ended ended operations
12/31/98 12/31/98 12/31/98 12/31/98 to 12/31/98
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALGER AMERICAN FUND
- ---------------------------------------------------------------------------------------------------
MidCap Growth (5/3/93) 28.50% 17.61% 18.28% N/A 22.68%
Small Capitalization (9/20/88) 13.93% 8.74% 12.49% 18.71% 17.72%
- ---------------------------------------------------------------------------------------------------
FIDELITY VIP FUND
- ---------------------------------------------------------------------------------------------------
Equity Income (10/9/86) 10.08% 16.16% 17.20% 13.94% 12.76%
Growth (10/9/86) 37.56% 23.74% 20.58% 18.02% 15.95%
Money Market (4/2/82) * 4.16% 4.04% 3.91% 3.76% 5.06%
- ---------------------------------------------------------------------------------------------------
FIDELITY VIP FUND II
- ---------------------------------------------------------------------------------------------------
Asset Manager (9/6/89) 13.46% 15.12% 10.32% N/A 11.46%
Contrafund (1/3/95) 28.18% 23.36% N/A N/A 27.26%
Index 500 (8/27/92) 26.40% 26.11% 22.11% N/A 19.58%
Investment Grade Bond (12/5/88) 7.34% 5.51% 5.24% 4.52% 4.48%
- ---------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
- ---------------------------------------------------------------------------------------------------
Managed (8/31/88) 5.64% 15.54% 17.68% 17.80% 17.61%
Small Cap (8/31/88) -10.28% 8.19% 7.06% 11.67% 11.42%
- ---------------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
- ---------------------------------------------------------------------------------------------------
Royce Micro-Cap (12/27/96) 2.63% N/A N/A N/A 10.81%
- ---------------------------------------------------------------------------------------------------
SAFECO RESOURCE SERIES TRUST
- ---------------------------------------------------------------------------------------------------
Equity (11/6/86) 23.17% 22.55% 17.39% 15.96% 14.54%
Growth (12/31/92) 0.42% 23.10% 23.42% N/A 25.16%
- ---------------------------------------------------------------------------------------------------
SOGEN VARIABLE FUNDS, INC.
- ---------------------------------------------------------------------------------------------------
SoGen Overseas (2/3/97) 1.86% N/A N/A N/A -0.91%
- ---------------------------------------------------------------------------------------------------
</TABLE>
- 18 -
<PAGE> 152
<TABLE>
<CAPTION>
===================================================================================================
Portfolio For the For the For the For the For the period
(Date Portfolio 1-year 3-year 5-year 10-year from beginning
operations began) period period period period of Portfolio
ended ended ended ended operations
12/31/98 12/31/98 12/31/98 12/31/98 to 12/31/98
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
T. ROWE PRICE FIXED INCOME SERIES, INC.
- ---------------------------------------------------------------------------------------------------
Limited-Term Bond (5/13/94) 5.81% 4.58% N/A N/A 4.86%
- ---------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
- ---------------------------------------------------------------------------------------------------
International Stock (3/31/94) 14.96% 8.93% N/A N/A 7.78%
- ---------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST
- ---------------------------------------------------------------------------------------------------
Worldwide Hard Assets (8/31/89) -31.88% -8.40% -6.36% N/A -0.32%
===================================================================================================
</TABLE>
* Yield more closely reflects current earnings of the Money Market Portfolio
than its total return.
Adjusted historical 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 the inception of the corresponding Variable Account,
deductions are monthly); the daily deduction of the annual administrative
expenses charge at an annual rate of 0.15% (except that, prior to the inception
of the corresponding Variable Account, deductions are monthly); the quarterly
deduction of an administration charge of $7.50 adjusted for average account
size; and the withdrawal charge of 7% in the first six Contract Years
decreasing to 6% in the seventh Contract Year, and then declining by 2% in each
subsequent Contract Year until it is zero in Contract Year ten.
<TABLE>
<CAPTION>
===================================================================================================
Portfolio For the For the For the For the For the period
(Date Portfolio 1-year 3-year 5-year 10-year from beginning
operations began) period period period period of Portfolio
ended ended ended ended operations
12/31/98 12/31/98 12/31/98 12/31/98 to 12/31/98
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALGER AMERICAN FUND
- ---------------------------------------------------------------------------------------------------
MidCap Growth (5/3/93) 21.39% 53.42% 123.68% N/A 210.17%
Small Capitalization (9/20/88) 6.83% 21.23% 72.41% 453.50% 432.63%
- ---------------------------------------------------------------------------------------------------
FIDELITY VIP FUND
- ---------------------------------------------------------------------------------------------------
Equity Income (10/9/86) 3.05% 49.36% 113.38% 266.43% 331.39%
Growth (10/9/86) 30.45% 82.04% 147.00% 421.52% 506.87%
Money Market (4/2/82) * -2.50% 5.30% 13.57% 43.40% 126.22%
- ---------------------------------------------------------------------------------------------------
</TABLE>
- 19 -
<PAGE> 153
<TABLE>
<CAPTION>
===================================================================================================
Portfolio For the For the For the For the For the period
(Date Portfolio 1-year 3-year 5-year 10-year from beginning
operations began) period period period period of Portfolio
ended ended ended ended operations
12/31/98 12/31/98 12/31/98 12/31/98 to 12/31/98
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIDELITY VIP FUND II
- ---------------------------------------------------------------------------------------------------
Asset Manager (9/6/89) 6.36% 45.19% 55.69% N/A 173.18%
Contrafund (1/3/95) 21.07% 80.30% N/A N/A 154.18%
Index 500 (8/27/92) 19.29% 93.15% 163.61% N/A 203.61%
Investment Grade Bond (12/5/88) 0.48% 10.14% 21.52% 54.28% 54.13%
- ---------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
- ---------------------------------------------------------------------------------------------------
Managed (8/31/88) -1.11% 46.90% 117.94% 412.03% 432.01%
Small Cap (8/31/88) -16.03% 19.32% 33.03% 199.74% 203.92%
- ---------------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
- ---------------------------------------------------------------------------------------------------
Royce Micro-Cap (12/27/96) -3.93% N/A N/A N/A 15.71%
- ---------------------------------------------------------------------------------------------------
SAFECO RESOURCE SERIES TRUST
- ---------------------------------------------------------------------------------------------------
Equity (11/6/86) 16.06% 76.62% 115.11% 337.09% 416.92%
Growth (12/31/92) -6.00% 79.12% 178.47% N/A 277.21%
- ---------------------------------------------------------------------------------------------------
SOGEN VARIABLE FUNDS, INC.
- ---------------------------------------------------------------------------------------------------
SoGen Overseas (2/3/97) -4.65% N/A N/A N/A -8.08%
- ---------------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
- ---------------------------------------------------------------------------------------------------
Limited-Term Bond (5/13/94) -0.95% 7.04% N/A N/A 17.06%
- ---------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
- ---------------------------------------------------------------------------------------------------
International Stock (3/31/94) 7.86% 21.92% N/A N/A 35.19%
- ---------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST
- ---------------------------------------------------------------------------------------------------
Worldwide Hard Assets (8/31/89) -36.25% -28.20% -32.89% N/A -3.75%
===================================================================================================
</TABLE>
* Yield more closely reflects current earnings of the Money Market Portfolio
than its total return.
Adjusted historical 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 the inception of the corresponding Variable Account,
deductions are monthly); and the daily deduction of the administrative expenses
charge at an annual rate of 0.15% (except that, prior to the inception of the
corresponding Variable Account, deductions are monthly).
- 20 -
<PAGE> 154
These figures do not reflect the quarterly deduction of the
administration charge and the applicable withdrawal charge 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>
===================================================================================================
Portfolio For the For the For the For the For the period
(Date Portfolio 1-year 3-year 5-year 10-year from beginning
operations began) period period period period of Portfolio
ended ended ended ended operations
12/31/98 12/31/98 12/31/98 12/31/98 to 12/31/98
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALGER AMERICAN FUND
- ---------------------------------------------------------------------------------------------------
MidCap Growth (5/3/93) 28.50% 60.81% 131.50% N/A 218.16%
Small Capitalization (9/20/88) 13.93% 28.58% 80.10% 455.59% 434.85%
- ---------------------------------------------------------------------------------------------------
FIDELITY VIP FUND
- ---------------------------------------------------------------------------------------------------
Equity Income (10/9/86) 10.08% 56.73% 121.14% 268.71% 334.52%
Growth (10/9/86) 37.56% 89.48% 154.91% 424.28% 510.80%
Money Market (4/2/82) * 4.16% 12.62% 21.13% 44.59% 128.60%
- ---------------------------------------------------------------------------------------------------
FIDELITY VIP FUND II
- ---------------------------------------------------------------------------------------------------
Asset Manager (9/6/89) 13.46% 52.56% 63.40% N/A 174.83%
Contrafund (1/3/95) 28.18% 87.72% N/A N/A 161.80%
Index 500 (8/27/92) 26.40% 100.58% 171.54% N/A 210.92%
Investment Grade Bond (12/5/88) 7.34% 17.47% 29.12% 55.59% 55.44%
- ---------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
- ---------------------------------------------------------------------------------------------------
Managed (8/31/88) 5.64% 54.25% 125.68% 414.43% 434.58%
Small Cap (8/31/88) -10.28% 26.63% 40.62% 201.42% 205.72%
- ---------------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
- ---------------------------------------------------------------------------------------------------
Royce Micro-Cap (12/27/96) 2.63% N/A N/A N/A 22.93%
- ---------------------------------------------------------------------------------------------------
SAFECO RESOURCE SERIES TRUST
- ---------------------------------------------------------------------------------------------------
Equity (11/6/86) 23.17% 84.05% 122.93% 339.51% 420.31%
Growth (12/31/92) 0.42% 86.52% 186.36% N/A 284.40%
- ---------------------------------------------------------------------------------------------------
SOGEN VARIABLE FUNDS, INC.
- ---------------------------------------------------------------------------------------------------
SoGen Overseas (2/3/97) 1.86% N/A N/A N/A -1.73%
- ---------------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
- ---------------------------------------------------------------------------------------------------
Limited-Term Bond (5/13/94) 5.81% 14.37% N/A N/A 24.59%
- ---------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
- ---------------------------------------------------------------------------------------------------
International Stock (3/31/94) 14.96% 29.25% N/A N/A 42.76%
- ---------------------------------------------------------------------------------------------------
</TABLE>
- 21 -
<PAGE> 155
<TABLE>
<CAPTION>
===================================================================================================
Portfolio For the For the For the For the For the period
(Date Portfolio 1-year 3-year 5-year 10-year from beginning
operations began) period period period period of Portfolio
ended ended ended ended operations
12/31/98 12/31/98 12/31/98 12/31/98 to 12/31/98
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
VAN ECK WORLDWIDE INSURANCE TRUST
- ---------------------------------------------------------------------------------------------------
Worldwide Hard Assets (8/31/89) -31.88% -23.15% -28.01% N/A -2.92%
- ---------------------------------------------------------------------------------------------------
</TABLE>
* Yield more closely reflects current earnings of the Money Market Portfolio
than its total return.
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
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.
- 22 -
<PAGE> 156
VARIABLE ANNUITY PAYMENTS
We determine the dollar amount of the first variable annuity payment 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) that you or the Annuitant
select.
Annuity units measure the net investment performance of a Variable
Account for purposes of determining the amount of variable annuity payments. On
the Annuity Start Date, we use the adjusted Contract Value for each Variable
Account to purchase annuity units at the annuity unit value for that Variable
Account. 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.
We determine the dollar value of each variable annuity payment after
the first 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 equals the pro-rated portion of the
3.0% annual assumed investment rate, then 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, then 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%, then the payment for that period will be less than the
payment for the prior period.
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 you may choose an assumed interest rate of 3.0%, 4.0%
or 5.0% at the time you select a variable payout plan. We use the assumed
investment rate to determine the first monthly payment per thousand dollars of
applied value. THIS RATE DOES NOT BEAR ANY RELATIONSHIP TO THE ACTUAL NET
INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT OR 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
Start Date, the annuity payout plan
- 23 -
<PAGE> 157
option selected, and the Annuitant's age and sex (if applicable). 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 remain fixed during the annuity period, assuming that 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, we determine the dollar
amount of the variable annuity payment derived from each Variable Account 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(s)
supporting the variable annuity payments, less an adjustment to neutralize the
3.0% assumed investment rate referred to above. Therefore, the dollar amount of
variable 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, then 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
We calculate the value of an annuity unit at the same time that we
calculate the value of an accumulation unit and we base it 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. We calculate the annuity unit value for a
Variable Account 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.
- 24 -
<PAGE> 158
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>
- 25 -
<PAGE> 159
ILLUSTRATION OF VARIABLE ANNUITY PAYMENTS
<TABLE>
<S> <C>
1. Number of accumulation units at Annuity Start 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>
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
In the event of any such substitution or change, we may (by appropriate
endorsement, if necessary) change the Contract to reflect the substitution or
change. If we consider 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 our separate accounts, or the assets
may be transferred to another separate account. In addition, we may, when
permitted by law, restrict or eliminate any voting rights you have under the
Contracts.
We 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: the portfolio underlying
an Eligible Variable Account changes its investment objective; 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
shares of a portfolio underlying an Eligible Variable Account are no longer
available for investment by the Separate Account and we are forced to redeem
all shares of the portfolio held by the Eligible Variable Account. (See the
Prospectus for your 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, our other
separate accounts and separate accounts of other affiliated life insurance
companies may purchase some of the Funds to support other variable annuity or
variable life insurance contracts. Moreover, qualified retirement plans may
purchase shares of some of the Funds. As a result, there is a possibility that
an irreconcilable material conflict may arise between your interests in owning
a Contract whose Contract Value is allocated to
- 26 -
<PAGE> 160
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.
We currently do not foresee any disadvantages to you 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, each management of the Funds will 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 support both variable
life insurance contracts and variable annuity contracts, or support the
variable life insurance contracts and/or variable annuity contracts issued by
various unaffiliated insurance companies.
In addition, the management of the Funds will monitor the Funds in
order to identify any material irreconcilable conflicts that might possibly
arise as a result of the sale of its shares to qualified retirement plans, if
applicable. In the event of such a conflict, the management of the appropriate
Fund would determine what action, if any, should be taken in response to the
conflict. In addition, if we believe that the response of the Funds to any such
conflict does not sufficiently protect you, then we will take our own
appropriate action, 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:
- - on six months' advance written notice by any party;
- - 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;
- - 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");
- - at IL Annuity's option if any portfolio fails to meet certain
diversification requirements of the Code;
- - 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;
- 27 -
<PAGE> 161
- - 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;
- - 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
- - on 180 days written notice upon a determination by any party that a
material irreconcilable conflict exists.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND AND FUND II. These agreements
provide for termination:
- - on six months' advance written notice by any party;
- - 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;
- - at IL Annuity's option if any portfolio ceases to be qualified as a
Regulated Investment Company under Subchapter M of the Code;
- - at IL Annuity's option if any portfolio fails to meet certain
diversification requirements of the Code;
- - 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;
- - 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
- - by the Fund or the Underwriter if IL Annuity provides written notice of
its intent to use another investment company as a funding vehicle for
the Contracts.
OCC ACCUMULATION TRUST. This agreement provides for termination:
- - on six months' advance written notice by any party;
- - at IL Annuity's option if shares of any portfolio are not reasonably
available to meet the requirements of the Contracts;
- - at IL Annuity's option if any portfolio ceases to be qualified as a
Regulated Investment Company under Subchapter M of the Code;
- - at IL Annuity's option if any portfolio fails to meet certain
diversification requirements of the Code;
- - 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;
- 28 -
<PAGE> 162
- - 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;
- - 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;
- - by the Fund upon institution of certain proceedings against IL Annuity;
- - at IL Annuity's option upon institution of certain administrative
proceedings against the Fund or the Underwriter;
- - by the Fund or IL Annuity upon a determination that certain
irreconcilable conflicts exist; or
- - 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:
- - at the option of IL Annuity or the Royce Trust (the "Trust") upon 180
days' notice;
- - at the option of IL Annuity, if the Trust shares are not
reasonably available to meet the requirements of the Contracts;
- - 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;
- - 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;
- - 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;
- - 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;
- - at the option of IL Annuity, upon the Trust's unremedied breach of any
material provision of this agreement;
- - 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;
- - 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;
- - 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:
- - at the option of either IL Annuity or the SAFECO Trust ("Trust"), upon
180 days' advance written notice to the other;
- 29 -
<PAGE> 163
- - 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;
- - at the option of IL Annuity, upon the institution of certain formal
proceedings against the Trust or Adviser by the SEC, NASD, or any other
regulatory body;
- - 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;
- - 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;
- - 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;
- - at the option of the Trust, if the Contracts cease to qualify as
annuity contracts or life insurance contracts, as applicable, under the
Code;
- - at the option of IL Annuity, upon the Trust's unremedied breach of any
material provision of this agreement;
- - at the option of the Trust, upon IL Annuity's unremedied breach of any
material provision of this agreement;
- - at the option of the Trust, if the Contracts are not registered, issued
or sold in accordance with applicable federal and/or state law;
- - 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:
- - termination by any party, for any reason with respect to the portfolio,
by 120 days advance written notice delivered to the other parties; or
- - termination by IL Annuity by written notice to the SoGen Fund and its
Underwriter based upon IL Annuity's determination that the portfolio's
shares are not reasonably available to meet the requirements of the
Contracts; or
- - 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
- - 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
- 30 -
<PAGE> 164
- - 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
- - 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
- - 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
- - 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
- - 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
- - termination by IL Annuity upon any substitution of the shares of
another investment company or series thereof for shares of the
portfolio in accordance with the terms of the Contracts; or
- - 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:
- - on six months' advance written notice by any party;
- - 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;
- - at IL Annuity's option if any portfolio ceases to be qualified as a
Regulated Investment Company under Subchapter M of the Code;
- - at IL Annuity's option if any portfolio fails to meet certain
diversification requirements of the Code;
- - 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;
- - 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;
- 31 -
<PAGE> 165
- - 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;
- - by the Fund or the Underwriter upon institution of certain proceedings
against IL Annuity; or
- - 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:
- - on six months' advance written notice by any party;
- - 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;
- - at IL Annuity's option if any portfolio ceases to be qualified as a
Regulated Investment Company under Subchapter M of the Code;
- - at IL Annuity's option if any portfolio fails to meet certain
diversification requirements of the Code;
- - 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;
- - 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;
- - 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;
- - upon a decision by IL Annuity to substitute the Trust's shares with the
shares of another investment company; or
- - upon assignment of the Agreement.
VOTING RIGHTS
We determine the number of votes you may cast by dividing your Contract
Value in a Variable Account by the net asset value per share of the Portfolio
in which that Variable Account invests. For each Annuitant, we determine the
number of votes attributable to a Variable Account 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 Variable Account
invests. We calculate this liability for future payments on the basis of the
mortality assumptions. We use your selected assumed investment rate 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 we determine the number of votes. As we make variable annuity
payments to the Annuitant, the liability for future payments decreases as does
the number of votes.
- 32 -
<PAGE> 166
We determine the number of votes available to you or an Annuitant as of
the date coincident with the date that the Fund establishes for determining
shareholders eligible to vote at the relevant meeting of the portfolio's
shareholders. We will solicit voting instructions by written communication
prior to such meeting in accordance with the Fund's established procedures.
SAFEKEEPING OF ACCOUNT ASSETS
We hold the title to the assets of the Separate Account. The assets are
kept physically segregated and held separate and apart from our General Account
assets and from the assets in any other separate account. We maintain records
of all purchases and redemptions of portfolio shares held by each of the
Variable Accounts.
An insurance company blanket bond covers our officers and employees.
Travelers Casualty and Surety Company of America to Indianapolis Life Insurance
Company and its various subsidiaries issue the bond. Our bond is 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 a 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.
We offer the Contracts to the public on a continuous basis. We
anticipate continuing to offer the Contracts, but we reserve 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.
We may pay sales commissions to broker-dealers up to an amount equal to
7.2% of the Premium Payments paid under a Contract. We may also pay asset-based
trailer commissions of up to 1.25%. We may pay up to 1.25% of Premium Payments
to IL Securities to compensate it for certain distribution expenses. We expect
the broker-dealers to compensate sales representatives in varying amounts from
these commissions. We may 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 $1,588,498.71 in
underwriting commissions during fiscal year 1998, $637,722.49 in fiscal year
1997, and $195,937.53 in fiscal year 1996.
- 33 -
<PAGE> 167
LEGAL MATTERS
Janis B. Funk, Vice President Law, Individual Company, has passed upon
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. Sutherland Asbill & Brennan LLP of Washington, D.C. has provided
advice on certain matters relating to the federal securities laws.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the balance
sheets of IL Annuity and Insurance Company as of December 31, 1998 and 1997 and
the related statements of income, shareholder's equity and cash flows for each
of the three years in the period ended December 31, 1998, and the statement of
net assets of IL Annuity and Insurance Co. Separate Account 1 as of December
31, 1998, 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, appearing in this Statement of Additional Information and
Registration Statement. These are set forth in their reports thereon appearing
elsewhere herein, and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
OTHER INFORMATION
We have filed a registration statement with the SEC under the
Securities Act of 1933, as amended, with respect to the Contracts discussed in
this Statement of Additional Information. The Statement of Additional
Information does not include all of the information set forth in the
registration statement, amendments and exhibits. 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, you should refer to the instruments filed with
the SEC.
FINANCIAL STATEMENTS
- 34 -
<PAGE> 168
Financial Statements
IL Annuity and Insurance Company Separate
Account 1
Years ended December 31, 1998 and 1997
with Report of Independent Auditors
<PAGE> 169
IL Annuity and Insurance Company Separate Account 1
Financial Statements
Years ended December 31, 1998 and 1997
CONTENTS
Report of Independent Auditors.........................................1
Audited Financial Statements
Statement of Net Assets................................................2
Statement of Operations................................................3
Statements of Changes in Net Assets....................................4
Notes to Financial Statements..........................................6
<PAGE> 170
Report of Independent Auditors
Board of Directors
IL Annuity and Insurance Company
We have audited the accompanying statement of net assets of IL Annuity and
Insurance Company Separate Account 1 (the Account) as of December 31, 1998, 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, 1998 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
Company Separate Account 1 at December 31, 1998, 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.
ERNST & YOUNG LLP
Indianapolis, Indiana
March 26, 1999
<PAGE> 171
IL Annuity and Insurance Company Separate Account 1
Statement of Net Assets
December 31, 1998
<TABLE>
<CAPTION>
VALUE IN
ACCUMULATION UNITS IN
PERCENT OF PERIOD AND NET ACCUMULATION
NET ASSETS ASSETS PERIOD UNIT VALUE
---------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments at net asset value:
Alger American Fund:
Alger American MidCap Growth Portfolio--293,159.385
shares at $28.87 per share (cost--$7,175,413) 3.83% $ 8,463,518 537,127 $ 15.757
Alger Small Capitalization Portfolio--142,521.326 shares at
$43.97 per share (cost--$5,938,251) 2.84% 6,266,674 502,984 12.459
Fidelity Variable Insurance Products Fund and Fund II:
Fidelity Asset Manager Portfolio--442,337.544 shares at
$18.16 per share (cost--$7,479,967) 3.64% 8,032,807 503,498 15.954
Fidelity Contra Portfolio--954,480.052 shares
at $24.44 per share (cost--$19,024,700) 10.56% 23,327,506 1,228,022 18.996
Fidelity Equity Income Portfolio--886,698.057 shares at
$25.42 per share (cost--$20,841,120) 10.20% 22,539,812 1,355,289 16.631
Fidelity Growth Portfolio--384,745.498 shares at $44.87
per share (cost--$13,923,271) 7.82% 17,263,535 948,233 18.206
Fidelity Index 500 Portfolio--282,915.545 shares
at $141.25 per share (cost--$33,606,910) 18.09% 39,961,857 1,895,005 21.088
Fidelity Investment Grade Bond Portfolio--642,028.622
shares at $12.96 per share (cost--$7,949,970) 3.77% 8,320,691 691,547 12.032
Fidelity Money Market Portfolio--12,128,091.59 shares
at $1.00 per share (cost--$12,128,091) 5.49% 12,128,091 1,070,535 11.329
Oppenheimer Capital Accumulation Trust:
OCC Managed Portfolio--511,299.87 shares at $43.74
per share (cost--$21,616,920) 10.13% 22,364,263 1,396,806 16.011
OCC Small Capitalization Portfolio--167,900.561 shares
at $23.10 per share (cost--$4,161,775) 1.76% 3,878,446 295,186 13.139
T. Rowe Price International Series, Inc.:
T. Rowe Price International Stock Portfolio--622,630.899
shares at $14.52 per share (cost--$8,416,607) 4.09% 9,040,605 660,670 13.684
T. Rowe Price Fixed Income Series, Inc.:
T. Rowe Price Limited-Term Bond Portfolio--797,906.019
shares at $5.02 per share (cost--$ 3,990,072) 1.81% 4,005,483 348,151 11.505
Van Eck Worldwide Insurance Trust:
Van Eck Hard Assets Portfolio--
204,576 shares at $9.20 per share (cost--$2,672,462) 0.85% 1,882,096 230,762 8.156
SAFECO Resource Series Trust:
SAFECO Equity Portfolio--351,229.1502
shares at $29.97 per share (cost--$9,874,187) 4.77% 10,526,339 814,921 12.917
SAFECO Growth Portfolio--834,431.9093
shares at $21.30 per share (cost--$20,084,354) 8.05% 17,773,401 1,596,318 11.134
Royce Capital Fund:
Royce Micro--Capitalization Portfolio--612,547.867
shares at $5.24 per share (cost--$3,471,349) 1.45% 3,209,743 286,635 11.198
The SoGen Variable Funds, Inc:
SoGen Overseas Variable Portfolio--188,134
shares at $9.98 per share (cost--$1,961,184) 0.85% 1,877,576 196,153 9.572
---------------------------------------------
Total investments and net assets (cost--$204,316,603) 100.00% $220,862,443 14,557,843
=============================================
</TABLE>
See accompanying notes.
2
<PAGE> 172
IL Annuity and Insurance Company Separate Account 1
Statement of Operations
Year ended December 31, 1998
<TABLE>
<CAPTION>
Fidelity
Alger American Alger Small Asset Fidelity
MidCap Growth Capitalization Manager Contra
Combined Portfolio Portfolio Portfolio Portfolio
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net investment income $ 4,578,675 $ 163,102 $ 146,554 $ 114,576 $ 71,429
Mortality and expense charges (2,007,727) (75,998) (67,842) (75,619) (206,094)
Net realized gain on investments 4,788,745 290,137 546,946 343,729 525,511
Net change in unrealized appreciation
(depreciation) on investments 13,636,294 1,203,543 62,505 369,890 3,853,247
---------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 20,995,987 $ 1,580,784 $ 688,163 $ 752,576 $ 4,244,093
=================================================================================
</TABLE>
<TABLE>
<CAPTION>
Fidelity Fidelity Fidelity
Equity Fidelity Fidelity Investment Money
Income Growth Index 500 Grade Bond Market
Portfolio Portfolio Portfolio Portfolio Portfolio
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net investment income $ 175,654 $ 33,344 $ 172,100 $ 173,761 $ 452,350
Mortality and expense charges (231,657) (143,225) (332,834) (76,041) (121,853)
Net realized gain on investments 625,122 872,217 398,614 20,616 -
Net change in unrealized appreciation
(depreciation) on investments 1,084,137 3,086,828 5,950,689 287,986 (18,358)
---------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 1,653,256 $ 3,849,164 $ 6,188,569 $ 406,322 $ 312,139
=================================================================================
</TABLE>
<TABLE>
<CAPTION>
T. Rowe
OCC OCC Small T. Rowe Price Price Limited- Van Eck
Managed Capitalization International Term Bond Hard Assets
Portfolio Portfolio Stock Portfolio Portfolio Portfolio
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net investment income $ 95,922 $ 9,279 $ 103,176 $ 138,672 $ 310,221
Mortality and expense charges (226,305) (45,639) (87,862) (35,110) (27,263)
Net realized gain on investments 385,492 101,316 36,415 7,816 -
Net change in unrealized appreciation
(depreciation) on investments 461,065 (498,851) 807,117 23,406 (1,017,278)
---------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 716,174 $ (433,895) $ 858,846 $ 134,784 $ (734,320)
===========================================================================
</TABLE>
<TABLE>
<CAPTION>
Van Eck SoGen
Worldwide SAFECO SAFECO Royce Micro- Overseas
Balanced Equity Growth Capitalization Variable
Portfolio Portfolio Portfolio Portfolio Portfolio
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net investment income $ 50,391 $ 495,189 $ 1,852,533 $ - $ 20,422
Mortality and expense charges (8,766) (73,843) (119,546) (29,799) (22,431)
Net realized gain on investments 232,654 - - 402,160 -
Net change in unrealized appreciation
(depreciation) on investments (125,542) 762,539 (2,327,980) (265,510) (63,139)
---------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 148,737 $ 1,183,885 $ (594,993) $ 106,851 $ (65,148)
===========================================================================
</TABLE>
See accompanying notes.
3
<PAGE> 173
IL Annuity and Insurance Company Separate Account 1
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Fidelity
Alger American Alger Small Asset Fidelity
MidCap Growth Capitalization Manager Contra
Combined Portfolio Portfolio Portfolio Portfolio
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at January 1, 1997 $19,804,428 $ 1,188,839 $ 1,805,378 $ 726,896 $ 2,467,748
Changes from 1997 operations:
Net investment income 829,534 1,249 - 29,038 24,395
Mortality and expense charges (662,091) (33,411) (39,116) (21,270) (109,011)
Net realized gain on investments 807,617 30,451 94,350 72,840 64,473
Net change in unrealized appreciation
(depreciation) on investments 5,246,583 258,518 239,994 165,946 977,429
----------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 6,221,643 256,807 295,228 246,554 957,286
Net increase from contract purchases 90,037,395 2,759,201 2,738,621 2,496,478 7,215,827
Net decrease from
redemptions-withdrawals (30,677,003) (593,211) (768,513) (475,425) (1,175,257)
----------------------------------------------------------------------------------
Total increase in net assets 65,582,035 2,422,797 2,265,336 2,267,607 6,997,856
----------------------------------------------------------------------------------
Net assets at December 31, 1997 85,386,463 3,611,636 4,070,714 2,994,503 9,465,604
Changes from 1998 operations:
Net investment income 4,578,675 163,102 146,554 114,576 71,429
Mortality and expense charges (2,007,727) (75,998) (67,842) (75,619) (206,094)
Net realized gain on investments 4,788,745 290,137 546,946 343,729 525,511
Net change in unrealized appreciation
(depreciation) on investments 13,636,294 1,203,543 62,505 369,890 3,853,247
----------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 20,995,987 1,580,784 688,163 752,576 4,244,093
Net increase from contract purchases 298,691,519 7,584,846 4,929,292 8,469,571 20,344,843
Net decrease from
redemptions-withdrawals (184,211,526) (4,313,748) (3,421,495) (4,183,843) (10,727,034)
----------------------------------------------------------------------------------
Total increase (decrease) in net assets 135,475,980 4,851,882 2,195,960 5,038,304 13,861,902
----------------------------------------------------------------------------------
Net assets at December 31, 1998 $ 220,862,443 $ 8,463,518 $ 6,266,674 $ 8,032,807 $ 23,327,506
==================================================================================
</TABLE>
<TABLE>
<CAPTION>
Fidelity Fidelity Fidelity
Equity Fidelity Fidelity Investment Money
Income Growth Index 500 Grade Bond Market
Portfolio Portfolio Portfolio Portfolio Portfolio
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at January 1, 1997 $ 2,336,599 $ 1,792,626 $ 2,467,866 $ 599,037 $ 1,876,845
Changes from 1997 operations:
Net investment income 50,007 14,443 35,542 $ 38,551 $ 183,471
Mortality and expense charges (79,769) (50,698) (92,518) (15,965) (42,708)
Net realized gain on investments 251,422 64,652 72,120 - -
Net change in unrealized appreciation
(depreciation) on investments 1,025,392 615,219 1,562,275 82,688 47
---------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 1,247,052 643,616 1,577,419 105,274 140,810
Net increase from contract purchases 10,039,658 4,367,280 12,303,249 3,041,263 20,381,070
Net decrease from
redemptions-withdrawals (1,805,244) (681,737) (2,574,475) (672,832) (17,106,645)
---------------------------------------------------------------------------------
Total increase in net assets 9,481,466 4,329,159 11,306,193 2,473,705 3,415,235
---------------------------------------------------------------------------------
Net assets at December 31, 1997 11,818,065 6,121,785 13,774,059 3,072,742 5,292,080
Changes from 1998 operations:
Net investment income 175,654 33,344 172,100 173,761 452,350
Mortality and expense charges (231,657) (143,225) (332,834) (76,041) (121,853)
Net realized gain on investments 625,122 872,217 398,614 20,616 -
Net change in unrealized appreciation
(depreciation) on investments 1,084,137 3,086,828 5,950,689 287,986 (18,358)
---------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 1,653,256 3,849,164 6,188,569 406,322 312,139
Net increase from contract purchases 21,390,192 15,375,506 36,779,413 10,569,641 71,373,876
Net decrease from
redemptions-withdrawals (12,321,701) (8,082,920) (16,780,184) (5,728,014) (64,850,004)
---------------------------------------------------------------------------------
Total increase (decrease) in net assets 10,721,747 11,141,750 26,187,798 5,247,949 6,836,011
---------------------------------------------------------------------------------
Net assets at December 31, 1998 $ 22,539,812 $ 17,263,535 $ 39,961,857 $ 8,320,691 $ 12,128,091
=================================================================================
</TABLE>
See accompanying notes.
4
<PAGE> 174
IL Annuity and Insurance Company Separate Account 1
Statements of Changes in Net Assets (Continued)
<TABLE>
<CAPTION>
T. Rowe
OCC OCC Small T. Rowe Price Price Limited- Van Eck
Managed Capitalization International Term Bond Hard Assets
Portfolio Portfolio Stock Portfolio Portfolio Portfolio
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at January 1, 1997 $ 1,672,638 $ 486,213 $ 1,446,986 $ 271,782 $ 370,548
Changes from 1997 operations:
Net investment income 23,293 4,014 40,561 33,206 30,297
Mortality and expense charges (63,261) (17,708) (36,772) (29,879) (18,412)
Net realized gain on investments 71,541 28,307 57,461 - -
Net change in unrealized appreciation
(depreciation) on investments 576,315 186,669 (116,048) 6,871 (115,720)
-------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 607,888 201,282 (54,798) 10,198 (103,835)
Net increase from contract purchases 9,373,918 2,011,359 3,808,234 2,248,833 2,208,978
Net decrease from
redemptions-withdrawals (1,464,103) (319,414) (790,032) (1,056,766) (484,259)
-------------------------------------------------------------------------------
Total increase in net assets 8,517,703 1,893,227 2,963,404 1,202,265 1,620,884
-------------------------------------------------------------------------------
Net assets at December 31, 1997 10,190,341 2,379,440 4,410,390 1,474,047 1,991,432
Changes from 1998 operations:
Net investment income 95,922 9,279 103,176 138,672 310,221
Mortality and expense charges (226,305) (45,639) (87,862) (35,110) (27,263)
Net realized gain on investments 385,492 101,316 36,415 7,816 -
Net change in unrealized appreciation
(depreciation) on investments 461,065 (498,851) 807,117 23,406 (1,017,278)
-------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 716,174 (433,895) 858,846 134,784 (734,320)
Net increase from contract purchases 25,366,783 4,473,073 9,217,930 5,660,952 1,874,118
Net decrease from
redemptions-withdrawals (13,909,035) (2,540,172) (5,446,561) (3,264,300) (1,249,134)
-------------------------------------------------------------------------------
Total increase (decrease) in net assets 12,173,922 1,499,006 4,630,215 2,531,436 (109,336)
-------------------------------------------------------------------------------
Net assets at December 31, 1998 $ 22,364,263 $ 3,878,446 $ 9,040,605 $ 4,005,483 $ 1,882,096
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
Van Eck SoGen
Worldwide SAFECO SAFECO Royce Micro- Overseas
Balanced Equity Growth Capitalization Variable
Portfolio Portfolio Portfolio Portfolio Portfolio
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at January 1, 1997 $ 294,427 $ - $ - $ - $ -
Changes from 1997 operations:
Net investment income 7,317 77,014 208,167 28,969 -
Mortality and expense charges (7,112) (1,506) (1,372) (953) (650)
Net realized gain on investments - - - - -
Net change in unrealized appreciation
(depreciation) on investments 32,448 (54,039) (168,827) (9,616) (18,978)
-----------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 32,653 21,469 37,968 18,400 (19,628)
Net increase from contract purchases 885,565 1,287,790 1,449,284 797,553 623,234
Net decrease from
redemptions-withdrawals (234,710) (209,625) (127,067) (61,335) (76,353)
-----------------------------------------------------------------------------
Total increase in net assets 683,508 1,099,634 1,360,185 754,618 527,253
-----------------------------------------------------------------------------
Net assets at December 31, 1997 977,935 1,099,634 1,360,185 754,618 527,253
Changes from 1998 operations:
Net investment income 50,391 495,189 1,852,533 - 20,422
Mortality and expense charges (8,766) (73,843) (119,546) (29,799) (22,431)
Net realized gain on investments 232,654 - - 402,160 -
Net change in unrealized appreciation
(depreciation) on investments (125,542) 762,539 (2,327,980) (265,510) (63,139)
-----------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 148,737 1,183,885 (594,993) 106,851 (65,148)
Net increase from contract purchases 748,303 15,713,371 29,331,910 6,156,312 3,331,587
Net decrease from
redemptions-withdrawals 1,874,975) (7,470,551) (12,323,701) (3,808,038) (1,916,116)
-----------------------------------------------------------------------------
Total increase (decrease) in net assets (977,935) 9,426,705 16,413,216 2,455,125 1,350,323
-----------------------------------------------------------------------------
Net assets at December 31, 1998 $ - $ 10,526,339 $ 17,773,401 $ 3,209,743 $ 1,877,576
=============================================================================
</TABLE>
See accompanying notes.
5
<PAGE> 175
IL Annuity and Insurance Company Separate Account 1
Notes to Financial Statements
December 31, 1998
1. ACCOUNTING POLICIES
THE ACCOUNT
IL Annuity and Insurance Company Separate Account 1 (the "Account") is a
segregated investment account of the IL Annuity and Insurance Company (the
"Company"), an indirect majority owned subsidiary of Indianapolis Life Insurance
Company ("ILICo"). The Account was established under Massachusetts law on
November 1, 1994, commenced operations in November, 1995 and is registered under
the Investment Company Act of 1940, as amended, as a unit investment trust.
INVESTMENTS
The Account invests in the following funds:
Alger American Fund--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 Insurance Trust--Hard Assets Portfolio
SAFECO Resource Series Trust --Equity Portfolio, Growth Portfolio
Royce Capital Fun--Micro-Capitalization Portfolio
The SoGen Variable Funds, Inc.--Overseas Variable Portfolio
6
<PAGE> 176
IL Annuity and Insurance Company Separate Account 1
Notes to Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS (CONTINUED)
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.
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. Based on 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.
<PAGE> 177
IL Annuity and Insurance Company Separate Account 1
Notes to Financial Statements (continued)
3. NET ASSETS
Net assets at December 31, 1998 consist of the following:
<TABLE>
<CAPTION>
ALGER
AMERICAN
MIDCAP ALGER SMALL FIDELITY ASSET FIDELITY
GROWTH CAPITALIZATION MANAGER CONTRA
COMBINED PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Contract purchases $ 414,721,318 $ 11,772,752 $ 9,934,379 $ 12,027,589 $ 30,240,295
Redemptions-
withdrawals (222,029,442) (5,192,377) (4,638,479) (5,038,713) (12,336,041)
Accumulated net
investment income 2,693,833 48,281 29,273 42,773 (233,541)
Accumulated realized
gains on investments 5,620,362 326,865 642,627 416,818 591,187
Accumulated net change
in unrealized appreciation
(depreciation) on
investments 19,856,372 1,507,997 298,874 584,340 5,065,606
---------------------------------------------------------------------------------------------
$ 220,862,443 $ 8,463,518 $ 6,266,674 $ 8,032,807 $ 23,327,506
=============================================================================================
</TABLE>
<TABLE>
<CAPTION>
FIDELITY FIDELITY
FIDELITY EQUITY FIDELITY INVESTMENT MONEY
INCOME GROWTH FIDELITY INDEX GRADE BOND MARKET
PORTFOLIO PORTFOLIO 500 PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Contract purchases $ 34,033,444 $ 21,664,231 $ 51,595,156 $ 14,439,124 $ 96,826,527
Redemptions-
withdrawals (14,530,871) (8,959,866) (19,544,025) (6,647,510) (85,178,792)
Accumulated net
investment income (98,703) (156,821) (226,402) 118,202 498,658
Accumulated realized
gains on investments 879,216 939,303 472,686 20,616 -
Accumulated net change
in unrealized appreciation
(depreciation) on
investments 2,256,726 3,776,688 7,664,442 390,259 (18,302)
--------------------------------------------------------------------------------------------
$ 22,539,812 $ 17,263,535 $ 39,961,857 $ 8,320,691 $ 12,128,091
============================================================================================
</TABLE>
8
<PAGE> 178
IL Annuity and Insurance Company Separate Account 1
Notes to Financial Statements (continued)
3. NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
T. ROWE PRICE
OCC OCC SMALL INTERNATIONAL T. ROWE PRICE VAN ECK
MANAGED CAPITALIZATION STOCK LIMITED-TERM HARD ASSETS
PORTFOLIO PORTFOLIO PORTFOLIO BOND PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Contract purchases $ 36,557,572 $ 7,061,412 $ 14,888,649 $ 8,271,811 $ 4,584,313
Redemptions-
withdrawals (15,621,912) (2,984,798) (6,733,028) (4,418,422) (1,876,432)
Accumulated net
investment income (176,727) (51,595) 21,376 112,742 294,269
Accumulated realized
gains on investments 457,050 130,816 100,548 7,816 -
Accumulated net change
in unrealized appreciation
(depreciation) on
investments 1,148,280 (277,389) 763,060 31,536 (1,120,054)
------------------------------------------------------------------------------------------------
$ 22,364,263 $ 3,878,446 $ 9,040,605 $ 4,005,483 $ 1,882,096
================================================================================================
</TABLE>
<TABLE>
<CAPTION>
VAN ECK SOGEN
WORLDWIDE SAFECO SAFECO ROYCE MICRO- OVERSEAS
BALANCED EQUITY GROWTH CAPITALIZATION VARIABLE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Contract purchases $ 2,133,023 $ 17,001,161 $ 30,781,194 $ 6,953,865 $ 3,954,821
Redemptions-
withdrawals (2,335,390) (7,680,176) (12,450,768) (3,869,373) (1,992,469)
Accumulated net
investment income 39,854 496,854 1,939,782 (1,783) (2,659)
Accumulated realized
gains on investments 232,654 - - 402,160 -
Accumulated net change
in unrealized appreciation
(depreciation) on
investments (70,141) 708,500 (2,496,807) (275,126) (82,117)
---------------------------------------------------------------------------------------------
$ - $ 10,526,339 $ 17,773,401 $ 3,209,743 $ 1,877,576
=============================================================================================
</TABLE>
9
<PAGE> 179
IL Annuity and Insurance Company Separate Account 1
Notes to Financial Statements (continued)
4. PURCHASES AND SALES OF SECURITIES
The aggregate cost of investments purchased and the aggregate proceeds from
investments sold were as follows for 1998:
<TABLE>
<CAPTION>
Aggregate Aggregate
Cost of Proceeds
Purchases from Sales
----------------------- --------------------------
<S> <C> <C>
Alger American MidCap Growth Portfolio $ 4,943,504 $ 1,291,892
Alger Small Capitalization Portfolio 3,318,433 1,203,200
Fidelity Asset Manager Portfolio 5,673,703 1,000,227
Fidelity Contra Portfolio 13,312,920 3,291,564
Fidelity Equity Income Portfolio 13,322,135 3,677,927
Fidelity Growth Portfolio 10,147,711 1,889,081
Fidelity Index 500 Portfolio 25,186,458 4,652,162
Fidelity Investment Grade Bond Portfolio 5,981,432 1,014,294
Fidelity Money Market Portfolio 12,128,091 5,292,088
OCC Managed Portfolio 14,703,264 3,005,338
OCC Small Capitalization Portfolio 2,808,007 818,257
T. Rowe Price International Stock Portfolio 5,103,469 1,287,749
T. Rowe Price Limited-Term Bond Portfolio 3,556,931 1,047,011
Van Eck Hard Assets Portfolio 1,506,476 676,581
Van Eck Worldwide Balanced Portfolio - 863,205
SAFECO Equity Portfolio 9,758,086 1,081,556
SAFECO Growth Portfolio 20,084,355 1,429,983
Royce Micro-Capitalization Portfolio 3,055,809 343,265
SoGen Overseas Variable Portfolio 1,961,184 549,039
--------------- ----------------
$ 156,551,968 $ 34,414,419
=============== ================
</TABLE>
10
<PAGE> 180
IL Annuity and Insurance Company Separate Account 1
Notes to Financial Statements (continued)
5. SUMMARY OF UNIT TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------------------------------------------------
1998 1997
--------------------------------------------------------------------------------------------
UNITS AMOUNT UNITS AMOUNT
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ALGER AMERICAN MIDCAP
GROWTH PORTFOLIO
Contract purchases 541,388 $ 7,584,846 239,151 $ 2,759,201
Redemptions-withdrawals (307,905) (4,313,748) (51,416) (593,211)
ALGER SMALL CAPITALIZATION
PORTFOLIO
Contract purchases 421,397 4,929,292 262,182 2,738,621
Redemptions-withdrawals (292,498) (3,421,495) (73,574) (768,513)
FIDELITY ASSET MANAGER PORTFOLIO
Contract purchases 564,262 8,469,571 192,905 2,496,478
Redemptions-withdrawals (278,737) (4,183,843) (36,736) (475,425)
FIDELITY CONTRA PORTFOLIO
Contract purchases 1,203,125 20,344,843 535,915 7,215,827
Redemptions-withdrawals (634,360) (10,727,034) (87,286) (1,175,257)
FIDELITY EQUITY INCOME PORTFOLIO
Contract purchases 1,347,626 21,390,192 741,701 10,039,658
Redemptions-withdrawals (776,292) (12,321,701) (133,366) (1,805,244)
FIDELITY GROWTH PORTFOLIO
Contract purchases 977,899 15,375,506 362,310 4,367,280
Redemptions-withdrawals (514,083) (8,082,920) (56,557) (681,737)
FIDELITY INDEX 500 PORTFOLIO
Contract purchases 1,948,062 36,779,413 836,785 12,303,249
Redemptions-withdrawals (888,781) (16,780,184) (175,099) (2,574,475)
FIDELITY INVESTMENT GRADE
BOND PORTFOLIO
Contract purchases 909,373 10,569,641 281,130 3,041,263
Redemptions-withdrawals (492,817) (5,728,014) (62,196) (672,832)
FIDELITY MONEY MARKET PORTFOLIO
Contract purchases 6,425,159 71,373,876 1,909,770 20,381,070
Redemptions-withdrawals (5,837,872) (64,850,004) (1,602,946) (17,106,645)
OCC MANAGED PORTFOLIO
Contract purchases 1,627,589 25,366,783 676,158 9,373,918
Redemptions-withdrawals (892,434) (13,909,035) (105,608) (1,464,103)
</TABLE>
11
<PAGE> 181
IL Annuity and Insurance Company Separate Account 1
Notes to Financial Statements (continued)
5. SUMMARY OF UNIT TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------------------------------------------------------
1998 1997
---------------------------------------------------------------------------------------------
UNITS AMOUNT UNITS AMOUNT
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OCC SMALL CAPITALIZATION
PORTFOLIO
Contract purchases 321,943 $ 4,473,073 150,118 $ 2,011,359
Redemptions-withdrawals (182,825) (2,540,172) (23,840) (319,414)
T. ROWE PRICE INTERNATIONAL
STOCK PORTFOLIO
Contract purchases 718,383 9,217,930 320,572 3,808,234
Redemptions-withdrawals (424,468) (5,446,561) (66,504) (790,032)
T. ROWE PRICE LIMITED-TERM
BOND PORTFOLIO
Contract purchases 508,347 5,660,952 217,142 2,248,833
Redemptions-withdrawals (293,130) (3,264,300) (102,039) (1,056,766)
VAN ECK HARD ASSETS
PORTFOLIO
Contract purchases 186,118 1,874,118 181,518 2,208,978
Redemptions-withdrawals (124,051) (1,249,134) (39,793) (484,259)
VAN ECK WORLDWIDE BALANCED
PORTFOLIO
Contract purchases 124,696 748,303 76,935 885,565
Redemptions-withdrawals (312,444) (1,874,975) (20,391) (234,710)
SAFECO EQUITY PORTFOLIO
Contract purchases 1,342,335 15,713,371 122,705 1,287,790
Redemptions-withdrawals (638,181) (7,470,551) (19,974) (209,625)
SAFECO GROWTH PORTFOLIO
Contract purchases 2,639,423 29,331,910 130,660 1,449,284
Redemptions-withdrawals (1,108,945) (12,323,701) (11,456) (127,067)
ROYCE MICRO-CAPITALIZATION
PORTFOLIO
Contract purchases 556,679 6,156,312 73,036 797,553
Redemptions-withdrawals (344,338) (3,808,038) (5,617) (61,335)
</TABLE>
12
<PAGE> 182
IL Annuity and Insurance Company Separate Account 1
Notes to Financial Statements (continued)
5. SUMMARY OF UNIT TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------------------------------------------------------
1998 1997
----------------------------------------------------------------------------------------------
UNITS AMOUNT UNITS AMOUNT
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SOGEN OVERSEAS VARIABLE
PORTFOLIO
Contract purchases 352,661 $ 3,331,587 66,856 $ 623,234
Redemptions-withdrawals (202,828) (1,916,116) (8,191) (76,353)
-------------- -------------
Net increase from unit
transactions $ 114,479,993 $ 59,360,403
============== =============
</TABLE>
13
<PAGE> 183
IL Annuity and Insurance Company Separate Account 1
Notes to Financial Statements (continued)
6. IMPACT OF YEAR 2000 (UNAUDITED)
The Company relies on ILICO for its information systems processing, and utilizes
investment transaction information reported by the various fund managers. The
Company's Year 2000 plan includes the following phases (many of which been
completed):
Phase One - Planning and Budgeting: The Company's Board of Directors
adopted a plan to address Year 2000 (Y2K) issues in April of 1997. This
plan was approved by the corporate officers, executive management, and the
Vice President of Information Technology.
Phase Two - Inventory: The Company completed an initial inventory of all
hardware, software, equipment and business partner components on June 30,
1997. Each inventory item was categorized by importance to the
organization, i.e., mission critical, essential, important, and marginal.
Phase Three - Assessment/Planning: An impact assessment was completed on
July 9, 1997, followed by a Y2K project plan on February 2, 1998. The
Company's officers, Legal Department and management worked extensively
with an outside consultant during this process.
Phase Four - Remediation/Implementation of Mission Critical Systems: The
Company implemented necessary mission critical Y2K system updates. Since
the Company was in the process of converting from a mainframe system to a
LAN environment, The Company coordinated the process of migrating to new
mission critical systems that were Y2K ready.
Phase Five - Facilities: The Company has reviewed, upgraded or replaced
its mission critical facilities systems that may contain embedded
technology. This included replacement of its HVAC and Fire/Safety systems
used to maintain the facility. The Company has worked and is working with
its vendors in testing and updating mission critical facility systems as
needed.
Phase Six - Testing: The Company constructed and successfully executed an
enterprise-wide test for its mission critical systems in a dedicated,
time-controlled environment. This testing was completed as of December 31,
1998. Plans for 1999 include on-going testing of these mission critical
systems for Y2K readiness. Additionally, the Company will be examining
less critical systems to verify their readiness.
14
<PAGE> 184
IL Annuity and Insurance Company Separate Account 1
Notes to Financial Statements (continued)
6. IMPACT OF YEAR 2000 (UNAUDITED) (CONTINUED)
Phase Seven - Third Party Administrators/Vendors: The Company has
contacted its significant business partners, suppliers, and vendors to
ascertain the status of their Y2K readiness. The Company has also worked
closely with its Third Party Administrators (TPA), to ascertain their
level of Y2K readiness. The Company's outside consultants have also been
involved in the discussions and assessments of TPA Y2K readiness. The
Company will continue to work with its partners, suppliers, vendors and
TPA's throughout 1999. While the Company has worked in conjunction with
these third parties, they each remain ultimately responsible for their
own Y2K readiness initiatives.
Phase Eight - Contingency Planning: The contingency plan for mission
critical systems was written in 1998. Contingency planning for essential,
important and marginal systems is scheduled for completion in 1999. These
plans will be reviewed and updated, where necessary. The Company is
reviewing its current Disaster Recovery Plan and anticipates using it as a
basis for Y2K contingency planning. The Company is working with its
offsite disaster recovery location vendor concerning their readiness,
should they be needed.
Phase Nine - Documentation: The Company has completed a Y2K Operations
Manual documenting procedures relating to Y2K processing. All mission
critical information is stored in fireproof cabinets within the Y2K
Office. The Company is currently in the process of imaging all
documentation relating to Y2K projects, vendor information, correspondence
sent/received and third party relationship documentation. An offsite
location has been established for storing test results and documentation
once the imaging process has been completed.
The costs incurred by ILICo to address the Company's Y2K issues for each of the
years ended December 31, 1998 and 1997 were $11,000,000 and $1,000,000,
respectively. ILICo anticipates incurring additional expenses of approximately
$3,000,000 to complete Y2K initiative.
<PAGE> 185
IL Annuity and Insurance Company Separate Account 1
Notes to Financial Statements (continued)
6. IMPACT OF YEAR 2000 (UNAUDITED) (CONTINUED)
The Company is confident that its internal mission critical systems can
transition into the Year 2000, and beyond, based on positive testing results.
The Company will continue to evaluate the Y2K readiness of and modify its
essential and important systems throughout 1999. The Company believes that the
worst case Y2K scenario would relate to its outside vendors. Should the Company
not have electricity or should the financial institutions and securities firms
have operational difficulties, it would no doubt affect Company operations. The
impact on the Company would depend on the extent to which of these or other
services are lost or delayed. The Company has not estimated these figures. This
will be an issue the Company will address in its contingency planning during
1999.
16
<PAGE> 186
Financial Statements
IL Annuity and Insurance Company
Years ended December 31, 1998, 1997 and 1996
With Report of Independent Auditors
<PAGE> 187
IL Annuity and Insurance Company
Financial Statements
Years ended December 31, 1998, 1997 and 1996
CONTENTS
Report of Independent Auditors................................................1
Audited Financial Statements
Balance Sheets................................................................2
Statements of Income..........................................................3
Statements of Shareholder's Equity............................................4
Statements of Cash Flows......................................................5
Notes to Financial Statements.................................................6
<PAGE> 188
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 (indirectly majority owned by Indianapolis Life Insurance Company) as of
December 31, 1998 and 1997, and the related statements of income, shareholder's
equity, and cash flows for each of the three years in the period ended December
31, 1998. 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
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, 1998 and 1997, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Indianapolis, Indiana
March 26, 1999
<PAGE> 189
IL Annuity and Insurance Company
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
----------------------------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturity securities:
Available for sale, at fair value $ 1,675,815,473 $ 432,917,723
Trading, at fair value 104,749,857 28,033,530
Held to maturity, at amortized cost 8,032,183 8,036,013
Mortgage loans 25,008,180 20,853,908
Policy loans 226,547 41,309
Cash and cash equivalents 227,784,876 78,206,640
----------------------------------------
Total investments 2,041,617,116 568,089,123
Accrued investment income 20,901,296 5,838,029
Reinsurance recoverable 108,451,109 30,962,413
Deferred acquisition costs 58,905,858 18,954,120
Goodwill 1,734,003 1,843,518
Federal income taxes recoverable - 951,606
Receivables and other assets 49,440 195,990
Separate account assets 220,862,443 85,386,460
----------------------------------------
Total assets $ 2,452,521,265 $ 712,221,259
========================================
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Future policy benefit reserves $ 2,071,810,495 $ 581,568,496
Other policyholder liabilities 4,958,066 432,661
Accounts payable and other liabilities 23,957,740 13,437,140
Federal income taxes payable 1,618,322 -
Deferred federal income taxes 31,885,299 5,233,339
Separate account liabilities 220,862,443 85,386,460
----------------------------------------
Total liabilities 2,355,092,365 686,058,096
Shareholder's equity:
Common stock, $250 par value:
Authorized and issued--10,000 shares 2,500,000 2,500,000
Additional paid-in capital 91,662,659 24,262,659
Accumulated other comprehensive income 819,116 250,115
Retained earnings (deficit) 2,447,125 (849,611)
----------------------------------------
Total shareholder's equity 97,428,900 26,163,163
----------------------------------------
Total liabilities and shareholder's equity $ 2,452,521,265 $ 712,221,259
========================================
</TABLE>
See accompanying notes.
2
<PAGE> 190
IL Annuity and Insurance Company
Statements of Income
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1998 1997 1996
-----------------------------------------------------------
<S> <C> <C> <C>
REVENUE
Annuity fees and charges $ 2,209,651 $ 1,112,192 $ 346,265
Investment income 55,002,920 12,315,656 884,450
Net realized capital gains 194,062 762,934 133,003
-----------------------------------------------------------
57,406,633 14,190,782 1,363,718
EXPENSES
Policy benefits 39,948,207 10,483,499 549,779
Underwriting, acquisition and insurance expenses 11,279,637 1,988,802 2,762,343
-----------------------------------------------------------
51,227,844 12,472,301 3,312,122
-----------------------------------------------------------
Income (loss) before federal income taxes 6,178,789 1,718,481 (1,948,404)
Federal income taxes 2,882,053 38,761 9,634
-----------------------------------------------------------
Net income (loss) $ 3,296,736 $ 1,679,720 $ (1,958,038)
===========================================================
</TABLE>
See accompanying notes.
3
<PAGE> 191
IL Annuity and Insurance Company
Statements of Shareholder's Equity
<TABLE>
<CAPTION>
ACCUMULATED
OTHER RETAINED
COMMON ADDITIONAL PAID- COMPREHENSIVE EARNINGS
STOCK IN CAPITAL INCOME (DEFICIT) TOTAL
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $ 2,500,000 $ 6,762,659 $ 134,367 $ (571,293) $ 8,825,733
Net loss - - - (1,958,038) (1,958,038)
Change in net unrealized gains -
on available for sale securities - - 20,102 20,102
----------------
Total comprehensive income (1,937,936)
Capital contribution 10,500,000 10,500,000
------------------------------------------------------------------------------------------
Balance at December 31, 1996 2,500,000 17,262,659 154,469 (2,529,331) 17,387,797
Net income - - - 1,679,720 1,679,720
Change in net unrealized gains
on available for sale securities - - 95,646 95,646
----------------
Total comprehensive income 1,775,366
Capital contribution - 7,000,000 - - 7,000,000
------------------------------------------------------------------------------------------
Balance at December 31, 1997 2,500,000 24,262,659 250,115 (849,611) 26,163,163
Net income - - - 3,296,736 3,296,736
Change in net unrealized gains
on available for sale securities - - 569,001 569,001
----------------
Total comprehensive income 3,865,737
Capital contribution - 67,400,000 - - 67,400,000
==========================================================================================
Balance at December 31, 1998 $ 2,500,000 $ 91,662,659 $ 819,116 $ 2,447,125 $ 97,428,900
==========================================================================================
</TABLE>
See accompanying notes.
4
<PAGE> 192
IL Annuity and Insurance Company
Statements of Cash Flows
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 3,296,736 $ 1,679,720 $ (1,958,038)
Adjustments to reconcile net income (loss) to net
cash used by operating activities:
Amortization of bond discount/premium (14,211,485) (1,521,845) 20,121
Amortization of goodwill 109,516 109,516 109,516
Net realized capital gains (14,388,642) (3,350,187) (133,003)
Changes in operating assets and liabilities:
Deferred acquisition costs (45,721,706) (17,569,346) (5,227,443)
Amortization of deferred acquisition costs 5,769,968 3,476,107 366,562
Accrued investment income (15,063,267) (5,272,055) (484,944)
Reinsurance recoverable (77,488,696) (30,962,413) -
Receivables and other assets (3,630,107) 5,717,101 163,961
Accounts payable and accrued liabilities 824,660 8,447,968 4,831,911
Federal income taxes 29,221,888 4,188,924 20,457
----------------------------------------------------------------
Net cash used by operating activities (131,281,135) (35,056,510) (2,290,900)
INVESTING ACTIVITIES
Sales and maturity of fixed maturity securities 197,795,869 59,815,409 55,536,586
Mortgage loan repayments 928,766 222,696 -
Purchase of fixed maturity securities (1,428,079,218) (469,593,436) (91,982,677)
Investment in mortgage loans (5,125,000) (21,287,250) -
Increase in policy loans (185,238) (41,309) -
----------------------------------------------------------------
Net cash used by investing activities (1,234,664,821) (430,883,890) (36,446,091)
FINANCING ACTIVITIES
Annuity deposits received 1,465,486,111 530,306,529 45,805,196
Annuity surrender benefits (17,361,919) (14,106,711) (82,916)
Capital contribution 67,400,000 7,000,000 10,500,000
----------------------------------------------------------------
Net cash provided by financing activities 1,515,524,192 523,199,818 56,222,280
----------------------------------------------------------------
Net increase in cash and short-term investments 149,578,236 57,259,418 17,485,289
Cash and cash equivalents at beginning of year 78,206,640 20,947,222 3,461,933
----------------------------------------------------------------
Cash and cash equivalents at end of year $ 227,784,876 $ 78,206,640 $ 20,947,222
================================================================
</TABLE>
See accompanying notes.
5
<PAGE> 193
IL Annuity and Insurance Company
Notes to Financial Statements
December 31, 1998
1. ORGANIZATION, BASIS OF PRESENTATION AND ACCOUNTING POLICIES
IL Annuity and Insurance Company (the "Company") is a wholly owned subsidiary of
The Indianapolis Life Group of Companies, Inc., which in turn is a majority
owned subsidiary of Indianapolis Life Insurance Company ("ILICo"). The Company
is incorporated in the State of Massachusetts and is licensed to do business in
forty-five 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.
INVESTMENTS
Fixed maturity securities which may be sold to meet liquidity and other needs of
the Company are categorized as available for sale and are reported at fair value
with unrealized holding gains and losses reported as a separate component of
shareholder's equity. Fixed maturity securities which the Company has the
positive intent and ability to hold to maturity are categorized as
held-to-maturity and are reported at amortized cost. Fixed maturity securities
that are bought and held principally for the purpose of selling them in the near
term to generate profits from short-term differences in price are categorized as
trading and are reported at fair value with unrealized holding gains and losses
reported in operations.
Cash and short-term investments include cash on hand and demand deposits and
investments with maturities of less than one year at the date of acquisition,
and are stated at cost which approximates fair value.
Mortgage loans and policy loans are stated at aggregate unpaid balances.
Allowance for loss on mortgage loans is $252,608 and $210,646 at December 31,
1998 and 1997, respectively.
6
<PAGE> 194
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
1. ORGANIZATION, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (CONTINUED)
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. Accumulated amortization of goodwill is $456,316 and $346,801 at
December 31, 1998 and 1997, respectively.
FUTURE POLICY BENEFIT RESERVES
Future policy benefit reserves for annuity products represent policy account
balances before applicable surrender charges, and net unrealized gains on
available for sale securities allocated to policyholders.
THIRD-PARTY ADMINISTRATORS
The Company has contractual arrangements with three third-party administrators
to distribute and administer its annuity products, which represents all of the
Company's business. One of the third-party administrators, Legacy Marketing
Group, distributes and administers the majority of this business.
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> 195
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.
COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted the Financial Accounting Standards
Board Statement 130, Reporting Comprehensive Income. Statement 130 establishes
new rules for the reporting and display of comprehensive income and its
components; however, the adoption of this Statement had no impact on the
Company's net income or shareholder's equity. Statement 130 requires unrealized
gains or losses on the Company's available-for-sale securities, which prior to
adoption were reported separately in shareholder's equity, to be included in
accumulated other comprehensive income. Prior years' financial statements have
been reclassified to conform to the requirements of Statement 130.
The Company's reclassification adjustment for 1998 is as follows:
<TABLE>
<CAPTION>
GROSS TAX EFFECT NET
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized holding gains
arising during year $ 98,645,860 $ (34,526,051) $ 64,119,809
Reclassification adjustment for
gains realized in net income (11,107,299) 3,887,555 (7,219,744)
Allocated to future policy
benefit reserves (86,663,175) 30,332,111 (56,331,064)
-----------------------------------------------------------------------------------------
Change in net unrealized gains
on available for sale
securities $ 875,386 $ (306,385) $ 569,001
=========================================================================================
</TABLE>
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year
presentation.
8
<PAGE> 196
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
2. INVESTMENTS
Fixed maturity securities consist of the following at December 31:
<TABLE>
<CAPTION>
1998
--------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
United States government $ 94,424,923 $ 1,390,073 $ 103,035 $ 95,711,961
Public utilities 110,563,044 4,319,205 - 114,882,249
Industrial and miscellaneous 1,367,012,083 102,498,284 20,472,859 1,449,037,508
Mortgage-backed securities 15,891,744 292,010 - 16,183,754
--------------------------------------------------------------------------------
$ 1,587,891,794 $ 108,499,572 $ 20,575,894 $ 1,675,815,473
================================================================================
Trading:
United States government $ 8,003,369 $ 26,500 $ 130,372 $ 7,899,497
Special revenue 100,370 - 80,370 20,000
Public utilities 6,578,169 332,988 87,932 6,823,225
Industrial and miscellaneous 92,528,033 1,551,485 4,072,383 90,007,135
--------------------------------------------------------------------------------
$ 107,209,941 $ 1,910,973 $ 4,371,057 $ 104,749,857
================================================================================
Held to maturity:
Industrial and miscellaneous $ 8,032,183 $ 639,087 $ - $ 8,671,270
================================================================================
</TABLE>
9
<PAGE> 197
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
1997
--------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
United States government $ 27,377,457 $ 528,917 $ - $ 27,906,374
Special revenue 7,520,065 105,854 - 7,625,919
Public utilities 26,624,432 931,256 9,538 27,546,150
Industrial and miscellaneous 345,890,826 16,092,873 2,831,478 359,152,221
Mortgage-backed securities 10,552,547 134,512 - 10,687,059
--------------------------------------------------------------------------------
$ 417,965,327 $ 17,793,412 $ 2,841,016 $ 432,917,723
================================================================================
Trading:
United States government $ 1,286,404 $ 1,014 $ 2,966 $ 1,284,452
Special revenue 100,457 - 9,457 91,000
Public utilities 1,740,617 26,053 1,235 1,765,435
Industrial and miscellaneous 24,577,946 488,545 173,848 24,892,643
--------------------------------------------------------------------------------
$ 27,705,424 $ 515,612 $ 187,506 $ 28,033,530
================================================================================
Held to maturity:
Industrial and miscellaneous $ 8,036,013 $ 440,017 $ - $ 8,476,030
================================================================================
</TABLE>
10
<PAGE> 198
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
The amortized cost and fair value of fixed maturity securities at December 31,
1998, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE TRADING HELD TO MATURITY
---------------------------------------------------------------------------------------------------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Due in one year or less $ 30,960,010 $ 30,898,159 $ - $ - $ - $ -
Due after one year
through five years 504,701,853 540,724,618 8,435,770 7,742,807 1,000,000 1,010,580
Due after five years
through ten years 627,939,162 650,989,758 96,318,211 94,623,050 6,032,183 6,563,940
Due after ten years 408,399,025 437,019,183 2,455,960 2,384,000 1,000,000 1,096,750
Mortgage-backed
securities 15,891,745 16,183,755 - - - -
=========================================================================================================
$ 1,587,891,795 $ 1,675,815,473 $ 107,209,941 $ 104,749,857 $ 8,032,183 $ 8,671,270
=========================================================================================================
</TABLE>
Net investment income consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturity securities $46,825,700 $10,314,562 $531,894
Equity securities 13,673 - 113,017
Mortgage loans 1,848,846 606,460 -
Short term investments 8,136,334 1,938,719 244,725
Other 1,339,625 7,709 82
-------------------------------------------------------------------------
Gross investment income 58,164,178 12,947,656 889,718
Less investment expenses 3,161,258 631,794 5,268
-------------------------------------------------------------------------
Net investment income $55,002,920 $12,315,656 $894,450
=========================================================================
</TABLE>
11
<PAGE> 199
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
Net unrealized gains on available for sale securities are as follows:
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
Fixed maturity securities:
Gross unrealized gains $108,499,573 $ 17,793,412
Gross unrealized losses 20,575,894 2,841,016
---------------- ----------------
87,923,679 14,952,396
Deferred income taxes 30,773,174 5,233,339
Allocated to future policy
benefit reserves 56,331,064 9,468,942
Gross unrealized gains on
short-term investments 325 -
---------------- ----------------
$ 819,116 $ 250,115
================ ================
</TABLE>
Proceeds from sales of available for sale securities during 1998 and 1997 were
$155,534,662 and $31,468,962, respectively. Gross gains of $14,377,767 and
$2,819,617 and gross losses of $1,150,749 and $29,328 were realized during 1998
and 1997, respectively.
3. FEDERAL INCOME TAXES
Significant components of current federal income taxes (benefit) are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------------------------------------------
<S> <C> <C> <C>
Federal income taxes
(benefit) at 35% $ 2,165,408 $ 601,468 $ (681,194)
Effect of net operating losses/
valuation allowance 736,452 (698,193) 693,452
Other, net (19,807) 135,486 (2,624)
-----------------------------------------------------------------------
Federal income taxes $ 2,882,053 $ 38,761 $ 9,634
=======================================================================
<CAPTION>
Federal income taxes consist of the following:
1998 1997 1996
-----------------------------------------------------------------------
<S> <C> <C> <C>
Current taxes $ 1,769,928 $ 38,761 $ 9,634
Deferred taxes 1,112,125 - -
-----------------------------------------------------------------------
Total $ 2,882,052 $ 38,761 $ 9,634
=======================================================================
</TABLE>
12
<PAGE> 200
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
3. FEDERAL INCOME TAXES (CONTINUED)
At December 31, 1998 and 1997 the financial statements included deferred tax
assets of $22,139,986 and $7,152,369, offset by a valuation allowance of $- and
$200,153 and deferred tax liabilities of $54,025,285 and $12,185,555,
respectively. The significant components of the Company's deferred tax assets
and liabilities were net operating losses, deferred acquisition costs, future
policy benefit reserves, amortization of goodwill and bond discount and
unrealized investment gains and losses.
The Company files a stand-alone federal income tax return.
The Company recovered $800,000 in federal income taxes in 1998, and paid
$1,000,000 and $- in 1997 and 1996, respectively.
4. REINSURANCE
The Company has entered into a modified coinsurance cession agreement covering
flexible premium deferred annuity policies distributed through Legacy Marketing
Group (a third-party administrator). Future policy benefit reserves include
reinsurance payable of $1,511,542,946 and $424,318,398 at December 31, 1998 and
1997, respectively. Net realized capital gains are net of realized gains
allocated to the reinsurer of $14,194,580 and $2,587,253 in 1998 and 1997,
respectively.
The Company remains liable for ceded risks in the event that the reinsurer does
not meet its obligations. Management believes its reinsurer will meet its
obligations under existing contracts.
5. SHAREHOLDER'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,
1998 and 1997 was $59,886,970 and $13,292,585, respectively. Statutory net loss
for 1998, 1997 and 1996 was $13,554,570, $4,957,736 and $3,252,584,
respectively.
Generally, the maximum amount of dividends which can be paid to its shareholder
without prior approval of the Insurance Commissioner of the State of
Massachusetts is 10% of statutory surplus at the prior year end.
6. RELATED PARTY TRANSACTIONS
The Company was allocated expenses of $2,998,435 and $1,999,903 for various
administrative services from ILICo for 1998 and 1997, respectively, in
conjunction with expense allocation agreements.
13
<PAGE> 201
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
fair value disclosures for financial instruments in the accompanying financial
statements and notes thereto:
Cash and cash equivalents, accrued investment income and policy
loans: The carrying amounts reported in the accompanying balance
sheets for these financial instruments approximate their fair
values.
Fixed maturity securities: Fair values of bonds are based on quoted
market prices where available. For bonds not actively traded, fair
values are estimated using values obtained from independent pricing
services, or in the case of private placements, are estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality and maturity of the
investments.
Mortgage loans: The fair value of mortgage loans was estimated by
discounting the future cash flows using current rates at which
similar loans would be made to borrowers with similar credit ratings
for similar maturities.
Investment-type contracts: The fair value of deferred annuities is
believed to approximate the cash surrender value.
The carrying amount and fair values of the Company's financial instruments at
December 31, are as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------------------------------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Fixed maturity securities:
Available for sale $1,675,815,473 $1,675,815,473 $ 432,917,723 $ 432,917,723
Trading 104,749,857 104,749,857 28,033,530 28,033,530
Held to maturity 8,032,183 8,671,270 8,036,013 8,476,030
Mortgage loans 25,008,180 27,335,409 20,853,908 20,064,554
LIABILITIES:
Deferred annuities 2,071,810,495 1,937,218,686 581,568,496 541,974,496
</TABLE>
14
<PAGE> 202
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
8. IMPACT OF YEAR 2000 (UNAUDITED)
The Company's Year 2000 plan includes the following phases (many of which have
been completed):
Phase One - Planning and Budgeting: The Company's Board of Directors
adopted a plan to address Year 2000 (Y2K) issues in April of 1997. This
plan was approved by the corporate officers, executive management, and the
Vice President of Information Technology.
Phase Two - Inventory: The Company completed an initial inventory of all
hardware, software, equipment and business partner components on June 30,
1997. Each inventory item was categorized by importance to the
organization, i.e., mission critical, essential, important, and marginal.
Phase Three - Assessment/Planning: An impact assessment was completed on
July 9, 1997, followed by a Y2K project plan on February 2, 1998. The
Company's officers, Legal Department and management worked extensively
with an outside consultant during this process.
Phase Four - Remediation/Implementation of Mission Critical Systems: The
Company implemented necessary mission critical Y2K system updates. Since
the Company was in the process of converting from a mainframe system to a
LAN environment, The Company coordinated the process of migrating to new
mission critical systems that were Y2K ready.
Phase Five - Facilities: The Company has reviewed, upgraded or replaced
its mission critical facilities systems that may contain embedded
technology. This included replacement of its HVAC and Fire/Safety systems
used to maintain the facility. The Company has worked and is working with
its vendors in testing and updating mission critical facility systems as
needed.
Phase Six - Testing: The Company constructed and successfully executed an
enterprise-wide test for its mission critical systems in a dedicated,
time-controlled environment. This testing was completed as of December 31,
1998. Plans for 1999 include on-going testing of these mission critical
systems for Y2K readiness. Additionally, the Company will be examining
less critical systems to verify their readiness.
15
<PAGE> 203
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
8. IMPACT OF YEAR 2000 (UNAUDITED) (CONTINUED)
Phase Seven -Third Party Administrators/Vendors: The Company has contacted
its significant business partners, suppliers, and vendors to ascertain the
status of their Y2K readiness. The Company has also worked closely with
its Third Party Administrators (TPA), to ascertain their level of Y2K
readiness. The Company's outside consultants have also been involved in
the discussions and assessments of TPA Y2K readiness. The Company will
continue to work with its partners, suppliers, vendors and TPA's
throughout 1999. While the Company has worked in conjunction with these
third parties, they each remain ultimately responsible for their own Y2K
readiness initiatives.
Phase Eight - Contingency Planning: The contingency plan for mission
critical systems was written in 1998. Contingency planning for essential,
important and marginal systems is scheduled for completion in 1999. These
plans will be reviewed and updated, where necessary. The Company is
reviewing its current Disaster Recovery Plan and anticipates using it as a
basis for Y2K contingency planning. The Company is working with its
offsite disaster recovery location vendor concerning their readiness,
should they be needed.
Phase Nine - Documentation: The Company has completed a Y2K Operations
Manual documenting procedures relating to Y2K processing. All mission
critical information is stored in fireproof cabinets within the Y2K
Office. The Company is currently in the process of imaging all
documentation relating to Y2K projects, vendor information, correspondence
sent/received and third party relationship documentation. An offsite
location has been established for storing test results and documentation
once the imaging process has been completed.
The costs incurred by ILICo to address the Company's Y2K issues for each of the
years ended December 31, 1998 and 1997 were $11,000,000 and $1,000,000,
respectively. ILICo anticipates incurring additional expenses of approximately
$3,000,000 to complete Y2K initiative.
The Company has not identified the opportunity costs associated with items such
as delayed customer service enhancements, distribution enhancements, postponed
product development and missed growth opportunities. Many of these initiatives
were adversely impacted in 1998, as the Y2K readiness project was the primary
focus of the Information Services Department.
16
<PAGE> 204
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
8. IMPACT OF YEAR 2000 (UNAUDITED) (CONTINUED)
The Company is confident that its internal mission critical systems can
transition into the Year 2000, and beyond, based on positive testing results.
The Company will continue to evaluate the Y2K readiness of and modify its
essential and important systems throughout 1999. The Company believes that the
worst case Y2K scenario would relate to its outside vendors. Should the Company
not have electricity or should the financial institutions and securities firms
have operational difficulties, it would no doubt affect Company operations. The
impact on the Company would depend on the extent to which of these or other
services are lost or delayed. The Company has not estimated these figures. This
will be an issue the Company will address in its contingency planning during
1999.
17
<PAGE> 205
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").3/
(2) Not applicable.
(3) (a) Form of Distribution Agreement among the Company, the Separate
Account and IL Securities, Inc. ("IL Securities").3/
(b) Form of Sales Agreement among the Company, IL Securities, Inc.
and a broker-dealer.3/
(4) (a)(i) Form of Contract for the Visionary Flexible Premium Deferred
Variable Annuity.4/
(ii) Form of Contract for the Visionary Choice Flexible Premium
Deferred Variable Annuity.1/
(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.4/
(c) Form of Roth IRA Endorsement.3/
(d) Endorsement to Contract dated May 1997.4/
(5) (a) Form of Application for the Visionary Flexible Premium
Deferred Variable Annuity.4/
(b) Form of Application for the Visionary Choice Flexible Premium
Deferred Variable Annuity.1/
(6) (a) Articles of Incorporation of IL Annuity and Insurance
Company.4/
(b) By-Laws of IL Annuity and Insurance Company.4/
(7) Not Applicable.
(8) (a) Form of Participation Agreement between Fidelity Variable
Insurance Products Fund and IL Annuity and Insurance
Company.3/
(b) Form of Participation Agreement between Fidelity Variable
Insurance Products Fund II and IL Annuity and Insurance
Company.3/
(c) Form of Participation Agreement between Van Eck Investment
Trust and IL Annuity and Insurance Company.3/
(d) Form of Participation Agreement between T. Rowe Price
International Series, Inc. and IL Annuity and Insurance
Company.3/
(e) Form of Participation Agreement between T. Rowe Price Fixed
Income Series, Inc. and IL Annuity and Insurance Company.3/
C-1
<PAGE> 206
(f) Form of Participation Agreement between Quest for Value
Accumulation Trust and IL Annuity and Insurance Company.3/
(g) Form of Participation Agreement between The Alger American
Fund and IL Annuity and Insurance Company.3/
(h) Form of Services Agreement between Financial Administration
Services, Inc. and IL Annuity and Insurance Company.4/
(i) Participation Agreement between Royce Capital Fund and IL
Annuity and Insurance Company. 2/
(j) Trust Participation Agreement among SAFECO Resource Series
Trust, SAFECO Asset Management Company, and IL Annuity and
Insurance Company. 2/
(k) Participation Agreement among SoGen Variable Funds, Inc.,
Societe Generale Securities Corporation, and IL Annuity and
Insurance Company.2/
(l) Form of Services Agreement between USA Administration
Services, Inc. and IL Annuity and Insurance Company.2/
(m) Amendment to Trust Participation Agreement among SAFECO
Resource Series Trust, SAFECO Asset Management Company, and IL
Annuity and Insurance Company.5/
(9) Opinion and Consent of Janis B. Funk, Esq.5/
(10) (a) Consent of Sutherland Asbill & Brennan LLP.5/
(b) Consent of Ernst & Young LLP.5/
(11) No financial statements will be omitted from Item 23.
(12) Not applicable.
(13) Schedule of Performance Computations.2/
(14) Not applicable.
(15) Powers of Attorney.3/
- ------------------------
1/ Incorporated herein by reference to registrant's Post-Effective Amendment
No. 2 to this Form N-4 Registration Statement filed with the SEC via EDGARLINK
on October 23, 1996 (File No. 33-89028).
2/ Incorporated herein by reference to registrant's Post-Effective Amendment
No. 5 to this Form N-4 Registration Statement filed with the SEC via EDGARLINK
on August 8, 1997 (File No. 33-89028).
3/ Incorporated herein by reference to registrant's Post-Effective Amendment
No. 6 to this Form N-4 Registration Statement filed with the SEC via EDGARLINK
on April 30, 1998 (File No. 33-89028).
4/ Incorporated herein by reference to registrant's Post-Effective Amendment
No. 7 to this Form N-4 Registration Statement filed with the SEC via EDGARLINK
on March 1, 1999 (File No. 33-89028).
5/ Filed herewith.
C-2
<PAGE> 207
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
Lisa Foxworthy-Parker 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>
* Unless otherwise indicated, the principal business address is 2960 North
Meridian Street, Indianapolis, Indiana 46208.
** Principal business address 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")
American United Life Indiana Mutual Company Life & Health
Insurance Company Insurance
("American United")
The Indianapolis Life Group Indiana Indianapolis Life (61.30%) Holding Company
of Companies, Inc. American United (32.44%)
("The Indianapolis Group")
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>
* Files separate statutory-basis Financial Statements.
C-3
<PAGE> 208
ITEM 27. NUMBER OF CONTRACTOWNERS
As of February 2, 1999 there were a total of 1,789 Visionary Contracts in
force -- 583 non-qualified and 1,206 qualified and a total of 3,725 Visionary
Choice Contracts in force -- 1,437 non-qualified and 2,288 qualified.
ITEM 28. INDEMNIFICATION
The By-Laws of IL Annuity and Insurance Company provide, in Article X, as
follows:
ARTICLE X
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Any director or officer or his legal representative shall be indemnified by
the Company against reasonable expenses including the cost of any
settlement and counsel fees paid or incurred in connection with any action,
suit or proceeding to which any such director or officer or his legal
representative may be made a party by reason of his being or having been
such director or officer, provided it shall not be determined by a final
determination thereof on the merits that such director or officer was in
any substantial way derelict in the performance of his duties, or provided
that such action, suit or proceeding shall be settled without a final
determination on the merits and it shall be determined that such officer or
director had not in any substantial way been derelict in the performance of
his duties as charged therein, such determination to be made by a majority
of the members of the Board of Directors who were not parties to such
action, suit or proceedings, though less than a quorum, or by any one or
more disinterested persons to whom the question may be referred by the
Board of Directors. The foregoing right of indemnification shall not be
exclusive of any other rights to which any director or officer may be
entitled as a matter of law or which may be lawfully granted to him.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
C-4
<PAGE> 209
ITEM 29. PRINCIPAL UNDERWRITER
(a) IL Securities, Inc. is the registrant's principal underwriter. It is also
the principal underwriter for Bankers Life Insurance Company of New York
Separate Account 1.
(b) Officers and Directors of IL Securities, and their addresses, are as
follows:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address* With the Underwriter
- ------------------- ---------------------
<S> <C>
Larry R. Prible Chairman of the Board
Gregory J. Carney Chief Executive
Officer and Director
Daniel J. Labonte President
Lisa Foxworthy-Parker Secretary - Treasurer
John J. Fahrenbach Director
Garrett P. Ryan Director
Larry A. Halbach Director
Stephen J. Shorrock Director
Karla K. Vest Director
</TABLE>
* All of the persons listed above have as their principal business address:
P.O. Box 1230, 2960 North Meridian Street, Indianapolis, Indiana 46208.
<TABLE>
<CAPTION>
(c)(1) (2) (3) (4) (5)
Name of Net Underwriting
Principal Discounts and Compensation on Brokerage
Underwriter Commissions Redemption Commissions Compensation
- ----------- ----------- -------------- ------------ -------------
<S> <C>
IL Securities, $1,588,498.71
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 and Visionary Choice Contracts.
C-5
<PAGE> 210
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 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.
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 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 the Company.
C-6
<PAGE> 211
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. 8 to its registration statement to be signed on
its behalf, in the City of Indianapolis, and the State of Indiana, on this 21st
day of April, 1999.
IL ANNUITY AND INSURANCE CO.
SEPARATE ACCOUNT 1 (Registrant)
Attest: /s/ Janis B. Funk By: /s/ Gregory J. Carney
------------------ ---------------------
Janis B. Funk Gregory J. Carney
President
By: IL ANNUITY AND INSURANCE
COMPANY (Depositor)
Attest: /s/ Janis B. Funk By: /s/ Gregory J. Carney
------------------ ---------------------
Janis B. Funk 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 April 21, 1999
- ---------------------------
Larry R. Prible Director
* President, Chief Executive April 21, 1999
- ---------------------------
Gregory J. Carney Officer and Director
* Treasurer April 21, 1999
- ---------------------------
Gene E. Trueblood (Principal Financial Officer)
* Controller April 21, 1999
- ---------------------------
Richard G. Darragh (Chief Accounting Officer)
</TABLE>
C-7
<PAGE> 212
<TABLE>
<S> <C> <C>
* Director April 21, 1999
- ---------------------------
John J. Fahrenbach
* Director April 21, 1999
- ---------------------------
Larry A. Halbach
* Director April 21, 1999
- ---------------------------
Garrett P. Ryan
* Director April 21, 1999
- ---------------------------
Stephen J. Shorrock
* Director April 21, 1999
- ---------------------------
Karla K. Vest
/s/ Janis B. Funk On April 21, 1999, as Attorney-in-Fact pursuant
- ------------------
* By Janis B. Funk to powers of attorney filed herewith.
</TABLE>
C-8
<PAGE> 213
EXHIBIT INDEX
Exhibit 8 (m) Amendment to Trust Participation Agreement among SAFECO
Resource Series Trust, SAFECO Asset Management Company,
and IL Annuity and Insurance Company
Exhibit 9 Opinion and Consent of Janis B. Funk, Esq.
Exhibit 10(a) Consent of Sutherland Asbill & Brennan LLP
Exhibit 10(b) Consent of Ernst & Young LLP
<PAGE> 1
EXHIBIT 8(m)
AMENDMENT TO TRUST PARTICIPATION AGREEMENT
THIS AMENDMENT to the Trust Participation Agreement ("Amendment") is
entered into as of the 9th day of July 1997 by and 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.
RECITALS
A. The Trust, Advisor and Life Company have entered into that certain Trust
Participation Agreement as of July 9, 1997 ("Agreement").
B. The Trust, Advisor and Life Company desire to amend the Agreement in
accordance with the terms and conditions of this Amendment.
NOW THEREFORE, in consideration of their mutual promises, Life Company, Trust
and Adviser agree as follows:
1. Section 2.13 shall be added to Article II of the Agreement to read as
follows:
2.13 Life Company represents and warrants that no Separate Account listed
on Exhibit A is exempt from registration under the '40 Act in reliance on
Section 3(c)(1) or 3(c)(7) thereof.
2. Section 4.6 of the Agreement shall be amended to read as follows:
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. Except as
provided in Section 4.1, Life Company shall not use the "SAFECO" name on
behalf of itself or any affiliate in any registration statement,
advertisement, sales literature or other materials without the prior
written consent of Trust and Advisor. Upon termination of this Agreement
for any reason, Trust and Adviser shall cease all use of any Visionary
Marks and Life Company shall cease all use of the "SAFECO" name as soon
as reasonably practicable.
3. Section 6.2 of the Agreement shall be amended to read as follows:
<PAGE> 2
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; and
(f) a decision by a Participating Insurance Company to disregard the
voting instructions of Variable Contract Owners.
4. Section 7.1 of the Agreement is amended to read as follows:
7.1 Life Company will provide pass-through voting privileges to all
Owners of Variable Contracts which are registered under the '33 Act
and/or the '40 Act so long as the SEC continues to interpret the '40 Act
as requiring passthrough voting privileges. The Variable Contract Owners
to whom Life Company will provide pass-through voting privileges pursuant
to this Agreement are hereinafter referred to as "Pass-through Voters."
Accordingly, Life Company, when applicable, will distribute to
Pass-through Voters 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 Pass-through
Voters. 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
Pass-through Voters 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.
5. Section 7.2 of the Agreement is amended to read as follows:
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 Pass-through
Voters, 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.
6. Subsection (f) of Section 9.2 of the Agreement is amended to read as
follows:
(f) Upon the receipt of any necessary regulatory approvals, or
requisite vote of Pass-through Voters having an interest in the
Portfolios, to substitute for shares of the Portfolios the shares
of another investment company in accordance with the terms
-2-
<PAGE> 3
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;
7. Section 9.4 of the Agreement is amended to read as follows:
9.4 Notwithstanding any termination of this Agreement pursuant to
subsections (a), (b), (c), (e), (f) (h), and/or (k) (hereinafter referred
to as the "Qualifying Subsections") of 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 the Qualifying Subsections of 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. This Section 9.4 shall not apply in the event of termination of
this Agreement pursuant to subsections (d), (g), (i) and/or (j) of
Section 9.2 hereof.
IN WITNESS WHEREOF, the parties have entered into this Amendment as of the date
first written above.
SAFECO Resource Series Trust
By: /s/Neal A. Fuller
------------------------
Name: Neal A. Fuller
Title: Vice President and Controller
-3-
<PAGE> 4
SAFECO Asset Management Company
By: /s/Leslie Eggerli
------------------------
Name: Leslie Eggerli
Title: Vice President
IL Annuity and Insurance Company
By: /s/Gregory J. Carney
------------------------
Name: Gregory J. Carney
Title: President & CEO
-4-
<PAGE> 1
EXHIBIT 9
[Letterhead of IL Annuity and Insurance Company]
April 22, 1999
Board of Directors
IL Annuity and Insurance Company
2960 North Meridian Street
Indianapolis, Indiana 46208
Gentlemen and Ladies:
RE: IL ANNUITY AND INSURANCE CO. SEPARATE ACCOUNT 1
In my capacity as Vice President Law, Individual of IL Annuity and
Insurance Company (the "Company"), I am rendering the following opinion in
connection with the filing with the Securities and Exchange Commission of a
Registration Statement on Form N-4 under the Securities Act of 1933 and the
Investment Company Act of 1940. This Registration Statement is being filed with
respect to flexible variable annuity contracts (the "Contracts") issued by IL
Annuity and Insurance Company Separate Account 1 (the "Account").
In forming the following opinion, I have made such examination of law and
examined such records and other documents as in my judgment are necessary and
appropriate.
It is my opinion that:
1. The Account is a separate investment account of the Company and is
duly created and validly existing pursuant to the laws of the
State of Massachusetts.
2. The Contracts, when issued in accordance with the Prospectuses of
the Account and in compliance with applicable local law, are and
will be legal and binding obligations of the Company in accordance
with their terms.
3. Assets attributable to reserves and other contract liabilities and
held in the Account will not be chargeable with liabilities
arising out of any other business the Company may conduct.
I consent to the filing of this opinion as an exhibit to the
above-mentioned Registration Statement and to the inclusion of my name under the
caption "Legal Matters" in the Statement of Additional Information filed as part
of this Registration Statement on Form N-4.
Very truly yours,
/s/ Janis B. Funk
---------------------------
Janis B. Funk
Vice President Law, Individual
<PAGE> 1
EXHIBIT 10(a)
Sutherland Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, DC 20004-2415
April 28, 1999
STEPHEN E. ROTH
DIRECT LINE: (202) 383-0158
Internet: [email protected]
VIA EDGARLINK
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
Post-Effective Amendment No. 8 to the registration statement on Form N-4 for IL
Annuity and Insurance Co. Separate Account 1 (File No. 033-89028). In giving
this consent, we do not admit that we are in the category of 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
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 March 26, 1999, in Post Effective Amendment No. 8
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
May 1, 1999.
ERNST & YOUNG LLP
Indianapolis, Indiana
April 28, 1999
