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 and Visionary
Choice Contract dated May 1, 2000 by calling 1-888-232-6486 or by writing to the
Service Center: IL Annuity and Insurance Company, c/o USA Administration
Services, Inc., 400 West Market Street, 11th Floor, Louisville, KY 40202 or P.O.
Box 34280, Louisville, KY 40232-4280. You may also fax the Service Center at
1-800-611-3587.
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, 2000 as
revised on May 12, 2000.
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TABLE OF CONTENTS
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Page
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Additional Contract Provisions....................................................................................1
The Contract.............................................................................................1
Incontestability.........................................................................................1
Incorrect Age or Sex.....................................................................................1
Nonparticipation.........................................................................................1
Options..................................................................................................2
Tax Status of the Contracts..............................................................................2
Calculation of Variable Account and Adjusted Historic Portfolio Performance Data..................................3
Money Market Variable Account Yields.....................................................................3
Other Variable Account Yields............................................................................5
Average Annual Total Returns for the Variable Accounts...................................................6
Non-Standard Variable Account Total Returns..............................................................7
Adjusted Historic Portfolio Performance Data.............................................................8
Effect of the Contract Fee on Performance Data...........................................................8
Other Information........................................................................................8
Historic Performance Data.........................................................................................9
General Limitations......................................................................................9
Variable Account Performance Figures.....................................................................9
Adjusted Historical Portfolio Performance Figures.......................................................13
Net Investment Factor............................................................................................18
Variable Annuity Payments........................................................................................19
Assumed Investment Rate.................................................................................20
Amount of Variable Annuity Payments.....................................................................20
Annuity Unit Value......................................................................................21
Illustration of Calculation of Annuity Unit Value................................................................21
Illustration of Variable Annuity Payments........................................................................22
Addition, Deletion or Substitution of Investments................................................................22
Resolving Material Conflicts............................................................................22
Termination of Participation Agreements..........................................................................23
The Alger American Fund.................................................................................23
Fidelity Variable Insurance Products Fund and Fund II...................................................24
First Eagle SoGen Variable Funds, Inc...................................................................24
OCC Accumulation Trust..................................................................................25
Royce Capital Fund......................................................................................26
SAFECO Resource Series Trust............................................................................27
T. Rowe Price Fixed Income Series, Inc. and T. Rowe Price International Series, Inc.....................27
Van Eck Worldwide Insurance Trust.......................................................................28
Neuberger Berman Advisers Management Trust..............................................................28
PIMCO Variable Insurance Trust..........................................................................29
Voting Rights....................................................................................................30
Safekeeping of Account Assets....................................................................................30
Service Fees.....................................................................................................31
Distribution of the Contracts....................................................................................31
Legal Matters....................................................................................................32
Experts .........................................................................................................32
Other Information................................................................................................32
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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:
o permit the Contract or the Separate Account to comply with any
applicable law or regulation that a governmental agency issues; or
o 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
o 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.
NONPARTICIPATION
The Contract does not participate in our surplus earnings or profits.
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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.
Other rules may apply to Qualified Contracts.
2
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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, 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.
3
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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.
Effective Yield = (1 + ((NCS-ES)/UV))^365/7 - 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.
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.
4
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Based on the method of calculation described above, for the seven-day
period ended December 31, 1999, the current yield and the effective yield for
the Money Market Variable Account were as follows:
Current yield: 4.44%
Effective yield: 4.54%
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:
Yield = 2 X (((NI - ES)/(U X UV)) + 1)^6 - 1)
Where:
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.
5
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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 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
6
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quotation and will take into account the Withdrawal Charge applicable to the
Contract that we assess on certain withdrawals of Contract Value.
We calculate the standard total return by the following formula:
TR = ((ERV/P)^1/N) - 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.
ERV = the ending redeemable value of the hypothetical investment at
the end of the period.
P = a hypothetical single payment of $1,000.
7
<PAGE>
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.
Broker World Financial World
Across the Board Advertising Age
American Banker Barron's
Best's Review Business Insurance
Business Month Business Week
Changing Times Consumer Reports
Economist Financial Planning
Forbes Fortune
Inc. Institutional Investor
Insurance Forum Insurance Sales
Insurance Week Journal of Accountancy
Journal of the American Society of
CLU & ChFC Journal of Commerce
Life Insurance Selling Life Association News
MarketFacts Manager's Magazine
National Underwriter Money
Morningstar, Inc. Nation's Business
New Choices (formerly 50 Plus) New York Times
8
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Pension World Pensions & Investments
Rough Notes Round the Table
U.S. Banker VARDs
Wall Street Journal Working Woman
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 contingent deferred sales load of 7% in the first year,
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 from
(Date Variable Account operations began) period ended period ended beginning of
12/31/99 12/31/99 Variable Account
operations to
12/31/99
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ALGER AMERICAN FUND
- -------------------------------------------------------------------------------------------------------------------
MidCap Growth (11/6/95) 22.91% 22.11% 17.73%
Small Capitalization (11/6/95) 34.31% 19.25% 13.30%
- -------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND
- -------------------------------------------------------------------------------------------------------------------
Equity Income (11/6/95) -1.84% 11.47% 12.23%
Growth (11/6/95) 28.42% 29.98% 23.56%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
9
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<TABLE>
<CAPTION>
===================================================================================================================
Variable Account For the 1-year For the 3-year For the period from
(Date Variable Account operations began) period ended period ended beginning of
12/31/99 12/31/99 Variable Account
operations to
12/31/99
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market (11/6/95)* -2.91% 1.61% 2.22%
- -------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND II
- -------------------------------------------------------------------------------------------------------------------
Asset Manager (11/6/95) 2.56% 12.02% 12.59%
Contrafund[RegTM] (11/6/95) 15.43% 22.74% 21.32%
Index 500 (11/6/95) 11.74% 23.73% 22.82%
Investment Grade Bond (11/6/95) -8.66% 1.75% 2.01%
- -------------------------------------------------------------------------------------------------------------------
FIRST EAGLE SOGEN VARIABLE FUNDS, INC.(1)
- -------------------------------------------------------------------------------------------------------------------
First Eagle SoGen Overseas (9/1/97) 31.76% N/A 10.28%
- -------------------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
- -------------------------------------------------------------------------------------------------------------------
Managed (11/6/95) -3.07% 7.61% 11.08%
Small Cap (11/6/95) -9.38% -0.72% 4.26%
- -------------------------------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
- -------------------------------------------------------------------------------------------------------------------
Royce Micro-Cap (9/1/97) 19.25% N/A 13.44%
- -------------------------------------------------------------------------------------------------------------------
SAFECO RESOURCE SERIES TRUST
- -------------------------------------------------------------------------------------------------------------------
Equity (9/1/97) 0.91% N/A 12.63%
Growth (9/1/97) -2.49% N/A 3.65%
- -------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
- -------------------------------------------------------------------------------------------------------------------
Limited-Term Bond (11/6/95) -7.01% 1.11% 1.42%
- -------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
- -------------------------------------------------------------------------------------------------------------------
International Stock (11/6/95) 24.36% 13.27% 13.73%
- -------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST
- -------------------------------------------------------------------------------------------------------------------
Worldwide Hard Assets (11/6/95) 12.22% -9.74% -3.30%
===================================================================================================================
</TABLE>
* 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 contingent deferred sales load which, if deducted, would reduce
performance. Nonstandard performance data will only be disclosed if standard
performance data for the required periods is also disclosed.
- ----------
(1) First Eagle SoGen Funds, Inc. was formerly known as SoGen Funds, Inc., and
First Eagle SoGen Overseas Variable Portfolio was formerly known as SoGen
Overseas Variable Portfolio.
10
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<TABLE>
<CAPTION>
===================================================================================================================
Variable Account For the 1-year For the 3-year For the period from
(Date Variable Account operations began) period ended period ended beginning of
12/31/99 12/31/99 Variable Account
operations
to 12/31/99
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ALGER AMERICAN FUND
- -------------------------------------------------------------------------------------------------------------------
MidCap Growth (11/6/95) 30.03% 23.75% 18.82%
Small Capitalization (11/6/95) 41.44% 20.97% 14.52%
- -------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND
- -------------------------------------------------------------------------------------------------------------------
Equity Income (11/6/95) 4.86% 13.40% 13.46%
Growth (11/6/95) 35.54% 31.44% 24.51%
Money Market (11/6/95) * 3.72% 3.92% 3.86%
- -------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND II
- -------------------------------------------------------------------------------------------------------------------
Asset Manager (11/6/95) 9.56% 13.94% 13.82%
Contrafund[RegTM] (11/6/95) 22.54% 24.35% 22.31%
Index 500 (11/6/95) 18.84% 25.32% 23.77%
Investment Grade Bond (11/6/95) -2.42% 4.05% 3.66%
- -------------------------------------------------------------------------------------------------------------------
FIRST EAGLE SOGEN VARIABLE FUNDS, INC.
- -------------------------------------------------------------------------------------------------------------------
First Eagle SoGen Overseas (9/1/97) 38.87% N/A 12.99%
- -------------------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
- -------------------------------------------------------------------------------------------------------------------
Managed (11/6/95) 3.54% 9.68% 12.36%
Small Cap (11/6/95) -3.19% 1.55% 5.79%
- -------------------------------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
- -------------------------------------------------------------------------------------------------------------------
Royce Micro-Cap (9/1/97) 26.37% N/A 16.05%
- -------------------------------------------------------------------------------------------------------------------
SAFECO RESOURCE SERIES TRUST
- -------------------------------------------------------------------------------------------------------------------
Equity (9/1/97) 7.80% N/A 15.26%
Growth (9/1/97) 4.17% N/A 6.57%
- -------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
- -------------------------------------------------------------------------------------------------------------------
Limited-Term Bond (11/6/95) -0.66% 3.43% 3.09%
- -------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
- -------------------------------------------------------------------------------------------------------------------
International Stock (11/6/95) 31.48% 15.16% 14.93%
- -------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST
- -------------------------------------------------------------------------------------------------------------------
Worldwide Hard Assets (11/6/95) 19.33% -7.65% -1.66%
===================================================================================================================
</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 contingent deferred sales load of 7% in the first year,
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.
11
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<TABLE>
<CAPTION>
===================================================================================================================
Variable Account For the 1-year For the 3-year For the period from
(Date Variable Account operations began) period ended period ended beginning of
12/31/99 12/31/99 Variable Account
operations to
12/31/99
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ALGER AMERICAN FUND
- -------------------------------------------------------------------------------------------------------------------
MidCap Growth (11/6/95) 22.91% 82.07% 96.98%
Small Capitalization (11/6/95) 34.31% 69.58% 67.97%
- -------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND
- -------------------------------------------------------------------------------------------------------------------
Equity Income (11/6/95) -1.84% 38.51% 61.46%
Growth (11/6/95) 28.42% 119.58% 140.79%
Money Market (11/6/95)* -2.91% 4.91% 9.57%
- -------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND II
- -------------------------------------------------------------------------------------------------------------------
Asset Manager (11/6/95) 2.56% 40.55% 63.65%
Contrafund[RegTM] (11/6/95) 15.43% 84.89% 123.13%
Index 500 (11/6/95) 11.74% 89.42% 134.82%
Investment Grade Bond (11/6/95) -8.66% 5.35% 8.64%
- -------------------------------------------------------------------------------------------------------------------
FIRST EAGLE SOGEN VARIABLE FUNDS, INC.(2)
- -------------------------------------------------------------------------------------------------------------------
First Eagle SoGen Overseas (9/1/97) 31.76% N/A 25.62%
- -------------------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
- -------------------------------------------------------------------------------------------------------------------
Managed (11/6/95) -3.07% 24.61% 54.74%
Small Cap (11/6/95) -9.38% -2.15% 18.90%
- -------------------------------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
- -------------------------------------------------------------------------------------------------------------------
Royce Micro-Cap (9/1/97) 19.25% N/A 34.19%
- -------------------------------------------------------------------------------------------------------------------
SAFECO RESOURCE SERIES TRUST
- -------------------------------------------------------------------------------------------------------------------
Equity (9/1/97) 0.91% N/A 31.96%
Growth (9/1/97) -2.49% N/A 8.73%
- -------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
- -------------------------------------------------------------------------------------------------------------------
Limited-Term Bond (11/6/95) -7.01% 3.37% 0.06%
- -------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
- -------------------------------------------------------------------------------------------------------------------
International Stock (11/6/95) 24.36% 45.33% 70.66%
- -------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST
- -------------------------------------------------------------------------------------------------------------------
Worldwide Hard Assets (11/6/95) 12.22% -26.46% -13.01%
===================================================================================================================
</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 contingent deferred sales load which, if deducted, would reduce
performance. Nonstandard performance data will only be disclosed if standard
performance data for the required periods is also disclosed.
- ----------
(2) First Eagle SoGen Funds, Inc. was formerly known as SoGen Funds, Inc., and
First Eagle SoGen Overseas Variable Portfolio was formerly known as SoGen
Overseas Variable Portfolio.
12
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================
Variable Account For the 1-year For the 3-year For the period from
(Date Variable Account operations began) period ended period ended beginning of
12/31/99 12/31/99 Variable Account
operations to
12/31/99
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ALGER AMERICAN FUND
- -------------------------------------------------------------------------------------------------------------------
MidCap Growth (11/6/95) 30.03% 89.51% 104.66%
Small Capitalization (11/6/95) 0.41% 0.77% 75.64%
- -------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND
- -------------------------------------------------------------------------------------------------------------------
Equity Income (11/6/95) 4.86% 45.84% 68.99%
Growth (11/6/95) 35.54% 127.06% 1.49%
Money Market (11/6/95)* 3.72% 12.22% 17.02%
- -------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND II
- -------------------------------------------------------------------------------------------------------------------
Asset Manager (11/6/95) 9.56% 47.91% 71.19%
Contrafund[RegTM] (11/6/95) 22.54% 92.30% 130.81%
Index 500 (11/6/95) 18.84% 96.83% 142.48%
Investment Grade Bond (11/6/95) -2.42% 12.66% 16.09%
- -------------------------------------------------------------------------------------------------------------------
FIRST EAGLE SOGEN VARIABLE FUNDS, INC.(3)
- -------------------------------------------------------------------------------------------------------------------
First Eagle SoGen Overseas (9/1/97) 38.87% N/A 39.93%
- -------------------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
- -------------------------------------------------------------------------------------------------------------------
Managed (11/6/95) 3.54% 31.93% 62.24%
Small Cap (11/6/95) -3.19% 4.72% 26.32%
- -------------------------------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
- -------------------------------------------------------------------------------------------------------------------
Royce Micro-Cap (9/1/97) 26.37% N/A 41.50%
- -------------------------------------------------------------------------------------------------------------------
SAFECO RESOURCE SERIES TRUST
- -------------------------------------------------------------------------------------------------------------------
Equity (9/1/97) 7.80% N/A 39.24%
Growth (9/1/97) 4.17% N/A 16.00%
- -------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
- -------------------------------------------------------------------------------------------------------------------
Limited-Term Bond (11/6/95) -0.66% 10.63% 13.47%
- -------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
- -------------------------------------------------------------------------------------------------------------------
International Stock (11/6/95) 31.48% 52.73% 78.26%
- -------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST
- -------------------------------------------------------------------------------------------------------------------
Worldwide Hard Assets (11/6/95) 19.33% -21.23% -6.71%
===================================================================================================================
</TABLE>
* Yield more closely reflects current earnings of the Money Market Variable
Account than its total return.
ADJUSTED HISTORICAL PORTFOLIO PERFORMANCE FIGURES
The following tables show adjusted historical performance data for the
Portfolios, including for periods before the Variable Accounts began operations.
It is based on the performance of each Portfolio since its operations began,
adjusted to deduct some or all of the charges we currently assess 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.
- ----------
(3) First Eagle SoGen Funds, Inc. was formerly known as SoGen Funds, Inc., and
First Eagle SoGen Overseas Variable Portfolio was formerly known as SoGen
Overseas Variable Portfolio.
13
<PAGE>
ADJUSTED HISTORICAL AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS SINCE THE
INCEPTION OF EACH PORTFOLIO (ASSUMES THE CONTRACT IS SURRENDERED) 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 deduction of the
applicable contingent deferred sales load for the Visionary contract and the
Date of Issue Withdrawal Charge Option under the Visionary Choice contract.
<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 of
period period period period Portfolio
ended ended ended ended operations
12/31/99 12/31/99 12/31/99 12/31/99 to 12/31/99
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALGER AMERICAN FUND
- -------------------------------------------------------------------------------------------------------------------
MidCap Growth (5/3/93) 22.91% 22.11% 24.75% N/A 23.41%
Small Capitalization (9/20/88) 34.31% 19.25% 21.28% 17.02% 19.59%
- -------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND
- -------------------------------------------------------------------------------------------------------------------
Equity Income (10/9/86) -1.84% 11.47% 16.21% 12.48% 12.08%
Growth (10/9/86) 28.42% 29.98% 27.91% 18.47% 17.26%
Money Market (4/2/82)* -2.91% 1.61% 2.75% 3.27% 4.91%
- --------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND II
- --------------------------------------------------------------------------------------------------------------------
Asset Manager (9/6/89) 2.56% 12.02% 13.17% N/A 11.20%
Contrafund[RegTM] (1/3/95) 15.43% 22.74% N/A N/A 25.66%
Index 500 (8/27/92) 11.74% 23.73% 25.87% N/A 19.22%
Investment Grade Bond (12/5/88) -8.66% 1.75% 4.60% 4.16% 3.75%
- --------------------------------------------------------------------------------------------------------------------
FIRST EAGLE SOGEN VARIABLE FUNDS, INC.
- -------------------------------------------------------------------------------------------------------------------
First Eagle SoGen Overseas (2/3/97) 31.76% N/A N/A N/A 9.53%
- --------------------------------------------------------------------------------------------------------------------
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
- --------------------------------------------------------------------------------------------------------------------
Mid-Cap Growth (11/3/97) 44.58% N/A N/A N/A 48.95%
- --------------------------------------------------------------------------------------------------------------------
Socially Responsive (2/18/99) N/A N/A N/A N/A 8.04%
- --------------------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
- --------------------------------------------------------------------------------------------------------------------
Managed (8/31/88) -3.07% 7.61% 17.43% 15.02% 16.24%
Small Cap (8/31/88) -9.38% -0.72% 5.70% 9.53% 9.98%
- --------------------------------------------------------------------------------------------------------------------
PIMCO VARIABLE INSURANCE TRUST
- --------------------------------------------------------------------------------------------------------------------
High Yield Bond (4/30/98) -4.89% N/A N/A N/A -2.48%
- -------------------------------------------------------------------------------------------------------------------
Real Return Bond (9/30/99)** N/A N/A N/A N/A -6.67%
- -------------------------------------------------------------------------------------------------------------------
StocksPLUS Growth and Income 11.09% N/A N/A N/A 23.71%
(12/31/97)
- -------------------------------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
- -------------------------------------------------------------------------------------------------------------------
Royce Micro-Cap (12/27/96) 19.25% 13.87% N/A N/A 13.89%
- -------------------------------------------------------------------------------------------------------------------
SAFECO RESOURCE SERIES TRUST
- -------------------------------------------------------------------------------------------------------------------
Equity (11/6/86) 0.91% 16.01% 16.65% 14.15% 13.94%
Growth (12/31/92) -2.49% 12.35% 21.29% N/A 21.68%
- -------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
- -------------------------------------------------------------------------------------------------------------------
Limited-Term Bond (5/13/94) -7.01% 1.11% 2.69% N/A 2.68%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
<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 of
period period period period Portfolio
ended ended ended ended operations
12/31/99 12/31/99 12/31/99 12/31/99 to 12/31/99
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
T. ROWE PRICE INTERNATIONAL SERIES, INC.
- -------------------------------------------------------------------------------------------------------------------
International Stock (3/31/94) 24.36% 13.27% 12.68% N/A 11.06%
- -------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST
- -------------------------------------------------------------------------------------------------------------------
Worldwide Hard Assets (8/31/89) 12.22% -9.74% -3.13% 0.59% 1.34%
===================================================================================================================
</TABLE>
* Yield more closely reflects current earnings of the Money Market Portfolio
than its total return.
** This performance data has not been annualized.
ADJUSTED HISTORICAL AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS SINCE THE
INCEPTION OF EACH PORTFOLIO (ASSUMES THE CONTRACT IS NOT SURRENDERED) 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); 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 contingent deferred sales load which, if deducted,
would reduce performance.
<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 of
period period period period Portfolio
ended ended ended ended operations
12/31/99 12/31/99 12/31/99 12/31/99 to 12/31/99
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALGER AMERICAN FUND
- --------------------------------------------------------------------------------------------------------------------
MidCap Growth (5/3/93) 30.03% 23.75% 25.40% N/A 23.74%
Small Capitalization (9/20/88) 41.44% 20.97% 21.99% 17.09% 19.64%
- --------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND
- --------------------------------------------------------------------------------------------------------------------
Equity Income (10/9/86) 4.86% 13.40% 17.04% 12.55% 12.14%
Growth (10/9/86) 35.54% 31.44% 28.51% 18.54% 17.32%
Money Market (4/2/82)* 3.72% 3.92% 4.07% 3.36% 4.97%
- --------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND II
- --------------------------------------------------------------------------------------------------------------------
Asset Manager (9/6/89) 9.56% 13.94% 14.09% 11.61% 11.27%
Contrafund[RegTM] (1/3/95) 22.54% 24.35% N/A N/A 26.29%
Index 500 (8/27/92) 18.84% 25.32% 26.50% N/A 19.47%
Investment Grade Bond (12/5/88) -2.42% 4.05% 5.83% 4.24% 3.83%
- --------------------------------------------------------------------------------------------------------------------
FIRST EAGLE SOGEN VARIABLE FUNDS, INC.
- --------------------------------------------------------------------------------------------------------------------
First Eagle SoGen Overseas (2/3/97) 38.87% N/A N/A N/A 11.63%
- --------------------------------------------------------------------------------------------------------------------
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
- --------------------------------------------------------------------------------------------------------------------
Mid-Cap Growth (11/3/97) 51.72% N/A N/A N/A 51.08%
- --------------------------------------------------------------------------------------------------------------------
Socially Responsive (2/18/99) N/A N/A N/A N/A 16.36%
- --------------------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
- --------------------------------------------------------------------------------------------------------------------
Managed (8/31/88) 3.54% 9.68% 18.22% 15.08% 16.29%
Small Cap (8/31/88) -3.19% 1.55% 6.88% 9.60% 10.04%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
<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 of
period period period period Portfolio
ended ended ended ended operations
12/31/99 12/31/99 12/31/99 12/31/99 to 12/31/99
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PIMCO VARIABLE INSURANCE TRUST
- --------------------------------------------------------------------------------------------------------------------
High Yield Bond (4/30/98) 1.59% N/A N/A N/A 1.47%
- --------------------------------------------------------------------------------------------------------------------
Real Return Bond (9/30/99)** N/A N/A N/A N/A -0.38%
- --------------------------------------------------------------------------------------------------------------------
StocksPLUS Growth and Income 18.16% N/A N/A N/A 26.57%
(12/31/97)
- --------------------------------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
- --------------------------------------------------------------------------------------------------------------------
Royce Micro-Cap (12/27/96) 26.37% 15.74% N/A N/A 15.75%
- --------------------------------------------------------------------------------------------------------------------
SAFECO RESOURCE SERIES TRUST
- --------------------------------------------------------------------------------------------------------------------
Equity (11/6/86) 7.80% 17.81% 17.47% 14.22% 14.00%
Growth (12/31/92) 4.17% 14.26% 22.00% N/A 21.91%
- --------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
- --------------------------------------------------------------------------------------------------------------------
Limited-Term Bond (5/13/94) -0.66% 3.43% 4.01% N/A 3.85%
- --------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
- --------------------------------------------------------------------------------------------------------------------
International Stock (3/31/94) 31.48% 15.16% 13.63% N/A 11.88%
- --------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST
- --------------------------------------------------------------------------------------------------------------------
Worldwide Hard Assets (8/31/89) 19.33% -7.65% -1.76% 0.68% 1.43%
====================================================================================================================
</TABLE>
* Yield more closely reflects current earnings of the Money Market Portfolio
than its total return.
** This performance data has not been annualized.
ADJUSTED HISTORICAL CUMULATIVE TOTAL RETURNS FOR PERIODS SINCE THE
INCEPTION OF EACH PORTFOLIO (ASSUMES THE CONTRACT IS SURRENDERED) 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 applicable contingent
deferred sales load for the Visionary contract and for the Date of Issue
Withdrawal Charge Option under the Visionary Choice contract.
<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 of
period period period period Portfolio
ended ended ended ended operations
12/31/99 12/31/99 12/31/99 12/31/99 to 12/31/99
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALGER AMERICAN FUND
- --------------------------------------------------------------------------------------------------------------------
MidCap Growth (5/3/93) 22.91% 82.07% 202.18% N/A 306.30%
Small Capitalization (9/20/88) 34.31% 69.58% 162.34% 381.71% 653.23%
- --------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND
- --------------------------------------------------------------------------------------------------------------------
Equity Income (10/9/86) -1.84% 38.51% 111.95% 224.15% 352.27%
Growth (10/9/86) 28.42% 119.58% 242.45% 444.51% 722.45%
Money Market (4/2/82)* -2.91% 4.91% 14.55% 37.97% 134.21%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
<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 of
period period period period Portfolio
ended ended ended ended operations
12/31/99 12/31/99 12/31/99 12/31/99 to 12/31/99
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIDELITY VIP FUND II
- --------------------------------------------------------------------------------------------------------------------
Asset Manager (9/6/89) 2.56% 40.55% 85.63% 198.15% 199.19%
Contrafund[RegTM] (1/3/95) 15.43% 84.89% N/A N/A 212.94%
Index 500 (8/27/92) 11.74% 89.42% 216.00% N/A 263.85%
Investment Grade Bond (12/5/88) -8.66% 5.35% 25.22% 50.31% 50.31%
- --------------------------------------------------------------------------------------------------------------------
FIRST EAGLE SOGEN VARIABLE FUNDS, INC.
- --------------------------------------------------------------------------------------------------------------------
First Eagle SoGen Overseas (2/3/97) 31.76% N/A N/A N/A 30.30%
- --------------------------------------------------------------------------------------------------------------------
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
- --------------------------------------------------------------------------------------------------------------------
Mid-Cap Growth (11/3/97) 44.58% N/A N/A N/A 136.35%
- --------------------------------------------------------------------------------------------------------------------
Socially Responsive (2/18/99) N/A N/A N/A N/A 6.93%
- --------------------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
- --------------------------------------------------------------------------------------------------------------------
Managed (8/31/88) -3.07% 24.61% 123.30% 305.25% 450.78%
Small Cap (8/31/88) -9.38% -2.15% 31.94% 148.51% 194.12%
- --------------------------------------------------------------------------------------------------------------------
PIMCO VARIABLE INSURANCE TRUST
- --------------------------------------------------------------------------------------------------------------------
High Yield Bond (4/30/98) -4.89% N/A N/A N/A -4.11%
- --------------------------------------------------------------------------------------------------------------------
Real Return Bond (9/30/99) N/A N/A N/A N/A -6.67%
- --------------------------------------------------------------------------------------------------------------------
StocksPLUS Growth and Income 11.09% N/A N/A N/A 53.04%
(12/31/97)
- --------------------------------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
- --------------------------------------------------------------------------------------------------------------------
Royce Micro-Cap (12/27/96) 19.25% 47.66% N/A N/A 47.95%
- --------------------------------------------------------------------------------------------------------------------
SAFECO RESOURCE SERIES TRUST
- --------------------------------------------------------------------------------------------------------------------
Equity (11/6/86) 0.91% 56.13% 115.95% 275.55% 457.11%
Growth (12/31/92) -2.49% 41.83% 162.54% N/A 295.09%
- --------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
- --------------------------------------------------------------------------------------------------------------------
Limited-Term Bond (5/13/94) -7.01% 3.37% 14.20% N/A 16.11%
- --------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
- --------------------------------------------------------------------------------------------------------------------
International Stock (3/31/94) 24.36% 45.33% 81.68% N/A 82.93%
- --------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST
- --------------------------------------------------------------------------------------------------------------------
Worldwide Hard Assets (8/31/89) 12.22% -26.46% -14.69% 6.03% 14.75%
====================================================================================================================
</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 (ASSUMES THE CONTRACT IS NOT SURRENDERED) 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).
These figures do not reflect the quarterly deduction of the administration
charge and the applicable contingent deferred sales load which, if deducted,
would reduce performance. Nonstandard performance data will only be disclosed if
standard performance data for the required periods is also disclosed.
17
<PAGE>
<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 of
period period period period Portfolio
ended ended ended ended operations
12/31/99 12/31/99 12/31/99 12/31/99 to 12/31/99
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALGER AMERICAN FUND
- --------------------------------------------------------------------------------------------------------------------
MidCap Growth (5/3/93) 30.03% 89.51% 210.05% N/A 313.71%
Small Capitalization (9/20/88) 0.41% 77.02% 170.16% 384.23% 656.49%
- --------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND
- --------------------------------------------------------------------------------------------------------------------
Equity Income (10/9/86) 4.86% 45.84% 119.62% 226.30% 355.64%
Growth (10/9/86) 35.54% 127.06% 250.44% 447.77% 727.89%
Money Market (4/2/82)* 3.72% 12.22% 22.10% 39.16% 136.77%
- --------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND II
- --------------------------------------------------------------------------------------------------------------------
Asset Manager (9/6/89) 9.56% 47.91% 93.32% 199.99% 201.10%
Contrafund[RegTM] (1/3/95) 22.54% 92.30% N/A N/A 220.81%
Index 500 (8/27/92) 18.84% 96.83% 223.88% N/A 269.52%
Investment Grade Bond (12/5/88) -2.42% 12.66% 32.76% 51.54% 51.69%
- --------------------------------------------------------------------------------------------------------------------
FIRST EAGLE SOGEN VARIABLE FUNDS, INC.
- --------------------------------------------------------------------------------------------------------------------
First Eagle SoGen Overseas (2/3/97) 38.87% N/A N/A N/A 37.69%
- --------------------------------------------------------------------------------------------------------------------
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
- --------------------------------------------------------------------------------------------------------------------
Mid-Cap Growth (11/3/97) 51.72% N/A N/A N/A 143.72%
- --------------------------------------------------------------------------------------------------------------------
Socially Responsive (2/18/99) N/A N/A N/A N/A 14.02%
- --------------------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
- --------------------------------------------------------------------------------------------------------------------
Managed (8/31/88) 3.54% 31.93% 130.94% 307.39% 453.55%
Small Cap (8/31/88) -3.19% 4.72% 39.47% 149.99% 195.96%
- --------------------------------------------------------------------------------------------------------------------
PIMCO VARIABLE INSURANCE TRUST
- --------------------------------------------------------------------------------------------------------------------
High Yield Bond (4/30/98) 1.59% N/A N/A N/A 2.47%
- --------------------------------------------------------------------------------------------------------------------
Real Return Bond (9/30/99) N/A N/A N/A N/A -0.38%
- --------------------------------------------------------------------------------------------------------------------
StocksPLUS Growth and Income 18.16% N/A N/A N/A 60.21%
(12/31/97)
- --------------------------------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
- --------------------------------------------------------------------------------------------------------------------
Royce Micro-Cap (12/27/96) 26.37% 55.05% N/A N/A 55.34%
- --------------------------------------------------------------------------------------------------------------------
SAFECO RESOURCE SERIES TRUST
- --------------------------------------------------------------------------------------------------------------------
Equity (11/6/86) 7.80% 63.49% 123.68% 277.85% 460.87%
Growth (12/31/92) 4.17% 49.16% 170.27% N/A 300.45%
- --------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
- --------------------------------------------------------------------------------------------------------------------
Limited-Term Bond (5/13/94) -0.66% 10.63% 21.74% N/A 23.75%
- --------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
- --------------------------------------------------------------------------------------------------------------------
International Stock (3/31/94) 31.48% 52.73% 89.42% N/A 90.81%
- --------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST
- --------------------------------------------------------------------------------------------------------------------
Worldwide Hard Assets (8/31/89) 19.33% -21.23% -8.50% 7.06% 15.84%
====================================================================================================================
</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
18
<PAGE>
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.
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.
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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 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
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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.
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
1. Accumulation unit value for current
valuation period (1/1/99)........................................$11.15
2. Accumulation unit value for immediately
preceding valuation period (12/1/98).............................$11.10
3. Annuity unit value for immediately preceding
valuation period (12/1/98)......................................$105.00
4. Factor to compensate for the assumed
investment rate of 3.0%..........................................0.9975
5. Annuity unit value of current valuation
period (1/1/99) ((1) / (2)) x (3) x (4).......................$105.2093
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ILLUSTRATION OF VARIABLE ANNUITY PAYMENTS
Annuity Start Date: 1/1/99
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
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
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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 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:
o on six months' advance written notice by any party;
o 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;
o 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");
o at IL Annuity's option if any portfolio fails to meet certain
diversification requirements of the Code;
o at the option of The Alger American Fund (the "Fund") or Fred Alger &
Company, Inc. (the "Distributor"), upon a determination that IL Annuity
has suffered a material adverse
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change in its business, operations, financial condition or prospects or is
the subject of material adverse publicity;
o 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;
o 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
o 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:
o on six months' advance written notice by any party;
o 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;
o at IL Annuity's option if any portfolio ceases to be qualified as a
Regulated Investment Company under Subchapter M of the Code;
o at IL Annuity's option if any portfolio fails to meet certain
diversification requirements of the Code;
o at the option of either the Fidelity Variable Insurance Products Fund or
the Fidelity Variable Insurance Products Fund II (each, 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;
o by IL Annuity upon a determination that either 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
o by 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.
FIRST EAGLE SOGEN VARIABLE FUNDS, INC. This agreement shall continue in full
force and effect until the first to occur of:
o termination by any party, for any reason with respect to the portfolio, by
120 days advance written notice delivered to the other parties; or
o termination by IL Annuity by written notice to the First Eagle SoGen
Variable Funds, Inc. ("First Eagle SoGen Fund") and Societe Generale
Securities Corporation (the "Underwriter") based upon IL Annuity's
determination that the portfolio's shares are not reasonably available to
meet the requirements of the Contracts; or
o termination by IL Annuity by written notice to the First Eagle SoGen Fund
and its Underwriter in the event the portfolio's shares are not
registered, issued or sold in
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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
o termination by the First Eagle 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
o termination by IL Annuity in the event that certain formal administrative
proceedings are instituted against the First Eagle SoGen Fund or
Underwriter by the NASD, the SEC, or any state securities or insurance
department or any other regulatory body; or
o termination by IL Annuity by written notice to the First Eagle 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
o termination by the First Eagle SoGen Fund or its Underwriter by written
notice to IL Annuity in the event that the Contracts fail to meet certain
qualifications; or
o termination by either the First Eagle SoGen Fund or its Underwriter by
written notice to IL Annuity if either one or both of the First Eagle
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
o termination by IL Annuity by written notice to the First Eagle SoGen Fund
and its Underwriter, if the Company shall determine, in its sole judgment
exercised in good faith, that the First Eagle 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
o 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
o termination by any party in the event that the First Eagle SoGen Fund's
Board of Directors determines that a material irreconcilable conflict
exists.
OCC ACCUMULATION TRUST. This agreement provides for termination:
o on six months' advance written notice by any party;
o at IL Annuity's option if shares of any portfolio are not reasonably
available to meet the requirements of the Contracts;
o at IL Annuity's option if any portfolio ceases to be qualified as a
Regulated Investment Company under Subchapter M of the Code;
o at IL Annuity's option if any portfolio fails to meet certain
diversification requirements of the Code;
o at the option of the OCC Accumulation Trust (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;
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o 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;
o 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;
o by the Fund upon institution of certain proceedings against IL Annuity;
o at IL Annuity's option upon institution of certain administrative
proceedings against the Fund or the Underwriter;
o by the Fund or IL Annuity upon a determination that certain irreconcilable
conflicts exist; or
o 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:
o at the option of IL Annuity or the Royce Capital Fund (the "Fund") upon
180 days' notice;
o at the option of IL Annuity, if the Fund shares are not reasonably
available to meet the requirements of the Contracts;
o at the option of IL Annuity, upon the institution of certain formal
proceedings against the Fund by the SEC, the National Association of
Securities Dealers, Inc. ("NASD"), or any other regulatory body;
o at the option of Royce & Associates, Inc. (the "Advisor of the Fund") or
the Fund, upon the institution of certain formal proceedings against IL
Annuity by the SEC, the NASD or any other regulatory body;
o in the event the Fund'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;
o at the option of the Adviser of the Fund or the Fund, if the Contracts
cease to qualify as annuity contracts or life insurance contracts, as
applicable, under the Code;
o at the option of IL Annuity, upon the Fund's unremedied breach of any
material provision of this agreement;
o at the option of the Adviser of the Fund or the Fund, upon IL Annuity's
unremedied breach of any material provision of this agreement;
o at the option of the Adviser of the Fund or the Fund, if the Contracts are
not registered, issued or sold in accordance with applicable federal
and/or state law;
o in the event this agreement is assigned without the prior written consent
of IL Annuity and the Fund.
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SAFECO RESOURCE SERIES TRUST. This agreement shall terminate as to the sale and
issuance of new Contracts:
o at the option of either IL Annuity or the SAFECO Resources Series Trust
(the "Trust"), upon 180 days' advance written notice to the other;
o 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;
o 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;
o 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;
o 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;
o 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;
o at the option of the Trust, if the Contracts cease to qualify as annuity
contracts or life insurance contracts, as applicable, under the Code;
o at the option of IL Annuity, upon the Trust's unremedied breach of any
material provision of this agreement;
o at the option of the Trust, upon IL Annuity's unremedied breach of any
material provision of this agreement;
o at the option of the Trust, if the Contracts are not registered, issued or
sold in accordance with applicable federal and/or state law;
o in the event this agreement is assigned without the prior written consent
of IL Annuity, the Trust or Adviser.
T. ROWE PRICE FIXED INCOME SERIES, INC. AND T. ROWE PRICE INTERNATIONAL SERIES,
INC. These agreements provide for termination:
o on six months' advance written notice by any party;
o 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;
o at IL Annuity's option if any portfolio ceases to be qualified as a
Regulated Investment Company under Subchapter M of the Code;
o at IL Annuity's option if any portfolio fails to meet certain
diversification requirements of the Code;
o at the option of either the T. Rowe Price Fixed Income Series, Inc. or the
T. Rowe Price International Series, Inc. (each, the "Fund") or T. Rowe
Price Investment Services, Inc.
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(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;
o by IL Annuity upon a determination that either 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;
o by 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;
o by Fund or the Underwriter upon institution of certain proceedings against
IL Annuity; or
o at IL Annuity's option upon institution of certain administrative
proceedings against either Fund or the Underwriter.
VAN ECK WORLDWIDE INSURANCE TRUST. This agreement provides for termination:
o on six months' advance written notice by any party;
o 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;
o at IL Annuity's option if any portfolio ceases to be qualified as a
Regulated Investment Company under Subchapter M of the Code;
o at IL Annuity's option if any portfolio fails to meet certain
diversification requirements of the Code;
o at the option of the Van Eck Worldwide Insurance Trust (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;
o 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;
o 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;
o upon a decision by IL Annuity to substitute the Trust's shares with the
shares of another investment company; or
o upon assignment of the Agreement.
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST. This agreement provides for
termination:
o at the option of either IL Annuity or the Neuberger Berman Advisers
Management Trust ("Trust"), upon 180 days' notice;
o at the option of IL Annuity, upon ten days' notice, if the Trust shares
are not reasonably available to meet the requirements of the Contracts;
o at the option of IL Annuity, upon the institution of certain formal
proceedings against the Trust by the SEC or any other regulatory body;
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o at the option of the Trust, upon the institution of certain formal
proceedings against IL Annuity by the SEC, NASD, or any other regulatory
body;
o 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;
o at the option of the Trust, if the Contracts cease to qualify, or if the
Trust reasonably believes that the Contracts may fail to qualify, as
annuity contracts or life insurance contracts, as applicable, under the
Code;
o at the option of IL Annuity, upon ten days' written notice to the Trust
upon the Trust's unremedied breach of any material provision of this
agreement;
o at the option of the Trust, upon ten days' written notice to IL Annuity
upon the IL Annuity's unremedied breach of any material provision of this
agreement;
o at the option of the Trust, if the Contracts are not registered, issued or
sold in accordance with applicable federal and/or state law;
o in the event this agreement is assigned without the prior written consent
of IL Annuity, the Trust, Managers Trust and N&B Management.
PIMCO VARIABLE INSURANCE TRUST. This agreement shall continue in full force and
effect until the first to occur of:
o termination by any party, for any reason with respect to some or all of
the portfolios, by three (3) months advance written notice delivered to
the other parties;
o termination by IL Annuity by written notice to the PIMCO Variable
Insurance Trust (the "Fund") and PIMCO Funds Distributors LLC (the
"Underwriter") based upon IL Annuity's determination that the portfolio's
shares are not reasonably available to meet the requirements of the
Contracts; or
o termination by IL Annuity by written notice to the Fund and the
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
o termination by the Fund or 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
o termination by IL Annuity in the event that certain formal administrative
proceedings are instituted against the Fund or Underwriter by the NASD,
the SEC, the Insurance Commissioner or like official of any state or any
other regulatory body; or
o termination by IL Annuity by written notice to the Fund and the
Underwriter in the event that any 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
o termination by the Fund or Underwriter by written notice to IL Annuity in
the event that the Contracts fail to meet certain qualifications; or
o termination by either the Fund or the Underwriter by written notice to IL
Annuity if either one or both of the Fund and the Underwriter
respectively, shall determine, in their sole judgment exercised in good
faith, that IL Annuity has suffered a material adverse change
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in its business, operations, financial condition, or prospects since the
date of the Participation Agreement or is the subject of material adverse
publicity; or
o termination by IL Annuity by written notice to the Fund and the
Underwriter, if IL Annuity shall determine, in its sole judgment exercised
in good faith, that the Fund, Adviser, or the Underwriter has suffered a
material adverse change in its business, operations, financial condition,
or prospects since the date of the Participation Agreement or is the
subject of material adverse publicity; or
o termination by the Fund or the Underwriter by written notice to IL
Annuity, if IL Annuity gives the Fund and Underwriter 45 days' written
notice of its intention to make other investment vehicles available under
the Contracts, and at the time notice was given there was no notice of
termination outstanding; or
o 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, provided that IL Annuity give
at least 45 days' prior written notice to the Trust and Underwriter of the
date of substitution; or
o termination by any party in the event that the Trust's Board of Trustees
determines that a material irreconcilable conflict exists.
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.
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.
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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.
SERVICE FEES
We (and our affiliates) may receive compensation from certain investment
advisers, administrators, and/or distributors (and/or an affiliate thereof) of
the portfolios in connection with administrative or other services and cost
savings experienced by the investment advisers, administrators or distributors.
Such compensation may range up to 0.25% and is based on the value of portfolio
shares held for the Contracts. We may also receive a portion of the 12b-1 fees
deducted from portfolio assets as reimbursement for administrative or other
services we render to the portfolios. Some advisers, administrators,
distributors, or portfolios may pay us more than others.
DISTRIBUTION OF THE CONTRACTS
IL Securities, Inc. ("IL Securities"), P.O. Box 1230, 2960 North Meridian
Street, Indianapolis, Indiana 46208, acts as a distributor for the Contracts. IL
Securities is a wholly-owned subsidiary of IL Group, a company majority-owned by
Indianapolis Life Insurance Company ("ILICo"). 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.
On February 18, 2000 American Mutual Holding Company ("AMHC") purchased a
45% ownership interest in IL Group. IL Group used the proceeds of such
investment to repurchase in their entirety the ownership interests held by
American United Life Insurance Company and Legacy Marketing Group. The purchase
referenced above is part of a larger overall transaction which contemplates a
combination of AMHC and ILICo. That transaction, which includes demutualization
by ILICo, is subject to various governmental and other approvals.
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 or broker-dealers having selling agreements with IL Securities
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 2.50% 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
31
<PAGE>
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 received and
retained $1,169,543.11 in underwriting commissions during the fiscal year 1999,
$1,588,498.71 in underwriting commissions in fiscal year 1998, and $637,722.49
in fiscal year 1997.
LEGAL MATTERS
Janis B. Funk, Vice President Law of the Indianapolis Life Insurance
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
The balance sheets of IL Annuity and Insurance Company as of December 31,
1999 and 1998 and the related statements of income, shareholder's equity and
cash flows for each of the three years in the period ended December 31, 1999,
and the statement of net assets of IL Annuity and Insurance Co. Separate Account
1 as of December 31, 1999, 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 have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein, and
are included in reliance upon such reports given on their authority 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
32
<PAGE>
Financial Statements
IL Annuity and Insurance Company Separate Account 1
Year ended December 31, 1999
with Report of Independent Auditors
<PAGE>
IL Annuity and Insurance Company Separate Account 1
Financial Statements
Year ended December 31, 1999
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>
Report of Independent Auditors
Contract Holders of IL Annuity and Insurance Co. Separate Account 1
and
Board of Directors of 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) (comprising, respectively,
Alger American MidCap Growth, Alger Small Capitalization, Fidelity Asset
Manager, Fidelity Contrafund, Fidelity Equity Income, Fidelity Growth, Fidelity
Index 500, Fidelity Investment Grade Bond, Fidelity Money Market, OCC Managed,
OCC Small Cap, T. Rowe Price International Stock, T. Rowe Price Limited-Term
Bond, Van Eck Hard Assets, SAFECO Equity, SAFECO Growth, Royce Micro-Cap, and
First Eagle SoGen Overseas Variable Portfolios) as of December 31, 1999, 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
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1999 by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
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 each of the respective
portfolios constituting IL Annuity and Insurance Company Separate Account 1 at
December 31, 1999, 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 accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Indianapolis, Indiana
March 29, 2000
<PAGE>
IL Annuity and Insurance Company Separate Account 1
Statement of Net Assets
December 31, 1999
<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--512,349.46
shares at $32.23 per share (cost--$13,487,675) 4.84% $ 16,513,023 805,946 $ 20.489
Alger Small Capitalization Portfolio--214,299.94 shares at
$55.15 per share (cost--$9,200,766) 3.47% 11,818,642 670,675 17.622
Fidelity Variable Insurance Products Fund and Fund II:
Fidelity Asset Manager Portfolio--659,205.94 shares at
$18.67 per share (cost--$11,354,016) 3.61% 12,307,375 704,164 17.478
Fidelity Contra Portfolio--1,362,488.75 shares
at $29.15 per share (cost--$30,502,625) 11.64% 39,716,547 1,706,257 23.277
Fidelity Equity Income Portfolio--1,072,037.62 shares at
$25.71 per share (cost--$26,216,567) 8.08% 27,562,087 1,580,486 17.439
Fidelity Growth Portfolio--763,469.14 shares at $54.93
per share (cost--$32,079,104) 12.30% 41,937,360 1,699,520 24.676
Fidelity Index 500 Portfolio--436,330.91 shares
at $167.41 per share (cost--$58,444,123) 21.42% 73,046,158 2,914,618 25.062
Fidelity Investment Grade Bond Portfolio--736,974.94
shares at $12.16 per share (cost--$9,148,667) 2.63% 8,961,615 763,210 11.742
Fidelity Money Market Portfolio--17,952,244.12 shares
at $1.00 per share (cost--$17,952,244) 5.26% 17,952,244 1,527,851 11.750
Oppenheimer Capital Accumulation Trust:
OCC Managed Portfolio--499.957.11 shares at $43.65
per share (cost--$21,415,967) 6.40% 21,823,128 1,316,391 16.578
OCC Small Cap Portfolio--180,682.99 shares
at $22.52 per share (cost--$4,293,477) 1.19% 4,068,981 319,888 12.720
T. Rowe Price International Series, Inc.:
T. Rowe Price International Stock Portfolio--733,370.25
shares at $19.04 per share (cost--$10,777,732) 4.09% 13,963,370 776,131 17.991
T. Rowe Price Fixed Income Series, Inc.:
T. Rowe Price Limited-Term Bond Portfolio--939,438.46
shares at $4.79 per share (cost--$4,660,490) 1.32% 4,499,910 393,693 11.430
Van Eck Worldwide Insurance Trust:
Van Eck Hard Assets Portfolio--
219,306.38 shares at $10.96 per share (cost--$2,652,270) 0.70% 2,403,598 246,953 9.733
SAFECO Resource Series Trust:
SAFECO Equity Portfolio--552,074.13
shares at $31.02 per share (cost--$16,527,153) 5.02% 17,125,340 1,229,915 13.924
SAFECO Growth Portfolio--815,215.64
shares at $22.50 per share (cost--$17,797,911) 5.38% 18,342,352 1,581,237 11.600
Royce Capital Fund:
Royce Micro-Cap Portfolio--596,476.57
shares at $6.13 per share (cost--$3,311,130) 1.07% 3,656,401 258,403 14.150
First Eagle SoGen Variable Funds, Inc:
First Eagle SoGen Overseas Variable Portfolio--380,121.45
shares at $14.18 per share (cost--$4,722,504) 1.58% 5,390,122 405,486 13.293
----------------------------------------
Total investments and net assets (cost--$294,544,421) 100.00% $341,088,253 18,900,824
========================================
</TABLE>
See accompanying notes.
2
<PAGE>
IL Annuity and Insurance Company Separate Account 1
Statement of Operations
Year ended December 31, 1999
<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 $ 12,001,639 $ 1,678,743 $ 861,686 $ 670,676 $ 987,222
Mortality and expense charges (3,905,497) (161,312) (109,999) (150,596) (434,104)
Net realized gain (loss) on investments 4,560,713 253,679 125,861 71,402 1,207,572
Net change in unrealized appreciation
(depreciation) on investments 30,652,420 1,778,123 2,298,679 414,986 5,016,833
------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 43,309,275 $ 3,549,233 $ 3,176,227 $ 1,006,468 $ 6,777,523
==============================================================================
<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>
Net investment income $ 1,100,129 $ 2,024,084 $ 712,405 $ 447,944 $ 713,423
Mortality and expense charges (371,943) (381,937) (817,544) (131,511) (200,222)
Net realized gain (loss) on investments 638,391 1,107,959 2,088,415 21,268 -
Net change in unrealized appreciation
(depreciation) on investments (315,464) 6,605,400 8,242,771 (535,619) 42,101
--------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 1,051,113 $ 9,355,506 $ 10,226,047 $ (197,918) $ 555,302
==========================================================================
</TABLE>
IL Annuity and Insurance Company Separate Account 1
Statement of Operations (continued)
Year ended December 31, 1999
<TABLE>
<CAPTION>
T. ROWE
PRICE
OCC OCC SMALL T. ROWE PRICE LIMITED-TERM VAN ECK
MANAGED CAP INTERNATIONAL BOND HARD ASSETS
PORTFOLIO PORTFOLIO STOCK PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net investment income $ 1,102,162 $ 23,937 $ 205,893 $ 236,133 $ 28,880
Mortality and expense charges (320,935) (56,809) (149,201) (60,723) (29,313)
Net realized gain (loss) on investments 389,635 (216,188) 568,635 (22,155) (194,175)
Net change in unrealized appreciation
(depreciation) on investments (274,304) 57,190 2,711,892 (237,067) 557,487
-----------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 896,558 $ (191,870) $ 3,337,219 $ (83,812) $ 362,879
=============================================================================
<CAPTION>
FIRST EAGLE
SOGEN
SAFECO SAFECO ROYCE MICRO- OVERSEAS
EQUITY GROWTH CAP VARIABLE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment income $ 909,105 $ - $ 299,217 $ -
Mortality and expense charges (203,270) (239,767) (42,598) (43,713)
Net realized gain (loss) on investments 350,614 (1,992,172) (142,466) 304,438
Net change in unrealized appreciation
(depreciation) on investments (9,638) 2,886,119 602,202 810,729
---------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 1,046,811 $ 654,180 $ 716,355 $ 1,071,454
=========================================================
</TABLE>
See accompanying notes.
3
<PAGE>
IL Annuity and Insurance Company Separate Account 1
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
ALGER
AMERICAN
MIDCAP ALGER SMALL FIDELITY ASSET
GROWTH CAPITALIZATION MANAGER
COMBINED PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net assets at January 1, 1998 $ 85,386,463 $ 3,611,636 $ 4,070,714 $ 2,994,503
Changes from 1998 operations:
Net investment income 9,367,420 453,239 693,500 458,305
Mortality and expense charges (2,007,727) (75,998) (67,842) (75,619)
Net realized gain (loss) on investments 1,859,754 153,594 (59,894) (19,710)
Net change in unrealized appreciation
(depreciation) on investments 11,776,540 1,049,949 122,399 389,600
---------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 20,995,987 1,580,784 688,163 752,576
Net increase from contract purchases 298,691,519 7,584,846 4,929,292 8,469,571
Net decrease from
redemptions-withdrawals (184,211,526) (4,313,748) (3,421,495) (4,183,843)
---------------------------------------------------------------------
Total increase (decrease) in net assets 135,475,980 4,851,882 2,195,960 5,038,304
---------------------------------------------------------------------
Net assets at December 31, 1998 220,862,443 8,463,518 6,266,674 8,032,807
Changes from 1999 operations:
Net investment income 12,001,639 1,678,743 861,686 670,676
Mortality and expense charges (3,905,497) (161,312) (109,999) (150,596)
Net realized gain (loss) on investments 4,560,713 253,679 125,861 71,402
Net change in unrealized appreciation
(depreciation) on investments 30,652,420 1,778,123 2,298,679 414,986
---------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 43,309,275 3,549,233 3,176,227 1,006,468
Net increase from contract purchases 541,778,764 16,968,455 14,408,699 17,068,360
Net decrease from
redemptions-withdrawals (464,862,229) (12,468,183) (12,032,958) (13,800,260)
---------------------------------------------------------------------
Total increase (decrease) in net assets 120,225,810 8,049,505 5,551,968 4,274,568
---------------------------------------------------------------------
Net assets at December 31, 1999 $ 341,088,253 $ 16,513,023 $ 11,818,642 $ 12,307,375
=====================================================================
<CAPTION>
FIDELITY FIDELITY FIDELITY
CONTRA EQUITY INCOME GROWTH FIDELITY INDEX
PORTFOLIO PORTFOLIO PORTFOLIO 500 PORTFOLIO
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net assets at January 1, 1998 $ 9,465,604 $ 11,818,065 $ 6,121,785 $ 13,774,059
Changes from 1998 operations:
Net investment income 596,940 800,776 905,561 570,714
Mortality and expense charges (206,094) (231,657) (143,225) (332,834)
Net realized gain (loss) on investments 592,365 386,300 338,655 956,202
Net change in unrealized appreciation
(depreciation) on investments 3,260,882 697,837 2,748,173 4,994,487
----------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 4,244,093 1,653,256 3,849,164 6,188,569
Net increase from contract purchases 20,344,843 21,390,192 15,375,506 36,779,413
Net decrease from
redemptions-withdrawals (10,727,034) (12,321,701) (8,082,920) (16,780,184)
----------------------------------------------------------------------
Total increase (decrease) in net assets 13,861,902 10,721,747 11,141,750 26,187,798
----------------------------------------------------------------------
Net assets at December 31, 1998 23,327,506 22,539,812 17,263,535 39,961,857
Changes from 1999 operations:
Net investment income 987,222 1,100,129 2,024,084 712,405
Mortality and expense charges (434,104) (371,943) (381,937) (817,544)
Net realized gain (loss) on investments 1,207,572 638,391 1,107,959 2,088,415
Net change in unrealized appreciation
(depreciation) on investments 5,016,833 (315,464) 6,605,400 8,242,771
----------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 6,777,523 1,051,113 9,355,506 10,226,047
Net increase from contract purchases 39,592,899 33,989,991 44,558,221 69,776,065
Net decrease from
redemptions-withdrawals (29,981,381) (30,018,829) (29,239,902) (46,917,811)
----------------------------------------------------------------------
Total increase (decrease) in net assets 16,389,041 5,022,275 24,673,825 33,084,301
----------------------------------------------------------------------
Net assets at December 31, 1999 $ 39,716,547 $ 27,562,087 $ 41,937,360 $ 73,046,158
======================================================================
<CAPTION>
FIDELITY FIDELITY
INVESTMENT MONEY
GRADE BOND MARKET
PORTFOLIO PORTFOLIO
-----------------------------
<S> <C> <C>
Net assets at January 1, 1998 $ 3,072,742 $ 5,292,080
Changes from 1998 operations:
Net investment income 194,377 452,350
Mortality and expense charges (76,041) (121,853)
Net realized gain (loss) on investments 2,172 -
Net change in unrealized appreciation
(depreciation) on investments 285,814 (18,358)
-----------------------------
Net increase (decrease) in net assets
resulting from operations 406,322 312,139
Net increase from contract purchases 10,569,641 71,373,876
Net decrease from
redemptions-withdrawals (5,728,014) (64,850,004)
-----------------------------
Total increase (decrease) in net assets 5,247,949 6,836,011
-----------------------------
Net assets at December 31, 1998 8,320,691 12,128,091
Changes from 1999 operations:
Net investment income 447,944 713,423
Mortality and expense charges (131,511) (200,222)
Net realized gain (loss) on investments 21,268 -
Net change in unrealized appreciation
(depreciation) on investments (535,619) 42,101
-----------------------------
Net increase (decrease) in net assets
resulting from operations (197,918) 555,302
Net increase from contract purchases 16,522,850 113,392,502
Net decrease from
redemptions-withdrawals (15,684,008) (108,123,651)
-----------------------------
Total increase (decrease) in net assets 640,924 5,824,153
-----------------------------
Net assets at December 31, 1999 $ 8,961,615 $ 17,952,244
=============================
</TABLE>
See accompanying notes.
4
<PAGE>
IL Annuity and Insurance Company Separate Account 1
Statements of Changes in Net Assets (Continued)
<TABLE>
<CAPTION>
OCC SMALL T. ROWE PRICE T. ROWE PRICE
OCC MANAGED CAP INTERNATIONAL STOCK LIMITED-TERM BOND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net assets at January 1, 1998 $ 10,190,341 $ 2,379,440 $ 4,410,390 $ 1,474,047
Changes from 1998 operations:
Net investment income 481,414 110,595 139,591 146,488
Mortality and expense charges (226,305) (45,639) (87,862) (35,110)
Net realized gain (loss) on investments 276,982 (13,426) 94,295 10,736
Net change in unrealized appreciation
(depreciation) on investments 184,083 (485,425) 712,822 12,670
--------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 716,174 (433,895) 858,846 134,784
Net increase from contract purchases 25,366,783 4,473,073 9,217,930 5,660,952
Net decrease from
redemptions-withdrawals (13,909,035) (2,540,172) (5,446,561) (3,264,300)
--------------------------------------------------------------------------
Total increase (decrease) in net assets 12,173,922 1,499,006 4,630,215 2,531,436
--------------------------------------------------------------------------
Net assets at December 31, 1998 22,364,263 3,878,446 9,040,605 4,005,483
Changes from 1999 operations:
Net investment income 1,102,162 23,937 205,893 236,133
Mortality and expense charges (320,935) (56,809) (149,201) (60,723)
Net realized gain (loss) on investments 389,635 (216,188) 568,635 (22,155)
Net change in unrealized appreciation
(depreciation) on investments (274,304) 57,190 2,711,892 (237,067)
--------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 896,558 (191,870) 3,337,219 (83,812)
Net increase from contract purchases 30,833,079 6,776,372 56,335,236 7,699,406
Net decrease from
redemptions-withdrawals (32,270,772) (6,393,967) (54,749,690) (7,121,167)
--------------------------------------------------------------------------
Total increase (decrease) in net assets (541,135) 190,535 4,922,765 494,427
--------------------------------------------------------------------------
Net assets at December 31, 1999 $ 21,823,128 $ 4,068,981 $ 13,963,370 $ 4,499,910
==========================================================================
<CAPTION>
VAN ECK HARD VAN ECK WORLDWIDE SAFECO EQUITY SAFECO GROWTH
ASSETS PORTFOLIO BALANCED PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net assets at January 1, 1998 $ 1,991,432 $ 977,935 $ 1,099,634 $ 1,360,185
Changes from 1998 operations:
Net investment income 310,221 283,045 495,189 1,852,533
Mortality and expense charges (27,263) (8,766) (73,843) (119,546)
Net realized gain (loss) on investments (331,786) (463,485) 43,764 (104,148)
Net change in unrealized appreciation
(depreciation) on investments (685,492) 337,943 718,775 (2,223,832)
------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (734,320) 148,737 1,183,885 (594,993)
Net increase from contract purchases 1,874,118 748,303 15,713,371 29,331,910
Net decrease from
redemptions-withdrawals (1,249,134) (1,874,975) (7,470,551) (12,323,701)
------------------------------------------------------------------------
Total increase (decrease) in net assets (109,336) (977,935) 9,426,705 16,413,216
------------------------------------------------------------------------
Net assets at December 31, 1998 1,882,096 - 10,526,339 17,773,401
Changes from 1999 operations:
Net investment income 28,880 - 909,105 -
Mortality and expense charges (29,313) - (203,270) (239,767)
Net realized gain (loss) on investments (194,175) - 350,614 (1,992,172)
Net change in unrealized appreciation
(depreciation) on investments 557,487 - (9,638) 2,886,119
------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 362,879 - 1,046,811 654,180
Net increase from contract purchases 1,148,341 - 24,401,720 27,733,408
Net decrease from
redemptions-withdrawals (989,718) - (18,849,530) (27,818,637)
------------------------------------------------------------------------
Total increase (decrease) in net assets 521,502 - 6,599,001 568,951
------------------------------------------------------------------------
Net assets at December 31, 1999 $ 2,403,598 $ - $ 17,125,340 $ 18,342,352
========================================================================
<CAPTION>
ROYCE MICRO- FIRST EAGLE
CAP SOGEN OVERSEAS
PORTFOLIO VARIABLE PORTFOLIO(1)
----------------------------------------
<S> <C> <C>
Net assets at January 1, 1998 $ 754,618 $ 527,253
Changes from 1998 operations:
Net investment income 402,160 20,422
Mortality and expense charges (29,799) (22,431)
Net realized gain (loss) on investments (2,728) (134)
Net change in unrealized appreciation
(depreciation) on investments (262,782) (63,005)
------------------------------------
Net increase (decrease) in net assets
resulting from operations 106,851 (65,148)
Net increase from contract purchases 6,156,312 3,331,587
Net decrease from
redemptions-withdrawals (3,808,038) (1,916,116)
------------------------------------
Total increase (decrease) in net assets 2,455,125 1,350,323
------------------------------------
Net assets at December 31, 1998 3,209,743 1,877,576
Changes from 1999 operations:
Net investment income 299,217 -
Mortality and expense charges (42,598) (43,713)
Net realized gain (loss) on investments (142,466) 304,438
Net change in unrealized appreciation
(depreciation) on investments 602,202 810,729
------------------------------------
Net increase (decrease) in net assets
resulting from operations 716,355 1,071,454
Net increase from contract purchases 9,817,163 10,755,997
Net decrease from
redemptions-withdrawals (10,086,860) (8,314,905)
------------------------------------
Total increase (decrease) in net assets 446,658 3,512,546
------------------------------------
Net assets at December 31, 1999 $ 3,656,401 $ 5,390,122
====================================
</TABLE>
(1) Formerly known as SoGen Overseas Variable Portfolio.
See accompanying notes.
5
<PAGE>
IL Annuity and Insurance Company Separate Account 1
Notes to Financial Statements
December 31, 1999
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"), a wholly owned subsidiary of The Indianapolis Life Group of
Companies, Inc. ("IL Group"), a 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
Cap 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 Fund--Micro-Cap Portfolio
First Eagle SoGen Variable Funds, Inc.--Overseas Variable Portfolio
<PAGE>
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.
UNIT VALUE
Unit values for the Account portfolios are computed at the end of each business
day. The unit value is equal to the unit value of the preceding business day
multiplied by a net investment factor. This net investment factor is determined
based on the value of the underlying mutual fund portfolios of the Account,
reinvested dividends and capital gains, and the daily asset charge for the
mortality and expense risk and administrative charges. Unit values are adjusted
daily for all activity in the Account.
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.
USE OF ESTIMATES
The preparation of financial statements requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the current year
presentation.
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 fees (.15% on an annual basis).
Accordingly, the Company is responsible for all sales, general and
administrative expenses applicable to the Account.
<PAGE>
IL Annuity and Insurance Company Separate Account 1
Notes to Financial Statements (continued)
3. NET ASSETS
Net assets at December 31, 1999 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 $ 956,500,082 $ 28,741,207 $ 24,343,078 $ 29,095,949 $ 69,833,194
Redemptions-
withdrawals (686,891,671) (17,660,560) (16,671,437) (18,838,973) (42,317,422)
Accumulated net
investment income 16,410,340 1,892,577 1,423,586 979,672 910,764
Accumulated realized
gain (loss) on investments 7,549,428 471,640 88,297 94,874 1,956,104
Accumulated net change
in unrealized appreciation
(depreciation) on
investments 47,520,074 3,068,159 2,635,118 975,853 9,333,907
-------------------------------------------------------------------------------------------
$ 341,088,253 $ 16,513,023 $ 11,818,642 $ 12,307,375 $ 39,716,547
===========================================================================================
</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 $ 68,023,435 $ 66,222,452 $ 121,371,221 $ 30,961,974 $ 210,219,029
Redemptions-
withdrawals (44,549,700) (38,199,768) (66,461,836) (22,331,518) (193,302,443)
Accumulated net
investment income 1,508,699 2,424,629 141,146 455,252 1,011,859
Accumulated realized
gain (loss) on investments 1,188,631 1,520,723 3,365,825 35,562 -
Accumulated net change
in unrealized appreciation
(depreciation) on
investments 1,391,022 9,969,324 14,629,802 (159,655) 23,799
------------------------------------------------------------------------------------------
$ 27,562,087 $ 41,937,360 $ 73,046,158 $ 8,961,615 $ 17,952,244
==========================================================================================
</TABLE>
8
<PAGE>
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 CAP STOCK LIMITED-TERM HARD ASSETS
PORTFOLIO PORTFOLIO PORTFOLIO BOND PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Contract purchases $ 67,390,651 $13,837,784 $ 71,223,885 $ 15,971,217 $ 5,732,654
Redemptions-
withdrawals (47,892,684) (9,378,765) (61,482,718) (11,539,589) (2,866,150)
Accumulated net
investment income 1,061,551 46,349 178,616 295,968 293,836
Accumulated realized
gain (loss) on investments 806,485 (202,314) 720,908 (8,075) (515,931)
Accumulated net change
in unrealized appreciation
(depreciation) on
investments 457,125 (234,073) 3,322,679 (219,611) (240,811)
-----------------------------------------------------------------------------------------
$ 21,823,128 $ 4,068,981 $ 13,963,370 $ 4,499,910 $ 2,403,598
=========================================================================================
<CAPTION>
FIRST EAGLE
VAN ECK SOGEN
WORLDWIDE SAFECO SAFECO ROYCE MICRO- OVERSEAS
BALANCED EQUITY GROWTH CAP VARIABLE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Contract purchases $ 2,133,023 $ 41,402,881 $ 58,514,602 $ 16,771,028 $ 14,710,818
Redemptions-
withdrawals (2,335,390) (26,529,706) (40,269,405) (13,956,233) (10,307,374)
Accumulated net
investment income 272,508 1,202,689 1,700,015 656,996 (46,372)
Accumulated realized
gain (loss) on investments (430,469) 394,378 (2,096,320) (145,194) 304,304
Accumulated net change
in unrealized appreciation
(depreciation) on
investments 360,328 655,098 493,460 329,804 728,746
---------------------------------------------------------------------------------------------
$ - $ 17,125,340 $ 18,342,352 $ 3,656,401 $ 5,390,122
=============================================================================================
</TABLE>
9
<PAGE>
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 1999:
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE
COST OF PROCEEDS
PURCHASES FROM SALES
------------- ------------
<S> <C> <C>
Alger American MidCap Growth Portfolio $ 8,506,031 $ 2,447,448
Alger Small Capitalization Portfolio 6,434,749 3,262,373
Fidelity Asset Manager Portfolio 5,691,880 1,889,233
Fidelity Contra Portfolio 14,245,074 3,974,722
Fidelity Equity Income Portfolio 9,577,739 4,840,684
Fidelity Growth Portfolio 22,082,933 5,035,058
Fidelity Index 500 Portfolio 28,951,000 6,202,201
Fidelity Investment Grade Bond Portfolio 3,817,458 2,640,030
Fidelity Money Market Portfolio 17,952,244 12,128,091
OCC Managed Portfolio 5,524,781 6,115,368
OCC Small Cap Portfolio 1,981,900 1,634,011
T. Rowe Price International Stock Portfolio 7,929,691 6,199,321
T. Rowe Price Limited-Term Bond Portfolio 2,576,775 1,884,202
Van Eck Hard Assets Portfolio 773,820 599,839
SAFECO Equity Portfolio 7,997,640 1,695,288
SAFECO Growth Portfolio 5,004,378 5,298,650
Royce Micro-Cap Portfolio 1,116,277 1,134,030
First Eagle SoGen Overseas Variable Portfolio 4,722,504 2,187,515
------------- ------------
$154,886,874 $69,168,064
============= ============
</TABLE>
<PAGE>
IL Annuity and Insurance Company Separate Account 1
Notes to Financial Statements (continued)
5. SUMMARY OF UNIT TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------------------------------------------
1999 1998
-------------------------------------------------------------------------------
UNITS AMOUNT UNITS AMOUNT
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ALGER AMERICAN MIDCAP
GROWTH PORTFOLIO
Contract purchases 1,162,430 $ 16,968,455 541,388 $ 7,584,846
Redemptions-withdrawals (890,365) (12,468,183) (307,905) (4,313,748)
ALGER SMALL CAPITALIZATION
PORTFOLIO
Contract purchases 1,389,452 14,408,699 421,397 4,929,292
Redemptions-withdrawals (1,215,713) (12,032,958) (292,498) (3,421,495)
FIDELITY ASSET MANAGER PORTFOLIO
Contract purchases 1,128,339 17,068,360 564,262 8,469,571
Redemptions-withdrawals (927,556) (13,800,260) (278,737) (4,183,843)
FIDELITY CONTRA PORTFOLIO
Contract purchases 2,611,991 39,592,899 1,203,125 20,344,843
Redemptions-withdrawals (2,131,166) (29,981,381) (634,360) (10,727,034)
FIDELITY EQUITY INCOME PORTFOLIO
Contract purchases 2,389,674 33,989,991 1,347,626 21,390,192
Redemptions-withdrawals (2,154,726) (30,018,829) (776,292) (12,321,701)
FIDELITY GROWTH PORTFOLIO
Contract purchases 2,437,135 44,558,221 977,899 15,375,506
Redemptions-withdrawals (1,683,823) (29,239,902) (514,083) (8,082,920)
FIDELITY INDEX 500 PORTFOLIO
Contract purchases 3,681,014 69,776,065 1,948,062 36,779,413
Redemptions-withdrawals (2,653,917) (46,917,811) (888,781) (16,780,184)
FIDELITY INVESTMENT GRADE
BOND PORTFOLIO
Contract purchases 1,639,485 16,522,850 909,373 10,569,641
Redemptions-withdrawals (1,566,845) (15,684,008) (492,817) (5,728,014)
FIDELITY MONEY MARKET PORTFOLIO
Contract purchases 9,966,477 113,392,502 6,425,159 71,373,876
Redemptions-withdrawals (9,508,057) (108,123,651) (5,837,872) (64,850,004)
OCC MANAGED PORTFOLIO
Contract purchases 1,999,613 30,833,079 1,627,589 25,366,783
Redemptions-withdrawals (2,077,984) (32,270,772) (892,434) (13,909,035)
</TABLE>
11
<PAGE>
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
-------------------------------------------------------------------------------
1999 1998
-------------------------------------------------------------------------------
UNITS AMOUNT UNITS AMOUNT
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OCC SMALL CAP
PORTFOLIO
Contract purchases 591,789 $ 6,776,372 321,943 $ 4,473,073
Redemptions-withdrawals (560,264) (6,393,967) (182,825) (2,540,172)
T. ROWE PRICE INTERNATIONAL
STOCK PORTFOLIO
Contract purchases 4,311,898 56,335,236 718,383 9,217,930
Redemptions-withdrawals (4,193,325) (54,749,690) (424,468) (5,446,561)
T. ROWE PRICE LIMITED-TERM
BOND PORTFOLIO
Contract purchases 715,695 7,699,406 508,347 5,660,952
Redemptions-withdrawals (671,608) (7,121,167) (293,130) (3,264,300)
VAN ECK HARD ASSETS
PORTFOLIO
Contract purchases 144,297 1,148,341 186,118 1,874,118
Redemptions-withdrawals (127,973) (989,718) (124,051) (1,249,134)
VAN ECK WORLDWIDE BALANCED
PORTFOLIO
Contract purchases - - 124,696 748,303
Redemptions-withdrawals - - (312,444) (1,874,975)
SAFECO EQUITY PORTFOLIO
Contract purchases 1,930,496 24,401,720 1,342,335 15,713,371
Redemptions-withdrawals (1,515,433) (18,849,530) (638,181) (7,470,551)
SAFECO GROWTH PORTFOLIO
Contract purchases 2,642,480 27,733,408 2,639,423 29,331,910
Redemptions-withdrawals (2,658,244) (27,818,637) (1,108,945) (12,323,701)
ROYCE MICRO-CAP
PORTFOLIO
Contract purchases 949,230 9,817,163 556,679 6,156,312
Redemptions-withdrawals (977,299) (10,086,860) (344,338) (3,808,038)
</TABLE>
12
<PAGE>
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
----------------------------------------------------------------------------
1999 1998
----------------------------------------------------------------------------
UNITS AMOUNT UNITS AMOUNT
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIRST EAGLE SOGEN OVERSEAS VARIABLE
PORTFOLIO
Contract purchases 964,373 $ 10,755,997 352,661 $ 3,331,587
Redemptions-withdrawals (761,148) (8,314,905) (202,828) (1,916,116)
------------ -------------
Net increase from unit
transactions $ 76,916,535 $ 114,479,993
============ =============
</TABLE>
13
<PAGE>
IL Annuity and Insurance Company Separate Account 1
Notes to Financial Statements (continued)
6. YEAR 2000 (UNAUDITED)
The Company relies on ILICo for its information systems processing, and utilizes
investment transaction information reported by the various fund managers. In
1997 ILICo's Board of Directors adopted a Year 2000 Plan to address all major
computing information systems including hardware, software, equipment and
business partners. The objective of the Year 2000 Plan was to ensure that ILICo
and all its subsidiaries could continue to serve its customers with minimal
business disruptions and business risk. The Year 2000 Plan was supported by
ILICo officers and executive management, and is closely monitored by the Board
of Directors.
As a result of the foregoing, the Company conducted business as usual on work
day one of the new year. All business units experienced a smooth transition into
the Year 2000. A few minor issues were quickly identified and resolved, but
there was no impact to business operations and no need to invoke the Company's
contingency plans. Although it anticipates no problems, the Company will
continue to monitor systems and business applications to ensure future year 2000
processing dates are successfully completed.
7. AFFILIATION
On February 18, 2000, ILICo and IL Group entered into a definitive agreement
with American Mutual Holding Co. ("AMHC) and AmerUs Life Holdings, Inc.
("AmerUs"), which contemplates the ultimate combination of AMHC, AmerUs, and
ILICo. The transaction, which includes demutualization by ILICo, is subject to
various governmental and insurance department approvals. Under the agreement,
AHMC initially acquired a 45% ownership interest in the IL Group.
<PAGE>
Financial Statements
IL Annuity and Insurance Company
Years ended December 31, 1999, 1998 and 1997
With Report of Independent Auditors
<PAGE>
IL Annuity and Insurance Company
Financial Statements
Years ended December 31, 1999, 1998 and 1997
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>
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, 1999 and 1998, and the related statements of income, shareholder's
equity, and cash flows for each of the three years in the period ended December
31, 1999. 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our 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, 1999 and 1998, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Indianapolis, Indiana
February 25, 2000
<PAGE>
IL Annuity and Insurance Company
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
--------------------------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturity securities:
Available for sale, at fair value $ 2,908,292,170 $ 1,675,815,473
Held to maturity, at amortized cost 7,694,723 8,032,183
Trading, at fair value -- 104,749,857
Equity securities 950,250 --
Mortgage loans 25,867,524 25,008,180
Policy loans 563,262 226,547
Cash and cash equivalents 145,505,780 227,784,876
-------------------------------------
Total investments 3,088,873,709 2,041,617,116
Accrued investment income 34,783,529 20,901,296
Reinsurance recoverable 113,558,751 108,451,109
Deferred acquisition costs 96,227,014 58,905,858
Goodwill 1,624,487 1,734,003
Federal income taxes recoverable 563,314 --
Receivables and other assets 112,208 49,440
Separate account assets 341,088,253 220,862,443
-------------------------------------
Total assets $ 3,676,831,265 $ 2,452,521,265
=====================================
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Future policy benefit reserves $ 3,148,322,264 $ 2,071,810,495
Other policyholder liabilities 18,408,323 4,958,066
Accounts payable and other liabilities 10,073,041 23,957,740
Federal income taxes payable -- 1,618,322
Deferred federal income taxes 37,315,309 31,885,299
Separate account liabilities 341,088,253 220,862,443
-------------------------------------
Total liabilities 3,555,207,190 2,355,092,365
Shareholder's equity:
Common stock, $250 par value:
Authorized and issued--10,000 shares 2,500,000 2,500,000
Additional paid-in capital 111,662,659 91,662,659
Accumulated other comprehensive income 1,566,951 819,116
Retained earnings 5,894,465 2,447,125
-------------------------------------
Total shareholder's equity 121,624,075 97,428,900
-------------------------------------
Total liabilities and shareholder's equity $ 3,676,831,265 $ 2,452,521,265
=====================================
</TABLE>
See accompanying notes.
2
<PAGE>
IL Annuity and Insurance Company
Statements of Income
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1999 1998 1997
------------------------------------------------------
<S> <C> <C> <C>
REVENUE
Annuity fees and charges $ 6,707,380 $ 2,209,651 $ 1,112,192
Investment income 113,145,102 55,002,920 12,315,656
Net realized capital gains 3,924,199 194,062 762,934
------------------------------------------------------
123,776,681 57,406,633 14,190,782
EXPENSES
Policy benefits 101,148,054 39,948,207 10,483,499
Underwriting, acquisition and insurance expenses 17,564,180 11,279,637 1,988,802
------------------------------------------------------
118,712,234 51,227,844 12,472,301
------------------------------------------------------
Income before federal income taxes 5,064,447 6,178,789 1,718,481
Federal income taxes 1,617,107 2,882,053 38,761
------------------------------------------------------
Net income $ 3,447,340 $ 3,296,736 $ 1,679,720
======================================================
</TABLE>
See accompanying notes.
3
<PAGE>
IL Annuity and Insurance Company
Statements of Shareholder's Equity
<TABLE>
<CAPTION>
ACCUMULATED
OTHER RETAINED
COMMON ADDITIONAL PAID- COMPREHENSIVE EARNINGS
STOCK IN CAPTAL INCOME (DEFICIT) TOTAL
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $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
------------
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
------------
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
Net income -- -- -- 3,447,340 3,447,340
Change in net unrealized gains
on available for sale securities -- -- 747,835 -- 747,835
------------
Comprehensive income 4,195,175
Capital contribution -- 20,000,000 -- -- 20,000,000
-------------------------------------------------------------------------------
Balance at December 31, 1999 $2,500,000 $111,662,659 $1,566,951 $ 5,894,465 $121,624,075
===============================================================================
</TABLE>
See accompanying notes.
4
<PAGE>
IL Annuity and Insurance Company
Statements of Cash Flows
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1999 1998 1997
----------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,447,340 $ 3,296,736 $ 1,679,720
Adjustments to reconcile net income to net
cash used by operating activities:
Amortization of bond discount/premium (1,216,213) (14,211,485) (1,521,845)
Amortization of goodwill 109,516 109,516 109,516
Net realized capital gains (3,924,199) (194,062) (762,934)
Changes in operating assets and liabilities:
Deferred acquisition costs (47,507,670) (45,721,706) (17,569,346)
Amortization of deferred acquisition costs 10,186,513 5,769,968 3,476,107
Accrued investment income (13,882,233) (15,063,267) (5,272,055)
Reinsurance recoverable (5,107,642) (77,488,696) (30,962,413)
Receivables and other assets (10,055,798) (3,630,107) 5,717,101
Accounts payable and accrued liabilities 87,358 824,660 8,447,968
Federal income taxes 3,248,374 29,221,888 4,188,924
----------------------------------------------------
Net cash used by operating activities (64,614,654) (117,086,555) (32,469,257)
INVESTING ACTIVITIES
Sales and maturity of fixed maturity securities 727,302,186 197,795,869 59,815,409
Mortgage loan repayments 1,131,976 928,766 222,696
Purchase of fixed maturity securities (1,806,730,445) (1,428,079,218) (469,593,436)
Investment in mortgage loans (2,000,000) (5,125,000) (21,287,250)
Increase in policy loans (336,715) (185,238) (41,309)
----------------------------------------------------
Net cash used by investing activities (1,080,632,998) (1,234,664,821) (430,883,890)
FINANCING ACTIVITIES
Annuity deposits received 1,106,057,542 1,451,291,531 527,719,276
Annuity surrender benefits (63,088,986) (17,361,919) (14,106,711)
Capital contribution 20,000,000 67,400,000 7,000,000
----------------------------------------------------
Net cash provided by financing activities 1,062,968,556 1,501,329,612 520,612,565
----------------------------------------------------
Net increase (decrease) in cash and short-term investments (82,279,096) 149,578,236 57,259,418
Cash and cash equivalents at beginning of year 227,784,876 78,206,640 20,947,222
----------------------------------------------------
Cash and cash equivalents at end of year $ 145,505,780 $ 227,784,876 $ 78,206,640
====================================================
</TABLE>
See accompanying notes.
5
<PAGE>
IL Annuity and Insurance Company
Notes to Financial Statements
December 31, 1999
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. ("IL Group"), 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-four 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. Prior to 1999, fixed
maturity securities that were bought and held principally for the purpose of
selling them in the near term to generate profits from short-term differences in
price were categorized as trading and were 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 $261,288 and $252,608 at December 31,
1999 and 1998, respectively.
6
<PAGE>
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 $565,832 and $456,316 at
December 31, 1999 and 1998, respectively.
FUTURE POLICY BENEFIT RESERVES
Future policy benefit reserves for annuity products represent policy account
balances including net realized and unrealized gains on available for sale
securities allocated to policyholders, but before applicable surrender charges.
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>
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
Comprehensive income is reported separately in shareholder's equity and is
comprised of the results of operations and the change in a portion of unrealized
gains or losses in the Company's available-for-sale securities.
The Company's reclassification adjustment for 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 GROSS TAX EFFECT NET
---------------------------------------------
<S> <C> <C> <C>
Unrealized holding gains arising during year $ 125,041,085 $(43,764,380) $ 81,276,705
Reclassification adjustment for gains
realized in net income (9,989,582) 3,496,354 (6,493,228)
Allocated to future policy benefit reserves (113,900,988) 39,865,346 (74,035,642)
---------------------------------------------
Change in net unrealized gains on available
for sale securities $ 1,150,515 $ (402,680) $ 747,835
=============================================
YEAR ENDED DECEMBER 31, 1998
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>
8
<PAGE>
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
1. ORGANIZATION, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING STANDARDS
During 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Investments and Hedging Activities" (SFAS No. 133)
which is effective January 1, 2001. SFAS No. 133 defines derivative instruments
and provides comprehensive accounting and reporting standards for the
recognition and measurement of derivative and hedging activities. It requires
derivatives to be recorded in the balance sheet at fair value. The Company is
evaluating SFAS No. 133 and has not determined its effect on the financial
statements.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year
presentation.
2. INVESTMENTS
Fixed maturity and equity securities consist of the following at December 31:
<TABLE>
<CAPTION>
1999
-------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
United States government $ 181,412,072 $ 86,982 $ 7,018,230 $ 174,480,824
Public utilities 116,659,739 10,301 6,498,941 110,171,099
Industrial and miscellaneous 2,477,795,459 265,843,623 134,204,221 2,609,434,861
Mortgage-backed securities 14,665,915 -- 460,529 14,205,386
-------------------------------------------------------------
$2,790,533,185 $265,940,906 $148,181,921 $2,908,292,170
=============================================================
Held to maturity:
Industrial and miscellaneous $ 7,694,723 $ 18,944 $ 116,550 $ 7,597,117
=============================================================
Equity securities:
Preferred stock $ 1,053,970 $ -- $ 103,720 $ 950,250
=============================================================
</TABLE>
9
<PAGE>
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
<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
=============================================================
Held to maturity:
Industrial and miscellaneous $ 8,032,183 $ 639,087 $ -- $ 8,671,270
=============================================================
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
=============================================================
</TABLE>
Effective January 1, 1999, the Company transferred fixed maturity securities,
with a fair value of $104,749,857, previously classified as trading securities
to available for sale securities.
10
<PAGE>
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,
1999, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
---------------------------------------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ -- $ -- $ -- $ --
Due after one year
through five years 543,022,768 570,274,679 666,667 658,247
Due after five years
through ten years 1,206,666,324 1,175,069,008 6,028,056 5,956,360
Due after ten years 1,026,178,178 1,148,743,097 1,000,000 982,510
Mortgage-backed securities 14,665,915 14,205,386 -- --
---------------------------------------------------------
$2,790,533,185 $2,908,292,170 $7,694,723 $7,597,117
=========================================================
</TABLE>
Net investment income consisted of the following:
1999 1998 1997
--------------------------------------------
Fixed maturity securities $106,476,584 $46,825,700 $10,314,562
Equity securities 104,402 13,673 --
Mortgage loans 2,012,761 1,848,846 606,460
Short term investments 9,970,948 8,136,334 1,938,719
Other 4,428,352 1,339,625 7,709
--------------------------------------------
Gross investment income 122,993,047 58,164,178 12,867,450
Less investment expenses 9,847,945 3,161,258 631,794
--------------------------------------------
Net investment income $113,145,102 $55,002,920 $12,235,656
============================================
11
<PAGE>
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
Net unrealized gains on available for sale securities are as follows:
1999 1998
------------ ------------
Fixed maturity securities:
Gross unrealized gains $265,940,906 $108,499,573
Gross unrealized losses 148,181,921 20,575,894
------------ ------------
117,758,985 87,923,679
Gross unrealized losses on
equity securities 103,720 --
Gross unrealized losses on
short-term investments 44,238 325
Deferred income taxes 42,008,434 30,773,174
Allocated to future policy
benefit reserves 74,035,642 56,331,064
------------ ------------
$ 1,566,951 $ 819,116
============ ============
Proceeds from sales of available for sale securities during 1999, 1998 and 1997
were $689,155,096, $155,534,662 and $31,468,962, respectively. Gross gains of
$26,998,917, $14,377,767 and $2,819,617 and gross losses of $17,261,079,
$1,150,749 and $29,328 were realized during 1999, 1998 and 1997 respectively.
3. FEDERAL INCOME TAXES
Significant components of current federal income taxes are as follows:
1999 1998 1997
--------------------------------------
Federal income taxes at 35% $ 1,772,556 $ 2,165,408 $ 601,468
Effect of net operating losses/
valuation allowance -- 736,452 (698,193)
Other, net (155,449) (19,807) 135,486
--------------------------------------
Federal income taxes $ 1,617,107 $ 2,882,053 $ 38,761
======================================
12
<PAGE>
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
3. FEDERAL INCOME TAXES (CONTINUED)
Federal income taxes consist of the following:
1999 1998 1997
---------------------------------------------
Current taxes $ 6,123,012 $1,769,928 $38,761
Deferred taxes (4,505,905) 1,112,125 --
---------------------------------------------
Total $ 1,617,107 $2,882,053 $38,761
=============================================
At December 31, 1999 and 1998 the financial statements included deferred tax
assets of $39,203,462 and $22,139,986, and deferred tax liabilities of
$76,518,771 and $54,025,285, respectively. The significant components of the
Company's deferred tax assets and liabilities were deferred acquisition costs,
future policy benefit reserves, and unrealized investment gains and losses.
The Company files a stand-alone federal income tax return.
The Company (paid) recovered $(8,300,000), $800,000 and $(1,000,000) in federal
income taxes in 1999, 1998 and 1997, respectively.
4. REINSURANCE
The Company has entered into modified coinsurance cession agreements covering
flexible premium deferred annuity policies distributed through Legacy Marketing
Group (a third-party administrator). Future policy benefit reserves include
reinsurance payable of $3,317,196,078 and $1,511,542,946 at December 31, 1999
and 1998, respectively. Net realized capital gains are net of realized gains
allocated to the reinsurer of $15,316,835, $14,194,580 and $2,587,253 in 1999,
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,
1999 and 1998 was $50,145,736 and $59,886,970, respectively. Statutory net loss
for 1999, 1998 and 1997 was $10,970,330, $13,554,570 and $4,957,736,
respectively.
13
<PAGE>
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
5. SHAREHOLDER'S EQUITY (CONTINUED)
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.
State insurance regulatory authorities impose minimum risk-based capital
requirements on insurance enterprises that were developed by the NAIC. The
formulas for determining the amount of risk-based capital ("RBC") specify
various weighting factors that are applied to financial balances or various
levels of activity based on the perceived degree of investment and insurance
risks. Regulatory compliance is determined by a ratio (the "Ratio") of the
enterprise's regulatory total adjusted capital, as defined by the NAIC, to its
authorized control level RBC, as defined by NAIC. Enterprises below specific
trigger points or ratios are classified within certain levels, each of which
requires specified corrective action. At December 31, 1999, the Company exceeds
the RBC requirements.
6. RELATED PARTY TRANSACTIONS
The Company was allocated expenses of $3,669,941, 2,998,435 and $1,999,903 for
various administrative services from ILICo for 1999, 1998 and 1997,
respectively, in conjunction with expense allocation agreements.
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 and equity securities: Fair values of bonds and stocks 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.
14
<PAGE>
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
7. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amount and fair values of the Company's financial instruments at
December 31, are as follows:
<TABLE>
<CAPTION>
1999 1998
-----------------------------------------------------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Fixed maturity securities:
Available for sale $2,908,292,170 $2,908,292,170 $1,675,815,473 $1,675,815,473
Held to maturity 7,694,723 7,597,117 8,032,183 8,671,270
Trading -- -- 104,749,857 104,749,857
Equity securities 950,250 950,250 -- --
Mortgage loans 25,867,524 25,804,851 25,008,180 27,335,409
LIABILITIES:
Deferred annuities 3,136,174,442 2,917,839,829 2,071,810,495 1,937,218,686
</TABLE>
8. YEAR 2000 (UNAUDITED)
In 1997, ILICo's Board of Directors adopted a Year 2000 Plan to address all
major computing information systems including hardware, software, equipment and
business partners which includes the Company. The objective of the Year 2000
Plan was to ensure that the Company can continue to serve its customers with
minimal business disruptions and business risk. The Year 2000 Plan was supported
by Company officers and executive management, and is closely monitored by the
Board of Directors.
As a result of the foregoing, the Company conducted business as usual on work
day one of Year 2000. A few minor issues occurred and were resolved, but there
was no impact to business operations and no need to invoke the Company's
contingency plans. Although it anticipates no problems, the Company will
continue to monitor systems and business applications to ensure future year 2000
processing dates are successfully completed.
15
<PAGE>
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
9. AFFILIATION
On February 18, 2000, ILICo entered into a definitive agreement with American
Mutual Holding Company ("AMHC") and AmerUs Life Holdings, Inc. ("AmerUs"), which
contemplates the ultimate combination of AMHC, AmerUs and ILICo. The
transaction, which includes demutualization by ILICo, is subject to various
governmental and insurance department approvals. Under the agreement, AHMC
initially acquired a 45% ownership interest in IL Group.
