As filed with the Securities and Exchange Commission on February 11, 2000
Registration Nos. 033-89028
811-8964
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |_|
Pre-Effective Amendment No. |_|
---
Post-Effective Amendment No. 9 |X|
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and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |_|
Amendment No. 10 |X|
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IL ANNUITY AND INSURANCE CO.
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SEPARATE ACCOUNT 1
------------------
(Exact Name of Registrant)
IL ANNUITY AND INSURANCE COMPANY
--------------------------------
(Name of Depositor)
2960 North Meridian Street, Indianapolis, Indiana 46208
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(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, including Area Code:
(317) 927-6500
Name and Address of Agent for Service: Copy to:
Janis B. Funk, Esq., Vice President Law Stephen E. Roth, Esq.
Indianapolis Life Insurance Company Sutherland Asbill & Brennan LLP
2960 North Meridian Street 1275 Pennsylvania Avenue, N.W.
Indianapolis, Indiana 46208 Washington, D.C. 20004-2415
Approximate date of proposed public offering:
As soon as practicable after effectiveness of the Registration Statement.
-------------------
It is proposed that this filing will become effective:
|X| immediately upon filing pursuant to paragraph (b) of Rule 485
|_| on pursuant to paragraph (b) of Rule 485
|_| 60 days after filing pursuant to paragraph (a) of Rule 485
|_| on pursuant to paragraph (a) of the Rule 485
Title of securities being registered: Units of Interests in a separate
account under flexible premium deferred variable annuity contracts and the
guarantee of IL Annuity and Insurance Co. relating thereto.
<PAGE>
SUPPLEMENT DATED FEBRUARY 11, 2000 TO
PROSPECTUS DATED MAY 1, 1999
IL ANNUITY AND INSURANCE CO. SEPARATE ACCOUNT I
VISIONARY CHOICE VARIABLE ANNUITY
Please use this supplement with the Visionary Choice prospectus dated May
1, 1999.
1. INVESTMENT OPTIONS
The following Portfolios are added to the investment options currently
available under the Visionary Choice Variable Annuity that are listed on the
cover page of the prospectus and under "HIGHLIGHTS: INVESTMENT OPTIONS" on page
5:
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
o Mid-Cap Growth
o Socially Responsive
PIMCO VARIABLE INSURANCE TRUST
o High Yield Bond
o Real Return Bond
o StocksPLUS Growth and Income
The following information is added to the "FEE TABLE" on pages 8 and 9 of the
Visionary Choice prospectus:
<TABLE>
<CAPTION>
MANAGEMENT TOTAL ANNUAL
FEES OTHER EXPENSES EXPENSES (AFTER
(AFTER (AFTER WAIVERS AND
NAME OF PORTFOLIO WAIVERS) 12B-1 FEES REIMBURSEMENT) REIMBURSEMENTS)
- ----------------- ---------- ---------- -------------- ---------------
<S> <C> <C> <C> <C>
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Mid-Cap Growth (8) (9) 0.85% 0.00% 0.15% 1.00%
Socially Responsive (8) (9) 0.85% 0.00% 0.65% 1.50%
PIMCO VARIABLE INSURANCE TRUST
High Yield Bond (10) 0.50% 0.00% 0.25% 0.75%
Real Return Bond (10) 0.40% 0.00% 0.25% 0.65%
StocksPLUS Growth and Income (10) 0.40% 0.00% 0.25% 0.65%
</TABLE>
8/ Neuberger Berman Advisers Management Trust (the Feeder Trust) is divided into
portfolios, each of which invests all of its net investable assets in a
corresponding series ("Series") of Advisers Managers Trust (the Master Trust).
The figures reported under "Management Fees" include the aggregate of the
administration fees paid by the portfolio and the management fees paid by its
corresponding Series. Similarly, "Other Expenses" includes all other expenses of
the portfolio and its corresponding Series.
9/ Expenses reflect expense reimbursement. Neuberger Berman Management Inc.
("NBMI") has undertaken to reimburse certain operating expenses, including the
compensation of NBMI and excluding
<PAGE>
taxes, interest, extraordinary expenses, brokerage commissions and transaction
costs, that exceed, in the aggregate, 1.00% of the Mid-Cap Growth Portfolio's
average daily net asset value and 1.50% of the Socially Responsive Portfolio's
average daily net asset value. Absent such reimbursement, the Total Annual
Expenses for the year ended December 31, 1998 would have been 1.43% for the
Mid-Cap Growth Portfolio and were estimated to be 2.50% for the Socially
Responsive Portfolio. These expense reimbursement agreements are subject to
termination upon 60 days written notice with respect to the Mid-Cap Growth
Portfolio, and after April 30, 2000, with respect to the Socially Responsive
Portfolio, and there can be no assurance that these policies will be continued
thereafter. The Socially Responsive Portfolio had not commenced operations as of
December 31, 1998; therefore, the expense figures for this Portfolio are
estimated.
10/ Pacific Investment Management Company has agreed to reduce its
administrative fee, subject to potential future reimbursement, to the extent
that Total Annual Expenses would exceed, due to organizational expenses and the
payment by the Portfolio of its pro rata portion of PIMCO Variable Insurance
Trust's trustees' fees, 0.75% for the High Yield Bond Portfolio; 0.65% for the
Real Return Bond Portfolio; and 0.65% for the StocksPLUS Growth and Income
Portfolio of average daily net assets. Without such reductions, the total
operating expenses for the High Yield Bond Portfolio, the Real Return Bond
Portfolio and the StocksPLUS Growth and Income Portfolio would have been 0.81%,
0.67%, and 0.72%, respectively. Other Expenses for the Real Return Bond
Portfolio are based on estimates for the current fiscal year.
The following information is added to EXAMPLE 1 on pages 9 and 10 of the
Visionary Choice prospectus:
<TABLE>
<CAPTION>
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1 YEAR 3 YEARS 5 YEARS 10 YEARS
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<S> <C> <C> <C> <C>
NEUBERGER BERMAN ADVISERS
MANAGEMENT TRUST
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Mid-Cap Growth $96.18 $148.13 $207.03 $290.63
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Socially Responsive $101.42 $162.68 $232.09 $341.02
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PIMCO VARIABLE INSURANCE TRUST
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High Yield Bond $93.55 $140.80 $193.90 $264.45
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Real Return Bond $92.50 $137.85 $188.61 $253.79
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StocksPLUS Growth and Income $92.50 $137.85 $188.61 $253.79
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</TABLE>
The following information is added to EXAMPLE 2 on page 10 of the
Visionary Choice prospectus:
<TABLE>
<CAPTION>
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1 YEAR 3 YEARS 5 YEARS 10 YEARS
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<S> <C> <C> <C> <C>
NEUBERGER BERMAN ADVISERS
MANAGEMENT TRUST
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Mid-Cap Growth $26.18 $80.34 $137.03 $290.63
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Socially Responsive $31.42 $95.97 $162.87 $341.02
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PIMCO VARIABLE INSURANCE TRUST
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High Yield Bond $23.55 $72.47 $123.90 $264.45
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Real Return Bond $22.50 $69.30 $118.61 $253.79
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StocksPLUS Growth and Income $22.50 $69.30 $118.61 $253.79
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</TABLE>
2
<PAGE>
The following information is added to EXAMPLE 3 on page 11 of the
Visionary Choice prospectus:
<TABLE>
<CAPTION>
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1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEUBERGER BERMAN ADVISERS
MANAGEMENT TRUST
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Mid-Cap Growth $96.18 $128.76 $167.03 $290.63
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Socially Responsive $101.42 $143.62 $192.54 $341.02
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PIMCO VARIABLE INSURANCE TRUST
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High Yield Bond $93.55 $121.27 $153.90 $264.45
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Real Return Bond $92.50 $118.27 $148.61 $253.79
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StocksPLUS Growth and Income $92.50 $118.27 $148.61 $253.79
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</TABLE>
The following information is added to EXAMPLE 4 on pages 11 and 12 of the
Visionary Choice prospectus:
<TABLE>
<CAPTION>
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1 Year 3 Years 5 Years 10 Years
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<S> <C> <C> <C> <C>
NEUBERGER BERMAN ADVISERS
MANAGEMENT TRUST
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Mid-Cap Growth $26.18 $80.34 $137.03 $290.63
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Socially Responsive $31.42 $95.97 $162.87 $341.02
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PIMCO VARIABLE INSURANCE TRUST
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High Yield Bond $23.55 $72.47 $123.90 $264.45
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Real Return Bond $22.50 $69.30 $118.61 $253.79
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StocksPLUS Growth and Income $22.50 $69.30 $118.61 $253.79
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</TABLE>
The following disclosure is added at the end of the table of investment
objectives found under the heading "INVESTMENT OBJECTIVES OF THE PORTFOLIOS" on
pages 14 and 15 of the Visionary Choice prospectus:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
PORTFOLIO INVESTMENT OBJECTIVE
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<S> <C>
NEUBERGER BERMAN AMT Seeks growth of capital by investing mainly in common stocks of
MID-CAP GROWTH PORTFOLIO mid-capitalization companies.
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NEUBERGER BERMAN AMT Seeks long-term growth of capital by investing primarily in
SOCIALLY RESPONSIVE PORTFOLIO securities of companies that meet the portfolio's financial criteria
and social policy.
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PIMCO HIGH YIELD BOND Seeks to maximize total return, consistent with preservation of
PORTFOLIO capital and prudent investment management.
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PIMCO REAL RETURN BOND Seeks to realize maximum real return, consistent with the
PORTFOLIO preservation of real capital and prudent investment management.
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PIMCO STOCKSPLUS Seeks to achieve a total return which exceeds the total return
GROWTH AND INCOME performance of the S&P 500.
PORTFOLIO
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</TABLE>
3
<PAGE>
The following disclosure is added under the heading "INVESTMENT ADVISERS
TO THE FUNDS" on pages 15 and 16 of the Visionary Choice prospectus:
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST. Neuberger Berman Management
Inc. is the investment manager, administrator and distributor for the Mid-Cap
Growth and Socially Responsive Portfolios. It engages Neuberger Berman, LLC as
sub-adviser to provide management and related services.
PIMCO VARIABLE INSURANCE TRUST. Pacific Investment Management Company
("PIMCO") serves as investment adviser to the High Yield Bond, the Real Return
Bond, and the StocksPLUS Growth and Income Portfolios. PIMCO manages the
investment of the assets of the Portfolios, and places orders for the purchase
and sale of each Portfolio's investments directly with brokers or dealers
selected by it in its discretion.
2. CANCELLATION-- THE 10 DAY FREE LOOK PERIOD
The section entitled "HIGHLIGHTS: CANCELLATION - THE 10-DAY FREE-LOOK
PERIOD" on page 5 of the Visionary Choice prospectus is replaced with the
following disclosure:
HIGHLIGHTS: CANCELLATION - THE FREE-LOOK PERIOD
After you receive your Contract, you have a limited period of time during
which you may cancel your Contract and receive a refund. This period of time is
referred to as a "free-look" period and is established by state law. Usually,
this period is either 10 or 20 days. Depending on your state of residence, if
you cancel your Contract during the "free-look" period you will generally
receive: 1) the value of your Contract as of the date we receive your notice of
cancellation at the Service Center; OR 2) the greater of: a) the total of any
premium payments you have made, or b) the value of your Contract as of the date
we receive your notice of cancellation at the Service Center. Please return your
Contract with your notice of cancellation. We will pay the refund within 7 days
after we receive the Contract and written request for cancellation at the
Service Center. The Contract will be deemed void once we issue your refund.
If your state requires that we return your premium payments, we will put
your premium payment(s) into the Money Market variable account for fifteen days
following the date we credit the initial premium payment to your Contract. See
"Cancellation - The 10-Day Free-Look Period".
4
<PAGE>
3. ABOUT IL ANNUITY AND INSURANCE COMPANY
The following is added after the fourth paragraph under the heading "IL
ANNUITY AND INSURANCE COMPANY" on pages 12 and 13 of the Visionary Choice
prospectus and is added after the first paragraph under the heading
"DISTRIBUTION OF THE CONTRACTS" on page 40 of the Visionary Choice prospectus:
American United Life Insurance Company ("AUL") and Legacy Marketing Group
("LMG") currently own minority equity stakes in IL Group. AUL acquired its
minority ownership interest in IL Group in connection with a proposed
affiliation between AUL and Indianapolis Life Insurance Company ("ILICo"). That
proposed affiliation has been abandoned. On January 7, 2000, ILICo and IL Group
entered into a letter of intent with American Mutual Holding Co. ("AMHC") and
AmerUs Life Holdings, Inc., which contemplates a combination of AMHC and ILICo.
That transaction, which includes demutualization by ILICo, is subject to various
governmental and other approvals. The letter of intent contemplates that,
pending consummation of the demutualization, AMHC will acquire a 45% ownership
interest in IL Group and IL Group will use the proceeds of such investment to
repurchase in their entirety the ownership interests held by AUL and Legacy.
4. CHANGES TO THE SOGEN VARIABLE FUNDS, INC.
A. FUND NAME CHANGE
As of the beginning of the year, the SoGen Variable Funds, Inc. has
changed its name to First Eagle SoGen Variable Funds, Inc. All references in the
Visionary Choice prospectus to the name "SoGen Variable Funds, Inc." are deleted
and the new name for that fund, "First Eagle SoGen Variable Funds, Inc.," is
inserted in its place.
B. PORTFOLIO NAME CHANGE
As of the beginning of the year, the SoGen Overseas Variable Portfolio of
the SoGen Variable Funds, Inc. has changed its name to First Eagle SoGen
Overseas Variable Portfolio. All references in the Visionary Choice prospectus
to the name "SoGen Overseas Variable Portfolio" are deleted and the new name for
that portfolio, "First Eagle SoGen Overseas Variable Portfolio," is inserted in
its place.
5
<PAGE>
C. INVESTMENT ADVISER CHANGE
On December 31, 1999, Arnhold and S. Bleichroeder Advisers, Inc. replaced
Societe Generale Asset Management Corp. as the investment adviser for First
Eagle SoGen Variable Funds, Inc. As a result, the following disclosure replaces
the disclosure under the heading "INVESTMENT ADVISERS TO THE FUNDS" in the
fourth paragraph on page 16:
FIRST EAGLE SOGEN VARIABLE FUNDS, INC. Arnhold and S. Bleichroeder
Advisers, Inc. serves as the portfolio's investment adviser.
D. FEE WAIVERS
The following disclosure is added to footnote number 6 to the "FEE TABLE" on
page 9:
The advisory fee rate paid by the Portfolio to Arnhold and S. Bleichroeder
Advisers, Inc. of 0.75% of the average daily net assets of the Portfolio
is the same as the rate that the Portfolio paid to Societe Generale Asset
Management Corp., the Portfolio's former investment adviser. The adviser,
Arnhold and S. Bleichroeder Advisers, Inc. has agreed to waive its
advisory fee and, if necessary, to reimburse the Portfolio through April
30, 2000 to the extent that the Portfolio's aggregate expenses exceed
1.50% of the Portfolio's average net assets.
6
<PAGE>
The prospectuses for the Visionary and Visionary Choice annuity contracts
filed with Post-Effective Amendment No. 8 are incorporated herein by reference.
<PAGE>
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, 1999 as supplemented February 11, 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., P.O. Box 29163, Overland Park,
KS 66201-1348 OR 12900 Metcalfe Avenue, Overland Park, KS 66213-2620.
This Statement incorporates terms used in the current Prospectus for each
Contract.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
ONLY IN CONJUNCTION WITH THE PROSPECTUSES FOR YOUR CONTRACT AND THE FUNDS.
The date of this Statement of Additional Information is February 11,
2000.
<PAGE>
Table of Contents
Page
----
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...........................7
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.........................................................17
Variable Annuity Payments.....................................................18
Assumed Investment Rate...............................................19
Amount of Variable Annuity Payments...................................19
Annuity Unit Value....................................................20
Addition, Deletion or Substitution of Investments.............................21
Resolving Material Conflicts..........................................21
Termination of Participation Agreements.......................................22
The Alger American Fund...............................................22
Fidelity Variable Insurance Products Fund and Fund II.................22
OCC Accumulation Trust................................................23
Royce Capital Fund....................................................23
SAFECO Resource Series Trust..........................................24
First Eagle SoGen Variable Funds, Inc.................................25
T. Rowe Price Fixed Income Series, Inc. and T. Rowe Price
International Series, Inc...........................................26
Van Eck Worldwide Insurance Trust.....................................26
Neuberger Berman Advisers Management Trust....................................27
PIMCO Variable Insurance Trust................................................27
Voting Rights.................................................................28
Safekeeping of Account Assets.................................................29
Distribution of the Contracts.................................................29
Legal Matters.................................................................30
Experts.......................................................................30
Other Information.............................................................30
Financial Statements..........................................................31
<PAGE>
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.
1
<PAGE>
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
<PAGE>
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.
ES = per unit charges deducted from the hypothetical Variable Account for
the seven-day period.
3
<PAGE>
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)^(365/7)/UV)) - 1
Where:
NCS = the net change in the value of the Money Market Portfolio (not
including any realized gains or losses on the sale of securities,
unrealized appreciation and depreciation, and income other than
investment income) for the seven-day period attributable to a
hypothetical Variable Account having a balance of one Variable Account
unit.
ES = per unit charges deducted from the hypothetical Variable Account for
the seven-day period.
UV = the unit value for the first day of the seven-day period.
The Money Market Variable Account's yield is lower than the Money Market
Portfolio's yield because of the charges and deductions that the Contract
imposes.
The current and effective yields on amounts held in the Money Market Variable
Account normally fluctuate on a daily basis. THEREFORE, THE DISCLOSED YIELD FOR
ANY GIVEN PAST PERIOD IS NOT AN INDICATION OR REPRESENTATION OF FUTURE YIELDS OR
RATES OF RETURN. The Money Market Variable Account's actual yield is affected by
changes in interest rates on money market securities, average portfolio maturity
of the Money Market Portfolio, the types and quality of securities held by the
Money Market Portfolio and that Portfolio's operating expenses. We may also
present yields on amounts held in the Money Market Variable Account for periods
other than a seven-day period.
Yield calculations do not take into account the Withdrawal Charge that we assess
on certain withdrawals of Contract Value. The amount of the Withdrawal Charge
depends on the Withdrawal Charge Option and the Free Withdrawal Option that you
choose at the time of purchase. See "Fees and Charges" in the prospectus for
further description of these options. No Withdrawal Charge applies to Contract
Value in excess of aggregate Premium Payments.
Based on the method of calculation described above, for the seven-day period
ended December 31, 1998, the current yield and the effective yield for the Money
Market Variable Account were as follows:
4
<PAGE>
Current yield: 3.58%
Effective yield: 3.65%
OTHER VARIABLE ACCOUNT YIELDS
Sales literature or advertisements may quote the current annualized yield of one
or more of the Variable Accounts (except the Money Market Variable Account)
under the Contract for 30-day or one-month periods. The annualized yield of a
Variable Account refers to income that the Variable Account generates during a
30-day or one-month period and is assumed to be generated during each period
over a 12-month period.
We compute the annualized 30-day yield by:
1. Subtracting the Variable Account expenses for the period from the
net investment income of the portfolio attributable to the Variable
Account units;
2. Dividing 1. by the maximum offering price per unit on the last day
of the period;
3. Multiplying 2. by the daily average number of units outstanding for
the period;
4. compounding that yield for a six-month period; and
5. multiplying the result in 4. by 2.
Expenses of the Variable Account include the annualized Contract Fee, the
asset-based administration charge and the mortality and expense risk charge. The
yield calculation assumes that we deduct a Contract Fee of $30 per year per
Contract at the end of each Contract Year. For purposes of calculating the
30-day or one-month yield, we use an average Contract Fee based on the average
Contract Value in the Variable Account to determine the amount of the charge
attributable to the Variable Account for the 30-day or one-month period. We
calculate the 30-day or one-month yield by the following formula:
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.
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.
5
<PAGE>
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 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:
6
<PAGE>
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.
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.
7
<PAGE>
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
Pension World Pensions & Investments
Rough Notes Round the Table
U.S. Banker VARDs
Wall Street Journal Working Woman
8
<PAGE>
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
12/31/98 12/31/98 Variable Account
operations to
12/31/98
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ALGER AMERICAN FUND
- ----------------------------------------------------------------------------------------------------------------------------------
MidCap Growth (11/6/95) 21.39% 15.33% 13.72%
Small Capitalization (11/6/95) 6.83% 6.63% 5.05%
- ----------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND
- ----------------------------------------------------------------------------------------------------------------------------------
Equity Income (11/6/95) 3.05% 14.31% 14.62%
Growth (11/6/95) 30.45% 22.10% 19.62%
Money Market (11/6/95)* -2.50% 1.74% 1.76%
- ----------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND II
- ----------------------------------------------------------------------------------------------------------------------------------
Asset Manager (11/6/95) 6.36% 13.24% 13.45%
Contrafund (11/6/95) 21.07% 21.71% 20.68%
Index 500 (11/6/95) 19.29% 24.54% 23.91%
Investment Grade Bond (11/6/95) 0.48% 3.27% 3.54%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<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
12/31/98 12/31/98 Variable Account
operations to
12/31/98
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OCC ACCUMULATION TRUST
- ----------------------------------------------------------------------------------------------------------------------------------
Managed (11/6/95) -1.11% 13.68% 13.56%
Small Cap (11/6/95) -16.03% 6.07% 6.83%
- ----------------------------------------------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
- ----------------------------------------------------------------------------------------------------------------------------------
Royce Micro-Cap (9/1/97) -3.93% N/A 3.59%
- ----------------------------------------------------------------------------------------------------------------------------------
SAFECO RESOURCE SERIES TRUST
- ----------------------------------------------------------------------------------------------------------------------------------
Equity (9/1/97) 16.06% N/A 16.08%
Growth (9/1/97) -6.00% N/A 3.13%
- ----------------------------------------------------------------------------------------------------------------------------------
FIRST EAGLE SOGEN VARIABLE FUNDS, INC.(1)
- ----------------------------------------------------------------------------------------------------------------------------------
First Eagle SoGen Overseas (9/1/97) -4.65% N/A -8.59%
- ----------------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
- ----------------------------------------------------------------------------------------------------------------------------------
Limited-Term Bond (11/6/95) -0.95% 2.29% 2.27%
- ----------------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
- ----------------------------------------------------------------------------------------------------------------------------------
International Stock (11/6/95) 7.86% 6.83% 7.62%
- ----------------------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST
- ----------------------------------------------------------------------------------------------------------------------------------
Worldwide Hard Assets (11/6/95) -36.25% -10.45% -9.50%
==================================================================================================================================
</TABLE>
* 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
<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
12/31/98 12/31/98 Variable Account
operations
To 12/31/98
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ALGER AMERICAN FUND
- -----------------------------------------------------------------------------------------------------------------------------------
MidCap Growth (11/6/95) 28.50% 17.16% 15.47%
Small Capitalization (11/6/95) 13.93% 8.74% 7.11%
- -----------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND
- -----------------------------------------------------------------------------------------------------------------------------------
Equity Income (11/6/95) 10.08% 16.16% 16.34%
Growth (11/6/95) 37.56% 23.74% 21.21%
Money Market (11/6/95) * 4.16% 4.04% 3.95%
- -----------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND II
- -----------------------------------------------------------------------------------------------------------------------------------
Asset Manager (11/6/95) 13.46% 15.12% 15.21%
Contrafund (11/6/95) 28.18% 23.36% 22.24%
Index 500 (11/6/95) 26.40% 26.11% 25.38%
Investment Grade Bond (11/6/95) 7.34% 5.51% 5.66%
- -----------------------------------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
- -----------------------------------------------------------------------------------------------------------------------------------
Managed (11/6/95) 5.64% 15.54% 15.31%
Small Cap (11/6/95) -10.28% 8.19% 8.81%
- -----------------------------------------------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
- -----------------------------------------------------------------------------------------------------------------------------------
Royce Micro-Cap (9/1/97) 2.63% N/A 8.85%
- -----------------------------------------------------------------------------------------------------------------------------------
SAFECO RESOURCE SERIES TRUST
- -----------------------------------------------------------------------------------------------------------------------------------
Equity (9/1/97) 23.17% N/A 21.16%
Growth (9/1/97) 0.42% N/A 8.39%
- -----------------------------------------------------------------------------------------------------------------------------------
FIRST EAGLE SOGEN VARIABLE FUNDS, INC.
- -----------------------------------------------------------------------------------------------------------------------------------
First Eagle SoGen Overseas (9/1/97) 1.86% N/A -3.87%
- -----------------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
- -----------------------------------------------------------------------------------------------------------------------------------
Limited-Term Bond (11/6/95) 5.81% 4.58% 4.45%
- -----------------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
- -----------------------------------------------------------------------------------------------------------------------------------
International Stock (11/6/95) 14.96% 8.93% 9.57%
- -----------------------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST
- -----------------------------------------------------------------------------------------------------------------------------------
Worldwide Hard Assets (11/6/95) -31.88% -8.40% -7.52%
===================================================================================================================================
</TABLE>
* Yield more closely reflects current earnings of the Money Market Variable
Account than its total return.
Standard cumulative total returns for periods since the inception of each
Variable Account are as follows. These figures include: the daily deduction of a
mortality and expenses charge at an annual rate of 1.25%; the daily deduction of
an annual administrative expenses charge at an annual rate of 0.15%; the
quarterly deduction of an administration charge of $7.50 adjusted for average
account size; and the 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
<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
12/31/98 12/31/98 Variable Account
operations
To 12/31/98
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ALGER AMERICAN FUND
- -----------------------------------------------------------------------------------------------------------------------------------
MidCap Growth (11/6/95) 21.39% 53.42% 49.96%
Small Capitalization (11/6/95) 6.83% 21.23% 16.80%
- -----------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND
- -----------------------------------------------------------------------------------------------------------------------------------
Equity Income (11/6/95) 3.05% 49.36% 53.75%
Growth (11/6/95) 30.45% 82.04% 75.90%
Money Market (11/6/95) * -2.50% 5.30% 5.65%
- -----------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND II
- -----------------------------------------------------------------------------------------------------------------------------------
Asset Manager (11/6/95) 6.36% 45.19% 48.86%
Contrafund (11/6/95) 21.07% 80.30% 80.89%
Index 500 (11/6/95) 19.29% 93.15% 96.56%
Investment Grade Bond (11/6/95) 0.48% 10.14% 11.60%
- -----------------------------------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
- -----------------------------------------------------------------------------------------------------------------------------------
Managed (11/6/95) -1.11% 46.90% 49.30%
Small Cap (11/6/95) -16.03% 19.32% 23.15%
- -----------------------------------------------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
- -----------------------------------------------------------------------------------------------------------------------------------
Royce Micro-Cap (9/1/97) -3.93% N/A 4.82%
- -----------------------------------------------------------------------------------------------------------------------------------
SAFECO RESOURCE SERIES TRUST
- -----------------------------------------------------------------------------------------------------------------------------------
Equity (9/1/97) 16.06% N/A 22.00%
Growth (9/1/97) -6.00% N/A 4.20%
- -----------------------------------------------------------------------------------------------------------------------------------
FIRST EAGLE SOGEN VARIABLE FUNDS, INC.
- -----------------------------------------------------------------------------------------------------------------------------------
First Eagle SoGen Overseas (9/1/97) -4.65% N/A -11.28%
- -----------------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
- -----------------------------------------------------------------------------------------------------------------------------------
Limited-Term Bond (11/6/95) -0.95% 7.04% 7.34%
- -----------------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
- -----------------------------------------------------------------------------------------------------------------------------------
International Stock (11/6/95) 7.86% 21.92% 26.01%
- -----------------------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST
- -----------------------------------------------------------------------------------------------------------------------------------
Worldwide Hard Assets (11/6/95) -36.25% -28.20% -26.97%
===================================================================================================================================
</TABLE>
* Yield more closely reflects current earnings of the Money Market Variable
Account than its total return.
Nonstandard cumulative total returns for each Variable Account for the periods
since the inception of each Variable Account are as follows. These figures
include: the daily deduction of a mortality and expenses charge at an annual
rate of 1.25%; and the daily deduction of the annual administrative expenses
charge at an annual rate of 0.15%.
These figures do not reflect the quarterly deduction of an administration charge
and the 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.
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
12/31/98 12/31/98 Variable Account
operations
To 12/31/98
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ALGER AMERICAN FUND
- -----------------------------------------------------------------------------------------------------------------------------------
MidCap Growth (11/6/95) 28.50% 60.81% 57.39%
Small Capitalization (11/6/95) 13.93% 28.58% 24.18%
- -----------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND
- -----------------------------------------------------------------------------------------------------------------------------------
Equity Income (11/6/95) 10.08% 56.73% 61.15%
Growth (11/6/95) 37.56% 89.48% 83.37%
Money Market (11/6/95)* 4.16% 12.62% 12.99%
- -----------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND II
- -----------------------------------------------------------------------------------------------------------------------------------
Asset Manager (11/6/95) 13.46% 52.56% 56.26%
Contrafund (11/6/95) 28.18% 87.72% 88.35%
Index 500 (11/6/95) 26.40% 100.58% 104.02%
Investment Grade Bond (11/6/95) 7.34% 17.46% 18.96%
- -----------------------------------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
- -----------------------------------------------------------------------------------------------------------------------------------
Managed (11/6/95) 5.64% 54.25% 56.68%
Small Cap (11/6/95) -10.28% 26.63% 30.48%
- -----------------------------------------------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
- -----------------------------------------------------------------------------------------------------------------------------------
Royce Micro-Cap (9/1/97) 2.63% N/A 11.98%
- -----------------------------------------------------------------------------------------------------------------------------------
SAFECO RESOURCE SERIES TRUST
- -----------------------------------------------------------------------------------------------------------------------------------
Equity (9/1/97) 23.17% N/A 29.17%
Growth (9/1/97) 0.42% N/A 11.35%
- -----------------------------------------------------------------------------------------------------------------------------------
FIRST EAGLE SOGEN VARIABLE FUNDS, INC.
- -----------------------------------------------------------------------------------------------------------------------------------
First Eagle SoGen Overseas (9/1/97) 1.86% N/A -5.12%
- -----------------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
- -----------------------------------------------------------------------------------------------------------------------------------
Limited-Term Bond (11/1/95) 5.81% 14.37% 14.69%
- -----------------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
- -----------------------------------------------------------------------------------------------------------------------------------
International Stock (11/6/95) 14.96% 29.25% 33.37%
- -----------------------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST
- -----------------------------------------------------------------------------------------------------------------------------------
Worldwide Hard Assets (11/6/95) -31.88% -23.15% -21.83%
===================================================================================================================================
</TABLE>
* Yield more closely reflects current earnings of the Money Market Variable
Account than its total return.
ADJUSTED HISTORICAL PORTFOLIO PERFORMANCE FIGURES
The charts below show "adjusted" historical performance data for the Portfolios,
including for periods prior to the inception of the Variable Accounts, based on
the performance of each Portfolio since its inception date, with a level of
charges equal to those currently assessed under the Contracts. THESE FIGURES ARE
NOT AN INDICATION OF THE FUTURE PERFORMANCE OF THE VARIABLE ACCOUNTS. Some of
the figures reflect the waiver of advisory fees and reimbursement of other
expenses for part or all of the periods indicated.
Adjusted historical average annual total returns for periods since the inception
of each Portfolio are as follows. These figures include: the daily deduction of
the mortality and expenses charges at an annual rate of 1.25% (except that,
prior to the inception of the corresponding Variable Account, deductions are
monthly); the daily deduction of the annual administrative expenses
13
<PAGE>
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
12/31/98 12/31/98 12/31/98 12/31/98 to 12/31/98
- -----------------------------------------------------------------------------------------------------------------------------------
ALGER AMERICAN FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MidCap Growth (5/3/93) 21.39% 15.33% 17.47% N/A 22.13%
Small Capitalization (9/20/88) 6.83% 6.63% 11.51% 18.66% 17.67%
- -----------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND
- -----------------------------------------------------------------------------------------------------------------------------------
Equity Income (10/9/86) 3.05% 14.31% 16.37% 13.87% 12.70%
Growth (10/9/86) 30.45% 22.10% 19.82% 17.96% 15.89%
Money Market (4/2/82)* -2.50% 1.74% 2.58% 3.67% 5.00%
- -----------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND II
- -----------------------------------------------------------------------------------------------------------------------------------
Asset Manager (9/6/89) 6.36% 13.24% 9.26% N/A 11.39%
Contrafund (1/3/95) 21.07% 21.71% N/A N/A 26.33%
Index 500 (8/27/92) 19.29% 24.54% 21.39% N/A 19.13%
Investment Grade Bond (12/5/88) 0.48% 3.27% 3.98% 4.43% 4.39%
- -----------------------------------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
- -----------------------------------------------------------------------------------------------------------------------------------
Managed (8/31/88) -1.11% 13.68% 16.86% 17.47% 17.56%
Small Cap (8/31/88) -16.03% 6.07% 5.87% 11.60% 11.36%
- -----------------------------------------------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
- -----------------------------------------------------------------------------------------------------------------------------------
Royce Micro-Cap (12/27/96) -3.93% N/A N/A N/A 7.53%
- -----------------------------------------------------------------------------------------------------------------------------------
SAFECO RESOURCE SERIES TRUST
- -----------------------------------------------------------------------------------------------------------------------------------
Equity (11/6/86) 16.06% 20.88% 16.55% 15.89% 14.48%
Growth (12/31/92) -6.00% 21.45% 22.73% N/A 24.77%
- -----------------------------------------------------------------------------------------------------------------------------------
FIRST EAGLE SOGEN VARIABLE FUNDS, INC.
- -----------------------------------------------------------------------------------------------------------------------------------
First Eagle SoGen Overseas (2/3/97) -4.65% N/A N/A N/A -4.32%
- -----------------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
- -----------------------------------------------------------------------------------------------------------------------------------
Limited-Term Bond (5/13/94) -0.95% 2.29% N/A N/A 3.46%
- -----------------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
- -----------------------------------------------------------------------------------------------------------------------------------
International Stock (3/31/94) 7.86% 6.83% N/A N/A 6.55%
- -----------------------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST
- -----------------------------------------------------------------------------------------------------------------------------------
Worldwide Hard Assets (8/31/89) -36.25% -10.45% -7.67% N/A -0.41%
===================================================================================================================================
</TABLE>
* Yield more closely reflects current earnings of the Money Market Portfolio
than its total return.
Adjusted historical average annual total returns for periods since the
inception of each Portfolio are as follows. These figures include: the daily
deduction of the mortality and 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).
14
<PAGE>
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>
===================================================================================================================================
For the For the For the For the For the period from
1-year 3-year 5-year 10-year beginning
period period period period Of Portfolio
Portfolio ended ended ended ended operations
(Date Portfolio operations began) 12/31/98 12/31/98 12/31/98 12/31/98 to 12/31/98
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALGER AMERICAN FUND
- -----------------------------------------------------------------------------------------------------------------------------------
MidCap Growth (5/3/93) 28.50% 17.61% 18.28% N/A 22.68%
Small Capitalization (9/20/88) 13.93% 8.74% 12.49% 18.71% 17.72%
- -----------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND
- -----------------------------------------------------------------------------------------------------------------------------------
Equity Income (10/9/86) 10.08% 16.16% 17.20% 13.94% 12.76%
Growth (10/9/86) 37.56% 23.74% 20.58% 18.02% 15.95%
Money Market (4/2/82) * 4.16% 4.04% 3.91% 3.76% 5.06%
- -----------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND II
- -----------------------------------------------------------------------------------------------------------------------------------
Asset Manager (9/6/89) 13.46% 15.12% 10.32% N/A 11.46%
Contrafund (1/3/95) 28.18% 23.36% N/A N/A 27.26%
Index 500 (8/27/92) 26.40% 26.11% 22.11% N/A 19.58%
Investment Grade Bond (12/5/88) 7.34% 5.51% 5.24% 4.52% 4.48%
- -----------------------------------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
- -----------------------------------------------------------------------------------------------------------------------------------
Managed (8/31/88) 5.64% 15.54% 17.68% 17.80% 17.61%
Small Cap (8/31/88) -10.28% 8.19% 7.06% 11.67% 11.42%
- -----------------------------------------------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
- -----------------------------------------------------------------------------------------------------------------------------------
Royce Micro-Cap (12/27/96) 2.63% N/A N/A N/A 10.81%
- -----------------------------------------------------------------------------------------------------------------------------------
SAFECO RESOURCE SERIES TRUST
- -----------------------------------------------------------------------------------------------------------------------------------
Equity (11/6/86) 23.17% 22.55% 17.39% 15.96% 14.54%
Growth (12/31/92) 0.42% 23.10% 23.42% N/A 25.16%
- -----------------------------------------------------------------------------------------------------------------------------------
FIRST EAGLE SOGEN VARIABLE FUNDS, INC.
- -----------------------------------------------------------------------------------------------------------------------------------
First Eagle SoGen Overseas (2/3/97) 1.86% N/A N/A N/A -0.91%
- -----------------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
- -----------------------------------------------------------------------------------------------------------------------------------
Limited-Term Bond (5/13/94) 5.81% 4.58% N/A N/A 4.86%
- -----------------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
- -----------------------------------------------------------------------------------------------------------------------------------
International Stock (3/31/94) 14.96% 8.93% N/A N/A 7.78%
- -----------------------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST
- -----------------------------------------------------------------------------------------------------------------------------------
Worldwide Hard Assets (8/31/89) -31.88% -8.40% -6.36% N/A -0.32%
===================================================================================================================================
</TABLE>
* Yield more closely reflects current earnings of the Money Market Portfolio
than its total return.
Adjusted historical cumulative total returns for periods since the
inception of each Portfolio are as follows. These figures include: the daily
deduction of the mortality and expenses charge at an annual rate of 1.25%
(except that, prior to the inception of the corresponding Variable Account,
deductions are monthly); the daily deduction of the annual administrative
expenses charge at an annual rate of 0.15% (except that, prior to the inception
of the corresponding Variable Account, deductions are monthly); the quarterly
deduction of an administration charge of $7.50 adjusted for average account
size; and the applicable contingent deferred sales load for the Visionary
contract and for the Date of Issue Withdrawal Charge Option under the Visionary
Choice contract.
15
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
For the For the For the For the For the period
1-year 3-year 5-year 10-year from beginning
period period period period Of Portfolio
Portfolio ended ended ended ended operations
(Date Portfolio operations began) 12/31/98 12/31/98 12/31/98 12/31/98 to 12/31/98
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALGER AMERICAN FUND
- -----------------------------------------------------------------------------------------------------------------------------------
MidCap Growth (5/3/93) 21.39% 53.42% 123.68% N/A 210.17%
Small Capitalization (9/20/88) 6.83% 21.23% 72.41% 453.50% 432.63%
- -----------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND
- -----------------------------------------------------------------------------------------------------------------------------------
Equity Income (10/9/86) 3.05% 49.36% 113.38% 266.43% 331.39%
Growth (10/9/86) 30.45% 82.04% 147.00% 421.52% 506.87%
Money Market (4/2/82) * -2.50% 5.30% 13.57% 43.40% 126.22%
- -----------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND II
- -----------------------------------------------------------------------------------------------------------------------------------
Asset Manager (9/6/89) 6.36% 45.19% 55.69% N/A 173.18%
Contrafund (1/3/95) 21.07% 80.30% N/A N/A 154.18%
Index 500 (8/27/92) 19.29% 93.15% 163.61% N/A 203.61%
Investment Grade Bond (12/5/88) 0.48% 10.14% 21.52% 54.28% 54.13%
- -----------------------------------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
- -----------------------------------------------------------------------------------------------------------------------------------
Managed (8/31/88) -1.11% 46.90% 117.94% 412.03% 432.01%
Small Cap (8/31/88) -16.03% 19.32% 33.03% 199.74% 203.92%
- -----------------------------------------------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
- -----------------------------------------------------------------------------------------------------------------------------------
Royce Micro-Cap (12/27/96) -3.93% N/A N/A N/A 15.71%
- -----------------------------------------------------------------------------------------------------------------------------------
SAFECO RESOURCE SERIES TRUST
- -----------------------------------------------------------------------------------------------------------------------------------
Equity (11/6/86) 16.06% 76.62% 115.11% 337.09% 416.92%
Growth (12/31/92) -6.00% 79.12% 178.47% N/A 277.21%
- -----------------------------------------------------------------------------------------------------------------------------------
FIRST EAGLE SOGEN VARIABLE FUNDS, INC.
- -----------------------------------------------------------------------------------------------------------------------------------
First Eagle SoGen Overseas (2/3/97) -4.65% N/A N/A N/A -8.08%
- -----------------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
- -----------------------------------------------------------------------------------------------------------------------------------
Limited-Term Bond (5/13/94) -0.95% 7.04% N/A N/A 17.06%
- -----------------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
- -----------------------------------------------------------------------------------------------------------------------------------
International Stock (3/31/94) 7.86% 21.92% N/A N/A 35.19%
- -----------------------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST
- -----------------------------------------------------------------------------------------------------------------------------------
Worldwide Hard Assets (8/31/89) -36.25% -28.20% -32.89% N/A -3.75%
===================================================================================================================================
</TABLE>
* Yield more closely reflects current earnings of the Money Market Portfolio
than its total return.
Adjusted historical cumulative total returns for periods since the
inception of each Portfolio are as follows. These figures include: the daily
deduction of the mortality and expenses charges at an annual rate of 1.25%
(except that, prior to the inception of the corresponding Variable Account,
deductions are monthly); and the daily deduction of the administrative expenses
charge at an annual rate of 0.15% (except that, prior to the inception of the
corresponding Variable Account, deductions are monthly).
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.
16
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
Portfolio For the For the For the For the For the period from
(Date Portfolio operations began) 1-year 3-year 5-year 10-year beginning
period period period period Of Portfolio
ended ended ended ended operations
12/31/98 12/31/98 12/31/98 12/31/98 to 12/31/98
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALGER AMERICAN FUND
- -----------------------------------------------------------------------------------------------------------------------------------
MidCap Growth (5/3/93) 28.50% 60.81% 131.50% N/A 218.16%
Small Capitalization (9/20/88) 13.93% 28.58% 80.10% 455.59% 434.85%
- -----------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND
- -----------------------------------------------------------------------------------------------------------------------------------
Equity Income (10/9/86) 10.08% 56.73% 121.14% 268.71% 334.52%
Growth (10/9/86) 37.56% 89.48% 154.91% 424.28% 510.80%
Money Market (4/2/82) * 4.16% 12.62% 21.13% 44.59% 128.60%
- -----------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUND II
- -----------------------------------------------------------------------------------------------------------------------------------
Asset Manager (9/6/89) 13.46% 52.56% 63.40% N/A 174.83%
Contrafund (1/3/95) 28.18% 87.72% N/A N/A 161.80%
Index 500 (8/27/92) 26.40% 100.58% 171.54% N/A 210.92%
Investment Grade Bond (12/5/88) 7.34% 17.47% 29.12% 55.59% 55.44%
- -----------------------------------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
- -----------------------------------------------------------------------------------------------------------------------------------
Managed (8/31/88) 5.64% 54.25% 125.68% 414.43% 434.58%
Small Cap (8/31/88) -10.28% 26.63% 40.62% 201.42% 205.72%
- -----------------------------------------------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
- -----------------------------------------------------------------------------------------------------------------------------------
Royce Micro-Cap (12/27/96) 2.63% N/A N/A N/A 22.93%
- -----------------------------------------------------------------------------------------------------------------------------------
SAFECO RESOURCE SERIES TRUST
- -----------------------------------------------------------------------------------------------------------------------------------
Equity (11/6/86) 23.17% 84.05% 122.93% 339.51% 420.31%
Growth (12/31/92) 0.42% 86.52% 186.36% N/A 284.40%
- -----------------------------------------------------------------------------------------------------------------------------------
FIRST EAGLE SOGEN VARIABLE FUNDS, INC.
- -----------------------------------------------------------------------------------------------------------------------------------
First Eagle SoGen Overseas (2/3/97) 1.86% N/A N/A N/A -1.73%
- -----------------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
- -----------------------------------------------------------------------------------------------------------------------------------
Limited-Term Bond (5/13/94) 5.81% 14.37% N/A N/A 24.59%
- -----------------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
- -----------------------------------------------------------------------------------------------------------------------------------
International Stock (3/31/94) 14.96% 29.25% N/A N/A 42.76%
- -----------------------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST
- -----------------------------------------------------------------------------------------------------------------------------------
Worldwide Hard Assets (8/31/89) -31.88% -23.15% -28.01% N/A -2.92%
===================================================================================================================================
</TABLE>
* Yield more closely reflects current earnings of the Money Market Portfolio
than its total return.
NET INVESTMENT FACTOR
The Net Investment Factor is an index that measures the investment
performance of a Variable Account from one Business Day to the next. Each
Variable Account has its own Net Investment Factor, which may be greater or less
than one. The Net Investment Factor for each Variable Account equals 1 plus the
fraction obtained by dividing (a) by (b) where:
(a) is the net result of:
1. the investment income, dividends, and capital gains, realized or
unrealized, credited at the end of the current Business Day; plus
17
<PAGE>
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.
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.
18
<PAGE>
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 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.)
19
<PAGE>
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 ............................................ $11.15
2. Accumulation unit value for immediately preceding
valuation period ............................................ $11.10
3. Annuity unit value for immediately preceding
valuation period ............................................ $105.00
4. Factor to compensate for the assumed
investment rate of 3.0% ..................................... .9975
5. Annuity unit value of current valuation
period ((1) / (2)) x (3) x (4) .............................. $105.2093
ILLUSTRATION OF VARIABLE ANNUITY PAYMENTS
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
20
<PAGE>
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
In the event of any such substitution or change, we may (by appropriate
endorsement, if necessary) change the Contract to reflect the substitution or
change. If we consider it to be in the best interest of Owners and Annuitants,
and subject to any approvals that may be required under applicable law, the
Separate Account may be operated as a management investment company under the
1940 Act, it may be deregistered under that Act if registration is no longer
required, it may be combined with other of our separate accounts, or the assets
may be transferred to another separate account. In addition, we may, when
permitted by law, restrict or eliminate any voting rights you have under the
Contracts.
We will continue to pay a Living Benefit under the Visionary Choice Contract and
a Maturity Benefit under the Visionary Contract on Premium Payments allocated to
an Eligible Variable Account if: the portfolio underlying an Eligible Variable
Account changes its investment objective; we determine that an investment in the
portfolio underlying an Eligible Variable Account is no longer appropriate in
light of the purposes of the Separate Account; or shares of a portfolio
underlying an Eligible Variable Account are no longer available for investment
by the Separate Account and we are forced to redeem all shares of the portfolio
held by the Eligible Variable Account. (See the Prospectus for your Contract.)
RESOLVING MATERIAL CONFLICTS
The Funds currently sell shares to registered separate accounts of insurance
companies other than IL Annuity to support other variable annuity contracts and
variable life insurance contracts. In addition, our other separate accounts and
separate accounts of other affiliated life insurance companies may purchase some
of the Funds to support other variable annuity or variable life insurance
contracts. Moreover, qualified retirement plans may purchase shares of some of
the Funds. As a result, there is a possibility that an irreconcilable material
conflict may arise between your interests in owning a Contract whose Contract
Value is allocated to 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
21
<PAGE>
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 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;
22
<PAGE>
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.
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;
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;
23
<PAGE>
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.
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;
24
<PAGE>
o in the event this agreement is assigned without the prior written consent
of IL Annuity, the Trust or Adviser.
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 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.
25
<PAGE>
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. (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;
26
<PAGE>
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;
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
27
<PAGE>
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 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
28
<PAGE>
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.
An insurance company blanket bond covers our officers and employees. Travelers
Casualty and Surety Company of America to Indianapolis Life Insurance Company
and its various subsidiaries issue the bond. Our bond is in the amount of twenty
million dollars. The bond insures against dishonest and fraudulent acts of
officers and employees.
DISTRIBUTION OF THE CONTRACTS
IL Securities, Inc, ("IL Securities") P.O. Box 1230, 2960 North Meridian Street,
Indianapolis, Indiana 46208, acts as a distributor for the Contracts. IL
Securities, Inc. 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.
American United Life Insurance Company ("AUL") and Legacy Marketing Group
("Legacy") own minority equity stakes in IL Group. AUL acquired its minority
ownership interest in IL Group in connection with a proposed affiliation between
AUL and ILICo. That proposed affiliation has been abandoned. On January 7,2000,
ILICo and IL Group entered into a letter of intent with American Mutual Holding
Co. ("AMHC") and AmerUs Life Holdings, Inc., which contemplates a combination of
AMHC and ILICo. That transaction, which includes demutualization by ILICo, is
subject to various governmental and other approvals. The letter of intent
contemplates that, pending consummation of the demutualization, AMHC will
acquire a 45% ownership interest in IL Group and IL Group will use the proceeds
of such investment to repurchase in their entirety the ownership interests held
by AUL and Legacy.
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, Inc. or broker-dealers having selling agreements with such
broker-dealers.
We may pay sales commissions to broker-dealers up to an amount equal to 7.2% of
the Premium Payments paid under a Contract. We may also pay asset-based trailer
commissions of up to 1.25%. We may pay up to 1.25% of Premium Payments to IL
Securities to compensate it for certain distribution expenses. We expect the
broker-dealers to compensate sales representatives in varying amounts from these
commissions. We may pay other distribution expenses such as production incentive
bonuses, an agent's insurance and pension benefits, and agency expense
allowances. These distribution expenses do not result in any additional charges
against the Contracts other than those described in the prospectus under "Fees
and Charges." IL Securities received and retained $1,588,498.71 in underwriting
commissions during fiscal year 1998, $637,722.49 in fiscal year 1997, and
$195,937.53 in fiscal year 1996. IL Securities also received $1,122,938.71 in
underwriting commissions through the end of the third quarter of 1999.
29
<PAGE>
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, 1998
and 1997 and the related statements of income, shareholder's equity and cash
flows for each of the three years in the period ended December 31, 1998, and the
statement of net assets of IL Annuity and Insurance Co. Separate Account 1 as of
December 31, 1998, and the related statement of operations for the year then
ended and statements of changes in net assets for each of the two years in the
period then ended, appearing in this Statement of Additional Information and
Registration Statement 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 the authority of such firm
as experts in accounting and auditing.
OTHER INFORMATION
We have filed a registration statement with the SEC under the Securities Act of
1933, as amended, with respect to the Contracts discussed in this Statement of
Additional Information. The Statement of Additional Information does not include
all of the information set forth in the registration statement, amendments and
exhibits. Statements contained in this Statement of Additional Information
concerning the content of the Contracts and other legal instruments are intended
to be summaries. For a complete statement of the terms of these documents, you
should refer to the instruments filed with the SEC.
FINANCIAL STATEMENTS
30
<PAGE>
Financial Statements
IL Annuity and Insurance Company
Years ended December 31, 1998, 1997 and 1996
With Report of Independent Auditors
<PAGE>
IL Annuity and Insurance Company
Financial Statements
Years ended December 31, 1998, 1997 and 1996
CONTENTS
Report of Independent Auditors..........................................1
Audited Financial Statements
Balance Sheets..........................................................2
Statements of Income....................................................3
Statements of Shareholder's Equity......................................4
Statements of Cash Flows................................................5
Notes to Financial Statements...........................................6
<PAGE>
[LOGO] Ernst & Young o Ernst & Young LLP o Phone: (317) 681-7000
One Indiana Square Fax: (317) 681-7216
Suite 3400 www.ey.com
Indianapolis, Indiana
46204-2094
Report of Independent Auditors
Board of Directors
IL Annuity and Insurance Company
We have audited the accompanying balance sheets of IL Annuity and Insurance
Company (indirectly majority owned by Indianapolis Life Insurance Company) as of
December 31, 1998 and 1997, and the related statements of income, shareholder's
equity, and cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of IL Annuity and Insurance
Company at December 31, 1998 and 1997, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
March 26, 1999
1
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
<PAGE>
IL Annuity and Insurance Company
Balance Sheets
<TABLE>
<CAPTION>
December 31
1998 1997
------------------------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturity securities:
Available for sale, at fair value $ 1,675,815,473 $ 432,917,723
Trading, at fair value 104,749,857 28,033,530
Held to maturity, at amortized cost 8,032,183 8,036,013
Mortgage loans 25,008,180 20,853,908
Policy loans 226,547 41,309
Cash and cash equivalents 227,784,876 78,206,640
------------------------------------
Total investments 2,041,617,116 568,089,123
Accrued investment income 20,901,296 5,838,029
Reinsurance recoverable 108,451,109 30,962,413
Deferred acquisition costs 58,905,858 18,954,120
Goodwill 1,734,003 1,843,518
Federal income taxes recoverable -- 951,606
Receivables and other assets 49,440 195,990
Separate account assets 220,862,443 85,386,460
------------------------------------
Total assets $ 2,452,521,265 $ 712,221,259
====================================
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Future policy benefit reserves $ 2,071,810,495 $ 581,568,496
Other policyholder liabilities 4,958,066 432,661
Accounts payable and other liabilities 23,957,740 13,437,140
Federal income taxes payable 1,618,322 --
Deferred federal income taxes 31,885,299 5,233,339
Separate account liabilities 220,862,443 85,386,460
------------------------------------
Total liabilities 2,355,092,365 686,058,096
Shareholder's equity:
Common stock, $250 par value:
Authorized and issued--10,000 shares 2,500,000 2,500,000
Additional paid-in capital 91,662,659 24,262,659
Accumulated other comprehensive income 819,116 250,115
Retained earnings (deficit) 2,447,125 (849,611)
------------------------------------
Total shareholder's equity 97,428,900 26,163,163
------------------------------------
Total liabilities and shareholder's equity $ 2,452,521,265 $ 712,221,259
====================================
</TABLE>
See accompanying notes.
2
<PAGE>
IL Annuity and Insurance Company
Statements of Income
<TABLE>
<CAPTION>
Years ended December 31
1998 1997 1996
-----------------------------------------
<S> <C> <C> <C>
REVENUE
Annuity fees and charges $ 2,209,651 $ 1,112,192 $ 346,265
Investment income 55,002,920 12,315,656 884,450
Net realized capital gains 194,062 762,934 133,003
-----------------------------------------
57,406,633 14,190,782 1,363,718
EXPENSES
Policy benefits 39,948,207 10,483,499 549,779
Underwriting, acquisition and insurance expenses 11,279,637 1,988,802 2,762,343
-----------------------------------------
51,227,844 12,472,301 3,312,122
-----------------------------------------
Income (loss) before federal income taxes 6,178,789 1,718,481 (1,948,404)
Federal income taxes 2,882,053 38,761 9,634
-----------------------------------------
Net income (loss) $ 3,296,736 $ 1,679,720 $ (1,958,038)
=========================================
</TABLE>
See accompanying notes.
3
<PAGE>
IL Annuity and Insurance Company
Statements of Shareholder's Equity
<TABLE>
<CAPTION>
ACCUMULATED
OTHER RETAINED
COMMON ADDITIONAL PAID- COMPREHENSIVE EARNINGS
STOCK IN CAPITAL INCOME (DEFICIT) TOTAL
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $ 2,500,000 $ 6,762,659 $ 134,367 $ (571,293) $ 8,825,733
Net loss -- -- -- (1,958,038) (1,958,038)
Change in net unrealized gains --
on available for sale securities -- -- 20,102 20,102
------------
Total comprehensive income (1,937,936)
Capital contribution 10,500,000 10,500,000
---------------------------------------------------------------------------------------
Balance at December 31, 1996 2,500,000 17,262,659 154,469 (2,529,331) 17,387,797
Net income -- -- -- 1,679,720 1,679,720
Change in net unrealized gains
on available for sale securities -- -- 95,646 95,646
------------
Total comprehensive income 1,775,366
Capital contribution -- 7,000,000 -- -- 7,000,000
---------------------------------------------------------------------------------------
Balance at December 31, 1997 2,500,000 24,262,659 250,115 (849,611) 26,163,163
Net income -- -- -- 3,296,736 3,296,736
Change in net unrealized gains
on available for sale securities -- -- 569,001 569,001
------------
Total comprehensive income 3,865,737
Capital contribution -- 67,400,000 -- -- 67,400,000
---------------------------------------------------------------------------------------
Balance at December 31, 1998 $ 2,500,000 $ 91,662,659 $ 819,116 $ 2,447,125 $ 97,428,900
=======================================================================================
</TABLE>
See accompanying notes.
4
<PAGE>
IL Annuity and Insurance Company
Statements of Cash Flows
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1998 1997 1996
---------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 3,296,736 $ 1,679,720 $ (1,958,038)
Adjustments to reconcile net income (loss) to net
cash used by operating activities:
Amortization of bond discount/premium (14,211,485) (1,521,845) 20,121
Amortization of goodwill 109,516 109,516 109,516
Net realized capital gains (14,388,642) (3,350,187) (133,003)
Changes in operating assets and liabilities:
Deferred acquisition costs (45,721,706) (17,569,346) (5,227,443)
Amortization of deferred acquisition costs 5,769,968 3,476,107 366,562
Accrued investment income (15,063,267) (5,272,055) (484,944)
Reinsurance recoverable (77,488,696) (30,962,413) --
Receivables and other assets (3,630,107) 5,717,101 163,961
Accounts payable and accrued liabilities 824,660 8,447,968 4,831,911
Federal income taxes 29,221,888 4,188,924 20,457
---------------------------------------------------------------
Net cash used by operating activities (131,281,135) (35,056,510) (2,290,900)
INVESTING ACTIVITIES
Sales and maturity of fixed maturity securities 197,795,869 59,815,409 55,536,586
Mortgage loan repayments 928,766 222,696 --
Purchase of fixed maturity securities (1,428,079,218) (469,593,436) (91,982,677)
Investment in mortgage loans (5,125,000) (21,287,250) --
Increase in policy loans (185,238) (41,309) --
---------------------------------------------------------------
Net cash used by investing activities (1,234,664,821) (430,883,890) (36,446,091)
FINANCING ACTIVITIES
Annuity deposits received 1,465,486,111 530,306,529 45,805,196
Annuity surrender benefits (17,361,919) (14,106,711) (82,916)
Capital contribution 67,400,000 7,000,000 10,500,000
---------------------------------------------------------------
Net cash provided by financing activities 1,515,524,192 523,199,818 56,222,280
---------------------------------------------------------------
Net increase in cash and short-term investments 149,578,236 57,259,418 17,485,289
Cash and cash equivalents at beginning of year 78,206,640 20,947,222 3,461,933
---------------------------------------------------------------
Cash and cash equivalents at end of year $ 227,784,876 $ 78,206,640 $ 20,947,222
===============================================================
</TABLE>
See accompanying notes.
5
<PAGE>
IL Annuity and Insurance Company
Notes to Financial Statements
December 31, 1998
1. ORGANIZATION, BASIS OF PRESENTATION AND ACCOUNTING POLICIES
IL Annuity and Insurance Company (the "Company") is a wholly owned subsidiary of
The Indianapolis Life Group of Companies, Inc., which in turn is a majority
owned subsidiary of Indianapolis Life Insurance Company ("ILICo"). The Company
is incorporated in the State of Massachusetts and is licensed to do business in
forty-five states and the District of Columbia.
The Company offers flexible premium deferred annuity contracts which may be
offered in connection with retirement plans. The premiums collected on variable
annuity contracts are invested primarily in various mutual funds held in a
Separate Account at the direction of the policyholder.
Preparation of the financial statements requires management to make estimates
and assumptions that effect amounts reported in the financial statements and
accompanying notes. Such estimates and assumptions could change in the future as
more information becomes known, which could impact the amounts reported and
disclosed herein.
INVESTMENTS
Fixed maturity securities which may be sold to meet liquidity and other needs of
the Company are categorized as available for sale and are reported at fair value
with unrealized holding gains and losses reported as a separate component of
shareholder's equity. Fixed maturity securities which the Company has the
positive intent and ability to hold to maturity are categorized as
held-to-maturity and are reported at amortized cost. Fixed maturity securities
that are bought and held principally for the purpose of selling them in the near
term to generate profits from short-term differences in price are categorized as
trading and are reported at fair value with unrealized holding gains and losses
reported in operations.
Cash and short-term investments include cash on hand and demand deposits and
investments with maturities of less than one year at the date of acquisition,
and are stated at cost which approximates fair value.
Mortgage loans and policy loans are stated at aggregate unpaid balances.
Allowance for loss on mortgage loans is $252,608 and $210,646 at December 31,
1998 and 1997, respectively.
6
<PAGE>
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
1. ORGANIZATION, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (CONTINUED)
DEFERRED ACQUISITION COSTS
Costs relating to the acquisition of annuity products, primarily commissions and
certain costs of marketing, policy issuance and underwriting, which vary with
and are directly related to the production of new business, are deferred and
included in the deferred acquisition cost asset to the extent that such cost are
recoverable from future policy related revenues. Deferred acquisition costs,
with interest, are amortized over the lives of the policies in a relationship to
the present value of estimated future gross profits, discounted using the
interest rate credited to the policy.
GOODWILL
Goodwill is amortized over the period of 20 years using the straight-line
method. Accumulated amortization of goodwill is $456,316 and $346,801 at
December 31, 1998 and 1997, respectively.
FUTURE POLICY BENEFIT RESERVES
Future policy benefit reserves for annuity products represent policy account
balances before applicable surrender charges, and net unrealized gains on
available for sale securities allocated to policyholders.
THIRD-PARTY ADMINISTRATORS
The Company has contractual arrangements with three third-party administrators
to distribute and administer its annuity products, which represents all of the
Company's business. One of the third-party administrators, Legacy Marketing
Group, processes 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
As of January 1, 1998, the Company adopted the Financial Accounting Standards
Board Statement 130, Reporting Comprehensive Income. Statement 130 establishes
new rules for the reporting and display of comprehensive income and its
components; however, the adoption of this Statement had no impact on the
Company's net income or shareholder's equity. Statement 130 requires unrealized
gains or losses on the Company's available-for-sale securities, which prior to
adoption were reported separately in shareholder's equity, to be included in
accumulated other comprehensive income. Prior years' financial statements have
been reclassified to conform to the requirements of Statement 130.
The Company's reclassification adjustment for 1998 is as follows:
<TABLE>
<CAPTION>
GROSS TAX EFFECT NET
--------------------------------------------------------------
<S> <C> <C> <C>
Unrealized holding gains
arising during year $ 98,645,860 $ (34,526,051) $ 64,119,809
Reclassification adjustment for
gains realized in net income (11,107,299) 3,887,555 (7,219,744)
Allocated to future policy
benefit reserves (86,663,175) 30,332,111 (56,331,064)
--------------------------------------------------------------
Change in net unrealized gains
on available for sale
securities $ 875,386 $ (306,385) $ 569,001
==============================================================
</TABLE>
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year
presentation.
8
<PAGE>
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
2. INVESTMENTS
Fixed maturity securities consist of the following at December 31:
<TABLE>
<CAPTION>
1998
-----------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
United States government $ 94,424,923 $ 1,390,073 $ 103,035 $ 95,711,961
Public utilities 110,563,044 4,319,205 -- 114,882,249
Industrial and miscellaneous 1,367,012,083 102,498,284 20,472,859 1,449,037,508
Mortgage-backed securities 15,891,744 292,010 -- 16,183,754
-----------------------------------------------------------------
$1,587,891,794 $ 108,499,572 $ 20,575,894 $1,675,815,473
=================================================================
Trading:
United States government $ 8,003,369 $ 26,500 $ 130,372 $ 7,899,497
Special revenue 100,370 -- 80,370 20,000
Public utilities 6,578,169 332,988 87,932 6,823,225
Industrial and miscellaneous 92,528,033 1,551,485 4,072,383 90,007,135
-----------------------------------------------------------------
$ 107,209,941 $ 1,910,973 $ 4,371,057 $ 104,749,857
=================================================================
Held to maturity:
Industrial and miscellaneous $ 8,032,183 $ 639,087 $ -- $ 8,671,270
=================================================================
</TABLE>
9
<PAGE>
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
1997
-------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
United States government $ 27,377,457 $ 528,917 $ -- $ 27,906,374
Special revenue 7,520,065 105,854 -- 7,625,919
Public utilities 26,624,432 931,256 9,538 27,546,150
Industrial and miscellaneous 345,890,826 16,092,873 2,831,478 359,152,221
Mortgage-backed securities 10,552,547 134,512 -- 10,687,059
-------------------------------------------------------------
$417,965,327 $ 17,793,412 $ 2,841,016$ 432,917,723
=============================================================
Trading:
United States government $ 1,286,404 $ 1,014 $ 2,966 $ 1,284,452
Special revenue 100,457 -- 9,457 91,000
Public utilities 1,740,617 26,053 1,235 1,765,435
Industrial and miscellaneous 24,577,946 488,545 173,848 24,892,643
-------------------------------------------------------------
$ 27,705,424 $ 515,612 $ 187,506 $ 28,033,530
=============================================================
Held to maturity:
Industrial and miscellaneous $ 8,036,013 $ 440,017 $ -- $ 8,476,030
=============================================================
</TABLE>
10
<PAGE>
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
The amortized cost and fair value of fixed maturity securities at December 31,
1998, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE TRADING HELD TO MATURITY
---------------------------------------------------------------------------------------------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Due in one year or less $ 30,960,010 $ 30,898,159 $ -- $ -- $ -- $ --
Due after one year
through five years 504,701,853 540,724,618 8,435,770 7,742,807 1,000,000 1,010,580
Due after five years
through ten years 627,939,162 650,989,758 96,318,211 94,623,050 6,032,183 6,563,940
Due after ten years 408,399,025 437,019,183 2,455,960 2,384,000 1,000,000 1,096,750
Mortgage-backed securities 15,891,745 16,183,755 -- -- -- --
---------------------------------------------------------------------------------------------------
$1,587,891,795 $1,675,815,473 $ 107,209,941 $ 104,749,857 $ 8,032,183 $ 8,671,270
===================================================================================================
</TABLE>
Net investment income consisted of the following:
1998 1997 1996
-----------------------------------------------
Fixed maturity securities $46,825,700 $10,314,562 $531,894
Equity securities 13,673 -- 113,017
Mortgage loans 1,848,846 606,460 --
Short term investments 8,136,334 1,938,719 244,725
Other 1,339,625 7,709 82
-----------------------------------------------
Gross investment income 58,164,178 12,947,656 889,718
Less investment expenses 3,161,258 631,794 5,268
-----------------------------------------------
Net investment income $55,002,920 $12,315,656 $894,450
===============================================
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:
1998 1997
------------ ------------
Fixed maturity securities:
Gross unrealized gains $108,499,573 $ 17,793,412
Gross unrealized losses 20,575,894 2,841,016
------------ ------------
87,923,679 14,952,396
Deferred income taxes 30,773,174 5,233,339
Allocated to future policy
benefit reserves 56,331,064 9,468,942
Gross unrealized gains on
short-term investments 325 --
------------ ------------
$ 819,116 $ 250,115
============ ============
Proceeds from sales of available for sale securities during 1998 and 1997 were
$155,534,662 and $31,468,962, respectively. Gross gains of $14,377,767 and
$2,819,617 and gross losses of $1,150,749 and $29,328 were realized during 1998
and 1997, respectively.
3. FEDERAL INCOME TAXES
Significant components of current federal income taxes (benefit) are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------------
<S> <C> <C> <C>
Federal income taxes (benefit) at 35% $ 2,165,408 $ 601,468 $ (681,194)
Effect of net operating losses/
valuation allowance 736,452 (698,193) 693,452
Other, net (19,807) 135,486 (2,624)
-----------------------------------------
Federal income taxes $ 2,882,053 $ 38,761 $ 9,634
=========================================
</TABLE>
Federal income taxes consist of the following:
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------------
<S> <C> <C> <C>
Current taxes $ 1,769,928 $ 38,761 $ 9,634
Deferred taxes 1,112,125 -- --
-----------------------------------------
Total $ 2,882,052 $ 38,761 $ 9,634
=========================================
</TABLE>
12
<PAGE>
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
3. FEDERAL INCOME TAXES (CONTINUED)
At December 31, 1998 and 1997 the financial statements included deferred tax
assets of $22,139,986 and $7,152,369, offset by a valuation allowance of $- and
$200,153 and deferred tax liabilities of $54,025,285 and $12,185,555,
respectively. The significant components of the Company's deferred tax assets
and liabilities were net operating losses, deferred acquisition costs, future
policy benefit reserves, amortization of goodwill and bond discount and
unrealized investment gains and losses.
The Company files a stand-alone federal income tax return.
The Company recovered $800,000 in federal income taxes in 1998, and paid
$1,000,000 and $- in 1997 and 1996, respectively.
4. REINSURANCE
The Company has entered into a modified coinsurance cession agreement covering
flexible premium deferred annuity policies distributed through Legacy Marketing
Group (a third-party administrator). Future policy benefit reserves include
reinsurance payable of $1,511,542,946 and $424,318,398 at December 31, 1998 and
1997, respectively.
The Company remains liable for ceded risks in the event that the reinsurer does
not meet its obligations. Management believes its reinsurer will meet its
obligations under existing contracts.
5. SHAREHOLDER'S EQUITY
Massachusetts insurance regulations require the Company to maintain a minimum
capital and surplus of $1,200,000. Statutory capital and surplus at December 31,
1998 and 1997 was $59,886,970 and $13,292,585, respectively. Statutory net loss
for 1998, 1997 and 1996 was $13,554,570, $4,957,736 and $3,252,584,
respectively.
Generally, the maximum amount of dividends which can be paid to its shareholder
without prior approval of the Insurance Commissioner of the State of
Massachusetts is 10% of statutory surplus at the prior year end.
6. RELATED PARTY TRANSACTIONS
The Company was allocated expenses of $2,998,435 and $1,999,903 for various
administrative services from ILICo for 1998 and 1997, respectively, in
conjunction with expense allocation agreements.
13
<PAGE>
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
fair value disclosures for financial instruments in the accompanying financial
statements and notes thereto:
Cash and cash equivalents, accrued investment income and policy loans: The
carrying amounts reported in the accompanying balance sheets for these
financial instruments approximate their fair values.
Fixed maturity securities: Fair values of bonds are based on quoted market
prices where available. For bonds not actively traded, fair values are
estimated using values obtained from independent pricing services, or in
the case of private placements, are estimated by discounting expected
future cash flows using a current market rate applicable to the yield,
credit quality and maturity of the investments.
Mortgage loans: The fair value of mortgage loans was estimated by
discounting the future cash flows using current rates at which similar
loans would be made to borrowers with similar credit ratings for similar
maturities.
Investment-type contracts: The fair value of deferred annuities is
believed to approximate the cash surrender value.
The carrying amount and fair values of the Company's financial instruments at
December 31, are as follows:
<TABLE>
<CAPTION>
1998 1997
-----------------------------------------------------------------------
CARRYING
CARRYING AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Fixed maturity securities:
Available for sale $1,675,815,473 $1,675,815,473 $432,917,723 $432,917,723
Trading 104,749,857 104,749,857 28,033,530 28,033,530
Held to maturity 8,032,183 8,671,270 8,036,013 8,476,030
Mortgage loans 25,008,180 27,335,409 20,853,908 20,064,554
LIABILITIES:
Deferred annuities 2,071,810,495 1,937,218,686 581,568,496 541,974,496
</TABLE>
14
<PAGE>
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
8. IMPACT OF YEAR 2000 (UNAUDITED)
The Company's Year 2000 plan includes the following phases (many of which have
been completed):
Phase One - Planning and Budgeting: The Company's Board of Directors
adopted a plan to address Year 2000 (Y2K) issues in April of 1997. This
plan was approved by the corporate officers, executive management, and the
Vice President of Information Technology.
Phase Two - Inventory: The Company completed an initial inventory of all
hardware, software, equipment and business partner components on June 30,
1997. Each inventory item was categorized by importance to the
organization, i.e., mission critical, essential, important, and marginal.
Phase Three - Assessment/Planning: An impact assessment was completed on
July 9, 1997, followed by a Y2K project plan on February 2, 1998. The
Company's officers, Legal Department and management worked extensively with
an outside consultant during this process.
Phase Four - Remediation/Implementation of Mission Critical Systems: The
Company implemented necessary mission critical Y2K system updates. Since
the Company was in the process of converting from a mainframe system to a
LAN environment, The Company coordinated the process of migrating to new
mission critical systems that were Y2K ready.
Phase Five - Facilities: The Company has reviewed, upgraded or replaced its
mission critical facilities systems that may contain embedded technology.
This included replacement of its HVAC and Fire/Safety systems used to
maintain the facility. The Company has worked and is working with its
vendors in testing and updating mission critical facility systems as
needed.
Phase Six - Testing: The Company constructed and successfully executed an
enterprise-wide test for its mission critical systems in a dedicated,
time-controlled environment. This testing was completed as of December 31,
1998. Plans for 1999 include on-going testing of these mission critical
systems for Y2K readiness. Additionally, the Company will be examining less
critical systems to verify their readiness.
15
<PAGE>
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
8. IMPACT OF YEAR 2000 (UNAUDITED) (CONTINUED)
Phase Seven -Third Party Administrators/Vendors: The Company has contacted
its significant business partners, suppliers, and vendors to ascertain the
status of their Y2K readiness. The Company has also worked closely with its
Third Party Administrators (TPA), to ascertain their level of Y2K
readiness. The Company's outside consultants have also been involved in the
discussions and assessments of TPA Y2K readiness. The Company will continue
to work with its partners, suppliers, vendors and TPA's throughout 1999.
While The Company has worked in conjunction with these third parties, they
each remain ultimately responsible for their own Y2K readiness initiatives.
Phase Eight - Contingency Planning: The contingency plan for mission
critical systems was written in 1998. Contingency planning for essential,
important and marginal systems is scheduled for completion in 1999. These
plans will be reviewed and updated, where necessary. The Company is
reviewing its current Disaster Recovery Plan and anticipates using it as a
basis for Y2K contingency planning. The Company is working with its offsite
disaster recovery location vendor concerning their readiness, should they
be needed.
Phase Nine - Documentation: The Company has completed a Y2K Operations
Manual documenting procedures relating to Y2K processing. All mission
critical information is stored in fireproof cabinets within the Y2K Office.
The Company is currently in the process of imaging all documentation
relating to Y2K projects, vendor information, correspondence sent/received
and third party relationship documentation. An offsite location has been
established for storing test results and documentation once the imaging
process has been completed.
The costs incurred by ILICo to address the Company's Y2K issues for each of the
years ended December 31, 1998 and 1997 were $11,000,000 and $1,000,000,
respectively. ILICo anticipates incurring additional expenses of approximately
$3,000,000 to complete Y2K initiative.
The Company has not identified the opportunity costs associated with items such
as delayed customer service enhancements, distribution enhancements, postponed
product development and missed growth opportunities. Many of these initiatives
were adversely impacted in 1998, as the Y2K readiness project was the primary
focus of the Information Services Department.
16
<PAGE>
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
8. IMPACT OF YEAR 2000 (UNAUDITED) (CONTINUED)
The Company is confident that its internal mission critical systems can
transition into the Year 2000, and beyond, based on positive testing results.
The Company will continue to evaluate the Y2K readiness of and modify its
essential and important systems throughout 1999. The Company believes that the
worst case Y2K scenario would relate to its outside vendors. Should the Company
not have electricity or should the financial institutions and securities firms
have operational difficulties, it would no doubt affect Company operations. The
impact on the Company would depend on the extent to which of these or other
services are lost or delayed. The Company has not estimated these figures. This
will be an issue the Company will address in its contingency planning during
1999.
<PAGE>
Financial Statements
IL Annuity and Insurance Company Separate
Account 1
Years ended December 31, 1998 and 1997
with Report of Independent Auditors
<PAGE>
IL Annuity and Insurance Company Separate Account 1
Financial Statements
Years ended December 31, 1998 and 1997
CONTENTS
Report of Independent Auditors...............................................1
Audited Financial Statements
Statement of Net Assets......................................................2
Statement of Operations......................................................3
Statements of Changes in Net Assets..........................................4
Notes to Financial Statements................................................6
<PAGE>
[LOGO] Ernst & Young o Ernst & Young LLP o Phone: (317) 681-7000
One Indiana Square Fax: (317) 681-7216
Suite 3400 www.ey.com
Indianapolis, Indiana
46204-2094
Report of Independent Auditors
Board of Directors
IL Annuity and Insurance Company
We have audited the accompanying statement of net assets of IL Annuity and
Insurance Company Separate Account 1 (the Account) as of December 31, 1998, and
the related statement of operations for the year then ended and statements of
changes in net assets for each of the two years in the period then ended. These
financial statements are the responsibility of the Account's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1998 by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of IL Annuity and Insurance
Company Separate Account 1 at December 31, 1998, the results of its operations
for the year then ended and the changes in its net assets for each of the two
years in the period then ended in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
March 26, 1999
Ernst & Young LLP is a member of Ernst & Young International, Ltd. 1
<PAGE>
IL Annuity and Insurance Company Separate Account 1
Statement of Net Assets
December 31, 1998
<TABLE>
<CAPTION>
VALUE IN
ACCUMULATION
PERCENT OF PERIOD AND NET ACCUMULATION
NET ASSETS ASSETS PERIOD UNIT VALUE
-----------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments at net asset value:
Alger American Fund:
Alger American MidCap Growth Portfolio--293,159.385
shares at $28.87 per share (cost--$7,175,413) 3.83% $ 8,463,518 537,127 $ 15.757
Alger Small Capitalization Portfolio--142,521.326 shares at
$43.97 per share (cost--$5,938,251) 2.84% 6,266,674 502,984 12.459
Fidelity Variable Insurance Products Fund and Fund II:
Fidelity Asset Manager Portfolio--442,337.544 shares at
$18.16 per share (cost--$7,479,967) 3.64% 8,032,807 503,498 15.954
Fidelity Contra Portfolio--954,480.052 shares
at $24.44 per share (cost--$19,024,700) 10.56% 23,327,506 1,228,022 18.996
Fidelity Equity Income Portfolio--886,698.057 shares at
$25.42 per share (cost--$20,841,120) 10.20% 22,539,812 1,355,289 16.631
Fidelity Growth Portfolio--384,745.498 shares at $44.87
per share (cost--$13,923,271) 7.82% 17,263,535 948,233 18.206
Fidelity Index 500 Portfolio--282,915.545 shares
at $141.25 per share (cost--$33,606,910) 18.09% 39,961,857 1,895,005 21.088
Fidelity Investment Grade Bond Portfolio--642,028.622
shares at $12.96 per share (cost--$7,949,970) 3.77% 8,320,691 691,547 12.032
Fidelity Money Market Portfolio--12,128,091.59 shares
at $1.00 per share (cost--$12,128,091) 5.49% 12,128,091 1,070,535 11.329
Oppenheimer Capital Accumulation Trust:
OCC Managed Portfolio--511,299.87 shares at $43.74
per share (cost--$21,616,920) 10.13% 22,364,263 1,396,806 16.011
OCC Small Capitalization Portfolio--167,900.561 shares
at $23.10 per share (cost--$4,161,775) 1.76% 3,878,446 295,186 13.139
T. Rowe Price International Series, Inc.:
T. Rowe Price International Stock Portfolio--622,630.899
shares at $14.52 per share (cost--$8,416,607) 4.09% 9,040,605 660,670 13.684
T. Rowe Price Fixed Income Series, Inc.:
T. Rowe Price Limited-Term Bond Portfolio--797,906.019
shares at $5.02 per share (cost--$ 3,990,072) 1.81% 4,005,483 348,151 11.505
Van Eck Worldwide Insurance Trust:
Van Eck Hard Assets Portfolio--
204,576 shares at $9.20 per share (cost--$2,672,462) 0.85% 1,882,096 230,762 8.156
SAFECO Resource Series Trust:
SAFECO Equity Portfolio--351,229.1502
shares at $29.97 per share (cost--$9,874,187) 4.77% 10,526,339 814,921 12.917
SAFECO Growth Portfolio--834,431.9093
shares at $21.30 per share (cost--$20,084,354) 8.05% 17,773,401 1,596,318 11.134
Royce Capital Fund:
Royce Micro-Capitalization Portfolio--612,547.867
shares at $5.24 per share (cost--$3,471,349) 1.45% 3,209,743 286,635 11.198
The SoGen Variable Funds, Inc:
SoGen Overseas Variable Portfolio--188,134
shares at $9.98 per share (cost--$1,961,184) 0.85% 1,877,576 196,153 9.572
-------------------------------------------
Total investments and net assets (cost--$204,316,603) 100.00% $ 220,862,443 14,557,843
===========================================
</TABLE>
See accompanying notes.
2
<PAGE>
IL Annuity and Insurance Company Separate Account 1
Statement of Operations
Year ended December 31, 1998
<TABLE>
<CAPTION>
FIDELITY FIDELITY
ALGER AMERICAN ALGER SMALL ASSET FIDELITY EQUITY
MID-CAP GROWTH CAPITALIZATION MANAGER CONTRA INCOME
COMBINED PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net investment income $ 4,578,675 $ 163,102 $ 146,554 $ 114,576 $ 71,429 $ 175,654
Mortality and expense charges (2,007,727) (75,998) (67,842) (75,619) (206,094) (231,657)
Net realized gain on investments 4,788,745 290,137 546,946 343,729 525,511 625,122
Net change in unrealized appreciation
(depreciation) on investments 13,636,294 1,203,543 62,505 369,890 3,853,247 1,084,137
-------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $20,995,987 $ 1,580,784 $ 688,163 $ 752,576 $ 4,244,093 $ 1,653,256
===========================================================================================
<CAPTION>
FIDELITY FIDELITY
FIDELITY FIDELITY INVESTMENT MONEY
GROWTH INDEX 500 GRADE BOND MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment income $ 33,344 $ 172,100 $ 173,761 $ 452,350
Mortality and expense charges (143,225) (332,834) (76,041) (121,853)
Net realized gain on investments 872,217 398,614 20,616 --
Net change in unrealized appreciation
(depreciation) on investments 3,086,828 5,950,689 287,986 (18,358)
--------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 3,849,164 $ 6,188,569 $ 406,322 $ 312,139
========================================================
</TABLE>
IL Annuity and Insurance Company Separate Account 1
Statement of Operations (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
T. ROWE VAN ECK
OCC OCC SMALL T. ROWE PRICE PRICE VAN ECK WORLDWIDE
MANAGED CAPITALIZATION INTERNATIONAL LIMITED-TERM HARD ASSETS BALANCED
PORTFOLIO PORTFOLIO STOCK PORTFOLIO BOND PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net investment income $ 95,922 $ 9,279 $ 103,176 $ 138,672 $ 310,221 $ 50,391
Mortality and expense charges (226,305) (45,639) (87,862) (35,110) (27,263) (8,766)
Net realized gain on investments 385,492 101,316 36,415 7,816 -- 232,654
Net change in unrealized appreciation
(depreciation) on investments 461,065 (498,851) 807,117 23,406 (1,017,278) (125,542)
--------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 716,174 $ (433,895) $ 858,846 $ 134,784 $ (734,320) $ 148,737
============================================================================================
</TABLE>
<TABLE>
<CAPTION>
SOGEN
SAFECO SAFECO ROYCE MICRO- OVERSEAS
EQUITY GROWTH CAPITALIZATION VARIABLE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment income $ 495,189 $ 1,852,533 $ -- $ 20,422
Mortality and expense charges (73,843) (119,546) (29,799) (22,431)
Net realized gain on investments -- -- 402,160 --
Net change in unrealized appreciation
(depreciation) on investments 762,539 (2,327,980) (265,510) (63,139)
------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 1,183,885 $ (594,993) $ 106,851 $ (65,148)
============================================================
</TABLE>
See accompanying notes.
3
<PAGE>
IL Annuity and Insurance Company Separate Account 1
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
FIDELITY
ALGER AMERICAN ALGER SMALL ASSET
MID-CAP GROWTH CAPITALIZATION MANAGER
COMBINED PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net assets at January 1, 1997 $ 19,804,428 $ 1,188,839 $ 1,805,378 $ 726,896
Changes from 1997 operations:
Net investment income 829,534 1,249 -- 29,038
Mortality and expense charges (662,091) (33,411) (39,116) (21,270)
Net realized gain on investments 807,617 30,451 94,350 72,840
Net change in unrealized appreciation
(depreciation) on investments 5,246,583 258,518 239,994 165,946
------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 6,221,643 256,807 295,228 246,554
Net increase from contract purchases 90,037,395 2,759,201 2,738,621 2,496,478
Net decrease from
redemptions-withdrawals (30,677,003) (593,211) (768,513) (475,425)
------------------------------------------------------------------------------
Total increase in net assets 65,582,035 2,422,797 2,265,336 2,267,607
------------------------------------------------------------------------------
Net assets at December 31, 1997 85,386,463 3,611,636 4,070,714 2,994,503
Changes from 1998 operations:
Net investment income 4,578,675 163,102 146,554 114,576
Mortality and expense charges (2,007,727) (75,998) (67,842) (75,619)
Net realized gain on investments 4,788,745 290,137 546,946 343,729
Net change in unrealized appreciation
(depreciation) on investments 13,636,294 1,203,543 62,505 369,890
------------------------------------------------------------------------------
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
==============================================================================
<CAPTION>
FIDELITY
FIDELITY EQUITY FIDELITY FIDELITY
CONTRA INCOME GROWTH INDEX 500
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net assets at January 1, 1997 $ 2,467,748 $ 2,336,599 $ 1,792,626 $ 2,467,866
Changes from 1997 operations:
Net investment income 24,395 50,007 14,443 35,542
Mortality and expense charges (109,011) (79,769) (50,698) (92,518)
Net realized gain on investments 64,473 251,422 64,652 72,120
Net change in unrealized appreciation
(depreciation) on investments 977,429 1,025,392 615,219 1,562,275
-------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 957,286 1,247,052 643,616 1,577,419
Net increase from contract purchases 7,215,827 10,039,658 4,367,280 12,303,249
Net decrease from
redemptions-withdrawals (1,175,257) (1,805,244) (681,737) (2,574,475)
-------------------------------------------------------------------------
Total increase in net assets 6,997,856 9,481,466 4,329,159 11,306,193
-------------------------------------------------------------------------
Net assets at December 31, 1997 9,465,604 11,818,065 6,121,785 13,774,059
Changes from 1998 operations:
Net investment income 71,429 175,654 33,344 172,100
Mortality and expense charges (206,094) (231,657) (143,225) (332,834)
Net realized gain on investments 525,511 625,122 872,217 398,614
Net change in unrealized appreciation
(depreciation) on investments 3,853,247 1,084,137 3,086,828 5,950,689
-------------------------------------------------------------------------
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
=========================================================================
<CAPTION>
FIDELITY FIDELITY
INVESTMENT MONEY
GRADE BOND MARKET
PORTFOLIO PORTFOLIO
----------------------------------
<S> <C> <C>
Net assets at January 1, 1997 $ 599,037 $ 1,876,845
Changes from 1997 operations:
Net investment income $ 38,551 $ 183,471
Mortality and expense charges (15,965) (42,708)
Net realized gain on investments -- --
Net change in unrealized appreciation
(depreciation) on investments 82,688 47
----------------------------------
Net increase (decrease) in net assets
resulting from operations 105,274 140,810
Net increase from contract purchases 3,041,263 20,381,070
Net decrease from
redemptions-withdrawals (672,832) (17,106,645)
----------------------------------
Total increase in net assets 2,473,705 3,415,235
----------------------------------
Net assets at December 31, 1997 3,072,742 5,292,080
Changes from 1998 operations:
Net investment income 173,761 452,350
Mortality and expense charges (76,041) (121,853)
Net realized gain on investments 20,616 --
Net change in unrealized appreciation
(depreciation) on investments 287,986 (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
==================================
</TABLE>
See accompanying notes.
4
<PAGE>
IL Annuity and Insurance Company Separate Account 1
Statements of Changes in Net Assets (Continued)
<TABLE>
<CAPTION>
T. ROWE
OCC OCC SMALL T. ROWE PRICE PRICE
MANAGED CAPITALIZATION INTERNATIONAL LIMITED-TERM
PORTFOLIO PORTFOLIO STOCK PORTFOLIO BOND PORTFOLIO
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net assets at January 1, 1997 $ 1,672,638 $ 486,213 $ 1,446,986 $ 271,782
Changes from 1997 operations:
Net investment income 23,293 4,014 40,561 33,206
Mortality and expense charges (63,261) (17,708) (36,772) (29,879)
Net realized gain on investments 71,541 28,307 57,461 --
Net change in unrealized appreciation
(depreciation) on investments 576,315 186,669 (116,048) 6,871
--------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 607,888 201,282 (54,798) 10,198
Net increase from contract purchases 9,373,918 2,011,359 3,808,234 2,248,833
Net decrease from
redemptions-withdrawals (1,464,103) (319,414) (790,032) (1,056,766)
--------------------------------------------------------------------------
Total increase in net assets 8,517,703 1,893,227 2,963,404 1,202,265
--------------------------------------------------------------------------
Net assets at December 31, 1997 10,190,341 2,379,440 4,410,390 1,474,047
Changes from 1998 operations:
Net investment income 95,922 9,279 103,176 138,672
Mortality and expense charges (226,305) (45,639) (87,862) (35,110)
Net realized gain on investments 385,492 101,316 36,415 7,816
Net change in unrealized appreciation
(depreciation) on investments 461,065 (498,851) 807,117 23,406
--------------------------------------------------------------------------
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
==========================================================================
<CAPTION>
VAN ECK
VAN ECK WORLDWIDE SAFECO SAFECO
HARD ASSETS BALANCED EQUITY GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net assets at January 1, 1997 $ 370,548 $ 294,427 $ -- $ --
Changes from 1997 operations:
Net investment income 30,297 7,317 77,014 208,167
Mortality and expense charges (18,412) (7,112) (1,506) (1,372)
Net realized gain on investments -- -- -- --
Net change in unrealized appreciation
(depreciation) on investments (115,720) 32,448 (54,039) (168,827)
--------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (103,835) 32,653 21,469 37,968
Net increase from contract purchases 2,208,978 885,565 1,287,790 1,449,284
Net decrease from
redemptions-withdrawals (484,259) (234,710) (209,625) (127,067)
--------------------------------------------------------------------------
Total increase in net assets 1,620,884 683,508 1,099,634 1,360,185
--------------------------------------------------------------------------
Net assets at December 31, 1997 1,991,432 977,935 1,099,634 1,360,185
Changes from 1998 operations:
Net investment income 310,221 50,391 495,189 1,852,533
Mortality and expense charges (27,263) (8,766) (73,843) (119,546)
Net realized gain on investments -- 232,654 -- --
Net change in unrealized appreciation
(depreciation) on investments (1,017,278) (125,542) 762,539 (2,327,980)
--------------------------------------------------------------------------
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
==========================================================================
<CAPTION>
SOGEN
ROYCE MICRO- OVERSEAS
CAPITALIZATION VARIABLE
PORTFOLIO PORTFOLIO
--------------------------------
<S> <C> <C>
Net assets at January 1, 1997 $ -- $ --
Changes from 1997 operations:
Net investment income 28,969 --
Mortality and expense charges (953) (650)
Net realized gain on investments -- --
Net change in unrealized appreciation
(depreciation) on investments (9,616) (18,978)
--------------------------------
Net increase (decrease) in net assets
resulting from operations 18,400 (19,628)
Net increase from contract purchases 797,553 623,234
Net decrease from
redemptions-withdrawals (61,335) (76,353)
--------------------------------
Total increase in net assets 754,618 527,253
--------------------------------
Net assets at December 31, 1997 754,618 527,253
Changes from 1998 operations:
Net investment income -- 20,422
Mortality and expense charges (29,799) (22,431)
Net realized gain on investments 402,160 --
Net change in unrealized appreciation
(depreciation) on investments (265,510) (63,139)
--------------------------------
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
================================
</TABLE>
See accompanying notes.
5
<PAGE>
IL Annuity and Insurance Company Separate Account 1
Notes to Financial Statements
December 31, 1998
1. ACCOUNTING POLICIES
THE ACCOUNT
IL Annuity and Insurance Company Separate Account 1 (the "Account") is a
segregated investment account of the IL Annuity and Insurance Company (the
"Company"), an indirect majority owned subsidiary of Indianapolis Life Insurance
Company ("ILICo"). The Account was established under Massachusetts law on
November 1, 1994, commenced operations in November, 1995 and is registered under
the Investment Company Act of 1940, as amended, as a unit investment trust.
INVESTMENTS
The Account invests in the following funds:
Alger American Fund--MidCap Growth Portfolio, Small Capitalization
Portfolio
Fidelity Variable Insurance Products Fund and Fund II--Asset Manager
Portfolio, Contra Portfolio, Equity Income Portfolio, Growth Portfolio,
Index 500 Portfolio, Investment Grade Bond Portfolio, Money Market
Portfolio
Oppenheimer Capital Accumulation Trust--Managed Portfolio, Small
Capitalization Portfolio
T. Rowe Price International Series, Inc.--International Stock Portfolio
T. Rowe Price Fixed Income Series, Inc.--Limited-Term Bond Portfolio
Van Eck Worldwide Insurance Trust--Hard Assets Portfolio
SAFECO Resource Series Trust --Equity Portfolio, Growth Portfolio
Royce Capital Fun--Micro-Capitalization Portfolio
The SoGen Variable Funds, Inc.--Overseas Variable Portfolio
6
<PAGE>
IL Annuity and Insurance Company Separate Account 1
Notes to Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS (CONTINUED)
Investments in funds are stated at the closing net asset value per share on
December 31.
Investment transactions are accounted for on a trade date basis and the cost of
investments sold is determined by the average cost method.
DIVIDENDS
Dividends paid to the Account are automatically reinvested in shares of the
funds on the payable date.
FEDERAL INCOME TAXES
Operations of the Account form a part of, and are taxed with, operations of the
Company, which is taxed as a "life insurance company" as defined by the Internal
Revenue Code. Based on current law, no federal income taxes are payable with
respect to the Account's net investment income and the net realized gain on
investments.
2. MORTALITY AND EXPENSE GUARANTEES AND OTHER TRANSACTIONS WITH AFFILIATE
Amounts are paid to the Company for mortality and expense guarantees at the rate
of 0.003404% of the current value of the Account per day (1.25% on an annual
basis). The Account also pays the Company for other expenses such as contract
fees ($7.50 per contract at the end of each quarter), and asset-based
administration and investment advisory fees (.15% on an annual basis).
Accordingly, the Company is responsible for all sales, general and
administrative expenses applicable to the Account.
7
<PAGE>
IL Annuity and Insurance Company Separate Account 1
Notes to Financial Statements (continued)
3. NET ASSETS
Net assets at December 31, 1998 consist of the following:
<TABLE>
<CAPTION>
ALGER
AMERICAN
MIDCAP ALGER SMALL FIDELITY ASSET FIDELITY
GROWTH CAPITALIZATION MANAGER CONTRA
COMBINED PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Contract purchases $ 414,721,318 $11,772,752 $ 9,934,379 $12,027,589 $ 30,240,295
Redemptions-
withdrawals (222,029,442) (5,192,377) (4,638,479) (5,038,713) (12,336,041)
Accumulated net
investment income 2,693,833 48,281 29,273 42,773 (233,541)
Accumulated realized
gains on investments 5,620,362 326,865 642,627 416,818 591,187
Accumulated net change
in unrealized appreciation
(depreciation) on
investments 19,856,372 1,507,997 298,874 584,340 5,065,606
----------------------------------------------------------------------------------
$ 220,862,443 $ 8,463,518 $ 6,266,674 $ 8,032,807 $ 23,327,506
==================================================================================
<CAPTION>
FIDELITY FIDELITY
FIDELITY EQUITY FIDELITY INVESTMENT MONEY
INCOME GROWTH FIDELITY INDEX GRADE BOND MARKET
PORTFOLIO PORTFOLIO 500 PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Contract purchases $ 34,033,444 $21,664,231 $ 51,595,156 $14,439,124 $ 96,826,527
Redemptions-
withdrawals (14,530,871) (8,959,866) (19,544,025) (6,647,510) (85,178,792)
Accumulated net
investment income (98,703) (156,821) (226,402) 118,202 498,658
Accumulated realized
gains on investments 879,216 939,303 472,686 20,616 --
Accumulated net change
in unrealized appreciation
(depreciation) on
investments 2,256,726 3,776,688 7,664,442 390,259 (18,302)
-----------------------------------------------------------------------------------
$ 22,539,812 $17,263,535 $ 39,961,857 $ 8,320,691 $ 12,128,091
===================================================================================
</TABLE>
8
<PAGE>
IL Annuity and Insurance Company Separate Account 1
Notes to Financial Statements (continued)
3. NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
T. ROWE PRICE
OCC OCC SMALL INTERNATIONAL T. ROWE PRICE VAN ECK
MANAGED CAPITALIZATION STOCK LIMITED-TERM HARD ASSETS
PORTFOLIO PORTFOLIO PORTFOLIO BOND PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Contract purchases $ 36,557,572 $ 7,061,412 $ 14,888,649 $ 8,271,811 $ 4,584,313
Redemptions-
withdrawals (15,621,912) (2,984,798) (6,733,028) (4,418,422) (1,876,432)
Accumulated net
investment income (176,727) (51,595) 21,376 112,742 294,269
Accumulated realized
gains on investments 457,050 130,816 100,548 7,816 --
Accumulated net change
in unrealized appreciation
(depreciation) on
investments 1,148,280 (277,389) 763,060 31,536 (1,120,054)
--------------------------------------------------------------------------------
$ 22,364,263 $ 3,878,446 $ 9,040,605 $ 4,005,483 $ 1,882,096
================================================================================
<CAPTION>
VAN ECK SOGEN
WORLDWIDE SAFECO SAFECO ROYCE MICRO- OVERSEAS
BALANCED EQUITY GROWTH CAPITALIZATION VARIABLE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Contract purchases $ 2,133,023 $ 17,001,161 $ 30,781,194 $ 6,953,865 $ 3,954,821
Redemptions-
withdrawals (2,335,390) (7,680,176) (12,450,768) (3,869,373) (1,992,469)
Accumulated net
investment income 39,854 496,854 1,939,782 (1,783) (2,659)
Accumulated realized
gains on investments 232,654 -- -- 402,160 --
Accumulated net change
in unrealized appreciation
(depreciation) on
investments (70,141) 708,500 (2,496,807) (275,126) (82,117)
-------------------------------------------------------------------------------
$ -- $ 10,526,339 $ 17,773,401 $ 3,209,743 $ 1,877,576
===============================================================================
</TABLE>
9
<PAGE>
IL Annuity and Insurance Company Separate Account 1
Notes to Financial Statements (continued)
4. PURCHASES AND SALES OF SECURITIES
The aggregate cost of investments purchased and the aggregate proceeds from
investments sold were as follows for 1998:
<TABLE>
<CAPTION>
Aggregate Aggregate
Cost of Proceeds
Purchases from Sales
--------------- --------------
<S> <C> <C>
Alger American MidCap Growth Portfolio $ 4,943,504 $ 1,291,892
Alger Small Capitalization Portfolio 3,318,433 1,203,200
Fidelity Asset Manager Portfolio 5,673,703 1,000,227
Fidelity Contra Portfolio 13,312,920 3,291,564
Fidelity Equity Income Portfolio 13,322,135 3,677,927
Fidelity Growth Portfolio 10,147,711 1,889,081
Fidelity Index 500 Portfolio 25,186,458 4,652,162
Fidelity Investment Grade Bond Portfolio 5,981,432 1,014,294
Fidelity Money Market Portfolio 12,128,091 5,292,088
OCC Managed Portfolio 14,703,264 3,005,338
OCC Small Capitalization Portfolio 2,808,007 818,257
T. Rowe Price International Stock Portfolio 5,103,469 1,287,749
T. Rowe Price Limited-Term Bond Portfolio 3,556,931 1,047,011
Van Eck Hard Assets Portfolio 1,506,476 676,581
Van Eck Worldwide Balanced Portfolio -- 863,205
SAFECO Equity Portfolio 9,758,086 1,081,556
SAFECO Growth Portfolio 20,084,355 1,429,983
Royce Micro-Capitalization Portfolio 3,055,809 343,265
SoGen Overseas Variable Portfolio 1,961,184 549,039
--------------- --------------
$ 156,551,968 $ 34,414,419
=============== ==============
</TABLE>
10
<PAGE>
IL Annuity and Insurance Company Separate Account 1
Notes to Financial Statements (continued)
5. SUMMARY OF UNIT TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------------------
1998 1997
------------------------------------------------------------
UNITS AMOUNT UNITS AMOUNT
------------------------------------------------------------
<S> <C> <C> <C> <C>
ALGER AMERICAN MIDCAP
GROWTH PORTFOLIO
Contract purchases 541,388 $ 7,584,846 239,151 $ 2,759,201
Redemptions-withdrawals (307,905) (4,313,748) (51,416) (593,211)
ALGER SMALL CAPITALIZATION
PORTFOLIO
Contract purchases 421,397 4,929,292 262,182 2,738,621
Redemptions-withdrawals (292,498) (3,421,495) (73,574) (768,513)
FIDELITY ASSET MANAGER PORTFOLIO
Contract purchases 564,262 8,469,571 192,905 2,496,478
Redemptions-withdrawals (278,737) (4,183,843) (36,736) (475,425)
FIDELITY CONTRA PORTFOLIO
Contract purchases 1,203,125 20,344,843 535,915 7,215,827
Redemptions-withdrawals (634,360) (10,727,034) (87,286) (1,175,257)
FIDELITY EQUITY INCOME PORTFOLIO
Contract purchases 1,347,626 21,390,192 741,701 10,039,658
Redemptions-withdrawals (776,292) (12,321,701) (133,366) (1,805,244)
FIDELITY GROWTH PORTFOLIO
Contract purchases 977,899 15,375,506 362,310 4,367,280
Redemptions-withdrawals (514,083) (8,082,920) (56,557) (681,737)
FIDELITY INDEX 500 PORTFOLIO
Contract purchases 1,948,062 36,779,413 836,785 12,303,249
Redemptions-withdrawals (888,781) (16,780,184) (175,099) (2,574,475)
FIDELITY INVESTMENT GRADE
BOND PORTFOLIO
Contract purchases 909,373 10,569,641 281,130 3,041,263
Redemptions-withdrawals (492,817) (5,728,014) (62,196) (672,832)
FIDELITY MONEY MARKET PORTFOLIO
Contract purchases 6,425,159 71,373,876 1,909,770 20,381,070
Redemptions-withdrawals (5,837,872) (64,850,004) (1,602,946) (17,106,645)
OCC MANAGED PORTFOLIO
Contract purchases 1,627,589 25,366,783 676,158 9,373,918
Redemptions-withdrawals (892,434) (13,909,035) (105,608) (1,464,103)
</TABLE>
11
<PAGE>
IL Annuity and Insurance Company Separate Account 1
Notes to Financial Statements (continued)
5. SUMMARY OF UNIT TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------------------
1998 1997
------------------------------------------------------------
UNITS AMOUNT UNITS AMOUNT
------------------------------------------------------------
<S> <C> <C> <C> <C>
OCC SMALL CAPITALIZATION
PORTFOLIO
Contract purchases 321,943 $ 4,473,073 150,118 $ 2,011,359
Redemptions-withdrawals (182,825) (2,540,172) (23,840) (319,414)
T. ROWE PRICE INTERNATIONAL
STOCK PORTFOLIO
Contract purchases 718,383 9,217,930 320,572 3,808,234
Redemptions-withdrawals (424,468) (5,446,561) (66,504) (790,032)
T. ROWE PRICE LIMITED-TERM
BOND PORTFOLIO
Contract purchases 508,347 5,660,952 217,142 2,248,833
Redemptions-withdrawals (293,130) (3,264,300) (102,039) (1,056,766)
VAN ECK HARD ASSETS
PORTFOLIO
Contract purchases 186,118 1,874,118 181,518 2,208,978
Redemptions-withdrawals (124,051) (1,249,134) (39,793) (484,259)
VAN ECK WORLDWIDE BALANCED
PORTFOLIO
Contract purchases 124,696 748,303 76,935 885,565
Redemptions-withdrawals (312,444) (1,874,975) (20,391) (234,710)
SAFECO EQUITY PORTFOLIO
Contract purchases 1,342,335 15,713,371 122,705 1,287,790
Redemptions-withdrawals (638,181) (7,470,551) (19,974) (209,625)
SAFECO GROWTH PORTFOLIO
Contract purchases 2,639,423 29,331,910 130,660 1,449,284
Redemptions-withdrawals (1,108,945) (12,323,701) (11,456) (127,067)
ROYCE MICRO-CAPITALIZATION
PORTFOLIO
Contract purchases 556,679 6,156,312 73,036 797,553
Redemptions-withdrawals (344,338) (3,808,038) (5,617) (61,335)
</TABLE>
12
<PAGE>
IL Annuity and Insurance Company Separate Account 1
Notes to Financial Statements (continued)
5. SUMMARY OF UNIT TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------------------
1998 1997
------------------------------------------------------------
UNITS AMOUNT UNITS AMOUNT
------------------------------------------------------------
<S> <C> <C> <C> <C>
SOGEN OVERSEAS VARIABLE
PORTFOLIO
Contract purchases 352,661 $ 3,331,587 66,856 $ 623,234
Redemptions-withdrawals (202,828) (1,916,116) (8,191) (76,353)
------------ ------------
Net increase from unit
transactions $114,479,993 $ 59,360,403
============ ============
</TABLE>
13
<PAGE>
IL Annuity and Insurance Company Separate Account 1
Notes to Financial Statements (continued)
6. IMPACT OF YEAR 2000 (UNAUDITED)
The Company relies on ILICO for its information systems processing, and utilizes
investment transaction information reported by the various fund managers. The
Company's Year 2000 plan includes the following phases (many of which been
completed):
Phase One - Planning and Budgeting: The Company's Board of Directors
adopted a plan to address Year 2000 (Y2K) issues in April of 1997. This
plan was approved by the corporate officers, executive management, and the
Vice President of Information Technology.
Phase Two - Inventory: The Company completed an initial inventory of all
hardware, software, equipment and business partner components on June 30,
1997. Each inventory item was categorized by importance to the
organization, i.e., mission critical, essential, important, and marginal.
Phase Three - Assessment/Planning: An impact assessment was completed on
July 9, 1997, followed by a Y2K project plan on February 2, 1998. The
Company's officers, Legal Department and management worked extensively
with an outside consultant during this process.
Phase Four - Remediation/Implementation of Mission Critical Systems: The
Company implemented necessary mission critical Y2K system updates. Since
the Company was in the process of converting from a mainframe system to a
LAN environment, The Company coordinated the process of migrating to new
mission critical systems that were Y2K ready.
Phase Five - Facilities: The Company has reviewed, upgraded or replaced
its mission critical facilities systems that may contain embedded
technology. This included replacement of its HVAC and Fire/Safety systems
used to maintain the facility. The Company has worked and is working with
its vendors in testing and updating mission critical facility systems as
needed.
Phase Six - Testing: The Company constructed and successfully executed an
enterprise-wide test for its mission critical systems in a dedicated,
time-controlled environment. This testing was completed as of December 31,
1998. Plans for 1999 include on-going testing of these mission critical
systems for Y2K readiness. Additionally, the Company will be examining
less critical systems to verify their readiness.
14
<PAGE>
IL Annuity and Insurance Company Separate Account 1
Notes to Financial Statements (continued)
6. IMPACT OF YEAR 2000 (UNAUDITED) (CONTINUED)
Phase Seven -Third Party Administrators/Vendors: The Company has contacted
its significant business partners, suppliers, and vendors to ascertain the
status of their Y2K readiness. The Company has also worked closely with
its Third Party Administrators (TPA), to ascertain their level of Y2K
readiness. The Company's outside consultants have also been involved in
the discussions and assessments of TPA Y2K readiness. The Company will
continue to work with its partners, suppliers, vendors and TPA's
throughout 1999. While The Company has worked in conjunction with these
third parties, they each remain ultimately responsible for their own Y2K
readiness initiatives.
Phase Eight - Contingency Planning: The contingency plan for mission
critical systems was written in 1998. Contingency planning for essential,
important and marginal systems is scheduled for completion in 1999. These
plans will be reviewed and updated, where necessary. The Company is
reviewing its current Disaster Recovery Plan and anticipates using it as a
basis for Y2K contingency planning. The Company is working with its
offsite disaster recovery location vendor concerning their readiness,
should they be needed.
Phase Nine - Documentation: The Company has completed a Y2K Operations
Manual documenting procedures relating to Y2K processing. All mission
critical information is stored in fireproof cabinets within the Y2K
Office. The Company is currently in the process of imaging all
documentation relating to Y2K projects, vendor information, correspondence
sent/received and third party relationship documentation. An offsite
location has been established for storing test results and documentation
once the imaging process has been completed.
The costs incurred by ILICo to address the Company's Y2K issues for each of the
years ended December 31, 1998 and 1997 were $11,000,000 and $1,000,000,
respectively. ILICo anticipates incurring additional expenses of approximately
$3,000,000 to complete Y2K initiative.
15
<PAGE>
IL Annuity and Insurance Company Separate Account 1
Notes to Financial Statements (continued)
6. IMPACT OF YEAR 2000 (UNAUDITED) (CONTINUED)
The Company is confident that its internal mission critical systems can
transition into the Year 2000, and beyond, based on positive testing results.
The Company will continue to evaluate the Y2K readiness of and modify its
essential and important systems throughout 1999. The Company believes that the
worst case Y2K scenario would relate to its outside vendors. Should the Company
not have electricity or should the financial institutions and securities firms
have operational difficulties, it would no doubt affect Company operations. The
impact on the Company would depend on the extent to which of these or other
services are lost or delayed. The Company has not estimated these figures. This
will be an issue the Company will address in its contingency planning during
1999.
16
<PAGE>
Financial Statement
IL Annuity and Insurance Company
Nine months ended September 30, 1999
Unaudited
<PAGE>
IL Annuity and Insurance Company
Balance Sheet
SEPTEMBER 30
1999
---------------
(UNAUDITED)
ASSETS
Investments:
Fixed maturity securities:
Available for sale, at fair value $ 2,684,343,896
Held to maturity, at amortized cost 8,029,120
Equity securities, at fair value 6,462,884
Mortgage loans 26,144,304
Policy loans 481,607
Cash and cash equivalents 208,253,308
---------------
Total investments 2,933,715,119
Accrued investment income 31,649,746
Reinsurance recoverable 135,145,138
Deferred acquisition costs 94,594,280
Goodwill 1,651,866
Federal income taxes recoverable 8,509,397
Receivables and other assets 1,839,260
Separate account assets 287,711,169
---------------
Total assets $ 3,494,815,975
===============
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Future policy benefit reserves $ 3,049,703,752
Other policyholder liabilities 11,793,628
Accounts payable and other liabilities 13,502,594
Deferred federal income taxes 7,974,824
Separate account liabilities 287,711,169
---------------
Total liabilities 3,370,685,967
Shareholder's equity:
Common stock, $250 par value:
Authorized and issued--10,000 shares 2,500,000
Additional paid-in capital 111,662,659
Accumulated other comprehensive income 858,885
Retained earnings 9,108,464
---------------
Total shareholder's equity 124,130,008
---------------
Total liabilities and shareholder's equity $ 3,494,815,975
===============
See accompanying note.
2
<PAGE>
IL Annuity and Insurance Company
Statement of Income
NINE MONTHS
ENDED
SEPTEMBER 30, 1999
------------------
(UNAUDITED)
REVENUE
Annuity fees and charges $ 3,752,726
Premium and other considerations 671,127
Investment income 83,162,451
Net realized capital gains 570,377
-----------
88,156,681
EXPENSES
Policy benefits 70,387,424
Underwriting, acquisition and insurance expenses 8,650,780
-----------
79,038,204
-----------
Income before federal income taxes 9,118,477
Federal income taxes 2,457,138
-----------
Net income $ 6,661,339
===========
See accompanying note.
<PAGE>
IL ANNUITY AND INSURANCE COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER RETAINED
ADDITIONAL COMPREHENSIVE EARNINGS
COMMON STOCK PAID-IN CAPITAL INCOME (DEFICIT) TOTAL
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1999 $ 2,500,000 $ 91,662,659 $ 819,116 $ 2,447,125 $ 97,428,900
Net income -- -- -- 6,661,339 6,661,339
Change in net unrealized gains
on available for sale securities -- -- 39,769 -- 39,769
------------
Total comprehensive income 6,701,108
Capital contribution -- 20,000,000 -- -- 20,000,000
--------------------------------------------------------------------------------
Balance at September 30, 1999 $ 2,500,000 $111,662,659 $ 858,885 $ 9,108,464 $124,130,008
================================================================================
</TABLE>
See accompanying note.
4
<PAGE>
IL Annuity and Insurance Company
Statement of Cash Flows
NINE MONTHS
ENDED
SEPTEMBER 30, 1999
---------------
(UNAUDITED)
OPERATING ACTIVITIES
Net income $ 6,661,339
Adjustments to reconcile net income to net
cash used by operating activities:
Amortization of bond discount/premium (16,554,761)
Amortization of goodwill 82,137
Net realized capital gains (261,228)
Changes in operating assets and liabilities:
Deferred acquisition costs (41,610,146)
Amortization of deferred acquisition costs 5,921,723
Accrued investment income (10,748,450)
Reinsurance recoverable (26,694,029)
Receivables and other assets 37,514,809
Accounts payable and accrued liabilities (288,114)
Federal income taxes (34,038,194)
---------------
Net cash used by operating activities (80,014,914)
INVESTING ACTIVITIES
Sales and maturity of fixed maturity securities 477,233,567
Mortgage loan repayments 852,400
Purchase of fixed maturity securities (1,462,303,243)
Investment in mortgage loans (2,000,000)
Increase in policy loans (255,060)
---------------
Net cash used by investing activities (986,472,336)
FINANCING ACTIVITIES
Annuity deposits received 1,062,441,509
Annuity surrender benefits (35,485,827)
Capital contribution 20,000,000
---------------
Net cash provided by financing activities 1,046,955,682
---------------
Net decrease in cash and short-term investments (19,531,568)
Cash and cash equivalents at beginning of year 227,784,876
---------------
Cash and cash equivalents at end of year $ 208,253,308
===============
See accompanying note.
<PAGE>
NOTE TO THE UNAUDITED FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles but do not include all of the
information and footnotes required for complete financial statements. In the
opinion of management, all adjustments, consisting of normal recurring accruals,
considered necessary for fair presentation have been included. Operating results
for the interim periods are not necessarily indicative of the results that may
be expected for the year ended December 31, 1999. Interim financial statements
should be read in conjunction with the Company's annual audited financial
statements.
<PAGE>
Financial Statement
IL Annuity and Insurance Company Separate
Account 1
Nine months ended September 30, 1999
Unaudited
<PAGE>
IL ANNUITY AND INSURANCE COMPANY SEPARATE ACCOUNT 1
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1999
(UNAUDITED)
<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--453,994.78
shares at $25.66 per share (cost--$11,726,153) 4.05% $ 11,649,506 711,681 $ 16.369
Alger Small Capitalization Portfolio--189,145.32 shares at
$42.08 per share (cost--$7,901,443) 2.77% 7,959,235 589,879 13.493
Fidelity Variable Insurance Products Fund and Fund II:
Fidelity Asset Manager Portfolio--641,185.57 shares at
$17.16 per share (cost--$10,987,254) 3.83% 11,002,744 682,510 16.121
Fidelity Contra Portfolio--1,322,271.91 shares
at $24.84 per share (cost--$28,834,880) 11.42% 32,845,234 1,650,100 19.905
Fidelity Equity Income Portfolio--1,059,509.6 shares at
$24.88 per share (cost--$25,714,759) 9.16% 26,360,599 1,556,575 16.935
Fidelity Growth Portfolio--660,849.90 shares at $44.47
per share (cost--$26,792,950) 10.21% 29,387,995 1,465,955 20.047
Fidelity Index 500 Portfolio--423,508.59 shares
at $145.84 per share (cost--$55,177,691) 21.47% 61,764,493 2,819,009 21.910
Fidelity Investment Grade Bond Portfolio--751,131.71
shares at $12.17 per share (cost--$9,325,719) 3.18% 9,141,273 775,144 11.793
Fidelity Money Market Portfolio--15,693,248.28 shares
at $1.00 per share (cost--$15,693,248) 5.45% 15,693,248 1,349,376 11.630
Oppenheimer Capital Accumulation Trust:
OCC Managed Portfolio--517,336.14 shares at $41.95
per share (cost--$22,117,608) 7.54% 21,702,251 1,357,324 15.989
OCC Small Capitalization Portfolio--195,070.82 shares
at $22.45 per share (cost--$4,707,160) 1.52% 4,379,340 344,152 12.725
T. Rowe Price International Series, Inc.:
T. Rowe Price International Stock Portfolio--691,232.78
shares at $15.61 per share (cost--$9,914,046) 3.75% 10,790,144 741,132 14.559
T. Rowe Price Fixed Income Series, Inc.:
T. Rowe Price Limited-Term Bond Portfolio--903,260.73
shares at $4.85 per share (cost--$ 4,496,913) 1.52% 4,380,815 382,537 11.452
Van Eck Worldwide Insurance Trust:
Van Eck Hard Assets Portfolio--
219,505.19 shares at $10.64 per share (cost--$2,691,913) 0.81% 2,335,535 246,312 9.482
SAFECO Resource Series Trust:
SAFECO Equity Portfolio--498,624.70
shares at $30.83 per share (cost--$14,758,434) 5.34% 15,372,600 1,169,019 13.150
SAFECO Growth Portfolio--863,439.06
shares at $18.92 per share (cost--$19,280,480) 5.68% 16,336,267 1,669,010 9.788
Royce Capital Fund:
Royce Micro-Capitalization Portfolio--524,197.22
shares at $5.77 per share (cost--$2,896,799) 1.05% 3,024,618 247,859 12.203
The SoGen Variable Funds, Inc:
SoGen Overseas Variable Portfolio--272,851.72
shares at $13.14 per share (cost--$3,272,133) 1.25% 3,585,272 290,047 12.361
------------------------------------------
Total investments and net assets (cost--$276,289,583) 100.00% $ 287,711,169 18,047,621
==========================================
</TABLE>
See accompanying note.
2
<PAGE>
IL ANNUITY AND INSURANCE COMPANY SEPARATE ACCOUNT 1
STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
ALGER AMERICAN ALGER SMALL FIDELITY ASSET FIDELITY
MIDCAP GROWTH CAPITALIZATION MANAGER CONTRA
COMBINED PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net investment income $ 2,600,796 $ -- $ -- $ 295,886 $ 118,467
Mortality and expense charges (2,806,633) (113,891) (77,398) (109,608) (309,494)
Net realized gain on investments 7,691,205 1,678,743 861,686 374,790 868,755
Net change in unrealized appreciation
(depreciation) on investments (2,661,777) (1,211,359) (203,951) (506,126) 322,332
-------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 4,823,591 $ 353,493 $ 580,337 $ 54,942 $ 1,000,060
===============================================================================
<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 $ 342,663 $ 31,688 $ 424,412 $ 340,972 $ 483,850
Mortality and expense charges (275,688) (257,639) (579,576) (97,484) (141,261)
Net realized gain on investments 757,466 1,992,395 287,994 106,972 --
Net change in unrealized appreciation
(depreciation) on investments (613,921) 46,635 1,063,629 (531,033) (1,855)
-------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 210,520 $ 1,813,079 $ 1,196,459 $ (180,573) $ 340,734
===============================================================================
</TABLE>
IL ANNUITY AND INSURANCE COMPANY SEPARATE ACCOUNT 1
STATEMENT OF OPERATIONS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
T. ROWE
OCC OCC SMALL T. ROWE PRICE PRICE LIMITED- VAN ECK
MANAGED CAPITALIZATION INTERNATIONAL TERM BOND HARD ASSETS
PORTFOLIO PORTFOLIO STOCK PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net investment income $ 339,758 $ 23,937 $ -- $ 170,283 $ 28,880
Mortality and expense charges (243,427) (42,395) (107,706) (44,852) (21,365)
Net realized gain on investments 762,404 -- -- -- --
Net change in unrealized appreciation
(depreciation) on investments (839,426) (151,658) 731,297 (141,646) 274,321
-------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 19,309 $ (170,116) $ 623,591 $ (16,215) $ 281,836
===============================================================================
<CAPTION>
SOGEN
SAFECO SAFECO ROYCE MICRO- OVERSEAS
EQUITY GROWTH CAPITALIZATION VARIABLE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment income $ -- $ -- $ -- $ --
Mortality and expense charges (145,536) (180,718) (31,232) (27,363)
Net realized gain on investments -- -- -- --
Net change in unrealized appreciation
(depreciation) on investments 260,113 (2,091,231) 247,437 684,665
--------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 114,577 $(2,271,949) $ 216,205 $ 657,302
==============================================================
</TABLE>
See accompanying note.
3
<PAGE>
IL ANNUITY AND INSURANCE COMPANY SEPARATE ACCOUNT 1
STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
ALGER AMERICAN ALGER SMALL FIDELITY ASSET FIDELITY
MIDCAP GROWTH CAPITALIZATION MANAGER CONTRA
COMBINED PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at January 1, 1999 $ 220,862,443 $ 8,463,518 $ 6,266,674 $ 8,032,807 $ 23,327,506
Changes for the nine months ended 1999 operations:
Net investment income 2,600,796 -- -- 295,886 118,467
Mortality and expense charges (2,806,633) (113,891) (77,398) (109,608) (309,494)
Net realized gain on investments 7,691,205 1,678,743 861,686 374,790 868,755
Net change in unrealized appreciation
(depreciation) on investments (2,661,777) (1,211,359) (203,951) (506,126) 322,332
--------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 4,823,591 353,493 580,337 54,942 1,000,060
Net increase from contract purchases 470,350,592 13,009,082 11,580,706 14,667,525 33,453,563
Net decrease from
redemptions-withdrawals (408,325,457) (10,176,587) (10,468,482) (11,752,530) (24,935,895)
--------------------------------------------------------------------------------
Total increase (decrease) in net assets 66,848,726 3,185,988 1,692,561 2,969,937 9,517,728
--------------------------------------------------------------------------------
Net assets at September 30, 1999 $ 287,711,169 $ 11,649,506 $ 7,959,235 $ 11,002,744 $ 32,845,234
================================================================================
<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 assets at January 1, 1999 $ 22,539,812 $ 17,263,535 $ 39,961,857 $ 8,320,691 $ 12,128,091
Changes for the nine months ended 1999 operations:
Net investment income 342,663 31,688 424,412 340,972 483,850
Mortality and expense charges (275,688) (257,639) (579,576) (97,484) (141,261)
Net realized gain on investments 757,466 1,992,395 287,994 106,972 --
Net change in unrealized appreciation
(depreciation) on investments (613,921) 46,635 1,063,629 (531,033) (1,855)
--------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 210,520 1,813,079 1,196,459 (180,573) 340,734
Net increase from contract purchases 29,125,072 34,019,735 58,818,653 14,392,693 101,531,183
Net decrease from
redemptions-withdrawals (25,514,805) (23,708,354) (38,212,476) (13,391,538) (98,306,760)
--------------------------------------------------------------------------------
Total increase (decrease) in net assets 3,820,787 12,124,460 21,802,636 820,582 3,565,157
--------------------------------------------------------------------------------
Net assets at September 30, 1999 $ 26,360,599 $ 29,387,995 $ 61,764,493 $ 9,141,273 $ 15,693,248
================================================================================
</TABLE>
See accompanying note.
4
<PAGE>
IL ANNUITY AND INSURANCE COMPANY SEPARATE ACCOUNT 1
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
T. ROWE
OCC OCC SMALL T. ROWE PRICE PRICE LIMITED- VAN ECK
MANAGED CAPITALIZATION INTERNATIONAL TERM BOND HARD ASSETS
PORTFOLIO PORTFOLIO STOCK PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at January 1, 1999 $ 22,364,263 $ 3,878,446 $ 9,040,605 $ 4,005,483 $ 1,882,096
Changes for the nine months ended 1999 operations:
Net investment income 339,758 23,937 -- 170,283 28,880
Mortality and expense charges (243,427) (42,395) (107,706) (44,852) (21,365)
Net realized gain on investments 762,404 -- -- -- --
Net change in unrealized appreciation
(depreciation) on investments (839,426) (151,658) 731,297 (141,646) 274,321
--------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 19,309 (170,116) 623,591 (16,215) 281,836
Net increase from contract purchases 28,156,244 5,701,839 53,790,114 6,916,215 952,519
Net decrease from
redemptions-withdrawals (28,837,565) (5,030,829) (52,664,166) (6,524,668) (780,916)
--------------------------------------------------------------------------------
Total increase (decrease) in net assets (662,012) 500,894 1,749,539 375,332 453,439
--------------------------------------------------------------------------------
Net assets at September 30, 1999 $ 21,702,251 $ 4,379,340 $ 10,790,144 $ 4,380,815 $ 2,335,535
================================================================================
<CAPTION>
SOGEN
SAFECO SAFECO ROYCE MICRO- OVERSEAS
EQUITY GROWTH CAPITALIZATION VARIABLE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Net assets at January 1, 1999 $ 10,526,339 $ 17,773,401 $ 3,209,743 $ 1,877,576
Changes for the nine months ended 1999 operations:
Net investment income -- -- -- --
Mortality and expense charges (145,536) (180,718) (31,232) (27,363)
Net realized gain on investments -- -- -- --
Net change in unrealized appreciation
(depreciation) on investments 260,113 (2,091,231) 247,437 684,665
---------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 114,577 (2,271,949) 216,205 657,302
Net increase from contract purchases 21,727,344 25,270,303 9,307,317 7,930,485
Net decrease from
redemptions-withdrawals (16,995,660) (24,435,488) (9,708,647) (6,880,091)
---------------------------------------------------------------
Total increase (decrease) in net assets 4,846,261 (1,437,134) (185,125) 1,707,696
---------------------------------------------------------------
Net assets at September 30, 1999 $ 15,372,600 $ 16,336,267 $ 3,024,618 $ 3,585,272
===============================================================
</TABLE>
See accompanying note.
5
<PAGE>
NOTE TO THE UNAUDITED FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles but do not include all of the
information and footnotes required for complete financial statements. In the
opinion of management, all adjustments, consisting of normal recurring accruals,
considered necessary for fair presentation have been included. Operating results
for the interim periods are not necessarily indicative of the results that may
be expected for the year ended December 31, 1999. Interim financial statements
should be read in conjunction with the Company's annual audited financial
statements.
<PAGE>
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS
All required financial statements are included in Part B of
this Registration Statement.
(B) EXHIBITS
(1) Certified resolution of the Board of Directors of IL Annuity
and Insurance Company (the "Company") authorizing
establishment of IL Annuity and Insurance Co. Separate
Account 1 (the "Separate Account").3/
(2) Not applicable.
(3) (a) Form of Distribution Agreement among the Company, the
Separate Account and IL Securities, Inc. ("IL
Securities").3/
(b) Form of Sales Agreement among the Company, IL Securities,
Inc. and a broker-dealer.3/
(4) (a) (i) Form of Contract for the Visionary Flexible Premium Deferred
Variable Annuity.4/
(ii) Form of Contract for the Visionary Choice Flexible Premium
Deferred Variable Annuity.1/
(b) Form of Qualified Plan Endorsement, IRA Endorsement,
Endorsement for Qualified 403(b) Annuity, Unisex Rider,
Additional Waiver of Withdrawal Charge Rider -
Hospitalization, Additional Waiver of Withdrawal Charge
Rider - Terminal Illness, Additional Waiver of Withdrawal
Charge Rider - Long Term Care, Additional Waiver of
Withdrawal Charge Rider - Post Secondary Education.4/
(c) Form of Roth IRA Endorsement.3/
(d) Endorsement to Contract dated May 1997.4/
(5) (a) Form of Application for the Visionary Flexible Premium
Deferred Variable Annuity.4/
(b) Form of Application for the Visionary Choice Flexible
Premium Deferred Variable Annuity.6/
(6) (a) Articles of Incorporation of IL Annuity and Insurance
Company.4/
(b) By-Laws of IL Annuity and Insurance Company.4/
(7) Not Applicable.
(8) (a) Form of Participation Agreement between Fidelity Variable
Insurance Products Fund and IL Annuity and Insurance
Company.3/
(b) Form of Participation Agreement between Fidelity Variable
Insurance Products Fund II and IL Annuity and Insurance
Company.3/
(c) Form of Participation Agreement between Van Eck Investment
Trust and IL Annuity and Insurance Company.3/
(d) Form of Participation Agreement between T. Rowe Price
International Series, Inc. and IL Annuity and Insurance
Company.3/
(e) Form of Participation Agreement between T. Rowe Price Fixed
Income Series, Inc. and IL Annuity and Insurance Company.3/
C-1
<PAGE>
(f) Form of Participation Agreement between Quest for Value
Accumulation Trust and IL Annuity and Insurance Company.3/
(g) Form of Participation Agreement between The Alger American
Fund and IL Annuity and Insurance Company.3/
(h) Form of Services Agreement between Financial Administration
Services, Inc. and IL Annuity and Insurance Company.4/
(i) Participation Agreement between Royce Capital Fund and IL
Annuity and Insurance Company. 2/
(j) Trust Participation Agreement among SAFECO Resource Series
Trust, SAFECO Asset Management Company, and IL Annuity and
Insurance Company. 2/
(k) Participation Agreement among SoGen Variable Funds, Inc.,
Societe Generale Securities Corporation, and IL Annuity and
Insurance Company.2/
(l) Form of Services Agreement between USA Administration
Services, Inc. and IL Annuity and Insurance Company. 2/
(m) Amendment to Trust Participation Agreement among SAFECO
Resource Series Trust, SAFECO Asset Management Company, and
IL Annuity and Insurance Company. 5/
(n) Fund Participation Agreement among Neuberger Berman Advisers
Management Trust, Advisers Managers Trust, Neuberger Berman
Management Inc. and IL Annuity and Insurance Company. 6/
(o) Participation Agreement among IL Annuity and Insurance
Company, PIMCO Variable Insurance Trust, and PIMCO Funds
Distributors LLC. 6/
(p) Amendment No. 1 to Third Party Administration Services
Agreement between IL Annuity and Insurance Company and USA
Administration Services, Inc. 6/
(9) Opinion and Consent of Janis B. Funk, Esq.5/
(10) (a) Consent of Sutherland Asbill & Brennan LLP.6/
(b) Consent of Ernst & Young LLP. 6/
(11) No financial statements will be omitted from Item 23.
(12) Not applicable.
(13) Schedule of Performance Computations. 2/
(14) Not applicable.
(15) Powers of Attorney. 3/
- ----------
1/ Incorporated herein by reference to registrant's Post-Effective Amendment No.
2 to this Form N-4 Registration Statement filed with the SEC via EDGARLINK on
October 23, 1996 (File No. 33-89028).
2/ Incorporated herein by reference to registrant's Post-Effective Amendment No.
5 to this Form N-4 Registration Statement filed with the SEC via EDGARLINK on
August 8, 1997 (File No. 33-89028).
3/ Incorporated herein by reference to registrant's Post-Effective Amendment No.
6 to this Form N-4 Registration Statement filed with the SEC via EDGARLINK on
April 30, 1998 (File No. 33-89028).
C-2
<PAGE>
4/ Incorporated herein by reference to registrant's Post-Effective Amendment No.
7 to this Form N-4 Registration Statement filed with the SEC via EDGARLINK on
March 1, 1999 (File No. 33-89028).
5/ Incorporated herein by reference to registrant's Post-Effective Amendment No.
8 to this Form N-4 Registration Statement filed with the SEC via EDGARLINK on
April 28, 1999 (File No. 33-89028).
6/ Filed herewith.
ITEM 25. DIRECTORS AND OFFICERS OF IL ANNUITY AND INSURANCE COMPANY
Name and Principal Business Address* Position and Office with Depositor
- ------------------------------------ ----------------------------------
Larry R. Prible Chairman of the Board and Director
Gregory J. Carney President, Chief Executive Officer and
Director
Lisa Foxworthy-Parker Secretary
John J. Fahrenbach Director
Larry A. Halbach Director
Garrett P. Ryan Director
Stephen J. Shorrock** Director
Karla K. Vest Director
Richard G. Darragh Controller
Gene E. Trueblood Treasurer
Rebecca Rissen Assistant Secretary
* Unless otherwise indicated, the principal business address is 2960 North
Meridian Street, Indianapolis, Indiana 46208.
** Principal business address is 65 Froehlich Farm Blvd., Woodbury, NY
11797-9847.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT PERCENT OF VOTING
<TABLE>
<CAPTION>
Name Jurisdiction Securities Owned Principal Business
- ---- ------------ ------------------ ------------------
<S> <C> <C> <C>
Indianapolis Life Indiana Mutual Company Life & Health
Insurance Company* Insurance
("Indianapolis Life")
American United Life Indiana Mutual Company Life & Health
Insurance Company Insurance
("American United")
The Indianapolis Life Group Indiana Indianapolis Life (61.30%) Holding Company
of Companies, Inc. American United (32.44%)
("The Indianapolis Group")
IL Securities, Inc. Indiana All voting securities Broker/Dealer
owned by The
Indianapolis Group
IL Term Insurance Indiana All voting securities Life & Health
Company* owned by The Insurance
</TABLE>
C-3
<PAGE>
<TABLE>
<CAPTION>
Name Jurisdiction Securities Owned Principal Business
- ---- ------------ ------------------ ------------------
<S> <C> <C> <C>
Indianapolis Group
Bankers Life Insurance New York All voting securities Life & Health
Company of New York* owned by The Insurance
Indianapolis Group
Western Security Life Arizona All voting securities Life & Health
Insurance Company* owned by The Indianapolis Insurance
Group
</TABLE>
* Files separate statutory-basis Financial Statements.
ITEM 27. NUMBER OF CONTRACTOWNERS
As of December 31, 1999 there were a total of 1,760 Visionary Contracts in
force -- 559 non-qualified and 1,201 qualified and a total of 5,400 Visionary
Choice Contracts in force -- 2,097 non-qualified and 3,303 qualified.
ITEM 28. INDEMNIFICATION
The By-Laws of IL Annuity and Insurance Company provide, in Article X, as
follows:
ARTICLE X
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Any director or officer or his legal representative shall be indemnified by
the Company against reasonable expenses including the cost of any
settlement and counsel fees paid or incurred in connection with any action,
suit or proceeding to which any such director or officer or his legal
representative may be made a party by reason of his being or having been
such director or officer, provided it shall not be determined by a final
determination thereof on the merits that such director or officer was in
any substantial way derelict in the performance of his duties, or provided
that such action, suit or proceeding shall be settled without a final
determination on the merits and it shall be determined that such officer or
director had not in any substantial way been derelict in the performance of
his duties as charged therein, such determination to be made by a majority
of the members of the Board of Directors who were not parties to such
action, suit or proceedings, though less than a quorum, or by any one or
more disinterested persons to whom the question may be referred by the
Board of Directors. The foregoing right of indemnification shall not be
exclusive of any other rights to which any director or officer may be
entitled as a matter of law or which may be lawfully granted to him.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the fore going provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
C-4
<PAGE>
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the ques tion whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 29. PRINCIPAL UNDERWRITER
(a) IL Securities, Inc. is the registrant's principal underwriter. It is also
the principal underwriter for Bankers Life Insurance Company of New York
Separate Account 1.
(b) Officers and Directors of IL Securities, and their addresses, are as
follows:
Name and Principal Business Address* Positions and Offices with the Underwriter
- ----------------------------------- ------------------------------------------
Larry R. Prible Chairman of the Board
Gregory J Carney Chief Executive Officer and Director
Daniel J. Labonte President
Lisa Foxworthy-Parker Secretary-Treasurer
John J. Fahrenbach Director
Garrett P. Ryan Director
Larry A. Halbach Director
Stephen J. Shorrock Director
Karla K. Vest Director
* All of the persons listed above have as their principal business address: P.O.
Box 1230, 2960 North Meridian Street, Indianapolis, Indiana 46208.
<TABLE>
<CAPTION>
(c)(1) (2) (3) (4) (5)
Name of Net Underwriting
Principal Discounts and Compensation on Brokerage
Underwriter Commissions Redemption Commissions Compensation
- ----------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
IL Securities, $1,122,938.71
Inc. (for the nine months ended 9/30/99)
</TABLE>
Commissions are paid by the Company directly to agents who are registered
representatives of the principal underwriter, or to broker-dealers that have
entered into a selling agreement with the principal underwriter, or
broker-dealers having selling agreements with such broker-dealers with respect
to the sales of the Visionary and Visionary Choice Contracts.
ITEM 30. LOCATION OF BOOKS AND RECORDS
C-5
<PAGE>
All of the accounts, books, records or other documents required to be kept
by Section 31(a) of the Investment Company Act of 1940 and rules thereunder, are
maintained by IL Annuity and Insurance Company at the offices of USA
Administration Services, Inc., P.O. Box 29163, Overland Park, KS 66201.
ITEM 31. MANAGEMENT SERVICES
All management contracts are discussed in Part A or Part B of this
registration statement.
ITEM 32. UNDERTAKINGS AND REPRESENTATIONS
(a) The registrant undertakes that it will file a post-effective
amendment to this registration statement as frequently as is
necessary to ensure that the audited financial statements in the
registration statement are never more than 16 months old for as long
as purchase payments under the contracts offered herein are being
accepted.
(b) The registrant undertakes that it will include either (1) as part of
any application to purchase a contract offered by the prospectus, a
space that an applicant can check to request a statement of
additional information, or (2) a post card or similar written
communication affixed to or included in the prospectus that the
applicant can remove and send to IL Annuity and Insurance Company
for a statement of additional information.
(c) The registrant undertakes to deliver any statement of additional
information and any financial statements required to be made
available under this Form N-4 promptly upon written or oral request
to the Company at the address or phone number listed in the
prospectus.
(d) The Company represents that in connection with its offering of the
contracts as funding vehicles for retirement plans meeting the
requirements of Section 403(b) of the Internal Revenue Code of 1986,
it is relying on a no-action letter dated November 28, 1988, to the
American Council of Life Insurance (Ref. No. IP-6-88) regarding
Sections 22(e), 27(c)(1), and 27(d) of the Investment Company Act of
1940, and that paragraphs numbered (1) through (4) of that letter
will be complied with.
(e) The Company hereby represents that the fees and charges deducted
under the Contracts, in the aggregate, are reasonable in relation to
the services rendered, the expenses expected to be incurred, and the
risks assumed by the Company.
C-6
<PAGE>
As required by the Securities Act of 1933 and the Investment Company Act
of 1940, the Registrant, IL Annuity and Insurance Co. Separate Account 1,
certifies that it meets the requirements of Securities Act Rule 485(b) for
effectiveness of this registration statements and has caused this Post-Effective
Amendment No. 9 to its registration statement to be signed on its behalf, in the
City of Indianapolis, and the State of Indiana, on this 11th day of February ,
2000.
IL ANNUITY AND INSURANCE CO.
SEPARATE ACCOUNT 1 (Registrant)
Attest: /s/ Janis B. Funk By: /s/ Gregory J. Carney
----------------- ---------------------
Janis B. Funk Gregory J. Carney
President
By: IL ANNUITY AND INSURANCE
COMPANY (Depositor)
Attest: /s/ Janis B. Funk By: /s/ Gregory J. Carney
----------------- ---------------------
Janis B. Funk Gregory J. Carney
President
As required by the Securities Act of 1933, this registration statement has
been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
___________________________* Chairman of the Board and February ___, 2000
Larry R. Prible Director
___________________________* President, Chief Executive February ___, 2000
Gregory J. Carney Officer and Director
___________________________* Treasurer February ___, 2000
Gene E. Trueblood (Principal Financial Officer)
___________________________* Controller February ___, 2000
C-7
<PAGE>
Richard G. Darragh (Chief Accounting Officer)
___________________________* Director February ___, 2000
John J. Fahrenbach
___________________________* Director February ___, 2000
Larry A. Halbach
___________________________* Director February ___, 2000
Garrett P. Ryan
___________________________* Director February ___, 2000
Stephen J. Shorrock
___________________________* Director February ___, 2000
Karla K. Vest
/s/ Janis B. Funk On February 11, 2000, as Attorney-in-Fact pursuant
- ------------------------ to powers of attorney filed herewith.
* By Janis B. Funk
C-8
<PAGE>
EXHIBIT INDEX
Exhibit 5(b) Form of Application for the Visionary Choice Flexible Premium
Deferred Variable Annuity.
Exhibit 8 (n) Fund Participation Agreement among Neuberger Berman Advisers
Management Trust, Advisers Managers Trust, Neuberger Berman
Management Inc. and IL Annuity and Insurance Company.
Exhibit 8 (o) Participation Agreement among IL Annuity and Insurance Company,
PIMCO Variable Insurance Trust, and PIMCO Funds Distributors
LLC.
Exhibit 8 (p) Amendment No. 1 to Third Party Administration Services Agreement
between IL Annuity and Insurance Company and USA
Administration Services, Inc.
Exhibit 10(a) Consent of Sutherland Asbill & Brennan LLP.
Exhibit 10(b) Consent of Ernst & Young LLP.
C-9
IL ANNUITY AND INSURANCE COMPANY
THE VISIONARY(TM) COMPANY
APPLICATION TO IL ANNUITY AND INSURANCE COMPANY
A Member of the Indianapolis Life Group of Companies
____________________________________________________
IL Annuity Service Center
P.O. Box 29163
Overland Park, KS 66201-1348
Telephone: 888-232-6486
(Any person who knowingly and with intent to defraud any insurance company or
other person files an application for insurance containing any materially false
information or conceals for the purpose of misleading, information concerning
any fact material thereto commits a fraudulent insurance act, which is a crime.)
<TABLE>
<S> <C>
______________________________________________________________________________________________________________________
| CWA: | Policy Number: |
______________________________________________________________________________________________________________________
======================================================================================================================
ANNUITANT
Last Name First Name Middle or Initial
______________________________________________________________________________________________________________________
| | | |
______________________________________________________________________________________________________________________
Residence Address City State Zip County
______________________________________________________________________________________________________________________
| | | | | |
______________________________________________________________________________________________________________________
Issue Age Sex Birth Date Birth State Social Security Number Phone Number
______________________________________________________________________________________________________________________
| | | / / | | | ( ) |
______________________________________________________________________________________________________________________
Joint Annuitant's Last Name First Name Middle or Initial
______________________________________________________________________________________________________________________
| | | |
______________________________________________________________________________________________________________________
Residence Address City State Zip County
______________________________________________________________________________________________________________________
| | | | | |
______________________________________________________________________________________________________________________
Issue Age Sex Birth Date Birth State Social Security Number Phone Number
______________________________________________________________________________________________________________________
| | | / / | | | ( ) |
______________________________________________________________________________________________________________________
======================================================================================================================
OWNER
======================================================================================================================
Owner's Last Name (if other than Annuitant) First Name Middle or Initial Relationship to Annuitant
______________________________________________________________________________________________________________________
| | | | |
______________________________________________________________________________________________________________________
Joint Owner's Last Name (if any) First Name Middle or Initial Relationship to Annuitant
______________________________________________________________________________________________________________________
| | | | |
______________________________________________________________________________________________________________________
Address City State Zip County
______________________________________________________________________________________________________________________
| | | | | |
______________________________________________________________________________________________________________________
Owner's Date of Birth Sex Social Security or Tax ID Number
______________________________________________________________________________________________________________________
| | | |
______________________________________________________________________________________________________________________
Joint Owner's Date of Birth Sex Social Security or Tax ID Number
______________________________________________________________________________________________________________________
| | | |
______________________________________________________________________________________________________________________
Primary Beneficiary for Death Benefit (Print full name, date of birth, relationship and date of trust, if applicable)
______________________________________________________________________________________________________________________
| |
______________________________________________________________________________________________________________________
| |
______________________________________________________________________________________________________________________
| |
______________________________________________________________________________________________________________________
Contingent Beneficiary
______________________________________________________________________________________________________________________
| |
______________________________________________________________________________________________________________________
| |
______________________________________________________________________________________________________________________
| |
______________________________________________________________________________________________________________________
VIS-CHOICE-97 RO2/00 Page 1 of 4
</TABLE>
<PAGE>
<TABLE>
<S> <C>
=====================================================================================================================
REPLACEMENT INFORMATION (COMPLETION OF THIS SECTION IS REQUIRED)
Is the annuity applied for intended to replace or change another annuity or life insurance policy? [ ] Yes [ ] No
Company Name: _______________________________________ Policy Number: _______________________________________
Company Name: _______________________________________ Policy Number: _______________________________________
(if required, replacement forms must accompany this application)
=====================================================================================================================
CHOICE SELECTIONS (COMPLETION OF THIS SECTION IS REQUIRED)
I. Withdrawal Charge Choice: II. If Initial Premium is $100,000 III. Death/Living Benefits:
or more, please elect one of the A. [] Guaranteed Living
A. [] Date of Issue Withdrawal following free Withdrawal Benefit Option
Charge Option Choices:
B. [] Enhanced Death
B. [] Date of Premium A. [] Cumulative 10% Option Benefit Option
Payment Withdrawal
Option B. [] Earnings Option
=====================================================================================================================
PLAN TYPE
[] Non-Qualified [] Qualified (complete below)
[] IRA Tax Year: ______ [] IRA Rollover [] IRA Transfer [] SEP [] Simple IRA [] Roth IRA
[] 403(b) [] 401 (a) Type:____________________________ [] 401(k) [] HR-10
[] Other: ________________
=====================================================================================================================
SUBSEQUENT BILLING INFORMATION (IF ANY)
______________________________________ ______________________________________
Payor (if other than owner) Premium Amount To Be Billed
Premiums Payable: [] Single Premium [] Annual [] Semi-Annual [] Quarterly [] Monthly
Billing Form: [] EFT [] Premium Notice [] List Bill [] Other: __________________________
=====================================================================================================================
PREMIUM ALLOCATION
In those states where we must return premium payments, we will place the money you allocated to a variable account
into the Money Market variable account for a 15-day period following the date on which we credit the initial premium
payment to your Contract.
IL ANNUITY AND INSURANCE COMPANY NEUBERGER BERMAN SAFECO RESOURCE SERIES TRUST
___% Fixed Account ___% AMT Mid-Cap Portfolio ___% Equity Portfolio
___% AMT Socially Responsible ___% Growth Portfolio
ALGER AMERICAN FAMILY OF FUNDS Portfolio
___% Midcap Growth Portfolio SOGEN VARIABLE FUNDS, INC.
___% Small Capitalization Portfolio OCC ACCUMULATION TRUST ___% Overseas Variable Portfolio
___% Managed Portfolio
FIDELITY VIP AND VIP FUND II ___% Small Cap Portfolio T. ROWE PRICE
___% Asset Manager Portfolio ___% Limited-Term Bond Portfolio
___% Contrafund Portfolio ROYCE CAPITAL FUND ___% International Stock Portfolio
___% Index 500 Portfolio ___% Micro-Cap Portfolio
___% Investment Grade Bond VAN ECK WORLDWIDE INSURANCE
Portfolio PIMCO TRUST
___% Equity-Income Portfolio ___% High Yield Portfolio ___% Worldwide Hard Assets
___% Growth Portfolio ___% Real Return Portfolio Portfolio
___% Money Market Portfolio ___% Stocks Plus Portfolio
Expected Initial Premium Amount: $______________ 100% Total Premium Allocation
VIS-CHOICE-97 RO2/00 Page 2 of 4
</TABLE>
<PAGE>
<TABLE>
<S> <C>
=====================================================================================================================
AUTOMATIC ACCOUNT REBALANCING (WILL REDUCE THE GUARANTEED LIVING BENEFIT, IF ELECTED.)
Allocations are based on the current premium allocation: [] Yes [] No
If yes, Automatic Account rebalancing mode: [] Monthly [] Quarterly [] Semi-Annually [] Annually
=====================================================================================================================
DOLLAR COST AVERAGING (WILL REDUCE THE GUARANTEED LIVING BENEFIT, IF ELECTED)
[] Transfer from: ________ Transfer amount: ($ or %) _______ beginning on ________
Portfolio (if Fixed Account, maximum is 20% per year) Date
[] Monthly [] Quarterly to:
Portfolio Amount or Percentage Portfolio Amount or Percentage
_____________________ _____________________ _____________________ _____________________
_____________________ _____________________ _____________________ _____________________
=====================================================================================================================
INTEREST SWEEP FROM FIXED ACCOUNT (QUARTERLY ONLY)
[] Please transfer interest earned in my Fixed Account to:
Portfolio Amount or Percentage Portfolio Amount or Percentage
_____________________ _____________________ _____________________ _____________________
_____________________ _____________________ _____________________ _____________________
=====================================================================================================================
TELEPHONE TRANSFER AUTHORIZATION
[] I (we) hereby authorize and direct IL Annuity and Insurance Company to accept telephone instructions from
any person who can furnish proper identification to make transfers among Fixed and Variable Accounts, change
the premium allocation of future investments; and change interest sweep, automatic account balancing, or
dollar-cost averaging options. I (we) agree to hold harmless and indemnify IL Annuity and Insurance Company,
IL Securities, Inc., and their affiliates, and their directors, trustees, officers, employees and agents from
any losses arising from such instructions.
=====================================================================================================================
VIS-CHOICE-97 RO2/00 Page 3 of 4
</TABLE>
<PAGE>
<TABLE>
<S> <C>
=====================================================================================================================
ACKNOWLEDGEMENT
By signing below, the owner understands that:
A. The annuity value may increase or decrease depending on the contract's investment results;
B. The minimum cash value of the variable accounts is not guaranteed;
C. This annuity is a long term commitment to meet insurance and financial goals;
D. The variable annuity applied for is not unsuitable for the owner's insurance investment objectives, financial
situation and needs; and
E. The Owner acknowledges receipt of the most recent prospectus.
NOTICE: The Owner agrees that all statements and answers in this application are complete and true. It is further
agreed that these statements and answers will become a part of any contract to be issued. No representative is
authorized to modify this agreement or waive any of IL Annuity's rights or requirements. If IL Annuity makes a
change in the space designated "Do not write in this space" in order to correct any apparent errors or omissions,
it will be approved by acceptance of this contract; however, any material changes must be accepted in writing by
the Owner.
_____________________________________________________________________________________________________________________
Certification of proposed owner's taxpayer identification number: Under the penalties of perjury, I (we) certify that:
1) The number shown on this form is my own (our) correct Taxpayer Identification Number (or I am (we are) waiting for
a number to be issued to me (us)) and; 2) I am (we are) not subject to backup withholding either because I (we) have
not been notified by the Internal Revenue Service (IRS) that I am (we are) subject to backup withholding as a result
of a failure to report all interest or dividends, or the IRS has notified me (us) that I am (we are) no longer subject
to backup withholding. CERTIFICATION INSTRUCTIONS - You must cross out item (2) above if you have been notified by the
IRS that you are currently subject to backup withholding because of underreporting interest or dividends on your tax
return. THE IRS DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED
TO AVOID BACKUP WITHHOLDING.
_____________________________________________________________________________________________________________________
I have read and understand the Acknowledgement and Notice. [] Please send Statements of Additional Information.
=====================================================================================================================
SIGNATURES
Dated at _________________________________ this __________ day of _________________________ , __________ .
(city and state) (month) (year)
_______________________________________________________ _______________________________________________________
Signature of Proposed Annuitant Signature of Joint Annuitant (if applicable)
_______________________________________________________ _______________________________________________________
Signature of Owner (if other than annuitant) Signature of Joint Owner (if applicable)
_______________________________________________________ _______________________________________________________
Signature of Registered Representative Printed Name of Broker-Dealer
_______________________________________________________ _______________________________________________________
Printed Name of Registered Representative Registered Representative Number
=====================================================================================================================
REGISTERED REPRESENTATIVE/AGENT CERTIFICATION
By signing this application, the Registered Representative/Agent certifies that:
A. The questions contained in this application were asked of the Owner and the answers duly recorded, that this
application is complete and true to the best of my knowledge and belief; and
B. I am an NASD registered representative and am state licensed for variable annuity contracts where this application
is written and delivered; and
C. To the best of my knowledge and belief, the annuity applied for [] does [] does not involve replacement of life
insurance or annuities. If replacement is involved, submit Replacement Statement(s) if required.
_______________________________________________________________________________________________________________________
| DO NOT WRITE IN THIS SPACE. |
_______________________________________________________________________________________________________________________
Please send this application to:
Regular Mail: IL Annuity and Insurance Co. Overnight Mail: IL Annuity and Insurance Co.
P.O. Box 29163 12900 Metcalf Ave., Ste. 200
Overland Park, KS 66201-1348 Overland Park, KS 66213-2620
VIS-CHOICE-97 RO2/00 Page 4 of 4
</TABLE>
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT made as of the 1st day of August, 1999, by and between
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST ("TRUST"), a Delaware business trust,
ADVISERS MANAGERS TRUST ("MANAGERS TRUST"), a New York common law trust,
NEUBERGER BERMAN MANAGEMENT INC. ("NB MANAGEMENT"), a New York corporation, and
IL ANNUITY AND INSURANCE COMPANY ("LIFE COMPANY"), a life insurance company
organized under the laws of the State of Massachusetts.
WHEREAS, TRUST and MANAGERS TRUST are registered with the Securities and
Exchange Commission ("SEC") under the Investment Company Act of 1940, as amended
("40 Act") as open-end, diversified management investment companies; and
WHEREAS, TRUST is organized as a series fund comprised of several
portfolios ("Portfolios"), the currently available of which are listed on
Appendix A hereto; and
WHEREAS, MANAGERS TRUST is organized as a series fund, comprised of
several portfolios ("Series"), the currently operational of which are listed on
Appendix A hereto; and
WHEREAS, each Portfolio of TRUST will invest all of its net investable
assets in a corresponding Series of MANAGERS TRUST; and
WHEREAS, TRUST was organized to act as the funding vehicle for certain
variable life insurance and/or variable annuity contracts ("Variable Contracts")
offered by life insurance companies through separate accounts of such life
insurance companies ("Participating Insurance Companies") and also offers its
shares to certain qualified pension and retirement plans; and
WHEREAS, TRUST has received an order from the SEC, dated May 5,1995 (File
No. 812-9164), granting Participating Insurance Companies and their separate
accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a) and 15(b)
of the '40 Act, and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the
extent necessary to permit shares of the Portfolios of the TRUST to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance companies and certain qualified
pension and retirement plans (the "Order"); and
WHEREAS, LIFE COMPANY has established or will establish one or more
separate accounts ("Separate Accounts") to offer Variable Contracts and is
desirous of having TRUST as one of the underlying funding vehicles for such
Variable Contracts; and
<PAGE>
WHEREAS, NB MANAGEMENT is registered with the SEC as an investment adviser
under the Investment Advisers Act of 1940 and as a broker-dealer under the
Securities Exchange Act of 1934, as amended; and
WHEREAS, NB MANAGEMENT is the administrator and distributor of the shares
of each Portfolio of TRUST and investment manager of the corresponding Series of
MANAGERS TRUST; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase shares of TRUST to fund the
aforementioned Variable Contracts and TRUST is authorized to sell such shares to
LIFE COMPANY at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, LIFE COMPANY,
TRUST, MANAGERS TRUST and NB MANAGEMENT agree as follows:
Article I. SALE OF TRUST SHARES
1.1 TRUST agrees to make available to the Separate Accounts of LIFE
COMPANY shares of the selected Portfolios as listed in Appendix B for investment
of proceeds from Variable Contracts allocated to the designated Separate
Accounts, such shares to be offered as provided in TRUST's Prospectus.
1.2 TRUST agrees to sell to LIFE COMPANY those shares of the selected
Portfolios of TRUST which LIFE COMPANY orders, executing such orders on a daily
basis at the net asset value next computed after receipt by TRUST or its
designee of the order for the shares of TRUST. For purposes of this Section 1.2,
LIFE COMPANY shall be the designee of TRUST for receipt of such orders from LIFE
COMPANY and receipt by such designee shall constitute receipt by TRUST; provided
that TRUST receives notice of such order by 8:30 a.m. New York time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which TRUST calculates its net asset
value pursuant to the rules of the SEC.
1.3 TRUST agrees to redeem for cash, on LIFE COMPANY's request, any full
or fractional shares of TRUST held by LIFE COMPANY, executing such requests on a
daily basis at the net asset value next computed after receipt by TRUST or its
designee of the request for redemption. For purposes of this Section 1.3, LIFE
COMPANY shall be the designee of TRUST for receipt of requests for redemption
from LIFE COMPANY and receipt by such designee shall constitute receipt by
TRUST; provided that TRUST receives notice of such request for redemption by
8:30 a.m. New York time on the next following Business Day.
2
<PAGE>
1.4 TRUST shall furnish, on or before the ex-dividend date, notice to LIFE
COMPANY of any income dividends or capital gain distributions payable on the
shares of any Portfolio of TRUST. LIFE COMPANY hereby elects to receive all such
income dividends and capital gain distributions as are payable on a Portfolio's
shares in additional shares of the Portfolio. TRUST shall notify LIFE COMPANY of
the number of shares so issued as payment of such dividends and distributions.
1.5 TRUST shall make the net asset value per share for the selected
Portfolio(s) available to LIFE COMPANY on a daily basis as soon as reasonably
practicable after the net asset value per share is calculated but shall use its
best efforts to make such net asset value available by 6:30 p.m. New York time.
If TRUST provides LIFE COMPANY with materially incorrect share net asset value
information through no fault of LIFE COMPANY, LIFE COMPANY on behalf of the
Separate Accounts, shall be entitled to an adjustment to the number of shares
purchased or redeemed to reflect the correct share net asset value. Any material
error in the calculation of net asset value per share, dividend or capital gain
information shall be reported promptly upon discovery to LIFE COMPANY.
1.6 At the end of each Business Day, LIFE COMPANY shall use the
information described in Section 1.5 to calculate Separate Account unit values
for the day. Using these unit values, LIFE COMPANY shall process each such
Business Day's Separate Account transactions based on requests and premiums
received by it by the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m. New York time) to determine the net dollar amount
of TRUST shares which shall be purchased or redeemed at that day's closing net
asset value per share. The net purchase or redemption orders so determined shall
be transmitted to TRUST by LIFE COMPANY by 8:30 a.m. New York Time on the
Business Day next following LIFE COMPANY's receipt of such requests and premiums
in accordance with the terms of Sections 1.2 and 1.3 hereof.
1.7 If LIFE COMPANY's order requests the purchase of TRUST shares, LIFE
COMPANY shall pay for such purchase by wiring federal funds to TRUST or its
designated custodial account on the day the order is transmitted by LIFE
COMPANY. If LIFE COMPANY's order requests a net redemption resulting in a
payment of redemption proceeds to LIFE COMPANY, TRUST shall wire the redemption
proceeds to LIFE COMPANY by the next Business Day, unless doing so would require
TRUST to dispose of portfolio securities or otherwise incur additional costs,
but in such event, proceeds shall be wired to LIFE COMPANY within seven days and
TRUST shall notify the person designated in writing by LIFE COMPANY as the
recipient for such notice of such delay by 3:00 p.m. New York Time the same
Business Day that LIFE COMPANY transmits the redemption order to TRUST. If LIFE
COMPANY's order requests the application of redemption proceeds from the
redemption of shares to the purchase of shares of another fund administered or
distributed by NB MANAGEMENT, TRUST shall so apply such proceeds the same
Business Day that LIFE COMPANY transmits such order to TRUST.
3
<PAGE>
1.8 Notwithstanding Section 1.7, TRUST reserves the right to suspend the
right of redemption or postpone the date of payment or satisfaction upon
redemption consistent with Section 22(e) of the 40 Act and any rules thereunder.
1.9 TRUST agrees that all shares of the Portfolios of TRUST will be sold
only to Participating Insurance Companies which have agreed to participate in
TRUST to fund their Separate Accounts and/or to certain qualified pension and
other retirement plans, all in accordance with the requirements of Section
817(h) of the Internal Revenue Code of 1986, as amended ("Code") and Treasury
Regulation 1.817-5. Shares of the Portfolios of TRUST will not be sold directly
to the general public.
1.10 TRUST may refuse to sell shares of any Portfolio to any person, or
suspend or terminate the offering of the shares of any Portfolio if such action
is required by law or by regulatory authorities having jurisdiction or is, in
the sole discretion of the Board of Trustees of TRUST, acting in good faith and
in light of its fiduciary duties under federal and any applicable state laws,
deemed necessary and in the best interests of the shareholders of such
Portfolios.
Article II. REPRESENTATIONS AND WARRANTIES
2.1 LIFE COMPANY represents and warrants that it is an insurance company
duly organized and in good standing under the laws of Massachusetts and that it
has legally and validly established each Separate Account as a segregated asset
account under such laws, and that IL Securities Incorporated, the principal
underwriter for the Variable Contracts, is registered as a broker-dealer under
the Securities Exchange Act of 1934.
2.2 LIFE COMPANY represents and warrants that it has registered or, prior
to any issuance or sale of the Variable Contracts, will register each Separate
Account as a unit investment trust ("UIT") in accordance with the provisions of
the '40 Act and cause each Separate Account to remain so registered to serve as
a segregated asset account for the Variable Contracts, unless an exemption from
registration is available.
2.3 LIFE COMPANY represents and warrants that the Variable Contracts will
be registered under the Securities Act of 1933 (the "`33 Act") unless an
exemption from registration is available prior to any issuance or sale of the
Variable Contracts and that the Variable Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws
and further that the sale of the Variable Contracts shall comply in all material
respects with state insurance law suitability requirements.
2.4 LIFE COMPANY represents and warrants that the Variable Contracts are
currently and at the time of issuance will be treated as life insurance,
endowment or annuity contracts under applicable provisions of the Code, that it
will maintain such treatment and that it will notify
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TRUST immediately upon having a reasonable basis for believing that the Variable
Contracts have ceased to be so treated or that they might not be so treated in
the future.
2.5 LIFE COMPANY represents and warrants that it shall deliver such
prospectuses, statements of additional information, proxy statements and
periodic reports of the Trust as required to be delivered under applicable
federal or state law and interpretations of federal and state securities
regulators thereunder in connection with the offer, sale or acquisition of the
Variable Contracts.
2.6 TRUST represents and warrants that the Portfolio shares offered and
sold pursuant to this Agreement will be registered under the '33 Act and sold in
accordance with all applicable federal and state laws, and TRUST shall be
registered under the '40 Act prior to and at the time of any issuance or sale of
such shares. TRUST shall amend its registration statement under the '33 Act and
the '40 Act from time to time as required in order to effect the continuous
offering of its shares. TRUST shall register and qualify its shares for sale in
accordance with the laws of the various states only if and to the extent deemed
advisable by TRUST.
2.7 TRUST represents and warrants that each Portfolio will comply with the
diversification requirements set forth in Section 817(h) of the Code, and the
rules and regulations thereunder, including without limitation Treasury
Regulation 1.817-5, and will notify LIFE COMPANY immediately upon having a
reasonable basis for believing any Portfolio has ceased to comply or might not
so comply and will immediately take all reasonable steps to adequately diversify
the Portfolio to achieve compliance within the grace period afforded by
Regulation 1.817-5.
2.8 TRUST represents and warrants that each Portfolio invested in by the
Separate Account is currently qualified as a "regulated investment company"
under Subchapter M of the Code, that it will make every effort to maintain such
qualification and will notify LIFE COMPANY immediately upon having a reasonable
basis for believing it has ceased to so qualify or might not so qualify in the
future.
2.9 TRUST and LIFE COMPANY each represents and warrants that it has taken,
or will take, appropriate measures to adjust its computer systems so that its
operations and the services provided under this Agreement will not materially be
affected upon January 1, 2000. Notwithstanding any provision to the contrary in
this Agreement, if the services materially are affected by a party's failure to
implement any Year 2000 required adjustments, such party shall indemnify and
hold harmless the other party from and against any and all claims, demands,
actions, losses, damages, liabilities, costs, charges, reasonable counsel fees,
and expense incurred as a result of such failure.
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2.10 LIFE COMPANY hereby consents to the use by TRUST of the name and
telephone number of LIFE COMPANY and to the reference by TRUST to the
relationship between LIFE COMPANY and TRUST as part of an informational page on
Trust's site on the World Wide Web portion of the Internet. The
Sub-Administrator hereby further consents to Trust's establishing a link between
Trust's site and LIFE COMPANY's site from the same place that LIFE COMPANY is
listed on Trust's site as described in the preceding sentence.
Article III. PROSPECTUS AND PROXY STATEMENTS
3.1 TRUST shall prepare and be responsible for filing with the SEC and any
state regulators requiring such filing all shareholder reports, notices, proxy
materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of TRUST.
TRUST shall bear the costs of registration and qualification of shares of the
Portfolios, preparation and filing of the documents listed in this Section 3.1
and all taxes to which an issuer is subject on the issuance and transfer of its
shares.
3.2 TRUST will bear the printing costs (or duplicating costs with respect
to the statement of additional information) and mailing costs associated with
the delivery of the following TRUST (or individual Portfolio) documents, and any
supplements thereto, to existing Variable Contract owners of LIFE COMPANY:
(i) prospectuses and statements of additional information;
(ii) annual and semi-annual reports; and
(iii) proxy materials.
LIFE COMPANY will submit any bills for printing, duplicating and/or
mailing costs, relating to the TRUST documents described above, to TRUST for
reimbursement by TRUST. LIFE COMPANY shall monitor such costs and shall use its
best efforts to control these costs. LIFE COMPANY will provide TRUST on a
semi-annual basis, or more frequently as reasonably requested by TRUST, with a
current tabulation of the number of existing Variable Contract owners of LIFE
COMPANY whose Variable Contract values are invested in TRUST. This tabulation
will be sent to TRUST in the form of a letter signed by a duly authorized
officer of LIFE COMPANY attesting to the accuracy of the information contained
in the letter. If requested by LIFE COMPANY, the TRUST shall provide such
documentation (including a final copy of the TRUST's prospectus as set in type
or in camera-ready copy) and other assistance as is reasonably necessary in
order for LIFE COMPANY to print together in one document the current prospectus
for the Variable Contracts issued by LIFE COMPANY and the current prospectus for
the TRUST.
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Should LIFE COMPANY wish to print any of these documents in a format
different from that provided by TRUST, LIFE COMPANY shall provide Trust with
sixty (60) days' prior written notice and LIFE COMPANY shall bear the cost
associated with any format change.
3.3 TRUST will provide, at its expense, LIFE COMPANY with the following
TRUST (or individual Portfolio) documents, and any supplements thereto, with
respect to prospective Variable Contract owners of LIFE COMPANY:
(i) camera-ready copy of the current prospectus for printing by
the LIFE COMPANY;
(ii) a copy of the statement of additional information suitable for
duplication;
(iii) camera-ready copy of proxy material suitable for printing; and
(iv) camera-ready copy of the annual and semi-annual reports for
printing by the LIFE COMPANY.
3.4 TRUST will provide LIFE COMPANY with at least one complete copy of all
prospectuses, statements of additional information, annual and semi-annual
reports, proxy statements, exemptive applications and all amendments or
supplements to any of the above that relate to the Portfolios promptly after the
filing of each such document with the SEC or other regulatory authority. LIFE
COMPANY will provide TRUST with at least one complete copy of all prospectuses,
statements of additional information, annual and semi-annual reports, proxy
statements, exemptive applications and all amendments or supplements to any of
the above that relate to a Separate Account promptly after the filing of each
such document with the SEC or other regulatory authority.
Article IV. SALES MATERIALS
4.1 LIFE COMPANY will furnish, or will cause to be furnished, to TRUST and
NB MANAGEMENT, each piece of sales literature or other promotional material in
which TRUST, MANAGERS TRUST or NB MANAGEMENT is named, at least fifteen (15)
Business Days prior to its intended use. No such material will be used if TRUST,
MANAGERS TRUST or NB MANAGEMENT objects to its use in writing within ten (10)
Business Days after receipt of such material.
4.2 TRUST and NB MANAGEMENT will furnish, or will cause to be furnished,
to LIFE COMPANY, each piece of sales literature or other promotional material in
which LIFE COMPANY or its Separate Accounts are named, at least fifteen (15)
Business Days prior to its
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intended use. No such material will be used if LIFE COMPANY objects to its use
in writing within ten (10) Business Days after receipt of such material.
4.3 TRUST and its affiliates and agents shall not give any information or
make any representations on behalf of LIFE COMPANY or concerning LIFE COMPANY,
the Separate Accounts, or the Variable Contracts issued by LIFE COMPANY, other
than the information or representations contained in a registration statement or
prospectus for such Variable Contracts, as such registration statement and
prospectus may be amended or supplemented from time to time, or in reports of
the Separate Accounts or reports prepared for distribution to owners of such
Variable Contracts, or in sales literature or other promotional material
approved by LIFE COMPANY or its designee, except with the written permission of
LIFE COMPANY.
4.4 LIFE COMPANY and its affiliates and agents shall not give any
information or make any representations on behalf of TRUST or concerning TRUST
other than the information or representations contained in a registration
statement or prospectus for TRUST, as such registration statement and prospectus
may be amended or supplemented from time to time, or in sales literature or
other promotional material approved by TRUST or its designee, except with the
written permission of TRUST.
4.5 For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without limitation,
advertisements (such as material published, or designed for use, in a newspaper,
magazine or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures or other public media),
sales literature (such as any written communication distributed or made
generally available to customers or the public, including brochures, circulars,
research reports, market letters, form letters, seminar texts, or reprints or
excerpts of any other advertisement, sales literature, or published article),
educational or training materials or other communications distributed or made
generally available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports and
proxy materials, and any other material constituting sales literature or
advertising under National Association of Securities Dealers, Inc. rules, the
'40 Act or the '33 Act.
Article V. POTENTIAL CONFLICTS
5.1 The Board of Trustees of TRUST and MANAGERS TRUST (the "Boards") will
monitor TRUST and MANAGERS TRUST, respectively, (collectively the "Funds"), for
the existence of any material irreconcilable conflict between the interests of
the Variable Contract owners of Participating Insurance Company Separate
Accounts investing in the Funds. A material irreconcilable conflict may arise
for a variety of reasons, including: (a) state insurance regulatory authority
action; (b) a change in applicable federal or state insurance, tax, or
securities laws or regulations, or a public ruling, private letter ruling, or
any similar action by insurance, tax, or
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securities regulatory authorities; (c) an administrative or judicial decision in
any relevant proceeding; (d) the manner in which the investments of the Funds
are being managed; (e) a difference in voting instructions given by variable
annuity and variable life insurance contract owners or by contract owners of
different Participating Insurance Companies; or (f) a decision by a
Participating Insurance Company to disregard voting instructions of Variable
Contract owners.
5.2 LIFE COMPANY will report any potential or existing conflicts to the
Boards. LIFE COMPANY will be responsible for assisting each appropriate Board in
carrying out its responsibilities under the Conditions set forth in the notice
issued by the SEC for the Funds on April 12, 1995 (the "Notice") (Investment
Company Act Release No. 21003), which LIFE COMPANY has reviewed, by providing
each appropriate Board with all information reasonably necessary for it to
consider any issues raised. This responsibility includes, but is not limited to,
an obligation by LIFE COMPANY to inform each appropriate Board whenever Variable
Contract owner voting instructions are disregarded by LIFE COMPANY. These
responsibilities will be carried out with a view only to the interests of the
Variable Contract owners.
5.3 If a majority of the Board of a Fund or a majority of its
disinterested trustees or directors, determines that a material irreconcilable
conflict exists, affecting the LIFE COMPANY, LIFE COMPANY, at its expense and to
the extent reasonably practicable (as determined by a majority of disinterested
trustees or directors), will take any steps necessary to remedy or eliminate the
irreconcilable material conflict, including: (a) withdrawing the assets
allocable to some or all of the Separate Accounts from the Funds or any series
thereof and reinvesting those assets in a different investment medium, which may
include another series of TRUST or MANAGERS TRUST, or another investment company
or submitting the question as to whether such segregation should be implemented
to a vote of all affected Variable Contract owners and, as appropriate,
segregating the assets of any appropriate group (i.e., Variable Contract owners
of one or more Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected Variable Contract owners the option of
making such a change; and (b) establishing a new registered management
investment company or managed separate account. If a material irreconcilable
conflict arises because of LIFE COMPANY's decision to disregard Variable
Contract owner voting instructions, and that decision represents a minority
position or would preclude a majority vote, LIFE COMPANY may be required, at the
election of the relevant Fund, to withdraw its Separate Account's investment in
such Fund, and no charge or penalty will be imposed as a result of such
withdrawal. The responsibility to take such remedial action shall be carried out
with a view only to the interests of the Variable Contract owners.
For the purposes of this Section 5.3, a majority of the disinterested
members of the applicable Board shall determine whether or not any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the relevant Fund or NB MANAGEMENT (or any other investment adviser of the
Funds) be required to establish a new funding medium for any Variable Contract.
Further, LIFE COMPANY shall not be required by this Section 5.3 to establish
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a new funding medium for any Variable Contract if any offer to do so has been
declined by a vote of a majority of Variable Contract owners materially affected
by the irreconcilable material conflict.
5.4 Any Board's determination of the existence of an irreconcilable
material conflict and its implications shall be made known promptly and in
writing to LIFE COMPANY.
5.5 No less than annually, LIFE COMPANY shall submit to the Boards such
reports, materials or data as such Boards may reasonably request so that the
Boards may fully carry out the obligations imposed upon them by these
Conditions. Such reports, materials, and data shall be submitted more frequently
if deemed appropriate by the applicable Boards.
Article VI. VOTING
6.1 LIFE COMPANY will provide pass-through voting privileges to all
Variable Contract owners so long as the SEC continues to interpret the '40 Act
as requiring pass-through voting privileges for Variable Contract owners. This
condition will apply to UIT Separate Accounts investing in TRUST and to managed
separate accounts investing in MANAGERS TRUST to the extent a vote is required
with respect to matters relating to MANAGERS TRUST. Accordingly, LIFE COMPANY,
where applicable, will vote shares of a Fund held in its Separate Accounts in a
manner consistent with voting instructions timely received from its Variable
Contract owners. LIFE COMPANY will be responsible for assuring that each of its
Separate Accounts that participates in any Fund calculates voting privileges in
a manner consistent with other participants as defined in the Conditions set
forth in the Notice ("Participants"). The obligation to calculate voting
privileges in a manner consistent with all other Separate Accounts investing in
a Fund will be a contractual obligation of all Participants under the agreements
governing participation in the Funds. Each Participant will vote shares for
which it has not received timely voting instructions, as well as shares it owns,
in the same proportion as its votes those shares for which it has received
voting instructions.
6.2 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of the '40 Act
or the rules thereunder with respect to mixed and shared funding on terms and
conditions materially different from any exemptions granted in the Order, then
TRUST, MANAGERS TRUST and/or the Participants, as appropriate, shall take such
steps as may be necessary to comply with Rule 6e-2 and Rule 6e-3(T), as amended,
and Rule 6e-3, as adopted, to the extent such Rules are applicable.
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Article VII. INDEMNIFICATION
7.1 Indemnification by LIFE COMPANY. LIFE COMPANY agrees to indemnify and
hold harmless TRUST, MANAGERS TRUST, NB MANAGEMENT and each of their Trustees,
directors, officers, employees and agents and each person, if any, who controls
TRUST or MANAGERS TRUST or NB MANAGEMENT within the meaning of Section 15 of the
'33 Act (collectively, the "Indemnified Parties" for purposes of this Article
VII) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of LIFE COMPANY, which consent shall
not be unreasonably withheld) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the offer, sale or acquisition of TRUST's shares or the Variable
Contracts and:
(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the Registration Statement or prospectus for the Variable
Contracts or contained in the Variable Contracts (or any
amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as
to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to LIFE COMPANY by or on
behalf of TRUST for use in the registration statement or
prospectus for the Variable Contracts or in the Variable
Contracts or sales literature (or any amendment or supplement)
or otherwise for use in connection with the sale of the
Variable Contracts or TRUST shares; or
(b) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature of
TRUST not supplied by LIFE COMPANY, or persons under its
control) or wrongful conduct of LIFE COMPANY or persons under
its control, with respect to the sale or distribution of the
Variable Contracts or TRUST shares; or
(c) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement,
prospectus, or sales literature of TRUST or any amendment
thereof or supplement thereto or the omission or alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading if such statement
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or omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished to
TRUST for inclusion therein by or on behalf of LIFE COMPANY;
or
(d) arise as a result of any failure by LIFE COMPANY to
substantially provide the services and furnish the materials
under the terms of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by LIFE COMPANY in this
Agreement or arise out of or result from any other material
breach of this Agreement by LIFE COMPANY.
7.2 LIFE COMPANY shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party as such may arise from such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations or duties under this Agreement or to TRUST,
whichever is applicable.
7.3 LIFE COMPANY shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified LIFE COMPANY in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify LIFE COMPANY of any
such claim shall not relieve LIFE COMPANY from any liability which it may have
to the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, LIFE COMPANY shall be entitled to participate at
its own expense in the defense of such action. LIFE COMPANY also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from LIFE COMPANY to such party of LIFE
COMPANY's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and LIFE
COMPANY will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
7.4 Indemnification by NB MANAGEMENT. NB MANAGEMENT agrees to indemnify
and hold harmless LIFE COMPANY and each of its directors, officers, employees,
and agents and each person, if any, who controls LIFE COMPANY within the meaning
of Section 15 of the '33 Act (collectively, the "Indemnified Parties" for the
purposes of this Article VII) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the
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written consent of NB MANAGEMENT which consent shall not be unreasonably
withheld) or litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute, or regulation, at
common law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to the
offer, sale or acquisition of TRUST's shares or the Variable Contracts and:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of
TRUST (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to
indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission
was made in reliance upon and in conformity with information
furnished to NB MANAGEMENT or TRUST by or on behalf of LIFE
COMPANY for use in the registration statement or prospectus
for TRUST or in sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale
of the Variable Contracts or TRUST shares; or
(b) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature for the
Variable Contracts not supplied by NB MANAGEMENT or persons
under its control) or wrongful conduct of TRUST or NB
MANAGEMENT or persons under their control, with respect to the
sale or distribution of the Variable Contracts or TRUST
shares; or
(c) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement,
prospectus, or sales literature covering the Variable
Contracts, or any amendment thereof or supplement thereto or
the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, if such statement or
omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished to
LIFE COMPANY for inclusion therein by or on behalf of TRUST;
or
(d) arise as a result of (i) a failure by TRUST to substantially
provide the services and furnish the materials under the terms
of this Agreement; or (ii) a failure by a Portfolio(s)
invested in by the Separate Account to comply
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with the diversification requirements of Section 817(h) of the
Code; or (iii) a failure by a Portfolio(s) invested in by the
Separate Account to qualify as a "regulated investment
company" under Subchapter M of the Code; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by NB MANAGEMENT in this
Agreement or arise out of or result from any other material
breach of this Agreement by NB MANAGEMENT.
7.5 NB MANAGEMENT shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation to which
an Indemnified Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to LIFE
COMPANY.
7.6 NB MANAGEMENT shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified NB MANAGEMENT in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify NB MANAGEMENT of
any such claim shall not relieve NB MANAGEMENT from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, NB MANAGEMENT shall be entitled to participate
at its own expense in the defense thereof. NB MANAGEMENT also shall be entitled
to assume the defense thereof, with counsel satisfactory to the party named in
the action. After notice from NB MANAGEMENT to such party of NB MANAGEMENT's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and NB MANAGEMENT
will not be liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation.
Article VIII. TERM; TERMINATION
8.1 This Agreement shall be effective as of the date hereof and shall
continue in force until terminated in accordance with the provisions herein.
8.2 This Agreement shall terminate in accordance with the following
provisions:
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(a) At the option of LIFE COMPANY or TRUST at any time from the
date hereof upon 180 days' notice, unless a shorter time is
agreed to by the parties;
(b) At the option of LIFE COMPANY, if TRUST shares are not
reasonably available to meet the requirements of the Variable
Contracts as determined by LIFE COMPANY. Prompt notice of
election to terminate shall be furnished by LIFE COMPANY, said
termination to be effective ten days after receipt of notice
unless TRUST makes available a sufficient number of shares to
reasonably meet the requirements of the Variable Contracts
within said ten-day period;
(c) At the option of LIFE COMPANY, upon the institution of formal
proceedings against TRUST by the SEC, or any other regulatory
body, the expected or anticipated ruling, judgment or outcome
of which would, in LIFE COMPANY's reasonable judgment,
materially impair TRUST's ability to meet and perform Trust's
obligations and duties hereunder. Prompt notice of election to
terminate shall be furnished by LIFE COMPANY with said
termination to be effective upon receipt of notice;
(d) At the option of TRUST, upon the institution of formal
proceedings against LIFE COMPANY by the SEC, the National
Association of Securities Dealers, Inc., or any other
regulatory body, the expected or anticipated ruling, judgment
or outcome of which would, in TRUST's reasonable judgment,
materially impair LIFE COMPANY's ability to meet and perform
its obligations and duties hereunder. Prompt notice of
election to terminate shall be furnished by TRUST with said
termination to be effective upon receipt of notice;
(e) In the event TRUST's shares are not registered, issued or sold
in accordance with applicable state or federal law, or such
law precludes the use of such shares as the underlying
investment medium of Variable Contracts issued or to be issued
by LIFE COMPANY. Termination shall be effective upon such
occurrence without notice;
(f) At the option of TRUST if the Variable Contracts cease to
qualify as annuity contracts or life insurance contracts, as
applicable, under the Code, or if TRUST reasonably believes
that the Variable Contracts may fail to so qualify.
Termination shall be effective upon receipt of notice by LIFE
COMPANY;
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(g) At the option of LIFE COMPANY, upon TRUST's breach of any
material provision of this Agreement, which breach has not
been cured to the satisfaction of LIFE COMPANY within ten days
after written notice of such breach is delivered to TRUST;
(h) At the option of TRUST, upon LIFE COMPANY's breach of any
material provision of this Agreement, which breach has not
been cured to the satisfaction of TRUST within ten days after
written notice of such breach is delivered to LIFE COMPANY;
(i) At the option of TRUST, if the Variable Contracts are not
registered, issued or sold in accordance with applicable
federal and/or state law. Termination shall be effective
immediately upon such occurrence without notice;
(j) In the event this Agreement is assigned without the prior
written consent of LIFE COMPANY, TRUST, MANAGERS TRUST and NB
MANAGEMENT, termination shall be effective immediately upon
such occurrence without notice.
8.3 Notwithstanding any termination of this Agreement pursuant to Section
8.2 hereof, TRUST at its option may elect to continue to make available
additional TRUST shares, as provided below, for so long as TRUST desires
pursuant to the terms and conditions of this Agreement, for all Variable
Contracts in effect on the effective date of termination of this Agreement
(hereinafter referred to as "Existing Contracts"). Specifically, without
limitation, if TRUST so elects to make additional TRUST shares available, the
owners of the Existing Contracts or LIFE COMPANY, whichever shall have legal
authority to do so, shall be permitted to reallocate investments in TRUST,
redeem investments in TRUST and/or invest in TRUST upon the payment of
additional premiums under the Existing Contracts. In the event of a termination
of this Agreement pursuant to Section 8.2 hereof, TRUST and NB MANAGEMENT, as
promptly as is practicable under the circumstances, shall notify LIFE COMPANY
whether TRUST elects to continue to make TRUST shares available after such
termination. If TRUST shares continue to be made available after such
termination, the provisions of this Agreement shall remain in effect and
thereafter either TRUST or LIFE COMPANY may terminate the Agreement, as so
continued pursuant to this Section 8.3, upon sixty (60) days prior written
notice to the other party.
8.4 Except as necessary to implement Variable Contract owner initiated
transactions, or as required by state insurance laws or regulations, LIFE
COMPANY shall not redeem the shares attributable to the Variable Contracts (as
opposed to the shares attributable to LIFE COMPANY's assets held in the Separate
Accounts), and LIFE COMPANY shall not prevent Variable Contract owners from
allocating payments to a Portfolio that was otherwise available under the
Variable
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Contracts, until thirty (30) days after the LIFE COMPANY shall have notified
TRUST of its intention to do so.
Article IX. NOTICES
Any notice hereunder shall be given by registered or certified mail return
receipt requested to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify in
writing to the other party.
If to TRUST, MANAGERS TRUST or NB MANAGEMENT:
Neuberger Berman Management Inc.
605 Third Avenue
New York, NY 10158-0006
Attention: Ellen Metzger, General Counsel
If to LIFE COMPANY:
IL Annuity and Insurance Company
2960 North Meridian Street
Indianapolis, IN 46208
Attention: Daniel LaBonte
Notice shall be deemed given on the date of receipt by the addressee as
evidenced by the return receipt.
Article X. MISCELLANEOUS
10.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
10.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
17
<PAGE>
10.3 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
10.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York. It
shall also be subject to the provisions of the federal securities laws and the
rules and regulations thereunder and to any orders of the SEC granting exemptive
relief therefrom and the conditions of such orders.
10.5 The parties agree that the assets and liabilities of each Series are
separate and distinct from the assets and liabilities of each other Series. No
Series shall be liable or shall be charged for any debt, obligation or liability
of any other Series. No Trustee, officer or agent shall be personally liable for
such debt, obligation or liability of any Series or Portfolio and no Portfolio
or other investor, other than the Portfolio or other investors investing in the
Series which incurs a debt, obligation or liability, shall be liable therefor.
10.6 Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the National
Association of Securities Dealers, Inc. and state insurance regulators) and
shall permit such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this Agreement or the
transactions contemplated hereby.
10.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
10.8 No provision of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by TRUST,
MANAGERS TRUST, NB MANAGEMENT and the LIFE COMPANY.
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Fund Participation Agreement as of the date and year first above
written.
NEUBERGER BERMAN NEUBERGER BERMAN
ADVISERS MANAGEMENT TRUST MANAGEMENT INC.
By: /s/ Stanley Egener By: /s/ Daniel Sullivan
---------------------------- ---------------------------
Name: Stanley Egener Name: Daniel Sullivan
Title: President Title: Senior Vice President
18
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ADVISERS MANAGERS TRUST IL ANNUITY AND INSURANCE
COMPANY
By: /s/ Stanley Egener By: /s/ Gregory Carney
---------------------------- ---------------------------
Name: Stanley Egener Name: Gregory Carney
Title: President Title: President & CEO
19
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APPENDIX A
Neuberger Berman Advisers
Management Trust and its Series Corresponding Series of
(Portfolios) Advisers Managers Trust (Series)
- ------------------------------- --------------------------------
Balanced Portfolio AMT Balanced Investments
Growth Portfolio AMT Growth Investments
Guardian Portfolio AMT Guardian Investments
International Portfolio AMT International Investments
Limited Maturity Bond Portfolio AMT Limited Maturity Bond Investments
Liquid Asset Portfolio AMT Liquid Asset Investments
Mid-Cap Growth Portfolio AMT Mid-Cap Growth Investments
Partners Portfolio AMT Partners Investments
Socially Responsive Portfolio AMT Socially Responsive Investments
20
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APPENDIX B
Separate Accounts Selected Portfolios
- ----------------- -------------------
IL Annuity and Insurance Company Socially Responsive Portfolio
Separate Account I
21
PARTICIPATION AGREEMENT
AMONG
IL ANNUITY AND INSURANCE COMPANY,
PIMCO VARIABLE INSURANCE TRUST,
AND
PIMCO FUNDS DISTRIBUTORS LLC
THIS AGREEMENT, dated as of the 1st day of October, 1999 by and among IL
Annuity and Insurance Company, (the "Company"), a Massachusetts life insurance
company, on its own behalf and on behalf of each segregated asset account of the
Company set forth on Schedule A hereto as may be amended from time to time (each
account hereinafter referred to as the "Account"), PIMCO Variable Insurance
Trust (the "Fund"), a Delaware business trust, and PIMCO Funds Distributors LLC
(the "Underwriter"), a Delaware limited liability company.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance and variable annuity contracts (the
"Variable Insurance Products") to be offered by insurance companies which have
entered into participation agreements with the Fund and Underwriter
("Participating Insurance Companies");
WHEREAS, the shares of beneficial interest of the Fund are divided into
several series of shares, each designated a "Portfolio" and representing the
interest in a particular managed portfolio of securities and other assets;
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission (the "SEC") granting Participating Insurance Companies and variable
annuity and variable life insurance separate accounts exemptions from the
provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company
Act of 1940, as amended, (the "1940 Act") and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, if and to the extent necessary to permit shares of
the Fund to be sold to and held by variable annuity and variable life insurance
separate accounts of both affiliated and unaffiliated life insurance companies
(the "Mixed and Shared Funding Exemptive Order");
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (the "1933 Act");
WHEREAS, Pacific Investment Management Company (the "Adviser"), which
serves as investment adviser to the Fund, is duly registered as an investment
adviser under the federal Investment Advisers Act of 1940, as amended;
WHEREAS, the Company has issued or will issue certain variable life
insurance and/or variable annuity contracts supported wholly or partially by the
Account (the "Contracts"), and said Contracts are listed in Schedule A hereto,
as it may be amended from time to time by mutual written agreement;
<PAGE>
WHEREAS, the Account is duly established and maintained as a segregated
asset account, duly established by the Company, on the date shown for such
Account on Schedule A hereto, to set aside and invest assets attributable to the
aforesaid Contracts;
WHEREAS, the Underwriter, which serves as distributor to the Fund, is
registered as a broker dealer with the SEC under the Securities Exchange Act of
1934, as amended (the "1934 Act"), and is a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolios") on behalf of the Account to fund the
aforesaid Contracts, and the Underwriter is authorized to sell such shares to
the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Fund has granted to the Underwriter exclusive authority to
distribute the Fund's shares, and has agreed to instruct, and has so instructed,
the Underwriter to make available to the Company for purchase on behalf of the
Account Fund shares of those Designated Portfolios selected by the Underwriter.
Pursuant to such authority and instructions, and subject to Article X hereof,
the Underwriter agrees to make available to the Company for purchase on behalf
of the Account, shares of those Designated Portfolios listed on Schedule A to
this Agreement, such purchases to be effected at net asset value in accordance
with Section 1.3 of this Agreement. Notwithstanding the foregoing, (i) Fund
series (other than those listed on Schedule A) in existence now or that may be
established in the future will be made available to the Company only as the
Underwriter may so provide, and (ii) the Board of Trustees of the Fund (the
"Board") may suspend or terminate the offering of Fund shares of any Designated
Portfolio or class thereof, if such action is required by law or by regulatory
authorities having jurisdiction or if, in the sole discretion of the Board
acting in good faith and in light of its fiduciary duties under federal and any
applicable state laws, suspension or termination is necessary in the best
interests of the shareholders of such Designated Portfolio.
1.2. The Fund shall redeem, at the Company's request, any full or
fractional Designated Portfolio shares held by the Company on behalf of the
Account, such redemptions to be effected at net asset value in accordance with
Section 1.3 of this Agreement. Notwithstanding the foregoing, (i) the Company
shall not redeem Fund shares attributable to Contract owners except in the
circumstances permitted in Section 10.3 of this Agreement, and (ii) the Fund may
delay redemption of Fund shares of any Designated Portfolio to the extent
permitted by the 1940 Act, and any rules, regulations or orders thereunder.
1.3. Purchase and Redemption Procedures
(a) The Fund hereby appoints the Company as an agent of the
Fund for the limited purpose of receiving purchase and redemption requests
on behalf of the Account (but not with respect to any Fund shares that may
be held in the general account of the Company) for shares of those
Designated Portfolios made available hereunder, based on allocations of
amounts to the Account or subaccounts thereof under the Contracts and
other transactions relating to the
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<PAGE>
Contracts or the Account. Receipt of any such request (or relevant
transactional information therefor) on any day the New York Stock Exchange
is open for trading and on which the Fund calculates its net asset value
pursuant to the rules of the SEC (a "Business Day") by the Company as such
limited agent of the Fund prior to the time that the Fund ordinarily
calculates its net asset value as described from time to time in the Fund
Prospectus (which as of the date of execution of this Agreement is 4:00
p.m. Eastern Time) shall constitute receipt by the Fund on that same
Business Day, provided that the Fund receives notice of such request by
9:00 a.m. Eastern Time on the next following Business Day.
(b) The Company shall pay for shares of each Designated
Portfolio on the same day that it notifies the Fund of a purchase request
for such shares. Payment for Designated Portfolio shares shall be made in
federal funds transmitted to the Fund by wire to be received by the Fund
by 4:00 p.m. Eastern Time on the day the Fund is notified of the purchase
request for Designated Portfolio shares (unless the Fund determines and so
advises the Company that sufficient proceeds are available from redemption
of shares of other Designated Portfolios effected pursuant to redemption
requests tendered by the Company on behalf of the Account). If federal
funds are not received on time, such funds will be invested, and
Designated Portfolio shares purchased thereby will be issued, as soon as
practicable and the Company shall promptly, upon the Fund's request,
reimburse the Fund for any charges, costs, fees, interest or other
expenses incurred by the Fund in connection with any advances to, or
borrowing or overdrafts by, the Fund, or any similar expenses incurred by
the Fund, as a result of portfolio transactions effected by the Fund based
upon such purchase request. Upon receipt of federal funds so wired, such
funds shall cease to be the responsibility of the Company and shall become
the responsibility of the Fund.
(c) Payment for Designated Portfolio shares redeemed by the
Account or the Company shall be made in federal funds transmitted by wire
to the Company or any other designated person on the next Business Day
after the Fund is properly notified of the redemption order of such shares
(unless redemption proceeds are to be applied to the purchase of shares of
other Designated Portfolios in accordance with Section 1.3(b) of this
Agreement), except that the Fund reserves the right to redeem Designated
Portfolio shares in assets other than cash and to delay payment of
redemption proceeds to the extent permitted under Section 22(e) of the
1940 Act and any Rules thereunder, and in accordance with the procedures
and policies of the Fund as described in the then current prospectus. The
Fund shall not bear any responsibility whatsoever for the proper
disbursement or crediting of redemption proceeds by the Company; the
Company alone shall be responsible for such action.
(d) Any purchase or redemption request for Designated Portfolio
shares held or to be held in the Company's general account shall be
effected at the net asset value per share next determined after the Fund's
receipt of such request, provided that, in the case of a purchase request,
payment for Fund shares so requested is received by the Fund in federal
funds prior to close of business for determination of such value, as
defined from time to time in the Fund Prospectus.
1.4. The Fund shall use its best efforts to make the net asset value
per share for each Designated Portfolio available to the Company by 7:00 p.m.
Eastern Time each Business Day, and in any event, as soon as reasonably
practicable after the net asset value per share for such Designated Portfolio is
calculated, and shall calculate such net asset value in accordance with the
Fund's Prospectus. Neither the Fund, any Designated Portfolio, the Underwriter,
nor any of their affiliates shall be liable for any
- 3 -
<PAGE>
information provided to the Company pursuant to this Agreement which information
is based on incorrect information supplied by the Company or any other
Participating Insurance Company to the Fund or the Underwriter.
1.5. The Fund shall furnish notice (by wire or telephone followed by
written confirmation) to the Company as soon as reasonably practicable of any
income dividends or capital gain distributions payable on any Designated
Portfolio shares. The Company, on its behalf and on behalf of the Account,
hereby elects to receive all such dividends and distributions as are payable on
any Designated Portfolio shares in the form of additional shares of that
Designated Portfolio. The Company reserves the right, on its behalf and on
behalf of the Account, to revoke this election and to receive all such dividends
and capital gain distributions in cash. The Fund shall notify the Company
promptly of the number of Designated Portfolio shares so issued as payment of
such dividends and distributions.
1.6. Issuance and transfer of Fund shares shall be by book entry
only. Stock certificates will not be issued to the Company or the Account.
Purchase and redemption orders for Fund shares shall be recorded in an
appropriate ledger for the Account or the appropriate subaccount of the Account.
1.7. (a) The parties hereto acknowledge that the arrangement
contemplated by this Agreement is not exclusive; the Fund's shares may be sold
to other insurance companies (subject to Section 1.8 hereof) and the cash value
of the Contracts may be invested in other investment companies, provided,
however, that until this Agreement is terminated pursuant to Article X, the
Company shall promote the Designated Portfolios on the same basis as other
funding vehicles available under the Contracts. Funding vehicles other than
those listed on Schedule A to this Agreement may be available for the investment
of the cash value of the Contracts, provided, however, (i) any such vehicle or
series thereof, has investment objectives or policies that are substantially
different from the investment objectives and policies of the Designated
Portfolios available hereunder; and (ii) the Company gives the Fund and the
Underwriter 45 days written notice of its intention to make such other
investment vehicle available as a funding vehicle for the Contracts.
(b) The Company shall not, without prior notice to the
Underwriter (unless otherwise required by applicable law), take any action to
operate the Account as a management investment company under the 1940 Act.
(c) The Company shall not, without prior notice to the
Underwriter (unless otherwise required by applicable law), induce Contract
owners to change or modify the Fund or change the Fund's distributor or
investment adviser.
(d) The Company shall not, without prior notice to the Fund,
induce Contract owners to vote on any matter submitted for consideration by the
shareholders of the Fund in a manner other than as recommended by the Board of
Trustees of the Fund.
- 4 -
<PAGE>
1.8. The Underwriter and the Fund shall sell Fund shares only to
Participating Insurance Companies and their separate accounts and to persons or
plans ("Qualified Persons") that communicate to the Underwriter and the Fund
that they qualify to purchase shares of the Fund under Section 817(h) of the
Internal Revenue Code of 1986, as amended (the "Code") and the regulations
thereunder without impairing the ability of the Account to consider the
portfolio investments of the Fund as constituting investments of the Account for
the purpose of satisfying the diversification requirements of Section 817(h).
The Underwriter and the Fund shall not sell Fund shares to any insurance company
or separate account unless an agreement complying with Article VI of this
Agreement is in effect to govern such sales, to the extent required. The Company
hereby represents and warrants that it and the Account are Qualified Persons.
The Fund reserves the right to cease offering shares of any Designated Portfolio
in the discretion of the Fund.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts (a) are,
or prior to issuance will be, registered under the 1933 Act, or (b) are not
registered because they are properly exempt from registration under the 1933 Act
or will be offered exclusively in transactions that are properly exempt from
registration under the 1933 Act. The Company further represents and warrants
that the Contracts will be issued and sold in compliance in all material
respects with all applicable federal securities and state securities and
insurance laws and that the sale of the Contracts shall comply in all material
respects with state insurance suitability requirements. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law, that it has legally and validly established
the Account prior to any issuance or sale thereof as a segregated asset account
under Massachusetts insurance laws, and that it (a) has registered or, prior to
any issuance or sale of the Contracts, will register the Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts, or alternatively (b) has not
registered the Account in proper reliance upon an exclusion from registration
under the 1940 Act. The Company shall register and qualify the Contracts or
interests therein as securities in accordance with the laws of the various
states only if and to the extent deemed advisable by the Company.
2.2. The Fund represents and warrants that Fund shares sold pursuant
to this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with applicable state and federal securities
laws and that the Fund is and shall remain registered under the 1940 Act. The
Fund shall amend the registration statement for its shares under the 1933 Act
and the 1940 Act from time to time as required in order to effect the continuous
offering of its shares. The Fund shall register and qualify the shares for sale
in accordance with the laws of the various states only if and to the extent
deemed advisable by the Fund or the Underwriter.
2.3. The Fund may make payments to finance distribution expenses
pursuant to Rule 12b-1 under the 1940 Act. Prior to financing distribution
expenses pursuant to Rule 12b-1, the Fund will have the Board, a majority of
whom are not interested persons of the Fund, formulate and approve a plan
pursuant to Rule 12b-1 under the 1940 Act to finance distribution expenses.
2.4. The Fund makes no representations as to whether any aspect of
its operations, including, but not limited to, investment policies, fees and
expenses, complies with the insurance and other applicable laws of the various
states.
- 5 -
<PAGE>
2.5. The Fund represents that it is lawfully organized and validly
existing under the laws of the State of Delaware and that it does and will
comply in all material respects with the 1940 Act.
2.6. The Underwriter represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with any applicable state and federal securities laws.
2.7. The Fund and the Underwriter represent and warrant that all of
their trustees/directors, officers, employees, investment advisers, and other
individuals or entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimum coverage as required currently by Rule 17g-1 of the 1940 Act or related
provisions as may be promulgated from time to time. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
2.8. The Company represents and warrants that all of its directors,
officers, employees, and other individuals/entities employed or controlled by
the Company dealing with the money and/or securities of the Account are covered
by a blanket fidelity bond or similar coverage for the benefit of the Account,
in an amount not less than $5 million. The aforesaid bond includes coverage for
larceny and embezzlement and is issued by a reputable bonding company. The
Company agrees to hold for the benefit of the Fund and to pay to the Fund any
amounts lost from larceny, embezzlement or other events covered by the aforesaid
bond to the extent such amounts properly belong to the Fund pursuant to the
terms of this Agreement. The Company agrees to make all reasonable efforts to
see that this bond or another bond containing these provisions is always in
effect, and agrees to notify the Fund and the Underwriter in the event that such
coverage no longer applies.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Underwriter shall provide the Company with as many copies
of the Fund's current prospectus (describing only the Designated Portfolios
listed on Schedule A) or, to the extent permitted, the Fund's profiles as the
Company may reasonably request. The Company shall bear the expense of printing
copies of the current prospectus and profiles for the Contracts that will be
distributed to existing Contract owners, and the Company shall bear the expense
of printing copies of the Fund's prospectus and profiles that are used in
connection with offering the Contracts issued by the Company. If requested by
the Company in lieu thereof, the Fund shall provide such documentation
(including a final copy of the new prospectus on diskette at the Fund's expense)
and other assistance as is reasonably necessary in order for the Company once
each year (or more frequently if the prospectus for the Fund is amended) to have
the prospectus for the Contracts and the Fund's prospectus or profile printed
together in one document (such printing to be at the Company's expense).
3.2. The Fund's prospectus shall state that the current Statement of
Additional Information ("SAI") for the Fund is available, and the Underwriter
(or the Fund), at its expense, shall provide a reasonable number of copies of
such SAI free of charge to the Company for itself and for any owner of a
Contract who requests such SAI.
3.3. The Fund shall provide the Company with information regarding
the Fund's expenses, which information may include a table of fees and related
narrative disclosure for use in any prospectus or other descriptive document
relating to a Contract. The Company agrees that it will use
- 6 -
<PAGE>
such information in the form provided. The Company shall provide prior written
notice of any proposed modification of such information, which notice will
describe in detail the manner in which the Company proposes to modify the
information, and agrees that it may not modify such information in any way
without the prior consent of the Fund.
3.4. The Fund, at its expense, shall provide the Company with copies
of its proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners.
3.5. The Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares of such
portfolio for which instructions have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners or to the
extent otherwise required by law. The Company will vote Fund shares held in any
segregated asset account in the same proportion as Fund shares of such portfolio
for which voting instructions have been received from Contract owners, to the
extent permitted by law.
3.6. Participating Insurance Companies shall be responsible for
assuring that each of their separate accounts participating in a Designated
Portfolio calculates voting privileges as required by the Shared Funding
Exemptive Order and consistent with any reasonable standards that the Fund may
adopt and provide in writing.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to
the Fund or its designee, each piece of sales literature or other promotional
material that the Company develops and in which the Fund (or a Designated
Portfolio thereof) or the Adviser or the Underwriter is named. No such material
shall be used until approved by the Fund or its designee, and the Fund will
review such sales literature or promotional material within ten Business Days
after receipt of such material. The Fund or its designee reserves the right to
reasonably object to the continued use of any such sales literature or other
promotional material in which the Fund (or a Designated Portfolio thereof) or
the Adviser or the Underwriter is named, and no such material shall be used if
the Fund or its designee so object and provide the Company with written notice
of the reasonable objections at least 30 days prior to the last date the
materials may be used.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund or
the Adviser or the Underwriter in connection with the sale of the Contracts
other than the information or representations contained in the registration
statement or prospectus or SAI for the Fund shares, as such registration
statement and prospectus or SAI may be amended or supplemented from time to
time, or in reports or proxy statements for the Fund, or in
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<PAGE>
sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3. The Fund and the Underwriter, or their designee, shall furnish,
or cause to be furnished, to the Company, each piece of sales literature or
other promotional material that it develops and in which the Company, and/or its
Account, is named. No such material shall be used until approved by the Company,
and the Company will use its best efforts to review such sales literature or
promotional material within ten Business Days after receipt of such material.
The Company reserves the right to reasonably object to the continued use of any
such sales literature or other promotional material in which the Company and/or
its Account is named, and no such material shall be used if the Company so
objects.
4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company, the
Account, or the Contracts other than the information or representations
contained in a registration statement, prospectus (which shall include an
offering memorandum, if any, if the Contracts issued by the Company or interests
therein are not registered under the 1933 Act), or SAI for the Contracts, as
such registration statement, prospectus, or SAI may be amended or supplemented
from time to time, or in published reports for the Account which are in the
public domain or approved by the Company for distribution to Contract owners, or
in sales literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy
of all registration statements, prospectuses, SAIs, reports, proxy statements,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Fund or its shares, promptly after the filing of such document(s)
with the SEC or other regulatory authorities.
4.6. The Company will provide to the Fund notice of filings of all
registration statements, prospectuses (which shall include an offering
memorandum, if any, if the Contracts issued by the Company or interests therein
are not registered under the 1933 Act), SAIs, reports, solicitations for voting
instructions, sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any of the
above, that relate to the Contracts or the Account, promptly after the filing of
such document(s) with the SEC or other regulatory authorities. The Company shall
provide to the Fund and the Underwriter any complaints (as defined by the
National Association of Insurance Commissioners) received from the Contract
owners pertaining to the Fund or the Designated Portfolio.
4.7. The Fund will provide the Company with as much notice as is
reasonably practicable of any proxy solicitation for any Designated Portfolio,
and of any material change in the Fund's registration statement, particularly
any change resulting in a change to the registration statement or prospectus for
any Account. The Fund will work with the Company so as to enable the Company to
solicit proxies from Contract owners, or to make changes to its prospectus or
registration statement, in an orderly manner. The Fund will make reasonable
efforts to attempt to have changes affecting Contract prospectuses become
effective simultaneously with the annual updates for such prospectuses.
4.8. For purposes of this Article IV, the phrase "sales literature
and other promotional materials" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or
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<PAGE>
billboards, motion pictures, or other public media), sales literature (i.e., any
written communication distributed or made generally available to customers or
the public, including brochures, circulars, reports, market letters, form
letters, seminar texts, reprints or excerpts of any other advertisement, sales
literature, or published article), educational or training materials or other
communications distributed or made generally available to some or all agents or
employees, and registration statements, prospectuses, SAIs, shareholder reports,
proxy materials, and any other communications distributed or made generally
available with regard to the Fund.
ARTICLE V. Fees and Expenses
5.1. The Fund and the Underwriter shall pay no fee or other
compensation to the Company under this Agreement, except that if the Fund or any
Portfolio adopts and implements a plan pursuant to Rule 12b-1 to finance
distribution expenses, then the Fund or Underwriter may make payments to the
Company or to the underwriter for the Contracts if and in amounts agreed to by
the Underwriter in writing, and such payments will be made out of existing fees
otherwise payable to the Underwriter, past profits of the Underwriter, or other
resources available to the Underwriter. Currently, no such payments are
contemplated.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of distributing the Fund's
prospectus to owners of Contracts issued by the Company and of distributing the
Fund's proxy materials and reports to such Contract owners.
ARTICLE VI. Diversification and Qualification
6.1. The Fund will invest its assets in such a manner as to ensure
that the Contracts will be treated as annuity or life insurance contracts,
whichever is appropriate, under the Code and the regulations issued thereunder
(or any successor provisions). Without limiting the scope of the foregoing, each
Designated Portfolio has complied and will continue to comply with Section
817(h) of the Code and Treasury Regulation ss.1.817-5, and any Treasury
interpretations thereof, relating to the diversification requirements for
variable annuity, endowment, or life insurance contracts, and any amendments or
other modifications or successor provisions to such Section or Regulations. In
the event of a breach of this Article VI by the Fund, it will take all
reasonable steps (a) to notify the Company of such breach and (b) to adequately
diversify the Fund so as to achieve compliance within the grace period afforded
by Regulation 1.817-5.
6.2. The Fund represents that it is or will be qualified as a
Regulated Investment Company under Subchapter M of the Code, and that it will
make every effort to maintain such qualification (under Subchapter M or any
successor or similar provisions) and that it will notify the
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Company immediately upon having a reasonable basis for believing that it has
ceased to so qualify or that it might not so qualify in the future.
6.3. The Company represents that the Contracts are currently, and at
the time of issuance shall be, treated as life insurance or annuity insurance
contracts, under applicable provisions of the Code, and that it will make every
effort to maintain such treatment, and that it will notify the Fund and the
Underwriter immediately upon having a reasonable basis for believing the
Contracts have ceased to be so treated or that they might not be so treated in
the future. The Company agrees that any prospectus offering a contract that is a
"modified endowment contract" as that term is defined in Section 7702A of the
Code (or any successor or similar provision), shall identify such contract as a
modified endowment contract.
ARTICLE VII. Potential Conflicts
The following provisions shall apply only upon issuance of the Mixed and Shared
Funding Order and the sale of shares of the Fund to variable life insurance
separate accounts, and then only to the extent required under the 1940 Act.
7.1. The Board will monitor the Fund for the existence of any
material irreconcilable conflict between the interests of the Contract owners of
all separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2. The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Mixed and Shared Funding Exemptive Order, by
providing the Board with all information reasonably necessary for the Board to
consider any issues raised. This includes, but is not limited to, an obligation
by the Company to inform the Board whenever Contract owner voting instructions
are disregarded.
7.3. If it is determined by a majority of the Board, or a majority
of its disinterested members, that a material irreconcilable conflict exists,
the Company and other Participating Insurance Companies shall, at their expense
and to the extent reasonably practicable (as determined by a majority of the
disinterested Board members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account.
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7.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard Contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the Account's
investment in the Fund and terminate this Agreement with respect to each
Account; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Fund shall continue to accept and implement orders
by the Company for the purchase (and redemption) of shares of the Fund.
7.5. If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to the Company
conflicts with the majority of other state regulators, then the Company will
withdraw the affected Account's investment in the Fund and terminate this
Agreement with respect to such Account within six months after the Board informs
the Company in writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. Until the end of the foregoing six month period, the Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
7.6. For purposes of Section 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contract if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination; provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7. If and to the extent the Mixed and Shared Funding Exemption
Order or any amendment thereto contains terms and conditions different from
Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement, then the
Fund and/or the Participating Insurance Companies, as appropriate, shall take
such steps as may be necessary to comply with the Mixed and Shared Funding
Exemptive Order, and Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4 and 7.5 of this
Agreement shall continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in the Mixed and Shared
Funding Exemptive Order or any amendment thereto. If and to the extent that Rule
6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive
relief from any provision of the 1940 Act or the rules promulgated thereunder
with respect to mixed or shared funding (as defined in the Mixed and Shared
Funding Exemptive Order) on terms and conditions materially different from those
contained in the Mixed and Shared Funding Exemptive Order, then (a) the Fund
and/or the Participating Insurance Companies, as appropriate, shall take such
steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and
Rule 6e-3, as adopted, to the extent such rules are applicable; and (b) Sections
3.5, 3.6, 7.1., 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in
effect only to the
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extent that terms and conditions substantially identical to such Sections are
contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By the Company
8.1(a). The Company agrees to indemnify and hold harmless the
Fund and the Underwriter and each of its trustees/directors and officers, and
each person, if any, who controls the Fund or Underwriter within the meaning of
Section 15 of the 1933 Act or who is under common control with the Underwriter
(collectively, the "Indemnified Parties" for purposes of this Section 8.1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Company) or litigation (including
legal and other expenses), to which the Indemnified Parties may become subject
under any statute or regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect thereof)
or settlements:
(i) arise out of or are based upon any untrue statement or
alleged untrue statements of any material fact contained in the
registration statement, prospectus (which shall include a
written description of a Contract that is not registered under
the 1933 Act), or SAI for the Contracts or contained in the
Contracts or sales literature for the Contracts (or any
amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to
any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to the Company by or on
behalf of the Fund for use in the registration statement,
prospectus or SAI for the Contracts or in the Contracts or
sales literature (or any amendment or supplement) or otherwise
for use in connection with the sale of the Contracts or Fund
shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the registration statement, prospectus, SAI, or
sales literature of the Fund not supplied by the Company or
persons under its control) or wrongful conduct of the Company
or its agents or persons under the Company's authorization or
control, with respect to the sale or distribution of the
Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, SAI, or sales literature of the Fund or
any amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein
not misleading if such a statement or omission was made in
reliance upon information furnished to the Fund by or on behalf
of the Company; or
(iv) arise as a result of any material failure by the Company
to provide the services and furnish the materials under the
terms of this Agreement (including a
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failure, whether unintentional or in good faith or otherwise,
to comply with the qualification requirements specified in
Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company; or
(vi) as limited by and in accordance with the provisions of
Sections 8.1(b) and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of its obligations or
duties under this Agreement.
8.1(c). The Company shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Company in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, the Company shall be entitled to participate, at
its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Company will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the
Company of the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Fund shares or the Contracts or the
operation of the Fund.
8.2. Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless
the Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or
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<PAGE>
prospectus or SAI or sales literature of the Fund (or any
amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as
to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to the Underwriter or
Fund by or on behalf of the Company for use in the
registration statement, prospectus or SAI for the Fund or in
sales literature (or any amendment or supplement) or otherwise
for use in connection with the sale of the Contracts or Fund
shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the registration statement, prospectus, SAI or
sales literature for the Contracts not supplied by the
Underwriter or persons under its control) or wrongful conduct
of the Fund or Underwriter or persons under their control, with
respect to the sale or distribution of the Contracts or Fund
shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, SAI or sales literature covering the
Contracts, or any amendment thereof or supplement thereto, or
the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statement or statements therein not misleading, if such
statement or omission was made in reliance upon information
furnished to the Company by or on behalf of the Fund or the
Underwriter; or
(iv) arise as a result of any failure by the Fund or the
Underwriter to provide the services and furnish the materials
under the terms of this Agreement (including a failure of the
Fund, whether unintentional or in good faith or otherwise, to
comply with the diversification and other qualification
requirements specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Underwriter;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance or such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have
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<PAGE>
notified the Underwriter in writing within a reasonable time after the summons
or other first legal process giving information of the nature of the claim shall
have been served upon such Indemnified Party (or after such Indemnified Party
shall have received notice of such service on any designated agent), but failure
to notify the Underwriter of any such claim shall not relieve the Underwriter
from any liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification provision.
In case any such action is brought against the Indemnified Party, the
Underwriter will be entitled to participate, at its own expense, in the defense
thereof. The Underwriter also shall be entitled to assume the defense thereof,
with counsel satisfactory to the party named in the action. After notice from
the Underwriter to such party of the Underwriter's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Underwriter will not be liable to
such party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
8.3. Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.3)
against any and all losses, claims, expenses, damages, liabilities (including
amounts paid in settlement with the written consent of the Fund) or litigation
(including legal and other expenses) to which the Indemnified Parties may be
required to pay or may become subject under any statute or regulation, at common
law or otherwise, insofar as such losses, claims, expenses, damages, liabilities
or expenses (or actions in respect thereof) or settlements, are related to the
operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the diversification and
other qualification requirements specified in Article VI of
this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or the Account, whichever is applicable.
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<PAGE>
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Fund to such party of the Fund's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Fund will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to
notify the Fund of the commencement of any litigation or proceeding against it
or any of its respective officers or directors in connection with the Agreement,
the issuance or sale of the Contracts, the operation of the Account, or the sale
or acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of California.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
may grant (including, but not limited to, any Mixed and Shared Funding Exemptive
Order) and the terms hereof shall be interpreted and construed in accordance
therewith. If, in the future, the Mixed and Shared Funding Exemptive Order
should no longer be necessary under applicable law, then Article VII shall no
longer apply.
ARTICLE X. Termination
10.1. This Agreement shall continue in full force and effect until
the first to occur of:
(a) termination by any party, for any reason with respect to some
or all Designated Portfolios, by three (3) months advance
written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and
the Underwriter based upon the Company's determination that
shares of the Fund are not reasonably available to meet the
requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund and
the Underwriter in the event any of the Designated Portfolio's
shares are not registered, issued or sold in accordance with
applicable state and/or federal law or such law precludes the
use of such shares as the underlying investment media of the
Contracts issued or to be issued by the Company; or
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<PAGE>
(d) termination by the Fund or Underwriter in the event that
formal administrative proceedings are instituted against the
Company by the NASD, the SEC, the Insurance Commissioner or
like official of any state or any other regulatory body
regarding the Company's duties under this Agreement or related
to the sale of the Contracts, the operation of any Account, or
the purchase of the Fund's shares; provided, however, that the
Fund or Underwriter determines in its sole judgment exercised
in good faith, that any such administrative proceedings will
have a material adverse effect upon the ability of the Company
to perform its obligations under this Agreement; or
(e) termination by the Company in the event that formal
administrative proceedings are instituted against the Fund or
Underwriter by the NASD, the SEC, or any state securities or
insurance department or any other regulatory body; provided,
however, that the Company determines in its sole judgment
exercised in good faith, that any such administrative
proceedings will have a material adverse effect upon the
ability of the Fund or Underwriter to perform its obligations
under this Agreement; or
(f) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Designated Portfolio in
the event that such Portfolio ceases to qualify as a Regulated
Investment Company under Subchapter M or fails to comply with
the Section 817(h) diversification requirements specified in
Article VI hereof, or if the Company reasonably believes that
such Portfolio may fail to so qualify or comply; or
(g) termination by the Fund or Underwriter by written notice to
the Company in the event that the Contracts fail to meet the
qualifications specified in Article VI hereof; or
(h) termination by either the Fund or the Underwriter by written
notice to the Company, if either one or both of the Fund or
the Underwriter respectively, shall determine, in their sole
judgment exercised in good faith, that the Company has
suffered a material adverse change in its business,
operations, financial condition, or prospects since the date
of this Agreement or is the subject of material adverse
publicity; or
(i) termination by the Company by written notice to the Fund and
the Underwriter, if the Company shall determine, in its sole
judgment exercised in good faith, that the Fund, Adviser, or
the Underwriter has suffered a material adverse change in its
business, operations, financial condition or prospects since
the date of this Agreement or is the subject of material
adverse publicity; or
(j) termination by the Fund or the Underwriter by written notice
to the Company, if the Company gives the Fund and the
Underwriter the written notice specified in Section 1.7(a)(ii)
hereof and at the time such notice was given there was no
notice of termination outstanding under any other provision of
this Agreement; provided, however, any termination under this
Section 10.1(j) shall be effective forty-five days after the
notice specified in Section 1.7(a)(ii) was given; or
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<PAGE>
(k) termination by the Company upon any substitution of the shares
of another investment company or series thereof for shares of
a Designated Portfolio of the Fund in accordance with the
terms of the Contracts, provided that the Company has given at
least 45 days prior written notice to the Fund and Underwriter
of the date of substitution; or
(l) termination by any party in the event that the Fund's Board of
Trustees determines that a material irreconcilable conflict
exists as provided in Article VII.
10.2. Notwithstanding any termination of this Agreement, the Fund
and the Underwriter shall, at the option of the Company, continue to make
available additional shares of the Fund pursuant to the terms and conditions of
this Agreement, for all Contracts in effect on the effective date of termination
of this Agreement (hereinafter referred to as "Existing Contracts"), unless the
Underwriter requests that the Company seek an order pursuant to Section 26(b) of
the 1940 Act to permit the substitution of other securities for the shares of
the Designated Portfolios. The Underwriter agrees to split the cost of seeking
such an order, and the Company agrees that it shall reasonably cooperate with
the Underwriter and seek such an order upon request. Specifically, the owners of
the Existing Contracts may be permitted to reallocate investments in the Fund,
redeem investments in the Fund and/or invest in the Fund upon the making of
additional purchase payments under the Existing Contracts (subject to any such
election by the Underwriter). The parties agree that this Section 10.2 shall not
apply to any terminations under Article VII and the effect of such Article VII
terminations shall be governed by Article VII of this Agreement. The parties
further agree that this Section 10.2 shall not apply to any terminations under
Section 10.1(g) of this Agreement.
10.3. The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract owner initiated or
approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), (iii) upon 45 days
prior written notice to the Fund and Underwriter, as permitted by an order of
the SEC pursuant to Section 26(b) of the 1940 Act, but only if a substitution of
other securities for the shares of the Designated Portfolios is consistent with
the terms of the Contracts, or (iv) as permitted under the terms of the
Contract. Upon request, the Company will promptly furnish to the Fund and the
Underwriter reasonable assurance that any redemption pursuant to clause (ii)
above is a Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contacts, the Company shall not prevent
Contract owners from allocating payments to a Portfolio that was otherwise
available under the Contracts without first giving the Fund or the Underwriter
45 days notice of its intention to do so.
10.4. Notwithstanding any termination of this Agreement, each
party's obligation under Article VIII to indemnify the other parties shall
survive.
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ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered
or certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify in
writing to the other party.
If to the Fund: PIMCO Variable Insurance Trust
840 Newport Center Drive, Suite 300
Newport Beach, CA 92660
If to the Company: IL Annuity and Insurance Company
2960 North Meridian Street
Indianapolis, IN 46208
If to Underwriter: PIMCO Funds Distributors LLC
2187 Atlantic Street
Stamford, CT 06902
ARTICLE XII. Miscellaneous
12.1. All persons dealing with the Fund must look solely to the
property of the Fund, and in the case of a series company, the respective
Designated Portfolios listed on Schedule A hereto as though each such Designated
Portfolio had separately contracted with the Company and the Underwriter for the
enforcement of any claims against the Fund. The parties agree that neither the
Board, officers, agents or shareholders of the Fund assume any personal
liability or responsibility for obligations entered into by or on behalf of the
Fund.
12.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as such information has come into the
public domain.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
12.6. Each party hereto shall cooperate with each other party and
all appropriate governmental authorities (including without limitation the SEC,
the NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the
- 19 -
<PAGE>
Massachusetts Insurance Commissioner with any information or reports in
connection with services provided under this Agreement which such Commissioner
may request in order to ascertain whether the variable annuity operations of the
Company are being conducted in a manner consistent with the Massachusetts
variable annuity laws and regulations and any other applicable law or
regulations.
12.7. The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights, remedies,
and obligations, at law or in equity, which the parties hereto are entitled to
under state and federal laws.
12.8. This Agreement or any of the rights and obligations hereunder
may not be assigned by any party without the prior written consent of all
parties hereto.
12.9. The Company shall furnish, or shall cause to be furnished, to
the Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under
generally accepted accounting principles) filed with any state
or federal regulatory body or otherwise made available to the
public, as soon as practicable and in any event within 90 days
after the end of each fiscal year; and
(b) any registration statement (without exhibits) and financial
reports of the Company filed with the Securities and Exchange
Commission or any state insurance regulatory, as soon as
practicable after the filing thereof.
- 20 -
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
IL ANNUITY AND INSURANCE COMPANY:
By its authorized officer
By: /s/ Gregory J. Carney
------------------------------------
Name: Gregory J. Carney
Title: President
Date: 10/15/99
PIMCO VARIABLE INSURANCE TRUST
By its authorized officer
By: /s/ Brent R. Harris
------------------------------------
Name: Brent R. Harris
Title: Chairman
Date: 12/7/99
PIMCO FUNDS DISTRIBUTORS LLC
By its authorized officer
By: /s/ Newton B. Schott, Jr.
------------------------------------
Name: Newton B. Schott, Jr.
Title: Executive Vice President
Date: 12/3/99
- 21 -
<PAGE>
Schedule A
PIMCO Variable Insurance Trust Portfolios:
Real Return Bond Portfolio
High Yield Bond Portfolio
StocksPLUS Growth and Income Portfolio
Segregated Asset Accounts:
Dated _________________, 199___.
AMENDMENT No. 1 TO
THIRD PARTY ADMINISTRATION SERVICES AGREEMENT
THIS AMENDMENT No. 1 TO THE THIRD PARTY ADMINISTRATION SERVICES AGREEMENT
is entered into effective the ___ day of _______, 1999, by and between IL
Annuity and Insurance Company ("Client"), a Massachusetts corporation, and USA
Administration Services, Inc. ("USA"), a Kansas corporation.
WHEREAS, Client and USA have entered into a Third Party Administration
Services Agreement, dated May 30, 1997 ("Agreement"), wherein USA agreed to
provide Client with specified services related to the administration of the
specific products listed in Schedule A.
WHEREAS, Client and USA have agreed to add the Visionary Variable Annuity
product to this Agreement and this Amendment is to reflect the verbal agreements
between the parties with respect to the addition of this product.
NOW THEREFORE, the parties mutually agree that the following provisions of
the Agreement are hereby superseded and replaced:
1. Article 17 of the Agreement is amended to reflect the following change in
names and address for USA:
USA Administration Services, Inc.
c/o Marketing Partnerships
400 West Market Street, 11th Floor
Louisville, KY 40202
Attn: Carolyn M. Johnson
2.
SCHEDULE A
USA ADMINISTRATION SERVICES INC.
SPECIFIC PRODUCTS
The plans included in this Services Agreement are:
o Visionary Choice Variable Annuity
Form #VCA-97
o Visionary Variable Annuity
Form #VA-95
1
<PAGE>
The product specifications of these products are attached to this Schedule A.
USA recognizes that the product specs, contracts and prospectus have and will
continue to change over time. Client will make revised copies available to USA
as soon as possible to ensure complete and accurate understanding of the product
and its administrative needs.
3.
SCHEDULE C
USA ADMINISTRATION SERVICES, INC.
PROFESSIONAL FEES
Visionary:
New Business Fee $_____ per application
Monthly Maintenance $_____ per policy
Visionary Choice:
New Business Fee $_____ per application
Monthly Maintenance $_____ per policy
Combined Asset Balancing Fee $_____ per month
Combined Monthly Minimum $_____
- --------------------------------------------------------------------------------
Notes:
o New Business Fee is a one-time fee per application to process the application
and establish the ongoing record on the system. This fee is charged at the
time the application is placed under system control.
o Monthly Maintenance Fee is an ongoing fee for the maintenance of the contract
records.
o Monthly minimum is incurred when new business and monthly maintenance fees
for Visionary and Visionary Choice fall below the threshold.
o Asset balancing fee is established with the assumption that there are 20
sub-accounts available with this product.
o Other services, such as Integrated Voice Response and remote system inquiry
are available to the Client for additional fees.
The above fees include the cost of USA staff, software support, operating
expenses (except postage which is billed as incurred) and computer hardware.
Items that are not included are special forms, printing costs, client hardware
and software costs at the Client location, communication costs, and reasonable
travel and living expenses incurred (and approved in writing in advance) by USA
personnel on Client's behalf.
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 to the
Agreement.
USA ADMINISTRATION SERVICES, INC. IL ANNUITY AND INSURANCE COMPANY
By_____________________________ By_______________________________
Title__________________________ Title____________________________
Witness________________________ Witness__________________________
Date___________________________ Date_____________________________
3
STEPHEN E. ROTH
DIRECT LINE: 202.383.0158
Internet: [email protected]
February 11, 2000
VIA EDGARLINK
Board of Directors
IL Annuity and Insurance Company
2960 North Meridian Street
Indianapolis, Indiana 46208
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the Statement of Additional Information filed as part of
Post-Effective Amendment No. 9 to the registration statement on Form N-4 for IL
Annuity and Insurance Co. Separate Account 1 (File No. 033-89028). In giving
this consent, we do not admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act of 1933.
Very truly yours,
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ Stephen E. Roth
---------------------------
Stephen E. Roth
Exhibit 10(b)
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated March 26, 1999, in Post Effective Amendment No. 9 to
the Registration Statement (Form N-4 No. 33-89028) and related Statement of
Additional Information of IL Annuity and Insurance Co. Separate Account 1 dated
February 11, 2000.
/s/ ERNST & YOUNG LLP
Indianapolis, Indiana
February 10, 2000
