497
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il49769-497.txt
IL ANNUITY VISIONARY
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", "IL
Annuity").
You may obtain a copy of the Prospectus for the Visionary and Visionary
Choice Contract dated May 1, 2001 by calling 1-888-232-6486 or by writing to the
Variable Administrative Office: IL Annuity and Insurance Company, c/o USA
Administration Services, Inc., 400 West Market Street, 11th Floor, Louisville,
KY 40202 or P.O. Box 34280, Louisville, KY 40232-4280. You may also fax the
Variable Administrative Office at 1-800-611-3587.
This Statement incorporates terms used in the current Prospectus for
each Contract.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
ONLY IN CONJUNCTION WITH THE PROSPECTUSES FOR YOUR CONTRACT AND THE FUNDS.
The date of this Statement of Additional Information is May 1, 2001.
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................................8
Effect of the Contract Fee on Performance Data..............................8
Other Information...........................................................8
Historic Performance Data......................................................9
General Limitations.........................................................9
Variable Account Performance Figures........................................9
Adjusted Historical Portfolio Performance Figures..........................14
Net Investment Factor ........................................................19
Variable Annuity Payments.....................................................19
Assumed Investment Rate....................................................20
Amount of Variable Annuity Payments........................................20
Annuity Unit Value.........................................................21
Illustration of Calculation of Annuity Unit Value.............................21
Illustration of Variable Annuity Payments.....................................22
Addition, Deletion or Substitution of Investments.............................22
Resolving Material Conflicts...............................................22
Termination of Participation Agreements.......................................23
The Alger American Fund....................................................23
Fidelity Variable Insurance Products Fund and Fund II......................24
First Eagle SoGen Variable Funds, Inc......................................24
OCC Accumulation Trust.....................................................25
Royce Capital Fund.........................................................26
SAFECO Resource Series Trust...............................................27
T. Rowe Price Fixed Income Series, Inc. and T. Rowe Price International
Series, Inc...............................................................27
Van Eck Worldwide Insurance Trust..........................................28
Neuberger Berman Advisers Management Trust.................................28
PIMCO Variable Insurance Trust.............................................29
Voting Rights.................................................................30
Safekeeping of Account Assets.................................................30
Service Fees..................................................................31
Distribution of the Contracts.................................................31
Legal Matters.................................................................32
Experts .....................................................................32
Other Information.............................................................32
Financial Statements..........................................................32
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
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.
Specifically, section 72(s) requires that (a) if any Owner dies on or
after the Annuity Start Date, but prior to the time the entire interest in the
Contract has been distributed, the entire interest in the Contract will be
distributed at least as rapidly as under the method of distribution being used
as of the date of such Owner's death; and (b) if any Owner dies prior to the
Annuity Start Date, the entire interest in the Contract will be distributed
within five years after the date of such Owner's death. These requirements will
be considered satisfied as to any portion of an Owner's interest which is
payable to or for the benefit of a designated beneficiary and which is
2
distributed over the life of such designated beneficiary or over a period not
extending beyond the life expectancy of that beneficiary, provided that such
distributions begin within one year of the Owner's death. The designated
beneficiary refers to a natural person designated by the Owner as a beneficiary
and to whom ownership of the Contract passes by reason of death. However, if the
designated beneficiary is the surviving spouse of the deceased Owner, the
Contract may be continued with the surviving spouse as the new owner.
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.
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
3
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.
UV = the unit value for the first day of the seven-day
period.
We may also disclose the effective yield of the Money Market Variable
Account for the same seven-day period, determined on a compounded basis. We
calculate the effective yield by compounding the unannualized base period return
by adding one to the base return, raising the sum to a power equal to 365
divided by 7, and subtracting one from the result.
Effective Yield = (1 + ((NCS-ES)/UV))(365/7) - 1
Where:
NCS = the net change in the value of the Money Market
Portfolio (not including any realized gains or
losses on the sale of securities, unrealized
appreciation and depreciation, and income other
than investment income) for the seven-day period
attributable to a hypothetical Variable Account
having a balance of one Variable Account unit.
ES = per unit charges deducted from the hypothetical
Variable Account for the seven-day period.
UV = the unit value for the first day of the seven-day
period.
The Money Market Variable Account's yield is lower than the Money
Market Portfolio's yield because of the charges and deductions that the Contract
imposes.
The current and effective yields on amounts held in the Money Market
Variable Account normally fluctuate on a daily basis. THEREFORE, THE DISCLOSED
YIELD FOR ANY GIVEN PAST PERIOD IS NOT AN INDICATION OR REPRESENTATION OF FUTURE
YIELDS OR RATES OF RETURN. The Money Market Variable Account's actual yield is
affected by changes in interest rates on money market
4
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, 2000, the current yield and the effective
yield for the Money Market Variable Account were as follows:
Current yield: 4.96%
-------
Effective yield: 5.09%
-------
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:
5
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.
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.
6
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:
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.
7
P = a hypothetical single payment of $1,000.
ADJUSTED HISTORIC PORTFOLIO PERFORMANCE DATA
Sales literature or advertisements may quote adjusted yields and total
returns for the portfolios since their inception reduced by some or all of the
fees and charges under the Contract. Such adjusted historic Portfolio
performance may include data that precedes the inception dates of the Variable
Accounts. This data is designed to show the performance that would have resulted
if the Contract had been in existence during that time.
We will disclose nonstandard performance data only if we disclose the
standard performance data for the required periods.
EFFECT OF THE CONTRACT FEE ON PERFORMANCE DATA
The Contract provides for the deduction of a $7.50 Contract Fee at the
end of each Contract Quarter from the Fixed and Variable Accounts. We base it on
the proportion that the value of each such Account bears to the total Contract
Value. For purposes of reflecting the Contract Fee in yield and total return
quotations, we convert the Contract Fee into a per-dollar per-day charge based
on the average Contract Value in the Separate Account of all Contracts on the
last day of the period for which quotations are provided. Then, we adjust the
per-dollar per-day average charge to reflect the basis upon which we calculate
the particular quotation.
OTHER INFORMATION
The following is a partial list of those publications that the Funds'
advertising shareholder materials may cite as containing articles describing
investment results or other data relative to one or more of the Variable
Accounts. They may cite other publications.
Broker World Financial World
Across the Board Advertising Age
American Banker Barron's
Best's Review Business Insurance
Business Month Business Week
Changing Times Consumer Reports
Economist Financial Planning
Forbes Fortune
Inc. Institutional Investor
Insurance Forum Insurance Sales
Insurance Week Journal of Accountancy
Journal of the American Society of Journal of Commerce
CLU & ChFC
Life Insurance Selling Life Association News
MarketFacts Manager's Magazine
8
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
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.
===================================================================================================================
Variable Account For the 1-year For the 3-year For the 5-year For the period from
(Date Variable Account operations began) period ended period ended period ended beginning of
12/31/00 12/31/00 12/31/00 Variable Account
operations to
12/31/00
-------------------------------------------------------------------------------------------------------------------
ALGER AMERICAN FUND
-------------------------------------------------------------------------------------------------------------------
MidCap Growth (11/6/95) 0.65% 19.99% 16.84% 14.90%
Small Capitalization (11/6/95) -33.24% 2.80% 4.30% 2.60%
-------------------------------------------------------------------------------------------------------------------
9
===================================================================================================================
Variable Account For the 1-year For the 3-year For the 5-year For the period from
(Date Variable Account operations began) period ended period ended period ended beginning of
12/31/00 12/31/00 12/31/00 Variable Account
operations to
12/31/00
-------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUNDS (INITIAL CLASS)
-------------------------------------------------------------------------------------------------------------------
Asset Manager (11/6/95) -11.91% 3.43% 8.59% 9.25%
Contrafund(R)(11/6/95) -14.35% 11.21% 15.35% 14.86%
Equity Income (11/6/95) -0.10% 5.18% 11.00% 11.92%
Growth (11/6/95) -18.35% 16.14% 16.90% 14.92%
Index 500 (11/6/95) -16.84% 8.40% 15.53% 16.09%
Investment Grade Bond (11/6/95) 2.63% 2.51% 3.43% 3.82%
Money Market (11/6/95)* -2.19% 1.96% 2.85% 2.89%
-------------------------------------------------------------------------------------------------------------------
FIRST EAGLE SOGEN VARIABLE FUNDS, INC.(1)
-------------------------------------------------------------------------------------------------------------------
First Eagle SoGen Overseas (9/1/97) -1.37% 13.24% N/A 9.50%
-------------------------------------------------------------------------------------------------------------------
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
-------------------------------------------------------------------------------------------------------------------
Mid-Cap Growth (5/1/00) N/A N/A N/A -30.89%
Socially Responsive (5/1/00) N/A N/A N/A 3.38%
-------------------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
-------------------------------------------------------------------------------------------------------------------
Managed (11/6/95) 1.21% 3.64% 10.61% 10.95%
Small Cap (11/6/95) 35.15% 5.19% 10.80% 11.26%
-------------------------------------------------------------------------------------------------------------------
PIMCO VARIABLE INSURANCE TRUST (ADMINISTRATIVE SHARES)
-------------------------------------------------------------------------------------------------------------------
High Yield Bond (5/1/00) N/A N/A N/A -8.37%
Real Return Bond (5/1/00) N/A N/A N/A 4.27%
StocksPLUS Growth and Income (5/1/00) N/A N/A N/A -8.26%
-------------------------------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
-------------------------------------------------------------------------------------------------------------------
Royce Micro-Cap (9/1/97) 9.84% 13.00% N/A 32.75%
-------------------------------------------------------------------------------------------------------------------
SAFECO RESOURCE SERIES TRUST
-------------------------------------------------------------------------------------------------------------------
Equity (9/1/97) -18.20% 3.14% N/A 2.82%
Growth (9/1/97) -13.97% -3.46% N/A 0.99%
-------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
-------------------------------------------------------------------------------------------------------------------
Limited-Term Bond (11/6/95) 0.66% 1.99% 2.65% 2.92%
-------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
-------------------------------------------------------------------------------------------------------------------
International Stock (11/6/95) -24.69% 4.61% 5.59% 6.29%
-------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST
-------------------------------------------------------------------------------------------------------------------
Worldwide Hard Assets (11/6/95) 2.79% -6.08% -1.35% 0.12%
===================================================================================================================
* 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%.
----------------------
(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
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.
===================================================================================================================
Variable Account For the 1-year For the 3-year For the 5-year For the period from
(Date Variable Account operations began) period ended period ended period ended beginning of
12/31/00 12/31/00 12/31/00 Variable Account
operations to
12/31/00
-------------------------------------------------------------------------------------------------------------------
ALGER AMERICAN FUND
-------------------------------------------------------------------------------------------------------------------
MidCap Growth (11/6/95) 7.68% 21.62% 17.62% 15.69%
Small Capitalization (11/6/95) -28.20% 4.98% 5.48% 3.81%
-------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUNDS (INITIAL CLASS)
-------------------------------------------------------------------------------------------------------------------
Asset Manager (11/6/95) -5.25% 5.60% 9.63% 10.22%
Contrafund(R)(11/6/95) -7.87% 13.11% 16.19% 15.67%
Equity Income (11/6/95) 6.93% 7.27% 11.94% 12.78%
Growth (11/6/95) -12.19% 17.86% 17.66% 15.69%
Index 500 (11/6/95) -10.55% 10.39% 16.35% 16.86%
Investment Grade Bond (11/6/95) 9.69% 4.74% 4.69% 5.01%
Money Market (11/6/95) * 4.85% 4.20% 4.11% 4.11%
-------------------------------------------------------------------------------------------------------------------
FIRST EAGLE SOGEN VARIABLE FUNDS, INC.
-------------------------------------------------------------------------------------------------------------------
First Eagle SoGen Overseas (9/1/97) 5.68% 15.10% N/A 11.23%
-------------------------------------------------------------------------------------------------------------------
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
-------------------------------------------------------------------------------------------------------------------
Mid-Cap Growth (5/1/00) N/A N/A N/A -25.67%
Socially Responsive (5/1/00) N/A N/A N/A 10.45%
-------------------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
-------------------------------------------------------------------------------------------------------------------
Managed (11/6/95) 8.23% 5.78% 11.55% 11.82%
Small Cap (11/6/95) 42.19% 7.29% 11.75% 12.12%
-------------------------------------------------------------------------------------------------------------------
PIMCO VARIABLE INSURANCE TRUST (ADMINISTRATIVE SHARES)
-------------------------------------------------------------------------------------------------------------------
High Yield Bond (5/1/00) N/A N/A N/A -1.47%
Real Return Bond (5/1/00) N/A N/A N/A 11.27%
StocksPLUS Growth and Income N/A N/A N/A -1.36%
(5/1/00)
-------------------------------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
-------------------------------------------------------------------------------------------------------------------
Royce Micro-Cap (9/1/97) 16.91% 14.88% N/A 33.82%
-------------------------------------------------------------------------------------------------------------------
SAFECO RESOURCE SERIES TRUST
-------------------------------------------------------------------------------------------------------------------
Equity (9/1/97) -12.02% 5.31% N/A 4.77%
Growth (9/1/97) -7.46% -1.07% N/A 3.02%
-------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
-------------------------------------------------------------------------------------------------------------------
Limited-Term Bond (11/6/95) 7.75% 4.27% 3.97% 4.18%
-------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
-------------------------------------------------------------------------------------------------------------------
International Stock (11/6/95) -18.97% 6.77% 6.77% 7.40%
-------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST
-------------------------------------------------------------------------------------------------------------------
Worldwide Hard Assets (11/6/95) 9.87% -3.70% 0.16% 1.51%
===================================================================================================================
* 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
11
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.
===================================================================================================================
Variable Account For the 1-year For the 3-year For the 5-year For the period from
(Date Variable Account operations began) period ended period ended period ended beginning of
12/31/00 12/31/00 12/31/00 Variable Account
operations to
12/31/00
-------------------------------------------------------------------------------------------------------------------
ALGER AMERICAN FUND
-------------------------------------------------------------------------------------------------------------------
MidCap Growth (11/6/95) 0.65% 72.74% 117.72% 104.63%
Small Capitalization (11/6/95) -33.24% 8.63% 23.43% 14.13%
-------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUNDS (INITIAL CLASS)
-------------------------------------------------------------------------------------------------------------------
Asset Manager (11/6/95) -11.91% 10.65% 51.01% 57.78%
Contrafund(R)(11/6/95) -14.35% 37.54% 104.25% 104.31%
Equity Income (11/6/95) -0.10% 16.34% 68.49% 78.70%
Growth (11/6/95) -18.35% 56.65% 118.27% 104.83%
Index 500 (11/6/95) -16.84% 27.39% 105.78% 115.83%
Investment Grade Bond (11/6/95) 2.63% 7.71% 18.38% 21.32%
Money Market (11/6/95)* -2.19% 5.98% 15.06% 15.80%
-------------------------------------------------------------------------------------------------------------------
FIRST EAGLE SOGEN VARIABLE FUNDS, INC.(2)
-------------------------------------------------------------------------------------------------------------------
First Eagle SoGen Overseas (9/1/97) -1.37% 45.23% N/A 35.33%
-------------------------------------------------------------------------------------------------------------------
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
-------------------------------------------------------------------------------------------------------------------
Mid-Cap Growth (5/1/00) N/A N/A N/A -30.89%
Socially Responsive (5/1/00) N/A N/A N/A 3.38%
-------------------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
-------------------------------------------------------------------------------------------------------------------
Managed (11/6/95) 1.21% 11.31% 65.55% 70.87%
Small Cap (11/6/95) 35.15% 16.38% 66.99% 73.35%
-------------------------------------------------------------------------------------------------------------------
PIMCO VARIABLE INSURANCE TRUST (ADMINISTRATIVE SHARES)
-------------------------------------------------------------------------------------------------------------------
High Yield Bond (5/1/00) N/A N/A N/A -8.37%
Real Return Bond (5/1/00) N/A N/A N/A 4.27%
StocksPLUS Growth and Income (5/1/00) N/A N/A N/A -8.26%
-------------------------------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
-------------------------------------------------------------------------------------------------------------------
Royce Micro-Cap (9/1/97) 9.84% 44.28% N/A 58.02%
-------------------------------------------------------------------------------------------------------------------
SAFECO RESOURCE SERIES TRUST
-------------------------------------------------------------------------------------------------------------------
Equity (9/1/97) -18.20% 9.73% N/A 9.73%
Growth (9/1/97) -13.97% -10.02% N/A 3.33%
-------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
-------------------------------------------------------------------------------------------------------------------
Limited-Term Bond (11/6/95) 0.66% 6.08% 13.98% 15.97%
-------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
-------------------------------------------------------------------------------------------------------------------
International Stock (11/6/95) -24.69% 14.48% 31.23% 36.97%
-------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST
-------------------------------------------------------------------------------------------------------------------
Worldwide Hard Assets (11/6/95) 2.79% -17.15% -6.57% 0.60%
===================================================================================================================
* Yield more closely reflects current earnings of the Money Market Variable
Account than its total return.
---------------------
(2)First Eagle SoGen Funds, Inc. was formerly known as SoGen Funds, Inc., and
First Eagle SoGen Overseas Variable Portfolio was formerly known as SoGen
Overseas Variable Portfolio.
12
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.
===================================================================================================================
Variable Account For the 1-year For the 3-year For the 5-year For the period from
(Date Variable Account operations began) period ended period ended period ended beginning of
12/31/00 12/31/00 12/31/00 Variable Account
operations to
12/31/00
-------------------------------------------------------------------------------------------------------------------
ALGER AMERICAN FUND
-------------------------------------------------------------------------------------------------------------------
MidCap Growth (11/6/95) 7.68% 79.91% 125.14% 112.03%
Small Capitalization (11/6/95) -28.20% 15.70% 30.56% 21.25%
-------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FUNDS (INITIAL CLASS)
-------------------------------------------------------------------------------------------------------------------
Asset Manager (11/6/95) -5.25% 17.77% 58.33% 65.12%
Contrafund(R)(11/6/95) -7.87% 44.71% 111.76% 111.82%
Equity Income (11/6/95) 6.93% 23.43% 75.73% 85.95%
Growth (11/6/95) -12.19% 63.73% 125.51% 112.05%
Index 500 (11/6/95) -10.55% 34.52% 111.76% 123.29%
Investment Grade Bond (11/6/95) 9.69% 14.89% 25.73% 28.67%
Money Market (11/6/95)* 4.85% 13.13% 22.23% 23.02%
-------------------------------------------------------------------------------------------------------------------
FIRST EAGLE SOGEN VARIABLE FUNDS, INC.(3)
-------------------------------------------------------------------------------------------------------------------
First Eagle SoGen Overseas (9/1/97) 5.68% 52.47% N/A 42.58%
-------------------------------------------------------------------------------------------------------------------
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
-------------------------------------------------------------------------------------------------------------------
Mid-Cap Growth (5/1/00) N/A N/A N/A -25.67%
Socially Responsive (5/1/00) N/A N/A N/A 10.45%
-------------------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
-------------------------------------------------------------------------------------------------------------------
Managed (11/6/95) 8.23% 18.38% 72.24% 77.87%
Small Cap (11/6/95) 42.19% 23.50% 74.29% 80.35%
-------------------------------------------------------------------------------------------------------------------
PIMCO VARIABLE INSURANCE TRUST (ADMINISTRATIVE SHARES)
-------------------------------------------------------------------------------------------------------------------
High Yield Bond (5/1/00) N/A N/A N/A -1.47%
Real Return Bond (5/1/00) N/A N/A N/A 11.27%
StocksPLUS Growth and Income (5/1/00) N/A N/A N/A -1.36%
-------------------------------------------------------------------------------------------------------------------
ROYCE CAPITAL FUND
-------------------------------------------------------------------------------------------------------------------
Royce Micro-Cap (9/1/97) 16.91% 51.62% N/A 164.16%
-------------------------------------------------------------------------------------------------------------------
SAFECO RESOURCE SERIES TRUST
-------------------------------------------------------------------------------------------------------------------
Equity (9/1/97) -12.02% 16.81% N/A 16.18%
Growth (9/1/97) -7.46% -3.18% N/A 10.43%
-------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
-------------------------------------------------------------------------------------------------------------------
Limited-Term Bond (11/6/95) 7.75% 13.36% 21.49% 23.49%
-------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
-------------------------------------------------------------------------------------------------------------------
International Stock (11/6/95) -18.97% 21.72% 38.74% 44.49%
-------------------------------------------------------------------------------------------------------------------
(3)First Eagle SoGen Funds, Inc. was formerly known as SoGen Funds, Inc., and
First Eagle SoGen Overseas Variable Portfolio was formerly known as SoGen
Overseas Variable Portfolio.
13
===================================================================================================================
Variable Account For the 1-year For the 3-year For the 5-year For the period from
(Date Variable Account operations began) period ended period ended period ended beginning of
12/31/00 12/31/00 12/31/00 Variable Account
operations to
12/31/00
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST
-------------------------------------------------------------------------------------------------------------------
Worldwide Hard Assets (11/6/95) 9.87% -10.69% 0.80% 8.02%
===================================================================================================================
* Yield more closely reflects current earnings of the Money Market Variable
Account than its total return.
ADJUSTED HISTORICAL PORTFOLIO PERFORMANCE FIGURES
The following tables show adjusted historical performance data for the
Portfolios, including for periods before the Variable Accounts began operations.
It is based on the performance of each Portfolio since its operations began,
adjusted to deduct some or all of the charges we currently assess under the
Contracts. THESE FIGURES ARE NOT AN INDICATION OF THE FUTURE PERFORMANCE OF THE
VARIABLE ACCOUNTS. Some of the figures reflect the waiver of advisory fees and
reimbursement of other expenses for part or all of the periods indicated.
Adjusted historical average annual total returns for periods since the
inception of each Portfolio (assumes the Contract is surrendered) are as
follows. These figures include: the daily deduction of the mortality and
expenses charges at an annual rate of 1.25% (except that, prior to the inception
of the corresponding Variable Account, deductions are monthly); the daily
deduction of the annual administrative expenses charge at an annual rate of
0.15% (except that, prior to the inception of the corresponding Variable
Account, deductions are monthly); the quarterly deduction of the administration
charge of $7.50 adjusted for average account size; and the deduction of the
applicable contingent deferred sales load for the Visionary contract and the
Date of Issue Withdrawal Charge Option under the Visionary Choice contract.
========================================= ============ ============ ============= ============= ====================
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
12/31/00 12/31/00 12/31/00 12/31/00 to 12/31/00
--------------------------------------------------------------------------------------------------------------------
ALGER AMERICAN FUND
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
MidCap Growth (5/3/93) 0.65% 19.99% 16.84% N/A 20.64%
Small Capitalization (9/20/88) -33.24% 2.80% 4.30% 11.97% 14.31%
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
FIDELITY VIP FUNDS (INITIAL CLASS)
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
Asset Manager (9/6/89) -11.91% 3.43% 8.59% 10.56% 9.81%
Contrafund(R)(1/3/95) -14.35% 11.21% 15.35% N/A 19.02%
Equity Income (10/9/86) -0.10% 5.18% 11.00% 15.68% 11.69%
Growth (10/9/86) -18.35% 16.14% 16.90% 18.34% 14.74%
Index 500 (8/27/92) -16.84% 8.40% 15.53% N/A 15.19%
Investment Grade Bond (12/5/88) 2.63% 2.51% 3.43% 6.13% 6.21%
Money Market (4/2/82)* -2.19% 1.96% 2.85% 3.43% 4.94%
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
FIRST EAGLE SOGEN VARIABLE FUNDS, INC.
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
First Eagle SoGen Overseas (2/3/97) -1.37% 13.24% N/A N/A 8.95%
--------------------------------------------------------------------------------------------------------------------
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
14
========================================= ============ ============ ============= ============= ====================
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
12/31/00 12/31/00 12/31/00 12/31/00 to 12/31/00
--------------------------------------------------------------------------------------------------------------------
Mid-Cap Growth (11/3/97) -15.16% 22.30% N/A N/A 27.41%
Socially Responsive (2/18/99) -9.84% N/A N/A N/A 1.83%
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
OCC ACCUMULATION TRUST
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
Managed (8/31/88) 1.21% 3.64% 10.61% 16.44% 15.35%
Small Cap (8/31/88) 35.15% 5.19% 10.80% 14.78% 12.18%
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
PIMCO VARIABLE INSURANCE TRUST (ADMINISTRATIVE SHARES)
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
High Yield Bond (4/30/98) -8.64% N/A N/A N/A -2.71%
Real Return Bond (9/30/99) 6.18% N/A N/A N/A 3.98%
StocksPLUS Growth and Income -17.04% 10.71% N/A N/A 10.70%
(12/31/97)
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
ROYCE CAPITAL FUND
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
Royce Micro-Cap (12/27/96) 9.84% 13.00% N/A N/A 28.55%
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
SAFECO RESOURCE SERIES TRUST
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
Equity (11/6/86) -18.20% 3.14% 10.66% 14.74% 11.68%
Growth (12/31/92) -13.97% -3.46% 11.28% N/A 17.47%
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
Limited-Term Bond (5/13/94) 0.66% 1.99% 2.65% N/A 3.68%
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
International Stock (3/31/94) -24.69% 4.61% 5.59% N/A 5.72%
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
VAN ECK WORLDWIDE INSURANCE TRUST
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
Worldwide Hard Assets (8/31/89) 2.79% -6.08% -1.35% 4.22% 2.90%
========================================= ============ ============ ============= ============= ====================
* 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 (assumes the Contract is not surrendered) are as
follows. These figures include: the daily deduction of the mortality and
expenses charge at an annual rate of 1.25% (except that, prior to the inception
of the corresponding Variable Account, deductions are monthly); and the daily
deduction of the annual administrative expenses charge at the annual rate of
0.15% (except that, prior to the inception of the corresponding Variable
Account, deductions are monthly).
These figures do not reflect the quarterly deduction of the
administration charge and any applicable contingent deferred sales load which,
if deducted, would reduce performance.
========================================= ============ ============ ============= ============= ====================
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
12/31/00 12/31/00 12/31/00 12/31/00 to 12/31/00
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
ALGER AMERICAN FUND
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
MidCap Growth (5/3/93) 7.68% 21.62% 17.62% N/A 20.85%
Small Capitalization (9/20/88) -28.20% 4.98% 5.48% 12.00% 14.36%
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
15
========================================= ============ ============ ============= ============= ====================
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
12/31/00 12/31/00 12/31/00 12/31/00 to 12/31/00
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
FIDELITY VIP FUNDS (INITIAL CLASS)
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
Asset Manager (9/6/89) -5.25% 5.60% 9.63% 10.63% 9.88%
Contrafund(R)(1/3/95) -7.87% 13.11% 16.19% N/A 19.56%
Equity Income (10/9/86) 6.93% 7.27% 11.94% 15.73% 11.75%
Growth (10/9/86) -12.19% 17.86% 17.66% 18.38% 14.79%
Index 500 (8/27/92) -10.55% 10.39% 16.35% N/A 15.34%
Investment Grade Bond (12/5/88) 9.69% 4.74% 4.69% 6.19% 6.28%
Money Market (4/2/82)* 4.85% 4.20% 4.11% 3.48% 5.00%
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
FIRST EAGLE SOGEN VARIABLE FUNDS, INC.
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
First Eagle SoGen Overseas (2/3/97) 5.68% 15.10% N/A N/A 10.37%
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
Mid-Cap Growth (11/3/97) -8.74% 23.91% N/A N/A 28.78%
Socially Responsive (2/18/99) -2.96% N/A N/A N/A 5.57%
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
OCC ACCUMULATION TRUST
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
Managed (8/31/88) 8.23% 5.78% 11.55% 16.48% 15.40%
Small Cap (8/31/88) 42.19% 7.29% 11.75% 14.84% 12.24%
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
PIMCO VARIABLE INSURANCE TRUST (ADMINISTRATIVE SHARES)
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
High Yield Bond (4/30/98) -2.24% N/A N/A N/A 0.06%
Real Return Bond (9/30/99) 12.59% N/A N/A N/A 9.57%
StocksPLUS Growth and Income -10.74% 12.66% N/A N/A 12.65%
(12//31/97)
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
ROYCE CAPITAL FUND
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
Royce Micro-Cap (12/27/96) 16.91% 14.88% N/A N/A 29.43%
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
SAFECO RESOURCE SERIES TRUST
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
Equity (11/6/86) -12.02% 5.31% 11.61% 14.79% 11.75%
Growth (12/31/92) -7.46% -1.07% 12.21% N/A 17.68%
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
Limited-Term Bond (5/13/94) 7.75% 4.27% 3.97% N/A 4.50%
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
International Stock (3/31/94) -18.97% 6.77% 6.77% N/A 6.44%
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
VAN ECK WORLDWIDE INSURANCE TRUST
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
Worldwide Hard Assets (8/31/89) 9.87% -3.70% 0.16% 4.31% 2.99%
========================================= ============ ============ ============= ============= ====================
* Yield more closely reflects current earnings of the Money Market Portfolio
than its total return.
Adjusted historical cumulative total returns for periods since the
inception of each Portfolio (assumes the Contract is surrendered) are as
follows. These figures include: the daily deduction of the mortality and
expenses charge at an annual rate of 1.25% (except that, prior to the inception
of the corresponding Variable Account, deductions are monthly); the daily
deduction of the annual administrative expenses charge at an annual rate of
0.15% (except that, prior to the inception of the corresponding Variable
Account, deductions are monthly); the quarterly deduction of an administration
charge of $7.50 adjusted for average account size; and the applicable contingent
deferred sales load for the Visionary contract and for the Date of Issue
Withdrawal Charge Option under the Visionary Choice contract.
16
========================================= ============ ============ ============= ============= ====================
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
12/31/00 12/31/00 12/31/00 12/31/00 to 12/31/00
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
ALGER AMERICAN FUND
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
MidCap Growth (5/3/93) 0.65% 72.74% 117.72% N/A 322.31%
Small Capitalization (9/20/88) -33.24% 8.63% 23.43% 209.64% 417.53%
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
FIDELITY VIP FUNDS (INITIAL CLASS)
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
Asset Manager (9/6/89) -11.91% 10.65% 51.01% 172.97% 188.57%
Contrafund(R)(1/3/95) -14.35% 37.54% 104.25% N/A 183.98%
Equity Income (10/9/86) -0.10% 16.34% 68.49% 329.07% 382.34%
Growth (10/9/86) -18.35% 56.65% 118.27% 438.71% 607.65%
Index 500 (8/27/92) -16.84% 27.39% 105.78% N/A 225.56%
Investment Grade Bond (12/5/88) 2.63% 7.71% 18.38% 81.23% 107.03%
Money Market (4/2/82)* -2.19% 5.98% 15.06% 40.13% 147.12%
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
FIRST EAGLE SOGEN VARIABLE FUNDS, INC.
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
First Eagle SoGen Overseas (2/3/97) -1.37% 45.23% N/A N/A 39.80%
--------------------------------------------------------------------------------------------------------------------
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
Mid-Cap Growth (11/3/97) -15.16% 82.94% N/A N/A 115.07%
Socially Responsive (2/18/99) -9.84% N/A N/A N/A 3.44%
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
OCC ACCUMULATION TRUST
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
Managed (8/31/88) 1.21% 11.31% 65.55% 358.22% 489.78%
Small Cap (8/31/88) 35.15% 16.38% 66.99% 297.03% 316.92%
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
PIMCO VARIABLE INSURANCE TRUST (ADMINISTRATIVE SHARES)
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
High Yield Bond (4/30/98) -8.64% N/A N/A N/A -7.07%
Real Return Bond (9/30/99) 6.18% N/A N/A N/A 5.02%
StocksPLUS Growth and Income -17.04% 35.68% N/A N/A 35.68%
(12/31/97)
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
ROYCE CAPITAL FUND
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
Royce Micro-Cap (12/27/96) 9.84% 44.28% N/A N/A 174.01%
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
SAFECO RESOURCE SERIES TRUST
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
Equity (11/6/86) -18.20% 9.73% 65.94% 295.61% 357.24%
Growth (12/31/92) -13.97% -10.02% 70.65% N/A 261.86%
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
Limited-Term Bond (5/13/94) 0.66% 6.08% 13.98% N/A 27.16%
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
International Stock (3/31/94) -24.69% 14.48% 31.23% N/A 45.65%
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
VAN ECK WORLDWIDE INSURANCE TRUST
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
Worldwide Hard Assets (8/31/89) 2.79% -17.15% -6.57% 51.19% 38.35%
========================================= ============ ============ ============= ============= ====================
* Yield more closely reflects current earnings of the Money Market Portfolio
than its total return.
Adjusted historical cumulative total returns for periods since the
inception of each Portfolio (assumes the Contract is not surrendered) are as
follows. These figures include: the daily deduction of the mortality and
expenses charges at an annual rate of 1.25% (except that, prior to the inception
of the corresponding Variable Account, deductions are monthly); and the daily
deduction of the administrative expenses charge at an annual rate of 0.15%
(except that, prior to the inception of the corresponding Variable Account,
deductions are monthly).
17
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.
========================================= ============ ============ ============= ============= ====================
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
12/31/00 12/31/00 12/31/00 12/31/00 to 12/31/00
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
ALGER AMERICAN FUND
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
MidCap Growth (5/3/93) 7.68% 79.91% 125.14% N/A 327.91%
Small Capitalization (9/20/88) -28.20% 15.70% 30.56% 210.58% 420.00%
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
FIDELITY VIP FUNDS (INITIAL CLASS)
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
Asset Manager (9/6/89) -5.25% 17.77% 58.33% 174.50% 190.54%
Contrafund(R)(1/3/95) -7.87% 44.71% 111.76% N/A 191.86%
Equity Income (10/9/86) 6.93% 23.43% 75.73% 330.91% 386.05%
Growth (10/9/86) -12.19% 63.73% 125.51% 440.62% 612.43%
Index 500 (8/27/92) -10.55% 34.52% 111.76% N/A 229.16%
Investment Grade Bond (12/5/88) 9.69% 14.89% 25.73% 82.40% 108.76%
Money Market (4/2/82)* 4.85% 13.13% 22.23% 40.82% 149.91%
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
FIRST EAGLE SOGEN VARIABLE FUNDS, INC.
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
First Eagle SoGen Overseas (2/3/97) 5.68% 52.47% N/A N/A 47.09%
--------------------------------------------------------------------------------------------------------------------
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
Mid-Cap Growth (11/3/97) -8.74% 90.25% N/A N/A 122.48%
Socially Responsive (2/18/99) -2.96% N/A N/A N/A 10.64%
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
OCC ACCUMULATION TRUST
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
Managed (8/31/88) 8.23% 18.38% 72.74% 359.80% 492.92%
Small Cap (8/31/88) 42.19% 23.50% 74.29% 298.84% 319.68%
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
PIMCO VARIABLE INSURANCE TRUST (ADMINISTRATIVE SHARES)
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
High Yield Bond (4/30/98) -2.24% N/A N/A N/A 0.17%
Real Return Bond (9/30/99) 12.59% N/A N/A N/A 12.15%
StocksPLUS Growth and Income -10.74% 43.00% N/A N/A 43.00%
(12/31/97)
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
ROYCE CAPITAL FUND
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
Royce Micro-Cap (12/27/96) 16.91% 51.62% N/A N/A 181.60%
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
SAFECO RESOURCE SERIES TRUST
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
Equity (11/6/86) -12.02% 16.81% 73.16% 297.29% 360.74%
Growth (12/31/92) -7.46% -3.18% 77.92% N/A 267.04%
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
T. ROWE PRICE FIXED INCOME SERIES, INC.
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
Limited-Term Bond (5/13/94) 7.75% 13.36% 21.49% N/A 33.92%
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
T. ROWE PRICE INTERNATIONAL SERIES, INC.
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
International Stock (3/31/94) -18.97% 21.72% 38.74% N/A 52.47%
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
VAN ECK WORLDWIDE INSURANCE TRUST
----------------------------------------- ------------ ------------ ------------- ------------- --------------------
Worldwide Hard Assets (8/31/89) 9.87% -10.69% 0.80% 52.46% 39.72%
========================================= ============ ============ ============= ============= ====================
* Yield more closely reflects current earnings of the Money Market Portfolio
than its total return.
18
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, or income
distributions (if the ex-dividend date occurred
during the current valuation period), and capital
gains, realized or unrealized, of the underlying
portfolio credited at the end of the current Business
Day; plus
2. the amount credited or released from reserves for
taxes attributed to the operation of the Variable
Account; minus
3. the capital losses, realized or unrealized, charged
by the underlying portfolio 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 that Business Day for daily
Separate Account charges; 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
19
Account then remains fixed unless an exchange of annuity units is made as
described below. Each Variable Account has a separate annuity unit value that
changes each Business Day in substantially the same way as does the value of an
accumulation unit of a Variable Account.
We determine the dollar value of each variable annuity payment after
the first by multiplying the number of annuity units of a particular Variable
Account by the annuity unit value for that Variable Account on the Business Day
immediately preceding the date of each payment. If the net investment return of
the Variable Account for a payment period equals the pro-rated portion of the
3.0% annual assumed investment rate, then the variable annuity payment for that
Variable Account for that period will equal the payment for the prior period. If
the net investment return exceeds an annualized rate of 3.0% for a payment
period, then the payment for that period will be greater than the payment for
the prior period. Similarly, if the return for a period falls short of an
annualized rate of 3.0%, then the payment for that period will be less than the
payment for the prior period.
ASSUMED INVESTMENT RATE
The discussion concerning the amount of variable annuity payments which
follows this section is based on an assumed investment rate of 3.0% per year.
Under the Contract, the you may choose an assumed interest rate of 3.0%, 4.0% or
5.0% at the time you select a variable payout plan. We use the assumed
investment rate to determine the first monthly payment per thousand dollars of
applied value. THIS RATE DOES NOT BEAR ANY RELATIONSHIP TO THE ACTUAL NET
INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT OR ANY VARIABLE ACCOUNT.
AMOUNT OF VARIABLE ANNUITY PAYMENTS
The amount of the first variable annuity payment to a payee will depend
on the amount (i.e., the adjusted Contract Value, the Surrender Value, the death
benefit) applied to effect the variable annuity payment as of the Annuity Start
Date, the annuity payout plan 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.
20
The annuity unit value will increase or decrease from one payment to
the next in proportion to the net investment return of the Variable Account(s)
supporting the variable annuity payments, less an adjustment to neutralize the
3.0% assumed investment rate referred to above. Therefore, the dollar amount of
variable annuity payments after the first will vary with the amount by which the
net investment return of the appropriate Variable Accounts is greater or less
than 3.0% per year. For example, for a Contract using only one Variable Account
to generate variable annuity payments, if that Variable Account has a cumulative
net investment return of 5% over a one year period, the first annuity payment in
the next year will be approximately 2% greater than the payment on the same date
in the preceding year. If such net investment return is 1% over a one year
period, then the first annuity payment in the next year will be approximately 2
percentage points less than the payment on the same date in the preceding year.
(See also "Variable Annuity Payments" in the Prospectus.)
ANNUITY UNIT VALUE
We calculate the value of an annuity unit at the same time that we
calculate the value of an accumulation unit and we base it on the same values
for fund shares and other assets and liabilities. (See "Separate Account Value"
in the Prospectus.) The annuity unit value for each Variable Account's first
valuation period was set at $100. We calculate the annuity unit value for a
Variable Account for each subsequent valuation period by dividing (1) by (2),
then multiplying this quotient by (3) and then multiplying the result by (4),
where:
(1) is the accumulation unit value for the current valuation period;
(2) is the accumulation unit value for the immediately preceding
valuation period;
(3) is the annuity unit value for the immediately preceding valuation
period; and
(4) is a special factor designed to compensate for the assumed
investment rate of 3.0% built into the table used to compute the
first variable annuity payment.
The following illustrations show, by use of hypothetical examples, the
method of determining the annuity unit value and the amount of several variable
annuity payments based on one Variable Account.
ILLUSTRATION OF CALCULATION OF ANNUITY UNIT VALUE
1. Accumulation unit value for current
valuation period (1/1/01)......................................$11.15
2. Accumulation unit value for immediately
preceding valuation period (12/1/00)...........................$11.10
3. Annuity unit value for immediately preceding
valuation period (12/1/00)....................................$105.00
4. Factor to compensate for the assumed
investment rate of 3.0%........................................0.9975
5. Annuity unit value of current valuation
period (1/1/01) ((1) / (2)) x (3) x (4).....................$105.2093
21
ILLUSTRATION OF VARIABLE ANNUITY PAYMENTS
Annuity Start Date: 1/1/01
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) [division symbol] 1,000 ..$656.74
6. Annuity unit value............................................$105.2093
7. Number of annuity units (5)[division symbol](6)..................6.2422
8. Assume annuity unit value for second month equal to...........$105.3000
9. Second monthly annuity payment (7)x(8)..........................$657.30
10. Assume annuity unit value for third month equal to............$104.9000
11. Third monthly annuity payment (7)x(10)..........................$654.81
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
IL Annuity may substitute, eliminate, or combine shares of another
portfolio for shares already purchased or to be purchased in the future. No
substitution, elimination or combination of shares will take place without the
prior approval of the SEC. 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, Variable Accounts may be combined or eliminated, 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
22
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 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;
23
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;
o at the option of either the Fidelity Variable Insurance Products Fund or
the Fidelity Variable Insurance Products Fund II (each, the "Fund") or
Fidelity Distributors Corporation (the "Underwriter") upon a determination
that IL Annuity has suffered a material adverse change in its business,
operations, financial condition or prospects or is the subject of material
adverse publicity;
o by IL Annuity upon a determination that either Fund or the Underwriter
has suffered a material adverse change in its business, operations,
financial condition or prospects or is the subject of material adverse
publicity; or
o by Fund or the Underwriter if IL Annuity provides written notice of its
intent to use another investment company as a funding vehicle for the
Contracts.
FIRST EAGLE SOGEN VARIABLE FUNDS, INC. This agreement shall continue in full
force and effect until the first to occur of:
o termination by any party, for any reason with respect to the portfolio, by
120 days advance written notice delivered to the other parties; or
o termination by IL Annuity by written notice to the First Eagle SoGen
Variable Funds, Inc. ("First Eagle SoGen Fund") and Societe Generale
Securities Corporation (the "Underwriter") based upon IL Annuity's
determination that the portfolio's shares are not reasonably available to
meet the requirements of the Contracts; or
24
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.
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;
25
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;
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.
26
SAFECO RESOURCE SERIES TRUST. This agreement shall terminate as to the sale and
issuance of new Contracts:
o at the option of either IL Annuity or the SAFECO Resources Series Trust
(the "Trust"), upon 180 days' advance written notice to the other;
o at the option of IL Annuity, upon ten days' advance written notice to the
Trust if shares of the portfolios are not available for any reason to meet
the requirements of the Contracts as determined by IL Annuity;
o at the option of IL Annuity, upon the institution of certain formal
proceedings against the Trust or Adviser by the SEC, NASD, or any other
regulatory body;
o at the option of the Trust, upon the institution of certain formal
proceedings against IL Annuity or the principal underwriter for the
Contracts by the SEC, the NASD or any other regulatory body;
o in the event the Trust's shares are not registered, issued or sold in
accordance with applicable state or federal law, or such law precludes the
use of such shares as the underlying investment medium of Contracts;
o upon the receipt of any necessary regulatory approvals, or the requisite
vote of Contract owners having an interest in the portfolios, to
substitute for shares of the portfolios the shares of another investment
company in accordance with the terms of the applicable Contracts;
o at the option of the Trust, if the Contracts cease to qualify as annuity
contracts or life insurance contracts, as applicable, under the Code;
o at the option of IL Annuity, upon the Trust's unremedied breach of any
material provision of this agreement;
o at the option of the Trust, upon IL Annuity's unremedied breach of any
material provision of this agreement;
o at the option of the Trust, if the Contracts are not registered, issued or
sold in accordance with applicable federal and/or state law;
o in the event this agreement is assigned without the prior written consent
of IL Annuity, the Trust or Adviser.
T. ROWE PRICE FIXED INCOME SERIES, INC. AND T. ROWE PRICE INTERNATIONAL SERIES,
INC. These agreements provide for termination:
o on six months' advance written notice by any party;
o at IL Annuity's option if shares of any portfolio are not reasonably
available to meet the requirements of the Contracts or are not
registered, issued or sold in accordance with applicable state and/or
federal law;
o at IL Annuity's option if any portfolio ceases to be qualified as a
Regulated Investment Company under Subchapter M of the Code;
o at IL Annuity's option if any portfolio fails to meet certain
diversification requirements of the Code;
o at the option of either the T. Rowe Price Fixed Income Series, Inc. or
the T. Rowe Price International Series, Inc. (each, the "Fund") or T.
Rowe Price Investment Services, Inc.
27
(the "Underwriter") upon a determination that IL Annuity has suffered a
material adverse change in its business, operations, financial condition
or prospects or is the subject of material adverse publicity;
o by IL Annuity upon a determination that either Fund or the Underwriter
has suffered a material adverse change in its business, operations,
financial condition or prospects or is the subject of material adverse
publicity;
o by Fund or the Underwriter if IL Annuity provides written notice of its
intent to use another investment company as a funding vehicle for the
Contracts;
o by Fund or the Underwriter upon institution of certain proceedings
against IL Annuity; or
o at IL Annuity's option upon institution of certain administrative
proceedings against either Fund or the Underwriter.
VAN ECK WORLDWIDE INSURANCE TRUST. This agreement provides for termination:
o on six months' advance written notice by any party;
o at IL Annuity's option if shares of any portfolio are not reasonably
available to meet the requirements of the Contracts or are not
registered, issued or sold in accordance with applicable state and/or
federal law;
o at IL Annuity's option if any portfolio ceases to be qualified as a
Regulated Investment Company under Subchapter M of the Code;
o at IL Annuity's option if any portfolio fails to meet certain
diversification requirements of the Code;
o at the option of the Van Eck Worldwide Insurance Trust (the "Trust") or
Van Eck Associates Corporation (the "Adviser") upon a determination that
IL Annuity has suffered a material adverse change in its business,
operations, financial condition or prospects or is the subject of material
adverse publicity;
o by IL Annuity upon a determination that either the Trust or the Adviser
has suffered a material adverse change in its business, operations,
financial condition or prospects or is the subject of material adverse
publicity;
o by IL Annuity, the Adviser or the Trust, upon institution of certain
proceedings against the broker-dealers marketing the Contracts, the
Adviser or the Trust;
o upon a decision by IL Annuity to substitute the Trust's shares with the
shares of another investment company; or
o upon assignment of the Agreement.
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST. This agreement provides for
termination:
o at the option of either IL Annuity or the Neuberger Berman Advisers
Management Trust ("Trust"), upon 180 days' notice;
o at the option of IL Annuity, upon ten days' notice, if the Trust shares
are not reasonably available to meet the requirements of the Contracts;
o at the option of IL Annuity, upon the institution of certain formal
proceedings against the Trust by the SEC or any other regulatory body;
28
o at the option of the Trust, upon the institution of certain formal
proceedings against IL Annuity by the SEC, NASD, or any other regulatory
body;
o in the event the Trust's shares are not registered, issued or sold in
accordance with applicable state or federal law, or such law precludes the
use of such shares as the underlying investment medium of Contracts;
o at the option of the Trust, if the Contracts cease to qualify, or if the
Trust reasonably believes that the Contracts may fail to qualify, as
annuity contracts or life insurance contracts, as applicable, under the
Code;
o at the option of IL Annuity, upon ten days' written notice to the Trust
upon the Trust's unremedied breach of any material provision of this
agreement;
o at the option of the Trust, upon ten days' written notice to IL Annuity
upon the IL Annuity's unremedied breach of any material provision of this
agreement;
o at the option of the Trust, if the Contracts are not registered, issued or
sold in accordance with applicable federal and/or state law;
o in the event this agreement is assigned without the prior written consent
of IL Annuity, the Trust, Managers Trust and N&B Management.
PIMCO VARIABLE INSURANCE TRUST. This agreement shall continue in full force and
effect until the first to occur of:
o termination by any party, for any reason with respect to some or all of
the portfolios, by three (3) months advance written notice delivered to
the other parties;
o termination by IL Annuity by written notice to the PIMCO Variable
Insurance Trust (the "Fund") and PIMCO Funds Distributors LLC (the
"Underwriter") based upon IL Annuity's determination that the portfolio's
shares are not reasonably available to meet the requirements of the
Contracts; or
o termination by IL Annuity by written notice to the Fund and the
Underwriter in the event the portfolio's shares are not registered, issued
or sold in accordance with applicable state and/or federal law or such law
precludes the use of such shares as the underlying investment media of the
Contracts; or
o termination by the Fund or Underwriter in the event that certain formal
administrative proceedings are instituted against IL Annuity by the NASD,
the SEC, the Insurance Commissioner or like official of any state or any
other regulatory body; or
o termination by IL Annuity in the event that certain formal
administrative proceedings are instituted against the Fund or Underwriter
by the NASD, the SEC, the Insurance Commissioner or like official of any
state or any other regulatory body; or
o termination by IL Annuity by written notice to the Fund and the
Underwriter in the event that any portfolio ceases to qualify as a
Regulated Investment Company under Subchapter M or fails to comply with
the Section 817(h) diversification requirements of the Code; or
o termination by the Fund or Underwriter by written notice to IL Annuity in
the event that the Contracts fail to meet certain qualifications; or
o termination by either the Fund or the Underwriter by written notice to IL
Annuity if either one or both of the Fund and the Underwriter
respectively, shall determine, in their sole judgment exercised in good
faith, that IL Annuity has suffered a material adverse change
29
in its business, operations, financial condition, or prospects since the
date of the Participation Agreement or is the subject of material adverse
publicity; or
o termination by IL Annuity by written notice to the Fund and the
Underwriter, if IL Annuity shall determine, in its sole judgment exercised
in good faith, that the Fund, Adviser, or the Underwriter has suffered a
material adverse change in its business, operations, financial condition,
or prospects since the date of the Participation Agreement or is the
subject of material adverse publicity; or
o termination by the Fund or the Underwriter by written notice to IL
Annuity, if IL Annuity gives the Fund and Underwriter 45 days' written
notice of its intention to make other investment vehicles available under
the Contracts, and at the time notice was given there was no notice of
termination outstanding; or
o termination by IL Annuity upon any substitution of the shares of another
investment company or series thereof for shares of the portfolio in
accordance with the terms of the Contracts, provided that IL Annuity give
at least 45 days' prior written notice to the Trust and Underwriter of the
date of substitution; or
o termination by any party in the event that the Trust's Board of Trustees
determines that a material irreconcilable conflict exists.
VOTING RIGHTS
We determine the number of votes you may cast by dividing your Contract
Value in a Variable Account by the net asset value per share of the Portfolio in
which that Variable Account invests. For each Annuitant, we determine the number
of votes attributable to a Variable Account by dividing the liability for future
variable annuity payments to be paid from that Variable Account by the net asset
value per share of the portfolio in which that Variable Account invests. We
calculate this liability for future payments on the basis of the mortality
assumptions. We use your selected assumed investment rate in determining the
number of annuity units of that Variable Account credited to the Annuitant's
Contract and annuity unit value of that Variable Account on the date that we
determine the number of votes. As we make variable annuity payments to the
Annuitant, the liability for future payments decreases as does the number of
votes.
We determine the number of votes available to you or an Annuitant as
of the date coincident with the date that the Fund establishes for determining
shareholders eligible to vote at the relevant meeting of the portfolio's
shareholders. We will solicit voting instructions by written communication prior
to such meeting in accordance with the Fund's established procedures.
SAFEKEEPING OF ACCOUNT ASSETS
We hold the title to the assets of the Separate Account. The assets are
kept physically segregated and held separate and apart from our General Account
assets and from the assets in any other separate account. We maintain records of
all purchases and redemptions of portfolio shares held by each of the Variable
Accounts.
30
An insurance company blanket bond covers our officers and employees.
Chubb Group, Federal Insurance Company to Indianapolis Life Insurance Company
and its various subsidiaries issue the bond. Our bond is in the amount of twenty
million dollars. The bond insures against dishonest and fraudulent acts of
officers and employees.
SERVICE FEES
We (and our affiliates) may receive compensation from certain
investment advisers, administrators, and/or distributors (and/or an affiliate
thereof) of the portfolios in connection with administrative or other services
and cost savings experienced by the investment advisers, administrators or
distributors. Such compensation may range up to 0.25% and is based on the value
of portfolio shares held for the Contracts. We may also receive a portion of the
12b-1 fees deducted from portfolio assets as reimbursement for administrative or
other services we render to the portfolios. Some advisers, administrators,
distributors, or portfolios may pay us more than others.
DISTRIBUTION OF THE CONTRACTS
IL Securities, Inc. ("IL Securities"), P.O. Box 1230, 2960 North
Meridian Street, Indianapolis, Indiana 46208, acts as a distributor for the
Contracts. IL Securities is a wholly-owned subsidiary of IL Group, a company
majority-owned by Indianapolis Life Insurance Company ("ILICo"). IL Securities
is registered with the SEC under the Securities Exchange Act of 1934 as a
broker-dealer, and is a member of the National Association of Securities
Dealers, Inc.
On February 18, 2000 American Mutual Holding Company ("AMHC") purchased
a 45% ownership interest in IL Group. IL Group used the proceeds of such
investment to repurchase in their entirety the ownership interests held by
American United Life Insurance Company and Legacy Marketing Group. The purchase
referenced above is part of a larger overall transaction which contemplates a
combination of AMHC and ILICo. That transaction, which includes demutualization
by ILICo, is subject to various governmental and other approvals.
We offer the Contracts to the public on a continuous basis. We
anticipate continuing to offer the Contracts, but we reserve the right to
discontinue the offering. Agents who sell the Contracts are licensed by
applicable state insurance authorities to sell the Contracts and are registered
representatives of IL Securities or broker-dealers having selling agreements
with IL Securities or broker-dealers having selling agreements with such
broker-dealers.
We may pay sales commissions to broker-dealers up to an amount equal to
7.2% of the Premium Payments paid under a Contract. We may also pay asset-based
trailer commissions of up to 1.25%. We may pay up to 2.50% of Premium Payments
to IL Securities to compensate it for certain distribution expenses. We expect
the broker-dealers to compensate sales representatives in varying amounts from
these commissions. We may pay other distribution expenses such as production
incentive bonuses, an agent's insurance and pension benefits, and
31
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 $
1,489,369 in underwriting commissions during the fiscal year 2000, $1,169,543 in
underwriting commissions during the fiscal year 1999, and $1,588,498 in
underwriting commissions in fiscal year 1998.
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, 2000 and 1999 and the related statements of income, shareholder's
equity and cash flows for each of the three years in the period ended December
31, 2000, and the statement of net assets of IL Annuity and Insurance Co.
Separate Account 1 as of December 31, 2000, and the related statement of
operations for the year then ended and statements of changes in net assets for
each of the two years in the period then ended, appearing in this Statement of
Additional Information and Registration Statement have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports thereon appearing
elsewhere herein, and are included in reliance upon such reports given on their
authority as experts in accounting and auditing.
OTHER INFORMATION
We have filed a registration statement with the SEC under the
Securities Act of 1933, as amended, with respect to the Contracts discussed in
this Statement of Additional Information. The Statement of Additional
Information does not include all of the information set forth in the
registration statement, amendments and exhibits. Statements contained in this
Statement of Additional Information concerning the content of the Contracts and
other legal instruments are intended to be summaries. For a complete statement
of the terms of these documents, you should refer to the instruments filed with
the SEC.
FINANCIAL STATEMENTS
32
FINANCIAL STATEMENTS
IL ANNUITY AND INSURANCE COMPANY SEPARATE ACCOUNT 1
Year ended December 31, 2000 with Report of Independent Auditors
IL Annuity and Insurance Company Separate Account 1
Financial Statements
Year ended December 31, 2000
CONTENTS
Report of Independent Auditors.................................................1
Audited Financial Statements
Statement of Net Assets........................................................2
Statement of Operations........................................................4
Statements of Changes in Net Assets............................................5
Notes to Financial Statements..................................................7
[Logo] Ernst & Young
One Indiana Square, Suite 3400 Phone: (317) 681-7000
Indianapolis, IN 46204
REPORT OF INDEPENDENT AUDITORS
Contract Holders of IL Annuity and Insurance Company Separate Account 1
and
Board of Directors of IL Annuity and Insurance Company
We have audited the accompanying statement of net assets of IL Annuity and
Insurance Company Separate Account 1 (the Account) (comprising, respectively,
Alger American MidCap Growth, Alger Small Capitalization, Fidelity Asset
Manager, Fidelity Contra, Fidelity Equity Income, Fidelity Growth, Fidelity
Index 500, Fidelity Investment Grade Bond, Fidelity Money Market, OCC Managed,
OCC Small Cap, T. Rowe Price International Stock, T. Rowe Price Limited-Term
Bond, Van Eck Hard Assets, SAFECO Equity, SAFECO Growth, Royce
Micro-Capitalization, First Eagle SoGen Overseas Variable, AMT Mid-Cap Growth,
AMT Socially Responsive, PIMCO High Yield Bond, PIMCO Real Return Bond, and
PIMCO StocksPLUS Growth and Income Portfolios) as of December 31, 2000, 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 2000 by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
portfolios constituting IL Annuity and Insurance Company Separate Account 1 at
December 31, 2000, the results of its operations for the year then ended and the
changes in its net assets for each of the two years in the period then ended in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
March 16, 2001
IL Annuity and Insurance Company Separate Account 1
Statement of Net Assets
December 31, 2000
VALUE IN
ACCUMULATION
PERCENT OF NET PERIOD AND NET UNITS IN ACCUMULATION
ASSETS ASSETS PERIOD UNIT VALUE
-----------------------------------------------------------------------
ASSETS
Investments at net asset value:
Alger American Fund:
Alger American MidCap Growth Portfolio--835,963.75
shares at $30.62 per share
(cost--$25,311,914) 7.25% $ 25,597,211 1,160,292 $ 22.061
Alger Small Capitalization Portfolio--530,736.65
shares at $23.49 per share
(cost--$19,501,652) 3.54% 12,467,004 985,378 12.652
Fidelity Variable Insurance Products Fund and Fund II:
Fidelity Asset Manager Portfolio--747,995.31
shares at $16.00 per share
(cost--$12,790,419) 3.39% 11,967,925 722,701 16.560
Fidelity Contra Portfolio--1,805,240.27 shares
at $23.74 per share (cost--$42,810,654) 12.13% 42,856,404 1,999,272 21.436
Fidelity Equity Income Portfolio--985,038.17
shares at $25.52 per share
(cost--$23,800,246) 7.12% 25,138,174 1,348,108 18.647
Fidelity Growth Portfolio--1,117,780.71 shares
at $43.65 per share (cost--$52,426,831) 13.81% 48,791,128 2,252,279 21.663
Fidelity Index 500 Portfolio--460,879.61 shares
at $149.53 per share (cost--$65,026,643) 19.50% 68,915,328 3,074,244 22.417
Fidelity Investment Grade Bond
Portfolio--692,693.81 shares at $12.59
per share (cost--$8,482,579) 2.47% 8,721,015 677,150 12.879
Fidelity Money Market Portfolio--11,554,270
shares at $1.00 per share
(cost--$11,554,270) 3.27% 11,554,270 937,770 12.321
Oppenheimer Capital Accumulation Trust:
OCC Managed Portfolio--450,557.32 shares at
$43.20 per share (cost--$18,505,427) 5.51% 19,464,076 1,084,773 17.943
OCC Small Cap Portfolio--211,880.71 shares
at $32.25 per share (cost--$5,163,966) 1.93% 6,833,153 377,794 18.087
T. Rowe Price International Series, Inc.:
T. Rowe Price International Stock Portfolio--
946,199.80 shares at $15.07 per share
(cost--$14,991,608) 4.04% 14,259,231 978,134 14.578
T. Rowe Price Fixed Income Series, Inc.:
T. Rowe Price Limited-Term Bond
Portfolio--833,890.06
shares at $4.93 per share
(cost--$4,057,224) 1.16% 4,111,078 333,773 12.317
Van Eck Worldwide Insurance Trust:
Van Eck Hard Assets Portfolio--276,324.94
shares at $12.07 per share
(cost--$3,169,744) 0.94% 3,335,242 311,909 10.693
SAFECO Resource Series Trust:
SAFECO Equity Portfolio--525,489.59
shares at $27.46 per share
(cost--$15,852,622) 4.09% 14,429,944 1,177,955 12.250
SAFECO Growth Portfolio--914,505.90
shares at $18.81 per share
(cost--$19,244,084) 4.87% 17,201,856 1,602,558 10.734
Royce Capital Fund:
Royce Micro-Capitalization
Portfolio--813,174.33
shares at $7.05 per share
(cost--$4,802,661) 1.62% 5,732,879 346,523 16.544
First Eagle SoGen Variable Funds, Inc:
First Eagle SoGen Overseas Variable
Portfolio--592,562.31
shares at $14.01 per share
(cost--$8,257,497) 2.35% 8,301,798 584,592 14.201
Nueberger Berman Advisors Management Trust:
AMT MidCap Growth Portfolio--100,193.95 shares
at $22.48 per share (cost--$2,648,003) 0.64% 2,252,360 303,022 7.433
AMT Socially Responsive Portfolio--17,217.89
shares at $11.18 per share
(cost--$187,734) 0.05% 192,496 17,428 11.045
PIMCO Variable Insurance Trust:
PIMCO High Yield Bond Portfolio--30,263.63
shares at $8.33 per share
(cost--$259,474) 0.07% 252,096 25,583 9.854
PIMCO Real Return Bond Portfolio--43,332.21
shares at $10.34 per share
(cost--$439,992) 0.13% 448,055 40,238 11.135
PIMCO StocksPLUS Growth and Income
Portfolio--37,131.49 shares at
$11.05 per share
(cost--$481,624) 0.12% 410,303 41,575 9.869
-----------------------------------------------------------
Total investments and net assets (cost--$359,766,868) 100.00% $353,233,026 20,383,051
===========================================================
See accompanying notes.
2
IL Annuity and Insurance Company Separate Account 1
Statement of Operations
Year ended December 31, 2000
ALGER AMERICAN ALGER SMALL
MIDCAP GROWTH CAPITALIZATION FIDELITY ASSET FIDELITY CONTRA FIDELITY EQUITY
COMBINED PORTFOLIO PORTFOLIO MANAGER PORTFOLIO PORTFOLIO INCOME PORTFOLIO
------------------------------------------------------------------------------------------------------
Net investment income $ 29,795,362 $ 2,813,247 $ 5,590,319 $ 1,315,091 $ 5,223,196 $2,116,629
Mortality and expense
charges (4,978,435) (328,301) (201,974) (170,822) (599,634) (337,539)
Net realized gain (loss)
on investments 5,544,860 1,248,899 (777,690) (39,766) 983,870 (345,920)
Net change in unrealized
appreciation
(depreciation) on
investments (53,184,426) (2,721,306) (9,604,010) (1,768,437) (9,141,565) (7,133)
--------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets
resulting from
operations $ (22,822,639) $ 1,012,539 $ (4,993,355) $ (663,934) $(3,534,133) $1,426,037
========================================================================================================
FIDELITY
INVESTMENT
FIDELITY GROWTH FIDELITY INDEX 500 GRADE BOND FIDELITY MONEY OCC MANAGED OCC SMALL
PORTFOLIO PORTFOLIO PORTFOLIO MARKET PORTFOLIO PORTFOLIO CAP PORTFOLIO
--------------------------------------------------------------------------------------------------------
Net investment income $ 4,883,752 $1,080,558 $585,812 $778,946 $1,716,678 $26,540
Mortality and expense
charges (712,672) (1,025,326) (116,533) (177,512) (253,492) (68,052)
Net realized gain (loss) on
investments 2,300,842 2,652,627 (117,619) - (654,810) 7,276
Net change in unrealized
appreciation
(depreciation) on
investments (13,456,411) (10,663,979) 424,262 (4,552) 547,184 1,891,043
--------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets
resulting from
operations $(6,984,489) (7,956,120) 775,922 596,882 1,355,560 1,856,807
========================================================================================================
T. ROWE PRICE T. ROWE PRICE ROYCE MICRO-
INTERNATIONAL STOCK LIMITED-TERM BOND VAN ECK HARD SAFECO EQUITY SAFECO GROWTH CAPITALIZATION
PORTFOLIO PORTFOLIO ASSETS PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------------------------------------
Net investment income $ 525,628 $272,581 $29,366 $110,554 $1,876,585 $162,011
Mortality and expense
charges (205,817) (59,269) (42,152) (219,876) (263,981) (65,827)
Net realized gain (loss) on
investments 502,600 (98,391) (106,757) 110,328 (527,796) 50,859
Net change in unrealized
appreciation
(depreciation) on
investments (3,938,512) 195,732 419,142 (2,019,047) (2,591,378) 593,478
--------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets
resulting from
operations $(3,116,101) $310,653 $299,599 $(2,018,041) $(1,506,570) $740,521
========================================================================================================
PIMCO
FIRST EAGLE SOGEN AMT SOCIALLY PIMCO HIGH PIMCO REAL STOCKSPLUS
OVERSEAS VARIABLE AMT MIDCAP RESPONSIVE YIELD BOND RETURN BOND GROWTH AND
PORTFOLIO GROWTH PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO INCOME PORTFOLIO
--------------------------------------------------------------------------------------------------------
Net investment income $634,930 $ - $ - $ 6,982 $ 9,898 $ 36,059
Mortality and expense (98,675) (14,960) (9,405) (1,921) (1,745) (2,950)
charges
Net realized gain (loss) on
investments 480,796 (127,558) 188 (205) 2,411 676
Net change in unrealized
appreciation
(depreciation) on
investments (619,306) (208,371) (250,930) (195,839) 8,115 (72,606)
--------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets
resulting from
operations $397,745 $(350,889) $(260,147) $(190,983) $ 18,679 $ (38,821)
========================================================================================================
See accompanying notes.
3
IL Annuity and Insurance Company Separate Account 1
Statements of Changes in Net Assets
ALGER AMERICAN ALGER SMALL FIDELITY ASSET
MIDCAP GROWTH CAPITALIZATION MANAGER FIDELITY CONTRA FIDELITY EQUITY
COMBINED PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO INCOME PORTFOLIO
------------------------------------------------------------------------------------------------------
Net assets at January 1, 1999 $ 220,862,443 $ 8,463,518 $ 6,266,674 $ 8,032,807 $ 23,327,506 $ 22,539,812
Changes from 1999 operations:
Net investment income 12,001,639 1,678,743 861,686 670,676 987,222 1,100,129
Mortality and expense
charges (3,905,497) (161,312) (109,999) (150,596) (434,104) (371,943)
Net realized gain (loss)
on investments 4,560,713 253,679 125,861 71,402 1,207,572 638,391
Net change in unrealized
appreciation (depreciation)
on investments 30,652,420 1,778,123 2,298,679 414,986 5,016,833 (315,464)
------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting
from operations 43,309,275 3,549,233 3,176,227 1,006,468 6,777,523 1,051,113
Net increase from contract
purchases 541,778,764 16,968,455 14,408,699 17,068,360 39,592,899 33,989,991
Net decrease from
redemptions-withdrawals (464,862,229) (12,468,183) (12,032,958) (13,800,260) (29,981,381) (30,018,829)
------------------------------------------------------------------------------------------------------
Total increase (decrease) in
net assets 120,225,810 8,049,505 5,551,968 4,274,568 16,389,041 5,022,275
------------------------------------------------------------------------------------------------------
Net assets at December 31,
1999 341,088,253 16,513,023 11,818,642 12,307,375 39,716,547 27,562,087
Changes from 2000 operations:
Net investment income 29,795,362 2,813,247 5,590,319 1,315,091 5,223,196 2,116,629
Mortality and expense
charges (4,978,435) (328,301) (201,974) (170,822) (599,634) (337,539)
Net realized gain (loss)
on investments 5,544,860 1,248,899 (777,690) (39,766) 983,870 (345,920)
Net change in unrealized
appreciation (depreciation)
on investments (53,184,426) (2,721,306) (9,604,010) (1,768,437) (9,141,565) (7,133)
------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting
from operations (22,822,639) 1,012,539 (4,993,355) (663,934) (3,534,133) 1,426,037
Net increase from contract
purchases 338,422,744 23,288,882 17,703,433 9,180,465 30,435,415 16,815,655
Net decrease from
redemptions-withdrawals (303,455,332) (15,217,233) (12,061,716) (8,855,981) (23,761,425) (20,665,605)
------------------------------------------------------------------------------------------------------
Total increase (decrease) in
net assets 12,144,773 9,084,188 648,362 (339,450) 3,139,857 (2,423,913)
------------------------------------------------------------------------------------------------------
Net assets at December 31,
2000 $ 353,233,026 $ 25,597,211 $ 12,467,004 $ 11,967,925 $ 42,856,404 $ 25,138,174
======================================================================================================
FIDELITY
FIDELITY INVESTMENT FIDELITY
FIDELITY GROWTH INDEX 500 GRADE BOND MONEY MARKET OCC MANAGED OCC SMALL CAP
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------------------------
Net assets at January 1, 1999 $ 17,263,535 $ 39,961,857 $ 8,320,691 $ 12,128,091 $ 22,364,263 $ 3,878,446
Changes from 1999 operations:
Net investment income 2,024,084 712,405 447,944 713,423 1,102,162 23,937
Mortality and expense
charges (381,937) (817,544) (131,511) (200,222) (320,935) (56,809)
Net realized gain (loss)
on investments 1,107,959 2,088,415 21,268 - 389,635 (216,188)
Net change in unrealized
appreciation (depreciation)
on investments 6,605,400 8,242,771 (535,619) 42,101 (274,304) 57,190
------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting
from operations 9,355,506 10,226,047 (197,918) 555,302 896,558 (191,870)
Net increase from contract
purchases 44,558,221 69,776,065 16,522,850 113,392,502 30,833,079 6,776,372
Net decrease from
redemptions-withdrawals (29,239,902) (46,917,811) (15,684,008) (108,123,651) (32,270,772) (6,393,967)
------------------------------------------------------------------------------------------------------
Total increase (decrease) in
net assets 24,673,825 33,084,301 640,924 5,824,153 (541,135) 190,535
------------------------------------------------------------------------------------------------------
Net assets at December 31,
1999 41,937,360 73,046,158 8,961,615 17,952,244 21,823,128 4,068,981
Changes from 2000 operations:
Net investment income 4,883,752 1,080,558 585,812 778,946 1,716,678 26,540
Mortality and expense
charges (712,672) (1,025,326) (116,533) (177,512) (253,492) (68,052)
Net realized gain (loss)
on investments 2,300,842 2,652,627 (117,619) - (654,810) 7,276
Net change in unrealized
appreciation (depreciation)
on investments (13,456,411) (10,663,979) 424,262 (4,552) 547,184 1,891,043
------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting
from operations (6,984,489) (7,956,120) 775,922 596,882 1,355,560 1,856,807
Net increase from contract
purchases 47,831,145 44,446,213 7,405,968 59,467,537 13,624,918 6,891,392
Net decrease from
redemptions-withdrawals (33,992,888) (40,620,923) (8,422,490) (66,462,393) (17,339,530) (5,984,027)
------------------------------------------------------------------------------------------------------
Total increase (decrease) in
net assets 6,853,768 (4,130,830) (240,600) (6,397,974) (2,359,052) 2,764,172
-----------------------------------------------------------------------------------------------------
Net assets at December 31,
2000 $ 48,791,128 $ 68,915,328 $ 8,721,015 $ 11,554,270 $ 19,464,076 $ 6,833,153
======================================================================================================
See accompanying notes.
4
IL Annuity and Insurance Company Separate Account 1
Statements of Changes in Net Assets (continued)
T. ROWE PRICE T. ROWE PRICE SAFECO ROYCE MICRO-
INTERNATIONAL LIMITED-TERM VAN ECK HARD SAFECO GROWTH CAPITALIZATION
STOCK PORTFOLIO BOND PORTFOLIO ASSETS PORTFOLIO EQUITY PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------------------------------------------------------------------------------
Net assets at January 1, 1999 $ 9 ,040,605 $ 4,005,483 $ 1,882,096 $ 10,526,339 $ 17,773,401 $ 3,209,743
Changes from 1999 operations:
Net investment income 205,893 236,133 28,880 909,105 - 299,217
Mortality and expense
charges (149,201) (60,723) (29,313) (203,270) (239,767) (42,598)
Net realized gain (loss)
on investments 568,635 (22,155) (194,175) 350,614 (1,992,172) (142,466)
Net change in unrealized
appreciation (depreciation)
on investments 2,711,892 (237,067) 557,487 (9,638) 2,886,119 602,202
------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
operations 3,337,219 (83,812) 362,879 1,046,811 654,180 716,355
Net increase from contract
purchases 56,335,236 7,699,406 1,148,341 24,401,720 27,733,408 9,817,163
Net decrease from
redemptions-withdrawals (54,749,690) (7,121,167) (989,718) (18,849,530) (27,818,637) (10,086,860)
------------------------------------------------------------------------------------------------------
Total increase (decrease) in
net assets 4,922,765 494,427 521,502 6,599,001 568,951 446,658
------------------------------------------------------------------------------------------------------
Net assets at December 31,
1999 13,963,370 4,499,910 2,403,598 17,125,340 18,342,352 3,656,401
Changes from 2000 operations:
Net investment income 525,628 272,581 29,366 110,554 1,876,585 162,011
Mortality and expense
charges (205,817) (59,269) (42,152) (219,876) (263,981) (65,827)
Net realized gain (loss)
on investments 502,600 (98,391) (106,757) 110,328 (527,796) 50,859
Net change in unrealized
appreciation (depreciation) (3,938,512) 195,732 419,142 (2,019,047) (2,591,378) 593,478
------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
operations (3,116,101) 310,653 299,599 (2,018,041) (1,506,570) 740,521
Net increase from contract
purchases 14,160,827 3,602,430 1,836,296 7,110,934 14,510,396 4,293,065
Net decrease from
redemptions-withdrawals (10,748,865) (4,301,915) (1,204,251) (7,788,289) (14,144,322) (2,957,108)
------------------------------------------------------------------------------------------------------
Total increase (decrease) in
net assets 295,861 (388,832) 931,644 (2,695,396) (1,140,496) 2,076,478
------------------------------------------------------------------------------------------------------
Net assets at December 31,
2000 $ 14,259,231 $ 4,111,078 $ 3,335,242 $ 14,429,944 $ 17,201,856 $ 5,732,879
======================================================================================================
FIRST EAGLE PIMCO PIMCO
SOGEN OVERSEAS AMT SOCIALLY PIMCO HIGH REAL RETURN STOCKSPLUS
VARIABLE AMT MIDCAP RESPONSIVE YIELD BOND BOND GROWTH AND INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------------------------------------------------------------------------------------------------
Net assets at January 1, 1999 $ 1,877,576 $ - $ - $ - $ - $ -
Changes from 1999 operations:
Net investment income - - - - - -
Mortality and expense
charges (43,713) - - - - -
Net realized gain (loss)
on investments 304,438 - - - - -
Net change in unrealized
appreciation (depreciation)
on investments 810,729 - - - - -
------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
operations 1,071,454 - - - - -
Net increase from contract
purchases 10,755,997 - - - - -
Net decrease from
redemptions-withdrawals (8,314,905) - - - - -
------------------------------------------------------------------------------------------------------
Total increase (decrease) in
net assets 3,512,546 - - - - -
------------------------------------------------------------------------------------------------------
Net assets at December 31,
1999 5,390,122 - - - - -
Changes from 2000 operations:
Net investment income 634,930 - - 6,982 9,898 36,059
Mortality and expense
charges (98,675) (14,960) (9,405) (1,921) (1,745) (2,950)
Net realized gain (loss)
on investments 480,796 (127,558) 188 (205) 2,411 676
Net change in unrealized
appreciation (depreciation) (619,306) (208,371) (250,930) (195,839) 8,115 (72,606)
------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
operations 397,745 (350,889) (260,147) (190,983) 18,679 (38,821)
Net increase from contract
purchases 10,023,256 3,368,762 729,857 479,699 553,861 662,338
Net decrease from
redemptions-withdrawals (7,509,325) (765,513) (277,214) (36,620) (124,485) (213,214)
------------------------------------------------------------------------------------------------------
Total increase (decrease) in
net assets 2,911,676 2,252,360 192,496 252,096 448,055 410,303
------------------------------------------------------------------------------------------------------
Net assets at December 31,
2000 $ 8,301,798 $ 2,252,360 $ 192,496 $ 252,096 $ 448,055 $ 410,303
======================================================================================================
See accompanying notes.
5
IL Annuity and Insurance Company Separate Account 1
Notes to Financial Statements
December 31, 2000
1. ACCOUNTING POLICIES
THE ACCOUNT
IL Annuity and Insurance Company Separate Account 1 (the "Account") is a
segregated investment account of the IL Annuity and Insurance Company (the
"Company"), a wholly owned subsidiary of The Indianapolis Life Group of
Companies, Inc. ("IL Group"), a majority owned subsidiary of Indianapolis Life
Insurance Company ("ILICo"). The Account was established under Massachusetts's
law on November 1, 1994, commenced operations in November 1995 and is registered
under the Investment Company Act of 1940, as amended, as a unit investment
trust.
INVESTMENTS
The Account invests in the following funds:
Alger American Fund--MidCap Growth Portfolio, Small Capitalization
Portfolio
Fidelity Variable Insurance Products Fund and Fund II--Asset Manager
Portfolio, Contra Portfolio, Equity Income Portfolio, Growth Portfolio,
Index 500 Portfolio, Investment Grade Bond Portfolio, Money Market
Portfolio
Oppenheimer Capital Accumulation Trust--Managed Portfolio, Small Cap
Portfolio
T. Rowe Price International Series, Inc.--International Stock Portfolio
T. Rowe Price Fixed Income Series, Inc.--Limited-Term Bond Portfolio
Van Eck Worldwide Insurance Trust--Hard Assets Portfolio
SAFECO Resource Series Trust--Equity Portfolio, Growth Portfolio
Royce Capital Fund--Micro-Capitalization Portfolio
First Eagle SoGen Variable Funds, Inc.--Overseas Variable Portfolio
Neuberger Berman Advisors Management Trust--MidCap Growth Portfolio,
Socially Responsive Portfolio
6
IL Annuity and Insurance Company Separate Account 1
Notes to Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS (CONTINUED)
PIMCO Variable Insurance Trust--High Yield Bond Portfolio, Real Return
Bond Portfolio and StocksPLUS Growth and Income Portfolio
Investments in funds are stated at the closing net asset value per share on
December 31.
Investment transactions are accounted for on a trade date basis and the cost of
investments sold is determined by the average cost method.
DIVIDENDS
Dividends paid to the Account are automatically reinvested in shares of the
funds on the payable date.
Unit Value
Unit values for the Account portfolios are computed at the end of each business
day. The unit value is equal to the unit value of the preceding business day
multiplied by a net investment factor. This net investment factor is determined
based on the value of the underlying mutual fund portfolios of the Account,
reinvested dividends and capital gains, and the daily asset charge for the
mortality and expense risk and administrative charges. Unit values are adjusted
daily for all activity in the Account.
FEDERAL INCOME TAXES
Operations of the Account form a part of, and are taxed with, operations of the
Company, which is taxed as a "life insurance company" as defined by the Internal
Revenue Code. Based on current law, no federal income taxes are payable with
respect to the Account's net investment income and the net realized gain on
investments.
Use of Estimates
The preparation of financial statements requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
7
IL Annuity and Insurance Company Separate Account 1
Notes to Financial Statements (continued)
2. MORTALITY AND EXPENSE GUARANTEES AND OTHER TRANSACTIONS WITH AFFILIATE
Amounts are paid to the Company for mortality and expense guarantees at the rate
of 0.003404% of the current value of the Account per day (1.25% on an annual
basis). The Account also pays the Company for other expenses such as contract
fees ($7.50 per contract at the end of each quarter) and asset-based
administration fees (.15% on an annual basis).
Accordingly, the Company is responsible for all sales, general and
administrative expenses applicable to the Account.
8
IL Annuity and Insurance Company Separate Account 1
Notes to Financial Statements (continued)
3. NET ASSETS
Net assets at December 31, 2000 consist of the following:
ALGER
AMERICAN
MIDCAP ALGER SMALL FIDELITY ASSET FIDELITY FIDELITY EQUITY
GROWTH CAPITALIZATION MANAGER CONTRA INCOME
COMBINED PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------------------------------------------------------------------------------------------
Contract purchases $ 1,292,789,704 $ 52,029,989 $ 42,046,511 $ 38,276,414 $ 100,268,608 $ 84,839,089
Redemptions-
withdrawals
(988,011,516) (32,877,693) (28,733,153) (27,694,954) (66,078,847) (65,215,305)
Accumulated net
investment income
(loss) 40,954,760 4,377,523 6,811,931 2,123,941 5,534,327 3,287,790
Accumulated realized
gain (loss) on
investments 13,524,755 1,720,539 (689,393) 55,108 2,939,974 842,711
Accumulated net
change in
unrealized
appreciation
(depreciation) on
investments (6,024,677) 346,853 (6,968,892) (792,584) 192,342 1,383,889
---------------------------------------------------------------------------------------------------------------
$ 353,233,026 $ 25,597,211 $ 12,467,004 $ 11,967,925 $ 42,856,404 $ 25,138,174
===============================================================================================================
FIDELITY FIDELITY
FIDELITY INVESTMENT MONEY OCC
GROWTH FIDELITY INDEX GRADE BOND MARKET MANAGED OCC SMALL
PORTFOLIO 500 PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO CAP PORTFOLIO
---------------------------------------------------------------------------------------------------------------
Contract purchases $ 114,053,596 $ 165,817,436 $ 38,367,941 $ 269,686,566 $ 81,015,568 $ 20,729,176
Redemptions-
withdrawals
(72,192,656) (107,082,759) (30,754,008) (259,764,836) (65,232,214) (15,362,792)
Accumulated net
investment income
(loss) 6,595,709 196,378 924,531 1,613,293 2,524,737 4,837
Accumulated realized
gain (loss) on
investments 3,821,565 6,018,450 (82,057) - 151,675 (195,038)
Accumulated net
change in
unrealized
appreciation
(depreciation) on
investments (3,487,086) 3,965,823 264,608 19,247 1,004,310 1,656,970
---------------------------------------------------------------------------------------------------------------
$ 48,791,128 $ 68,915,328 $ 8,721,015 $ 11,554,270 $ 19,464,076 $ 6,833,153
===============================================================================================================
9
IL Annuity and Insurance Company Separate Account 1
Notes to Financial Statements (continued)
3. NET ASSETS (CONTINUED)
T. ROWE PRICE T. ROWE PRICE
INTERNATIONAL LIMITED-TERM VAN ECK SAFECO SAFECO VARIABLE
STOCK BOND PORTFOLIO HARD ASSETS EQUITY GROWTH ROYCE MICRO-
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO CAP PORTFOLIO
-------------------------------------------------------------------------------------------------------------
Contract purchases $ 85,384,712 $ 19,573,647 $ 7,568,951 $ 48,513,815 $ 73,024,999 $ 21,064,093
Redemptions-
withdrawals
(72,231,583) (15,841,504) (4,070,401) (34,317,995) (54,413,727) (16,913,341)
Accumulated net
investment income
(loss) 498,427 509,280 281,049 1,093,367 3,312,618 753,180
Accumulated realized
gain (loss) on
investments 1,223,508 (106,466) (622,688) 504,706 (2,624,116) (94,335)
Accumulated net change
in unrealized
appreciation
(depreciation) on
investments (615,833) (23,879) 178,331 (1,363,949) (2,097,918) 923,282
-------------------------------------------------------------------------------------------------------------
$ 14,259,231 $ 4,111,078 $ 3,335,242 $ 14,429,944 $ 17,201,856 $ 5,732,879
=============================================================================================================
FIRST EAGLE PIMCO
SOGEN AMT AMT PIMCO PIMCO STOCKSPLUS
OVERSEAS MIDCAP SOCIALLY HIGH YIELD REAL RETURN GROWTH AND
VARIABLE GROWTH RESPONSIVE BOND BOND INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------------------------------------------------------------------------------------------
Contract purchases $ 24,734,073 $ 3,368,762 $ 729,857 $ 479,699 $ 553,860 $ 662,342
Redemptions-
withdrawals (17,816,699) (765,513) (277,214) (36,620) (124,485) (213,217)
Accumulated net
investment income
(loss) 489,884 (14,960) (9,405) 5,061 8,154 33,108
Accumulated realized
gain (loss) on
investments 785,100 (127,558) 188 (205) 2,411 676
Accumulated net change
in unrealized
appreciation
(depreciation) on
investments 109,440 (208,371) (250,930) (195,839) 8,115 (72,606)
-------------------------------------------------------------------------------------------------------------
$ 8,301,798 $ 2,252,360 $ 192,496 $ 252,096 $ 448,055 $ 410,303
=============================================================================================================
10
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 2000:
AGGREGATE AGGREGATE
COST OF PROCEEDS
PURCHASES FROM SALES
------------------- -------------------
Alger American MidCap Growth Portfolio $ 14,762,785 $ 4,187,446
Alger Small Capitalization Portfolio 14,597,282 3,518,706
Fidelity Asset Manager Portfolio 4,187,410 2,711,240
Fidelity Contra Portfolio 14,947,884 3,623,725
Fidelity Equity Income Portfolio 5,004,679 7,075,079
Fidelity Growth Portfolio 26,129,847 8,082,963
Fidelity Index 500 Portfolio 13,099,380 9,169,485
Fidelity Investment Grade Bond Portfolio 1,703,271 2,251,740
Fidelity Money Market Portfolio 11,050,034 17,448,007
OCC Managed Portfolio 4,447,005 6,702,735
OCC Small Cap Portfolio 2,534,301 1,671,087
T. Rowe Price International Stock Portfolio 6,271,508 2,560,233
T. Rowe Price Limited-Term Bond Portfolio 1,468,312 1,973,188
Van Eck Hard Assets Portfolio 1,448,611 824,381
SAFECO Equity Portfolio 2,016,767 2,801,626
SAFECO Growth Portfolio 5,209,227 3,235,257
Royce Micro-Capitalization Portfolio 2,336,241 895,569
First Eagle SoGen Overseas Variable Portfolio 5,675,825 2,621,627
AMT MidCap Growth Portfolio 2,648,003 -
AMT Socially Responsive Portfolio 187,734 -
PIMCO High Yield Bond Portfolio 259,474 -
PIMCO Real Return Bond Portfolio 439,992 -
PIMCO StocksPLUS Growth and Income Portfolio
481,624 -
------------------- -------------------
$140,907,196 $81,354,094
=================== ===================
11
IL Annuity and Insurance Company Separate Account 1
Notes to Financial Statements (continued)
5. SUMMARY OF UNIT TRANSACTIONS
YEAR ENDED DECEMBER 31
---------------------------------------------------------------
2000 1999
---------------------------------------------------------------
UNITS AMOUNT UNITS AMOUNT
---------------------------------------------------------------
ALGER AMERICAN MIDCAP
GROWTH PORTFOLIO
Contract purchases 1,016,442 $ 23,288,882 1,162,430 $ 16,968,455
Redemptions-withdrawals (662,096) (15,217,233) (890,365) (12,468,183)
ALGER SMALL CAPITALIZATION
PORTFOLIO
Contract purchases 1,070,508 17,703,433 1,389,452 14,408,699
Redemptions-withdrawals (755,805) (12,061,716) (1,215,713) (12,032,958)
FIDELITY ASSET MANAGER PORTFOLIO
Contract purchases 567,201 9,180,465 1,128,339 17,068,360
Redemptions-withdrawals (548,664) (8,855,981) (927,556) (13,800,260)
FIDELITY CONTRA PORTFOLIO
Contract purchases 1,345,222 30,435,415 2,611,991 39,592,899
Redemptions-withdrawals (1,052,207) (23,761,425) (2,131,166) (29,981,381)
FIDELITY EQUITY INCOME PORTFOLIO
Contract purchases 1,032,583 16,815,655 2,389,674 33,989,991
Redemptions-withdrawals (1,264,961) (20,665,605) (2,154,726) (30,018,829)
FIDELITY GROWTH PORTFOLIO
Contract purchases 1,886,792 47,831,145 2,437,135 44,558,221
Redemptions-withdrawals (1,334,053) (33,992,888) (1,683,823) (29,239,902)
FIDELITY INDEX 500 PORTFOLIO
Contract purchases 1,788,274 44,446,213 3,681,014 69,776,065
Redemptions-withdrawals (1,628,648) (40,620,923) (2,653,917) (46,917,811)
FIDELITY INVESTMENT GRADE
Bond Portfolio
Contract purchases 679,511 7,405,968 1,639,485 16,522,850
Redemptions-withdrawals (765,571) (8,422,490) (1,566,845) (15,684,008)
FIDELITY MONEY MARKET PORTFOLIO
Contract purchases 4,953,832 59,467,537 9,966,477 113,392,502
Redemptions-withdrawals (5,543,913) (66,462,393) (9,508,057) (108,123,651)
OCC MANAGED PORTFOLIO
Contract purchases 835,154 13,624,918 1,999,613 30,833,079
Redemptions-withdrawals (1,066,772) (17,339,530) (2,077,984) (32,270,772)
12
IL Annuity and Insurance Company Separate Account 1
Notes to Financial Statements (continued)
5. SUMMARY OF UNIT TRANSACTIONS (CONTINUED)
YEAR ENDED DECEMBER 31
------------------------------------------------------------------
2000 1999
------------------------------------------------------------------
UNITS AMOUNT UNITS AMOUNT
------------------------------------------------------------------
OCC SMALL CAP PORTFOLIO
Contract purchases 476,947 $ 6,891,392 591,789 $ 6,776,372
Redemptions-withdrawals (419,041) (5,984,027) (560,264) (6,393,967)
T. ROWE PRICE INTERNATIONAL
STOCK PORTFOLIO
Contract purchases 851,809 14,160,827 4,311,898 56,335,236
Redemptions-withdrawals (649,806) (10,748,865) (4,193,325) (54,749,690)
T. ROWE PRICE LIMITED-TERM
BOND PORTFOLIO
Contract purchases 309,217 3,602,430 715,695 7,699,406
Redemptions-withdrawals (369,138) (4,301,915) (671,608) (7,121,167)
VAN ECK HARD ASSETS
PORTFOLIO
Contract purchases 181,658 1,836,296 144,297 1,148,341
Redemptions-withdrawals (116,702) (1,204,251) (127,973) (989,718)
SAFECO EQUITY PORTFOLIO
Contract purchases 532,747 7,110,934 1,930,496 24,401,720
Redemptions-withdrawals (584,707) (7,788,289) (1,515,433) (18,849,530)
SAFECO GROWTH PORTFOLIO
Contract purchases 1,268,939 14,510,396 2,642,480 27,733,408
Redemptions-withdrawals (1,247,618) (14,144,322) (2,658,244) (27,818,637)
ROYCE MICRO-CAPITALIZATION
PORTFOLIO
Contract purchases 298,132 4,293,065 949,230 9,817,163
Redemptions-withdrawals (210,012) (2,957,108) (977,299) (10,086,860)
FIRST EAGLE SOGEN OVERSEAS
VARIABLE PORTFOLIO
Contract purchases 677,046 10,023,256 964,373 10,755,997
Redemptions-withdrawals (497,940) (7,509,325) (761,148) (8,314,905)
13
IL Annuity and Insurance Company Separate Account 1
Notes to Financial Statements (continued)
5. SUMMARY OF UNIT TRANSACTIONS (CONTINUED)
YEAR ENDED DECEMBER 31
------------------------------------------------------------------
2000 1999
------------------------------------------------------------------
UNITS AMOUNT UNITS AMOUNT
------------------------------------------------------------------
AMT MIDCAP GROWTH
PORTFOLIO
Contract purchases
Redemptions-withdrawals 421,698 $ 3,368,762 - $ -
(118,676) (765,513) - -
AMT SOCIALLY RESPONSIVE
PORTFOLIO
Contract purchases 18,974 729,857 - -
Redemptions-withdrawals (1,546) (277,214) - -
PIMCO HIGH YIELD BOND
PORTFOLIO 29,808 479,699 - -
Contract purchases
Redemptions-withdrawals (4,225) (36,620) - -
PIMCO REAL RETURN BOND
PORTFOLIO
Contract purchases
Redemptions-withdrawals 52,093 553,861 - -
(11,855) (124,485) - -
PIMCO STOCKSPLUS GROWTH
AND INCOME PORTFOLIO
Contract purchases 61,020 662,338 - -
Redemptions-withdrawals (19,445) (213,214) - -
------------------------------------------------------------------
Net increase from unit
transactions $ 34,967,412 $ 76,916,548
=================== ==================
14
IL Annuity and Insurance Company Separate Account 1
Notes to Financial Statements (continued)
6. AFFILIATION
On February 18, 2000, ILICo entered into a definitive agreement with AmerUs
Group ("AmerUs"), formerly American Mutual Holding Company and AmerUs Life
Holdings, Inc., which contemplates the ultimate combination of AmerUs and ILICo.
The transaction, which includes demutualization by ILICo, is subject to various
governmental and insurance department approvals and is expected to be finalized
during the second quarter of 2001. Under the agreement, AmerUs initially
acquired a 45% ownership interest in IL Group.
15
FINANCIAL STATEMENTS
IL ANNUITY AND INSURANCE COMPANY
Years ended December 31, 2000, 1999 and 1998
With Report of Independent Auditors
IL Annuity and Insurance Company
Financial Statements
Years ended December 31, 2000, 1999 and 1998
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
[LOGO ERNST & YOUNG] One Indiana Square, Suite 3400 Phone: (317) 681-7000
Indianapolis, IN 46204
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, 2000 and 1999, and the related statements of income, shareholder's
equity, and cash flows for each of the three years in the period ended December
31, 2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of IL Annuity and Insurance
Company at December 31, 2000 and 1999, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
January 31, 2001
IL Annuity and Insurance Company
Balance Sheets
DECEMBER 31
2000 1999
----------------------------------------------------------------
ASSETS
Investments:
Fixed maturity securities:
Available for sale, at fair value $ 2,560,089,096 $ 2,908,292,170
Held to maturity, at amortized cost 7,315,316 7,694,723
Equity securities, at fair value 2,108,000 950,250
Mortgage loans 23,666,780 25,867,524
Policy loans 872,687 563,262
Cash and cash equivalents 44,411,933 145,505,780
----------------------------------------------------------------
Total investments 2,638,463,812 3,088,873,709
Accrued investment income 25,029,596 34,783,529
Reinsurance recoverable 118,234,839 113,558,751
Deferred acquisition costs 91,238,615 96,227,014
Goodwill 1,514,971 1,624,487
Federal income taxes recoverable 17,338,753 563,314
Receivables and other assets 7,148,799 112,208
Separate account assets 353,233,026 341,088,253
----------------------------------------------------------------
Total assets $ 3,252,202,411 $ 3,676,831,265
================================================================
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Future policy benefit reserves $ 2,718,527,474 $ 3,148,322,264
Other policyholder liabilities 43,202,398 18,408,323
Accounts payable and other liabilities 10,668,370 10,073,041
Deferred federal income taxes 2,657,410 37,315,309
Separate account liabilities 353,233,026 341,088,253
----------------------------------------------------------------
Total liabilities 3,128,288,678 3,555,207,190
Shareholder's equity:
Common stock, $250 par value:
Authorized and issued--10,000 shares 2,500,000 2,500,000
Additional paid-in capital 111,662,659 111,662,659
Accumulated other comprehensive income (loss) (50,829) 1,566,951
Retained earnings 9,801,903 5,894,465
----------------------------------------------------------------
Total shareholder's equity 123,913,733 121,624,075
----------------------------------------------------------------
Total liabilities and shareholder's equity $ 3,252,202,411 $ 3,676,831,265
================================================================
See accompanying notes.
2
IL Annuity and Insurance Company
Statements of Income
YEAR ENDED DECEMBER 31
2000 1999 1998
-------------------------------------------------------------------------
REVENUE
Annuity fees and charges $ 12,733,979 $ 6,707,380 $ 2,209,651
Investment income 126,482,724 113,145,102 55,002,920
Net realized capital gains 12,982,744 3,924,199 194,062
-------------------------------------------------------------------------
152,199,447 123,776,681 57,406,633
EXPENSES
Policy benefits 121,491,280 101,148,054 39,948,207
Underwriting, acquisition and
insurance expenses 25,787,528 17,564,180 11,279,637
-------------------------------------------------------------------------
147,278,808 118,712,234 51,227,844
-------------------------------------------------------------------------
Income before federal income taxes 4,920,639 5,064,447 6,178,789
Federal income taxes 1,013,201 1,617,107 2,882,053
-------------------------------------------------------------------------
Net income $ 3,907,438 $ 3,447,340 $ 3,296,736
=========================================================================
See accompanying notes.
3
IL Annuity and Insurance Company
Statements of Shareholder's Equity
ACCUMULATED
OTHER RETAINED
ADDITIONAL COMPREHENSIVE EARNINGS
COMMON STOCK PAID-IN CAPITAL INCOME (LOSS) (DEFICIT) TOTAL
------------------------------------------------------------------------------------
Balance at January 1, 1998 $ 2,500,000 $ 24,262,659 $ 250,115 $ (849,611) $ 26,163,163
Net income - - - 3,296,736 3,296,736
Change in net unrealized gains
on available for sale
securities - - 569,001 569,001
-----------------
Comprehensive income
3,865,737
Capital contribution - 67,400,000 - - 67,400,000
------------------------------------------------------------------------------------
Balance at December 31, 1998
2,500,000 91,662,659 819,116 2,447,125 97,428,900
Net income - - - 3,447,340 3,447,340
Change in net unrealized gains
on available for sale
securities - - 747,835 - 747,835
------------------
Comprehensive income
4,195,175
Capital contribution - 20,000,000 - - 20,000,000
------------------------------------------------------------------------------------
Balance at December 31, 1999 2,500,000 111,662,659 1,566,951 5,894,465 121,624,075
Net income - - - 3,907,438 3,907,438
Change in net unrealized gains
on available for sale
securities - - (1,617,780) - (1,617,780)
------------------
Comprehensive income
2,289,658
-------------------------------------------------------------------------------------
Balance at December 31, 2000 $ 2,500,000 $ 111,662,659 $ (50,829) $ 9,801,903 $ 123,913,733
======================================================================================
See accompanying notes.
4
IL Annuity and Insurance Company
Statements of Cash Flows
YEAR ENDED DECEMBER 31
2000 1999 1998
------------------------------------------------------
OPERATING ACTIVITIES
Net income 3,907,438 3,447,340 3,296,736
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Amortization of goodwill 109,516 109,516 109,516
Net realized capital gains (12,982,744) (3,924,199) (194,062)
Changes in operating assets and liabilities:
Deferred acquisition costs (13,169,096) (47,507,670) (45,721,706)
Amortization of deferred acquisition costs 18,157,495 10,186,513 5,769,968
Policyowner assessments on universal life (3,929,245) (1,393,275) (57,316)
Interest credited to policyowner accounts 24,550,803 13,520,495 8,673,394
Liabilities for future policy benefits (47,113,942) 14,883,095 50,458,395
Policy, contract claims and other policyowner funds 24,794,075 13,450,257 4,525,405
Accrued investment income 9,753,933 (13,882,233) (15,063,267)
Reinsurance receivables (291,821,020) 754,196,433 1,009,607,669
Other assets and liabilities (10,290,350) (15,100,911) 8,595,591
Federal income taxes (7,987,293) (6,687,541) 3,682,054
------------------------------------------------------
Net cash provided (used) by operating activities (306,020,430) 721,297,820 1,033,682,377
INVESTING ACTIVITIES
Proceeds from sales, calls or maturities:
Fixed maturities 2,151,526,091 706,517,281 195,850,351
Equity securities 8,442,447 20,784,905 1,931,214
Mortgage loans 2,268,942 1,131,976 928,766
Other invested assets 1,282,026 - 160,527
Purchases:
Fixed maturities (1,855,005,654) (1,785,661,708) (1,426,219,889)
Equity securities (14,094,174) (21,068,735) (1,859,329)
Mortgage loans - (2,000,000) (5,125,000)
Other invested assets (7,195,333) (119,885) -
Increase in policy loans (309,425) (336,715) (185,238)
------------------------------------------------------
Net cash provided (used) by investing activities 286,914,920 (1,080,752,881) (1,234,518,598)
FINANCING ACTIVITIES
Annuity deposits to policyowner accounts 57,008,492 318,871,677 300,319,060
Annuity withdrawals from policyowner accounts (138,996,829) (61,695,711) (17,304,603)
Capital contribution - 20,000,000 67,400,000
------------------------------------------------------
Net cash provided (used) by financing activities (81,988,337) 277,175,966 350,414,457
------------------------------------------------------
Net increase (decrease) in cash and short-term investments (101,093,847) (82,279,095) 149,578,236
Cash and cash equivalents at beginning of year 145,505,781 227,784,876 78,206,640
------------------------------------------------------
Cash and cash equivalents at end of year $ 44,411,934 $ 145,505,781 $ 227,784,876
======================================================
See accompanying notes.
5
IL Annuity and Insurance Company
Notes to Financial Statements
December 31, 2000
1. ORGANIZATION, BASIS OF PRESENTATION AND ACCOUNTING POLICIES
IL Annuity and Insurance Company (the "Company") is a wholly owned subsidiary of
The Indianapolis Life Group of Companies, Inc. ("IL group"), which in turn is a
majority owned subsidiary of Indianapolis Life Insurance Company ("ILICo"). The
Company was incorporated in the State of Massachusetts and is licensed to do
business in forty-four states and the District of Columbia. Effective December
29, 2000, the Company was redomiciled from Massachusetts to Kansas.
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.
The accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States ("GAAP").
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.
The Company also prepares its financial statements in conformity with accounting
practices prescribed or permitted by the Kansas Department of Insurance, which
practices differ from GAAP, for purposes of filing with regulatory authorities.
Statutory capital and surplus at December 31, 2000 and 1999 was $22,944,826 and
$50,145,736, respectively. Statutory net income (loss) for 2000, 1999 and 1998
was $4,453,192, ($10,970,330) and ($13,554,570), respectively.
In 1998, the National Association of Insurance Commissioners adopted codified
statutory accounting principles ("Codification"), which will be effective
January 1, 2001. Codification will result in changes to certain accounting
practices that IL Annuity uses to prepare statutory-basis financial statements.
Management believes the impact of these changes will not be significant.
6
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
1. ORGANIZATION, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (CONTINUED)
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. Equity securities are
classified as available-for-sale and carried at fair value.
Cash and cash equivalents include all highly liquid debt instruments which have
original maturities of three months or less, 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 $239,058 and $261,288 at December 31,
2000 and 1999, respectively.
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 $675,348 and $565,832 at
December 31, 2000 and 1999, respectively.
FUTURE POLICY BENEFIT RESERVES
Future policy benefit reserves for annuity products represent policy account
balances including net unrealized gains (losses) on available for sale
securities allocated to policyholders but before applicable surrender charges.
7
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
1. ORGANIZATION, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (CONTINUED)
THIRD-PARTY ADMINISTRATORS
The Company has contractual arrangements with three third-party administrators
to distribute and administer its annuity products, which represents all of the
Company's business. One of the third-party administrators, Legacy Marketing
Group, distributes and administers the majority of this business.
SEPARATE ACCOUNTS
Separate account assets and liabilities represent funds that are separately
administered, principally for variable annuity contracts, and for which the
contractholder, rather than the Company, bears the investment risk. Separate
account contractholders have no claim against the assets of the general account
of the Company. Separate account assets are reported at market value. The
operations of the Separate Account are not included in the accompanying
financial statements.
REVENUE RECOGNITION
Revenue for annuity products consist of policy charges for the cost of
insurance, policy administration charges, and surrender charges assessed against
policyholder account balances.
COMPREHENSIVE INCOME
Comprehensive income is reported separately in shareholder's equity and is
comprised of the results of operations and the change in a portion of unrealized
gains or losses in the Company's available-for-sale securities.
The Company's reclassification adjustment for 2000 and 1999 is as follows:
YEAR ENDED DECEMBER 31, 2000 GROSS TAX EFFECT NET
---------------------------------------------------------
Unrealized holding gains arising during year $ 30,484,382 $ (10,669,534) $ 19,814,848
Reclassification adjustment for gains realized in net
income (40,714,948) 14,250,232 (26,464,716)
Allocated to future policy benefit reserves 7,741,674 (2,709,586) 5,032,088
----------------------------------------------------------
Change in net unrealized gains on available for sale
securities $ (2,488,892) $ 871,112 $ (1,617,780)
==========================================================
8
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
1. ORGANIZATION, BASIS OF PRESENTATION AND ACCOUNTING POLICIES (CONTINUED)
YEAR ENDED DECEMBER 31, 1999 GROSS TAX EFFECT NET
------------------------------------------------------------
Unrealized holding gains arising during year $ 125,041,085 $ (43,764,380) $ 81,276,705
Reclassification adjustment for gains realized in net
income (9,989,582) 3,496,354 (6,493,228)
Allocated to future policy benefit reserves (113,900,988) 39,865,346 (74,035,642)
------------------------------------------------------------
Change in net unrealized gains on available for sale
securities $ 1,150,515 $ (402,680) $ 747,835
============================================================
YEAR ENDED DECEMBER 31, 1998 GROSS TAX EFFECT NET
------------------------------------------------------------
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
============================================================
NEW ACCOUNTING STANDARDS
During 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Investments and Hedging Activities" (SFAS No. 133)
which is effective January 1, 2001. SFAS No. 133 defines derivative instruments
and provides comprehensive accounting and reporting standards for the
recognition and measurement of derivative and hedging activities. The Statement
requires all derivatives to be recorded in the balance sheet at fair value. The
impact of adopting SFAS 133 as of January 1, 2001 will be to reduce net income
in 2001 by approximately $1,400,000 and will be recorded as a cumulative effect
adjustment.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year
presentation.
9
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
2. INVESTMENTS
Fixed maturity and equity securities consist of the following at December 31:
2000
------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------------------------------------------------------------------------
Available for sale:
Fixed maturity securities:
U.S. government and agencies $ 207,704,401 $ 7,464,116 $ 37,630 $ 215,130,887
Corporate 2,346,626,649 156,772,269 172,114,509 2,331,284,409
Asset backed securities 6,578,191 3,267 45,689 6,535,769
Mortgage-backed securities 7,021,323 116,708 - 7,138,031
-------------------------------------------------------------------------
2,567,930,564 164,356,360 172,197,828 2,560,089,096
Equity securities:
Preferred stock 2,086,405 21,595 - 2,108,000
-------------------------------------------------------------------------
2,570,016,969 164,377,955 172,197,828 2,562,197,096
Held to maturity:
Corporate 6,356,622 212,744 - 6,569,366
Mortgage backed securities 958,694 12,175 - 970,869
-------------------------------------------------------------------------
$ 7,315,316 $ 224,919 $ - $ 7,540,235
=========================================================================
10
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
1999
------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------------------------------------------------------------------------
Available for sale:
Fixed maturity securities:
U.S. government and agencies $ 161,252,710 $ 56,277 $ 5,398,312 $ 155,910,675
Corporate 2,614,614,560 265,884,629 142,323,081 2,738,176,108
Asset backed securities 7,440,695 - 273,317 7,167,378
Mortgage-backed securities 7,225,220 - 187,211 7,038,009
-------------------------------------------------------------------------
2,790,533,185 265,940,906 148,181,921 2,908,292,170
Equity securities:
Preferred stock 1,053,970 - 103,720 950,250
-------------------------------------------------------------------------
2,791,587,155 265,940,906 148,285,641 2,909,242,420
Held to maturity:
Corporate 6,694,723 18,944 99,060 6,614,607
Mortgage-backed securities 1,000,000 - 17,490 982,510
-------------------------------------------------------------------------
$ 7,694,723 $ 18,944 $ 116,550 $ 7,597,117
=========================================================================
The amortized cost and fair value of fixed maturity securities at December 31,
2000, 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.
AVAILABLE FOR SALE HELD TO MATURITY
------------------------------------------------------------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
------------------------------------------------------------------------------
Due in one year or less $ 12,465,504 $ 19,242,918 $ 333,333 $ 333,566
Due after one year through five
years 895,845,480 865,755,935 6,023,289 6,235,800
Due after five years through ten
years 624,540,830 604,697,183 - -
Due after ten years 1,029,043,178 1,063,255,029 - -
Mortgage-backed securities 7,021,323 7,138,031 958,694 970,869
==============================================================================
$2,568,916,315 $2,560,089,096 $ 7,315,316 $ 7,540,235
==============================================================================
11
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
Net investment income consisted of the following:
2000 1999 1998
-----------------------------------------------------------
Fixed maturity securities $127,159,557 $ 106,476,584 $ 46,825,700
Equity securities 91,131 104,402 13,673
Mortgage loans 1,949,396 2,012,761 1,848,846
Short term investments 3,538,240 9,970,948 8,136,334
Other 5,076,398 4,428,352 1,339,625
-----------------------------------------------------------
Gross investment income 137,814,722 122,993,047 58,164,178
Less investment expenses 11,331,998 9,847,945 3,161,258
----------------------------------------------------------
Net investment income $126,482,724 $ 113,145,102 $ 55,002,920
===========================================================
Net unrealized gains (losses) on available for sale securities are as follows:
2000 1999
------------------- -------------------
Fixed maturity securities:
Gross unrealized gains $ 164,356,360 $ 265,940,906
Gross unrealized losses 172,197,828 148,181,921
------------------- -------------------
(7,841,468) 117,758,985
Gross unrealized gains (losses)
on equity securities 21,595 (103,720)
Gross unrealized losses on
short-term investments - (44,238)
Deferred income taxes 2,736,956 (42,008,434)
Allocated to future policy
benefit reserves 5,032,088 (74,035,642)
------------------- -------------------
($50,829) $ 1,566,951
=================== ===================
Proceeds from sales of available for sale securities during 2000, 1999 and 1998
were $2,112,679,637, $689,155,096 and $155,534,662, respectively. Gross gains of
$165,095,068, $26,998,917 and $14,377,767 and gross losses of $101,906,604,
$17,261,079 and $1,150,749 were realized during 2000, 1999 and 1998,
respectively.
12
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
3. FEDERAL INCOME TAXES
Significant components of current federal income taxes are as follows:
2000 1999 1998
-------------------------------------------------
Federal income taxes at 35% $ 1,722,224 $ 1,772,556 $ 2,165,408
Effect of net operating losses/
valuation allowance - - 736,673
Amortization of goodwill 38,331 (221) (221)
Dividends received deduction (741,932) (187,000) -
Other, net (5,422) 31,772 (19,807)
-------------------------------------------------
Federal income taxes $ 1,013,201 $ 1,617,107 $ 2,882,053
=================================================
Federal income taxes consist of the following:
2000 1999 1998
-------------------------------------------------
Current taxes (credits) $(7,774,945) $ 6,123,012 $ 1,769,928
Deferred taxes 8,788,146 (4,505,905) 1,112,125
-------------------------------------------------
Total $ 1,013,201 $ 1,617,107 $ 2,882,053
=================================================
Significant components of the deferred tax assets (liabilities) at December 31,
2000 and 1999, are as follows:
2000 1999
----------------- -------------------
Insurance reserves $37,110,113 $ 25,746,429
Unrealized depreciation (appreciation) of securities 2,736,956 (40,745,391)
Investments (20,816,803) (2,030,978)
Deferred policy acquisition costs (21,687,676) (20,285,369)
----------------- -------------------
Net deferred tax liabilities $(2,657,410) $(37,315,309)
================= ===================
The Company files a stand-alone federal income tax return.
The Company paid $12,500,000, $8,300,000 and $- in federal income taxes in 2000,
1999 and 1998, respectively. The company recovered $3,500,000, $- and $800,000
in federal income taxes in 2000, 1999 and 1998, respectively.
13
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
4. REINSURANCE
The Company has entered into modified coinsurance cession agreements covering
flexible premium deferred annuity policies distributed through Legacy Marketing
Group (a third-party administrator). Future policy benefit reserves include
reinsurance payable of $1,987,574,940 and $2,279,437,605 at December 31, 2000
and 1999, respectively. Net realized capital gains are net of realized gains
allocated to the reinsurer of $44,898,593, $15,316,835 and $14,194,580 in 2000,
1999 and 1998, respectively.
Effective January 1, 1999, the Company entered into a reinsurance cession
agreement with Bankers Life Insurance Company of New York, another wholly owned
subsidiary of IL Group, whereby the Company cedes 100% of its life insurance
business. Premiums ceded were $6,951,926 and $3,068,541 during 2000 and 1999,
respectively. Reserves ceded were $3,838,780 and $1,594,625 at December 31, 2000
and 1999, respectively.
The Company remains liable for ceded risks in the event that the reinsurers do
not meet their obligations. Management believes its reinsurers will meet its
obligations under existing contracts.
5. SHAREHOLDER'S EQUITY
Kansas' insurance regulations require the Company to maintain a minimum capital
and surplus of $1,200,000.
Generally, the maximum amount of dividends which can be paid to its shareholder
without prior approval of the Insurance Commissioner of the State of Kansas is
10% of statutory surplus at the prior year-end.
State insurance regulatory authorities impose minimum risk-based capital
requirements on insurance enterprises that were developed by the NAIC. The
formulas for determining the amount of risk-based capital ("RBC") specify
various weighting factors that are applied to financial balances or various
levels of activity based on the perceived degree of investment and insurance
risks. Regulatory compliance is determined by a ratio (the "Ratio") of the
enterprise's regulatory total adjusted capital, as defined by the NAIC, to its
authorized control level RBC, as defined by NAIC. Enterprises below specific
trigger points or ratios are classified within certain levels, each of which
requires specified corrective action. At December 31, 2000, the Company exceeds
the RBC requirements.
14
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
6. RELATED PARTY TRANSACTIONS
The Company was allocated expenses of $5,607,620, $3,669,941 and $2,998,435 for
various administrative services from ILICo for 2000, 1999 and 1998,
respectively, in conjunction with expense allocation agreements.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
fair value disclosures for financial instruments in the accompanying financial
statements and notes thereto:
Cash and cash equivalents, accrued investment income and policy loans:
The carrying amounts reported in the accompanying balance sheets for
these financial instruments approximate their fair values.
Fixed maturity and equity securities: Fair values of bonds and stocks
are based on quoted market prices where available. For bonds not
actively traded, fair values are estimated using values obtained from
independent pricing services, or in the case of private placements, are
estimated by discounting expected future cash flows using a current
market rate applicable to the yield, credit quality and maturity of the
investments.
Mortgage loans: The fair value of mortgage loans was estimated by
discounting the future cash flows using current rates at which similar
loans would be made to borrowers with similar credit ratings for
similar maturities.
Investment-type contracts: The fair value of deferred annuities is
believed to approximate the cash surrender value.
15
IL Annuity and Insurance Company
Notes to Financial Statements (continued)
7. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amount and fair values of the Company's financial instruments at
December 31, are as follows:
2000 1999
----------------------------------- ------------------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------------- ----------------- ------------------ -----------------
ASSETS:
Fixed maturity securities:
Available for sale $2,560,089,096 $2,560,089,096 $2,908,292,170 $2,908,292,170
Held to maturity 7,315,316 7,540,235 7,694,723 7,597,117
Equity securities 2,108,000 2,108,000 950,250 950,250
Mortgage loans 23,666,780 24,241,101 25,867,524 25,804,851
LIABILITIES:
Deferred annuities 2,666,549,390 2,557,302,339 3,136,174,442 2,917,839,829
8. AFFILIATION
On February 18, 2000, ILICo entered into a definitive agreement with AmerUs
Group ("AmerUs"), formerly American Mutual Holding Company and AmerUs Life
Holdings, Inc., which contemplates the ultimate combination of AmerUs and ILICo.
The transaction, which includes demutualization by ILICo, is subject to various
governmental and insurance department approvals and is expected to be finalized
during the second quarter of 2001. Under the agreement, AmerUs initially
acquired a 45% ownership interest in IL Group.
16