As Filed with the Securities and
Exchange Commission on April , 1997
Registration Statement No. 2-77712
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 22 X
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 22 X
(Check appropriate box or boxes).
SEPARATE ACCOUNT I
(Exact Name of Registrant)
Investors Life Insurance Company of North America
(Name of Depositor)
701 Brazos Street, Austin, Texas 78701
(Address of Depositor's Principal Executive Offices) (Zip
Code)
Depositor's Telephone Number, including Area Code: 512-404-
5040
Roy F. Mitte, President
Investors Life Insurance Company of North America
701 Brazos Street, Austin, Texas 78701
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: Continuous
It is proposed that this filing will become effective April 30,
1997, pursuant to paragraph (b) of Rule 485.
The Registrant has registered an indefinite number or amount of
securities under the Securities Act of 1933 pursuant to Rule
24f-2. The Rule 24f-2 Notice for the most recent fiscal year was
filed on February 26, 1997.
The combined prospectuses contained herein also relate to
Registration Statement No. 2-84850, pursuant to Rule 429.
CROSS REFERENCE SHEET
Cross Reference sheet pursuant to Rule 495(a) showing location in
Prospectus (Part A) and Statement of Additional Information (Part
B) of information required by Form N-4.
PART A
Form N-4 Item Prospectus Caption
1. Cover Page Cover Page
2. Definitions Definitions
3. Synopsis or Highlights Introduction
4. Condensed Financial
Information Financial Information
5. General Description of Description of the
Registrant, Depositor Insurance Company, the
and Portfolio Companies Separate Account and
the Fund
6. Deductions and Expenses Deductions and Expenses
7. General Description of General Description of
Variable Annuity Contracts Variable Annuity
Contracts
8. Annuity Period The Annuity Period
9. Death Benefit Death Benefits
10. Purchases and Contract Purchases and Contract
Values Values
11. Redemptions Redemptions
12. Taxes Federal Tax Status
13. Legal Proceedings Legal Proceedings
14. Table of Contents of the Table of Contents of the
Statement of Additional Statement of Additional
Information Information
PART B
Statement of Additional
Form N-4 Item Information Caption
15. Cover Page Cover Page
16. Table of Contents Table of Contents
17. General Information General Information
and History and History
18. Services Services
19. Purchase of Securities Purchase of Securities
Being Offered Being Offered
20. Underwriters Principal Underwriter
21. Calculations of Yield Yield Quotations of
Quotations of Money Money Market Division
Market Sub-Accounts
22. Annuity Payments Annuity Payments
23. Financial Statements Financial Statements
.Separate Account
.Insurance Company
PROSPECTUS
SEPARATE ACCOUNT I
INDIVIDUAL FLEXIBLE PAYMENT
VARIABLE ANNUITY CONTRACTS
ISSUED BY
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
The Individual Flexible Payment Deferred Variable Annuity
Contracts (the "Contracts") described in this Prospectus are
designed to be used to provide retirement programs for individual
purchasers. The Contracts may be issued in connection with
retirement plans which qualify for tax benefits under the
Internal Revenue Code ("tax qualified Contracts"), as well as
retirement plans which do not qualify for tax benefits under the
Code ("non-tax qualified Contracts").
This Prospectus sets forth information about Separate Account I
and the Contracts that a prospective purchaser ought to know
before investing. Additional information about the Separate
Account, contained in a Statement of Additional Information, has
been filed with the Securities and Exchange Commission. A copy
of the Statement is available upon request and without charge by
writing to Investors Life Insurance Company of North America (the
"Insurance Company" or "Investors Life"), 701 Brazos Street,
Austin, Texas 78701 (a reply form has been included with this
Prospectus), or by calling 512-404-5346. The Statement of
Additional Information has the same date as the date of this
Prospectus, and is incorporated by reference into this
Prospectus. A table of contents for the Statement of Additional
Information appears on page 51 of this Prospectus.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT
PROSPECTUS OF PUTNAM VARIABLE TRUST . BOTH PROSPECTUSES
SHOULD BE RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
April 30, 1997
TABLE OF CONTENTS
ITEM PAGE
Definitions 3
Introduction 5
Expense Table 7
Financial Information 11
Description of the Insurance Company, the
Separate Account and the Fund 20
Deductions and Expenses 24
General Description of Variable Annuity
Contracts 28
The Annuity Period 32
Death Benefits 35
Purchases and Contract Values 38
Redemptions 41
Federal Tax Status 44
Legal Proceedings 49
Table of Contents of the Statement of
Additional Information 50
Appendix - Examples of Deferred Sales 51
Charge Calculations
The Contracts are not available in all states.
NO PERSON IS AUTHORIZED BY THE INSURANCE COMPANY TO GIVE
INFORMATION OR TO MAKE ANY REPRESENTATION, OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OF, OR SOLICITATION OF AN OFFER TO ACQUIRE,
ANY INTEREST OR PARTICIPATION IN THE VARIABLE ANNUITY CONTRACTS
OFFERED BY THIS PROSPECTUS TO ANYONE IN ANY STATE OR JURISDICTION
IN WHICH SUCH SOLICITATION OR OFFER MAY NOT BE MADE LAWFULLY.
-2-
DEFINITIONS
The following terms as used in this Prospectus have the indicated
meanings:
Accumulation Period: The period between the commencement of the
first Contract Year and the annuity commencement date.
Accumulation Unit: A unit of measurement used to determine the
value of a person's interest under the Contract before Annuity
payments begin.
Adjusted Age: The age of the Annuitant which is used to
determine the applicable annuity purchase rate. The age is
adjusted by either adding or subtracting a specified number of
years in order to reflect predicted longevity. The number of
years to be added or subtracted depends upon the year of birth of
the Annuitant.
Annuity: A contract providing for Annuity Payments varying in
amount in accordance with the investment experience of the
applicable subdivision of the Separate Account Division selected
by the Contract Owner.
Annuitant: The person designated under the Contract as the
measuring life for annuity payout options involving life
contingencies; normally, the recipient of Annuity Payments.
Annuity Payments: Periodic amounts payable by the Insurance
Company on and at regular intervals after the annuity
commencement date preselected under the Contract.
Annuity Unit: A unit of measurement used to determine the amount
of the variable Annuity Payments.
Contract Year: A twelve month period between anniversaries of
the Date of Issue of a Contract. The first Contract Year begins
on the Date of Issue.
Contribution Year: A Contract Year in which at least one
Purchase Payment is made.
Fund: A series of Putnam Variable Trust. Prior to January
1, 1997, the fund was known as Putnam Capital Manager Trust.
Owner: The person (or other entity) to whom a Contract is issued
by the Insurance Company.
-3-
Purchase Payment: The dollar amount paid to the Insurance
Company by or on behalf of a Contract Owner. The "Net Purchase
Payment" is the Purchase Payment reduced by any applicable state
premium taxes.
Separate Account: The segregated investment account entitled
"Separate Account I" established by the Insurance Company
pursuant to Pennsylvania law and registered as a unit investment
trust under the Investment Company Act of 1940, as amended. Prior
to April 18, 1995, the Separate Account was known as the "CIGNA
Separate Account". As a result of the substitution of shares of
the Putnam Capital Manager Trust (now known as Putnam Variable
Trust) as the underlying investment vehicle, the name of the
Separate Account was changed to Separate Account I, effective
April 18, 1995.
Separate Account Division: A Division of the Separate Account,
the assets of which consist of shares of a specified class of
shares of the Fund. Each of the Separate Account Divisions
contains two subdivisions, one for funding Contracts issued under
tax qualified retirement plans and the other for non-tax
qualified Contracts. Each of the subdivisions has its own
identified assets and value. References to a Division in this
Prospectus include, where the context requires, the appropriate
subdivision for a Contract.
Contract Withdrawal Value: The amount payable to the Owner or
other payee upon termination of the Contract during the
Accumulation Period, other than by reason of the Annuitant's or
Owner's death.
Valuation Date: A day on which the net asset value of each share
of the Fund is determined.
Valuation Period: Each business day on which the New York Stock
Exchange is open for general business, together with any
consecutive non-business days immediately preceding such business
day and irrespective of whether such exchange is open for general
business on each business day, together with any consecutive non-
business day, immediately preceding such business day when the
Fund values its portfolio securities based upon its determination
that there is a sufficient degree of trading in such securities
that the net asset value of its shares might be materially
affected.
NOTE: All masculine references in this Prospectus are intended
to include the feminine gender. The singular context also
includes the plural and vice versa where appropriate.
-4-
INTRODUCTION
The Contracts described in this Prospectus are designed to
provide Annuity Payments based on the life expectancy of the
Annuitant. Such benefits will begin on a future date which has
been preselected under a Contract. Alternative annuity payout
options are available, but may be limited by a retirement plan
under which a Contract is issued. See "The Annuity Period -
Annuity Payout Options", page 32, and "Limitation on Contract
Rights", page 29.
The Contracts offer Accumulation Units in up to four Separate
Account Divisions. The value of an Accumulation Unit is based on
the investment results of the underlying shares of the Fund
allocated to applicable subdivisions of the Separate Account
Division(s) selected. Similarly, the amount of Annuity Payments
will vary based on such underlying investment results. See "The
Annuity Period - Annuity Payments", page 32.
The following is a synopsis of certain features of the Contracts,
together with a cross-reference to the page in this Prospectus
where the purchaser may find a more complete description:
o The Contracts provide for allocation of Net Purchase
Payments to several underlying investment mediums, each
with a different investment objective. See
"Description of the Fund", page 20.
o The Contracts provide that, in the event of death of
the Annuitant or Owner before Annuity Payments begin,
the Insurance Company will pay death proceeds to a
named beneficiary. See "Death Benefits", page 35.
o The Contracts provide that the owner may surrender
(redeem) a contract in whole or in part for cash before
the annuity commencement date (unless restricted by the
retirement plan or applicable Federal tax law) subject
to a sales charge. See "Redemptions", page 41 and
"Contract Charges", page 24.
o A penalty tax may be assessed under the Internal
Revenue Code in the event of certain early withdrawals.
See "Federal Tax Status", page 44.
o The Contracts provide that the annuity rates and
contract charges generally may not be changed adversely
to a Contract Owner for the duration of his Contract.
See "Contract Charges", page 24.
-5-
o The Contracts provide for transfer of Contract values
among Separate Account Divisions, unless restricted by
a retirement plan. See "Description of Contract
Rights", page 28.
o The Contracts include a limited right of cancellation.
See "Redemption - Right to Cancel", page 43.
The objective of the Contracts, which may or may not be realized,
is to provide relatively level Annuity Payments during periods
when the economy is relatively stable and to provide increased
Annuity Payments during inflationary and growth periods. The
Insurance Company seeks to assist the Contract Owner in
accomplishing this objective by making several classes of shares
of the Fund available from which the Owner may select underlying
investment mediums. Each such class is based upon a portfolio of
Fund investments with a different investment objective. No
assurance can be given that the value of a Contract before
Annuity Payments begin, or the aggregate amount of Annuity
Payments made under a Contract, will equal or exceed the Purchase
Payment for a Contract. Thus, the investment risk under a
Contract is borne by the Contract Owner.
-6-
EXPENSE TABLE
The following Expense Table lists the transaction expenses,
annual Contract fee, Separate Account annual expenses, as well as
the approximate annual expenses of each Fund of Putnam
Variable Trust , related to an investment in each Division of
the Separate Account. Following the Expense Table is an Example
which illustrates the cumulative amount of fees and expenses on a
hypothetical, one-time investment of $1,000, assuming a 5% rate
of return for the stated time periods.
Growth
Money and
A. Contractowner Market Income Income Voyager
Transaction Expenses Division Division Division Division
Deferred Sales
Charge (maximum, as
a percentage of
amount Surrendered
(1)
Exchange Fee (2)
7% 7% 7% 7%
B. Annual Contract Fee
(3) $ 5.00 $ 5.00 $ 5.00 $ 5.00
C. Separate Account
Annual Expenses (as $30.00 $30.00 $30.00 $30.00
a percentage of
average account
value)
Mortality Risk Fee
Expense Risk Fee
Total Separate 0.8% 0.8% 0.8% 0.8%
Account 0.4% 0.4% 0.4% 0.4%
Annual Expenses
D. Fund Annual Expenses
(as a percentage of 1.2% 1.2% 1.2% 1.2%
Fund average net
assets) (4)
Management Fees
All Other Expenses
Total Fund Annual 0.45% 0.62% 0.49% 0.57%
Expenses 0.10% 0.07% 0.05% 0.06%
0.55% 0.69% 0.54% 0.63%
-7-
Notes to Expense Table:
(1) Represents maximum deferred sales charge. The percentage is
based on the number of full Contract years between the date of a
Purchase Payment and the date of withdrawal or first Annuity
Payment and ranges from 7% for periods of less than two Contract
years to 0% for periods of eight or more Contract years. For
additional information, please refer to the section entitled
"Contract Charges-Deferred Sales Charge."
(2) The Insurance Company reserves the right to impose this fee
for the second and subsequent transfer of Accumulation Units or
Annuity Units among Divisions during a Contract year. However,
the fee is not currently imposed by the Insurance Company.
(3) The Annual Contract fee is deducted from the value of a
Contract on each anniversary of the issue date, during the
Accumulation Period. If a Contract Owner participates in more
than one Fund under a Contract, only one such fee is deducted
annually.
(4) Based on amounts incurred by the applicable Fund of
Putnam Variable Trust during calendar year 1996.
The inclusion of the 1996 Total Annual Fund Expenses of the
applicable Fund of Putnam Variable Trust has been included
in this prospectus solely for the purposes of the hypothetical
illustration set forth in the Expense Table.
-8-
EXAMPLES
Growth
Money and
Market Income Income Voyager
Division Division Division Division
If you surrender your
contract at the end of the
applicable time period:
You would pay the following
expenses on a $1,000
investment, assuming 5%
annual return on asset
1 year $ 91.72 $ 93.08 $ 91.62 $ 92.50
3 years 115.27 119.49 114.97 117.68
5 years 138.93 146.16 138.41 143.07
10 years 224.97 240.23 223.88 233.72
If you annuitize at the end
of the applicable time
period:
You would pay the following
expenses on a $1,000
investment, assuming 5%
annual return on assets
1 year $ 91.72 $ 93.08 $ 91.62 $ 92.50
3 years 115.27 119.49 114.97 117.68
5 years 138.93 146.16 138.41 143.07
10 years 224.97 240.23 223.88 233.72
If you do not surrender your
contract:
You would pay the following
expenses on a $1,000
investment assuming 5% annual
return on assets
1 year $ 19.59 $ 21.06 $ 19.48 $ 20.43
3 years 61.57 65.02 60.25 63.11
5 years 104.08 111.56 103.54 108.36
10 years 224.97 240.23 223.88 233.72
-9-
The purpose of the Expense Table is to assist a prospective
purchaser in understanding the various costs and expenses that a
Contract Owner will bear directly or indirectly. For further
information concerning the Separate Account fees and expenses,
please refer to the section of this prospectus entitled
"Deductions and Expenses". Additional information pertaining to
Fund Annual Expenses is contained in the prospectus of Putnam
Variable Trust . In addition to the costs and expenses
described above, the Contract may be subject to state premium
taxes. For a discussion of premium taxes please refer to the
section entitled "Contract Charges-Premium Taxes."
The example is not intended as, and should not be considered, a
representation of past or future expenses. Actual expenses may
be greater or lesser than those shown.
-10-
FINANCIAL INFORMATION
1. Accumulation Unit Values (for an Accumulation Unit
outstanding throughout the period):
The following information should be read in conjunction with the
financial statements of the Separate Account , which are
available with the Statement of Additional Information. This
historical data for Accumulation Unit Values is not indicative of
future performance.
MONEY MARKET DIVISION
TAX QUALIFIED
YEAR ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE UNIT VALUE AT ACCUMULATION
AT BEGINNING END OF PERIOD UNITS OUTSTANDING
OF PERIOD AT END OF PERIOD
1996 $ 1.9898 $ 2.0660 847,412
1995 $ 1.9080 $ 1.9894 1,096,192
1994 $ 1.8661 $ 1.9074 1,488,534
1993 $ 1.8446 $ 1.8659 1,778,411
1992 $ 1.8062 $ 1.8444 2,620,375
1991 $ 1.7286 $ 1.8059 4,203,167
1990 $ 1.6223 $ 1.7281 7,114,568
1989 $ 1.5065 $ 1.6218 8,331,835
1988 $ 1.4208 $ 1.5057 8,650,876
1987 $ 1.3507 $ 1.4200 8,115,342
1986 $ 1.2827 $ 1.3503 7,372,694
1985 $ 1.2017 $ 1.2822 7,333,147
1984 $ 1.1015 $ 1.2012 5,259,948
1983 $ 1.0191 $ 1.1009 2,083,188
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MONEY MARKET DIVISION
NON-TAX QUALIFIED
YEAR ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION
BEGINNING OF END OF PERIOD UNITS
PERIOD OUTSTANDING AT
END OF PERIOD
1996 $ 1.9756 $ 2.0514 1,288,780
1995 $ 1.8944 $ 1.9753 1,334,785
1994 $ 1.8548 $ 1.8935 1,660,811
1993 $ 1.8335 $ 1.8546 2,525,627
1992 $ 1.7954 $ 1.8332 3,196,702
1991 $ 1.7181 $ 1.7951 3,868,744
1990 $ 1.6124 $ 1.7175 5,103,872
1989 $ 1.4973 $ 1.6119 5,870,485
1988 $ 1.4122 $ 1.4965 6,816,675
1987 $ 1.3424 $ 1.4113 8,038,587
1986 $ 1.2748 $ 1.3421 8,275,141
1985 $ 1.1942 $ 1.2744 8,447,477
1984 $ 1.0947 $ 1.1938 6,569,026
1983 $ 1.0121 $ 1.0940 2,331,558
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GROWTH AND INCOME II DIVISION *
TAX QUALIFIED
YEAR ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION
BEGINNING OF END OF PERIOD UNITS
PERIOD OUTSTANDING AT
END OF PERIOD
1996 $ 5.1880 $ 6.2071 3,277,019
1995 $ 3.8659 $ 5.1527 3,699,687
1994 $ 3.8800 $ 3.8384 3,672,031
1993 $ 4.1195 $ 3.8802 5,709,891
1992 $ 3.7959 $ 4.1409 6,907,180
1991 $ 2.7828 $ 3.7798 8,510,262
1990 $ 3.0137 $ 2.7991 10,978,705
1989 $ 2.3164 $ 2.9680 12,887,382
1988 $ 2.2015 $ 2.3318 14,392,854
1987 $ 2.1532 $ 2.1414 13,496,867
1986 $ 1.9357 $ 2.1274 10,556,709
1985 $ 1.5263 $ 1.9482 8,735,675
1984 $ 1.5365 $ 1.5377 7,281,652
1983 $ 1.1576 $ 1.5368 2,180,190
* = As of April 18, 1995, the former Growth and Income
Division was merged into the Equity Division and the
name of the Equity Division was changed to Growth and
Income II Division.
-13-
GROWTH AND INCOME II DIVISION *
NON-TAX QUALIFIED
YEAR ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION
BEGINNING OF END OF PERIOD UNITS
PERIOD OUTSTANDING AT
END OF PERIOD
1996 $ 4.4442 $ 5.3182 2,002,962
1995 $ 3.3094 $ 4.4140 2,104,990
1994 $ 3.3224 $ 3.2870 1,733,131
1993 $ 3.5222 $ 3.3225 2,180,991
1992 $ 3.2453 $ 3.5405 2,447,435
1991 $ 2.3781 $ 3.2315 2,668,712
1990 $ 2.5758 $ 2.3921 3,515,922
1989 $ 1.9798 $ 2.5367 4,363,345
1988 $ 1.8816 $ 1.9930 5,022,828
1987 $ 1.8403 $ 1.8302 5,758,523
1986 $ 1.6543 $ 1.8183 5,908,341
1985 $ 1.3050 $ 1.6650 6,402,515
1984 $ 1.3053 $ 1.3147 6,282,175
1983 $ 1.0610 $ 1.3055 2,487,117
* = As of April 18, 1995, the former Growth and Income
Division was merged into the Equity Division and the
name of the Equity Division was changed to Growth and
Income II Division.
-14-
INCOME DIVISION
TAX QUALIFIED
YEAR ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION
BEGINNING OF END OF PERIOD UNITS
PERIOD OUTSTANDING AT
END OF PERIOD
1996 $ 3.1355 $ 3.1734 1,313,122
1995 $ 2.6495 $ 3.1359 1,580,611
1994 $ 2.7613 $ 2.6484 2,006,254
1993 $ 2.4922 $ 2.7602 2,372,918
1992 $ 2.3148 $ 2.4665 3,146,768
1991 $ 2.0194 $ 2.3365 3,898,682
1990 $ 1.9064 $ 1.9976 4,611,938
1989 $ 1.6895 $ 1.9058 5,842,385
1988 $ 1.5889 $ 1.6886 6,396,491
1987 $ 1.5971 $ 1.5876 6,645,820
1986 $ 1.3641 $ 1.5964 6,022,580
1985 $ 1.1209 $ 1.3635 5,354,109
1984 $ 1.0395 $ 1.1325 1,600,684
1983 $ 1.0409 $ 1.0387 1,600,684
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INCOME DIVISION
NON-TAX QUALIFIED
YEAR ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION
BEGINNING OF END OF PERIOD UNITS
PERIOD OUTSTANDING AT
END OF PERIOD
1996 $ 3.0972 $ 3.1351 2,394,183
1995 $ 2.6168 $ 3.0976 2,678,698
1994 $ 2.7274 $ 2.6157 3,034,007
1993 $ 2.4620 $ 2.7263 3,998,875
1992 $ 2.2868 $ 2.4366 4,270,125
1991 $ 1.9950 $ 2.3082 4,705,841
1990 $ 1.8835 $ 1.9735 6,081,726
1989 $ 1.6693 $ 1.8830 7,317,320
1988 $ 1.5699 $ 1.6683 8,266,780
1987 $ 1.5778 $ 1.5685 8,512,544
1986 $ 1.3477 $ 1.5772 8,298,677
1985 $ 1.1074 $ 1.3471 8,265,130
1984 $ 1.0408 $ 1.1190 8,176,702
1983 $ 1.0064 $ 1.0401 3,193,116
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VOYAGER DIVISION *
TAX QUALIFIED
YEAR ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION
BEGINNING OF END OF PERIOD UNITS
PERIOD OUTSTANDING AT
END OF PERIOD
1996 $ 2.2334 $ 2.4937 751,632
1995 $ 1.6061 $ 2.2337 781,624
1994 $ 1.6303 $ 1.6261 798,724
1993 $ 1.4965 $ 1.6546 825,839
1992 $ 1.3365 $ 1.5166 972,470
1991 $ 0.8190 $ 1.3366 978,329
1990 $ 0.9012 $ 0.8289 1,022,612
1989 $ 0.7563 $ 0.8914 992,682
1988 $ 0.6929 $ 0.7564 908,009
1987 $ 1.0000 $ 0.6729 782,442
* = Prior to April 18, 1995, the Voyager Division was
named the Aggressive Equity Division.
-17-
VOYAGER DIVISION *
NON-TAX QUALIFIED
YEAR ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION
BEGINNING OF END OF PERIOD UNITS
PERIOD OUTSTANDING AT
END OF PERIOD
1996 $ 2.2298 $ 2.4894 633,799
1995 $ 1.6031 $ 2.2301 645,524
1994 $ 1.6302 $ 1.6231 649,408
1993 $ 1.4965 $ 1.6545 767,780
1992 $ 1.3363 $ 1.5164 761,087
1991 $ 0.8188 $ 1.3364 757,114
1990 $ 0.9011 $ 0.8287 781,471
1989 $ 0.7562 $ 0.8913 750,969
1988 $ 0.6928 $ 0.7563 731,019
1987 $ 1.0000 $ 0.6728 764,338
* = Prior to April 18, 1995, the Voyager Division was
named the Aggressive Equity Division.
Data for the Voyager Division (formerly the Aggressive Equity
Division), covers the period from March 31, 1987 (commencement of
operations) to December 31, 1996.
2. Money Market Division - Yield Information:
The Separate Account provides "current yield" and "effective
yield" quotations with respect to the Money Market Division.
Both yield figures are based on historical earnings and are
not intended to indicate future performance. A description
of the method used to compute such yield quotations is
included in the Statement of Additional Information.
The "current yield" of the Money Market Division refers to
the income generated by an investment in such Division over
a particular seven-day period; the particular seven-day
period will be stated in the quotation. This income is then
"annualized" - that is, the amount of income generated by
the investment during the seven-day period is assumed to be
earned each week over a 52-week period and is shown as a
percentage of the investment. The "effective yield" is
calculated in a
-18-
similar manner; however, when annualized, the income earned
by an investment in the Money Market Division is assumed to
be reinvested. Due to the compounding effect of this
assumed reinvestment, the "effective yield" will be slightly
higher than the "current yield".
3. Financial Statements:
The financial statements of the Separate Account and
Investors Life Insurance Company of North America are
included in the Statement of Additional Information.
-19-
DESCRIPTION OF THE INSURANCE COMPANY,
THE SEPARATE ACCOUNT AND THE FUND
THE INSURANCE COMPANY
Investors Life Insurance Company of North America ("Investors
Life") is a stock life insurance company, organized in 1963 under
the laws of the Commonwealth of Pennsylvania. In December, 1992,
the Insurance Company changed its state of domicile to the State
of Washington and merged with its immediate parent company
(Investors Life Insurance Company of California). As a result of
the merger, Investors Life Insurance Company of North America
assumed all of the assets and obligations of Investors Life
Insurance Company of California, and Investors Life Insurance
Company of North America was the surviving company. In June,
1993, Investors Life merged with its immediate parent company,
Standard Life Insurance Company. Investors Life was the
surviving entity. As a result, Investors Life became a direct
subsidiary of InterContinental Life Corporation, a insurance and
financial service holding company. The administrative offices of
Investors Life are located at 701 Brazos Street, Austin, Texas
78701. The statutory home office of Investors Life is 2101 4th
Ave., Seattle, Washington 98121-2371. Prior to December 28, 1988
the Insurance Company was an indirect wholly-owned subsidiary of
CIGNA Corporation.
THE SEPARATE ACCOUNT
The Insurance Company established the Separate Account pursuant
to the provisions of the Pennsylvania Insurance Code and has
registered it as a unit investment trust under the Investment
Company Act of 1940. The Separate Account commenced operations
on September 15, 1982.
The Separate Account currently contains four Divisions, one for
each class of shares of the Fund. Prior to the substitution of
shares of Putnam Variable Trust for shares of CIGNA
Annuity Funds group as the underlying funding vehicle for the
Separate Account, the Separate Account contained five divisions.
In connection with the substitution, the Growth and Income
Division was merged into the Equity Division, and the name of
that division was changed to Growth and Income II Division. See
also, the discussion of the substitution under the caption
"The Putnam Variable Trust" (page 22). Each Division
reflects the investment performance of the specific class of Fund
shares allocated to it, and is divided into subdivisions for tax
qualified and non-tax qualified contracts, respectively. The
Voyager Division (formerly the Aggressive Equity Division) was
initially made available under the Separate Account on March 31,
1987.
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Each Separate Account Division is administered and accounted for
as part of the general business of the Insurance Company;
however, the income, capital gains or capital losses of each
Division's subdivision are credited to or charged against the
assets allocated to that subdivision without regard to other
income, capital gains or capital losses of any other subdivision
or arising out of any other business the Insurance Company may
conduct.
The contractual obligations under the Contracts funded by the
Separate Account are assumed by the Insurance Company; however,
the investment risk under a Contract is borne by the Contract
Owner.
PUTNAM VARIABLE TRUST
Putnam Variable Trust, formerly known as Putnam Capital
Manager Trust , was established to fund variable annuity
contracts offered by various insurance companies. Putnam
Variable Trust is a diversified, open-end management
investment company registered under the Investment Company Act of
1940, as amended. Putnam Variable Trust offers a number
of separate portfolios of investments having a variety of
investment objectives. Currently, only the following portfolios
of Putnam Variable Trust are available under variable
annuity contracts offered by this Prospectus:
Putnam VT U.S. Government and High Quality Bond Fund
(which serves as the underlying funding vehicle for the
Income Division) -seeks current income consistent with
preservation of capital by investing primarily in securities
issued or guaranteed by the U.S. Government or by its
agencies or instrumentalities and in other debt obligations
rated at least A by a nationally recognized securities
rating agency such as Standard & Poors or Moody's Investors
Service, Inc. or, if not rated, determined by Putnam
Investment Management, Inc. ("Putnam Management") to be of
comparable quality.
Putnam VT Growth and Income Fund (which serves as the
underlying funding vehicle for the Growth and Income II
Division, formerly known as the Equity Division) - seeks
capital growth and current income by investing primarily in
common stocks that offer potential for capital growth,
current income or both.
Putnam VT Money Market Fund (which serves as the
underlying funding vehicle for the Money Market Division) -
seeks as high a rate of current income as Putnam Management
believes is consistent with preservation of capital and
maintenance of liquidity by investing in high quality money
market instruments.
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Putnam VT Voyager Fund (which serves as the
underlying funding vehicle for the Voyager Division,
formerly known as the Aggressive Equity Division) - seeks
capital appreciation by investing primarily in common stocks
of companies that Putnam Management believes have potential
for capital appreciation that is significantly greater than
that of market averages.
The shares of each Fund of Putnam Variable Trust are
purchased by the Insurance Company at net asset value (without
sales load) for the corresponding Separate Account Division to
support the cash values of the Contracts.
Putnam Management is the investment adviser to Putnam
Variable Trust . Putnam Management is wholly-owned by Marsh
& McLennan Companies, Inc., a publicly owned holding company
whose principal businesses are international insurance and
reinsurance brokerage, employee benefit consulting and investment
management.
Prior to April 18, 1995, shares of CIGNA Annuity Funds Group
served as the underlying investment vehicle for the Divisions of
the Separate Account. As a result of the decision of CIGNA
Investments, Inc. ("CII") (the investment adviser to the CIGNA
Annuity Funds Group to withdraw from the active management of
equity-based portfolios, the Insurance Company commenced a search
for another mutual fund group which was in a position to provide
substitute portfolios for the Separate Account, as well as to
provide an investment adviser to provide equity advisory services
to the equity divisions of CIGNA Annuity Funds Group during a
transition period prior to the effective date of the fund
substitution. Following discussions with several major mutual
fund groups, Investors and CII determined that the Putnam
Variable Trust and Putnam Management would provide a means
for the orderly withdrawal of CII's investment advisory services,
in light of (i) the willingness of Putnam Management to provide
interim advisory services to the equity divisions of the CIGNA
Annuity Funds Group, (ii) the availability of funds which offer
investment objectives similar to those provided by each series of
the CIGNA Annuity Funds Group and (iii) the availability of a
current Putnam Variable Trust registration for funds which
could be substituted for the CIGNA Annuity Funds Group as the
underlying investment vehicle for variable annuity contracts
sponsored by Investors. On November 29, 1993, the Board of
Trustees of the CIGNA Annuity Funds Group, acting on the advice
of CII, terminated the appointment of CII as investment adviser
to the CIGNA Annuity Equity Fund, the CIGNA Annuity Growth and
Income Fund and the CIGNA Annuity Aggressive Equity Fund (the
"CIGNA Equity Funds"). At the same time, the Board of Trustees
appointed Putnam Management as the investment adviser to the
CIGNA Equity Funds. For the period from November 29, 1993 to
April 18, 1995 (the effective date of the fund substitution),
Putnam Management served as the investment adviser to the CIGNA
Equity Funds.
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Putnam Management has agreed to reimburse the Insurance Company
for certain costs that it will incur in connection with the
servicing of Contracts. The amount of this reimbursement is
equal to 25% of the effective management fee received by Putnam
Management with respect to assets allocated by the Insurance
Company to the applicable Fund of Putnam Variable Trust ,
plus an annual rate of one basis point times the average daily
net assets allocated during the computation period by the
Insurance Company to Putnam Variable Trust .
The prospectus of Putnam Variable Trust , which accompanies
this Prospectus, contains a more complete description of the
investment objectives, including attendant risks, of each
portfolio of Putnam Variable Trust . In considering the
purchase of the Contracts offered in this Prospectus, you should
read the prospectus of Putnam Variable Trust carefully.
VOTING RIGHTS
The Insurance Company is the owner of record of the shares of
each series of shares of Putnam Variable Trust . It will
vote such shares held in each Separate Account Division at
regular and special meetings of shareholders of Putnam
Variable Trust in accordance with instructions received from
persons having an interest in such series of Putnam Variable
Trust shares.
During the Accumulation Period, owners of Contracts shall have a
voting interest with respect to their accounts. During the
Annuity Period, the person entitled to variable Annuity Payments
will be the person having such voting interest.
Each person having a voting interest in shares of Putnam
Variable Trust attributable to a Contract will initially be
allowed to vote the number of Accumulation Units credited to a
Contract under the Separate Account Division composed of such
Putnam Variable Trust shares. Persons receiving Annuity
Payments will be allowed an equivalent vote which shall be
determined by dividing the value of the reserve maintained in
such
Separate Account Division to meet the annuity obligations, by the
value of an Accumulation Unit. Since voting power is determined
by the Separate Account Division Contract value, such power will
normally diminish during the annuity payout phase.
After votes are tabulated, the Insurance Company will then
determine the number of shares of Putnam Variable Trust
owned by the Separate Account to be voted affirmatively in
accordance with the proportion of affirmative votes received to
the total number of votes received from persons having a voting
interest in such shares. Negative votes will be similarly
determined.
Assets may also be maintained in Separate Account Divisions with
respect to contracts other than those offered by this Prospectus,
and votes attributable to such other contracts will be computed
in the same manner.
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DEDUCTIONS AND EXPENSES
A. CONTRACT CHARGES:
The following deductions are made under the Contracts:
Administrative Expense: The Insurance Company deducts
an Annual Contract Fee of $30 from the Contract value on
each anniversary of the issue date during the
Accumulation Period. Accumulation Units will be
reduced proportionately on each anniversary date to
reflect this charge. No Annual Contract Fee is
deducted in the event of a full surrender or death
benefit settlement prior to the anniversary date.
The Insurance Company reserves the right to increase
the administrative expense charge by $5 for the second
and each subsequent transfer of Accumulation Units
among Separate Account Divisions during the Contract
year (the "Exchange Fee"). This charge may also be
imposed for the second and each subsequent transfer of
Annuity Units among Separate Account Divisions during
the Contract year. However, there is no present intent
to assess a charge for transfer, and notice will be
given to Contract Owners prior to imposition of this
charge.
The Insurance Company's administrative expenses include
salaries, rent, postage, telephone, travel, legal,
administrative, actuarial and accounting fees, periodic
reports, office equipment, stationary and custodial
expenses. The administrative expense charge is not
anticipated to exceed the expenses to be incurred by
the Insurance Company for administration of the
Contracts.
Premium Taxes: Premium taxes ranging from .5% to 3%
are currently imposed by certain states and
municipalities on payments made under
annuity contracts. Under deferred
Contracts, any premium tax will be deducted
either from the Purchase Payment or from
the Accumulation Value upon annuitization,
as determined in accordance with applicable
law.
Deferred Sales Charge: The Contracts include a
deferred sales charge, which is assessed against
amounts withdrawn during early Contract Years. The
charge also applies at the time Annuity Payments begin,
unless (a) the first
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Annuity Payment begins after the tenth Contract Year,
(b) the first Annuity Payment begins after the fifth
Contract Year and the Annuitant has attained age 59-1/2
at such time or (c) Annuity Payments are being made as
part of the Death Proceeds during the Accumulation
Period or as part of a distribution upon death of the
Owner during the Accumulation Period.
The charge is based on the number of full Contract
Years between the date of a Purchase Payment and the
date of withdrawal or first Annuity Payment, and ranges
from 7% for periods of less than 2 Contract Years to 0%
for periods of 8 or more Contract Years. The amount
subject to deferred sales charges is allocated to each
Contribution Year, to determine the applicable
percentage charge. In no event will this charge exceed
7% of the amount of Purchase Payments accepted by the
Insurance Company for a Contract. See Appendix, pages
52 to 56 for a more complete description of this
charge, including examples.
In determining the amount of the charge, the Insurance
Company assumes that purchase payments are withdrawn on
a "first in - first out" basis; this assumption can not
be used for purposes of determining federal income tax
liability.
Exempt Accumulation Value: If, after the first
Contract Year (a) a withdrawal request is
received or Accumulation Value is applied to
provide an annuity payout and (b) no other
withdrawal request has been received by the
Insurance Company during the Contract Year of
withdrawal or first Annuity Payment, then up to
10% of Accumulation Value will be exempt from a
sales charge. Such exempt Accumulation Value
will be determined as of the Valuation Date
coincident with or next following the date that
the written request for withdrawal is received by
the Insurance Company at its Home Office or the
date that Accumulation Value is applied to
provide an annuity payout, as applicable.
With respect to Contracts issued in connection with an
Exchange Offer dated February 25, 1987, the Deferred Sales
Charge is not applicable to that portion of the Accumulation
Value applicable to amounts transferred to a Contract in
-25-
accordance with the provisions of such Exchange Offer. The
Exchange Offer was made available during the period from
February 25, 1987 to March 23, 1987 by the Insurance Company
to certain certificate holders under group fixed annuity
contracts issued by the Insurance Company, or by Life
Insurance Company of North America (a former affiliate of
the Insurance Company), to employers maintaining retirement
plans which meet the requirements of section 403(b) of the
Internal Revenue Code. The Exchange Offer applies only to
amounts so transferred as of April 6, 1987.
The Deferred Sales Charge is made as a means for the
Insurance Company to recover expenses incurred in connection
with distribution of the Contracts when a withdrawal is
made, or Annuity Payments commence, during early Contract
Years. Because the Contracts are normally purchased for the
long term, the Insurance Company expects to recover such
expenses over time. Amounts anticipated to be collected by
this means may, however, be insufficient to reimburse the
Insurance Company for its anticipated distribution expenses.
Amounts from the Company's general account assets (including
the profits, if any, from the Mortality and Expense Risk
Deduction) may be used to cover such expenses.
Mortality and Expense Risk Deduction: The Insurance
Company makes a daily charge of 0.0000327 of the value
of the assets in each subdivision of the Separate
Account (1.2% on an annual basis, consisting of
approximately 0.8% for mortality risks (the "Mortality
Risk Fee") and approximately 0.4% for expense risks
(the "Expense Risk Fee")).
The Insurance Company's assumption of mortality risk
arises from its contractual obligation to make Annuity
Payments to each Annuitant regardless of how long he
lives and how long all annuitants as a group live.
Also, the Insurance Company assumes mortality risk
because of annuity rates in the Contracts, which cannot
be increased; and, if the Annuitant should die during
the Accumulation Period, the Insurance Company is at
risk that the Accumulation Value may not equal the
Death Proceeds.
The Insurance Company also assumes the risk that the
amounts deducted for sales and administrative expenses
may be insufficient to cover the actual cost of such
items.
-26-
The above-described deductions may be modified by the Insurance
Company to the extent required by applicable federal or state
law. However, except as described above, the deductions may not
be modified by the Insurance Company.
B. EXPENSES AND RELATED INFORMATION:
The Contracts are sold by licensed insurance agents of the
Insurance Company who are also registered representatives of
broker/dealers who have sales agreements with the Insurance
Company and the principal underwriter, ILG Securities
Corporation.
The sales agreements between the principal underwriter and
broker/dealers provide for commissions as a percentage of
purchase payments. The percentage depends upon the type of
purchase payment (first contract year, renewal, lump sum or
increase), and ranges from 2-1/4% to 9%.
Registered representatives of ILG Securities Corporation may also
sell the Contracts.
In connection with the distribution of the Contracts, the
Insurance Company may pay servicing fees to certain
broker/dealers who agree to provide ongoing Contract Owner
administrative services. No such fees are currently being paid.
No charges are separately assessed under the Contracts, nor are
deductions made from the Separate Account for these costs.
The expenses of the Separate Account consist of the mortality and
expense risk deduction described under "Contract Charges", above.
As a percentage of average net assets, this expense is 1.2% on an
annual basis.
The prospectus of Putnam Variable Trust describes the
expenses and fees which are paid out of the assets of portfolios
used to fund the Separate Account. For a discussion of such
expenses and fees, please refer to the prospectus of Putnam
Variable Trust .
-27-
GENERAL DESCRIPTION OF VARIABLE ANNUITY CONTRACTS
Description of Contract Rights: The Contracts provide certain
rights during the Accumulation Period, the Annuity Period and
upon death of the Owner or Annuitant:
a. Accumulation Period: During the Accumulation Period,
the Owner of a Contract has the right to:
Change the beneficiary for death proceeds;
surrender the Contract in whole or in part
for its Withdrawal Value;
change the annuity payout option;
change the death benefit payout option;
transfer Contract values between Separate
Account Divisions;
instruct the Insurance Company as to voting
of Fund shares;
cancel the Contract by returning it to the
Insurance Company within 10 days after
receipt;
change the designated Separate Account
Division for allocation of future
contributions;
change the date Annuity Payments commence
(not later then Annuitant's age 75; an
earlier age may be required in connection
with certain Contracts issued to tax
qualified plans);
change the payee to receive Annuity
Payments;
assign ownership rights under the Contract,
upon advance written notice to the
Insurance Company.
b. Annuity Period: During the Annuity Period, the Owner
of a Contract has the right to:
transfer Contract values between Separate
Account Divisions;
change the payee to receive Annuity
Payments, during the lifetime of Annuitant;
change the beneficiary under any Annuity
Payout Option which provides for a death
benefit upon death of the Annuitant;
change may be made only during lifetime of
the Annuitant;
instruct the Insurance Company as to voting
of Fund shares.
-28-
c. Death Benefits - Accumulation Period:
In the event death benefit proceeds become payable
during the Accumulation Period, the Beneficiary
designated by the Owner is entitled to payment of such
proceeds. If no designated Beneficiary survives the
Annuitant and no other designation is provided, the
Owner shall be the Beneficiary, if he survives the
Annuitant; otherwise, the Owner's estate shall be the
Beneficiary.
If no Annuity Payout Option has been selected by the
Owner for death benefit proceeds, and if the Insurance
Company has not previously made a lump sum payment, the
beneficiary may choose an Annuity Payout Option for
receipt of such proceeds.
d. Death Benefits - Annuity Period:
If the Annuitant dies while receiving Annuity Payments,
the remaining payments, if any, will be payable to the
Beneficiary designated by the Owner. However, if
Annuity Payments are being paid to a Beneficiary as a
death benefit, and such Beneficiary dies, the
Beneficiary's estate shall be entitled to receive
payment of any remaining proceeds.
In the case of Contracts which are subject to the
requirements of section 72(s) of the Internal Revenue
Code (See "Death Benefits - Required Distribution
Provisions"), the Contracts provide that if the Owner
dies while the Annuitant is receiving Annuity Payments,
the Annuitant is entitled to receive the remaining
payments.
Limitation on Contract Rights: The Contracts may be issued
pursuant to a tax qualified or non-tax qualified plan or trust.
Such plan or trust may limit the exercise by participants in the
plan or trust of certain rights granted by the Contract to Owner,
Annuitant or Beneficiary. For example, although the Contracts
permit redemption of all or part of their value prior to the time
Annuity Payments begin, the plan or trust may not permit the
Owner to exercise such right. Certain plans or trusts may
require that the Owner acquire a 100% vested or nonforfeitable
interest in the benefits provided by the plan or trust before he
may exercise any of the rights provided by the Contract. The
provisions of the plan or trust instrument should be referred to
in connection with the Contracts.
-29-
In addition, assignment of interests under a Contract is
prohibited when the Contracts are used to fund retirement plans
qualified under sections 401, 403(a), 403(b) or 408 of the
Internal Revenue Code, unless the Owner is other than the
Annuitant or the Annuitant's employer.
Contracts issued in connection with Individual Retirement Annuity
plans (qualified under section 408 of the Internal Revenue Code)
provide that the amount of premiums in any taxable year of the
Owner may not exceed the lesser of $2,000 or 100% of
"compensation" for such year; this limitation does not apply to
amounts which are treated as "IRA rollovers" under the Code.
Transfers Between Separate Account Divisions: Once each Contract
Year, the Owner may elect to transfer all or a portion of
Contract value to one or more of the other Separate Account
Divisions, without charge. The Owner may also elect to make
additional transfers of Contract value(s) between Separate
Account Divisions each Contract Year; however, the Insurance
Company reserves the right to limit transfers to one per Contract
Year and to assess a $5 charge for each transfer after the first
during a Contract Year. In either event, written notice will be
provided to all Contract owners.
All elections to transfer must be in writing, signed by the Owner
and received by the Insurance Company.
No transfer of Separate Account Divisions is permitted: (i)
within 30 days of Annuity Commencement Date; (ii) if it would
result in applying the value of a Contract to more than five
Separate Account Divisions, (iii) if prohibited by state law; or
(iv) if prohibited by the applicable retirement plan.
The number of Accumulation Units credited in the newly elected
Separate Account Division(s) will be equal to the dollar value of
the amount transferred divided by the current value of one
Accumulation Unit in such newly elected Division(s).
The number of Annuity Units credited in a newly elected Division
will be determined by multiplying the number of Annuity Units in
each Division to be transferred by the current value of one such
Annuity Unit in the newly elected Division.
Contract Owners (and Payees) who contemplate making a transfer
should first carefully consider their annuity objectives and
investment objectives of the current and proposed underlying
classes of Fund shares. Frequent transfers may be inconsistent
with the long-term objectives of the Contracts.
-30-
Substituted Securities:
If any class of Fund shares should become unavailable for
purchase by the Insurance Company, or if in the judgment of the
Insurance Company further investment in such class is no longer
appropriate in view of the purposes of the Separate Account,
there may be substituted therefor other shares or classes of
shares of a mutual fund which will be described in the Prospectus
by amendment or revision and net Purchase Payments received after
a date specified by the Insurance Company may be applied to the
purchase of other shares or classes of shares of such fund. In
either event, prior approval by the affected Separate Account
Division shall be obtained. No substitution for shares or
classes of shares of a fund not described in this Prospectus will
be made without the prior approval of the Securities and Exchange
Commission.
Change in Operations:
The Insurance Company may also sell other forms of variable
annuity contracts from time to time, such as group contracts and
flexible payment individual contracts, which provide benefits
that vary in accordance with the investment experience of the
particular Separate Account Division in which they participate.
In addition, the Insurance Company may create new Divisions of
the Separate Account to provide additional funding options to
Contract Owners. No assurance can be given that any new
Divisions, if created, will be made available to Contract Owners.
The Contracts limit to five (5) the maximum number of Divisions
which may be selected.
The Insurance Company reserves this right to amend the Contracts
to meet the requirements of the Investment Company Act of 1940,
or other applicable federal or state laws or regulations.
Contract Owner Inquiries: The Owner of a Contract should direct
all inquiries to: Investors Life Insurance Company of North
America, Customer Service Department, 701 Brazos Street, Austin,
Texas 78701.
Reports: The Owner, or Annuitant as applicable, will receive
notice of all Fund shareholder meetings. A Fund report and a
statement of account as to the value of the accumulation units
held under the Contract will be furnished annually to the Owner.
A Separate Account report will be furnished semi-annually.
-31-
THE ANNUITY PERIOD
Annuity Commencement Date: Annuity payments will begin on the
first day of the calendar month selected by the Owner. The
selected date may be as early as the 50th birthday of the
Annuitant, but may not be later than the 75th birthday of the
Annuitant, except where otherwise agreed to by the Insurance
Company. The selection of an annuity commencement date may also
be affected by the terms of a retirement plan or trust under
which a Contract is issued. Contracts issued in connection with
Individual Retirement Annuity plans (qualified under section 408
of the Code) provide that payments must commence not later than
the end of the taxable year in which the Annuitant attains age
70-1/2. For Contracts issued in connection with tax sheltered
(section 403(b)) annuity plans, the Internal Revenue Code
requires that distributions must commence no later than the year
the Annuitant attains age 70-1/2 (or the year the Annuitant
retires with respect to years beginning prior to January 1,
1989); these provisions apply to benefits accruing under a
section 403(b) annuity contract after December 31, 1986. Unless
otherwise instructed by the Owner, the annuity commencement date
is the Contract anniversary nearest the Annuitant's age 65.
Annuity Payments: The level of annuity payments is based on (i)
the table specified in the Contract which reflects the adjusted
age of the Annuitant, (ii) the type of annuity payout option
selected and (iii) the investment performance of the underlying
Fund shares selected. The amount of annuity payments will not be
affected by adverse mortality experience or any increase in the
expenses of the Insurance Company in excess of the charges made
under the Contract. If the Insurance Company is required to
withhold certain amounts from annuity payments, in compliance
with Federal or State tax law relating to collection of income
taxes at the source of payment, the amount so required will be
deducted from each payment.
Special Note for California Contracts:
Certain Contracts which are issued subject to
California law contain annuity tables which
reflect the adjusted age and sex of the
Annuitant. The Insurance Company issues this
type of contract where issuance is not known by
the Company to be part of an employer-sponsored
plan.
Annuity Payout Options: The Owner may elect to have Annuity
Payments made under any one of the Annuity Payout Options
described below. In addition, the Annuity Payout Options may be
selected for payout of the Death Proceeds during the Accumulation
Period, upon
-32-
the death of the Annuitant or Owner, as applicable. A change of
option is permitted if made at least 30 days before the date
Annuity Payments are to commence. In the absence of an election,
Annuity payments will be made in accordance with Option 2 below
with 120 monthly payments certain (10-year period). Annuity
payments will be paid monthly except that (i) proceeds of less
than $3,000 will be paid in a single sum or (ii) a schedule of
payments payable monthly may be changed to avoid payments of less
than $20.
Option 1 - Life Annuity: An annuity payable monthly during the
lifetime of the Annuitant and terminating with the last monthly
payment preceding the death of the Annuitant. There is no
guarantee of a minimum number of payments or provision for a
death benefit for beneficiaries. IT WOULD BE POSSIBLE UNDER THIS
OPTION TO RECEIVE ONLY ONE ANNUITY PAYMENT IF THE ANNUITANT DIES
BEFORE THE DUE DATE OF THE SECOND ANNUITY PAYMENT, TWO IF DEATH
OCCURS BEFORE THE DUE DATE OF THE THIRD ANNUITY PAYMENT DATE, AND
SO ON.
Option 2 - Life Annuity with Annuity Payments Guaranteed for a
Designated Period: An annuity payable monthly during the
lifetime of the Annuitant. If, at the death of the Annuitant,
payments have been made for less than the designated period, any
unpaid Annuity Payments will be paid to the end of the designated
period. Such period may be (a) 10 years, (b) 15 years, or (c) 20
years.
Option 3 - Unit Refund Life Annuity: An annuity payable monthly
during the lifetime of the Annuitant, terminating with the last
Annuity Payment due before the death of the Annuitant. An
additional payment, less any amounts required to be withheld for
taxes, may then be payable. Such payment at death will be equal
to the dollar value of a number of annuity units equal to (a)
minus (b), if such difference is positive, where:
total amount applied under the Option at the
(a) = annuity commencement date
annuity unit value at the annuity commencement date
number of annuity units represented by each
(b) = monthly Annuity Payment paid times the number of
monthly annuity payments made.
Option 4 - Joint and Last Survivor Annuity: An annuity payable
monthly during the joint lifetime of the Annuitant and a
designated second person, and thereafter during the remaining
lifetime of the survivor. AS UNDER OPTION 1, THERE IS NO MINIMUM
NUMBER OF GUARANTEED ANNUITY PAYMENTS UNDER THIS OPTION.
-33-
Option 5 - Joint and Two-thirds Survivor Annuity: An annuity
payable monthly during the joint lifetime of the annuitant and a
designated second person and continuing during the lifetime of
the
survivor in a reduced amount which reflects two-thirds of the
number of annuity units in effect during such joint lifetime. AS
UNDER OPTION 1, THERE IS NO MINIMUM NUMBER OF GUARANTEED ANNUITY
PAYMENTS UNDER THIS OPTION.
Option 6 - Payments for a Designated Period: An annuity payable
monthly for a designated number of years from 5 to 30. In the
event of the Annuitant's death prior to the end of the designated
period, Annuity Payments will be continued during the remainder
of such period. ANNUITY PAYMENTS UNDER THIS OPTION ARE BASED
UPON THE PAYMENT OF THE MORTALITY AND EXPENSE RISK DEDUCTION,
EVEN THOUGH THERE IS NO LIFE CONTINGENCY RISK ASSOCIATED WITH
THIS OPTION.
Determination of Monthly Annuity Payments: A description of the
method for determining the first and subsequent annuity payments
is included in the Statement of Additional Information. The
Contracts contain tables indicating the dollar amount of the
first monthly Annuity Payment which can be purchased with each
$1,000 of value accumulated under the Contract. These tables
include an assumed interest rate of 6% per annum. This 6%
assumed rate is the measuring point for subsequent Annuity
Payments. If the actual net investment rate (on an annual basis)
remains constant at 6%, the Annuity Payments will remain
constant. If the actual net investment rate exceeds 6%, the
Annuity Payments will increase at a rate equal to the amount of
such excess. Conversely, if the actual rate is less than 6%,
Annuity Payments will decrease.
Special Note for New Jersey Contracts:
Contracts subject to New Jersey law contain
tables indicating an amount of first monthly
annuity payment based on an assumed interest rate
of 5% rather than 6%.
The objective of the Contracts is to provide benefit installments
which will increase at a rate sufficient to maintain purchasing
power at a constant level. For this to occur, the actual net
investment rate must exceed the assumed rate of 6% (5% for New
Jersey Contracts) by an amount equal to the rate of inflation.
Of course, no assurance can be made that this objective will be
met. If the assumed interest rate were to be increased, Annuity
Payments would start at a higher level but would increase more
slowly or decrease more rapidly. Likewise, a lower assumed
interest rate would provide a lower initial payment with greater
increases or lesser decreases in subsequent Annuity Payments.
Transfer During the Annuity Period: For a description of the
Contract provisions applicable to transfers between Separate
Account Divisions, refer to "General Description of Variable
Annuity Contracts - Transfers Between Separate Account
Divisions".
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DEATH BENEFITS
Accumulation Period: If the Annuitant dies during the
Accumulation Period, and prior to the death of the Owner (if the
Owner is an individual other than the Annuitant), death benefit
proceeds will be equal to the Accumulation Value of the Contract
determined on the valuation date coincident with or next
following the date due proof of the Annuitant's death is received
by the Insurance Company. However, if death occurs before age
75, while the Owner (if other than the Annuitant) is living and
before Annuity Payments begin, the Insurance Company guarantees
that the death proceeds will not be less than the amount of
Purchase Payments made under the Contract, less a reduction for
prior redemptions.
The amount of death benefit proceeds payable to a Beneficiary
will be reduced by an applicable state premium taxes and by any
amounts required to be withheld for Federal or State income
taxes.
The Owner may designate the Annuity Payout Option for death
benefit proceeds. If no such Option is in effect at the time
death benefit proceeds are to be paid, the proceeds will be
payable either (i) in a single sum or (ii) under an Annuity
Payout Option selected by the Beneficiary. In the absence of
such an election by the Beneficiary, the proceeds will be paid in
a single sum.
Annuity Period: If the Annuitant dies after the commencement of
Annuity Payments, the death proceeds, if any, will depend upon
the Annuity Payout Option in effect at the time of death. Under
Options 2, 3 or 6, any remaining payments will be made to the
Beneficiary during the designated period. However, if Annuity
Payments are being made as a death benefit to a Beneficiary, and
such Beneficiary dies, the present value of the remaining
payments under Options 2, 3 or 6 will be paid in a lump sum (at
an interest rate of 6% for Options 2 and 6) to the Beneficiary's
estate.
Required Distribution Provisions (Applicable to Contracts other
than Contracts owned by the sponsor of a retirement plan
qualified under section 401(a) or 403(a) of the Internal Revenue
Code, Contracts issued in connection with a tax sheltered annuity
plan under Section 403(b) of the Internal Revenue Code, or
Contracts issued in connection with an Individual Retirement
Arrangement under Section 408 of the Internal Revenue Code):
Under the provisions of section 72(s) of the Internal Revenue
Code, the contracts described in this section must contain
specific rules for distribution of the value of the Contract in
the event of the Owner's death. Contracts issued by the
Insurance Company which are subject to the requirements of
section 72(s) will include the following provisions:
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Accumulation Period - If the Owner of the
Contract and the Annuitant is the same
person, the Contract provides that if the
Owner dies before annuity payments commence,
death proceeds must be distributed to the
designated beneficiary within 5 years after
death of the Owner/Annuitant. Alternatively,
if the designated beneficiary is a natural
person, such proceeds may be distributed over
the life of such beneficiary, or a period not
extending beyond the life expectancy of such
beneficiary. In this event, payments to the
beneficiary must commence not later than one
year after the death of the Owner/Annuitant
(or such later date as permitted under
regulations to be issued by the Secretary of
Treasury). The amount of such death proceeds
is determined as described in "Death Benefits
- Accumulation Period", above.
If the Owner of the Contract is a corporation
or other non-individual, section 72(s), as
amended by the Tax Reform Act of 1986,
provides that the primary annuitant (as
defined in the Code) shall be treated as the
Owner of the Contract for purposes of the
required distribution provisions. Thus, the
death of the primary annuitant will result in
application of the distribution requirements
described in the preceding paragraph.
Where the Owner of the Contract is an
individual other than the Annuitant, the
Contract provides that if the Owner dies
before the Annuitant and before annuity
payments commence, death proceeds will be
equal to the accumulation value of the
Contract determined on the valuation date
coincident with or next following the date
proof of the Owner's death is received by the
Insurance Company. However, if the death of
the Owner occurs prior to his age 75 and
before annuity payments begin, the Insurance
Company guarantees that the death proceeds
cannot be less than the amount of the
Purchase Payment made under such Contract,
less a reduction for any prior redemptions.
The
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amount of death proceeds payable to a beneficiary will
be reduced by applicable state premium taxes and by any
amounts required to be withheld for Federal or State
income taxes. The amount of such death proceeds must
be distributed to the designated beneficiary within 5
years after death of the Owner. Alternatively, if the
designated beneficiary is a natural person, such
proceeds may be distributed over the life of such
beneficiary, or a period not extending beyond the life
expectancy of such beneficiary. In such event,
payments to the beneficiary must commence not later
than one year after the death of the Owner (or such
later date as permitted under regulations to be issued
by the Secretary of Treasury). The Contract also
provides that if the designated beneficiary is the
surviving spouse of the Owner, no death proceeds shall
be payable at the death of the Owner, and such spouse
shall become the owner of the Contract. If the death
proceeds are payable on account of death of the Owner,
then no death proceeds are payable upon the subsequent
death of the Annuitant.
Annuity Period - If the owner of the Contract
and the Annuitant is the same person, the
Contract provides that if the Owner dies
after annuity payments commence, the
remaining payments under the Contract must be
paid at least as rapidly as under the method
of payment in effect on the date of death of
the Owner.
If the Owner of the Contract is a corporation
or other non-individual, section 72(s), as
amended by the Tax Reform Act of 1986,
provides that the primary annuitant (as
defined in the Code) shall be treated as the
Owner of the Contract for purposes of the
required distribution provisions. Thus, the
death of the primary annuitant will result in
the application of the distribution
requirements described in the preceding
paragraph.
Where the Owner of the Contract is an
individual other than the Annuitant, the
Contract provides that if the Owner dies
after annuity payments commence (or after the
death of the Annuitant while payments are
being made to a beneficiary), the remaining
payments must be paid out at least as rapidly
as under the method of payment in effect on
the date of death of the Owner.
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PURCHASES AND CONTRACT VALUES
How to Purchase a Contract:
The Contracts are sold by licensed insurance agents of the
Insurance Company who are also registered representatives of
broker/dealers which have sales agreements with ILG Securities
Corporation and the Insurance Company. Registered
representatives of ILG Securities Corporation may also sell the
Contracts. The principal underwriter of the Contracts is ILG
Securities Corporation. ILG Securities Corporation is an
indirect, wholly-owned subsidiary of InterContinental Life
Corporation. The Insurance Company is a direct wholly-owned
subsidiary of InterContinental Life Corporation. The principal
business address of ILG Securities Corporation is 701 Brazos
Street, Austin, Texas 78701.
A Contract may be purchased by delivering a completed
application, including Purchase Payment allocation instructions,
such other forms as the Insurance Company requires and the
Purchase Payment, where applicable, to the soliciting agent who
will forward such payment and forms to the Insurance Company.
If the application is complete and correct upon receipt by the
Insurance Company, and if all other required information and the
Purchase Payment have also been received by the Insurance Company
at its Home Office, the Contract will be issued and the net
purchase payment will be credited to the Contract to reflect the
net asset value of the applicable Division'(s) underlying class
of Fund shares next computed within two business days following
such receipt. In the event that the Purchase Payment and the
application are received by the Insurance Company in an amount or
under circumstances whereby the Insurance Company has not been
provided with correct or sufficient information to establish an
account or with instructions as to the proper crediting of such
payment, then the Insurance Company will, within five (5)
business days following receipt, inform the purchaser of the
reasons for delay and will request the purchaser to supply
corrections and further information or instructions with regard
to the applicable account. In this event, the Insurance Company
will return the Purchase Payment to the purchaser within 5 days,
unless it obtains the Purchaser's consent to retain the payment
until the corrections have been received.
Upon such receipt, the Contract will be issued and the net
Purchase Payment will be credited to the Contract to reflect the
net asset value of the applicable Division'(s) underlying class
of Fund Shares next computed within the next two business days.
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If the requested corrections, information or instructions are not
subsequently furnished to the Insurance Company within a
reasonable time period following the request, the Company will
return any retained purchase payment to the purchaser. Likewise,
if at any time the Insurance Company determines that it cannot
establish the requested account, it will return such purchase
payment immediately upon making such determination.
If the application is for a Contract used in connection with an
Individual Retirement Arrangement (IRA) under Code Section 408,
the Insurance Company will hold the Purchase Payment in a
suspense account until the expiration of the IRS-mandated
revocation period. Under IRS regulations, if an individual
receives IRA informational disclosure fewer than seven days prior
to the date on which the plan is established, the individual is
permitted a seven-day period following establishment of the plan
during which to revoke the plan and receive a refund. The
Purchase Payment will be applied as of the valuation date next
following expiration of the revocation period. No interest will
be paid on funds held in such suspense accounts.
Purchase Payments:
The minimum initial Purchase Payment is $500 for an Owner not
approved by the Insurance Company for pre-authorized checks,
salary deductions, or other list bill remittances.
After a Contract is issued, any Owner may make Purchase Payments
of $40 or more by remitting checks directly to the Insurance
Company at its Administrative Office.
The Insurance Company reserves the right to reject any Purchase
Payment if it is less than the minimum amount or not in proper
order.
Pre-authorized Checks, Salary Deductions and
Other List Bill Remittances:
Purchase Payments for the Contracts of at least
$40 each may be made at periodic intervals by
Owners who have been approved by the Insurance
Company for pre-authorized checking, salary
deductions, or other list bill remittance.
Pre-authorized checks allow the Insurance Company
to draw checks on a routine basis, usually
monthly, from a bank account previously
established by the Owner. No credit for a
Purchase Payment will be given should a check be
dishonored for any reason by the bank selected.
Neither the Insurance
-39-
Company nor ILG Securities Corporation assume any
liability for wrongful dishonor by the bank selected;
however, the Insurance Company may agree to indemnify a
bank for certain liabilities associated with the
checking procedure.
A salary deduction mode authorizes a Contract Owner's
employer to take deductions of a set amount from the
Owner's salary and remit such amounts to the Insurance
Company as Purchase Payments for a Contract. The
Insurance Company and ILG Securities Corporation assume
no liability for any amounts so deducted until received
in full by the Insurance Company at its Administrative
Office.
Purchase Payments for a Contract issued to a retirement
plan may be remitted together with Purchase Payments
for other Contracts issued to such retirement plan
pursuant to a "list bill" in a form acceptable to the
Insurance Company. Where permitted by the retirement
plan, and subject to the Insurance Company's
underwriting requirements, Purchase Payments for an
amount less than the stated minimum for a Contract may
be remitted pursuant to such an approved "list bill".
Application of Net Purchase Payments:
The Insurance Company will reduce a Purchase Payment by any
applicable Premium Tax to determine the net Purchase Payment.
Upon the purchase of a Contract, the amount of the net Purchase
Payment credited to a Contract will reflect the net asset value
of the applicable Division(s)' underlying class of Fund shares
next computed within the next two business days following the
Insurance Company's receipt of the payment. However, if any of
the required material is incomplete, incorrect or if the payment
has not been made, then a delay in Contract issuance or crediting
of a subsequent payment may be encountered.
Crediting Accumulation Units:
Accumulation Units represent the value of the Owner's Contract
attributable to the applicable Division(s) selected (maximum of
five). The number of Accumulation Units to be credited to the
Owner's account within a Division is determined by dividing the
net Purchase Payment allocated to that Division by the
Accumulation Unit value of the applicable Division as of the
Valuation Date next computed following the Insurance Company's
determination to credit a payment to the Contract. The number of
accumulation units will
-40-
not change because of a subsequent change in the value of the
unit, but the dollar value of an accumulation unit will vary to
reflect the investment experience of the class(es) of Fund shares
underlying the selected Division(s).
Value of an Accumulation Unit: (Note - although the following
refers to a "Division", the values are determined independently
for each sub-division). The value of an Accumulation Unit for
each Separate Account Division was established at $1 as of the
date the applicable class of Fund shares were first purchased for
that Division. The value of accumulation units subsequently is
determined by multiplying the value of an Accumulation Unit for
the immediately preceding Valuation Date by a net investment
factor for the Valuation Period ending on such date.
A net investment factor for a Valuation Period is the sum of
1.000000 plus the net investment rate for the applicable Separate
Account Division. The net investment rate for the applicable
Division is equal to the gross investment rate of that Division
for the valuation period expressed in decimal form to seven
places, less a deduction of 0.0000327 for each day in the
valuation period (1.2% annually - the fee charged by the
Insurance Company for undertaking the mortality and expense
risks). The applicable gross investment rate is equal to (i) the
investment income for the valuation period, plus capital gains
and minus capital losses for the period, whether realized or
unrealized on the assets divided by (ii) the value of such assets
at the beginning of the valuation period. The gross investment
rate may be positive or negative.
REDEMPTIONS
Procedures for Redemption:
Unless prohibited by any applicable retirement plan, the Owner
may redeem the Contract during the Accumulation Period in whole
or in part for its Contract Withdrawal Value as of the next
valuation date coincident with or next following the date the
request for redemption is received by the Insurance Company. In
determining redemption values, the Insurance Company does not
anticipate that it will be receiving or applying any premium tax
refund credits. No redemptions may be made once Annuity Payments
have begun. Requests to redeem shall be made in writing to the
Insurance Company. If the request is for the entire redemption
value of the Contract, it shall be accompanied by the Contract.
The Contract Withdrawal Value is determined on the basis of the
accumulation unit values on such valuation date, reduced by any
applicable sales charges and premium taxes. Payment of the
Contract Withdrawal Value, less any amounts required to be
withheld for taxes, will be
-41-
made within seven days after the date proper written request is
received by the Insurance Company at its Home Office. However,
such payment may be postponed whenever (i) the New York Stock
Exchange is closed, except for holidays or weekends, or trading
on the New York Stock Exchange is restricted by the Securities
and Exchange Commission; (ii) the Securities and Exchange
Commission permits postponement and so orders; or (iii) an
emergency exists, as defined by the Securities and Exchange
Commission, so that valuation of the assets or disposal of
securities is not reasonably practicable.
The Owner may elect to have the redemption value applied to
provide Annuity Payments under any one of the annuity payout
options, as permitted under the applicable retirement plan.
AMOUNTS WITHDRAWN BY THE OWNER PRIOR TO THE ANNUITY COMMENCEMENT
DATE MAY BE SUBJECT TO A TAX PENALTY AND IMMEDIATE TAXATION OF
ANY INVESTMENT GAIN.
Partial Redemptions:
The Owner may request a partial redemption of his Contract value
for an amount not less than $300 provided this does not result in
reducing the remaining value of the Contract to less than $500 on
the date of redemption. Amounts required to be withheld for
taxes in the event of a partial redemption will not be considered
part of the remaining value of the Contract. If a partial
redemption request would result in such a reduction, the
Insurance Company will redeem the total Contract value and pay
the remaining Contract Withdrawal Value, less any amounts
required to be withheld for taxes, to the Owner.
Restrictions Under the Texas Optional Retirement Program:
Participants in the Texas Optional Retirement Program (ORP)
currently are prohibited from receiving their interest in a
variable annuity contract issued under the ORP prior to
termination of employment in the Texas public institutions of
higher education, retirement, or death. Accordingly, the
Insurance Company will require a Contract Owner whose Contract is
issued under the ORP to obtain a certificate of termination of
employment before Contract Withdrawal Value is paid to the Owner.
Restrictions Under Certain Section 403(b) Plans:
As described in "Federal Tax Status-Tax Qualified Plans", Section
403(b)(11) of the Internal Revenue Code (the "Code") restricts
the redemption under Section 403(b) annuity contracts of certain
amounts which are derived from contract contributions made
pursuant to a salary reduction agreement.
-42-
As a result of these requirements, the Insurance Company will be
required to restrict the amount of contract withdrawals so as to
comply with the provisions of Section 403(b) (11) of the Code.
The staff of the U.S. Securities and Exchange Commission has
issued a "no action" letter, informing insurance companies
issuing variable annuity contracts that the above-described Code
restrictions may be implemented, notwithstanding the otherwise
applicable redemption provisions of the Investment Company Act
of 1940. The Insurance Company intends to rely upon the
provisions of the SEC staff "no action" letter, and to comply with
the provisions of said letter.
THE INSURANCE COMPANY REQUIRES AN ACKNOWLEDGMENT FORM TO BE
SIGNED BY PURCHASERS OF SECTION 403(b) ANNUITY CONTRACTS FOR
WHICH CONTRIBUTIONS ARE MADE PURSUANT TO A SALARY REDUCTION
AGREEMENT. THE SIGNED ACKNOWLEDGMENT FORM - A COPY OF WHICH IS
INCLUDED AT THE END OF THIS PROSPECTUS - MUST ACCOMPANY THE
CONTRACT APPLICATION.
Right to Cancel:
The Owner may cancel the Contract by delivering or mailing a
written notice (or sending a telegram) to the Insurance Company
and by returning the Contract before midnight of the 10th day
after the date of receipt. The Insurance Company will return all
amounts due to the Owner within ten days after receipt of notice
of cancellation and the returned contact. The Owner bears the
investment risk with respect to amounts allocated to the Separate
Account, for the period from the date the returned Contract is
received by the Company. Under the terms of the Contract,
cancellation shall entitle the Owner to an amount equal to (a)
the difference between premiums paid, including any contract fees
and other charges, and the amounts allocated to the Separate
Account, plus (b) the Accumulation Value of the Contract on the
date the returned Contract is received by the Company.
-43-
FEDERAL TAX STATUS
General:
The Contracts have been designed so as to qualify as "variable
annuity contracts" for Federal income tax purposes. Thus, the
contracts permit the Owner to defer Federal income taxation on
increases in the value of a contract, until such time that
amounts are withdrawn from the contract, received in the form of
annuity payments or paid as a death benefit.
Under the current provisions of the Code, variable annuity
contracts - other than contracts issued under retirement plans
which qualify for Federal tax benefits under sections 401, 403(b)
or 408 of the Internal Revenue Code, or under government
retirement plans (whether or not so qualified) or to a state or
municipal government for use under a deferred compensation plan -
will not be treated as an annuity contract for Federal income tax
purposes for any period for which the investments of the
segregated asset account on which the contracts are based are not
adequately diversified. This "adequately diversified"
requirement may be met if the underlying investments satisfy
either a statutory safe harbor test or diversification
requirements set forth in regulations issued by the Secretary of
the Treasury. The Insurance Company believes that the current
structure of the Separate Account satisfies the requirements of
the regulations, and it intends that the Separate Account, as
well as the underlying Funds, will operate in the future so as to
continue to meet such requirements.
Non-Tax Qualified Contracts:
A Non-Tax Qualified Contract is a Contract which is purchased by
an individual for his or her own purposes but not pursuant to any
of the tax qualified retirement plans described in the section
below. A Non-Tax Qualified Contract may also be a Contract
issued to a retirement plan or plan of deferred compensation
which is a non-tax qualified plan. The tax status of the
annuitant or participant is determined by provisions of such plan
and/or provisions of the Code applicable to the contract.
Under the provisions of the Tax Reform Act of 1986, a Non-Tax
Qualified Contract which is held by a person who is not a natural
person (e.g. a corporation or a trust is not a natural person),
is not treated as an annuity contract for Federal income tax
purposes, and the income on the contract for any taxable year is
treated as ordinary income received or accrued by the owner of
the contract during the taxable year. Certain exceptions are
provide for Non-Tax Qualified Contracts held by a trust or other
entity as agent for a natural person and for immediate annuities
(as defined in the
-44-
Code). THUS, OWNERSHIP OF A NON-TAX QUALIFIED CONTRACT BY NON-
NATURAL PERSONS WHO DO NOT QUALIFY FOR THE STATUTORY EXCEPTIONS
RESULTS IN DENIAL OF TAX DEFERRAL ON INCREASES IN THE VALUE OF
THE CONTRACT.
Taxation of payments under annuity contracts is governed by Code
Section 72. Under the current provisions of the Code, amounts
received under a Non-Tax Qualified Contract prior to the annuity
commencement date (including payments made upon the death of the
Annuitant or Owner), or as non-periodic payments after the
annuity commencement date, are generally first attributable to
any investment gains credited to the Contract over the taxpayer's
basis (if any) in the Contract. Such amounts will be treated as
income subject to Federal income taxation. A 10% penalty tax on
such withdrawn investment gains will be imposed if the withdrawal
is made prior to age 59-1/2. This penalty tax will not be
imposed irrespective of age if the amount received is one of a
series of substantially equal periodic payments (not less
frequently than annually) made for the life or life expectancy of
the payee. The requirement that the amount be paid out as one of
a series of "substantially equal" periodic payments is met when
the number of units withdrawn to make each distribution is
substantially the same. Also, the penalty tax will not be
imposed if the withdrawal follows the death of the Owner (or if
the Owner is not an individual, the death of the primary
annuitant), or is attributable to the "total disability" (as
defined in the Code) of the Annuitant. Where the Owner of
the Contract is an individual who is other than the Annuitant,
the Code (as amended by the Tax Reform Act of 1986) provides that
the penalty tax is applicable to the taxable portion of payments
required to be made under the Contract following the death of the
Annuitant.
If the Owner of a Contract transfers (assigns) the Contract to
another individual as a gift, the Code (as amended by the Tax
Reform Act of 1986) provides that the Owner will incur taxable
income at the time of the transfer. The amount of such taxable
income is equal to the excess, if any, of the cash surrender
value of the Contract over the Owner's cash basis at the time of
the gift. An exception is provided for certain transfers between
spouses.
Annuity payments made after the annuity commencement date are
generally taxed to the recipient only as received. A part of the
payment received is a return of investment in the contract, if
any, and is non-taxable; a portion is a return of income and is
subject to ordinary income tax. An "exclusion ratio" is used to
determine the non-taxable and taxable portion of each payment.
Such exclusion ratio continues until such time that the taxpayer
recovers his/her basis in the Contract. Thereafter, all payments
received are treated as taxable income.
-45-
Tax Qualified Contracts:
Tax Qualified Contracts are Contracts which are issued to or
pursuant to the following types of retirement plans:
A plan established by a corporate employer for the
benefit of its employees and qualified under sections
401(a) or 403(a) of the Code (Corporate plans).
A plan established by self-employed individuals for
themselves and their employees and qualified under
sections 401(a) or 403(a) of the Code (Keogh or HR-10
plans).
A tax sheltered annuity plan maintained by certain tax
exempt organizations, including educational
institutions, to purchase annuity contracts for
employees (403(b) Annuity plans).
An Individual Retirement Annuity (IRA) plan established
by an individual.
All of these plans differ with respect to the applicable rules
which must be met and followed if they are to attain and retain
their qualified status. In general, they have the following
common attributes: tax deductibility of contributions (to the
extent permitted by the Code), tax deferral of investment income
and taxation to the plan participant only upon receipt of a
withdrawal or payment. Since the plan participant generally does
not have a cost basis in the value of the Contract, payments
received by the participant are generally taxed as income to the
participant.
Under the Code (as amended by the Tax Reform act of 1986),
certain distributions prior to age 59-1/2 are considered
premature distributions and may result in application of a 10%
additional tax. In addition, the Code requires that tax
qualified retirement plans generally provide for the commencement
of retirement benefits no later than the year in which the
employee attains age 70-1/2.
With respect to contracts issued in connection with Section
403(b) annuity plans, the Code restricts the distribution under
such contracts of certain amounts which are derived from contract
contributions made pursuant to a salary reduction agreement.
These restrictions are set forth in Section 403(b) (11) of the
Code, effective January 1, 1989. The restrictions apply to: (i)
salary reduction contributions made after December 31, 1988, and
earnings on such contributions, and (ii) earnings on contract
value as of December 31, 1988. The tax law restrictions do not
apply to salary reduction contributions made prior to January 1,
1989, or to earnings credited to such contributions prior to
January 1, 1989,
In accordance with the provisions of the Code, restricted amounts
may be distributed only in the event of attainment of age 59-1/2,
-46-
separation from service, death, disability (as defined in Section
72(m)(7) of the Code), or financial hardship. The hardship
exception is not available with respect to income attributable to
salary reduction contributions. The Insurance Company will be
required to restrict the amount of contract withdrawals so as to
comply with these provisions of the Code.
The Internal Revenue Service has indicated that Section
403(b)(11) does not change the circumstances under which a tax-
free exchange of annuity contracts may be made. Individuals
contemplating purchase of a contract should refer to the
provisions of their employer's section 403(b) arrangement to
determine the investment alternatives available.
Taxation of the Separate Account:
Under the current provisions of the Internal Revenue Code, the
Insurance Company pays no taxes on the investment income and
capital gains of the assets of the Separate Account where used to
determine the value of Contracts. Accordingly, the Insurance
Company currently makes no adjustments for Federal income taxes
(or benefits) in connection with the Separate Account Divisions.
The Insurance Company retains the right to make adjustments for
Federal income taxes to Separate Account assets should future
changes in the Code so warrant.
Tax Withholding and Reporting:
The Insurance Company may be required to withhold certain amounts
from both periodic and non-periodic payments under the Contracts
in accordance with Federal tax law relating to the collection of
Federal income tax at the source of payment. A payor of periodic
annuity payments is required to withhold amounts as if the
payment were a payment of wages from an employer to an employee.
However, an individual recipient of certain types of periodic
payments is allowed to elect to have no withholding made in a
manner prescribed by the United States Treasury Department.
Similarly, a payor of certain non-periodic payments is required
to withhold amounts unless an individual recipient elects against
tax withholding in a manner prescribed by the U.S. Treasury
Department. Non-periodic payments include payments made before
and after the annuity commencement date such as lump sum death
proceeds and partial or full surrenders (redemptions) of Contract
value. The withholding requirements will not apply to the
portion of a payment which is reasonably believed to be not
includable in gross income of the recipient for Federal tax
purposes.
The Insurance Company will transmit a notice to individual
recipients of Contract payments of the right to elect against
-47-
Federal income tax withholding, in a form and containing such
information as the Secretary of the Treasury prescribes. If an
individual elects against withholding, the Insurance Company may
nonetheless be required to withhold if it has not received the
recipient's tax identification number.
Under the current provisions of the Code, the Insurance Company
is required to withhold Federal income taxes from certain
distributions from tax-qualified retirement plans and from
section 403(b) Annuity plans. These requirements do not apply to
distributions from IRA plans or from deferred compensation plans
subject to section 457 of the Code. The mandatory withholding
(at a 20% rate) applies to distributions which are treated as
"eligible rollover distributions" under the Code, unless the
amount is distributed as a "direct rollover". For these
purposes, a "direct rollover" is one which is made directly from
the qualified plan to another qualified plan, or directly from
the qualified plan to an IRA. In other words, a "direct
rollover" does not involve the receipt of any portion of the
distribution by the taxpayer. Unless an "eligible rollover
distribution" qualifies as a "direct rollover", the taxable
portion thereof is subject to 20% withholding. The Insurance
Company is required to forward the amount of the withholding to
the IRS. The taxpayer may not elect out of this withholding
described in this paragraph.
In addition to tax withholding, the Insurance Company is required
to report information on distributions under the Contracts.
Distributions include partial and full surrenders as well as
annuity payments. Information is reported on forms pursuant to
Internal Revenue Service regulations.
General:
Because of the complexity of the law and the fact that tax
results will vary according to the factual status of the
individual involved, tax advice may be needed by a person
contemplating purchase of a Contract or the exercise of rights
under a Contract. The above comments concerning Federal income
tax consequences are not an exhaustive discussion of all tax
questions that might arise. In addition, state income or estate
tax considerations may also be involved in the purchase of a
Contract or the exercise of rights under a Contract, and are not
discussed in this Prospectus. The Insurance Company's management
cannot predict what, if any, future action the Congress or the
Internal Revenue Service might take with respect to the taxation
of variable annuity contracts of the type described in this
Prospectus. For complete information on particular Federal and
state tax considerations, a qualified tax advisor should be
consulted.
-48-
LEGAL PROCEEDINGS
Various lawsuits against the Insurance Company have arisen in
the normal course of business. However, contingent liabilities
arising from these matters are not considered material in
relation to the financial position of the Insurance Company. The
Insurance Company is a defendant in a lawsuit which was filed in
October, 1996, in Travis County, Texas. The named plaintiffs in
the suit (a husband and wife), allege that the universal life
insurance policies sold to them by INA Life Insurance Company (a
company which was merged into the Insurance Company in 1992)
utilized unfair sales practices. The named plaintiffs seek
reformation of the life insurance contracts and an unspecified
amount of damages. The named plaintiffs also seek a class action
as to similarly situated individuals. No certification of a
class has been granted as of the date shown on page one of this
Annual Statement. The Insurance Company believes that the suit is
without merit and intends to vigorously defend this matter.
There is no litigation pending to which the Separate Account is a
party.
-49-
TABLE OF CONTENTS
OF THE STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information includes a description of
the following items:
1. General Information and History
2. Services
3. Purchase of Securities Being Offered
4. Principal Underwriter
5. Yield Quotations of Money Market Division
6. Annuity Payments
7. Additional Information
8. Financial Statements
The Separate Account
The Insurance Company
-50-
APPENDIX
Examples of Deferred Sales Charge Calculations
The Insurance Company will determine the amount of Sales Charge
applicable to a withdrawal or commencement of Annuity Payments as
follows:
STEP 1 A Gross Chargeable Amount is determined by
the Insurance Company. This amount is the
lesser of (a) the dollar amount of Purchase
Payments made and not previously withdrawn
and (b) the amount requested to be
withdrawn or applied to Annuity Payments;
STEP 2 A Net Chargeable Amount is determined by
the Insurance Company. This amount is the
Gross Chargeable Amount less any Exempt
Accumulation Value then applicable.
STEP 3 A Net Chargeable Amount is then allocated
by the Insurance Company to each
Contribution Year.
STEP 4 The Net Chargeable Amount allocated to a
Contribution Year is multiplied by the
Applicable Percentage shown:
No. of Full Contract Years
Between the Beginning of a
Contribution Year and Date
of Withdrawal (or First Annuity Payment)
Applicable
Percentage
less than 2 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 1%
8 or more 0%
STEP 5 The Sales Charge applicable to a withdrawal
request or application of Accumulation
Value is the sum of amounts determined
under STEP 4.
-51-
Contract Withdrawal Value is the amount of a withdrawal request
reduced by the applicable Sales Charge.
The Insurance Company assumes that Purchase Payments are
withdrawn on a "first in - first out" basis for purposes of
determining the Sales Charge. This assumption cannot be used for
purposes of determining federal income tax liability.
SALES CHARGE EXAMPLES
The following examples assume that Purchase Payments for a
Contract are as follows:
Contract Year Total Purchase Payments
1 $1,200
2 2,400
3 2,400
4 0
5 0
6 0
7 0
8 0
9 3,600
$9,600
The assumed Accumulation Value on the date of withdrawal is
$10,600. No other withdrawal requests are assumed to have been
made by the Owner.
Example 1: Illustration of a Sales Charge on a partial
withdrawal request for $8,000
STEP 1 The Gross Chargeable Amount is $8,000.
STEP 2 The Net Chargeable Amount is the Gross
Chargeable Amount ($8,000) less Exempt
Accumulation Value:
Exempt Accumulation Value =
$10,600 X 0.1 = $1,060
Net Chargeable Amount = $8,000 - $1,060 = $6,940
STEP 3 The Net Chargeable Amount is applied to
"Contribution Years":
-52-
Gross Chargeable Net Chargeable
Amount allocated Amount allocated
Contract Year to Contribution Year to Contribution
Year
1 $1,200 $1,200
2 2,400 2,400
3 2,400 2,400
4 0 0
5 0 0
6 0 0
7 0 0
8 0 0
9 2,000 940
$8,000 $6,940
*The Gross Chargeable Amount for subsequent withdrawals is $1,600
($3,600 - $2,000), allocated to Contract Year 9.
STEP 4 Net Chargeable Amounts allocated to
Contribution Years are multiplied by the
Applicable Percentage and STEP 5, added
together:
Net
Applicable Chargeable Applicable Sales
Contract Year Amount Percentages Charge
1 $1,200 0% $ 0.00
2 2,400 1% 24.00
3 2,400 2% 48.00
4 0 3% 0.00
5 0 4% 0.00
6 0 5% 0.00
7 0 6% 0.00
8 0 7% 0.00
9 940 7% 65.80
$6,940 $137.80
Contract Withdrawal Value ($8,000 - $137.80) = $7,862.20
-53-
Example 2: Illustration of Sales Charge on full Surrender
STEP 1 The Gross Chargeable Amount is the lesser
of Purchase Payments for the Contract
($9,600) and the Accumulation Value
($10,600) = $9,600.
STEP 2 The Net Chargeable Amount is the Gross
Chargeable Amount ($9,600) less Exempt
Accumulation Value:
Exempt Accumulation Value = $10,600 X
0.1 = $1,060
Net Chargeable Amount = $10,600 -$1,060 =
$8,540
STEP 3 The Net Chargeable Amount is applied to
"Contribution Years"
Gross Chargeable Net Chargeable
Amount allocated Amount allocated
Contract Year to Contribution Year to Contribution
Year
1 $1,200 $1,200
2 2,400 2,400
3 2,400 2,400
4 0 0
5 0 0
6 0 0
7 0 0
8 0 0
9 3,600 2,540
$9,600 $8,540
-54-
STEP 4 Net Chargeable Amounts allocated to
Contribution Years are multiplied by the
Applicable Percentage and STEP 5, added
together:
Net Chargeable Applicable Sales
Contract Year Amount Percentages Charge
1 $1,200 0% $ 0.00
2 2,400 1% 24.00
3 2,400 2% 48.00
4 0 3% 0.00
5 0 4% 0.00
6 0 5% 0.00
7 0 6% 0.00
8 0 7% 0.00
9 2,540 7% 177.80
$8,540 $249.80
Contract Withdrawal Value (Surrender Value)
= $10,600 - $249.80 = $10,350.20
-55-
To obtain a copy of the Statement of Additional Information for the
Individual Flexible Payment Variable Annuity Contracts, detach and
mail this form.
TO: Investors Life Insurance Company of North America
701 Brazos Street
Austin, Texas 78701
I have been furnished with a Prospectus of Investors Life Insurance
Company of North America Separate Account I (dated April 30, 1997),
describing the Individual Flexible Payment Variable Annuity Contracts.
Please send me a copy of the Statement of Additional Information
pertaining to such Contracts.
NAME:
(Please Print)
Mailing
(Date) Address:
Street or P.O. Box
City State Zip
-56-
ACKNOWLEDGMENT FORM
SECTION 403 (b) PLANS
NOTE: This form is required in connection with all
applications for Contracts to be issued in connection
with Section 403(b) plans, where contributions are to
be made pursuant to a salary reduction agreement.
TO: Investors Life Insurance Company of North America
701 Brazos Street
Austin, Texas 78701
With reference to my application for a variable annuity contract
to be issued in connection with a Section 403(b) annuity plan
maintained by my employer, I have been furnished with a
prospectus of Investors Life Insurance Company of North America
Separate Account I (dated April 30, 1997). The contributions to
the contract will be made pursuant to a salary reduction
agreement with my employer.
I acknowledge that I have read and understand the description on
pages 43 and 47 of the prospectus, pertaining to the restrictions
or redemptions imposed by Section 403(b) (11) of the Internal
Revenue Code. I further acknowledge that I understand any
investment alternatives under my employer's Section 403(b) plan,
to which I may elect to transfer contract values.
Date Signature of Applicant
Address:
-57-
Investors Life Insurance
Company of North America
701 Brazos Street
Austin, Texas 78701
ILG Securities Corporation
701 Brazos Street
Austin, Texas 78701
PROSPECTUS
April 30, 1997
Flexible Payment
Individual Variable Annuity Contracts
Issued by
Investors Life Insurance Company
of North America
ILCO Investors Life Insurance
Company
701 Brazos Street
Austin, Texas 78701
ILG Securities Corporation
701 Brazos Street
Austin, Texas 78701
PROSPECTUS
April 30, 1997
Flexible Payment
Individual Variable Annuity Contracts
Issued by
ILCO Investors Life Insurance Company
PROSPECTUS
SEPARATE ACCOUNT I
INDIVIDUAL SINGLE PAYMENT
VARIABLE ANNUITY CONTRACTS
ISSUED BY
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
The Individual Single Payment Deferred Variable Annuity Contracts
(the "Contracts") described in this Prospectus are designed to be
used to provide retirement programs for individual purchasers.
The Contracts may be issued in connection with retirement plans
which qualify for tax benefits under the Internal Revenue Code
("tax qualified Contracts"), as well as retirement plans which do
not qualify for tax benefits under the Code ("non-tax qualified
Contracts").
This Prospectus sets forth information about Separate Account I
and the Contracts that a prospective purchaser ought to know
before investing. Additional information about the Separate
Account, contained in a Statement of Additional Information, has
been filed with the Securities and Exchange Commission. A copy
of the Statement is available upon request and without charge by
writing to Investors Life Insurance Company of North America (the
"Insurance Company"), 701 Brazos Street, Austin, Texas 78701 (a
reply form has been included with this Prospectus), or by calling
(512) 404-5350. The Statement of Additional Information has the
same date as the date of this Prospectus, and is incorporated by
reference into this Prospectus. A table of contents for the
Statement of Additional Information appears on page 48 of this
Prospectus.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT
PROSPECTUS OF PUTNAM CAPITAL MANAGER TRUST. BOTH PROSPECTUSES
SHOULD BE RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
April 30, 1997
TABLE OF CONTENTS
ITEM PAGE
Definitions 3
Introduction 5
Expense Table 7
Financial Information 11
Description of the Insurance Company, the
Separate Account and the Fund 20
Deductions and Expenses 25
General Description of Variable Annuity
Contracts 28
The Annuity Period 32
Death Benefits 35
Purchases and Contract Values 38
Redemptions 40
Federal Tax Status 42
Legal Proceedings 48
Table of Contents of the Statement of
Additional Information 48
The Contracts are not available in all states.
NO PERSON IS AUTHORIZED BY THE INSURANCE COMPANY TO GIVE
INFORMATION OR TO MAKE ANY REPRESENTATION, OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OF, OR SOLICITATION OF AN OFFER TO ACQUIRE,
ANY INTEREST OR PARTICIPATION IN THE VARIABLE ANNUITY CONTRACTS
OFFERED BY THIS PROSPECTUS TO ANYONE IN ANY STATE OR JURISDICTION
IN WHICH SUCH
SOLICITATION OR OFFER MAY NOT BE MADE LAWFULLY.
-2-
DEFINITIONS
The following terms as used in this Prospectus have the indicated
meanings:
Accumulation Period: The period between the commencement of the
first Contract Year and the annuity commencement date.
Accumulation Unit: A unit of measurement used to determine the
value of a person's interest under the Contract before Annuity
payments begin.
Adjusted Age: The age of the Annuitant which is used to
determine the applicable annuity purchase rate. The age is
adjusted by either adding or subtracting a specified number of
years in order to reflect predicted longevity. The number of
years to be added or subtracted depends upon the year of birth of
the Annuitant.
Annuity: A contract providing for Annuity Payments varying in
amount in accordance with the investment experience of the
applicable subdivision of the Separate Account Division selected
by the Contract Owner.
Annuitant: The person designated under the contract as the
measuring life for annuity payout options involving life
contingencies; normally, the recipient of Annuity Payments.
Annuity Payments: Periodic amounts payable by the Insurance
Company on and at regular intervals after the annuity
commencement date preselected under the Contract.
Annuity Unit: A unit of measurement used to determine the amount
of the variable Annuity Payments.
Contract Year: A twelve month period between anniversaries of
the Date of Issue of a Contract. The first Contract Year begins
on the Date of Issue.
Contribution Year: A Contract Year in which at least one
Purchase Payment is made.
Fund:
A series of Putnam Variable Trust. Prior to January
1, 1997, the fund was known as Putnam Capital Manager Trust.
Owner: The person (or other entity) to whom a Contract is issued
by the Insurance Company.
-3-
Purchase Payment: The dollar amount paid to the Insurance
Company by or on behalf of a Contract Owner. The "Net Purchase
Payment" is the Purchase Payment reduced by any applicable state
premium taxes.
Separate Account: The segregated investment account entitled
"Separate Account I" established by the Insurance Company and
registered as a unit investment trust under the Investment
Company Act of 1940, as amended. Prior to April 18, 1995, the
Separate Account was known as the "CIGNA Separate Account". As a
result of the substitution of shares of the Putnam Capital
Manager Trust (now known as Putnam Variable Trust) as the
underlying investment vehicle, the name of the Separate Account
was changed to Separate Account I, effective April 18, 1995.
Separate Account Division: A Division of the Separate Account,
the assets of which consist of shares of a specified class of
shares of the Fund. Each of the Separate Account Divisions
contains two subdivisions, one for funding Contracts issued under
tax qualified retirement plans and the other for non-tax
qualified Contracts. Each of the subdivisions has its own
identified assets and value. References to a Division in this
Prospectus include, where the context requires, the appropriate
subdivision for a Contract.
Contract Withdrawal Value: The amount payable to the Owner or
other payee upon termination of the Contract during the
Accumulation Period, other than by reason of the Annuitant's or
Owner's death.
Valuation Date. A day on which the net asset value of each share
of the Fund is determined.
Valuation Period: Each business day on which the New York Stock
Exchange is open for general business, together with any
consecutive non-business days immediately preceding such business
day and irrespective of whether such exchange is open for general
business on each business day, together with any consecutive non-
business day, immediately preceding such business day when the
Fund values its portfolio securities based upon its determination
that there is a sufficient degree of trading in such securities
that the net asset value of its shares might be materially
affected.
NOTE: All masculine references in this Prospectus are intended
to include the feminine gender. The singular context also
includes the plural and vice versa where appropriate.
-4-
INTRODUCTION
The Contracts described in this Prospectus are designed to
provide Annuity Payments based on the life expectancy of the
Annuitant. Such benefits will begin on a future date which has
been preselected under a Contract. Alternative annuity payout
options are available, but may be limited by a retirement plan
under which a Contract is issued. See "The Annuity Period -
Annuity Payout Options", page 33, and "Limitation on Contract
Rights", page 29.
The Contracts offer Accumulation Units in up to four Separate
Account Divisions. The value of an Accumulation Unit is based on
the investment results of the underlying shares of the Fund
allocated to applicable subdivisions of the Separate Account
Division(s) selected. Similarly, the amount of Annuity Payments
will vary based on such underlying investment results. See "The
Annuity Period - Annuity Payments", page 32.
The following is a synopsis of certain features of the Contracts,
together with a cross-reference to the page in this Prospectus
where the purchaser may find a more complete description:
o The Contracts provide for allocation of the net
Purchase Payments to several underlying investment
mediums, each with a different investment objective.
See "Description of the Fund", page 20.
o The Contracts provide that, in the event of death of
the Annuitant or Owner before Annuity Payments begin,
the Insurance Company will pay death proceeds to a
named beneficiary. See "Death Benefits", page 35.
o The Contracts provide that the owner may surrender
(redeem) a contract in whole or in part for cash before
the annuity commencement date (unless restricted by the
retirement plan or applicable Federal tax law) subject
to a sales charge. See "Redemptions", page 40 and
"Contract Charges", page 25.
o A penalty tax may be assessed under the Internal
Revenue Code in the event of certain early withdrawals.
See "Federal Tax Status", page 42.
o The Contracts provide that the annuity rates and
contract charges generally may not be changed adversely
to a Contract Owner for the duration of his Contract.
See "Contract Charges", page 25.
-5-
o The Contracts provide for transfer of Contract values
among Separate Account Divisions, unless restricted by
a retirement plan. See "Description of Contract
Rights", page 28.
o The Contracts include a limited right of cancellation.
See "Redemption - Right to Cancel", page 42.
The objective of the Contracts, which may or may not be realized,
is to provide relatively level Annuity Payments during periods
when the economy is relatively stable and to provide increased
Annuity Payments during inflationary and growth periods. The
Insurance Company seeks to assist the Contract Owner in
accomplishing this objective by making several classes of shares
of the Fund available from which the Owner may select underlying
investment mediums. Each such class is based upon a portfolio of
Fund investments with a different investment objective.
No assurance can be given that the value of a Contract before
Annuity Payments begin, or the aggregate amount of Annuity
Payments made under a Contract, will equal or exceed the Purchase
Payment for a Contract. Thus, the investment risk under a
Contract is borne by the Contract Owner.
-6-
EXPENSE TABLE
The following Expense Table lists the transaction expenses,
annual Contract fee, Separate Account annual expenses, as well as
the approximate annual expenses of each Fund of Putnam
Variable Trust , related to an investment in each Division of
the Separate Account. Following the Expense Table is an Example
which illustrates the cumulative amount of fees and expenses on a
hypothetical, one-time investment of $1,000, assuming a 5% rate
of return for the stated time periods.
Growth
Money and
Market Income Income Voyager
Division Division Division Division
A. Contractowner
Transaction Expenses
Deferred Sales
Charge (maximum, as
a percentage of
amount Surrendered
(1) 6% 6% 6% 6%
Exchange Fee (2) $ 5.00 $ 5.00 $ 5.00 $ 5.00
B. Annual Contract Fee
(3) $25.00 $25.00 $25.00 $25.00
C. Separate Account
Annual Expenses (as
a percentage of
average account
value)
Mortality Risk Fee 0.8% 0.8% 0.8% 0.8%
Expense Risk Fee 0.4% 0.4% 0.4% 0.4%
Total Separate
Account
Annual Expenses 1.2% 1.2% 1.2% 1.2%
D. Fund Annual Expenses
(as a percentage of
Fund average net
assets) (4)
Management Fees 0.45% 0.62% 0.49% 0.57%
All Other Expenses 0.10% 0.07% 0.05% 0.06%
Total Fund Annual
Expenses 0.55% 0.69% 0.54% 0.63%
-7-
Notes to Expense Table:
(1) Represents maximum deferred sales charge. The percentage is
based on the number of full Contract years between the date of a
Purchase Payment and the date of withdrawal or first Annuity
Payment and ranges from 6% for periods of less than two Contract
years to 0% for periods of eight or more Contract years. For
additional information, please refer to the section entitled
"Contract Charges-Deferred Sales Charge."
(2) Applicable to the second and subsequent transfer of
Accumulation Value or Annuity Value among Divisions during a
Contract Year.
(3) The Annual Contract fee is deducted from the value of a
Contract on each anniversary of the issue date, during the
Accumulation Period. If a Contract Owner participates in more
than one Fund under a Contract, only one such fee is deducted
annually.
(4) Based on amounts incurred by the applicable Putnam
Variable Trust Fund during calendar year 1996. The
inclusion of the 1995 Total Annual Fund Expenses of the
applicable Fund of Putnam Variable Trust has been included
in this prospectus solely for the purposes of the hypothetical
illustration set forth in the Expense Table.
-8-
EXAMPLES
Growth
Money and
Market Income Income Voyager
Division Division Division Division
If you surrender your
contract at the end of the
applicable time period:
You would pay the following
expenses on a $1,000
investment, assuming 5%
annual return on asset
1 year $ 91.53 $ 92.90 $ 91.44 $ 92.32
3 years 114.71 118.93 114.41 117.12
5 years 137.96 145.20 137.44 142.11
10 years 222.93 238.22 221.83 231.69
If you annuitize at the end
of the applicable time
period:
You would pay the following
expenses on a $1,000
investment, assuming 5%
annual return on assets
1 year $ 91.53 $ 92.90 $ 91.44 $ 92.32
3 years 114.71 118.93 114.41 117.12
5 years 137.96 145.20 137.44 142.11
10 years 222.93 238.22 221.83 231.69
If you do not surrender your
contract:
You would pay the following
expenses on a $1,000
investment assuming 5% annual
return on assets
1 year $ 19.39 $ 20.86 $ 19.29 $ 20.23
3 years 59.98 64.43 59.66 62.52
5 years 103.08 111.57 102.54 107.37
10 years 222.93 238.22 221.83 231.69
-9-
The purpose of the Expense Table is to assist a prospective
purchaser in understanding the various costs and expenses that a
Contract Owner will bear directly or indirectly. For further
information concerning the Separate Account fees and expenses,
please refer to the section of this prospectus entitled
"Deductions and Expenses". Additional information pertaining to
Fund Annual Expenses is contained in the prospectus of Putnam
Variable Trust . In addition to the costs and expenses
described above, the Contract may be subject to state premium
taxes. For a discussion of premium taxes please refer to the
section entitled "Contract Charges-Premium Taxes."
The example is not intended as, and should not be considered, a
representation of past or future expenses. Actual expenses may
be greater or lesser than those shown.
-10-
FINANCIAL INFORMATION
1. Accumulation Unit Values (for an Accumulation Unit
outstanding throughout the period):
The following information should be read in conjunction with the
financial statements of the Separate Account, which are available
with the Statement of Additional Information. This historical
data for Accumulation Unit Values is not indicative of future
performance.
MONEY MARKET DIVISION
TAX QUALIFIED
YEAR ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION
BEGINNING OF END OF PERIOD UNITS
PERIOD OUTSTANDING AT
END OF PERIOD
1996 $ 1.9898 $ 2.0660 847,412
1995 $ 1.9080 $ 1.9894 1,096,192
1994 $ 1.8661 $ 1.9074 1,488,534
1993 $ 1.8446 $ 1.8659 1,778,411
1992 $ 1.8062 $ 1.8444 2,620,375
1991 $ 1.7286 $ 1.8059 4,203,167
1990 $ 1.6223 $ 1.7281 7,114,568
1989 $ 1.5065 $ 1.6218 8,331,835
1988 $ 1.4208 $ 1.5057 8,650,876
1987 $ 1.3507 $ 1.4200 8,115,342
1986 $ 1.2827 $ 1.3503 7,372,694
1985 $ 1.2107 $ 1.2822 7,333,147
1984 $ 1.1015 $ 1.2012 5,259,948
1983 $ 1.0191 $ 1.1009 2,083,188
-11-
MONEY MARKET DIVISION
NON-TAX QUALIFIED
YEAR ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION
BEGINNING OF END OF PERIOD UNITS
PERIOD OUTSTANDING AT
END OF PERIOD
1996 $ 1.9756 $ 2.0514 1,288,780
1995 $ 1.8944 $ 1.9753 1,334,785
1994 $ 1.8548 $ 1.8935 1,660,811
1993 $ 1.8335 $ 1.8546 2,525,627
1992 $ 1.7954 $ 1.8332 3,196,702
1991 $ 1.7181 $ 1.7951 3,868,744
1990 $ 1.6124 $ 1.7175 5,103,872
1989 $ 1.4973 $ 1.6119 5,870,485
1988 $ 1.4122 $ 1.4965 6,816,675
1987 $ 1.3424 $ 1.4113 8,038,587
1986 $ 1.2748 $ 1.3421 8,275,141
1985 $ 1.1942 $ 1.2744 8,447,477
1984 $ 1.0947 $ 1.1938 6,569,026
1983 $ 1.0121 $ 1.0940 2,331,558
-12-
GROWTH AND INCOME II DIVISION *
TAX QUALIFIED
YEAR ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION
BEGINNING OF END OF PERIOD UNITS
PERIOD OUTSTANDING AT
END OF PERIOD
1996 $ 5.1880 $ 6.2071 3,277,019
1995 $ 3.8659 $ 5.1527 3,699,687
1994 $ 3.8800 $ 3.8384 3,672,031
1993 $ 4.1195 $ 3.8802 5,709,891
1992 $ 3.7959 $ 4.1409 6,907,180
1991 $ 2.7828 $ 3.7798 8,510,262
1990 $ 3.0137 $ 2.7991 10,978,705
1989 $ 2.3164 $ 2.9680 12,887,382
1988 $ 2.2015 $ 2.3318 14,392,854
1987 $ 2.1532 $ 2.1274 13,496,867
1986 $ 1.9357 $ 2.1274 10,556,709
1985 $ 1.5263 $ 1.9482 8,735,675
1984 $ 1.5365 $ 1.5377 7,281,652
1983 $ 1.1576 $ 1.5368 2,180,190
* = As of April 18, 1995, the former Growth and Income
Division was merged into the Equity Division and the
name of the Equity Division was changed to Growth and
Income II Division.
-13-
EQUITY DIVISION *
NON-TAX QUALIFIED
YEAR ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION
BEGINNING OF END OF PERIOD UNITS
PERIOD OUTSTANDING AT
END OF PERIOD
1996 $ 4.4442 $ 5.3182 2,002,962
1995 $ 3.3094 $ 4.4140 2,104,990
1994 $ 3.3224 $ 3.2870 1,733,131
1993 $ 3.5222 $ 3.3225 2,180,991
1992 $ 3.2453 $ 3.5405 2,447,435
1991 $ 2.3781 $ 3.2315 2,668,712
1990 $ 2.5758 $ 2.3921 3,515,922
1989 $ 1.9798 $ 2.5367 4,363,345
1988 $ 1.8816 $ 1.9930 5,022,828
1987 $ 1.8403 $ 1.8302 5,758,523
1986 $ 1.6543 $ 1.8183 5,908,341
1985 $ 1.3050 $ 1.6650 6,402,515
1984 $ 1.3053 $ 1.3147 6,282,175
1983 $ 1.0610 $ 1.3055 2,487,117
* = As of April 18, 1995, the former Growth and Income
Division was merged into the Equity Division and the
name of the Equity Division was changed to Growth and
Income II Division.
-14-
INCOME DIVISION
TAX QUALIFIED
YEAR ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION
BEGINNING OF END OF PERIOD UNITS
PERIOD OUTSTANDING AT
END OF PERIOD
1996 $ 3.1355 $ 3.1734 1,313,122
1995 $ 2.6495 $ 3.1359 1,580,611
1994 $ 2.7613 $ 2.6484 2,006,254
1993 $ 2.4922 $ 2.7602 2,372,918
1992 $ 2.3148 $ 2.4665 3,146,768
1991 $ 2.0194 $ 2.3365 3,898,682
1990 $ 1.9064 $ 1.9976 4,611,938
1989 $ 1.6895 $ 1.9058 5,842,385
1988 $ 1.5889 $ 1.6886 6,396,491
1987 $ 1.5971 $ 1.5876 6,645,820
1986 $ 1.3641 $ 1.5964 6,022,580
1985 $ 1.1209 $ 1.3635 5,354,109
1984 $ 1.0395 $ 1.1325 1,600,684
1983 $ 1.0409 $ 1.0387 1,600,684
-15-
INCOME DIVISION
NON-TAX QUALIFIED
YEAR ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION
BEGINNING OF END OF PERIOD UNITS
PERIOD OUTSTANDING AT
END OF PERIOD
1996 $ 3.0972 $ 3.1351 2,394,183
1995 $ 2.6168 $ 3.0976 2,678,698
1994 $ 2.7274 $ 2.6157 3,034,007
1993 $ 2.4620 $ 2.7263 3,998,875
1992 $ 2.2868 $ 2.4366 4,270,125
1991 $ 1.9950 $ 2.3082 4,705,841
1990 $ 1.8835 $ 1.9735 6,081,726
1989 $ 1.6693 $ 1.8830 7,317,320
1988 $ 1.5699 $ 1.6683 8,266,780
1987 $ 1.5778 $ 1.5685 8,512,544
1986 $ 1.3477 $ 1.5772 8,298,677
1985 $ 1.1074 $ 1.3471 8,265,130
1984 $ 1.0408 $ 1.1190 8,176,702
1983 $ 1.0064 $ 1.0401 3,193,116
-16-
VOYAGER DIVISION *
TAX QUALIFIED
YEAR ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION
BEGINNING OF END OF PERIOD UNITS
PERIOD OUTSTANDING AT
END OF PERIOD
1996 $ 2.2334 $ 2.4937 751,632
1995 $ 1.6061 $ 2.2337 781,624
1994 $ 1.6303 $ 1.6261 798,724
1993 $ 1.4965 $ 1.6546 825,839
1992 $ 1.3365 $ 1.5166 972,470
1991 $ 0.8190 $ 1.3366 978,329
1990 $ 0.9012 $ 0.8289 1,022,612
1989 $ 0.7563 $ 0.8914 992,682
1988 $ 0.6929 $ 0.7564 908,009
1987 $ 1.0000 $ 0.6729 782,442
* = Prior to April 18, 1995, the Voyager Division was
named the Aggressive Equity Division.
-17-
VOYAGER DIVISION *
NON-TAX QUALIFIED
YEAR ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION
BEGINNING OF END OF PERIOD UNITS
PERIOD OUTSTANDING AT
END OF PERIOD
1996 $ 2.2298 $ 2.4894 633,799
1995 $ 1.6031 $ 2.2301 645,524
1994 $ 1.6302 $ 1.6231 649,408
1993 $ 1.4965 $ 1.6545 767,780
1992 $ 1.3363 $ 1.5164 761,087
1991 $ 0.8188 $ 1.3364 757,114
1990 $ 0.9011 $ 0.8287 781,471
1989 $ 0.7562 $ 0.8913 750,969
1988 $ 0.6928 $ 0.7563 731,019
1987 $ 1.0000 $ 0.6728 764,338
* = Prior to April 18, 1995, the Voyager Division was
named the Aggressive Equity Division.
Data for the Voyager Division (formerly the Aggressive Equity
Division), covers the period from March 31, 1987 (commencement of
operations) to December 31, 1995.
2. Money Market Division - Yield Information:
The Separate Account provides "current yield" and "effective
yield" quotations with respect to the Money Market Division.
Both yield figures are based on historical earnings and are
not intended to indicate future performance. A description
of the method used to compute such yield quotations is
included in the Statement of Additional Information.
-18-
The "current yield" of the Money Market Division refers to
the income generated by an investment in such Division over
a particular seven-day period; the particular seven-day
period will be stated in the quotation. This income is then
"annualized" - that is, the amount of income generated by
the investment during the seven-day period is assumed to be
earned each week over a 52-week period and is shown as a
percentage
of the investment. The "effective yield" is calculated in a
similar manner; however, when annualized, the income earned
by an investment in the Money Market Division is assumed to
be reinvested. Due to the compounding effect of this
assumed reinvestment, the "effective yield" will be slightly
higher than the "current yield".
3. Financial Statements:
The financial statements of the Separate Account and
Investors Life Insurance Company of North America are
included in the Statement of Additional Information.
-19-
DESCRIPTION OF THE INSURANCE COMPANY,
THE SEPARATE ACCOUNT AND THE FUND
THE INSURANCE COMPANY
Investors Life Insurance Company of North America is a stock life
insurance company, organized in 1963 under the laws of the
Commonwealth of Pennsylvania. In December, 1992, the Insurance
Company changed its state of domicile to the State of Washington
and merged with its immediate parent company (Investors Life
Insurance Company of California). As a result of the merger,
Investors Life Insurance Company of North America assumed all of
the assets and obligations of Investors Life Insurance Company of
California, and Investors Life Insurance Company of North America
was the surviving company. In June, 1993, Investors Life merged
with its immediate parent company, Standard Life Insurance
Company. Investors Life was the surviving entity. As a result,
Investors Life became a direct subsidiary of InterContinental
Life Corporation, an insurance and financial service holding
company. The administrative offices of the Insurance Company
are located at 701 Brazos Street, Austin, Texas 78701. The
statutory home office of the Insurance Company is 2101 4th Ave.,
Seattle, Washington 98121-2371. Prior to December 28, 1988, the
Insurance Company was an indirect wholly-owned subsidiary of
CIGNA Corporation.
THE SEPARATE ACCOUNT
The Insurance Company established the Separate Account pursuant
to the provisions of the Pennsylvania Insurance Code and has
registered it as a unit investment trust under the Investment
Company Act of 1940. The Separate Account commenced operations
on September 15, 1982.
The Separate Account currently contains four Divisions, one for
each class of shares of the Fund. Prior to the substitution of
shares of Putnam Variable Trust for shares of CIGNA
Annuity Funds group as the underlying funding vehicle for the
Separate Account, the Separate Account contained five divisions.
In connection with the substitution, the Equity Division was
merged with the Growth and Income Division; thereafter, the name
of the Equity Division was changed to the Growth and Income II
Division. See also, the discussion of the substitution under the
caption " Putnam Variable Trust " (page 21). Each Division
reflects the investment performance of the specific class of Fund
shares allocated to it, and is divided into subdivisions for tax
qualified and non-tax qualified contracts, respectively. The
Voyager
-20-
Division (formerly the Aggressive Equity Division) was initially
made available under the Separate Account on March 31, 1987.
Each Separate Account Division is administered and accounted for
as part of the general business of the Insurance Company;
however, the income, capital gains or capital losses of each
Division's subdivision are credited to or charged against the
assets allocated to that subdivision without regard to other
income, capital gains or capital losses of any other subdivision
or arising out of any other business the Insurance Company may
conduct.
The contractual obligations under the Contracts funded by the
Separate Account are assumed by the insurance Company; however,
the investment risk under a Contract is borne by the Contract
Owner.
Putnam Variable Trust
Putnam Variable Trust, formerly known as the Putnam Capital
Manager Trust, was established to fund variable annuity
contracts offered by various insurance companies. Putnam
Variable Trust is a diversified, open-end management
investment company registered under the Investment Company Act of
1940, as amended. Putnam Variable Trust offers a number
of separate portfolios of investments having a variety of
investment objectives. Currently, only the following portfolios
of Putnam Variable Trust are available under variable
annuity contracts offered by this Prospectus:
Putnam VT U.S. Government and High Quality Bond Fund
(which serves as the underlying funding vehicle for the
Income Division) -seeks current income consistent with
preservation of capital by investing primarily in securities
issued or guaranteed by the U.S. Government or by its
agencies or instrumentalities and in other debt obligations
rated at least A by a nationally recognized securities
rating agency such as Standard & Poors or Moody's Investors
Service, Inc. or, if not rated, determined by Putnam
Management to be of comparable quality.
Putnam VT Growth and Income Fund (which serves as the
underlying funding vehicle for the Growth and Income II
Division, formerly known as the Equity Division) - seeks
capital growth and current income by investing primarily in
common stocks that offer potential for capital growth,
current income or both.
-21-
Putnam VT Money Market Fund (which serves as the
underlying funding vehicle for the Money Market Division) -
seeks as high a rate of current income as Putnam Management
believes is consistent with preservation of capital and
maintenance of liquidity by investing in high quality money
market instruments.
Putnam VT Voyager Fund (which serves as the
underlying funding vehicle for the Voyager Division,
formerly known as the Aggressive Equity Division) - seeks
capital appreciation by investing primarily in common stocks
of companies that Putnam Management believes have potential
for capital appreciation that is significantly greater than
that of market averages.
The shares of each portfolio of Putnam Variable Trust are
purchased by the Insurance Company at net asset value (without
sales load) for the corresponding Separate Account Division to
support the cash values of the Contracts.
-22-
Putnam Investment Management, Inc. ("Putnam Management") is the
investment adviser to Putnam Variable Trust . Putnam
Management is wholly-owned by Marsh & McLennan Companies, Inc.,
a publicly owned holding company whose principal businesses are
international insurance and reinsurance brokerage, employee
benefit consulting and investment management.
Prior to April 18, 1995, shares of CIGNA Annuity Funds Group
served as the underlying investment vehicle for the Divisions of
the Separate Account. As a result of the decision of CIGNA
Investments, Inc. ("CII") (the investment adviser to the CIGNA
Annuity Funds Group to withdraw from the active management of
equity-based portfolios, the Insurance Company commenced a search
for another mutual fund group which was in a position to provide
substitute portfolios for the Separate Account, as well as to
provide an investment adviser to provide equity advisory services
to the equity divisions of CIGNA Annuity Funds Group during a
transition period prior to the effective date of the fund
substitution. Following discussions with several major mutual
fund groups, Investors and CII determined that the Putnam
Variable Trust and Putnam Management would provide a means
for the orderly withdrawal of CII's investment advisory services,
in light of (i) the willingness of Putnam Management to provide
interim advisory services to the equity divisions of the CIGNA
Annuity Funds Group, (ii) the availability of funds which offer
investment objectives similar to those provided by each series of
the CIGNA Annuity Funds Group and (iii) the availability of a
current Putnam Variable Trust registration for funds which could
be substituted for the CIGNA Annuity Funds Group as the
underlying investment vehicle for variable annuity contracts
sponsored by Investors. On November 29, 1993, the Board of
Trustees of the CIGNA Annuity Funds Group, acting on the advice
of CII, terminated the appointment of CII as investment adviser
to the CIGNA Annuity Equity Fund, the CIGNA Annuity Growth and
Income Fund and the CIGNA Annuity Aggressive Equity Fund (the
"CIGNA Equity Funds"). At the same time, the Board of Trustees
appointed Putnam Management as the investment adviser to the
CIGNA Equity Funds. For the period from November 23, 1993 to
April 18, 1995 (the effective date of the fund substitution),
Putnam Management served as the investment adviser to the equity
divisions of the CIGNA Annuity Funds Group.
Putnam Management has agreed to reimburse the Insurance Company
for certain costs that it will incur in connection with the
servicing of Contracts. The amount of this reimbursement is
equal to 25% of the effective management fee received by Putnam
Management with respect to assets allocated by the Insurance
Company to the applicable portfolio of Putnam Variable
Trust , plus an annual rate of one basis point times the
average daily net assets allocated during the computation period
by the Insurance Company to Putnam Variable Trust .
-23-
The prospectus of Putnam Variable Trust , which accompanies
this Prospectus, contains a more complete description of the
investment objectives, including attendant risks, of each
portfolio of Putnam Variable Trust . In considering the
purchase of the Contracts offered in this Prospectus, you should
read the prospectus of Putnam Variable Trust carefully.
VOTING RIGHTS
The Insurance Company is the owner of record of the shares of
each series of shares of Putnam Variable Trust . It will
vote such shares held in each Separate Account division at
regular and special meetings of shareholders of Putnam
Variable Trust in accordance with instructions received from
persons having an interest in such series of Putnam Variable
Trust shares.
During the Accumulation Period, owners of Contracts shall have a
voting interest with respect to their accounts. During the
Annuity period, the person entitled to variable Annuity Payments
will be the person having such voting interest.
Each person having a voting interest in shares of Putnam
Variable Trust attributable to a Contract will initially be
allowed to vote the number of accumulation units credited to a
Contract under the Separate Account Division composed of such
Putnam Variable Trust shares. Persons receiving Annuity
Payments will be allowed an equivalent vote which shall be
determined by dividing the value of the reserve maintained in
such Separate Account Division to meet the annuity obligations,
by the value of an accumulation unit. Since voting power is
determined by the Separate Account Division Contract value, such
power will normally diminish during the annuity payout phase.
After votes are tabulated, the Insurance Company will then
determine the number of Separate Account Fund shares to be voted
affirmatively in accordance with the proportion of affirmative
votes received to the total number of votes received from persons
having a voting interest in such Fund shares. Negative votes
will be similarly determined.
Assets may also be maintained in Separate Account Divisions with
respect to contracts other than those offered by this Prospectus,
and votes attributable to such other contracts will be computed
in the same manner.
-24-
DEDUCTIONS AND EXPENSES
A. CONTRACT CHARGES:
The following deductions are made under the Contracts:
Administrative Expense: The Insurance Company deducts
expense charges from the Contract value on each
anniversary of the issue date.
During the Accumulation Period, this charge is $25.00
(the "Annual Contract Fee"), plus $5.00 (the "Exchange
Fee") for the second and each subsequent transfer of
Accumulation Value among Divisions during the Contract
Year. Accumulation units will be reduced
proportionately on each anniversary date to reflect
this charge. No administrative expense charges are
deducted in the event of a full surrender or death
benefit settlement prior to the anniversary date.
During the Annuity Period, this charge is $5.00 (the
"Exchange Fee") for the second and subsequent transfer
of Annuity Unit values among Divisions during the
Contract Year.
The Insurance Company reserves the right to terminate
the privilege of the Contract Owner to make more than
one transfer of Accumulation Units, or Annuity Units,
during a Contract Year. However, there is no present
intent to impose such a limitation, and written notice
will be given to Contract Owners prior to any such
change.
The Insurance Company's administrative expenses include
salaries, rent, postage, telephone, travel, legal,
administrative, actuarial and accounting fees, periodic
reports, office equipment, stationary and custodial
expenses. The administrative expense charge is not
anticipated to exceed the expenses to be incurred by
the Insurance Company for administration of the
Contracts.
Premium Taxes: Premium taxes ranging from .5% to 3%
are currently imposed by certain states and
municipalities on payments made under
annuity contracts. Under deferred
Contracts, any premium tax will be deducted
either from the Purchase Payment or from
the Accumulation Value upon annuitization,
as determined in accordance with applicable
law.
-25-
Deferred Sales Charge: The Contracts include a
deferred sales charge, which is assessed against
amounts withdrawn (total or partial surrender) during
early Contract Years, measured from the date of
Contract issuance.
The charges determined as follows will be assessed upon
amounts withdrawn during any one of the first six
Contract Years (measured from the date of issue) which
exceed 10% of the Purchase Payment:
Contract Year Percentage Charge
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7 and thereafter 0%
In no event will this charge exceed 8 1/2% of the
amount of the Purchase Payment accepted by the
Insurance Company for a Contract.
An amount up to 10% of the Purchase Payment may be
withdrawn in any one Contract Year without charge.
Federal penalty taxes may be imposed on early
withdrawals.
The Deferred Sales Charge is made as a means for the
Insurance Company to recover expenses incurred in
connection with distribution of the Contracts when a
withdrawal is made during early Contract Years.
Because the Contracts are normally purchased for the
long term, the Insurance Company expects to recover
such expenses over time. Amounts anticipated to be
collected by this means may, however, be insufficient
to reimburse the Insurance Company for its anticipated
distribution expenses. Amounts from the Company's
general account assets (including the profits, if any,
from the Mortality and Expense Risk Deduction) may be
used to cover such expenses.
Mortality and Expense Risk Deduction: The Insurance
Company makes a daily charge of 0.0000327 of the value
of the assets in each subdivision of the Separate
Account (1.2% on an annual basis, consisting of
approximately 0.8% for mortality risks (the "Mortality
Risk Fee") and approximately 0.4% for expense risks
(the "Expense Risk Fee")).
-26-
The Insurance Company's assumption of mortality risk
arises from its contractual obligation to make Annuity
Payments to each Annuitant regardless of how long he
lives and how long all annuitants as a group live.
Also, the Insurance Company assumes mortality risk
because of annuity rates in the Contracts, which cannot
be increased; and, if the Annuitant should die during
the Accumulation Period, the Insurance Company is at
risk that the Accumulation Value may not equal the
Death Proceeds.
The Insurance Company also assumes the risk that the
amounts deducted for sales and administrative expenses
may be insufficient to cover the actual cost of such
items.
The above-described deductions may be modified by the Insurance
Company to the extent required by applicable federal or state
law. However, except as described above, the deductions may not
be modified by the Insurance Company.
B. EXPENSES AND RELATED INFORMATION:
The Contracts are sold by licensed insurance agents of the
Insurance Company who are also registered representatives of
broker/dealers who have sales agreements with the Insurance
Company and the principal underwriter, ILG Securities
Corporation.
The sales agreements between the principal underwriter and
broker/dealers provide for commissions in an amount equal to 4%
of the Purchase Payment under the Contract.
Registered representatives of ILG Securities Corporation may also
sell the Contracts.
In connection with the distribution of the Contracts, the
Insurance Company pays servicing fees to certain broker/dealers
who agree to provide ongoing Contract Owner administrative
services. No charges are separately assessed under the
Contracts, nor are deductions made from the Separate Account for
these costs.
The expenses of the Separate Account consist of the mortality and
expense risk deduction described under "Contract Charges", above.
As a percentage of average net assets, this expense is 1.2% on an
annual basis.
The prospectus of Putnam Variable Trust the expenses and
fees which are paid out of the assets of portfolios used to fund
the Separate Account. For a discussion of such expenses and
fees, please refer to the prospectus of Putnam Variable
Trust .
-27-
GENERAL DESCRIPTION OF VARIABLE ANNUITY CONTRACTS
Description of Contract Rights: The Contracts provide certain
rights during the Accumulation Period, the Annuity Period and
upon death of the Owner or Annuitant:
a. Accumulation Period: During the Accumulation Period,
the Owner of a Contract has the right to:
Change the beneficiary for death proceeds;
surrender the Contract in whole or in part
for its Withdrawal Value;
change the annuity payout option;
change the death benefit payout option;
transfer Contract values between Separate
Account Divisions;
instruct the Insurance Company as to voting
of Fund shares;
cancel the Contract by returning it to the
Insurance Company within 10 days after
receipt;
change the designated Separate Account
Division for allocation of
future contributions;
change the date Annuity Payments commence
(not later then Annuitant's age 75; an
earlier age may be required in connection
with certain Contracts issued to tax
qualified plans);
change the payee to receive Annuity
Payments;
assign ownership rights under the Contract,
upon advance written notice to the Company.
b. Annuity Period: During the Annuity Period, the Owner
of a Contract has the right to:
transfer Contract values between Separate
Account Divisions;
change the payee to receive Annuity
Payments, during the lifetime of the
Annuitant;
change the beneficiary under any Annuity
Payout Option which provides for a death
benefit upon death of the Annuitant; change
may be made only during lifetime of the
Annuitant;
instruct the Insurance Company as to voting
of Fund shares.
-28-
c. Death Benefits - Accumulation Period:
In the event death benefit proceeds become payable
during the Accumulation Period, the Beneficiary
designated by the Owner is entitled to payment of such
proceeds. If no designated Beneficiary survives the
Annuitant and no other designation is provided, the
Owner shall be the Beneficiary, if he survives the
Annuitant; otherwise, the Owner's estate shall be the
Beneficiary.
If no Annuity Payout Option has been selected by the
Owner for death benefit proceeds, and if the Insurance
Company has not previously made a lump sum payment, the
beneficiary may choose an Annuity Payout Option for
receipt of such proceeds.
d. Death Benefits - Annuity Period:
If the Annuitant dies while receiving Annuity Payments,
the remaining payments, if any, will be payable to the
Beneficiary designated by the Owner. However, if
Annuity Payments are being paid to a Beneficiary as a
death benefit, and such Beneficiary dies, the
Beneficiary's estate shall be entitled to receive
payment of any remaining proceeds.
In the case of Contracts which are subject to the
requirements of section 72(s) of the Internal Revenue
Code (See "Death Benefits - Required Distribution
Provisions"), the Contracts provide that if the Owner
dies while the Annuitant is receiving Annuity Payments,
the Annuitant is entitled to receive the remaining
payments.
Limitation on Contract Rights: The Contracts may be issued
pursuant to a tax qualified or non-tax qualified plan or trust.
Such plan or trust may limit the exercise by participants in the
plan or trust of certain rights granted by the Contract to Owner,
Annuitant or Beneficiary. For example, although the Contract
permits redemption of all or part of their value prior to the
time Annuity Payments begin, the plan or trust may not permit the
Owner to exercise such right. Certain plans or trusts may
require that the Owner acquire a 100% vested or nonforfeitable
interest in the benefits provided by the plan or trust before he
may exercise any of the rights provided by the Contract. The
provisions of the plan or trust instrument should be referred to
in connection with the Contracts.
-29-
In addition, assignment of interests under the Contract is
prohibited when the Contracts are used to fund retirement plans
qualified under sections 401, 403(a), 403(b) or 408 of the
Internal Revenue Code, unless the Owner is other than the
Annuitant or the Annuitant's employer.
Transfers Between Separate Account Divisions: Once each Contract
Year, the Owner may elect to transfer all or a portion of
Contract value to one or more of the other Separate Account
Divisions, without charge. The Owner may also elect to make
additional transfers of Contract value(s) between Separate
Account Divisions each Contract Year; a charge of $5.00 is made
by the Insurance Company for each such additional transfer. The
Insurance Company reserves the right to limit transfers to one
per Contract Year. In such event, written notice will be
provided to all Contract Owners.
All elections to transfer must be in writing, signed by the Owner
and received by the Insurance Company.
No transfer of Separate Account Divisions is permitted: (i)
within 30 days of Annuity Commencement Date; (ii) if it would
result in applying the value of a Contract to more than five
Separate Account Divisions, (iii) if prohibited by state law; or
(iv) if prohibited by the applicable retirement plan.
The number of Accumulation Units credited in the newly elected
Separate Account Division(s) will be equal to the dollar value of
the amount transferred divided by the current value of one
Accumulation Unit in such newly elected Division(s).
The number of Annuity Units credited in a newly elected Division
will be determined by multiplying the number of Annuity Units in
each Division to be transferred by the current value of one such
Annuity Unit in the newly elected Division.
Contract Owners (and Payees) who contemplate making a transfer
should first carefully consider their annuity objectives and
investment objectives of the current and proposed underlying
classes of Fund shares. Frequent transfers may be inconsistent
with the long-term objectives of the Contracts.
Substituted Securities:
If any class of Fund shares should become unavailable for
purchase by the Insurance Company, or if in the judgment of the
Insurance Company further investment in such class is no longer
appropriate in view of the purposes of the Separate Account,
there may be substituted therefor other shares or classes of
shares of a mutual
-30-
fund which will be described in the Prospectus by amendment or
revision and net Purchase Payments received after a date
specified by the Insurance Company may be applied to the purchase
of other shares or classes of shares of such fund. In either
event, prior approval by the affected Separate Account Division
shall be obtained. No substitution for shares or classes of
shares of a fund not described in this Prospectus will be made
without the prior approval of the Securities and Exchange
Commission.
Change in Operations:
The Insurance Company may also sell other forms of variable
annuity contracts from time to time, such as group contracts and
flexible payment individual contracts, which provide benefits
that vary in accordance with the investment experience of the
particular Separate Account Division in which they participate.
In addition, the Insurance Company may create new Divisions of
the Separate Account to provide additional funding options to
Contract Owners. No assurance can be given that any new
Divisions, if created, will be made available to Contract Owners.
The Contracts limit to five (5) the maximum number of Divisions
which may be selected.
The Insurance Company reserves this right to amend the Contracts
to meet the requirements of the Investment Company Act of 1940,
or other applicable federal or state laws or regulations.
Contract Owner Inquiries:
The Owner of a Contract should direct all inquiries to:
Investors Life Insurance Company of North America, Customer
Service Department, 701 Brazos Street, Austin, Texas 78701.
Reports:
The Owner, or Annuitant as applicable, will receive notice of all
Fund shareholder meetings. A Fund report and a statement of
account as to the value of the accumulation units held under the
Contract will be furnished annually to the Owner. A Separate
Account report will be furnished semi-annually.
-31-
THE ANNUITY PERIOD
Annuity Commencement Date: Annuity payments will begin on the
first day of the calendar month selected by the Owner. The
selected date may be as early as the 50th birthday of the
Annuitant, but may not be later than the 75th birthday of the
Annuitant, except where otherwise agreed to by the Insurance
Company. The selection of an annuity commencement date may also
be affected by the terms of a retirement plan or trust under
which a Contract is issued. Contracts issued in connection with
Individual Retirement Annuity plans (qualified under section 408
of the Code) provide that payments must commence not later than
the end of the taxable year in which the Annuitant attains age
70-1/2. For Contracts issued in connection with tax sheltered
(section 403(b)) annuity plans, the Internal Revenue Code
requires that distributions must commence no later than the year
the Annuitant attains age 70-1/2 (or the year the Annuitant
retires with respect to years beginning prior to January 1,
1989); these provisions apply to benefits accruing under a
section 403(b) annuity contract after December 31, 1986. Unless
otherwise instructed by the Owner, the annuity commencement date
is the Contract anniversary nearest the Annuitant's age 65.
Annuity Payments: The level of annuity payments is based on (i)
the table specified in the Contract which reflects the adjusted
age of the Annuitant, (ii) the type of annuity payout option
selected and (iii) the investment performance of the underlying
Fund shares selected. The amount of annuity payments will not be
affected by adverse mortality experience or any increase in the
expenses of the Insurance Company in excess of the charges made
under the Contract. If the Insurance Company is required to
withhold certain amounts from annuity payments, in compliance
with Federal or State tax law relating to collection of income
taxes at the source of payment, the amount so required will be
deducted from each payment.
Special Note for California Contracts:
Certain Contracts which are issued subject to
California law contain annuity tables which
reflect the adjusted age and sex of the
Annuitant. The Insurance Company issues this
type of contract where issuance is not known by
the Company to be part of an employer-sponsored
plan.
-32-
Annuity Payout Options: The Owner may elect to have Annuity
Payments made under any one of the Annuity Payout Options
described below. In addition, the Annuity Payout Options may be
selected for payout of the Death Proceeds during the Accumulation
Period, upon the death of the Annuitant or Owner, as applicable.
A change of option is permitted if made at least 30 days before
the date Annuity Payments are to commence. In the absence of an
election, Annuity payments will be made in accordance with Option
2 below with 120 monthly payments certain (10-year period).
Annuity payments will be paid monthly except that (i) proceeds of
less than $3,000 will be paid in a single sum or (ii) a schedule
of payments payable monthly may be changed to avoid payments of
less than $20.
Option 1 - Life Annuity: An annuity payable monthly during the
lifetime of the Annuitant and terminating with the last monthly
payment preceding the death of the Annuitant. There is no
guarantee of a minimum number of payments or provision for a
death benefit for beneficiaries. IT WOULD BE POSSIBLE UNDER THIS
OPTION TO RECEIVE ONLY ONE ANNUITY PAYMENT IF THE ANNUITANT DIES
BEFORE THE DUE DATE OF THE SECOND ANNUITY PAYMENT, TWO IF DEATH
OCCURS BEFORE THE DUE DATE OF THE THIRD ANNUITY PAYMENT DATE, AND
SO ON.
Option 2 - Life Annuity with Annuity Payments Guaranteed for a
Designated Period: An annuity payable monthly during the
lifetime of the Annuitant. If, at the death of the Annuitant,
payments have been made for less than the designated period, any
unpaid Annuity Payments will be paid to the end of the designated
period. Such period may be (a) 10 years, (b) 15 years, or (c) 20
years.
Option 3 - Unit Refund Life Annuity: An annuity payable monthly
during the lifetime of the Annuitant, terminating with the last
Annuity Payment due before the death of the Annuitant. An
additional payment, less any amounts required to be withheld for
taxes, may then be payable. Such payment at death will be equal
to the dollar value of a number of annuity units equal to (a)
minus (b), if such difference is positive, where:
total amount applied under the Option at the
(a) = annuity commencement date
annuity unit value at the annuity commencement date
number of annuity units represented by each
(b) = monthly Annuity Payment paid times the number of
monthly annuity payments made.
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Option 4 - Joint and Last Survivor Annuity: An annuity payable
monthly during the joint lifetime of the Annuitant and a
designated second person, and thereafter during the remaining
lifetime of the survivor. AS UNDER OPTION 1, THERE IS NO MINIMUM
NUMBER OF GUARANTEED ANNUITY PAYMENTS UNDER THIS OPTION.
Option 5 - Joint and Two-thirds Survivor Annuity: An annuity
payable monthly during the joint lifetime of the annuitant and a
designated second person and continuing during the lifetime of
the survivor in a reduced amount which reflects two-thirds of the
number of annuity units in effect during such joint lifetime. AS
UNDER OPTION 1, THERE IS NO MINIMUM NUMBER OF GUARANTEED ANNUITY
PAYMENTS UNDER THIS OPTION.
Option 6 - Payments for a Designated Period: An annuity payable
monthly for a designated number of years from 5 to 30. In the
event of the Annuitant's death prior to the end of the designated
period, Annuity Payments will be continued during the remainder
of such period. ANNUITY PAYMENTS UNDER THIS OPTION ARE BASED
UPON THE PAYMENT OF THE MORTALITY AND EXPENSE RISK DEDUCTION,
EVEN THOUGH THERE IS NO LIFE CONTINGENCY RISK ASSOCIATED WITH
THIS OPTION.
Determination of Monthly Annuity Payments: A description of the
method for determining the first and subsequent annuity payments
is included in the Statement of Additional Information. The
Contracts contain tables indicating the dollar amount of the
first monthly Annuity Payment which can be purchased with each
$1,000 of value
accumulated under the Contract. These tables include an assumed
interest rate of 6% per annum. This 6% assumed rate is the
measuring point for subsequent Annuity Payments. If the actual
net investment rate (on an annual basis) remains constant at 6%,
the Annuity Payments will remain constant. If the actual net
investment rate exceeds 6%, the Annuity Payments will increase at
a rate equal to the amount of such excess. Conversely, if the
actual rate is less than 6%, Annuity Payments will decrease.
Special Note for New Jersey Contracts:
Contracts subject to New Jersey law contain tables
indicating an amount of first monthly annuity payment
based on an assumed interest rate of 5% rather than 6%.
The objective of the Contracts is to provide benefit installments
which will increase at a rate sufficient to maintain purchasing
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power at a constant level. For this to occur, the actual net
investment rate must exceed the assumed rate of 6% (5% for New
Jersey Contracts) by an amount equal to the rate of inflation.
Of course, no assurance can be made that this objective will be
met. If the assumed interest rate were to be increased, Annuity
Payments would start at a higher level but would increase more
slowly or decrease more rapidly. Likewise, a lower assumed
interest rate would provide a lower initial payment with greater
increases or lesser decreases in subsequent Annuity Payments.
Transfer During the Annuity Period: For a description of the
Contract provisions applicable to transfers between Separate
Account Divisions, refer to "General Description of Variable
Annuity Contracts - Transfers Between Separate Account
Divisions".
DEATH BENEFITS
Accumulation Period: If the Annuitant dies during the
Accumulation Period, and prior to the death of the Owner (if the
Owner is an individual other than the Annuitant), death benefit
proceeds will be equal to the Accumulation Value of the Contract
determined on the valuation date coincident with or next
following the date due proof of the Annuitant's death is received
by the Insurance Company. However, if death occurs before age
75, while the Owner (if other than the Annuitant) is living and
before Annuity Payments begin, the Insurance Company guarantees
that the death proceeds will not be less than the amount of
Purchase Payments made under the Contract, less a reduction for
prior redemptions.
The amount of death benefit proceeds payable to a Beneficiary
will be reduced by an applicable state premium tax and by any
amounts required to be withheld for Federal or State income
taxes.
The Owner may designate the Annuity Payout Option for death
benefit proceeds. If no such Option is in effect at the time
death benefit proceeds are to be paid, the proceeds will be
payable either (i) in a single sum or (ii) under an Annuity
Payout Option selected by the Beneficiary. In the absence of
such an election by the Beneficiary, the proceeds will be paid in
a single sum.
Annuity Period: If the Annuitant dies after the commencement of
Annuity Payments, the death proceeds, if any, will depend upon
the Annuity Payout Option in effect at the time of death. Under
Options 2, 3 or 6, any remaining payments will be made to the
Beneficiary during the designated period. However, if Annuity
Payments are being made as a death benefit to a Beneficiary, and
such Beneficiary dies, the present value of the remaining
payments under Options 2, 3 or 6 will be paid in a lump sum (at
an interest rate of 6% for Options 2 and 6) to the Beneficiary's
estate.
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Required Distribution Provisions (Applicable to Contracts other
than Contracts owned by the sponsor of a retirement plan
qualified under section 401(a) or 403(a) of the Internal Revenue
Code, Contracts issued in connection with a tax sheltered annuity
plan under Section 403(b) of the Internal Revenue Code, or
Contracts issued in connection with an Individual Retirement
Arrangement under Section 408 of the Internal Revenue Code):
Under the provisions of section 72(s) of the Internal Revenue
Code, the contracts described in this section must contain
specific rules for distribution of the value of the Contract in
the event of the Owner's death. Contracts issued by the
Insurance Company which are subject to the requirements of
section 72(s) will include the following provisions:
Accumulation Period - If the Owner of the Contract and
the Annuitant is the same person, the Contract provides
that if the Owner dies before annuity payments
commence, death proceeds must be distributed to the
designated beneficiary within 5 years after death of
the Owner/Annuitant. Alternatively, if the designated
beneficiary is a natural person, such proceeds may be
distributed over the life of such beneficiary, or a
period not extending beyond the life expectancy of such
beneficiary. In this event, payments to the
beneficiary must commence not later than one year after
the death of
the Owner/Annuitant (or such later date as permitted
under regulations to be issued by the Secretary of
Treasury). The amount of such death proceeds is
determined as described in "Death Benefits -
Accumulation Period", above.
If the Owner of the Contract is a corporation or other
non-individual, section 72(s), as amended by the Tax
Reform Act of 1986, provides that the primary annuitant
(as defined in the Code) shall be treated as the Owner
of the Contract for purposes of the required
distribution provisions. Thus, the death of the
primary annuitant will result in application of the
distribution requirements described in the preceding
paragraph.
Where the Owner of the Contract is an individual other
than the Annuitant, the Contract provides that if the
Owner dies before the Annuitant and before annuity
payments commence, death proceeds will be equal to the
accumulation value of the Contract determined on the
valuation date coincident with or next following the
date
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proof of the Owner's death is received by the Insurance
Company. However, if the death of the Owner occurs
prior to his age 75 and before annuity payments begin,
the Insurance Company guarantees that the death
proceeds cannot be less than the amount of the Purchase
Payment made under such Contract, less a reduction for
any prior redemptions. The amount of death proceeds
payable to a beneficiary will be reduced by applicable
state premium taxes and by any amounts required to be
withheld for Federal or State income taxes. The amount
of such death proceeds must be distributed to the
designated beneficiary within 5 years after death of
the Owner. Alternatively, if the designated
beneficiary is a natural person, such proceeds may be
distributed over the life of such beneficiary, or a
period not extending beyond the life expectancy of such
beneficiary. In such event, payments to the
beneficiary must commence not later than one year after
the death of the Owner (or such later date as permitted
under regulations to be issued by the Secretary of
Treasury). The Contract also provides that if the
designated beneficiary is the surviving spouse of the
Owner, no death proceeds shall be payable at the death
of the Owner, and such spouse shall become the owner of
the Contract. If death proceeds are payable on account
of death of the Owner, then no death proceeds are
payable upon the subsequent death of the Annuitant.
Annuity Period - If the Owner of the Contract and the
Annuitant is the same person, the Contract provides
that if the Owner dies after annuity payments commence,
the remaining payments under the Contract must be paid
at least as rapidly as under the method of payment in
effect on the date of death of the Owner.
If the Owner of the Contract is a corporation or other
non-individual, section 72(s), as amended by the Tax
Reform Act of 1986, provides that the primary annuitant
(as defined in the Code) shall be treated as the Owner
of the Contract for purposes of the required
distribution provisions. Thus, the death of the
primary annuitant will result in the application of the
distribution requirements described in the preceding
paragraph.
Where the Owner of the Contract is an individual other
than the Annuitant, the Contract provides that if the
Owner dies after annuity payments commence (or after
the death of the Annuitant while payments are being
made to a beneficiary), the remaining payments must be
paid out at least as rapidly as under the method of
payment in effect on the date of death of the Owner.
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PURCHASES AND CONTRACT VALUES
How to Purchase a Contract:
The Contracts are sold by licensed insurance agents of the
Insurance Company who are also registered representatives of
broker/dealers which have sales agreements with ILG Securities
Corporation and the Insurance Company. Registered
representatives of ILG Securities Corporation may also sell the
Contracts. The principal underwriter of the Contracts is ILG
Securities Corporation. ILG Securities Corporation is an
indirect, wholly-owned subsidiary of InterContinental Life
Corporation. The Insurance Company is a direct, wholly-owned
subsidiary of InterContinental Life Corporation. The principal
business address of ILG Securities Corporation is 701 Brazos
Street, Austin, Texas 78701.
A Contract may be purchased by delivering a completed
application, including Purchase Payment allocation instructions,
such other forms as the Insurance Company requires and the
Purchase Payment, where applicable, to the soliciting agent who
will forward such payment and forms to the Insurance Company.
If the application is complete and correct upon receipt by the
Insurance Company, and if all other required information and the
Purchase Payment have also been received by the Insurance Company
at its Home Office, the Contract will be issued and the net
purchase payment will be credited to the Contract to reflect the
net asset value of the applicable Division'(s) underlying class
of Fund shares next computed within two business days following
such receipt. In the event that the Purchase Payment and the
application are received by the Insurance Company in an amount or
under circumstances whereby the Insurance Company has not been
provided with correct or sufficient information to establish an
account or with instructions as to the proper crediting of such
payment, then the Insurance Company will, within five (5)
business days following receipt, inform the purchaser of the
reasons for delay and will request the purchaser to supply
corrections and further information or instructions with regard
to the applicable account. In this event, the Insurance Company
will return the Purchase Payment to the purchaser within 5
days, unless it obtains the Purchaser's consent to retain the
payment until the corrections have been received.
Upon such receipt, the Contract will be issued and the net
Purchase Payment will be credited to the Contract to reflect the
net asset value of the applicable Division'(s) underlying class
of Fund Shares next computed within the next two business days.
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If the requested corrections, information or instructions are not
subsequently furnished to the Insurance Company within a
reasonable time period following the request, the Company will
return any retained purchase payment to the purchaser. Likewise,
if at any time the Insurance Company determines that it cannot
establish the requested account, it will return such purchase
payment immediately upon making such determination.
If the application is for a Contract used in connection with an
Individual Retirement Arrangement (IRA) under Code Section 408,
the Insurance Company will hold the Purchase Payment in a
suspense account until the expiration of the IRS-mandated
revocation period. Under IRS regulations, if an individual
receives IRA informational disclosure fewer than seven days prior
to the date on which the plan is established, the individual is
permitted a seven-day period following establishment of the plan
during which to revoke the plan and receive a refund. The
Purchase Payment will be applied as of the valuation date next
following expiration of the revocation period. No interest will
be paid on funds held in such suspense accounts.
Purchase Payments:
The minimum Purchase Payment is $3,000.
Application of Net Purchase Payments:
The Insurance Company will reduce the Purchase Payment by any
applicable Premium Tax to determine the Net Purchase Payment.
Upon the purchase of a Contract, the amount of the Net Purchase
Payment credited to a Contract will reflect the net asset value
of the applicable Division(s)' underlying class of Fund shares
next computed within the next two business days following the
Insurance Company's receipt of the payment. However, if any of the
required material is incomplete, incorrect or if the payment has
not been made, then a delay in Contract issuance or crediting of
a subsequent payment may be encountered.
Crediting Accumulation Units:
Accumulation Units represent the value of the Owner's Contract
attributable to the applicable Division(s) selected (maximum of
five). The number of Accumulation Units to be credited to the
Owner's account within a Division is determined by dividing the
Net Purchase Payment allocated to that Division by the
Accumulation
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Unit value of the applicable Division as of the Valuation Date
next computed following the Insurance Company's determination to
credit a payment to the Contract. The number of accumulation
units will not change because of a subsequent change in the value
of the unit, but the dollar value of an accumulation unit will
vary to reflect the investment experience of the class(es) of
Fund shares underlying the selected Division(s).
Value of an Accumulation Unit: (Note - although the following
refers to a "Division", the values are determined independently
for each sub-division). The value of an Accumulation Unit for
each Separate Account Division was established at $1 as of the
date the applicable class of Fund shares were first purchased for
that Division. The value of accumulation units subsequently is
determined by multiplying the value of an Accumulation Unit for
the immediately preceding Valuation Date by a net investment
factor for the Valuation Period ending on such date.
A net investment factor for a Valuation Period is the sum of
1.000000 plus the net investment rate for the applicable Separate
Account Division. The net investment rate for the applicable
Division is equal to the gross investment rate of that Division
for the valuation period expressed in decimal form to seven
places, less a deduction of 0.0000327 for each day in the
valuation period (1.2% annually - the fee charged by the
Insurance Company for undertaking the mortality and expense
risks). The applicable gross investment rate is equal to (i) the
investment income for the valuation period, plus capital gains
and minus capital losses for the period, whether realized or
unrealized on the assets of the Division divided by (ii) the
value of such assets at the beginning of the valuation period.
The gross investment rate may be positive or negative.
REDEMPTIONS
Procedures for Redemption:
Unless prohibited by any applicable retirement plan, the Owner
may redeem the Contract during the Accumulation Period in whole
or in part for its Contract Withdrawal Value as of the next
valuation date coincident with or next following the date the
request for redemption is received by the Insurance Company. In
determining redemption values, the Insurance Company does not
anticipate that it will be receiving or applying any premium tax
refund credits. No redemptions may be made once Annuity Payments
have begun. Requests to redeem shall be made in writing to the
Insurance
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Company. If the request is for the entire redemption value of
the Contract, it shall be accompanied by the Contract. The
Contract Withdrawal Value is determined on the basis of the
accumulation unit values on such valuation date, reduced by any
applicable sales charges and premium taxes. Payment of the
Contract Withdrawal Value, less any amounts required to be
withheld for taxes, will be made within seven days after the date
proper written request is received by the Insurance Company at
its Home Office. However, such payment may be postponed whenever
(i) the New York Stock Exchange is closed, except for holidays or
weekends, or trading on the New York Stock Exchange is restricted
by the Securities and Exchange Commission; (ii) the Securities
and Exchange Commission permits postponement and so orders; or
(iii) an emergency exists, as defined by the Securities and
Exchange Commission, so that valuation of the assets or disposal
of securities is not reasonably practicable.
The Owner may elect to have the redemption value applied to
provide Annuity Payments under any one of the annuity payout
options, as permitted under the applicable retirement plan.
AMOUNTS WITHDRAWN BY THE OWNER PRIOR TO THE ANNUITY COMMENCEMENT
DATE MAY BE SUBJECT TO A TAX PENALTY AND IMMEDIATE TAXATION OF
ANY INVESTMENT GAIN.
Partial Redemptions:
The Owner may request a partial redemption of his Contract value
for an amount not less than $300 provided this does not result in
reducing the remaining value of the Contract to less than $1,000
on the date of redemption. Amounts required to be withheld for
taxes in the event of a partial redemption will not be considered
part of the remaining value of the Contract. If a partial
redemption request would result in such a reduction, the
Insurance Company will redeem the total Contract value and pay
the remaining Contract Withdrawal Value, less any amounts
required to be withheld for taxes, to the Owner.
Restrictions Under Certain Section 403(b) Plans:
As described in "Federal Tax Status-Tax Qualified Plans" Section
403(b)(11) of the Internal Revenue Code (the "Code") restricts
the redemption under Section 403(b) annuity contracts of certain
amounts which are derived from contract contributions made
pursuant to a salary reduction agreement.
As a result of these requirements, the Insurance Company will be
required to restrict the amount of contract withdrawals so as to
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comply with the provisions of Section 403(b) (11) of the Code.
The staff of the U.S. Securities and Exchange Commission has
issued a "no action" letter, informing insurance companies
issuing variable annuity contracts that the above-described Code
restrictions may be implemented, notwithstanding the otherwise
applicable redemption provisions of the Investment Company Act of
1940. The Insurance Company intends to rely upon the provisions
of the SEC staff "no action" letter, and to comply with the
provisions of said letter.
THE INSURANCE COMPANY REQUIRES AN ACKNOWLEDGMENT FORM TO BE
SIGNED BY PURCHASERS OF SECTION 403(b) ANNUITY CONTRACTS FOR
WHICH CONTRIBUTIONS ARE MADE PURSUANT TO A SALARY REDUCTION
AGREEMENT. THE SIGNED ACKNOWLEDGMENT FORM - A COPY OF WHICH IS
INCLUDED AT THE END OF THIS PROSPECTUS - MUST ACCOMPANY THE
CONTRACT APPLICATION.
Right to Cancel:
The Owner may cancel the Contract by delivering or mailing a
written notice (or sending a telegram) to the Insurance Company
and by returning the Contract before midnight of the 10th day
after the date of receipt. The Insurance Company will return all
amounts due to the Owner within ten days after receipt of notice
of cancellation and the returned contact. The Owner bears the
investment risk with respect to amounts allocated to the Separate
Account, for the period from the date the returned Contract is
received by the Company. Under the terms of the Contract,
cancellation shall entitle the Owner to an amount equal to (a)
the difference between premiums paid, including any contract fees
and other charges, and the amounts allocated to the Separate
Account, plus (b) the Accumulation Value of the Contract on the
date the returned Contract is received by the Company.
FEDERAL TAX STATUS
General
The Contracts have been designed so as to qualify as "variable
annuity contracts" for Federal income tax purposes. Thus, the
Contracts permit the Owner to defer Federal income taxation on
increases in the value of a contract, until such time that
amounts are withdrawn from the contract, received in the form of
annuity payments or paid as a death benefit.
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Under the current provisions of the Code, variable annuity
contracts - other than contracts issued under retirement plans
which qualify for Federal tax benefits under sections 401, 403(b)
or 408 of the Internal Revenue Code, or under government
retirement plans (whether or not so qualified) or to a state or
municipal government for use under a deferred compensation plan -
will not be treated as an annuity contract for Federal income tax
purposes for any period for which the investments of the
segregated asset account on which the contracts are based are not
adequately diversified. This "adequately diversified"
requirement may be met if the underlying investments satisfy
either a statutory safe harbor test or diversification
requirements set forth in regulations issued by the Secretary of
the Treasury. The Insurance Company believes that the current
structure of the Separate Account satisfies the requirements of
the regulations, and it intends that the Separate Account, as
well as the underlying Funds, will operate so as to meet such
requirements.
Non-Tax Qualified Contracts:
A Non-Tax Qualified Contract is a Contract which is purchased by
an individual for his or her own purposes but not pursuant to any
of the tax qualified retirement plans described in the section
below. A Non-Tax Qualified Contract may also be a Contract
issued to a retirement plan or plan of deferred compensation
which is a non-tax qualified plan. The tax status of the
annuitant or participant is determined by provisions of such plan
and/or provisions of the Code applicable to the contract.
Under the provisions of the Tax Reform Act of 1986, a Non-Tax
Qualified Contract which is held by a person who is not a natural
person (e.g. a corporation or a trust is not a natural person),
is not treated as an annuity contract for Federal income tax
purposes, and the income on the contract for any taxable year is
treated as ordinary income received or accrued by the owner of
the contract during the taxable year. Certain exceptions are
provide for Non-Tax Qualified Contracts held by a trust or other
entity as agent for a natural person and for immediate annuities
(as defined in the Code). THUS, OWNERSHIP OF A NON-TAX QUALIFIED
CONTRACT BY NON-NATURAL PERSONS WHO DO NOT QUALIFY FOR THE
STATUTORY EXCEPTIONS RESULTS IN DENIAL OF TAX DEFERRAL ON INCREASES
IN THE VALUE OF THE CONTRACT.
Taxation of payments under annuity contracts is governed by Code
Section 72. Under the current provisions of the Code, amounts
received under a Non-Tax Qualified Contract prior to the annuity
commencement date (including payments made upon the death of the
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Annuitant or Owner), or as non-periodic payments after the
annuity commencement date, are generally first attributable to
any investment gains credited to the Contract over the taxpayer's
basis (if any) in the Contract. Such amounts will be treated as
income subject to Federal income taxation. A 10% penalty tax on
such withdrawn investment gains will be imposed if the withdrawal
is made prior to age 59-1/2. This penalty tax will not be
imposed irrespective of age if the amount received is one of a
series of substantially equal periodic payments (not less
frequently than annually) made for the life or life expectancy of
the payee. The requirement that the amount be paid out as one of
a series of "substantially equal" periodic payments is met when
the number of units withdrawn to make each distribution is
substantially the same. Also, the penalty tax will not be
imposed if the withdrawal follows the death of the Owner (or if
the Owner is not an individual, the death of the primary
annuitant), or is attributable to the "total disability" (as
defined in the Code) of the Annuitant. Where the Owner of the
Contract is an individual who is other than the Annuitant, the
Code (as amended by the Tax Reform Act of 1986) provides that the
penalty tax is applicable to the taxable portion of payments
required to be made under the Contract following the death
of the Annuitant.
If the Owner of a Contract transfers (assigns) the Contract to
another individual as a gift, the Code (as amended by the Tax
Reform Act of 1986) provides that the Owner will incur taxable
income at the time of the transfer. The amount of such taxable
income is equal to the excess, if any, of the cash surrender
value of the Contract over the Owner's cash basis at the time of
the gift. An exception is provided for certain transfers between
spouses.
Annuity payments made after the annuity commencement date are
generally taxed to the recipient only as received. A part of the
payment received is a return of investment in the contract, if
any, and is non-taxable; a portion is a return of income and is
subject to ordinary income tax. An "exclusion ratio" is used to
determine the non-taxable and taxable portion of each payment.
Such exclusion ratio continues until such time that the taxpayer
recovers his/her basis in the Contract. Thereafter, all payments
received are treated as taxable income.
Tax Qualified Contracts:
Tax Qualified Contracts are Contracts which are issued to or
pursuant to the following types of retirement plans:
A plan established by a corporate employer for the
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benefit of its employees and qualified under sections
401(a) or 403(a) of the Code (Corporate plans).
A plan established by self-employed individuals for
themselves and their employees and qualified under
sections 401(a) or 403(a) of the Code (Keogh or HR-10
plans).
A tax sheltered annuity plan maintained by certain tax
exempt organizations, including educational
institutions, to purchase annuity contracts for
employees (403(b) Annuity plans).
An Individual Retirement Annuity (IRA) plan established
by an individual.
All of these plans differ with respect to the applicable rules
which must be met and followed if they are to attain and retain
their qualified status. In general, they have the following
common attributes: tax deductibility of contributions (to the
extent permitted by the Code), tax deferral of investment income
and taxation to the plan participant only upon receipt of a
withdrawal or payment. Since the plan participant generally does
not have a cost basis in the value of the Contract, payments
received by the participant are generally taxed as income to the
participant.
Under the Code (as amended by the Tax Reform act of 1986),
certain distributions prior to age 59-1/2 are considered
premature distributions and may result in application of a 10%
additional tax. In addition, the Code requires that tax
qualified retirement plans generally provide for the commencement
of retirement benefits no later than the year in which the
employee attains age 70-1/2.
With respect to contracts issued in connection with Section
403(b) annuity plans, the Code (as amended by the Tax Reform Act
of 1986) restricts the distribution under such contracts of
certain amounts which are derived from contract contributions
made pursuant to a salary reduction agreement. These
restrictions are set forth in Section 403(b) (11) of the Code,
effective January 1, 1989. The restrictions apply to: (i)
salary reduction contributions made after December 31, 1988, and
earnings on such contributions, and (ii) earnings on contract
value as of December 31, 1988. The tax law restrictions do not
apply to salary reduction contributions made prior to January 1,
1989, or to earnings credited to such contributions prior to
January 1, 1989.
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In accordance within the provisions of the Code, restricted
amounts may be distributed only in the event of attainment of age
59-1/2, separation from service, death, disability (as defined in
Section 72(m)(7) of the Code), or financial hardship. The
hardship exception is not available with respect to income
attributable to salary reduction contributions. The Insurance
Company will be required to restrict the amount of contract
withdrawals so as to comply with these provisions of the Code.
The Internal Revenue Service has indicated that Section
403(b)(11) does not change the circumstances under which a tax-
free exchange of annuity contracts may be made. Individuals
contemplating purchase of a contract should refer to the
provisions of their employer's section 403(b) arrangement to
determine the investment alternatives available.
Taxation of the Separate Account:
Under the current provisions of the Internal Revenue Code, the
Insurance Company pays no taxes on the investment income and
capital gains of the assets of the Separate Account where used to
determine the value of Contracts. Accordingly, the Insurance
Company currently makes no adjustments for Federal income taxes
(or benefits) in connection with the Separate Account Divisions.
The
Insurance Company retains the right to make adjustments for
Federal income taxes to Separate Account assets should future
changes in the Code so warrant.
Tax Withholding and Reporting:
The Insurance Company may be required to withhold certain amounts
from both periodic and non-periodic payments under the Contracts
in accordance with Federal tax law relating to the collection of
Federal income tax at the source of payment. A payor of periodic
annuity payments is required to withhold amounts as if the
payment were a payment of wages from an employer to an employee.
However, an individual recipient of periodic payments is allowed
to elect to have no withholding made in a manner prescribed by
the United States Treasury Department.
Similarly, a payor of certain non-periodic payments is required
to withhold amounts unless an individual recipient elects against
tax withholding in a manner prescribed by the U.S. Treasury
Department. Non-periodic payments include payments made before
and after the annuity commencement date such as lump sum death
proceeds and partial or full surrenders (redemptions) of Contract
value. The withholding requirements will not apply to the
portion of a payment which is reasonably believed to be not
includable in gross income of the recipient for Federal tax
purposes.
-46-
The Insurance Company will transmit a notice to individual
recipients of Contract payments of the right to elect against
Federal income tax withholding, in a form and containing such
information as the Secretary of the Treasury prescribes. If an
individual elects against withholding, the Insurance Company may
nonetheless be required to withhold if it has not received the
recipient's tax identification number.
Under the current provisions of the Code, the Insurance Company
is required to withhold Federal income taxes from certain
distributions from tax-qualified retirement plans and from
section 403(b) Annuity plans. These requirements do not apply to
distributions from IRA plans or from deferred compensation plans
subject to section 457 of the Code. The mandatory withholding
(at a 20% rate) applies to distributions which are treated as
"eligible rollover distributions" under the Code, unless the
amount is distributed as a "direct rollover". For these
purposes, a "direct rollover" is one which is made directly from
the qualified plan to another qualified plan, or directly from
the qualified plan to an IRA. In other words, a "direct
rollover" does not involve the receipt of any portion of the
distribution by the taxpayer. Unless an "eligible rollover
distribution" qualifies as a "direct rollover", the taxable
portion thereof is subject to 20% withholding. The Insurance
Company is required to forward the amount of the withholding to
the IRS. The taxpayer may not elect out of this withholding
described in this paragraph.
In addition to tax withholding, the Insurance Company is required
to report information on distributions under the Contracts.
Distributions include partial and full surrenders as well as
annuity payments. Information is reported on forms pursuant to
Internal Revenue Service regulations.
General:
Because of the complexity of the law and the fact that tax
results will vary according to the factual status of the
individual involved, tax advice may be needed by a person
contemplating purchase of a Contract or the exercise of rights
under a Contract. The above comments concerning Federal income
tax consequences are not an exhaustive discussion of all tax
questions that might arise. In addition, state income or estate
tax considerations may also be involved in the purchase of a
Contract or the exercise of rights under a Contract, and are not
discussed in this Prospectus. The Insurance Company's management
cannot predict what, if any, future action the Congress or the
Internal Revenue Service might take with respect to the taxation
of variable annuity contracts of the type described in this
Prospectus. For complete information on particular Federal and
state tax considerations, a qualified tax advisor should be
consulted.
-47-
LEGAL PROCEEDINGS
Various lawsuits against the Insurance Company have arisen in
the normal course of business. However, contingent liabilities
arising from these matters are not considered material in
relation to the financial position of the Insurance Company. The
Insurance Company is a defendant in a lawsuit which was filed in
October, 1996, in Travis County, Texas. The named plaintiffs in
the suit (a husband and wife), allege that the universal life
insurance policies sold to them by INA Life Insurance Company (a
company which was merged into the Insurance Company in 1992)
utilized unfair sales practices. The named plaintiffs seek
reformation of the life insurance contracts and an unspecified
amount of damages. The named plaintiffs also seek a class action
as to similarly situated individuals. No certification of a
class has been granted as of the date shown on page one of this
Annual Statement. The Insurance Company believes that the suit is
without merit and intends to vigorously defend this matter.
There is no litigation pending to which the Separate Account is a
party.
TABLE OF CONTENTS
OF THE STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information includes a description of
the following items:
1. General Information and History
2. Services
3. Purchase of Securities Being Offered
4. Principal Underwriter
5. Yield Quotations of Money Market Division
6. Annuity Payments
7. Additional Information
8. Financial Statements
The Separate Account
The Insurance Company
-48-
To obtain a copy of the Statement of Additional Information for
the Individual Single Payment Variable Annuity Contracts, detach
and mail this form.
TO: Investors Life Insurance Company of North America
701 Brazos Street
Austin, Texas 78701
I have been furnished with a Prospectus of Investors Life
Insurance Company of North America Separate Account I (dated
April 30,1997) describing the Individual Single Payment Variable
Annuity Contracts. Please send me a copy of the Statement of
Additional Information pertaining to such Contracts.
NAME:
(Please Print)
Mailing
(Date) Address:
Street or P.O. Box
City State Zip
-49-
ACKNOWLEDGMENT FORM
SECTION 403 (b) PLANS
NOTE: This form is required in connection with all
applications for Contracts to be issued in connection
with Section 403(b) plans, where contributions are to
be made pursuant to a salary reduction agreement.
TO: Investors Life Insurance Company of North America
701 Brazos Street
Austin, Texas 78701
With reference to my application for a variable annuity contract
to be issued in connection with a Section 403(b) annuity plan
maintained by my employer, I have been furnished with a
prospectus of Separate Account I (dated April 30, 1997). The
contributions to the contract will be made pursuant to a salary
reduction agreement with my employer.
I acknowledge that I have read and understand the description on
pages 41 and 45 of the prospectus, pertaining to the restrictions
or redemptions imposed by Section 403(b) (11) of the Internal
Revenue Code. I further acknowledge that I understand any
investment alternatives under my employer's Section 403(b) plan,
to which I may elect to transfer contract values.
DATE Signature of Applicant
Address:
-50-
Investors Life Insurance
Company of North America
701 Brazos Street
Austin, Texas 78701
ILG Securities Corporation
701 Brazos Street
Austin, Texas 78701
PROSPECTUS
April 30, 1997
Single Payment
Individual Variable Annuity Contracts
Issued by
Investors Life Insurance Company
of North America
ILCO Investors Life Insurance
Company
701 Brazos Street
Austin, Texas 78701
ILG Securities Corporation
701 Brazos Street
Austin, Texas 78701
PROSPECTUS
April 30, 1997
Single Payment
Individual Variable Annuity Contracts
Issued by
ILCO Investors Life Insurance Company
STATEMENT OF ADDITIONAL INFORMATION
SEPARATE ACCOUNT I
INDIVIDUAL FLEXIBLE PAYMENT
[ ] VARIABLE ANNUITY CONTRACTS
(the "Contracts")
INDIVIDUAL SINGLE PAYMENT
[ ] VARIABLE ANNUITY CONTRACTS
(the "Contracts")
issued by
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
(the "Insurance Company")
701 Brazos Street
Austin, Texas 78701
Telephone No. 512-404-5000
This Statement of Additional Information is not a prospectus, but
should be read in conjunction with the Prospectus for the
indicated Contracts offered by Investors Life Insurance Company
of North America Separate Account I having the same date as this
Statement. A copy of the Prospectus for the Contracts may be
obtained by writing to Investors Life Insurance Company of North
America, 701 Brazos Street, Austin, Texas 78701, or by calling
512-404-5346.
April 30, 1997
TABLE OF CONTENTS
Item
Page
General Information and History............................. 3
Services.................................................... 5
Purchase of Securities Being Offered........................ 5
Principal Underwriter....................................... 6
Yield Quotations of Money Market Division................... 7
Annuity Payments............................................ 9
Additional Information...................................... 10
Financial Statements
The Separate Account................................. 14
The Insurance Company............................... 39
-2-
General Information and History
Investors Life Insurance Company of North America is a stock
life insurance company, organized in 1963 under the laws of the
Commonwealth of Pennsylvania. It was acquired by Life Insurance
Company of North America in 1978. Ownership was subsequently
transferred to an affiliate, Investors Life Insurance Company of
California (formerly INA Life Insurance Company). Prior to
December, 1988, the Insurance Company and Investors Life
Insurance Company of California were indirect wholly-owned
subsidiaries of CIGNA Corporation. On December 28, 1988, the
purchase by InterContinental Life Corporation (through a
subsidiary company) of CIGNA Corporation's interest in Investors
Life Insurance Company of North America, Investors Life Insurance
Company of California and ILG Securities Corporation was
completed. As a result of such purchase, the Insurance Company
became an indirect wholly-owned subsidiary of InterContinental
Life Corporation ("ILCO"), a holding company incorporated in New
Jersey.
In December, 1992, the Insurance Company changed its state of
domicile to the State of Washington and merged with its immediate
parent company (Investors Life Insurance Company of California).
As a result of the merger, the Insurance Company assumed all of
the assets and liabilities of Investors Life Insurance Company of
California, and Investors Life Insurance Company of North America
was the surviving company. In June, 1993, the Insurance Company
merged with its immediate parent company, Standard Life Insurance
Company. Investors Life was the surviving entity. As a result,
Investors Life became a direct subsidiary of InterContinental
Life Corporation. The administrative offices of Investors Life
are located at 701 Brazos Street, Austin, Texas 78701. The
statutory home office of Investors Life is 2101 4th Ave.,
Seattle, Washington 98121-2371.
The Insurance Company is principally engaged in the business of
selling and underwriting ordinary life insurance and individual
and group annuities. It is authorized to conduct variable
annuity business in the District of Columbia and in all states of
the United States except New York. In Arizona, Wyoming and
Oregon, business is conducted under the name of ILCO Investors
Life Insurance Company.
The Insurance Company does not know of any person who owns
beneficially more than 5% of the outstanding common stock of
InterContinental Life Corporation, except as follows: (i)
Financial Industries Corporation ("FIC") directly and indirectly
owns approximately
46% of the outstanding common stock
of ILCO (approximately 61.5% if certain options were to
be
-3-
exercised); FIC is a publicly-owned Texas corporation; (ii) Roy
F. Mitte is the beneficial owner of 34.39% of the common stock of
FIC. In addition, Mr. Mitte has beneficial ownership
with respect to shares allocated to his account under ILCO's
Employee Stock Ownership Plan ("ESOP") and, as co-trustee, with
respect to unallocated shares held by the ESOP. The combined
beneficial ownership of Mr. Mitte with respect to ILCO's common
stock, taking into account FIC's 61.5% interest in
ILCO's common stock, is 62.46% . The executive offices
of ILCO, FIC and Mr. Mitte are located at 701 Brazos Street,
Suite 1400, Austin, Texas 78701, (iii) Investors Life Insurance
Company ("Investors-NA"), a wholly-owned subsidiary of ILCO, is
the owner of 53,400 shares of ILCO's common stock and the
beneficial owner of 281,560 shares of ILCO's common stock owned
by InterContinental Life Insurance Company ("ILIC"). The
beneficial ownership of Investors-NA represents 7.86% of
ILCO's outstanding common stock. ILIC is a wholly-owned
subsidiary of Investors-NA. The administrative offices of
Standard Life, ILIC and Investors-NA are located at 701 Brazos
Street, Austin, Texas 78701; (iv) ILIC owns 281,560 shares of
ILCO's common stock (or 7.86% ) ; and (v) Fidelity
Management & Research Company ("Fidelity") owns 418,300 shares of
ILCO's common stock, as reported to ILCO on a Schedule 13(G)
filed by FMR Corporation, the parent company of Fidelity.
According to the Schedule 13(G), Fidelity acts as investment
advisor to the Fidelity Low-Priced Stock Fund, a registered
investment company and the fund is the owner of the 413,800
shares of ILCO common stock, which constituted 9.82% of ILCO's
outstanding shares as of March 14, 1997. The offices of Fidelity
are located at 82 Devonshire Street, Boston, MA 02109.
Investors Life Insurance Company of North America is also the
Sponsor of another separate account, Separate Account A (formerly
known as the INA/Putnam Separate Account). The operations of
that separate account are separate and distinct from the
operations of Separate Account I. Due to Revenue Ruling 81-225,
which was issued by the Internal Revenue Service on September 21,
1981, the Insurance Company, suspended the issuance of variable
annuity contracts issued by the Separate Account A. In Rev. Rul.
81-225, the IRS questioned the tax treatment of variable annuity
contracts where the underlying mutual funds are not managed by
the issuing insurance company or an affiliate. Since the
underlying mutual funds for Separate Account A were not so
managed, the Insurance Company suspended sales of contracts
issued by that Account.
The assets of the Growth and Income II Division (formerly the
Equity Division) and the Voyager Division (formerly the
Aggressive Equity Division of the Separate Account include
amounts attributable to initial capital contributed by the
Insurance Company to the Separate Account. As of December 31,
1996, approximately
10.2% of the assets of the Growth
and Income II Division and 72.2% of the assets of the
Voyager Division were attributable to such contributed capital.
-4-
SERVICES
Safekeeping of Assets:
All assets of the Separate Account are held in custody for
safekeeping by the Separate Account. The assets of each
subdivision of each Separate Account division will be kept
physically segregated and held separate and apart from assets of
other subdivisions. Shares of the underlying funds, if issued,
may be left on deposit with the shareholder servicing agent of
Putnam Variable Trust . The Separate Account will maintain
a record of all purchases and redemptions for shares of the
underlying funds held in each subdivision of each Separate
Account Division. Additional protection for the assets of the
Separate Account is afforded by the Insurance Company's fidelity
bond, presently in the amount of $5 million, covering all
officers and employees of the Insurance Company.
Independent Public Accountant:
Price Waterhouse LLP acts as independent accountants for the
Separate Account and the Insurance Company. Its offices are at
2001 Ross Ave., Suite 1800, Dallas, Texas 75201. As independent
accountants, Price Waterhouse LLP annually performs an audit of
the financial statements of the Separate Account and the
Insurance Company.
PURCHASE OF SECURITIES BEING OFFERED
The Contracts may be sold by licensed insurance salesmen of the
Insurance Company who are also registered representatives of
broker/dealers under the Securities Exchange Act of 1934 which
broker/dealers have sales agreements with ILG Securities
Corporation and the Insurance Company. Such broker/dealers are
also members of the National Association of Securities Dealers,
Inc. Registered representatives of ILG Securities Corporation
may also sell the Contracts. ILG Securities Corporation is a
registered broker/dealer under the Securities Exchange Act of
1934 and is a member of the National Association of Securities
Dealers, Inc. The address of ILG Securities Corporation is 701
Brazos Street, Austin, Texas 78701.
-5-
PRINCIPAL UNDERWRITER
(a) The principal underwriter of the Contracts is ILG Securities
Corporation, a registered broker/dealer under the Securities
Exchange Act of 1934 and a member of the National
Association of Securities Dealers, Inc. ILG Securities
Corporation is an affiliate of Investors Life Insurance
Company of North America.
(b) The Contracts are offered on a continuing basis.
(c) The following table sets forth the aggregate amount of
underwriting commissions paid to ILG Securities Corporation,
for each of the calendar years 1994 to 1996, with respect to
the Contracts:
Year Amount
1996 $ 738
1995 $ 116
1994 $ 75
(d) Putnam Management, the Fund's investment adviser, has agreed
to reimburse the Insurance Company for certain costs that it
will incur in connection with the servicing of Contracts.
The amount of this reimbursement is equal to 25% of the
effective management fee received by Putnam Management with
respect to assets allocated by the Insurance Company to the
applicable portfolio of
Putnam Variable Trust , plus
an annual rate of one basis point times the average daily
net assets allocated during the computation period by the
Insurance Company to Putnam Variable Trust . For
the period from April 18, 1995 (the effective date of the
substitution of shares of Putnam Variable Trust as
the underlying investment vehicle for the Separate Account)
to December 31, 1996, the amount of this reimbursement was
$69,388.20 .
-6-
YIELD QUOTATIONS OF MONEY MARKET DIVISION
The Separate Account provides "current yield" and "effective
yield" quotations with respect to the Money Market Division. For
the seven-day period ending December 31, 1996, the annualized
"current yield" for the tax qualified and non-tax qualified
subdivisions of the Money Market Divisions was 4.34% for
Single Payment Contracts and 4.33% for Flexible Payment
Contracts. The annualized "effective yield" of each such
subdivision for such period was 4.52% for Single Payment
Contracts and 4.50% for Flexible Payment Contracts.
In accordance with applicable rules issued by the Securities and
Exchange Commission, such yield quotations are computed by a
standardized method, based on a historical seven day calendar
period. The yield is determined separately for Single Payment
Contracts and Flexible Payment Contracts, and separately for the
qualified and non-tax qualified subdivisions of the Money Market
Division.
The computation of the standardized current yield does not take
into account any deductions from premium payments to provide for
Premium Taxes. The deduction for Premium Taxes is made either
from Purchase Payments made under a Contract, or from the
Accumulated Value applied upon annuitization, as determined under
applicable state law. In the case of those states which impose a
Premium Tax, the deduction ranges from .5% to 3%. Also, the
computation of the standardized current yield does not take into
account any Deferred Sales Charge that may be assessed against
amounts withdrawn during early Contract Years. The amount of
such Deferred Sales Charge depends upon the type of Contract
which is purchased. For Single Payment Contracts, the charge is
assessed against amounts withdrawn (total or partial surrender)
during the first six Contract Years (measured from the date of
issue) which exceed 10% of the Purchase Payment. The amount of
the charge ranges from 6% during the first Contract Year to 1%
during the sixth Contract Year. With respect to Flexible Payment
Contracts, the Deferred Sales Charge is assessed against amounts
withdrawn (total or partial surrender) during early Contract
Years; the charge also applies, with certain exceptions, to
amounts applied to provide annuity payments. The
charge is based on the number of full Contract Years between the
date of a Purchase Payment and the date of withdrawal or first
annuity payments, and ranges from 7% for periods of less than two
Contract Years to 0% for periods of eight or more Contract Years.
Please refer to the applicable Prospectus for the Contracts for a
more complete description of this Deferred Sales Charge.
-7-
Each such standardized current yield is computed by determining
the net change in the value of a hypothetical pre-existing
account having a balance of one accumulation unit at the
beginning of the seven day period, dividing the net change by the
value of the account at the beginning of the period to obtain the
base period return, and multiplying the base period return by
365/7. The net change in the value of an account in the Money
Market Division reflects:
(i) the value of additional accumulation units
purchased with dividends from the original
accumulation unit, as well as dividends declared
on the original accumulation unit and any such
additional units;
(ii) application of the Mortality and Expense Risk
Deduction, which is a daily charge of 0.0000327 of
the value of the assets in each subdivision of the
Money Market Division (1.2% on an annual basis);
and
(iii) deduction of a pro-rata share of the annual
Administrative Expense charge ($25.00 for Single
Payment Contracts or $30.00 for Flexible payment
Contracts), in proportion to the length of the
base period and the respective average number of
accounts allocated to the Money Market Division.
The determination of the net change in the value of an account in
the Money Market Division does not include realized gains and
losses, or unrealized appreciation and depreciation; nor, does it
take into account any charges that may be incurred in connection
with transfers between Separate Account Divisions.
The Separate Account may also provide an effective annualized
yield, determined by adding 1 to the base period return
(calculated in accordance with the preceding paragraph), raising
the sum to a power equal to 365 divided by 7, and subtracting 1
from the result.
Current yields will fluctuate and are not intended to be
representative of future results. An individual contemplating
the purchase of a Contract should remember that yield will vary
from time to time depending on market conditions, the quality,
maturity and type of instruments held in, and operating expenses
of, the underlying portfolio of the Money Market Division.
-8-
ANNUITY PAYMENTS
Annuity Payments - General:
As described in the Prospectus, annuity payments will be
determined on the basis of (i) the table specified in the
Contract which reflects the adjusted age of the annuitant, (ii)
the type of annuity payout option selected, and (iii) the
investment performance of the class of Fund shares underlying the
Division(s) selected. The amount of Annuity Payments will not be
adversely affected by adverse mortality experience or any
increase in the expenses of the Insurance Company in excess of
the charges specified in the Contracts. The value of a fixed
number of annuity units each month is paid by the Insurance
Company to the Owner, or to another payee designated by the Owner
in written form and received by the Insurance Company, reduced by
any amounts required to be withheld for taxes. The value of an
annuity unit will reflect the investment experience of the
Division(s) selected and the amount of each Annuity Payment will
vary accordingly.
Certain contracts which are issued subject to
California law contain annuity payment tables
which reflect the adjusted age and sex of the
annuitant. The Company issues this type of
contract where issuance is not known by the
Company to be part of an employer sponsored
plan.
Value of an Annuity Unit:
The value of an annuity unit is determined independently for each
subdivision of a Separate Account Division. The value of an
annuity unit will be established at $1 on the date the first
Annuity payment is made from such subdivision and will be
determined on each subsequent valuation date by multiplying the
value of the annuity unit as of the immediately preceding
valuation date by the products of (i) 0.9998404 adjusted for the
number of days in the valuation period ending with such valuation
date (this factor neutralizes the effect of the 6% annual
interest rate used in calculating the amount of the first
payment), and (ii) the net investment factor of the appropriate
subdivision for the fourteenth day immediately preceding the last
day of the valuation period for which the value of the annuity is
being determined.
-9-
Amount of the First Annuity Payment:
At the time Annuity Payments begin, the value of the Owner's
account is determined by multiplying the Accumulation Unit value
on the valuation date 14 days before the date the first monthly
Annuity Payment is due by the number of accumulation units
credited to the Owner's account as of the date the first Annuity
Payment is due, less applicable premium taxes not previously
deducted. The amount so determined is then applied to the
specified annuity payout option.
The Contracts contain tables indicating the dollar amount of the
first monthly Annuity Payment which can be purchased with each
$1,000 of value accumulated under the Contract. The amount
depends on the annuity payout option, and the adjusted age of the
annuitant. The adjusted age may be more than or less than the
Annuitant's actual age, depending upon the year of birth.
Amounts shown in the tables for each Contract are based on the
following factors:
(i) Flexible Payment Contracts: For Options 1 to
5 amounts are based on the 1971 Individual
Annuity Mortality Table set back five years,
with interest at the rate of 6% per annum and
assumes birth in the year 1920. For
California Contracts issued in non-employer
sponsored situations, amounts are also based
on the sex of the annuitant. For Option 6,
the tables assume interest at the rate of 6%
per annum.
(ii) Single Payment Contracts:
. California Contracts issued in non-
employer sponsored situations: amounts
are based on the adjusted age and sex of
the annuitant and the Progressive
Annuity Table with interest at the rate
of 6% per annum and assumes birth in the
year 1900.
All other Contracts: amounts are
based on the 1971 Individuals
Annuity Mortality Table set back
five years, with interest at the
rate of 6% per annum and assumes
birth in the year 1920.
-10-
The first Annuity Payment is determined by multiplying the
benefit per $1,000 of value shown in the Contract tables by the
number of thousands of dollars of value accumulated under the
Contract.
The 6% interest rate stated above is the measuring point for
subsequent Annuity Payments. If the actual net investment rate
(on an annual basis) remains constant at 6%, the Annuity Payments
will remain constant. If the actual net investment rate exceeds
6%, the Annuity Payments will increase at a rate equal to the
amount of such excess. Conversely, if the actual rate is less
than 6%, Annuity Payments will decrease.
Special Note for New Jersey Contracts:
Contracts subject to New Jersey law contain
tables indicating an amount of first monthly
annuity payment based on an assumed interest
rate of 5%, rather than 6%. The value of an
annuity unit utilizes a corresponding
adjustment factor of 0.9998663.
The objective of the Contract is to provide benefit installments
which will increase at a rate sufficient to maintain purchasing
power at a constant level. For this to occur, the actual net
investment rate must exceed the assumed rate of 6% (5% for New
Jersey Contracts) by an amount equal to the rate of inflation.
Of course, no assurance can be made that this objective will be
met. If the assumed interest rate were to be increased, Annuity
Payments would start at a higher level but would increase more
slowly or decrease more rapidly. Likewise, a lower assumed
interest rate would provide a lower initial payment with greater
increases or lesser decreases in subsequent Annuity Payments.
The amount of an Annuity Payment will be reduced by any taxes
required to be withheld.
Determination of the Second and Subsequent Annuity Payments:
The amount of the second and subsequent Annuity Payments is
determined by multiplying the number of annuity units by the
annuity unit value as of the valuation date coincident with or
next following the date on which each Annuity Payment is due.
The number of annuity units under a Contract is determined by
dividing the first monthly Annuity Payment by the value of the
appropriate annuity unit on the date of such payment. This
number of annuity units remains fixed during the Annuity Payment
period, unless Contract Value is transferred between Separate
Account Division subdivisions.
-11-
ADDITIONAL INFORMATION
Mortality and Expense Risk Deduction:
As described in the Prospectus (See "Contract Charges -
Mortality and Expense Risk Deduction"), the Insurance
Company makes a daily charge of 0.0000327 of the value of
the assets in each subdivision of the Separate Account (1.2%
on an annual basis, consisting of approximately 0.8% for
mortality risks and approximately 0.4% for expense risks).
This charge is designed to cover the cost of mortality and
expense risks described below.
The Insurance Company's assumption of a mortality risk
arises from its contractual obligation to continue to make
Annuity Payments to each Annuitant regardless of how long he
lives and regardless of how long all annuitants as a group
live. This assures each Annuitant that neither his own
longevity nor a general improvement in life expectancy will
have an adverse effect on the Annuity Payments he will
receive under a Contract, and relieves the annuitant from
the risk that he will outlive the amounts actually
accumulated for retirement. In addition, the Insurance
Company assumes mortality risks because of annuity rates in
the Contracts, which cannot be increased and, if the
Annuitant should die during the Accumulation Period, the
Insurance Company is at risk that the Accumulation Value may
not equal the Death Proceeds.
The Insurance Company also assumes the risk that the amounts
deducted for sales and administrative expenses may be
insufficient to cover the actual cost of such items.
No portion of the mortality and expense risk charge is
directly related to any specific distribution expense.
However, the Insurance Company expects to make a profit from
such charge, although there is no assurance that it will do
so. The Insurance Company believes that this charge is
reasonable in relation to the risks assumed under the
Contracts. In addition, the Insurance Company believes that
the charge has a reasonable likelihood of benefiting
Contract Owners.
-12-
FINANCIAL STATEMENTS
The following pages set forth the financial statements of:
(a) Investors Life Insurance Company of North America
Separate Account I.
(b) Investors Life Insurance Company of North America.
-13-
INVESTORS
LIFE INSURANCE COMPANY
OF NORTH AMERICA
(Herein called Investors Life)
SEPARATE ACCOUNT I
FINANCIAL STATEMENTS
December 31, 1996
(Audited)
This report is submitted for the general information of owners of
Investors Life Insurance Company of North America Separate
Account I variable annuity contracts. This report is not
authorized for distribution to prospective purchasers of such
contracts unless it is accompanied by a current prospectus.
Investors Life Insurance
Company of North America
Administrative Offices: Austin, TX
Report of Independent Accountants
To the Contract Owners of Investors Life Insurance Company of
North America Separate Account I and the Board of Directors of
Investors Life Insurance Company of North America
In our opinion, the accompanying combined balance sheet and the
related individual statements of operations and of changes in
total assets present fairly, in all material respects, the
combined financial position of the subdivisions comprising the
Investors Life Insurance Company of North America Separate
Account I (the Separate Account) at December 31, 1996, the
results of each of their operations for the year then ended and
the changes in each of their total assets for the two years in
the period then ended, in conformity with generally accepted
accounting principles. These financial statements are the
responsibility of the Separate Account's management; our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted
auditing standards which 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, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the
opinion expressed above.
Price Waterhouse LLP
Dallas, Texas
February 19, 1997
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
SEPARATE ACCOUNT I
COMBINED BALANCE SHEET
December 31, 1996
ASSETS
Investments at Market Value (Notes 1 and 2):
Portfolios of Putnam Capital Manager Trust:
Money Market Division
1,750,778 qualified shares (cost $1,750,778) $ 1,750,778
2,643,807 non-qualified shares (cost $2,643,807) 2,643,807
Income Division
315,446 qualified shares (cost $4,073,850) 4,167,043
568,203 non-qualified shares (cost $7,318,387) 7,505,962
Growth and Income II Division (formerly the Equity Division)
763,644 qualified shares (cost $15,198,687) 18,755,085
64,567 shares owned by Investors Life (cost $ 1,285,077) 1,585,777
369,096 non-qualified shares (cost $ 7,383,396) 9,065,002
64,623 shares owned by Investors Life (cost $ 1,292,709) 1,587,128
Voyager Division (formerly known as the Aggressive Equity Division)
19,290 qualified shares (cost $ 478,157) 627,489
38,329 shares owned by Investors Life (cost $ 950,110) 1,246,837
10,239 non-qualified shares (cost $ 246,639) 333,078
38,263 shares owned by Investors Life (cost $ 921,680) 1,244,696
Total Assets $ 50,512,682
========
CONTRACT OWNERS' EQUITY
Contract Owners' Equity (Notes 3 and 7):
Money Market Division
847,412 qualified accumulation units
outstanding ($2.0660297 per unit) $ 1,750,778
1,288,780 non-qualified accumulation
units outstanding ($2.0514024 per unit) 2,643,807
Income Division
1,313,122 qualified accumulation units
outstanding ($3.1733858 per unit) 4,167,043
2,394,183 non-qualified accumulation
units outstanding ($3.1350827 per unit) 7,505,962
Growth and Income II Division (formerly the Equity Division)
3,021,542 qualified accumulation units
outstanding ($6.2071238 per unit) 18,755,085
255,477 Investors Life equity ($6.2071238 per unit) 1,585,777
1,704,528 non-qualified accumulation
units outstanding ($5.3181887 per unit) 9,065,002
298,434 Investors Life equity ($5.3181887 per unit) 1,587,128
Voyager Division (formerly known as the Aggressive Equity Division)
251,632 qualified accumulation units
outstanding ($2.4936765 per unit) 627,489
500,000 Investors Life equity ($2.4936765 per unit) 1,246,837
133,799 non-qualified accumulation
units outstanding ($2.4893923 per unit) 333,078
500,000 Investors Life equity ($2.4893923 per unit) 1,244,696
________
Contract Owners' Equity $50,512,682
========
The accompanying notes are an integral part of these financial statements
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
SEPARATE ACCOUNT I
INDIVIDUAL STATEMENTS OF OPERATIONS
Year Ended December 31, 1996
Money Money
Market Market
Qualified Non-Qualified
Investment Income:
Dividends $ 95,781 $ 134,754
Expenses:
Mortality risk and expense fees guarantees
(Notes 1 and 3) 23,138 32,542
_________ _________
Investment income-net 72,643 102,212
_________ _________
Net Realized and Unrealized Gain (Loss) on Investments:
Net realized capital gain distributions 0 0
_________ _________
Net realized gain (loss) on investments:
Proceeds from sale of shares 671,713 477,960
Cost of shares sold 671,713 477,960
_________ _________
Net realized gain on investments 0 0
_________ _________
Net unrealized gain (loss) on investments 0 0
_________ _________
Net realized and unrealized gain (loss)
on investments 0 0
_________ _________
Net Increase in Net Assets
from Investment Operations $ 72,643 $ 102,212
========= =========
Income Income
Qualified Non-Qualified
Investment Income:
Dividends $ 284,913 $ 485,044
Expenses:
Mortality risk and expense fees guarantees
(Notes 1 and 3) 55,011 94,181
_________ _________
Investment income-net 229,902 390,863
_________ _________
Net Realized and Unrealized Gain (Loss) on Investments:
Net realized capital gain distributions 0 0
_________ _________
Net realized gain (loss) on investments:
Proceeds from sale of shares 902,248 1,016,364
Cost of shares sold 837,645 952,796
_________ _________
Net realized gain on investments 64,603 63,568
_________ _________
Net unrealized gain (loss) on investments (250,811) (378,320)
_________ _________
Net realized and unrealized gain (loss) on
investments (186,208) (314,752)
_________ _________
Net Increase in Net Assets
from Investment Operations $ 43,694 $ 76,111
========= =========
Growth and Growth and
Income II Income II
Qualified* Non-Qualified*
(formerly (formerly
Equity Equity
Division) Division)
Investment Income:
Dividends $ 836,513 $ 404,385
Expenses:
Mortality risk and expense fees guarantees
(Notes 1 and 3) 235,401 117,828
_________ _________
Investment income-net 601,112 286,557
_________ _________
Net Realized and Unrealized Gain (Loss) on Investments:
Net realized capital gain distributions 379,168 183,293
_________ _________
Net realized gain (loss) on investments:
Proceeds from sale of shares 3,066,579 961,162
Cost of shares sold 2,370,623 746,297
_________ _________
Net realized gain on investments 695,956 214,865
_________ _________
Net unrealized gain (loss) on investments 1,997,565 1,148,474
_________ _________
Net realized and unrealized gain (loss) on
investments 3,072,689 1,546,632
_________ _________
Net Increase in Net Assets
from Investment Operations $ 3,673,801 $ 1,833,189
========= =========
Voyager Voyager
Qualified Non-Qualified*
Investment Income:
Dividends $ 34,167 $ 28,945
Expenses:
Mortality risk and expense fees guarantees
(Notes 1 and 3) 22,322 18,587
_________ _________
Investment income-net 11,845 10,358
_________ _________
Net Realized and Unrealized Gain (Loss) on Investments:
Net realized capital gain distributions 66,446 56,289
_________ _________
Net realized gain (loss) on investments:
Proceeds from sale of shares 148,690 48,247
Cost of shares sold 108,949 34,705
_________ _________
Net realized gain on investments 39,741 13,542
_________ _________
Net unrealized gain (loss) on investments 81,373 87,666
_________ _________
Net realized and unrealized gain (loss) on
investments 187,560 157,497
_________ _________
Net Increase in Net Assets
from Investment Operations $ 199,405 $ 167,855
========= =========
The accompanying notes are an integral part of these financial statements.
* Includes shares owned by Investors Life
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
SEPARATE ACCOUNT I
INDIVIDUAL STATEMENTS OF CHANGES IN TOTAL ASSETS
Year Ended December 31, 1996
Money Money
Market Market
Qualified Non-Qualified
Investment Operations:
Investment income-net $ 72,643 $ 102,212
Realized capital gain distributions 0 0
Net realized gain on investments 0 0
Net unrealized gain (loss) on investments 0 0
_________ _________
Net increase in net assets from
investment operations 72,643 102,212
--------- ---------
Accumulation Unit Transactions:
Net contract considerations and transfers in
(Note 3) 193,701 369,107
Net contract surrenders and transfers out (Note 3) (689,435) (418,286)
Benefit payments to annuitants (6,946) (45,762)
_________ _________
Net decrease from accumulation unit transactions (502,680) (94,941)
_________ _________
Net Increase (Decrease) in Net Assets (430,037) 7,271
Net Assets:
Net assets at December 31, 1995 2,180,815 2,636,535
_________ _________
Net assets at December 31, 1996 $ 1,750,778 $ 2,643,806
========= =========
Income Income
Qualified Non-Qualified
Investment Operations:
Investment income-net $ 229,902 $ 390,863
Realized capital gain distributions 0 0
Net realized gain on investments 64,603 63,568
Net unrealized gain (loss) on investments (250,811) (378,320)
_________ _________
Net increase (decrease) in net assets from 43,694 76,111
investment operations _________ _________
Accumulation Unit Transactions:
Net contract considerations and transfers in
(Note 3) 31,739 45,238
Net contract surrenders and transfers out (Note 3) (847,678) (814,955)
Benefit payments to annuitants (17,397) (98,073)
_________ _________
Net decrease from accumulation unit transactions (833,336) (867,790)
_________ _________
Net Increase (Decrease) in Net Assets (789,642) (791,679)
Net Assets:
Net assets at December 31, 1995 4,956,685 8,297,641
_________ _________
Net assets at December 31, 1996 $ 4,167,043 $ 7,505,962
========= =========
Growth and Growth and
Income II Income II
Qualified* Non-Qualified*
(formerly (formerly
Equity Equity
Division) Division
Investment Operations:
Investment income-net $ 601,112 $ 286,557
Realized capital gain distributions 379,168 183,293
Net realized gain on investments 695,956 214,865
Net unrealized gain (loss) on investments 1,997,565 1,148,474
_________ _________
Net increase in net assets from 3,673,801 1,833,189
investment operations _________ _________
Accumulation Unit Transactions:
Net contract considerations and transfers in
(Note 3) 505,790 312,619
Net contract surrenders and transfers out (Note 3)(2,843,516) (662,722)
Benefit payments to annuitants (58,423) (122,302)
_________ _________
Net decrease from accumulation unit transactions (2,396,149) (472,405)
_________ _________
Net Increase (Decrease) in Net Assets 1,277,652 1,360,784
Net Assets:
Net assets at December 31, 1995 19,063,210 9,291,346
_________ _________
Net assets at December 31, 1996 $ 20,340,862 $ 10,652,130
========= =========
Voyager Voyager
Qualified Non-Qualified*
Investment Operations:
Investment income-net $ 11,845 $ 10,358
Realized capital gain distributions 66,446 56,289
Net realized gain on investments 39,741 13,542
Net unrealized gain (loss) on investments 81,373 87,666
_________ _________
Net increase in net assets from 199,405 167,855
investment operations _________ _________
Accumulation Unit Transactions:
Net contract considerations and transfers in
(Note 3) 41,561 540
Net contract surrenders and transfers out (Note 3) (112,563) (30,200)
Benefit payments to annuitants 0 0
_________ _________
Net decrease from accumulation unit transactions (71,002) (29,660)
_________ _________
Net Increase (Decrease) in Net Assets 128,403 138,195
Net Assets:
Net assets at December 31, 1995 1,745,924 1,439,579
_________ _________
Net assets at December 31, 1996 $1,874,327 $1,577,774
========= =========
Year Ended December 31, 1995
Money Money
Market Market
Qualified Non-Qualified
Investment Operations:
Investment income-net $ 109,230 $ 119,671
Realized capital gain distributions 0 0
Net realized gain (loss) on investments 0 0
Net unrealized gain on investments 0 0
_________ _________
Net increase in net assets from 109,230 119,671
investment operations _________ _________
Accumulation Unit Transactions:
Net contract considerations and transfers in
(Note 3) 194,606 44,620
Net contract surrenders and transfers out (Note 3) (951,236) (629,306)
Benefit payments to annuitants (11,036) (43,271)
_________ _________
Net increase (decrease)
from accumulation unit transactions (767,666) (627,957)
_________ _________
Net increase (decrease) in Net Assets (658,436) (508,286)
Net Assets:
Net assets at December 31, 1994 2,839,250 3,144,821
_________ _________
Net assets at December 31, 1995 $ 2,180,815 $ 2,636,535
========= =========
Income Income
Qualified Non-Qualified
Investment Operations:
Investment income-net $ 43,067 $ 61,442
Realized capital gain distributions 0 0
Net realized gain (loss) on investments 36,986 6,755
Net unrealized gain on investments 773,455 1,283,698
_________ _________
Net increase in net assets from
investment operations 853,508 1,351,895
_________ _________
Accumulation Unit Transactions:
Net contract considerations and transfers in
(Note 3) 85,031 13,876
Net contract surrenders and transfers out (Note 3)(1,289,036) (906,494)
Benefit payments to annuitants (6,214) (97,764)
_________ _________
Net increase (decrease) from accumulation
unit transactions (1,210,219) (990,382)
_________ _________
Net increase (decrease) in Net Assets (356,711) 361,513
Net Assets:
Net assets at December 31, 1994 5,313,396 7,936,128
_________ _________
Net assets at December 31, 1995 $ 4,956,685 $ 8,297,641
========= =========
Growth and Growth and
Income II Income II
Qualified* Non-Qualified*
(formerly (formerly
Equity Equity
Division) (1) Division) (1)
Investment Operations:
Investment income-net $ (56,510) $ (31,704)
Realized capital gain distributions 0 0
Net realized gain (loss) on investments (301,051) (162,853)
Net unrealized gain on investments 5,614,225 2,596,107
_________ _________
Net increase (decrease) in net assets from 5,256,664 2,401,550
investment operations _________ _________
Accumulation Unit Transactions:
Net contract considerations and transfers in
(Note 3) 3,629,931 2,506,850
Net contract surrenders and transfers out (Note 3)(3,868,301) (1,281,644)
Benefit payments to annuitants (49,704) (32,262)
_________ _________
Net increase (decrease) from accumulation
unit transactions (288,074) 1,192,945
_________ _________
Net increase (decrease) in Net Assets 4,968,589 3,594,495
Net Assets:
Net assets at December 31, 1994 14,094,620 5,696,852
_________ _________
Net assets at December 31, 1995 $ 19,063,210 $ 9,291,346
========= =========
Voyager Voyager
Qualified* Non-Qualified *
Investment Operations:
Investment income-net $ (9,495) $ (7,566)
Realized capital gain distributions 0 0
Net realized gain (loss) on investments 13,825 7,520
Net unrealized gain on investments 485,685 393,641
_________ _________
Net increase in net assets from 490,015 393,595
investment operations _________ _________
Accumulation Unit Transactions:
Net contract considerations and transfers in
(Note 3) 66,421 54,096
Net contract surrenders and transfers out (Note 3) (109,354) (62,157)
Benefit payments to annuitants 0 0
_________ _________
Net increase (decrease) from accumulation
unit transactions (42,933) (8,061)
_________ _________
Net increase (decrease) in Net Assets 447,082 385,534
Net Assets:
Net assets at December 31, 1994 1,298,842 1,054,045
_________ _________
Net assets at December 31, 1995 $ 1,745,924 $ 1,439,579
========= =========
Growth and Growth and
Income Income
Qualified* Non-Qualified *
Investment Operations:
Investment income-net $ 16,096 $ 11,935
Realized capital gain distributions 0 0
Net realized gain (loss) on investments (15,532) (3,466)
Net unrealized gain on investments 0 0
_________ _________
Net increase in net assets from 564 8,469
investment operations _________ _________
Accumulation Unit Transactions:
Net contract considerations and transfers in
(Note 3) 30,302 43,844
Net contract surrenders and transfers out (Note 3)(3,115,506) (2,255,410)
Benefit payments to annuitants (3,932) (19,434)
_________ _________
Net increase (decrease) from accumulation
unit transactions (3,089,136) (2,231,000)
_________ _________
Net increase (decrease) in Net Assets (3,088,572) (2,222,531)
Net Assets:
Net assets at December 31, 1994 3,088,572 2,222,531
_________ _________
Net assets at December 31, 1995 $ 0 $ 0
========= =========
The accompanying notes are an integral part of these financial statements.
* Includes shares owned by Investors Life
(1) Includes activity due to the merger of the Growth and Income Division
with Equity Division as of April 18, 1995.
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
SEPARATE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
Note 1. Organization
Investors Life Insurance Company of North America ("Investors
Life") established Investors Life Insurance Company of North
America - Separate Account I (the "Separate Account") as a unit
investment trust registered under the Investment Company Act of
1940, as amended. Operations of the Separate Account commenced
on September 15, 1982. The Separate Account currently has four
Divisions each corresponding to a portfolio of PCM Trust. Prior
to the substitution of shares of PCM Trust for shares of CIGNA
Annuity Funds Group as the underlying funding vehicle for the
Separate Account, the Separate Account contained five divisions.
In connection with the substitution, the Equity Division was
merged with the Growth and Income Division; thereafter, the
Equity Division was renamed the Growth and Income Division II.
See Note 6 for a description of the substitution. Each Division
contains two subdivisions, one for the allocation of tax
qualified and one for the allocation of non-tax qualified net
payments made under variable annuity contracts.
Net purchase payments to the Separate Account may be allocated to
one or more of the following classes of shares of the PCM Trust:
PCM Money Market Fund, PCM Income Fund, PCM Growth and Income
Fund or PCM Voyager Fund. The contract owners' equity of each
subdivision of the Separate Account is affected by the investment
results of the appropriate portfolio(s) of shares of PCM Trust
designated for the subdivision and the mortality risk and expense
fees guarantees assessed on the Separate Account assets (See Note
3), and the administrative charge deductions.
Note 2. Significant Accounting Policies
Following is a summary of the significant accounting policies of
the Separate Account:
(a) the market value of the investments is based on closing bid
prices (net asset value) at December 31, 1996; (b) investment
transactions are accounted for on the trade date and income is
recorded on the ex-dividend date; (c) the cost of investments
sold is determined on the specific identification method. See
Notes 4 and 5 with respect to income taxes.
Note 3. Contract Owner Transactions
Net contract considerations represent gross contributions under
variable annuity contracts less deductions by Investors Life for
any applicable premium taxes. Net contract considerations for
the year ended December 31, 1996, were $509,041 after deductions
for premium taxes of $4. Contract owners have limited rights to
transfer their contract values between Separate Account
Divisions. For the year ended December 31, 1996, the total of all
transfers was $991,249. Contract surrender benefits amounted to
$5,428,105. Annuity benefits amounted to $348,903. Investors
Life charges a fee to each Separate Account subdivision for
assuming the mortality risk and expense fees guarantees. The
daily equivalent of the annual charge of 1.2% is made against the
average net value of the Separate Account.
Note 4. Income Taxes
Investors Life is taxed as a life insurance company under the
Internal Revenue Code. The Separate Account is taxed as a part
of Investors Life. Under the current provisions of the Code, no
federal income taxes are payable by Investors Life with respect
to the operations of the Separate Account when such operations
are used to determine the contract values of the Separate
Account. Investors Life retains the right to make adjustments
for taxes to Separate Account assets should future changes in the
Internal Revenue Code so warrant.
Note 5. Diversification Requirements
Under the provisions of Section 817(h) of the Internal Revenue
Code, (the "Code"), a variable annuity contract, other than a
contract issued in connection with certain types of employee
benefit plans, will not be treated as an annuity contract for
federal tax purposes for any period for which the investments of
the segregated asset account on which the contract is based are
not adequately diversified. The Code provides that the
"adequately diversified" requirement may be met if the underlying
investments satisfy either a statutory safe harbor test or
diversification requirements set forth in regulations issued by
the Secretary of Treasury.
The Internal Revenue Service has issued regulations under section
817(h) of the Code. Investors Life believes that the Separate
Account satisfies the current requirements of the regulations.
Note 6. Substitution of Fund Shares
Prior to November 29, 1993, CIGNA Investments, Inc. ("CII")
served as the investment adviser to each of the portfolios of the
CIGNA Fund, pursuant to an investment advisory agreement between
CII and the CIGNA Funds. In connection with its decision to
withdraw from the active management of equity-based portfolios,
CII indicated to the Board of Trustees of the CIGNA Funds and
Investors Life that CII would be unwilling to continue to serve
as investment adviser with respect to any of the portfolios of
the CIGNA Fund on a long-term basis.
CII indicated that an orderly withdrawal of CII's investment
advisory services involved the selection of an investment adviser
to provide equity advisory services during a transition period,
as well as the capability to serve as the substitute underlying
investment vehicle for the variable annuity contracts (the
"Contracts") issued by Investors Life. Putnam Investment
Management, Inc. ("Putnam Management"), the investment adviser to
Putnam Capital Manager Trust ("PCM") indicated its willingness to
service as investment adviser to the CIGNA Annuity Equity Fund,
the CIGNA Annuity Growth and Income Fund and the CIGNA Annuity
Aggressive Equity Fund (the "CIGNA Equity Funds") during the
transition period. PCM has also indicated to Investors Life that
its willingness to serve as the substitute underlying investment
vehicle for the Contracts (the "Substitution").
On the basis of the foregoing, the Trustees of the CIGNA Funds
terminated the appointment of CII as the investment adviser to
the CIGNA Equity Funds, effective November 29, 1993, and
appointed Putnam Management as the new investment adviser of the
CIGNA Equity Funds. CII continued to serve as the investment
adviser of the CIGNA Annuity Money Market Fund and the CIGNA
Annuity Income Fund and to provide certain administrative
services to the CIGNA Funds until the completion of the
Substitution.
Investors Life filed an application with the U.S. Securities and
Exchange Commission, requesting the issuance of an order
approving the plan of Substitution. Such order was issued on
December 21, 1994. The effectiveness of the Substitution was
subject to prior approval by the vote of a majority of the votes
to be cast by persons having their contract values determined by
each affected portfolio of the CIGNA Funds, which approval was
obtained.
As of April 18, 1995, shares of the PCM Trust were substituted
for shares of the applicable CIGNA Fund as the underlying
investment vehicle. The substitution of PCM Funds as the
underlying investment vehicle for the variable annuity contracts
was effected by Investors Life's exchange of shares of each of
the portfolios of the CIGNA Funds for shares of the corresponding
portfolio of PCM Funds.
Note 7. Accumulation Unit Transactions
The changes in the number of accumulation units (the measure of ownership
in the Separate Account) during 1996, and units outstanding at December
31, 1996 were as follows:
Money Money
Market Market
Qualified Non-Qualified
Units outstanding at December 31, 1995 1,096,192 1,334,785
Units purchased and transfers in 93,940 124,034
Benefits, surrenders and transfers out (342,720) (170,039)
_________ _________
Units outstanding at December 31, 1996 847,412 1,288,780
========= =========
Income Income
Qualified Non-Qualified
Units outstanding at December 31, 1995 1,580,611 2,678,698
Units purchased and transfers in 11,076 10,322
Benefits, surrenders and transfers out (278,565) (294,837)
_________ _________
Units outstanding at December 31, 1996 1,313,122 2,394,183
========= =========
Growth and Growth and
Income II Income II
Qualified* Non-Qualified*
(formerly (formerly
Equity Equity
Division) Division)
Units outstanding at December 31, 1995 3,699,687 2,104,990
Units purchased and transfers in 122,251 56,438
Benefits, surrenders and transfers out (544,919) (158,466)
_________ _________
Units outstanding at December 31, 1996 3,277,019 2,002,962
========= =========
Voyager Voyager
Qualified* Non-Qualified*
Units outstanding at December 31, 1995 781,624 645,524
Units purchased and transfers in 27,062 213
Benefits, surrenders and transfers out (57,054) (11,938)
_________ _________
Units outstanding at December 31, 1996 751,632 633,799
========= =========
* Includes shares owned by Investors Life
The accumulation units for six of the subdivisions include units applicable
to contract owners who are "on benefit annuitants." At December 31, 1996,
the number of accumulation units, the aggregate value of the subdivisions'
equity and the number of monthly annuity units and value per unit of "on
benefit annuitants" are as follows:
Accumulation Aggregate
Units Value
Money Market, Qualified 25,442 $ 52,564
Money Market, Non-Qualified 184,304 $378,082
Growth and Income II, Qualified 95,179 $590,788
Growth and Income II, Non-Qualified 126,800 $674,346
Income Fund, Qualified 56,463 $179,179
Income Fund, Non-Qualified 223,649 $701,158
Monthly Annuity
Annuity Units Unit Value
Money Market, Qualified 531 $0.8481980
Money Market, Non-Qualified 3,958 $0.8486709
Growth and Income II, Qualified 3,657 $1.5733164
Growth and Income II, Non-Qualified 5,706 $1.6859335
Income Fund, Qualified 1,091 $1.3932109
Income Fund, Non-Qualified 5,231 $1.3900698
Note 8. Subsequent Events
Effective January 1, 1997 PCM Trust changed its name to Putnam Variable Trust
("Putnam VT"). Accordingly, the names of the underlying funds have changed
as follows: PCM Money Market Fund has become Putnam VT Money Market, PCM U.S.
Government and High Quality Bond Fund has become Putnam VT Government and
High Quality Bond Fund, PCM Growth and Income Fund has become Putnam VT
Growth and Income Fund and PCM Voyager Fund has become Putnam VT Yoyager
Fund.
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
STATUTORY BALANCE SHEETS
(in thousands)
December 31,
1996 1995
Admitted Assets
Cash and investments:
Bonds, at amortized cost (market value
$404,442 and $421,342) $ 405,060 $ 419,791
Common stock, at market value
(cost $27,797 and $27,797) 26,478 23,762
Mortgage loans on real estate 13,323 14,674
Real estate, net of accumulated
depreciation of $5,636 and $9,758 43,546 59,094
Policy loans 46,090 46,936
Cash 2,364 4,979
Short-term investments 71,099 65,078
Total cash and investments 607,960 634,314
Accrued investment income 6,336 6,652
Premiums receivable 7,349 7,546
Receivable from reinsurers 2,485 3,489
Receivable from affiliates 9,706 3,511
Other assets 9,462 6,294
Separate account assets 417,306 418,637
Total admitted assets $1,060,604 $1,080,443
The accompanying notes are an integral part of
these statutory financial statements.
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
STATUTORY BALANCE SHEETS
(in thousands)
December 31,
1996 1995
Liabilities, Capital and Surplus
Aggregate reserve for life and accident
and health policies and contracts $ 568,034 $ 572,040
Interest maintenance reserve 4,704 4,833
Accrued expenses 337 190
Asset valuation reserve 10,074 9,815
Other liabilities 9,197 17,793
Separate account liabilities 412,084 413,876
Total liabilities 1,004,430 1,018,547
Capital and surplus:
Common stock - $80 par value,
40,000 shares authorized,
30,000 shares issued and outstanding 2,400 2,400
Paid-in and contributed surplus 4,800 4,800
Surplus debentures 38,546 69,296
Unassigned surplus (deficit) 10,428 (14,600)
Total capital and surplus 56,174 61,896
Total liabilities, capital and
surplus $1,060,604 $1,080,443
The accompanying notes are an integral part of
these statutory financial statements.
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
STATUTORY STATEMENTS OF OPERATIONS
(in thousands)
Year Ended
December 31,
1996 1995 1994
Revenues:
Insurance premiums and annuity
considerations $ 48,844 $ 47,853 $ 53,650
Net investment income 46,700 49,189 46,094
Other revenues 2,887 2,902 5,153
Total revenues 98,431 99,944 104,897
Benefits, losses and expenses:
Policyholder claims and benefits 62,395 61,604 67,449
Commissions 3,428 1,972 3,329
Other operating expenses 16,829 20,416 20,424
Total benefits, losses and
expenses 82,652 83,992 91,202
Operating income before federal
income taxes and net realized
gains 15,779 15,952 13,695
Provision (benefit) for federal
income taxes 1,016 (506) (685)
Net income from operations 14,763 16,458 14,380
Net realized capital gains (losses) 13,636 (332) (251)
$ 28,399 $ 16,126 $ 14,129
Net income
The accompanying notes are an integral part of
these statutory financial statements.
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
STATUTORY STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
(in thousands)
Paid-In
and
Common Stock Contributed
Shares Amount Surplus
Balance as of December 31, 1993 30 $ 2,400 $ 4,800
Net income
Change in net unrealized capital
gains
Change in non-admitted assets
Increase in asset valuation
reserve
Increase in equity in separate
accounts
Reserve adjustments
Balance as of December 31, 1994 30 2,400 4,800
Net income
Change in net unrealized capital
gains
Change in non-admitted assets
Increase in asset valuation
reserve
Increase in equity in separate
accounts
Contribution to unassigned
surplus
Surplus note payment
Balance as of December 31, 1995 30 2,400 4,800
Net income
Change in net unrealized capital
gains
Change in non-admitted assets
Increase in asset valuation
reserve
Prior year surplus adjustment
Correction of reserve valuation
error
Surplus note payment
Balance as of December 31, 1996 30 $ 2,400 $ 4,800
The accompanying notes are an integral part of
these statutory financial statements.
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
STATUTORY STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
(in thousands)
The accompanying notes are an integral part of
these statutory financial statements.
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
STATUTORY STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
(in thousands)
Unassigned
Surplus Surplus
Debentures (Deficit) Total
Balance as of December 31, 1993 $ 103,206 $(49,449) $ 60,957
Net income 14,129 14,129
Change in net unrealized capital
gains (807) (807)
Change in non-admitted assets (1,295) (1,295)
Increase in asset valuation
reserve (51) (51)
Increase in equity in separate (27) (27)
accounts
Prior year surplus adjustment (115) (115)
Surplus note payment (18,950) (18,950)
Balance as of December 31, 1994 84,256 (37,615) 53,841
Net income 16,126 16,126
Change in net unrealized capital (7,154) (7,154)
gains
Change in non-admitted assets (897) (897)
Increase in asset valuation
reserve (221) (221)
Increase in equity in separate
accounts 1,161 1,161
Contribution to unassigned
surplus 14,000 14,000
Surplus note payment (14,960) (14,960)
Balance as of December 31, 1995 69,296 (14,600) 61,896
Net income 28,399 28,399
Change in net unrealized capital
gains 611 611
Change in non-admitted assets (687) (687)
Increase in asset valuation
reserve (259) (259)
Reserve adjustments (3,036) (3,036)
Surplus note payment (30,750) (30,750)
Balance as of December 31, 1996 $ 38,546 $ 10,428 $ 56,174
The accompanying notes are an integral part of
these statutory financial statements.
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
STATUTORY STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended
December 31,
1996 1995 1994
Cash flows from operating
activities:
Premiums and annuity
considerations received $ 48,180 $ 47,200 $ 52,641
Net investment income received 44,549 47,453 44,887
Other income received 3,378 3,373 5,401
Death and accident and
health benefits paid (26,511) (31,391) (32,188)
Surrender benefits paid (30,397) (29,864) (28,900)
Annuity benefits paid (43,900) (49,400) (60,252)
Net transfers from Separate
Accounts 25,610 26,427 35,253
Reserve changes due to modified
coinsurance 6,524 7,909 10,262
Other benefits paid (1,779) (1,815) (1,541)
Federal income taxes (paid)
refunded excluding tax on
capital gains (5,424) 847 (2,494)
Dividends paid to policyholders (242) (263) (236)
Commissions paid (3,428) (1,945) (3,340)
General expenses, taxes,
licenses and fees (12,085) (12,750) (12,905)
Net cash (used in) provided by
operations 4,475 5,781 6,588
Cash flows from investing
activities:
Proceeds from investments sold
or matured, net of tax on
capital gains 92,421 42,327 78,247
Cost of investments acquired (45,782) (32,102) (126,836)
Net decrease (increase) in
policy loans 846 (2,130) 2,071
Net cash provided by
(used in) investing activities 47,485 8,095 (46,518)
Cash flows from financing
activities and other
miscellaneous activities:
Surplus debenture payments (30,750) (14,960) (18,950)
Interest paid on surplus
debentures (5,538) (7,790) (7,355)
The accompanying notes are an integral part of
these statutory financial statements.
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
STATUTORY STATEMENTS OF CASH FLOWS
(in thousands)
Net (decrease) increase in
remittances and items not
allocated (7,216) 3,504 492
Net (increase) decrease in
receivable from affiliates (3,168) (2,394) 7,273
Other sources and
applications, net (1,882) (5,181) (778)
Net cash used in financing and
other miscellaneous activities (48,554) (26,821) (19,318)
Net increase (decrease) in
cash and short-term
investments 3,406 (12,945) (59,248)
Cash and short-term
investments at beginning
of year 70,057 83,002 142,250
Cash and short-term
investments at end of year $ 73,463 $ 70,057 $ 83,002
The accompanying notes are an integral part of
these statutory financial statements.
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Organization
Investors Life Insurance Company of North America
(Investors-NA or the Company) is a wholly-owned
subsidiary of InterContinental Life Corporation (ILCO),
a life insurance holding company. ILCO is controlled by
Financial Industries Corporation (FIC), a life insurance
holding company, through FIC's ownership of
approximately 46% of ILCO's outstanding common stock.
The Company is principally engaged in administering
existing portfolios of individual and group life
insurance policies and annuity products. The Company is
also engaged in the business of marketing and
underwriting individual life insurance and annuity
products in 49 states and the District of Columbia.
Such products are marketed through independent, non-
exclusive general agents. The Company also administers
an in-force book of health insurance business and credit
life and disability insurance.
The Company owns two insurance subsidiaries:
InterContinental Life Insurance Company (ILIC) and
Investors Life Insurance Company of Indiana (Investors-
IN). Investors-IN was acquired during 1995 (See Note
11). The Company also is the parent of a registered
broker-dealer, ILG Securities Corporation.
Summary of significant accounting policies
Basis of presentation
The accompanying statutory financial statements have
been prepared in conformity with accounting practices
prescribed or permitted by the Insurance Department of
the State of Washington (the Department). These
accounting practices differ in certain respects from
generally accepted accounting principles. The more
significant differences from generally accepted
accounting principles are:
(a) Policy reserves are based on statutory mortality
and interest requirements and are calculated
without consideration of withdrawals, which may
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
differ from generally accepted accounting
principles reserves based on more realistic
estimates of mortality, interest and withdrawals.
(b) Policy acquisition costs which vary with and are
directly related to the production of new business,
such as commissions, premium taxes and other
costs, are charged to operations as incurred.
Under generally accepted accounting principles,
such costs are deferred and amortized in proportion
to the ratio of estimated annual gross profits over
the expected life of the contracts.
(c) Deferred income taxes are not provided on
differences between the tax bases of assets and
liabilities and their reported amounts in the
statutory financial statements. Under generally
accepted accounting principles, deferred taxes, if
any, are provided on these differences.
(d) Certain assets which are designated as
"non-admitted" by the laws and regulations of the
State of Washington are charged to surplus. Under
generally accepted accounting principles, these
assets, less applicable allowance accounts, are
restored to the balance sheet.
(e) An asset valuation reserve (AVR) must be recorded
under statutory accounting practices. The AVR is
calculated in accordance with methods prescribed by
the National Association of Insurance Commissioners
(NAIC). Under generally accepted accounting
principles, no such liability is recorded.
(f) An interest maintenance reserve (IMR) must be
recorded under statutory accounting practices to
defer gains and losses recognized on the sale of
bonds prior to maturity. The resulting deferred
gain or loss is recognized over the remaining
period to maturity. Under generally accepted
accounting principles, no such liability is
recorded.
(g) Deferred premiums are recorded as an asset;
generally accepted accounting principles require
such balances to be offset against related policy
liabilities.
(h) Net intangible assets arising from the acquisition
of business assets are deferred and amortized in
relation to the business in force under generally
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
accepted accounting principles. In addition,
acquired assets are recorded at fair market value
at the date of acquisition. These purchase
accounting adjustments are not recognized under
statutory accounting practices.
(i) Fixed maturities classified as "available for sale"
are carried at market value under generally
accepted accounting principles. Unrealized gains
or losses are reflected as a separate component of
equity. These securities are carried at amortized
cost under statutory accounting practices.
(j) Policy reserves are reported net of amounts
recoverable from reinsurers. Under generally
accepted accounting principles ceded reserves are
recorded as a receivable on the balance sheet.
(k) The surplus debentures to ILCO are included as a
component of surplus. Under generally accepted
accounting principles, debentures are included as a
liability.
Investments
Investments are carried in accordance with valuation
procedures established by the NAIC. In general, bonds
are carried at amortized cost. Common stocks of
subsidiaries are carried at equity in the underlying net
assets of the subsidiaries. Equity in insurance
subsidiaries is determined in accordance with statutory
accounting practices and equity in other subsidiaries is
determined in accordance with generally accepted
accounting principles. Net income of the subsidiaries
is included in investment income and other changes in
the equity of the subsidiaries are included in
unrealized capital gains and losses. Other common
stocks are carried at NAIC market value. Short-term
investments include those securities which mature within
one year and are carried at cost, which approximates
market value.
Premiums and discounts on collateralized mortgage
obligations (CMOs) are amortized over the estimated
redemption period as opposed to the stated maturities.
An adjustment to the investment and investment income is
booked on a retrospective basis to reflect the amounts
that would have existed had the new effective yield been
applied since the acquisition of the CMOs. The
Company's general investment philosophy is to hold fixed
maturities for long-term investment. However, in
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
response to changing market conditions, liquidity
requirements, interest rate movements and other
investment factors, fixed maturities may be sold prior
to their maturity. Realized gains and losses on the
disposal of investments, net of amounts deferred as part
of the IMR, are recognized in net income on the specific
identification basis, except for stocks, for which the
first-in, first-out method is employed. Unrealized
gains and losses on equity securities are recorded
directly to surplus.
Mortgage loans on real estate and policy loans are
carried at their aggregate unpaid principal balance.
Real estate occupied by the Company and held for
investment is carried at cost less accumulated
depreciation. Real estate acquired in satisfaction of
debt is stated at the lower of fair market value or the
amount of debt, including capitalized taxes and
expenses. Depreciation is calculated using the straight
line method over 20 to 40 years. Depreciation expense
for 1996, 1995 and 1994 amounted to $1,197,128,
$2,030,518, and $1,624,560, respectively.
Approximately $66.9 and $74.7 million, or 17% and 18%,
of the total bond portfolio (at amortized cost) at
December 31, 1996 and 1995, respectively, consists of
private placement bonds. The market value of private
placement bonds is determined in good faith by
management with the assistance of an independent pricing
service. Factors considered in the market valuation of
such bonds include the quality of the issuer, interest
rates and maturity dates.
Aggregate reserves for life policies and contracts
Aggregate reserves for life policies and contracts are
based on statutory mortality tables and interest
assumptions ranging from 2.5% to 6% using the Net Level
Premium or the Commissioners' Reserve Valuation Method.
The mortality tables utilized are the 1941 CSO and 1958
CSO tables, except for contracts issued in 1986 and
later for which the 1980 CSO Mortality Table is used.
Premium deficiency reserves are held (when the gross
premium charged is less than the valuation net premium)
in the amount equal to the present value of such
deficiency.
Reserves for annuities in pay status are established
using the Progressive Annuity Table, A49 MOD 60 Table,
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
or the 1971 IAM Table with interest rate assumptions
ranging from 3% to 13.25%. During the deferred period,
annuity reserves are established using a retrospective
accumulation of cash value based on declared interest
rates which vary depending on the Company's expectation
of investment return.
The withdrawal characteristics of the Company's annuity
actuarial reserves and deposit liabilities (including
reserves for annuity contracts maintained in the
Company's separate accounts) at December 31, 1996 and
1995 are as follows (in thousands):
1996 1995
% of % of
Amount Total Amount Total
Subject to discretionary
withdrawal with
adjustments:
- with market value
adjustment $407,882 82.28% $409,606 81.77%
- at book value less
surrender charge 316 .06% 1,496 .30%
Subtotal 408,198 82.34% 411,102 82.07%
Subject to discretionary
withdrawal without
adjustment:
- at book value 78,448 15.83% 80,172 16.01%
Not subject to
discretionary withdrawal
provision 9,064 1.83% 9,640 1.92%
Total annuity actuarial
reserves and deposit
liabilities (gross) 495,710 100% 500,914 100%
Reinsurance ceded 3,201 3,194
Total annuity actuarial
reserves and deposit
liabilities (net) $492,509 $497,720
Policy and contract claims
Policy and contract claims include provisions for
reported claims and claims incurred but not reported.
The provision for claims incurred but not reported is
estimated based on Company experience. The liability
for other policy claims and benefits payable is subject
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
to the impact of changes in claim severity, frequency
and other factors. Although there is considerable
variability inherent in such estimates, management
believes that the liability recorded is adequate.
Premium recognition
Universal life insurance premiums are recognized as
earned when collected. Traditional life premiums, after
adjustment for deferred and uncollected premiums are
recognized as earned on the policy anniversary date.
Deferred life premiums represent modal premiums (other
than annual) to be collected in 1997 related to policy
years beginning in 1996. Uncollected premiums represent
premiums due but not collected in 1996. Both deferred
and uncollected premiums have been reduced by the
estimated cost of collection and are recorded as
premiums receivable. Annuity and supplementary contract
premiums are recognized as earned when collected.
Separate accounts
Assets held for purchasers of investment annuity
contracts or variable annuity contracts, and the related
liabilities, are included in the statutory balance
sheet. These accounts are maintained independently from
the general account of Investors-NA. Investment
earnings from these separate account assets accrue
directly to the policyholders and are not included in
the Company's statement of operations.
The following reconciles net transfers from separate
accounts per the Separate Accounts Statement to net
transfers to separate accounts per the Company's
Statement of Operations for the year ended December 31,
1996, 1995 and 1994 (in thousands):
1996 1995 1994
Transfers to separate
accounts per Separate
Accounts Statement $ 1,031 $ 884 $ 2,850
Transfers from separate
accounts per Separate
Accounts Statement
(28,438) (30,389) (41,145)
Net transfers from
separate accounts
per Separate Accounts
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
Statement $(27,407) $(29,505) $(38,295)
Reconciling adjustments:
Charges for investment
management,
administration and
contract guarantees 1,797 3,078 3,042
Net transfers from
separate accounts
per Statement of
Operations $(25,610) $(26,427) $(35,253)
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
Reinsurance
Reinsurance premiums, commissions, loss and expense
reimbursements and reserves related to reinsured
business are accounted for on bases consistent with
those used in accounting for the original policies
issued and the terms of the reinsurance contracts.
Admitted and non-admitted assets Assets must be included in
the statutory balance sheet at "admitted asset value".
"Non-admitted assets" are excluded through a charge to
unassigned surplus. Non-admitted assets at December 31,
1996 and 1995 are as follows (in thousands):
1996 1995
Mortgage loans $ 81 $ 71
Furniture and equipment 534 593
Agents' debit balances 655 148
Accounts receivable 1,129 739
Prepaid expenses 1,143 950
Other 1,744 2,098
$ 5,286 $ 4,599
Use of Estimates
The preparation of these statutory financial statements
requires management to make estimates and assumptions
that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the
reporting period. Actual results will differ from those
estimates.
2. INVESTMENTS
An analysis of the Company's net investment income for
the years ended December 31, 1996, 1995 and 1994 is as
follows (in thousands):
1996 1995 1994
Interest on bonds $33,800 $35,242 $32,660
Interest on short-term investments 3,548 3,439 4,508
Interest on policy loans 3,426 2,748 3,663
Interest on mortgage loans 1,349 1,502 2,312
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
Income on real estate 5,036 6,750 4,453
47,159 49,681 47,596
Equity in earnings (loss) of
wholly-owned subsidiary 2,380 3,043 735
Other income 40 3 545
Amortization of IMR 279 253 225
Gross investment income 49,858 52,980 49,101
Less investment expenses (3,158) (3,791) (3,007)
Net investment income $46,700 $49,189 $46,094
The carrying values of investments at December 31, 1996
and 1995 that were non-income producing for the
preceding twelve months were as follows (in thousands):
1996 1995
Bonds $ 0 $ 48
Mortgage loans 81 400
$ 81 $ 448
Realized capital gains and losses for the years ended
December 31, 1996, 1995 and 1994 are as follows (in
thousands):
1996 1995 1994
Gains on sales of real estate $ 23,183 $ -0- $ -0-
Gains on sales of bonds 272 463 255
Gains on sales of other
investments 1 10 122
Losses on sales of bonds (81) -0- (186)
Losses on sales of mortgage
loans -0- -0- (381)
Losses on mortgage loans
transferred to real estate (13) (107) -0-
Less amounts deferred as IMR (150) (301) 120
23,212 65 (70)
Income tax provision (9,576) (397) (181)
Net realized capital gains
(losses) $ 13,636 $ (332) $ (251)
Net realized capital gains for 1996 includes $23
million (before federal income tax) resulting from the
sale during the first quarter of 1996 of the Austin
Centre, a hotel/office complex, located in Austin,
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
Texas, which serves as the Company's home office
building. The selling price was $62.672 million, less
$1 million paid to a capital reserve account for the
purchaser. The property was purchased in 1991 for
$31.275 million. Proceeds from the sale of $15 million
were used to reduce ILCO's senior loan obligations. The
balance of the proceeds, net of federal income tax, was
retained and reinvested by the Company. The sale closed
on March 29, 1996. The Company continues to rent space
in the building under the terms of an operating lease
which expires in September 1997.
Unrealized gains and losses on common stocks as of
December 31, 1996 and 1995 are as follows (in
thousands):
1996 1995
Unrealized capital gains $ 1,060 $ 605
Unrealized capital losses (6,821) (6,977)
Net unrealized capital losses $ (5,761) $(6,372)
Proceeds from sales and maturities of bonds were
$38,730,892, $38,576,824, and $68,041,441 for the years
ended December 31, 1996, 1995 and 1994, respectively.
The carrying value and NAIC market value of investments
in bonds by category at December 31, 1996 are as follows
(in thousands):
Carrying Gross Un- Gross Un- NAIC
Value Realized Realized Market
Gains Losses Value
U.S. treasury securities
and obligations of U.S.
government agencies and
corporations $ 7,477 $ 505 $ 28 $ 7,954
Obligations of states and
political subdivisions 1,943 61 - 2,004
Corporate securities 148,238 870 2,026 147,082
Mortgage-backed 247,402 - - 247,402
securities
Total Bonds $405,060 $ 1,436 $ 2,054 $404,442
The carrying value and NAIC market value of investments
in bonds by category at December 31, 1995 are as follows
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
(in thousands):
Gross Un- Gross Un- NAIC
Carrying realized realized Market
Value Gains Losses Value
U.S. treasury securities
and obligations of U.S.
government agencies and
corporations $ 9,461 $ 895 $ 8 $ 10,348
Obligations of states and
political subdivisions 10,858 351 20 11,189
Corporate securities 129,627 982 649 129,960
Mortgage-backed
securities 269,845 -0- -0- 269,845
Total Bonds $419,791 $ 2,228 $ 677 $421,342
The carrying value and NAIC market value of bonds at
December 31, 1996 are shown below by contractual
maturity. Actual maturities may differ from contractual
maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment
penalties.
NAIC
Carrying Market
Value Value
(in thousands)
Due in one year or less $ 2,630 $ 2,630
Due after one year through five years 32,708 32,688
Due after five years through ten years 44,749 44,961
Due after ten years 77,571 76,761
157,658 157,040
Mortgage-backed securities 247,402 247,402
$ 405,060 $ 404,442
The Company's mortgage loans and real estate are
diversified by property type, location and issuer.
Mortgage loans are collateralized by the related
properties and such loans generally range from 15% to
80% of the properties value at the time the loan is
made.
3. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL
INSTRUMENTS
The estimated fair values of the Company's financial
instruments at December 31, 1996 are as follows (in
thousands):
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
Carrying Market
Value Value
(in thousands)
Financial assets:
Bonds $ 405,060 $ 405,309
Policy loans 46,090 46,090
Mortgage loans 13,323 14,066
Short-term investments 71,099 71,099
Cash 2,364 2,364
Financial liabilities:
Deferred annuities 77,657 72,256
Supplemental contracts 7,054 6,753
The following methods and assumptions were used to
estimate the fair value of each class of financial
instruments:
Bonds
Fair values are based on quoted market prices or dealer
quotes, except for notes from affiliates, which are
based on a discounted cash flow analysis using current
rates offered to the Company for debt of the same
remaining maturities.
Policy loans
Policy loans are, generally, issued with coupon rates
below market rates and are considered early payment of
the life benefit. As such, the carrying amount of these
financial instruments is a reasonable estimate of their
fair value.
Mortgage loans
The fair value of mortgage loans is estimated using a
discounted cash flow analysis using rates for BBB-rated
bonds with similar coupon rates and maturities.
Cash and short-term investments
The carrying amount of these instruments approximates
market value.
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
Deferred annuities and supplemental contracts
The fair value of deferred annuities is estimated using
cash surrender values. Fair values for supplemental
contracts is estimated using a discounted cash flow
analysis, based on interest rates currently offered on
similar products.
4. FEDERAL INCOME TAXES
Pursuant to a tax sharing agreement (the Agreement), the
Company will join in the filing of a consolidated income
tax return with its two wholly-owned life insurance
subsidiaries. Under the Agreement, the Company records
its federal income tax expense or benefit as if it filed
a separate federal income tax return. The Company's
federal income tax recoverable as of December 31, 1996
and 1995 is approximately $4,396,000 and $2,741,000,
respectively.
The Company elected to adjust its bases in assets in
accordance with Internal Revenue Code Section 338 as of
the date it was acquired by InterContinental Life
Corporation. As a result of this election, various
differences occur in the amount and timing of the
recognition of income and expenses for statutory and tax
purposes.
The components of income tax for 1996, 1995 and 1994 are
as follows (in thousands):
1996 1995 1994
Tax on underwriting profits
and investment income $ 1,016 $ (506) $(685)
Tax on capital gains $ 9,576 $ 399 $ 181
The following is a reconciliation of tax on operating
income at the statutory federal rate of 35% in 1996 and
1995 and 1994 to the Company's provision for federal
income taxes (in thousands):
1996 1995 1994
Tax on operating income at
statutory rates $ 5,523 $ 5,583 $ 4,793
Dividends received deduction (25) (124) (104)
Difference in recognition of income
and expenses relating to
adjustment in asset bases due to
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
Section 338 election (2,115) (2,127) (1,144)
Difference between statutory and
income tax policy reserves (870) (2,894) (3,764)
Differences in accounting for
deferred policy acquisition costs (227) 101 252
Accrual or market discount (362) (501) (459)
Equity in earnings of shareholders (833) (1,605) (257)
Income (loss) from separate
account -0- 406 (10)
Other, net (75) (317) 8
Provision for federal income taxes 1,016 $ (506) $ (685)
Under the provisions of pre-1984 life insurance tax
regulations, the Company was taxed on the lesser of
taxable investment income or income from operations,
plus one-half of any excess of income from operations
over taxable investment income. One-half of the excess
(if any) of the income from operations over taxable
investment income, an amount which was not currently
subject to taxation, plus special deductions allowed in
computing the income from operations, were placed in the
PSA. The aggregate accumulation in the account at
December 31, 1996 and December 31, 1995 approximated
$8,225,000. Federal income taxes will become payable on
this account at the then current tax rate when and to
the extent that the account exceeds a specific maximum,
or when and if distributions to stockholders, other than
stock dividends and other limited exceptions, are made
in excess of the accumulated previously taxed income.
At December 31, 1996 and December 31, 1995, the Company
had approximately $105,000,000 and $90,000,000
respectively in its Shareholders' Surplus Account from
which it could make distributions to ILCO without
incurring any federal tax liability. The amount of
dividends which may be paid by the Company is limited by
statutory regulations.
5. REINSURANCE
The Company reinsures portions of certain policies it
writes, thereby providing greater diversification of
risk and minimizing exposure on larger policies. The
Company's maximum retention on any one individual policy
is $250,000. Policy liabilities and contract-holder
deposit funds are reported in the accompanying statutory
financial statements net of such reinsurance ceded. The
Company remains liable to the extent the reinsurance
companies are unable to meet their obligations under the
reinsurance agreements.
The amounts deducted in the accompanying financial
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
statements for reinsurance ceded are as follows (in
thousands):
1996 1995
Aggregate reserve for life
policies and contracts $ 5,027 $ 5,047
Other policy claims and
benefits payable $ 821 $ 1,115
Estimated amounts recoverable from reinsurers on paid
claims were $2,462,239 and $3,464,336 at December 31,
1996 and 1995, respectively. Total premiums ceded
during 1996, 1995 and 1994 were $5,591,028, $6,393,048
and $9,322,207 respectively. Total premiums assumed
during 1996, 1995 and 1994 were $5,529,381, $851,223
and $651,042, respectively. The increase in premiums
assumed during 1996 is primarily attributable to the
intercompany reinsurance agreements with Family Life
Insurance Company discussed in Note 9.
6. CAPITAL AND SURPLUS
The insurance regulations of the State of Washington
require minimum capital of $2,400,000 and minimum
surplus of $2,400,000. The Company's Articles of
Incorporation require that the Company maintain capital
applicable to common stock of $2,400,000.
Under current Washington law, any proposed payment of a
dividend or distribution, together with dividends or
distributions paid during the preceding twelve months,
which exceeds the greater of (i) 10% of statutory
surplus as of the preceding December 31 or (ii)
statutory net gain from operations for the preceding
calendar year is called an "extraordinary dividend" and
may not be paid until either it has been approved, or a
waiting period shall have passed during which it has not
been disapproved, by the insurance commissioners.
Effective July 25, 1993 Washington amended its insurance
code to retain the "greater of" standard but enacted
requirements that prior notification of a proposed
dividend be given to the Washington Insurance
Commissioner and that dividends may be paid only from
earned surplus. As of December 31, 1996, Investors-NA
had earned surplus of $5,205,148. Since the law applies
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
only to dividend payments, the Company's ability to make
principal and interest payments on its surplus
debentures is not affected.
During 1992, the NAIC passed a model regulation for
minimum risk-based capital (RBC) requirements for life
and health insurance companies. The RBC model requires
that companies maintain certain amounts of capital and
surplus based on an insurer's investment and insurance
risk. The requirements are effective for the year ended
December 31, 1993. The ability of the Company to pay
dividends could be further limited by the RBC
requirements.
7. PERMITTED STATUTORY ACCOUNTING PRACTICES
The insurance regulations of the state of Washington
limit the amount an insurer may invest in the
obligations of any one corporation to 4% of the
insurer's statutory admitted assets. The Company held
$51,211,460 and $52,500,000 in subordinated notes issued
by Family Life Corporation, a wholly-owned subsidiary of
FIC, at December 31, 1996 and 1995, respectively. This
investment exceeds the limit on investments prescribed
by the State of Washington by $8,787,303 and $9,282,287
at December 31, 1996 and 1995, respectively. Prior to
the acquisition of these notes, Investors-NA received
written approval from the Washington Insurance
Department for the inclusion of the full amount of these
notes in its statutory admitted assets. At December 31,
1996 and 1995, this permitted practice increased
statutory surplus by $8,787,303 and $9,282,287 over what
it would have been under prescribed statutory accounting
practices. The Company employed no other permitted
statutory accounting practices that individually or in
the aggregate materially affected statutory surplus or
risk-based capital at December 31, 1996 or 1995.
On February 14, 1995, the Company and ILCO purchased the
stock of Meridian Life Insurance Company (See Note 11).
The terms of the purchase were approved by the Indiana
Department of Insurance.
8. EMPLOYEE BENEFIT PLANS
Retirement plan
The employees of Investors-NA are covered under the ILCO
Pension Plan. The ILCO Pension Plan is a
noncontributory defined benefit pension plan which
covers each employee of ILCO and its subsidiaries who
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
has attained 21 years of age and has completed one year
or more of service. Each affiliate company contributes
any amounts necessary (as actuarially determined) to
fund the benefits provided for its eligible employees.
ILCO made no contributions in 1996, 1995 or 1994.
The normal retirement benefit provided under the plan is
equal to 1.57% of final average eligible earnings less
65% of the participant's Social Security Covered
Compensation multiplied by the number of years of
credited service (up to 30 years). The compensation
used in determining benefits under the plan is the
highest average earnings received in any five
consecutive full-calendar years during the last ten
full-calendar years before the participant's retirement
date. The plan provides for reduced early retirement
benefits at age 60, with at least 5 completed years of
service.
Employee stock ownership plan
The Company, with its parent company and its affiliates,
participates in an Employee Stock Ownership Plan and a
related trust maintained by ILCO. The Plan generally
covers employees who have attained the age of 21 and
have completed one year of service. Vesting of benefits
to employees is based on number of years of service. No
contributions were made to the Plan in 1996, 1995, or
1994.
Stock option plans
Under ILCO's Incentive Stock Option Plan, certain key
employees of the Company have been granted options to
purchase shares of ILCO's common stock, at 100% of fair
market value on the date of grant. At December 31, 1996
and 1995, respectively, options to purchase 72,000 and
81,500 shares of ILCO's common stock were outstanding
and unexercised.
Under ILCO's Non-Qualified Stock Option Plan, the Board
of Directors of ILCO is authorized to issue options to
certain officers, directors, agents and others to
purchase up to 600,000 shares of ILCO's common stock at
100% of the fair market value on the date of grant but
in no case less than $3.33 per share. As of December
31, 1996 and 1995, respectively, options to purchase
174,000 and 302,000 shares of ILCO's common stock were
outstanding and unexercised.
Savings and investment plans
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
The Company's employees may participate in the ILCO
Savings and Investment Plan that allows eligible
employees who have met a one-year service requirement to
make contributions to the Plan on a tax-deferred basis.
A Plan participant may elect to contribute up to 16% of
eligible earnings on a tax deferred basis, subject to
certain limitations applicable to "highly compensated
employees" as defined in the Internal Revenue Code.
Plan participants may allocate contributions, and
earnings thereon, between several investment options.
The account balance of each participant is 100% vested
at all times. Prior to January 1, 1990, the Company
made matching contributions of up to 50% of the first 6%
of eligible compensation contributed by the plan
participants. Vesting of such company contributions is
based on number of years of service. The employer
contributions were discontinued effective January 1,
1990.
9. RELATED PARTIES
Included in capital and surplus at December 31, 1996 and
1995 are two (2) surplus debentures payable to ILCO with
initial principal balances of $140,000,000 and
$15,000,000. The outstanding balances of these notes at
December 31, 1996 and 1995 totaled $38,546,000 and
$69,296,000, respectively. The rate of interest payable
on the debentures is calculated as one and one-half
percent (1-1/2%) above the prime lending rate as
adjusted at the beginning of each quarter. The
$140,000,000 debenture is payable in 43 consecutive
quarterly installments of $2,000,000 each beginning
December 31, 1988, with a final payment of $54,000,000
due September 30, 1999. Payments on the $15,000,000
debenture are calculated based on available surplus, as
defined in the surplus debenture agreement, at the end
of each quarter. In accordance with the surplus
debenture agreements, the Company may prepay the
debentures so long as prepayment does not cause the
surplus funds of the Company to be reduced below
$10,000,000 (the statutory capital and surplus floor
prescribed by the State of Washington). The Company has
received written notification from the Washington
Department of Insurance that it does not need to obtain
specific permission from the Department prior to making
a scheduled principal payment on the debentures.
However, Investors-NA has voluntarily agreed with the
Washington Insurance Commissioner that it will provide
at least five days advance notice of payments which it
will make under the surplus debenture.
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
Principal payments totaling $29,750,000, $13,960,000 and
$17,950,000 were made on the $140,000,000 debenture
during 1996, 1995 and 1994, respectively, and payments
totaling $1,000,000, $1,000,000 and $1,000,000 were
made on the $15,000,000 debenture during 1996, 1995 and
1994, respectively. Total interest paid by the Company
on the surplus debentures was $5,538,469, $7,789,576 and
$7,524,636, during 1996, 1995 and 1994, respectively.
Cumulative interest paid by the Company on the
debentures was $88,589,477 at December 31, 1996. Unpaid
accrued interest on these debentures was $957,889 and
$1,827,207 at December 31, 1996 and 1995, respectively.
The Company has a net balance due from related parties
at December 31, 1996 and 1995 of $7,995,000 and
$3,511,000, respectively. The balance resulted from
transactions consisting of reimbursement of expenses and
receipts and disbursements of funds related to an
administrative service agreement between various
affiliates.
Bonds include $59,940,193 of notes receivable from
affiliates which comprise (a) a loan of $21,375,000
Family Life Corporation (FLC); (b) a loan of $29,836,460
to FLC; (c) a loan of $4,475,469 to Family Life
Insurance Investment Company (FLIIC); and (d) a loan of
$2,500,000 to FIC plus $1,753,264 of additions to said
note in accordance with the terms thereof. FLC and
FLIIC are wholly-owned subsidiaries of FIC. Interest
received by the Company for all loans during 1996, 1995
and 1994 amounted to $6,886,966, $6,044,622 and
$5,993,512, respectively. Common stocks include 53,400
shares of ILCO which had a book value of $380,478 and a
statement value of $359,526 at December 31, 1996. The
Company also holds 145,500 common shares of FIC which
has a book value of $229,890 and a statement value of
$1,165,427, at December 31, 1996, 55,000 common shares
of ILIC which had a book value of $9,602,666 and a
statement value of $9,526,282 at December 31, 1996,
303,000 common shares of Investors-IN which had a book
value of $21,768,922 and a statement value of
$15,085,656 at December 31, 1996 and 300 common shares
of ILG Securities Corporation which had a book value of
$227,038 and a statement value of $198,664 at December
31, 1996. ILIC, Investors-IN and ILG Securities
Corporation are wholly-owned subsidiaries of the
Company.
Rent and certain other operating expenses aggregating
approximately $305,000, $830,000, and $585,000, were
paid to FIC in 1996, 1995, and 1994, respectively, by
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
the Company. The Company shares office facilities with
various affiliates and is a party to an intercompany
expense allocation agreement. Under this agreement, the
Company was reimbursed $16 million, $16 million and $13
million, in 1996, 1995, and 1994, respectively, for
shared expenses it paid on behalf of its affiliates.
In 1995, Investors-NA entered into a reinsurance
agreement with Family Life pertaining to universal life
insurance written by Family Life. The reinsurance
agreement is on a co-insurance basis and applies to all
covered business with effective dates on and after
January 1, 1995. The agreement applies to only that
portion of the face amount of the policy which is less
than $200,000; face amounts of $200,000 or more are
reinsured by Family Life with a third party reinsurer.
In 1996, Investors-NA entered into a reinsurance
agreement with Family Life, pertaining to annuity
contracts written by Family Life. The agreement applies
to contracts written on or after January 1, 1996. These
reinsurance arrangements reflect management's plan to
develop universal life and annuity business at
Investors-NA, with Family Life concentrating on the
writing of term life insurance products.
In October of 1993, ILCO entered into an agreement with
the Chairman of the Board of Directors whereby the
Chairman agreed to surrender all of his remaining common
stock options for consideration of $6,847,000. Prior to
entering into this agreement, ILCO had accrued
compensation expense related to these options of
$4,225,000. Upon entering into the agreement,
additional compensation was recorded totaling $2,622,000
for the year ended December 31, 1993 to increase to a
compensation to the surrender price. Accordingly, a
liability was recorded for the unpaid portion of the
agreement. Pursuant to this agreement, during 1993 the
Chairman was paid $3,237,120 for cancellation of 240,000
of these options and during 1994 he was paid $997,520
for cancellation of 68,500 options and $379,143 for
federal income tax reimbursement relating to the
cancellation of options in 1993. During 1995, the
Chairman was paid $836,582 for the cancellation in 1995
of options to purchase 50,000 shares of ILCO's common
stock, $156,323 for the federal income tax reimbursement
relating to the cancellation in 1994 of options to
purchase 68,500 shares and $127,608 as the final payment
relating to the cancellation in 1993 of options to
purchase 240,000 shares. The federal income tax
reimbursements are expensed in the period when they
occurred.
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
During 1996, the Company paid the Chairman: (i)
$1,862,000 for the cancellation in 1996 of options to
purchase 121,500 shares of the Company's common stock,
plus interest at the rate of 8% per year on such amount
for a one year period (for a total of $2,011,737); (ii)
$120,700 for the federal income tax reimbursement
relating to the cancellation in 1995 of options to
purchase 50,000 shares of the Company's common stock;
and (iii) $313,960 for the federal income tax
reimbursement relating to the 1996 options cancellation.
During 1994, the Chairman was paid a bonus aggregating
$1,076,000, of which $469,000 was allocated to the
Company.
On June 12, 1991, FIC granted to the Company non-
transferrable options to purchase up to a total of 9.9%
of the common shares of FIC. These options were granted
in conjunction with the senior subordinated loan of
$22.5 million and a senior loan of $2.5 million issued
to the Company by FIC and a subsidiary, relating to the
acquisition of Family Life Insurance Company. The
option price is $10.50 per share, equivalent to the then
current market price, subject to adjustment to prevent
the effect of dilution. As a result of FIC's five-for-
one stock split, effective in November, 1996, the option
price is currently $2.10 per share. The options provide
for their expiration upon final repayment of the
respective loans.
Pursuant to a data processing agreement with a major
service company, the data processing needs of ILCO's and
FIC's insurance subsidiaries were provided by an off
site third party until November 30, 1994. Commencing
December 1, 1994, all of those data processing needs are
provided to ILCO's and FIC's Austin, Texas and Seattle,
Washington facilities by FIC Computer Services, Inc.
("FIC Computer"), a subsidiary of FIC. Each of FIC's
and ILCO's insurance subsidiaries has entered into a
data processing agreement with FIC Computer whereby FIC
Computer provides data processing services to each
subsidiary for fees equal to such subsidiary's
proportionate share of FIC Computer's actual costs of
providing those services to all of the subsidiaries.
The Company paid $1,748,402, $1,290,306 and $181,971 to
FIC Computer for data processing services provided
during 1996, 1995 and 1994, respectively.
10. COMMITMENTS AND CONTINGENCIES
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
The Company is a defendant in certain legal actions
related to the normal business operations of the
Company. Management believes that the resolution of
such matters will not have a material impact on the
financial statements.
11. ACQUISITION OF SUBSIDIARY
On February 14, 1995, the Company and its parent (ILCO)
purchased the stock of Meridian Life Insurance Company
(Meridian Life), an Indianapolis-based life insurer,
from Meridian Mutual Insurance Company. The cash
purchase price was $17.1 million, net of post-closing
adjustments. Under the terms of the purchase agreement,
ILCO acquired approximately 82% of the outstanding stock
of Meridian Life for $14 million, and the Company
acquired approximately 18% of the common stock of
Meridian Life for the remaining portion of the purchase
price. Immediately following the closing of the
transactions, ILCO contributed the shares acquired by it
to the unassigned surplus of the Company. As a result,
Meridian Life is a wholly-owned subsidiary of the
Company. Subsequent to the purchase, Meridian Life's
name was officially changed to Investors Life Insurance
Company of Indiana.
Report of Independent Accountants
To the Board of Directors of
Investors Life Insurance Company
of North America
We have audited the accompanying statutory balance
sheets of Investors Life Insurance Company of North
America as of December 31, 1996 and 1995, and the
related statutory statements of operations, of changes
in capital and surplus, and of cash flows for each of
the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express
an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are
free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles
used and significant estimates made by management, as
well as evaluating the overall financial statement
presentation. We believe that our audits provide a
reasonable basis for our opinion.
As described in Note 1, these financial statements were
prepared in conformity with accounting practices
prescribed or permitted by the Insurance Department of
the State of Washington, which practices differ from
generally accepted accounting principles. The effects
on the financial statements of the variances between the
statutory basis of accounting and generally accepted
accounting principles, although not reasonably
determinable, are presumed to be material.
In our opinion, because of the effects of the matters
referred to in the preceding paragraph, the financial
statements referred to above do not present fairly, in
conformity with generally accepted accounting
principles, the financial position of Investors Life
Insurance Company of North America at December 31, 1996
and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended
December 31, 1996.
Also, in our opinion, the financial statements referred
to above present fairly, in all material respects, the
statutory financial position of Investors Life Insurance
Company of North America at December 31, 1996 and 1995,
and the results of its operations and its cash flows for
each of the three years in the period ended December 31,
1996, on the basis of accounting described in Note 1.
Price Waterhouse LLP
Dallas, Texas
March 25, 1997
REGISTRATION STATEMENT
ON
FORM N-4
Part C: OTHER INFORMATION
Item 24. Financial Statements and Exhibits
The following financial statements and exhibits are
filed with this Post-Effective Amendment:
(a) Financial Statements:
Part A: None
Part B:
(i) Registrant:
Combined Balance Sheet, as of December
31, 1996
Individual Statements of Operations, For
the Year Ended December 31, 1996
Individual Statements of Changes in Total
Assets, For the Years Ended December 31,
1996 and December 31, 1995
Notes to Financial Statements
Report of Independent Accountants
(ii) Depositor:
Statutory Balance Sheets, as of December
31, 1996 and December 31, 1995
Statutory Statements of Operations, for
the Years Ended December 31, 1996,
December 31, 1995 and December 31, 1994
Statutory Statements of Changes in
Capital and Surplus, for the Years Ended
December 31, 1996, December 31, 1995 and
December 31, 1994
Statutory Statements of Cash Flows, for
the Years Ended December 31, 1996,
December 31, 1995 and December 31, 1994
C-1
Notes to Statutory Financial Statements
Report of Independent Accountants
(b) Exhibits:
(i) Schedule for computation of performance
quotations of Money Market Division.
Item 25. Directors and Officers of the Depositor
Name and Principal Position and Offices
Business Address* with Depositor
Roy F. Mitte Chairman, President and
Chief Executive Officer,
Director
James M. Grace Executive Vice President,
Chief Financial Officer
and Treasurer; Director
Eugene E. Payne Executive Vice President,
Chief Operations Officer
and Secretary; Director
Jeffrey H. Demgen Executive Vice President
and Chief Sales and
Marketing Officer
Theodore A. Fleron Senior Vice President,
General Counsel and
Assistant Secretary;
Director
Dale E. Mitte Senior Vice President and
Chief Underwriter;
Director
Steven P. Schmitt Senior Vice President and
Assistant Secretary;
Director
David C. Hopkins Senior Vice President and
Controller
Thomas C. Richmond Senior Vice President
Walter Reed Senior Vice President
C-2
Name and Principal Position and Offices
Business Address* with Depositor
John M. Welliver Senior Vice President
Roberta A. Mitchell Senior Vice President
John W. Peasley Senior Vice President
Bradley A. Groff Senior Vice President
Laurie C. Black Senior Vice President
Ricardo A. Cruz Vice President
Richard M. Getter Vice President
Robert D. Rue Vice President
Peter A. Tritz Vice President
Cindy Gunderson Vice President
Cindy Hall-Davis Vice President
Laurie Cleveland Vice President
Sherry Jennings Vice President
Sherry Stroud Vice President
Joanne Shattuck Vice President
*701 Brazos Street, Austin, Texas 78701
C-3
Item 26. Persons Controlled by or Under Common Control
with the Depositor or Registrant
Financial Industries Corporation (a financial
services holding company, incorporated in
Texas)
:
:
: 46.00%
InterContinental Life Corporation (a financial
services holding company incorporated in New
Jersey)
:
:
: 100%
Investors Life Insurance Company of North
America
(a Washington Life insurance company)
: : :
: : :
: 100% : : 100%
:
InterContinental Life : ILG Securities
Corporation Insurance Company : (a
registered broker-dealer
(a New Jersey life : incorporated in
Pennsylvania)
insurance company) :
:
: 100%
:
Investors Life Insurance Company of
Indiana
(an Indiana life insurance company)
C-4
Item 27. Number of Contract Owners
As of December 31, 1996 the number of contract owners of
qualified and non-qualified contracts (single payment
and flexible payment) issued by the Registrant was as
follows:
(i) Money Market Division:
Qualified..................................
158
Non-qualified..............................
80
(ii) Growth and Income II Division:
Qualified..................................
629
Non-qualified..............................
173
(iii) Income Division:
Qualified..................................
179
Non-qualified..............................
164
(iv) Voyager Division
Qualified...................................
44
Non-qualified...............................
18
C-5
Item 28. Indemnification
(a) The Depositor: Article VII, Section 7.1 of the
By-Laws of Investors Life Insurance Company of
North America provides, in relevant part, that:
This Corporation shall indemnify its directors
and officers to the full extent permitted by
the Washington Business Corporation Act now or
hereafter in force. However, such indemnity
shall not apply on account of: (1) acts or
omissions of the director or officer finally
adjudged to be intentional misconduct or a
knowing violation of law; (2) conduct of the
director finally adjudged to be in violation of
RCW 23B.08.310; or (3) any transaction with
respect to which it was finally adjudged that
such director or officer personally received a
benefit in money, property, or services to
which the director or officer was not legally
entitled.
This Corporation shall advance expenses for
such persons as authorized by separate
directors' resolutions or contracts.
(b) The Principal Underwriter: Article VII,
Section 7.4 of the By-Laws of ILG Securities
Corporation provide, in relevant part, that:
The corporation shall indemnify any person who
was or is a party or is threatened to be made a
party to any threatened, pending or completed
action, suit or proceeding, whether civil,
criminal, administrative or investigative
(other than an action by or in the right of the
corporation) by reason of the fact that he is
or was a director, officer, or agent of the
corporation, or is or was serving at the
request of the corporation as a director,
officer, employee or agent of another
corporation, partnership, joint venture, trust
or other enterprise, against expenses
(including attorneys' fees), judgments, fines
and amounts paid in settlement actually and
reasonably incurred by him in connection with
such action, suit or proceeding if he acted in
good faith and in a manner he reasonably
believed to be in or not opposed to the best
interests of the corporation and, with respect
to any criminal action or proceeding, had no
reasonable cause to believe his conduct was
unlawful. The termination of any action, suit
or proceeding by The termination of any action,
suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of
itself, create
C-6
a presumption that the person did not act in
good faith and in a manner which he reasonably
believed to be in or not opposed to the best
interests of the corporation, and, with respect
to any criminal action or proceeding, had
reasonable cause to believe that his conduct
was unlawful.
The corporation shall indemnify any person who
was or is a party or is threatened to be made a
party to any threatened, pending or completed
action, suit or proceeding by or in the right
of the corporation to procure a judgment in its
favor of the fact that he is or was a director,
officer, employee or agent of the corporation,
or is or was serving at the request of the
corporation as a director, officer, employee or
agent of another corporation as a partnership,
joint venture, trust of other enterprise,
against expenses (including attorneys' fees),
actually and reasonably incurred by him in
connection with the defense or settlement of
such action, suit or proceeding if he acted in
good faith and in a manner he reasonably
believed to be in or not opposed to the best
interests of the corporation and expect that no
indemnification shall be made in respect of any
claim, issue or matter as to which such person
shall have been adjudged to be liable for
negligence or misconduct in the performance of
his duty to the corporation unless and only to
the extent that the Court of Chancery or the
court in which such action, suit or proceeding
was brought shall determine upon application
that, despite the adjudication of liability but
in view of all the circumstances of the case,
such person is fairly and reasonably entitled
to indemnity for such expenses which the Court
of Chancery or such other court shall deem
proper.
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in
the Securities Act of 1933, and is therefore,
unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit
or proceeding) is asserted against the Registrant by
such director, officer
C-7
or controlling person in connection with the securities
being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction on the question whether such
indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
Item 29. Principal Underwriter:
(a) The principal underwriter for the Contracts
issued by the Registrant is ILG Securities
Corporation, 701 Brazos Street, Austin, Texas
78701. ILG Securities Corporation also acts as
a principal underwriter for variable annuity
contracts issued by Life Insurance Company of
North America (an indirect, wholly-owned
subsidiary of CIGNA Corporation), and funded
through Life Insurance Company of North America
Separate Account A.
(b) The officers and directors of ILG Securities
Corporation are as follows:
Name and Positions and offices
Business Address* with Underwriter
James M. Grace Director
Eugene E. Payne Director
Roberta A. Mitchell President; Director
Ricardo A. Cruz Treasurer
David C. Hopkins Assistant Treasurer
Theodore A. Fleron Secretary
*701 Brazos Street, Austin, Texas 78701.
C-8
(c) The following table sets forth information
pertaining to commissions and other
compensation received by ILG Securities
Corporation from Investors Life Insurance
Company of North America during the fiscal year
ended December 31, 1996:
(1) Net underwriting discounts
and commissions*........................$ 738.35
(2) Compensation on redemption or
annuitization............................ -0-
(3) Brokerage commissions.................... -0-
(4) Compensation**...........................$ -0-
*Represents amounts paid to principal underwriter.
**Represents amounts paid to principal underwriter
by Sponsor in connection with the provision of
ongoing Contract Owner administrative services.
Item 30. Location of Accounts and Records
Books or other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, and
Rules 31a-1 to 31a-3 thereunder, and records relating to
shareholders are maintained by Investors Life Insurance
Company of North America, Separate Accounting Unit, 701
Brazos Street, Austin, Texas 78701. Corporate records
pertaining to the Depositor, including its Certificate
of Incorporation, By-Laws and Resolution of Board of
Directors authorizing establishment of the Separate
Account, are maintained by its Secretary, whose business
address is 701 Brazos Street, Austin, Texas 78701.
Item 31. Management Services
Not Applicable.
C-9
Item 32. Undertakings
The Sponsor of the Registrant hereby undertakes:
(a) to file a post-effective amendment to this
registration statement as frequently as is
necessary to ensure that the audited financial
statements in the registration statement are
never more than 16 months old, so long as
payments under the Contracts may be accepted;
(b) to include in the prospectus a form letter
which the investor can remove to send to the
Depositor to obtain a copy of the Statement of
Additional Information.
(c) to mail a copy of the Statement of Additional
Information promptly upon receipt of (i) a
written request on the form described in sub-
paragraph (b), above, or other written request
directed to the address shown on the cover page
of the current prospectus of the Registrant, or
(ii) an oral request to the telephone number
shown on the cover page of the current
prospectus of the Registrant.
(d) that it intends to rely upon the provisions of
the SEC staff no-action letter dated November
28, 1988, issued to the American Council of
Life Insurance (Ref. No. IP-6-88). The sponsor
of the Registrant represents that it has
complied with the provisions of paragraphs (1)
to (4) of said letter.
C-10
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, the Sponsor of the Registrant has caused this
Post-Effective Amendment No. 22 to the Separate Account
I Registration Statement to be duly signed on behalf of
the Registrant in the City of Austin, and the State of
Texas, on the 23rd day of April, 1997.
SEPARATE ACCOUNT I
(Registrant)
By: Investors Life Insurance Company
of North America
By: /s/ Roy F. Mitte
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of paragraph (b)(4) of Rule
485 under the Securities Act of 1933, the Registrant
hereby certifies that this Post-Effective Amendment No.
22 meets all of the requirements for effectiveness
pursuant to paragraph (b) of said Rule 485.
Pursuant to the requirements of the Securities Act of
1933, this Separate Account I Registration Statement has
been signed below by the following persons in the
capacities and on the date indicated:
/s/ Roy F. Mitte /s/ James M. Grace
Roy F. Mitte James M. Grace
Principal Executive Officer Principal Financial
Officer
Principal Accounting
Director Officer
/s/ Eugene E. Payne /s/ Theodore A. Fleron
Eugene E. Payne Theodore A. Fleron
Director Director
/s/ Jeffrey H. Demgen /s/ Steven P. Schmitt
Jeffrey H. Demgen Steven P. Schmitt
Director Director
/s/ Dale E. Mitte /S/ Dale E. Mitte
Dale E. Mitte Dale E. Mitte
C-11
EXHIBIT INDEX
Exhibit No. Page No. Description
1 * Resolution of board
of directors of
Investors Life
Insurance Company of
North America
authorizing the
establishment of the
registrant.
2 Not applicable
3 (a) * Distribution
Agreement between
Investors Life
Insurance Company of
North America and
INA Security
Corporation.
3 (b) * Specimen Agreement
between principal
distributor and
dealer.
3 (c) * Specimen Agreement
between principal
distributor and its
agents (registered
representatives).
4 (a) * Form of single
premium variable
annuity contract.
4 (b) ** Form of flexible
premium variable
annuity contract.
4 (c) Form of endorsement
conforming the
single payment and
flexible payment
variable annuity
contracts to the
requirements of
section 72(s) of the
Internal Revenue
Code of 1954, as
amended by section
222(b) of the Tax
Reform Act of 1984.
Filed with Post-
Effective Amendment
No. 4 (Form S-6)
dated March 1, 1985,
and incorporated
herein by reference.
Exhibit No. Page No. Description
5 (a) * Form of application
for single payment
variable annuity
contract.
5 (b) ** Form of application
for flexible payment
variable annuity
contract.
6 * Certificate of
incorporation and
by-laws of Investors
Life Insurance
Company of North
America.
7 Not applicable
8 (a) * Participation
Agreement between
Investors Life
Insurance Company of
North America and
CIGNA Annuity Funds
Group (formerly
CIGNA Annuity Fund,
Inc.).
8 (b) * E x p e n s e
Reimbursement
Agreement between
Investors Life
Insurance Company of
North America and
CIGNA Investments,
Inc. (formerly INA
Capital Management
Corporation, Inc.).
8 (c) Participation
Agreement between
Investors Life
Insurance Company of
North America,
Putnam Capital
Manager Trust and
Putnam Mutual Funds
Corp. Filed with
Post- Effective
Amendment No. 20
dated April 14, 1995
and incorporated by
reference.
8(d) Administrative
Services Agreement
between Investors
Life Insurance
Company of North
America and Putnam
I n v e s t m e n t
Management, Inc.).
Filed with Post-
Effective Amendment
No. 20 dated April
14, 1995 and
incorporated by
reference.
Exhibit No. Page No. Description
9 Opinion of counsel
as to the legality
of the securities
filed with Pre-
E f f e c t i v e :
Amendment (Form S-6)
dated June 3, 1982,
and incorporated by
reference.
10(a) 198 C o n s e n t o f
Independent
Accountants
11 Not Applicable
12 Not Applicable
13 Schedule for
computation of
performance returns.
Filed with Post-
Effective Amendment
No. 11 (Form N-4),
and incorporated
herein by reference.
14 199 Financial Data
Schedule
* Filed as an exhibit to Amendment No. 1 to Form N-
8B-2
(File No. 811-3470) dated July 7, 1982, and
incorporated herein by reference.
** Filed as an exhibit to Amendment No. 3 to Form N-
8B-2
(File No. 811-3470) dated September 24, 1982, and
incorporated herein by reference.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of
Additional Information constituting part of this Post-
Effective Amendment No. 22 to the Registration Statement
on Form N-4 (No. 2-77712) of our report dated March 25,
1997 relating to the statutory financial statements of
Investors Life Insurance Company of North America and of
our report dated February 19, 1997 relating to the
financial statements of Investors Life Insurance Company
of North America Separate Account I, which appear in
such Statement of Additional Information.
Price Waterhouse LLP
Dallas, Texas
April 21, 1997
