As Filed with the Securities and
Exchange Commission on April 28, 1998
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. 24 X
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 24 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,
1998, 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 11, 1998.
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<PAGE>
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 50 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, 1998
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.
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.
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.
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 five 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.
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.
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) 7% 7% 7% 7%
Exchange Fee (2) $ 5.00 $ 5.00 $ 5.00 $ 5.00
B. Annual Contract Fee
(3) $30.00 $30.00 $30.00 $30.00
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% 0.61% 0.47% 0.54%
All Other Expenses 0.09% 0.08% 0.04% 0.05%
Total Fund Annual
Expenses 0.54% 0.69% 0.51% 0.59%
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 1997. The inclusion of the
1997 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.
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 $ 91.62 $ 93.08 $ 91.33 $ 92.11
3 years 114.97 119.49 114.06 116.48
5 years 138.41 146.16 136.85 141.00
10 years 223.88 240.23 220.58 229.35
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 115.27 199.99 114.97 117.68
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 $ 19.48 $ 21.06 $ 19.17 $ 20.01
3 years 60.25 65.02 59.29 61.84
5 years 103.54 111.56 101.93 106.22
10 years 223.88 240.23 220.58 229.35
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.
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
1997 $ 2.0665 $ 2.1483 684,786
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
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
1997 $ 2.0518 $ 2.1332 1,065,062
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
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
1997 $ 6.1814 $ 7.6183 2,818,975
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
* = 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.
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
1997 $ 5.2962 $ 6.5265 1,753,068
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
* = 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.
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
1997 $ 3.1564 $ 3.4066 920,186
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
INCOME DIVISION
NON-TAX QUALIFIED
YEAR ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION
BEGINNING OF END OF PERIOD OUTSTANDING AT
PERIOD END OF PERIOD
1997 $ 3.1183 $ 3.3656 1,981,587
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
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
1997 $ 2.4606 $ 3.1215 738,882
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
* = Prior to April 18, 1995, the Voyager Division was named the
Aggressive Equity Division.
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
1997 $ 2.4563 $ 3.1160 653,214
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
* = 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 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.
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 "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.
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.
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 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.
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. As of April 10, 1998, the
reimbursement arrangement was terminated by mutual agreement
between Putnam Management and the Insurance Company. <R/>
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.
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
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
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.
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.
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.
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.
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.
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.
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 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.
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".
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:
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 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.
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.
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
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 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 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.
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.
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 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.
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,
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
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.
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 of this Prospectus. The
Insurance Company believes that the suit is without merit and
intends to vigorously defend this matter.
In August, 1997, another individual filed a similar action in
Travis County, Texas against the corporate entities identified
above. The lawsuit involves the same type of policy and includes
allegations which are substantially identical to the allegations
in the first action. The named plaintiff also seeks class
certification. The Company believes that the court would consider
class certification with respect to only one of these actions.
The Company also believes that this action is without merit and
intends to vigorously defend this matter.
<R/>
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
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.
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":
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
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
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
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
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, 1998),
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
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, 1998). 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:
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, 1998
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, 1998
Flexible Payment
Individual Variable Annuity Contracts
Issued by
ILCO Investors Life Insurance Company
<PAGE>
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" 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 49 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, 1998<PAGE>
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 49
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.
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.
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.
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 five 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.
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.
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% 0.61% 0.47% 0.54%
All Other Expenses 0.09% 0.08% 0.04% 0.05%
Total Fund Annual
Expenses 0.54% 0.69% 0.51% 0.59%
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 during calendar year 1997. The inclusion of the 1997 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.
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 $ 91.44 $ 92.90 $ 91.14 $ 91.93
3 years 114.41 118.93 113.50 115.92
5 years 137.44 145.20 135.89 140.04
10 years 221.83 238.22 218.53 227.32
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 $ 19.29 $ 20.86 $ 18.97 $ 19.81
3 years 59.66 64.43 58.70 61.25
5 years 102.54 110.57 100.93 105.23
10 years 221.83 238.22 218.53 227.32
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.
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
1997 $ 2.0665 $ 2.1483 684,786
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
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
1997 $ 2.0518 $ 2.1331 1,065,062
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
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
1997 $ 6.1814 $ 7.6183 2,818,975
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
* = 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.
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
1997 $ 5.2962 $ 6.5265 1,753,068
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
* = 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.
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
1997 $ 3.1564 $ 3.4066 920,186
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
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
1997 $ 3.1183 $ 3.365 1,981,587
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
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
1997 $ 2.4606 $ 3.1215 738,882
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
* = Prior to April 18, 1995, the Voyager Division was named the
Aggressive Equity Division.
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
1997 $ 2.4563 $ 3.1160 653,214
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
* = 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.
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.
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, 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 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.
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.
Putnam Investment Management, Inc. ("Putnam Management") is the
investment adviser to Putnam Variable Trust. Putnam Management
is 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.
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. As of April 10,
1998, the reimbursement arrangement was terminated by mutual
agreement between Putnam Management and the Insurance Company.
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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.
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.
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")).
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 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.
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.
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.
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 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.
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 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.
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".
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.
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 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.
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 the 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.
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
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 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
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.
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
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
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
mad 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 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.
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.
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 of this Prospectus. The
Insurance Company believes that the suit is without merit and
intends to vigorously defend this matter.
In August, 1997, another individual filed a similar action in
Travis County, Texas against the corporate entities identified
above. The lawsuit involves the same type of policy and includes
allegations which are substantially identical to the allegations
in the first action. The named plaintiff also seeks class
certification. The Company believes that the court would consider
class certification with respect to only one of these actions.
The Company also believes that this action 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
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 30,1998) 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
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, 1998). 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:
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, 1998
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, 1998
Single Payment
Individual Variable Annuity Contracts
Issued by
ILCO Investors Life Insurance Company
<PAGE>
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, 1998
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
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
Texas.
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
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 45.40% of the outstanding common stock of ILCO
(approximately 60.80% if certain options were to be 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. The combined beneficial ownership of
Mr. Mitte with respect to ILCO's common stock, taking into account FIC's
60.80% interest in ILCO's common stock, is 60.94%. 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 Investors Life Insurance Company of Indiana (formerly
InterContinental Life Insurance Company) ("Investors-IN"). The
beneficial ownership of Investors-NA represents 7.71% of ILCO's
outstanding common stock. Investors-IN is a wholly-owned
subsidiary of Investors-NA. The administrative offices of
Investors-NA Investors-IN are located at 701 Brazos Street,
Austin, Texas 78701; (iv) Investors-IN owns 281,560 shares of
ILCO's common stock (or 6.48%); and (v) Fidelity Management &
Research Company ("Fidelity") owns 432,700 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 432,700 shares of ILCO common
stock, which constituted 9.96% of ILCO's outstanding shares as of
March 16, 1998. 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,
1997, approximately 11.8% of the assets of the Growth
and Income II Division and 71.8% of the assets of the
Voyager Division were attributable to such contributed capital.
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.
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 1995 to 1997, with respect to
the Contracts:
Year Amount
1997 $ 784
1996 $ 738
1995 $ 116
(d) Putnam Investment Management,Inc. ("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 January 1, 1997
to December 31, 1997, the amount of this
reimbursement was $71,454.61. As of April 10, 1998, the
reimbursement arrangement was terminated by mutual agreement
between Putnam Management and the Insurance Company.
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, 1997, the annualized
"current yield" for the tax qualified and non-tax qualified
subdivisions of the Money Market Divisions was 4.77% for
Single Payment Contracts and 4.75% for Flexible Payment
Contracts. The annualized "effective yield" of each such
subdivision for such period was 4.98% for Single Payment
Contracts and 4.96% 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.
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.
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.
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.
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.
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.
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.
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
SEPARATE ACCOUNT I
COMBINED BALANCE SHEET
DECEMBER 31, 1997
ASSETS
Investments at Market Value
(Notes 1 and 2):
Portfolios of Putnam Variable Trust:
Putnam Variable Trust Money Market
1,471,113 qualified shares (cost $1,471,113) $1,471,113
2,271,946 non-qualified shares (cost $2,271,946) 2,271,946
Putnam Variable Trust U.S. Government
and High Quality Bond
233,584 qualified shares (cost $3,092,161) 3,134,697
496,958 non-qualified shares (cost $6,479,860) 6,669,237
Putnam Varialbe Trust Growth and Income
689,602 qualified shares (cost $14,430,607) 19,529,543
68,725 shares owned by (cost $1,438,147) 1,946,305
Investors Life
335,230 non-qualified shares (cost $6,885,724) 9,493,714
68,776 shares owned by (cost $1,412,683) 1,947,739
Investors Life
Putnam Variable Trust Voyager
19,081 qualified shares (cost $486,638) 745,672
39,937 shares owned by (cost $1,018,574) 1,560,755
Investors Life
12,216 non-qualified shares (cost $305,452) 477,417
39,867 shares owned by (cost $996,814) 1,558,007
Investors Life
Total Assets $50,806,145
CONTRACT OWNERS' EQUITY
Contract Owners' Equity (Notes 3 and 7):
Putnam Variable Trust Money Market
684,786 qualified accumulation ($2.1482813 per unit) $1,471,113
units outstanding
1,065,062 non-qualified accumulation ($2.1331583 per unit) 2,271,946
units outstanding
Putnam Variable Trust U.S. Government
and High Quality Bond
920,186 qualified accumulation ($3.4065902 per unit) 3,134,697
units outstanding
1,981,587 non-qualified accumulation ($3.3656038 per unit) 6,669,237
units outstanding
Putnam Variable Trust Growth and Income
2,563,498 qualified accumulation ($7.6183179 per unit) 19,529,543
units outstanding
255,477 Investors Life equity ($7.6183179 per unit) 1,946,305
1,454,634 non-qualified accumulation ($6.5265312 per unit) 9,493,714
units outstanding
298,434 Investors Life equity ($6.5265312 per unit) 1,947,739
Putnam Variable Trust Voyager
238,882 qualified accumulation ($3.1215093 per unit) 745,672
units outstanding
500,000 Investors Life equity ($3.1215093 per unit) 1,560,755
153,214 non-qualified accumulation ($3.1160148 per unit) 477,417
units outstanding
500,000 Investors Life equity ($3.1160148 per unit) 1,558,007
Contract Owners' Equity $50,806,145
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, 1997
Putnam Putnam
Variable Trust Variable Trust
Money Market Money Market
Qualified Non-Qualified
Investment Income:
Dividends $81,333 $125,172
Expenses:
Mortality risk and expense 19,056 29,310
fees guarantees (Notes 1 and 3)
Investment income-net 62,277 95,862
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 487,751 531,139
Cost of shares sold 487,751 531,139
Net realized gain on investments 0 0
Net unrealized gain on investments 0 0
Net realized and unrealized gain 0 0
on investments
Net Increase in Net Assets $62,277 $95,862
from Investment Operations
The accompanying notes are an integral part of these financial statements.
*Includes shares owned by Investors Life.
Putnam Variable Putnam Variable
Trust U.S. Trust U.S.
Government and Government and
High Quality Bond High Quality Bo
Qualified Non-Qualified
Investment Income:
Dividends $259,201 $475,537
Expenses:
Mortality risk and expense 44,292 84,947
fees guarantees (Notes 1 and 3)
Investment income-net 214,909 390,590
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 1,387,315 1,578,240
Cost of shares sold 1,292,289 1,474,441
Net realized gain on investments 95,026 103,799
Net unrealized gain on investments (50,657) 1,802
Net realized and unrealized gain 44,369 105,601
on investments
Net Increase in Net Assets $259,278 $496,191
from Investment Operations
The accompanying notes are an integral part of these financial statements.
*Includes shares owned by Investors Life.
Putnam Putnam
Variable Trust Variable Trust
Growth and Growth and
Income Income
Qualified* Non-Qualified*
Investment Income:
Dividends $615,207 $324,584
Expenses:
Mortality risk and expense 257,416 135,100
fees guarantees (Notes 1 and 3)
Investment income-net 357,791 189,484
Net Realized and Unrealized
Gain (Loss) on Investments:
Net realized capital gain distributions 820,977 433,146
Net realized gain (loss) on investments:
Proceeds from sale of shares 4,219,884 1,683,730
Cost of shares sold 2,733,428 1,094,688
Net realized gain on investments 1,486,456 589,042
Net unrealized gain on investments 1,749,996 1,104,254
Net realized and unrealized gain 4,057,429 2,126,442
on investments
Net Increase in Net Assets $4,415,220 $2,315,926
from Investment Operations
The accompanying notes are an integral part of these financial statements.
*Includes shares owned by Investors Life.
Putnam Putnam
Variable Trust Variable Trust
Voyager Voyager
Qualified * Non-Qualified
Investment Income:
Dividends $6,515 $5,350
Expenses:
Mortality risk and expense 25,355 21,563
fees guarantees (Notes 1 and 3)
Investment income-net (18,840) (16,213)
Net Realized and Unrealized
Gain (Loss) on Investments:
Net realized capital gain distributions 87,856 71,570
Net realized gain (loss) on investments:
Proceeds from sale of shares 155,281 80,987
Cost of shares sold 95,419 50,587
Net realized gain on investments 59,862 30,400
Net unrealized gain on investments 355,156 323,702
Net realized and unrealized gain 502,874 425,672
on investments
Net Increase in Net Assets $484,034 $409,459
from Investment Operations
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, 1997
Putnam Putnam
Variable Trust Variable Trust
Money Market Money Market
Qualified Non-Qualified
Investment Operations:
Investment income-net $62,277 $95,862
Realized capital gain distributions 0 0
Net realized gain on investments 0 0
Net unrealized gain (loss) on investment 0 0
Net increase in net assets from 62,277 95,862
investment operations
Accumulation Unit Transactions:
Net contract considerations and transfer 100,446 34,792
in (Note 3)
Net contract surrenders and transfers (440,229) (465,907)
out (Note 3)
Benefit payments to annuitants (2,159) (36,608)
Net decrease from accumulation (341,942) (467,723)
unit transactions
Net (Decrease) Increase in Net Assets (279,665) (371,860)
Net Assets:
Net assets at December 31, 1996 1,750,778 2,643,806
Net assets at December 31, 1997 $1,471,113 $2,271,946
The accompanying notes are an integral part of these financial statements.
*Includes shares owned by Investors Life.
Putnam Variable Putnam Variable
Trust U.S. Trust U.S.
Government and Government and
High Quality Bond High Quality Bo
Qualified Non-Qualified
Investment Operations:
Investment income-net $214,909 $390,590
Realized capital gain distributions 0 0
Net realized gain on investments 95,026 103,799
Net unrealized gain (loss) on investment (50,657) 1,802
Net increase in net assets from 259,278 496,191
investment operations
Accumulation Unit Transactions:
Net contract considerations and transfer 23,639 145,621
in (Note 3)
Net contract surrenders and transfers (1,310,074) (1,422,542)
out (Note 3)
Benefit payments to annuitants (5,189) (55,995)
Net decrease from accumulation (1,291,624) (1,332,916)
unit transactions
Net (Decrease) Increase in Net Assets (1,032,346) (836,725)
Net Assets:
Net assets at December 31, 1996 4,167,043 7,505,962
Net assets at December 31, 1997 $3,134,697 $6,669,237
The accompanying notes are an integral part of these financial statements.
*Includes shares owned by Investors Life.
Putnam Putnam
Variable Trust Variable Trust
Growth and Growth and
Income Income
Qualified* Non-Qualified*
Investment Operations:
Investment income-net $357,791 $189,484
Realized capital gain distributions 820,977 433,146
Net realized gain on investments 1,486,456 589,042
Net unrealized gain (loss) on investment 1,749,996 1,104,254
Net increase in net assets from 4,415,220 2,315,926
investment operations
Accumulation Unit Transactions:
Net contract considerations and transfer 634,334 130,374
in (Note 3)
Net contract surrenders and transfers (3,900,090) (1,537,206)
out (Note 3)
Benefit payments to annuitants (14,478) (119,771)
Net decrease from accumulation (3,280,234) (1,526,603)
unit transactions
Net (Decrease) Increase in Net Assets 1,134,986 789,323
Net Assets:
Net assets at December 31, 1996 20,340,862 10,652,130
Net assets at December 31, 1997 $21,475,848 $11,441,453
The accompanying notes are an integral part of these financial statements.
*Includes shares owned by Investors Life.
Putnam Putnam
Variable Trust Variable Trust
Voyager Voyager
Qualified * Non-Qualified *
Investment Operations:
Investment income-net ($18,840) ($16,213)
Realized capital gain distributions 87,856 71,570
Net realized gain on investments 59,862 30,400
Net unrealized gain (loss) on investment 355,156 323,702
Net increase in net assets from 484,034 409,459
investment operations
Accumulation Unit Transactions:
Net contract considerations and transfer 87,480 105,653
in (Note 3)
Net contract surrenders and transfers (139,414) (57,462)
out (Note 3)
Benefit payments to annuitants 0 0
Net decrease from accumulation (51,934) 48,191
unit transactions
Net (Decrease) Increase in Net Assets 432,100 457,650
Net Assets:
Net assets at December 31, 1996 1,874,327 1,577,774
Net assets at December 31, 1997 $2,306,427 $2,035,424
The accompanying notes are an integral part of these financial statements.
*Includes shares owned by Investors Life.
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 investment 0 0
Net increase in net assets from 72,643 102,212
investment operations
Accumulation Unit Transactions:
Net contract considerations and transfer 193,701 369,107
in (Note 3)
Net contract surrenders and transfers (689,435) (418,286)
out (Note 3)
Benefit payments to annuitants (6,946) (45,762)
Net decrease from accumulation (502,680) (94,941)
unit transactions
Net (Decrease) Increase 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
The accompanying notes are an integral part of these financial statements.
*Includes shares owned by Investors Life.
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 investment (250,811) (378,320)
Net increase in net assets from 43,694 76,111
investment operations
Accumulation Unit Transactions:
Net contract considerations and transfer 31,739 45,238
in (Note 3)
Net contract surrenders and transfers (847,678) (814,955)
out (Note 3)
Benefit payments to annuitants (17,397) (98,073)
Net decrease from accumulation (833,336) (867,790)
unit transactions
Net (Decrease) Increase 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
The accompanying notes are an integral part of these financial statements.
*Includes shares owned by Investors Life.
Growth and Growth and
Income II Income II
Qualified* Non-Qualified*
(formerly Equity (formerly Equit
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 investment 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 transfer 505,790 312,619
in (Note 3)
Net contract surrenders and transfers (2,843,516) (662,722)
out (Note 3)
Benefit payments to annuitants (58,423) (122,302)
Net decrease from accumulation (2,396,149) (472,405)
unit transactions
Net (Decrease) Increase 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
The accompanying notes are an integral part of these financial statements.
*Includes shares owned by Investors Life.
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 investment 81,373 87,666
Net increase in net assets from 199,405 167,855
investment operations
Accumulation Unit Transactions:
Net contract considerations and transfer 41,561 540
in (Note 3)
Net contract surrenders and transfers (112,563) (30,200)
out (Note 3)
Benefit payments to annuitants 0 0
Net decrease from accumulation (71,002) (29,660)
unit transactions
Net (Decrease) Increase 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
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
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
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 Putnam Variable
Trust (formerly known as Putnam Capital Manager Trust). 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 "Substitution"), the Separate Account
contained five divisions. The Substitution was effective as of
April 18, 1995, following approvals of the Substitution by the U.S.
Securities and Exchange Commission and the contractholders having
their contract values determined by the affected portfolios of the
CIGNA Annuity Funds Group. 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. 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 Putnam
Variable Trust: Putnam VT Money Market Fund, Putnam VT U.S.
Government and High Quality Bond Fund, Putnam VT Growth and Income
Fund or Putnam VT 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
Putnam Variable 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.
Under the current provisions of the Internal Revenue Code (the
"Code"), transfers of contract values from one division of the
Separate Account to another division are not subject to current
taxation. There can be no assurance that future changes in the
Code will subject such transfers to current taxation.
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, 1997; (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, 1997, were $327,007 after deductions for
premium taxes of $0. Contract owners have limited rights to
transfer their contract values between Separate Account Divisions.
For the year ended December 31, 1997, the total of all transfers
was $935,332. Contract surrender benefits amounted to $8,337,592.
Annuity benefits amounted to $234,200. 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
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 Code so warrant.
Note 5. Diversification Requirements
Under the provisions of Section 817(h) of 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. Accumulation Unit Transactions
The changes in the number of accumulation units (the measure of
ownership in the Separate Account) during 1997, and units
outstanding at December 31, 1997 were as follows:
Putnam Putnam
Variable Trust Variable Trust
Money Market Money Market
Qualified Non-Qualified
Units outstanding at December 31, 1996 847,412 1,288,780
Units purchased and transfers in 72,953 16,757
Benefits, surrenders and transfers out (235,579) (240,475)
Units outstanding at December 31, 1997 684,786 1,065,062
Putnam Variable Putnam Variable
Trust U.S. Trust U.S.
Government and Government and
High Quality Bond High Quality Bo
Qualified Non-Qualified
Units outstanding at December 31, 1996 1,313,122 2,394,183
Units purchased and transfers in 22,469 45,280
Benefits, surrenders and transfers out (415,405) (457,876)
Units outstanding at December 31, 1997 920,186 1,981,587
Putnam Putnam
Variable Trust Variable Trust
Growth and Growth and
Income Income
Qualified* Non-Qualified*
Units outstanding at December 31, 1996 3,277,019 2,002,962
Units purchased and transfers in 144,106 22,024
Benefits, surrenders and transfers out (602,150) (271,918)
Units outstanding at December 31, 1997 2,818,975 1,753,068
Putnam Putnam
Variable Trust Variable Trust
Voyager Voyager
Qualified * Non-Qualified
Units outstanding at December 31, 1996 751,632 633,799
Units purchased and transfers in 33,033 39,117
Benefits, surrenders and transfers out (45,783) (19,702)
Units outstanding at December 31, 1997 738,882 653,214
*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, 1997 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
Putnam Variable Trust Money Market, Qualifi 24,966 $53,634
Putnam Variable Trust Money Market, Non-Qua 166,795 $355,801
Putnam Variable Trust Growth and Income, Qu 93,502 $712,328
Putnam Variable Trust Growth and Income, No 106,907 $697,732
Putnam Variable Trust U.S. Government 54,958 $187,219
and High Quality Bond, Qualified
Putnam Variable Trust U.S. Government 206,048 $693,476
and High Quality Bond, Non-Qualified
Monthly Annuity
Annuity Units Unit Value
Putnam Variable Trust Money Market, Qualifi 585 $0.8320552
Putnam Variable Trust Money Market, Non-Qua 3,958 $0.8325533
Putnam Variable Trust Growth and Income, Qu 3,994 $1.8217311
Putnam Variable Trust Growth and Income, No 5,706 $1.9519047
Putnam Variable Trust U.S. Government 1,180 $1.4109542
and High Quality Bond, Qualified
Putnam Variable Trust U.S. Government 4,987 $1.4078279
and High Quality Bond, Non-Qualified
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, 1997, 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 20, 1998
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
STATUTORY BALANCE SHEETS
(in thousands)
December 31,
1997 1996
Admitted Assets
Cash and investments:
Bonds, at amortized cost (market
value $379,866 and $404,442) $376,912 $ 405,060
Common stock, at market value
(cost $27,797 and $27,797) 26,476 26,478
Mortgage loans on real estate 10,695 13,323
Real estate, net of accumulated
depreciation of $5,189 and $5,636 6,217 43,546
Policy loans 44,828 46,090
Cash 8,331 2,364
Short-term investments 149,448 71,099
Total cash and investments 622,907 607,960
Accrued investment income 6,168 6,336
Premiums receivable 6,575 7,349
Receivable from reinsurers 2,478 2,485
Receivable from affiliates -0- 9,706
Other assets 4,009 9,462
Separate account assets 444,131 417,306
Total admitted assets $1,086,268 $1,060,604
The accompanying notes are an intergral part of
these statutory financial statements
December 31,
1997 1996
Liabilities, Capital and Surplus
Aggregate reserve for life and accident
and health policies and contracts $ 553,381 $ 568,034
Interest maintenance reserve 4,475 4,704
Accrued expenses 354 337
Asset valuation reserve 4,813 10,074
Payable to affiliates 2,655 -0-
Other liabilities 8,568 9,197
Separate account liabilities 438,090 412,084
Total liabilities 1,012,336 1,004,430
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 27,796 38,546
Unassigned surplus (deficit) 38,936 10,428
Total capital and surplus 73,932 56,174
Total liabilities, capital and
surplus $1,086,268 $1,060,604
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
STATUTORY STATEMENTS OF OPERATIONS
(in thousands)
Year Ended
December 31,
1997 1996 1995
Revenues:
Insurance premiums and annuity
considerations $ 47,708 $ 48,844 $ 47,853
Net investment income 45,792 46,700 49,189
Other revenues 4,023 2,887 2,902
Total revenues 97,523 98,431 99,944
Benefits, losses and expenses:
Policyholder claims and benefits 62,243 62,395 61,604
Commissions 3,057 3,428 1,972
Other operating expenses 16,493 16,829 20,416
Total benefits, losses and
expenses 81,793 82,652 83,992
Operating income before federal
income taxes and net realized
gains 15,730 15,779 15,952
Provision (benefit) for federal
income taxes 2,423 1,016 (506)
Net income from operations 13,307 14,763 16,458
Net realized capital gains (losses) 9,532 13,636 (332)
Net income $ 22,839 $ 28,399 $ 16,126
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, 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
Prior year surplus adjustment
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
Increase in equity in separate
accounts
Contribution to unassigned
surplus
Surplus note payment
Balance as of December 31, 1996 30 2,400 4,800
Net income
Change in net unrealized capital
gains
Change in non admitted assets
Increase in asset valuation
reserve
Reserve adjustments
Surplus note payment
Balance as of December 31, 1997 30 $ 2,400 $ 4,800
Unassigned
Surplus Surplus
Debentures (Deficit) Total
Balance as of December 31, 1994 $ 84,256 $(37,615) $ 53,841
Net income 16,126 16,126
Change in net unrealized capital
gains (7,154) (7,154)
Change in non-admitted assets (897) (897)
Increase in asset valuation
reserve (221) (221)
Increase in equity in separate 1,161 1,161
accounts
Contributions 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
Net income 22,839 22,839
Change in net unrealized capital
gains (2,045) (2,045)
Change in non-admitted assets 963 963
Decrease in asset valuation
reserve 5,261 5,261
Prior year surplus adjustment 1,490 1,490
Surplus note payment (10,750) (10,750)
Balance as of December 31, 1997 $ 27,796 $ 38,936 $ 73,932
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
STATUTORY STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended
December 31,
1997 1996 1995
Cash flows from operating
activities:
Premiums and annuity
considerations received $ 46,769 $ 48,180 $47,200
Net investment income received 47,312 44,549 47,453
Other income received 4,380 3,378 3,373
Death and accident and
health benefits paid (28,440) (26,511) (31,391)
Surrender benefits paid (30,487) (30,397) (29,864)
Annuity benefits paid (47,989) (43,900) (49,400)
Net transfers from Separate
Accounts 29,502 25,610 26,427
Reserve changes due to modified
coinsurance 6,910 6,524 7,909
Other benefits paid (1,888) (1,779) (1,815)
Federal income taxes (paid)
refunded excluding tax on
capital gains (2,200) (5,424) 847
Dividends paid to policyholders (208) (242) (263)
Commissions paid (3,058) (3,428) (1,945)
General expenses, taxes,
licenses and fees (13,234) (12,085) (12,750)
Net cash provided by
operations 7,369 4,475 5,781
Cash flows from investing
activities:
Proceeds from investments sold
or matured, net of tax on
capital gains 93,739 92,421 42,327
Cost of investments acquired (17,433) (45,782) (32,102)
Net decrease (increase) in
policy loans 1,261 846 (2,130)
Net cash provided by
investing activities 77,567 47,485 8,095
Year Ended
December 31,
1997 1996 1995
Cash flows from financing
activities and other
miscellaneous activities:
Surplus debenture payments (10,750) (30,750) (14,960)
Interest paid on surplus
debentures (3,344) (5,538) (7,790)
Net (decrease) increase in
remittances and items not
allocated (402) (7,216) 3,504
Net decrease (increase)in
receivable from affiliates 10,651 (3,168) (2,394)
Other sources and
applications, net 3,225 (1,882) (5,181)
Net cash used in financing and
other miscellaneous activities (620) (48,554) (26,821)
Net increase (decrease) in
cash and short-term
investments 84,316 3,406 (12,945)
Cash and short-term
investments at beginning
of year 73,463 70,057 83,002
Cash and short-term
investments at end of year $ 157,779 $ 73,463 $ 70,057
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
45% of ILCO's outstanding common stock.
The Company is principally engaged in administering existing
portfolios of individual 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 credit life and disability
insurance.
Prior to December 1997, the Company owned 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). In December
1997, ILIC transferred its domicile from New Jersey to Indiana.
Following completion of the redomestication, ILIC merged with
Investors-Indiana, with ILIC as the surviving entity in the merger
process. Immediately after the merger, ILIC changed its name to
Investors Life Insurance Company of Indiana. 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 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 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 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 1997, 1996 and 1995 amounted to
$1,680,763, $1,197,128, and $2,030,518, respectively.
Approximately $56.4 and $66.9 million, or 15% and 17%, of the total
bond portfolio (at amortized cost) at December 31, 1997 and 1996,
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, 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, 1997 and 1996 are as follows (in thousands):
1997 1996
% of % of
Amount Total Amount Total
Subject to discretionary
withdrawal with
adjustments:
- with market value
adjustment $433,611 83.36% $407,882 82.28%
- at book value less
surrender charge 9,458 1.82% 4,243 .86%
Subtotal 443,069 85.18% 412,125 83.14%
Subject to discretionary
withdrawal without
adjustment:
- at book value 67,834 13.04% 74,521 15.03%
Not subject to
discretionary withdrawal
provision 9,248 1.78% 9,064 1.83%
Total annuity actuarial
reserves and deposit
liabilities (gross) 520,151 100% 495,710 100%
Reinsurance ceded 3,331 3,201
Total annuity actuarial
reserves and deposit
liabilities (net) $516,820 $492,509
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 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 1997. 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 years ended December 31, 1997, 1996 and 1995 (in
thousands):
1997 1996 1995
Transfers to separate
accounts per Separate
Accounts Statement $ 712 $ 1,031 $ 884
Transfers from separate
accounts per Separate
Accounts Statement (33,921) (28,438) (30,389)
Net transfers from
separate accounts
per Separate Accounts
Statement $(33,209) $(27,407) $(29,505)
Reconciling adjustments:
Charges for investment
management,
administration and
contract guarantees 3,707 1,797 3,078
Net transfers to
separate accounts
per Statement of
Operations $ (29,502) $ (25,610)$ (26,427)
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, 1997 and 1996 are as follows (in thousands):
1997 1996
Mortgage loans $ 81 $ 81
Furniture and equipment 635 534
Agents' debit balances 1,111 655
Accounts receivable 1,192 1,129
Prepaid expenses 1,138 1,143
Other 165 1,744
$4,322 $5,286
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, 1997, 1996 and 1995 is as follows
(in thousands):
1997 1996 1995
Interest on bonds $31,658 $22,800 $35,242
Interest on short-term investments 4,012 3,548 3,439
Interest on policy loans 3,145 3,426 2,748
Interest on mortgage loans 1,040 1,349 1,502
Income on real estate 7,117 5,036 6,750
46,972 47,159 49,681
Equity in earnings (loss) of
wholly-owned subsidiary 2,043 2,380 3,043
Other income 4 40 3
Amortization of IMR 309 279 253
Gross investment income 49,328 49,858 52,980
Less investment expenses (3,536) (3,158) (3,791)
Net investment income $45,792 $46,700 $49,189
The carrying values of investments at December 31, 1997 and
1996 that were non-income producing for the preceding twelve
months were as follows (in thousands):
1997 1996
Mortgage loans $ 81 $ 81
$ 81 $ 81
Realized capital gains and losses for the years ended
December 31, 1997, 1996 and 1995 are as follows (in
thousands):
1997 1996 1995
Gains on sales of real estate $ 14,662 $ 23,183 $ -0-
Gains on sales of bonds 118 272 463
Gains on sales of other
investments 7 1 10
Losses on sales of bonds -0- (81) -0-
Losses on mortgage loans
transferred to real estate -0- (13) (107)
Less amounts deferred as IMR (80) (150) (301)
14,707 23,212 65
Income tax provision (5,175) (9,576) (397)
Net realized capital gains
(losses) $ 9,532 $ 13,636 $ (332)
Net realized capital gains for 1997 includes $14.0 million (before
federal income tax) resulting from the sale during the fourth
quarter of 1997 of the Bridgepoint Square Office Complex. The
aggregate selling price was $78 million which was allocated
approximately 78.5% to Investors-NA and 21.5% to Family Life. The
sale closed on December 5, 1997.
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, 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
2002.
<PAGE>
Unrealized gains and losses on common stocks as of December 31,
1997 and 1996 are as follows (in thousands):
1997 1996
Unrealized capital gains $ 2,539 $1,060
Unrealized capital losses (10,345) (6,821)
Net unrealized capital losses $ (7,806) $ (5,761)
Proceeds from sales and maturities of bonds were $33,577,393,
$38,730,892, and $38,576,824 for the years ended December 31, 1997,
1996 and 1995, respectively. The carrying value and NAIC market
value of investments in bonds by category at December 31, 1997 are
as follows (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 $ 7,480 $ 793 $ -0- $ 8,273
Obligations of states and
political subdivisions 1,945 180 -0- 2,125
Corporate securities 137,056 2,305 (304) 139,057
Mortgage-backed 230,431 -0- -0- 230,431
securities
Total Bonds $376,912 $3,278 $ (304)$379,886
<PAGE>
The carrying value and NAIC market value of investments in bonds by
category at December 31, 1996 are as follows (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 $ 7,477 $ 505 $ 28 $ 7,954
Obligations of states and
political subdivisions 1,943 61 -0- 2,004
Corporate securities 148,238 870 2,026 147,082
Mortgage-backed
securities 247,402 -0- -0- 247,402
Total Bonds $405,060 $ 1,436 $ 2,054 $404,442
The carrying value and NAIC market value of bonds at December 31,
1997 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 $ 3,025 $ 3,025
Due after one year through five years 25,174 25,251
Due after five years through ten years 41,464 41,795
Due after ten years 76,818 79,384
146,481 149,455
Mortgage-backed securities 230,431 230,431
$ 376,912 $ 379,886
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, 1997 are as follows (in thousands):
Carrying Market
Value Value
(in thousands)
Financial assets:
Bonds $ 376,912 $ 390,148
Policy loans 44,828 44,828
Mortgage loans 10,695 11,307
Short-term investments 149,449 149,449
Cash 8,331 8,331
Financial liabilities:
Deferred annuities 76,046 75,810
Supplemental contracts 7,231 6,920
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.
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 wholly-owned life insurance subsidiary. 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 $164,637 and $4,396,000, 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 1997, 1996 and 1995 are as follows
(in thousands):
1997 1996 1995
Tax on underwriting profits
and investment income $ 2,423 $ 1,016 $ (506)
Tax on capital gains $ 5,175 $ 9,576 $ 399
The following is a reconciliation of tax on operating income at the
statutory federal rate of 35% in 1997 and 1996 and 1995 to the
Company's provision for federal income taxes (in thousands):
1997 1996 1995
Tax on operating income at
statutory rates $ 5,506 $ 5,523 $ 5,583
Dividends received deduction (33) (25) (124)
Difference in recognition of income
and expenses relating to
adjustment in asset bases due to
Section 338 election (2,068) (2,115) (2,127)
Difference between statutory and
income tax policy reserves (81) (870) (2,894)
Differences in accounting for
deferred policy acquisition costs (317) (227) (101)
Accrual or market discount (312) (362) (501)
Equity in earnings of subsidiaries (715) (833) (1,065)
Income (loss) from separate
account -0- -0- 406
Other, net 443 (75) 317
Provision for federal income taxes $ 2,423 $ 1,016 $ (506)
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, 1997 and December 31, 1996 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, 1997 and December 31, 1996, the Company
had approximately $120,000,000 and $105,000,000 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.
In December, 1997, the Company entered into a reinsurance treaty
under which all of the contractual obligations and risks under
accident and health insurance policies were assumed by a third
party reinsurer. The transfer is effective as of July 1, 1997.
These risks and contractual obligations were sold pursuant to,
first, a coinsurance reinsurance agreement. Following applicable
regulatory approvals, the reinsurer will assume the direct
obligations of the companies, on an assumption reinsurance basis.
The decision to dispose of this block of business was based on
management's analysis that the business was not generating targeted
profit objectives and that the products were not part of the core
business of the subsidiaries. The sale permits the companies to
focus on its primary business: life insurance and annuity sales.
In connection with the transaction, the total amount of net
reserves transferred by the Company was $6,327,504. In addition to
the transfer of reserves, the Company paid the reinsurer $1,037,150
in connection with the transaction, which amount was accounted for
as an expense for the year ended December 31, 1997. In 1997, the
transferred business generated approximately $791,000 in annualized
premiums.
The amounts deducted in the accompanying financial statements for
reinsurance ceded are as follows (in thousands):
1997 1996
Aggregate reserve for life
policies and contracts $ 5,183 $ 5,047
Other policy claims and
benefits payable $ 2,805 $ 821
Estimated amounts recoverable from reinsurers on paid claims were
$2,458,391 and $2,462,239 at December 31, 1997 and 1996,
respectively. Total premiums ceded during 1997, 1996 and 1995 were
$7,980,777, $5,591,028 and $6,393,048 respectively. Total premiums
assumed during 1997, 1996 and 1995 were $5,197,749, $5,529,381 and
$851,223, 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 $32,894,804. Since the law applies 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 were 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 $50,434,645 and $51,211,460 in subordinated notes
issued by Family Life Corporation, a wholly-owned subsidiary of
FIC, at December 31, 1997 and 1996, respectively. This investment
exceeds the limit on investments prescribed by the State of
Washington by $6,983,905 and $8,787,303 at December 31, 1997 and
1996, 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, 1997 and
1996, this permitted practice increased statutory surplus by
$6,983,905 and $8,787,303 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, 1997 or 1996.
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 "Plan"). The Plan is a noncontributory defined benefit
pension plan which covers each employee of ILCO and its
subsidiaries who 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
1997, 1996 or 1995.
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 1997, 1996, or
1995.
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, 1997 and 1996, respectively, options to purchase
0 and 72,000 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, 1997 and 1996, respectively, options to purchase
84,000 and 174,000 shares of ILCO's common stock were outstanding
and unexercised.
Savings and investment plans
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.
In 1997, the Plan was amended to provide for a matching
contribution by ILCO. The match, which is in the form of shares of
ILCO common stock, is equal to 100% of an eligible participant's
elective deferral contributions, as defined in the Plan, not to
exceed 1% of the participant's plan compensation. Allocations are
made on a quarterly basis to the account of participants who have
at least 250 hours of service in that quarter.
9. RELATED PARTIES
Included in capital and surplus at December 31, 1997 and 1996 are
two (2) surplus debentures payable to ILCO with initial principal
balances of $140,000,000 and $15,000,000. The outstanding balances
of both notes at December 31, 1997 and 1996 totaled $27,796,000 and
$38,546,000, 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.
Principal payments totaling $9,750,000, $29,750,000, and
$13,960,000 were made on the $140,000,000 debenture during 1997,
1996 and 1995, respectively, and payments totaling $1,000,000,
$1,000,000 and $1,000,000 were made on the $15,000,000 debenture
during 1997, 1996 and 1995, respectively. Total interest paid by
the Company on the surplus debentures was $3,343,711, $5,538,469
and $7,789,576, during 1997, 1996 and 1995, 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 $131,225 and $957,889 at December 31, 1997 and 1996,
respectively.
The Company has a net balance due (to)/from related parties at
December 31, 1997 and 1996 of $(2,655,380) and $7,995,000,
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 $53,792,485 of notes receivable from affiliates which
comprise (a) a loan of $16,875,000 (original principal balance of
$30,000,000) Family Life Corporation (FLC); (b) a loan of
$29,182,300 (original principal balance of $22,500,000) to FLC; (c)
a loan of $4,377,345 (original principal balance of $2,500,000 plus
$1,977,119 of interest added to the principal) to Family Life
Insurance Investment Company (FLIIC); and (d) a loan of $3,357,840
to FIC. FLC and FLIIC are wholly-owned subsidiaries of FIC.
Interest received by the Company for all loans during 1997, 1996
and 1995 amounted to $5,265,784, $6,886,966 and $6,044,622,
respectively. In June, 1996, the provisions of the notes from
Investors-NA to FIC, FLC and FLIIC were modified as follows: (a)
the $22.5 million note was amended to provide for twenty quarterly
principal payments, in the amount of $1,125,000 each, to commence
on December 12, 1996; the final quarterly principal payment is due
on September 12, 2001; the interest rate on the note remains at
11%, (b) the $30 million note was amended to provide for forty
quarterly principal payments, in the amount of $163,540 each for
the period December 12, 1996 to September 12, 2001; beginning with
the principal payment due on December 12, 2001, the amount of the
principal payment increases to $1,336,458; the final quarterly
principal payment is due on September 12, 2006; the interest rate
on the note remains at 9%, (c) the $4.5 million note was amended to
provide for forty quarterly principal payments, in the amount of
$24,531 each for the period December 12, 1996 to September 12,
2001; beginning with the principal payment due on December 12,
2001, the amount of the principal payment increases to $200,469;
the final quarterly principal payment is due on September 12, 2006;
the interest rate on the note remains at 9%, (d) the $2.5 million
note was amended to provide that the principal balance of the note
is to be repaid in twenty quarterly installments of $125,000 each,
commencing December 12, 1996 with the final payment due on
September 12, 2001; the rate of interest remains at 12%, (e) the
Master PIK note, which was issued to provide for the payment in
kind of interest due under the terms of the $2.5 million note prior
to June 12, 1996, was amended to provide that the $1,977,119
principal balance of the note is to be paid in twenty quarterly
principal payments, in the amount of $98,855.95 each, to commence
December 12, 1996 with the final payment due on September 12, 2001;
the interest rate on the note remains at 12%.
Common stocks include 53,400 shares of ILCO which had a book value
of $380,478 and a statement value of $723,798 at December 31, 1997.
The Company also holds 145,500 common shares of FIC which has a
book value of $229,890 and a statement value of $2,355,316, at
December 31, 1997, 55,000 common shares of Investors-IN which had
a book value of $33,397,828 and a statement value of $23,093,645 at
December 31, 1997 and 300 common shares of ILG Securities
Corporation which had a book value of $244,057 and a statement
value of $215,682 at December 31, 1997. Investors-IN and ILG
Securities Corporation are wholly-owned subsidiaries of the
Company.
Rent and certain other operating expenses aggregating approximately
$822,000, $305,000, and $830,000, were paid to FIC in 1997, 1996,
and 1995, respectively, by 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 1997, 1996, and 1995, 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.
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.
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
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
$2,223,647, $1,748,402 and $1,290,306 to FIC Computer for data
processing services provided during 1997, 1996 and 1995,
respectively.
10. COMMITMENTS AND CONTINGENCIES
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.
On July 9, 1997, ILCO and Investors-Indiana acquired State Auto
Life Insurance Company, an Ohio domiciled life insurer, from State
Auto Mutual Insurance Company, for an adjusted cash purchase price
of $11.8 million. Under the terms of the transaction, State Auto
Life Insurance Company was merged into Investors-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, 1997 and 1996, 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, 1997.
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 audited by us
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, 1997 and 1996,
and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1997.
Also, in our opinion, the financial statements audited by us
present fairly, in all material respects, the statutory financial
position of Investors Life Insurance Company of North America at
December 31, 1997 and 1996, and the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1997, on the basis of accounting described in Note 1.
Price Waterhouse LLP
Dallas, Texas
March 27, 1998
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, 1997
Individual Statements of Operations, For the Year
Ended December 31, 1997
Individual Statements of Changes in Total Assets,
For the Years Ended December 31, 1997 and December
31, 1996
Notes to Financial Statements
Report of Independent Accountants
(ii) Depositor:
Statutory Balance Sheets, as of December 31, 1997
and December 31, 1996
Statutory Statements of Operations, for the Years
Ended December 31, 1997, December 31, 1996 and
December 31, 1995
Statutory Statements of Changes in Capital and
Surplus, for the Years Ended December 31, 1997,
December 31, 1996 and December 31, 1995
Statutory Statements of Cash Flows, for the Years
Ended December 31, 1997, December 31, 1996 and
December 31, 1995
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
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
Cindy Hall-Davis Senior Vice President
Ricardo A. Cruz Vice President
Robert D. Rue Vice President
Peter A. Tritz Vice President
Laurie Cleveland Vice President
Sherry Jennings Vice President
Sherry Stroud Vice President
Joanne Shattuck Vice President
*701 Brazos Street, Austin, Texas 78701
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)
:
:
: 45.40%
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%
:
: ILG Securities Corporation
: (a registered broker-dealer
: incorporated in Pennsylvania)
:
:
: 100%
:
Investors Life Insurance Company of Indiana
(an Indiana life insurance company)
C-4<PAGE>
Item 27. Number of Contract Owners
As of December 31, 1997 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.................................. 136
Non-qualified.............................. 72
(ii) Growth and Income II Division:
Qualified.................................. 567
Non-qualified.............................. 160
(iii) Income Division:
Qualified.................................. 154
Non-qualified.............................. 154
(iv) Voyager Division
Qualified................................... 42
Non-qualified............................... 19
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
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
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) 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, 1997:
(1) Net underwriting discounts
and commissions*........................$ 784.14
(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.
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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Sponsor of the Registrant has caused this Post-Effective Amendment
No. 24 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 28th day of April, 1998.
SEPARATE ACCOUNT I
(Registrant)
By: Investors Life Insurance Company
of North America
/s/ Roy F. Mitte
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. 24 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
Director Principal Accounting Officer
Director
/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
Dale E. Mitte
Director
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.<PAGE>
(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) * Expense 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 Investment
Management, Inc.). Filed with
Post- Effective Amendment No.
20 dated April 14, 1995 and
incorporated by reference.
9 Opinion of counsel as to the
legality of the securities
filed with Pre-Effective:
Amendment (Form S-6) dated June
3, 1982, and incorporated by
reference.
10(a) Consent of 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.
* 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.
24 to the Registration Statement on Form N-4 (No. 2-77712) of our
report dated March 27, 1998 relating to the statutory financial
statements of Investors Life Insurance Company of North America and
of our report dated February 20, 1998 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 24, 1998
