As Filed with the Securities and
Exchange Commission on April 28, 2000
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. 26 X
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 26 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 May 1, 2000, 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 21, 2000.
The combined prospectuses contained herein also relate to Registration Statement
No. 2-84850, pursuant to Rule 429.
<PAGE>
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 46 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.
May 1, 2000
<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 24
General Description of Variable Annuity
Contracts 27
The Annuity Period 30
Death Benefits 33
Purchases and Contract Values 35
Redemptions 39
Federal Tax Status 41
Legal Proceedings 45
Table of Contents of the Statement of
Additional Information 46
Appendix - Examples of Deferred Sales 47
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.
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<PAGE>
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.
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: 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.
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 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.
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 Putnam
Variable Trust was known as Putnam Capital Manager Trust.
Owner: The person (or other entity) to whom a Contract is issued by the
Insurance Company.
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<PAGE>
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.
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.
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<PAGE>
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 was issued. See "The Annuity Period - Annuity Payout
Options", page 31, and "Limitation on Contract Rights", page 28.
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 30.
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 33.
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 39 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 41.
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 27.
o The Contracts include a limited right of cancellation. See "Redemption -
Right to Cancel", page 40.
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<PAGE>
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 when 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.
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<PAGE>
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 II Voyager Division Division (5)
Division Division
<TABLE>
<S> <C> <C> <C> <C>
Growth
Money and
Market Income Income II Voyager
Division Division (5) Division Division
A. Contract owner
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. Annual Fund Expenses
(as a percentage of
Fund average net
assets) (4)
Management Fees 0.41% 0.60% 0.46% 0.53%
All Other Expenses 0.08% 0.07% 0.04% 0.04%
Total Annual Fund
Expenses 0.49% 0.67% 0.50% 0.57%
</TABLE>
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<PAGE>
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 fiscal year 1999. The inclusion of the 1999 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.
(5) On April 9, 1999, Putnam U.S. Government and High Quality Bond Fund changed
its name to name to Putnam Income Fund. In addition, the Fund's investment
policy changed. Prior to April, 9, 1999, the Fund's policies required it to
invest at least 25% of its assets in U.S. Government securities and limited
the amount of assets invested in securities rated below "A". Consequently,
the historic information listed in this Expenses Table with respect to the
Income Division does not reflect the performance of Putnam Income Fund
under the Fund's current investment policies or its current distribution
policies.
-8-
<PAGE>
EXAMPLES
<TABLE>
<S> <C> <C> <C> <C>
Growth
Money and
Market Income Income II 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 $ 90.67 $ 92.42 $ 90.76 $ 91.45
3 years 112.02 117.45 112.32 114.44
5 years 133.34 142.86 133.86 137.50
10 years 213.12 232.90 214.22 221.95
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 $ 90.67 $ 92.42 $ 90.76 $ 91.45
3 years 112.02 117.45 112.32 114.44
5 years 133.34 142.86 133.86 137.50
10 years 213.12 232.90 214.22 221.95
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 $ 18.46 $ 20.35 $ 18.56 $ 19.30
3 years 57.14 62.87 57.46 59.69
5 years 98.30 107.96 98.84 102.60
10 years 213.12 232.90 214.22 221.95
</TABLE>
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<PAGE>
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.
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<PAGE>
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
1999 $ 2.2345 $ 2.3146 506,682
1998 $ 2.1487 $ 2.2336 593,464
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
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<PAGE>
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
1999 $ 2.2186 $ 2.2980 899,105
1998 $ 2.1336 $ 2.2177 968,809
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
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<PAGE>
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
1999 $ 8.6861 $ 8.7098 2,193,483
1998 $ 7.6501 $ 8.6752 2,497,011
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
* = 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.
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<PAGE>
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
1999 $ 7.4525 $ 7.4762 1,390,750
1998 $ 6.5538 $ 7.4431 1,557,788
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
* = 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.
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<PAGE>
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
1999 $ 3.6743 $ 3.5263 552,236
1998 $ 3.4216 $ 3.6429 772,236
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
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<PAGE>
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
1999 $ 3.6318 $ 3.4861 1,582,528
1998 $ 3.3804 $ 3.6001 1,781,007
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
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<PAGE>
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
1999 $ 3.8073 $ 5.9953 698,305
1998 $ 3.1133 $ 3.8346 714,343
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
* = Prior to April 18, 1995, the Voyager Division was named the Aggressive
Equity Division.
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<PAGE>
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
1999 $ 3.8026 $ 5.9881 677,689
1998 $ 3.1078 $ 3.8299 679,382
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
* = Prior to April 18, 1995, the Voyager Division was named the Aggressive
Equity Division.
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
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<PAGE>
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.
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<PAGE>
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 Fund. Prior
to the substitution of shares of certain series 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.
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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 Income Fund seeks high current income consistent with what Putnam
Management believes to be prudent risk.
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.
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.
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.
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.
The shares of each Fund of Putnam Variable Trust are available on to serve as
the underlying investment for variable annuity and variable life insurance
contracts. It is possible that, in the future, it may be disadvantageous for
variable annuity and variable life insurance separate
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accounts to invest in the Funds simultaneously. The Insurance Company is not
currently aware of any such disadvantages. It should be noted that the
prospectus of Putnam Variable Trust states that the Trustees of the Fund intend
to monitor events in order to identify any material irreconcilable conflicts
which may possibly arise and to determine what action, if any, should be taken
in response to such conflicts.
In addition, shares of the Funds are sold to separate accounts of other,
unaffiliated, insurance companies, a practice which is known as "mixed funding."
As a result, there is a possibility that a material conflict may arise between
the interests of Owners of variable annuity contracts issued by the Insurance
Company and owners of contracts issued by such other, unaffiliated, insurers. In
the event of any such material conflicts, we will consider what action may be
appropriate under the circumstances. For a description of the risk which may be
involved with mixed funding, please refer to the discussion in the prospectus of
Putnam Variable Trust.
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.
Prior to April 10, 1998, Putnam Management agreed to reimburse the Insurance
Company for certain costs that it incurred in connection with the servicing of
Contracts. The amount of this reimbursement was 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.
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.
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VOTING RIGHTS
The Insurance Company is the owner of record of the shares of each series of
shares of Putnam Variable Trust. It will vote such shares held in each Separate
Account Division at regular and special meetings of shareholders of Putnam
Variable Trust in accordance with instructions received from persons having an
interest in such series of Putnam Variable Trust shares.
During the Accumulation Period, owners of Contracts shall have a voting interest
with respect to their accounts. During the Annuity Period, the person entitled
to variable Annuity Payments will be the person having such voting interest.
Each person having a voting interest in shares of Putnam Variable Trust
attributable to a Contract will initially be allowed to vote the number of
Accumulation Units credited to a Contract under the Separate Account Division
composed of such Putnam Variable Trust shares. Persons receiving Annuity
Payments will be allowed an equivalent vote which shall be determined by
dividing the value of the reserve maintained in such Separate Account Division
to meet the annuity obligations, by the value of an Accumulation Unit. Since
voting power is determined by the Separate Account Division Contract value, such
power will normally diminish during the annuity payout phase.
After votes are tabulated, the Insurance Company will then determine the number
of shares of Putnam Variable Trust owned by the Separate Account to be voted
affirmatively in accordance with the proportion of affirmative votes received to
the total number of votes received from persons having a voting interest in such
shares. Negative votes will be similarly determined.
Assets may also be maintained in Separate Account Divisions with respect to
contracts other than those offered by this Prospectus, and votes attributable to
such other contracts will be computed in the same manner.
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DEDUCTIONS AND EXPENSES
A. CONTRACT CHARGES:
The following deductions are made under the Contracts:
o 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.
o 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.
o 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.
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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.
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o 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.
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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:
o change the beneficiary for death proceeds;
o surrender the Contract in whole or in part for its Withdrawal Value;
o change the annuity payout option;
o change the death benefit payout option;
o transfer Contract values between Separate Account Divisions;
o instruct the Insurance Company as to voting of Fund shares;
o cancel the Contract by returning it to the Insurance Company
within 10 days after receipt;
o change the designated Separate Account Division for allocation
of future contributions;
o 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);
o change the payee to receive Annuity Payments;
o 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:
o transfer Contract values between Separate Account Divisions;
o change the payee to receive Annuity Payments, during the lifetime of
Annuitant;
o 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;
o 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.
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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.
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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.
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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.
o 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.
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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.
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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.
o Special Note for New Jersey Contracts: Contracts subject to New Jersey
law contain tables indicating an amount of first monthly annuity
payment based on an assumed interest rate of 5% rather than 6%.
The objective of the Contracts is to provide benefit installments which will
increase at a rate sufficient to maintain purchasing power at a constant level.
For this to occur, the actual net investment rate must exceed the assumed rate
of 6% (5% for New Jersey Contracts) by an amount equal to the rate of inflation.
Of course, no assurance can be made that this objective will be met. If the
assumed interest rate were to be increased, Annuity Payments would start at a
higher level but would increase more slowly or decrease more rapidly. Likewise,
a lower assumed interest rate would provide a lower initial payment with greater
increases or lesser decreases in subsequent Annuity Payments.
Transfer During the Annuity Period: For a description of the Contract provisions
applicable to transfers between Separate Account Divisions, refer to "General
Description of Variable Annuity Contracts - Transfers Between Separate Account
Divisions".
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DEATH BENEFITS
Accumulation Period: If the Annuitant dies during the Accumulation Period, and
prior to the death of the Owner (if the Owner is an individual other than the
Annuitant), death benefit proceeds will be equal to the Accumulation Value of
the Contract determined on the valuation date coincident with or next following
the date due proof of the Annuitant's death is received by the Insurance
Company. However, if death occurs before age 75, while the Owner (if other than
the Annuitant) is living and before Annuity Payments begin, the Insurance
Company guarantees that the death proceeds will not be less than the amount of
Purchase Payments made under the Contract, less a reduction for prior
redemptions.
The amount of death benefit proceeds payable to a Beneficiary will be reduced by
an applicable state premium taxes and by any amounts required to be withheld for
Federal or State income taxes.
The Owner may designate the Annuity Payout Option for death benefit proceeds. If
no such Option is in effect at the time death benefit proceeds are to be paid,
the proceeds will be payable either (i) in a single sum or (ii) under an Annuity
Payout Option selected by the Beneficiary. In the absence of such an election by
the Beneficiary, the proceeds will be paid in a single sum.
Annuity Period: If the Annuitant dies after the commencement of Annuity
Payments, the death proceeds, if any, will depend upon the Annuity Payout Option
in effect at the time of death. Under Options 2, 3 or 6, any remaining payments
will be made to the Beneficiary during the designated period. However, if
Annuity Payments are being made as a death benefit to a Beneficiary, and such
Beneficiary dies, the present value of the remaining payments under Options 2, 3
or 6 will be paid in a lump sum (at an interest rate of 6% for Options 2 and 6)
to the Beneficiary's estate.
Required Distribution Provisions (Applicable to Contracts other than Contracts
owned by the sponsor of a retirement plan qualified under section 401(a) or
403(a) of the Internal Revenue Code, Contracts issued in connection with a tax
sheltered annuity plan under Section 403(b) of the Internal Revenue Code, or
Contracts issued in connection with an Individual Retirement Arrangement under
Section 408 of the Internal Revenue Code):
Under the provisions of section 72(s) of the Internal Revenue Code, the
contracts described in this section must contain specific rules for distribution
of the value of the Contract in the event of the Owner's death. Contracts issued
by the Insurance Company which are subject to the requirements of section 72(s)
will include the following provisions:
o 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.
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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.
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o 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
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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.
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o 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.
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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.
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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.
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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.
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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.
In order for a variable annuity contract to qualify for deferral on Federal
income taxes on income credited to the contract, the assets in the segregated
asset account supporting the contract must be considered to be owned by the
Insurance Company, and not by the owner of the variable annuity contract. The
Internal Revenue Service ("IRS") has issued certain rulings which discuss the
matter of investor control of the assets supporting a variable annuity
contracts. In its rulings, the IRS has stated that certain incidents of
ownership by the contract owner, such as the ability to select and control
investments in a segregated asset account, will cause the contract owner to be
taxed as the owner of the assets for Federal income tax purposes. In addition ,
in its explanation of the temporary regulations adopted under Section 817 of the
Code, the Treasury Department noted that the temporary regulations "do not
provide guidance concerning the circumstances in which investor control of the
investments of a segregated asset account may cause the investor, rather than
the insurance company, to be treated as the owner of the assets in the Account."
That explanation also indicated that "the temporary regulations provide that in
appropriate cases a segregated asset account may include multiple sub-accounts,
but do not specify the extent to which policyholders may direct their
investments to a particular sub-account without being treated as the owners of
the underlying assets. Guidance on this and other issues will be provided in
regulations or revenue rulings under Section 817(d), relating to the definition
of variable contract." The final regulations issued under Section 817 did not
provide such guidance regarding investor control, and as of the date of this
prospectus, no other such guidance has been issued. The Insurance Company does
not know if, or in what form, such guidance will be issued. Nor does the
Insurance Company know whether any such guidance, if issued, would be
implemented on a prospective basis only, or if a ruling would be given
retroactive effect.
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Accordingly, there is a certain degree of uncertainty as to whether an Owner of
the variable annuity contracts described in this prospectus would be considered
the owner of the underlying assets for Federal income tax purposes.
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.
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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:
o 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).
o 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).
o A tax sheltered annuity plan maintained by certain tax exempt
organizations, including educational institutions, to purchase annuity
contracts for employees (403(b) Annuity plans).
o 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
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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.
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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
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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
o The Separate Account
o The Insurance Company
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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.
-47-
<PAGE>
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":
-48-
<PAGE>
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
-49-
<PAGE>
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:
-50-
<PAGE>
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
-51-
<PAGE>
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 May 1, 2000), describing the Individual
Flexible Payment Variable Annuity Contracts. Please send me a copy of the
Statement of Additional Information pertaining to such Contracts.
(Please Print)
NAME:
Mailing
(Date) Address: (Street or P.O. Box)
City State Zip
-53-
<PAGE>
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 May 1, 2000). 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:
-54-
<PAGE>
Investors Life Insurance
Company of North America
701 Brazos Street
Austin, Texas 78701
ILG Securities Corporation
701 Brazos Street
Austin, Texas 78701
PROSPECTUS
May 1, 2000
Flexible Payment
Individual Variable Annuity Contracts
Issued by
Investors Life Insurance Company
of North America
<PAGE>
ILCO Investors Life Insurance
Company
701 Brazos Street
Austin, Texas 78701
ILG Securities Corporation
701 Brazos Street
Austin, Texas 78701
PROSPECTUS
May 1, 2000
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 46 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.
May 1, 2000
<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 24
General Description of Variable Annuity
Contracts 27
The Annuity Period 31
Death Benefits 34
Purchases and Contract Values 36
Redemptions 39
Federal Tax Status 41
Legal Proceedings 46
Table of Contents of the Statement of
Additional Information 46
The Contracts are not available in all states.
NO PERSON IS AUTHORIZED BY THE INSURANCE COMPANY TO GIVE INFORMATION OR
TO MAKE ANY REPRESENTATION, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF, OR
SOLICITATION OF AN OFFER TO ACQUIRE, ANY INTEREST OR PARTICIPATION IN THE
VARIABLE ANNUITY CONTRACTS OFFERED BY THIS PROSPECTUS TO ANYONE IN ANY
STATE OR JURISDICTION IN WHICH SUCH SOLICITATION OR OFFER MAY NOT BE MADE
LAWFULLY.
-2-
<PAGE>
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.
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: 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.
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 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.
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 Putnam
Variable Trust 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.
-3-
<PAGE>
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.
Valuation Date. A day on which the net asset value of each share of the Fund is
determined.
Valuation Period: Each business day on which the New York Stock Exchange is open
for general business, together with any consecutive non-business days
immediately preceding such business day and irrespective of whether such
exchange is open for general business on each business day, together with any
consecutive non-business day, immediately preceding such business day when the
Fund values its portfolio securities based upon its determination that there is
a sufficient degree of trading in such securities that the net asset value of
its shares might be materially affected.
NOTE: All masculine references in this Prospectus are intended to include the
feminine gender. The singular context also includes the plural and vice versa
where appropriate.
-4-
<PAGE>
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 31, and "Limitation on Contract Rights", page 28.
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 31.
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 34.
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 39 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 41.
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 27.
o The Contracts include a limited right of cancellation. See "Redemption
- Right to Cancel", page 40.
-5-
<PAGE>
The objective of the Contracts, which may or may not be realized, is to provide
relatively level Annuity Payments during periods when the economy is relatively
stable and to provide increased Annuity Payments during inflationary and growth
periods. The Insurance Company seeks to assist the Contract Owner in
accomplishing this objective by making several classes of shares of the Fund
available from which the Owner may select underlying investment mediums. Each
such class is based upon a portfolio of Fund investments with a different
investment objective.
No assurance can be given that the value of a Contract before Annuity Payments
begin, or the aggregate amount of Annuity Payments made under a Contract, will
equal or exceed the Purchase Payment for a Contract. Thus, the investment risk
under a Contract is borne by the Contract Owner.
-6-
<PAGE>
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.
<TABLE>
<S> <C> <C> <C> <C>
Growth
Money and
Market Income Income II Voyager
Division Division (5) Division Division
A. Contract owner
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 0.41% 0.60% 0.46% 0.53%
All Other Expenses 0.08% 0.07% 0.04% 0.04%
Total Fund Annual
Expenses 0.49% 0.67% 0.50% 0.57%
</TABLE>
-7-
<PAGE>
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
fiscal year 1999. The inclusion of the 1999 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.
(5) On April 9, 1999, Putnam U.S. Government and High Quality Bond Fund changed
its name to name to Putnam Income Fund. In addition, the Fund's investment
policy changed. Prior to April, 9, 1999, the Fund's policies required it to
invest at least 25% of its assets in U.S. Government securities and limited
the amount of assets invested in securities rated below "A". Consequently,
the historic information listed in this Expenses Table with respect to the
Income Division does not reflect the performance of Putnam Income Fund
under the Fund's current investment policies or its current distribution
policies.
-8-
<PAGE>
EXAMPLES
<TABLE>
<S> <C> <C> <C> <C>
Growth
Money and
Market Income Income II 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 $ 90.56 $ 92.32 $ 90.66 $ 91.34
3 years 111.70 117.13 112.00 114.12
5 years 132.79 142.13 133.31 136.95
10 years 211.93 231.74 213.04 220.78
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 $ 90.56 $ 92.32 $ 90.66 $ 91.34
3 years 111.70 117.13 112.00 114.12
5 years 132.79 142.13 133.31 136.95
10 years 211.93 231.74 213.04 220.78
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 $ 18.35 $ 20.24 $ 18.45 $ 19.19
3 years 56.80 62.53 57.12 59.35
5 years 97.73 107.39 98.27 102.03
10 years 211.93 231.74 213.04 220.78
</TABLE>
-9-
<PAGE>
The purpose of the Expense Table is to assist a prospective purchaser in
understanding the various costs and expenses that a Contract Owner will bear
directly or indirectly. For further information concerning the Separate Account
fees and expenses, please refer to the section of this prospectus entitled
"Deductions and Expenses". Additional information pertaining to Fund Annual
Expenses is contained in the prospectus of Putnam Variable Trust. In addition to
the costs and expenses described above, the Contract may be subject to state
premium taxes. For a discussion of premium taxes please refer to the section
entitled "Contract Charges-Premium Taxes."
The example is not intended as, and should not be considered, a representation
of past or future expenses. Actual expenses may be greater or lesser than those
shown.
-10-
<PAGE>
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
1999 $ 2.2345 $ 2.3146 506,682
1998 $ 2.1487 $ 2.2336 593,464
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
-11-
<PAGE>
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
1999 $ 2.2186 $ 2.2980 899,105
1998 $ 2.1336 $ 2.2177 968,809
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
-12-
<PAGE>
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
1999 $ 8.6861 $ 8.7098 2,193,483
1998 $ 7.6501 $ 8.6752 2,497,011
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
* = As of April 18, 1995, the former Growth and Income Division was merged into
the Equity Division and the name of the Equity Division was changed to Growth
and Income II Division.
-13-
<PAGE>
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
1999 $ 7.4525 $ 7.4762 1,390,750
1998 $ 6.5538 $ 7.4431 1,557,788
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
* = As of April 18, 1995, the former Growth and Income Division was merged into
the Equity Division and the name of the Equity Division was changed to Growth
and Income II Division.
-14-
<PAGE>
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
1999 $ 3.6743 $ 3.5263 552,236
1998 $ 3.4216 $ 3.6748 772,236
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
-15-
<PAGE>
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
1999 $ 3.6318 $ 3.4861 1,582,528
1998 $ 3.3804 $ 3.6322 1,781,007
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
-16-
<PAGE>
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
1999 $ 3.8073 $ 5.9953 698,305
1998 $ 3.1133 $ 3.8346 714,343
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
* = Prior to April 18, 1995, the Voyager Division was named the Aggressive
Equity Division.
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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
1999 $ 3.8026 $ 5.9881 677,689
1998 $ 3.1078 $ 3.8299 679,382
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
* = Prior to April 18, 1995, the Voyager Division was named the Aggressive
Equity Division.
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.
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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.
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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 certain series 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.
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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 Income Fund seeks high current income consistent with what Putnam
Management believes to be prudent risk.
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.
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.
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.
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.
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The shares of each Fund of Putnam Variable Trust are available on to serve as
the underlying investment for variable annuity and variable life insurance
contracts. It is possible that, in the future, it may be disadvantageous for
variable annuity and variable life insurance separate accounts to invest in the
Funds simultaneously. The Insurance Company is not currently aware of any such
disadvantages. It should be noted that the prospectus of Putnam Variable Trust
states that the Trustees of the Fund intend to monitor events in order to
identify any material irreconcilable conflicts which may possibly arise and to
determine what action, if any, should be taken in response to such conflicts.
In addition, shares of the Funds are sold to separate accounts of other,
unaffiliated, insurance companies, a practice which is known as "mixed funding."
As a result, there is a possibility that a material conflict may arise between
the interests of Owners of variable annuity contracts issued by the Insurance
Company and owners of contracts issued by such other, unaffiliated, insurers. In
the event of any such material conflicts, we will consider what action may be
appropriate under the circumstances. For a description of the risk which may be
involved with mixed funding, please refer to the discussion in the prospectus of
Putnam Variable Trust.
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.
Prior to April 10, 1998, Putnam Management agreed to reimburse the Insurance
Company for certain costs that it incurred in connection with the servicing of
Contracts. The amount of this reimbursement was 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.
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.
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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.
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DEDUCTIONS AND EXPENSES
A. CONTRACT CHARGES:
The following deductions are made under the Contracts:
o 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.
o 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.
o 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.
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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.
o 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.
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<PAGE>
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.
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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:
o Change the beneficiary for death proceeds;
o surrender the Contract in whole or in part for its Withdrawal Value;
o change the annuity payout option;
o change the death benefit payout option;
o transfer Contract values between Separate Account Divisions;
o instruct the Insurance Company as to voting of Fund shares;
o cancel the Contract by returning it to the Insurance Company within 10
days after receipt;
o change the designated Separate Account Division for allocation of
future contributions;
o 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);
o change the payee to receive Annuity Payments;
o 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:
o transfer Contract values between Separate Account Divisions;
o change the payee to receive Annuity Payments, during the lifetime of
the Annuitant;
o 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;
o 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
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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.
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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.
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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.
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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.
o 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.
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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.
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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.
o Special Note for New Jersey Contracts: Contracts subject to New Jersey
law contain tables indicating an amount of first monthly annuity
payment based on an assumed interest rate of 5% rather than 6%.
The objective of the Contracts is to provide benefit installments which will
increase at a rate sufficient to maintain purchasing power at a constant level.
For this to occur, the actual net investment rate must exceed the assumed rate
of 6% (5% for New Jersey Contracts) by an amount equal to the rate of inflation.
Of course, no assurance can be made that this objective will be met. If the
assumed interest rate were to be increased, Annuity Payments would start at a
higher level but would increase more slowly or decrease more rapidly. Likewise,
a lower assumed interest rate would provide a lower initial payment with greater
increases or lesser decreases in subsequent Annuity Payments.
Transfer During the Annuity Period: For a description of the Contract provisions
applicable to transfers between Separate Account Divisions, refer to "General
Description of Variable Annuity Contracts - Transfers Between Separate Account
Divisions".
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DEATH BENEFITS
Accumulation Period: If the Annuitant dies during the Accumulation Period, and
prior to the death of the Owner (if the Owner is an individual other than the
Annuitant), death benefit proceeds will be equal to the Accumulation Value of
the Contract determined on the valuation date coincident with or next following
the date due proof of the Annuitant's death is received by the Insurance
Company. However, if death occurs before age 75, while the Owner (if other than
the Annuitant) is living and before Annuity Payments begin, the Insurance
Company guarantees that the death proceeds will not be less than the amount of
Purchase Payments made under the Contract, less a reduction for prior
redemptions.
The amount of death benefit proceeds payable to a Beneficiary will be reduced by
an applicable state premium 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:
o 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
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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.
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o 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
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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.
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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.
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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.
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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.
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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.
In order for a variable annuity contract to qualify for deferral on Federal
income taxes on income credited to the contract, the assets in the segregated
asset account supporting the contract must be considered to be owned by the
Insurance Company, and not by the owner of the variable annuity contract. The
Internal Revenue Service ("IRS") has issued certain rulings which discuss the
matter of investor control of the assets supporting a variable annuity
contracts. In its rulings, the IRS has stated that certain incidents of
ownership by the contract owner, such as the ability to select and control
investments in a segregated asset account, will cause the contract owner to be
taxed as the owner of the assets for Federal income tax purposes. In addition ,
in its explanation of the temporary regulations adopted under Section 817 of the
Code, the Treasury Department noted that the temporary regulations "do not
provide guidance concerning the circumstances in which investor control of the
investments of a segregated asset account may cause the investor, rather than
the insurance company, to be treated as the owner of the assets in the Account."
That explanation also indicated that "the temporary regulations provide that in
appropriate cases a segregated asset account may include multiple sub-accounts,
but do not specify the extent to which policyholders may direct their
investments to a particular sub-account without being treated as the owners of
the underlying assets. Guidance on this and other issues will be provided in
regulations or revenue rulings under Section 817(d), relating to the definition
of variable contract." The final regulations issued under Section 817 did not
provide such guidance regarding investor control, and as of the date of this
prospectus, no other such guidance has been
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issued. The Insurance Company does not know if, or in what form, such guidance
will be issued. Nor does the Insurance Company know whether any such guidance,
if issued, would be implemented on a prospective basis only, or if a ruling
would be given retroactive effect. Accordingly, there is a certain degree of
uncertainty as to whether an Owner of the variable annuity contracts described
in this prospectus would be considered the owner of the underlying assets for
Federal income tax purposes.
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
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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:
o 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).
o 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).
o A tax sheltered annuity plan maintained by certain tax exempt
organizations, including educational institutions, to purchase annuity
contracts for employees (403(b) Annuity plans).
o 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
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59-1/2 are considered premature distributions and may result in application of a
10% additional tax. In addition, the Code requires that tax qualified retirement
plans generally provide for the commencement of retirement benefits no later
than the year in which the employee attains age 70-1/2.
With respect to contracts issued in connection with Section 403(b) annuity
plans, the Code (as amended by the Tax Reform Act of 1986) restricts the
distribution under such contracts of certain amounts which are derived from
contract contributions made pursuant to a salary reduction agreement. These
restrictions are set forth in Section 403(b) (11) of the Code, effective January
1, 1989. The restrictions apply to: (i) salary reduction contributions made
after December 31, 1988, and earnings on such contributions, and (ii) earnings
on contract value as of December 31, 1988. The tax law restrictions do not apply
to salary reduction contributions made prior to January 1, 1989, or to earnings
credited to such contributions prior to January 1, 1989.
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.
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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.
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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
o The Separate Account
o 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.
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<PAGE>
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 May 1, 2000) 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
-47-
<PAGE>
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 May 1, 2000). 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:
-48-
<PAGE>
Investors Life Insurance
Company of North America
701 Brazos Street
Austin, Texas 78701
ILG Securities Corporation
701 Brazos Street
Austin, Texas 78701
PROSPECTUS
May 1, 2000
Single Payment
Individual Variable Annuity Contracts
Issued by
Investors Life Insurance Company
of North America
<PAGE>
ILCO Investors Life Insurance
Company
701 Brazos Street
Austin, Texas 78701
ILG Securities Corporation
701 Brazos Street
Austin, Texas 78701
PROSPECTUS
May 1, 2000
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.
May 1, 2000
<PAGE>
TABLE OF CONTENTS
Item Page
General Information and History........................................ 3
Services............................................................... 4
Purchase of Securities Being Offered................................... 5
Principal Underwriter.................................................. 5
Yield Quotations of Money Market Division.............................. 6
Annuity Payments....................................................... 8
Additional Information................................................. 11
Financial Statements
The Separate Account................................................... 12
The Insurance Company.................................................. 25
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<PAGE>
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 (as of April 1, 2000): (i) Financial Industries Corporation
("FIC") directly and indirectly owns approximately 47.52% of the outstanding
common stock of ILCO; FIC is a publicly-owned Texas corporation; (ii) Roy F.
Mitte is the beneficial owner of 30.71% 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 47.52% interest in ILCO's common stock, is 48.24%. 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 North
America ("Investors-NA"), a wholly-owned subsidiary of ILCO, is the owner of
106,800 shares of ILCO's common stock and the beneficial owner of 563,120 shares
of ILCO's common stock owned by Investors Life Insurance Company
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<PAGE>
of Indiana (formerly InterContinental Life Insurance Company) ("Investors-IN").
The beneficial ownership of Investors-NA represents 8.10% 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 563,120 shares of ILCO's
common stock (or 6.80%); (v) Fidelity Management & Research Company ("Fidelity")
owns 867,800 shares of ILCO's common stock, as reported to ILCO on a Schedule
13(G) and a Schedule 13(G)/A filed by FMR Corporation, the parent company of
Fidelity Management & Research Company ("Fidelity"). According to the Schedule
13(G) and the Schedule 13(G)/A, Fidelity acts as investment advisor to the
Fidelity Low-Priced Stock Fund, a registered investment company, and the Fund is
the owner of 878,100 shares of ILCO common stock, including 10,300 shares which
were purchased subsequent to the Schedule 13(G)/A filed on February 1, 1999. The
most recent Schedule 13(G)/A was filed on February 14, 2000. 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, 1999,
approximately 15.1% of the assets of the Growth and Income II Division
and 72.7% 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
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<PAGE>
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:
PricewaterhouseCoopers 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, PricewaterhouseCoopers
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 1997 to 1999, with respect to the Contracts:
Year Amount
1999 $ 210
1998 $ 66
1997 $ 784
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<PAGE>
(d) Prior to April 10, 1998, Putnam Investment Management, Inc. ("Putnam
Management"), the Fund's investment adviser, 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 was 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, 1998 to April 9, 1998, the amount of this reimbursement was $
19,140. 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, 1999, the annualized "current yield" for the tax qualified and
non-tax qualified subdivisions of the Money Market Divisions was 4.97 %
for Single Payment Contracts and 4.95 % for Flexible Payment Contracts.
The annualized "effective yield" of each such subdivision for such period was
5.19 % for Single Payment Contracts and 5.17 % 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
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<PAGE>
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.
-7-
<PAGE>
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.
o 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.
-8-
<PAGE>
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.
o 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
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<PAGE>
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.
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<PAGE>
ADDITIONAL INFORMATION
o 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
benefitting 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.
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<PAGE>
INVESTORS
LIFE INSURANCE COMPANY
OF NORTH AMERICA
(Herein called Investors Life)
SEPARATE ACCOUNT I
FINANCIAL STATEMENTS
December 31, 1999
(Audited)
This report is submitted for the general information of owners of Investors Life
Insurance Company of North America Separate Account I variable annuity
contracts. This report is not authorized for distribution to prospective
purchasers of such contracts unless it is accompanied by a current prospectus.
Investors Life Insurance
Company of North America
Administrative Offices: Austin, TX
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<PAGE>
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, 1999, 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 in the United States. 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 in the
United States 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 which included confirmation of securities at December 31, 1999 by
correspondence with the underlying funds provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Dallas, Texas
February 22, 2000
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<PAGE>
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
SEPARATE ACCOUNT I
COMBINED BALANCE SHEET
Year Ended December 31, 1999
ASSETS
Investments at Market Value (Notes 1 and 2):
Portfolios of Putnam Capital Manager Trust:
Putnam Variable Trust Money Market
1,172,768 qualified shares (Cost $1,172,828) $ 1,172,768
2,066,171 non-qualified shares (Cost $2,066,171) 2,066,171
Putnam Variable Trust Income Fund U.S.
Government and High Quality Bond
(formerly US Government and High
Quality Bond)
155,742 qualified shares (Cost $2,192,957) 1,949,894
440,643 non-qualified shares (Cost $5,842,750) 5,516,851
Putnam Variable Trust Growth and Income
629,836 qualified shares (Cost $15,012,363) 16,879,608
83,028 shares owned by Investors Life (Cost $1,979,000) 2,225,149
304,717 non-qualified shares (Cost $7,065,759) 8,166,403
83,252 shares owned by Investors Life (Cost $1,930,451) 2,231,161
Putnam Variable Trust Voyager
17,946 qualified shares (Cost $537,566) 1,188,893
45,247 shares owned by Investors Life (Cost $1,355,402) 2,997,638
16,061 non-qualified shares (Cost $471,451) 1,064,022
45,193 shares owned by Investors Life (Cost $1,326,614) 2,994,058
Total Assets $ 48,452,616
CONTRACT OWNERS' EQUITY
Contract Owners' Equity (Notes 3 and 6):
Putnam Variable Trust Money Market
506,682 qualified accumulation
units outstanding ($2.3146040 Per Unit) $ 1,172,768
899,105 non-qualified accumulation
units outstanding ($2.2980310 Per Unit) 2,066,171
Putnam Variable Trust Income
(formerly U.S. Government and
High Quality Bond)
552,955 qualified accumulation
units outstanding ($3.5263160 Per Unit) 1,949,894
1,582,528 non-qualified accumulation
units outstanding ($3.4861000 Per Unit) 5,516,851
Putnam Variable Trust Growth and Income
1,938,006 qualified accumulation
units outstanding ($8.7097810 Per Unit) 16,879,608
255,477 Investors Life equity ($8.7097810 Per Unit) 2,225,149
1,092,316 non-qualified accumulation
units outstanding ($7.4762280 Per Unit) 8,166,403
298,434 Investors Life equity ($7.4762280 Per Unit) 2,231,161
Putnam Variable Trust Voyager
198,305 qualified accumulation
units outstanding ($5.9952760 Per Unit) 1,188,893
500,000 Investors Life equity ($5.9952760 Per Unit) 2,997,638
177,689 non-qualified accumulation
units outstanding ($5.9881160 Per Unit) 1,064,022
500,000 Investors Life equity ($5.9881160 Per Unit) 2,994,058
Contract Owners' Equity $ 48,452,616
The accompanying notes are an integral part of these financial statements
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INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
SEPARATE ACCOUNT I
INDIVIDUAL STATEMENTS OF OPERATIONS
Period Year December 31, 1999
Putnam Putnam
Variable Trust Variable Trust
Money Money
Market Market
Qualified Non-Qualified
Investment Income:
Dividends $57,734 $100,984
Expenses:
Mortality risk and expense
fees guarantees (Notes 1 and 3) 14,831 25,566
Investment income - net 42,903 75,418
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 211,767 183,191
Cost of shares sold 211,767 183,191
Net realized gain (loss) on investments 0 0
Net unrealized gain (loss) on investments 0 0
Net realized and unrealized gain (loss)
on investments 0 0
Net Increase (Decrease) in Net Assets
from Investment Operations $42,903 $75,418
Putnam Variable Putnam Variable
Trust Income Trust Income
Fund (formerly Fund (formerly
U.S. Govmnt and U.S. Govmnt and
High Quality Bond) High Quality Bond)
Qualified Non-Qualified
Investment Income:
Dividends $171,708 $383,277
Expenses:
Mortality risk and expense
fees guarantees (Notes 1 and 3) 28,699 70,156
Investment income - net 143,009 313,121
Net Realized and Unrealized Gain
(Loss) on Investments:
Net realized capital gain distributions 15,104 33,714
Net realized gain (loss) on investments:
Proceeds from sale of shares 907,719 773,957
Cost of shares sold 866,626 717,616
Net realized gain (loss) on investments 41,093 56,341
Net unrealized gain (loss) on investments (282,576) (596,956)
Net realized and unrealized gain (loss)
on investments (226,379) (506,901)
Net Increase (Decrease) in Net Assets
from Investment Operations ($83,370) ($193,780)
The accompanying notes are an integral part of these financial statements
-15-
<PAGE>
Putnam Variable Putnam Variable
Trust Growth Trust Growth
and Income and Income
Qualified* Non-Qualified*
Investment Income:
Dividends $526,077 $279,419
Expenses:
Mortality risk and expense
fees guarantees (Notes 1 and 3) 249,617 134,171
Investment income - net 276,460 145,248
Net Realized and Unrealized Gain (Loss)
on Investments:
Net realized capital gain distributions 1,232,297 654,519
Net realized gain (loss) on investments:
Proceeds from sale of shares 3,250,365 1,429,163
Cost of shares sold 1,902,142 865,725
Net realized gain (loss) on investments 1,348,223 563,438
Net unrealized gain (loss) on investments (2,650,900) (1,270,668)
Net realized and unrealized gain (loss)
on investments (70,380) (52,711)
Net Increase (Decrease) in Net Assets
from Investment Operations $206,080 $92,537
Putnam Putnam
Variable Trust Variable Trust
Voyager Voyager
Qualified * Non-Qualified *
Investment Income:
Dividends $3,042 $2,913
Expenses:
Mortality risk and expense
fees guarantees (Notes 1 and 3) 36,046 35,119
Investment income - net ($33,004) ($32,206)
Net Realized and Unrealized Gain (Loss)
on Investments:
Net realized capital gain distributions 243,942 233,561
Net realized gain (loss) on investments:
Proceeds from sale of shares 194,292 69,466
Cost of shares sold 98,409 33,123
Net realized gain (loss) on investments 95,883 36,343
Net unrealized gain (loss) on investments 1,199,690 1,224,694
Net realized and unrealized gain (loss)
on investments 1,539,515 1,494,598
Net Increase (Decrease) in Net Assets
from Investment Operations $1,506,511 $1,462,392
The accompanying notes are an integral part of these financial statements
* Includes shares owned by Investors Life.
-16-
<PAGE>
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
SEPARATE ACCOUNT I
INDIVIDUAL STATEMENTS OF CHANGES IN TOTAL ASSETS
Year Ended December 31, 1999
Putnam Putnam
Variable Trust Variable Trust
Money Money
Market Market
Qualified Non-Qualified
Investment Operations:
Investment income-net $42,903 $75,418
Realized capital gain distributions 0 0
Net realized gain (loss) on investments 0 0
Net unrealized gain (loss) on investments 0 0
Net increase (decrease) in net assets
from investment operations 42,903 75,418
Accumulation Unit Transactions:
Net contract considerations
and transfers in (Note 3) 3,522 134
Net contract surrenders
and transfers out (Note 3) (190,069) (109,670)
Benefit payments to annuitants (9,154) (48,256)
Net increase (decrease) from
accumulation unit transactions (195,701) (157,792)
Net Increase (Decrease) in Net Assets (152,798) (82,374)
Net Assets:
Net assets at December 31, 1998 1,325,566 2,148,545
Net assets at December 31, 1999 $1,172,768 $2,066,171
Putnam Putnam
Variable Trust Variable Trust
Money Money
Market Market
Qualified Non-Qualified
Investment Operations:
Investment income-net $56,991 $92,738
Realized capital gain distributions 0 0
Net realized gain (loss) on investments 0 0
Net unrealized gain (loss) on investments 0 0
Net increase (decrease) in net assets
from investment operations 56,991 92,738
Accumulation Unit Transactions:
Net contract considerations
and transfers in (Note 3) 198,798 436,426
Net contract surrenders
and transfers out (Note 3) (394,261) (618,288)
Benefit payments to annuitants (7,075) (34,277)
Net increase (decrease) from
accumulation unit transactions (202,538) (216,139)
Net Increase (Decrease) in Net Assets (145,547) (123,401)
Net Assets:
Net assets at December 31, 1997 1,471,113 2,271,946
Net assets at December 31, 1998 $1,325,566 $2,148,545
The accompanying notes are an integral part of these financial statements
-17-
<PAGE>
Putnam Variable Putnam Variable
Trust Income Trust Income
Fund (formerly Fund (formerly
U.S. Govmnt and U.S. Govmnt and
High Quality Bond High Quality Bond)
Qualified Non-Qualified
Investment Operations:
Investment income-net $143,009 $313,121
Realized capital gain distributions 15,104 33,714
Net realized gain (loss) on investments 41,093 56,341
Net unrealized gain (loss) on investments (282,576) (596,956)
Net increase (decrease) in net assets
from investment operations (83,370) (193,780)
Accumulation Unit Transactions:
Net contract considerations
and transfers in (Note 3) 2,647 532
Net contract surrenders
and transfers out (Note 3) (764,398) (608,753)
Benefit payments to annuitants (18,177) (94,181)
Net increase (decrease) from
accumulation unit transactions (779,928) (702,402)
Net Increase (Decrease) in Net Assets (863,298) (896,182)
Net Assets:
Net assets at December 31, 1998 2,813,192 6,413,033
Net assets at December 31, 1999 $1,949,894 $5,516,851
Putnam Variable Putnam Variable
Trust Income Trust Income
Fund (formerly Fund (formerly
U.S.Govmnt and U.S. Govmnt and
High Quality Bond) High Quality Bond)
Qualified Non-Qualified
Investment Operations:
Investment income-net $126,862 $285,132
Realized capital gain distributions 0 0
Net realized gain (loss) on investments 73,516 72,798
Net unrealized gain (loss) on investments (3,021) 81,679
Net increase (decrease) in net assets
from investment operations 197,357 439,609
Accumulation Unit Transactions:
Net contract considerations
and transfers in (Note 3) 119,096 15,992
Net contract surrenders
and transfers out (Note 3) (614,443) (612,664)
Benefit payments to annuitants (23,515) (99,141)
Net increase (decrease) from
accumulation unit transactions (518,862) (695,813)
Net Increase (Decrease) in Net Assets (321,505) (256,204)
Net Assets:
Net assets at December 31, 1997 3,134,697 6,669,237
Net assets at December 31, 1998 $2,813,192 $6,413,033
The accompanying notes are an integral part of these financial statements.
-18-
<PAGE>
Putnam Variable Putnam Variable
Trust Growth Trust Growth
and Income and Income
Qualified Non-Qualified
Investment Operations:
Investment income-net $276,460 $145,248
Realized capital gain distributions 1,232,297 654,519
Net realized gain (loss) on investments 1,348,223 563,438
Net unrealized gain (loss) on investments (2,650,900) (1,270,668)
Net increase (decrease) in net
assets from investment operations 206,080 92,537
Accumulation Unit Transactions:
Net contract considerations
and transfers in (Note 3) 225,501 760
Net contract surrenders
and transfers out (Note 3) (2,884,977) (1,158,315)
Benefit payments to annuitants (103,795) (132,264)
Net increase (decrease)
from accumulation unit transactions (2,763,271) (1,289,819)
Net Increase (Decrease) in Net Assets (2,557,191) (1,197,282)
Net Assets:
Net assets at December 31, 1998 21,661,948 11,594,846
Net assets at December 31, 1999 $19,104,757 $10,397,564
Putnam Variable Putnam Variable
Trust Growth Trust Growth
and Income and Income
Qualified Non-Qualified
Investment Operations:
Investment income-net $568,935 $314,487
Realized capital gain distributions 1,899,116 1,038,467
Net realized gain (loss) on investments 1,168,549 632,438
Net unrealized gain (loss) on investments (842,800) (471,025)
Net increase (decrease) in net
assets from investment operations 2,793,800 1,514,367
Accumulation Unit Transactions:
Net contract considerations
and transfers in (Note 3) 217,936 261,081
Net contract surrenders
and transfers out (Note 3) (2,719,592) (1,493,533)
Benefit payments to annuitants (106,044) (128,522)
Net increase (decrease)
from accumulation unit transactions (2,607,700) (1,360,974)
Net Increase (Decrease) in Net Assets 186,100 153,393
Net Assets:
Net assets at December 31, 1997 21,475,848 11,441,453
Net assets at December 31, 1998 $21,661,948 $11,594,846
The accompanying notes are an integral part of these financial statements.
-19-
<PAGE>
Putnam Putnam
Variable Trust Variable Trust
Voyager Voyager
Qualified * Non-Qualified *
Investment Operations:
Investment income-net $(33,004) $(32,206)
Realized capital gain distributions 243,942 233,561
Net realized gain (loss) on investments 95,883 36,343
Net unrealized gain (loss) on investments 1,199,690 1,224,694
Net increase (decrease) in net
assets from investment operations 1,506,511 1,462,392
Accumulation Unit Transactions:
Net contract considerations
and transfers in (Note 3) 112,768 31,423
Net contract surrenders
and transfers out (Note 3) (162,479) (37,677)
Benefit payments to annuitants (9,464) 0
Net increase (decrease)
from accumulation unit transactions (59,175) (6,254)
Net Increase (Decrease) in Net Assets 1,447,336 1,456,138
Net Assets:
Net assets at December 31, 1998 2,739,195 2,601,942
Net assets at December 31, 1999 $4,186,531 $4,058,080
Putnam Putnam
Variable Trust Variable Trust
Voyager Voyager
Qualified * Non-Qualified *
Investment Operations:
Investment income-net $(23,657) $(20,804)
Realized capital gain distributions 141,877 126,718
Net realized gain (loss) on investments 99,378 76,938
Net unrealized gain (loss) on investments 292,657 302,163
Net increase (decrease) in net
assets from investment operations 510,255 485,015
Accumulation Unit Transactions:
Net contract considerations
and transfers in (Note 3) 33,436 229,908
Net contract surrenders
and transfers out (Note 3) (106,935) (148,405)
Benefit payments to annuitants (3,988) 0
Net increase (decrease)
from accumulation unit transactions (77,487) 81,503
Net Increase (Decrease) in Net Assets 432,768 566,518
Net Assets:
Net assets at December 31, 1997 2,306,427 2,035,424
Net assets at December 31, 1998 $2,739,195 $2,601,942
The accompanying notes are an integral part of these financial statements.
* Includes shares owned by Investors Life
-20-
<PAGE>
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
SEPARATE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
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 Variable
Trust Money Market Fund, Putnam Variable Trust Income Fund (formerly Putnam
Variable Trust U.S. Government and High Quality Bond Fund), Putnam Variable
Trust Growth and Income Fund or Putnam Variable Trust 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 not subject such transfers to current
taxation.
-21-
<PAGE>
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, 1999; (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, 1999, were $117,666
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, 1999, the total of all transfers was $259,621. Contract
surrender benefits amounted to $5,656,717. Annuity benefits amounted to
$415,291. 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 Internal Revenue 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.
-22-
<PAGE>
Note 6. Accumulation Unit Transactions:
The changes in the number of accumulation units (the measure of ownership in the
Separate Account) during the period ended December 31, 1999 and units
outstanding at December 31, 1999 were as follows:
Putnam Putnam
Variable Trust Variable Trust
Money Money
Market Market
Qualified Non-Qualified
Units outstanding at December 31, 1998 593,464 968,809
Units purchased and transfers in 1,566 59
Benefits, surrenders and transfers out (88,348) (69,763)
Units outstanding at December 31, 1999 506,682 899,105
Putnam Variable Putnam Variable
Trust Income Fund Trust Income Fund
(formerly US Gov't (formerly US Gov't
High Quality Bond) High Quality Bond)
Qualified Non-Qualified
Units outstanding at December 31, 1998 772,236 1,781,007
Units purchased and transfers in 639 158
Benefits, surrenders and transfers out (219,880) (198,637)
Units outstanding at December 31, 1999 552,995 1,582,528
Putnam Variable Putnam Variable
Trust Growth Trust Growth
and Income and Income
Qualified Non-Qualified
Units outstanding at December 31, 1998 2,497,011 1,557,788
Units purchased and transfers in 24,749 99
Benefits, surrenders and transfers out (328,277) (167,137)
Units outstanding at December 31, 1999 2,193,483 1,390,750
-23-
<PAGE>
Putnam Putnam
Variable Trust Variable Trust
Voyager Voyager
Qualified * Non-Qualified *
Units outstanding at December 31, 1998 714,343 679,382
Units purchased and transfers in 26,133 7,224
Benefits, surrenders and transfers out (42,171) (8,917)
Units outstanding at December 31, 1999 698,305 677,689
* 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, 1999 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, Qualified 39,840 $92,214
Putnam Variable Trust
Money Market, Non-Qualified 220,371 $506,419
Putnam Variable Trust
Growth and Income, Qualified 113,964 $992,601
Putnam Variable Trust
Growth and Income, Non-Qualified 83,942 $627,570
Putnam Variable Trust
Income Fund, Qualified 75,009 $264,505
Putnam Variable Trust
Income Fund, Non-Qualified 217,389 $757,840
Putnam Variable Trust Voyager, Qualified 28,201 $169,071
Monthly Annuity
Annuity Units Unit Value
Putnam Variable Trust Money Market, Qualified 825 $0.7978806
Putnam Variable Trust Money Market, Non-Qualified 6,730 $0.7982616
Putnam Variable Trust Growth and Income, Qualified 4,949 $1.8535421
Putnam Variable Trust Growth and Income, Non-Qualified 6,025 $1.9900205
Putnam Variable Trust Income Fund, Qualified 1,517 $1.2999081
Putnam Variable Trust Income Fund, Non-Qualified 8,264 $1.2978484
Putnam Variable Trust Voyager, Qualified 462 $1.5900704
-24-
<PAGE>
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
Statutory Financial Statements
December 31, 1999 and 1998
-25-
<PAGE>
Report of Independent Accountants
To the Board of Directors of Investors Life Insurance Company of North America:
We have audited the accompanying statutory statements of admitted assets,
liabilities and capital and surplus of Investors Life Insurance Company of North
America (the "Company") as of December 31, 1999 and 1998, and the related
statutory statements of operations and changes in capital and surplus, and cash
flow for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
As described in Note 1 to the financial statements, the Company prepared these
financial statements using accounting practices prescribed or permitted by the
Insurance Department of the State of Washington, which practices differ from
accounting principles generally accepted in the United States. Details of the
effects on the financial statements of the variances between the statutory basis
of accounting and generally accepted accounting principles are included in Note
13.
In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of the Company as of December 31, 1999 and 1998, or the results of its
operations or its cash flows for each of the three years in the period ended
December 31, 1999.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the admitted assets, liabilities and surplus of the
Company as of December 31, 1999 and 1998, and the results of its operations and
its cash flow for each of the three years in the period ended December 31 1999,
on the basis of accounting described in Note 1.
PricewaterhouseCoopers LLP
Dallas, Texas
March 27, 1999
-26-
<PAGE>
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
Statutory Statements of Admitted Assets, Liabilities and Capital and Surplus
(In thousands)
December 31,
1999 1998
Admitted Assets
Cash and investments:
Bonds, at amortized cost
(market value $329,119
and $358,781 at
December 31, 1999 and
1998, respectively) $ 333,543 $ 347,668
Common stock, at market
value (cost of $23,936 at
December 31, 1999 and 1998) 25,174 26,091
Mortgage loans on real estate 6,844 10,168
Real estate, net of accumulated
depreciation of $1,893 and
$5,270 at December 31, 1999
and 1998, respectively 25,908 14,473
Policy loans 39,833 42,514
Cash and short-term investments 147,120 151,305
Total cash and investments 578,422 592,219
Accrued investment income 5,802 5,846
Premiums deferred and uncollected 5,390 6,394
Receivable from reinsurers 2,497 2,507
Receivable from affiliates 8,739 3,090
Federal income tax recoverable 8,174 5,996
Other assets 6,978 7,080
Separate account assets 464,737 456,564
Total admitted assets $ 1,080,739 $ 1,079,696
The accompanying footnotes are an integral
part of these financial statements.
-27-
<PAGE>
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
Statutory Statements of Admitted Assets, Liabilities and Capital and Surplus
(In thousands)
December 31,
1999 1998
Liabilities, Capital and Surplus
Policy liabilities and accruals:
Aggregate reserve for life,
annuity and accident and
health contracts
$ 526,519 $ 536,046
Policy claims and benefits payable 4,781 5,271
Other policy related liabilities 1,837 1,890
Total policy liabilities
and accruals 533,137 543,207
Interest maintenance reserve 4,096 4,240
Asset valuation reserve 3,486 4,266
Other liabilities 10,562 9,062
Separate account liabilities 454,289 448,294
Total liabilities 1,005,570 1,009,069
Commitments and contingencies
(Notes 3, 5 and 9)
Capital and surplus:
Common stock, $85 par value
at December 31, 1999 and $80
par value at December 31, 1998,
40,000 shares authorized,
30,000 shares issued and outstanding 2,550 2,400
Paid-in and contributed surplus 4,650 4,800
Surplus debentures 5,896 15,896
Unassigned surplus 62,073 47,531
Total capital and surplus 75,169 70,627
Total liabilities, capital
and surplus $ 1,080,739 $ 1,079,696
The accompanying footnotes are an integral
part of these financial statements.
-28-
<PAGE>
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
Statutory Statements of Operations
(In thousands)
Year Ended December 31,
1999 1998 1997
Revenues:
Insurance premiums and
annuity considerations $ 45,355 $ 46,529 $ 47,708
Net investment income 40,453 45,190 45,792
Other revenues 1,756 2,288 4,023
Total revenues 87,564 94,007 97,523
Benefits, losses and
expenses:
Policyholder claims
and benefits 51,624 59,345 62,243
Commissions 4,720 4,088 3,057
Other operating expenses 15,170 14,679 16,493
Total benefits, losses
and expenses 71,514 78,112 81,793
Operating income before
federal income taxes
and net realized capital gains 16,050 15,895 15,730
Provision for federal
income taxes 4,475 3,651 2,423
Net income from operations 11,575 12,244 13,307
Net realized capital gains,
net of federal income taxes
(benefit) of $(562), $134 and
$5,175 and excluding $212, $97
and $80 transferred to the
interest maintenance reserve
in 1999 and 1998, 1997,
respectively 175 137 9,532
Net income $ 11,750 $ 12,381 $ 22,839
The accompanying footnotes are an integral
part of these financial statements.
-29-
<PAGE>
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, 1996 30 $ 2,400 $ 4,800
Net income
Change in net unrealized capital
gains
Change in non-admitted assets
Decrease in asset valuation
reserve
Prior year surplus adjustment
Surplus note payment
Balance as of December 31, 1997 30 2,400 4,800
Net income
Change in net unrealized capital
gains
Change in non-admitted assets
Decrease in asset valuation
reserve
Prior year surplus adjustment
Change in valuation basis
Change in surplus in separate
accounts
Surplus note payment
Balance as of December 31, 1998 30 2,400 4,800
Net income
Change in net unrealized capital
gains
Change in non-admitted assets
Decrease in asset valuation
reserve
Change in surplus in separate
accounts
Surplus note payment
Increase in par value of common
stock
150 (150)
Balance as of December 31, 1999 30 $ 2,550 $ 4,650
The accompanying footnotes are an integral
part of these financial statements.
-30-
<PAGE>
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
Statutory Statements of Changes in Capital and Surplus
(In thousands)
Unassigned
Surplus Surplus
Debentures (Deficit) Total
Balance as of December 31, 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
Net income 12,381 12,381
Change in net unrealized
capital gains (5,530) (5,530)
Change in non-admitted assets 79 79
Decrease in asset valuation
reserve 549 549
Prior year surplus adjustment (975) (975)
Change in valuation basis (137) (137)
Change in surplus in separate
accounts 2,228 2,228
Surplus note payment (11,900) (11,900)
Balance as of December 31, 1998 15,896 47,531 70,627
Net income 11,750 11,750
Change in net unrealized
capital gains (1,035) (1,035)
Change in non-admitted assets 869 869
Decrease in asset valuation
reserve 780 780
Change in surplus in separate
accounts 2,178 2,178
Surplus note payment (10,000) (10,000)
Increase in par value of
common stock -
Balance as of December 31, 1999 $ 5,896 $ 62,073 $ 75,169
The accompanying footnotes are an integral
part of these financial statements.
-31-
<PAGE>
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
Statutory Statements of Cash Flow
(In thousands)
Year Ended December 31,
1999 1998 1997
Cash from operations:
Premiums and annuity considerations
received $ 44,746 $ 45,485 $ 46,769
Net investment income received 39,481 43,496 47,312
Other income received 2,582 3,515 4,380
Death and accident and health
benefits paid (26,149) (28,497) (28,440)
Surrender benefits paid (23,123) (30,722) (30,487)
Annuity benefits paid (37,725) (41,770) (47,989)
Net transfers to separate accounts 22,049 27,310 29,502
Reserve changes due to modified
coinsurance 5,021 5,909 6,910
Other benefits paid (1,769) (1,751) (1,888)
Federal income taxes paid
excluding tax on capital gains (9,050) (11,700) (2,200)
Dividends paid to policyholders (172) (214) (208)
Commissions paid (4,720) (4,091) (3,058)
General expenses, taxes,
licenses and fees (14,139) (12,798) (13,234)
Net cash (used in) provided
by operations (2,968) (5,828) 7,369
Cash from investments:
Proceeds from investments
sold or matured, net of
tax on capital gains 70,880 58,569 93,739
Cost of investments acquired (65,172) (36,343) (17,433)
Net decrease in policy loans 2,681 2,245 1,261
Net cash provided by
investing activities 8,389 24,471 77,567
Cash from financing and
miscellaneous sources:
Surplus debenture payments (10,000) (11,900) (10,750)
Interest paid on surplus
debentures (859) (1,482) (3,344)
Other sources (uses) and
applications, net 1,253 (11,735) 13,474
Net cash used in financing
activities (9,606) (25,117) (620)
Net (decrease) increase in
cash and short-term investments (4,185) (6,474) 84,316
Cash and short-term investments
at beginning of year 151,305 157,779 73,463
Cash and short-term investments
at end of year $ 147,120 $ 151,305 $ 157,779
The accompanying notes are an integral
part of these financial statements.
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<PAGE>
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to 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. Approximately 45%
of ILCO's outstanding common stock is owned by Financial Industries
Corporation ("FIC"), also a life insurance holding company.
The Company owns 100% of Investors Life Insurance Company of Indiana
("Investors-IN"), a life insurance company, and ILG Securities Corporation
("ILG"), a registered broker-dealer.
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.
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") or the National Association of Insurance Commissioners
("NAIC"). These accounting practices differ in certain respects from
generally accepted accounting principles ("GAAP"). 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
rather than on the basis of mortality, interest and withdrawal
assumptions used under generally accepted accounting principles. In
addition, statutory reserves include reserves calculated for interest
sensitive products, whereas for generally accepted accounting
principles, such products are accounted for on a deposit basis.
b) Costs of acquiring business are charged to surplus as incurred,
whereas under generally accepted accounting principles, such costs are
capitalized and amortized against earnings ratably over the lives of
the policies. Likewise, costs of writing business, such as commissions
and underwriting costs, are expensed in the year incurred. Under
generally accepted accounting principles, such costs are deferred and
amortized against future earnings.
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 excluded from the statement
of admitted assets, liabilities and capital and surplus and are
charged to surplus. These "non-admitted assets," which are primarily
comprised of certain fixed assets and receivables, totaled
approximately $3,374,000 and $4,243,000 at December 31, 1999 and 1998,
respectively.
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<PAGE>
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements
e) For statutory accounting purposes, the asset valuation reserve
("AVR"), which makes provision for the risk of asset default, is
charged directly to unassigned surplus. Under generally accepted
accounting principles, no provisions for default losses are accrued
unless considered probable and are charged directly to net income.
f) Under statutory accounting practices, net capital gains on fixed
income securities resulting from interest rate fluctuations, net of
applicable income taxes, are recorded as a policyholder liability in
an interest maintenance reserve ("IMR"). 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) Fixed maturities classified as "available for sale" are carried at
market value under generally accepted accounting principles and
unrealized gains or losses are reflected as a component of accumulated
other comprehensive income. These securities are carried at amortized
cost under statutory accounting practices. Net unrealized investment
gains and losses are not segregated as a component of unassigned
surplus.
h) Policy reserves in the statements of assets, liabilities and capital
and surplus are reported net of reinsurance reserve credits and
recoverables on paid losses. Likewise, premium revenues and policy
benefits in the summary of operations are reported net of reinsurance.
Under generally accepted accounting principles, netting is not
permitted.
i) Surplus debentures are included as a component of surplus. Under
generally accepted accounting principles, such debentures are included
as a liability.
j) Premiums received from and benefits paid on universal life and
investment-type products are recognized as revenue and expense in the
statutory statement of operations. Under generally accepted accounting
principles, these types of policies are accounted for using a deposit
method of accounting.
k) The statements of cash flows are shown in the format prescribed by
statutory accounting rather than those prescribed by generally
accepted accounting principles.
Codification.
In 1998, the NAIC adopted the Codification of Statutory Accounting Principles
guidance, which will replace the current Accounting Practices and Procedures
manual as the NAIC's primary guidance on statutory accounting. The NAIC is now
considering amendments to the Codification guidance that would also be effective
upon implementation. The Codification provides guidance for areas where
statutory accounting has been silent and changes current statutory accounting in
some areas, e.g. deferred income taxes are recorded. The Company has not
estimated the potential effect of the Codification guidance on statutory net
income and statutory capital and surplus. However, the actual effect of adoption
could differ as changes are made to the Codification guidance prior to its
recommended effective date of January 1, 2001.
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<PAGE>
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements
Investments.
Bonds are carried at amortized cost using the scientific method. 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.
Common stocks are carried at market value as described in the Purposes and
Procedures manual of the Securities Valuation Office of the NAIC. Market value
of common stock in subsidiaries is determined on an equity basis. As permitted
by the State of Washington, market value of common stock investments in upstream
investments, i.e. FIC and ILCO, is reduced by the proportionate share of the
Company's capital and surplus to total consolidated equity of these companies.
Short-term investments include those securities which mature within one year and
are carried at cost, which approximates market value.
Mortgage loans on real estate and policy loans are carried at their aggregate
unpaid principal balance. 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.
Real estate occupied by the Company and held for investment is carried at cost
less accumulated depreciation. Depreciation is calculated using the straight
line method over 20 to 40 years. Real estate assets under construction are not
depreciated until they are completed. The total amount capitalized for
construction in progress and included as real estate in the accompanying
statement of assets, liabilities and capital and surplus was $22,500,583 and
$8,749,089 at December 31, 1999 and 1998, respectively. Depreciation expense for
real estate for 1999, 1998 and 1997 amounted to $324,167, $338,513 and
$1,680,763, respectively.
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 taxes and amounts deferred as part of the
IMR, are recognized in net income. The cost of investments sold is determined on
the specific identification basis, except for stocks, for which the first-in,
first-out method is employed. Unrealized gains and losses are charged to
surplus.
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% to 6% using the Net
Level Premium or the Commissioners' Reserve Valuation Method.
The primary mortality tables utilized are the 1941 and 1958 Commissioners
Standard Ordinary ("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.
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<PAGE>
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements
Reserves for annuities in pay status are established using the Progressive
Annuity Table, A49 MOD 60 Table, the 1971 IAM Table, or the 1983 Commissioners
Annuity Reserve Valuation Method 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.
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 policy and contract
claims 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 and annuity 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.
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.
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.
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 disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Because of the inherent subjectivity of this
process, actual results may differ from those estimates.
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<PAGE>
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements
2. Investments
The carrying value and estimated market value of investments in bonds by
category at December 31, 1999 are as follows (in thousands):
Gross Gross
Carrying Unrealized Unrealized Market
Value Gains Losses Value
U.S. Treasury securities
and obligations of U.S.
Government agencies
and corporations $ 4,484 $ 396 $ - $ 4,880
Obligations of states
and political subdivisions 3,924 57 - 3,981
Corporate securities 160,269 91 5,263 155,097
Mortgage-backed
securities 164,866 3,071 2,776 165,161
Total bonds $ 333,543 $ 3,615 $ 8,039 $ 329,119
The carrying value and estimated market value of investments in bonds
by category at December 31, 1998 are as follows (in thousands):
Gross Gross
Carrying Unrealized Unrealized Market
Value Gains Losses Value
U.S. Treasury securities
and obligations of U.S.
Government agencies and
corporations $ 4,482 $ 1,076 $ - $ 5,558
Obligations of states
and political subdivisions 1,947 197 - 2,144
Corporate securities 146,099 4,071 55 150,115
Mortgage-backed securities 195,140 6,004 180 200,964
Total bonds $ 347,668 $ 11,348 $ 235 $ 358,781
The carrying values of investments at December 31, 1999 and 1998 that were
non-income producing for the preceding twelve months were as follows (in
thousands):
1999 1998
Mortgage loans $ - $ 81
$ - $ 81
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<PAGE>
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements
An analysis of the Company's net investment income for the years ended December
31, 1999, 1998 and 1997 is as follows (in thousands):
1999 1998 1997
Interest on bonds $ 25,719 $ 29,391 $ 31,658
Interest on short-term investments 7,321 6,805 4,012
Interest on policy loans 3,025 3,086 3,145
Interest on mortgage loans 841 938 1,040
Income on real estate 921 455 7,117
37,827 40,675 46,972
Equity in earnings of
wholly-owned subsidiary 3,119 5,009 2,043
Other income 3 71 4
Amortization of IMR 356 331 309
Gross investment income 41,305 46,086 49,328
Less investment expenses (852) (896) (3,536)
Net investment income $ 40,453 $ 45,190 $ 45,792
Realized capital gains and losses for the years ended December 31, 1999, 1998
and 1997 are as follows (in thousands):
1999 1998 1997
(Losses) gains on sales of real estate $ (420) $ 54 $ 14,662
Gains on sales of bonds 352 150 118
Gains on sales of other investments - 164 7
-
Losses on sales of short-term investments (26) - -
Losses on sale of mortgage loans (81) - -
Less amounts deferred as IMR (212) (97) (80)
(387) 271 14,707
Income tax benefit (provision) 562 (134) (5,175)
Net realized capital gains $ 175 $ 137 $ 9,532
Net realized capital gains for 1997 includes $14 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 an
affiliate. The sale closed on December 5, 1997.
On December 29, 1999, the Company donated a building to Jackson Redevelopment
Authority ("JRA"). Contemporaneously with the donation, the Company and FIC sold
all of the adjacent parcels they owned to the JRA for a total sale price of
$2,500,000, which has been allocated according to respective ownership interests
of the Company and FIC, approximately 59.28% and 40.72%, respectively. The
Company intends to claim an income tax deduction on its upcoming tax return for
the donation of the building. The donation and sale transaction resulted in a
net after tax gain of approximately $142,000 on a statutory basis and $992,000
on a GAAP basis.
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<PAGE>
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements
Net unrealized losses on common stocks were approximately $14,222,000,
$13,186,000 and $7,806,000 as of December 31, 1999, 1998 and 1997, respectively.
Proceeds from sales and maturities of bonds were $66,006,409, $57,633,007, and
$33,577,393 for the years ended December 31, 1999, 1998 and 1997, respectively.
The carrying value and estimated market value of bonds at December 31, 1999 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.
Carrying Market
Value Value
(in thousands)
Due in one year or less $ 8,858 $ 8,846
Due after one year through five years 42,004 41,534
Due after five years through ten years 50,354 49,605
Due after ten years 67,461 63,973
168,677 163,958
Mortgage-backed securities 164,866 165,161
$ 333,543 $ 329,119
3. Reinsurance
Ceded
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 these agreements.
In December 1997, the Company entered into a reinsurance treaty under which
a third party assumed the direct obligations of the Company under accident
and health policies.
The amounts deducted in the accompanying financial statements for
reinsurance ceded are as follows (in thousands):
1999 1998
Aggregate reserve for life,
annuity and accident and health contracts $ 8,778 $ 8,964
Other policy claims and benefits payable 100 16
-39-
<PAGE>
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements
Estimated amounts recoverable from reinsurers on paid claims were $2,480,813 and
$2,488,391 at December 31, 1999 and 1998, respectively. Commissions and expense
allowances due from reinsurers were $15,990 and $18,167 at December 31, 1999 and
1998, respectively. Total premiums ceded during 1999, 1998 and 1997 were
$7,376,819 $7,914,925, and $7,980,779, respectively.
Assumed
In 1995, Investors-NA entered into a reinsurance agreement with Family Life
pertaining to universal life insurance written by Family Life Insurance Company
("Family Life") a wholly-owner subsidiary of FIC. 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.
Total premiums assumed during 1999, 1998 and 1997 were $5,085,219, $4,217,474,
and $5,197,749, respectively.
4. Separate Accounts
The Company maintains two separate accounts which relate to variable
annuity business of a non-guaranteed return type. Each of the separate
accounts is registered under the Investment Company Act of 1940 as a unit
investment trust. The products consist of a single premium contract and a
flexible premium contract.
The following reconciles net transfers per the Separate Accounts Statement
to net transfers included in the Company's statement of operations for the
years ended December 31, 1999, 1998 and 1997 (in thousands):
1999 1998 1997
Transfers to separate accounts $ 445 $ 503 $ 712
Transfers from separate accounts (25,820) (30,600) (33,921)
Net transfers from separate accounts (25,375) (30,097) (33,209)
Reconciling adjustments:
Charges for investment management,
administration and contract
guarantees 3,326 2,787 3,707
Transfers as reported in the
summary of operations of the Life,
Accident and Health Annual Statement $ (22,049) $ (27,310) $ (29,502)
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<PAGE>
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements
5. Federal Income Taxes
The Company files a consolidated income tax return with its wholly-owned
life insurance subsidiary. Pursuant to a tax sharing agreement approved by
the Company and its affiliates, income tax obligations (benefits) are
allocated on the basis of separate return calculations with current credit
for net losses. Intercompany tax balances are settled on a quarterly basis.
In accordance with Internal Revenue Code Section 338, the Company elected
to adjust its bases in assets 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 following is a reconciliation
of tax on operating income at the statutory federal rate of 35% in 1999,
1998 and 1997 to the Company's provision for federal income taxes (in
thousands):
1999 1998 1997
Tax on operating income at
statutory rates $ 5,618 $ 5,563 $ 5,506
Dividends received deduction (36) (30) (33)
Difference in recognition of
income and expenses relating
to adjustment in asset bases
due to
Section 338 election 2 380 (2,068)
Difference between statutory
and income tax policy reserves 38 100 (81)
Differences in accounting for
deferred policy acquisition costs (320) (236) (317)
Accrual or market discount (105) (289) (312)
Equity in earnings of subsidiaries (1,091) (1,753) (715)
Other, net 369 (84) 443
Provision for federal income taxes $ 4,475 $ 3,651 $ 2,423
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, plus special deductions
allowed in computing the income from operations, were placed in the
Company's Policyholders' Surplus Account. The aggregate accumulation in the
account at December 31, 1999 and December 31, 1998 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, 1999 and December 31,
1998, the Company had approximately $138,000,000 and $130,000,000 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.
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<PAGE>
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements
6. Life and Annuity Reserves
The Company waives deduction of deferred fractional premiums upon death of
an insured. The Company does not return any portion of the final premiums
for the period beyond the date of death. Surrender values are not
guaranteed in excess of the legally computed reserves.
Traditional policies issued on a substandard basis are charged an extra
premium, in addition to the standard gross premium. Additional mean
reserves for substandard mortality is equal to one-half of the annual extra
premium. Universal life policies issued on a substandard basis are charged
an appropriate multiple of the standard cost of insurance scale. Additional
reserves for substandard mortality is the unearned portion of the
additional cost of insurance charge.
The volume of insurance in which gross premiums are less than net premiums
according to the standard of valuation required by the state was
$57,433,221 and $60,427,317 at December 31, 1999 and 1998, respectively.
Reserves in the amount of $488,347 and $530,342 to cover the above were
provided at December 31, 1999 and 1998, respectively.
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, 1999 and
1998 are as follows (in thousands):
1999 1998
% of % of
Amount Total Amount Total
Subject to discretionary
withdrawal with adjustments:
with market value adjustment $ 449,981 84.53% $ 443,927 83.42%
at book value less
surrender charge 20,836 3.92% 14,794 2.78%
Subtotal 470,817 88.45% 458,721 86.20%
Subject to discretionary
withdrawal without adjustment:
at book value 50,702 9.52% 64,275 12.09%
Not subject to discretionary
withdrawal provision 10,801 2.03% 9,125 1.71%
Total annuity actuarial
reserves and deposit
liabilities (gross) 532,320 100.00% 532,121 100.00%
Reinsurance ceded 3,402 3,435
Total annuity actuarial
reserves and
deposit liabilities (net) $ 528,918 $ 528,686
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<PAGE>
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements
7. Capital and Surplus
On September 28, 1999, the Board of Directors authorized and approved an
amendment to the Articles of Incorporation which increased the par value of
the common stock of the Company from $80 to $85.
Under current Washington law, any proposed payment of a dividend or
distribution, together with dividends or distributions paid during the
preceding twelve months, is limited to 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, unless prior approval of the
Washington Insurance Commissioner is obtained. In addition, dividends may
be paid only from earned surplus.
The NAIC requires that companies maintain certain amounts of capital and
surplus based on an insurer's investment and insurance risk. The ability of
the Company to pay dividends could be further limited by the these
requirements.
Included in capital and surplus are two surplus debentures payable to ILCO
totaling $5,896,000 and $15,896,000 at December 31, 1999 and 1998,
respectively. The debentures, which were issued with initial principal
balances of $15,000,000 and $140,000,000, both accrue interest at the rate
one-half percent (11/2%) above the prime lending rate as adjusted at the
beginning of each quarter. Total interest paid by the Company on the
surplus debentures was $859,115, $1,482,361 and $3,343,711 during 1999,
1998 and 1997, respectively. Unpaid accrued interest on these debentures
was $144,901 and $400,672 at December 31, 1999 and 1998, respectively.
Originally, the terms of the $140,000,000 debenture provided for 43
consecutive quarterly installments of $2,000,000 each beginning December
31, 1988, with a final payment due September 30, 1999. In September 1999,
the terms were amended to provide payment of the remaining balance in four
installments, with the final installment due July 1, 2000. 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. Principal
payments totaling $10,000,000, $11,900,000 and $10,750,000 were made on
these debenture during 1999, 1998 and 1997, respectively.
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 which is 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. The restrictions
on dividends does not affect the Company's ability to make principal
payments.
The insurance regulations of the State of Washington require minimum
capital of $2,400,000 and minimum surplus of $2,400,000.
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<PAGE>
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements
8. Employee Benefit Plans
Retirement Plan.
ILCO sponsors 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. No pension cost was allocated
to the company in 1999, 1998 or 1997, as the plan is subject to the full
funding limitation of the Internal Revenue Code.
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.
The following summarized the funded status of the plan at December 31, 1999
and 1998 (in thousands):
1999 1998
Fair value of plan assets at end of year $ 16,325 $ 16,238
Benefit obligation at year end 13,868 12,726
Funded status at end of year 2,457 3,512
Unrecognized prior year service cost (240) (469)
Unrecognized actuarial net loss 2,665 1,683
Prepaid pension expense at end of year $ 4,882 $ 4,726
Savings and Investment Plan and Employee Stock Ownership Plan.
Employees of the Company and its affiliates may participate in the ILCO
Savings and Investment Plan ("401(k) Plan) and the ILCO Employee Stock
Ownership Plan ("ESOP").
The 401(k) Plan allows eligible employees who have met a one-year service
requirement to make contributions to the Plan on a tax-deferred basis and
provides for a matching contribution by participating companies. The match,
which is in the form of ILCO common stock, is equal to 100% of an eligible
participant's elective deferral contributions, as defined by the 401(k)
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. 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. The
ESOP 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.
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<PAGE>
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements
Effective May 1, 1998, the 401(k) Plan was amended to provide for the
merger of the ESOP into the 401(k) Plan. In connection with the merger,
certain features under the ESOP were preserved for the benefit of employees
previously participating in the ESOP with regard to all benefits accrued
under the ESOP through the date of the merger. At December 31, 1999, the
Plan had a total of 579,314 shares which were allocated to participants and
no shares remained unallocated.
Stock Option Plan.
ILCO's Non-Qualified Stock Option Plan, which has terminated by its terms,
authorized the issuance of 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. There were no options granted in 1997, 1998 or 1999.
During 1999, options to purchase 66,000 shares, adjusted for a stock
dividend paid on March 17, 1999, were exercised.
During 1999, ILCO established a new non-qualified stock option plan under
which certain key management employees of ILCO, its subsidiaries and
affiliates are eligible to receive option grants to purchase shares of
ILCO's common stock. During 1999, options to purchase 460,000 shares were
granted to 46 employees of ILCO, its affiliates and subsidiaries. The
options were granted for a price equal to 100% of the market price on the
date of grant.
9. Commitments and Contingencies
The Company leases office facilities from unrelated third parties. Certain
office spaces may be renewed at the option of the Company. Rent expense was
$2,000,386, $1,958,037 and $2,853,503 in 1999, 1998 and 1997, respectively.
Minimum future annual rentals are as follows (in thousands):
For the years ending:
2000 $ 1,570
2001 1,556
2002 1,280
2003 724
2004 688
Thereafter 688
$ 6,506
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.
-45-
<PAGE>
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements
10. Related Parties
Bonds reflected in the accompanying statutory statement of assets,
liabilities and capital and surplus include $41,497,069 and $47,644,777 of
notes receivable from affiliates at December 31, 1999 and 1998,
respectively. These notes were initially issued at (i) $30 million to
Family Life Corporation ("FLC"), a wholly-owned subsidiary of FIC; (ii)
$22,500,000 to FLC, (iii) $4,500,000 to Family Life Insurance Investment
Company ("FLIIC") a former subsidiary of FIC and (iv) $2,500,000 to FIC. In
December 1998, FLIIC was dissolved. In connection with the dissolution, all
of the assets and liabilities of FLIIC became the obligations of FLIIC's
sole shareholder, FIC. Accordingly, the obligations under the provisions or
the $4.5 million note described above are now the obligations of FIC.
In December, 1996, the above described notes were amended to extend
maturity and to provide for quarterly principle payments commencing
December 12, 1996. A summary of these notes receivable is as follows (in
thousands):
1999 1998
Note receivable from FLC beginning
with a $1,125,000 principal payment
on December 12, 1996 and each subsequent
quarter through September 12, 2001.
Interest is payable on a quarterly
basis at 11%. $ 7,875 $ 12,375
Note receivable from FIC beginning
with a $223,856 principal payment
on December 12, 1996 and each subsequent
quarter through September 12, 2001.
Interest is payable on a quarterly
basis at 12%. 1,567 2,463
Notes receivable from FIC beginning
with a $188,071 principal payment
on December 12, 1996 and each subsequent
quarter through June 12, 2006 and a
final payment of $1,536,967 on
September 12, 2006. Interest is
payable on a quarterly basis
at 9%. 32,055 32,807
$ 41,497 $ 47,645
In connection with the notes issued above, FIC granted to the Company
non-transferable options to purchase up to a total of 9.9% of the common shares
of FIC. The option price, equivalent to the market price at the date of grant,
was originally $10.50 per share. As a result of FIC's five-for-one stock split
in November 1996, the option price is currently $2.10 per share, subject to
adjustment to prevent the effect of dilution. The options provide for their
expiration upon final repayment of the respective notes.
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<PAGE>
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements
At December 31, 1999 the Company held 106,800 and 145,500 shares of ILCO and FIC
common stock, respectively. The Company held 53,400 shares and 145,500 shares of
ILCO and FIC common stock, respectively at December 31, 1998. As permitted by
the State of Washington, the common stock is reflected in the accompanying
statement of admitted assets, liabilities and capital and surplus at a combined
statement value of $1,868,176 and $2,742,792 at December 31, 1999 and 1998,
respectively.
Also included in common stock was 55,000 common stock shares of Investors-IN and
300 common stock shares ILG at December 31, 1999 and 1998. The common stock is
reflected in the accompanying statement of admitted assets, liabilities and
capital and surplus at a combined statement value of $23,264,963 and $23,315,432
at December 31, 1999 and 1998, respectively. (See Note 13).
On June 29, 1999, the Company received a cash dividend in the amount of
$3,000,000 from its wholly owned subsidiary, Investors-IN.
Pursuant to an expense allocation agreement between the Company and its
affiliates, Investors-NA pays certain expenses on behalf of its affiliates.
Under this agreement, the Company was reimbursed $16 million, $14 million, and
$18 million in 1999, 1998 and 1997, respectively. Amounts receivable from
affiliates under this agreement were $2,272,857 and $3,090,497 at December 31,
1999 and 1998, respectively.
The Company and FIC Computer Services, Inc. ("FICCS"), a wholly owned subsidiary
of FIC, are parties to a data processing agreement, whereby FICCS provides data
processing services to the Company and other affiliates on a cost reimbursement
basis. The Company paid $1,989,707, $1,795,790 and $2,223,647 to FICCS for data
processing services provided during 1999, 1998 and 1997, respectively.
11. Acquisition of Subsidiary
On July 9, 1997, Investors-IN acquired State Auto Life Insurance Company
("State Auto Life"), an Ohio domiciled life insurer, from State Automobile
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 with Investors-IN, with Investors-IN being the surviving
entity.
On June 30, 1998, Investors-IN acquired Grinnell Life Insurance Company
("Grinnell Life"), an Iowa-domiciled life insurer, from Grinnell Mutual
Life Insurance Company for an adjusted purchase price of $16.6 million.
Under the terms of this transaction, Grinnell Life was merged with
Investors-IN, with Investors-IN being the surviving entity.
The Company's equity investment in Investors-IN reflects the impact of the
above transactions.
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<PAGE>
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements
12. Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Bonds and common stock
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 and common stock in subsidiaries, which are valued on the equity
method.
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. The estimated fair values of the Company's financial
instruments at December 31, 1999 are as follows (in thousands):
Carrying Market
Value Value
(in thousands)
Financial assets:
Bonds $ 333,543 $ 329,059
Common stock 25,174 25,748
Policy loans 39,833 39,833
Mortgage loans 6,844 6,701
Short-term investments 144,270 144,270
Cash 2,850 2,850
Financial liabilities:
Deferred annuities 69,993 69,061
Supplemental contracts 8,944 8,564
-48-
<PAGE>
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements
13. Reconciliation of Statutory Accounting and Generally Accepted Accounting
Principles
A reconciliation from the basis of accounting of generally accepted
accounting principles to the basis followed by the Company as prescribed or
permitted by state insurance regulatory authorities is as follows (in
thousands):
Net income for the years ended December 31, 1999 1998
Investors-NA GAAP net income $ 12,909 $ 11,667
Adjustments for:
Insurance revenues (542) 1,779
Realized investment losses and
amortization of IMR (900) (757)
Policy benefits and change in reserves (2,402) (4,503)
Amortization of policy acquisition costs,
net of costs deferred 1,663 1,415
Amortization of present value of future
profits 2,442 4,882
Federal income taxes (114) (52)
Other, net (1,306) (2,050)
Investors-NA statutory net income $ 11,750 $ 12,381
Capital and surplus as of December 31, 1999 1998
Investors-NA GAAP stockholder's equity $ 132,850 $ 119,918
Adjusted for:
Securities valuation reserves 15,849 14,692
Non-admitted assets (3,374) (4,243)
Deferred policy acquisition costs (31,035) (27,211)
Present value of future profits (26,038) (28,480)
Due and deferred premium 1,504 1,747
Policy liabilities (19,127) (19,770)
Federal income taxes 4,576 4,577
Interest maintenance and asset
valuation reserves (7,581) (8,507)
Surplus debenture 5,896 15,896
Other, net 1,649 2,008
Investors-NA statutory capital and surplus $ 75,169 $ 70,627
-49-
<PAGE>
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
Notes to Financial Statements
14. Investment in Unconsolidated Subsidiaries
A statutory basis summary of Investors Life Insurance Company of Indiana as
of and for the year ended December 31, 1999 and 1998 is as follows (in
thousands):
1999 1998
Net admitted assets $ 176,450 $ 188,139
Total liabilities 153,423 165,041
Capital and surplus 23,027 23,098
Net income $ 3,131 $ 5,007
A GAAP basis summary of ILG Securities Corporation as of and for the year
ended December 31, 1999 and 1998 is as follows (in thousands):
1999 1998
Total assets $ 230 259
Total liabilities 31 42
Total stockholder's equity 199 217
Net income $ (18) $ 1
-50-
<PAGE>
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:
Report of Independent Accountants
Combined Balance Sheet, as of December 31, 1999
Individual Statements of Operations, For the Year
Ended December 31, 1999
Individual Statements of Changes in Total Assets, For
the Years Ended December 31, 1999 and
December 31, 1998
Notes to Financial Statements
(ii) Depositor:
Report of Independent Accountants
Statutory Balance Sheets, as of December 31, 1999 and
December 31, 1997
Statutory Statements of Operations, for the Years
Ended December 31, 1999, December 31, 1998 and
December 31, 1997
Statutory Statements of Changes in Capital and
Surplus, for the Years Ended December 31, 1999,
December 31, 1998 and December 31, 1997
C-1
<PAGE>
Statutory Statements of Cash Flows, for the Years
Ended December 31, 1999, December 31, 1998 and
December 31, 1997
Notes to Statutory Financial Statements
(b) Exhibits:
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 (n/k/a ILG Securities 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.
5 (a) Form of application for single payment variable
annuity contract.
5 (b) Form of application for flexible payment variable
annuity contract.
6 Certificate of incorporation and by-laws of Investors
Life Insurance Company of North America.
7 Not applicable
8 Participation Agreement between Investors Life
Insurance Company of North America, Putnam Capital
Manager Trust and Putnam Mutual Funds Corp.
C-2
<PAGE>
9 Opinion of counsel as to the legality of the
securities.
10(a) Consent of Independent Accountants
11 Not Applicable
12 Not Applicable
13 Schedule for computation of performance returns.
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
Charles K. Chacosky Executive Vice President and Chief Actuary
Theodore A. Fleron Senior Vice President, General Counsel and
Assistant Secretary; Director
Dale E. Mitte Director
Steven P. Schmitt Senior Vice President and Assistant Secretary;
Director
David C. Hopkins Senior Vice President and Controller
Thomas C. Richmond Senior Vice President
Walter Reed Senior Vice President
C-3
<PAGE>
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
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 Stroud Vice President
Joanne Shattuck Vice President
*701 Brazos Street, Austin, Texas 78701
C-4
<PAGE>
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)
:
:
: 47.52%
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-5
<PAGE>
Item 27. Number of Contract Owners
As of December 31, 1999 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.................................. 102
Non-qualified.............................. 55
(ii) Growth and Income II Division:
Qualified.................................. 412
Non-qualified.............................. 123
(iii) Income Division:
Qualified.................................. 94
Non-qualified.............................. 123
(iv) Voyager Division
Qualified................................... 23
Non-qualified............................... 12
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:
C-6
<PAGE>
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
C-7
<PAGE>
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.
C-8
<PAGE>
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, 1999
(1) Net underwriting discounts
and commissions*..........................$ 210
(2) Compensation on redemption or
annuitization............................. -0-
(3) Brokerage commissions..................... -0-
(4) Compensation**............................ -0-
*Represents amounts paid to principal underwriter.
C-9
<PAGE>
**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.
C-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Sponsor of the
Registrant has caused this Post-Effective Amendment No. 25 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 27th day of April, 2000.
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. 25 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
Dale E. Mitte /s/ Charles K. Chacosky
Director Charles K. Chacosky
Director
C-11
<PAGE>
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 (n/k/a ILG Securities
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.
5 (a) * Form of application for single payment
variable annuity contract.
5 (b) * Form of application for flexible payment
variable annuity contract.
6 * Certificate of incorporation and by-laws
of Investors Life Insurance Company of
North America.
7 Not applicable
Ex-1
<PAGE>
Exhibit No. Page No. Description
8 * Participation Agreement between
Investors Life Insurance Company of
North America, Putnam Capital Manager
Trust and Putnam Mutual Funds Corp.
9 * Opinion of counsel as to the legality
of the securities.
10(a) Ex-3 Consent of Independent Accountants
11 Not Applicable
12 Not Applicable
13 * Schedule for computation of performance
returns.
* Filed as an exhibit to Post-Effective Amendment No. 25 (Form N-4) dated April
30, 1999 and incorporated herein by reference.
Ex-2
<PAGE>
Exhibit 10(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 26 to the Registration
Statement on Form N-4 (No. 2-77712) of our report dated March 27, 2000 relating
to the statutory financial statements of Investors Life Insurance Company of
North America and of our report dated February 22, 2000 relating to the
financial statements of Investors Life Insurance Company of North America
Separate Account I, which appear in such Statement of Additional Information.
PricewaterhouseCoopers LLP
Dallas, Texas
April 27, 2000
Ex-3
