INVESTORS
LIFE INSURANCE COMPANY
OF NORTH AMERICA
(Herein called Investors Life)
INA/PUTNAM SEPARATE ACCOUNT
FINANCIAL STATEMENTS
December 31, 1996
(Audited)
This report is submitted for the general information of owners of
Investors Life Insurance Company of North America INA/Putnam
Separate Account variable annuity contracts. The Separate
Account does not accept new contracts; accordingly, this report
is not authorized for distribution to prospective purchasers of
such contracts.
Investors Life Insurance
Company of North America
Administrative Offices: Austin, TX
Report of Independent Accountants
To the Contract Owners of Investors Life Insurance Company of
North America INA/Putnam Separate Account 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/INA/Putnam
Separate Account (the Separate Account) at December 31, 1996, the
results of each of their operations for the year then ended and
the changes in each of their total assets for the two years in
the period then ended, in conformity with generally accepted
accounting principles. These financial statements are the
responsibility of the Separate Account's management; our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the
opinion expressed above.
Price Waterhouse LLP
Dallas, Texas
February 19, 1997
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
INA/PUTNAM SEPARATE ACCOUNT
COMBINED BALANCE SHEET
December 31, 1996
ASSETS
Investments at Market Value (Notes 1 and 2):
PUTNAM DIVISIONS
Money Market (formerly Daily Dividend Trust)
485,025 qualified shares (cost $ 485,025) $ 485,025
1,500,355 non-qualified shares (cost $1,500,355) 1,500,355
High Yield Trust
23,881 qualified shares (cost $ 384,352) 298,745
167,151 non-qualified shares (cost $2,753,875) 2,091,056
Equity Income Fund
9,298 qualified shares (cost $ 66,951) 121,996
42,981 non-qualified shares (cost $ 490,397) 563,915
Investors Trust
82,298 qualified shares (cost $ 828,891) 757,968
114,605 non-qualified shares (cost $1,055,923) 1,055,511
Income Fund
38,411 qualified shares (cost $ 248,238) 269,265
46,496 non-qualified shares (cost $ 243,477) 325,937
PCM DIVISIONS
Money Market Division
8,405,231 non-qualified shares (cost $8,405,232) 8,405,231
Growth and Income Division
147,059 non-qualified shares (cost $2,630,824) 3,611,771
Income Division
152,227 non-qualified shares (cost $1,981,761) 2,010,914
________
Total Assets $21,497,689
========
CONTRACT OWNERS' EQUITY
Contract Owners' Equity (Notes 3 and 7):
PUTNAM DIVISIONS
Money Market (formerly Daily Dividend Trust)
172,761 qualified accumulation units
outstanding ($2.8074896 per unit) $ 485,025
528,939 non-qualified accumulation
units outstanding ($2.8365367 per unit) 1,500,355
High Yield Trust
50,055 qualified accumulation units
outstanding ($5.9683309 per unit) 298,745
367,144 non-qualified accumulation
units outstanding ($5.6954668 per unit) 2,091,056
Equity Income Fund
22,389 qualified accumulation units
outstanding ($5.4489180 per unit) 121,996
102,625 non-qualified accumulation
units outstanding ($5.4949074 per unit) 563,915
Investors Trust
95,730 qualified accumulation units
outstanding ($7.9177655 per unit) 757,968
144,982 non-qualified accumulation
units outstanding ($7.2802903 per unit) 1,055,511
Income Fund
51,410 qualified accumulation units
outstanding ($5.2375957 per unit) 269,265
64,939 non-qualified accumulation
units outstanding ($5.0191311 per unit) 325,937
PCM DIVISIONS
Money Market Division
3,593,092 non-qualified accumulation units
outstanding ($2.3392752 per unit) 8,405,231
Growth and Income Division
655,172 non-qualified accumulation units
outstanding ($5.5127072 per unit) 3,611,771
Income Division
634,438 non-qualified accumulation units
outstanding ($3.1695990 per unit) 2,010,914
_________
Contract Owners' Equity $21,497,689
========
The accompanying notes are an integral part of these financial statements.
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
INA/PUTNAM SEPARATE ACCOUNT
INDIVIDUAL STATEMENTS OF OPERATIONS
Year Ended December 31, 1996
PUTNAM DIVISIONS
Money Money
Market Market
Qualified Non-Qualified
(formerly Daily (formerly Daily
Dividend Trust) Dividend Trust)
Investment Income:
Dividends $ 28,197 $ 80,012
Expenses:
Mortality risk and expense fees guarantees
(Notes 1 and 3) 5,415 15,368
________ _________
Investment income-net 22,782 64,644
Net Realized and Unrealized Gain on Investments:
Net realized capital gain distributions: 0 0
_________ _________
Net realized gain (loss) on investments:
Proceeds from sale of shares 200,381 272,338
Cost of shares sold 200,381 272,338
_________ _________
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 $ 22,782 $ 64,644
========= =========
High Yield High Yield
Trust Trust
Qualified Non-Qualified
Investment Income:
Dividends $ 27,262 $ 196,173
Expenses:
Mortality risk and expense fees guarantees
(Notes 1 and 3) 2,792 20,054
_________ _________
Investment income-net 24,470 176,119
Net Realized and Unrealized Gain on Investments:
Net realized capital gain distributions: 0 0
_________ _________
Net realized gain (loss) on investments:
Proceeds from sale of shares 25,681 394,167
Cost of shares sold 27,620 411,020
_________ _________
Net realized gain (loss) on investments (1,939) (16,853)
_________ _________
Net unrealized gain (loss) on investments 9,516 68,737
_________ _________
Net realized and unrealized gain (loss)
on investments 7,577 51,884
_________ _________
Net Increase (Decrease) in Net Assets
from Investment Operations $ 32,047 $ 228,003
========= =========
Equity Equity
Income Income
Qualified Non-Qualified
Investment Income:
Dividends $ 3,099 $ 14,001
Expenses:
Mortality risk and expense fees guarantees
(Notes 1 and 3) 1,124 5,100
_________ _________
Investment income-net 1,975 8,901
Net Realized and Unrealized Gain on Investments:
Net realized capital gain distributions: 0 0
_________ _________
Net realized gain (loss) on investments:
Proceeds from sale of shares 14,766 97,764
Cost of shares sold 15,950 113,504
_________ _________
Net realized gain (loss) on investments (1,184) (15,740)
_________ _________
Net unrealized gain (loss) on investments 20,728 106,382
_________ _________
Net realized and unrealized gain (loss)
on investments 19,544 90,642
_________ _________
Net Increase (Decrease) in Net Assets
from Investment Operations $ 21,519 $ 99,543
========= =========
Investors Investors
Trust Trust
Qualified Non-Qualified
Investment Income:
Dividends $ 16,238 $ 22,607
Expenses:
Mortality risk and expense fee guarantees
(Notes 1 and 3) 6,787 9,321
_________ _________
Investment income-net 9,451 13,286
Net Realized and Unrealized Gain on Investments:
Net realized capital gain distributions: 74,981 104,389
_________ _________
Net realized gain (loss) on investments:
Proceeds from sale of shares 51,674 42,404
Cost of shares sold 48,397 37,247
_________ _________
Net realized gain (loss) on investments 3,277 5,157
_________ _________
Net unrealized gain (loss) on investments 43,478 60,608
_________ _________
Net realized and unrealized gain (loss)
on investments 121,736 170,154
_________ _________
Net Increase (Decrease) in Net Assets
from Investment Operations $ 131,187 $ 183,440
========= =========
Income Income
Fund Fund
Qualified Non-Qualified
Investment Income:
Dividends $ 17,057 $ 22,555
Expenses:
Mortality risk and expense fees guarantees
(Notes 1 and 3) 2,487 3,295
_________ _________
Investment income-net 14,570 19,260
Net Realized and Unrealized Gain on Investments:
Net realized capital gain distributions: 1,353 1,640
_________ _________
Net realized gain (loss) on investments:
Proceeds from sale of shares 17,477 44,682
Cost of shares sold 17,274 43,384
_________ _________
Net realized gain (loss) on investments 203 1,298
_________ _________
Net unrealized gain (loss) on investments (8,317) (12,257)
_________ _________
Net realized and unrealized gain (loss)
on investments (6,761) (9,319)
_________ _________
Net Increase (Decrease) in Net Assets
from Investment Operations $ 7,809 $ 9,941
========= =========
PCM DIVISIONS
Money Growth &
Market Income
Non-Qualified Non-Qualified
Investment Income:
Dividends $ 439,209 $ 127,712
Expenses:
Mortality risk and expense fees guarantees
(Notes 1 and 3) 84,043 30,476
_________ _________
Investment income-net 355,166 97,236
Net Realized and Unrealized Gain on Investments:
Net realized capital gain distributions: 0 57,906
_________ _________
Net realized gain (loss) on investments:
Proceeds from sale of shares 1,740,868 445,184
Cost of shares sold 1,740,868 420,413
_________ _________
Net realized gain (loss) on investments 0 24,771
_________ _________
Net unrealized gain (loss) on investments 0 426,291
_________ _________
Net realized and unrealized gain (loss)
on investments 0 508,968
_________ _________
Net Increase (Decrease) in Net Assets
from Investment Operations $ 355,166 $ 606,204
========= =========
Income
Non-Qualified
Investment Income:
Dividends $ 126,164
Expenses:
Mortality risk and expense fees guarantees
(Notes 1 and 3) 19,364
_________
Investment income-net 106,800
Net Realized and Unrealized Gain on Investments:
Net realized capital gain distributions: 0
_________
Net realized gain (loss) on investments:
Proceeds from sale of shares 226,647
Cost of shares sold 224,123
_________
Net realized gain (loss) on investments 2,524
_________
Net unrealized gain (loss) on investments (83,730)
_________
Net realized and unrealized gain (loss)
on investments (81,206)
_________
Net Increase (Decrease) in Net Assets
from Investment Operations $ 25,594
=========
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
INA/PUTNAM SEPARATE ACCOUNT
INDIVIDUAL STATEMENTS OF CHANGES IN TOTAL ASSETS
Year Ended December 31, 1996
PUTNAM DIVISIONS
Money Money
Market Market
Qualified Non-Qualified
(formerly Daily (formerly Daily
Dividend Trust) Dividend Trust)
Investment Operations:
Investment income-net $ 22,782 $ 64,644
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 22,782 64,644
investment operations _________ _________
Accumulation Unit Transactions:
Net contract considerations and transfers in
(Note 3) 0 11,981
Net contract surrenders and transfers out
(Note 3) (178,929) (250,818)
Benefit payment to annuitants (16,035) (6,290)
_________ _________
Net Increase (Decrease) from accumulation
unit transactions (194,964) (245,127)
_________ _________
Net Increase (Decrease) in Net Assets (172,182) (180,483)
Net Assets:
Net assets at December 31, 1995 657,207 1,680,838
_________ _________
Net assets at December 31, 1996 $ 485,025 $ 1,500,355
========= =========
High Yield High Yield
Trust Trust
Qualified Non-Qualified
Investment Operations:
Investment income-net $ 24,470 $ 176,119
Realized capital gain distributions 0 0
Net realized gain (loss) on investments (1,939) (16,853)
Net unrealized gain (loss) on investments 9,516 68,737
_________ _________
Net increase (decrease) in net assets from 32,047 228,003
investment operations _________ _________
Accumulation Unit Transactions:
Net contract considerations and transfers in
(Note 3) 0 9,293
Net contract surrenders and transfers out
(Note 3) (17,584) (371,008)
Benefit payment to annuitants (5,304) (3,175)
_________ _________
Net Increase (Decrease) from accumulation
unit transactions (22,888) (364,890)
_________ _________
Net Increase (Decrease) in Net Assets 9,159 (136,887)
Net Assets:
Net assets at December 31, 1995 289,586 2,227,943
_________ _________
Net assets at December 31, 1996 $ 298,745 $ 2,091,056
========= =========
Equity Equity
Income Income
Qualified Non-Qualified
Investment Operations:
Investment income-net $ 1,975 $ 8,901
Realized capital gain distributions 0 0
Net realized gain (loss) on investments (1,184) (15,740)
Net unrealized gain (loss) on investments 20,728 106,382
_________ _________
Net increase (decrease) in net assets from 21,519 99,543
investment operations _________ _________
Accumulation Unit Transactions:
Net contract considerations and transfers in
(Note 3) 0 9,293
Net contract surrenders and transfers out
(Note 3) (9,303) (92,801)
Benefit payment to annuitants (4,339) 0
_________ _________
Net Increase (Decrease) from accumulation
unit transaction (13,642) (83,508)
_________ _________
Net Increase (Decrease) in Net Assets 7,877 16,035
Net Assets:
Net assets at December 31, 1995 114,119 547,880
_________ _________
Net assets at December 31, 1996 $ 121,996 $ 563,915
========= =========
Investors Investors
Trust Trust
Qualified Non-Qualified
Investment Operations:
Investment income-net $ 9,451 $ 13,286
Realized capital gain distributions 74,981 104,389
Net realized gain (loss) on investments 3,277 5,157
Net unrealized gain (loss) on investments 43,478 60,608
_________ _________
Net increase (decrease) in net assets from 131,187 183,440
investment operations _________ _________
Accumulation Unit Transactions:
Net contract considerations and transfers in
(Note 3) 0 0
Net contract surrenders and transfers out
(Note 3) (36,382) (29,214)
Benefit payment to annuitants (8,505) (3,869)
_________ _________
Net Increase (Decrease) from accumulation
unit transaction (44,887) (33,083)
_________ _________
Net Increase (Decrease) in Net Assets 86,300 150,357
Net Assets:
Net assets at December 31, 1995 671,668 905,154
_________ _________
Net assets at December 31, 1996 $ 757,968 $ 1,055,511
========= =========
Income Income
Fund Fund
Qualified Non-Qualified
Investment Operations:
Investment income-net $ 14,570 $ 19,260
Realized capital gain distributions 1,353 1,640
Net realized gain (loss) on investments 203 1,298
Net unrealized gain (loss) on investments (8,317) (12,257)
_________ _________
Net increase (decrease) in net assets from 7,809 9,941
investment operations _________ _________
Accumulation Unit Transactions:
Net contract considerations and transfers in
(Note 3) 0 0
Net contract surrenders and transfers out
(Note 3) (14,990) (38,991)
Benefit payment to annuitants 0 (2,397)
_________ _________
Net Increase (Decrease) from accumulation
unit transactions (14,990) (41,388)
_________ _________
Net Increase (Decrease) in Net Assets (7,181) (31,447)
Net Assets:
Net assets at December 31, 1995 276,446 357,384
_________ _________
Net assets at December 31, 1996 $ 269,265 $ 325,937
========= =========
PCM DIVISIONS
Money Growth &
Market Income
Non-Qualified Non-Qualified
Investment Operations:
Investment income-net $ 355,166 $ 97,236
Realized capital gain distributions 0 57,906
Net realized gain (loss) on investments 0 24,771
Net unrealized gain (loss) on investments 0 426,291
_________ _________
Net increase (decrease) in net assets from 355,166 606,204
investment operations _________ _________
Accumulation Unit Transactions:
Net contract considerations and transfers in
(Note 3) 346,488 509,256
Net contract surrenders and transfers out
(Note 3) (1,718,537) (383,896)
Benefit payment to annuitants (35,154) (9,255)
_________ _________
Net Increase (Decrease) from accumulation
unit transactions (1,407,203) 116,105
_________ _________
Net Increase (Decrease) in Net Assets (1,052,037) 722,309
Net Assets:
Net assets at December 31, 1995 9,457,268 2,889,462
Net assets at December 31, 1996 $ 8,405,231 $ 3,611,771
========= =========
Income
Non-Qualified
Investment Operations:
Investment income-net $ 106,800
Realized capital gain distributions 0
Net realized gain (loss) on investments 2,524
Net unrealized gain (loss) on investments (83,730)
_________
Net increase (decrease) in net assets from 25,594
investment operations _________
Accumulation Unit Transactions:
Net contract considerations and transfers in (Note 3) 54,788
Net contract surrenders and transfers out (Note 3) (186,287)
Benefit payment to annuitants (18,038)
_________
Net Increase (Decrease) from accumulation unit (149,537)
transactions _________
Net Increase (Decrease) in Net Assets (123,943)
Net Assets:
Net assets at December 31, 1995 2,134,857
_________
Net assets at December 31, 1996 $ 2,010,914
=========
Year Ended December 31, 1995
PUTNAM DIVISIONS
Money Money
Market Market
Qualified Non-Qualified
(formerly Daily (formerly Daily
Dividend Trust) Dividend Trust)
Investment Operations:
Investment income-net $ 28,579 $ 78,203
Realized capital gain distributions 0 0
Net realized gain (loss) on investments 0 0
Net unrealized gain on investments 0 0
_________ _________
Net increase in net assets from 28,579 78,203
investment operations _________ _________
Accumulation Unit Transactions:
Net contract considerations and transfers in
(Note 3) 0 0
Net contract surrenders and transfers out
(Note 3) (10,395) (354,850)
Benefit payment to annuitants (2,615) (6,410)
_________ _________
Net Increase (Decrease) from accumulation
unit transactions (13,010) (361,260)
_________ _________
Net Increase (Decrease) in Net Assets 15,569 (283,057)
Net Assets:
Net assets at December 31, 1994 641,638 1,963,895
_________ _________
Net assets at December 31, 1995 $ 657,207 $ 1,680,838
========= =========
High Yield High Yield
Trust Trust
Qualified Non-Qualified
Investment Operations:
Investment income-net $ 25,633 203,069
Realized capital gain distributions 0 0
Net realized gain (loss) on investments 15 (6,713)
Net unrealized gain on investments 16,887 142,700
_________ _________
Net increase in net assets from 42,535 339,056
investment operations _________ _________
Accumulation Unit Transactions:
Net contract considerations and transfers in
(Note 3) 0 10,336
Net contract surrenders and transfers out
(Note 3) (197) (269,819)
Benefit payment to annuitants (5,410) (3,056)
_________ _________
Net Increase (Decrease) from accumulation
unit transactions (5,607) (262,539)
_________ _________
Net Increase (Decrease) in Net Assets 36,928 76,517
Net Assets:
Net assets at December 31, 1994 252,658 2,151,426
_________ _________
Net assets at December 31, 1995 $ 289,586 $ 2,227,943
========= =========
Equity Equity
Income Income
Qualified Non-Qualified
Investment Operations:
Investment income-net $ 1,823 $ 9,833
Realized capital gain distributions 0 0
Net realized gain (loss) on investments (292) (46,381)
Net unrealized gain on investments 27,203 189,597
_________ _________
Net increase in net assets from 28,734 153,049
investment operations _________ _________
Accumulation Unit Transactions:
Net contract considerations and transfers in
(Note 3) 0 3,943
Net contract surrenders and transfers out
(Note 3) (104) (157,585)
Benefit payment to annuitants (3,742) 0
_________ _________
Net Increase (Decrease) from accumulation
unit transactions (3,846) (153,642)
_________ _________
Net Increase (Decrease) in Net Assets 24,888 (593)
Net Assets:
Net assets at December 31, 1994 89,231 548,473
_________ _________
Net assets at December 31, 1995 $ 114,119 $ 547,880
========= =========
Investors Investors
Trust Trust
Qualified Non-Qualified
Investment Operations:
Investment income-net $ 4,848 $ 6,947
Realized capital gain distributions 71,968 96,873
Net realized gain (loss) on investments 16,520 9,170
Net unrealized gain on investments 101,449 134,240
_________ _________
Net increase in net assets from 194,785 247,230
investment operations _________ _________
Accumulation Unit Transactions:
Net contract considerations and transfers in
(Note 3) 0 0
Net contract surrenders and transfers out
(Note 3) (62,361) (46,164)
Benefit payment to annuitants (7,358) (3,350)
_________ ________
Net Increase (Decrease) from accumulation
unit transactions (69,719) (49,514)
_________ _________
Net Increase (Decrease) in Net Assets 125,066 197,716
Net Assets:
Net assets at December 31, 1994 546,602 707,438
_________ _________
Net assets at December 31, 1995 $ 671,668 $ 905,154
========= =========
Income Income
Fund Fund
Qualified Non-Qualified
Investment Operations:
Investment income-net $ 15,338 $ 20,460
Realized capital gain distributions 0 0
Net realized gain (loss) on investments 16 368
Net unrealized gain on investments 28,199 37,592
_________ _________
Net increase in net assets from 43,553 58,420
investment operations _________ _________
Accumulation Unit Transactions:
Net contract considerations and transfers in
(Note 3) 0 0
Net contract surrenders and transfers out
(Note 3) (153) (29,264)
Benefit payment to annuitants 0 (2,418)
_________ _________
Net Increase (Decrease) from accumulation
unit transactions (153) (31,682)
_________ _________
Net Increase (Decrease) in Net Assets 43,400 26,738
Net Assets:
Net assets at December 31, 1994 233,046 330,646
_________ _________
Net assets at December 31, 1995 $ 276,446 $ 357,384
========= =========
PCM DIVISIONS
Money Growth &
Market Income
Non-Qualified Non-Qualified
Investment Operations:
Investment income-net $ 445,433 (994)
Realized capital gain distributions 0 0
Net realized gain (loss) on investments 0 19,487
Net unrealized gain on investments 0 732,939
_________ _________
Net increase in net assets from 445,433 751,432
investment operations _________ _________
Accumulation Unit Transactions:
Net contract considerations and transfers in
(Note 3) 110,021 226,089
Net contract surrenders and transfers out
(Note 3) (1,768,130) (347,319)
Benefit payment to annuitants (27,526) (894)
_________ _________
Net increase (decrease) from accumulation
unit transactions (1,685,635) (122,124)
_________ _________
Net Increase (Decrease) in Net Assets (1,240,202) 629,308
Net Assets:
Net assets at December 31, 1994 10,697,470 2,260,154
__________ __________
Net assets at December 31, 1995 $ 9,457,268 $ 2,889,462
========= =========
Income
Non-Qualified
Investment Operations:
Investment income-net $ 20,620
Realized capital gain distributions 0
Net realized gain (loss) on investments 5,774
Net unrealized gain on investments 319,380
_________
Net increase in net assets from 345,774
investment operations _________
Accumulation Unit Transactions:
Net contract considerations and transfers in
(Note 3) 58,677
Net contract surrenders and transfers out (Note 3) (211,052)
Benefit payment to annuitants (25,627)
_________
Net Increase (Decrease) from accumulation
unit transactions (178,002)
_________
Net Increase (Decrease) in Net Assets 167,772
Net Assets:
Net assets at December 31, 1994 1,967,085
_________
Net assets at December 31, 1995 $ 2,134,857
=========
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
INA/PUTNAM SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
Note 1. Organization
Investors Life Insurance Company of North America - INA/Putnam
Separate Account (the "Separate Account"), a separate account of
Investors Life Insurance Company of North America ("Investors
Life"), is registered under the Investment Company Act of 1940,
as amended, as a unit investment trust. The Separate Account
currently has five specific Putnam Divisions which correspond to
five Putnam mutual funds (the "Putnam Funds") and three PCM
Divisions which correspond to three portfolios of the PCM Trust
(the "PCM Funds") (and, collectively, the "Funds"). 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.
Amounts allocated to the Separate Account for variable annuity
contracts can be invested by Investors Life in up to three of the
following mutual funds: Putnam Income Fund, Inc., Putnam High
Yield Trust, Putnam Equity Income Fund (formerly Putnam Strategic
Income Trust), Putnam Money Market Fund (which was known as the
Putnam Daily Dividend Trust prior to a name change which was
effective September 1, 1994) and Putnam Investors Fund, Inc. (the
"Putnam Divisions"). In addition, variable annuity contract
values transferred as a result of Revenue Ruling 81-225 (see Note
5), can be invested in up to three of the following portfolios of
PCM Trust: PCM Money Market Fund, PCM Income Fund and PCM
Growth and Income Fund (the "PCM Divisions"). The contract
owners' equity of each subdivision of the Separate Account is
affected by the investment results of the appropriate Putnam
Fund, or PCM Fund, shares designated for the subdivision, the
mortality risk and expense fees guarantees assessed on Separate
Account assets (see Note 3) and the administrative charge
deductions.
Note 2. Significant Accounting Policies
Following is a summary of the significant accounting policies of
the Separate Account:
(a) the market value of investments is based on closing bid
prices (net asset value) at December 31, 1996; (b) investment
transactions are accounted for on the trade date and income is
recorded on the ex-dividend date; (c) the cost of investments
sold is determined on the specific identification method. See
Notes 4 through 6 with respect to income taxes.
Note 3. Contract Owner Transactions
Contract owners have limited rights to transfer their contract
values between Separate Account Divisions. Certain contract
owners affected by Revenue Ruling 81-225 have limited rights to
transfer their contract values to Divisions for which one of the
portfolios of PCM Funds serves as the underlying investment
vehicle (see Note 5). The amount of all transfers for the year
ended December 31, 1996 was $846,402. Payments for the year ended
December 31, 1996 were $2,482,340 with respect to contract
surrender benefits and $112,361 with respect to annuity benefits.
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 charges of 0.95% is made against
the average net value of the Separate Account.
Note 4. Income Taxes
Investors Life is taxed as a life insurance company under the
Internal Revenue Code. The Separate Account is taxed as a part of
Investors Life. Under the current provisions of the Code, no
federal income taxes are payable by Investors Life with respect
to investment income and capital gains on the assets of the
Separate Account when used to determine contract values.
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. Effect of Revenue Ruling 81-225
Revenue Ruling 81-225 was issued by the Internal Revenue Service
on September 25, 1981. The Ruling pertains to variable
annuities, where the insurance company, through a separate
account, holds shares of mutual funds which also offer their
shares to the public independently. The Ruling also questioned
the tax treatment of variable annuity contracts where the
underlying mutual funds are not managed by the issuing insurance
company or an affiliate, or where the contract owner may
initially allocate and subsequently reallocate the contract
values among several underlying funds.
The Ruling adversely affected the tax status of the Separate
Account variable annuity contracts issued on a non-tax qualified
basis after December 31, 1980, and those issued after September
25, 1981 which were intended to qualify under Internal Revenue
Code Sections 403(a), 403(b) or 408(b).
As a result, Investors Life suspended new contract sales
utilizing the Putnam Division. A former affiliate of Investors
Life sponsored the creation of a new money market mutual fund
called INA Annuity Fund Inc. This fund became the CIGNA Annuity
Fund, Inc. Money Market portfolio late in 1982 and three
additional portfolios were introduced. In October, 1985, the
CIGNA Annuity Fund, Inc. was reorganized as the CIGNA Annuity
Funds Group, pursuant to a plan of reorganization approved by
shareholders of the Fund. Contract owners who transfer their
Putnam Division contract values to the CIGNA Division cannot
later reverse the transfer back to any of the Putnam Division.
As of April 18, 1995, shares of the PCM Funds were substituted
for shares of the applicable CIGNA Fund as the underlying
investment vehicle. Investors Life obtained an order from the
U.S. Securities and Exchange Commission approving the provisions
of the substitution. Thereafter, the proposal was submitted to
contractholders for their approval, in accordance with the
provisions of the variable annuity contracts. The substitution
of PCM Funds as the underlying investment vehicle for the
variable annuity contracts was effected by Investors Life's
exchange of shares of each of the portfolios of the CIGNA Funds
for shares of the corresponding portfolio of PCM Funds.
Note 6. Diversification Requirements
Under the provisions of Section 817(h) of the Internal Revenue
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,
and it intends that the Separate Account will continue to meet
such requirements.
Note 7.
The changes in the number of accumulation units (the measure of ownership in
the Separate Account) during 1996, and units outstanding at December 31,
1996 were as follows:
PUTNAM DIVISIONS
Money Money
Market Market
Qualified Non-Qualified
(formerly Daily (formerly Daily
Dividend Trust) Dividend Trust)
Units outstanding at December 31, 1995 243,748 616,936
Units purchased and transfers in 0 4,299
Benefits, surrenders and transfers out (70,987) (92,296)
_________ _________
Units outstanding at December 31, 1996 172,761 528,939
========= =========
High Yield High Yield
Trust Trust
Qualified Non-Qualified
Units outstanding at December 31, 1995 54,154 436,583
Units purchased and transfers in 0 1,644
Benefits, surrenders and transfers out (4,099) (71,083)
_________ _________
Units outstanding at December 31, 1996 50,055 367,144
========= =========
Equity Equity
Income Income
Qualified Non-Qualified
Units outstanding at December 31, 1995 25,171 119,831
Units purchased and transfers in 0 1,690
Benefits, surrenders and transfers out (2,782) (18,896)
_________ _________
Units outstanding at December 31, 1996 22,389 102,625
========= =========
Investors Investors
Trust Trust
Qualified Non-Qualified
Units outstanding at December 31, 1995 102,180 149,772
Units purchased and transfers in 0 0
Benefits, surrenders and transfers out (6,450) (4,790)
_________ _________
Units outstanding at December 31, 1996 95,730 144,982
========= =========
Income Income
Fund Fund
Qualified Non-Qualified
Units outstanding at December 31, 1995 54,398 73,385
Units purchased and transfers in 0 0
Benefits, surrenders and transfers out (2,988) (8,446)
_________ _________
Units outstanding at December 31, 1996 51,410 64,939
========= =========
PCM DIVISIONS
Money Growth &
Market Income
Non-Qualified Non-Qualified
Units outstanding at December 31, 1995 4,209,398 633,002
Units purchased and transfers in 108,589 99,327
Benefits, surrenders and transfers out (724,895) (77,157)
_________ _________
Units outstanding at December 31, 1996 3,593,092 655,172
========= =========
Income
Non-Qualified
Units outstanding at December 31, 1995 683,185
Units purchased and transfers in 18,068
Benefits, surrenders and transfers out (66,815)
_________
Units outstanding at December 31, 1996 634,438
=========
The accumulation units for eleven of the subdivisions include units applicable
to contract owners who are "on benefit annuitants." At December 31, 1996,
the number of accumulation units, the aggregate value of the subdivisions'
equity and the number of monthly annuity units and value per unit of "on
benefit annuitants" are as follows:
Accumulation Aggregate
Units Value
Money Market Qualified (formerly Daily Dividend Trust) 2,055 $ 5,769
Money Market Non-Qualified (formerly Daily Dividend Trust) 27,346 $ 77,568
High Yield Trust Qualified 8,942 $ 53,369
High Yield Trust Non-Qualified 6,491 $ 36,970
Equity Income Fund Qualified 10,689 $ 58,243
Investors Trust Qualified 12,283 $ 97,254
Investors Trust Non-Qualified 5,018 $ 36,532
Income Fund Non-Qualified 5,211 $ 26,156
Money Market Non-Qualified 187,175 $437,854
Growth and Income Non-Qualified 20,122 $110,927
Income Non-Qualified 74,793 $237,064
Monthly Annuity
Annuity Units Unit Value
Money Market Qualified (formerly Daily Dividend Trust) 75 1.3743520
Money Market Non-Qualified (formerly Daily Dividend Trust) 561 1.1092581
High Yield Trust Qualified 319 3.3998808
High Yield Trust Non-Qualified 148 3.3521169
Equity Income Fund Qualified 180 2.2976794
Investors Trust Qualified 320 3.3486988
Investors Trust Non-Qualified 217 1.9180181
Income Fund Non-Qualified 103 3.0937530
Money Market Non-Qualified 3,149 1.2813165
Growth and Income Non-Qualifed 402 2.3735827
Income Non-Qualified 1,054 1.6980506
Note 8. Subsequent Events
Effective January 1, 1997 PCM Trust changed its name to Putnam Variable Trust
("Putnam VT"). Accordingly, the names of the underlying funds have changed
as follows: PCM Money Market Fund has become Putnam VT Money Market, PCM
U.S. Government and High Quality Bond Fund has become Putnam VT Government
and High Quality Bond Fund and PCM Growth and Income Fund has become Putnam
VT Growth and Income Fund.
