INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
INA/PUTNAM SEPARATE ACCOUNT
COMBINED BALANCE SHEET
June 30, 1998
ASSETS
Investments at Market Value (Notes 1 and 2):
PUTNAM DIVISIONS
Money Market
445,128 qualified shares (cost $445,128) $445,128
1,213,921 non-qualified shares (cost $1,213,921) 1,213,921
High Yield Trust
21,902 qualified shares (cost $361,608) 282,321
173,745 non-qualified shares (cost $2,839,855) 2,239,568
Equity Income Fund
9,333 qualified shares (cost $68,030) 156,986
45,639 non-qualified shares (cost $531,282) 767,647
Investors Trust
82,592 qualified shares (cost $846,843) 1,140,594
103,326 non-qualified shares (cost $986,432) 1,426,938
Income Fund
41,286 qualified shares (cost $268,507) 294,370
46,551 non-qualified shares (cost $245,969) 331,911
PUTNAM VARIABLE TRUST DIVISIONS
Putnam Variable Trust Money Market
7,361,091 non-qualified shares (cost $7,361,091) 7,361,091
Putnam Variable Trust Growth and Income
176,068 non-qualified shares (cost $3,404,508) 4,824,264
Putnam Variable Trust U.S. Government and High Quality Bond
147,113 non-qualified shares (cost $1,924,951) 1,944,827
Total Assets $22,429,566
CONTRACT OWNERS' EQUITY
Contract Owners' Equity (Notes 3 and 7):
PUTNAM DIVISIONS
Money Market
148,981 qualified accumulation ($2.9878163 per unit) $445,128
units outstanding
402,069 non-qualified accumulation ($3.0191850 per unit) 1,213,921
units outstanding
High Yield Trust
40,337 qualified accumulation ($6.9990556 per unit) 282,321
units outstanding
335,233 non-qualified accumulation ($6.6806317 per unit) 2,239,568
units outstanding
Equity Income Fund
21,114 qualified accumulation ($7.4351783 per unit) 156,986
units outstanding
102,384 non-qualified accumulation ($7.4977230 per unit) 767,647
units outstanding
Investors Trust
88,414 qualified accumulation ($12.9006041 per unit 1,140,594
units outstanding
120,298 non-qualified accumulation ($11.8616899 per unit 1,426,938
units outstanding
Income Fund
50,838 qualified accumulation ($5.7903578 per unit) 294,370
units outstanding
59,842 non-qualified accumulation ($5.5464536 per unit) 331,911
units outstanding
PUTNAM VARIABLE TRUST DIVISIONS
Putnam Variable Trust Money Market
2,956,602 non-qualified accumulation ($2.4897131 per unit) 7,361,091
units outstanding
Putnam Variable Trust Growth and Income
650,176 non-qualified accumulation ($7.4199356 per unit) 4,824,264
units outstanding
Putnam Variable Trust U.S. Government and High Quality Bond
549,778 non-qualified accumulation ($3.5374778 per unit) 1,944,827
units outstanding
Contract Owners' Equity $22,429,566
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
Six Months Ended June 30, 1998
PUTNAM DIVISIONS
Money Market Money Market
Qualified Non-Qualified
(formerly Daily (formerly Daily
Dividend Trust) Dividend Trust)
Investment Income:
Dividends $11,356 $31,404
Expenses:
Mortality risk and expense fees guarantees
(Notes 1 and 3) 2,084 5,762
Investment income - net $9,272 $25,642
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 7,978 67,605
Cost of shares sold 7,978 67,605
Net realized gain (loss) on investments 0 0
Net unrealized gain (loss) on investments 0 0
Net realized and unrealized loss on investments 0 0
Net Increase (Decrease) in Net Assets
from Investment Operations $9,272 $25,642
High Yield High Yield
Trust Trust
Qualified Non-Qualified
Investment Income:
Dividends $14,104 $110,555
Expenses:
Mortality risk and expense fees guarantees
(Notes 1 and 3) 1,368 10,778
Investment income - net $12,736 $99,777
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 16,416 130,273
Cost of shares sold 16,495 129,440
Net realized gain (loss) on investments (79) 833
Net unrealized gain (loss) on investments (3,275) (26,090)
Net realized and unrealized loss on investments (3,354) (25,257)
Net Increase (Decrease) in Net Assets
from Investment Operations $9,382 $74,520
Equity Equity
Income Income
Qualified Non-Qualified
Investment Income:
Dividends $1,307 $6,362
Expenses:
Mortality risk and expense fees guarantees
(Notes 1 and 3) 726 3,519
Investment income - net $581 $2,843
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 3,752 5,025
Cost of shares sold 3,539 4,906
Net realized gain (loss) on investments 213 119
Net unrealized gain (loss) on investments 12,222 59,912
Net realized and unrealized loss on investments 12,435 60,031
Net Increase (Decrease) in Net Assets
from Investment Operations $13,016 $62,874
Investors Investors
Trust Trust
Qualified Non-Qualified
Investment Income:
Dividends $0 $0
Expenses:
Mortality risk and expense fees guarantees
(Notes 1 and 3) 4,883 6,097
Investment income - net ($4,883) ($6,097)
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 11,306 9,261
Cost of shares sold 9,759 8,135
Net realized gain (loss) on investments 1,547 1,126
Net unrealized gain (loss) on investments 211,897 265,387
Net realized and unrealized loss
on investments 213,444 266,513
Net Increase (Decrease) in Net Assets
from Investment Operations $208,561 $260,416
Income Income
Fund Fund
Qualified Non-Qualified
Investment Income:
Dividends $9,081 $10,187
Expenses:
Mortality risk and expense fees guarantees
(Notes 1 and 3) 1,370 1,537
Investment income - net $7,711 $8,650
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 4,500 2,130
Cost of shares sold 4,505 2,072
Net realized gain (loss) on investments (5) 58
Net unrealized gain (loss) on investments 812 852
Net realized and unrealized loss on investments 807 910
Net Increase (Decrease) in Net Assets
from Investment Operations $8,518 $9,560
PUTNAM VARIABLE TRUST DIVISIONS
Putnam Variable Trust
Money Market
Non-Qualified
Investment Income:
Dividends $192,512
Expenses:
Mortality risk and expense fees guarantees
(Notes 1 and 3) 35,434
Investment income - net $157,078
Net Realized and Unrealized Gain (Loss) on Investments:
Net realized capital gain distributions 0
Net realized gain (loss) on investments:
Proceeds from sale of shares 725,817
Cost of shares sold 725,817
Net realized gain (loss) on investments 0
Net unrealized gain (loss) on investments 0
Net realized and unrealized loss on investments 0
Net Increase (Decrease) in Net Assets
from Investment Operations $157,078
Putnam Variable Trust
Growth & Income
Non-Qualified
Investment Income:
Dividends $179,705
Expenses:
Mortality risk and expense fees guarantees
(Notes 1 and 3) 22,440
Investment income - net $157,265
Net Realized and Unrealized Gain (Loss) on Investments:
Net realized capital gain distributions 414,679
Net realized gain (loss) on investments:
Proceeds from sale of shares 181,751
Cost of shares sold 162,815
Net realized gain (loss) on investments 18,936
Net unrealized gain (loss) on investments (163,734)
Net realized and unrealized loss on investments 269,881
Net Increase (Decrease) in Net Assets
from Investment Operations $427,146
Putnam Variable Trust
U.S. Government and
High Quality Bond
Non-Qualified
Investment Income:
Dividends $108,934
Expenses:
Mortality risk and expense fees guarantees
(Notes 1 and 3) 9,220
Investment income - net $99,714
Net Realized and Unrealized Gain (Loss) on Investments:
Net realized capital gain distributions 0
Net realized gain (loss) on investments:
Proceeds from sale of shares 144,625
Cost of shares sold 142,753
Net realized gain (loss) on investments 1,872
Net unrealized gain (loss) on investments (29,933)
Net realized and unrealized loss on investments (28,061)
Net Increase (Decrease) in Net Assets
from Investment Operations $71,653
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 CHANGES IN TOTAL ASSETS
FOR PERIOD ENDED JUNE 30, 1998
PUTNAM DIVISIONS
Money Market Money Market
Qualified Non-Qualified
(formerly Daily (formerly Daily
Dividend Trust) Dividend Trust)
Investment Operations:
Investment income-net $9,272 $25,642
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 $9,273 $25,642
Accumulation Unit Transactions:
Net contract considerations and transfers
in (Note 3) 0 0
Net contract surrenders and transfers
out (Note 3) (1,094) (60,410)
Benefit payments to annuitants (4,799) (1,433)
Net increase (decrease) from accumulation
unit transactions ($5,893) ($61,843)
Net Increase (Decrease) in Net Assets 3,379 (36,201)
Net Assets:
Net assets at December 31, 1997 441,749 1,250,122
Net assets at June 30, 1998 $445,128 $1,213,921
High Yield High Yield
Trust Trust
Qualified Non-Qualified
Investment Operations:
Investment income-net $12,736 $99,777
Realized capital gain distributions 0 0
Net realized gain (loss) on investments (79) 833
Net unrealized gain (loss) on investments (3,275) (26,090)
Net increase (decrease) in net assets
from investment operations $9,382 $74,520
Accumulation Unit Transactions:
Net contract considerations and transfers
in (Note 3) 0 0
Net contract surrenders and transfers
out (Note 3) (72) (117,758)
Benefit payments to annuitants (14,976) (1,737)
Net increase (decrease) from accumulation
unit transactions ($15,048) ($119,495)
Net Increase (Decrease) in Net Assets (5,666) (44,975)
Net Assets:
Net assets at December 31, 1997 287,987 2,284,543
Net assets at June 30, 1998 $282,321 $2,239,568
Equity Equity
Income Income
Qualified Non-Qualified
Investment Operations:
Investment income-net $581 $2,843
Realized capital gain distributions 0 0
Net realized gain (loss) on investments 213 119
Net unrealized gain (loss) on investments 12,222 59,912
Net increase (decrease) in net assets
from investment operations $13,016 $62,874
Accumulation Unit Transactions:
Net contract considerations and transfers
in (Note 3) 0 0
Net contract surrenders and transfers
out (Note 3) (37) (1,506)
Benefit payments to annuitants (2,989) 0
Net increase (decrease) from accumulation
unit transactions ($3,026) ($1,506)
Net Increase (Decrease) in Net Assets 9,990 61,368
Net Assets:
Net assets at December 31, 1997 146,996 706,279
Net assets at June 30, 1998 $156,986 $767,647
Investors Investors
Trust Trust
Qualified Non-Qualified
Investment Operations:
Investment income-net ($4,883) ($6,097)
Realized capital gain distributions 0 0
Net realized gain (loss) on investments 1,547 1,126
Net unrealized gain (loss) on investments 211,897 265,387
Net increase (decrease) in net assets
from investment operations $208,561 $260,416
Accumulation Unit Transactions:
Net contract considerations and transfers in
(Note 3) 0 0
Net contract surrenders and transfers
out (Note 3) (194) (505)
Benefit payments to annuitants (6,229) (2,659)
Net increase (decrease) from accumulation
unit tranactions ($6,423) ($3,164)
Net Increase (Decrease) in Net Assets 202,138 257,252
Net Assets:
Net assets at December 31, 1997 938,456 1,169,686
Net assets at June 30, 1998 $1,140,594 $1,426,938
Income Income
Fund Fund
Qualified Non-Qualified
Investment Operations:
Investment income-net $7,711 $8,650
Realized capital gain distributions 0 0
Net realized gain (loss) on investments (5) 58
Net unrealized gain (loss) on investments 812 852
Net increase (decrease) in net assets
from investment operations $8,518 $9,560
Accumulation Unit Transactions:
Net contract considerations and transfers
in (Note 3) 0 0
Net contract surrenders and transfers
out (Note 3) (3,130) (0)
Benefit payments to annuitants 0 (593)
Net increase (decrease) from accumulation
unit transactions ($3,130) ($593)
Net Increase (Decrease) in Net Assets 5,388 8,967
Net Assets:
Net assets at December 31, 1997 288,982 322,944
Net assets at June 30, 1998 $294,370 $331,911
PUTNAM VARIABLE TRUST DIVISIONS
Putnam Variable Trust
Money Market
Non-Qualified
Investment Operations:
Investment income-net $157,078
Realized capital gain distributions 0
Net realized gain (loss) on investments 0
Net unrealized gain (loss) on investments 0
Net increase (decrease) in net assets
from investment operations $157,078
Accumulation Unit Transactions:
Net contract considerations and transfers
in (Note 3) 0
Net contract surrenders and transfers
out (Note 3) (671,551)
Benefit payments to annuitants (18,832)
Net increase (decrease) from accumulation
unit transactions ($690,383)
Net Increase (Decrease) in Net Assets (533,305)
Net Assets:
Net assets at December 31, 1997 7,894,396
Net assets at June 30, 1998 $7,361,091
Putnam Variable Trust
Growth & Income
Non-Qualified
Investment Operations:
Investment income-net $157,265
Realized capital gain distributions 414,679
Net realized gain (loss) on investments 18,936
Net unrealized gain (loss) on investments (163,734)
Net increase (decrease) in net assets
from investment operations $427,146
Accumulation Unit Transactions:
Net contract considerations and transfers
in (Note 3) 4,758
Net contract surrenders and transfers
out (Note 3) (154,255)
Benefit payments to annuitants (6,068)
Net increase (decrease) from accumulation
unit transactions ($155,565)
Net Increase (Decrease) in Net Assets 271,581
Net Assets:
Net assets at December 31, 1997 4,552,683
Net assets at June 30, 1998 $4,824,264
Putnam Variable Trust
U.S. Government and
High Quality Bond
Non-Qualified
Investment Operations:
Investment income-net $99,714
Realized capital gain distributions 0
Net realized gain (loss) on investments 1,872
Net unrealized gain (loss) on investments (29,933)
Net increase (decrease) in net assets
from investment operations $71,653
Accumulation Unit Transactions:
Net contract considerations and transfers in (Note 3) 37,328
Net contract surrenders and transfers out (Note 3) (129,932)
Benefit payments to annuitants (10,455)
Net increase (decrease) from accumulation
unit transactions ($103,059)
Net Increase (Decrease) in Net Assets (31,406)
Net Assets:
Net assets at December 31, 1997 1,976,233
Net assets at June 30, 1998 $1,944,827
Twelve Months Ended December 31, 1997
PUTNAM
Money Market Money Market
Qualified Non-Qualified
(formerly Daily (formerly Daily
Dividend Trust) Dividend Trust)
Investment Operations:
Investment income-net $19,189 $57,202
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 $19,189 $57,202
Accumulation Unit Transactions:
Net contract considerations and transfers
in (Note 3) 0 0
Net contract surrenders and transfers
out (Note 3) (61,909) (263,375)
Benefit payments to annuitants (556) (44,060)
Net increase (decrease) from accumulation
unit transactions ($62,465) ($307,435)
Net Increase (Decrease) in Net Assets (43,276) (250,233)
Net Assets:
Net assets at December 31, 1996 485,025 1,500,355
Net assets at December 31, 1997 $441,749 $1,250,122
High Yield High Yield
Trust Trust
Qualified Non-Qualified
Investment Operations:
Investment income-net $25,709 $186,207
Realized capital gain distributions 0 0
Net realized gain (loss) on investments 3,031 2,184
Net unrealized gain (loss) on investments 9,595 88,622
Net increase (decrease) in net assets
from investment operations $38,335 $277,013
Accumulation Unit Transactions:
Net contract considerations and transfers
in (Note 3) 0 0
Net contract surrenders and transfers
out (Note 3) (43,565) (80,189)
Benefit payments to annuitants (5,528) (3,337)
Net increase (decrease) from accumulation
unit transactions ($49,093) ($83,526)
Net Increase (Decrease) in Net Assets (10,758) 193,487
Net Assets:
Net assets at December 31, 1996 298,745 2,091,056
Net assets at December 31, 1997 $287,987 $2,284,543
Equity Equity
Income Income
Qualified Non-Qualified
Investment Operations:
Investment income-net $1,257 $5,987
Realized capital gain distributions 6,939 33,348
Net realized gain (loss) on investments 400 292
Net unrealized gain (loss) on investments 21,689 102,935
Net increase (decrease) in net assets
from investment operations $30,285 $142,562
Accumulation Unit Transactions:
Net contract considerations and transfers
in (Note 3) 0 0
Net contract surrenders and transfers
out (Note 3) (42) (198)
Benefit payments to annuitants (5,243) 0
Net increase (decrease) from accumulation
unit transactions ($5,285) ($198)
Net Increase (Decrease) in Net Assets 25,000 142,364
Net Assets:
Net assets at December 31, 1996 121,996 563,915
Net assets at December 31, 1997 $146,996 $706,279
Investors Investors
Trust Trust
Qualified Non-Qualified
Investment Operations:
Investment income-net ($1,214) ($1,245)
Realized capital gain distributions 78,254 97,463
Net realized gain (loss) on investments 17,605 31,313
Net unrealized gain (loss) on investments 152,777 175,531
Net increase (decrease) in net assets
from investment operations $247,422 $303,062
Accumulation Unit Transactions:
Net contract considerations and transfers
in (Note 3) 0 0
Net contract surrenders and transfers
out (Note 3) (56,563) (184,308)
Benefit payments to annuitants (10,371) (4,579)
Net increase (decrease) from accumulation
unit transactions ($66,934) ($188,887)
Net Increase (Decrease) in Net Assets 180,488 114,175
Net Assets:
Net assets at December 31, 1996 757,968 1,055,511
Net assets at December 31, 1997 $938,456 $1,169,686
Income Income
Fund Fund
Qualified Non-Qualified
Investment Operations:
Investment income-net $15,825 $18,249
Realized capital gain distributions 0 0
Net realized gain (loss) on investments (4) 1,837
Net unrealized gain (loss) on investments 4,024 2,630
Net increase (decrease) in net assets
from investment operations $19,845 $22,716
Accumulation Unit Transactions:
Net contract considerations and transfers
in (Note 3) 0 0
Net contract surrenders and transfers
out (Note 3) (128) (12,180)
Benefit payments to annuitants 0 (13,529)
Net increase (decrease) from accumulation
unit transactions ($128) ($25,709)
Net Increase (Decrease) in Net Assets 19,717 (2,993)
Net Assets:
Net assets at December 31, 1996 269,265 325,937
Net assets at December 31, 1997 $288,982 $322,944
PUTNAM VARIABLE TRUST DIVISIONS
Putnam Variable Trust
Money Market
Non-Qualified
Investment Operations:
Investment income-net $339,618
Realized capital gain distributions 0
Net realized gain (loss) on investments 0
Net unrealized gain (loss) on investments 0
Net increase (decrease) in net assets
from investment operations $339,618
Accumulation Unit Transactions:
Net contract considerations and transfers in (Note 3) 33,071
Net contract surrenders and transfers out (Note 3) (829,052)
Benefit payments to annuitants (54,472)
Net increase (decrease) from accumulation unit transactions ($850,453)
Net Increase (Decrease) in Net Assets (510,835)
Net Assets:
Net assets at December 31, 1996 8,405,231
Net assets at December 31, 1997 $7,894,396
Putnam Variable Trust
Growth & Income
Non-Qualified
Investment Operations:
Investment income-net $77,492
Realized capital gain distributions 156,196
Net realized gain (loss) on investments 10,465
Net unrealized gain (loss) on investments 602,544
Net increase (decrease) in net assets
from investment operations $846,697
Accumulation Unit Transactions:
Net contract considerations and transfers in (Note 3) 281,006
Net contract surrenders and transfers out (Note 3) (175,754)
Benefit payments to annuitants (11,037)
Net increase (decrease) from accumulation unit transactions $94,215
Net Increase (Decrease) in Net Assets 940,912
Net Assets:
Net assets at December 31, 1996 3,611,771
Net assets at December 31, 1997 $4,552,683
Putnam Variable Trust
U.S. Government and
High Quality Bond
Non-Qualified
Investment Operations:
Investment income-net $103,191
Realized capital gain distributions 0
Net realized gain (loss) on investments 15,532
Net unrealized gain (loss) on investments 20,656
Net increase (decrease) in net assets
from investment operations $139,379
Accumulation Unit Transactions:
Net contract considerations and transfers in (Note 3) 49,274
Net contract surrenders and transfers out (Note 3) (204,649)
Benefit payments to annuitants (18,685)
Net increase (decrease) from accumulation
unit transactions ($174,060)
Net Increase (Decrease) in Net Assets (34,681)
Net Assets:
Net assets at December 31, 1996 2,010,914
Net assets at December 31, 1997 $1,976,233
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
INA/PUTNAM SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
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 Putnam
Variable Trust Divisions which correspond to three portfolios of
the Putnam Variable Trust (formerly the Putnam Capital Manager
Trust") (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 Putnam
Variable Trust: Putnam Variable Trust Money Market Fund, Putnam
Variable Trust U.S. Government and High Quality Bond Fund and
Putnam Variable Trust Growth and Income Fund (the "Putnam Variable
Trust Divisions"). The contract owners' equity of each subdivision
of the Separate Account is affected by the investment results of
the appropriate Putnam Fund, or Putnam Variable Trust 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.
Under the current provisions of the Internal Revenue Code (the
"Code"), transfers of contract values from one division of the
Separate Account to another division are not subject to current
taxation. There can be no assurance that future changes in the
Code will subject such transfers to current taxation.
Note 2. Significant Accounting Policies
Following is a summary of the significant accounting policies of
the Separate Account:
(a) the market value of investments is based on closing bid prices
(net asset value) at June 30, 1998; (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 Putnam Variable Trust serves as the underlying investment
vehicle (see Note 5). The amount of all transfers for the period
ended June 30, 1998 was $27,039. Payments for the year ended June
30, 1998 were $1,094,839 with respect to contract surrender
benefits and $70,789 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
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 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 Divisions.
As of April 18, 1995, shares of the Putnam Variable Trust 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 shares of certain portfolios of Putnam Variable Trust 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 Putnam Variable Trust.
Note 6. 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, and
it intends that the Separate Account will continue to meet such
requirements.
Note 7. Accumulation Units Transactions
The changes in the number of accumulation units
(the measure of ownership in the Separate Account)
during the six months of 1998 and
units outstanding at June 30, 1998 were as follows:
PUTNAM DIVISIONS
Money Market Money Market
Qualified Non-Qualified
(formerly Daily (formerly Daily
Dividend Trust) Dividend Trust)
Units outstanding at December 31, 1997 150,975 422,789
Units purchased and transfers in 0 0
Benefits, surrenders and transfers out (1,994) (20,720)
Units outstanding at June 30, 1998 148,981 402,069
High Yield High Yield
Trust Trust
Qualified Non-Qualified
Units outstanding at December 31, 1997 42,478 353,118
Units purchased and transfers in 0 0
Benefits, surrenders and transfers out (2,141) (17,885)
Units outstanding at June 30, 1998 40,337 335,233
Equity Equity
Income Income
Qualified Non-Qualified
Units outstanding at December 31, 1997 21,533 102,595
Units purchased and transfers in 0 0
Benefits, surrenders and transfers out (419) (211)
Units outstanding at June 30, 1998 21,114 102,384
Investors Investors
Trust Trust
Qualified Non-Qualified
Units outstanding at December 31, 1997 88,964 120,595
Units purchased and transfers in 0 0
Benefits, surrenders and transfers out (550) (297)
Units outstanding at June 30, 1998 88,414 120,298
Income Income
Fund Fund
Qualified Non-Qualified
Units outstanding at December 31, 1997 51,386 59,950
Units purchased and transfers in 0 0
Benefits, surrenders and transfers out (548) (108)
Units outstanding at June 30, 1998 50,838 59,842
PUTNAM VARIABLE TRUST DIVISIONS
Putnam Variable Trust
Money Market
Non-Qualified
Units outstanding at December 31, 1997 3,237,391
Units purchased and transfers in (0)
Benefits, surrenders and transfers out (280,789)
Units outstanding at June 30, 1998 2,956,602
Putnam Variable Trust
Growth & Income
Non-Qualified
Units outstanding at December 31, 1997 671,304
Units purchased and transfers in 634
Benefits, surrenders and transfers out (21,762)
Units outstanding at June 30, 1998 650,176
Putnam Variable Trust
U.S. Government and
High Quality Bond
Non-Qualified
Units outstanding at December 31, 1997 579,561
Units purchased and transfers in 9,277
Benefits, surrenders and transfers out (39,060)
Units outstanding at June 30, 1998 549,778
The accumulation units for eleven of the subdivisions include
units applicable to contract owners who are "on benefit annuitants."
At June 30, 1998 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 Dai 237 $708
Money Market Non-Qualified (formerly 11,688 $35,288
High Yield Trust Qualified.......... 5,940 $41,574
High Yield Trust Non-Qualified...... 5,679 $37,939
Equity Income Fund Qualified........ 9,427 $70,091
Investors Trust Qualified........... 10,636 $137,211
Investors Trust Non-Qualified....... 4,235 $50,234
Income Fund Non-Qualified........... 2,452 $13,600
Putnam Variable Trust
Money Market Non-Qualified.......... 156,663 $390,046
Putnam Variable Trust
Growth and Income Non-Qualified..... 17,516 $129,968
Putnam Variable Trust U.S.
Government and High Quality
Bond Non-Qualified.................. 75,972 $268,749
Monthly Annuity
Annuity Units Unit Value
Money Market Qualified (formerly Dai 8 $1.3892195
Money Market Non-Qualified (formerly 282 $1.1214276
High Yield Trust Qualified.......... 255 $3.7869337
High Yield Trust Non-Qualified...... 148 $3.7346015
Equity Income Fund Qualified........ 180 $2.9778798
Investors Trust Qualified........... 320 $5.1822737
Investors Trust Non-Qualified....... 217 $2.9681643
Income Fund Non-Qualified........... 66 $3.2471982
Putnam Variable Trust
Money Market Non-Qualified.......... 3,005 $1.2952781
Putnam Variable Trust
Growth and Income Non-Qualified..... 402 $3.0344270
Putnam Variable Trust U.S.
Government and High Quality
Bond Non-Qualified.................. 1,136 $1.8000164
