INVESTORS
LIFE INSURANCE COMPANY
OF NORTH AMERICA
(Herein called Investors Life)
INA/PUTNAM SEPARATE ACCOUNT
FINANCIAL STATEMENTS
December 31, 1997
(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, 1997, the
results of each of their operations for the year then ended and
the changes in each of their total assets for the two years in
the period then ended, in conformity with generally accepted
accounting principles. These financial statements are the
responsibility of the Separate Account's management; our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the
opinion expressed above.
Price Waterhouse LLP
Dallas, Texas
February 20, 1998 INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
INA/PUTNAM SEPARATE ACCOUNT
COMBINED BALANCE SHEET
DECEMBER 31, 1997
ASSETS
Investments at Market Value (Notes 1 and 2):
PUTNAM DIVISIONS
Money Market
441,749 qualified shares (cost $441,749) $441,749
1,250,122 non-qualified shares (cost $1,250,122) 1,250,122
High Yield Trust
22,085 qualified shares (cost $363,999) 287,987
175,196 non-qualified shares (cost $2,858,740) 2,284,543
Equity Income Fund
9,483 qualified shares (cost $70,262) 146,996
45,566 non-qualified shares (cost $529,826) 706,279
Investors Trust
83,492 qualified shares (cost $856,602) 938,456
104,065 non-qualified shares (cost $994,567) 1,169,686
Income Fund
40,644 qualified shares (cost $263,931) 288,982
45,421 non-qualified shares (cost $237,854) 322,944
PUTNAM VARIABLE TRUST DIVISIONS
Putnam Variable Trust Money Market
7,894,396 non-qualified shares (cost $7,894,396) 7,894,396
Putnam Variable Trust Growth and Income
160,759 non-qualified shares (cost $2,969,193) 4,552,683
Putnam Variable Trust U.S. Government
and High Quality Bond
147,260 non-qualified shares (cost $1,926,424) 1,976,233
Total Assets $22,261,056
The accompanying notes are an integral part of these financial statements
CONTRACT OWNERS' EQUITY
Contract Owners' Equity (Notes 3 and 7):
PUTNAM DIVISIONS
Money Market
150,975 qualified accumulation ($2.9259776 per unit) $441,749
units outstanding
422,789 non-qualified accumulation ($2.9568467 per unit) 1,250,122
units outstanding
High Yield Trust
42,478 qualified accumulation ($6.7796667 per unit) 287,987
units outstanding
353,118 non-qualified accumulation ($6.4696313 per unit) 2,284,543
units outstanding
Equity Income Fund
21,533 qualified accumulation ($6.8265226 per unit) 146,996
units outstanding
102,595 non-qualified accumulation ($6.8841507 per unit) 706,279
units outstanding
Investors Trust
88,964 qualified accumulation ($10.5487116 per unit 938,456
units outstanding
120,595 non-qualified accumulation ($9.6992871 per unit) 1,169,686
units outstanding
Income Fund
51,386 qualified accumulation ($5.6237580 per unit) 288,982
units outstanding
59,950 non-qualified accumulation ($5.3868860 per unit) 322,944
units outstanding
PUTNAM VARIABLE TRUST DIVISIONS
Putnam Variable Trust Money Market
3,237,391 non-qualified accumulation ($2.4385056 per unit) 7,894,396
units outstanding
Putnam Variable Trust Growth and Income
671,304 non-qualified accumulation ($6.7818495 per unit) 4,552,683
units outstanding
Putnam Variable Trust U.S. Government
and High Quality Bond
579,561 non-qualified accumulation ($3.4098784 per unit) 1,976,233
units outstanding
Contract Owners' Equity $22,261,056
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, 1997
PUTNAM DIVISIONS
Money Money
Market Market
Qualified Non-Qualified
Investment Income:
Dividends $23,571 $70,257
Expenses:
Mortality risk and expense 4,382 13,055
fees guarantees (Notes 1 and 3)
Investment income - net 19,189 57,202
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 66,846 320,490
Cost of shares sold 66,846 320,490
Net realized gain (loss) on investments 0 0
Net unrealized gain on investments 0 0
Net realized and unrealized gain 0 0
on investments
Net Increase in Net Assets $19,189 $57,202
from Investment Operations
High Yield High Yield
Trust Trust
Qualified Non-Qualified
Investment Income:
Dividends $28,532 $206,693
Expenses:
Mortality risk and expense 2,823 20,486
fees guarantees (Notes 1 and 3)
Investment income - net 25,709 186,207
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 51,916 104,011
Cost of shares sold 48,885 101,827
Net realized gain (loss) on investments 3,031 2,184
Net unrealized gain on investments 9,595 88,622
Net realized and unrealized gain 12,626 90,806
on investments
Net Increase in Net Assets $38,335 $277,013
from Investment Operations
Equity Equity
Income Income
Qualified Non-Qualified
Investment Income:
Dividends $2,545 $12,060
Expenses:
Mortality risk and expense 1,288 6,073
fees guarantees (Notes 1 and 3)
Investment income - net 1,257 5,987
Net Realized and Unrealized
Gain on Investments:
Net realized capital gain distributions 6,939 33,348
Net realized gain (loss) on investments:
Proceeds from sale of shares 6,574 6,272
Cost of shares sold 6,174 5,980
Net realized gain (loss) on investments 400 292
Net unrealized gain on investments 21,689 102,935
Net realized and unrealized gain 29,028 136,575
on investments
Net Increase in Net Assets $30,285 $142,562
from Investment Operations
Investors Investors
Trust Trust
Qualified Non-Qualified
Investment Income:
Dividends $7,059 $8,792
Expenses:
Mortality risk and expense 8,273 10,037
fees guarantees (Notes 1 and 3)
Investment income - net (1,214) (1,245)
Net Realized and Unrealized
Gain on Investments:
Net realized capital gain distributions 78,254 97,463
Net realized gain (loss) on investments:
Proceeds from sale of shares 75,206 198,924
Cost of shares sold 57,601 167,611
Net realized gain (loss) on investments 17,605 31,313
Net unrealized gain on investments 152,777 175,531
Net realized and unrealized gain 248,636 304,307
on investments
Net Increase in Net Assets $247,422 $303,062
from Investment Operations
Income Income
Fund Fund
Qualified Non-Qualified
Investment Income:
Dividends $18,449 $21,284
Expenses:
Mortality risk and expense 2,624 3,035
fees guarantees (Notes 1 and 3)
Investment income - net 15,825 18,249
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 2,752 28,744
Cost of shares sold 2,756 26,907
Net realized gain (loss) on investments (4) 1,837
Net unrealized gain on investments 4,024 2,630
Net realized and unrealized gain 4,020 4,467
on investments
Net Increase in Net Assets $19,845 $22,716
from Investment Operations
PUTNAM VARIABLE TRUST DIVISIONS
Putnam
Variable Trust
Money
Market
Non-Qualified
Investment Income:
Dividends $416,938
Expenses:
Mortality risk and expense 77,320
fees guarantees (Notes 1 and 3)
Investment income - net 339,618
Net Realized and Unrealized
Gain on Investments:
Net realized capital gain distributions 0
Net realized gain (loss) on investments:
Proceeds from sale of shares 927,774
Cost of shares sold 927,774
Net realized gain (loss) on investments 0
Net unrealized gain on investments 0
Net realized and unrealized gain 0
on investments
Net Increase in Net Assets $339,618
from Investment Operations
Putnam
Variable Trust
Growth &
Income
Non-Qualified
Investment Income:
Dividends $117,111
Expenses:
Mortality risk and expense 39,619
fees guarantees (Notes 1 and 3)
Investment income - net 77,492
Net Realized and Unrealized
Gain on Investments:
Net realized capital gain distributions 156,196
Net realized gain (loss) on investments:
Proceeds from sale of shares 207,097
Cost of shares sold 196,632
Net realized gain (loss) on investments 10,465
Net unrealized gain on investments 602,544
Net realized and unrealized gain 769,205
on investments
Net Increase in Net Assets $846,697
from Investment Operations
Putnam Variable
Trust U.S.
Government and
High Quality Bond
Non-Qualified
Investment Income:
Dividends $121,496
Expenses:
Mortality risk and expense 18,305
fees guarantees (Notes 1 and 3)
Investment income - net 103,191
Net Realized and Unrealized
Gain on Investments:
Net realized capital gain distributions 0
Net realized gain (loss) on investments:
Proceeds from sale of shares 273,892
Cost of shares sold 258,360
Net realized gain (loss) on investments 15,532
Net unrealized gain on investments 20,656
Net realized and unrealized gain 36,188
on investments
Net Increase in Net Assets $139,379
from Investment Operations
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
YEAR ENDED DECEMBER 31, 1997
PUTNAM DIVISIONS
Money Money
Market Market
Qualified Non-Qualified
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 on investments 0 0
Net increase in net assets from 19,189 57,202
investment operations
Accumulation Unit Transactions:
Net contract considerations and 0 0
transfers in (Note 3)
Net contract surrenders and transfers (61,909) (263,375)
out (Note 3)
Benefit payments to annuitants (556) (44,060)
Net (Decrease) Increase from accumulation (62,465) (307,435)
unit transactions
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 on investments 9,595 88,622
Net increase in net assets from 38,335 277,013
investment operations
Accumulation Unit Transactions:
Net contract considerations and 0 0
transfers in (Note 3)
Net contract surrenders and transfers (43,565) (80,189)
out (Note 3)
Benefit payments to annuitants (5,528) (3,337)
Net (Decrease) Increase from accumulation (49,093) (83,526)
unit transactions
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 on investments 21,689 102,935
Net increase in net assets from 30,285 142,562
investment operations
Accumulation Unit Transactions:
Net contract considerations and 0 0
transfers in (Note 3)
Net contract surrenders and transfers (42) (198)
out (Note 3)
Benefit payments to annuitants (5,243) 0
Net (Decrease) Increase from accumulation (5,285) (198)
unit transactions
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 on investments 152,777 175,531
Net increase in net assets from 247,422 303,062
investment operations
Accumulation Unit Transactions:
Net contract considerations and 0 0
transfers in (Note 3)
Net contract surrenders and transfers (56,563) (184,308)
out (Note 3)
Benefit payments to annuitants (10,371) 4,579
Net (Decrease) Increase from accumulation (66,934) (188,887)
unit transactions
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 on investments 4,024 2,630
Net increase in net assets from 19,845 22,716
investment operations
Accumulation Unit Transactions:
Net contract considerations and 0 0
transfers in (Note 3)
Net contract surrenders and transfers (128) (12,180)
out (Note 3)
Benefit payments to annuitants 0 (13,529)
Net (Decrease) Increase from accumulation (128) (25,709)
unit transactions
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 on investments 0
Net increase in net assets from 339,618
investment operations
Accumulation Unit Transactions:
Net contract considerations and 33,071
transfers in (Note 3)
Net contract surrenders and transfers (829,052)
out (Note 3)
Benefit payments to annuitants (54,472)
Net (Decrease) Increase from accumulation (850,453)
unit transactions
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 on investments 602,544
Net increase in net assets from 846,697
investment operations
Accumulation Unit Transactions:
Net contract considerations and 281,006
transfers in (Note 3)
Net contract surrenders and transfers (175,754)
out (Note 3)
Benefit payments to annuitants (11,037)
Net (Decrease) Increase from accumulation 94,215
unit transactions
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 on investments 20,656
Net increase in net assets from 139,379
investment operations
Accumulation Unit Transactions:
Net contract considerations and 49,274
transfers in (Note 3)
Net contract surrenders and transfers (204,649)
out (Note 3)
Benefit payments to annuitants (18,685)
Net (Decrease) Increase from accumulation (174,060)
unit transactions
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
The accompanying notes are an integral part of these financial statements
YEAR ENDED DECEMBER 31, 1996
PUTNAM DIVISIONS
Money Money
Market Market
Qualified Non-Qualified
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 in net assets from 22,782 64,644
investment operations
Accumulation Unit Transactions:
Net contract considerations and 0 11,981
transfers in (Note 3)
Net contract surrenders and transfers (178,929) (250,818)
out (Note 3)
Benefit payments to annuitants (16,035) (6,290)
Net Increase (Decrease) from accumulation (194,964) (245,127)
unit transactions
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 in net assets from 32,047 228,003
investment operations
Accumulation Unit Transactions:
Net contract considerations and 0 9,293
transfers in (Note 3)
Net contract surrenders and transfers (17,584) (371,008)
out (Note 3)
Benefit payments to annuitants (5,304) (3,175)
Net Increase (Decrease) from accumulation (22,888) (364,890)
unit transactions
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 in net assets from 21,519 99,543
investment operations
Accumulation Unit Transactions:
Net contract considerations and 0 9,293
transfers in (Note 3)
Net contract surrenders and transfers (9,303) (92,801)
out (Note 3)
Benefit payments to annuitants (4,339) 0
Net Increase (Decrease) from accumulation (13,642) (83,508)
unit transactions
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 in net assets from 131,187 183,440
investment operations
Accumulation Unit Transactions:
Net contract considerations and 0 0
transfers in (Note 3)
Net contract surrenders and transfers (36,382) (29,214)
out (Note 3)
Benefit payments to annuitants (8,505) (3,869)
Net Increase (Decrease) from accumulation (44,887) (33,083)
unit transactions
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 in net assets from 7,809 9,941
investment operations
Accumulation Unit Transactions:
Net contract considerations and 0 0
transfers in (Note 3)
Net contract surrenders and transfers (14,990) (38,991)
out (Note 3)
Benefit payments to annuitants 0 (2,397)
Net Increase (Decrease) from accumulation (14,990) (41,388)
unit transactions
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
Market
Non-Qualified
Investment Operations:
Investment income-net $355,166
Realized capital gain distributions 0
Net realized gain (loss) on investments 0
Net unrealized gain (loss) on investments 0
Net increase in net assets from 355,166
investment operations
Accumulation Unit Transactions:
Net contract considerations and 346,488
transfers in (Note 3)
Net contract surrenders and transfers (1,718,537)
out (Note 3)
Benefit payments to annuitants (35,154)
Net Increase (Decrease) from accumulation (1,407,203)
unit transactions
Net Increase (Decrease) in Net Assets (1,052,037)
Net Assets:
Net assets at December 31, 1995 9,457,268
Net assets at December 31, 1996 $8,405,231
Growth &
Income
Non-Qualified
Investment Operations:
Investment income-net $97,236
Realized capital gain distributions 57,906
Net realized gain (loss) on investments 24,771
Net unrealized gain (loss) on investments 426,291
Net increase in net assets from 606,204
investment operations
Accumulation Unit Transactions:
Net contract considerations and 509,256
transfers in (Note 3)
Net contract surrenders and transfers (383,896)
out (Note 3)
Benefit payments to annuitants (9,255)
Net Increase (Decrease) from accumulation 116,105
unit transactions
Net Increase (Decrease) in Net Assets 722,309
Net Assets:
Net assets at December 31, 1995 2,889,462
Net assets at December 31, 1996 $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 in net assets from 25,594
investment operations
Accumulation Unit Transactions:
Net contract considerations and 54,788
transfers in (Note 3)
Net contract surrenders and transfers (186,287)
out (Note 3)
Benefit payments to annuitants (18,038)
Net Increase (Decrease) from accumulation (149,537)
unit 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
The accompanying notes are an integral part of these financial statements
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
INA/PUTNAM SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
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 VT
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 VT Money Market Fund, Putnam VT U.S.
Government and High Quality Bond Fund and Putnam VT Growth and
Income Fund (the "Putnam VT 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 VT
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 December 31, 1997; (b) investment transactions
are accounted for on the trade date and income is recorded on the
ex-dividend date; (c) the cost of investments sold is determined on
the specific identification method. See Notes 4 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 twelve-
month period ended December 31, 1997 was $363,351. Payments for the
year ended December 31, 1997 were $1,548,561 with respect to
contract surrender benefits and $171,397 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 Division.
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 Unit Transactions
The changes in the number of accumulation units (the measure of
ownership in the Separate Account) during 1997, and units
outstanding at December 31, 1997 were as follows:
PUTNAM DIVISIONS
Money Money
Market Market
Qualified Non-Qualified
Units outstanding at December 31, 1996 172,761 528,939
Units purchased and transfers in 0 0
Benefits, surrenders and transfers out (21,786) (106,150)
Units outstanding at December 31, 1997 150,975 422,789
High Yield High Yield
Trust Trust
Qualified Non-Qualified
Units outstanding at December 31, 1996 50,055 367,144
Units purchased and transfers in 0 0
Benefits, surrenders and transfers out (7,577) (14,026)
Units outstanding at December 31, 1997 42,478 353,118
Equity Equity
Income Income
Qualified Non-Qualified
Units outstanding at December 31, 1996 22,389 102,625
Units purchased and transfers in 0 0
Benefits, surrenders and transfers out (856) (30)
Units outstanding at December 31, 1997 21,533 102,595
Investors Investors
Trust Trust
Qualified Non-Qualified
Units outstanding at December 31, 1996 95,730 144,982
Units purchased and transfers in 0 0
Benefits, surrenders and transfers out (6,766) (24,387)
Units outstanding at December 31, 1997 88,964 120,595
Income Income
Fund Fund
Qualified Non-Qualified
Units outstanding at December 31, 1996 51,410 64,939
Units purchased and transfers in 0 0
Benefits, surrenders and transfers out (24) (4,989)
Units outstanding at December 31, 1997 51,386 59,950
PUTNAM VARIABLE TRUST DIVISIONS
Putnam
Variable Trust
Money Market
Non-Qualified
Units outstanding at December 31, 1996 3,593,092
Units purchased and transfers in 13,823
Benefits, surrenders and transfers out (369,524)
Units outstanding at December 31, 1997 3,237,391
Putnam
Variable Trust
Growth and
Income
Non-Qualified
Units outstanding at December 31, 1996 655,172
Units purchased and transfers in 46,854
Benefits, surrenders and transfers out (30,722)
Units outstanding at December 31, 1997 671,304
Putnam Variable
Trust U.S.
Government and
High Quality Bond
Non-Qualified
Units outstanding at December 31, 1996 634,438
Units purchased and transfers in 14,822
Benefits, surrenders and transfers out (69,699)
Units outstanding at December 31, 1997 579,561
The accumulation units for eleven of the subdivisions include units
applicable to contract owners who are "on benefit annuitants." At
December 31, 1997, the number of accumulation units, the aggregate
value of the subdivisions' equity and the number of monthly annuity
units and value per unit of "on benefit annuitants" are as follows:
Accumulation Aggregate
Units Value
Money Market Qualified 1,861 $5,445
Money Market Non-Qualified 12,168 $35,979
High Yield Trust Qualified 8,071 $54,718
High Yield Trust Non-Qualified 5,940 $38,430
Equity Income Fund Qualified 9,840 $67,173
Investors Trust Qualified 11,170 $117,829
Investors Trust Non-Qualified 4,483 $43,482
Income Fund Non-Qualified 2,563 $13,807
Putnam Variable Trust Money Market Non-Qualified 164,306 $400,661
Putnam Variable Trust Growth and Income Non-
Qualified 18,356 $124,488
Putnam Variable Trust U.S. Government
and High Quality Bond Non-Qualified 78,978 $269,305
Monthly Annuity
Annuity Units Unit Value
Money Market Qualified 74 $1.3838890
Money Market Non-Qualified 561 $1.1171807
High Yield Trust Qualified 319 $3.7313862
High Yield Trust Non-Qualified 148 $3.6789186
Equity Income Fund Qualified 180 $2.7811793
Investors Trust Qualified 320 $4.3104574
Investors Trust Non-Qualified 217 $2.4688493
Income Fund Non-Qualified 66 $3.2080775
Putnam Variable Trust Money Market Non-Qualified 3,005 $1.2904772
Putnam Variable Trust Growth and Income Non-
Qualified 402 $2.8212273
Putnam Variable Trust U.S. Government and
High Quality Bond Non-Qualified 1,136 $1.7649604
