INVESTORS
LIFE INSURANCE COMPANY
OF NORTH AMERICA
(Herein called Investors Life)
INA/PUTNAM SEPARATE ACCOUNT
FINANCIAL STATEMENTS
December 31, 1998
(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
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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 Lie
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, 1998, 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 which included confirmation of securities at December
31, 1998 by correspondence with the underlying funds provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Dallas, Texas
February 19, 1999
<PAGE>
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
INA/PUTNAM SEPARATE ACCOUNT
COMBINED BALANCE SHEET
Year Ended December 31, 1998
ASSETS
Investments at Market Value (Notes 1 and 2):
PUTNAM DIVISIONS
Money Market
410,718 qualified shares (Cost $410,718) $ 410,718
1,079,096 non-qualified shares (Cost $1,079,096) 1,079,096
High Yield Trust
19,995 qualified shares (Cost $330,814) 216,343
180,560 non-qualified shares (Cost $2,918,223) 1,953,658
Equity Income Fund
6,663 qualified shares (Cost $31,888) 103,935
50,423 non-qualified shares (Cost $603,985) 786,601
Investors Trust
74,480 qualified shares (Cost $767,557) 1,103,786
105,040 non-qualified shares (Cost $1,012,734) 1,556,689
Income Fund
42,414 qualified shares (Cost $276,336) 293,511
47,031 non-qualified shares (Cost $249,208) 325,456
PUTNAM VARIABLE TRUST DIVISIONS
Putnam Variable Trust Money Market
7,264,669 non-qualified shares (Cost $7,264,669) 7,264,669
Putnam Variable Trust Growth and Income
160,789 non-qualified shares (Cost $2,980,886) 4,625,906
Putnam Variable Trust U.S. Government
and High Quality Bond
139,517 non-qualified shares (Cost $1,828,859) 1,915,568
Total Assets $ 21,635,936
CONTRACT OWNERS' EQUITY
Contract Owners' Equity (Notes 3 and 7):
PUTNAM DIVISIONS
Money Market
134,573 qualified accumulation
units outstanding (3.0520108 Per Unit) $ 410,718
349,907 non-qualified accumulation
units outstanding (3.0839499 Per Unit) 1,079,096
High Yield Trust
35,048 qualified accumulation
units outstanding (6.1727574 Per Unit) 216,343
331,566 non-qualified accumulation
units outstanding (5.8922150 Per Unit) 1,953,658
Equity Income Fund
13,634 qualified accumulation
units outstanding (7.6232515 Per Unit) 103,935
102,352 non-qualified accumulation
units outstanding (7.6852515 Per Unit) 786,601
Investors Trust
77,934 qualified accumulation
units outstanding (14.1630910 Per Unit) 1,103,786
119,546 non-qualified accumulation
units outstanding (13.0216756 Per Unit) 1,556,689
Income Fund
50,830 qualified accumulation
units outstanding (5.7743644 Per Unit) 293,511
58,838 non-qualified accumulation
units outstanding (5.5313887 Per Unit) 325,456
PUTNAM VARIABLE TRUST DIVISIONS
Putnam Variable Trust Money Market
2,858,428 non-qualified accumulation
units outstanding (2.5414909 Per Unit) 7,264,669
Putnam Variable Trust Growth and Income
596,576 non-qualified accumulation
units outstanding (7.7540932 Per Unit) 4,625,906
Putnam Variable Trust U.S. Government
and High Quality Bond
523,878 non-qualified accumulation
units outstanding (3.6565153 Per Unit) 1,915,568
Total Contract Owners' Equity $ 21,635,936
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, 1998
Money Market Money Market
Qualified Non-Qualified
(formerly Daily (formerly Daily
Dividend Trust) Dividend Trust)
Investment Income:
Dividends $22,821 $61,359
Expenses:
Mortality risk and expense fees
guarantees (Notes 1 and 3) 4,183 11,250
Investment income - net $18,638 $50,109
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 53,853 232,386
Cost of shares sold 53,853 232,386
Net realized gain (loss) on investments (0) 0
Net unrealized gain (loss) on investments 0 0
Net realized and unrealized gain (loss)
on invest (0) 0
Net Increase (Decrease) in Net Assets
from Investment Operations $18,638 $50,109
High Yield High Yield
Trust Trust
Qualified Non-Qualified
Investment Income:
Dividends $27,591 $219,936
Expenses:
Mortality risk and expense fees guarantees
(Notes 1 and 3) 2,570 20,491
Investment income - net $25,021 $199,445
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 50,562 161,412
Cost of shares sold 60,776 160,453
Net realized gain (loss) on investments (10,214) 959
Net unrealized gain (loss) on investments (38,459) (390,368)
Net realized and unrealized gain (loss)
on investment (48,673) (389,409)
Net Increase (Decrease) in Net Assets
from Investment Operations ($23,652) ($189,964)
Equity Equity
Income Income
Qualified Non-Qualified
Investment Income:
Dividends $4,191 $26,494
Expenses:
Mortality risk and expense fees guarantees
(Notes 1 and 3) 1,400 7,038
Investment income - net $2,791 $19,456
Net Realized and Unrealized Gain (Loss)
on Investments:
Net realized capital gain distributions 7,435 56,280
Net realized gain (loss) on investments:
Proceeds from sale of shares 60,560 8,768
Cost of shares sold 49,999 8,615
Net realized gain (loss) on investments 10,561 153
Net unrealized gain (loss) on investments (4,687) 6,163
Net realized and unrealized gain (loss)
on investment 13,309 62,596
Net Increase (Decrease) in Net Assets
from Investment Operations $16,100 $82,052
Investors Investors
Trust Trust
Qualified Non-Qualified
Investment Income:
Dividends $0 $0
Expenses:
Mortality risk and expense fees guarantees
(Notes 1 and 3) 9,964 12,568
Investment income - net ($9,964) ($12,568)
Net Realized and Unrealized Gain (Loss)
on Investments:
Net realized capital gain distributions 27,728 39,075
Net realized gain (loss) on investments:
Proceeds from sale of shares 151,572 24,122
Cost of shares sold 116,774 20,908
Net realized gain (loss) on investments 34,798 3,214
Net unrealized gain (loss) on investments 254,375 368,836
Net realized and unrealized gain (loss)
on investment 316,901 411,125
Net Increase (Decrease) in Net Assets
from Investment Operations $306,937 $398,557
Income Income
Fund Fund
Qualified Non-Qualified
Investment Income:
Dividends $18,351 $20,576
Expenses:
Mortality risk and expense fees guarantees
(Notes 1 and 3) 2,760 3,094
Investment income - net $15,591 $17,482
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 5,940 9,157
Cost of shares sold 5,946 9,222
Net realized gain (loss) on investments (6) (65)
Net unrealized gain (loss) on investments (7,876) (8,842)
Net realized and unrealized gain (loss)
on investment (7,882) (8,907)
Net Increase (Decrease) in Net Assets
from Investment Operations $7,709 $8,575
Variable Trust
Money
Market
Non-Qualified
Investment Income:
Dividends $380,629
Expenses:
Mortality risk and expense fees guarantees
(Notes 1 and 3) 70,799
Investment income - net $309,830
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 1,356,307
Cost of shares sold 1,356,307
Net realized gain (loss) on investments 0
Net unrealized gain (loss) on investments 0
Net realized and unrealized gain (loss)
on investment 0
Net Increase (Decrease) in Net Assets
from Investment Operations $309,830
Putnam Variable
Trust Growth
and Income
Non-Qualified
Investment Income:
Dividends $179,705
Expenses:
Mortality risk and expense fees guarantees
(Notes 1 and 3) 43,208
Investment income - net $136,497
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 711,088
Cost of shares sold 709,876
Net realized gain (loss) on investments 1,212
Net unrealized gain (loss) on investments 61,530
Net realized and unrealized gain (loss)
on investment 477,421
Net Increase (Decrease) in Net Assets
from Investment Operations $613,918
Trust U.S.
Govmt and High
Quality Bond
Non-Qualified
Investment Income:
Dividends $108,934
Expenses:
Mortality risk and expense fees guarantees
(Notes 1 and 3) 18,295
Investment income - net $90,639
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 245,973
Cost of shares sold 238,846
Net realized gain (loss) on investments 7,127
Net unrealized gain (loss) on investments 36,901
Net realized and unrealized gain (loss)
on investment 44,028
Net Increase (Decrease) in Net Assets
from Investment Operations $134,667
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, 1998
Money Market Money Market
Qualified Non-Qualified
(formerly Daily (formerly Daily
Dividend Trust) Dividend Trust)
Investment Operations:
Investment income-net $18,638 $50,109
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 $18,638 $50,109
Accumulation Unit Transactions:
Net contract considerations and
transfers in (Note 3) 0 0
Net contract surrenders and
transfers out (Note 3) (44,153) (218,307)
Benefit payments to annuitants (5,516) (2,828)
Net increase (decrease) from
accumulation unit transactions ($49,669) ($221,135)
Net Increase (Decrease) in Net Assets (31,031) (171,026)
Net Assets:
Net assets at December 31, 1997 441,749 1,250,122
Net assets at December 31, 1998 $410,718 $1,079,096
Year Ended December 31, 1997
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 $25,021 $199,445
Realized capital gain distributions 0 0
Net realized gain (loss) on investments (10,214) 959
Net unrealized gain (loss) on investments (38,459) (390,368)
Net increase (decrease) in net assets
from investment operations ($23,652) ($189,964)
Accumulation Unit Transactions:
Net contract considerations and
transfers in (Note 3) 0 0
Net contract surrenders and
transfers out (Note 3) (31,067) (132,954)
Benefit payments to annuitants (16,925) (7,967)
Net increase (decrease) from
accumulation unit transactions ($47,992) ($140,921)
Net Increase (Decrease) in Net Assets (71,644) (330,885)
Net Assets:
Net assets at December 31, 1997 287,987 2,284,543
Net assets at December 31, 1998 $216,343 $1,953,658
Year Ended December 31, 1997
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 $2,791 $19,456
Realized capital gain distributions 7,435 56,280
Net realized gain (loss) on investments 10,561 153
Net unrealized gain (loss) on investments (4,687) 6,163
Net increase (decrease) in net assets
from investment operations $16,100 $82,052
Accumulation Unit Transactions:
Net contract considerations and
transfers in (Note 3) 0 0
Net contract surrenders and
transfers out (Note 3) (51,834) (1,730)
Benefit payments to annuitants (7,327) 0
Net increase (decrease) from
accumulation unit transactions ($59,161) ($1,730)
Net Increase (Decrease) in Net Assets (43,061) 80,322
Net Assets:
Net assets at December 31, 1997 146,996 706,279
Net assets at December 31, 1998 $103,935 $786,601
Year Ended December 31, 1997
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 ($9,964) ($12,568)
Realized capital gain distributions 27,728 39,075
Net realized gain (loss) on investments 34,798 3,214
Net unrealized gain (loss) on investments 254,375 368,836
Net increase (decrease) in net assets
from investment operations $306,937 $398,557
Accumulation Unit Transactions:
Net contract considerations and
transfers in (Note 3) 0 0
Net contract surrenders and
transfers out (Note 3) (126,892) (6,269)
Benefit payments to annuitants (14,715) (5,285)
Net increase (decrease) from
accumulation unit transactions ($141,607) ($11,554)
Net Increase (Decrease) in Net Assets 165,330 387,003
Net Assets:
Net assets at December 31, 1997 938,456 1,169,686
Net assets at December 31, 1998 $1,103,786 $1,556,689
Year Ended December 31, 1997
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 $15,591 $17,482
Realized capital gain distributions 0 0
Net realized gain (loss) on investments (6) (65)
Net unrealized gain (loss) on investments (7,876) (8,842)
Net increase (decrease) in net assets
from investment operations $7,709 $8,575
Accumulation Unit Transactions:
Net contract considerations and
transfers in (Note 3) 0 0
Net contract surrenders and
transfers out (Note 3) (3,180) (125)
Benefit payments to annuitants 0 (5,938)
Net increase (decrease) from
accumulation unit transactions ($3,180) ($6,063)
Net Increase (Decrease) in Net Assets 4,529 2,512
Net Assets:
Net assets at December 31, 1997 288,982 322,944
Net assets at December 31, 1998 $293,511 $325,456
Year Ended December 31, 1997
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
Money
Market
Non-Qualified
Investment Operations:
Investment income-net $309,830
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 $309,830
Accumulation Unit Transactions:
Net contract considerations and
transfers in (Note 3) 350,854
Net contract surrenders and
transfers out (Note 3) (1,253,011)
Benefit payments to annuitants (37,400)
Net increase (decrease) from
accumulation unit transactions ($939,557)
Net Increase (Decrease) in Net Assets (629,727)
Net Assets:
Net assets at December 31, 1997 7,894,396
Net assets at December 31, 1998 $7,264,669
Year Ended December 31, 1997
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
and Income
Non-Qualified
Investment Operations:
Investment income-net $136,497
Realized capital gain distributions 414,679
Net realized gain (loss) on investments 1,212
Net unrealized gain (loss) on investments 61,530
Net increase (decrease) in net assets
from investment operations $613,918
Accumulation Unit Transactions:
Net contract considerations and
transfers in (Note 3) 127,963
Net contract surrenders and
transfers out (Note 3) (656,777)
Benefit payments to annuitants (11,881)
Net increase (decrease) from
accumulation unit transactions ($540,695)
Net Increase (Decrease) in Net Assets 73,223
Net Assets:
Net assets at December 31, 1997 4,552,683
Net assets at December 31, 1998 $4,625,906
Year Ended December 31, 1997
Putnam Variable
Trust Growth
and 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.
Govmt and High
Quality Bond
Non-Qualified
Investment Operations:
Investment income-net $90,639
Realized capital gain distributions 0
Net realized gain (loss) on investments 7,127
Net unrealized gain (loss) on investments 36,901
Net increase (decrease) in net assets
from investment operations $134,667
Accumulation Unit Transactions:
Net contract considerations and
transfers in (Note 3) 37,328
Net contract surrenders and
transfers out (Note 3) (212,126)
Benefit payments to annuitants (20,534)
Net increase (decrease) from
accumulation unit transactions ($195,332)
Net Increase (Decrease) in Net Assets (60,665)
Net Assets:
Net assets at December 31, 1997 1,976,233
Net assets at December 31, 1998 $1,915,568
Year Ended December 31, 1997
Putnam Variable
Trust U.S.
Govmt 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
December 31, 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 not 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, 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 December 31, 1998 was $ . Payments for the period ended December 31, 1998
were $ with respect to contract surrender benefits and $ 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.
INA/Putnam Separate Account
Note 7. Accumulation Units Transactions
For the Period Ended 12/31/98
The changes in the number of accumulation units (the measure of ownership in the
Separate Account) during the twelve months of 1998 and units outstanding at
December 31, 1998 were as follows:
PUTNAM DIVISIONS
Money Market Money Market
Qualified Non-Qualified
(formerly Dail(formerly Daily
Dividend TrustDividend Trust)
Units outstanding at December 31, 1997 150,975 422,789
Units purchased and transfers in 0 0
Benefits, surrenders and transfers out (16,402) (72,882)
Units outstanding at December 31, 1998 134,573 349,907
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 (7,430) (21,552)
Units outstanding at December 31, 1998 35,048 331,566
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 (7,899) (243)
Units outstanding at December 31, 1998 13,634 102,352
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 (11,030) (1,049)
Units outstanding at December 31, 1998 77,934 119,546
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 (556) (1,112)
Units outstanding at December 31, 1998 50,830 58,838
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 140,195
Benefits, surrenders and transfers out (519,158)
Units outstanding at December 31, 1998 2,858,428
Putnam Variable
Trust Growth
and Income
Non-Qualified
671,304
Units outstanding at December 31, 1997
18,105
Units purchased and transfers in
(92,833)
Benefits, surrenders and transfers out
596,576
Units outstanding at December 31, 1998
Putnam Variable
Trust U.S.
Govmt and High
Quality Bond
Non-Qualified
Units outstanding at December 31, 1997 579,561
Units purchased and transfers in 9,278
Benefits, surrenders and transfers out (64,961)
Units outstanding at December 31, 1998 523,878
The accumulation units for eleven of the subdivisions include units applicable
to contract owners who are "on benefit annuitants." At December 31, 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 0 $0
(formerly Daily Dividend Trust)
Money Market Non-Qualified 11,231 $34,636
(formerly Daily Dividend Trust)
High Yield Trust Qualified 5,635 $34,783
High Yield Trust Non-Qualified 4,590 $27,045
Equity Income Fund Qualified 8,814 $67,191
Investors Trust Qualified 9,931 $140,654
Investors Trust Non-Qualified 4,002 $52,113
Income Fund Non-Qualified 1,474 $8,153
Putnam Variable Trust Money 149,283 $379,401
Market, Non-Qualified
Putnam Variable Trust Growth 16,708 $129,555
and Income , Non-Qualified
Putnam Variable Trust U.S. Government 73,169 $267,544
and High Quality Bond, Non-Qualified
Monthly Annuity
Annuity Units Unit Value
Money Market Qualified 8 $1.3946556
(formerly Daily Dividend Trust)
Money Market Non-Qualified 282 $1.1257782
(formerly Daily Dividend Trust)
High Yield Trust Qualified 255 $3.2823971
High Yield Trust Non-Qualified 148 $3.2371950
Equity Income Fund Qualified 180 $3.0006805
Investors Trust Qualified 320 $5.5893609
Investors Trust Non-Qualified 217 $3.2011210
Income Fund Non-Qualified 66 $3.1826677
Putnam Variable Trust Money 3,005 $1.2994707
Market, Non-Qualified
Putnam Variable Trust Growth 402 $3.1165294
and Income , Non-Qualified
Putnam Variable Trust U.S. Government 1,136 $1.8285816
and High Quality Bond, Non-Qualified
