SELECT*ANNUITY II
AUGUST 8, 1997 PROSPECTUS
INDIVIDUAL DEFERRED
VARIABLE/FIXED
ANNUITY CONTRACT
[LOGO] RELIASTAR
RELIASTAR LIFE
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[LOGO GRAPHIC OMITTED]
RELIASTAR LIFE INSURANCE COMPANY
20 WASHINGTON AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55401
1-800-621-3750
INDIVIDUAL DEFERRED VARIABLE/FIXED ANNUITY CONTRACTS
ISSUED BY
RELIASTAR SELECT VARIABLE ACCOUNT
AND
RELIASTAR LIFE INSURANCE COMPANY
The Individual Deferred Variable/Fixed Annuity Contracts described in
this Prospectus are flexible purchase payment contracts. The Contracts are sold
to or in connection with retirement plans which may or may not qualify for
special federal tax treatment under the Internal Revenue Code. (See "Federal Tax
Status" on page 33.) Annuity payments under the Contracts are deferred until a
selected later date.
Purchase payments may be allocated to one or more of the available
Sub-Accounts of ReliaStar Select Variable Account (the "Variable Account"), a
separate account of ReliaStar Life Insurance Company (the "Company"), and/or to
the Fixed Account (which is the general account of the Company).
Purchase payments allocated to one or more of the available Sub-Accounts
of the Variable Account, as selected by the Contract Owner, will be invested in
shares at net asset value of one or more of a group of investment funds (the
"Investment Funds"). The Investment Funds are currently three portfolios of The
Alger American Fund, five portfolios of Fidelity's Variable Insurance Products
Fund, four portfolios of Fidelity's Variable Insurance Products Fund II, four
portfolios of Janus Aspen Series, two portfolios of the Neuberger&Berman
Advisors Management Trust, five Funds of the Northstar Variable Trust, four
portfolios of the OCC Accumulation Trust, and four Funds of the Putnam Variable
Trust. Each Investment Fund pays its investment adviser certain fees charged
against the assets of the Investment Fund. The Variable Account Contract Value
and the amount of variable annuity payments will vary, primarily based on the
investment performance of the Investment Funds whose shares are held in the
Sub-Accounts selected. (For more information about the Investment Funds, see
"Investments of the Variable Account" on page 19.)
(CONTINUED ON NEXT PAGE)
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR ACCOMPANYING
FUND PROSPECTUSES AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OR SOLICITATION IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER
OR SOLICITATION WOULD BE UNLAWFUL.
THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION ABOUT THE CONTRACTS THAT A
PROSPECTIVE INVESTOR OUGHT TO KNOW BEFORE INVESTING AND SHOULD BE RETAINED FOR
FUTURE REFERENCE. IT IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES
OF THE INVESTMENT FUNDS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SHARES OF THE INVESTMENT FUNDS AND INTERESTS IN THE CONTRACTS ARE NOT DEPOSITS
OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, A BANK, AND THE SHARES AND
INTERESTS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. ANY INVESTMENT IN
THE CONTRACT INVOLVES CERTAIN INVESTMENT RISK WHICH MAY INCLUDE THE POSSIBLE
LOSS OF PRINCIPAL.
THE DATE OF THIS PROSPECTUS IS AUGUST 8, 1997.
<PAGE>
Additional information about the Contracts, the Company and the Variable
Account, contained in a Statement of Additional Information dated August 8,
1997, has been filed with the Securities and Exchange Commission and is
available by accessing the SEC's internet web site (http://www.sec.gov), or upon
request without charge by writing to Washington Square Securities, Inc., 20
Washington Avenue South, Minneapolis, Minnesota 55401, or by calling
1-800-621-3750. The Statement of Additional Information relating to the
Contracts having the same date as this Prospectus is incorporated by reference
in this Prospectus. The Table of Contents for the Statement of Additional
Information may be found on page 40 of this Prospectus.
Information about the Fixed Account may be found in Appendix A, on page
A-1.
<PAGE>
TABLE OF CONTENTS
Definitions ...................................................... 4
Summary of Contract Expenses...................................... 6
Summary ..........................................................10
Condensed Financial Information...................................12
Performance Information...........................................17
The Company.......................................................18
The Variable Account..............................................18
Investments of the Variable Account...............................19
Charges Made by the Company.......................................25
Surrender Charge (Contingent Deferred
Sales Charge)..................................................25
Administrative Charge...........................................26
Mortality Risk Premium..........................................26
Expense Risk Charge.............................................26
Premium Taxes...................................................26
Expenses of the Investment Funds................................26
Administration of the Contracts...................................26
The Contracts.....................................................27
Allocation of Purchase Payments.................................27
Sub-Account Accumulation Unit Value.............................27
Net Investment Factor...........................................27
Death Benefit Before the Annuity
Commencement Date..............................................28
Death Benefit After the Annuity
Commencement Date..............................................29
Surrender (Redemption)..........................................29
Transfers.......................................................29
Telephone/Fax Instructions......................................30
Assignments.....................................................30
Contract Owner and Beneficiaries................................30
Contract Inquiries..............................................31
Annuity Provisions................................................31
Annuity Commencement Date.......................................31
Annuity Form Selection Change...................................31
Annuity Forms...................................................31
Automatic Annuity Form..........................................32
Frequency and Amount of Annuity Payments........................32
Annuity Payments................................................32
Sub-Account Annuity Unit Value..................................33
Assumed Investment Rate.........................................33
Federal Tax Status................................................33
Introduction....................................................33
Tax Status of the Contract......................................34
Taxation of Annuities...........................................34
Transfers, Assignments or Exchanges of a Contract...............36
Withholding.....................................................36
Multiple Contracts..............................................36
Taxation of Qualified Plans.....................................37
Possible Charge for the Company's Taxes.........................37
Other Tax Consequences..........................................37
Voting of Fund Shares.............................................38
Distribution of the Contracts.....................................38
Revocation .......................................................38
Reports to Owners.................................................39
Legal Proceedings.................................................39
Financial Statements and Experts..................................39
Further Information...............................................39
Statement of Additional Information Table of Contents.............40
Appendix .......................................................A-1
Investment Fund Prospectuses
("Select*Product Mutual Funds")
The Alger American Fund:
Alger American Growth Portfolio.........................Alger-1
Alger American MidCap Growth Portfolio..................Alger-1
Alger American Small Capitalization Portfolio...........Alger-1
Fidelity's Variable Insurance Products Fund (VIP)
Equity-Income Portfolio.....................................VIP
Growth Portfolio............................................VIP
High Income Portfolio.......................................VIP
Money Market Portfolio .....................................VIP
Overseas Portfolio..........................................VIP
Fidelity's Variable Insurance Products Fund II (VIP II)
Asset Manager Portfolio.....................................VIP
Contrafund Portfolio........................................VIP
Index 500 Portfolio.........................................VIP
Investment Grade Bond Portfolio.............................VIP
Janus Aspen Series:
Aggressive Growth Portfolio.............................Janus-1
Growth Portfolio........................................Janus-1
International Growth Portfolio..........................Janus-1
Worldwide Growth Portfolio..............................Janus-1
Neuberger&Berman Advisers Management Trust:
Neuberger&Berman Limited Maturity
Bond Portfolio........................................N&B-1
Neuberger&Berman Partners Portfolio.......................N&B-1
Northstar Variable Trust
Northstar Growth Fund...............................Northstar-1
Northstar High Yield Bond Fund......................Northstar-1
Northstar Income and Growth Fund....................Northstar-1
Northstar International Value Fund..................Northstar-1
Northstar Multi-Sector Bond Fund....................Northstar-1
OCC Accumulation Trust:
OCC Equity Portfolio......................................OCC-1
OCC Global Equity Portfolio...............................OCC-1
OCC Managed Portfolio.....................................OCC-1
OCC Small Cap Portfolio...................................OCC-1
Putnam Variable Trust:
Putnam VT Diversified Income Fund...................Putnam VT-1
Putnam VT Growth and Income Fund....................Putnam VT-1
Putnam VT Utilities Growth and Income
Fund...........................................Putnam VT-1
Putnam VT Voyager Fund..............................Putnam VT-1
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DEFINITIONS
THE ALGER AMERICAN FUND-
* Alger American Growth Portfolio
* Alger American MidCap Growth Portfolio
* Alger American Small Capitalization Portfolio
ANNUITANT - The person who is named by the Owner to receive annuity payments.
ANNUITY COMMENCEMENT DATE (COMMENCEMENT DATE) - The date on which the annuity
payments are to start, which must be the first day of a month. The date
will be the first day of the month following the Annuitant's 75th
birthday unless an earlier or later date has been selected by the Owner
and, if the date is later, it has been agreed to by the Company. If the
Annuity Commencement Date selected by the Owner does not occur on a
Valuation Date, at least 60 days after the date on which the Contract
was issued, the Company reserves the right to adjust the Commencement
Date to the first Valuation Date after the Commencement Date selected
by the Owner and which is at least 60 days after the Contract issue
date.
BENEFICIARY - The person who is named by the Owner to receive the Contract Value
upon the death of the Owner or Annuitant prior to the Annuity
Commencement Date or to receive the balance of the annuity payments if
the Annuitant does not live to receive all payments due.
CODE - The Internal Revenue Code of 1986, as amended.
CONTRACT ANNIVERSARY - Occurs yearly on the same day and month the Contract was
issued.
CONTRACT OWNER (OWNER) - The person who controls all the rights under the
Contract until the earlier of the Annuity Commencement Date or the date
of death of the annuitant.
CONTRACT VALUE - The sum of (a) the Variable Account Contract Value, which is
the value of the Sub-Account Accumulation Units under the Contract and
(b) the Fixed Account Contract Value, which is the sum of purchase
payments allocated to the Fixed Account under the Contract, plus
credited interest, minus surrenders, surrender charges, and any annual
administrative charges applicable to the Fixed Account, and minus any
transfers to the Variable Account.
CONTRACT YEAR - The twelve-month period starting on a Contract Anniversary.
FIXED ACCOUNT - The Fixed Account is the general account of the Company, which
consists of all assets of the Company other than those allocated to a
separate account of the Company.
FIXED ANNUITY - An annuity with payments which do not vary as to dollar amount.
INVESTMENT FUNDS - Any open-end management investment company (or portfolio
thereof) or unit investment trust (or series thereof) in which a
Sub-Account invests as described herein.
JANUS ASPEN SERIES-
* Aggressive Growth Portfolio
* Growth Portfolio
* International Growth Portfolio
* Worldwide Growth Portfolio
NEUBERGER&BERMAN ADVISERS MANAGEMENT TRUST-
* Limited Maturity Bond Portfolio
* Partners Portfolio
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NORTHSTAR VARIABLE TRUST (NORTHSTAR)-
* Northstar Growth Fund
* Northstar High Yield Bond Fund
* Northstar Income and Growth Fund
* Northstar International Value Fund
* Northstar Multi-Sector Bond Fund
OCC ACCUMULATION TRUST-
* Equity Portfolio
* Global Equity Portfolio
* Managed Portfolio
* Small Cap Portfolio
PUTNAM VARIABLE TRUST-
* Putnam VT Diversified Income Fund
* Putnam VT Growth and Income Fund
* Putnam VT Utilities Growth and Income Fund
* Putnam VT Voyager Fund
QUALIFIED PLAN - A retirement plan under Sections 401, 403, 404 or 408 or
similar provisions of the federal Internal Revenue Code.
SUB-ACCOUNT - That portion of the Variable Account which invests in shares of a
specific Mutual Fund.
SUB-ACCOUNT ACCUMULATION UNIT - A unit of measure, similar to a share of stock,
used to determine the Variable Account Contract Value before annuity
payments start.
SUCCESSOR BENEFICIARY - The person named to become the Beneficiary if the
Beneficiary is not alive.
VALUATION DATE - Each day that the New York Stock Exchange is open for business,
except for a day that a Sub-Account's corresponding Fund does not value
its shares. The New York Stock Exchange is currently closed on weekends
and on the following holidays: New Year's Day; Martin Luther King, Jr.
Day; President's Day; Good Friday; Memorial Day; July Fourth; Labor
Day; Thanksgiving Day; and Christmas Day.
VALUATION PERIOD - The time interval between a Valuation Date and the next
Valuation Date.
VARIABLE ACCOUNT - A separate account of the Company consisting of assets set
aside by the Company, the investment performance of which is kept
separate from that of the general assets of the Company.
VARIABLE ANNUITY - A series of periodic payments to the Annuitant which will
vary in amount, primarily based on the investment results of the
Variable Account Sub-Accounts under the Contract.
VARIABLE ANNUITY UNIT - A unit of measure used in the calculation of the second
and each subsequent variable annuity payment from the Variable Account.
VIP - FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND-
* Equity-Income Portfolio
* Growth Portfolio
* High Income Portfolio
* Money Market Portfolio
* Overseas Portfolio
<PAGE>
VIP II - FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II-
* Asset Manager Portfolio
* Contrafund Portfolio
* Index 500 Portfolio
* Investment Grade Bond Portfolio
SUMMARY OF CONTRACT EXPENSES
CONTRACT OWNER TRANSACTION EXPENSES
Sales Charge Imposed on Purchases....................................None
Deferred Sales Charge(a).............................................5.00%
(as a percentage of purchase payments paid in last 5 years)
Surrender Fees.......................................................None
Exchange Fee.........................................................None
ANNUAL CONTRACT FEE.........................................$30
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Fees.............................1.30%
Account Fees and Expenses...................................None
Total Separate Account Annual Expenses......................1.30%
ANNUAL INVESTMENT FUND EXPENSES(c)(d)(e)(f)(g)(h)
(as a percentage of portfolio company average net assets)
<TABLE>
<CAPTION>
TOTAL INVESTMENT
MANAGEMENT OTHER FUND ANNUAL
FEES EXPENSES EXPENSES
---- -------- --------
<S> <C> <C> <C>
The Alger American Fund:
Alger American Growth Portfolio(b) 0.75% 0.04% 0.79%
Alger American MidCap Growth Portfolio(b) 0.80% 0.04% 0.84%
Alger American Small Capitalization Portfolio(b) 0.85% 0.03% 0.88%
Fidelity's Variable Insurance Products Fund (VIP):
Equity-Income Portfolio(b)(c) 0.51% 0.07% 0.58%
Growth Portfolio(b)(c) 0.61% 0.08% 0.69%
High Income Portfolio(b) 0.59% 0.12% 0.71%
Money Market Portfolio 0.21% 0.09% 0.30%
Overseas Portfolio(b)(c) 0.76% 0.17% 0.93%
Fidelity's Variable Insurance Products Fund II (VIP II):
Asset Manager Portfolio(b)(c) 0.64% 0.10% 0.74%
Contrafund Portfolio(b)(c) 0.61% 0.13% 0.74%
Index 500 Portfolio(b)(d) 0.13% 0.15% 0.28%
Investment Grade Bond Portfolio(b) 0.45% 0.13% 0.58%
Janus Aspen Series:
Aggressive Growth Portfolio(b)(e) 0.72% 0.04% 0.76%
Growth Portfolio(b)(e) 0.65% 0.04% 0.69%
International Growth Portfolio(b)(e) 0.05% 1.21% 1.26%
Worldwide Growth Portfolio(b)(e) 0.66% 0.14% 0.80%
<PAGE>
Neuberger&Berman Advisers Management Trust:
Limited Maturity Bond Portfolio(b) 0.65% 0.13% 0.78%
Partners Portfolio(b) 0.84% 0.11% 0.95%
Northstar Variable Trust:
Northstar Growth Fund(f) 0.75% 0.05% 0.80%
Northstar High Yield Bond Fund(f) 0.75% 0.05% 0.80%
Northstar Income and Growth Fund(f) 0.75% 0.05% 0.80%
Northstar International Value Fund(f) 0.75% 0.05% 0.80%
Northstar Multi-Sector Bond Fund(f) 0.75% 0.05% 0.80%
OCC Accumulation Trust:
Equity Portfolio(b)(g) 0.80% 0.22% 1.02%
Global Equity Portfolio(b)(g) 0.80% 0.63% 1.43%
Managed Portfolio(b)(g) 0.80% 0.10% 0.90%
Small Cap Portfolio(b)(g) 0.80% 0.22% 1.02%
Putnam Variable Trust:
Putnam VT Diversified Income Fund 0.70% 0.13% 0.83%
Putnam VT Growth and Income Fund 0.49% 0.05% 0.54%
Putnam VT Utilities Growth and Income Fund(h) 0.69% 0.09% 0.78%
Putnam VT Voyager Fund 0.57% 0.06% 0.63%
</TABLE>
The fee and expense information regarding the Investment Funds was
provided by the Investment Funds. Except for the Northstar Variable Trust,
neither the Investment Funds nor their advisers are affiliated with the Company.
EXAMPLES
If you surrender your contract at the end of the applicable time period,
you would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
The Alger American Fund:
Alger American Growth Portfolio $67 $114 $118 $254
Alger American MidCap Growth Portfolio 68 116 121 259
Alger American Small Capitalization Portfolio 68 117 123 263
Fidelity's Variable Insurance Products Funds (VIP):
Equity-Income Portfolio 65 108 108 233
Growth Portfolio 66 111 113 244
High Income Portfolio 67 112 114 246
Money Market Portfolio 62 99 93 203
Overseas Portfolio 69 118 125 269
Fidelity's Variable Insurance Products Fund II (VIP II):
Asset Manager Portfolio 67 113 116 249
Contrafund Portfolio 67 113 116 249
Index 500 Portfolio 62 99 92 201
Investment Grade Bond Portfolio 65 108 108 233
Janus Aspen Series:
Aggressive Growth Portfolio 67 113 117 251
Growth Portfolio 66 111 113 244
International Growth Portfolio 72 128 142 301
Worldwide Growth Portfolio 67 114 119 255
Neuberger&Berman Advisers Management Trust:
Limited Maturity Bond Portfolio 67 114 118 253
Partners Portfolio 69 119 126 271
<PAGE>
Northstar Variable Trust:
Northstar Growth Fund 67 114 119 255
Northstar High Yield Bond Fund 67 114 119 255
Northstar Income and Growth Fund 67 114 119 255
Northstar International Value Fund 67 114 119 255
Northstar Multi-Sector Bond Fund 67 114 119 255
OCC Accumulation Trust:
Equity Portfolio 70 121 130 278
Global Equity Portfolio 74 133 150 317
Managed Portfolio 69 117 124 265
Small Cap Portfolio 70 121 130 278
Putnam Variable Trust:
Putnam VT Diversified Income Fund 68 115 120 258
Putnam VT Growth and Income Fund 65 106 106 228
Putnam VT Utilities Growth and Income Fund 67 114 118 253
Putnam VT Voyager Fund 66 109 110 238
If you annuitize at the end of the applicable time period or if you do
not surrender your contract, you would pay the following expenses on a $1,000
investment, assuming a 5% annual return on assets.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
The Alger American Fund:
Alger American Growth Portfolio $22 $69 $118 $254
Alger American MidCap Growth Portfolio 23 71 121 259
Alger American Small Capitalization Portfolio 23 72 123 263
Fidelity's Variable Insurance Product Fund (VIP):
Equity-Income Portfolio 20 63 108 233
Growth Portfolio 21 66 113 244
High Income Portfolio 22 67 114 246
Money Market Portfolio 17 54 93 203
Overseas Portfolio 24 73 125 269
Fidelity's Variable Insurance Products Fund II (VIP II):
Asset Manager Portfolio 22 68 116 249
Contrafund Portfolio 22 68 116 249
Index 500 Portfolio 17 54 92 201
Investment Grade Bond Portfolio 20 63 108 233
Janus Aspen Series:
Aggressive Growth Portfolio 22 68 117 251
Growth Portfolio 21 66 113 244
International Growth Portfolio 27 83 142 301
Worldwide Growth Portfolio 22 69 119 255
Neuberger&Berman Advisers Management Trust:
Limited Maturity Bond Portfolio 22 69 118 253
Partners Portfolio 24 74 126 271
Northstar Variable Trust:
Northstar Growth Fund 22 69 119 255
Northstar High Yield Bond Fund 22 69 119 255
Northstar Income and Growth Fund 22 69 119 255
Northstar International Value Fund 22 69 119 255
Northstar Multi-Sector Bond Fund 22 69 119 255
<PAGE>
OCC Accumulation Trust:
Equity Portfolio 25 76 130 278
Global Equity Portfolio 29 88 150 317
Managed Portfolio 24 72 124 265
Small Cap Portfolio 25 76 130 278
Putnam Variable Trust:
Putnam VT Diversified Income Fund 23 70 120 258
Putnam VT Growth and Income Fund 20 61 106 228
Putnam VT Utilities Growth and Income Fund 22 69 118 253
Putnam VT Voyager Fund 21 64 110 238
</TABLE>
(a) The Deferred Sales Charge may be less than 5%, since under certain
situations amounts may be surrendered or withdrawn free of any
surrender charge. For more information on the Deferred Sales Charge,
see page 25, "Surrender Charge (Contingent Deferred Sales Charge)."
(b) The Company or its affiliates may receive compensation from an
affiliate or affiliates of certain of the Funds based upon an annual
percentage of the average net assets held in that Fund by the Company
and certain of the Company's insurance company affiliates. These
amounts are intended to compensate the Company or the Company's
affiliates for administrative, record keeping, distribution in some
cases, and other services provided by such parties to the Funds and/or
the Funds' affiliates. Payments of such amounts by an affiliate or
affiliates of the Funds do not increase the fees paid by the Funds or
their shareholders.
(c) A portion of the brokerage commissions that certain funds pay was used
to reduce funds expenses. In addition, certain funds have entered into
arrangements with their custodian and transfer agent whereby interest
earned on uninvested cash balances was used to reduce custodian and
transfer agent expenses. Including these reductions, the total
operating expenses presented in the table would have been .56% for
Equity-Income Portfolio, .67% for Growth Portfolio, .92% for Overseas
Portfolio, .73% for Asset Manager Portfolio, and .71% for Contrafund
Portfolio.
(d) FMR agreed to reimburse a portion of Index 500 Portfolio's expenses
during the period. Without this reimbursement, the funds' management
fee, other expenses and total expenses would have been .28%, .15%, and
.43%, respectively. Expense reimbursements are voluntary. There is no
assurance of ongoing reimbursement.
(e) The fees and expenses of the Janus Aspen Series are based on gross
expenses of the Shares before expense offset arrangements for the
fiscal year ended December 31, 1996. The information for each Portfolio
is net of fee waivers or reductions from Janus Capital. Fee reductions
for the Aggressive Growth, Growth, International Growth, and Worldwide
Growth Portfolios reduce the management fee to the level of the
corresponding Janus retail fund. Other waivers, if applicable are first
applied against the management fee and then against other expenses.
Without such waivers or reductions, the Management Fee, Other Expenses
and Total Operating Expenses would have been: 0.79%, 0.04% and 0.83%
for the Aggressive Growth Portfolio; 0.79%, 0.04%; 0.83% for the Growth
Portfolio; 1.00%, 1.21% and 2.21% for the International Growth
Portfolio; and 0.77%, 0.14% and 0.91% for the Worldwide Growth
Portfolio. Janus Capital may modify or terminate the waivers or
reductions at any time upon at least 90 days' notice to the Trustees of
Janus Aspen Series.
(f) The investment adviser to the Northstar Variable Trust has agreed to
reimburse the five Northstar Funds for any expenses in excess of 0.80%
of each Fund's average daily net assets. In the absence of the
investment adviser's expense reimbursements, the actual expenses that
would have been paid by each Fund during its fiscal year ended December
31, 1996 would have been: Northstar Growth Fund: 1.70%; Northstar High
Yield Bond Fund: 1.73%; Northstar Income and Growth Fund: 1.40%; and
Northstar Multi-Sector Bond Fund: 1.68%. The Northstar International
Value Fund commenced operations on August 8, 1997. Absent expense
reimbursement, the actual expenses for this fund are estimated to be
1.90%. Expense reimbursements are voluntary. There is no assurance of
ongoing reimbursement.
<PAGE>
(g) The annual expenses of OCC Accumulation Trust Portfolios (the
"Portfolios") as of December 31, 1996 have been restated to reflect new
management fee and expense limitation arrangements in effect as of May
1, 1996. Additionally, other Expenses are shown gross of certain
expense offsets afforded the Portfolios which effectively lowered
overall custody expenses. Effective May 1, 1996, the expenses of the
Portfolios were contractually limited by OpCap Advisors so that their
respective annualized operating expenses (net of any expense offsets)
do not exceed 1.25% of their respective average daily net assets.
Furthermore, through December 31, 1997, the annualized operating
expenses of the Equity, Managed, and Small Cap Portfolios will be
voluntarily limited by OpCap Advisors so that annualized operating
expenses (net of any expense offsets) of these Portfolios do not exceed
1.00% of their respective average daily net assets. Without such
contractual and voluntary expense limitations and without giving effect
to any expense offsets, the Management Fees, Other Expenses and Total
Investment Fund Expenses incurred for the fiscal year ended December
31, 1996 would have been .80%, 1.04% and 1.84% respectively, for the
Global Equity Portfolio; .80%, .10% and .90% respectively for the
Managed Portfolio; .80%, .26% and 1.06%, respectively, for the Small
Cap Portfolio and .80%, .31% and 1.11% respectively for the Equity
Portfolio. Expense reimbursements are voluntary. There is no assurance
of ongoing reimbursement.
(h) On July 11, 1996, shareholders approved an increase in the fees payable
to Putnam Investment Management, Inc. ("Putnam Management") under the
Management Contract for Putnam VT Utilities Growth and Income Fund. The
management fees and total expenses shown in the table have been
restated to reflect the increase. Actual management fees and total
expenses for the year ended December 31, 1996 were 0.64% and 0.73%,
respectively.
THE EXAMPLES SHOWN IN THE TABLE ABOVE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS
THAN THOSE SHOWN. THE 5% ANNUAL RETURN ASSUMED IS HYPOTHETICAL AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE
GREATER OR LESS THAN THE ASSUMED RATE.
The purpose of this table is to assist the Contract Owner in
understanding the various costs and expenses that a Contract Owner will bear
either directly or indirectly. The table reflects the expenses of the Variable
Account as well as those of the Investment Funds. The $30 Annual Contract Charge
is reflected as an annual percentage charge in this table based on the average
net assets in the Variable Account and Fixed Account during the preceding year,
which translates to a charge equal to an annual rate of 0.119% of the Variable
and Fixed Account values.
In addition to the costs and expenses shown in this table, state
premium taxes may also be applicable. For more information on state premium
taxes, see page 26, "Premium Taxes".
SUMMARY
The Contracts are individual deferred variable/fixed annuity contracts
issued by the Variable Account and the Company. (See "The Company" and "The
Variable Account" on page 18.) They are sold to or in connection with retirement
plans which may or may not qualify for special federal tax treatment under the
Internal Revenue Code. (See "Federal Tax Status" on page 33.) Annuity payments
under the Contracts are deferred until a later date.
Purchase payments may be allocated to one or more Sub-Accounts of the
Variable Account and/or to the Fixed Account. Purchase payments allocated to one
or more Sub-Accounts of the Variable Account will be invested in shares at net
asset value of one or more of the Investment Funds. The Variable Account
Contract Value and the amount of variable annuity payments will vary, primarily
based on the investment performance of the Investment Funds whose shares are
held in the Sub-Accounts selected. (See "Investments of the Variable Account" on
page 19.)
No deduction for a sales charge is made from the purchase payments for
the Contracts. However, if all or any part of the Contract Value is surrendered
within five years from the date of the last purchase payment, the Company will,
with certain exceptions, deduct a surrender charge (which may be deemed a
contingent deferred sales charge). (See "Surrender Charge (Contingent Deferred
Sales Charge)" on page 25.)
<PAGE>
In addition, on each Contract Anniversary and on the surrender of the
Contract for full value if it is not surrendered on a Contract Anniversary, the
Company will deduct from the Contract Value an administrative charge of $30.
During the annuity period the annual administrative charge will be deducted
proportionately from each monthly annuity payment. The administrative charge is
to reimburse the Company for administrative expenses relating to the issue and
maintenance of the Contracts. (See "Administrative Charge" on page 26.)
The Company also deducts a Mortality Risk Premium and an Expense Risk
Charge, equal to an annual rate of 1.3% of the daily net asset value of the
Sub-Accounts of the Variable Account, for mortality and expense risks assumed by
the Company. (See "Mortality Risk Premium" and "Expense Risk Charge" on page
26.)
The initial purchase payment must be $2,500 or more. However, if the
Contract is being purchased by or in connection with a Qualified Plan, the
minimum amount of purchase payments the Company will accept during the first
Contract Year will be $600, with no individual payment to be less than $50. The
Company may choose not to accept any subsequent purchase payment if it is less
than $50 or if the purchase payment together with the Contract Value at the next
Valuation Date exceeds $250,000.
If the Contract Value at the Annuity Commencement Date is less than
$2,500, the Contract Value may be distributed in a single sum payment in lieu of
annuity payments. If any annuity payment would be less than $50, the Company
shall have the right to change the frequency of payments to such intervals as
will result in payments of at least $50 each. (See "Frequency and Amount of
Annuity Payments" on page 32.)
Premium taxes payable to any governmental entity will be charged
against the Contracts. (See "Premium Taxes" on page 26.)
The Contract Owner may request early withdrawal of all or part of the
Contract Value before the Annuity Commencement Date. (See "Surrender
(Redemption)" on page 29.) A penalty tax may be assessed pursuant to Section
72(q) of the Internal Revenue Code upon withdrawal of amounts accumulated under
a Contract. (See "Taxation of Annuities" on page 34.)
The Contract Owner may return the Contract within ten days after it was
delivered to the Owner, and the full amount of the purchase payments received
will be refunded. (See "Revocation" on page 38.)
<PAGE>
CONDENSED FINANCIAL INFORMATION
The following table shows, for each Sub-Account of the Variable
Account, the value of a Sub-Account Accumulation Unit as it is invested in
portfolios at the dates shown, and the total number of Sub-Account Accumulation
Units outstanding at the end of each period:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
SUB-ACCOUNT INVESTING IN 1996 1995 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
THE ALGER AMERICAN FUND:
ALGER AMERICAN GROWTH PORTFOLIO
(sub-account inception - August 8, 1997)
Beginning of period.............. _ _ _ _ _ _ _
End of period.................... _ _ _ _ _ _ _
Units outstanding at end of period _ _ _ _ _ _ _
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO
(sub-account inception - August 8, 1997)
Beginning of period..............
End of period.................... _ _ _ _ _ _ _
Units outstanding at end of period _ _ _ _ _ _ _
ALGER AMERICAN SMALL CAPITALIZATION
PORTFOLIO
(sub-account inception - August 8, 1997)
Beginning of period.............. _ _ _ _ _ _ _
End of period.................... _ _ _ _ _ _ _
Units outstanding at end of period _ _ _ _ _ _ _
FIDELITY'S VARIABLE INSURANCE PRODUCTS
FUND (VIP):
EQUITY-INCOME PORTFOLIO
(sub-account inception - May 1, 1988)
Beginning of period.............. $25.8348 $19.3743 $18.3330 $15.7132 $13.6101 $10.4896 $12.5467
End of period.................... $29.1386 $25.8348 $19.3743 $18.3330 $15.7132 $13.6101 $10.4896
Units outstanding at end of period 2,419,226 2,562,446 2,548,087 2,319,004 1,655,722 1,303,735 1,242,548
GROWTH PORTFOLIO
(sub-account inception - May 1, 1988)
Beginning of period.............. $28.1402 $21.0608 $21.3412 $18.1132 $16.7875 $11.6882 $13.4173
End of period.................... $13.8559 $28.1402 $21.0608 $21.3412 $18.1132 $16.7875 $11.6882
Units outstanding at end of period 2,402,422 2,477,276 2,337,733 2,019,876 1,448,782 980,079 719,979
HIGH INCOME PORTFOLIO
(sub-account inception - May 1, 1988)
Beginning of period.............. $21.1332 $17.7525 $18.2678 $15.3580 $12.6454 $9.4711 $9.8322
End of period.................... $23.7835 $21.1332 $17.7525 $18.2678 $15.3580 $12.6454 $9.4711
Units outstanding at end of period 733,939 760,359 778,501 798,986 441,253 273,750 224,342
</TABLE>
(WIDE TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SUB-ACCOUNT INVESTING IN 1989 1988 1987
---- ---- ----
<S> <C> <C> <C>
THE ALGER AMERICAN FUND:
ALGER AMERICAN GROWTH PORTFOLIO
(sub-account inception - August 8, 1997)
Beginning of period.............. _ _ _
End of period.................... _ _ _
Units outstanding at end of period _ _ _
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO
(sub-account inception - August 8, 1997)
Beginning of period..............
End of period.................... _ _ _
Units outstanding at end of period _ _ _
ALGER AMERICAN SMALL CAPITALIZATION
PORTFOLIO
(sub-account inception - August 8, 1997)
Beginning of period.............. _ _ _
End of period.................... _ _ _
Units outstanding at end of period _ _ _
FIDELITY'S VARIABLE INSURANCE PRODUCTS
FUND (VIP):
EQUITY-INCOME PORTFOLIO
(sub-account inception - May 1, 1988)
Beginning of period.............. $10.8324 $10.0000 _
End of period.................... $12.5467 $10.8324 _
Units outstanding at end of period 934,804 288,561 _
GROWTH PORTFOLIO
(sub-account inception - May 1, 1988)
Beginning of period.............. $10.3448 $10.0000 _
End of period.................... $13.4173 $10.3448 _
Units outstanding at end of period 296,757 148,480 _
HIGH INCOME PORTFOLIO
(sub-account inception - May 1, 1988)
Beginning of period.............. $10.4064 $10.0000 _
End of period.................... $9.8322 $10.4064 _
Units outstanding at end of period 157,944 67,794 _
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUB-ACCOUNT INVESTING IN 1996 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
MONEY MARKET PORTFOLIO
(sub-account inception - May 1, 1988)
Beginning of period $ 14.0932 $ 13.4845 $ 13.1036 $ 12.8597 $ 12.5397 $ 11.9736
End of period $ 14.6622 $ 14.0932 $ 13.4845 $ 13.1036 $ 12.8597 $ 12.5397
Units outstanding at end of period 551,623 605,511 755,428 827,229 987,748 1,129,026
OVERSEAS PORTFOLIO
(sub-account inception - May 1, 1988)
Beginning of Period $ 17.0360 $ 15.7366 $ 15.6727 $ 11.5705 $13.12980 $ 12.2980
End of Period $ 19.0354 $ 17.0360 $ 15.7366 $ 15.6727 $ 11.5705 $ 13.1298
Units Outstanding at End of Period 1,039,149 1,055,251 1,176,636 819,348 456,484 364,272
FIDELITY'S VARIABLE INSURANCE PRODUCTS
FUND II (VIP II):
ASSET MANAGER PORTFOLIO
(sub-account inception - May 1, 1991):
Beginning of period $ 15.1807 $ 13.1500 $ 14.1866 $ 11.8736 $ 10.7527 $ 10.0000
End of period $ 17.1701 $ 15.1807 $ 13.1500 $ 14.1866 $ 11.8736 $ 10.7527
Units outstanding at end of period 2,062,691 2,327,409 2,293,509 1,727,141 522,702 118,419
CONTRAFUND PORTFOLIO
(sub-account inception - May 8, 1997)
Beginning of period _ _ _ _ _ _
End of Period _ _ _ _ _ _
Units Outstanding at end of period _ _ _ _ _ _
INDEX 500 PORTFOLIO
(sub-account inception - May 3, 1993):
Beginning of period $ 14.3550 $ 10.6006 $ 10.6290 $ 10.0000 _ _
End of period $ 17.4006 $ 14.3550 $ 10.6006 $ 10.6290 _ _
Units outstanding at end of period 351,023 261,975 174,454 102,493 _ _
INVESTMENT GRADE BOND PORTFOLIO
(sub-account inception - May 1, 1991):
Beginning of period $ 13.9972 $ 12.0868 $ 12.7234 $ 11.6171 $ 11.0360 $ 10.0000
End of period $ 14.2542 $ 13.9972 $ 12.0868 $ 12.7234 $ 11.6171 $ 11.0360
Units outstanding at end of period 519,771 616,360 687,602 729,335 352,116 79,859
JANUS ASPEN SERIES:
AGGRESSIVE GROWTH PORTFOLIO
(sub-account inception - August 8, 1997)
Beginning of period _ _ _ _ _ _
End of period _ _ _ _ _ _
Units outstanding at end of period _ _ _ _ _ _
(WIDE TABLE CONTINUED FROM ABOVE)
SUB-ACCOUNT INVESTING IN 1990 1989 1988 1987
--------- --------- --------- ---------
MONEY MARKET PORTFOLIO
(sub-account inception - May 1, 1988)
Beginning of period $ 11.2268 $ 10.4179 $ 10.0000 _
End of period $ 11.9736 $ 11.2268 $ 10.4179 _
Units outstanding at end of period 1,120,621 370,316 38,447 _
OVERSEAS PORTFOLIO
(sub-account inception - May 1, 1988)
Beginning of Period $ 12.6820 $ 10.1743 $ 10.0000 _
End of Period $ 12.2980 $ 12.6820 $ 10.1743 _
Units Outstanding at End of Period 333,194 64,228 15,105 _
FIDELITY'S VARIABLE INSURANCE PRODUCTS
FUND II (VIP II):
ASSET MANAGER PORTFOLIO
(sub-account inception - May 1, 1991):
Beginning of period _ _ _ _
End of period _ _ _ _
Units outstanding at end of period _ _ _ _
CONTRAFUND PORTFOLIO
(sub-account inception - May 8, 1997)
Beginning of period _ _ _ _
End of Period _ _ _ _
Units Outstanding at end of period _ _ _ _
INDEX 500 PORTFOLIO
(sub-account inception - May 3, 1993):
Beginning of period _ _ _ _
End of period _ _ _ _
Units outstanding at end of period _ _ _ _
INVESTMENT GRADE BOND PORTFOLIO
(sub-account inception - May 1, 1991):
Beginning of period _ _ _ _
End of period _ _ _ _
Units outstanding at end of period _ _ _ _
JANUS ASPEN SERIES:
AGGRESSIVE GROWTH PORTFOLIO
(sub-account inception - August 8, 1997)
Beginning of period _ _ _ _
End of period _ _ _ _
Units outstanding at end of period _ _ _ _
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUB-ACCOUNT INVESTING IN 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GROWTH PORTFOLIO
(sub-account inception - August 8, 1997)
Beginning of period _ _ _ _ _ _ _ _ _ _
End of period _ _ _ _ _ _ _ _ _ _
Units outstanding at end of period _ _ _ _ _ _ _ _ _ _
INTERNATIONAL GROWTH PORTFOLIO
(sub-account inception - August 8, 1997)
Beginning of period _ _ _ _ _ _ _ _ _ _
End of period _ _ _ _ _ _ _ _ _ _
Units outstanding at end of period _ _ _ _ _ _ _ _ _ _
WORLDWIDE GROWTH PORTFOLIO
(sub-account inception - August 8, 1997)
Beginning of period _ _ _ _ _ _ _ _ _ _
End of period _ _ _ _ _ _ _ _ _ _
Units outstanding at end of period _ _ _ _ _ _ _ _ _ _
NEUBERGER&BERMAN ADVISERS MANAGEMENT TRUST:
LIMITED MATURITY BOND PORTFOLIO
(sub-account inception - August 8, 1997)
Beginning of period _ _ _ _ _ _ _ _ _ _
End of period _ _ _ _ _ _ _ _ _ _
Units outstanding at end of period _ _ _ _ _ _ _ _ _ _
PARTNERS PORTFOLIO
(sub-account inception - August 8, 1997)
Beginning of period _ _ _ _ _ _ _ _ _ _
End of period _ _ _ _ _ _ _ _ _ _
Units outstanding at end of period _ _ _ _ _ _ _ _ _ _
NORTHSTAR VARIABLE TRUST:
NORTHSTAR GROWTH FUND
(sub-account inception - August 8, 1997)
Beginning of period _ _ _ _ _ _ _ _ _ _
End of period _ _ _ _ _ _ _ _ _ _
Units outstanding at end of period _ _ _ _ _ _ _ _ _ _
NORTHSTAR HIGH YIELD BOND FUND
(sub-account inception - August 8, 1997)
Beginning of period _ _ _ _ _ _ _ _ _ _
End of period _ _ _ _ _ _ _ _ _ _
Units outstanding at end of period _ _ _ _ _ _ _ _ _ _
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUB-ACCOUNT INVESTING IN 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NORTHSTAR INCOME AND GROWTH FUND:
(sub-account inception - August 8, 1997):
Beginning of period _ _ _ _ _ _ _ _ _ _
End of period _ _ _ _ _ _ _ _ _ _
Units outstanding at end of period _ _ _ _ _ _ _ _ _ _
NORTHSTAR INTERNATIONAL VALUE FUND:
(sub-account inception - August 8, 1997)
Beginning of period _ _ _ _ _ _ _ _ _ _
End of period _ _ _ _ _ _ _ _ _ _
Units outstanding at end of period _ _ _ _ _ _ _ _ _ _
NORTHSTAR MULTI-SECTOR BOND FUND:
(sub-account inception - August 8, 1997)
Beginning of period _ _ _ _ _ _ _ _ _ _
End of period _ _ _ _ _ _ _ _ _ _
Units outstanding at end of period _ _ _ _ _ _ _ _ _ _
OCC ACCUMULATION TRUST:
EQUITY PORTFOLIO
(sub-account inception - August 8, 1997)
Beginning of period _ _ _ _ _ _ _ _ _ _
End of period _ _ _ _ _ _ _ _ _ _
Units outstanding at end of period _ _ _ _ _ _ _ _ _ _
GLOBAL EQUITY PORTFOLIO
(sub-account inception - August 8, 1997)
Beginning of period _ _ _ _ _ _ _ _ _ _
End of period _ _ _ _ _ _ _ _ _ _
Units outstanding at end of period _ _ _ _ _ _ _ _ _ _
MANAGED PORTFOLIO
(sub-account inception - August 8, 1997)
Beginning of period _ _ _ _ _ _ _ _ _ _
End of period _ _ _ _ _ _ _ _ _ _
Units outstanding at end of period _ _ _ _ _ _ _ _ _ _
SMALL CAP PORTFOLIO
(sub-account inception - August 8, 1997)
Beginning of period _ _ _ _ _ _ _ _ _ _
End of period _ _ _ _ _ _ _ _ _ _
Units outstanding at end of period _ _ _ _ _ _ _ _ _ _
PUTNAM VARIABLE TRUST:
PUTNAM VT DIVERSIFIED INCOME FUND
(sub-account inception - May 2, 1994)
Beginning of period $11.5741 $ 9.8430 $10.0000 _ _ _ _ _ _ _
End of Period $12.4289 $11.5741 $ 9.8430 _ _ _ _ _ _ _
Units outstanding at end of period 52,723 57,511 16,459 _ _ _ _ _ _ _
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUB-ACCOUNT INVESTING IN 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PUTNAM VT GROWTH AND INCOME FUND
(sub-account inception - May 2, 1994)
Beginning of period.............. $13.6691 $10.1294 $10.0000 _ _ _ _ _ _ _
End of Period.................... $16.4471 $13.6691 $10.1294 _ _ _ _ _ _ _
Units outstanding at end of period 278,066 140,310 34,789 _ _ _ _ _ _ _
PUTNAM VT UTILITIES GROWTH
AND INCOME FUND
(sub-account inception - May 2, 1994)
Beginning of period.............. $12.5909 $9.7315 $10.0000 _ _ _ _ _ _ _
End of Period.................... $14.3893 $12.5909 $9.7315 _ _ _ _ _ _ _
Units outstanding at end of period 59,940 56,662 11,486 _ _ _ _ _ _ _
PUTNAM VT VOYAGER FUND
(sub-account inception - May 2, 1994)
Beginning of period.............. $14.5313 $10.4653 $10.0000 _ _ _ _ _ _ _
End of Period.................... $16.2011 $14.5313 $10.4653 _ _ _ _ _ _ _
Units outstanding at end of period 551,786 280,197 84,232 _ _ _ _ _ _ _
</TABLE>
<PAGE>
PERFORMANCE INFORMATION
From time to time, the Company may advertise or include in sales
literature yields, effective yields, and total returns for the available
Sub-Accounts. THESE FIGURES ARE BASED ON HISTORICAL EARNINGS AND DO NOT INDICATE
OR PROJECT FUTURE PERFORMANCE. Each Sub-Account may, from time to time,
advertise or include in sales literature performance relative to certain
performance rankings and indices compiled by independent organizations. More
detailed information as to the calculation of performance information, as well
as comparisons with unmanaged market indices, appears in the Statement of
Additional Information.
Effective yields and total returns for the Sub-Accounts are based on
the investment performance of the corresponding portfolios of the Investment
Funds. The performance in part reflects the Investment Funds' expenses. See the
Prospectuses for the Investment Funds.
The yield of the Sub-Account investing in Fidelity's VIP Money Market
Portfolio refers to the annualized income generated by an investment in the
Sub-Account over a specified seven-day period. The yield is calculated by
assuming that the income generated for that seven-day period is generated each
seven-day period over a 52-week period and is shown as a percentage of the
investment. The effective yield is calculated similarly but, when annualized,
the income earned by an investment in the Sub-Account is assumed to be
reinvested. The effective yield will be slightly higher than the yield because
of the compounding effect of this assumed reinvestment.
The yield of a Sub-Account (except the Money Market Sub-Account
investing in the VIP Money Market Portfolio) refers to the annualized income
generated by an investment in the Sub-Account over a specified 30-day or
one-month period. The yield is calculated by assuming that the income generated
by the investment during that 30-day or one-month period is generated each
period over a 12-month period and is shown as a percentage of the investment.
The total return of a Sub-Account refers to return quotations assuming
an investment under a Contract has been held in the Sub-Account for various
periods of time including, but not limited to, a period measured from the date
the Sub-Account commenced operations. When a Sub-Account has been in operation
for one, five, and ten years, respectively, the total return for these periods
will be provided. For periods prior to the date the Sub-Account commenced
operations, performance information for Contracts funded by the Sub-Accounts
will be calculated based on the performance of the Investment Funds' portfolio's
and the assumption that the Sub-Accounts were in existence for the same periods
as those indicated for the Investment Funds' portfolios, with the level of
Contract charges that were in effect at the inception of the Sub-Accounts for
the Contracts.
The average annual total return quotations represent the average annual
compounded rates of return that would equate an initial investment of $1,000
under a Contract to the redemption value of that investment as of the last day
of each of the periods for which total return quotations are provided. Average
annual total return information shows the average percentage change in the value
of an investment in the Sub-Account from the beginning date of the measuring
period to the end of that period. This version of average annual total return
reflects all historical investment results, less all charges and deductions
applied against the Sub-Account (including any surrender charge that would apply
if an Owner terminated the Contract at the end of each period indicated, but
excluding any deductions for premium taxes.)
Average total return information may be presented and computed on the
same basis as described above, except deductions will not include the surrender
charge. In addition, the Company may from time to time disclose average annual
total return in non-standard formats and cumulative total return for Contracts
funded by the Sub-Accounts.
The Company may, from time to time, also disclose yield and total
returns for the portfolios of the Investment Funds, including such disclosure
for periods prior to the dates the Sub-Accounts commenced operations.
For additional information regarding the calculation of other
performance data, please refer to the Statement of Additional Information.
<PAGE>
In advertising and sales literature, the performance of each
Sub-Account may be compared to the performance of other variable annuity issuers
in general or to the performance of particular types of variable annuities
investing in mutual funds, or investment series of mutual funds with investment
objectives similar to each of the Sub-Accounts. Lipper Analytical Services, Inc.
("Lipper") and the Variable Annuity Research Data Service ("VARDS") are
independent services which monitor and rank the performance of variable annuity
issuers in each of the major categories of investment objectives on an
industry-wide basis.
Lipper's rankings include variable life insurance issuers as well as
variable annuity issuers. VARDS rankings compare only variable annuity issuers.
The performance analyses prepared by Lipper and VARDS each rank such issuers on
the basis of total return, assuming reinvestment of distributions, but do not
take sales charges, redemption fees, or certain expense deductions at the
separate account level into consideration. In addition, VARDS prepares risk
adjusted rankings, which consider the effects of market risk on total return
performance. This type of ranking provides data as to which funds provide the
highest total return within various categories of funds defined by the degree of
risk inherent in their investment objectives.
Advertising and sales literature may also compare the performance of
each Sub-Account to the Standard & Poor's Composite Index of 500 Stocks, a
widely used measure of stock performance. This unmanaged index assumes the
reinvestment of dividends but does not reflect any "deduction" for the expense
of operating or managing an investment portfolio. Other independent ranking
services and indices may also be used as a source of performance comparison.
The Company may also report other information including the effect of
tax-deferred compounding on a Sub-Account's investment returns, or returns in
general, which may be illustrated by tables, graphs, or charts. All income and
capital gains derived from Sub-Account investments are reinvested and can lead
to substantial long-term accumulation of assets, provided that the underlying
portfolio's investment experience is positive.
THE COMPANY
The Company, organized in 1885, is a stock life insurance company
incorporated under the laws of the State of Minnesota. Effective January 3,
1989, the Company converted from a stock and mutual life insurance company to a
stock life insurance company and, through a merger became a direct, wholly-owned
subsidiary of ReliaStar Financial Corp., a holding company incorporated under
the laws of the State of Delaware. The Company offers individual life insurance
and annuities, employee benefits, and retirement contracts. The Company is
admitted to do business in the District of Columbia and all states except New
York. Its home office is at 20 Washington Avenue South, Minneapolis, Minnesota
55401 (telephone 612/372-5507).
The Contracts described in this Prospectus are nonparticipating. The
capital and surplus of the Company should be considered as bearing only upon the
ability of the Company to meet its obligations under the Contracts.
THE VARIABLE ACCOUNT
The Variable Account is a Separate Account of the Company established
by the Board of Directors of the Company on November 12, 1981, pursuant to the
laws of the State of Minnesota. The Company has caused the Variable Account to
be registered with the Securities and Exchange Commission as a unit investment
trust under the Investment Company Act of 1940. Such registration does not
involve supervision by such Commission of the management or investment policies
or practices of the Variable Account, the Company or the Funds.
The assets of the Variable Account are owned by the Company, and the
Company is not a trustee with respect to such assets. However, the Minnesota
laws under which the Variable Account was established provide that the Variable
Account shall not be chargeable with liabilities arising out of any other
business the Company may conduct. The Company does not guarantee the investment
performance of the Variable Account. The Contract Value and the amount of
annuity payments will vary, primarily based on the investment performance of the
Funds whose shares are held in the Variable Account Sub-Accounts selected by the
Owner.
<PAGE>
Purchase payments allocated to the Variable Account under a Contract
are invested in one or more Sub-Accounts of the Variable Account. These
Sub-Accounts are divided into Sub-Accounts for Contracts issued to or in
connection with Qualified Plans and Sub-Accounts for all other Contracts. Each
Sub-Account is invested in shares of one of the Investment Funds on the list of
Investment Funds provided by the Company. The purchase payments under a Contract
are allocated to the Sub-Account or Sub-Accounts selected by the Owner, and the
future Variable Account Contract Value depends primarily on the investment
performance of the Investment Funds whose shares are held in the Sub-Accounts
selected.
Shares of the Funds are also available to separate accounts for other
types of variable contracts. Although we do not foresee that this will cause any
disadvantages to Owners, for a brief explanation of the conflicts that may be
involved in such situations, refer to the prospectus for each Fund.
INVESTMENTS OF THE VARIABLE ACCOUNT
When a Contract is applied for, the Owner may elect to have purchase
payments allocated to one or more Sub-Accounts each of which invests in shares
of one of the Investment Funds on the list provided by the Company. The
Sub-Accounts invest in shares of the Investment Funds at their net asset value,
subject to any minimum purchase requirements that may be imposed by the
Investment Funds. The Owner may change a purchase payment allocation for future
purchase payments and may at any time transfer all or part of any existing
values in a Sub-Account to another Sub-Account that invests in shares of another
Investment Fund on the list, subject to any terms and conditions the Investment
Funds may impose on transfers from one Investment Fund to another in addition to
transfer requirements under the Contract.
There are currently thirty-one Sub-Accounts, each of which invests in
shares of one of the Funds. The Company reserves the right, subject to
compliance with applicable law, to offer additional Sub-Accounts, each of which
could invest in a new Fund with a specified investment objective. However, each
Contract Owner is limited to participating in a maximum of seventeen
Sub-Accounts over the lifetime of the Contract. The Contract Owner is not
required to select the Sub-Accounts in advance, but upon reaching participation
in seventeen Sub-Accounts since the issue of the Contract, the Contract Owner
would only be able to transfer within the seventeen Sub-Accounts already
selected and which are still available under the Variable Account.
For example, assume a Contract Owner selects seven Sub-Accounts. Later,
the Contract Owner transfers out of all of the initial seven selections and
chooses ten different Sub-Accounts none of which are the same as the original
seven selections The Contract Owner has now used the maximum selection of
seventeen Sub-Accounts. The Contract Owner may still allocate Purchase Payment
or transfer Contract Values among any of the seventeen Sub-Accounts that were
previously selected. However, the Contract Owner may not allocate funds to the
remaining Sub-Accounts at any time. A Contract Owner may transfer partial or
complete Contract Values from the Variable Account to the Fixed Account at any
time.
The following are the investment advisers for the Investment Funds
offered through the Contract. The advisers are paid fees for their services by
the Funds they manage. Fred Alger Management, Inc. is the investment adviser for
the three portfolios of The Alger American Fund. Fidelity Management & Research
Company ("FMR") is the investment adviser for the nine portfolios of Fidelity's
Variable Insurance Products Funds I and II (VIP and VIP II); Janus Capital
Corporation ("Janus Capital") is the investment adviser for the four portfolios
of Janus Aspen Series; Neuberger&Berman Management is the investment adviser for
the two portfolios of the Advisers Management Trust; Northstar Investment
Management Corporation is the investment adviser for the five funds of the
Northstar Variable Trust; OpCap Advisors is the investment adviser for the four
portfolios of the OCC Accumulation Trust; and Putnam Management is the
investment adviser for the four portfolios of Putnam Variable Trust.
The Company has entered into service agreements with the managers or
distributors of certain of the Funds pursuant to which the company or its
affiliates may receive from affiliates of the Funds compensation for providing
administrative, record keeping, or distribution services to the Funds or their
affiliates. Such compensation is paid based upon aggregated net asset goals.
Currently, the Company has service arrangements with Fred Alger Management,
Inc., Fidelity Management & Research Company, Janus Capital, Neuberger&Berman
Management, and OpCap Advisors.
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The Investment Funds currently offered, together with their investment
objectives, are briefly described below. More detailed information concerning
the investment objectives, policies and restrictions pertaining to the
Investment Funds and the expenses, investment advisory services and charges and
the risks attendant to investing in the portfolios of the Investment Funds and
other aspects of their operations can be found in the current prospectus for
each Investment Fund which accompany this Prospectus in a book entitled
"Select*Product Mutual Funds," and in the current Statement of Additional
Information for each Investment Fund. The Investment Fund prospectuses should be
read carefully before any decision is made concerning the allocation of premium
payments or transfers among the Sub-Accounts.
THE ALGER AMERICAN FUND:
ALGER AMERICAN GROWTH PORTFOLIO has the investment objective of long
term capital appreciation. Except during temporary defensive periods, the
Portfolio invests at least 65% of its total assets in equity securities of
companies that, at the time of purchase of the securities, have total market
capitalization of $1 billion or greater. The Portfolio may invest up to 35% of
its total assets in equity securities companies that, at the time of purchase,
have total market capitalization of less than $1 billion.
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO has the investment objective of
long term capital appreciation. Except during temporary defensive periods, the
Portfolio invests at least 65% of its total assets in equity securities of
companies that, at the time of purchase of the securities, have total market
capitalization within the range of companies included in the S&P MidCap 400
Index, updated quarterly. The S&P MidCap 400 Index is designed to track the
performance of medium capitalization companies. The Portfolio may invest up to
35% of its total assets in equity securities of companies that, at the time of
purchase, have total market capitalization outside the range of companies
included in the S&P Mid-Cap 400 Index and in excess of that amount (up to 100%
of its assets) during temporary defensive periods.
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO has the investment
objective of long term capital appreciation. Except during temporary defensive
periods, the Portfolio invests at least 65% of its total assets in equity
securities of companies that, at the time of purchase, have "total market
capitalization" - present market value per share multiplied by the total number
of shares outstanding - within the range of companies included in the Russell
2000 Growth Index ("Russell Index") or the S&P Small Cap 600 Index ("S&P
Index"). Both indexes are broad indexes of small capitalization stocks. The
Portfolio may invest up to 35% of its total assets in equity securities of
companies that, at the time of purchase, have total market capitalization
outside of the combined range of these indices, and in excess of that amount (up
to 100% of its assets) during temporary defensive periods.
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND (VIP):
EQUITY-INCOME PORTFOLIO seeks reasonable income by investing primarily
in income-producing equity securities. In choosing these securities the
portfolio will also consider the potential for capital appreciation. The
portfolio's goal is to achieve a yield which exceeds the composite yield on the
securities comprising the Standard & Poor's Composite Index of 500 Stocks.
GROWTH PORTFOLIO seeks to achieve capital appreciation. The portfolio
normally purchases common stocks, although its investments are not restricted to
any one type of security. Capital appreciation may also be found in other types
of securities, including bonds and preferred stocks.
HIGH INCOME PORTFOLIO seeks to obtain a high level of current income by
investing primarily in lower-rated, fixed-income securities (sometimes referred
to as "junk bonds"), while also considering growth of capital. Lower-rated,
fixed-income securities are considered speculative and involve greater risk of
default than higher-rated, fixed-income securities and are more sensitive to the
issuer's capacity to pay. Consult the VIP prospectus for further information on
the risks associated with the portfolio's investment in lower-rated, fixed
income securities.
MONEY MARKET PORTFOLIO seeks to obtain as high a level of current
income as is consistent with preserving capital and providing liquidity. The
portfolio will invest only in high-quality U.S. dollar denominated money market
instruments of
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domestic and foreign issuers. An investment in the portfolio is not insured or
guaranteed by the U.S. Government, and there can be no assurance that the
portfolio will maintain a stable asset value per share of $1.00.
OVERSEAS PORTFOLIO seeks long term growth of capital primarily through
investments in foreign securities. Overseas Portfolio provides a means for
investors to diversify their own portfolios by participating in companies and
economies outside of the United States.
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II (VIP II):
ASSET MANAGER PORTFOLIO seeks high total return with reduced risk over
the long-term by allocating its assets among domestic and foreign stocks, bonds
and short-term, fixed-income instruments.
CONTRAFUND PORTFOLIO seeks capital appreciation by investing in
companies believed to be undervalued due to an overly pessimistic appraisal by
the public. The portfolio invests primarily in common stock and securities
convertible into common stock, but it has the flexibility to invest in any type
of security that may produce capital appreciation.
INDEX 500 PORTFOLIO seeks to provide investment results that correspond
to the total return (i.e., the combination of capital changes and income) of
common stocks publicly traded in the United States. In seeking this objective,
the portfolio attempts to duplicate the composition and total return of the
Standard & Poor's Composite Index of 500 Stocks while keeping transaction costs
and other expenses low. The portfolio is designed as a long-term investment
option.
INVESTMENT GRADE BOND PORTFOLIO seeks as high a level of current income
as is consistent with the preservation of capital by investing in a broad range
of investment-grade, fixed-income securities.
JANUS ASPEN SERIES:
AGGRESSIVE GROWTH PORTFOLIO is a nondiversified fund that seeks
long-term growth of capital by investing primarily in common stocks. The
Portfolio intends to normally invest at least 50% of its equity assets in
securities issued by medium-sized companies.
GROWTH PORTFOLIO is a diversified fund that seeks long-term growth of
capital in a manner consistent with the preservation of capital by investing in
common stocks of issuers of any size. Generally, this Portfolio emphasizes
issuers with larger market capitalizations.
INTERNATIONAL GROWTH PORTFOLIO is a diversified fund that seeks
long-term growth of capital by investing primarily in common stocks of foreign
issuers of any size. The Portfolio normally invests at least 65% of its total
assets in issuers from at least five different countries excluding the United
States.
WORLDWIDE GROWTH PORTFOLIO is a diversified fund that seeks long-term
growth of capital in a manner consistent with the preservation of capital by
investing primarily in common stocks of foreign and domestic issuers of any
size. Worldwide Growth Portfolio normally invests in issuers from at least five
different countries including the United States.
NEUBERGER&BERMAN ADVISERS MANAGEMENT TRUST ("AMT"):
LIMITED MATURITY BOND PORTFOLIO seeks to provide the highest current
income consistent with low risk to principal and liquidity; and secondarily,
total return. It invests in a diversified portfolio, primarily consisting of
U.S. Government and Agency securities and investment grade debt securities
issued by financial institutions, corporations, and others. "Investment grade"
debt securities are those receiving one of the four highest ratings from Moody's
Investors Service, Inc. ("Moody's"), Standard & Poor's Rating Group ("S&P"), or
another nationally recognized statistical rating organization. Securities in
which the portfolio may invest include mortgage-backed and asset backed
securities, repurchase agreements with respect to U.S. Government and Agency
securities, and foreign investments. The portfolio may also invest in fixed,
variable or inflation-indexed debt securities.
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PARTNERS PORTFOLIO seeks capital growth through an investment approach
that is designed to increase capital with reasonable risk. It invests in a
portfolio, which in turn invests principally in common stocks of medium to large
capitalization established companies, using a value-oriented approach.
Neuberger&Berman Management looks for securities believed to be undervalued
based on strong fundamentals, including a low price-to-earnings ratio,
consistent cash flow, and the company's track record through all parts of the
market cycle. Up to 15% of the portfolio's net assets, measured at the time of
investment may be invested in corporate debt securities that are below
investment grade or in comparable unrated securities. Securities rated below
investment grade, as well as comparable unrated securities, are often considered
to be speculative and usually entail greater risk.
NORTHSTAR VARIABLE TRUST (NORTHSTAR):
NORTHSTAR GROWTH FUND is a diversified portfolio with an investment
objective of long-term growth of capital through investments in equity
securities of companies that are believed to provide above average potential for
capital appreciation. Navellier Fund Management, Inc. serves as sub-adviser to
the Fund and is responsible for the day-to-day investment management of the
Fund, subject to the supervision of the investment adviser and the Trustees of
the Fund. All fees and expenses of the subadvisory arrangement are borne by the
investment adviser.
NORTHSTAR HIGH YIELD BOND FUND is a diversified portfolio with an
investment objective of seeking high income consistent with the preservation of
capital. Under normal market conditions, this Investment Fund invests
predominantly in high-yield, high-risk, lower-rated U.S. dollar denominated debt
securities. These securities are commonly known as "junk bonds." Most of the
securities in which the Investment Fund invests are rated, at the time of
investment, at least Caa by Moody's Investors Service, Inc. ("Moody's") or CCC
by Standard & Poor's Corporation ("S&P") or, if not rated, are of comparable
quality in the opinion of the investment adviser. The Investment Fund may,
however, invest in securities in the lowest ratings categories of Moody's and
S&P, which arc "C" in the case of Moody's and "D" in the case of S&P.
NORTHSTAR INCOME AND GROWTH FUND is a diversified portfolio with an
investment objective of seeking current income balanced with the objective of
achieving capital appreciation. This Fund will seek to achieve its objective
through investments in common and preferred stocks, convertible securities,
investment grade corporate debt securities and government securities, selected
for their prospects of producing income and capital appreciation. Wilson/Bennett
Capital Management, Inc. ("Wilson/Bennett") is the sub-adviser to this Fund and
is responsible for the day-to-day investment management of the Fund, subject to
the supervision of the investment adviser and the Trustees of the Fund. All fees
and expenses of the subadvisory arrangement are borne by the investment adviser.
NORTHSTAR INTERNATIONAL VALUE FUND is a diversified portfolio with the
objective of long-term capital appreciation. The Fund invests primarily in
equity securities of foreign companies with a market capitalization of greater
than $1 billion, but may hold up to 25% of its assets in companies with smaller
market capitalization. It generally invests at least 65% of its total assets in
equities of issuers located in at least three countries other than the U. S.,
including Western Europe, North and South America, Australia, Asia and other
nations. Brandes Investment Partners, L.P. ("Brandes") is the sub-adviser to
this Fund and is responsible for the day-to-day investment management of the
Fund, subject to the supervision of the investment adviser and the Trustees of
the Fund. All fees and expenses of the sub-advisory agreement are borne by the
investment adviser.
NORTHSTAR MULTI-SECTOR BOND FUND is a diversified portfolio with an
investment objective of maximizing current income. This Fund will seek to
achieve its objective by investment in the following sectors of the fixed income
securities markets: (a) securities issued or guaranteed as to principal and
interest by the U.S. Government, its agencies, authorities or instrumentalities;
(b) investment grade corporate debt securities; (c) investment grade or
comparable quality debt securities issued by foreign corporate issuers, and
securities issued by foreign governments and their political subdivisions,
limited to 35% of assets determined at the time of investment; and (d)
high-yield, high-risk fixed income securities of U.S. and foreign issuers,
limited to 50% of assets determined at the time of investment.
<PAGE>
OCC ACCUMULATION TRUST:
EQUITY PORTFOLIO seeks long term capital appreciation through
investment in securities (primarily equity securities) of companies that are
believed by the Manager to be undervalued in the marketplace in relation to
factors such as the companies' assets or earnings. It is the manager's intention
to invest in securities of companies which in the Manager's opinion possess one
or more of the following characteristics: undervalued assets, valuable consumer
or commercial franchises, securities valuation below peer companies, substantial
and growing cash flow and/or a favorable price to book value relationship. The
Portfolio will invest primarily in stocks listed on the New York Stock exchange.
In addition, it may also purchase securities listed on other domestic securities
exchanges, securities traded in the domestic over-the-counter market and foreign
securities provided that they are listed on a domestic or foreign securities
exchange or represented by American depository receipts listed on a domestic
securities exchange or traded in domestic or foreign over-the-counter markets.
GLOBAL EQUITY PORTFOLIO seeks long term capital appreciation through
pursuit of a global investment strategy primarily involving equity securities.
The Portfolio may invest anywhere in the world with no requirement that any
specific percentage of its assets be committed to any given country. Under
normal circumstances, at least 65 percent of the Portfolio's total assets will
be invested in equity securities in at least three different countries, one of
which may be the United States. Opportunities for capital appreciation may also
be presented by debt securities. The Portfolio may invest up to 35 percent of
its total assets in debt obligations with remaining maturities of one year or
more of U.S. or foreign corporate, governmental or bank issuers. It is the
present intention of the Portfolio, although not a fundamental policy, not to
invest more than 5 percent of its total assets in debt securities rated below
investment-grade. Although there is no minimum rating for this category of debt
instruments, the Portfolio does not intend to invest in bonds which are in
default.
MANAGED PORTFOLIO seeks to achieve growth of capital over time through
investment in a portfolio consisting of common stocks, bonds and cash
equivalents, the percentages of which will vary based on the Manager's
assessments of the relative outlook for such investments. In seeking to achieve
its investment objective, the types of equity securities in which the Portfolio
may invest are likely to be the same as those in which the Equity Portfolio
invests, although securities of the type in which the Small Cap Portfolio
invests may, to a lesser extent, be included. Debt securities are expected to be
predominately investment grade intermediate to long term U.S. Government and
corporate debt, although the Portfolio will also invest in high quality short
term money market and cash equivalent securities and may invest almost all of
its assets in such securities when the Manager deems it advisable in order to
preserve capital. In addition, the Portfolio may also purchase foreign
securities provided that they are listed on a domestic or foreign securities
exchange or are represented by American depository receipt listed on a domestic
securities exchange or traded in domestic or foreign over-the counter markets.
SMALL CAP PORTFOLIO seeks capital appreciation through investments in a
diversified portfolio consisting primarily of equity securities of companies
with market capitalizations of under $1 billion. The Portfolio may purchase
securities in initial public offerings, or shortly after such offerings have
been completed, when the Manager believes that such securities have
greater-than-average market appreciation potential. Under normal circumstances
at least 65% of the Portfolio's assets will be invested in equity securities.
The majority of securities purchased by the Portfolio will be traded on the New
York Stock Exchange, the American Stock Exchange or in the over-the-counter
market, and will also include options, warrants, bonds, notes and debentures
which are convertible into or exchangeable for, or which grant a right to
purchase or sell securities. In addition, the Portfolio may also purchase
foreign securities provided that they are listed on a domestic or foreign
securities exchange or are represented by American depository receipts listed on
a domestic securities exchange or traded in domestic or foreign over-the counter
markets.
PUTNAM VARIABLE TRUST:
PUTNAM VT DIVERSIFIED INCOME FUND seeks high current income consistent
with capital preservation by investing in the following three sectors of the
fixed income securities markets: a U.S. Government Sector, a High Yield Sector
(which invests primarily in securities that are commonly known as "junk bonds"),
and an International Sector. Consult the Putnam Variable Trust Prospectus for
further information on the risks associated with this Fund's investments in
high-yield, higher-risk fixed income securities.
<PAGE>
PUTNAM VT GROWTH AND INCOME FUND seeks capital growth and current
income by investing primarily in common stocks that offer potential for capital
growth, current income, or both.
PUTNAM VT UTILITIES GROWTH AND INCOME FUND seeks capital growth and
current income by concentrating its investments in debt and equity securities
issued by companies in the public utilities industries.
PUTNAM VT VOYAGER FUND seeks capital appreciation primarily from a
portfolio of common stocks of companies that Putnam Management believes have
potential for capital appreciation that is significantly greater than that of
market averages.
In the future, additional Investment Funds may be added to the list of
Investment Funds in which the assets of the Variable Account may be invested.
THERE IS NO ASSURANCE THAT THE STATED OBJECTIVES AND POLICIES OF ANY OF THE
INVESTMENT FUNDS WILL BE ACHIEVED.
An investment in the Variable Account, or in any portfolio of an
Investment Fund, including Fidelity's VIP Money Market Portfolio, is not insured
or guaranteed by the U.S. Government, and there can be no assurance that
Fidelity's VIP Money Market Portfolio will be able to maintain a stable net
asset value of $1.00 per share.
The Investment Funds are available to registered separate accounts of
the Company and of insurance companies, other than the Company, offering
variable annuity contracts and variable life insurance policies.
The Company currently does not foresee any disadvantages to Owners
resulting from the Investment Funds selling shares to fund products other than
the Contracts. However, there is a possibility that a material conflict may
arise between Owners whose Contract Values are allocated to the Variable Account
and the owners of variable life insurance policies and variable annuity
contracts issued by the Company or by such other companies whose assets are
allocated to one or more other separate accounts investing in any one of the
Investment Funds. In the event of a material conflict, the Company will take any
necessary steps, including removing the Variable Account from that Investment
Fund, to resolve the matter. The Board of Directors or Trustees of each
Investment Fund will monitor events in order to identify any material conflicts
that possibly may arise and determine what action, if any, should be taken in
response to those events or conflicts. See each individual Investment Fund
prospectus for more information.
REINVESTMENT
The Investment Funds described above have as a policy the distribution
of income dividend and capital gains. However, under the Contracts described in
this Prospectus there is an automatic reinvestment of such distributions.
SUBSTITUTION OF INVESTMENT FUND SHARES
The Company reserves the right to establish additional Sub-Accounts of
the Variable Account, each of which could invest in a new fund with a specified
investment objective. If the shares of any of the Investment Funds should no
longer be available for investment by a Sub-Account or if in the judgment of the
Company's management investment in such Investment Fund shares has become
inappropriate in view of the purposes of the Contract, the Company may
substitute shares of another Investment Fund for Investment Fund shares already
purchased. No substitution of shares in any Sub-Account may take place without a
prior favorable vote of a majority of the votes entitled to be cast by persons
having a voting interest in the Investment Fund shares allocated to such
Sub-Account and prior approval of the Securities and Exchange Commission.
If a purchase payment for a selected Sub-Account is unable to be
invested because shares of the applicable Investment Fund are no longer
available for investment or if in the judgment of the Company's management
further investment in such Investment Fund shares would be inappropriate in view
of the purposes of the Contract, the Owner will
<PAGE>
be so notified and may direct investment of the purchase payment in a different
Sub-Account, which investment will be made on the next Valuation Date after such
direction is received by the Company. Until receipt of such direction, the
purchase payment will be invested in shares of Fidelity's VIP Money Market
Portfolio.
The Company currently plans to discontinue offering certain of the
Funds as investment options. It is anticipated that this will occur in the first
half of 1998, subject to and contingent upon receipt of various approvals. It is
expected that any Contract Owner monies that are invested in sub-accounts
investing in the discontinued Funds will be transferred to alternate Funds with
similar investment objectives. The proposed discontinued and transferee Funds
are as follows: Fidelity's VIP II Asset Manager Portfolio to OCC Managed
Portfolio; Fidelity's VIP Overseas Portfolio to Northstar International Value
Fund; Putnam VT Asia Pacific Fund to Janus Worldwide Growth Portfolio; Putnam VT
Utilities Growth and Income Fund to Putnam VT Growth Fund; Putnam VT New
Opportunity Fund to Putnam VT Voyager Fund. Contract Owners who have investments
in any of discontinued Funds will be permitted for a period of 30 days to
transfer their investment into a non-discontinued Fund without payment of any
transfer charge.
CHARGES MADE BY THE COMPANY
SURRENDER CHARGE (CONTINGENT DEFERRED SALES CHARGE)
No deduction for a sales charge is made from the purchase payments for
the Contracts. However, the surrender charge described below (which may be
deemed a contingent deferred sales charge), when it is applicable, is intended
to reimburse the Company for expenses relating to the sale of the Contracts,
including commissions to sales personnel, costs of sales material and other
promotional activities and sales administration costs. Commissions and other
distribution compensation to be paid on the sale of the Contracts will not be
more than 7.00% of the purchase payments.
If part or all of a Contract's value is surrendered, surrender charges
may be made by the Company. For purposes of the following surrender charge
description, "New Purchase Payments" are those Contract purchase payments
received by the Company during the Contract Year in which the surrender occurs
or in the four immediately preceding Contract Years; "Old Purchase Payments" are
those Contract purchase payments not defined as New Purchase Payments; and
"Contract Earnings" at any Valuation Date is the Contract Value less the sum of
New Purchase Payments and Old Purchase Payments.
For purposes of determining surrender charges, surrenders shall first
be taken from Old Purchase Payments until they are exhausted, then from New
Purchase Payments until they are exhausted, and thereafter from Contract
Earnings.
The following amounts ("Free Surrenders") are not subject to a
surrender charge during any Contract Year: (a) any Old Purchase Payments not
already surrendered; (b) 10% of all New Purchase Payments that have been
received by the Company (however, this does not apply to surrenders made during
the first Contract Year); and (c) any Contract Earnings being surrendered.
Partial surrenders may be made in an amount not greater than the sum of
the following: (a) amounts eligible for a Free Surrender (including Contract
Earnings); and (b) 95% of New Purchase Payments not eligible for a Free
Surrender. In the event of a partial surrender, the amount of the partial
surrender subject to a surrender charge will be determined by dividing the
amount being surrendered which is not eligible for a Free Surrender by 0.95. The
surrender charge to be assessed by the Company in the event of a partial
surrender will be equal to 5% of the amount of the partial surrender subject to
a surrender charge determined as described in the preceding sentence.
In the event of a total surrender of a Contract for its full value, the
surrender charge to be assessed by the Company will be equal to 5% of the amount
being surrendered which is not eligible for a Free Surrender.
If the surrender charge is less than the Contract Value that remains
immediately after surrender, it will be deducted proportionately from the
Sub-Accounts that make up such Contract Value. If the surrender charge is more
than such remaining Contract Value, the portion of the surrender charge that can
be deducted from such remaining Contract Value will be so deducted and the
balance will be deducted from the surrender payment. In computing surrenders,
any portion of a surrender charge that is deducted from the remaining Contract
Value will be deemed a part of the surrender.
<PAGE>
ADMINISTRATIVE CHARGE
Each year on the Contract Anniversary, the Company deducts from the
Contract Value an annual administrative charge of $30. In any Contract Year when
a Contract is surrendered for its full value on other than the Contract
Anniversary, the administrative charge will be deducted at the time of such
surrender. During the annuity period the annual administrative charge will be
divided by the number of payments to be made in a twelve-month period and the
resulting amount will be deducted from each payment.
MORTALITY RISK PREMIUM
The variable annuity payments made to Annuitants will vary in
accordance with the investment performance of the Sub-Accounts selected by the
Owner. However, they will not be affected by the mortality experience (death
rate) of persons receiving annuity payments from the Variable Account. The
Company assumes this "mortality risk" and has guaranteed the annuity rates
incorporated in the Contract, which cannot be changed.
To compensate the Company for assuming this mortality risk and the
mortality risk that Beneficiaries of Annuitants dying before the Annuity
Commencement Date may receive amounts in excess of the then current Contract
Value (see "Death Benefit Before the Annuity Commencement Date" on page 28), the
Company deducts a Mortality Risk Premium from the Variable Account Contract
Value. The deduction is made daily in an amount that is equal to an annual rate
of 0.9% of the daily Contract Values under the Variable Account. The Company may
not change the rate charged for the Mortality Risk Premium under any Contract.
EXPENSE RISK CHARGE
The Company will not increase charges for administrative expenses
regardless of its actual expenses. To compensate the Company for assuming this
expense risk, the Company deducts an Expense Risk Charge from Variable Account
Contract Value. The deduction is made daily in an amount that is equal to an
annual rate of 0.4% of the daily Variable Account Contract Values. The Company
may not change the rate of the Expense Risk Charge under any Contract.
PREMIUM TAXES
Various states and other governmental entities levy a premium tax,
currently ranging up to 3.50%, on annuity contracts issued by insurance
companies. If the Owner of the Contract lives in a governmental jurisdiction
that levies such a tax, the Company will deduct the amount of the tax either
from purchase payments as they are received or from the Contract Value applied
to an Annuity Form at the Annuity Commencement Date as required by applicable
law.
The current range of premium tax rates is a guide only and should not
be relied on to determine actual premium taxes on any purchase payment or
Contract because the taxes are subject to change from time to time by
legislative and other governmental action. The timing of tax levies also varies
from one taxing authority to another. Consequently, in many cases the purchaser
of a Contract will not be able to accurately determine the premium tax
applicable to the Contract by reference to the range of tax rates described
above.
EXPENSES OF THE INVESTMENT FUNDS
There are deductions from and expenses paid out of the assets of the
Investment Funds that are described in the accompanying prospectuses for the
Funds.
ADMINISTRATION OF THE CONTRACTS
The Company assumes the responsibilities of performing certain
administrative functions relating to the Contracts and the Variable Account.
These functions include, among other things, maintaining the books and records
of the Variable Account and the Sub-Accounts, and maintaining records of the
name, address, taxpayer identification number, Contract number, type of Contract
issued to each Owner, Contract Value and other pertinent information necessary
to the
<PAGE>
administration and operation of the Contracts. These administrative functions
are located at: the Variable Annuity Administration Center, P.O. Box 59218,
Minneapolis, Minnesota 55459-0218; Telephone 1-800-621-3750.
THE CONTRACTS
The Contracts described in this Prospectus are designed for retirement
plans which may or may not be Qualified Plans. Usually a single purchase payment
will be made for a deferred annuity, although subsequent purchase payments are
allowed under the Contract. The minimum amount the Company will accept as an
initial purchase payment is $2,500. However, if the Contract is purchased by or
in connection with a Qualified Plan, the minimum amount of purchase payments the
Company will accept during the first Contract Year will be $600, with no
individual payment of less than $50. The Company may choose not to accept any
subsequent purchase payment if it is less than $50 or if the purchase payment
together with the Contract Value at the next Valuation Date exceeds $250,000
(any such purchase payment not accepted by the Company will be refunded).
ALLOCATION OF PURCHASE PAYMENTS
Purchase payments may be allocated to the Fixed Account (see Appendix
A) and/or to Sub-Accounts of the Variable Account selected by the Owner.
Purchase payments will be allocated to the appropriate Sub-Accounts not
later than two business days after receipt, if the application and all
information necessary for processing the Contract are complete. The Company may
retain purchase payments for up to five business days while attempting to
complete an incomplete application. If the application cannot be made complete
within this period, the applicant will be informed of the reasons for the delay
and the purchase payment will be returned immediately unless the applicant
consents to retention of the payment by the Company until the application is
made complete. Thereafter the payment must be allocated within two business
days. For any subsequent purchase payments, the payments will be credited at the
Sub-Account Accumulation Unit Value next determined after receipt of the
purchase payment.
Upon allocation to Sub-Accounts of the Variable Account, a purchase
payment is converted into Accumulation Units of the Sub-Account. The amount of
the purchase payment allocated to a particular Sub-Account is divided by the
value of an Accumulation Unit for the Sub-Account to determine the number of
Accumulation Units of the Sub-Account to be held in the Variable Account with
respect to the Contract. The net investment results of each Sub-Account vary
primarily with the investment performance of the Investment Fund whose shares
are held in the Sub-Account.
In the event any Investment Fund in the future imposes a minimum
purchase requirement that is in excess of the aggregate of all purchase payments
received on any given day that are to be applied to the purchase of shares of
such Investment Fund, such purchase payments will be refunded.
SUB-ACCOUNT ACCUMULATION UNIT VALUE
Each Sub-Account Accumulation Unit was initially valued at $10 when the
first Investment Fund shares were purchased. Thereafter the value of each
Sub-Account Accumulation Unit will vary up or down according to a Net Investment
Factor, which is primarily based on the investment performance of the applicable
Investment Fund.
Investment Fund shares in the Sub-Accounts will be valued at their net asset
value.
Dividend and capital gain distributions from an Investment Fund will be
automatically reinvested in additional shares of such Investment Fund and
allocated to the appropriate Sub-Account. The number of Sub-Account Accumulation
Units does not increase because of the additional shares, but the Accumulation
Unit value may increase.
NET INVESTMENT FACTOR
The Net Investment Factor is an index number which is primarily based
on the investment performance during a Valuation Period of the Fund whose shares
are held in the particular Sub-Account. If the Net Investment Factor is greater
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than one, the value of a Sub-Account Accumulation Unit has increased. If the Net
Investment Factor is less than one, the value of a Sub-Account Accumulation Unit
has decreased. The Net Investment Factor is determined by dividing (1) by (2)
then subtracting (3) from the result, where:
(1) is the net result of:
(a) the net asset value per share of the Fund shares held
in the Sub-Account, determined at the end of the
current Valuation Period, plus
(b) the per share amount of any dividend or capital gain
distributions made on the Fund shares held in the
Sub-Account during the current Valuation Period, plus
or minus
(c) a per share charge or credit for any tax\es provided
for which the Company determines to have resulted
from the investment operations of the Sub-Account and
to be applicable to the Contract;
(2) is the net result of:
(a) the net asset value per share of the Fund shares held
in the Sub-Account, determined at the end of the last
prior Valuation Period, plus or minus
(b) a per share charge or credit for any taxes reserved
for during the last prior Valuation Period which the
Company determines to have resulted from the
investment operations of the Sub-Account and to be
applicable to the Contract; and
(3) is a factor representing the Mortality Risk Premium and
Expense Risk Charge deducted from the Sub-Account, which
factor is equal, on an annual basis, to 1.3% of the daily net
asset value of the Sub-Account.
DEATH BENEFIT BEFORE THE ANNUITY COMMENCEMENT DATE
If the Owner or primary Annuitant dies before the Annuity Commencement
Date, the Beneficiary will be entitled to receive the Contract Value as of the
Valuation Date next after the Company receives (a) proof of the Owner's or
primary Annuitant's death and (b) a written request from the Beneficiary for
either a single sum payment or an Annuity form. For this purpose the Contract
Value will be:
(1) if any Owner or primary Annuitant dies on or before the first
day of the month following the Annuitant's 75th birthday, the
greater of (i) the Contract Value at such Valuation Date, or
(ii) the sum of the purchase payments received by the Company
under the Contract to such Valuation Date, less any surrender
payments previously made by the Company; or
(2) if any Owner or primary Annuitant dies after the first day of
the month following the Annuitant's 75th birthday, the
Contract Value at such Valuation Date.
If a single sum is requested, it will be paid within seven days after
such Valuation Date. If an Annuity Form is requested, it may be any Annuity Form
the Owner could have selected before the Annuity Commencement Date, provided (a)
the payment schedule of the Annuity Form does not exceed the life expectancy of
the Beneficiary, (b) payment begins within 12 months from the date of the
Owner's or Annuitant's death, and (c) the Annuity Form is selected within eleven
months of the date of such death. An alternative selection is to commence
payment as in (b) above and have payments completed within 5 years. An Annuity
Form selection must be in writing and received by the Company within 90 days
after such Valuation Date, otherwise the Contract Value as of such Valuation
Date will be paid in a single sum to the Beneficiary and the Contract will be
canceled.
If the only Beneficiary is the Owner's surviving spouse, such spouse
may continue the Contract as the Owner, and then (1) select a single sum
payment, or (2) select any Annuity Form which does not exceed such spouse's life
expectancy.
<PAGE>
If the Beneficiary elects to receive annuity payments under an Annuity
Form, the amount and duration of payments may vary depending on the Annuity Form
selected and whether fixed and/or variable annuity payments are requested. (See
"Annuity Provisions" beginning on page 31.)
DEATH BENEFIT AFTER THE ANNUITY COMMENCEMENT DATE
If the Annuitant dies after the Annuity Commencement Date, the death
benefit shall be as stated in the Annuity Form in effect.
SURRENDER (REDEMPTION)
If a written request therefor from the Owner is received by the Company
before the Annuity Commencement Date, all or part of the Contract Value will be
paid to the Owner after deducting any applicable surrender charge and taxes.
(See "Surrender Charge (Contingent Deferred Sales Charge)" on page 25.) In
addition, if a total surrender occurs other than on a Contract Anniversary the
annual administrative charge will be deducted from the Contract Value before the
surrender payment is made. Surrenders must be consented to by each collateral
assignee and if in excess of $50,000 must be signature guaranteed by a member
firm of the New York, American, Boston, Midwest, Philadelphia, or Pacific Stock
Exchange, or by a commercial bank (not a savings bank) which is a member of the
Federal Deposit Insurance Corporation, or, in certain cases, by a member firm of
the National Association of Securities Dealers, Inc. that has entered into an
appropriate agreement with the Company.
The Company may require that the Contract be returned before a
surrender takes place. A surrender will take place on the next Valuation Date
after the requirements for surrender are completed and payment will be made
within seven days after such Valuation Date. If a surrender is partial and
unless the Owner requests the surrender to be made from the Fixed Account or
particular Sub-Accounts, the surrender payments will be taken proportionately
from the Fixed Account and all Sub-Accounts on a basis that reflects their
proportionate percentage of the Contract Value.
The Company may cancel the Contract on any Contract Anniversary, or if
such Contract Anniversary is not a Valuation Date on the next Valuation Date
thereafter, by paying to the Owner the Contract Value as of such Valuation Date
if such Contract Value after all charges is less than $1,000.
If this Contract is purchased as a "tax-sheltered annuity" under
Section 403(b) of the Internal Revenue Code (the "Code"), it is subject to
certain restrictions on redemption imposed by Section 403(b)(11) of the Code
(See "Tax Sheltered Annuities" on page 37). These restrictions on redemption are
imposed by the Variable Account and the Company in full compliance with and in
reliance upon the terms and conditions of a no-action letter issued by the
Office of Insurance Products and Legal Compliance of the Securities and Exchange
Commission to the American Council of Life Insurance (publicly available
November 28, 1988).
For tax purposes, surrender payments shall be deemed to be from
earnings and then gains until cumulative surrender payments equal all
accumulated earnings and gains, and thereafter from purchase payments received
by the Company. Consideration should be given to the tax implications of a
surrender prior to making a surrender request, including a surrender in
connection with a Qualified Plan.
TRANSFERS
Prior to the Annuity Commencement Date the Owner may request a transfer
in writing (or by telephone or facsimile if a telephone/fax authorization form
has been completed and is in effect), subject to any conditions the Investment
Funds whose shares are involved may impose, of all or part of a Sub-Account's
value to other Sub-Accounts or to the Fixed Account. The transfer will be made
by the Company on the first Valuation Date after the request for such a transfer
is received by the Company (provided that under certain circumstances large
transfers may be delayed until proceeds from related Investment Fund share
redemptions are received, which may be for up to seven days). There is no charge
for such a transfer, other than those that may be made by the Investment Funds.
To accomplish the transfer, the Variable Account will surrender Accumulation
Units in the particular Sub-Accounts and reinvest that value in Accumulation
Units of other
<PAGE>
particular Sub-Accounts appropriate for the Contract as directed in the request.
After the Annuity Commencement Date, the Annuitant may request transfer of
Annuity Unit values in the same manner and subject to the same requirements as
for an Owner-transfer of Sub-Account Accumulation Unit values.
Transfers may also be requested from the Fixed Account to the Variable
Account, provided, however, that (a) transfers may only be made during the
period starting 30 days before and ending 30 days after the Contract
Anniversary, and only one transfer may be made during each such period, (b) no
more than 50% of the Fixed Account Contract Value may be the subject of any such
transfer (unless the balance, after such transfer, would be less than $1,000, in
which case the full Fixed Account Contract Value may be transferred), and (c)
such transfer must involve at least $500 (or the total Fixed Account Contract
Value, if less).
TELEPHONE/FAX INSTRUCTIONS
An Owner is allowed to enter certain types of instructions either by
telephone or by fax if the Owner completes a telephone/fax instruction
authorization form. If the Owner completes the form, the Owner can enter the
following types of instructions by telephone or fax: transfers between funds,
withdrawals, changes of allocations among fund options, change of source funds
for systematic withdrawals, and change of source funds for variable
annuitization payouts. If the Owner completes the telephone/fax form, the Owner
thereby agrees that the Company will not be liable for any loss, liability, cost
or expense when the Company acts in accordance with the telephone/fax
instructions which are received and, if received by telephone, are recorded on
voice recording equipment. If a telephone/fax transaction, processed after the
Owner has completed the telephone/fax form, is later determined not to have been
made by the Owner or was made without the Owner's authorization, and a loss
results, the Owner bears the risk of this loss. Any requests via fax are
considered telephone requests and are bound by the conditions in the
telephone/fax authorization form you sign. Any fax request should include your
name, daytime telephone number, Contract number and the names of the
Sub-Accounts from which and to which money will be transferred or withdrawn and
the allocation percentage. The Company will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine. In the event
the Company does not employ such procedures, the Company may be liable for any
losses due to unauthorized or fraudulent instructions. Such procedures may
include, among others, requiring forms of personal identification prior to
acting upon telephone instructions, providing written confirmation of such
instructions and/or tape recording telephone instructions.
ASSIGNMENTS
If the Contract is issued pursuant to or in connection with a Qualified
Plan, it may not be sold, transferred, pledged or assigned to any person or
entity other than the Company. In other circumstances, a transfer or assignment
of the Contract is permitted but may not be made after the Annuity Commencement
Date. Before the Annuity Commencement Date the Owner may assign or transfer all
rights under the Contract by giving the Company the original or a certified copy
of the assignment or transfer. The Company shall not be bound by any assignment
or transfer until it is actually received by the company and shall not be
responsible for the validity of any assignment or transfer. Any payments made or
actions taken by the Company before the Company actually receives any assignment
or transfer shall not be affected by the assignment or transfer.
CONTRACT OWNER AND BENEFICIARIES
Unless someone else is named as the Owner in the application for the
Contract, the applicant is the Owner of the Contract and before the Annuity
Commencement Date may exercise all of the Owner's rights under the Contract.
The Owner may name a Beneficiary and a Successor Beneficiary. In the
event the Owner or Annuitant dies before the Annuity Commencement Date, the
Beneficiary shall receive the Contract Value according to the death benefit
provisions of the Contract. In the event the Owner or Annuitant dies on or after
the Annuity Commencement Date, the Beneficiary shall receive payments according
to the Annuity Form in effect. If the Beneficiary is not living on the date
payment is due or if no Beneficiary has been named, the last to survive of the
Owner and Annuitant will receive the Contract Value. If none of the Owner, the
Annuitant or the Beneficiary is living at the time the payment is due, the
Contract Value will be paid to the estate of the last to survive of the Owner,
the Annuitant and the Beneficiary.
<PAGE>
A person named as an Annuitant, a Beneficiary or a Successor
Beneficiary shall not be entitled to exercise any rights relating to the
Contract or to receive any payments or settlements under the Contract or any
Annuity Form, unless such person is living on the earlier of (a) the day due
proof of death of the Owner, the Annuitant or the Beneficiary, whichever is
applicable, is received by the Company or (b) the tenth day after the death of
the Owner, the Annuitant or the Beneficiary, whichever is applicable.
Unless different arrangements have been made with the Company by the
Owner, if more than one Beneficiary is entitled to payments from the Company the
payments shall be in equal shares.
Before the Annuity Commencement Date and while the named Annuitant is
living, the Owner may change the Annuitant, the Beneficiary or the Successor
Beneficiary by giving the Company written notice of the change, but the change
shall not be effective until actually received by the Company. Upon receipt by
the Company of a notice of change, it will be effective as of the date it was
signed but shall not affect any payments made or actions taken by the Company
before the Company received the notice, and the Company shall not be responsible
for the validity of any change.
CONTRACT INQUIRIES
Inquiries regarding a Contract may be made by writing to the ReliaStar
Life Insurance Company, Variable Annuity Administration Center, Route 4300, P.O.
Box 59218, Minneapolis, MN 55459-0218, or by calling 1-800-621-3750.
ANNUITY PROVISIONS
ANNUITY COMMENCEMENT DATE
The Owner selects the Annuity Commencement Date, which must be the
first day of a month, when making application for the Contract. The date will be
the first day of the month following the Annuitant's 75th birthday unless an
earlier or later date has been selected by the Owner and, if the date is later,
it has been agreed to by the Company. The Owner may change an Annuity
Commencement Date selection by written notice received by the Company at least
30 days before both the Annuity Commencement Date currently in effect and the
New Annuity Commencement Date. The new date selected must satisfy the
requirements for an Annuity Commencement Date. If the Annuity Commencement Date
selected by the Owner does not occur on a Valuation Date, at least 60 days after
the date on which the Contract was issued, the Company reserves the right to
adjust the Annuity Commencement Date to the first Valuation Date after the
Annuity Commencement Date selected by the Owner and which is at least 60 days
after the Contract issue date.
ANNUITY FORM SELECTION - CHANGE
The Owner may select an Annuity Form with payments starting at the
Annuity Commencement Date when making application for the Contract. The Owner
may also change a choice of Annuity Form by written notice received by the
Company before the Annuity Commencement Date.
ANNUITY FORMS
Any one of the following Annuity Forms may be selected (all provide for
variable payments):
LIFE ANNUITY - An annuity payable on the first day of each month during
the Annuitant's life, starting with the first payment due according to the
Contract. Payments cease with the payment made on the first day of the month in
which the Annuitant's death occurs. IT WOULD BE POSSIBLE UNDER THIS ANNUITY FORM
FOR THE ANNUITANT TO RECEIVE ONLY ONE PAYMENT IF HE OR SHE DIED BEFORE THE
SECOND ANNUITY PAYMENT, ONLY TWO PAYMENTS IF HE OR SHE DIED AFTER THE THIRD
ANNUITY PAYMENT, ETC.
LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 YEARS (120 MONTHS) OR 20
YEARS (240 MONTHS) - An annuity payable on the first day of each month during
the Annuitant's life, starting with the first payment due according to the
Contract. If the Annuitant receives all of the guaranteed payments, payments
will continue thereafter but cease with the
<PAGE>
payment made on the first day of the month in which the Annuitant's death
occurs. If all of the guaranteed payments have not been made before the
Annuitant's death, the unpaid installments of the guaranteed payments will be
continued to the Beneficiary.
JOINT AND FULL SURVIVOR ANNUITY - An annuity payable on the first day
of each month during the Annuitant's life and the life of a named person (the
"Joint Annuitant"), starting with the first payment due according to the
Contract. Payments will continue while either the Annuitant or the Joint
Annuitant is living and cease with the payment made on the first day of the
month in which the death of the Annuitant or the Joint Annuitant, whichever
lives longer, occurs. THERE IS NO MINIMUM NUMBER OF PAYMENTS GUARANTEED UNDER
THIS ANNUITY FORM. PAYMENTS CEASE UPON THE DEATH OF THE LAST SURVIVOR OF THE
ANNUITANT AND THE JOINT ANNUITANT REGARDLESS OF THE NUMBER OF PAYMENTS RECEIVED.
The Company also has other annuity forms available and information
about them can be obtained by writing to the Company.
AUTOMATIC ANNUITY FORM
If no valid selection of an Annuity Form has been made by the Annuity
Commencement Date, the Life Annuity with Payments Guaranteed for 10 years (120
Months) shall be automatically effective.
FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS
Annuity payments will be paid as monthly installments, unless the
Annuitant and the Company agree to a different payment schedule. However, if the
Contract Value at the Annuity Commencement Date is less than $2,500, the Company
may pay the Contract Value in a single sum and the Contract will be canceled.
Also if a monthly payment would be or become less than $50, the Company may
change the frequency of payments to intervals that will result in payments of at
least $50 each.
ANNUITY PAYMENTS
The amount of the first fixed annuity payment is determined by applying
the Contract Value to be used for a fixed annuity at the Annuity Commencement
Date to the annuity table in the Contract for the fixed Annuity Form selected.
The table shows the amount of the initial annuity payment for each $1,000
applied and all subsequent payments shall be equal to this amount. The amount of
the first variable annuity payment is determined by applying the Contract Value
to be used for a variable annuity at the Annuity Commencement Date to the
annuity table in the Contract for the Annuity Form selected. The table shows the
amount of the initial annuity payment for each $1,000 applied.
Subsequent variable annuity payments vary in amount in accordance with
the investment performance of the applicable Sub-Account. Assuming annuity
payments are based on the unit values of a single Sub-Account, the dollar amount
of the first annuity payment, determined as set forth above, is divided by the
Sub-Account Annuity Unit Value as of the Annuity Commencement Date to establish
the number of Variable Annuity Units representing each annuity payment. This
number of Variable Annuity Units remains fixed during the annuity payment
period. The dollar amount of the second and subsequent payments is not
predetermined and may change from month to month. The dollar amount of the
second and each subsequent payment is determined by multiplying the fixed number
of Variable Annuity Units by the Sub-Account Annuity Unit Value for the
Valuation Period with respect to which the payment is due. If the monthly
payment is based upon the Annuity Unit Values of more than one Sub-Account, the
foregoing procedure is repeated for each applicable Sub- Account and the sum of
the payments based on each Sub-Account is the amount of the monthly annuity
payment. The appropriate portion of the annual administrative charge is then
deducted from each monthly annuity payment.
A proportionate amount of the administrative charge will be deducted
from each annuity payment.
The annuity tables in the Contracts are based on the 1971 Individual
Annuity Mortality Table (set back two years).
<PAGE>
The Company guarantees that the dollar amount of each variable annuity
payment after the first payment will not be affected by variations in expenses
or in mortality experience from the mortality assumptions used to determine the
first payment.
SUB-ACCOUNT ANNUITY UNIT VALUE
A Sub-Account's Variable Annuity Units will initially be valued at $10
each at the time Accumulation Units with respect to the Sub-Account are first
converted into Variable Annuity Units. The Sub-Account Annuity Unit Value for
any subsequent Valuation Period is determined by multiplying the Sub-Account
Annuity Unit Value for the immediately preceding Valuation Period by the Net
Investment Factor for the Sub-Account for the Valuation Period for which the
Sub-Account Annuity Unit Value is being calculated, and multiplying the result
by an interest factor to neutralize the assumed investment rate of 4% per annum
built into the annuity tables contained in the Contracts. (See "Net Investment
Factor" on page 27.)
ASSUMED INVESTMENT RATE
A 4% assumed investment rate is built into the annuity tables contained
in the Contracts. A higher assumption would mean a higher initial payment but
more slowly rising and more rapidly falling subsequent payments. A lower
assumption would have the opposite effect. If the actual net investment rate
were at the annual rate of 4%, the annuity payments would be level.
FEDERAL TAX STATUS
INTRODUCTION
THIS DISCUSSION IS GENERAL AND NOT INTENDED AS TAX ADVICE. The
discussion is not intended to address the tax consequences resulting from all of
the situations in which a person may be entitled to or may receive a
distribution under the Contract. The Contracts are designed for use by
individuals in connection with retirement plans which may or may not be
Qualified Plans under the provisions of the Internal Revenue Code (the "Code").
The ultimate effect of federal income taxes on the Contract Value, on annuity
payments and on the economic benefit to the Owner, the Annuitant or the
Beneficiary depends upon the type of retirement plan for which the Contract is
purchased, and upon the tax and employment status of the individual concerned.
No attempt is made to consider any applicable state or other tax laws. The
discussion is based on the Company's understanding of Federal Income Tax Laws as
currently interpreted. No representation is made regarding the likelihood of the
continuation of the present Federal Income Tax Laws or the current
interpretation by the Internal Revenue Service ("IRS").
The Contract may be purchased on a non-qualified basis ("Non-Qualified
Contract") or purchased and used in connection with plans qualifying for
favorable tax treatment ("Qualified Contract"). The Qualified Contract is
designed for use by individuals whose premium payments are comprised solely of
proceeds from and/or contributions under retirement plans which are intended to
qualify as plans entitled to special income tax treatment under Sections 401(a),
403(b), or 408 of the Code. The ultimate effect of Federal income taxes on the
amounts held under a Contract, or annuity payments, and on the economic benefit
to the Owner, the Annuitant, or the Beneficiary depends on the type of
retirement plan, on the tax and employment status of the individual concerned,
and on the Company's tax status. In addition, certain requirements must be
satisfied in purchasing a Qualified Contract with proceeds from a tax-qualified
plan and receiving distributions from a Qualified Contract in order to continue
receiving favorable tax treatment. Therefore, purchasers of Qualified Contracts
should seek competent legal and tax advice regarding the suitability of a
Contract for their situation, the applicable requirements, and the tax treatment
of the rights and benefits of a Contract. The following discussion assumes that
Qualified Contracts are purchased with proceeds from and/or contributions under
retirement plans that qualify for the intended special Federal income tax
treatment.
<PAGE>
TAX STATUS OF THE CONTRACT
DIVERSIFICATION REQUIREMENTS
Section 817(h) of the Code provides that separate account investments
underlying a contract must be "adequately diversified" in accordance with
Treasury regulations in order for the contract to qualify as an annuity contract
under Section 72 of the Code. The Variable Account, through each of the
Investment Funds, intends to comply with the diversification requirements
prescribed in regulations under Section 817(h) of the Code, which affect how the
assets in the various Sub-Accounts may be invested. Although the Company does
not have control over the Investment Funds in which the Variable Account
invests, the Company expects that each Investment Fund in which the Variable
Account owns shares will meet the diversification requirements and that the
Contract will be treated as an annuity contract under the Code.
The Treasury has also announced that the diversification regulations do
not provide guidance concerning the extent to which Owners may direct their
investments to particular Sub-Accounts of a variable account or how concentrated
the investments of the Investment Funds underlying a variable account may be.
The number of underlying investment options available under a variable product
may also be relevant in determining whether the product qualifies for the
desired tax treatment. It is possible that if additional rules, regulations or
guidance in this regard are issued, the Contract may need to be modified to
comply with such additional rules or guidance. For these reasons, the Company
reserves the right to modify the Contract as necessary to attempt to prevent the
Owner from being considered the owner of the assets of the Investment Funds or
otherwise to qualify the contract for favorable tax treatment.
REQUIRED DISTRIBUTIONS
In order to be treated as an annuity contract for Federal income tax
purposes, Section 72(s) of the Code also requires any Non-Qualified Contract to
provide that: (a) if any Owner dies on or after the Annuity Commencement Date
but prior to the time the entire interest in the Contract has been distributed,
the remaining portion of such interest will be distributed at least as rapidly
as under the method of distribution being used as of the date of that Owner's
death; and (b) if any Owner dies prior to the Annuity Commencement Date, the
entire interest in the Contract will be distributed within five years after the
date of the Owner's death. These requirements will be considered satisfied as to
any portion of the Owner's interest which is payable to or for the benefit of a
"designated Beneficiary" and which is distributed over the life of such
Beneficiary or over a period not extending beyond the life expectancy of that
Beneficiary, provided that such distributions begin within one year of that
Owner's death. The Owner's "designated Beneficiary" is the person designated by
such owner as a Beneficiary and to whom ownership of the Contract passes by
reason of death and must be a natural person. However, if the owner's
"designated Beneficiary" is the surviving spouse of the Owner, the Contract may
be continued with the surviving spouse as the new Owner. If the Owner is not an
individual, any change in the primary Annuitant is treated as a change of Owner
for tax purposes.
The Non-Qualified Contracts contain provisions which are intended to
comply with the requirements of Section 72(s) of the Code, although no
regulations interpreting these requirements have yet been issued. The Company
intends to review such provisions and modify them if necessary to assure that
they comply with the requirements of Code Section 72(s) when clarified by
regulation or otherwise. Other rules may apply to Qualified Contracts.
TAXATION OF ANNUITIES
IN GENERAL
Section 72 of the Code governs taxation of annuities in general. The
Company believes that an Owner who is a natural person generally is not taxed on
increases in the value of a Contract until distribution occurs by withdrawing
all or part of the Contract Value (e.g., partial withdrawals and complete
surrenders) or as annuity payments under the Annuity Form selected. For this
purpose, the assignment, pledge, or agreement to assign or pledge any portion of
the Contract Value (and in the case of a Qualified Contract, any portion of an
interest in the qualified plan) generally will be treated as a distribution. The
taxable portion of a distribution (in the form of a single sum payment or
annuity) is taxable as ordinary income.
<PAGE>
The Owner of any annuity contract who is not a natural person generally
must include in income any increase in the excess of the net surrender value
over the "investment in the contract" during the taxable year. The Company
restricts ownership of Non-Qualified Contracts to no more than two natural
persons.
The following discussion generally applies to Contracts owned by
natural persons.
SURRENDERS
In the case of a surrender from a Qualified Contract, under Section
72(e) of the Code a ratable portion of the amount received is taxable, generally
based on the ratio of the "investment in the contract" to the participant's
total accrued benefit or balance under the retirement plan. The "investment in
the contract" generally equals the portion, if any, of any premium payments paid
by or on behalf of any individual under a Contract which was not excluded from
the individual's gross income. For Contracts issued in connection with qualified
plans, the "investment in the contract" can be zero. Special tax rules may be
available for certain distributions from Qualified Contracts.
In the case of a surrender (including Systematic Withdrawals) from a
Non-Qualified Contract before the Annuity Commencement Date, under Code Section
72(e) amounts received are generally first treated as taxable income to the
extent that the Contract Value immediately before surrender exceeds the
"investment in the contract" at that time. Any additional amount surrendered is
not taxable.
In the case of a full surrender under a Qualified or Non-Qualified
Contract, the amount received generally will be taxable only to the extent it
exceeds the "investment in the contract."
A Federal penalty tax may apply to certain surrenders from Qualified
and Non-Qualified Contracts. (See "Penalty Tax on Certain Distributions" on page
35.)
ANNUITY PAYMENTS
Although tax consequences may vary depending on the Annuity Form
selected under the Contract, in general, only the portion of the Annuity Payment
that represents the amount by which the Contract Value exceeds the investment in
the Contract will be taxed; after the investment in the Contract is recovered,
the full amount of any additional annuity payments is taxable. For variable
annuity payments, the taxable portion is generally determined by an equation
that establishes a specific dollar amount of each payment that is not taxed. The
dollar amount is determined by dividing the investment in the contract by the
total number of expected periodic payments. However, the entire distribution
will be taxable once the recipient has recovered the dollar amount of his or her
investment in the contract. For fixed annuity payments, in general, there is no
tax on the portion of each payment which represents the same ratio that the
investment in the contract bears to the total expected value of the annuity
payments for the term of the payments; however, the remainder of each annuity
payment is taxable until the recovery of the investment in the Contract, and
thereafter the full amount or each annuity payment is taxable.
TAXATION OF DEATH BENEFIT PROCEEDS
Amounts may be distributed from a Contract because of the death of an
Owner or an Annuitant. Generally, such amounts are includible in the income of
the recipient as follows: (i) if distributed in a lump sum, they are taxed in
the same manner as a full surrender of the contract; or (ii) if distributed
under a payment option, they are taxed in the same way as annuity payments.
PENALTY TAX ON CERTAIN DISTRIBUTIONS
In the case of a distribution pursuant to a Non-Qualified Contract, a
Federal penalty equal to 10% of the amount treated as taxable income may be
imposed. In general, however, there is no penalty on distributions:
1. made on or after the taxpayer reaches age 59 1/2;
<PAGE>
2. made on or after the death of the holder (a holder is
considered an Owner) (or if the holder is not an individual,
the death of the primary annuitant);
3. attributable to the taxpayer's becoming disabled;
4. a part of a series of substantially equal periodic payments
(not less frequently than annually) for the life (or life
expectancy) of the taxpayer or the joint lives (or joint life
expectancies) of the taxpayer and his or her designated
beneficiary;
5. made under an annuity contract that is purchased with a single
premium when the annuity starting date is no later than a year
from purchase of the annuity and substantially equal periodic
payments are made, not less frequently than annually, during
the annuity period; and
6. made under certain annuities issued in connection with
structured settlement agreements.
Other tax penalties may apply to certain distributions under a
Qualified Contract, as well as to certain contributions to, loans from, and
other circumstances, applicable to the Qualified Plan of which the Qualified
Contract is part.
POSSIBLE CHANGES IN TAXATION
In past years, legislation has been proposed that would have adversely
modified the Federal taxation of certain annuities. For example, one such
proposal would have changed the tax treatment of non-qualified annuities that
did not have "substantial life contingencies" by taxing income as it is credited
to the annuity. Although as of the date of this prospectus Congress is not
considering any legislation regarding the taxation of annuities, there is always
the possibility that tax treatment of annuities could change by legislation or
other means (such as IRS regulations, revenue rulings, judicial decisions,
etc.). Moreover, it is also possible that any change could be retroactive (that
is, effective prior to the date of the change).
TRANSFERS, ASSIGNMENTS OR EXCHANGES OF A CONTRACT
A transfer of ownership or assignment of a Contract, the designation of
an Annuitant, Payee or other Beneficiary who is not also the Owner, or the
exchange of a Contract may result in certain tax consequences to the Owner that
are not discussed herein. An Owner contemplating any such transfer, assignment,
or exchange of a Contract should contact a competent tax adviser with respect to
the potential tax effects of such a transaction.
WITHHOLDING
Pension and annuity distribution generally are subject to withholding
for the recipient's Federal income tax liability at rates that vary according to
the type of distribution and the recipient's tax status. Recipients, however,
generally are provided the opportunity to elect not to have tax withheld from
distributions. Effective January 1, 1993, distributions from certain qualified
plans are generally subject to mandatory withholding. Withholding for Contracts
issued to retirement plans established under Section 401 of the Code is the
responsibility of the plan trustee.
MULTIPLE CONTRACTS
Section 72(e)(11) of the Code treats all non-qualified deferred annuity
contracts entered into after October 21, 1988 that are issued by the Company (or
its affiliates) to the same Owner during any calendar year as one annuity
contract for purposes of determining the amount includible in gross income under
Code Section 72(e). The effects of this rule are not yet clear; however, it
could affect the time when income is taxable and the amount that might be
subject to the 10% penalty tax described above. In addition, the Treasury
Department has specific authority to issue regulations that prevent the
avoidance of Section 72(e) through the serial purchase of annuity contracts or
otherwise. There may also be other situations in which the Treasury may conclude
that it would be appropriate to aggregate two or more annuity contracts
purchased by the same Owner. Accordingly, an Owner should consult a competent
tax adviser before purchasing more than one annuity contract.
<PAGE>
TAXATION OF QUALIFIED PLANS
The Contracts are designed for use with several types of qualified
plans. The tax rules applicable to participants in these qualified plans vary
according to the type of plan and the terms and conditions of the plan itself.
Special favorable tax treatment may be available for certain types of
contributions and distributions. Adverse tax consequences may result from
contributions in excess of specified limits; distributions prior to age 59 1/2
(subject to certain exceptions); distributions that do not conform to specified
commencement and minimum distribution rules; aggregate distributions in excess
of a specified annual amount; and in other specified circumstances. Therefore,
no attempt is made to provide more than general information about the use of the
Contracts with the various types of qualified retirement plans. Contract Owners,
the Annuitants, and Beneficiaries are cautioned that the rights of any person to
any benefits under these qualified retirement plans may be subject to the terms
and conditions of the plans themselves, regardless of the terms and conditions
of the Contract, but the Company shall not be bound by the terms and conditions
of such plans to the extent such terms contradict the Contract, unless the
Company consents. Brief descriptions follow of the various types of qualified
retirement plans in connection with a Contract. The Company will amend the
Contract as necessary to conform it to the requirements of such plan.
PENSION AND PROFIT SHARING PLANS
Section 401(a) of the Code permits employers and self-employed persons
to establish various types of retirement plans for employees. Such retirement
plans may permit the purchaser of the Contract to provide benefits under the
plans. Persons intending to use the Contract with such plans should seek
competent advice.
INDIVIDUAL RETIREMENT ANNUITIES
Section 408 of the Code permits eligible individuals to contribute to
an individual retirement program known as an "Individual Retirement Annuity" or
"IRA". These IRAs are subject to limits on the amount that may be contributed,
the persons who may be eligible, and on the time when distributions may
commence. Also, distributions from certain other types of qualified retirement
plans may be "rolled over" on a tax-deferred basis into an IRA. Sales of the
Contract for use with IRAs may be subject to special requirements of the IRS.
TAX SHELTERED ANNUITIES
Section 403(b) of the Code allows employees of certain Section
501(c)(3) organizations and public schools to exclude from their gross income
the premiums paid, within certain limits, on a Contract that will provide an
annuity for the employee's retirement. Code section 403(b)(11) restricts the
distribution under Code section 403(b) annuity contracts of: (1) elective
contributions made in years beginning after December 31, 1988; (2) earnings on
those contributions; and (3) earnings in such years on amounts held as of the
last year beginning before January 1, 1989. Distribution of those amounts may
only occur upon death of the employee, attainment of age 59 1/2 separation from
service, disability, or financial hardship. In addition, income attributable to
elective contributions may not be distributed in the case of hardship.
POSSIBLE CHARGE FOR THE COMPANY'S TAXES
At the present time, the Company makes no charge to the Sub-Accounts
for any Federal, state, or local taxes that the Company incurs which may be
attributable to such Sub-Accounts or to the Contracts. The Company, however,
reserves the right in the future to make a charge for any such tax laws that it
determines to be properly attributable to the Sub-Accounts of the Contracts.
OTHER TAX CONSEQUENCES
As noted above, the foregoing comments about the Federal tax
consequences under these Contracts are not exhaustive, and special rules are
provided with respect to other tax situations not discussed in this Prospectus.
Further, the Federal income tax consequences discussed herein reflect the
Company's understanding of current law and the law may change. Federal estate
and state and local estate, inheritance, and other tax consequences of ownership
or receipt of
<PAGE>
distributions under a Contract depend on the individual circumstances of each
Owner or recipient of the distribution. A competent tax adviser should be
consulted for further information.
VOTING OF FUND SHARES
As long as the Variable Account is registered as a unit investment
trust under the Investment Company Act of 1940 and the assets of the Variable
Account are allocated to Sub-Accounts that are invested in Investment Fund
shares, the Investment Fund shares held in the Sub-Accounts will be voted by the
Company in accordance with instructions received from the person having voting
interests under the Contracts as described below. If the Company determines
pursuant to applicable law or regulation that Investment Fund shares held in the
Sub-Accounts and attributable to the Contracts need not be voted pursuant to
instructions received from persons otherwise having the voting interests, then
the Company may vote such Investment Fund shares held in the Sub-Accounts in its
own right.
Before the Annuity Commencement Date, the Owner shall have the voting
interest with respect to the Investment Fund shares attributable to the
Contract.
On and after the Annuity Commencement Date, the person then entitled to
receive annuity payments shall have the voting interest with respect to the
Investment Fund shares. Such voting interest will generally decrease during the
annuity payout period.
Any Investment Fund shares held in the Variable Account for which we do
not receive timely voting instructions, or which are not attributable to
Contract Owners, will be voted by us in proportion to the instructions received
from all Contract Owners having a voting interest in the Investment Fund. Any
Investment Fund shares held by us or any of our affiliates in general accounts
will, for voting purposes, be allocated to all separate accounts having voting
interests in the Investment Fund in proportion to each account's voting interest
in the respective Investment Fund and will be voted in the same manner as are
the respective account's vote.
All Investment Fund proxy material will be sent to persons having
voting interests together with appropriate forms which may be used to give
voting instructions. Persons entitled to voting interests and the number of
votes which they may cast shall be determined as of a record date, to be
selected by the Company, not more than 90 days before the meeting of the
applicable Investment Fund.
Persons having voting interests under the Contracts as described above
will not, as a result thereof, have voting interests with respect to meetings of
the stockholders of the Company.
DISTRIBUTION OF THE CONTRACTS
The Contracts will be sold by licensed insurance agents in those states
where the Contracts may be lawfully sold. Such agents will be registered
representatives of broker-dealers registered under the Securities Exchange Act
of 1934 who are members of the National Association of Securities Dealers, Inc.
The Contracts will be distributed by the General Distributor, Washington Square
Securities, Inc., 20 Washington Avenue South, Minneapolis, Minnesota 55401,
which is controlled by the Company. Commissions and other distribution
compensation will be paid by the Company and will not be more than 7.00% of the
purchase payments.
REVOCATION
The Contract Owner may revoke the contract at any time between the date
of Application and the date 10 days after receipt of the Contract and receive a
refund of the Contract Value unless otherwise required by state and/or federal
law. All Individual Retirement Annuity refunds will be return of purchase
payments. In order to revoke the Contract, it must be mailed or delivered to the
Company's Contract Administrator at the mailing address shown on the back cover
page of this Prospectus or the agent through whom it was purchased. Mailing or
delivery must occur on or before 10 days after receipt of
<PAGE>
the Contract for revocation to be effective. In order to revoke the Contract, if
it has not been received, written notice must be mailed or delivered to the
Company's Contract Administrator at the mailing address shown below:
ReliaStar Life Insurance Company
c/o Variable Annuity Administration Center
Route 4300
P.O. Box 59218
Minneapolis, Minnesota 55429-0218
The liability of the Variable Account under this provision is limited
to the Contract Value in each Sub-Account on the date of revocation. Any
additional amounts refunded to the Contract Owner will be paid by the Company.
REPORTS TO OWNERS
The Company will mail to the Contract Owner, at the last known address
of record at the home office of the Company, at least annually after the first
Contract Year, a report containing such information as may be required by any
applicable law or regulation and a statement showing the Contract Value.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account is a
party. The Company is a defendant in various lawsuits in connection with the
normal conduct of its operations. In the opinion of management, the ultimate
resolution of such litigation will not result in any significant liability to
the Company.
FINANCIAL STATEMENTS AND EXPERTS
The financial statements of ReliaStar Select Variable Account as of
December 31, 1996 and for each of the three years in the period then ended and
the annual financial statements of ReliaStar Life Insurance Company, which are
incorporated by reference in the Statement of Additional Information, have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports which are incorporated herein by reference and have been so incorporated
in reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
FURTHER INFORMATION
A Registration Statement under the Securities Act of 1933 has been
filed with the Securities and Exchange Commission, with respect to the contracts
described herein. The Prospectus does not contain all of the information set
forth in the Registration Statement and exhibits thereto, to which reference is
hereby made for further information concerning the Variable Account, the Company
and the Contracts. The information so omitted may be obtained from the
Commission's principal office in Washington, D.C., upon payment of the fee
prescribed by the Commission, or examined there without charge. Statements
contained in this Prospectus as to the provisions of the Contracts and other
legal documents are summaries, and reference is made to the documents as filed
with the Commission for a complete statement of the provisions thereof.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Introduction...............................................................S-2
Administration of the Contracts............................................S-2
Custody of Assets..........................................................S-3
Independent Auditors.......................................................S-3
Distribution of the Contracts..............................................S-3
Calculation of Yield and Return............................................S-4
Financial Statements.......................................................S-16
If you would like to receive a copy of the ReliaStar Select Variable Account
Statement of Additional Information, please call 1-800-621-3750 or return this
request to:
RELIASTAR LIFE INSURANCE COMPANY
VARIABLE ANNUITY ADMINISTRATION CENTER
ROUTE 4300
P.O. BOX 59218
MINNEAPOLIS, MN 55429-0218
Your name_______________________________________________________________________
Address_________________________________________________________________________
City___________________________ State____________________________ Zip___________
Please send me a copy of the ReliaStar Select Variable Account Statement of
Additional Information.
<PAGE>
APPENDIX A
THE FIXED ACCOUNT
CONTRIBUTIONS UNDER THE FIXED PORTION OF THE CONTRACT AND TRANSFERS TO
THE FIXED PORTION BECOME PART OF THE GENERAL ACCOUNT OF THE COMPANY (THE "FIXED
ACCOUNT"), WHICH SUPPORTS INSURANCE AND ANNUITY OBLIGATIONS. BECAUSE OF
EXEMPTIVE AND EXCLUSIONARY PROVISIONS, INTERESTS IN THE FIXED ACCOUNT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 ("1933 ACT") NOR IS THE FIXED
ACCOUNT REGISTERED AS AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT OF
1940 ("1940 ACT"). ACCORDINGLY, NEITHER THE FIXED ACCOUNT NOR ANY INTEREST
THEREIN ARE GENERALLY SUBJECT TO THE PROVISIONS OF THE 1933 OR 1940 ACTS AND THE
COMPANY HAS BEEN ADVISED THAT THE STAFF OF THE SECURITIES AND EXCHANGE
COMMISSION HAS NOT REVIEWED THE DISCLOSURES IN THIS PROSPECTUS WHICH RELATE TO
THE FIXED PORTION OF THE CONTRACT. DISCLOSURES REGARDING THE FIXED PORTION OF
THE ANNUITY CONTRACT AND THE FIXED ACCOUNT, HOWEVER, MAY BE SUBJECT TO CERTAIN
GENERALLY APPLICABLE PROVISIONS OF THE FEDERAL SECURITIES LAWS RELATING TO THE
ACCURACY AND COMPLETENESS OF STATEMENTS MADE IN PROSPECTUSES.
The Fixed Account is made up of all the general assets of the Company
other than those allocated to any separate account. Purchase payments will be
allocated to the Fixed Account as elected by the Owner at the time of purchase
or as subsequently changed. The Company will invest the assets of the Fixed
Account in those assets chosen by the company and allowed by applicable law.
Investment income from such Fixed Account assets will be allocated between the
Company and the contracts participating in the Fixed Account, in accordance with
the terms of such contracts.
Fixed annuity payments made to Annuitants under the Contract will not
be affected by the mortality experience (death rate) of persons receiving such
payments or of the general population. The Company assumes this "mortality risk"
by virtue of annuity rates incorporated in the Contract which cannot be changed.
In addition, the Company guarantees that it will not increase charges for
maintenance of the Contracts regardless of its actual expenses.
Investment income from the Fixed Account allocated to the Company
includes compensation for mortality and expense risks borne by the Company in
connection with Fixed Account Contracts. The Company expects to derive a profit
from this compensation. The amount of such investment income allocated to the
Contracts will vary from year to year at the sole discretion of the Company.
However, the Company guarantees that it will credit interest at a rate of not
less than 4% per year, compounded annually, to amounts allocated to the Fixed
Account under the Contract. The Company may credit interest at a rate in excess
of 4% per year; however, the Company is not obligated to credit any interest in
excess of 4% per year. There is no specific formula for the determination of
excess interest credits. Such credits, if any, will be determined by the Company
based on information as to expected investment yields. Some of the factors that
the Company may consider in determining whether to credit interest to amounts
allocated to the Fixed Account and the amount thereof, are general economic
trends, rates of return currently available and anticipated on the Company's
investments, regulatory and tax requirements and competitive factors. ANY
INTEREST CREDITED TO AMOUNTS ALLOCATED TO THE FIXED ACCOUNT IN EXCESS OF 4% PER
YEAR WILL BE DETERMINED IN THE SOLE DISCRETION OF THE COMPANY. THE OWNER ASSUMES
THE RISK THAT INTEREST CREDITED TO FIXED ACCOUNT ALLOCATIONS MAY NOT EXCEED THE
MINIMUM GUARANTEE OF 4% FOR ANY GIVEN YEAR.
The Company is aware of no statutory limitations on the maximum amount
of interest it may credit, and the Board of Directors has set no limitations.
However, inherent in the Company's exercise of discretion in this regard is the
equitable allocation of distributable earnings and surplus among its various
policyholders and Contract Owners and to its stockholders.
Excess interest, if any, will be credited on the Fixed Account Contract
Value. The Company guarantees that, at any time, the Fixed Account Contract
Value will not be less than the amount of purchase payments and transfers
allocated to the Fixed Account, plus interest at the rate of 4% per year,
compounded annually, plus any additional interest which the Company may, in its
discretion, credit to the Fixed Account, less the sum of all annual
administrative or surrender charges levied, any applicable premium taxes, and
less any amounts surrendered or transferred from the Fixed Account. If the Owner
surrenders the Contract, the amount available from the Fixed Account will be
reduced by any applicable surrender charge and annual administration charge.
(See "Charges Made by the Company" on page 25.)
<PAGE>
General Distributor
Washington Square Securities, Inc.
20 Washington Ave. S.
Minneapolis, MN 55401
[LOGO] RELIASTAR
RELIASTAR LIFE INSURANCE COMPANY
20 Washington Avenue South
Minneapolis, Minnesota 55401
SELECT*ANNUITY II PROSPECTUS N700.20 O (AUGUST 8, 1997)
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
----------
INDIVIDUAL DEFERRED VARIABLE/FIXED ANNUITY CONTRACTS
ISSUED BY
RELIASTAR SELECT VARIABLE ACCOUNT
(FORMERLY NWNL SELECT VARIABLE ACCOUNT)
AND
RELIASTAR LIFE INSURANCE COMPANY
(FORMERLY NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY)
This Statement of Additional Information is not a Prospectus, but
should be read in conjunction with the Prospectus, dated August 8, 1997 (the
"Prospectus") relating to the Individual Deferred Variable/Fixed Annuity
Contracts issued by ReliaStar Select Variable Account (the "Variable Account")
and ReliaStar Life Insurance Company (the "Company"). Much of the information
contained in this Statement of Additional Information expands upon subjects
discussed in the Prospectus. A copy of the Prospectus may be obtained from
Washington Square Securities, Inc., 20 Washington Avenue South, Minneapolis,
Minnesota 55401.
Capitalized terms used in this Statement of Additional Information that
are not otherwise defined herein shall have the meanings given to them in the
Prospectus.
-------------
TABLE OF CONTENTS
Page
----
Introduction...............................................................S-2
Administration of the Contracts............................................S-2
Custody of Assets..........................................................S-3
Independent Auditors.......................................................S-3
Distribution of the Contracts..............................................S-3
Calculation of Yield and Return............................................S-4
Financial Statements.......................................................S-16
-----
The date of this Statement of Additional Information is August 8, 1997.
<PAGE>
INTRODUCTION
The Individual Deferred Variable/Fixed Annuity Contracts described in
the Prospectus are flexible purchase payment contracts. The Contracts are sold
to or in connection with retirement plans which may or may not qualify for
special federal tax treatment under the Internal Revenue Code. (See "Federal Tax
Status" on page 32 of the Prospectus.) Annuity payments under the Contracts are
deferred until a selected later date.
Purchase payments may be allocated to one or more Sub-Accounts of the
Variable Account, a separate account of the Company, and/or to the Fixed Account
(which is the general account of the Company).
Purchase payments allocated to one or more of the available
Sub-Accounts of the Variable Account, as selected by the Contract Owner, will be
invested in shares at net asset value of one or more of a group of investment
funds (the "Investment Funds"). The Investment Funds are currently the five
portfolios of the Variable Insurance Products Fund, and four portfolios of the
Variable Insurance Products Fund II, which are managed by Fidelity Management &
Research Company of Boston, Massachusetts; five funds of the Northstar Variable
Trust, which are managed by Northstar Investment Management Corporation of
Greenwich, Connecticut; four portfolios of Putnam Variable Trust, which are
managed by Putnam Investment Management, Inc. of Boston, Massachusetts; four
portfolios of Janus Aspen Series, which are managed by Janus Capital of Denver,
Colorado; four portfolios of the OCC Accumulation Trust, which are managed by
OpCap Advisors of New York, New York; three portfolios of The Alger American
Fund, which are managed by Fred Alger Management, Inc. of New York, New York;
and two Portfolios of the Advisers Management Trust, which are managed by
Neuberger&Berman Management of New York, New York. Each Investment Fund pays its
investment adviser certain fees charged against the assets of the Investment
Fund. The Variable Account Contract Value and the amount of variable annuity
payments will vary, primarily based on the investment performance of the
Investment Funds whose shares are held in the Sub-Accounts selected. (For more
information about the Investment Funds, see "Investments of the Variable
Account" on page 18 of the Prospectus.)
Purchase payments allocated to the Fixed Account, which is the general
account of the Company, will be credited with interest at a rate not less than
4% per year. Interest credited in excess of 4%, if any, will be determined at
the sole discretion of the Company. That part of the Contract relating to the
Fixed Account is not registered under the Securities Act of 1933 and the Fixed
Account is not subject to the restrictions of the Investment Company Act of
1940. (See Appendix A to the Prospectus.)
ADMINISTRATION OF THE CONTRACTS
The Company performs certain administrative functions ("Administrative
Functions") relating to the Contracts and the Variable Account. These functions
include, among other things, maintaining the books and records of the Variable
Account and the Sub-Accounts, and maintaining records of the name, address,
taxpayer identification number, Contract number, type of Contract issued to each
Owner, Contract Value and other pertinent information necessary to the
administration and operation of the Contracts. The Company received no payment
for performing any of the Administrative Functions in 1996. Effective July 14,
1997, the Company performs the Administrative Functions in Minneapolis,
Minnesota. Prior to that date, Continuum Administrative Services Corporation,
Kansas City, Missouri ("CASC"), performed, by agreement, many of the
Administrative Functions. For the years ended December 31, 1994, 1995 and 1996
the Company paid fees to CASC under the agreement in the amounts of $706,115,
$543,048 and $822,639, respectively, in connection with administration of the
Contracts.
<PAGE>
CUSTODY OF ASSETS
The Company, whose address appears on the cover of the Prospectus,
maintains custody of the assets of the Variable Account.
INDEPENDENT AUDITORS
The financial statements of ReliaStar Select Variable Account and
ReliaStar Life Insurance Company, which are incorporated by reference in the
Statement of Additional Information, have been audited by Deloitte & Touche LLP,
120 South 6th Street, Minneapolis, Minnesota 55402, independent auditors, as
stated in their reports which are incorporated herein by reference, and have
been so incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
DISTRIBUTION OF THE CONTRACTS
The Contracts are sold by licensed insurance agents in those states
where the Contracts may be lawfully sold. Such agents will be registered
representatives of broker-dealers registered under the Securities Exchange Act
of 1934 who are members of the National Association of Securities Dealers, Inc.
The Contracts will be distributed by the General Distributor, Washington Square
Securities, Inc., which is a direct, wholly-owned subsidiary of ReliaStar
Financial Corp. and is an affiliate of the Company. For the years ended December
31, 1994, 1995, and 1996 the General Distributor was paid fees by the Company
with respect to distribution of the Contracts aggregating $544,927, $988,000 and
$60,836, respectively.
The offering of the Contracts is continuous.
There are no special purchase plans or exchange privileges not
described in the Prospectus (see "The Contracts - Transfers" at page 28 of the
Prospectus).
No deduction for a sales charge is made from the purchase payments for
the Contracts. However, if part or all of a Contract's value is surrendered,
surrender charges (which may be deemed to be contingent deferred sales charges)
may be made by the Company. The method used to determine the amount of such
charge is described in the Prospectus under the heading "Charges Made By The
Company - Surrender Charge (Contingent Deferred Sales Charge)" on page 24.
Any of the charges under the Contract, as well as the minimum purchase
payment requirements set forth in the Prospectus, may be reduced due to special
circumstances that result in lower sales, administrative or mortality expenses.
For example, special circumstances may exist in connection with group or
sponsored arrangements, sales to the Company's policy and Contract Owners or
those of affiliated insurance companies, or sales to employees or clients of the
Company's affiliates. The amount of any reductions will reflect the reduced
sales effort and administrative costs resulting from, or the different mortality
experience expected as a result of, the special circumstances. Reductions will
not be unfairly discriminatory against any person, including the affected policy
or Contract owners and owners of all other contracts funded by the Variable
Account.
<PAGE>
CALCULATION OF YIELD AND RETURN
Current Yield and Effective Yield:
Current yield and effective yield will be calculated only for the VIP
Money Market Portfolio Sub-Account.
The current yield is based on a seven-day period (the "base period")
and is calculated by determining the "net change in value" on a hypothetical
account having a balance of one Accumulation Unit at the beginning of the
period, dividing the net change in account value by the value of the account at
the beginning of the base period to obtain the base period return, and
multiplying the base period return by 365/7 with the resulting yield figure
carried to the nearest hundredth of one percent. The effective yield is computed
in a similar manner, except that the base period return is compounded by adding
1, raising the sum to a power equal to 365 divided by 7, and subtracting 1 from
the result, according to the following formula:
365/7
EFFECTIVE YIELD = [(Base Period Return + 1) ] - 1
Net changes in value of a hypothetical account will include net
investment income of the account (accrued daily dividends as declared by the VIP
Money Market Portfolio, less daily expense and contract charges to the account)
for the period, but will not include realized or unrealized gains or losses on
its underlying fund shares.
The VIP Money Market Portfolio Sub-Account's yield and effective yield
will vary in response to any fluctuations in interest rates and expenses of the
Sub-Account.
The yield and effective yield of the Sub-Account for the seven day
period ending December 31, 1996 were as follows:
Yield: 3.84%
Effective Yield: 3.92%
Standardized Yield:
A standardized yield computation may be used for bond Sub-Accounts. The
yield quotation will be based on a recent 30 day (or one month) period, and is
computed by dividing the net investment income per Accumulation Unit earned
during the period by the maximum offering price on the last day of the period
according to the following formula:
YIELD = 2[( a - b + 1)^6 - 1]
-----
cd
Where:
a = net investment earned during the period by the Fund or
Portfolio attributable to shares owned by the Sub-Account.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of Accumulation Units outstanding
during the period.
d = the maximum offering price per Accumulation Unit on the last
day of the period.
<PAGE>
Yield on each Sub-Account is earned from dividends declared and paid by
the underlying Fund or Portfolio, which are automatically reinvested in Fund or
Portfolio shares.
AVERAGE ANNUAL TOTAL RETURNS. From time to time, sales literature or
advertisements may also quote average annual total returns for one or more of
the Sub-Accounts for various periods of time.
Average annual total returns represent the average annual compounded
rates of return that would equate an initial investment of $1,000 under a
Contract to the redemption value of that investment as of the last day of each
of the periods. The ending date for each period for which total return
quotations are provided will be for the most recent month-end practicable,
considering the type and media of the communication and will be stated in the
communication.
Average annual total returns will be calculated using Sub-Account unit
values which the Company calculates on each Valuation Date based on the
performance of the Sub-Account's underlying Portfolio, the deductions for the
Mortality and Expense Risk Premiums, the Administration Charge, and the Annual
Contract Charge. The calculation assumes that the Annual Contract Charge is $30
per year per Contract deducted at the end of each Contract Year. For purposes of
calculating average annual total return, an average per dollar Annual Contract
Charge attributable to the hypothetical account for the period is used. The
calculation also assumes surrender of the Contract at the end of the period for
the return quotation. Total returns will therefore reflect a deduction of the
Surrender Charge for any period less than six years. The total return will then
be calculated according to the following formula:
TR = ((ERV/P) ^1/N) - 1
Where:
TR = The average annual total return net of Sub-Account
recurring charges.
ERV = the ending redeemable value (net of any applicable
surrender charge) of the hypothetical account at the end
of the period.
P = a hypothetical initial payment of $1,000.
N = the number of years in the period.
<PAGE>
Such average annual total return information for the Sub-Accounts is as
follows:
<TABLE>
<CAPTION>
For the period from
For the 1-year For the 5-year For the 10-year date of inception of
Sub-Account period ended period ended period ended Sub-Account to
12/31/96 12/31/96 12/31/96 12/31/96
------------ ------------ -------- --------
<S> <C> <C> <C> <C>
Alger American Growth Portfolio N/A N/A N/A N/A
(Sub-Account Inception: 8/8/97)
Alger American MidCap Growth Portfolio N/A N/A N/A N/A
(Sub-Account Inception: 8/8/97)
Alger American Small Capitalization N/A N/A N/A N/A
Portfolio
(Sub-Account Inception: 8/8/97)
Fidelity's VIP Equity-Income Portfolio 8.17% 16.35% N/A 13.04%
(Sub-Account Inception: 5/1/88)
Fidelity's VIP Growth Portfolio 8.59% 13.57% N/A 14.21%
(Sub-Account Inception: 5/1/88)
Fidelity's VIP High Income Portfolio 7.92% 13.38% N/A 10.41%
(Sub-Account Inception: 5/1/88)
Fidelity's VIP Overseas Portfolio 7.12% 7.60% N/A 7.61%
(Sub-Account Inception: 5/1/88)
Fidelity's VIP II Asset Manager 8.49% 9.71% N/A 9.89%
Portfolio
(Sub-Account Inception: 5/1/91)
Fidelity's VIP II Contrafund Portfolio N/A N/A N/A N/A
(Sub-Account Inception 8/8/97)
Fidelity's VIP II Index 500 Portfolio 16.60% N/A N/A 15.37%
(Sub-Account Inception: 5/3/93)
Fidelity's VIP II Investment Grade Bond -2.78% 5.14% N/A 6.34%
Portfolio
(Sub-Account Inception: 5/1/91)
Janus Aggressive Growth Portfolio N/A N/A N/A N/A
(Sub-Account Inception: 8/8/97)
Janus Growth Portfolio N/A N/A N/A N/A
(Sub-Account Inception: 8/8/97)
Janus International Growth Portfolio N/A N/A N/A N/A
(Sub-Account Inception: 8/8/97)
Janus Worldwide Growth Portfolio N/A N/A N/A N/A
(Sub-Account Inception: 8/8/97)
Neuberger&Berman AMT Limited Maturity N/A N/A N/A N/A
Bond Portfolio
(Sub-Account Inception: 8/8/97)
Neuberger&Berman AMT Partners Portfolio N/A N/A N/A N/A
(Sub-Account Inception: 8/8/97)
<PAGE>
Northstar Growth Fund N/A N/A N/A N/A
(Sub-Account Inception: 8/8/97)
Northstar High Yield Bond Fund N/A N/A N/A N/A
(Sub-Account Inception: 8/8/97)
Northstar Income and Growth Fund N/A N/A N/A N/A
(Sub-Account Inception: 8/8/97)
Northstar International Value Fund N/A N/A N/A N/A
(Sub-Account Inception: 8/8/97)
Northstar Multi-Sector Bond Fund N/A N/A N/A N/A
(Sub-Account Inception: 8/8/97)
OCC Equity Portfolio N/A N/A N/A N/A
(Sub-Account Inception: 8/8/97)
OCC Global Equity Portfolio N/A N/A N/A N/A
(Sub-Account Inception: 8/8/97)
OCC Managed Portfolio N/A N/A N/A N/A
(Sub-Account Inception: 8/8/97)
OCC Small Cap Portfolio N/A N/A N/A N/A
(Sub-Account Inception: 8/8/97)
Putnam VT Diversified Income Fund 2.77% N/A N/A 6.87%
(Sub-Account Inception: 5/2/94)
Putnam VT Growth and Income Fund 15.70% N/A N/A 19.13%
(Sub-Account Inception: 5/2/94)
Putnam VT Utilities Growth and Income 9.66% N/A N/A 13.13%
Fund
(Sub-Account Inception: 5/2/94)
Putnam VT Voyager Fund 6.87% N/A N/A 18.44%
(Sub-Account Inception: 5/2/94)
</TABLE>
<PAGE>
From time to time, sales literature or advertisements may quote average
annual total returns for periods prior to the date the Sub-Accounts commenced
operations. Such performance information for the Sub-Accounts will be calculated
based on the performance of the Portfolios and the assumption that the
Sub-Accounts were in existence for the same periods as those indicated for the
Portfolios, with the level of Contract charges currently in effect.
Such average annual total return information for the Sub-Accounts is as
follows:
<TABLE>
<CAPTION>
For the period from
For the 1-year For the 5-year For the 10-year date of inception of
Sub-Account period ended period ended period ended Fund Portfolio to
12/31/96 12/31/96 12/31/96 12/31/96
------------ ------------ -------- --------
<S> <C> <C> <C> <C>
Alger American Growth Portfolio 7.25% 15.02% N/A 17.10%
(Portfolio Inception: 1/9/89)
Alger American MidCap Growth Portfolio 5.81% N/A N/A 21.67%
(Portfolio Inception: 5/3/93)
Alger American Small Capitalization -1.80% 9.47% N/A 18.58%
Portfolio
(Portfolio Inception: 9/21/88)
Fidelity's VIP Equity-Income Portfolio 8.17% 16.35% 12.18% 11.87%
(Portfolio Inception: 10/9/86)
Fidelity's VIP Growth Portfolio 8.59% 13.57% 13.58% 13.25%
(Portfolio Inception: 10/9/86)
Fidelity's VIP High Income Portfolio 7.92% 13.38% 9.58% 10.47%
(Portfolio Inception: 9/19/85)
Fidelity's VIP Overseas Portfolio 7.12% 7.60% N/A 6.39%
(Portfolio Inception: 1/28/87)
Fidelity's VIP II Asset Manager 8.49% 9.71% N/A 10.15%
Portfolio
(Portfolio Inception: 9/6/89)
Fidelity's VIP II Contrafund Portfolio 15.10% N/A N/A 26.67%
(Portfolio Inception 1/3/95)
Fidelity's VIP II Index 500 Portfolio 16.60% N/A N/A 14.83%
(Portfolio Inception: 8/27/92)
Fidelity's VIP II Investment Grade -2.78% 5.14% N/A 6.70%
Bond Portfolio
(Portfolio Inception: 12/5/88)
Janus Aggressive Growth Portfolio 1.92% N/A N/A 18.67%
(Portfolio Inception: 9/13/93)
Janus Growth Portfolio 12.29% N/A N/A 13.52%
(Portfolio Inception: 9/13/93)
Janus International Growth Portfolio 28.33% N/A N/A 16.64%
(Portfolio Inception: 5/2/94)
Janus Worldwide Growth Portfolio 22.73% N/A N/A 20.54%
(Portfolio Inception: 9/13/93)
<PAGE>
Neuberger&Berman AMT Limited Maturity -1.68% 3.84% 5.20% 6.80%
Bond Portfolio
(Portfolio Inception: 9/10/84)
Neuberger&Berman AMT Partners Portfolio 23.26% N/A N/A 18.85%
(Portfolio Inception: 3/22/94)
Northstar Growth Fund 16.87% N/A N/A 16.03%
(Portfolio Inception: 5/6/94)
Northstar High Yield Bond Fund 10.28% N/A N/A 9.80%
(Portfolio Inception: 5/6/94)
Northstar Income and Growth Fund 7.69% N/A N/A 10.72%
(Portfolio Inception: 5/6/94)
Northstar International Value Fund N/A N/A N/A N/A
(Portfolio Inception: 8/8/97)
Northstar Multi-Sector Bond Fund 7.18% N/A N/A 8.24%
(Portfolio Inception: 5/6/94)
OCC Equity Portfolio* 17.13% 16.12% N/A 14.95%
(Portfolio Inception: 8/1/88)
OCC Global Equity Portfolio 8.89% N/A N/A 14.72%
(Portfolio Inception: 3/1/95)
OCC Managed Portfolio* 16.55% 17.53% N/A 18.48%
(Portfolio Inception: 8/1/88)
OCC Small Cap Portfolio* 12.55% 12.92% N/A 13.13%
(Portfolio Inception: 8/1/88)
Putnam VT Diversified Income Fund 2.77% N/A N/A 4.80%
(Portfolio Inception: 8/8/97)
Putnam VT Growth and Income Fund 15.70% 14.36% N/A 14.24%
(Portfolio Inception: 2/1/88)
Putnam VT Utilities Growth and Income 9.66% N/A N/A 10.00%
Fund
(Portfolio Inception: 5/1/92)
Putnam VT Voyager Fund 6.87% 14.43% N/A 15.57%
(Portfolio Inception: 2/1/88)
</TABLE>
<PAGE>
The Company may also disclose average annual total returns for the
Investment Fund's Portfolios, including such disclosure for periods prior to the
date the Variable Account commenced operations.
Such average annual total return information for the Portfolios of the
Investment Funds is as follows:
<TABLE>
<CAPTION>
For the period from
For the 1-year For the 5-year For the 10-year date of inception of
Sub-Account period ended period ended period ended Fund Portfolio to
12/31/96 12/31/96 12/31/96 12/31/96
------------ ------------ -------- --------
<S> <C> <C> <C> <C>
Alger American Growth Portfolio 13.35% 16.63% N/A 18.65%
(Portfolio Inception: 1/9/89)
Alger American MidCap Growth Portfolio 11.90% N/A N/A 24.10%
(Portfolio Inception: 5/3/93)
Alger American Small Capitalization 4.18% 11.02% N/A 20.21%
Portfolio
(Portfolio Inception: 9/21/88)
Fidelity's VIP Equity-Income Portfolio 14.28% 17.98% 13.74% 13.44%
(Portfolio Inception: 10/9/86)
Fidelity's VIP Growth Portfolio 14.71% 15.16% 15.15% 14.83%
(Portfolio Inception: 10/9/86)
Fidelity's VIP High Income Portfolio 14.03% 14.96% 11.12% 12.01%
(Portfolio Inception: 9/19/85)
Fidelity's VIP Overseas Portfolio 13.22% 9.13% N/A 7.91%
(Portfolio Inception: 1/28/87)
Fidelity's VIP II Asset Manager 14.60% 11.26% N/A 11.70%
Portfolio
(Portfolio Inception: 9/6/89)
Fidelity's VIP II Contrafund Portfolio 21.31% N/A N/A 30.33%
(Portfolio Inception 1/3/95)
Fidelity's VIP II Index 500 Portfolio 22.82% N/A N/A 17.11%
(Portfolio Inception: 8/27/92)
Fidelity's VIP II Investment Grade 3.19% 6.64% N/A 8.20%
Bond Portfolio
(Portfolio Inception: 12/5/88)
Janus Aggressive Growth Portfolio 7.95% N/A N/A 21.28%
(Portfolio Inception: 9/13/93)
Janus Growth Portfolio 18.45% N/A N/A 16.18%
(Portfolio Inception: 9/13/93)
Janus International Growth Portfolio 34.71% N/A N/A 19.63%
(Portfolio Inception: 5/2/94)
Janus Worldwide Growth Portfolio 29.04% N/A N/A 23.15%
(Portfolio Inception: 9/13/93)
Neuberger&Berman AMT Limited Maturity 4.31% 5.32% 6.68% 8.29%
Bond Portfolio
(Portfolio Inception: 9/10/84)
<PAGE>
Neuberger&Berman AMT Partners Portfolio 29.57% N/A N/A 21.75%
(Portfolio Inception: 3/22/94)
Northstar Growth Fund 23.10% N/A N/A 19.03%
(Portfolio Inception: 5/6/94)
Northstar High Yield Bond Fund 16.42% N/A N/A 12.83%
(Portfolio Inception: 5/6/94)
Northstar Income and Growth Fund 13.80% N/A N/A 13.75%
(Portfolio Inception: 5/6/94)
Northstar International Value Fund N/A N/A N/A N/A
(Portfolio Inception: 8/8/97)
Northstar Multi-Sector Bond Fund 13.28% N/A N/A 11.29%
(Portfolio Inception: 5/6/94)
OCC Equity Portfolio* 23.36% 17.72% N/A 16.54%
(Portfolio Inception: 8/1/88)
OCC Global Equity Portfolio 15.01% N/A N/A 18.57%
(Portfolio Inception: 3/1/95)
OCC Managed Portfolio* 22.77% 19.15% N/A 20.11%
(Portfolio Inception: 8/1/88)
OCC Small Cap Portfolio* 18.72% 14.48% N/A 14.69%
(Portfolio Inception: 8/1/88)
Putnam VT Diversified Income Fund 8.81% N/A N/A 7.53%
(Portfolio Inception: 9/15/93)
Putnam VT Growth and Income Fund 21.92% 15.97% N/A 15.88%
(Portfolio Inception: 2/1/88)
Putnam VT Utilities Growth and Income 15.80% N/A N/A 12.24%
Fund
(Portfolio Inception: 5/1/92)
Putnam VT Voyager Fund 12.97% 16.03% N/A 17.23%
(Portfolio Inception: 2/1/88)
</TABLE>
OTHER TOTAL RETURNS. From time to time, sales literature or
advertisements may quote average annual total returns for the Sub-Accounts that
do not reflect the Surrender Charge. Such performance information may quote
average annual total returns for periods during which the Sub-Accounts were
operating and for periods prior to the date the Sub-Accounts commenced
operations. These returns are calculated in exactly the same way as average
annual total returns described above, except that the ending redeemable value of
the hypothetical account for the period is replaced with an ending value for the
period that does not take into account any charges on amounts surrendered or
withdrawn. Such information is as follows:
<PAGE>
Returns Since Sub-Accounts Commenced Operations
<TABLE>
<CAPTION>
For the period from
For the 1-year For the 5-year For the 10-year date of inception of
Sub-Account period ended period ended period ended Fund Portfolio to
12/31/96 12/31/96 12/31/96 12/31/96
------------ ------------ -------- --------
<S> <C> <C> <C> <C>
Alger American Growth Portfolio N/A N/A N/A N/A
(Sub-Account Inception: 8/8/97)
Alger American MidCap Growth Portfolio N/A N/A N/A N/A
(Sub-Account Inception: 8/8/97)
Alger American Small Capitalization N/A N/A N/A N/A
Portfolio
(Sub-Account Inception: 8/8/97)
Fidelity's VIP Equity-Income Portfolio 12.67% 16.35% N/A 13.04%
(Sub-Account Inception: 5/1/88)
Fidelity's VIP Growth Portfolio 13.09% 13.57% N/A 14.21%
(Sub-Account Inception: 5/1/88)
Fidelity's VIP High Income Portfolio 12.42% 13.38% N/A 10.41%
(Sub-Account Inception: 5/1/88)
Fidelity's VIP Overseas Portfolio 11.62% 7.60% N/A 7.61%
(Sub-Account Inception: 5/1/88)
Fidelity's VIP II Asset Manager 12.99% 9.71% N/A 9.89%
Portfolio
(Sub-Account Inception: 5/1/91)
Fidelity's VIP II Contrafund Portfolio N/A N/A N/A N/A
(Sub-Account Inception 8/8/97)
Fidelity's VIP II Index 500 Portfolio 21.10% N/A N/A 16.20%
(Sub-Account Inception: 5/3/93)
Fidelity's VIP II Investment Grade 1.72% 5.14% N/A 6.34%
Bond Portfolio
(Sub-Account Inception: 5/1/91)
Janus Aggressive Growth Portfolio N/A N/A N/A N/A
(Sub-Account Inception: 8/8/97)
Janus Growth Portfolio N/A N/A N/A N/A
(Sub-Account Inception: 8/8/97)
Janus International Growth Portfolio N/A N/A N/A N/A
(Sub-Account Inception: 8/8/97)
Janus Worldwide Growth Portfolio N/A N/A N/A N/A
(Sub-Account Inception: 8/8/97)
Neuberger&Berman AMT Limited Maturity N/A N/A N/A N/A
Bond Portfolio
(Sub-Account Inception: 8/8/97)
Neuberger&Berman AMT Partners Portfolio N/A N/A N/A N/A
(Sub-Account Inception: 8/8/97)
<PAGE>
Northstar Growth Fund N/A N/A N/A N/A
(Sub-Account Inception: 8/8/97)
Northstar High Yield Bond Fund N/A N/A N/A N/A
(Sub-Account Inception: 8/8/97)
Northstar Income and Growth Fund N/A N/A N/A N/A
(Sub-Account Inception: 8/8/97)
Northstar International Value Fund N/A N/A N/A N/A
(Sub-Account Inception: 8/8/97)
Northstar Multi-Sector Bond Fund N/A N/A N/A N/A
(Sub-Account Inception: 8/8/97)
OCC Equity Portfolio N/A N/A N/A N/A
(Sub-Account Inception: 8/8/97)
OCC Global Equity Portfolio N/A N/A N/A N/A
(Sub-Account Inception: 8/8/97)
OCC Managed Portfolio N/A N/A N/A N/A
(Sub-Account Inception: 8/8/97)
OCC Small Cap Portfolio N/A N/A N/A N/A
(Sub-Account Inception: 8/8/97)
Putnam VT Diversified Income Fund 7.27% N/A N/A 8.36%
(Sub-Account Inception: 5/2/94)
Putnam VT Growth and Income Fund 20.20% N/A N/A 20.38%
(Sub-Account Inception: 5/2/94)
Putnam VT Utilities Growth and Income 14.16% N/A N/A 14.49%
Fund
(Sub-Account Inception: 5/2/94)
Putnam VT Voyager Fund 11.37% N/A N/A 19.70%
(Sub-Account Inception: 5/2/94)
</TABLE>
<PAGE>
Returns Including Period Prior to Date Sub-Accounts Commenced Operations
<TABLE>
<CAPTION>
For the period from
For the 1-year For the 5-year For the 10-year date of inception of
Sub-Account period ended period ended period ended Fund Portfolio to
12/31/96 12/31/96 12/31/96 12/31/96
------------ ------------ -------- --------
<S> <C> <C> <C> <C>
Alger American Growth Portfolio 11.75% 15.02% N/A 17.10%
(Portfolio Inception: 1/9/89)
Alger American MidCap Growth Portfolio 10.31% N/A N/A 22.40%
(Portfolio Inception: 5/3/93)
Alger American Small Capitalization 2.70% 9.47% N/A 18.58%
Portfolio
(Portfolio Inception: 9/21/88)
Fidelity's VIP Equity-Income Portfolio 12.67% 16.35% 12.18% 11.87%
(Portfolio Inception: 10/9/86)
Fidelity's VIP Growth Portfolio 13.09% 13.57% 13.58% 13.25%
(Portfolio Inception: 10/9/86)
Fidelity's VIP High Income Portfolio 12.42% 13.38% 9.58% 10.47%
(Portfolio Inception: 9/19/85)
Fidelity's VIP Overseas Portfolio 11.62% 7.60% N/A 6.39%
(Portfolio Inception: 01/28/87)
Fidelity's VIP II Asset Manager 12.99% 9.71% N/A 10.15%
Portfolio
(Portfolio Inception: 9/6/89)
Fidelity's VIP II Contrafund Portfolio 19.60% N/A N/A 28.44%
(Portfolio Inception 1/3/95)
Fidelity's VIP II Index 500 Portfolio 21.10% N/A N/A 15.47%
(Portfolio Inception: 8/27/92)
Fidelity's VIP II Investment Grade 1.72% 5.14% N/A 6.70%
Bond Portfolio
(Portfolio Inception: 12/5/88)
Janus Aggressive Growth Portfolio 6.42% N/A N/A 19.58%
(Portfolio Inception: 9/13/93)
Janus Growth Portfolio 16.79% N/A N/A 14.53%
(Portfolio Inception: 9/13/93)
Janus International Growth Portfolio 32.83% N/A N/A 17.93%
(Portfolio Inception: 5/2/94
Janus Worldwide Growth Portfolio 27.23% N/A N/A 21.42%
(Portfolio Inception: 9/13/93
Neuberger&Berman AMT Limited Maturity 2.82% 3.84% 5.20% 6.80%
Bond Portfolio
(Portfolio Inception: 9/10/84)
Neuberger&Berman AMT Partners Portfolio 27.76% N/A N/A 20.03%
(Portfolio Inception: 3/22/94)
<PAGE>
Northstar Growth Fund 21.37% N/A N/A 17.35%
(Portfolio Inception: 5/6/94)
Northstar High Yield Bond Fund 14.78% N/A N/A 11.23%
(Portfolio Inception: 5/6/94)
Northstar Income and Growth Fund 12.19% N/A N/A 12.14%
(Portfolio Inception: 5/6/94)
Northstar International Value Fund N/A N/A N/A N/A
(Portfolio Inception: 8/8/97)
Northstar Multi-Sector Bond Fund 11.68% N/A N/A 9.71%
(Portfolio Inception: 5/6/94)
OCC Equity Portfolio* 21.63% 16.12% N/A 14.95%
(Portfolio Inception: 8/1/88)
OCC Global Equity Portfolio 13.39% N/A N/A 16.88%
(Portfolio Inception: 3/1/95)
OCC Managed Portfolio* 21.05% 17.53% N/A 18.48%
(Portfolio Inception: 8/1/88)
OCC Small Cap Portfolio* 17.05% 12.92% N/A 13.13%
(Portfolio Inception: 8/1/88)
Putnam VT Diversified Income Fund 7.27% N/A N/A 6.01%
(Portfolio Inception: 9/15/93)
Putnam VT Growth and Income Fund 20.20% 14.36% N/A 14.24%
(Portfolio Inception: 2/1/88)
Putnam VT Utilities Growth and Income 14.16% N/A N/A 10.67%
Fund
(Portfolio Inception: 5/1/92)
Putnam VT Voyager Fund 11.37% 14.43% N/A 15.57%
(Portfolio Inception: 2/1/88)
</TABLE>
* On September 16, 1994, an investment company then called Quest for Value
Accumulation Trust (the "Old Trust") was effectively divided into two investment
funds, the Old Trust and the present OCC Accumulation Trust (the "Trust") - at
which time the Trust commenced operations. The total net assets for the Equity,
Managed, and Small Cap Portfolios immediately after the transaction were
$86,789,755, $682,601,380, and $139,812,573, respectively, with respect to the
Old Trust and for the Equity, Managed, and Small Cap Portfolios, $3,764,598,
$51,345,102, and $8,129,274, respectively with respect to the Trust. For the
period prior to September 14, 1994, the performance figures for each of the
Equity, Managed, and Small Cap Portfolios reflect the performance of the
corresponding Portfolios of the Old Trust.
The Investment Funds have provided the total return information for the
Portfolios, including the Portfolio total return information used to calculate
the total returns of the Sub-Accounts for periods prior to the inception of the
Sub-Accounts. The Alger American Fund, Fidelity's Variable Insurance Products
Fund, Fidelity's Variable Insurance Products Fund II, Janus Aspen Series,
Neuberger&Berman Advisers Management Trust, OCC Accumulation Trust, and Putnam
Variable Trust are not affiliated with the Company.
<PAGE>
The Company may disclose Cumulative Total Returns in conjunction with
the standard formats described above. The Cumulative Total Returns will be
calculated using the following formula.
CTR = ERV/P - 1
Where:
CTR = The Cumulative Total Return net of Sub-Account recurring charges
for the period.
ERV = the ending redeemable value of the hypothetical investment at the
end of the period.
P = a hypothetical single payment of $1,000.
EFFECT OF THE ANNUAL ADMINISTRATIVE CHARGE ON PERFORMANCE DATA. The
Contract provides for a $30 Annual Administrative Charge to be deducted annually
at the end of each Contract Year, from the Sub-Accounts and the Fixed Account
based on the proportion that the value of each such account bears to the total
Contract Value. For purposes of reflecting the Annual Administrative Charge in
yield and total return quotations, the annual charge is converted into an annual
charge per $1,000 invested based on the Annual Contract Charges collected from
the average total assets of the Variable Account and Fixed Account during the
calendar year ending December 31, 1996.
FINANCIAL STATEMENTS
This Statement of Additional Information incorporates by reference
Financial Statements for the Variable Account as of December 31, 1996 and for
each of the three years in the period then ended. Deloitte & Touche LLP serves
as independent auditors for the Variable Account. Although the financial
statements are audited, the period they cover is not necessarily indicative of
the longer term performance of the assets held in the Variable Account.
The Company's statements of financial condition as of December 31, 1996
and 1995, and the related statements of operations, shareholder's equity and
cash flows for the years ended December 31, 1996 and 1995 which are incorporated
by reference in this Statement of Additional Information, should be considered
only as bearing on the Company's ability to meet its obligations under the
Contracts. They should not be considered as bearing on the investment
performance of the assets held in the Variable Account.
<PAGE>
RELIASTAR SELECT VARIABLE ACCOUNT
Independent Auditors' Report*
Statement of Assets and Liabilities*
Statement of Operations and Changes in Contract Owners' Equity*
Notes to Financial Statements*
December 31, 1996
*Incorporated by reference to the Registrant's 1996 Annual Report to Contract
Owners filed on February 20, 1997.
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF RELIASTAR FINANCIAL CORP.)
Independent Auditors' Report**
Consolidated Balance Sheets**
Consolidated Statements of Income**
Consolidated Statements of Shareholder's Equity**
Consolidated Statements of Cash Flows**
Notes to Consolidated Financial Statements**
December 31, 1996
** Incorporated by reference to the financial statements contained in the
Prospectus filed as part of Pre-effective Amendment No. 1 to the Form S-6
Registration Statement of Select*Life Variable Account, File No. 333-18517,
filed March 31, 1997.
