As filed with the Securities and Exchange Commission on May 13, 1998
Registration No. 333-47527
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-6
REGISTRATION STATEMENT
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
---------------
ReliaStar Life Insurance Company of New York
Variable Life Separate Account I
(Exact Name of Registrant)
ReliaStar Life Insurance Company of New York
1000 Woodbury Road
Woodbury, New York 11797
(Name and Address of Principal Executive Office of Depositor)
---------------
Stewart D. Gregg
Counsel
ReliaStar Life Insurance Company of New York
20 Washington Avenue South
Minneapolis, MN 55440
Copy to:
Jeffrey A. Proulx
Associate Counsel
ReliaStar Life Insurance Company of New York
20 Washington Avenue South
Minneapolis, MN 55440
It is proposed that this filing will become effective
- - immediately upon filing pursuant to paragraph (b) of Rule 485
- - on (date), 1998 pursuant to paragraph (b) of Rule 485
- - 60 days after filing pursuant to paragraph (a) of Rule 485
- - on (date), 1998 pursuant to paragraph (a) of Rule 485
Flexible Premium Variable Life Insurance Policies -- Title of Securities
Being Registered: Variable Life Contracts Issued by a Registered Separate
Account.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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- --------------------------------------------------------------------------------
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
VARIABLE LIFE SEPARATE ACCOUNT I
Cross Reference Sheet
(Reconciliation and Tie Sheet)
<TABLE>
<CAPTION>
Item Number of
Form N-8B-2 Heading in the Prospectus
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<S> <C>
1 Cover Page
2 Cover Page
3 Not Applicable
4 Distribution of the Policies
5 ReliaStar Life Insurance Company of New York and the Variable Account
6 The Variable Account
7 Not Applicable
8 Not Applicable
9 Not Applicable
10 Summary; Death Benefit; Payment and Allocation of Premiums; Death Benefit
Guarantee; Accumulation Value; Policy Lapse and Reinstatement; Surrender Benefits;
Investments of the Variable Account; Transfers; Policy Loans; Free Look and
Conversion Rights; Voting Rights; General Provisions; Appendix A; Appendix B
11 Deductions and Charges; Investments of the Variable Account
12 Investments of the Variable Account
13 Deductions and Charges
14 The Policies; Definitions; Distribution of the Policies
15 Payment and Allocation of Premiums; Investments of the Variable Account
16 Payment and Allocation of Premiums; Surrender Benefits; Investments of the Variable
Account
17 Surrender Benefits; Policy Loans; Free Look and Conversion Rights; General
Provisions
18 The Variable Account; Investments of the Variable Account; Payment and Allocation of
Premiums
19 Voting Rights, General Provisions
20 Not Applicable
21 Policy Loans
22 Not Applicable
23 Bonding Arrangements
24 Definitions; General Provisions
25 ReliaStar Life Insurance Company of New York
26 Not Applicable
27 ReliaStar Life Insurance Company of New York; Other Contracts Issued by Us
28 Management
29 ReliaStar Life Insurance Company of New York
30 Not Applicable
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 Not Applicable
36 Not Applicable
37 Not Applicable
38 Distribution of the Policies
39 Distribution of the Policies
40 Distribution of the Policies
41 Distribution of the Policies
42 Not Applicable
43 Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Item Number of
Form N-8B-2 Heading in the Prospectus
- --------------- ------------------------------------------------------------------------------------
<S> <C>
44 Investments of the Variable Account; Payment Allocation of Premiums; Deductions and
Charges
45 Not Applicable
46 Investments of the Variable Account; Deductions and Charges
47 Investments of the Variable Account
48 ReliaStar Life Insurance Company of New York; State Regulation
49 Not Applicable
50 The Variable Account
51 Cover Page; The Policies; Death Benefit; Payment and Allocation of Premiums;
Deductions and Charges; Policy Lapse and Reinstatement; General Provisions; Free
Look and Conversion Rights
52 Investments of the Variable Account
53 Federal Tax Matters
54 Not Applicable
55 Not Applicable
56 Not Applicable
57 Not Applicable
58 Not Applicable
59 Not Applicable
</TABLE>
<PAGE>
1000 Woodbury Road
Woodbury, NY 11797
(516) 682-8700
---------------------------
SURVIVORSHIP FLEXIBLE PREMIUM VARIABLE
LIFE INSURANCE POLICIES
Issued by
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
VARIABLE LIFE SEPARATE ACCOUNT I
of
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
This Prospectus describes a survivorship flexible premium variable life
insurance policy (the "Policy") offered by ReliaStar Life Insurance Company of
New York ("we", "us", "our" or the "Company"). This Policy is designed to
provide lifetime insurance protection to age 100 of the younger Joint Insured.
It also is designed to provide flexibility in connection with premium payments
and death benefits. The Policy owner ("you", "your") may allocate net premiums
among investment alternatives with different investment objectives. A Policy
owner may, subject to certain restrictions, including limitations on premium
payments, vary the frequency and amount of premium payments and increase or
decrease the level of death benefits payable under the Policy. This flexibility
allows a Policy owner to provide for changing insurance needs under a single
insurance contract.
(Continued on next page)
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 FUNDS AND INTERESTS IN THE POLICIES ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY A BANK, AND THE SHARES AND
INTERESTS ARE NOT FEDERALLY INSURED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY. ANY INVESTMENT IN THE
POLICY INVOLVES CERTAIN INVESTMENT RISK WHICH MAY INCLUDE THE POSSIBLE LOSS OF
PRINCIPAL.
This Prospectus should be read carefully and retained for future reference. A
current Prospectus or Prospectus Profile for each of the funds must accompany
this Prospectus and should be read in conjunction with this Prospectus.
The date of this Prospectus is May , 1998.
1
<PAGE>
The Policy provides for a Death Benefit payable at the Surviving Joint
Insured's death. As long as the Policy remains in force, the Death Benefit up
to age 100 of the younger Joint Insured will never be less than the current
Face Amount less any Policy loans and unpaid charges. After age 100 of the
younger Joint Insured the Death Benefit is equal to the Accumulation Value. The
Face Amount may be increased, subject to certain limitations. Generally, the
Policy will remain in force as long as the Policy's Cash Surrender Value (that
is, the amount that would be paid to you upon surrender of the Policy) is
sufficient to pay certain monthly charges imposed in connection with the Policy
(including the cost of insurance and certain administrative charges). In
addition, the Policy will remain in force during the Death Benefit Guarantee
Period specified in your Policy, without regard to the Cash Surrender Value, if
on each Monthly Anniversary the total premiums paid on the Policy, less any
partial withdrawals and Policy loans, equals or exceeds the total required
Minimum Monthly Premium payments specified in your Policy (which is a feature
of the Policy called the "Death Benefit Guarantee").
You can allocate net premiums paid under the Policy to the ReliaStar Life
Insurance Company of New York Variable Life Separate Account I (the "Variable
Account"), which is one of our separate accounts, or to our General Account
(the "Fixed Account"). Any amounts allocated to the Variable Account will be
allocated to one or more Sub-Accounts of the Variable Account. The assets of
each Sub-Account will be invested solely in one of the three portfolios
available through The Alger American Fund, in one of the four portfolios of
Fidelity Variable Insurance Products Fund ("VIP"), in one of the three
portfolios of Fidelity Variable Insurance Products Fund II ("VIP II"), in one
of the four portfolios of Janus Aspen Series, in one of the two portfolios
available through Neuberger&Berman Advisers Management Trust, in one of the
five portfolios available through the Northstar Variable Trust, in one of four
portfolios available through the OCC Accumulation Trust and in one of the three
funds available through Putnam Variable Trust, (collectively the "Funds").
If net premiums are allocated to the Variable Account, the amount of the
Policy's Death Benefit may, and the Policy's Accumulation Value (that is, the
total amount that a Policy provides for investment at any time) will, reflect
the investment performance of the Sub-Accounts of the Variable Account that you
select. You bear the entire investment risk for any amounts allocated to the
Variable Account; no minimum Accumulation Value in the Variable Account is
guaranteed. Regardless of how net premiums are allocated, the Policy's Death
Benefit may, and the Policy's Accumulation Value will, also depend upon the
frequency and amount of premiums paid, any partial withdrawals, loans, and the
charges and deductions assessed in connection with the Policy.
Replacing existing insurance with a Policy described in this Prospectus may not
be to your advantage. In addition, it may not be to your advantage to purchase
this Policy to obtain additional insurance protection if you already own
another survivorship flexible premium variable life insurance policy.
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
DEFINITIONS ...................................................................... 6
PART 1. SUMMARY
Premium Payments ................................................................. 9
Deductions From Each Premium Payment ............................................. 9
The Fixed Account ................................................................ 9
The Variable Account ............................................................. 9
The Investment Advisers of the Funds ............................................. 9
The Funds ........................................................................ 10
Transfers Between the Sub-Accounts and/or the Fixed Account ...................... 10
Charges Against the Accumulation Value ........................................... 10
Charges Made Upon Lapse or Total Surrender of the Policy ......................... 11
The Value of the Policy If You Surrender It ...................................... 11
Partial Withdrawals .............................................................. 11
The Free Look Rights ............................................................. 11
Borrowing Against the Value of the Policy ........................................ 11
The Death Benefit ................................................................ 11
You May Adjust the Amount of the Death Benefit ................................... 11
The Death Benefit Guarantee ...................................................... 12
Unless the Death Benefit Guarantee is in Effect, We May Cause the Policy to Lapse 12
Death Benefit Proceeds Generally Not Taxable Income to the Beneficiary ........... 12
Accumulation Value Increases Generally Not Taxable Income While Accumulating ..... 12
Exercising Certain Policy Rights and Tax Consequences ............................ 12
Modified Endowment Contracts ..................................................... 12
PART 2. DETAILED INFORMATION
ReliaStar Life Insurance Company of New York ..................................... 12
The Variable Account ............................................................. 13
Performance Information .......................................................... 13
The Policies ..................................................................... 14
Death Benefit .................................................................... 14
Death Benefit Options ........................................................... 15
Which Death Benefit Option to Choose ............................................ 16
Requested Changes in Face Amount ................................................ 16
Insurance Protection ............................................................ 17
Change in Death Benefit Option .................................................. 18
Payment and Allocation of Premiums ............................................... 19
Issuing the Policy .............................................................. 19
Allocation of Premiums .......................................................... 20
Amount and Timing of Premiums ................................................... 20
Planned Periodic Premiums ....................................................... 21
Unscheduled Additional Premiums ................................................. 21
Paying Premiums By Mail ......................................................... 21
Death Benefit Guarantee .......................................................... 21
Requirements .................................................................... 22
Accumulation Value ............................................................... 22
Specialized Uses of the Policy ................................................... 23
Deductions and Charges ........................................................... 23
Premium Expense Charge .......................................................... 23
Monthly Deduction ............................................................... 24
Surrender Charge ................................................................ 25
Partial Withdrawal and Transfer Charges ......................................... 26
The Investment Advisory Fees and Other Fund Expenses After Reimbursement ........ 26
Reduction of Charges ............................................................ 28
Policy Lapse and Reinstatement ................................................... 29
Surrender Benefits ............................................................... 29
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Total Surrender ......................................................................... 29
Partial Withdrawal ...................................................................... 29
Transfers ................................................................................ 30
Telephone/Fax Instructions .............................................................. 31
Dollar Cost Averaging Service ........................................................... 31
Portfolio Rebalancing Service ........................................................... 31
Transfer Limits ......................................................................... 32
Transfer Charges ........................................................................ 32
Policy Loans ............................................................................. 32
Free Look and Conversion Rights .......................................................... 34
Free Look Rights ........................................................................ 34
Conversion Rights ....................................................................... 34
Investments of the Variable Account ...................................................... 34
Fund Descriptions ........................................................................ 36
Addition, Deletion, or Substitution of Investments ...................................... 36
Voting Rights ............................................................................ 37
General Provisions ....................................................................... 38
Benefits After Age 100 .................................................................. 38
Ownership ............................................................................... 38
Proceeds ................................................................................ 38
Beneficiary ............................................................................. 38
Postponement of Payments ................................................................ 38
Settlement Options ...................................................................... 39
Incontestability ........................................................................ 40
Misstatement of Age and Sex ............................................................. 40
Suicide ................................................................................. 40
Termination ............................................................................. 40
Amendment ............................................................................... 40
Reports ................................................................................. 40
Dividends ............................................................................... 41
Collateral Assignment ................................................................... 41
Optional Insurance Benefits ............................................................. 41
Federal Tax Matters ...................................................................... 41
Introduction ............................................................................ 41
Tax Status of the Policy ................................................................ 42
Tax Treatment of Policy Benefits ........................................................ 42
Taxation of ReliaStar Life Insurance Company of New York ................................ 43
Possible Changes in Taxation ............................................................ 43
Other Considerations .................................................................... 44
Preparing for Year 2000 .................................................................. 44
Distribution of the Policies ............................................................. 44
Management ............................................................................... 44
Directors and Officers .................................................................. 45
State Regulation ......................................................................... 47
Legal Proceedings ........................................................................ 47
Bonding Arrangements ..................................................................... 47
Legal Matters ............................................................................ 47
Experts .................................................................................. 47
Registration Statement Contains Further Information ...................................... 47
Financial Statements ..................................................................... 48
Appendix A -- The Fixed Account .......................................................... A-1
Appendix B -- Calculation of Accumulation Value .......................................... B-1
Appendix C -- Illustration of Accumulation Values, Surrender Charges, Cash Surrender
Values and
Death Benefits ........................................................................... C-1
Appendix D -- Monthly Amount Charge Per $1,000 of Face Amount............................ D-1
</TABLE>
4
<PAGE>
FUND PROSPECTUSES ("Select[STAR]Product Investment Options")
The Alger American Fund
Fidelity Variable Insurance Products Fund ("VIP")
Fidelity Variable Insurance Products Fund II ("VIP II")
Janus Aspen Series
Neuberger&Berman Advisers Management Trust ("AMT")
Northstar Variable Trust ("Northstar")
OCC Accumulation Trust
Putnam Variable Trust
The Policy may not be available in all jurisdictions. This Prospectus does not
constitute an offering or solicitation in any jurisdiction in which such
offering or solicitation may not lawfully be made. No person is authorized to
give any information or to make any representations in connection with this
offering other than those contained in this Prospectus or the accompanying Fund
prospectuses and, if given or made, such information or representations must
not be relied upon as having been authorized.
The primary purpose of the Policy is to provide insurance protection for the
beneficiary named in the Policy. No claim is made that the Policy is in any way
similar or comparable to a systematic investment plan or a mutual fund.
5
<PAGE>
DEFINITIONS
Accumulation Value. The total value attributable to a specific Policy, which
equals the sum of the Variable Accumulation Value (the total of the values
in each Sub-Account of the Variable Account) and the Fixed Accumulation
Value (the value in the Fixed Account). See "Accumulation Value" at page 22
and Appendix B.
Average Age. The sum of the ages of the Joint Insureds divided by two rounded
to the higher age.
Cash Surrender Value. The Accumulation Value less any Surrender Charge, Loan
Amount and unpaid Monthly Deductions.
Cash Value. The Accumulation Value less any Surrender Charge.
Code. Internal Revenue Code of 1986, as amended.
Death Benefit. The amount determined under the applicable Death Benefit Option
(the Level Amount Option or the Variable Amount Option). The proceeds
payable to the beneficiary of the Policy upon the death of the Surviving
Joint Insured under either Death Benefit Option will be reduced by any Loan
Amount and any unpaid Monthly Deductions. See "Death Benefit" at page 14.
Death Benefit Guarantee. A feature of the Policy guaranteeing that the Policy
will not lapse during the Death Benefit Guarantee Period specified in your
Policy if, on each Monthly Anniversary, the total premiums paid on the
Policy, less any partial withdrawals and any Loan Amount, equals or exceeds
the total required Minimum Monthly Premium payments specified in your
Policy, including the Minimum Monthly Premium for the current Monthly
Anniversary. See "Death Benefit Guarantee" at page 21.
Death Benefit Option. Either of two death benefit options available under the
Policy (the Level Amount Option and the Variable Amount Option). See "Death
Benefit -- Death Benefit Options" at page 15.
Face Amount. The minimum Death Benefit under the Policy to age 100 of the
younger Joint Insured as long as the Policy remains in force. See "Death
Benefit" at page 14.
Fixed Account. The assets of ReliaStar Life Insurance Company of New York other
than those allocated to the Variable Account or any other separate account.
See Appendix A.
Fixed Accumulation Value. The value attributable to a specific Policy to the
extent such amount is attributable to the Fixed Account (our General
Account). Unlike the Variable Accumulation Value, the Fixed Accumulation
Value will not reflect the investment performance of the Funds. See
"Accumulation Value" at page 22 and Appendix B.
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. See "Investments of the Variable Account" at page 34.
Issue Date. The date insurance coverage under a Policy begins.
Joint Insureds. The persons upon whose lives this Policy is issued.
Level Amount Option. One of two Death Benefit Options available under the
Policy. Under this option, the Death Benefit is the greater of the current
Face Amount or the Accumulation Value multiplied by the corridor percentage
according to the younger Joint Insured's attained age. After age 100 the
Death Benefit is equal to the Accumulation Value. See "Death Benefit --
Death Benefit Options" at page 15.
Loan Amount. The sum of all unpaid Policy loans including unpaid interest due
thereon. See "Policy Loans" at page 32.
Minimum Face Amount. The minimum Face Amount shown in the Policy (currently
$250,000).
Minimum Monthly Premium. A monthly premium amount specified in the Policy and
determined by us at issuance of the Policy. See "Death Benefit Guarantee"
at page 21.
6
<PAGE>
Monthly Anniversary. The same date in each succeeding month as the Policy Date.
Whenever the Monthly Anniversary falls on a date other than a Valuation
Date, the Monthly Anniversary will be considered to be the next Valuation
Date. The Monthly Anniversary begins with the Policy Date.
Monthly Deduction. A monthly charge deducted from the Accumulation Value of the
Policy. See "Deductions and Charges -- Monthly Deduction" at page 24.
Monthly Administrative Charge. A monthly charge to reimburse us for expenses
incurred in administering the Policy. See "Deductions and Charges --
Monthly Deduction" at page 24.
Monthly Amount Charge. A monthly charge per $1,000 of Face Amount to reimburse
us for expenses incurred in distributing and issuing the Policy. See
"Deductions and Charges -- Monthly Deduction" at page 24. See Appendix D
for the Monthly Amount Charge per $1,000 of Face Amount.
Monthly Mortality and Expense Risk Charge. A monthly charge to compensate us
for certain mortality and expense risks we assume under the Policy. See
"Deductions and Charges -- Monthly Mortality and Expense Risk Charge" at
page 24.
Net Premium. The gross premium less a Premium Expense Charge deducted from each
premium.
Planned Periodic Premium. The scheduled premium selected by you of a level
amount at a fixed interval. The initial Planned Periodic Premium you select
will be shown in the Policy. See "Payment and Allocation of Premiums --
Planned Periodic Premiums" at page 21.
Policy, Policies. The survivorship flexible premium variable life insurance
Policy offered by us and described in this Prospectus.
Policy Anniversary. The same date in each succeeding year as the Policy Date.
Whenever the Policy Anniversary falls on a date other than a Valuation
Date, the Policy Anniversary will be considered to be the next Valuation
Date.
Policy Date. The Policy Date is used in determining Policy Years, Policy
Months, Monthly Anniversaries, and Policy Anniversaries. The Policy Date
will be shown in the Policy.
Policy Month. A month beginning on the Monthly Anniversary.
Policy Year. A year beginning on the Policy Anniversary.
Premium Expense Charge. An amount deducted from each premium payment. See
"Deductions and Charges -- Premium Expense Charge" at page 23.
Rate Class. A group of Insureds we determine based on our expectation that they
will have similar mortality experience.
SEC. Securities and Exchange Commission.
Signature Guarantee. A guarantee of your signature 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 us.
Sub-Account. A sub-division of the Variable Account. Each Sub-Account invests
exclusively in the shares of a specified Fund.
Surrender Charge. A charge imposed upon total surrender or lapse of the Policy
during the first 15 Policy Years and the first 15 years following any
requested increase in Face Amount. See "Deductions and Charges -- Surrender
Charge" at page 25.
Surviving Joint Insured. The Joint Insured who remains alive after the other
Joint Insured has died.
Unit Value. The unit measure by which the value of the Policy's interest in
each Sub-Account is determined. See Appendix B.
Valuation Date. Each day on which 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
7
<PAGE>
closed on weekends and on the following holidays: New Year's Day; Martin
Luther King, Jr. Day; Presidents' Day; Good Friday; Memorial Day; July
Fourth; Labor Day; Thanksgiving Day; and Christmas Day.
Valuation Period. The period between two successive Valuation Dates, commencing
at the close of business of a Valuation Date and ending at the close of
business of the next Valuation Date. See Appendix B.
Variable Account. ReliaStar Life Insurance Company of New York Variable Life
Separate Account I, a separate investment account established by us to
receive and invest Net Premiums paid under the Policy. See "The Variable
Account" at page 9.
Variable Accumulation Value. The value attributable to a specific Policy to the
extent such amount is attributable to the Variable Account. See
"Accumulation Value" and Appendix B.
Variable Amount Option. One of two Death Benefit Options available under the
Policy. Under this option, the Death Benefit is the greater of the Face
Amount plus the Accumulation Value of the Policy, or the Accumulation Value
multiplied by the corridor percentage on the Valuation Date on or next
following the date of the younger Joint Insured's death. After age 100 the
Death Benefit is equal to the Accumulation Value. See "Death Benefit --
Death Benefit Options" at page 15.
We, Us, Our or the Company. ReliaStar Life Insurance Company of New York.
You, Your. The Policy owner(s) as designated in the application for the Policy
or as subsequently changed. If a Policy has been absolutely assigned, the
assignee is the Policy owner. A collateral assignee is not the Policy
owner.
8
<PAGE>
PART 1. SUMMARY
This is a brief summary of the Policy's features. More detailed
information is provided in this Prospectus and the Policy.
Premium Payments
With certain restrictions, you can choose when you pay premiums and how
much each payment will be. In most cases, however, payment of cumulative
premiums sufficient to maintain the Death Benefit Guarantee will be required to
keep the Policy in force during at least the first several Policy Years. See
"Death Benefit Guarantee" and "Payment and Allocation of Premiums -- Amount and
Timing of Premiums."
Deductions From Each Premium Payment
We deduct an amount (the Premium Expense Charge) from each premium and
credit the remaining premium (the Net Premium) to the Fixed Account or to the
Variable Account in accordance with your instructions. The Premium Expense
Charge is currently 6.25% of each premium payment in Policy Years 1-10 and
3.75% of each premium after the tenth Policy Year. See "Deductions and Charges
- -- Premium Expense Charge."
The Fixed Account
The Fixed Account consists of all of our assets other than those in our
separate accounts (including the Variable Account). We credit interest of at
least 4% per year on any amounts you have in the Fixed Account. From time to
time we may guarantee interest in excess of 4%. See Appendix A, "The Fixed
Account."
The Variable Account
The ReliaStar Life Insurance Company of New York Variable Life Separate
Account I is one of our separate accounts. Only premiums from our variable life
insurance policies are invested in the Variable Account. See "The Variable
Account." The Variable Account is divided into Sub-Accounts. Premiums allocated
to each Sub-Account are invested in shares, at net asset value, of the Fund
corresponding to that Sub-Account. The Variable Accumulation Value of the
Policy will vary with, among other things, the investment performance of the
Funds to which Policy premiums are allocated and the charges deducted from the
Variable Accumulation Value. See "Accumulation Value."
The Investment Advisers of the Funds
o Fred Alger Management, Inc. ("Alger Management") is the investment manager
for the three Alger American Portfolios.
o Fidelity Management & Research Company ("FMR") is the investment adviser of
the VIP Funds' four portfolios and the VIP II Funds' three portfolios.
o Janus Capital Corporation ("Janus Capital") is the investment adviser of the
four portfolios of Janus Aspen Series.
o Neuberger&Berman Management, with the assistance of Neuberger&Berman, LLC as
sub-adviser, is the investment manager of AMT Limited Maturity Bond
Investments and AMT Partners Investments.
o Northstar Investment Management Corporation, an affiliate of ours, is the
investment adviser of Northstar's five portfolios of the Northstar Variable
Trust. The Northstar Variable Trust Growth Portfolio is sub-advised by
Navellier Fund Management, Inc., and the Northstar Variable Trust
International Value Portfolio is sub-advised by Brandes Investment
Partners, L.P.
o OpCap Advisors is the investment manager for each of the four OCC
Accumulation Trust Portfolios and is a subsidiary of Oppenheimer Capital, a
registered investment adviser.
o Putnam Investment Management, Inc. ("Putnam Management") is the investment
adviser of Putnam Variable Trust's three funds.
For the expenses of each Fund see "The Investment Advisory Fees and Other
Fund Expenses After Reimbursement."
9
<PAGE>
The Funds
You can put your money in up to seventeen (17) of these twenty-eight (28)
investment portfolios which are described in the prospectuses for the
portfolios. You do not have to choose your investment options in advance, but
upon participation in the seventeenth Fund you would only be able to transfer
within the seventeen Funds already utilized. See "Investments of the Variable
Account."
<TABLE>
<CAPTION>
Fidelity Variable Insurance Neuberger&Berman OCC Accumulation
The Alger American Fund Fund II Advisers Management Trust Trust
- ------------------------- ----------------------------- --------------------------- ------------------------
<S> <C> <C> <C>
Growth Portfolio VIP II Contrafund Limited Maturity Bond Equity Portfolio
MidCap Growth Portfolio Portfolio Portfolio Global Equity Portfolio
Small Capitalization VIP II Index 500 Partners Portfolio Managed Portfolio
Portfolio Portfolio Small Cap Portfolio
VIP II Investment Grade
Bond Portfolio
Fidelity Variable Putnam Variable
Insurance Fund Janus Aspen Series Northstar Variable Trust Trust
- ------------------------- ----------------------------- --------------------------- ------------------------
VIP Equity-Income Aggressive Growth Northstar Growth Putnam VT Diversified
Portfolio Portfolio Portfolio Income Fund
VIP Growth Portfolio Growth Portfolio Northstar High-Yield Putnam VT Growth and
VIP High Income International Growth Bond Portfolio Income Fund
Portfolio Portfolio Northstar Income and Putnam VT Voyager
VIP Money Market Worldwide Growth Growth Portfolio Fund
Portfolio Portfolio Northstar International
Value Portfolio
Northstar Multi-Sector
Bond Portfolio
</TABLE>
Transfers Between the Sub-Accounts and/or the Fixed Account
Subject to certain restrictions, you can transfer all or part of your
Accumulation Value among the investment options of the Policy. We do not make a
charge for the first twelve transfers in a Policy Year. Transfers from the
Fixed Account are subject to certain additional restrictions. See "Transfers."
Charges Against the Accumulation Value
The Accumulation Value of the Policy is subject to the Monthly Deduction
charges.
The Monthly Deduction will be deducted monthly from both the Fixed
Accumulation Value and the Variable Accumulation Value and includes the cost of
insurance, the Monthly Administrative Charge, the Monthly Mortality and Expense
Risk Charge, the Monthly Amount Charge, and charges for optional insurance
benefits. The cost of insurance will be determined by multiplying the
applicable cost of insurance rate(s) by the net amount at risk. The Monthly
Administrative Charge is currently $7.50 per month and is guaranteed not to
exceed the product of $5.00 and the ratio (not to exceed 2.00) of (a) the
Consumer Price Index (for all urban households) for the preceding September to
(b) the Consumer Price Index for September 1985. The Monthly Amount Charge will
be determined by multiplying the Face Amount by the applicable charge per
$1,000 of Face Amount. This Charge applies only during the first 20 Policy
Years (and 20 Policy Years after any requested Face Amount increase relative to
the increase amounts). The Monthly Mortality and Expense Risk Charge is
anticipated to be an annual rate of .90% of the Variable Accumulation Value of
the Policy during the first 10 Policy Years. During each Policy Year
thereafter, it is anticipated that the charge will be an annual rate of .25%.
The Monthly Mortality and Expense Risk Charge is guaranteed not to exceed 1.20%
of the Variable Accumulation Value of the Policy for the first 10 Policy Years
and .55% of the Accumulation Value of the Policy per Policy Year thereafter.
The charges for optional insurance benefits will vary depending upon the
benefit(s) selected. See "Deductions and Charges -- Monthly Deduction."
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<PAGE>
Charges Made Upon Lapse or Total Surrender of the Policy
During the first 15 years the Policy is in force and the first 15 years
following a requested increase in the Face Amount, there is a charge if the
Policy lapses or you surrender the Policy (the Surrender Charge). See
"Deductions and Charges -- Surrender Charge."
The maximum Surrender Charge on the Initial Face Amount will be equal to
$8.50 per thousand of Initial Face Amount. The maximum Surrender Charge on any
requested increase in Face Amount will be equal to $8.50 per thousand of
increase in Face Amount. This maximum charge then remains level during the
first five years in the relevant 15 year period, and then reduces in equal
monthly increments until it becomes zero at the end of 15 years.
The Value of the Policy If You Surrender It
In general, the Cash Surrender Value is the amount you would receive if
you surrender the Policy. To determine the Cash Surrender Value, your
Accumulation Value is reduced by the Surrender Charge, if any, and any Loan
Amount and unpaid Monthly Deductions. See "Surrender Benefits -- Total
Surrender."
Partial Withdrawals
You can withdraw part of your Cash Surrender Value. You will not incur a
Surrender Charge, but partial withdrawals are subject to a processing charge.
Only one partial withdrawal is allowed in any Policy Year. See "Surrender
Benefits -- Partial Withdrawal."
The Free Look Rights
You have a limited free look period during which you have a right to
return the Policy and receive a refund of all premiums paid. See "Free Look and
Conversion Rights -- Free Look Rights." The Policy must be returned to us by
midnight of the 10th day after you receive it.
Borrowing Against the Value of the Policy
At any time after the first Policy Year, generally you can borrow up to
100% of the Cash Value of the Policy less any existing Loan Amount. Each loan
must be at least $500. Interest is payable in advance for each Policy Year and
accrues daily at an effective annual rate that will not exceed 6.00% (which is
5.66% when payable in advance). After the tenth Policy Year, we will charge
interest at an annual rate of 4.00% (which is 3.85% when payable in advance) on
the portion of your Loan Amount that is not in excess of (a) the Accumulation
Value, less (b) the total of all premiums paid net of all partial withdrawals.
See "Policy Loans."
The Death Benefit
You choose one of two Death Benefit Options -- the Level Amount Option or
the Variable Amount Option. The Death Benefit under the Level Amount Option is
the greater of the Face Amount or the Accumulation Value multiplied by the
corridor percentage according to the younger Joint Insured's attained age. The
Death Benefit under the Variable Amount Option is equal to the greater of the
Face Amount plus the Accumulation Value, or the Accumulation Value multiplied
by the corridor percentage according to the younger Joint Insured's attained
age. See "Death Benefit."
The proceeds payable upon the death of the Surviving Joint Insured under
either Death Benefit Option will be reduced by any Loan Amount and any unpaid
Monthly Deductions.
The Death Benefit up to age 100 of the younger Joint Insured will never be
less than the Face Amount as long as the Policy is in force and there is no
Loan Amount or unpaid Monthly Deductions. After age 100 the Death Benefit is
the Accumulation Value.
You May Adjust the Amount of the Death Benefit
After the fourth Policy Year, you have flexibility to adjust the Death
Benefit by increasing or decreasing the Face Amount. You cannot decrease the
Face Amount below the Minimum Face Amount shown in the Policy. Any increase in
the Face Amount must be at least $5,000 and may require additional evidence of
insurability satisfactory to us and will result in additional charges. See
"Death Benefit -- Requested Changes in Face Amount."
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<PAGE>
Generally, you may also change the Death Benefit Option at any time after
the fourth Policy Year. We may require evidence of insurability satisfactory to
us. See "Death Benefit -- Change in Death Benefit Option."
For a discussion of available techniques to adjust the amount of insurance
protection to satisfy changing insurance needs. See "Death Benefit -- Insurance
Protection."
The Death Benefit Guarantee
During the Death Benefit Guarantee Period specified in your Policy, if you
meet the requirements for the Death Benefit Guarantee we will not lapse your
Policy, even if the Cash Surrender Value is not sufficient to cover the Monthly
Deduction that is due. See "Death Benefit Guarantee."
Unless the Death Benefit Guarantee is in Effect, We May Cause the Policy to
Lapse
The Policy will only lapse if the Cash Surrender Value is less than the
Monthly Deduction due and if a grace period of 61 days expires without a
sufficient payment. The Policy thus differs in two important respects from
traditional life insurance. First, the failure to pay a Planned Periodic
Premium will not automatically cause the Policy to lapse. Second, even if
Planned Periodic Premiums have been paid, the Policy may lapse. See "Policy
Lapse and Reinstatement -- Lapse."
Death Benefit Proceeds Generally Not Taxable Income to the Beneficiary
Under current Federal tax law, as long as the Policy qualifies as life
insurance, the Death Benefit under the Policy will be subject to the same
Federal income tax treatment as proceeds of traditional life insurance.
Therefore, the Death Benefit should generally not be taxable income to the
beneficiary. See "Federal Tax Matters -- Policy Proceeds."
Accumulation Value Increases Generally Not Taxable Income While Accumulating
Under current Federal tax law, as long as the Policy qualifies as life
insurance, Accumulation Value increases will also be subject to the same
Federal income tax treatment as traditional life insurance cash values.
Therefore, any increases generally should accumulate on a tax deferred basis.
See "Federal Tax Matters -- Policy Proceeds."
Exercising Certain Policy Rights and Tax Consequences
A change of owners, a partial withdrawal, a total surrender, or a Policy
loan may have tax consequences depending on the particular circumstances. See
"Federal Tax Matters -- Policy Proceeds."
Modified Endowment Contracts
The Company intends for the Policy to satisfy the definition of a life
insurance contract under Section 7702 of the Internal Revenue Code of 1986, as
amended (the "Code"). Under certain circumstances, a Policy could be treated as
a "modified endowment contract." We will monitor Policies and will attempt to
notify a Policy owner on a timely basis if his or her Policy is in jeopardy of
becoming a modified endowment contract. For further discussion of the tax
status of a Policy and the tax consequences of being treated as a life
insurance contract or a modified endowment contract, see "Federal Tax Matters."
PART 2. DETAILED INFORMATION
ReliaStar Life Insurance Company of New York
We are a stock life insurance company incorporated under the laws of the
State of New York. We are authorized to transact business in all states, the
District of Columbia, and the Dominican Republic. On December 20, 1979, we
became a wholly-owned subsidiary of United Services Life Insurance Company
("United Services") which became an indirect, wholly owned subsidiary of
ReliaStar Financial Corp. ("ReliaStar"), formerly The NWNL Companies, Inc.,
when ReliaStar acquired USLICO Corporation on January 20, 1995. ReliaStar is a
holding company whose subsidiaries specialize in life insurance and related
financial services businesses.
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<PAGE>
We may from time to time publish in advertisements, sales literature, and
reports, the ratings and other information assigned to us by one or more
independent rating organizations such as A.M. Best Company, Standard & Poor's,
Moody's, and Duff & Phelps. The purpose of the ratings is to reflect our
financial strength and/or claims-paying ability and should not be considered as
bearing on the investment performance of assets held in the Variable Account.
Each year the A.M. Best Company reviews the financial status of many insurers,
culminating in the assignment of Best's Ratings. These ratings reflect their
current opinion of the relative financial strength and operating performance of
an insurance company in comparison to the norms of the life/health insurance
industry. We have been assigned a rating of A+ by A.M. Best, which is a rating
assigned to companies demonstrating superior overall performance and a very
strong ability to meet obligations to Policy holders over a long period.
The Variable Account
The Variable Account is a Separate Account of ours, established by the
Board of Directors on March 23, 1982 pursuant to the laws of the State of New
York. The Variable Account will receive and invest the Net Premiums paid and
allocated to it under this Policy. In addition, the Variable Account currently
receives and invests net premiums for another class of scheduled premium
variable life insurance policy and may do so for additional classes in the
future. The Variable Account meets the definition of a "separate account" under
the federal securities laws and has been registered with the SEC as a unit
investment trust under the Investment Company Act of 1940. The registration
does not involve supervision by the SEC of the management or investment
policies or practices of the Variable Account, us, or the Funds.
We own the assets of the Variable Account. However, the New York laws
under which the Variable Account was established provide that the Variable
Account cannot be charged with liabilities arising out of any other business we
may conduct. We are required to maintain assets which are at least equal to the
reserves and other liabilities of the Variable Account. We may transfer assets
which exceed these reserves and liabilities to our general account (the Fixed
Account).
For a description of the Fixed Account, see Appendix A to this Prospectus.
Performance Information
Performance information for the Sub-Accounts of the Variable Account and
the Funds available for investment by the Variable Account may appear in
advertisements, sales literature, or reports to Policy owners or prospective
purchasers. Performance information for the Sub-Accounts will reflect
deductions of Fund expenses and be adjusted to reflect the Mortality and
Expense Risk Charge, but will not reflect deductions for the cost of insurance
or the Surrender Charge. Quotations of performance information for the Funds
will be accompanied by performance information for the Sub-Accounts.
Performance information for the Funds will take into account all fees and
charges at the Fund level, but will not reflect any deductions from the
Variable Account. Performance information reflects only the performance of a
hypothetical investment during a particular time period in which the
calculations are based. Performance information showing total returns and
average annual total returns may be provided for periods prior to the date a
Sub-Account commenced operation. Such performance information will be
calculated based on the assumption that the Sub-Accounts were in existence for
the same periods as those indicated for the Funds, with the level of charges at
the Variable Account level that were in effect at the inception of the
Sub-Accounts. Performance information should be considered in light of the
investment objectives and policies, characteristics and quality of the
portfolio of the Fund in which the Sub-Account invests, and the market
conditions during the given period of time, and should not be considered as a
representation of what may be achieved in the future.
We may also provide individualized hypothetical illustrations of Policy
Accumulation Value, Cash Surrender Value and Death Benefit based on historical
investment returns of the Funds. These illustrations will reflect deductions
for Fund expenses and Policy and Variable Account charges, including the
Monthly Deduction, Premium Expense Charge and the Surrender Charge. These
hypothetical illustrations will be based on the actual historical experience of
the Funds as if the Sub-Accounts had been in existence and a Policy issued for
the same periods as those indicated for the Funds.
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<PAGE>
Performance of the Sub-Accounts and/or the Funds as reported from time to
time in advertisements and sales literature may be compared to other variable
life insurance issuers in general or to the performance of particular types of
variable life insurance policies investing in mutual funds, or investment
series of mutual funds with investment objectives similar to each of the
Sub-Accounts, whose performance is reported by Lipper Analytical Services, Inc.
("Lipper") and Morningstar, Inc. ("Morningstar") or reported by other series,
companies, individuals or other industry or financial publications of general
interest, such as Forbes, Money, The Wall Street Journal, Business Week,
Barron's, Kiplinger's Personal Finance, and Fortune. Lipper and Morningstar are
independent services which monitor and rank the performances of variable life
insurance issuers in each of the major categories of investment objectives on
an industry-wide basis.
We may also compare the performance of each Sub-Account in advertising and
sales literature to the Standard & Poor's Index of 500 common stocks and the
Dow Jones Industrials, which are widely used measures of stock market
performance. We may also compare the performance of each Sub-Account to other
widely recognized indices. Unmanaged indices may assume the reinvestment of
dividends, but typically do not reflect any "deduction" for the expense of
operating or managing an investment portfolio.
The Policies
The Policies are survivorship flexible premium variable life insurance
contracts with death benefits, cash values, and other features of traditional
life insurance contracts. They are "flexible premium" because premiums do not
have to be paid according to a fixed schedule. They are "variable" because, to
the extent Accumulation Value is attributable to the Variable Account,
Accumulation Values and, under certain circumstances, the Death Benefit will
increase and decrease based on the investment performance of the Funds in which
the Sub-Accounts to which you allocate your premium payments invest.
Death Benefit
The proceeds payable upon the death of the Surviving Joint Insured, while
the Policy is in force, will be the Death Benefit (see "Death Benefit Options"
below) reduced by any Loan Amount and unpaid Monthly Deductions. All or part of
the proceeds may be paid in cash to your beneficiaries or under one or more of
the settlement options we offer (see "General Provisions -- Settlement
Options").
The Policy provides two Death Benefit Options: the Level Amount Option and
the Variable Amount Option. You choose the Death Benefit Option on the
application for the Policy. Subject to certain limitations, you can change the
Death Benefit Option after issuance of the Policy. See "Death Benefit -- Change
in Death Benefit Option."
The Death Benefit may vary with the Policy's Accumulation Value. Under the
Level Amount Option, the Death Benefit will only vary with the Accumulation
Value whenever the Accumulation Value multiplied by the corridor percentage
(see "Death Benefit Options -- Level Amount Option") exceeds the Face Amount of
the Policy. The Death Benefit under the Variable Amount Option will always vary
with the Accumulation Value because the Death Benefit equals the Face Amount
plus the Accumulation Value, or the corridor percentage of the Accumulation
Value. Under either Death Benefit Option, however, the Death Benefit to age 100
of the younger Joint Insured will never be less than the current Face Amount of
the Policy and will be payable only as long as the Policy remains in force.
After age 100 the Death Benefit is the Accumulation Value.
In addition to affecting the amount of the Death Benefit as described
above, the Accumulation Value generally determines how long the Policy remains
in force. See "Policy Lapse and Reinstatement." This means that, to the extent
Accumulation Value is attributable to the Variable Account, the investment
performance of the Variable Account (and the underlying Funds) may affect the
duration of the Policy by affecting the amount of Accumulation Value. You bear
the investment risk with respect to any amounts allocated to the Variable
Account. If, however, the Death Benefit Guarantee is in effect (see "Death
Benefit Guarantee"), the Policy will stay in force without regard to the
investment performance under the Policy.
Appendix C illustrates Accumulation Values, Surrender Charges, Cash
Surrender Values, and Death Benefits assuming different levels of premium
payments and investment returns for selected ages and Face Amounts.
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Death Benefit Options
The Level Amount Option and the Variable Amount Option are described
below.
Level Amount Option. The Death Benefit is the greater of the current Face
Amount of the Policy or the Accumulation Value multiplied by the corridor
percentage according to the younger Joint Insured's attained age. The corridor
percentage is 250% for the younger Joint Insured age 40 or below, and the
percentage declines with increasing ages as shown in the Corridor Percentage
Table on page 21. Accordingly, under the Level Amount Option the Death Benefit
will remain level unless the corridor percentage of Accumulation Value exceeds
the current Face Amount, in which case the amount of the Death Benefit will
vary as the Accumulation Value varies.
Illustration of Level Amount Option. For purposes of this illustration,
assume that the younger Joint Insured is under age 40, and that there is no
Loan Amount. Under the Level Amount Option, a Policy with a $100,000 Face
Amount will generally have a $100,000 Death Benefit. However, because the Death
Benefit must be equal to or be greater than 250% of the Accumulation Value, any
time the Accumulation Value of the Policy exceeds $40,000, the Death Benefit
will exceed the $100,000 Face Amount. Each additional dollar added to the
Accumulation Value above $40,000 will increase the Death Benefit by $2.50.
Thus, if the Accumulation Value exceeds $40,000 and increases by $100 because
of investment performance or premium payments, the Death Benefit will increase
by $250. A Policy owner with an Accumulation Value of $50,000 will be entitled
to a Death Benefit of $125,000 ($50,000 x 250%); an Accumulation Value of
$75,000 will yield a Death Benefit of $187,500 ($75,000 x 250%); and an
Accumulation Value of $100,000 will yield a Death Benefit of $250,000 ($100,000
x 250%).
Similarly, as long as the Accumulation Value exceeds $40,000, each dollar
taken out of the Accumulation Value will reduce the Death Benefit by $2.50. If,
for example, the Accumulation Value is reduced from $75,000 to $70,000 because
of partial withdrawals, charges, or negative investment performance, the Death
Benefit will be reduced from $187,500 to $175,000. If at any time before the
younger Joint Insured's age 100, however, the Accumulation Value multiplied by
the corridor percentage is less than the Face Amount, the Death Benefit will
equal the current Face Amount of the Policy.
The corridor percentage becomes lower as the younger Joint Insured's age
increases. If the current age of the younger Joint Insured in the illustration
above were, for example, 50 (rather than under age 40), the corridor percentage
would be 185%. The Death Benefit would not exceed the $100,000 Face Amount
unless the Accumulation Value exceeded approximately $54,055 (rather than
$40,000), and each $1 then added to or taken from the Accumulation Value would
change the Death Benefit by $1.85 (rather than $2.50).
Corridor Percentage Table
<TABLE>
<CAPTION>
Corridor Corridor Corridor
Younger Joint Insured's Percentage of Younger Joint Insured's Percentage of Younger Joint Insured's Percentage of
Age on Previous Policy Accumulation Age on Previous Policy Accumulation Age on Previous Policy Accumulation
Anniversary Value Anniversary Value Anniversary Value
- ------------------------- --------------- ------------------------- --------------- ------------------------- --------------
<S> <C> <C> <C> <C> <C>
40 or younger 250% 54 157 68 117
41 243 55 150 69 116
42 236 56 146 70 115
43 229 57 142 71 113
44 222 58 138 72 111
45 215 59 134 73 109
46 209 60 130 74 107
47 203 61 128 75-90 105
48 197 62 126 91 104
49 191 63 124 92 103
50 185 64 122 93 102
51 178 65 120 94 101
52 171 66 119 95-100 100
53 164 67 118
</TABLE>
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<PAGE>
Variable Amount Option. The Death Benefit is equal to the greater of the
current Face Amount plus the Accumulation Value of the Policy, or the
Accumulation Value multiplied by the corridor percentage according to the
younger Joint Insured's attained age. The corridor percentage is 250% for the
younger Joint Insured age 40 or below, and the percentage declines with
increasing age as shown in the Corridor Percentage Table above. Accordingly,
under the Variable Amount Option the amount of the Death Benefit will always
vary as the Accumulation Value varies.
Illustration of Variable Amount Option. For purposes of this illustration,
assume that the younger Joint Insured is under age 40 and that there is no Loan
Amount. Under the Variable Amount Option, a Policy with a Face Amount of
$100,000 will generally pay a Death Benefit of $100,000 plus the Accumulation
Value. Thus, for example, a Policy with an Accumulation Value of $20,000 will
have a Death Benefit of $120,000 ($100,000 + $20,000); an Accumulation Value of
$40,000 will yield a Death Benefit of $140,000 ($100,000 + $40,000). The Death
Benefit, however, must be at least 250% of the Accumulation Value. As a result,
if the Accumulation Value of the Policy exceeds approximately $66,667, the
Death Benefit will be greater than the Face Amount plus the Accumulation Value.
Each additional dollar of the Accumulation Value above $66,667 will increase
the Death Benefit by $2.50. Thus, if the Accumulation Value exceeds $66,667 and
increases by $100 because of investment performance or premium payments, the
Death Benefit will increase by $250. A Policy owner with an Accumulation Value
of $75,000 will be entitled to a Death Benefit of $187,500 ($75,000 x 250%); an
Accumulation Value of $100,000 will yield a Death Benefit of $250,000 ($100,000
x 250%); and an Accumulation Value of $125,000 will yield a Death Benefit of
$312,500 ($125,000 x 250%).
Similarly, any time the Accumulation Value exceeds $66,667, each dollar
taken out of the Accumulation Value will reduce the Death Benefit by $2.50. If,
for example, the Accumulation Value is reduced from $75,000 to $70,000 because
of partial withdrawals, charges, or negative investment performance, the Death
Benefit will be reduced from $187,500 to $175,000. If at any time before the
younger Joint Insured's age 100, however, the Accumulation Value multiplied by
the corridor percentage is less than the Face Amount plus the Accumulation
Value, then the Death Benefit will be the current Face Amount plus the
Accumulation Value of the Policy. The Death Benefit after age 100 is the
Accumulation Value.
The corridor percentage becomes lower as the younger Joint Insured's age
increases. If the current age of the younger Joint Insured in the illustration
above were, for example, 50 (rather than under 40), the corridor percentage
would be 185%. The amount of the Death Benefit would be the sum of the
Accumulation Value plus $100,000 unless the Accumulation Value exceeded
approximately $117,647 (rather than $66,667), and each $1 then added to or
taken from the Accumulation Value would change the Death Benefit by $1.85
(rather than $2.50).
Which Death Benefit Option to Choose
If you prefer to have premium payments and favorable investment
performance reflected partly in the form of an increasing Death Benefit, you
should choose the Variable Amount Option. If you are satisfied with the amount
of your existing insurance coverage and prefer to have premium payments and
favorable investment performance reflected to the maximum extent in the
Accumulation Value and lower cost of insurance charges you should choose the
Level Amount Option.
Requested Changes in Face Amount
Subject to certain limitations, you may request an increase or decrease in
the Face Amount. No increase or decrease in the Face Amount will be permitted
during the first two Policy Years.
Increases. For an increase in the Face Amount, a written request must be
submitted to us. We may also require additional evidence of insurability
satisfactory to us. The effective date of the increase will be the Monthly
Anniversary on or next following our approval of the increase. The increase may
not be less than $5,000 and no increase will be permitted after any Joint
Insured reaches age 85. You cannot request an increase in the Face Amount more
frequently than once every two years. We will deduct any charges associated
with the increase (the increases in the cost of insurance and the Surrender
Charge upon lapse or total surrender -- see "Effect of Requested Changes in
Face Amount") from the Accumulation Value, whether or not you pay an additional
premium in connection with the increase. You will be entitled to limited free
look and conversion rights and refund rights with respect to requested
increases in Face Amount. See "Free Look and Conversion Rights."
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<PAGE>
Decreases. For a decrease in the Face Amount, a written request must also
be submitted to us. Any decrease in the Face Amount will be effective on the
Monthly Anniversary on or next following our receipt of a written request. You
cannot request a decrease in the Face Amount more frequently than once every
six months. The Face Amount remaining in force after any requested decrease may
not be less than the Minimum Face Amount shown in the Policy. Under our current
policies, the Minimum Face Amount is $250,000, but we reserve the right to
establish a different Minimum Face Amount in the future. If, following a
decrease in Face Amount, the Policy would no longer qualify as life insurance
under Federal tax law (see "Federal Tax Matters -- Policy Proceeds"), the
decrease will be limited to the extent necessary to meet these requirements.
For purposes of determining the cost of insurance, decreases in the Face
Amount will be applied to reduce the current Face Amount in the following
order:
(a) The Face Amount provided by the most recent increase;
(b) The next most recent increases successively; and
(c) The Face Amount when the Policy was issued.
By reducing the current Face Amount in this manner, the Rate Class
applicable to the most recent increase in Face Amount will be eliminated first,
then the Rate Class applicable to the next most recent increase, and so on, for
the purposes of calculating the cost of insurance. This assumption will affect
the cost of insurance under the Policy only if different Rate Classes have been
applied to the current Face Amount. A Rate Class is a group of Insureds we
determine based upon our expectation that they will have similar mortality
experience. We currently place Insureds into standard Rate Classes or into
substandard Rate Classes that involve a higher mortality risk (for example, a
200% Rate Class or a 300% Rate Class). In an otherwise identical Policy, an
Insured in the standard Rate Class will have a lower cost of insurance than an
Insured in a substandard Rate Class with higher mortality risks. See
"Deductions and Charges -- Monthly Deduction."
For example, assume that the Initial Face Amount was $50,000 with a
standard Rate Class, and that successive increases of $25,000 (at a Rate Class
of 200%) and $50,000 (at a Rate Class of 300%) were added. If a decrease of
$50,000 or less is requested, the amount of insurance at a 300% Rate Class will
be reduced first. If a decrease of more than $50,000 is requested, the amount
at a 300% Rate Class will be eliminated, and the excess over $50,000 will next
reduce the amount of insurance at a 200% Rate Class.
Effect of Requested Changes in Face Amount. An increase or decrease in
Face Amount will affect the Monthly Deduction because the cost of insurance and
the Monthly Amount Charge depend upon the Face Amount. The charge for certain
optional insurance benefits may also be affected. See "Deductions and Charges
- -- Monthly Deduction." An increase in the Face Amount will increase the
Surrender Charge, but a decrease in the Face Amount will not reduce the
Surrender Charge. The Surrender Charge is, however, imposed only upon lapse or
total surrender of the Policy and not upon a requested decrease in Face Amount.
See "Deductions and Charges -- Surrender Charge."
An increase in the Face Amount will increase the Minimum Monthly Premium
as of the effective date of the increase. Therefore, additional premium
payments may be required to maintain the Death Benefit Guarantee. A decrease in
the Face Amount will reduce the Minimum Monthly Premium as of the effective
date of the decrease. Face Amount changes may also change the Death Benefit
Guarantee Period. See "Death Benefit Guarantee."
The additional Surrender Charge on a requested increase in the Face Amount
will reduce the Cash Surrender Value (which is the Accumulation Value less any
Surrender Charge, Loan Amount and unpaid Monthly Deductions). If the resulting
Cash Surrender Value is not sufficient to cover the Monthly Deduction, the
Policy may lapse unless the Death Benefit Guarantee is in effect. See "Policy
Lapse and Reinstatement -- Lapse" and "Death Benefit Guarantee."
Insurance Protection
You may increase or decrease the pure insurance protection provided by the
Policy (that is, the difference between the Death Benefit and the Accumulation
Value) in one of several ways as your insurance needs change.
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<PAGE>
These ways include increasing or decreasing the Face Amount of insurance,
changing the level of premium payments, and, to a lesser extent, making a
partial withdrawal under the Policy. Although the consequences of each of these
methods will depend upon the individual circumstances, they may be generally
summarized as follows:
(a) A decrease in the Face Amount will, subject to the corridor percentage
limitations (see "Death Benefit -- Death Benefit Options"), decrease
the pure insurance protection without reducing the Accumulation Value.
If the Face Amount is decreased, the Policy charges generally will
decrease as well. (Note that the Surrender Charge will not be reduced.
See "Deductions and Charges -- Surrender Charge.")
(b) An increase in the Face Amount (which is generally subject to
underwriting approval -- see "Death Benefit -- Requested Changes in
Face Amount") will likely increase the amount of pure insurance
protection, depending on the amount of Accumulation Value and the
corridor percentage limitation. If the insurance protection is
increased, the Policy charges generally will increase as well.
(c) A partial withdrawal will reduce the Death Benefit. See "Surrender
Benefits -- Partial Withdrawal." However, it has a limited effect on
the amount of pure insurance protection and charges under the Policy,
because the decrease in the Death Benefit is usually equal to the
amount of Accumulation Value withdrawn. The primary use of a partial
withdrawal is to withdraw Accumulation Value. Furthermore, it results
in a reduced amount of Accumulation Value and increases the possibility
that the Policy will lapse.
(d) Under the Level Amount Option, until the corridor percentage of
Accumulation Value exceeds the Face Amount, (i) an increased level of
premium payments will reduce the amount of pure insurance protection,
and (ii) a reduced level of premium payments will increase the amount
of pure insurance protection.
(e) Under the Variable Amount Option, until the corridor percentage of
Accumulation Value exceeds the Face Amount plus the Accumulation Value,
the level of premium payments will not affect the amount of pure
insurance protection. (However, both the Accumulation Value and the
Death Benefit will be increased if premium payments are increased, and
reduced if premium payments are reduced.)
(f) Under either Death Benefit Option, if the Death Benefit is the corridor
percentage of Accumulation Value, then (i) an increased level of
premium payments will increase the amount of pure insurance protection
(subject to underwriting approval -- see "Payment and Allocation of
Premiums -- Amount and Timing of Premiums"), and (ii) a reduced level
of premium payments will reduce the pure insurance protection.
THE TECHNIQUES DESCRIBED IN THIS SECTION FOR CHANGING THE AMOUNT OF PURE
INSURANCE PROTECTION UNDER THE POLICY (FOR EXAMPLE, CHANGING THE FACE
AMOUNT, MAKING A PARTIAL WITHDRAWAL, AND CHANGING THE AMOUNT OF PREMIUM
PAYMENTS) MUST BE CONSIDERED TOGETHER WITH THE OTHER RESTRICTIONS AND
CONSIDERATIONS DESCRIBED ELSEWHERE IN THIS PROSPECTUS.
Change in Death Benefit Option
After the fourth Policy Year you may change the Death Benefit Option once
each Policy Year. You must submit a written request to change the Death Benefit
Option. The change is effective on the Monthly Anniversary on or next following
the date we receive your request. A change in the Death Benefit Option will
also change the Face Amount. If the Death Benefit Option is changed from the
Level Amount Option to the Variable Amount Option, the Face Amount will be
decreased by an amount equal to the Accumulation Value on the effective date of
the change. You cannot change from the Level Amount Option to the Variable
Amount Option if the resulting Face Amount would fall below the Minimum Face
Amount.
If the Death Benefit Option is changed from the Variable Amount Option to
the Level Amount Option, the Face Amount will be increased by an amount equal
to the Policy's Accumulation Value on the effective date of the change.
An increase or decrease in Face Amount resulting from a change in the
Death Benefit Option will affect the future Monthly Deductions because the cost
of insurance depends upon the Face Amount. The charge for certain optional
insurance benefits may also be affected. See "Deductions and Charges -- Monthly
Deduction."
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<PAGE>
The Surrender Charge, however, will not be affected by an increase or decrease
in Face Amount resulting from a change in Death Benefit Option. The Death
Benefit Guarantee Period may also be affected.
Unless prohibited by state law, changes in the Death Benefit Option may
require additional evidence of insurability.
Payment and Allocation of Premiums
Issuing the Policy
To apply for a Policy, both individuals must complete the application and
personally deliver it to our licensed agent. We will generally only issue a
Policy to an applicant where both Joint Insureds' ages are 85 or less and both
supply evidence of insurability satisfactory to us. Acceptance is subject to
our underwriting rules and we reserve the right to reject an application for
any reason permitted by law.
Coverage. Coverage under a Policy begins on the later of the Issue Date or
the date we receive at least the minimum initial premium (see immediately
following section). In general, if the applicant pays at least the minimum
initial premium with the application, the Issue Date will be the later of the
date of the application or the date of any medical examination required by our
underwriting procedures. However, if underwriting approval has not occurred
within 45 days after we receive the application or if you authorize premiums to
be paid by bank account monthly deduction, the Issue Date will be the date of
underwriting approval.
If you authorize premiums to be paid by government allotment, the Issue
Date generally will be, subject to our underwriting approval, the first day of
the month in which we receive the first Minimum Monthly Premium through
government allotment, whether or not a Minimum Monthly Premium is collected
with the application. If a Minimum Monthly Premium is collected with the
application, it will be allocated to the Sub-Accounts of the Variable Account
and the Fixed Account on the Valuation Date next following the Issue Date.
Minimum Initial Premium. The minimum initial premium is three Minimum
Monthly Premiums. See "Death Benefit Guarantee." If, however, you authorize
premiums to be paid by bank account monthly deduction or government allotment,
we will accept one Minimum Monthly Premium together with the required
authorization forms. The Minimum Monthly Premium is specified in the Policy and
determines the payments required to maintain the Death Benefit Guarantee.
Temporary Insurance. At the time the application is taken, the applicant
can receive temporary insurance coverage by paying a premium equal to 10% of
annualized Minimum Monthly Premium. The temporary insurance will be for the
face amount specified in the premium receipt and will be effective until the
earliest of the following:
o The date the coverage under the Policy is effective.
o The date the applicant receives an offer for an alternative policy, a
notice of termination of temporary insurance coverage, or notice that we
have rejected the application.
o The date of death of the proposed Surviving Joint Insured or any
proposed additional Joint Insured.
o The 180th day after the date of the receipt for the temporary insurance.
Crediting Net Premiums. We will credit Net Premiums to the Sub-Accounts of
the Variable Account and to the Fixed Account on the basis of the applicant's
allocation on the latest of the following dates:
o The Valuation Date following the date of underwriting approval.
o The Valuation Date on or next following the Policy Date.
o The Valuation Date on or next following the date we have received at the
required minimum initial premium payment.
o In the case of Policies issued under government allotment programs, the
Valuation Date next following the Issue Date.
Until the date on which Net Premiums are credited as described above,
premium payments will be held in our General Account. No interest will be
earned on these premium payments during this period of time.
19
<PAGE>
Refunding Premium. We will return all premiums paid without interest if any
of the following occur:
o We send notice to the applicant(s) that the insurance is declined.
o The applicant(s) refuses an offer for an alternative policy.
o The applicant(s) does not supply required medical exams or tests within
30 days of the date of the application.
o The applicant(s) returns the Policy under the limited free look right.
See "Free Look and Conversion Rights -- Free Look Rights."
Allocation of Premiums
You choose the initial allocation of your Net Premiums (your gross
premiums less the Premium Expense Charge) to the Fixed Account and the
Sub-Accounts of the Variable Account on the application for the Policy. You may
change the allocation at any time by notifying us in writing. Changes will not
be effective until the date we receive your request and will only affect
premiums we receive on or after that date. The premium allocation may be 100%
to the Fixed Account or the Sub-Accounts or divided among the Fixed Account and
the Sub-Accounts in whole percentage points totaling 100%. We reserve the right
to adjust any allocation to eliminate fractional percentages. Changing the
current Net Premium allocation will not affect the allocation of existing
Accumulation Value.
Amount and Timing of Premiums
The amount and frequency of premium payments will affect the Accumulation
Value, the Cash Surrender Value, and how long the Policy will remain in force
(including affecting whether the Death Benefit Guarantee is in effect ). See
"Death Benefit Guarantee." After the initial premium, you may determine the
amount and timing of subsequent premium payments within the following
restrictions:
o PAYMENT OF CUMULATIVE PREMIUMS SUFFICIENT TO MAINTAIN THE DEATH BENEFIT
GUARANTEE MAY BE REQUIRED TO KEEP THE POLICY IN FORCE DURING AT LEAST THE
FIRST SEVERAL POLICY YEARS. SEE "DEATH BENEFIT GUARANTEE."
o We may choose not to accept any premium less than $25.00.
o We reserve the right to limit the amount of any premium payment. In
general, during the first Policy Year we will not accept total premium
payments in excess of $250,000 on the lives of the Joint Insureds for the
Policy, whether such payments are received on a Policy or on any other
insurance policy issued by us or our affiliates. Also, we will not accept
any premium payment in excess of $50,000 on any Policy after the first
Policy Year. At our discretion, however, we may waive any of these
premium limitations.
o We may require additional evidence of insurability satisfactory to us if
any premium would increase the difference between the Death Benefit and
the Accumulation Value (that is, the net amount at risk). A premium
payment would increase the net amount at risk if at the time of payment
the Death Benefit would be based upon the applicable percentage of
Accumulation Value. See "Death Benefit -- Death Benefit Options."
o In no event may the total of all premiums paid, both scheduled and
unscheduled, exceed the current maximum premium payments allowed for life
insurance under Section 7702 of the Code. If at any time a premium is
paid which would result in total premiums exceeding the current maximum
premiums allowed, we will only accept that portion of the premium which
would make total premiums equal the maximum. Any part of the premium in
excess of that amount will be returned, and no further premiums will be
accepted until allowed by the current maximum premium limitations.
o If you contemplate a large premium payment under this Policy, and you
wish to avoid Modified Endowment Contract classification, you may contact
us in writing before making the payment and we will tell you the maximum
amount which can be paid into the Policy. See "Federal Tax Matters --
Policy Proceeds."
20
<PAGE>
Planned Periodic Premiums
You may choose a Planned Periodic Premium schedule which indicates a
preference as to future amounts and frequency of payment. The Planned Periodic
Premiums may be paid annually, semi-annually, quarterly or, if you choose, you
can pay the Planned Periodic Premiums by bank account monthly deduction or
government allotment.
The amount and frequency of your initial Planned Periodic Premium will be
shown in the Policy. You may change the Planned Periodic Premium at any time by
written request. We may limit the amount of any increase, if such an increase
would result in planned periodic premiums that are larger than (a) the maximum
premium we would accept under the Amount and Timing of Premium Payments
provisions in the Policy or (b) the Planned Periodic Premium which would total
more than $50,000 per year.
Failure to make any Planned Periodic Premium payment will not, however,
necessarily result in lapse of the Policy. On the other hand, making Planned
Periodic Premium payments will not guarantee that the Policy remains in force.
See "Death Benefit Guarantee" and "Policy Lapse and Reinstatement."
Unscheduled Additional Premiums
Premiums, other than Planned Periodic Premiums, may be paid at any time
while the Policy is in force. We may limit the number and amount of these
additional payments.
Paying Premiums By Mail
Planned Periodic Premiums and Unscheduled Additional Premiums may be paid
to the Company by mailing them to:
ReliaStar Life Insurance Company of New York
P.O. Box 802511
Chicago, Illinois 60680-2511
Death Benefit Guarantee
If you meet the requirements described below, we guarantee that we will
not lapse the Policy even if the Cash Surrender Value is not sufficient to
cover the Monthly Deduction that is due. This feature of the Policy is called
the "Death Benefit Guarantee." The length of the Death Benefit Guarantee Period
is specified in your Policy and is uniquely determined on a Policy by Policy
basis. The Death Benefit Guarantee Period depends on the issue ages and premium
classes of the Joint Insureds, Death Benefit Option, and any Optional Insurance
Benefits. Certain Policy changes may also change the Death Benefit Guarantee
Period. Following is a table of typical Death Benefit Guarantee Periods. The
examples assume that the Joint Insureds are a male and a female, both of the
same issue age, both with no substandard ratings, a $1,000,000 Face Amount, and
no Optional Insurance Benefits. Policies with substandard ratings and Optional
Insurance Benefits will typically have a shorter Death Benefit Guarantee
Period.
<TABLE>
<CAPTION>
Death Benefit Death Benefit
Age and Class of Joint Insureds Option Guarantee Period
- --------------------------------- --------------- -----------------
<S> <C> <C>
45 Non-Tobacco ............. A (Level) 37 Years
45 Non-Tobacco ............. B (Variable) 35 Years
65 Non-Tobacco ............. A (Level) 17 Years
65 Non-Tobacco ............. B (Variable) 16 Years
45 Tobacco ................. A (Level) 35 Years
45 Tobacco ................. B (Variable) 33 Years
65 Tobacco ................. A (Level) 15 Years
65 Tobacco ................. B (Variable) 14 Years
</TABLE>
In general, the two most significant benefits from the Death Benefit
Guarantee are as follows. First, during the early Policy Years, the Cash
Surrender Value may not be sufficient to cover the Monthly Deduction, so that
the Death Benefit Guarantee will be necessary to avoid lapse of the Policy. See
"Policy Lapse and Reinstatement." This occurs when the Surrender Charge exceeds
the Accumulation Value in these years. In this regard,
21
<PAGE>
you should consider that if you request an increase in Face Amount, an
additional Surrender Charge would apply for the fifteen years following the
increase, which could create a similar possibility of lapse as exists during
the early Policy Years. Second, to the extent the Cash Surrender Value declines
due to poor investment performance, or due to an additional Surrender Charge
after a requested increase, the Cash Surrender Value may not be sufficient even
in later Policy Years to cover the Monthly Deduction, so that the Death Benefit
Guarantee may also be necessary in later Policy Years to avoid lapse of the
Policy. THUS, EVEN THOUGH THE POLICY PERMITS PREMIUM PAYMENTS THAT ARE LESS
THAN THE MINIMUM MONTHLY PREMIUMS, YOU MAY LOSE THE SIGNIFICANT PROTECTION
PROVIDED BY THE DEATH BENEFIT GUARANTEE BY PAYING LESS THAN THE MINIMUM MONTHLY
PREMIUMS.
Requirements
The Death Benefit Guarantee will be in effect during the specified Death
Benefit Guarantee Period if the sum of all premiums paid minus any partial
withdrawals and any loans are equal to or greater than the sum of the Minimum
Monthly Premiums since the Policy Date, including the Minimum Monthly Premium
for the current Monthly Anniversary.
The requirements for the Death Benefit Guarantee must be satisfied as of
each Monthly Anniversary, even though you do not have to pay premiums monthly.
Example: The Policy Date is January 1, 1998. The Minimum Monthly Premium
is $1000 per month. No Policy loans or partial withdrawals are taken and no
Face Amount changes have occurred.
Case 1. You pay $1000 each month. The Death Benefit Guarantee is
maintained.
Case 2. You pay $10,000 on January 1, 1998. The $10,000 maintains the Death
Benefit Guarantee without your paying any additional premiums for the
next 10 months (through October 31, 1998). However, you must pay at
least $1000 by November 1, 1998 to maintain the Death Benefit
Guarantee through November 30, 1998.
The amount of the initial Minimum Monthly Premium will be determined by us
at issuance of the Policy and will be shown in the Policy. The initial Minimum
Monthly Premium will depend upon each Joint Insured's sex, age at issue, Rate
Class, optional insurance benefits added by rider, and the Initial Face Amount.
The following Policy changes may change the Minimum Monthly Premium and
the Death Benefit Guarantee Period:
o A requested increase or decrease in the Face Amount (see "Death Benefit
Requested Changes in Face Amount").
o A change in the Death Benefit Option (see "Death Benefit -- Change in
Death Benefit Option").
o The addition or termination of a Policy rider (see "General Provisions
-- Optional Insurance Benefits").
We will notify you in writing of any changes in the Minimum Monthly
Premium or the Death Benefit Guarantee Period.
If, as of any Monthly Anniversary, you have not made sufficient premium
payments to maintain the Death Benefit Guarantee, we will send you notice of
the premium payment required to maintain it. If we do not receive the required
premium payment within 61 days from the date of our notice, the Death Benefit
Guarantee will terminate. THE DEATH BENEFIT GUARANTEE CANNOT BE REINSTATED.
Even if the Death Benefit Guarantee terminates, the Policy will not
necessarily lapse. For a discussion of the circumstances under which the Policy
may lapse. See "Policy Lapse and Reinstatement."
Accumulation Value
The Accumulation Value of the Policy (that is, the total value
attributable to a specific Policy in the Variable Account and the Fixed
Account) is equal to the sum of the Variable Accumulation Value (the amount
attributable to the Variable Account) plus the Fixed Accumulation Value (the
amount attributable to the Fixed Account). The Accumulation Value should be
distinguished from the Cash Surrender Value that would actually be paid to you
upon total surrender of the Policy, which is the Accumulation Value less any
Surrender Charge, Loan
22
<PAGE>
Amount and unpaid Monthly Deductions. See "Surrender Benefits -- Total
Surrender." The Accumulation Value should also be distinguished from the Cash
Value, which determines the amount available for Policy loans, and is the
Accumulation Value less any Surrender Charge. See "Policy Loans."
The Variable Accumulation Value will increase or decrease to reflect the
investment performance of the Funds in which Sub-Accounts of the Variable
Account have been invested. The Variable Accumulation Value will also be
increased by (a) any Net Premiums credited to the Variable Account and (b) any
transfers from the Fixed Account. The Variable Accumulation Value will also be
reduced by (a) the Monthly Deduction attributable to the Variable Account, (b)
partial withdrawals from the Variable Account, (c) any transfer and partial
withdrawal charges attributable to the Variable Account, and (d) any amounts
transferred from the Variable Account to the Fixed Account (including amounts
transferred from the Variable Account to the Fixed Account as security for
Policy loans). See "Policy Loans." The Variable Accumulation Value will
generally vary daily.
The Fixed Accumulation Value will be increased by (a) any Net Premiums
credited to it in the Fixed Account, (b) any interest credited to it in the
Fixed Account (determined at our discretion, but guaranteed not to be less than
4%), and (c) any amounts transferred from the Variable Account to it in the
Fixed Account (including amounts transferred to the Fixed Account as security
for Policy loans). See "Policy Loans." The Fixed Accumulation Value will be
reduced by (a) the Monthly Deduction attributable to it in the Fixed Account,
(b) partial withdrawals from it in the Fixed Account, (c) any transfer and
partial withdrawal charges attributable to it in the Fixed Account, and (d) any
amounts transferred from the Fixed Account to the Variable Account.
For a detailed discussion of the calculation of Accumulation Value, see
Appendix B. An illustration of various Accumulation Values, Surrender Charges,
Cash Surrender Values, and Death Benefits, assuming different levels of premium
payments and various investment returns for selected ages and Face Amounts, is
shown in Appendix C.
Specialized Uses of the Policy
Because the Policy provides for an accumulation of Cash Surrender Value as
well as a Death Benefit, the Policy can be used for various individual and
business financial planning purposes. Purchasing the Policy in part for such
purposes entails certain risks. For example, if the investment performance of
the Sub-Accounts to which Accumulation Value is allocated is poorer than
expected or if sufficient premiums are not paid, the Policy may lapse or may
not accumulate sufficient Accumulation Value or Cash Surrender Value to fund
the purpose for which the Policy was purchased. Withdrawals and Policy loans
may significantly affect current and future Accumulation Value, Cash Surrender
Value, or Death Benefit proceeds. Depending upon Sub-Account investment
performance and the amount of a Policy loan, the loan may cause a Policy to
lapse. Because the Policy is designed to provide benefits on a long-term basis,
before purchasing a Policy for a specialized purpose a purchaser should
consider whether the long-term nature of the Policy is consistent with the
purpose for which it is being considered. Using a Policy for a specialized
purpose may have tax consequences. See "Federal Tax Matters."
Deductions and Charges
Charges will be deducted in connection with the Policy for (a) providing
the insurance benefits of the Policy (including any riders), (b) administering
the Policy, (c) assuming certain risks in connection with the Policy, and (d)
incurring expenses in distributing the Policy.
Some of these charges are deducted from each Premium Payment. Certain
other charges are deducted monthly from both the Fixed Account and the Variable
Account, or from the Variable Account only. A charge is also made for each
partial withdrawal and a charge may be made for each transfer.
We may realize a profit on one or more of these charges, such as the
mortality and expense risk charge. We may use any such profits for any proper
corporate purpose, including, among other things, payment of sales expenses.
Premium Expense Charge
We deduct the Premium Expense Charge from each premium. The Premium
Expense Charge is currently 6.25% of each premium payment in Policy Years 1-10
and 3.75% of each premium after the tenth Policy Year.
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<PAGE>
The amount remaining after we have deducted the Premium Expense Charge is
called the Net Premium. The Net Premium is then credited to the Fixed Account
and the Sub-Accounts of the Variable Account according to your allocation.
Monthly Deduction
We deduct the charges described below from the Accumulation Value of the
Policy on a monthly basis. The total of these charges is called the Monthly
Deduction.
The Monthly Deduction will be deducted on each Monthly Anniversary from
the Fixed Account and the Sub-Accounts of the Variable Account on a
proportionate basis depending on their relative Accumulation Values at that
time. For purposes of determining these proportions, the Fixed Accumulation
Value is reduced by the Loan Amount. Because the cost of insurance portion of
the Monthly Deduction can vary from month to month, the Monthly Deduction
itself will vary in amount from month to month.
If the Cash Surrender Value is not sufficient to cover the Monthly
Deduction on a Monthly Anniversary and the Death Benefit Guarantee is not in
effect, the Policy may lapse. See "Death Benefit Guarantee" and "Policy Lapse
and Reinstatement."
Cost of Insurance. We will determine the monthly cost of insurance by
multiplying the applicable cost of insurance rate or rates by the net amount at
risk under the Policy. The net amount at risk under the Policy for a Policy
Month is (a) the Death Benefit at the beginning of the Policy Month divided by
1.00327374 (which reduces the net amount at risk, solely for purposes of
computing the cost of insurance, by taking into account assumed monthly
earnings at an annual rate of 4%), less (b) the Accumulation Value at the
beginning of the Policy Month (reduced by any charges for rider benefits). As a
result, the net amount at risk may be affected by changes in the Accumulation
Value or in the Death Benefit.
The Rate Class of any Joint Insured may affect the cost of insurance. A
Rate Class is a group of Insureds we determine based upon our expectation that
they will have similar mortality experience. We currently place Insureds into
standard Rate Classes or into substandard Rate Classes that involve a higher
mortality risk. In an otherwise identical Policy, any Insured in the standard
Rate Class will have a lower cost of insurance than any Insured in a Rate Class
with higher mortality risks.
If there is an increase in the Face Amount and the Rate Class applicable
to the increase is different from that for the Initial Face Amount or any prior
requested increases in Face Amount, the net amount at risk will be calculated
separately for each Rate Class. For purposes of determining the net amount at
risk for each Rate Class, the Accumulation Value will first be assumed to be
part of the Initial Face Amount. If the Accumulation Value is greater than the
Initial Face Amount, it will then be assumed to be part of each increase in
order, starting with the first increase.
Cost of insurance rates will be based on the sex, Issue age, Policy Year
and Rate Class(es) of each Joint Insured. The actual monthly cost of insurance
rates will reflect our expectations as to future experience. They will not,
however, be greater than the guaranteed cost of insurance rates shown in the
Policy, which are based on the Commissioner's 1980 Standard Ordinary Mortality
Tables for Smokers or Nonsmokers, respectively.
Monthly Administrative Charge. Each month we deduct an administrative
charge of $7.50 which is guaranteed not to exceed the product of $5.00 and the
ratio (not to exceed 2.00 of (a) the Consumer Price Index (for all urban
households) for the preceding September to (b) the Consumer Price Index for
September 1985.
Monthly Mortality and Expense Risk Charge. Each month during the first 10
Policy Years we will deduct a charge which is anticipated to be at an annual
rate of .90% of the Variable Accumulation Value of the Policy. Each month
thereafter, it is currently anticipated that we will deduct this charge at an
annual rate of .25% of the Variable Accumulation Value. The Monthly Mortality
and Expense Risk Charge is guaranteed not to exceed 1.20% of the Variable
Accumulation Value of the Policy during the first 10 Policy Years, and .55% of
the Accumulation Value of the Policy per Policy Year thereafter.
Monthly Amount Charge. Each month during the first 20 Policy Years (and
for 20 Policy Years following any requested increase in Face Amount) we deduct
a monthly charge per $1,000 of Face Amount. The amount of this charge varies by
average age of the Joint Insureds on the Policy Date (or on the effective date
of any requested increase in Face Amount, as appropriate). See Appendix D.
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<PAGE>
Optional Insurance Benefit Charges. Each month we deduct charges for any
optional insurance benefits added to the Policy by rider. See "General
Provisions -- Optional Insurance Benefits."
Surrender Charge
General. During the first 15 Policy Years and during the first 15 years
following any requested increase in Face Amount, we make a Surrender Charge if
you surrender the Policy or the Policy lapses. The Surrender Charge will not be
affected by any decrease in Face Amount or by any change in Face Amount
resulting from a change in the Death Benefit Option.
The Surrender Charge imposed upon early surrender or lapse will be
significant. For example, if you make premium payments no greater than the
Minimum Monthly payments specified in your Policy, you can expect that during
at least the early Policy Years, all or substantially all of your premium
payments will be required to pay the Surrender Charge and other charges
associated with the Policy. As a result, you should purchase a Policy only if
you have the financial capability to keep it in force for a substantial period
of time.
Surrender Charge. The maximum Surrender Charge for the Initial Face Amount
or any requested increase in Face Amount will be determined on the Policy Date
or on the effective date of any requested increase respectively. The maximum
Surrender Charge on the Initial Face Amount will be equal to $8.50 per $1,000
of Initial Face Amount. The maximum Surrender Charge on any requested increase
in Face Amount will be equal to $8.50 per $1,000 of increase in the Face
Amount. This Surrender Charge for the Initial Face Amount remains level equal
to the maximum Surrender Charge during the first five Policy Years and then
reduces in equal monthly increments until it becomes zero at the end of 15
years. The Surrender Charge for any requested increase in Face Amount follows a
similar pattern.
Surrender Charge Calculation. The Surrender Charge for the Initial Face
Amount or any requested increase in Face Amount is determined by multiplying
(i) $8.50 by (ii) the Initial Face Amount or the Face Amount of the increase,
as applicable, and by (iii) the applicable percentage from the Surrender Charge
Percentage Table below, and then dividing this amount by 1000. For example, a
$250,000 Face Amount Policy would have a maximum $2,125 Surrender Charge ($8.50
x 250,000 / 1,000 x 100%) the first five years of the Policy, and the Surrender
Charge would decline during the next ten years as indicated by the Table below.
For the Initial Face Amount, a Surrender Charge is measured from the Issue Date
and applies for 15 years from that Date. An increase in Face Amount of $100,000
in year 5 of the Policy would have its own (additional) Surrender Charge of
$850 at the end of the first year ($8.50 x 100,000 / 1,000), and vary according
to the Table below. The 15 year applicable Surrender Charge for each increase
is measured from the date of the increase and applies for 15 years from the
Increase Date. In this example, all Surrender Charges would cease to apply
after the twentieth Policy Year.
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<PAGE>
Surrender Charge Percentage Table
<TABLE>
<CAPTION>
If surrender or lapse occurs The following percentage of the
in the last month of Policy Year Surrender Charge will be payable:
- ---------------------------------- ----------------------------------
<S> <C>
1 100%
2 100%
3 100%
4 100%
5 100%
6 90%
7 80%
8 70%
9 60%
10 50%
11 40%
12 30%
13 20%
14 10%
15 and later 0%
</TABLE>
For requested increases, years are measured from the date of the increase.
The percentages reduce equally for each Policy Month during the years shown.
For example, during the eleventh Policy Year, the percentage reduces equally
each month from 50% at the end of the tenth Policy Year to 40% at the end of
the eleventh Policy Year.
Partial Withdrawal and Transfer Charges
We currently make no charge for transfers and a $10.00 charge for each
partial withdrawal. These charges are guaranteed not to exceed $25.00 per
transfer or partial withdrawal for the duration of the Policy. The transfer
charge will not be imposed on transfers that occur as a result of Policy loans
or the exercise of conversion rights.
The Investment Advisory Fees and Other Fund Expenses After Reimbursement
Because the Variable Account purchases shares of the Funds, the net asset
value of the investments of the Variable Account will reflect the investment
advisory fees and other expenses incurred by the Funds. Set forth below is
information provided by each Fund on its total 1997 annual expenses as a
percentage of the Fund's average net assets. For more information concerning
these expenses, see the prospectuses for the Funds that are contained in the
accompanying book entitled "Select[STAR]Product Investment Options."
26
<PAGE>
Expenses
<TABLE>
<CAPTION>
Total Investment
Management Other Fund Annual
Fund Fees Expenses Expenses
- -------------------------------------------------------------------- ------------ ---------- -----------------
<S> <C> <C> <C>
Alger American Growth Portfolio (a) ................................ 0.75% 0.04% 0.79%
Alger American MidCap Growth Portfolio (a) ......................... 0.80% 0.04% 0.84%
Alger American Small Capitalization Portfolio (a) .................. 0.85% 0.04% 0.89%
Fidelity VIP Equity-Income Portfolio (a) (b) ....................... 0.50% 0.08% 0.58%
Fidelity VIP Growth Portfolio (a) (b) .............................. 0.60% 0.09% 0.69%
Fidelity VIP High Income Portfolio (a) ............................. 0.59% 0.12% 0.71%
Fidelity VIP Money Market Portfolio ................................ 0.21% 0.10% 0.31%
Fidelity VIP II Contrafund Portfolio (a) (b) ....................... 0.60% 0.11% 0.71%
Fidelity VIP II Index 500 Portfolio (a) (c) ........................ 0.24% 0.04% 0.28%
Fidelity VIP II Investment Grade Bond Portfolio (a) ................ 0.44% 0.14% 0.58%
Janus Aggressive Growth Portfolio (a) (d) .......................... 0.73% 0.03% 0.76%
Janus Growth Portfolio (a) (d) ..................................... 0.65% 0.05% 0.70%
Janus International Growth Portfolio (a) (d) ....................... 0.67% 0.29% 0.96%
Janus Worldwide Growth Portfolio (a) (d) ........................... 0.66% 0.08% 0.74%
Neuberger&Berman AMT Limited Maturity Bond Portfolio (a) ........... 0.65% 0.12% 0.77%
Neuberger&Berman AMT Partners Portfolio (a) ........................ 0.80% 0.06% 0.86%
Northstar Variable Trust Growth Portfolio (e) ...................... 0.75% 0.05% 0.80%
Northstar Variable Trust High Yield Bond Portfolio (e) ............. 0.75% 0.05% 0.80%
Northstar Variable Trust Income and Growth Portfolio (e) ........... 0.75% 0.05% 0.80%
Northstar Variable Trust International Value Portfolio (e) ......... 0.75% 0.05% 0.80%
Northstar Variable Trust Multi-Sector Bond Portfolio (e) ........... 0.75% 0.05% 0.80%
OCC Equity Portfolio (a) (f) ....................................... 0.80% 0.19% 0.99%
OCC Global Equity Portfolio (a) (f) ................................ 0.79% 0.40% 1.19%
OCC Managed Portfolio (a) (f) ...................................... 0.79% 0.07% 0.87%
OCC Small Cap Portfolio (a) (f) .................................... 0.80% 0.07% 0.87%
Putnam VT Diversified Income Fund .................................. 0.69% 0.11% 0.80%
Putnam VT Growth and Income Fund ................................... 0.47% 0.04% 0.51%
Putnam VT Voyager Fund ............................................. 0.54% 0.05% 0.59%
</TABLE>
(a) 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 by 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, and in some cases distribution, and other services
provided by the Company and its affiliates to 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.
The percentage paid may vary from one Fund company to another.
(b) 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 whereby credits realized, as a result of
uninvested cash balances, were used to reduce custodian expenses.
Including these reductions, the Total Investment Fund Annual Expenses
presented in the table would have been: 0.57% for Fidelity VIP
Equity-Income Portfolio; 0.67% for Fidelity VIP Growth Portfolio; and
0.68% for Fidelity VIP II Contrafund Portfolio.
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(c) FMR agreed to reimburse a portion of Fidelity VIP II Index 500 Portfolio's
expenses during the period. Without this reimbursement, the funds'
Management Fee, Other Expenses and Total Investment Fund Annual Expenses
would have been 0.27%, 0.13%, and 0.40%, respectively. Expense
reimbursements are voluntary. There is no assurance of ongoing
reimbursement.
(d) The fees and expenses in the table above are based on gross expenses before
expense offset arrangements for the fiscal year ended December 31, 1997.
The information for each Portfolio is net of fee waivers 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. Without such waivers or
reductions, the Management Fee, Other Expenses and Total Operating
Expenses would have been: 0.74%, 0.04%, and 0.78% for the Janus Aggressive
Growth Portfolio; 0.74%, 0.04%, and 0.78% for the Janus Growth Portfolio;
0.79%, 0.29%, and 1.08% for the Janus International Growth Portfolio; and
0.72%, 0.09%, and 0.81% for the Janus Worldwide Growth Portfolio. Janus
Capital may modify or terminate the reductions at any time upon at least
90 days' notice to the Trustees of Janus Aspen Series.
(e) The investment adviser to the Northstar Variable Trust has agreed to
reimburse the five Northstar Portfolios for any expenses in excess of
0.80% of each Portfolio's average daily net assets. In the absence of the
investment adviser's expense reimbursements, the Total Investment Fund
Annual Expenses that would have been paid by each Portfolio during its
fiscal year ended December 31, 1997 would have been: 1.09% for the
Northstar Variable Trust Growth Portfolio; 1.35% for the Northstar
Variable Trust High Yield Bond Portfolio; 1.11% for the Northstar Variable
Trust Income and Growth Portfolio; 1.36% for the Northstar Variable Trust
Mulit-Sector Bond Portfolio; and 2.61% for the Northstar Variable Trust
International Value Portfolio. Expense reimbursements are voluntary. There
is no assurance of ongoing reimbursement.
(f) Management Fees reflect effective management fees after taking into effect
any waiver. Other Expenses are shown gross of expense offsets afforded the
Portfolios which effectively lowered overall custody expenses. Total
Investment Fund Annual Expenses for the Equity, Small Cap and Managed
Portfolios are limited by OpCap Advisors so that their respective
annualized operating expenses (net of any expense offsets) do not exceed
1.00% of average daily net assets. Total Investment Fund Annual Expenses
for the Global Equity Portfolio are limited to 1.25% of average daily net
assets. Without such limitation and without giving effect to any expense
offers, the Management Fees, Other Expenses and Total Investment Fund
Annual Expenses incurred for the fiscal year ended December 31, 1997 would
have been: 0.80%, 0.19% and 0.99%, respectively, for the Equity Portfolio;
0.80%, 0.40% and 1.20, respectively, for the Global Equity Portfolio;
0.80%, 0.07% and 0.87%, respectively, for the Managed Portfolio; and
0.80%, 0.17% and 0.97%, respectively, for the Small Cap Portfolio. Expense
reimbursements are voluntary. There is no assurance of ongoing
reimbursement.
Reduction of Charges
Any of the charges under the Policy, as well as the Minimum Face Amount
set forth in this Prospectus, may be reduced because of special circumstances
that result in lower sales, administrative, or mortality expenses. For example,
special circumstances may exist in connection with group sales to our Policy
holders or those of affiliated insurance companies, or sales to employees or
clients of members of our affiliated group of insurance companies. 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 owners and
owners of all other policies funded by the Variable Account.
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Policy Lapse and Reinstatement
Lapse. Unlike traditional life insurance policies, the failure to make a
Planned Periodic Payment will not by itself cause the Policy to lapse. If the
Death Benefit Guarantee is not in effect, the Policy will lapse if, as of any
Monthly Anniversary, the Cash Surrender Value is less than the Monthly
Deduction due, and a grace period of 61 days expires without a sufficient
payment. A sufficient premium is any premium payment such that the Net Premium
is larger than the sum of 1 + 2 where 1 is the amount by which the Accumulation
Value is less than the Surrender Charge as of the beginning of the grace period
and 2 is the sum of past due Monthly Deductions.
During the early Policy Years, the Cash Surrender Value will generally not
be sufficient to cover the Monthly Deduction, so that premium payments
sufficient to maintain the Death Benefit Guarantee will be required to avoid
lapse. See "Death Benefit Guarantee."
The Policy does not lapse, and the insurance coverage continues, until the
expiration of a 61-day grace period which begins on the date we send you
written notice indicating that the Cash Surrender Value is less than the
Monthly Deduction due. Our written notice to you will indicate the amount of
the payment required to avoid lapse. Failure to make a sufficient payment
within the grace period will result in lapse of the Policy without value.
If the Surviving Joint Insured dies during the grace period, the proceeds
payable will equal the amount of the Death Benefit on the Valuation Date on or
next following the date of the Surviving Joint Insured's death, reduced by any
Loan Amount and any unpaid Monthly Deductions.
If the Death Benefit Guarantee is in effect, we will not lapse the Policy.
See "Death Benefit Guarantee."
Reinstatement. Reinstatement means putting a lapsed Policy back in force.
You may reinstate a lapsed Policy by written request any time within five years
after it has lapsed if it has not been surrendered for its Cash Surrender
Value.
To reinstate the Policy and any riders, you must submit evidence of
insurability satisfactory to us that each Joint Insured is still insurable, or
if the Policy lapsed after the first death of the Joint Insured, then evidence
of insurability for the Surviving Joint Insured. You must pay a premium large
enough such that the Net Premium is as large as the sum of the Surrender Charge
after reinstatement, plus the Monthly Deductions for the date of reinstatement
and the following Monthly Anniversary.
The Death Benefit Guarantee cannot be reinstated. See "Death Benefit
Guarantee."
Surrender Benefits
Subject to certain limitations, you may make a total surrender of the
Policy or a partial withdrawal of the Policy's Cash Surrender Value by sending
us a written request. The amount available for a total surrender or partial
withdrawal will be determined at the end of the Valuation Period during which
your written request is received. Any amounts payable from the Variable Account
upon total surrender or partial withdrawal will generally be paid within seven
days of receipt of your written request. Postponement of payments may, however,
occur in certain circumstances. See "General Provisions -- Postponement of
Payments."
Total Surrender
By making a written request, you may surrender the Policy at any time for
its Cash Surrender Value. The Cash Surrender Value is the Accumulation Value of
the Policy reduced by any Surrender Charge, Loan Amount and unpaid Monthly
Deductions. If the Cash Surrender Value at the time of a surrender exceeds
$25,000, the written request must include a Signature Guarantee. An
illustration of Accumulation Values, Surrender Charges, Cash Surrender Values,
and Death Benefits assuming different levels of premium payments and investment
returns for selected ages and Face Amounts is shown in Appendix C.
Partial Withdrawal
After the first Policy Year, you may also withdraw part of the Policy's
Cash Surrender Value by sending us a written request. If the amount being
withdrawn exceeds $25,000, the written request must include a Signature
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<PAGE>
Guarantee. Only one partial withdrawal is allowed in any Policy Year. We
currently make a $10.00 charge for each partial withdrawal. This charge is
guaranteed not to exceed $25.00 for each partial withdrawal. See "Deductions
and Charges -- Partial Withdrawal and Transfer Charges." The amount of any
partial withdrawal must be at least $500 and, during the first 15 Policy Years,
may not be more than 20% of the Cash Surrender Value on the date we receive
your written request. No interest will accrue on amounts represented by
uncashed distribution or redemption checks.
Unless you specify a different allocation, we make partial withdrawals
from the Fixed Account and the Sub-Accounts of the Variable Account on a
proportionate basis based upon the Accumulation Value. These proportions will
be determined at the end of the Valuation Period during which your written
request is received. For purposes of determining these proportions, any
outstanding Loan Amount is first subtracted from the Fixed Accumulation Value.
Effect of Partial Withdrawals. The Accumulation Value will be reduced by
the amount of any partial withdrawal. The Death Benefit will also be reduced by
the amount of the withdrawal, or, if the Death Benefit is based on the corridor
percentage of Accumulation Value (see "Death Benefit -- Death Benefit
Options"), by an amount equal to the corridor percentage times the amount of
the partial withdrawal.
If the Level Amount Option is in effect, the Face Amount will be reduced
by the amount of the partial withdrawal. When increases in the Face Amount have
occurred previously, we reduce the current Face Amount by the amount of the
partial withdrawal in the following order:
(a) The Face Amount provided by the most recent increase;
(b) The next most recent increases successively; and
(c) The Face Amount when the Policy was issued.
Thus, partial withdrawals may affect the way in which the cost of
insurance is calculated and the amount of pure insurance protection under the
Policy. See "Death Benefit -- Requested Changes in Face Amount", "Deductions
and Charges -- Monthly Deduction" and "Death Benefit -- Insurance Protection."
We do not allow a partial withdrawal if the Face Amount after a partial
withdrawal would be less than the Minimum Face Amount.
If the Variable Amount Option is in effect, a partial withdrawal does not
affect the Face Amount.
A partial withdrawal may also cause the termination of the Death Benefit
Guarantee because the amount of the partial withdrawal is deducted from the
total premiums paid in calculating whether sufficient premiums have been paid
in order to maintain the Death Benefit Guarantee.
Like partial withdrawals, Policy loans are a means of withdrawing funds
from the Policy. See "Policy Loans." A partial withdrawal or a Policy loan may
have tax consequences depending on the circumstances of such withdrawal or
loan. See "Federal Tax Matters -- Policy Proceeds."
Transfers
You may transfer all or part of the Variable Accumulation Value between
the Sub-Accounts or to the Fixed Account subject to any conditions the Funds
whose shares are involved may impose. Transfer requests must be in writing.
Telephone/fax transfers are available when you complete a telephone/fax form.
See "Telephone/Fax Instructions." You may also direct us to automatically make
periodic transfers under the Dollar Cost Averaging or Portfolio Rebalancing
services as described below.
To transfer all or part of the Variable Accumulation Value from a
Sub-Account, Accumulation Units are redeemed and their values are reinvested in
other Sub-Accounts, or the Fixed Account, as directed in your request. We will
effect transfers, and determine all values in connection with transfers, at the
end of the Valuation Period during which we receive your request, except as
otherwise specified for the Dollar Cost Averaging or Portfolio Rebalancing
services. With respect to future Net Premium payments, however, your current
premium allocation will remain in effect unless (i) you have requested the
Portfolio Rebalancing service, or (ii) you are transferring all of the Variable
Accumulation Value from the Variable Account to the Fixed Account in exercise
of conversion rights. See "Free Look and Conversion Rights -- Conversion
Rights."
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<PAGE>
Transfers from the Fixed Account to the Variable Account are subject to
the following additional restrictions: (i) your transfer request must be
postmarked no more than 30 days before or after the Policy Anniversary in any
year, and only one transfer is permitted during this period, (ii) the Fixed
Accumulation Value after the transfer must be at least equal to the Loan
Amount, (iii) no more than 50% of the Fixed Accumulation Value, less any Loan
Amount, may be transferred unless the balance, after the transfer, would be
less than $1,000, in which event the full Fixed Accumulation Value, less any
Loan Amount, may be transferred, and (iv) you must transfer at least the lesser
of $500 or the total Fixed Accumulation Value, less any Loan Amount. See
Appendix A. Some of these restrictions may be waived for transfers due to the
Portfolio Rebalancing service.
Telephone/Fax Instructions. You are allowed to enter certain types of
instructions either by telephone or by fax if you complete a telephone/fax
instruction authorization form. If you complete the form, you can enter the
following types of instructions by telephone or fax: transfers between
Sub-Accounts, changes of allocations among fund options, and change of
Sub-Account for variable annuitization payouts. If the Owner completes the
telephone/fax form, the Owner agrees that we will not be liable for any loss,
liability, cost or expense when we act in accordance with the telephone/fax
transfer instructions that are received and, if by telephone, are recorded on
voice recording equipment. If a telephone/fax transfer request is later
determined not to have been made by the Owner or was made without the Owner's
authorization, and loss results from such unauthorized transfer, 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 transfer
authorization form you sign. Any fax request should include your name, daytime
telephone number, Policy number and, in the case of transfers, the names of the
Sub-Accounts from which and to which money will be transferred and the
allocation percentage. The Company will employ reasonable procedures to confirm
that instructions communicated by telephone/fax 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/fax instructions, providing written confirmation of such
instructions, and/or tape recording telephone instructions.
Dollar Cost Averaging Service. You may request this service if your
Accumulation Value, less any Loan Amount, is at least $5,000. If you request
this service, you direct us to automatically make specific periodic transfers
of a fixed dollar amount from any of the Sub-Accounts to one or more of the
Sub-Accounts or to the Fixed Account. No transfers from the Fixed Account are
permitted under this service. Transfers of this type may be made on a monthly,
quarterly, semi-annual, or annual basis. This service is intended to allow you
to use "Dollar Cost Averaging", a long term investment method which provides
for regular investments over time. We make no guarantees that Dollar Cost
Averaging will result in a profit or protect against loss. You may discontinue
this service at any time by notifying us in writing.
If you are interested in the Dollar Cost Averaging service you may obtain
a separate application form and full information concerning this service and
its restrictions from us.
If you are using the Dollar Cost Averaging service, this service will be
discontinued immediately (i) on receipt of any request to begin a Portfolio
Rebalancing service, (ii) if the Policy is in the grace period on any date when
Dollar Cost Averaging transfers are scheduled, or (iii) if the specified
transfer amount from any Sub-Account is more than the Accumulation Value in
that Sub-Account.
We reserve the right to discontinue, modify, or suspend this service. Any
such modification or discontinuation would not affect any Dollar Cost Averaging
service requests already commenced.
Portfolio Rebalancing Service. You may request this service if your
Accumulation Value, less any Loan Amount, is at least $10,000. If you request
this service, you direct us to automatically make periodic transfers to
maintain your specified percentage allocation of Accumulation Value, less any
Loan Amount, among the Sub-Accounts of the Variable Account and the Fixed
Account; your allocation of future Net Premium payments will also be changed to
be equal to this specified percentage allocation. Transfers made under this
service may be made on a quarterly, semi-annual, or annual basis. This service
is intended to maintain the allocation you have selected consistent with your
personal objectives.
The Accumulation Value in each Sub-Account of the Variable Account and the
Fixed Account will grow or decline at different rates over time. Portfolio
Rebalancing will periodically transfer Accumulation Values from those accounts
that have increased in value to those accounts that have increased at a slower
rate or declined in
31
<PAGE>
value. If all accounts decline in value, it will transfer Accumulation Values
from those that have decreased less in value to those that have decreased more
in value. We make no guarantees that Portfolio Rebalancing will result in a
profit or protect against loss. You may discontinue this service at any time by
notifying us in writing.
If you are interested in the Portfolio Rebalancing service you may obtain
a separate application form and full information concerning this service and
its restrictions from us.
If you are using the Portfolio Rebalancing service, this service will be
discontinued immediately (i) on receipt of any request to change the allocation
of premiums to the Fixed Account and Sub-Account of the Variable Account, (ii)
on receipt of any request to begin a Dollar Cost Averaging service, (iii) upon
receipt of any request to transfer Accumulation Value among the Fixed Account
or Sub-Accounts, or (iv) if the Policy is in the grace period or the
Accumulation Value, less any Loan Amount, is less than $7,500 on any Valuation
Date when Portfolio Rebalancing transfers are scheduled.
We reserve the right to discontinue, modify, or suspend this service. Any
such modification or discontinuation could affect Portfolio Rebalancing
services currently in effect, but only after 30 days notice to affected Policy
owners.
Transfer Limits. We currently allow twelve transfers in a policy year. We
reserve the right to limit the number of transfers per year to twelve. All
transfers that are effective on the same Valuation Date will be treated as one
transfer transaction. Transfers made due to the Dollar Cost Averaging or
Portfolio Rebalancing services do not currently count toward the limit on
number of transfers.
Transfer Charges. While there is currently no charge imposed on the first
twelve transfers in a Policy Year, including transfers to implement Dollar Cost
Averaging and Portfolio Rebalancing, we reserve the right to make a charge not
to exceed $25.00 per transfer in excess of the first twelve transfers in a
Policy Year for the duration of the Policy. See "Deductions and Charges --
Partial Withdrawal and Transfer Charges." In no event, however, will any charge
be imposed in connection with the exercise of a conversion right or transfers
occurring as the result of Policy Loans. All transfers are also subject to any
charges and conditions imposed by the Fund whose shares are involved. All
transfers that are effective on the same Valuation Date will be treated as one
transfer transaction.
Policy Loans
General. As long as the Policy remains in effect, you may borrow money
from us at any time after the first Policy Year using the Policy as security
for the loan. You may not borrow at any time more than the Loan Value of the
Policy, which is equal to 100% of the Cash Value less the existing Loan Amount.
Each Policy loan must be at least $500.
Loan requests may be made in writing or by telephoning us on any Valuation
Date. Any loan request in excess of $25,000 will require a Signature Guarantee
and telephone loan requests cannot exceed $10,000. No election form is
currently required to make telephone loan requests. We will employ reasonable
procedures to confirm that loan requests made by telephone are genuine. In the
event we do not employ such procedures, we 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 confirmations of such instructions
and/or tape recording telephone instructions.
Policy loans have priority over the claims of any subsequent assignee or
other person. A Policy loan may be repaid in whole or in part at any time while
any Joint Insured is alive.
The loan proceeds will normally be paid to you within seven days after we
receive your request. Payment of loan proceeds to you may be postponed under
certain circumstances. See "General Provisions -- Postponement of Payments."
Payments made by you generally will be treated as premium payments, rather
than Policy loan repayments, unless you indicate that the payment should be
treated otherwise or unless we decide, at our discretion, to apply the payment
as a Policy loan repayment. As a result, unless you indicate that a payment is
a loan repayment, all payments you make to the Policy will generally be subject
to the Premium Expense Charge. See "Deductions and Charges -- Premium Expense
Charge."
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<PAGE>
The total of your outstanding Policy loans including unpaid interest due
thereon is called the "Loan Amount."
Immediate Effect of Policy Loans. When we make a Policy loan, an amount
equal to the Policy loan (which includes interest payable in advance) will be
segregated within the Accumulation Value of your Policy and held in the Fixed
Account as security for the loan. As described below, you will pay interest to
us on the Policy loan, but we will also credit interest to you on the amount
held in the Fixed Account as security for the loan. The amount segregated in
the Fixed Account as security for the Policy loan will be included as part of
the Fixed Accumulation Value under the Policy, but will (as described below) be
credited with interest on a basis different from other amounts in the Fixed
Account.
Unless you specify differently, amounts held as security for the Policy
loan will come proportionately from the Fixed Accumulation Value and the
Variable Accumulation Value (with the proportions being determined as described
below). Assets equal to the portion of the Policy loan coming from the Variable
Accumulation Value will be transferred from the Sub-Accounts of the Variable
Account to the Fixed Account, THEREBY REDUCING THE ACCUMULATION VALUE HELD IN
THE SUB-ACCOUNTS. These transfers are not treated as transfers for the purposes
of the transfer charge or the limit on the number of transfers.
Effect on Investment Performance. Amounts coming from the Variable Account
as security for Policy loans will no longer participate in the investment
performance of the Variable Account. All amounts held in the Fixed Account as
security for Policy loans (that is, the Loan Amount) will only be credited with
interest at an effective annual rate equal to 4.00%. NO ADDITIONAL INTEREST
WILL BE CREDITED TO THESE AMOUNTS. On the Policy Anniversary, any interest
credited on these amounts will be credited to the Fixed Account and the
Variable Account according to the premium allocation then in effect. See
"Payment and Allocation of Premiums -- Allocation of Premiums."
Although Policy loans may be repaid in whole or in part at any time,
Policy loans will permanently affect the Policy's potential Accumulation Value.
As a result, to the extent that the Death Benefit depends upon the Accumulation
Value (see "Death Benefit -- Death Benefit Options"), Policy loans will also
affect the Death Benefit under the Policy. This effect could be favorable or
unfavorable depending on whether the investment performance of the assets
allocated to the Sub-Account(s) is less than or greater than the interest being
credited on the assets transferred to the Fixed Account while the loan is
outstanding. Compared to a Policy under which no loan is made, values under the
Policy will be lower when such interest credited is less than the investment
performance of assets held in the Sub-Account(s).
Effect on Policy Coverage. If, on any Monthly Anniversary, the Loan Amount
is greater than the Accumulation Value, less the then applicable Surrender
Charge, we will notify you. If we do not receive sufficient payment within 61
days from the date we send notice to you, the Policy will lapse and terminate
without value. Our written notice to you will indicate the amount of the
payment required to avoid lapse. The Policy may, however, later be reinstated.
See "Policy Lapse and Reinstatement."
A Policy loan may also cause termination of the Death Benefit Guarantee,
because the Loan Amount is deducted from the total premiums paid in calculating
whether sufficient premiums have been paid in order to maintain the Death
Benefit Guarantee. See "Death Benefit Guarantee."
Proceeds payable upon the death of the Surviving Joint Insured will be
reduced by any Loan Amount.
Interest. The interest rate charged on Policy loans will be an annual rate
of 5.66%, payable in advance. After the tenth Policy Year, we will charge
interest at an annual rate of 3.85%, payable in advance, on that portion of
your Loan Amount that is not in excess of (a) the Accumulation Value, less (b)
the total of all premiums paid and all partial withdrawals. This portion of
your loan amount is called a preferred loan. Any excess of this amount will be
charged interest at the annual rate of 5.66%.
Interest is payable in advance (for the rest of the Policy Year) at the
time any Policy loan is made and at the beginning of each Policy Year
thereafter (for that entire Policy Year). If interest is not paid when due, it
will be deducted from the Cash Surrender Value as an additional Policy loan
(see "Immediate Effect of Policy Loans" above) and will be added to the
existing Loan Amount.
Because we charge interest in advance, any interest that we have not
earned will be refunded to you upon lapse or surrender of the Policy or
repayment of the Policy Loan.
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<PAGE>
Repayment of Loan Amount. The Loan Amount may be repaid any time while any
Joint Insured is living. If not repaid, the Loan Amount will be deducted by us
from any amount payable under the Policy. As described above, unless you
provide us with notice to the contrary, any payments on the Policy will
generally be treated as premium payments, which are subject to the Premium
Expense Charge, rather than repayments on the Loan Amount. Any repayments on
the Loan Amount will result in amounts being reallocated from the Fixed Account
and to the Sub-Accounts of the Variable Account according to your current
premium allocation.
Tax Considerations. A Policy loan, particularly after the 10th Policy
year, may have tax consequences depending on the circumstances of the loan. A
competent tax adviser should be consulted prior to taking out a policy loan.
See "Federal Tax Matters -- Policy Proceeds."
Free Look and Conversion Rights
Free Look Rights
The Policy provides for an initial free look period during which you have
a right to return the Policy for cancellation and receive a refund of all
premiums paid. You must return the Policy to us or your agent and ask us to
cancel the Policy by midnight of the 10th day after receiving it.
Conversion Rights
During the first two Policy Years and the first two years following a
requested increase in Face Amount, we provide you with an option to convert the
Policy or any requested increase in Face Amount to a life insurance policy
under which the benefits do not vary with the investment experience of the
Variable Account. This option is made available by permitting you to transfer
all or a part of your Variable Accumulation Value to the Fixed Account.
General Option. You may exercise your conversion right by transferring all
or any part of your Variable Accumulation Value to the Fixed Account. If, at
any time during the first two Policy Years or the first two years following a
requested increase in Face Amount, you request transfer from the Variable
Account to the Fixed Account and indicate that you are making the transfer in
exercise of your conversion right, the transfer will not be subject to the
transfer charge and will not count against the limit on the number of
transfers. At the time of such transfer, there is no effect on the Policy's
Death Benefit, Face Amount, net amount at risk, Rate Class(es) or issue age --
only the method of funding the Accumulation Value under the Policy will be
affected. See "Death Benefit", "Accumulation Value" and Appendix A, "The Fixed
Account."
If you transfer all of the Variable Accumulation Value from the Variable
Account to the Fixed Account and indicate that you are making this transfer in
exercise of your Conversion Right, we will automatically credit all future
premium payments on the Policy to the Fixed Account unless you request a
different allocation.
Investments of the Variable Account
There are currently 28 investment alternatives available under the
Variable Account. Alger Management is the investment manager for the three
Alger American Fund Portfolios and is responsible for the overall
administration of the Fund, subject to the supervision of the Board of
Trustees. Fidelity Management & Research Company is the investment adviser for
the four portfolios of the Variable Insurance Products Fund (VIP) and the three
portfolios of the Variable Insurance Products Fund II (VIP II). Each of the
four portfolios of Janus Aspen Series has an investment advisory agreement with
Janus Capital. Neuberger&Berman Management, with the assistance of
Neuberger&Berman, LLC as sub-adviser, is the investment manager of AMT Limited
Maturity Bond Investments and AMT Partners Investments. Northstar Investment
Management Corporation, an affiliate of the Company, is the investment adviser
of the five Northstar Portfolios. The Northstar Variable Trust Growth Portfolio
is sub-advised by Navellier Fund Management, Inc. and the Northstar Variable
Trust International Value Portfolio is sub-advised by Brandes Investment
Partners, L.P. OpCap Advisors is the investment manager for each of the four
OCC Accumulation Trust Portfolios and is a subsidiary of Oppenheimer Capital, a
registered investment adviser. Putnam Investment Management, Inc. is the
investment adviser for the three funds of Putnam Variable Trust.
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We reserve 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. The Variable Account currently consists of 28 investment options;
you would only be permitted, however, to participate in a maximum of seventeen
investment options over the lifetime of your Policy. You do not have to choose
your investment options in advance, but upon participation in the seventeenth
Fund since the issue of the Policy, you would only be able to transfer within
the seventeen Funds already utilized and which are still available. This
limitation includes transfers.
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, recordkeeping, distribution, and other services to the Funds or
their affiliates. Such compensation is paid based upon assets invested in the
particular Funds, or based upon aggregated net asset goals. Currently, the
Company has service arrangements with Alger, Fidelity, Janus, Neuberger&Berman
Management, and OCC.
The Funds currently offered are described below. A brief summary of
investment objectives is contained in the description of each Fund. In addition,
you should read the prospectuses of the Funds, which are contained in the
accompanying "Select[STAR]Product Investment Options" book, for more detailed
information and particularly, a more thorough explanation of investment
objectives of the Funds. There is no assurance that any Fund will achieve its
investment objectives. There is a possibility that one Fund might become liable
for any misstatement, inaccuracy or incomplete disclosure in another Fund's
prospectus.
The Fund shares may be available to fund benefits under both variable
annuity and variable life contracts and policies. This could, in the future,
result in an irreconcilable conflict between the interests of the holders of
the different types of variable contracts. The Funds have advised us that they
will monitor for such conflicts and will promptly provide us with information
regarding any such conflicts should they arise or become imminent and we will
promptly advise the Funds if we become aware of any such conflicts. If any such
material irreconcilable conflict arises we will arrange to eliminate and remedy
such conflict up to and including establishing a new management investment
company and segregating the assets underlying the variable policies and
contracts at no cost to the holders of the policies and contracts. For a brief
explanation of the conflicts that may be involved in such situations, refer to
the Fund Prospectuses.
The Funds described below distribute dividends and capital gains. However,
distributions are automatically reinvested in additional Fund shares, at net
asset value. The Sub-Account receives the distributions which are then
reflected in the Unit Value of that Sub-Account. See "Accumulation Value."
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Fund Descriptions
<TABLE>
<CAPTION>
INVESTMENT FUNDS INVESTMENT OBJECTIVE
- ----------------------------------------------- ---------------------------------------------------
<S> <C>
The Alger American Fund:
Growth Portfolio long-term capital appreciation
MidCap Growth Portfolio long-term capital appreciation
Small Capitalization Portfolio long-term capital appreciation
Fidelity Variable Insurance Products Fund:
VIP Equity-Income Portfolio reasonable income; capital appreciation
VIP Growth Portfolio capital appreciation
VIP High Income Portfolio high current income
VIP Money Market Portfolio income while maintaining stable $1.00 share price
Fidelity Variable Insurance Products Fund II:
VIP II Contrafund Portfolio capital appreciation
VIP II Index 500 Portfolio total return that corresponds to that of the
Standard & Poor's 500 Index
VIP II Investment Grade Bond Portfolio high current income
Janus Aspen Series:
Aggressive Growth Portfolio long-term capital growth
Growth Portfolio long-term capital growth
International Growth Portfolio long-term capital growth
Worldwide Growth Portfolio long-term capital growth
Neuberger&Berman Advisers Management
Trust ("AMT"):
Limited Maturity Bond Portfolio highest current income consistent with low risk to
principal and liquidity, and secondarily, total
return
Partners Portfolio capital growth
Northstar Variable Trust:
Growth Portfolio long-term capital growth
High Yield Bond Portfolio high current yield and capital appreciation
Income and Growth Portfolio consistent level of income; capital appreciation
International Value Portfolio long-term capital appreciation
Multi-Sector Bond Portfolio current income; capital preservation
OCC Accumulation Trust:
Equity Portfolio long-term capital appreciation
Global Equity Portfolio long-term capital appreciation
Managed Portfolio capital growth
Small Cap Portfolio capital appreciation
Putnam Variable Trust:
Putnam VT Diversified Income Fund capital growth; current income
Putnam VT Growth and Income Fund capital growth; current income
Putnam VT Voyager Fund capital appreciation
</TABLE>
Addition, Deletion, or Substitution of Investments
We reserve the right, subject to compliance with applicable law, to make
additions to, deletions from, or substitutions for the shares that are held by
the Variable Account or that the Variable Account may purchase. We reserve the
right to eliminate the shares of any of the Funds and to substitute shares of
another Fund or of another open-end, registered investment company. We will not
substitute any shares attributable to your interest
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in a Sub-Account of the Variable Account without notice and prior approval of
the SEC, to the extent required by the Investment Company Act of 1940 or other
applicable law. Nothing contained herein shall prevent the Variable Account
from purchasing other securities of other Funds or classes of policies, or from
permitting a conversion between Funds or classes of policies on the basis of
requests made by Policy owners.
We also reserve the right to establish additional Sub-Accounts of the
Variable Account, each of which would invest in a new Fund, or in shares of
another investment company, with a specified investment objective. New
Sub-Accounts may be established when, in our sole discretion, marketing needs
or investment conditions warrant, and any new Sub-Accounts will be made
available to existing Policy owners on a basis to be determined by us. We may
also eliminate one or more Sub-Accounts if, in our sole discretion, marketing,
tax, regulatory requirements or investment conditions warrant.
In the event of any such substitution, deletion, or change, we may make
such changes in this and other policies as may be necessary or appropriate to
reflect such substitution, deletion, or change. If all or a portion of your
investments are allocated to any of the current funds that are being
substituted for or deleted on the date that such action is announced, you may
transfer the portion of the Accumulation Value affected without payment of a
transfer charge to available Sub-Accounts. If deemed by us to be in the best
interests of persons having voting rights under the Policies, the Variable
Account may be operated as a management company under the Investment Company
Act of 1940, it may be deregistered under that Act in the event such
registration is no longer required, or it may be combined with our other
separate accounts.
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 1999, subject to and contingent upon receipt of various approvals. It is
expected that any policyholder monies that are invested in Sub-Accounts
investing in the discontinued Funds will be transferred to alternate Funds with
similar investment objectives. Policyholders 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.
Voting Rights
You have the right to instruct us how to vote the Fund shares attributable
to the Policy at regular meetings and special meetings of the Funds. We will
vote the Fund shares held in Sub-Accounts according to the instructions
received, as long as:
o The Variable Account is registered as a unit investment trust under
the Investment Company Act of 1940; and
o The assets of the Variable Account are invested in Fund shares.
If we determine that, because of applicable law or regulation, we do not
have to vote according to the voting instructions received, we will vote
the Fund shares at our discretion.
All persons entitled to voting rights and the number of votes they may
cast are determined as of a record date, selected by us, not more than 90
days before the meeting of the Fund. All Fund proxy materials and
appropriate forms used to give voting instructions will be sent to persons
having voting interests.
Any Fund shares held in the Variable Account for which we do not receive
timely voting instructions, or which are not attributable to Policy owners,
will be voted by us in proportion to the instructions received from all
Policy owners having a voting interest in the Fund. Any 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 Fund
in proportion to each account's voting interest in the respective Fund, and
will be voted in the same manner as are the respective account's votes.
Owning the Policy does not give you the right to vote at meetings of our
stockholders.
Disregard of Voting Instructions. We may, when required by state
insurance regulatory authorities, disregard voting instructions if the
instructions require that the shares be voted so as to cause a change in
the subclassification or investment objective of any Fund or to approve or
disapprove an investment advisory contract for any Fund. In addition, we
may disregard voting instructions in favor of changes initiated
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by a Policy owner in the investment policy or the investment adviser of any
Fund if we reasonably disapprove of such changes. A change would be
disapproved only if the proposed change is contrary to state law or
prohibited by state regulatory authorities or we determine that the change
would have an adverse effect on the Variable Account in that the proposed
investment policy for a Fund may result in speculative or unsound
investments. In the event we do disregard voting instructions, a summary of
that action and the reasons for such action will be included in the next
annual report to owners.
General Provisions
Benefits After Age 100
If either of the Joint Insureds is living after age 100 of the younger
Joint Insured and the Policy is in force, the Death Benefit will be the
Accumulation Value.
Ownership
While the Surviving Joint Insured is alive, subject to the Policy's
provisions you may:
o Change the amount and frequency of premium payments.
o Change the allocation of premiums.
o Make transfers between accounts.
o Surrender the Policy for cash.
o Make a partial withdrawal for cash.
o Receive a cash loan.
o Assign the Policy as collateral.
o Change the beneficiary.
o Transfer ownership of the Policy.
o Enjoy any other rights the Policy allows.
While both Joint Insureds are alive, subject to this Policy's provisions,
you may:
o Change the Death Benefit Option.
o Change the Face Amount.
Proceeds
At the Surviving Joint Insured's death, the proceeds payable include the
Death Benefit then in force:
o Plus any additional amounts provided by rider on the life of the
Surviving Joint Insured;
o Plus any Policy loan interest that we have collected but not earned;
o Minus any Loan Amount; and
o Minus any unpaid Monthly Deductions.
Beneficiary
You may name one or more beneficiaries on the application when you apply
for the Policy. You may later change beneficiaries by written request. If no
beneficiary is surviving when the Surviving Joint Insured dies, the Death
Benefit will be paid to you, if surviving, or otherwise to your estate.
Postponement of Payments
Payments from the Variable Account for Death Benefits, cash surrender,
partial withdrawal, or loans will generally be made within seven days after we
receive all the documents required for the payments.
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We may, however, delay making a payment when we are not able to determine
the Variable Accumulation Value because (i) the New York Stock Exchange is
closed, other than customary weekend or holiday closings, or trading on the New
York Stock Exchange is restricted by the SEC, (ii) the SEC by order permits
postponement for the protection of Policyholders, or (iii) an emergency exists,
as determined by the SEC, as a result of which disposal of securities is not
reasonably practicable or it is not reasonably practicable to determine the
value of the Variable Account's net assets. Transfers and allocation to and
against any Sub-Account of the Variable Account may also be postponed under
these circumstances.
Any of the payments described above which are made from the Fixed Account
may be delayed up to six months from the date we receive the documents
required. We will pay interest at an effective annual rate of not less than
3.50% from the date of the request to the date of payment if we delay payment
more than 10 days.
Settlement Options
Settlement Options are ways you can choose to have the Policy's proceeds
paid. These options apply to proceeds paid:
o At the Surviving Joint Insured's death.
o On total surrender of the Policy.
The proceeds are paid to one or more payees. The proceeds may be paid in a
lump sum or may be applied to one of the following Settlement Options. Proceeds
will be paid in one sum unless one or more Options are requested. A combination
of options may be used. At least $2,500 must be applied to any option for each
payee under that option. Under an installment Option, each payment must be at
least $25.00. We may adjust the interval between payments to make each payment
at least $25.00.
Proceeds applied to any Option no longer earn interest at the rate applied
to the Fixed Account or participate in the investment performance of the Funds.
Option 1 -- Proceeds are left with us to earn interest. Withdrawals and any
changes are subject to our approval.
Option 2 -- Proceeds and interest are paid in equal installments of a
specified amount until the proceeds and interest are all paid.
Option 3 -- Proceeds and interest are paid in equal installments for a
specified period until the proceeds and interest are all paid.
Option 4 -- The proceeds provide an annuity payment with a specified number
of months "certain." The payments are continued for the life of the primary
payee. If the primary payee dies before the certain period is over, the
remaining payments are paid to a contingent payee.
Option 5 -- The proceeds provide a life income for two payees. When one
payee dies, the surviving payee receives two-thirds of the amount of the
joint monthly payment for life.
Option 6 -- The proceeds are used to provide an annuity based on the rates
in effect when the proceeds are applied. We do not apply this Option if a
similar option would be more favorable to the payee at that time.
Interest on Settlement Options. We base the interest rate for proceeds
applied under Options 1 and 2 on the interest rate we declare on funds that we
consider to be in the same classification based on the Option, restrictions on
withdrawal, and other factors. The interest rate will never be less than an
effective annual rate of 3.50%.
In determining amounts to be paid under Options 3 and 4, we assume
interest at an effective annual rate of 3.50%. Also, for Option 3 and "certain"
periods under Option 4, we credit any excess interest we may declare on funds
that we consider to be in the same classification based on the Option,
restrictions on withdrawal, and other factors.
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<PAGE>
Incontestability
After the Policy has been in force during both Joint Insured's lifetime
for two years from the Policy's Issue Date, we cannot claim the Policy is void
or refuse to pay any proceeds unless the Policy has lapsed.
If you make a Face Amount increase or a premium payment which requires
proof of insurability, the corresponding Death Benefit increase has its own
two-year contestable period measured from the date of the increase.
If the Policy is reinstated, the contestable period is measured from the
date of reinstatement with respect to statements made on the application for
reinstatement.
Misstatement of Age And Sex
If any Joint Insured's age or sex or both are misstated, the Death Benefit
will be the amount that the most recent cost of insurance would purchase using
the current cost of insurance rate for the correct age and sex.
Suicide
If any Joint Insured commits suicide within two years of the Policy's
Issue Date, we do not pay the Death Benefit. Instead, we refund all premiums
paid for the Policy and any attached riders, minus any Loan Amounts and partial
withdrawals.
If you make a Face Amount increase or a premium payment which requires
proof of insurability, the corresponding Death Benefit increase has its own
two-year suicide limitation for the proceeds associated with that increase. If
any Joint Insured commits suicide within two years of the effective date of the
increase, we pay the Death Benefit prior to the increase and refund the cost of
insurance for that increase.
Termination
The Policy terminates when any of the following occurs:
o The Policy lapses. See "Policy Lapse and Reinstatement."
o The Surviving Joint Insured dies.
o The Policy is surrendered for its Cash Surrender Value.
o The Policy is amended according to the amendment provision described
below and you do not accept the amendment.
Amendment
We reserve the right to amend the Policy in order to include any future
changes relating to the following:
o Any SEC rulings and regulations.
o The Policy's qualification for treatment as a life insurance policy
under the following:
The Code.
o Internal Revenue Service rulings and regulations.
o Any requirements imposed by the Internal Revenue Service.
Reports
Annual Statement. We will send you an Annual Statement once each year free
of charge, showing the Face Amount, Death Benefit, Accumulation Value, Cash
Surrender Value, Loan Amount, premiums paid, Planned Periodic Premiums,
interest credits, partial withdrawals, transfers, and charges since the last
statement.
Additional statements are available upon request. We may make a charge not
to exceed $50.00 for each additional Annual Statement you request.
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<PAGE>
Projection Report. Upon request after the first Policy Year, we will
provide you a report projecting future results based on the Death Benefit
Option you specify, the Planned Periodic Premiums you specify, the Accumulation
Value of your Policy at the end of the prior Policy Year and any other
assumptions specified by you or us (subject to any SEC limitations). The first
request for a Projection Report in any Policy Year will be without charge;
thereafter, we may make a charge not to exceed $50.00 for each Projection
Report you request.
Dividends
The Policy does not entitle you to participate in our surplus. We do not
pay you dividends under the Policy.
The Sub-Account receives any dividends paid by the related Fund. Any such
dividend is credited to you through the calculation of the Sub-Account's daily
Unit Value.
Collateral Assignment
You may assign the benefits of the Policy as collateral for a debt. This
limits your rights to the Cash Surrender Value and the beneficiary's rights to
the proceeds. An assignment is not binding on us until we receive written
notice.
Optional Insurance Benefits
The Policy can include additional benefits, in the form of riders to the
Policy, if our requirements for issuing such benefits are met. We currently
offer the following benefit riders although some riders may not be available in
some states.
Policy Split Option Rider (PSO)Allows the Policy owner to split the Policy
into two individual permanent life insurance policies in the event of a divorce
of the Joint Insureds, dissolution of a business partnership of the Joint
Insureds, or if there is a change in the federal estate tax laws that would
eliminate the unlimited marital deduction or reduce by at least 50% the estate
taxes payable at death. Evidence of insurability on each Joint Insured may be
required to exercise this option. There is no cost for this rider.
Survivorship Term Rider (STR)Provides a level term insurance benefit
payable on the death of the Surviving Joint Insured if death occurs prior to
age 100 of the younger Joint Insured. The current cost of insurance rates for
the rider are expected to be the same as for the base Policy. The Monthly
Amount Charge per $1,000 for the rider is expected to be lower than for the
base Policy. In addition, the base Policy's Surrender Charge does not apply to
coverage under the rider. However, the Survivorship Term Rider will cause the
Death Benefit Guarantee Period of the base Policy to be shortened.
By Company practice, if the base Death Benefit is equal to the
Accumulation Value multiplied by the corridor percentage (see "Death Benefit"),
the STR amount may be replaced with base coverage without providing evidence of
insurability. The entire rider amount must be replaced if any amount is
replaced. Neither Surrender Charges nor Monthly Amount Charges will apply to
the new additional base coverage. Cost of insurance rates on this new
additional base coverage will be equal to the cost of insurance rates for the
original base coverage.
There may be times in which it will be to your economic advantage to
include a significant portion of your insurance coverage under a term rider. In
some other circumstances, it may be in your interest to obtain a Policy without
term rider coverage. These circumstances depend on many factors, including the
premium levels and amount and duration of coverage you choose, as well as the
ages, sexes, and premium classes of the Joint Insureds.
Four Year Term Rider (FTR)Provides a four year, level term benefit if the
Surviving Joint Insured dies during the first four Policy Years.
Federal Tax Matters
Introduction
The following summary provides a general description of the Federal income
tax considerations associated with the Policy and does not purport to be
complete or to cover all tax situations. This discussion is not intended as tax
advice. Counsel or other competent tax advisors should be consulted for more
complete information. This
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<PAGE>
discussion is based upon the Company's understanding of the present Federal
income tax laws. No representation is made as to the likelihood of continuation
of the present Federal income tax laws or as to how they may be interpreted by
the Internal Revenue Service (the "IRS").
Any qualified plan contemplating the purchase of a life policy should
consult a tax advisor.
Tax Status of the Policy
In order to qualify as a life insurance contract for Federal income tax
purposes and to receive the tax treatment normally accorded life insurance
contracts under Federal tax law, a Policy must satisfy certain requirements
which are set forth in the Internal Revenue Code. Guidance as to how these
requirements are to be applied is limited. Nevertheless, the Company believes
that a Policy issued on the basis of a standard risk class should satisfy the
applicable requirements. There is less guidance with respect to Policies issued
on a substandard basis (i.e., a premium class involving higher than standard
mortality risk), and it is not clear whether such a Policy would satisfy the
applicable requirements, particularly if the owner pays the full amount of
premiums permitted under the Policy. If it is subsequently determined that a
Policy does not satisfy the applicable requirements, the Company may take
appropriate steps to bring the Policy into compliance with such requirements
and reserves the right to restrict Policy transactions in order to do so.
In certain circumstances, owners of variable life insurance contracts have
been considered for Federal income tax purposes to be the owners of the assets
of the variable account supporting their policies due to their ability to
exercise investment control over these assets. Where this is the case, the
Policy owners have been currently taxed on income and gains attributable to the
variable account assets. There is little guidance in this area, and some
features of the Policies, such as the flexibility of an owner to allocate
premium payments and Policy Accumulation Values, have not been explicitly
addressed in published rulings. While the Company believes that the Policies do
not give owners investment control over Variable Account assets, the Company
reserves the right to modify the Policies as necessary to prevent an owner from
being treated as the owner of the Variable Account assets supporting the
Policy.
In addition, the Code requires that the investments of the Variable
Account be "adequately diversified" in order for the Policies to be treated as
life insurance contracts for Federal income tax purposes. It is intended that
the Variable Account, through the Funds, will satisfy these diversification
requirements.
The following discussion assumes that the Policy will qualify as a life
insurance contract for Federal income tax purposes.
Tax Treatment of Policy Benefits
In General. The Company believes that the Death Benefit under a Policy
should be excludible from the gross income of the Beneficiary. Federal, state
and local transfer, and other tax consequences of ownership or receipt of
Policy proceeds depend on the circumstances of each owner or beneficiary. A tax
advisor should be consulted on these consequences.
Generally, the owner will not be deemed to be in constructive receipt of
the Policy Accumulation Value until there is a distribution. When distributions
from a Policy occur, or when loans are taken out from or secured by (e.g., by
assignment) a Policy, the tax consequences depend on whether the Policy is
classified as a "Modified Endowment Contract."
Modified Endowment Contracts. Under the Internal Revenue Code, certain
life insurance contracts are classified as "Modified Endowment Contracts," with
less favorable tax treatment than other life insurance contracts. Due to the
flexibility of the Policies as to premiums and benefits, the individual
circumstances of each Policy will determine whether it is classified as a
Modified Endowment Contract. The rules are too complex to be summarized here,
but generally depend on the amount of premiums paid during the first seven
Policy Years. Certain changes in a Policy after it is issued could also cause
it to be classified as a Modified Endowment Contract. A current or prospective
owner should consult with a competent advisor to determine whether a Policy
transaction will cause the Policy to be classified as a Modified Endowment
Contract. The Company will monitor the Policies, however, and will attempt to
notify an owner on a timely basis if it believes that such owner's Policy is in
jeopardy of becoming a Modified Endowment Contract.
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Distributions from Modified Endowment Contracts. Policies classified as
Modified Endowment Contracts are subject to the following tax rules:
(1) All distributions, including distributions upon surrender and
withdrawals, will be treated as ordinary income subject to tax up to an
amount equal to the excess (if any) of the unloaned Policy Accumulation
Value (Cash Surrender Value for surrenders) immediately before the
distribution plus prior distributions over the owner's total investment
in the Policy at that time. "Total investment in the Policy" means the
aggregate amount of any premiums or other considerations paid for a
Policy, plus any previously taxed distributions, minus any credited
dividends.
(2) Loans taken from or secured by (e.g., by assignment) such a Policy are
treated as distributions and taxed accordingly.
(3) A 10 percent additional income tax is imposed on the amount included in
income except where distribution or loan is made when the owner has
attained age 59 1/2 or is disabled, or where the distribution is part
of a series of substantially equal periodic payments for the life (or
life expectancy) of the owner or the joint lives (or joint life
expectancies) of the owner and the owner's beneficiary or designated
beneficiary.
Distributions from Policies that are not Modified Endowment Contracts.
Distributions from a Policy that is not a Modified Endowment Contract are
generally treated first as a recovery of an owner's investment in the Policy
and only after the recovery of all investments in the Policy as taxable income.
However, certain distributions which must be made in order to enable the Policy
to continue to qualify as a life insurance contract for Federal income tax
purposes if Policy benefits are reduced during the first 15 Policy Years may be
treated in whole or in part as ordinary income subject to tax.
Loans from or secured by a Policy that is not a Modified Endowment
Contract are not treated as distributions.
Finally, neither distributions from nor loans from or secured by a Policy
that is not a modified Endowment Contract are subject to the 10 percent
additional tax.
Policy Loans. In general, interest on a loan from a Policy will not be
deductible. Before taking out a Policy loan, an owner should consult a tax
advisor as to the tax consequences.
Multiple Policies. All Modified Endowment Contracts that are issued by the
Company (or its affiliates) to the same owner during any calendar year are
treated as one Modified Endowment Contract for purposes of determining the
amount includible in the owner's income when a taxable distribution occurs.
Taxation of ReliaStar Life Insurance Company of New York
We do not initially expect to incur any income tax burden upon the
earnings or the realized capital gains attributable to the Variable Account.
Based on this expectation, no charge is being made currently to the Variable
Account for Federal income taxes which may be attributable to the Account. If,
however, we determine that we may incur such tax burden, we may assess a charge
for such burden from the Variable Account.
We may also incur state and local taxes, in addition to premium taxes, in
several states. At present these taxes are not significant. If there is a
material change in state or local tax laws, charges for such taxes, if any,
attributable to the Variable Account, may be made.
Possible Changes in Taxation
The President's 1999 Budget Proposal has also recommended legislation in
1998 that, if enacted, would adversely modify the federal taxation of certain
insurance and annuity contracts. For example, one proposal would tax transfers
among investment options and tax exchanges involving variable contracts. A
second proposal would reduce the "investment in the contract" under cash value
life insurance and certain annuity contracts, thereby increasing the amount of
income for purposes of computing gain. Although the likelihood of legislative
changes in uncertain, there is always the possibility that the tax treatment of
the Policy could change by legislation or other means. Moreover, it is also
possible that any change could be retroactive (that is, effective prior
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to the date of the change). You should consult a tax adviser with respect to
legislative developments and their effect on the Policy.
Other Considerations
The foregoing discussion is general and is not intended as tax advice. Any
person concerned about these tax implications should consult a competent tax
adviser. This discussion is based on our understanding of the present Federal
income tax laws as they are currently interpreted by the IRS. No representation
is made as to the likelihood of continuation of these current laws and
interpretations. It should be further understood that the foregoing discussion
is not exhaustive and that special rules not described in this Prospectus may
be applicable in certain situations. Moreover, no attempt has been made to
consider any applicable state or other tax laws.
Preparing for Year 2000
Like all financial services providers, we utilize systems that may be
affected by Year 2000 transition issues and we rely upon service providers,
including the Funds, that also may be affected. We have developed, and are in
the process of implementing, a Year 2000 transition plan, and are confirming
that our service providers are also so engaged. The resources that are being
devoted to this effort are substantial. It is difficult to predict with
precision whether the amount of resources ultimately devoted, or the outcome of
these efforts, will have any negative impact on us. However, as of the date of
this prospectus, it is not anticipated that Policy owners will experience
negative effects on their investment, or on the services provided in connection
therewith, as a result of Year 2000 transition implementation. We currently
anticipate that our systems will be Year 2000 compliant on or about January 1,
1999, but there can be no assurance that we will be successful, or that
interaction with other service providers will not impair our services at that
time.
Distribution of the Policies
We intend to sell the Policies in New York. The Policies will be sold by
licensed insurance agents who are also registered representatives of
broker-dealers registered with the SEC under the Securities Exchange Act of
1934 who are members of the National Association of Securities Dealers, Inc.
The Policies will be distributed by the general distributor, Washington
Square Securities, Inc., (WSSI), a Minnesota corporation, which is an affiliate
of ours. WSSI is a securities broker-dealer registered with the SEC and is a
member of the National Association of Securities Dealers, Inc. It is primarily
a mutual funds dealer and has dealer agreements under which it markets shares
of more than 50 mutual funds. It also markets limited partnerships and other
tax-sheltered or tax-deferred investments, and acts as general distributor
(principal underwriter) for variable annuity products issued by us. The
Policies may also be sold through other broker-dealers authorized by WSSI and
applicable law to do so. Registered representatives of such broker-dealers may
be paid on a different basis than described below.
Registered representatives who sell the Policies will receive commissions
based on a commission schedule. In the first Policy Year, commissions generally
will be no more than 55% of the premiums paid up to the annualized Minimum
Monthly Premium, plus 8% of additional premiums. In subsequent Policy Years 2
through 10, commissions generally will be no more than 8% of premiums paid in
that year. Corresponding commissions will be paid upon a requested increase in
Face Amount. In addition, a commission of .10% of the average monthly
Accumulation Value during each Policy Year may be paid. Further, registered
representatives may be eligible to receive certain overrides and other benefits
which may be based on the amount of earned commissions.
Management
The following list the current directors and executive officers of the
Company, their principal occupation and business experience.
44
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation
Directors and Officers and Business Experience
- ------------------------ ----------------------------------------------------------------------------
<S> <C>
Stephen A. Carb* Partner of Carb, Luria, Glassner, Cook & Kufeld LLP (New York law firm)
since 1962.
R. Michael Conley** Senior Vice President of ReliaStar Financial Corp. since 1991; Senior Vice
President, ReliaStar Employee Benefits of ReliaStar Life Insurance
Company since 1986; President of NWNL Benefits Corporation since
1988; Executive Vice President of ReliaStar Life Insurance Company of
New York since 1996; Director of various subsidiaries of ReliaStar
Financial Corp.
Richard R. Crowl** Senior Vice President, General Counsel and Secretary of ReliaStar
Financial Corp. since 1996; Senior Vice President and General Counsel of
ReliaStar Life Insurance Company, Northern Life Insurance Company, and
ReliaStar United Services Life Insurance Company since 1996; Senior Vice
President and General Counsel of ReliaStar Life Insurance Company of
New York since 1996; Senior Vice President and General Counsel of
Washington Square Advisers, Inc. since 1986; Vice President and Associate
General Counsel of ReliaStar Financial Corp. from 1989 to 1996; Vice
President and Associate General Counsel of ReliaStar Life Insurance
Company from 1985 to 1996; Director and Senior Vice President of various
subsidiaries of ReliaStar Financial Corp.
John H. Flittie** Vice Chairman, President and Chief Operating Officer of ReliaStar Life
Insurance Company since 1996; President, Chief Operating Officer and
Director of ReliaStar Financial Corp. and ReliaStar Life Insurance
Company since 1993; Vice Chairman of ReliaStar Life Insurance Company
of New York since 1996; Chief Executive Officer and President of
ReliaStar Life Insurance Company of New York from 1996 to 1998; Vice
Chairman of ReliaStar United Services Life Insurance Company and
ReliaStar Life Insurance Company of New York since 1995; Senior
Executive Vice President and Chief Operating Officer of ReliaStar
Financial Corp. and ReliaStar Life Insurance Company from 1992 to 1993;
Senior Executive Vice President and Chief Operating Officer of ReliaStar
Financial Corp. from 1991 to 1992; Executive Vice President and Chief
Financial Officer of ReliaStar Financial Corp. and ReliaStar Life Insurance
Company from 1989 to 1991; Senior Vice President and Chief Financial
Officer of ReliaStar Financial Corp. since 1985; Director of Community
First BankShares, Inc. and Director and Officer of various subsidiaries of
ReliaStar Financial Corp.
James T. Hale* Senior Vice President of Dayton Hudson Corporation since 1981.
Wayne R. Huneke** Senior Vice President of ReliaStar Financial Corp. and ReliaStar Life
Insurance Company since 1994; Chief Financial Officer and Treasurer of
ReliaStar Financial Corp. and ReliaStar Life Insurance Company from
1994 to 1997; Vice President, Treasurer and Chief Accounting Officer from
1990 to 1994; Director and Officer of various subsidiaries of ReliaStar
Financial Corp.
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
Senior Vice President of ReliaStar Financial Corp. since 1997; Director of
ReliaStar Life Insurance Company of New York since 1997; Director,
President and Chief Executive Officer of Security-Connecticut Corporation
from 1993 to 1997; Chief Executive Officer of Security-Connecticut Life
Insurance Company since 1984; President of Security-Connecticut Life
Insurance Company since 1976; Chairman, Director, President and Chief
Executive Officer of Lincoln Security Life Insurance Company from 1984
to 1997; Director and Officer of various subsidiaries at ReliaStar Financial
Ronald D. Jarvis* Corp.
<S> <C>
Kenneth U. Kuk** Senior Vice President of ReliaStar Financial Corp. and ReliaStar Life
Insurance Company since 1996; Vice President, Strategic Marketing of
ReliaStar Financial Corp. and ReliaStar Life Insurance Company since
1996; Vice President of Investments of ReliaStar Financial Corp. from
1991 to 1996; President of Washington Square Advisers, Inc. since 1995;
Chairman of ReliaStar Mortgage Corporation since 1988; Director and
Officer of various subsidiaries of ReliaStar Financial Corp.
Richard E. Nolan* Senior Counsel of Davis Polk & Wardell (New York law firm) since 1996
and Partner from 1990 to 1996.
Fioravante G. Perrotta* Retired 1996; Formerly Senior Partner of Rogers & Wells (New York law
firm) since 1970.
Robert C. Salipante** Senior Vice President, Personal Financial Services, ReliaStar Financial
Corp. and ReliaStar Life Insurance Company since 1996; President and
Chief Executive Officer of ReliaStar Life Insurance Company of New York
since 1998; Executive Vice President of ReliaStar Life Insurance Company
of New York from 1996 to 1998; Senior Vice President, Individual Division
and Technology of ReliaStar Life Insurance Company in 1996; Senior Vice
President of Strategic Marketing and Technology of ReliaStar Financial
Corp. and ReliaStar Life Insurance Company from 1994 to 1996; Senior
Vice President and Chief Financial Officer of ReliaStar Financial Corp. and
ReliaStar Life Insurance Company from 1992 to 1994; Executive Vice
President of Ameritrust Corporation from 1988 to 1992; Director and
Officer of various subsidiaries of ReliaStar Financial Corp.
John G. Turner** Chairman and Chief Executive Officer of ReliaStar Financial Corp. and
ReliaStar Life Insurance Company since 1993; Chairman of ReliaStar
United Services Life Insurance Company and ReliaStar Life Insurance
Company of New York since 1995; Chairman of Northern Life Insurance
Company since 1992; Chairman, President and Chief Executive Officer of
ReliaStar Financial Corp. and ReliaStar Life Insurance Company in 1993;
President and Chief Executive Officer of ReliaStar Financial Corp. and
ReliaStar Life Insurance Company from 1991 to 1993; President and Chief
Operating Officer of ReliaStar Financial Corp. from 1989 to 1991;
President and Chief Operating Officer of ReliaStar Life Insurance
Company from 1986 to 1991; Director and Officer of various subsidiaries
of ReliaStar Financial Corp.
Charles B. Updike* Partner of Schoeman, Marsh & Updike (New York law firm) since 1976.
Ross M. Weale* President of Waccabuc Enterprise, Inc. (New York management consulting
firm) since 1996; President and Chief Executive Officer of Country Bank
(financial institution) from 1986 to 1996.
</TABLE>
* Director
** Director and Officer
46
<PAGE>
The Executive Committee of our Board of Directors consists of Directors
Turner, Flittie, Salipante, Updike, and Weale.
The Compliance Committee of our Board of Directors consists of Directors
Weale, Carb, Hale, Nolan, Perrotta, and Updike.
State Regulation
We are subject to the laws of the State of New York governing insurance
companies and to regulation and supervision by the Insurance Department of the
State of New York. An annual statement in a prescribed form is filed with the
Insurance Division each year, and in each state we do business, covering our
operations for the preceding year and our financial condition as of the end of
that year. Our books and accounts are subject to review by the Insurance
Division and a full examination of our operations is conducted periodically
(usually every three years) by the National Association of Insurance
Commissioners. This regulation does not, however, involve supervision or
management of our investment practices or policies.
Legal Proceedings
The Company and its affiliates, like other life insurance companies, are
involved in lawsuits, including class action lawsuits. In some class action and
other lawsuits involving insurers, substantial damages have been sought and/or
material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, the Company believes that at the
present time there are not pending or threatened lawsuits that are reasonably
likely to have a material adverse impact on the Variable Account or the
Company.
Bonding Arrangements
An insurance company blanket bond is maintained providing $25,000,000
coverage for our officers and employees and those of Washington Square
Securities, Inc. (WSSI), subject to a $500,000 deductible.
Legal Matters
Legal matters in connection with the Variable Account and the Policy
described in this Prospectus have been passed upon by Jeffrey A. Proulx,
Esquire, Attorney for the Company.
Experts
The statement of assets and liabilities of ReliaStar Life Insurance
Company of New York Variable Life Separate Account I as of December 31, 1997
for the period from August 8, 1997 (date of inception) to December 31, 1997 and
the annual financial statements of ReliaStar Life Insurance Company of New York
included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports which are included herein, and
have been so included in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
Actuarial matters included in this Prospectus have been examined by Steven
P. West, F.S.A., M.A.A.A., as stated in the opinion filed as an exhibit to the
Registration Statement.
Registration Statement Contains Further Information
A Registration Statement has been filed with the SEC under the Securities
Act of 1933 with respect to the Policies. This Prospectus does not contain all
information included in the Registration Statement, its amendments and
exhibits. For further information concerning the Variable Account, the Funds,
the Policies and us, please refer to the Registration Statement.
Statements in this Prospectus concerning provisions of the Policy and
other legal documents are summaries. Please refer to the documents as filed
with the SEC for a complete statement of the provisions of those documents.
Information may be obtained from the SEC's principal office in Washington,
D.C., for a fee it prescribes, or examined there without charge.
47
<PAGE>
Financial Statements
The financial statements for the Variable Account reflect the operations
of the Variable Account for the period from August 8, 1997 (date of inception)
to December 31, 1997. The financial statements are audited. The periods covered
are not necessarily indicative of the longer term performance of the assets
held in the Variable Account.
The financial statements of ReliaStar Life Insurance Company of New York
which are included in this Prospectus should be distinguished from the
financial statements of the Variable Account and should be considered only as
bearing upon the ability of ReliaStar Life Insurance Company of New York to
meet its obligations under the Policies. They should not be considered as
bearing on the investment performance of the assets held in the Variable
Account.
These financial statements are as of December 31, 1997 and 1996 and for
each of the two years in the period ended December 31, 1997. The periods
covered are not necessarily indicative of the longer term performance of the
Company.
48
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
ReliaStar Life Insurance Company of New York
and ReliaStar Life Insurance Company of New York
Variable Life Separate Account I Policy Owners:
We have audited the accompanying combined statement of assets and liabilities
of ReliaStar Life Insurance of New York Separate Account I as of December 31,
1997 and the related combined statement of operations and changes in policy
owners' equity for the period from August 8, 1997 (date of inception) to
December 31, 1997. These financial statements are the responsibility of the
management of ReliaStar Life Insurance Company of New York. Our responsibility
is to express an opinion on these financial statements based on our audit.
We have conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures include confirmation of the securities owned as of December 31,
1997, by correspondence with the account custodians. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ReliaStar Life Insurance
Company of New York Separate Account I as of December 31, 1997 and the results
of its operations and changes in its policy owners' equity for the period from
August 8, 1997 (date of inception) to December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
February 20, 1998
49
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
VARIABLE LIFE SEPARATE ACCOUNT I
COMBINED STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
(In Thousands, Except Shares)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ASSETS:
INVESTMENTS IN MUTUAL FUNDS AT MARKET VALUE:
Shares Cost Market Value
---- -- -------------
THE ALGER AMERICAN FUND:
Alger American Growth Portfolio ...................... 20 $ 1 $ 1
Alger American MidCap Growth Portfolio ............... 84 2 2
Alger American Small Capitalization .................. 108 5 5
Fidelity Variable Insurance Products Fund (VIP)
and Variable Insurance Products Fund (VIP II):
VIP Equity-Income Portfolio .......................... 5 -- --
VIP Growth Portfolio ................................. 53 2 2
VIP High Income Portfolio ............................ -- -- --
VIP Money Market Portfolio ........................... 921 1 1
VIP II Contrafund Portfolio .......................... 457 9 9
VIP II Index 500 Portfolio ........................... 40 5 5
VIP II Investment Grade Bond Portfolio ............... -- -- --
JANUS ASPEN SERIES:
Aggressive Growth Portfolio .......................... 1 -- --
Growth Portfolio ..................................... -- -- --
International Growth Portfolio ....................... 223 4 4
Worldwide Growth Portfolio ........................... 1,039 24 24
NEUBERGER&BERMAN ADVISERS MANAGEMENT TRUST:
Limited Maturity Bond Portfolio ...................... 77 1 1
Partners Portfolio ................................... 28 1 1
NORTHSTAR VARIABLE TRUST:
Northstar Growth Portfolio ........................... 692 11 11
Northstar High-Yield Bond Portfolio .................. 26 -- --
Northstar Income & Growth Portfolio .................. 62 1 1
Northstar International Value Portfolio .............. 827 8 8
Northstar Multi-Sector Bond Portfolio ................ 83 -- --
OCC ACCUMULATION TRUST:
Equity Portfolio ..................................... 78 3 3
Global Equity Portfolio .............................. 314 5 5
Managed Portfolio .................................... 296 12 12
Small Cap Portfolio .................................. 414 11 11
PUTNAM VARIABLE TRUST:
Putnam VT Diversified Income Fund .................... 19 -- --
Putnam VT Growth and Income Fund ..................... 118 3 3
Putnam VT Voyager Fund ............................... 226 9 9
----- ----
TOTAL INVESTMENTS .................................... $ 118
TOTAL ASSETS ........................................ $118
====
LIABILITIES AND POLICY OWNERS' EQUITY:
POLICY OWNERS' EQUITY ................................ $118
====
TOTAL LIABILITIES AND POLICY OWNERS' EQUITY ......... $118
====
</TABLE>
The accompanying notes are an integral part of the financial statements.
50
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT I
COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN POLICY OWNERS' EQUITY
For the period from August 8 (date of inception) to December 31, 1997 (In
Thousands)
<TABLE>
<CAPTION>
Alger Alger Fidelity
Alger American American VIP
Total American MidCap Small Equity-
All Funds Growth Growth Capitalization Income
Combined Portfolio Porfolio Portfolio Portfolio
---------------- -------------- --------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Net investment income:
Reinvested dividend income .............. $ -- $ -- $ -- $ -- $ --
Reinvested capital gains ................ -- -- -- -- --
Administrative expenses ................. -- -- -- -- --
----------- ---------- ----------- ----------- ----------
Net investment income and
capital gains .......................... -- -- -- -- --
----------- ---------- ----------- ----------- ----------
Realized and unrealized gains:
Net realized gains on redemption's
of fund shares ......................... -- -- -- -- --
Increase in unrealized appreciation
of investments ......................... -- -- -- -- --
----------- ---------- ----------- ----------- ----------
Net realized and unrealized gains ...... -- -- -- -- --
----------- ---------- ----------- ----------- ----------
Additions from operations .............. -- -- -- -- --
Policy owners' transactions:
Net premium payments .................... 122 1 2 5 --
Transfers from fixed account ............ -- -- -- -- --
Policy loans ............................ -- -- -- -- --
Loan collateral interest crediting ...... -- -- -- -- --
Surrenders .............................. -- -- -- -- --
Death benefits .......................... -- -- -- -- --
Cost of insurance charges ............... (4) -- -- -- --
Monthly expense charges ................. -- -- -- -- --
------------- ---------- ----------- ----------- ----------
Additions for policy owners'
transactions ........................... 118 1 2 5 --
------------- ---------- ----------- ----------- ----------
Net additions for the period ........... 118 1 2 5 --
Policy Owners' Equity, beginning
of the period ........................... -- -- -- -- --
------------- ---------- ----------- ----------- ----------
Policy Owners' Equity, end
of the period ............................ $ 118 $ 1 $ 2 $ 5 $ --
============= ========== =========== =========== ==========
Units Outstanding, end of the period ..... 10,339.628 86.866 206.735 467.792 5.405
Net Asset Value per Unit: $ 9.854808 $ 9.825275 $ 10.071361 $ 21.080180
<CAPTION>
Fidelity Fidelity
Fidelity VIP VIP Fidelity Fidelity
VIP High Money VIP II VIP II
Growth Income Market Contrafund Index 500
Portfolio Portfolio Portfolio Portfolio Portfolio
--------------- --------------- -------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
Net investment income:
Reinvested dividend income .............. $ -- $ -- $ -- $ -- $ --
Reinvested capital gains ................ -- -- -- -- --
Administrative expenses ................. -- -- -- -- --
----------- ----------- ---------- ----------- ----------
Net investment income and
capital gains .......................... -- -- -- -- --
----------- ----------- ---------- ----------- ----------
Realized and unrealized gains:
Net realized gains on redemption's
of fund shares ......................... -- -- -- -- --
Increase in unrealized appreciation
of investments ......................... -- -- -- -- --
----------- ----------- ---------- ----------- ----------
Net realized and unrealized gains ...... -- -- -- -- --
----------- ----------- ---------- ----------- ----------
Additions from operations .............. -- -- -- -- --
Policy owners' transactions:
Net premium payments .................... 2 -- 1 9 5
Transfers from fixed account ............ -- -- -- -- --
Policy loans ............................ -- -- -- -- --
Loan collateral interest crediting ...... -- -- -- -- --
Surrenders .............................. -- -- -- -- --
Death benefits .......................... -- -- -- -- --
Cost of insurance charges ............... -- -- -- -- (1)
Monthly expense charges ................. -- -- -- -- --
----------- ----------- ---------- ----------- ------------
Additions for policy owners'
transactions ........................... 2 -- 1 9 4
----------- ----------- ---------- ----------- ------------
Net additions for the period ........... 2 -- 1 9 4
Policy Owners' Equity, beginning
of the period ........................... -- -- -- -- --
----------- ----------- ---------- ----------- ------------
Policy Owners' Equity, end
of the period ............................ $ 2 $ -- $ 1 $ 9 $ 4
=========== =========== ========== =========== ============
Units Outstanding, end of the period ..... 103.336 -- 75.083 495.110 203.033
Net Asset Value per Unit: $ 19.160956 $ 15.800365 $ 12.269546 $ 18.395120 $ 22.547720
</TABLE>
The accompanying notes are an integral part of the financial statements.
51
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT I
COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN POLICY OWNERS' EQUITY,
continued
For the period from August 8 (date of inception) to December 31, 1997 (In
Thousands)
<TABLE>
<CAPTION>
Janus Janus
Aspen Janus Aspen
Fidelity VIP II Series Aspen Series
Investment Aggressive Series International
Grade Bond Growth Growth Growth
Portfolio Portfolio Portfolio Portfolio
----------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net investment income:
Reinvested dividend income .............. $ -- $ -- $ -- $ --
Reinvested capital gains ................ -- -- -- --
Administrative expenses ................. -- -- -- --
----------- ---------- ----------- -----------
Net investment income
and capital gains ...................... -- -- -- --
----------- ---------- ----------- -----------
Realized and unrealized gains:
Net realized gains on
redemption's of fund shares ............ -- -- -- --
Increase in unrealized
appreciation of investments ............ -- -- -- --
----------- ---------- ----------- -----------
Net realized and unrealized gains ...... -- -- -- --
----------- ---------- ----------- -----------
Additions from operations .............. -- -- -- --
----------- ---------- ----------- -----------
Policy owners' transactions:
Net premium payments .................... -- -- -- 4
Transfers from fixed account ............ -- -- -- --
Policy loans ............................ -- -- -- --
Loan collateral interest crediting ...... -- -- -- --
Surrenders .............................. -- -- -- --
Death benefits .......................... -- -- -- --
Cost of insurance charges ............... -- -- -- --
Monthly expense charges ................. -- -- -- --
----------- ---------- ----------- -----------
Additions for policy owners'
transactions ........................... -- -- -- 4
----------- ---------- ----------- -----------
Net additions for the period ........... -- -- -- 4
Policy Owners' Equity,
beginning of the period ................. -- -- -- --
----------- ---------- ----------- -----------
Policy Owners' Equity,
end of the period ....................... $ -- $ -- $ -- $ 4
=========== ========== =========== ===========
Units Outstanding, end of the period ..... -- 2.178 -- 427.927
Net Asset Value per Unit: $ 12.685026 $ 10.960002 $ 10.187114 $ 9.625377
<CAPTION>
Neuberger &
Berman
Advisers Neuberger &
Janus Management Berman
Aspen Trust Advisers Northstar Northstar
Series Limited Management Variable Variable
Worldwide Maturity Trust Trust Trust
Growth Bond Partners Growth High-Yield
Portfolio Portfolio Portfolio Fund Bond Fund
------------------- --------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
Net investment income:
Reinvested dividend income .............. $ $ -- $ -- $ -- $ --
Reinvested capital gains ................ -- -- -- -- --
Administrative expenses ................. -- -- -- -- --
------------ ----------- ---------- ------------- ----------
Net investment income
and capital gains ...................... -- -- -- -- --
------------ ----------- ---------- ------------- ----------
Realized and unrealized gains:
Net realized gains on
redemption's of fund shares ............ -- -- -- -- --
Increase in unrealized
appreciation of investments ............ -- -- -- -- --
------------ ----------- ---------- ------------- ----------
Net realized and unrealized gains ...... -- -- -- -- --
------------ ----------- ---------- ------------- ----------
Additions from operations .............. -- -- -- -- --
------------ ----------- ---------- ------------- ----------
Policy owners' transactions:
Net premium payments .................... 25 1 1 11 --
Transfers from fixed account ............ -- -- -- -- --
Policy loans ............................ -- -- -- -- --
Loan collateral interest crediting ...... -- -- -- -- --
Surrenders .............................. -- -- -- -- --
Death benefits .......................... -- -- -- -- --
Cost of insurance charges ............... (1) -- -- -- --
Monthly expense charges ................. -- -- -- -- --
-------------- ----------- ---------- ------------- ----------
Additions for policy owners'
transactions ........................... 24 1 1 11 --
-------------- ----------- ---------- ------------- ----------
Net additions for the period ........... 24 1 1 11 --
Policy Owners' Equity,
beginning of the period ................. -- -- -- -- --
-------------- ----------- ---------- ------------- ----------
Policy Owners' Equity,
end of the period ....................... $ 24 $ 1 $ 1 $ 11 $ --
============== =========== ========== ============= ==========
Units Outstanding, end of the period ..... 2,468.532 105.555 55.116 1,076.181 13.072
Net Asset Value per Unit: $ 9.836310 $ 10.254171 $ 10.325813 $ 10.189337 $ 10.406855
</TABLE>
The accompanying notes are an integral part of the financial statements.
52
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK VARIABLE LIFE SEPARATE ACCOUNT I
COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN POLICY OWNERS' EQUITY,
continued
For the period from August 8 (date of inception) to December 31, 1997 (In
Thousands)
<TABLE>
<CAPTION>
Northstar Northstar Northstar OCC
Variable Trust Variable Trust Variable Trust Accumulation
Income & International Muti-Sector Trust
Growth Fund Value Fund Bond Fund Equity Portfolio
---------------- ---------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Net investment income:
Reinvested dividend income ............. $ -- $ -- $ -- $ --
Reinvested capital gains ............... -- -- -- --
Administrative expenses ................ -- -- -- --
---------- ---------- ---------- -----------
Net investment income
and capital gains ..................... -- -- -- --
---------- ---------- ---------- -----------
Realized and unrealized gains:
Net realized gains on
redemption's of fund shares ........... -- -- -- --
Increase in unrealized
appreciation of investments ........... -- -- -- --
---------- ---------- ---------- -----------
Net realized and unrealized gains ..... -- -- -- --
---------- ---------- ---------- -----------
Additions from operations ............. -- -- -- --
---------- ---------- ---------- -----------
Policy owners' transactions:
Net premium payments ................... 1 9 1 3
Transfers from fixed account ........... -- -- -- --
Policy loans ........................... -- -- -- --
Loan collateral interest crediting ..... -- -- -- --
Surrenders ............................. -- -- -- --
Death benefits ......................... -- -- -- --
Cost of insurance charges .............. -- (1) -- --
Monthly expense charges ................ -- -- -- --
---------- ------------ ---------- -----------
Additions for policy owners'
transactions .......................... 1 8 1 3
---------- ------------ ---------- -----------
Net additions for the period .......... 1 8 1 3
Policy Owners' Equity,
beginning of the period ................ -- -- -- --
---------- ------------ ---------- -----------
Policy Owners' Equity,
end of the period ...................... $ 1 $ 8 $ 1 $ 3
========== ============ ========== ===========
Units Outstanding, end of the eriod ..... 49.892 823.667 29.810 265.451
Net Asset Value per Unit: $ 16.036372 $ 10.129526 $ 14.264010 $ 10.753858
<CAPTION>
OCC OCC OCC
Accumulation Accumulation Accumulation
Trust Trust Trust Putman VT Putman VT
Global Equity Managed Small Cap Diversified Growth and
Portfolio Portfolio Portfolio Income Fund Income Fund
--------------- ------------------- ----------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Net investment income:
Reinvested dividend income ............. $ -- $ -- $ -- $ -- $ --
Reinvested capital gains ............... -- -- -- -- --
Administrative expenses ................ -- -- -- -- --
----------- ------------ ------------- ---------- -----------
Net investment income
and capital gains ..................... -- -- -- -- --
----------- ------------ ------------- ---------- -----------
Realized and unrealized gains:
Net realized gains on
redemption's of fund shares ........... -- -- -- -- --
Increase in unrealized
appreciation of investments ........... -- -- -- -- --
----------- ------------ ------------- ---------- -----------
Net realized and unrealized gains ..... -- -- -- -- --
----------- ------------ ------------- ---------- -----------
Additions from operations ............. -- -- -- -- --
----------- ------------ ------------- ---------- -----------
Policy owners' transactions:
Net premium payments ................... 5 13 11 -- 3
Transfers from fixed account ........... -- -- -- -- --
Policy loans ........................... -- -- -- -- --
Loan collateral interest crediting ..... -- -- -- -- --
Surrenders ............................. -- -- -- -- --
Death benefits ......................... -- -- -- -- --
Cost of insurance charges .............. -- (1) -- -- --
Monthly expense charges ................ -- -- -- -- --
----------- -------------- ------------- ---------- -----------
Additions for policy owners'
transactions .......................... 5 12 11 -- 3
----------- -------------- ------------- ---------- -----------
Net additions for the period .......... 5 12 11 -- 3
Policy Owners' Equity,
beginning of the period ................ -- -- -- -- --
----------- -------------- ------------- ---------- -----------
Policy Owners' Equity,
end of the period ...................... $ 5 $ 12 $ 11 $ -- $ 3
=========== ============== ============= ========== ===========
Units Outstanding, end of the eriod ..... 473.059 1,233.680 1,063.874 16.242 161.028
Net Asset Value per Unit: $ 9.518205 $ 10.175476 $ 10.252721 $ 13.290543 $ 20.717931
<CAPTION>
Putman VT
Voyager Fund
---------------
<S> <C>
Net investment income:
Reinvested dividend income ............. $ --
Reinvested capital gains ............... --
Administrative expenses ................ --
-----------
Net investment income
and capital gains ..................... --
-----------
Realized and unrealized gains:
Net realized gains on
redemption's of fund shares ........... --
Increase in unrealized
appreciation of investments ........... --
-----------
Net realized and unrealized gains ..... --
-----------
Additions from operations ............. --
-----------
Policy owners' transactions:
Net premium payments ................... 9
Transfers from fixed account ........... --
Policy loans ........................... --
Loan collateral interest crediting ..... --
Surrenders ............................. --
Death benefits ......................... --
Cost of insurance charges .............. --
Monthly expense charges ................ --
-----------
Additions for policy owners'
transactions .......................... 9
-----------
Net additions for the period .......... 9
Policy Owners' Equity,
beginning of the period ................ --
-----------
Policy Owners' Equity,
end of the period ...................... $ 9
===========
Units Outstanding, end of the eriod ..... 431.004
Net Asset Value per Unit: $ 20.460670
</TABLE>
The accompanying notes are an integral part of the financial statements.
53
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
VARIABLE LIFE SEPARATE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION:
ReliaStar Life Insurance Company of New York Variable Life Separate Account I
("Separate Account I") was established by ReliaStar Life Insurance Company of
New York ("ReliaStar Life of New York"), previously ReliaStar Bankers Security
Life Insurance Society, in 1986 under the New York insurance laws. Separate
Account I operates as a unit investment trust under the Investment Company Act
of 1940 and is used to fund certain benefits for variable life insurance
policies issued by ReliaStar Life of New York. The assets of Separate Account I
and its sub-accounts are the property of ReliaStar Life of New York. The
portion of Separate Account I assets applicable to the variable life policies
will not be charged with liabilities arising out of any other business
ReliaStar Life of New York may conduct. The net assets maintained in the
sub-accounts provide the basis for the periodic determination of the amount of
increased or decreased benefits under the policies. The net assets may not be
less than the amount required under the state insurance law to provide for
death benefits (without regard to the minimum death benefit guarantee) and
other policy benefits. Additional assets are held in ReliaStar Life of New
York's general account to cover the contingency that the guaranteed minimum
death benefit might exceed the death benefit which would have been payable in
the absence of such guarantee.
Payments received under the polices are allocated to sub-accounts of the
account, each of which invested in one of the following funds during the year.
<TABLE>
<CAPTION>
Fidelity Variable Insurance Products
Fund (VIP) and Variable Insured
The Alger American Fund Products Fund II (VIP II) Janus Aspen Series
- -------------------------------- ------------------------------------- -------------------------------
<S> <C> <C>
Growth Portfolio Equity-Income Portfolio Aggressive Growth Portfolio
MidCap Growth Portfolio Growth Portfolio Growth Portfolio
Small Capitalization Portfolio High Income Portfolio International Growth Portfolio
Money Market Portfolio Worldwide Growth Portfolio
Contrafund Portfolio
Index 500 Portfolio
Investment Grade Bond Portfolio
</TABLE>
<TABLE>
<CAPTION>
Neuberger & Berman Advisers Management Trust Northstar Variable Trust
- ---------------------------------------------- ------------------------------
<S> <C>
Limited Maturity Bond Portfolio Growth Portfolio
Partners Portfolio High-Yield Portfolio
Income & Growth Portfolio
International Value Portfolio
Multi-Sector Bond Portfolio
</TABLE>
<TABLE>
<CAPTION>
OCC Accumulation Trust Putnam Variable Trust
- ------------------------------- ----------------------------------
<S> <C>
Equity Portfolio Putnam VT Diversified Income Fund
Global Equity Portfolio Putnam VT Growth and Income Fund
Managed Portfolio Putnam VT Voyager Fund
Small Capitalization Portfolio
</TABLE>
Fred Alger Management, Inc. is the investment adviser for the three portfolios
of The Alger American Fund and is paid fees for its services by The Alger
American Fund's Portfolios. Fidelity Management & Research Company is the
investment adviser for Fidelity Variable Insurance Products Fund (VIP) and
Variable Insurance Products Fund II (VIP II) and is paid for its services by
the VIP and VIP II Portfolios. Janus Capital Corporation is the investment
adviser of for the four portfolios of Janus Aspen Series and is paid fees for
its services by the Janus Aspen Series Portfolios. Neuberger&Berman Management
is the investment manager for the two portfolios of the Advisers Management
Trust and is paid fees for its services by the Neuberger&Berman Advisers
54
<PAGE>
1. ORGANIZATION; Continued
Management Trust Funds. Northstar Investment Management Corporation, an
affiliate of ReliaStar Life Insurance Company ("ReliaStar Life"), is the
investment adviser for the five Northstar Portfolios and is paid fees for its
services by the portfolios. OpCap Advisors is the investment adviser for the
four portfolios of the OCC Accumulation Trust and is paid fees for its services
by the OCC Accumulation Trust Funds. Putnam Investment Management, Inc. is the
investment adviser for Putnam Variable Trust and is paid fees for its services
by Putnam Variable Trust. See the related Funds' prospectuses for further
information. On August 8, 1997, Sub-Accounts investing in The Alger American
Fund, Fidelity VIP and VIP II, Janus Aspen Series, Neuberger&Berman Advisers
Management Trust, Northstar Funds and OCC Accumulation Trust were made
available to ReliaStar Life of New York policies.
2. SIGNIFICANT ACCOUNTING POLICIES:
SECURITIES VALUATION TRANSACTIONS AND RELATED INVESTMENT INCOME:
The market value of investments in the sub-accounts is based on the closing net
asset values of the fund shares held at the end of the year. Investment
transactions are accounted for on the trade date (date the order to purchase or
redeem is executed) and dividend income and capital gain distributions are
recorded on the exdividend date. Net realized gains and losses on redemptions
of shares of the funds are determined on the basis of specific identification
of fund share costs.
3. FEDERAL INCOME TAXES:
Under current tax law, the income, gains, and losses from the separate account
investments are not taxable to either the account or ReliaStar Life of New
York.
4. POLICY CHARGES:
Certain charges are made by ReliaStar Life of New York to policy owners'
Variable Accumulation Values in the Account in accordance with the terms of the
policies. These charges may include: cost of insurance; a monthly expense
charge: death benefit guarantee charge; optional insurance benefit charges
based upon the policy terms for optional benefits; and surrender charges and
sales charge refunds, as set forth in the policies.
55
<PAGE>
5. INVESTMENTS:
For the period from August 8 (date of inception) to December 31, 1997,
investment activity in the funds was as follows (in thousands):
<TABLE>
<CAPTION>
Cost of Proceeds
Purchases From Sales
----------- -----------
<S> <C> <C>
Investing Fund
THE ALGER AMERICAN FUND:
Alger American Growth Portfolio ................. $ l $ --
Alger American MidCap Growth Portfolio .......... 2 --
Alger American Small Capitalization ............. 5 --
FIDELITY VIP AND VIP II:
Equity-Income Portfolio ......................... -- --
Growth Portfolio ................................ 2 --
High Income Portfolio ........................... -- --
Money Market Portfolio .......................... 1 --
Contrafund Portfolio ............................ 9 --
Index 500 Portfolio ............................. 5 --
Investment Grade Bond Portfolio ................. -- --
JANUS ASPEN SERIES:
Aggressive Growth Portfolio ..................... -- --
Growth Portfolio ................................ --
International Growth Portfolio .................. 4 --
Worldwide Growth Portfolio ...................... 24 --
NEUBERGER&BERMAN ADVISERS MANAGEMENT TRUST:
Limited Maturity Bond Portfolio ................. 1 --
Partners Portfolio .............................. 1 --
NORTHSTAR VARIABLE TRUST:
Northstar Growth Portfolio ...................... 11 --
Northstar High Yield Bond Portfolio ............. -- --
Northstar Income & Growth Portfolio ............. 1 --
Northstar International Value Portfolio ......... 8 --
Northstar Multi-Sector Bond Portfolio ........... -- --
OCC ACCUMULATION TRUST:
Equity Portfolio ................................ 3 --
Global Equity Portfolio ......................... 5 --
Managed Portfolio ............................... 12 --
Small Cap Portfolio ............................. 11 --
PUTNAM VARIABLE TRUST:
Putnam VT Diversified Income Fund ............... -- --
Putnam VT Growth and Income Fund ................ 3 --
Putnam VT Voyager Fund .......................... 9 --
---- -----
Total ........................................... $118 $ --
==== =====
</TABLE>
56
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholder
ReliaStar Life Insurance Company of New York
(A Wholly Owned Subsidiary of Security-Connecticut Life Insurance Company)
Woodbury, New York
We have audited the accompanying balance sheets of ReliaStar Life
Insurance Company of New York, formerly known as ReliaStar Bankers Security
Life Insurance Company, (the Company) as of December 31, 1997 and 1996, and the
related statements of income, shareholder's equity and cash flows for each of
the two years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ReliaStar Life Insurance
Company of New York as of December 31, 1997 and 1996 and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, effective January 1,
1998, Lincoln Security Life Insurance Company, an affiliate, merged with and
into the Company.
/s/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
March 26, 1998
57
<PAGE>
BALANCE SHEETS
ReliaStar Life Insurance Company of New York
(A Wholly Owned Subsidiary of Security-Connecticut Life Insurance Company)
<TABLE>
<CAPTION>
<S> <C> <C>
December 31
--------------------------------
(In Millions) 1997 1996
- ----------------------------------------------------------- ----------- ----
ASSETS
Fixed Maturity Securities (Amortized Cost: 1997, $1,276.1;
1996, $1,297.5) $ 1,353.0 $ 1,356.7
Equity Securities (Cost: 1997, $2.5; 1996, $6.5) 2.8 7.3
Mortgage Loans on Real Estate 287.4 276.3
Real Estate 1.6 1.6
Policy Loans 76.6 73.4
Other Invested Assets 6.3 5.6
Short-Term Investments 5.2 8.7
- ----------------------------------------------------------- ----------- ----------
Total Investments 1,732.9 1,729.6
- ----------------------------------------------------------- ----------- ----------
Cash ( 1.0) ( 4.7)
Accounts and Notes Receivable 10.6 6.1
Reinsurance Receivable 25.8 26.1
Deferred Policy Acquisition Costs 122.3 131.8
Present Value of Future Profits 37.4 53.3
Property and Equipment, Net 1.4 7.9
Accrued Investment Income 25.1 25.1
Goodwill 16.4 16.9
Other Assets -- 1.5
Assets Held in Separate Accounts 493.1 403.3
- ----------------------------------------------------------- ----------- ----------
Total Assets $ 2,464.0 $ 2,396.9
=========================================================== =========== ==========
LIABILITIES
Future Policy and Contract Benefits $ 1,521.0 $ 1,575.0
Pending Policy Claims 18.8 22.5
Other Policyholder Funds 13.9 8.7
Income Taxes 24.3 28.6
Other Liabilities 35.6 23.5
Liabilities Related to Separate Accounts 490.6 400.8
- ----------------------------------------------------------- ----------- ----------
Total Liabilities 2,104.2 2,059.1
- ----------------------------------------------------------- ----------- ----------
SHAREHOLDER'S EQUITY
Common Stock (Shares Issued: 1.4) 2.8 2.8
Additional Paid-In Capital 165.4 165.4
Net Unrealized Investment Gains 38.3 28.0
Retained Earnings 153.3 141.6
- ----------------------------------------------------------- ----------- ----------
Total Shareholder's Equity 359.8 337.8
- ----------------------------------------------------------- ----------- ----------
Total Liabilities and Shareholder's Equity $ 2,464.0 $ 2,396.9
=========================================================== =========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
58
<PAGE>
STATEMENTS OF INCOME
ReliaStar Life Insurance Company of New York
(A Wholly Owned Subsidiary of Security-Connecticut Life Insurance Company)
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended December 31
--------------------------
(In Millions) 1997 1996
- --------------------------------------------------- -------- ----
REVENUES
Premiums $ 51.1 $ 47.1
Net Investment Income 135.3 137.0
Realized Investment Gains, Net 1.9 3.5
Policy and Contract Charges 69.0 65.7
Other Income 3.6 2.0
- --------------------------------------------------- -------- ------
Total 260.9 255.3
- --------------------------------------------------- -------- ------
BENEFITS AND EXPENSES
Benefits to Policyholders 150.7 154.1
Sales and Operating Expenses 46.8 44.8
Amortization of Deferred Policy Acquisition Costs
and Present Value of Future Profits 43.6 18.0
Dividends and Experience Refunds to Policyholders 1.1 --
- --------------------------------------------------- -------- ------
Total 242.2 216.9
- --------------------------------------------------- -------- ------
Income before Income Taxes 18.7 38.4
Income Tax Expense 7.0 13.8
- --------------------------------------------------- -------- ------
Net Income $ 11.7 $ 24.6
=================================================== ======== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
59
<PAGE>
STATEMENTS OF SHAREHOLDER'S EQUITY
ReliaStar Life Insurance Company of New York
(A Wholly Owned Subsidiary of Security-Connecticut Life Insurance Company)
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended December 31
--------------------------
(In Millions) 1997 1996
- ----------------------------------------- ------- ----
COMMON STOCK
Beginning and End of Year $ 2.8 $ 2.8
- ----------------------------------------- ------- --------
ADDITIONAL PAID-IN CAPITAL
Beginning and End of Year 165.4 165.4
- ----------------------------------------- ------- --------
NET UNREALIZED INVESTMENT GAINS (LOSSES)
Beginning of Year 28.0 41.8
Change for the Year 10.3 ( 13.8)
- ----------------------------------------- ------- --------
End of Year 38.3 28.0
- ----------------------------------------- ------- --------
RETAINED EARNINGS
Beginning of Year 141.6 117.0
Net Income 11.7 24.6
- ----------------------------------------- ------- --------
End of Year 153.3 141.6
- ----------------------------------------- ------- --------
Total Shareholder's Equity $ 359.8 $ 337.8
========================================= ======= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
60
<PAGE>
STATEMENTS OF CASH FLOWS
ReliaStar Life Insurance Company of New York
(A Wholly Owned Subsidiary of Security-Connecticut Life Insurance Company)
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended December 31
------------------------------
(In Millions) 1997 1996
- -------------------------------------------------------------------- ---------- ----
OPERATING ACTIVITIES
Net Income $ 11.7 $ 24.6
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities
Interest Credited to Insurance Contracts 69.7 75.1
Future Policy Benefits ( 47.8) ( 59.6)
Capitalization of Policy Acquisition Costs ( 21.8) ( 26.5)
Amortization of Deferred Policy Acquisition Costs
and Present Value of Future Profits 43.6 18.0
Deferred Income Taxes ( 6.0) 6.2
Net Change in Receivables and Payables 4.0 9.0
Other Assets 3.7 7.9
Realized Investment Gains, Net ( 1.9) ( 3.5)
Other 7.0 ( .2)
- -------------------------------------------------------------------- ---------- --------
Net Cash Provided by Operating Activities 62.2 51.0
- -------------------------------------------------------------------- ---------- --------
INVESTING ACTIVITIES
Proceeds from Sales of Fixed Maturity Securities 56.9 24.6
Proceeds from Maturities or Repayment of Fixed Maturity Securities 119.8 134.6
Cost of Fixed Maturity Securities Acquired (153.7) (146.5)
Sale (Purchases) of Equity Securities, Net 4.9 ( .7)
Proceeds of Mortgage Loans Sold, Matured or Repaid 54.0 40.9
Cost of Mortgage Loans Acquired ( 65.9) ( 83.4)
Sales of Real Estate, Net .8 6.8
Policy Loans Issued, Net ( 3.2) ( 4.9)
Sales of Other Invested Assets, Net .1 .8
Sales of Short-Term Investments, Net 3.5 6.0
- -------------------------------------------------------------------- ---------- --------
Net Cash Provided (Used) by Investing Activities 17.2 ( 21.8)
- -------------------------------------------------------------------- ---------- --------
FINANCING ACTIVITIES
Deposits to Insurance Contracts 118.2 134.9
Maturities and Withdrawals from Insurance Contracts (193.9) (182.4)
- -------------------------------------------------------------------- ---------- --------
Net Cash Used by Financing Activities ( 75.7) ( 47.5)
- -------------------------------------------------------------------- ---------- --------
Increase (Decrease) in Cash 3.7 ( 18.3)
Cash at Beginning of Year ( 4.7) 13.6
- -------------------------------------------------------------------- ---------- --------
Cash at End of Year $ (1.0) $ (4.7)
==================================================================== ========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
61
<PAGE>
NOTES TO FINANCIAL STATEMENTS
ReliaStar Life Insurance Company of New York
(A Wholly Owned Subsidiary of Security-Connecticut Life Insurance Company)
NOTE 1. CHANGES IN ACCOUNTING PRINCIPLES
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities
Effective for transactions occurring on or after January 1, 1997, ReliaStar
Life Insurance Company of New York (the Company) adopted those provisions of
Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," which have not been deferred by SFAS No. 127, "Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125." SFAS No. 125
requires a company to recognize the financial and servicing assets it controls
and the liabilities it has incurred and to derecognize financial assets when
control has been surrendered in accordance with the criteria provided in SFAS
No. 125. The adoption of this standard did not have a significant effect on the
financial results of the Company.
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of
Effective January 1, 1996, the Company adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." SFAS No. 121 establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. This Statement requires that
long-lived assets and certain identifiable intangibles to be held and used by
an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Measurement of an impairment loss for long-lived assets and
identifiable intangibles that an entity expects to hold and use should be based
on the fair value of the asset. Long-lived assets and certain identifiable
intangibles to be disposed of must be reported at the lower of carrying amount
or fair value less cost to sell. The adoption of this standard did not have a
significant effect on the financial results of the Company.
NOTE 2. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Company is principally engaged in the business of providing life insurance
and related financial service products. The Company provides and distributes
individual life insurance and annuities; employee benefit products and
services; life and health reinsurance and retirement plans. The Company
operates primarily in the United States and is authorized to conduct business
in all 50 states.
Basis of Presentation
The Company, formerly known as ReliaStar Bankers Security Life Insurance
Company, is a wholly-owned subsidiary of Security-Connecticut Life Insurance
Company which is a wholly-owned subsidiary of ReliaStar United Services Life
Insurance Company which is a wholly-owned subsidiary of ReliaStar Life
Insurance Company (ReliaStar Life) whose parent is ReliaStar Financial Corp.
(ReliaStar). Effective January 1, 1998, Lincoln Security Life Insurance
Company, (Lincoln Security) an affiliate, merged with and into the Company.
Lincoln Security had assets and shareholder's equity of $393.8 million and
$73.1 million, respectively, at December 31, 1997.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
During 1997, the Company made certain changes in assumptions affecting the
estimated gross profits for certain policies which reduced deferred policy
acquisition costs and present value of future profits by $22.1 million.
62
<PAGE>
Investments
Fixed maturity securities (bonds and redeemable preferred stocks) are
classified as available-for-sale and are valued at fair value.
Equity securities (common stocks and nonredeemable preferred stocks) are valued
at fair value.
Mortgage loans on real estate are carried at amortized cost less an impairment
allowance for estimated uncollectible amounts.
Investment real estate owned directly by the Company is carried at cost less
accumulated depreciation and allowances for estimated losses. Real estate
acquired through foreclosure is carried at the lower of fair value less
estimated costs to sell or cost.
Short-term investments are carried at amortized cost, which approximates fair
value.
Unrealized investment gains and losses of equity securities and fixed maturity
securities classified as available-for-sale, net of related deferred policy
acquisition costs (DAC), present value of future profits (PVFP) and tax
effects, are accounted for as a direct increase or decrease in shareholder's
equity.
Realized investment gains and losses enter into the determination of net
income. Realized investment gains and losses on sales of securities are
determined on the specific identification method. Write-offs of investments
that decline in value below cost on other than a temporary basis and the
changes in the allowances for mortgage loans and wholly owned real estate are
included with realized investment gains and losses in the Statements of Income.
The Company records write-offs or allowances for its investments based upon an
evaluation of specific problem investments. The Company reviews, on a continual
basis, all invested assets (including marketable bonds, private placements,
mortgage loans and real estate investments) to identify investments where the
Company has credit concerns. Investments with credit concerns include those the
Company has identified as problem investments, which are issues delinquent in a
required payment of principal or interest, issues in bankruptcy or foreclosure,
and restructured or foreclosed assets. The Company also identifies investments
as potential problem investments, which are investments where the Company has
serious doubts as to the ability of the borrowers to comply with the present
loan repayment terms.
Property and Equipment
Property and equipment are carried at cost, net of accumulated depreciation of
$1.8 million and $1.9 million at December 31, 1997 and 1996, respectively. The
Company provides for depreciation of property and equipment using straight-line
and accelerated methods over the estimated useful lives of the assets.
Depreciation expense for 1997 and 1996 amounted to $.5 million and $.3 million,
respectively.
Separate Accounts
The Company operates separate accounts. The assets and liabilities of the
separate accounts are primarily related to variable annuity, variable life and
401(k) contracts and represents policyholder directed funds that are separately
administered. The assets (principally investments) and liabilities (principally
to contractholders) of each account are clearly identifiable and
distinguishable from other assets and liabilities of the Company. Assets are
valued at fair value. Revenues from these separate account contracts consist
primarily of charges for mortality risk and expenses, cost of insurance,
contract administration and surrender charges. Revenue for these products is
recognized when due.
Premium Revenue and Benefits to Policyholders
Recognition of traditional life, group and annuity premium revenue and benefits
to policyholders -- Traditional life insurance products include those products
with fixed and guaranteed premiums and benefits, and consist principally of
term and whole insurance policies and certain annuities with life contingencies
(immediate annuities). Life insurance premiums and immediate annuity premiums
are recognized as premium revenue when due. Group insurance premiums are
recognized as premium revenue over the time period to which the premiums
63
<PAGE>
relate. Benefits and expenses are associated with earned premiums so as to
result in recognition of profits over the life of the contracts. This
association is accomplished by means of the provision for liabilities for
future policy benefits and the amortization of DAC and PVFP.
Recognition of universal life-type contracts revenue and benefits to
policyholders -- Universal life-type policies are insurance contracts with
terms that are not fixed and guaranteed. The terms that may be changed could
include one or more of the amounts assessed the policyholder, premiums paid by
the policyholder or interest accrued to policyholder balances. Amounts received
as deposits for such contracts are not reported as premium revenues.
Revenues for universal life-type policies consist of charges assessed against
policy account values for deferred policy loading and the cost of insurance and
policy administration. Policy benefits and claims that are charged to expense
include interest credited to contracts and benefit claims incurred in the
period in excess of related policy account balances.
Recognition of investment contract revenue and benefits to policyholders --
Contracts that do not subject the Company to risks arising from policyholder
mortality or morbidity are referred to as investment contracts. Certain
deferred annuities are considered investment contracts. Amounts received as
deposits for such contracts are not reported as premium revenues.
Revenues for investment contracts consist of investment income and policy
administration charges. Contract benefits that are charged to expense include
benefit claims incurred in the period in excess of related contract balances,
and interest credited to contract balances.
Policy Acquisition Costs
Those costs of acquiring new business, which vary with and are primarily
related to the production of new business, have been deferred to the extent
that such costs are deemed recoverable. Such costs include commissions, certain
costs of policy issuance and underwriting and certain variable agency expenses.
Costs deferred related to traditional life insurance products are amortized
over the premium paying period of the related policies, in proportion to the
ratio of annual premium revenues to total anticipated premium revenues. Such
anticipated premium revenues are estimated using the same assumptions used for
computing liabilities for future policy benefits.
Costs deferred related to universal life-type policies and investment contracts
are amortized over the lives of the policies, in relation to the present value
of estimated gross profits from mortality, investment, surrender and expense
margins.
Present Value of Future Profits
The present value of future profits reflects the unamortized value of the
acquired insurance business in force and represents the portion of the cost to
acquire that was allocated to the estimated value to receive future cash flows
from insurance contracts existing at the date of acquisition.
An analysis of the PVFP asset account is presented below:
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended December 31
-------------------------------
(In Millions) 1997 1996
- ------------------------------------------------------ ------------- ----
Balance, Beginning of Year $ 53.3 $ 39.7
Imputed Interest 3.4 3.8
Amortization (15.8) (8.4)
Impact of Net Unrealized Investment Gains and Losses (3.5) 18.2
- ------------------------------------------------------ ------------- -------
Balance, End of Year $ 37.4 $ 53.3
====================================================== ============= =======
</TABLE>
Based on current conditions and assumptions as to future events on acquired
policies in-force, the Company expects that the net amortization of the
December 31, 1997 PVFP balance will be between 4% and 13% in each
64
<PAGE>
of the years 1998 through 2002. The interest rates used to determine the amount
of imputed interest on the unamortized PVFP balance ranged from 5% to 8%.
Goodwill
Goodwill is the excess of the amount paid to acquire a company over the fair
value of the net assets acquired and is amortized on straight-line basis over
40 years. The carrying value of goodwill is monitored for indicators of
impairment of value. No events or circumstances were identified which warrant
consideration of impairment or a revised estimate of useful life.
Future Policy and Contract Benefits
Liabilities for future policy benefits for traditional life insurance contracts
are calculated using the net level premium method and assumptions as to
investment yields, mortality, withdrawals and dividends. The assumptions are
based on projections of past experience and include provisions for possible
unfavorable deviation. These assumptions are made at the time the contract is
issued or, for purchased contracts, at the date of acquisition.
Liabilities for future policy and contract benefits on universal life-type and
investment contracts are based on the policy account balance.
The liabilities for future policy and contract benefits for group disabled life
reserves and long-term disability reserves are based upon interest rate
assumptions and morbidity and termination rates from published tables, modified
for Company experience.
Income Taxes
The provision for income taxes includes amounts currently payable and deferred
income taxes resulting from the cumulative differences in the assets and
liabilities determined on a tax return and financial statement basis.
The Company files a consolidated tax return with certain of its afilliates. The
method by which the total consolidated federal income tax for each entity is
allocated to each of the companies is subject to a written agreement approved
by the Company's Board of Directors. Allocation is based upon a separate return
calculation such that each company in the consolidated return pays the same tax
or receives the same refunds it would have paid or received had it consistently
filed separate federal income tax returns. Intercompany tax balances are
settled within a reasonable time after filing of the consolidated federal
income tax returns with the Internal Revenue Service.
Interest Rate Swap Agreements
Interest rate swap agreements are used as hedges for asset/liability management
of adjustable rate and short-term invested assets. The Company does not enter
into any interest rate swap agreements for trading purposes. The interest rate
swap transactions involve the exchange of fixed and floating rate interest
payments without the exchange of underlying principal amounts and do not
contain other optional provisions. The Company utilizes the settlement method
of accounting for its interest rate swap agreements whereby the difference
between amounts paid and amounts received or accrued on interest rate swap
agreements is reflected in net investment income.
The characteristics (notional amount, maturity and payment dates) of the
interest rate swap agreements are similar to the characteristics of the
designated hedged assets. In the event an interest rate swap agreement would
cease to be an effective hedge, the affected interest rate swap agreement would
be recorded as an asset or liability at fair value with changes in fair value
recorded as income or expense. There were no terminations of interest rate swap
agreements during 1997 and 1996. The fair value and changes in fair value of
interest rate swap agreements are not recognized in the financial statements.
65
<PAGE>
NOTE 3. INVESTMENTS
Investment income summarized by type of investment was as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended December 31
----------------------------
(In Millions) 1997 1996
- ------------------------------- --------- ----
Fixed Maturity Securities $ 107.0 $ 108.7
Equity Securities .2 .4
Mortgage Loans on Real Estate 24.7 23.3
Real Estate .4 .9
Policy Loans 5.3 5.0
Other Invested Assets (.1) .5
Short-Term Investments 1.4 1.9
- ------------------------------- --------- --------
Gross Investment Income 138.9 140.7
Investment Expenses (3.6) (3.7)
- ------------------------------- --------- --------
Net Investment Income $ 135.3 $ 137.0
=============================== ========= ========
</TABLE>
Net pretax realized investment gains (losses) were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended December 31
------------------------
(In Millions) 1997 1996
- -------------------------------- ------- ----
Net Gains (Losses) on Sales
Fixed Maturity Securities
Gross Gains $ 1.3 $ 1.5
Gross Losses (1.2) (.3)
Equity Securities 1.0 --
Foreclosed Real Estate -- .7
Other .9 1.6
- -------------------------------- ------- ------
2.0 3.5
------- ------
Provisions for Losses:
Fixed Maturity Securities (.1) --
- -------------------------------- ------- ------
(.1) --
------- ------
Realized Investment Gains, Net $ 1.9 $ 3.5
================================ ======= ======
</TABLE>
All fixed maturity securities sales were from the available-for-sale portfolio.
The amortized cost and fair value of investments in fixed maturity securities
by type of investment were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
December 31, 1997
----------------------------------------------------------
Amortized Gross Unrealized Fair
-------------------------
(In Millions) Cost Gains (Losses) Value
- ----------------------------------------------------- -------- ----- ---- -----
United States Government and Government Agencies and
Authorities $ 22.4 $ 1.8 -- $ 24.2
States, Municipalities and Political Subdivisions 10.5 .6 -- 11.1
Foreign Governments 11.3 1.1 -- 12.4
Public Utilities 123.1 10.9 -- 134.0
Corporate Securities 856.5 49.5 $ (1.1) 904.9
Mortgage-Backed/Structured Finance 252.1 14.3 (.2) 266.2
Redeemable Preferred Stock .2 -- -- .2
- ----------------------------------------------------- ----------- -------- --------- ---------
Total $ 1,276.1 $ 78.2 $ (1.3) $ 1,353.0
===================================================== =========== ======== ========= =========
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
December 31, 1996
----------------------------------------------------------
Amortized Gross Unrealized Fair
-------------------------
(In Millions) Cost Gains (Losses) Value
- ----------------------------------------------------- -------- ----- ---- -----
United States Government and Government Agencies and
Authorities $ 38.2 $ 1.7 -- $ 39.9
States, Municipalities and Political Subdivisions 9.9 .4 $ (.1) 10.2
Foreign Governments 13.4 .8 -- 14.2
Public Utilities 122.9 8.6 (.3) 131.2
Corporate Securities 863.8 41.3 (3.4) 901.7
Mortgage-Backed/Structured Finance 249.1 10.7 (.5) 259.3
Redeemable Preferred Stock .2 -- -- .2
- ----------------------------------------------------- ----------- -------- --------- ---------
Total $ 1,297.5 $ 63.5 $ (4.3) $ 1,356.7
===================================================== =========== ======== ========= =========
</TABLE>
The amortized cost and fair value of fixed maturity securities by contractual
maturity are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
December 31, 1997 December 31, 1996
--------------------------- ------------------------------
Amortized Fair Amortized Fair
(In Millions) Cost Value Cost Value
- ------------------------------------ -------- ----- -------- -----
Maturing in:
One Year or Less $ 29.1 $ 29.2 $ 31.8 $ 32.1
One to Five Years 531.8 557.3 482.4 499.4
Five to Ten Years 377.3 407.5 394.9 416.8
Ten Years or Later 85.8 92.8 132.7 142.0
Mortgage-Backed/Structured Finance 252.1 266.2 255.7 266.4
- ------------------------------------ ----------- --------- ----------- ---------
Total $ 1,276.1 $ 1,353.0 $ 1,297.5 $ 1,356.7
==================================== =========== ========= =========== =========
</TABLE>
The fair values for the marketable bonds are determined based upon the quoted
market prices for bonds actively traded. The fair values for marketable bonds
without an active market are obtained through several commercial pricing
services which provide the estimated fair values. Fair values of privately
placed bonds which are not considered problems are determined utilizing a
matrix-based pricing model. The model considers the current level of risk-free
interest rates, current corporate spreads, the credit quality of the issuer and
cash flow characteristics of the security. Utilizing this data, the model
generates estimated market values which the Company considers reflective of the
fair value of each privately placed bond. Fair values for privately placed
bonds which are considered problems are determined through consideration of
factors such as the net worth of the borrower, the value of collateral, the
capital structure of the borrower, the presence of guarantees and the Company's
evaluation of the borrower's ability to compete in their relevant market.
At December 31, 1997, the largest industry concentration in the private
placement portfolio was financial services, where 23.6% of the portfolio was
invested, and the largest industry concentration in the marketable bond
portfolio was mortgage-backed/structured finance, where 23.9% of the portfolio
was invested. At December 31, 1997, the largest geographic concentration of
commercial mortgage loans was in the Midwest region of the United States, where
approximately 31.9% of the commercial mortgage loan portfolio was invested.
At December 31, 1997 and 1996, gross unrealized appreciation of equity
securities was $.4 million and $.9 million, respectively, and gross unrealized
depreciation was $.1 million and $.1 million, respectively.
67
<PAGE>
Invested assets which were nonincome producing (no income received for the 12
months preceding the balance sheet date) were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
December 31
------------------------
(In Millions) 1997 1996
- ------------------------------- ------- ----
Fixed Maturity Securities -- $ .1
Mortgage Loans on Real Estate $ .1 .3
Real Estate 2.1 2.1
- ------------------------------- ------- ------
Total $ 2.2 $ 2.5
=============================== ======= ======
</TABLE>
Allowances for losses on investments are reflected on the Balance Sheets as a
reduction of the related assets and were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
December 31
------------------------
(In Millions) 1997 1996
- ------------------------ ------- ----
Mortgage Loans $ 1.1 $ 1.0
Foreclosed Real Estate .9 .8
- ------------------------ ------- ------
</TABLE>
The total investment in impaired mortgage loans (before allowances for credit
losses), the related allowance for credit losses and the average investment
related to impaired mortgage loans at December 31, 1997 and 1996, and the
interest income recognized on impaired mortgage loans during 1997 and 1996 were
as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
(In Millions) 1997 1996
- ------------------------------ ---- ----
Impaired Mortgage Loans
Total Investment $ 2.1 $ 2.7
Allowance for Credit Losses 1.1 1.1
Average Investment 1.0 1.3
Interest Income Recognized .2 .3
- ------------------------------ ------ ------
</TABLE>
No increases to the allowance for credit losses account were recorded during
1997 and 1996, and the amount of decreases to the allowance account were zero
and $.3 million for the years ended December 31, 1997 and 1996, respectively.
The Company does not accrue interest income on impaired mortgage loans when the
likelihood of collection is doubtful. Cash receipts for interest payments are
recognized as income in the period received.
Noncash investing activities consisted of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended December 31
----------------------
(In Millions) 1997 1996
- ------------------------------------------------- ------ ----
Real Estate Assets Acquired Through Foreclosure $ .8 $ .4
- ------------------------------------------------- ------ -----
</TABLE>
The components of net unrealized investment gains reported in shareholder's
equity are shown below:
<TABLE>
<CAPTION>
<S> <C> <C>
December 31
--------------------------
(In Millions) 1997 1996
- ---------------------------------- -------- ----
Unrealized Investment Gains $ 80.6 $ 61.5
DAC/PVFP Adjustment (22.0) (18.5)
Deferred Income Taxes (20.3) (15.0)
- ---------------------------------- -------- -------
Net Unrealized Investment Gains $ 38.3 $ 28.0
================================== ======== =======
</TABLE>
68
<PAGE>
NOTE 4. INCOME TAXES
The income tax liability as reflected on the Balance Sheets consisted of the
following:
<TABLE>
<CAPTION>
<S> <C> <C>
December 31
--------------------------
(In Millions) 1997 1996
- ----------------------- -------- ----
Current Income Taxes $ (1.1) $ (.6)
Deferred Income Taxes 25.4 29.2
- ----------------------- -------- -------
Total $ 24.3 $ 28.6
======================= ======== =======
</TABLE>
The provision for income taxes reflected on the Statements of Income consisted
of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended December 31
--------------------------
(In Millions) 1997 1996
- ------------------- -------- ----
Currently Payable $ 13.0 $ 7.6
Deferred ( 6.0) 6.2
- ------------------- -------- -------
Total $ 7.0 $ 13.8
=================== ======== =======
</TABLE>
The Internal Revenue Service has accepted, without examination, the Company's
tax returns for all years through 1993.
Deferred income taxes reflect the impact for financial statement reporting
purposes of "temporary differences" between the financial statement carrying
amounts and tax bases of assets and liabilities. The "temporary differences"
that give rise to the net deferred tax liability relate to the following:
<TABLE>
<CAPTION>
<S> <C> <C>
December 31
----------------------------
(In Millions) 1997 1996
- -------------------------------------- --------- ----
Future Policy and Contract Benefits $ (27.6) $ (30.7)
Investment Write-offs and Allowances (3.2) (4.8)
Other (.2) (6.7)
- -------------------------------------- --------- --------
Gross Deferred Tax Asset (31.0) (42.2)
- -------------------------------------- --------- --------
Deferred Policy Acquisition Costs 26.9 31.7
Present Value of Future Profits 19.1 23.4
Net Unrealized Investment Gains 9.4 5.1
Other 1.0 11.2
- -------------------------------------- --------- --------
Gross Deferred Tax Liability 56.4 71.4
- -------------------------------------- --------- --------
Net Deferred Tax Liability $ 25.4 $ 29.2
====================================== ========= ========
</TABLE>
Federal income tax regulations allowed certain special deductions for 1983 and
prior years which are accumulated in a memorandum tax account designated as
"policyholders' surplus." Generally, this policyholders' surplus account will
become subject to tax at the then current rates only if the accumulated balance
exceeds certain maximum limitations or if certain cash distributions are deemed
to be paid out of the account. At December 31, 1997, the Company has
accumulated approximately $11.3 million in its separate policyholders' surplus
accounts. Deferred taxes have not been provided on this temporary difference.
The difference between the U.S. federal income tax rate and the Company's tax
provision rate is summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended December 31
--------------------------
1997 1996
-------- ----
Statutory Tax Rate 35.0% 35.0%
Other 2.4 .9
- ---------------------- -------- ----
Effective Tax Rate 37.4% 35.9%
====================== ======== ====
</TABLE>
Cash paid for federal income taxes was $13.6 million and $9.0 million for the
years ended December 31, 1997 and 1996, respectively.
69
<PAGE>
NOTE 5. EMPLOYEE BENEFIT PLANS
Pension Plans
The Company participates in noncontributory defined benefit retirement plans
sponsored by ReliaStar Life covering substantially all employees. The plans,
which may be terminated as to accrual of additional benefits at any time by the
ReliaStar Life Board of Directors, provide benefits to employees upon
retirement.
The benefits under the plans are based on years of service and the employee's
compensation during the last five years of employment. The Company's policy is
to fund the minimum required contribution necessary to meet the present and
future obligations of the plans. Contributions are intended to provide not only
for benefits attributed to service to date but also for those expected to be
earned in the future. Contributions are made to a tax-exempt trust. Plan assets
consist principally of investments in stock mutual funds, common stock and
corporate bonds. As of December 31, 1997, plan assets included 1,232,982 shares
of ReliaStar common stock with a fair value of $50.8 million.
The Company, Security-Connecticut, United Services, ReliaStar Life and
ReliaStar also have unfunded noncontributory defined benefit plans providing
for benefits to employees in excess of limits for qualified retirement plans
and for benefits to nonemployee members of the ReliaStar Board of Directors.
Net periodic pension expense for ReliaStar and its subsidiaries included the
following components:
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended December 31
--------------------------
(In Millions) 1997 1996
- ------------------------------------------------- -------- ----
Service Cost -- Benefits Earned During the Year $ 4.9 $ 3.8
Interest Cost on Projected Benefit Obligation 15.2 13.6
Actual Return on Plan Assets (45.2) (23.0)
Net Amortization and Deferral 30.8 8.4
- ------------------------------------------------- -------- -------
Net Periodic Pension Expense $ 5.7 $ 2.8
================================================= ======== =======
</TABLE>
The above amounts are for ReliaStar and its subsidiaries as the Company's
portion is not determinable.
The following table sets forth, for ReliaStar and its subsidiaries, the funded
status of the plans as of December 31:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Funded Plans Unfunded Plans
--------------------------- ----------------------------
(In Millions) 1997 1996 1997 1996
- -------------------------------------------------------------- ---------- ---- --------- ----
Accumulated Benefit Obligation
Vested $ (197.2) $ (164.7) $ (15.0) $ (11.8)
Nonvested (4.7) (4.0) (.7) (.5)
Effect of Projected Future Compensation Increases (18.0) (12.7) (1.5) (2.1)
- -------------------------------------------------------------- ---------- -------- --------- -------
Projected Benefit Obligation (219.9) (181.4) (17.2) (14.4)
Plan Assets at Fair Value 229.1 184.9 -- --
- -------------------------------------------------------------- ---------- -------- --------- -------
Plan Assets Greater (Less) Than Projected Benefit Obligation 9.2 3.5 (17.2) (14.4)
Unrecognized Net Loss and Prior Service Cost 13.4 19.0 5.4 5.3
Unrecognized Transition Asset (.1) (.4) -- --
Additional Minimum Liability -- -- (3.9) (3.5)
- -------------------------------------------------------------- ---------- -------- --------- -------
Net Pension Asset (Liability) $ 22.5 $ 22.1 $ (15.7) $ (12.6)
============================================================== ========== ======== ========= =======
</TABLE>
The above amounts are for ReliaStar and its subsidiaries as the Company's
portion is not determinable.
The projected benefit obligation was determined using an assumed discount rate
of 7.25% and 7.50% at January 1, 1998 and 1997 respectively, and a
weighted-average assumed long-term rate of compensation increase of 4.5%. The
assumed long-term rate of return on plan assets was 10%.
Net periodic pension expense allocated to the Company for all defined benefit
plans was $.3 million and $.4 million for the years ended December 31, 1997 and
1996, respectively.
70
<PAGE>
Postretirement Benefits Other than Pensions
The Company participates in the postretirement health care and life insurance
benefits plans sponsored by ReliaStar Life for retired employees (and their
eligible dependents). Substantially all of the Company's employees will become
eligible for those benefits if they meet specified age and service requirements
and reach retirement age while working for the Company, unless the plans are
terminated or amended. The postretirement health care plan is contributory,
with retiree contribution levels adjusted annually; the life insurance plan
provides a flat amount of noncontributory life benefits and optional
contributory coverage.
During 1996, ReliaStar Life amended these plans to reduce the level of benefits
provided to current and future retirees. The amendment resulted in a reduction
of the accumulated postretirement benefit obligation for ReliaStar and its
subsidiaries of approximately $9.9 million. The plan amendment also reduces net
periodic postretirement benefit costs as the unrecognized prior service cost is
amortized.
The postretirement health care plans currently are not funded. The accumulated
postretirement benefit obligation (APBO) and the accrued postretirement benefit
liability were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
December 31
------------------------
(In Millions) 1997 1996
- ------------------------------------------- ------- ----
Retirees $ 7.2 $ 7.3
Fully Eligible Active Plan Participants 1.2 .9
Other Active Plan Participants 2.5 1.6
- ------------------------------------------- ------- ------
Unfunded APBO 10.9 9.8
Unrecognized Prior Service Cost 7.2 8.9
Unrecognized Gain 1.7 1.5
- ------------------------------------------- ------- ------
Accrued Postretirement Benefit Liability $ 19.8 $ 20.2
=========================================== ======= ======
</TABLE>
The above amounts are for ReliaStar and its subsidiaries as the Company's
portion is not determinable.
Net periodic postretirement benefit costs consisted of the following
components:
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended December 31
------------------------
(In Millions) 1997 1996
- ------------------------------------------------ -------- ----
Service Cost -- Benefits Earned $ .4 $ .6
Interest Cost on APBO .7 1.0
Amortization of Prior Service Cost (1.7) (1.2)
- ------------------------------------------------ -------- ------
Net Periodic Postretirement Expense (Credit) $ (.6) $ .4
================================================ ======== ======
</TABLE>
The above amounts are for ReliaStar and its subsidiaries as the Company's
portion is not determinable.
The assumed health care cost trend rate used in measuring the APBO as of
January 1, 1998 was 6.0%, decreasing gradually to 5.0% in the year 1999 and
thereafter. The assumed health care cost trend rate used in measuring the APBO
as of January 1, 1997 was 7.0%, decreasing gradually to 5.0% in the year 1999
and thereafter. The assumed discount rate used in determining the APBO was
7.25% and 7.50% at January 1, 1998 and 1997, respectively. The assumed health
care cost trend rate has an effect on the amounts reported. For example, a one-
percentage-point increase in the assumed health care cost trend rate for each
year would increase the APBO for ReliaStar and its subsidiaries as of December
31, 1997 approximately $.4 million and 1997 net postretirement health care cost
for ReliaStar and its subsidiaries by approximately $.1 million.
Net periodic postretirement costs charged to expense by the Company were zero
and $.2 million for the years ended December 31, 1997 and 1996, respectively.
Success Sharing Plan and ESOP
The Success Sharing Plan and ESOP (Success Sharing Plan) was designed to
increase employee ownership and reward employees when certain Company
performance objectives are met. Essentially all employees are eligible to
participate in the Success Sharing Plan. The Success Sharing Plan has both
qualified and nonqualified components. The nonqualified component is equal to
25% of the annual award and is paid in cash to employees.
71
<PAGE>
The qualified component is equal to 75% of the annual award, with 25% of the
annual award contributed to a deferred investment account and the remaining 50%
of the annual award contributed to the ESOP portion of the Success Sharing
Plan. Costs charged to expense for the Success Sharing Plan were $.5 million
and $.7 million for the years ended December 31, 1997 and 1996 respectively.
Stock-Based Compensation
Officers and key employees of the Company participate in stock-based
compensation plans of ReliaStar. ReliaStar applies Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its stock-based compensation plans.
Accordingly, the Company has recorded no compensation expense for these
stock-based compensation plans other than for restricted stock and performance-
based awards.
NOTE 6. RELATED PARTY TRANSACTIONS
The Company and its affiliates have entered into agreements whereby affiliates
and the Company provide certain management, administrative, legal, and other
services for each other. The net amounts billed to the Company were $24.2
million and $22.4 million during 1997 and 1996, respectively. The net costs
allocated to the Company under these agreements may not be indicative of costs
the Company might incur if these services were not provided by the Company's
affiliates.
ReliaStar Life reinsures certain life policies written by the Company. Premiums
ceded under these agreements were $1.7 million and $2.3 million for the years
ended December 31, 1997 and 1996, respectively, and the net amount recoverable
by the Company under these agreements were $2.4 million and $3.3 million at
December 31, 1997 and 1996, respectively.
NOTE 7. SHAREHOLDER'S EQUITY
Dividend Restrictions
The ability of the Company to pay cash dividends to its parent is restricted by
law or subject to approval of the insurance regulatory authorities of the state
of New York. These authorities recognize only statutory accounting practices
for the ability of an insurer to pay dividends to its shareholders.
Under New York insurance law regulating the payment of dividends by the
Company, any such payment must be paid solely from the earned surplus of the
Company and advance notice thereof must be provided to the Superintendent of
the New York Department of Insurance (the Superintendent). Earned surplus means
the earned surplus as determined in accordance with statutory accounting
practices (unassigned funds), less the amount of such earned surplus which is
attributable to unrealized capital gains. Further, without approval of the
Superintendent, the Company may not pay in any calendar year any dividend
which, when combined with other dividends paid within the preceding 12 months,
exceeds the lesser of (i) 10% of the Company's statutory surplus at the prior
year end or (ii) 100% of the Company's statutory net investment income for the
prior calendar year.
Statutory Surplus and Net Income
Net income of the Company, as determined in accordance with statutory
accounting practices was $18.5 million and $11.9 million for 1997 and 1996,
respectively. The Company's statutory capital and surplus, as determined in
accordance with statutory accounting practices, was $168.6 million and $149.9
million at December 31, 1997 and 1996, respectively.
Share Data
The Company has 1,377,863 common shares, with a par value of $2.00 per share,
authorized, issued and outstanding at December 31, 1997 and 1996.
72
<PAGE>
NOTE 8. REINSURANCE
The Company is a member of reinsurance associations established for the purpose
of ceding the excess of life insurance over retention limits. Reinsurance
contracts do not relieve the Company from its obligations to policyholders.
Failure of reinsurers to honor their obligations could result in losses to the
Company; consequently, allowances are established for amounts deemed
uncollectible. The amount of the allowance for uncollectible reinsurance
receivables was immaterial at December 31, 1997 and 1996. The Company evaluates
the financial condition of its reinsurers and monitors concentrations of credit
risk to minimize its exposure to significant losses from reinsurer
insolvencies. At December 31, 1997, approximately 68%, based on life insurance
in force, of the Company's reinsurance ceded was with one reinsurer. The
Company's retention limit is $300,000 per life for individual coverage. For
group coverage and reinsurance assumed, the retention is $300,000 per life with
per occurrence limitations, subject to certain maximums. As of December 31,
1997, $3.2 billion of life insurance in force was ceded to other companies. The
Company has assumed $2.4 billion of life insurance in force from other
companies as of December 31, 1997.
The effect of reinsurance on premiums and recoveries is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended December 31
--------------------------
(In Millions) 1997 1996
- -------------------------- -------- ----
Direct Premiums $ 66.3 $ 59.8
Reinsurance Assumed -- 2.1
Reinsurance Ceded (15.2) (14.8)
- -------------------------- -------- -------
Net Premiums $ 51.1 $ 47.1
========================== ======== =======
Reinsurance Recoveries $ 5.5 $ 7.4
========================== ======== =======
</TABLE>
NOTE 9. LIABILITY FOR UNPAID ACCIDENT AND HEALTH CLAIMS AND CLAIM
ADJUSTMENT EXPENSE
The change in the liability for unpaid accident and health claims and claim
adjustment expenses is summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
(In Millions) 1997 1996
- ------------------------------- ---- ----
Balance at January 1 $ 9.5 $ 11.3
Less Reinsurance Recoverables 2.1 3.4
- ------------------------------- ------ -------
Net Balance at January 1 7.4 7.9
Incurred Related to:
Current Year 1.7 3.3
Prior Year ( .9) ( .2)
- ------------------------------- ------ -------
Total Incurred .8 3.1
Paid Related to:
Current Year .8 .9
Prior Year 1.2 2.7
- ------------------------------- ------ -------
Total Paid 2.0 3.6
Net Balance at December 31 6.2 7.4
Plus Reinsurance Recoverables 3.1 2.1
- ------------------------------- ------ -------
Balance at December 31 $ 9.3 $ 9.5
=============================== ====== =======
</TABLE>
The liability for unpaid accident and health claims and claim adjustment
expenses is included in Future Policy and Contract Benefits on the Balance
Sheets.
73
<PAGE>
NOTE 10. COMMITMENTS AND CONTINGENCIES
Litigation
The Company is a defendant in a number of lawsuits arising out of the normal
course of the business of the Company, some of which include claims for
punitive damages. In the opinion of management, the ultimate resolution of such
litigation will not result in any material adverse impact to the financial
position of the Company.
Financial Instruments
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to reduce its exposure to fluctuations in
interest rates. These financial instruments include commitments to extend
credit and interest rate swaps. Those instruments involve, to varying degrees,
elements of credit, interest rate, or liquidity risk in excess of the amount
recognized in the Balance Sheets.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The Company uses
the same credit policies in making commitments and conditional obligations as
it does for on-balance-sheet instruments. For interest rate swap transactions,
the contract or notional amounts do not represent exposure to credit loss. The
Company's exposure to credit loss is limited to those swaps where the Company
has an unrealized gain.
Unless otherwise noted, the Company does not require collateral or other
security to support financial instruments with credit risk.
<TABLE>
<CAPTION>
<S> <C> <C>
December 31
------------------------
(In Millions) 1997 1996
- --------------------------------------------------------- ------- ----
Contract or Notional Amount
Financial Instruments Whose Contract
Amounts Represent Credit Risk
Commitments to Extend Credit $ .5 $ 26.4
Financial Instruments Whose Notional or Contract Amounts
Exceed the Amount of Credit Risk
Interest Rate Swap Agreements 112.0 112.0
- --------------------------------------------------------- ------- -------
</TABLE>
Commitments to Extend Credit -- Commitments to extend credit are legally
binding agreements to lend to a customer. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
They generally may be terminated by the Company in the event of deterioration
in the financial condition of the borrower. Since some of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future liquidity requirements. The Company evaluates
each customer's creditworthiness on a case-by-case basis.
Interest Rate Swap Agreements -- The Company also enters into interest rate
swap agreements to manage interest rate exposure. The primary reason for the
interest rate swap agreements is to extend the duration of adjustable rate
investments. Interest rate swap transactions generally involve the exchange of
fixed and floating rate interest payment obligations without the exchange of
the underlying principal amounts. Changes in market interest rates impact
income from adjustable rate investments and have an opposite (and approximately
offsetting) effect on the reported income from the swap portfolio. The risks
under interest rate swap agreements are generally similar to those of futures
contracts. Notional principal amounts are often used to express the volume of
these transactions but do not represent the much smaller amounts potentially
subject to credit risk. The amount subject to credit risk is approximately
equal to the unrealized gain on the agreements which was $.7 million at
December 31, 1997.
Leases
The Company has operating leases for office space and certain computer
processing and other equipment. Rental expense for these items was $1.7 million
and $1.2 million for 1997 and 1996, respectively.
74
<PAGE>
Future minimum aggregate rental commitments at December 31, 1997 for operating
leases were as follows:
<TABLE>
<CAPTION>
<S> <C>
(In Millions)
- ---------------
1998-$1.8 2001-$1.7
1999-$1.8 2002-$1.2
2000-$1.7 2003 and thereafter-$2.0
- --------- ------------------------
</TABLE>
NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures are made in accordance with the requirements of SFAS
No. 107, "Disclosures about Fair Value of Financial Instruments." SFAS No. 107
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not available,
fair values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates, in many cases, could not be realized
in immediate settlement of the instrument.
SFAS No. 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the Company.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1997 and 1996. Although Management
is not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revealed for purposes
of these financial statements since that date; therefore, current estimates of
fair value may differ significantly from the amounts presented herein.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Fixed Maturity Securities -- The estimated fair value disclosures for debt
securities satisfy the fair value disclosure requirements of SFAS No. 107. (see
Note 3.)
Equity Securities -- Fair value equals carrying value as these securities are
carried at quoted market value.
Mortgage Loans on Real Estate -- The fair values for mortgage loans on real
estate are estimated using discounted cash flow analyses, using interest rates
currently being offered in the marketplace for similar loans to borrowers with
similar credit ratings. Loans with similar characteristics are aggregated for
purposes of the calculations.
Cash Short-Term Investments and Policy Loans -- The carrying amounts for these
assets approximate the assets' fair values.
Other Financial Instruments Reported as Assets -- The carrying amounts for
these financial instruments (primarily premiums and other accounts receivable
and accrued investment income) approximate those assets' fair values.
Investment Contract Liabilities -- The fair value for deferred annuities was
estimated to be the amount payable on demand at the reporting date, as those
investment contracts have no defined maturity and are similar to a deposit
liability. The amount payable at the reporting date was calculated as the
account balance less applicable surrender charges.
The fair values for supplementary contracts without life contingencies and
immediate annuities were estimated using discounted cash flow analyses. The
discount rate was based upon treasury rates plus a pricing margin.
The carrying amounts reported for other investment contracts, which includes
retirement plan deposits, approximate those liabilities' fair value.
75
<PAGE>
Claim and Other Deposit Funds -- The carrying amount for claim and other
deposit funds approximates the liabilities' fair value.
Other Financial Instruments Reported as Liabilities -- The carrying amounts for
other financial instruments (primarily normal payables of a short-term nature)
approximate those liabilities' fair values.
Interest Rate Swaps -- The fair value for interest rate swaps was estimated
using discounted cash flow analyses. The discount rate was based upon rates
currently being offered for similar interest rate swaps available from similar
counterparties.
The carrying amounts and estimated fair values of the Company's financial
instruments as of December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1997 1996
------------------------- -------------------------
Carrying Fair Carrying Fair
(In Millions) Amount Value Amount Value
- ------------------------------------------------------- -------- ---- -------- ----
Financial Instruments Recorded as Assets
Fixed Maturity Securities $ 1,353.0 $ 1,353.0 $ 1,356.7 $ 1,356.7
Equity Securities 2.8 2.8 7.3 7.3
Mortgage Loans on Real Estate
Commercial 226.8 238.3 218.9 224.7
Residential and Other 60.6 61.9 57.4 58.7
Policy Loans 76.6 76.6 73.4 73.4
Cash and Short-Term Investments 4.2 4.2 4.0 4.0
Other Financial Instruments Recorded as Assets 43.4 43.4 38.9 38.9
Financial Instruments Recorded as Liabilities
Investment Contracts
Deferred Annuities (690.0) (671.7) (770.4) (748.6)
Supplementary Contracts and Immediate Annuities (30.0) (29.3) (2.9) (2.8)
Other Investment Contracts (10.4) (10.4) (12.3) (12.3)
Claim and Other Deposit Funds (6.5) (6.5) (1.1) (1.1)
Other Financial Instruments Recorded as Liabilities (16.1) (16.1) (15.5) (15.5)
Off-Balance-Sheet Financial Instruments
Interest Rate Swaps -- .7 -- 1.4
- ------------------------------------------------------- ----------- ---------- ----------- ----------
</TABLE>
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's holdings of a particular financial
instrument. Because no market exists for a significant portion of the Company's
financial instruments, fair value estimates are based on judgments regarding
future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on and off-balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant effect on
fair value estimates and have not been considered in the estimates.
76
<PAGE>
APPENDIX A
The Fixed Account
The Fixed Account consists of all of our assets other than those in our
separate accounts. We have complete ownership and control of all of the assets
of the Fixed Account.
Because of exemptions and exclusions contained in the Securities Act of
1933 and the Investment Company Act of 1940, the Fixed Account has not been
registered under these acts. Neither the Fixed Account nor any interest in it
is subject to the provisions of these acts and as a result the SEC has not
reviewed the disclosures in this Prospectus relating to the Fixed Account.
However, disclosures relating to the Fixed Account are subject to generally
applicable provisions of the federal securities laws relating to the accuracy
and completeness of statements made in prospectuses.
We guarantee both principal and interest on amounts credited to the Fixed
Account. We credit interest at an effective annual rate of at least 4%,
independent of the investment experience of the Fixed Account. From time to
time, we may guarantee interest at a rate higher than 4%.
ANY INTEREST CREDITED TO AMOUNTS ALLOCATED TO THE FIXED ACCOUNT IN EXCESS
OF 4% PER YEAR WILL BE DETERMINED AT OUR SOLE DISCRETION. YOU ASSUME THE RISK
THAT INTEREST CREDITED TO THE FIXED ACCOUNT MAY NOT EXCEED THE MINIMUM
GUARANTEE OF 4% FOR A GIVEN YEAR.
We do not use a specific formula for determining excess interest credits.
However, we consider the following:
o General economic trends,
o Rates of return currently available on our investments,
o Rates of return anticipated in our investments, regulatory and tax
factors, and
o Competitive factors.
We are not aware of any statutory limitations to the maximum amount of
interest we may credit and our Board of Directors has not set any limitations.
The Fixed Accumulation Value of the Policy is the sum of the Net Premiums
credited to it in the Fixed Account. It is increased by transfers and Loan
Amounts from the Variable Account, and interest credits. It is decreased by
Monthly Deductions and partial withdrawals taken from it in the Fixed Account
and transfers to the Variable Account. The Fixed Accumulation Value will be
calculated at least monthly on the monthly anniversary date.
You may transfer all or part of your Fixed Accumulation Value to the
Sub-Accounts of the Variable Account, subject to the following transfer
limitations:
o The request to transfer must be postmarked no more than 30 days before
the Policy Anniversary and no later than 30 days after the Policy
Anniversary. Only one transfer is allowed during this period.
o The Fixed Accumulation Value after the transfer must be at least equal
to the Loan Amount.
o No more than 50% of the Fixed Accumulation Value (minus any Loan Amount)
may be transferred unless the balance, after the transfer, would be less
than $1,000. If the balance would be less than $1,000, the full Fixed
Accumulation Value (minus any Loan Amount) may be transferred.
o You must transfer at least:
-- $500, or
-- the total Fixed Accumulation Value (minus any Loan Amount) if less
than $500.
We make the Monthly Deduction from your Fixed Accumulation Value in
proportion to the total Accumulation Value of the Policy.
The Surrender Charge described in the Prospectus applies to the total
Accumulation Value, which includes the Fixed Accumulation Value. If the Owner
surrenders the Policy for its Cash Surrender Value, the Fixed Accumulation
Value will be reduced by any applicable Surrender Charge, any Loan Amount and
unpaid Monthly Deductions applicable to the Fixed Account.
A-1
<PAGE>
APPENDIX B
Calculation of Accumulation Value
The Accumulation Value of the Policy is equal to the sum of the Variable
Accumulation Value plus the Fixed Accumulation Value.
Variable Accumulation Value
The Variable Accumulation Value is the total of your values in each
Sub-Account. The value for each Sub-Account is equal to:
1 multiplied by 2, where:
1
Is your current number of Accumulation Units (described below).
2
Is the current Unit Value (described below).
The Variable Accumulation Value will vary from Valuation Date to Valuation
Date (described below) reflecting changes in 1 and 2 above.
Accumulation Units. When transactions are made which affect the Variable
Accumulation Value, dollar amounts are converted to Accumulation Units. The
number of Accumulation Units for a transaction is found by dividing the dollar
amount of the transaction by the current Unit Value.
The number of Accumulation Units for a Sub-Account increases when:
o Net Premiums are credited to that Sub-Account; or
o Transfers from the Fixed Account or other Sub-Accounts are credited to
that Sub-Account.
The number of Accumulation Units for a Sub-Account decreases when:
o You take out a Policy loan from that Sub-Account;
o You take a partial withdrawal from that Sub-Account;
o We take a portion of the Monthly Deduction from that Sub-Account; or
o Transfers are made from that Sub-Account to the Fixed Account or other
Sub-Accounts.
Unit Value. The Unit Value for a Sub-Account on any Valuation Date is
equal to the previous Unit Value times the Net Investment Factor for that
Sub-Account (described below) for the Valuation Period (described below) ending
on that Valuation Date. The Unit Value was initially set at $10 when the
Sub-Account first purchased Fund shares.
Net Investment Factor. The Net Investment Factor is a number that reflects
charges to the Policy and the investment performance during a Valuation Period
of the Fund in which a Sub-Account is invested. If the Net Investment Factor is
greater than one, the Unit Value is increased. If the Net investment Factor is
less than one, the Unit Value is decreased. The Net Investment Factor for a
Sub-Account is determined by dividing 1 by 2.
(1/2), where:
1
Is the result of:
o The net asset value per share of the Fund shares in which the Sub-Account
invests, determined at the end of the current Valuation Period;
o Plus the per share amount of any dividend or capital gain distributions
made on the Fund shares in which the Sub-Account invests during the
current Valuation Period;
o Plus or minus a per share charge or credit for any taxes reserved which
we determine has resulted from the investment operations of the
Sub-Account and to be applicable to the Policy.
B-1
<PAGE>
2
Is the result of:
o 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;
o Plus or minus a per share charge or credit for any taxes reserved for
during the last prior Valuation Period which we determine resulted from
the investment operations of the Sub-Account and was applicable to the
Policy.
Valuation Date; Valuation Period. A Valuation Date is each day 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. A Valuation Period is the period
between two successive Valuation Dates, commencing at the close of business of
a Valuation Date and ending at the close of business on the next Valuation
Date.
Fixed Accumulation Value
The Fixed Accumulation Value on the Policy Date is your Net Premium
credited to the Fixed Account on that date minus the Monthly Deduction
applicable to the Fixed Accumulation Value for the first Policy Month.
After the Policy Date, the Fixed Accumulation Value is calculated as:
1 + 2 + 3 + 4 - 5 - 6, where:
1
Is the Fixed Accumulation Value on the preceding Monthly Anniversary, plus
interest from the Monthly Anniversary to the date of the calculation.
2
Is the total of your Net Premiums credited to the Fixed Account since the
preceding Monthly Anniversary, plus interest from the date premiums are
credited to the date of the calculation.
3
Is the total of your transfers from the Variable Account to the Fixed Account
since the preceding Monthly Anniversary, plus interest from the date of
transfer to the date of the calculation.
4
Is the total of your Loan Amount transferred from the Variable Account since
the preceding Monthly Anniversary.
5
Is the total of your transfers to the Variable Account from the Fixed Account
since the preceding Monthly Anniversary, plus interest from the date of
transfer to the date of the calculation.
6
Is the total of your partial withdrawals from the Fixed Account since the
preceding Monthly Anniversary, plus interest from the date of withdrawal to the
date of the calculation.
If the date of the calculation is a Monthly Anniversary, we also reduce
the Fixed Accumulation Value by the applicable Monthly Deduction for the Policy
Month following the Monthly Anniversary.
The minimum interest rate applied in the calculation of the Fixed
Accumulation Value is an effective annual rate of 4%. Interest in excess of the
minimum rate may be applied in the calculation of your Fixed Accumulation Value
in a manner which our Board of Directors determines.
B-2
<PAGE>
APPENDIX C
Illustration of Accumulation Values, Surrender Charges,
Cash Surrender Values, and Death Benefits
The following tables illustrate how the Accumulation Values, Cash
Surrender Values, and Death Benefits of a Policy may change with the investment
experience of the Variable Account. The tables show how the Accumulation
Values, Cash Surrender Values, and Death Benefits of a Policy issued to two
hypothetical Joint Insureds (who pay the given Planned Periodic Premiums
annually) would vary over time if the investment return of the assets held in
the Funds were a uniform, gross, after-tax, annual rate of 0 percent, 6 percent
or 12 percent.
The tables on pages C-3 through C-8 illustrate a Policy issued to a male
Joint Insured Age 55 and a female Joint Insured Age 55 both in a standard Rate
Class and qualifying for preferred non-smoker rates. The Accumulation Values,
Cash Surrender Values, and Death Benefits would be lower if either Joint
Insured were in a substandard Rate Class or did not qualify for the preferred
non-smoker rates because the cost of insurance would be increased. The
Accumulation Values, Cash Surrender Values and Death Benefits would be
different from those shown if the gross annual investment returns averaged 0
percent, 6 percent, and 12 percent over a period of years, but fluctuated above
and below those averages for individual Policy Years.
Within the tables, the second and fifth columns illustrate the
Accumulation Value of the Policy over the designated period. The Accumulation
Value is the total amount that a Policy provides for investment at any time.
The third and sixth columns illustrate the Cash Surrender Value of a Policy
over the designated period. The Cash Surrender Value is equal to the
Accumulation Value less any Surrender Charges, Loan Amount (assumed to be zero
in these illustrations) and unpaid Monthly Deductions (also assumed to be
zero). The fourth and seventh columns illustrate the Death Benefit of a Policy
over the designated period. The second, third, and fourth columns assume that
throughout the life of the Policy, the monthly charge for the cost of
insurance, the Monthly Mortality and Expense Charge and the Monthly
Administrative Charge are based upon the maximums (i.e., guaranteed) permitted
in the policy. The maximum allowable cost of insurance rates are based on the
frasierized 1980 Commissioners Standard Ordinary Mortality Tables for
Non-smokers and Smokers. The fifth, sixth, and seventh columns assume that the
monthly charge for cost of insurance, the Monthly Mortality and Expense Charge,
and the Monthly Administrative Charge are based on the current amounts expected
to be charged. The Death Benefits also vary between tables depending upon
whether the Level Amount Death Benefit Option (Tables at pages C-3 through C-5)
or the Variable Amount Death Benefit Option (Tables at pages C-6 through C-8)
is illustrated.
The amounts shown for the Accumulation Values, Cash Surrender Values, and
Death Benefits reflect the fact that the net investment return of the
Sub-Accounts of the Variable Account is lower than the gross, after-tax return
on the assets held in the Funds as a result of the Funds' operating expenses.
The values shown take into account the daily total operating expenses paid by
the three portfolios of The Alger American Fund, the four portfolios of Fidelity
VIP Fund, the three portfolios of Fidelity VIP Fund II, the four portfolios of
Janus Aspen Series, the two portfolios of Neuberger&Berman Advisers Management
Trust, the five portfolios of the Northstar Variable Trust, the four portfolios
of the OCC Accumulation Trust, and the three portfolios of Putnam Variable
Trust, which together are assumed to be at an average annual rate of 0.76% for
all years. This figure is derived based on a simple average of the Funds' 1997
operating expenses net of any limitations on such expenses paid by the Funds.
Thus, the illustrated gross annual investment rates of return of 0 percent, 6
percent, and 12 percent correspond to approximate net annual rates of return of
- -0.76%, 5.24%, and 11.24%, respectively. Without such expense reimbursements,
total expenses would be 0.88%. Hypothetical Accumulation Values, Cash Surrender
Values and the Death Benefits may be lower without the expense reimbursement.
Expense reimbursements are voluntary. While it is currently anticipated that
expense reimbursements will continue past the current year, there is no
assurance of ongoing reimbursements.
The hypothetical values shown in the tables do not reflect any charges for
Federal income taxes attributable to the Variable Account because we do not
currently make any such charges. However, such charges may be made in the
future and, in that event, the gross annual investment return would have to
exceed 0 percent, 6 percent, or 12 percent by an amount sufficient to cover the
tax charges in order to produce the Accumulation Values, Cash Surrender Values,
and Death Benefits illustrated. (See section entitled "Federal Tax Matters" in
the prospectus).
C-1
<PAGE>
The tables illustrate the Policy values that would result based upon the
hypothetical rates of return if premiums are paid as indicated, if all Net
Premiums are allocated to the Variable Account, and if no Policy loans have
been made. The tables are also based on the assumptions that the Policy owner
has not requested an increase or decrease in the Face Amount, that no partial
withdrawals have been made, that no transfers have been made, and total
operating expenses of the Funds continue as anticipated. Actual results will
depend on the expenses and performance of the investment choice made by the
owner.
Upon request, we will provide a comparable illustration based upon each
proposed Joint Insureds' Age, sex, underwriting classification, the Face Amount
and Planned Periodic Premium schedule requested, and any available riders
requested.
C-2
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY
SURVIVORSHIP FLEXIBLE PREMIUM VARIABLE LIFE
1 FEMALE AND 1 MALE JOINT INSURED
BOTH PREFERRED NON-TOBACCO RATE CLASS
BOTH ISSUE AGE: 55
$11,140.00 ANNUAL PREMIUM
$1,000,000 FACE AMOUNT
LEVEL DEATH BENEFIT OPTION
ASSUMED HYPOTHETICAL GROSS ANNUAL
INVESTMENT RATE OF RETURN: 0%
<TABLE>
<CAPTION>
Guaranteed Costs Current Costs
----------------------------------------------- ------------------------------------------------
Accumulation Cash Surrender Death Accumulation Cash Surrender Death
Policy Value Value Benefit Value Value Benefit
Year (1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
- --------- -------------- ---------------- ----------- -------------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
1 8,823 323 1,000,000 8,883 383 1,000,000
2 17,354 8,854 1,000,000 17,613 9,113 1,000,000
3 25,577 17,077 1,000,000 26,190 17,690 1,000,000
4 33,469 24,969 1,000,000 34,612 26,112 1,000,000
5 41,005 32,505 1,000,000 42,876 34,376 1,000,000
6 48,150 40,500 1,000,000 50,974 43,324 1,000,000
7 54,859 48,059 1,000,000 58,900 52,100 1,000,000
8 61,070 55,120 1,000,000 66,644 60,694 1,000,000
9 66,702 61,602 1,000,000 74,194 69,094 1,000,000
10 71,663 67,413 1,000,000 81,531 77,281 1,000,000
11 76,365 72,965 1,000,000 89,484 86,084 1,000,000
12 80,211 77,661 1,000,000 97,196 94,646 1,000,000
13 83,088 81,388 1,000,000 104,634 102,934 1,000,000
14 84,850 84,000 1,000,000 111,728 110,878 1,000,000
15 85,324 85,324 1,000,000 118,433 118,433 1,000,000
20 56,564 56,564 1,000,000 141,613 141,613 1,000,000
AGE
80 0 0 0 132,893 132,893 1,000,000
85** 0 0 0 23,271 23,271 1,000,000
</TABLE>
(1) Assumes a $11,140.00 premium (which exceeds the annualized minimum monthly
premium) is paid at the beginning of each Policy Year. Values will be
different if premiums are paid with a different frequency or in different
amounts.
(2) Assumes that no Policy loans or partial withdrawals have been made.
Excessive loans or withdrawals may cause the Policy to lapse because of
insufficient Cash Surrender Value.
** Policy terminates prior to age 90.
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYHOLDER, AND THE
DIFFERENT INVESTMENT RETURNS FOR THE FUNDS. THE ACCUMULATION VALUE, CASH
SURRENDER VALUE, AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN ABOVE IF THE ACTUAL INVESTMENT RESULTS APPLICABLE TO THE POLICY AVERAGE
0% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY US OR BY THE FUNDS
THAT THESE HYPOTHETICAL RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR, OR SUSTAINED
OVER ANY PERIOD OF TIME.
C-3
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY
SURVIVORSHIP FLEXIBLE PREMIUM VARIABLE LIFE
1 FEMALE AND 1 MALE JOINT INSURED
BOTH PREFERRED NON-TOBACCO RATE CLASS
BOTH ISSUE AGE: 55
$11,140.00 ANNUAL PREMIUM
$1,000,000 FACE AMOUNT
LEVEL DEATH BENEFIT OPTION
ASSUMED HYPOTHETICAL GROSS ANNUAL
INVESTMENT RATE OF RETURN: 6%
<TABLE>
<CAPTION>
Guaranteed Costs Current Costs
----------------------------------------------- ----------------------------------------------
Accumulation Cash Surrender Death Accumulation Cash Surrender Death
Policy Value Value Benefit Value Value Benefit
Year (1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
- --------- -------------- ---------------- ----------- -------------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C>
1 9,403 903 1,000,000 9,466 966 1,000,000
2 19,057 10,557 1,000,000 19,332 10,832 1,000,000
3 28,948 20,448 1,000,000 29,612 21,112 1,000,000
4 39,058 30,558 1,000,000 40,320 31,820 1,000,000
5 49,364 40,864 1,000,000 51,468 42,968 1,000,000
6 59,833 52,183 1,000,000 63,064 55,414 1,000,000
7 70,419 63,619 1,000,000 75,119 68,319 1,000,000
8 81,058 75,108 1,000,000 87,639 81,689 1,000,000
9 91,667 86,567 1,000,000 100,630 95,530 1,000,000
10 102,148 97,898 1,000,000 114,092 109,842 1,000,000
11 113,141 109,741 1,000,000 129,146 125,746 1,000,000
12 123,885 121,335 1,000,000 144,791 142,241 1,000,000
13 134,262 132,562 1,000,000 161,029 159,329 1,000,000
14 144,122 143,272 1,000,000 177,824 176,974 1,000,000
15 153,281 153,281 1,000,000 195,164 195,164 1,000,000
20 176,519 176,519 1,000,000 287,094 287,094 1,000,000
AGE
80 113,055 113,055 1,000,000 381,549 381,549 1,000,000
85 0 0 0 436,521 436,521 1,000,000
90** 0 0 0 381,319 381,319 1,000,000
</TABLE>
(1) Assumes a $11,140.00 premium (which exceeds the annualized minimum monthly
premium) is paid at the beginning of each Policy Year. Values will be
different if premiums are paid with a different frequency or in different
amounts.
(2) Assumes that no Policy loans or partial withdrawals have been made.
Excessive loans or withdrawals may cause the Policy to lapse because of
insufficient Cash Surrender Value.
** Policy terminates prior to age 95.
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYHOLDER, AND THE
DIFFERENT INVESTMENT RETURNS FOR THE FUNDS. THE ACCUMULATION VALUE, CASH
SURRENDER VALUE, AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN ABOVE IF THE ACTUAL INVESTMENT RESULTS APPLICABLE TO THE POLICY AVERAGE
6% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY US OR BY THE FUNDS
THAT THESE HYPOTHETICAL RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR, OR SUSTAINED
OVER ANY PERIOD OF TIME.
C-4
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY
SURVIVORSHIP FLEXIBLE PREMIUM VARIABLE LIFE
1 FEMALE AND 1 MALE JOINT INSURED
BOTH PREFERRED NON-TOBACCO RATE CLASS
BOTH ISSUE AGE: 55
$11,140.00 ANNUAL PREMIUM
$1,000,000 FACE AMOUNT
LEVEL DEATH BENEFIT OPTION
ASSUMED HYPOTHETICAL GROSS ANNUAL
INVESTMENT RATE OF RETURN: 12%
<TABLE>
<CAPTION>
Guaranteed Costs Current Costs
----------------------------------------------- ----------------------------------------------
Accumulation Cash Surrender Death Accumulation Cash Surrender Death
Policy Value Value Benefit Value Value Benefit
Year (1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
- --------- -------------- ---------------- ----------- -------------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C>
1 9,984 1,484 1,000,000 10,049 1,549 1,000,000
2 20,830 12,330 1,000,000 21,122 12,622 1,000,000
3 32,600 24,100 1,000,000 33,318 24,818 1,000,000
4 45,358 36,858 1,000,000 46,749 38,249 1,000,000
5 59,169 50,669 1,000,000 61,534 53,034 1,000,000
6 74,098 66,448 1,000,000 77,803 70,153 1,000,000
7 90,209 83,409 1,000,000 95,696 88,896 1,000,000
8 107,554 101,604 1,000,000 115,369 109,419 1,000,000
9 126,176 121,076 1,000,000 136,990 131,890 1,000,000
10 146,120 141,870 1,000,000 160,741 156,491 1,000,000
11 168,542 165,142 1,000,000 188,343 184,943 1,000,000
12 192,663 190,113 1,000,000 218,827 216,277 1,000,000
13 218,601 216,901 1,000,000 252,487 250,787 1,000,000
14 246,473 245,623 1,000,000 289,625 288,775 1,000,000
15 276,412 276,412 1,000,000 330,604 330,604 1,000,000
20 461,317 461,317 1,000,000 608,087 608,087 1,000,000
AGE
80 744,604 744,604 1,000,000 1,082,988 1,082,988 1,137,137
85 1,257,272 1,257,272 1,320,136 1,879,214 1,879,214 1,973,176
90 2,081,219 2,081,219 2,185,281 3,176,811 3,176,811 3,335,652
95 3,413,527 3,413,527 3,447,662 5,326,613 5,326,613 5,379,879
100 5,721,317 5,721,317 5,721,318 9,023,427 9,023,427 9,023,427
</TABLE>
(1) Assumes a $11,140.00 premium (which exceeds the annualized minimum monthly
premium) is paid at the beginning of each Policy Year. Values will be
different if premiums are paid with a different frequency or in different
amounts.
(2) Assumes that no Policy loans or partial withdrawals have been made.
Excessive loans or withdrawals may cause the Policy to lapse because of
insufficient Cash Surrender Value.
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYHOLDER, AND THE
DIFFERENT INVESTMENT RETURNS FOR THE FUNDS. THE ACCUMULATION VALUE, CASH
SURRENDER VALUE, AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN ABOVE IF THE ACTUAL INVESTMENT RESULTS APPLICABLE TO THE POLICY AVERAGE
12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY US OR BY THE FUNDS
THAT THESE HYPOTHETICAL RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR, OR SUSTAINED
OVER ANY PERIOD OF TIME.
C-5
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY
SURVIVORSHIP FLEXIBLE PREMIUM VARIABLE LIFE
1 FEMALE AND 1 MALE JOINT INSURED
BOTH PREFERRED NON-TOBACCO RATE CLASS
BOTH ISSUE AGE: 55
$11,140.00 ANNUAL PREMIUM
$1,000,000 FACE AMOUNT
VARIABLE DEATH BENEFIT OPTION
ASSUMED HYPOTHETICAL GROSS ANNUAL
INVESTMENT RATE OF RETURN: 0%
<TABLE>
<CAPTION>
Guaranteed Costs Current Costs
----------------------------------------------- ----------------------------------------------
Accumulation Cash Surrender Death Accumulation Cash Surrender Death
Policy Value Value Benefit Value Value Benefit
Year (1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
- --------- -------------- ---------------- ----------- -------------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C>
1 8,822 322 1,008,823 8,882 382 1,008,883
2 17,351 8,851 1,017,351 17,612 9,112 1,017,612
3 25,565 17,065 1,025,565 26,187 17,687 1,026,188
4 33,440 24,940 1,033,440 34,607 26,107 1,034,607
5 40,946 32,446 1,040,946 42,866 34,366 1,042,866
6 48,044 40,394 1,048,044 50,958 43,308 1,050,959
7 54,682 47,882 1,054,682 58,875 52,075 1,058,876
8 60,789 54,839 1,060,789 66,604 60,654 1,066,605
9 66,274 61,174 1,066,274 74,133 69,033 1,074,134
10 71,034 66,784 1,071,035 81,439 77,189 1,081,440
11 75,461 72,061 1,075,462 89,346 85,946 1,089,347
12 78,945 76,395 1,078,946 96,989 94,439 1,096,990
13 81,362 79,662 1,081,362 104,330 102,630 1,104,330
14 82,550 81,700 1,082,550 111,287 110,437 1,111,287
15 82,321 82,321 1,082,322 117,802 117,802 1,117,803
20 47,960 47,960 1,047,961 138,371 138,371 1,138,372
AGE
80** 0 0 0 120,423 120,423 1,120,423
</TABLE>
(1) Assumes a $11,140.00 premium (which exceeds the annualized minimum monthly
premium) is paid at the beginning of each Policy Year. Values will be
different if premiums are paid with a different frequency or in different
amounts.
(2) Assumes that no Policy loans or partial withdrawals have been made.
Excessive loans or withdrawals may cause the Policy to lapse because of
insufficient Cash Surrender Value.
** Policy terminates prior to age 85.
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYHOLDER, AND THE
DIFFERENT INVESTMENT RETURNS FOR THE FUNDS. THE ACCUMULATION VALUE, CASH
SURRENDER VALUE, AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN ABOVE IF THE ACTUAL INVESTMENT RESULTS APPLICABLE TO THE POLICY AVERAGE
0% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY US OR BY THE FUNDS
THAT THESE HYPOTHETICAL RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR, OR SUSTAINED
OVER ANY PERIOD OF TIME.
C-6
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY
SURVIVORSHIP FLEXIBLE PREMIUM VARIABLE LIFE
1 FEMALE AND 1 MALE JOINT INSURED
BOTH PREFERRED NON-TOBACCO RATE CLASS
BOTH ISSUE AGE: 55
$11,140.00 ANNUAL PREMIUM
$1,000,000 FACE AMOUNT
VARIABLE DEATH BENEFIT OPTION
ASSUMED HYPOTHETICAL GROSS ANNUAL
INVESTMENT RATE OF RETURN: 6%
<TABLE>
<CAPTION>
Guaranteed Costs Current Costs
----------------------------------------------- ------------------------------------------------
Accumulation Cash Surrender Death Accumulation Cash Surrender Death
Policy Value Value Benefit Value Value Benefit
Year (1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
- --------- -------------- ---------------- ----------- -------------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
1 9,402 902 1,009,403 9,465 965 1,009,466
2 19,053 10,553 1,019,054 19,330 10,830 1,019,331
3 28,934 20,434 1,028,935 29,609 21,109 1,029,609
4 39,024 30,524 1,039,025 40,314 31,814 1,040,314
5 49,292 40,792 1,049,293 51,456 42,956 1,051,456
6 59,698 52,048 1,059,699 63,044 55,394 1,063,045
7 70,185 63,385 1,070,186 75,086 68,286 1,075,086
8 80,674 74,724 1,080,675 87,585 81,635 1,087,585
9 91,061 85,961 1,091,061 100,545 95,445 1,100,545
10 101,221 96,971 1,101,222 113,958 109,708 1,113,959
11 111,756 108,356 1,111,756 128,936 125,536 1,128,937
12 121,867 119,317 1,121,867 144,468 141,918 1,144,469
13 131,392 129,692 1,131,392 160,538 158,838 1,160,538
14 140,123 139,273 1,140,124 177,085 176,235 1,177,086
15 147,814 147,814 1,147,814 194,070 194,070 1,194,071
20 155,133 155,133 1,155,133 280,295 280,295 1,280,296
AGE
80 53,921 53,921 1,053,922 347,796 347,796 1,347,796
85 0 0 0 311,183 311,183 1,311,184
90** 0 0 0 43,628 43,628 1,043,629
</TABLE>
(1) Assumes a $11,140.00 premium (which exceeds the annualized minimum monthly
premium) is paid at the beginning of each Policy Year. Values will be
different if premiums are paid with a different frequency or in different
amounts.
(2) Assumes that no Policy loans or partial withdrawals have been made.
Excessive loans or withdrawals may cause the Policy to lapse because of
insufficient Cash Surrender Value.
** Policy terminates prior to age 95.
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYHOLDER, AND THE
DIFFERENT INVESTMENT RETURNS FOR THE FUNDS. THE ACCUMULATION VALUE, CASH
SURRENDER VALUE, AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN ABOVE IF THE ACTUAL INVESTMENT RESULTS APPLICABLE TO THE POLICY AVERAGE
6% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY US OR BY THE FUNDS
THAT THESE HYPOTHETICAL RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR, OR SUSTAINED
OVER ANY PERIOD OF TIME.
C-7
<PAGE>
RELIASTAR LIFE INSURANCE COMPANY
SURVIVORSHIP FLEXIBLE PREMIUM VARIABLE LIFE
1 FEMALE AND 1 MALE JOINT INSURED
BOTH PREFERRED NON-TOBACCO RATE CLASS
BOTH ISSUE AGE: 55
$11,140.00 ANNUAL PREMIUM
$1,000,000 FACE AMOUNT
VARIABLE DEATH BENEFIT OPTION
ASSUMED HYPOTHETICAL GROSS ANNUAL
INVESTMENT RATE OF RETURN: 12%
<TABLE>
<CAPTION>
Guaranteed Costs Current Costs
----------------------------------------------- ----------------------------------------------
Accumulation Cash Surrender Death Accumulation Cash Surrender Death
Policy Value Value Benefit Value Value Benefit
Year (1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
- --------- -------------- ---------------- ----------- -------------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C>
1 9,983 1,483 1,009,984 10,049 1,549 1,010,049
2 20,826 12,326 1,020,827 21,120 12,620 1,021,121
3 32,585 24,085 1,032,585 33,314 24,814 1,033,315
4 45,317 36,817 1,045,318 46,741 38,241 1,046,742
5 59,081 50,581 1,059,082 61,519 53,019 1,061,520
6 73,928 66,278 1,073,929 77,777 70,127 1,077,777
7 89,903 83,103 1,089,903 95,652 88,852 1,095,653
8 107,031 101,081 1,107,031 115,295 109,345 1,115,296
9 125,318 120,218 1,125,318 136,870 131,770 1,136,870
10 144,756 140,506 1,144,757 160,545 156,295 1,160,545
11 166,419 163,019 1,166,419 188,026 184,626 1,188,027
12 189,438 186,888 1,189,439 218,319 215,769 1,218,319
13 213,812 212,112 1,213,812 251,685 249,985 1,251,686
14 239,497 238,647 1,239,497 288,373 287,523 1,288,373
15 266,415 266,415 1,266,415 328,678 328,678 1,328,679
20 409,650 409,650 1,409,650 593,330 593,330 1,593,331
AGE
80 520,863 520,863 1,520,863 990,338 990,338 1,990,339
85 445,385 445,385 1,445,385 1,517,710 1,517,710 2,517,711
90 0 0 0 2,151,525 2,151,525 3,151,525
95 0 0 0 2,865,147 2,865,147 3,865,147
100 0 0 0 3,632,643 3,632,643 4,632,643
</TABLE>
(1) Assumes a $11,140.00 premium (which exceeds the annualized minimum monthly
premium) is paid at the beginning of each Policy Year. Values will be
different if premiums are paid with a different frequency or in different
amounts.
(2) Assumes that no Policy loans or partial withdrawals have been made.
Excessive loans or withdrawals may cause the Policy to lapse because of
insufficient Cash Surrender Value.
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYHOLDER, AND THE
DIFFERENT INVESTMENT RETURNS FOR THE FUNDS. THE ACCUMULATION VALUE, CASH
SURRENDER VALUE, AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN ABOVE IF THE ACTUAL INVESTMENT RESULTS APPLICABLE TO THE POLICY AVERAGE
12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY US OR BY THE FUNDS
THAT THESE HYPOTHETICAL RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR, OR SUSTAINED
OVER ANY PERIOD OF TIME.
C-8
<PAGE>
APPENDIX D
Monthly Amount Charge
Per $1,000 of Face Amount
<TABLE>
<CAPTION>
Average Age of Monthly Amount Charge Average Age of Monthly Amount Charge Per
Joint Insureds Per $1,000 of Face Amount Joint Insureds $1,000 of Face Amount
- ---------------- --------------------------- ---------------- --------------------------
<S> <C> <C> <C>
0-26 $ 0.045 56 0.134
27 0.046 57 0.143
28 0.046 58 0.153
29 0.047 59 0.162
30 0.048 60 0.172
31 0.049 61 0.183
32 0.050 62 0.193
33 0.051 63 0.204
34 0.053 64 0.214
35 0.055 65 0.225
36 0.057 66 0.238
37 0.059 67 0.253
38 0.061 68 0.271
39 0.063 69 0.292
40 0.065 70 0.316
41 0.067 71 0.345
42 0.069 72 0.379
43 0.071 73 0.418
44 0.073 74 0.465
45 0.075 75 0.520
46 0.077 76 0.579
47 0.080 77 0.642
48 0.083 78 0.710
49 0.087 79 0.781
50 0.092 80 0.855
51 0.097 81 0.934
52 0.102 82 1.014
53 0.109 83 1.098
54 0.116 84 1.183
55 0.125 85 1.270
</TABLE>
D-1
<PAGE>
UNDERTAKINGS TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities and
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
Insofar as indemnification for liability arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
"REASONABLENESS" REPRESENTATION PURSUANT TO 26(e)(2)(A)
OF THE INVESTMENT COMPANY ACT OF 1940
Depositor represents that the fees and charges deducted under the flexible
premium variable life insurance policy, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and
the risks assumed by ReliaStar Life Insurance Company of New York.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Registrant has duly
caused this Pre-Effective Amendment No. 1 to this Registration Statement to be
signed on its behalf, in the City of Minneapolis, and State of Minnesota, on
this day of May, 1998.
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
VARIABLE LIFE SEPARATE ACCOUNT I
(Registrant)
By: RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(Depositor)
By:
------------------------------------------
Robert C. Salipante
Chief Executive Officer and President
As required by the Securities Act of 1933, Depositor has caused this
Pre-Effective Amendment No. 1 to this Registration Statement to be signed on
its behalf, in the City of Minneapolis and State of Minnesota, on this day
of May, 1998.
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(Depositor)
By:
------------------------------------------
Robert C. Salipante
Chief Executive Officer and President
As required by the Securities Act of 1933, this Pre-Effective Amendment No. 1
to this Registration Statement has been signed on this day of May, 1998 by
the following directors and officers of Depositor in the capacities indicated:
<TABLE>
<CAPTION>
<S> <C>
Chief Executive Officer and President
- -------------------------------------
Robert C. Salipante
Vice President (Chief Financial Officer)
- -------------------------------------
James R. Miller
</TABLE>
Stephen A. Carb* Wayne R. Huneke* Robert C. Salipante*
R. Michael Conley* Ronald D. Jarvis* John G. Turner*
Richard R. Crowl* Kenneth U. Kuk* Charles B. Updike*
John H. Flittie* Richard E. Nolan* Ross M. Weale*
James T. Hale* Fioravante G. Perrotta*
*A majority of the Board of Directors
*Jeffrey A. Proulx, by signing his name hereto, does hereby sign this document
on behalf of each of the above-named directors of ReliaStar Life Insurance
Company of New York pursuant to powers of attorney duly executed by such
persons.
------------------------------------------
Jeffrey A. Proulx, Attorney-In-Fact
<PAGE>
PART II
Contents of Registration Statement
This Registration Statement comprises the following papers and documents:
The Facing Sheet
The general form of Prospectus, consisting of 87 pages.
Undertaking to file reports.
Rule 484 Undertaking.
"Reasonableness" representation pursuant to Section 26(e)(2)(A) of the
Investment Company Act of 1940.
The signatures.
Written consents of the following persons:
1. Jeffrey A. Proulx -- Filed as part of Ex-99.2
2. Steve P. West, FSA, MAAA -- Filed as Ex-99.C.6
3.(a) Independent Auditor's Consent of Deloitte & Touche, LLP -- Filed as
Ex-99.C.1
The following exhibits:
1. The following exhibits correspond to those required by Paragraph A of the
instructions as to exhibits in Form N-8B-2:
<TABLE>
<CAPTION>
<S> <C> <C>
(1) (a) Resolution of Board of Directors of ReliaStar Life Insurance Company of New York ("RLICNY")
establishing the RLICNY Variable Life Separate Account I.(1)
(b) Resolution of Board of Directors of RLICNY changing the name of RLICNY changing the name of
RLICNY Separate Account I.(4)
(2) Not applicable.
(3) (a) Form of General Distributor Agreement between Washington Square Securities Inc. and RLICNY.(2)
(b) Specimens of WSSI Selling Agreements.(2)
(4) Not applicable.
(5) Form of Policy available (together with available Policy riders).(4)
(6) (a) Amended Charter of RLICNY.(4)
(b) Amended Bylaws of RLICNY.(4)
(7) Not applicable.
(8) (a) Participation Agreement with Fidelity's Variable Insurance Products Fund and Fidelity Distributors
Corporation and Form of Amendment No. 1.(1)
(b) Form of Amendment Nos. 2 and 3 to Participation Agreement with Fidelity's Variable Insurance
Products Fund and Fidelity Distributors Corporation.(4)
(c) Participation Agreement with Fidelity's Variable Insurance Products Fund II and Fidelity Distributors
Corporation and Form of Amendment No. 1.(1)
(d) Form of Amendment Nos. 2 and 3 to Participation Agreement with Fidelity's Variable Insurance
Products Fund II and Fidelity Distributors Corporation.(4)
(e) Form of Service Contract with Fidelity Distributors Corporation.(2)
(f) Form of Service Agreement with Fidelity Investments Institutional Operations Company, Inc.(2)
(g) Form of Participation Agreement with Putnam Variable Trust (formerly known as Putnam Capital
Manager Trust) and Putnam Mutual Funds Corp.(2)
(h) Form of Amendment No. 1 to Participation Agreement with Putnam Variable Trust and Putnam
Mutual Funds Corp.(4)
(i) Form of Management Services Agreement with ReliaStar Life Insurance Company.(1)
(j) Form of Participation Agreement by and between RLICNY and Fred Alger Management, Inc.(3)
(k) Form of Participation Agreement by and between RLICNY and Janus Aspen Series.(3)
(l) Form of Participation Agreement by and between RLICNY, Neuberger&Berman Advisers
Management Trust, Advisers Managers Trust and NBMI.(3)
(m) Form of Participation Agreement by and between RLICNY and OpCap Advisors.(3)
(n) Form of Service Agreement by and RLICNY and Fred Alger Management, Inc.(3)
(o) Form of Service Agreement by and between RLICNY and Janus Capital Corporation.(3)
(p) Form of Service Agreement by and between RLICNY and Neuberger&Berman Management
Incorporated ("NBMI").(3)
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(q) Form of Service Agreement by and between RLICNY and OpCap Advisors.(3)
(9) Not applicable.
(10) Policy application.(4)
</TABLE>
2. Opinion and consent of Jeffrey A. Proulx, Esquire, as to the legality of the
Securities being registered. Filed as part of EX-99.2.
3. Not applicable.
4. Not applicable.
<TABLE>
<CAPTION>
<S> <C>
EX-99.C1. Auditors' Consent.
EX-99.C2. Not applicable.
EX-99.C3. Not applicable.
EX-99.C4. See EX-99.2.
EX-99.C5. Not applicable.
EX-99.C6. Actuarial Opinion and Consent.
EX-99.D1. Memorandum describing RLICNY's issuance, transfer and redemption procedures for the Policies
and RLICNY's procedure for conversion to a fixed benefit policy.(4)
EX-24. Powers of Attorney.
Stephen A. Carb(4)
R. Michael Conley(4)
Richard R. Crowl(4)
John H. Flittie(4)
James T. Hale(4)
Wayne R. Huneke(4)
Ronald D. Jarvis(4)
Kenneth U. Kuk(4)
Richard E. Nolan(4)
Fioravante G. Perrotta(4)
Robert C. Salipante(4)
John G. Turner(4)
Charles B. Updike(4)
Ross M. Weale(4)
</TABLE>
- ----------
(1) Incorporated by reference to Registrant's Form S-6 Registration Statement,
File No. 333-19123, filed December 31, 1996.
(2) Incorporated by reference to Registrant's Form S-6 Registration Statement,
File No. 333-19123, filed May 9, 1997.
(3) Incorporated by reference to Registrant's Form S-6 Registration Statement,
File No. 333-19123, filed August 1, 1997.
(4) Incorporated by reference to Registrant's Form S-6 Registration Statement,
File No. 333-47527, filed March 6, 1998.
II-2
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ------------- ----------------------------------------------------------------------------------------------
<S> <C>
Ex-99.2. Opinion and consent of Jeffrey A. Proulx, Esquire, as to the legality of the Securities being
registered.
Ex-99.C1. Auditor's Consent
Ex-99.C6. Actuarial Opinion and Consent
</TABLE>
EX-99.C6
May 11, 1998
ReliaStar Life Insurance Company of New York
1000 Woodbury Lane, Suite 102
Woodbury, NY 11797
Madam/Sir:
This opinion is furnished in connection with the registration by ReliaStar Life
Insurance Company of New York of a flexible premium survivorship variable life
insurance policy (the "Contract") under the Securities Act of 1933, as amended.
The Contract, including variations thereof used in various states, is described
in the Prospectus constituting a part of the Registration Statement on Form S-6,
as amended through and including Pre-Effective Amendment No. 1 thereto, File No.
333-47527.
The form of Contract was reviewed by me, and I am familiar with the Registration
Statement and Exhibits thereto.
In my opinion:
The illustrations of Accumulation Values, Surrender Charges, Cash
Surrender Values, and Death Benefits, included in the section entitled,
"Illustration of Accumulation Values, Surrender Charges, Cash Surrender
Values, and Death Benefits" in Appendix C of the Prospectus
constituting part of the Registration Statement, based on the
assumptions stated in the illustrations, are consistent with the
provisions of the Contract (including, as appropriate, any state
variation thereof). The rate structure of the Contract has not been
designed so as to make the relationship between premiums and benefits,
as shown in the illustrations, appear more favorable to a prospective
purchaser of a Contract for a male Joint Insured Age 55 and a female
Joint Insured Age 55, both nonsmokers in a standard Rate Class, than to
prospective purchasers of the Contract for other ages, sexes, or Rate
Classes. In any state where charges cannot be based upon the insured's
sex, the rate structure of the Contract has not been designed so as to
make the relationship between premium and benefits, as shown in the
illustrations, appear more favorable to a prospective purchaser of the
Contract for Joint Insureds who are both Age 55 than to prospective
purchasers of the Contract for other ages.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to my name under the heading "Experts" in the
Prospectus constituting a part of the Registration Statement.
Sincerely,
- ---------------------------
Steve West, FSA, MAAA
Actuary
<PAGE>
May 14, 1998
May 14, 1998
ReliaStar Life Insurance Company of New York
1000 Woodbury Lane, Suite 102
Woodbury, NY 11797
Sir/Madam:
In connection with the proposed registration under the Securities Act of 1933,
as amended, of (the "Contracts") and interests in ReliaStar Life Insurance
Company of New York flexible premium survivorship variable life insurance
policies (the "Separate Account"), I have examined documents relating to the
establishment of the Separate Account by the Board of Directors of ReliaStar
Life Insurance Company of New York (the "Company") as a separate account for
assets applicable to variable life contracts, pursuant to New York Insurance
Code Section 4240, as amended, and the Registration Statement, on Form S-6, as
amended to Pre-Effective Amendment No. 1 thereto, File No. 333-47527 (the
"Registration Statement"), and I have examined such other documents and have
reviewed such matters of law as I deemed necessary for this opinion, and I
advise you that in my opinion:
1. The Separate Account is a separate account of the Company duly
created and validly existing pursuant to the laws of the State
of New York.
2. The contracts, when issued in accordance with the Prospectus
constituting a part of the Registration Statement and upon
compliance with applicable local law, will be legal and
binding obligations of the Company in accordance with their
respective terms.
3. The portion of the assets held in the Separate Account equal
to reserves and other contract liabilities with respect to the
Separate Account are not chargeable with liabilities arising
out of any other business the Company may conduct.
I consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of my name under the heading "Legal Matters" in the
Prospectus constituting a part of the Registration Statement and to the
reference to me wherever appearing therein.
Sincerely yours,
Jeffrey A. Proulx
Associate Counsel
INDEPENDENT AUDITORS' CONSENT
Board of Directors and Policyowners
ReliaStar Life Insurance Company of New York
Variable Life Separate Account I
We consent to the use in the Pre-Effective Amendment No. 1 to Registration
Statement on Form S-6 (File No. 333-47527) of ReliaStar Life Insurance Company
of New York Variable Life Separate Account I filed under the Securities Act of
1933 of our report dated February 20, 1998 on the audit of the financial
statements of ReliaStar Life Insurance Company of New York Variable Life
Separate Account I as of December 31, 1997 and for the period from August 8,
1997 (date of inception) to December 31, 1997, and our report dated March 26,
1998 on the audit of the financial statements of ReliaStar Life Insurance
Company of New York as of and for the years ended December 31, 1997 and 1996
appearing in the Prospectus, which is a part of such Registration Statement, and
to the reference to us under the heading "Experts" in such Prospectus.
Minneapolis, Minnesota
May 11, 1998
<PAGE>
